VANCOUVER, BC, Feb. 14,
2023 /CNW/ - West Fraser Timber Co. Ltd. ("West
Fraser" or the "Company") (TSX and NYSE: WFG) reported today the
fourth quarter results of 2022 ("Q4-22"). All dollar amounts
in this news release are expressed in U.S. dollars unless noted
otherwise.
Fourth Quarter
Highlights
- Sales of $1.615 billion and
earnings of $(94) million, or
$(1.13) per diluted share
- Adjusted EBITDA1 of $70
million, representing 4% of sales
- Lumber segment Adjusted EBITDA1 of $(77) million, including $39 million of inventory write-downs
- North America Engineered Wood Products ("NA EWP") segment
Adjusted EBITDA1 of $109
million
- Pulp & Paper segment Adjusted EBITDA1 of
$15 million
- Europe Engineered Wood Products ("Europe EWP") segment Adjusted
EBITDA1 of $30
million
- Repurchased 1.557 million shares for aggregate consideration of
$117 million
Annual Highlights
- Sales of $9.701 billion and
earnings of $1.975 billion, or
$20.86 per diluted share
- Adjusted EBITDA1 of $3.212
billion, representing 33% of sales
- Lumber segment Adjusted EBITDA1 of $1.328 billion
- NA EWP segment Adjusted EBITDA1 of $1.677 billion
- Pulp & Paper segment Adjusted EBITDA1 of
$26 million
- Europe EWP segment Adjusted EBITDA1 of $186 million
- Repurchased 22.373 million shares for aggregate consideration
of $1.990 billion
"In the fourth quarter of 2022, we faced a challenging demand
market as rising interest rates dampened new home construction
activity in the U.S., most acutely impacting our Lumber business.
Despite these market conditions, West Fraser delivered another
strong year of performance in 2022, recording more than
$3.2 billion of adjusted EBITDA for
the period and returning nearly $2.1
billion of capital to shareholders through share repurchases
and dividends. We continued to benefit from our product and
geographic diversification, particularly in the fourth quarter when
our North American and European Engineered Wood Panels and Pulp
& Paper segments each made significant positive EBITDA
contributions," said Ray Ferris,
West Fraser's President & CEO.
"Over the near term, we anticipate that the business will
continue to experience moderating costs, although we expect
continued labour constraints and potentially muted product demand
as housing affordability and demand find a new equilibrium.
Importantly, the West Fraser team has a proven track record of
effectively managing through market cycles while maintaining a
strong balance sheet, reinvesting in our operations and returning
capital to shareholders. As we execute on our core strategy of
being a low-cost producer in the key wood building products markets
we serve, we will continue to prioritize financial discipline to
ensure we capitalize on the favourable demand environment we expect
over the medium and longer term."
1.
|
Adjusted EBITDA is a
non-GAAP financial measure. Refer to the "Non-GAAP and Other
Specified Financial Measures" section of this document for more
information on this measure.
|
|
|
Results Summary
Fourth quarter sales were $1.615
billion, compared to $2.088
billion in the third quarter of 2022. Fourth quarter
earnings were $(94) million, or
$(1.13) per diluted share, compared
to $216 million, or $2.50 per diluted share in the third quarter of
2022. Fourth quarter Adjusted EBITDA1 was $70 million compared to $426 million in the third quarter of
2022.
Full year sales were $9.701
billion, compared to $10.518
billion in 2021. Full year earnings were $1.975 billion, or $20.86 per diluted share, compared to
$2.947 million, or $27.03 per diluted share in 2021. Adjusted
EBITDA1 was $3.212 billion
in 2022 compared to $4.569 billion in
2021.
Liquidity and Capital
Allocation
Cash and short-term investments decreased to $1.162 billion at December
31, 2022 from $1.568 billion
at December 31, 2021.
Capital expenditures in the fourth quarter were $149 million. Full year capital expenditures were
$477 million in 2022 and $635 million in 2021. The 2021 capital
expenditures included $276 million
for the asset acquisition of the idled oriented strand board
("OSB") mill near Allendale, South
Carolina.
We paid $25 million of dividends
in the fourth quarter, or $0.30 per
share, and declared a $0.30 per share
dividend payable in the first quarter of 2023. We paid $99 million of dividends in 2022.
In the fourth quarter of 2022, we repurchased 1,557,136 shares
under our current Normal Course Issuer Bid ("NCIB") for aggregate
consideration of $117 million. For the full year, we
repurchased 10,194,000 shares under the current NCIB for aggregate
consideration of $859 million, plus
an additional 281,115 shares acquired under our previous NCIB for a
total repurchase of 10,475,115 shares in 2022. As of
February 13, 2023, there are no further shares available to
purchase under the current NCIB. A further 11,898,205 shares were
repurchased under our substantial issuer bid ("SIB") in 2022 for
aggregate consideration of $1,130
million.
As of February 13, 2023, we have repurchased for
cancellation 39,741,794 of the Company's Common shares since the
closing of the Norbord Acquisition on February 1, 2021 through the completion of the
2021 SIB, the 2022 SIB and normal course issuer bids, equalling 73%
of the shares issued in respect of the Norbord Acquisition.
Outlook
Markets
Several key trends that have served as positive drivers in
recent years are expected to continue to support medium and
longer-term demand for new home construction in North America.
The most significant uses for our North America lumber, OSB and wood panel
products are residential construction, repair and remodelling and
industrial applications. Over the medium term, we expect that an
aging housing stock, the backlog of homes to be built due to
lagging completions of previously started new home construction and
greater entrenchment of work-from-home flexibility will help to
offset near-term headwinds and spur repair and renovation spending
that supports lumber, plywood and OSB demand. Over the longer term,
growing market penetration of mass timber in industrial and
commercial applications is also expected to become a more
significant source of demand growth for wood building products in
North America.
The seasonally adjusted annualized rate of U.S. housing starts
averaged 1.38 million units in December
2022, with permits issued averaging 1.33 million units,
according to the U.S. Census Bureau. Demand for new home
construction and our wood building products may decline in the near
term should interest rates remain elevated or continue to rise and
consequently impact consumer sentiment and housing
affordability.
The demand for our European products is expected to remain
robust over the longer term as use of OSB as an alternative to
plywood grows. Further, an aging housing stock supports long-term
repair and renovation spending and additional demand for our wood
building products. Near-term challenges, including relatively high
and rising interest rates, ongoing geopolitical developments and
inflationary pressures, are expected to cause a temporary slowing
of demand for our products in Europe, however, we are confident that we will
be able to navigate through these periods and respond to
opportunities for long-term growth ahead.
Operations
The Company is providing the following operational guidance for
2023:
- Spruce-pine-fir ("SPF") shipments are expected to be 2.6 to 2.8
billion board feet
- Southern yellow pine ("SYP") shipments are expected to be 2.9
to 3.1 billion board feet
- NA OSB shipments are expected to
be 5.9 to 6.2 billion square feet (3/8-inch basis)
- Pulp & Paper segment shipments are not expected to increase
from 2022 levels
- Europe OSB shipments are expected to be 1.0 to 1.2 billion
square feet (3/8-inch basis)
- Costs and availability constraints for transportation, raw
materials such as resins and chemicals, and energy are expected to
continue to moderate near term, while labour availability is
expected to remain challenging
- Capital expenditures2 are expected to be
$500 million to $600 million
2.
|
This is a supplementary
financial measure. Refer to the "Non-GAAP and Other Specified
Financial Measures" section of this document for more information
on this measure.
|
|
|
Dividend Declared
The Board of Directors of the Company has declared a dividend of
$0.30 per share on the Common shares
and the Class B Common shares in the capital of the Company,
payable on April 4, 2023 to
shareholders of record on March 17, 2023. Dividends are
designated to be eligible dividends pursuant to subsection 89(14)
of the Income Tax Act (Canada) and any applicable provincial
legislation pertaining to eligible dividends. Dividends are
declared and payable in U.S. dollars. Shareholders may elect to
receive their dividends in Canadian dollars. Details regarding the
election procedure are available on our website at
www.westfraser.com in the "Investors/Stock Information/Dividends"
section.
Management Discussion &
Analysis ("MD&A")
Our 2022 Annual MD&A and annual audited consolidated
financial statements and accompanying notes are available on our
website at www.westfraser.com and the System for Electronic
Document Analysis and Retrieval ("SEDAR") at www.sedar.com and the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR")
website at www.sec.gov/edgar under the Company's profile.
Sustainability
Report
West Fraser's 2021 Sustainability Report is available on the
Company's website at www.westfraser.com. This report reviews the
Company's key Environmental, Social, and Governance ("ESG")
performance and includes information aligned with the Sustainable
Accounting Standards Board ("SASB"), Global Reporting Initiative
("GRI"), the Task Force on Climate-Related Disclosures ("TFCD") and
CDP (formerly the Carbon Disclosure Project).
Risks and
Uncertainties
Risk and uncertainty disclosures are included in our 2022 Annual
MD&A as well as in our public filings with securities
regulatory authorities. See also the discussion of
"Forward-Looking Statements" below.
Conference Call
West Fraser will hold an analyst conference call to discuss the
Company's Q4-22 financial and operating results on Wednesday, February 15, 2022, at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time). To participate in
the call, please dial: 1-888-390-0605 (toll-free North America) or 416-764-8609 (toll) or
connect on the webcast. The call and an earnings presentation
may also be accessed through West Fraser's website at
www.westfraser.com. Please let the operator know you wish to
participate in the West Fraser conference call chaired by Mr.
Ray Ferris, President and Chief
Executive Officer.
Following management's discussion of the quarterly results,
investors and the analyst community will be invited to ask
questions. The call will be recorded for webcasting purposes
and will be available on the West Fraser website at
www.westfraser.com.
About West Fraser
West Fraser is a diversified wood products company with
more than 60 facilities in Canada,
the United States ("U.S."), the
United Kingdom ("U.K."), and
Europe. From responsibly sourced
and sustainably managed forest resources, the Company produces
lumber, engineered wood products (OSB, LVL, MDF, plywood, and
particleboard), pulp, newsprint, wood chips, other residuals and
renewable energy. West Fraser's products are used in home
construction, repair and remodelling, industrial applications,
papers, tissue, and box materials.
Forward-Looking
Statements
This news release includes statements and information that
constitutes "forward-looking information" within the meaning of
Canadian securities laws and "forward-looking statements" within
the meaning of United States
securities laws (collectively, "forward-looking statements").
Forward-looking statements include statements that are
forward-looking or predictive in nature and are dependent upon or
refer to future events or conditions. We use words such as
"expects," "anticipates," "plans," "believes," "estimates,"
"seeks," "intends," "targets," "projects," "forecasts" or negative
versions thereof and other similar expressions, or future or
conditional verbs such as "may," "will," "should," "would" and
"could" to identify these forward-looking statements. These
forward-looking statements generally include statements which
reflect management's expectations regarding the operations,
business, financial condition, expected financial results,
performance, prospects, opportunities, priorities, targets, goals,
ongoing objectives, strategies and outlook of West Fraser and its
subsidiaries, as well as the outlook for North American and
international economies for the current fiscal year and subsequent
periods.
Forward-looking statements included in this news release include
references to the following and their impact on our business:
- Demand in North American and European markets for our products,
including demand from new home construction, repairs and
renovations and industrial and commercial applications, the impact
of rising interest rates and inflationary pressures and the growing
penetration of mass timber;
- Anticipated moderation of interest rates and availability
constraints for transportation, raw materials and energy in the
near term and continued challenges on labour availability; and
- Operation guidance, including projected shipments, inflationary
cost pressures on our input costs, transportation, raw materials
and energy constraints and projected capital expenditures.
By their nature, these forward-looking statements involve
numerous assumptions, inherent risks and uncertainties, both
general and specific, which contribute to the possibility that the
predictions, forecasts, and other forward-looking statements will
not occur. Factors that could cause actual results to differ
materially from those contemplated or implied by forward-looking
statements include, but are not limited to:
- assumptions in connection with the economic and financial
conditions in the U.S., Canada,
U.K., Europe and globally and
consequential demand for our products, including the impact of the
conflict in the Ukraine;
- continued increases in interest rates and inflation could
impact housing affordability and repair and remodelling demand,
which could reduce demand for our products;
- global supply chain issues may result in increases to our costs
and may contribute to a reduction in near-term demand for our
products;
- risks inherent to product concentration and cyclicality;
- effects of competition for logs and fibre resources and product
pricing pressures, including continued access to log supply and
fibre resources at competitive prices and the impact of third-party
certification standards;
- effects of variations in the price and availability of
manufacturing inputs, including energy, employee wages, resin and
other input costs, and the impact of inflationary pressures on the
costs of these manufacturing costs, including increases in stumpage
fees and log costs;
- availability and costs of transportation services, including
truck and rail services, and port facilities, the impacts on
transportation services of wildfires and severe weather events, and
the impact of increased energy prices on the costs of
transportation services;
- transportation constraints may negatively impact our ability to
meet projected shipment volumes;
- the timing of our planned capital investments may be delayed,
the ultimate costs of these investments may be increased as a
result of inflation, and the projected rates of return may not be
achieved;
- various events that could disrupt operations, including
natural, man-made or catastrophic events including wildfires and
any state of emergency and/or evacuation orders issued by
governments and ongoing relations with employees;
- risks inherent to customer dependence;
- impact of future cross border trade rulings or agreements;
- implementation of important strategic initiatives and
identification, completion and integration of acquisitions;
- impact of changes to, or non-compliance with, environmental or
other regulations;
- the impact of the COVID-19 pandemic on our operations and on
customer demand, supply and distribution and other factors;
- government restrictions, standards or regulations intended to
reduce greenhouse gas emissions;
- our inability to achieve our SBTi commitment for the reduction
of greenhouse gases as planned;
- continued governmental approvals and authorizations to access
timber supply;
- changes in government policy and regulation, including actions
taken by the Government of British
Columbia pursuant to recent amendments to forestry
legislation and initiatives to defer logging of forests deemed "old
growth" and the impact of these actions on our timber supply;
- impact of weather and climate change on our operations or the
operations or demand of its suppliers and customers;
- ability to implement new or upgraded information technology
infrastructure;
- impact of information technology service disruptions or
failures;
- impact of any product liability claims in excess of insurance
coverage;
- risks inherent to a capital intensive industry;
- impact of future outcomes of tax exposures;
- potential future changes in tax laws, including tax rates;
- investigations, claims and legal, regulatory and
tax proceedings covering matters which if resolved unfavourably may
result in a loss to the Company;
- effects of currency exposures and exchange rate
fluctuations;
- future operating costs;
- availability of financing, bank lines, securitization programs
and/or other means of liquidity;
- continued integration of the Norbord business;
- continued access to timber supply in the traditional
territories of Indigenous Nations;
- our ability to continue to maintain effective internal control
over financial reporting;
- the risks and uncertainties described in this 2022 Annual
MD&A; and
- other risks detailed from time to time in our annual
information forms, annual reports, MD&A, quarterly reports and
material change reports filed with and furnished to securities
regulators.
In addition, actual outcomes and results of these statements
will depend on a number of factors including those matters
described under "Risks and Uncertainties" in our 2022 Annual
MD&A and may differ materially from those anticipated or
projected. This list of important factors affecting forward–looking
statements is not exhaustive and reference should be made to the
other factors discussed in public filings with securities
regulatory authorities. Accordingly, readers should exercise
caution in relying upon forward–looking statements and we undertake
no obligation to publicly update or revise any forward–looking
statements, whether written or oral, to reflect subsequent events
or circumstances except as required by applicable securities
laws.
Non-GAAP and Other Specified
Financial Measures
Throughout this news release, we make reference to (i) certain
non-GAAP financial measures, including Adjusted EBITDA and Adjusted
EBITDA by segment (our "Non-GAAP Financial Measures"), and (ii)
certain supplementary financial measures, including our expected
capital expenditures (our "Supplementary Financial Measures"). We
believe that these Non-GAAP Financial Measures and Supplementary
Financial Measures (collectively, our "Non-GAAP and other specified
financial measures") are useful performance indicators for
investors with regard to operating and financial performance and
our financial condition. These Non-GAAP and other specified
financial measures are not generally accepted financial measures
under IFRS and do not have standardized meanings prescribed by
IFRS. Investors are cautioned that none of our Non-GAAP Financial
Measures should be considered as an alternative to earnings or cash
flow, as determined in accordance with IFRS. As there is no
standardized method of calculating any of these Non-GAAP and other
specified financial measures, our method of calculating each of
them may differ from the methods used by other entities and,
accordingly, our use of any of these Non-GAAP and other specified
financial measures may not be directly comparable to similarly
titled measures used by other entities. Accordingly, these Non-GAAP
and other specified financial measures are intended to provide
additional information and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance
with IFRS. The reconciliation of the Non-GAAP measures used and
presented by the Company to the most directly comparable IFRS
measures is provided in the tables set forth below.
Adjusted EBITDA and
Adjusted EBITDA by segment
Adjusted EBITDA is used to evaluate the operating and financial
performance of our operating segments, generate future operating
plans, and make strategic decisions. Adjusted EBITDA is defined as
earnings determined in accordance with IFRS adding back the
following line items from the consolidated statements of earnings
and comprehensive earnings: finance expense, tax provision or
recovery, amortization, equity-based compensation, restructuring
and impairment charges, and other.
Adjusted EBITDA by segment is defined as segment earnings before
tax determined for each reportable segment in accordance with IFRS
adding back the following line items from the consolidated
statements of earnings and comprehensive earnings for that
reportable segment: finance expense, amortization, equity-based
compensation, restructuring and impairment charges, and other.
EBITDA is commonly reported and widely used by investors and
lending institutions as an indicator of a company's operating
performance, ability to incur and service debt, and as a valuation
metric. We calculate Adjusted EBITDA and Adjusted EBITDA by segment
to exclude items that do not reflect our ongoing operations and
should not, in our opinion, be considered in a long-term valuation
metric or should not be included in an assessment of our ability to
service or incur debt.
We believe that disclosing these measures assists readers in
measuring performance relative to other entities that operate in
similar industries and understanding the ongoing cash generating
potential of our business to provide liquidity to fund working
capital needs, service outstanding debt, fund future capital
expenditures and investment opportunities, and pay dividends.
Adjusted EBITDA is used as an additional measure to evaluate the
operating and financial performance of our reportable segments.
The following table reconciles Adjusted EBITDA to the most
directly comparable IFRS measure, earnings.
Quarterly
Adjusted EBITDA
|
|
|
($
millions)
|
|
|
|
Q4-22
|
Q3-22
|
Earnings
(loss)
|
(94)
|
216
|
Finance (income)
expense, net
|
(3)
|
(3)
|
Tax (recovery)
provision
|
(31)
|
80
|
Amortization
|
148
|
140
|
Equity-based
compensation
|
6
|
5
|
Restructuring and
impairment charges
|
47
|
—
|
Other
|
(2)
|
(12)
|
Adjusted
EBITDA
|
70
|
426
|
The following tables reconcile Adjusted EBITDA by segment to the
most directly comparable IFRS measures for each of our reportable
segments. We consider that segment earnings before tax is the most
directly comparable measure for Adjusted EBITDA by segment, given
we do not allocate consolidated tax amounts across our reportable
segments.
Quarterly
Adjusted EBITDA by segment
|
|
|
|
|
|
($
millions)
|
|
|
|
|
|
|
Q4-22
|
Lumber
|
NA
EWP
|
Pulp &
Paper
|
Europe
EWP
|
Corporate &
Other
|
Total
|
Earnings (loss) before
tax
|
$
(161)
|
$
40
|
$
1
|
$
1
|
$
(6)
|
$
(125)
|
Finance (income)
expense, net
|
(2)
|
(1)
|
—
|
—
|
(1)
|
(3)
|
Amortization
|
51
|
73
|
9
|
12
|
2
|
148
|
Equity-based
compensation
|
—
|
—
|
—
|
—
|
6
|
6
|
Restructuring and
impairment charges
|
31
|
—
|
—
|
15
|
—
|
47
|
Other
|
2
|
(3)
|
5
|
2
|
(8)
|
(2)
|
Adjusted EBITDA by
segment
|
$
(77)
|
$
109
|
$
15
|
$
30
|
$
(6)
|
$
70
|
Q3-22
|
Lumber
|
NA
EWP
|
Pulp &
Paper
|
Europe
EWP
|
Corporate &
Other
|
Total
|
Earnings (loss) before
tax
|
$
127
|
$
144
|
$
22
|
$
13
|
$
(10)
|
$
296
|
Finance (income)
expense, net
|
(5)
|
2
|
1
|
—
|
(1)
|
(3)
|
Amortization
|
45
|
71
|
9
|
12
|
3
|
140
|
Equity-based
compensation
|
—
|
—
|
—
|
—
|
5
|
5
|
Other
|
(7)
|
(2)
|
(3)
|
(1)
|
1
|
(12)
|
Adjusted EBITDA by
segment
|
$
160
|
$
215
|
$
29
|
$
24
|
$
(2)
|
$
426
|
Expected capital expenditures
This measure represents our best estimate of the amount of cash
outflows relating to additions to capital assets for 2023 based on
our current outlook. This amount is comprised primarily of various
improvement projects and maintenance-of-business expenditures,
projects focused on optimization and automation of the
manufacturing process, and projects to reduce greenhouse gas
emissions. This measure assumes no deterioration in current market
conditions during the year and that we are able to proceed with our
plans on time and on budget. This estimate is subject to the risks
and uncertainties identified in the Company's 2022 Annual
MD&A.
For More Information
Investor Contact
Robert B.
Winslow, CFA
Director, Investor Relations & Corporate Development
Tel. (416) 777-4426
shareholder@westfraser.com
Media Contact
Joyce
Wagenaar
Director, Communications
Tel. (604) 817-5539
media@westfraser.com
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SOURCE West Fraser Timber Co. Ltd.