WESTERN FOREST PRODUCTS INC. TSX: WEF
Net income in the first quarter of 2021 was
First Quarter Highlights:
- Record first quarter adjusted EBITDA of
$62.9 million and net income of$53.8 million - Leveraged flexible operating platform to accelerate commodity shipments into
North America Achieved Company record quarterly average realized lumber price of$1,356 per thousand board feet- Signed an 8-year collective bargaining agreement with our unionized
Ladysmith sawmill employees - Sold non-core assets for cash proceeds of
$37.7 million - Repaid
$69.7 million in debt, closing the period in a net cash position - Returned
$6.1 million to shareholders via dividends and share repurchases - Available liquidity of
$244.0 million to support growth and our balanced approach to capital allocation
Western's first quarter adjusted EBITDA was
(millions of dollars except per share amounts and where otherwise noted) | Q1 | Q1 | Q4 | ||||||||
2021 | 2020 | 2020 | |||||||||
Revenue | $ | 322.5 | $ | 99.1 | $ | 318.9 | |||||
Export tax expense | 8.2 | 4.0 | 12.1 | ||||||||
Export tax recovery | - | - | 31.6 | ||||||||
Adjusted EBITDA | 62.9 | (17.4) | 71.1 | ||||||||
Adjusted EBITDA margin | 20% | (18%) | 22% | ||||||||
Operating income (loss) prior to restructuring and other items | $ | 48.8 | $ | (28.4) | $ | 56.0 | |||||
Net income (loss) | 53.8 | (21.0) | 34.4 | ||||||||
Basic and diluted earnings (loss) per share (in dollars) | 0.14 | (0.06) | 0.09 | ||||||||
Net debt (cash), end of period | (0.6) | 137.0 | 69.2 | ||||||||
Liquidity, end of period | 244.0 | 113.5 | 178.3 | ||||||||
"We made significant strides in repositioning our business and increasing the production of value-added lumber products targeted to strong North American markets," said
Summary of First Quarter 2021 Results
Adjusted EBITDA for the first quarter of 2021 was
Operating income prior to restructuring and other items was
We continue to strictly enforce enhanced health and safety protocols and regularly re-evaluate market conditions arising from COVID-19. Our near-term focus remains on ensuring the health and safety of our employees, maintaining financial flexibility, and servicing our customers.
Sales
Rising North American lumber demand, driven by increased levels of new home construction and a strong repair and renovation segment, combined with limited supply to deliver record lumber pricing in the first quarter of 2021. Lumber producers have struggled to respond to the strong market due to permanent production curtailments in the BC Interior as a result of the Mountain Pine Beetle and COVID-19 related labour constraints in other producing regions. To capitalize on market conditions and overcome container shipping constraints that reduced export market access, we further levered our flexible operating platform and increased production for the North American market.
Lumber revenue rose 8% from the fourth quarter last year, on the strength of higher prices for our products and increased North American shipments. We grew our total commodity volumes by 4% during the quarter as compared to the fourth quarter of 2020. Our North American commodity shipment volumes represented 64% of total commodity shipment volumes during the first quarter of 2021, well above our historical average. We successfully grew sales to selected customers in the specialty treating sector, increasing volumes by 12% from the fourth quarter of last year.
Our first quarter average realized lumber price was
Log revenue was
By-product revenue was
Higher first quarter log and lumber pricing reduced inventory provisions by
Operations
We have continued to lever our flexible operating platform by redirecting production from export markets into the strong North American market.
First quarter lumber production of 199 million board feet was 226% higher than the Strike-impacted first quarter last year and was 11% higher than the fourth quarter of 2020. We achieved higher production through increased operating hours, improved production efficiency, and a shift to more domestic lumber production. Increased production of North American commodity lumber contributed to improved sawmill recovery but also increased our secondary processing requirements, consistent with the fourth quarter last year. Insufficient BC coastal kiln capacity limited incremental kiln-dried lumber production volumes.
We produced 688,000 cubic metres of logs from our coastal operations in
BC coastal saw log purchases were 195,000 cubic metres, an increase of 38% from the same period last year and a decrease of 12% from the fourth quarter of 2020. BC coastal harvest activity has improved market log supply while strong North American product pricing has increased log market competition.
Freight expense increased by
Selling and Administration Expense
First quarter selling and administration expense was
Record financial performance and a stronger market outlook drove an incremental
The Company's shares appreciated by 41% in the first quarter of 2021, resulting in an incremental
Other Income
We recognized other income of
Finance Costs
Finance costs were
Income Taxes
Record first quarter operating earnings led to income tax expense of
Net Income (Loss)
Net income for the first quarter of 2021 was
COVID-19
Western is committed to the health and safety of our employees, contractors and the communities where we operate. To help mitigate the spread of COVID-19, we have implemented strict health and safety protocols across our business that are based on guidance from health officials and experts, and in compliance with regulatory orders and standards.
Health and safety protocols currently being enforced include travel restrictions; self-isolation instructions for those who have travelled, are ill, exhibiting symptoms of COVID-19 or have come in direct contact with someone with COVID-19; implementing physical distancing measures; restricting site access to essential personnel and activities; increasing cleaning and sanitization in workplaces; and where possible, providing those who can work from home the ability to exercise that option. We continue to monitor and review the latest guidance from health officials and experts to ensure our protocols meet the current required standards.
State of Emergency declarations and other restrictions relating to travel, business operations and isolation have been made by governing bodies in the regions that Western operates and sells its products. Western's business activities have been designated an essential service in
Sale of Orca Quarry Non-Core Assets
On
Sale of Ownership Interests in TFL 44 Limited Partnership
On
On
On
The next stage of the TFL 44 Transaction, for the acquisition by HVLP of a further 16% equity interest in TFL 44 LP for total consideration of
Western may sell to other area First Nations, including HVLP, a further incremental ownership interest of up to 26% in TFL 44 LP, under certain conditions. The Company and TFL 44 LP will also enter into a long-term fibre agreement to continue to supply the Company's BC coastal manufacturing operations, which have undergone significant capital investment over the past several years.
The APD Transaction is anticipated to close in the first quarter of 2023.
Labour Relations Update
On
We previously announced on
Timber Tenure Reduction
Approximately 89% of Western's 5,956,000 cubic metre sustainable allowable annual cut ("AAC") is in the form of Tree Farm Licenses ("TFL"). TFLs are granted for 25-year terms and are replaced by the BC Provincial Government (the "Province") every five to ten years with a new TFL with a 25-year term.
In the first half of 2021, we expect the Province's
More information on our tenure rights and sustainable harvest practices can be found in the Company's Annual Information Form, which is available on SEDAR at www.sedar.com, and Western's Sustainability Report, which is available at www.westernforest.com.
Regulatory Environment
During 2019 and 2020, the Province introduced various policy initiatives and regulatory changes that impact the BC forest sector regulatory framework as part of a Coastal Revitalization Initiative, including fibre recovery, lumber remanufacturing, old growth forest management and the exportation of logs. For additional details on these policy initiatives and regulatory changes please see the "BC Government Forest Policies Update" heading and "Regulatory Risks" under the heading "Risks and Uncertainties", in our Management's Discussion and Analysis for the year ended
Current provincial policy requires that forest management and operating plans take into account and not unreasonably infringe on Aboriginal rights and title, proven or unproven, and provide for First Nations consultation. First Nation opposition to a forest tenure or other operating authorization may delay the Province from granting the permit application. For additional details on these policy requirements and regulatory aspects in relation to First Nations see "First Nations Land Claims" and "Regulatory Risks" under the heading "Risks and Uncertainties", in our Management's Discussion and Analysis for the year ended
Dividend and Capital Allocation
We remain committed to a balanced approach to capital allocation. To return capital to shareholders, we reinstated a regular quarterly dividend in the first quarter of 2021 and may complement it with common share repurchases under our NCIB.
We will continue to evaluate opportunities to invest strategic and discretionary capital in jurisdictions that create the opportunity to grow long-term shareholder value. We expect to focus near-term internal strategic capital investments on projects that reduce manufacturing costs or address kiln drying and planer capacity constraints on the
Quarterly Dividend
In the first quarter of 2021, the Company's Board of Directors reinstated a quarterly dividend of
Normal Course Issuer Bid
On
During the first three months of 2021, we repurchased 1,295,000 common shares for
As at
Strategy and Outlook
Western's long-term business objective is to create superior value for shareholders by building a sustainable, margin-focused log and lumber business of scale to compete successfully in global softwood markets. We believe this will be achieved by maximizing the sustainable utilization of our forest tenures, operating safe, efficient, low-cost manufacturing facilities and augmenting our sales of targeted high-value specialty products for selected global customers with a lumber wholesale program. We seek to manage our business with a focus on operating cash flow and maximizing value through the production and sales cycle. We routinely evaluate our performance using the measure of Return on Capital Employed.
For more detail on our strategic initiatives and actions, refer to "Strategy and Outlook" in our Management's Discussion and Analysis for the year ended
Sales & Marketing Strategy Update
To capitalize on a strong North American market, we have redirected lumber production from relatively weak export markets. We have targeted sales to selected customers in the North American treating sector where our product mix could provide the most value. In the near-term we anticipate North American pricing to remain above trend levels and will look to solidify our presence in the specialty treated lumber sector.
We continue to progress with the execution of our sales and marketing strategy, which focuses on the production and sale of targeted, high-margin products of scale to selected customers. We supplement our key product offerings with purchased lumber to deliver the suite of products our customers require.
We continue to develop and evaluate growth opportunities for our wholesale lumber business, including the Japanese Cedar products program and ongoing
Market Outlook
Demand for forest products globally continues to outpace supply driving higher pricing for all of our product segments. Lumber markets in
Demand and pricing for our Western Red Cedar ("WRC") and Niche products has improved across all product categories on the strength of a robust residential repair and renovation market. WRC trim, decking and fencing are in high demand, while Douglas Fir and Hemlock timbers and appearance grade products have led pricing improvements in our Niche segment. We expect seasonally strong demand and constrained supply to drive incremental price improvements in the near term.
In
We expect domestic saw log prices to increase in response to improved lumber markets, and greater competition from improved export markets. The Northern Bleached Softwood Kraft pulp price benchmark has increased in the last few months and, if sustained, we would expect to achieve improved prices for pulp logs and sawmill residual chips.
We expect the impacts of COVID-19 to continue to challenge lumber supply in the near term which should lead to increased pricing volatility. While at the same time we are hopeful that ongoing safety protocols and vaccine roll-outs may positively influence lumber demand and pricing. We plan to utilize our flexible operating platform to adjust to market conditions and will continue to align our production volumes to match market demand.
Softwood Lumber Dispute
The US application of duties continues a long-standing pattern of US protectionist action against Canadian lumber producers. We disagree with the inclusion of specialty lumber products, particularly WRC and
Western expensed
In the fourth quarter of 2020, Western recognized an export tax recovery of
At
Including wholesale lumber shipments, our sales to the US market represent approximately 42% of our total revenue in the first quarter of 2021, as compared to 36% in the same period last year and 32% in fiscal 2020. Our distribution and processing centre in
Non-GAAP Measures
Reference is made in this MD&A to the following non-GAAP measures: Adjusted EBITDA, Adjusted EBITDA margin, and Net debt to capitalization are used as benchmark measurements of our operating results and as benchmarks relative to our competitors. These non-GAAP measures are commonly used by securities analysts, investors and other interested parties to evaluate our financial performance. These non-GAAP measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers. The following table provides a reconciliation of these non-GAAP measures to figures as reported in our audited annual consolidated financial statements:
Q1 | Q1 | Q4 | |||||||
(millions of Canadian dollars except where otherwise noted) | 2021 | 2020 | 2020 | ||||||
Adjusted EBITDA | |||||||||
Net income (loss) | $ | 53.8 | $ | (21.0) | $ | 34.4 | |||
Add: | |||||||||
Amortization | 12.9 | 11.0 | 14.3 | ||||||
Changes in fair value of biological assets, net | 1.2 | - | 1.2 | ||||||
Operating restructuring items | 0.5 | 0.4 | 0.6 | ||||||
Other (income) expense(1) | (16.7) | (1.6) | 6.2 | ||||||
Finance costs (income) | 0.9 | 2.2 | (0.5) | ||||||
Current income tax expense (recovery) | 8.8 | (0.1) | - | ||||||
Deferred income tax expense (recovery) | 1.5 | (8.3) | 15.1 | ||||||
Adjusted EBITDA | $ | 62.9 | $ | (17.4) | $ | 71.1 | |||
Adjusted EBITDA margin | |||||||||
Total revenue | $ | 322.5 | $ | 99.1 | $ | 318.9 | |||
Adjusted EBITDA | 62.9 | (17.4) | 71.1 | ||||||
Adjusted EBITDA margin | 20% | -18% | 22% | ||||||
Net debt to capitalization | |||||||||
Net debt | |||||||||
Total debt | $ | 2.5 | $ | 139.2 | $ | 71.9 | |||
Bank indebtedness | - | - | 0.2 | ||||||
Cash and cash equivalents | (3.1) | (2.2) | (2.9) | ||||||
Net debt (cash) | $ | (0.6) | $ | 137.0 | $ | 69.2 | |||
Capitalization | |||||||||
Net debt (cash) | $ | (0.6) | $ | 137.0 | $ | 69.2 | |||
Add: Equity | 552.6 | 459.6 | 504.5 | ||||||
Capitalization | $ | 552.0 | $ | 596.6 | $ | 573.7 | |||
Net debt to capitalization | - | 23% | 12% | ||||||
Figures in the table above may not equal or sum to figures presented elsewhere due to rounding. | |
(1) | Other (income) expense, net of changes in fair market value less cost to sell of biological assets and gain on disposal of assets. |
Forward Looking Statements and Information
This press release contains statements that may constitute forward-looking statements under the applicable securities laws. Readers are cautioned against placing undue reliance on forward-looking statements. All statements herein, other than statements of historical fact, may be forward-looking statements and can be identified by the use of words such as "will", "estimate", "expect", "anticipate", "plan", "forecast", "intend", "believe", "seek", "could", "should", "may", "likely", "continue" and similar references to future periods. Forward-looking statements in this press release include, but are not limited to, statements relating to our current intent, belief or expectations with respect to: domestic and international market conditions, demands and growth; economic conditions; our growth, marketing, product, wholesale, operational and capital allocation plans and strategies, including but not limited to payment of a dividend; fibre availability and regulatory developments; the impact of COVID-19; and the timing or anticipated closing of the Transaction; and the selling of additional incremental ownership interest in TFL 44 LP and
Reference is made in this press release to adjusted EBITDA which is defined as operating income prior to operating restructuring items and other income (exp, plus amortization of property, plant, and equipment, and intangible assets, impairment adjustments, and changes in fair value of biological assets. Adjusted EBITDA margin is adjusted EBITDA presented as a proportion of revenue. Western uses adjusted EBITDA and adjusted EBITDA margin as benchmark measurements of our own operating results and as benchmarks relative to our competitors. We consider adjusted EBITDA to be a meaningful supplement to operating income as a performance measure primarily because amortization expense, impairment adjustments and changes in the fair value of biological assets are non-cash costs, and vary widely from company to company in a manner that we consider largely independent of the underlying cost efficiency of their operating facilities. Further, the inclusion of operating restructuring items which are unpredictable in nature and timing may make comparisons of our operating results between periods more difficult. We also believe adjusted EBITDA and adjusted EBITDA margin are commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.
Adjusted EBITDA does not represent cash generated from operations as defined by IFRS and it is not necessarily indicative of cash available to fund cash needs. Furthermore, adjusted EBITDA does not reflect the impact of certain items that affect our net income. Adjusted EBITDA and adjusted EBITDA margin are not measures of financial performance under IFRS, and should not be considered as alternatives to measures of performance under IFRS. Moreover, because all companies do not calculate adjusted EBITDA and adjusted EBITDA margin in the same manner, these measures as calculated by Western may differ from similar measures calculated by other companies. A reconciliation between the Company's net income as reported in accordance with IFRS and adjusted EBITDA is included in this press release.
Also in this press release management may use key performance indicators such as net debt, net debt to capitalization and current assets to current liabilities. Net debt is defined as long-term debt less cash and cash equivalents. Net debt to capitalization is a ratio defined as net debt divided by capitalization, with capitalization being the sum of net debt and equity. Current assets to current liabilities is defined as total current assets divided by total current liabilities. These key performance indicators are non-GAAP financial measures that do not have a standardized meaning and may not be comparable to similar measures used by other issuers. They are not recognized by IFRS, however, they are meaningful in that they indicate the Company's ability to meet their obligations on an ongoing basis, and indicate whether the Company is more or less leveraged than the prior year.
Western is an integrated forest products company building a margin-focused log and lumber business to compete successfully in global softwood markets. With operations and employees located primarily on the coast of
TELECONFERENCE CALL NOTIFICATION:
To participate in the teleconference please dial 416-340-2217 or 1-800-952-5114 (passcode: 5505843#). This call will be taped, available one hour after the teleconference, and on replay until
View original content to download multimedia:http://www.prnewswire.com/news-releases/western-announces-first-quarter-2021-results-301285062.html
SOURCE
© Canada Newswire, source
