Investor Presentation September 2018
Forward-Looking Statements 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. 2
Market Overview
U.S. Lumber End Use U.S. Lumber End Use 2017 Nonresidential/ Mobile, 6% Single Family Construction, 27% Industrial Production, 24% Multifamily Construction, 4% Residential Improvements, 39% Residential construction and renovation the key driver of lumber demand 4 Source: FEA and WF
North American Lumber Consumption 80 75 72 70 64 64 62 60 58 60 56 53 51 50 48 50 45 43 39 43 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F US Consumption Canadian Consumption Demand for lumber expected to grow by 2 billion board feet per year 5 Source: US Census Bureau, Statistics Canada, West Fraser Forecast
Impact on lumber demand • 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 of 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. U.S. Lumber Consumption (Billion ft) 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F Housing Construction Repair/Remodeling Industrial/Other Modest housing growth expected to continue to grow demand for lumber 6 Source: FEA Forecast 09-18
North American Lumber Production 80 25 70 20 60 50 15 40 Billion Bf 10 30 20 5 10 0 0 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) Lumber production growth constrained in multiple regions 7 Source: US Census Bureau & Statistics Canada, West Fraser Forecast
Annual Allowable Cut on the decline in British Columbia British Columbia Interior 70 16 65 14 Billion BF (softwood lumber production) 60 12 Million m3 (AAC & Harvest) 55 10 50 8 45 6 40 4 Log supply constraints will create price 35 2 pressure 30 0 AAC (m3) Harvest (m3) Softwood Lumber Production (BBF) Pine beetle and fires impacting log supply 8 Source: FEA
Regional share of North American Lumber Production 35% 30% 25% 20% 15% 10% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Canada West Canada East US South US West Western Canada supply facing reduced by log availability 9 Source: US Census Bureau & Statistics Canada,
North American Lumber Supply & Demand 72 Imports Exports Net (Billion bf) 70 2005: 3.0 (2.7) 0.3 2010: 0.5 (4.8) (4.3) 68 2017: 1.4 (5.5) (4.1) 2020: 4.2 Billion bf 66 64 Impact of Announced 62 Capacity additions 60 58 56 54 52 2015 2016 2017 2018F 2019F 2020F Production Demand On North American Mills Production before New Capacity Demand expected to absorb supply 10 Source: US Census Bureau & Statistics Canada, West Fraser Forecast
Pulp End-Use Products Chemical Pulp Mechanical Pulp Box Board, 6% Specialty, Printing 8% Fluff, 10% and Tissue, Writing, 34% Tissue, 5% 38% Other, 3% Specialty, 22% Printing Box and Board, Writing, 46% 28% Diversified end uses and markets 11 Source: PPPC 2017
Market Pulp Supply and Demand Chemical Pulp BCTMP Chemical Pulp Demand (M tonnes ) • No new major capacity additions 2018 to 2020 30,000 40% • Pulp demand projected to grow 2.2% over next 5 25,000 years 35% • 20,000 Demand growth driven by tissue and packaging demand 15,000 30% • Growth will be primarily in Asia 10,000 25% • Conversions of chemical hardwood to dissolving pulp 5,000 will constrain hardwood pulp supply 0 20% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 China Demand % of World Demand (R axis) Growth in China demand for pulp creates favorable market dynamics 12 Source: PPPC
West Fraser Overview
Integration - We Attain Value from 100% of Our Resources Sustainably managed forest lands Reforestation Lumbe ber Ply lywood od Reman anuf ufact actur urer ers Sawdust ust and shaving vings Chip ips Bark k (Fuel el) Supply y agreem emen ents s BCTMP Pulp lp NBSK Pulp lp MDF Bio ioprod oduct ucts Heat and Ele lect ctrici icity (e.g. e.g. pelle llet pla lants) nts) Integrated fiber strategy to maximize the value of the log 14
Operations & Sales diversified by geography & markets Lumber Capacity B.C. 34% U.S. 43% Alberta 23% Sales by Region Other Other Asia 1% 7% China 11% US 60% Canada 21% Strong presence in key lumber producing regions and forest product markets 15
Product Diversification LUMBER PANELS PULP & PAPER 34 mills 7 mills 5 mills SPF 4.1 Bfbm Plywood: 850 MMsf3/8” NBSK: 570 Mtonnes SYP 3.1 Bfbm MDF: 250 MMsf3/4” BCTMP: 680 Mtonnes Total 7.2 Bfbm LVL: 3.2 MMcf Newsprint: 135 Mtonnes 2017 Revenue Mix: Lumber Pulp Panels 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Diversified across multiple end uses 16
North American Lumber Capacity Mmfbm 8,000 7,000 Top 10 make up 48% of Capacity 6,000 5,000 4,000 3,000 2,000 1,000 0 West Fraser Canfor Weyco Interfor GP Sierra Pacific Resolute Tolko Idaho Forest Hampton Source: Public filings, Forest Economic Advisors and West Fraser estimates Changing landscape of US South Sawmilling Top 5 Operators West Fraser Capacity # of Mills # of Mills Capacity % of Capacity # Mills % of Capacity Capacity 1997 17.4 430 64 5.6 33% - - - 2017 18.5 230 66 9.0 47% 3.1 21 17% Source: Company reports, FEA, Timbermart South West Fraser has largest share of a growing market 17
Financial Results 1 st Half 1 st Half 2017 2016 2018 2017 5 Sales 3,198 2,511 5,134 4,450 Billion Adjusted EBITDA * 972 550 1,160 674 in Adjusted EBITDA margin 30.4% 21.9% 22.6% 15.1% annual sales Earnings 543 269 596 326 Strong pricing resulting in significant earnings growth 18 * Adjusted EBITDA is defined as operating earnings plus amortization, equity based compensation and export duties.
Capital Investment Strategy • Reinvest profits to lower costs, improve efficiency through technology and improved processes • Capital spending in 2017 of $336 million New merchandiser and debarker in High Prairie, Alberta • Cumulative capital spending of $1.6B between 2013 and 2017 • Growth through opportunistic acquisitions focused on solid wood New mill being constructed in Opelika, Alabama Prudent capital deployment 19
$1.6B in capital projects Major rebuilds of 10 sawmills Upgraded 8 planers Built 6 energy and bioproducts Added 30 continuous kilns projects 20 Years: 2013-2017
Opelika, Alabama Case Study Investment Rationale • Excellent timber drain • Solid existing work force • Proximity to markets • Site infrastructure • Attractive payback • Low execution risk Project Highlights • Increased capacity of ~ 100Mfbm • Climate controlled operator environment • Completed on time and on budget • Improved grade & recovery • Leading technology Successful modernization expected to result in a high performing mill 21
Cumulative capital allocation $3,000 2015 through June 2018 $2,500 $2,000 $1,002 $1,500 $619M returned to shareholders $2,390 (45% of free cash flow) $602 $54 $1,000 $96 $523 $500 $30 $1.6B Reinvested in the $251 business $0 Cash from Capex Acquisitions Debt service Dividends Buybacks Other Retained operations and cash flow leverage Consistently deploying capital to create value Free cash flow is defined as cash flow from operations less capital expenditure 22
Share buybacks - history Cumulative Shares repurchased (thousands of share) 13,439 15,000 10,000 7,849 7,603 5,000 3,297 2,218 65 0 2013 2014 2015 2016 2017 2018 Cumulative investment in repurchases (Millions of dollars) $907 $1,000 $382 $365 $500 $175 $115 $3 $0 2013 2014 2015 2016 2017 2018 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 Track record of returning capital to shareholders 23 As of September 7, 2018
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