Western Forest Products Inc. · TSX:WEF
Western Forest Products — Investor Presentation (November 2023)
58 slides from Western Forest Products's investor presentation, November 2023
Slide 1: Investor Presentation November 2023
INVESTOR PRESENTATION November 2023 TSX:WEF
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
Forward Looking Statements and Non-GAAP Financial Measures All financial references are expressed in C$ unless otherwise noted. This presentation contains statements and estimates that may constitute forward-looking statements under applicable securities laws. Readers are cautioned against placing u
Slide 3: Western At A Glance
Western At A Glance A Specialty Wood Products Company
Slide 4: Western At A Glance
Western At A Glance Strong $1.16 Billion $139 Million 36% Environmental, Social, & Last 8-years Last 8-years Of Historical Sales to Governance (“ESG”) Average Annual Revenue Average Annual EBITDA International Markets Practices and Policies 1+ Billion Four 5.8 Million m3 2,000+ Board Feet of Annual
Slide 5: Why Own Western
Why Own Western Leading supplier of wood products Strong ESG practices and policies Business of scale and leader in our key markets Superior timber asset base High-value, diverse products serving global markets Specialty products focus Margin-focused strategy with exposure to growing lumber demand B
Slide 6: Our Products' End Uses
Our Products’ End Uses Outdoor Exterior Interior Structural Industrial Living Appearance Living Interior Paneling, Lamstock, Packaging & Decking, Timbers, Siding, Trim & Fascia, Timbers, Framing, Interior Mouldings, Crating, Cross Arms, Fencing Products, Soffits, Door & Japanese Housing, Architectur
Slide 7: Wood Is Renewable, Durable And Naturally Beautiful
Wood Is Renewable, Durable And Naturally Beautiful 6
Slide 8: Wood As A Building Material
Wood As A Building Material Wood is the only major building material that Wood vs. Steel vs. Concrete(1) is renewable Total Energy Use Greenhouse Gases +140% +70% +81% +45% Wood is recyclable and biodegradable Wood Steel Concrete Wood Steel Concrete Wood is beautiful and aesthetically pleasing Air P
Slide 9: Mass Timber Buildings Further Support The Growth Of Wood
Mass Timber Buildings Further Support The Growth Of Wood As A Building Product Increased use of wood in buildings will drive increased wood products demand Maximizing wood use in both residential and commercial construction could remove an estimated 21 Million = 4.4 Million Tons of CO2 Annually Cars
Slide 10: Wood Products Role in Carbon Sequestration
Wood Products Role in Carbon Sequestration Growing trees absorb carbon from the air and New trees are release oxygen planted and the cycle of carbon removal continues As trees mature the When trees are rate of carbon harvested, the carbon removal decreases remains stored in wood products 9
Slide 11: Western's Commitment To ESG
Western’s Commitment To ESG Environment Stewardship Sustainable Forest Management, Climate Change, Biodiversity Social Responsibility Health & Safety, People & Culture, Diversity, Stakeholder & Community Engagement Corporate Governance Best Practices, Board Composition and Diversity, Executive Compe
Slide 12: Carbon Accounting Highlights
Carbon Accounting Highlights Western’s 2022 Carbon Balance -2,453,372 tonnes of CO2 equivalent Western’s business is a net carbon sink, according to our 2022 Carbon Accounting Report Forest Ecosystem Carbon The forests managed by Western are an enormous carbon bank and store carbon in the form of li
Slide 13: Environmental Stewardship
Environmental Stewardship ▪ 100% of our managed tenures ▪ Reforest every hectare we are third party certified harvest ▪ Manage and harvest the entire ▪ Planted 6.3 million seedlings, forest profile over generations more than 3 for every tree harvested in 2022 ▪ Only forestry company on the B.C. Coas
Slide 14: Social Responsibility
Social Responsibility ▪ Our goal is a zero-incident ▪ Independent audits and inspections workplace ▪ Environmental, Health and Safety ▪ Annual safety training for all Board committee employees and contractors ▪ Comprehensive Health and Safety ▪ ISNetworld certification process Management System for
Slide 15: Reconciliation With First Nations: Huu-ay-aht Success Story
Reconciliation With First Nations: Western And Huu-ay-aht First Nations, A Success Story Building a Mutually Beneficial Relationship with Huu-ay-aht First Nations 2017 ▪ Established a relationship – Sale and purchase of three properties – Long-term lease back of a dry land sort in Sarita Bay, B.C. –
Slide 16: Strategic Partnership With Huu-ay-aht In Tsawak-qin Forestry LP
Strategic Partnership With Huu-ay-aht First Nations In Tsawak-qin Forestry Limited Partnership ▪ Tsawak-qin Forestry Limited Partnership consists of certain Western assets and liabilities in its Port Alberni Forest Operation, including Tree Farm Licence (“TFL”) 44 – Current LP Ownership: Western 65%
Slide 17: Further Advancing Indigenous Relationships
Further Advancing Indigenous Relationships ▪ Investing time and resources in Selected Milestones(1) fostering positive working Tsawak-qin Forestry Limited relationships with Indigenous Partnership and Hišuk ma c̕awak Integrated Resource groups Management Plan – Information sharing Integrated Resourc
Slide 18: Community Involvement And Support
Community Involvement And Support Friendship Garden at Cedar Elementary in Campbell River, B.C. Contributions To Support Communities Provide access to a number of public recreation sites located in our For more company and working forests via community news, visit us on our extensive network of main
Slide 19: Corporate Governance
Corporate Governance ▪ Independent Board Chair ▪ Whistleblower hotline ▪ Annual director elections ▪ Comprehensive and transparent disclosure ▪ Annual director assessments ▪ Extensive shareholder engagement Best ▪ Annual say-on-pay voting ▪ Diversity and inclusion policy Practices ▪ Majority voting
Slide 20: Sustainability-Linked Credit Facility
Sustainability-Linked Credit Facility Western was the 1st North American public paper and forest products company to transition to a sustainability-linked credit facility $250 million Sustainability-Linked Credit Facility ▪ Increase or decrease borrowing costs by up to five basis points based on the
Slide 21: Company Snapshot
Company Snapshot Growing and Creating Long-term Shareholder Value
Slide 22: Who We Are: Our Mission, Vision And Values
Who We Are: Our Mission, Vision And Values Our Vision: To provide the most sustainable building materials on the planet Our Mission: We safely produce high margin, targeted specialty building materials for our selected global customers in a value for service relationship Our Values: Our values guide
Slide 23: What We Do: Margin-Focused, Specialty Lumber Company
What We Do: Margin-Focused, Specialty Lumber Company ▪ Leading cedar lumber, timbers and Japan square manufacturer in North America ▪ Offer a range of appearance, structural and industrial wood products ▪ Our products are used in various outdoor living, interior living, exterior appearance, structur
Slide 24: Where Do We Do It: Serve Global Markets
Where Do We Do It: Serve Global Markets From Coastal B.C. And Washington Canada 5.8 Million Coastal B.C. Cubic Metres In Allowable ▪ 6 Sawmills Annual Cut From Our ▪ 2 Remanufacturing Facilities Coastal B.C. Timberlands ▪ Timberlands ▪ Seedling Nursery 1+ Billion Board Feet of Annual Lumber United S
Slide 25: How We Have Performed: Financial Snapshot
How We Have Performed: Financial Snapshot Annual Sales by Product(1) 58% $1.16 Billion Specialty Last 8-year Average 5% Lumber Annual Revenue (1) Specialty Lumber 17% Commodity Lumber $139 Million Last 8-year Average Logs 58% 20% Annual EBITDA (1) By-products $59.5 Million Net Debt on the Balance Sh
Slide 26: What Are Our Priorities
What Are Our Priorities: Focus On Growing Long-term Shareholder Value Strategic Priority Description ▪ Focusing on operating execution and excellence, with a mindset of continual improvement ▪ Commitment to health, safety and environmental compliance Business ▪ Improving recovery, efficiency and mar
Slide 27: Company Updates
Company Updates Executing On Our Strategic Priorities
Slide 28: Third Quarter 2023 Results
Third Quarter 2023 Results Highlights ▪ Announced an agreement to sell a 34% interest Revenue $231.1 in a newly formed Limited Partnership to four First Million Nations for $34.9 million ▪ Celebrated our one year anniversary of Calvert engineered wood products acquisition Adjusted ($11.6) ▪ Complete
Slide 29: Announcement of TFL 39 Block 2 Limited Partnership
Reconciliation With First Nations: Announcement of TFL 39 Block 2 Limited Partnership ▪ Announced an agreement to establish a Limited Partnership comprised of certain assets and liabilities of Western’s Mid Island Forest Operation, including Block 2 of TFL 39 – The Limited Partnership will manage ap
Slide 30: Calvert Acquisition: Positioning For Growth in Mass Timber
Calvert Acquisition: Positioning For Growth in Mass Timber ▪ One of the oldest glulam manufacturers in the U.S. – Products used in industrial, commercial and residential projects around the world ▪ Two facilities in Washington – Annual capacity of 35 million board feet of glulam ▪ Calvert owner will
Slide 31: B.C. Strategic Capital Investments
B.C. Strategic Capital Investments ▪ $29 million of strategic capital Strategic Capital Investments Include: investments to support: ▪ New continuous kiln at our Saltair – Value-added manufacturing $12.3 ▪ Increased capacity for continuous sawmill – Grow value-added wood million drying of lumber pro
Slide 32: Softwood Lumber Duties Update
Softwood Lumber Duties Update ▪ Duties on deposit of US$162.7 Combined Softwood Lumber Duties Rate (All Others Duty Rate %) million (C$220.9 million)(1) – Equates to 101% of Western’s 20.23% market capitalization(2) 17.91% – C$71.4 million included as a long-term receivable on Western’s balance shee
Slide 33: Balanced Approach To Capital Allocation
Balanced Approach To Capital Allocation ▪ History of paying a regular quarterly dividend – Dividend suspended effective November 7, 2023 in response to weaker lumber market conditions and corresponding financial results ▪ Disciplined annual capital expenditures – Approximately $30 to $40 million
Slide 34: Capital Allocation: Returning Capital To Shareholders
Capital Allocation: Returning Capital To Shareholders While Growing And Investing In The Business Returning Capital Investing In To Shareholders Our Business Core Disciplined Annual Quarterly Dividend (1) Allocation Capital Expenditures Opportunistic Internal Strategic Share Repurchases Capital Inve
Slide 35: Growing the Business: Branding Initiatives To Drive Growth
Growing the Business: Branding Initiatives To Drive Growth ▪ An exclusive Home Centre brand covering all products ▪ Targeting end-users and contractors ▪ Appearance grade residential products (decking, siding, outdoor living) ▪ Targeting end-users through the distribution and pro- dealer channels ▪
Slide 36: Growing The Business: Strategic Acquisitions
Growing The Business: Strategic Acquisitions To Geographically Diversify And Grow the Business 1 Arlington Distribution and Processing Centre Arlington, WA Overview Strategic Rationale ▪ 18-acre distribution and processing facility ▪ Centralized warehousing and distribution near the high ▪ 170,000 s
Slide 37: Company Overview
Company Overview Product Lifecycle, From Forest To Customer
Slide 38: Diverse and Unique Species Mix
Margin Strategy / Fibre And Processing Flow Chart Standing Timber Log Availability Margin Decision Market Segments Log Markets Domestic Log Markets External Log Export Log Allowable Sales Markets Annual Cut(1) Diverse and Unique Species Mix Hemlock / (AAC) For Logs Pulp Log Balsam ~34% of Logs Sold
Slide 39: External Log Sales
Log Markets Determine Margin Decision Primary Target Logs by Value Log End Market Description Geographies Historical Average(1) 28% ▪ Western’s sawlogs consumed by External internal manufacturing operations Log WFP 20% Sales ▪ Internal log supply supplemented by Sawmills open market purchases to max
Slide 40: Manufacturing And Sales
Manufacturing And Sales Log Marketing Manufacturing Sales Supply Strategy Strategy Strategy Log diameter and margin determines lumber products manufactured Log Cutting Patterns Log Dimension 5 – 11” 11 - 18” 16 - 22” 20 - 30” 24”+ Product Narrow Wide Grade & Squares Timbers Dimension Dimension Appea
Slide 41: Specialty Products
Diversified Lumber Product Offering Primary Target Lumber by Value Lumber Products Description Historical Average(1) Geographies ▪ Consumer-orientated products ▪ Premier softwood for external 25% Cedar applications Global $897 45% ▪ Naturally durable million Specialty Products 11% ▪ Specialized prod
Slide 42: Specialty Products Focus
Specialty Products Focus ▪ Approximately 75% of WFP Average Lumber Price vs. Commodity Lumber Price (C$ per mfbm) lumber revenue is $1,800 generated from non- Strike Impacted $1,400 commodity products $1,000 ▪ Typically a significant $600 price premium to $200 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Slide 43: Seasonality Of The Business
Seasonality Of The Business ▪ Weather (snow pack, heat) Harvest Volume(1) Closing Log Inventory(1) (000 m3) (000 m3) and daylight can impact harvest volumes and costs 1,190 1,041 948 904 ▪ Inventory levels can 971 955 928 884 fluctuate through the year, impacting working capital Q1 Q2 Q3 Q4 Q1 Q2 Q3
Slide 44: Prior Strategic Capital Investments
Prior Strategic Capital Investments ▪ Initiatives focused on: – Reducing costs – Increasing efficiency Duke Point Sawmill Duke Point Planer Duke Point Planer: Auto grading – Increasing production of targeted products – Growing volumes ▪ Applying proven Chemainus: Timber grading station Chemainus: Ti
Slide 45: Appendix
Appendix Supplemental Materials
Slide 46: Repair And Remodelling Statistics
Repair And Remodelling Statistics U.S. Repair & Remodelling Expenditures Remodelling Market Index (US$ billions) $250 $239 $237 90 $229 $217 $218 $220 Above 50 $208 $195 means majority $181 of survey $171 $169 $160 70 participants are $150 reporting better $142 $143 activity than prior quarter 50 30
Slide 47: Western Red Cedar Illustrative Price Trends
Western Red Cedar (“WRC”) – Illustrative Price Trends WRC High Value Clears WRC Timbers (C$ per mfbm) (US$ per mfbm) $12,000 $3,500 $10,000 $3,000 $8,000 $2,500 $6,000 $2,000 $4,000 $1,500 $2,000 $1,000 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 S
Slide 48: North America Statistics: Supply / Demand
North America Statistics: Supply / Demand North American Housing Starts B.C. Interior Allowable Annual Cut (million) (million cubic metres) Forecast 45% U.S. 1.9 68 2.0 1.9 1.8 1.9 decline Canada 1.7 0.2 1.6 0.3 1.6 0.2 1.5 0.3 1.5 1.4 1.5 0.2 56 1.5 1.4 0.2 0.2 1.3 0.2 0.2 1.2 0.2 0.2 50 50 1.1 0.2
Slide 49: North American Statistics: Lumber Prices
North American Statistics: Lumber Prices North American Commodity Lumber Prices Hem-Fir, Coast Commodity Lumber Price (US$ per mfbm) (US$ per mfbm) Forecast $1,800 $916 Average ('23 - '27): $574 $846 $1,400 Average ('16 - '20): $446 $727 $720 $1,000 $597 $546 $488 $377 $454 $600 $425 $424 $341 $200
Slide 50: Japan Statistics
Japan Statistics Japan Housing Starts Douglas Fir Lumber Prices to Japan (000s) (US$ per mfbm) $2,300 980 967 965 942 883 892 909 905 815 860 860 840 840 850 $2,000 $1,700 $1,400 $1,100 $800 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23E '24E '25E So
Slide 51: China Log And Lumber Statistics
China Log And Lumber Statistics China Lumber Imports China Commodity Lumber Price (million m3) (US$ per mfbm) $800 40 37 37 37 34 31 $700 29 28 30 26 27 27 24 $600 21 20 $500 10 $400 0 $300 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 LTM '16 '17 '18 '19 '20 '21 '22 '23 Sept-30 Russia North America N
Slide 52: Historical Financial Snapshot – Annual
Western Forest Products: Historical Financial Snapshot – Annual Revenue ($ millions) Adjusted EBITDA ($ millions) $1,418 $1,444 $302 Strike Impacted (1) $1,187 $1,143 $1,197 $1,037 $1,082 $1,062 Strike $965 Impacted (1) $808 $148 $153 $144 $137 $109 $117 $117 ($2) ($41) '14 '15 '16 '17 '18 '19 '20 '
Slide 53: Historical Financial Snapshot – Last 8 Quarters
Western Forest Products: Historical Financial Snapshot – Last 8 Quarters Revenue ($ millions) Adjusted EBITDA ($ millions) $437 $360 $356 $328 $291 $276 $65 $66 $264 $231 $53 $17 ($5) ($12) ($12) ($12) Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 Q3/23 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 Q3/23 Lu
Slide 54: Historical Cash Flow, Capital Allocation And Debt
Western Forest Products: Historical Cash Flow, Capital Allocation And Debt Cash Flow from Operations(1) ($ millions) Capex(2) ($ millions) $282 Strike Impacted (3) $84 $128 $134 $118 $87 $99 $62 $80 $56 $55 $50 $45 $44 $11 $37 $32 $19 ($10) ($25) '14 '15 '16 '17 '18 '19 '20 '21 '22 LTM '14 '15 '16 '
Slide 55: Historical Share Price Performance And Price to Book
Western Forest Products: Historical Share Price Performance And Price to Book Historical Share Price Relative to Adjusted EBITDA ($ per share | $ millions) $3.50 $302 $3.00 $2.50 Strike Impacted (1) ($ per share) $148 $153 $144 $2.00 $137 $109 $117 $117 $1.50 $1.00 Current Share Price: $0.50 ($2) $0
Slide 56: Western Forest Products: Facilities
Western Forest Products: Facilities Sawmills Production 2022 Production Mix Log Diameter Sawmill Location Capacity(1) Douglas Yellow Focus 2022 2021 WRC(2) Hemlock Fir Cedar Ladysmith Ladysmith, BC Small 90 80 88 -- 86% 14% -- Cowichan Bay Duncan, BC Medium 215 95 131 36% 55% 9% -- Saltair Ladysmith
Slide 57: Analyst Coverage
Analyst Coverage Analyst & Firm Contact Information Hamir Patel 604-331-3047 CIBC hamir.patel@cibc.com Daryl Swetlishoff 604-659-8246 Raymond James daryl.swetlishoff@raymondjames.ca Matthew McKellar 403-476-9042 RBC matthew.mckellar@rbccm.com Ben Isaacson 437-996-8535 Scotiabank ben.isaacson@scotiab
Slide 58: Investor Relations Contacts
Investor Relations Contacts Stephen Williams Executive Vice President & Chief Financial Officer 604-648-4500 swilliams@westernforest.com Glen Nontell VP, Corporate Development 604-648-4630 gnontell@westernforest.com Alan Hogarth Associate, Corporate Development 604-648-4517 ahogarth@westernforest.co
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