West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — Investor Presentation (May 2014)
40 slides from West Fraser Timber's investor presentation, May 14, 2014
Slide 1: Investor Presentation
INVESTOR PRESENTATION May 14, 2014 New York
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation and comments associated with it contain forward-looking statements including statements relating to U.S. housing recovery, the potential for constrained lumber supply, energy-related opportunities, earnings sensitivity and estimated annual capital expendi
Slide 3: Our Goals
Our Goals • To be a leading forest products manufacturer, focused on solid wood products • Strong financial results through the business cycle • Long-term growth and shareholder value enhancement • Stable, conservative financial structure 3
Slide 4: Our Strategy
Our Strategy • Operational excellence • Diversification • Product differentiation • Integration 4
Slide 5: Operational Excellence
Operational Excellence • Managing to ensure a committed workforce • Cost control and efficiency • Continuous reinvestment • Internal and external benchmarking and competition • Straightforward, consistent business model 5
Slide 6: Annualized Shareholder Return (Cdn$)
Annualized Shareholder Return (Cdn$) June 2006* – May 2, 2014 15.3% 12.9% 11.4% 4.9% 4.8% 2.8% West Fraser S&P/TSX Dow Competitor A Competitor B Competitor C * June 2006 marked the beginning of the steep decline in U.S. housing starts 6 Source: TD Bank
Slide 7: Strong Cash Generation ($millions)
Strong Cash Generation ($millions) Total Q1-2014 2013 2012 2011 2010 Cash from Operations 1,081 (39) 419 195 85 421 Capital Expenditures 912 93 358 159 213 89 Acquisitions 90 60 - 30 - - Dividends 86 6 24 24 24 8 7
Slide 8: Diversification
Diversification PRODUCTS GEOGRAPHY MARKETS - Lumber - Western - North - Panels Canada America - Market pulp - U.S. South - Asia - Newsprint 8
Slide 9: Product Diversification
Product Diversification LUMBER PANELS PULP & PAPER 29 mills 6 mills 5 mills SPF 3.9 Bfbm Plywood: 830 MMsf3/8” NBSK: 590 Mtonnes SYP 2.3 Bfbm MDF: 300 MMsf3/4” BCTMP: 650 Mtonnes Total 6.2 Bfbm LVL: 3.2 MMcf Newsprint: 135 Mtonnes • North America’s largest lumber producer • Largest plywood producer
Slide 10: Trend Sales Mix
Trend Sales Mix ($) Pulp & Paper 23% Panels Lumber 11% 66% 10
Slide 11: Geographic Diversification
Geographic Diversification 11
Slide 12: Product Differentiation
Product Differentiation • Wood as the best environmental choice • Renewable resource, sustainable business • Expanding applications • Bioenergy, full use of the resource 12
Slide 13: Integration (in Canada)
Integration (in Canada) • Lumber, panels, pulp, newsprint and energy • Substantial fibre self-sufficiency • Fuller utilization of resource • Some benefits from counter-cyclicality • Better able to respond to new opportunities such as bioenergy 13
Slide 14: Earnings Growth Drivers - Lumber
Earnings Growth Drivers - Lumber Demand - North American housing - Chinese construction and industrial applications - Japanese housing Supply - Fibre limitations - Residual offtake - Mill closures - People Efficiency - Capital investment - Business model 14
Slide 15: Returns on Lumber
-10% 0% 5% -5% 15% 20% 25% 30% 35% 40% 10% 1991 1992 1993 1994 1995 1996 1997 1998 1999 Returns on Lumber 2000 2001 2002 2003 2004 2005 2006 EBITDA margin (%) - Lumber 2007 2008 2009 2010 2011 Average: 16% 2012 2013 Q1-14 15
Slide 16: U.S. Housing: Pent Up Housing Demand
U.S. Housing Pent Up Housing Demand (conventional + mobile) 2.25 2.00 1.75 Million Units 1.50 1.25 1.00 0.75 Production Underlying Demand 0.50 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Significant pent up demand bodes well for long-term recovery 16 Source: FEA, Q1 20
Slide 17: U.S. Housing Forecast (2014 & 2015)
U.S. Housing U.S. Housing Forecast (2014 & 2015) Single & Multi Family 1,800 1,600 1,400 1,200 1,000 '000s 800 600 400 200 0 Mortgage Wells NAHB FEA APA RISI Mesirow Royal Average Bankers Fargo Financial Bank 17 Source: APA, April 2014
Slide 18: Canadian Shipments to China
Canadian Shipments to China 4,000 3,500 Equivalent to 300,000 housing starts * 3,000 2,500 2,000 MMfbm 1,500 1,000 500 0 2006 2007 2008 2009 2010 2011 2012 2013 * Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family) 18 Source: Council of Forest Industries
Slide 19: Canadian Fibre Supply
Canadian Fibre Supply 80 Annual Allowable Cut Forecast 70 60 50 Million (M3) 40 30 20 10 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 BC Interior Quebec Ontario 19 Source: FEA, Q4 2013
Slide 20: West Fraser Lumber Production
West Fraser Lumber Production 2004 2013 2.8 Bfbm 5.2 Bfbm 11% 31% 12% 48% 77% 21% B.C. Interior Alberta U.S. South 20
Slide 21: West Fraser Lumber Capacity
West Fraser Lumber Capacity U.S. 37% B.C. 40% Alberta 23% Geographic diversification in lumber 21
Slide 22: U.S. South Positive Timber Inventory
U.S. South Positive Timber Inventory Bfbm, Int’l 25 Drain Projected Excess Growth 20 15 10 28.5 Bfbm of deferred sawtimber volume 5 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 22 Source: FEA, Q4 2013
Slide 23: Earnings Growth Drivers - Pulp
Earnings Growth Drivers - Pulp Demand - China’s paper, tissue and packaging demand - Developing countries’ demand - Price of cotton and similar products Supply - European paper capacity closures - Russian and Canadian start ups - Product diversification (e.g. dissolving pulp) - South American produc
Slide 24: Pulp & Paper Sales Mix – 2013
Pulp & Paper Sales Mix – 2013 ($) Europe, 6% North America, 38% Asia, 56% 24
Slide 25: Pulp - NBSK End-Use Products
Pulp - NBSK End-Use Products Specialty 10% Coated Paper 11% Uncoated Tissue/ Towel Paper 55% 10% Board 14% West Fraser 2013 shipments: 510,100 Metric Tonnes 25
Slide 26: Pulp - BCTMP End-Use Products
Pulp - BCTMP End-Use Products Tissue/Towel Specialty 1% 8% Uncoated Paper Board 23% 47% Coated Paper 21% West Fraser 2013 shipments: 599,759 Metric Tonnes 26
Slide 27: Paper — Newsprint Cost Structure
Paper — Newsprint North American Newsprint Cost Structure Par Exchange Rate Cdn$/tonne ANC Alberta Newsprint is the lowest cost newsprint producer in North America and a positive contributor to the profitability of our pulp and paper business 27 Source: PPPC Cost Survey 2011
Slide 28: Energy Opportunities
Energy Opportunities • Woodwaste to produce heat and steam to dry wood products and for electricity and steam for pulp mills • Woodwaste to produce electricity to be used or sold • Pulp mill effluent as a source for biogas-electricity generation • Expanding opportunities to generate and sell electri
Slide 29: Energy Opportunities: Power Generation from Biomass
Energy Opportunities Power Generation from Biomass Cariboo pulp mill turbo-generator (completed) • Mill achieved energy self-sufficiency and excess power sold to B.C. Hydro Slave Lake pulp mill biomethanation project • Estimated startup late 2014 B.C. Hydro (Phase II) power generation projects (at t
Slide 30: Capital Strategy
Capital Strategy • Reinvest profits to lower costs, improve efficiency through technology and improved processes • Estimate normalized annual capital spending between $150 and $225 million • Anticipate several years of “catch up” capital spending including 2014 estimated to exceed $300 million 30
Slide 31: Earnings Sensitivity to Key Variables (2013)
Earnings Sensitivity to Key Variables (2013) Estimated Earnings Sensitivity to Key Variables1 (based on 2013 production- $ millions) Factor Variation Change in pre-tax earnings Lumber price US$10 (per Mfbm ) 55 Plywood price Cdn$10 (per Msf ) 8 NBSK price US$10 (per tonne) 5 BCTMP price US$10 (per t
Slide 32: Why Invest in West Fraser?
Why Invest in West Fraser? • Proven ability to generate strong cash flow even in worst markets • Consistent, straightforward business plan • Loyal, long-term employee and management base • Conservative financial management coupled with proven ability to grow strategically 32
Slide 33: "WFT" – Toronto Stock Exchange
“WFT” – Toronto Stock Exchange www.WestFraser.com 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 sec
Slide 34: Appendix
APPENDIX 34
Slide 35: Lumber Operating Rate - 2013
Lumber Operating Rate - 2013 100% 95% 90% 90% 87% 85% % of Capacity 79% 80% 78% 80% 75% 74% 70% 65% 60% 55% 50% WFT WFT B.C. U.S. U.S. Canada Canada U.S. Interior South Low-cost structure allows for higher operating rates in down market 35
Slide 36: Acquisition of Buchanan Lumber, High Prairie, Alberta
Acquisition of Buchanan Lumber, High Prairie, Alberta • Acquisition includes: – High Prairie sawmill (current capacity of 110 MMfbm) – Related real estate and transportation business – Timber harvesting rights with AAC of 430,000 m3 of coniferous and 21,000 m3 of deciduous timber • Purchase price of
Slide 37: Acquisition of Travis Lumber, Mansfield, Arkansas
Acquisition of Travis Lumber, Mansfield, Arkansas • Western Arkansas sawmill with a workforce of 140 • Purchase price of US$46 million (C$51 million) plus working capital paid in cash at closing (March 7, 2014) • Current capacity of 110 MMfbm West Fraser is planning expansion to approximately 150 MM
Slide 38: Acquisition of Bibler Bros., Russellville, Arkansas
Acquisition of Bibler Bros., Russellville, Arkansas • Well-capitalized mill with 190 employees and annual capacity of approximately 160 MMfbm • Purchase price of US$61 million (C$67 million) plus working capital payable in cash at closing (anticipated April 25, 2014) • Will be West Fraser's fourth s
Slide 39: Recent Growth
Recent Growth BRITISH ALBERTA COLUMBIA 2014 CHETWYND SMITHERS HIGH PRAIRIE SLAVE LAKE HOUSTON FRASER LAKE BLUE RIDGE 2012 HINTON EDSON QUESNEL WILLIAMS LAKE 100 MILE SUNDRE CHASM 39
Slide 40: Recent Growth
Recent Growth ARKANSAS 2014 RUSSELLVILLE MANSFIELD LITTLE ROCK LEOLA NEW BOSTON (TEXAS) HUTTIG 40
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