Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Joint West Fraser Q1 2021 Results Conference Call. During this conference call, West Fraser's representatives will be making certain statements about potential future developments. These forward-looking statements include certain statements about West Fraser's future financial and operational performance, including the impact of foreign exchange rates, credit ratings and mill maintenance shutdowns; West Fraser's business outlook, including forecasted U.S. housing starts, market conditions, demand for products and available supply and expectations concerning costs; West Fraser's capital plans, including the completion and ramp-up of capital projects and the benefits of such projects; the Softwood Lumber dispute, including adjustments to duty rates and related proceedings, the integration of Norbord into the West Fraser business and expected synergies and the redemption of the Norbord 2023 notes. These statements include forward-looking statements, forward-looking statements within the meaning of Canadian and United States securities laws and are intended to provide reasonable guidance to investors. The accuracy of these statements depend on a number of assumptions and is subject to various risks and uncertainties that may cause future events to differ materially from the events implied by these statements. 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 & Uncertainties in the Company's annual management's discussion and analysis, as supplemented by other risks and uncertainties as set out in the Company's quarterly MD&A. These filings can be accessed on West Fraser's website or through SEDAR for Canadian investors and EDGAR for United States investors. Accordingly, listeners should exercise caution in relying upon forward-looking statements. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Ferris, you may now begin your conference.

Well, thank you, Sylvie, very much for that. Well, good morning, everyone, and welcome to our first quarter 2021 conference call. I'm joined today by Chris Virostek, our Chief Financial Officer; Chris McIver, our Senior VP of Marketing and Corporate Development; and several other members of our executive team. I will make a few opening remarks, and then I'll pass the call to Chris Virostek for a review of our West Fraser's first quarter results and then make some concluding comments, and then we'll, of course, take your questions. And just a reminder to everyone, the financial results are now in U.S. dollars. It remains an exciting period for forest products, being a meaningful part of an industry that provides sustainable and renewable building products required for a low-carbon economy, simply by participating in the life cycle of forest that we live in and operate in. Manufacturing building materials from a sustainable and renewable forest is but one very important part of the required solution for society to meet its climate change objectives. On February 1, 2021, we acquired the Norbord business and a highly capable and well-managed team. I want to thank and acknowledge how hard and diligent our finance, legal, HR and IT teams are working to make the transition as smooth as possible while relentlessly supporting our manufacturing operations, frankly, without missing a beat. In fact, our operations performed well in the period. And you'll see in our first quarter results, which Chris will highlight later, the significant financial contribution the OSB business has already made to West Fraser. With that backdrop, I'm pleased to report that the first quarter 2021 was another strong quarter for West Fraser. We remained agile and continue to work hard at minimizing the COVID-related business disruptions, thanks to our focus on…

Thanks, Ray, and good morning, everyone. When we last reported earnings in mid-February, the recovery in lumber and OSB demand was significant. That demand strength continued through the first quarter and remained elevated versus historic norms, owing to continued strength from new home construction and renovation applications, lean channel inventories and a limited supply response. West Fraser has been adding hours and shifts where possible across our manufacturing network to increase supply and attempting to secure additional transportation resources for delivery of product. Another item of note, our consolidated first quarter results include the financial results of Norbord as of February 1. And as of January 1 this year and for all comparative periods presented, we are no longer excluding export duties in our adjusted EBITDA calculations. Our reportable segments now include the acquired North American OSB business and the pre-existing West Fraser panels business as North American Engineered Wood products, and the acquired operations in the U.K. and Europe are reported as a separate segment. In terms of financial performance, West Fraser generated record consolidated adjusted EBITDA of $1 billion in the first quarter, up from $453 million in the last quarter, in part due to the addition of Norbord's results as of February 1. I will note that this first quarter EBITDA was reduced by $93 million for an acquisition-related noncash purchase price accounting impact related to inventory fair values. This raised our cost of goods sold to their fair value as of the date of closing as required by accounting standards. $86 million of this EBITDA reduction was attributed to the North American EWP segment and $7 million was attributed to the European EWP segment. In the prior quarter results of $453 million of adjusted EBITDA, there was a $95 million benefit for the retroactive adjustment to…

Thank you, Chris. In terms of our end markets, record low mortgage rates and the ongoing trend toward greater work-from-home options continues to create strong incentives for people to purchase new single-family homes and undertake renovations and do-it-yourself projects. Remote working, when combined with the underlying housing formation deficit has continued to drive demand for single-family homes, which consumes more of our wood building products than multifamily. While we recognize there are many factors outside of our control that can temporarily influence markets, including uncertainty around the longer-term economic implications of the effects of COVID-19, we remain optimistic about the favorable market fundamentals we're currently seeing, supported by the underlying environmental benefits of building with wood, which have never been more clear and more widely accepted. Keeping our employees and community safe and focusing on servicing our customers' needs remain our key priorities. Our job is to create value in our company for our shareholders. As most of you're aware, the considerable cash accumulation we're now seeing is a relatively new trend. And we will look for every opportunity to create shareholder value. Therefore, you can expect us to be patient, thoughtful and balanced in our capital allocation strategy going forward. With the significant milestones recently achieved at our Dudley and Chambord Mills, I am pleased to announce an advancement of our capital program that will see us invest an additional $180 million across several projects through 2023. In the Lumber segment, we expect to invest approximately $150 million at five of our U.S. South mills, which furthers our execution and strategy in that region. These investments will increase capacity and increase the value of our products while reducing production costs overall. In the North American Engineered Wood Products segment, we expect to invest approximately $30 million to both reduce…

[Operator Instructions] One moment, please, for your first question, which will be from Sean Steuart at TD Securities. Please go ahead.

Ray, question on the next leg of the strategic capital plan. So piecing together the incremental lumber and engineered wood projects that you highlighted towards the end of your comments there, would that yield a 2022 overall CapEx number in the same ballpark as 2021? Is it less? Is it more? I'm just trying to piece all that together with your maintenance CapEx and think about what the budget might look like for 2022?

So yes, what I'd say is -- yes, I'd say it's -- I think we'd say today, it's in range for 2022, kind of that same number that we're using for 2021. I mean, I also don't mind saying that as we work through the year, if we found more high-return capital that we were ready and able to execute and deliver quickly, that wouldn't be a bad thing. We'd be excited to bring that forward. But today, I got to say it's probably in the range.

Okay. And are you seeing any cost inflation for capital projects, deal or other inputs, contractor backlogs, that sort of stuff? Is that having any material effect on budgets for these projects at this point?

So Sean, I'm just going to -- I'm even going to go kind of pre-pandemic. I think we saw a lot of stress and strain in the system prior to the pandemic, be it labor, be it supplier, be it those inflationary aspects. I think if there was a momentary reprieve with the pandemic we've certainly seen, I'd say, that continued pace. So I'm not going to say it's a material change in what we're seeing. But I -- look, I would say, for the last several years, we've seen a relentless pressure on costs and productivity across the spectrum. So I think we're just -- it's built into kind of how we're dealing with the day-to-day. I don't think it's a new issue in the last few months. I think it's the same one we've been dealing with for a while.

Okay. Last question for now. You've built up more lumber inventory than your peers did this quarter. Are you seeing any easing of shipping constraints into the current quarter? Are you going to be able to move some of that inventory into the market at a better clip coming up?

I think the short answer would be we've seen shipping improve in the early parts of Q2.

Could you move that -- I think you built up just over 100 million board feet in Q1. Would you be able to move all of that this quarter?

Well, ask me at the end of Q2, and I'll be able to tell you. But I would say we're trending well, but we've got quite a bit of work to do.

If you look at the pattern of the last few years, Sean, it's not unusual that there's a little bit of slippage in Q1. It's usually caught up in Q2. It's not entirely within our control, but certainly, we're doing everything we can to secure those resources to move the product to the market.

Next question will be from Paul Quinn at RBC Capital Markets. Please go ahead.

Just wondered, you've got lots of CapEx projects going on in terms of additional volume with Dudley. Just wondering what we should anticipate for sort of the end of the year 2021 shipment levels relative to 2020? Should we see a material pickup? And if so, how much?

Yes. We've put the guidance in there in terms of what we think the production levels of SYP and SPF, we think are for the year. It's the same as kind of what we put out in February at about $3.3 billion on SPF and about $3 billion on SYP. We would expect on a full year basis that we're shipping all of our production, subject to some seasonal fluctuations. So that's what we've kind of put out there for the last two publications in terms of where we're thinking lumber shipments are headed on a full year basis.

This capital won't impact 2021, for sure.

Okay. And then just over the sustainability of the current pricing run here in -- specifically in lumber. I guess a question for McIver there. Just -- do you see a pullback at some point in the summer? Or I mean, it seems to be going up 8% to 10% every week. And lots of questions about just how sustainable that is.

Well, Paul, I would say that your estimate would be as good as mine. But if you look historically, one would say that this won't last forever. And I don't think we think it will. Saying that, though, there does seem to be very strong underlying demand, that's potentially different than what we've seen over the last number of years. So we think the fundamentals are really good in housing and R&R. I can't speculate as to where prices are going, but they are very high.

Okay. And then lastly, OSB markets are even higher than lumber prices on a relative basis. There's been some mills that have been brought back that clearly, we need more capacity. You brought up Chambord, you brought up -- well, I guess, forward Company, Norbord brought back their cordial line. Just wondering if you're looking at the existing mill base and looking at greenfield projects or even brownfield at the existing mills?

Well, I'll try and answer that, Paul. I mean, look, I think we're always looking on how to kind of grow the Company, make it better. I'm going to give you a pretty generic answer. But I would think if you look at the history, we're -- we primarily focus on organic growth. And that's typically how we drive what we think is driving the best value. I'd never say never to a greenfield, but it's usually lower down on our capital allocation strategy. But I would say we look at everything, but we look internally first.

All righty. Look forward to your Q2 results.

[Operator Instructions] And your next question will be from Mark Wilde at Bank of Montreal. Please go ahead.

Just to start out, I wondered when we're thinking about capital allocation, Norbord had a variable dividend policy. How would you guys think about the potential for either a variable dividend or for the payment of special dividends in extraordinary times like this? Just any general sense?

Mark, appreciate the question. Look, I think this is -- as Ray kind of referenced in his comments, right, this is a scenario that's really unfolded in a matter of a few months, right, in terms of this accumulation of cash and where the balance sheet has gotten to quite quickly. And so just as -- while this may have come upon us pretty quickly, I don't think it's something that we go and solve in a matter of four months or six months as quickly as it accumulated. And we'll be patient and we'll be thoughtful as Ray indicated about how we deal with the situation that we have today. We think it's a time to be prudent and methodical. We'll look at all the tools that are in the toolbox. I don't think we're committing to anything today here, one way or the other. But we're always looking at all those options and exploring every way that's out there to create shareholder value and are going to be discussing every alternative that's there over the next several quarters.

Okay. Reasonable and rational reply, Chris. Ray, can you give us any thoughts on what you think both the lumber and the panel markets are able to supply these days just in terms of start levels? I mean, is there enough capacity out there in OSB to support, let's say, 1.8 million? And what would the number look like over in the lumber market right now? Any sense?

Yes, Mark. I think we provided some materials in our investor presentation that kind of gives a bit of a view on what we see as the current supply and -- against kind of today's demand. So I'm not going to peg a number because I really don't -- can't speak for all the supply initiatives that are kind of going on in the industry today. And the one thing about strong pricing is that it's going to encourage more supply to come on more rapidly, and that's kind of hard to predict. Today, look, I think we've consistently said for a number of years that once we kind of get to 1.4 million housing starts based on how we saw supply coming on and not really knowing when demand would get to kind of 1.4 million housing starts that we saw, we would expect significant tension in the system. And of course, nobody expected housing starts to jump to 1.6 million or wherever they are today, and that's causing a lot of strain in the system. And I think it's the same issue on the OSB side. I don't think they're fundamentally different. So again, I think it's been -- so I hope that answers your question, Mark. I think overall that we're seeing the strain of trying -- at the industry to supply an industry that's -- a market that's running at about 1.6 million today.

Okay. All right. And then Ray, is it possible to just give us a kind of a brief thumbnail on what you're seeing on the trade side, both what you think the potential is for lumber and OSB imports in the North America? And then also what kind of kind of activity levels you're seeing in terms of your exports, both out of Western Canada and any exports out of the Southern U.S.?

Well, I'll start, and I'll kind of see if I can get Chris to save me here. But I think we've been surprised that there hasn't been a stronger response from Europe on imports. I mean, obviously, European imports are up. They're up pretty significantly. I think we've always recognized there was probably a bit of a limit to those. And I think we're kind of seeing that. I think it's an indication of how strong other markets are around the world that are maybe keeping those limited import opportunities, even lower than maybe what we'd expect. And so I think there's obviously less OSB imports that lumber, a lot more production in Europe and on lumber than there is an OSB. I think it's pretty limited about the opportunities to see OSB come into the U.S., but we're looking at that as well. Chris, do you want to add anything?

Yes, Mark, I would just add, potentially, we've definitely seen a reduction in exports on the lumber side and to a much lesser degree, on the OSB side being much smaller. The market really -- so that's made up a bit of the shortfall for sure. And I think that will continue. We are seeing Japan recover somewhat, but it appears that China is able to get enough fiber at what -- at the pricing that they're at, that they seem satisfied without getting towards the numbers where we're at North America. So -- but to Ray's comments, the European lumber market is much stronger than it was previously in the last run up. So that's a big part of the reason we're not seeing the supply response from there.

Yes. Okay. That's what it seemed like to me. The last one I had is just -- is this market kind of changing the dialogue at all around the U.S. kind of candidate trade case? Or is -- I see a lot of stuff out of like the National Association of Homebuilders, but I just -- I have no sense of whether this is really generating kind of any activity behind the scenes right now.

So Mark, I think the short answer is, I think we can hope that it will change the dialogue. And that's certainly what we would wish for. But I think, fundamentally, to this point, it really hasn't changed the dialogue. There's really -- we're just working through our CVD and ADD and administrative reviews, and that's the process that's going on really as far as I'm aware not really anything else happening at this point.

Next question will be from Hamir Patel at CIBC. Please go ahead.

I wanted to ask about Norbord's -- the former Norbord OSB business, the specialty piece, which if I recall, is kind of 20% furniture, 5% Japan. Could you comment on how prices there moved in Q1? And as you look out for the remainder of the year, is there a certain date where maybe a lot of that business gets repriced?

Hamir, it's Chris here. I would say that the industrial business is a strategic business on the OSB side to diversify. And quite frankly, from our view, it's been very successful. With regards to pricing, it's a bit slower than the commodity side, but we are seeing substantial improvements and continue to expect that to happen. But they're different markets and different end uses.

And Chris, can you remind us, are those formally indexed to the randomized prices at all?

Yes, Hamir, I'm not exactly sure how that's done.

Yes. I don't know if we'd comment on how we sell that part in here. But I mean, I think just -- and I think we like that business. We like the fact that it moves in a different cycle to some of the other commodity pricing. And there's ebbs and flows to it. And -- but we see that as kind of a positive thing on the long term. Quarter-to-quarter, you can kind of go -- well, I wish this or wish that. But I think over the long haul, we like the strategy. We think it's a successful one, and pricing will move as pricing moves.

And the other question I had about that business was -- well, just Norbord in general, I know they used to have a much larger sort of mill profit share setup across their mills. Is that still in effect with -- given maybe the existing labor agreements? Or has that all shifted to the existing West Fraser approach?

Well, interesting question, Hamir. Wage and Benefit management programs that people have are still in place.

Okay. Just last question for me. BC stumpage, given how things are playing out, what sort of year-over-year increase do you think we'll see '21 versus '20?

Year-over-year, well, I think we're up -- I think we're thinking a $30 increase in July. So I think I'll stay away from kind of predicting what the year-over-year increase will be. But we're seeing BC log costs going up over the year, for sure.

Thank you. And at this time, Mr. Ferris, we have no other questions registered. Please proceed.

Well, thanks for that. I'll just remind everybody that I think 80% of our business now is outside of BC, which is what it is. Listen, thanks to everyone, and thank you, Sylvie. As always, Chris and I are available to respond to questions as is Robert Winslow, our Director of Investor Relations. And thank you for participation and stay safe, and we look forward to talking to you next quarter.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have a good weekend.