West Fraser Timber Co Ltd (WFG) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the West Fraser Timber Co. Ltd. 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 other to Mr. Ted Seraphim, President and CEO. Please go ahead, Mr. Seraphim.

Thank you, and good morning, everyone. West Fraser earned CAD49 million or CAD0.58 per share in the quarter. Adjusted earnings for the first quarter were CAD100 million or CAD1.19 per share as compared to CAD85 million in the fourth quarter of 2014. Adjusted EBITDA in the quarter was CAD173 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 CAD117 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 US 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 CAD26 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 CAD30 million in adjusted EBITDA, up CAD18 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'll see continued improvement in production in the second quarter, as we believe we are seeing the benefits of our focus on mill reliability, which has been a high priority for the Company.

We are commissioning our biomethanation plant at our Slave Lake BCTMP mill, and early indications are encouraging. We expect that 2015 will be another significant year for capital spending as we complete an ambitious, five-year capital spending program in excess of CAD1.4 billion. We still have a number of significant upgrades to consider for 2016 and beyond, but they are primarily in the development stage at this point.

The housing recovery in the US was interrupted in the first quarter, primarily due to poor weather. As we have mentioned, we do expect volatility in lumber markets until housing markets further strengthen.

Despite slowing demand in China, our business remains strong in the first quarter. We expect to experience a slowdown in lumber demand from China in the short term. That being said, we continue to be optimistic regarding medium-term demand for our lumber products in both North America and Asia. An improving US economy supported by low new home inventories should continue to spur new home construction. Pulp markets are expected to be under continued pressure as we face the combination of new capacity and slowing demand in China.

I am very proud of our employees, as their efforts to improve operations while executing the largest capital program in the Company's history. Their efforts are positioning the Company well for the future.

With this, I will turn the call over to Larry Hughes.

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 CAD49 million or CAD0.58 basic earnings per share.

Beginning on the second page of our MD&A, which is page 5 of our news release, we identify various non-operational items which we adjust from earnings in order to more clearly reflect the results from our operations. The result, which we refer to as adjusted earnings, was CAD100 million or CAD1.19 adjusted basic earnings per share. This compares with CAD1.02 for the fourth quarter of 2014 and CAD0.97 for the first quarter of 2014.

Our non-operational earnings adjustments include that currency exchange loss on our long-term US dollar debt, which for the quarter was CAD32 million; and a CAD1 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 revaluation produced an unrealized loss of CAD2 million. And at the end of the first quarter of 2015 that revaluation produced an unrealized loss of CAD30 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, and demand has weekend as oil and gas related activities have slowed. Lower electricity prices in Alberta will also have a positive effect on our results, as both our 50% owned newsprint mill and our Slave Lake pulp mill are major electricity consumers.

We currently estimate that if electricity prices remain as low as currently projected over the respective terms of the two contracts, the CAD30 million loss on the value of the two contracts would be substantially, although not fully, offset by electricity cost savings.

In the quarter, we saw a significant deterioration in US dollar SPF prices, but this was largely offset by a weakening of the Canadian dollar against the US dollar by almost CAD0.08. Because our lumber pulp and some of our panel products are either sold at US prices or at prices influenced by comparable US dollar prices, a weaker Canadian dollar can significantly affect our results.

On the other hand, some of our costs -- such as transportation and US manufacturing, which are in US dollars -- become inflated, and adversely affect results as the Canadian dollar weakens.

On a segmented basis, and compared to the previous quarter, operating earnings from the lumber segment declined due mainly to the increasing costs and lower shipments, while panels improved slightly on improved MDF returns. And as Ted noted, pulp operating earnings improved on improved NBSK production and Canadian dollar pricing.

Cash flows from operating activities were CAD46 million despite the buildup of Canadian log inventories. Capital expenditures were CAD69 million in the quarter, our lowest spending for a quarter since the first quarter of 2013. Our spending on major energy projects will be substantially complete by the end of the second quarter, as our two biomass ORC projects and our Slave Lake biomethanation project are expected to be fully commissioned. We're still projecting to spend approximately CAD300 million in 2015 as we continue to upgrade sawmills in the US and Canada.

We revalue the funded position of our defined-benefit pension plans at the end of each quarter, and this resulted in a CAD45 million after-tax actuarial loss this quarter, as a lower discount rate increased the present value of our liabilities, which was only partially offset by a higher rate of return on our plan assets. Our plans continued to be well-funded.

Our balance sheet as at the end of the quarter remains strong, with a 20% net debt to total capital ratio, even as we build Canadian log inventories. We expect the balance on our operating lines to decline during the second quarter, as we deplete Canadian log inventories during the spring when harvesting activities are sharply reduced.

Weak lumber markets have carried over into the second quarter, and although we continue to be optimistic over the midterm about stronger demand for lumber, we're not expecting a near-term turnaround.

Ted, that concludes my comments.

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

(Operator Instructions). Mark Wilde, BMO Capital Markets.

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

Thanks, Mark.

Ted, I wondered, can you just help me in pulp? I know that you'd had the issues in Hinton. But in the release you identify some other things -- better shipment volumes in the quarter. Can you just help us parse out the pieces of that improvement, at least in rough terms?

I'm not sure how to answer that question. But I think, as I said in my comments in our news release, fundamentally the primarily 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 NBSK business, Mark.

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

Sure. Fundamentally, I think, first of all, in terms of putting the right pieces into place to get better results, I'd say we are in pretty good shape there. We still are having some operational issues, but they are getting corrected and they are getting corrected in a long-lasting manner, from what we're seeing so far. It's still early, though, in the game here. So I think we're in a good spot. Our last couple of months have been significantly better than the first two months in the year as well, to be honest with you. So, we just feel we're moving in the right direction.

On a 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'd say, in terms of the first-quarter results, I'd say we're probably around a 3 or a 4. And our goal is to probably get it up to 7 or 8 and get closer to 10 next year.

We've got more improvement to go for sure, and we're not out of the woods yet. Three or four decent months doesn't -- or a couple of decent months does not create a streak. I think I've mentioned a couple of times that once we have two strong quarters behind us, we'll start to feel better about the business. But I do feel we're moving in the right direction.

I've been up to the mill a couple of times this year, and I can tell you there's a tremendous amount of enthusiasm. We've 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 and a bit more talent. And I'm pretty excited about what we're doing up there, and our employees up there are very, very engaged.

This, as you may know, is probably our number-one operating focus in the Company. And everybody knows about it, and everybody's keen to get back to where we know we can get there.

Okay. And a second area, 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, or are you contemplating any, for 2Q?

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

Okay, all right. And the last question I had is for Larry. And Larry, I wonder, can you explain to us the business purpose and strategy in taking such a long position on electricity in Alberta? I'm 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, 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 -- and 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've seen of the last 15 years, we've been reducing our energy needs because we've been conserving; we've been doing things like the biomethanation turbo generator. And we've come closer to self-sufficiency in electricity. We had an opportunity with our partners at ANC this fall to buy what's a fairly small electricity contract, and it runs for three years.

And so, we're not a real long; we're just marginally long. And if you are slightly long, then you have to mark-to-market. 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're not significantly long.

Being hedged in electricity in Alberta has been an important strategy for us for the last couple of decades. We're 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 debt of gratitude for what they did for us.

Okay. Then just to follow on, Larry, this drop that you reported in the forward pricing in Alberta, 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 are electricity prices going to go? We don't have any significant energy projects on the drawing board right now. We have completed, or are substantially completed, our major energy projects, but clearly future electricity prices drive your decision-making in this area.

Okay, great. I'll turn it over, guys. Thank you.

Daryl Swetlishoff, Raymond James.

Ted, I'm 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'm sure he'd be delighted to answer your question there, Daryl.

Hi, Daryl. It's Chris. Yes, that's a great question. Really what I think has happened here is in SYP, you've got a limited number of 2 by 4s. The percentage of 2 by 4 that we make in the south versus what we make in Canada is significantly different. The main usage is for treated products that go into box stores and so forth. So the demand has been pretty good for that product down there, which has driven the price. Now, am I surprised that 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 (multiple speakers).

Okay. Just switching gears a bit. Ted, just thinking longer-term about the Chinese lumber market, obviously at 1 million housing starts or just above, it's pretty important. How do you view that market when the US has recovered a bit more and there's more demand out of the US 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'll do is just put in a little bit of perspective. And if you'd like, Chris can give you a bit more detail. But I think from our perspective, first of all, when we look at the US particularly, the US only had 75,000 new starts last year -- which is about -- what? 750 million feet of demand, give or take. But US demand went up 2.5 billion feet last year -- 2.5 billion feet. Which is essentially about 80%, 85% of the total Chinese demand, of which I think last year from Canada it was 3.2 billion feet. So as we look at our overall marketing and sales strategy, the US 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 in all our markets, whether it's our pulp business in China or our lumber business in China. And I think I'd like Chris to comment a bit more on his outlook. But in our view is it's 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 yes, I think every quarter we've been asked about our shipments, when we've seen 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'd like to add a little bit more color to that; you were just there last week.

Yes, thanks, Ted. Daryl, I just spent a week there about a week ago, and just got back. And there is short-term pressure there, but we really like where we're at there and in the US. Our market diversification puts us in a much better position than we were in five, eight years ago. And we got some short-term pain in China from Russian lumber logs and maybe some radiata pine, but that's only short-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-uses there, less from low grade construction, into more higher-grade furniture and other applications. So, we see it as a big part of our marketing plan going forward.

So, did you see evidence of Russian wood on the ground? Is it true, what -- it's hard to see in the stats, so I was just -- anecdotally, are you are actually seeing it?

Yes, you are seeing it sort of in the Beijing area. You don't see it much south of that, but you're going to see it in the northern parts for sure. But what we're 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.

Paul Quinn, RBC Capital Markets.

Let's just start on the -- well, I guess start on the log side. You mentioned in your release, only log costs, only slightly higher in Canada. Just wanted your expectations for the balance of the year and how that shifts between BC and Alberta.

Well, I think just broadly speaking, we will see a little bit more pressure on log costs as the year 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 continue 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. For example, 100 Mile is not -- our results at 100 Mile so far are not where we expect them to be, as an example. Our Edson mill, where we completed the startup last year, is doing very well and we are seeing lower costs, better productivity, higher values. Very excited about that project. That's just one example. And we're excited about, frankly, our whole capital program. But I think we're still going through that transition as we're 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're going to see lower costs and definitely higher margins.

Great (multiple speakers). Just on the panel side, you cited the weakness in the East for weather and demand, and something around the oil-related impacts in the West. If you could give us an idea as to the end market 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're 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 just on Hinton just to add one. Just on the reliability, is that -- we've had a drop in oil prices. Obviously manpower availability in Alberta has changed significantly. 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've answered the question. 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 make sure that when oil prices come back that our employees are excited about working with us. And we are putting in a tremendous amount of effort in developing our people and giving them new opportunities. And I think that's the message we're sending to our young people.

I'll give you a quick example. I'm 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're excited about that. We've got to make sure we got to keep them, and whether that is at Hinton or anywhere else in our company. So we've got tremendous focus on people development and that type of thing. And Hinton is an area where we've 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're going. We just got to keep that momentum going. And I think people like to work for winners. We got to make sure Hinton is a winner.

Okay, best of luck. Thanks, guys.

Stephen Atkinson, Dundee Capital Markets.

The 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.

Yes.

Edson we bought in 2012, and that mail is completely modernized. In terms of the High Prairie mill, we have owned that for just over a year. That's fully integrated into our operations. Again, I was just there a couple of weeks ago. We're still working on our plans in terms of what we need to do to upgrade the sawmill. We're probably going to look at a new kiln there, those types of things. But we're still in on the development stage with that mill.

We want to do the right thing for the long-term, Stephen. We want to spend a little time on it. Edson, it was completely obvious what we needed to do there. High Prairie, we've got to work out a bit of a plan. But we're very pleased and we've got a good timber supply there, and we're very happy to have our footprint in Alberta, I can tell you that.

Yes. My 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 plant or to the sawmill, yes.

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

Sure. The Fraser Lake project is basically commercially commissioned, so we're selling power to BC Hydro today. And we're in the commissioning phase up at Chetwynd. We expect to be there in the next 30 days or so.

Inside first quarter.

Inside this quarter, yes. Peter Rippon is right beside me, guiding me. So inside this quarter, so sometime in the next 30 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.

Okay.

But in terms of selling energy -- and it comes back to Mark's question for Larry -- our big energy sellers are where we've 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.

Okay.

In terms of selling energy. (multiple speakers) that's from the Slave Lake plant.

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

Well, the small -- Larry said that we've had what we call the PPA for 15 years; we've got five years to go. That's the material contract. The smaller contract that just put us over the edge in terms of going market to market is a -- 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 in there -- Larry shared it in his comments is, is while we are looking at an impact on our first quarter, we expect to substantially recover that through lower energy costs if the market remains the same over the next 3 to 5 years.

From a cash position, it's not really a big issue.

Finally, in terms of the US 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 than Canada. We typically run with 10, 14, 20 days of inventory max, something like that. So that's what we typically do. Our inventories are a little bit on the light side, but we've had some impacts in the first quarter. As weather improves, it should be less of an issue. But it is not, as I said, it's not a material issue for us in the South.

Would you benefit from the lower energy costs? Will that flow through to, shall we say, delivered cost to the mill or anything like -- 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 costs up. So I think, net-net, it's not material to us.

That's great. Thank you so much.

Mark Kennedy, CIBC.

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 that a lag effect from orders booked in Q4 that carried over? Or is that driven by southern yellow pine volumes? Or is it also a fact of your CapEx programs? And are you getting better overall grade out turns and things like that as a result? I'm just wondering if you can allocate into those buckets.

I'd 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% 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. We've seen the volatility in this market. We've seen, for example, this week has been a stronger order week than I think 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 with -- on the distribution side, with Builders FirstSource buying ProBuild. Does that have any impact on you guys as a supplier? Is that a positive, negative, or just a neutral? 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, 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. No, that was it for me. Thanks, guys.

(Operator Instructions). Mark Wilde, BMO Capital Markets.

Just a few follow-ons. Ted, I really appreciated 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 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'll have Chris handle the second part. I take -- I wouldn't say offense, but I don't agree with you in terms of it being a spot market once it has been established. I can tell you, our BCTMP business has been -- we've been very happy with doing business in China. We've had a very strong, consistent, and growing business there over the last 25 years, but particularly the last 10 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'll just speak for ourselves. But showing that commitment, the trips we make to China, the fact that we are there -- 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'd like Chris to add any more color, he'd be happy to do it.

Yes, I would appreciate that.

Yes, Mark, I'd just add 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'd be in and out; they would be very opportunistic.

The reality of the last six or seven years has been just the opposite. They are there every month. They are among some of our largest customers. Our relationships are very strong. They are expanding the business throughout the country. They started in the big regions, and they're moving throughout the whole country.

There's bumps, as there is in every business. But longer-term, we're really happy. And we think that, as we go forward, we're going to just forge stronger relationships in the country there, and be a significant part of our business.

Yes, all right. That's helpful, guys. I'm not pointing the finger at you. I've done this for a long time (laughter) and I have seen, going all the way back to the 1980s, so much volatility in forest products, export volumes to China over time. That's really what I'm getting at.

Yes. I was giving you a hard time there. But I think Canadian companies are much more dependent on China than, say, US companies, particularly companies from Western Canada. So I think we have a very high comfort level of doing business throughout Asia, and in China in particular. 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 a different approach to the marketplace.

Okay. And then Ted, for you or Larry, I wondered if you could talk with us a little bit about focus for growth beyond just the capital projects over the next two or three years. Are you done making acquisitions in the South? I know, over time, we've talked about maybe West Fraser moving into adjacent business areas. You are in a pretty strong position right now, and I'd just like to know how you are thinking about the different tracks.

Well, I think, first of all, we are completing a pretty significant capital program. But there's still more projects that we need to be looking at to further improve the Company. So I think capital will continue to be part of how we spend our cash flow going forward.

I think we typically give -- our trend CapEx is probably CAD175 million to CAD200 million. We expect to be in that range, and potentially slightly above that, for the next few years. But, again, we're still developing projects in that side.

In terms of growth, we like where we're 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're extracting the most value out of the log. And so that's why we've 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're 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're going to continue to be conservative. We're 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 build some cash balances, well, we'll look for other alternatives. And as you can see last year, we judiciously repurchased some shares, and will continue to look at that avenue as well when it makes sense to us.

Okay, all right. The last question I had, Ted, 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 (multiple speakers). But yes, there's been a little movement in the market, but nothing of really huge significance. But it feels like it's improving somewhat.

Okay, all right. That's helpful. Thanks, Chris.

Thank you. There are no further questions registered at this time.

I'd 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 -- at 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.