Slide 1: US South Analyst Tour
US SOUTH ANALYST TOUR SEPTEMBER 25, 2018
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: Overview & Strategic Context
OVERVIEW & STRATEGIC CONTEXT DUNCAN DAVIES
Slide 4: Interfor's Strategy
INTERFOR’S STRATEGY Building Operational Growth Value Excellence Goal: Double Size/Value Capital Structure Management 4
Slide 5: Growth & Diversification
GROWTH & DIVERSIFICATION 2001 2012 2018 24% 17% 39% 42% 45% 83% 10% 19% 21% 0.8 BBF 1.7 BBF 3.1 BBF Charts reflect production capacity. 5
Slide 6: Interfor's Roadmap
INTERFOR’S ROADMAP US NORTHWEST BC INTERIOR US SOUTH 2004 - 2015 2007 - 2015 2013 - 2022 Timely • Crown Pacific (2004), Floragon • Pope & Talbot (2007) • Rayonier (2013), Keadle Acquisitions: (2005), Portac (2008), Simpson (2014), Tolleson (2014), (2015) Simpson (2015), Price (2015) Restructuring &
Slide 7: Interfor: Building Value
INTERFOR: BUILDING VALUE LTM 2001 2012 June 30’18 Lumber Production (MMbf) 666 1,351 2,654 Revenues (C$MM) $704 $849 $2,170 Adj. EBITDA (C$MM) $45 $60 $355 Enterprise Value (C$MM) (1) $254 $566 $1,803 (1) Reflects shares outstanding, closing share price and net debt as of December 31, 2001, December
Slide 8: Interfor: Building Value
INTERFOR: BUILDING VALUE • Significant growth/repositioning over the past 17/18 years • Well defined runway of internal opportunities and a plan to capture them • Well established operational/capital teams, with substantial expertise, experience and company-wide resources to draw upon • Continuing t
Slide 9: Industry Trends
INDUSTRY TRENDS MARTY JURAVSKY
Slide 10: North American Industry Context
NORTH AMERICAN INDUSTRY CONTEXT REGIONAL NORTH AMERICAN LUMBER PRODUCTION (BBF) & MARKET SHARE (%) 25 32% 20 US South 23% 15 US West 17% 10 BC 5 - 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 Source: Forest Economic Advisors (FEA) forecast published August 28, 2018 10
Slide 11: North American Supply & Demand
NORTH AMERICAN SUPPLY & DEMAND NORTH AMERICAN LUMBER DEMAND & SUPPLY CHANGES: 2017 – 2021 BBF LUMBER North American Domestic Demand: + 11.4 • Continued growth in all end- use markets (R&R, industrial and new home construction) Plus: Decline in BC Production: + 1.0 • Reductions in fibre supply Less:
Slide 12: US South Strategic Priorities
US SOUTH STRATEGIC PRIORITIES MARTY JURAVSKY
Slide 13: Internal Capex: Overview
INTERNAL CAPEX: OVERVIEW • US$305 MM investment • Volume uplift - 425 Mmbf • Product mix/quality, lumber recovery, conversion costs • >20% IRR/Path to top quartile PHASE II PHASE II Comprehensive Rebuild Debottlenecking Monticello Georgetown Eatonton Eatonton Thomaston Thomaston Swainsboro Perry Mel
Slide 14: Internal Capex: Fiber Supply
INTERNAL CAPEX: FIBER SUPPLY INTERFOR US SOUTH MILLS INTERFOR US SOUTH MILLS CURRENT TIMBER CURRENT TIMBER INVENTORY GROWTH-TO-DRAIN RATIOS AS A % OF 2008 INVENTORY 2.0 140% 1.8 120% 1.6 1.4 100% 1.2 80% 1.0 60% 0.8 0.6 40% 0.4 20% 0.2 - 0% Mill Mill Mill Mill Mill Mill Mill Mill Mill Mill Mill Mill
Slide 15: Internal Capex: Labor Costs
INTERNAL CAPEX: LABOR COSTS INTERFOR MILLS INTERFOR MILLS LABOUR COSTS PER MANHOUR – 1H 2018 PRODUCTION PER MANHOUR – 1H 2018 (C$/HOUR) (MBF/MANHOUR) BC Interior US Northwest US South BC Interior US Northwest US South Stud Mills Stud Mills 15
Slide 16: Internal Capex: Priorities
INTERNAL CAPEX: PRIORITIES ANNUALIZED PRODUCTION VOLUME (MMBF) – 1H 2018 300 250 Phase I & II Strategic Capex Actual = 112 MMBF/mill avg. 200 Proforma = 202 MMBF/mill avg. 150 100 50 - Monticello Eatonton Georgetown Meldrim Thomaston Perry Swainsboro Baxley Preston Phase I & II Smaller Discretionary
Slide 17: Internal Capex: Total Production
INTERNAL CAPEX: TOTAL PRODUCTION INTERFOR US SOUTH TOTAL PRODUCTION VOLUME (MMBF) 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1H-2018A Annualized 2019E 2020E 2021E 2022E Proforma production in 2019-22E includes impacts from the Phase I & II strategic projects at Monticello, Meldrim, Thomaston, E
Slide 18: Internal Capex: Capital Efficiency
INTERNAL CAPEX: CAPITAL EFFICIENCY INVESTED CAPITAL (TOTAL ASSETS INCL. W/C) / MBF OF PRODUCTION (US$/MBF) $638 $614 Proforma $422 Current $355 Interfor US South M&A Transaction #1 M&A Transaction #2 Current invested capital reflects the net book value of total assets, including working capital, as
Slide 19: Greenfields: Key Criteria
GREENFIELDS: KEY CRITERIA Labor Equipment Timber Logistics Residuals Risk Adj. Returns 19
Slide 20: Greenfields: Geographic Fit
GREENFIELDS: GEOGRAPHIC FIT Monticello Georgetown Eatonton Thomaston Eatonton Thomaston Swainsboro Perry Meldrim Preston Baxley 20
Slide 21: US South Operations
US SOUTH OPERATIONS BRUCE LUXMOORE
Slide 22: US South Operations: Overview
US SOUTH OPERATIONS: OVERVIEW • 2015-2018 Goal: • Establish a strong business foundation prior to large scale investments • Culture and Standards: • Integrate the Interfor culture • Establish common approaches to maintenance, log and lumber quality, safety, etc. • Alignment between log supply, manuf
Slide 23: US South Operations: Initiatives
US SOUTH OPERATIONS: INITIATIVES OP-Ex Team: • Internal team with expertise in reliability, maintenance and controls. • Deployed across multiple mills. Focused on no/low capex projects to improve mill flow, reliability and productivity. QC-Ex Team: • 20 month project. • Mill-by-mill QC knowledge sha
Slide 24: US South Operations: Results
US SOUTH OPERATIONS: RESULTS • Substantial gains achieved through no/low capex initiatives. Interfor US South KPI Improvement % (Q2 2018 vs. Q1 2016) Productivity + 9% (Mbf/Hour) Lumber Recovery + 7% (Tons/Mbf) Product Quality + 7% (% #2&Btr) 24
Slide 25: Capital Projects – The Interfor Way
CAPITAL PROJECTS – THE INTERFOR WAY IAN FILLINGER
Slide 26: Track Record of Results
TRACK RECORD OF RESULTS • History of delivering large, complex projects • On-time • On-budget • Ahead of expectations • Significant in-house experience and expertise • Continuity of key operational/capital team members • Ability to leverage resources and knowledge across Interfor’s platform • Prefer
Slide 27: Proven Capex Team
PROVEN CAPEX TEAM Internal: External: • 16 member in-house dedicated • Secured a number of future capital group. delivery slots for key machine • Significant industry, vendor and centers with top tier vendors. Interfor project experience. 27
Slide 28: Capital Project Experience
CAPITAL PROJECT EXPERIENCE 2006: Molalla, OR 2012: Grand Forks, BC Log yard upgrade, two New primary breakdown line new kilns and new planer and automated lumber complex grading system US$15 MM C$30 MM 2007: Port Angeles, WA 2015: Castlegar, BC New primary breakdown New primary breakdown line, new l
Slide 29: Proven Start-Up Track Record
PROVEN START-UP TRACK RECORD PORT ANGELES - 2007 ADAMS LAKE - 2009 CASTLEGAR - 2015 Actual (Mbf/Hour) Actual (Mbf/Hour) Actual (Mbf/Hour) Proforma Target (Mbf/Hour) Proforma Target (Mbf/Hour) Proforma Target (Mbf/Hour) 50 100 70 45 90 40 80 60 35 70 50 30 60 (1) (1) 40 25 50 20 40 30 15 30 20 10 20
Slide 30: Phase I: Status Update
PHASE I: STATUS UPDATE • On-track for completion in Q1-2019 ✔ Monticello – US$46 mm: ✔ • July – Planer stacker ✔ • August – Sawmill trimmer upgrades • September – Autograder • October – Sawmill edger • November – Planer infeed • December – Merchandizer • October – Kiln conversion • January / Februar
Slide 31: Phase II: Thomaston Current Situation
PHASE II: THOMASTON CURRENT SITUATION Inefficient Site Set-Up Log Flow Issues Flow Issues/Manual Intervention Planer Building - Low Ceiling Old Planer/Manual Grading 31
Slide 32: Phase II: Eatonton Current Situation
PHASE II: EATONTON CURRENT SITUATION Small Log – 13” Max Offline Stacker Sling Bins – Limited Capacity No Optimized Bucking 32
Slide 33: Phase II: Georgetown Current Situation
PHASE II: GEORGETOWN CURRENT SITUATION Flow Issues Throughout Sling Bins – Limited Capacity Sawmill Manual Stick Placing Old Planer/Manual Grading 33
Slide 34: Sales & Marketing
SALES & MARKETING BART BENDER
Slide 35: Recent Market Dynamics
RECENT MARKET DYNAMICS BENCHMARK LUMBER PRICES (US$/MBF) $600 2014 2015 2016 2017 2018 $575 SYP Composite Price $550 WSPF Composite Price $525 $500 $475 $450 $425 $400 2017 Avg’s. $375 $350 $325 $300 $275 $250 $225 $200 3-Jan-14 31-Dec-14 31-Dec-15 30-Dec-16 29-Dec-17 Source: Random Lengths; 2018 in
Slide 36: Sales & Marketing Overview
SALES & MARKETING OVERVIEW • Vancouver, BC: • 40 staff serving the BC Interior, US Northwest, Specialty & Export • Consolidation of Bellingham, WA office in 2017 • Peachtree City, GA: • 17 staff serving the US South • Consolidation of five companies’/nine mills’ sales processes into one • Seamless i
Slide 37: US South Products
US SOUTH PRODUCTS INTERFOR 2017 SYP SHIPMENTS INTERFOR 2017 SYP SHIPMENTS BY SIZE BY GRADE Other 2 x 12 Low Grade (#3, #4, Shorts, 2 x 10 Blocks) 2x4 #2 Grade 2x8 High Grade (MSR, #1, #2 2x6 Prime, DSS) 37
Slide 38: US South Markets & Logistics
US SOUTH MARKETS & LOGISTICS INTERFOR 2017 SYP SHIPMENTS INTERFOR 2017 SYP SHIPMENTS BY DESTINATION BY MODE Ocean CPU Rail Truck 38
Slide 39: US South Growth
US SOUTH GROWTH • Volume growth the equivalent of almost 1 new mill/year so far; more coming • 2016: 1,043 MMbf • 2017: 1,156 MMbf • 2018 H1 Annualized: 1,254 MMbf • Proforma Phase I/II Strategic Capex: >1,700 MMbf • Implementation: • Sales Team – Add and develop personnel • Logistics – Maximize fle
Slide 40: Human Resources
HUMAN RESOURCES MARK STOCK
Slide 41: Talent Development at All Levels
TALENT DEVELOPMENT AT ALL LEVELS Exec Sr. Leaders Operations, Sales, Corp Professionals: Operations, Sales, Forestry, Corporate Supervision: Supervisors and Superintendents Skilled Trades: Millwrights, Electricians, Sawfilers Hourly Employees 41
Slide 42: Hourly Retention: Challenges
HOURLY RETENTION: CHALLENGES • The US labor market is U.S. CIVILIAN UNEMPLOYMENT RATE (%) near full employment. • Insufficient skilled labor and/or skill development programs. • Implications: • Relatively high employee turnover in the US South – typically 25-35%. • Vacancies in key positions. • Wage
Slide 43: Hourly Retention: Approach
HOURLY RETENTION: APPROACH COMPENSATION SELECTION ONBOARDING CULTURE 43
Slide 44: Hourly Retention: Early Results
HOURLY RETENTION: EARLY RESULTS INTERFOR US SOUTH HOURLY NEW HIRE RETENTION RATES 2017 2018 YTD-Aug 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% After 2 Months After 6 Months 44
Slide 45: Apprenticeship Program
APPRENTICESHIP PROGRAM • Millwright Apprenticeship Program kicked-off in May 2017 • 20+ employees in the South in initial cohort • Additional 10-12 employees every 6 months starting in 2019 • Fine tuning content and delivery methods 45
Slide 46: Supervisory Programs
SUPERVISORY PROGRAMS BCIT LEAD X Technical Skills Soft Skills WHAT • Associate Certificate from a recognized • Training modules for front-line leaders educational institution FOCUS • Technical side of wood manufacturing • Provides tools to be better people leaders WHO • Application-based enrollment
Slide 47: Financing & Capital Allocation
FINANCING & CAPITAL ALLOCATION MIKE MACKAY
Slide 48: Capital Investment Outlook
CAPITAL INVESTMENT OUTLOOK INVESTMENTS BY YEAR (C$MM) $300 Acquisition Phase Deleverage Phase Investment Phase $270 $267 $250 Average of ~$200 mm/year Acquisitions Capex (Discretionary & Mtce.) $200 $184 $146 $192 $150 $125 $116 $100 $95 $77 $121 $125 $50 $95 $78 $77 $68 $0 2013 2014 2015 2016 2017
Slide 49: Capital Structure
CAPITAL STRUCTURE NET DEBT/INVESTED CAPITAL 50% BANK COVENANT 45% 40% +5% 35% INTERNAL 30% TARGET 25-35% 25% -5% 20% 15% 10% 5% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2013 2014 2015 2016 2017 2018 49
Slide 50: Capital Structure
CAPITAL STRUCTURE CAPITAL RESOURCES DEBT MATURITY SCHEDULE AS OF JUNE 30’18 (C$MM) AS OF JUNE 30’18 (C$MM) (1) Cash $229 $60 Prudential Notes (4.47%) Available Bank Lines $314 $50 Total Available Liquidity $543 $40 $30 Strategic Capex AVAILABLE LIQUIDITY Period $491 $20 @ 35% ND/IC $10 $0 (1) Profor
Slide 51: Free Cash Flow
FREE CASH FLOW C$MM Adjusted EBITDA: $355 • Expected incremental benefits from (LTM Through Q2-2018) strategic capex • Full expensing of duties Less: Cash Interest Expense, net: $(8) • Average debt interest rate ~ 4.5% • Significant cash on hand ~ 2.0% Maintenance Capex: $(60-70) • Maintenance inclu
Slide 52: Closing Remarks
CLOSING REMARKS DUNCAN DAVIES
Slide 53: Key Messages
KEY MESSAGES • Interfor is well positioned • Significant headway in recent years, especially in the South • Strong balance sheet and cash flow • Now moving into the capex phase of our US South strategy • Capture the opportunities that are available • US$305 MM of capex projects announced thus far •
Slide 54: Eatonton Mill Overview
EATONTON MILL OVERVIEW MARTY JURAVSKY / IAN FILLINGER
Slide 55: Eatonton Mill Grand Opening Save-the-Date
EATONTON SAVE-THE-DATE 2021 Interfor invites you to join us for the Eatonton Mill Grand Opening 55
Slide 56: Eatonton: History
EATONTON: HISTORY 2013 Purchased 2000 by Interfor Purchased by 1985 Rayonier Purchased by Louisiana Pacific 1973 International Paper 56
Slide 57: Eatonton: Fiber Supply
EATONTON: FIBER SUPPLY Woodbasket Profile Small Logs Large Logs 15% 25% 30% 25% 5% Current 40% Proforma 85% 57
Slide 58: Eatonton: Current vs. Future
EATONTON: CURRENT VS. FUTURE Annual Capacity (MMbf) Current Future Sawmill 96 220 Planer 103 220 Kilns 107 220 • Max log size increased from 13” to 18” • Improved lumber recovery • Conventional sawmill layout with stacker attached to the mill • Full autograding and value-added products produced from
Slide 59: Eatonton: Project Approach
EATONTON: PROJECT APPROACH • Design Methodology • Offline build, where possible • Minimize operational and production downtime • Utilize existing infrastructure • Implementation Strategy – Combination Of: • Phased approach • Immediate impact projects first • Back-to-front build 59
Slide 60: Eatonton: Primary Breakdown
EATONTON: PRIMARY BREAKDOWN Current Future 60
Slide 61: Eatonton: Sorter
EATONTON: SORTER Current Future 61
Slide 62: Eatonton: Planer/Grading
EATONTON: PLANER/GRADING Current Future 62
Slide 63: Questions?
QUESTIONS?