Type: Public Company
Address: 858 Beatty Street, Suite 501, Vancouver, British Columbia, V6B 1C1, Canada
Telephone: (604) 895-2700
Fax: (604) 681-6061
Web: http://www.westfraser.com
Employees: 9,000
Sales: CAD 3.33 billion ($2.93 billion) (2006)
Stock Exchanges: Toronto
Ticker Symbol: WFT
Incorporated: 1966
NAIC: 321113 Sawmills; 321211 Hardwood Veneer and Plywood Manufacturing; 321219 Reconstituted Wood Product Manufacturing; 322110 Pulp Mills; 322121 Paper (Except Newsprint) Mills; 322122 Newsprint Mills; 322130 Paperboard Mills
SIC: 2421 Sawmills & Planing Mills - General; 2435 Hardwood Veneer & Plywood; 2493 Reconstituted Wood Products; 2611 Pulp Mills; 2621 Paper Mills; 2631 Paperboard Mills
With an emphasis on being a low-cost producer, West Fraser Timber Co. Ltd. over its more than half a century in operation has grown from a single lumber planing mill in Quesnel, British Columbia, into North America's second largest lumber producer, trailing only Weyerhaeuser Company. The company and its subsidiaries own or jointly own 28 sawmills, two medium density fiberboard (MDF) mills, a laminated veneer lumber (LVL) mill, four plywood mills, four pulp mills, a linerboard and kraft paper mill, and a newsprint mill. Together, the capacities of these businesses amount to 6.2 billion board feet of lumber, 300 million square feet of MDF, 3,200 thousand cubic feet of LVL, 820 million square feet of plywood, 580,000 metric tons (one metric ton equals 1,000 kilograms or 2,204 pounds) of bleached chemi-thermomechanical pulp (BCTMP), 515,000 metric tons of northern bleached softwood kraft (NBSK) pulp, 470,000 metric tons of linerboard and kraft paper, and 135,000 metric tons of newsprint. Lumber accounts for about 62 percent of West Fraser's revenues, with pulp and paper contributing 25 percent, and panels the remaining 13 percent. The firm's operations have become increasingly diverse geographically, particularly following the March 2007 acquisition of 13 yellow pine sawmills in the southern United States from International Paper Company. About half of West Fraser's lumber capacity is situated in its home base of British Columbia, 14 percent is located in Alberta, and 36 percent in the U.S. South.
Building a Timber Business
In 1955 Washington natives and brothers Henry H., Jr. (Pete), William P., and Samuel K. Ketcham left their father Henry, Sr.'s Seattle wholesale lumber company to strike out on their own. The brothers each pooled CAD 15,000 toward a total price of CAD 60,000 to buy a small, 12-employee planing mill in Quesnel, located in the Cariboo Mountains area of British Columbia. The operation was called Two Mile Planing Mills Ltd. The brothers' original intent was to supply lumber to Henry, Sr.'s wholesale store. With the post-World War II building boom still fueling demand, however, the brothers soon began to acquire more sawmills, each of which was accompanied by its own timber cutting rights. One of these mills, Wright Lumber Co., was located in nearby Williams Lake. The brothers gained majority control of this business in 1957 and then full ownership in 1961. During this period the brothers envisioned Williams Lake becoming the center of their operations, with their mills fed from timber taken from west of the Fraser River, which flowed past both Quesnel and Williams Lake. They therefore changed the name of Wright Lumber to West Fraser Timber Co. Ltd. in 1958.
A key acquisition of these early years occurred in 1963, when the Ketcham brothers spent CAD 600,000 for Brownmiller Brothers Lumber Co. Ltd., a firm that operated the largest sawmill in Quesnel at a capacity of 25,000 board feet of lumber per day. By 1965, the various businesses of the Ketcham brothers were generating around CAD 95,000 in annual net earnings on sales of CAD 660,000. The following year the brothers amalgamated this group of companies as West Fraser Timber Co. Ltd., which could boast of being a full-fledged lumber company. Sam Ketcham served as president, while Pete Ketcham acted as chairman.
West Fraser next moved into the retail building supply market, in part to provide a market for its lumber products, but also to add a stable revenue source as the company competed in a lumber industry vulnerable to peaks and valleys in its commodity prices. The company entry into retailing began in 1968 with the acquisition of H.J. Gardner & Sons Building Supplies Ltd. As the 1960s ended, West Fraser consolidated its operations around two principal mills in Quesnel and Williams Lake. In the decade that followed, West Fraser gained a reputation as a low-cost producer, including narrowing its sales focus primarily to the United States and Canada and avoiding high-grade specialty products. Equally important to West Fraser's growth strategy was its determination to avoid excessive debt and to plow its profits back into the company. Much of West Fraser's income went into modernizing its existing mills, even as new plants were acquired. The company also concentrated its logging operations on British Columbia's largely untouched interior region, where logging and road building costs were as much as half of those on the more heavily logged coast. By 1975 West Fraser's revenues had grown to CAD 47.8 million, while profits stood at CAD 3.9 million.
When Sam Ketcham was killed in a helicopter crash in 1977, the company brought in the first of two presidents from outside the family, while Pete Ketcham continued as chairman. By then, West Fraser had begun to step up its diversification efforts. A major move toward this end came in 1979, when the company entered into a 50 percent joint venture with Daishowa Canada Co. Ltd., a subsidiary of Daishowa Paper Manufacturing Co., Ltd., of Japan, to build the Quesnel River pulp mill. Two years later, West Fraser purchased a 40 percent interest in Eurocan Pulp & Paper Co. Ltd., a division of Finland's Enso-Gutzeit Oy, with its Kitimat, British Columbia, linerboard and kraft paper mill, two sawmills, and interest in other sawmills. West Fraser had become a fully integrated forest products company with eight sawmills and a chain of ten building supply stores.
Period of Strong Growth
By 1981, Canada plunged into the recession that crippled the logging industry hitting British Columbia especially hard. Nevertheless, while other companies in the lumber industry were struggling to survive, West Fraser was achieving its greatest growth. Still a private company, West Fraser continued to pursue its policy of reinvesting its earnings--between 1983 and 1986, the company's retained earnings grew from CAD 65 million to CAD 100 million. Much of this income was put to work modernizing and maintaining the company's mills and other plants, giving it a further edge against the competition as a low-cost supplier. Throughout the recession, the company remained in the black, with only Eurocan posting a loss in 1983. The following year, however, West Fraser stepped up its ownership of Eurocan Pulp & Paper to 50 percent, and Eurocan was restructured as a joint venture.
In 1985, when then-president Chester Johnson left the company to head BC Hydro, a new Ketcham, Henry H. (Hank) III, took over as West Fraser's president and CEO. A graduate of Brown University, Hank Ketcham had long been groomed for this role, joining the company in 1973 as a mill hand, then working in the company's shipping department before becoming manager of West Fraser's Dawson Creek mill. Ketcham took the company public the following year, in part to pay down debt accrued from increasing its share of Eurocan, and also to sort out succession issues. The company, however, continued to be run as a relatively small family operation. Corporate staff numbered as few as six, and the majority of the company's employees were nonunion, making it unique in the industry, yet protecting the company from wildcat strikes plaguing the rest of the logging industry.
The company's CAD 367 million in 1986 revenues were still fairly small compared to the industry's powerhouses. Nevertheless, West Fraser's lumber output of nearly 1,000 million board feet (MMfbm) had already made it Canada's third largest producer. With the lumber industry bouncing back as the recession ended, West Fraser continued its policy of investing heavily in its growth. In 1988, the company added a third pulp line to its Quesnel plant, increasing its share of the output to 150,000 metric tons. Next, the company more than doubled the size of its retail operation by buying the Revelstoke chain of home and building supply stores. West Fraser's own stores were merged under the Revelstoke brand name. The following year, the company completed a major expansion of Eurocan, building a second berth at that plant's deep-sea terminal and increasing its production by more than 25 percent to 450,000 metric tons, costing the company CAD 125 million. Rounding out the 1980s, West Fraser teamed up with limited partnership Whitecourt Newsprint Company to form the Alberta Newsprint Company joint venture, opening a newsprint mill in Whitecourt, Alberta, in 1990. More acquisitions were to follow. By the mid-1990s, the company would double in size.
Continued Expansion
As the new decade began, however, the company saw its earnings drop drastically. Despite revenues of CAD 540.5 million in 1990, net income fell to just under CAD 3.5 million, down from CAD 28.4 million in 1989. This was due to the high cost of stumpage rates (the royalty fees paid to the British Columbian government for each tree felled) which had been raised in a memorandum of understanding between the Canadian and U.S. governments. A slump in building starts as the 1990s recession took hold also caught the industry with an oversupply, forcing prices to drop. In addition, the Eurocan expansion continued to prove expensive for the company, as it struggled to produce at capacity, while absorbing the high costs of de-inking needed to meet the growing demand for recycled newsprint.
The slump in earnings proved temporary. By 1992, the company's earnings rose to CAD 10 million. In that year, however, the company's Revelstoke division faced new pressures when two U.S. companies, Home Depot, Inc., and Eagle Hardware & Garden, Inc., announced plans to bring their home and building supply warehouse stores to Canada for the first time. The chains' plans to expand in the Alberta and Vancouver markets forced Revelstoke, by then the fourth largest Canadian home center chain with 30 stores, to roll out its own warehouse concept, called Revy's, and West Fraser announced plans to spend some CAD 200 million in order to build 15 warehouse stores in the next several years. The company also closed several of the smaller Revelstoke stores, converting some of these buildings to the warehouse concept, while leasing out others.
West Fraser was fueling its growth in other ways, too. In November 1993, the company moved to buy out its Finnish partner, paying CAD 95.8 million in cash and two million shares of common stock to purchase Enso-Gutzeit Oy's 50 percent share of Eurocan (Enso subsequently sold its shares, representing 10 percent of West Fraser's outstanding stock, to Canadian investors). The move added 30 percent to West Fraser's lumber capacity, bringing it to an annual output of 1,300 MMfbm. West Fraser was the second largest lumber producer in Canada, trailing only fellow Vancouver-based company Canfor Corporation. Despite a poor performance by the Quesnel River pulp plant, which posted its first operating loss, 1993 saw West Fraser's earnings rebound, to CAD 53.4 million.
The company again pushed to expand its operations in 1994, building a new sawmill in Prince Rupert, British Columbia, to serve the Japanese market. The company also built a value-added plant to its Terrace sawmill, allowing it to produce higher-grade, custom-cut hemlock lumber, while pumping capital into major upgrades of two existing sawmills. At the end of the year, West Fraser added to its retail operation by buying Eagle Hardware & Garden's Canadian assets, which included two undeveloped Eagle sites, for CAD 30 million, allowing Revelstoke to consolidate its position in the Vancouver market. The British Columbian logging industry, meanwhile, began to see tightening restrictions on annual allowable cuts (AACs), as the province's resources dwindled and pressure built to enact tighter environmental controls. In British Columbia, allowable logging had already been cut from 85 million solid cubic meters to 70 million solid cubic meters, with forecasts suggesting a further reduction to 59 million solid cubic meters by the year 2000. West Fraser itself responded to environmental controls by voluntarily giving up its rights to a 317,000-hectare area of the Kitlope Valley wilderness area north of Vancouver. West Fraser's 1994 year-end revenues rose to CAD 1.28 billion, generating a net income of CAD 82.6 million.
West Fraser next moved to ensure its logging supply. China was viewed as a strong source for lumber. "We believe finding a lot more wood in Canada is not going to be possible," Hank Ketcham told the Christian Science Monitor. "If you want to have a growing forest-products company, you better go find some wood someplace, and [that's] why we're looking outside of Canada." China held a natural attractiveness to the lumber industry because its forests, actually plantations, grew as much as 15 times faster than those in the colder North American region. The company, however, made a more immediate move to guarantee its lumber supply by purchasing the Ranger Forest Products division of Alberta Energy Company Ltd. for CAD 393.5 million in August 1995.
The Ranger acquisition included a sawmill in Blue Ridge, Alberta, with a capacity of 220 MMfbm per year; an MDF plant in Blue Ridge and a pulp mill in Slave Lake, Alberta; and an added 1.1 million solid cubic meters of timber rights. Speaking of the acquisition to Pulp and Paper, Ketcham said: "Not only are we acquiring modern and efficient mills with an exceptional timber base ... we also achieve our long-term goal of geographic diversification." The Alberta expansion was also seen as attractive because of the lower stumpage fees and higher AAC rates available there. A further expansion outside British Columbia was also underway in the mid-1990s as West Fraser began buying timber plantations in Uruguay, eventually spending CAD 30 million by 2000 to acquire 27,000 hectares. In the meantime, the company continued to expand internally as well, constructing a new CAD 150 million MDF plant in Quesnel, which opened in the summer of 1996.
Revenues rose again for 1995, nearing CAD 1.5 billion and providing CAD 95.8 million in revenues. In July 1996 Pete Ketcham died of cancer at the age of 73. Hank Ketcham was named chairman, while remaining president and CEO, continuing the Ketcham legacy of low-cost operations and controlled expansion that had allowed West Fraser to rise to the top of its industry.
In the late 1990s West Fraser further expanded its retail home improvement business by acquiring Lumberland Building Materials, operator of 17 stores in British Columbia, in 1997 and moving into the Toronto market two years later via the purchase of the nine-store Lansing Buildall chain. By 2000, when the retail business was operating under a subsidiary called Revy Home Centres Inc., this operation had grown to comprise more than 50 outlets in western Canada and Ontario generating annual sales of approximately CAD 800 million. In November 1999, meantime, West Fraser expanded into the plywood sector through the purchase of Zeidler Forest Industries Ltd. for CAD 74.4 million. This business, which was later renamed Alberta Plywood Ltd., included a plywood plant in Edmonton and a veneer and stud mill in Slave Lake plus timber cutting rights of approximately 450,000 cubic meters per year. West Fraser ended the 1990s with its first year of revenues in excess of CAD 2 billion.
Early 21st Century: Push into United States, Weldwood Acquisition
One of the company's goals for some time had been to establish lumber manufacturing operations in its largest market, the United States, responsible for 71 percent of West Fraser's sales in 1999. The company finally gained its first presence south of the border in December 2000 when it acquired two sawmills in Joyce, Louisiana, and Huttig, Arkansas, from Plum Creek Timber Company, Inc., for $60 million. These mills had the capacity to produce 320 million board feet of lumber per year. As part of the deal, Plum Creek entered into a 15-year agreement to supply the mills with logs from its surrounding timberlands at market prices. In April of the following year, West Fraser acquired a sawmill in Chasm, British Columbia, from Ainsworth Lumber Co. Ltd. for CAD 22 million. Soon after acquiring it, West Fraser completely rebuilt the Chasm mill, providing it with the capability to produce random-length lumber. The mill's capacity of 200 million board feet pushed West Fraser's total annual lumber production capacity to 2.3 billion board feet.
As a wave of consolidation began reshaping the forest industry in British Columbia and with the home building supply industry in the midst of its own phase of amalgamation, West Fraser Timber elected to refocus on its core business. In June 2001 the company sold Revy to RONA, Inc., a Quebec-based home improvement retailer, for CAD 220 million. Also divested in 2001 were the company's Uruguayan timber plantations, a sale that yielded a gain of CAD 33 million. These divestitures improved West Fraser's financial position, setting the stage for further growth in the firm's core solid wood business. Also during the year, the company permanently shut down its Prince Rupert sawmill, which had been operating at a loss because of rising log costs and the depressed state of the Japanese economy. A slimmer West Fraser generated only CAD 1.56 billion in revenues in 2001, while profits fell slightly as the company began to feel the effects of a trade dispute between Canada and the United States. Following the expiration of a trade agreement between the two nations in March 2001, the United States began imposing duties on softwood lumber imports from its northern neighbor, charging Canadian producers with dumping their products below cost. During 2001, West Fraser was forced to set aside CAD 25 million to pay for the duties.
In November 2002 West Fraser bought out Daishowa Paper's interest in the Quesnel River pulp mill, thereby taking full control of that facility. Around this same time, West Fraser entered into an agreement to sell its 50 percent stake in Alberta Newsprint Company, but the deal fell through. During the following year, the company faced a host of challenges. Changes to British Columbia's timber pricing program included the expropriation of 20 percent of the firm's timber harvesting rights. A four-month strike at the Kitimat linerboard and kraft paper mill was responsible for approximately CAD 40 million of that facility's operating loss for the year, while a strengthening of the Canadian dollar reduced the value of exports into the United States, shaving CAD 145 million off the company's sales. At the same time, a series of mild winters had allowed an infestation of the mountain pine beetle to expand rapidly across central and northern British Columbia. As a result, most of West Fraser's sawmills in the province had begun harvesting and processing mainly beetle-infested timber. Finally, West Fraser had to contend with price weaknesses for several of its products, and it also incurred CAD 112 million in duties stemming from the U.S.-Canadian softwood lumber dispute. In the end, the company saw its net sales for 2003 drop more than 7 percent, to CAD 1.51 billion, while profits amounted to just CAD 43 million, compared to the CAD 138 million figure for the previous year.
At the end of 2004, West Fraser fulfilled a long-held ambition by acquiring Weldwood of Canada Limited from International Paper for CAD 1.41 billion ($1.17 billion) in cash. By purchasing Weldwood, which like West Forest had deep roots in Quesnel, West Forest gained four sawmills, two each in British Columbia and Alberta, increasing its annual lumber production capacity to 4.35 billion board feet. Despite having to divest two other sawmills in northern British Columbia that had been jointly owned by the two companies in order to gain regulatory approval, West Fraser nevertheless jumped into the number three position among North America's lumber producers, trailing only Weyerhaeuser Company and Canfor Corporation. West Fraser also gained two plywood plants in British Columbia to become Canada's largest plywood producer, added a laminated veneer lumber facility in Alberta, and became a producer of northern bleached softwood kraft pulp through full ownership of a mill in Alberta and a half-interest in a second mill in British Columbia. Continuing its tradition as one of the industry's lowest-cost producers, West Fraser aimed to generate CAD 80 million in annual cost savings through this consolidation. The company financed the deal through an equity offering that garnered around CAD 275 million and debt offerings in Canada and the United States that raised more than CAD 500 million.
The addition of the Weldwood operations pushed West Fraser's revenues to CAD 3.58 billion for 2005, when the company celebrated its 50th anniversary. The net earnings of CAD 107.7 million were depressed by a further CAD 151.4 million in duties that the company had to set aside because of the ongoing trade dispute. During the year, West Fraser broke ground on a new state-of-the-art sawmill in Quesnel, which was completed the following year and eventually had the capacity to produce 600 million board feet of lumber each year. This mill incorporated new technology that improved the firm's ability to process beetle-killed timber, an important development because West Fraser was discovering that the quality of beetle-killed pine was poor and the lumber was breaking more frequently during processing. In October 2006 the Canadian and U.S. governments finally reached a settlement on the lengthy softwood lumber dispute. The U.S.-imposed duties were replaced by a Canadian-imposed export tax, or a combination of a lower tax and a quota, and the deal also required the U.S. government to refund with interest all duties that had been collected. Thus in 2006, West Fraser saw its profits boosted by an after-tax gain of CAD 289 million on the duty refund.
Proceeds from the duty refund as well as from the sale of the two mills that had to be divested to complete the Weldwood deal provided much of the funding for a major move into the U.S. market. In March 2007 West Fraser spent approximately $325 million to acquire 13 sawmills in the southern United States from International Paper. The mills, located in North and South Carolina, Georgia, Florida, Alabama, Arkansas, and Texas, had a combined annual production capacity of around 1.8 billion board feet of lumber. This increased West Fraser's overall capacity to 6.2 billion board feet of lumber, moving it past Canfor into second place in North America. The deal also greatly widened the firm's geographic diversity, boosting the portion of its lumber capacity that was situated in the United States from just 10 percent to 36 percent. Strategically, the enlarged U.S. footprint provided hedges against the rapidly appreciating Canadian dollar, any future trade disputes between Canada and the United States, and the mountain pine beetle infestation that continued to wreak havoc in the forests of British Columbia.
On the down side, West Fraser gained its enlarged U.S. presence at the very time when the housing market in that country was imploding. Housing starts declined sharply in 2007, which undercut lumber prices. Hank Ketcham told the Vancouver (B.C.) Sun in April 2007 that "in real dollar terms, lumber prices today are lower than they were in 1982, which was the worst recession I remember." Bearing out the difficult environment in which West Fraser was operating, the company reported a net loss of CAD 19 million for the first six months of 2007 along with a drop in revenues of more than 10 percent.
At the same time, West Fraser was under attack for its environmental practices as ForestEthics, a San Francisco-based environmental watchdog group, mounted a campaign to protect habitat in British Columbia and Alberta that was critical to the survival of the woodland caribou, a species listed in Canada as "threatened" with extinction. Under pressure from ForestEthics, the Victoria's Secret lingerie company, which was owned by Limited Brands, Inc., announced late in 2006 that it would stop printing its catalogs on paper supplied by West Fraser because of the company's alleged destruction of caribou habitat. At a time when it faced a seemingly unprecedented set of challenges, West Fraser Timber thus lost a contract valued at an estimated CAD 100 million.
Principal Subsidiaries
West Fraser Mills Ltd.; Blue Ridge Lumber Inc.; Ranger Board Inc.; Sundre Forest Products Inc.; Alberta Plywood Ltd.; West Fraser Newsprint Ltd.; West Fraser, Inc. (U.S.A.).
Principal Competitors
Weyerhaeuser Company; Canfor Corporation; AbitibiBowater Inc.; Georgia-Pacific Corporation; Tolko Industries Ltd.; Sierra Pacific Industries; Hampton Affiliates, Inc.
Further Reading
Annett, Marg, and William Annett, "West Fraser Timber's Intangible Assets," BC Business, September 1987, p. 10.
Bayless, Alan, "B.C.'s West Fraser: Uniquely Profitable," Financial Times of Canada, June 8, 1992, p. 11.
Cagampan-Stoute, Caroline, "The Strong Silent Type," Canadian Papermaker, July 1994, pp. 16+.
Chipello, Christopher J., "West Fraser to Acquire Weldwood of Canada," Wall Street Journal, July 22, 2004, p. A8.
Greenwood, John, "Forestry Dynasty Firmly in Driver's Seat: B.C.'s Ketchams Thrive by Being Low-Cost Operators," National Post, July 26, 2006, p. FP5.
Hamilton, Gordon, "Forest Industry Recession Worst in Lumberman's 34-Year Career," Vancouver (B.C.) Sun, April 25, 2007, p. D3.
------, "West Fraser's Buying Spree Wins Approval from Investors," Vancouver (B.C.) Sun, December 1, 2006, p. H3.
It's What's Inside That Counts: The Story of West Fraser's First 50 Years, Vancouver, B.C.: West Fraser Timber Co., 2005, 112 p.
Kennedy, Peter, "Home Renovation Chains Merge," Globe and Mail, May 15, 2001, p. B1.
------, "Ketcham Walks Softly but Wields a Big Stick in Lumber Industry," Globe and Mail, September 14, 2004, p. B7.
------, "West Fraser to Purchase Weldwood Canada for $1.26-Billion," Globe and Mail, July 22, 2004, p. B1.
Koven, Peter, "West Fraser Timber Growing As Competitors Chop Capacity," National Post, December 6, 2006, p. FP11.
Langan, Fred, "Canada's Foresters See Green in China," Christian Science Monitor, April 18, 1995, p. 8.
VanderKlippe, Nathan, "Victoria's Secret Spurns West Fraser: Lingerie Vendor Stops Using Its Pulp for Its Catalogues," National Post, December 7, 2006, p. FP7.
"West Fraser Builds for Long Term," Financial Post, April 3, 1991.
"West Fraser to Buy Alberta Energy's Ranger Forest Unit," Pulp and Paper, August 1995, p. 17.
— M. L. Cohen; Updated by David E. Salamie
