bmo 2016 timber & wood products summit - west fraser · bmo 2016 timber & wood products...
TRANSCRIPT
BMO
2016 Timber & Wood Products
Summit INVESTOR PRESENTATION May 10, 2016 | Seattle, Washington
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 2015
Annual Management’s Discussion & Analysis which can be
accessed on the Company website www.westfraser.com.
Forward-Looking Statements
3
WEST FRASER
THEN
NOW
OUR GOALS
are to develop and maintain…
Excellence in
Performance and People
Leadership in our Field
Challenge and
Satisfaction
Responsibility in the
Communities in Which we
Work
Profitability
Growth
4
• Operational excellence
• Diversification
• Product differentiation
• Integration
Our Strategy
5
• Managing to ensure a committed workforce
• Cost control and efficiency
• Continuous reinvestment
• Internal and external benchmarking and
competition
• Straightforward, consistent business model
Operational Excellence
6
LUMBER 28 mills
PANELS 7 mills
PULP & PAPER 5 mills
SPF 4.0 Bfbm SYP 2.3 Bfbm Total 6.3 Bfbm
Plywood: 830 MMsf3/8” MDF: 250 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
7
Lumber66%
Panels11%
Pulp & Paper23%
Trend Sales Mix ($)
8
Operations diversified by geography
Geographic diversification
B.C. 39%
Alberta 24%
U.S. 37%
Lumber Capacity
9
• Wood as the best environmental choice
• Renewable resource, sustainable business
• Expanding applications
• Bioenergy, full use of the resource
Product Differentiation
10
• 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)
11
Demand - North American housing
- Residential improvements
- Chinese construction and
industrial applications
- Japanese housing
Supply - Fibre limitations
- Residual offtake
- Mill closures
- People
Efficiency - Capital investment
- Business model
Earnings Growth Drivers - Lumber
12
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
EBITDA Margin (%) - Lumber
Average: 15%
13
U.S. Housing M
illio
n U
nit
s
Source: FEA, 03-16
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
14
US Housing
Single Family Share well below 30 year average Share of single-family housing starts
Source: FEA
50%
55%
60%
65%
70%
75%
80%
85%
90%
70 75 80 85 90 95 0 5 10 15
30 year average share = 76%
15
Unlike Single-Family, Multi-family has Recovered
Source: U.S. Census Bureau
0
100
200
300
400
500
600
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 2015 2016
Thousands
Single-Family (Left Scale) Multi-Family (Right Scale)
16
U.S. Lumber End Use
U.S. Lumber End-use 2015 U.S. Lumber End-use Normalized
Source: FEA and WF
Single Family Construction,
26%
Multifamily Construction, 4%
Residential Improvements,
37%
Industrial Production, 28%
Nonresidential/Mobile, 5%
Single Family Construction,
37%
Multifamily Construction, 4%
Residential Improvements,
29%
Industrial Production, 23%
Nonresidential/Mobile, 7%
17
Canadian SPF Shipments to China
Source: Council of Forest Industries
* Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
MM
fbm
2015 - Equivalent to 205,000 housing starts *
18
China Imports of Logs and Lumber
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
Lumber Logs
19
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 2015
Shipments 2x4 Starts
Source: Council of Forest Industries
Mmfbm Thousand 2x4 Starts
20 Source: US Census Bureau & Statistics Canada
NORTH AMERICAN LUMBER PRODUCTION
75 72
65
53
42
47 49
51 54
56 59
0
10
20
30
40
50
60
70
80
7
9
11
13
15
17
19
21
23
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Billion Feet
Total North America (R Axis) BC Interior Rest Of Canada US South Rest of US
21
North American Lumber Capacity
22
Demand - China’s paper, tissue and packaging
demand
- Developing countries’ demand
Supply - European paper capacity closures
- European pulp capacity increases
- China pulp mill closures
- South American capacity increases
Reliability - Capital
- Technology
Earnings Growth Drivers - Pulp
23
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
24
BCTMP Pulp End-Use Products
Boxboard 44%
Printing & Writing 41%
Specialty Papers 8%
Newsprint 4%
Other 3%
Source: PPPC 2013
25
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
26
• 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
27
• Reinvest profits to lower costs, improve efficiency
through technology and improved processes
• Capital spending in 2015 of $220 million
• Capital spending 2012 – 2015 in excess of
$1 billion
• Estimated 2016 spending of $300 million and
normalized spending between $175 and $225
million
• Growth through opportunistic acquisitions focused
on solid wood
Capital Strategy
28
West Fraser Capital
358
410
220
0
50
100
150
200
250
300
350
400
450
2013 2014 2015
Capital Spending
Maintenance Timber Profit Improvement Energy
$ Million
29
• 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?
30
Strong Cash Generation ($millions)
Total 2015 2014 2013 2010-2012
Cash from Operations 1,896 301 475 419 701
Capital Expenditures 1,449 220 410 358 461
Acquisitions 314 76 208 - 30
Debt/Capitalization 22%
31
Share Value Traded
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2015 2014 2013
WFT CFP IFP
Cdn$ Million
32
Annualized Shareholder Return (Cdn$)
12.6%
7.4%
3.9%
7.6% 7.1%
5.3%
0%
2%
4%
6%
8%
10%
12%
14%
West Fraser Dow S&P/TSX Competitor A Competitor B Competitor C
June 2006* – December 31, 2015
* June 2006 marked the beginning of the steep decline in U.S. housing starts
Source: TD 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 (2015)
Estimated Earnings Sensitivity to Key Variables 1
(based on 2015 production - $ millions)
Factor Variation Change in pre - tax e arnings
Lumber price US$ 1 0 ( per Mfbm ) 78
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 $ ) 28
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.