2016 AGM Presentation - West Fraser · 2019-09-12 · General: This presentation and comments...
Transcript of 2016 AGM Presentation - West Fraser · 2019-09-12 · General: This presentation and comments...
Investor
PresentationSeptember 2019
22
General: This presentation and comments associated with it contains
historical information, descriptions of current circumstances and
statements about potential future developments and anticipated financial
results. Readers are cautioned that this presentation is qualified in its
entirety by reference to, and must be read in conjunction with, the
information contained in West Fraser Timber Co. Ltd.’s (WFT’s)
management’s discussion and analysis for the year ended December 31,
2018 (MD&A), available on SEDAR (www.sedar.com). A person is not
entitled to rely on parts of the information contained in this presentation to
the exclusion of others.
Forward-looking Statements: This presentation contains “forward-
looking statements” within the meaning of applicable securities laws.
Forward-looking statements, are presented to provide reasonable
guidance to the reader but their accuracy depends on a number of
assumptions and is subject to various risks and uncertainties. In some
cases, forward-looking statements can be identified by the use of
forward-looking terminology such as “plans”, “targets”, “expects” or “does
not expect”, “an opportunity exists”, “outlook”, “prospects”, “strategy”,
“intends”, “believes”, or variations of such words and phrases or state
that certain actions, events or results “may”, “could”, “would”, “might”,
“will”, “will be taken”, “occur” or “be achieved”. In addition, any statements
that refer to expectations, intentions, projections or other
characterizations of future events or circumstances contain forward-
looking information. Statements containing forward-looking information
are not historical facts but instead represent management’s expectations,
estimates and projections regarding future events or circumstances. By
their nature, forward-looking statements involve numerous assumptions,
inherent risks and uncertainties, both general and specific, which
contribute to the possibility that the predictions, forecasts and other
forward-looking statements will not occur. Actual outcomes and results of
these statements will depend on a number of factors including those
matters described under “Risks and Uncertainties”, in our MD&A and
may differ materially from those anticipated or projected. Reference
should be made to the other factors discussed in public filings with
securities regulatory authorities. Accordingly, readers should exercise
caution in relying upon forward-looking- statements and WFT undertakes
no obligation to publicly update or revise any forward-looking statements,
whether written or oral, to reflect subsequent events or circumstances
except as required by applicable securities laws.
Non-IFRS Measures: This presentation makes reference to certain non-
IFRS measures, such as Adjusted EBITDA. Non-IFRS measures do not
have a standardized meaning prescribed by IFRS and are therefore
unlikely to be comparable to similar measures presented by others. For
further information regarding the use of non-IFRS measures please refer
to the “Non-IFRS Measures” section in the MD&A.
External Information: Where this presentation quotes any information or
statistics from any external source, it should not be interpreted that WFT
has adopted or endorsed such information or statistics as being accurate.
Some of the information presented herein is based on or derived from
statements by third parties and has not been independently verified by or
on behalf by WFT, and no representation or warranty, express or implied,
is made as to, and no reliance should be placed on, the fairness,
accuracy, completeness or correctness of this information or any other
information or opinions contained herein.
Currency: In this presentation, all amounts are in Canadian dollars,
unless otherwise indicated.
Terminology: References in this presentation to “MMfbm” or “mmfbm”
mean million board feet, “SPF” means spruce-pine-fir and “SYP” means
southern yellow pine. For any other technical terms used in this
presentation, please see the Glossary of Industry Terms found in our
most recent Annual Report.
West Fraser
Overview
44We Attain Value from 100% of Our Resources
MDF Supply agreements (e.g. pellet plants)
BCTMP Pulp NBSK Pulp Bioproducts Heat & Electricity
Sawdust & shavings Chips Bark (fuel)
Plywood & LVL Lumber Reforestation
Sustainably managed
forest lands
Integrated fiber strategy to maximize the value of the log
55Product & Geographic Diversification
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Lumber PulpPanels
Lumber33 mills
SPF 3.6 Bfbm
SYP 3.2 Bfbm
Total 6.8 Bfbm
Panels7 mills
Pulp & Paper5 mills
Plywood: 860 MMsf3/8”
MDF: 250 MMsf3/4”
LVL: 2.6 MMcf
NBSK: 570 Mtonnes
BCTMP: 690 Mtonnes
Newsprint: 135 Mtonnes
2018 Revenue Mix by Business Segment
2018 Revenue Mix by Country
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
ChinaCanada OtherUS
Diversified across multiple end uses
66Operations Diversification
Strong presence in key lumber producing regions
and forest product markets
77North American Lumber Capacity
Source: Public filings, Forest Economic Advisors and West Fraser estimates
British Columbia
77%
Alberta12%
US South11%
West Fraser Lumber Capacity 2004 2.8 Billion feet
British Columbia
31%
Alberta24%
US South45%
West Fraser Lumber Capacity 2018 7.1 Billion feet
0 2000 4000 6000 8000
Idaho Forest
Tolko
Hampton
Resolute
Sierra Pacific
GP
Interfor
Weyco
Canfor
West Fraser
MMfbm
Top 10 represent
48% of capacity
West Fraser has largest share of a growing market
2018
Note: Pro-forma capacity after Chasm/100 Mile
permanent curtailment: 6.8 B ft (BC 27% of capacity)
88
* Adjusted EBITDA is defined as operating earnings plus amortization, equity based compensation, restructuring and impairment charges and export duties.
Consolidated Financial Results
$ Millions
Adjusted EBITDA Q2-19 Q1-19
Lumber $ 38 $ 84
Panels 10 15
Pulp & Paper 7 11
Corporate/Other 1 -
Total $ 56 $ 110
EBITDA margin 4.2% 8.9%
Q2-19 Q1-19
Sales $ 1,317 $ 1,241
Cost and Expenses 1,375 1,231
Restructure/Impairment 26 -
Operating earnings (84) 10
Finance Expense (13) (11)
Other (6) (5)
Earnings before Tax $ (103) $ (6)
Tax recovery 45 1
Net earnings $ (58) $ (5)
Diluted EPS $ (0.92) $ (0.12)
Challenging conditions continue
99
-$100$0
$100$200$300$400$500$600$700$800$900
2017 2018 Q1-17 Q1-18 Q1-19 Q2-19
Available liquidity
Bank lines Cash Increae in revolving credit facility
Liquidity
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2019 2020 2021 2022 2023 2024
Term loan Notes Revolver
Scheduled maturities
Ample financial flexibility
Cash consists of cash and short-term investments less cheques issued in excess of funds on deposit.
1010Capital Investment
Modernization initiatives
Capacity / Production
Grade
Recovery
0%
50%
100%
150%
200%
$0
$50
$100
$150
$200
$250
$300
$350
$400
2015 2016 2017 2018
Capital Expenditure vs Amortization
Capital Depreciation Percent
$236
$117
$17
Capital Expenditure by type
Profit improvement Maintenance Safety
$284
$16$60
$10
Segment Capital Expenditure
Lumber Panels Pulp and Paper Corporate
Consistent investment in the operations
1111Balanced Capital allocation
Consistently deploying
capital to create value
Capital Expenditure,
43%
Acquisitions, 21%
Buybacks & Dividends, 38%
Debt, Other & Retained, -2%
$1.1B returned to
shareholders
$1.8B Reinvested in the
business
$2,801
$90
$1,199
$602
$110 $942
$100
$42
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Cash fromoperations
CapitalExpenditure
Acquisitions Debt serviceand leverage
Dividends Buybacks Other Retained cashflow
2015 through 2018
1212Share repurchases
Consistently buying back shares, trading liquidity remains robust
Price: Shares:
2013 $44.60 64,554
2014 $51.86 2,217,454
2015 $55.57 1,078,856
2016 $44.06 4,306,159
2017 $68.45 245,645
2018 $83.13 8,135,796
2019 $68.30 1,178,400
To date $66.05 17,226,864
As of June 30, 2019
$3$115 $174
$364 $381
$1,057$1,138
$0
$200
$400
$600
$800
$1,000
$1,200
2013 2014 2015 2016 2017 2018 2019
Cumulative investment in repurchases(millions of dollars)
0
50,000
100,000
150,000
2013 2014 2015 2016 2017 2018 Ytd June-19annualized
Total volume traded (000)
1313West Fraser Total Shareholder Return
Share Value Traded
0
2,000
4,000
6,000
8,000
10,000
2018 2017 2016
WFT CFP IFP
Cdn$ Million
10.4%11.0%
6.5%
5.5%
4.2%
5.4% 5.1%
0.4%
0%
2%
4%
6%
8%
10%
12%
14%
WestFraser
Dow DAX S&P/TSX FTSE CompetitorA
CompetitorB
CompetitorC
TSR June 2006 to June 2019
Source: TD
✓ 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
Market
Overview
1515North America Lumber End Use and Consumption
North America Lumber End Use 2018
Source: FEA
New Residential
29%
Residential Improvements40%
Industrial25%
Non-residential Other6%
0
5
10
15
20
25
30
35
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Bill
ion f
t
North America Lumber Consumption
Housing Construction Residential Improvements Industrial/Other
Residential improvements
and industrial demand
are lower volatility
demand drivers
1616
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
$250
$260
$270
$280
$290
$300
$310
$320
$330
Q117Q217Q317Q417Q118Q218Q318Q418Q119Q219
Expenditures % change
Demand conditions U.S.
0
20
40
60
80
100
120
140
J F M A M J J A S O N D
U.S. Housing Starts (not seasonally adjusted)
2017 2018 2019
Seasonally adjusted:
2017: 1,203
2018: 1,250
2019: 1,229 ytd July
Repair and renovation growth
continues
Leading indicator of Remodeling ActivityMonthly
$B
4 Q
trM
ovin
g I
mpro
vem
ents
and R
epairs
4 Q
trM
ovin
g r
ate
of
Change
Source: US Census Bureau Source: Harvard Joint Centre for Housing Studies
Limited growth needed for increased demand of 1 – 2 billion board feet
U.S. Housing Forecast (000) 2019 2020
RBC 1,313 1,335
Wells Fargo 1,270 1,290
Mortgage Bankers 1,268 1,3285
RISI 1,265 1,290
NAHB 1,250 1,286
FEA 1,248 1,339
APA 1,230 1,220
Fannie Mae 1,229 1,257
Average (May 2019 Fcst) 1,259 1,292
50k annual increase in
housing starts
3% growth in repair and renovation
~600Mfbm
increase in
lumber demand
~1,000Mfbm
increase in
lumber demand
1717
Source: U.S. Census Bureau, Statistics Canada, West Fraser Forecast
North American Lumber Consumption
Lumber demand growth trending at 1 to 2 billion board feet per year
7572
64
51
3943 43
4548
5053
5658 59 59
6163
0
10
20
30
40
50
60
70
80
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F
Bill
ion F
eet
US Consumption Canadian Consumption
1818Demand Conditions Offshore
0
1
2
3
4
5
6
7
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
North American Offshore Lumber Exports (Billion BF)
Offshore Exports U.S. Offshore Exports Canada
(1)01234567
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
North American Offshore Lumber Exports less Imports (Billion BF)
Source: WWPA, Stats Canada, Random Lengths
$0
$100
$200
$300
$400
$500
$600
0
1
2
3
4
5
6
7
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
US
$/M
fbm
Billio
n B
F
North American Offshore Lumber Imports
NA Imports SPF 2x4 2&btr (R axis)
North America is still a significant net exporter of lumber
1919Chinese Lumber Demand
Source: FEA
0
5,000
10,000
15,000
20,000
25,000
30,000
2010 2011 2012 2013 2014 2015 2016 2017 2018
M c
ub
ic m
ete
rs
North America Russia Europe Other
1 million cubic meters = ~ 295 million board feet
Although price sensitive, China continues to import significant lumber
2020
0
100
200
300
400
500
600
700
800
2018Q4 2019 Q1 2019 Q2
North America Curtailments
Supply conditions
0
5
10
15
20
25
BC Canada US Total NA
Lumber Supply
Ytd 04-18 Ytd 04-19
Down 16%
Down 9%
Up 1%
Down 4%
Source: Western Wood Products Association, management estimates Source: Industry analysts, public filings, management estimates, FEA
Supply growth challenges
• Temporary curtailments become permanent in the BC Interior
• Over 1.9 billion feet of North America permanent curtailment already announced
• Curtailments likely to have larger impact on supply in Q3/Q4
• Contractor availability and lead times inhibiting projects in the US South
• Long start up curves on new projects in US South
• Residual markets impacting (new and existing) facilities
Billion fbm MMfbm
Mix of
temporary
and
permanent
Curtailments likely to affect supply in second half
2121
Source: FEA, BC Forest Service
0
2
4
6
8
10
12
14
30
35
40
45
50
55
60
65
70
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Billi
on
BF
(s
oft
wo
od
lu
mb
er
pro
du
cti
on
)
Mil
lio
n m
3 (
AA
C &
Ha
rve
st)
AAC (m3)
Harvest (m3)
Softwood Lumber Production (BBF)
Log supply
constraints will
create price
pressure
Annual Allowable Cut on the decline in BC Interior
Pine beetle and fires impacting log supply, leading to higher input costs
$50
$60
$70
$80
$90
$100
$110
2014 2015 2016 2017 2018 2019$
/M3
BC Interior Purchase Log Cost
2222Share of North American Lumber Production
Source: US Census Bureau & Statistics Canada
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Canada West Canada East US South US West
Western Canada a key supply region,
facing fibre cost and availability headwinds
2323North American Lumber Production
Source: US Census Bureau & Statistics Canada
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000
Alberta
Eastern Canada
BC
US South
US Other
MMfbm
North America Softwood Lumber ProductionMillions of Board Feet
2005 2018
(25%)
(30%)
(18%)
Growth constrained in several significant lumber producing regions
2424Market Pulp Supply and Demand
• China growth is slowing due to US/China trade tensions, may impact 2019
• No new major capacity additions 2018 to 2020
• Pulp demand projected to grow 2.3% over next 5 years
• Demand growth driven by tissue and packaging demand
• Growth will be primarily in Asia
• Conversions of chemical pulp to dissolving pulp will constrain both softwood & hardwood pulp supply
Source: PPPC
Trade and hardwood pulp inventory overhang elevates risks
Chemical PulpBCTMP
20%
25%
30%
35%
40%
0
5,000
10,000
15,000
20,000
25,000
30,000
Chemical Pulp Demand (M tonnes)
China Demand % of World Demand (R axis)
2525West Fraser Timber Co. Ltd.
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.
“WFT” – Toronto Stock Exchange
www.WestFraser.com
APPENDIX
2727Earnings Sensitivity to Key Variables
Estimated Earnings Sensitivity to Key Variables1 (2018)
Factor Variation Change in pre-tax earnings
Lumber price US$10 (per Mfbm) 90
Plywood price Cdn$10 (per Msf) 8
NBSK price US$10 (per tonne) 7
BCTMP price US$10 (per tonne) 9
U.S. - Canadian $
exchange rate
US$0.01 (per Cdn$) 29
(based on 2018 production - $ millions)
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 US. 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.