Q3 2021 Results Release

FOR IMMEDIATE RELEASE

TSX: WEF

Western Announces Third Quarter 2021 Results

Adjusted EBITDA of $66.3 million on Revenue of $352.9 million

November 3, 2021 - Vancouver, British Columbia - Western Forest Products Inc. (TSX: WEF) ("Western" or the "Company") reported adjusted EBITDA of $66.3 million in the third quarter of 2021. Western leveraged its flexible manufacturing platform to capitalize on improving specialty lumber markets and partially offset the impacts of North American commodity lumber price declines, difficult log harvest conditions and temporary logistics delays.

Net income in the third quarter of 2021 was $42.2 million ($0.12 per diluted share), as compared to net income of $11.5 million ($0.03 per diluted share) for the third quarter of 2020 and net income of $78.3 million ($0.21 per diluted share) in the second quarter of 2021.

Third Quarter Highlights:

• Delivered record third quarter adjusted EBITDA of $66.3 million and net income of $42.2 million
• Realized average lumber price of $1,553 per thousand board feet, despite a significant decline in commodity lumber prices
• Successfully transitioned to a sustainability-linked credit facility and extended the maturity to 2025
• Completed the sale of the Somass sawmill assets for $5.3 million
• Returned $33.8 million to shareholders via dividends and share repurchases
• Grew liquidity to $384.4 million to support growth strategy and balanced capital allocation

Western's third quarter adjusted EBITDA was $66.3 million, as compared to adjusted EBITDA of $33.7 million in the third quarter of 2020 and $120.4 million reported in the second quarter of 2021. Operating income prior to restructuring and other items was $53.5 million, compared to income of $19.0 million in the third quarter of 2020, and $105.7 million of income reported in the second quarter of 2021.

(millions of Canadian dollars except per share amounts		Q3			Q3			Q2				YTD			YTD
and where otherwise noted)		2021			2020			2021				2021			2020
Revenue
$	352.9	$	290.6	$	414.4		$1,089.8	$	646.0
Export tax expense		6.2			11.0			10.8				25.2			22.6
Adjusted EBITDA		66.3			33.7			120.4				249.7			45.7
Adjusted EBITDA margin		19%			12%			29%				23%			7%
Operating income prior to restructuring and other items	$	53.5	$	19.0	$	105.7		$	208.0	$	5.2
Net income (loss)		42.2			11.5			78.3				174.3			(1.0)
Earnings (loss) per share, basic and diluted		0.12			0.03			0.21				0.47			-
Net cash (debt), end of period		143.1			(119.4)			97.7
Liquidity, end of period		384.4			127.9			341.1

"In the third quarter we successfully pivoted lumber shipments to export markets, mitigating the impacts of North American commodity pricing volatility on our business", said Don Demens, President and Chief Executive Officer. "I am pleased that our flexible operating platform and specialty product focus continues to deliver stability in revenue and earnings."

Summary of Third Quarter 2021 Results

Adjusted EBITDA for the third quarter of 2021 was $66.3 million, as compared to adjusted EBITDA of $33.7 million in the same period last year. We successfully leveraged our flexible operating platform, directing shipments to relatively strong export lumber markets, which helped offset the impacts of North American lumber market volatility. In addition, we directed export-grade logs to our sawmills to overcome log supply challenges caused by weather-related harvest curtailments and permit delays.

Third quarter operating income prior to restructuring and other items was $53.5 million in 2021, as compared to operating income prior to restructuring and other items of $19.0 million in the same period last year. Increased shipment volume and higher average realized pricing drove significantly improved operating income prior to restructuring and other items compared to the third quarter of 2020.

We continue to strictly enforce enhanced health and safety protocols and follow public health guidance to protect our employees, contractors, and communities from the novel Coronavirus pandemic ("COVID-19"). Our operations have not been significantly impacted by COVID-19to-date, but we continue to monitor its influence on market conditions. Our near-term focus remains on ensuring the health and safety of our employees, maintaining financial flexibility, and servicing our customers.

Sales

After reaching record levels in May 2021, North American commodity lumber prices declined through most of the third quarter. In contrast to weak North America commodity lumber pricing, demand and pricing for lumber in Japan improved while demand for lumber in China remained stable. We took advantage of these market conditions to redirect lumber production and shipments from North America to export markets.

Lumber revenue rose 44% compared to the third quarter of last year, due to increased lumber shipments and significantly improved prices across all product segments. Sales volumes increased by 17%, led by increases of 49% and 47% in Japan and commodity lumber shipments, respectively, while Niche shipments were relatively flat. Limited cedar log availability constrained cedar lumber production and shipments, as compared to the same period last year.

Our average realized lumber price was $1,553 per thousand board feet, an increase of 23% from the third quarter of 2020 as we capitalized on higher pricing across all product segments, including achieving record pricing in Japan. These factors more than offset the effect of a weaker sales mix and the 6% appreciation of the Canadian to US dollar exchange rate from the comparative period.

Log revenue was $41.0 million in the third quarter of 2021, a decline of 44% from the same period in the prior year. Timberlands operating curtailments through the second and third quarter of 2021 limited log harvest and sales volumes. We redirected export-grade log supply to our sawmills to ensure an uninterrupted fibre supply in support of lumber production. Average realized log price increased by 16% from the same period last year as improved pricing offset a weaker log sales mix.

By-product revenue was $12.1 million, an increase of $3.8 million as compared to the same period last year. Chip price realizations improved as a result of significantly higher NBSK pulp price.

Operations

Lumber production of 175 million board feet was 9% lower than the third quarter last year, due to log supply related operating curtailments.

We harvested 690,000 cubic metres of logs from our coastal operations in British Columbia ("BC") in the third quarter of 2021, as compared to 1,138,000 cubic metres in the third quarter last year. Third quarter log production was significantly impacted by prolonged operating curtailments in 2021, as extreme fire conditions persisted through the summer. Excluding stumpage, timberlands operating costs improved over the comparative period, as operating curtailments in 2021 resulted in the partial deferral of road building and reduced helicopter logging volumes. Improved log and lumber pricing drove a doubling of stumpage fees applied to our business in the third quarter harvest of 2021, but lower harvest volumes limited the increase in stumpage expense to 22% from the same period last year.

BC coastal saw log purchases were 227,000 cubic metres, a decrease of 3% from the same period last year. Saw log supply remains tight as an extended fire season negatively impacted harvest volumes as compared to the same period last year.

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Third quarter freight expense remained flat as compared to the same period last year despite an increase in lumber shipments. The reduction in freight expense associated with not shipping logs to export markets offset incremental costs arising from increased lumber shipments and higher freight rates.

Adjusted EBITDA and operating income included $6.2 million of countervailing duty ("CV") and anti- dumping duty ("AD") expense in the third quarter of 2021, as compared to $11.0 million in the same period of 2020. The reduction in duty rates from 20.23% to 8.99%, and a stronger Canadian to US Dollar exchange rate, more than offset the impact of increased US-destined lumber sales volumes and higher lumber pricing on which duty was applied.

Selling and Administration Expense

Third quarter selling and administration expense was $13.6 million in 2021 as compared to $10.4 million in the third quarter last year.

Strong financial results and share price appreciation in the third quarter of 2021 had an incremental compensation expense impact of $2.1 million over the comparative quarter of 2020. This comparative increase was comprised of an additional $0.5 million performance-based incentive compensation, and $1.6 million on the vesting of incentive plans and mark-to-market expense on long-term compensation liabilities.

Other Income

We recognized other income of $4.0 million attributable to gains on the sale of the Somass Division assets and other non-core properties, as compared to an expense of $0.6 million in the same period of 2020.

Finance Costs

Finance costs were reduced to $0.4 million as compared to $2.0 million in the third quarter last year due to a significant reduction in average outstanding debt balance. In the third quarter of 2021, the Company repaid a $1.9 million long-term equipment loan.

Income Taxes

We used our remaining non-capital Canadian tax loss carryforwards during the first quarter of 2021, which will result in cash taxes payable for the tax year ending December 31, 2021. Accordingly, current income tax expense of $13.6 million and a deferred income tax expense of $0.4 million were recognized in net income in the third quarter of 2021. Income tax expense increased by $9.6 million from the third quarter of 2020, driven by strong operating earnings.

Net Income

Net income for the third quarter of 2021 was $42.2 million, as compared to net income of $11.5 million for the same period last year. Significantly improved net income resulted from strong operating performance and continued strong product pricing.

Summary of Year to Date 2021 Results

Adjusted EBITDA for the first nine months of 2021 was $249.7 million, as compared to $45.7 million for the same period last year. We leveraged our flexible operating platform to pursue the highest margin opportunities and deliver record adjusted EBITDA. In the first half of 2021, we directed production to North American commodity lumber markets to take advantage of unprecedented pricing. Our North American commodity lumber focus led to improved recovery, while increasing secondary processing and related costs. With the steep decline in North American prices through the third quarter of 2021, we redirected production and grew export lumber shipments to Japan and China.

Operating income prior to restructuring and other items was $208.0 million, as compared to $5.2 million for the same period last year, as a result of strong operating performance.

Comparative results were significantly impacted by the restart of operations after the lengthy United Steelworkers Local 1-1937 strike (the "Strike"), which had curtailed the majority of our BC-based operations through February 2020, and by the impacts of COVID-19.

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Sales

Lumber revenue for the first nine months of 2021 was $929.5 million, 93% higher than the same period last year due to a combination of a 19% increase in realized pricing and 62% increase in shipment volumes. During the first half of 2021, we capitalized on record North American commodity pricing by increasing commodity shipments by 140% compared to the same nine month period last year. As North American commodity prices began to decline late in the second quarter of 2021, we redirected commodity shipments to relatively stronger export markets. Comparative period revenue and shipments were negatively impacted by the Strike, which ended in February 2020.

Improved lumber pricing led to a 19% increase in average lumber price realization as compared to the first nine months of 2020. Our flexible operating platform allowed us to capitalize on changing market conditions, transitioning production and shipments from North American markets to improved export lumber markets. Price realizations were negatively impacted by an 8% appreciation in the average Canadian to US dollar exchange rate year-over-year.

Log revenue was $120.4 million in the first nine months of 2021, a decrease of 18% from the same period last year, despite a 25% increase in average realized log price. Operating curtailments and permitting delays reduced harvesting production in the first nine months of 2021. We redirected export and certain domestic logs to our sawmills to support lumber production to capitalize on strong lumber markets. The comparative period was impacted by a weaker log sales mix caused by Strike-related log degradation, and the impact of COVID-19 on global markets.

By-product revenue grew to $39.9 million, as compared to $18.4 million in the same period last year. Increased lumber production drove higher chip production and shipments as compared to the first nine months of 2020, which was impacted by lower production during the Strike.

Operations

Lumber production in the first nine months of 2021 was 581 million board feet, 47% higher than the same period last year. The comparative period production was negatively impacted by the Strike.

We achieved higher lumber production in 2021 through increased operating hours and improved production efficiency. The shift to increased North American commodity lumber production in the first half of 2021 contributed to higher production volumes and improved recovery. Production and recovery benefits associated with higher North American commodity production were partially offset by increased levels of processing required to manufacture North American commodity products. Third quarter lumber production in 2021 was impacted by lower recovery associated with export lumber production, and temporary operating curtailments due to constrained log supply.

Log production for the first nine months of 2021 was 2,390,000 cubic metres, a decrease of 5% over the same period last year. Unfavourable weather conditions and permit delays impacted log production, and deferred road expense to future periods. Logging expenses have increased over the same period of 2020, primarily due to a 70% increase in stumpage expense. In 2020, logging operations were curtailed for most of the first quarter of 2020 due to the Strike and actions taken to mitigate COVID-19 health and safety risks.

Freight expense for the first nine months of 2021 was $72.2 million, an increase of 48% as compared to the same period last year due primarily to a 62% increase in lumber shipments. Rising container freight rates and higher costs from the increased use of breakbulk vessels were largely offset by a significant reduction in export log shipments. We partly mitigated limited container availability by converting a component of our lumber shipments to breakbulk.

Adjusted EBITDA and operating income in the first nine months of 2021 included $25.2 million of export tax expense, as compared to $22.6 million in the same period of 2020. We increased lumber revenue on which duties were applicable but benefitted from the reduction in cash deposit rates from 20.23% to 8.99% and a stronger Canadian to US Dollar exchange rate.

Comparative results also included CEWS proceeds of $11.6 million as an offset to cost of goods sold. CEWS helped reduce the negative financial impact of COVID-19 on our business, prevented temporary operating curtailments and employee layoffs, and offset some costs associated with enhanced health and safety protocols.

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Selling and Administration Expense

Selling and administration expense for the first nine months of 2021 was $44.6 million as compared to $24.9 million in the same period last year. Record financial results and a 72% share price appreciation in the first nine months of 2021 had an incremental expense impact of $16.1 million.

Year-to-datemark-to-market expense on long-term compensation liabilities was $4.0 million in 2021, as compared to a recovery of $0.3 million in the comparative period of 2020, with the vesting of incentive plans contributing an additional $5.6 million expense year-over-year.Performance-based incentive compensation drove an incremental $6.3 million expense in the first nine months of 2021 as compared to the comparative of the prior year.

Comparatives include the recognition of $1.4 million of CEWS proceeds which somewhat offset additional costs related to COVID-19, including for the maintenance of pre-pandemic staff levels.

Other Income

We recognized other income of $22.1 million attributable primarily to gains from the sale of the Orca Quarry assets, the Somass Division assets and other non-core properties and surplus equipment for the first nine months of 2021 as compared to $1.2 million in the same period last year.

Finance Costs

Finance costs were $1.7 million, compared to $6.4 million in the first nine months of 2020. Strong cash flows from operations and non-core asset sales were used to repay outstanding indebtedness, lowering the average outstanding debt balance as compared to the prior year.

Income Taxes

We used our remaining non-capital Canadian tax loss carryforwards during the first quarter of 2021, which will result in cash taxes payable for the tax year ending December 31, 2021. In addition, capital loss carryforwards were applied against taxable capital gains arising from non-core asset dispositions. Accordingly, current income tax expense of $53.6 million and a deferred income tax recovery of $1.4 million were recognized in net income in the first nine months of 2021. Income tax expense increased by $52.9 million from the first nine months of 2020 as a result of record operating earnings.

Net Income

Strong operating performance and record product pricing resulted in a net income of $174.3 million for the first nine months of 2021, as compared to a net loss of $1.0 million for the same period last year. Net income in 2020 was impacted by COVID-19 market uncertainty, related incremental operating costs and the Strike.

Sale of Other Non-Core Assets

Western has completed $50.1 million in non-core asset sales through the first nine months of 2021, including the sale of Orca Quarry assets, the Somass Division assets, and other non-core property and equipment.

On August 12, 2021, Western announced the completion of the sale of certain properties, including the Somass sawmill site, to City of Port Alberni for proceeds of $5.3 million.

On October 7, 2021, Western completed the sale of its interests in timber licences and jointly held forest licences in an area outside of Squamish, BC, for proceeds of $1.5 million. These proceeds were incremental to the amounts recognized in our results for the first nine months of 2021.

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