Stella-jones Inc. · TSX:SJ
Stella-jones — Investor Presentation (March 2022)
61 slides from Stella-jones's investor presentation, March 2022
Slide 1: Investor Presentation March 2022
INVESTOR PRESENTATION March 2022
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: Agenda
AGENDA OVERVIEW COMPETITIVE STRENGTHS STRATEGY AND FUTURE GROWTH FINANCIAL TRENDS CAPITAL ALLOCATION OVERVIEW BY BUSINESS UNIT ENVIRONMENTAL, SOCIAL AND GOVERNANCE 2021 FINANCIAL RESULTS Q4-2021 FINANCIAL RESULTS 2022-2024 OUTLOOK APPENDIX 3
Slide 4: Overview of Stella-Jones
OVERVIEW OF STELLA-JONES 4
Slide 5: Stella-Jones at a Glance
STELLA-JONES AT A GLANCE A Leading North American Supplier of Pressure-Treated Wood Products 2,400 (1) 42 (1) Employees Wood Treating Facilities 34% 25% 27 U.S. and 15 Canada Utility Poles Railway Ties $2.8B 12 (1) 64% (2) 2021 Sales Pole Peeling Sales Facilities in the U.S. 8% Logs & Lumber 5% 28%
Slide 6: 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 7: 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 8: Accretive acquisitions in infrastructure-related product category
Accretive acquisitions in infrastructure-related product category Cahaba Pressure Treated Forest Products, Inc. Cahaba Timber, Inc. DESCRIPTION DESCRIPTION • Manufactures, distributes and sells treated and untreated • Well-established producer of treated poles and pilings wood poles, crossties and p
Slide 9: Significant Proportion of U.S. Sales
SIGNIFICANT PROPORTION OF U.S. SALES 64% 68% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Canada U.S. 9
Slide 10: Infrastructure-Related Businesses
INFRASTRUCTURE-RELATED BUSINESSES Infrastructure-related businesses represent approximately 70% of total sales Sales $2,750M Sales $1,559M 2015 2016 2017 2018 2019 2020 2021 Infrastructure-related businesses: utility poles, railway ties and industrial products Residential lumber Logs & lumber Note:
Slide 11: Stella-Jones' Continental Network
STELLA-JONES’ CONTINENTAL NETWORK 11
Slide 12: Competitive Strengths
COMPETITIVE STRENGTHS 12
Slide 13: Competitive Strengths
COMPETITIVE STRENGTHS Resilient Business Model • Businesses with steady demand • Leadership position in product categories • Decentralized structure with the ability to rapidly adjust to changing environments and customer requirements • Extensive network to service customers • Solid and sustained cu
Slide 14: Strategy and Future Growth
STRATEGY AND FUTURE GROWTH 14
Slide 15: Strategy and Future Growth by Business Unit
STRATEGY AND FUTURE GROWTH BY BUSINESS UNIT Market Growth Drivers Trends Growth Strategy • Potential for further consolidation in • Replacement programs • Increasing average age of poles • Acquisitions 34% the North American market • Additional infrastructure for • Growth of 5G networks, “fibre-to-
Slide 16: Financial Trends
FINANCIAL TRENDS 16
Slide 17: Track Record of Performance
TRACK RECORD OF PERFORMANCE Sales(1) $2,750M EBITDA(2)(3) $400M $717M $120M 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Cash Flow(4) & Net income Net Debt-to-EBITDA(2)(5) $388M $227M 3.0x 2.8x 2.6x 2.4x 2.5x 2.3x 2.2x 2.1x 1.9x 1.9x $73M $121M
Slide 18: Increasing Dividends Consistently
INCREASING DIVIDENDS CONSISTENTLY 2022 will mark the 18th consecutive year of dividend increase $0.80* $ 0.72 16.7% CAGR $ 0.60 $ 0.56 $ 0.48 $ 0.44 $ 0.40 $0.20 $ 0.28 $ 0.32 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E * Projected based on the latest declared quarterly dividend 18
Slide 19: Increasing Shareholder Value
INCREASING SHAREHOLDER VALUE Relative Stock Price Performance 300% $39.27 As at March 9, 2022 Shares outstanding @ 63.0M March 9, 2022 250% Average daily volume 357,730 11.8% 52 week (high-low) $54.09-$37.69 CAGR 200% Market Capitalization $2.5B 150% 11.7% CAGR 100% 50% 8.4% CAGR 0% Mar-13 Mar-14 Ma
Slide 20: Capital Allocation
CAPITAL ALLOCATION 20
Slide 21: Capital Allocation Priorities
CAPITAL ALLOCATION PRIORITIES 1 2 3 Capital Expenditures Dividend Acquisitions Share Repurchase Expand the capital Durable dividend Organic growth, expenditure program to Pursue accretive Return excess free cash payout innovation, productivity support anticipated high transactions to flow to shareho
Slide 22: Allocating Capital for Growth & Returns
ALLOCATING CAPITAL FOR GROWTH & RETURNS Stella-Jones has invested $1,225M in growth investments and returned $539M in cash to shareholders since 2010 $348M $192M $198M $177M $155M $143M $105M $122M $95M $97M $87M $45M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Acquisitions Capex Div
Slide 23: Maintaining a Solid Financial Position
MAINTAINING A SOLID FINANCIAL POSITION $878M $1 000 $ 900 $ 800 $ 700 3.0x $ 600 2.8x 2.5x 2.6x Net Debt- 2.4x $ 500 2.3x to-EBITDA (1) Target: 2.1x 2.2x $ 400 1.9x 1.9x 2.0x – 2.5x $ 300 $ 200 $ 100 $0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (1) (1) Net debt Net Debt-to-EBITDA (1) This is
Slide 24: Overview by Business Unit
OVERVIEW BY BUSINESS UNIT 24
Slide 25: Utility Poles – Overview
UTILITY POLES – OVERVIEW Leading North American supplier of wood utility poles, providing over one million pressure-treated wood poles per year to replace, upgrade and develop new electrical utility and telecommunications lines across Canada and the United States 2021 Sales 5-Year Sales $925M $674M
Slide 26: 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 27: Utility Poles – Market Conditions
UTILITY POLES – MARKET CONDITIONS Growth in replacement demand from increasing average age of poles and additional infrastructure investments expected to support the expansion of 5G networks, deployment of “fibre-to-home” throughout many rural areas and other investments related to electric vehicles
Slide 28: Railway Ties – Overview
RAILWAY TIES – OVERVIEW Industry leader in the development, upgrade and maintenance of North America’s railroad infrastructure, supplying the continent’s demand for railway ties and timbers with over 10 million pressure-treated wooden crossties per year 2021 Sales 5-Year Sales $653M $700M Volume $70
Slide 29: Railway Ties – Offering
RAILWAY TIES – OFFERING Competitive Advantages An extensive distribution network, steady 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 regional
Slide 30: Railway Ties – Market Conditions
RAILWAY TIES – MARKET CONDITIONS Solid untreated railway tie inventory availability Product Category Size Marketplace Growth Drivers • ~18 million railway tie purchases • Market is fairly consolidated • Maintenance requirements on an annualized basis in North • Economic stimulus programs America • A
Slide 31: 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 2021 Sales 5-Year Sales $773M Volume $773M $366M growth & prices are 28% tied to the cos
Slide 32: Residential Lumber - Offering
RESIDENTIAL LUMBER - OFFERING Competitive Advantages Low transportation costs, solid supply, quick delivery times and dedicated distribution centres Customers • ~70% Big box retailer • Dealer network Contracts • Renewed annually Services Wood Species Preservatives • Lumber • Hemlock • Micronized Cop
Slide 33: 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 Product Category Size Marketplace Growth Drivers • Difficult to access • Partially consolidated in Canada • Home renovation • Limited
Slide 34: Lumber Costs – 5 Year Evolution
LUMBER COSTS – 5 YEAR EVOLUTION Lumber costs all time high May 7, 2021 1,670 1,800.00 1,600.00 1,400.00 1,200.00 1,000.00 $/bft 800.00 600.00 260 400.00 200.00 0.00 Jan/16 Jan/17 Jan/18 Jan/19 Jan/20 Jan/21 Jan/22 Source: Factset (LB00-USA - Random Length Lumber Continuous Contract (CME $/bft)) Mar
Slide 35: Industrial Products – Overview
INDUSTRIAL PRODUCTS – OVERVIEW A leading supplier of pressure-treated wood products to the industrial, marine and civic sectors for outdoor applications, including wood for railway bridges and crossings, marine and foundation pilings and construction timbers, offered in a variety of select wood spec
Slide 36: Logs and Lumber – Overview
LOGS AND LUMBER – OVERVIEW Business used to optimize procurement and does not generate a margin 2021 Sales 5-Year Sales $231M $231M $120M Sales are tied to 8% the price of lumber 2017 2018 2019 2020 2021 36
Slide 37: Environmental, Social and Governance
ENVIRONMENTAL, SOCIAL AND GOVERNANCE 37
Slide 38: Pursuing Our Business Activities Responsibly
PURSUING OUR BUSINESS ACTIVITIES RESPONSIBLY • Committed to integrate ESG into our daily business decisions and strategies which will make us a more resilient and agile business in the long-term • Keeping with our vision to consistently improve our sustainability practices and be transparent about o
Slide 39: ESG 2020 Highlights
ESG 2020 HIGHLIGHTS PRODUCT STEWARDSHIP Sustainable forest management, responsible manufacturing and product innovation initiatives Railway tie purchased Residential lumber M3 of wood sustainably 99% from small and local 80% sourced from sustainably 154K harvested through forest businesses1 certif
Slide 40: Financial Results
Sain ae & a mI aaa 2 Le i et img) ii FINANCIAL RESULTS
Slide 41: 2021 – 21st Consecutive Year of Sales Growth
2021 – 21st CONSECUTIVE YEAR OF SALES GROWTH +13% $2.8B SALES VARIANCE $2.6B Organic Growth 2020 Sales (M) $2,551 Acquisitions 6 Currency variations (127) Organic growth Pressure-treated wood 232 Logs and lumber 88 2020 2021 2021 Sales (M) $2,750 Utility Poles Railway Ties Residential Lumber Industr
Slide 42: 2021 – Sales Variance
2021 – SALES VARIANCE Pressure Treated Wood Organic Growth of 10% (in millions of Residential Industrial TOTAL PRESSURE Logs & Utility Poles Railway Ties CONSOLIDATED SALES dollars) Lumber Products TREATED WOOD Lumber 2020 Sales 888 733 665 119 2,405 146 2,551 Acquisitions 6 - - - 6 - 6 FX impact (5
Slide 43: 2021 – Record EBITDA
2021 – RECORD EBITDA(1) EBITDA(1) Operating income $385M $400M $326M Driven by higher $309M pricing for 15.1% residential lumber, 14.5% as well as 12.1% 11.9% improved pricing, sales mix and volumes for utility poles 2020 2021 2020 2021 (1) This is a non-GAAP financial measure. Please refer to the C
Slide 44: 2021 – Higher Net Income & EPS
2021 – HIGHER NET INCOME & EPS Net income EPS $227M $3.49 $210M 8% $3.12 Driven by sales 12% growth; EPS was also positively impacted by share repurchases 2020 2021 2020 2021 44
Slide 45: 2021 - Strong Cash Flow Generation
2021 - STRONG CASH FLOW GENERATION Cash flow before certain items(1) Cash flow from operating activities $251M $402M $388M $178M Higher cash from operations largely due to a decrease in railway ties inventory 2020 2021 2020 2021 (1) Before changes in non-cash working capital components and interest
Slide 46: Inventory Turnover
INVENTORY TURNOVER Because of the long periods required to air-season wood, inventory turnover has historically been relatively low 2.2x 2.1x 2.1x 1.9x 1.8x 1.9x 2.0x 1.9x 1.7x 1.6x avg. 1.4x 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 46
Slide 47: Q4-2021 Financial Results
Q4-2021 FINANCIAL RESULTS 47
Slide 48: Q4-21 – Sales
Q4-21 – SALES 4% $545M $533M Organic SALES VARIANCE Growth Q4-20 Sales (M) $533 Acquisitions 6 Currency variations (14) Organic growth Pressure treated wood 26 Logs and lumber (6) Q4-20 Q4-21 Q4-21 Sales (M) $545 Utility Poles Railway Ties Residential Lumber Industrial Products Logs & Lumber 48
Slide 49: Q4-21 – Sales Variance
Q4-21 – SALES VARIANCE Pressure Treated Wood Organic Growth of 5% (in millions of Residential Industrial TOTAL PRESSURE Logs & Utility Poles Railway Ties CONSOLIDATED SALES dollars) Lumber Products TREATED WOOD Lumber Q4-2020 Sales 201 147 117 23 488 45 533 Acquisitions 6 - - - 6 - 6 FX impact (7) (
Slide 50: Q4-21 – EBITDA and Operating Income
Q4-21 – EBITDA(1) AND OPERATING INCOME EBITDA(1) Operating income Rise in costs during $70M $50M the quarter outpaced sales $52M price increases $32M across all product 13.1% categories 9.4% 9.5% 5.9% Q4-20 Q4-20 Q4-21 Q4-21 Q4-20 Q4-20 Q4-21 Q4-21 (1) This is a non-GAAP financial measure. Please re
Slide 51: Q4-21 – Net Income & EPS
Q4-21 – NET INCOME & EPS Net income EPS $34M $0.52 $22M $0.34 Q4-20 Q4-20 Q4-21 Q4-21 Q4-20 Q4-20 Q4-21 Q4-21 51
Slide 52: Q4-21 – Cash Flow Management
Q4-21 – CASH FLOW MANAGEMENT Cash flow before certain items(1) Cash flow from operating activities $78M Lower profitability offset by less of an ($6M) $47M increase in residential lumber inventory ($23M) Q4-20 Q4-20 Q4-21 Q4-21 Q4-20 Q4-21 (1) Before changes in non-cash working capital components an
Slide 53: 2022-2024 Outlook
2022-2024 OUTLOOK 53
Slide 54: 2022-2024 Outlook
2022-2024 OUTLOOK $50M - $60M $500M - $600M Annual CAPEX MID-SINGLE DIGIT ~ 15% A combination of RANGE from the 2019 for 2022-2024 + $90M - $100M dividends and share pre-pandemic levels In 2022-2024 for utility poles repurchases Acquisitions In infrastructures-related product categories 2024 Evaluat
Slide 55: 2022-2024 Outlook – Maintaining sales growth
2022-2024 OUTLOOK – Maintaining sales growth Infrastructure-related sales are expected to represent 75-80% of total sales by 2024 ~2%-5% Organic growth by product category: 8% 6% ~20%-25% 5% 26% 28% • Utility poles: high single digits each year 22% • Railway ties: low single digits each year ~75%-80
Slide 56: 2022-2024 Outlook – Leveraging our strong cash flow profile
2022-2024 OUTLOOK – Leveraging our strong cash flow profile Company expects to return to shareholders approximately $500 to $600 million in the 2022-2024 period Recent news +50% • Increased dividend 11% to $0.80 per 2019- 2022-2024 share for 2022 2021 Projected • Amended NCIB, ending on November 11,
Slide 57: Appendix
2s (=) 2 lu a a <q
Slide 58: Income Statement - 5-Year Financial Summary
INCOME STATEMENT - 5-YEAR FINANCIAL SUMMARY 2021 2020 2019 2018(1) 2017(1) Sales 2,750 2,551 2,189 2,144 1,908 Gross Profit(2) 456 446 358 328 315 Gross Profit margin(2) 16.6% 17.5% 16.4% 15.3% 16.5% EBITDA(2) 400 385 313 244 243 EBITDA margin(2) 14.5% 15.1% 14.3% 11.4% 12.7% Operating income 326 30
Slide 59: Financial Position - 5-Year Financial Summary
FINANCIAL POSITION - 5-YEAR FINANCIAL SUMMARY 2021 2020 2019 2018(1) 2017(1) Working capital(2)(3) 1,146 1,101 1,010 909 779 Total assets 2,665 2,426 2,281 2,062 1,786 Long-term debt(4) 734 606 605 514 456 Lease liabilities(4) 144 139 118 - - Shareholders’ equity 1,448 1,373 1,288 1,281 1,116 Net de
Slide 60: Non-IFRS Measures
NON-IFRS MEASURES Gross profit, gross profit margin, operating income before depreciation and amortization (herein referred to as earnings before interest, taxes, depreciation and amortization [“EBITDA”]), EBITDA margin, operating income margin, net debt-to-total capitalization and net debt-to-EBITD
Slide 61: Stella-Jones www.stella-jones.com
Stella-Jone S WWW.STELLA-JONES.COM