Stella-Jones Inc.

Brian McManus - President and CEO Éric Vachon - SVP and CFO

Mona Nazir - Laurentian Bank Securities Sarah O’Brien - RBC Capital Markets Michael Tupholme - TD Securities Mark Neville - Scotia Capital Dina DeGeer - Bluewater Investment Management, Inc.

Thank you. Good morning, everyone.

I’m here with Éric Vachon, Chief Financial Officer of Stella-Jones. Thank you for joining us for this discussion of the financial and operating results for the company’s full year and fourth quarter ended December 31, 2014.

Our press release reporting full year and Q4 results was published earlier this morning. It can also be found on our Web site along with financial statements at www.stella-jones.com and will be available on CEDAR.

Let me remind you that all figures expressed on today’s call are in Canadian dollars unless otherwise stated. At this time, I will review the company’s 2014 performance.

In a few moments, Éric will provide you with the details of our fourth quarter results. In 2014, Stella-Jones experienced another record year of revenue and profit.

This was our 14th consecutive year of growth. We saw sustained healthy demand for our core products and we continued to concentrate on improving the efficiencies of our network.

These factors helped us mitigate the effects of a tighter market for untreated railway ties that lasted most of the year. Our program of expansion also continued in 2014 with the strategic acquisition in the U.S.

Our North American footprint was once again wiped. At the same time, the company’s financial position remains solid, as our cash flow generation allowed for further strengthening of our balance sheet.

Total sales in 2014 came to $1.25 billion. This represented a 23.6% increase over the previous year.

The additional contribution of the Pacific Wood Preserving companies, or PWP, which we acquired in November 2013 was $43.3 million while sales from Boatright Railroad Products acquired in May 2014 was $33.4 million. In addition, year-over-year variations in the value of the Canadian dollar are reporting currency, increased U.S.

dollar denominated sales by $59.2 million when compared with previous year. Excluding these factors, 2014 organic sales increased by more than 10%.

Net income for the year was $103.8 million or $1.50 per share fully diluted compared with $92.5 million or $1.34 per share fully diluted the previous year. Turning to our results by product category, railway tie sales reached $530 million, up 34.5% from the previous year.

If we exclude the contribution of 36.4 million from acquisitions and a benefit from the lower exchange rate of the Canadian dollar, sales in this category went up by $71.2 million or 18.1%. The year-over-year increase resulted in part from the transition in 2013 of a Class 1 railroad customer from a treating services only program to a black-tie program.

Factoring out this transition, railway tie sales increased $40.3 million or 10.2% reflecting solid market demand and higher pricing. Demand in the utility pole market also remained solid, as our sales amounted to $470.5 million.

This represented an increase of 15.9% over the previous year. Again, if we exclude the contribution of acquired operations and the exchange rate factor, organic growth in this category was $17 million representing an increase of 4%.

In the residential lumber category, sales reached $128 million in 2014, up 14% from the previous year. The improvement resulted mainly from strong demand in the U.S.

and Western Canada. In the industrial products category, sales totaled $89.4 million.

The 53.9% year-over-year revenue increase in this category resulted from solid demand for rail-related products as well as a contribution from acquisitions. Finally, revenue from the sale of non-pole-quality log came to 31.6 million in 2014 representing a decrease of 23.1% from the previous year, which is mainly attributable to the timing of timber harvesting.

Éric will now discuss our fourth quarter results and the financial position of Stella-Jones. Éric?

Thank you, Brian. Fourth quarter consolidated sales reached $289.9 million, up 30.3% from $222.5 for the same period last year.

The Boatright assets provided sales of $17.7 million while the PWP assets contributed $7 million over an additional 45-day period. The conversion effect from fluctuations in the value of the Canadian dollar versus the U.S.

dollar increased the value of the U.S. dollar denominated sales by $16.1 million.

Excluding these factors, sales increased approximately $26.6 million or 12%. The railway tie sales totaled $131.1 million versus $78.3 million last year.

Excluding sales from acquisitions and from the currency conversion effect, railway tie sales increased $27.1 million or 34.7%. Further adjusting for the timing effect on last year’s fourth quarter sales of a programmed transition from a Class 1 railroad customer, railway tie sales increased approximately 17.5% as a result of solid market demand and price increases.

Sales of utility poles in the fourth quarter amounted to $113.8 million, up 6.2% from last year. Excluding sales from acquisition and the currency conversion effect, utility pole sales decreased approximately $4.1 million due to year-over-year timing differences for certain orders.

Residential lumber sales were $17.9 million, up 13.8 million from last year, as a result of solid demand in most of our markets. Sales of industrial products came to $18.7 million versus $12.7 million a year ago mainly driven by acquisitions and higher sales of rail-related products.

Finally, the timing of timber harvesting explained the variation in non-pole-quality log sales, which stood $8.4 million in Q4 2014 versus $10.6 million last year. Gross profit amounted to $51.4 million or 17.7% of sales in Q4 2014 versus $43.2 million or 19.4% of sales in Q4 2013.

While the dollar increase mostly stems from greater business activity and acquisitions, the decrease as a percentage of sales reflects a less favorable product mix in Q4 2014 more heavily weighted towards railway ties where margins were impacted by higher year-over-year costs for untreated railway ties. These factors were partially offset by further efficiency gains across our network.

In regards to untreated tie costs, we have continued to adjust selling prices, as permitted in most of our multiyear contracts. This reflected in a better gross profit as a percentage of sales achieved in the fourth quarter when compared with the third quarter of 2014.

Net income reached $23 million or $0.33 per share fully diluted, up 16.6% from $19.7 million or $0.29 per share fully diluted last year. Cash flow from operating activities before changes in non-cash working capital components and interest and income taxes paid stood at $37.9 million in the fourth quarter of 2014 up from $34.6 million last year.

For the year, it amounted to $181.5 million, up 13% from $160.6 million in 2013. This solid cash flow generation allows Stella-Jones to conclude 2014 in a healthy financial position.

As at December 31, 2014, the total debt to total capitalization ratio was 0.39 to 1, stable from the last year despite financing the Boatright transaction mostly through our existing committed revolving credit facility. On March 3, 2015, we entered into an agreement to amend and restate our committed revolving credit facility to make available an amount of $450 million with similar conditions and the same maturity date of December 13, 2018.

The previous authorized amount was CDN$450 million. Finally, the Board of Directors of Stella-Jones approved a quarterly dividend of $0.08 per common share payable on April 30, 2015 to shareholders of record at the close of business on April 2, 2015.

Now, over to Brian for the outlook.

Thank you, Éric. Looking ahead, we see further strengthening in most areas of our North American economy in 2015.

Accordingly, the demand for our core products should remain solid. Our confidence is reflected in the fact that we are planning capacity additions to meet increased demand.

In the railway tie market, we expect further investments in the continental network to meet anticipated increases in freight volume. In the utility pole market, our view is that the large number of installed poles are approaching the end of their normal service life and will need to be replaced.

Several of our large utility pole customers have supported this view with their forecasted demand. The lower price of oil should be a slightly positive factor for Stella-Jones.

It reduces the cost of certain raw materials, which more than offsets potential delays or cancelations on projects requiring our core products. In regard to the untreated railway tie market, product availability stabilized in late 2014 and has returned to more appropriate levels.

We see consistent supply in the coming months as an important factor in rebuilding inventory and we believe the strength of a procurement network should allow Stella-Jones to meet demand at the most optimal costs. Unlocking synergies from the Boatright acquisition will remain a focus in 2015, as we continue to improve operating efficiencies throughout the organization.

We expect our cash flow to remain solid. It will be used to reduce debt, investor working capital and to maintain an optimum dividend for our shareholders.

Stella-Jones’ solid financial position also enables us to remain on the lookout for any opportunity to strategically expand our network. Éric and I will now be pleased to answer any questions you may have.

Good morning.

Hi, Mona.

Good morning, Mona.

Okay, just a couple of questions from me. So this is your second quarter of very, very strong organic growth on the tie side, 17%.

I know your previous commentary pointed to expectations for organic growth to be kind of in line with GDP on the tie side. I’m just wondering if you could comment on what’s driving the strong growth and thoughts of that growth going forward, specifically as it relates to ties?

Sure. I would say a good part of that growth, Mona, is related to the price increases.

When we sort of guided in the past towards where we expected the overall market for railway ties to go, we were looking at – calling it a GDP type growth. That would have been more focused on the volume.

As you’re aware, we suffered increases in the white wood product that we have been working to pass-through over the last year and that’s starting to get reflected now in the top line. So it’s a combination of some additional industry demand combined with higher pricing as well as I would say we’ve seen some increase in our market share a bit in certain regions.

Perfect. And the negative organic growth on the utility pole side due to the timing difference for certain orders.

Had those orders come in as expected, would organic growth have been positive for the quarter?

Yes. And really when we’re comparing – the problem with Q4 that happens and it happens both on – it can happen both on poles and on the ties is when we do a year-over-year comparison, 2013 for example we saw a lot of what we call pre-buying by a number of the larger utilities in certain regions whereas this year that didn’t happen.

So, it’s not necessary reflective of anything. It’s just simply a timing issue.

So that often plays havoc in the fourth quarter. And also the first quarter can sometimes – we’ll have a stronger first quarter when compared to the previous year for business that gets pushed into it.

Okay. And just lastly before I hop back in queue.

Again in your outlook commentary you reiterated continued solid demand and of the increase in capacity, I’m just wondering what kind of numbers are we looking – to a 5% plus increase in capacity or small amounts here and there? And is it on the tie side or the pole side and what areas geographically speaking?

I was referring specifically to the pole side when it comes to – we’re doing more minor, if you want to call it, at various locations rather than looking to increase that throughput in our efficiencies. But the one I was referring to is a cylinder that we will be putting into one of our pole plants in 2015.

We hope to have it on line by the middle of the year.

Okay, perfect. Thank you.

Thanks, Mona.

Hi. Good morning.

Hi, Sarah.

Can you help us think about gross margin going forward? A lot of your price escalation has gone through but there’s a larger customer I think in Q1.

After Q1, is it largely done or do you have more sort of update pricing going through throughout the year?

There will be a bit, Sarah, sort of flowing into Q2 that would have been – because we did see the tie prices go up throughout the year although most of it happened towards the frontend of 2014, there will be a bit that would still need to be adjusted. But most will have taken place in Q1.

Okay. And how does that impact gross margin going forward?

I mean, are we looking at a significant increase from 17.7% achieved or is it more kind of a gradual ramp through the year?

I think we’ll start to see a good improvement in Q1 with a slight ramp through the year. I’m just trying to think – lots going to depend of timing of what clients ordering what in Q1, so it’s going to be very much the mix.

Okay. And just to be clear, the mix on the pole side, did that switch back into a more favorable mix for Q1 or is that something that will be pushed into '15?

We would expect it to be similar to what we would have seen in Q1 last year, so a more normal mix maybe is a way to say it.

Okay. And then just I guess looking at the acquisition opportunities out there, it sounds like your focus is on reducing debt, replenishing inventory, optimizing the dividend.

Just wondering, do acquisitions factor as a priority at this point or is it more getting the working capital back in shape for demand?

No. Acquisitions will still play a key role.

There is no intent to hint otherwise on that. We have some solid opportunities out there that we’re investigating and it certainly remains strategic importance to us.

Okay. And then maybe just on beyond the price escalation opportunities that’s there in Q1 and Q2, from the Boatright acquisition, it sounds like there’s still some synergies to go after.

Is that just on better utilization of the capacity for boltenized [ph] ties or is there other opportunities on the SG&A side?

SG&A, a lot of that was looked after towards the tail end of the year, so there will be some overall, as a company, some gains on the SG&A in 2015. But I would say as it relates to Boatright, there is still some efficiencies at the plant around some capital projects that we’re doing on – for instance, on some of our tie trimmer lines that we will start to see some greater efficiencies on.

It will take the year for that to play out, but there is still some good work to be done there, positive work.

Great. That’s it from me.

Thanks.

Thanks, Sarah.

Thanks.

Thanks. Good morning.

Hi, Michael.

Good morning.

Just trying to think about all the various drivers to the margin performance going forward when we think about mix and the price changes that are going to be more fully reflected in 2015. Are you able to provide us with some guidance for margins for 2015?

I think where we’ve kind of been heading and if we look at it, again, based on – we’re envisioning as a more regular mix, if you want to call it, Michael, is close to on EBITDA margins probably 15.5% to 16% – maybe a 16.5% throughout the year I think is what we’re looking at.

That’s great. And in terms of – if I understood correctly from earlier and your comments surrounding gross margin, in terms of progression, Q1 it sounds like the mix is more normal but some of the pricing gains were still coming through in Q1.

So, a little bit – when I think about your full year guidance that you just gave us, a little bit weaker in the start just because of the pricing issues still.

Again, it’s going to depend a bit on the mix but the other thing is we’ll be – I can’t say the lion share of the increases have sort of started in early January. So, the brunt of that adjustment will happen in Q1.

So you’re right in what you’re saying. We would expect that we will see that increase as we go along in the year, so it’s sort of that range.

I know what you’re asking. I’m hesitant at this point given that it will really depend on how the mix plays out, because Q1 given that – Q2, Q3 are big quarters, we may see a bit of lopsidedness I would guess maybe towards the positive.

And I just don’t want to set up expectations if you want to say.

Okay, that’s fair. So just to be clear on the mix in Q1 sort of mix issue you were affected by in the fourth quarter.

Can you go over what your expectations are from mix in Q1? I’m not quite clear which way you’re --?

I’m just saying it’s going to be – we’re comparing it sort of to Q4, which was a lot more heavily weighted to the railway ties than we would have seen the previous year. And the fact that as we’ve been communicating, the increased white wood pricing throughout the year hurt us and we were waiting to get through the price adjustments, so we get sort of that double positive effect of the price increases flowing through in Q1 and back to what I would say would be a more normalized mix as expected where the poles and ties are more consistent with what we would have seen in Q1 2013.

So all of that will play to certainly help.

Okay, perfect. You mentioned that you expected the lower oil price and what that means in terms of raw material costs to more than offset some potential delays on projects requiring core products.

At the end of the day, it sounds like it’s a positive sense in terms of the offset, but what are these delays you’re talking about to that?

So, actually I want to be clear, Michael, it’s anticipated or potential delays. These are not actual – at this point in time, there’s nothing that has actually been delayed.

I’m just looking at it given it’s a common question. Could that impact some of the projects giving that there may be less exploration going on or less drilling rigs being set up for fracing, things like that.

So that’s really what I was relating it to.

I see, okay. And then in terms of the other gains line in the quarter, $1.7 million of other gains, I imagine maybe there’s some FX in there but is there anything else in there that we need to be thinking about in terms of normalizing for the quarter?

The MD&A that comes out at the end of the month will be clear. There’s sort of pluses and minuses that go through there.

And I would say at this time in terms of what was sort of the one-time negative pretty much offset the one-time positive. We had a sale of a forest license in Q4 that provided a gain but it was offset by an asset impairment charge due to Warrior facility as well as sort of the closing cost around it as well as some other things that are in there.

But it will be – I would say net, you don’t really have to worry about taking too much out on adjusting. Is that fair?

Yes. And then just one last one.

In terms of the growth on the rail tie side, the organic growth when you normalize for the transition issue was very, very strong and I understand a lot of that would have been – you mentioned the factors, a lot of that would have been pricing. When we think about pricing and the changes you made over the course of '14 and then even into the beginning of '15, how long would we expect the heightened organic growth driven by pricing changes to persist through the year?

I would say true to about the end of Q2 would be my best guess.

Okay. All right, great.

Thank you.

Thanks.

Hi. Good morning, guys.

Hi, Mark.

Good morning, Mark.

Just on the margin guidance story, I may as well stick to this, I think you said to Michael 15.5% to 16%, maybe 15.5% to 16.5%, again that was sort of a high watermark for the year or that’s potential for the full year?

That would be the high watermark for the year. I would be more comfortable on a whole year hovered around the 16%.

Yes, okay. And then again, just on the price increases, so for all intents and purposes I guess it should be done or pretty close done by the end of Q1, and again you sort of said by the end of Q2 the end of the normalized growth.

So sort of Q2, Q3-ish, the gross margins sort of ignoring mix should be sort of back to normalized levels. Is that the way to think about it?

Q2 and Q3?

Yes, I guess Q3 – I guess closer in Q2 but sort of back to sort of normal levels again excluding mix to gross margin.

Yes, except keeping in mind that some of those costs were pass-throughs, so your margin is on a higher sales dollar number. So the percentage is maybe just because of that a little lower but certainly the dollar margins --

Okay. And so just on the – did you throw a capital or did you put a CapEx number on those capacity expansions?

Well, our total CapEx for the year 2015 is going to be around the sort of $20 million mark and we didn’t put specific into that, but I’m happy to do so. It’s going to be $4 million to $4.5 million.

Okay, no that’s fine. Okay.

Thanks a lot guys.

All right, thanks. You’re welcome.

Good morning and thanks for taking the question. Just like to – I’m tracking your major competitor Copper [ph] here and they’re a real financial mess this days.

What I’m curious about is given it’s virtually a duopoly, are you getting a lot of inquiries, more inquiries from new customers, people who had been customers of theirs, just a long-term sort of discussions about things, opportunities?

We would share many of the same customers. Really when it comes to our competition, I prefer to avoid questions that have anything to do with them.

We have a respect for them as a competitor. And obviously we focus on our operations and what we can offer to our customers, so we’re always talking to our customers and obviously hoping they capture more business.

So in terms of our competition, like I say it’s not something I’m really comfortable in answering.

Okay. Thank you very much.

Thanks.

Thank you everyone for joining us on this call. We look forward to speaking with you again at our next quarterly call.

Also note that our annual meeting of shareholders will be held on April 29 at the Omni Mont-Royal hotel in Montreal. We certainly hope to see you there.

Have a great day.