louisiana - pacific corporation goldman sachs basic
TRANSCRIPT
Louisiana - Pacific Corporation
Goldman Sachs Basic Materials ConferenceMay 17, 2007
1
Forward Looking Statements
This presentation contains statements concerning Louisiana-Pacific
Corporation’s (LP) future results and performance that are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. The accuracy of such statements is subject to a
number of risks, uncertainties and assumptions that may cause actual
results to differ materially from those projected, including, but not limited
to, the effect of general economic conditions, including the level of
interest rates and housing starts, market demand for the company’s
products, and prices for structural products; the effect of forestry, land
use, environmental and other governmental regulations; the ability to
obtain regulatory approvals, and the risk of losses from fires, floods and
other natural disasters. These and other factors that could cause or
contribute to actual results differing materially from such forward-looking
statements are discussed in greater detail in the company’s Securities
and Exchange Commission filings.
2
Market Outlook – Demand
• New construction housing demand:
– Residential housing activity began slowing last Spring: unsold
home inventory high but appears to be leveling, new order rates
down, pricing pressure in many markets, sub-prime market may
extend slowdown, land liquidation occurring
– Positive long term trends and demographics including:
household formations, immigration, affordable interest rates
– Sustainable at 1.85 – 1.95 million starts per year (2005-2015)Source: The State of the Nation’s Housing – 2004, Joint Center for Housing Studies of Harvard University
• Repair / remodel demand continues to grow:
– More and older houses in the existing stock
– Rise of “big box retailers” and availability of “installed sales” is
making access easier
• Commercial and light industrial picked up in 2005/2006 and
is showing continued strength
3
Builder New Order TrendsYear over Year % Change
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
Q405 Q106 Q206 Q306 Q406 Q107
D. R. Horton Pulte Homes Lennar Corp.
Centex Corp. KB Home Beazer Homes
The Ryland Group NVR Hovnanian Enterprises
M.D.C. Holdings Standard Pacific Technical Olympic
Meritage Corp. Toll Brothers
4
Home Inventory Trend
Analysis:
• Existing home sales have bottomed out
• New home sales continue to bounce along the bottom and inventory exceeds
the current deman
Existing Homesseasonally adjusted
-30%
-20%
-10%
0%
10%
20%
30%
Ja
n-0
5
Fe
b
Ma
r
Ap
r
Ma
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Ju
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Ju
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Au
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Se
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Oct
No
v
De
c
Ja
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Fe
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Ma
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Ap
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Ma
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Se
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Oct
No
v
De
c
Ja
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Fe
b
0
1
2
3
4
5
6
7
8
9
# of homes sold
Ch vs YA
Mos. Supply of
homes on market
New Homesseasonally adjusted
-30%
-20%
-10%
0%
10%
20%
30%
Ja
n-0
5
Fe
b
Ma
r
Ap
r
Ma
y
Ju
ne
Ju
ly
Au
g
Se
pt
Oct
No
v
De
c
Ja
n
Fe
b
Ma
r
Ap
r
Ma
y
Ju
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Ju
ly
Au
g
Se
pt
Oct
No
v
De
c
Ja
n
Fe
b
0
1
2
3
4
5
6
7
8
9
# of homes sold
Ch vs YA
Mos. Supply of
homes on
market
Source: US Census Bureau
5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
New
Hou
sin
g S
tart
s (m
m) 2001 - 2006
Average
Home Building Demand – History Housing Starts (single and multi-family)
Sources: US Department of Commerce; RISI February 2007 5 year forecast; and the State of
the Nation’s Housing – 2004, Joint Center for Housing Studies of Harvard University (JCH)
Rolling 5 year
Average
JCH
DemandActual
6
Home Building Demand – ForecastsHousing Starts (single and multi-family)
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2007 2008 2009 2010 2011
Freddie Mac Fannie Mae MBA RISI Wachovia Merrill Lynch
NAHB Morgan Stanley NAR S&P APA
7
R&R Spending ($B) Annualized, Seasonally Adjusted
177
199
215
228
224
231
165
175
185
195
205
215
225
235
245
2003 2004 2005 2006 2007 2008
History Average Projection
Market Outlook – R & R
Analysis:
• R&R spending is projected to dip slightly this year, then continues its upward
trend in 2008
Sources: US Census Bureau, RISI, NAHB, JCHS
8
LP Channel Strategy: Preference for LP Products
DistributorsDistributors Pro DealersPro Dealers Builders/
Contractors
Builders/
Contractors
Big Box
Retailers
Big Box
RetailersContractors,
DIY-er’s
Contractors,
DIY-er’sR&R
New
5. More value innovations to create builder preference
5. More value innovations to create builder preference
4. “One LP” to the customer
4. “One LP” to the customer
3. Help Big Box sell more LP
3. Help Big Box sell more LP
2. Select channel partners that will push LP (for smaller builders/contractors)
2. Select channel partners that will push LP (for smaller builders/contractors)
1. Get the larger builders to want our products
1. Get the larger builders to want our products
5 Strategic Goals
LP Reload Centers
Other Reload Centers
Marketing & Selling
Marketing & Selling
9
LP’s Business Segments
Other Building Products
Other Building Other Building ProductsProducts
�� Composite Decking Composite Decking
�� MouldingMoulding
�� Chile OSB Chile OSB ……
InternationalInternational
�� U.S. GreenfiberU.S. Greenfiber
SidingSidingSiding
�� SmartSide OSB SmartSide OSB
SidingSiding
�� Exterior Hardboard Exterior Hardboard
SidingSiding
�� Exterior Trim, Exterior Trim, SoffitSoffit, ,
FasciaFascia
OSBOSBOSB
�� Commodity Commodity
PanelsPanels
�� TechShieldTechShield
�� FlooringFlooring
�� Web Stock, Web Stock,
RimboardRimboard
Engineered Wood Engineered Wood ProductsProducts
�� LVLLVL
�� I I –– JoistJoist
�� Emerging Emerging ……
Oriented Oriented
Strand Lumber Strand Lumber
(OSL)(OSL)
10
Map of LP Facilities
11
Oriented Strand Board (OSB)
Mill capacities:
13 mills – 5.7 bsf
Peace Valley JV – 800 mmsf
Alabama under construction – 700 mmsf
• #1 North American OSB producer with about 24% market share …about 15% share of structural panels
• Broad commodity and value-added
product line
• Best geographic coverage allows for
a low delivered cost
• Growth through existing mill investments and new mills
12
North America OSB Market Shares
2005 20102006
LP24.0%
Norbord
12.7%
Weyco12.4%
Grant10.3%
Huber8.6%
GP7.6%
Tolko7.2%
Other6.3%
Ainsworth
11.0%
Weyco
15.3%
Norbord
13.6%
Ainsworth
13.6%
GP
10.0%
Huber
7.8%
Tolko
5.8%
Grant
6.4%
Other
6.2% LP
21.4%LP
24.4%
Weyco
14.9%
Ainsworth
11.1%
GP
9.8%
Huber
7.6%
Grant
6.2%
Tolko
5.7%
Other
7.0%
Norbord
13.3%
Source: RISI 2005 Capacity Survey
13
$/
MB
F
115
130
145
160
175
190
205
220
235
250
265
280
295
310
325
340
355
370
385
400
415
430
445
460
475
490
505
520
535
550
565
580
21-May-99
30-Jul-99
8-Oct-99
17-Dec-99
25-Feb-00
5-May-00
14-Jul-00
29-Sep-00
8-Dec-00
16-Feb-01
27-Apr-01
6-Jul-01
14-Sep-01
23-Nov-01
1-Feb-02
12-Apr-02
21-Jun-02
30-Aug-02
8-Nov-02
24-Jan-03
4-Apr-03
13-Jun-03
22-Aug-03
31-Oct-03
9-Jan-04
19-Mar-04
28-May-04
6-Aug-04
15-Oct-04
23-Dec-04
4-Mar-05
13-May-05
22-Jul-05
30-Sep-05
9-Dec-05
17-Feb-06
28-Apr-06
7-Jul-06
15-Sep-06
22-Nov-06
2-Feb-07
13-Apr-07
15
/32
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So
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ISI E
stimated
Cash
Co
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eng
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14
0
5
10
15
20
25
30
35
40
45
50
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
30%
40%
50%
60%
70%
80%
90%
100%
OSB Plywood OSB Share
Structural Panel Demand – North America
BSF
Source: RISI February 2007, 5 year forecast
OSB Share
15
Structural Panel Share by Application
RISI Segment Shares - 2007
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Plywood 20% 38% 75% 39% 56% 75%
OSB 80% 62% 25% 61% 44% 25%
ResidentialNon-
ResidentialIndustrial R&R Canada Exports
RISI Segment Shares - 2011
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Plywood 7% 19% 67% 21% 40% 71%
OSB 93% 81% 33% 79% 60% 29%
ResidentialNon-
ResidentialIndustrial R&R Canada Exports
Source: RISI February 2007 5-year forecast
16
Engineered Wood Products
Mill capacities:
LVL - 12.1 mmcf
- Murphy marketing agreement (2008)
I-Joist - 80 mmlf
- 140 mmlf (Abitibi JV)
OSL - 7 mmcf (2008)
• #1 position in solid-sawn I-Joist
• #3 overall position EWP
• Adding Oriented Strand Lumber
capability
• Supportive and growing customer
base (#1 supplier to 2-step
independent distribution)
17
Growth Potential for Engineered Wood Products
Total EWP Potential:
LVL, I-Joist, related
11.7 BBF
Historical Market
Growth
Lumber
70%
Strand Lumber 5%
Eng’d Wood
~30%
Captive Sales
Others, 23%
LP, 12%
BC, 17%
WY, 48%
Eng’d Wood Shares
$3.0 Billion
Overall Market: 2%
- New Construction
Strand Technology
Growth: 11%
Eng’d Wood: 7%
- New Construction
- Displace Lumber
LP Technology
(LVL & I-Joist)
25%
CAGR is for 2001 to 2006
Source: LP estimates
18
I-Joist and LVL Volume Growth
0
200
400
600
800
1000
1200
1400
1600
1800
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: RISI/APA estimates / forecasts
0
10
20
30
40
50
60
70
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
APA RISI
I-Joist Demand
LVL Demand
19
OSL Expands “LP House”
20
Siding
• Smart Side product line exhibiting strong
growth:
– Family of products – lap, panel, trim,
fascia, soffit
– Lower installed cost than Fiber Cement,
Aluminum, and Wood
– Curb appeal / outstanding performance
• Hardboard – lowest cost and broadest
product line in the industry
Mill capacities:
4 SmartSide mills – 900 mmsf
2 Hardboard mills – 550 mmsf
21
Exterior Siding Market by Category – 2005
Total Siding Demand in North America in 2005 = 11 billion square feet
Source: Ciprus, Freedonia, James Hardie, LP Internal
Hardboard
5%
Natural Wood
3%
Brick
9%
Stucco
10%
Smartside
5% Fiber Cement
19%
Vinyl
40%
Other
5%
Plywood
4%
22
23
Lap
Panel
Soffit
Trim
LP Siding Segment Products
24
Other Building Products
• Outdoor Living – top 5 position, single plant
scenario, focus on profitability
• Chile – current mill supports early South
American growth; another to be completed
late in 2007 for further international growth
• Mouldings – profitable interior business with
ability to broaden product line
• U.S. GreenFiber – largest cellulose insulation
business in North America (50%-owned JV)
Mill capacities:
Decking – 90 mmlf
Chile – 130 mmsf; 150 mmsf being added
Moulding – 300 mmlf
U.S. GreenFiber – 14 facilities
25
Global OSB = 27 billion SF; U.S. comprises 85 %
World Population By Region
6.4 Billion People
Europe
Asia
South America
North America
Asia
Europe
South America
North America
Africa
2005 Global OSB Demand
27 Billion SF
Current market Theoretical opportunity
The opportunity for OSB is just emerging
International – Situation Analysis
26
2007 Outlook / Actions
• Limited housing recovery expected
• Challenging from an earnings perspective
• Continued focus on cost reductions and improvements
throughout the organization
• Drive marketing and sales activities to take share
• Complete new mills under construction to set us up for
hitting the new home construction recovery in full stride
• Take advantage of financial flexibility afforded by strong
balance sheet to grow through the cycle