Stella-Jones Inc.

Good morning ladies and gentlemen. I'm here with Silvana Travaglini, Chief Financial Officer of Stella-Jones.

Thank you for joining us for this discussion on the financial and operating results of Stella-Jones’ second quarter ended June 30, 2021. Our press release reporting Q2 results was published earlier this morning.

It along with our MD&A can be found on our website at www.stellajones.com and has been posted on SEDAR today as well. Let me remind you that all figures expressed on today's call are in Canadian dollars, unless otherwise stated.

Stella-Jones delivered strong performance in Q2, marked by solid sales growth in each of our three main product categories. Volume gains in utility poles and railway ties, combined with record high prices of volume of lumber, drove sales to over $900 million and headed up to a quarter record.

Increased profitability translated into strong cash flow from operations which allowed us to reduce indebtedness incurred in Q1 for the seasonal build in working capital, invest strategically in our network and continuing to return capital to shareholders. Sales for the second quarter reached $903 million, up from $768 million for the same period in 2020.

Excluding the negative impact of the currency conversions, pressure-treated wood sales rose $136 million or 18%, while sales for logs and lumber increased by $64 million. I will now discuss in more details the performance by product category.

Utility pole sales increased to $236 million, up from $230 million in the corresponding period last year. Excluding the currency conversion effects, utility pole sales climbed $30 million or 13%, driven by improved maintenance demand for distribution poles, upward price adjustments and better sales mix, strengthened by added fire-resistant wrapped poles sales volumes.

This growth was partially offset by less project related volumes. Railway ties sales reached $260 million versus sales of $225 million in this same period last year.

Excluding currency conversions, railway ties sales increased $15 million or 7% [Technical Difficulty] $30 million compared to $257 million in the period last year. Excluding the currency conversion effect, sales increased by $84 million or 33% driven by the exceptional rise in the market price of lumber.

This increase was partially offset by lower sales volumes stemming from softening custom brand. Industrial product sales were $36 million compared to sales of $33 million in the quarter last year, largely due to more timber and piling projects offset in part by lower project-related bridge and crossings sales.

The sales of logs and lumber, a category used to optimize procurement, was up three-folds to $85 million compared to $23 million in the corresponding period last year. This exceptional increase was due to the rise in the lumber price of market during the quarter.

Silvana will now provide further details regarding our results and financial position before I conclude with our outlook. Silvana?

Thank you, Éric and good morning everyone. Turning to profitability, driven by our strong sales growth, gross profit increased 50% to $197 million compared to gross profit of $131 million in the second quarter last year.

Similarly, EBITDA and operating income rose 50% $180 million and 59% through $251 million respectively. The increase was largely driven by the rise in sales prices for residential lumber, which exceeded the higher cost of lumber, as well as improved pricing and volumes for utility poles, partially offset by lower residential lumber demand.

As a result, net income for the quarter increased over 65% to $115 million or $1.76 per share compared to $69 million or $1.02 per share in Q2 of 2020. Turning to liquidity and capital resources.

We generated $173 million of cash flow from operations in the quarter, primarily driven by a significantly improved profitability. Our capital allocation approach remains focused on balancing growth and returns.

During the quarter we invested $16 million in capital expenditures and returned capital to shareholders by paying dividends of $24 million and buying back nearly 300,000 shares for a total of $14 million. There are now 1.1 million shares outstanding for repurchase under our normal course issuer bid.

During the quarter we repaid in full our short-term indebtedness and increased our long-term debt by $26 million. As at the end of the quarter, Stella-Jones's long-term debt, including the current portion stood at $682 million.

We maintained a strong financial position with a low net-to-debt to trailing 12-month EBITDA ratio of 1.7 times and had available liquidity of $395 million. Subsequent to the quarter end, the company obtained a one-year extension of its unsecured syndicated revolving credit facility to February 27, 2026.

Yesterday, the Board of Directors of Stella-Jones declared a quarterly dividend $0.18 per common share payable on September 17 2021 to the shareholders of record at the close of business on September 1. I will now turn the call back to Éric, for the outlook.

Éric?

Thank you, Silvana. We have revised our full-year financial forecast, to reflect the softening of residential lumbar demand in the second half of 2021.

We continue to foresee solid EBITDA growth in 2021, compared to 2020, but expect EBITDA to be in the range of $410 to $440 million in 2021, compared to previously disclosed guidance of $450 to $480 million. The margin expansion we realized in the first half of 2021 is projected to offset the margin compression expected from declining market prices of lumber until the company adjusts ph down its higher cost of inventory.

As a result, the company anticipates EBITDA margins as a percentage of sales for 2021 to remain comparable to 2020. Excluding the impact of currency conversion of about $130 million on sales, the company is projecting sales growth in the low to high teens for 2021 compared to 2020.

Residential lumber sales are forecasted to increase 15% to 20% compared to 2020, down from the previously disclosed forecasted increase of 45% to 65%. For utility poles, the sales growth forecasted remains unchanged.

We expect sales to increase in the high single digit range compared to 2020. We increased our sales growth expectations for railway ties and industrial products.

We now project sales increase in the low single digit range for both categories compared to 2020. Our priorities to create superior value for our stakeholders have not changed.

We intend to be active on the acquisition front, focus on innovation, continue to improve our operating efficiencies and expand our capacity to sustain profitability. On that front, in the coming months we will be starting up our Kirkland Lake, Ontario facility, to support the strong growth in [indiscernible].

The underlying fundamentals of each of our key product categories remained strong. Even as lumber markets conditions normalize, we expect our residential lumber product category sales to benefit from strong and enduring customer relationships.

For our leading utility poles and railway ties product categories, we are confident that it will remain the core drivers of our sustained growth. This concludes our prepared remarks.

We will now be pleased to answer any questions you may have.

Yes, thanks very much, operator. Good morning everyone.

Good morning, Walter.

Sure Éric. Perhaps to start on your guidance change with regards to residential lumber that makes sense given where the market has been going, just curious to cite that are you assuming in that new guidance a deeper decline in lumber pricing or in demand, are you looking at its kind of where its ended the quarter, and I assume, just to get a flavour for the conservatism that you've built into your guidance for residential lumber, would be appreciated?

Thank you.

Certainly, Walter, thank you for the question Walter, and the topic definitely deserves some discussion. So, if you think about our Q2 results were very strong results for the residential lumber product category.

Two dynamics were underlying in those great results; one is pricing or the pricing or sales prices and we were able to pass on to our customers were higher than expected, but they were also offset by lower customer demand. And it's really that lower customer demand trend and then when I am talking about the customer, I'm talking about the retail end customers at the retail level and seeing that demand drop off we would see [indiscernible] into the second half of the year.

So I would say two-thirds of our guidance adjustment is related to the volume aspect dropping versus last year. The other aspect to consider is a sharp decline in the pricing of lumber at the tail end of Q2.

That sharp drop has put some pressures on pricing that we were going to give to our customers, but we need a bit of time to average on our parts of inventories, so I would say a third of our guidance decline is related to margin compression. So, the sharp decline on pricing, obviously market prices have dropped over 60% and we are not dropping our sales prices by that magnitude, but we are conceding some prices to customers, but the fact that we need to average on our cost of inventory that will take a long for us to be able to, average on the costs and therefore there will be some margin compression.

Okay, that's great colour. My second question is on your go forward strategy, and I know you touched on it there in your closing -- in your prepared remarks, but really what you've had here is a multi-quarter, best described as a windfall, that has cleaned up your balance sheet, so that I'm pointing to 1.7 times debt-to-EBITDA, $400 million in available liquidity.

You've used a portion of that to buy back some stock and prime your balance sheet. I guess my question from here, and I know you mentioned acquisitions, but those have been kind of lower on the activity level there.

Are you armed now with this new windfall in the balance sheet was created? Can you go into the market now and become more aggressive with acquisitions, even if they're at a little bit of a higher price, given some of the opportunities that are out there for growing your business or is there just not many opportunities there, and if not, what are you looking at in terms of capital return strategy?

Are you looking at significantly increasing your payout ratio, are you amping up your buyback? Curious to hear your thoughts longer term, in terms of that strategy.

So, thank you Walter. So I'll answer the M&A part first and I'll follow up with the second part, I guess, it's a bit more on capital allocation.

So, on the M&A front, I'm happy to report we're still discussing with this aim companies that we were last quarter. We are progressing in our process, and I can't say much more than that obviously because otherwise I’d be announcing a deal which I'm not.

But things are progressing well, and we are moving positively towards being able to complete a transaction in a short period of time ahead of us. That being said, our leverage has been down or has been excellent, and our deadlines have been excellent for several quarters.

So, we are definitely well positioned to be able to make an act and it's not really about the pricing for the deal, but more about the process to get to being able to conclude a deal. With regards to capital allocation, with the clarification we provided, last year, I think we're going to keep being mindful of the free cash flow we generate.

I think we have ample availability in our facilities to be able to execute M&A, but also to be able to continue to return to shareholders in the form of dividends or share buybacks.

Okay, I appreciate the time. Thank you very much Eric.

Hi, good morning.

Good morning, Hamir.

Éric, what sort of annual volume change is embedded in the res lumber sales guide of up 15% to 20%?

Yes, 30% of volume in the second half, so in the second half in our guidance if you want is 30% of value declined year-over-year.

And what was the volume change in the first half of the year?

It was...

Year to date about 15% to 20% up, it was up yes.

Up, okay and then down 30 in the back half okay. And then as you look out to 2022, who knows where lumber prices go, but from a volume standpoint, what are you hearing from your key customers, are they expecting volumes to be up year-over-year next year in ’22?

So, key customers have not started discussing 2022 yet. I guess maybe the best way to look at it and you touched a bit on it, I think if we start pre-pandemic so 2019 as a starting point, and to that I just need to factor two things, one and you just mentioned, it is where the price of lumber is going to settle?

I mean, you see futures as well as I do, I'd call it a $700 mark for next year compared as to our 2019, let's call it baseline. I think the other thing we need to consider is the strong relationships we've developed in the last 18 months in the market with customers and new customers and that would be sort of added volume to that baseline if you want.

So, not a, I guess I can't qualify right now what it looks like, but that’s how we are sort of thinking about 2022.

Fair enough, that’s helpful and just turning to the railway ties business, if I look at the untreated high prices, it looks like they're, some of those bench marks are up low single digits since the end of Q2 and almost up double-digits year-over –year. So are you seeing that inflation on the raw material side and just remind us how the pass-throughs work in that category?

Yes so, we are observing exactly that. There is less availability of hardwood logs in the market right now.

Well there's less availability of hardwood logs, but the sawmills are also being offered a lot of money to cut palette stock. So that's sort of prompting our industry to raise prices at the sawmills to encourage them to cut more railway ties, so you are completely right, we are seeing that situation occur.

So the consequence for that is obviously and we've had this discussion before, we will see our average cost of inventory increased slowly as we procure month-over-month and then we will have the opportunity to just execute clauses in our Class 1 contracts if you want and adjust the pricing accordingly. So there might be a little lag before we can adjust with the Class 1 customers, and with regards to quoting to non-Class 1, that's really a quoting exercise.

So every month as we're seeing our cost of material increase, we will adjust our cost to the market, so could take another quarter is four to five months, let's say to be able to fully scope in the costs of that fiber cost.

Great. Thanks Éric, that's all I have.

My pleasure, thank you.

Thank you. Good morning.

Good morning Mike.

Maybe just a housekeeping question to start. You've given us updated guidance, not only for EBTIDA obviously, but in terms of sales guidance and there are some details around the product categories.

The new sales guidance is clear that that's organic growth guidance low to high teens for the year. I'm just wondering when you provide all of the product category sales guidance, is that also all on an organic basis?

Yes, it is.

Okay, perfect. Next question relates to your margins, and you have indicated that you expect full year 2021 EBITDA margins to be comparable to 2020's level, so that was about 15.1% last year.

Obviously margins have had some uplift as a result of strong residential lumber markets since the start of the pandemic in early 2020. I'm wondering though, Éric if you can talk about what you see as a sustainable normalized annual EBITDA margin for Stella-Jones business as we look forward.

So now we're just trying to understand how we should think about what sustainable margin and then how that compares to this approximately 15% lower you're guiding to for this year that you did last year.

And Michael, I would guide to that 15%. I think it's something that we can achieve where, other parts of our business are still growing right, utility poles have had the high single digit growth now for a couple of years.

We've gotten some efficiencies in our facilities and so even though we're seeing some normalizing in the residential lumber product category, I guess it will resume to historical margins, but all in all, when you consider the holding company going forward into 2022 to achieve the 50% mark would be the margin to think about.

Okay, and also fair to say even beyond 2022 as well?

Yes, yes, yes definitely.

Okay, perfect. The growth you did in the poles business in the quarter strong at 13%, I guess two questions; number one, are you able to break down where that growth came from?

I mean, you've indicated qualitatively some of the drivers, I am just wondering how important or how much weight each of those carries, so things like improved maintenance, demand and the higher pricing and mix? That will be question one.

And then number two would be, you've maintain your organic growth guidance for that product category in the high single digit range. You did 13% in the second quarter.

So, what is it, I think you're running kind of high single digit on a year-to-day basis, but that sort of implies maybe a bit of a slowdown from Q2 and I realize, high single digit is very good, but what would be the driver for the slowdown from this 13% of the EBIT in the second quarter?

So, maybe a bit of a color on the first half of this year H1. For the year when we combine both quarters, we're at about a 9% growth and that growth call it 30% from volume and 70% from pricing.

So that's how that was comprised. And I think if you take a look at the whole year guidance, it will go to the 50-50 so 50% on pricing, 50% of the volume.

So, I mean, we did slightly adjust and as you noticed we went from mid-to-high single digits is talking in our outlook about only high single digits. So I think it would be aligned a bit with the 9% we achieved in H1.

Okay. Okay, I will leave it there, thank you very much.

Thank you, Michael.

Yes, good morning Éric. Good morning Silvana.

Good morning Benoit.

Yes, just to come back on the residential lumber, could you maybe provide some color about the overall inventory levels of treated wood in Stella-Jones, but also at your customer level and how it could influence demand for 2022?

Great, great, question Benoit. So as I highlighted previously, demand in the second quarter was a bit less than what we had expected, so we just finish Q2 with a bit higher levels of treated inventory than we would in normal years.

So you're completely right in, I guess in what you're thinking is that we do have a bit more inventory on the books than we usually have, and that's why we're sort of guiding to the fact that we'll have a bit of margin compression until we can average down our costs. So we've adjusted our procurement, starting back in June we've adjusted our procurement practices to be able to reduce our inventories.

We're also working with our customers, so our customers don’t typically hold a lot of inventory. We sort of hold it for them, so we're sort of working jointly here looking at pricing or we don't think it is a pricing, but we actually are looking at strategies to make sure that they have pricing that's attractive for the end consumer, bring him into the stores and will help us, this will help us move inventory.

I referred to in the past to a partnership with our customers and this is where there is partnership is being leveraged. Obviously market prices of lumber have dropped 60% and that's not, we have not dropped our sales prices that much.

So we're working collectively with our customers to be able to move to that inventory. So and sort of second part of your question with the volumes of sales we're still forecasting for the balance of the year.

I strongly believe that we'll be able to reduce our inventory levels, average down our costs before the end of the year, and be ready to reset for a good 2022 year.

Okay, and would it be fair that the implied guidance assumes that the inventory level would finished more at the normalized level at the end of the year. Is it?

Yes, that is correct.

Okay. Okay, perfect.

And just in terms of working capital, how should we be thinking in terms of working capital consumption or release for the second half given the dynamics with the lumber price?

Yes certainly, I'll let Silvana answer that. She spent some time looking into that, we were anticipating the question.

Yes, so well, certainly Benoit we would expect the change in working capital to be flat or contribute slightly. So definitely for the second half we would expect a contribution, and the main reason for that is that the typical built in inventory that we usually see in the last quarter of the year to support our sales growth the following year are expected to be offset by as Éric just mentioned the depletion of this higher level of residential inventory.

Also impacting it is also railway ties, as mentioned also by Éric a tighter availability of fiber might also -- we won't have as much as a build because of that also for railway ties.

Okay, when you see a flat to slight contribution, would you say positive or negative, slight contribution Silvana?

A slight positive contribution for the year.

For the year, perfect. Okay that's great.

And just for utility poles, you already mentioned a good color about volume and pricing, but I was curious to know if you're seeing a further acceleration of maintenance work in second half or the recent resurgence of the pandemic could slow things down again?

The portion of your question on pandemic is really difficult to predict right now. We're not seeing any signs of demand slowing down and probably see the order book now sort of reflects, at least part of the balance of the year.

So I can't answer necessarily clearly on pandemic as that's really a bit of a wild card, but right now we're not definitely not seeing that unwind. And maybe remind the first part of your question.

Oh was on volume, right?

Yes, yes, exactly. So that's perfect.

Okay, so thank you very much for the time.

Thank you, Benoit.

Good morning.

Good morning [indiscernible]

Eric, I'm just wondering if you can make a comment on the fire-resistant poles product there, just given all the natural disasters we've seen, can you may be just speak to the potential growth for that category as well as the, just the general competitive landscape there, and how your products are differentiated versus competitors there?

Yes, so it's a great question, right? We definitely, well we don’t really believe that wood products is the best solution for this type of venture infrastructure.

We've proven over different engineering tests and lab tests that under intense fire conditions with wood still outperforming steel and concrete and the addition of the fire-retardant mesh actually, don't make it that much better. A pole has been subject to simulated wildfires and actually for that have been observed in the field, having gone through in the past years through the wild fire conditions actually performed exceptionally well.

So if you think about the environmental footprint, our products are definitely way ahead of kind of substitute products. With regards to pricing, it's still a better product, it is still more competitive on the pricing for our customers and it delivers the same value, and we all know that we are pulling out for less than 65 years.

So I think, it's a great opportunity that we've developed. And with regards to the potential you're -- quite right now we're seeing a 5% to 10% of the total product categories growth being shifted towards the product.

Right? So it's not a new demand.

It's our customers electing to say, well I want a pole that's wrapped now, instead of a robust pole that's not wrapped, that potentially could attract new customers, it's all those because we have this offering. Yes, but no, the 5% to 10% is what we are guiding right now.

Okay, great, that's super helpful and definitely. Thank you.

Thank you.

Hi, good morning.

Good morning Maxim

Éric, just was wondering, obviously as we are hoping for the Biden plan to actually come through in the U.S. I was curious, now that you had a chance to take a look at this, if there's any potential, positive spillover effects in terms of your kind of end markets based on your understanding right now?

In general, so the answer to your question is yes, I think there will be positive impact to the infrastructure bill. What we've observed in the past any type of grants or stimulus money for infrastructure, usually it is welcomed by the rail industry for example and what will, the rail industry will take advantage of it.

We see this year for example we have to we have grants that are given by this infrastructure bodies at the government level in the U.S. There's also the federal tax credit, the 45G credit which is also supporting infrastructure maintenance for short line and we're seeing the positive effect of that on general demand.

So I think it will be the same with the infrastructure bill going forward, I think it will sustain healthy demand. So, I'm [indiscernible] bit about [indiscernible] but it's also true for utility pole as utility poles were targeted at in a few areas of the bill version that I read anyhow.

Alright, and is it too early to potentially quantify it and could it add one or two points of growth, assuming it goes through in a kind of existing form?

It is a bit difficult to quantify. At this point, Maxim, maybe we can take up this question at the next quarter call when we'll have a better idea of how our customers are thinking about it.

So right now, I guess our customers are getting their mindset around what does that mean for them, how do you can leverage this as it is bit difficult to see, how it's going to transpire and which part of our customer demands. So unfortunately, difficult to quantify, but I would think that it would be a positive addition to what we're currently guiding.

Right, okay and then, you made comments around increased market penetration on the revenue side. Do you mind maybe discussing in greater detail in terms of what that could actually enable you to do in a down market on the weather side?

So, I guess, are there any benefits from greater market share and how that can lead to improve margins or something like that that you can quantify?

So, definitely we go throughout the last I guess 18 months we had cycles of tightening in inventory availability of inventory availability of different size and dimensions we talked about [indiscernible]. We've been where our team has been very strong in executing in this issue, we have a proper product mix and offering, so that has attracted some customers to the saleable product offerings.

If we compare additional volumes, could it represent between 5% to 6% additional volume, more or less I think that's what I'm thinking about at this point.

Okay, that's [indiscernible], and then just last one on the [indiscernible], I mean, obviously a lot of news flow around fires and things like that. Are you seeing, some of your clients are kind of rethinking their, destocking dynamic become prices are too often, to move up a little bit off of the lows, like what's kind of happening as we speak on the ground this is possible?

So, I mean, the distribution in the industry is quite different. So, I just want to talk about my customer or the Stella-Jones customers directly but, so we understand that certain retailers have high level of inventory at this higher cost.

And if it's not at the retail level, it's either in the supply chain. So I think I'll take a while for that to cycle out.

I think it will help to some extent or prevent too quick of a drop in market prices and no one wants to write-off inventory or have to sell it off at a loss. So I think it needs to take its time to work through and that's why we're guiding when we think about our own situation and how our customers are working with us.

We're saying that, recovering [ph] that in the next six months, we'll be able to reduce our inventory, buy new inventory at lower prices and average them. Is that helpful?

Yeah, yeah, and then actually just, if we can come back for a second to cost of goods sold on the revenue which obviously impacted the margin profile. Do you anticipate this to be roughly kind of split evenly between Q3-Q4 or how should we think about it or is it really lumpy in Q3 and then sort of the tailwind in Q4, just so that we can calibrate [indiscernible]

Yeah, I think it's been a trend with the volumes like it's typically Q4, the winter months and renovation is not depending on parts of the country, I guess, but it's not a [indiscernible] for innovation, so I would think that the margin compression will come more in Q3 just as it trends with the volumes.

Okay, super helpful, that's it from me. Thank you so much.

Thank you, Maxim.

Thanks, just a couple of follow up, first up Éric, just sorry I missed a little bit about what you were just commenting on and respective of one of Max's questions with respect to market share gains that the 5% to 6% of additional volume, is that what you've already achieved as a result of these additional business through share gains or is that what you expect to achieve given additional business you've picked up?

That's what we've obviously, it always depends on your bits of comparison [ph] I would say that's what we've achieved so far. And we have ongoing discussions with other potential new customers that are still on the fence [ph] deciding, who's going to be their supplier for next year but we feel good about the fact that certain customers might decide to include us as a new supplier base.

Okay, and just from a in terms of understanding that growth is relative to what relative to where you would have been pre-pandemic or is that just what you've achieved in 2021 versus 2020?

Yes, I think it goes back to the definition of getting into think about 2019 where we had a certain footprint of customers, this was a last 18 months hadn't gotten that much more volume to us. I think that would be the best way to think about it.

Okay, perfect. And then I appreciate the comment earlier and it was towards the beginning of the Q&A.

In terms of your volume expectations for residential lumber in the second half than you're thinking volumes, gets down 30% year-over-year and a half to 2021, Can you, similar to what we were just talking about, can you put the volumes, you would expect to do and a half to 2021 in residential lumber, relative to a 2019 base level and where would that leave you off compared to 2019 is the second half?

It would be about to like [indiscernible] if we do the math Michael to be honest and then possibly, think about it I think somewhere around the 20% would be fair.

Okay, so the kind of activity levels we're seeing, or expect to see in the second half of this year actually below pre-pandemic levels?

Correct, yeah.

Okay

That's the assumption we're using the guidance. Yes.

Okay. And that's I mean I know we're getting a little bit specific but that's inclusive of the 5%-6% pickup that you already realized like, so the market is actually down like 25% versus second 2019 and then you got back 5% or 6% from [indiscernible]?

I guess is market, total market would be our facility 20% overall, I mean, it was reflected on the entire market I would say yes it's just a question of what proportion of the market Stella-Jones is getting versus the competition.

Okay, separate topic, thanks for earlier for some of the commentary around progression on the M&A discussions are helpful. Going back to last quarter's call there was some talk of undertaking a bit of a sort of a special initiative whereby you were looking at whether or not there was an opportunity to add an additional adjacent product category and in sort of a new but adjacent area.

Is there any update on that front?

No update on that front, Mike if you remember, I was answering a question of someone inquiring about, could there be a fourth product categories, or what are your thoughts on it, it's something that we keep discussing at the board level and considering I guess the messages. We're not closing the door to any new opportunity, but there's certain criteria for us to consider, considering acquisition and obviously it needs to begin with our business, we need to get accretive good multiple [indiscernible] to make sense with Stella-Jones skill set.

So I guess that's maybe that's the bit of the decision, typically to that discussion point.

Okay, I certainly didn't expect the U.S. concluded that process and determined one way or the other or settled on something, but fair to say then that sort of that evaluating that potential still is an ongoing is an ongoing process.

Yeah, yeah correct, yes.

And then just lastly, thank you Silvana for the commentary around working capital changes and working capital for this year, assuming this is not a great assumption, but assuming we have sort of pricing in residential lumber, sort of holding at these kinds of levels or something around here, if we look out to 2022 in terms of changes in non-cash working capital, what would be the right way to think about that for your business on a full year basis assuming again not kind of no major volatility in commodity prices at this point?

Yes, so if we assume as we mentioned certain stability in the pricing and no significant swings, we would assume the usual build that we need at the end of the year average we usually say an approximately about a $50 million build, depending on the sales growth that is anticipated for the following year.

Okay. Okay, that's helpful.

Thank you.

Thank you, Michael.

Yes, so with respect to your M&A remarks, you kind of mentioned innovation Éric, I was wondering if you could provide more color about what are you looking for in terms of innovation, whether it's specific to a segment or it could be something else?

Well, you know Benoit, I don't think it's time to do the deep dive on that topic as we're looking at a lot of opportunities, it's safe to say we are supposed to have hard, is anything that we do wood treating, obviously because we're the experts we understand that very well. And anything that would be with the adjacent to those industries, but other than that I don't want to start a discussion on specific statements or opportunities.

Okay, that's great color. And last one for me, could you maybe provide an update on the ERP implementation and the current CapEx forecasts, whether it's still $50-$60 million for the year?

Yes, so CapEx, yes $50 million to $60 million, it will be it will be at the top end of that you know prices [indiscernible] show. With regards to the ERP project, we've -- we have successfully run that for several months through pilot plants.

We haven't launched the first wave this week in our residential, sorry in our railway ties division, things are going well on that front as well. I guess lessons learned for us, is that we're seeing how demanding it is to prepare a wave and to be able to structure and be successful at doing it.

I expect the deployment of our solutions to extend beyond 2022, and we're working on a schedule, but it's really the deployment at this point because the dissolution has been built and truly it is functioning successfully. So all in all it is going very well and it’s a great success.

That's it. Thank you very much.

Thank you, Benoit.

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

Thank you.