Conifex Timber Inc. Q1 2020 FORDWARD LOOKING INFORMATION 2 - - PowerPoint PPT Presentation

Conifex Timber Inc. Q1 2020

Certain statements in this presentation may constitute “forward-looking statements”. Forward-looking statements are statements that address or discuss activities, events or developments that Conifex expects or anticipates may occur in the future. When used in this presentation, words such as “estimates”, “expects”, “plans”, “anticipates”, “projects”, “will”, “believes”, “intends” “should”, “could”, “may” and other similar terminology are intended to identify such forward-looking statements. Forward-looking statements reflect the current expectations and beliefs of Conifex’s management. Because forward-looking statements involve known and unknown risks, uncertainties and other factors, actual results, performance or achievements of Conifex or the industry may be materially different from those implied by such forward-looking statements. Examples of such forward-looking information that may be contained in this presentation include statements regarding: growth and future prospects of our business, including the impact of COVID-19 thereon; our planned operating format and expected operating rates; our perceptions of the industry and markets in which we operate and anticipated trends in such markets and in the countries in which we do business; planned capital expenditures and benefits that may accrue to Conifex as a result of capital expenditure programs; U.S. benchmark lumber prices; Conifex’s expectations regarding the operation of the Mackenzie power plant; and our expectations for U.S. dollar benchmark prices. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking statements may include, but are not limited to, our future debt levels; that we will complete our projects in the expected timeframes and as budgeted; that we will effectively market our products; that capital expenditure levels will be consistent with those estimated by our management that the US housing market will improve; that there will be no unforeseen disruptions affecting the operation of our power generation plant and that we will be able to continue to deliver power therefrom; our ability to obtain financing on acceptable terms, or at all; that interest and foreign exchange rates will not vary materially from current levels; the general health of the capital markets and the lumber industry; and the general stability of the economic environments within the countries in which we

• perate or do business. Forward-looking statements involve significant uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be

an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward- looking statements, including, without limitation: those relating to potential disruptions to production and delivery, including as a result of equipment failures, labour issues, the complex integration of processes and equipment and other factors; labour relations; failure to meet regulatory requirements; changes in the market; potential downturns in economic conditions; fluctuations in the price and supply of required materials, including log costs; fluctuations in the market price for products sold; foreign exchange fluctuations; trade restrictions or import duties imposed by foreign governments; availability of financing (as necessary); shipping or logging disruptions; and other risk factors described in Conifex’s 2019 annual information form and management's discussion and analysis for the quarter ended March 31, 2020, each of which is available on SEDAR at www.sedar.com. These risks, as well as others, could cause actual results and events to vary significantly. Accordingly, readers should exercise caution in relying upon forward- looking statements and Conifex undertakes no obligation to publicly revise them to reflect subsequent events or circumstances, except as required by law. Further information is available at www.conifex.com and www.sedar.com Reference is made to "EBITDA" and "adjusted EBITDA". EBITDA represents earnings before finance costs, taxes, depreciation and amortization. Adjusted EBITDA is calculated to exclude unusual items that are not ongoing and do not reflect our ongoing operations. Adjusted EBITDA excludes foreign exchange translation gains or losses on long-term debt, restructuring costs, proceeds from insurance claims and gains or losses on sale of assets. We disclose EBITDA and adjusted EBITDA as it is a measure used by analysts and by

• ur management to evaluate our performance.

As EBITDA and adjusted EBITDA are not generally accepted earnings measures under IFRS, and neither has a standardized meaning prescribed by IFRS, they may not be comparable to EBITDA and adjusted EBITDA calculated by other companies. In addition, EBITDA and adjusted EBITDA are not substitutes for net earnings or cash flow, as determined in accordance with IFRS, and therefore readers should consider those measures in evaluating our performance.

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Cautionary Statement Regarding Forward Looking Information FORDWARD LOOKING INFORMATION

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• A public forestry company operating a sawmill complex and

biomass power plant in Mackenzie, BC.

• In February, we successfully divested our US sawmill business

for proceeds of US$173 million and repaid debt associated with

• ur lumber business (the “Lumber Credit Facility”).
• As at March 31, 2020, we reported
• Unrestricted cash balances of $12 million;
• A net debt to capitalization ratio of approximately 29%,

including limited-recourse debt and leases;

• Approximately $20 million of unpledged inventories and

receivables available to support a debt facility.

OPERATIONS AND FINANCE IN BRIEF

Sawmill Complex Power Plant

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Q1 2020 – Financial Results from Continuing Operations

(1) Reflects results of continuing operations. (2) MMfbm represents million board feet. (3) Bank of Canada, www.bankofcanada.ca. (4) Random Lengths Publications Inc. (5) Average SPF 2x4 #2 & Btr lumber prices (US$) divided by average exchange rate. (6) Conifex's adjusted EBITDA calculation represents earnings before finance costs, taxes, depreciation and amortization, foreign exchange translation gains or losses on long-term debt, restructuring costs, proceeds from insurance claims and gains or losses on sale of assets.

Selected Operating and Financial Information(1)

In millions of dollars, unless otherwise noted

Q1 2020 Q4 2019 Q1 2019 Production – WSPF lumber (MMfbm)(2) 38.2 37.8 73.5 Shipments – WSPF lumber (MMfbm) 37.6 38.0 78.7 Shipments – wholesale lumber (MMfbm)

• 16.6

Electricity production (GWh) 54.8 55.1 55.6 Average exchange rate – US$/$(3) 0.744 0.758 0.752 Average WSPF 2x4 #2 & Btr lumber price (US$)(4) 399 380 372 Average WSPF 2x4 #2 & Btr lumber price ($)(5) 536 502 495 Sales Lumber - Conifex Produced 20.9 18.0 42.6 Lumber - Wholesale

• 11.8

By-Products 1.7 1.7 4.2 Bioenergy 8.0 8.0 8.2 Total Sales 30.6 27.7 66.8 Operating Income (Loss) (6.8) (11.5) (8.5) Adjusted EBITDA (Loss)(6) 0.5 (3.9) (4.0)

Continuing operations for the comparative periods primarily comprise operating results from our Mackenzie sawmill and power plant, our previously owned sawmill in Fort St. James, British Columbia, which was largely curtailed in May 2019 and sold in November 2019, and corporate costs and other unallocated items.

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Q1 2020 – Quarterly Adjusted EBITDA and Lumber Price

We expect our integrated forestry, lumber and power operations will generate stable EBITDA when lumber market demand and pricing return to more typical levels.

17.4 10.1

• 5.0
• 4.0
• 9.1
• 7.0
• 3.9

0.5 598 482 327 372 333 356 380 399

• 100

100 200 300 400 500 600 700

• 10.0
• 5.0
• 5.0

10.0 15.0 20.0 25.0

Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20

Adjusted EBITDA from continuing operations Average WSPF 2x4 #2 & Btr lumber price (US$)

(1) Conifex's adjusted EBITDA calculation represents earnings before finance costs, taxes, depreciation and amortization, foreign exchange translation gains or losses on long-term debt, restructuring costs, proceeds from insurance claims and gains or losses on sale of assets.

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Q1 2020 – Financial Position and Liquidity

(1) Calculated as the aggregate of trade and other receivables, prepaid expenses and deposits and inventories less the aggregate of trade payables, accrued liabilities and other payables, the current portion of reforestation obligations and employee liabilities

• Our financial position has improved from

Q4 2019 and Q1 2019 due to the completion of the sale of the US Sawmill business and repayment of the Lumber Credit Facility.

• We may pursue additional financing to

ensure optimized Lumber operations under normalized market conditions. The assets

• f our Lumber business are available to

secure an appropriate debt facility if required.

• Our Debt maturity profile comprises leases

and the term loan supporting our electricity generation operations (the “Power Term Loan”) which extends to 2033.

Selected Financial Position information

In millions of dollars, unless otherwise noted

Q1 2020 Q4 2019 Q1 2019

Cash 12.1 0.9 6.5 Cash - Restricted 6.5 6.7 11.0 Operating Working Capital(1) 8.8 2.8 65.4 Liquidity 12.1 5.2 11.1 Net Current Assets 22.9 31.5 12.9 Total Debt 66.3 257.2 327.3

Net debt to capitalization

29% 67% 49%

Net debt to capitalization excluding Power Term Loan

2% 61% 43% 4.7 4.6 4.5 4.3 4.3 4.2 4.4 4.7 5.0 5.3 5.7 6.0 6.4 6.4 66

• 10.0

20.0 30.0 40.0 50.0 60.0 70.0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Total

Debt Maturity Profile

Power Term Loan Leases

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POWER GENERATION

• Capacity is in excess of 230 gigawatt hours (“GWh”) of

electricity per year, of which 200 GWh is sold under a fixed price contract to BC Hydro and 30 GWh is for internal consumption.

• Electricity purchase agreement (EPA) and a related load

displacement agreement (LDA) have been executed with BC Hydro expiring in April 2035.

• Funded with an approximate $63 million term loan in a

subsidiary, is limited-recourse to our other operations, bears a fixed interest rate of 6.1%, and has a 15-year term.

• Supported by feedstock delivered from the Mackenzie

sawmill complex.

• Represents a majority of our investment in fixed assets and

generates approximately $14 million in annual EBITDA.

Significant stability and cash flow diversification provided by Bioenergy operations

LUMBER MANUFACTURING

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• Operate a two-line sawmill complex equipped to handle

large- and small-diameter logs with approximately 240 million board feet of lumber capacity on a two-shift annual basis.

• Our main products are spruce, pine, fir (SPF) dimension

lumber ranging in size from 2x4 to 2x10 inches from 6 to 16 feet in length.

• A full range of grade outturns are achieved and marketed to

the most suitable customer base. Our main markets, in descending order of volumes are, the US, China, Canada and Japan.

• The vast majority of lumber is shipped by rail from

Mackenzie; truck deliveries account for the remainder.

We have a broad cross-section of lumber customers, with no single customer accounting for 10% of sales.

• Our fiber sourcing includes access to a forest licence in the Mackenzie

Timber Supply Area (TSA) with an allowable annual cut (AAC) of 632,500 cubic metres, and a 50% interest in a forest licence with an AAC of 300,000 cubic metres.

• Since fibre is the single largest input cost and typically accounts for over 50%
• f the cash cost of manufacturing lumber, our high degree of fibre self-

sufficiency reduces our exposure to uncertainties in the market for purchased fibre.

• Our lumber manufacturing co-products include bark and planer shavings

consumed in our power plant; wood chips sold to a nearby pulp mill, and trim waste sold to a nearby secondary lumber manufacturer.

• As at December 31, 2019, we had 288 employees in Canada, comprised of

251 employees in our lumber, corporate and marketing operations and 37 employees at our bioenergy operation.

• Five-year collective agreements are in place with our unionized employees at
• ur sawmill complex and power plant, with expiry on June 30, 2023.

FIBRE, RESIDUALS AND PEOPLE

One of the highest degrees of timber self-sufficiency in BC.

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• The federal government has prioritized climate action and First

Nations reconciliation. The province of BC shares these objectives, and adds a third objective for the forest sector to make better use of the available fibre basket.

• Since our inception as a public company, we have abided by our

publicly disclosed long-term strategy “to build Canada's premier, next generation forestry company that is a world leader in responsibly maximizing fibre value.”

• Our near-term business strategy seeks to capitalize on our existing

forestry assets, located in an abundant fibre supply region, to build margin-focused lumber and bioenergy businesses to compete successfully with the best the forest sector has to offer.

STRATEGY ALIGNED WITH GOVERNMENT PRIORITIES

Our long-term strategy reinforces and supports governments’ greenhouse gas emission targets and economic plans.

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All of us at Conifex have responded to the heightened importance of: Environmental Sustainability - How well we perform in terms of sustainability and as a steward of nature. Social Responsibility - How well we manage relationships with employees, contractors, customers, and the communities in which we

• perate.

Corporate Governance - How well we meet expectations for our executive team’s structure and compensation, our controls over risk, and shareholder relations. ENVIRONMENTAL, SOCIAL & GOVERNANCE (ESG) CONSIDERATIONS 11

 We play a leading, mission critical role salvaging damaged forest stands and accelerating the restoration and reforestation of Crown lands which have suffered from two decades of mountain pine beetle infestation.  Our lumber manufacturing operations add to the total carbon stored in the long-lasting wood products we manufacture and deliver to customers.  We promote environmental awareness throughout all of

• ur operations and engage environmental experts to

facilitate best practices.  The sustainability of our products is independently certified.

ENVIRONMENTAL STEWARDSHIP

Our emphasis on environmental excellence and sustainable forest management help governments meet carbon sequestration targets.

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• Conifex Power uses residuals

and waste products from our forest products business to generate 230 GWh of green energy per year in British Columbia

• Our 36 MW biomass power

plant fuels 20,000 BC homes each year, equivalent to removingmore than 13,500 cars from the road

ENVIRONMENTAL STEWARDSHIP

We are especially proud of our investment in green energy, utilizing what was formally referred to as sawmill and harvesting “waste”.

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• Conifex subscribes to an entrepreneurial spirit, and

commitment to attracting, developing, and retaining talent within the organization.

• Our core values – People, Pride, Integrity, Responsibility,

Innovation, and Teamwork – inspire our actions and confirm that our people are the key to success. These values guide the safe behaviors of employees and contractors working within our operations.

• We focus on accountability and consistency acrossthe entire

company.

• We are committed to a safe and healthy workplace for all

SOCIAL RESPONSIBILITY

Our Vision is to build a Premier Next-Generation Forest Company that is a world leader in responsibly optimizing fibre value.

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• Providing a safe work environment for our employees has

always been a top priority.

• We have implemented a pandemic contingency plan which

sets a series of measures put in place to help ensure continuity of business in a safe manner for our employees.

• We will continue to rely on guidance and recommendations

from local health authorities and the Centers for Disease Control and Prevention to update our policies.

• We are an active member of the BC Forest Safety Council

and the Manufacturing Advisory Group that works with forestry sector employers, workers, unions and contractors to continuously improve our safety record

SOCIAL RESPONSIBILITY

Conifex has been certified by the BC Forest Safety Council as a “Safe Company” and has received rebates of premiums paid to the Workers Compensation Board.

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Mackenzie is the one of the most forest dependent communities in BC. Our contribution to the community over the past five years includes:

• Over $125 million in salaries, wages and benefits to our

Mackenzie employees

• Over $225 million to logging and other contractors to support
• ur Mackenzie operations
• Approximately $25 million in fees for stumpage, permits and

licenses, and

• Approximately $10 million in property taxes.

SOCIAL RESPONSIBILITY

Our commitment to support people extends beyond our employees. We are deeply connected to Mackenzie and doing our part to help it thrive.

McLeod Lake Indian Band – Annual General Assembly Mackenzie, BC

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CORPORATE GOVERNANCE Conifex Leadership Team

Ken Shields, Chairman & CEO Jordan Neeser, CFO Kristen Gammel, VP/GM Corporate Services Andrew McLellan, VP/GM Northern Operations

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We are committed to good corporate governance, which promotes the long-term interests of our stakeholders, strengthens board and management accountability, and builds public trust.

 7 of our 8 Board members are independent of management.  Our Safety and Environmental Committee is active and has a majority of independent directors.  Our Audit and our Human Resources and Corporate Government Committees are comprised exclusively of independent directors.  We have responsible executive compensation practices that are well aligned with environmental and safety performance.