WEST FRASER TIMBER CO., LTD

Pulp & Paper Segment

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 decreased compared to 2022 due primarily to lower pulp pricing and the volume impact of the transition of our Hinton pulp mill to UKP. The price variance resulted in a decrease in operating earnings and Adjusted EBITDA of $144 million compared to 2022.

Pulp shipments decreased compared to 2022 due primarily to reduction in production volumes, discussed further in the section below. The volume variance resulted in an increase in operating earnings and Adjusted EBITDA of $6 million compared to 2022.

Pulp production decreased compared to 2022 due primarily to the impact of transitioning our Hinton pulp mill, offset in part by a recovery of volumes lost in the prior year due to reductions in operating schedules taken as a result of transportation disruptions, in particular for our BCTMP mills, and lower production curtailments related to power prices in Alberta.

Costs of products sold decreased compared to 2022 due primarily to lower shipment volumes, lower fibre costs driven by lower pulp pricing, lower spend on chemicals and energy as a result of the Hinton pulp mill transition to UKP, and lower power prices. This was partially offset by a $12 million unfavourable impact relating to inventory write-downs and higher maintenance expenditures in the current year.

Freight and other distribution costs decreased compared to 2022 due to lower shipment volumes and lower ocean freight costs.

Amortization expense decreased compared to 2022. 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.

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Selling, general, and administration costs decreased compared to 2022 due primarily to lower variable compensation costs, offset in part by annual salary increases.

In 2023, we recorded impairment losses of $142 million relating to the sale of the Hinton pulp mill, Quesnel River Pulp mill, and Slave Lake Pulp mill, including remeasurement of estimated working capital adjustments specified in the asset purchase agreements. In 2022, we recorded impairment losses of $13 million related to equipment that was decommissioned as part of the transition of the Hinton pulp mill to UKP.

Operating loss for the Pulp & Paper Segment increased by $220 million compared to 2022 due to the reasons explained above.

Adjusted EBITDA for the Pulp & Paper Segment decreased by $103 million compared to 2022. The following table shows the Adjusted EBITDA variance for the period.

The Hinton pulp mill, Quesnel River Pulp mill, and Slave Lake Pulp mill held for sale comprise a significant portion of the Pulp & Paper segment’s sales and operating earnings.

1. Operating earnings (losses) include impairment losses of $141 million for 2023 and $13 million for 2022.

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