Good morning, ladies and gentlemen. And welcome to the West Fraser Q4 2019 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and- answer session [Operator Instruction]. Forward-looking statements during this conference call West Fraser's representative will be making certain statements about potential and future development. 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 it's 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 risks and uncertainties in the company's annual MD&A, which can be accessed on West Fraser's Web site or through SEDAR as is supplemented by the company's quarterly MD&As. Accordingly, listeners should exercise caution in relying upon forward-looking statements. This call is being recorded on Wednesday, February 12, 2020. And I would now like to turn the conference over to Ray Ferris, President and Chief Executive Officer. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us today. With me is our Chief Financial Officer, Chris Virostek, as well as Chris Mclver, our Vice President of Sales and Marketing. And there are number of our other senior management team. I will make a few opening comments and then Chris Virostek will review our fourth quarter results. 2019 was a transition year for West Fraser on several fronts. Firstly, we adjusted our BC capacity to more closely align with the available timber supply, which included permanent capacity elimination of over 600 million board feet of lumber production, including the closure of our Chasm sawmill. Additionally, late in the third quarter, we implemented variable operating schedules at several of our BC operations to further adjust to the economic available log supply. Although, most of British Columbia operations have since returned to normal schedules in over 2020, we will continue to be disciplined to reduce our costs and to manage to the available log supply. As log supply and demand normalizes in British Columbia, we expect to see BC return to being a profitable region. It is important to recognize that BC is home to some of the most highly skilled workforce and achieves the safest, most productive utilizing some of the best technology available in any forest manufacturing region in the world. Secondly, outside of British Columbia, our Alberta operations in 2019 were impacted by a severe early fire season, which was closely followed by wet weather throughout the summer and fall. When coupled with contractor shortages in Northern Alberta, this led to unprecedented low log inventories, which impacted our productivity and led to several curtailments. Additional logging and hauling contractors have been added in 2020 in Alberta to ensure inventories return to normal levels, and we…

Thanks, Ray. During the fourth quarter, the macroeconomic data indicators for lumber demand improved favorably. Housing starts and permit numbers strengthened in the fourth quarter. The annualized pace of housing starts reported in December was the highest level since 2006. While repair and remodeling growth may be slowing, absolute spending is still on the increase. Lumber benchmark prices increased modestly in the fourth quarter, a trend we are continuing to see early in 2020. World annual pulp shipments have been in line with the previous two years. The corona virus outbreak in China appears to be slowing paper production in recent weeks. Excess hardwood supply also currently exists in South America. These factors appear stage to keep a lid on pulp pricing through the first half of 2020. North American lumber production declined in the year by 5%, and is down approximately 3 billion board feet as a result of permanent and temporary curtailments announced in the year. British Columbia lumber production decreased by 21% in the year, curtailments announced in the interior British Columbia have permanently reduced lumber supply by an estimated 2 billion board feet per year, or the equivalent of approximately 200,000 housing starts. Mill curtailments and closures take a period of time to be reflected in reduced supply, as mill working capital has reduced. We believe during the quarter, our inventory was rationalized to align with current production run rates at our lumber mills. Although, there was an increase in lumber imports in the fourth quarter, for the year, offshore imparts remain at reasonably consistent levels. U.S. south production was up just 2% or 325 million board feet through November. There's been significant capital spent in the region in recent years, but growth and output has been slow to materialize. In early 2018, weather caused delays…

Thanks, Chris. Just a couple of general comments on the outlook for 2020. As we look forward, we do anticipate our Canadian SPF lumber production and costs to improve over 2019, primarily as a result of recapturing production loss due to temporary curtailments and the return to normal operations in Alberta, as well as an expected general overall productivity improvements resulting from just less disruption. These comments are the same for our panels business as they are closely aligned with our Canadian lumber operating strategy. With respect to pulp, NBSK production is expected to increase on improved reliability and benefit from somewhat smaller planned shutdown in past. We expect continued strong operational results in our BCTMP business, albeit what we expect will be tough markets. With respect to log costs in British Columbia, we do expect a continued decrease in 2020, as we have seen in late 2019 as our operational footprint is better aligned to the available fiber supply. The U.S. south and Alberta log costs are expected to generally be within a range relatively flat year-over-yea. In U.S. south, our southern yellow pine production is expected to increase by roughly 10%, as we continue to execute on our modernization and growth plans. Despite headwinds in the U.S. south, we remain confident and motivated about the opportunity still ahead of us. So with that, typically, with 47 operations, un-reluctant to often talk about individual projects, but it is important to describe our U.S. south strategy. Our sawmill in Opelika, Alabama is a great example of the opportunity that we see in the South. We've been ramping up the sawmill facility in 2019 and we'll complete the final plainer mill phase in the first half of 2020. With respect to technology, we're making a multigenerational upgrade essentially from a 1980…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions]. The first question is from Paul Quinn from RBC Capital Markets.

Just a question on you singled out imports of lumber in North America being flat over the year, but up in Q4. We're seeing other companies report a lot more activity from especially the Europeans is that trade in China gets plugged in and they're looking for a home for this lumber. Do you expect that in 2020 and is that going to be a material increase?

Paul, it's Chris Virostek, I'll give your question a shot. I find this quite interesting. We haven't really bumped into a lot of European lumber. We hear about it all the time but it really hasn't affected our business in North America and we do have some in particular. If you look at the stats, they roughly maybe a little bit more than a third of the peak in the early 2000s. So it's a factor. But I don't think we've seen it in any way coming in the way that some people are talking about it yet. Now, will that change? It could. It certainly could. We do see a bit more of a factor we think in China, particularly on logs and we see a bit more lumber going into Japan as well from here.

And then, I guess moving over to the CapEx side. You mentioned that Dudley’s a good chunk of your CapEx budget in 2020. Can you give us sort of an approximate cost, what Greenfield costs now and is that moved materially over the last number of years?

Paul, it’s Ray here. So I’m going to answer that two ways. I'm not going to kind of give what the cost of Dudley is. But it I don't think it's changed a lot in the last, let's say 18 months, but I would say there wasn't material change I would say for a couple of three years around capital cost. So I'd say they've kind of flattened out somewhat in the last 12 or 18 months.

And then with the drop in selling on pine prices of late. What’s the level of overall M&A activity down there? Is there mill owners are they looking to get out or are they happy to hold on? Can you compare the activity versus the six months or year ago?

I would say, for at least from my perspective, I'd say it's the same. I'd say there's always something that's available, doesn't mean that that's something that gets West Fraser. But I would say it's probably slower than it was a couple of years ago but it's been pretty consistent over the last say 12 months, something like that. So it's quieter. But I think my guess is people have high expectations much the same as we do.

And then just last thing on the pulp side, you mentioned shut down, so it’d be positive with respect to 2019. What do you think the delta will be in ‘20?

I can't give you what that delta would be, Paul. I think we just have smaller scope shutdowns and I don't think it's a material change. I just think it'll be a little bit better than it was last year.

The next question is from Mark Wilde from BMO Capital Markets.

Ray, just kind of starting out or maybe for Chris, you flagged the lower fiber costs in the fourth quarter of $24 million on lumber. I'm curious how much of that is just lower cost in British Columbia, how much of that is just shift in your regional mix toward Alberta and the U.S. south?

A piece of it would be that that shift, but that's probably not the biggest piece of it. The biggest piece is really the management of the fiber supply to only bring in what economically makes sense for us to operate on, that would be the biggest portion of that improvement.

And then another one on fiber, I guess just more broadly. It's striking to me that we do have less fiber available in Western Canada, but it hasn't really had much of an effect on pulp and paper capacity in Western Canada. Should we anticipate some more ripple from this over the next couple of years do you think?

I think its public knowledge and there's been information out there in the public domain. And when you reduce the amount of residuals that are being produced in British Columbia, there's certainly a strain on residual throughout British Columbia. I can't forecast what that will mean. But when I look at our operations, we've been planning how to make sure that we had the fiber to run our mills for a long time. But without a doubt, Mark, there's going to be stress in British Columbia and we'll have to see how that plays out.

And then, Chris, can you help us with the change in duties. I mean, it looks like if these duties are before prior periods are being kind of reduced. Will that mean that you'll get a refund of sort of the difference between what you've been paying in the newly assessed rate?

I think our assessment of the situation is that it's highly unlikely that we get any cash refunded in the near-term in the absence of some sort of settlement of the process. The change in the rates themselves as a result of the administrative review does not trigger a refund of what you paid in excess of what those rates that they determined.

And then can you guys also give me a little sense of kind of what you're seeing in pulp market right now just vis-à-vis kind of activity in China? You mentioned the lower activity and I've also heard maybe some backups at the ports. There were some reports this last weekend that maybe people in China reneging on some earlier pulp purchase agreement. So just any color that you can give us there would be helpful?

It's early days, first of all. We're coming out of Chinese New Year, which always is a bit of a slow period for us. But what we're hearing from our customers is generally they're busy. Paper guys a little bit less so, tissue and towel producers are very busy. We do know that the struggle a little bit with workers. We have some concern around logistics, with shipments getting delayed and then vessels getting out of sync. But we haven't seen that yet and we've also had no problems with, on the financial side at this time, but it is early days.

And then just kind of toggling over for this project at Dudley, it just kind of raised the question for me of where you're at overall with the productivity improvements that you talked about being able to get out of Gilman back when you made that acquisition. So maybe just a update on that. I think you talked about potentially fiber productivity improvements of all way up in the kind of 20% and 30%?

Mark, it's Ray here. So first one, I want to say that we expect to get our duties return to us at some point. And then the second part -- because I agree with your comment. Second part, someone asked me where we were in our capital program quarter two, and I think I said the bottom of the fifth or something like that? And I still would say we may have moved from the bottom of the fifth to the top of the six or something. So we still have, what I would say is that we have our U.S. platform is going to be far less disruptive than it was, for the last, say 12 or 18 months almost. And so the impact to the capital won't have, just won't keep us off our game. And I would say with respect to the Gilman assets, we still have a quite a bit of opportunity that we see ahead of us. We like our current position very much. We're going to be thoughtful and prudent on how we move forward with that. And so it's not something that we're trying to close the books on in next year and half. We see this as a bit of a path for the next few years. But there's quite a bit of runway left that we see.

And then Opelika, has that sort of been a longer curve than you expected?

I have not -- probably had two startups in my career that were shorter than I expected, and the other 98% the other Ray. So a good question. I would say our start up with Opelika has paralleled many of our other startups. Would I like it to be faster and better? Absolutely. But we're quite pleased with where we're currently at and where we're trending to.

And the reason that I asked the question is that I have heard that there are some other new projects that have had really significantly longer startup curves than were expected. And so what I'm hearing about is just issues with the contractors and things?

So, Mark, just a comment. We're not immune to those things either. I think we've got broad experience, both north and south on these things, whether good and bad. And I would just say that it's a big challenge and it's always a little bit harder than what you expect. But with shortage of labor, shortage of contractors, sometimes shortage of skills, it just adds that challenge to execute in those regions. And so it is a little bit more difficult. I don't think the challenge is weighing with the current economy in U.S., but good economy has pluses and minuses and we’ll take the pluses.

The next question is from Sean Steuart from TD Securities.

Couple questions, Chris McIver, I'll start with you. Your perspective I guess on the lack of momentum we're seeing for prices, lumber prices in the U.S. south to this point. How much of that is just ongoing capacity ramp, both Greenfield and Brownfield? It sounds like you aren’t seeing European imports affecting things too much. Is it the wet weather? Any contacts you can give us on the lack of momentum in that region.

It is quite interesting what we're seeing right now in the south. There's no question we got a bit of a seasonal effect, and weather it hasn't been great. It hasn't been nearly as bad as it was a year ago. I think we're also seeing customers keeping their inventories pretty tight. Our treating customers, which is a big segment for us certainly kind of holding back a little bit more than usual. They’re starting to buy a bit more. But there does appear to be an ample supply. Our order book is really good in the south right now. Our inventories are in exceptional shape, but the price has been a bit of a struggle. So it appears that there's certainly ample supply around right now, just different than in Canada.

And Ray a question on the pulp production schedule this year, it sound like you're expecting overall better productivity out of the crafts mills. Can you give us some detail on how the downtime schedule stacks up this year just to help us dial in the quarterly variation a little bit?

So Sean, so we split it up. Well, I think last year, we kind of went back to back with our pulp. We're going to split up to one shot in the first half and the second shot later in the third quarter. So there’d be a bit of a gap and we've done that for that reason so that we can be better organized and spread it out, make sure that we have the full attention of our contractors and vendors in order to tackle both shutdown. So that's -- I think that's the detail I can give you.

[Operator Instructions] The next question is from Hamir Patel from CIBC Capital Markets.

Ray, I want to get -- on your outlook, you referenced R&R indicators decelerating and signs of reduced industrial demand. So any color you can give there on what you're seeing in terms of your own volumes with the big box stores for R&R and how are you measuring the demand trends in industrial?

I'm going to let Mr. Chris McIver tackle on.

So both industrial and R&R pretty hard for us to measure accurately, but we do think that R&R is slowing down that doesn't mean it's still not increasing year-over-year it's just the increase is less than it has been. So that's still a huge segment for us, call it 35% to 40% of our market. We see that being consistent but not a huge growth this year, that's kind of what we're seeing. With regards to the box stores, our south business with box stores was up year-over-year and started out pretty strong this year. And in Canada, our program tends to be a lot heavier to fly with but we're seeing Canada little slower generally and I think most people would say whereas the U.S. has been okay. On the industrial side, we kind of flex that production, so lot of its low grade so we flex up between the U.S. and China, depending on where we think the better return is.

The next question is the follow up from Mark Wilde from BMO Capital Market.

You called out the reduction in BC fiber cross in 2020. I just wondered if it's possible, help us quantify that at all?

The year is still in front of us, Mark. What I would say is that in British Columbia, we tend to secure our fiber, pretty significantly in advance. We have to remember we started making, and the industry, we're making pretty significant changes in British Columbia to change our behavior really early last year. So I would say we expect some cost reduction in BC, but significant cost reduction probably doesn't happen until really 2021 but our expectations is a continuing trend of slightly reduced fiber costs.

And Ray, would you expect with kind of fiber costs coming down and the duties coming down, much capacity that might be idled right now winds up coming back?

Well, I can't speak for others, Mark. I can only speak to regardless of markets and regardless of duties I see we can only operate on what the available timber supply is that will continue to decline. So albeit you may see less temporary reductions like we experienced last year we took a week or went to a four-day week or you may see less of the temporary, the ultimate thesis I don't see really anything that was announced permanent coming back at least from a West Fraser perspective. And quite frankly, over the next two to three years, I'd expect to see the industry and to some extent West Fraser have some reduction based solely on the timber supply available, almost here regardless of market.

Last one from me is just, lumber volume going into China. I'm just curious about the influence of two factors. One is the kind of the competition spruce beetle in Central Europe. But the other is just will your volume tend to come down over time just as you have less beetle kill, low grade beetle kill lumber to sell? Can you kind of help us with both of those factors?

Yes, I would say in the first part what I think we're seeing a little bit of is that you're seeing substitution log for log on the timber side. So it's the European spruce maybe substituting New Zealand pine or something. I think you've seen some of that. And maybe it'll take a little bit of lumber demand, but I don't really see that. With regards to -- well, as we get into more and more green timber and our low grade is reduced, unless we increase the amount of doing better that we are putting into China, our volumes will go down some. And I think there's opportunity to do both. But certainly, I would think that you would see less -- certainly, less low grade. Big question is, are we able to develop and find markets in China for our upper grades, and that's still to be found out.

I think just add to that. I mean, our expectations are is that we'll make less low grade going forward over the next few years.

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

Well, with that no further questions, I'd like to thank everyone for joining us. And look forward to talking to you next quarter. Thank you.

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your lines.