Western Announces Fourth Quarter 2020 Results
Press Release
February 18, 2021 – Vancouver, British Columbia – Western Forest Products Inc. (TSX: WEF) (“Western” or the “Company”) reported adjusted EBITDA of $71.1 million in the fourth quarter of 2020. Western capitalized on strong North American lumber markets by growing Western Red Cedar (“WRC”) shipments, and by redirecting commodity production from weaker export markets into the speciality treated lumber segment.
Net income in the fourth quarter of 2020 was $34.4 million ($0.09 net income per diluted share), as compared to a net loss of $ 29.2 million ($0.09 net loss per diluted share) for the fourth quarter of 2019 and net income of $11.5 million ($0.03 net income per diluted share) in the third quarter of 2020.
Fourth Quarter Highlights:
- Strong fourth quarter EBITDA
- Leveraged flexible operating platform to grow lumber production and shipments into North America
- Further advanced our sales and marketing growth initiatives
- Reduced debt by $50.2 million, bringing net debt down to $69.2 million at the end of 2020
- Available liquidity of $178.3 million to support growth and our balanced approach to capital allocation
Western’s fourth quarter adjusted EBITDA was $71.1 million, as compared to negative adjusted EBITDA of $18.1 million in the fourth quarter of 2019, and adjusted EBITDA of $33.7 million reported in the third quarter of 2020. Operating income prior to restructuring and other items was $56.0 million, compared to a loss of $29.6 million in the fourth quarter of 2019, and $19.0 million of income reported in the third quarter of 2020. Fourth quarter financial results benefited from a non-cash export tax recovery of $31.6 million arising from the finalization of 2017 and 2018 export tax rates.
| Q4 | Q4 | Q3 | Annual | Annual | |||||||||||
| (millions of dollars except per share amounts and where otherwise noted) | 2020 | 2019 | 2020 | 2020 | 2019 | ||||||||||
| Revenue | $ | 318.9 | $ | 80.1 | $ | 290.6 | $ | 964.9 | $ | 807.7 | |||||
| Export tax expense | 12.1 | 3.4 | 11.0 | 34.6 | 27.8 | ||||||||||
| Export tax recovery | (31.6) | – | – | (31.6) | – | ||||||||||
| Adjusted EBITDA | 71.1 | (18.1) | 33.7 | 116.8 | (1.5) | ||||||||||
| Adjusted EBITDA margin | 22% | -23% | 12% | 12% | 0% | ||||||||||
| Operating income prior to restructuring items and other income (expense) | $ | 56.0 | $ | (29.6) | $ | 19.0 | $ | 61.2 | $ | (46.7) | |||||
| Net income (loss) | 34.4 | (29.2) | 11.5 | 33.4 | (46.7) | ||||||||||
| Basic and diluted earnings (loss) per share (in dollars) | 0.09 | (0.09) | 0.03 | 0.09 | (0.12) | ||||||||||
| Net debt, end of period | 69.2 | 111.3 | 119.4 | ||||||||||||
| Liquidity, end of period | 178.3 | 136.9 | 127.9 | ||||||||||||
“We capitalized on strong North American lumber markets in the fourth quarter to deliver significantly improved financial results,” said Don Demens, President and Chief Executive Officer. “I look forward to capitalizing on the successful repositioning of our balance sheet and the rising demand for sustainable, specialty lumber products.”
For the year ended December 31, 2020, Western delivered adjusted EBITDA of $116.8 million compared to negative adjusted EBITDA of $1.5 million in 2019. Western reported net income of $61.2 million in 2020, as compared to a net loss of $46.7 million in the prior year.
Summary of Fourth Quarter 2020 Results
Adjusted EBITDA for the fourth quarter of 2020 was $71.1 million, as compared to negative adjusted EBITDA of $18.1 million during the same period last year. The recovery of export tax attributable to the final determination of 2017 and 2018 United States (“US”) imposed export tax rates accounted for $31.6 million of adjusted EBITDA. We grew fourth quarter adjusted EBITDA, despite volatility in North American commodity markets, by increasing lumber shipments, redirecting certain commodity volumes to a strong North American treating segment, and by recognizing a non-cash recovery of export tax.
Operating income prior to restructuring and other items was $56.0 million, as compared to operating loss prior to restructuring and other items of $29.6 million in the same period last year. Comparative results were significantly impacted by the Strike, which curtailed all of our timberlands and most of our British Columbia (“BC”) based manufacturing operations from July 2019 through February 2020.
Sales
In the fourth quarter unseasonably strong demand and constrained supply supported pricing for our North American product lines, while prices in our export markets remained relatively weak. North American lumber pricing was volatile through the quarter as inventory in the distribution channel could not supply demand that was stronger than anticipated. Domestic log markets continued to improve in the fourth quarter supported by the strength of lumber markets and constrained supply. Pulp log markets remained muted while prices for export logs into China improved marginally.
We took advantage of strong North American lumber markets by maintaining Western Red Cedar volumes during a traditionally slower period and by redirecting production and sales from weaker export markets. We grew lumber revenue by 23% from the third quarter of 2020, on the strength of higher prices for our Western Red Cedar products, and increased sales volumes and prices in our commodity lumber segment. Lumber revenue was $256.6 million, as compared to $66.1 million in the Strike affected fourth quarter of 2019, and $208.6 million in the third quarter of 2020. We grew lumber shipments by 24% from the third quarter of 2020, led by a 60% increase in commodity lumber shipments which were mostly directed to the specialty treated lumber sector.
Specialty lumber represented 48% of fourth quarter shipments in 2020 compared to 80% in the same period last year and 59% in the third quarter of 2020. A greater commodity weighting to our lumber sales mix and stronger Canadian dollar (“CAD”) to United States dollar (“USD”) reduced our average realized lumber price from the comparative periods, while benchmark pricing for the majority of our products continued to rise.
Log revenue was $53.4 million, as compared to $12.1 million in the Strike affected fourth quarter of 2019, and $73.7 million in the third quarter of 2020. We achieved a higher average realized log price than the comparative periods despite a weaker sales mix and lower export market pricing. We directed the majority of our export log inventory to our sawmills to capitalize on the strong North American lumber market. Limited export log shipments originated primarily from commitments under First Nation partnership and joint venture arrangements.
By-product revenue was $8.9 million, as compared to $1.9 million in the Strike affected fourth quarter of 2019, and $8.3 million in the third quarter of 2020. By-product revenue increased from the third quarter of 2020 as a result of moderately improved chip pricing and higher by-product shipments.
Operations
Lumber production was 180 million board feet, as compared to 34 million board feet in the Strike affected fourth quarter of 2019, and 192 million board feet in the third quarter of 2020. Production decreased by 6% from the third quarter of 2020 as we balanced lumber production with remanufacturing capacity. We have continued to lever our flexible operating platform by redirecting production from relatively weak export markets into the strong North American market.
We reduced operating hours at our Duke Point sawmill by 10% and temporarily curtailed our Cowichan Bay sawmill operations for two weeks to balance production to secondary processing capacity. Our Port Alberni sawmill was curtailed for two weeks due to unplanned maintenance. We have resumed operations at Cowichan Bay and Port Alberni, while Duke Point continues to run on an adjusted two-shift basis. In early February 2021, we added a second shift at our Ladysmith sawmill as lumber markets in China began to improve.
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