Industry News Markets
West Fraser reports $544M in Adjusted EBITDA for Q4 2020

West Fraser Timber Co. Ltd. today reported the fourth quarter and annual results of 2020.

Despite a year filled with uncertainty, West Fraser maintained its strategy and delivered strong results. The company minimized COVID-19 related business disruptions, thanks to its focus on workplace safety and the agility of its people and operations, and benefitted from strong demand for products. The acquisition of Norbord Inc. was completed on Feb. 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.

Fourth quarter

• Sales of $1.689 billion in the quarter
• Earnings of $366 million or 22 per cent 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

2020

• Sales of $5.850 billion in the year
• Earnings of $776 million or 13 per cent 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 two per cent

Recent developments

On Feb. 1, 2021, West Fraser completed the acquisition of Norbord in an all-stock transaction. Norbord’s OSB production further diversifies West Fraser’s product portfolio and expands the company’s reach into the European market.

Concurrent with the completion of the Norbord acquisition, the common shares of West Fraser commenced trading on the New York Stock Exchange (NYSE) on Feb. 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 Feb. 1, 2021.

On Nov. 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 Dec. 31, 2018. The cash deposit rate for shipments is a combined 8.97 per cent, which marks a significant decrease from the 23.56 per cent 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.

Operational results

West Fraser’s 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. West Fraser remains encouraged by the progress the company has seen with the capital that it has invested in the U.S. south.

The company’s 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.

Outlook

West Fraser expects 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, Que., will resume in spring 2021. West Fraser’s focus in 2021 is integrating its 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 West Fraser’s diversified products are well-positioned to supply. The company expects continued improvement and sustainable growth as it executes on its capital improvement strategy.

West Fraser’s results of operations for 2021 will incorporate the results of operations of Norbord effective Feb. 1, 2021. As part of the acquisition of Norbord, West Fraser has assumed Norbord’s US$315 million senior notes due April 2023, bearing interest at 6.25 per cent and US$350 million senior notes due July 2027, bearing interest at 5.75 per cent.  Pursuant to the terms of the Norbord bonds, West Fraser is required to make an offer to repurchase them at 101 per cent 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.