Stella-jones Inc. · TSX:SJ
Stella-jones — Investor Presentation (May 2023)
43 slides from Stella-jones's investor presentation, May 2023
Slide 1: Plan in Action: Investor Presentation May 2023
PLAN IN ACTION ni Investor Presentation May 2023 Stella-JoneS 3—.
Slide 2: Caution Regarding Forward-Looking Information
Caution Regarding Forward-Looking Information This presentation contains certain statements that are forward-looking, including comments with respect to the Company's objectives, strategies, targets and expectations. The readeris cautioned not to place undue reliance on these statements since a numb
Slide 3: Stella-Jones At-A-Glance
Stella-JoneS fi) $3.6B* (%Z Market Cap Stella-Jones At-A-Glance SJ TSX 3 && 8 ™ Pole Peeling Wood Treating Facilities Facilities 27 U.S. and 16 Canada il 70% eee 2,615 Sales Ke Employees in the U.S. a “Market Cap as of May 19, 2023 All$ in this presentation are Canadian dollars, CAD All amounts exce
Slide 4: Historical Milestones
Historical Milestones Completed more than 20 acquisitions in the past 20 years Over $1 billionin sales Over $2 billion Over $3 billion Foundation 4 for1 stock split in sales in sales © © 2010 2021 2022 Tangent Rail McFarland Cascade: RAM Forest Group & Cahaba: Texas Electric Corporation: Acquisition
Slide 5: Our Mission
Our Mission To be the performance leader in the industries in which we & " operate, and a model corporate citizen, exercising ge 5. = ¢ d o ¢ ¥ 5 8 aS sree . hi De e %e *> & + Se o* % environmental responsibility and integrity.
Slide 6: Growth Catalysts
Growth Catalysts "Significant investments by utility companies to ensure infrastructure will support North America’s future needs " Well positioned to support North American rail infrastructure " Acquisition opportunities to better serve customers in areas of procurement and logistics oo Increasing
Slide 7: Acquisition Criteria
Acquisition Criteria Acquisition opportunities to better serve railroad and utility customers * Continued focus on wood treating " Consideration given to complementary products or materials * Subject to strict evaluation criteria = Accretive to margins and returns = Steady revenues and free cash flo
Slide 8: Utility Poles
PLAN IN ACTION Utility Poles Stella-JoneS i—.
Slide 9: Utility Poles: Overview
Utility Poles: Overview = Stella-Jones is the leading manufacturer of pressure-treated wood products supplying major electrical utilities and telecommunication companies with wood utility poles across North America = Customer base typically prefers treated wood poles because of their durability, cos
Slide 10: Large & Diversified North American Presence
Large & Diversified North American Presence 1. New Westminster, BC Prince George, BC Galloway, BC Carseland, AB Neepawa, MB Kirkland Lake, ON Guelph, ON Gatineau, QC Riviére-Rouge, QC 10. Truro, NS 1. Arlington, WA 12. Tacoma, WA 13. Sheridan, OR Product Category @ Pole Treating Facilities @ Finishe
Slide 11: Competitive Strengths
Competitive Strengths & Stella-JoneS ——. Robust Procurement Network Consistent Access to Wood Fibre Expansive Inventory Manufacturing Network Extensive Transportation Network Broad and Diversified Customer Base
Slide 12: Growth Drivers
Growth Drivers Utility Pole Maintenance Stella-JoneS ai— a Fire-Resistant Wrap Utility Poles a Broadband Expansion c gro Renewable Generation/ Transmission Wheeling > Electric Vehicle Expansion "
Slide 13: Utility Poles - Key Takeaways
Utility Poles - Key Takeaways * Industry-leading position in steady maintenance- driven market A SiO elerated demand to remain strong in the near term = Customers seeki ig-term agreements to secure Supply dto significa nt Stella-JoneS
Slide 14: Railway Ties
PLAN IN ACTION Railway Ties Stella-JoneS
Slide 15: Railway Ties: Overview
Railway Ties: Overview Stella-Jones has the treating capacity, sources of supply and purchasing power to meet the needs of Class 1, Short Line railroads and commercial operators from coast to coast Our extensive supplier network of over 850 hardwood sawmills allows us to offer crossties and switch t
Slide 16: Large & Diversified North American Presence
Large & Diversified North \\ | ae American Presence 1. Prince George, BC . wee 2 Delson a 12 Treating Facilities ~ o \ 3. Russellville, AR 2 in Canada 4. Alexandria, LA 10 in U.S. : 5. Bangor, WI i oe ee ne ; 6. Fulton, KY — e Y 7. Winslow, IN ~850 Suppliers 8. Montevallo, AL ) 9. Clanton, AL Hardwo
Slide 17: Competitive Strengths
Competitive Strengths Established Customer Relationships Extensive Manufacturing, Distribution & Procurement Networks Differentiated Product Offering Robust Inventory Levels
Slide 18: Growth Drivers
Growth Drivers {eo} A Increased Volumes Stella-JoneS ai— & Favourable Pricing Dynamics ys Product Innovation and Expansion 7
Slide 19: Railway Ties - Key Takeaways
Railway Ties - Key Takeaways = 90% of North American rail infrastructure built on wooden cross ties * Infrastructure Bill in the US expected to drive project requests * Strong relationships with Class 1 customers * New product offerings will contribute to long- term growth * Technological investment
Slide 20: Residential Lumber
PLAN IN ACTION Residential Lumber Stella-JoneS 3—.
Slide 21: Residential Lumber: Overview
Residential Lumber: Overview Stella-Jones manufactures and distributes premium grade residential treated lumber, composite decking products and accessories to Canadian and American retailers 2022 Sales 5-Year Sales $773M $744M $665M % $475M 24 (0) $744M $471M of Total Sales "2018 | ~=«2019=«S|st«020
Slide 22: Product Category Overview
Product Category Overview Dy Treated Lumber and Distribution 'O—o: Facilities: 6 in Canada and 2 in US Products: Treated Lumber and AN Wood Accessories, Composite Decking and Complementary Attachments 920 Customers: ~70% Big Box, CZ ~30% Dealer Network Stella-joneS
Slide 23: Competitive Strengths
Competitive Strengths & Premium- Quality Products Stella-JoneS ai— Re Speed to Market Strong Procurement Team Dedicated Distribution Centres with Exceptional Service and Support 22
Slide 24: Growth Drivers
Growth Drivers Sourcing and Procurement Opportunities Product Expansion Through Retail Partners on Favourable Macro Trends
Slide 25: Residential Lumber— Key Takeaways
Residential Lumber— Key Takeaways * Normalized market price of lumber * Residential Lumber product category expected to grow above pre-pandemic levels " Dedicated customer base that values premium lumber * Quality products, seamless supply chain and customer support provide holistic experience * Pro
Slide 26: ESG
PLAN IN ACTION ESG Stella-J nes
Slide 27: Sustainability at Stella-Jones
Sustainability at Stella-Jones Our products store significantly more Carbon than emitted over their life-time and ee ~~ can be an effective solution to mitigate ia —_ climate change Stella-JoneS sh
Slide 28: Sustainability at Stella-Jones
Sustainability at Stella-Jones How Stella-Jonesis positioned to support the low carbon economy of tomorrow Flecenfication Increased Utility Poles us! SUPPORTING Harden THE GREEN Networks to itigate | Fire-W' Pol TRANSITION atte ncreased Fire-Wrapped Poles Wildfires Transition to Low Carbon Transport
Slide 29: Our ESG Strategy
Our ESG Strategy -@: es Climare Change & we ©. .) _ A eS \\ Indigenous Peoples missions * FEE Cs = © %) om aN Connecting ® Health & : Our (& x Responsible Safety *0E Sustainable My Supply Chain Future Pris'' Our People i a = ‘ au ESG Risk he Governance Stella-JoneS ‘3 28
Slide 30: Financial Outlook
PLAN IN ACTION Financial Outlook Stella-JoneS i—.
Slide 31: […] 2017 2020 2021 2022 2020 2021 2022 ▪ ▪
[…] 2017 2020 2021 2022 2020 2021 2022 ▪ ▪
Slide 32: Dividends and Share Buyback
2020 2021 2022 ▪ ▪ Dividends Share Buyback ▪ Dividends Share Buybacks
Slide 33: Updated Financial Objectives: 2023 - 2025
a Updated Financial Objectives: 2023 - 2025 Industry leading Organic Sales infrastructure-related businesses expected to account for EBITDA Margi 75%-80% of sales a Net Debt-to- EBITDA ratio Stela-JoncS |gnes
Slide 34: Sales Growth Forecast
Sales Growth Forecast Total sales: Utility = >$3.6B organic sales by 2025 Poles 15% = Projected CAGR of 6% from 2022-2025 Railway Ties Low single digit range Residential Lumber $600-$650M Stella-JoncS ee
Slide 35: EBITDA Growth Drivers
EBITDA Growth Drivers (Z) Strong Demand in Utility Poles Higher pricing and higher volumes Growth in Railway Ties Stable source of revenue © Strong Partnerships in Residential Lumber Levels to stabilize © Stella-JoneS — Improvement in Product Mix 7 —! EBITDA Margin target of 16%, a 9% CAGR from 2022
Slide 36: Disciplined Capital Allocation
Disciplined Capital Allocation Net Leverage Target: 2.0x-2.5x Return to Shareholders Capital Expenditures Target: >$500 million over Acquisitions SE 2023-2025 Asset maintenance, productivity and Pursue accretive transactions sustainability initiatives to enhance strategic a positioning and drive ear
Slide 37: Maintaining a Solid Financial Position
Maintaining a Solid Financial Position = Strong balance sheet enables investment and maintenance of inventory * Low inventory turnover given timeframe required for air-drying * Inventory is Stella-Jones’ largest asset * Represented $1.2 billion as at December 31, 2022 " Targeting Net Debt-to-EBITDA
Slide 38: Financial Outlook - Key Takeaways
Financial Outlook - Key Takeaways Sales to remain robust, targeting >$3.6 billion by 2025: Expected strong increase in utility poles Steady railway ties demand ’ Consistent residential lumber performance EBITDA margin of 16% through 2025 expected due to: Product mix improvement Increased operational
Slide 39: Appendix
Appendix 38
Slide 40: 2022 - Financial Highlights
2022 - Financial Highlights (in millions of Canadian dollars, except per share data and margins) 2022 2021 vores vor) Sales 3,065 2,750 315 1% Gross Profit 524 456 68 15% Gross Profit margin 17.1% 16.6% n/a 50 bps EBITDA 448 400 48 12% EBITDA Margin 14.6% 14.5% n/a 10 bps Operating income 359 326 33
Slide 41: Q1 2023 - Financial Highlights
Q1 2023 - Financial Highlights (in millions of Canadian dollars, except per share data and margins) Q1-23 QI-22 Variation ($) Variation (%) Sales 710 651 59 9 Gross Profit 136 100 36 36 Gross Profit margin 19.2% 15.4% n/a 380 bps EBITDA 120 88 32 36 EBITDA Margin 16.9% 13.5% n/a 340 bps Operating in
Slide 42: Cash Flow and Capital Allocation
Cash Flow and Capital Allocation § Q1 2023 Liquidity Uses: * Support seasonal increase in working capital requirements * Invest to maintain operating asset quality * Expand p duction capacity ndusTREE Acquiring asse * Returning capital to shareholders Normal Course Issuer Bid Highlights: * Repurchas
Slide 43: Plan in Action
PLAN IN ACTION Stella-JoneS