Mr. Stephen Williams reports

WESTERN ANNOUNCES SECOND QUARTER 2015 RESULTS

Western Forest Products Inc. has released results for the second quarter of 2015. The company reported adjusted earnings before interest, taxes, depreciation and amortization of $29.2-million for the second quarter of 2015, consistent with the adjusted EBITDA of $29.6-million reported in the first quarter of 2015, and a decrease from $40.9-million reported in the second quarter of 2014. Adjusted EBITDA in the second quarter of 2015 benefited from an improved lumber sales mix, led by growth in specialty product shipments, and an increase in export log shipments, but was limited due to lower commodity and Japan lumber pricing and a decline in export log pricing. Revenue increased 16 per cent to $289.2-million in the second quarter of 2015 as compared with revenue of $248.6-million in the first quarter of 2015, and decreased by 2 per cent from revenue of $296.2-million in the second quarter of 2014.

Second quarter 2015 highlights:

• Set a record quarterly average lumber price for the company of $879 per thousand board feet;
• Completed the successful restart of the second production line at the Duke Point sawmill;
• Returned $7.9-million to shareholders through the company's quarterly dividend program.

"The ability to focus our production and sales on higher-margin specialty products limited Western's exposure to the significant second quarter decline in commodity lumber pricing and weak market in Japan. Despite a challenging market environment, we achieved a record average lumber price in the quarter and reported EBITDA consistent with last quarter," said Don Demens, president and chief executive officer. "I am pleased with the recent progress we have achieved on strategic capital projects, including the restart of our second line at Duke Point as part of that mill's ongoing modernization project. We continue to position Western for the future by implementing strategic capital in support of our strategy to sustainably harvest the complete forest profile."

Net income of $19.1-million (five cents per diluted share) was reported for the second quarter of 2015, compared with $29.2-million (seven cents per diluted share) for the second quarter of 2014 and $27.6-million (seven cents per diluted share) for the first quarter of 2015.

                            FINANCIAL SUMMARY
                (millions of dollars except where noted)

                                    Three months ended      Six months ended
                                           June 30,              June 30,
                                       2015       2014       2015       2014

Revenue                          $    289.2 $    296.2 $    537.8 $    542.2
Adjusted EBITDA                        29.2       40.9       58.8       73.7
Adjusted EBITDA margin                 10.1%      13.8%      10.9%      13.6%
Operating income prior to 
restructuring items and
other income                                                 41.1       56.2
Net income from continuing
operations                             19.1       29.2       37.6       52.8
Net income for the period              19.1       29.2       46.7       52.8
Basic and diluted earnings per share 
(in dollars) --
continuing operations                                  $     0.10 $     0.13
Basic and diluted earnings per share
(in dollars) --
discontinued operations                                $     0.02 $       --

Overview

Western reported adjusted earnings before interest, taxes, depreciation and amortization of $29.2-million in the second quarter of 2015. Financial results were supported by the company's flexible operating platform, which enabled Western to increase shipments of western red cedar lumber and reduce its exposure to the significant downturn in commodity and Japan lumber markets. The steep decline in commodity lumber pricing compared with a year ago led to the imposition of softwood lumber agreement export duties for the first time in 17 months, which negatively impacted results. Second quarter 2015 adjusted EBITDA declined $11.7-million compared with the second quarter of 2014 due to lower commodity and Japan lumber pricing and the imposition of lumber duties into the United States, as well as lower prices for export logs.

Second quarter lumber revenue of $200.0-million declined 4 per cent from the same period last year as the company delivered an 8-per-cent increase in average realized lumber prices while the SPF commodity index, presented in Canadian dollars, fell 8 per cent period over period. Lumber shipment volumes were down 11 per cent in the second quarter of 2015 as compared with the same period last year due to weak commodity and Japan lumber markets. Lumber pricing was supported by a 13-per-cent increase in WRC lumber sales volumes and a weaker Canadian dollar. WRC lumber sales volumes increased to 32 per cent of total lumber sold in the second quarter of 2015 as compared with 26 per cent in the same period last year.

Log revenue of $71.0-million in the second quarter of 2015 was similar to the same period last year as higher sales volumes of sawlogs and higher prices for pulp logs were offset by lower pulp log volumes and a decline in export log pricing. Overall log shipment volumes declined by 3 per cent in the second quarter of 2015 compared with the same period last year due to a 29-per-cent reduction in pulp log sales, as pulp mill downtime delayed deliveries. Domestic log sales remained strong due to continued demand for its specialty log offerings.

In the second quarter of 2015, the company's flexible operating platform allowed Western to implement changes to its planned production to address poor commodity and Japan lumber market conditions by increasing WRC production and sales volumes. Lumber production volumes in the second quarter of 2015 mirrored those of the same quarter last year, and increased by 13 per cent from the first quarter of 2015 as a result of the continued ramp-up of production at its Duke Point sawmill.

Unseasonably dry weather conditions in the second quarter of 2015 led to reduced log production as compared with the same period last year. As a result of the company's strategy to maximize logging activities in the first quarter, Western was able to continue to load and haul logs while harvesting was curtailed, supplying its mills and log customers from a robust log inventory that increased by approximately 100,000 cubic metres at June 30, 2015, as compared with the same period last year. Log production costs increased in the second quarter over last year due to the change in the mix of harvest locations, higher helicopter logging volumes and increased labour costs.

Net income for the second quarter of 2015 was $19.1-million, or five cents per common share, as compared with net income of $29.2-million, or seven cents per common share, for the same period in 2014. Net income decreased due to challenging conditions in commodity and Japan lumber markets and through the imposition of export tax on lumber sales to the United States.

Total liquidity as of June 30, 2015, was $160.9-million compared with $134.4-million at the end of 2014. The increased liquidity in 2015 was the result of cash generated by operations and the sale of non-core assets. In the second quarter of 2015, the company continued to provide returns to its shareholders through its dividend program, returning $7.9-million, or two cents per common share, to shareholders on June 20, 2015.

Operating results

Second quarter 2015

In the second quarter of 2015, the company generated $289.2-million of revenue and $29.2-million of adjusted earnings before interest, taxes, depreciation and amortization compared with $296.2-million of revenue and $40.9-million of adjusted EBITDA in the same quarter last year. Western's ability to access additional log volume on the open market in combination with its flexible operating platform allowed the company to focus its production on higher-value specialty products. This strategy limited the impact of the significant decline in the commodity and Japan lumber markets.

Lumber revenue in the second quarter of 2015 was $200.0-million, a decrease of 4 per cent from the same period of 2014. Second quarter average realized lumber pricing of $879 per thousand board feet was a record for the company, having increased $64 per thousand board feet in the second quarter of 2015 compared with the same period last year. Improved pricing was driven by a 13-per-cent increase in WRC sales volumes and a weaker Canadian dollar. The additional sales of WRC and the weaker CAD partly offset an 11-per-cent reduction in sales volumes and pricing weakness in commodity and Japan lumber markets.

Second quarter log revenue of $71.0-million in 2015 was relatively unchanged from the same period in 2014. Continued weakness in export log pricing was offset by the weaker Canadian dollar and a 5-per-cent increase in export log shipments in the second quarter of 2015 as compared with the same period last year. Domestic saw log shipments increased by 4 per cent while domestic log pricing decreased slightly due to a lower value sales mix. Realized pulp log pricing increased moderately over the second quarter of 2015, while pulp log shipment volumes were down 29 per cent as pulp mill curtailments temporarily delayed deliveries.

Byproduct revenue was $18.2-million in the second quarter of 2015, an increase of 10 per cent from the same period in 2014. Increased revenues were driven by higher realized chip prices. Chip prices are tied to the U.S.-dollar-denominated market price of pulp, and, as the Canadian dollar weakened, the company's realized chip prices improved.

Improved production from the Duke Point sawmill in the second quarter of 2015 as a result of its continuing modernization project offset the impact of the November, 2014, permanent closure of its Nanaimo sawmill, and drove lumber production to 236 million board feet in the second quarter of 2015. While this production was flat as compared with the same quarter of 2014, Western increased lumber production by 13 per cent as compared with the first quarter of 2015.

Log harvest volumes in the second quarter of 2015 reached 1.4 million cubic metres, a reduction of 100,000 cubic metres from the same quarter of 2014, despite the impact of hot, dry weather, which limited some harvest operations. To supplement log inventories to its mills, the company increased second quarter sawlog purchases to over 300,000 cubic metres, an increase of 6 per cent as compared with the same period last year.

Log production costs and average log value both increased by 4 per cent in the second quarter of 2015 as compared with the same period last year, primarily due to a change in mix of harvest locations and an increase in helicopter logging. Also contributing to a year-over-year cost increase were higher labour costs as a result of a five-year labour agreement ratified by the United Steelworkers Union in July, 2014.

Western's focus on specialty lumber production in the second quarter of 2015 resulted in a 16-per-cent increase in WRC lumber production as compared with the same quarter last year and led to the highest quarterly WRC lumber sales volume since 2008. By utilizing its flexible operating platform, the company replaced higher production commodity volumes with higher-margin WRC production in its mills. The additional WRC volumes led to an increase in production costs and a 4-per-cent decrease in lumber recovery as compared with the same period last year.

With the drop in the commodity benchmark lumber pricing index, export taxes under the softwood lumber agreement became payable in the second quarter of 2015 for the first time since the fourth quarter of 2013. Export tax rates applied to shipments of lumber to the United States were 5 per cent for April and May and 10 per cent for June. In the second quarter of 2015, it incurred $1.8-million in export tax expense.

Freight costs were $23.1-million in the second quarter of 2015, a decrease of $2.0-million compared with the same period of 2014. This decrease was due largely to the geographic mix of lumber shipments, and a reduction in fuel surcharges similar to those realized in the first quarter of 2015.

Selling and administration expense decreased 6 per cent from the second quarter of 2014 to $7.6-million in the second quarter of 2015. Contributing to lower administration expense were reduced selling expense and performance-based compensation costs.

Second quarter net income was $19.1-million in 2015, as compared with $29.2-million in the same period in 2014. The reduction in net income in the second quarter of 2015 reflects those circumstances presented herein.

Year to date to June 30, 2015

Adjusted EBITDA for the first six months of 2015 was $58.8-million. Western's flexible operating platform enabled the company to meet increased demand for WRC and niche lumber and reduce its exposure to a significant downturn in commodity and Japan lumber markets. Resilient WRC and niche lumber markets, the weaker Canadian dollar, and an increase in log shipments partially offset the impact of poor commodity and Japan lumber pricing in the first half of 2015. With an increase in production costs and the imposition of export tax, these factors reduced adjusted EBITDA by $14.9-million from the first half of 2014, and resulted in an adjusted EBITDA margin of 10.9 per cent as compared with 13.9 per cent in the same period last year.

Lumber revenue in the first half of 2015 declined by 3 per cent as compared with the first half of 2014. A $59-per-thousand-board-foot increase in average realized lumber pricing due to an improved product mix was offset by a 9-per-cent decrease in lumber shipments. As compared with the first half of 2014, WRC and niche shipments grew by 10 per cent and 9 per cent, respectively, which increased the company's average realized lumber price and limited the impact of weaker commodity and Japanese lumber markets. WRC lumber sales volumes increased to 30 per cent of total lumber sold in the first half of 2015 as compared with 25 per cent in the same period last year.

First-half log revenue increased by 4 per cent in 2015 to $132.2-million on the strength of 10-per-cent increases in both export and domestic sales volumes, and a reduction in pulp log sales volumes as compared with the first half of 2014. Its average realized log pricing remained flat as rising domestic log pricing and the weaker Canadian dollar offset the impact of challenging log market conditions in China.

Improved production from the company's Duke Point sawmill offset the impact of the November, 2014, closure of its Nanaimo sawmill on first-half 2015 lumber production, which was 6 per cent lower than in the first half of 2014. The lumber production decrease was primarily the result of the internalization of custom-cut volumes to match production volumes to market demand.

Total log production increased to 2.9 million cubic metres in the first half of 2015 from 2.8 million cubic metres produced in the same period last year. The increased harvest combined with a greater log purchase volume in the first half of 2015 led to the company's highest midyear log inventory volume since 2008. As a result, entering the second half of 2015, Western's log inventory was well positioned to supply its mills and log customers and mitigate some of the risk of potential weather-related harvest curtailments.

Log production costs were higher in the first half of 2015 primarily due to a mix in harvest operations, increased helicopter logging volumes and increased labour costs. Labour costs have increased following the aforementioned labour agreement with the USW. Additionally, Western expensed $2.2-million more spur road construction in the first half of 2015 as compared with the same period last year as it increased its access to standing timber in preparation for future harvesting.

Selling and administration expense in the first half of 2015 was $14.1-million, a decrease of $3.8-million from the same period last year. The reduction in selling and administration expense was due to reduced selling expense and performance-based compensation costs. As a percentage of revenue, selling and administration expense has decreased from 3.3 per cent in the first half of last year to 2.6 per cent in the same period of 2015.

Finance costs

Finance costs in the second quarter of 2015 were $1.3-million, a decrease of $200,000 compared with the same quarter of 2014. This decrease was commensurate with a reduction in lower average outstanding debt on its revolving term loan facility and a reduction in interest rate from the comparative period. The average debt balance outstanding in the second quarter of 2015 was $73.8-million as compared with $87.8-million in the same quarter of 2014.

Discontinued operations

The sale of Western's former Squamish pulp mill site was completed Feb. 6, 2015, for cash proceeds of $21.8-million. Consequently, the company recognized $9.1-million in net income from discontinued operations in the first quarter of 2015, resulting from a gain on disposal of property, plant and equipment; revenue from the sale of hydroelectric power generated at the site partly offset by site operating costs incurred up to the sale completion date; and a gain on reversal of a liability.

As part of the company's corporate strategy, Western will continue to pursue opportunities to sell non-core assets to optimize its business.

Outlook

Western's strategy, which is designed to maximize product margins while increasing the company's sales volume, remained a focus in the first half of 2015.

Key operational priorities in support of the company's strategy include:

• Increasing log availability through improved log utilization;
• Accessing additional log volume on the open market to increase lumber production;
• Improving productivity through increased equipment utilization;
• Focusing the company's lumber marketing programs by mill to drive higher margins.

Market outlook

The gradual recovery in the U.S. new home construction market continues. It is the company's belief that increased demand from the recovery in the U.S. new home segment and continued demand from China, combined with a reduction in supply from traditional Canadian sources, will lead to a stronger pricing environment. In the near term, Western expects commodity lumber pricing to remain volatile as increased lumber consumption in the United States is expected to be offset by continued weakness in China.

Lower U.S. commodity prices led to the imposition of export taxes under the SLA in the second quarter. The export tax on lumber shipments to the U.S. was 15 per cent in July and will decline to 5 per cent in August. Western expects the export tax to remain in place until either the commodity lumber index price recovers or the current SLA expires in October, 2015.

Continued strength in the repair and renovation market in North America will support strong demand for the company's WRC and niche product lines. Western anticipates WRC lumber pricing to hold at current levels for the rest of the third quarter as weather-related market inventories are reduced. Its niche lumber sales pricing is expected to remain strong while volume should increase in the third quarter.

Western anticipates pricing pressures to continue in the Japanese and Chinese lumber markets in the third quarter of 2015. Its focus for these markets continues to be the refinement of sales channels and management of near-term market conditions by utilizing its flexible operating platform and directing production to the highest-margin markets and products.

Export log market conditions are expected to remain challenging in the third quarter while domestic log markets should benefit from a combination of constrained supply and its specialty product mix. Pulp log markets will remain challenging due to reduced demand resulting from pulp mill curtailments.

Continued hot, dry weather has the potential to impact future log harvesting activities and could lead to reduced log supply to its mills. In anticipation of potential operational curtailments, it increased its third quarter opening log inventory volume to the highest level at that time of year since 2008.

Capital plan update

In the second quarter of 2015, Western announced additional planned capital investments of $30.0-million and continued to make steady progress with its continuing capital projects.

In May, 2015, the company advanced its Duke Point sawmill modernization plan by installing a new log haul and restarting the second production line. The continuing ramp-up in production at that mill has positively impacted the commpany's productivity and production costs, and allowed the internalization of additional custom cut production that will lead to improved lumber margins and chip revenue. Its upgrades at Duke Point allow the company to increase its large log utilization and support its strategy of harvesting the profile of the coastal forest.

Additionally, in the second quarter of 2015, the company continued the engineering associated with its recently announced capital projects and finalized preparation for the installation of a log merchandiser at Western's Saltair sawmill. That installation will take place late in the third quarter of 2015 and will result in three weeks of production downtime at that operation. Also in the third quarter, Western will continue with the phase 3 modernization at Duke Point and begin upgrades to the timber deck at its Chemainus sawmill.

The coming capital investments in its operations are expected to increase productivity, reduce production costs, increase margins and support the continued sustainable harvesting of its complete forest profile. Upon completing the capital program, the company expects to have improved its competitiveness and gained access to new markets.

Teleconference call notification: Aug. 5, 2015, at 9 a.m. PST/12 p.m. EST

On Aug. 5, 2015, Western Forest Products will host a teleconference call at 9 a.m. PST (12 p.m. EST). To participate in the teleconference, please dial 416-340-2216 or 1-866-223-7781. This call will be taped, available one hour after the teleconference and on replay until Aug. 16, 2015, at 8:59 p.m. PST (11:59 p.m. EST). To hear a complete replay, please call 905-694-9451/1-800-408-3053 (passcode 5736923).

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