West Fraser Timber Co. Ltd.

Good morning, ladies and gentlemen, and welcome to the Wes Fraser Q2 2024 results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, July 25, 2024. During this conference call, Wes 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 forelooking information or forelooking statements within the meeting 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 2023 Annual MD&A and Annual Information Form, which can be accessed on Wes Fraser's website or through CEDAR+, for Canadian Investors, and Edgar for United States Investors. I would now like to turn the conference over to Sean McLaren, President and Chief Executive Officer. Please go ahead.

Thank you, Julie. Good morning, everyone, and thank you for joining our second quarter 2024 earnings call. I am Sean McLaren, President and CEO of West Fraser, and joining me today are Chris Verostek, Senior Vice President and Chief Financial Officer, Matt Tobin, Senior Vice President of Sales and Marketing, and other members of our leadership team. On the earnings call this morning, I will begin with a brief overview of West Fraser's Q2 2024 financial results and then pass the call to Chris for additional comments before I share some thoughts on our outlook and offer concluding remarks. West Fraser generated $272 million of adjusted EBITDA, in the second quarter of 2024, representing a 16% margin. We experienced mixed results across our business again in Q2, with strength in our North American engineered wood product segment partially offset by continued soft demand for SYP lumber products. While levels of new home construction in the U.S. showed signs of stabilizing in the second quarter, supporting demand for OSB and to some extent SPF lumber, continued elevated mortgage rates appear to be constraining existing home sales activity and repair and remodeling spending, which we believe has a greater relative impact on Southern Yellow Pine lumber demand. On a trailing four-quarter basis, adjusted EBITDA was $894 million, which is an improvement from the $703 million reported in the trailing four quarters as of Q1 2020. and the $561 million reported at year-end 2023. On a pro forma basis, with the inclusion of Norboard, this level of trailing four-quarter adjusted EBITDA is approximately $650 million higher than that of the last down cycle in 2019, in part reflecting synergies from the Norboard transaction, the benefits of our capital investment program, as well as the acquisitions and strategic initiatives we've undertaken in recent years. Finally, in terms of our balance sheet, we have $2 billion of total liquidity at quarter end, which offers us the financial flexibility and strength to support our capital allocation strategy. With that overview, I'll now turn the call to Chris for additional detail and comments.

Thank you, Sean, and good morning, everyone. And a reminder that we report in U.S. dollars. and all our references are to U.S. dollar amounts, unless otherwise indicated. The lumber segment posted an adjusted EBITDA loss of $51 million in the second quarter, compared to $10 million of positive adjusted EBITDA in the first quarter. Our North America EWP segment generated $308 million of adjusted EBITDA in the second quarter, up from $188 million in the first quarter. The pulp and paper segment generated $9 million of adjusted EBITDA in the second quarter, ahead of the $3 million reported in the first quarter, and perhaps more significantly, versus the negative $74 million of EBITDA in Q2 of last year. Finally, in Europe, adjusted EBITDA was $6 million in the second quarter versus negative $1 million in the first quarter. Higher prices and shipments drove the sequential EBITDA increase across our North American engineered wood products business. while lower lumber prices and the resultant required inventory valuation adjustments were a primary EBITDA detractor in the quarter. Worth noting, however, that our lumber business benefited from the actions we took earlier in the year to curtail production at two higher-cost mills, essentially replacing that higher-cost volume with production from other lower-cost mills. Specifically, in the U.S. South, on a year-to-date basis, Our SYP shipments are down approximately 10% from 2023. With regard to softwood lumber duties, as you may have already seen disclosed in our Q2 financial statements, if the preliminary administrative review five rates are confirmed later this quarter, we anticipate realizing a $35 million duty expense adjustment in Q3 and for our combined cash deposit rate for duties to increase to approximately 12%. Cash flow from operations was $378 million in the second quarter, with our cash balance net of debt and lease obligations at a healthy $469 million versus $174 million last quarter. The relative increase in our cash balance reflects a combination of improved earnings, the typical seasonal release of working capital, plus proceeds from the sale of the pulp assets, all of that partially offset by $102 million of capital expenditures, and approximately $95 million of cash deployed towards share buybacks and dividends. Of note, in the second quarter, we repurchased another approximately 900,000 shares, or nearly 25% of the shares available under this NCIB, and we increased our quarterly dividend by approximately 7%, declaring a dividend of $0.32 per share versus $0.30 per share previously. With that brief financial overview, I will pass the call back to Sean.