West Fraser Timber Co. Ltd Common stock

Good morning, ladies and gentlemen, and welcome to West Fraser Q4 2021 results conference call. Please note that all lines have been placed on mute to prevent any background noise. During this conference call, West Fraser's representatives will be making certain statements about West Fraser's future financial and operational performance business outlook and capital plans. These statements may contain forward-looking information or forward-looking statements within the meaning of Canadian and United States securities law. Such statements involve certain risks, uncertainties, and assumptions which may cause West Fraser's actual or future results and performance to be materially different from those expressed or implied in these statements. Additional information about these risks, factors, and assumptions is included both in the accompanying webcast presentation and in our 2021 annual MD&A and annual information form, which can be accessed on Wes Fraser's website or through CDAR for Canadian investor or EDGAR for United States investors. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then number one on your telephone keypad. And if you would like to withdraw from the question queue, please press star then number two. Thank you. Mr. Verastic, you may now begin the conference.

Well, thank you, and good morning, everyone, and thank you for joining our Q4 2021 earnings call today. I'm Chris Verastic, CFO, and I'm joined by Ray Ferris, our President and CEO, and Chris McKeever, our Senior Vice President, Marketing and Corporate Development. This morning, I'll start with a brief recap of Wes Fraser's Q4 and 2021 financial results. I'll then pass the call to Ray, who will provide an update on the business, including a discussion about some of West Fraser's recent initiatives, the opportunities we see ahead for the company, followed by a few concluding remarks before we transition to Q&A. In the fourth quarter, West Fraser achieved strong financial results, capping off a record year despite unprecedented weather-related challenges in Western Canada at the end of 2021. We managed to navigate significant transportation and mill disruptions during a fourth quarter that experienced some of the worst flooding seen in modern times in the BC interior and lower mainland of Vancouver, which severely disrupted our ability to transport our finished goods from Western Canada to market. As announced in an operational update news release last November, We navigated these challenges by reducing operating schedules at multiple Western Canadian locations to manage our inventory levels, raw material supplies, and our integrated fiber supply chain. In the face of these supply constraints, demand for our wood-based building products remained robust in the fourth quarter, and as such, we generated $615 million of adjusted EBITDA, representing a margin of 30% of sales, taking full-year adjusted EBITDA to a record $4.57 billion, or 43% of sales. As in the third quarter, the benefits of our product and geographic diversity of production were a significant advantage. We had a strong sequential improvement in our lumber business, which saw adjusted EBITDA nearly triple to $240 million from the third quarter, helping to offset the sequential decline in our North American EWP business that generated 343 million of adjusted EBITDA in the fourth quarter. In Europe, adjusted EBITDA was 61 million, the second best result ever for that business. Price, seasonal volume trends, and downtime for a capital project all played a role in the European results. Cash flow from operations in the fourth quarter was 290 million, and cash, net of debt, declined quarter over quarter to approximately 1 billion after completing two acquisitions in the quarter for a combined consideration of approximately $580 million. In the fourth quarter, we repurchased another $100 million of West Fraser shares, taking our full-year share repurchases to $1.3 billion. With our Q4 earnings release, we also declared a $0.25 per share dividend, up from the previous level of $0.20 per share. We continue to deploy capital not only to shareholder returns, but also to growth opportunities as evidenced by the recent closings of the two acquisition transactions in the fourth quarter, namely our turnkey Angelina sawmill in Lufkin, Texas and the idled OSB mill near Allendale, South Carolina. We're now in our third month since closing the acquisition of Angelina Forest Products. Our integration is proceeding well and results have exceeded the expectations we had at the time of acquisition. And on Allendale, we have commenced work on the mill to prepare for an eventual restart and are pleased with the progress to date. In November, the Administrative Review 2 rate was finalized and set the new cash deposit rates for countervailing and anti-dumping duties for the Canadian softwood lumber industry. Our rate for cash deposits changed from 8.97% to 11.14% for lumber shipments from Canada to the U.S., on or after January 10th of 2022, whereas the rate for all other non-mandatory respondents in Canada is 17.91%. These rates will be in place until at least June 2022. In terms of outlook, we are providing operational guidance for 2022, which you can see on slide 4, where we have provided ranges for key product shipments and our planned capital expenditures. We have also identified in our earnings release some of the key challenges currently facing our overall operations early in the year, namely that we continue to see the logistics and transportation constraints affecting our business early this year. While infrastructure repairs to rail and truck routes resulting from the severe BC weather and flooding in late 2021 are progressing, rail service availability, operator shortages, and the backlog from disruptions in the fourth quarter are all still negatively impacting our ability to ship products, with January 2022 Western Canadian lumber and plywood shipments down approximately 20% compared to the prior year. Even our Western Canadian OSB operations have been forced to take unscheduled downtime as a result of these transportation constraints. Given these developments, further reductions of operating schedules across our production platform in order to manage inventory levels, raw material supplies, and our integrated fiber supply chain may be required. Currently, it's not possible to estimate when full transportation services will be available or when the backlogs will be cleared, but we will continue to actively seek out and utilize alternative transportation routes and methods to the extent they are available to continue servicing our customers. With that, I'll now pass the call to Ray.

Thanks, Chris, and thanks to everyone for joining our call today. I'm going to refer to a few specific slides from our webcast deck during my comments. And just to further to Chris's comments, I'd comment that particularly in Western Canada, these transportation challenges are really unprecedented in both scale and duration and led to a very challenging operating environment in the fourth quarter and have continued to this point in Q1. Through this period, our team has been very resilient, working diligently through those challenges, all the while minimizing COVID-related business disruptions from the latest wave. Although lack of transportation primarily was resolved with extreme flooding noted, impacted almost all of our Western Canadian platform, it most heavily impacted our BC lumber, plywood, and pulp shipments in the central Caribou region. Under these conditions, I'm proud of what our people and our teams have accomplished, in particular our BC and Alberta people for their patience and commitment for constantly adjusting to a rapidly changing and uncertain conditions. In that context and background, we're pleased to report that Q4 21 was another good quarter and that 2021 another record year for West Fraser. Just over one year ago, on February 1, 2021, we acquired Norbord. And now, with those 12 months of combined performance behind us, it is very rewarding to see the benefits of the product and geographic diversity the acquisition has brought to West Fraser. Not including the cash acquired at close, it's important to note that the EBITDA achieved from the Norbord business in the first 11 months of ownership accounted for approximately 66% of the transaction purchase value at the time of closing of the acquisition. Similar as we did last quarter, I wanted to identify a few areas of the business that I wanted to highlight. In Q3, I talked a little bit about our OSB and industrial specialty strategy and how that's developed over the last year or two. I want to talk a little bit about our lumber team. Our lumber team experienced significant market and operational challenges we discussed in Q4, yet despite this, our results improved materially from the prior quarter, supported in part by our US South growth strategy. This growth and operating strategy has resulted in expanded profitability both through greater percentage and greater percentage of premium grades of 2x4s. Why this is important is that 2x4 often trades at a premium price to wider dimensional lumber, which can support improved margins. As you can see on slide 5, our overall proportion of 2x4s has grown by approximately 700 basis points, and our mix of 2 and better 2x4s has grown approximately 600 basis points over the last few years. Further, the recently acquired Angelina mill is expected to support additional improvement both in 2x4% and in premium grades. Our US South growth strategy remains a key focus for West Fraser. Although we are pleased with our trend in results, we expect to see continued improvement in our US South operating metrics as we execute on our operational and capital transformation strategy. One other area I'd like to highlight is our return on capital employed. So moving to slide six, you know, West Fraser generated $4.57 billion of adjusted EBITDA and $3.95 billion of operating earnings. This level of operating earnings drove a ROKI, or return on capital employed, of 70%, representing the company's fifth year out of the last six with a ROKI in excess of 15%. These returns are not just a reflection of a healthy market fundamentals, but are also a result of continued attention to lowering costs and expanding margins through improved productivity and product mix, particularly in our key products of OSB and lumber. Moving to slide seven, I'd like to talk about Wes Fraser's commitment to sustainability and climate action. And with that, I'm very pleased to share that we have formally committed to science-based targets and the Science-Based Targets Initiative. We believe a thoughtful ESG strategy is our foundation for building a company that has financial resilience for the long term. Key to that strategy is establishing clear and credible goals with well-defined metrics that are part of our ongoing commitment to the environment and sustainability. As you can see on slide 7, we have now taken an important step on our sustainability journey by committing to reduce our Scope 1 and 2 greenhouse gas emissions by 46% and our Scope 3 emissions by 25% by 2030. Further, to achieve these emission targets, we have committed to invest an average of approximately $50 million annually in greenhouse gas reduction projects and opportunities of approximately $400 million before 2030, as shown on the next slide. By committing to reduce emissions in line with climate science, in line with the Paris Agreement goals by 2030, we are building on our solid legacy of sustainability performance of our products, while enhancing social, environmental and economic benefit in the communities in which we operate. In summary, We're pleased with our results this quarter and this year despite a number of market and operational challenges. After repurchasing $1.3 billion worth of our shares in 2021, our balance sheet remains strong with considerable liquidity and ability to navigate future opportunities and challenges. We will continue to take a balanced, disciplined, and patient approach to capital allocation. And we will deploy capital in a manner that we believe will increase long-term shareholder value. We have continued to move forward with strategic capital projects while also pursuing acquisitive growth, providing additional resilience and durability to meet the needs of our customers and to steer through whatever market challenges come our way. Looking forward, while we expect the first quarter to be challenged by near-term transportation and logistics constraints, we remain optimistic about the medium to long-term fundamentals of our wood products business. Our geographic and product diversity creates a platform to serve our customers and shareholders very well. But I am most energized and excited about the depth, skill, capability, and commitment of our people who remain focused on lowering our costs and improving our margins through operational excellence, and executing on the benefits of strategic capital, such as our Dudley Sawmill, our Chambord OSB restart, the Inverness expansion, the recent Gank upgrade in the last quarter, and our Allendale OSB acquisition late last year, while integrating and ramping up at our recently acquired Angelina Mill. We'll turn the call back to the operator and ask for questions.

Thank you, sir. Ladies and gentlemen, as stated, if you would like to ask a question, please press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw your question, simply press star followed by two. And if you're using a speakerphone, we do ask that you please lift the handset first before pressing any keys. Please go ahead and press star one now if you do have a question. And your first question will be from Sean Stewart at TD Securities. Please go ahead.

Thanks. Good morning, everyone. A few questions. And first of all, thanks for the detail on the volume outlook for each of the segments this year. That's much appreciated. I want to start with North American wood product markets, I guess for Chris McKeever. Can you frame the current price surge situation? for us. I guess the shipping constraints are clearly a factor, but can you give us a sense of demand pull across various end markets and perspective on where you think inventories are through the supply chain right now?

Yeah. Good morning, Sean. Um, thanks for the question. Uh, you know, I, I might say that we sort of have two different markets, a little bit between OSB and lumber and, um, Certainly fourth quarter, we saw lumber demand seasonably slower than it was. And then as we moved through that quarter into the beginning of Q1, we've seen a major uptick. OSB on the other side seems to have been tighter through the whole period and really haven't seen much of a slow at all. With regards to transportation issues, I think It's very regional. Certainly in Western Canada, our ability to ship, and I'm assuming our competitors' ability, has been constrained. The southeast does not really have any transportation issues, so things are flowing pretty well. So we're seeing what we think is pretty strong housing and strong R&R demand going into 2022. So we expect that to remain certainly through this quarter and likely through the first half of the year.

And any perspective on your thoughts on inventories in the channels? It felt not too long ago, like at least the repair and remodeling part of it, inventories anecdotally were getting full. That doesn't seem to be the case now. Do you have any perspective on that?

Yeah, again, you know, again, it's really difficult for us to know, but what we're hearing is that, you know, the wood and the panels that are going into the market are being consumed. So R&R seems pretty, strong, you know, it seems to have rebounded. Now, at these price levels, will we see it slow down a bit? You know, we don't really know, but it did slow down in the past. But right now, it's pretty robust.

Okay, thanks for that detail. Next question is, there was reference to fiber cost inflation in the U.S. that was marginal at this stage. That is consistent with what we're hearing from some of your competitors. Can you help quantify that pressure and what you might be expecting on that front for 2022?

Well, I can take a shot at that, Sean. It's Ray here. Anyway, good morning. No, I mean, we saw a year-over-year price come up on log costs in the south. But what we see is that primarily it's been driven by weather events, and particularly in certain regions more than others. So in some areas I would say a very flat to modest increase. Where we've seen extreme weather and lots of rain, it's really not been a lack of timber, it's been impacted mostly by a lack of contractor capacity to fill the gaps and to replenish inventory. So in a couple of those areas, we've seen more significant price pressure, but I think what you're seeing in kind of that general public information out there on log costs is we're kind of seeing that same sort of trend on average. But I would say it's not flat. There's some areas that are higher than others for sure.

Okay. Thanks, Ray. I will get back in the queue.

Thank you. Next question will be from Mark Wild at Bank of Montreal. Please go ahead.

Thanks. Good morning, Ray, Chris, Chris. Good morning. I wonder just to start out, could you give us some guidance on where you see value potential from an acquisition standpoint? I'm just curious kind of You've been in the European panel market for about a year now. We're clearly seeing some more North American lumber deals. Those have been increasingly away from the U.S. South. And then finally, just thoughts around engineered wood. So if you could just kind of deal with how you think about relative value in each of those businesses right now, that would be helpful.

Well, we're looking at each other, trying to decide who's going to answer that question. So... So, I'm trying to think about, you know, there's probably one where you need to sit down and talk about it. You know, I asked Chris here to comment in as well, because I don't think it's an either-or thing. I think when we're looking at the landscape today, Mark, I think, you know, I would say... The U.S. South, we still believe, is one of the most attractive regions and is attracting a significant part of our capital around our lumber strategy. You see what we're doing in our OSB. We're at least equally as excited about that in those regions. It's fiber supply and market. We like our European business. um and uh you know uh it might you know slightly different runway and slightly different opportunities uh but but you know we're you know we you know we you know we're you know quite interested in where we can go in in that region and so that that remains really our top three areas it's it's not that there aren't other areas out there that uh that uh from a from a value point of view might might be something that is of interest to West Fraser. But we wouldn't drive by a customer to get to the market. I think those three areas are still first and foremost for us.

Yeah, okay, that's helpful. And then, Ray, last night we had news of another 150 million board feet coming out of the B.C. interior. Can you just update us on your current thinking around your B.C. footprint?

Thanks, Mark. The BC story continues to unfold. I think the recent announcements about old growth really are just a continuation of the last number of years. Those impacts are going to be additional to the ones that, quite frankly, may still be to come. You know, I think, you know, we really don't know the impact to us. There's still many moving parts to the old growth piece. And, you know, so, you know, we're very concerned. We think that, you know, somewhere between, you know, 5% and 15% of the AC, the annual allowable cut, could be impacted on top of the things that we've seen in the past and that may still yet to become. So, look, I think I've been very clear. I think our view is the industry is going to continue to shrink and that West Fraser will also shrink. And it's just, you know, simply the fiber is not there to support everything we do. So, you know, we're working through that. I think you've seen us take capacity out over the last few years. And, you know, timing is always difficult to predict, but... we expect over the next couple of years, we're going to be reducing our footprint to match the available economic timber supply.

Okay. And then the last one for me, just when we think about these transportation and logistics issues in Western Canada, particularly around your lumber and panel business, would you say that has had a disproportionate impact on export sales versus North American sales because it it's more of an issue for kind of flows to ports like Vancouver as opposed to flows kind of across Canada or down into the U.S.?

Yeah, Mark, maybe I'll take a stab at that. But, yeah, for sure, anything that's trying to get to Vancouver has been most affected. You know, you have to also realize we've got an ongoing – container shortage and congestion issue in the Port of Vancouver that really started in the middle of last year and we think will continue certainly through 2022, in addition to the rail issues and truck issues that we have. But, you know, there's also a major issue on us moving product out of BC, you know, to the US and to Eastern Canada. So, yeah, less challenging. but still pretty challenging.

It is an element in the equation in terms of what's going on in the domestic North American market. For sure it is.

From Western Canada, yes, it is. Super.

All right. That's very helpful.

I'll turn it over.

Thanks, Mark.

Thank you. Next question will be from Amir Patel at CIBC. Please go ahead.

Hi. Good morning. Ray, you mentioned the growth of your 2x4 mix in the south. I was wondering if you could help us understand maybe just how your positioning there compares to the rest of the southern industry.

Well, good morning, Hamir, and thanks for getting on the call. Well, first I'd say I think the point that we're trying to make is In the last quarter, when we talked about OSB, we're not just focused on the commodity piece. We're looking for those opportunities on the industrial and specialty side that are very steady and consistent. At the peak of the cycle, they may have lower margins, but through the cycle, we think return superior margins. you know, it was really just to highlight that, you know, we focus in the U.S., well, in Canada and the U.S., as far as that goes, is that when we're deploying capital, when we're looking at acquisitions, we're very much focused on both our costs and trying to make sure that, you know, that we're in a position to maximize our mill nets. And so, you know, part of the capital strategy is to ensure that you can have some agility to either process different logs or create different products out of the same log. That can move around, but with the premium to 2x4, it can have a significant impact on results. I can't speak to what others do and I suspect some will be doing the same sort of thing. But I just wanted to highlight that it's certainly a focus for us.

Thanks, Ray. That's helpful. And just turning to the softwood lumber duties, I know the AR3, the preliminary rates which were announced recently, West Fraser was the only respondent that saw its rate increase. Would you expect when the finals are over, announced later in the year that holds similar to the preliminary, or are you hopeful that you can appeal some of the methodology there that maybe contributed to the different results than the rest of the industry?

Yeah, it's him or it's Chris. I'll take that. I think what we've seen with the first couple admin reviews is that usually the final rate comes out fairly close to preliminary rate. I think we're benefiting right now. from a fairly big delta between our rate and the rest of the industry that we'll have the advantage of for sort of eight or nine months. I think those rates on the whole are probably going to normalize for the group in AR3. That being said, we always take the opportunity, you know, just as both sides of this do, to appeal every last living thing under these determinations between now and the final assessment. But I would say, you know, three years into this now, I think the issues are pretty well known on both sides, and we haven't really seen the rates move that significantly from the prelim to the final in the first couple of ARs.

Thanks, Chris. That's all I had. I'll turn it over.

Thank you. Once again, as a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touchtone phone. And your next question will be from Paul Quinn at RBC. Please go ahead.

Yeah, thanks very much. Morning, guys. Morning, Paul. Hey, just following up on this move to a higher percentage of 2 by 4, that 7% increase from from 2016 to 21, how much of that is stuff that you guys did at the existing mills, and how much is it through M&A? I mean, I know Gilman was in there, and that probably has a higher percentage of 2x4 in the mix, but just wondering if you could break out that 7% between what you guys did and what you bought.

Hey, Paul. Well, good morning, and great question, and Chris or Chris here may tackle me and say something different or better, but what... I wish I could break that apart for you, but I just don't have that detail in front of me. But I think the message really is around, because quite frankly, look, I don't know, maybe 2x8 and 2x10 will become a premium again Sunday. I doubt that. It's really around, I think, trying to convey a concept that this is a big part of our focus and that we deploy capital in order to, you know, and so, Rather than get fixed on the percentage, it's more around the operating strategy about trying to produce the right products in the right regions. And it is a key part of both our acquisition and our capital deployment strategy. And so probably not a great answer for you, Paul, but maybe we can expand on that if you have a follow-up.

Okay, maybe I'll leave it there. Just on North American OSB, I appreciate the guide for shipment volumes in 2021. Just wondering how much Allendale is going to be able to contribute to that in 2022 and how much Allendale is going to contribute and then what the incremental shipment increase from Allendale will be in 2023.

Well, 2022 is easy. We really don't expect anything, you know, very minimal, basically zero. So we're hopeful to get started up by the end of 2022, but I wouldn't expect anything on shipments. On 2023, I'm not sure we've provided on guidance on that, but it'll be a startup year. And, you know, probably similar to the Chambord ramp-up curve would be how I'd expect it to do. I think I think we're pretty pleased where we are in Shamboard. So, you know, typically I would, yeah, I would kind of use Shamboard as a good backdrop for 2023 for Allendale.

Okay. And then just on European OSB, the shipment volume in Q4 was a surprise and a downside for us. And, you know, even understanding, you know, the drier build at Genk. So it seemed like the market weakened off in Q4. Just wondering, you know, you've given us guidance on 1.1 to 1.3 billion square feet in 22 here. How confident are you on that number and what's the upside in shipments out of Inverness?

So, yeah, for sure, Genk, the Genk, you know, the you know, was kind of a, you know, pretty much a three-week project, and then with the ramp up, and, you know, when you only have two OSB mills in Europe, that was a pretty pronounced impact. So, you know, and look, you know, we saw quite a bit of price appreciation in Europe towards the end of the year, and, you know, a little bit harder to dissect some of those things, but I'm sure there was a little bit of an impact in the marketplace, and we did see a little you know, some seasonal, uh, slowdown towards the end of the year, whether it was really different than other years, hard to really differentiate that. It, you know, it would appear similar anyway. Uh, the start of the year, I, you know, and, uh, I can tell you that our European team remains pretty optimistic and, and, uh, and, um, about, uh, where we're at. So at this point, um, you know, we're, we, we think, uh, we're in a pretty good spot and, uh, and that we'd expect that to be not likely to be exactly like 2021, but we're expecting that to meet our expectations.

Okay, and then just lastly, just on lumber M&A opportunities, I mean, you guys have been over to Europe a number of times over the last decade. Anything over there that you see that could come forward?

Um, well, Paul, I mean, we're, I mean, we're looking everywhere. So, um, uh, so I guess the short answer would be, I'm sure there is, uh, uh, but, uh, uh, you know, so we look at everything that comes up and, and if we think that it's something that can make our business better, uh, you know, we're going to, um, you know, we're going to spend some time on that. So, um, you know, I, I would say the bulk of the opportunities are still in North America. Um, and, uh, But we're keeping an eye open in both areas, and I would just say stay tuned. We like both regions. All right. That's all I had.

Best of luck.

Thank you. Next question will be from Mark Wild at Bank of Montreal. Please go ahead.

Thanks. Just a couple follow-ons. First, Ray, we've heard some stories about – pretty significant COVID impact on different operating facilities late in the fourth quarter and in through January. I'm just curious about what you experienced both at the end of the fourth quarter and what you've seen so far in the first quarter.

Thanks, Mark. Look, and we probably understated that certainly this fourth wave, the way it moved through, and it was similar in the U.S. as it was in Canada. it came very hard, very fast. We saw significant impact in our operations. Now, you know, we didn't lose significant production. We certainly lost some shifting. But what it had an impact on was a lot of absenteeism, a lot of overtime, a lot of people moving into jobs that perhaps they hadn't done very well or weren't that. So it had an impact on on productivity to a certain extent across the company and virtually everywhere we operate. I hear similar stories, if you will, on other impacts. But, you know, for the most part, it was business as usual, except this wave was certainly unique compared to the past waves. Now, it's also coming down very quick. The impact in Europe was certainly less. than what we saw in North America. We're quickly seeing that wave behind us and don't expect to see any impact due to that in Q1. In Q4, it was a major issue for the management to get through.

Okay. Chris, I'm just curious, going back to this sort of issue of kind of high prices and in-demand destruction, Just based on what you saw last year, what are you keeping an eye on to try to get a read on this?

Excuse me. That's a good question, Mark. We look a lot at our VMI polls. We watch those very closely to see what our customers are actually using. And so far this year, they've stayed very, very strong, both on the panels and the lumber side. And we stay in as close a touch with our customers as we can to try to get ahead of this a bit. We saw it coming last year and probably could have reacted a little quicker, but certainly so far this year, the demand remains very, very strong.

Hey, Mark, I'm just going to jump in on that. I think I replay kind of over the last few periods where we've seen these prices and then some softening in the market. I would say that we've been managing our production to try and make sure that we only have so much ability to build inventory. And then I would say the system only has so much ability to take it away. And I think when people reflect on, say, five years ago, the industry can either supply or ship a volume in a very quick manner. And I think when I think back to the last few times when there was a little bit of a dip, my view would be the wall of wood didn't show up. at the speed and pace that would be required. Anyway, so that's just a bit of a commentary. I mean, our biggest concerns are just shipping what we're making today.

Yeah, okay. All right, and last one. I don't want this to sound subversive, but, you know, just sitting here, you're one of the largest lumber producers in the U.S. If you had a U.S. domicile, could you actually participate in the U.S. discussions? around the lumber trade issue?

No, no. So we've got operations on both sides of the border. You're asking could we be part of the coalition?

Yeah, if you were headquartered somewhere other than Vancouver, if you were headquartered south of the border, could you then participate in the coalition?

Well, let's not take this as verbatim, but I don't believe so.

Wow. It's just striking to me, Ray. I mean, you know, when we think about where capital is being invested in the U.S. lumber industry, it seems to me that, you know, the lion's share of it is actually coming from Canadian companies at this point.

Well, Mark, logic and rational thought often don't enter into discussions around, you know, these things that happen in trade in the U.S. So I would say the process is set up to look after capital. those that are in the coalition. Anyway, it is what it is. We're working our way through it. At this point, we're just managing through the softwood lumber agreement or disagreement, if you will. There's really not much happening on that front. I think the biggest catalyst for an agreement is likely those that are focused on trying to reduce inflation in the U.S. and whether there's any political pressure that can come as a result of that.

Okay, fair enough. Again, I didn't want to be subversive there, but I do want to also just echo Sean Stewart's comment about how much we appreciate the improved disclosure, including that segment EBITDA bridges that you're now including in the MD&A. So it's much appreciated.

Well, Verostic forced me to do it, so I'm glad to hear that.

All right, thanks. Good luck. Thanks, Mark.

Thank you. Next question will be from Sean Stewart at TD Securities. Please go ahead.

You might be on mute, Sean.

So I am. I think I'd learn after two years of this. On the greenhouse gas reduction targets for 2030, can you go a little bit into a bit more detail, Ray, on the long-term capital you're going to commit to that and give us some examples of the types of technologies or processes you'll be looking at implementing? And when you talk about a two- to three-year payback normally for discretionary capex, are we right to assume there isn't maybe a direct financial payback on that capital? How do you think about that?

That's a great question, Sean. First, I would say a lot of the projects that we do, and if we look in the rearview mirror, a lot of them have sustainability and GHG built into them. Part of this process is really understanding those opportunities, properly accounting for them, and making sure that they factor into a payback analysis and that we can report out and share. So, you know, I would say as we look at our, you know, and when we really look back at 2021 and our capital in 2022, there's already a chunk of it that when we look at that capital, we go, well, this has, you know, significant paybacks and will be part of the journey on meeting our targets. When we look at these energy efficiency, it isn't necessarily a lot of new technology. It's just incorporating those other attributes to a great extent around existing capital or strategy going forward. So, look, are there going to be new things that we might not have otherwise thought about around, you know, sure there will. But I can tell you, you know, we've done solar projects in the past. We're likely to do that in the future. And they stand on their own merits. But in the eyes of sustainability and GHG, there's an additional payback that takes us there. So I feel quite comfortable that our paybacks will remain robust and in some cases improve with this. And we're quite excited about it because we think we're going to be able, and I suspect other forest companies as well, that when we're doing a very good job of describing our strategy and communicating it, that it's going to shine well in the industry.

Thanks for that detail. I appreciate it, Ray. Thanks, Sean.

Thank you. Next question is from Paul Quinn at RBC. Please go ahead.

Yeah, thanks. Just one last follow-up. Just on the topic of increased disclosure and hopefully guidance, we've seen a run-up in lumber and OSB prices in North America you know, Q4 averages and Q1 here to date, which is, you know, both are up kind of in that realm of 75%. Just wondering how your realizations are tracked through, you know, at least in the month of January from those price increases.

Paul, I think it's pretty hard for us to comment on that right now. I think, you know, what you've got to keep in mind is when, and I think what we said in the comments there around transportation, right, is when you have delays, obviously that delays the benefit of your realization. So I think that's about as far as we can go in terms of unpacking that. But the longer it takes to ship stuff, the longer it takes to realize the benefit of what's happening in the market.

All right. Fair point. Thanks, guys. And I might just add, and I get myself in trouble here, I think in the past when you've seen peak pricing, Some of those other products, whether it be wide lumber, it doesn't mean that that's what's happening this time, but historically wide lumber or specialties in OSB or in lumber, they tend to lag some of the peak commodity pricing, and so that can open up. Then on the flip side, it tightens up on the other side of the cycle. But I do think that's one of the things that is difficult to track, but it is a factor.

The other thing I think that we highlight fairly regularly is those prices get reported, but how much is actually transacting at those prices is hard to unpack as well. I mean, I remember back in 2018 when we were talking about this and the high price of lumber you know, lumber in the 600s or whatever, very little actually transacted there. The average was more like 480. So I think you just have to keep in mind that when this stuff gets published twice a week, how much is actually transacting at those is a bit of a black box.

Well, I just assume that McKeever gets a 5% to 10% premium on the reported prices. Is that not correct? Of course it is. Thank you. Thanks, guys. Thank you.

Thank you. And at this time, I would like to turn the call back over to our speakers for closing comments.

Listen, thanks for that. Great questions. Appreciate the comments and attending our call. And we'll look forward to talking to everybody at the end of Q1.

Thank you, Mr. Harris. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.