West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — Q4 2021 Earnings Presentation
67 slides from West Fraser Timber's earnings presentation, February 2022
Slide 1: Investor Presentation February 2022
INVESTOR PRESENTATION February 2022
Slide 2: Financial Information and Forward Looking Statements
Financial Information: The financial information related to West Fraser contained in this Presentation is derived from our 2021 Annual Financial Statements, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and is discussed in our Managements’ Discussio
Slide 3: Q4 2021 Earnings Summary
Q4 2021 Earnings Summary
Slide 4: Consolidated Financial Results
Consolidated Financial Results US$ Millions US$ Millions Adjusted EBITDA* Q4-21 Q3-21 (except EPS) Q4-21 Q3-21 Lumber $ 240 $ 93 Sales $ 2,038 $ 2,358 Costs and expenses (1,588) (1,728) EWP - North America 343 612 Operating earnings 450 630 EWP - Europe 61 90 Finance expense (1) (11) Pulp & Paper (1
Slide 5: Q4 Consolidated Adjusted EBITDA Reconciliation
Q4 Consolidated Adjusted EBITDA Reconciliation Reduced operating schedules Export duty recovery at multiple locations in W. Canada and Europe. Lower OSB prices in NA, partially offset by rising lumber prices. Lumber: $130 million NA EWP: ($251) million Pulp & Paper: ($7) million Higher log costs fro
Slide 6: Q4-21 versus Q3-21
Q4-21 versus Q3-21 US$ millions unless Q4 2021 Q3 2021 Change Comments otherwise indicated Lower SPF shipments due to severe flooding in British Columbia and Lumber Shipments (MMfbm) 1,305 1,503 (198) reduced demand in the earlier part of the quarter Comparable OSB shipments on robust demand during
Slide 7: Strategic Capital Program
Strategic Capital Program ▪ A portion of total annual capital spending program is allocated toward a strategic investment program to support safety, cost improvements and strategic growth initiatives ▪ Work on approximately $180 million of identified projects has begun and will continue through 2023
Slide 8: 2022 Outlook
2022 Outlook US$ unless indicated otherwise 2022 2021 Commentary Recapture from temporary curtailments, additional productivity in SPF Shipments (MMfbm) 3,000 - 3,200 3,176 face of challenging Q1 transportation and logistics. Gain from capital program and execute on investments, including SYP Shipme
Slide 9: Summary
Summary Q4 2021 Recap Looking Forward ✓ Facing Q1 transportation challenges but ✓ Managed operational impact from severe B.C. fundamentals for wood product demand showing weather and ongoing COVID-19 risks signs of strength in early 2022 ✓ Continued strength in liquidity ✓ Continued focus on operati
Slide 10: Why Investors Should Own West Fraser Shares
Why Investors Should Own West Fraser Shares
Slide 11: Reasons to Invest in West Fraser Timber Co.
Reasons to Invest in West Fraser Timber Co. One of the world’s largest producers of sustainable wood-based building products Offers financial Serves markets Has a track record Has the scope, Is positioned to Has an attractive resilience through with strong of disciplined and scale, and benefit from
Slide 12: Resilience from Product and Geographic Diversity
Resilience from Product and Geographic Diversity
Slide 13: Product & Geographic Diversification
Product & Geographic Diversification Lumber North America EWP Pulp, Paper & Energy UK and Europe EWP 34 locations 19 locations 5 locations 4 locations OSB: 7,360 MMsf 3/8” NBSK: 520 Mtonnes OSB 1,505 MMsf 3/8” SPF 3.4 Bfbm Plywood: 860 MMsf 3/8” BCTMP: 690 Mtonnes Particleboard 565 MMsf 3/8” SYP 3.6
Slide 14: More Relevant, Efficient and Valuable to Customer Segments
More Relevant, Efficient and Valuable to Principal Homebuilder, Building Construction, and Pro-Dealer Customer Segments 14
Slide 15: Operating Footprint on Two Continents
Operating Footprint on Two Continents B ITI MBIA A BE TA ATE FFI E Nort America MBE NE INT EBE EN INEE ED D NTA I Edmonton uesnel D MDF, t aurent MINNE TA articleBoard ( D) Furniture ENEE Toronto ancouver B N T A INA TENNE EE Memp is T A INA A AN A NITED A ABAMA IN D M E IA owie MI I I I TE A I IANA
Slide 16: Regionally Diversified West Fraser Revenue Mix
Regionally Diversified West Fraser Revenue Mix* • Expanding exposure to growth markets tied to U.S. housing • Addition of Norbord has expanded Europe exposure to be nearly 10% of 2021 revenue 2011: USD$2.8B** 2021: USD$10.5B Other UK/Europe UK/Europe 0% 7% Canada 2% Other Asia 16% Other 2% 3% Other
Slide 17: Diverse Industry End-Use Demand
Diverse Industry End-Use Demand with Majority Driven by New Residential and Lower-Volatility R&R Markets North America Lumber End Use 2021 North America Structural Panel End Use 2021 Non-Residential Other 4% Industrial Non-Residential Other 7% Industrial 9% 22% New Residential 35% New Residential 59
Slide 18: Shifting Lumber Capacity to Lower-risk Regions
Shifting West Fraser Lumber Capacity to Lower-risk Regions • US South growth to ~52% of capacity (from ~11% in 2004) • Lower-cost region • Not subject to US trade risk • Exposure to higher-cost BC fiber reduced, now ~24% of capacity (from ~77% in 2004) 2004: 2.8 BBF 2021: 7.0 BBF British Columbia US
Slide 19: Improving Mix of Lumber Products
Improving Mix of Lumber Products ▪ West Fraser pursued a U.S. south expansion strategy given expectations of U.S. South is Increasing Mix of 2x4s… medium- to long-term fiber supply constraints in B.C. Weighted average +7% ▪ B.C was historically a heavy producer of 2x4s, suggesting industry 2x4 short
Slide 20: Lower-variability Specialty OSB Business
Lower-variability Specialty OSB Business ▪ Specialty OSB products include products sold to industrial and North American OSB Shipments (3/8”) export markets 5.89 BSF 6.13 BSF 100% ▪ Industrial customers use OSB in their production processes, such as for upholstered furniture, transportation applicat
Slide 21: Realizing Growth and Geographic Diversification in Europe
Realizing Growth and Geographic Diversification in Europe • Europe EWP is driven by panel demand in the UK and Europe, which is de-linked from North American markets, tending to generate more stable results • Strong European panel prices and increasing OSB shipments from the Inverness expansion drov
Slide 22: Historic Adjusted EBITDA
Historic Adjusted EBITDA Proforma Historical Combined Adj EBITDA (US$ millions) Segment Adj EBITDA Mix (US$ millions, excl. Corporate) Ainsworth Norbord West Fraser Lumber NA EWP EU EWP P&P 2,500 4,569 11 25 100% 17 39 5- year avg 90 61 2,000 85% 491 70% 1,106 1,500 10- year avg 1,043 343 1,034 55%
Slide 23: Serving Markets with Attractive Fundamentals
Serving Markets with Attractive Fundamentals
Slide 24: U.S. Housing Start Estimates
U.S. Housing Start Estimates (Thousands) 1,700 1,595 ousing tarts (‘000s) 1,600 1,500 1,380 1,400 1,290 1,300 1,250 1,203 1,200 1,174 1,112 1,100 1,000 2015 2016 2017 2018 2019 2020 2021 2022F 2023F Actual High/Low Forecasts Source: U.S. Census Bureau, industry analysts Industry analysts expect furt
Slide 25: U.S. Leading Indicator of Remodeling Activity
U.S. Leading Indicator of Remodeling Activity Homeowner Improvements & Repairs Four-Quarter Moving Four-Quarter Moving Totals Predicting further demand Rate of Change (%) Billions ($USD) strengthening for R&R activity in 2022 450 427 432 20 Four-Quarter Moving Rate of Change (%) 404 400 Homeowner Im
Slide 26: Mass Timber – Another Driver of Sustainable Wood Product Demand
Mass Timber – Another Driver of Sustainable Wood Product Demand U.S. incremental lumber demand from mass timber is projected to be between 3.77 – 6.75 Billion Board Feet (Bfbm) by 2035, representing the equivalent demand of ~315k – 560k additional new housing starts* Mass Timber - U.S. Incremental L
Slide 27: Lumber and OSB Supply Overview
Lumber and OSB Supply Overview Lumber OSB • Aggregate North American production growth • It is an estimated three to five year process to constrained by log availability, particularly BC construct a greenfield OSB mill, followed by an 18-24 month ramp to full production • U.S. South is region with m
Slide 28: Illustrative Ecosystem of U.S. South Lumber Mill
Illustrative Ecosystem of U.S. South Lumber Mill By building a new sawmill adjacent to an existing mill we are able to utilize existing infrastructure and skilled labour, enabling a faster ramp-up while reducing financial, operational and execution risks Approximate resources for 250 MMfbm U.S. sout
Slide 29: This is not 2005 – Today's North American Lumber Supply
This is not 2005 – Today’s North American Lumber Supply 80 2.5 Low lumber production growth even with strong markets in 2017, 2018 & 2021; labour, equipment and log availability are challenges to growth 70 2.0 60 U.S. Housing Starts (millions) Billion Board Feet 50 1.5 Reduction in Canadian producti
Slide 30: North American Lumber Production in 2021
North American Lumber Production in 2021 Housing Starts Equivalent* 1.8 0.10 1.6 0.52 1.54 1.4 100,000 additional starts could U.S. Housing Starts (millions) require ~2.4Bfbm of additional 1.2 production (approximately 10 new sawmills) 0.37 1.0 0.8 0.41 0.6 0.4 0.24 0.2 0.0 B.C. Canada Other U.S. Ot
Slide 31: North American OSB Operating Capacity
North American OSB Operating Capacity* OSB Operating Capacity and U.S. Housing Starts 30 2.5 • Some industry capacity curtailed in late 2019 has re- started while some remains idled; one mill was permanently closed in 2020 25 2.0 • West Fraser re-started its OSB mill in Chambord, 20 Quebec in March
Slide 32: North American OSB Capacity in 2021
North American OSB Capacity in 2021 Housing Starts Equivalent* 1.75 0.10 1.50 0.41 1.45 100,000 additional starts U.S. Housing Starts (millions) could require nearly 1 Bsf 1.25 (3/8-inch) of additional OSB capacity, which is more than 0.17 the capacity of a typical large- 1.00 scale greenfield OSB m
Slide 33: Disciplined and Balanced Allocator of Capital
Disciplined and Balanced Allocator of Capital
Slide 34: Capital Allocation Priorities
Capital Allocation Priorities • Replace end-of-life assets • Maintain investment-grade rating • Maintain low-cost position • Maintain cash buffer to aid the • Strategically enhance pursuit of opportunistic M&A and product mix, productivity Reinvest Maintain larger-scale strategic growth and capacity
Slide 35: Capital Allocation Lookback
Capital Allocation Lookback • Multi year history of cash flow generation is strong • Significant investments in maintaining, expanding and improving the business at ~40% of cash generated • Excess capital returned to shareholders of ~35% of cash flow, heavily weighted to buybacks, influenced by the
Slide 36: Share Repurchases
Share Repurchases Cumulative Investment in Repurchases (US$ million) Average repurchase price (CAD$): $2,500 $2,208 $2,000 2013 $44.60 $1,500 $829 $890 $890 2014 $51.86 $1,000 $500 $294 $307 $104 $151 2015 $55.57 $2 $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2016 $44.06 2017 $68.45 Total Volume
Slide 37: Macro Lookback on Capital Reinvested
Macro Lookback on Capital Reinvested Return on Capital Employed (ROCE %)* 70% 61% 27% 25% 24% 16% -10% -4% 2016 2017 2018 2019 2020 2021 Source: Bloomberg, West Fraser analysis Favorable ROCE trend and results * Note: ROCE = GAAP EBIT / (Total Assets – Current Liabilities). 37
Slide 38: Liquidity
Liquidity ($millions) Available Liquidity* Scheduled Maturities 4,000 1,200 3,000 900 $USD Millions $USD Millions 2,000 600 1,000 300 0 0 2019 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21 Q2 '21 Q3 '21 Q4 '21 2021 2022 2023 2024 2025 2026 2027 Bank lines Cash Term loan Notes Revolver Debt to Capitalization 60
Slide 39: Scope, Scale and Expertise to Unlock Growth
Scope, Scale and Expertise to Unlock Growth
Slide 40: West Fraser's Growth Strategy
West Fraser’s Growth Strategy • Our objective is to be the premier wood building products company in North America, resulting in long-term value creation. • Our strategy to achieve this objective is to develop and maintain a highly disciplined organization relentlessly focused on continuous improvem
Slide 41: ~$175M Dudley Mill Expansion
~$175M Dudley Mill Expansion – Brownfield Reinvestment with Estimated Payback Less than 7 Years Pre- project Proforma Capital (2020-2021) ~$175M Lumber Production (MMfbm) 100 270 Grade (#2&Btr) 72% 80% Productivity (FBM/Manhour) Increase 200+% Recovery (Ton/Mfbm) Decrease 20+% Total Cash Cost ($/Mfb
Slide 42: ~$200M Inverness Mill Expansion
~$200M Inverness Mill Expansion – Brownfield Reinvestment with Estimated Payback Less than 5 Years Inverness Investments Phase 1 investment of US$147 million • New continuous press line started up in Q4/2017 • New finishing end commissioned in Q1/2019 Phase 2 investment of US$46 million (£35 million
Slide 43: ~$300M Acquisition of Angelina Forest Products Sawmill
~$300M Acquisition of Angelina Forest Products Sawmill in Lufkin, Texas Strategic Rationale • En ances est Fraser’s lumber mill portfolio ✓ Turn-key, modern lumber mill already generating cash flow; mill started production in late 2019 ✓ Located near abundant, low-cost fiber, expected to be a first
Slide 44: ~$280M Acquisition of GP OSB Mill near Allendale
~$280M Acquisition of GP OSB Mill near Allendale, South Carolina Strategic Rationale • Large-scale mill en ances est Fraser’s B mill portfolio, will provide greater flexibility to better meet customer demand ✓ Georgia-Pacific mill idled since late 2019; opportunity for West Fraser to utilize interna
Slide 45: Positioned to Benefit from Strong ESG Fundamentals
Positioned to Benefit from Strong ESG Fundamentals
Slide 46: Building with Wood Offers Significant Environmental Benefits
Building with Wood Offers Significant Environmental Benefits In Addition to Sequestering Carbon, Tonnes of CO2 emissions emitted during the manufacture Wood Product Manufacturing Has a of various building materials for a single story house Lighter Carbon Footprint 14 Concrete Slab 12 Steel sub-frame
Slide 47: Circular Economy – Responsible, Resourceful and Climate-Smart
Circular Economy – Responsible, Resourceful and Climate-Smart Carbon Sequestration. Sustainable Growing Forests. Harvest. Forever. Reuse and Waste Not. Recycle. Climate-Smart 74% Renewable Construction. Energy. We use it all. 47
Slide 48: Key Achievements
Key Achievements Achieved 2 billion trees Recognized with a SFI Leadership in Conservation Award, planted milestone in 2021 in collaboration with the Nature Conservancy of Canada Stored 17.5 tonnes of carbon (C02e) in 2020 production for Certified 100% responsible fibre sourcing lumber and OSB Recov
Slide 49: Our People
Our People 8% Defined an Indigenous Peoples Policy of West Fraser’s Canadian employees Committed to Progressive Aboriginal Relations Certification self-identify as Indigenous 24% from the Canadian Council for Aboriginal Businesses Diversity and Inclusion of all West Fraser employees self-identify wi
Slide 50: Caring for the Earth: GHG Emissions
Caring for the Earth: GHG Emissions Scope 1 & 2 Emissions (1.59 ktCO2e) and Energy (63.0 kGJ) Scope 1, 2, 3 Emissions Screening 2020 2020 Apportioned by Product Segment Emissions Emissions, Lumber 29% Engineered 19% Wood, 11% Scope 1 tCO2e Energy, Lumber, 25% 21% Scope 2 tCO2e Energy Engineered Scop
Slide 51: Committing to the SBTi Process
Committing to the SBTi Process Joining the SBTi signals our commitment to global climate action, aligning with the Paris Agreement goals, to materially reduce GHGs, across all our operations by 2030 On Feb 15, 2022, West Fraser commitment to science- based targets and the Science Based Targets Initi
Slide 52: Committing Capital to Achieve GHG Goals
Committing Capital to Achieve GHG Goals SBTi promotes best practice in science-based target setting and independently assesses companies’ targets Company capital plans from 2022 forward will invest: • $50M annual average in GHG reduction projects and opportunities • Approximately $400M before 2030 t
Slide 53: Sustainability Reporting
Sustainability Reporting Full 2020 Sustainability Report SASB, GRI & TCFD disclosures westfraser.com/responsibility/sustainability-report Sustainability Report Highlights Westfraser.com/responsibility/sustainability-report/executive-summary Attractive ESG attributes, significantly upgraded reporting
Slide 54: Attractive Record of Creating Shareholder Value
Attractive Record of Creating Shareholder Value
Slide 55: Performance vs. Peers and Relevant Indices
Performance vs. Peers and Relevant Indices Enterprise Value (US$ billions) +272% $8 +159% $6 $4 +37% +389% $2 $0 2005 YE 2021 Q3 West Fraser Peer 1 Peer 2 Peer 3 Annualized Total Shareholder Return (US$, dividends reinvested) 15% Jan-01-06* to Feb-3-22 12.3% 10.5% 10.6% 10% 6.7% 6.9% 5.8% 5% 0% West
Slide 56: Appendix
Appendix
Slide 57: West Fraser is North America's Largest Lumber Producer
West Fraser is North America’s Largest Lumber Producer West Fraser West Fraser 2021 Capacity 7.0 Billion feet 11% British Weyerhaeuer Columbia 9% 24% 2020 N.A. Other Canfor Industry 44% 8% Production 60 Bfbm Georgia-Pacific US South 5% 52% Interfor 5% Tolko Alberta 2% Resolute 24% Idaho Forest Fores
Slide 58: West Fraser is a Leading OSB Producer
West Fraser is a Leading OSB Producer West Fraser OSB Capacity by Region Europe 16% North American OSB Industry* European OSB Industry US 9.6 50% Bsf-3/8" Other Canada Other Martco Kronospan 6% 17% 6% West 34% Smartply 40% Huber Fraser 4% 8% 31% Sonae- Industry Industry Tolko Arauco Capacity 4% Capa
Slide 59: North America Lumber and EWP EBITDA Margin
West Fraser North America Lumber and EWP EBITDA Margin NA Lumber Average: 17% NA EWP* (proforma) Average: 22% 60% 50% 40% 30% 20% 10% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 North America Lumber North America EWP (proforma) Improving demand, capital and operational execution s
Slide 60: Lumber Supply Conditions
Lumber Supply Conditions Total North America Lumber Supply (Production) North America Lumber Supply (Production) – 2021 (est.) 20 B.C. U.S. South 15 16% 34% Billion Board Feet 10 Alberta 7% 5 Canada Other 0 17% U.S. Other Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Est. 2
Slide 61: OSB Supply Conditions
OSB Supply Conditions Total North America OSB Supply (Production) 7 Wood supply shortage led to permanent Billion quare Feet 3/8” basis 6 closure of one BC mill in 2020; two other 5 mills re-started in 2021 (Quebec and BC) 4 while one remains idled 3 2 1 0 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q
Slide 62: Demand Conditions for Wood Building Products
Demand Conditions for Wood Building Products U.S. Housing Starts (not seasonally adjusted) Leading indicator of Remodeling Activity 175 $380 14% Improvements and Repairs Thousands of Units 150 12% 125 $360 $B 4 Qtr. Moving 10% 4 Qtr. Moving rate of 100 Seasonally adjusted: 8% 75 2018: 1,250k $340 Ch
Slide 63: Analyst Coverage
Analyst Coverage Organization Analyst Name Contact BMO Capital Markets Mark Wilde (212) 883-5102 [email protected] CIBC World Markets Hamir Patel (604) 331-3047 [email protected] ERA Forest Products John Cooney (604) 267-3021 [email protected] Research Raymond James Daryl Swetlishoff (604
Slide 64: Analyst Estimates
Analyst Estimates (SPF & SYP US$/Mfbm; OSB US$/Msf) 2022E SPF W 2x4 2022E SYP W 2x4 2022E OSB NC 7/16” RJ $650 RBC $650 RJ $450 BNS $654 BNS $667 TD $506 RBC $675 RJ $700 BNS $512 BMO $688 TD $740 BMO $518 TD $725 CIBC $743 CIBC $630 CIBC $725 BMO $753 ERA $635 ERA $760 ERA $785 RBC $680 Source: Ana
Slide 65: Modeling EBITDA
Modeling EBITDA Estimated Earnings Sensitivity to Key Variables (based on annual shipment volumes - $ millions) Factor Variation Change in pre-tax earnings1 Lumber price $10 (per Mfbm) 51 NA OSB price $10 (per Msf) 63 Europe OSB price £10 (per Msf) 12 NBSK price $10 (per tonne) 3 BCTMP price $10 (pe
Slide 66: West Fraser Timber Co. Ltd.
West 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
Slide 67: Terminology, External Information and Currency
External Information: Where this presentation quotes any information or statistics from any external source, it should not be interpreted that West Fraser has adopted or endorsed such information or statistics as being accurate. Some of the information presented herein is based on or derived from st