Stella-jones Inc. · TSX:SJ
Stella-jones — Investor Presentation (August 2023)
44 slides from Stella-jones's investor presentation, August 2023
Slide 1: Plan in Action: Investor Presentation August 2023
PLAN IN ACTION Investor Presentation August 2023 Stella-JoneS 5 re ni
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 reader is cautioned not to place undue reliance on these statements since a num
Slide 3: Stella-Jones At-A-Glance
Stella-Jones At-A-Glance cr * fe) $3.96B" (SI RZ Market Cap WS: TSX af é&*? | Pole Peeling Wood Treating Facilities Facilities 27 U.S. and 16 Canada “eat =~ 70% p22 2,835 Feil Sales ° ne Employees Stella-JoneS ai— e e- ©e e 0 e ee © eee
Slide 4: Historical Milestones
Historical Milestones Completed more than 20 acquisitions in the past 20 years dati IPO Over $1 billion in sales Over $2 billion Over $3 billion Foundation 4 for 1 stock split in sales in sales 2010 2015 2021 2022 Tangent Rail McFarland Cascade: RAM Forest Group & Cahaba: Texas Electric Corporation:
Slide 5: Our Mission
Our Mission To be the performance leader in the industries in which we operate, and. a model corporate citizen, exercising we. To ae ¢ d o $5 5 r) aS leon a i ewe é e. Se o* s 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 Increasing Ut
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 a—.
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 2. Prince George, BC 3. Galloway, BC 4. Carseland, AB 5. Neepawa, MB 6. Kirkland Lake, ON 7. Guelph, ON 8. Gatineau, QC 9. Riviére-Rouge, QC 10. Truro, NS Tl. Arlington, WA 12. Tacoma, WA 13. Sheridan, OR Product Category @ Pole Trea
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— wi Fire-Resistant Wrap Utility Poles a Broadband Expansion g gro Renewable Generation/ Transmission Wheeling > Electric Vehicle Expansion "
Slide 13: Utility Poles - Key Takeaways
Utility Poles - Key Takeaways [EX CESS HEIGHT Cue Industry-leading position in steady maintenance- driven market = Accelerated demand to remain strong in the near term = Customers seeking long-term agreements to secure supply = Proactive investments to respond to significant wth demand Stella-JoneS
Slide 14: Railway Ties
PLAN IN ACTION Railway Ties Stella-JoneS 5 re
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 hardwood sawmills allows us to offer crossties and switch ties in a
Slide 16: Competitive Strengths
Competitive Strengths Established Customer Relationships Extensive Manufacturing, Distribution & Procurement Networks Differentiated Product Offering R PT ry obust Inventory Levels
Slide 17: Large & Diversified North American Presence
Large & Diversified North | , American Presence ! . Prince George, BC Delson, QC ; - Russellville, AR 2 in Canada ~~ , Alexandria, LA 10 in U.S. ) 12 Treating Facilities - o — Fulton, KY ~ Winslow, IN Montevallo, AL | d . Clanton, AL } e f Gq 10. Goshen, VA 11. Dubois, PA 12. McAlisterville, PA e ®
Slide 18: Growth Drivers
Growth Drivers fe) 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 investmen
Slide 20: Residential Lumber
PLAN IN ACTION Residential Lumber Stella-JoneS 5 re
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 24% of Total Sales Stella-JoneS ai— 2022 Sales 5-Year Sales $773M $744M $665M $475M $471M 2018 2019 2020 2021
Slide 22: Product Category Overview
Product Category Overview DB Treated Lumber and Distribution -o— Oo: 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, ZF ~30% Dealer Network Stella-joneS
Slide 23: Competitive Strengths
Competitive Strengths & Premium- Quality Products Stella-JoneS a—: Re Speed to Market 090 FZ Strong Procurement Team Dedicated Distribution Centres with Exceptional Service and Support 2
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 = Pr
Slide 26: ESG
PLAN IN ACTION ESG Stella-JoneS a—.
Slide 27: Sustainability at Stella-Jones
Sustainability at Stella-Jones Our products store significantly more Carbon than emitted over their life-time and ~ ~ can be an effective solution to mitigate aaa —_— climate change Stella-JoneS al
Slide 28: Sustainability at Stella-Jones
Sustainability at Stella-Jones How Stella-Jones is positioned to support the low carbon economy of tomorrow Elecar ification Increased Utility Poles us! SUPPORTING fea THE GREEN seworks to Mitigate Increased Fire-Wrapped Poles TRANSITION Impact from Wildfires Transition to Low Carbon Transportation
Slide 29: Our ESG Strategy
Our ESG Strategy 5 ut - o % ons one rr ‘ _ ea Indigenous Peoples 4) aS ti 9 Health & cone ms (ee > Responsible Safety Sustainable Oy I Supply Chain Future Prisi'g Sur Peon (e ea ESG Risk ur People a a Governance Stella-JoneS 28 gnc
Slide 30: Financial Outlook
PLAN IN ACTION Financial Outlook Stella-JoneS a—.
Slide 31: Track Record of Sustainable and Profitable Growth
Track Record of Sustainable and Profitable Growth (in millions of dollars) Sales EBITDA V6 eet” ” * eee sa065 ye y $448 nner $2,750 1D oo = $2,551 oe a $400 $1,908 [el J $385 +11% 15.1% 14.5% +12% 14.6% 2017 2020 2021 2022 2020 2021 2022 * Strong and steady maintenance-driven demand = EBITDA margin
Slide 32: Strong Cash Flow Generation
Strong Cash Flow Generation (in millions of dollars) Cash Flow From Operating Activities $251 $255 $178 2020 2021 2022 = Invest in our business and inventory position = Expand pole production capacity = Seize new growth opportunities Stella-JoneS gnc Committed to Returning Capital to Shareholders 20
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 ue Net Debt-to- EBITDA ratio Stella-JoneS gnc
Slide 34: Sales Growth Forecast
Sales Growth Forecast Utility Poles Railway Ties Residential Lumber Stella-JoneS —_—,—. 15% Low single digit range $600-$650M Total sales: >$3.6B organic sales by 2025 Projected CAGR of 6% from 2022-2025
Slide 35: EBITDA Growth Drivers
EBITDA Growth Drivers xY 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 gnc Improvement in Product Mix an —! EBITDA Margin target of 16%, a 9% CAGR from 20
Slide 36: Disciplined Capital Allocation
Disciplined Capital Allocation Net Leverage Target: 2.0x-2.5x Return to Shareholders Capital Expenditures Target: eae over Acquisitions Asset maintenance, productivity and Pursue accretive transactions sustainability initiatives to enhance strategic Dividend positioning and drive earnings Target: $6
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 >$3.6 billion by 2025: Expected strong increase in utility poles Steady railway ties demand os Consistent residential lumber performance EBITDA margin of 16% through 2025 expected due to: Product mix improvement Increased operationa
Slide 39: Appendix
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Slide 40: Q2 2023 - Financial Highlights
Q2 2023 - Financial Highlights (in millions of Canadian dollars, except per share data and margins) Q2-23 Q2-22 Variation ($) Variation (%) Sales 972 907 65 7 Gross Profit 200 173 27 16 Gross Profit margin 20.6% 19.1% n/a 150 bps EBITDA 175 154 21 14 EBITDA Margin 18.0% 17.0% n/a 100 bps Operating i
Slide 41: YTD Q2 2023 - Financial Highlights
YTD Q2 2023 - Financial Highlights (in millions of Canadian dollars, except per share data and margins) YTD Q2-23 YTD Q2-22 Variation ($) Variation (%) Sales 1,682 1,558 124 8 Gross Profit 336 273 63 23 Gross Profit margin 20.0% 17.5% n/a 250 bps EBITDA 295 242 53 22 EBITDA Margin 17.5% 15.5% n/a 20
Slide 42: 2022 - Financial Highlights
2022 - Financial Highlights (in millions of Canadian dollars, except per share data and margins) 2022 2021 vores vero 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 43: Cash Flow and Capital Allocation
Cash Flow and Capital Allocation Q2 2023 Liquidity Uses: * Invest in network * Expand production capacity * Acquired Balf. * Returned capit to shareholders * Repurchased >1.5 million shares since November 2022 Healthy Inventory Position Declared Quarterly Dividend of $0.23 per Common Share Stella-Jo
Slide 44: Plan in Action
PLAN IN ACTION Stella-JoneS