Slide 1: Company Overview
COMPANY OVERVIEW August 2014
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS Information contained herein constitutes forward-looking statements. Forward-looking statements, which include all statements that are not historical facts, are subject to certain risks and uncertainties that could cause actual results to differ materially from those antic
Slide 3: The Interfor Way
THE INTERFOR WAY We conduct ourselves with honesty and integrity. We respect, value and engage our employees. We embrace world-leading safety and environmental standards. We are strategic, fact-based and proactive. We strive for excellence in everything we do. We are responsible for our own success.
Slide 4: Pure Play Lumber - Four Regions
PURE PLAY LUMBER - FOUR REGIONS BC Coast - 320 MMbf (13%) • 2 mills • Cedar, Hem-Fir, Douglas-Fir • Specialty BC Interior – 720 MMbf (30%) • 3 mills • Douglas Fir, Hem-Fir, SPF, Cedar • Dimension US Southeast – 880 MMbf (37%) • 6 mills • Southern Yellow Pine • Dimension US Pacific Northwest – 470 MM
Slide 5: Interfor's Balanced Profile
INTERFOR’S BALANCED PROFILE BC Coast 9% US Southeast BC 34% BC Southern US Pacific BC Southern Interior Northwest Southern 33% US Southeast 39% Interior Interior 23% 33% 42% BC Coast BC Coast 19% US Pacific 15% US Pacific Northwest Northwest 29% 24% Production Volume 2Q 2014 – 582 MMbf Operating Rat
Slide 6: Interfor Transformation
INTERFOR TRANSFORMATION 2012 2014 • Top 10 N.A. lumber producer • Top 5 N.A. lumber producer • 9 sawmills in 3 regions • 14 sawmills in 4 regions US Southeast BC 23% Southern • No presence US Pacific BC in US South • Largest lumber producer in Georgia Interior Northwest Southern 33% 39% Interior 42%
Slide 7: Production Has More Than Doubled
PRODUCTION HAS MORE THAN DOUBLED Quarterly Lumber Production 2010 - 2014 MMbf 600 550 500 450 400 350 300 250 200 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2010 2011 2012 2013 2014 7
Slide 8: 4th Largest Lumber Producer in N.A.
4th LARGEST LUMBER PRODUCER IN N.A. NA Lumber Production by Company 5.0 4.0 2013 3.0 Production Bbf 2.0 1.0 0.0 Source: Wood Markets monthly – March 2014 Notes: (1) Interfor’s 2Q 2014 production annualized (2) GP includes Temple Inland. 8
Slide 9: Interfor Strategic Plan
INTERFOR STRATEGIC PLAN • Lumber focus Growth by • Portfolio strategy Acquisition • Conservative capital structure • Complementary acquisitions • Accretion • Integration from log to customers • Integrate Georgia operations • Fact-based business optimization Operational • Target high return investmen
Slide 10: History of Successful Acquisitions
HISTORY OF SUCCESSFUL ACQUISITIONS Year Business Acquired Assets Region 2001 Primex 2 sawmills Coast 2 reman facilities 2004 Crown Pacific 3 sawmills PNW 2005 Floragon 1 sawmill PNW 2008 Pope and Talbot 2 sawmills BC Interior 2008 Portac 1 sawmill PNW 2010 Weyerhaeuser BC interior 275,000 m3 of tenu
Slide 11: State of the Art Operations
STATE OF THE ART OPERATIONS • Interfor has invested over $300 million in various strategic capital projects over the past several years, with additional projects now underway. Adams Lake, BC Grand Forks, BC Port Angeles, Washington Gilchrist, Oregon Swainsboro, Georgia Baxley, Georgia 11
Slide 12: Significant Presence in US South
SIGNIFICANT PRESENCE IN US SOUTH • Interfor is the largest lumber producer in Georgia – market share >30%. Lumber Industry Capacity by Southern State 3.0 2.5 2013 2.0 Capacity Bbf 1.5 1.0 0.5 0.0 GA AL AR MS NC TX SC LA FL VA OK Source: FEA– December 2013 12
Slide 13: Georgia Operations
GEORGIA OPERATIONS Sawmill Regional Office 13
Slide 14: Favourable Log Supply in US South
FAVOURABLE LOG SUPPLY IN US SOUTH Growth & Drain, Bbf Int’1 ¼” Inventory, Bbf Int’l ¼” 50 300 45 290 Sawtimber Inventory 40 280 35 270 30 260 Growth Drain 25 250 20 240 15 230 Growth 10 Drain 220 Inventory 5 210 0 200 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: FEA– July 2014 14
Slide 15: Diverse Lumber Mix
DIVERSE LUMBER MIX By Species1 Lodgepole/ By Dimension1 By Grade1 #3/Utility, #4/Economy Ponderosa Pine Studs Grade 4% 14% 14% Cedar Doug Fir / Other(2) 12% Larch 25% 27% Speciality Grade(3) 36% Southern Boards / Yellow Industrials Pine 7% Dimension 24% Narrows Hem Fir 37% 16% #2/Standard Dimension
Slide 16: Product Diversification Rationale
PRODUCT DIVERSIFICATION RATIONALE Specialty Benchmark Prices Commodity Benchmark Prices Monthly – Jan 2010 – Jun 2014 Monthly – Jan 2010 – Jun 2014 US$/Mbf US$/Mbf $1,400 $500 $1,200 $400 $1,000 $300 $800 $600 $200 $400 C$/Mbf SPF SYP Hem - Fir $100 June/14 $351 $459 $418 $200 2 Last Peak $593 $570
Slide 17: Diverse Market Profile
DIVERSE MARKET PROFILE 1H 2014 Average Shipments (By Volume) By End Market China/Tw/ Euro & ME Canada HK 1% 11% 15% Japan 4% USA 69% 17
Slide 18: Recent Initiatives/Current Focus
RECENT INITIATIVES/CURRENT FOCUS US Southeast Operations • Completed Tolleson acquisition and integrating Georgia operations under Interfor ownership • Internalized log procurement • Implemented a new management structure • Established a regional office (Peachtree City) with centralized management,
Slide 19: Summary Income Statement
SUMMARY INCOME STATEMENT • The 2Q results included a full quarter’s impact from the Tolleson acquisition C$ millions Q2 2014 Q1 2014 Sales $390.2 $294.8 Adjusted EBITDA1 $47.3 $39.2 Adjusted EBITDA Margin 12.1% 13.3% Adjusted EBITDA Margin, excl. Beaver sawmill 12.5% 13.6% Adjusted EBITDA/Mbf $75 $8
Slide 20: Strong Capital Structure
STRONG CAPITAL STRUCTURE • Interfor has a strong balance sheet, with significant liquidity • Average interest rate of approximately 3.4% (65% of debt has locked-in rates) C$ millions June 30, 2014 Net debt Additional $237 liquidity of $145 mm Book Equity $608 Invested capital $845 Net debt / investe
Slide 21: Capital Spending Profile
CAPITAL SPENDING PROFILE • Interfor has continually reinvested in its assets throughout the cycle • Current focus is on high-return projects $100.0 $90.0 $80.0 $70.0 $60.0 $ mm's $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 2008 2009 2010 2011 2012 2013 1H 2014 Depreciation, Depletion & Amortization(1) Capita
Slide 22: Strong Support from the Investment Community
STRONG SUPPORT FROM THE INVESTMENT COMMUNITY Price Target as Firm Recommendation of Aug 18/14 BNS Sector Outperform $19.25 CIBC Sector Outperformer $22.50 National Bank Outperform $20.00 Raymond James Strong Buy $21.25 RBC Outperform $19.00 Salman Partners Buy $20.00 TD Buy $22.00 The firm recommend
Slide 23: Key Takeaways
KEY TAKEAWAYS • Pure play in lumber. • Track record of growth over the last several years. • Acquisitions • Strategic capital investments • Balanced geographic base and diverse product offering. • Conservative balance sheet with additional financial capacity for future growth. • Business upside: • I
Slide 24: Appendix
APPENDIX AS INTERFOR Building Value...
Slide 25: US Housing Starts
US HOUSING STARTS Millions (SAAR) 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 Housing Starts 0.4 Underlying Demand Pent-Up Demand 0.2 0.0 Source: FEA– July 2014 25
Slide 26: North American Lumber Consumption
NORTH AMERICAN LUMBER CONSUMPTION Bbf 80 87% 86% 70 85% 84% 60 83% 82% 50 81% 80% 40 79% 30 78% US Canada US Share (R) 77% 20 76% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: FEA– July 2014 26
Slide 27: North American Lumber Exports to China
NORTH AMERICAN LUMBER EXPORTS TO CHINA Source: Wood Markets International Monthly Report – March 2014 27
Slide 28: China Markets – Wood Frame Construction
CHINA MARKETS – WOOD FRAME CONSTRUCTION Wood truss re-roofing Suburban villas (east and north China) (east, north, n-east, s-west) Low cost rural housing (south-west) Resort homes (north) 28
Slide 29: China Markets – Sectors Under Development
CHINA MARKETS – SECTORS UNDER DEVELOPMENT Public buildings Apartment infill walls / partition walls Multi-story residential Mixed-use hybrid 29
Slide 30: China Markets – Use of BC Wood
CHINA MARKETS – USE OF BC WOOD House framed with SPF lumber SPF used for furniture frames Cedar used as siding Cedar used as siding and for outdoor structures and for outdoor structures 30
Slide 31: Impact of Mountain Pine Beetle (MPB)
IMPACT OF MOUNTAIN PINE BEETLE (MPB) Million m3 Source: FEA– July 2014 31
Slide 32: MPB – Area Affected
MPB – AREA AFFECTED • Interfor’s southern BC Interior wood baskets are less exposed to the MPB than BC’s central and northern interior regions; the Coast is not exposed. Interfor AAC1 MMm3 Central and Northern BC 0.0 50 – 75% Pine Adams Lake in Southern BC 0.5 28 – 30% Pine Castlegar & Grand Forks i
Slide 33: US South Sawtimber Prices
US SOUTH SAWTIMBER PRICES US$/Ton (Nominal $’s) $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: FEA– July 2014 33
Slide 34: Regional Production vs Peak (Bbf)
REGIONAL PRODUCTION VS PEAK (Bbf) BC lumber Production Eastern Canada Lumber Production US West lumber Production 34 Source: FEA– July 2014