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Western Announces Third Quarter 2023 Results

Press Release

November 7, 2023 – Vancouver, British Columbia – Western Forest Products Inc. (TSX: WEF) (“Western” or the “Company”) reported a net loss of $17.4 million in the third quarter of 2023, as compared to a net loss of $20.7 million in the second quarter of 2023, and net income of $6.6 million in the third quarter of 2022. Results in the third quarter of 2023 reflect more challenging macroeconomic conditions, resulting in lower product prices and reduced demand compared to the same period last year. We curtailed certain sawmill operations during the third quarter of 2023, to manage inventories and match production to product demand.

Adjusted EBITDA was negative $11.6 million in the third quarter of 2023, as compared to Adjusted EBITDA of negative $12.0 million in the second quarter of 2023, and adjusted EBITDA of $17.3 million in the third quarter of 2022.

Operating loss prior to restructuring and other items was $25.8 million in third quarter of 2023, as compared to income of $4.7 million in the third quarter of 2022.

Highlights:

 Announced a $35.9 million agreement to sell a 34% interest in a newly formed forestry Limited Partnership to four Vancouver Island First Nations
 Celebrated one year anniversary of glulam business asset acquisition from Calvert Company, Inc. with operations accretive to EBITDA in that year
 Completed installation of machine stress rated lumber grader to support increased product value and mass timber market growth
 Recognized an export tax recovery of $4.3 million on finalization of the softwood lumber duty rate

Commenting on the quarter, Western’s President and CEO Steven Hofer said, “While our results in the quarter reflect the continued challenging operating environment and cost structure in our British Columbia operations, we are encouraged by the progress we’ve made in repositioning our business for the future. The agreement announced with the Tlowitsis, We Wai Kai, Wei Wai Kum and K’ómoks First Nations is a significant step forward. This partnership will provide a collaborative forest stewardship and business model that is key to the operational stability in Coastal BC that we need to support reinvestment, and we are excited to move it forward.”

Summary of Third Quarter 2023 Results

We reported Adjusted EBITDA of negative $11.6 million in the third quarter of 2023, which included $4.3 million in export tax recovery, as compared to positive $17.3 million in the same period last year, which included $18.0 million in export tax recovery. Results in the third quarter of 2023 continue to reflect more challenging macroeconomic and lumber market conditions, as compared to the same period last year.

Net loss was $17.4 million in the third quarter of 2023, as compared to net income of $6.6 million in the same period last year. Operating loss prior to restructuring and other items was $25.8 million in the third quarter of 2023, as compared to income of $4.7 million in the same period last year.

Sales

Lumber revenue was $179.9 million in the third quarter of 2023 as compared to $267.1 million in the same period last year. The decrease of 33% was due to lower lumber shipment volumes and lower average lumber prices, partially offset by a stronger sales mix and stronger US Dollar (“USD”) to Canadian Dollar (“CAD”) average exchange rate. Our average realized lumber price decreased by 7% to $1,388 per thousand board feet in the third quarter of 2023, as compared to $1,495 per thousand board feet in the same period last year.

Specialty lumber shipments represented 55% of total lumber shipment volumes in the third quarter of 2023, as compared to 39% in the same period last year, yielding a stronger sales mix. Industrial lumber shipment volumes remained flat compared to the same period last year with incremental volume from the acquisition of our Calvert engineered wood products division offset by lower volumes in certain other product lines. Cedar lumber shipment volumes increased 21% compared to the same period last year due to improved take-away through the home centre segment. Japan lumber shipment volumes decreased 17% compared to the same period last year due to increased levels of supply from domestic manufacturing, Europe and Russia. Commodity lumber shipment volumes decreased 47% compared to the same period last year due to weaker market demand.

Log revenue was $38.4 million in the third quarter of 2023, as compared to $72.5 million in the same period last year. The decrease of 47% was due to lower log sales volumes and lower domestic log prices.

By-products and other revenue were $12.8 million, as compared to $16.4 million in the same period last year. The decrease of 22% was due to lower chip prices and lower volumes as the result of reduced sawmill production, partially offset by higher revenue from harvesting services provided to third parties.

Operations

Lumber production was 126 million board feet in the third quarter of 2023, as compared to 169 million board feet in the same period last year. During the third quarter of 2023 we curtailed certain sawmill operations to match production to market demand and manage inventory levels. A higher specialty mix of production led to increased secondary processing volumes and costs as compared to the third quarter of 2022.

We harvested 678,000 cubic metres of logs from our BC coastal operations in the third quarter of 2023, as compared to 800,000 cubic metres in the same period last year, due to an extended fire-risk season and reduced heli-logging contractor availability.

Despite lower harvest volumes, Timberlands operating cash costs per cubic metre declined 26% in the third quarter of 2023, compared to the same period last year, primarily as a result of lower stumpage per cubic metre. A reduction in more costly heli-logging harvest and management of road building activity also contributed to the lower unit costs.

BC Coastal sawlog purchases were 116,000 cubic metres in the third quarter of 2023, as compared to 302,000 cubic metres in the same period last year. We managed sawlog purchases to match fibre requirements at our BC manufacturing facilities.

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