Mr. Ray Ferris reports

WEST FRASER ANNOUNCES FIRST QUARTER 2023 RESULTS

West Fraser Timber Co. Ltd. has released the first quarter results of 2023 (Q1 2023). All dollar amounts in this news release are expressed in United States dollars unless noted otherwise.

First quarter highlights

• Sales of $1,627-million and earnings of ($42-million), or (52 cents) per diluted share;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $58-million, representing 4 per cent of sales;
• Lumber segment adjusted EBITDA of nil;
• North America engineered wood products (NA EWP) segment adjusted EBITDA of $31-million, including $15-million of inventory writedowns;
• Pulp and paper segment adjusted EBITDA of $7-million;
• Europe engineered wood products (Europe EWP) segment adjusted EBITDA of $20-million.

"In the first quarter of 2023, we faced challenging demand markets due in part to seasonal effects as well as higher mortgage rates that continued to moderate new home construction activity in the U.S. our lumber and North America EWP businesses were most impacted by these factors. As in the prior quarter, the product and geographic diversification of our European engineered wood panels and pulp and paper segments provided positive EBITDA contributions that helped to offset some of the weakness in North American residential construction markets," said Ray Ferris, West Fraser's president and chief executive officer.

"The West Fraser team is diligently managing through the market cycle and will continue to operate with financial discipline as we leverage our strong balance sheet to reinvest in our operations and return capital to shareholders. Importantly, our financial flexibility allows us to continue our core strategy of being a low-cost producer of wood building products while also positioning us to capitalize on opportunities as the demand environment becomes more favourable over the medium and longer term."

Results summary

First quarter sales were $1,627-million, compared with $1,615-million in the fourth quarter of 2022. First quarter earnings were ($42-million), or (52 cents) per diluted share, compared with ($94-million), or ($1.13) per diluted share in the fourth quarter of 2022. First quarter adjusted EBITDA was $58-million compared with $70-million in the fourth quarter of 2022.

Liquidity and capital allocation

Cash and short-term investments decreased to $847-million at March 31, 2023, from $1,162-million at Dec. 31, 2022, largely owing to typical seasonal working capital build.

Capital expenditures in the first quarter were $99-million.

The company paid $25-million of dividends in the first quarter, or 30 cents per share, and declared a 30-cent-per-share dividend payable in the second quarter of 2023.

On Feb. 22, 2023, the company renewed its normal course issuer bid (NCIB) allowing the company to acquire up to 4,063,696 common shares for cancellation from Feb. 27, 2023, until the expiry of the bid on Feb. 26, 2024. As of April 24, 2023, no shares have been repurchased under the bid.

As of April 24, 2023, the company has repurchased for cancellation 39,741,794 of the company's common shares since the closing of the Norbord acquisition on Feb. 1, 2021, through the completion of a substantial issuer bid (SIB) in 2021, completion of an SIB in 2022 and normal course issuer bids, equalling 73 per cent of the shares issued in respect of the Norbord acquisition.

Outlook

Markets

Several key trends that have served as positive drivers in recent years are expected to continue to support medium- and longer-term demand for new home construction in North America.

The most significant uses for the company's North America lumber, OSB and wood panel products are residential construction, repair and remodelling, and industrial applications. Over the medium term, the company expects that an aging housing stock and greater entrenchment of work-from-home flexibility will help to offset near-term headwinds and spur repair and renovation spending that supports lumber, plywood and OSB demand. Over the longer term, growing market penetration of mass timber in industrial and commercial applications is also expected to become a more significant source of demand growth for wood building products in North America.

The seasonally adjusted annualized rate of U.S. housing starts was 1.42 million units in March, 2023, with permits issued of 1.41 million units, according to the U.S. Census Bureau. While there have been near-term headwinds to new home construction, owing in large part to the recent upward reset in interest rates and the impact on housing affordability, unemployment remains relatively low in the U.S. and central bankers across North America and Europe have indicated that the current rate hiking cycle may be nearing an end. However, demand for new home construction and the company's wood building products may decline in the near term should the broader economy slow or interest rates remain elevated or increase further than currently expected, impacting consumer sentiment and housing affordability.

The demand for the company's European products is expected to remain robust over the longer term as use of OSB as an alternative to plywood grows. Further, an aging housing stock supports long-term repair and renovation spending and additional demand for the company's wood building products. Near-term challenges, including relatively high and rising interest rates, continuing geopolitical developments and inflationary pressures, are expected to cause a temporary slowing of demand for the company's products in Europe. Despite these challenges, the company is confident that it will be able to navigate through this period and capitalize on the long-term growth opportunities ahead.

Operations

West Fraser expects total lumber shipments in 2023 to be similar to 2022 levels as the transportation challenges that it faced last year are not expected to be as severe in 2023, offset by relative year-over-year softness in new home construction demand, the permanent B.C. mill curtailments announced in August, 2022, and the indefinite curtailment of the Perry, Fla., sawmill announced in January, 2023. As such, the company reiterates 2023 SPF shipments guidance of 2.6 billion to 2.8 billion board feet, and in the U.S. South, the company reiterates 2023 SYP shipments guidance of 2.9 billion to 3.1 billion board feet.

In the company's NA EWP segment, West Fraser expects 2023 OSB shipments to be similar to 2022 levels and reiterate shipments guidance of 5.9 billion to 6.2 billion square feet (three-eighths-inch basis) this year. The company's modernization capital investment in Allendale, S.C., is nearing completion and the company remains on track for a potential restart of the mill by the end of Q2 2023. West Fraser anticipates a ramp-up period of up to three years to meet targeted production and as such the company does not anticipate the Allendale mill contributing materially to shipments in 2023.

In the company's Europe EWP segment, it reiterates 2023 OSB shipments guidance of 1.0 billion to 1.2 billion square feet (three-eighths-inch basis), moderately above 2022 levels, as demand markets stabilize.

Pulp and paper segment shipments are not expected to increase from 2022 levels this year as near-term supply and demand fundamentals are challenging. Recent demand weakness in China coupled with conversion of Russian NBSK pulp capacity to UKP has led to current oversupply conditions.

In Q1 2023, the company experienced a moderation of costs and improved availability for inputs across the company's supply chain, including resins, chemicals, transportation and energy, although labour availability remained challenging. The company expects these trends to continue over the near term.

Based on the company's current outlook, assuming no deterioration from current market demand conditions during the year and that there is no additional lengthening of lead times for projects under way or planned, the company reiterates its guidance of investing approximately $500-million to $600-million in expected capital expenditures in 2023.

Management discussion and analysis (MD&A)

The company's Q1 2023 MD&A and interim consolidated financial statements and accompanying notes are available on its website and the System for Electronic Document Analysis and Retrieval (SEDAR) and the Electronic Data Gathering, Analysis and Retrieval System (EDGAR) website under the company's profile.

Sustainability report

West Fraser's 2021 sustainability report is available on the company's website. This report reviews the company's key environmental, social, and governance (ESG) performance and includes information aligned with the Sustainable Accounting Standards Board (SASB), Global Reporting Initiative (GRI), the Task Force on Climate-Related Disclosures (TCFD) and CDP (formerly the Carbon Disclosure Project).

Risks and uncertainties

Risk and uncertainty disclosures are included in the company's 2022 annual MD&A, as updated in the disclosures in its Q1 2023 MD&A, as well as in its public filings with securities regulatory authorities.

Conference call

West Fraser will hold an analyst conference call to discuss the company's Q1 2023 financial and operating results on Wednesday, April 26, 2022, at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time). To participate in the call, please dial: 1-888-390-0605 (toll-free North America) or 416-764-8609 (toll) or connect on the webcast. The call and an earnings presentation may also be accessed through West Fraser's website. Please let the operator know you wish to participate in the West Fraser conference call chaired by Mr. Ferris, president and chief executive officer.

Following management's discussion of the quarterly results, investors and the analyst community will be invited to ask questions. The call will be recorded for webcasting purposes and will be available on the West Fraser website.

About West Fraser Co. Ltd.

West Fraser is a diversified wood products company with more than 60 facilities in Canada, the United States, the United Kingdom and Europe. From responsibly sourced and sustainably managed forest resources, the company produces lumber, engineered wood products (OSB (oriented standard board), LVL (laminated veneer lumber), MDF (medium-density fibreboard), plywood and particleboard), pulp, newsprint, wood chips, other residuals, and renewable energy. West Fraser's products are used in home construction, repair and remodelling, industrial applications, papers, tissue, and box materials.

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