West Fraser Timber Co. Ltd.

Good morning ladies and gentlemen and welcome to the West Fraser Q2 2022 results conference call. At this time all lines are in the listen only mode, but following the presentation we will conduct a question and answer session. If at any time during the call you require immediate assistance, please press star zero for an operator. 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 and EDGAR for United States investors. This call is being recorded on Thursday, July 28, 2022. And I would like to turn the conference over to Mr. Ray Ferris. Please go ahead, sir.

Well, thank you, Sylvie, and Welda. So, Listen, good morning, everyone, and thank you for joining our second quarter 2022 earnings call today. So I'm Ray Farris, President and CEO of West Fraser, and I'm joined today by Chris Vorostek, our Chief Financial Officer, and Chris McKeever, our Senior VP, Marketing Corporate Development, and several other members of our executive team. I'll begin with a brief overview of key highlights of West Fraser's second quarter results and then pass the call to Chris Vorostek for additional comments. In the second quarter, West Fraser achieved strong financial results in the face of ongoing transportation and logistics challenges. As you may recall from recent quarters, transportation challenges have been particularly acute and of longer duration than we and others had originally expected. However, we did see a start of signs of improvement in the second quarter, and that trend has continued early into the third quarter. Demand for our wood-based building products was robust in the second quarter, generating $1.12 billion USD of adjusted EBITDA, representing a margin of 39% of sales. The benefits of our product and geographic diversity continue to be a differentiator for West Fraser. As a result, we saw a more resilient EBITDA for the North American wood product segment in a quarter, where our lumber business saw a more significant sequential decline. On capital allocation, it's important to note that in the past 18 months, the company has repurchased approximately 37 million common shares through our normal course issuer bids and the completion of two SIVs. Altogether, this equals 67% of the shares issued in respect of the NOR Board acquisition. Through this same period, we have increased our dividend three times to the level of $0.30 USD today. Notwithstanding this return of capital, our balance sheet continues to offer significant financial flexibility, which is a key priority of our capital allocation strategy. With that short overview, I'll now turn the call to Chris for additional detail and comments.

Thank you, Ray, and good morning, everyone. And a reminder that we report in U.S. dollars, and all my references are to U.S. dollar amounts unless otherwise indicated. Our North American EWP segment generated $623 million of adjusted EBITDA down approximately 15% from the first quarter, while lumber generated $449 million of adjusted EBITDA down approximately 44% from the prior quarter. And while improved from the prior quarter, the pulp and paper segment had a negative $3 million of adjusted EBITDA in the quarter. And while we're not satisfied with the pace of progress we are making in this business, we remain focused on our long-term solutions to improve the pulp and paper segment, which includes our UKP strategy. In Europe, adjusted EBITDA was $54 million versus $78 million in the prior quarter. Price was the single largest driver for the sequential EBITDA declines in North America, more than offsetting improvement in shipments from the first quarter, while in Europe, lower second quarter shipments more than offset better pricing. Cash flow from operations in the second quarter was $1.06 billion, supported in part by a seasonal decrease in working capital, while cash net of debt declined quarter over quarter to $746 million as we repurchased nearly $1.5 billion of our common shares in the second quarter. Included in these share repurchases was $1.13 billion of shares repurchased, upon the successful closing of our second substantial issuer bid in the last 12 months, furthering our track record of returning significant capital to shareholders. As Ray mentioned, we also raised our quarterly dividend to 30 cents per share to distribute a substantially similar amount of cash through dividends after giving effect to the shares repurchased through the NCIB and the SIP. I'll now shift to our 2022 operational outlook for the balance of the year. In part due to the ongoing transportation challenges in North America, and despite the considerable progress we made with our Q2 shipment volumes compared to Q1, we're providing a slightly more cautious annual SPF lumber guidance. We now expect SPF shipments to be closer to the bottom end of the range of 2.8 to 3 billion board feet. We are maintaining our guidance for SYP shipments, which we still expect to fall within the range of 3 to 3.2 billion board feet this year. For our North American OSB business, given continued constraints to trucking services and signs of slowing demand, we are reducing our annual shipments guidance to a range of 5.9 to 6.2 billion square feet on a 3-8 inch basis. In Europe, we are seeing early signs of slowing demand and as such are slightly reducing our OSB shipments guidance. We now expect 1 to 1.2 billion square feet on a 3-8 inch basis this year. And lastly, we are reiterating our guidance range of $500 to $600 million for planned capital expenditures in 2022. However, given the rate of expenditures in the first half of the year and ongoing supply chain challenges, we expect our capital spend may fall closer to the bottom end of this range. As discussed last quarter, it remains difficult to estimate when full transportation services will be available. In the meantime, we continue to actively seek and utilize alternative transportation routes and methods to the extent they are available to continue servicing our customers. Given this uncertainty, further reductions of operating schedules across our production platform may be required to manage raw material supplies, inventory levels, and our integrated fiber supply chain. Consistent with our previous quarters, across much of our supply chain, We are experiencing greater than usual inflationary cost pressures and availability constraints for labor, transportation, energy, and raw materials such as resin and chemicals. We expect these cost pressures and availability constraints to remain elevated through the remainder of 2022. With that overview, I'll now turn the call back to Ray.