West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — Q4 2022 Earnings Presentation
67 slides from West Fraser Timber's earnings presentation, February 2023
Slide 1: Investor Presentation February 2023
INVESTOR PRESENTATION February 2023
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 2022 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 2022 Earnings Summary
Q4 2022 Earnings Summary
Slide 4: Consolidated Financial Results
Consolidated Financial Results US$ Millions US$ Millions Adjusted EBITDA* Q4-22 Q3-22 (except EPS) Q4-22 Q3-22 Lumber $ (77) $ 160 Sales $ 1,615 $ 2,088 EWP - North America 109 215 Costs and expenses (1,745) (1,807) Operating earnings (loss) (130) 281 Pulp & Paper 15 29 Finance income (expense) 3 3
Slide 5: Q4 Consolidated Adjusted EBITDA Reconciliation
Q4 Consolidated Adjusted EBITDA Reconciliation Weaker demand. Q3 included an export duty recovery of $81 million related to USDOC finalization of the AR3 duty rates. Lower lumber and OSB shipments, lower log costs, lower resin and energy costs plus $14 million proceeds from insurance recovery more t
Slide 6: Q4-22 versus Q3-22
Q4-22 versus Q3-22 US$ millions unless Q4 2022 Q3 2022 Change Comments otherwise indicated Shipments lower (SPF down 18% and SYP down 7%) owing to weakening Lumber Shipments (MMfbm) 1,295 1,478 (183) demand and reduced production volumes to manage inventory levels. Shipments 12% lower owing to weake
Slide 7: 2023 Outlook
2023 Outlook US$ unless indicated otherwise 2023 2022 Commentary Expecting less detrimental impact from transportation challenges, SPF Shipments (MMfbm) 2,600 – 2,800 2,705 offset by BC sawmill curtailments announced in H2-2022. Gain from capital program and execute on investments, offset by SYP Shi
Slide 8: Summary
Summary Q4 2022 Recap Looking Forward ✓ Slowing demand for our wood building products led to ✓ Facing near-term demand softness though longer- reduced production and shipments term fundamentals for wood product demand remain favourable ✓ Maintained strength in liquidity despite cyclical headwinds ✓
Slide 9: Why Investors Should Own West Fraser Shares
Why Investors Should Own West Fraser Shares
Slide 10: 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 11: Resilience from Product and Geographic Diversity
Resilience from Product and Geographic Diversity
Slide 12: Product & Geographic Diversification – Capacity
Product & Geographic Diversification – Capacity Lumber North America EWP Pulp & Paper UK and Europe EWP 34 locations 19 locations 5 locations 4 locations OSB: 7,360 MMsf 3/8” NBSK: 170 Mtonnes OSB 1,515 MMsf 3/8” SPF 3.1 Bfbm Plywood: 770 MMsf 3/8” UKP: 250 Mtonnes Particleboard 565 MMsf 3/8” SYP 3.
Slide 13: More Relevant, Efficient and Valuable to Customer Segments
More Relevant, Efficient and Valuable to Principal Homebuilder, Building Construction, and Pro-Dealer Customer Segments 13
Slide 14: Operating Footprint on Two Continents
Operating Footprint on Two Continents BRITISH C UMBIA A BERTA C RP RATE FFICES North America UMBER PU P NEWSPRINT UEBEC ENGINEERED W D NTARI Edmonton uesnel P W D MDF, St. aurent MINNES TA ParticleBoard (R D) Furniture ENEER Toronto ancouver SB N RTH CAR INA TENNESSEE Memphis S UTH ARKANSAS CAR INA
Slide 15: 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 2022 North America OSB End Use 2022 Non-Residential Other 5% Non-Residential Other 7% Industrial 9% Industrial New 23% Residential 34% New Residential 59% R&R 24% R&R
Slide 16: West Fraser Lumber Capacity Shifting to Lower-risk, Lower-cost Regions
West Fraser Lumber Capacity Shifting to Lower-risk, Lower-cost Regions • US South growth to ~54% of capacity (from ~11% in 2004); lower-cost region, not subject to US trade risk • Exposure to higher-cost B.C. fiber reduced, now ~22% of capacity (from ~77% in 2004) 2004: 2.8 Bfbm 2022: 6.7 Bfbm Briti
Slide 17: Historic Adjusted EBITDA
Historic Adjusted EBITDA Proforma Historical Combined Adj EBITDA (US$ millions) Segment Adj EBITDA Mix (US$ millions, excl. Corporate) Lumber NA EWP EU EWP P&P 5,000 1,800 11 25 Ainsworth 100% 17 39 78 54 29 90 61 4,500 Norbord 1,600 24 85% West Fraser 4,000 491 1,400 U.S Housing starts (000s, RHS)
Slide 18: 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 +9% ▪ B.C was historically a heavy producer of 2x4s, suggesting industry 2x4 short
Slide 19: Lower-variability Specialty OSB Business
Lower-variability Specialty OSB Business North American OSB Shipments (3/8”) ▪ Specialty OSB products include those sold to export and industrial Mix % & Billion Square Feet (BSF) markets such as upholstered furniture, transportation applications and i- joist manufacturing 5.9 6.1 6.0 ▪ Shift to gre
Slide 20: Regionally Diversified West Fraser Revenue Mix
Regionally Diversified West Fraser Revenue Mix* • Expanding exposure to growth markets tied to U.S. housing and repair and remodeling • Addition of Norbord has also expanded UK/Europe exposure to be nearly 10% of revenue 2012: USD $3.0B** 2022: USD $9.7B UK/Europe 7% Canada Asia 16% UK/Europe Other
Slide 21: Realizing Growth and Geographic Diversification in Europe
Realizing Growth and Geographic Diversification in Europe • Europe EWP is driven by panel demand in the UK and Europe, which is de-linked from North American markets, tending to generate more stable financial results • Strong macro-headwinds in Europe led to weaker demand for wood panel products in
Slide 22: Serving Markets with Attractive Fundamentals
Serving Markets with Attractive Fundamentals
Slide 23: U.S. Housing Start Estimates
U.S. Housing Start Estimates (Thousands) 1,700 1,601 1,600 1,553 1,500 US Housing Starts (‘000s) 1,400 1,380 1,300 1,290 1,250 1,203 1,200 1,174 1,112 1,100 1,000 2015 2016 2017 2018 2019 2020 2021 2022 2023F 2024F Actual Forecast Range (ex-High & Low) Source: U.S. Census Bureau, industry analysts I
Slide 24: U.S. Leading Indicator of Remodeling Activity
U.S. Leading Indicator of Remodeling (R&R) Activity Predicting increased demand for R&R Homeowner Improvements & Repairs Four-Quarter Moving Totals activity in 2023 Four-Quarter Moving Billions ($USD) Rate of Change (%) 500 488 492 485 18 Homeowner Improvement & Repairs ($USD) 465 472 473 450 444 Fo
Slide 25: U.S. Lumber Consumption in Residential Improvement
Comparing U.S. Lumber Consumption in Residential Improvement Across Periods with Similar Total Housing Starts* U.S. Lumber Consumption – Residential Improvement (billion board feet) Residential Improvement 43% of Total has grown in importance and 22.3 Lumber Consumption consumes ~55% more 26% of Tot
Slide 26: U.S. OSB Consumption in Residential Improvement & Industrial
Comparing U.S. OSB Consumption in Residential Improvement & Industrial Segments Across Periods with Similar Total Housing Starts* U.S. OSB End-user Consumption (billion square feet, 3/8-in basis) 10% of Total OSB 2.2 Consumption Residential Improvement and Industrial have increased in relevance 6% o
Slide 27: Mass Timber – Another Driver of Sustainable Wood Product Demand
Mass Timber – Another Driver of Sustainable Wood Product Demand U.S. consumption demand from mass timber is projected to be between 0.7 – 2.1 Billion Board Feet (Bfbm) by 2035, representing the equivalent demand of up to ~175k additional new housing starts* Mass Timber – Projected U.S. Consumption D
Slide 28: 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 in B.C.; construct a greenfield OSB mill, followed by an it is an estimated two- to three-year process to 18-24 mon
Slide 29: 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 30: Serving a Broad Distribution Network and Customer Base
Serving a Broad Distribution Network and Customer Base West Fraser serves thousands of delivery points and customers across North America; the majority of product shipments use rail to transport Canadian SPF and OSB to U.S. markets and trucks to transport SYP and OSB from mills in the U.S. south. We
Slide 31: 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 & 2022; labour, equipment and log availability are challenges to 70 growth 2.0 60 U.S. Housing Starts (millions) Billion Board Feet 50 1.5 Reduction in Canadian pr
Slide 32: North American Lumber Production in Housing Starts Equivalent
North American Lumber Production (2022) in Housing Starts Equivalent* 1.75 0.10 0.55 1.52 1.50 100,000 additional starts could U.S. Housing Starts (millions) require ~2.4Bfbm of additional 1.25 production (approximately 10 new sawmills) 1.00 0.40 0.75 0.35 0.50 0.25 0.22 0.00 B.C. Canada Other Canad
Slide 33: North American OSB Operating Capacity
North American OSB Operating Capacity* OSB Operating Capacity and U.S. Housing Starts 30 2.5 • One OSB mill was permanently closed in 2020 while a press fire at one mill in spring 2022 is expected to keep that mill out of commission until circa late 2023 25 2.0 • West Fraser re-started its OSB mill
Slide 34: North American OSB Capacity in Housing Starts Equivalent
North American OSB Capacity (2022) in Housing Starts Equivalent* 1.75 0.10 1.50 0.38 1.43 100,000 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 0.18 the capacity of a typical large- 1.00 scale greenfield OSB
Slide 35: Disciplined and Balanced Allocator of Capital
Disciplined and Balanced Allocator of Capital
Slide 36: 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 37: 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 ~35% of cash generated • Excess capital returned to shareholders of ~50% of cash flow, heavily weighted to buybacks, influenced by two
Slide 38: Share Repurchases
Share Repurchases Cumulative Investment in Repurchases* (US$ million) Average repurchase price (CAD$): $5,000 $4,198 $4,000 2013 $44.60 $3,000 $2,208 $2,000 2014 $51.86 $829 $890 $890 $1,000 $294 $307 $2 $104 $151 2015 $55.57 $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2016 $44.06 2017 $68.
Slide 39: Lookback on West Fraser's Capital Reinvested
Lookback on West Fraser’s Capital Reinvested Return on Capital Employed (ROCE %)* 70% 61% 27% 28% 24% 25% 25% average 16% -10% -4% 2016 2017 2018 2019 2020 2021 2022 Source: Bloomberg, West Fraser analysis. Favorable ROCE trend and results * Note: ROCE = GAAP EBIT / Average (Total Assets – Current L
Slide 40: Liquidity
Liquidity ($millions) Available Liquidity* Scheduled Maturities 4,000 1,200 3,000 900 West Fraser Timber is $USD Millions $USD Millions considered investment 2,000 600 grade by three leading 1,000 300 rating agencies. 0 0 Agency Rating Outlook 2019 2020 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2023 2024 2025 2026 20
Slide 41: Scope, Scale and Expertise to Unlock Growth
Scope, Scale and Expertise to Unlock Growth
Slide 42: 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 43: Acquisition Update – Allendale OSB Mill
Acquisition Update – Allendale OSB Mill Overview • Rebuild of mill front-end is ongoing; supply chain challenges largely resolved but mill readiness date for an eventual re-start is delayed Progress • Overall, pleased with progress of preparation for start-up • Continue to hire to meet targeted staf
Slide 44: Brownfield Modernization – Henderson, Texas
Brownfield Modernization – Henderson, Texas Project Overview • ~$255M investment with latest technology to reduce unit costs, improve product flexibility and working conditions • Increases capacity ~2x to ~275 MMfbm; construction has begun with ramp-up start expected Q2-24 Financial Highlights • Pro
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 Carbon Emissions and Carbon Storage Capacities of 1 tonne (t) In Addition to Sequestering Carbon, of Cement, Steel, and Timber Building Materials Wood Product Manufacturing Has a Lighter Carbon Footprint 1.04 • West Fraser is positioned to
Slide 47: 2021 Sustainability Report
2021 Sustainability Report 2021 Sustainability Report Available at: westfraser.com/sustainability/sustainability- report 47
Slide 48: Sustainability Report
Sustainability Report Our Sustainability Report tells the story of a pivotal year of growth for West Fraser. As a company founded over 65 years ago, we understand the importance, and necessity, of doing the right thing for the environment, our communities, and our employees while sustainably and pro
Slide 49: 2021 ESG Highlights
(BA) 2021 ESG Highlights ENVIRONMENT <1% of our managed forest area harvested annually 2 billion trees planted milestone reached in 2021 15.79 million tonnes of carbon dioxide equivalent Coo 9 (CO2e) stored in 2021 5 Yo production of harvested ee, wood products renewable energy used 100% of fibre is
Slide 50: ESG Ratings
ESG Ratings Ratings 2021 ESG Rating 2022 ESG Rating Performance Trend Provider Climate Change: D Climate Change: B- Forests: F Forests: B- Good Improving Water Security: F Water Security: C 49/100 Not applicable Bronze metal (top 50% of Good -- assessed companies) C- C Average Improving AA A Good Im
Slide 51: 2021 GHG Emissions & SBTi Targets
2021 GHG Emissions & SBTi Targets* 7000 6000 3.4% annualized reduction needed to 5000 meet Scope 3 target 4248 4137 4000 kTCO2e 3000 3102 2000 1192 1177 1000 7.0% annualized 641 1042 1155 reduction needed to meet Scope 1 561 0 & 2 targets Baseline Emissions 2021 Emissions 2030 Target Scope 1 Scope 2
Slide 52: Attractive Record of Creating Shareholder Value
Attractive Record of Creating Shareholder Value
Slide 53: Performance vs. Peers and Relevant Indices
Performance vs. Peers and Relevant Indices Enterprise Value (US$ billions) $6 +144% $4 +47% $2 +237% -32% $0 2005 YE West Fraser Peer 1 Peer 2 Peer 3 2022 Q3 Source: Bloomberg Annualized Total Shareholder Return (US$, dividends reinvested) 15% Jan-01-06* to Feb-01-23 12.1% 10.6% 10.7% 10% 6.7% 6.9%
Slide 54: Appendix
Appendix
Slide 55: West Fraser is North America's Largest Lumber Producer
West Fraser is North America’s Largest Lumber Producer West Fraser 10% West Fraser 2022 Capacity 6.7 Billion feet Canfor British Columbia 8% 22% 2021 N.A. 8% Weyerhaeuser Other 48% Industry Production 61 Bfbm US South 7% Interfor 54% 5% Alberta Sierra Pacific 24% 4% Georgia-Pacific Resolute FP Idaho
Slide 56: West Fraser is the World's Largest OSB Producer
West Fraser is the World’s Largest OSB Producer West Fraser OSB Capacity by Region Europe 17% US North American OSB Industry* 46% European OSB Industry 9 Bsf-3/8" Other Other Martco 6% Canada West Smartply 14% 7% 37% Fraser 4% Kronospan Huber 29% Sonae- 45% 9% Arauco Industry 4% Industry Tolko Capac
Slide 57: North America Lumber and EWP Adjusted EBITDA Margin
West Fraser North America Lumber and EWP Adjusted EBITDA Margin1 NA Lumber 10-year Average: 21% NA EWP* (proforma) 10-year Average: 28% 60% 50% 40% 30% 20% 10% 0% 2013 2014 2015 2016 2017 2018 2019 2020 2021* 2022 North America Lumber North America EWP (proforma) Note: Lumber adjusted EBITDA is afte
Slide 58: Lumber Supply Conditions
Lumber Supply Conditions Total North America Lumber Supply (Production) North America Lumber Supply (Production) – 2022 20 B.C. 15% U.S. South Billion Board Feet 15 36% Alberta 10 6% 5 Canada Other U.S. Other 17% 0 26% Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Q2'22 Q3'
Slide 59: OSB Supply Conditions
OSB Supply Conditions Total North America OSB Supply (Production) Wood supply shortage led to permanent 7 closure of one B.C. mill in 2020; two other Billion Square Feet 3/8” basis 6 mills re-started in 2021 (Quebec and B.C.) 5 while two are currently idle (South 4 Carolina and Alberta) 3 2 1 0 Q4'1
Slide 60: 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 $425 20% Improvements and Repairs Thousands of Units 150 $400 18% 16% 4 Qtr. Moving rate 125 $375 $B 4 Qtr. Moving $350 14% 100 of Change Annual Totals: 12% 75 2019
Slide 61: Analyst Coverage
Analyst Coverage Organization Analyst Name Contact BMO Capital Markets Ketan Mamtora (212) 883-5121 [email protected] CIBC World Markets Hamir Patel (604) 331-3047 [email protected] Credit Suisse Securities Andrew Kuske (416) 352-4561 [email protected] ERA Forest Products John Co
Slide 62: Analyst Estimates – 2023
Analyst Estimates – 2023 (SPF & SYP US$/Mfbm; OSB US$/Msf) 2023E SPF W 2x4 2023E SYP W 2x4 2023E OSB NC 7/16” RJ $425 CIBC $430 ERA $235 CIBC $430 ERA $430 CIBC $253 ERA $440 RJ $450 RBC $320 BNS $451 TD $478 RJ $325 TD $460 BNS $491 TD $326 RBC $490 RBC $540 BNS $346 BMO $595 BMO $655 BMO $379 Sour
Slide 63: 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) 59 NA OSB price $10 (per Msf) 51 Europe OSB price £10 (per Msf) 9 U.S. / CAD $ exchange rate2 $0.01 (per $ CAD) 18
Slide 64: Estimated Variable Production Costs for North American Lumber Industry
Estimated Variable Production Costs for North American Lumber Industry Variable Lumber Costs (2020-2022) $USD/MBF 400 0 B.C. Interior US West Coast Quebec Ontario US South Net Delivered Wood Costs Manufacturing Costs Source: FEA, West Fraser analysis. Lumber Manufacturing Costs (2020-2022) 100% Misc
Slide 65: Estimated Variable Production Costs for North American OSB Industry
Estimated Variable Production Costs for North American OSB Industry Variable OSB Costs (2020-2022) $USD/MSF 3/8” 200 0 US North US South Western Canada Eastern Canada Net Delivered Wood Costs Manufacturing Costs Source: FEA, West Fraser analysis. OSB Manufacturing Costs (2020-2022) 100% Misc. 18% 25
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: External Information, Currency and Terminology
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