Stella-jones Inc. · TSX:SJ
Stella-jones — Investor Presentation (March 2020)
49 slides from Stella-jones's investor presentation, March 2020
Slide 1: Investor Presentation March 2020
INVESTOR PRESENTATION March 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: 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 5: Agenda
AGENDA • Investment Thesis • Overview of Stella-Jones • Strategy and Future Growth • Overview by Business Unit • Financial Trends • 2019 Results • Appendix 5
Slide 6: Investment Thesis
INVESTMENT THESIS 6
Slide 7: Investment Thesis
INVESTMENT THESIS • 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 disciplined acquisition strategy 7
Slide 8: Overview of Stella-Jones
OVERVIEW OF STELLA-JONES 8
Slide 9: 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 35.9% 31.3% 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. 5.2% Logs & Lumber 5
Slide 10: 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 11: 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 12: Stella-Jones' Continental Network
STELLA-JONES’ CONTINENTAL NETWORK * *Acquired April 2019 12
Slide 13: Track Record of Performance
TRACK RECORD OF PERFORMANCE Sales EBITDA(1)(2) $2,169M $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(1)(3) $305M $163M $34M $78M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015
Slide 14: Stock Price Performance
STOCK PRICE PERFORMANCE $60.00 Shares outstanding 67.5M Average daily volume 151,567 52 week (high-low) $48.28-$30.88 $40.00 Market Capitalization $2.2B March 12: $28.82 $20.00 $0.00 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Source: Yahoo Finance 14
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 35.9% • Potential for further consolidation in the • • Replacement programs Weather-related events • Growth in replacement demand from increasing • • Acquisitions Leveraging the upcoming Utility Pole North Ameri
Slide 17: Overview by Business Unit
OVERVIEW BY BUSINESS UNIT aI) lh ihe
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 $779M $528M $779 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-retardant 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 $678M $678 M Increasing prices 31.3% 2015 2016 2017 2018 2019 Transformative 12 Facilities +1,200 Suppliers Acqu
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 is expected to lead to opportunistic sales and improved margins Market Size Marketplace Growth Drivers • ~18 million railway tie purchases • Stable market • Maintenance requirements on an annualized basis in North
Slide 24: Annualized Railway Tie – Purchases & Inventory
ANNUALIZED RAILWAY TIE – PURCHASES & INVENTORY Industry inventory levels improved in the second half of 2019 to 14.6 million as at December 31, 2019 30 25 20 In millions of ties 15 10 5 0 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Inventory Purchases Source: Railway Tie Association (RTA) 24
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 2018 Sales 5-Year Sales $472M Prices are tied to the $472 M $183M cost 21.7% o
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 in May 2018 700 600 500 400 300 200 100 0 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 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 $128M $97M $128 M 5.9% 2
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 5.2% RAM the price acquisition of lumber 2015 2016 2017 2018 2019 30
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 $2,169M $561M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Utility Poles Railway Ties Residential Lumber Industrial Products Logs & Lumber 32
Slide 33: Growing Proportion of U.S. Sales as a % of Total Sales
Growing Proportion of U.S. Sales as a % of Total Sales 69.8% 61.7% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Canada U.S. 33
Slide 34: EBITDA
EBITDA(1) $350 20.0% $313M(2) 18.0% $300 15.3% 14.4% 16.0% 16.8% 14.1% $250 15.6% 14.0% 12.7% 15.1% 14.4% (In millions) $200 12.8% 12.0% 11.5% 10.0% $150 8.0% $100 6.0% $71M 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 measu
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: Allocating Capital Equitably
Allocating Capital Equitably $198M $192M $175M $143M $122M $105M $95M $97M $87M $45M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Acquisitions Capex Dividends Share buyback (NCIB) 36
Slide 37: Increasing Dividends Consistently
Increasing Dividends Consistently 2020 will mark the 16th consecutive year of dividend increase $0.60* $0.56 $0.48 $0.44 $0.40 $0.32 $0.28 $0.20 $0.16 $0.13 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E * Projected based on the latest quarterly dividend 37
Slide 38: Maintaining a Solid Financial Position
Maintaining a Solid Financial Position $150.8 million available on the Company’s syndicated credit facilities as at December 31, 2019 800 4.00 $605M 700 3.50 600 2.75 3.00 3.02 2.41 500 2.50 2.52 2.62 400 2.22 2.00 2.10 300 1.89 1.93 1.50 1.87 200 1.00 100 0.50 - - 2010 2011 2012 2013 2014 2015 2016
Slide 39: 2019 Results
2019 RESULTS 39
Slide 40: 2019 – 19th Consecutive Year of Sales Growth
2019 – 19th Consecutive Year of Sales Growth $2,123.9M $2,169.0M SALES VARIANCE 2018 Sales (M) $2,123.9 Acquisitions 11.6 Currency variations 41.9 Organic growth Pressure treated wood 33.7 Logs and lumber (42.1) 2019 Sales (M) $2,169.0 2018 2019 Utility Poles Railway Ties Residential Lumber Industri
Slide 41: 2019 – Sales Variance
2019 – Sales Variance Pressure Treated Wood Organic Growth of 1.7% (in millions Utility Railway Residential Industrial TOTAL PRESSURE Logs & CONSOLIDATED of dollars) Poles Ties Lumber Products TREATED WOOD Lumber SALES 2018 Sales 725.0 662.4 474.4 109.2 1,971.0 152.9 2,123.9 Acquisitions 0.5 - 7.3 3
Slide 42: 2019 – Increased Gross Profit and Margin
2019 – Increased Gross Profit(1) and Margin $358.5M $328.0M 16.5% 15.4% Higher selling prices for utility poles and railway ties drove the gross profit improvement. 2018 2018 2019 2019 (1) This is a non-IFRS financial measure. Please refer to the Company’s MD&A. 42
Slide 43: 2019 – Net Income & EPS Increased
2019 – Net Income & EPS Increased Net income EPS $2.37 $163.1M Due to sales growth $1.98 $137.6M 2018 2019 2018 2019 43
Slide 44: 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 $305.0M $128.1M anticipation of 2020 sales $258.0M $89.9M 2018 2019 2018 2019 (1) This is a non-IFRS financial measure. Please refer to the Company’s MD&A. (2) Before
Slide 45: 2020 Outlook
2020 Outlook Based on the assumptions that current market and economic conditions stabilize and foreign exchange rates and raw material prices remain comparable to those of the prior year Higher sales Consolidated Improvement in operating margins EBITDA in the range of $320M to $345M Utility Poles S
Slide 46: Appendix
APPENDIX 46
Slide 47: Income Statement - 5-Year Financial Summary
Income Statement - 5-Year Financial Summary 2019 2018 2017 2016 2015 Sales 2,169.0 2,123.9 1,886.1 1,838.4 1,559.3 Gross Profit(1) 358.5 328.0 315.2 333.7 307.3 EBITDA(1) 312.9 244.4 243.1 264.8 243.4 EBITDA %(1) 14.4% 11.5% 12.9% 14.4% 15.6% Operating income(1) 242.3 206.3 207.4 233.2 220.1 Operati
Slide 48: Financial Position - 5-Year Financial Summary
Financial Position - 5-Year Financial Summary 2019 2018 2017 2016 2015 Working capital 1,009.6 909.0 779.4 928.0 854.4 Total assets 2,281.1 2,062.2 1,786.0 1960.9 1,778.9 Long-term debt(1) 604.9 513.5 455.6 694.0 669.9 Shareholders’ equity 1,288.3 1,281.4 1,115.5 1,026.4 913.5 Long-term debt(2) to t
Slide 49: Stella-Jones
Stella-JoneS 4a WWW.STELLA-JONES.COM