INVESTOR PRESENTATION SECOND QUARTER 2018 TSX: HDI www.hdidist.com - - PowerPoint PPT Presentation

INVESTOR PRESENTATION

SECOND QUARTER 2018 TSX: HDI

www.hdidist.com

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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

• f 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 15, 2018 which is available under the Company's profile at SEDAR (www.sedar.com). 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.

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HDI is the #1 Distributor of Architectural Building Products in N.A.

Import: Guararapes MDF: Commercial fixtures Domestic Supplier: Arauco TFL: Residential Use 4

(1) Measured as at June 30, 2018

Outstanding track record of growth

• Five year average annual sales

growth 28%, EBITDA growth of 37%, and EPS growth of 42%

Proven acquisitions strategy

• 42 US locations acquired in past

seven years

• $550 million of annual revenue

added

Highly fragmented industry

• HDI market share estimated at 10%

Attractive shareholder returns

• Five year total shareholder returns

+138%(1)

• Dividend has been increased every

year for the past seven years

Disciplined business model

• +50 year old business
• Experienced management team
• Low debt leverage
• No significant supplier/customer

concentration

Critical Role in the Value Chain

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Manufacturers

Approximately 1,000 Suppliers Worldwide

Architects & Designers Residential Customers 50% Commercial Customers 30% Diversified 20%

61 Distribution Locations North American Sales Team 330 Strong Customer Base + 35,000

Comprehensive North American Network

 Proven market leader for 50+ years in a fragmented industry  Diversified customer and supplier base, no significant concentration  Experienced management team, on average 15+ years with the Company

15% 85%

Revenue by Country

Canada U.S.

Estimated N.A market share = 10%

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• Includes

high-pressure laminates (“HPL”), thermally fused laminates (“TFL”), and engineered panels such as medium density fiberboard (“MDF”) and particle board.

• Extensive

selection

• f

plywood and veneer products, available on virtually any core. Includes private labelled products.

• All species, cuts, and grades of hardwood lumber,

includes specialty items from exotic markets.

• Includes

doors, millwork, mouldings, solid surfaces, cabinet hardware, casework components, cabinets, countertops, adhesives, and coatings.

Decorative Surfaces and Composites Hardwood Plywood

Our Products

Hardwood Lumber

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Other Architectural Building Products ~20% of sales ~33% of sales ~23% of sales ~24% of sales

Latest Quarter – Summary Statistics

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HDI ($CAD) (millions) Q2 2018 Q2 2017 Chng Chng %

Sales $298.2 $277.6 +$20.6 +7.4%

US Organic ($USD) +$15.5 +8.6% US Acquisitions ($USD) +$6.9 +3.8% CAD Organic ($CAD) +$1.5 +4.1%

Gross Profit $53.0 $51.5 $1.5 +2.8%

Gross Profit % 17.8% 18.6%

Operating Expenses $38.8 $36.0 $2.8 +7.7%

Operating Expenses % 13.0% 13.0%

Adjusted EBITDA $16.8 $17.2 ($0.4) (2.7%) Adjusted diluted EPS $0.49 $0.45 $0.04 +8.9%

Track Record of Growing Sales with Stable Margins

• Gross margin trades within a stable band

Price changes passed through to customers

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Sales Growth % 21% 23% 25% 38% 31% 4% Sales Growth %

excluding acquisitions and FX translation impact

18% 10% 9% 5% 5% 5%

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(1) “Adjusted EBITDA” and “Adjusted EBITDA Margin” are non-IFRS and non-GAAP measures. See the Company’s Annual Report filed on SEDAR.com for a reconciliation of these measures to IFRS and GAAP measures.

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Track Record of EBITDA Growth

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(1) “Adjusted Profit” and “Adjusted EPS” are non-IFRS and non-GAAP measures. See the Company’s Annual Report filed on SEDAR.com for a reconciliation of these measures to IFRS and GAAP measures.

Accretive Growth For Shareholders

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% Increase 108% 6% 43% 11% 9% 6%

1) U.S. construction market improving, capture share 2) Additional market share in strategic product categories 3) Optimize the platform 4) Acquisitions, capitalize on significant opportunity

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Growth Plan: Capitalizing on Opportunities

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Per FMI Consulting; Construction Outlook Q2 2018 Report

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• Population growth / demographics suggest pent up demand
• Supply of existing homes at an all time low
• Consistent demand for new projects
• Strong N.A economy

Per National Association of Home Builders, August 2018

Residential Construction

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• 1. US Construction Market Improving, Capture Share

Commercial Construction

Prolonged period of below-average construction, potential for catch up growth

Four-Quarter Moving Rate of Change

Source: Harvard Joint Centre for Housing

Remodeling Activity

• Homeowner improvements expected to increase

Wood Products

• Core competency of HDI
• Core products: Hardwood lumber,

Hardwood Plywood

• Range of market share by brand, by location
• Optimize market share opportunity

 Product knowledge experts  Long-term industry relationships  Global sourcing advantage  Breadth of product portfolio

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• 2. Additional Market Share, Strategic Product Categories

Decorative Surfaces and Composites

• High-growth product segment
• Design trends and market preferences

changing at a rapid pace

• Under-represented from a

market share perspective

• Opportunity to take advantage

 Size, scale - investments to identify next trend  N.A wide network

• attractive to

manufacturers  Premier access to product - can be

• n an exclusive

basis  Global sourcing solutions - development of proprietary products

7% 93%

Decorative Surfaces

• Est. Market Share

15% 85%

Wood Products

• Est. Market Share

• HDI supports brands in the market place
• Competitors generally will not have same support structure in place
• HDI opportunity (represented by the grey color in circles below) to optimize the platform
• Potential to build a sustainable competitive advantage
• Supply Chain Optimization
• Collaborative Marketing
• Professional Sales and Product Training
• Specification sales channel
• Strategic HR
• Technology Solutions
• Financial Strength

EBITDA Margin

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• 3. Optimize the Platform

Regional Competitor

5-7% 3-5%

42 U.S. locations acquired in the

last 5 years, approximately

$550MM in revenue added

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• 4. Acquisitions, Capitalize on Significant Opportunity

Successfully completed

7 acquisitions in the last 7 years

• Significant market share available, highly fragmented industry
• Robust acquisitions pipeline, dedicated internal resources
• Financial capacity to execute

Acquisition Date Target Price Paid

(US $)

Annual Revenues

at acquisition (US $)

Notes 2018 $3.7 M $13 M

• Regional consolidation
• pportunity
• Added key salespeople

2017 $6.0 M $25 M

• Build on eastern US presence
• Foothold in eastern US

lumber market

2017 $0.6 M $5 M

• Took out a competitor
• Added key sales people

2016 $107.0 M $282 M

• Increased eastern US presence
• Increased presence in the

commercial market

2014 $15.0 M $30 M

• Increased commercial exposure
• Diverse/International customers

2013 $2.8 M $4 M

• Expanded import lumber capabilities

2011 $13.5 M $40 M

• Increased commercial exposure,

leverage imports

• New geographic markets

EAGLE PLYWOOD

Macro Outlook

 U.S. Construction Market Growth  Residential, non-residential, and renovation mid-to-high single digit

• rganic growth

 Favorable M&A Environment  Fragmented industry  Family owned businesses with limited succession plan  U.S. Government Policy  Significantly reduced corporate tax rate

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Headwinds

Invest in organic growth initiatives Return cash to shareholders

Q2 2018 TTM FY 2017

Cash $1.6 $0.3 Bank indebtedness $128.6 $91.1 Net Debt $127.0 $90.8 Adjusted EBITDA(1) $55.0 $56.3 Net Debt to Adjusted EBITDA(1) 2.3 1.6 Unused debt facility $60.6 $66.7

(1) “Adjusted EBITDA” and “Net Debt to Adjusted EBITDA” is a Non-IFRS and Non GAAP measure. See the Company’s Annual Report filed on SEDAR.com for a reconciliation of this measures to IFRS and GAAP measures

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Debt and Liquidity Profile

Pursue value-added acquisitions Fund working capital needs

Priorities

 Attractive annual returns for shareholders from share price appreciation and dividends

(1) Payout ratio is defined as dividends per share divided by earnings per share.(measured on a TTM basis at June 30, 2018) (2) Dividend yield defined as dividends per share divided by the stock price (measured on a TTM basis at June 30, 2018)

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Shareholder Returns

(1)

HDI CAGR +33%

S&P / TSX Composite Index CAGR +8%

Divided Yield(2) + 1.8%

 Seven straight years with annual dividend increases

Outstanding track record of growth and shareholder returns Positive multi-year outlook in key end markets Effective strategies to capture market share Ability to optimize the platform and drive margins Fragmented industry, significant acquisition opportunity exists Strong balance sheet to enable growth and execute on initiatives

     

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Why HDI?