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. 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. 2
Our Goals • 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 3
Our Strategy • Operational excellence • Diversification • Product differentiation • Integration 4
Operational Excellence • Managing to ensure a committed workforce • Cost control and efficiency • Continuous reinvestment • Internal and external benchmarking and competition • Straightforward, consistent business model 5
Annualized Shareholder Return (Cdn$) June 2006* – May 2, 2014 15.3% 12.9% 11.4% 4.9% 4.8% 2.8% West Fraser S&P/TSX Dow Competitor A Competitor B Competitor C * June 2006 marked the beginning of the steep decline in U.S. housing starts 6 Source: TD Bank
Strong Cash Generation ($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 7
Diversification PRODUCTS GEOGRAPHY MARKETS - Lumber - Western - North Canada America - Panels - U.S. South - Asia - Market pulp - Newsprint 8
Product Diversification LUMBER PANELS PULP & PAPER 29 mills 6 mills 5 mills SPF 3.9 Bfbm Plywood: 830 MMsf3/8” NBSK: 590 Mtonnes SYP 2.3 Bfbm MDF: 300 MMsf3/4” BCTMP: 650 Mtonnes Total 6.2 Bfbm LVL: 3.2 MMcf Newsprint: 135 Mtonnes • North America’s largest lumber producer • Largest plywood producer in Canada • Third largest pulp producer in Canada 9
Trend Sales Mix ($) Pulp & Paper 23% Lumber Panels 66% 11% 10
Geographic Diversification 11
Product Differentiation • Wood as the best environmental choice • Renewable resource, sustainable business • Expanding applications • Bioenergy, full use of the resource 12
Integration (in Canada) • 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 13
Earnings Growth Drivers - Lumber Demand - North American housing - Chinese construction and industrial applications - Japanese housing Supply - Fibre limitations - Residual offtake - Mill closures - People Efficiency - Capital investment - Business model 14
-10% 10% 15% 20% 25% 30% 35% 40% -5% 0% 5% Returns on Lumber 1991 1992 1993 1994 1995 1996 1997 1998 EBITDA margin (%) - Lumber 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Average: 16% 2010 2011 2012 2013 Q1-14 15
U.S. Housing Pent Up Housing Demand (conventional + mobile) 2.25 2.00 1.75 Million Units 1.50 1.25 1.00 0.75 Production Underlying Demand 0.50 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Significant pent up demand bodes well for long-term recovery 16 Source: FEA, Q1 2014
U.S. Housing U.S. Housing Forecast (2014 & 2015) Single & Multi Family 1,800 1,600 1,400 1,200 1,000 800 '000s 600 400 200 0 Mortgage Wells NAHB FEA APA RISI Mesirow Royal Average Bankers Fargo Financial Bank 17 Source: APA, April 2014
Canadian Shipments to China 4,000 3,500 Equivalent to 300,000 housing starts * 3,000 2,500 2,000 MMfbm 1,500 1,000 500 0 2006 2007 2008 2009 2010 2011 2012 2013 * Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family) 18 Source: Council of Forest Industries, December 2013
Canadian Fibre Supply 80 Annual Allowable Cut Forecast 70 60 50 Million (M3) 40 30 20 10 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 BC Interior Quebec Ontario 19 Source: FEA, Q4 2013
West Fraser Lumber Production 2013 2004 5.2 Bfbm 2.8 Bfbm 11% 31% 12% 48% 77% 21% B.C. Interior Alberta U.S. South 20
West Fraser Lumber Capacity U.S. B.C. 37% 40% Alberta 23% Geographic diversification in lumber 21
U.S. South Positive Timber Inventory Bfbm, Int’l 25 Drain Projected Excess Growth 20 15 10 28.5 Bfbm of deferred sawtimber volume 5 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 22 Source: FEA, Q4 2013
Earnings Growth Drivers - Pulp 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 23
Pulp & Paper Sales Mix – 2013 ($) Europe, 6% North America, 38% Asia, 56% 24
Pulp - NBSK End-Use Products Specialty 10% Coated Paper 11% Uncoated Tissue/ Towel Paper 55% 10% Board 14% West Fraser 2013 shipments: 510,100 Metric Tonnes 25
Pulp - BCTMP End-Use Products Tissue/Towel Specialty 1% 8% Uncoated Paper Board 23% 47% Coated Paper 21% West Fraser 2013 shipments: 599,759 Metric Tonnes 26
Paper — Newsprint North American Newsprint Cost Structure Par Exchange Rate Cdn$/tonne ANC Alberta Newsprint is the lowest cost newsprint producer in North America and a positive contributor to the profitability of our pulp and paper business 27 Source: PPPC Cost Survey 2011
Energy Opportunities • 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 28
Energy Opportunities 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 29
Capital Strategy • 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 30
Earnings Sensitivity to Key Variables (2013) 1 Estimated Earnings Sensitivity to Key Variables (based on 2013 production - $ millions) Factor Variation Change in pre - tax e arnings Lumber price US$ 1 0 ( per Mfbm ) 55 Plywood price Cdn $ 1 0 ( per Msf ) 8 NBSK price US$ 1 0 ( per tonne ) 5 BCTMP price US$ 1 0 ( pe r tonne ) 6 2 – U.S. Canadian $ exchange rate 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. 31
Why Invest in West Fraser? • 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 32
“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. 33
APPENDIX 34
Lumber Operating Rate - 2013 100% 95% 90% 87% 90% 85% % of Capacity 80% 79% 78% 80% 74% 75% 70% 65% 60% 55% 50% WFT U.S. B.C. WFT U.S. Interior Canada Canada South U.S. Low-cost structure allows for higher operating rates in down market 35
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