DRAFT Investor Presentation May 2016
Forward Looking Statements and Non-GAAP Financial Measures All financial references are expressed in C$ unless otherwise noted. This presentation contains forward looking statements and estimates. Actual company results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information can be found in the company s annual information form, annual MD&A, and on the company s web site (www.westernforest.com) about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information, and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. During the course of this presentation, certain non-gaap financial information will be presented. Definitions and reconciliation of terms can be found in the Company s annual and quarterly MD&A. 1
Western Forest Products: Company Overview 5 th Largest Canadian Lumber Producing Company Operating on the coast of British Columbia, serving global markets Largest Crown timber tenure holder in Coastal B.C. Largest Cedar lumber manufacturer in North America Timber resource unaffected by Mountain Pine Beetle Ticker TSX:WEF Common Shares Outstanding 395.4 million Strong Share Price Liquidity Sales exceed $1 Billion two years running Included on the S&P/TSX Composite Index Lumber Capacity: 1.1 billion board feet 2
A Compelling Pure-Play, Solid Wood Products Investment -Margin-focused business strategy. -Superior timber asset base and secure fibre supply. -High-value, diverse products serving global markets. -Strong financial position with attractive cash flow profile. -Business of scale with a liquid share capital. -Committed to enhancing shareholder value. Western is well-positioned to capitalize on improving market fundamentals. 3
Western Forest Products: Margin-Focused, Log and Specialty Lumber Company LTM 1 revenues of $1.1 billion and EBITDA of $123 million. Revenue from 2009 Q1 2016 LTM Revenue by Product 1 Revenue by Market Area 1 Revenue by Currency 1 (1) Last twelve months total external revenue ended March 31, 2016. 4
Western Forest Products: A Margin-Focused Business Hemlock / Balsam Western Red Diverse and Unique Species Mix Cedar Douglas Fir Yellow Cedar Spruce Hemlock / Balsam Diverse and Unique Species Mix Yellow Cedar Annual Allowable Cut (AAC) for Logs ~ 6.3 million m3 Log Purchases 1 ~ 1.3 million m3 ~60% Logs processed at WFP manufacturing facilities Internal Log Consumption External Log Sales ~40% Logs sold Manufacturing Facilities Domestic Log Markets Export Log Markets Pulp Log Markets 7 sawmills 2 remanufacturing plants Timber resource is directed to highest margin opportunity. (1) Based on the twelve months ended December 31, 2015. 5
Log Strategy: Directing Volume to Highest Margin Opportunity Log End Market Description Primary Target Geographies % Value 1 % Volume 1 WFP Sawmills All five species of Western s sawlogs consumed by internal manufacturing operations. Internal log supply supplemented by open market purchases to maximize margin. Canada Domestic Includes sawlogs, peelers and shingle logs sold through contractual commitments and open market transactions. Canada External Log Sales Export Represents log sorts produced in excess of internal mill requirements. Typically command premium prices due to strong demand. China Korea Japan U.S. Pulplogs Volumes committed under long-term fibre supply agreements. Commitments met through internal log supply, supply contracts and open market pulplog purchases. Canada 4% (1) Based on total external log sales and internal log consumption for the twelve months ended March 31, 2016, including purchased logs. Internal transfer values based on Vancouver Log Market prices. 6
Western s Scale Creates Unique Marketing Opportunity Log Supply Marketing Strategy Manufacturing Strategy Sales Strategy 24 + 20-30 Log Cutting Patterns 5 11 11-18 16-22 WFP Product Group Narrow Dimension Wide Dimension Squares Timbers Grade & Appearance WFP Marketing Group Commodity Commodity / WRC Japan Niche / WRC Niche / WRC Log diameter determines the products manufactured. 7
Diversified Lumber Product Offering Allows Western to Profitably Serve Multiple Markets Throughout the Cycle Lumber Segment Description Primary Target Geographies Example Products % Value 1 % Volume 1 Western Red Cedar Consumer-orientated products. Naturally durable. Ideal for outside uses. U.S. Canada Specialty Segments Japan Specialty Products for traditional post and beam construction. Requires unique and rigorous quality standards. Japan 80% 56% Niche Specialty products and markets. Focused on appearance grades, value-add products. U.S. Canada Asia Europe Australia Commodity Traditional dimension lumber and developing grades. Currently focused on China. China U.S. (1) Based on lumber sales for the twelve months ended March 31, 2016. 8
Specialty Products Reduce EBITDA Volatility 80% of Western s lumber revenue is generated from non-commodity products. WFP Lumber Sales/mfbm vs. Lumber Price 1,3 Specialty lumber sells at a significant premium to commodity lumber. Specialty products provide more stable margins. Product/market diversity and global exposure provide additional opportunities to seek best margin. EBITDA Margins 2,3 Cedar, niche and commodity grades will benefit from U.S. housing recovery. Focus on specialty products delivered 26 consecutive quarters of positive EBITDA 3. (1) Comparison of selling prices for the reported period over the last 5 years. Quarterly selling price (reported in CAD) compared to to KD W S-P-F #2&Btr 2x4 random (reported in USD and CAD). (2) Top 3 competitors: West Fraser, Canfor and Interfor. (3) As of Q1 2016. 9
Western s Business to Benefit from Global Supply/Demand Factors Highly Attractive Underlying Supply/Demand Dynamics Strong Underlying Demand Drivers for Wood Products 1 2 3 U.S. Economic and Housing Market Recovery Continued Growth in China U.S. Supply Exit from Japan Market Housing market and repair and remodel activity recovering from trough levels. Transition from supply driven to demand driven market expected to result in improved pricing for wood products. Economic growth and urbanization. Consumption of wood will increase. Limited domestic fibre supply; increasing need for imports. Repatriation of U.S. lumber exports back to U.S. market creates opportunity for Western. Government policy designed to increase domestic consumption. Reduced Supply of Fibre 4 Canadian Fibre Supply Reduction Mountain Pine Beetle expected to negatively impact interior fibre supply and lumber production. Eastern Canada AAC reductions. 10
New Supply/Demand Dynamics Will Positively Impact Lumber Pricing Reduced supply from traditional sources combined with increased demand from U.S. and Asian markets is expected to benefit lumber prices. Housing Starts (North American and Lumber Export Equivalent) vs. Western SPF Lumber Pricing Source: Forest Economic Advisors (April 2016); Western Forest Products 11
Competitive Strengths 1. A sustainable, diverse Timber Base providing a unique range of products. 2. Customer of choice for other coastal log producers due to competitive advantages of scale, financial strength and proximity. 3. Flexible manufacturing platform that can target a variety of global markets. 4. High margin specialty products for the U.S. market Cedar, Timbers, Moulding & Millwork, Industrial Applications. 5. Low cost access to ocean shipping (Break Bulk, Container & Barge) providing competitive transportation to global markets and avoiding rail congestion. 6. Uniquely positioned to capitalize on growth in U.S. market. Western s market share in Japan / China likely to benefit from repatriation of U.S production. 12
Balanced Capital Allocation Enhances Shareholder Value Annualized Total Return % January 1, 2011 to May 6, 2016 Quarterly dividend of $0.02/share (3.7% yield). Capital investments to deliver improved cash flow. (1) WFP competitors' return includes West Fraser, Canfor and Interfor and is weighted based on market capitalization. 13
Strong Financial Position Provides Flexibility to Grow Low leverage and strong liquidity: Net debt / LTM EBITDA of 0.39x $184 million of liquidity Financial flexibility to invest in the business, pursue high-return growth initiatives, and return capital to shareholders. Non-core assets provide opportunity for additional liquidity (see slide 21). Annual Free Cash Flow Generation 1 Debt and Liquidity Profile Q1 2016 ($ millions) Maximum (As at March 31, 2016) Drawn Available Size Revolving Credit Facility - $123 $125 Revolving Term Loan $58 $51 $110 Total $58 $174 $235 Cash on Hand ($10) Net Debt $48 Total Liquidity 2 $184 Net Debt / LTM EBITDA 0.39x EBITDA / Int. Expense 26x (1) Defined as EBITDA less interest expense, maintenance capital expenditures and changes in working capital. (2) Availability based on gross borrowing base less availability reserve and availability block (per credit agreement), as well as letters of credit. 14
Strategic Capital to Contribute Significantly to EBITDA $125 million of projects are focused on: Reducing costs Increasing efficiency Improving product flexibility Growing production Capital Plan projected to generate a 29% return. Investments ($ millions) Approved Projects Future Projects 2012-2014 2015 2016 Total $58.9 $35.1 $3.0 $97.0 $28.0 $28.0 Total $58.9 $35.1 $31.0 $125.0 15
Investing in the Future: Proven Technology Saltair Sawmill Sawmill Phase 1 $25M Completed in 2013. Optimizes lumber handling. New equipment: trimmer, sorter and stacker. Transforms specialty product manufacturing. Sawmill Phase 2 $15M Start up began September 2015. Installation of fully optimized log merchandiser and debarker. Delivers product optimization. Completes the modernization of mill. Phase 2 activates $40M of strategic capital, improving productivity and reducing costs. 16
Investing in the Future: Proven Technology Duke Point Sawmill Phased Installation of $27M of Strategic Capital: Phase 1 & 2 - $11M, completed in 2014. Phase 3 - $16M, in progress with completion Q2/16. Installation of multi-generational technological advancements. Supports manufacturing platform log sort optimization, improving return on fibre. Expands product line offering. By end of Q2/16 will action $27M of capital to maximize return on a wider log profile. 17
Investing in the Future: Proven Technology Duke Point Planer Phased Installation of $17M of Strategic Capital: Phase 1 - $5M, in progress with completion Q4/15. Phase 2 - $12M, commences Q4/15 with completion in 2016. Consolidates specialty planing at Duke Point. Improves utilization of company wide planing assets. Reduces costs on speciality items. In 2016 will action $17M of capital to extract value and reduce costs. 18
Investing in the Future: Proven Technology Chemainus Sawmill Installation of $1.4M of Strategic Capital: Sawmill timber deck upgrade. Completion December 2015. Removes the production constraints associated with the timber deck. Increase in production and an increase of higher value Western Red Cedar timber production. Implementation of strategic capital that increases value and lowers costs. 19
DRAFT Appendix
Non-Core Assets Asset Orca Quarry Project Lands HBU Lands Northern Private Timberlands Description JV between Polaris and Namgis on Western fee simple lands. Royalty stream based on production. Opportunity to monetize. 24 separate properties. Properties range in size from 2 to 255 hectares. Multiple sales of individual properties is likely. Lands cover roughly 15,000 hectares of freehold property located on northern Vancouver Island. A potential additional source of liquidity. 21
1 Demand Drivers: U.S. Economic and Housing Market Recovery U.S. Housing Starts U.S. Repair & Remodel Expenditures Poised to increase shipments to the U.S. as demand and pricing recover. Source: Forest Economic Advisors (April 2016) 22
2 Demand Drivers: China Growth Has Changed Global Wood Products Demand Dynamics A deficit of domestic fibre will require China to rely on imports. Rising wealth/urbanization trends expected to increase demand for structural and higher grade lumber: 300 million Chinese people (roughly equivalent to the U.S. population) expected to move from rural to urban areas between 2010 and 2025. Chinese Log Imports Chinese Lumber Imports Source: China Customs; International Wood Markets (February 2016) 23
3 Demand Drivers: U.S. Supply Exit From Japan Will Create Market Opportunity Japan continues to be a major source of demand for wood products and lumber from North America: In recent years, suppliers in the U.S. West have increased export activities to Japan due to a lack of domestic demand in the U.S. As North American housing markets recover, much of this U.S. supply will be diverted back to local U.S. markets, potentially creating a significant supply gap in Japan for imported lumber. Japanese Lumber Imports of Canadian and U.S. Douglas Fir and Hemlock Japanese Imports of Canadian and U.S. Lumber and Japanese Housing Starts ~100 million board feet opportunity to replace non-spf U.S. exports to Japan Source: Japan Ministry of Land, Infrastructure and Transport; The Trade Statistics, Japan Ministry of Finance; Japan Lumber Importers Association. (February 2016) 24
4 Supply Drivers: Canadian Fibre Supply Reduction B.C. Interior AAC Quebec AAC Mountain Pine Beetle epidemic and lower AAC in B.C. and Eastern Canada are expected to have significant negative impact on North American lumber capacity. Source: Forest Economic Advisors (April 2016) 25
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. Investor Relations Contacts Stephen Williams Senior Vice President, CFO & Corporate Secretary Dallyn Willis Senior Director, Finance & Administration 604-648-4572 604-899-3772 swilliams@westernforest.com dwillis@westernforest.com 26