Investor Presentation - April 2019 - West Fraser
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Investor Presentation April 2019
2
General: This presentation and comments associated with it contains securities regulatory authorities. Accordingly, readers should exercise
historical information, descriptions of current circumstances and caution in relying upon forward-looking- statements and WFT undertakes
statements about potential future developments and anticipated financial no obligation to publicly update or revise any forward-looking statements,
results. Readers are cautioned that this presentation is qualified in its whether written or oral, to reflect subsequent events or circumstances
entirety by reference to, and must be read in conjunction with, the except as required by applicable securities laws.
information contained in West Fraser Timber Co. Ltd.’s (WFT’s)
management’s discussion and analysis for the year ended December 31, Non-IFRS Measures: This presentation makes reference to certain non-
2018 (MD&A), available on SEDAR (www.sedar.com). A person is not IFRS measures, such as EBITDA. Non-IFRS measures do not have a
entitled to rely on parts of the information contained in this presentation to standardized meaning prescribed by IFRS and are therefore unlikely to
the exclusion of others. be comparable to similar measures presented by others. For further
information regarding the use of non-IFRS measures please refer to the
Forward-looking Statements: This presentation contains “forward- “Non-IFRS Measures” section in the MD&A.
looking statements” within the meaning of applicable securities laws.
Forward-looking statements, are presented to provide reasonable External Information: Where this presentation quotes any information or
guidance to the reader but their accuracy depends on a number of statistics from any external source, it should not be interpreted that WFT
assumptions and is subject to various risks and uncertainties. In some has adopted or endorsed such information or statistics as being accurate.
cases, forward-looking statements can be identified by the use of Some of the information presented herein is based on or derived from
forward-looking terminology such as “plans”, “targets”, “expects” or “does statements by third parties and has not been independently verified by or
not expect”, “an opportunity exists”, “outlook”, “prospects”, “strategy”, on behalf by WFT, and no representation or warranty, express or implied,
“intends”, “believes”, or variations of such words and phrases or state is made as to, and no reliance should be placed on, the fairness,
that certain actions, events or results “may”, “could”, “would”, “might”, accuracy, completeness or correctness of this information or any other
“will”, “will be taken”, “occur” or “be achieved”. In addition, any statements information or opinions contained herein.
that refer to expectations, intentions, projections or other
characterizations of future events or circumstances contain forward-
looking information. Statements containing forward-looking information Currency: In this presentation, all amounts are in Canadian dollars,
are not historical facts but instead represent management’s expectations, unless otherwise indicated.
estimates and projections regarding future events or circumstances. By
their nature, forward-looking statements involve numerous assumptions, Terminology: References in this presentation to “MMfbm” or “mmfbm”
inherent risks and uncertainties, both general and specific, which mean million board feet, “SPF” means spruce-pine-fir and “SYP” means
contribute to the possibility that the predictions, forecasts and other southern yellow pine. For any other technical terms used in this
forward-looking statements will not occur. Actual outcomes and results of presentation, please see the Glossary of Industry Terms found in our
these statements will depend on a number of factors including those most recent Annual Report.
matters described under “Risks and Uncertainties”, in our MD&A and
may differ materially from those anticipated or projected. Reference
should be made to the other factors discussed in public filings with
West Fraser Overview
We Attain Value from 100% of Our Resources 4
Sustainably managed
forest lands
Plywood & LVL Lumber Reforestation
Sawdust & shavings Chips Bark (fuel)
MDF Supply agreements BCTMP Pulp NBSK Pulp Bioproducts Heat &
(e.g. pellet plants Electricity
Integrated fiber strategy to maximize the value of the log
Product & Geographic Diversification 5
Lumber Panels Pulp & Paper
34 mills 7 mills 5 mills
SPF 3.9 Bfbm Plywood: 860 MMsf3/8” NBSK: 570 Mtonnes
SYP 3.2 Bfbm MDF: 250 MMsf3/4” BCTMP: 690 Mtonnes
Total 7.1 Bfbm LVL: 2.6 MMcf Newsprint: 135 Mtonnes
2018 Revenue Mix by Business Segment
Lumber Panels Pulp
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2018 Revenue Mix by Country
US Canada China Other
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Diversified across multiple end uses
Operations Diversification 6
Strong presence in key lumber producing regions
and forest product markets
North American Lumber Capacity 7
West Fraser Lumber Capacity 2004 2.8 Billion feet
West Fraser US South
11%
Canfor
Alberta
12%
Weyco
Interfor Top 10 represent British
48% of capacity Columbia
GP 77%
Sierra Pacific
West Fraser Lumber Capacity 2018 7.1 Billion feet
Resolute
British
Hampton Columbia
31%
Tolko US South
45%
Idaho Forest
0 2000 4000 6000 8000
MMfbm Alberta
24%
West Fraser has largest share of a growing market
Source: Public filings, Forest Economic Advisors and West Fraser estimates
Consolidated Financial Results 8
$ Millions 2018 2017
Adjusted EBITDA 2018 2017
Lumber $ 1,156 $ 884 Sales $ 6,118 $ 5,134
Panels 127 113 Cost and Expenses 5,046 4,264
Operating earnings 1,072 870
Pulp & Paper 258 172
Finance Expense (37) (31)
Corporate/Other (3) (9)
Other 37 7
Total $ 1,538 $ 1,160
Earnings before Tax $ 1,072 $ 846
EBITDA margin 25.1% 22.6% Tax provision (262) (250)
Net earnings $ 810 $ 596
Diluted EPS $ 10.62 $ 7.63
Strong pricing resulting in significant earnings growth and cash flow
* Adjusted EBITDA is defined as operating earnings plus amortization, equity based compensation and export duties.
Total liquidity and Debt/EBITDA 9
Total Liquidity
$1,000
$900
$800
$700 $258 $302 $282
$231
$600 $50 $132
$160
$500 $86 $100
$400
$300 $553 $553 $551 $551 $562 $556
$200 $444 $491
$400
$100
$-
Q4/2016 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Q4/2018
Undrawn Bank Lines Cash
Debt/EBITDA
1.0
0.8
0.5
0.3
0.0
Q4/2016 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Q4/2018
Strong Liquidity, Conservative Leverage ProfileCapital Investment 10
Capital Expenditure vs Amortization
$400 200%
Grade
$350
$300 150% Capacity /
$250 Recovery
Production
$200 100%
$150
$100 50%
$50 Modernization
$0 0% initiatives
2015 2016 2017 2018
Capital Depreciation Percent
Segment Capital Expenditure Capital Expenditure by type
$10 $17
$60
$16 $117
$236
$284
Lumber Panels Pulp and Paper Corporate Profit improvement Maintenance Safety
Consistent investment in the operationsBalanced Capital allocation 11
2015 through 2018
$3,000 $2,801 $1,199
$2,500 $1.1B returned to
shareholders
$2,000
$602
$1,500
$100 $110
$942
$1,000
$500 $1.8B Reinvested in the
business $42 $90
$0
Cash from Capital Acquisitions Debt service Dividends Buybacks Other Retained cash
operations Expenditure and leverage flow
Debt, Other & Retained, -2%
Buybacks &
Dividends, 38%
Capital Consistently deploying
Expenditure,
43% capital to create value
Acquisitions, 21%Share repurchases 12
Cumulative investment in repurchases Average repurchase price:
(millions of dollars)
$1,200 $1,108 2013 $44.60
$1,057
$1,000 2014 $51.86
$800
$600 2015 $55.57
$364 $381
$400
$174 2016 $44.06
$200 $115
$3
$0 2017 $68.45
2013 2014 2015 2016 2017 2018 2019
2018 $83.13
2019 $70.75
Total volume traded (000) To date $66.09
150,000
As of March 31, 2019
100,000
50,000
0
2013 2014 2015 2016 2017 2018 Q1-19
Annualized
Consistently buying back shares, trading liquidity remains robustWest Fraser Total Shareholder Return 13
TSR June 2006 to February 2019
Cdn$ Million
Share Value Traded
14%
Source: TD 10,000
12% 11.3% 11.1%
8,000
10%
8% 6,000
6.2%
5.4% 5.7%
6% 5.0% 4,000
4.2%
4% 2,000
2.7%
2%
0
0% 2018 2017 2016
West Dow DAX S&P/TSX FTSE Competitor Competitor Competitor
Fraser A B C WFT CFP IFP
✓ Proven ability to generate strong cash flow, even in difficult markets
✓ Consistent, straightforward business plan
✓ Loyal, long-term employee and management base
✓ Conservative financial management coupled with proven ability to
grow strategically
✓ Strong historical shareholder returnsMarket Overview
North America Lumber End Use and Consumption 15
North America Lumber End Use 2018
Non-residential Other
6%
New
Residential Residential improvements
29%
and industrial demand
Industrial
25% are lower volatility
demand drivers
Residential Improvements
40%
North America Lumber Consumption
35
30
25
Billion ft
20
15
10
5
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Housing Construction Residential Improvements Industrial/Other
Source: FEADemand conditions U.S. 16
U.S. Housing Starts (not seasonally adjusted) Leading indicator of Remodeling Activity
Monthly
$B 4 Qtr Moving Improvements and Repairs
160 $340 Repair and renovation growth 8.0%
140 $330 continues 7.0%
4 Qtr Moving rate of Change
120 $320 6.0%
100 5.0%
$310
80 4.0%
$300
60 3.0%
2017: 1,203 $290 2.0%
40
20 2018: 1,250 $280 1.0%
0 $270 0.0%
J F M A M J J A S O N D Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418
2017 2018 2019 Expenditures % change
Source: US Census Bureau Source: Harvard Joint Centre for Housing Studies
U.S. Housing Forecast (000) 2019 2020
RBC 1,313 1,335
50k annual ~600Mfbm
RISI 1,290 1,330
increase in increase in
FEA 1,277 1,386
housing starts lumber demand
Mortgage Brokers 1,274 1,320
Wells Fargo 1,270 1,290
NAHB 1,266 1,300 3% growth in ~1,000Mfbm
Fannie Mae 1,256 1,288
repair and increase in
renovation lumber demand
APA 1,230 1,220
Average 1,272 1,309
Limited growth needed for increased demand of 1 – 2 billion board feetU.S. Housing Starts 17 US New Housing construction remains at tempered levels
North American Lumber Consumption 18
80
75
72
70
64 64
62
60
60 58 59
56
53
51 50
50 48
45
43 43
Billion Feet
39
40
30
20
10
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F
US Consumption Canadian Consumption
Lumber demand growth trending at ~ 2 billion board feet per year
Source: US Census Bureau, Statistics Canada, West Fraser ForecastPrecipitation Fallout 19
5
Adverse weather one factor tempering demandDemand Conditions Offshore 20
North American Offshore Lumber North American Offshore Lumber Imports
Exports (Billion BF) 7 $600
7
6 $500
6
5
5 $400
US$/Mfbm
Billion BF
4
4 $300
3 3
$200
2 2
1 $100
1
0 0 $0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20052006200720082009201020112012201320142015201620172018
Offshore Exports US Offshore Exports Canada NA Imports SPF 2x4 2&btr (R axis)
North American Offshore Lumber Exports less Imports
(Billion BF)
7
6
5
4
3
2
1
0
(1)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
North America is still a significant net exporter of lumber
Source: WWPA, Stats Canada, Random LengthsChinese Lumber Demand 21
30,000
25,000
20,000
M cubic meters
15,000
10,000
5,000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018
North America Russia Europe Other
1 million cubic meters = ~ 295 million board feet
Although price sensitive, China continues to import significant lumber
Source: FEASupply conditions 22
Billion fbm Lumber Supply MMfbm Western Canada Curtailments
70 350
Up .3%
60 300
50 250
Up 3.3%
40 Mix of
Down 200
temporary
3.2% and
30 150 permanent
20 Down 5.5%
100
10 50
0 0
BC Canada US Total NA 2018Q4 2019 Q1
2017 2018
Source: Western Wood Products Association, management estimates Source: Industry analysts, public filings, management estimates
Supply growth challenges
• Equipment cost inflation affecting paybacks leads to cancelations
• Contractor availability and lead times
• Residual markets (new and existing)
• Slower than expected start up schedule
• Temporary curtailments become permanent
Curtailments a headwind to supply growthAnnual Allowable Cut on the decline in BC Interior 23
British Columbia Interior British Columbia Interior Purchase Log
70 14 Cost
$110
Billion BF (softwood lumber production)
65 12
$100
Million m3 (AAC & Harvest)
60
10
55 $90
8
50
$/M3
$80
6
45
Log supply $70
constraints will 4
40 create price
pressure $60
35 2
30 0 $50
2010201120122013201420152016201720182019202020212022 2014 2015 2016 2017 2018 2019
AAC (m3)
Harvest (m3)
Softwood Lumber Production (BBF)
Pine beetle and fires impacting log supply, leading to higher input costs
Source: FEA, BC Forest ServiceShare of North American Lumber Production 24
32%
30%
28%
26%
24%
22%
20%
18%
16%
14%
12%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Canada West Canada East US South US West
Western Canada a key supply region,
facing fibre cost and availability headwinds
Source: US Census Bureau & Statistics CanadaNorth American Lumber Production 25
North America Softwood Lumber Production
Millions of Board Feet
US Other
(25%)
US South
BC
(30%)
Eastern Canada
(18%)
Alberta
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000
MMfbm
2005 2018
Growth constrained in several significant lumber producing regions
Source: US Census Bureau & Statistics CanadaMarket Pulp Supply and Demand 26
BCTMP Chemical Pulp
Chemical Pulp Demand (M tonnes)
• No new major capacity additions 2018 to 2020 30,000 40%
• Pulp demand projected to grow 2.3% over next 25,000
38%
36%
5 years 20,000 34%
32%
• Demand growth driven by tissue and packaging 15,000 30%
demand 28%
10,000 26%
• Growth will be primarily in Asia 5,000 24%
22%
• Conversions of chemical pulp to dissolving pulp 0 20%
will constrain both softwood & hardwood pulp
supply
China Demand % of World Demand (R axis)
Growth in China demand for pulp creates favorable market dynamics
Source: PPPCWest Fraser Timber Co. Ltd. 27 These materials have been prepared by Management of the Company. No regulatory authority has approved or disapproved of the contents of these materials. These materials do not constitute an offer to sell or the solicitation of an offer to buy any securities of the Company, and shall not constitute an offer, solicitation or “WFT” – Toronto Stock Exchange sale of the Company’s securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. Securities of the Company may not be offered or sold in www.WestFraser.com the United States absent their prior registration or qualification or an applicable exemption from the applicable registration or qualification requirements.
APPENDIX
Earnings Sensitivity to Key Variables 29
Estimated Earnings Sensitivity to Key Variables1 (2018)
(based on 2018 production - $ millions)
Factor Variation Change in pre-tax earnings
Lumber price US$10 (per Mfbm) 90
Plywood price Cdn$10 (per Msf) 8
NBSK price US$10 (per tonne) 7
BCTMP price US$10 (per tonne) 9
U.S. - Canadian $ US$0.01 (per Cdn$) 29
exchange rate
1. Each sensitivity has been calculated on the basis that all other variables remain constant and assumes year end foreign
exchange rates.
2. Excludes exchange impact of translation of US. Dollar-denominated debt and other monetary items. Reflects the
amount of the initial US$0.01 change; additional changes are substantially, but not exactly, linear.You can also read
