West Fraser reports increased sales in Q1 2020 despite impact of COVID-19
By West Fraser Timber Co.
By West Fraser Timber Co.
West Fraser Timber Co. Ltd. has reported $1.195 billion in sales – up 6 per cent from previous quarter – for first quarter of 2020 amid COVID-19.
The impact of the novel Coronavirus (COVID-19) pandemic has been swift, requiring unprecedented actions to control the spread of the virus and has resulted in governments and businesses worldwide enacting emergency measures and restrictions to combat the spread of COVID-19. These measures and restrictions, which include the implementation of travel bans, mandated or voluntary business closures, and self-imposed and mandatory quarantine periods, isolation orders and social distancing have caused material disruptions to businesses globally resulting in an economic slowdown and have led to disruptions to our workforce and operating facilities, customers, production, sales and operations, and supply chain. Governments and central banks have reacted with significant monetary and fiscal interventions and other measures designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak are unknown at this time, as is the effectiveness of governments and central banks measures to stabilize the economy and limit the spread of COVID-19. At this time, it is not possible to reliably estimate the length and severity of these developments and the impact on our operations, the markets for our products, and our financial results and condition.
As a result of the far-reaching impact of COVID-19, we have made a number of adjustments to our operating schedules late in the first quarter of 2020. The impact of these adjustments on our first quarter production was a reduction of approximately 50 MMfbm for lumber and 10 MMsf for plywood. The “Outlook” section below includes commentary on potential future operating schedules.
Ray Ferris, President and CEO of West Fraser stated, “The safety, health, and well-being of our employees and the communities in which we operate remain our primary focus. Our goal is to operate safely and to mitigate potential exposure. As such, we have implemented physical distancing strategies, increased cleaning and disinfection at our sites, provided protective equipment as required, executed remote working policies, and eliminated all non-essential travel.”
Our lumber segment generated operating earnings of $19 million (Q4-19 – $23 million loss) and Adjusted EBITDA of $106 million (Q4-19 – $69 million). The improvement was due primarily to higher product pricing for specific gradesofSPFlumber,favourableforeignexchangemovements,andlowerlogcosts. LowerSPFshipment volumes, due principally to permanent capacity reductions in the prior year, partially offset improved product pricing. Pricing changes resulted in a $45 million increase in Adjusted EBITDA compared to the previous quarter. The current quarter included temporary curtailments of SPF and SYP production of 50 MMfbm compared to the 63 MMfbm of SPF temporarily curtailed in the previous quarter.
Our panels segment generated operating earnings in the quarter of $4 million (Q4-19 – $8 million) and Adjusted EBITDA of $8 million (Q4-19 – $13 million). Panel segment results declined as lower plywood and LVL shipment volumes offset higher plywood pricing. The current quarter included temporary plywood curtailments of 10 MMsf as plywood sales in Canada were among the first of our commodities affected by the impact of COVID-19.
Our pulp & paper segment generated operating earnings of $nil (Q4-19 – $12 million loss) and an Adjusted EBITDA of $11 million (Q4-19 – $1 million loss). The improvement was due primarily to improved pulp pricing, favourable foreign exchange rate movements, lower chip costs, and positive inventory valuation adjustments resulting from improved pulp prices, partially offset by lower pulp shipment volumes. The price variance resulted in a $6 million increase in Adjusted EBITDA compared to the previous quarter.
We expect production to continue to be negatively affected over the coming months due to the COVID-19 pandemic’s impact on the supply chain and market demand. As previously announced, we have been operating below capacity in SPF, SYP and plywood. We also announced four weeks of downtime at our Cariboo Pulp joint operation starting April 20, 2020, that will reduce our share of production by 15,000 tonnes. We expect that production schedules will be variable for the foreseeable future and will continue to adjust operations as necessary. At this point, it is not possible to predict when all operations will return to normal schedules or whether production schedules will be further changed. At this time, we are withdrawing the production outlook for 2020 provided in our 2019 annual MD&A and are not able to provide any further guidance.
We continue to review our operations and financial position and develop plans for the potential long-term impacts of the COVID-19 pandemic, including reviewing our capital expenditure plans and managing our working capital. Ray Ferris, President and CEO of West Fraser stated, “Our well capitalized balance sheet along with our low-cost manufacturing operations and product and geographic diversification, provide us with a strong platform to manage through the impacts of the COVID-19 pandemic.”
First Quarter Highlights
- Sales of $1.195 billion, up 6 per cent on prior quarter.
- Adjusted EBITDA of $127 million, $47 million higher than prior quarter.
- Improved prices, favourable foreign exchange rate movements, and lower fibre costs resulted inimproved Adjusted EBITDA for the quarter.
- Quarter-end liquidity of $294 million and net debt to capital ratio at 33 per cent.
- On April 9, 2020, secured an additional two-year $150 million committed revolving credit facility.
- Progress on Dudley, Georgia sawmill on track.