EARNINGS PRESENTATION FEBRUARY 2019

Transcription

1 EARNINGS PRESENTATION FEBRUARY

2 General: This presentation and comments associated with it contains historical information, descriptions of current circumstances and statements about potential future developments and anticipated financial results. Readers are cautioned that this presentation is qualified in its entirety by reference to, and must be read in conjunction with, the information contained in West Fraser Timber Co. Ltd. s (WFT s) management s discussion and analysis for the year ended December 31, 2018 (MD&A), available on SEDAR ( A person is not entitled to rely on parts of the information contained in this presentation to the exclusion of others. Forward-looking Statements: This presentation contains forward-looking statements within the meaning of applicable securities laws. Forward-looking statements, are presented to provide reasonable guidance to the reader but their accuracy depends on a number of assumptions and is subject to various risks and uncertainties. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as plans, targets, expects or does not expect, an opportunity exists, outlook, prospects, strategy, intends, believes, or variations of such words and phrases or state that certain actions, events or results may, could, would, might, will, will be taken, occur or be achieved. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management s expectations, estimates and projections regarding future events or circumstances. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predictions, forecasts and other forward-looking statements will not occur. Actual outcomes and results of these statements will depend on a number of factors including those 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 securities regulatory authorities. Accordingly, readers should exercise caution in relying upon forward-looking- statements and WFT undertakes no obligation to publicly update or revise any forward-looking statements, whether written or oral, to reflect subsequent events or circumstances except as required by applicable securities laws. Non-IFRS Measures: This presentation makes reference to certain non-ifrs measures, such as EBITDA. Non-IFRS measures do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by others. For further information regarding the use of non-ifrs measures please refer to the Non-IFRS Measures section in the MD&A. External Information: Where this presentation quotes any information or statistics from any external source, it should not be interpreted that WFT has adopted or endorsed such information or statistics as being accurate. Some of the information presented herein is based on or derived from statements by third parties and has not been independently verified by or on behalf by WFT, and no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of this information or any other information or opinions contained herein. Currency: In this presentation, all amounts are in Canadian dollars, unless otherwise indicated. Terminology: References in this presentation to MMfbm or mmfbm mean million board feet, SPF means spruce-pine-fir and SYP means southern yellow pine. For any other technical terms used in this presentation, please see the Glossary of Industry Terms found in our most recent Annual Report. 2

3 $B 4 Qtr Moving Improvements and Repairs 4 Qtr Moving rate of Change Demand conditions Monthly 160 Housing Starts Annual $340 Leading indicator of Remodeling Activity 8.0% 140 $ % J F M A M J J A S O N D : 1, : 1,260 $320 $310 $300 $290 $280 $270 Repair and renovation growth continues Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418 Expenditures % change 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: US Census Bureau Source: Harvard Joint Centre for Housing Studies 50k (4%) annual increase in housing starts ~600MMfbm increase in lumber demand 4% growth in repair and renovation ~800MMfbm increase in lumber demand 3% growth other demand (industrial, non-residential) ~450MMfbm increase in lumber demand Limited growth needed for increased demand of 1 2 billion board feet 3

4 Supply conditions Billion fbm Lumber Supply Up 1.6% Up 4.4% Down 1.8% Down 3.4% BC Canada US Total NA Source: Western Wood Products Association, management estimates MMfbm Western Canada Curtailments 2018Q4 Mix of temporary and permanent 2019 Q1 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 growth 4

5 Market volatility - Lumber MMfbm WFT Shipments to Production differential 100 Oversupply Undersupply Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418 SPF SYP Difficult for quick production response, supply disruptions drive volatility 5

6 Lumber key metrics Q418 Q318 Q3- Q4 Lumber production (MMfbm) 1,559 1,642 (83) -5.1% Log availability, wet weather, curtailments, maintenance, capital commissioning Lumber shipments (MMfbm) 1,569 1,749 (180) -10.3% Shipments fall more into line with production for Q418 after surge in Q2, Q3 to clear backlog SPF #2 and Better, 2x4 - Cdn$ $ 432 $ 630 $ (198) -31.4% SYP #2 West, 2x4 - Cdn$ $ 553 $ 613 $ (60) -9.8% Steep decline in SPF benchmark price over comparative periods SYP 2x4 held up better but wider dimensions dropped more significantly from third quarter to fourth quarter SYP #2 West, 2x10 - Cdn$ $ 414 $ 601 $ (188) -31.2% SYP Composite - Cdn$ $ 508 $ 604 $ (96) -15.9% Adjusted EBITDA / Mfbm $ 43 $ 194 $ (150) -77.6% Combination of lumber price, dimension differentials, log inflation, lower production and lower shipments shipments SPF and SYP wides price decline key driver along with lower shipments 6

7 Q4 Lumber Earnings Reconciliation Price and product differentials key driver, seasonal volume impact 7

8 Year in Review Change Lumber shipments (MMfbm) 6,582 6, % Increase largely from carryover of Gilman acquisition and recovery from 2017 fire season Pulp shipments (Mtonnes) 1,138 1,167 (29) -2% Adjusted EBITDA $ 1,538 $ 1,160 $ % Cash flow from operations $ 909 $ 902 $ 7 Capital expenditure $ 370 $ 336 $ 34 10% Net debt $ 606 $ 376 $ 230 Net debt to capital 17% 12% 500 bps Improvements at Slave Lake and Cariboo, maintenance and downtime at Quesnel River pulp, Hinton challenges continue Higher prices across all commodities for much of the year Duties, pension funding and taxes consumed large portion of the growth in adjusted EBITDA 2 sawmill rebuilds, 5 continuous kilns, pulp upgrades Low leverage, strong liquidity, financial flexibility Cumulative duties on deposit $ 323 $ 85 $ 238 Significant duties on deposit. Shares outstanding (000s) 69,819 77,946 (8,127) -10% Significant buyback activity over the course of the year, capital fully allocated Record earnings and strong cash flow in a volatile year 8

9 Balanced Capital allocation $3,000 $2,500 $1, through 2018 Buybacks & Dividends, 38% Debt, Other & Retained, -2% Capital Expenditure, 43% $2,000 $1,500 $2,801 $602 $100 $1.1B returned to shareholders Acquisitions, 21% $1,000 $110 $500 $0 Cash from operations $1.8B Reinvested in the business Capital Expenditure Acquisitions Debt service and leverage $942 $42 $90 Dividends Buybacks Other Retained cash flow Consistently deploying capital to create value 9

10 Liquidity Available liquidity $900 $800 $600 Scheduled maturities $700 $600 $500 $500 $400 $400 $300 $300 $200 $100 $ $200 $100 $ Bank lines Cash Term loan Notes Revolver Ample financial flexibility 10

11 Share repurchases $1,500 $1,000 Cumulative investment in repurchases (millions of dollars) $1,056 $1,087 $500 $364 $381 $115 $174 $3 $ As of February 8, 2019 Average repurchase price: To date $44.60 $51.86 $55.57 $44.06 $68.45 $82.97 $73.06 $ ,000 Total volume traded (000) 100,000 50, Consistently buying back shares, trading liquidity remains robust 11

12 Summary Supply shocks from transportation and weather contributed to volatile lumber price and earnings throughout 2018 Another significant wildfire season in BC further compromises long term timber supply Difficult decisions taken on curtailments, permanent 300 Mmfbm reduction in BC Continued reliability challenges at Hinton pulp Lumber supply and demand fundamentals remain sound, industry curtailments will affect 2019 supply picture Lumber markets recovering in Q1 Improved results at Cariboo and Slave Lake Pulp Completed $370M of capital investment including two new sawmills in low cost regions Maintained financial flexibility, executed balanced capital allocation strategy 12