West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — Q4 2023 Earnings Presentation
65 slides from West Fraser Timber's earnings presentation, Feb 15, 2024
Slide 1: Investor Presentation
INVESTOR PRESENTATION February 2024 Photo: West Fraser Sawmill – Dudley, Georgia, USA
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 2023 Annual Financial Statements, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and is discussed in our Managements’ Discussio
Slide 3: Q4 2023 Earnings Summary
Q4 2023 Earnings Summary
Slide 4: Consolidated Financial Results
Consolidated Financial Results US$ Millions US$ Millions Adjusted EBITDA* Q4-23 Q3-23 (except EPS) Q4-23 Q3-23 Lumber $ (51) $ 44 Sales $ 1,514 $ 1,705 EWP - North America 143 289 Costs and expenses (1,702) (1,521) Operating earnings (loss) (187) 184 Pulp & Paper 2 (12) Finance income 14 21 EWP - Eu
Slide 5: Q4-23 Consolidated Adjusted EBITDA Reconciliation
Q4-23 Consolidated Adjusted EBITDA Reconciliation Absence of $62 million AR4 export duty recovery in Q3. Higher NA EWP maintenance spend and costs associated with Allendale ramp-up offset lower costs in lumber and P&P. Net change in earnings impact of inventory write-downs from Q3-23 to Q4-23. Lower
Slide 6: Q4-23 versus Q3-23
Q4-23 versus Q3-23 US$ millions unless Q4 2023 Q3 2023 Change Comments otherwise indicated Lumber Shipments (MMfbm) 1,320 1,382 (62) Lower SPF and SYP shipments, owing to softer demand. NA OSB Shipments (MMsf 3/8”) 1,590 1,589 1 Allendale ramp-up offset by maintenance and other mill downtime elsewhe
Slide 7: 2024 Outlook
2024 Outlook US$ unless indicated otherwise 2024F 2023 Commentary Expecting recently announced closure of Fraser Lake mill to be offset SPF Shipments (MMfbm) 2,600 – 2,800 2,711 by recent acquisition of Spray Lake Sawmills. Expecting reliability and capital improvements to be offset by recently SYP
Slide 8: Summary
Summary Q4 2023 Recap Looking Forward ✓ Experienced resilient NA OSB demand while demand ✓ Near-term demand for many of our wood products challenges persisted for Lumber segment remains challenging, though longer-term demand fundamentals are favourable ✓ Maintained strength in liquidity despite cycl
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 – Capacity
Product & Geographic Diversification – Capacity Lumber North America EWP Pulp & Paper UK and Europe EWP 34 locations 20 locations 5 locations 3 locations OSB: 8,060 MMsf 3/8” NBSK: 170 Mtonnes OSB 1,515 MMsf 3/8” SPF 3.3 Bfbm Plywood: 760 MMsf 3/8” Newsprint: 135 Mtonnes Particleboard 405 MMsf 3/8”
Slide 13: More Relevant, Efficient and Valuable to 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 14 Note: As at December 31, 2023
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 2023 North America OSB End Use 2023 Non-Residential & Other 6% Non-Residential 9% Industrial New 10% Industrial Residential 23% 31% New Residential 56% R&R 25% R&R 41
Slide 16: Lumber Capacity Shifting to Lower-risk, Lower-cost Regions
West Fraser Lumber Capacity Shifting to Lower-risk, Lower-cost 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 B.C. fiber reduced to ~22% of capacity (from ~77% in 2004) 2004: 2.8 Bfbm 2023: 6.8 Bfbm British
Slide 17: 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 1,800 100% Ainsworth 7 4 4,500 Norbord 1,600 2 80% West Fraser 4,000 20 3 1,400 U.S Housing starts (000s, RHS) 15 19 3,500 60% 1,200 3
Slide 18: 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. +1400 bps ▪ B.C was historically a heavy producer of 2x4s, suggesting industry 2x4 shortages under
Slide 19: Lower-variability Specialty OSB Business
Lower-variability Specialty OSB Business OSB Shipment Mix (3/8”) 2020-2023 ▪ Specialty OSB products include those sold to export and industrial markets such as upholstered furniture, transportation applications and i- joist manufacturing ▪ Specialty OSB business generally has less variable pricing,
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 financial results • Macro-headwinds in Europe led to weaker demand for wood panel products in 2023, m
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) 1,700 1,606 1,600 1,553 1,500 US Housing Starts (‘000s) 1,413 1,397 1,400 1,300 1,292 1,247 1,205 1,200 1,177 1,107 1,100 1,000 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024F 2025F Actual Forecast Range (ex-High & Low) Source: U.S. Census Bureau, industry
Slide 23: Lumber and OSB are Not Typically Significant Cost Factors for Home Builders
Lumber and OSB are Not Typically Significant Cost Factors for Home Builders Lumber and OSB products generally comprise ~20% of the total labour and materials costs to frame a SF house; combined, lumber and OSB costs are typically ~3% of total construction costs and ~2% of new home selling prices** M
Slide 24: U.S. Leading Indicator of Remodeling (R&R) Activity
U.S. Leading Indicator of Remodeling (R&R) Activity Predicting relatively stable and elevated Homeowner Improvements & Repairs Four-Quarter Moving Totals R&R spending through 2024 Billions ($USD) 500 485 490 481 Homeowner Improvement & Repairs ($USD) 470 469 464 464 454 452 450 450 444 414 406 400 3
Slide 25: Lumber Consumption of Residential Improvements in U.S.
Lumber Consumption of Residential Improvements in U.S. (for periods with similar total housing starts) U.S. Lumber Consumption – Residential Improvement (billion board feet) Residential Improvement 43% of Total has grown in importance and 21.2 Lumber Consumption consumes ~50% more 26% of Total lumbe
Slide 26: OSB Consumption of Residential Improvement & Industrial Segments
OSB Consumption of Residential Improvement & Industrial Segments in U.S. (for periods with similar total housing starts) U.S. OSB End-user Consumption (billion square feet, 3/8-in basis) 9% of Total OSB 2.2 Consumption Residential Improvement and Industrial have 1.1 6% of Total OSB increased in rele
Slide 27: Mass Timber – Another Driver of Sustainable Wood Product Demand
Mass Timber – Another Driver of Sustainable Wood Product Demand U.S. consumption demand from mass timber is projected to be between 0.7 – 2.1 Billion Board Feet (Bfbm) by 2035, representing the equivalent demand of up to ~175k additional new housing starts* Mass Timber – Projected U.S. Consumption D
Slide 28: 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 in B.C.; construct a greenfield OSB mill, typically followed it is an estimated two- to three-year process to by a
Slide 29: 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 30: Serving a Broad Distribution Network and Customer Base
Serving a Broad Distribution Network and Customer Base West Fraser serves thousands of delivery points and customers across North America; the majority of product shipments use rail to transport Canadian SPF and OSB to U.S. markets and trucks to transport SYP and OSB from mills in the U.S. south. We
Slide 31: This is not 2005 – Today's North American Lumber Supply
This is not 2005 – Today’s North American Lumber Supply 80 2.5 A decade of flat North American lumber production growth even with strong markets in 2017, 2018, 2021 & 2022; labour, equipment and log availability 70 remain challenges to growth 2.0 60 U.S. Housing Starts (millions) Billion Board Feet
Slide 32: North American OSB Operating Capacity
North American OSB Operating Capacity* OSB Operating Capacity and U.S. Housing Starts 30 2.5 • One OSB mill was permanently closed in 2020 while a press fire at another mill in spring 2022 has kept that mill out of commission into early 2024 25 2.0 • West Fraser re-started its OSB mill in Chambord,
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 nearly ~40% of cash generated • Excess capital returned to shareholders of ~ 50% of cash flow, heavily weighted to buybacks, influenced
Slide 36: Share Repurchases
Share Repurchases Average repurchase price (CAD$): Cumulative Investment in Repurchases* (USD$ million) $5,000 $4,198 $4,327 2013 $44.60 $4,000 $3,000 2014 $51.86 $2,208 $2,000 $829 $890 $890 2015 $55.57 $1,000 $294 $307 $2 $104 $151 $0 2016 $44.06 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2
Slide 37: Lookback on West Fraser's Capital Reinvested
Lookback on West Fraser’s Capital Reinvested Return on Capital Employed (ROCE %)* 70% 61% 27% 25% 28% 24% 23% average 16% -4% -3% -10% 2016 2017 2018 2019 2020 2021 2022 2023 Source: Bloomberg, West Fraser analysis. Attractive average ROCE through the cycle * Note: ROCE = GAAP EBIT / Average (Total
Slide 38: Liquidity
Liquidity ($millions) Available Liquidity* Scheduled Maturities 3,000 1,200 900 West Fraser Timber is $USD Millions $USD Millions 2,000 considered investment 600 grade by three leading 1,000 300 rating agencies. 0 0 Agency Rating Outlook 2019 2020 2021 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2024 2025 2026 2027 202
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: Continuous Improvement Through Portfolio Evolution and Optimization
Continuous Improvement Through Portfolio Evolution and Optimization Actively seeking mill portfolio optimization through acquisitions, divestitures, curtailments/closures and strategic capital West Fraser – Corporate Development Timeline (late 2021 to early 2024) +305MM FBM Angelina Forest Announced
Slide 42: M&A Target Attributes – Seeking High Quality
M&A Target Attributes – Seeking “High Quality” As West Fraser develops its M&A pipeline and pursues opportunities, a primary focus is on identifying “high quality” assets/businesses that will lower costs or enhance margins, ideally while also moderating West Fraser’s overall EBITDA variability throu
Slide 43: Mill Divestitures – Slave Lake & Quesnel River BCTMP Mills
Mill Divestitures – Slave Lake & Quesnel River BCTMP Mills Strategic Rationale • Planned sale to Atlas Holdings; mills to be operated by Millar Western Forest Products, a more than 100-year-old West Fraser Slave Lake Pulp Canadian forest products company Mill – located in Slave Lake, • US$120M trans
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 is underway with start-up expected H1-25 Financial Highlights • Projec
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 Carbon Emissions and Carbon Storage Capacities of 1 tonne (t) In Addition to Sequestering Carbon, of Cement, Steel, and Timber Building Materials Wood Product Manufacturing Has a Lighter Carbon Footprint 1.04 • West Fraser is positioned to
Slide 47: The 2022 Sustainability Report is now available
The 2022 SUSTAINABILITY REPORT is now available Scan the QR code to access the report 47
Slide 48: Sustainability Report
Sustainability Report Our Sustainability Report tells the story of a pivotal year of growth for West Fraser. As a company founded almost 70 years ago, we understand the importance, and necessity, of doing the right thing for the environment, our communities, and our employees while sustainably and p
Slide 49: 2022 Sustainability Report Highlights
2022 Sustainability Report Highlights 49
Slide 50: ESG Ratings
ESG Ratings Ratings 2021 ESG 2022 ESG 2023 ESG Performance Trend Provider Rating Rating Rating Climate Change: D Climate Change: B- Climate Change: B Forests: F Forests: B- Forests: B Good Improving Water Security: F Water Security: C Water Security: C 49/100 Bronze metal (top Not applicable Update
Slide 51: Validated GHG Emissions Targets
Validated GHG Emissions Targets Science Based Targets initiative (“SBTi”) supports companies in establishing ambitious climate action targets West Fraser is committed to materially reducing GHG emissions SBTi has now validated our scope 1, 2 & 3 targets 51
Slide 52: Reducing GHG Emissions Across Our Operations
Reducing GHG Emissions Across Our Operations SCOPE 1 - Direct GHG emissions SCOPE 2 - Indirect greenhouse SCOPE 3 - Other indirect that occur from sources owned or gas emissions from consumption emissions, such as extraction and controlled by West Fraser. of purchasedMDF electricity, heat or Renewab
Slide 53: Attractive Record of Creating Shareholder Value
Attractive Record of Creating Shareholder Value
Slide 54: Performance vs. Peers and Relevant Indices
Performance vs. Peers and Relevant Indices $6 Enterprise Value (US$ billions) +145% +68% $4 $2 -21% +315% $0 2005 YE Q3-2023 West Fraser Peer 1 Peer 2 Peer 3 Source: Bloomberg Annualized Total Shareholder Return (US$, dividends reinvested) Jan-01-06* to Feb-12-24 12% 10.1% 9.7% 10% 8% 6.5% 6% 5.2% 5
Slide 55: Appendix
Appendix
Slide 56: West Fraser is North America's Largest Lumber Producer
West Fraser is North America’s Largest Lumber Producer West Fraser West Fraser 2023 Capacity 6.8 Billion feet 10% Weyerhaeuser British 8% Columbia 21% Canfor 7% 2022 N.A. Other 50% Industry Production 6% Interfor US South 59 Bfbm 52% 5% Sierra Pacific 4% Alberta Georgia-Pacific 27% Paper Excellence
Slide 57: West Fraser is the World's Largest OSB Producer
West Fraser is the World’s Largest OSB Producer West Fraser OSB Capacity by Region Europe 16% North American OSB Industry* European OSB Industry US 51% 10 Bsf-3/8" Canada Other Other Martco 6% 34% Smartply 13% 6% West 4% Kronospan Huber Fraser 45% Sonae- 8% 31% Arauco Industry 4% Industry Tolko Capa
Slide 58: North America Lumber and EWP Adjusted EBITDA Margin
West Fraser North America Lumber and EWP Adjusted EBITDA Margin1 NA Lumber 10-year Average: 19% NA EWP* (proforma) 10-year Average: 28% 60% 50% 40% 30% 20% 10% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* 2022 2023 North America Lumber North America EWP (proforma) Note: Lumber adj
Slide 59: Analyst Coverage
Analyst Coverage Organization Analyst Name Contact BMO Capital Markets Ketan Mamtora (212) 883-5121 ketan.mamtora@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 Swetlishof
Slide 60: Analyst Commodity Price Forecasts
Analyst Commodity Price Forecasts (SPF & SYP US$/Mfbm; OSB US$/Msf) SPF W 2x4 SYP W 2x4 OSB NC 7/16” $510 $526 $400 TD TD $471 CIBC $438 $384 $500 $525 $395 RBC RBC $495 BMO $455 $385 $500 $500 $375 RJ RJ $475 Scotia $450 $378 $500 $470 $375 BMO BMO $425 RJ $445 $375 $490 $465 CIBC CIBC $426 TD $375
Slide 61: Modeling EBITDA
Modeling EBITDA Estimated Earnings Sensitivity to Key Variables (Based on 2023 annual shipment volumes - $ millions) Factor Variation Change in pre-tax earnings1 Lumber price $10 (per Mfbm) 56 NA OSB price $10 (per Msf) 55 Europe OSB price £10 (per Msf) 9 U.S. / CAD $ exchange rate2 $0.01 (per $ CAD
Slide 62: Illustrative Variable Production Costs for North American Lumber Industry
Illustrative Variable Production Costs for North American Lumber Industry Variable Lumber Costs (2020-2022) $USD/MBF 400 0 B.C. Interior US West Coast Quebec Ontario US South Net Delivered Wood Costs Manufacturing Costs Source: FEA, West Fraser analysis. Lumber Manufacturing Costs (2020-2022) 100% M
Slide 63: Illustrative Variable Production Costs for North American OSB Industry
Illustrative Variable Production Costs for North American OSB Industry Variable OSB Costs (2020-2022) $USD/MSF 3/8” 200 0 US North US South Western Canada Eastern Canada Net Delivered Wood Costs Manufacturing Costs Source: FEA, West Fraser analysis. OSB Manufacturing Costs (2020-2022) 100% Misc. 18%
Slide 64: 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 65: 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