Stella-Jones Inc.

Brian McManus - President and Chief Executive Officer Eric Vachon – SVP and Chief Financial Officer

Mona Nazir - Laurentian Bank Leon Aghazarian - National Bank Financial Michael Tupholme - TD Securities Juliane Szeto - RBC Capital Markets Benoit Poirier - Desjardins Capital Markets Mark Neville - Scotiabank Brian Pow - Acumen Capital Finance Partners Limited

Thank you. Good morning everyone.

I’m here with Eric 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 third quarter ended September 30, 2015.

Our press release reporting Q3 results was published earlier this morning. Our MD&A for the third quarter has been posted on our website at www.stella-jones.com and will be available on SEDAR.

Let me remind you that all figures expressed on today’s call are in Canadian dollars unless otherwise stated. Stella Jones experienced a solid third quarter.

Sales and profitability grew strongly as we benefited from a number of factors including healthy demand in the railway tie and residential lumber categories, a return to normal conditions in the untreated railway tie market, and continued efficiency improvements in the company’s Continental network. The reach of our network once again expanded during the quarter with the acquisition of utility pole manufacturer Treated Materials, Inc.

in the state of Arkansas. In addition immediately subsequent to the quarter on October 1st we completed the acquisition of the shares of Ram forest Group and Ramfor Lumber in Ontario.

I have more to say about these transactions in a moment. Turning to our financial performance the company generated revenue of $433.1 million a 21.2% increase over the third quarter of last year.

As a result of the conversion effect from fluctuations in the value of the Canadian dollar, we benefited from a positive impact of $57.2 million on our U.S. dollar denominated sales.

If we exclude this factor, sales increased by $18.6 million or 5.2%. Looking at our results by product category, market demand remain strong in the railway tie category as sales reached $200.6 million, an increase of 34.8% over the third quarter of last year.

If we exclude the currency conversion effect railway tie sales rose by approximately $21.8 million or by 14.7%. This increase came from both healthy demand and selling price adjustments.

Turning to the utility pole category, sales amounted to $142.3 million an 11.6% increase over last year. Excluding the currency conversion effect, sales decreased slightly by $1.9 million or by 1.5%.

This result can be attributed to lower sales of transmission poles due to [weakening] [ph] demand for special projects which is a reflection of lower activity in the oil and gas as well as mining industries. These factors were partially offset by a steady rise in sales of distribution poles as regular maintenance projects went ahead.

In residential lumber, sales totaled $53.2 million a 22.3% increase over last year. The improvement came from higher sales and a healthier U.S.

economy and our expanded reach into British Columbia. Turning to Industrial Products, sales were $28.4 million in the quarter.

This figure represents a 4.3% decrease over last year and is largely due to lower sales of laminated poles as demand for such poles is mainly project driven. Turning to our acquisition activity, as I mentioned we acquired substantially all the operating assets of the wood treating facility of Treated Materials Company, Inc.

in Arkansas for US$4.1 million. The facility produces utility poles.

We acquired it to complement our production network and we are in the process of unlocking the synergies it has afforded as. The acquisition of Ram Forest Group and Ramfor Lumber in Ontario also enhances our production, procurement and distribution capabilities.

Ram produces pressure treated wood products and accessories to the retail building materials industry from facilities located in Peterborough and Gormley, Ontario. This acquisition will allow us to leverage our reach in the residential lumber market.

A $60 million purchase price was financed through our existing committed revolving credit facility. Eric will now discuss the financial performance of the company in greater detail.

Eric?

Thank you, Brian. Gross profit amounted to $87.5 million or 20.2% of sales in the third quarter of 2015 up from $62.4 million or 17.5% of sales last year.

The increase in dollars is essentially due to greater business activity and the effect of currency translation. As a percentage of sales, gross profit increased mainly as a result of adjusted pricing for railway ties and greater efficiencies throughout the company’s network.

As a result of higher gross profit, operating income reached $62.9 million an increase of 38.4% over last year. As a percentage of sales operating income stood at 14.5% in Q3 2015 an increase versus 12.7% of sales in Q3 2014.

Net income amounted to $39.3 million or $0.57 per share fully diluted up 33.2% from $29.5 million or $0.43 per share fully diluted a year ago. Cash flow from operating activities before changes in non-cash working capital components and interest and income taxes paid were $71 million in Q3 2015 up 29.5% from $54.8 million in Q3 2014.

For the nine months period, sales reached $1.2 billion in 2015 an increase versus $959.6 million in the first nine months of 2014. Excluding the currency conversion effect and the additional contribution from the Boatright assets acquired in May 2014, sales increased approximately 7.2%.

Operating income amounted to $171.8 million or 14.3% of sales versus $121.8 million or 12.7% of sales last year. Net income was $108.4 million or a $1.57 per share fully diluted up from $80.9 million or $1.17 per share fully diluted in the prior year.

Cash flow from operating activities before changes in non-cash working capital component and interest and income tax paid was $196.3 million in the first nine months of 2015 compared with $143.6 million a year ago. Stella Jones financial position remains healthy as at September 30, 2015 with a total debt to total capitalization ratio of 0.38:1 which improved from 0.41:1 three months earlier.

Even after taking into account the Ram acquisition which closed at the beginning of Q4, we remain very comfortable with our debt position given our strong cash flow generation. Finally, the Board of Directors of Stella Jones declared a quarterly dividend of $0.08 per common share payable on December 21, 2015 to shareholders of record at the close of business on December 2, 2015.

Now, over to Brian for the outlook.

Thank you, Eric. As we look ahead the remaining quarter of 2015 and into 2016, we anticipate ongoing healthy demand in the railway tie category as investments in track upgrade and new track are driven by basic positive factors in the North American economy.

In the untreated tie market product availability has returned to more normal levels and we believe our procurement strength and current inventory will allow us to meet forecasted demand. In the utility pole market, we remain cautious in our expectations as lower prices in the natural resources sector are reducing demand for special projects.

In the short-term, we see the demand for poles holding in regard to regular maintenance project. However, in the mid-term the sentiment remains that overall demand should improve as increasing numbers of poles are retired and replaced having reached the end of their normal service lives.

In residential lumber, which is becoming an increasingly important product category for Stella Jones, we expect the Ram acquisition to enhance our overall reach. This is an acquisition that we believe exemplifies our ability to expand by capturing accretive opportunities, which also brings significant synergies to our network.

As our cash generation and financial situation remain strong, we’re continuing with our steady company growth plan. We continue to study opportunities for network expansion and will pursue acquisitions that complement our strategic vision.

Meanwhile, we remain as always focused on improving productivity and optimizing our cost structure. Eric and I would now be pleased at this point to answer any questions you may have.

Good morning.

Good morning, Mona.

Good morning, Mona.

Just a couple questions from me. Firstly on the tie side, I was kind of surprised with the very strong organic growth there, especially given it came down last quarter.

I was just wondering if you could break down how much was price increases and how much was volume. And then following on that a peer company spoke yesterday on their conference call about strong volumes on the tie side and expectations for continued growth going into next year.

Wondering your thoughts on such on the sustainability of maintaining near double digit growth on your side.

I think, well, there is a number of questions in there, Mona, I will try to tackle them one at a time. I assume when you mean the decreasing demand for ties you’re referring to the industry demand, is that what you’re referring?

Yes.

Yes. I think in our case, Mona, we’ve seen growth from two parts as we stated the majority that we have still coming from the price adjustments on a year-over-year basis, but we also saw volume play an important role in Q3.

So, I guess we benefited perhaps from a larger share of that demand that’s been out there. Going forward, we remain confident based on the forecast that have come from our major customers that we are going to continue to see a strong demand well into 2016.

Okay. And then, on the acquisition of Ram, you stated your expectations for synergies to be obtained, now that the transactions closed I’m wondering if you could go into these synergies a bit more and maybe on margin expansion there and what it could become?

Thanks for the question, Mona. The acquisition of Ram certainly has opened up greater opportunities for us to expand within the consumer lumber product category.

We’re very confident having already met with some of their major customers and our ability to further grow our existing business with them. And I believe we’re going to see a nice uptick well over and above the sales that Ram brought us as we roll into 2016.

Okay. And then, just on the specialty orders on the transmission side, if that would have been flat what kind of organic growth could we have seen from the pole division?

If that would have been flat, it would’ve been probably 7%, 8%.

Okay. That’s it from me, thank you.

Thanks, Mona.

Hi, good morning, guys.

Good morning.

Just a follow-up on that question. I’m just wondering what - I’m trying to split up the poles here between maintenance and special projects.

Can you kind of break that down for us a little bit more in terms of how much of the pole you consider maintenance and how much of that you consider more special projects?

The majority is certainly maintenance, Leon, always has been and well over 80%. But, of course, that number, that percentage varies depending on the quarter, because as there is less special projects the maintenance for instance in Q3, I would say the maintenance made up probably close to 95% of our overall demand in terms of the utility poles, but historically, we’ve seen it anywhere regular maintenance being sort of between 80% to 85% and so as we’ve seen the pullback in the special projects that’s where we’re really seeing a softening up and particularly as it affects our transmission poles more than the distribution poles.

Okay, that’s helpful, thanks. Another thing is you’re mentioning that the product availability is kind of back to normal now.

I’m just wondering what your kind of view is right now on sourcing versus the inventory you’re currently holding. I mean, you said that you’ve enough to meet demand I just kind of want to get your sense on that?

Well, we’ve certainly been playing a game of catch-up throughout the year which is evidenced by the strong demand on working capital as we’ve invested in getting that inventory, so that we can be in a better position going into 2016 to have a dry inventory and go back to shorter cycle times as we roll in 2016. So, I would say we’re not necessarily there in every region, but we’re much better positioned than we were at the same time last year and entering 2016 strong.

So, basically if I understand that correctly, if you could have - if you could you would be holding onto a little bit more inventory, because the demand is little bit higher than what you’re currency holding?

Well not only to meet the demand, but also the fact that we want to have a bit more to have that we’re getting that dry inventory at the right period of time. So, we’re probably 90% of the way there.

If there is a - might be the easiest way to explain it. But we’ve certainly seen some - our procurement team has done an outstanding job of really increasing our dry inventory.

Great. And final one from me would be, you mentioned that one of the main kind of reasons for the ties was on pricing.

Have you made all those pricing adjustments now that fully been implemented or do you still expect some for the latter half of the year and maybe going into next year a bit.

The majority has certainly passed through as you’ve seen that year-over-year effect; there would be a bit more to come through in Q4, but for the most part they’ve now run their way through, definitely the biggest effect have come through.

Thanks. I’ll turn back in queue.

Okay. Thanks, Leon.

Thanks. Good morning, guys.

Hi, Mike.

On the utility poles, within the utility pole segment in terms of the transmission poles weakness, you’re seeing have things worsened there at all say this quarter compared to Q2 or Q1 or are we just bumping along at a fairly low level and, but that levels at least been stable last couple quarters?

I would say Q1 we had a bit of a spillover from the previous year and I would say Q2, Q3 would have been consistently bumping along to use your phrase.

So, would it be fair to say then, that assuming no further step down in transmission pole weakness and then you continue to sort of carry along at current levels within - sort of within a couple quarters you would be lapping the easier comps and we should see the drag from that weakness subside?

Yes. That’s a very good way to put it.

And in fact, there are other projects from other industries that would be slowly starting to develop, it’s always easier to turn the tap off than it is to get the water flowing, so to speak, and so while other industries have benefited from lower oil prices and lower commodity prices as they look to do expansions or different things that could be positive to us. We’re slowly starting to get request for budgetary pricing and things like this on some of our products particularly, utility poles.

So, that could also be a positive, but I’m not laying it out just yet.

Okay. And then in terms of the hardwood availability you talked about a little bit in your inventory position on the tie side.

Can you just talk about what’s happening with pricing, have prices come down or they still quite elevated?

They are holding and it’s very regional, in some regions we’re seeing opportunities where we may be able to bring it down. And in others, we actually have other regions where they’ve been pushed up again.

So, it really varies region-to-region but I would say overall they’re holding pretty steady right now. Is there opportunities as obviously the inventories get to the levels that we need to hope we see pricings soften a bit on the inbound [indiscernible] ties?

I think so, but I’m not going to say we’ve seen much of an effect just yet.

Great, okay. And then Brian, you talked a little bit about the synergistic potential within the Ram Forest acquisition.

Just in terms of the Treated Materials company acquisition in Arkansas, I realize it’s a lot smaller, but there is mention in the press release about that acquisition having occurred for synergistic reasons, can you just elaborate on that a little bit?

It’s just really our growth in that region on the pole side. I mean, we had a pipeline in that region, but we’re just - as we’re expanding geographically it certainly has positioned us, its location is in a great position for us to capitalize on non-sales in that region and as we’ve stated before, we really see other opportunities to continue that expansion.

And is part of this positioning yourselves for the mid-term growth on the utility pole side that you’ve been talking about?

Part of it is that, part of it is also just our continuous expansion within our product categories through our diligent acquisition approach. But yes, you’re right, I mean, certainly being well positioned if the tie starts to rise will be good for us.

Perfect, okay. I’ll turn it over, thank you.

Thanks.

Hi guys, this is Juliane dialing in for Sara. Well, with the continued weakness in core and commodity pricing.

For the cost on railroads is that anything on how volume has been affected and could we see any weakness in rail ties from that?

Fortunately, the forecast we’re receiving from our main class point customers remain strong. So, we’re not, today we not have any indication, there has been some holdback in other with certain class 1, but we’ve been - we’ve been fortunate in that.

Our visibility is pretty good for at least the next couple of quarters.

Thank you. And then I guess what are other areas that dollars looking into for acquisition growth?

Well, you’re certainly on the utility pole side. We will continue to expand our opportunities there, on the tie side there could exist some small tuck-ins there as well.

And on the consumer lumber our focus certainly will be on the Ram acquisition in driving the synergies and using that to expand our market presence with our existing facilities as well as ones we required from Ram.

Thank you.

Thank you, Juliane.

Yes, good morning, Brian, and good morning, Eric, and congratulations for the good quarter.

Hi, Benoit.

Yes. Just to come back on, with the margin very strong obviously 16% in the quarter.

I was wondering if there was anything nonrecurring in the results and if it’s kind of a level you could sustain going forward.

There was couple of nonrecurring, but it would actually be nonrecurring on a negative side. So that we would only push it up slightly higher than the 16.

So, I believe that was your question was there any nonrecurring positive. So, nonrecurring positive, in terms of sustainability going forward I would say we’re certainly hoping to see that whole though.

I think product mix will play into that a bit as we roll into 2016 and we see a much greater presence of the consumer lumbar business and until we can drive all the synergies there, that may put a bit of weight on it and I think that material but I think, that might slightly take it off with 16 just a bit. But, overall we’re comfortable with what we’ve been guiding sort of 15.5 to 16 it’s certainly sustainable going forward.

Okay. And how big were the nonrecurring positive elements, Brian?

Sorry, they were asking negative elements, Benoit.

Oh, yes, I think it, but how much - how material?

If you pull them out to the EBITDA goes to about 16.2%. That was related around primarily it was some acquisition cost in there as well as, some remediation provisions on one of our sites.

So, that would be the main two main factors.

And talking about the synergies how long can it take before we’re seeing the synergies or the full impact. And is it something we could see the margins bouncing back to 17% overtime on a consolidated basis?

I think that will be several years out, if we are able to get based on our product mix, based on sort of the overall what we’re seeing in the market and our least acquisition that will have to be brought inline. We are comfortable seeing that, you’re going to see that in 2016.

Okay. And looking at your free cash flow obviously, you’ve been building the inventory this year.

So, the lot of drawback on your working capital items. So, now that the inventory has been replenished, should we expect kind of the neutral working cap change going into 2016 Brian?

Well, you would think though but, with the late effect position on the consumer lumber side as well as the growth that very quickly came or the other opportunities that developed from that acquisition, we will actually be investing in working capital as it relates to the consumer lumber part of the business. Again all positive, because it is going to be as a result of increasing sales.

So, I would say you’re correct on your assumption as it relates to railway ties, but still little bit to go there, but on the lumber side that’s where we’re going to be having to increase working capital over the next six months.

Okay. And last year I mean, 2014 there was almost $50 million, $52 million of working cap changes, would it be a little bit less than that going into 2016, is it a fair assessment?

Yes, it’s a fair assessment but little, yes it should be less.

Okay. And looking at the utility poles there are many opportunities, do you see kind of given the weakness in spiritual projects.

Do you see more opportunity to expand in the south yellow pine or again that vision has hold up pretty steady, given the pole segment is still up 78%?

Evaluations are holding, but we always were very disciplined in our acquisition approach. So, we operate in a tight range when we’re acquiring companies.

So, really the opportunities that are out there continue to be out there. We identify specific ones that interest us and we’ll be pursuing the most all in the coming quarters.

Okay, perfect. Thanks for the time.

Thank you, Ben.

Hi, good morning, guys.

Hi, Mark.

I’m not sure if you provided, but just curious on volume growth in the tie business and just trying to get sense of where that goes sort of as we lap the pricing they’re benefiting from which sounds like I guess Q1?

So, if you’re looking at the 14% almost 15% growth that we saw, I would say 75% would have been price related and 25% would have come from volume.

Okay. So, a lot 4% volume I guess are pretty good.

On the pole, again it sounds like I’m assuming there is not going to be a big jump in the transmission demand. So a couple of more quarters of drag, but - and just - on the just recent side you said 7%, 8% volume growth you’re seeing in that business now?

It was around special projects. We have to be careful that special projects will involve both transmission and distribution.

So, well it’s - we’re heavily waited to transmission the 7% or 8% had similar special projects in the quarter on a year-over-year basis. So, that 70% would have applied to both the distribution and would have had some growth on the transmission as well.

Okay. So, that’s I guess…

I’d call it [indiscernible] exactly, because there is still maintenance that is done on transmission poles.

Okay, that’s most sensitive thanks. And this on the acquisition treated material, I appreciate small, but maybe anymore color or detail on that maybe volumes that the business does or capacity or capacity potential or anything you can maybe share on that?

Yes. We’re expecting 2016 it will generate about US$10 million for us…

At sales?

Yes, at sales and let make that clear. And still with its capacity as we grow in that market to somewhere I would say close to 15 million in overall sales, I think we could put through that facility.

Okay. Yes, thanks for those.

Thank you.

Good morning.

Hi, Brian.

Just Brian with the acquisition around this year are just completed. Should we see any difference in sort of your seasonality pattern at least this year or at least 2016 as you absorb Ram into your business?

Yes, actually that’s a good point Brian. There is certainly more seasonality on the residential side and you even see with poles are rarely high.

So, the real benefit of Ram won’t start to show until kind of - well, really into the second quarter.

All right. So, it would be fair to say that sort of in comparison to previous years, we should see sort of a bump up in Q2 relative to the full year?

Yes.

Okay, great. Thanks.

Great. Thanks, Brian.

Yes. Just to come back on the special projects, given the impact in the quarter and going forward for Q4, Q1, Q3 should we expect a comeback in the special projects or we should see the utility pole being impact to slowdown the organic growth.

So, could we see some negative numbers let’s say in the couple of quarters, because of the weakness in special projects?

Well, I think we’re going to probably see it similar what we’ve seen in Q2 and Q3 play through right into Q4 and Q1. And then, as we lap ourselves in getting to Q2, next year, we’re going to be - it’s going to be more of a comparable where the softness that we’ve seen in the projects will probably continue for 2016 we imagine, like I said there are other projects we’re seeing developing out there unrelated to sort of the commodity projects that made up with lot of these special projects and when that’s going to hit, it’s tough to say.

Some of the ones that are out there are talking as early as Q1, Q2 but we’ll wait to see. Until I got a feel on my hand I’m not going to be talking that at this point in time.

Okay. Thanks for the color.

Thanks.

Well, thank you everyone for joining us on this call and we certainly look forward to speaking with you again at our year end quarterly call. Have a nice day.