RAYMOND JAMES Forest FORUM VI INVESTOR PRESENTATION January 14, 2016 Toronto, Ontario
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 2014 Annual Management s Discussion & Analysis which can be accessed on the Company website www.westfraser.com. 2
WEST FRASER OUR GOALS are to develop and maintain THEN Excellence in Performance and People Leadership in our Field Challenge and Satisfaction Responsibility in the Communities in Which we Work Profitability Growth NOW 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 28 mills PANELS 7 mills PULP & PAPER 5 mills SPF 4.0 Bfbm SYP 2.3 Bfbm Total 6.3 Bfbm Plywood: 830 MMsf3/8 MDF: 300 MMsf3/4 LVL: 3.2 MMcf NBSK: 570 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. 39% Alberta 24% 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 - Residential improvements - 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 2014 Ytd 09-15 Returns on Lumber EBITDA Margin (%) - Lumber 40% 35% 30% 25% 20% Average: 15% 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, Q4 2015 13
US Housing Single Family Share well below 30 year average Share of single-family housing starts 90% 85% 80% 75% 70% 65% 60% 55% 30 year average share = 76% 50% 70 75 80 85 90 95 0 5 10 15 Source: FEA 14
Unlike Single-Family, Multi-family has Recovered Thousands 2,000 600 1,800 1,600 500 1,400 400 1,200 1,000 300 800 600 200 400 100 200 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 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 2014 U.S. Lumber End-use Normalized Industrial Production, 29% Nonresidential/ Mobile, 5% Single Family Construction, 24% Industrial Production, 23% Nonresidential/ Mobile, 7% Single Family Construction, 37% Multifamily Construction, 4% 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 240,000 housing starts * 2,500 2,000 1,500 1,000 500 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E * Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family) Source: Council of Forest Industries 17
B.C. Shipments to Japan Mmfbm Thousand 2x4 Starts 1,600 1,400 Shipments 2x4 Starts 140 120 1,200 1,000 800 600 400 100 80 60 40 200 20 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Est. 0 Source: Council of Forest Industries 19
NORTH AMERICAN LUMBER PRODUCTION Billion Feet 23 75 72 80 21 65 70 19 17 53 47 49 51 54 56 60 50 42 15 40 13 30 11 20 9 10 7 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total North America (R Axis) BC Interior Rest Of Canada US South Rest of US 0 Source: US Census Bureau & Statistics Canada 20
North American Lumber Capacity 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
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% 23
BCTMP Pulp End-Use Products Newsprint 4% Specialty Papers 8% Other 3% Boxboard 44% Printing & Writing 41% Source: PPPC 2013 24
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 25
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 26
Capital Strategy Reinvest profits to lower costs, improve efficiency through technology and improved processes Capital spending in 2014 of $410 million and spending in 2015 to approximate $200 million Estimated 2016 spending of $300 million and normalized spending between $150 and $225 million Growth through opportunistic acquisitions focused on solid wood 27
West Fraser Capital 450 400 350 300 250 $ Million Capital Spending 358 410 200 150 159 100 50 0 2012 2013 2014 Maintenance Timber Profit Improvement Energy 28
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 29
Strong Cash Generation ($millions) Total Ytd 09-15 2014 2013 2010-2012 Cash from Operations 1,924 329 475 419 701 Capital Expenditures 1,398 169 410 358 461 Acquisitions 238-208 - 30 30
Share Value Traded Cdn$ Million 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2015 2014 2013 WFT CFP IFP 31
Annualized Shareholder Return (Cdn$) June 2006* December 31, 2015 14% 12.6% 12% 10% 8% 7.4% 7.6% 7.1% 6% 5.3% 4% 3.9% 2% 0% West Fraser Dow S&P/TSX Competitor A Competitor B Competitor C * June 2006 marked the beginning of the steep decline in U.S. housing starts Source: TD Bank 32
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. 33
APPENDIX 34
Earnings Sensitivity to Key Variables (2014) Estimated Earnings Sensitivity to Key Variables 1 (based on 2014 production - $ millions) Factor Variation Change in pre - tax e arnings Lumber price US$ 10 ( per Mfbm ) 61 Plywood price Cdn $ 10 ( per Msf ) 8 NBSK price US$ 10 ( per tonne ) 5 BCTMP price US$ 10 ( pe r tonne ) 7 U.S. Canadian $ exchange rate 2 US$0.01 ( per Cdn $ ) 24 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. 35