West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — CIBC Institutional Investor Conference 2015
42 slides from West Fraser Timber's conference presentation, January 2015
Slide 1: CIBC Institutional Investor Conference
CIBC INSTITUTIONAL INVESTOR CONFERENCE INVESTOR PRESENTATION January 21-23, 2015 | Whistler, British Columbia
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 expendi
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: Product Diversification
Product Diversification LUMBER PANELS PULP & PAPER 27 mills 7 mills 5 mills SPF 3.9 Bfbm Plywood: 830 MMsf3/8” NBSK: 590 Mtonnes SYP 2.3 Bfbm MDF: 300 MMsf3/4” BCTMP: 650 Mtonnes Total 6.2 Bfbm LVL: 3.2 MMcf Newsprint: 135 Mtonnes • North America’s largest lumber producer • Largest plywood producer
Slide 7: Trend Sales Mix
Trend Sales Mix ($) Pulp & Paper 23% Panels Lumber 11% 66% 7
Slide 8: Operations diversified by geography
Operations diversified by geography Geographic diversification Lumber Capacity U.S. B.C. 37% 40% Alberta 23% 8
Slide 9: Product Differentiation
Product Differentiation • Wood as the best environmental choice • Renewable resource, sustainable business • Expanding applications • Bioenergy, full use of the resource 9
Slide 10: 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 10
Slide 11: 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 11
Slide 12: Returns on Lumber
-10% 0% 5% -5% 10% 15% 20% 25% 30% 35% 40% 1991 1992 1993 1994 1995 1996 1997 1998 1999 Returns on Lumber 2000 2001 2002 2003 2004 2005 2006 EBITDA Margin (%) - Lumber 2007 2008 2009 2010 Average: 16% 2011 2012 2013 Ytd Q3-14 12
Slide 13: 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 13 Source: FEA, Q3 2014
Slide 14: US Housing Single Family Share
US Housing Single Family Share well below 30 year average Share of single-family housing starts 90% 85% 80% 75% 70% 65% 30 year average share = 76% 60% 55% 50% 14 Source: FEA
Slide 15: Unlike Single-Family, Multi-family has Recovered
Unlike Single-Family, Multi-family has Recovered Thousands 2,000 500 1,800 450 1,600 400 1,400 350 1,200 300 1,000 250 800 200 600 150 400 100 200 50 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Single-Family (Left Scale) Multi-Family (Right Scale) 15 Source: U.S. Census Bureau
Slide 16: U.S. Lumber End Use
U.S. Lumber End Use U.S. Lumber End-use 2013 U.S. Lumber End-use Normalized Nonresidential/ Nonresidential/ Mobile, 5% Mobile, 7% Single Family Construction, 24% Industrial Production, 23% Single Family Construction, Industrial 37% Production, 30% Multifamily Construction, 3% Multifamily Residential
Slide 17: Canadian Shipments to China
Canadian Shipments to China 3,500 3,000 Equivalent to 300,000 housing starts * 2,500 2,000 1,500 MMfbm 1,000 500 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Proj. * Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family) 17 Source: Council of Forest Indus
Slide 18: B.C. Shipments to Japan
B.C. Shipments to Japan Mmfbm Thousand 2x4 Starts 1,600 140 1,400 120 1,200 100 1,000 80 800 60 600 400 40 200 20 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Shipments 2x4 Starts Proj. 18 Source: Council of Forest Industries, November 2014
Slide 19: North American Lumber Capacity
North American Lumber Capacity Top 10 Lumber Capacity Mmfbm 7,000 6,000 5,000 Top 10 make up only 43% of Capacity 4,000 3,000 2,000 1,000 0 Weyco Simpson Canfor GP Interfor Tolko West Fraser Sierra Pacific Resolute Hampton 19
Slide 20: Canadian Fibre Supply
Million (M3) 0 10 20 40 50 60 70 30 80 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Quebec 2001 2002 2003 2004 2005 Annual Allowable Cut Ontario Canadian Fibre Supply 2006 2007 2008 2009 2010 BC Interior 2011 2012 2013 2014 2015 2016 Forecast 2017 2018 2019 Source: FEA, Q4 2014 2020 20
Slide 21: U.S. South Positive Timber Inventory
U.S. South Positive Timber Inventory Bfbm Int’l ¼” 30 25 Projected Excess Growth 20 15 10 5 Growth Drain 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 21 Source: FEA, Q4 2014
Slide 22: 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 23: Pulp & Paper Sales Mix – 2013
Pulp & Paper Sales Mix – 2013 ($) Europe, 6% North America, 38% Asia, 56% 23
Slide 24: Chemical Pulp End-Use Products
Chemical Pulp End-Use Products Other Boxboard 4% 5% Fluff Based Products Printing and 10% Writing Papers 31% Specialty Papers 19% Source: PPPC 2013 Tissue 31% 24
Slide 25: BCTMP Pulp End-Use Products
BCTMP Pulp End-Use Products Newsprint Other 4% 3% Specialty Papers 8% Boxboard 44% Printing & Writing 41% Source: PPPC 2013 25
Slide 26: Paper — Newsprint
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 26 Source: PPPC Cost Survey 2012
Slide 27: 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 28: Energy Opportunities
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 29: 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 capital spending in 2014 to exceed $350 million and in 2015 to approximate $300 million • Growth t
Slide 30: West Fraser Capital
West Fraser Capital Capital Spending $ Million 400 358 350 321 300 250 200 159 150 100 50 0 2012 2013 Ytd Q3-14 Maintenance Timber Profit Improvement Energy 30
Slide 31: Recent Growth
Recent Growth BRITISH ALBERTA COLUMBIA 2014 CHETWYND SMITHERS HIGH PRAIRIE SLAVE LAKE HOUSTON FRASER LAKE BLUE RIDGE 2012 HINTON EDSON QUESNEL WILLIAMS LAKE 100 MILE SUNDRE CHASM 31
Slide 32: Recent Growth
Recent Growth ARKANSAS 2014 RUSSELLVILLE MANSFIELD LITTLE ROCK LEOLA NEW BOSTON (TEXAS) HUTTIG 32
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 • Strong historical shareho
Slide 34: Strong Cash Generation
Strong Cash Generation ($millions) Total Ytd Q3-14 2013 2012 2011 2010 Cash from Operations 1,554 434 419 195 85 421 Capital Expenditures 1,140 321 358 159 213 89 Acquisitions 233 203 - 30 - - 34
Slide 35: Annualized Shareholder Return
Annualized Shareholder Return (Cdn$) June 2006* – December 31, 2014 17.3% 18% 16% 13.7% 13.6% 14% 12% 10% 7.6% 8% 6.5% 6.1% 6% 4% 2.5% 2% 0.1% 0% West Fraser DAX Dow S&P/TSX FTSE Competitor A Competitor B Competitor C * June 2006 marked the beginning of the steep decline in U.S. housing starts 35 So
Slide 36: Share Value Traded
Share Value Traded Cdn$ Million 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2014 2013 2012 WFT CFP IFP 36
Slide 37: “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
Slide 38: Appendix
APPENDIX 38
Slide 39: Acquisition of Buchanan Lumber, High Prairie, Alberta
Acquisition of Buchanan Lumber, High Prairie, Alberta • Acquisition includes: – High Prairie sawmill (current capacity of 110 MMfbm) – Related real estate and transportation business – Timber harvesting rights with AAC of 430,000 m3 of coniferous and 21,000 m3 of deciduous timber • Purchase price of
Slide 40: Acquisition of Travis Lumber, Mansfield, Arkansas
Acquisition of Travis Lumber, Mansfield, Arkansas • Western Arkansas sawmill with a workforce of 140 • Purchase price of US$46 million (C$51 million) plus working capital paid in cash at closing (March 7, 2014) • Current capacity of 110 MMfbm West Fraser is planning expansion to approximately 150 MM
Slide 41: Acquisition of Bibler Bros., Russellville, Arkansas
Acquisition of Bibler Bros., Russellville, Arkansas • Well-capitalized mill with 190 employees and annual capacity of approximately 160 MMfbm • Purchase price of US$61 million (C$67 million) plus working capital payable in cash at closing (anticipated April 25, 2014) • Will be West Fraser's fourth s
Slide 42: 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 t
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