Mr. Steven Hofer reports

WESTERN ANNOUNCES SECOND QUARTER 2023 RESULTS

Western Forest Products Inc. reported a net loss of $20.7-million in the second quarter of 2023, including $8.5-million in inventory provisions, as compared with a net loss of $17.7-million in the first quarter of 2023 and a net income of $38.6-million in the second quarter of 2022. Results in the second quarter of 2023 reflect more challenging macroeconomic conditions, resulting in lower lumber prices and reduced demand compared with the same period last year.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was negative $12.0-million in the second quarter of 2023, as compared with adjusted EBITDA of negative $5.0-million in the first quarter of 2023 and adjusted EBITDA of $66.2-million in the second quarter of 2022.

Operating loss prior to restructuring and other items was $25.1-million in second quarter of 2023, as compared with income of $53.4-million in the second quarter of 2022.

Highlights:

• Engineered wood products business continues to perform to expectations;
• Maintained liquidity of $195.5-million to support Western's strategic priorities and balanced capital allocation;
• Returned $3.9-million to shareholders through dividends;
• Steady progress in advancing integrated resource management and forest landscape planning initiatives.

Commenting on the quarter, Western's president and chief executive officer, Steven Hofer, said: "Our results in the quarter reflect ongoing weak market conditions and a challenging operating environment and cost structure in our British Columbia operations. We remain focused on our key strategic priorities to reposition our business for future success, including optimizing our operating platform, advancing planning and partnerships with indigenous groups, investing in higher-value product manufacturing, and growing strategic customer relationships across our product portfolio."

Summary of second quarter 2023 results

Western reported adjusted EBITDA of negative $12.0-million in the second quarter of 2023, as compared with $66.2-million in the same period last year. Results in the second quarter of 2023 included $8.5-million in inventory provisions and reflect more challenging macroeconomic conditions, as compared with the same period last year.

Net loss was $20.7-million in the second quarter of 2023, as compared with a net income of $38.6-million in the same period last year. Operating loss prior to restructuring and other items was $25.1-million in the second quarter of 2023, as compared with income of $53.4-million in the same period last year.

Sales

Lumber revenue was $212.4-million in the second quarter of 2023, as compared with $351.8-million in the same period last year. The decrease of 40 per cent was due to lower lumber shipment volumes and lower average lumber prices, partially offset by a stronger sales mix and stronger U.S.-dollar-to-Canadian-dollar average exchange rate. Western's average realized lumber price was $1,392 per thousand board feet in the second quarter of 2023, as compared with $1,786 per thousand board feet in the same period last year, a decrease of 22 per cent.

Specialty lumber shipments represented 54 per cent of total lumber shipment volumes in the second quarter of 2023, as compared with 44 per cent in the same period last year, yielding a stronger sales mix. Industrial lumber shipment volumes increased 28 per cent compared with the same period last year, due to the acquisition of Western's Calvert engineered wood products division and growth in Douglas fir timbers. Cedar lumber shipment volumes decreased 10 per cent, compared with the same period last year, as buyers managed inventory levels to market conditions. Japan lumber shipment volumes decreased 26 per cent, compared with the same period last year, due to increased levels of supply from domestic manufacturing, Europe and Russia. However, Japan lumber shipment volumes increased 40 per cent compared with the first quarter of 2023, as lumber inventories rebalanced. Commodity lumber shipment volumes decreased 36 per cent compared with the same period last year due to weaker market demand.

Log revenue was $52.8-million in the second quarter of 2023, as compared with $70.8-million in the same period last year. The decrease of 25 per cent was due to lower log sales volumes and lower domestic log prices.

Byproducts and other revenue were $10.8-million, as compared with $14.8-million in the same period last year. The decrease of 27 per cent was due to lower chip volumes and prices, partially offset by higher revenue from harvesting services provided to third parties.

Operations

Lumber production was 148 million board feet in the second quarter of 2023, as compared with 173 million board feet in the same period last year. During the second quarter of 2023, Western curtailed certain sawmill operations to match production to market demand and manage inventory levels.

Western harvested 935,000 cubic metres of logs from its British Columbia coastal operations in the second quarter of 2023, as compared with 904,000 cubic metres in the same period last year.

Timberlands operating costs per cubic metre decreased 23 per cent compared with the same period last year, due to lower per-cubic-metre stumpage expense, managing Western's road building activity and higher harvest volumes. Average stumpage per cubic metre in the second quarter of 2023 was 59 per cent lower compared with the same period last year and 41 per cent lower compared with the first quarter of 2023.

B.C. coastal sawlog purchases were 167,000 cubic metres in the second quarter of 2023, as compared with 328,000 cubic metres in the same period last year. Western managed sawlog purchases to match fibre requirements at its B.C. manufacturing facilities.

Freight expense was $21.0-million in the second quarter of 2023, as compared with $31.1-million in the same period last year. The decrease of 32 per cent was due to lower lumber and export shipments, partially offset by higher rail rates. Lack of container availability in the second quarter of 2022 necessitated the use of higher cost breakbulk vessels.

Adjusted EBITDA and operating income included $6.2-million of countervailing duty (CV) and anti-dumping duty (AD) expense in the second quarter of 2023, as compared with $14.7-million in the same period of 2022. Export tax expense declined due to lower duty rates, lumber prices and United States-destined lumber shipment volumes.

Corporate and other

Selling and administration expense was $10.4-million in the second quarter of 2023, as compared with $9.7-million in the same period last year.

Restructuring costs were $1.6-million in the second quarter of 2023, as compared with $200,000 in the same period last year. The increase was primarily due to retirement and other benefits related to rightsizing of various operational functions within Western's business and its decision not to restart its Alberni Pacific division (APD) facility.

Other expense was $800,000 in the second quarter of 2023, as compared with other income of $200,000 in the same period last year, resulting primarily from unrealized foreign exchange losses, partially offset by gains on the sale of equipment and other assets.

Finance costs were $500,000 in the second quarter of 2023, relatively unchanged from $300,000 in the same period last year. Interest expense on higher average borrowings were partially offset by interest revenue from the export duty receivable.

Income taxes

Income tax recovery was $7.3-million on a net loss before tax of $28.0-million in the second quarter of 2023, as compared with an expense of $14.5-million on income before tax of $53.1-million in the same period last year. The effective tax rate was 26 per cent, as compared with 27 per cent in the same period last year.

Net income (loss)

Net loss was $20.7-million in the second quarter of 2023, as compared with net income of $38.6-million for the same period last year. More challenging macroeconomic conditions resulted in lower lumber demand and prices and impacted results year over year.

Summary of year-to-date 2023 results

Western reported adjusted EBITDA of negative $17.1-million for the first six months of 2023, as compared with $131.6-million for the same period last year. Results in the first six months of 2023 reflect more challenging macroeconomic conditions, as compared with the same period last year.

Net loss was $38.4-million for the first six months of 2023, as compared with net income of $76.6-million for the same period last year. Operating loss prior to restructuring and other items was $43.2-million in the first six months of 2023, as compared with income of $105.6-million in the same period last year.

Sales

Lumber revenue was $423.4-million in the first half of 2023, as compared with $665.7-million in the same period last year. The decrease of 36 per cent was due to lower lumber shipment volumes, lower average lumber prices and a slightly weaker sales mix, partially offset by a stronger U.S.-dollar-to-Canadian-dollar average exchange rate. Western's average realized lumber price was $1,312 per thousand board feet in the first half of 2023, as compared with $1,738 per thousand board feet in the same period last year, a decrease of 25 per cent.

Specialty lumber shipments represented 46 per cent of total lumber shipment volumes in the first half of 2023, as compared with 48 per cent in the same period last year, yielding a slightly weaker sales mix. Industrial lumber shipment volumes increased 34 per cent compared with the same period last year, due to the acquisition of Western's Calvert engineered wood products division and growth in Douglas fir timbers. Cedar lumber shipments decreased 24 per cent compared with the same period last year as buyers managed inventory levels to market conditions. Japan lumber shipment volumes decreased 40 per cent compared with the same period last year, due to increased levels of supply from domestic manufacturing, Europe and Russia. Commodity lumber shipments decreased 14 per cent compared with the same period last year, due to weaker market demand.

Log revenue was $91.4-million in the first half of 2023, as compared with $103.5-million in the same period last year. The decrease of 12 per cent was due to lower average domestic log prices, partially offset by higher log sales volume, as Western balanced log inventories to lumber market conditions and fibre requirements of its manufacturing facilities.

Byproduct and other revenue was $25.0-million in the first half of 2023, as compared with $27.8-million in the same period last year. The decrease of 10 per cent was due to lower chip volumes and prices, partially offset by higher revenue from harvesting services provided to third parties.

Operations

Lumber production was 310 million board feet in the first half of 2023, as compared with 348-million board feet in the same period last year. During the first half of 2023, Western took operating curtailments at certain sawmills to match production to market demand and manage inventory levels.

Western harvested 1,556,000 cubic metres of logs from its B.C. coastal operations in the first half of 2023, as compared with 1,651,000 cubic metres in the same period last year, as the company matched harvest volumes to market conditions.

Timberlands operating costs per cubic metre decreased 13 per cent compared with the same period last year, due to lower per cubic metre stumpage expense and managing Western's road building activity. Average stumpage per cubic metre in the first half of 2023 was 38 per cent lower compared with the first half of 2022.

B.C. coastal sawlog purchases were 359,000 cubic metres in the first half of 2023, as compared with 618,000 cubic metres in the same period last year. Western managed sawlog purchases to match fibre requirements at its B.C. manufacturing facilities.

Freight expense was $43.6-million in the first half of 2023 as compared with $57.1-million in the same period last year. The decrease of 24 per cent was due to lower lumber and export shipments, partially offset by higher rail rates. Lack of container availability necessitated the use of higher cost breakbulk vessels in the first half of 2022.

Adjusted EBITDA and operating income included $10.9-million of CV and AD expense in the first half of 2023, as compared with $26.2-million in the same period of 2022. Export tax expense declined due to lower duty rates, lumber prices and U.S.-destined lumber shipment volumes.

Corporate and other

Selling and administration expense was $22.4-million for the first half of 2023, as compared with $22.9-million in the same period last year.

Restructuring costs were $6.8-million in the first half of 2023, as compared with $800,000 in the same period last year. The increase was primarily due to retirement and other benefits related to Western's APD facility and right-sizing of various operational functions within its business.

Other expense was $900,000 in the first half of 2023, as compared with income of $100,000 in the same period last year, resulting primarily from unrealized foreign exchange losses, partially offset by gains on the sale of equipment and other assets.

Finance costs were $700,000 in the first half of 2023, as compared with $700,000 in the same period last year. Interest expense on higher average borrowings were partly offset by revenue from the export duty receivable.

Income taxes

Income tax recovery was $13.2-million on a net loss before tax of $51.6-million in the first half of 2023, as compared with an expense of $27.6-million on income before tax of $104.2-million in the same period last year. The effective tax rate was 25 per cent, as compared with 26 per cent in the same period last year.

Net income (loss)

Net loss was $38.4-million in the first half of 2023, as compared with net income of $76.6-million for the same period of last year. More challenging macroeconomic conditions during the first half of 2023 resulted in lower lumber demand and prices and impacted results year over year.

Alberni Pacific division

The company previously announced that it would not restart its APD facility in its current configuration and had established a multiparty working group to explore viable industrial manufacturing solutions for the site over a 90-day period. On April 27, 2023, Western announced that it had commenced negotiations and due diligence processes related to the proposals it received. Operations at the APD facility have been curtailed since fall of 2022 and will remain curtailed through the negotiations.

Indigenous relationships

Western respects the treaty and aboriginal rights of indigenous groups, and the company is committed to open dialogue and meaningful actions in support of reconciliation. Western is actively investing time and resources in capacity building and fostering positive working relationships with indigenous groups with traditional territories within which Western operates. For additional details of Western's progress in 2022, please see indigenous relationships in the management's discussion and analysis for the year ended Dec. 31, 2022. Work continues on several nation-led integrated resource management planning initiatives across five of the tree farm licence (TFL) areas where Western operates.

TFL 37 forest landscape plan update

Western and 'Namgis First Nation have been collaboratively developing a forest landscape plan since March, 2021, pursuant to a pilot project endorsed by Western, 'Namgis and the Office of the Chief Forester of B.C. The pilot area covers the portion of TFL 37 that overlaps with 'Namgis territory, approximately 88 per cent of the total TFL area. A team comprising Western and 'Namgis representatives has incorporated the best available information, utilizing LiDAR, and has evaluated a range of forest management scenarios that incorporate 'Namgis's values with Western's best management practices and harvesting objectives. The team anticipates delivering the draft forest landscape plan resulting from the pilot project to government in the third quarter of 2023.

Regulatory environment

Since 2020, the Province of B.C. has introduced various policy initiatives and regulatory changes that impact the B.C. forest sector, including fibre recovery, lumber remanufacturing, old growth forest management and the exportation of logs. For additional details on these policy initiatives, regulatory changes and risks, please see regulatory environment and risks and uncertainties in the management's discussion and analysis for the year ended Dec. 31, 2022.

For additional details on policy requirements and regulatory aspects in relation to first nations, see land claims by indigenous groups and regulatory risks under the heading risks and uncertainties in the management's discussion and analysis for the year ended Dec. 31, 2022.

For additional details on old growth logging deferrals and first nations governments approach to such deferrals, please see the old growth logging deferrals heading in the management's discussion and analysis for the year ended Dec. 31, 2022.

In February, 2023, the province announced eight new regional forest landscape planning (FLP) tables throughout B.C. with the participation of approximately 50 first nations. The province's stated objective of these FLP tables is to provide greater clarity around the long term, sustainable harvesting activities in the areas identified.

In June, 2023, the province announced amendments to the forest planning and practices regulation. The new regulations require forest licence holders to publish forest operations maps for public feedback, and amended regulations enhancing protection for ecological and recreational values. In addition, the province passed regulations associated with the previously announced Bill 28, Forest Amendment Act 2021, which is considered enabling legislation for the redistribution of harvest rights. These recently passed regulations pertain to compensation for lost harvesting rights as a result of such redistribution. Western is not able to assess the impact of these regulatory changes on its business at this time.

TFL 44

In June, 2023, the province set a new allowable annual cut (AAC) for TFL 44, reducing the allowable annual log harvest from 793,600 cubic metres to 642,800 cubic metres. The new AAC was effective immediately and reflects harvest reductions associated with forest resources and socio-economic objectives of the province, including the reallocation of previously unharvested volume to new forest licences.

The TFL 44 licence is held by the Tsawak-qin Forestry LP (TFLP), a partnership between Western and Huumiis Ventures LP, a limited partnership beneficially owned by the Huu-ay-aht First Nations (HFN). The company, TFLP and the HFN strongly oppose the AAC determination and the allocation of unharvested volume to new forest licences in light of their serious concerns that the allocation significantly affected the AAC determination and are pursuing this matter with the province. Given the foregoing, the company is unable to assess the potential impact of this AAC determination on the company's business at this time.

Dividend and capital allocation

Western remains committed to a balanced approach to capital allocation. The company will continue to evaluate opportunities to invest strategic and discretionary capital in jurisdictions that create the opportunity to grow long-term shareholder value.

Quarterly dividend

The quarterly dividend program is intended to return a portion of the company's cash to shareholders, after taking into consideration liquidity and continuing capital needs. The company's board will continue to review the dividend on a quarterly basis.

Dividends of $3.9-million and $7.9-million were paid in the three and six months ending June 30, 2023, respectively, as compared with $4.0-million and $7.3-million in the same period last year.

Normal course issuer bid (NCIB)

On Aug. 3, 2023, the company renewed its NCIB permitting the purchase and cancellation of up to 15,837,277 common shares, representing 5 per cent of the common shares outstanding as of Aug. 2, 2023. The renewed NCIB will commence on Aug. 11, 2023, and end no later than Aug. 10, 2024. The company also entered into an automatic share purchase plan with a designated broker to facilitate purchases of its common shares under the renewed NCIB at times when the company would ordinarily not be permitted to purchase its common shares due to regulatory restrictions or self-imposed blackout periods.

During the first six months ended June 30, 2023, no common shares were repurchased under the company's current NCIB.

Strategy and outlook

Western's long-term business objective is to create and grow shareholder value by building a sustainable, margin-focused specialty products business of scale to compete successfully in global markets. For more detail on Western's strategic initiatives and actions, refer to strategy and outlook in the management's discussion and analysis for the year ended Dec. 31, 2022.

Market outlook

Near-term, the company expects lumber markets to remain volatile, as consumers adjust to higher interest rates and macroeconomic conditions and lumber supply and demand rebalances. Demand and prices for cedar timber and premium appearance products are expected to remain strong, while cedar decking, trim and fencing products are expected to remain weaker. In Japan, channel inventories have rebalanced, however, prices are expected to have downward pressure as competition remains strong from Europe and domestic manufacturers. Demand for the company's industrial lumber products will be product line specific but is expected to remain stable over the near term. While North American demand and prices for Western's commodity products have improved recently, the company expects conditions to remain volatile and may take incremental operational downtime to match production to market demand.

Western expects sawlog markets to follow conditions in the lumber markets, while residual chip pricing is expected to decline due to weaker northern bleached softwood kraft (NSBK) prices to China.

Long term, Western believes that housing market fundamentals and growth in mass timber construction will drive demand for lumber and specialty building products. The company remains excited about the long-term growth opportunity for mass timber building in North America and the positive impact wood products have to play in a low carbon world.

Non-GAAP (generally accepted accounting principles) financial measures

Reference is made in this news release to the following non-GAAP measures. Adjusted EBITDA, adjusted EBITDA margin, net debt to capitalization and total liquidity are used as benchmark measurements of Western's operating results and as benchmarks relative to the company's competitors. These non-GAAP measures are commonly used by securities analysts, investors and other interested parties to evaluate Western's financial performance. These non-GAAP measures do not have any standardized meaning prescribed by IFRS (international financial reporting standards) and may not be comparable with similar measures presented by other issuers. The attached table provides a reconciliation of these non-GAAP measures to figures as reported in Western's unaudited condensed consolidated financial statements.

Western is an integrated forest products company building a margin-focused log and lumber business to compete successfully in global softwood markets. With operations and employees located primarily on the coast of British Columbia and Washington, Western is a premier supplier of high-value, specialty forest products to worldwide markets. Western has a lumber capacity in excess of 1.0 billion board feet from seven sawmills, as well as operates four remanufacturing facilities and two glulam manufacturing facilities. The company sources timber from its private lands, long-term licences, first nations arrangements and market purchases. Western supplements its production through a wholesale program providing customers with a comprehensive range of specialty products.

Teleconference call notification

Friday, Aug. 4, 2023, at 11 a.m. PDT (2 p.m. EDT)

To participate in the teleconference, please dial 416-340-2217 or 1-800-952-5114 (passcode 9725391 followed by the pound key). This call will be taped, available one hour after the teleconference, and on replay until Sept. 4, 2023, at 8:59 p.m. PDT (11:59 p.m. EDT). To hear a complete replay, please call 905-694-9451 or 1-800-408-3053 (passcode 5520759 followed by the pound key).

We seek Safe Harbor.