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

INVESTOR PRESENTATION

FIRST QUARTER 2018 TSX: HDI

www.hdidist.com

Dark Brown Charleston Oak Crystalite Rain Cloud Antique Oak Icy Mherge Oak Retro Baltimore

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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Hardwoods is the #1 Distributor

• f Architectural Building Products in N.A.

 The largest distributor

• f

architectural building products with +1,100 employees, 63 locations, and annual sales

• f
• ver

$1 billion.  Publicly traded company on the TSX (HDI) with a market capitalization

• f

+$400 million(1).  Positioned to capitalize on U.S. housing and non-residential construction growth, with approximately 85% of revenues derived from the U.S.  Proven acquisition strategy, with 39 US locations acquired in the past 7 years, totaling approximately $535 million of annual revenue added.  Attractive returns with total shareholder return over the last three years of 52% (1).

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

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(1) Measured as at March 31, 2018

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%

62 Distribution Locations North American Sales Team 330 Strong Customer Base 37,000 +

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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20 % 33 % 23 % 24 %

Proportion of Sales

Decorative Surfaces and Composites Hardwood Plywood Hardwood Lumber Other Architectural Building Products

• Includes

high-pressure laminates (“HPL”), thermally fused laminates (“TFL”), and engineered panels excluding hardwood plywood 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

Track Record of Growing Sales with Stable Margins

• Gross margin trades within a stable band

Price changes passed through to customers

(1) 2016 year includes approximately five and a half months of Rugby’s operations

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• Sales increase results in consistent EBITDA growth

(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. (2) 2016 year includes approximately five and a half months of Rugby’s operations

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Track Record of Earnings 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. (2) 2016 year includes approximately five and a half months of Rugby’s operations

• EBITDA growth translates to increases in profit

Accretive Growth For Shareholders

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Organic

1) Improvements in U.S. housing market 2) Market leadership in core wood products 1) Growth in decorative surfaces and composites 2) Support our brands to achieve operational excellence

Acquisitions

• Further geographic diversification
• Capture additional market share

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Shinnoki: Dusk Frake Living Room Tafisa: Smoothwood Nutmeg Residential Kitchen

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Growth Plan: Capitalizing on Opportunities

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Per FMI Consulting; Construction Outlook Fourth Quarter Report

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• Meaningful multi year growth projected
• Population growth suggests there is significant

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, as at March 2018

Residential Construction

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Organic Growth: U.S. Housing Market

Commercial Construction

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

• 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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Organic Growth: Market Leadership in Core Wood Products

7% 93%

• High-growth product segment
• Design trends and market preferences changing at a rapid pace
• Opportunity to take advantage

 Size, scale allows us to make investments to identify the next trend and respond  N.A wide network that is attractive to manufacturers – provides us premier access to product and can be on an exclusive basis  Global sourcing solutions enable us to develop proprietary products  One of the largest distributor employed specification rep teams in the industry

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Organic Growth: Decorative Surfaces and Composites

Decorative Surfaces

• Est. Market Share

• HDI supports brands in the market place
• Competitors generally will not have same support structure in place
• Potential to build a sustainable competitive advantage
• Collaborative Marketing
• Strategic HR
• Financial Strength
• Professional Sales and Product Training
• Supply Chain Optimization
• Technology Solutions

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Organic Growth: Operational Excellence

Regional Competitor

39 U.S. locations acquired

in the last 5 years, approximately $535MM in revenue added

July 2017 Price: $6.0 MM March 2017 Price: $0.6 MM June 2016 Price: US$107.0 MM

EAGLE PLYWOOD

• Increased eastern US presence
• Increased presence in the

commercial market

• Took out a competitor
• Added key sales people
• Build on eastern US presence
• Foothold in eastern US lumber

market 16

Acquisition Track Record

• Increased commercial exposure,

leverage imports

• New geographic markets
• Expanded import lumber capabilities
• Increased commercial exposure
• Diverse/International customers

April 2014 Price: $15.0 MM May 2013 Price: $2.8 MM September 2011 Price: $13.5 MM

Successfully completed

6 acquisitions in the

last 7 years

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

Macro Outlook

 U.S. Construction Market Growth  Residential and non-residential low-to-mid single digit organic growth  Favorable M&A Environment  Fragmented industry  Family owned businesses with limited succession plan  U.S. Government Policy  Significantly reduced corporate tax rate  U.S trade environment  Supply / demand adjusting to US duties on hardwood plywood from China.

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Tailwinds Headwinds

Q1 2018 TTM FY 2017

Cash $0.4 $0.3 Bank indebtedness $114.6 $91.1 Net Debt $114.2 $90.8 Adjusted EBITDA(1) $55.4 $56.3 Net Debt to Adjusted EBITDA(1) 2.1 1.6 Unused debt facility $66.8 $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

Invest in organic growth initiatives Return cash to shareholders Fund working capital needs

Priorities

Pursue value-added acquisitions

• Attractive returns for shareholders in the form of share price appreciation and dividends
• Payout ratio today ~20%(1), dividend yield ~1.5%(2)

(1) Payout ratio is defined as dividends per share divided by earnings per share. (2) Dividend yield defined as dividends per share divided by the stock price.

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Shareholder Returns

Largest, efficient distribution network in the industry Well positioned to capitalize on US housing market Positive strategies and multi-year outlook in key end markets (residential, commercial) Track record of successful acquisitions, fragmented industry Strong balance sheet to enable growth and execute on future acquisitions Attractive shareholder returns

     

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Why HDI?