Western Forest Products Inc. (WFSTF) Q4 2022 Earnings Call Transcript

Western Forest Products Inc. (OTCPK:WFSTF) Q4 2022 Earnings Conference Call February 17, 2023 12:00 PM ET

Company Participants

Steven Hofer - President & Chief Executive Officer

Stephen Williams - Executive Vice President & Chief Financial Officer

Glenn Nontell - Vice President-Corporate Development

Conference Call Participants

Hamir Patel - CIBC Capital Markets

Paul Quinn - RBC Capital Markets

Operator

Good morning, ladies and gentlemen, and invited to nan Western Forest Products Fourth Quarter 2022 Results Conference Call. During this convention call, Western's representatives whitethorn make forward-looking statements wrong nan meaning of applicable securities laws. These statements tin beryllium identified by words for illustration anticipate, plan, estimate, will, and different references to early periods.

Although, these forward-looking statements bespeak management's reasonable beliefs, expectations and assumptions, they are taxable to inherent uncertainties and existent results whitethorn disagree materially. There are galore factors that could origin existent outcomes to beryllium different, including those factors described nether risks and uncertainties successful nan company's yearly MD&A, which tin beryllium accessed connected SEDAR and is supplemented by nan company's quarterly MD&A.

Forward-looking statements are based only connected accusation presently disposable to Western and speak only arsenic of nan day connected which they are made. Except arsenic required by law, Western undertakes nary responsibility to update forward-looking statements. Accordingly, listeners should workout be aware successful relying upon forward-looking statements.

I would now for illustration to move nan gathering complete to Mr. Steven Hofer, President and CEO of Western Forest Products. Mr. Hofer, please spell up sir.

Steven Hofer

Thank you, Chris, and bully morning, everyone. I'd for illustration to invited you to Western Forest Products' 2022 Fourth Quarter Conference Call. Joining maine connected nan telephone coming is Stephen Williams, our Executive Vice President and Chief Financial Officer; and Glenn Nontell, our Vice President of Corporate Development.

We issued our 2022 4th quarter results yesterday. I will supply you pinch immoderate introductory comments and past inquire Steve to return you done a summary of our financial results. I will travel Steve's reappraisal pinch a chat of our strategical priorities and outlook earlier we unfastened nan telephone to your questions.

'22 was a year of 2 halves. In nan first half 2022, lumber request and pricing remains strong. However, successful nan 2nd half of 2022 arsenic nan effect from liking complaint increases and slowing maturation started to beryllium felt done nan economy, lumber request and prices importantly weakened. In response, impermanent and imperishable lumber curtailments were taken by companies crossed North America.

Despite nan much challenging operating situation successful nan 2nd half of 2022, we made progress, advancing our strategical priorities, including, delivering improved wellness and information metrics compared to 2021, acquiring Calvert successful nan US to capitalize connected nan increasing wide timber building sector, advancing collaborative unit readying activities and business opportunities pinch First Nations, advancing strategical investments successful our business to support value-added manufacturing successful British Columbia, further enhancing our Board pinch nan caller summation of 2 caller committee members, including members pinch anterior for assemblage experience, releasing our latest sustainability report, which included further refinement of emissions data, and third-party constricted assurance engagement of our c accounting, and finally, continuing pinch our balanced attack to superior allocation, which included expanding our dividend per stock of 25% and returning complete $35 cardinal to shareholders.

I will now move it complete to Steve to reappraisal our cardinal financial results.

Stephen Williams

Thanks, Steven. Fourth 4th adjusted EBITDA was antagonistic $11.9 million. Results successful nan 4th included $11.8 cardinal of inventory provisions. Compared to nan aforesaid play past year, results successful nan 4th fourth of 2022 were besides impacted by little lumber demand, little prices and a weaker mix, higher costs, including stumpage and sawmill operating curtailments arsenic we equilibrium accumulation to marketplace conditions. These were partially offset by an summation successful log by merchandise and different revenue.

In our Engineered Products division, we are very pleased pinch nan first afloat 4th of results station our Calvert acquisition. Since closing nan acquisition, nan business has generated EBITDA margins successful excess of 20% and performed to our expectations.

The expertise of our sawmills to stratify nan lumber products we produced enabled incremental Lamstock accumulation and supported our expertise to move further up nan worth chain. While nan comparative size of nan business is presently small, we are excited astir nan imaginable maturation opportunities for nan business complete nan long-term.

Moving connected to our BC strategical investments. We proceed to make advancement successful our antecedently announced strategical investments astatine our BC manufacturing operations. We stay committed to these investments arsenic we judge they will position nan institution for early occurrence successful value-added manufacturing and moving our products further up nan worth chain.

For 2023, we presently expect full CapEx to beryllium betwixt $60 cardinal and $70 million, which includes a operation of attraction of business, maturation successful nan strategical CapEx. Should marketplace and financial conditions materially deteriorate during 2023, we would look to trim our CapEx walk to lucifer those conditions.

Turning to first 4th seasonality. In emblematic first quarters, our timber harvesting activity tin beryllium periodically interrupted by wintertime weather. Harvest volumes are typically skewed to nan extremity of nan 4th erstwhile nan upwind and ray conditions support greater activity.

From a marketplace perspective, income typically accelerate done nan quarter. Our log inventories stay well-positioned arsenic we caput into nan first quarter. We ended nan 4th fourth pinch astir 895,000 cubic meters of log inventory.

We will proceed to lucifer accumulation to marketplace request and our disposable liquidity remains beardown to negociate done immoderate near-term marketplace volatility.

Steven, that concludes my comments.

Steven Hofer

Thanks, Steve. I'd for illustration to commencement by rubbing connected our semipermanent strategical priorities. The instauration of our strategical priorities is built astir business excellence. This includes an unwavering committedness to health, information and biology compliance, on pinch focused operational execution and a mindset of continual improvement.

Next, we will stay committed to building mutually beneficial relationships pinch First Nations. We scheme to proceed to measure and beforehand First Nations partnerships and finance opportunities successful British Columbia, supporting greater semipermanent clarity for nan stewardship and guidance of nan onshore base.

Our adjacent strategical privilege focuses connected business and plus optimization. This includes really we could strategically instrumentality best-in-class exertion successful our operations to position our business for occurrence done each marketplace cycles.

We judge companies request to continually measure their assets pinch a semipermanent attraction connected improving financial performance, plus utilizations, return metrics and reducing costs. This strategical privilege is accordant pinch our precocious announced Alberni-Pacific section Working Group review.

Next, we will proceed to measure opportunities to turn successful specialty wood products, wherever we tin create semipermanent shareholder worth and beryllium marketplace leaders. This includes some integrated and inorganic opportunities. We return a very disciplined attack to acquisitions and near-term, we will proceed to beryllium focused connected tuck-in opportunities successful engineered wood, wide timber and specialty wood products.

Lastly is our committedness to stewardship and exploring caller gross opportunities. Over nan longer term, we scheme to research opportunities related to c and c credits arsenic nan marketplace evolves and develops. We besides scheme to measure opportunities and alternatives for our wood residuals and discarded pinch nan nonsubjective of expanding fibre utilization.

Turning to our marketplace outlook. We are seeing immoderate affirmative signs that definite lumber prices are moving supra caller levels. However, successful nan adjacent term, we expect lumber markets to stay challenging until proviso and request travel backmost into balance. Long-term, we stay excited astir nan maturation opportunity for engineered wood, wide timber building successful North America and nan domiciled our wood products person to play successful a low-carbon world.

I stay excited and optimistic astir nan early opportunities Western has to present semipermanent shareholder worth arsenic we proceed to execute connected our strategical priorities. We will proceed to attraction connected profit separator crossed our businesses, each while driving to supply best-in-class work to our customers.

With that, operator, we tin unfastened nan telephone up to questions.

Question-and-Answer Session

Operator

Thank you. We will now return questions from nan telephone lines. [Operator Instructions] First mobility is from Hamir Patel. Your statement is open. Go ahead.

Hamir Patel

Hi. Good morning. Steve, nan BC authorities put an announcement this week pinch respect to Old Growth. Just want to get your thoughts connected immoderate of nan figures that they cited location and what imaginable impacts you mightiness spot for nan Western?

Stephen Williams

Thanks Hamir. Well, we're surely still looking to understand nan scope and effect of nan announcement. That being said, connected nan Old Growth and readying component, Western's attack to operational readying has put mutually beneficial collaborative relationships pinch indigenous peoples connected whose territory we run astatine nan Central. Our position is that stableness for nan assemblage and British Colombia is going to beryllium built from nan crushed up successful these collaborative readying processes and not fundamentally from Victoria aliases Vancouver.

To this extent, this announcement supports that work, and we will facilitate implementation of nan plans that are built and beryllium supportive. We are very proud of our way grounds and sustainable unit guidance and nan activity that we are doing pinch First Nations to create plans and a stable, profitable assemblage present connected nan coast.

Hamir Patel

Okay. Fair enough. Thanks for that, Steve. And I wanted to besides inquire astir connected nan stumpage front, BC coastal stumpage, I judge nan summation location was December. What benignant of standard summation aliases alteration do you spot this astir caller December? And what benignant of alteration would you expect astatine nan adjacent yearly revision?

Glenn Nontell

Yes. Hey, Hamir. It's Glenn. We judge stumpage rates person peaked, but they still stay elevated comparative to 2021. We should commencement to spot little per cubic metre stumpage rates arsenic we caput into 2023. As you're aware, operation of harvesting operations tin effect wide per cubic metre rates, but we are starting to spot immoderate alleviation fixed nan declines successful lumber prices. Through nan first half of 2023, we expect a diminution successful per cubic metre stumpage of betwixt 20% to 25% comparative to nan 4th quarter, each limited connected mix.

Hamir Patel

Great. Thanks, Glenn. That’s each I have. I’ll move it over.

Operator

Thank you. [Operator Instructions] Next mobility is from Paul Quinn. Your statement is open. Please spell ahead.

Paul Quinn

Hey, acknowledgment truthful much. Good morning, guys. Hey, Glenn, possibly to travel up connected that stumpage question. That first half, down 25% from Q4. I'm conscionable trying to understand benignant of nan wide complaint is different reference constituent that you guys put retired pinch stumpage was up $54 cardinal successful 2022. So conscionable wonderment what we're astatine successful position of levels per dollars per cubic meter.

Glenn Nontell

Yes, unsmooth Math. I mean if you looked successful nan 4th quarter, I mean, our template is astir apt location successful nan precocious 30s, debased 40s connected a per cubic metre basis.

Paul Quinn

Okay. That's helpful. And past mobility for Stephen. The B.C. authorities introduced its 8 wood scenery readying tables. How galore will location beryllium connected nan coast? And who's going to correspond you guys connected those?

Steven Hofer

Hey, Paul, I'll commencement and past I'll fto Stephen jump in. I mean we're still trying to get clarity connected nan circumstantial tables. I mean we person a number of existing tables underway pinch betwixt six to 8 tables underway done these various readying initiatives that we proceed to advance.

We judge we've been very successful successful investing successful number of these initiatives pinch First Nations. And these tables that we're presently moving connected pinch those First Nations will beryllium completed complete nan adjacent 12 to 18 months. These things do return clip to develop. So erstwhile we get greater clarity from nan authorities connected those circumstantial tables and which ones whitethorn aliases whitethorn not beryllium connected nan coast, I deliberation we'll beryllium successful a amended position to comment.

Paul Quinn

Okay. Do you expect immoderate issues connected cutting licence applications and approvals successful 2023?

Stephen Williams

I mean, I think, Paul, astatine this point, it's excessively early to remark until nan process has worked its measurement through. And erstwhile we get immoderate further clarity, we'll beryllium successful a amended position to beryllium capable to remark connected that.

Paul Quinn

Okay. And past nan Alberni-Pacific review. Just wondering what nan clip statement is connected that. When do you expect to person this decision?

Stephen Williams

Paul, we put a 90-day model astir it. We felt that was an due clip to found nan moving group -- launched nan moving group and springiness them capable clip to measure each nan different opportunities that are coming into play. At nan extremity of nan 90-day process, if there's thing location that's meaningful, we'll proceed to widen it. But we put a 90-day model astir it.

Paul Quinn

Okay. And past conscionable lastly, conscionable connected wide marketplace conditions overseas arsenic good arsenic erstwhile you expect for first twelvemonth successful nan first half?

Steven Hofer

Yes. I would opportunity connected nan Japan beforehand is it's a challenging market. We shouldn't sugarcoat that. There's a adjacent magnitude of home proviso that continues to benignant of clasp prices level heavy subsidized by nan Japanese government, I would stock arsenic well. And past location continues to beryllium rather an influx of competitively priced engineered wood products from Europe successful nan Japanese market. So we're going to spot -- I deliberation nan request is going to beryllium okay. The lodging commencement numbers are we're benignant of successful statement pinch what we would usually see. But it will beryllium a beautiful competitory marketplace to support marketplace share.

Paul Quinn

Okay. And then, Steven successful North market?

Steven Hofer

Well, I would opportunity that nan Cedar profile, nan really high-end constituent of our merchandise operation continues to person very coagulated pricing and beautiful bully takeaway is benignant of nan nutrient successful nan mediate of nan sandwich arsenic we would picture it, that has a fewer much challenges to it, benignant of immoderate of nan naughty decking products that person been impacted by what we're seeing connected wide R&R diminution successful R&R crossed North America. So, we're optimistic that we're going to spot a small spot much measurement arsenic we spell into March, April, May, but immoderate of nan highs that we've seen connected pricing done COVID. Those are astir apt down us. And we're reverting backmost to benignant of a normalized pricing for immoderate of nan mid-tier products.

Paul Quinn

That’s each I have. Thanks, guys.

Steven Hofer

Thanks, Paul.

Operator

Thank you. There are nary further questions registered astatine this time. I'd for illustration to now move it complete to Steve.

Steven Hofer

Okay. Well, thanks, everyone, for joining our telephone today. We admit your liking successful our company, and we look guardant to our telephone successful May. Thanks, everyone, and person a awesome day.

Operator

Thank you. The convention is now ended. Please disconnect your lines astatine this time, and convey you for your participation.