Investor Presentation

Transcription

1 Investor Presentation April 2016

2 Forward Looking Statement Certain statements contained in this presentation, including all statements that are not historical facts, contain forward-looking statements and forward-looking information within the meaning of applicable securities laws. Forward-looking statements normally contain words like believe, expect, anticipate, plan, intend, continue, estimate, may, will, should and similar expressions. Such statements are not guarantees of future performance. They are based on management's expectations and assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate in the circumstances. Management has based these statements on estimates and assumptions that they believed were reasonable when the statements were prepared. Actual results could be substantially different because of the risks and uncertainties associated with the Company's business. More information about the risks and uncertainties affecting the Company's business can be found in the "Risk Factors" section of our Annual Information Form dated March 11, 2016 which is available under the Company's profile at SEDAR ( Although we have attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Also, many of the factors are beyond the control of Hardwoods. Accordingly, readers should not place undue reliance on forward-looking statements or information. Hardwoods undertakes no obligation to reissue or update any forward-looking statements or information as a result of new information or events after the date hereof except as may be required by law. All forward-looking statements and information herein are qualified by this cautionary statement. 2

3 Highlights Leading distributor of hardwood lumber and sheet goods in North America 75% of revenue from the U.S. Capitalizing on U.S. housing growth growing at a CAGR of 12.3% (1) Significant track record of growth 2015 Revenue and EBITDA of $572 MM and $35 MM, respectively, which grew 25.4% and 36.5% from 2014 Well positioned and poised for significant further market expansion Organic: U.S. housing, commercial and import business all strengthening Acquisition: Geographic, channel expansion and leveraging of existing import strategy and core products Attractive balance sheet for organic and acquisition initiatives 0.8x Net Debt / EBITDA at 12/31/ year shareholder return of over 180% ~$300 MM market capitalization (TSX:HWD) (1) Per National Association of Home Builders 3

4 Hardwoods Today: Where we Are 33 Locations ~25% Canadian Revenue ~75% U.S. Revenue Hardwoods is one of the largest distributors of hardwood lumber and sheet goods in North America Market leader for 50+ years in a fragmented industry Decentralized, hub and satellite model Diversified customer and supplier base, no significant concentration Experienced management team 4

5 Hardwoods Today: What We Sell Hardwoods distributes both domestic and imported hardwood lumber, plus plywood, composite panels and decorative surfaces (collectively termed: Sheets), plus speciality items Includes proprietary branded products such as EchoWood, DragonPly and Baltic Birch; and Non structural, appearance and finishing products Our size, scale and pro-active approach to sourcing new products generally results in a wider choice for an increasingly diversified customer base as compared to our competitors Sheets Hardwood Lumber Other/Specialty 52% of Sales 38% of Sales 10% of Sales 5

6 Hardwoods Today: Value Chain Import Mill Domestic Mill Industrial Manufacturers New Residential 60% Commercial & Institutional 20% Other 20% End user/homeowner 6

7 Growth Plan: Capitalizing on Major Opportunities Organic 1) Significant improvements in U.S. housing market 2) Further leverage imports to increase market share 3) Strengthen our commercial business Acquisitions 1) Further geographic diversification, capture market share 2) Increase Commercial Exposure and core product expansion Highly successful track record of integration 3 acquisitions in 5 years with ~$150 MM in sales added and integrated 7

8 US Housing Starts Forecast HWD Revenue (C$MM) Organic Growth: U.S. Housing Market Hardwoods performance takes advantage of the US housing market Continued housing market growth expected to provide tailwind 2,500 $1,000 2,068 2,000 1,801 $800 1,500 1, $356 $363 1,355 $ $ $191 $ $ $ $371 $456 1,001 $572 1,108 1,213 1,435 $600 $400 $ E 2017E $0 Source: National Association of Home Builders 8

9 Organic Growth: Leveraging Imports Growth engine developed over many years High-quality suppliers Differentiated, house-branded products Quality assurance staff located on the ground overseas, stand behind our product Established brand recognition and market share ~30% of our business today Hardwoods is a market leader in its operating regions 9

10 Organic Growth: Strengthen Commercial Commercial/institutional market opportunity is significant; comprises office buildings, retail and hospitality interiors, schools, healthcare facilities etc Growing commercial builds on existing organizational strengths, takes advantage of our import expertise, diversifies the business from new residential 20% of our business today (~$115 MM) with the ability to further penetrate a large market Total market size in U.S. of US$122.5 billion (1) (1) Per American Institute of Architects Consensus Forecast Spending Put-In-Place for Commercial Total 2015; IHS Economics 10

11 Growth by Acquisition: Geographic Diversification Hardwoods can fill its missing geographies via acquisitions Significant opportunity on the east coast of the U.S. Primary Markets Secondary Markets North Eastern and Southern markets represent ~60% (1) of total housing starts Hardwoods is already operating in Texas (1) Per National Association of Home Builders 11

12 Growth by Acquisition: Commercial / Core Product Expansion Current Acquisition Focus Majority New Residential Increase Commercial Exposure Core Product Offerings 3 1 Hardwood Lumber Moulding Thermally Fused Laminates Access to Ancillary Products Leverage Existing Platform 2 Increase Imports Program Composite Panels Plywood Expand Product Offering within Existing Core Products 12

13 Acquisition Track Record 7 U.S. locations acquired in the last 5 years, $150MM in revenue added September 2011 Price $13.5 MM May 2013 Price: $2.8 MM April 2014 Price: $15.0 MM Increased commercial exposure, leverage imports Provided U.S. east coast presence New geographic markets Expanded import lumber offering Focus on Distribution Increased commercial exposure Diverse/International customers Cultural and Strategic Fit Strong Management Teams Market Expansion / Growth Leverages Import Program Strengthens Commercial Program Diversifies Product Offering Increases Scale 13

14 Revenue (C$MM) Gross Margin Gross Margin Track Record of Growing Sales with Stable Margins Gross margin trades within a stable band Price changes passed through to customers $1,000 $800 Revenue (C$MM) 20% 20% $800 $600 Gross Margin 17.4% 17.4% 17.7% 17.7% 17.6% 17.6% 18.2% 18.2% $ % 17.4% 17.3% 17.4% 18% 18% $600 $456 $572 16% 16% $400 $400 $200 $200 $198 $198 $230 $230 $306 $306 $371 $371 $456 14% 14% 12% 12% $0 $ % 10% 14

15 EBITDA EBITDA (C$MM) (C$MM) EBITDA EBITDA Margin Margin Track Record of Strong Operating Leverage Volume and price increases can positively impact profitability without the need for significant or immediate additions to costs $40 $40 $30 $30 $20 EBITDA ($MM) EBITDA Margin 4.0% 5.8% 5.8% $21.4 $ % $ % $25.5 $34.8 $ % 6.1% 7% 8% 5% 6% $20 $10 $10 2.4% $4.7 $ % 2.6% $6.0 $ % $12.3 $12.3 4% 3% 2% $0 $ % 0% 15

16 Share Share Share Performance Performance Share Performance Track Record of Shareholder Returns Since 2010, Hardwoods share price has increased ~800% Hardwoods reinitiated and increased its dividend by ~175% 1,000% 1,000% 850% 850% 700% 700% 550% 550% 400% 400% 250% 250% 100% 100% HWD TSX Annualized Dividend 0% $0.08 $0.08 $0.08 $0.12 $0.12 $0.12 $0.12 $0.12 $0.12 $0.14 $0.14 $0.14 $0.14 $0.14 $0.14 $0.14 $0.14 $0.18 $0.18 $0.18 $0.18 $0.18 Q1 / 10 Q2 / 12 Q3 / 14 $0.08 $0.08 $0.08 $0.22 $0.22 ~800% $0.22 ~800% $0.18 $0.18 $0.18 $0.18 $0.18 $0.22 $0.22 $0.22 0% (50%) Q1 / 10 Q2 / 12 Q3 / 14 (50%) Jan 10 Oct 10 Jul 11 Apr 12 Jan 13 Oct 13 Jul 14 Apr 15 Jan 16 Jan 10 Oct 10 Jul 11 Apr 12 Jan 13 Oct 13 Jul 14 Apr 15 Jan 16 ~15% ~15% Current Payout Ratio ~15% 16

17 Foreign Exchange Benefit Impact of a strengthening US dollar: 1) Positive impact when US business results are translated to CAD$ for reporting purposes 2) Positive impact of rising product prices on product purchased in USD for resale in Canada 3) Canadian manufacturing customers may become more cost competitive selling their products into the US marketplace 75% 25% Sales by Geography 17

18 Key Management Rob Brown, CA, CFA; President & Chief Executive Officer, Director Joined Hardwoods and assumed the role of Chief Financial Officer in 2004, Chief Operating Officer in 2015 and Chief Executive Officer in years of experience working in the building materials and distribution business with McMillan Bloedel, Weyerhaeuser and Hardwoods Lance Blanco; Senior Vice President, Corporate Development Has held senior positions in sales, distribution, marketing, manufacturing and supply chain optimization with Weyerhaeuser and MacMillan Bloedel Possesses 26 years of forest products industry experience Faiz Karmally, CA; Vice President & Chief Financial Officer Joined Hardwoods in 2014 as Corporate Controller and was appointed Chief Financial Officer in 2015 Previously a Senior Manager with PriceWaterhouseCoopers 18

19 Board of Directors E. Lawrence Sauder; Chair & Director Chair of the Sauder Group having worked at the Sauder Group for over 32 years in various capacities prior to becoming President in 1988 Serves as Chair and Director of Interfor Corporation and is a member of the World Presidents Organization Graham Wilson; Director President of Grawil Consultants Previously held various senior leadership roles with Westcoast Energy William Sauder; Director President of Emax Investments Previously a Senior Vice President with the Sauder Group Peter Bull; Director President of Blenheim Realty Ltd. (a commercial real estate business) and holds interests in a number of real estate and building material companies 19

20 Summary 1 Positioned to continue to take advantage of US market 2 Successful execution of strategy 3 Large, efficient distribution network 4 Positive multi-year outlook 5 Demand and currency in Hardwoods favor 6 Strong balance sheet to support growth and future acquisitions 20