Stella-jones Inc. · TSX:SJ
Stella-jones — Investor Presentation (December 2020)
54 slides from Stella-jones's investor presentation, December 2020
Slide 1: Investor Presentation December 2020
INVESTOR PRESENTATION December 2020
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This presentation contains certain statements that are forward-looking, including comments with respect to the Company's objectives, strategies, targets and expectations. The reader is cautioned not to place undue reliance on these statements since a number of known and un
Slide 3: Non-IFRS Measures
NON-IFRS MEASURES Gross profit, operating income, operating income before depreciation and amortization (herein referred to as earnings before interest, taxes, depreciation and amortization [“EBITDA”]), cash flow from operating activities before changes in non-cash working capital components and int
Slide 4: Agenda
AGENDA • Overview of Stella-Jones • Investment Highlights • Strategy and Future Growth • Overview by Business Unit • Financial Trends • 2019 Results • Q3-2020 Results • Appendix 4
Slide 5: Overview of Stella-Jones
Lhie Pe Le LITTLE T ace OVERVIEW OF STELLA-JONES
Slide 6: Stella-Jones at a Glance
STELLA-JONES AT A GLANCE A Leading North American Supplier of Pressure Treated Wood Products 2,190(1) 40 (1) Employees Wood Treating Facilities 36% 31% 25 U.S. and 15 Canada Utility Poles Railway Ties $2.2 B 12 (1) 70% (2) 2019 Sales Pole Peeling Sales Facilities in the U.S. 5% Logs & Lumber 6% 22%
Slide 7: Important Milestones
IMPORTANT MILESTONES Initial Public Over $1 Billion in sales Over $2 Billion Foundation Offering 4 for 1 stock split in sales 1993 1994 2010 2012 2013 2015 2018 Acquired Tangent Acquired McFarland Cascade: Acquired RAM Forest Rail Corporation: Transformative acquisition for Group & Ramfor Lumber: Tr
Slide 8: Investment Highlights
INVESTMENT HIGHLIGHTS 8
Slide 9: Investment Highlights
INVESTMENT HIGHLIGHTS • Resilient business model: portfolio of businesses with steady demand • Extensive network in North America • Leadership position in markets served • Track record of performance • Experienced and proven management team • Solid balance sheet • Proven consolidator with discipline
Slide 10: Stella-Jones' Continental Network
STELLA-JONES’ CONTINENTAL NETWORK * * Acquired April 2019 10
Slide 11: Track Record of Performance
TRACK RECORD OF PERFORMANCE Sales(1) EBITDA(2)(3) $2,189M $313M $561M $71M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Net income Cash Flow(2)(4) $305M $163M $78M $34M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2
Slide 12: Maintaining a Solid Financial Position
MAINTAINING A SOLID FINANCIAL POSITION $800 $700 $520M 3.0x $600 2.8x Net Debt- 2.6x 2.5x to-EBITDA $500 2.5x in millions $ 2.4x 2.1x TARGET $400 1.9x 1.9x 1.9x 2.0x $300 $200 1.4x $100 $0 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q3-20 Net debt Net Debt-to-EBITDA(1) (1) This is a non-IFRS financ
Slide 13: 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 14: Increasing Shareholder Value
INCREASING SHAREHOLDER VALUE Relative Stock Price Performance Shares outstanding @ 67.2M Sept 30, 2020 Average daily volume 189,164 500% 52 week (high-low) $47.22-$23.34 450% Market Capitalization $3.0B $45.03 As at Dec. 04, 2020 400% 350% 19.4% CAGR 300% 250% 200% 14.8% CAGR 150% 100% 14.1% 50% CAG
Slide 15: Strategy and Future Growth
STRATEGY AND FUTURE GROWTH 15
Slide 16: Strategy and Future Growth by Business Unit
STRATEGY AND FUTURE GROWTH BY BUSINESS UNIT Market Growth Drivers Trends Growth Strategy 36% • Potential for further consolidation in the • • Replacement programs Mid-single digit growth • Growth in replacement demand from increasing • • Acquisitions Leveraging the upcoming Utility Pole North Americ
Slide 17: Overview by Business Unit
OVERVIEW BY BUSINESS UNIT | | IMM
Slide 18: Utility Poles – Overview
UTILITY POLES – OVERVIEW Leading North American supplier of wood utility poles, providing over one million poles per year to replace, upgrade and develop new electrical utility and telecommunications lines across Canada and the United States 2019 Sales 5-Year Sales $798M $528M $798 M Growth in U.S.
Slide 19: Utility Poles – Offering
UTILITY POLES – OFFERING Competitive Advantages An extensive distribution network, continuous supply, emergency response and fire-resistant wrap Customers • Electrical utility companies • Telecommunication companies Contracts • Majority of business under multi-year agreements • Varying 3 to 7 years
Slide 20: Utility Poles – Market Conditions
UTILITY POLES – MARKET CONDITIONS Growth in replacement demand from increasing average age of poles Market Size Marketplace Growth Drivers • There are about 150MM poles • Potential for further • Replacement programs in North America, of which consolidation in the North (life span of poles is typical
Slide 21: Railway Ties – Overview
RAILWAY TIES – OVERVIEW Industry leader in the production of quality pressure treated railroad ties and timbers, supplying over 10 million crossties per year 2019 Sales 5-Year Sales $710M $687M $687 M Increasing prices 31% 2015 2016 2017 2018 2019 Note: 2016 - 2019 figures were adjusted to reclass s
Slide 22: Railway Ties – Offering
RAILWAY TIES – OFFERING Competitive Advantages An extensive distribution network, continuous supply and short delivery times Customers • ~65% Class 1 railroads • ~35% short and regional rail lines & contractors Contracts • Long-term contracts of up to 5 years with Class 1 railroads • Short and regio
Slide 23: Railway Ties – Market Conditions
RAILWAY TIES – MARKET CONDITIONS Improved untreated railway tie inventory availability Market Size Marketplace Growth Drivers • ~18 million railway tie purchases • Stable market • Maintenance requirements on an annualized basis in North • Market is fairly consolidated • Market reach gains America •
Slide 24: Annualized Railway Tie – Purchases & Inventory
ANNUALIZED RAILWAY TIE – PURCHASES & INVENTORY Industry inventory levels remained stable in the first nine months of 2020 to 15.3 million as at September 30, 2020 30 25 20 In millions of ties 15 10 5 0 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Inventory Purchases Source: Railway Tie Association (RTA
Slide 25: Residential Lumber - Overview
RESIDENTIAL LUMBER - OVERVIEW Provides seamless, end-to-end service to key North American retailers, supplying hundreds of millions of board feet of treated residential lumber across Canada and the United States each year 2019 Sales 5-Year Sales $472M Prices are tied to the $472 M cost 22% $183M of
Slide 26: Residential Lumber - Offering
RESIDENTIAL LUMBER - OFFERING Competitive Advantages Low transportation costs, continuous supply, short delivery times and dedicated distribution centres Customers • ~80% Big box retailer • Dealer network Contracts • Renewed annually Services Wood Species Preservatives • Lumber • Hemlock • Micronize
Slide 27: Residential Lumber – Market Conditions
RESIDENTIAL LUMBER – MARKET CONDITIONS Continued demand for new construction and outdoor renovation projects in the North American residential and commercial markets Market Size Marketplace Growth Drivers • Difficult to access • Partially consolidated in Canada • Home renovation • Limited pure plays
Slide 28: Lumber Costs – 5 Year Evolution
LUMBER COSTS – 5 YEAR EVOLUTION Lumber costs peaked on Sept. 1 2020 1000 900 800 700 600 500 400 300 200 100 0 2015-12-01 2016-12-01 2017-12-01 2018-12-01 2019-12-01 2020-12-01 Source: Factset 28
Slide 29: Industrial Products – Overview
INDUSTRIAL PRODUCTS – OVERVIEW A leading supplier of pressure treated wood products to the marine, industrial and civic sectors for outdoor applications including piling, wharf timbers, bridge timbers, crane mats, railway crossings and laminated poles 2019 Sales 5-Year Sales $120M $97M $120 M 6% 201
Slide 30: Logs and Lumber – Overview
LOGS AND LUMBER – OVERVIEW Business used to optimize procurement and does not generate margin 2019 Sales 5-Year Sales $112M $112 M Sales are $42M tied to 5% RAM the price acquisition of lumber 2015 2016 2017 2018 2019 Note: 2018 & 2019 figures were adjusted to reclass some freight revenue from COGS
Slide 31: Financial Trends
FINANCIAL TRENDS 31
Slide 32: Building a Strong Third Pillar
BUILDING A STRONG THIRD PILLAR Residential lumber grew from 10% of sales in 2014 to 22% in 2019 $2,189M $561M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Utility Poles Railway Ties Residential Lumber Industrial Products Logs & Lumber Note: 2016 - 2019 figures were adjusted to reclass some frei
Slide 33: Growing Proportion of U.S. Sales
GROWING PROPORTION OF U.S. SALES 70% 62% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Canada U.S. 33
Slide 34: EBITDA
EBITDA(1) $313M(2) $350 20.0% 18.0% $300 15% 14% 16.0% 17% 14% $250 16% 14.0% 13% 15% 14% (In millions) $200 13% 12.0% 11% 10.0% $150 $71M 8.0% $100 6.0% 4.0% $50 2.0% $0 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 EBITDA EBITDA % (1) This is a non-IFRS financial measure. Please refer to
Slide 35: Inventory Turnover
INVENTORY TURNOVER Because of the long periods required to air-season wood, inventory turnover has historically been relatively low 2.3x 2.2x 2.1x 2.1x 1.9x 1.9x 1.8x 1.9x 1.7x 1.6x 1.4x 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 35
Slide 36: Capital Allocation Overview
CAPITAL ALLOCATION OVERVIEW Stella-Jones has invested $1,007M in growth investments and returned $329M in cash to shareholders since 2010 $192M $198M $175M $143M $122M $105M $95M $97M $87M $76M $45M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD Q3-20 Acquisitions Capex Dividends Share buybac
Slide 37: Increasing Dividends Consistently
INCREASING DIVIDENDS CONSISTENTLY 2020 will mark the 16th consecutive year of dividend increase $0.60* $0.56 18.5% $0.48 CAGR $0.44 $0.40 $0.32 $0.13 $0.28 $0.20 $0.16 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E * Projected based on the latest quarterly dividend 37
Slide 38: 2019 Results
2019 RESULTS 38
Slide 39: 2019 – 19th Consecutive Year of Sales Growth
2019 – 19th CONSECUTIVE YEAR OF SALES GROWTH $2.2BM SALES VARIANCE $2.1B 2% 2018 Sales (M) $2,144 Acquisitions 11 Currency variations 42 Organic growth Pressure treated wood 34 Logs and lumber (42) 2019 Sales (M) $2,189 2018 2019 Utility Poles Railway Ties Residential Lumber Industrial Products Logs
Slide 40: 2019 – Higher EBITDA and Margins
2019 – HIGHER EBITDA(1) AND MARGINS EBITDA(1) Operating Income(1) $281M $313M Pre-IFRS $242M $244M Driven by $206M 14% improved pricing 13% 11% and favourable 11% product mix 10% 2018 2019 2019 2018 2019 (1) This is a non-IFRS financial measure. Please refer to the Company’s MD&A. 40
Slide 41: 2019 – Net Income & EPS Increased
2019 – NET INCOME & EPS INCREASED Net income EPS $2.37 $163M Driven by sales growth $1.98 $138M 2018 2019 2018 2019 41
Slide 42: Managing Cash Flow for Seasonality
MANAGING CASH FLOW FOR SEASONALITY Cash Flow before certain items(1)(2) Cash Flow from Operating Activities Increase in inventory in $305M $128M anticipation of 2020 sales $258M $90M 2018 2019 2018 2019 (1) This is a non-IFRS financial measure. Please refer to the Company’s MD&A. (2) Before changes
Slide 43: Q3-2020 Financial Results
Q3-2020 FINANCIAL RESULTS 43
Slide 44: Q3-20 – Sales Up 18%
Q3-20 – SALES UP 18% $742M SALES VARIANCE $631M 18% Q3-19 Sales (M) $631 Currency variations 5 Organic growth Pressure treated wood 85 Logs and Lumber 21 Q3-20 Sales (M) $742 Q3-19 Q3-20 Utility Poles Railway Ties Residential Lumber Industrial Products Logs & Lumber Note: Prior period figures have b
Slide 45: Q3-20 – Increasing EBITDA & Operating Income
Q3-20 – INCREASING EBITDA(1) & OPERATING INCOME(1) EBITDA(1) Operating Income(1) $113M $132M Driven by the sharp rise in the market prices of $78M $96M lumber, stronger residential lumber demand, as well as improved pricing, product mix and volumes for utility poles Q3-19 Q3-19 Q3-20 Q3-20 Q3-19 Q3-
Slide 46: Q3-20 – Increasing Net Income and EPS
Q3-20 – INCREASING NET INCOME AND EPS Net Income EPS $79M $1.17 $54M $0.78 Q3-19 Q3-19 Q3-20 Q3-20 Q3-19 Q3-20 46
Slide 47: Q3-20 – Increasing Cash Flow
Q3-20 – INCREASING CASH FLOW Cash Flow before certain items(1)(2) Cash Flow From Operating Activities $132 M $148 $124 $95M Improved profitability, partially offset by timing of income tax payments Q3-19 Q3-19 Q3-20 Q3-20 Q3-19 Q3-20 (1) This is a non-IFRS financial measure. Please refer to the Comp
Slide 48: Proactively Managing COVID-19
PROACTIVELY MANAGING COVID-19 • Seasoned management team in place • Continued to reinforce measures implemented to mitigate health risks to employees, business partners and communities where it operates • Our operations are critical to the integrity of the supply chain for utilities, railroads and t
Slide 49: Outlook – Updated on November 5, 2020
OUTLOOK – Updated on November 5, 2020 2020 GUIDANCE 2021 GUIDANCE • Updated EBITDA(1) guidance in the Based on current expectations and range of $365 to $375 million stable currencies: • EBITDA margin(1) expected to be • Healthy sales for 2021 higher than 2019 • Utility pole sales are expected to •
Slide 50: Appendix
APPENDIX 50
Slide 51: Adoption of IFRS 16, Leases
ADOPTION OF IFRS 16, LEASES (“IFRS 16”) • On January 1, 2019, the Company retrospectively adopted IFRS 16 • Comparatives for the 2018 reporting period have not been restated, as permitted • The application of this new standard resulted in: – The addition of right-of-use assets and lease liabilities
Slide 52: Income Statement - 5-Year Financial Summary
INCOME STATEMENT - 5-YEAR FINANCIAL SUMMARY 2019 2018 2017 2016 2015 Sales 2,189 2,144 1,908 1,854 1,559 Gross Profit(1) 359 328 315 334 307 EBITDA(1) 313 244 243 265 243 EBITDA %(1) 14% 11% 13% 14% 16% Operating income(1) 242 206 207 233 220 Operating %(1) 11% 10% 11% 13% 14% Net income 163 138 168
Slide 53: Financial Position - 5-Year Financial Summary
FINANCIAL POSITION - 5-YEAR FINANCIAL SUMMARY 2019 2018 2017 2016 2015 Working capital 1,010 909 779 928 854 Total assets 2,281 2,062 1,786 1961 1,779 Long-term debt(1) 605 514 456 694 670 Shareholders’ equity 1,288 1,281 1,116 1,026 914 Net debt(2) to total 0.32:1 0.29:1 0.29:1 0.40:1 0.42:1 capita
Slide 54: www.stella-jones.com
WWW.STELLA-JONES.COM