Stella-jones Inc. · TSX:SJ
Stella-jones — Shareholder Meeting (May 2018)
44 slides from Stella-jones's shareholder meeting presentation, May 3, 2018
Slide 1: Annual Meeting of Shareholders
ANNUAL MEETING OF SHAREHOLDERS May 3, 2018 1
Slide 2: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 3: Management
Management Brian McManus Eric Vachon, CPA, CA Marla Eichenbaum President and Senior Vice-President and Vice-President, General Counsel Chief Executive Officer Chief Financial Officer and Secretary 3
Slide 4: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 5: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 6: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 7: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 8: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 9: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 10: Election of Directors
Election of Directors Brian McManus Nycol Pageau-Goyette Simon Pelletier Daniel Picotte Mary Webster President and CEO, President, Pageau Goyette Senior Vice-President, Partner, Fasken Martineau Corporate Director Stella-Jones Inc. et associés limitée North American Sales DuMoulin LLP and Operations
Slide 11: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 12: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 13: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 14: Brian McManus
Brian McManus President and Chief Executive Officer 14
Slide 15: Diversifying Product Mix
Diversifying Product Mix 31% of sales Based on core competence Logs & Lumber Industrial Products Residential Lumber Utility Poles 17% of sales Railway Ties 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 15
Slide 16: Growing Proportion of U.S. Sales
Growing Proportion of U.S. Sales 70.9% 70.2% 81.7% 81.6% 75.3% 68.2% 64.4% 61.6% 53.2% 54.3% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Canada US 16
Slide 17: Creating Shareholder Value
Creating Shareholder Value ,000 18.0 16.5x ,500 Multiple 16.0 ,000 expansion $3,957 14.0 ,500 12.0 ,000 10.0 ,500 6.7x 8.0 ,000 6.0 ,500 ,000 4.0 500 $393 2.0 - 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Enterprise Value EBITDA Multiple * EBITDA multiple calculated using stock price on De
Slide 18: Growing Revenues and Earnings
Growing Revenues and Earnings Sales Net income EPS $1.84B $1.89B $167.9M $153.9M $2.42 $2.22 Earnings 1% organic benefited growth from U.S. tax reform 2016 2017 2016 2017 2016 2017 Margins impacted by pricing pressures in the railway tie category and by overall product mix 18
Slide 19: Utility Poles
Utility Poles Percentage of Sales Sales Organic Sales $654M $579M +$40M +6.9% +12.9% 34.7% Historical level of maintenance demand Growth in Southeastern U.S. 2016 2017 19
Slide 20: Railway Ties
Railway Ties Percentage of Sales Sales Organic Sales $716M $652M ($58M) (8.1%) (9.0%) 34.5% Lower pricing 2016 2017 20
Slide 21: Residential Lumber
Residential Lumber Percentage of Sales Sales Organic Sales $366M $346M +$21.5M +6.2% +5.9% 19.4% Higher pricing 2016 2017 21
Slide 22: Industrial Products
Industrial Products Percentage of Sales Sales Organic Sales $96M $95M ($2.2M) (2.3%) (1.9%) 5.0% Lower sales of marine pilings in Canada 2016 2017 22
Slide 23: Logs & Lumber
Logs & Lumber Percentage of Sales Sales Organic Sales $120M $101M +$19.1M +18.9% +18.9% 6.4% Timing of lumber purchases & resale activities Timing of timber harvesting Higher selling prices 2016 2017 23
Slide 24: Growing by Acquisitions
Growing by Acquisitions July 2003 Cambium Group Inc. (Canada) August 2005 Webster Wood Preserving (U.S.) July 2006 Bell Pole Company (Canada) February 2007 Wood utility pole business of J.H. Baxter (U.S.) April 2008 The Burke-Parsons-Bowlby Corporation (U.S.) April 2010 Tangent Rail Corporation (U.S
Slide 25: Stella-Jones Facilities
Stella-JoneS So 1 New Westminster, BC 2 Prince George, BC 3 Galloway, BC 4 Carseland, AB 5 Neepawa, MB 6 South River, ON 7 Guelph, ON 8 Gormley, ON 9 Peterborough, ON 10 Gatineau, QC 11. Riviére-Rouge, QC 12. Delson, QC 13. SorelTracy, QC oe 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Treating Facilit
Slide 26: Eric Vachon, CPA, CA
Eric Vachon, CPA, CA Senior Vice-President and Chief Financial Officer 26
Slide 27: Track Record of Performance
Track Record of Performance Revenues $1,886M EBITDA(1) $241M 19.3% 17.2% CAGR CAGR $385M $58M 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net income $168M Cash Flow(2) $246M 21.6% 22.0% CAGR CAGR $29M $41M 2008 2009 2010 2011 2012 2013 2014 201
Slide 28: 2017 – Sales Increased for 17th Consecutive Year
2017 – Sales Increased for 17th Consecutive Year $1.84B $1.89B Logs & Lumber Industrial Products +2.6% SALES VARIANCE Residential Lumber 2016 Sales (M) $1,838.4 Utility Poles Acquisitions 44.0 Currency variations (17.0) Organic growth 20.8 2017 Sales (M) $1,886.1 Railway Ties 2016 2017 28
Slide 29: 2017 – Gross Profit Under Temporary Pressure
2017 – Gross Profit Under Temporary Pressure $333.7M $299.9M 18.2% 15.9% ① Lower selling prices for railway ties ② Less favourable geographical mix in utility poles ③ Increased untreated lumber costs 2016 2017 29
Slide 30: 2017 – Net Income & EPS Increased
2017 – Net Income & EPS Increased Net income EPS $167.9M $153.9M $2.42 Benefited $2.22 from $30M in U.S. +9.1% tax reform 2016 2017 2016 2017 30
Slide 31: Generating Significant Cash Flow
Generating Significant Cash Flow Cash Flow before certain items(1) Cash Flow from Operating Activities Inventory $301M $269M decreased $246M significantly $182M 2016 2017 2016 2017 (1)Before changes in non-cash working capital components and interest and income tax paid. 31
Slide 32: Deploying Capital Prudently
Deploying Capital Prudently $192M $198M Acquisition of WPI $122M $105M $95M $97M $88M $53M $45M $9M 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Acquisitions Capex Dividends 32
Slide 33: Increasing Dividends Consistently
Increasing Dividends Consistently 13th consecutive year of dividend increase $0.44 $0.40 $0.32 $0.28 $0.20 $0.16 $0.13 $0.09 $0.09 $0.10 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 33
Slide 34: Maintaining a Solid Financial Position
Maintaining a Solid Financial Position $354.5 million available on the Company’s syndicated credit facilities 800 $694M 4.00 700 3.50 3.21 3.02 600 3.00 2.52 $456M 2.43 500 2.22 2.75 2.50 2.62 2.41 400 2.00 1.87 1.89 300 1.50 200 1.00 100 0.50 - - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 LT
Slide 35: Q1-18 – Sales Increased Modestly
Q1-18 – Sales Increased Modestly $396.9M $398.8M Logs & Lumber +0.5% SALES VARIANCE Industrial Products Residential Lumber Q1-17 Sales (M) $396.9 Acquisitions 3.1 Utility Poles Currency variations (16.1) Organic growth 14.9 Q1-18 Sales (M) $398.8 Railway Ties Q1-17 Q1-18 35
Slide 36: Q1-18 – Gross Profit Still Under Pressure
Q1-18 – Gross Profit Still Under Pressure $63.8M $56.5M 16.1% 14.2% ① Cost of sales was negatively impacted by the conversion of Class 1 railroad customer to a full service “black-tie” program ② Increasing utility pole fiber costs and timing of price increases Q1-17 Q1-18 36
Slide 37: Q1-18 – Net Income & EPS Decreased
Q1-18 – Net Income & EPS Decreased Net income EPS $0.37 $25.9M $0.33 $23.1M Impacted by lower (10.9%) operating income Q1-17 Q1-18 Q1-17 Q1-18 37
Slide 38: Managing Cash Flow for Seasonality
Managing Cash Flow for Seasonality Cash Flow before certain items(1) Cash Flow from Operating Activities $7.2M $50.4M $45.0M Q1-17 Q1-17 Q1-18 Normal seasonal working capital requirements Q1-17 Q1-18 ($64.6)M (1)Before changes in non-cash working capital components and interest and income tax paid.
Slide 39: Increasing Dividends Consistently
Increasing Dividends Consistently 2018 will be the 14th consecutive year of dividend increase $0.48 $0.44 $0.40 $0.32 $0.28 $0.20 $0.16 $0.13 $0.09 $0.10 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 E 39
Slide 40: Maintaining a Solid Financial Position
Maintaining a Solid Financial Position $204.7 million available on the Company’s syndicated credit facilities 800 4.00 700 3.50 3.02 $565M 600 2.75 3.00 2.41 2.52 $456M 500 2.43 2.50 2.22 2.62 1.87 2.41 400 2.00 300 1.89 1.50 200 1.00 100 0.50 - - 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1-18 L
Slide 41: Brian McManus
Brian McManus President and Chief Executive Officer 41
Slide 42: Outlook
Outlook Based on current market conditions and stable currencies Sales 2018 vs 2017 Margins 2018 vs 2017 Consolidated Progressive improvement Progressive improvement (1st half softer) Railway Ties Stable Softer margins in 1st half Utility Poles Better sales mix Margin pressure on cost increases & ti
Slide 43: Agenda
Agenda 1. Opening of the Meeting 2. Chairman, Secretary and Scrutineers 3. Notice of Meeting 4. Scrutineer’s Report 5. Minutes of Previous Meeting 6. Annual Report & Independent Auditor’s Report 7. Election of the Directors 8. Appointment of Auditors 9. Termination of the Meeting 10. Management Pres
Slide 44: Thank You
THANK YOU Stella-JoneS a—. www.stella-jones.com