Scotiabank INVESTOR PRESENTATION San Antonio, Austin and Dallas, - - PowerPoint PPT Presentation

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Scotiabank INVESTOR PRESENTATION San Antonio, Austin and Dallas, - - PowerPoint PPT Presentation

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Scotiabank INVESTOR PRESENTATION San Antonio, Austin and Dallas, Texas May 28 and 29, 2014 Forward-Looking Statements This presentation and comments associated with it contain forward-looking statements including statements relating to U.S.

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Scotiabank INVESTOR PRESENTATION

San Antonio, Austin and Dallas, Texas May 28 and 29, 2014

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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 2013 Annual Management’s Discussion & Analysis which can be accessed on the Company website www.westfraser.com.

Forward-Looking Statements

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  • 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

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  • 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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Annualized Shareholder Return (Cdn$)

15.3% 2.8% 4.9% 12.9% 11.4% 4.8%

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

Source: TD Bank

June 2006* – May 2, 2014

* June 2006 marked the beginning of the steep decline in U.S. housing starts

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Strong Cash Generation ($millions)

Total Q1-2014 2013 2012 2011 2010

Cash from Operations 1,081 (39) 419 195 85 421 Capital Expenditures 912 93 358 159 213 89 Acquisitions 90 60

  • 30
  • Dividends

86 6 24 24 24 8

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Diversification

PRODUCTS

  • Lumber
  • Panels
  • Market pulp
  • Newsprint

GEOGRAPHY

  • Western

Canada

  • U.S. South

MARKETS

  • North

America

  • Asia
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LUMBER

29 mills

PANELS

6 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: 590 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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Lumber 66% Panels 11% Pulp & Paper 23%

Trend Sales Mix ($)

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Geographic Diversification

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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% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1-14

EBITDA margin (%) - Lumber

Average: 16%

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U.S. Housing

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 2018

Production Underlying Demand

Million Units

Source: FEA, Q1 2014

Significant pent up demand bodes well for long-term recovery

Pent Up Housing Demand (conventional + mobile)

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200 400 600 800 1,000 1,200 1,400 1,600 1,800 Mortgage Bankers Wells Fargo NAHB FEA APA RISI Mesirow Financial Royal Bank Average

'000s

U.S. Housing Forecast (2014 & 2015) Single & Multi Family

Source: APA, April 2014

U.S. Housing

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Canadian Shipments to China

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

2006 2007 2008 2009 2010 2011 2012 2013 MMfbm

Source: Council of Forest Industries, December 2013

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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10 20 30 40 50 60 70 80 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Annual Allowable Cut

BC Interior Quebec Ontario

Canadian Fibre Supply

Million (M3) Forecast

Source: FEA, Q4 2013

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West Fraser Lumber Production

77% 12% 11%

2004 2.8 Bfbm

48% 21% 31%

2013 5.2 Bfbm

B.C. Interior Alberta U.S. South

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West Fraser Lumber Capacity

Geographic diversification in lumber

B.C. 40% Alberta 23% U.S. 37%

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5 10 15 20 25 2000 2002 2004 2006 2008 2010 2012 2014 2016

28.5 Bfbm of deferred sawtimber volume

U.S. South Positive Timber Inventory

Drain Projected Excess Growth

Bfbm, Int’l

Source: FEA, Q4 2013

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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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Pulp & Paper Sales Mix – 2013 ($)

North America, 38% Asia, 56% Europe, 6%

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Pulp - NBSK End-Use Products

Tissue/ Towel 55% Board 14% Uncoated Paper 10% Coated Paper 11% Specialty 10% West Fraser 2013 shipments: 510,100 Metric Tonnes

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Pulp - BCTMP End-Use Products

Tissue/Towel 1% Specialty 8% Uncoated Paper 23% Coated Paper 21% Board 47%

West Fraser 2013 shipments: 599,759 Metric Tonnes

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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

Cdn$/tonne

North American Newsprint Cost Structure

Par Exchange Rate

ANC

Source: PPPC Cost Survey 2011

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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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Power Generation from Biomass

Cariboo pulp mill turbo-generator (completed)

  • Mill achieved energy self-sufficiency and excess power sold to

B.C. Hydro

Slave Lake pulp mill biomethanation project

  • Estimated startup late 2014

B.C. Hydro (Phase II) power generation projects

(at two sawmills)

  • Estimated startups: Q3 and Q4 - 2014
  • Long-term contracts to sell power to B.C. Hydro
  • Projected to reduce costs and contribute to sawmill earnings

when completed

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

  • Anticipate several years of “catch up” capital

spending including 2014 estimated to exceed $300 million

Capital Strategy

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Earnings Sensitivity to Key Variables (2013)

Estimated Earnings Sensitivity to Key Variables

1

(based on 2013 production

  • $ millions)

Factor Variation Change in pre

  • tax e

arnings Lumber price US$ 1 ( per Mfbm ) 55 Plywood price Cdn $ 1 ( per Msf ) 8 NBSK price US$ 1 ( per tonne ) 5 BCTMP price US$ 1 ( pe r tonne ) 6 U.S. – Canadian $ exchange rate

2

US$0.01 ( per Cdn $ ) 21

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.

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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

Why Invest in West Fraser?

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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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Lumber Operating Rate - 2013

90% 79% 87% 80% 78% 74% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% % of Capacity

WFT Canada B.C. Interior Canada U.S. South WFT U.S.

U.S.

Low-cost structure allows for higher operating rates in down market

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Acquisition of Buchanan Lumber, High Prairie, Alberta

  • Acquisition includes:

– High Prairie sawmill (current capacity of 110 MMfbm) – Related real estate and transportation business – Timber harvesting rights with AAC of 430,000 m3 of coniferous and 21,000 m3 of deciduous timber

  • Purchase price of $55.4 million plus working capital

paid in cash at closing (April 3, 2014)

  • 180 employees

West Fraser intends to expand capacity to approximately 175 MMfbm through an estimated capital investment of $15 million.

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Acquisition of Travis Lumber, Mansfield, Arkansas

  • Western Arkansas sawmill

with a workforce of 140

  • Purchase price of US$46 million

(C$51 million) plus working capital paid in cash at closing (March 7, 2014)

  • Current capacity of 110 MMfbm

West Fraser is planning expansion to approximately 150 MMfbm through an estimated US$10 million (C$11 million capital) investment.

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Acquisition of Bibler Bros., Russellville, Arkansas

  • Well-capitalized mill with

190 employees and annual capacity of approximately 160 MMfbm

  • Purchase price of US$61 million

(C$67 million) plus working capital payable in cash at closing (anticipated April 25, 2014)

  • Will be West Fraser's fourth sawmill located in Arkansas
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BRITISH COLUMBIA

SMITHERS HOUSTON QUESNEL WILLIAMS LAKE CHETWYND FRASER LAKE SLAVE LAKE BLUE RIDGE CHASM 100 MILE SUNDRE HINTON EDSON HIGH PRAIRIE

ALBERTA

2014 2012

Recent Growth

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ARKANSAS

LITTLE ROCK

MANSFIELD RUSSELLVILLE HUTTIG LEOLA NEW BOSTON (TEXAS) 2014

Recent Growth