Canfor Corporation · TSX:CFP
Canfor — Desjardins Securities Materials Conference (December 2004)
54 slides from Canfor's conference presentation, Dec 13, 2004
Slide 1: Canfor Corporation
Canfor Corporation Desjardins Securities Materials Conference December 13, 2004 Presented by: Doug Wilkes, Vice President, Finance and Chief Financial Officer WIL09 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: 2004: The Year in Review
2004: The Year in Review North America Asia USA Japan • GDP = 4.4% • GDP = 4.3% • Interest rates = 4.6% • Interest rates = 1.6% • Housing starts = 1.94 million • Yen:US$ = 108 • R&R spending = $170 billion • 2x4 housing starts = 88 thousand Canada China • GDP = 3.0% • GDP = 8% • Interest rates = 5.0
Slide 4: 2005: The Year Ahead
2005: The Year Ahead North America Asia USA Japan • Expected lower GDP • Expected lower GDP • Higher interest rates • Flat interest rates • Lower housing starts • Stronger Yen • Lower R&R spending • Marginally higher 2x4 housing starts Canada China • Expected higher GDP • Declining GDP • Higher inte
Slide 5: Solid Wood
Solid Wood WIL09 Page 5 >> C A N F O R C O R P O R A T I O N
Slide 6: Uses of Building Materials
Uses of Building Materials • Strong Housing starts • Increase in the size of homes • Increase spending in repairs and remodeling of homes • Increased home ownership • Increase in existing home sales • Relatively low interest rates WIL09 Page 6 >> C A N F O R C O R P O R A T I O N
Slide 7: US housing starts
US housing starts thousands 2005 Forecast 2000 1500 1000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004- Mgmt RISI APA F TOTAL 1,673 1,815 1,810 1,991 1,978 1,850 1,798 1,877 1,983 1,920 1,850 1,740 1,895 Single family Multi-family Manufactured Source: US Census Bureau WIL09 Page 7 >> C A N F O R
Slide 8: Strong renovation spending in the US
Strong renovation spending in the US Repairs and Remodelling US$ 000’s 180,000 8% increase 160,000 140,000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: US Census Bureau WIL09 Page 8 >> C A N F O R C O R P O R A T I O N
Slide 9: 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 WIL09 Page 9 >> C A N F O R C O R P O R A T I O N
Slide 10: Relatively low interest rates in the US
Relatively low interest rates in the US 30-year mortgage rates 10.00 Average rate 9.00 8.00 % 7.00 6.00 5.00 01 02 03 04 94 95 96 97 98 99 00 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 WIL09 Page 10 >> C A N F O R C O R P O R A T I O N
Slide 11: US Softwood: Supply & Demand
US Softwood: Supply & Demand Billions of board feet 2003 2004 est. % Chg. 2005 Proj. US Production 36.9 39.2 6% 36.8 Imports Canada 19.1 19.8 9% 19.3 Europe 0.8 1.2 54% 1.1 Other 0.9 1.0 3% 1.0 Total Imports 20.8 22.0 10% 21.4 Export 0.94 0.88 -6% 0.87 US Consumption 57.0 60.0 7% 57.0 WIL09 Page 11
Slide 12: US Panel – Supply and Demand
US Panel – Supply and Demand Canadian OSB will supply 25% of the US panel market Billion Sqft. Plywood OSB Billion Sqft. 26 26 24 24 22 22 20 20 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005 Production Imports Exports Production Imports
Slide 13: Price forecast
Price forecast Units Dec 2004-F 2005-F 2x4 US$/Mfbm 315 393 310 2x10 US$/Mfbm 355 415 345 Studs US$/Mfbm 315 365 285 J-grade US$/Mfbm 405 396 375 CSP 3/8” del. TO C$/Msf 430 530 395 OSB 7/16” NC (US$/Msf) 220 364 235 WIL09 Page 13 >> C A N F O R C O R P O R A T I O N
Slide 14: Wood Products: Strategy
Wood Products: Strategy Build a world class lumber and panels franchise • Operations – Optimize value from facilities assets and fibre resources ! Issues and opportunities with beetle infested pine – Top quartile cost structure / margins – Product excellence, including service component • Marketing
Slide 15: 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 WIL09 Page 15 >> C A N F O R C O R P O R A T I O N
Slide 16: Growing with our Customers
Growing with our Customers Home Centre Pro Dealer Industrial Home Depot LMC Universal Lowes Stock Lumber Boise 84 Lumber Centex Top 10 Lumber Customers 2003 2005-f Change Volume (mfbm) 1,950 2,530 30% % of total sales 44% 53% 9% WIL09 Page 16 >> C A N F O R C O R P O R A T I O N
Slide 17: Lumber: Offshore Markets
Lumber: Offshore Markets Japan • 45% of the Japanese SPF market • 18% growth from 2003 Korea/Taiwan/China • Dominate market positions • Growing markets: 45% growth from 2003 • Still developing markets and small WIL09 Page 17 >> C A N F O R C O R P O R A T I O N
Slide 18: Other strategic initiatives
Other strategic initiatives • Increase committed volume sales • Increase margin-added sales • Leverage the use of information systems and supply chain logistics to meet customer demands • Transportation WIL09 Page 18 >> C A N F O R C O R P O R A T I O N
Slide 19: Panels: Strategy
Panels: Strategy Plywood • Primarily Canadian distribution, sold through wholesale channels Strategy • Move to higher value end users – Industrials (Canada/USA) – VMI customers including Home Centres • Leverage from lumber business WIL09 Page 19 >> C A N F O R C O R P O R A T I O N
Slide 20: Panels: Strategy
Panels: Strategy OSB • Heavy into US West, again primarily through wholesalers Strategy • Leverage lumber relationships to increase sales into Pro-dealers and Home Centres • Increase committed sale volumes WIL09 Page 20 >> C A N F O R C O R P O R A T I O N
Slide 21: Solid Wood: Issues
Solid Wood: Issues • US Economy • Strength of the Canadian dollar (weakness of the US dollar) • Trade file • Mountain Pine Beetle • Forest Policy Reform WIL09 Page 21 >> C A N F O R C O R P O R A T I O N
Slide 22: Pulp & Paper
Pulp & Paper WIL09 Page 22 >> C A N F O R C O R P O R A T I O N
Slide 23: Pulp: Supply and Demand
Pulp: Supply and Demand World Chemical Paper Grade Market Pulp 95 93 91 89 87 85 2002 2003 2004e 2005e 2006e % demand/capacity Source: PPPC – Oct 2004 Chemical Paper Grade Market Pulp includes: hardwood kraft pulp, softwood kraft pulp and sulphite pulp WIL09 Page 23 >> C A N F O R C O R P O R A T I
Slide 24: Changes in Supply
Changes in Supply Tonnes change from 2003 to 2006e - Chemical Paper Grade Market Pulp Source: PPPC – Oct 2004 -500 0 500 1,000 1,500 2,000 2,500 3,000 North America Western Europe Central Europe/Russia Latin America Japan Other WIL09 Page 24 >> C A N F O R C O R P O R A T I O N
Slide 25: Price Forecast
Price Forecast US$/tonne delivered to Northern Europe 2005 Management 630 RISI (Oct 2004) 689 Valois Vision (Oct 2004) 545 NLK (Sep 2004) 677 Terra Choice (Sep 2004) 739 WIL09 Page 25 >> C A N F O R C O R P O R A T I O N
Slide 26: Pulp and Paper: Strategy
Pulp and Paper: Strategy • Focus on reinforcement pulp and the strength of the fibre • Leveraging technical fit with strategic customers • Profitable at the bottom of the cycle • Low cost producer WIL09 Page 26 >> C A N F O R C O R P O R A T I O N
Slide 27: Grow partnerships
Grow partnerships Customer Segment Stora Enso Magazine UPM-Kymmene Magazine Kimberly Clark Premium tissue M-Real Stockstadt High quality coated Strategic partnerships Yuen Foong Specialties Wausau Mosinee Specialties Toyota Tsusho Specialties Leveraging technical fit Fibro Source Premium tissue Proc
Slide 28: Geographic Mix
Geographic Mix Goal: Increase sales into North America 40 % 30 20 2003 2004-F 2005-F Americas Europe Far East WIL09 Page 28 >> C A N F O R C O R P O R A T I O N
Slide 29: Pulp: Issues
Pulp: Issues • Global Economy • Weakness of the US dollar • Substitution/Price differentials with hardwood pulps • Low-cost hardwood kraft mills • Technical substitution WIL09 Page 29 >> C A N F O R C O R P O R A T I O N
Slide 30: Summary
Summary WIL09 Page 30 >> C A N F O R C O R P O R A T I O N
Slide 31: Overall Strategy
Overall Strategy GOAL : Industry leader in profit performance Accomplished through: • Motivated energized employees • Low cost producer in all business segments • Maximize high margin products / value from fibre • Supply chain excellence • Target customers to grow with in long-term partnerships • Co
Slide 32: Appendixes
Appendixes A. Business Overview B. Q3-2004 Summary of Results WIL09 Page 32 >> C A N F O R C O R P O R A T I O N
Slide 33: 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 34: Where We Operate
Where We Operate WIL09 Page 34 >> C A N F O R C O R P O R A T I O N
Slide 35: Our Size
Our Size Net sales * $ millions Assets ** $ millions 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
Slide 36: Our Size: Lumber
Our Size: Lumber • Largest SPF manufacturer in the world • 2nd largest North American lumber producer • Lumber production capacity of approximately 5.2 billion fbm 8,000 (Lumber Capacity MMfbm) 6,000 4,000 2,000 0 WY Canfor IP* GP WFT* A TBC Sierra DTC Pacific * Prior to acquisition of Weldwood by W
Slide 37: 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 Financial
Slide 38: Capital
Capital • Disciplined capital approach • Low risk, high return, quick pay-back • Capex: 2004 approx. $175 million; 2005 approx. $250-$300 million • Major projects underway: – OSB joint venture = $107 million – PGPP Cogeneration plant = $32 million – PolarBoard (OSB) expansion = $26 million WIL09 Pag
Slide 39: Debt Maturity Schedule
Debt Maturity Schedule US$ Million 160 140 120 100 80 * 137.3 81.3 75.0 60 82.3 51.3 40 81.3 50.0 20 32.3 15.0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 WIL09 Page 39 >> C A N F O R C O R P O R A T I O N
Slide 40: 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 41: Q3 2004 Summary of Financial Results
Q3 2004 Summary of Financial Results WIL09 Page 41 >> C A N F O R C O R P O R A T I O N
Slide 42: Notes
Notes This presentation provides a review of the significant developments that have impacted Canfor’s performance during the third quarter of 2004 relative to the previous quarter (Q2 2004) and the relative quarter in 2003 (Q3 2003). On April 1, 2004 Canfor acquired the shares of Slocan Forest Produ
Slide 43: Q3 Review: Summary
Q3 Review: Summary YTD Q3 Q2 Q3 $ millions 2004 2004 2004 2003 Gross Sales 3,192.0 1,228.9 1,227.5 685.0 EBITDA Lumber 455.0 212.4 174.7 47.7 Panels 106.9 38.5 62.2 4.3 Pulp & Paper 87.8 17.5 47.0 23.4 Coast 6.9 (1.7) 6.9 (2.6) Corporate (41.8) (8.4) (26.7) (4.4) Total EBITDA 614.8 258.3 264.1 68.4
Slide 44: Review: Impact of specific items
Review: Impact of specific items $ millions Net income – as reported 201.6 Items not estimated (after-tax basis) • Unrealized gain on debt 38.3 • Prior period duty adjustment, net 7.8 Net income – revised 155.5 EPS – diluted (revised) $1.08 WIL09 Page 44 >> C A N F O R C O R P O R A T I O N
Slide 45: Q3 comments
Q3 comments Net income of $201.6 million or $1.40/ diluted share EBITDA $258.3 million ($248.4 million after adjustments) • Q3 2004 prices compared to: Q2 2004 Q3 2003 • 13% increase in cash conversion costs in lumber Lumber (US$) 1% 39% • Lumber production down by 38 mfbm OSB (US$) (19%) (8%) due t
Slide 46: Net Income and Earnings Per Share
Net Income and Earnings Per Share Income EPS $220 $1.60 $1.40 $1.40 $180 $1.00 $1.20 $0.86 $140 $1.00 $0.75 $/Share - Diluted $0.80 $ Millions $100 201.6 $0.60 $0.43 143.6 $0.40 $60 $0.12 $0.37 $0.34 70.2 80.1 $0.20 ($0.16) $20 40.2 34.1 32.0 $0.00 ($0.73) -1.1 11.1 -11.8 -$0.20 -$20 -58.0 -$0.40 ($
Slide 47: EBITDA
EBITDA EBITDA $280 $240 264.1 $200 $160 $ Millions 258.3 $120 * $80 92.4 113.9 $40 68.4 58.6 30.6 39.6 21.1 $0 -22.1 -32.9 -$40 Q1.02 Q2.02 Q3.02 Q4.02 Q1.03 Q2.03 Q3.03 Q4.03 Q1.04 Q2.04 Q3.04 * After $9.9 million of one-time items Includes results from Slocan operations from April 1, 2004 onwards
Slide 48: Summary of Financial Position
Summary of Financial Position Q3 2004 Q2 2004 Q3 2003 Ratio of current assets to current liabilities 2.4:1 2.3:1 1.5:1 Ratio of net debt to common shareholders’ equity* 15:85 26:74 35:65 Total Debt ($ millions) ** 764.1 852.4 569.0 Net Debt ($ millions) ** 346.6 593.5 586.6 Capital expenditures ($ m
Slide 49: Lumber
Lumber $ millions Q3 2004 Q2 2004 Q3 2003 Gross Sales 858.2 819.9 421.2 EBITDA(a) 212.4 174.7 47.7 Margin % 25% 21% 11% Operating income (a) 187.8 153.7 35.4 Lumber production (mmfbm) 1,202.2 1,280.7 628.9 Lumber shipments (mmfbm) 1,214.6 1,320.4 753.7 Average Lumber Price (U$/mfbm) 440 437 316 Aver
Slide 50: Lumber: Q3 Duties
Lumber: Q3 Duties Cash deposits: • Paid = $87.3 million • Paid CVD = 12.24% and ADD = 5.96% Accruals: • Accrued = $78.0 million • Accrued CVD = 18.79% and ADD = 2.00% Balance Sheet effect: • Payable = $60.7 million representing CVD differential • Receivable = $91.9 million representing ADD different
Slide 51: Panels
Panels $ millions Q3 2004 Q2 2004 Q3 2003 Gross Sales 109.6 136.8 34.1 EBITDA 38.5 62.2 4.3 Margin % 35% 45% 13% Operating income 35.9 59.5 3.7 Production (000 Msf 3/8”) Plywood 98.6 109.1 40.0 OSB 126.4 125.8 - Shipments (000 Msf 3/8”) Plywood 93.0 108.9 48.4 OSB 120.5 132.6 - Average OSB Price (C$
Slide 52: Pulp & Paper
Pulp & Paper $ millions Q3 2004 Q2 2004 Q3 2003 Gross Sales 248.7 275.6 212.4 EBITDA 17.5 47.0 23.4 Margin % 7% 17% 11% Operating income 6.3 36.4 11.9 Production (000 mt) Pulp 286.7 297.5 259.2 Paper 34.7 33.5 34.5 Shipments (000 mt) Pulp 275.2 284.5 244.3 Paper 34.1 39.4 30.2 Average Pulp Price (U$
Slide 53: Coastal Operations
Coastal Operations $ millions Q3 2004 Q2 2004 Q3 2003 Gross Sales 12.4 45.2 17.3 EBITDA (1.7) 6.9 (2.6) Margin % (14%) 15% (15%) Operating income (2.8) 4.6 (3.1) Production (000 m3) 211.2 447.3 96.1 Shipments (000 m3) 119.4 481.3 195.4 Q3-2004 comparison to Q2-2004: • Net sale prices realized increa
Slide 54: Canfor Corporation
Canfor Corporation “CFP” Contacts: Doug Wilkes, Vice-President, Finance & CFO 604-661-5241 David Jan, Manager Investor Relations 604-661-5424 www.Canfor.com WIL09 Page 54 >> C A N F O R C O R P O R A T I O N
Canfor — Desjardins Securities Materials Conference (December 2004) on 6ix