Operator: Good day, and welcome to the CanWel Building Materials Group Limited Fourth Quarter and Full Year 2019 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ali Mahdavi. Please go ahead.

Ali Mahdavi: Good morning, everyone.

Thank you for joining us this morning. And joining me this morning are CanWel's Chairman and Chief Executive Officer, Amar Doman; and Chief Financial Officer, James Code. If you have not seen the news release, which was issued after the close of markets yesterday, it is available on the company's website at canwel.com as well as on SEDAR along with our MD&A and financial statements. I would also like to remind you that a replay of this call will be accessible until midnight on March 26. Following management’s presentation and commentary, we will conduct a Q&A session for analysts only.

Instructions will be provided at that time for you to join the queue for questions. Before we begin, we are required to provide the following statements regarding forward-looking information which is made on behalf of CanWel Building Materials Group Limited and all of its representatives on this call. Remarks and answers to your questions today may contain forward-looking information about future events or the company's future performance. This information is subject to risks and uncertainties that may cause actual events or results to differ materially. Any information regarding forward-looking statements is made as of the date of this call, and the company does not undertake to update any forward-looking statements.

Please read the forward-looking statements and risk factors in the MD&A, as these outline the material factors, which could cause or would cause actual results to differ. The company will not provide guidance regarding future earnings during today's call, and management does not anticipate providing guidance in future quarterly or interim communications with investors. I'll now turn the call over to Amar. Amar?

Amar Doman: Thanks very much, Ali. Good morning everyone and thank you for joining us on today's call.

Let me begin by highlighting some of our key financial metrics followed by some color on our operations during the fourth quarter and what we are seeing so far, which gives us continued confidence across our business segments. Then I will hand the call over to Jay Code, who can drill further into the numbers for us. Following an extended period of pricing pressure on building material products, which began on the second half of 2018 and lasted well into 2019, during the fourth quarter, we were pleased to see a certain degree of stability in pricing come back to lumber, OSV and plywood markets. While pricing levels remained nowhere near the peak, the combination of a modest improvement and stability in the pricing environment, our continued focus towards executing our strategic growth objectives managing costs and optimizing operational efficiencies resulted in encouraging financial results in the fourth quarter of 2019. In the fourth quarter, all of our key financial metrics including revenues, gross margin, EBITDA and net income performed strongly while paying our shareholders a quarterly dividend of $0.14 per common share, or $0.56 per common share on an annual basis.

The unprecedented reversal and decline in the pricing in the lumber, OSV and plywood markets impacted the better part of our full year 2019 results. Despite the severity of the pricing decline, I am pleased with the resilience of CanWel's diversified business model in withstanding these types of external factors and volatilities, which resulted in annual revenues, gross margin, adjusted EBITDA and net earnings of $1.3 billion, $191.9 million, $85.8 million, and $17.2 million respectively in 2019. Now zooming in on the fourth quarter and most relevant period, going back to my earlier comments on the improved pricing environment and our ongoing focus on growth and profitability objectives in the fourth quarter revenues amounted to $293.4 million, our gross margin remained strong at 15.1%, adjusted EBITDA amounted to $18.4 million, net earnings came in at $3.4 million and lastly our quarterly dividend of $0.14 per share was paid. During the quarter, our core distribution business continued to perform in line with our expectations. We also remain pleased with the overall performance of our forestry business segment.

We remain very enthusiastic and confident about the growth prospects ahead. We look forward to further demonstrating the strength and leverage available in our business model as we continue to take advantage of all sensible organic opportunities as well as strategic scenarios where we can accelerate growth. I'm also pleased to report that the commodity pricing environment has meaningfully improved from where we thought the prices had overcorrected. While current prices have significantly improved since late 2018 and a good part of 2019, they do remain below where they were at the peak. Having said that our fourth quarter results would suggest that the pricing environment during the quarter was at a level where we can deliver sound results.

This is telling as far as the operating leverage built into our business model, which demonstrates an ability to withstand marketing pricing volatilities while also being positioned to deliver financial performance and stronger pricing environments. We continue our disciplined approach in managing and growing our core business while tracking and executing on accretive growth opportunities further strengthening our financial performance and enhancing shareholder value based on a fundamentally sound and sustainable growth plan. Despite the previously discussed pressures in the first nine months of 2019, CanWel enjoyed a strong year with all of our key financial metrics meeting and in certain instances beating our internal expectations. We are tracking well as we continued the path and building a bigger, stronger and more sustainable CanWel for our shareholders for the future. We were being quite excited with the prospects of showing new record highs across our various key financial metrics in the quarters and years to come.

Despite the unprecedented volatility in the global equity and debt markets that caused by the impact of COVID-19, 2020 is off to a good start. Inevitably, we will be cautiously monitoring the spread and any impact of the virus on our business and making the necessary decisions to protect our staff and the company. We look forward to sharing with you our continued success and performance as we push forward into 2020. With that I'd like to pass the meeting over to Jay Code, our CFO, to take over and provide a review of the company's fourth quarter and full year financial results in greater detail and then we'll open the call for questions. I look forward to taking along with Jay.

Jay?

James Code: Thank you, Amar, and good morning everyone. As a reminder, effective the first quarter of 2019, the company adopted the new lease accounting standard known as IFRS 16. The impact of IFRS 16 is described extensively in our financial statement disclosures as well as our management discussion and analysis for the quarter and the full year. During today's call, I'll also point out the significant areas affected by the new standard. Sales for the year ended December 31, 2019 were $1.33 billion versus $1.29 billion in 2018 representing an increase of $42.9 million, or 3.3% largely due to the inclusion of revenue from Lignum acquisition in 2019, acquisitions completed during 2018 and the company's continuing focus on its product mix strategies and target customer base.

These positive factors were partially offset by the impact of construction materials pricing, which generally continued on a downward trend until late in the year as well as reduced forestry segment sales, which experience reduced demand for timber from local sawmill customers, reflecting curtailments experienced across the industry. The company's sales by product group in the year were made up of 58% construction materials, which are comparable to last year, with the remaining balance resulting from specialty and allied products of 35% and forestry and other revenues of 7%. Gross margin was $191.9 million in the current year versus $192.9 million in 2018, a decrease of $1 million; gross margin percentage was 14.4% during the year, a decrease from the 14.9% achieved in 2018. This decrease in margin dollars and margin percentage reflects the negative impacts from the lower construction materials pricing levels and pricing trends relative to 2018. This negative impact was partially offset by the inclusion of results from the 2018 and 2019 acquisitions.

Expenses for the year end of December 31, 2019 were $147.6 million versus $139.4 million in 2018, an increase of $8.2 million, or 5.9%, due to the factors to be discussed. As a percentage of sales, 2019 expenses were 11.1% versus 10.8% in 2018. Distribution, selling and administration expenses decreased by $15.1 million, or 12.5%, to $105.8 million versus $120.9 million in 2018. Excluding the impact of IFRS 16 adoption, distribution, selling and administration expenses increased by $5.1 million, or 4.2%, largely due to the additional expenses relating to the inclusion of both Lignum and the 2018 acquisitions operations. As a percentage of sales, DS&A expenses were 7.9% in the current year compared to 9.4% in 2018.

Depreciation and amortization expenses increased by $23.4 million from $18.4 million to $41.8 million largely due to the impact of the adoption of IFRS 16, which accounted for $21.6 million of the overall increase. Finance costs for the year ended December 31, 2019 were $21.9 million versus $11.7 million in 2018, an increase of $10.2 million. The adoption of IFRS 16 contributed $4.5 million to the overall increase, while increased average revolver usage relating to this year's working capital requirements and higher overall interest rates resulting from the full year inclusion of our senior unsecured notes accounted for the balance of the increase in finance costs. EBITDA was $85.8 million and adjusted EBITDA was $86.2 million compared to EBITDA of $71.2 million and adjusted EBITDA of $72 million for 2018, an increase in adjusted EBITDA of $14.2 million, or 19.7%. Current EBITDA and adjusted EBITDA were positively impacted by the adoption of IFRS 16 in the amount of $20.3 million.

Excluding the impact of IFRS 16 adoption, adjusted EBITDA for the year ended December 31, 2019 decreased by $6.1 million, or 8.5%, largely due to the previously discussed decrease in construction materials pricing levels and trends as well as weather conditions impacting construction activities during the first quarter of 2019, which was partially offset by the inclusion of the results from the Lignum acquisition and the 2018 acquisitions. As a result of the foregoing factors, net earnings for the year ended December 31, 2019 was $17.2 million versus $30 million in 2018, a decrease of $12.8 million, or 42.6%, due to the foregoing factors impacting the overall financial performance of the company. Turning now to the statement of cash flows, in 2019 operating activities before non-cash working capital changes generated $60.7 million compared to $51.4 million in 2018. Changes in non-cash working capital items generated $7.2 million in cash this year compared to consuming $55.4 million in 2018. We experienced a significant increase in inventory towards the end of 2018 built up to address a strong order backlog with treated lumber customers and to take advantage of favorable buying conditions at the time.

This 2018 activity drove reduced inventory stocking in the first half of 2019 and resulted in the $62.7 million positive year-over-year variance in cash consumed. During the year ended December 31, 2019, financing activities used $56.5 million of cash compared to generating $25.4 million in 2018. Repayments relating to the non-revolving term loan consumed $11.2 million versus $2.7 million in 2018. Payment of lease liabilities, including interests, consumed $23.1 million of cash compared to $1.7 million in 2018 mainly due to the impact of adopting IFRS 16, which is offset by a corresponding increase in cash from operating activities. Dividends paid to shareholders amounted to $43.5 million consistent with 2018.

The dividends declared and paid on a per share basis were unchanged from 2018. The revolving loan facility increased by $29.6 million in 2019 compared to an increase of $21.5 million in 2018. The company was not in breach of any of its covenants for the year ended December 31, 2019. Investing activities consumed $10.4 million of cash compared to $27.9 million during 2018. Cash purchases of property, plant and equipment was $7.2 million compared to $10.2 million in 2018.

Investing activities in 2019 included the Lignum acquisition and the related cash and cash equivalents acquired, whereas last year included the 2018 acquisitions. In October 2019, we completed the sale of 7,542 hectare parcel of timberlands to a coal mining entity that held an auction to purchase the subject lands. Gross proceeds of $12.2 million were used to partially pay down our non-revolving term loan with the balance paid to satisfy outstanding obligations to Rayonier Advanced Materials a former owner of the land. The net cash proceeds available to repay these existing obligations resulted in a positive cash impact in investing activities of $10.6 million, with a corresponding use of cash in financing activities. The company retained the rights to harvest remaining timber on the subject lands for a period of 13 years.

The company's cash flows from operations and credit facilities are expected to be sufficient to meet operating requirements, capital expenditures and anticipated dividends. The company's lease obligations require monthly installments and these payments are all current. This concludes our formal commentary and we'd be now happy to respond to any questions that you may have. Thank you. Operator?

Operator: Thank you.

[Operator Instructions] We will now take our first question from Roshni Luthra of CIBC Capital Partners. Please go ahead, your line is open.

Roshni Luthra: Thanks. Hi, good morning Amar and James. I just have a couple of questions through the year ahead for you.

How is your M&A pipeline looking for 2020?

Amar Doman: Hi Roshni, looking decent. We do have a few things on the go right now. And we're continuing to focus a little bit more on the U.S. side. And we see the pipeline is decent.

And despite obviously the things that are going around the world, we still – we're looking long-term. So some of these discussions that we have have been going on for awhile and we'll continue to carry on with our strategy. We're not going to change anything.

Roshni Luthra: Okay, great. And then just for your business, last year, how did Honsador do? Can you quantify like the year-over-year revenue change for Honsador?

Amar Doman: We don't break that out for competitive reasons, but I can tell you that percentage sales, we were up.

And we had a very, very good year down in Hawaii. And we started off the year very well down there as well this year.

Roshni Luthra: Okay, great. That's all I had. I'll leave it there.

Good luck for the year, thanks.

Amar Doman: Thanks Roshni. Thank you.

Operator: We will then take our next question from Zachary Evershed of National Bank Financial. Please go ahead.

Zachary Evershed: Good morning everyone. Congrats on the quarter.

James Code: Thanks Zach.

Zachary Evershed: In the context of potential disruption to trade flows or logistics internationally, are there any country specific risks that you point out on your supply chain?

James Code: Yes, it's minor. Coming back to Hawaii, there could be some items that we purchase from China that so far have not had port issues, but that's really the only area where we do any importing, and that's of some type of cabinets and raw blanks for that type of stuff, but it's really a minor part of the business.

So, by and large we're not really in any sort of panic if even China closed, it wouldn’t really affect us very much.

Zachary Evershed: Got you, thanks for that. And then obviously no one has a crystal ball here on how things are going to develop, but run me through a bear case and a bull case of the interplay between a potential recession and a tailwind from lower rates flowing through the business.

Amar Doman: Yes, I think we're all reading the same news and this thing is transpiring as we all sit here. But, I think, the fact of the matter is longer term this will pass.

So we're not doing anything except protecting our employees and making sure that in case something happens that everybody is going to be protected and not spreading this thing if something happened. Many of our sites, we’ve got plans in place for that. But when we come back to economic factors, it's pretty tough to have visibility going forward, bearish or bullish. What we can tell you is our order files have not fallen off a cliff. Nothing has changed.

Spring buyers are buying materials. I think the news is kind of worse than reality of what's going on. Having said that, could there be some type of slow down later in the year? It's anyone's guess. When this cure comes out, or when the disease starts dying down, the news gets better. But having said that, so far, from what I can see, and Jay can confirm that, I don't see any slowdown in our business activity at all in order file.

James Code: Yes I agree Amar I have not seen anything at this point.

Zachary Evershed: That's helpful. Thank you. Then one last one from me, we've seen some pretty sharp pullbacks in lumber futures recently. When we peaked in 2018 your margins took a pretty hard hit in the subsequent quarters.

Has anything changed in your hedging strategy or either your margin management strategy? Or do you expect we'll see a repeat of that?

James Code: Yes, I mean that's a good question. So we addressed this yesterday to our Board of Directors at our meeting at length and the futures market is not correlated to cash whatsoever. So we saw our futures tumble as per your note yesterday $80, $90 on the board along with all the Dow Jones and everything else that was getting pummeled. The cash, even Frazer [ph], took their pricing up. We've seen our cash lumber piles beyond market because the order files are long.

So the futures board is not correlating to cash right now. It definitely is a buyers’ market just because of the sentiment. But when you come to supply and demand there's a complete disconnect on futures and cash today.

Zachary Evershed: And in your experience, how long is that disconnect going to last?

James Code: Well, this is an odd disconnect but the way we're heading into spring and building season is upon us. And the interest rates are low, no one has a crystal ball here, Zach, just because of what’s going on.

But right now as of yesterday, even the cash markets are still healthy, and material is trading and guys are trying to counter into it. But again, on the mill, we're holding firm and taking orders. That gives us confidence that we won't see a collapse. And I don't foresee that. But you never know what could happen here if economics things slow down.

But I don't foresee that right now. And the market has not moved up to record highs in cash or anything like that. So it's not like it's stratospheric, where it's sitting today anyway.

Zachary Evershed: Perfect, thank you very match, I'll turn it over.

Operator: We will now take our next question from Paul Quinn of RBC Capital Markets.

Please go ahead, your line is open.

Paul Quinn: Yes thanks very much. Good morning guys.

Amar Doman: Good morning Paul.

Paul Quinn: Just a question on the Timberland sale, is there any other auctions out there on your Timberland Holdings? And what is your net current ownership given the sale of 7,500 hectares.

James Code: And so Paul, it's Jay. That represents about 14% of our total land holdings in the Kootenay region. So it takes us down to about 117,000 acres still remaining. And of course we're retaining harvest rates as you said during the call for 13 years on that auction land.

Paul Quinn: Just so I understand the retention of the harvest rights, you're paying them effectively as stumpage when you harvest.

Amar Doman: No. So it's actually a pretty, I'm going to say, a very good deal for CanWel. So we've effectively sold this parcel off to a company that had an option on a prior acquisition. They're going to be building a coal mine on it. So we sold at, we believe, a great value for the company already.

And then we get to harvest all the timber as it would be our own. So there's no stumpage, there's no royalties, there's no nothing going to the buyer. It all comes to CanWel. So we're obviously going to re-force that or parts of it where the mine doesn't interrupt as these guys, whenever they start to build their mine, but we've got 13 years and we'll probably have most of that harvested within the first five or six years and get that up. And then we'll replant.

And of course those trees will take 50 years to 75 years to mature. So we think this is an extremely lucrative transaction for CanWel, and it's a good transaction for the buyers also. It took a while to negotiate it, but it's a good deal.

Paul Quinn:
. :

Amar Doman: Yes, we've got some levers we can pull.

Certainly, we're going to be very careful on our inventories, things like that. But you know what, our lumber's at 200 or 400. We still need our good people to be selling the materials, and we don't think this is going to bring housing to a halt. We think rates are lower. But having said that, the levers we could pull really are the inventory.

We do have a very least light operation. We can return forklifts. So there's a lot of things on costs that we can pull levers on. The cost of our capital has just dropped significantly. So we like to see that save us cash in this type of environment as well.

So that's nice to see on our revolving facility. Those are some of the levers. Can we release a bunch of people? I don't think I would in a short-term crisis. We've got a very talented group. So I don't think you'd see us lever there.

But as you know, most of what we do, with the exception of parts of the U.S., all of our trucking, which is our number one cost, and people, but when you look at trucking, everything's elastic. So we only haul loads if they're full and they're sold. So we don't have a lot of trucking overhead sitting on the books, truck drivers to pay. We've got a full load. Out it goes, and we pay for them to be.

So our model is set up to be risk-adverse. And so in times like this, if they do evolve into a slowdown, we feel we're the best in the business to be able to manage that. And of course, we manage things daily here. But right now, again, as we look into March and April, so far, so good.

Paul Quinn: Okay.

And then just turning to your balance sheet, how are you guys thinking about that? I mean, obviously, your share price has been hit, just like everything else, in the marketplace. Is that an effect on acquisition opportunities in terms of PAUSE of potential acquisition prices? And how would you look at those opportunities? Are you – how long term are you looking versus the short-term issues surrounding balance sheet debt levels?

Amar Doman: Yes, Paul this is probably the third or fourth odd period I've lived through, whether it's recessions and all those kind of stuff or a disease with SARS. I'll let Jay address the balance sheet in a moment, but when it comes to M&A activities, we have got a lot of room on our line. We just renewed our credit facility which Jay will comment on. We've got a lot of room for these tuck-in acquisitions.

We're not looking for elephants anyway. We're looking for nice strategic tuck-ins in regions like we've been building. So we're going to carry on with our acquisition strategy. And with respect to the balance sheet, we're in good shape. We've got our inventories in a very good spot.

I admire our team for that. And I'll let Jay speak a little bit further on it.

James Code: Sure, Paul. Of course, you probably saw that we amended our revolving loan facility in the fourth quarter to that from a limit of $300 million up to $360 million. So that's going to be helpful to our availability, especially during our seasonal working capital vouch periods, which is always a challenge for us.

And then, of course, through the North [indiscernible] transaction, we took down our non-revolving term debt from net proceeds of that transaction. So overall, we've got a very strong balance sheet coming into 2020. And yes, we're confident here.

Paul Quinn: Thank you. That’s all I had.

Thanks for the great quarter.

James Code: Thanks Paul.

Operator: And then we will take our final question from Anoop Prihar of Stifel. Please go ahead.

Anoop Prihar: Hi good morning.

First question is just a housekeeping issue. Jay, the G&A on a full year basis was down about $15 million. I’m assuming that’s an IFRS impact. But is the $106 million that you booked for last, is that sort of a run rate we can think about for this year, as well?

James Code: Anoop, outside of acquisitions, which are going to impact SG&A, right, pick up in 2019, we added Lignum. In 2018, we had acquisitions that occurred during the year.

So in 2019, first full year for those 2018 acquisitions. So as a run rate, you can't quite look at quarter-by-quarter in 2019 because of the Lignum acquisition.

Anoop Prihar: Okay. And then on the line of credit, I know you bumped into $360 million. Is the full $360 million available to you currently?

James Code: Of course, it’s based on our receivables, our accounts receivable and inventory balances at any given time.

So it's the lesser of $360 million and the collateral that we have on hand through receivables and inventory.

Anoop Prihar: So how of this is internally available?

James Code: Yes. Well, you can see at year-end, we're nowhere near coming into that $360 million range base based on positions at year-end. But as we come into this time of year, it's – of course, that's increasing. But we don't expect to go near the $360 million this year.

Anoop Prihar: Okay and then the last question – sorry go ahead.

James Code: It's a moving target. Yes, it's just a moving target due to the seasonality that's going on. If you can set your launch kind of by when we peak and then we decline again. But again, it's for – it's the big credit card to run the business on working capital.

So it does ebb and flow at the assets.

Anoop Prihar: Fair enough. And then, Amar, when you were commenting on the MD&A about the Q4 results, which were actually quite good, so congratulations on that front, you talked about maximizing target customer base, what exactly does that mean?
Amar Doman : Yes, so looking at whatever region we're in, we're very, very selective of who we're going after – sorry, who we're going after and with what product line. So certain areas will be more focused on the allied lines. Certain areas will be focused more on the pressure-treated.

And these are strategies that are confidential inside the company. As we get into the U.S., we have different strategies of big-box retailers, Hawaii with direct-to-builder there, different strategies there. So we continue to refine these strategies to basically line up our inventory, line up our product lines best to suit who our customers are and who we're targeting. So we're not just outpacing the price list, renewing a price, here's what we have for sale today, we're selectively targeting head offices with big programs due to big inventory and volumes we carry to be just in time for them. And obviously, that adds to value for our distribution, complemented by the pressure-treated lumber we produce as well.

So that's a lot of verbiage to your answer, but it really is about targeting these customers in a strategic way with our product lines.

Anoop Prihar: And this is something that you really started focusing on last year?
Amar Doman : No, I'd say we're enhancing it. As we continue to grow, we're getting deeper and deeper with a lot of our customers, and we're just refining it all the time. So I don't think you need to read too much into it. We're doing our jobs.

It's just we're adhering more to the larger customers as they continue to acquire brands and dealers. And they become more powerful, we’ll become more powerful to them, and we need each other.

Anoop Prihar: Great, thank you.

James Code: Thanks Anoop.

Operator: And as there are no further questions this now concludes the call.

Thank you for your participation. You may now disconnect.