Stella-jones Inc. · TSX:SJ
Stella-jones — Investor Presentation (August 2022)
58 slides from Stella-jones's investor presentation, August 2022
Slide 1: Investor Presentation
August 2022 INVESTOR PRESENTATION
Slide 2: Caution Regarding Forward-Looking Information & Non-GAAP and Other Financial Measures
C A U T I O N R E G A R D I N G F O R WA R D - L O O K I N G I N F O R M AT I O N & NON-GAAP AND OTHER FINANCIAL MEASURES This presentation contains certain statements that are forward-looking, including comments with respect to the Company's objectives, strategies, targets and expectations. The rea
Slide 3: Table of Contents
TA B L E O F C O N T E N T S OVERVIEW OF STELLA-JONES COMPETITIVE STRENGTHS STRATEGY AND FUTURE GROWTH FINANCIAL TRENDS CAPITAL ALLOCATION OVERVIEW BY BUSINESS UNIT ENVIRONMENTAL, SOCIAL AND GOVERNANCE 2021 FINANCIAL RESULTS Q2-2022 FINANCIAL RESULTS 2022-2024 OUTLOOK APPENDIX 3
Slide 4: Overview of Stella-Jones
OVERVIEW OF STELLA -JON E S 4
Slide 5: Building on Our Strong Fundamentals
B U I L D I N G O N O U R S T R O N G F U N D A M E N TA L S UTILITY R A I L W AY RESIDENTIAL POLES TIES LUMBER Supplies all the continent’s major Supplies North America’s Class 1, Manufactures and distributes electrical utilities and short line and commercial premium residential lumber and telecomm
Slide 6: Stella-Jones at a Glance
S T E L L A - J O N E S AT A G L A N C E The Leading North American Supplier Of Pressure-Treated Wood Products (1) 2,400 (1) 42 Wood Treating Facilities 34% 25% Employees 27 U.S. and 15 Canada Utility Poles Railway Ties $2.75B (1) (2) 2021 Sales 12 64% Pole Peeling Sales Facilities in the U.S. 8% Lo
Slide 7: Important Milestones
I M P O R TA N T M I L E S T O N E S 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 & R
Slide 8: Growth by Acquisitions
GROWTH 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 9: Infrastructure-Related Businesses
I N F R A S T R U C T U R E - R E L AT E D B U S I N E S S E S Infrastructure-related businesses represent approximately 70% of total sales Sales $2,750M Sales $1,559M 2015 2016 2017 2018 2019 2020 2021 Infrastructure-related businesses: utility poles, railway ties and industrial products Residentia
Slide 10: Stella-Jones' Continental Network
S T E L L A - J O N E S ’ C O N T I N E N TA L N E T W O R K 10
Slide 11: Competitive Strengths
COMPETITIVE STR EN GTH S 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 FU TU R E GR OWTH 13
Slide 14: Strategy and Future Growth by Business Unit
S T R AT E G Y A N D F U T U R E G R O W T H B Y B U S I N E S S U N I T Market Growth Drivers Trends Growth Strategy • Potential for further consolidation in • Replacement programs • Increasing average age of poles • Acquisitions 34% the North American market • Additional infrastructure for • Growt
Slide 15: Financial Trends
FINANCIAL TR EN D S 15
Slide 16: Track Record of Performance
TRACK RECORD OF PERFORMANCE Sales(1) $2,750M EBITDA(2)(3) CAGR 10% CAGR $400M $1,559M 9% $243M 2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021 Net Income Cash Flow From Operating Activities(4) CAGR $388M CAGR $227M 7% 8% $254M $141M 2015 2016 2017 2018 2019 2020 2021 2015 2016
Slide 17: Increasing Dividends Consistently
I N C R E A S I N G D I V I D E N D S C O N S I S T E N T LY 2022 will mark the 18th consecutive year of dividend increase $0.80* 14% CAGR $0.72 $0.60 $0.56 $0.32 $0.48 $0.44 $0.40 2015 2016 2017 2018 2019 2020 2021 2022E * Projected based on the latest declared quarterly dividend 17
Slide 18: Capital Allocation
CAPITAL ALLOCATION 18
Slide 19: Capital Allocation Priorities
C A P I TA L A L L O C AT I O N P R I O R I T I E S 1 2 3 Capital Expenditures Dividend Acquisitions Share Repurchase Expand the capital Durable dividend Organic growth, expenditure program Pursue accretive Return excess free cash payout innovation, productivity the growing demand of transactions to
Slide 20: Allocating Capital for Growth & Returns
A L L O C AT I N G C A P I TA L F O R G R O W T H & R E T U R N S Stella-Jones has invested $748M in growth investments and returned $482M in cash to shareholders since 2015 $348M $198M $177M $155M $122M $143M $87M 2015 2016 2017 2018 2019 2020 2021 Acquisitions Capex Dividends Share buyback (NCIB)
Slide 21: Maintaining a Solid Financial Position
M A I N TA I N I N G A S O L I D F I N A N C I A L P O S I T I O N $1,000 $800 2.2x 2.3x 1.9x $600 2.8x 2.6x (1) 2.1x $400 1.9x $200 $0 2015 2016 2017 2018 2019 2020 2021 (1) (1) Net debt Net Debt-to-EBITDA (1) These are non-GAAP and other financial measures which do not have a standardized meaning
Slide 22: Overview by Business Unit
OVERVIEW BY B U SIN ESS U N IT 22
Slide 23: 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. 2021 Sales 5-Year Sales $925M $674M
Slide 24: 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 25: 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, deployment of “fibre-to-home” throughout many rural areas and other investments related to electric vehicles
Slide 26: Railway Ties – Overview
R A I LWAY T I E S – O V E R V I E W 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 2021 Sales 5-Year Sales $653M $70
Slide 27: Railway Ties – Offering
R A I LWAY T I E S – O F F E R I N G 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
Slide 28: Railway Ties – Market Conditions
R A I LWAY T I E S – M A R K E T C O N D I T I O N S Stable railway tie maintenance demand 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 Amer
Slide 29: 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 2021 Sales 5-Year Sales $773M Pricing $773M $366M gains due to the cost 28% of lumber 20
Slide 30: 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 31: 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 32: Lumber Costs – Year Evolution
LUMBER COSTS – 5 YEAR EVOLUTION Lumber costs all time high May 7, 2021 1,670 1,800.00 1,600.00 1,400.00 1,200.00 1,000.00 $/bft 800.00 600.00 260 400.00 200.00 0.00 Jun/16 Jun/17 Jun/18 Jun/19 Jun/20 Jun/21 Jun/22 July 29, 2022 Source: Factset (LB00-USA - Random Length Lumber Continuous Contract (CM
Slide 33: 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 and construction timbers, offered in a variety of select wood spec
Slide 34: Logs and Lumber – Overview
LOGS AND LUMBER – OVERVIEW Business used to optimize procurement and does not generate a margin 2021 Sales 5-Year Sales $231M $231M $120M Sales are tied to 8% the price of lumber 2017 2018 2019 2020 2021 34
Slide 35: Environmental, Social and Governance
EN VIR ON MEN TA L, SOCIAL AND GOVER N A N C E 35
Slide 36: Pursuing Our Business Activities Responsibly
P U R S U I N G O U R B U S I N E S S A C T I V I T I E S R E S P O N S I B LY We are committed to integrating 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 sustainabil
Slide 37: ESG 2020 Highlights
ESG 2020 HIGHLIGHTS ENVIRONMENTAL PERFORMANCE Regulatory compliance and the effective management of water, energy, and emissions Facilities using waterborne Scope 1 & 2 GHG Energy intensity (in preservatives in water 146,447 emissions (metric tons 6.7 MWH/1,000 FT3 of 3 stressed areas (7.5% of all o
Slide 38: 2021 Financial Results
2021 FINANCIAL RESULTS Stella-JoneS a—.
Slide 39: 2021 – 21st Consecutive Year of Sales Growth
2 0 2 1 – 2 1 st C O N S E C U T I V E Y E A R O F S A L E S G R O W T H +13% $2.75B SALES VARIANCE $2.55B Organic Growth 2020 Sales (M) $2,551 Acquisitions 6 Currency variations (127) Organic growth Pressure-treated wood 232 Logs and lumber 88 2020 2021 2021 Sales (M) $2,750 Utility Poles Railway T
Slide 40: 2021 – Sales Variance
2 0 2 1 – S A L E S VA R I A N C E Pressure Treated Wood Organic Growth of 10% (in millions of Residential Industrial TOTAL PRESSURE Logs & Utility Poles Railway Ties CONSOLIDATED SALES dollars) Lumber Products TREATED WOOD Lumber 2020 Sales 888 733 665 119 2,405 146 2,551 Acquisitions 6 - - - 6 - 6
Slide 41: 2021 – Record EBITDA
2 0 2 1 – R E C O R D E B I T D A (1) EBITDA(1) Operating income $385M $400M $326M Driven by higher $309M pricing for 15.1% residential lumber, 14.5% as well as 12.1% 11.9% improved pricing, sales mix and volumes for utility poles 2020 2021 2020 2021 (1) This is a non-GAAP financial measure which do
Slide 42: 2021 – Higher Net Income & EPS
2021 – HIGHER NET INCOME & EPS Net income EPS $227M $3.49 $210M 8% $3.12 Driven by sales 12% growth; EPS was also positively impacted by share repurchases 2020 2021 2020 2021 42
Slide 43: 2021 – Strong Cash Flow Generation
2 0 2 1 - S T R O N G C A S H F L O W G E N E R AT I O N Cash flow from operating activities Cash flow from operating activities before certain items(1) $251M $402M $388M $178M Higher cash from operations largely due to a decrease in railway ties inventory 2020 2021 2020 2021 (1) Before changes in n
Slide 44: Inventory Turnover
I N V E N T O RY T U R N O V E R Because of the long periods required to air-season wood, inventory turnover has historically been relatively low. 2.2x 2.1x 2.1x 1.9x 1.8x 1.9x 2.0x 1.9x 1.7x 1.6x avg. 1.4x 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 44
Slide 45: Q2-2022 Financial Results
Q2 -2022 FINANCIAL R ESU LTS 45
Slide 46: Q2-22 – Sales
Q2-22 – SALES $903M (4%) $907M Organic SALES VARIANCE Growth Q2-21 Sales (M) $903 Acquisitions 15 Currency variations 22 Organic growth Pressure treated wood - Logs and lumber (33) Q2-21 Q2-22 Q2-22 Sales (M) $907 Utility Poles Railway Ties Residential Lumber Industrial Products Logs & Lumber 46
Slide 47: Q2-22 – Sales Variance
Q 2 - 2 2 – S A L E S VA R I A N C E (in millions of Residential Industrial TOTAL PRESSURE Logs & Utility Poles Railway Ties CONSOLIDATED SALES dollars) Lumber Products TREATED WOOD Lumber Q2-2021 Sales 236 216 330 36 818 85 903 Acquisitions 15 - - - 15 - 15 FX impact 11 7 3 1 22 - 22 Organic growth
Slide 48: Q2-22 – Results
Q 2 - 2 2 – R E S U LT S EBITDA(1) & Operating Income Net Income (in millions of $) (in millions of $) $180 $161 $115 $154 $133 Primarily driven by the $94 normalization of 20.0% Residential Lumber 17.0% gross profit which outweighed margin $1.76 expansion for Utility $1.51 Poles and Railway Ties Q2
Slide 49: Q2-22 – Cash Flow and Capital Allocation
Q 2 - 2 2 – C A S H F L O W A N D C A P I TA L A L L O C AT I O N CFO before certain items(1) (in millions of $) Capital Allocation Dividends $171 (in millions of $) (in $ per share) $154 $89 $0.80(2) $0.72 $54 $44 $14 $25 $24 $16 $20 Q2-21 Q2-22 Q2-21 Q2-22 2021 2022 Capex Dividends Share Repurchas
Slide 50: 2022-2024 Outlook
2022-2024 OU TLOOK 50
Slide 51: Product Category Overview & 2022-2024 Outlook
P R O D U C T C AT E G O RY O V E R V I E W & 2022-2024 OUTLOOK UTILITY RAILWAY RESIDENTIAL POLES TIES LUMBER • Supported customers with transition to an • Strong procurement network provided a • Navigated through the market price alternative preservative solution and fire- steady raw material inflo
Slide 52: 2022-2024 Outlook – Evolving Product Sales
2 0 2 2 - 2 0 2 4 O U T L O O K – E V O LV I N G P R O D U C T S A L E S ~2%-5% 8% 6% ~20%-25% 5% 28% • Compound annual sales growth rate in 26% 22% the mid-single digit range from 2019 pre-pandemic levels to 2024. • Infrastructure-related sales are ~75%-80% 68% 64% expected to represent 75-80% of t
Slide 53: Investing and Innovating in Our Network
I N V E S T I N G A N D I N N O VAT I N G I N O U R N E T W O R K IMPROVEMENTS INCLUDE: • Capex Program Expanded - Incremental $90M to $100M over 3 years to support the growing demand of its infrastructure-related customer base, in addition to the $50 to $60 million of annual capital expenditures •
Slide 54: Returning Capital to Shareholders
R E T U R N I N G C A P I TA L TO S H A R E H O L D E R S +50% 2019- 2022-2024 2021 The Company expects to return Projected approximately $500 to $600 million to shareholders in the 2022-2024 period. $365M $500M-$600M cumulative cumulative Please refer to the Company’s MD&A for a complete list of as
Slide 55: Appendix
APPENDIX 55
Slide 56: Income Statement – Year Financial Summary
I N C O M E S TAT E M E N T - 5 - Y E A R F I N A N C I A L S U M M A RY 2021 2020 2019 2018(1) 2017(1) Sales(2) 2,750 2,551 2,189 2,144 1,908 Gross Profit(3) 456 446 358 328 315 Gross Profit margin(3) 16.6% 17.5% 16.4% 15.3% 16.5% EBITDA(3) 400 385 313 244 243 EBITDA margin(3) 14.5% 15.1% 14.3% 11.
Slide 57: Financial Position – Year Financial Summary
F I N A N C I A L P O S I T I O N - 5 - Y E A R F I N A N C I A L S U M M A RY 2021 2020 2019 2018(1) 2017(1) Working capital(2)(3) 1,146 1,101 1,010 909 779 Total assets 2,665 2,426 2,281 2,062 1,786 Long-term debt(4) 734 606 605 514 456 Lease liabilities(4) 144 139 118 - - Shareholders’ equity 1,4
Slide 58: Stella-Jones
Stella-JoneS oe