West Fraser Timber Co. Ltd.

Good morning. My name is Sylvie and I will be your conference operator today. At this time, I would like to welcome everyone to the Joint West Fraser Q1 2021 Results Conference Call. During this conference call, West Fraser's representatives will be making certain statements about potential future development. These forward-looking statements include certain statements about West Fraser's future financial and operational performance including the impact of foreign exchange rates, credit ratings, and mill maintenance shutdowns. Wes Frazier's business outlook, including forecasted U.S. housing starts, market conditions, demand for products and available supply, and expectations concerning costs. Wes Frazier's capital plans, including the completion and ramp-up of capital projects and the benefits of such projects. the softwood lumber dispute, including adjustments to duty rates and related proceedings, the integration of Norbord into the West Fraser business and expected synergies, and the redemption of the Norbord 2023 notes. These statements include forward-looking statements within the meaning of Canadian and United States securities laws, and are intended to provide reasonable guidance to investors. The accuracy of these statements depend on a number of assumptions and is subject to various risks and uncertainties that may cause future events to differ materially from the events implied by these statements. 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 management discussion and analysis as supplemented by other risks and uncertainties as set out in the company's quarterly MD&As. These filings can be accessed on Wes Frazier's website or through CDAR for Canadian investors and EDGAR for United States investors. Accordingly, listeners should exercise caution and relying upon forward-looking statements. 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 the number one on your telephone keypad. And if you would like to withdraw your question, please press star and the number two. Thank you. Mr. Ferris, you may now begin your conference.

Well, thank you, Sylvie, very much for that introduction. Well, good morning, everyone, and welcome to our first quarter 2021 conference call. I'm joined today by Chris Verostick, our Chief Financial Officer, Chris McKeever, our Senior VP of Marketing and Corporate Development, and several other members of our executive team. I will make a few opening remarks, and then I'll pass the call to Chris Verostick for a review of our West Fraser's first quarter results. and then make some concluding comments, and then we'll, of course, take your questions. Just a reminder to everyone that our financial results are now in U.S. dollars. It remains an exciting period for forest products. Being a meaningful part of an industry that provides sustainable and renewable building products required for a low-carbon economy simply by participating in the life cycle of forests that we live in and operate in. Manufacturing building materials from a sustainable and renewable forest is but one very important part of the required solution for society to meet its climate change objectives. On February the 1st, 2021, we acquired the Norborg business and a highly capable and well-managed team. I want to thank and acknowledge how hard and diligent our finance, legal, HR and IT teams are working to make the transition as smooth as possible while relentlessly supporting our manufacturing operations, frankly, without missing a beat. In fact, our operations perform well in the period. And you'll see in our first quarter results, which Chris will highlight later, the significant financial contribution the OSB business has already made to West Fraser. With that backdrop, I'm pleased to report that the first quarter of 2021 was another strong quarter for West Fraser. We remained agile and continued to work hard at minimizing the COVID-related business disruptions thanks to our focus on the health and safety of our employees and communities. I'm proud of what our team has accomplished. In North America, the strength in U.S. home construction activity from the second half of last year continued its recovery from the weakness that unfolded during the early stages of the COVID-19 pandemic, spurring demand for wood building products. In fact, home construction, measured by new home starts, has recently reached levels not seen since 2006. Repair and remodeling has also remained robust, driving solid demand for lumber and wood panels. On the lumber side, the construction of our new manufacturing complex in Dudley, Georgia has progressed well as the mill and planer are now operational and the rest of the site is expected to come on later in Q2. We anticipate approximately 170 million board feet of additional production as the Dudley mill ramps up towards its full annual production capacity over the next several years. On the OSB side, Supply has struggled to keep up with the stronger than expected recovery in OSB demand in recent quarters, and that strength is carried into the first quarter of 2021. In response to that increased demand, we announced the restart of Chambord Quebec Mill, which began to produce and ship panels in late March, ahead of our original expectations. Those panels are now helping to meet the demands and needs of our customers for important spring building season. The Sham Board Mill is expected to ramp towards its annual rated capacity of 550 million square feet, 3 eighths, over the next 18 to 24 months. With that, I'll now pass the call over to Chris.

Thanks, Ray, and good morning, everyone. When we last reported earnings in mid-February, the recovery in lumber and OSB demand was significant. That demand strength continued through the first quarter and remains elevated versus historic norms. owing to continued strength from new home construction and renovation applications, lean channel inventories, and a limited supply response. West Fraser has been adding hours and shifts where possible across our manufacturing network to increase supply and attempting to secure additional transportation resources for delivery of product. Another item of note, our consolidated first quarter results include the financial results of Norboard as of February 1. and as of January 1 of this year and for all comparative periods presented, we are no longer excluding export duties in our adjusted EBITDA calculations. Our reportable segments now include the acquired North American OSB business and the pre-existing West Fraser Panels business as North American engineered wood products, and the acquired operations in the UK and Europe are reported as a separate segment. In terms of financial performance, West Fraser generated record consolidated adjusted EBITDA of $1 billion U.S. in the first quarter, up from $453 million in the last quarter, in part due to the addition of Norboard's results as of February 1st. I will note that this first quarter EBITDA was reduced by $93 million for an acquisition-related non-cash purchase price accounting impact related to inventory fair values. This raised our cost of goods sold to their fair value as of the date of closing, as required by accounting standards. 86 million of this EBITDA reduction was attributed to the North American EWP segment, and 7 million was attributed to the European EWP segment. In the prior quarter results of 453 million of adjusted EBITDA, there was a $95 million benefit for the retroactive adjustment to duty rates for 2017 and 2018. Now to highlight some of Q1's segmented financial results. The lumber segment reported adjusted EBITDA of $646 million versus $425 million in the fourth quarter of 2020, with the positive effect of higher pricing offsetting lower shipments, higher fiber costs, and the retroactive duty adjustment in Q4. Our North American EWP segment performed well in the first quarter. Adjusted EBITDA for the segment grew to $353 million from $48 million in the prior quarter, with gains primarily due to the addition of the OSB results for February and March, but as well due to higher plywood pricing, which more than offset fiber and raw materials cost inflation. OSB shipments were slightly lower than expectations due to extreme winter weather disruptions in the U.S. South. Adjusted EBITDA in the pulp and paper segment increased to $11 million in the first quarter, from negative 20 million in the fourth quarter, owing to higher pulp pricing and reduced downtime for maintenance activities. We continue to see signs of a recovery in pulp markets. Lastly, adjusted EBITDA in the newly formed European EWP segment was 11 million, representing Norboard's February and March results for that geography, which, as I noted earlier, was reduced by 7 million due to a non-cash purchase price accounting adjustment to cost of goods sold. We are seeing recent market strength continue in Europe as demand for OSB continues to grow. Shifting to capital allocation in the balance sheet, capital expenditures were $62 million in the first quarter, up moderately from the first quarter of last year. We remain on track to invest approximately $450 million on capital projects in 2021 and continue to focus on realizing the benefits of the capital we have spent in the past few years. We view share buybacks as an appropriate use of excess cash where we believe our shares are trading below intrinsic value. And over the first quarter, we bought back $102 million worth of West Fraser shares under our normal course issuer bid. Those shares were repurchased at an average price of Canadian $82.86, well below our internal view of intrinsic value, and more than a 20% discount to yesterday's closing. We are also pleased with the level of US trading liquidity we've seen for Wes Fraser with the New York Stock Exchange listing, and our trading volume, which accounted for less than 10% of our total trading volume on the exchanges in February, now regularly exceeds 20% of our total daily trading volume. Given the strong Q1 results, our financial liquidity increased materially, exiting the quarter with $2.55 billion of available liquidity. Leverage was modest, exiting the quarter with total debt of $1.3 billion and net cash of $164 million. You will notice also that in conjunction with our Q1 earnings release, we have also announced plans to redeem the Norboard 2023 notes. In combination with the recently completed redemption of the 2027 notes, we will therefore have executed on plans to redeem and retire in aggregate $665 million of high-yield Norboard debt which will ultimately reduce annual interest costs by approximately $40 million and help rationalize our capital structure. To meet the reporting requirements under the Norbord note indentures, we provided a summary and discussion of Norbord's first quarter results, including the month of January, in an addendum to yesterday's earnings news release. On a standalone basis, Norbord generated $526 million of adjusted EBITDA in Q1 and ended the quarter with $114 million of net cash. With that, I'll turn the call back over to Ray for our outlook on 2021 and an update on select projects and the integration.