CIBC 20 th Annual Whistler Institutional Investor Conference January 26, 2017
CIBC 20th Annual Whistler
Institutional Investor Conference January 26, 2017
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
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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
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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
• In the last 3 years we’ve planted more than
180 million trees
• West Fraser manages 7 million hectares
of certified sustainably managed forests
• We’ve planted more than 1.6 billion
trees since 1955
• We plant approximately two trees for every
tree we harvest
• Planted in a line, 1.6 billion trees would
circle the earth 15 times
Sustainable Forest Management
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Wood is Good
Source: reTHINK Wood
12
Lumber
Plywood Remanufacturers
Sawdust and shavings Chips Bark (Fuel)
BCTMP Pulp MDF NBSK Pulp Supply agreements
(e.g. pellet plants) Heat and Electricity
Integration - We Attain Value from 100% of Our Resources
Sustainably managed
forest lands
Reforestation
Bioproducts
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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
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Returns on Lumber
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%1
99
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
EBITDA Margin (%) - Lumber
Average: 15%
15
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
U.S. Housing M
illio
n U
nit
s
Source: FEA, 12-16
Significant pent up demand bodes well for long-term recovery
Pent Up Housing Demand (conventional + mobile)
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US Housing
Single Family Share well below 30 year average Share of single-family housing starts
Source: FEA 12-16
50%
55%
60%
65%
70%
75%
80%
85%
90%
70 75 80 85 90 95 0 5 10 15
30 year average share = 76%
17
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,
31%
Multifamily Construction, 4%
Residential Improvements,
34%
Industrial Production, 24%
Nonresidential/Mobile, 7%
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Canadian SPF Shipments to China & Japan
Source: Council of Forest Industries
* Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family)
37 152
359
837
1,590
2,672 2,757
2,882
2,670
2,372
843 787 809
648 789 783 764 837
656 682
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
China Japan
2015 - Equivalent to 270,000 housing starts *
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China Imports of Logs and Lumber (M M3)
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 2016est
Lumber Logs
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
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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
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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
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Innovation & Bioenergy
• Our energy and bioproducts businesses
utilize carbon-neutral biomass fuels such
as bark, wood residuals and other wood
byproducts of our manufacturing process
• Biomass sourced from sustainably
managed forests can contribute to the
reduction of greenhouse gas emissions
• Today, more than half of our energy needs
are met through renewable biomass fuel
sources located at many of our facilities
Products/biomass
photos?
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• Reinvest profits to lower costs, improve efficiency
through technology and improved processes
• Capital spending in 2015 of $250 million
• Estimated 2016 spending of $275 million and
normalized spending between $175 and $225
million
• Growth through opportunistic acquisitions focused
on solid wood
Capital Strategy
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0
100
200
300
400
500
2011 2012 2013 2014 2015
Lumber Pulp
$ Millions
West Fraser Capital Spending
• Over the past five years, we’ve spent
approximately $1.4 billion to modernize
our facilities
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Six Energy and Bioproducts Projects
29
Five Sawmill Rebuilds
30
Eight Planer Rebuilds
31
22 Continuous Kilns
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• Proven ability to generate strong cash flow, even in
worst markets
• Consistent, straightforward business plan
• Loyal, long-term employee and management base
• Conservative financial management coupled with
proven ability to grow strategically
• Strong historical shareholder returns
Why Invest in West Fraser?
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0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2016 2015 2014
WFT CFP IFP
Cdn$ Million
Share Value Traded
34
0
50
100
150
200
250
2013 2014 2015 2016
Share Buy-back
Dividends
Significant Cash Returned to Shareholders
$ M
ILLIO
NS
35
June 2006* – December 31, 2016
* June 2006 marked the beginning of the steep decline in U.S. housing starts
Source: TD Bank
10.5% 10.3%
5.4%
6.9%
3.8%
7.2% 7.1%
4.0%
0%
2%
4%
6%
8%
10%
12%
West Fraser Dow S&P/TSX DAX FTSE Competitor A Competitor B Competitor C
Annualized Shareholder Return (Cdn$)
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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
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.
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APPENDIX
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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.