Stella-jones Inc. · TSX:SJ
Stella-jones — Investor Presentation (November 2019)
49 slides from Stella-jones's investor presentation, November 2019
Slide 1: Investor Presentation November 2019
INVESTOR PRESENTATION November 2019
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 Gross profit, operating income, 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”]), cash flow from operating activities before
Slide 4: Adoption of IFRS 16, Leases
ADOPTION OF IFRS 16, LEASES (“IFRS 16”) • On January 1, 2019, the Company retrospectively adopted IFRS 16 • Comparatives for the 2018 reporting period have not been restated • The application of this new standard resulted in: – The addition of right-of-use assets and lease liabilities to the consoli
Slide 5: Agenda
AGENDA • Investment Thesis • Overview of Stella-Jones • Strategy and Future Growth • Overview by Business Unit • Financial Trends • Q3-2019 Results • Appendix 5
Slide 6: Investment Thesis
INVESTMENT THESIS 6
Slide 7: 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 7
Slide 8: Overview of Stella-Jones
OVERVIEW OF STELLA-JONES 8
Slide 9: Stella-Jones at a Glance
STELLA-JONES AT A GLANCE A Leading North American Supplier of Pressure Treated Wood Products 7.2% 5.1% Logs & Lumber 2,175(1) 40 (1) Industrial Products Employees Wood Treating Facilities 25 U.S. and 15 Canada 34.1% Utility Poles 22.4% 12 (1) 68% (2) Residential Lumber $2.1 B Pole Peeling Sales 2018
Slide 10: Important Milestones
IMPORTANT MILESTONES Public Over $1 Billion in sales Over $2 Billion Foundation Company 4 for 1 stock split in sales 1993 1994 2010 2012 2013 2015 2018 Acquired Tangent Acquired McFarland Cascade: Acquired RAM Forest Rail Corporation: Game-changing for Group & Ramfor Lumber: Game-changing for Utilit
Slide 11: 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 12: Stella-Jones' Continental Network
STELLA-JONES’ CONTINENTAL NETWORK * *Acquired April 2019 12
Slide 13: Track Record of Performance
TRACK RECORD OF PERFORMANCE Sales EBITDA(1) $244M $2,124M $411M $59M 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Net income Cash Flow(1)(2) $262M $138M $30M $41M 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 20
Slide 14: Stock Price Performance
STOCK PRICE PERFORMANCE $60.00 Shares outstanding 68.0M Float 60.5M Average daily volume 155,528 $40.00 52 week (high-low) $48.08-$36.52 Nov. 7: Market Capitalization $2.7B $39.91 $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 Jan-19 Source: Yahoo Finance 1
Slide 15: Strategy and Future Growth
STRATEGY AND FUTURE GROWTH 15
Slide 16: Strategy and Future Growth by Business Unit
STRATEGY AND FUTURE GROWTH BY BUSINESS UNIT Market Growth Drivers Trends Growth Strategy 34.1% • Potential for further consolidation in the • • Replacement programs Weather related events • Increase in replacement demand as average age • • Acquisitions Leveraging the upcoming Utility Pole North Amer
Slide 17: Overview by Business Unit
OVERVIEW BY BUSINESS UNIT aI) lh ihe
Slide 18: Utility Poles - Overview
UTILITY POLES - OVERVIEW Leading North American supplier of wood utility poles, providing one million poles per year to replace, upgrade and develop new electrical utility and telecommunications lines across Canada and the United States 2018 Sales 5-Year Sales $725M $471M $725 M Growth in SE U.S. 34
Slide 19: Utility Poles - Offering
UTILITY POLES - OFFERING Competitive Advantages An extensive transportation network, continuous supply and emergency response Customers • Electrical utility companies • Telecommunication companies Contracts • ~80% of business under multi-year agreements • Price increases are indexed • Varying 3 to 7
Slide 20: Utility Poles - Market Conditions
UTILITY POLES – MARKET CONDITIONS Increase in replacement demand as average age of poles is very high Market Size Marketplace Growth Drivers • There are about 150MM poles • Potential for further • Replacement programs in North America, of which consolidation in the North (life span of poles is typic
Slide 21: Railway Ties - Overview
RAILWAY TIES - OVERVIEW Industry leader in the production of quality pressure treated railroad ties and timbers, supplying over 12 million crossties per year 2018 Sales 5-Year Sales $662M $530M $662 M Increasing prices 31.2% 2014 2015 2016 2017 2018 Transformative 12 Facilities +1,200 Suppliers Acqu
Slide 22: Railway Ties - Offering
RAILWAY TIES - OFFERING Competitive Advantages An extensive transportation network, continuous supply and short delivery times Customers • ~65% Class 1 railroads • ~35% short and regional rail lines & contractors Contracts • Long-term contracts of up to 10 years with Class 1 railroads • Short and re
Slide 23: Railway Ties - Market Conditions
RAILWAY TIES – MARKET CONDITIONS Increasing costs of untreated railway ties, combined with tighter supply is expected to lead to continued upward selling price adjustments in 2019 Market Size Marketplace Growth Drivers • ~24 million railway tie purchases • Stable market • Maintenance requirements on
Slide 24: Annualized Railway Tie Purchases & Inventory
ANNUALIZED RAILWAY TIE – PURCHASES & INVENTORY Industry inventory levels are lower at 14.4 million as at December 31, 2018, as purchases are outpacing production 30 25 20 In millions of ties 15 10 5 0 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Inventory Purchases Source: Railway Tie Association (RTA)
Slide 25: 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 each year 2018 Sales 5-Year Sales $475M Prices are tied to the $475 M cost $128M 22.4% o
Slide 26: Residential Lumber - Offering
RESIDENTIAL LUMBER - OFFERING Competitive Advantages Low transportation costs, continuous supply and short delivery times Customers • ~80% Big box retailer • Dealer network Contracts • Renewed annually Services Wood Species Preservatives • Lumber • Hemlock • Alkaline Copper Quaternary • Distribution
Slide 27: 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 to be partially offset by lower lumber costs Market Size Marketplace Growth Drivers • Difficult to access • Partially consolidated • H
Slide 28: Lumber Costs - 5 Year Evolution
LUMBER COSTS – 5 YEAR EVOLUTION Lumber costs peaked in May 2018 700 600 500 400 300 200 100 0 9/30/2014 9/30/2015 9/30/2016 9/30/2017 9/30/2018 9/30/2019 28
Slide 29: Industrial Products - Overview
INDUSTRIAL PRODUCTS - OVERVIEW A leading supplier of pressure treated wood products to the marine, industrial and civic sectors for outdoor applications including piling, wharf timbers, bridge timbers, crane mats, railway crossings and laminated poles 2018 Sales 5-Year Sales $109M $89M $109 M 5.1% 2
Slide 30: Logs and Lumber - Overview
LOGS AND LUMBER - OVERVIEW Business used to optimize our costs by selling non-pole quality logs and excess untreated dimensional lumber to the market 2018 Sales 5-Year Sales $153M Sales are tied to $153 M RAM the price $32M 7.2% acquisition of lumber 2014 2015 2016 2017 2018 30
Slide 31: Financial Trends
FINANCIAL TRENDS 31
Slide 32: Building a Strong Third Pillar
Building a Strong Third Pillar Residential lumber grew from 10% of sales in 2014 to 22% in 2018 2,124M 411M 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Railway Ties Utility Poles Residential Lumber Industrial Products Logs & Lumber 32
Slide 33: Growing Proportion of U.S. Sales as a % of Total Sales
Growing Proportion of U.S. Sales as a % of Total Sales 68.0% 54.3% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Canada U.S. 33
Slide 34: EBITDA
EBITDA(1) $300 20.0% 16.8% $244M 18.0% $250 15.3% 15.6% 14.4% 16.0% 15.1% 14.0% $200 14.1% 14.4% (In millions) 12.8% 12.0% 12.7% $150 11.5% 10.0% 8.0% $100 6.0% $59M 4.0% $50 2.0% $0 0.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 EBITDA EBITDA % (1)This is a non-IFRS financial measure. Pleas
Slide 35: Inventory Turnover
Inventory Turnover Because of the long periods required to air-season wood, inventory turnover has historically been relatively low 2.7x 2.6x 2.6x 2.5x 2.2x 2.3x 2.2x 1.9x 1.9x 2.3x 1.7x 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 35
Slide 36: Allocating Capital Equitably
Allocating Capital Equitably $192M $198M Instituted NCIB $143M $122M $97M $105M $95M $87M $45M $9M 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Acquisitions Capex Dividends Share buyback (NCIB) 36
Slide 37: Increasing Dividends Consistently
Increasing Dividends Consistently 2019 will mark the 15th consecutive year of dividend increase $0.56* $0.48 $0.44 $0.40 $0.32 $0.28 $0.20 $0.16 $0.13 $0.10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 * Projected based on the latest quarterly dividend 37
Slide 38: Maintaining a Solid Financial Position
Maintaining a Solid Financial Position $291.6 million available on the Company’s syndicated credit facilities as at December 31, 2018 800 4.00 700 3.02 3.50 $514M 600 2.52 3.00 500 2.50 2.75 2.62 2.43 2.41 400 2.00 2.22 2.10 300 1.87 1.89 1.50 200 1.00 100 0.50 - - 2009 2010 2011 2012 2013 2014 2015
Slide 39: Q3 2019 Results
Q3 2019 RESULTS 39
Slide 40: Q3-19 - Stable Sales
Q3-19 – Stable Sales $630.0M $626.6M SALES VARIANCE Q3-18 Sales (M) $630.0 -0.5% Currency variations 2.8 Organic growth (6.2) Q3-19 Sales (M) $626.6 Q3-18 Q3-19 Utility Poles Railway Ties Residential Lumber Industrial Products Logs & Lumber 40
Slide 41: Q3-19 - Sales Variance
Q3-19 – Sales Variance Organic growth of (1.0%) on a consolidated basis (in millions of Utility Railway Residential Industrial Logs & Consolidated dollars) Poles Ties Lumber Products Lumber Sales Q3-2018 Sales 200.6 187.7 160.5 32.4 48.8 630.0 FX impact 1.3 0.7 0.5 0.3 - 2.8 Organic growth 9.6 2.3 (
Slide 42: Q3-19 - Increased Gross Profit and Margin
Q3-19 – Increased Gross Profit(1) and Margin $110.2M $97.4M Gross profit increased due to: 17.6% • Higher selling prices • Lower lumber costs • Improved operational efficiencies 15.5% Partially offset by: • Higher volume for utility poles • Higher production costs for railway ties • Effect of curren
Slide 43: Q3-19 - Net Income & EPS Increased
Q3-19 – Net Income & EPS Increased Net income EPS $53.7M $0.78 $45.8M Due to the increase in $0.66 operating income Q3-18 Q3-19 Q3-18 Q3-19 43
Slide 44: Managing Cash Flow for Seasonality
Managing Cash Flow for Seasonality Cash Flow before certain items(1)(2) Cash Flow from Operating Activities $97.4M $123.7M Due to higher net income, the effect of $81.3M the adoption of IFRS 16 and favorable $91.3M changes in working cap items Q3-18 Q3-19 Q3-18 Q3-19 (1) This is a non-IFRS financial
Slide 45: 2019 Outlook
2019 Outlook Based on current market conditions and assuming stable currencies and the current level of lumber prices Higher sales (excluding logs and lumber product category) Consolidated Improved margins Utility Poles Sales and margins are expected to increase Railway Ties Sales are expected to be
Slide 46: Appendix
APPENDIX 46
Slide 47: Income Statement - 5-Year Financial Summary
Income Statement - 5-Year Financial Summary 2018 2017 2016 2015 2014 Sales 2,123.9 1,886.1 1,838.4 1,559.3 1,249.5 EBITDA(1) 244.4 243.1 264.8 243.4 176.3 EBITDA %(1) 11.5% 12.9% 14.4% 15.6% 14.1% Operating income(1) 206.3 207.4 233.2 220.1 155.7 Operating %(1) 9.7% 11.0% 12.7% 14.1% 12.5% Net incom
Slide 48: Financial Position - 5-Year Financial Summary
Financial Position - 5-Year Financial Summary 2018 2017 2016 2015 2014 Working capital 909.0 779.4 928.0 854.4 615.1 Total assets 2,062.2 1,786.0 1960.9 1,778.9 1,289.0 Total debt(1) 513.5 455.6 694.0 669.9 444.6 Shareholders’ equity 1,281.4 1,115.5 1,026.4 913.5 692.3 Total debt(2) to total 0.29:1
Slide 49: Stella-Jones
Stella-JoneS 4a WWW.STELLA-JONES.COM