West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — Q3 2021 Earnings Presentation
43 slides from West Fraser Timber's earnings presentation, October 2021
Slide 1: Investor Presentation
Investor Presentation October 2021
Slide 2: General: forward-looking information
2 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 “sa
Slide 3: Q3 2021 Earnings Summary
Q3 2021 Earnings Summary
Slide 4: Consolidated Financial Results
4 Consolidated Financial Results US$ Millions Q3-21 Q2-21 Q3-21 Q2-21 US$ Millions Adjusted EBITDA* Lumber $ 93 $ 994 Sales $ 2,358 $ 3,779 EWP - North America 612 1,106 Costs and expenses (1,728) (1,793) EWP - Europe 90 39 Operating earnings 630 1,986 Pulp & Paper (7) 25 Finance expense (11) (20) C
Slide 5: Q3 Consolidated Adjusted EBITDA Reconciliation
5 Q3 Consolidated Adjusted EBITDA Reconciliation Commodity price reduction in NA Lumber: ($873) million NA EWP: ($445) million Pulp & Paper: ($19) million EU EWP: $71 million Higher log costs from increased B.C. stumpage rates, higher labour costs and other input cost inflation Reduced operating sch
Slide 6: Q3-21 versus Q2-21
6 Q3-21 versus Q2-21 US$ millions unless Q3 2021 Q2 2021 Change Comments otherwise indicated Lower SPF shipments due to wildfires in British Columbia and reduced Lumber Shipments (MMfbm) 1,503 1,628 (125) demand NA OSB Shipments (MMsf 3/8”) 1,536 1,585 (49) Lower OSB shipments due to lower demand EU
Slide 7: Strategic Capital Program
Strategic Capital Program 7 ▪ Investment program to support safety, cost improvements and strategic growth initiatives ▪ Work on approximately $180 million of identified projects has begun and will continue through 2023 Lumber NA EWP Project Costs ~$150M ~$30M Payback 3-4 years 3-4 years Volume/Prod
Slide 8: Acquisition of Angelina Forest Products Sawmill in Lufkin, Texas
Acquisition of Angelina Forest Products Sawmill in Lufkin, Texas 8 Strategic Rationale ▪ Agreement to acquire mill in U.S. south, consistent with West Fraser growth strategy; still requires U.S. regulatory approvals ▪ Enhances West Fraser’s lumber mill portfolio ▪ Turn-key, modern lumber mill starte
Slide 9: Acquisition of GP OSB Mill near Allendale, South Carolina
Acquisition of GP OSB Mill near Allendale, South Carolina 9 Strategic Rationale ▪ Agreement to acquire mill in U.S. south, consistent with West Fraser growth strategy; still requires U.S. regulatory approvals ▪ Large-scale mill enhances West Fraser’s OSB mill portfolio, will provide greater flexibil
Slide 10: Summary
10 Summary Q3 2021 Recap Looking Forward ✓ Managed operational impact from weakened ✓ Fundamentals for wood product demand are demand, B.C. wildfires and ongoing COVID-19 showing signs of recovery after Q3 weakness risks ✓ Continued focus on operational excellence ✓ Strong liquidity even after repur
Slide 11: West Fraser Overview
West Fraser Overview
Slide 12: Circular Economy – Responsible, Resourceful and Climate-Smart
Circular Economy – Responsible, Resourceful and Climate-Smart 12 Carbon Sequestration. Sustainable Growing Forests. Harvest. Forever. Reuse and Waste Not. Recycle. Climate-Smart 74% Renewable Construction. Energy. We use it all.
Slide 13: Key Achievements
Key Achievements 13 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 Re
Slide 14: Our People
Our People 14 8% Defined an Indigenous Peoples Policy of West Fraser’s Canadian employees Committed to Progressive Aboriginal Relations Certification self-identify as Indigenous 25% from the Canadian Council for Aboriginal Businesses Diversity and Inclusion of all West Fraser employees self-identify
Slide 15: A Global Wood Products Leader
15 A Global Wood Products Leader ▪ West Fraser’s diverse wood products portfolio recently expanded with the addition of a leading EMPLOYEES WORLDWIDE LUMBER MILLS PULP & PAPER 850 GWH RENEWABLE MILLS ENERGY FACILITIES global oriented strand board (OSB) producer ▪ Created the destination provider for
Slide 16: More Relevant, Efficient and Valuable to Principal Customer Segments
More Relevant, Efficient and Valuable to Principal Homebuilder, 16 Building Construction and Pro-Dealer Customer Segments
Slide 17: Operating Footprint on Two Continents
17 Operating Footprint on Two Continents
Slide 18: West Fraser North America Lumber and EWP EBITDA Margin
18 West Fraser North America Lumber and EWP EBITDA Margin 70% NA Lumber Average: 17% NA EWP (proforma) Average: 22% 60% 50% 40% 30% 20% 10% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Q3 YTD - 21 North America Lumber North America EWP (proforma) Note: Lumber EBITDA is after duties; Nor
Slide 19: Mix of Shipments
19 Focused on Growing Lower-variability Specialty OSB Business North American OSB Shipments (3/8”) ▪ Specialty OSB products include products sold to industrial and export markets 5.89 BSF 5.98 BSF 100% ▪ Industrial customers use OSB in their production processes, such 23% as for upholstered furnitur
Slide 20: Europe Provides Growth Opportunity, Geographic Diversification
20 Europe Provides Growth Opportunity, Geographic Diversification ▪ 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 results ▪ Strong European panel prices and increasing OSB shipments from the Inverness expans
Slide 21: Liquidity
Liquidity ($millions) 21 Available Liquidity Scheduled Maturities 4,000 1,200 3,000 900 $USD Millions $USD Millions 2,000 600 1,000 300 0 0 2019 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21 Q2 '21 Q3 '21 2021 2022 2023 2024 2025 2026 2027 Bank lines Cash Term loan Notes Revolver Debt to Capitalization 60% 40%
Slide 22: Total Shareholder and Capital Returns
22 Total Shareholder and Capital Returns Annualized Total Shareholder Return from January 1, 2006 to September 30, 2021* 14% 12% 11.5% 10.4% 9.6% 10% 8% 6.3% 5.7% 5.7% 6% 4.1% 4% 2% 0% West Fraser S&P 500 Homebuilders Peer 1 Peer 2 Peer 3 Peer 4 Index** Capital Allocation from January 1, 2018 to Sep
Slide 23: Market Overview
Market Overview
Slide 24: Demand Conditions for Wood Building Products
24 Demand Conditions for Wood Building Products $B 4 Qtr. Moving Improvements and Repairs U.S. Housing Starts (not seasonally adjusted) Leading indicator of Remodeling Activity 175 $360 14% 4 Qtr. Moving rate of Change 150 Thousands of Units 12% 125 $340 10% 100 8% Seasonally adjusted: $320 75 6% 20
Slide 25: North America Wood Products End-Use Driven by New Residential and R&R
North America Wood Products End-Use Driven by Demand in New 25 Residential and Lower-Volatility R&R Markets North America Lumber End Use 2020 Domestically Produced Panel Consumption 2019 22 MDF 20.9 Non-residential Other 6% 20 Particleboard SW Plywood HW Plywood OSB 22% 18 New 16 Industrial Resident
Slide 26: Mass Timber – Another Driver of Sustainable Wood Product Demand
Mass Timber – Another Driver of Sustainable Wood Product Demand 26 U.S. incremental lumber demand from mass timber is projected to be between 3.77 – 6.75 Billion Board Feet (Bfbm) by 2035, representing the equivalent demand of ~315k – 560k additional new housing starts* Mass Timber - U.S. Incrementa
Slide 27: Lumber and OSB Supply Overview
27 Lumber and OSB Supply Overview Lumber OSB ▪ Aggregate North American production growth constrained ▪ It is a lengthy process to construct and ramp production of a by log availability in multiple regions, particularly BC greenfield OSB mill, with an estimated three to five years to get to “first p
Slide 28: Illustrative Ecosystem of U.S. South Lumber Mill
28 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 risk Existing distribution and supply chain Appr
Slide 29: West Fraser is North America's Largest Lumber Producer
West Fraser is North America’s Largest Lumber Producer 29 West Fraser 2020 Capacity 6.7 Billion feet West Fraser 11% British Columbia Weyerhaeuer 27% 9% 2020 N.A. Canfor Other Industry US South 44% 8% Production 48% 60 Bfbm Georgia-Pacific Tolko 5% 2% Interfor 5% Alberta Idaho Forest 25% 2% Resolute
Slide 30: This is not 2005 – Today's North American Lumber Supply
This is not 2005 – Today’s North American Lumber Supply 30 80 2.5 • Lumber production growth stagnating even with strong markets in 2017 and 2018; labour, equipment and log availability challenge growth 70 2.0 60 U.S. Housing Starts (millions) Lumber Supply Demand Billion Board Feet 50 1.5 BC Other
Slide 31: Lumber Supply Conditions
31 Lumber Supply Conditions Total North America Lumber Supply (Production) North America Lumber Supply (Production) - 2020 20 B.C. 15% U.S. South Billion Board Feet 15 34% 10 Alberta 7% 5 Canada Other 17% U.S. 0 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Other Cana
Slide 32: North American Lumber Production in 2020 Housing Starts Equivalence
North American Lumber Production in 2020 Housing Starts 32 Equivalence* 1.6 0.10 0.52 1.49 1.4 100,000 additional starts U.S. Housing Starts (millions) 1.2 could require ~2.4Bfbm 0.35 of additional production 1.0 (approximately 10 new sawmills) 0.8 0.40 0.6 0.4 0.22 0.2 0.0 B.C. Canada Other U.S. Ot
Slide 33: West Fraser is a Leading OSB Producer
33 West Fraser is a Leading OSB Producer West Fraser Panel Capacity by Region North American OSB Industry Europe European OSB Industry 22% Other US Martco 6% West 38% Other 6% Fraser 10.9 16% Huber 28% Bsf-3/8" Smartply 8% Sonae- 4% Kronospan Industry Arauco 40% Tolko 5% Industry 8% Capacity Capacit
Slide 34: North American OSB Operating Capacity
34 North American OSB Operating Capacity* OSB Operating Capacity and U.S. Housing Starts 30 2.5 ▪ Some industry capacity curtailed in late 2019 has 25 re-started while some remains idled; one mill 2.0 was permanently closed in 2020 20 ▪ West Fraser re-started its OSB mill in Chambord, 1.5 Quebec in
Slide 35: OSB Supply Conditions
35 OSB Supply Conditions Total North America OSB Supply (Production) North America OSB Supply (Production) 7 4 Billion Square Feet 3/8” basis Billion Square Feet 3/8” basis 6 5 3 4 2 3 2 1 1 0 0 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q2'18 Q3'18 Q4'18 Q1'19 Q2'
Slide 36: North American OSB Capacity in 2020 Housing Starts Equivalence
36 North American OSB Capacity in 2020 Housing Starts Equivalence* 1.6 0.10 0.41 1.45 1.4 U.S. Housing Starts (millions) 100,000 additional starts 1.2 could require nearly 1 Bsf 0.17 (3/8-inch) of additional OSB 1.0 capacity, which is more 0.22 than the capacity of a 0.8 typical large-scale 0.25 gre
Slide 37: West Fraser Timber Co. Ltd.
West Fraser Timber Co. Ltd. 37 These materials have been prepared by Management of the Company. No regulatory authority has approved or disapproved TSX and NYSE: WFG of the contents of these materials. These materials do not constitute an offer to sell or the solicitation of an offer to buy any secu
Slide 38: Appendix
Appendix
Slide 39: Analyst Estimates
39 Analyst Estimates (SPF & SYP US$/Mfbm, OSB US$/Msf (7/16" basis), China NBSK US/tonne 2021E SPF W 2x4 2021E SYP W 2x4 2021E OSB NC 7/16” TD $821 CIBC $819 BNS $786 BNS $827 BNS $826 TD $788 BMO $829 BMO $833 RBC $790 RBC $840 TD $849 BMO $794 ERA $845 RBC $850 ERA $799 RJ $850 ERA $853 RJ $850 CI
Slide 40: US Housing Start Estimates
40 US Housing Start Estimates (Thousands) 1,700 1,600 US Housing Starts (‘000s) 1,500 1,380 1,400 1,290 1,300 1,250 1,203 1,200 1,174 1,112 1,100 1,000 2015 2016 2017 2018 2019 2020 2021F 2022F Actual High/Low Forecasts Industry analysts expect strong growth in U.S. housing starts to continue Source
Slide 41: Analyst Coverage
41 Analyst Coverage Organization Analyst Name Contact BMO Capital Markets Mark Wilde (212) 883-5102 mark.wilde@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 Swetlishoff (
Slide 42: Sustainability Reporting
42 Sustainability Reporting Full 2020 Sustainability Report SASB, GRI & TCFD disclosures westfraser.com/responsibility/sustainability-report Sustainability Report Highlights Westfraser.com/responsibility/sustainability-report/executive- summary Attractive ESG attributes, significantly upgraded repor
Slide 43: Non-IFRS Measures
43 Non-IFRS Measures: This presentation makes reference to certain non-IFRS measures, such as Adjusted EBITDA and net debt to capital ratio. Non-IFRS measures do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by others. Fo