INVESTOR PRESENTATION
November 2020
TSX:WEF
Forward Looking Statements and Non-GAAP Financial Measures
All financial references are expressed in C$ unless otherwise noted.
This presentation contains statements and estimates that may constitute forward-looking statements under the applicable securities laws. Readers are cautioned against placing undue reliance on forward-looking statements. All statements herein, other than statements of historical fact, may be forward-looking statements and can be identified by the use of words such as "will", "estimate", "anticipate", "expect", "should", "may", "pursue", "explore" and similar references to future periods.
Forward-looking statements in this presentation include, but are not limited to, statements relating to our current intent, belief or expectation with respect to: domestic and international market conditions, demands and growth; economic conditions; our growth, marketing, product, wholesale, operational and capital allocation plans and strategies including, but not limited to, our dividend plan; our expected operating results; our competitive position and expectations regarding future competition; fibre availability and regulatory developments; the impact of the COVID-19 pandemic; the anticipated closing of the transaction with Huumiis Ventures Limited Partnership and the sale of additional incremental ownership interest in TFL 44 LP and Alberni Pacific Limited Partnership in the future.
Although such statements reflect management's current reasonable beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions, there can be no assurance that forward-looking statements are accurate, and actual results and performance may materially vary. Many factors could cause our actual results or performance to be materially different including: economic and financial conditions, international demand for forest products, competition and selling prices, international trade disputes, changes in foreign currency exchange rates, labour disputes and disruptions, natural disasters, relations with First Nations groups, the availability of fibre and allowable annual cut, developments and changes in laws and regulations affecting the Company or the forestry industry, changes in the price of key materials for our products, changes in opportunities, future developments in the COVID-19 pandemic and other factors discussed in the Company's annual MD&A, which is available on our website at www.westernforest.com. The foregoing list is not exhaustive, as other factors could adversely affect our actual results and performance. Forward-looking statements are based only on information currently available to us and refer only as of the date hereof. Except as required by law, we undertake no obligation to update forward-looking statements.
During the course of this presentation, certain non-GAAP financial information will be presented. Definitions and reconciliation of terms can be found in the Company's annual and quarterly MD&A for Western Forest Products Inc. (the "Company").
1
Section 1:
Company Snapshot
Investment Highlights
Margin-focused strategy with exposure to growing lumber demand
High-value, diverse products serving global markets
Business of scale and leader in our key markets
Strong financial position and liquidity
Specialty product focus provides greater earnings stability compared to commodity lumber peers
Superior timber asset base and secure fibre supply Committed to enhancing and growing shareholder value
Western is well-positioned to capitalize on improving market fundamentals | 3 |
Operations Snapshot
Margin-focused, specialty lumber |
company |
- Leading cedar lumber, timbers and |
Japan square manufacturer in |
North America |
Serve global markets from Coastal |
B.C. and Washington |
Expanded operations into the U.S. |
Pacific Northwest in 2018 and 2019 |
Lumber capacity in excess of one |
Sawmill
Remanufacturing
Distribution Centre
British Columbia
Vancouver (Head Office)
Arlington (acquired 2018)
Washington
| billion board feet at eight sawmills |
| Four remanufacturing facilities and |
a distribution centre |
Columbia Vista (acquired 2019)
Canada |
U.S. |
See Appendix for detailed listing of sawmills and remanufacturing facilities
Strategically located manufacturing locations with secure fibre supply | 4 |
Financial Snapshot
- 5-Yearaverage annual revenue1 of $1.1 billion
- 5-Yearaverage annual EBITDA1 of $112 million
- Market cap. of ~$370 million2
- Well capitalized balance sheet
- Net debt to capitalization of 20% (at end of Q3-20)
- $127.9 million in available liquidity (at end of Q3-20)
- 5-yearaverage from 2015 to 2019, including strike impacted 2019
- Based on closing share price of $0.98 on November 25, 2020
Annual Sales by Product1
Specialty Lumber | 6% | |
18% | ||
Commodity Lumber | $1.1 | |
Logs | ||
billion | 58% | |
By-products | 18% | |
58%
Specialty
Lumber
Annual Sales by Geography1
Canada | 17% | |||
United States | 24% | |||
China | $1.1 | 13% | ||
Japan | billion | 7% | ||
Other | 39% | |||
Final destination | 2% | |||
Europe | of a portion of | 37% | International | |
Canadian sales | ||||
are to international |
markets
Strong financial performance and well capitalized balance sheet | 5 |
Executing on Long-term Strategic Priorities
Explore Opportunities
- Pursue margin-focused business opportunities and acquisitions
- Grow wholesale lumber business
- Growth opportunities in the U.S. Pacific Northwest and specialty wood products
Grow the Base
- Optimize operations to improve margins
- Targeted, high-margin products of scale to selected customers
- Non-capitalmargin improvement and growth initiatives
Strengthen Foundation
- Strategic capital investments
- Invest in people and systems
- Mutually beneficial relationships with First Nations
Focus on growing long-term shareholder value | 6 |
Section 2:
Company Updates
Business Update
COVID-19
Balance
Sheet and
Liquidity
Additional
Sources of
Potential
Liquidity
- Implemented strict health and safety protocols across our business
- Taken prudent measures to protect our balance sheet and liquidity
- Will continue to align our production volumes to match market demand while first and foremost ensuring the health and safety of our employees
- Designated as an essential industry
- Net debt at the end of Q3-20 was $119.4 million (net debt to capitalization ratio: 20%)
- Available liquidity of $127.9 million at the end of Q3-20
- $250 million credit facility; matures August 2022
- Includes an accordion feature that allows Western to increase the aggregate amount available to $350 million, subject to lender approval
- TFL 44 LP sale to the Huumiis Ventures Limited Partnership
- Other non-core assets (Orca quarry, private timberlands, non-core lands)
- First Nations partnerships
Liquidity and debt reduction remains a key priority and near-term focus and we | |
continue to explore all opportunities to strengthen our balance sheet | 8 |
Strengthen the Foundation: Strategic Partnerships with Huu-ay-aht First Nations
In March 2019, Western completed the sale of a 7% | TFL 44 |
ownership interest in TFL 44 LP to Huumiis Ventures | Port |
Limited Partnership ("HVLP")1 for $7.3 million | Alberni |
Alberni Pacific | |
- TFL 44 LP consists of certain assets and liabilities of | Division Sawmill |
TFL 44 | |
Western's Port Alberni Forest Operation, including TFL 44 | |
In March 2020, Western announced the sale of an | TFL 44 |
incremental 44% ownership interest in TFL 44 LP, and | Ucluelet |
a 7% ownership interest in a newly formed LP that will | Bamfield |
own the Alberni Pacific Division Sawmill, to HVLP for | |
$36.2 million | |
- TFL 44 LP ownership at closing: HVLP 51% | Western 49% | TFL 44 LP Allowable Annual Cut: 782,482 m3 |
- Western may sell to other area First Nations up to a further | |
26% ownership interest in TFL 44 LP, post closing | Vancouver |
- Long-term log agreement to continue to supply Western's | |
Island | |
coastal manufacturing operations | B.C. |
- Closing is subject to customary closing conditions, | Vancouver |
financing, and certain third-party consents | Victoria |
(1) Limited partnership beneficially owned by Huu-ay-aht First Nations |
Continue to explore mutually beneficial relationships with First Nations | 9 |
Growing the Business:
Strategic Marketing and Branding Initiatives
- Increase our access to North American Home Centre and Pro- Dealer sales channels
- Greater access to the growing repair and remodel lumber segment
- Working with our customers and investing in marketing to drive demand
- Specialty branding and marketing initiative opportunities for cedar products
- Estimate that 40% of cedar is consumed in the Home Centre segment
- Growth opportunity for WFP
- New product branding
Western Red Cedar Branding Initiatives
An exclusive Home Centre brand covering all products
Targeting end-users
and contractors
Appearance grade residential products (decking, siding, outdoor living)
Targeting end-users through the distribution and pro-dealer channels
4x6 and larger products marketed to residential and industrial markets
Targeting industrial and distribution customers
Growth opportunity for targeted specialty products for our customers | 10 |
Growing the Business:
Wholesale Lumber Business Unit
- Form strategic agreements with global suppliers, enabling WFP to broaden the scope of our specialty products offerings
- Will enable WFP to offer an expanded product line that delivers greater value to our customers
- Will make our existing business and product offerings stronger
- New products will originate in the U.S., Asia, Europe and Canada
- Comprised of finished products, as well as lumber products that could be further processed at Arlington or with other strategic remanufacturing partners
- Leverage our Arlington centralized warehousing and distribution centre to effectively service our selected U.S. customers
- In 2019, more than doubled wholesale lumber shipments to 34 million board feet compared to 2018
Growing global supply of targeted specialty products for our selected customers | 11 |
Growing the Business: Acquisition of Columbia Vista
- Acquired February 2019 for $37.7 million, including working capital
- Located in Vancouver, Washington
- Focuses production on Douglas fir specialty products for Japanese and U.S. markets
- Complements our B.C. hemlock business into Japan
- Annual lumber production: ~60 million board feet
- Columbia Vista's former owner working with Western in a consulting capacity
Sawmill and log yard
Remanufacturing: Kilns and planer |
Growing our operations in the U.S. Pacific Northwest | 12 |
Growing the Business: Arlington, Washington Lumber Distribution and Processing Centre
Acquired January 2018 for $11.6 million | ||
Overview | 18 acre distribution and processing facility | |
170,000 square feet covered storage | ||
Rail spur on site serviced by BNSF | ||
Centralized warehousing and distribution | ||
near the high value U.S. west coast corridor | ||
Fits With Our | | Increase production of targeted specialty |
Lumber Sales | products and expanded finishing capacity | |
Strategy | | Increase margins by growing the sale of |
finished products, closer to the end | ||
customer | ||
Site and infrastructure improvements | ||
Capital | completed in Q2-2018, enabling distribution | |
activity to commence from the site | ||
Improvements | Equipment upgrades completed in Q1- | |
2019; secondary processing commenced | ||
Covered Storage | Packager | |||||
Rail Distribution
Truck Distribution
Arlington creates centralized distribution and growth in finished products | 13 |
2019 Sustainability Report
Environmental, Social and Governance Commitment
- Expanded 2nd annual sustainability report based on feedback from stakeholders
- Highlights Western's commitment to:
- Health and safety for our employees, contractors and communities in which we operate
- Developing and manufacturing sustainable products
- Strong governance and diversity
- Sustainable forestry management
- Commitment to working with our employees, First Nations, communities and stakeholders
- Will look to expand on carbon lifecycle modeling in future reports
Western is committed to defining a higher standard on ESG | 14 |
Section 3:
Company Overview
Margin Strategy / Fibre and Processing Flow Chart
Standing Timber | Log Availability |
Allowable | |||||||||||
Mix | Hemlock / | Annual Cut2 | |||||||||
(AAC) For Logs | |||||||||||
Unique Species | Balsam | ||||||||||
~6.0 million m3 | |||||||||||
Western Red | |||||||||||
and | Cedar | Log Purchases1 | |||||||||
Diverse | Douglas Fir | (~1.1 million m3) | |||||||||
Yellow
Cedar
Spruce
Raw Inputs
- 5-yearaverage from 2015 to 2019, including strike impacted 2019
- As of December 31, 2019
Margin Decision
External Log
Sales
~34% of Logs Sold
(by volume)1
Internal Log
Consumption
~66% of Logs
Processed at WFP
sawmills and
custom cut division1
Market Segments
Log Markets
Domestic Log
Markets
Export Log
Markets
Pulp Log
Markets
Lumber Segments
Western Red
Cedar
Japan Specialty
Niche
Commodity
Finished
Products / Sales
Timber resource is directed to highest margin opportunity | 16 |
Log Markets Determine Margin Decision
External Log Sales
Log End Market | Description | Primary Target | |||||||
Geographies | |||||||||
Western's sawlogs consumed by | |||||||||
WFP | internal manufacturing operations | ||||||||
| Internal log supply supplemented by | ||||||||
Sawmills | |||||||||
open market purchases to maximize | |||||||||
margin | |||||||||
Includes sawlogs, peelers (for | |||||||||
Domestic | engineered wood applications) and | ||||||||
shingle logs sold through contractual | |||||||||
commitments and open market | |||||||||
transactions | |||||||||
Volumes committed under long-term | |||||||||
Pulp Logs | fibre supply agreements | ||||||||
| Commitments met through internal log | ||||||||
supply, supply contracts and open | |||||||||
market pulp log purchases | |||||||||
Represents log sorts produced in | |||||||||
Export | excess of internal mill requirements | ||||||||
| Historically command premium prices | ||||||||
due to strong demand | |||||||||
| Transportation optimization | ||||||||
Logs by Value
5-Year Average1
29%
External
Log
19% Sales
$636 3%
71% million(2) 7%
Logs by Volume | |
5-Year Average1 | 34% |
External | |
Log | |
19% | Sales |
66% | 5.4 | 8% |
million m3 | ||
7% | ||
- 5-yearaverage (2015 to 2019), including strike impacted 2019, based on total external log sales and internal log consumption, including purchased logs. Internal transfer values based on Vancouver Log Market prices
- Net of freight and fee in lieu
Directing log volume to highest margin opportunity | 17 |
Manufacturing and Sales
Log | Marketing | Manufacturing | Sales |
Supply | Strategy | Strategy | Strategy |
Log Cutting
Patterns
Log Dimension
Product
Group
Lumber
Product Type
Log diameter and margin determines lumber products manufactured
5 - 11" | 11 - 18" | 16 - 22" | 20 - 30" | 24"+ |
Narrow | Wide | Squares | Timbers | Grade & |
Dimension | Dimension | Appearance | ||
Commodity | Commodity / | Japan | Niche / | Niche / |
Western Red Cedar | Western Red Cedar | Western Red Cedar |
Flexible manufacturing platform presents unique opportunity to create margin | 18 |
Diversified Lumber Product Offering
Lumber Products | Description | Primary Target | ||||||||
Geographies | ||||||||||
Western | Consumer-orientated products | |||||||||
| Premier softwood for external | |||||||||
Red | ||||||||||
applications | ||||||||||
Cedar | Global | |||||||||
Products | | Naturally durable | ||||||||
Japan | specific end uses | |||||||||
| Specialized products for | |||||||||
Specialty | Specialty | | Requires unique and rigorous | |||||||
quality standards | ||||||||||
| Specialty products and | |||||||||
Niche | markets | |||||||||
| Focused on appearance | Asia Europe | ||||||||
grades, value-add products | ||||||||||
Commodity | Traditional dimension lumber |
and developing grades | |
(1) 5-year average from 2015 to 2019, including strike impacted 2019
Lumber by Value
5-Year Average1
23%
$818 44%
12% million
21%
77%
Specialty
Lumber by Volume
5-Year Average1
27%
45% 817
MMfbm
17%
11%
55%
Specialty
Allows Western to profitably service multiple markets throughout the cycle | 19 |
Sample Lumber Products
Diverse product offering manufactured from sustainably harvested forest profile | 20 |
Specialty Product Focus
Approximately 77% of lumber | Relative Lumber Price Change Since Q1-2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
revenue is generated from | 180% | ||||||||||||||||||||||||||||||||||||||||||||||||
non-commodity products | 140% | WFP Strike | |||||||||||||||||||||||||||||||||||||||||||||||
Impacted (3) | |||||||||||||||||||||||||||||||||||||||||||||||||
Significant price premium to | 100% | ||||||||||||||||||||||||||||||||||||||||||||||||
commodity lumber | 60% | ||||||||||||||||||||||||||||||||||||||||||||||||
More stable margins through | 20% | ||||||||||||||||||||||||||||||||||||||||||||||||
the cycle vs. commodity peers | Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 | ||||||||||||||||||||||||||||||||||||||||||||||||
-20% | |||||||||||||||||||||||||||||||||||||||||||||||||
Product / market diversity and | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||||||||||||||||||||||||||
WFP Average Lumber Price | Commodity Lumber Price(1) | ||||||||||||||||||||||||||||||||||||||||||||||||
global exposure provide | Quarterly Lumber EBITDA Margins Comparison | ||||||||||||||||||||||||||||||||||||||||||||||||
opportunities to maximize | |||||||||||||||||||||||||||||||||||||||||||||||||
margin | 30% | Impacted (3) | |||||||||||||||||||||||||||||||||||||||||||||||
40% | WFP Strike | ||||||||||||||||||||||||||||||||||||||||||||||||
Cedar, niche and commodity | 20% | ||||||||||||||||||||||||||||||||||||||||||||||||
10% | |||||||||||||||||||||||||||||||||||||||||||||||||
grades will benefit from U.S. | 0% | ||||||||||||||||||||||||||||||||||||||||||||||||
housing recovery and global | -10% | ||||||||||||||||||||||||||||||||||||||||||||||||
-20% | |||||||||||||||||||||||||||||||||||||||||||||||||
demand | Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 | ||||||||||||||||||||||||||||||||||||||||||||||||
-30% | |||||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Peer Group Range(2) | Western Forest Products | ||||||||||||||||||||||||||||||||||||||||||||||||
- KD Western SPF 2x4, #2&Btr; converted from US$ to C$
- High and low EBITDA margin range of West Fraser, Canfor and Conifex lumber segments and consolidated results of Interfor
- Q3-19,Q4-19 and Q1-20 are not comparable for Western due to the strike
Focus on specialty products delivered 39 quarters of positive EBITDA over 10 years | 21 |
Seasonality of the Business
Weather (snow pack, heat) | Harvest Volume1 | Closing Log Inventory1 | ||||||||
and daylight can impact | (000 m3) | (000 m3) | ||||||||
1,282 | ||||||||||
harvest volumes and costs | ||||||||||
1,072 | 1,059 | 1,091 | ||||||||
Inventory levels can fluctuate | 1,015 | 997 | ||||||||
964 | 958 | |||||||||
through the year, impacting | ||||||||||
working capital | ||||||||||
Seasonal market demand | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | ||
Lumber Production & | Increase (Decrease) in | |||||||||
can impact lumber | ||||||||||
Shipments1 | Working Capital1 | |||||||||
production | (MMfbm) | 228 | ($ millions) | $16 | ||||||
222 220 | ||||||||||
Typically higher lumber sales | 218 | 219 | $10 | |||||||
volumes in Q2 and Q3 when | ||||||||||
213 | 214 | |||||||||
North American construction | 209 | ($2) | ||||||||
activity is at its peak | ($12) | |||||||||
Q1 | Q2 | Q3 | Q4 | |||||||
Production | Shipments | Q1 | Q2 | Q3 | Q4 | |||||
(1) Average of last 5-years (2015 to 2019) excluding strike impacted Q3-19 and Q4-19
Seasonal influences impact operations and sales | 22 |
Strategic Capital Investments
- Initiatives focused on:
- Reducing costs
- Increasing efficiency
- Increasing production of targeted products
- Growing production
- Applying proven technology in coastal operations
Duke Point Sawmill | Duke Point Planer | Duke Point Planer: Auto grading | ||||||||
Chemainus: Timber grading station | Chemainus: Timber deck | |||||
Saltair Sawmill | Saltair Sawmill | Centralized, automated saw filing | ||||||||
Capital projects expected to generate a return in excess of 20% | 23 |
Competitive Strengths
1
2
Flexible manufacturing platform that can target a variety of global markets
Sustainable, diverse timber base providing a unique range of products
- High margin specialty products for the U.S. market - cedar, timbers, moulding & millwork, industrial applications
- Customer of choice for other coastal log producers due to competitive advantages of scale, financial strength and proximity
- Low cost access to ocean shipping (break bulk, container & barge) to global markets
- Warehousing and distribution facility to service U.S. customers in high value U.S. west coast corridor
Western is a compelling pure-play, solid wood products investment | 24 |
How is WFP Different From its Public Lumber Peers
1 Pure play lumber and log, specialty company
2 Cedar and specialty products focused with commodity lumber component
- Peers focused on commodity lumber with some specialty products
- Significantly higher average product pricing versus commodity lumber peers
3 No mountain pine beetle impacted fibre
4 No historical rail or truck transportation issues; ocean going advantage
- WFP uses the BNSF railway line to ship products
25
Appendix
Supplemental Materials
Western's Business to Benefit from Global Supply and Demand Factors
Factors | Highly Attractive Underlying Supply / Demand Dynamics |
U.S. Economic
1 and Housing
Market Growth
- Increasing new home construction and robust repair and remodel activity
- Transition from supply driven to demand driven market expected to result in improved pricing for wood products
Strong
Underlying
Demand
Drivers for
Wood
Products
Continued
2 Growth
in China
- Economic growth and urbanization
- Consumption of wood will increase
- Limited domestic fibre supply; increasing need for imports
Reduced
Supply
of Fibre
3 | U.S. Supply | | Repatriation of U.S. lumber exports back to U.S. market creates |
Exit from | opportunity for Western | ||
Japan Market | | Increase consumption of lumber | |
Canadian | | Mountain pine beetle to negatively impact B.C. interior fibre supply | |
4 | Fibre Supply | ||
and lead to a reduction in B.C. interior lumber production | |||
Reduction | |||
27
1 | Demand Drivers: U.S. Economic and Housing |
Market Growth | |
U.S. Repair & Remodel Expenditures |
Expenditures (US$ billions)
200 | ||||||||||||||||||||
150 | ||||||||||||||||||||
100 | $167 | |||||||||||||||||||
$148 | $137 | $138 | $158 | $147 | $137 | $152 | $155 | $159 | $164 | |||||||||||
$128 | $130 | $125 | $115 | $117 | $122 | $115 | $116 | $122 | $130 | |||||||||||
50 | ||||||||||||||||||||
0 | ||||||||||||||||||||
2004A | 2005A | 2006A | 2007A | 2008A | 2009A | 2010A | 2011A | 2012A | 2013A | 2014A | 2015A | 2016A | 2017A | 2018A | 2019A | 2020E | 2021E | 2022E | 2023E | 2024E |
U.S. Housing Starts
2.5 | ||||||||||||||||||||||
(millions) | 2.0 | 50-Year Average: 1.4MM | ||||||||||||||||||||
Starts | 1.5 | |||||||||||||||||||||
Housing | 1.0 | 1.95 | 2.07 | 1.81 | 1.58 | 1.60 | 1.68 | |||||||||||||||
1.49 | ||||||||||||||||||||||
1.34 | 1.11 | 1.18 | 1.21 | 1.25 | 1.30 | 1.36 | ||||||||||||||||
0.5 | 0.90 | 0.78 | 0.93 | 1.00 | ||||||||||||||||||
0.55 | 0.59 | 0.61 | ||||||||||||||||||||
0.0 | 2004A | 2005A | 2006A | 2007A | 2008A | 2009A | 2010A | 2011A | 2012A | 2013A | 2014A | 2015A | 2016A | 2017A | 2018A | 2019A | 2020E | 2021E | 2022E | 2023E | 2024E | |
Source: Forest Economic Advisors (November 2020)
28
Demand Drivers: Supply / Demand Dynamics
1 Will Positively Benefit the Industry
- Growing demand from U.S. and Asian markets and reduced supply from traditional sources is expected to benefit the industry long-term
Housing Starts (North American and Lumber Export Equivalent) vs. Western SPF Lumber Pricing
Housing Starts (MM)
3.5 | |||||||||||||||||||||||
550 | |||||||||||||||||||||||
3.0 | Average NA Housing Starts | ||||||||||||||||||||||
(since 1990) = 1.5MM | |||||||||||||||||||||||
2.5 | 450 | ||||||||||||||||||||||
2.0 | 350 | US$ | |||||||||||||||||||||
per | |||||||||||||||||||||||
1.5 | Mfbm | ||||||||||||||||||||||
250 | |||||||||||||||||||||||
1.0 | |||||||||||||||||||||||
150 | |||||||||||||||||||||||
0.5 | |||||||||||||||||||||||
0.0 | 2005A | 2006A | 2007A | 2008A | 2009A | 2010A | 2011A | 2012A | 2013A | 2014A | 2015A | 2016A | 2017A | 2018A | 2019A | 2020E | 2021E | 2022E | 2023E | 50 | |||
2004A | 2024E | ||||||||||||||||||||||
U.S. Housing Starts | Canada Housing Starts | NA Lumber Exports (Housing Starts Equivalent) | KD SPF 2x4 2+Btr (US$) (Actual) | KD SPF 2x4 2+Btr (US$) (FEA Projections) |
Source: Forest Economic Advisors (November 2020); Western Forest Products | 29 |
Demand Drivers: China Growth Has Changed
2 Global Wood Products Demand Dynamics
- A government commitment to housing and continued positive economic growth should support long-term demand for logs and lumber in China
- A deficit of domestic fibre will require China to rely on imports
- Rising wealth / urbanization trends expected to increase demand for lumber
China Log Imports | China Lumber Imports |
million m³
70
60
50
40
30
20
10
0 | '09A | '10A | '11A | '12A | '13A | '14A | '15A | '16A | '17A | '18A | '19A | LTM | |
Russia | New Zealand | North America | Others | Sep-20 | |||||||||
million m³
40
35
30
25
20
15
10
5 | |||||||||||||||||
0 | '10A | '11A | '12A | '13A | '14A | '15A | '16A | '17A | '18A | '19A | LTM | ||||||
'09A | |||||||||||||||||
Russia | New Zealand | North America | Others | Sep-20 | |||||||||||||
Source: Forest Economic Advisors (November 2020) | 30 |
Demand Drivers: U.S. Supply Exit From Japan Will
3 Create Market Opportunity
- Japan continues to be a major source of demand for wood products and lumber from North America
- After the global recession in 2008, certain suppliers in the U.S. West increased export activities to Japan due to a lack of U.S. domestic demand
- As North American housing markets recovered, much of this U.S. supply has been diverted back to local U.S. markets, creating a supply gap in Japan and opportunity for Western's Japan products
Japanese Lumber Imports of Canadian and U.S. Douglas Fir and Hemlock
~100 million board feet opportunity to | ||
1,400 | replace non-SPF U.S. exports to Japan | |
m3) | 1,200 | |
(million | 1,000 | |
Imports | 800 | |
600 | ||
Lumber | 400 | |
200 | ||
0 |
2009A | 2010A | 2011A | 2012A | 2013A | 2014A | 2015A | 2016A | 2017A | 2018A | 2019A | LTM | |
U.S. Hem | U.S. Douglas Fir | CDN Hem | CDN Douglas Fir | Sep-20 | ||||||||
Japanese Imports of Canadian and U.S. Lumber and Japanese Housing Starts
3,000 | 1.4 | |
2,500 | 1.2 | |
2,000 | 1.0 | |
0.8 | ||
1,500 | ||
0.6 | ||
1,000 | 0.4 | |
(millionImportsLumberm3) | (millions)StartsHousing | |
500 | 0.2 | |
0 | 0.0 |
2009A | 2010A | 2011A | 2012A | 2013A | 2014A | 2015A | 2016A | 2017A | 2018A | 2019A | LTM | |
Sep-20 | ||||||||||||
Softwood Lumber Imports from U.S. | Softwood Lumber Imports from Canada | Japan Housing Starts | ||||||||||
Source: Japan Ministry of Land, Infrastructure and Transport; The Trade Statistics, Japan Ministry of Finance; Japan Lumber Importers' Association (November 2020) | 31 |
4 Supply Drivers: B.C. Interior Fibre Supply Reduction Will Lead to Reduced Lumber Production
B.C. Interior Allowable Annual Cut ("AAC")
70 | |||||||||||||||||||||
m3) | 60 | ||||||||||||||||||||
(million | 50 | 64.1 | 65.7 | 68.0 | 67.0 | 66.9 | 66.4 | ||||||||||||||
62.2 | 61.5 | 60.8 | 61.3 | 60.7 | 62.1 | ||||||||||||||||
56.5 | |||||||||||||||||||||
AAC | 40 | 55.4 | |||||||||||||||||||
50.3 | 50.3 | 49.9 | 49.5 | 49.0 | 48.1 | 46.9 | 46.8 | ||||||||||||||
30 | 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E | ||||||||||||||||||||
B.C. Interior Lumber Production
18 | |||||||||||||||||||
Feet | |||||||||||||||||||
Board | 12 | ||||||||||||||||||
14.3 | 14.9 | 15.1 | |||||||||||||||||
Billion | 12.8 | 13.9 | |||||||||||||||||
11.7 | 11.5 | ||||||||||||||||||
10.6 | 10.4 | 10.9 | 11.2 | 11.0 | 11.4 | 11.1 | |||||||||||||
10.0 | 9.0 | 9.3 | 9.4 | ||||||||||||||||
8.8 | 8.7 | ||||||||||||||||||
8.6 | 7.3 | ||||||||||||||||||
6 | |||||||||||||||||||
2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E |
Source: Forest Economic Advisors (November 2020)
Mountain Pine Beetle epidemic and lower AAC in the B.C. Interior | |
are expected to significantly reduce lumber production | 32 |
Historical Financial Snapshot - Annual
Revenue ($ millions)
Strike | |||||||
$1,187 | $1,143 | $1,197 | Impacted (1) | ||||
$1,037 | |||||||
$925 | $978 | $1,082 | |||||
$854 | $808 | ||||||
$726 | |||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | LTM |
Q3-20 |
Lumber Shipments (MMfbm)
Strike | |||||||
894 | 895 | 909 | 883 | 935 | 840 | 880 | Impacted (1) |
811 | |||||||
548 | |||||||
425 |
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | LTM |
Q3-20 |
Adjusted EBITDA ($ millions)
$129 | $148 | $153 | $144 | Strike | |||||
$109 | $117 | Impacted (1) | |||||||
$62 | $51 | ||||||||
$28 | |||||||||
($2) | |||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | LTM |
Q3-20 |
Adjusted EBITDA Margin %
13.2% | 12.5% | 13.3% | 12.0% | Strike | |||||
10.5% 10.8% | Impacted (1) | ||||||||
7.2% | 5.5% | 3.8% | |||||||
-0.2% | |||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | LTM |
Q3-20 |
(1) All of Western's timberlands and most of our B.C. based manufacturing divisions were impacted by a strike by the United Steelworkers Local 1-1937 ("USW"), which commenced on | |
July 1st, 2019. On February 15th, 2020, the USW members ratified a new 5-year collective agreement, which is effective as of June 15th, 2019 and expires on June 14th, 2024, ending | 33 |
the strike |
Historical Financial Snapshot - Last 8 Quarters
Revenue ($ millions)
$310 | Strike | ||
$285 | Impacted (1) | $291 | |
$276 | |||
$256 | |||
$142 | |||
$80 | $99 | ||
Q4-18 | Q1-19Q2-19 | Q3-19Q4-19Q1-20Q2-20Q3-20 |
Lumber Shipments (MMfbm)
Strike
218211 Impacted (1)
203
Adjusted EBITDA ($ millions)
Strike
Impacted (1)
$18 $18 $15
($17) ($18) ($17) Q4-18Q1-19Q2-19Q3-19Q4-19Q1-20
Adjusted EBITDA Margin %
Strike
Impacted (1)
6.3% 6.6% 4.9%
$30 $34
Q2-20Q3-20
11.5% 11.6%
90
44
152 165
64
-11.7%
-17.6%
-22.6%
Q4-18Q1-19Q2-19Q3-19Q4-19Q1-20Q2-20Q3-20
Q4-18Q1-19Q2-19Q3-19Q4-19Q1-20
Q2-20Q3-20
(1) All of Western's timberlands and most of our B.C. based manufacturing divisions were impacted by a strike by the United Steelworkers Local 1-1937 ("USW"), which commenced on | |
July 1st, 2019. On February 15th, 2020, the USW members ratified a new 5-year collective agreement, which is effective as of June 15th, 2019 and expires on June 14th, 2024, ending | 34 |
the strike |
Historical Cash Flow, Capital Allocation and Debt
Cash Flow from Operations1 ($ millions)
$128 | $134 | $118 | |||||||
$111 | |||||||||
$99 | Strike | ||||||||
$87 | |||||||||
Impacted (3) | |||||||||
$44 | $58 | ||||||||
$27 | |||||||||
$11 | |||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | LTM |
Q3-20 |
Capex2 ($ millions)
$84 | |||||||||
$59 | $50 | $62 | $56 | $55 | |||||
$37 | |||||||||
$32 | |||||||||
$19 | |||||||||
$12 | |||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | LTM |
Q3-20 |
Net Debt / (Cash) ($ millions) | Dividends4 & Share Repurchases ($ millions) | |||||||||||||||||||||
$119 | $116 | |||||||||||||||||||||
$111 | ||||||||||||||||||||||
$83 | $78 | |||||||||||||||||||||
$52 | $54 | Substantial | $100 | $60 | $50 | |||||||||||||||||
$15 | $15 | Issuer Bid | $34 | $25 | ||||||||||||||||||
$31 | $32 | $32 | $16 | $17 | ||||||||||||||||||
$31 | $32 | $32 | $32 | $34 | $34 | |||||||||||||||||
($2) | n/a | n/a | $16 | $17 | ||||||||||||||||||
-- | -- | |||||||||||||||||||||
($35) | 2011 | 2012 | 2013 2014 | 2015 | 2016 | 2017 | 2018 | 2019 LTM | ||||||||||||||
2011 2012 2013 | 2014 2015 2016 2017 2018 2019 | Q3-20 | Dividends | Share Repurchases | Q3-20 | |||||||||||||||||
- After changes in non-cash working capital
- Additions to property, plant and equipment; excludes acquisition capex
- All of Western's timberlands and most of our B.C. based manufacturing divisions were impacted by a strike by the United Steelworkers Local 1-1937 ("USW"), which commenced on July 1st, 2019. On February 15th, 2020, the USW members ratified a new 5-year collective agreement, which is effective as of June 15th, 2019 and expires on June 14th, 2024, ending
the strike | 35 |
(4) Dividend suspended in May 2020; the Board will continue to review the Company's dividend on a quarterly basis |
Sawmills and Remanufacturing Facilities
Sawmills
Log Diameter | Production | 2018 Production Mix4 | |||||||||
Sawmill | Location | Capacity1 | |||||||||
Douglas | Yellow | ||||||||||
Focus | 20192 | 2018 | WRC3 | Hemlock | |||||||
Fir | Cedar | ||||||||||
Ladysmith | Ladysmith, BC | Small | 90 | 52 | 67 | -- | 100% | -- | -- | ||
Cowichan Bay | Duncan, BC | Medium | 215 | 64 | 177 | 13% | 87% | -- | -- | ||
Saltair | Ladysmith, BC | Medium | 240 | 96 | 214 | 22% | 61% | 17% | -- | ||
Alberni Pacific | Port Alberni, BC | Medium to Large | 175 | 44 | 106 | -- | 100% | -- | -- | ||
Duke Point | Nanaimo, BC | Medium to Large | 130 | 64 | 127 | 3% | 91% | 6% | -- | ||
Chemainus | Chemainus, BC | Medium to Large | 130 | 47 | 99 | 100% | -- | -- | -- | ||
Somass5 | Port Alberni, BC | Medium to Large | 90 | -- | -- | -- | -- | -- | -- | ||
Columbia Vista | Vancouver, WA | Medium to Large | 80 | 576 | n/a6 | -- | -- | 100% | -- | ||
Custom Cut | Multiple | Varies | n/a | 67 | 74 | 27% | -- | 30% | 43% | ||
Sawmill Total | 1,150 | 491 | 864 | 22% | 66% | 8% | 4% | ||||
Remanufacturing and Distribution
Canada | United States |
Value Added Division - Chemainus, BC | Arlington Distribution and Processing Centre - Arlington, WA |
Duke Point Planer - Nanaimo, BC | Columbia Vista Sawmill, Planer and Kilns - Vancouver, WA |
- Based on two shifts and 250 operating days, except Chemainus and Duke Point at three shifts
- All of Western's timberlands and most of our B.C. based manufacturing divisions were impacted by a strike by the United Steelworkers Local 1-1937 ("USW"), which commenced on July 1st, 2019. On February 15th, 2020, the USW members ratified a new 5-year collective agreement, which is effective as of June 15th, 2019 and expires on June 14th, 2024, ending the strike
- Western red cedar
- 2018 data shown due to the strike impacting 2019; data for 2019 is available in our 2019 Annual Information Form
- Somass was indefinitely curtailed in July 2017 due to a lack of log supply to operate the mill efficiently
- Acquired February 1, 2019
36
Analyst Coverage
Analyst Firm | Analyst Name | Contact |
CIBC World Markets | Hamir Patel | • | 604 331-3047 |
• | hamir.patel@cibc.com | ||
Raymond James | Daryl Swetlishoff | • | 604 659-8246 |
• | daryl.swetlishoff@raymondjames.ca | ||
RBC Capital Markets | Paul Quinn | • | 604 257-7048 |
• | paul.c.quinn@rbccm.com | ||
Scotiabank | Benoit Laprade | • | 514 287-3627 |
• | benoit.laprade@scotiabank.com | ||
TD Securities | Sean Steuart | • | 416 308-3399 |
• | sean.steuart@tdsecurities.com | ||
37
Investor Relations Contacts
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.
Stephen Williams | Glen Nontell |
Executive Vice President & Chief Financial Officer | VP, Corporate Development |
604-648-4572 | 604-648-4630 |
swilliams@westernforest.com | gnontell@westernforest.com |
38
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Western Forest Products Inc. published this content on 25 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 November 2020 22:08:00 UTC