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Western Forest Products Inc. announces negative Q1 2020 results due to COVID-19


May 7, 2020
By Western Forest Products Inc.

Western Forest Products Inc. reported negative adjusted EBITDA of $17.4 million in the first quarter of 2020. Results were impacted by strike action that concluded in mid-February at the majority of its BC-based operations, a graduated return to work through the second half of the quarter, weak North American markets, and the novel Coronavirus pandemic (COVID-19). The Company mitigated losses arising from labour disruptions by selling available inventory and minimizing certain expenditures.

Western curtailed production at its manufacturing operations for one-week in March to implement enhanced health and safety protocols and re-evaluate market conditions arising from COVID-19. In accordance with directions from provincial and federal authorities, the Company resumed operations to continue to service customers and provide support for thousands of industry jobs.

As a result of business uncertainty caused by COVID-19, Western has suspended its quarterly dividend. The Company’s Board of Directors will continue to review the dividend quarterly.

Net loss of $21.0 million ($0.06 net loss per diluted share) was reported for the first quarter of 2020, as compared to net income of $1.9 million ($nil per diluted share) for the first quarter of 2019 and net loss of $29.2 million ($0.09 net loss per diluted share) in the fourth quarter of 2019.

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Western’s negative adjusted EBITDA of $17.4 million compared to adjusted EBITDA of $18.1 million in the first quarter of 2019, and negative $18.1 million reported in the fourth quarter of 2019. Operating loss prior to restructuring and other items was $28.4 million, compared to $5.7 million in first quarter of 2019, and $29.6 million loss reported in the fourth quarter of 2019.

Q1 Q1 Q4
(millions of dollars except per share amounts and where otherwise noted) 2020 2019 2019
Revenue $ 99.1 $ 275.7 $ 80.1
Export tax expense 4.0 9.2 3.4
Adjusted EBITDA (17.4 ) 18.1 (18.1 )
Adjusted EBITDA margin -17.6 % 6.6 % -22.6 %
Operating income prior to restructuring items and other income (expense) $ (28.4 ) $ 5.7 $ (29.6 )
Net income (loss) (21.0 ) 1.9 (29.2 )
Basic and diluted earnings (loss) per share (in dollars) (0.06 ) (0.09 )
Net debt, end of period 137.0 72.4 111.3
Liquidity, end of period 113.5 175.7 136.9

“I’m proud of our employees and business partners for safely returning to work and for their rapid implementation of enhanced safety protocols to address the health risk associated with COVID-19,” said Don Demens, president and chief executive officer. “Through their dedication and collaboration, we continue to safely operate, service customers and sustain jobs.”

COVID-19

Western is committed to the health and safety of our employees, contractors and the communities where we operate. To help mitigate the spread of COVID-19, we have implemented strict health and safety protocols across our business that are based on guidance from health officials and experts, and in compliance with regulatory orders and standards.

Health and safety protocols currently being enforced include travel restrictions; self-isolation instructions for those who have travelled, are ill, exhibiting symptoms of COVID-19 or have come in direct contact with someone with COVID-19; implementing physical distancing measures; restricting site access to essential personnel and activities; increasing cleaning and sanitization in workplaces; and where possible, providing those who can work from home the ability to exercise that option. We continue to monitor and review the latest guidance from health officials and experts to ensure our protocols meet the current required standards.

In response to the impacts of the COVID-19 pandemic, the Company also curtailed its BC manufacturing facilities for up to a one-week period effective March 23, 2020.

State of Emergency declarations and other restrictions relating to travel, business operations and isolation have been made by governing bodies in the regions that Western operates and sells its products. Western’s business activities have been designated an essential service in Canada and the US, and we will continue to monitor and adjust our operations as required to ensure the health and safety of our employees, contractors and the communities where we operate and to address changes in customer demand. In addition, governments in Canada and the US have announced various financial relief programs for businesses. We continue to analyze whether Western can apply for any of the programs to help mitigate the financial impacts of COVID-19.

With the potential negative impacts to the global economy from COVID-19 and with dynamic global economic conditions, our near-term focus remains on maintaining financial flexibility to manage our business during this uncertain time while protecting the health and safety of our employees and contractors and servicing our customers.

Operations Curtailments

On March 22, 2020, the Company announced it was temporarily curtailing its manufacturing facilities operating in BC for up to a one-week period effective March 23, 2020. After implementing enhanced health and safety protocols and re-evaluating operating conditions, the Company resumed all operations in late March, except at our Ladysmith, Cowichan Bay and Somass sawmills.

On May 4, 2020, we restarted production at our Cowichan Bay sawmill, which had remained curtailed after the end of the Strike due to limited log supply. The continued operation of our Cowichan Bay sawmill is dependent on log supply and market conditions.

Our Ladysmith sawmill, which remained curtailed after the end of the Strike, is expected to continue to remain curtailed due to insufficient log supply.

Our Somass sawmill remains indefinitely curtailed as a result of a fibre supply deficit arising from years of tenure takebacks and government land use decisions, and rising costs associated with the US Softwood Lumber dispute.

As of May 6, 2020, our other manufacturing and timberlands are actively operating based on market demand.

Read the full report here.