Stella-jones Inc. · TSX:SJ
Stella-jones — Investor Day (May 2023)
82 slides from Stella-jones's investor day presentation, May 25, 2023
Slide 1: Plan in Action: 2023 Investor Day
PLAN IN ACTION 2023 Investor Day PRESENTED BY Eric Vachon, President & Chief Executive Officer May 25, 2023 Stella-JoneS 5 re
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: Today's Agenda
Today’s Agenda = Corporate Overview and Outlook Presented by Eric Vachon = Utility Poles Presented by lan Jones = Railway Ties Presented by Patrick Kirkham = Residential Lumber Presented by Brian Grant = ESG Presented by Rhiannah Carver = Financial Outlook Presented by Silvana Travaglini Stella-Jonc
Slide 4: Supporting Environmentally-Focused Organizations
Supporting Environmentally-Focused Organizations Stella-Jones is proud to support Shaw Woods Outdoor Education Centre "Fostering Responsible Environmental Stewardship through Experiential Outdoor Education" Stella-JoncS —a—
Slide 5: Stella-Jones At-A-Glance
Stella-Jones At-A-Glance ro) $3.68" SJ Re II's! $7 Market Cap 29:1 TSX ae &? |. Pole Peeling Wood Treating Facilities Facilities 27 U.S. and 16 Canada xi 70% 988 2,615 Q Sales Ke Employees in the U.S. Stella-JoneS ai—
Slide 6: 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 7: 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 8: Building on Cubic Feet
Neen aaa... Building on Cubic Feet Stella-Jones’ treated wood sales for 2022 amounted to roughly 140 million cubes, equivalent to 3.8 times the volume of the Empire State Building Stella-JoncS —a—
Slide 9: Connecting North America Through Logistics
Connecting North America Through Logistics . 1,000 railway cars leased for transport throughout North America = +50 yards operated to procure and distribute products 22 proprietary trucking fleets for regular maintenance and emergency response Stella-JoncS —sa—.
Slide 10: ESG Considerations
ESG Considerations @s Environmental gy Social &} Governance Stella-JoneS i—.
Slide 11: 2023-2025 Financial Objectives: Key Highlights
2023-2025 Financial Objectives: Key Highlights Q Over $3.6 billion in Sales by 2025 ae Achieved 2022-2024 sales target in year one of previously stated guidance $= EBITDA Margin of 16% through 2025 Cis Driven mainly by growth in the utility poles category Return over $500 million to shareholders, cu
Slide 12: 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 13: 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 14: Plan in Action: 2023 Investor Day
PLAN IN ACTION 2023 Investor Day PRESENTED BY Eric Vachon, President & Chief Executive Officer May 25, 2023 Stella-JoneS a—:
Slide 15: Utility Poles
PLAN IN ACTION Utility Poles PRESENTED BY lan Jones, Senior Vice-President, Utility Poles and U.S. Residential Lumber Stella-JoneS a—.
Slide 16: 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 17: 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 18: Broad Array of Fibre Options
Broad Array of Fibre Options Western Red Cedar = Grown in the Pacific Northwest = Popular for its natural resistance to decay and insecticidal properties Douglas fir = Grown in Coastal Pacific region = Considered one of the best softwood species Red Pine = Native to Eastern Canada and the Northeaste
Slide 19: Industry Trends
Industry Trends = Wood utility poles preferred due to: | = Durability = Flexibility = Low cost ee = Safety = Large percentage of poles are approaching end of useful life : = Growth of 5G networks, “fibre-to-home” and other broadband network investment q = Newer and stronger lines to support heavier
Slide 20: 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 21: Growth Drivers
Growth Drivers Utility Pole Maintenance Stella-JoneS ai— i Fire-Resistant Wrap Utility Poles a Broadband Expansion g gro Renewable Generation/ Transmission Wheeling > Electric Vehicle Expansion 20
Slide 22: Growth Driver — Utility Pole Maintenance
Growth Driver — Utility Pole Maintenance = Utilities have not undergone significant capital investments for approximately 70 years = Investments in utilities include: . New large generation to meet growing demand for electricity = Clean Air mandates = New generation with a focus on renewable energy
Slide 23: Growth Driver — Fire-Resistant Wrap Utility Poles
Growth Driver — Fire-Resistant Wrap Utility Poles = Roll-out of utility poles with intumescent fire- resistant wrap in 2019 = Started in California due to devastating fires specific to that region = Fire mesh fabric improves fire resistance, protects infrastructure = Anticipated adoption in U.S. and
Slide 24: Growth Driver — Broadband Expansion
Growth Driver — Broadband Expansion = Accelerated need for broadband access and expansion in rural locations: = More people shifting to a hybrid working environment = Use of government subsidies to augment investments in delivering high speed internet Stella-joneS on.
Slide 25: Proprietary and Confidential
▪ ▪ ▪ Proprietary and Confidential
Slide 26: Proprietary and Confidential
▪ ▪ ▪ Proprietary and Confidential
Slide 27: Preservative Landscape Overview
Preservative Landscape Overview Stella-Jones uses an array of wood preservative systems that support diverse climatic conditions and decay hazards: Preservative Used For = Western Red Cedar Chromated Copper = Red Pine Arsenate = Southern Yellow Pine = Western Red Cedar "Douglas fir Creosote = Red Pi
Slide 28: Penta Transition Update
Penta Transition Update = Penta being phased out across North America = USA = To be completed by 2027 = Majority of customers have transitioned to DCO! = Canada = To be completed by October 2023 = No substitute preservative has been named = On track to make all required capital investments necessary
Slide 29: Innovation and Capital Investments
Innovation and Capital Investments Robotic framing line, Additional kilns implemented Eugene, Oregon to increase drying capacity Stella-JoneS —
Slide 30: Utility Poles - Key Takeaways
Utility Poles - Key Takeaways = Industry-leading position in steady maintenance- driven market Wx a0 = 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 g Stella-JoneS
Slide 31: Railway Ties
PLAN IN ACTION Railway Ties PRESENTED BY Patrick Kirkham, Senior Vice-President, Railway Ties Stella-JoneS 5 re
Slide 32: 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 over 850 hardwood sawmills allows us to offer crossties and switch t
Slide 33: Large & Diversified North American Presence
Large & Diversified North | , American Presence s 1. Prince George, BC . cee 12 Treating Facilities o 2. Delson, QC ; 3. Russellville, AR 2 in Canada 4. Alexandria, LA 10 in U.S. 5. Bangor, WI 3 a _| ~ 6. Fulton, KY = Or - 7. Winslow, IN ~850 Suppliers ; 8. Montevallo, AL ; 9. Clanton, AL Hardwood }
Slide 34: Proprietary and Confidential
▪ ▪ ▪ ▪ ▪ ▪ Proprietary and Confidential
Slide 35: Industry Trends
Industry Trends 90% of ties sold in North America are for maintenance and over 90% are wood Ongoing maintenance required to meet rail industry needs Increased US infrastructure spending ; Mie 1 ena Higher fibre costs due to alternate end uses Increased creosote pricing levels
Slide 36: Untreated tie pricing chart
$45 $40 $35 $30 $25 $20 $15 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 GRADE 3 UNTREATED GRADE 4 UNTREATED GRADE 5 UNTREATED
Slide 37: Hardwood lumber price chart
Pallets Cabinets Cabinets Board Road Railroad Ties Wood Furniture Residential Firg. Upholst. Furniture Truck Trailer Firg. Moulding/Millwork Wood Components 21-Mar 21-Apr 22-May 21-Jun 21-Jul 21-Aug 21-Sep 21-Oct 21-Nov 21-Dec 22-Jan 22-Feb 22-Mar 22-Apr 22-May 22-Jun 22-Jul 22-Aug 22-Sep 22-Oct 22-
Slide 38: Jul-21 Sep-21 Nov-21
25,000,000 23,000,000 21,000,000 19,000,000 17,000,000 15,000,000 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23
Slide 39: Raw Material Prices
Raw Material Prices = Untreated tie pricing: ~25% increase in last two years = Creosote pricing: ~25% increase in last year
Slide 40: Competitive Strengths
Competitive Strengths Established Customer Relationships Extensive Manufacturing, Distribution & Procurement Networks Differentiated Product Offering R PT ry obust Inventory Levels
Slide 41: Established Customer Relationships
TE SET Established Customer Relationships ~69% Class 1 railroad customers = Secured long-term contracts with all 6 Class | carriers in North America = Established strong relationships with Class | customers due to: * High-quality products = Responsiveness to customer request = On-time delivery = Abl
Slide 42: Extensive Manufacturing, Distribution & Procurement Networks
Extensive Manufacturing, Distribution & Procurement Networks Facilities strategically located across North America Extensive distribution network offers broad, economical coverage using tr rail and maritime transport 11 of 12 plants on-line with Class | Railroad Procurement network provides steady r
Slide 43: Differentiated Product Offering & Robust Inventory Levels
ifferentiated Product Offering ; & Robust Inventory Levels = We provide differentiated products: "Drill and fill dual-treated bridge ties = Automated pre-plate lines " Conversion of cylinders from creosote to copper naphthenate = Robust inventory levels allow Stella-Jones to meet customer demand Ste
Slide 44: Growth Drivers
Growth Drivers fe) DA Increased Volumes Stella-JoneS ai— & Favourable Pricing Dynamics ys Product Innovation and Expansion 43
Slide 45: Growth Driver — Increased Volumes
Growth Driver — Increased Volumes Benefitting from US Infrastructure Bill $102B in Rail Infrastructure Spending 2022-2026 $66B in Advance Appropriations 2022-2026 Stella-JoneS ai— * Relationships with Class 1 Railroads, Transits in Northeast, and Commercial Markets = Procurement Network "Capacity Av
Slide 46: Growth Driver — Favourable Pricing Dynamics
Growth Driver - Favourable Pricing Dynamics = Building on strong relationships with Class 1 railways to reflect added raw material costs = New tools being developed to automate price adjustments = Opportunity to expand business with commercial customers to drive upside in margins Stella-JoneS ai—
Slide 47: Growth Driver — Product Innovation and Expansion
Growth Driver — Product Innovation and Expansion = We provide differentiated products "Drill and Fill Dual Treated Bridge Tie Process = Automated Pre-Plate Lines = Dual Treatment Capabilities = 4 Bridge and Fabrication Locations " Weare willing and capable of innovating to meet client needs
Slide 48: Capital Projects
Capital Projects = Committed to making investments to optimize tie treating plants: * Expand automation and PLC controlled treating plants " Additional robotic stackers "Cylinder conversion " Future is focused on efficiency and safety * Evaluation of robotic de-stacking * Automatic banding stations
Slide 49: Solar Panel Installation: Clanton, Alabama
Solar Panel Installation: Clanton, Alabama = First in the industry = Collaboration with Alabama Power = Covers 70% of electricity needs = Second installation in 2023, more in coming years = Saves equivalent emissions from the combustion of 92,000 gallons of diesel fuel each year Stella-JoneS ——.
Slide 50: 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 51: Residential Lumber
PLAN IN ACTION Residential Lumber PRESENTED BY Brian Grant, Vice-President Canadian Residential Lumber Sales and Procurement Stella-JoneS 5 re
Slide 52: 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 53: Product Category Overview
Product Category Overview Dp Treated Lumber and Distribution ‘o—o: 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, CZ ~30% Dealer Network Stella-joneS
Slide 54: Industry Overview
Industry Overview Positive Industry Fundamentals ‘ Es ~ Steady growth in the outdoor living experience, fueled by COVID Stella-JoneS ai— &Y G With 2023 new construction slowing and an increase in home renovation; there is a shift to decking & fencing Stella-Jones is the largest supplier of pressure-
Slide 55: Competitive Strengths
Competitive Strengths & Premium- Quality Products Stella-JoneS a—: Re Speed to Market 090 eZ Strong Procurement Team Dedicated Distribution Centres with Exceptional Service and Support 54
Slide 56: Growth Drivers
Growth Drivers Sourcing and Procurement Opportunities Product Expansion Through Retail Partners On Favourable Macro Trends
Slide 57: Growth Driver - Product Expansion through Retail Partners
Growth Driver - Product Expansion through Retail Partners & Best-in-Class Product * Growth in premium lumber treated program and complementary products = Elevating treated wood accessories * — Use of environmentally friendly preservative micronized copper azole Stella-JoneS a—: Well-Established Dist
Slide 58: $2,000 $2,000 2019 2022 2020 2023 $1,600 $1,600 2021 $1,200 $1,200 $800 $800 $400
$2,000 $2,000 2019 2022 2020 2023 $1,600 $1,600 2021 $1,200 $1,200 $800 $800 $400 $400 J F M A M J J A S O N D J F M A M J J A S O N D
Slide 59: Growth Driver - Sourcing and Procurement Opportunities
Growth Driver - Sourcing and Procurement Opportunities * Strong supplier relationships = Expanded supply network outside of North America " First Canadian company to buy premium grade lumber directly from Europe = Lumber trading provides market intelligence Stella-JoneS
Slide 60: Growth Driver — Macro Trends
Growth Driver — Macro Trends = Home renovation driving sales, including the addition of outdoor living spaces = Tailwinds from new home construction ‘ , = : CAA over past three years | "i rT = Need for repair of aging homes to support ‘ | a q i if demand for lumber ~ } Vv * Stella-joneS ai—.
Slide 61: Investments Fueling Efficiencies
Investments Fueling Efficiencies Capital Investment Opportunities = New distribution facility for composite decking/accessory lines UNA New Distribution Centre, Shelburne, Onta = New automated wrapping machine = Heating chambers for accelerated wood drying and increased production = Pressure-treated
Slide 62: 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 = Pro
Slide 63: ESG
PLAN IN ACTION ESG PRESENTED BY Rhiannah Carver, Senior Director of ESG Stella-JoneS a—.
Slide 64: 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 65: 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 66: Our ESG Strategy
Our ESG Strategy a vt m & % : 7 O:\ Climere change & ce vA ea Indigenous Peoples [22] Connecting x. @)s Our (ee x Responsible Sustainable Oy | Supply Chain Future Prisi'g ae ge! Our People ft) — (ele! ESG Risk Health & Safety Governance Stella-JoneS 6 gnc
Slide 67: Environment
Environment Climate Change & Greenhouse Gas (GHG) Targets © 32% reduction in Scope 1 & 2 GHG emissions by 2030 from a 2022 base year @) Measure our Scope 3 emissions and assess a Science-Based Target by 2025 Stella-JoneS a.
Slide 68: Environment
Environment Targets Focused on Three Key Areas ENERGY EFFICIENCY RENEWABLE ENERGY On-site solar and biomass energy generation INNOVATION Real-time energy monitoring and efficiency audits across the network End-of-life options for customers to help achieve joint climate goals. SteTlajoneS
Slide 69: Total recordable rate vs industry average
▪ 2018 2019 2020 2021 2022 TRR (injuries / 200,000 hours worked) Wood Preservation Industry Average
Slide 70: Indigenous Peoples Target
Indigenous Peoples Target ie) 100% of Canadian areas with forest management obligations covered by relationship agreements with willing Nations by 2030 Interior Plateau t 2} British Columbia Stella-JoneS © ‘i
Slide 71: Governance
Governance TASK FORCE on CLIMATE-RELATED FINANCIAL DISCLOSURES Responsible Supply Chain Target TCFD * Complete an ESG due diligence assessment for 0 TN] Taskforce on Nature-related (0) FD} Financial Disclosures of Tier 1 suppliers by 2027 Stella-JoneS gnc 70
Slide 72: ESG Ratings
ESG Ratings Cbs 27.2 Medium Risk REFINITIV [x B- £5 RATINGS coc| 8 | oo §ITH a Ea Score 2022 ISS> eating Stella-JoneS —_—,—. n
Slide 73: Financial Outlook
PLAN IN ACTION Financial Outlook Silvana Travaglini, Senior Vice-President & Chief Financial Officer Stella-JoneS a—.
Slide 74: […] 2017 2020 2021 2022 2020 2021 2022 ▪ ▪
[…] 2017 2020 2021 2022 2020 2021 2022 ▪ ▪
Slide 75: Dividends and Share Buybacks
2020 2021 2022 ▪ ▪ Dividends Share Buyback ▪ Dividends Share Buybacks
Slide 76: 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 77: 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 78: EBITDA Growth Drivers
EBITDA Growth Drivers x 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 4 _I EBITDA Margin target of 16%, a 9% CAGR from 2022
Slide 79: Disciplined Capital Allocation
Disciplined Capital Allocation Net Leverage Target: 2.0x-2.5x Return to Shareholders Capital Expenditures Target: ea over Acquisitions Asset maintenance, productivity and Pursue accretive transactions sustainability initiatives to enhance strategic Dividend positioning and drive earnings Target: $65
Slide 80: 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 81: 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 82: Plan in Action
PLAN IN ACTION Stella-JoneS