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Edited Transcript of WFT.TO earnings conference call or presentation 29-Apr-20 3:30pm GMT

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Update time : 2020-07-06 17:07:02

Q1 2020 West Fraser lumber Co Ltd earnings Call

VANCOUVER Jun 16, 2020 (Thomson StreetEvents) -- Edited Transcript of West Fraser lumber Co Ltd earnings assembly summon or presentation Wednesday, April 29, 2020 can 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher A. Virostek

West Fraser lumber Co. Ltd. - CFO & VP of Finance

* Christopher D. McIver

West Fraser lumber Co. Ltd. - Vice-President of Sales & Marketing

* Raymond W. Ferris

West Fraser lumber Co. Ltd. - CEO, principal & Corporate Director

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Conference summon Participants

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* Hamir Patel

CIBC major Markets, investigation section - Director of Institutional Equity investigation and Paper & woods Products Analyst

* symbol William Wilde

BMO major Markets Equity investigation - Senior Analyst

* Paul C. Quinn

RBC major Markets, investigation section - Director of Paper and woods Products & Paper and woods Products Analyst

* Sean Steuart

TD Securities Equity investigation - investigation Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. And address ought the West Fraser Q1 2020 Results assembly Call. (Operator Instructions) Forward-looking statements during this assembly call, West Fraser's representatives will exist making sure statements almost latent future developments. These forward-looking statements are intended ought furnish rational guidance ought investors, besides the accuracy of these statements depends above a quantity of assumptions and is question ought different risks and uncertainties. real outcomes will depend above a quantity of factors that could affect the ability of the company ought slaughter its affair plans, including those matters described beneath risks and uncertainties can the company's annual MD&A, which can exist accessed above West Fraser's website or across SEDAR and are supplemented by the company's quarterly MD&As. Accordingly, listeners ought drill advise can relying upon forward-looking statements. This summon is being recorded above Tuesday, April 29, 2020.

I used to now parallel ought grow the assembly can ought Ray Ferris. interest progress ahead.

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Raymond W. Ferris, West Fraser lumber Co. Ltd. - CEO, principal & Corporate Director [2]

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Thank you, operator. Good morning, everyone. And thank you because joining us today. With me is Chris Virostek, our head economical Officer; too though Chris McIver, our Vice principal of Sales and Marketing; and little other members of our executive team. I will compose a little opening comments, and then Chris Virostek will magazine our first zone results and some additional remarks.

As we direct across this crisis, I deem it's important ought clearly communicate what our priorities here are can West Fraser. Our first priority is the health and safety of our employees and the communities that we operate in. Without delay, we aggressively eliminated travel, imposed physical distancing measures, improved cleaning and hygiene regimes. And can collaboration with our industry competitors and regulatory bodies, developed and implemented industry-leading exposure principle protocols that used to defend our fellow employees, ought and when exposure -- an accident receive place. It either ensured that self-quarantine expectations were effective and being followed. We adjusted our produce schedules where indispensable ought agree both protocols and employee needs and successfully executed and having about our sum corporate personnel working from home. These measures, coupled with strictly following the health authorities' direction, read kept our employees and communities safe. Being designated an radical industry is no something that we receive because granted, and we receive our community responsibilities identical seriously.

Our next priority is ought insure that we are operating our businesses responsibly. can the middle of March and across April, can response ought the rapidly changing just demand, we significantly reduced wood and plywood produce can Canada and we outline ought adjust our operating schedules can both the U.S. and Canada weekly though necessary. We are able ought familiar this calm attaining our best safety operation can the history of the company, both because the year of 2019 too though because the first zone of 2020. I will furnish farther comments after Chris' overview of our Q1 operating results.

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Christopher A. Virostek, West Fraser lumber Co. Ltd. - CFO & VP of Finance [3]

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Thanks, Ray. We reported $127 million of adjusted EBITDA can the first zone though compared ought $80 million can the fourth zone of persist year. Results improved can both the wood and pulp segments calm demand challenges associated with COVID-19 dampened panel results, specially plywood. Operating earnings increased by $44 million from a loss of $31 million can the fourth zone ought allowance of $13 million can the modern quarter.

Turning ought the drivers of the results. We saw improved wood and pulp pricing compared ought the previous quarter, which lifted results by nearly $52 million. Volume had a negligible impact overall though changes across the different segments mainly offset one another. Costs inclusive of fiber, manufacturing and administrative costs were up slightly above the quarter.

On the key metrics because the quarter, wood produce was up 78 million board feet ought 1.5 billion board feet. Late can the quarter, we slowed SYP and SPF produce though a arise of the COVID-19 situation. Shipments lagged produce by 75 million board feet, with the key issues being can SPF though rail blockades earlier can the quarter, challenged railcar availability because a epoch of time.

Our SYP shipments exceeded our SYP produce though we lowered inventories calm above the reduced schedules can the goal of the quarter. With charge and operational improvements, adjusted EBITDA increased by $47 million from $80 million ought $127 million. money brook from operations was a employ of $162 million though we used $195 million ought perpendicular wood and other inventories though is the seasonal trend.

Receivables were either used can the zone though shipment levels can the goal of the fourth zone were identical cheap during the holiday period. ago the impact of changes can working capital, money brook from operations improved by $53 million ought $114 million when compared ought the previous quarter. though compared ought the identical epoch can the previous year, which is more similar from a seasonal standpoint, money brook from operations was $106 million improved.

CapEx declined from $87 million can the fourth zone of 2019 ought $59 million can the most tendency quarter. We read delayed or deferred most discretionary major that has no been started. Our concentrate above maintenance major and the tidy completion of strategic projects currently underway, which remain above hunt and which we deem will furnish important benefits can the need term. Net debt increased by $274 million and represents 33% of entire capital, a slim expand from year-end, besides vigorous within parameters.

At the goal of the quarter, we had USD 407 million of cumulative duties above deposit. persist Friday, the DOC announced that it is tolling sum administrative magazine processes because can least 50 days, which will responsible lengthen the finalization of administrative magazine one rates and any latent alter can responsibility rates from August until September.

Finally, I'd parallel ought affect above our liquidity situation. can the goal of the quarter, we had $294 million of available liquidity, can a point can time when we read mainly wrapped up our winter 2020 logging activities can Western Canada. above April 9, we secured an additional $150 million revolving guarantee facility bolstering our available liquidity ought a pro forma $444 million though of the goal of the second quarter. The new guarantee facility matures can 2022 and provides additional flexibility can the modern ambigous times. We read no other important debt maturities until 2024. We remain vigorous above aspect with our economical covenants can the guarantee facilities.

Additionally, we are due nearly $125 million of tax refunds above explain of previous years. We read shifted now too into the seasonal epoch where logging activities are limited, and we'll exist consuming the wood decks we read accumulated can Western Canada. can the past little weeks, different levels of government read either implemented a quantity of temporary payment deferral mechanisms that will furnish a hoist ought liquidity during the second and third quarter.

Through the first 4 weeks of the second quarter, we read seen rational levels of demand because wood and pulp. And calm above reduced schedules, read made important progress can reducing inventories across our operations. if the tendency continues, we used to expectation available liquidity ought better though the zone progresses.

With that, I'll grow it can ought Ray because some closing remarks.

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Raymond W. Ferris, West Fraser lumber Co. Ltd. - CEO, principal & Corporate Director [4]

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Thanks, Chris. consequently there are a quantity of economic forecasts out can the public realm that described anywhere from a sharp V-type recovery ought one table parallel an L. The COVID-19 is an unprecedented event, and it is ambigous can best what the recovery can exhibition like. And from our perspective, it is premature, if no impossible, because us ought furnish any credible views can this time. Saying that, can the midterm, we conduct expectation markets because our woods products ought exist difficult, choppy and lumpy. during these times, though can past recessions, both our products and geographic diversity of lumber, plywood, pulp, MDF and LVL is a strength, which allows us great flexibility ought adjust ought the available market. Our persist priority cause ought exist ought insure that our remainder section remainder healthful though we direct across this downturn and at length prepare because an economic -- retort ought economic growth and growth of the company. though we exhibition dispatch into the coming lodging and the impacts of COVID-19 quit more clear, we will adjust though necessary, sum available major allocation levers can bid ought affirm a healthful remainder section and plentiful liquidity.

Finally, I wish ought confess our employees that delivered healthful health, safety and operational operation across our sum platform can West Fraser. We are identical proud of our health, safety and productivity accomplishments. I'm pleased ought howl on the results of our major edge improvement projects coming online. Our employees outline ought prove they are up ought taking above any and each challenge directed ought them, including COVID-19. It is our employees that I cause ought bank because being consequently resilient and dedicated can making the affair stronger, calm adapting ought a rapidly and constantly changing environment.

With that, thank you, and I'll grow it uphold ought the operator because questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from symbol Wilde from bank of Montreal.

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Mark William Wilde, BMO major Markets Equity investigation - Senior Analyst [2]

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Ray, I wanted ought just ought begin out, if you could just friendly of walk us friendly of across the distribution channel can condition of what you howl on because friendly of demand can the factory level, what you're seeing can the other goal can condition of friendly of customer, builder takeaways? And then what you deem is accident ought just furnish can the inventory channel -- inventories can the distribution channel?

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Raymond W. Ferris, West Fraser lumber Co. Ltd. - CEO, principal & Corporate Director [3]

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Well, Mark, I'm going ought plead Mr. McIver receive that one, if that's okay.

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Christopher D. McIver, West Fraser lumber Co. Ltd. - Vice-President of Sales & Marketing [4]

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Mark, it's truly pretty interesting what's accident precise now. We're seeing -- it's explanation product-specific though distant though takeaway. besides I used to speak generally, we've seen main destocking above the distribution aspect above the passenger end, including some of the big pro dealers moving produce from site-to-site ought just diminish their entire inventories. Anecdotally, we're hearing from them that business, depending above the product, is though good though it's been sum year precise now, besides they're no buying a lot. consequently they're waiting ought howl on what's going ought happen. We read good bid files explanation much can sum our products precise now. Most recently, we've seen plywood beginning ought quit uphold though Eastern Canada talks almost reopening.

By far, the best produce that we read above the wood produce aspect precise now is our Southern Yellow Pine, colossal demand from treaters and retailers can this time. consequently we're reasonably vigorous sold above sum our products. And of course, pulp is the -- has been identical good.

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Mark William Wilde, BMO major Markets Equity investigation - Senior Analyst [5]

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Okay. And then, Chris Virostek, I wondered, you mentioned these latent deferral programs can both the U.S. and Canada. I know a destiny of this material has no been finalized yet. besides could you just walk us across the 3 or 4 that you're watching most closely that used to read the biggest impact because you can condition of helping your money brook this year?

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Christopher A. Virostek, West Fraser lumber Co. Ltd. - CFO & VP of Finance [6]

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Yes. And I deem above these, they are just deferrals, right? consequently they are temporary can nature, right? And I deem ought your point, parallel these things change from 3 months ought 6 months ought a year ought 2 years. That possibly evolves above the duration of those potentially, how need this goes on. consequently -- and it's everything I'll speak from each flat of government, feature taxes, sales and employ taxes, corporate allowance tax taxes, payroll taxes. There's indeed been truly explanation good uphold from sum levels of government ought pains ought discover ways that they can help. can the end, it is just a deferral, and we will read ought allowance it can the future, if that's the third or fourth zone or into 2021. And though because a class of quantification of class of each feature one, I deem when we exhibition across the view of sum those opportunities across the second quarter, it’s possibly $20 million ought $30 million, and then it starts ought unwind can the third and into the fourth.

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Mark William Wilde, BMO major Markets Equity investigation - Senior Analyst [7]

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Okay. And just -- parallel I know that there's a deferral that's been proposed for, I think, friendly of stumpage costs can Alberta and possibly some address almost this can B.C. How big used to those exist because you if you entertain parallel a 6-month deferral?

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Christopher A. Virostek, West Fraser lumber Co. Ltd. - CFO & VP of Finance [8]

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It used to exist a big chunk of the quantity that I just quoted parallel possibly half.

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Mark William Wilde, BMO major Markets Equity investigation - Senior Analyst [9]

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Okay. sum right. I presume the persist one because me is if you could possibly just address a little piece almost what's going above can condition of the export just ought Asia because wood coming out of Western Canada?

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Christopher D. McIver, West Fraser lumber Co. Ltd. - Vice-President of Sales & Marketing [10]

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Mark, possibly I'll pains that one -- again, it's Chris. consequently we've -- though you know, we've been can the export just above lumber, chiefly Japan and China because some time. besides what -- most recently, what we've done is we're increasing our volumes ought assist diversify our traffic options and just ought compose sure that we've got orders before our mills. consequently Japan declared a country of emergency. Certainly, they've slowed down some, besides they outline ought buy. We are seeing some builders putting their shovels down because a little while. China has quit uphold very, identical strong. And we're selling explanation much sum the grades we compose can there precise now and using different types of traffic ought entertain there. consequently we've been pretty pleased.

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Mark William Wilde, BMO major Markets Equity investigation - Senior Analyst [11]

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Okay. And just ought friendly of follow-on that China question. We hear almost this spruce beetle wood coming into the Asian markets from Europe. How much of a competitive spread has that been because you, Chris?

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Christopher D. McIver, West Fraser lumber Co. Ltd. - Vice-President of Sales & Marketing [12]

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I certainly -- I deem 2019, it was pretty a big competitive issue. besides what we know is, most recently, I intend Europe has been across a explanation strong time, consequently we don't know how much manufacturing has been going on. besides above peak of that, their merchandise rates read increased dramatically and availability. consequently we're no seeing a destiny of that produce can Asia precise now. I doubt can the time, it will quit back. besides can this time, there's no that much there.

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Operator [13]

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The next question comes from Hamir Patel from CIBC.

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Hamir Patel, CIBC major Markets, investigation section - Director of Institutional Equity investigation and Paper & woods Products Analyst [14]

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Chris McIver, could you give us a sensation though ought how demand has been faring can the R&R and industrial channels?

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Christopher D. McIver, West Fraser lumber Co. Ltd. - Vice-President of Sales & Marketing [15]

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Well, again, R&R is identical difficult ought entertain a healthful emotion from. besides I used to say, again, it is somewhat better can the U.S. and specially can the U.S. South above R&R. We're seeing colossal demand down there because that. Canada, we're less exposed ought R&R though a company, besides we are seeing actually, surprisingly healthful demand because the products we lay can there. Industrial, we are a little concerned almost industrial though manufacturing slows down, we're a little concerned. We are seeing -- we're certainly seeing the takeaway of our lower grades, which goal up can industrial beautiful bit, besides we conduct read some affair there.

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Hamir Patel, CIBC major Markets, investigation section - Director of Institutional Equity investigation and Paper & woods Products Analyst [16]

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Okay. Great. And then Ray, I wanted ought plead almost the pulp maintenance downtime can the uphold half of the year. Given the ongoing precautions that you'd read ought take. Is that lengthen out the duration of the expected downtime and the responsible produce impact?

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Raymond W. Ferris, West Fraser lumber Co. Ltd. - CEO, principal & Corporate Director [17]

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Well, that's a good question, Hamir. And consequently here's what I used to speak is that we're reviewing our maintenance downtime can both our NBSK mills. Of course, we moved them both into the fall. besides -- consequently we're indeed friendly of going across that precise now. I deem our intent used to exist no ought expand scope or time. consequently that possibly leads us to, potentially, indeed focusing above the critical projects that we need ought conduct and ought postpone things that we don't need ought do. consequently can this time, I used to say, we don't deem there's a big alter from our overall friendly of pulp shutdown because the fall. besides -- and if we need to, we'll diminish the scope a little piece can bid ought accommodate.

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Hamir Patel, CIBC major Markets, investigation section - Director of Institutional Equity investigation and Paper & woods Products Analyst [18]

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Okay. Great. That's helpful. And Chris Virostek, just persist one because me. Could you -- I intend if this were ought exist a more prolonged downturn, what's the lowest you could receive CapEx ought above a sum year base just thinking because 2021? I know you've got sure commitments because 2020.

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Christopher A. Virostek, West Fraser lumber Co. Ltd. - CFO & VP of Finance [19]

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Yes. I deem poss