Western Forest Products Q3 2024 Earnings Call Transcript

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November 7, 2024

There are 4 speakers on the call.

Operator

Thank you all for waiting. Mr. Fierro, you may go ahead.

Speaker 1

Go ahead, Glenn.

Speaker 2

Thanks, Steven. 3rd quarter adjusted EBITDA was negative $10,700,000 as compared to negative $11,600,000 in the same period last year. Results in the 3rd quarter included $1,000,000 in export tax recovery as compared to $4,300,000 in the same period last year. Results in the Q3 benefited from higher log and lumber shipments, which were partially offset by a weaker log and lumber sales mix, higher stumpage expense and increased softwood lumber duty rates. During the Q3, the U.

Speaker 2

S. Department of Commerce released its final determination for countervailing and antidumping rates resulting from its 5th administrative review. As a result of this review, combined softwood lumber duty rates were increased from approximately 8% to 14.4%. This new rate will remain in effect until the finalization of the 6th administrative review, which is anticipated in the second half of twenty twenty five. We closed the Q3 with approximately 71,000,000 board feet of lumber inventory and 793,000 cubic meters of log inventory.

Speaker 2

Turning to CapEx and cash flow, our 2024 total CapEx spending is expected to be approximately $35,000,000 From a balance sheet perspective, we ended the 3rd quarter with liquidity of approximately $137,000,000 and a net debt to cap ratio of 13%. As at the end of September, we had approximately $240,000,000 in duties on deposit, which equates to approximately $0.55 per share after tax. Turning to Q4 seasonality. Typically in 4th quarters, lumber consumption declines in North America as construction slows with the onset of winter. In our timberlands, harvest volumes decline as we lose daylight operating hours.

Speaker 2

In addition, winter weather can negatively impact operations and further limit production. The combination of weather related curtailments and reduced operating hours can put upward pressure on harvest costs. That said, we remain comfortable with our log inventories as we enter the Q4. As previously announced, we expect to take approximately 30,000,000 board feet of lumber production curtailments in the Q4. We will continue to manage our manufacturing operating schedules to match production to market demand and log supply.

Speaker 2

Stephen, that concludes my remarks.

Speaker 1

Thanks, Glenn, and apologize for the interruption there. We lost connectivity. Turning to our market outlook, cedar demand and prices for timber and products are expected to remain stable as buyers begin to build inventories for the spring season, while demand for decking products has started to seasonally slow. Repair and renovation spending is expected to improve gradually in 2025, but to remain below peak levels experienced over the last few years. In Japan, continued weakness in wooden home starts, well stocked inventories and a weaker Japan yen to U.

Speaker 1

S. Dollar exchange rates are anticipated to impact lumber demand and prices in Japan into the first half of twenty twenty five. For industrial lumber products, current improved demand and pricing is expected to continue through the Q1 of 2025. For commodity lumber, North American demand and prices are expected to remain flat with some fluctuations depending on product line. In China, despite the weaker housing market, lumber prices have slightly improved on lower channel inventory levels, and we expect some modest pricing increases through the end of the year.

Speaker 1

Overall, we currently have a 4th quarter order file of approximately $120,000,000 board feet. Turning to the recent BC election. In October, we had a BC provincial election, which yielded a very close result. The BC NDP returned to power, but with a very slim majority. We were encouraged to see strong forestry commitments in the BC NDP's election campaign as well as that of the BC Conservatives.

Speaker 1

We will be working hard to ensure that forestry is top of mind for both the incoming government and the official opposition. We will engage with all elected representatives to enact policies and programs that return BC's 4th sector to an internationally respected economic powerhouse. Looking ahead, we remain focused on executing our strategic priorities and maintaining a strong balance sheet. With that operator, we can open the call up to questions.

Operator

Thank you. We will now take questions from the telephone

Speaker 3

First for me, in your manufacturing operations, you talked about wanting to drive stronger reliability and uptime at your mills. Could you help us understand how your metrics have trended here on the capacity you've been running? And then understand what you view as the most important levers for further improvement there, please? Thanks, Matt.

Speaker 1

We measure overall reliability and uptime on an hourly shift by shift, day by day and report out on it as an executive team on a weekly basis. In Q3, we were right around 84.6 percent uptime across all of our facilities, slightly about 0.3% down from where we were the previous quarter, the functionality of a couple of significant events at our Saltair facility. But overall, our reliability and uptime has increased significantly in the last 2 years. When I first joined, I think we had a number of mills in mid-70s. So a really significant gain in overall reliability as a result of some change in management structure and just overall focus.

Speaker 1

I'll say that to move the dial now to 88 is our next target for all of our facilities, but we are dealing with older facilities that have a bit older technology and nearing end of life. So our focus now is to really focus on those events that are catastrophic in nature and ensure that we're positioning those mills for success every day. In terms of levers in our business, each mill is a bit unique based on the log profile, small diameter timber, medium size and large diameter. So a facility like Ladysmith is, it's a small log facility there. So uptime, productivity per hour is very important at a place like Duke Point where larger diameter timber focused on grade extraction, product value and recovery are the main levers there.

Speaker 1

So each mill is a little bit unique, Matt, in terms of the key levers of profitability, but our team understands what those levers are on a mill by mill basis and are very much focused on. Great. Thank you for

Speaker 3

the color there. Next for me, I think you provided some commentary around this topic a couple of quarters ago, but with recent developments in the marketplace, can you just provide any updated thoughts around opportunities that exist to monetize a portion of your duties and deposits and how you would evaluate those?

Speaker 1

I'll let Glenn provide some comment on that, Matt.

Speaker 2

Hi, Matt. Yes, I mean the duty is something we continue to remain open to monetizing, looking at alternatives for that. Obviously, there is an insurance transaction that started with the peer during the quarter. I think all I could say is that, you know, it's something we continue to evaluate. The proposals we've seen are in discussion with the cost of capital remains much higher than other alternatives we have available to us, but it's something that we continue to monitor and remain active evaluating.

Speaker 3

Great. Thanks very much. And if I could just sneak one more in. Just touching on your comments around the BC election, you mentioned wanting to engage with representatives to enact positive policy for the sector. What would be your kind of short list of most important kind of recommendations on that front?

Speaker 1

Certainly, we have that list well defined and have reached out to both parties to ensure that our interests are well represented as government restarts. Our interests on the BC coast are a little bit different than on perhaps in the BC interior. But it's really around this clarity and certainty of access to fiber. We're fortunate that we've spent a lot of time developing strong relations across all the First Nations on whose traditional territory we operate on. But we still have delays on the permitting side that are impacting our ability to become a bit more efficient in our timberland operations.

Speaker 1

So removing some of the I guess some of the roadblocks that are in place for permitting is a key piece and policy can dramatically change that. So I would say the permitting side is front and center. The BCTS system, we fundamentally believe it needs to be dramatically changed and we work to make it efficient, both on the coast and on the province. And so it's really ensuring that there's an alignment inside of government and the civil service to recognize the importance of this industry and roll up their sleeves and work with every organization, whether they're on the BC coast or in the BC interior, because we're at a bit of a crisis here and there's another duty that is coming at us in October of next year and time is limited for action to take place.

Operator

There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Seo.

Speaker 1

Well, thanks everyone for joining our call today. We appreciate your interest in our company and look forward to our next call in February and enjoy the long weekend. Thank you.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Western Forest Products Q3 2024
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