Slide 1: Company Update May 2019
COMPANY UPDATE MAY 2019
Slide 2: Forward-Looking Information
FORWARD-LOOKING INFORMATION This presentation contains forward-looking information about the Company’s business outlook, objectives, plans, strategic priorities and other information that is not historical fact. A statement contains forward-looking information when the Company uses what it knows and
Slide 3: Highlights
HIGHLIGHTS SIGNIFICANT FINANCIAL MULTI-YEAR STRATEGIC FLEXIBILITY: CAPITAL PLAN UNDERWAY: • Strong balance sheet @ 3/31/2019: • Discretionary internal projects: • Leverage of 16% ND/IC PHASE I: Two US South projects totaling US$70 MM • Liquidity of $425 MM • Increase production by 150 MMbf/year • No
Slide 4: Interfor's Four Regions
INTERFOR’S FOUR REGIONS BC COAST 320 MMBF (10%) • 2 mills • Cedar, Hem-Fir, Douglas-Fir • Speciality BC INTERIOR 750 MMBF (24%) • 3 mills • Douglas-Fir, Hem-Fir, SPF, Cedar • Dimension US NORTHWEST 640 MMBF (21%) • 4 mills • Hem-Fir, Douglas-Fir, Ponderosa Pine, Lodgepole Pine US SOUTH • Studs, Dime
Slide 5: 4th Largest Lumber Producer
4TH LARGEST LUMBER PRODUCER NORTH AMERICAN LUMBER PRODUCTION BY COMPANY - 2018 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - Source: International Wood Markets/FEA Canada Wood Markets Monthly March 2019 5
Slide 6: Interfor's Products & Markets
INTERFOR’S PRODUCTS & MARKETS LUMBER SALES BY SPECIES (1) LUMBER SALES BY MARKET (1) Spruce-Pine-Fir USA Hem-Fir 79% 9% 9% Doug Fir/ Southern Larch Yellow Pine 26% 41% Lodge Pole/ Canada Ponderosa Pine Japan 8% Cedar 6% 4% 11% Other China/Tw/HK 4% 3% (1) By Value for FY2018 6
Slide 7: Lumber Markets
INTERFOR INTERFOI NX) S ts ; INTERFOR INTERFOF oN INTERFOR INTERFOR R INTERFOR INTERFOR INTERFOR ————— —$———_—__ —{—— Sez et _LUMBER MARKETS
Slide 8: Recent North American Demand/Supply
RECENT NORTH AMERICAN DEMAND/SUPPLY 2017 & 2018 NORTH AMERICAN LUMBER DEMAND & SUPPLY BALANCE (BBF) 2017 H1 H2 2018 NA Consumption 57.8 28.9 31.5 60.4 Offshore Exports 6.3 3.0 3.0 6.0 NA Demand & Exports 64.1 31.9 34.4 66.4 NA Production 62.1 32.1 32.0 64.1 Offshore Imports 1.2 0.7 0.8 1.5 NA Supply
Slide 9: Recent Lumber Price Context
RECENT LUMBER PRICE CONTEXT 2012-2019 NORTH AMERICAN BENCHMARK LUMBER PRICES (US$/MBF) $625 $600 SYP Composite $575 Hem-Fir Stud #2 2x4 $550 WSPF Composite $525 $500 $475 $450 $425 $400 $375 $350 $325 $300 $275 $250 $225 Source: Random Lengths (includes prices up to May 3, 2019) 9
Slide 10: Recent Weather Dynamics
RECENT WEATHER DYNAMICS US PRECIPITATION – OCT 2018 TO MAR 2019 Source: US National Centers for Environmental Information (NCEI) 10
Slide 11: Lumber End-Use Demand
LUMBER END-USE DEMAND NORTH AMERICAN SOFTWOOD LUMBER DEMAND BY END-USE (BBF) & TOTAL US HOUSING STARTS (MILLIONS) 80 2.5 Residential New Home Construction - Bbf Lumber (Left Axis) 70 Industrial/Commercial - Bbf Lumber (Left Axis) Residential Repair & Remodel - Bbf Lumber (Left Axis) 2.0 60 US Housin
Slide 12: North American Lumber Production
NORTH AMERICAN LUMBER PRODUCTION CANADA – BRITISH COLUMBIA (BBF) USA – SOUTH (BBF) 25 25 20 20 Previous Peak Previous Peak 15 15 10 10 5 5 - - 2005 2007 2009 2011 2013 2015 2017 2005 2007 2009 2011 2013 2015 2017 CANADA – ALL OTHER REGIONS (BBF) USA – ALL OTHER REGIONS (BBF) 25 25 Previous Peak 20 2
Slide 13: BC Interior: Regional Fibre Outlook
BC INTERIOR: REGIONAL FIBRE OUTLOOK • Annual Allowable Cut (AAC) reductions of approximately 25% between 2019 and 2025 BC INTERIOR ANNUAL ALLOWABLE CUT (AAC) (MM3) 70 64 61 61 62 60 59 60 56 56 56 55 53 50 50 49 49 50 43 41 41 41 41 40 40 30 20 10 ‐ Source: BC Ministry of Forests 13
Slide 14: Softwood Lumber Dispute
SOFTWOOD LUMBER DISPUTE • Interfor’s Canadian operations’ shipments to the U.S. represented 15% of company-wide lumber shipments in 2018. • 68% of Interfor’s 2018 lumber production was US-based. • Significant differences in accounting treatment for duties between publicly traded companies; limits re
Slide 15: Operations Overview
OPERATIONS OVERVIEW
Slide 16: Business Comparisons
BUSINESS COMPARISONS BC INTERIOR US SOUTH DIMENSION MILLS DIMENSION MILLS • 3 dimension mills in BC southern • 9 dimension mills in Georgia, interior South Carolina and Arkansas • Modern/low cost operations • Low cost wood baskets • Good fiber supply/limited • Strong geographic fit/significant expos
Slide 17: Regional Log Cost Trends
REGIONAL LOG COST TRENDS $110 BC INTERIOR (C$/M3) $100 $90 $80 $70 $60 $50 2013 2014 2015 2016 2017 2018 2019 $700 US NORTHWEST (US$/MMBF) $650 $600 $550 $500 $450 $400 2013 2014 2015 2016 2017 2018 2019 $50 $48 US SOUTH (US$/TON) $46 $44 $42 $40 $38 $36 $34 $32 $30 2013 2014 2015 2016 2017 2018 201
Slide 18: BC Interior Dimension Mills
BC INTERIOR DIMENSION MILLS
Slide 19: BC Interior: Interfor Overview
BC INTERIOR: INTERFOR OVERVIEW 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 Source: BC Ministry of Forests 19
Slide 20: BC Interior: Interfor Case Study
BC INTERIOR: INTERFOR CASE STUDY ADAMS LAKE GRAND FORKS CASTLEGAR 2008-09 2012 2015 Adams Lake 3 mills in good fibre baskets Significantly repositioned the assets STRONG RETURN ON INVESTMENT TOP DECILE/QUARTILE EBITDA MARGINS FOR THE BC INTERIOR 20
Slide 21: US South Dimension Mills
De = en ~ “ > ~ ne : SS Se eee a oe
Slide 22: US South: Overview
US SOUTH: OVERVIEW Little Rock Atlanta Georgetown Monticello Eatonton Thomaston Swainsboro Perry Meldrim Preston Baxley 1.4 BILLION FEET OF LUMBER CAPACITY ACROSS 3 STATES • Largest lumber producer in Georgia • 45% of Interfor’s capacity is in the South 22
Slide 23: US South: Investment Program
US SOUTH: INVESTMENT PROGRAM • MULTI-YEAR DISCRETIONARY CAPEX INVESTMENT PROGRAM: • Mill rebuilds, machine center upgrades, debottlenecking and optimization projects for existing assets PHASE I: Two projects totaling US$70 MM (Meldrim, GA and Monticello, AR); completion in 2019 PHASE II: Three proje
Slide 24: Financial Review
FINANCIAL REVIEW
Slide 25: Historical Results Snapshot
HISTORICAL RESULTS SNAPSHOT BENCHMARK LUMBER PRICES ($/MBF) PRODUCTION VOLUMES (MMBF) $750 700 $700 WSPF Composite (US$/Mbf) 680 $650 WSPF Composite (C$/Mbf) 660 $600 640 SYP Composite (US$/Mbf) $550 620 $500 600 $450 580 $400 560 $350 540 $300 520 $250 500 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1
Slide 26: Capital Spending Profile
CAPITAL SPENDING PROFILE ANNUAL CAPITAL EXPENDITURES (C$MM) US SOUTH PHASE I & II $240 & OTHER STRATEGIC PROJECTS Capital Expenditures - Discretionary MILL UPGRADES $220 Capital Expenditures - Maintenance $200 Depreciation, Depletion & Amortization $180 $160 CASTLEGAR, BC $140 MILL REBUILD $120 ADAM
Slide 27: Return on Invested Capital
RETURN ON INVESTED CAPITAL ADJ. EBITDA RETURN ON INVESTED CAPITAL (%/YEAR) 30% 28% 28% 25% 23% 23% 6 Year Average 20% 21% 18% 15% 10% 9% 5% 0% 2013 2014 2015 2016 2017 2018 Annual EBITDA/Average Net Debt + Equity 27
Slide 28: Free Cash Flow Considerations
FREE CASH FLOW CONSIDERATIONS C$MM Adjusted EBITDA: $216 • Expected contribution from strategic capex (LTM Through Mar-2019) • Full expensing of CV/AD duties Less: Cash Interest Expense, net: $(10) • Average debt interest rate ~ 4.5% • Offset by cash on hand Maintenance Capex: $(60-70) • Maintenance
Slide 29: Capital Structure
CAPITAL STRUCTURE CAPITAL STRUCTURE DEBT MATURITY SCHEDULE AS OF MAR 31’19 AS OF MAR 31’19 (C$MM) Cash & Marketable Securities ($MM) $(95) $100 Debt ($MM) $267 $80 Prudential Notes (4.47%) Net Debt ($MM) $173 Book Equity ($MM) $934 $60 Invested Capital ($MM) $1,106 $40 NET DEBT/INVESTED CAPITAL ($MM
Slide 30: Supplementary Information
. 4 {| be 1 | i SUPPLEMENTARY INFORMATION
Slide 31: Lumber Prices & FX Trends
LUMBER PRICES & FX TRENDS BENCHMARK LUMBER PRICES (US$/MBF) & USD/CAD FX RATES (C$/US$) $605 1.00 $580 CAD/USD FX Rate (Right Axis) $555 0.95 SYP Composite Price (Left Axis) $530 WSPF Composite Price (Left Axis) $505 0.90 $480 $455 0.85 $430 $405 0.80 $380 $355 0.75 $330 $305 $280 0.70 $255 $230 0.6
Slide 32: US Housing Starts in Context
US HOUSING STARTS IN CONTEXT ACTUAL & FORECAST US HOUSING STARTS (MILLIONS OF UNITS) 2.5 Multi-Family Single-Family Actual < > Forecast 2.3 2.0 1.8 1.5 1.3 1.0 0.8 0.5 0.3 - 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: US Census Bureau and Forest Economic Advisors (FEA) 3
Slide 33: China Lumber Demand
CHINA LUMBER DEMAND CHINESE SOFTWOOD LUMBER IMPORTS BY COUNTRY (MILLIONS M3) 30 Russia 25 Canada USA 20 Other 15 10 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: International Wood Markets/FEA Canada 33
Slide 34: Japan Lumber Demand
JAPAN LUMBER DEMAND JAPANESE SOFTWOOD LUMBER IMPORTS BY COUNTRY (MILLIONS M3) 9 Europe Canada 8 Russia USA 7 Other 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: International Wood Markets/FEA Canada 34
Slide 35: 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
Slide 36: Investor Contacts
INVESTOR CONTACTS MARTIN JURAVSKY MIKE MACKAY Senior Vice President & CFO Director, Corp. Development & Planning 604-689-6873 604-689-6846 martin.juravsky@interfor.com mike.mackay@interfor.com 36