Western Announces First Quarter 2019 Results
Press Release
May 1, 2019 – Vancouver, British Columbia – Western Forest Products Inc. (TSX: WEF) (“Western” or the “Company”) reported adjusted EBITDA of $18.1 million in the first quarter of 2019. Results were impacted by challenging markets and difficult operating conditions which led to higher operating costs. Prolonged winter weather delayed typical spring lumber demand and led to operational downtime in both our mills and timberlands. In response, we leveraged our flexible operating platform, scaling back commodity production to match market demand and delivered an improved specialty sales mix to partly mitigate a weaker pricing environment.
First Quarter Highlights
- Completed the acquisition of the assets of Columbia Vista Corporation in Vancouver, Washington
- Completed the sale of 7% interest in the Port Alberni Forest Operation to the Huu-ay-aht First Nations
- Substantially completed building and equipment upgrades at Arlington
- Accelerated wholesale lumber activity, more than doubling purchase volume
- Returned $8.6 million to shareholders via regular, quarterly dividend
- Completed $7.4 million of share repurchases, cancelling 3.9 million common shares
Western’s adjusted EBITDA result of $18.1 million in the first quarter of 2019 compared to adjusted EBITDA of $43.0 million in the first quarter of 2018, and $18.0 million reported in the fourth quarter of 2018. Operating income prior to restructuring and other income was $5.7 million in the first quarter of 2019, compared to $32.6 million in first quarter of 2018, and $7.7 million reported in the fourth quarter of 2018.
Net income of $1.9 million ($nil per diluted share) was reported for the first quarter of 2019, as compared to $21.7 million ($0.05 per diluted share) for the first quarter of 2018 and $5.3 million ($0.02 per diluted share) in the fourth quarter of 2018.
| Q1 | Q1 | Q4 | |||||||
| (millions of dollars except per share amounts and where otherwise noted) | 2019 | 2018 | 2018 | ||||||
| Total revenue | $ | 275.7 | $ | 291.6 | $ | 284.8 | |||
| Export tax | $ | 9.2 | $ | 9.7 | $ | 10.1 | |||
| Stumpage | $ | 12.3 | $ | 10.5 | $ | 13.8 | |||
| Adjusted EBITDA | $ | 18.1 | $ | 43.0 | $ | 18.0 | |||
| Adjusted EBITDA margin | 6.6% | 14.7% | 6.3% | ||||||
| Operating income prior to restructuring items and other income (expense) | $ | 5.7 | $ | 32.6 | $ | 7.7 | |||
| Net income for the period | 1.9 | 21.7 | 5.3 | ||||||
| Basic and diluted earnings per share (in dollars) | $ | – | $ | 0.05 | $ | 0.02 | |||
| Net debt (cash) – end of period | $ | 72.4 | $ | (46.9) | $ | (2.4) | |||
| Total liquidity – end of period | 175.7 | 280.9 | 250.4 | ||||||
“Despite current lumber market challenges, we took significant steps in advancing our specialty-focused strategy, including the acquisition of Columbia Vista, accelerated wholesale activity and advanced our mutually beneficial partnership with the Huu-ay-aht First Nations,” said Don Demens, President and Chief
Executive Officer. “We are pleased with the progress we’ve made integrating our Columbia Vista division and look forward to the contribution this operation will make to our business going forward.”
The Company generated revenue of $275.7 million in the first quarter of 2019, as compared to $291.6 million in the first quarter of 2018, and $284.8 million in the fourth quarter of 2018. The Company mitigated the impacts of a slow start to the spring building season by reducing the production and sales of lower value commodity products. The improved mix resulted in a slightly higher average lumber price.
On February 1, 2019, the Company completed its acquisition of certain assets of Columbia Vista Corporation and related entities located in Vancouver, Washington for US$28.4 million, and on March 29, 2019, completed the sale of a 7% interest in the newly formed TFL 44 Limited Partnership to the Huu-ay-aht First Nations. Western also published its first sustainability report, highlighting the Company’s governance, environmental and social practices and performance during 2018.
Summary of First Quarter 2019 Results
Adjusted EBITDA for the first quarter of 2019 was $18.1 million, as compared to $43.0 million from the same period last year. Results were impacted by challenging markets and difficult operating conditions which led to higher operating costs. Shipments declined as we reduced operating hours to align production to market demand. Operating income prior to restructuring items and other income decreased to $5.7 million from $32.6 million in the same period last year.
During the first quarter we continued to successfully advance our strategy as we completed the acquisition of the Columbia Vista operation in Vancouver, Washington, and closed the sale of a 7% interest in our newly formed TFL 44 Limited Partnership to the Huu-ay-aht First Nations.
Sales & Marketing Strategy Update
Lumber revenue was $218.9 million, which was 4% lower than the same period last year. Shipment volumes decreased 6% due to slowing US housing starts and as extended winter in North America delayed seasonal demand. Average lumber pricing benefited from the successful execution of our sales and marketing strategy and a weaker Canadian dollar.
Specialty lumber revenue was supported by higher production from our Duke Point sawmill which drove a 30% increase in Niche product sales quarter-over-quarter. Sales volumes of Western Red Cedar (“WRC”) declined 15% compared to last year as poor weather impacted market demand. First quarter Japan lumber shipments declined 14%. The addition of Columbia Vista led to an increase in Douglas fir product sales to Japan which was more than offset by weakness in sales of Hemlock and Yellow Cedar. Hemlock market share has been challenged by subsidized Japanese domestic species. We successfully mitigated commodity lumber price declines by increasing our direct sales to China by 56% compared to last year. Specialty lumber represented 52% of first quarter shipments, unchanged from the same period last year but an increase from the 49% we achieved in the fourth quarter of 2018.
First quarter log revenue was $41.2 million, consistent with the first quarter of 2018. A stronger domestic saw log sales mix offset declining log pricing. Log shipments were flat compared to the first quarter of 2018, as increased pulp log sales volumes offset lower export and domestic shipments. Our export log volume in the period originated from a First Nation timber purchase agreement managed by Western.
British Columbia (“BC”) coastal chip pricing declined 17% compared to the same period last year. Declining prices and lower production due to mill curtailments led to a 30% decrease in by-products revenue. By-products revenue in the first quarter of 2018 included $2.6 million related to third-party custom production at our Ladysmith sawmill.
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