West Fraser Timber Co. Ltd. (WFG) Earnings Call Transcript & Summary

Good morning, everybody. Good morning. I'm Hank Ketcham, Chair of the Board of Directors of West Fraser. I'll act as Chair of this meeting; and Tom Theodorakis, our Corporate Secretary, will act as Recording Secretary. I appoint Ellis Amabel from Computershare Investor Services Inc. to act as Scrutineer for the meeting. I'm also pleased to inform you that members of our Board of Directors and executive management team are joining us today. On behalf of the Board of Directors and the management team, I'm pleased to welcome you to the 2025 Annual General Meeting of West Fraser, including those of you joining us through the live webcast. West Fraser welcomes our friends and partners, the Lhtako Dene Nation, who are present with us today -- some of whom are present with us today. Joining us are, and I'm not quite sure how many are here, but joining us, I think, are Clifford Lebrun, the Chief; managers, Maynard Bara, Jeannie Quance and Ron Rasmussen; councilors, Wanda Aldred, Ray Aldred and Tim Mitchell, some of whom are not here but had planned to attend. We acknowledge Lhtako as the traditional custodians on whose land we meet, work, live and learn. We thank the Lhtako Dene Nation for joining us today. And I might add that we had a wonderful -- the Board had a wonderful tour of their facilities yesterday and a very nice lunch. We're also joined today and we'd like to welcome, from the City of Quesnel, Mayor Ron Paull; councilors, Scott Elliott and Martin Runge; managers Joel McKay, Amy Reid and Erin Robinson. Our plan this morning will be to first deal with the formal items of business. At the end of the meeting, our President and CEO, Sean McLaren, will provide an update on the company's operations. Following Sean's update, if there are any questions, we'd be happy to answer them. I'd like to set out a few procedures for the orderly conduct of the meeting. I'll introduce the various motions or resolutions and requests that each be proposed and seconded by a registered shareholder or proxy holder. Voting on the motion to appoint the auditor and fixing the number of Directors will be conducted by a show of hands unless a ballot is demanded. In order to have an accurate record of the votes for the election of each Director, for the purposes of our majority voting policy and to properly record the vote on the resolutions approving the company's Say on Pay Advisory Resolution, we will conduct the vote on each of these resolutions by ballot. Most shareholders will have already submitted a proxy, which will be counted in the vote. If you have not previously submitted a proxy, you may vote by ballot. The Scrutineer has provided a form of ballot for these resolutions to each shareholder or authorized representative present in person and each proxy holder who is present and has not already submitted a proxy. If you're one of those persons but do not have these ballots, please raise your hand. When voting on the resolution to elect the Directors, please mark an X on your ballot in the box under the heading For to the right of the name of each Director you wish to elect. And if you do not wish to elect a certain nominee, mark an X in the box under the heading Withheld to the far right of the name of the Director you do not wish to elect. When voting on the other resolutions by ballot, please insert the number of shares being voted for or against on your ballot. Are there any questions at this point on the procedures for the meeting? For the shareholders joining us through the webcast, questions in respect of a motion may be submitted by any registered shareholder or duly appointed proxy holder who have properly logged in with their control numbers or user name by using the instant messaging service of the Lumi platform. Please note that there may be a slight delay in questions being submitted to us. Questions on the formal meeting items will be addressed as each item is tabled. Any questions received of a more general nature will be addressed at the end of the meeting. If we are unable to address your general question during the meeting, a representative of West Fraser will reach out to you following the meeting with a response. Are there any questions at this point on the procedures for the meeting? The notice calling this meeting, the Management Information Circular and the Form of Proxy were mailed to shareholders on or around March 17, 2025. I'll dispense with the reading of the Notice of Meeting. Copies of the Notice of Meeting, Management Information Circular and other meeting materials are available under the company's profiles on SEDAR, EDGAR and on the company's website. Our transfer agent, Computershare Investor Services Inc., has attested to the proper mailing of the notice calling this meeting. The Secretary of the company has also confirmed that notice calling the meeting was mailed to all shareholders of the company entitled to receive such notice, and Computershare has provided an affidavit of mailing. Accordingly, I confirm that the notice calling this meeting and all proxy related materials were delivered to the shareholders in accordance with the requirements of the company's articles, the British Columbia Business Corporations Act and Canadian securities law. The articles of the company require that a quorum be present to ensure the meeting is properly constituted. I've been informed by the Scrutineer that we have the shareholders present or represented by proxy who hold a sufficient number of shares to constitute a quorum. I therefore declare that there is a quorum at this meeting. The Scrutineer's report will be kept by the Secretary with the records of the meeting. The Notice of the Meeting, having been duly delivered and a quorum being present, I now declare this meeting to be duly called and regularly constituted for the transaction of business. I now table and submit to you the report of the auditor, PricewaterhouseCoopers LLP, and the financial statements for the year ended December 31, 2024. We've mailed to requesting shareholders a copy of the Annual Report containing the auditor's report and the financial statements with the Notice of the Meeting and has been filed on SEDAR+ and EDGAR and is available on our website. Are there any questions concerning the auditor's report or the financial statements? I declare that the financial statements and auditor's report have been received by the shareholders as submitted to this meeting. We will now proceed with fixing the number of Directors to 12. I now move that shareholders approve to fixing the number of Directors to 12. Would someone please second the motion?

I second the motion.

Thank you, [ Lowe ]. Each of those in favor of the motion, please raise a hand. Each of those against the motion, please raise a hand. [Voting]

Thank you. The motion is carried, and I now declare that the number of Directors has been fixed to 12. We will now proceed with the election of Directors for the upcoming year. The number of Directors to be elected is 12. The company has implemented an advanced notice policy requiring shareholders to provide advanced notice of any additional director nominations. The Secretary of the company has advised that no nomination has been received other than those persons named as Director Nominees in the Information Circular for this meeting mailed to shareholders. I would now like to nominate the following individuals to hold office as Directors of the company until the next annual meeting. And I would ask each nominee available to join us today to stand. Doyle Beneby; Eric Butler, who is not able to make the meeting but is a nominee; Reid Carter; John Floren; Ellis Ketcham Johnson; Brian Kenning; Marian Lawson; Colleen McMorrow; Janice Rennie; Gillian Winckler; and myself, Hank Ketcham. These persons are management's nominees for election to the Board as stated in the Information Circular for this meeting. With there being no further nominations, I declare the nominations closed. I now move that shareholders approve the election of Directors for the upcoming year. As previously mentioned, a vote by ballot will be conducted for the election of Directors. If you have previously voted on this matter by proxy and do not wish to change your vote, no further action is required. Please vote using the form of ballot on election of Directors provided earlier. Please make sure that your name is printed clearly on the ballot. [Voting]

Would the Scrutineer please collect the ballots, if there are any to collect? Thank you. We'll proceed with the next matter. PricewaterhouseCoopers LLP is currently the auditor of the company. I now move that shareholders approve the appointment of PricewaterhouseCoopers LLP Chartered Accountants as auditors of the company at a remuneration to be fixed by the Directors. You've heard the motion. Is there any discussion? Each of those in favor of the motion, please raise a hand. Each of those against the motion, please raise a hand. [Voting]

Thank you. The motion is carried, and I declare that PricewaterhouseCoopers LLP Chartered Accountants have been appointed as auditors of the company at a remuneration to be fixed by the directors. The next item of business is for shareholders to vote on the company's approach to executive compensation, also known as the Say on Pay Advisory Resolution. Our executive compensation philosophy, policies and programs are based on the fundamental principle of pay for performance to align the interest of our executives with those of our shareholders. This compensation approach allows us to attract and retain high-performing executives who will be strongly incentivized to create value for our shareholders on a sustainable basis. I now move that shareholders approve the company's Say on Pay Advisory Resolution as more fully described in the Information Circular. As previously mentioned, the vote by ballot will be conducted for the company's Say on Pay Advisory Resolution. I would like to remind you that if you have previously voted on this matter by proxy and do not wish to change your vote, no further action is required. Would someone please second the motion?

[indiscernible]

Thank you, Lisa. Is there any discussion on the matter? Please vote using the form of ballot on the Say on Pay Advisory Resolution provided earlier. Please make sure that your name is printed clearly on the ballot. [Voting]

And would the Scrutineer please collect the ballots? Thank you. While we wait for the Scrutineer's report, we will pause the meeting. I've been advised by the Scrutineer that the ballots and proxies deposited for the meeting indicate that each director nominee received the majority of Yes votes. And I declare them duly elected to act as Directors of the company for the ensuing year. Also, based on the preliminary results of voting, the other resolution by ballot, namely an advisory resolution on the company's approach to executive compensation, or Say on Pay, has been approved. I direct that the results of the poll be included with the minutes of this meeting and the results of the voting be announced in a news release in accordance with TSX and New York Stock Exchange policies and filed on SEDAR+ and EDGAR. As the formal items of the business, as set out in the Notice of the Meeting, have now been dealt with and as there is no further business to come before the meeting, I declare the formal part of the meeting to be concluded. I'll now call on Sean McLaren, President and CEO of the company, to provide an update on the company's operations.

Thank you, Hank, and thank you to our shareholders. I will now provide a brief update on our operations. We also have a presentation that I will be referring to for those in attendance and who are following us via the webcast. Good morning and welcome to the West Fraser Annual General Meeting. I would like to thank each of you for attending today either virtually or in person. Your presence demonstrates your commitment to our company and the West Fraser community. West Fraser's proud heritage is one of people. It began right here in Quesnel, British Columbia. This year marks 70 years since 3 brothers from Seattle, Washington: Sam, Bill and Pete Ketcham, pooled their resources to buy a modest 12-employee mill here in Quesnel. This small group who came together built so much more than what anyone thought could be possible, a company that generations later is an international industry leader and an employer of choice. The hard work, entrepreneurial spirit and grit of these young founders, together with that of the early team members, laid the foundation for West Fraser's sustained success. That early team established and lived our values, while setting goals and business strategy which have stood the test of time. Today our culture of teamwork is ground in that early team's belief that every person is important, everyone should be able to grow and achieve their potential, and we all share in our collective success. Now 7 decades later, thanks to strong leadership and the commitment and contributions of thousands of employees, the company has grown to be a leading manufacturer of renewable wood products with operations in lumber, oriented strand board, plywood, LVL, MDF, particleboard, and pulp and paper. With this foundation, West Fraser is well positioned for many more generations to come. I have a few brief comments this morning. Our strategy has been one that is straightforward and durable. That is to be a low-cost producer, reinvest in our business and maintain a prudent and resilient balance sheet. This time-tested ingrained strategy has positioned our company to be prepared for whatever may lie ahead. Our West Fraser team is experienced in navigating commodity market cycles, has a proven track record and is ready to take on what we believe is an exciting future in wood products. We also have an experience in managing uncertainty. I raise this as our Canadian Engineered Wood Products and Lumber businesses have in recent months been navigating the threat of tariffs and increasing softwood duty rates. We are taking a number of proactive steps, including maintaining close communications with our provincial and federal governments to make certain we have a handle on the latest engagements between Canada and the U.S. Our annual results ending December 31, 2024, and Management Information Circular have already been disseminated. However, I would like to recap a number of key highlights from 2024, which was another solid year of performance for West Fraser against a backdrop of a persistently challenging commodity cycle. Throughout this period of relatively slow demand for our wood building products, we have remained committed to investing in our people, operations and communities, ensuring we are well prepared for the challenges and opportunities that arise across all cycles. West Fraser takes pride in our people, our communities, our contractors and the work we do every day to keep each other safe. In 2024, we achieved the lowest recorded rates of overall hand injuries and saw a 33% decrease in life-altering injuries. Notwithstanding these improvements, we did unfortunately experience a workplace fatality of a contractor. In 2025, we implemented new contractor safety practices across the company and set new expectations around oversight of contracted work. This tragic incident serves as a stark reminder that safety must always remain at the forefront of everything that we do. Further improving our safety program and performance remains a top priority in 2025. In 2024, our capital allocation strategy saw us invest $487 million into the business to modernize our mills, reduce our environmental footprint and invest in safety upgrades. A significant portion of our capital program was allocated to the mill modernization project in Henderson, Texas, with that project on track for a mid-2025 startup. We also had the financial flexibility to repay our $300 million senior notes at maturity in the fourth quarter of 2024. In 2024, we repurchased 140 million of our shares and paid $101 million in dividends. At the end of 2024, we had repurchased approximately 80% of the stock issued to acquire Norbord in 2021, the transaction through which we acquired our OSB business. Since our founding 70 years ago, West Fraser has recognized our responsibility to the environment and society while delivering solid financial performance. In 2024, we also committed to advancing our stewardship of the natural environment. In addition to implementing a comprehensive, sustainable forest management and wood procurement policy across the company, we established a Biodiversity Center of Excellence and became an early adopter on the Taskforce on Nature-based Financial Disclosures. Our commitment to society includes investments in approximately 800 community organizations and events in our operating areas. One such investment was Lhtako Quesnel 2024 BC Winter Games, which marked the first time in the history of the BC games that a city and a First Nation community have been featured together in the official name of the games. West Fraser was honored to play a role with funding and through our many employees that volunteered. Our team delivered solid results against challenging market conditions, with West Fraser generating total adjusted EBITDA of $673 million in 2024. The slowing markets that began in the latter half of 2022 have carried through 2024 and into 2025 as relatively elevated mortgage rates continue to stress housing affordability and moderate demand for new home construction and repair and remodeling spending. It's notable, however, that our product and geographic diversification has allowed us to improve our overall company performance during the recent down cycle. On a pro forma basis, with the inclusion of Norbord, our 2024 adjusted EBITDA was approximately $430 million higher than the last significant down cycle in 2019. This financial improvement reflects synergies from the Norbord transaction, benefits from our capital investment program and our many acquisitions, and the deep culture within West Fraser to drive performance improvement. In 2024, we executed a number of actions that have strengthened our asset portfolio. Among these was a sale of 3 of our 4 pulp mills, which we expect will moderate the downside financial risk to the company, reduce our overall earnings variability and allow us to reallocate more resources to our building product segments. Further, we became the sole owner of the Cariboo Pulp & Paper mill based right here in Quesnel after the dissolution of our 50-50 joint venture with Mercer. This step better positions us to support the mill's needs as well as its talented workforce. Our ongoing review of our North American Lumber business resulted in a number of indefinite and permanent lumber mill curtailments in 2024, which has helped to reduce our overall cost position, improving our economic resiliency through the cycle. While decisions to curtail operations are very difficult, ultimately, we believe the actions we are taking will continue to support attractive long-term value creation for our shareholders. As one of the world's largest producers of renewable wood-based building products, we contend that West Fraser has many advantages. We offer financial resilience through a portfolio that is both product and geographically diverse. We do this by providing a wide range of home and building construction products across multiple markets in 2 continents and with operations in 4 countries, helping us weather cyclicality while creating a solid platform to serve our customers. We serve markets with attractive long-term fundamentals. Although housing affordability remains challenging, the upward momentum in mortgage rates that we experienced the early part of last year has shown signs of moderating. Further, homebuilder incentives have provided some resiliency to new single-family home construction demand. As well, we serve repair and remodeling. These markets remain below recent peaks, which we believe reflects some pull forward of demand during the pandemic as well as below-trend existing home sales. That said, industry experts forecast repair and remodeling spending stabilizing and eventually starting to recover later this year. The next slide shows the difficulty with which net new lumber supply has been brought to market. Over the last decade or so, the change in net North American supply has been essentially 0, despite 3 years of strong demand during that period when annual new home housing starts exceeded 1.4 million units. When we contrast this trend of limited lumber supply growth and the ongoing constraints to such growth with positive longer-term prospects for wood products demand, it becomes increasingly apparent that the medium- to longer-term lumber market fundamentals should be attractive for West Fraser in the years ahead. We have a track record of disciplined and balanced capital allocation. Over the last 9-plus years, we have generated nearly $10 billion of cash from operations. Of this, we have invested more than $4 billion back into the business, including net acquisitions were $700 million, and returned nearly $5 billion to our shareholders through buybacks and dividends. Even as 2024 and early 2025 have experienced demand challenges for wood building products, we have been diligent and maintained strong liquidity and a robust balance sheet. Having exited Q1 2025 with nearly $1.5 billion in available liquidity, we continue to be positioned well to invest in our company and to take advantage of opportunities that may come our way. You should expect us to continue to be balanced and diligent in our approach to capital allocation and balance sheet management going forward. West Fraser has the scope, scale and expertise to unlock further growth opportunities. While we expect to continue to grow into new products and regions to best serve our customers, our long-held values and proven strategy remain at the forefront of what we do. And so we will continue to invest in our company when and where it makes economic and strategic sense. An example of this approach is our investment strategy as illustrated with the Allendale, South Carolina OSB mill that we acquired in late 2021. While this facility had been idled for about 2 years when we acquired it, we invested approximately $83 million optimizing and debottlenecking parts of the mill for restart in mid-2023 to begin its 2- to 3-year ramp-up curve. We remain pleased with the progress we're seeing at Allendale. In fact, in Q1 2025, the mill achieved its highest operating rate to date as management continues to fine-tune the facility's operational and cost performance. We expect this mill, when optimized and running near its full operating rate, will be among our OSB portfolio's lowest-cost mills, making the company better and more resilient through the cycle. We are well positioned to benefit from strong sustainability fundamentals. Every day across West Fraser, sustainability principles guide our activities on the land base and inform the operating decisions we make in every facet of our business, including managing energy use. One example would be the commissioning of our solar farm at our Dudley, Georgia sawmill in January. This on-site energy source reduces cost and helps the mill work towards its 2030 carbon reduction goals. In our Canadian operations, progression of our sustainability strategy includes advancing meaningful indigenous relations. To this end, in January, we signed a long-term fiber supply and forest management agreement with the Lake Babine Nation in Northwest BC. With the agreement in place, the next step is for the province of BC to proceed with the 10-year disposition for the new license. It is expected that this will be completed later this spring. This agreement recognizes the nation's role as a resource steward in their traditional territory while also securing a long-term fiber supply agreement for our Smithers mill. Now with the agreement in place, the next step is for the province of British Columbia to proceed with the 10-year disposition for the new license. It's expected that this will be completed this spring. We are now advancing similar agreements with several other BC First Nations as well as a number of good relations agreements in Alberta. With strong fundamentals in place, our people continue to embed sustainability through our operations. And finally, we have an attractive track record of creating shareholder value, driven by our culture, our values and our operating philosophy. These actions have positioned us to create superior long-term value for our shareholders, and we have delivered an annualized total shareholder return of approximately 9% since 2006. As we move through 2025, we continue to navigate challenging market conditions. In this time of political and economic uncertainty with our largest market and our trading customer, I can't help but reflect on the many challenges our company has faced over our 70 years, from the first of many softwood lumber trade disputes to the mountain pine beetle epidemic, to the Great Recession of 2008, to today. In each of these challenges, the West Fraser story has always been one of adaptability and durability. This resiliency is a testament to the culture that began with Sam, Bill and Pete and our humble roots right here in Quesnel. We are confident in the company's geographic and product diversity, financial flexibility and sustainability fundamentals. When combined with our people and our proven strategy, we are well positioned as we embrace the many challenges and opportunities that lie ahead. In closing, I want to express my gratitude for the strategic guidance and unwavering support to Hank, to our Board of Directors, and acknowledge the tremendous effort of the entire West Fraser team in pursuit of delivering strong results. Together we position West Fraser to celebrate its 70th year with our proud legacy guiding us towards a bright future. Thank you. And Hank, that concludes my update.

Thank you, Sean. And now I ask that shareholders or duly appointed proxy holders who would like to ask a question to raise their hands and identify themselves or to type their questions in the instant messaging feature of the virtual interface if they are joining us via the webcast. We will answer as many questions as time permits. We will now give attendees a moment to ask or type in their questions. Any questions?

No questions online.

Okay. As we have received no further questions, on behalf of our Board and management, thank you to our shareholders, executives and Directors for participating in this meeting. With that, Lumi, we can now end the meeting. Thank you again for joining us.