Slide 1: Company Update June 2018
COMPANY UPDATE JUNE 2018
Slide 2: Forward-Looking Information
FORWARD-LOOKING INFORMATION This presentation contains forward-looking information about the Company’s business outlook, objectives, plans, strategic priorities and other information that is not historical fact. A statement contains forward-looking information when the Company uses what it knows and
Slide 3: Summary
SUMMARY SOLID Q1-2018 FINANCIAL MULTI-YEAR STRATEGIC RESULTS: CAPITAL PLAN UNDERWAY: • Strong production, including a record • +/- $150 MM/year capex quarter for the US South PHASE I: Two US South projects • Shipments negatively impacted by industry- totaling US$65 MM wide logistics issues • Increas
Slide 4: Interfor's Four Regions
INTERFOR’S FOUR REGIONS BC COAST 320 MMBF (10%) • 2 mills • Cedar, Hem-Fir, Douglas-Fir • Speciality BC INTERIOR 750 MMBF (24%) • 3 mills • Douglas-Fir, Hem-Fir, SPF, Cedar • Dimension US NORTHWEST 640 MMBF (21%) • 4 mills • Hem-Fir, Douglas-Fir, Ponderosa Pine, Lodgepole Pine US SOUTH • Studs, Dime
Slide 5: 4th Largest Lumber Producer
4TH LARGEST LUMBER PRODUCER NORTH AMERICAN LUMBER PRODUCTION BY COMPANY - 2017 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - - Capacity Source: Wood Markets Monthly March 2018 5
Slide 6: Interfor's Products & Markets
INTERFOR’S PRODUCTS & MARKETS LUMBER SALES BY SPECIES (1) LUMBER SALES BY MARKET (1) Spruce-Pine-Fir USA Hem-Fir 76% 11% 9% Doug Fir/ Southern Larch Yellow 27% Pine 37% Canada Lodge Pole/ Japan 9% Ponderosa Pine 7% Other China/Tw/HK 4% Cedar 12% 4% 4% (1) By Value for Q1-2018 6
Slide 7: Lumber Markets
INTERFOR INTERFOR X INTERFOR INTERFOR cS INTERFOI INTERFOF
Slide 8: Key Market Drivers
KEY MARKET DRIVERS 2017 2018E 2019E 2020E 2021E US Housing Starts - Total (mm) 1.21 1.31 1.39 1.49 1.61 Change +3% +9% +6% +7% +8% US Housing Starts - Single Family (mm) 0.85 0.93 1.01 1.09 1.17 Change +9% +9% +9% +8% +7% North American Lumber Consumption (Bft) 59.4 61.0 62.9 65.7 69.0 Change +7% +3
Slide 9: North American Lumber Demand
NORTH AMERICAN LUMBER DEMAND NORTH AMERICAN SOFTWOOD LUMBER DEMAND BY END-USE (BBF) & TOTAL US HOUSING STARTS (MILLIONS) 80 2.5 Residential Repair & Remodel - Bbf Lumber (Left Axis) Industrial/Commercial - Bbf Lumber (Left Axis) 70 Residential New Home Construction - Bbf Lumber (Left Axis) US Housin
Slide 10: North American Lumber Supply
NORTH AMERICAN LUMBER SUPPLY NORTH AMERICAN LUMBER DEMAND & SUPPLY CHANGES: 2017 – 2021 BBF LUMBER North American Domestic Demand: + 9.6 • Continued growth in all end- use markets (R&R, industrial and new home construction) Plus: Decline in BC Production: + 1.0 • Reductions in fibre supply Less: Pot
Slide 11: North American Lumber Prices
NORTH AMERICAN LUMBER PRICES NORTH AMERICAN BENCHMARK LUMBER PRICES (US$/MBF) NOMINAL & REAL $600 Random Lengths Framing Lumber Composite Price - NOMINAL $550 Random Lengths Framing Lumber Composite Price - REAL $500 $450 $400 $350 $300 $250 $200 $150 $100 Source: Random Lengths (2018 includes price
Slide 12: Softwood Lumber Dispute
SOFTWOOD LUMBER DISPUTE • Interfor’s Canadian operations’ shipments to the U.S. represented 15% of company-wide lumber shipments in Q1-2018. • 67% of Interfor’s Q1-2018 lumber production was US-based. • Significant differences in accounting treatment for duties between publicly traded companies; lim
Slide 13: Operations Overview
OPERATIONS OVERVIEW
Slide 14: Business Comparisons
BUSINESS COMPARISONS BC INTERIOR US SOUTH DIMENSION MILLS DIMENSION MILLS • 3 dimension mills in BC southern • 9 dimension mills in Georgia, interior South Carolina and Arkansas • Modern/low cost operations • Low cost wood baskets • Good fiber supply/limited • Strong geographic fit/significant expos
Slide 15: BC Interior Dimension Mills
BC INTERIOR DIMENSION MILLS
Slide 16: BC Interior: Overview
BC INTERIOR: OVERVIEW Mountain Pine Beetle Cumulative Percentage of Merchantable Forest Volume Killed Since 1999 Very High (>45%) High (31-45%) Moderate (16-30%) Low (<16%) None (0%) Adams Lake Castlegar Grand Forks Source: BC Ministry of Forests 16
Slide 17: BC Interior: Case Study
BC INTERIOR: CASE STUDY ADAMS LAKE GRAND FORKS CASTLEGAR 2008-09 2012 2015 Adams Lake 3 mills in good fibre baskets Significantly repositioned the assets Re-investments are complete STRONG CASH FLOW AND RETURN ON INVESTMENT TOP DECILE/QUARTILE EBITDA MARGINS FOR THE BC INTERIOR 17
Slide 18: US South Dimension Mills
US SOUTH DIMENSION MILLS
Slide 19: US South: Overview
US SOUTH: OVERVIEW Little Rock Atlanta Georgetown Monticello Eatonton Thomaston Swainsboro Perry Meldrim Preston Baxley 1.4 BILLION FEET OF LUMBER CAPACITY ACROSS 3 STATES • Largest lumber producer in Georgia • 45% of Interfor’s capacity is in the South 19
Slide 20: US South: Multiple Phases
US SOUTH: MULTIPLE PHASES PHASE 1 PHASE 2 PHASE 3 PHASE 4 5 Acquisitions Build Team/ Mill Improvements/ Investment Infrastructure Optimization Program 2013-2015 2016-2017 2018-2022 No/Low Capex Discretionary Initiatives; Internal Capex >$35 MM Investment Annual EBITDA + Impact Greenfields and/or Acq
Slide 21: US South: Investment Program
US SOUTH: INVESTMENT PROGRAM • ~$500 MM DISCRETIONARY CAPEX INVESTMENT PROGRAM OVER 5 YEARS: • Mill rebuilds, machine center upgrades, debottlenecking and optimization projects for existing assets PHASE I: Two projects formally announced totaling US$65 MM (Meldrim, GA and Monticello, AR); completion
Slide 22: Financial Review
FINANCIAL REVIEW
Slide 23: Historical Results Snapshot
HISTORICAL RESULTS SNAPSHOT BENCHMARK LUMBER PRICES ($/MBF) PRODUCTION VOLUMES (MMBF) $650 800 WSPF Composite (US$/Mbf) $600 700 WSPF Composite (C$/Mbf) $550 SYP Composite (US$/Mbf) 600 $500 500 $450 400 $400 300 $350 200 $300 100 $250 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Slide 24: Capital Spending Profile
CAPITAL SPENDING PROFILE ANNUAL CAPITAL EXPENDITURES (C$MM) $160 Capital Expenditures - Discretionary PHASE I US SOUTH INVESTMENT PROGRAM Capital Expenditures - Maintenance MILL UPGRADES $140 Depreciation, Depletion & Amortization CASTLEGAR, BC MILL REBUILD $120 ADAMS LAKE, BC $100 MILL REBUILD GRAN
Slide 25: Free Cash Flow Considerations
FREE CASH FLOW CONSIDERATIONS LTM THROUGH Q1-2018 C$MM Adjusted EBITDA: $309 • Significant additional margin uplift opportunities in the US South Less: Cash Interest Expense: $(12) • Average interest rate ~ 4% Maintenance Capex: $(65) • Maintenance includes logging roads Cash Taxes: $(2) • Substanti
Slide 26: Capital Structure
CAPITAL STRUCTURE CAPITAL STRUCTURE DEBT MATURITY SCHEDULE AS OF MAR 31’18 AS OF MAR 31’18 (C$MM) Cash ($MM) $(131) $100 Debt ($MM) $258 $80 Prudential Notes (4.17%) Net Debt ($MM) $127 Book Equity ($MM) $901 $60 Invested Capital ($MM) $1,028 $40 NET DEBT/INVESTED CAPITAL ($MM) 12% $20 Net Debt/LTM
Slide 27: Supplementary Information
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Slide 28: Lumber Prices & FX Trends
LUMBER PRICES & FX TRENDS BENCHMARK LUMBER PRICES (US$/MBF) & USD/CAD FX RATES (C$/US$) $550 1.00 $525 CAD/USD FX Rate (Right Axis) SYP Composite Price (Left Axis) 0.95 $500 WSPF Composite Price (Left Axis) $475 0.90 $450 $425 0.85 $400 $375 0.80 $350 0.75 $325 $300 0.70 $275 $250 0.65 2014 2015 201
Slide 29: US Housing Starts in Context
US HOUSING STARTS IN CONTEXT ACTUAL & FORECAST US HOUSING STARTS (MILLIONS OF UNITS) 2.5 Multi-Family Single-Family Actual < > Forecast 2.3 2.0 1.8 1.5 1.3 1.0 0.8 0.5 0.3 - 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: Forest Economic Advisors (FEA) forecast published May
Slide 30: North American Production
NORTH AMERICAN PRODUCTION CANADA – BRITISH COLUMBIA (BBF) USA – SOUTH (BBF) 25 25 20 Previous Peak 20 Previous Peak 15 15 10 10 5 5 - - 2005 2007 2009 2011 2013 2015 2017 2005 2007 2009 2011 2013 2015 2017 CANADA – ALL OTHER REGIONS (BBF) USA – ALL OTHER REGIONS (BBF) 25 25 Previous Peak 20 20 Previ
Slide 31: China Lumber Demand
CHINA LUMBER DEMAND CHINESE SOFTWOOD LUMBER IMPORTS BY COUNTRY (MILLIONS M3) 30 Russia 25 Canada USA 20 Other 15 10 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: International Wood Markets/FEA Canada 31
Slide 32: Japan Lumber Demand
JAPAN LUMBER DEMAND JAPANESE SOFTWOOD LUMBER IMPORTS BY COUNTRY (MILLIONS M3) 9 Europe Canada 8 Russia USA 7 Other 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: International Wood Markets/FEA Canada 32
Slide 33: Analyst Coverage
ANALYST COVERAGE BMO CAPITAL MARKETS Mark Wilde (212) 883-5102 mark.wilde@bmo.com CIBC CAPITAL MARKETS Hamir Patel (604) 331-3047 hamir.patel@cibc.com EQUITY RESEARCH Kevin Mason (604) 886-5741 kmason@equityresearchassociates.com ASSOCIATES RAYMOND JAMES Daryl Swetlishoff (604) 659-8246 daryl.swetli
Slide 34: Investor Contacts
INVESTOR CONTACTS MARTIN JURAVSKY MIKE MACKAY Senior Vice President & CFO Director, Corp. Development & Planning 604-689-6873 604-689-6846 martin.juravsky@interfor.com mike.mackay@interfor.com 34