West Fraser Timber Co. Ltd.

Good morning, ladies and gentlemen, and welcome to the West Fraser Q3 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 immediate assistance, please press star zero for the operator. 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 Wes Frazier's website or through SIDAR, and as supplemented by the company's quarterly MDMAs. Accordingly, listeners should exercise caution in relying upon forward-looking statements. This call is being recorded on Tuesday, October 27, 2020. I would now like to turn the conference over to Ray Ferris. Please go ahead.

Thank you, Operator. Good morning to everyone and thank you for joining us. With me today is our Chief Financial Officer, Christopher Virostek, Chris McKeever, our Vice President Sales and Marketing, and several other members of the West Fraser Executive Team. Before I turn the call over to Chris to go over financials, I'm deeply saddened to report that in the early stages of a major shutdown at our Hinton Pult facility, that Norman Hatami, a scaffolder working for Illumina Systems, suffered a fatal fall from height while erecting scaffolding inside a vessel. This is a difficult period for all impacted, and our deepest sympathy goes to Norman Hatami's family, his friends, and fellow workers. With that, I'd like to acknowledge that we recently posted our updated ESG and Responsibility Report, and it is now available on our website. It references the Sustainability Accounting Standards Board Global Reporting Initiative, and includes information recommended by the Task Force on Climate-Related Financial Disclosure. With that, I'm now going to turn the call over to Chris Virostek.

Thanks, Ray, and good morning, everyone. A few months has certainly made a dramatic difference in things. When we last reported earnings in July of this year, we were just a couple of months into the restart of many of our facilities coming out of the first wave of the pandemic. Strong demand for lumber from new home construction and for renovation applications, coupled with lean channel inventories and a limited ability for a supply response, drove a significant pricing reaction in wood products. Our lumber segment adjusted EBITDA increased to $552 million, eclipsing the $467 million recorded in the second quarter of 2018, which was the prior high point of pricing in recent years. Our panel segment rebounded as well, ramping back up production and shipments with significantly improved plywood pricing. Adjusted EBITDA for the panel segment increased to $51 million. And while adjusted EBITDA in pulp declined to $5 million in the quarter, principally due to price, we offset a significant amount of the price headwind with lower costs through improved reliability and production rates. Consolidated adjusted EBITDA rose to $605 million and operating earnings were $487 million. Finance expense declined as we repaid debt during the quarter and interest rates declined as well. We recorded earnings of $350 million for the quarter. Improved wood products pricing, reduced costs, and increased production volumes all contributed to better earnings. While the progression from Q2 to Q3 involved a healthy dose of price, $430 million, of which $424 million was attributable to lumber, we also made progress on the cost front, not only from increased production, but also from the benefits of capital we've spent in prior years and continued close management of fiber costs. Volume was a slight drag overall in the quarter, coming mostly from reduced shipments of SPF, partially offset by higher SYP and plywood shipments. SG&A costs increased in the quarter due principally to increases in provisions for variable compensation, along with slightly higher wage costs resulting from pandemic-related staffing actions. Our prior quarter also included $7 million of insurance recovery that did not carry over. Turning to the comparison of the first nine months relative to last year, there's been a remarkable turnaround in wood product markets. Pricing in lumbers and panel has increased significantly Partially offset by softness in pulp markets. We are particularly pleased with the progress we have made on cost in each of our segments over the prior year. Through continued focus on safety, operational excellence, and management of fiber costs, we've improved costs by $169 million over the comparable nine-month period. Timing of pulp shutdowns year-over-year did provide a benefit as well. SG&A changes year over year were largely attributable to the fact there was no variable compensation recorded in the prior year period given the earnings performance. Year-to-date adjusted EBITDA of $916 million has drawn more in line with the $819 million and $1.4 billion of adjusted EBITDA for the comparable periods in 2017 and 2018. Lumber production for the quarter increased by $125 million board fee as SPF production increased 8%. and SYP Production increased 9%. Shipments were down slightly in the quarter, but for the full year, shipments are slightly ahead of production as we reduced inventories during downtime earlier in the year. Flywood shipments reflect a full quarter of operating near capacity. Cash flow from operations was $613 million as improved earnings and favorable working capital both contributed. In the quarter, we paid down a number of the COVID-19-related deferrals that were put in place earlier in the year, notably on stumpage and property taxes. Capital spending was in line with the prior quarter, and we expect the full year to be towards the higher end of our previous guidance as we've brought forward a few small projects. Net debt declined by $563 million, and net debt to capital is now 12%. During this quarter, we have repaid our operating loans and increased our cash by $179 million. Our cumulative duties on deposit grew to $495 million US. If the duty rates adjust as anticipated in Q4, we will record a US $93 million recovery in Q4 in respect of overpayment of duties for the 2017 and 2018 periods. The evaluation of 2019 duties is currently underway. Liquidity continues to improve and is now approximately $1.3 billion, with the majority of that comprised of undrawn bank lines. We remain well on side with our financial covenants and have no near-term maturities. We are currently entering the period of seasonal inventory accumulation of logs in Western Canada, which will carry on through March of next year. With that, I'd like to turn it over to Ray for some comments on market perspective and recent developments on some of our capital projects.