WEST FRASER TIMBER CO., LTD

Pulp & Paper Segment

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Our Pulp & Paper segment results include the results of the Hinton pulp mill, Quesnel River Pulp mill, and Slave Lake Pulp mill held for sale as the transactions had not completed as at December 31, 2023.

Sales increased compared to Q3-23 due to higher shipment volumes and product pricing. Sales decreased compared to Q4-22 due to lower product pricing, offset in part by higher shipment volumes.

The price variance resulted in an increase in operating earnings and Adjusted EBITDA of $1 million compared to Q3-23 and a decrease of $47 million compared to Q4-22.

Pulp shipments increased versus comparative periods due to production volume changes as discussed further in the section below. In addition, Q3-23 shipment volumes were impacted by a labour dispute at B.C. ports, which impacted our ability to ship our products to overseas customers during July.

The volume variance resulted in a nominal change to operating earnings and Adjusted EBITDA compared to Q3-23, and a decrease of $5 million compared to Q4-22.

Pulp production volumes increased compared to Q3-23 due primarily to our Slave Lake Pulp mill, which in Q4-23 benefited from fewer curtailments related to high power prices and management of inventory levels. Pulp production volumes increased compared to Q4-22. Q4-22 production volumes were impacted by the transition of our Hinton pulp mill to single-line production of UKP in October 2022, the curtailment at our Cariboo pulp mill to align operating capacity with the available supply of wood chips, and incremental production curtailments taken at Slave Lake Pulp mill to manage power prices in Alberta.

Costs of products sold increased compared to Q3-23 due to higher shipment volumes and fibre costs driven by higher pulp pricing, offset in part by lower power prices in Alberta. Costs of products sold decreased compared to Q4-22 due to lower fibre costs driven by lower pulp pricing and lower spend on chemicals and energy as a result of the Hinton pulp mill transition and lower power prices in Alberta, offset in part by higher shipment volumes.

Freight and other distribution costs generally trended with changes in shipment volumes. Lower ocean freight costs provided an offsetting factor in the comparison to Q4-22.

Amortization expense decreased versus comparative periods. The decrease in amortization expense relates to the write-down and transfer of property, plant and equipment associated with the Hinton pulp mill, Quesnel River Pulp mill, and Slave Lake Pulp mill to a disposal group held for sale. No further amortization expense was taken on the assets upon transfer to the disposal group held for sale.

Selling, general and administration costs were comparable to Q3-23 and decreased versus Q4-22 due primarily to lower variable compensation costs, offset in part by annual salary increases.

Restructuring and impairment charges of $6 million were recorded in Q4-23 upon remeasurement of estimated working capital adjustments specified in the asset purchase agreements for the Hinton pulp mill, Quesnel River Pulp mill, and Slave Lake Pulp mill.

In Q3-23, we recorded impairment losses of $17 million in relation to the sale of the Quesnel River Pulp mill and Slave Lake Pulp mill. In addition, we recorded an impairment reversal of $4 million in relation to the sale of the Hinton pulp mill upon remeasurement of estimated working capital adjustments specified in the asset purchase agreement.

Operating earnings for the Pulp & Paper Segment increased by $22 million compared to Q3-23 and decreased by $13 million compared to Q4-22 due to the reasons explained above.

Adjusted EBITDA for the Pulp & Paper Segment increased by $14 million compared to Q3-23 and decreased by $13 million compared to Q4-22. The following table shows the Adjusted EBITDA variance for the period.

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