Q4 2023 West Fraser Timber Co Ltd Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to West Fraser's fourth quarter 2023 results conference call. Please note that all lines have been placed on mute to prevent any background noise.

Good morning, ladies and gentlemen.

You're welcome.

Fourth quarter 2020 results conference call.

No.

All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star followed by the 2.

After the Speakers' remarks, there will.

Will be a question and answer session.

If you would like to ask a question during this time.

Questcor.

Number one on your telephone keypad.

If you would like to withdraw your question. Please press the star followed.

Two.

Operator: During this conference call, West Fraser's representatives will be making certain statements about West Fraser's future financial and operational performance, domestic 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 should our actual results 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 West Fraser's website or through CDER Plus for Canadian investors and XCOR for United States investors. I will now hand the call over to Mr. Sean McLaren. Please go ahead.

During this conference call West Fraser's Representatives will be making certain statements about west Fraser's future financial and operational performance Mr. Sal.

These statements may constitute forward looking information.

Forward looking statements within the meaning of Canadian and United States Securities.

Such statements involve certain risks uncertainties and assumptions that may cause actual results.

Future results and performance to be materially different from dose expressed in these statements.

Additional information about those risk factors and assumptions.

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I will now hand, the call over just Mr. Shlomi Cohen. Please go ahead.

Sean Steuart: Thank you, Jenny. Good morning, everyone. And thank you for joining our fourth quarter 2023 earnings call. I am Sean McLaren, President and CEO of West Fraser. Joining me today are Chris Vorostek, our Senior Vice President and Chief Financial Officer, Matt Tobin, our Senior Vice President of Sales and Marketing, and other members of our leadership team. I will begin today's comments with a brief overview of West Fraser's Q4 and Fiscal 2023 financial results and then pass the call to Chris for additional comments before I share some thoughts on our outlook and make some concluding remarks. West Fraser generated $97 million of adjusted While new home construction in the US remained resilient through the quarter, supporting demand for OSB, relatively high mortgage rates and continued to constrain existing home sales activity, which tempered repair and remodeling spending and lumber demand. For full year 2023, we generated $561 million of adjusted EBITDA, representing a 9% margin.

Shlomi Cohen: Thank you Jenny good morning, everyone and thank you for joining our fourth quarter 2023 earnings call.

Shlomi Cohen: Sean Mclain, President and CEO of West Fraser, joining me today are Chris <unk>, Our senior Vice President and Chief Financial Officer, Matt Tobin, Our senior Vice President of sales and marketing and other members of our leadership team.

Shlomi Cohen: I will begin today's comments with a brief overview of West Fraser's Q4, and fiscal 2023 financial results and then pass the call to Chris for additional comments before I share some thoughts on our outlook and make some concluding remarks.

Sean Steuart: West Fraser generated 97 million of adjusted EBITDA in the fourth quarter of 2023, as we continued to experience mixed results across our business segments with strength in our North American engineered wood business, partially offset by continued soft demand for our north American lumber products.

Chris: While new home construction in the U S remained resilient through the quarter supporting demand for OSB relatively high mortgage rates continue to constrain existing home sales activity, which tempered repair and remodeling spending and lumber demand.

Chris: For full year 2023, we generated $561 million of adjusted EBITDA, representing a 9% margin.

Sean Steuart: On a pro-forma basis with the inclusion of Norboard, our 2023 EBITDA was approximately $320 million higher than that of the last down cycle in 2019, reflecting synergies from the Norboard transaction, the benefits of our capital investment program, as well as the acquisitions and strategic initiatives we've undertaken. Consistent with our strategy, we have remained disciplined in our approach to capital allocation and have preserved capital in the event that we have a down market, which we are currently experiencing. It is this discipline that has positioned us to be able to execute on our plans and invest in and improve our assets in all market conditions. As we look ahead, our balance sheet remains strong and continues to offer significant financial flexibility, which is a key priority of our capital allocation strategy.

Chris: On a pro forma basis with the inclusion of nor board. Our 2023, EBITDA was approximately $320 million higher than that of the last down cycle in 2019, reflecting synergies from the Norbert transaction the benefits of our capital invested investment program as well as the acquisitions.

Chris: And strategic initiatives we've undertaken.

System with our strategy, we have remained disciplined in our approach to capital allocation and have preserved capital in the event that we have a doubt in a down market that we are currently experiencing it is this discipline that has positioned us to be able to execute on our plans and invest in and improve our assets through all market conditions as we look.

Chris: Ahead, our balance sheet remains strong and continues to offer significant financial flexibility, which is a key priority of our capital allocation strategy with that overview I'll now turn the call to Chris for additional detail and comments.

Sean Steuart: With that overview, I'll now turn the call over to Chris for additional detail and comments. Thank you, Sean, and good morning, everyone. A reminder that we report in U.S. dollars, and all my references are to U.S. dollar amounts unless otherwise indicated. The lumber segment posted negative $51 million of adjusted EBITDA, declining from positive $44 million in the third quarter, a period that had benefited from a $62 million export duty recovery. Our North American EWP segment generated $143 million of adjusted EBITDA, down from $289 million in the prior quarter.

Chris: Thank you, Sean and good morning, everyone and a reminder, that we report in U S dollars and all of my references are to U S dollar amounts unless otherwise indicated.

Chris: The lumber segment posted negative $51 million of adjusted EBITDA declining from positive $44 million in the third quarter, a period that had benefited from a $62 million export duty recovery.

Chris: Our North American AWP segment generated $143 million of adjusted EBITDA down from $289 million in the prior quarter.

Chris Vorostek: The pulp and paper segment generated $2 million of adjusted EBITDA in the fourth quarter, rebounding from the negative $12 million in the prior quarter, while in Europe, adjusted EBITDA was $3 million in the fourth quarter versus $4 million in the third quarter. Lower prices were the largest driver for the sequential EBITDA declines across our North American lumber and engineered wood product business. Cash flow from operations was $96 million in the fourth quarter, with our cash balance net of debt still at a healthy $361 million versus $663 million last quarter.

Chris: The pulp and paper segment generated $2 million of EBITDA adjusted EBITDA in the fourth quarter rebounding from the negative $12 million in the prior quarter, while in Europe, adjusted EBITDA was $3 million in the fourth quarter versus $4 million in the third quarter.

Chris: Lower prices were the largest driver for the sequential EBITDA declines across our north American lumber and engineered wood products businesses.

Cash flow from operations was $96 million in the fourth quarter with our cash balance net of debt still at a healthy $361 million versus $663 million last quarter.

Chris Vorostek: This quarter, we invested $157 million back into the business through capital expenditures, repurchased $104 million of our shares, returned $25 million to shareholders through dividends, and completed the $100 million acquisition of Spray Lake Sawmills in Cochrane, Alberta. In terms of our outlook for 2024, we are providing initial operational guidance for the year as detailed in our earnings release, including our expectations for key product shipments, as well as our planned capital expenditures, which are in the range of $450 million to $550 million. With that overview, I will now pass the call back to Sean. Thank you, Chris.

Chris: This quarter, we invested $157 million back into the business through capital expenditures repurchased $104 million of our shares returned $25 million to shareholders through dividends and completed the $100 million acquisition of spray Lake saw mills and Cochrane Alberta.

Chris: In terms of our outlook for 2024, we are providing initial operational guidance for the year as detailed in our earnings release, including our expectations for our key product shipments as well as our planned capital expenditures, which are in the range of $450 million to $550 million.

Shop: With that overview I will now pass the call back to shop.

Shop: Thank you, Chris while difficult to predict we expect our business will continue to experience challenges ranging from the risk of resurgence of input cost inflation and higher mortgage rates.

Sean Steuart: While difficult to predict, we expect our business will continue to experience challenges ranging from the risk of resurgence of input cost inflation and higher mortgage rates, ongoing labor constraints, as well as demand challenges that may result from housing affordability constraints. Having said that, we are encouraged by the fact that, so far this year, mortgage rates in the U.S. are well off the highs the industry experienced late in 2023. In addition, inflationary cost pressures have continued to ease across much of our supply chain, at least in the near term.

Speaker Change: Ongoing labor constraints as well as demand challenges that May result from housing affordability constraints, having said that we are encouraged by the fact that so far this year mortgage rates in the U S are well off the highest industry experienced late in 2023 further inflationary cost pressures have continued to ease.

Speaker Change: Across much of our supply chain at least over the near term we expect this to continue.

Sean Steuart: We expect this to continue. Regarding market fundamentals, I'd like to share with you slide seven, which has been updated to reflect the latest FEA estimates for 2023. This exhibit highlights the challenges the North American lumber industry has faced and continues to face in adding net new supply. We have now been through a 10-year period in which total North American lumber supply has been essentially flat, with shrinking supply in British Columbia offsetting the gains in the U.S. South, and this has occurred during a number of strong up years for lumber demand and price. We've spoken about the many constraints the lumber industry faces when it comes to adding capacity, and first and foremost of these is accessibility and availability of economic fiber.

Speaker Change: Regarding market fundamentals I'd like to share with you slide seven which has been updated to reflect the latest FDA estimates for 2023. This exhibit highlights the challenges the north American lumber industry has faced and continues to face, adding net new supply we have now been through a 10 year peer.

Speaker Change: And which total north American lumber supply has been essentially flat with shrinking supply in British Columbia offsetting the gains in the U S. South and this has occurred during a number of strong appears for lumber demand and pricing we spoken about the many constraints the lumber industry faces when it comes to add.

Speaker Change: Capacity and first and foremost of these as accessibility and availability of economic fiber, while the U S. South remains a critical area of lumber supply growth and a key region for west Fraser's growth strategy. It is important to note that this region's economic fiber supply cost profile and access to end use.

Sean Steuart: While the U.S. South remains a critical area of lumber supply growth and a key region for West Fraser's growth strategy, it's important to note that this region's economic fiber supply, cost profile, and access to end-use markets for sawmill residuals are not homogeneous, and that all of these factors are headwinds to growth. As many of you are aware, the complexity of the operating environment in British Columbia continues to take its toll on sawmilling capacity in the province. Rapid policy change and uncertainty regarding decision-making on the land base have constrained available timber supply, resulting in a lack of access to economically viable fiber. Our recent decision to close Fraser Lake Sawmill, one of West Fraser's founding mills, after having reduced its capacity to a single shift in 2022 to match available timber supply reflects these realities. Without significant policy change in British Columbia, the forest sector in B.C. is on a path to further contraction.

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Speaker Change: As many of you are aware the complexity of the operating environment and British Columbia continues to take its toll on saw milling capacity in the province rapid policy change and uncertainty regarding decision, making on the land base have constrained available timber supply, resulting in a lack of acts.

Speaker Change: Yes.

Speaker Change: Canonically viable fiber.

Speaker Change: Our recent decision to close Fraser Lake sawmill, one of West Fraser's founding mills after having reduced its capacity to a single shift in 2022 to match available timber supply reflects these realities without significant policy change in British Columbia, the four sector NBC.

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Sean Steuart: Lastly, and of additional concern today, unusually warm weather in Western Canada has hampered logging activities so far this winter, which has limited the accumulation of log inventories at some of our mills and has the potential to constrain our ability to manufacture and ship SPF lumber. This is something we are monitoring closely. In our view, challenges to meaningful supply additions in the North American lumber industry will persist for the foreseeable future, and as such, we remain optimistic about our portfolio of assets, our capital allocation strategy, and our long-term prospects for our lumber. When we acquired Norboard in 2021, a key strategic rationale for the deal was adding a measure of diversification to help us manage through the market. The benefits of this product diversity were front and center in 2023.

Speaker Change: Lastly, and have additional concern today unusually warm weather in Western Canada has hampered logging activities. So far this winter, which has limited the accumulation of log inventories at some of our mills and has the potential to constrain our ability to manufacture and ship SPF lumber this is something.

Speaker Change: We are monitoring closely.

Speaker Change: In our view challenges to meaningful supply additions in the North American lumber industry will persist for the foreseeable future and as such we remain optimistic about our portfolio of assets, our capital allocation strategy and our long term prospects for our lumber business.

Speaker Change: When we acquired nor board in 2021, our key strategic rationale for the deal was adding a measure of diversification to help us manage through market cycles. The benefits of this product diversity, we're front and center in 2023.

Speaker Change: Over the last four quarters, our North American AWP business generated nearly $600 million of adjusted EBITDA as OSB has lesser reliance than lumber on demand from the repair and remodeling segment plus there is generally a much lower level of OSB demand met by competing imports.

Sean Steuart: Our ongoing strategy to optimize our portfolio remains an important focus of the organization. The next slide outlines a number of key steps we have taken in recent years to refine our portfolio, as management's focus is on continuous improvement of the business and not just growth for growth's sake. More recently, we announced the sale of three of our pulp mills, which we expect will help reduce variability of future EBITDA, as well as help us concentrate more of our resources on being the premier wood products building company in North America. We completed the Hinton pulp sale earlier this month and continue to expect the sale of the BCTMP mills to close early in 2024.

Speaker Change: Our ongoing strategy to optimize our portfolio remains an important focus of the organization. The next slide outlines a number of key steps we have taken in recent years to refine our portfolio as management's focus is on continuous improvement of the business and not just growth for growth's sake more.

Speaker Change: Recently, we announced the sale of our three of our pulp Mills, which we expect will help reduce variability of future EBITDA as.

Speaker Change: As well as help us concentrate more of our resources on being the Premier Wood Products' products buildings company in North America, we completed the hidden pulp sale earlier this month and continue to expect the sale of the BC TMP mills to close early in 2024.

Sean Steuart: I'd like to briefly shift my comments to our balance sheet and liquidity, the strength of which we believe provides us with great flexibility and a competitive advantage in the current market environment. With our prudent approach to cash management, particularly in a difficult 2023, we were able to balance capital investment in the business, execute on acquisitive growth, and distribute significant capital to our shareholders. Entering 2024, we held $900 million of cash and equivalents with nearly $2 billion of available liquidity.

Speaker Change: I'd like to briefly shift my comments to our balance sheet and liquidity the strength of which we believe provides us with great flexibility and a competitive advantage in the current market environment with our prudent approach to cash management, particularly in a difficult 2023, we were able to balance capital investment in the business.

Speaker Change: <unk>, an acquisitive growth and distribute significant capital to our shareholders.

Speaker Change: Entering 2024, we held $900 million of cash and equivalents with nearly 2 billion of available liquidity of note. The limited change in our cash balance from a year ago, which is only lower by about $260 million is nearly equal to the $100 million of dividends paid and $129 million of <unk>.

Sean Steuart: Of note, the limited change in our cash balance from a year ago, which is only lower by about $260 million, is nearly equal to the $100 million of dividends paid and the $129 million of shares repurchased last year. As per our Q4 disclosures, we have continued to buy back shares early in Q1 with the view that they are trading below our estimate of intrinsic value. We also plan to invest $450 million to $550 million of capital in 2024, as we believe that counter-cyclical investing will allow us to exit the current market downturn better off than when we entered it. The next slide shows a longer-term track record of our balanced capital allocation strategy.

Speaker Change: <unk> repurchased last year.

Speaker Change: As per our Q4 disclosures, we have continued to buy back shares early in Q1 with the view that they are trading below our estimate of intrinsic value.

Speaker Change: We also plan to invest $450 million to $550 million of capital in 2024, as we believe the counter cyclical investing will allow us to exit the current mark market downturn better off than when we entered it.

Speaker Change: The next slide shows the longer term track record of our balanced capital allocation strategy here you can see our focus has been on both reinvesting in the business, which is accounted for approximately 30% of our cash flow from operations since start of 2016 as well as returning capital to our.

Sean Steuart: Here you can see our focus has been on both reinvesting in the business, which has accounted for approximately 30% of our cash flow from operations since the start of 2016, as well as returning capital to our shareholders, which has accounted for approximately 50% of our cash flow over that same period. The accumulation of supportive industry fundamentals and our execution, performance, and focus on returning capital to shareholders are reflected in the attractive returns generated for West Fraser shareholders over a number of cycles, with total annualized return approaching 10% since the beginning of 2006, which includes share price appreciation and reinvested dividends. We remain proud of what the West Fraser team has been able to accomplish.

Speaker Change: <unk>, which is accounted for approximately 50% of our cash flow over that same period.

Speaker Change: The accumulation of supportive industry fundamentals and our execution performance and focus on returning capital to shareholders are reflected in the attractive returns generated for west Fraser shareholders over a number of cycles with total annualized return approaching 10% since the beginning of 2000.

Speaker Change: Six which includes share price appreciation and reinvested dividends, we remain proud of what the west Fraser team has been able to accomplish it.

Operator: In closing, while demand markets were challenging in 2023, and there are near-term uncertainties across our business, we remain confident in our people, processes, and the foundation we have built. We have been through many industry cycles before, and we have the talent, assets, and financial flexibility to handle both the challenges and opportunities that lie ahead. As always, we remain optimistic about the continued growth in demand for the types of sustainable and renewable wood products that West Fraser manufactures and for which the company is built. With that, we'll turn the call back to the operator for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by two. If you are using a speakerphone, please flip the handset before pressing any keys.

Speaker Change: In closing while demand markets were challenging in 2023, and there are near term uncertainties across our business. We remain confident in our people processes and the foundation. We have built we have been through many industry cycles before and we have the talent assets and financial flexibility to handle both the challenges and opportunities.

Speaker Change: <unk> that lie ahead as always we remain optimistic about the continued growth in demand for the types of sustainable and renewable wood products that west Fraser manufacturers and for which the company is known.

With that I will turn the call back to the operator for questions.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one in your Touchtone phone.

Speaker Change: Hey, John from Technology, Youll request questions will be taken in the order received should you wish to cancel your request. Please press the stellar with lighter Taylor.

John: Using a speaker phone please lift the handset before pressing anarchy.

Operator: Once again, that is stage one should you wish to ask a question. Your first question is from Ben Isaacson from Scotiabank. Please ask your question. Thank you very much and good morning.

John: Once again that is star one should you wish to ask a question.

John: Your first question is from Ben Isaacson from Scotia Bank. Please ask your question.

Ben Isaacson: Thank you very much and good morning, good to be on the call.

Ben Isaacson: Good to be on the call. Your guidance on OSB is to put more volume into the market as Allendale ramps up. Does the market need that product right now? And if not, will you build inventory, or will you slow the ramp?

Ben Isaacson: Your guidance on OSB is to put more volume into the market has allendale ramps just the market need that product right now and if not will you build inventory or will you slowed the ramp.

Sean Steuart: Good morning Ben, just a couple of comments on that. I think when we look at our OSB business and the ramp-up, which is largely related to our ramp-up at Allendale, it really is improving our cost position, and our sales group and marketing team have done a good job of creating new opportunities for us to move that product into our key customers. So our intention is not to build inventory; it's to bring down our overall cost structure of our Great, thank you. And then just looking to interpret the R&R activity forecast on slide 24, it shows that spending is going down to the mid $400 billion in 24. I'm just curious, with commodity prices having come down, does that mean that activity levels will stay the same, but just the absolute spend will be lower? Or is actual activity supposed to fall as well?

Speaker Change: Good morning, Good morning, Ben.

Speaker Change: Just a couple a couple of comments on that I think when we look at our OSB business and the ramp up which is largely related to our ramp up at Allendale. It really is improving our cost position and our sales group and our marketing team has has done a good job of creating new opportunities for us to move that.

Product into into our key customers. So so our intention is not to build inventory, it's too to bring down our overall cost structure of our OSB business and work with our customers to place that product.

Speaker Change: Great. Thank you and then just looking to interpret the R&R activity at forecast on slide 24.

Speaker Change: It shows that spending is going down to the mid 400 billions.

Speaker Change: In 24, I'm, just curious with commodity prices, having come down does that mean that activity levels will stay the same but just the absolute spend will be lower or as actual activity as opposed to fall as well.

Sean Steuart: You know, I'll maybe make a couple of comments and ask Matt Tobin, our Senior Vice President of Sales and Marketing, to pick up on what I'm missing here. But I can only really speak to our customers and what we're seeing. And frankly, we're seeing stability year over year. We think, longer term, that as we have existing home sales pick up and new home construction continue to grow, R&R will steadily improve. Saying that, you know, kind of hard to unpack a lot of what goes into that number.

Speaker Change: I'll, maybe make a couple of comments that ask Matt Tobin, our senior Vice President sales and marketing to pick up what I Miss here.

Matt Tobin: But I can only really speak to our customers and.

Matt Tobin: And what we're seeing.

Matt Tobin: And frankly, we're seeing stability year over year, we think longer term that as we have existing home sales pick up in new home construction continue to grow that R&R will steadily improve.

Matt Tobin: Saying that.

Kind of hard to unpack a lot of what goes into that number I don't know, Matt if you want to add anything to that.

Matt Tobin: I don't know, Matt, if you want to add anything to that. No, I think it's been a stable business for us, and I think historically it's been like a GDP grower. We expect that to continue over the medium to long term. And with the age of the housing stock, we believe R&R is going to continue to be a long-term outlet for our products.

Matt Tobin: No I think thats.

Matt Tobin: It's been a stable business for us and I think historically, it's been like a GDP grower, we expect that to continue over the medium to long term and what the age of the housing stock. We believe R&R is going to continue to be a long term outlet for our products.

Ben Isaacson: And then just last one for me, if I may, you mentioned at the start of the call some issues with respect to weather in BC and how that could impact the availability of logs. I didn't understand that. Can you just give some more details around what that is and what the risks are?

Speaker Change: Great and then just last one for me if I may.

Speaker Change: You mentioned at the start of the call some issues with respect to whether in DC and how that could impact availability of logs.

Speaker Change: Didn't appreciate that can you just give us some more details around what that is and what the risks are thank you, yes sure Ben.

Sean Steuart: Thank you. Yeah, no, sure, Ben. You know, and we wanted to kind of flag this issue. I would comment that the logging season has not finished yet. So we typically bring in logs in from Western Canada right through to late March. And our teams are working hard to bring in as much wood as we can, saying that the weather has been warmer than normal, which has impacted ground conditions. So when ground conditions and road conditions are soft, you know, our ability to log right through the season is impacted. And that's what happened.

Speaker Change: And we wanted to kind of flag. This issue I would comment that the logging season has not finished yet so we typically will bring logs in western Canada right through to late March and our teams are working hard to bring in as much as we can say that the weather has been warmer than normal.

Which has impacted ground conditions, so when ground conditions at road conditions are soft our ability to.

Speaker Change: Log right through the season is impacted and Thats whats happened. So we're booked behind at a few spots not everywhere, but a few spots on our target inventories so hard to predict what the impact is but we wanted to flag it as a as a risk to Q2.

Ben Isaacson: So we're behind in a few spots, not everywhere, but a few spots on our target inventories. So, you know, hard to predict what the impact is, but we wanted to flag it as a risk. Thank you so much.

Operator: I appreciate it. Thank you. Your next question is from Ketan Mamtora from BMO Capital Markets. Please ask your question.

Speaker Change: Thank you so much I appreciate it.

Speaker Change: Thank you. Your next question is from Keith <unk> from BMO capital markets. Please ask your question.

Ketan Mamtora: Thank you. First question, can you give us some sense on this channel's inventories in both lumber and North America OSB as we head into the busy spring season? Yeah, good morning Ketan.

Keith: Thank you.

Keith: First question can you give us some sense.

Keith: On.

Keith: Channel inventories in both lumber and North America OSB as we head into the busy spring season.

Keith: Yes, good morning Keaton.

Sean Steuart: You know, I'll make a couple of comments and then Matt can weigh in. You know, again, visibility, the channel inventories, visibility, that's difficult. I can only speak to our inventories, which are normal, and our customer buying patterns appear to be, you know, buying what they need because the product's readily available. So it's hard for me to speak to what total inventories are across the system, other than, you know, we wouldn't really flag anything unusual. I don't know, Matt, would there be?

Speaker Change: I'll make a couple comments then then Matt can can weigh in.

Speaker Change: Again visibility.

Speaker Change: That'll inventories visibility that's difficult I can only speak to our inventories, which are normal and our customer buying patterns appear to be.

Speaker Change: Buying what they need because products readily available so hard for me to speak to what total inventories are across the system other than we wouldnt really flag anything unusual I don't know Matt.

Matt Tobin: No, I think the information on channel inventories is anecdotal at best, and, you know, transportation has been fluid, product's available, and we're happy with our position. Okay, understood. Got it.

Speaker Change: No I think.

Speaker Change: Information on channel inventories is anecdotal at best and.

Speaker Change: Transportation has been fluid products available and we're happy with our position.

Speaker Change: Okay understood got it and then one more question on lumber.

Ketan Mamtora: And then one more question on lumber. You talked about R&R demand being steady, and we've heard that consistently from some of the other players as well. New residential demand has held up reasonably okay given where rates were, yet lumber prices have been quite challenged for the last quarter or so. So I'm just curious, as we move through the next couple of quarters, what will help drive lumber prices to kind of a reasonable level where there is EBITDA profitability?

Speaker Change: You talked about order in our demand being steady and be pulled back now consistently from some of the other peers as well.

Speaker Change: You guys had mentioned demand has held up.

Speaker Change: Reasonably okay, given where rates are.

Speaker Change: Yet lumber prices have been quite challenged for the last quarter or so so I'm just curious sort of as we.

Speaker Change: I'll kind of move through the next couple of quarters.

Speaker Change: Kind of what will help drive lumber prices.

Speaker Change: The reasonable level theres kind of bids.

EBITDA profitability is it is it demand that needs to get better are there things on the supply side that that needs to get better or how do you think about it.

Sean Steuart: Is it demand that needs to get better? Are there things on the supply side that need to get better? How do you think about it? Thank you, Ketan. Maybe a couple of comments there.

Speaker Change: Thank you Keith.

Speaker Change: Maybe a couple of comments there.

Ketan Mamtora: One, clearly, our medium and longer-term view on demand is it will be better, so we're bullish. As Matt touched on, the age of the housing stock, what that will do to R&R, with housing continuing to pick up as rates come down. Saying that on the supply side, as everybody is aware, there have been announcements on the supply side, but things take a long time to work their way through the system. Our Fraser Lake Mill is a good example where we made that announcement in mid-January, but product will still ship from there right through Q2. So some of the supply things that are in motion are going to take some time to work their way out. To answer your question, it's both, but hard to predict when that all plays out.

Speaker Change: One clearly our medium longer term view on demand as it will be better so we're bullish as.

Speaker Change: Matt touched on the age of the housing stock what that will do to R&R housing continuing to pick up as rates come down saying that on the supply side as everybody is aware there has been announcements on the supply side, but things take a long time to work their way through the system are Fraser Lake Mill is a good example, where we made that enel.

Speaker Change: Ounce meant in mid January but product will still ship from there right through Q2. So saw some of the supply things that are in motion are going to take some time to work its way out so to answer your question its both but <unk>.

Speaker Change: Hard to predict when that all plays out.

Ketan Mamtora: Got it. Now that's a helpful perspective. I'll jump back in the queue.

Speaker Change: Got it no that's helpful perspective, I jump back in the queue. Good luck.

Operator: Good luck. Thank you. Thank you. Your next question is from Hamir Patel from CIBC. Please ask your question. Hi, good morning. Sean. I wanted to get your thoughts on the BC Land Act changes that are under consideration in the province and what impact you think that might have on existing tenures and your future investments in the province. Yeah, no. Good morning, Hamir.

Speaker Change: Thank you.

Speaker Change: Thank you. Your next question is from <unk> Patel from CIBC. Please ask your question.

Patel: Good morning.

Patel: So I wanted to get your thoughts on the BC Land Act changes that are under consideration in the province, and what impact do you think that might have on that.

Patel: Existing 10 years.

Hamir Patel: And your future investments in the province.

Yes, good morning Amir.

Hamir Patel: You know, one thing I might highlight is that, really, the Forest Act was first changed in 2019. So we've been operating under joint decision-making in British Columbia for a number of years now. Will additional regulation and additional, you know, kind of joint decision-making be helpful? Probably not, you know, but saying that our teams are already well into this, working through it.

Speaker Change: One thing I might highlight is really.

Speaker Change: The four stacked was first changed in 2019, so we've been operating under joint decision, making in British Columbia for for a number of years now, we'll additional regulation and additional.

Amir: Kind of joint decision, making be helpful, probably not but saying that our teams are already well into this working through it. So so I wouldn't expect materially different than what we're already experiencing which is which which needs to improve so that's one thing the second thing I might highlight it relative to your question on investment is.

Sean Steuart: So I wouldn't expect anything materially different than what we're already experiencing, which needs to improve. So that's one thing. The second thing I might highlight, relative to your question on investment, is, look, we've got, you know, BC is where the company was built, where it was founded. We've got great people.

Amir: Look we've got BCS where the company was built where it was founded we've got great people, we've got assets that.

Sean Steuart: We've got assets that are competitive. Saying that access to timber is the focus, and for investment, we need that. And largely, our company is now well positioned, you know, outside of the province. Our BC team is important to us.

Amir: That are competitive saying that access to timber is the focus and for investment we need that and largely our company now is well positioned.

Outside of the province, RBC team is important to us it's important to the company, we're working hard on access and that will determine what investment we do.

Sean Steuart: It's important to the company. We're working hard on access, and that will determine what investment we make. Great, great. Thanks, Sean. That's helpful. And just turning to the European business, give us a sense as to how the pricing levels there for OSB compare to North America. And, you know, are there perhaps some opportunities to bring products from Europe to North America? Thank you, Hamir. First off, what I would say about Europe is that things are slow over there, so prices are down.

Speaker Change: Okay, great great. Thanks, Ron that's helpful and just turning to the European business.

Speaker Change: Have a sense as to how pricing levels there for OSB compare to.

Speaker Change: In North America and are there, perhaps some opportunities.

Speaker Change: To bring product from Europe to North America.

Speaker Change: Yes, Thank you Amir.

No.

Speaker Change: First off what I would say about Europe is things are slow over there. So pricing is is down.

Sean Steuart: Saying that we have a really good business over there, a strong team, well-capitalized asset, a good cost position. We're focused on Europe, and from time to time, we do look at opportunities in North America. Pricing is higher, but there's a long lead time to do something like that, and really it's not as quick as this is what the spot market is, and let's move product.

Speaker Change: Saying that we have we have a really good business over there strong team well capitalized asset good cost position.

Speaker Change: We're focused on Europe and from time to time, we do look at opportunities in North America pricing is higher but theres, a long lead time to do something like that and really.

Speaker Change: It's not as quick as this is what the spot market is less move product. So so we are typically focused our efforts in Europe and opportunistically looked over to North America, but it's not a huge priority for us.

Sean Steuart: So we have typically focused our efforts in Europe and opportunistically looked over to North America, but it's not a huge priority for us. Great. Thanks, Ron. That's a lot. I'll turn it over to you.

Speaker Change: Great. Thanks, Rob that's all I had I'll turn it over.

Rob: Thanks Amir.

Hamir Patel: Thank you. Once again, should you have a question, please press star 1. Your next question is from Sean Stewart from TDS Securities. Please ask your question. Thanks. Good morning, everyone.

Speaker Change: Thank you once again should you have any question. Please press star one.

Speaker Change: Next question is from Sean Stewart from TD Securities. Please ask your question.

Sean Steuart: Thanks, Good morning, everyone.

Sean Steuart: Sean, a question on the CapEx plan. One of your competitors has suggested that capital costs for discretionary sawmill projects have increased to such an extent that returns are compromised, and it's contributed to a lower CapEx budget for that company. I'd be interested in your perspective on long-term sawmill IRRs given your commitment to continue with aggressive CapEx in 2024. Good morning, Sean.

Sean Steuart: Sean a question on the Capex plan.

Sean Steuart: One of your competitors have suggested that capital cost or discretionary sawmill projects with increased to an extent that.

Sean Steuart: Returns are compromised and it contributed to a lower capex budget for that company.

Sean Steuart: Interested in your perspective on long term saw mill IRR is.

Sean Steuart: Given your commitment to continue it.

Sean Steuart: Aggressive capex in 2024.

Speaker Change: Yes, good morning, Sean.

Sean Steuart: I'll speak to our guidance for 2024. A lot of that capital, Sean, is projects that are in motion. And West Fraser, for a number of years, has been modernizing our portfolio in the US. A big piece of that is our Henderson project, which will be a new mill on our site in Henderson, Texas, that supports our whole integrated platform and, frankly, one of the best regions to be operating in. That project has been in motion now for the better part of a year, and so we're not seeing that cost inflation.

Speaker Change: I'll speak to our guidance for 2020 for a lot of a lot of that capital.

Speaker Change: Sean is projects that are in motion.

Speaker Change: West Fraser for for a number of years has been modernizing our portfolio in the U S. A big piece of that is.

Speaker Change: As our Henderson project, which is a.

Speaker Change: We will be in a new mill on our site in Henderson, Texas that supports our whole integrated platform and one of the frankly, one of the best regions to be to be operating in.

Speaker Change: Sure.

Speaker Change: Those project that project has been in motion now for for the better part of the year and so our costs are we're not seeing that cost inflation. So so we're we're we're on budget on that project.

Sean Steuart: So we're on budget on that project and excited about the return and what it's going to do for our platform. You know, saying that, I think when we think about next projects coming on, like anything, we always look to what makes a company stronger, what achieves our hurdle rates. You know, I don't know if there's been material inflation over where we were a year ago or 18 months ago.

Speaker Change: And excited about the return on what it's going to do for our platform, saying that I think when we think about about next projects coming on like.

Speaker Change: Like anything we always look to what makes the company stronger what achieves our hurdle rates.

Speaker Change: I don't know if theres been material inflation over where we were a year ago or 18 months ago, saying that I know in the West Fraser our focus is on delivering what we have in motion and that's that's really our priority day and new projects will be based on our readiness to take them on as well as the returns on those projects.

Sean Steuart: Saying that, I know at West Fraser, our focus is on delivering what we have in motion, and that's really our priority today. And new projects will be based on our readiness to take them on, as well as the returns on those projects. Thanks for that detail. Chris, I'm hoping you can give us some context on this, but in the pulp and paper segment results for Q4, can you give us a sense of what the contribution was or the losses were for Hinton and the mechanical pulp mills, just as we think about run rates for that segment going forward? Sean, I think that's actually called out. If you take a look at the year-end MD&A, we've got the full year contribution from those facilities there. And then I think similar data was there in Q3 as well.

Speaker Change: Okay, Thanks for that detail.

Speaker Change: Chris hoping you can give us some context on this but in the pulp and paper segment results for Q4 can you give us a sense of what the contribution was or the losses were four hinton in the mechanical pulp mills, just as we think about run rates for that segment going forward.

Chris: Sean I think that's actually called out.

Chris: You take a look at the year end MD&A, we've got the full year contribution from those facilities. There and then I think similar similar data was there in the Q3 as well. So I think it's I think it's there to be derived from those from those two documents that are out there.

Chris Vorostek: So I think it's there to be derived from those two documents that are out there. You know, I think, as we've said before, right, you know, there are five assets in that segment. It's not proportionate that, you know, three of those five make up 60. Those three make up the lion's share of the results in those facilities because the other two are both 50% joint ventures. So, you know, the majority of what goes on in the pulp and paper segment, positive or negative, has typically been contributed by those three assets.

Chris: I think as we've said before right.

Chris: 555 assets in that segment, it's not proportionate debt three of those three of those five make up 60, those three make up the lion's share of.

Chris: The results in those facilities because the other two are are both 50% joint ventures. So.

Chris: The majority of what.

Of what goes on in the pulp and paper segment positive or negative has typically been contributed by those three assets.

Speaker Change: Got it.

Sean Steuart: Okay, that's all I have. Thanks very much, guys. Thank you, ladies and gentlemen. Once again, should you have a question, please press 411 on your telephone device. There are no more further questions at this time. I will now hand the call back to Mr. Sean McLaren for the closing remarks. Thanks, Jenny. As always, Chris and I are available to respond to further questions, as is Robert Winslow, our Director of Investor Relations and Corporate Development. Thank you for your participation today. Stay well, and we look forward to reporting on our progress next quarter. Thank you. Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining us. You may all disconnect.

Speaker Change: Okay. That's all I had thanks very much guys.

Sure.

Thank you ladies and gentlemen, once again should you have a question. Please press star one on your telephone keypad.

Mr. Sherman: There are no mark perfect questions. At this time I will now hand, the call back to Mr. Sherman for closing remarks.

Sherman: Thanks Jenny.

Mr. Sherman: As always Chris and I are available to respond to further questions as is Robert Winslow, our director of Investor Relations and corporate development.

Mr. Sherman: Thank you for your participation to date stay well and we look forward to reporting on our progress next quarter. Thank you.

Mr. Sherman: Okay.

Sherman: Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.