BMO Timber and Wood Products Summit - West Fraser · BMO Timber and Wood Products Summit ... (e.g....
Transcript of BMO Timber and Wood Products Summit - West Fraser · BMO Timber and Wood Products Summit ... (e.g....
BMO Timber and Wood
Products Summit
Seattle, May 10-11, 2017
2
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 expenditures. These statements are subject to
the cautionary statement which introduces West Fraser’s 2016
Annual Management’s Discussion & Analysis which can be
accessed on the Company website www.westfraser.com.
Forward-Looking Statements
3
West Fraser Then and Now
THEN
NOW
From humble beginnings to North America’s largest lumber producer
4
Wood is Good
Source: reTHINK Wood
Wood is an ideal building material
5
Lumber
Plywood Remanufacturers
Sawdust and shavings Chips Bark (Fuel)
BCTMP Pulp MDF NBSK Pulp Supply agreements
(e.g. pellet plants) Heat and Electricity
Integration - We Attain Value from 100% of Our Resources
Sustainably managed
forest lands
Reforestation
Bioproducts
Integrated fiber strategy to maximize the value of the log
6
• In the last 3 years we’ve planted more than
180 million trees
• West Fraser manages 7 million hectares
of certified sustainably managed forests
• We’ve planted more than 1.6 billion
trees since 1955
• We plant approximately two trees for every
tree we harvest
• Planted in a line, 1.6 billion trees would
circle the earth 15 times
Sustainable Forest Management
Continuously renewing the resource
Market Overview
8
U.S. Lumber End Use
U.S. Lumber End-use 2016 U.S. Lumber End-use Normalized
Source: FEA and WF
Single Family Construction,
26%
Multifamily Construction, 4%
Residential Improvements,
38%
Industrial Production, 27%
Nonresidential/Mobile, 5%
Single Family Construction,
31%
Multifamily Construction, 4%
Residential Improvements,
35%
Industrial Production, 24%
Nonresidential/Mobile, 6%
Residential construction and renovation the key driver of lumber demand
9
U.S. Existing Home Sales Continue to Improve
Existing home sales continue to improve albeit with low inventories
Source: National Association of Realtors
2
4
6
8
10
12
14
1,400
1,900
2,400
2,900
3,400
3,900
4,400
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Mo
nth
s S
up
ply
00
0's
un
its
Existing Housing Inventory
Inventory Months supply
2,200
3,200
4,200
5,200
6,200
7,200
8,200
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Existing House Sales Annualized (000)
10
U.S. Housing Starts
Source: U.S. Census Bureau, West Fraser Forecast
Expect that the recovery has room to continue
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F
Thousands
Total Single Multi Underlying Demand
11
North American Lumber Consumption
75 72
64
51
39 43 43
45 48
51 53
56 58 60
62 64
0
10
20
30
40
50
60
70
80
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F
U.S. Consumption Canadian Consumption
Bill
ion
Bf
Source: US Census Bureau, Statistics Canada, West Fraser Forecast
Demand for lumber expected to grow by 2B board feet per year
12
North American Lumber Production
0
5
10
15
20
25
0
10
20
30
40
50
60
70
80
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F
U.S. Canada Canada West (R Axis)
Canada East (R Axis) US West (R Axis) US South (R Axis)
Bill
ion
Bf
Source: US Census Bureau & Statistics Canada, West Fraser Forecast
Lumber production growth constrained
13
North American Lumber Supply & Demand
Source: US Census Bureau & Statistics Canada, West Fraser Forecast
52
54
56
58
60
62
64
66
68
70
2015 2016 2017F 2018F 2019F 2020F
Production Demand On North American Mills
Bill
ion
Bf
Imports 2005: 3 billion
Imports 2016: 900 million 2020:
4.3 billion
Potentially growing gap in lumber supply
14
North American Lumber Capacity
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
We
st F
rase
r
Can
for
We
yco
Inte
rfo
r
GP
Sie
rra
Pac
ific
Re
solu
te
Tolk
o
Ham
pto
n
We
ste
rn
Mmfbm Top 10 Lumber Capacity
Top 10 make up 44% of Capacity
West Fraser has largest share of a growing market
Source: Company reports, FEA
15
China Imports of Logs and Lumber (M M3)
Source: General Administration of Customs of The People’s Republic of China
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Lumber Logs
Demand from China continues to grow
16
North American Offshore Lumber Exports
2.7 3.0
3.2 3.2 3.5
4.8
6.5 6.5
6.9
6.3
5.9 5.5
0
1
2
3
4
5
6
7
8
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Offshore Exports US Offshore Exports Canada Total
Bill
ion
Bf
Source: US Census Bureau & Statistics Canada
Volume has been directed away from export markets
17
Returns on Lumber
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Q1
-17
Ebitda Margin (%)- Lumber
Average: 15.7%
Current margins above long term average
West Fraser Overview
19
Our Strategy
Operational Excellence
Geographic Diversification
Product Diversification
Integration
Straightforward strategy for success in all market conditions
20
Operational Excellence
Straightforward, consistent business
model
Internal and external benchmarking
Continuous reinvestment
Cost control and efficiency
Managing to ensure a committed
workforce
Focused on continuous improvement in all aspects of the business
21
Operations diversified by geography
Geographic diversification
B.C. 38%
Alberta 25%
U.S. 37%
Lumber Capacity
Strong presence in key lumber producing regions
22
LUMBER 28 mills
PANELS 7 mills
PULP & PAPER 5 mills
SPF 4.1 Bfbm SYP 2.4 Bfbm Total 6.5 Bfbm
Plywood: 850 MMsf3/8” MDF: 250 MMsf3/4” LVL: 3.2 MMcf
NBSK: 570 Mtonnes BCTMP: 680 Mtonnes Newsprint: 135 Mtonnes
Product Diversification
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Lumber Pulp Panels
Diversified across multiple end uses
23
Pulp End-Use Products
Printing and
Writing Papers
31%
Tissue 31%
Specialty Papers
19%
Fluff Based
Products 10%
Boxboard 5%
Other 4%
Source: PPPC 2013
Chemical Pulp
Boxboard 44%
Printing & Writing
41%
Specialty Papers
8%
Newsprint 4%
Other 3%
Source: PPPC 2013
Mechanical Pulp
Multiple end uses and markets
24
• Reinvest profits to lower costs, improve efficiency
through technology and improved processes
• Capital spending in 2016 of $273 million
• Estimated 2017 spending of $300 million and
normalized spending between $175 and $225
million
• Growth through opportunistic acquisitions focused
on solid wood
Capital Strategy
Prudent Capital Deployment
25
0
100
200
300
400
500
2012 2013 2014 2015 2016
Lumber Pulp Other
$ Millions
West Fraser Capital Spending
• Over the past five years, we’ve spent
approximately $1.4 billion to modernize
our facilities
Reinvesting for long term sustainability
26
$1.4B in capital projects
Major rebuilds of 10 sawmills Upgraded 12 planers
Built 6 energy and bioproducts projects
Added 28 continuous kilns
27
Earnings Summary
2017 Q1 2016 2015
Sales 1,189 4,450 4,100
Adjusted EBITDA 245 674 417
Earnings 123 326 104
Strong Q1 Results
28
• Proven ability to generate strong cash flow, even in
worst markets
• Consistent, straightforward business plan
• Loyal, long-term employee and management base
• Conservative financial management coupled with
proven ability to grow strategically
• Strong historical shareholder returns
Why Invest in West Fraser?
Attractive investment fundamentals
29
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2016 2015 2014
WFT CFP IFP
Cdn$ Million
Share Value Traded
Strong liquidity profile
30
0
50
100
150
200
250
2013 2014 2015 2016
Share Buy-back
Dividends
Significant Cash Returned to Shareholders $ M
ILLIO
NS
Flexible capital deployment strategy
31
June 2006* – April 2017
* June 2006 marked the beginning of the steep decline in U.S. housing starts
Source: TD Bank
12.6%
10.8%
7.9%
5.5% 4.9%
9.8%
8.4%
6.8%
0%
2%
4%
6%
8%
10%
12%
14%
West Fraser Dow DAX S&P/TSX FTSE Competitor A Competitor B Competitor C
Annualized Shareholder Return (Cdn$)
Attractive relative returns
32
$100 invested: June 2006 to April 2017
Total Shareholder Return (Cdn$)
$366
$306
$230
$180 $168
$277
$242
$204
0
50
100
150
200
250
300
350
400
West Fraser Dow DAX S&P/TSX FTSE Competitor
A
Competitor
B
Competitor
C
Source: Toronto Dominion Bank
33
“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 securities of the
Company, and shall not constitute an offer, solicitation or sale of the
Company’s securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful. Securities of the Company may
not be offered or sold in the United States absent their prior
registration or qualification or an applicable exemption from the
applicable registration or qualification requirements.
34
APPENDIX
35
Earnings Sensitivity to Key Variables (2016)
Estimated Earnings Sensitivity to Key Variables 1
(based on 2016 production - $ millions)
Factor Variation Change in pre - tax e arnings
Lumber price US$ 1 0 ( per Mfbm ) 80
Plywood price Cdn $ 1 0 ( per Msf ) 8
NBSK price US$ 1 0 ( per tonne ) 7
BCTMP price US$ 1 0 ( pe r tonne ) 9
U.S. – Canadian $ exchange rate 2 US$0.01 ( per Cdn $ ) 30
1. Each sensitivity has been calculated on the basis that all other variables remain constant and assumes year end foreign exchange rates.
2. Excludes exchange impact of translation of U. S. dollar - denominated debt and other monetary items. Reflects the amount of the initial
US$0.01 change; additional changes are substantially, but not exactly, linear.
36
Duty Timelines