West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — Investor Presentation (February 2014)
34 slides from West Fraser Timber's investor presentation, February 2014
Slide 1: Investor Presentation
February 2014 New York, Baltimore, Philadelphia and Jersey City Investor Presentation
Slide 2: Forward-Looking Statements
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 expend
Slide 3: Our Goals
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
Slide 4: Our Strategy
Our Strategy • Operational excellence • Diversification • Product differentiation • Integration 4
Slide 5: Operational Excellence
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
Slide 6: Annualized Shareholder Return (Cdn$)
Annualized Shareholder Return (Cdn$) June 2006* – February 19, 2014 18% 16.2% 16% 15.2% 14% 12% 11.9% 10% 8% 6% 5.1% 4.7% 4% 2.3% 2% 0% West Fraser S&P/TSX Dow Competitor A Competitor B Competitor C * June 2006 marked the beginning of the steep decline in U.S. housing starts 6 Source: TD Bank
Slide 7: Strong Cash Generation ($millions)
Strong Cash Generation ($millions) Total 2013 2012 2011 2010 Cash from Operations 1,120 419 195 85 421 Capital Expenditures 790 338 150 213 89 Dividends 80 24 24 24 8 7
Slide 8: Diversification
Diversification PRODUCTS GEOGRAPHY MARKETS - Lumber - Western - North - Panels Canada America - Market pulp - U.S. South - Asia - Newsprint 8
Slide 9: Product Diversification
Product Diversification LUMBER PANELS PULP & PAPER 27 mills 6 mills 5 mills SPF 3.8 Bfbm Plywood: 830 MMsf3/8” NBSK: 590 Mtonnes SYP 2.0 Bfbm MDF: 300 MMsf3/4” BCTMP: 650 Mtonnes Total 5.8 Bfbm LVL: 3.2 MMcf Newsprint: 135 Mtonnes • North America’s largest lumber producer • Largest plywood producer
Slide 10: Trend Sales Mix ($)
Trend Sales Mix ($) Pulp & Paper 24% Lumber 63% Panels 13% 10
Slide 11: Geographic Diversification
Geographic Diversification 11
Slide 12: Product Differentiation
Product Differentiation • Wood as the best environmental choice • Renewable resource, sustainable business • Expanding applications • Bioenergy, full use of the resource 12
Slide 13: Integration (in Canada)
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 13
Slide 14: Earnings Growth Drivers - Lumber
Earnings Growth Drivers - Lumber Demand - North American housing - Chinese construction and industrial applications - Japanese housing Supply - Fibre limitations - Residual offtake - Mill closures - People Efficiency - Capital investment - Business model 14
Slide 15: Returns on Lumber
10% 15% 20% 25% 30% 35% 40% -5% 0% 5% -10% 1991 1992 1993 1994 1995 1996 1997 1998 1999 Returns on Lumber 2000 2001 2002 2003 2004 2005 EBITDA margin (%) - Lumber 2006 2007 2008 2009 2010 Average: 16% 2011 2012 2013 15
Slide 16: U.S. Housing: Pent Up Housing Demand
U.S. Housing Pent Up Housing Demand (conventional + mobile) 2.25 2.00 1.75 Million Units 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 16 Source: FEA, Q4 2013
Slide 17: U.S. Housing Forecast (2014 & 2015)
U.S. Housing U.S. Housing Forecast (2014 & 2015) Single & Multi Family 1,600 1,400 1,200 1,000 800 '000s 600 400 200 0 Mortgage Wells NAHB FEA APA RISI Mesirow Royal Average Bankers Fargo Financial Bank 17 Source: APA, January 2014
Slide 18: Canadian Shipments to China
Canadian Shipments to China 4,000 Equivalent to 300,000 housing starts * 3,500 3,000 2,500 2,000 MMfbm 1,500 1,000 500 0 2006 2007 2008 2009 2010 2011 2012 2013 * Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family) 18 Source: Council of Forest Industries
Slide 19: Canadian Fibre Supply
Canadian Fibre Supply 80 Annual Allowable Cut Forecast 70 60 50 Million (M3) 40 30 20 10 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 BC Interior Quebec Ontario 19 Source: FEA, Q4 2013
Slide 20: West Fraser Lumber Production
West Fraser Lumber Production 2004 2013 2.8 Bfbm 5.2 Bfbm 11% 31% 12% 48% 77% 21% B.C. Interior Alberta U.S. South 20
Slide 21: West Fraser Lumber Capacity
West Fraser Lumber Capacity U.S. 36% B.C. 41% Alberta 23% Geographic diversification in lumber 21
Slide 22: Lumber Operating Rate - 2013
Lumber Operating Rate - 2013 100% 95% 90% 90% 87% 85% % of Capacity 79% 80% 78% 80% 75% 74% 70% 65% 60% 55% 50% WFT WFT B.C. U.S. U.S. Canada Canada U.S. Interior South Low-cost structure allows for higher operating rates in down market 22
Slide 23: U.S. South Positive Timber Inventory
U.S. South Positive Timber Inventory Bfbm, Int’l 25 Drain Projected Excess Growth 20 15 10 28.5 Bfbm of deferred sawtimber volume 5 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 23 Source: FEA, Q4 2013
Slide 24: Earnings Growth Drivers - Pulp
Earnings Growth Drivers - Pulp Demand - China’s paper, tissue and packaging demand - Developing countries’ demand - Price of cotton and similar products Supply - European paper capacity closures - Russian and Canadian start ups - Product diversification (e.g. dissolving pulp) - South American produc
Slide 25: Pulp & Paper Sales Mix – 2013 ($)
Pulp & Paper Sales Mix – 2013 ($) Europe, 6% North America, 38% Asia, 56% 25
Slide 26: Pulp - NBSK End-Use Products
Pulp - NBSK End-Use Products Specialty 10% Coated Paper 11% Uncoated Tissue/ Towel Paper 55% 10% Board 14% West Fraser 2013 shipments: 510,100 Metric Tonnes 26
Slide 27: Pulp - BCTMP End-Use Products
Pulp - BCTMP End-Use Products Tissue/Towel Specialty 1% 8% Uncoated Paper Board 23% 47% Coated Paper 21% West Fraser 2013 shipments: 599,759 Metric Tonnes 27
Slide 28: Paper — Newsprint Cost Structure
Paper — Newsprint North American Newsprint Cost Structure Par Exchange Rate Cdn$/tonne 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 28 Source: PPPC Cost Survey 2011
Slide 29: Energy Opportunities
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 electri
Slide 30: Energy Opportunities: Power Generation from Biomass
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 t
Slide 31: Capital Strategy
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 several years of “catch up” capital spending including 2014 estimated to exceed $300 million 31
Slide 32: Earnings Sensitivity to Key Variables (2013)
Earnings Sensitivity to Key Variables (2013) Estimated Earnings Sensitivity to Key Variables1 (based on 2013 production - $ millions) Factor Variation Change in pre-tax earnings 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 (per to
Slide 33: Why Invest in West Fraser?
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 33
Slide 34: “WFT” – Toronto Stock Exchange
“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 sec
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