q1 earnings presentation earnings...improved pricing and lower fibre costs in lumber segment. q1...
TRANSCRIPT
Q1 Earnings
Presentation
April 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, (Annual MD&A) and for the interim period
ended March 31, 2020 (Q1 MD&A), and the company’s annual audited
and interim financial statements for such periods 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 Annual MD&A and in
our Q1 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 Q120
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)
2018 2019 2020
Seasonally adjusted:
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
Source: Statistics Canada, US Census Source: PPPC
4.0
4.5
5.0
5.5
6.0
6.5
J F M A M J J A S O N D
MM
to
nn
es
World Chemical Pulp Shipments
2018 2019 2020
2018: 61.1
2019: 63.5
2020: 9.63 YTD0
100
200
300
400
500
600
J F M A M J J A S O N D
MM
fbm
North America Offshore Exports
2018 2019 2020
2018: 5,967
2019: 4,960
2020: 551 YTD
44
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2018 2019 Q12020
North America Curtailments Impact
Announced
to date in Q1
Supply conditions
0
20
40
60
80
BC Canada USSouth
US Total NA
Lumber Supply
2018 2019
Down 26%
Down 11%
Down 1%
Down 5%
Up 2%
Source: WWPA, SFPA, COFI Source: Analyst reports, public filings, management estimates
Billion fbmMMfbm
Volatile supply chain expected in short term
Source: Statistics Canada, US Census, FEA
0
50
100
150
200
250
300
350
400
450
Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20
MM
fbm
North America Offshore Imports
2018: 1,5482019: 1,465
55
* 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 Q1-20 Q4-19
Lumber $ 106 $ 69
Panels 8 13
Pulp & Paper 11 (1)
Corporate/Other 2 (1)
Total $ 127 $ 80
Adjusted EBITDA
margin
10.06% 7.09%
Q1-20 Q4-19
Sales $ 1,195 $ 1,129
Cost and Expenses 1,182 1,152
Restructure/Impairment - 8
Operating earnings 13 (31)
Finance Expense (16) (13)
Other 12 (2)
Earnings before Tax $ 9 $ (46)
Tax recovery 3 4
Net earnings $ 12 $ (42)
Improved pricing and lower fibre costs in lumber segment
66Q1 Consolidated Adjusted EBITDA Reconciliation
Improved pricing and fibre costs
$ millions
77Q1-20 versus Q4-19
$ millions unless
otherwise indicatedQ1 2020 Q4 2019 Change
Lumber Production (MMfbm) 1,501 1,423 78BC operations on full schedule most of the quarter
compared to variable operating schedules in Q4
Lumber Shipments (MMfbm) 1,426 1,385 41Increase SYP shipments, some delays in SPF from rail
blockades
Adjusted EBITDA $127 $80 $47Selling prices, favorable Canadian exchange rate
movements, improved fiber costs
Cash flow from operations ($122) $40 ($162) Seasonal log inventory build consumes working capital
Capital Expenditure $59 $87 ($28)Significant projects underway in prior year, carryover
spend moderating in second half
Net Debt
Net Debt to Capital
$1,325
33%
$1,051
30%
$274
3%
Net debt increased for working capital build, additional
liquidity available, significant financial flexibility and wide
margin of safety
Cumulative duties on deposit
US$$407 $373 $34 Deposits continue at 23.56% until AR1 finalized
Limited impacts of COVID-19 in the quarter
88
$0
$200
$400
$600
$800
$1,000
2017 2018 2019 Q119 Q419 Q120
Available liquidity
Bank lines Cash Additional Facility
Liquidity
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2020 2021 2022 2023 2024
Term loan Notes Revolvers
Scheduled maturities
Ample financial flexibility
Cash consists of cash and short-term investments less cheques issued in excess of funds on deposit.
0%
20%
40%
60%
2017 2018 2019 Q119 Q419 Q120
Financial Covenants
Actual Maximum
Additional liquidity levers
• Approximately $125M of income tax refunds pending
• Seasonal log inventory draw down through Q2 and
Q3
• Government payment deferral programs start in Q2
99Summary
✓ Fibre costs continue to improve
sequentially
✓ Pulp markets showing signs of
improvement compared to
second half of 2019
✕ COVID-19 impacts late in the
quarter necessitates downtime
across all segments
✕ Uncertain business environment
going forward
✓ Operational excellence on variable
schedules
✓ Preserve and manage liquidity
conservatively, working capital
contraction
✓ Complete Dudley and Opelika
projects
Q1 2020 Recap Balance of Year Focus