Good morning, ladies and gentlemen. Welcome to the West Fraser Timber Company Limited First Quarter 2015 Results Call. 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 risks and uncertainties in the company’s annual MD&A, which can be accessed on the West Fraser’s website or through SEDAR and as supplemented by the company’s quarterly MD&As. Accordingly, listeners should exercise caution in relying upon forward-looking statements. I would now like to turn the meeting over to Mr. Ted Seraphim, President and CEO. Please go ahead, Mr. Seraphim.

Thank you and good morning everyone. West Fraser earned $49 million or $0.58 per share in the quarter. Adjusted earnings for the first quarter were $100 million or $1.19 per share as compared to $85 million in the fourth quarter of 2014. Adjusted EBITDA in the quarter was $173 million or 17% of sales and was up 10% from the fourth quarter. The primary reason for the improvement from the fourth quarter of 2014 was due to improved profitability of our pulp and paper business. Our lumber business generated $117 million in adjusted EBITDA, down 3% from the fourth quarter of 2014. Lumber markets weakened significantly during the quarter and as a result, our overall lumber shipments were down 5% from the previous quarter. Our Canadian lumber operations ran well in the first quarter. We also benefited from the ramp up of production at our 100-mile sawmill after the completion of a major rebuild in 2014. We recently started up our energy project at our Fraser Lake sawmill and are encouraged by the initial performance. We are currently commissioning our Chetwynd energy project. Our U.S. sawmills were adversely affected by poor weather as well as by several major capital projects at some of the operations. We recently started up new planers at our Newberry and Maplesville operations. Our panels business generated $26 million in adjusted EBITDA, essentially flat from the fourth quarter. Our panels business continues to be a strong contributor to results. Our pulp and paper business generated $30 million in adjusted EBITDA, up $18 million from the fourth quarter. Improved NBSK operations and higher Canadian dollar selling prices contributed to the stronger results. Our Hinton pulp mill has started to run better and we are optimistic that we will see continued improvement in production in the second quarter…

Thanks, Ted and thanks to everyone joining us today. Ted and I are making reference to several non-IFRS terms during today’s call and so I would refer you to our MD&A under the heading non-IFRS measures for definitions and descriptions of how these terms are calculated. For the first quarter of 2015, we reported earnings of $49 million or $0.58 basic earnings per share. Beginning on the second page of our MD&A, which is Page 5 of our news release, we identified various non-operational items, which we adjust from earnings in order to more clearly reflect the results from our operations. The results, which we refer to as adjusted earnings was $100 million or $1.19 adjusted basic earnings per share. This compares with $1.02 for the fourth quarter of 2014 and $0.97 for the first quarter of 2014. Our non-operational earnings adjustments include the currency exchange loss on our long-term U.S. dollar debt, which for the quarter was $32 million and $1 million expense on account of equity based compensation. Beginning in the fourth quarter of 2014, we also adjust for the change in the fair value of two electricity purchase and sale contracts. In the fourth quarter, we acquired an interest in an electricity purchase contract that resulted in our electricity purchases and generation in Alberta exceeding our consumption needs, which triggered an accounting requirement to fair value our two electricity purchase contracts as at each balance sheet date. At the end of 2014, this reevaluation produced an unrealized loss of $2 million. And at the end of the first quarter of 2015, that revaluation produced an unrealized loss of $30 million. The reduced value of these contracts results from a sharp decline in projected future electricity prices in Alberta where the market is receiving new sources of supply…

Thanks, Larry. And now, we are ready for questions.

Thank you. [Operator Instructions] The first question is from Mark Wilde of BMO Capital Markets. Please go ahead.

Good morning and congratulations that performance in pulp, in particular, was quite impressive.

Thanks Mark.

Ted, I wonder can you just help me in pulp, I know that you had the issues in Hinton, but in the release you identified some other things, better shipment volumes in the quarter. Can you just help us kind of parse out the pieces of that improvement at least in rough terms?

Well, I am not sure how to answer that question, but I think as we said – as I said in my comments in our news release, fundamentally, the primary improvement in our results was in our NBSK business. I think that’s probably the best way of putting it. When you look at overall markets, markets for NBSK and BCTMP really trended in the same direction in the quarter on a net basis. So, it was really around operational results, primarily in our pulp business – in our NBSK business market.

Yes, and I know I asked about this last quarter, but is it possible to get some sense maybe just thinking in terms of the scale of maybe 1 to 10 for kind of where Hinton is at right now in terms of where it was at the bottom versus where it would be kind of fully optimized? So we can just think about try to size what’s left in terms of a turnaround there?

Sure. I mean, I think – fundamentally, I think first of all, in terms of putting the right pieces into place to get better results, I would say we are in pretty good shape there. I mean, we still are having some operational issues, but they are getting corrected and they are getting corrected in a long-lasting manner from what I am – what we are seeing so far. It’s still early though in the game here. So, I think we are in a good spot. Our last couple of months have been significantly better than the first two months of the year as well to be honest with you. So, we just feel we are moving in the right direction. On the scale of 1 to 10, if we said that 1 was bad, I would have said we were closer to 1 than 5 last year. And I would say in terms of the first quarter results, I would say we are probably around the 3 or 4. And our goal is to probably get it up to 7 or 8 this year and get closer to 10 next year.

Okay, alright. That’s helpful.

We have got more improvement to go for sure. And we are not out of the woods yet. I mean, three or four decent months – or a couple of decent months does not create a streak. I think I have mentioned a couple of times that once we have two strong quarters behind us, we will start to feel better about the business, but I do feel we are moving in the right direction. I have been up to the mill a couple of times this year and I can tell you there is a tremendous amount of enthusiasm. We brought in some great people. And I think all we really needed to do was support the team that we had up there with a bit more support, a bit more talent. And I am pretty excited about what we are doing there and our employees up there are very, very engaged. So, this as you may know is probably our number one operating focus in the company and everybody knows about it and everybody is keen to get back to where we know we can get there.

Okay. And second area just with the decline in lumber prices, there have been some reports in the trade papers just recently about maybe some downtime showing up in Western Canada, have you taken any, are you contemplating any for Q2?

We have not taken any downtime. And we don’t really talk about our plans, but we have not taken any downtime.

Okay, alright. And last question I had is for Larry. Larry, I wondered can you explain to us kind of the business purpose and strategy in taking such a long position on electricity in Alberta, I am just – I am trying to understand what drove the purchase of those contracts to a point where your net long electricity beyond your own needs in Alberta?

Mark, I guess we have had a significant contract for the last 15 years. Our original PPA started 15 years ago and it’s got another five years to run. And it’s been a significant contributor to us in terms of protecting us against electricity volatility in Alberta. And we have – we were obviously short electricity with that contract, because we haven’t had the market to market, but it’s been a very valuable asset to us. What we have seen over the last 15 years, we have been reducing our energy needs, because we have been conserving, we have been doing things like the biomethanation turbo generator. And we have come closer to self sufficiency in electricity. We had an opportunity with our partners at the ANC this fall to buy what’s a fairly small electricity contract and it runs for three years. And so we are not real long. We are just marginally long. And if you are slightly long, then you have to mark-to-market. And so that’s really the story. Electricity prices turned very shortly after we made this acquisition, so it doesn’t look like a great acquisition, but it’s not a significant issue for us and we are not significantly long. Being hedged in electricity in Alberta has been an important strategy for us for the last couple of decades. We are a big consumer of electricity. The distribution went market and the fellows that preceded us who decided to buy the original PPA we owe them a debt of gratitude for what they did for us.

Okay. And just kind of follow-on, Larry, this drop that you reported in sort of the forward pricing in Alberta, I mean, that’s a pretty steep quarter-to-quarter drop. Do you think that this is going to change how you think about any further energy investment projects, any kind of further biomass related projects within Alberta this drop in the electricity prices?

Definitely. Yes, we will continue to monitor electricity prices and the question is where our electricity prices going to go. We don’t have any significant energy projects on the drawing board right now. We have completed or substantially completed our major energy projects, but clearly, future electricity prices drive your decision-making in this area.

Okay, great. I will turn it over guys. Thank you.

Thank you. The following question is from Daryl Swetlishoff of Raymond James. Please go ahead.

Thanks. Good morning, guys. Ted, I am not sure if you want to punt this question to Chris, but I was hoping you could explain the spread between southern yellow pine and SPF 2 by 4s?

Well, actually, Chris is in the office today. And I am sure he would be delighted to answer your question there, Daryl.

Hi, Daryl, it’s Chris. That’s a great question. Really, what I think has happened here is in SYP, you have got a limited number of 2 by 4s. The percentage of 2 by 4 that we make in the sales versus what we make in Canada is significantly different. The main usage is for treated products that go into box doors and so forth. So, the demand has been pretty good for that product down there, which has driven the price. And now, am I surprised it’s the spread has been so big? Yes, I am and I don’t suspect it will stay there in the longer term.

So, is Yellow Pine too high or is SPF too low?

I would probably think a bit of both.

Okay.

Yes.

Okay. Just switching gears a bit, Ted, just thinking longer term about the Chinese lumber market, I mean, obviously 1 million housing starts or just above, it’s pretty important. How do you view that market when the U.S. has recovered a bit more and there is more demand out of the U.S. for your products? Will your production shipments to China be the same, higher, lower? How do you think that market will evolve over time?

Well, I think maybe what I will do is just put in a little bit of perspective. And if you would like, Chris can give you a bit more detail. But I think from our perspective, first of all, when we look at the U.S. particularly, the U.S. only had 75,000 new starts last year, which is about what 750 million feet of demand give or take. But U.S. demand went up 2.5 billion feet last year. 2.5 billion feet, which is essentially about 80% of 85% of the total Chinese demand of which I think last year from Canada was 3.2 billion feet. So as we look at the – our overall marketing and sales strategy, the U.S. is still very important to us. Moving to China, I think from our position as a company, we have a long history – we take a long-term view on our other markets, whether it’s our pulp business in China or our lumber business in China. And I think I would like Chris to comment a bit more on his outlook. But our view is its still early in the development of that business. We are there for the long run. We believe it’s very important for us to be diversified as a company. We continue to want to grow as a company. So for all those reasons, West Fraser continues to show a significant commitment to China. And I think every quarter, we have been asked about our shipments. When we are seeing declines generally from others, but we continue to ship large volumes in China and our goal is to continue to do that. But maybe if Chris, if you would like to add a little bit more color to that, you were just there last week.

Yes. Thanks Ted. Daryl, it’s – I did spend a week there about a week ago and just got back. And there is short-term pressure there, but we really like where we are at there and in the U.S. And our market diversification puts us in a much better position than we were in 5 years, 8 years ago. And we have some short-term pain in China from Russian lumber logs and maybe some Radiata pine, but that’s only long-term. That market continues to grow. I was in a bunch of the second-tier cities. They are building like mad there. And we are diversifying our end users there. Less from low-grade construction into more higher grade furniture and other applications. So we see there is a big part of our marketing plan going forward so.

So did you see evidence of Russian were on the ground, is it true what – it’s hard to see in the stats, so I was just anecdotally you are actually seeing it?

Yes. I mean you are seeing it sort of in the Beijing area. You don’t see it much out of that, but you are going to see it in the Northern parts for sure. But what we are also hearing is they are pretty much tapped out as to how much more lumber they can put into China at the time. So they have some major infrastructure issues. And it isn’t inexpensive for them to get lumber there. But yes, there was more around. And the market is slower at this moment right over there.

Okay, very helpful. Thanks for your comments.

Thank you. The following question is from Paul Quinn of RBC Capital Markets. Please go ahead.

Yes. Thanks very much. Good morning. Let’s just start on the, I guess start on log side. You mentioned in your release only log costs only slightly higher in Canada, I just wanted your expectations for the balance of the year and how that shifts between B.C. and Alberta?

Well, I think just broadly speaking, we will see a little bit more pressure on log costs as the years goes on. We don’t see it as being significant as we look at our overall business. And we don’t generally comment on the split between regions, so can’t help you there, Paul. But overall, we don’t see a significant increase in log costs this year, definitely low to mid single-digit percentage increase.

Okay. And then if I looked at your overall lumber costs, given the amount of CapEx that you spent over the last couple of years, should we see that continuing to come down over time or is that just going to hold inflation in check?

Well, I think from my perspective – or our perspective, we are still going through significant transition here. I mean, for example, 100 Mile is not I mean our results at 100 Mile so far are not where we expect them to be as an example. Alright, so now where we completed the start of last year is doing very well and we are seeing lower cost, better productivity, higher values, very excited about that project. It’s just one example and we are excited about frankly, our whole capital program. But I think we are still going through that transition as we are starting up new planers, sawmill upgrades and so on. But I would say as we move into the second half of this year and particularly as we look at 2016, our expectation is we are going to see lower costs and definitely higher margins.

Great. Okay. Then just on the panel side, you said the weakness in the East for weather in demand and something around the oil-related impacts in the West, if you could give us an idea as to sort of the end markets distribution for that product, is it 90% plus in Canada. And then what’s the split between Eastern Canada and the West?

Well, I think generally, we are almost primarily Canada, but I think as we look – and we are primarily Eastern Canada in terms of our plywood business.

Okay. And last question on Hinton just to add one, just on the reliability, is that – I mean, we have had a drop in oil prices, obviously, manpower availability in Alberta has changed significantly, will that have – like has that been an issue in terms of reliability at that mill and is the expectation for lower oil is that going to be a help in attracting talent to that mill?

I think you have answered the question. I mean, it was part of the issue for sure. It’s less of an issue today. But I think fundamentally, what we need to do as a company is to make sure that when prices come back that our employees want to – are excited about working with us. And we are putting in a tremendous amount of effort in developing of our people and getting them new opportunities. And I think that’s the message we are sending to our young people. I will give you a quick example. I am preparing for our AGM speech next week and we hired 620 people in Canada last year, 300 of them are under 25 years old. We are excited about that. We got to make sure we got to keep them and whether that’s at Hinton or anywhere else in our company. So we got tremendous focus on people development and that type of thing. And Hinton is an area where we put a lot of focus on. But as I said in my comments earlier to Mark, there seems to be a really renewed energy in that mill and it’s not just because of oil, it’s because of the – I think people are excited about where we are going. We just got to keep that momentum going. And I think people like to work for winners. We are going to make sure Hinton is the winner.

Okay, best of luck. Thanks guys.

Okay. Thanks Paul.

Thank you. The following question is from Stephen Atkinson of Dundee Capital Markets. Please go ahead.

Thank you. Good morning. I guess first question, the way you did some acquisitions in Alberta last year, can you give me an update of where you are in shall we say integrating them?

Well, we did one acquisition last year, Edson we bought in 2012 and that mill is completely modernized. In terms of the high priority mill, we have owned that for just over a year. I mean, that’s fully integrated into our operations. Again, I was just there a couple of weeks ago. We are still working on our plans in terms of what we need to do to upgrade the sawmill. We are probably going to look at new kiln there, those types of things. But we are still on the development stage with that mill. We wanted to do the right thing for the long-term, Stephen. We want to spend a little time on it. Edson was completely obvious what we needed to do there. High Prairie, we have got a bit of a plan, but we are very pleased and we have got a good timber supply there and we are very happy to have our footprint in Alberta, I can tell you that.

I guess, the additional timber that you acquired, is that helping you at Slave Lake?

Sure, yes. And it also allows us to make the right decisions which in terms of where the right log goes whether it’s to the plywood plan or to the sawmill, yes.

Okay. And would you be able to give a bit more color on the start up of the three energy projects?

Sure. The Fraser Lake project is basically commercially commissioned, so we are selling power to B.C. Hydro today. And we are in the commissioning phase at the Chetwynd. We expect to be there in the next 30 days or so inside this quarter. It’s Peter Rippon right beside me, guiding me, so inside this quarter. So some time in the next 30 days to 60 days I tend to be optimistic. And then the Slave Lake biomethanation plant is in the commissioning phase and we should complete that in the next few months as well. But in terms of selling energy and it kind of comes back to Mark’s question for Larry. Our big energy sellers are where we have got long-term contracts and that’s at Cariboo Pulp Fraser Lake and Chetwynd. So that’s where the material impact is on our earnings in terms of selling energy. That’s from the Slave Lake plant.

Sure. And how long is that contract that you have right now, the one we were talking about – you are talking about earlier on, the purchase contract?

Well, the small – I mean, as Larry said, we have had what we call the PPA for 10 years we have got 5 years ago. That’s the material contract. The smaller contract, but just kind of put us over the edge in terms of going mark-to-market is – it’s got 2.5 years remaining.

Okay.

But that one on its own is not material. And I think the other point that we want to make, Larry, we put in our MD&A, Larry shared in his comments is while we are looking at an impact on our first quarter, we expect to substantially recover that through lower energy cost if the market remains the same over the next three to five years.

Yes, that’s great.

But from a cash position, it’s not really a big issue.

Finally, in terms of the U.S. South where there has been somewhat weather and certainly another company spoke about it, talked about tightening supply. Can you talk a bit about the log supply for your mills in the South?

Well, I think fundamentally our – log supply for the south is always different in Canada. I mean, we typically run with 10, 14, 20 days of inventory max, something like that. So, that’s what we typically do our inventory sort of little bit on the light side, but we have had some impacts in the first quarter. As weather improves, it should be less of an issue, but it’s not – as I said, it’s not a material issue for us in its own.

Would you benefit from the lower energy costs like will that flow through to, should we say, delivered cost at the mill or anything, are you seeing any improvement there?

We should see slightly lower cost. But on the other hand, the weaker Canadian dollar does drive our transportation cost up. So, I think net-net, it’s not material to us.

Okay, that’s great. Thank you so much.

Okay, thanks.

Thank you. The following question is from Mark Kennedy of CIBC. Please go ahead.

Good morning, Ted. First question on the lumber side, your actual realizations in Q1 came in a little stronger actually than what I was expecting. And I was just wondering is there – is that a lag effect from sort of orders booked in Q4 that carried over or is that driven by southern yellow pine volumes or is it also a fact that your CapEx programs, I know you are getting sort of better overall creative turns and things like that as a result, I am just wondering if you can sort of allocate into those buckets?

I would say it’s primarily the lag impact, Mark. It’s primarily the lag impact.

Okay. And then as we look into Q2 here, like you mentioned you built a little bit of – or your shipments were down a little bit in Q1. And you said China is going to be softening a little bit. We have the factor of the export taxes now kicking in and it looks like they may pop up to 10% for June. So, how should we be thinking about your shipment volumes for Q2 compared to say last year?

Yes, I think, believe it or not, it’s probably a little too early to comment. I mean, we have seen the volatility in this market. We have seen, for example, as we have spent a stronger week than I think than the week before. So, I think it’s still a bit too early in the quarter for us to comment on it, Mark.

Okay, okay. And then one last question, we saw recently this transaction on the distribution side with Builders FirstSource buying ProBuild. Does that have any impact on you guys as a supplier? Is that a positive or negative or just a neutral like given your size as the distribution guys consolidate. Just wondering your views on there?

Yes, Chris can answer that one much better than I can.

Hi, Mark, it’s Chris. Yes, I mean, we don’t talk about any specific customers, but I would say that all of the people you mentioned are customers of ours. And we have relationships with them all and we don’t really see any big issue going forward.

Right, okay. That was it for me. Thanks guys.

Thanks Mark.

Thanks Mark.

Thank you. [Operator Instructions] The following question is from Mark Wilde of BMO Capital Markets. Please go ahead.

Thank you. Just a few follow-ups. Ted, I really appreciate what you said about China and trying to take a long-term view there. I just try to reconcile that, however, with – it just seems like the Chinese market has been such a short-term spot market in kind of all commodities. So, what are you doing in the lumber business in China to make those long-term relationships?

Well, I will handle the first part of it and I will let Chris handle the second part. I kind of take – I wouldn’t say offense, but I don’t agree with you in terms of being a spot market once it’s been established. I can tell you our BCTMP business has been – we have been very happy we are doing business in China. We had a very strong, consistent and growing business there over the last 25 years, but particularly the last 10 year or 12 years. And once we develop long-term relationships and they see the commitment from us. And I think that’s primarily from most Canadian producers. But particularly, I will just speak for ourselves. But showing that commitment, the trips we make to China, the fact that we are there, I mean Chris is there four or five times a year. His team is there quite a bit. We are very active and very engaged in that market. And our efforts aren’t for the short-term, they are for the long-term. But if you like, Chris to add any more color, he would be happy to do it.

Yes. I would appreciate that.

Mark, I just had a couple of comments. It is interesting. When we first got there, we thought it was a real transactional business. And it would be – they would be in and out, they would be very opportunistic. The reality is the last 6 year or 7 years, it’s been just the opposite. They are there every month. They are amongst some of our largest customers. Our relationships are very strong. They are expanding their business throughout the country. They started in the big regions. They are moving throughout the whole country. And there is bumps as there is in every business. But longer term, we are really happy. And we think that as we go forward, we are going to just forge stronger relationships in the country there and be a significant part of our business.

Yes. Alright, that’s helpful, guys. I am not pointing the finger, I have done this for a long time and I have seen going all the way back to 1980s, so much volatility in forest products export volumes to China over time is actually what I am getting at?

I was giving you a hard time there, but I think Canadian companies are much more dependent on China than say U.S. companies, particularly Canada is from – companies from Western Canada. So we have – I think we have a very high comfort level of doing business throughout Asia and China, in particular. So I think if you look at broadly speaking for North America, I would agree with you. But I think for Western Canada and BC, I think we have kind of a different approach to the marketplace.

Okay. And then Ted for you or Larry, I just I wondered if you could talk with us a little bit about sort of kind of focused for growth beyond just the capital projects over the next 2 years or 3 years. Are you done making acquisitions in the South, I know over time, we have talked about maybe West Fraser moving into adjacent business areas, I mean you are in a pretty strong position right now and I would just like to know how you are thinking about sort of the different tracks?

Well, I think first of all we are completing a pretty significant capital program. But there is still more projects that we need to be looking at to further improve the company. So I think capital continue to be part of how we spend our cash flow going forward. I think we typically give our trend. CapEx is probably $175 million to $200 million. We expect to be in that range or in potentially slightly above that for the next few years. But again, we are still developing projects in that side. In terms of growth, we like where we are positioned. We have a pretty clear focus on what businesses we want to be in. We do like the lumber business a lot as you can imagine. But we also are prepared to make sure that we are extracting the most value out of the log. And so that’s why we focused on things like energy where the opportunities have been here in British Columbia. And again, we are a company that has a long-term plan, but we are also prepared to be opportunistic when opportunities come up. And so as we look at the future, it’s hard to predict what the future looks like for lumber markets. And while we have a bullish stance on the medium-term, what’s happened in this first half of this year I think has been a bit of a surprise to people in general. So it just continues to support our conservative approach to acquisitions. We are going to continue to be conservative. We are going to continue to look at opportunities, but we don’t feel the pressure to make an acquisition just for the sake of deploying our cash. If we don’t see a good acquisition and we have built some cash balances, well we will look for other alternatives. And as you can see last year, we judiciously repurchased some shares and we will continue to look at that avenue as well in when it makes sense to us.

Okay, alright. The last question I had, there was some talk on another conference call yesterday about some engineered wood price hikes up in Canada. And I just wondered if that impacted your LVL business if there are any price hikes on LVL out there right now?

Chris can probably answer that better than I can.

Yes, Mark. That’s been a very difficult business in the recent – but yes, there has been a little movement in the market, but nothing of really huge significance, but it feels like it’s improving somewhat.

Okay, alright. That’s helpful. Thanks, Chris.

Great. Thanks Mark.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Seraphim.

Well, everyone, thanks very much for joining us and we will be talking to you again at the – sometime in July when our second quarter results come out. So, thanks for coming on the call. We really do appreciate it and have a great weekend.

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.