rbc capital markets forest products investor day capital markets forest products investor day...
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RBC Capital Markets Forest
Products Investor Day
INVESTOR PRESENTATION April 16, 2015 Toronto, Ontario
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 2014
Annual Management’s Discussion & Analysis which can be
accessed on the Company website www.westfraser.com.
Forward-Looking Statements
3
• 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
Our Goals
4
• Operational excellence
• Diversification
• Product differentiation
• Integration
Our Strategy
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• Managing to ensure a committed workforce
• Cost control and efficiency
• Continuous reinvestment
• Internal and external benchmarking and
competition
• Straightforward, consistent business model
Operational Excellence
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LUMBER 27 mills
PANELS 7 mills
PULP & PAPER 5 mills
SPF 3.9 Bfbm SYP 2.3 Bfbm Total 6.2 Bfbm
Plywood: 830 MMsf3/8” MDF: 300 MMsf3/4” LVL: 3.2 MMcf
NBSK: 570 Mtonnes BCTMP: 650 Mtonnes Newsprint: 135 Mtonnes
Product Diversification
• North America’s largest lumber producer
• Largest plywood producer in Canada
• Third largest pulp producer in Canada
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Lumber66%
Panels11%
Pulp & Paper23%
Trend Sales Mix ($)
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Operations diversified by geography
Geographic diversification
B.C. 40%
Alberta 23%
U.S. 37%
Lumber Capacity
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• Wood as the best environmental choice
• Renewable resource, sustainable business
• Expanding applications
• Bioenergy, full use of the resource
Product Differentiation
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• 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
Integration (in Canada)
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Demand - North American housing
- Chinese construction and
industrial applications
- Japanese housing
Supply - Fibre limitations
- Residual offtake
- Mill closures
- People
Efficiency - Capital investment
- Business model
Earnings Growth Drivers - Lumber
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Returns on Lumber
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
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91
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20
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20
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EBITDA Margin (%) - Lumber
Average: 16%
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U.S. Housing M
illio
n U
nit
s
Source: FEA, Q4 2014
Significant pent up demand bodes well for long-term recovery
Pent Up Housing Demand (conventional + mobile)
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Production Underlying Demand
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50%
55%
60%
65%
70%
75%
80%
85%
90%
30 year average share = 76%
US Housing
Single Family Share well below 30 year average Share of single-family housing starts
Source: FEA
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Unlike Single-Family, Multi-family has Recovered
Source: U.S. Census Bureau
0
50
100
150
200
250
300
350
400
450
500
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Thousands
Single-Family (Left Scale) Multi-Family (Right Scale)
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U.S. Lumber End Use
U.S. Lumber End-use 2013 U.S. Lumber End-use Normalized
Source: FEA and WF
Single Family Construction,
24%
Multifamily Construction, 3%
Residential Improvements,
38%
Industrial Production, 30%
Nonresidential/Mobile, 5%
Single Family Construction,
37%
Multifamily Construction, 4%
Residential Improvements,
29%
Industrial Production, 23%
Nonresidential/Mobile, 7%
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Canadian Shipments to China
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2006 2007 2008 2009 2010 2011 2012 2013 2014
Mm
fbm
Source: Council of Forest Industries, February 2015
Equivalent to 300,000 housing starts *
* Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family)
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B.C. Shipments to Japan
0
20
40
60
80
100
120
140
0
200
400
600
800
1,000
1,200
1,400
1,600
2006 2007 2008 2009 2010 2011 2012 2013 2014
Shipments 2x4 Starts
Source: Council of Forest Industries, February 2015
Mmfbm Thousand 2x4 Starts
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North American Lumber Capacity
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Canadian Fibre Supply M
illio
n (
M3
)
Source: FEA, Q4 2014
0
10
20
30
40
50
60
70
80
19
90
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91
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20
19
20
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Annual Allowable Cut
Quebec Ontario BC Interior
Forecast
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U.S. South Positive Timber Inventory
Bfbm Int’l ¼”
Source: FEA, Q4 2014
0
5
10
15
20
25
30
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Growth Drain
Projected Excess Growth
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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 production
Reliability - Capital
- Technology
Earnings Growth Drivers - Pulp
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Chemical 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
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BCTMP Pulp End-Use Products
Boxboard 44%
Printing & Writing 41%
Specialty Papers 8%
Newsprint 4%
Other 3%
Source: PPPC 2013
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Alberta Newsprint is the lowest cost newsprint producer in North America
and a positive contributor to the profitability of our pulp and paper business
Paper — Newsprint
Source: PPPC Cost Survey 2012
Cd
n$
/to
nn
e
North American Newsprint Cost Structure Par Exchange Rate
ANC
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• 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
electricity levering off current business
Energy Opportunities
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• Reinvest profits to lower costs, improve efficiency
through technology and improved processes
• Estimate normalized annual capital spending
between $150 and $225 million
• Capital spending in 2014 of $410 million and
spending in 2015 to approximate $300 million
• Growth through opportunistic acquisitions focused
on solid wood
Capital Strategy
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West Fraser Capital
159
358
410
0
50
100
150
200
250
300
350
400
450
2012 2013 2014
Capital Spending
Maintenance Timber Profit Improvement Energy
$ Million
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• 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?
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Strong Cash Generation ($millions)
Total 2014 2013 2012 2011 2010
Cash from Operations 1,595 475 419 195 85 421
Capital Expenditures 1,229 410 358 159 213 89
Acquisitions 238 208 - 30 - -
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Annualized Shareholder Return (Cdn$)
16.4%
7.0%
2.6%
11.6% 11.2%
7.6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
West Fraser Dow S&P/TSX Competitor A Competitor B Competitor C
June 2006* – March 31, 2015
* June 2006 marked the beginning of the steep decline in U.S. housing starts
Source: TD Bank
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Share Value Traded
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2014 2013 2012
WFT CFP IFP
Cdn$ Million
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“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.
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APPENDIX
35
Earnings Sensitivity to Key Variables (2014)
Estimated Earnings Sensitivity to Key Variables 1
(based on 2014 production - $ millions)
Factor Variation Change in pre - tax e arnings
Lumber price US$ 1 0 ( per Mfbm ) 61
Plywood price Cdn $ 1 0 ( per Msf ) 8
NBSK price US$ 1 0 ( per tonne ) 5
BCTMP price US$ 1 0 ( pe r tonne ) 7
U.S. – Canadian $ exchange rate 2 US$0.01 ( per Cdn $ ) 24
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.