Investor Presentation

Transcription

1 Investor Presentation November 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 and our Short Form Prospectus dated June 24, 2016, both of which are 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 non-structural architectural building products in North America ~90% (2) of revenue from the U.S. Capitalizing on U.S. housing growth that is growing at a CAGR of 12.3% (1) Significant track record of growth Q YTD Revenue and Adjusted EBITDA of ~$550 MM and ~$35 MM, respectively, which grew 27.7% and 29.8% from the same period in 2015 Well positioned and poised for 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 2.3x Debt / LTM EBITDA as at Q3/16. 3 year shareholder return of ~150% ~$385 MM market capitalization (TSX:HWD) as at November 15, 2016 (1) Per National Association of Home Builders (2) Includes pro forma results for Rugby for the LTM period ended March 31,

4 Where we are today 60 Distribution Locations across N.A. Market leader for 50+ years in a fragmented industry Diversified customer and supplier base, no significant concentration Experienced management team 4

5 Hardwoods Today: What We Sell Hardwoods distributes: Domestic and imported Hardwood Lumber, and plywood, composite panels, and decorative surfaces (collectively termed: Sheets); and Doors, hardware and other related non-structural architectural grade building products (such as door jambs, adhesives, lights) (collectively termed: Architectural and Other Products) Includes proprietary branded products such as EchoWood, DragonPly and Baltic Birch. Sheets Hardwood Lumber Architectural and Other Products ~40% (1) of Sales (1) Includes pro forma results for Rugby for the LTM period ended March 31, 2016 ~26% (1) of Sales ~34% (1) of Sales 5

6 Hardwoods Today: Value Chain Import Manufacturer Domestic Manufacturer Industrial Customers 20% 20% 60% 12% 36% (1) Commercial Residential Other 52% End user/homeowner (1) Includes pro forma results for Rugby for the LTM period ended March 31,

7 Revenue (C$MM) Revenue (C$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 $800 $600 $600 $400 $400 $200 $200 $0 Revenue (C$MM) Gross Margin 18.2% 18.2% $ % 17.7% 17.4% 17.6% 17.7% 17.3% 17.4% 17.6% 17.4% 17.3% 17.4% $550 $572 $456 $456 $371 $371 $306 $198 $306 $230 $230 $ % 20% 18% 18.0% 16% 16.0% 14% 14.0% 12% 12.0% 10% $ Q3/YTD 10.0% 7

8 Adjusted EBITDA (C$MM) EBITDA (C$MM) EBITDA Margin Adjusted EBITDA Margin Track Record of Strong Operating Leverage $40.0 Volume and price increases can positively impact profitability without the need for significant or immediate additions to costs $30.0 $40 $30 EBITDA ($MM) EBITDA Margin 5.8% 5.8% $ % 5.6% $ % $ % $ % 8% 6% 7.0% $20.0 $20 4.0% 4.0% $21.4 $21.4 $25.5 4% 5.0% $10.0 $10 $ % 2.4% $4.7 $ % 2.6% $6.0 $12.3 $12.3 2% 3.0% $0.0 $ Q3/YTD 0% 1.0% 8

9 Growth Plan: Capitalizing on Major Opportunities Organic 1) 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 4 acquisitions in 5 years with ~$500 MM (1) in sales added (1) Includes pro forma results for Rugby for the LTM period ended March 31,

10 Positioned for Further Growth Acquisition increases Hardwoods exposure to the improving U.S. housing market Housing Starts (000s) (1) 1,569 1,603 1,705 1,848 1,956 2,068 1,801 1, Long-Term Avg: ~1, , ,112 1,175 1, E 2017E Spending on Non-Residential Construction (US$B) (2) $342 $347 $319 $309 $324 $346 $390 $463 $500 $437 $348 $337 $355 $360 $389 $450 $483 $ E 2017E (1) Per National Association of Home Builders, as at April 29, 2016 (2) Per FMI Consulting; FMI's Construction Outlook First Quarter Report (2016) 10

11 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 ~20% (1) of our business today Hardwoods is a market leader in its operating regions (1) Includes pro forma results for Rugby for the LTM period ended March 31,

12 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 ~35% (1) of our business today with the ability to further penetrate a large market Total market size in U.S. of US$122.5 billion (2) (1) Includes pro forma results for Rugby for the LTM period ended March 31, 2016 (2) Per American Institute of Architects Consensus Forecast Spending Put-In-Place for Commercial Total 2015; IHS Economics 12

13 Acquisition Track Record 37 U.S. locations acquired in the last 5 years, $500MM (1) in revenue added September 2011 Price: $13.5 MM May 2013 Price: $2.8 MM April 2014 Price: $15.0 MM June 2016 Price: US$107.0 MM Increased commercial exposure, leverage imports New geographic markets Provided U.S. east coast presence Expanded import lumber offering Increased commercial exposure Diverse/International customers Increased eastern US presence Increased presence in the commercial market Focus on Distribution Cultural and Strategic Fit Strong Management Teams Market Expansion / Growth Leverages Import Program Strengthens Commercial Program Diversifies Product Offering Increases Scale (1) Includes pro forma results for Rugby for the LTM period ended March 31,

14 Rugby Acquisition: Key Benefits Establishes a Leading North American Distributor Enhances Financial Scale Immediately Accretive Results in expanded national footprint with the addition of 30 facilities Earned US$282 MM in LTM Adjusted Sales (1)(2) and US$12.5 MM in LTM Adjusted EBITDA (1)(3) management is targeting EBITDA (1) for Rugby of between US$13 MM and US$14 MM for 2016 Expected to be immediately accretive to EPS and CFPS pre-synergies Increase to Dividend Improves Balance Sheet Efficiency Increased Eastern US Presence Diversifies Platform Aligned Management Positioned for Further Growth A ~14% increase to the annual dividend while reducing the Q Payout Ratio (1)(4) from 20.3% to a Pro Forma Payout Ratio (1)(4) of 17.8% Approximately 60% funded with debt; combined debt to LTM Pro Forma Adjusted EBITDA (1) of 2.3x ~40% of Rugby s LTM sales and 15 of Rugby s locations are in the US Northeast and Southeast markets Increases presence in the commercial end market and adds approximately 22,000 customers, diversifying Hardwoods customer and product concentration Management team has an established track record; President and COO own Hardwoods shares and participate in earn-out Rugby has completed and integrated 17 acquisitions since 2009 and has a robust acquisition pipeline (1) Adjusted Sales, Adjusted EBITDA, EBITDA, Pro Forma Payout Ratio and Payout Ratio are Non-IFRS and Non-U.S. GAAP measures, see Non-IFRS and Non-U.S. GAAP Measures (2) See Appendix A Adjusted Sales Buildup (3) See Appendix B Adjusted EBITDA Buildup (4) See Appendix C Payout Ratio Buildup 14

15 Expanded National Footprint More than doubles the existing US branch location footprint, including significant East coast presence, with minimal geographic overlap with Hardwoods existing locations Northeastern and Southern markets represent ~60% (1) of total housing starts Triples number of locations in these regions Hardwoods Facility Rugby Facility (1) Per National Association of Home Builders, as at April 29,

16 Products Offered Rugby offers a full line of non-structural, architectural-grade building products Cabinets & Casework Decorative Surfacing Doors & Millwork Key Products Key Products Key Products Doors Plywood Laminate Sinks / Faucets Interior Doors Door Jambs Components Lumber Countertops Solid Surfacing Exterior Doors Hardware Hardware Panels Panels Adhesives Mouldings Lights LTM Contribution (1) US$168 million of Adjusted Sales (2) ~60% of total sales ~24% gross margin LTM Contribution (1) US$60 million of Adjusted Sales (2) ~21% of total sales ~26% gross margin LTM Contribution (1) US$53 million of Adjusted Sales (2) ~19% of total sales ~19% gross margin (1) Rugby Management estimate for the LTM period ended March 31, 2016 (2) Adjusted Sales is a Non-IFRS and Non-U.S. GAAP measure, see Non-IFRS and Non-U.S. GAAP Measures ; See Appendix A Adjusted Sales Buildup Note: Differences in Adjusted Sales to Appendix A are due to rounding 16

17 EBITDA (C$) Sales (C$) Pro Forma Financials (C$) Acquisition significantly enhances Hardwoods financial profile LTM Pro Forma Sales (1)(2)(4) Financial Leverage as at Q $1,500 $1,000 $964 Debt ~C$98 MM $500 $594 $370 TTM EBITDA ~C$43 MM $0 Debt to TTM EBITDA 2.3x LTM Pro Forma Adjusted EBITDA (1)(2)(5) $75 $50 $37 $53 $25 $16 $0 (1) Pro Forma Sales and Pro Forma Adjusted EBITDA are Non-IFRS and Non-U.S. GAAP measures, see Non-IFRS and Non-U.S. GAAP Measures (2) Utilizes an average USD / CAD exchange rate of ~$1.31 (3) As per Q filed financial statements (4) See Appendix A Adjusted Sales Buildup (5) See Appendix B Adjusted EBITDA Buildup 17

18 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 18

19 Appendix A Adjusted Sales Buildup Sales Reconciliation (Year Ended December 31) (Quarter Ended March 31) (Year Ended March 31) (US$MM, unless otherwise specified) 2015 Q1/15 Q1/16 LTM Rugby Sales $271.6 $65.5 $68.2 $274.3 Net Facility Increase (Acquisitions) $6.8 $1.0 $2.3 $8.0 Rugby Adjusted Sales $278.3 $66.5 $70.4 $282.3 FX Rate (C$ / US$) $ $ $ $ Rugby Adjusted Sales (C$) $355.9 $82.5 $96.7 $370.2 Hardwoods Sales (C$) $571.6 $135.1 $157.4 $593.9 Pro Forma Sales (C$) $927.5 $217.6 $254.1 $964.1 Note: Differences due to rounding 19

20 Appendix B Adjusted EBITDA Buildup EBITDA Reconciliation (Year Ended December 31) (Quarter Ended March 31) (Year Ended March 31) (US$MM, unless specified otherwise) 2015 Q1/15 Q1/16 LTM Rugby Net Earnings $3.1 $0.6 $1.6 $4.2 Provision for Income Taxes $0.9 $0.2 $0.0 $0.7 Interest Expense $1.3 $0.4 $0.3 $1.2 Depreciation and Amortization $2.9 $0.7 $0.7 $2.9 Amortization of Loan Origination Costs $0.1 $0.0 $0.0 $0.1 Miscellaneous and Other Income ($0.2) $0.0 ($0.1) ($0.3) Rugby EBITDA $8.1 $1.9 $2.6 $8.8 Normalizations Net Facility Increase (Acquisitions) $1.6 $0.4 $0.3 $1.6 Owner Costs and One-Time Expenses $1.1 $0.3 $0.3 $1.1 Ongoing Initiatives $1.4 $0.4 $0.0 $1.0 Rugby Adjusted EBITDA $12.2 $3.0 $3.3 $12.5 FX Rate (C$ / US$) $ $ $ $ Rugby Adjusted EBITDA (C$) $15.6 $3.7 $4.5 $16.4 Hardwoods EBITDA (C$) $34.8 $7.6 $9.4 $36.6 Pro Forma Adjusted EBITDA (C$) $50.4 $11.3 $13.9 $53.0 Note: Differences due to rounding 20

21 Appendix C Payout Ratio Buildup Payout Ratio Buildup (Quarter Ended March 31) (C$000s, unless specified otherwise) Hardwoods (C$) Rugby (US$) Pro Forma (C$) (1) Cash Flow from / (used in) Operations ($5,696) $1,157 ($4,538) Working Capital Changes ($10,677) ($1,231) ($12,367) Cash Flow from Operations Before Working Capital $4,981 $2,387 $7,829 Capital Expenditures $442 $49 $509 Distributable Cash $4,539 $2,338 $7,319 Shares Outstanding (000s) 16,779-20,791 Distributable Cash per Share $ $0.35 Annualized Dividend per Share $ $0.25 Payout Ratio 20.3% % (1) All dollar amounts converted from US dollars to Canadian dollars using an average exchange rate of US$1.00 = C$1.3732; Assumes a $50 million equity financing, required debt to fund the Transaction (leading to a ~(C$431) cash flow impact) and US$7 million share consideration as described in the press release. 21