Investor Presentation. January 2019

Transcription

1 Investor Presentation January 2019

2 Forward-Looking Statements This presentation and comments associated with it contain forward-looking statements including statements relating to U.S. housing recovery, demand for lumber, the potential for constrained lumber supply, log cost inflation, lumber industry production, pulp demand and capacity, the timeline associated with countervailing and anti-dumping duty cases, earnings sensitivity and estimated annual capital expenditures. These statements are subject to the cautionary statement which introduces West Fraser s 2017 Annual Management s Discussion & Analysis which can be accessed on the Company website 2

3 Market Overview

4 U.S. Lumber End Use and Consumption U.S. Lumber End Use 2017 Nonresidential/Mobile, 6% Industrial Production, 24% Single Family Construction, 27% Multifamily Construction, 4% Residential Improvements, 39% U.S. Lumber Consumption (Billion ft) Housing Construction Repair/Remodeling Industrial/Other Residential construction and renovation the key driver of lumber demand Source: FEA and WF 4

5 North American Lumber Consumption F 2019F 2020F US Consumption Canadian Consumption Lumber demand growth trending at ~ 2 billion board feet per year Source: US Census Bureau, Statistics Canada, West Fraser Forecast 5

6 Billion Bf North American Lumber Production F 2019F 2020F U.S. Canada Canada West (R Axis) US South (R Axis) 0 Lumber production growth constrained in western Canada Source: US Census Bureau & Statistics Canada, West Fraser Forecast 6

7 Million m3 (AAC & Harvest) Billion BF (softwood lumber production) Annual Allowable Cut on the decline in British Columbia 70 British Columbia Interior Log supply constraints will create price pressure AAC (m3) Harvest (m3) Softwood Lumber Production (BBF) Pine beetle and fires impacting log supply Source: FEA 7

8 Regional share of North American Lumber Production 35% 30% 25% 20% 15% 10% Canada West Canada East US South US West Western Canada supply facing reduced by log availability Source: US Census Bureau & Statistics Canada, 8

9 North American Lumber Supply & Demand Imports Exports Net (Billion bf) 2005: 3.0 (2.7) : 0.5 (4.8) (4.3) 2017: 1.4 (5.5) (4.1) 2020: 3.0 Billion bf Impact of Announced Capacity additions F 2019F 2020F Production Demand On North American Mills Production before New Capacity Demand expected to absorb supply Source: US Census Bureau & Statistics Canada, West Fraser Forecast 9

10 Pulp End-Use Products Chemical Pulp Mechanical Pulp Fluff, 10% Box Board, 6% Tissue, 34% Printing and Writing, 38% Specialty, 8% Tissue, 5% Other, 3% Specialty, 22% Printing and Writing, 28% Box Board, 46% Diversified end uses and markets Source: PPPC

11 Market Pulp Supply and Demand BCTMP Chemical Pulp No new major capacity additions 2018 to 2020 Pulp demand projected to grow 2.2% over next 5 years Demand growth driven by tissue and packaging demand Growth will be primarily in Asia Conversions of chemical hardwood to dissolving pulp will constrain hardwood pulp supply 30,000 25,000 20,000 15,000 10,000 5,000 0 Chemical Pulp Demand (M tonnes) % 35% 30% 25% 20% China Demand % of World Demand (R axis) Growth in China demand for pulp creates favorable market dynamics Source: PPPC 11

12 West Fraser Overview

13 Integration - We Attain Value from 100% of Our Resources Sustainably managed forest lands Lumber Reforestation Plywood Remanufacturers Sawdust and shavings Chips Bark (Fuel) MDF Supply agreements (e.g. pellet plants) BCTMP Pulp NBSK Pulp Bioproducts Heat and Electricity Integrated fiber strategy to maximize the value of the log 13

14 Operations Diversification Strong presence in key lumber producing regions and forest product markets 14

15 Product & Geographic Diversification LUMBER 34 mills PANELS 7 mills PULP & PAPER 5 mills SPF 3.9 Bfbm SYP 3.2 Bfbm Total 7.1 Bfbm 2017 Revenue Mix by Business Segment Plywood: 860 MMsf3/8 MDF: 250 MMsf3/4 LVL: 2.6 MMcf Lumber Panels NBSK: 570 Mtonnes BCTMP: 690 Mtonnes Newsprint: 135 Mtonnes Pulp 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2017 Revenue Mix by Country US Canada China Other 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Diversified across multiple end uses 15

16 North American Lumber Capacity West Fraser Canfor Weyco West Fraser Lumber Capacity Billion feet Alberta 12% US South 11% Interfor GP Sierra Pacific Top 10 represent 48% of capacity British Columbia 77% West Fraser Lumber Capacity Billion feet Resolute Hampton Tolko US South 45% British Columbia 31% Idaho Forest MMfbm Source: Public filings, Forest Economic Advisors and West Fraser estimates West Fraser has largest share of a growing market Alberta 24% 16

17 Financial Results Ytd Q Ytd Q Sales 4,844 3,758 5,134 4,450 Billion Adjusted EBITDA * 1, , in Adjusted EBITDA margin 29.3% 21.8% 22.6% 15.1% annual Earnings sales Strong pricing resulting in significant earnings growth * Adjusted EBITDA is defined as operating earnings plus amortization, equity based compensation and export duties. 17

18 Capital Investment Strategy Reinvest profits to lower costs, improve efficiency through technology and improved processes Capital spending in 2017 of $336 million Cumulative capital spending of $1.6B between 2013 and 2017 New merchandiser and debarker in High Prairie, Alberta Growth through opportunistic acquisitions focused on solid wood New mill being constructed in Opelika, Alabama Prudent capital deployment 18

19 Significant capital reinvestment Major rebuilds of 12 sawmills Upgraded 11 planers Added 35 continuous kilns Built 6 energy and bioproducts projects Years:

20 Opelika, Alabama Case Study Investment Rationale Excellent timber drain Solid existing work force Proximity to markets Site infrastructure Attractive payback Low execution risk Project Highlights Increased capacity of ~ 100Mfbm Climate controlled operator environment Completed on time and on budget Improved grade & recovery Leading technology Successful modernization expected to result in a high performing mill 20

21 Cumulative capital allocation $3,000 $2,500 $2,000 $1, through September 2018 $920M returned to shareholders (55% of free cash flow) Buybacks/ Dividends 33% Retained/ Other 5% Capex 40% $1,500 $2,789 $602 $137 Acquisitions 22% $1,000 $96 $500 $1.7B Reinvested in the business $824 $56 $0 Cash from operations Capex Acquisitions Debt service and leverage $235 Dividends Buybacks Other Retained cash flow Consistently deploying capital to create value Free cash flow is defined as cash flow from operations less capital expenditure 21

22 Share buybacks - history 20,000 15,000 Cumulative Shares repurchased (thousands of share) 15,985 10,000 5,000 0 $1,500 $1,000 $500 $0 65 2,218 3,297 7,603 7, $3 Cumulative investment in repurchases (Millions of dollars) $115 $175 $365 $382 $1, Average repurchase price: To date $44.60 $51.86 $55.57 $44.06 $68.45 $83.13 $65.88 Track record of returning capital to shareholders As of December 31,

23 Total liquidity and Debt/EBITDA $1,000 Total Liquidity $800 $600 $50 $400 $553 $200 $86 $444 $231 $132 $258 $553 $551 $551 $100 $400 $302 $282 $562 $556 $- Q4/2016 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Undrawn Bank Lines Cash 1.0 Debt/EBITDA Q4/2016 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Strong Liquidity, Conservative leverage profile 23

24 West Fraser Total Shareholder Return TSR June 2006 to December 2018 Share Value Traded 14% 12% 10% 8% 6% 4% 2% 0% 11.8% West Fraser 10.6% 5.8% 4.5% 3.7% 5.6% Dow DAX S&P/TSX FTSE Competitor A Source: TD 4.1% 4.0% Competitor Competitor B C Cdn$ Million 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, 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 returns 24

25 Total Shareholder Return $1,000 invested: June 2006 December 31, ,500 4,000 $4,080 3,500 $3,540 3,000 2,500 2,000 $2,040 $1,740 $1,580 $1,980 $1,670 $1,650 1,500 1, West Fraser Dow Dax TSX FTSE Competitor A Competitor B Competitor C Source: Toronto Dominion Bank 25

26 WFT Toronto Stock Exchange 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. 26

27 APPENDIX 27

28 Earnings Sensitivity to Key Variables (2017) Estimated Earnings Sensitivity to Key Variables 1 (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 2 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 U.S. 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. 28