Q3 Earnings Presentation - West Fraser€¦ · Q3 Earnings Presentation October 2019. 2 General:...
Transcript of Q3 Earnings Presentation - West Fraser€¦ · Q3 Earnings Presentation October 2019. 2 General:...
Q3 Earnings
Presentation
October 2019
22
General: This presentation and comments associated with it contains
historical information, descriptions of current circumstances and
statements about potential future developments and anticipated financial
results. Readers are cautioned that this presentation is qualified in its
entirety by reference to, and must be read in conjunction with, the
information contained in West Fraser Timber Co. Ltd.’s (WFT’s)
management’s discussion and analysis for the annual and interim periods
ended December 31, 2018 and September 30, 2019 respectively,
(MD&A), and the company’s annual audited and interim financial
statements available on SEDAR (www.sedar.com). A person is not
entitled to rely on parts of the information contained in this presentation to
the exclusion of others.
Forward-looking Statements: This presentation contains “forward-
looking statements” (including those under the headings Supply
Conditions and Summary) within the meaning of applicable securities
laws. Forward-looking statements, are presented to provide reasonable
guidance to the reader but their accuracy depends on a number of
assumptions and is subject to various risks and uncertainties. In some
cases, forward-looking statements can be identified by the use of
forward-looking terminology such as “plans”, “targets”, “expects” or
“does not expect”, “an opportunity exists”, “outlook”, “prospects”,
“strategy”, “intends”, “believes”, or variations of such words and phrases
or state that certain actions, events or results “may”, “could”, “would”,
“might”, “will”, “will be taken”, “occur” or “be achieved”. In addition, any
statements that refer to expectations, intentions, projections or other
characterizations of future events or circumstances contain forward-
looking information. Statements containing forward-looking information
are not historical facts but instead represent management’s
expectations, estimates and projections regarding future events or
circumstances. By their nature, forward-looking statements involve
numerous assumptions, inherent risks and uncertainties, both general
and specific, which contribute to the possibility that the predictions,
forecasts and other forward-looking statements will not occur. Actual
outcomes and results of these statements will depend on a number of
factors including those matters described under “Risks and
Uncertainties”, in our MD&A and may differ materially from those
anticipated or projected. Reference should be made to the other factors
discussed in public filings with securities regulatory authorities.
.
Accordingly, readers should exercise caution in relying upon forward-
looking- statements and WFT undertakes no obligation to publicly
update or revise any forward-looking statements, whether written or
oral, to reflect subsequent events or circumstances except as required
by applicable securities laws.
Non-IFRS Measures: This presentation makes reference to certain
non-IFRS measures, such as EBITDA, 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. For further
information regarding the use of non-IFRS measures please refer to the
“Non-IFRS Measures” section in the MD&A External Information:
Where this presentation quotes any information or statistics from any
external source, it should not be interpreted that WFT has adopted or
endorsed such information or statistics as being accurate. Some of the
information presented herein is based on or derived from statements by
third parties and has not been independently verified by or on behalf by
WFT, and no representation or warranty, express or implied, is made as
to, and no reliance should be placed on, the fairness, accuracy,
completeness or correctness of this information or any other information
or opinions contained herein.
Currency: In this presentation, all amounts are in Canadian dollars,
unless otherwise indicated.
Terminology: References in this presentation to “MMfbm” or “mmfbm”
mean million board feet, “SPF” means spruce-pine-fir and “SYP” means
southern yellow pine. For any other technical terms used in this
presentation, please see the Glossary of Industry Terms found in our
most recent Annual Report.
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0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
$250
$260
$270
$280
$290
$300
$310
$320
$330
Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418 Q119 Q219 Q319
Expenditures % change
Demand conditions
0
20
40
60
80
100
120
140
J F M A M J J A S O N D
M S
tart
s
U.S. Housing Starts (not seasonally adjusted)
2017 2018 2019
Seasonally adjusted:
2017: 1,203
2018: 1,250
2019: 1,250 ytd September
Leading indicator of Remodeling Activity
$B
4 Q
trM
ovin
g I
mpro
vem
ents
and R
epairs
4 Q
trM
ovin
g r
ate
of
Change
Source: US Census Bureau Source: Harvard Joint Centre for Housing Studies
0
100
200
300
400
500
600
J F M A M J J A S O N D
MM
fbm
North America Offshore Exports
2017 2018 2019
2017: 5,462
2018: 5,199
2019: 2,773 ytd July
Source: Statistics Canada, US Census
4.0
4.5
5.0
5.5
6.0
J F M A M J J A S O N D
MM
to
nn
es
World Chemical Pulp Shipments
2017 2018 2019
2017: 61.7
2018: 61.1
2019: 40.9 ytd August
Source: PPPC
44
0
200
400
600
800
1,000
1,200
2018Q4 2019 Q1 2019 Q2 2019 Q3
North America Curtailments
Supply conditions
0
5
10
15
20
25
30
35
40
BC Canada US Total NA
Lumber Supply
Ytd 07-18 Ytd 07-19
Down 18%
Down 11%
Flat
Down 5%
Source: Western Wood Products Association, management estimates Source: Industry analysts, public filings, management estimates, FEA
Billion fbm MMfbm
Mix of
temporary
and
permanent
Curtailments potentially have a larger impact on supply going forward
Source: Statistics Canada, US Census
0
100
200
300
400
500
600
Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19
MM
fbm
North America Offshore Imports
2017: 1,4112018: 1,5752019: 866 ytd July
55
* Adjusted EBITDA is defined as operating earnings plus amortization, equity based compensation, restructuring and impairment charges and export duties.
Consolidated Financial Results
$ Millions
Adjusted EBITDA Q3-19 Q2-19
Lumber $ 39 $ 39
Panels 13 10
Pulp & Paper 3 7
Corporate/Other - -
Total $ 55 $ 56
EBITDA margin 4.6% 4.2%
Q3-19 Q2-19
Sales $ 1,190 $ 1,317
Cost and Expenses 1,245 1,375
Restructure/Impairment (1) 26
Operating earnings (54) (84)
Finance Expense (12) (13)
Other 2 (6)
Earnings before Tax $ (64) $ (103)
Tax recovery 19 45
Net earnings $ (45) $ (58)
Diluted EPS $ (0.73) $ (0.92)
Challenging conditions continue
66Q3 Consolidated Adjusted EBITDA Reconciliation
77Q3 Lumber Adjusted EBITDA Reconciliation
88Q3-19 versus Q2-19
$ millions unless
otherwise indicatedQ3
2019
Q2
2019Change
Lumber Production (MMfbm) 1,493 1,536 (43)
(3%)Chasm Closure, 100 Mile House shift reduction, BC variable
operating schedules, offset by US productivity improvements
Lumber Shipments (MMfbm) 1,541 1,686 (145)
(9%)Shift reductions, Chasm closure, AB downtime
Pulp and Paper Shipments
(Mtonnes)
323 305 19
6%Higher NBSK production rates, recovery from maintenance
shut downs
Adjusted EBITDA $55 $56 $(1) Adjusted EBITDA lower in pulp due to lower pricing offset by
increase in panels, lumber flat
Cash flow from operations $116 $187 $(71) Better cash flow before working capital in Q3, smaller working
capital drawdown in Q3
Capital Expenditure $133 $82 $51 Continuing to execute on capital plans and US
South modernization program
Net Debt
Net Debt to Capital
$983
28%
$942
26%
$41Net debt up slightly from prior quarter, significant financial
flexibility and wide margin of safety
Cumulative duties on deposit
US$
$344 $312 $32 Significant duties on deposit
Share buybacks - $31 $(31) Evaluating market conditions
Despite difficult 2019 so far, maintaining focus on priorities
99
-$100
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2017 2018 Q1-17 Q1-18 Q1-19 Q2-19 Q3-19
Available liquidity
Bank lines Cash
Liquidity
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2019 2020 2021 2022 2023 2024
Term loan Notes Revolver
Scheduled maturities
Ample financial flexibility
Cash consists of cash and short-term investments less cheques issued in excess of funds on deposit.
1010Recent US South Capital Projects
McDavid, Florida- New canter line
- Improved recovery
- Greater product mix flexibility
- Unlocks capacity in remainder of mill
Joyce, Louisiana- Log merchandiser
- Improved reliability, reduced operating
costs
- Input flexibility
- Improved recovery
Operationalizing US South Modernization
1111Recent US South Capital Projects
Perry, Florida- Continuous Dry Kilns
- Grade improvements
- Removes bottleneck, unlocks capacity in
remainder of mill
- Energy efficiency and residuals utilization
Augusta, Georgia- Planer mill
- Grade improvements
- Improved working conditions to reduce
turnover, increase throughput
- Reduced operating costs
Operationalizing US South Modernization
1212Summary
✕ Continued headwinds in lumber
and pulp pricing
✕ B.C. fiber costs remain elevated
✓ Improved production rates in
NBSK
✓ Completed permanent lumber
capacity reductions at Chasm
and 100 Mile House
✓ Diligently managing operating
schedule in B.C.
✓ Softwood pulp market showing
signs of stability
✓ Ramp down of B.C. lumber
supply underway
✓ Significant financial flexibility to
continue to execute strategy
✓ Operationalizing US South capital
projects
Q3 Update Q4 Outlook