West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — BMO 2016 Timber & Wood Products Summit
35 slides from West Fraser Timber's conference presentation, May 10, 2016
Slide 1: BMO 2016 Timber & Wood Products Summit
BMO 2016 Timber & Wood Products Summit INVESTOR PRESENTATION May 10, 2016 | Seattle, Washington
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: West Fraser Our Goals
WEST FRASER OUR GOALS are to develop and maintain… Excellence in Performance and People Leadership in our Field THEN Challenge and Satisfaction Responsibility in the Communities in Which we Work Profitability Growth NOW 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 28 mills 7 mills 5 mills SPF 4.0 Bfbm Plywood: 830 MMsf3/8” NBSK: 570 Mtonnes SYP 2.3 Bfbm MDF: 250 MMsf3/4” BCTMP: 650 Mtonnes Total 6.3 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: Geographic diversification
Operations diversified by geography Geographic diversification Lumber Capacity U.S. B.C. 37% 39% Alberta 24% 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 - Residential improvements - 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% 25% 30% 35% 40% 15% 20% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Returns on Lumber 2002 2003 2004 2005 EBITDA Margin (%) - Lumber 2006 2007 2008 2009 2010 2011 Average: 15% 2012 2013 2014 2015 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, 03-16
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% 60% 30 year average share = 76% 55% 50% 70 75 80 85 90 95 0 5 10 15 14 Source: FEA
Slide 15: Unlike Single-Family, Multi-family has Recovered
Unlike Single-Family, Multi-family has Recovered Thousands 2,000 600 1,800 500 1,600 1,400 400 1,200 1,000 300 800 200 600 400 100 200 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 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 2015 U.S. Lumber End-use Normalized Nonresidential/ Nonresidential/ Mobile, 5% Mobile, 7% Single Family Construction, 26% Industrial Production, 23% Single Family Industrial Construction, Production, 28% 37% Multifamily Construction, 4% Multifamily Residential
Slide 17: Canadian SPF Shipments to China
Canadian SPF Shipments to China 3,500 2015 - Equivalent to 205,000 housing starts * 3,000 2,500 2,000 MMfbm 1,500 1,000 500 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 * Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family) 17 Source: Council of Fo
Slide 18: China Imports of Logs and Lumber
China Imports of Logs and Lumber 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Lumber Logs 18 Source: General Administration of Customs of The People’s Republic of China
Slide 19: B.C. Shipments to Japan
B.C. Shipments to Japan Mmfbm Thousand 2x4 Starts 1,600 140 Shipments 2x4 Starts 1,400 120 1,200 100 1,000 80 800 60 600 40 400 200 20 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 19 Source: Council of Forest Industries
Slide 20: North American Lumber Production
NORTH AMERICAN LUMBER PRODUCTION Billion Feet 23 80 75 72 21 70 65 19 59 60 56 53 54 51 17 49 50 47 42 15 40 13 30 11 20 9 10 7 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total North America (R Axis) BC Interior Rest Of Canada US South Rest of US 20 Source: US Census Bureau & Statistic
Slide 21: North American Lumber Capacity
North American Lumber Capacity 21
Slide 22: Earnings Growth Drivers - Pulp
Earnings Growth Drivers - Pulp Demand - China’s paper, tissue and packaging demand - Developing countries’ demand Supply - European paper capacity closures - European pulp capacity increases - China pulp mill closures - South American capacity increases Reliability - Capital - Technology 22
Slide 23: 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% 23
Slide 24: 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 24
Slide 25: 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 25 Source: PPPC Cost Survey 2012
Slide 26: 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 27: Capital Strategy
Capital Strategy • Reinvest profits to lower costs, improve efficiency through technology and improved processes • Capital spending in 2015 of $220 million • Capital spending 2012 – 2015 in excess of $1 billion • Estimated 2016 spending of $300 million and normalized spending between $175 and $225 m
Slide 28: West Fraser Capital
West Fraser Capital $ Million Capital Spending 450 410 400 358 350 300 250 220 200 150 100 50 0 2013 2014 2015 Maintenance Timber Profit Improvement Energy 28
Slide 29: 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 30: Strong Cash Generation
Strong Cash Generation ($millions) Total 2015 2014 2013 2010-2012 Cash from Operations 1,896 301 475 419 701 Capital Expenditures 1,449 220 410 358 461 Acquisitions 314 76 208 - 30 Debt/Capitalization 22% 30
Slide 31: Share Value Traded
Share Value Traded Cdn$ Million 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2015 2014 2013 WFT CFP IFP 31
Slide 32: Annualized Shareholder Return
Annualized Shareholder Return (Cdn$) June 2006* – December 31, 2015 14% 12.6% 12% 10% 7.6% 8% 7.4% 7.1% 6% 5.3% 3.9% 4% 2% 0% West Fraser Dow S&P/TSX Competitor A Competitor B Competitor C * June 2006 marked the beginning of the steep decline in U.S. housing starts 32 Source: TD Bank
Slide 33: 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 34: Appendix
APPENDIX 34
Slide 35: Earnings Sensitivity to Key Variables (2015)
Earnings Sensitivity to Key Variables (2015) Estimated Earnings Sensitivity to Key Variables1 (based on 2015 production- $ millions) Factor Variation Change in pre-tax earnings Lumber price US$10 (per Mfbm ) 78 Plywood price Cdn$10 (per Msf ) 8 NBSK price US$10 (per tonne) 7 BCTMP price US$10 (per t
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