Stella-Jones Inc. · TSX:SJ
Stella-Jones — Q3 2021 Earnings Presentation
60 slides from Stella-Jones's earnings presentation, November 2021
Slide 1: Investor Presentation November 2021
INVESTOR PRESENTATION November 2021
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. The reader is cautioned not to place undue reliance on these statements since a number of known and un
Slide 3: Agenda
AGENDA OVERVIEW COMPETITIVE STRENGTHS STRATEGY AND FUTURE GROWTH FINANCIAL TRENDS CAPITAL ALLOCATION OVERVIEW BY BUSINESS UNIT ENVIRONMENTAL, SOCIAL AND GOVERNANCE 2020 FINANCIAL RESULTS Q3-2021 FINANCIAL RESULTS 2021 OUTLOOK & PRIORITIES APPENDIX 3
Slide 4: Overview of Stella-Jones
OVERVIEW OF STELLA-JONES 4
Slide 5: Stella-Jones at a Glance
STELLA-JONES AT A GLANCE A Leading North American Supplier of Pressure-Treated Wood Products 2,250 (1) 40 (1) Employees Wood Treating Facilities 35% 29% 25 U.S. and 15 Canada Utility Poles Railway Ties $2.6B 12 (1) 68% (2) 2020 Sales Pole Peeling Sales Facilities in the U.S. 6% Logs & Lumber 4% 26%
Slide 6: Important Milestones
IMPORTANT MILESTONES 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 & Ramfor Lumber: Tr
Slide 7: 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 8: Acquisition of Cahaba Timber and Cahaba Pressure
Acquisition of Cahaba Timber and Cahaba Pressure Cahaba Timber Cahaba Pressure • Agreement to purchase the shares of Cahaba Timber for • Agreement to purchase the shares of Cahaba Pressure US$36.5 M Treated Forest Products for US$66 M • Including working capital of US$4 M • Including working capit
Slide 9: Growing Proportion of U.S. Sales
GROWING PROPORTION OF U.S. SALES 68% 64% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Canada U.S. 9
Slide 10: Building a Strong Third Pillar
BUILDING A STRONG THIRD PILLAR Residential lumber grew from 10% of sales in 2014 to 26% in 2020 $2,551M $836M 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Utility Poles Railway Ties Residential Lumber Industrial Products Logs & Lumber Note: 2016 - 2019 figures were adjusted to reclass some frei
Slide 11: Stella-Jones' Continental Network
STELLA-JONES’ CONTINENTAL NETWORK 11
Slide 12: Competitive Strengths
COMPETITIVE STRENGTHS 12
Slide 13: 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 14: Strategy and Future Growth
STRATEGY AND FUTURE GROWTH 14
Slide 15: Strategy and Future Growth by Business Unit
STRATEGY AND FUTURE GROWTH BY BUSINESS UNIT Market Growth Drivers Trends Growth Strategy • Potential for further consolidation in • Replacement programs • Increasing average age of poles • Acquisitions 35% the North American market • Mid to high-single digit growth • Growth of 5G networks and “fibre
Slide 16: Financial Trends
FINANCIAL TRENDS 16
Slide 17: Track Record of Performance
TRACK RECORD OF PERFORMANCE Sales(1) EBITDA(2)(3) $2,551M $385M $640M $97M 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Cash Flow(2)(4) & Net income Net Debt-to-EBITDA(2)(5) $402M $210M 3.0x 2.8x 2.6x $100M 2.4x 2.5x 2.3x $56M 2.1x 1.9x 1.9x 1.9
Slide 18: Increasing Dividends Consistently
INCREASING DIVIDENDS CONSISTENTLY 2021 will mark the 17th consecutive year of dividend increase $0.72* $ 0.60 18.2% CAGR $ 0.56 $ 0.48 $ 0.44 $ 0.40 $0.16 $ 0.32 $ 0.28 $ 0.20 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E * Projected based on the latest quarterly dividend 18
Slide 19: Increasing Shareholder Value
INCREASING SHAREHOLDER VALUE Relative Stock Price Performance 300% $42.37 As at Nov 9, 2021 Shares outstanding @ 64.5M September 30, 2021 250% Average daily volume 316,517 14.7% 52 week (high-low) $54.09-$39.95 CAGR 200% Market Capitalization $2.7B 150% 14.2% CAGR 100% 50% 9.3% CAGR 0% Nov-12 Nov-13
Slide 20: Capital Allocation
CAPITAL ALLOCATION 20
Slide 21: Capital Allocation Priorities
CAPITAL ALLOCATION PRIORITIES 1 2 3 Capital Expenditures Dividend Acquisitions Share Repurchase Organic growth, Durable dividend payout Pursue accretive Return excess free cash innovation, productivity TARGET: 20-30% of transactions to flow to shareholders and asset maintenance prior year’s EPS enha
Slide 22: Allocating Capital for Growth & Returns
ALLOCATING CAPITAL FOR GROWTH & RETURNS Stella-Jones has invested $1,077M in growth investments and returned $498M in cash to shareholders since 2010 $192M $198M $177M $155M $157M $143M $122M $105M $95M $97M $87M $45M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 YTD Q3-2021 Acquisitions Ca
Slide 23: Maintaining a Solid Financial Position
MAINTAINING A SOLID FINANCIAL POSITION $1 000 $679M $ 900 $ 800 $ 700 3.0x $ 600 2.8x 2.5x 2.6x Net Debt- 2.4x $ 500 2.3x to-EBITDA (1) Target: 2.1x $ 400 1.9x 1.9x 2.0x – 2.5x $ 300 1.6x $ 200 $ 100 $0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Q3-21 (1) (1) Net debt Net Debt-to-EBITDA (1) This i
Slide 24: Overview by Business Unit
OVERVIEW BY BUSINESS UNIT 24
Slide 25: 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 2020 Sales 5-Year Sales $888M $594M
Slide 26: 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 27: 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 and deployment of “fibre-to-home” throughout many rural areas Product Category Size Marketplace Growth Driver
Slide 28: Railway Ties – Overview
RAILWAY TIES – OVERVIEW 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 2020 Sales 5-Year Sales $716M $733M $733M Volu
Slide 29: Railway Ties – Offering
RAILWAY TIES – OFFERING 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 and regional
Slide 30: Railway Ties – Market Conditions
RAILWAY TIES – MARKET CONDITIONS Solid untreated railway tie inventory availability 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 America • A
Slide 31: 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 2020 Sales 5-Year Sales $665M Volume $665M $346M Growth & Prices are 26% tied to the cos
Slide 32: 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 33: 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 34: Lumber Costs – 5 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 Jan/16 Jan/17 Jan/18 Jan/19 Jan/20 Jan/21 Source: Factset (LB00-USA - Random Length Lumber Continuous Contract (CME $/bft)) 34
Slide 35: 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 36: Logs and Lumber – Overview
LOGS AND LUMBER – OVERVIEW Business used to optimize procurement and does not generate a margin 2020 Sales 5-Year Sales $146M $101M $146M Sales are tied to 6% the price of lumber 2016 2017 2018 2019 2020 36
Slide 37: Environmental, Social and Governance
ENVIRONMENTAL, SOCIAL AND GOVERNANCE 37
Slide 38: Pursuing Our Business Activities Responsibly
PURSUING OUR BUSINESS ACTIVITIES RESPONSIBLY • Committed to integrate 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 sustainability practices and be transparent about o
Slide 39: ESG 2020 Highlights
ESG 2020 HIGHLIGHTS PRODUCT STEWARDSHIP Sustainable forest management, responsible manufacturing and product innovation initiatives Railway tie purchased Residential lumber M3 of wood sustainably 99% from small and local 80% sourced from sustainably 154K harvested through forest businesses1 certif
Slide 40: Financial Results
Sain ae & a mI aaa 2 Le i et img) ii FINANCIAL RESULTS
Slide 41: 2020 – 20th Consecutive Year of Sales Growth
2020 – 20th CONSECUTIVE YEAR OF SALES GROWTH SALES VARIANCE +16% $2.6B $2.2B Organic Growth 2019 Sales (M) $2,189 Currency variations 19 Organic growth Pressure-treated wood 309 Logs and lumber 34 2020 Sales (M) $2,551 2019 2020 Utility Poles Railway Ties Residential Lumber Industrial Products Logs
Slide 42: 2020 – Sales Variance
2020 – SALES VARIANCE Pressure Treated Wood Organic Growth of 15% (in millions of Residential Industrial TOTAL PRESSURE Logs & Utility Poles Railway Ties CONSOLIDATED SALES dollars) Lumber Products TREATED WOOD Lumber 2019 Sales 797 689 471 120 2,077 112 2,189 FX impact 8 7 3 1 19 - 19 Organic growt
Slide 43: 2020 – Record EBITDA
2020 – RECORD EBITDA(1) EBITDA(1) Operating Income $385M $309M $313M Driven by pricing $242M 15% and volume gains 14% across the 12% Company’s three 11% core product categories 2019 2020 2019 2020 (1) This is a non-IFRS financial measure. Please refer to the Company’s MD&A. 43
Slide 44: 2020 – Higher Net Income & EPS
2020 – HIGHER NET INCOME & EPS Net income EPS $210M $3.12 32% 29% $2.37 $163M Driven by strong sales growth 2019 2020 2019 2020 44
Slide 45: 2020 - Strong Cash Flow Generation
2020 - STRONG CASH FLOW GENERATION Cash Flow before certain items(1)(2) Cash Flow from Operating Activities $402M $178M $305M Record cash from $90M operations despite inventory build-up for 2021 sales growth 2019 2020 2019 2020 (1) This is a non-IFRS financial measure. Please refer to the Company’s
Slide 46: Inventory Turnover
INVENTORY TURNOVER Because of the long periods required to air-season wood, inventory turnover has historically been relatively low 2.1x 2.2x 2.1x 2.0x 1.7x 1.9x 1.8x 1.9x 1.9x 1.6x avg. 1.4x 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 46
Slide 47: Q3-2021 Financial Results
Q3-2021 FINANCIAL RESULTS 47
Slide 48: Q3-21 – Sales
Q3-21 – SALES $742M (5% ) Organic $679M SALES VARIANCE Growth Q3-20 Sales (M) $742 Currency variations (25) Organic growth Pressure treated wood (32) Logs and lumber (6) Q3-21 Sales (M) $679 Q3-20 Q3-21 Utility Poles Railway Ties Residential Lumber Industrial Products Logs & Lumber 48
Slide 49: Q3-21 – Sales Variance
Q3-21 – SALES VARIANCE Pressure Treated Wood Organic Growth of (5%) (in millions of Residential Industrial TOTAL PRESSURE Logs & Utility Poles Railway Ties CONSOLIDATED SALES dollars) Lumber Products TREATED WOOD Lumber Q3-2020 Sales 251 188 220 34 693 49 742 FX impact (11) (9) (3) (1) (24) (1) (25)
Slide 50: Q3-21 – EBITDA and Operating Income
Q3-21 – EBITDA(1) AND OPERATING INCOME EBITDA(1) Operating income Higher pricing more than offset by the $113M $132M elevated fibre costs for residential lumber and railway ties, combined with $69M the lower $51M 18% residential lumber sales volume 15% 10% 8% Q3-20 Q3-20 Q3-21 Q3-21 Q3-20 Q3-20 Q3-2
Slide 51: Q3-21 – Net Income & EPS
Q3-21 – NET INCOME & EPS Net income EPS $79M $1.17 $34M $0.52 Q3-20 Q3-20 Q3-21 Q3-21 Q3-20 Q3-20 Q3-21 Q3-21 51
Slide 52: Q3-21 – Strong Cash Flow Generation
Q3-21 – STRONG CASH FLOW GENERATION Cash Flow before certain items(1)(2) Cash Flow from Operating Activities $225M $132M $148M Driven by favourable movements in non- $70M cash working capital, partially offset by lower profitability Q3-20 Q3-21 Q3-20 Q3-21 Q3-20 Q3-21 Q3-20 Q3-21 (1) This is a non-I
Slide 53: Outlook & Priorities
OUTLOOK & PRIORITIES 53
Slide 54: Outlook & Priorities
OUTLOOK & PRIORITIES 2021 UPDATED GUIDANCE 2021 PRIORITIES • EBITDA(1) guidance close to $400 million • Pursue acquisitions • Solid EBITDA in 2021 • Continue to focus on improving our operating efficiencies • EBITDA margin(1) to remain comparable to 2020 and expanding our capacity • Organic sales gr
Slide 55: Appendix
APPENDIX 55
Slide 56: Income Statement - 5-Year Financial Summary
INCOME STATEMENT - 5-YEAR FINANCIAL SUMMARY 2020 2019 2018 2017 2016 Sales 2,551 2,189 2,144 1,908 1,854 Gross Profit(1) 446 358 328 315 334 Gross Profit margin(1) 17% 16% 15% 17% 18% EBITDA(1) 385 313 244 243 265 EBITDA margin(1) 15% 14% 11% 13% 14% Operating income 309 242 206 207 233 Operating ma
Slide 57: Financial Position - 5-Year Financial Summary
FINANCIAL POSITION - 5-YEAR FINANCIAL SUMMARY 2020 2019 2018 2017 2016 Working capital 1,161 1,053 931 797 949 Total assets 2,246 2,281 2,062 1,786 1,961 Long-term debt(1) 606 605 514 456 694 Lease liabilities(1) 139 118 - - - Shareholders’ equity 1,373 1,288 1,281 1,116 1,026 Net debt(2) to total c
Slide 58: Non-IFRS Measures
NON-IFRS MEASURES Gross profit, gross profit margin, operating income before depreciation and amortization (herein referred to as earnings before interest, taxes, depreciation and amortization [“EBITDA”]), EBITDA margin, operating income margin, cash flow from operating activities before changes in
Slide 59: Adoption of IFRS 16, Leases
ADOPTION OF IFRS 16, LEASES • On January 1, 2019, the Company retrospectively adopted IFRS 16, Leases. • Comparatives for the 2018 reporting period have not been restated, as permitted • The application of this new standard resulted in: • The addition of right-of-use assets and lease liabilities to
Slide 60: Stella-Jones www.stella-jones.com
Stella-Jone S WWW.STELLA-JONES.COM