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Q4 Earnings
Presentation
February 2020
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.
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
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
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)
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
77Q4 Consolidated Adjusted EBITDA Reconciliation
Diligent management of fibre costs improves profitability
88Q4 Lumber Adjusted EBITDA Reconciliation
Improved pricing, lower fibre costs
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
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.
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
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
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
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