West Fraser Timber Co. Ltd.

Good morning, ladies and gentlemen, and welcome to the West Fraser Q1 2020 results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require assistance, please press star zero for the operator. Forward-looking statements during this conference call, West Fraser's representatives will be making certain statements about potential future developments. These forward-looking statements are intended to provide reasonable guidance to investors, but the accuracy of these statements depends on a number of assumptions and is subject to various risks and uncertainties. Actual outcomes will depend on a number of factors that could affect the ability of the company to execute its business plans, including those matters described under risks and uncertainties in the company's annual MD&A, which can be accessed on West Fraser's website or through CDAR, and as supplemented by the company's quarterly MD&As. Accordingly, listeners should exercise caution in relying upon forward-looking statements. This call is being recorded on Tuesday, April 29, 2020. I will now turn the conference over to Ray Farris. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us today. With me is Christopher Virostek, our Chief Financial Officer, as well as Chris McKeever, our Vice President of Sales and Marketing, and several other members of our executive team. I will make a few opening comments and then Christopher Virostek will review our first quarter results and some additional remarks. As we manage through this crisis, I think it's important to clearly communicate what our priorities here are at 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, in collaboration with our industry competitors and regulatory bodies, developed and implemented industry-leading exposure control protocols that would protect our fellow employees should and when an event take place. It also ensured that self-quarantine expectations were effective and being followed. We adjusted our production schedules where necessary to accommodate both protocols and employee needs. and successfully executed and having almost our entire corporate personnel working from home. These measures, coupled with strictly following the Health Authority's direction, have kept our employees and communities safe. Being designated an essential industry is not something that we take for granted and we take our community responsibilities very seriously. Our next priority is to ensure that we are operating our businesses responsibly. In the middle of March and through April, in response to the rapidly changing market demand, We significantly reduced lumber and plywood production in Canada and we continue to adjust our operating schedules in both the U.S. and Canada weekly as necessary. We're able to accomplish this while attaining our best safety performance in the history of the company, both for the year of 2019 as well as for the first quarter of 2020. I will provide further comments after Chris's overview of our Q1 operating results.

Thanks, Ray. We reported $127 million of adjusted EBITDA in the first quarter as compared to $80 million in the fourth quarter of last year. Results improved in both the lumber and pulp segments, while demand challenges associated with COVID-19 dampened panel results, especially plywood. Operating earnings increased by $44 million from a loss of $31 million in the fourth quarter to income of $13 million in the current quarter. Turning to the drivers of the results, we saw improved lumber and pulp pricing compared to the previous quarter, which lifted results by approximately $52 million. Volume had a negligible impact overall, as changes across the various segments largely offset one another. Costs, inclusive of fiber, manufacturing, and administrative costs, were up slightly on the quarter. On the key metrics for the quarter, lumber production was up 78 million board feet to 1.5 million board feet, Late in the quarter, we slowed SYP and SPF production as a result of the COVID-19 situation. Shipments lagged production by 75 million board feet, with the key issues being in SPF as rail blockades earlier in the quarter challenged rail car availability for a period of time. Our SYP shipments exceeded our SYP production as we lowered inventories while on the reduced schedules at the end of the quarter. With price and operational improvements, adjusted EBITDA increased by $47 million from $80 million to $127 million. Cash flow from operations was a use of $162 million as we used $195 million to build log and other inventories as is the seasonal trend. Receivables were also a use in the quarter as shipment levels at the end of the fourth quarter were very low during the holiday period. Before the impact of changes in working capital, cash flow from operations improved by $53 million to $114 million when compared to the previous quarter. As compared to the same period in the prior year, which is more comparable from a seasonal standpoint, cash flow from operations was $106 million improved. CAPEX declined from $87 million in the fourth quarter of 2019 to $59 million in the most recent quarter. We have delayed or deferred most discretionary capital that has not been started. Our focus on maintenance capital and the orderly completion of strategic projects currently underway, which remain on track and which we believe will provide significant benefits over the long term. Net debt increased by $274 million. and represents 33% of total capital, a slight increase from year-end, but well within parameters. At the end of the quarter, we had U.S. $407 million of cumulative duties on deposit. Last Friday, the DOC announced that it is tolling all administrative review processes for at least 50 days, which will likely extend the finalization of Administrative Review 1 rates. and any potential change in duty rates from August until September. Finally, I'd like to touch on our liquidity situation. At the end of the quarter, we had $294 million of available liquidity at a point in time when we have largely wrapped up our winter 2020 logging activities in Western Canada. On April 9th, we secured an additional $150 million revolving credit facility bolstering our available liquidity to a pro forma $444 million as of the end of the second quarter. The new credit facility matures in 2022 and provides additional flexibility in the current uncertain times. We have no other significant debt maturities until 2024. We remain well on side with our financial covenants in the credit facilities. Additionally, we are due approximately $125 million of tax refunds on account of prior years. We have shifted now as well into the seasonal period where logging activities are limited and will be consuming the log decks we have accumulated in Western Canada. Over the past several weeks, various levels of government have also implemented a number of temporary payment deferral mechanisms that will provide a boost to liquidity during the second and third quarter. Through the first four weeks of the second quarter, we have seen reasonable levels of demand for lumber and pulp, and while on reduced schedules, have made significant progress in reducing inventories across our operations. If the trend continues, we would expect available liquidity to improve as the quarter progresses. With that, I'll turn it over to Ray for some closing remarks.