RBC Capital Markets Investor Presentation. April 2018

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Transcription:

RBC Capital Markets Investor Presentation April 2018

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, 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 www.westfraser.com. 2

West Fraser Then and Now THEN From humble beginnings to North America s largest lumber producer NOW 3

Wood is Good Source: rethink Wood Wood is an ideal building material 4

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 5

Sustainable Forest Management In the last 3 years we ve planted more than 182 million trees West Fraser manages 7 million hectares of certified sustainably managed forests We ve planted more than 1.7 billion trees since 1955 We plant approximately two trees for every tree we harvest, 60+ million/year Planted in a line, 1.7 billion trees would circle the earth 89 times Continuously renewing the resource 6

Market Overview

Lumber V Appeals and Timeline 2017 2018 2019 2020 DOC CVD and AD FDs & Orders (Dec, 2017) Post cash deposits at final AD & CVD rates NAFTA Appeals (Dec, 2017) WTO Appeals (Dec, 2017) CVD Period of Review 1 1/1/17-12/31/17 AD Period of Review 1 6/30/17-11/30/18 CVD Administrative Review 1 1/19-6/20 AD Administrative Review 1 1/19-6/20 Post cash deposits at final AR1 rates Preliminary Deposit Rate Final Deposit Rate Current Expense Rate CVD 24.12% 17.99% 17.99% AD 6.76% 5.57% 0.88% Total 30.88% 23.56% 18.87% 8

U.S. Lumber End Use U.S. Lumber End Use 2017 Industrial Production, 24% Nonresidential/ Mobile, 6% Single Family Construction, 26% Multifamily Construction, 3% Residential Improvements, 41% Residential construction and renovation the key driver of lumber demand Source: FEA and WF 9

U.S. Existing Home Sales Continue to Improve 8,200 Existing House Sales Annualized (000) 7,200 6,200 5,200 4,200 3,200 2,200 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 4,400 3,900 3,400 2,900 2,400 1,900 1,400 000's units U.S. Existing Housing Inventory Seasonally Adjusted 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Existing House Inventory Months supply Months Supply 14.0 12.0 10.0 8.0 6.0 4.0 2.0 Existing home sales continue to improve albeit with low inventories Source: National Association of Realtors 10

U.S. Housing Starts Thousands 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F Total Single Multi Underlying Demand Expect that the recovery has room to continue Source: U.S. Census Bureau, FEA Forecast 01-18 11

North American Lumber Consumption 80 75 72 70 60 50 64 51 39 43 43 45 48 50 53 56 58 60 62 64 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F US Consumption Canadian Consumption Demand for lumber expected to grow by 2 billion board feet per year Source: US Census Bureau, Statistics Canada, West Fraser Forecast 12

Billion Bf North American Lumber Production 80 25 70 60 20 50 15 40 30 10 20 10 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F U.S. Canada Canada West (R Axis) Canada East (R Axis) US West (R Axis) US South (R Axis) 0 US South expected to contribute most of growth in supply Source: US Census Bureau & Statistics Canada, West Fraser Forecast 13

Billion bf North American Lumber Supply & Demand 72 70 68 66 64 Imports 2005: 3.0 billion board feet Imports 2010: 0.5 billion board feet Imports 2017: 1.4 billion board feet 2020: 4.2 billion bf 62 60 58 56 54 52 2015 2016 2017 2018F 2019F 2020F Production Demand On North American Mills Potentially growing gap in lumber supply Source: US Census Bureau & Statistics Canada, West Fraser Forecast 14

North American Lumber Capacity 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Estimated Lumber Capacity (Mmfbm) SPF SYP Other Source: Public filings, Forest Economic Advisors and West Fraser estimates Changing landscape of US South Sawmilling Top 5 Operators Capacity # of Mills # of Mills Capacity % of Capacity West Fraser Capacity # Mills % of Capacity 1997 17.4 430 64 5.6 33% - - - 2017 18.5 230 66 9.0 47% 3.0 21 16.7% Source: Company reports, FEA, Timbermart South West Fraser has largest share of a growing market 15

China Imports of Logs and Lumber (M M3) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Lumber Logs Demand from China continues to grow Source: General Administration of Customs of The People s Republic of China 16

Billion Bf North American Offshore Lumber Exports 8 7 6 6.5 6.5 6.9 6.3 5.9 5.5 5.5 5 4.8 4 3 2.7 3.0 3.2 3.2 3.5 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Offshore Exports US Offshore Exports Canada Total Export volume leveling off Source: US Census Bureau & Statistics Canada 17

West Fraser Overview

Our Strategy Operational Excellence Geographic Diversification Product Diversification Integration Straightforward strategy for success in all market conditions 19

Operational Excellence Straightforward, consistent business model Managing to ensure a committed workforce Internal and external benchmarking Cost control and efficiency Continuous reinvestment Focused on continuous improvement in all aspects of the business 20

Operations diversified by geography U.S. 43% Lumber Capacity B.C. 34% Alberta 23% Strong presence in key lumber producing regions 21

Product Diversification LUMBER 34 mills PANELS 7 mills PULP & PAPER 5 mills SPF 4.1 Bfbm SYP 3.1 Bfbm Total 7.2 Bfbm Plywood: 850 MMsf3/8 MDF: 250 MMsf3/4 LVL: 3.2 MMcf NBSK: 570 Mtonnes BCTMP: 680 Mtonnes Newsprint: 135 Mtonnes 2017 Revenue Mix: Lumber Pulp Panels 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Diversified across multiple end uses 22

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% Source: PPPC 2016 Multiple end uses and markets 23

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 24

Capital Strategy Reinvest profits to lower costs, improve efficiency through technology and improved processes Capital spending in 2017 of $336 million Estimated 2018 spending of $300-$350 million 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 25

$1.6B in capital projects Major rebuilds of 10 sawmills Upgraded 8 planers Added 30 continuous kilns Built 6 energy and bioproducts projects Years: 2013-2017 26

3 year cumulative capital allocation $2,000 $1,800 $1,600 $1,400 $829 $1,200 $1,000 $800 $600 $400 $200 $0 $1,892 Cash from operations $602 $1.4B Reinvested in the business Capex $69 Acquisitions Debt service and leverage $340M retuned to shareholders $73 $267 $26 $216 Dividends Buybacks Other Retained cash flow Consistently deploying capital to create value 27

West Fraser Total Shareholder Return 16% 14% 12% 10% 8% 6% 4% 2% 0% 14.2% 11.1% TSR June 2006 to Dec 2017 Source: TD 9.6% 7.9% 8.1% 7.8% 5.8% 4.7% Cdn$ Million 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Share Value Traded 2017 2016 2015 WFT CFP IFP 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 28

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. 29

APPENDIX 30

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 $) 33 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. 31