Slide 1: Desjardins Securities Basic Materials Conference
Desjardins Securities Basic Materials Conference December 5, 2005 Scott Wilson Vice-President, Finance and Chief Financial Officer
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: Sales and EBITDA by Segment (YTD Sep 2005)
Sales and EBITDA by Segment (YTD Sep 2005) Sales $2.98 billion EBITDA $268.6 million 0% 2% 14% 24% 13% Lumber Panels 65% Pulp & Paper Coast 73% 9% JAN13 C A N F O R C O R P O R A T I O N PAGE 3
Slide 4: Softwood lumber supply and demand
Softwood lumber supply and demand Supply = 57 Demand = 21 Supply = 114 Demand = 95 Supply =32 Supply = 63 Demand = 45 Demand = 97 Source: Western Wood Products Association In million cubic meters for 2004 JAN13 C A N F O R C O R P O R A T I O N PAGE 4
Slide 5: Canfor's lumber shipments
Canfor’s lumber shipments 15% 10% 75% JAN13 C A N F O R C O R P O R A T I O N PAGE 5
Slide 6: Canfor's pulp shipments
Canfor’s pulp shipments 35% 36% 29% JAN13 C A N F O R C O R P O R A T I O N PAGE 6
Slide 7: Wood Products Marketing
Wood Products Marketing Benefits of Customer Relationships Favourable prices Consistent product take-away Growth of existing and complementary products Customers require On-time delivery Vendor managed inventory (VMI) Certification Growth and product line depth Canfor’s Reman /Reload S
Slide 8: Diversified Customer Base
Diversified Customer Base • Growing with the Top 10 customers Wholesalers • Increasing committed volumes Stock Lumber 84 Lumber Japan Lanoga • Increasing margin added China Taiwan volumes Universal Home Depot • Market diversification Centex Lowes Boise Rona • Leveraging Lumber relationship to Panels
Slide 9: Lumber Market Prices
Lumber Market Prices Price Volatility Break-even Costs C$/mfbm $700 $600 $500 $400 $300 $200 Cost Freight Duties $100 $0 2000 2001 2002 2003 2004 2005 U.S. B.C. U.S. U.S. Quebec Ontario South Interior Coast Inland Source: RISI JAN13 C A N F O R C O R P O R A T I O N PAGE 9
Slide 10: Canfor's Manufacturing and Fibre
Canfor’s Manufacturing and Fibre X Beetle region JAN13 C A N F O R C O R P O R A T I O N PAGE 10
Slide 11: Cost Performance
Cost Performance Fibre Conversion Marketing 50% 27% 23% • Log hauling • Energy reduction • Transportation/ practices Logistics • Increase • Stumpage productivity and • Grade optimizers management recovery • Working capital • Cut-to-length • Sourcing management JAN13 C A N F O R C O R P O R A T I O N
Slide 12: Pulp & Paper
Pulp & Paper Focus on the strength of reinforcement pulp with strategic customers Efficient low cost facilities Opportunities : Chip price changes As at Q4 2004 Northern Bleached Softwood 800 Kraft Manufacturing Costs 700 PGPP Pro Forma Cogen 600 Intercon Northwood 500 US$ / ADMT 400 300 200 1
Slide 13: Organic Growth - Capital
Organic Growth - Capital 360 Rigourous Capital Planning feasibility study 240 concept development value engineering conservative price and start-up assumptions used 120 Contractor Relationships Board Committee Review 0 2004 2005 2006-F Post-project Appraisals Maintenance Opportunistic Energy
Slide 14: Canfor's Financial Strength
Canfor’s Financial Strength Financial Capacity • Investment grade credit metrics (as at Sep 2005) Net debt : Capitalization ratio = 14% Net debt : EBITDA = 1.3x EBITDA : Interest = 8.2x • Access to capital and adequate liquidity throughout the cycle • Spending will be disciplined: - Capital program
Slide 15: Canfor: Value plus Growth
Canfor: Value plus Growth Wood Products focus Integrated marketing and manufacturing Disciplined cost focus Significant organic growth opportunities Financial strength to pursue external growth Balanced, experienced management team JAN13 C A N F O R C O R P O R A T I O N PAGE 15
Slide 16: Investor Relations
C O R P O R A T I O N C A N F O R Desjardins Securities Basic Materials Conference Investor Relations: David Jan 604-661-5424 David.Jan@canfor.com www.canfor.com JAN13 PAGE 16
Slide 17: Slide 17
Slide 18: Appendix
C O R P O R A T I O N C A N F O R Appendix A. Investor Fact Sheet B. Wood Product demand indicators C. Q3 financial result excerpts D. Scott Wilson biography JAN13 PAGE 18
Slide 19: Appendix A. Investor Fact Sheet
C O R P O R A T I O N C A N F O R Appendix A. Investor Fact Sheet JAN13 PAGE 19
Slide 20: Canfor Fact Sheet
Canfor Fact Sheet Canfor is a leading integrated forest products company based in Vancouver, WOODLANDS British Columbia. Canfor’s forest operations in British Columbia, Alberta, and Quebec are located almost exclusively on public lands held under long-term forest tenure The company is the largest pr
Slide 21: Company Overview: Sales, Business Units and Operations
COMPANY OVERVIEW SALES HIGHLIGHTS - 2004 BY MARKET BY PRODUCT LINE 7% Europe 4% Misc 12% Asia 4% OSB 20% Canada 4% Logs 61% USA 4% Resale Lumber 5% Plywood 23% Pulp and Paper 56% Lumber CANFOR BUSINESS UNITS PRIMARY PRODUCTS PRIMARY MARKETS LUMBER Softwood Lumber House construction and home repairs
Slide 22: Appendix B. Wood Product demand indicators
C O R P O R A T I O N C A N F O R Appendix B. Wood Product demand indicators JAN13 PAGE 24
Slide 23: US housing starts
US housing starts Single family Housing Starts thousands 2000 1500 1000 500 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005-F 2006-RISI Source: US Census Bureau JAN13 C A N F O R C O R P O R A T I O N PAGE 25
Slide 24: Strong renovation spending in the US
Strong renovation spending in the US Repairs and Remodelling US$ 000’s 200,000 180,000 22% increase 160,000 140,000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: US Census Bureau JAN13 C A N F O R C O R P O R A T I O N PAGE 26
Slide 25: 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 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: US Census Bureau JAN13 C A N F O R C O R P O R A T I O N PAGE 27
Slide 26: Relatively low interest rates in the US
Relatively low interest rates in the US 30-year mortgage rates 10 .0 0 9 .0 0 Average rate 8 .0 0 % 7.0 0 6 .0 0 5.0 0 Jan-9 4 Jan-9 5 Jan-9 6 Jan-9 7 Jan-9 8 Jan-9 9 Jan-0 0 Jan-0 1 Jan-0 2 Jan-0 3 Jan-0 4 Jan-0 5 Source: Freddie Mac JAN13 C A N F O R C O R P O R A T I O N PAGE 28
Slide 27: Moderate growth in Canada's lumber capacity
Moderate growth in Canada’s lumber capacity BBF Forecast 40 5% 35 4% 30 25 3% 20 2% 15 10 British Columbia 1% Eastern Canada 5 % Change (R) 0 0% 00 01 02 03 04 05 06 07 08 09 10 Source: RISI (Oct 2005) JAN13 C A N F O R C O R P O R A T I O N PAGE 29
Slide 28: North American Softwood Lumber - Demand/Capacity
North American Softwood Lumber - Demand/Capacity BBF 85 95% Capacity Demand D/C Ratio (R) 80 90% 75 70 85% 65 60 80% 55 50 75% 89 91 93 95 97 99 01 03 05 07 Source: RISI (Oct 2005) JAN13 C A N F O R C O R P O R A T I O N PAGE 30
Slide 29: Appendix C. Q3 financial result excerpts
C O R P O R A T I O N C A N F O R Appendix C. Q3 financial result excerpts JAN13 PAGE 32
Slide 30: Management's Discussion and Analysis: Summarized Results
Management’s Discussion and Analysis This interim Management’s Discussion and Analysis (MD&A) provides a review of the significant developments that have impacted Canfor’s performance during the third quarter of 2005 relative to the previous quarter and the last published annual results as at Decemb
Slide 31: Q3 results and one-time adjustments
results was compounded by the strengthening of the Canadian dollar, which averaged nearly 4% stronger in the current quarter than in the second quarter and nearly 9% stronger than in the third quarter of 2004. The impact on Canfor’s results of a change in chip prices, as discussed in the Lumber and
Slide 32: Lumber operations and chip pricing
The implementation of lower chip market-based pricing, effective July 1, 2005, resulted in chip income being approximately $13.0 million lower than in the previous quarter. Operations Production decreased by 10% from the second quarter, mainly because of maintenance shutdowns at several three- shift
Slide 33: Markets - Lumber and Panels
higher maintenance expenditures. The new OSB joint venture in Fort St John is expected to begin production in November. Markets – Lumber and Panels The third quarter of 2005 was marked by the devastating hurricanes around the Gulf Coast of the United States. As a result, there was an immediate deman
Slide 34: Pulp and Paper operating results
Operating income improved by $0.4 million over the previous quarter, but was $8.4 million lower than the same period in 2004. Higher pulp shipments and lower chip costs had a favourable impact in the current period, but these factors were offset by lower US dollar pulp prices and the impact of the s
Slide 35: Coastal Operations
Coastal Operations Q3 Q2 YTD Q3 YTD (millions of dollars unless otherwise noted) 2005 2005 2005 2004 2004 Sales $ 12.2 $ 28.5 $ 47.1 $ 12.4 $ 74.8 EBITDA $ (4.9) $ 3.5 $ (1.7) $ (1.7) $ 6.9 EBITDA margin (40)% 12% (4)% (14)% 9% Operating income (loss) $ (5.0) $ 1.1 $ (5.2) $ (2.8) $ 2.4 3 Production
Slide 36: Timber tenure take-back
subdivision of existing licenses. Through legislation, licensees are required to return 20% of their replaceable tenure to the Crown. The Plan states that approximately half of this volume will be redistributed to open up opportunities for woodlots, community forests and First Nations and the other
Slide 37: Changes in Financial Position
Changes in Financial Position Cash flow generated by operating activities was $54.1 million in the third quarter, which is $75.7 million less than in the previous quarter and $175.1 million lower than in the third quarter of 2004. The decrease in cash flow from operations is attributable to the lowe
Slide 38: Risks and Uncertainties: Softwood Lumber Dispute
Cash and Temporary Investments – Effective January 1, 2005, Canfor retroactively amended its presentation of cash and temporary investments to include unpresented cheques, which were previously included in accounts payable and disclosed in the notes to the consolidated financial statements. RISKS AN
Slide 39: Anti-dumping reviews and NAFTA Lawsuit
For the POI and the first and second administrative reviews, Canfor has been one of the companies listed as a mandatory respondent in the ADD action, and as such has received a company-specific ADD rate. For the third administrative anti-dumping review covering the period May 1, 2004 to April 30, 20
Slide 40: Selected Quarterly Financial Information
13 SELECTED QUARTERLY FINANCIAL INFORMATION Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 2005 2005 2005 2004 2004 2004 2004 2003 Sales and Income (millions of dollars) Sales $ 941.9 $1,067.4 $ 965.9 $1,072.7 $1,130.7 $1,180.7 $ 645.1 $ 616.2 Operating income (loss) $ (10.8) $ 67.1 $ 95.6 $ 15.7 $ 203.2 $ 211.3 $ 62.1 $
Slide 41: Seasonality and shipment factors
OSB plants, and pulp mills. Market demand also varies seasonally to some degree. For example, building activity and repair and renovation work, which affects demand for lumber and panel products, is generally stronger in the spring and summer months. Shipment volumes are affected by these factors as
Slide 42: Consolidated Statements of Income and Retained Earnings
Consolidated Statements of Income and Retained Earnings 3 months ended September 30, 9 months ended September 30, (millions of dollars, unaudited) 2005 2004 2005 2004 Sales $ 941.9 $ 1,130.8 $ 2,975.2 $ 2,956.5 Costs and expenses Manufacturing and product costs 654.9 625.8 1,939.7 1,662.3 Freight an
Slide 43: Consolidated Cash Flow Statements
Consolidated Cash Flow Statements 3 months ended September 30, 9 months ended September 30, (millions of dollars, unaudited) 2005 2004 2005 2004 Cash generated from (used in) Operating activities Net income from continuing operations $ 17.4 $ 191.4 $ 109.0 $ 354.7 Items not affecting cash: Amortizat
Slide 44: Consolidated Balance Sheets
Consolidated Balance Sheets As at As at September 30, December 31, (millions of dollars) 2005 2004 (unaudited) (audited) ASSETS Current assets Cash and temporary investments (Note 2) $ 312.1 $ 438.5 Accounts receivable Trade 251.2 239.4 Other 69.9 62.2 Income taxes recoverable 11.2 14.7 Future incom
Slide 45: Appendix D. Scott Wilson biography
C O R P O R A T I O N C A N F O R Appendix D. Scott Wilson biography JAN13 PAGE 64
Slide 46: Scott Wilson - Biography
Scott Wilson - Biography Scott R. Wilson Vice President Finance and Chief Financial Officer Mr. Wilson was appointed Vice President Finance and Chief Financial Officer in August 2005. Prior to joining Canfor Scott was with Enbridge Inc., and affiliates since 1991 in various senior financial position
Slide 47: Investor Relations
C O R P O R A T I O N C A N F O R Desjardins Securities Basic Materials Conference Investor Relations: David Jan 604-661-5424 David.Jan@canfor.com www.canfor.com JAN13 PAGE 66