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VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 02/22/12 -- Western Forest Products Inc. (TSX:WEF) -
2011 HIGHLIGHTS
-- EBITDA of $62 million, a $15 million increase over 2010
-- Sales of $854 million were 28% higher than 2010
-- Year-end liquidity at $112 million, compared to $85 million at the end
of 2010
-- Net debt to capitalization reduced to 13% from 23% last year
-- Cash flow from operations increased to $44 million
"2011 was a good year for Western with EBITDA increasing 32% from 2010 to $62 million," said Dominic Gammiero, Chairman and Chief executive Officer. "Even though markets for some of our products remain historically weak, our repositioned cost structure allowed our timberlands and lumber manufacturing businesses to operate at significantly higher rates than 2010. The improved financial results and resulting balance sheet will allow the Company to continue to implement our strategic capital plan."
Western Forest Products Inc. ("Western" or "the Company") today announced results for the fourth quarter and year ended December 31, 2011. The Company reported EBITDA of $13.6 million for the fourth quarter of 2011, compared to EBITDA of $ $3.9 million for the fourth quarter of 2010.
Net income for the fourth quarter of 2010 was $5.3 million ($0.01 per share), on sales of $220.7 million, which compared to a net income reported for the fourth quarter of 2010 of $20.1 million ($0.04 per share) on sales of $172.6 million.
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FINANCIAL SUMMARY
Twelve months
Three months ended ended
December 31, December 31,
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(millions of dollars except where noted) 2011 2010 2011 2010
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Sales $ 220.7 $ 172.6 $ 853.7 $ 667.9
EBITDA 13.6 3.9 61.8 46.9
EBITDA as % of sales 6.2% 2.3% 7.2% 7.0%
Operating income before restructuring
items and other income (expenses) 7.0 16.4 35.2 40.4
Net income from continuing operations 5.6 20.4 25.1 42.6
Net income 5.3 20.1 24.0 41.1
Basic and diluted earnings per share (in
dollars) 0.01 0.04 0.05 0.09
Net Debt at December 31 52.1 99.8
Liquidity at December 31 112.1 84.6
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Fourth quarter, 2011
Our net income of $5.3 million reported in the fourth quarter of 2011 was a $14.8 million decline from the income of $20.1 million reported for the same quarter of 2010. Following an independent impairment assessment of our timber licenses undertaken at the end of 2010, the Company partially reversed a previously recognized impairment by $18.5 million in the fourth quarter of 2010 (see Note 5 to the 2011 Annual Financial Statements for further details). Excluding this item, the current quarter income is $3.7 million higher than the fourth quarter of 2010, and operating income is $2.8 million higher this year.
The improvement in EBITDA in the fourth quarter of 2011 was the result of increased shipments in 2011 with lumber and log sales volumes being 24% and 32% higher than the fourth quarter of 2010 respectively. Average log prices realized in the fourth quarter of 2011 were $9 per m3, or 15%, higher than the same quarter in 2010. The average selling price realised for lumber sales in the current quarter was marginally less than those achieved in the fourth quarter of 2010. In order to meet improved demand our mills operated at 82% of capacity in the fourth quarter of 2011, compared to 76% in the same period of 2010, which resulted in fixed shutdown costs incurred in 2011 being $2.4 million less than those incurred in 2010. Revenue from by-product sales was lower in the current quarter primarily because of lower chip prices received this year because of lower pulp prices.
Selling and administration expenses in the fourth quarter of 2011 were $6.9 million, or $0.7 million less than those in the same quarter of 2010. This reduction is attributable to lower incentive costs and pension costs in the current quarter compared to 2010. Other expenses in the fourth quarter of 2011 of $0.3 million compares to other income of $6.3 million in the fourth quarter of 2010. The fourth quarter of 2010 included a receipt of $5.2 million from the Province of British Columbia for the reimbursement of costs incurred by Western on Bill 28 timber take-back areas. Finance costs in the current quarter were $1.4 million lower than the fourth quarter of 2010 primarily as a result of lower average debt levels in the current quarter.
Year ended December 31, 2011
Our net income of $24.0 million in 2011 declined from the 2010 result of $41.1 million, which included a number of one-time items. As discussed in the fourth quarter summary above, the 2010 result includes a recovery of $18.5 million as a result of the impairment reversal on our timber licenses. In addition, the net income in 2010 included two other non-recurring items totaling $14.1 million; a net gain of $8.9 million generated on the establishment of a jointly-owned entity and the receipt of $5.2 million from the Province of British Columbia relating to the reimbursement of costs incurred by Western with respect to Bill 28 timber take-back areas. Excluding these three items, net income in 2011 was actually higher than 2010 by $15.5 million.
EBITDA for 2011 was $61.8 million which is an improvement of $14.9 million over the $46.9 million achieved in 2010. This improvement reflects increased shipment volumes of all our major products, particularly of logs, and the benefits of being able to run our operations at higher production levels, and realizing higher log prices. Our results in 2011 benefitted from lower unit costs as a result of running at higher production levels with the associated efficiencies. In particular, fixed costs incurred at curtailed operations were significantly less than the previous year.
The total log harvest for 2011 was 5.8 million cubic meters which was 25% higher than the 2010 harvest level, while lumber production was 17% higher than during 2010. Our sawmills operated at 83% of total capacity in 2011 compared to 63% of capacity in 2010. This increase primarily reflects the fact that our Nanaimo and Ladysmith sawmills which started up in the latter part of 2010, ran for all of 2011. Unavoidable fixed costs of $8.7 million associated with curtailed operations were directly expensed to the income statement in 2011, which is $16.1 million less than the amount expensed in 2010.
While much of the year over year improvement in Western's EBITDA is the result of higher operating rates at our operations, increased sales volumes, improved log prices and by-product prices also contributed to the increase. The benefits of Western's ongoing cost reduction initiatives and focus on various margin improvement programs, also contributed to reducing our cost of sales.
While our EBITDA increased significantly in 2011 compared to 2010, our EBITDA margin increased only slightly. As previously mentioned, the strength of the US dollar relative to the Canadian dollar in 2011 compared to 2010 had a negative impact on 2011 EBITDA of approximately $8.6 million, which equates approximately to a 1% margin reduction. Our EBITDA margin was also adversely impacted by the fact that the mills that have been restarted in the last year to take advantage of improved market demand are relatively higher cost operations. Our logging costs increased in 2011 compared to 2010 as a result of various factors including higher road construction and associated engineering costs, logging in higher cost areas, higher contract rates and labour costs, and the effects of adverse weather conditions in 2011 compared to 2010. Higher freight costs and selling and administration costs also tempered an improvement in our 2011 EBITDA.
Selling and administration expenses in 2011 were $26.6 million (2010 - $24.6 million). Our expenditures have stabilized following the previous two years of significant reductions, as the Company restructured its organizational needs to adapt to a new operating environment. The $2.0 million increase is largely because of an increase in employee related costs and contractor services. The increase in employee costs is a result of re-instating the 10% pay roll-back part way through 2010, and incentive based awards being re-introduced in recognition of improved performance and results.
Operating restructuring items
In 2011, Western recorded restructuring expenses of $0.7 million, $0.9 million lower than the equivalent expense of $1.6 million in 2010. The restructuring charges in 2011 primarily related to severance costs associated with restructuring of administrative functions. In 2010 the severance costs were for severance obligations incurred as a result of restructuring the Company's Japanese sales organization, the closures of our Mid-Island Remanufacturing operation and Andy's Bay logging facility, and the re-organization of the Ladysmith sawmill.
Finance costs
Finance costs for 2011 of $6.6 million were $6.3 million less than the $12.9 million incurred in 2010. The decrease was primarily caused by lower average debt levels outstanding in 2011 compared to 2010, resulting from the proceeds of non-core asset sales being used to pay down debt in 2011.