CIBC INSTITUTIONAL INVESTOR CONFERENCE INVESTOR PRESENTATION January 21-23, 2015 Whistler, British Columbia
Forward-Looking Statements This presentation and comments associated with it contain forward-looking statements including statements relating to U.S. housing recovery, the potential for constrained lumber supply, energy-related opportunities, earnings sensitivity and estimated annual capital expenditures. These statements are subject to the cautionary statement which introduces West Fraser s 2013 Annual Management s Discussion & Analysis which can be accessed on the Company website www.westfraser.com. 2
Our Goals To be a leading forest products manufacturer, focused on solid wood products Strong financial results through the business cycle Long-term growth and shareholder value enhancement Stable, conservative financial structure 3
Our Strategy Operational excellence Diversification Product differentiation Integration 4
Operational Excellence Managing to ensure a committed workforce Cost control and efficiency Continuous reinvestment Internal and external benchmarking and competition Straightforward, consistent business model 5
Product Diversification LUMBER 27 mills PANELS 7 mills PULP & PAPER 5 mills SPF 3.9 Bfbm SYP 2.3 Bfbm Total 6.2 Bfbm Plywood: 830 MMsf3/8 MDF: 300 MMsf3/4 LVL: 3.2 MMcf NBSK: 590 Mtonnes BCTMP: 650 Mtonnes Newsprint: 135 Mtonnes North America s largest lumber producer Largest plywood producer in Canada Third largest pulp producer in Canada 6
Trend Sales Mix ($) Pulp & Paper 23% Panels 11% Lumber 66% 7
Operations diversified by geography Geographic diversification Lumber Capacity U.S. 37% B.C. 40% Alberta 23% 8
Product Differentiation Wood as the best environmental choice Renewable resource, sustainable business Expanding applications Bioenergy, full use of the resource 9
Integration (in Canada) Lumber, panels, pulp, newsprint and energy Substantial fibre self-sufficiency Fuller utilization of resource Some benefits from counter-cyclicality Better able to respond to new opportunities such as bioenergy 10
Earnings Growth Drivers - Lumber Demand Supply - North American housing - Chinese construction and industrial applications - Japanese housing - Fibre limitations - Residual offtake - Mill closures - People Efficiency - Capital investment - Business model 11
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Ytd Q3-14 Returns on Lumber 40% EBITDA Margin (%) - Lumber 35% 30% 25% 20% Average: 16% 15% 10% 5% 0% -5% -10% 12
Million Units U.S. Housing 2.25 Pent Up Housing Demand (conventional + mobile) 2.00 1.75 1.50 1.25 1.00 0.75 Production Underlying Demand 0.50 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Significant pent up demand bodes well for long-term recovery Source: FEA, Q3 2014 13
US Housing Single Family Share well below 30 year average Share of single-family housing starts 90% 85% 80% 75% 70% 65% 60% 30 year average share = 76% 55% 50% Source: FEA 14
Unlike Single-Family, Multi-family has Recovered Thousands 2,000 500 1,800 450 1,600 400 1,400 350 1,200 300 1,000 250 800 200 600 150 400 100 200 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 Single-Family (Left Scale) Multi-Family (Right Scale) Source: U.S. Census Bureau 15
U.S. Lumber End Use U.S. Lumber End-use 2013 U.S. Lumber End-use Normalized Industrial Production, 30% Nonresidential/ Mobile, 5% Single Family Construction, 24% Industrial Production, 23% Nonresidential/ Mobile, 7% Single Family Construction, 37% Multifamily Construction, 3% Residential Improvements, 38% Residential Improvements, 29% Multifamily Construction, 4% Source: FEA and WF 16
MMfbm Canadian Shipments to China 3,500 3,000 Equivalent to 300,000 housing starts * 2,500 2,000 1,500 1,000 500 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Proj. * Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family) Source: Council of Forest Industries, November 2014 17
B.C. Shipments to Japan Mmfbm 1,600 1,400 1,200 1,000 800 600 400 200 0 Thousand 2x4 Starts 2006 2007 2008 2009 2010 2011 2012 2013 2014 Shipments 2x4 Starts Proj. 140 120 100 80 60 40 20 0 Source: Council of Forest Industries, November 2014 18
West Fraser Canfor Weyco GP Interfor Sierra Pacific Resolute Tolko Hampton Simpson North American Lumber Capacity Mmfbm 7,000 6,000 Top 10 Lumber Capacity 5,000 4,000 Top 10 make up only 43% of Capacity 3,000 2,000 1,000 0 19
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Million (M3) Canadian Fibre Supply 80 70 Annual Allowable Cut Forecast 60 50 40 30 20 10 0 Quebec Ontario BC Interior Source: FEA, Q4 2014 20
U.S. South Positive Timber Inventory Bfbm Int l ¼ 30 25 Projected Excess Growth 20 15 10 5 Growth Drain 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Source: FEA, Q4 2014 21
Earnings Growth Drivers - Pulp Demand Supply - China s paper, tissue and packaging demand - Developing countries demand - Price of cotton and similar products - European paper capacity closures - Russian and Canadian start ups - Product diversification (e.g. dissolving pulp) - South American production Reliability - Capital - Technology 22
Pulp & Paper Sales Mix 2013 ($) Europe, 6% North America, 38% Asia, 56% 23
Chemical Pulp End-Use Products Fluff Based Products 10% Boxboard 5% Other 4% Printing and Writing Papers 31% Specialty Papers 19% Source: PPPC 2013 Tissue 31% 24
BCTMP Pulp End-Use Products Newsprint 4% Specialty Papers 8% Other 3% Boxboard 44% Printing & Writing 41% Source: PPPC 2013 25
Cdn$/tonne Paper Newsprint North American Newsprint Cost Structure Par Exchange Rate ANC Alberta Newsprint is the lowest cost newsprint producer in North America and a positive contributor to the profitability of our pulp and paper business Source: PPPC Cost Survey 2012 26
Energy Opportunities Woodwaste to produce heat and steam to dry wood products and for electricity and steam for pulp mills Woodwaste to produce electricity to be used or sold Pulp mill effluent as a source for biogas-electricity generation Expanding opportunities to generate and sell electricity levering off current business 27
Energy Opportunities Power Generation from Biomass Cariboo pulp mill turbo-generator (completed) Mill achieved energy self-sufficiency and excess power sold to B.C. Hydro Slave Lake pulp mill biomethanation project Estimated startup late 2014 B.C. Hydro (Phase II) power generation projects (at two sawmills) Long-term contracts to sell power to B.C. Hydro Projected to reduce costs and contribute to sawmill earnings when completed 28
Capital Strategy Reinvest profits to lower costs, improve efficiency through technology and improved processes Estimate normalized annual capital spending between $150 and $225 million Anticipate capital spending in 2014 to exceed $350 million and in 2015 to approximate $300 million Growth through opportunistic acquisitions focused on solid wood 29
West Fraser Capital 400 350 $ Million Capital Spending 358 321 300 250 200 150 159 100 50 0 2012 2013 Ytd Q3-14 Maintenance Timber Profit Improvement Energy 30
Recent Growth BRITISH COLUMBIA ALBERTA 2014 CHETWYND SMITHERS HIGH PRAIRIE SLAVE LAKE HOUSTON FRASER LAKE BLUE RIDGE 2012 QUESNEL HINTON EDSON WILLIAMS LAKE 100 MILE SUNDRE CHASM 31
Recent Growth 2014 ARKANSAS MANSFIELD RUSSELLVILLE LITTLE ROCK LEOLA NEW BOSTON (TEXAS) HUTTIG 32
Why Invest in West Fraser? Proven ability to generate strong cash flow even in worst 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 33
Strong Cash Generation ($millions) Total Ytd Q3-14 2013 2012 2011 2010 Cash from Operations 1,554 434 419 195 85 421 Capital Expenditures 1,140 321 358 159 213 89 Acquisitions 233 203-30 - - 34
Annualized Shareholder Return (Cdn$) June 2006* December 31, 2014 18% 17.3% 16% 14% 13.7% 13.6% 12% 10% 8% 6% 6.5% 6.1% 7.6% 4% 2.5% 2% 0% 0.1% West Fraser DAX Dow S&P/TSX FTSE Competitor A Competitor B Competitor C * June 2006 marked the beginning of the steep decline in U.S. housing starts Source: TD Bank 35
Share Value Traded Cdn$ Million 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2014 2013 2012 WFT CFP IFP 36
WFT Toronto Stock Exchange www.westfraser.com 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. 37
APPENDIX 38
Acquisition of Buchanan Lumber, High Prairie, Alberta Acquisition includes: High Prairie sawmill (current capacity of 110 MMfbm) Related real estate and transportation business Timber harvesting rights with AAC of 430,000 m 3 of coniferous and 21,000 m 3 of deciduous timber Purchase price of $55.4 million plus working capital paid in cash at closing (April 3, 2014) 180 employees West Fraser intends to expand capacity to approximately 175 MMfbm through an estimated capital investment of $15 million. 39
Acquisition of Travis Lumber, Mansfield, Arkansas Western Arkansas sawmill with a workforce of 140 Purchase price of US$46 million (C$51 million) plus working capital paid in cash at closing (March 7, 2014) Current capacity of 110 MMfbm West Fraser is planning expansion to approximately 150 MMfbm through an estimated US$10 million (C$11 million capital) investment. 40
Acquisition of Bibler Bros., Russellville, Arkansas Well-capitalized mill with 190 employees and annual capacity of approximately 160 MMfbm Purchase price of US$61 million (C$67 million) plus working capital payable in cash at closing (anticipated April 25, 2014) Will be West Fraser's fourth sawmill located in Arkansas 41
Earnings Sensitivity to Key Variables (2013) Estimated Earnings Sensitivity to Key Variables 1 (based on 2013 production - $ millions) Factor Variation Change in pre - tax e arnings Lumber price US$ 10 ( per Mfbm ) 55 Plywood price Cdn $ 10 ( per Msf ) 8 NBSK price US$ 10 ( per tonne ) 5 BCTMP price US$ 10 ( pe r tonne ) 6 U.S. Canadian $ exchange rate 2 US$0.01 ( per Cdn $ ) 21 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 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. 42