INVESTOR PRESENTATION Six months ended June 2019 TSX: HDI www.hdidist.com
Oak Retro Baltimore Dark Brown Crystalite Charleston Oak Rain Cloud Antique Oak Icy Mherge
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 14, 2019 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. 2 3
Management Update Macro environment Financial performance Re-established import advantage Trade landscape Capital markets Outlook 2 4
Valuation and Free Cash Flow Conversion HDI LTM multiple: 6.3x LTM EBITDA to FCF Conversion (4) 72% 80% 57% 60% 40% 21% 20% 0% HDI Canadian diversified peers (2) TSX diversified (3) (1) EBITDA multiple is a non-GAAP measure and is calculated as (share price X issued share capital) + debt), divided by EBITDA. HDI’s EBITDA is as disclosed in the Company’s MD&A reports filed on SEDAR.com. (2) Average of the following companies: Richelieu, CCL Industries, Stella Jones, CanWel, Richards Packing, Winpak, IPG. (3) Includes TSX listed companies classified under the following industries: Chemicals, Construction Materials, Containers and Packaging, Paper and Forest Products, Capital Goods, Commercial and Professional 2 Services, Transportation, Consumer Discretionary, and Consumer Staples. 5 (4) EBITDA to FCF conversion is a non-GAAP measure and is calculated as (operating cash flow before changes in working capital – minus capex), divided by EBITDA. HDI’s EBITDA is as disclosed in the Company’s MD&A reports filed on SEDAR.com. Note – excludes the impact of IFRS 16
HDI is the #1 Distributor of Architectural Building Products in N.A. • Five year average (1) annual sales Outstanding track record of growth growth 21%, and Adj. EPS growth of 11% • 43 US locations acquired in past Proven acquisitions strategy seven years • $550 million of annual revenue added • HDI market share estimated at 10% Highly fragmented industry Import: Guararapes MDF: Commercial fixtures • Dividend has been increased every Shareholder returns year for the past seven years • Share repurchase plan in place and being utilized • +50 year old business Disciplined business model • Experienced management team • Low debt leverage • No significant supplier/customer concentration Domestic Supplier: Arauco TFL: Residential Use 6 (1) Measured from December 31, 2014 to June 30, 2019 (2019 period on a trailing twelve month basis)
History of Growth and Diversification 2010 2018 2014 10% 15% Sales Mix 20% by Market 15% 50% 20% 40% 60% Residential 70% Commercial Diversified 10% 25% Sales Mix 40% by Country 60% 75% 90% USA Canada Locations 26 32 62 + 2,100 + 10,000 + 35,000 Customers 2 7
Products Diversification • Higher value decorative products, generally non-commoditized and subject to stable pricing • Approximately 25% of the products are exclusive or semi-exclusive offerings • Includes globally sourced, proprietary brands 8
Critical Role in the Value Chain Approximately 1,000 Suppliers Worldwide No significant supplier concentration (largest less than 6% of purchases) Manufacturers 62 Locations North American Sales Team Architects & Designers 440 Strong Residential Commercial Customer Base + 35,000 Diversified 10% Customers 50% Customers 40% No customer concentration (largest less than 2% of sales) 9
Comprehensive North American Network Estimated N.A market share = 10% Revenue by Country 10% 90% Canada U.S. Proven market leader for 50+ years in a fragmented industry Diversified customer and supplier base, no significant concentration Experienced management team, on average 15+ years with the Company 10
FY 2019 – Summary Statistics HDI ($CAD) (millions) H1 2019 H2 2018 Chng Chng % Sales $591.6 $568.9 +$22.7 +4.0% US Organic ($USD) -$8.7 -2.3% US Acquisitions ($USD) +$11.5 +3.0% CAD Organic ($CAD) -$2.6 -3.6% Gross Profit $106.0 $102.0 $4.0 +3.9% Gross Profit % 17.9% 17.9% Operating Expenses $82.3 $74.5 $7.8 +10.5% Operating Expenses % 13.9% 13.1% Adjusted Profit $15.2 $19.8 -$4.6 -23.3% Adjusted diluted EPS $0.70 $0.91 -$0.21 -23.1% Cash from operating activities $34.0 -$10.3 +$44.3 Less cash outflows for plant and equipment $1.4 $1.8 -$0.4 Free cash flow $32.6 -$12.1 +$44.7 11
Track Record of Growing Sales with Stable Margins $1,200 20.0% $1,157 Sales Gross Margin $1,134 $1,037 18.5% $1,000 18.2% 18.2% 18.0% 17.7% 17.7% 17.6% 17.4% 17.3% $789 $800 16.0% $572 $600 $456 14.0% $371 $400 $306 12.0% $200 $0 10.0% 2012 2013 2014 2015 2016(1) 2017 2018 Q2 2019 TTM Sales Growth % 21% 23% 25% 38% 31% 9% 7% Sales Growth % 18% 10% 9% 5% 5% 6% 2% excluding acquisitions and FX translation impact 8 12
Accretive Growth For Shareholders % Increase 100% 9% 52% 4% 15% 5% -13% “Adjusted Profit” and “Adjusted EPS” are non-IFRS and non-GAAP measures. See the Company’s Annual Report filed on 13 SEDAR.com for a reconciliation of these measures to IFRS and GAAP measures.
HDI’s Long Term Growth Strategy • Anticipated market growth of 2% per year • Strategic initiatives yielding an additional 2% - 4% per year • Acquisitions targeting another 3% - 5% per year +$1.5 billion $175 m $150 m $125 m +$1.1 billion $1.1 $1.5 2018 1. Market 2. Organic 3. Acquisitions 2023 Growth Growth 11 14
1. US Construction Market, Capture Share Residential Construction 2,500 Housing starts (in millions) • Approxiamately 50% of our sales end up in residential 2,000 applications (including repair and remodel) Prolonged period of below-average 1,500 construction, potential for catch up growth • Population growth / demographics suggest pent up demand 1,000 500 • Long-term mortgage rates near historic lows 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E • Supply of existing homes at an all time low Per National Association of Home Builders Commercial Construction $700 $600 Spending on non-res construction (B$) • $500 Consistent demand for new projects $400 • Strong N.A economy $300 Remodeling Activity $200 $100 $ 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Per FMI Consulting; Construction Outlook Q2 2019 Report 12 13 15
2. Additional Market Share, Strategic Product Categories Decorative Surfaces and Composites Wood Products • • High-growth product segment Core competency of HDI • • Design trends and market preferences Core products: Hardwood lumber, changing at a rapid pace Hardwood Plywood • • Under-represented from a Range of market share by brand, by location market share perspective • Optimize market share opportunity • Opportunity to take advantage Decorative Surfaces Wood Products Est. Market Share Est. Market Share 7% 15% 85% 93% 16
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