By: The Working Forest Staff
VANCOUVER, BC, CNW — West Fraser Timber Co. Ltd., has reported the fourth quarter and annual results of 2020. All dollar amounts in this news release are expressed in Canadian dollars.
Despite a year filled with uncertainty, West Fraser maintained its strategy and delivered strong results. We minimized COVID-19 related business disruptions, thanks to our focus on workplace safety and the agility of our people and operations and benefitted from strong demand for our products. The acquisition of Norbord Inc. (“Norbord”) was completed on February 1, 2021. Norbord’s complementary products and operations expand West Fraser’s geographic and product diversification and positions the Company as a leading wood-based building products producer. Except where specifically noted, the financial information set out in this news release relates solely to West Fraser prior to giving effect to the acquisition of Norbord.
- Sales of $1.689 billion in the quarter
- Earnings of $366 million or 22% of sales
- Adjusted EBITDA of $544 million
- A quarterly cash dividend of $0.20 declared
- Additional export duty recovery of $124 million for the finalization of the 2017 and 2018 administrative review
- Sales of $5.850 billion in the year
- Earnings of $776 million or 13% of sales
- Adjusted EBITDA of $1.460 billion
- Cash provided by operating activities of $1.295 billion
- Invested $241 million in capital projects
- Year-end liquidity strong at $1.619 billion and net debt to capital ratio at 2%
On February 1, 2021, we completed the acquisition of Norbord in an all-stock transaction. Norbord’s OSB production further diversifies West Fraser’s product portfolio and expands our reach into the European market. For additional information, refer to the section titled “Norbord Acquisition” in our 2020 Management’s Discussion & Analysis (“2020 MD&A”).
Concurrent with the completion of the Norbord acquisition, the Common shares of West Fraser commenced trading on the New York Stock Exchange (“NYSE”) on February 1, 2021 under the symbol WFG. In addition, the trading symbol for the Common shares on the Toronto Stock Exchange (“TSX”) was changed to WFG on February 1, 2021.
On November 24, 2020, the U.S. Department of Commerce (“USDOC”) issued its final duty rates for the first Administrative Review (“AR”) Period of Investigation (“POI”) dated April 28, 2017 to December 31, 2018. The cash deposit rate for shipments is a combined 8.97%, which marks a significant decrease from the 23.56% deposit rate previously required by the USDOC. The AR2 for the 2019 fiscal period is continuing, and the USDOC has initiated AR3 for the 2020 fiscal period. Preliminary results for AR2 are expected in May 2021 and final results in November 2021. For additional information, refer to the section titled “Discussion & Analysis of Annual Results by Product Segment – Lumber – Softwood Lumber Dispute” in our 2020 MD&A.
Results Compared to Previous Periods
($ millions except earnings per share (“EPS”))
|Basic EPS ($)||5.34||5.09||11.30||(0.61)||(2.18)|
|Adjusted basic EPS1 ($)||4.92||5.85||12.27||(0.16)||(0.31)|
|1.||Throughout this news release, reference is made to Adjusted EBITDA, Adjusted earnings, Adjusted basic earnings per share, and liquidity (collectively “Non-IFRS measures”). For information on these Non-IFRS measures see below under the heading “Non-IFRS Measures”.|
Our lumber segment generated operating earnings in the quarter of $503 million (Q3-20 – $454 million) and Adjusted EBITDA of $508 million (Q3-20 – $552 million). Current quarter operating earnings includes a $124 million duty recovery related to the AR1 duty rate finalization. Adjusted EBITDA, which excludes duties, declined due to lower lumber prices, a stronger Canadian dollar relative to the U.S. dollar, and higher SPF log costs resulting from increased Alberta stumpage rates. Higher SPF shipment volumes partially offset the decline. We remain encouraged by the progress we have seen with the capital that we have invested in the U.S. south.
Our panels segment generated operating earnings in the quarter of $57 million (Q3-20 – $47 million) and Adjusted EBITDA of $62 million (Q3-20 – $51 million). Increased plywood pricing and robust plywood demand positively impacted the panels segment earnings for the quarter, partially offset by a decrease in plywood, MDF, and LVL shipments and higher log costs from increased Alberta stumpage rates. The positive price variance increased Adjusted EBITDA by $26 million compared to the previous quarter.
Our pulp & paper segment generated an operating loss in the quarter of $36 million (Q3-20 – loss of $5 million) and Adjusted EBITDA of negative $26 million (Q3-20 – positive $5 million). Hinton pulp’s annual major maintenance and Quesnel pulp’s minor maintenance shutdowns occurred in the quarter resulting in significantly higher maintenance costs than the previous quarter. Despite this challenging quarter, the reliability of our Hinton pulp mill improved in 2020.
We expect lumber production for 2021 to increase by approximately 340 MMfbm over 2020 production and reach approximately 6,300 MMfbm. Pulp production is expected to slightly improve in 2021.
Capital expenditures are expected to be roughly $550 million in 2021, including estimates for the acquired Norbord operations post-close. With respect to the acquired North American facilities, production at the previously curtailed mill in Chambord, Quebec, will resume in spring 2021. Our focus in 2021 is integrating our newly acquired OSB and panel operations and realizing gains from previous investments in capital.
The U.S. housing starts published in December 2020 remained strong and exceeded that of the previous two years. Industry forecasts for housing in 2021 are for continued strength of which our diversified products are well-positioned to supply. We expect continued improvement and sustainable growth as we execute on our capital improvement strategy.
Our results of operations for 2021 will incorporate the results of operations of Norbord effective February 1, 2021. As part of the acquisition of Norbord, we have assumed Norbord’s US$315 million senior notes due April 2023, bearing interest at 6.25% and US$350 million senior notes due July 2027, bearing interest at 5.75% (“Norbord Bonds”). Pursuant to the terms of the Norbord Bonds, we are required to make an offer to repurchase them at 101% of their principal amount, plus accrued and unpaid interest. Any Norbord Bonds not purchased under this offer will remain outstanding. Details of the offer will be provided in a notice of the offer to be mailed to the holders of the Norbord Bonds.