West Fraser Timber Co. Ltd.
West Fraser Timber Co. Ltd.
Sales: C$1.49 billion (1995)
Stock Exchanges: Toronto Vancouver
SICs: 2400 Lumber & Wood Products
With an emphasis on being a low-cost producer, West Fraser Timber Co. Ltd. has grown into Canada’s second-largest forest products company, with operations centered in British Columbia. The company and its subsidiaries own or jointly own ten sawmills, two medium density fiberboard (MDF) mills, a custom cutting facility, a newsprint mill, a linerboard and kraft paper mill, and two pulp mills. Together, these businesses produced 1,600 million board feet (MMfbm) of dimension lumber, 450,000 metric tons (one metric ton equals 1,000 kilograms or 2,204 pounds) of linerboard and kraft paper, 280,000 metric tons of bleached chemi-thermomechanical (BCTMP) pulp, 120,000 metric tons of newsprint, and 110 million square feet of MDF. Other West Fraser products include such specialty wood products as fingerjoint studs and woodchips used in pulp manufacturing.
West Fraser’s timber cutting rights in British Columbia and Alberta provided the company with nearly six million solid cubic feet—with a solid cubic foot equal to roughly 35 cubic feet—of allowable annual cut (AAC) in 1996. This accounted for nearly 75 percent of the company’s sawlog needs. The company is able to meet 100 percent of its pulp and paper operations’ fiber requirements internally. West Fraser’s Revelstoke Home Centres Ltd. subsidiary owns and operates a chain of 33 retail home improvement stores located in British Columbia, Saskatchewan, and Alberta and operating under the names “Revelstoke Home Centre” and “Revy Home & Garden.” Revelstoke also owns a lumber trading and distribution facility. Other businesses in which West Fraser holds an interest are a window manufacturer; two lumber re-manufacturers; a maker of wooden I-beams, associated products, and energy-efficient housing units; and a producer of genetically-enhanced seed.
Henry H. (Hank) Ketcham III, son of one of West Fraser’s cofounders, is chairman, president, and CEO of the company, which achieved profits of C$95.8 million on C$1.49 billion in 1995. Most West Fraser products are sold as commodities. Canadian sales accounted for 38 percent of West Fraser revenues; the United States represented 36 percent of sales, the Far East generated 14 percent, and Europe accounted for nine percent of the company’s 1995 revenues. Faced with dwindling AAC and other resources, West Fraser has begun to diversify its geographical base beyond British Columbia. In 1995, the company purchased the Ranger Forest Products division of Alberta Energy Co. for C$393 million.
Building a Timber Business through the 1950s through 1970s
In 1955, Washington natives and brothers William, Samuel, and Henry Jr. (Pete) Ketcham left their father Henry Sr.’s Seattle wholesale lumber company to strike out on their own. The brothers each pooled $15,000 toward a total price of $58,000 to buy a small, 12-employee planing mill in Quesnel, located in the Cariboo Mountains area of British Columbia. The original intent of the company, called West Fraser, 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 sawmill was accompanied by its own timber cutting rights, and by the mid-1960s, the company had developed into a full-fledged lumber company. In 1966, the Ketcham brothers incorporated their company as West Fraser Timber Co., with Sam Ketcham serving as president and Pete Ketcham acting as chairman.
West Fraser next launched a chain of retail stores, 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. 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 pursued 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.
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 a 50 percent joint venture with Daishowa Canada Co., subsidiary of Daishowa Paper Manufacturing Co. of Japan, to build the Quesnel River pulp mill. Two years later, West Fraser purchased a 40 percent interest in Eurocan Pulp & Paper Co., a division of Finland’s Enso-Gutzeit Oy, with its Kitimat, B.C., pulp and paper mill, two sawmills, and interest in other sawmills. West Fraser was now a fully integrated forest products company, grown to eight sawmills and a chain often building supply stores.
Growth throughout the 1980s
By 1981, Canada plunged into the recession, which crippled the logging industry, hitting especially hard in British Columbia. Yet, 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 C$65 million to C$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 up BC Hydro, a new Ketcham, Henry (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 non-union, making it unique in the industry—yet protecting the company from wildcat strikes plaguing the rest of the logging industry.
The company’s C$367 million in 1986 revenues were still fairly small compared to the industry’s powerhouses. However, West Fraser’s lumber output of nearly 1,000 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 up 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 $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 Growth in the 1990s
As the new decade began, however, the company saw its earnings drop drastically. Despite revenues of $540.5 million in 1990, net income fell to just under $3.5 million—down from $28.4 million in 1989. This was due to the high cost of stump-age rates, that is, 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 $10 million. However, in that year, the company’s Revelstoke division faced new pressures when two U.S. companies, Home Depot and Eagle Hardware & Garden, 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 $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 C$95.8 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 ten 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 now the second largest lumber producer in Canada, trailing only fellow Vancouver-based company Canfor Corp. Despite a poor performance by the Quesnel River pulp plant, which posted its first-ever operating loss, 1993 saw West Fraser’s earnings rebound, to $53.4 million.
The company again pushed to expand its operations in 1994, building a new sawmill in Prince Rupert, B.C. The company also added 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 up Eagle Hardware & Garden’s Canadian assets, which included two undeveloped Eagle sites, for C$30 million, allowing Revelstoke to consolidate its position in the Vancouver market. The British Columbian logging industry, meanwhile, began to see tightening restrictions on AACs, as B.C.’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 turn of the century. West Fraser itself responded to environmental controls by voluntarily giving up its rights to a 317,000-hectare area of the Kitilope Valley wilderness area north of Vancouver. West Fraser’s 1994 year end revenues rose to C$1.28 billion, generating a net income of C$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 were looking outside of Canada.” China held a natural attractiveness to the lumber industry: 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 unit of Alberta Energy for C$394 million.
The Ranger acquisition brought the company three businesses involved in producing and marketing dimension lumber, MDF, and BCTMP. Assets 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 & 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. The company continued to expand internally as well, constructing a new C$150 million MDF plant in Quesnel, scheduled to open in late 1996.
Revenues rose again for 1995, nearing C$1.5 billion and providing C$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 as its president and CEO, continuing the Ketcham legacy of low-cost operations and controlled expansion that has allowed West Fraser to rise to the top of its industry.
West Fraser Mills Ltd.; Blue Ridge Lumber; Eurocan Pulp & Paper; Quesnel River Pulp Company (50%); Ranger Board Ltd.; Revelstoke Home Centres Ltd.; Slave Lake Pulp; Westpine MDF; West Fraser Building Supplies Ltd.; Canadian Woodworks Ltd. (49%); Forwest Wood Specialties Inc. (49%); Burns Lake Specialty Wood Ltd. (14%); Nascor Incorporated (26%); Vernon Seed Orchard Company (30%).
Annett, Marg, and Annett, William, “West Fraser Timber’s Intangible Assets,” BC Business, September 1987, p. 10.
Cagampan-Stoute, Caroline, “The Strong Silent Type,” Canadian Papermaker, July 1994, p. 16.
“History of the Company,” West Fraser Timber Company, http://www.westfrasertimber.ca/story/comphist.htm.
Langan, Fred, “Canada’s Foresters See Green in China,” Christian Science Monitor, April 18, 1995, p. 8.
“West Fraser Builds for Long Term,” Financial Post, April 3, 1991.
“West Fraser to Buy Alberta Energy’s Ranger Forest Unit,” Pulp & Paper, August 1995, p. 17.
—M. L. Cohen