Investor Presentation. April 2019

Transcription

1 Investor Presentation April 2019

2 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 forwardlooking 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 forwardlooking 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.

3 West Fraser Overview

4 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 (e.g. pellet plants BCTMP Pulp NBSK Pulp Bioproducts Heat & Electricity Integrated fiber strategy to maximize the value of the log

5 Product & Geographic Diversification 5 Lumber 28 mills Panels 7 mills Pulp & Paper 5 mills SPF 4.1 Bfbm Plywood: 850 MMsf3/8 NBSK: 570 Mtonnes SYP 2.4 Bfbm MDF: 250 MMsf3/4 BCTMP: 680 Mtonnes Total 6.5 Bfbm LVL: 3.2 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

6 Operations Diversification 6 Strong presence in key lumber producing regions

7 North American Lumber Capacity 7 West Fraser Canfor Weyco West Fraser Lumber Capacity Billion feet US South 11% Alberta 12% Interfor GP Sierra Pacific Resolute Hampton Tolko Idaho Forest Top 10 represent 48% of capacity US South 45% British Columbia 77% West Fraser Lumber Capacity Billion feet British Columbia 31% MMfbm Alberta 24% Significant production in attractive regions Source: Public filings, Forest Economic Advisors and West Fraser estimates

8 Consolidated Financial Results 8 $ Millions Adjusted EBITDA Lumber $ 1,156 $ 884 Panels Pulp & Paper Corporate/Other (3) (9) Total $ 1,538 $ 1,160 EBITDA margin 25.1% 22.6% Sales $ 6,118 $ 5,134 Cost and Expenses 5,046 4,264 Operating earnings 1, Finance Expense (37) (31) Other 37 7 Earnings before Tax $ 1,072 $ 846 Tax provision (262) (250) Net earnings $ 810 $ 596 Diluted EPS $ $ 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.

9 Total liquidity and Debt/EBITDA 9 Total Liquidity $1,000 $900 $800 $700 $231 $258 $302 $282 $600 $50 $132 $500 $86 $100 $400 $160 $300 $553 $553 $551 $551 $200 $444 $400 $562 $556 $491 $100 $- Q4/2016 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Q4/2018 Undrawn Bank Lines Cash 1.0 Debt/EBITDA Q4/2016 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Q4/2018 Strong Liquidity, Conservative Leverage Profile

10 Capital Investment 10 Capital Expenditure vs Amortization $400 $350 $300 $250 $200 $150 $100 $50 $ % 150% 100% 50% 0% Capacity / Production Grade Modernization initiatives Recovery Capital Depreciation Percent Segment Capital Expenditure $10 Capital Expenditure by type $17 $16 $60 $117 $284 $236 Lumber Panels Pulp and Paper Corporate Profit improvement Maintenance Safety Consistent investment in the operations

11 Balanced Capital allocation 11 $3,000 $2,801 $1, through 2018 $2,500 $1.1B returned to shareholders $2,000 $602 $1,500 $1,000 $100 $110 $942 $500 $0 Cash from operations $1.8B Reinvested in the business Capital Expenditure Acquisitions Debt service and leverage $42 $90 Dividends Buybacks Other Retained cash flow Debt, Other & Retained, -2% Buybacks & Dividends, 38% Capital Expenditure, 43% Consistently deploying capital to create value Acquisitions, 21%

12 Share repurchases 12 $1,200 $1,000 $800 $600 $400 $200 $0 150, ,000 50,000 0 $3 Cumulative investment in repurchases (millions of dollars) $115 $174 $364 $381 $1,057 $1, Total volume traded (000) Q1-19 Annualized Average repurchase price: 2013 $ $ $ $ $ $ $70.75 To date $66.09 As of March 31, 2019 Consistently buying back shares, trading liquidity remains robust

13 14% 12% 10% 8% 6% 4% 2% 0% West Fraser Total Shareholder Return 11.3% 11.1% West Fraser TSR June 2006 to February % 5.4% 4.2% 5.7% Dow DAX S&P/TSX FTSE Competitor A Source: TD 5.0% Competitor B 2.7% Competitor C Cdn$ Million 10,000 8,000 6,000 4,000 2,000 0 Share Value Traded WFT CFP IFP 13 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 returns

14 Market Overview

15 Billion ft North America Lumber End Use and Consumption 15 North America Lumber End Use 2018 Industrial 25% Non-residential Other 6% New Residential 29% Residential improvements and industrial demand are lower volatility demand drivers Residential Improvements 40% North America Lumber Consumption Housing Construction Residential Improvements Industrial/Other Source: FEA

16 $B 4 Qtr Moving Improvements and Repairs 4 Qtr Moving rate of Change Demand conditions U.S. 16 Monthly U.S. Housing Starts (not seasonally adjusted) 2017: 1, : 1,250 J F M A M J J A S O N D $340 $330 $320 $310 $300 $290 $280 $270 Leading indicator of Remodeling Activity Repair and renovation growth continues Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q % 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Expenditures % change Source: US Census Bureau Source: Harvard Joint Centre for Housing Studies U.S. Housing Forecast (000) RBC 1,313 1,335 RISI 1,290 1,330 FEA 1,277 1,386 Mortgage Brokers 1,274 1,320 Wells Fargo 1,270 1,290 NAHB 1,266 1,300 Fannie Mae 1,256 1,288 APA 1,230 1,220 Average 1,272 1,309 50k annual increase in housing starts 3% growth in repair and renovation ~600Mfbm increase in lumber demand ~1,000Mfbm increase in lumber demand Limited growth needed for increased demand of 1 2 billion board feet

17 U.S. Housing Starts 17 US New Housing construction remains at tempered levels

18 Billion Feet North American Lumber Consumption F 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 Forecast

19 Precipitation Fallout 19 5 Adverse weather one factor tempering demand

20 Billion BF US$/Mfbm Demand Conditions Offshore North American Offshore Lumber Exports (Billion BF) North American Offshore Lumber Imports $600 $500 $400 $300 $200 $ $0 Offshore Exports US Offshore Exports Canada NA Imports SPF 2x4 2&btr (R axis) (1) North American Offshore Lumber Exports less Imports (Billion BF) North America is still a significant net exporter of lumber Source: WWPA, Stats Canada, Random Lengths

21 M cubic meters Chinese Lumber Demand 21 30,000 25,000 20,000 15,000 10,000 5, North America Russia Europe Other 1 million cubic meters = ~ 295 million board feet Source: FEA China continues to import significant lumber

22 Supply conditions 22 Billion fbm Down 5.5% Lumber Supply Down 3.2% BC Canada US Total NA Up 3.3% Up.3% 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

23 Million m3 (AAC & Harvest) Billion BF (softwood lumber production) $/M3 Annual Allowable Cut on the decline in BC Interior British Columbia Interior British Columbia Interior Purchase Log Cost $ $ $ Log supply constraints will create price pressure $80 $70 $ AAC (m3) 0 $ Harvest (m3) Softwood Lumber Production (BBF) Pine beetle and fires impacting log supply, leading to higher input costs Source: FEA, BC Forest Service

24 Share of North American Lumber Production 24 32% 30% 28% 26% 24% 22% 20% 18% 16% 14% 12% Canada West Canada East US South US West Source: US Census Bureau & Statistics Canada Western Canada a key supply region, facing fibre cost and availability headwinds

25 North American Lumber Production 25 North America Softwood Lumber Production Millions of Board Feet US Other (25%) US South BC Eastern Canada (30%) (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 Growth constrained in several significant lumber producing regions Source: US Census Bureau & Statistics Canada

26 Market Pulp Supply and Demand 26 BCTMP Chemical Pulp No new major capacity additions 2018 to 2020 Pulp demand projected to grow 2.3% over next 5 years Demand growth driven by tissue and packaging demand Growth will be primarily in Asia Conversions of chemical pulp to dissolving pulp will constrain both softwood & hardwood pulp supply 30,000 25,000 20,000 15,000 10,000 5,000 0 Chemical Pulp Demand (M tonnes) 40% 38% 36% 34% 32% 30% 28% 26% 24% 22% 20% China Demand % of World Demand (R axis) Growth in China demand for pulp creates favorable market dynamics Source: PPPC

27 West 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 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 the United States absent their prior registration or qualification or an applicable exemption from the applicable registration or qualification requirements. WFT Toronto Stock Exchange

28 APPENDIX

29 Earnings Sensitivity to Key Variables 29 Estimated Earnings Sensitivity to Key Variables 1 (2017) (based on 2017 production - $ millions) Factor Variation Change in pre-tax earnings Lumber price US$10 (per Mfbm) 78 Plywood price Cdn$10 (per Msf) 8 NBSK price US$10 (per tonne) 6 BCTMP price US$10 (per tonne) 8 U.S. - Canadian $ exchange rate US$0.01 (per Cdn$) 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.