Investor Presentation September 2018 Forward-Looking Statements - - PowerPoint PPT Presentation

Investor Presentation

September 2018

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This presentation and comments associated with it contain forward-looking statements including statements relating to U.S. housing recovery, demand for lumber, the potential for constrained lumber supply, log cost inflation, lumber industry production, pulp demand and capacity, the timeline associated with countervailing and anti-dumping duty cases, earnings sensitivity and estimated annual capital expenditures. These statements are subject to the cautionary statement which introduces West Fraser’s 2017 Annual Management’s Discussion & Analysis which can be accessed on the Company website www.westfraser.com.

Forward-Looking Statements

Market Overview

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U.S. Lumber End Use

U.S. Lumber End Use 2017

Source: FEA and WF

Single Family Construction, 27% Multifamily Construction, 4% Residential Improvements, 39% Industrial Production, 24% Nonresidential/ Mobile, 6%

Residential construction and renovation the key driver of lumber demand

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Source: US Census Bureau, Statistics Canada, West Fraser Forecast

Demand for lumber expected to grow by 2 billion board feet per year

75 72 64 51 39 43 43 45 48 50 53 56 58 60 62 64

10 20 30 40 50 60 70 80

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F

US Consumption Canadian Consumption

North American Lumber Consumption

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Impact on lumber demand

Source: FEA Forecast 09-18

• Forecasters expect approximately 100 thousand per year

increase in housing starts over the next 3 years

• each US housing start* consumes about 12,200 fbm
• f lumber
• this is equivalent to 1.2 billion feet increase in lumber

demand

• Repair/remodeling and industrial demand is growing at about

3% per year

• this is equivalent to 1.0 billion feet increase in lumber

demand *Assume one housing start is made up of 70% single and 30% multi on average.

Modest housing growth expected to continue to grow demand for lumber

5 10 15 20 25 30 35

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F

U.S. Lumber Consumption (Billion ft)

Housing Construction Repair/Remodeling Industrial/Other

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North American Lumber Production

5 10 15 20 25 10 20 30 40 50 60 70 80

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F

U.S. Canada Canada West (R Axis) Canada East (R Axis) US West (R Axis) US South (R Axis) Billion Bf

Source: US Census Bureau & Statistics Canada, West Fraser Forecast

Lumber production growth constrained in multiple regions

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Annual Allowable Cut on the decline in British Columbia

Source: FEA

2 4 6 8 10 12 14 16 30 35 40 45 50 55 60 65 70 Billion BF (softwood lumber production) Million m3 (AAC & Harvest)

British Columbia Interior

AAC (m3) Harvest (m3) Softwood Lumber Production (BBF)

Log supply constraints will create price pressure

Pine beetle and fires impacting log supply

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Regional share of North American Lumber Production

Western Canada supply facing reduced by log availability

10% 15% 20% 25% 30% 35% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Canada West Canada East US South US West

Source: US Census Bureau & Statistics Canada,

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North American Lumber Supply & Demand

52 54 56 58 60 62 64 66 68 70 72 2015 2016 2017 2018F 2019F 2020F Production Demand On North American Mills Production before New Capacity Imports Exports Net (Billion bf) 2005: 3.0 (2.7) 0.3 2010: 0.5 (4.8) (4.3) 2017: 1.4 (5.5) (4.1)

2020: 4.2 Billion bf

Demand expected to absorb supply

Impact of Announced Capacity additions

Source: US Census Bureau & Statistics Canada, West Fraser Forecast

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Pulp End-Use Products

Chemical Pulp Mechanical Pulp

Diversified end uses and markets

Tissue, 34% Printing and Writing, 28% Specialty, 22% Fluff, 10% Box Board, 6% Box Board, 46% Printing and Writing, 38% Specialty, 8% Tissue, 5% Other, 3%

Source: PPPC 2017

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Market Pulp Supply and Demand

BCTMP Chemical Pulp

• No new major capacity additions 2018 to 2020
• Pulp demand projected to grow 2.2% over next 5

years

• Demand growth driven by tissue and packaging

demand

• Growth will be primarily in Asia
• Conversions of chemical hardwood to dissolving pulp

will constrain hardwood pulp supply

20% 25% 30% 35% 40% 5,000 10,000 15,000 20,000 25,000 30,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Chemical Pulp Demand (M tonnes)

China Demand % of World Demand (R axis)

Source: PPPC

Growth in China demand for pulp creates favorable market dynamics

West Fraser Overview

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Lumbe ber Ply lywood

• d

Reman anuf ufact actur urer ers Sawdust ust and shaving vings Chip ips Bark k (Fuel el) BCTMP Pulp lp MDF NBSK Pulp lp Supply y agreem emen ents s (e.g. e.g. pelle llet pla lants) nts) Heat and Ele lect ctrici icity

Integration - We Attain Value from 100% of Our Resources

Sustainably managed forest lands Reforestation Bio ioprod

• duct

ucts

Integrated fiber strategy to maximize the value of the log

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Operations & Sales diversified by geography & markets

B.C. 34% Alberta 23% U.S. 43%

Lumber Capacity

Strong presence in key lumber producing regions and forest product markets

US 60% Canada 21% China 11% Other Asia 7% Other 1%

Sales by Region

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LUMBER

34 mills

PANELS

7 mills

PULP & PAPER

5 mills SPF 4.1 Bfbm SYP 3.1 Bfbm Total 7.2 Bfbm Plywood: 850 MMsf3/8” MDF: 250 MMsf3/4” LVL: 3.2 MMcf NBSK: 570 Mtonnes BCTMP: 680 Mtonnes Newsprint: 135 Mtonnes

Product Diversification

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2017 Revenue Mix: Lumber Pulp Panels

Diversified across multiple end uses

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North American Lumber Capacity

West Fraser has largest share of a growing market

Source: Company reports, FEA, Timbermart South Top 5 Operators West Fraser Capacity # of Mills # of Mills Capacity % of Capacity Capacity # Mills % of Capacity 1997 17.4 430 64 5.6 33%

• 2017

18.5 230 66 9.0 47% 3.1 21 17% Changing landscape of US South Sawmilling

Source: Public filings, Forest Economic Advisors and West Fraser estimates 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 West Fraser Canfor Weyco Interfor GP Sierra Pacific Resolute Hampton Tolko Idaho Forest Mmfbm

Top 10 make up 48% of Capacity

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* Adjusted EBITDA is defined as operating earnings plus amortization, equity based compensation and export duties.

Financial Results

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Billion in annual sales

1st Half 2018 1st Half 2017 2017 2016 Sales 3,198 2,511 5,134 4,450 Adjusted EBITDA* 972 550 1,160 674 Adjusted EBITDA margin 30.4% 21.9% 22.6% 15.1% Earnings 543 269 596 326 Strong pricing resulting in significant earnings growth

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• Reinvest profits to lower costs,

improve efficiency through technology and improved processes

• Capital spending in 2017 of $336

million

• Cumulative capital spending of

$1.6B between 2013 and 2017

• Growth through opportunistic

acquisitions focused on solid wood

Capital Investment Strategy

Prudent capital deployment

New merchandiser and debarker in High Prairie, Alberta New mill being constructed in Opelika, Alabama

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$1.6B in capital projects

Major rebuilds of 10 sawmills Upgraded 8 planers Built 6 energy and bioproducts projects Added 30 continuous kilns

Years: 2013-2017

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Opelika, Alabama Case Study

Investment Rationale

• Excellent timber drain
• Solid existing work force
• Proximity to markets
• Site infrastructure
• Attractive payback
• Low execution risk

Successful modernization expected to result in a high performing mill

Project Highlights

• Increased capacity of ~ 100Mfbm
• Climate controlled operator

environment

• Completed on time and on budget
• Improved grade & recovery
• Leading technology

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Cumulative capital allocation

Consistently deploying capital to create value $2,390 $251 $1,002 $602 $96 $523 $54 $30

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 Cash from

• perations

Capex Acquisitions Debt service and leverage Dividends Buybacks Other Retained cash flow

$1.6B Reinvested in the business $619M returned to shareholders (45% of free cash flow)

2015 through June 2018

Free cash flow is defined as cash flow from operations less capital expenditure

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Share buybacks - history

Average repurchase price: 2013 2014 2015 2016 2017 2018 To date $44.60 $51.86 $55.57 $44.06 $68.45 $87.79 $65.53 65 2,218 3,297 7,603 7,849 13,439 5,000 10,000 15,000 2013 2014 2015 2016 2017 2018

Cumulative Shares repurchased

(thousands of share) $3 $115 $175 $365 $382 $907 $0 $500 $1,000 2013 2014 2015 2016 2017 2018

Cumulative investment in repurchases

(Millions of dollars)

As of September 7, 2018

Track record of returning capital to shareholders

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Total liquidity and Debt/EBITDA

Strong Liquidity, Conservative leverage profile

$553 $444 $553 $551 $551 $400 $562 $50 $86 $231 $132 $258 $100 $302 $- $200 $400 $600 $800 $1,000 Q4/2016 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Undrawn Bank Lines Cash Total Liquidity Q4/2016 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 0.0 0.3 0.5 0.8 1.0 Debt/EBITDA

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West Fraser Total Shareholder Return

TSR June 2006 to June 2018 Share Value Traded

Source: TD 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 2017 2016 2015

WFT CFP IFP

Cdn$ Million

✓ Proven ability to generate strong cash flow, even in difficult 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

15.1% 11.0% 7.3% 5.7% 4.8% 10.8% 10.0% 8.3%

0% 2% 4% 6% 8% 10% 12% 14% 16%

West Fraser Dow DAX S&P/TSX FTSE Competitor A Competitor B Competitor C

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Lumber V Appeals and Timeline

Preliminary Deposit Rate Final Deposit Rate Current Expense Rate CVD 24.12% 17.99% 17.99% AD 6.76% 5.57% 1.38% Total 30.88% 23.56% 19.37%

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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

• ffer 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

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Earnings Sensitivity to Key Variables (2017)

Estimated Earnings Sensitivity to Key Variables1 (based on 2017 production

• $ millions)

Factor Variation Change in pre-tax earnings Lumber price US$10 (per Mfbm) 78 Plywood price Cdn$10 (per Msf) 8 NBSK price US$10 (per tonne ) 6 BCTMP price US$10 (per tonne) 8 U.S. – Canadian $ exchange rate2 US$0.01 (per Cdn $) 33

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.