Rayonier Inc. (RYN)

Analyst Day Conference Call

September 22, 2011 8:30 am ET

Executives

Lee M. Thomas – Chairman and Chief Executive Officer

Paul G. Boynton – President and Chief Operating Officer

N. Lynn Wilson – Vice President, U.S. Forest Resources

Charles Margiotta – Senior Vice President, Real Estate President, TerraPointe Services

Hans E. Vanden Noort – Senior Vice President and Chief Financial Officer

Jack M. Kriesel – Senior Vice President, Performance Fibers

Presentation

Lee M. Thomas

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So good morning again, it would be worthy appreciate you being here for Rayonier’s Investor Day and welcome to the Jesup Operation. I think, I had I talked a little bit last night, the focus today is really our plans for the future. I think a lot of you’re familiar with our performance over the past number of years. We want to talk to you about our performance over the next few years and our projections, and what it means in terms of cash flows, particularly our EBITDA goals for the next five years.

No, I think a routine for Rayonier here has been all about execution and discipline around execution. And so as we look to the future, I think you’ll see a lot of that built into our plans going forward as well. It’s been a lot going on here, particularly over the course of the last year as we’ve looked at both growth opportunities for us and we want to cover those with you. I want to talk about some of our latest acquisitions in our timber business, but we think that means for us going forward, how we think the markets are going to look for timber.

We also want talk to you about our Performance Fibers business in some detail. And we want to talk to you about our latest expansion plans, and adjust. When we finish this presentation, you’re going to have an opportunity to take a tour, so you will get a direct understanding I think from some of our folks here, open R&D as well as out in the mill and out in the place.

So with that, what I'm going to do is turn it over to Paul, and Paul is going to talk some about our strategy going forward and then we’re really going to spend most of our time with our business unit leaders, giving you a much better understanding of each one of the businesses and where we think we are and where we are going over the next several years. So, Paul?

Paul G. Boynton

Thanks Lee. Hey, good morning, everyone, I'm just going to take a few minutes and review our strategy, but first before I do that, let me introduce all of our presenters here this morning. I will start off with our business leaders and if you guys don’t mind standing on (inaudible) Lynn Wilson, our Vice President of U.S. Forest Resources; Charlie Margiotta, Senior Vice President of our Real Estate Group; and Jack Kriesel, Senior Vice President of Performance Fibers.

So we are going to start off with Lynn, Charlie and Jack talking through the strategy for the businesses and we’re going to wrap that up on a financial summary with our CFO, Hans Vanden Noort, concluding. And then Lee will come up again and wrap everything up for you at the end of our presentation. So that’s kind of the flow of what we’re going to do this morning.

I’d like to remind you that in this presentation we will include forward-looking statements made pursuant to the Safe Harbor provision of Federal Securities law. Our Form 10-K file with the SEC lists, some of the factors, which may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on page 2 of your presentation material.

Okay, now let me just start with a review of our strategy. In the very simplest of forms, our strategy is to invest in Timberland and Performance Fibers growth, very simple, it’s invest in Timberland, invest in Performance Fibers growth and make sure we’re continuing to push forward shareholder value.

Now when we say we’re going to invest in our Timberland, when I say we’re going to invest in our Timberland, I am talking about really the combination of portfolio of our two businesses. And when I talk about that, if you think about our Timberlands as a portfolio, we’re going to just simply costly go out and look for quality timberlands to bring in to that portfolio. So we’re looking around, looking for what we say upgrades our existing portfolio by bringing it in at the same time divesting part of the portfolio, which is less optimal. While there is either a location that’s optimal or perhaps on a quality of site index, if there are optimal, but moving that out of the portfolio. And then what we have on balance is really our strategic timberland, and we will have Lynn come up and talk about our methods, our way of increasing future value with that property.

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On the real estate side, we actually have a very comprehensive land classification system. And we categorize all of our properties by greatest potential for market value, where there is transactions from a real estate sale for our roll sales, whether it’s guiding value creation for conservation fields or positioning the property from entitlement to industrial, the commercial or residential sales value. And Charlie will talk through the details of this strategy.

And in Performance Fibers, we’ve developed a strategy to maintain our leadership position in cellulose specialties and high purity cellulose. What we do better than anybody else in the industry is create and isolate a high purity cellulose fiber and we do that consistently day in and day out.

And so our challenge in this Group and our strategy is to continue to add value to our customers and at the same time, create a wedge between, a technology wedge, between Rayonier and its competition. Also important in this strategy is the continuing invest in capital for reliability and for low cost improvement to help maintain our position in the long term, which again is very important for our customers and low cost position out there as well.

Jack is going to highlight what is this market segment is all about, Cellulose Specialty segment is all about. He’s going to talk about what makes Rayonier different from our competition and he’s going to expand on how we plan to grow our position here with our recently announced expansion.

So we’re going to walk through each of those three businesses with Lynn, with Charlie, with Jack, and we’re going to talk about our strategy in each of these areas and how we’re creating value for our shareholders. And again, quite simply, it’s a very focused strategy based on strong execution and disciplined growth in Timberland and Performance Fibers.

With that let me turn it over to Lynn Wilson to talk about Forest Resources.

N. Lynn Wilson

Thank you, Paul, and good morning. It’s my privilege to be here today and I’m going to continue on with the theme of EBITDA growth and really focusing on four drivers for our U.S. Forest Resources Timberland acquisitions and our current portfolio. We focusing on volume, mix, price and our acquisition strategies which Charlie Margiotta will share with you.

I would like to start with familiarizing you with our U.S. Forest Resources Timberland and our New Zealand operation. If you look on the map, we have a 26% position in the joint venture and 317,000 acres in New Zealand and Rayonier is the managing partner. For our U.S. Forest Resources, I would like to start with the Atlantic Region. In the Atlantic Region, we have 1.1 million acres in Georgia and Florida.

Moving on to our Gulf States Region, which is where all of our most recent acquisitions are located, we now have 746,000 acres located in Louisiana, Alabama, Mississippi, Oklahoma, Texas, and Arkansas, with a very small parcel in Tennessee in addition. So the recent 50,000 acres in July and in the most recent announcement of the 250,000 acres are all located in those Gulf States regions.

If you look at our Northern Region, we have 128,000 acres of high value hardwood located in New York. And then moving on to our premier timberlands in Washington State, we have 398,000 acres in the Olympic Peninsula, which I’m going to dive into a little bit deeper in the later slides.

I’d like to emphasize this diversification that you see here in this map, which helps us with both geographic end market regions, so as the economy and markets change, we can really implement a very strong business.

Going to our EBITDA growth drivers for Forest Resources, those primary drivers are volume, mix, price and timberlands acquisitions. So I would like to start with volume. The Asian demands in Rayonier’s position in the Pacific Northwest is allowing us to ramp up and respond, we’re uniquely positioned with that acres that we have there. In addition we have differed volume over the past few years in the Pacific Northwest and now we are able to respond over the next five years and really capture that export opportunity. Also to our advanced silvicultural practices are increasing the available volume on our southeast Timberlands with significant investment in ongoing capital, and I will speak to that as well.

As we take a look at mix, we’ve improved our southeast sawlog mix because we’ve differed over time a significant volume which is now stored and we can capture and bring that – we have the ability to bring that to market. We also have to our silvicultural, practices we are improving our mix significantly over time.

When you look at price, as one of the major drivers, we feel there are several areas that are going to really bring our pricing over the next five years. Housing recovery will be one, the British Columbia mountain pine beetle will come in the outer years will support pricing, in addition to the housing recovery as well as that ongoing export demand.

And as for as Timberland acquisitions, this is one of the areas where we get both additional volumes and we get additional operational flexibility. With that said we think that really is important to think about and it will be a reinforcement – tour later today is execution, we have a very strong business strategy that’s in place and it’s ongoing that the team is really focused on executing on all of these drivers.

I would like to start off with China’s demand for softwood driving the higher imports into their country. We have conviction now after doing significant internal and external due diligence within our team that this is a long-term play that is not a blip on the screen. As you take a look at the graph on your left, it shows that China's softwood log and lumber deficit is expected to grow by 10% per year or going from 2010 to 2015 the demand is going to be up over 110 million cubes.

With that the domestic supply that China has internal to their country does not have the ability to respond both because of depleted resources and because of ongoing pressure from conservation and agricultural uses of land. So we see that the total gap will be 2015, 60 million cubes and this data comes from RISI and several other sources.

If you move over to the right, we see that the China softwood log and lumber imports by region will over time move to three significant runners. We see that China will be using logs and lumber from Canada, New Zealand and U.S. and that’s where the growth will occur.

We know that Russia has a very large resource that’s transportation advantage and is sitting there very close to China, but we see that the infrastructure, the social challenges and the way that things have transitioned over the past few years that that gap will remain and they will be unable to respond.

So what does that mean for Rayonier’s business? Rayonier in the Pacific Northwest our ownership is strategically located with export opportunities. I’d like you to notice where our ownership is, we have 398,000 acres in the Olympic Peninsula all within proximity of five different ports, which we are currently shipping out of today.

Those are the things that just really put us in a position to take advantage day-in and day-out and so both domestic markets and our export markets are lifting up those prices, which you’ve seen in our financial performance. Not only does this mean that we have higher export markets, but the domestic sawmills are in a position to continue to compete if they are going to run their mill.

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