Interfor Corporation · TSX:IFP
Interfor — Investor Presentation (February 2022)
49 slides from Interfor's investor presentation, February 2022
Slide 1: Investor Presentation February 2022
INVESTOR PRESENTATION FEBRUARY 2022
Slide 2: Forward-Looking Information & Non-GAAP Measures
FORWARD-LOOKING INFORMATION & NON-GAAP MEASURES Forward-Looking Information: This presentation contains forward-looking information about Interfor Corporation’s (“Interfor” or the “Company”) business outlook, objectives, plans, strategic priorities and other information that is not historical fact.
Slide 3: Interfor Investment Highlights
INTERFOR INVESTMENT HIGHLIGHTS Pure-play North American lumber producer • Top five lumber producer in North America, with 21 strategically located sawmills • High exposure to US South region with attractive log costs Compelling lumber market fundamentals • Robust demand across all end-use segments,
Slide 4: Financial & Operating Snapshot
FINANCIAL & OPERATING SNAPSHOT BENCHMARK LUMBER PRICES (US$/MBF) PRODUCTION VOLUMES (MMBF) $1,450 750 WSPF Composite (US$/Mbf) 700 $1,250 SYP Composite (US$/Mbf) 650 $1,050 600 $850 550 $650 500 $450 450 $250 400 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Slide 5: Pure-Play North American Lumber Producer
PURE-PLAY NORTH AMERICAN LUMBER PRODUCER
Slide 6: Pure-Play Lumber Producer
PURE-PLAY LUMBER PRODUCER Interfor is the only publicly traded pure-play lumber producer of scale REVENUES BY BUSINESS SEGMENT (1) PEER #1 PEER #2 PEER #3 PEER #4 PEER #5 LUMBER PULP / PAPER ENGINEERED WOOD / PANELS TIMBERLANDS OTHER (1) Based on public filings for 2020; peers include West Fraser, C
Slide 7: Industry Landscape
INDUSTRY LANDSCAPE Interfor is a top five lumber producer in North America NORTH AMERICAN LUMBER PRODUCTION BY COMPANY – 2020 (BBF) 7.00 6.00 5.00 (1) 4.00 3.00 2.00 1.00 - Source: International Wood Markets/FEA Canada Wood Markets Monthly March 2021. 7 (1) Interfor proforma for 2021 WestRock and Ge
Slide 8: Interfor Operating Regions
INTERFOR OPERATING REGIONS 57% of Interfor’s production capacity is in the US South (1) BC INTERIOR 750 MMBF (19%) • 3 dimension mills • Douglas-Fir, Hem-Fir, SPF, Cedar • Efficient, modern, low-cost, well- capitalized dfdffffffffffffffffffffff dfdfd BC COAST 140 MMBF (4%) • 1 specialty/high-value m
Slide 9: Regional Log Cost Trends
REGIONAL LOG COST TRENDS The US South has the most attractive and stable log costs in North America BC INTERIOR US NORTHWEST US SOUTH (INDEXED VS. 2013) (INDEXED VS. 2013) (INDEXED VS. 2013) 190% 190% 190% 180% 180% 180% 170% 170% 170% 160% 160% 160% 150% 150% 150% 140% 140% 140% 130% 130% 130% 120%
Slide 10: Key Products & Markets
KEY PRODUCTS & MARKETS Diverse lumber species and end-use mix; high leverage to key US market LUMBER SALES BY SPECIES (1) LUMBER SALES BY MARKET (1) USA Spruce-Pine-Fir 88% 10% Hem-Fir 9% Southern Yellow Pine 48% Doug Fir/ Larch 30% Japan Canada Cedar 2% 6% 3% Other China/Tw/HK 3% 1% (1) By Value fo
Slide 11: Compelling Lumber Market Fundamentals
COMPELLING LUMBER MARKET FUNDAMENTALS
Slide 12: Lumber Prices
LUMBER PRICES Robust pricing continues to be driven by strong demand fundamentals NORTH AMERICAN BENCHMARK LUMBER PRICES (US$/MBF) $1,800 SYP Composite $1,600 Hem-Fir Stud #2 2x4 $1,400 WSPF Composite $1,200 $1,000 $800 $600 $400 $200 Source: Random Lengths (includes prices up to January 28, 2022) 1
Slide 13: Lumber Demand
LUMBER DEMAND Relatively stable R&R & industrial demand, with upside leverage to housing NORTH AMERICAN LUMBER DEMAND BY END-USE (BBF) 80 Domestic Residential Repair & Remodel (R&R) 70 Domestic Industrial/Commercial Domestic Residential New Home Construction Offshore Exports 60 50 40 30 20 10 - 2005
Slide 14: Lumber Demand: Key Drivers
LUMBER DEMAND: KEY DRIVERS Single-family US housing starts in 2021 were the highest since 2006 US HOUSING STARTS AGE OF US HOUSING STOCK (MILLIONS SEASONALLY ADJUSTED) (MEDIAN AGE IN YEARS) Single-Family Multi-Family 43 1.7 1.6 41 1.5 1.4 39 1.3 1.2 37 1.1 1.0 35 0.9 0.8 33 0.7 0.6 31 0.5 0.4 29 0.3
Slide 15: Lumber Supply
LUMBER SUPPLY Measured supply growth in the US South, offset by ongoing declines in BC NORTH AMERICAN LUMBER PRODUCTION (BBF) Region 2018 2019 2020 2021 (1) US SOUTH Measured growth (three-year CAGR of 4%), limited by labour availability South 18.8 19.4 20.8 21.1 and long equipment lead times West 1
Slide 16: Lumber Supply: BC Interior
LUMBER SUPPLY: BC INTERIOR Declining log supply across BC, but Interfor well-positioned in southern BC 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 Sou
Slide 17: Softwood Lumber Dispute
SOFTWOOD LUMBER DISPUTE Minimal exposure to duties with 77% of lumber capacity based in the US (1) U.S. COUNTERVAILING & INTERFOR SOFTWOOD LUMBER ANTI-DUMPING CASH DEPOSIT RATES DUTIES HIGHLIGHTS COMPANY 2017-20(2) 2020-21(3) 2021-22(4) 2022-23(5) US$170 MM (1) West Fraser 23.56% 8.97% 11.14% 13.09%
Slide 18: Growth-Focused Strategy
GROWTH-FOCUSED STRATEGY — eu
Slide 19: Interfor Growth Strategy
INTERFOR GROWTH STRATEGY Long-standing strategy of growth and geographic lumber diversification (1) 2001 2012 2021 19% 17% 39% 4% 42% 57% 83% 20% 19% 0.8 BBF 1.7 BBF 3.9 BBF (1) (1) Charts reflect production capacity and do not include pending acquisition of EACOM expected to close in Q1-2022 19
Slide 20: Interfor Growth Strategy
INTERFOR GROWTH STRATEGY Interfor's strategy has been consistent over time and across regions Acquisitions have focused on assets with upside potential Efforts post-acquisition are then focused on operational integration and the establishment of best practices, followed by capital investment US NORT
Slide 21: Multi-Year Strategic Capex Plan
MULTI-YEAR STRATEGIC CAPEX PLAN Multi-year strategic capex plan underway, primarily focused in the US South 2018 2019 2020 2021 2022 2023 2024 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O
Slide 22: Multi-Year Strategic Capex Plan
MULTI-YEAR STRATEGIC CAPEX PLAN Mill rebuilds, machine center upgrades, debottlenecking & optimization projects Eatonton, Georgia Monticello, Arkansas Canter Lines Continuous Kilns Molalla, Oregon Adams Lake, British Columbia 22
Slide 23: Capital Spending Profile
CAPITAL SPENDING PROFILE Strategic investments resulting in a well-capitalized, high-margin sawmill portfolio HISTORICAL CAPITAL EXPENDITURES & OUTLOOK ($MM) $280 Capital Expenditures - Discretionary $260 Capital Expenditures - Maintenance (Includes Woodlands Roads) $240 Depreciation, Depletion & Am
Slide 24: Top Tier Lumber Margins & Returns
TOP TIER LUMBER MARGINS & RETURNS
Slide 25: Top Tier Lumber Margins
TOP TIER LUMBER MARGINS Top tier margin performance across all market conditions $1,075 LUMBER SEGMENT ADJ. EBITDA MARGINS ($/MBF) (1) $975 $875 $775 PEER GROUP HIGH/LOW RANGE $675 $575 $475 $375 $275 $175 $75 $(25) $(125) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2020 2021 (1) Based on public filings;
Slide 26: Top Tier Return on Capital
TOP TIER RETURN ON CAPITAL Strategic capex plan and other capital deployment are having an impact EBIT RETURN ON CAPITAL EMPLOYED (%) (1) 80% Peer #1 = 74% 70% = 69% 60% Peer #2 = 55% 50% 40% 30% 20% 10% 0% -10% (2) 2016 2017 2018 2019 2020 2021 YTD (1) Based on public filings; peers include West Fr
Slide 27: Balanced Capital Allocation with Significant Financial Flexibility
BALANCED CAPITAL ALLOCATION WITH SIGNIFICANT FINANCIAL FLEXIBILITY
Slide 28: Balanced Capital Allocation
BALANCED CAPITAL ALLOCATION Disciplined, multi-faceted approach to capital allocation depending on the circumstances HISTORICAL CAPITAL DEPLOYMENT ($MM) (1) $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $- 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Capex M&A Share Buy-Backs Special Divi
Slide 29: Recent Capital Allocation
RECENT CAPITAL ALLOCATION Balanced approach to recent capital deployment initiatives Internal Growth External Growth Multi-year strategic capital Disciplined lumber-focused M&A; program; total capex spend of WestRock in Q1-2021, Georgia- approx. $178 MM in 2021 and $225- Pacific in Q3-2021; EACOM ex
Slide 30: Capital Structure
CAPITAL STRUCTURE Significant financial flexibility to consider a variety of capital deployment options CAPITAL STRUCTURE DEBT MATURITY SCHEDULE AS OF DEC 31, 2021 ($MM) AS OF DEC 31, 2021 ($MM) Cash $539 $140 $120 Prudential Notes (4.08%) Debt $376 $100 Net Debt (Cash) $(163) $80 Book Equity $1,636
Slide 31: WestRock Acquisition
WESTROCK ACQUISITION Logical tuck-in acquisition with operational and capital investment upside • Acquisition of WestRock’s sawmill in APPROX. LOG PROCUREMENT AREAS Summerville, South Carolina closed on March 12, 2021. • Cash consideration of US$59 MM, included log and lumber inventories. • Mill pro
Slide 32: Georgia-Pacific Acquisition
GEORGIA-PACIFIC ACQUISITION 23% increase to Interfor’s capacity at an attractive valuation • Acquisition of four high-quality US sawmills from Georgia-Pacific, closed on July 9, 2021 • 720 MMbf of production capacity; 23% increase to Interfor’s current platform • Immediately accretive; three operati
Slide 33: EACOM - Transaction Highlights
EACOM - TRANSACTION HIGHLIGHTS Consistent with growth-focused strategy as a pure-play lumber producer Increases total lumber production and capacity by one billion board feet or 25% Builds upon already geographically diverse operations, adding significant scale in a new region Complements existing p
Slide 34: EACOM - Transaction Terms
EACOM - TRANSACTION TERMS Item Description • Announced on November 23, 2021 Transaction • Acquisition of 100% of the equity interests of EACOM Timber Corporation • 7 sawmills (5 in Ontario, 2 in Quebec), total of 985 MMbf / year of SPF capacity Key Facilities • 1 I-Joist plant, producing solid-sawn
Slide 35: EACOM - Transformative Growth
EACOM - TRANSFORMATIVE GROWTH • Transformative deal that grows Interfor's lumber capacity by 25%, builds on its geographic diversification and expands its offering of spruce-pine-fir (SPF) lumber • SPF lumber is becoming increasingly scarce in North America given ongoing declines in British Columbia
Slide 36: EACOM - Regional Diversification
EACOM - REGIONAL DIVERSIFICATION • Interfor to become a truly North American lumber producer, with operations in all the key fibre regions on the continent, further diversifying and de-risking the operating platform INTERFOR & EACOM OPERATIONS Interfor Facilities EACOM Facilities EACOM TIMBER: • 7 s
Slide 37: EACOM - Attractive Fibre Fundamentals
EACOM - ATTRACTIVE FIBRE FUNDAMENTALS • EACOM’s log costs are very attractive, second only to the US South • Residuals – stable pricing, long-standing business relationships with well capitalized pulp producers and no significant exposure to newsprint manufacturers • Responsible forest management th
Slide 38: EACOM - Attractive Market Expansion
EACOM – ATTRACTIVE MARKET EXPANSION • Complementary geographic destinations with Interfor: • EACOM’s facilities are very well positioned to service Greater Toronto, the fourth largest metropolitan area in North America, as well as other key Great Lakes markets • Approx. 40% of EACOM’s shipments rema
Slide 39: EACOM - Operations Overview
EACOM - OPERATIONS OVERVIEW • 7 sawmills (5 in Ontario, 2 in Quebec), with total SPF lumber capacity of 985 MMbf / year • 1 I-Joist plant, producing branded and private-label solid-sawn flange I-Joists • 1 lumber reman plant producing components for bedframes and furring strips EAR FALLS, ON MATAGAM
Slide 40: EACOM - Financial Summary & Value
EACOM - FINANCIAL SUMMARY & VALUE • Purchase price of C$490 MM represents: • Pre-synergy mid-cycle EBITDA multiple of 5.4x • Post-synergy mid-cycle EBITDA multiple of 4.3x • Lumber capacity multiple of C$497/Mbf or US$398/Mbf • Synergies estimated at C$25 MM/year: • Operations, sales, logistics and
Slide 41: EACOM - Financing & Capital Structure
EACOM - FINANCING & CAPITAL STRUCTURE • Purchase price to be funded with cash on hand and available debt facilities • Very strong capital structure and available liquidity post-transaction, with significant additional credit capacity available Actual Proforma (1) C$MM Dec'21 Dec'21 Cash $539 - Debt
Slide 42: Positive ESG & Carbon Story
~~ & POSITIVE ESG & CARBON STORY
Slide 43: Enhancing the Natural Carbon Cycle
ENHANCING THE NATURAL CARBON CYCLE Responsible forest management increases long-term carbon storage CO2 CO2 Growing Forest CO2 CO2 CO2 Seedling Mature Forest Decaying / Vulnerable Forest Releases stored carbon CO2 CO2 Comprehensive Replanting Responsible Harvesting in 2020 Interfor planted 11.8 Enab
Slide 44: Sustainable Manufacturing
SUSTAINABLE MANUFACTURING Lumber produced by Interfor stores 4x the carbon emitted in all phases of its production 86% of Interfor sites with kilns use renewable biomass energy for drying lumber 3.7 MM tonnes of CO2 stored in lumber sold by Interfor in 2020 vs. ~400,000 tonnes of CO2e avoided annual
Slide 45: Lumber: Low-Carbon Building Material
LUMBER: LOW-CARBON BUILDING MATERIAL Lumber is a climate-friendly building product vs. other alternatives Compared to the use of: CO2 CO2 Steel Emits 18.0kg CO2* 1m2 of a building constructed using CO2 wood wall studs Stores net 16.7kg CO2* Concrete Emits 27.5kg CO2* * Carbon stored minus production
Slide 46: Responsibility at the Heart of the Company
RESPONSIBILITY AT THE HEART OF THE COMPANY Integrating ESG standards throughout our business ENVIRONMENT SOCIAL GOVERNANCE Climate: Safety: ESG Oversight: • We contribute meaningfully to the global effort to • We embrace world-leading safety standards and • 91% of directors are independent; combat c
Slide 47: Contact Information
CONTACT INFORMATION
Slide 48: Investor Contacts
INVESTOR CONTACTS RICK POZZEBON MIKE MACKAY SVP & Chief Financial Officer VP, Corporate Development & Strategy 604-689-6804 604-689-6846 richard.pozzebon@interfor.com mike.mackay@interfor.com 48
Slide 49: 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