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Q4 Earnings Presentation February 2020

q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

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Page 1: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

Q4 Earnings

Presentation

February 2020

Page 2: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

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, 2019, (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.

Page 3: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

33

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

$340

Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418 Q119 Q219 Q319 Q419

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: 1,298

Leading indicator of Remodeling Activity

$B

4 Q

tr M

ovin

g I

mpro

vem

ents

and R

epairs

4 Q

tr M

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: 4,041 ytd November

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: 57.3 ytd November

Source: PPPC

Page 4: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

44

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2018 2019

North America Curtailments Impact(Annualized)

Supply conditions

0

20

40

60

80

BC Canada USSouth

US Total NA

Lumber Supply

Ytd 11-18 Ytd 11-19

Down 21%

Down 11%

Flat

Down 5%

Up 2%

Source: WWPA, SFPA, COFI Source: Analyst reports, public filings, management estimates

Billion fbmMMfbm

Mix of

temporary

and

permanent

Curtailment impact second half of 2019 more significantly

Source: Statistics Canada, US Census

0

50

100

150

200

250

300

350

400

450

500

Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19

MM

fbm

North America Offshore Imports

2018: 1,5742019: 1,533

Page 5: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

55British Columbia Supply Chain Volatility

Production to shipment volatility expected to normalize

250

300

350

400

450

500

550

600

2.2

2.4

2.6

2.8

3

3.2

3.4

3.6

Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19

US

$ / M

fbm

Bill

ion

Boa

rd F

eet

BC Production BC Shipments Random Lengths SPF- 2x4 US 2&Btr (R-axis)

Oversupply from shipment of backlogs

Shipments > Production

Undersupply from transportation delays

Production > Shipments

Working Capital

Liquidation from

Curtailments

(Shipments >

Production)

Page 6: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

66

* 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 Q4-19 Q3-19

Lumber $ 69 $ 39

Panels 13 13

Pulp & Paper (1) 3

Corporate/Other (1) -

Total $ 80 $ 55

Adjusted EBITDA

margin

7.1% 4.6%

Q4-19 Q3-19

Sales $ 1,129 $ 1,190

Cost and Expenses 1,152 1,245

Restructure/Impairment 8 (1)

Operating earnings (31) (54)

Finance Expense (13) (12)

Other (2) 2

Earnings before Tax $ (46) $ (64)

Tax recovery 4 19

Net earnings $ (42) $ (45)

Diluted EPS $ (0.61) $ (0.73)

Improved pricing and lower fibre costs in lumber segment

Page 7: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

77Q4 Consolidated Adjusted EBITDA Reconciliation

Diligent management of fibre costs improves profitability

Page 8: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

88Q4 Lumber Adjusted EBITDA Reconciliation

Improved pricing, lower fibre costs

Page 9: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

99Q4-19 versus Q3-19

$ millions unless

otherwise indicatedQ4 2019 Q3 2019 Change

Lumber Production (MMfbm) 1,423 1,493 (70)

Variable operating schedules in BC, Chasm closure

impact, 100 Mile House shift elimination, partially offset

by increases in Alberta

Lumber Shipments (MMfbm) 1,385 1,541 (156)Less inventory draw down in Q4 than in Q3 (right-sizing

of inventory largely completed in Q3)

Pulp & Paper Shipments

(Mtonnes)338 323 15 Better BCTMP production and shipments

Adjusted EBITDA $80 $55 $25Lower costs, especially in lumber, led to improved

results, price a minor contributor

Cash flow from operations $40 $116 $(76)

Better cash flow before working capital, offset by working

capital changes (lumber drawdown in Q3, log inventory

build in Q4)

Capital Expenditure $87 $133 $(46)Continuing to execute on capital plans, significant

projects completed in first nine months.

Net Debt

Net Debt to Capital

$1,045

30%

$983

28%

$62Net debt up slightly from prior quarter, significant financial

flexibility and wide margin of safety

Cumulative duties on deposit

US$$373 $344 $29 Significant duties on deposit

Impact of 2019 actions taking hold

Page 10: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

1010

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2017 2018 2019 Q3-19 Q4-19

Available liquidity

Bank lines Cash

Liquidity

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

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.

Page 11: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

1111

2020 2019 Changes

SPF Production (MMfbm) 3,250 3,211

Carryover impacts from permanent curtailments

largely offset recapture from temporary curtailments,

additional productivity

SYP Production (MMfbm) 3,000 2,703 Executing on investments

NBSK Production (M tonnes) 490 460 Targeting improved reliability

BCTMP Production (M tonnes) 675 677 Stable operations

Capital expenditure $275 -$325 $410$85-135M lower, Dudley and Opelika represent

majority of 2020 spending

BC fibre costs Curtailments and closures

US / Alberta Fibre Costs Stable pricing environment

2020 Outlook

Modestly improved outlook

Page 12: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

1212Opelika, Alabama Update

2017 2019 Fourth Quarter2019

Production per Hour (mfbm)

2017 2019 Fourth Quarter2019

Cash Manufacturing Costs (mfbm)

2017 2019 Fourth Quarter2019

Employee Turnover

Production

- Continuing to ramp up to targeted productivity

- Trend continues to improve in early 2020

- Steady improvement in product mix and recovery

Manufacturing Costs

- Per unit costs continue to decline with improved

production

- Start-up maintenance costs decreasing

- Reduced turnover improving stability of operations

Human Resources

- Improved working conditions reducing turnover

- Elimination of high turnover risk jobs

- Increased automation

- First U.S. South air conditioned sawmill

Page 13: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

1313Dudley, Georgia Sawmill Modernization

• Complete turn-key modernization at

existing site (sawmill, kilns, planer)

• Increase site capacity by 150 MFBM

• Access additional local fibre supply

• Improved recovery and grade

• Reduced headcount and operating costs

• Improved safety and working conditions

• 5-7 year payback

Strategic deployment of capital

Page 14: q4-2019 earnings presentation - West Fraser€¦ · Q4-19 versus Q3-19 9 $ millions unless otherwise indicated Q4 2019 Q3 2019 Change Lumber Production (MMfbm) 1,423 1,493 (70) Variable

1414Summary

✕ Challenging market conditions

across all commodities

✕ Difficult decisions on BC

footprint executed

✓ Significant capital projects

brought to completion

✓ Inventories rationalized to

production changes

✓ Economic fundamentals appear

constructive

✓ BC fiber costs starting to

moderate

✓ Lower duty rates to take effect in

August of 2020

✓ Focus on operationalizing capital

spend

2019 Recap 2020 Outlook