Canfor Corporation · TSX:CFP
Canfor — Investor Presentation (September 2004)
46 slides from Canfor's investor presentation, September 2004
Slide 1: Canfor Corporation
Canfor Corporation September 2004 WIL05 Page 1 >> C A N F O R C O R P O R A T I O N
Slide 2: Forward-Looking Statement Disclaimer
Forward-Looking Statement Disclaimer Certain statements in this presentation, including statements regarding future results and performance, are forward-looking statements based on current expectations. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions th
Slide 3: Business Overview
Business Overview • 13 million m3 of forest tenure Fibre • ISO14001 certified • CSA/SFI certified Lumber • Primary lumber capacity of 5,200 million fbm • 22 sawmills in BC, Alberta and Quebec • Low cost operations • Pulp capacity of 1.2 million tonnes (1.0 mt NBSK and 0.2 mt of BCTMP) Pulp & • Kraft
Slide 4: Where We Operate
Where We Operate WIL05 Page 4 >> C A N F O R C O R P O R A T I O N
Slide 5: Our Size
Our Size $ millions Net sales * Assets ** Lumber 1,690 60% Lumber mills 1,842 48% Panels 293 11% Panel mills 213 6% Pulp & Paper 710 25% Pulp & Paper 880 23% mills Coast 107 4% Coast 77 2% operations Total 2,800 100% Other 817 21% Total 3,829 100% * Based on: Lumber = US$280/mfbm ** As at June 30, 2
Slide 6: Our Strengths
Our Strengths People • Experienced • Dedicated • Stable union relationship • Strong safety orientation Operations • High value fibre • Low cost manufacturing • Superior product quality Marketing • Competitive advantage in supply chain management • Superior customers in strong relationships Future gr
Slide 7: Strong Platform for Future Growth
Strong Platform for Future Growth • Largest SPF manufacturer in the world • 2nd largest North American lumber producer • Lumber production capacity of approximately 5.2 billion fbm 8,000 assdasd ddddddd (Lumber Capacity MMfbm) 6,000 ddddddd ddddddd 4,000 ddddddd canfor canfor ddddddd canfo abc r 2,0
Slide 8: Our Overall Strategy
Our Overall Strategy GOAL : Industry leader in profit performance Accomplished through: • Motivated energized employees • Low cost producer • Maximize high margin products / value from fibre • Supply chain excellence • Target customers to grow with • Conservative financial management • Ability to ta
Slide 9: Wood Products: Strategy
Wood Products: Strategy • Build a world class lumber and panels franchise • Optimize value from facilities assets and fibre resources • Maximize investments made in Supply Chain • Top quartile cost structure / margins • Product excellence WIL05 Page 9 >> C A N F O R C O R P O R A T I O N
Slide 10: Target Customer Segments
Target Customer Segments Home Centre Pro Dealer/Builder Industrial Offshore Core Value Products Square Edge MSR MSR / J Grade J-Grade Premium Value Products Furring Strips FJ Studs FJ Studs Fascia Fascia Decking Decking WIL05 Page 10 >> C A N F O R C O R P O R A T I O N
Slide 11: Our Customers Are Big…and Getting Bigger
Our Customers Are Big…and Getting Bigger Home Centre Pro Dealer Industrial Home Depot LMC Boise Lowes Stock Lumber Universal Rona 84 Lumber Centex WIL05 Page 11 >> C A N F O R C O R P O R A T I O N
Slide 12: Lumber Prices
Lumber Prices US$/mfbm 5-year average = US$300/mfbm 500 September 17, 2004 price = US$402/mfbm 450 400 350 300 250 200 150 100 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Average 2”x4” #2 & Btr lumber price (source: Random Lengths) WIL05 Page 12 >> C A N F O R
Slide 13: OSB Prices
OSB Prices US$/msf 5-year average = US$215/msf 550 September 15, 2004 price = US$407/msf 500 450 400 350 300 250 200 150 100 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Average OSB prices delivered North Central 7/16” (source: Random Lengths) WIL05 Page 13 >>
Slide 14: Uses of Building Materials
Uses of Building Materials • Strong Housing starts • Increase in the size of homes • Increase spending in repairs and remodelling of homes • Increase home ownership • Increase in existing home sales • Relatively low interest rates (refer to charts in the Appendixes) WIL05 Page 14 >> C A N F O R C O
Slide 15: Duties: Summary
Duties: Summary Two duties being deposited: 1) Anti-dumping (ADD) - Allegation that product is being sold below cost into the market - Complex calculation on an invoice by invoice, product by product basis - Canfor is one of 6 companies assigned a company-specific rate 2) Countervailing duty (CVD) -
Slide 16: Duties: Paid to date
Duties: Paid to date Duties paid to June 2004 = US$409 million Expense Cash D.O.C. Preliminary Ruling Cash Expense WIL05 Page 16 >> C A N F O R C O R P O R A T I O N
Slide 17: Pulp and Paper: Strategy
Pulp and Paper: Strategy • Focus on reinforcement pulp • Leveraging technical fit with strategic customers • Maximize cash • Profitable at the bottom of the cycle • Low cost producer WIL05 Page 17 >> C A N F O R C O R P O R A T I O N
Slide 18: Top Pulp Customers
Top Pulp Customers Customer Segment 1) Stora Enso Magazine 2) Myllykoski Magazine 3) UPM-Kymmene Magazine Strategic 4) Kimberly Clark Premium tissue partnerships 5) Yuen Foong Specialties 6) Wausau Mosinee Specialties Leveraging 7) M-real High quality coated technical fit 8) Cham Paper Group Special
Slide 19: Pulp Prices
Pulp Prices US$/tonne 5-year average = US$550/tonne 800 Current price = US$620/tonne 750 700 650 600 550 500 450 400 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Average NBSK pulp price delivered to Northern Europe (source: Pulp & Paper Week) WIL05 Page 19 >> C
Slide 20: Slocan transaction
Slocan transaction • Accretive to shareholders • Increase in market capitalization • Potential for multiple expansion • Increased liquidity • Timing, timing and timing – strong prices in core products (lumber, panels and pulp) WIL05 Page 20 >> C A N F O R C O R P O R A T I O N
Slide 21: Synergies
Synergies $85 million to be achieved by Q2-2005* $ millions Current Announced Expectation At Merger Wood Products Marketing $38 $33 Wood Products Manufacturing & Woodlands $21 $22 Pulp & Paper $6 $0 G&A $20 $5 TOTAL $85 $60 * On a full run-rate basis WIL05 Page 21 >> C A N F O R C O R P O R A T I O
Slide 22: Improved Liquidity
Improved Liquidity Average Over last twelve Volume months, of Daily average Shares daily Traded trading volume was 560,700 shares 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- 03 03 03 03 04 04 04 04 04 04 04 04 Since November 2003,
Slide 23: Q2 Review: Summary
Q2 Review: Summary Q2 2004 Q1 2004 Q2 2003 Gross Sales 1,277.5 685.6 639.4 EBITDA 264.1 92.4 (22.1) Operating income (loss) 225.2 62.5 (47.5) Net income (loss) 143.6 32.0 (1.1) EPS - diluted * 1.00 0.34 (0.03) Lumber Price (U$/mfbm)** 437 370 245 Pulp Price (US$/t)*** 652 590 553 OSB Price (US$/msf
Slide 24: Q2 Review: Impact of specific items
Q2 Review: Impact of specific items Q2 2004 Net income 143.6 Unrealized f/x loss on debt 21.9 Restructuring costs (1) 18.2 Incentive awards (2) 5.8 Revised net income 189.5 Revised EPS - diluted 1.32 (1) Integration charges ($17.2 million, before taxes) and closure costs of the Taylor planer mill ($
Slide 25: Q2 comments
Q2 comments Net income of $143.6 million or $1.00/ diluted share EBITDA $264.1 million ($294.4 million before adjustments) Positives Negatives • Q2 2004 prices compared to: • US$61.4 million duties paid in the quarter (US$409.0 million since Q1 2004 Q2 2003 May 2002) Lumber 18% 78% • Lightning strik
Slide 26: Lumber
Lumber $ millions Q2 2004 Q1 2004 Q2 2003 Gross Sales 819.9 418.0 375.2 EBITDA* 174.7 67.9 (29.2) Margin % 21% 16% (8%) Operating income (loss) * 153.7 51.9 (39.7) Lumber production (mmfbm) 1,280.7 827.0 821.5 Lumber shipments (mmfbm)** 1,320.4 727.2 766.3 Average Lumber Price (U$/mfbm) 437 370 245
Slide 27: Panels
Panels $ millions Q2 2004 Q1 2004 Q2 2003 Gross Sales 136.8 32.0 29.7 EBITDA 62.2 6.2 2.2 Margin % 45% 19% 7% Operating income (loss) 59.5 5.7 1.5 Production (000 Msf 3/8”) Plywood 109.1 44.0 46.9 OSB 125.8 - - Shipments (000 Msf 3/8”) Plywood 108.9 45.4 47.7 OSB 132.6 - - Average OSB Price (C$/msf
Slide 28: Pulp & Paper
Pulp & Paper $ millions Q2 2004 Q1 2004 Q2 2003 Gross Sales 275.6 218.4 195.6 EBITDA 47.0 23.3 7.3 Margin % 17% 11% 4% Operating income (loss) 36.4 12.5 (3.4) Production (000 mt) Pulp 297.5 249.0 236.0 Paper 33.5 34.0 27.9 Shipments (000 mt) Pulp 284.5 241.7 220.2 Paper 39.4 35.3 27.4 Average Pulp P
Slide 29: Coastal Operations
Coastal Operations $ millions Q2 2004 Q1 2004 Q2 2003 Gross Sales 45.2 17.2 38.9 EBITDA 6.9 1.7 1.6 Margin % 15% 10% 4% Operating income (loss) 4.6 0.6 (0.4) Production (000 m3) 447.3 230.2 441.4 Shipments (000 m3) 481.3 187.7 406.9 Q2-2004 comparison to Q1-2004: • Net sale prices realized increased
Slide 30: Financial performance
Financial performance $ millions 2003 1H 2004 1H 2004 ** 2004 2005 Proforma Proforma* Forecast** Normalized Sales 2,953 2,270 1,963 3,355 - EBITDA 220 424 357 776 322 Unrealized f/x gain 152 (29) (28) (27) - (loss) Net Income 214 206 176 388 - Net Debt: Equity 37:63 26:74 26:74 16:84 21:89*** Net De
Slide 31: Sensitivities
Sensitivities Impact on $ millions EBITDA Lumber 40.4 (each US $10/Mfbm change in price) Pulp 10.9 (each US $10/tonne change in price) OSB 6.8 (each US $10/msf change in price) WIL05 Page 31 >> C A N F O R C O R P O R A T I O N
Slide 32: Capital
Capital • Disciplined capital approach • Low risk, high return, quick pay-back • 2004 Capex approx $175-200 million • Major projects underway: • OSB joint venture = $107 million • PGPP Cogeneration plant = $32 million • PolarBoard (OSB) expansion = $26 million WIL05 Page 32 >> C A N F O R C O R P O
Slide 33: Debt Maturity Schedule
Debt Maturity Schedule US$ Million 250 194.4 200 150 137.3 113.1 * 100 82.3 75.0 74.3 51.3 50.0 43.8 50 32.3 81.3 15.0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 * 2006 repayments include CAD$155M for convertible debentures (converted at $1.37) WIL05 Page 33 >> C A N F O R C O R P O R A T I
Slide 34: Convertible Debentures
Convertible Debentures • Amount: C$155 million • Conversion price: $13.20/share • Maturity: November 2006 • Interest rate: 6.25% • Canfor can force conversion or redeem as follows: ¾ Prior to November 23, 2004 – if the share price exceeds $15.84 on a weighted average basis for 20 consecutive days; o
Slide 35: Issues and Risks
Issues and Risks • Trade file uncertainty • US Economy • Forest Policy reform implementation • Strength of the Canadian dollar WIL05 Page 35 >> C A N F O R C O R P O R A T I O N
Slide 36: Summary
Summary • Motivated talented employees • Modern efficient facilities • High quality fibre supply • Largest SPF lumber producer • Low cost producer • High margin products • Strong customer relationships • Broadened shareholder base and improved liquidity • Capital structure • Synergies • Labour peace
Slide 37: Canfor’s Strengths
Canfor’s Strengths Leading Forest Products Company • Strategic supply channel dominance • Modern and efficient mills • Strong and growing market positions • Extensive high quality timber and wood fibre resources • Experienced management team Prudent and Conservative Financial Management • Growth wit
Slide 38: Appendixes
Appendixes WIL05 Page 38 >> C A N F O R C O R P O R A T I O N
Slide 39: Strong US housing starts
Strong US housing starts US Housing Starts thousands 2000 1900 1800 1700 1600 1500 1400 1300 1200 1100 1000 1995 1996 1997 1998 1999 2000 2001 2002 2003 Aug-04 2005- 2015 TOTAL 1,673 1,815 1,810 1,991 1,978 1,850 1,798 1,877 1,983 2,000* Ave = 1,900 ** Single family Multi-family Manufactured * Seaso
Slide 40: Strong renovation spending in the US
Strong renovation spending in the US Repairs and Remodelling US$ 000’s 130,000 8% increase 120,000 110,000 100,000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Repairs and Remodelling Source: US Census Bureau WIL05 Page 40 >> C A N F O R C O R P O R A T I O N
Slide 41: Increase in home size in the US
Increase in home size in the US Size of Single-family Homes ft2 2200 10% increase 2100 2000 1900 1800 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Size of Single-family Homes Source: US Census Bureau WIL05 Page 41 >> C A N F O R C O R P O R A T I O N
Slide 42: Existing home sales in the US
Existing home sales in the US Existing home sales 7,000 54% increase 6,000 5,000 * 4,000 3,000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Existing home sales Source: US Census Bureau WIL05 Page 42 >> C A N F O R C O R P O R A T I O N
Slide 43: Low interest rates in the US
Low interest rates in the US 30-year mortgage rates 10.00 Average rate 9.00 8.00 % 7.00 6.00 5.00 94 95 96 97 98 99 00 01 02 03 04 n- n- n- n- n- n- n- n- n- n- n- Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Source: Freddie Mac WIL05 Page 43 >> C A N F O R C O R P O R A T I O N
Slide 44: Pulp inventories
Pulp inventories Source: Valois Vision Marketing WIL05 Page 44 >> C A N F O R C O R P O R A T I O N
Slide 45: USD : CDN exchange rates
USD : CDN exchange rates USD:CAD 5-year average = $1.49 1.70 1.65 1.60 1.55 1.50 1.45 1.40 1.35 1.30 1.25 1.20 9 0 1 2 3 4 99 00 01 02 03 04 l-9 l-0 l-0 l-0 l-0 l-0 n- n- n- n- n- n- Ju Ju Ju Ju Ju Ju Ja Ja Ja Ja Ja Ja Source: Bank of Canada WIL05 Page 45 >> C A N F O R C O R P O R A T I O N
Slide 46: Canfor Corporation
Canfor Corporation “CFP” Contacts: Doug Wilkes, Vice-President, Finance & CFO 1-604-661-5234 David Jan, Manager Investor Relations 1-604-661-5424 www.Canfor.com WIL05 Page 46 >> C A N F O R C O R P O R A T I O N