Q4 2024 Western Forest Products Inc Earnings Call
Speaker Change: Yeah.
Right.
Okay.
Understood.
Hum.
Okay.
Yeah.
Okay.
Yes.
Hum.
[music].
This conference is being recorded.
That's gonna stay home as it always is.
All participants thank you for standing by the conference is ready to begin.
Speaker Change: Good morning, ladies and gentlemen, welcome to Western Forest Products' fourth quarter 2024 results conference call.
Speaker Change: During this conference call Western's Representatives may make forward looking statements within the meaning of applicable securities laws.
Speaker Change: Statements can be identified by words like anticipate plan estimate will and other references to future periods.
Speaker Change: Although these forward looking statements reflect management's reasonable belief expectations and assumptions they are subject to inherent uncertainties and actual results may differ materially.
Speaker Change: There are many factors that could cause actual outcomes to be different including those factors described under risks and uncertainties in the company's annual MD&A, which can be accessed on SEDAR and is supplemented by the company's quarterly M. D. M D.
Speaker Change: Forward looking statements are based only on information currently available to western and speak only as of the date on which they are made.
Speaker Change: Except as required by law Western undertakes no obligation to update forward looking statements accordingly listeners should exercise caution in relying upon forward looking statements.
Speaker Change: I'm not actually turn the meeting over to Mr. Steven Hoefer, President and CEO of Western Forest products. Mr. Hoefer. Please go ahead.
Steven Hoefer: Thank you Patrick and good morning, everyone.
Steven Hoefer: Like to welcome you to Western Forest Products', 'twenty 'twenty four fourth quarter conference call.
Glenn: Joining me on the call today is Glenn <unk>, our Chief Financial Officer.
Bruce Alexander: And Bruce Alexander our senior Vice President of sales marketing and manufacturing.
Bruce Alexander: We issued our 2020 for fourth quarter and full year results yesterday.
I will provide you with some introductory comments and then ask Glenn to take you through our financial results.
Bruce Alexander: And then I will follow up Glenn to review with our outlook section before we open the call to your questions.
Glenn: We delivered significantly improved results in the fourth quarter and the full year of 2024 compared to the same period of 2023.
Supporting these improved results with success in executing our strategic priorities allow.
Glenn: Allowing us to reposition our business and balance sheet.
Glenn: Over the last year. This has included.
Glenn: Continuing to focus on safety with several of our operations achieving zero recordable incidents in 2024.
Glenn: Rolling out new company vision and values to enhance our culture and support a shift in mindset.
Glenn: In timberlands, we continue to focus on improving the stratification of our specialty log sorts.
Glenn: Just poll and pillar logs.
Glenn: 2020 for these efforts delivered incremental gross margin in excess of $6 million.
Glenn: In manufacturing, we improved our operational uptime to 85% in 2024 compared to 83% in 2023.
Glenn: We continue to focus on logs and lumber recovery.
Glenn: And sales and marketing, we grew strategic customer accounts and focused on the customer experience.
Glenn: Supporting these initiatives was year over year wholesale lumber shipment growth of 58%.
Glenn: From a capital investment perspective, we were successful on executing on our Capex plans. This.
Glenn: This included.
Glenn: Completing and commissioning the first continuous dry kilns.
Glenn: On the BC coast at our Salter sawmill in March 2024.
Glenn: Since commissioning we have operated at 99, 2% of full capacity utilization.
Glenn: And we expect an EBITDA payback of less than two years on our $13 million of investment.
Glenn: We also commissioned new automated grading equipment, which is assisted by artificial intelligence at Duke point in September 2024.
Glenn: We expect an EBITDA payback of less than two years on our $4 6 million dollar investment.
Glenn: We commissioned a new cyber had at Duke point to support increased production and improvements in ship recovery.
Glenn: We expect an EBITDA payback of approximately three years on a farm on our $5 7 million dollar investment.
Glenn: And we continue to advance pre engineering and permitting related to two additional dry kilns on the BC coast and in 2025, we plan to explore opportunities and thermally modifies hemlock.
Glenn: We were also successful in setting the business up for long term success, which included.
Glenn: Ratifying, a new six year collective agreement with the USW, which is one of the longest term agreements in the history of the BC coastal forest sector.
Glenn: Completing the sale of a 34% interest in a new limited partnership with four first with four Vancouver Island first nations for $35 $9 million in March.
Glenn: And repositioning our balance sheets or significant non core asset sales.
Glenn: Earlier this week, we completed the sale of our northern private timberlands for gross proceeds of $69 $2 million.
Glenn: We plan on using the proceeds to repay debt and support our previously announced kiln investments.
Glenn: We remain focused on working capital reductions throughout the business, which included increasing our overall inventory inventory turnover by 5% year over year as.
Glenn: As well as reducing controllable corporate overhead by $2 $4 million.
Glenn: I'm very proud of the significant contributions across our entire organization.
Glenn: These efforts have provided for a strong foundation to continue to build on some 2025.
Glenn: I will now turn it over to Glenn to review our key financial results.
Steven Hoefer: Steven fourth quarter, adjusted EBITDA was $14 4 million as compared to negative $1 2 million in the same period last year.
Steven Hoefer: As compared to the prior year results in the fourth quarter benefited from higher lumber shipments and prices.
Steven Hoefer: Higher log prices.
Steven Hoefer: Stronger log sales mix.
Steven Hoefer: This was partially offset by a weaker lumber sales mix.
Steven Hoefer: Lower external log sales due to lower harvest levels.
Steven Hoefer: Increased softwood lumber duties.
Steven Hoefer: We closed the fourth quarter with approximately 63 million board feet of lumber inventory at 838000 cubic meters of log inventory.
Steven Hoefer: Turning to Capex and cash flow. Our 2025 total capex spending is expected to be between $60 million to $65 million, which includes approximately $30 million related to two previously announced continuous kilns.
Steven Hoefer: From a balance sheet perspective, we ended the fourth quarter with liquidity of approximately $145 million at a net debt to cap ratio of 12%.
Steven Hoefer: These metrics do not include the $76 million in gross proceeds from the sale of our northern private timberlands and pending Albertini Pacific Division sale.
Steven Hoefer: We expect to report an accounting gain of approximately $23 million in the first quarter of 2025 related to the sale of the private timberlands.
Steven Hoefer: At the end of December we had approximately $264 million in duties on deposit, which equate to approximately 61 per share after tax.
Steven Hoefer: Turning to first quarter seasonality and typical first quarters, our timber harvesting activity can be periodically interrupted by winter weather harvest volumes are typically skewed to the end of the quarter when the weather and light conditions support greater activity.
Steven Hoefer: From a market perspective sales typically accelerate through the quarter.
Steven Hoefer: Glad to continue to manage our manufacturing operating schedules to match production to market demand and available log supply Steven that concludes my remarks.
Speaker Change: Thanks Glenn.
Steven Hoefer: So turning to our market outlook.
Steven Hoefer: Demand and pricing for our North American senior product lines are expected to improve in the first quarter of 2025.
Steven Hoefer: With most of our business already booked with major distributors.
Steven Hoefer: The overall North American senior market is expected to experience shortages and most products in the second quarter of 2025, which is expected to lead to further price increases.
Steven Hoefer: In Japan consumption is expected to remain moderate as housing starts and overall construction activities are low.
Steven Hoefer: Pricing remains more challenged due to a weaker Japanese yen to U S dollar exchange rate.
Steven Hoefer: However, inventories at Japanese ports continue to decrease which we expect may marginally improve pricing in late first quarter and into the second quarter.
Steven Hoefer: Demand for our industrial lumber products have been quite strong and is expected to continue to gain momentum in the first quarter with decreased supply across all species.
Steven Hoefer: For commodity lumber North American demand and pricing in the first quarter of 2025 is anticipated to benefit from industry wide curtailments experienced late in 2024.
Steven Hoefer: In China, Despite a continued slowdown in housing and real estate.
Steven Hoefer: Software lumber markets are performing above expectations inventories.
Steven Hoefer: Inventories are low and prices have risen as a result.
Steven Hoefer: Going forward volatility is expected as U S tariff threats may impact exports to the U S and result in lower demand for lumber.
Steven Hoefer: Overall, we currently have their first quarter order files are approximately 120 million board feet.
Steven Hoefer: That's on lumber duties and tariffs.
Steven Hoefer: On February one U.
Speaker Change: U S President Donald Trump signed an executive order imposing tariffs of 25% on imported goods from Canada to the U S. The original plan implementation date was February 4th but on February 3rd the implementation date was delayed 30 days.
Speaker Change: Incremental U S. Tariffs is in addition to the current U S softwood lumber duties, a 14.4% for western.
Speaker Change: We have informed customers of our intention to pass on the incremental U S tariffs in our lumber prices if implemented.
Speaker Change: We are working with all levels of government across Canada to advocate for programs and policies that will best enable the forestry sector to serve global markets and manage through these uncertain times.
Speaker Change: Over the last several years, our lumber shipments from Canada to the U S represented approximately 27% of our total shipments.
Speaker Change: Looking ahead, we will remain focused on executing our strategic priorities and Capex plans.
Speaker Change: While also ensuring we maintain a strong balance sheet.
Speaker Change: With that Patrick we can open the call up to questions.
Speaker Change: Thank you, we'll now take questions from the telephone lines.
Speaker Change: Do you have a question you May press star one.
Speaker Change: On the devices keypad.
Speaker Change: Let me answer any questions at any time by pressing star two.
Speaker Change: Please press star one at this time is that the question.
Speaker Change: It won't be a responsible participants register for questions. Thank you for your patience.
Speaker Change: First question is from Metro Mckellar from RBC capital markets. Please go ahead.
Metro Mckellar: Hi, good morning, Thanks for taking my questions at.
Speaker Change: It sounds like Youre seeing really good momentum in the theater.
Speaker Change: Right now I was wonder if you can just speak to how meaningful the shift in demand has been versus maybe what's transpired on the supply side.
Speaker Change: And then any thoughts around just how tight that might be in Q2, and what your ability is like to flex volumes of Cedar higher over the next couple of quarters essentially respond here.
Oh excuse me Bruce Alexander here, Yes, we saw an increase in demand starting in the fourth quarter and we've pretty much booked out our first quarter all of our major distributors have strong inventories in place at the time being it's foreseen.
Speaker Change: A little bit of a hold back.
Speaker Change: Distributors wait to see and hear the outcome on March 4th with respect to the U S tariffs.
Speaker Change: We're looking at roughly similar volumes in Q1 and see here that we had in Q.
Speaker Change: Q4 of last year.
Speaker Change: In terms of log supply.
Speaker Change: We're well positioned.
Speaker Change: Both our small log mill at large log mills to maintain those production levels to meet the market demand.
Speaker Change: Thanks, Thanks very much.
Speaker Change: If I could if I could ask one more you talked about exploring an opportunity of thermally modified hemlocks could you maybe just expand on what you're kind of considering here and is this something that can build towards a potential investment in some kind in your own capacity.
Speaker Change: What do you expect there to be the market opportunity is it North America or international markets and most of that's it. Thanks.
Speaker Change: Yeah, I'll just share a few comments on this.
Speaker Change: Normally modified wood technology has been in place in Europe for a number of years quite successful at AR.
Speaker Change: Developing the appropriate technology to produce this type of product as well as developed.
Speaker Change: Overall, a very strong market demand in Europe.
Speaker Change: So we certainly see this technology be and very suitable AR here in North America. There is some product being imported from Europe today, and being sold into home centers and distributors across primarily the U S market.
Speaker Change: And we're pretty excited about it in terms of our ability to add.
Speaker Change: Significant value to our second and third growth hemlock timber stance, we see the species being.
Speaker Change: Very suitable for the for this type of technology. We see it are these type of products being very suitable and wild urban interface areas, where we've seen the impact of catastrophic fires.
Speaker Change: Fires in California and in other areas.
Speaker Change: So our initial focus is a relatively modest capex investment that we are considering to really understand the the technology understand the species properties.
Speaker Change: Okay.
Speaker Change: A walk.
Speaker Change: Walk before we run in terms of product development and and putting this into the marketplace, but it's a strategic initiative for us it's very much aligned with.
Speaker Change: You know, it's over 60% of our standing timber as hemlock and we're pretty passionate about finding a way to add incremental value.
Speaker Change: To that timber stand.
Speaker Change: That's great. Thanks, very much for the color I'll turn it back.
Speaker Change: Thanks, Matt.
Speaker Change: Thank you.
Speaker Change: The next question from Sean Stewart from TD Cowen. Please go ahead.
Speaker Change: Thanks, Good morning, everyone.
Speaker Change: Couple of questions Stephen Hugh you mentioned, even form customers your intent to.
Speaker Change: Pass prospective terrorist straight through and pricing.
Speaker Change: And I'm wondering if you can just give a bit more perspective on demand elasticity in western Red Cedar markets in particular.
Speaker Change: That's my perception I guess through the softwood lumber dispute longer term it hasn't always been easy to.
Speaker Change: Pass through.
Speaker Change: Duties tariffs on the omni customers. It does feel like there's some tension in the market right now though.
Speaker Change: Just broader perspective on your ability to pass that through ends.
Speaker Change: Potential supply cuts that might be needed to get there.
Speaker Change: Thanks, Sean it's a it's a great question, we don't have the crystal ball on.
Speaker Change: On this one.
Speaker Change: Dialed in but you know there is some precedent over the last couple of years of of the market being able to accept a higher prices on some of our cedar product lines and.
Speaker Change: I would just reflect back upon COVID-19 and some of the supply constraints that are occurred there and and what occurred on on product pricing in cedar.
Speaker Change: You know obviously there was.
Speaker Change: Very strong demand at that point as well, but there was an acceptance by the consumer and by the the customer base to you know to pay a higher price.
Speaker Change: You know, whether it's going to be 75% or 100% remains to be seen but.
Speaker Change: So we're being very proactive in our communication across all distribution channels in the U S.
Speaker Change: To ensure that there are no surprises and I think the industry as a whole is very much aligned on this approach and it's not just reflective of cedar in western but.
Speaker Change: I'm pleased to see that all the majors across Canada are approaching this in a very similar and in a very disciplined way so that.
Speaker Change: That will be important for us to to be aligned on this to ensure that.
Speaker Change:
Speaker Change: We're being consistent in our approach so again optimistic that with a little bit of incremental demand that we're seeing in the U S. Marketplace that this will will that this will be achieved but overall our focus is how do we figure out a settlement.
Speaker Change: And Ah and an agreement between the two economies and Thats really the challenge that the provincial governments and the federal governments are tasked with today is.
Speaker Change: How do we move forward with an economic Union between Canada, and the U S that.
Speaker Change: Doesn't penalize.
Speaker Change: And it impacts the consumer in the U S and in benefits the entire Canadian and U S economy.
Speaker Change: Thanks for that detail.
Speaker Change: And just following on that your you mentioned youre engaging with provincial and federal governments to talk about.
Speaker Change: Options to support the industry and I think it was mentioned in broadening international at reach can you give a little more perspective on what sorts of things you're talking about there and.
Speaker Change: How you might expect that to unfold.
Speaker Change: Well from our perspective, you know now is the time for BC and Canadian governments to take you know real bold action to provide economically focused policy and positive hosting conditions to foster investment competitiveness and profitability here in Canada.
Speaker Change: We need a relentless focus on unlocking the key economic sectors that drive prosperity.
Speaker Change: And here in British Columbia for stories at the top of this list.
Speaker Change: And you know as a fundamental first step you know that requires the end of disruptive restrictive policy initiatives combined with vastly improving clarity and timeliness on permits to secure the operating land base for all of US here in British Columbia. So there's a there's a lot that we can do right here you know we don't want it.
Speaker Change: See anyone hide behind this threat of tariffs.
Speaker Change: We need to fundamentally address some of the issues that I've spoken up here in terms of providing a more competitive landscape for us to operate here in British Columbia.
Speaker Change: Thanks for that detail that's all happened now thanks.
Speaker Change: Thanks, Sean.
Speaker Change: Thank you no further questions at this time I would like to turn the meeting back over to Mr. Hoefer.
Speaker Change: Okay, well, thanks, everyone for joining our call today, we certainly appreciate your continued interest in our company and look forward to our next call in May.
Speaker Change: And enjoy the long weekend everyone.
Speaker Change: Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.