Stella-jones Inc. · TSX:SJ
Stella-jones — Investor Presentation (April 2021)
60 slides from Stella-jones's investor presentation, April 2021
Slide 1: Investor Presentation April 2021
INVESTOR PRESENTATION April 2021
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 2020 FINANCIAL RESULTS Q4-2020 FINANCIAL RESULTS 2021 OUTLOOK & PRIORITIES 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 2,250 (1) 40 (1) Employees Wood Treating Facilities 35% 29% 25 U.S. and 15 Canada Utility Poles Railway Ties $2.6B 12 (1) 68% (2) 2020 Sales Pole Peeling Sales Facilities in the U.S. 6% Logs & Lumber 4% 26%
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: Growing Proportion of U.S. Sales
GROWING PROPORTION OF U.S. SALES 68% 64% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Canada U.S. 8
Slide 9: Building a Strong Third Pillar
BUILDING A STRONG THIRD PILLAR Residential lumber grew from 10% of sales in 2014 to 26% in 2020 $2,551M $836M 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Utility Poles Railway Ties Residential Lumber Industrial Products Logs & Lumber Note: 2016 - 2019 figures were adjusted to reclass some frei
Slide 10: Stella-Jones' Continental Network
STELLA-JONES’ CONTINENTAL NETWORK 10
Slide 11: Competitive Strengths
COMPETITIVE STRENGTHS 11
Slide 12: 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 13: Strategy and Future Growth
STRATEGY AND FUTURE GROWTH 13
Slide 14: 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 35% the North American market • Mid to high-single digit growth • Growth of 5G networks and “fibre
Slide 15: Financial Trends
FINANCIAL TRENDS 15
Slide 16: Track Record of Performance
TRACK RECORD OF PERFORMANCE Sales(1) EBITDA(2)(3) $2,551M $ 385M $640M $ 97M 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Cash Flow(2)(4) & Net income Net Debt-to-EBITDA(2)(5) $ 402M $ 210M 2.8x 2.6x $ 56M $ 100M 3.0x 2.4x 2.5x 2.3x 1.9x 2.1x 1.
Slide 17: Increasing Dividends Consistently
INCREASING DIVIDENDS CONSISTENTLY 2021 will mark the 17th consecutive year of dividend increase $0.72* $ 0.60 18.2% CAGR $ 0.56 $ 0.48 $ 0.44 $ 0.40 $0.16 $ 0.32 $ 0.28 $ 0.20 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E * Projected based on the latest quarterly dividend 17
Slide 18: Increasing Shareholder Value
INCREASING SHAREHOLDER VALUE Relative Stock Price Performance $48.97 460% Shares outstanding @ As at March 9, 2021 65.4M 420% March 9, 2021 380% Average daily volume 300,416 18.6% CAGR 52 week (high-low) $49.43-$23.34 340% Market Capitalization $3.2B 300% 13.2% 260% CAGR 220% 180% 11.9% CAGR 140% 10
Slide 19: Capital Allocation
CAPITAL ALLOCATION 19
Slide 20: Capital Allocation Priorities
CAPITAL ALLOCATION PRIORITIES 1 2 3 Capital Expenditures Dividend Acquisitions Share Repurchase Organic growth, Durable dividend payout Pursue accretive Return excess free cash innovation, productivity TARGET: 20-30% of transactions to flow to shareholders and asset maintenance prior year’s EPS enha
Slide 21: Capital Allocation Overview
CAPITAL ALLOCATION OVERVIEW Stella-Jones has invested $1,032M in growth investments and returned $384M in cash to shareholders since 2010 $192M $198M $177M $155M $143M $122M $105M $95M $97M $87M $45M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Acquisitions Capex Dividends Share buyback (N
Slide 22: Maintaining a Solid Financial Position
MAINTAINING A SOLID FINANCIAL POSITION $745M $ 900 $ 800 $ 700 $ 600 3.0x 2.8x in millions $ 2.5x 2.6x $ 500 2.4x Net Debt- 2.3x $ 400 2.1x to-EBITDA (1) Target: 1.9x 1.9x 1.9x 2.0x – 2.5x $ 300 $ 200 $ 100 $0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Net debt(1) Net Debt-to-EBITDA (1) (1) T
Slide 23: Debt and Liquidity
DEBT AND LIQUIDITY Well spread out debt maturity profile and ample liquidity Debt Obligation (in millions of US$) $400 As at December, 31, 2020 $350 Revolver (in millions of C$) in millions $ $300 Total long-term debt $606 $250 $325 $200 Has Fixed interest rate debt $445 US$350M $150 accordian Avail
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 2020 Sales 5-Year Sales $888M $594M
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 and deployment of “fibre-to-home” throughout many rural areas Product Category Size Marketplace Growth Driver
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 2020 Sales 5-Year Sales $716M $733M $733M Volu
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 2020 Sales 5-Year Sales $665M Volume $665M $346M Growth & Prices are 26% 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 peaked on Feb. 22, 2021 1100 1000 900 800 700 600 500 400 300 200 100 0 Jan/16 Jan/17 Jan/18 Jan/19 Jan/20 Jan/21 Source: Factset Mar 9, 21 34
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, construction timbers and laminated poles, offered in a variety of
Slide 36: Logs and Lumber – Overview
LOGS AND LUMBER – OVERVIEW Business used to optimize procurement and does not generate a margin 2020 Sales 5-Year Sales $146M $101M $146M Sales are tied to 6% the price of lumber 2016 2017 2018 2019 2020 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 2019 Highlights
ESG 2019 HIGHLIGHTS PRODUCT STEWARDSHIP Sustainable forest management, responsible manufacturing and product innovation initiatives Wood for residential Hectares of sustainably Railway tie suppliers from 90% local communities 87% lumber purchased from 135K managed forest in British certified sources
Slide 40: Financial Results
Sain ae & a mI aaa 2 Le i et img) ii FINANCIAL RESULTS
Slide 41: 2020 – 20th Consecutive Year of Sales Growth
2020 – 20th CONSECUTIVE YEAR OF SALES GROWTH SALES VARIANCE +16% $2.6B $2.2B Organic Growth 2019 Sales (M) $2,189 Currency variations 19 Organic growth Pressure-treated wood 309 Logs and lumber 34 2020 Sales (M) $2,551 2019 2020 Utility Poles Railway Ties Residential Lumber Industrial Products Logs
Slide 42: 2020 – Sales Variance
2020 – SALES VARIANCE Pressure Treated Wood Organic Growth of 15% (in millions of Residential Industrial TOTAL PRESSURE Logs & Utility Poles Railway Ties CONSOLIDATED SALES dollars) Lumber Products TREATED WOOD Lumber 2019 Sales 797 689 471 120 2,077 112 2,189 FX impact 8 7 3 1 19 - 19 Organic growt
Slide 43: 2020 – Higher EBITDA and Margins
2020 – HIGHER EBITDA(1) AND MARGINS EBITDA(1) Operating Income $385M $309M $313M Driven by pricing $242M 15.1% and volume gains 14.3% across the 12.1% Company’s three 11.1% core product categories 2019 2020 2019 2020 (1) This is a non-IFRS financial measure. Please refer to the Company’s MD&A. Note:
Slide 44: 2020 – Net Income & EPS Increased
2020 – NET INCOME & EPS INCREASED Net income EPS $210M $3.12 32% 29% $2.37 $163M Driven by strong sales growth 2019 2020 2019 2020 44
Slide 45: Strong Cash Flow Generation
STRONG CASH FLOW GENERATION Cash Flow before certain items(1)(2) Cash Flow from Operating Activities $402M $178M $305M Record cash from operations despite $90M inventory build for 2021 sales growth 2019 2020 2019 2020 (1) This is a non-IFRS financial measure. Please refer to the Company’s MD&A. (2)
Slide 46: Inventory Turnover
INVENTORY TURNOVER Because of the long periods required to air-season wood, inventory turnover has historically been relatively low 2.1x 2.2x 2.1x 2.0x 1.7x 1.9x 1.8x 1.9x 1.9x 1.6x avg. 1.4x 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 46
Slide 47: Q4-2020 Financial Results
Q4-2020 FINANCIAL RESULTS 47
Slide 48: Q4-20 – Sales Up 20%
Q4-20 – SALES UP 20% SALES VARIANCE $533M 21% $445M Organic Growth Q4-19 Sales (M) $445 Currency variations (4) Organic growth Pressure-treated wood 78 Logs and Lumber 14 Q4-20 Sales (M) $533 Q4-19 Q4-20 Utility Poles Railway Ties Residential Lumber Industrial Products Logs & Lumber Note: Prior peri
Slide 49: Q4-20 – Sales Variance
Q4-20 – SALES VARIANCE Pressure Treated Wood Organic Growth of 19% (in millions of Residential Industrial TOTAL PRESSURE Logs & Utility Poles Railway Ties CONSOLIDATED SALES dollars) Lumber Products TREATED WOOD Lumber Q4-2019 Sales(1) 195 134 61 24 414 31 445 FX impact (2) (2) - - (4) - (4) Organic
Slide 50: Q4-20 – Increasing EBITDA & Operating Income
Q4-20 – INCREASING EBITDA(1) & OPERATING INCOME EBITDA(1) Operating Income $70M $59M Driven by higher $50M sales price for $41M residential lumber and an 9.4% 13.3% 13.1% 9.2% improved sales mix for utility poles Q4-19 Q4-20 Q4-19 Q4-20 (1) This is a non-IFRS financial measure. Please refer to the C
Slide 51: Q4-20 – Increasing Net Income and EPS
Q4-20 – INCREASING NET INCOME AND EPS Net Income EPS $34M $0.52 $28M 21% 27% $0.41 Q4-19 Q4-20 Q4-19 Q4-20 51
Slide 52: Q4-20 – Increasing Cash Flow
Q4-20 – INCREASING CASH FLOW Cash Flow before certain items(1)(2) Cash Flow From Operating Activities $78M $17M $58M ($23M) Timing of purchases and payments Q4-19 Q4-20 Q4-19 Q4-20 (1) This is a non-IFRS financial measure. Please refer to the Company’s MD&A. (2) Before changes in non-cash working ca
Slide 53: 2021 Outlook & Priorities
2021 OUTLOOK & PRIORITIES 53
Slide 54: Outlook & Priorities
OUTLOOK & PRIORITIES 2021 GUIDANCE 2021 PRIORITIES • Sustain and improve margins • EBITDA(1) guidance in the range of $385 to $410 million • Organic sales growth in the low to mid-single digit range • Focus on operating efficiencies, innovation and • Utility poles and residential lumber sales expect
Slide 55: Appendix
APPENDIX 55
Slide 56: Income Statement - 5-Year Financial Summary
INCOME STATEMENT - 5-YEAR FINANCIAL SUMMARY 2020 2019 2018 2017 2016 Sales 2,551 2,189 2,144 1,908 1,854 Gross Profit(1) 446 358 328 315 334 EBITDA(1) 385 313 244 243 265 EBITDA %(1) 15% 14% 11% 13% 14% Operating income(1) 309 242 206 207 233 Operating %(1) 12% 11% 10% 11% 13% Net income 210 163 138
Slide 57: Financial Position - 5-Year Financial Summary
FINANCIAL POSITION - 5-YEAR FINANCIAL SUMMARY 2020 2019 2018 2017 2016 Working capital 1,161 1,053 931 797 949 Total assets 2,246 2,281 2,062 1,786 1,961 Long-term debt(1) 606 605 514 456 694 Lease liabilities(1) 139 118 - - - Shareholders’ equity 1,373 1,288 1,281 1,116 1,026 Net debt(2) to total c
Slide 58: 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 59: Adoption of IFRS 16, Leases
ADOPTION OF IFRS 16, LEASES • On January 1, 2019, the Company retrospectively adopted IFRS 16, Leases. • 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 to
Slide 60: Stella-Jones www.stella-jones.com
Stella-Jone S WWW.STELLA-JONES.COM