West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — Q3 2022 Earnings Presentation
66 slides from West Fraser Timber's earnings presentation, October 2022
Slide 1: Investor Presentation
INVESTOR PRESENTATION October 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 Q3 2022 Interim Financial Statements, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and is discussed in our Managements’ Discu
Slide 3: Q3 2022 Earnings Summary
Q3 2022 Earnings Summary
Slide 4: Consolidated Financial Results
Consolidated Financial Results US$ Millions US$ Millions Adjusted EBITDA* Q3-22 Q2-22 (except EPS) Q3-22 Q2-22 Lumber $ 160 $ 449 Sales $ 2,088 $ 2,887 Costs and expenses (1,807) (1,906) EWP - North America 215 623 Operating earnings 281 981 Pulp & Paper 29 (3) Finance income (expense) 3 (3) EWP - E
Slide 5: Q3 Consolidated Adjusted EBITDA Reconciliation
Q3 Consolidated Adjusted EBITDA Reconciliation Easing of transportation constraints in Western Canada, offset by weakening demand. Higher log and other input costs, including energy, resins and electricity. Lower lumber/OSB prices. Includes export duty recovery of $81 Lumber: ($327) million million
Slide 6: Q3-22 versus Q2-22
Q3-22 versus Q2-22 US$ millions unless Q3 2022 Q2 2022 Change Comments otherwise indicated Lower SPF and SYP shipments owing to weakening demand and reduced Lumber Shipments (MMfbm) 1,478 1,599 (121) production volumes to manage inventory levels at W. Canadian locations. Continued easing of the rail
Slide 7: 2022 Outlook
2022 Outlook US$ unless indicated otherwise 2022 2021 Commentary Projecting to be modestly below the bottom end of the prior guidance SPF Shipments (MMfbm) < 2,800 3,176 range of 2.8-3.0 Bfbm as slowing demand has offset an improvement in transportation. Gain from capital program and execute on inve
Slide 8: Summary
Summary Q3 2022 Recap Looking Forward ✓ Easing of transportation challenges in Western ✓ Facing near-term demand softening though Canada offset by slowing demand longer-term fundamentals for wood product demand remain favourable ✓ Maintained strength in liquidity ✓ Ongoing focus on operational excel
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
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 13: More Relevant, Efficient and Valuable to Principal 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 BRITIS CO UMBIA A BERTA CORPORATE OFFICES North America UMBER PU P NEWSPRINT UEBEC ENGINEERED WOOD ONTARIO Edmonton uesnel P WOOD MDF, St aurent MINNESOTA ParticleBoard (R D) Furniture ENEER Toronto ancouver OSB NORT CARO INA TENNESSEE Memphis SOUT ARKANSAS CARO
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 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 16: 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 Ainsworth 100% 78 54 29 4,500 Norbord 1,600 90 61 24 West Fraser 85% 4,000 1,400 U.S Housing starts (000s, RHS) 3,500 730 1,200
Slide 17: 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 18: 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 19: 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 $10.5B Other UK/Europe UK/Europe 0% 7% Canada 2% Other Asia 16% Other 2% 3% Othe
Slide 20: Realizing Growth and Geographic Diversification in Europe
Realizing Growth and Geographic Diversification in Europe • Europe EWP is driven by panel demand in the UK and Europe, which is de-linked from North American markets, tending to generate more stable results • Strong European panel prices and increasing OSB shipments from the Inverness expansion drov
Slide 21: Serving Markets with Attractive Fundamentals
Serving Markets with Attractive Fundamentals
Slide 22: U.S. Housing Start Estimates
U.S. Housing Start Estimates (Thousands) 1,800 1,700 1,601 1,600 US ousing Starts (‘000s) 1,500 1,380 1,400 1,290 1,300 1,250 1,203 1,200 1,174 1,112 1,100 1,000 2015 2016 2017 2018 2019 2020 2021 2022F 2023F Actual High/Low Forecasts Source: U.S. Census Bureau, industry analysts Industry analysts h
Slide 23: U.S. Leading Indicator of Remodeling (R&R) Activity
U.S. Leading Indicator of Remodeling (R&R) Activity Predicting further demand Homeowner Improvements & Repairs Four-Quarter Moving Totals strengthening for R&R activity in 2023 Four-Quarter Moving Billions ($USD) Rate of Change (%) 448 445 445 450 427 18 Homeowner Improvement & Repairs ($USD) 418 40
Slide 24: Comparing U.S. Lumber Consumption for Periods of 1.5-1.6 Million Housing Starts
Comparing U.S. Lumber Consumption for Periods of 1.5-1.6 Million U.S. Total Housing Starts* U.S. Lumber Consumption – Residential Improvement (billion board feet) Residential Improvement 39% of Total has grown in importance and 20.5 Lumber Consumption consumes nearly 50% 26% of Total more lumber tha
Slide 25: Comparing U.S. OSB Consumption for Periods of 1.5-1.6 Million Housing Starts
Comparing U.S. OSB Consumption for Periods of 1.5-1.6 Million U.S. Total Housing Starts* U.S. OSB End-user Consumption (billion square feet, 3/8-in basis) 9% of Total OSB 2.0 Consumption Residential Improvement and Industrial have increased in relevance 6% of Total OSB 1.1 Consumption and consume ~7
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 B.C. construct a greenfield OSB mill, followed by an 18-24 month ramp to full production • U.S. South is region wit
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, Quebec in March 202
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 ~34% of cash generated • Excess capital returned to shareholders of ~49% 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$): $5,000 $4,081 $4,000 2013 $44.60 $3,000 $2,208 $2,000 2014 $51.86 $829 $890 $890 $1,000 $104 $151 $294 $307 $2 $0 2015 $55.57 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD Q3- 2022 2016 $44.06 2
Slide 37: Macro Lookback on Capital Reinvested
Macro Lookback on Capital Reinvested Return on Capital Employed (ROCE %)* 70% 61% 27% 25% 24% 16% -10% -4% 2016 2017 2018 2019 2020 2021 Source: Bloomberg, West Fraser analysis Favorable ROCE trend and results * Note: ROCE = GAAP EBIT / (Total Assets – Current Liabilities). 37
Slide 38: Liquidity
Liquidity ($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 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2022 2023 2024 2025 2026 2027 '20 '20 '20 '20 '21 '21 '21 '21 '22 '22 '22 Bank lines Cash Term loan Notes Revolver Debt to C
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: Effectively Deploying Technology to Create Competitive Advantage
Effectively Deploying Technology to Create Competitive Advantage Utilizing Sensor Technology to Improve Safety Expanding Robotics in Our Operations Augmented Reality / Remote Technical Support Deploying High Tech Equipment Focused on advancing low-cost and efficient operating philosophy 41
Slide 42: Acquisition Update – Allendale OSB Mill
Acquisition Update – Allendale OSB Mill Overview • Rebuild of mill front-end is ongoing; some supply chain issues are being restored but mill readiness date for an eventual re-start remains delayed Progress • Overall, pleased with progress of preparation for start-up, with nearly 40% of planned staf
Slide 43: Acquisition Update – Angelina Sawmill
Acquisition Update – Angelina Sawmill Overview • Startup production curve and earnings projections remain on pace to exceed first year expectations Progress • First year production on track to exceed expectations by ~20% • Year-to-date per unit manufacturing costs 10% below base case Takeaways • EBI
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 start expected Q4-22 and ramp-up start expected Q2-24 Financial Highli
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 of various building materials for a single-story house Wood Product Manufacturing Has a 14 Lighter Carbon Footprint Concrete Slab 12 Steel sub-frame
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 2021 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
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: 2021 GHG Emissions & SBTi Targets
2021 GHG Emissions & SBTi Targets 7000 6000 3.4% annualized reduction needed to meet Scope 3 target 5000 4248 4137 4000 kTCO2e 3000 3102 2000 1192 1177 7.0% annualized 1000 reduction needed to meet Scope 641 1042 1155 1&2 target 561 0 Baseline Emissions 2021 Emissions 2030 Target Scope 1 Scope 2 Sco
Slide 51: Attractive Record of Creating Shareholder Value
Attractive Record of Creating Shareholder Value
Slide 52: Performance vs. Peers and Relevant Indices
Performance vs. Peers and Relevant Indices Enterprise Value (US$ billions) $8 +214% $6 +65% $4 $2 -15% +269% $0 2005 YE 2022 Q2 West Fraser Peer 1 Peer 2 Peer 3 Source: FactSet Annualized Total Shareholder Return (US$, dividends reinvested) 12% Jan-01-06* to Oct-21-22 9.8% 10% 8.9% 8% 6.7% 6% 4.9% 5
Slide 53: Appendix
Appendix
Slide 54: West Fraser is North America's Largest Lumber Producer
West Fraser is North America’s Largest Lumber Producer West Fraser 10% West Fraser 2021 Capacity 7.0 Billion feet Canfor British 8% Columbia 24% 2021 N.A. 8% Weyerhaeuser Other 48% Industry Production US South 61 Bfbm 52% 7% Interfor 5% Sierra Pacific Alberta 4% 24% Georgia-Pacific Resolute FP Idaho
Slide 55: Shifting West Fraser 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 56: 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 57: North America Lumber and EWP Adjusted EBITDA Margin
West Fraser North America Lumber and EWP Adjusted EBITDA Margin1 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) Note: Lumber adjusted EBITDA is after duti
Slide 58: Lumber Supply Conditions
Lumber Supply Conditions Total North America Lumber Supply (Production) North America Lumber Supply (Production) – 2021 20 B.C. U.S. South 15% 34% Billion Board Feet 15 Alberta 10 7% 5 Canada Other 17% U.S. Other 0 27% 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 Sou
Slide 59: OSB Supply Conditions
OSB Supply Conditions Total North America OSB Supply (Production) 7 Wood supply shortage led to permanent Billion Square Feet 3/8” basis 6 closure of one BC mill in 2020; two other 5 mills re-started in 2021 (Quebec and B.C.) 4 while one remains idled (South Carolina) 3 2 1 0 Q2'19 Q3'19 Q4'19 Q1'20
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 $350 14% 100 of Change Annual Totals: 12% 75 2019
Slide 61: Analyst Coverage
Analyst Coverage Organization Analyst Name Contact BMO Capital Markets Mark Wilde (212) 883-5102 mark.wilde@bmo.com CIBC World Markets Hamir Patel (604) 331-3047 hamir.patel@cibc.com ERA Forest Products John Cooney (604) 267-3021 jcooney@era-research.com Research Raymond James Daryl Swetlishoff (604
Slide 62: Analyst Estimates – 2022
Analyst Estimates – 2022 (SPF & SYP US$/Mfbm; OSB US$/Msf) 2022E SPF W 2x4 2022E SYP W 2x4 2022E OSB NC 7/16” BNS $799 RJ $825 CIBC $624 RJ $800 BNS $834 RBC $635 CIBC $803 CIBC $836 ERA $635 TD $814 ERA $841 TD $638 RBC $815 RBC $850 BNS $642 ERA $818 BMO $854 BMO $643 BMO $844 TD $863 RJ $650 Sour
Slide 63: Analyst Estimates – 2023
Analyst Estimates – 2023 (SPF & SYP US$/Mfbm; OSB US$/Msf) 2023E SPF W 2x4 2023E SYP W 2x4 2023E OSB NC 7/16” RJ $475 CIBC $475 CIBC $315 BNS $489 RJ $500 RBC $345 CIBC $500 TD $520 RJ $350 TD $515 ERA $523 ERA $365 ERA $543 BNS $529 BMO $379 RBC $545 RBC $540 BNS $385 BMO $595 BMO $655 TD $390 Sour
Slide 64: 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 65: 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 66: 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