West Fraser Timber Co. Ltd.

Good morning, ladies and gentlemen, and welcome to the West Fraser Q3 2022 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 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 West Fraser's future financial and operational performance, business outlook, and capital plans. These statements may constitute forward-looking information or forward-looking statements within the meaning of Canadian and United States securities laws. 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 risk factors and assumptions is included both in the accompanying webcast presentation and in our 2022 Annual MDNA and Annual Information Form which can be accessed on West Fraser's website or through CDAR for Canadian investors and EDGAR for United States investors. I'd like to remind everyone that today's call is being recorded Thursday, October 27th, 2022. And I would now like to turn the conference over to Ray Ferris, President and Chief Executive Officer. Please go ahead, sir.

Thank you, Michelle. And good morning and thank you for everyone for joining our third quarter 2022 earnings call. As Michelle noted, I'm Ray Ferris, President and CEO of West Fraser. And I am joining today's call from Greenville, South Carolina, which is home of West Fraser's Advanced Controls and Development Center. Joining me on the call from Greenville is Chris McKeever, our Senior Vice President, Marketing and Corporate Development. along with a few other senior leaders. As well, joining us from Vancouver, British Columbia, is our Senior VP and Chief Financial Officer, Christopher Austin. If you'll humor me a bit, I'd like to take a few minutes to describe just what our team in Greenville does and the role we expect them to play in support of our broader efforts of further improving our operational and cost performance as we continue our transformation into a leading global wood products company for background the advanced control center was an initiative launched by the norboard team in 2020 to support the 12 north american osb facilities in best-in-class safety operational performance and the sharing of best practices following the completion of the norboard acquisition in february 2021 our platform has now grown to 13 osb operations and specifically 22 sawmills in the U.S. South. Although the center will support other regions, we believe the critical mass we now have in the U.S. South is an important strategic advantage of scale upon which to execute and support technology transfer to more rapidly advance the highest safety, automation, and operational efficiencies, which are key to further driving our low-cost strategy. To do this, it's important that we have the best people and processes in place, and that's where the Advanced Control Center comes in. From this center, we have a team of engineers and control specialists that are wired into many of our operations to directly support our on-site teams. At a high level, the Advanced Controls and Development Center's key objectives are to train, educate, and develop our employees to deploy and utilize best-in-class automation and control skills, to share in real-time best practices on safety and operational excellence, and to be an incubator in developing and implementing the latest automation, optimization, and robotic technologies. Doing this should also result in a work environment that attracts and retains the most engaged and talented people for our company. We are pleased with the energy and progress that our U.S. South leadership team have accomplished so far in this initiative, and we are excited about the opportunities ahead as we drive competitive advantages through people and technology to support our safe, low-cost, and highly efficient operating philosophy. With that, I will now give a brief overview of key financial highlights of Wes Fraser's Q3 results and then pass the call to Christopher Rostick for additional comments. In the third quarter, West Fraser saw a further improvement in transportation constraints that had challenged our financial results earlier this year, while concurrently we saw market demand weaken with rising mortgage rates impacting near-term housing affordability. Against this backdrop, we achieved solid financial results for the quarter, generating $426 million of adjusted EBITDA, representing a margin of 20% of sales. In terms of capital allocation, we invested nearly $150 million in capital equipment this quarter, while continuing our track record of returning significant capital to our shareholders by repurchasing $182 million of our shares and also paying out $27 million in quarterly dividends. The company has now repurchased approximately 39 million common shares through our normal course issuer bids. and with the completion of two substantial issuer bids since early 2021, representing approximately 72% of the shares issued in respect of the Norboard acquisition. Notwithstanding this return of capital and softening of marketing demand, our balance sheet continues to offer significant financial flexibility, which remains a key priority for us in our capital allocation strategies. With that overview, I'll now turn the call over to Chris for additional detail and comments.

Thank you, Ray. 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 America EWP segment generated $215 million of adjusted EBITDA, down from $623 million in the prior quarter, while lumber generated $160 million of adjusted EBITDA, a decline from $449 million in the prior quarter. Note that the lumber segment benefited from an $81 million duty recovery of the administrative review period three export duties during the third quarter. The pulp and paper segment generated $29 million of adjusted EBITDA, a significant improvement from recent quarters. Notwithstanding this progress, we continue to focus on long-term solutions to improve the pulp segment. which includes our unbleached craft pulp strategy. In Europe, adjusted EBITDA was $24 million versus $54 million in the second quarter. Price was the single largest driver for the sequential EBITDA change across our North America's lumber and engineered wood product businesses in North America and Europe. Cash flow from operations in the third quarter was $433 million while cash net of debt increased quarter over quarter to $789 million, even as we repurchased $182 million of our common shares in the quarter. I'll now shift to our 2022 operational outlook. While we did experience a notable improvement in transportation in the third quarter, particularly in Western Canada, we are reducing our annual SPF lumber guidance. We now expect SPF shipments to be modestly below the bottom end of the prior guidance range of 2.8 to 3 billion board feet, maintaining our guidance for SYP shipments, which we expect to fall within the range of 3 to 3.2 billion board feet this year. We're also reiterating our North American OSB annual shipments guidance of 5.9 to 6.2 billion square feet on a 3-eighths-inch basis. In Europe, we are seeing a continuation of the slowing demand we discussed last quarter, and as such, we now expect OSB shipments to be at the bottom end of the guidance range of 1 to 1.2 billion square feet on a three-eighths inch basis this year. Lastly, given the rate of expenditures in the first three quarters of 2022, and because we now expect project spending to carry into 2023 for a number of our projects that are underway, We are tempering our 2022 capital expenditures guidance to be approximately $450 million, as compared to the prior guidance range of $500 to $600 million. We continue to see weakening demand for a number of our products, particularly for those serving new home construction markets, as rising mortgage rates appear to be impacting affordability. And while we still see positive medium- to longer-term market supply and demand fundamentals for our key products, we are acutely aware of these near-term headwinds. Given this uncertainty, further changes to operating schedules across our production platform may be required to manage raw material supplies, inventory levels, transportation, and our integrated fiber supply chain. Consistent with recent quarters, across much of our supply chain, we continue to experience greater than usual inflationary cost pressures and availability constraints for labor, energy, and raw materials such as resins and chemicals, and to a lesser extent, transportation. We expect these cost pressures and availability constraints to remain elevated through the remainder of 2022 and into early 2023. With that overview, I'll now turn the call back to Ray.