Good morning, ladies and gentlemen. And welcome to the West Fraser Q3 2018 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session [Operator Instructions]. This call is being recorded on Tuesday, October 23, 2018. During this conference call, West Fraser’s representatives will be making certain statements about potential future developments. These forward-looking statements are intended to provide reasonable guidance to investors, but the accuracy of these statements depends on a number of assumptions and is subject to various risks and uncertainties. Actual outcomes will depend on a number of factors that could affect the ability of the Company to execute its business plans, including those matters described under the risk and uncertainties in the Company’s annual MD&A, which can be assessed on West Fraser’s Web site or through SEDAR and as supplemented by the Company’s quarterly MD&A. Accordingly, listeners should exercise caution in relying upon forward-looking statements. I would now like to turn the conference over to Mr. Ted Seraphim, Chief Executive Officer. Please go ahead.

Thank you, and good morning, everybody. We're going to do this a little different today. I've got Ray Ferris, our President and Chief Operating Officer; Chris Virostek, our Chief Financial Officer; and Chris McIver, our Vice President of Sales and Transpiration here in Vancouver, and I'm up here in Quesnel with our Vice President of Woodland's, Larry Gardner. So, I think Chris Virostek will start off to the call and give us some comments on the results and then I will make a few comments at the end. So with that, Chris, I'll pass it to you.

Thanks Ted. And good morning everyone, and thanks for joining us today. I'll make some opening remarks on the financial and then Ted will provide an update on the current market conditions and outlook. The last 12 months have been marked by significant volatility in lumber markets, influenced by severe weather events, duties, and regular transportation availability. In the third quarter, we experienced a significant reversal of SPF lumber prices from the first half of the year. In our lumber segment, our adjusted EBITDA of 28% of sales or approximately $194 per thousand board feet was off the second quarter pace due to the reversal in SPF prices but remain solidly ahead of the third quarter of last year. Shipments were slightly off to the second quarter pace as we continued to work through the accumulated finished inventory from the first quarter. In our Panel segment, shipments were also off the Q2 pace as we largely cleared that backlog in the second quarter. Plywood pricing, which was influenced by supply constraints in the first half of the year and during the third quarter of last year, retreated as well. Our Pulp segment posted improved results as compared to the prior quarter and the third quarter of 2017. Improved pricing, coupled with higher production rates and shipments, all serve to increase the adjusted EBITDA over prior quarter and more significantly over the prior year. Cash flow from operations for the year-to-date period was $897 million. We reinvested $284 million back into the business this year in capital investment, including rebuilds at High Prairie, Alberta and Opelika, Alabama. We increased the dividend in the third quarter for the second time this year and the third time since 2017. Subsequent to the end of the quarter, we entered into an agreement to purchase $335 million of annuity contracts with pension assets, pension plan assets, to further de-risk our defined benefit pension plan liabilities. In addition to the $145 million that we settled in the first quarter, we have now settled this year $480 million of pension liabilities through annuity purchases with planned assets. Since the end of the second quarter through October 19th, we have repurchased 4.3 million shares for $357 million at an average price of $82.65. Since we commenced repurchasing shares in 2013, we've purchased a total of 15.1 million shares for $994 million. We have consistently deployed our capital over the period to a balance of organic growth through capital expenditure, accretive M&A transactions and returns to shareholders at the same time, maintaining a liquidity profile and capital structure that provides flexibility to continue to grow and invest in the Company. With that, I'll turn it over Ted for some more comments.

Thanks Chris. First, I thought I would touch on a few topics. From an operational standpoint, we continue to see progress in our pulp and paper division. We achieved the highest quarterly production on record. Nevertheless, we saw a significant upside at our Hinton division. Production improved at Hinton by more than 10% during the quarter from the first half of the year, but we still have more progress to make before we achieve our production and reliability expectations. Our Lumber segment production was impacted by weather and fires, which caused some minor downtime over the quarter at a few of our mills. Most notably in the quarter, we started up our new saw mill in Opelika, Alabama. The project was completed on-time and on-budget in approximately 12 months. The new mill increases the site capacity by approximately 100 million board-feet, and we expect to see improvements in grade and recovery as well. The mill benefits from the strong workforce, a robust timber supply and good outlets for residuals. We see the success of this project as a blueprint for future project opportunities in the U.S. sales. Our transportation sales and operating groups have worked very hard to develop alternative strategies to ensure we are able to ship our production throughout the year. We continue to have a very strong and positive working relationship with our rail providers. But our expectation is that a more diversified transportation strategy will provide dividends this winter. Moving to markets, I will focus my comments on our lumber business. We have all been surprised by the volatility in lumber market this year. The inventory buildup in Western Canada of 800 million to 1 million board-feet in the first quarter was unwound in the second and third quarter. It's clear that this has had an…

Thank you [Operator Instructions]. Your first question is from Hamir Patel from CIBC Capital Markets. Hamir, please go ahead.

Ted, given some of the log shortages at some of your sites and where lumber prices are, are you thinking of taking any curtailments or slowdowns in Q4?

Well, first of all, the markets move pretty quickly and we don't really react to any short-term market fluctuations. And so, as we look at it, there is always a number of factors that includes our view on markets and also impacts on our integrated model and cost structure. So, I think at some point, we're going to see British Columbia gets smaller. But at this point, we're running all our mills and that's how we look at it today.

And Ted, you mentioned Opelika would likely serve as a blueprint for future projects in the south. Do you have anything planned that may come up in 2019?

Well, why don’t let Ray Ferris comment on that. I mean, we don’t generally comment on any projects until we're actually starting construction. But I think Ray can maybe talk a little bit about how we're looking at our U.S. South capital plan from a broader base. And I think, as I said earlier, we're using Opelika as a bit of a model.

Hamir, I think the short answer would be yes. We continue to have a pipeline in U.S. South or projects similar to Opelika, and smaller projects like Franklin. And I think it's a very similar to what we've done the last couple of years. But the short answer would be yes and we'd expect to continue on that path through 2019.

And maybe just one final one for me on the log cost side given the moving lumber prices. How do we think about log cost sequentially in Q4? I figured B.C. is still moving up, but Alberta is probably coming down. So where does that net out?

Larry, do you want to comment on that?

Yes, log costs through the next quarter and foreseeable future is going to continue to be very competitive. I don’t see them tailing off very much. They will be 50% of our wood is quota in B.C. and that will come down with lumber price somewhat but purchase wood will continue to be very competitive.

What about Alberta?

Alberta costs are -- react with following lumber value and they all subsequently also go up with lumber values. So we'll see a market-driven reduction in the two states in Alberta.

Thank you. Your next question is from Sean Steuart from TD Securities. Sean, please go ahead.

So one follow-up on Hamir's question, you suggest that you're not taking any market downtime in Western Canada at your saw mills. But did you lose any production on the back of the Enbridge rupture? And if so, can you articulate how much?

Well, it wasn’t -- we had some impact on our two part mills in Quesnel for a few days and a little bit of impact on one of our plywood plants. I think that was pretty much, it wasn’t really significant at this point. And we also had a scheduled downtime for our Quesnel River pulp mill we're putting in a new refiner, which is pretty significant project and the mill is down for about -- it's coming out of its shut down. It was down for seven to 10 days. But that was a planned shutdown, so it was a bit fortunate for us.

On your lumber price realizations this quarter, you were down on average, backing at logs about $60 per thousand board feet quarter-over-quarter. And I know in volatile markets, you get these timing lags and sometimes it can be pronounced, still a bit better than we expected. And I'm just wondering if you can give us some context on if there will be a, I suppose a negative whipsaw in Q4 in terms of your price realizations, some of the weakness that we saw really towards the tail end in Q3, will that show more in Q4, I suppose is the question?

Yes, it’s a bit difficult for me to answer maybe Chris McIver could add some substance to that. I mean, I guess the one thing is the order files were fairly short going into the fourth quarter. So there wouldn’t be to significant -- there shouldn’t be too significant of an impact. But maybe, Chris, you can provide maybe bit more detailed guidance on.

Sean, I think Ted kind of nailed it. Our order files are pretty short right now. So we're pretty much right on top of with the market is right now. And it's pretty much anyone's guess is where the prices are going over the next couple of months, quite frankly. So, obviously, our realizations will be affected by wherever the market goes over the next while. But you won't see a huge lag in it…

And I guess just more broadly on lumber demand, you guys articulated an expectation of ongoing steady growth from the U.S. And we've certainly seen slowdown in new home construction which I appreciate is not the biggest bucket for demand. But can you comment on order activity across the renovation market, commercial and industrial? Are you seeing any weakness in those end markets right now?

Chris, do you want to comment.

Sean, I would say that we've seen weakness in Canada specifically pretty much across the country but more in the east part of the country than the West. The U.S., we've got into a seasonal slowdown, this is a slower time typically till we get to December. I think the South East has been really affected by weather over the last couple of months and I think we'll see that start to come out. And the rest of the country is pretty good. And R&R remains pretty robust at least from our views. And our customers say they are busy but not crazy busy, so just average.

Thank you. Your next question is from Paul Quinn from RBC Capital Markets. Paul, please go ahead.

Just a couple of questions, one, if I look at your production versus shipments year-to-date, you're bang on in the U.S. South but over -- well, not overproduce, but production is over shipments by about 38 million board-feet. What did you come into the year with? Is that -- should we expect all that to come out in Q4 or half of that? I mean, did you have low lumber inventories coming into 2018?

I think, they're fairly normalized, maybe a tad to the high side, because we were working our way into the winter period. But we're going to -- as I think we put in our MD&A, I mean, we probably got about 40 million excess that we need to ship over the fourth quarter, which is pretty modest for a company of our size. So that would probably about it, Paul.

And then just at the markets, when you started noticing the weakness in the North American market off the peak pricing in the end of May. Have you guys started to ship more volume to, and this is on the lumber side to Asia, as a result?

Well, I think we've been very consistent in Asia. Our approach has been consistent through strong markets and weak markets. So I think it's been relatively consistent. Chris, do you have any further thoughts on the overseas markets.

Ted is right. What you'll find Paul is the majors tend to stand Asia all the time. And so our volumes haven't really changed much. I can't speak for anybody else. Certainly, there is a lot more small players trying to get into market right now, because of the weakness in North America. But we are seeing Japan slowdown just a little bit right now. But again, we think that will pickup. They've struggled a bit with the price fluctuations, which is unusual in Japan. But we've seen more ups and downs in price there than we usually do. But demand is good off shore.

And while I got you, Chris, what has been the impact of the Chinese duties on log and lumber coming out of the U.S.?

Well, I would say -- I can't speak to the logs much. But I would say on the lumber side, first of all, the SYP business in China is relatively small, it's definitely bigger on the log side. Our understanding is that it has really slowed. We are not a big player in SYP over there at this time. So there is still some coming, but it has slowed, I would say.

Has that given you bigger opportunity in Canada to ship more, or is it really not that much volume so it doesn’t really matter at the end of the day?

It's a different end use as well. It's used for treating mainly over there and so SPF, not so much. So no, it really hasn’t opened up a lot there.

And then last question, referencing Sean's better realizations in it than we had forecast, you also had better cost than we had forecast. Is that attributable to the capital projects that you've spend over the last couple of years? Are you staring to see a material pick-up in productivity at the saw mills?

Ray, would like to comment on that?

So Paul, I think that's the answer to the question. I mean, I can answer that two ways. I think we're not actually that happy with our cost. But certainly, they have improved over the quarter but I think honestly I think we would say that that's a normal spot where we should be in maybe, or too high cost for second quarter might be my reaction there.

Thank you [Operator Instructions]. You next question is from Mark Wilde from BMO Capital Markets. Mark, please go ahead.

Ted, I hope you're buying lunch up in Hinton today…

I am actually in Quesnel, and we've got all our senior operating managers here this week. And I'm going to teach them how to run a saw mill.

I think you've answered this already, but it sounds like you plan to have that 40 million board-feet of inventory out by the end of the year. And is that correct?

I mean, I think when we commented at the end of the first quarter, we're hopeful to have it shipped by the end of the third quarter, with tremendous effort, with more trucking programs we worked very closely with our rail providers. The market probably didn’t really help us towards the end of the quarter. But I think we're in a much stronger position than obviously we were six months ago. And the one thing and I think that shipping created some market volatility as well. And our goal is to continue to make sure that we ship our inventory through this winter. I think that’s something that we're going to really hold ourselves accountable to.

It sounded, Ted, like you're going to diversify your transit a little bit. I know you don't want to get too specific. But can you give us just some general ideas of what that involves?

Well, I'll start and if Chris or Ray want to jump in they can. But fundamentally, most of our sites we prefer to ship rail. I mean that’s what we've been doing our whole history. And so you have to make commitments to trucking companies, you have to have your mills set up to ship both rail and truck. And we have done that. It's been a tremendous amount of effort, really strong coordination between our operating sales transportation groups, and so we have a keen focus there. And honestly, you've got to support these trucking companies, not just when we need them but when they need us. And we've got a number of mills sites where it's really -- we're agnostic in terms of costs between truck and rail. So we've really put a major focus on it, and I think it will pay-off dividends for us. And I think frankly, as I said it at the end of the first quarter, if we don't learn from this crisis, shame on us. And we should be taking advantage of our size. And I am hopeful that all that hard work our folks have done, we'll see the results of that through the winter.

So would you say you have a pretty high degree of confidence that you can -- you won't go through what we went through this last winter in the coming year?

We're planning for the same winter that we had last year. So that tells me we're going to end up with better results if the winter is the same as it was last year, which was a pretty tough one. Chris, do you want to add anything to that or should I -- or am I sticking my neck out there for you?

No, Ted, I think you've explained it pretty well. One thing I might add though Mark is we are rail reliant and that’s not going to change. We're doing these other things but we still remain rail reliant as a company. So those relationships continue to be very important.

And then, Ted, I wondered if you could talk a little bit about capital allocation. I mean you gave us a pretty good sense of what you've been doing over the last several years in terms of CapEx versus M&A versus returning capital to shareholders. But I wondered if you could just give us any additional guidance on your approach to repurchases? And I'm particularly curious about, given the volatility in the stock, whether there is anything you can do to take advantage of that when you're trying to time at your share repurchases?

It's a very good question. I think, I will start and then I think I will ask Chris Virostek to give you his perspective as well. We've been working on this for five years, and I'll get to the share repurchases in a minute but -- and our whole folks at West Fraser including acquisitions, wasn't really about the size of the Company, it was about how strong the Company is. And so, our first priority is always going to be to invest capital, make our mills stronger and better. And ultimately, we look at pretty short paybacks on average. I think we said three to four years on average is what we looked like for our paybacks. And then Ray and his team have done a tremendous job on that over the last five or six years. And then our next goal is acquisitions. And our third goal is really returning cash to our shareholders. We've done that through dividends. I mean, we are -- our dividend today is $0.20 a quarter and that’s a significant increase over where it was just a few years ago. And then obviously share buybacks, as I said, we've been doing it for some time. We have, I believe Chris and -- the ability to provide 10% of our flow, I think it's around just over -- around 5.5 million shares. And I expect that we'll achieve that over the year. And I think the lower the price is the more shares we buy every day. So I think from that perspective, we are somewhat opportunistic but we're not trying to be opportunistic here. We're really trying to return capital to our shareholders in efficient and effective way. And we look at it overtime. We don’t really think we can time market share too much but ultimately, we really like that balanced strategy. And at the end of the day, if we don't have a use for that cash, we should be returning it to our shareholders. And given the strength of our balance sheet, we think that's what we should be doing at this point. Chris, do you have any further comments?

No, I think that's a great summary, Ted. I think the last point is that you mentioned is the one that governs things at the end of the day. We think that our financial flexibility with the amount of liquidity that we have and the low debt levels were regardless of where we are in the cycle, doesn’t really preclude us in any way from capitalizing on opportunities that would be in front of us to grow the Company, whether that's through time in the investment that we make in our mills and projects in the U.S. South or M&A opportunities that may present themselves. So we don't believe that what we've done in any way limits us from continuing to execute on the strategy.

Last question I had is just any additional thoughts on the states of the U.S. and the Canadian housing markets, whether your view on the trajectory there has changed. And finally, whether all of this easing that we see in the U.S. starts? Do you think this is causing any of the players in the industry to pull back on capital plans at all, Ted? You're all talking with the equipment supplier as all the time…

Yes, and I'll have Ray talk a little bit about the capital side in a minute. I think this is really the big question is are we facing something structural or is it just current market. And when you look at the big, big picture -- and listen, at our company, we don’t pretend to be forecasters, I'll start with that. And secondly, there is a lot that's going around in the globe from an economic trade standpoint and politically, et cetera, et cetera. And again, we have to have some view on it, but it doesn’t really change the way we run our business. I mean, our job here at West Fraser is to have the best margins in the industry. And again, that's how we look at things. But when you look at housing, we are trying really hard to take a step back, because when you look at the fundamentals that's behind housing, I mean, we're not about we're not worrying about -- we're not at 2.2 million housing starts and we're concerned about a falling market. We don't have a lot of speculation in home building. Our inventories are in good shape. Interest rates, while they're increasing, are still relatively low. But I think a lot of things converse over the last few months with weather, with rising interest rates, with peoples' concerns around the stock market, whether they should be real or not. So I think there is lot of broad macro issues that are impacting peoples' view on housing. But ultimately, we're still below 1.3 million housing stocks and that's not enough to replace to housing stock. So, we really believe we're in a short-term pause situation than a long-term structural change, because population in North America continues to expand and the housing inventory…

It's hard for me to comment on what others are seeing but I can certainly comment on what we see. First, I think we don’t see ourselves going down on our capital execution plan. And our vendors, suppliers, contractors seem to be pretty much fully committed. I think, we've been somewhat ahead of this in making sure that our vendors and suppliers are well matched to our plan. So, I think it will be full steam ahead on that. Saying that, I mean, I think doing more if others slowdown that might be an opportunity. But it's very difficult in today's vendor and contractor constraints to significantly grow capital today, we see that everywhere. On capital escalation, certainly, there really isn’t an area, be it labor, skills, steel, electric motors, doesn’t matter what aspect you're touching it -- I'm not going to give a percentage. But it's been a significant escalation in capital costs in the 12 months. And as we look at our capital line in the next 12 to 24, or 36 months, we're certainly building some of that view in and as to what impact that may have on future capital.

Thank you. Your next question is from Benoit from Scotiabank. Benoit, please go ahead.

I was just curious Ted or one of you guys. Will you dare to guess how much of the B. C. lumber industry today would be losing many at today's lumber prices?

I think we leave that up to you to determine. I mean, we don’t really comment on our costs or others. But ultimately, we know that British Columbia is the highest -- is one of the higher cost producing regions in North America. And that gives us a fair amount of comfort given that we now have almost 70% of our production outside of British Columbia. But in terms of specifics, I don’t think we'd go into that.

Thank you. We have a follow-up question from Sean Steuart. Sean, please go ahead.

Just one quick follow-up on pulp markets guys. NBSK markets in North America are strong I think for apparent reasons. But it feels like things are a little more fragile in China. And I am just wondering if you can give us an update on your order files for both softwood kraft and BCTMP in China right now?

Chris, do you want to comment on that?

It does seem China has slowed a little bit. Certainly, our order files both on BCTMP and our NBSK are good and pretty long. We wouldn’t be surprised to see a bit of a slowdown over the next few months. But fundamentally, it's still pretty strong in China. And the straight thing in the U.S. is certainly helping.

Any sense of what inventories on the pulp side look like at the buyer level in China?

I think theey're up a little bit, but I sure our guys over there right now. But it's not overly concerning.

Thank you. There are no further questions at this time. Please proceed.

Well, again everybody thank you for joining us. And we look forward to speaking to you when our fourth quarter results come out. Take care.