company overview august 2014 · company’s 2013 annual report, which is incorporated by reference....
TRANSCRIPT
COMPANY OVERVIEW
August 2014
Information contained herein constitutes forward-looking statements. Forward-looking statements, which include all statements that are not historical facts, are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in or suggested by the forward-looking statements. See additional risks described in the Company’s MD&A under “Risks and Uncertainties” in the Company’s 2013 Annual Report, which is incorporated by reference. All forward-looking statements made are qualified by these cautionary statements.
Participants should not place undue reliance on the forward-looking statements, which reflect Management’s plans, estimates, projections and views only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.
FORWARD-LOOKING STATEMENTS
2
We conduct ourselves with honesty and integrity.
We respect, value and engage our employees.
We embrace world-leading safety and environmental standards.
We are strategic, fact-based and proactive.
We strive for excellence in everything we do.
We are responsible for our own success.
THE INTERFOR WAY
3
PURE PLAY LUMBER - FOUR REGIONS
US Pacific Northwest – 470 MMbf (20%) • 3 mills• Hem-Fir, Douglas-Fir, Speciality Pines• Studs, Dimension, Speciality
BC Coast - 320 MMbf (13%) • 2 mills• Cedar, Hem-Fir, Douglas-Fir• Specialty
BC Interior – 720 MMbf (30%) • 3 mills• Douglas Fir, Hem-Fir, SPF, Cedar• Dimension
US Southeast – 880 MMbf (37%) • 6 mills• Southern Yellow Pine • Dimension
• 2.4 Bft lumber capacity• Head office in Vancouver, British Columbia• Trades on TSX-IFP• Market capitalization $1 billion• Included in S&P/TSX composite index 4
INTERFOR’S BALANCED PROFILE
BC Coast19%
BCSouthern Interior42%
US Pacific Northwest
39%
BC Coast15%
US Southeast23%
BCSouthern Interior33%
US Pacific Northwest
29%
Production Volume 2Q 2014 – 582 MMbf
Operating Rate – 94% (excluding impact of Beaver mill)
5
US Southeast
34%
US Pacific Northwest
24%
BC Southern
Interior33%
BC Coast9%
INTERFOR TRANSFORMATION
BC Coast19%
BCSouthern Interior42%
US Pacific Northwest
39%
BC Coast15%
US Southeast23%
BCSouthern Interior33%
US Pacific Northwest
29%
2012 2014
• Top 10 N.A. lumber producer • Top 5 N.A. lumber producer
• 9 sawmills in 3 regions • 14 sawmills in 4 regions
• No presence in US South • Largest lumber producer in Georgia
• Enterprise value $400 million • Enterprise value $1.3 billion
6
200
250
300
350
400
450
500
550
600
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Quarterly Lumber Production 2010 - 2014
MMbf
2010 2011 2012
PRODUCTION HAS MORE THAN DOUBLED
7
2013 2014
0.0
1.0
2.0
3.0
4.0
5.0
4th LARGEST LUMBER PRODUCER IN N.A.
Source: Wood Markets monthly – March 2014Notes: (1) Interfor’s 2Q 2014 production annualized(2) GP includes Temple Inland.
2013Production Bbf
8
NA Lumber Production by Company
Growth by Acquisition
• Integration from log to customers
• Fact-based business optimization
• Preferred customer strategy
• Active reinvestment
• High performance culture
Operational Excellence
• Lumber focus
• Portfolio strategy
• Conservative capital structure
• Accretion
INTERFOR STRATEGIC PLAN
9
• Complementary acquisitions
• Integrate Georgia operations
• Target high return investments
• Address underperforming assets
Year Business Acquired Assets Region
2001 Primex 2 sawmills2 reman facilities
Coast
2004 Crown Pacific 3 sawmills PNW
2005 Floragon 1 sawmill PNW
2008 Pope and Talbot 2 sawmills BC Interior
2008 Portac 1 sawmill PNW
2010 Weyerhaeuser BC interior 275,000 m3 of tenure BC Interior
2013 Rayonier sawmills 3 sawmills US South
2013 Springer Creek 174,000 m3 of tenure BC Interior
2013 Keadle 1 sawmill US South
2014 Tolleson 2 sawmills and reman facility US South
HISTORY OF SUCCESSFUL ACQUISITIONS
10
• Interfor has invested over $300 million in various strategic capital projects over the past several years, with additional projects now underway.
STATE OF THE ART OPERATIONS
Grand Forks, BC Port Angeles, Washington
Gilchrist, Oregon Swainsboro, Georgia Baxley, Georgia
Adams Lake, BC
11
SIGNIFICANT PRESENCE IN US SOUTH
Source: FEA– December 2013
2013CapacityBbf
12
• Interfor is the largest lumber producer in Georgia – market share >30%.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
GA AL AR MS NC TX SC LA FL VA OK
Lumber Industry Capacity by Southern State
GEORGIA OPERATIONS
1313
Sawmill
Regional Office
200
210
220
230
240
250
260
270
280
290
300
0
5
10
15
20
25
30
35
40
45
50
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Growth
Drain
Inventory
Sawtimber Inventory
Growth Drain
1414Source: FEA– July 2014
Growth & Drain, Bbf Int’1 ¼” Inventory, Bbf Int’l ¼”
FAVOURABLE LOG SUPPLY IN US SOUTH
DIVERSE LUMBER MIX
15
Doug Fir / Larch27%
Hem Fir16%
Spruce-Pine-Fir
17%
Southern Yellow Pine24%
Cedar12%
By Species1
Studs14%
Dimension Narrows
37%
Dimension Wides17%
Boards / Industrials
7%
Other(2)25%
By Dimension1
Speciality Grade(3)
36%
#2/Standard Grade50%
#3/Utility, #4/Economy
Grade14%
By Grade1
Notes: (1) Figures are broken down by value for the 1H of 2014(2) Japan squares, cedar siding/decking/fascia and other export dimensions. (3) Machine Stress Rated (“MSR”), J-Grade, Elite, Reserve, etc.
Lodgepole/Ponderosa Pine 4%
PRODUCT DIVERSIFICATION RATIONALE
Commodity Benchmark Prices Monthly – Jan 2010 – Jun 2014
Specialty Benchmark PricesMonthly – Jan 2010 – Jun 2014
16
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Western Red Cedar 2x6 Knotty Hem 4 1/8 sqr
Lodgepole Pine 1x6 #2&btr
$0
$100
$200
$300
$400
$500
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
SPF 2x4 #2&btr
SYP(East) 2x4 #2
Hem-Fir Stud 2x4 9'
C$/Mbf SPF SYP Hem - Fir
June/14 $351 $459 $418
Last Peak2
$593 $570 $636
Source: Random Lengths – June 2014Notes: (1) Average price in US$/Mbf for the month of June 2014, converted to CAD$/Mbf at the
average USD/CAD foreign exchange rate for the month of June. (2) The highest US$/Mbf quarterly average price in the past 10 years, converted to CAD$/Mbf
at the USD/CAD foreign exchange rate at that time.
US$/Mbf US$/Mbf
1H 2014 Average Shipments (By Volume) By End Market
DIVERSE MARKET PROFILE
17
Canada11%
USA69%
Japan4%
China/Tw/ HK
15%
Euro & ME1%
RECENT INITIATIVES/CURRENT FOCUS
18
US Southeast Operations
• Completed Tolleson acquisition and integrating Georgia operations under Interfor ownership
• Internalized log procurement
• Implemented a new management structure
• Established a regional office (Peachtree City) with centralized management, sales, logistics and administration
• Completing Thomaston 2nd shift capital project and identifying other reinvestment opportunities
Pacific Northwest Operations
• Consolidated operations in Washington State
• Closed Beaver sawmill (negative contributor to EBITDA)
• Enhanced the operational opportunities at Port Angeles sawmill
• Completed the installation of a high-speed moulder at Gilchrist sawmill
Canadian Operations
• Refining analysis to prioritize selected high-return capital projects
SUMMARY INCOME STATEMENT
C$ millions Q2 2014 Q1 2014
Sales $390.2 $294.8
Adjusted EBITDA1 $47.3 $39.2
Adjusted EBITDA Margin 12.1% 13.3%
Adjusted EBITDA Margin, excl. Beaver sawmill 12.5% 13.6%
Adjusted EBITDA/Mbf $75 $89
Adjusted EBITDA/Mbf, excl. Beaver sawmill $79 $93
19
Notes: (1) Excludes Other Income and Long-term Incentive Compensation expense
• The 2Q results included a full quarter’s impact from the Tolleson acquisition
STRONG CAPITAL STRUCTURE
C$ millions June 30, 2014
Net debt $237
Book Equity $608
Invested capital $845
Net debt / invested capital 28%
Net debt/Last quarter annualized Adjusted EBITDA 1.25x
20
• Interfor has a strong balance sheet, with significant liquidity
• Average interest rate of approximately 3.4% (65% of debt has locked-in rates)
Additional liquidity of $145 mm
CAPITAL SPENDING PROFILE
21
• Interfor has continually reinvested in its assets throughout the cycle
• Current focus is on high-return projects
Notes: (1) Includes depreciation of plant and equipment and depletion and amortization of logging
roads, timbers and other.(2) Includes additions to property, plant and equipment, additions to logging roads and
additions to timbers and other intangible assets. (3) Does not include additions arising from acquisitions.
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
$100.0
2008 2009 2010 2011 2012 2013 1H 2014
$ mm's
Depreciation, Depletion & Amortization(1) Capital Expenditures(2,3)
STRONG SUPPORT FROM THE INVESTMENT COMMUNITY
Firm RecommendationPrice Target as of Aug 18/14
BNS Sector Outperform $19.25
CIBC Sector Outperformer $22.50
National Bank Outperform $20.00
Raymond James Strong Buy $21.25
RBC Outperform $19.00
Salman Partners Buy $20.00
TD Buy $22.00
22
The firm recommendations and price target estimates shown above are not based on analyses by Interfor, but onanalyses performed by the firms. References to such recommendations and price targets are for information purposesonly and do not imply that Interfor supports or confirms in any way the recommendations or price targets of the firms.
KEY TAKEAWAYS
• Pure play in lumber.
• Track record of growth over the last several years.
• Acquisitions
• Strategic capital investments
• Balanced geographic base and diverse product offering.
• Conservative balance sheet with additional financial capacity for future growth.
• Business upside:
• Internal investments/optimization initiatives
• External growth
• Sectoral recovery
23
APPENDIX
24
US HOUSING STARTS
25
Millions (SAAR)
Source: FEA– July 2014
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Housing Starts
Underlying Demand Pent-Up Demand
76%
77%
78%
79%
80%
81%
82%
83%
84%
85%
86%
87%
20
30
40
50
60
70
80
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
US Canada US Share (R)
NORTH AMERICAN LUMBER CONSUMPTION
26Source: FEA– July 2014
Bbf
NORTH AMERICAN LUMBER EXPORTS TO CHINA
27
Source: Wood Markets International Monthly Report – March 2014
CHINA MARKETS – WOOD FRAME CONSTRUCTION
Suburban villas (east, north, n-east, s-west)
Low cost rural housing (south-west)
Wood truss re-roofing (east and north China)
Resort homes (north)
28
CHINA MARKETS – SECTORS UNDER DEVELOPMENT
Public buildings Apartment infill walls / partition walls
Multi-story residential Mixed-use hybrid
29
CHINA MARKETS – USE OF BC WOOD
House framed with SPF lumber SPF used for furniture frames
Cedar used as siding and for outdoor structures
Cedar used as siding and for outdoor structures
30
IMPACT OF MOUNTAIN PINE BEETLE (MPB)
31
Source: FEA– July 2014
Million m3
MPB – AREA AFFECTED
Central and Northern BC
50 – 75% Pine
Adams Lake in Southern BC
28 – 30% Pine
Castlegar & Grand Forks in Southern BC
17% Pine
Coastal BC Woodlands
No Pine
1.2
0.5
AAC1
MMm3
2.0
3.71. Annual Allowable Cut (million m3)
0.0
Source: Ministry of Forests
• Interfor’s southern BC Interior wood baskets are less exposed to the MPB than BC’s central and northern interior regions; the Coast is not exposed.
Adams Lake
�
�
�
Grand Forks
Castlegar
32
Interfor
US SOUTH SAWTIMBER PRICES
33
Source: FEA– July 2014
US$/Ton(Nominal $’s)
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
REGIONAL PRODUCTION VS PEAK (Bbf)BC lumber Production Eastern Canada Lumber Production
Source: FEA– July 201434
US West lumber Production