West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — Investor Day (September 2021)
54 slides from West Fraser Timber's investor day presentation, Sep 16, 2021
Slide 1: Analyst & Investor Event 2021
Analyst & Investor Event 2021 September 16th, 2021
Slide 2: Forward-looking statements
General: This presentation contains “forward-looking information” and “forward-looking statements” within the meaning of Canadian provincial securities laws and “forward-looking statements” within the meaning of the U.S. Securities Act of 1933, the U.S. Securities Exchange Act of 1934, and the “safe
Slide 3: CEO Opening Remarks
CEO Opening Remarks
Slide 4: Operating Footprint on Two Continents
Operating Footprint on Two Continents
Slide 5: Product & Geographic Diversification
Product & Geographic Diversification 5 Lumber North America EWP Pulp, Paper & Energy UK and Europe EWP 33 locations 19 locations 5 locations 4 locations SPF 3.5 Bfbm OSB: 7,360 MMsf 3/8” NBSK: 570 Mtonnes OSB 1,395 MMsf 3/8” SYP 3.2 Bfbm Plywood: 860 MMsf 3/8” BCTMP: 690 Mtonnes Particleboard 565 MM
Slide 6: Strategy Principles of West Fraser
Strategy Principles of West Fraser 6
Slide 7: Wide Array of Products for Home Building
Wide Array of Products for Home Building 7
Slide 8: Lumber
Lumber
Slide 9: This is not 2005 – Today's North American Lumber Supply
9 This is not 2005 – Today’s North American Lumber Supply 80 2.5 • Lumber production growth stagnating even with strong markets in 2017 and 2018; labour, 70 equipment and log availability challenge U.S. Housing Starts (millions) 2.0 growth 60 Billion Board Feet 50 1.5 Lumber Supply Demand 40 BC Othe
Slide 10: North American Lumber Production in 2020
North American Lumber Production in 2020 Housing Starts 10 Equivalence* 1.6 0.52 1.49 1.4 U.S. Housing Starts (millions) 1.2 1.0 0.35 • 100,000 additional starts could require ~2.4BBF 0.8 of additional production 0.40 (approximately 10 new 0.6 sawmills) 0.4 0.22 0.2 0.0 B.C. Canada Other U.S. Other
Slide 11: West Fraser Lumber Capacity
11 West Fraser Lumber Capacity • US South growth to ~50% of capacity (from ~10%) 2020: 6.7 BBF • Lower-cost region • Not subject to US trade risk British Columbia 27% • Exposure to higher-cost BC fiber reduced, US South 48% now ~25% of capacity (from ~75%) 2004: 2.8 BBF US South 11% Alberta Alberta
Slide 12: US South Lumber – Growing Production to 3.2 BBF Capacity
12 US South Lumber – Growing Production to 3.2 BBF Capacity $1.5 Bln invested since 2013, focused on automation, advanced technology, and M&A. 3.5 Production Capacity 3.0 Acquired (6) Gilman mills 2.5 COVID Disruption 2.0 Acquired (13) IP mills • Dudley start-up Q2 2021 BBF • Opelika still in ramp-u
Slide 13: Illustrative Ecosystem of U.S. South Lumber Mill
13 Illustrative Ecosystem of U.S. South Lumber Mill By building a new sawmill adjacent to our Dudley, Georgia mill we are able to utilize existing infrastructure and skilled labour, enabling a faster ramp-up while reducing financial, operational, and execution risk Existing distribution and supply c
Slide 14: Dudley Video
(a3) Dudley Video
Slide 15: West Fraser Lumber EBITDA Margin
15 West Fraser Lumber EBITDA Margin 60% 50% 40% EBITDA Margin 30% Trend 20% Trend ex-2021 10% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 H1-21 Note: Lumber EBITDA is after duties. Improving demand, capital and operational execution supporting margin gains
Slide 16: West Fraser Lumber – Largest North American Lumber Producer
16 West Fraser Lumber – Largest North American Lumber Producer • Track record of growth, reinvestment and value creation • Positive supply-demand fundamentals • Assets well-positioned in low-cost regions with modernization well underway
Slide 17: Engineered Wood Products
Engineered Wood Products
Slide 18: North American OSB Operating Capacity
North American OSB Operating Capacity* 18 OSB Operating Capacity and U.S. Housing Starts 30 2.5 25 All but one OSB mill in the industry remain idled today 2.0 West Fraser re-started its OSB mill in Chambord, US Housing Starts (Millions) Quebec in March 2021 NA OSB Capacity (BSF 3/8-inch) 20 1.5
Slide 19: North American OSB Capacity in 2020
North American OSB Capacity in 2020 Housing Starts 19 Equivalence* 1.6 0.41 1.45 1.4 U.S. Housing Starts (millions) 1.2 0.17 1.0 100,000 additional starts 0.22 could require nearly 1 BSF 0.8 (3/8-inch) of additional OSB capacity, which is more than 0.25 0.6 the approximate capacity of 1 large-scal
Slide 20: OSB Capacity Growth
OSB Capacity Growth 20 West Fraser OSB Capacity (BSF-3/8”) Inverness, Scotland phase 2 expansion, offset by 100 Mile House, BC closure 10 Capital investments across multiple mills 9 Inverness, Scotland phase 1 expansion 8 Ainsworth acquisition 7 OSB Capacity (BSF – 3/8”) 6 5 4 3 2 1 0 92 93 94 95 96
Slide 21: OSB Supply Growth Considerations (1/2)
OSB Supply Growth Considerations (1/2) 21 NA Industry Challenges: • Extended and moderate recovery in US housing starts since global financial crisis has made investment challenging • Greenfield OSB mills require significant capital and time to market • $500+ capex per Msf (3/8”) of capacity with an
Slide 22: OSB Supply Growth Considerations (2/2)
OSB Supply Growth Considerations (2/2) 22 EU Industry Challenges • Constrained wood supply • Greenfield OSB mills require significant capital, entail execution risk West Fraser EU Growth Opportunity • In late 2017, to address substitution demand of OSB for plywood in the UK, West Fraser started its
Slide 23: ~$200M Inverness Mill Expansion
~$200M Inverness Mill Expansion – Brownfield reinvestment 23 with estimated payback less than 5 years EU Industry Challenges • Constrained wood supply • Greenfield OSB mills require significant capital, entail execution risk West Fraser EU Growth Opportunity • In late 2017, to address substitution d
Slide 24: West Fraser EWP – World's Largest Producer of OSB
24 West Fraser EWP – World’s Largest Producer of OSB • Strong track record of growth and value creation • Aligned with key growth customers in NA & EU • Low-cost, well-invested, state-of-the-art mills
Slide 25: Growing a Sustainable Future
GROWING A SUSTAINABLE FUTURE Sustainability at West Fraser Investor Day: September 16, 2021
Slide 26: Sustainable Leadership at West Fraser
Sustainable Leadership at West Fraser 26 26 We believe in leaving the world better than we found it. This has been a cornerstone of our business since it was founded over 65 years ago.
Slide 27: Sustainable Leadership at West Fraser
Sustainable Leadership at West Fraser 27 27 We provide renewable building products for the world, contributing to a more sustainable future. Our business is grounded in sustainability and as this journey matures, we continuously seek ways to improve our environmental and social performance underpinn
Slide 28: Circular Economy
Circular Economy 28 28 Carbon Sequestration. Sustainable Growing Forests. Harvest. Forever. Reuse and Waste Not. Recycle. Climate-Smart 74% Renewable Construction. Energy. We use it all.
Slide 29: Key Achievements
Key Achievements 29 29 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
Slide 30: Our People
Our People 30 30 8% Defined an Indigenous Peoples Policy of West Fraser’s Canadian employees Committed to Progressive Aboriginal Relations Certification self-identify as Indigenous 25% form the Canadian Council for Aboriginal Businesses Diversity and Inclusion of all West Fraser employees self-ident
Slide 31: Advancing our Vision for Diversity
Advancing our Vision for Diversity 31 31 A President’s Diversity Council of senior Company leaders has been established to support the establishment of policy, expectations and measures to address diversity and inclusion in the organization Diversity by Employee Category 2020 Women Racial/Ethnic Ide
Slide 32: Safety
Safety 32 32 Safety Incident Performance 6 Safety Goal: 5 6.0 Eliminate all incidents 4 4.3 and injuries 0.92 3 0.92 0.93 1.05 0.98 2 3.27 2.81 2.95 Safety Target: 1 2.71 2.26 Reduce serious injuries 0 by 50% by 2025 2016 2017 2018 2019 2020 Rate of Lost Time Incidents Rate of Recordable Injuries (M
Slide 33: Indigenous Peoples
Indigenous Peoples 33 33 We regularly engage with more than 80 Indigenous communities. 3-prong relationship approach: Defined an Indigenous Our approach to building Peoples Policy relationships with Indigenous Committed to people is built on: Progressive Aboriginal • community engagement, Relations
Slide 34: Our Communities
Our Communities 34 34 In Canada, the economic multiplier for the forest sector is the highest amongst natural resource industries; 1.35. Photo: Since 2017, West Fraser has donated $1.5 million to the U.S.-based Photo: Distributed $400,000 to community groups throughout Home Building Institute to est
Slide 35: Caring for the Earth: GHG Emissions
Caring for the Earth: GHG Emissions 35 35 Scope 1 & 2 Emissions (1.59 ktCO2e) and Energy (63.0 kGJ) 2020 Apportioned by Product Segment Scope 1, 2, 3 Emissions Screening 2020 Emissions Emissions, Lumber 29% Engineered 19% Wood, 11% Scope 1 tCO2e Energy, Lumber, 25% Energy 21% Scope 2 tCO2e Engineere
Slide 36: Caring for the Earth: Waste and Material Efficiency
Caring for the Earth: Waste and Material Efficiency 36 36 2020 Materials & Waste Log Utilization 3% 5% 7% 12% 5% Independently verified 5% reports on environmental 47% performance, Environmental 23% 60% 32% Product Declarations (EPDs) and cradle-to-grave life cycle analyses (LCAs) are available Reco
Slide 37: Leaving the World Better Than We Found It
Leaving the World Better Than We Found It 37 37 West Fraser is relentlessly focused on improving our Sustainability performance Strengthening our foundations: • Stay tuned: In the latter stages of setting targets to reduce our carbon footprint • Prioritizing our remaining ESG opportunities and will
Slide 38: Celebrating 2 Billion Trees Planted
Celebrating 2 Billion Trees Planted 38 38
Slide 39: Norbord Integration
Norbord Integration
Slide 40: Diversity in Products, Geography and End Use
Diversity in Products, Geography and End Use 40
Slide 41: Strategic Alignment, Complementary Cultures
Strategic Alignment, Complementary Cultures 41 WEST FRASER • Proven ability to grow ALIGNED STRATEGY strategically NORBORD • Operational excellence with a priority on safety • Diverse product portfolio • Track record of OSB • Focus on cost and margin improvement • Leadership in high-efficiency produ
Slide 42: Integration Road Map
Integration Road Map 42 WELCOME BASICS LEARNING PLANNING INTEGRATION Organization Fully Engaged on Integration Workstreams
Slide 43: Synergy Status
Synergy Status 43 General & Administrative Costs Public Company Costs Customer Programs & Support Corporate Sales Transportation & Logistics Productivity & Reliability Operations Fibre Procurement & Usage Purchasing On Track to Deliver $61MM of Synergies by End-2022
Slide 44: Finance
Finance
Slide 45: Performance vs. Wood Products Peers and Building Products
45 Performance vs. Wood Products Peers and Building Products Enterprise Value (US$ Billion) $8 +211% $6 +135% $ Billion $4 +34% $2 +229% $0 2005 YE Q2-21 West Fraser Peer 1 Peer 2 Peer 3 Annualized Total Return (dividends reinvested) Jan-01-06 to Sept-10-21 12% 11.1% 10.7% 10% 9.3% 8% 6.5% 5.8% 6% 4
Slide 46: Capital Allocation Priorities
46 Capital Allocation Priorities • Repurchase shares when they • Replace end-of-life assets trade at a discount to • Maintain low-cost position estimated intrinsic value Return • Strategically enhance product mix, • Pay a stable, sustainable Excess Reinvest in productivity and capacity Capital to th
Slide 47: Capital Allocation Lookback
47 Capital Allocation Lookback Balanced Capital Allocation Reinvested 25% of cash 27% of cash reinvested in retained, or Returned existing operations, dedicated to 8% to growth leverage reduction 38% of cash flow returned to shareholders through dividends and buybacks Reinvested Returned Retained De
Slide 48: Macro Lookback on Capital Reinvested
48 Macro Lookback on Capital Reinvested Return on Capital Employed Return on Shareholders Equity 60% 70% 50% 60% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 H1 H1 -10% -10% ROCE 5 ye
Slide 49: Historic Adjusted EBITDA
49 Historic Adjusted EBITDA Note: Excludes the proforma effect for the acquisition of 11 sawmills between 2010 and 2017 by West Fraser. Substantial Adjusted EBITDA generation through the cycle
Slide 50: Total Liquidity and Maturities
50 Total Liquidity and Maturities Net debt to Capitalization 40% 30% 20% 10% 0% 2016 2017 2018 2019 2020 Net debt to Capitalization $1,000 ProForma Maturities (US$ Million) $800 $600 $400 $200 $0 2021 2022 2023 2024 2025 2026 Term loan Notes Revolver Low leverage, no near-term maturities, significan
Slide 51: Share Repurchases
51 Share Repurchases Cumulative Investment in Repurchases* (US$ million) Average repurchase price (CAD$): $2,500 2013 $44.60 $2,072 $2,000 2014 $51.86 $1,500 $890 $890 2015 $55.57 $1,000 $829 $500 $294 $307 2016 $44.06 $104 $151 $2 $0 2017 $68.45 2013 2014 2015 2016 2017 2018 2019 2020 2021 2018 $83
Slide 52: Definitions
52 Definitions Adjusted EBITDA • Adjusted EBITDA is defined as earnings determined in accordance with IFRS adding back the following line items from the consolidated statements of earnings and comprehensive earnings: tax provision or recovery, other, finance expense, equity-based compensation, restr
Slide 53: Wrap-up
Wrap-up
Slide 54: Key Investment Highlights
Key Investment Highlights 54 Industry Fundamentals West Fraser Fundamentals Positive demand backdrop for wood-based Well invested assets in low-cost regions building products in new housing, repair and renovation and industrial applications Product and geographic diversity Recovery in housin