INVESTOR PRESENTATION Q1 2020 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 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 19, 2020 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 1
COVID-19 UPDATE In March, as the COVID-19 pandemic spread globally, HDI took immediate actions to protect its employees, operations and financial position: Employees : The health and safety of our over 1,200 employees is our primary concern and we have instituted a number of policies and procedures to ensure a safe work environment. Our actions comply with, and in many cases exceed, those recommended by health authorities. Operations : Our operations meet the definition of an essential business as we provide services that are essential to the support and maintenance of critical infrastructure. As a result, we continued to operate, as do the majority of our suppliers and customers. Our distribution locations are open for business and we continue to deliver products to customers. Financial Position : We maintain a strong balance sheet which provides financial stability in uncertain times. We have no term debt and maintain revolver facilities with springing covenants, secured against high-quality working capital. Our balance sheet is characterized by $101.9 million of liquidity, and as at March 31, 2020, was comprised of $59.8 million cash on hand and borrowing capacity of $42.1 million. 2 2
OUTLOOK In Q1 2020 we achieved record sales and gross profit margin percentage. In April our daily organic sales pace was 23% lower than in March as a result of the COVID-19 related reduction in economic activity and its impact on the pace of construction in our markets. In May we saw increased activity across our distribution network as the pace of construction activity in many regions increased, and average daily organic sales were up 16% in May as compared to April. In April we took a number of actions to reduce costs, and these measures assisted the Company in generating positive cash flow before changes in working capital in the months of April and May. Consistent with our expectations, additional cash was also generated by reducing working capital in the months of April and May. The Company’s net debt position was reduced in the last two months, in line with our focus on generating cash. The ultimate impact of the COVID-19 pandemic on the Company’s second quarter and full-year 2020 results is difficult to quantify as it will depend on the duration of the contagion, the impact of government policies, and the pace of economic recovery. The Company remains confident that its business model, cash flow profile, and liquidity will be sufficient to address a varied range of COVID-19 scenarios that may occur in 2020. PRIORITIES BALANCE SHEET WORKING CAPITAL MANAGEMENT Maintain sufficient capital Ensuring continued strong reserves to weather the impact management of the balance sheet of a potential economic slowdown CASH FLOW SHAREHODLER RETURNS ACQUISITIONS Continue returning value to Execute on shareholders in the form of dividends our acquisitions pipeline and remaining opportunistic as it relates to share repurchases 3
BUSINESS MODEL – SIGNIFICANT CASH FLOW GENERATION Cash Flow Generation EBITDA and Cash Flows (in $ millions) 1 Significant cash flow generation , and conversion of EBITDA to cash flow before changes in working capital has averaged 85% Balance Sheet Strength Debt and Liquidity Profile March 2020 FY 2019 Conservatively leveraged, Net Debt $128.1 $106.4 no term debt , and during Adjusted EBITDA after rents (1)(2) $60.2 $54.3 periods of reduced sales activity working capital Net Debt to Adjusted EBITDA after rents (1) 2.1 2.0 investment decreases Unused debt facility and cash on hand $101.9 $84.9 resulting in a source of cash (1) “Adjusted EBITDA after rents” and “Net Debt to Adjusted EBITDA rents” are Non-IFRS and Non GAAP measure. See the Company’s Annual Report and First 2 Quarter MD&A filed on SEDAR.com for a reconciliation of this measures to IFRS and GAAP measures 4 (2) March 2020 period is presented on a trailing twelve months basis.
BUSINESS MODEL – SIGNIFICANT DIVERSITY 1,000 Suppliers Worldwide Manufacturers No significant supplier concentration (largest less than 7% of commodity type purchases) 67 Locations Multi-brand go-to-market strategy 450 Strong Sales Team 15 Specification Reps Directly marketing to architects and designers Architects & Designers Residential Commercial 40,000 Customers Diversified 10% Customers 50% Customers 40% No customer concentration (largest less than 2% of sales) 5
BUSINESS MODEL – SIGNIFICANT DIVERSITY Product Diversification 2019 Sales by Major Product Focus on the distribution of Architectural building products Industrial customers use these products to make end-use applications for the residential, repair and remodel, and diversified construction markets 2019 Revenue By Country Geography 10% North American wide footprint, strong presence in the U.S market 90% 2 Canada U.S. 6
COMPREHENSIVE NORTH AMERICAN NETWORK Estimated N.A market share = 10% 7
CONSISTENT GROWTH Sales Growth and Sales (in $ millions) and Gross Profit Percentage Gross Profit % Sales of $1.2 billion , $625 million from acquired businesses. Compound annual sales growth rate of 22% From 2010 - 2019 Price pass through business model results in a consistent gross profit percentage Adjusted Earnings Per Share (in $) Adjusted Earnings Per Share (in $) Growth leads to strong earnings per share, and accretive growth for shareholders Compound annual growth rate of 43% from 2010 - 2019 2 8
ATTRACTIVE SHAREHOLDER RETURNS Total Shareholder Returns Our shareholder returns have generally exceeded the TSX and TSX small cap indices (graph measured to the end of 2019) Share returns include share repurchases and dividends Quarterly Dividends Quarterly Dividends Per Share Per Share 2.5% dividend yield (based on a $14 share price) Dividends have been increased every year for the last seven years. Payout ratio 2 has averaged 20% 9
LONG TERM GROWTH STRATEGY • Anticipated market growth of 2% per year • Strategic initiatives yielding additional share growth of 2% - 4% per year • Acquisitions targeting another 3% - 5% per year Growth We are the largest distributor of architectural building products in North America and have 10% market share . Significant opportunity exists for both organic and inorganic growth , and we are strategically positioned to achieve it. 11 10
ANTICIPATED MARKET GROWTH Residential Construction Housing starts (in millions) • Industry fundamentals remain strong despite effects of the Prolonged period of below-average COVID-19 pandemic construction, potential for catch up growth • Housing starts continue to trail the long term average • Homeowners are not over-levered • Age of housing stock remains elevated and remodel activity has been consistent • Long-term mortgage rates near Per National Association of Home Builders, April report historic lows Commercial Construction Spending on non-res construction (B$) • Consistent demand for new projects expected over the long term • Strong N.A economy expected over the long-term 12 13 11 Per FMI Consulting; Construction Outlook Q1 2020 report
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