INVESTOR PRESENTATIONNine months ended September 2019
And post acquisition of Pacific Mutual Door Company (PMD)
TSX: HDIwww.hdidist.com
Dark Brown Charleston Oak
CrystaliteRain Cloud Antique Oak Icy Mherge
Oak Retro Baltimore
Forward Looking StatementCertain 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 applicablesecurities 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 guaranteesof future performance. They are based on management's expectations and assumptions regardinghistorical trends, current conditions and expected future developments, as well as other factors that webelieve are appropriate in the circumstances. Management has based these statements on estimates andassumptions that they believed were reasonable when the statements were prepared. Actual results couldbe 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 theCompany's profile at SEDAR (www.sedar.com).
Although we have attempted to identify factors that would cause actual actions, events or results to differmaterially from those disclosed in the forward-looking statements or information, there may be otherfactors that cause actions, events or results not to be as anticipated, estimated or intended. Also, many ofthe factors are beyond the control of Hardwoods. Accordingly, readers should not place undue reliance onforward-looking statements or information. Hardwoods undertakes no obligation to reissue or update anyforward-looking statements or information as a result of new information or events after the date hereofexcept as may be required by law. All forward-looking statements and information herein are qualified bythis 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 Use4
(1) Measured from December 31, 2014 to September 30, 2019 (2019 period on a trailing twelve month basis)(2) Pro forma basis, includes estimated full year impact of acquisitions made in 2019
Outstanding track record of growth • Five year average(1) annual sales growth 21%, and Adj. EPS growth of 12%
Proven acquisitions strategy(2) • 47 US locations acquired in past seven years
• $625 million of annual revenue added
Highly fragmented industry • HDI market share estimated at 10%
Shareholder returns • Dividend has been increased every year for the past seven years
• Share repurchase plan in place and being utilized
Disciplined business model • +60 year old business• Experienced management team• Low debt leverage• No significant supplier/customer
concentration
History of Growth and Diversification
25
70%
15%
15%
60%
20%
20%
50%
40%
10%
60%
40%
2010 2014 2018
Sales Mix by Market
Sales Mix by Country
Locations
Customers
26
+ 2,100
32
+ 10,000
62
+ 35,000
75%
25%
90%
10%
Residential
Commercial
Diversified
USA
Canada
Products Diversification
6
• Higher value decorative products, generally non-commoditized and subject to stable pricing• Approximately 25% of the products are exclusive or semi-exclusive offerings• Includes globally sourced, proprietary brands
Chart is on a pro forma basis, includes estimated annual impact of acquisitions completed in 2019
Critical Role in the Value Chain
7
Manufacturers
Approximately 1,000 Suppliers WorldwideNo significant supplier concentration(largest less than 6% of purchases)
Architects & Designers
ResidentialCustomers 50%
CommercialCustomers 40% Diversified 10%
66 Locations
North American Sales Team450 Strong
Customer Base + 35,000No customer concentration(largest less than 2% of sales)
Comprehensive North American Network
Estimated N.A market share = 10%
8
10%
90%
Revenue by Country
Canada U.S.
FY 2019 – Summary Statistics
9
HDI ($CAD) (millions) Q3 2019 Q3 2018 Chng Chng %Sales $292.5 $290.4 +$2.1 +0.7%
US Organic ($USD) -$3.7 -1.9%
US Acquisitions ($USD) +$3.1 +1.6%
CAD Organic ($CAD) +$0.2 +0.6%
Gross Profit $53.3 $51.6 $1.7 +3.3%
Gross Profit % 18.2% 17.8%
Operating Expenses $39.2 $38.4 $0.8 +2.2%
Operating Expenses % 13.4% 13.2%
Adjusted Profit $9.4 $9.0 +$0.4 +4.3%
Adjusted diluted EPS $0.43 $0.42 +$0.01 +2.4%
Cash from operating activities $25.5 $3.9 +$21.6
Less cash outflows for plant and equipment $1.1 $0.7 +$0.4
Free cash flow $24.4 $3.2 +$21.2
Track Record of Growing Sales with Stable Margins
8
Sales Growth % 21% 23% 25% 38% 31% 9% 5%
10
$306
$371
$456
$572
$789
$1,037
$1,134$1,159
17.6%
18.2%
17.3% 17.4%
18.2%18.5%
17.7%17.8%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
$0
$200
$400
$600
$800
$1,000
$1,200
2012 2013 2014 2015 2016 2017 2018 Q3 2019 TTM
Gro
ss M
argi
n
Reve
nue
(C$M
M)
Sales Gross Margin
“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 100% 9% 52% 4% 15% 5% -14%
$0.41
$0.81
$0.88
$1.34
$1.39
$1.54
$1.61
$1.39
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
2012 2013 2014 2015 2016 2017 2018 Q3 2019 TTM
Adjusted Profit per Share (C$)
1112
HDI’s Long Term Growth Strategy
2018 1. MarketGrowth
2. ShareGrowth
3. Acquisitions 2023
$125 m
$150 m
$175 m
$1.1 $1.5
+$1.1 billion
+$1.5 billion
• 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
13Per FMI Consulting; Construction Outlook Q3 2019 Report
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• Approxiamately 50% of our sales end up in residential
applications (including repair and remodel)
• Population growth / demographics suggest pent up demand
• Long-term mortgage rates near historic lows
• Strong order growth being reported by major US
homebuilders
• Consistent demand for new projects
• Strong N.A economy
Per National Association of Home Builders
Residential Construction
13
1. US Construction Market, Capture Share
Commercial Construction
Prolonged period of below-average construction, potential for
catch up growth
Remodeling Activity
500
1,000
1,500
2,000
2,500
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
E
2020
E
2021
E
Hou
sing
sta
rts
(in m
illio
ns)
$
$100
$200
$300
$400
$500
$600
$700
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
E
2020
E
2021
E
2022
E
2023
E
Spen
ding
on
non-
res
cons
truc
tion
(B$)
Wood Products • Significant market, core competency of HDI
• Core products: hardwood lumber, hardwood plywood
• Optimize market share opportunity
14
2. Additional Market Share, Strategic Product Categories
Decorative Surfaces and Composites• High-growth product segment
• Core products: Composite panels, laminates
• Driven by the latest design trends and market preferences
47 U.S. locations acquired in the last 5
years, +$625MM in revenue added
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3. Acquisitions, Capitalize on Significant Opportunity• Significant market share available, highly fragmented industry • Robust acquisitions pipeline, dedicated internal resources• Attractive purchase multiples, accretive
Acquisition Date
Target Price Paid (US $)
Annual Revenuesat acquisition (US $)
Key strategic benefits
2019 $34.5 M $58 M • See next slide
2019 $3.6 M $12 M • Contiguous expansion of our existing California presence
2018 $3.7 M $13 M • Take out a competitor, add key sales people
2017 $6.0 M $25 M • Geographic and product expansion in the US north east
2017 $0.6 M $5 M • Take out a competitor, add key sales people
2016 $107.0 M $282 M
• Geographic expansion (26 locations), minimal overlap
• Product and end-market diversification
• Consolidated vendors and rebates
• Leverage our proprietary global sourcing capability
• Acquire a well developed M&A pipeline
• Add people talent at multiple levels of the organization
• Consolidate operating systems
2014 $15.0 M $30 M • Addition of new products, new geography
2013 $2.8 M $4 M • Fill in product gap, unique offering
2011 $13.5 M $40 M• Geographic expansion, minimal overlap
• Product diversification
• Leverage our proprietary global sourcing capability
EAGLE PLYWOOD
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3. Recent Acquisition – Pacific Mutual Door Company
US$58 million in revenue, five locations
Unique distribution model, highly profitable
Focus on door & millwork product segment, compliments existing HDI offering
Entry into significant and high-growth Tennessee market
No significant overlap of customers, strategic fit with existing supplier base
Financed through existing debt facilities
Further expands pipeline of M&A targets
Immediately accretive to shareholders
• HDI supports brands in the market place• Competitors generally will not have same support structure in place• Potential to build a sustainable competitive advantage, improving EBITDA margins over time
Profit Opportunity - Optimize the Platform
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PASSION PEOPLE
HARDWOODS SPECIALTY PRODUCTS
FRANK PAXTON LUMBER
HARDWOODS MICHIGAN INC.
RUGBY ARCHITECTURALBUILDING PRODUCTS
VENDORS CUSTOMERS
A world-class distributor of architectural building products
Continued management of the balance sheet
Return cash to shareholders through dividends and share repurchases
Sept 2019 FY 2018
Net Debt $84.5 $111.4
Adjusted EBITDA after rents(1)(2) $52.2 $56.3
Net Debt to Adjusted EBITDA after rents(1) 1.6 2.0
Unused debt facility $100.1 $78.4
(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 Second Quarter MD&A filed on SEDAR.com for a reconciliation of this measures to IFRS and GAAP measures
(2) September 2019 period is presented on a trailing twelve months basis.
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Debt and Liquidity Profile
Pursue value-added acquisitions
Support anticipated organic growth in sales
Priorities
(1) Payout ratio is defined as dividends per share divided by adjusted profit per share.(measured as at December 31, 2018)(2) Dividend yield defined as dividends per share divided by the stock price (stock price as at September 30, 2019)
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Dividends
Announced in November a 6% increase to the dividend
Seven straight years with annual dividend increases
Dividend yield(2) of approximately 2.5%
0%
5%
10%
15%
20%
25%
30%
35%
$-
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
2012 2013 2014 2015 2016 2017 Q3 2018 TTM
Dividends vs. Payout Ratio (1)
Dividends declared Payout ratio
2018
Sustainable and diversified business model
Positive multi-year outlook in key end markets
Fragmented industry, significant acquisition opportunity exists
Attractive conversion ratio of EBITDA to free cash flow(1)
Strong balance sheet to enable growth and execute on initiatives
Long term record of shareholder returns
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Why HDI?
(1) Free cash flow defined as last twelve months operating cash flow, excluding changes in working capital, minus capital expenditures.