Mr. Ray Ferris reports

WEST FRASER ANNOUNCES SECOND QUARTER 2023 RESULTS

West Fraser Timber Co. Ltd. has released the second quarter results of 2023 (Q2 2023). All dollar amounts in this news release are expressed in United States dollars unless noted otherwise.

Second quarter highlights

• Sales of $1,608-million and earnings of $(131)-million, or $(1.57) per diluted share;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $80-million, representing 5 per cent of sales;
• Lumber segment adjusted EBITDA of $10-million;
• North America engineered wood products (NA EWP) segment adjusted EBITDA of $126-million;
• Pulp and paper segment adjusted EBITDA of $(74)-million, including $24-million of inventory writedowns;
• Europe engineered wood products (Europe EWP) segment adjusted EBITDA of $19-million;
• Released 2022 sustainability report;
• Subsequent to quarter-end, announced an agreement to sell Hinton, Alberta pulp mill to Mondi Group PLC;
• Subsequent to quarter-end, extended maturities of revolving credit and term loan agreements.

"Early in the second quarter of 2023, we continued to experience challenging demand markets, particularly in the pulp and paper segment where we managed through several unscheduled downtime events at our mills, including an extended maintenance shutdown at Hinton Pulp as well as curtailment of our Cariboo Pulp mill related to fibre supply constraints. Combined with declining pulp prices that led to a significant inventory writedown, the pulp and paper segment experienced higher losses than expected. Notwithstanding these challenges, we did see signs of demand improvement for some of our key wood building products as the quarter unfolded against a backdrop of mortgage rates well above year-ago levels. Our North America EWP segment saw particular improvement this quarter, with recovering demand in our OSB business, which has given us sufficient confidence to increase our North American OSB shipments guidance for 2023. As in the prior quarter, the product and geographic diversification of our European engineered wood panels segment provided another positive EBITDA contribution that helped offset some of the weakness in our other businesses," said Ray Ferris, West Fraser's president and chief executive officer.

"The West Fraser team continues to manage through the market cycle and while there have been indications that the upward trend in mortgage rates may be nearing an end and that new home construction has stabilized, we will continue to operate with financial discipline, leveraging our strong balance sheet to reinvest in our operations and return capital to shareholders. We believe our financial flexibility remains a competitive advantage that allows us to continue our core strategy of being a low-cost producer of wood building products while also preparing us to capitalize on opportunities as the demand environment becomes more favourable in the years ahead."

Results summary

Second quarter sales were $1,608-million, compared with $1,627-million in the first quarter of 2023. Second quarter earnings were $(131)-million, or $(1.57) per diluted share, compared with $(42)-million, or (52 cents) per diluted share in the first quarter of 2023. Second quarter adjusted EBITDA was $80-million compared with $58-million in the first quarter of 2023.

Liquidity and capital allocation

Cash and short-term investments decreased to $994-million at June 30, 2023, from $1,162-million at Dec. 31, 2022.

Capital expenditures in the second quarter were $106-million.

The company paid $25-million of dividends in the second quarter, or 30 cents per share, and declared a 30-cent-per-share dividend payable in the third 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 July 25, 2023, no shares have been repurchased under the bid.

As of July 25, 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.

On July 25, 2023, the company amended and restated the revolving credit facilities agreement to extend its maturity to July, 2028, and replaced the LIBOR (London interbank offered rate) floating rate option with SOFR (secured overnight financing rate) and amended and restated the term loan agreement to extend its maturity to July, 2025, and replaced the LIBOR floating rate option with SOFR.

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 from higher interest rates 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 1.43 million units in June, 2023, with permits issued of 1.44 million units, according to the U.S. Census Bureau. While there were near-term headwinds to new home construction earlier in the year, owing in large part to the 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 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 and employment slow or interest rates remain elevated or increase further than currently expected, impacting consumer sentiment and housing affordability.

Although the company is experiencing near-term demand softness, the company expects demand for its European products to grow 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 risks, including relatively high and rising interest rates, continuing geopolitical developments, and the lagged impact of recent inflationary pressures, may cause further temporary slowing of demand for the company's products in Europe. Despite these risks, the company is confident that it will be able to navigate through this period and capitalize on the long-term growth opportunities ahead.

Operations

The company continues to expect total lumber shipments in 2023 will be similar to 2022 levels as the transportation challenges that the company faced last year are not expected to be as severe in 2023, partially offset by the permanent B.C. mill curtailments announced in August, 2022, the indefinite curtailment of the Perry, Fla., sawmill announced in January, 2023, as well as downtime to complete capital upgrade projects at a number of the company's mills in the U.S. South. 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, demand has exceeded initial expectations and as such the company is raising its 2023 OSB shipments guidance to 6.1 billion to 6.4 billion square feet (three-eighths-inch basis) from the company's original guidance of 5.9 billion to 6.2 billion square feet (three-eighths-inch basis). The company's modernization capital investment in Allendale, S.C., is now largely complete as the company began the start-up phase of the mill late in Q2 2023. The company continues to optimize the mill and has completed the certification process for select commodity products. The company 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, the company expects near-term demand weakness but reiterate 2023 OSB shipments guidance of 1.0 billion to 1.2 billion square feet (three-eighths-inch basis), moderately above 2022 levels.

Pulp and paper segment shipments are not expected to increase from 2022 levels this year. Further, near-term supply and demand fundamentals are challenging as reduced global demand and new South American capacity have led to elevated global pulp inventories. There may also be a negative impact on pulp exports in Q3 2023, owing to the labour disputes at British Columbia ports early in the quarter.

In Q2 2023, the company experienced continued moderation of costs and improved availability for inputs across its supply chain, including resins, chemicals, transportation and energy, although labour availability and some capital equipment lead times 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 no additional lengthening of lead times for projects under way or planned, the company reiterates guidance of approximately $500-million to $600-million in expected capital expenditures in 2023. However, given the rate of 2023 capital spending to date the company now expects full-year capital expenditures to be nearer the bottom end of the guidance range.

Management discussion and analysis (MD&A)

The company's Q2 2023 MD&A and interim consolidated financial statements and accompanying notes are available on its website and the SEDAR+ and the EDGAR website under the company's profile.

Sustainability report

West Fraser's 2022 sustainability report is available on the company's website. This report summarizes the company's environmental, social and governance (ESG) performance with a focus on the company's people, product circularity and role in the carbon cycle. It is 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 Q2 2023 MD&A, as well as in the company's public filings with securities regulatory authorities.

Conference call

West Fraser will hold an analyst conference call to discuss the company's Q2 2023 financial and operating results on Thursday, July 27, 2023, 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 Ray 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 Timber 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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