Stella-jones Inc. · TSX:SJ
Stella-jones — Investor Presentation (November 2018)
47 slides from Stella-jones's investor presentation, November 2018
Slide 1: Investor Presentation November 2018
INVESTOR PRESENTATION November 2018 1
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. We caution you not to place undue reliance on these statements since a number of known and unknown ris
Slide 3: Non-IFRS Measures
Non-IFRS Measures Operating income before depreciation of property, plant and equipment and amortization of intangible assets (herein referred to as earnings before interest, taxes, depreciation and amortization [“EBITDA”]), and cash flow from operating activities before changes in non-cash working
Slide 4: Agenda
Agenda • Investment Thesis • Overview of Stella-Jones • Strategy and Future Growth • Overview by Business Unit • Financial Trends • Q3-2018 Results • Appendix 4
Slide 5: Investment Thesis
Investment Thesis 5
Slide 6: Investment Thesis
Investment Thesis • Balanced portfolio of businesses • Track record of performance • Leadership positions in markets served • Scope of network in North America • Solid balance sheet • Proven consolidator with disciplined acquisition strategy • Experienced and proven management team 6
Slide 7: Overview of Stella-Jones
Overview of Stella-Jones 7
Slide 8: Stella-Jones at a Glance
Stella-Jones at a Glance A Leading North American Supplier of Pressure Treated Wood Products 6.4% 2,000 39 5.0% Logs & Lumber Employees Wood Treating Industrial Products Facilities 34.7% Utility Poles 19.4% 2017 Residential 12 70% Lumber Revenues Pole Peeling Revenues $1.9 B Facilities from U.S. $2.
Slide 9: Important Milestones in 25-Year History
Important Milestones in 25-Year History Public Over $1 Billion in sales Foundation Company 4 for 1 stock split 1993 1994 2010 2012 2013 2015 Acquired Tangent Acquired McFarland Cascade: Acquired RAM Forest Rail Corporation: Game-changing for Group & Ramfor Lumber: Game-changing for Utility Poles Gam
Slide 10: 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 11: North American Network
North American Network Note: highlighted plants were recently acquired 11
Slide 12: Track Record of Performance
Track Record of Performance Revenues $1,886M EBITDA(1) $241M 19.3% 17.2% CAGR CAGR $385M $58M 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net income $168M Cash Flow(2) $246M 21.6% 22.0% CAGR CAGR $29M $41M 2008 2009 2010 2011 2012 2013 2014 201
Slide 13: Stock Price Appreciation
Stock Price Appreciation $60.00 Shares outstanding 69.4M Float 61.7M Average daily volume 181,231 52 week (high-low) $51.79-$40.66 $40.00 Market Capitalization $2.8 B Nov. 13: $40.66 $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 13
Slide 14: Strategy and Future Growth
Strategy and Future Growth 14
Slide 15: Strategy and Future Growth by Business Unit
Strategy and Future Growth by Business Unit Market Growth Drivers Trends Growth Strategy • Stable market • Maintenance requirements • Oversupply of railway ties • Tuck-in acquisitions Railway Ties • Market is fairly • Market share gains driving prices down • Market share gains consolidated GDP growt
Slide 16: Overview by Business Units
Overview by Business Units 16
Slide 17: Railway Ties - Overview
Railway Ties - Overview % 2017 Sales 5-Year Revenue $652M 90% of ties sold in $394M Pricing North America are $652 M pressures for maintenance and over 90% are wood 34.5% 2013 2014 2015 2016 2017 Producer of pressure-treated railway ties 17
Slide 18: Railway Ties – Business Model
Railway Ties – Business Model Revenue Mix Game-changing Acquisition Value Proposition 65% Class 1 railroads Tangent Rail (2010) Availability of inventory, scope of Selected Metrics network & flexible service Business Model Selected Metrics Business Model Customers • ~65% Class 1 railroads (Union Pac
Slide 19: Railway Ties - Market Conditions & Drivers
Railway Ties - Market Conditions & Drivers Players Trends Growth Consolidation among Oversupply of railway ties driving Tuck-in acquisitions and railway operators favors prices down & customers market gains as the market is large scale tie providers transitioning to “Black Tie” program fairly stable
Slide 20: Utility Poles - Overview
Utility Poles - Overview % 2017 Sales 5-Year Revenues $654M $406M Wood offers the best value over alternative $654 M Growth in materials, such as 34.7% SE U.S. steel, composites and concrete 2013 2014 2015 2016 2017 Producer of pressure-treated utility poles 20
Slide 21: Utility Poles – Business Model
Utility Poles – Business Model Revenue Mix Game-changing Acquisition Value Proposition ~80% of business under McFarland (2012) Availability of inventory, scope of multi-year agreements network & flexible service Selected Metrics Business Model Customers • Electrical utility companies • Telecommunica
Slide 22: Utility Poles - Market Conditions & Drivers
Utility Poles - Market Conditions & Drivers Market Trends Growth South East U.S. market Increase in replacement Acquisitions and leveraging is fragmented demand as average age of the upcoming increase in poles is very high replacement demand Selected Metric Market Conditions and Drivers Market size
Slide 23: Residential Lumber - Overview
Residential Lumber - Overview % 2017 Sales 5-Year Revenue $366M RAM acquisition $112M Sales are tied to the $366 M price of lumber as well 19.4% as market share growth 2013 2014 2015 2016 2017 Producer of treated wood sold through wholesalers and big-box retailers to consumers 23
Slide 24: Residential Lumber – Business Model
Residential Lumber – Business Model Revenue Mix Game-changing Acquisition Value Proposition 80% Big Box Retailers RAM Forest Group (2015) Availability of inventory, scope of network & flexible service Selected Metrics Business Model Customers • Big box retailers • Dealer network Contracts • 1 year -
Slide 25: Residential Lumber - Market Conditions & Drivers
Residential Lumber - Market Conditions & Drivers Players Trends Growth Limited pure plays Limited supply of wood Expanding the dealer network, driving prices of lumber up implementing the direct-to-home model in the U.S. and select acquisitions Selected Metric Market Conditions and Drivers Market si
Slide 26: Industrial Products - Overview
Industrial Products - Overview % 2017 Sales 5-Year Revenues $95M Niche business driven $58M $95 M primarily by bridge timbers, road 5.0% crossings, pilings and special projects 2013 2014 2015 2016 2017 Producer of treated piles and timbers, mainly used for a variety of land-based and marine applicat
Slide 27: Logs and Lumber - Overview
Logs and Lumber - Overview % 2017 Sales 5-Year Revenues $120M Business used to optimize our costs by selling non-pole quality $120 M Growth in residential logs as well as selling 6.4% excess untreated dimensional lumber to 2013 2014 2015 2016 2017 the market Sell untreated lumber and logs unsuitable
Slide 28: Financial Trends
Financial Trends 28
Slide 29: Diversifying Product Mix
Diversifying Product Mix 31% of sales Based on core competence Logs & Lumber Industrial Products Residential Lumber Utility Poles 17% of sales Railway Ties 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 29
Slide 30: Growing Proportion of U.S. Sales
Growing Proportion of U.S. Sales 70.2% 53.2% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Canada US 30
Slide 31: Growing EBITDA in Absolute Dollars
Growing EBITDA(1) in Absolute Dollars 300 20.0% 16.8% 18.0% 250 $241M 15.2% 14.4% 16.0% 14.1% 12.7% 15.1% 15.3% 15.6% 14.0% 200 14.4% 12.0% 12.8% 150 10.0% 8.0% 100 6.0% $58M 4.0% 50 2.0% - 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 EBITDA EBITDA % (1)This is a non-IFRS financial measure
Slide 32: Generating Strong Free Cash Flow
Generating Strong Free Cash Flow(1) Free cash flow(1) profile improving $249M 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (1)This is a non-IFRS financial measure. Please refer to the Company’s MD&A. 32
Slide 33: Deploying Capital Prudently
Deploying Capital Prudently $192M $198M $122M $105M $95M $97M $88M $53M $45M $9M 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Acquisitions Capex Dividends 33
Slide 34: Increasing Dividends Consistently
Increasing Dividends Consistently 2018 will mark the 14th consecutive year of dividend increase $0.48 $0.44 $0.40 $0.32 $0.28 $0.20 $0.16 $0.13 $0.09 $0.10 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 E 34
Slide 35: Maintaining a Solid Financial Position
Maintaining a Solid Financial Position $354.5 million available on the Company’s syndicated credit facilities as at December 31, 2017 800 4.00 700 3.50 3.21 3.02 600 3.00 $456M 2.43 2.52 500 2.22 2.75 2.50 2.62 2.41 400 2.00 1.87 1.89 300 1.50 200 1.00 100 0.50 - - 2008 2009 2010 2011 2012 2013 2014
Slide 36: Q3 2018 Results
Q3 2018 Results 36
Slide 37: Q3-18 – Sales Increased in All Product Categories
Q3-18 – Sales Increased in All Product Categories $630.0M SALES VARIANCE $517.6M +21.7% Logs & Lumber Q3-17 Sales (M) $517.6 Industrial Products Acquisitions 19.9 Residential Lumber Currency variations 12.9 Organic growth 79.6 Utility Poles Q3-18 Sales (M) $630.0 Railway Ties Q3-17 Q3-18 37
Slide 38: Q3-18 – Sales Variance
Q3-18 – Sales Variance Organic growth of 15.4% on a consolidated basis (in millions of Railway Utility Residential Industrial Logs & Consolidated dollars) Ties Poles Lumber Products Lumber Sales 2017 Sales 160.8 172.5 125.8 25.6 32.9 517.6 Acquisitions - 0.1 15.2 4.3 0.3 19.9 FX impact 5.1 5.1 1.5 0
Slide 39: Q3-18 – Gross Profit Remains Under Pressure
Q3-18 – Gross Profit Remains Under Pressure $94.0M $83.6M ① Increase in untreated railway tie 16.1% costs and certain untreated species 14.9% of poles ② Higher lumber costs, which are a pass through to customers, have contributed to increased cost of sales and have put downward pressure on margins a
Slide 40: Q3-18 – Increased Net Income & EPS
Q3-18 – Increased Net Income & EPS Net income EPS $45.8M $0.66 $0.61 $42.0M 9.2% Driven by higher operating income Q3-17 Q3-18 Q3-17 Q3-18 40
Slide 41: Managing Cash Flow for Seasonality
Managing Cash Flow for Seasonality Cash Flow before certain items(1) Cash Flow from Operating Activities $175.5M Higher working $79.5M capital $72.6M requirements $91.3M Q3-17 Q3-18 Q3-17 Q3-18 (1)Before changes in non-cash working capital components and interest and income tax paid. 41
Slide 42: Maintaining a Solid Financial Position
Maintaining a Solid Financial Position $266.1 million available on the Company’s syndicated credit facilities 800 4.00 700 3.50 3.02 600 2.75 $499M 3.00 2.43 2.41 2.52 500 2.22 2.50 2.62 400 2.00 2.11 300 1.89 1.50 200 1.00 100 0.50 - - 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q3-18 LTD Total De
Slide 43: Outlook
Outlook Based on current market conditions and stable currencies 2018 vs 2017 2019 vs 2018 Consolidated • Higher sales • Higher sales • The progression of operating margins in • Operating margins expected to improve Q4-18 will continue to be impacted by higher untreated railway tie costs until sales
Slide 44: Appendix
Appendix 44
Slide 45: Income Statement - 5-Year Financial Summary
Income Statement - 5-Year Financial Summary 2017 2016 2015 2014 2013 Sales 1,886.1 1838.4 1559.3 1,249.5 1,011.3 EBITDA(1) 240.6 264.8 243.4 176.3 155.0 EBITDA %(1) 12.8% 14.4% 15.6% 14.1% 15.3% Operating income 207.4 233.2 220.1 155.7 138.7 Operating % 11.0% 12.7% 14.1% 12.5% 13.7% Net income 167.9
Slide 46: Financial Position - 5-Year Financial Summary
Financial Position - 5-Year Financial Summary 2017 2016 2015 2014 2013 Working capital 779.4 928.0 854.4 615.1 517.0 Total assets 1,786.0 1960.9 1,778.9 1,289.0 1,071.9 Total debt 455.6 694.0 669.9 444.6 372.9 Shareholders’ equity 1,115.5 1,026.4 913.5 692.3 572.2 Total debt to 0.29:1 0.40:1 0.42:1
Slide 47: Thank You
THANK YOU Stella-JoneS a—. www.stella-jones.com