Q4 2021 West Fraser Timber Co Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to West Fraser Q4, 2021 results Conference call. Please note that all lines have been placed on mute to prevent any background noise. During this conference call West Fraser's Representatives will be making certain statements about west Fraser's future financial and operational performance busy.
This 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 west Fraser's website or through SEDAR for Canadian investor.
Or it gone for United States investors. After the Speakers' 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 from the question queue. Please press Star then the number two thank you. Mr. <unk> you may now begin the conference.
Well, thank you and good morning, everyone and thank you for joining our Q4 2000 22021 earnings call today, I am Christopher <unk>, CFO and I'm joined by Ray Ferris, our President and CEO and Chris Mciver, Our senior Vice President marketing and corporate development.
This morning, I'll start with a brief recap of West Fraser's Q4 in 2021 financial results I will then pass the call to Ray who will provide an update on the business, including a discussion about some of west Fraser's recent initiatives. The opportunities. We see ahead for the company followed by a few concluding remarks before we transition to Q&A.
In the fourth quarter West Fraser achieved strong financial results capping off a record year, despite unprecedented weather related challenges in western Canada at the end of 2021 .
We managed to navigate significant transportation and mill disruptions during our fourth quarter that experienced some of the worst flooding seen in modern times in the BC interior and lower mainland Vancouver.
Which severely disrupted our ability to transport our finished goods from western Canada to market.
As announced in an operational update news release last November we navigated these challenges by reducing operating schedules at multiple western Canadian locations to manage our inventory levels raw material supplies and our integrated fiber supply chain.
In the face of the supply constraints demand for wood based building products remained robust in the fourth quarter and as such we generated $615 million of adjusted EBITDA.
Presenting a margin of 30% of sales taking full year adjusted EBITDA to a record $4 $5 7 billion or 43% of sales.
As in the third quarter, the benefits of our product and geographic diversity of production, where a significant advantage.
We had a strong sequential improvement in our lumber business, which saw adjusted EBITDA nearly tripled to $240 million from the third quarter, helping to offset the sequential decline in our North American AWP business that generated 343 million of adjusted EBITDA in the fourth quarter.
In Europe , adjusted EBITDA was $61 million the second best result ever for that business.
Rice seasonal volume trends and downtime for a capital project all played a role in the European results.
Cash flow from operations in the fourth quarter was $290 million in cash net of debt declined quarter over quarter to approximately $1 billion. After completing two acquisitions in the quarter for a combined consideration of approximately $580 million.
In the fourth quarter, we repurchased another $100 million of West Fraser shares, taking our full year share repurchases to $1 $3 billion.
With our Q4 earnings release, we also declared a <unk> 25 per share dividend up from the previous level of <unk> 20 per share.
We continue to deploy capital not only to shareholder returns, but also to growth opportunities as.
As evidenced by the recent closings of the two acquisition transactions in the fourth quarter, namely our turnkey Angelina saw mill in Lufkin, Texas, and the idled OSB email near Allendale South Carolina.
We're now in our third months since closing the acquisition of Angelina Forest products. Our integration is proceeding well and results have exceeded the expectations. We had at the time of acquisition.
And on Allendale, we have commenced work on the mill to prepare for an eventual restart and are pleased with the progress to date.
In November the administrative review two rate was finalized and set the new cash deposit rates for countervailing and antidumping duties for the Canadian softwood lumber industry.
Our rate for cash deposits changed from 897% to 11, one 4% for lumber shipments from Canada to the U S on or after January 10th of 2022, whereas the rate for all other non mandatory respondents in Canada is $17, 91%. These.
These rates will be in place until at least June 2022.
In terms of outlook, we are providing operational guidance for 2022, which you can see on slide four where we have provided ranges for key product shipments and our planned capital expenditures.
We have also identified in our earnings release some of the key challenges currently facing our overall operations early in the year.
Namely that we continue to see the logistics and transportation constraints affecting our business early this year.
While infrastructure repairs to rail and truck routes, resulting from the severe BC weather and flooding in late 2021 are progressing.
Rail service availability, operator shortages in the backlog from disruptions in the fourth quarter are all still negatively impacting our ability to ship products with January 2022, Western Canadian lumber and plywood shipments down approximately 20% compared to the prior year.
Even our western Canadian OSB operations have been forced to take unscheduled downtime as a result of these transportation constraints.
Given these developments further reductions of operating schedules across our production platform in order to manage inventory levels raw material supplies and our integrated fiber supply chain may be required.
Currently it is not possible to estimate when full transportation services will be available or when the backlogs will be cleared.
But we will continue to actively seek out and utilize alternative transportation routes and methods to the extent they are available to continue servicing our customers.
With that I'll now pass the call to array.
Thanks, Chris and thanks to everyone for joining our call today.
I'm going to refer to a few specific slides from our webcast deck during my comments.
And just to further to Chris's comments.
I'd comment that particularly in Western Canada. These transportation challenges are really unprecedented in both scale and duration.
It led to a very challenging operating environment in the fourth quarter.
And have continued to this point in Q1.
Through this period, our team has been very resilient working diligently.
Through those challenges.
All the while minimizing COVID-19 related business disruptions from the latest wave.
Although lack of transportation, primarily as result of the extreme flooding noted impacted almost all of our western Canadian platform at most heavily impacted RBC lumber plywood and.
Pulp shipments in our central Caribou region.
Under these conditions I'm proud of what our people and our teams have accomplished in particular of BC and Alberta people for their patience and commitment.
We're constantly adjusting to a rapidly changing and uncertain conditions.
In that context and background.
We're pleased to report that Q4 was 20 Q4 'twenty one was another good quarter in that 2021, another record year for West Fraser.
Just over one year ago on February the <unk> 2021, we acquired Norbert.
And now with those 12 months of combined performance behind US. It is very rewarding to see the benefits of the product and geographic diversity.
<unk> has brought to west Fraser.
Not including the cash acquired it close it is.
Important to note that the EBITDA achieved from the <unk> business in the first 11 months of ownership accounted for approximately 66% of the transaction purchase via at.
At the time of closing.
The acquisition.
Sure.
Similar as we did last quarter I wanted to identify a few areas of the business.
That's all I wanted to highlight.
In Q3, I talked a little bit about our OSB and industrial and specialty strategy and how that's developed over the last year or two.
I wanted to talk a little bit about our lumber team.
Our lumber team experienced significant market and operational challenges we discussed in Q4. Despite this our results improved materially from the prior quarter supported in part by our U S sales growth strategy.
This growth in operating strategy has resulted in expanded profitability both through greater percentage.
And greater and greater percentage of premium grades are too big for us.
Why this is important is that to buy four often trades at a premium price to wider conventional lumber, which can support improved margins.
As you can see on slide five our overall proportion of to buy for US is growing by approximately 700 basis points and our mix of two and better to buy for US has grown approximately 600 basis points over the last few years.
Further.
The recently acquired Angelina Mill is expected to support additional improvement both in two by 4% and in premium grades.
Our U S South growth strategy remains a key focus for west Fraser.
Although way, although we are pleased with our trends and results we expect to see continued improvement.
In our U S South operating metrics as we execute on our operational and capital transformation strategy.
One other area I would like to highlight.
It is a return on capital employed.
So moving to slide six.
Yes.
Frasier generated $4 $5 7 billion of adjusted EBITDA and $3 95 billion of operating earnings this level of operating earnings drove a.
Rocchi or return on capital for rate of 70%, representing the company's fifth year over the last six with Iraqi in excess of 15%.
These returns are not just a reflection of a healthy market fundamentals are also a result of continued attention to lowering costs and expanding margins margins through improved productivity and product mix.
And.
Particularly in our key products of OSB and lumber.
I'd like to talk about.
Moving to slide seven I'd like to talk about west Fraser's commitment to sustainability and climate action.
With that I'm very pleased to share that we have formally committed to science based targets and the science based targets initiative.
We believe a thoughtful ESG strategy as our foundation for building a company that has financial resilience for the long term.
Key to that strategy is establishing clear incredible goals with a well defined metrics. They are part of our ongoing commitment to the environment and sustainability.
As you can see on slide seven we have now taken an important step on our sustainability journey by committing to reduce our scope one.
And to greenhouse gas emissions by 46, 46% and our scope three emissions by 25% by 2030.
Further.
To achieve these emission targets, we have committed to invest an average of approximately $50 million annually and greenhouse gas reduction projects and opportunities.
Of approximately $400 million before 2030 as shown on the next slide.
By committing to reduce emissions in line with climate science and aligned with the Paris agreement goals by 2030, we are building on our solid legacy of sustainability performance of our products, while enhancing social environmental and economic benefits and the communities in which we operate.
In summary.
We're pleased with our results this quarter and this year, despite a number of market and operational challenges after repurchasing $1 3 billion worth of our shares in 2021, our balance sheet remains strong with considerable liquidity and ability to navigate future opportunities and challenges.
We will continue to take a balanced disciplined and patient approach to capital allocation.
And we will deploy capital in a manner that we believe will increase long term shareholder value.
We've continued to move forward with strategic capital projects, while also pursuing acquisitive growth, providing additional resilience and durability to meet the needs of our customers and to steer through whatever market challenges come our way.
Looking forward.
Well it makes while we expect the first quarter to be challenged by near term transportation and logistics constraints, we remain optimistic about the medium to long term fundamentals of our wood products business.
Our geographic and product diversity creates a platform to serve our customers and shareholders.
Well.
But I am most energized and excited about the depth scale capability and commitment of our people who remain focused on lowering our costs and improving our margins through operational operational excellence and executing on the benefits of strategic capital such as.
Our Dudley saw mill, our Schamber Shambled OSB restart.
Inverness expansion.
The recent gig upgrade in the last quarter and our Allendale OSB acquisition late last year.
While integrating and ramping up at our at our recently acquired Angelina Mill.
With that I will turn the call back the operator and ask for questions.
Thank you, Sir ladies and gentlemen of stated if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear as friedhelm prompt acknowledging your request and if you would like to withdraw your question simply press Star followed by two nephews and the speaker phone. We do ask that you. Please lift the handset first before pressing.
Any Keith. Please go ahead and press Star one now if you do have a question.
And your first question will be from Sean Stewart of TD Securities. Please go ahead.
Thanks, Good morning, everyone.
Two questions and first of all thanks for the detail on the volume outlook for each of the segments. This year that's much appreciated.
Let's start with North American Wood product markets, I guess for Chris Mckeever.
Can you frame the current price surge for us I guess the shipping constraints are clearly a factor but.
Could you give us a sense of demand pull across various end markets and perspectives on.
Where do you think inventories are through the supply chain right now.
Yeah, Good morning, Sean.
Thanks for the question.
I might say that we sort of have two different markets, a little bit between OSB and lumber and.
Certainly fourth quarter, we saw.
Lumber demand seasonally slow.
Slower than it was.
And then as we move through that quarter into the beginning of Q1, we've seen it.
A major uptick.
OSB on the other side.
It seems to have been tighter through the whole period, and I'm really haven't seen much of a slow at all.
With regards to transportation issues I think that it's very regional certainly in Western Canada.
Our ability to ship and I am assuming our competitors' ability has been constrained.
The southeast is does not really have any transportation issue. So you know things are flowing pretty well. So we're seeing what we think is pretty strong housing and strong R&R demand going into 2022.
We expect that to remain certainly.
Through this quarter and likely through the first half of the year.
And any perspective on your thoughts on inventories in the channel that felt.
Not too long ago.
At least the repair and remodeling part of it inventories anecdotally we're getting.
Paul.
That doesn't seem to be the case now do you have any perspective on that.
Yeah again, I you know again, it's really difficult for us to to know, but what we're hearing is that the.
The wood and the panels that are going into the market are being consumed so.
R&R seems strong you know it seems to have rebounded now at these price levels will we see it slow down a bit we don't really know but.
It did slow down in the past, but right now it's pretty robust.
Okay, Thanks for that detail.
Next question is there was reference to fiber cost inflation in the U S.
Those marginal at this stage that is consistent with what we're hearing from some of your competitors can.
Can you help quantify that pressure and what you might be expecting on that front for 2022.
Well I can take a shot at that shine through here anyway. Good morning.
No I mean, we.
When we saw year over year.
Price come up on our on log costs in the south.
Yeah.
But you know what we see is it is that primarily it's been driven by weather events and particularly.
In certain regions more than others. So.
In some areas I would say it.
Very flat to modest increase where where we've seen extreme weather and lots.
Lots of rain. It really comes it's really not been a lack of timber its been impacted mostly by a lack of contractor capacity to fill the gaps.
And to replenish inventory, so and those are in a in a couple of those areas. We've seen more significant price pressure, but I think I think what youre seeing in that kind of that general.
Public information out there on log costs as reverse kind of seeing that same sort of trend on average, but I would say, it's not it's not flat. There's some areas that are higher than others for sure.
Okay. Thanks, I will get back in the queue.
Thank you next question will be from Mark Wilde.
Of Montreal. Please go ahead.
Good morning, Ray Chris Chris.
Good morning, I wondered just to start out could you give us some guidance on where you see.
Are your potential from an acquisition standpoint.
I'm, just curious kind of.
You've been in the European panel market for about a year now we're clearly seeing some world North American lumber deals those have been increasing.
Increasingly away from the U S South.
And then finally just thoughts around the generic book. So if you could just kind of deal with how do you think about relative values in each of those businesses right now that would be helpful.
Well, we're looking at each other trying to decide who's going to answer that question. So.
Yeah.
So so.
Yeah, I'm not I'm trying to think about you know.
It's probably one where you need to sit down and talk about it.
And I've asked Chris here.
Comment in as well, but I.
Because I don't think it's an either or saying I think when when when we're looking at the landscape today Mark I think.
I would say you.
You know the U S south.
We still believe is one of the most attractive regions and is attracting.
A significant part of our capital on our around our lumber strategy you see what we're doing in our OSB were equally.
At least equally.
As excited about that and in those regions.
It's fiber supply and market.
Like our European business.
And you know.
It might slightly.
Different runway in slightly different opportunities, but but you know or where we.
We're.
Quite interested in and where we can go in that region.
And so that remains really our top three areas, it's not that there aren't other areas out there that.
That from a from a value point of view might might be something that is of interest to west Fraser.
But we.
We wouldn't drive by the market with.
We can drive by a customer to get to the market I think those three areas are still first and foremost for us.
Yeah. Okay. That's helpful. And then last night, we had news of another 150 million board feet coming out of the BC interior can you just update us.
On your current thinking around your DC footprint.
Thanks Mark.
You know.
The BC story.
Continues to unfold I think the recent announcements about hold growth.
Really are just a continuation of the last number of years. So.
Those impacts are going to be additional to the ones that you know.
And quite frankly may still be to come.
So I think you know.
We really don't know the impact to US there is still many moving parts to the to the old growth piece.
So we're very concerned we think that that you know.
Somewhere between you.
All five and 15% of the AACE annual allowable cut could be impacted on top of the things that we've seen in the past and that may still yet to become so look I think I've been very clear I think our view is the industry is going to continue to shrink and that west Fraser will also shrank and it it's just.
Simply the fiber is not there to support.
Everything we do so we're working through that I think I think you've seen us take capacity out over the last few years and you know.
Timing is always difficult to predict but we.
We expect over the next couple of years are going to be are we reducing our footprint to match the available economic timber supply.
Okay and then the last one for me.
Think about these transportation and logistics issues in Western Canada.
Particularly around your lumber and panel business would you say that has had a disproportionate impact on export sales versus north American sales because it gets more of an issue for kind of flows.
Ports like Vancouver, as opposed to flows kind of across Canada or down into the U S.
Yeah, Mark maybe I'll take a stab at that but.
Yeah for sure.
Anything that's trying to get to Vancouver has been most affected.
Yes.
You have to also realize we've got an ongoing container shortage and congestion issue in the port of Vancouver.
That really started middle of last year, and we think we will continue certainly through 2022 in.
In addition to the rail issues and truck issues that we have.
But you know there is also a major issue on us moving product.
Out of BC.
The U S and to eastern Canada, So, yes, less challenging but still pretty challenging.
And that'll probably so it is an element in the equation in terms of what's going on in the domestic North American market.
For sure it is from from Western Canada, Yes. It is.
Super Alright, that's very helpful I'll turn it over.
Thanks Mark.
Thank you next question will be from Amir Patel.
Please go ahead.
Good morning.
You mentioned the growth of your two by four mix and in the South I was wondering if you could help us understand maybe just how you're positioning there compares to the rest of the southern industry.
Well good morning, Amir and thanks for getting on the call so well.
Well first I'd say.
I think the point that we're trying to make is you know.
And.
And did last quarter, when we talked about with OSB is that you know we're not just focused on the commodity piece is that we're looking for those.
Those.
Opportunities that.
On the industrial specialty side that.
Very steady and consistent at the peak of the cycle. They may have lower margins, but but through the cycle. We think returns superior margins. So.
And it was really just the highlight that we focus in the U S well in Canada and the U S. As far as that goes is that when we're deploying capital.
When we're looking at acquisitions, we're very much focused on on both our cost and trying to make sure that you know that we're in a position to maximize our mill nets.
And so you know part of the capital strategies.
To ensure that you can have some agility.
To either process different logs or or create different products out of the same login.
And so you know that can move around but with the premium the two by four.
And in.
It can have a significant impact on on on results and so I can't speak to what others do and I suspect some will be doing the same sort of thing and but but.
Just wanted to highlight that it's certainly a focus for us.
Thanks, Thanks for that that's helpful and just turning to the softwood lumber duties.
You know I know the E. R. Three the preliminary rates, which were announced recently west Fraser was.
The only respondent.
So it's a it's right.
Our increase.
Okay.
Would you expect when the finals.
Our announced later in the year that.
The hold so much of the preliminary or are you hopeful that you know.
You can appeal some of the methodology there that maybe contributed to be.
Different results than the rest of the industry.
Yes.
Sameer, it's Chris I'll take that I think well you know what we've seen with the first couple of admin reviews is that usually the final rate comes out fairly close different liberal area right. I mean, we're I think we're benefiting right now from a fairly big Delta between our hour rate and and the rest of the industry that will have the advantage of for sort of.
Eight or nine months.
I think you know those rates on the whole are probably going to normalize for the group in a L. Three that being said, we always take the opportunity.
Just as both sides of this due to appeal every last living thing under these determinations between now and the final assessment, but I would say three years into this now I think the issues are pretty well known on both sides and and we haven't really seen the rates move that that significantly from the prelim to the final.
In the first couple of hours.
Thanks, Thanks, Chris that's all I had I'll turn it over.
Thank you once again as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone and your next question will be from Paul Quinn of RBC. Please go ahead.
Okay. Thanks, very much good morning, guys.
Good morning, Paul.
Following up on this.
This move to a higher percentage of up to buy for that 7% increase from from.
From 2016 at 'twenty, one how much of that is stuff that you put that you guys did at the existing mills and how much is it through M&A I mean, I know gilman within there and that probably has a higher percentage of two banks. We're in the mix, but just wondering if you could break out that 7% between what you guys did and what you bought.
Hey, Paul Good morning, and Great question, and Chris or Chris Here May tackle me, and say something different or better but.
I wish I could break that apart for you.
I just don't have that detail in front of me, but I you know I know.
Zinc.
I think you know.
The message really is is really around because quite frankly look I don't know may be too late to buy Tam will become a premium again Sunday I doubt that it's really around I think trying to convey a concept that.
That this is a big part of our focus and that we deploy capital in order to.
So rather than get fixed on the percentage, it's more around the operating strategy about trying to produce the right products in the right regions and <unk>.
And it is a key part of our App, both our acquisition and our capital deployment strategy and.
And.
So probably not a great answer for you, Paul, but but but yes.
Yes.
Yes.
Maybe.
Maybe we can expand on that if you.
I have a follow up.
Okay, maybe I'll leave it there just sign on North American OSB I appreciate the guide for shipment volumes in in 'twenty. One just wondering how much allendale is going to.
To be able to contribute to that in in 'twenty, yes, sorry, 'twenty, two and how much allendale is going to contribute and then what what the incremental.
Shipment increase from Allendale would be in 'twenty three.
Well 2022 is easy we really don't expect anything very very minimal at.
Basically zero. So we're hopeful we'll get it started up and.
And.
By the end of 2022, but I wouldn't expect anything on shipments in 2023, I'm not sure we provide on guidance on that but it'll be a startup year.
And.
No.
Probably similar to the shambaugh ramp up curve would be how I'd expect us to do I think I think and I think we are.
We're pretty pleased where we are in shambles.
Sorry.
Typically I would yes.
Yes, I would kind of use shambaugh is a good is a good is a good backdrop for 2023 four.
Allendale.
Okay, and then just fine.
European OSB that shipment volume in Q4 was hit with the surprise to the downside correct and even even understanding.
The drier drier build it to a gang.
It seemed like the market weakened docking in Q4, just wondering you've given us guidance on what at what 0.1, and one 3 billion square feet and 22 here. How confident are you on that number and what the upside in shipments out of that.
At our Internet.
So.
Yes for sure gangster Gank the gang.
Was.
Was kind of a <unk>.
Pretty much a three week project and then with the ramp up and you know when you only have two OSB mills in Europe , as a pretty pronounced impact so.
And and look at we saw quite a bit of price depreciation in Europe towards the end of the year end.
A little bit harder dissect some of those things, but I'm sure there was a little bit of an impact in the marketplace and we did see a little.
Some seasonal slowdown towards the end of the year, whether it was really different than other years hard to really differentiate that.
It would appear similar anyway.
The start of the year.
I can tell you that our European team remains pretty optimistic in that.
Our boat, where we're at so at this point.
We think we're in a pretty good spot.
And that we would expect that.
To be.
No, it's not likely to be exactly like 2021, but we're expecting us to meet our expectations.
Okay, and then just lastly, just on.
Lumber M&A opportunities I mean, you guys have been over to Europe . It number of times over the last decade anything over there that that.
That you'd see that could come come toward.
Well, Paul I mean, we're I mean, we're looking everywhere so.
So I guess the short answer would be I am sure there is.
But.
So we look at everything that comes up and if we think that is something that can make our business better.
We're going to.
We're going to spend some time on that so.
You know I would say the bulk of the opportunities are still in North America.
And <unk>.
But we're keeping an eye open.
In both areas and.
I would just say stay tuned we like we like both regions.
Alright, that's all I had best of luck.
Thank you next question will be from Mark Wilde of Bank of Montreal. Please go ahead.
Okay.
Thanks, just a couple of follow ons.
Right.
Heard some stories about.
Pretty significant COVID-19 impacts on different operating facilities late in the fourth quarter and and in through January I'm. Just curious about what you experienced both at the end of the fourth quarter and what you've seen so far in the first quarter.
Oh, Thanks, Mike look at and we'd probably understated that certainly this fourth wave.
The way it moves through and it was similar in the U S. As it was in Canada. It came.
Hard very fast we saw significant impact in our operations now.
We didn't lose significant production, we alert we certainly lost some shifting.
But what it has.
It had an impact on was a lot of absenteeism a lot of overtime.
A lot of people moving into jobs, if perhaps they hadn't done very well are worth it. So it had an impact on on productivity.
A certain extent across across the company and virtually everywhere we operate.
I hear similar stories, if you will on another tax but for the most part we it was business as usual except it was.
This wave was certainly unique compared to the past lives now it's also coming down very quick.
Impacting Europe was certainly less than what we saw in North America, where we are.
We're quickly we're quickly seeing that wave behind us and don't expect to see any impact due to that in Q1 and Q4. It was a major issue for the management to get through.
Okay, and then Christmas give here I'm, just curious going back to that sort of issue of kind of high prices.
Demand destruction.
Just based on what you saw last year, what are you keeping an eye on to try to get a read on this.
Hum.
Excuse me.
That's a good question Mark.
We look a lot at our you know our BMI pools.
We watch those very closely to see what what our customers are actually using.
And so far this year they've stayed very very strong both on the panels and the lumber side, but.
And we stay as close to touch with our customers as we can to try to get ahead of this a bit.
We saw it we saw it come in last year, and probably could have reacted a little quicker but.
But certainly so far this year.
The demand remains very very strong.
Sure.
Okay. This is Ken.
Jumping on that I think and I replay kind of over the last few periods, where we've seen these prices and then some softening in the market.
I would.
I would say that.
We've.
We've been managing our production to try and.
Make sure that.
Debt.
We only have so much ability to build inventory and then I would say the system only has so much ability to take it away and I think I think when people reflect on say five years ago. The.
The industry can either supply or a shift.
Our volume in a very quick manner, and I think I think when I think back to the last few times win.
When when there was a little bit of a depth it was.
The what.
My view would be the wall of wood Didnt show up.
The two assets at the speed and pace that would be required anyway. So that's just a bit of a commentary I mean, our biggest concerns are just shipping what we're making today.
Yes, Okay, all right and last one I I don't want this to sound subversive, but just.
Just sitting here, you're one of the largest lumber producers in the U S. If you have had a U S. Domicile could you wont actually participate in the U S discussions around the lumber trade issue.
No no. So we've got operations on both sides of the border.
Hi.
Youre asking could we be part of the coalition.
Yeah. If you were headquartered somewhere other than Vancouver viewer edits headquartered south of the border could you that participate on the coalition.
Well and influences.
Let's not take this as verbatim, but I don't believe so.
Oh, it's just striking to me right I mean, you know when we think about what's where capital is being invested in the U S lumber industry.
It seems to me that you know the lion's share of it is actually coming from Canadian companies at this point.
Well.
Market logic, and rational thought often don't enter into discussions around these things thats happened in trade in the U S. So I would say it's the process is set up is to look after.
Those that are in the coalition in.
Anyway. It is what it is we're working our way through it and.
And but.
At this point, we're just we're just managing through the softwood lumber agreement or disagreement if you will and.
There's really there's really not much happening on that front I think the biggest.
The biggest catalyst for an agreement is likely those that are focused on trying to reduce inflation in the U S and whether theres any political pressure that can come as a result of that.
Okay Fair enough I again, I didn't want to be Super safe, there, but I do want to also just echo Sean Stewart.
Comment about the how much we appreciate the improved disclosure, including the segment E. EBITDA bridges that you're now including the MD&A. So much appreciate it.
Drastic forced me to do it.
Glad to hear that.
Alright, Thanks, good luck.
Thanks Mark.
Thank you.
Our next question will be from Sean Stewart at TD Securities. Please go ahead.
It might be on mute Sean.
Joanne I think I've learned after two years.
On the the greenhouse gas reduction targets through 2030.
Can you go a little bit in a bit more detail ray on the long term capital youre going to commit to that and give us. Some examples of the types of technologies or processes, you'll be looking at implementing in.
When you talk about it two to three year payback normally for discretionary capex.
Are we right to assume there isn't.
Maybe a direct.
Financial payback on that capital how do you think about that.
It's a great that's a great question Shaun so.
First I would say you know a lot of the projects that we do.
And if we look in the rearview mirror.
A lot of them have sustainability GHT built into them and so part of this process is really understanding those opportunities properly accounting for them and making sure that they factor into a payback analysis and that we can we can report out and share. So you know I would say as we look at.
At our.
One when we when we really look back at 2021, and our and our capital in 2022, Theres already a chunk of it that when we look at that Catholics go well.
This has <unk>.
Significant paybacks and will and will be part of the journey.
Meeting our targets so when we when we look at these energy efficiency.
And.
It's not it isn't necessarily a lot of new technology its just incorporating.
Those other attributes along.
To a great extent around existing capital or our strategy going forward. So look are there going to be new things that we might not otherwise thought about around.
Sure there will.
But I can tell you though.
While we've done solar projects in the past.
We're likely to do that in the future.
And and then they stand on their own merits, but in the in the eyes of sustainability and ESG.
As an additional payback.
It takes us there so I.
I feel quite quite comfortable that.
That that our paybacks brief will remain robust and in some cases improve.
With this and.
We're quite excited about it.
We think we're gonna be able and I suspect other foreign companies as well that when we're doing a very good job of describing our strategy and communicating it.
Shine while in the industry.
Thanks for that detail I appreciate it.
Thanks, Sean.
Thank you next question is from Paul Quinn RBC. Please go ahead.
Yes. Thanks, just one last follow up just on the topic of the increased disclosure and opened the guidance.
Now we've seen a run up in lumber and OSB pricing in North America between.
Q4 averages in Q1 year to date, which as you know both are up kind of that realm at 75% just wondering how your realization should track through it.
At least in the month of January from from from from those price increases.
Paul I think it's pretty hard for us to comment on that right now I think.
What what you got to keep in mind is when and I think with what we said in the comments there around transportation rate is when you have delays obviously that delays.
The benefit of your your realization. So I think that's about as far as we can go in terms of of unpacking that but.
The longer it takes to ship stuff the longer it takes to realize the benefit of what's happening in the market.
Alright, the airplane thanks Curt.
And I might just add and I get myself in trouble here I think when I in the past when you've seen peak pricing some of those other products, whether they'd be whether it would be wide lumber. It doesn't mean that that's what's happening this time, but historically wide lumber or specialties in OSB and lumber.
They tend to lag some of the peak commodity pricing and so that can open up.
And then on the flip side it tightens up on the other side of the cycle, So, but I do I do think that's one of the things that is difficult to track, but it is a factor and it is the other the other thing I think we highlight fairly regularly as those prices get reported but but how much is actually transacting at.
Those prices is is hard to unpack as well I mean, I remember back in 2018, when we were talking about this and the high price of lumber.
And if lumber in the six hundreds or whatever very little actually transacted. There. The average was more like $4 80. So I think you just have to keep in mind that when this stuff gets published twice a week how much is actually transacting at those as a bit of a black box.
Well I just assume that may keep it gets at 5% to 10% premium on that reported prices is that not correct.
Of course it is.
[laughter] thanks, guys.
Thanks. Thank you. Thank you.
At this time I would like to turn the call back over to our speakers for closing comments.
Listen thanks for that great questions I appreciate the comments and attending our call and we'll look forward to talking to everybody at the end of Q1.
Thank you. Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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