West Fraser reports 2017 annual, Q4 results

West Fraser Timber Co. Ltd.
February 21, 2018
By West Fraser Timber Co. Ltd.
Feb. 20, 2018 - West Fraser has announced its 2017 annual and fourth quarter results.

Fourth quarter
• Sales of $1.376 billion, an increase of $269 million or 24 per cent from the fourth quarter of 2016
• Earnings of $207 million or basic EPS of $2.66
• Adjusted earnings of $201 million or Adjusted basic EPS of $2.58
• Adjusted EBITDA of $341 million or 24.8 per cent of sales
• Cash provided by operating activities of $254 million
• Quarterly cash dividend of $0.15 declared, second increase in last six months

2017
• Sales of $5.134 billion
• Earnings of $596 million or basic EPS of $7.63 per share
• Adjusted earnings of $659 million or Adjusted basic EPS of $8.44
• Adjusted EBITDA increased by $486 million to $1.16 billion, 22.6 per cent of sales
• Cash provided by operating activities of $902 million
• Reinvested $336 million through capital expenditure and $526 million to growth through the acquisition of Gilman
• Returned $45 million of capital to shareholders through share buybacks and dividends
• Year-end liquidity strong with $551 million of available bank lines and $258 million of cash, net debt to capital ratio improved from 14 per cent to 12 per cent.

Operational results
Our lumber segment generated operating earnings of $232 million (Q3-17 – $126 million) and Adjusted EBITDA of $258 million (Q3-17 – $195 million). This quarter’s results were favourably impacted by higher product pricing, higher SYP production and shipments, offset by slightly lower SPF production and shipments. Countervailing and antidumping duties, which were adjusted to reflect the final CVD rates and the estimated ADD rate, resulted in a recovery of $17 million for the current quarter. The integration of the Gilman mills is on track and they are performing in line with expectations.

Our panels segment generated operating earnings in the quarter of $20 million (Q3-17 – $45 million) and Adjusted EBITDA of $24 million (Q3-17 – $48 million). The plywood market was strong throughout the year with record prices being achieved in the third quarter of 2017.

Our pulp & paper segment generated operating earnings of $48 million (Q3-17 – $21 million) and Adjusted EBITDA of $60 million (Q3-17 – $30 million). The major factors contributing to the increase in operating earnings were higher Canadian dollar pulp prices and an increase in BCTMP shipments offset by lower NBSK shipments.

Softwood lumber dispute
The U.S. Department of Commerce determined a final West Fraser specific countervailing duty rate of 17.99 per cent and an antidumping duty rate of 5.57 per cent effective December 4, 2017. We have adjusted duties previously recorded at the preliminary rate of 24.12 per cent to the final rate and recorded an estimate of the antidumping rate based on the Department of Commerce methods using actual data for the period. Of the $85 million of duties charged, $48 million have been expensed in 2017 and $37 million has been established as a long-term export duty deposit receivable on our balance sheet.

2017 in review
There were a number of milestone accomplishments for West Fraser in 2017. Despite the challenges of the fires in B.C. in 2017, we increased our lumber production by nearly 300 million board feet through improvement in our own operations and through acquisitions in the U.S. South. We completed the rebuild and restart of our WestPine MDF facility following a fire in 2016. We recorded the highest Adjusted EBITDA in company history, growing Adjusted EBITDA by $486 million or 72 per cent over 2016. In August we completed the acquisition of six sawmills in Florida and Georgia, complementing our existing U.S. South footprint and adding 700 mmfbm of high margin production to our base. We continued to execute well on significant capital projects that will benefit us in 2018 and years to come. We commissioned a number of major sawmill and planer upgrades in Canada and the U.S. and have added to our drying capacity as well. We also had strong contributions from our panels and pulp business as strong pricing and improved operating performance over 2016 contributed to improved results.

While 2017 was a record year for the company in terms of Adjusted EBITDA, we remain convinced of potential for further improvement in all our operations. Our consistent business approach, diversified operating footprint, continued reinvestment in our business and development of high-performance teams puts us in a strong position to compete in our sector and product markets.

Outlook
Markets have started the year off strong as supply and demand fundamentals for our products remain favourable. However, the first month of the year presented a number of weather-related challenges from cold temperatures in the U.S. South and transportation challenges in western Canada. We continue to be pleased with the progress on our capital expenditure plan and are executing on a number of significant mill upgrades in 2018. We look forward to our first full year with the Gilman mills as part of West Fraser.

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