Stella-Jones Inc. (SJ) Earnings Call Transcript & Summary

Good morning. We apologize for the delay. And unfortunately, we had an event, which is out of our control, but happy to see everything is fine, we can proceed this morning. My name is Eric Vachon, and I'm President and CEO at Stella-Jones. On behalf of the entire Stella-Jones team, I would like to thank everyone, both in person and virtually for attending our inaugural Investor Day. Many of you in this room have met Silvana and myself. But this Investor Day is the first time that you'll hear directly from the leaders of each of our key product categories. We have a great lineup of speakers and presentations for you today. By the end of the day, we trust that you will be well appointed with our experienced management team and gain new insight about our business and be excited as we are about our future opportunities, upcoming ESG strategy and our updated 3-year goals. Before I continue, please note that comments made in today's presentations may contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties. Actual results may differ materially from the views expressed today. Further information on these risks and uncertainties can be found in our consultant in relevant filing on SEDAR. Please note that all figures are expressed in Canadian dollars. I'd like to begin by sharing the agenda and introducing the members of the Stella-Jones team that we'll be presenting. My presentation will include a brief overview of our company, our growth drivers, our outlook, where I will touch upon our updated financial targets that we issued earlier this morning. An overview of each product category will be presented by its respective leaders. As I name them, I would invite the SGT members to stand up for the audience. Utility poles will be presented by Ian Jones, who is Senior Vice President for our utility poles and U.S. residential lumber division. Railway ties who will be presented by Patrick Kirkham is our Senior Vice President for railway ties. Residential lumber will be presented by Brian Grant, who is our Vice President, Canadian Residential lumber sales and procurement. Following our product category presentations, I'm excited to have you receive an update on our ESG strategy from Rhiannah Carver, who is our Senior Director for ESG. Rhiannah will be followed by Silvana Travaglini, our Chief Financial Officer, who will provide a financial overview and discuss in more details our updated 3-year goals. And then I will wrap it up and conclude with a Q&A session before lunch. For those of you attending in person and staying after the Q&A session, members of management will be here to meet with you, and we also brought some product samples, which we encourage you to visit in our showroom. In attendance today, along with our presenters, I want to take a moment to present a few of our team members that are with us today. We have Richard Cuddihy, who is our Senior Vice President and Chief People Officer; Marla Eichenbaum, who is our Vice President and Legal Counsel and Secretary; Kevin Comerford, Vice President, Sales for Utility Poles and U.S. Residential Lumber; Sylvain Couture, who is Vice President, Utility Poles and Residential Lumber Operations for Eastern Canada; Amanda Batiste, Director of Sales for our Class 1 railway type customers. Stephanie Corrente, who is Director of Corporate Communications. Stephanie is over here with the Lumi team. Thank you, Stephanie, and Carmen Estrella, who you met at the entrance, who is our Executive Admin Assistant. These leaders are key to the success of our organization, and I'm lucky to have such a strong team. Before we move on, I would like to share a special community engagement note in relation with today's event. In an effort to align with our ESG strategy, we opted to substitute a promotional gift for attendees with a donation to the Shaw Woods Outdoor Education Center in Eganville, Ontario. In addition to being one of our valued pole suppliers, Shaw as an engaged organization with a special focus on fostering responsible environmental stewardship and providing educational opportunities for students and families. Their outdoor education centers includes 50 hectares of old-growth forest and 160 hectares of wetlands and mixed forest. They offer outdoor education programs for school groups and do wonderful work, sensitizing visitors to the importance of a healthy and diverse forest ecosystem. The center is open year-round and is free of access. The organization relies on partner donation programs of which Stella-Jones has a 5-year commitment. Today, we are proud to donate an additional $5,000 to the education center. A big thank you to Shaw Wood and Dana Shaw for their community involvement. If you have a chance, I encourage you to spend the day at the education center. It's one of the finest old-growth forest in Eastern Canada. You'll also find on each of your seats, a leaflet with more information on the organization. Now let's turn back to our agenda for today. I'll begin by providing a brief recap of who we are, what we do and why we're excited about the future of our business. Stella Jones is a leading producer of pressure-treated wood in North America. We operate 43 treating facilities spanning the United States and Canada. It's robust presence that allows us to service customers both efficiently and on a cost-effective basis throughout North America. We are very proud of our solid reputation in the marketplace and the position that we have earned have a proven track record in being dedicated to quality and customer service. We have an area of world-class customers, which includes major electric utility and telecommunication companies for our utility pole business. We service every Class 1 railroad through our railway tie division. Our residential lumber product category manufactures and distributes premium residential lumber and accessories to North American retailers for outdoor application. And in our industrial product category, we provide essential products for a variety of infrastructure projects from general construction to marine applications, and these -- in this product category complements our rail and utility offerings. Since 2000, our company has grown significantly, both organically and through acquisitions. We've benefited from 23 years of accretive acquisitions, which include 3 transformational transactions. Tangent Rail Corporation in 2010 for our railway tie business, followed by McFarland Cascade in 2012 for our utility poles. And finally, in 2015, Ram Forest Group and Ramfor Lumber for our residential lumber product group. Although we have grown to be a large organization, the agility and entrepreneurship of the small businesses we have acquired has remained within unique culture. And we pass on to members that are joining our company. Not only have we acquired great assets through M&A, but we have acquired great people. In fact, today, 11 out of 20 members of our senior leadership team have come from these acquisitions, all of whom have brought their industry expertise to enhance our bench strength and drive company success. In addition, we have further strengthened our management team with the appointment of Vice President, Information Technology, a Chief People Officer and recently named our Vice President for sales and procurement for residential lumber in Canada. Now let me provide some critical basics regarding our business. As many of you know, we have been focused on wood treating. At first glance, it may seem like a relatively simple business. But there's a lot of complexity involved in this process to produce high-quality products in a timely fashion. So at Stella-Jones, one of the metric we measure is the cubic fee. This is a representation of 1 cubic feet of wood. It's a measurement in volume, which is 12 inches by 12 inches by 12 inches. To give you an idea, an average railway tie would be 3.7 cubic feet and an average distribution pole is about 30 cubic feet. If I were to stack 37 million of these, I would get the Empire State Building. In 2022, Stella-Jones sold 140 million cubic feet of wood, which is the equivalent of 3.8x the Empire State Building. That's a lot of wood. It's a lot of hours spent procuring, inspecting, treating and shipping. And this is the magnitude of work that goes behind our results every year and that is required to support our customers' requirements. Secondly, treating seems basic as a process, but it's actually complex. What is an organic matter and every species has its own properties such as density. Humidity levels in wood will vary and impact treating cycles. And the treatment process in health in itself has many intricacies where consideration must be given to cylinder pressure and treating solution temperature. Treating wood is a science. And Stella Jones masters this knowledge, which is important to produce high-quality products. This is why consumers come back over and over again. As much as quality is important to our customers, distribution sales and logistics are key to our model. Timeless of delivery is critical. That is why we leased over 1,000 railcars a year so we can transport our products across the North American networks. Our proprietary trucking fleets, Timberland Express in Canada and Kisatchie Midnight Express in the U.S., allow us added flexibility in logistics to better service our customers for regular maintenance and emergency response. Our customers know that they can rely upon our company to get their quality products delivered on time. In a short while, you will hear from our leaders about procurement operations and distributions of product. You'll also learn about the importance of ESG in our mission. Ever since its inception, Stella-Jones has been focused on meeting regulatory compliance, implementing robust environmental health and safety practices, and creating a strong and ethical culture. Our first ESG report covered the year 2017, where we acknowledge the need for better data collection to elaborate a strategy and set meaningful goals. This morning, you will get a glimpse of our 5-year strategy and the goals we will be putting forward in 2022 that will be published in our report in Q3. We've done a lot of work in the past 5 years to improve and report on the aspects of environmental, social and governance. And the addition of a dedicated resource with a background in sustainability was key to formulate a comprehensive strategy. Mrs. Rhiannah Carver will be presenting the ESG topic in this morning's agenda. When we think about our path going forward, we're mindful of the capital allocation efforts to drive shareholder return. As we see our business grow, we continue to strategically invest in capital expenditure programs. We are reaping the rewards of our investment by seeing the strength of our sales and profitability. Our strong operational and financial performance in 2022 well positioned us to meet or exceed the financial targets that we laid out last year. As such, this morning, we announced updated 3-year financial objectives, which extend to 2025 and build upon the guidance we've previously provided. To give you a few highlights, our sales target is to achieve over $3.6 billion by 2025. We plan to reach EBITDA margin at 16% through 2025. This is an acceleration over our prior target of 15% that was shared last year. And lastly, we plan to return a cumulative basis over the next 3 years to our shareholders. A continued commitment from our previous financial goals. Later, Silvana will take a deeper dive in our full financial outlook and the drivers behind each one of these goals. Our products continue to play a key role in the development, upgrade and maintenance of North America's infrastructure. The momentum we generated last year has carried into 2023 as we continue to support growing demand for our products. We see several growth catalysts that will help us achieve our financial targets and create long-term shareholder value. Our product leaders will delve further into these -- into their respective presentations. Lastly, I mentioned earlier, as Stella-Jones has had a history of making accretive acquisitions to bolster the business, and this strategy remains a key area of growth potential for our company. The wood treating industry still has acquisitions to offer, and we intend to execute on them to complete our North American network. As we have increased our presence over time, we have built a strong infrastructure product company that services railroads and utilities. Our customers recognize the quality of our work, our ability to adjust and our distribution capabilities. They engage with our teams to explain their requirements. And over time, we have expanded or innovated in our product offerings such as bridges for rails or fire-resistant wrap for utility poles. As engineering and technology evolves, so do our customers' needs. They seek strategic partners that can support their infrastructure projects and ensure the supply chain for a variety of products. Stella-Jones is focused on being a manufacturer of infrastructure products for its rail and utility customers. We will pursue acquisitions in the treated wood tie and pole industries, but also consider other products and materials that have unique applications and are complementary to the products we offer to the railroads and the utilities. This opens up new acquisition opportunities that will be subject to strict criteria in line with our historical approach. We will seek acquisitions that are accretive for Stella-Jones from a margin and return standpoint, have steady revenue and solid free cash flow generation and had a seasoned management team with a track record of performance. Today, we announced that our 2025 sales objective was to meet or exceed $3.6 billion on an organic basis. We believe acquisitions may have the potential to push our sales aspirations further given the opportunity. Hopefully, by now, you realize how hard we work and how high we set the border success. Our ability to deliver consistent results is driven by our world-class team who you will meet and hear from today. This great management team, coupled with our strong culture, enable us to deliver quality products and service and remain focused on our customers. With that, I will now pass it along to Ian Jones, for his presentation on utility poles. Ian?

Thanks, Eric. Well, good morning, everyone. My name is Ian Jones, and I'm the Senior Vice President for Utility Poles and U.S. Residential Lumber. Today, I will be focused solely on utility poles. You will hear from Brian Grant later today with regards to residential lumber product category. Before I begin, I'd like to provide a bit of a background on myself. I started my career in the pole business in 1980. And over the past 40 years, I've worked in all areas of the business. I started in the peeling and procurement business segment and then worked through from Treating to Sales. I've been with Stella-Jones for 17 years. And during that time, I've actively participated in all acquisitions related to poles. And I've been fortunate to be a part of those deals since 2006, which Eric spoke about moments ago. I'm very excited to be here today to talk to you about utility pole product category, and our plans and expectations going forward. Let me start by giving a quick overview of our utility pole product category. We supply large and small electric utility and telecommunication companies with wood utility poles across North America. Treated wood poles have the potential to last 40 to 50 years in the harshest environments, and much longer in other regions throughout the U.S. and Canada. Utility poles is the largest product category and Stella-Jones representing approximately 40% of Stella-Jones' total sales in 2022. Not only is it the largest product category group, but it's also the fastest growing. We have seen strong growth in sales over the past 5 years. In 2022, sales of utility poles rose approximately to $1.2 billion up organically by 21% versus 2021. We have a leading position within the marketplace and have established a footprint across North America. And of our 43 total Stella-Jones facilities, more than half are for utility poles. We have 16 pole plants in U.S. and we have 10 plants Canada for a total of 26 facilities on the continent. In addition, to our peeling and treating facilities, we continue to expand our robust distribution network, this network to remote facilities, also known as finished goods yards, establishes enables us to transport efficiently, treated poles to distant locations, provide customers with the same level of service they would enjoy located near the wood resource and our treating plant. We have over 30 of these facilities. Our network of distribution facilities allows us to respond to unforecasted demand and catastrophic storms in a more robust way. We have responded to many hurricanes, ice storms, large-scale fires and tornadoes virtually every year. In any given storm response, we can supply thousands of poles quickly, utilizing multiple modes of transportation and leveraging our inventory throughout our network. We are proud of our robust network of our facilities that enables us to service large industry presence and serve our customers efficiently and quickly. This coast-to-coast network enables us to help support future demand while leveraging economies of scale. We have purposely and methodically built out our business coast-to-coast because of the different wood species that are native to different parts of North America. We have a broad array of fiber options that we offer our customers and just want to run down a quick options of the wood species that we treat in our plants. Western red cedar, which is mainly growing in British Columbia, Idaho and Washington. It's popular due to its lightweight, it's natural resistance to decay and its insecticidal -- resistance to insecticidal attack. Douglas fir, which grows on the West Coast of the United States starts from Northern California, extends up into Canada to the Northern tip of Vancouver Island. Douglas fir is considered one of the best softwood species given that strength in its symmetrical shape. Red pine, which is growing in Eastern Canada and Northeastern United States with production coming from both plantations and from natural stance and finally southern yellow pine or SYP, which has grown in the Southern Eastern United States starting in Western Texas and growing right across to Virginia. Southern yellow pine represents the largest wood pole resource in our footprint. The picture on the right side of the slide represents a single-stem harvesting project that we did and it's Western red cedar. And what's interesting here in this picture is what -- what we do is we send skilled arborists and they trim off the limbs and they climb the tree, they top it. They flag it with a bright ribbon. They come down. They have a GPS locating coordinate on the tree. They put in an undercut and a back cut and they wedge it. And throughout the stand, every one of those stems has a marker. And then when we bring the helicopter in, the helicopter with a grapple breaks off that tree, withstanding there and then they fly down to a landing and what's unique about this is we have high rate of recovery, very low disturbance on the footprint of the stand. And it's a very unique, very specialized harvesting technique that we deploy. Now let's turn the trends to -- sorry, just lost my voice here. So now let's turn the trends facing the utility pole industry, which have increased sales for this product category. I'd like to call out 5 trends that are driving demand today. First, our customer base typically prefers treated wood poles because of their durability, flexibility, low cost and the safety it offers to the line workers. They also have a relatively low cost to purchase, install and maintain compared to poles of other materials. Second, a significant volume of installed poles are at approaching its end of useful life. Major investments in the electricity here in North America were made after World War II. A large volume of wood utility poles were installed in the 1950s and '60s, and many of those are still in service today. I'll speak more on this topic later. The third industry trend is the growth of broadband and 5G cellular networks, which require, in many cases, a taller, stronger and a larger pole. The fourth industry trend is societies need to support heavier electric loads, which is mainly attributed to the proliferation of electric vehicles as well as the focus on moving away from fossil fuels towards renewable energy initiatives such as wind and solar. And finally, the last industry trend is the need for utility poles to better withstand heavier and more frequent weather events, including wildfires. Stella-Jones is well positioned to meet this expected demand given our competitive strengths within the industry. First, we have an extensive procurement network. Our production facilities are strategically located close to the resource and the respective wood species. Our strong industry reputation and long-term relationships with wood suppliers assures us access to wood fiber needed to make our products. We maintain large inventories of treated and untreated wood. This allows us to buffer unplanned pole demand with supply, which can be unpredictable based on large storm events. Next, our vast manufacturing network across North America allows us to convert untreated inventory into customer-specific products very quickly. We also have an extensive distribution network that offers broad economic coverage, allowing us to utilize economies of scale from our large leased railcar fleet while also providing just-in-time custom delivery services utilizing our trucks or third-party providers from a network of finished goods yards. Over the years, we have built a broad and diverse customer base. We have over 1,000 customers across North America focused on electrical distribution and telecommunications. And finally, we have assembled a best-in-class team, which was driven by prior acquisitions as well as hires from outside our industry. We have the operating and technical expertise, including foresters, salespeople, procurement specialists to ensure that we always guarantee exceptional customer service. There are many growth drivers and catalysts for the utility pole product category, which is why we expect sales of utility poles to continue to increase. These are utility pole maintenance, fire-resistant wrap for utility poles, broadband expansion, renewable generation transmission wheeling and electric vehicle expansion. Now let me run through some of these growth drivers now. Perhaps one of the biggest growth drivers for our utility pole product category is regular utility maintenance. Many utilities are focused on other investments since much of the distribution system was built 70 years ago. As many of our customers have explained to us, utilities always have suffered from more capital investments or needs that they have capacity to address. Capital requirements for large power generation, clean air mandates, renewable generation and additions to transmission grid. That said, poles keep aging and regular and ongoing maintenance continues to be deferred. Utilities will be increasingly forced to prioritize investments in their distribution network, and we are seeing that today. Parts of the utilities pole maintenance may require them to better withstand and unforeseen weather events such as wildfires. In 2019, we began offering utility poles applied with an intumescent fire-resistant wrap. This provides added protection and prolonged service life to the product in areas prone to wildfires and has gained favoring with utilities looking to harden their grid against increase in severity and frequency of fires. This photo of the application of fire-resistant wrap, we applied fire-mesh fabric to the poles that are customized to customer specifications. The wraps make them resistant to fires, thereby protecting the infrastructure. We believe other areas in the U.S. and Canada are beginning to see the value of this solution. And as such, we see great potential for this product in the infrastructure landscape. We have some samples of the fire-resistant poles in our product showcase outside that you can view after the presentation today. Broadband access and expansion has also become large growth driver for our business. The need for accelerated broadband access was heightened during the pandemic and has continued. As more people embrace a hybrid working environment or work exclusively from home, it became apparently clear that many rural locations do not have the adequate access to broadband internet. In addition, government subsidies have been used to incentivize and augment investments in delivering high-speed internet to all areas as quickly as possible. We are seeing projects emerge in numerous markets and pole demand is typically in the thousands of pieces per project. Climate change as well as government mandates are prompting utilities to continue to find alternates to traditional fossil fuel generation. As such, new generation sources are becoming a necessity. And although wind and solar farms have been added for more than a decade, new facilities tend to be further away from the existing transmission lines, which requires longer hookups and newer utility poles. Many models and studies show this demand remaining robust for another 10 to 20 years, which is a significant growth driver for our business. Let's turn to the sharp increase in electric vehicles mandates that are driven by federal and local government mandates, both in Canada and the United States. It is clear that the existing distribution system is not adequate in most areas to handle the volume of electricity. That will be needed to -- for residents as the volume of EV growth is mandated over the next several decades. Additional electric capacity is a given, and we see wood utility poles being the preferred product in most regions. There must be additional generation and distribution upgrades needed more and larger transformers at the residential level require new and larger utility poles. Now let's turn to a brief overview of the preservatives that we use. We treat utility poles with all the main preservatives based on customer preference with the exception of fir, which must be treated with an oil-borne preservative. These include CCA, also known as copper chromium arsenate, creosote, copper naphthenate, DCOI, pentachlorophenol or penta for short, which is currently being phased out. I'm sure many of you are aware of the penta is being phased out across North America, and I'd like to provide a brief update on that development now. In the United States, the phase out of penta is well established and in progress. It is required to be completed by 2027, and we will most likely complete our phase out in 2024. The vast majority of penta customers have decided to transition to DCOI, our phase out -- buyer phase out in 2024. The vast majority of penta customers have decided to transition to DCOI, which is also an oil-borne system. We began converting our U.S. plants late last year and we'll continue converting plants until the final conversion in '24. The transition has gone extremely well, a true testament to our operations team and our abilities. Like the United States, Canada has also announced its intention to phase out penta by October of 2023. As of yet, Canada has not granted a label to another oil-borne preservative system. But one thing is clear, we have been on the forefront in transitioning to an alternate preservative solution and consulting with customers on available options since the phase out of penta was first announced. We have converted one of our Canadian facilities from penta to CCA. We will convert another plant likely before midyear and are working on transition plans for our 3 remaining penta facilities. Stella-Jones is no stranger to innovation. Innovation has always been a part of our past and will be a part of our future. Much of Stella-Jones recent growth and CapEx and has been deployed in the utility pole product category, and I'd like to speak about a few of these innovations today. The first is that increased use of technology to help increase our quality, capacity and safety. The photo that you see here and on the left-hand side of the video behind me is a robotic framing line at our plant in Eugene, Oregon. The use of robotics allows us to increase worker safety while helping us automate our process. We first started using robots in our tie division and we're able to leverage our relationship with that manufacturer. To the best of our knowledge, we are the only ones using robots for this drilling application in the industry. Based on results to date, we are now evaluating the next robotic location. You can learn more about a robotic framing line at our product showcase in the next room which we welcome you to visit after today's presentation. The picture on the right hand side is our latest facility in Durant, Mississippi which is coming online this month. This facility which includes a kiln, state-of-the-art peeler, rail spur to support our southern yellow pine network. This facility was constructed in under 10 months. We have also started another peeling and drying location in North Carolina, which we expect to come online in late 2023. In addition to these 2 facilities, we are currently working on several other sites to add production capacity and storage to support forecasted sales. Over the past several years, we have introduced other technological innovations, such as laser pole optimizing equipment that helps measuring class poles more quickly and accurately in our Southern Yellow Pine plants as well as enhanced peeling technology to help improve this basic manufacturing step. Other major investments include additional kilns throughout our network. A kiln is essentially a large oven that can help expedite the drying process assuring consistent moisture content for some species as well as allowing us to reduce the amount of time required to naturally air season our product. We have also invested in replacing older treating vessels or retorts with new and, in some cases, larger retorts. These larger retorts increase our capacity at existing facilities without major investments or building greenfield facilities. The conversion of an 8-foot diameter retort to a 10-foot retort increases capacity by approximately 75%. With the recent addition of 4 new 10-foot diameter retorts, we have added capacity of a new treating plant at a much lower capital cost. In addition, we have plans that are under way to add a third retort to our Cameron, Wisconsin facility by the Q4 of 2023. Overall, we started upgrading and adding critical equipment to our network more than 8 years ago, which has now strengthened our manufacturing backbone, more peelers, more kilns, larger retorts, in the right locations is critical in supporting the forecasted growth we are predicting. In 2023, we will add 4 additional peeling machines with one of these units focused on state-of-the-art recovery and throughput. That's expected to come online late 2023. In addition, our extensive network, coupled with continuous supply, our ability to respond quickly and readily to emergency situations and our ability to innovate have firmly established Stella-Jones as a leading supplier of wood utility poles across North America. We are excited about many demand drivers related to infrastructure investment in North America, present and future needs. We see notable growth ahead in our utility pole business. Our solid industry reputation has resonated with our customer base, many of whom are asking for long-term agreements to secure supply. We've begun laying the groundwork to cater to demand through significant CapEx investments to support our growth. These CapEx investments, coupled with strong leadership position in North America as well as our broad distribution of procurement networks, and our experienced team will position us to meet growing demand in the industry. We are very proud of what we have achieved to date, and we continue to invest in this business to support our next phase of growth. Thank you for your time today. With that, I'll now pass on to Patrick Kirkham for the rail tie presentation. Patrick?

Good morning. My name is Patrick Kirkham, and I'm the Senior Vice President in charge of the Railway Tie Division. Prior to coming to Stella-Jones, I had a 16-year career as an environmental consultant working for large international consulting firms. I started with Stella-Jones in 2010 as an environmental health and safety manager and was responsible for EHS aspects at both pole and railway tie facilities. In 2016, I moved into the railway tie operations group to help lead the day-to-day aspects of the business and then to ultimately lead the railway tie business in 2021. I'm excited to talk to you today about our successes to date and our plans as we move into the future. As you may know, Stella-Jones is an industry leader in the manufacture and distribution of wood railroad crossties switch ties, bridge timbers, prefabricated bridges, crossing panels and pre-plated products. We serve a key role in the development, upgrade and maintenance of North America's railroad infrastructure. which has a significant existing base of wood ties. Approximately 90% of railroad ties in service or 500 million ties are wood ties and require regular maintenance. The North American railroad industry replaces on average, 18 million to 20 million railway ties per year to ensure the rail lines are structurally sound and safe. And Stella-Jones has the capacity to supply up to 10 million pressure treated crossties per year to the industry. We service all the Class 1 railroads as well as short line railroads, transits and commercial operators from coast to coast. As you can see in the graphic, Stella-Jones railway tie plants are geographically positioned in the Mid-Atlantic, where we source both oak and various mixed hardwoods from approximately 850 sawmills. We have an extensive network that includes 12 treating facilities. This broad footprint, coupled with our steady supply chain allow us to provide exceptional service to our customers. While we supply 35% of our products to the commercial and industrial market, 65% of our sales are to Class 1 customers. And we have long-term contracts with all 6 of North America's Class 1 railroads, creating inherent stability for Stella Jones railway tie sales. I'd like to now provide you with an overview of what we offer to the railroad industry. Whether it's a wood crosstie in the main track or a bridge over a major waterway, Stella-Jones provides high-quality products that allow our customers to safely operate their business. Our facilities manufacture railroad wood ties treated with creosote, copper naphthenate and borate as specified by each customer. We also build bridge decks, fabricate bridge timbers, assemble crossing panels and manufacturer switch ties. In addition, we offer value-added services like pre-plating where we spike our screw rail plates to a tie, so our customers can allocate their resources to their core competencies. There are a number of trends impacting our industry today, which I would like to highlight. First, our business is driven primarily by maintenance demand, with close to 90% of the North American rail infrastructure built on wood and crossties and 90% sold for the purposes of maintenance, we are well positioned to meet the rail industry's needs. The movement of goods and services by rail is key to the continent logistical flow. The movement of railroads need to be safe and goods and freight must be delivered on time, and this is why maintenance is a priority for our customers. On top of maintenance demand in late 2021, the Biden administration passed the infrastructure bill, putting $102 billion into rail infrastructure spending between 2022 and 2026. We have recently seen an increase in project requests related to this funding and expect it to pick up further in the second half of 2023 and beyond. The raw wood or untreated tie we purchased from a sawmill is the largest cost component of a railroad tie. In the last 2 years, the cost of untreated ties has increased by approximately 25%. The most recent increases have been driven in large part by the lack of demand for competing wood products. Railway ties are sourced from the center of a hardwood log, which includes the hardwood, A healthy mix of demand encourages a sawmill to cut a variety of products from the sapwood and produce a railway tie from the center of a log. The other graphic on the slide shows a sawmill has to strategically cut a log into various products to ensure profit. I've also included a table from the Hardwood Market Report to show the historic demand for various wood products. The black on this chart represents products that are in strong demand. You can see that most products were in strong demand through the first half of 2022. When competing product prices are favorable as the graphic shows through the middle of 2022, railway tie prices rise, but our volumes drop as sawmills increase their volume of competing products. This creates a shortage of ties and in turn forces Stella-Jones to offer more money to sawmills to get enough ties, which is the situation we were in for most of 2022. However, when competing products are not in demand, sawmills will not -- will turn to producing railway ties to generate cash and have to accept lower prices for the competing products. If the mix of products that the sawmill produces does not generate a profit, it may temporarily shut down. Given this cost pressure, the Stella-Jones tie sales group has worked closely with our customers to ensure these inflated costs are communicated, understood and agreed upon so that we can pass these costs on to our customers. All Class 1 contracts include price adjustment mechanisms to cover cost increases. Fortunately, we believe raw material pricing has stabilized. Stella-Jones targets to maintain approximately 23 million to 24 million cubic feet of wood at any given time. But due to the limited availability of wood supply, our inventory fell to a low of approximately 18 million cubic feet in 2022. It's important to note that we stack and air dry most of our inventory prior to the wood being treated. Because of this, there's a 6- to 9-month lag between when a tie is processed and stacked and when it gets treated and shipped to a customer. As you can see, we were falling short of untreated tie procurement targets for most of 2022. Fortunately, that dynamic changed in late 2022, and we've been outpacing our procurement and stacking targets each month. If the current pace continues, we anticipate that we will reach our target inventory level by fall of this year. The increase in stacked inventory in the third quarter of 2022 and the first quarter of 2023 will position Stella-Jones to capitalize on the inventory in the second half of 2023. Our procurement capabilities and relationships with our sawmill partners have nonetheless allowed us to outperform our competitors and maintain adequate inventory to supply our customers during these difficult times. In addition to increases in untreated tie costs, we've also experienced a 25% increase in creosote pricing in the last year. Creosote is a derivative of coal tar and coal tar is a secondary product generated from the coking of coal used for steel production. Production and export of coal tar from Ukraine has been greatly reduced as a result of the conflict in that region. We also faced additional pressures on coal tar pricing in the United States as steel mills move to more environmentally friendly processes that do not use Coke to produce steel. Prior to this situation, creosote pricing had been relatively flat for almost 10 years, but in 2022, Stella-Jones received 3 price increases from our primary supplier. It's worth mentioning that Stella-Jones also owns and operates a coal tar distillation plant in Memphis, Tennessee. This facility has the capacity to manufacture 12 million gallons of creosote per year using domestic coal tar as raw material and supplies 40% of our internal needs for the railway tie group. Manufacturing our own creosote provides security of supply and cost benefits. In addition, the Memphis facility purchases and distributes approximately 14 million gallons of creosote per year from both North American and European suppliers to both pole and railway tie plants. Stella-Jones is the leading wood size supplier in North America, and there are many reasons for our strong position. We have built strong customer relationships, have an extensive manufacturing distribution and procurement network have differentiated product offerings and robust inventory levels. As I've said earlier, 65% of our sales are to Class 1 customers and we have long-term sales contracts with all 6 of North America's Class 1 railroads, creating inherent stability for Stella-Jones because we have proven Stella-Jones provides a high-quality product. We are flexible to our customers' requests, and we always do what's necessary to provide the product on time. We are also able to support our Class 1s in emergency repairs and replacements. For example, if a railroad has a derailment or a fire that destroys a bridge, Stella-Jones [ Canon ] has provided replacement materials in very short time frames to get the railroad up and running again. Our tie treating plants have the treating capacity, the procurement base and bridge manufacturing capabilities that allow us to quickly respond to our customers' needs. It allows us to quote projects from the closest facility to ensure we can offer reasonable freight rates, giving us a better chance to win a project. We also have the treating capacity to ensure we can quote commercial orders in accordance with the customer schedule. In addition, Stella-Jones has an extensive transportation using truck, rail and at times maritime transport to deliver our products. 11 of our 12 treating plants are online with the Class 1 railroad and receive raw materials and ship products by rail right from the rail spurs at our facilities. Our procurement team leases in excess of 400 railcars to ensure we can move untreated ties to our plants and treated products to our customers. Stella-Jones also works closely with our customers to expand our product offerings and develop new processes and alternate treating preservatives. Specifically, we have manufactured equipment that allows us to offer a dual treated bridge product, another product that is in growing demand from the railroads are pre-plated ties. Providing pre-plated ties to our customers shortens the amount of time they need to install the ties and track, whether they are replacement tie or new construction. Stella-Jones has built 3 pre-plating lines that have automated this very labor-intensive process and allowed us to offer a higher-margin product to our customers. We have also converted multiple cylinders from cresosote to copper naphthenate due to the demands of our customers. I also want to quickly talk about our robust inventory levels. One of the things that sets Stella-Jones apart is that we own our inventory. This ensures that we have products for our customers when they need it. And this is why -- another reason why our customers continue to trust Stella-Jones for their needs. We have 3 key drivers that will help us reach our long-term targets. Number one, increased volumes; number two, favorable pricing dynamics and number three, product innovation. Stella-Jones is always focused on Class 1 business as our core because we are a volume business in the Class 1s by the most ties in North America. Class 1 business drives steady volumes, allowing us to operate efficiently. Each of our railroad tie manufacturing facilities has a base Class 1 customer. Our relationship has been strong with our Class 1 customers. That being said, it can be difficult to gain large increases in our Class 1 contract volumes because of these entities, for the most part, want to maintain a diverse supplier base. However, in our recent negotiations, we gained additional percentages of 2 of the Class 1 annual programs, which demonstrates the trust that we've built with these core customers. As I mentioned earlier, we expect volumes to increase across North America and particularly in the U.S. due to the passing of President Biden's infrastructure bill. This bill has provided unprecedented funding for rail improvement projects and will help make the rail network safer and more reliable. Funds will be made available for intercity passenger rail, Amtrak's National Network, the National Railroad Passenger Corporation program and the Consolidated Rail Infrastructure and Safety Improvement program. Currently, all the long-term supply contracts with Class 1 railroads include price adjustment mechanisms, which allow us to adjust our selling price to reflect added material costs. Even with these contractual provisions in place, several of our Class 1 customers can be slow to accept our approved price increases. New tools are being developed this year to automate price adjustment calculations, and we are engaging with these customers in a timelier way to capture the benefits of adjustments earlier. In addition, we are evaluating the benefits of shorter-term supply contracts that will allow us to better manage price changes when the current contracts expire. I spoke earlier about product innovation as a competitive strength, but it is also a growth driver for us. We have been working on our dual treatment bridge process, our 3 pre-plate lines and our conversion of our cylinders from creosote to copper naphthenate, which are examples of how Stella-Jones has increased our product offerings. Our operations and engineering groups are also in the process of designing another potential bridge manufacturing operation that will allow us to offer additional higher-margin bridge products to our customers. As we look forward, we will continue to innovate and expand our product offering to respond to our customers' needs. Moving to 2023 and beyond, we have a robust plan to continue to make investments to make the tie treating plants safer and more efficient and more environmentally and employee friendly. We are excited with our 2023 investment plan. We're investing capital into automation, which will shorten the treating process and allow us to treat more efficiently. We will convert another treating cylinder from creosote to copper naphthenate to meet the demands of a Class 1 customer. And the video that's going to be behind me, an industry first that Stella-Jones has developed is the use of robotics to stack our ties. In 2023, we worked with the robot vendor to build program and install the first robotic tie stacker. To date, Stella-Jones operates 6 of these robotic tie stackers and the seventh is being installed in 2023. It has developed to improve efficiency. The robot builds a more stable air stack and allows our employees to perform this operation safer and with less injuries. This robot can stack 3,500 ties per shift. The robotic stacking is the last step of our trimming process, which includes us taking the tie from the sawmill, cutting it to length, inspecting it, grading that tie and sizing the tie, applying endplates and then this robot will stack that tie. In the product showcase, we have some video out there and a tie that shows the process. So we can talk about that if you have further interest. And finally, for 2023, one of my favorite projects, Rhiannah's favorite as well. a solar panel installation, the second of its kind at Stella-Jones treating plant. The first one of these projects was installed at our Clanton, Alabama facility in 2022. We worked closely with our consultant in Alabama Power to complete this project. This installation provides for 70% of the treating plant's electricity requirement, minimizing our usage of traditional energy and saving the equivalent of 92,000 gallons of diesel fuel annually. Our consultant has ranked all of our facilities, pole and tie, based on their solar potential and other factors, and we will continue similar projects to shrink our carbon footprint. Looking into 2024 and beyond, we are evaluating the feasibility of new projects that include robotic destacking, automatic banding stations and additional prefab operations. Each of these projects is designed to improve efficiency and greater safety for our employees. In summary, we remain excited about the prospects and growth trajectory for the railway ties category. There are many near-term catalysts that we are poised to benefit from, including steady maintenance demand, new product offerings and an acceleration in U.S. infrastructure spending. Our business is built on our strong relationships with the Class 1 and commercial customers who rely on Stella-Jones for our high-quality products and services. Supporting our growth is our continued investment that will drive efficiency while improving safety. We believe that Stella-Jones is well positioned to grow through our industry-leading position, coupled by strong -- the strong market fundamentals of the industry. And that concludes my remarks. I'm going to pass it off to Eric Vachon. Thank you.

Well, thank you, Patrick, and thank you, Ian, for those presentations. We're going to take a short break until 9:45. There's still some coffee and some snacks out there for you. And obviously, the team is going to be out there to exchange and answer any questions. And we will -- as I said, we'll resume at 9:45 for the following -- for the balance of the presentation. Thank you. [Break]

Well, good morning, everyone. My name is Brian Grant, and I'm the Vice President of Residential lumber of sales and procurement for Canada. It's a great opportunity to speak to you today about the residential treated lumber category. Let me share a little background about myself. I've been in the business for 27 years, starting with MacMillan Bloedel in 1996. Some of you in this room may remember that name. And in 1999, I joined a newly formed trading and lumber distribution company called Dynamic Forest Products, which was a division of Taiga Forest products. In 2015, we were given a tremendous opportunity with Stella-Jones, and I'm excited to discuss and highlight some of what the future holds for residential lumber today. Stella-Jones is the largest treater of residential lumber in Canada, treating over 400 million board feet of softwood lumber or as Eric would put it 33.3 million cubic feet. We're a manufacturer and distributor of treated grade premium lumber, composite decking products and accessories supplied to Canadian and American retail partners. First, let's take a step back. Many things changed for the business in spring of 2020 from COVID shutdowns and uncertain business conditions to record demand for lumber building products and the wild price swings that ensued. Our team of experienced and talented individuals did a remarkable job of working to overcome the challenges brought on during this period. Through our strong relationships, open communication and dedication to the business, we are able to successfully respond to the demand of our customers. All the lessons we learned during the pandemic strengthened our position in the marketplace and put us at an advantage going forward. The majority of -- which is approximately 75% of Stella-Jones residential business is in Canada, and our treated and number of distribution facilities are strategically located across the country to support speed-to-market service effectively and efficiently. We have 6 facilities in Canada and 2 in the U.S. Our plant in Tacoma, Washington services the British Columbia market as well as the customers in the Pacific Northwestern U.S. We also have a plant in Warsaw, Virginia that focuses on industrial treated wood products. We treat a variety of softwood species, including the species that can be found across the country, which is a mix of spruce, pine and fir also referred to as SPF. In the Western Canada, we use a species called Hem-Fir or Hemlock. And in Eastern Canada, we use red pine. I would like to note that 80% of more of all product procured is from a certified source. All Canadian residential lumber is treated with micronized copper an environmentally-friendly preservative. We treat a variety of products, most of which can be found in any backyard project in a variety of lengths. Adding to the mix, we are the largest distributor of composite decking and related products in Canada. Our customer mix is approximately 70% large box stores and 30% retail lumber yards, which we're proud to say are all long-lasting industry relationships. Now during COVID, as everyone remembers, we are forced to gather and meet outdoors. This shed new light on the backyard experience. And the backyard continues to proliferate and has now become a 3 season in some cases, 4 season extension of one's home with beautifully redesigned decks, fences, outdoor dining kitchens, fireplaces and TVs. A popular social media deck designer and renovator has recently said that your backyard reinvestment can return up to 70% when you sell your home. We recently hosted a variety of proven contractor events. And while the reoccurring theme is new home construction has slowed, though same pros and contractors are shifting into decking and fencing. In addition, the fact that treated lumber prices have reset from the highs of COVID, also play well for homeowner affordability. With the longer-term fundamentals pointing toward new housing growth and continued renovation in Canada in the years to come, we are well positioned to capitalize on opportunities for pressure-treated lumber as we move into the future. Stella-Jones is a leader within the residential lumber industry. What sets us apart are several factors. First, we offer high-quality products, not all treated lumber is the same. Our program consists of premium grade lumber and complementary products in all dimensions and sizes. Not only does the Stella-Jones process begin with premium grade lumber, but during the production process, our grade is enhanced further as we perform 2 more additional visual inspections, removing defects that the sawmill may have missed. Second, we offer best-in-class service, and we're always in stock. This is crucial in times of volatility and shrinking North American supply. Now more than ever, our established relationships on the supply side ensure we're always in stock for our customers and, in turn, the end customer. I mean imagine trying to build a fence on a given weekend, but the fence posts are not in stock. We know this is incredibly important to help our customers drive sales. Therefore, the relationship between the customer and supplier have never been more important. What is also key is our speed to market. We get the customer what they need when they need it. Our dedicated logistics team plays a leading role in executing timely delivery to the customer. Once in order for treated lumber is placed, it is shipped within 24 hours to 48 hours across the country. In some cases, orders received first thing in the morning are delivered the same day. As a company, this is something that we are extremely proud of. We also have strong procurement and market intelligence skills and we have some unique interconnected relationships with our sawmill vendor partners, which I will touch upon shortly. Lastly, a key focus and strength is our field team that is dedicated to educating the customer about Stella-Jones' product offerings and helping to drive retail sales. The team works to increase sales through merchandising suggestions, getting the right products to the right place and proactively following up on orders. Stella-Jones culture is committed providing high customer service and is always focused on the importance of quick customer response times. We have 3 key growth drivers that will drive our strategic plan: product expansion, sourcing and procurement and macro favorable trends. Now while this may sound repetitive, I'm going to once again mention our best-in-class products as a growth driver. We have recently increased our focus on an innovative redesign of our treated wood accessory offering. We offer superior quality with more substantial product sizing to that of the competition. I have samples that everyone is welcome to view on the table later today. Furthermore, we are working closely with retail customers to ensure the merchandising is on point. It is also important to note that Stella-Jones uses an environmentally friendly preservative, and it can be used with ground and fresh water contact. Encompassing decking, we continue to see strong growth and with our manufacturing partners supporting and promoting brand awareness. We are very excited about this category and continue to offer product innovation and product options. Stella-Jones has a well-established distribution base. And because we've partnered with the strongest retailers in the country, together, we are well positioned to deliver high-quality premium products to the end customers. We've also seen a stronger presence on social media as supplier partners invest in online platforms highlighting promotion of product and design ideas with the end consumer in mind. The second drivers are sourcing and procurement opportunities. 50% of the SKUs we carry are 2 x 4 through 2 x 12 dimensional lumber and the other half consists of specialty products such as fence boards, fence posts and five-quarter decking. And these products are therefore not exposed to the same moves as the baseline commodity. While the historic price -- commodity price for 2 x 6 has been relatively stable, the last 36 months has brought unprecedented swings. Volatility in the lumber market is more in relation to products used in new home construction and the renovation and remodel market, or R&R. Stella-Jones purchases premium grade lumber in premium lengths and has a mix of specialty products. We are therefore not exposed to the same volatility, looking only at 2 x 4 commodity construction-grade lumber as a market price benchmark does not accurately define our procurement story. Now not to say that 2020, 2021 and '22 were not difficult waters to navigate, but our procurement team and our expert team and our model enabled us to reach record sales and profit. Turning to the right part of your slide, you can see that the market price for 2 x 6 has stabilized over the last 10 months, allowing us to spend more time on merchandising and new products. We're very proud of our strong supplier network that we have across the industry. Our annual procurement volume is attractive to North American sawmills, and this has led to long-standing partnerships. These relationships were especially useful in the months when lumber was in tight supply. In some cases, we procure lumber from suppliers that also produce railway ties and poles. This interconnectivity between categories from a procurement standpoint puts us in a unique position. Staying abreast of new sourcing and procurement opportunities is important for us in order to control cost. While lumber supply across Canada is contracting, we've taken steps to ensure we have product. Not only do we have a strong supply network across North America, we've also included or expanded our scope to include European premium lumber at a very competitive price. We are the first Canadian company to bring a ship of premium grade lumber directly from Germany into Montreal at the end of 2022, and we had another boat arrived just last month. This enables us to broaden our supply network to better control cost and support long-term growth. As we touched upon earlier, we see a number of tailwinds driving the housing market, which supports our products. Homeowners continue to renovate and update their outdoor living space as an extension of the home. Next, we've seen the majority of new home construction over the past 3 years shift into more rural communities as people with space, yard space as people exit major cities. And we expect solid demand for decking and fencing as backyard projects can lag new home construction by 12 to 24 months. Homes for sale inventory is historically low, and the general overall population is increasing. This supports the needs for new home in the future and potentially translates well for the decking and fencing segments of construction. The long-term demand for new homes construction in both Canada and the U.S., along with shrinking supply, should help support higher prices over the long term. Lastly, aging homes in the U.S. will help support lumber demand and prices above historical averages with over 50% of the homes in the U.S. being built prior to 1980 and in need of repair. Stella-Jones continues to improve operational efficiencies in the residential lumber business. We are currently building a new 50,000 square foot composite distribution facility to replace a warehouse that we're currently leasing. This new distribution center will be built adjacent to our Shelburne, Ontario treated plant, which is centrally located near major highways. The design will maximize efficiency of our composite order preparation process and allow us to share the workforce with the treating plant optimizing our labor expenses. We have recently installed a new automatic bundle wrapping machine at our Shelburne facility that packages the material uniformly without the traditional use of staples, which our customers love. This new process makes for more secure packaging, reduces health and safety risk and requires less labor. Our plan is to install the wrapping machines across our network. We've also installed a lumber grading system that automatically performs the quality inspection process at our Sorel-Tracy, Quebec plant. This allows for more consistent quality output and increases the speed of the line. Our plan is to install this system as well across the network. And more recently, we installed heating chambers before and after the treating operations to reduce manufacturing lead time. The heating chamber installed before treatment allows us to thaw frozen lumber in the winter months and help with production efficiencies. The chamber installed after treating allows us to dry the wood quicker and increase production output. And lastly, we've also invested in our accessories production facility to increase productivity and safety. We have installed an automatic 1p stair stringer machine and an optimizing saw, which cuts and trims lumber used in a variety of our programs. In summary, while we continue to anticipate more normalized pricing environment for lumber, we believe the product category has the potential to maintain annual volumes above 2019 levels. We have a highly loyal and dedicated customer base that recognizes the value of Stella-Jones premium lumber product offerings. Our quality products, coupled with our ability to provide seamless supply chain service and customer support enables us to provide a holistic experience, everything the customer needs for their deck and fence project. Over the years, we have proven our ability to keep retailers and big-box stores in stock, which speaks to our ability to procure lumber amidst an environment with declining supply. We can procure lumber because of the annual volumes we require, making Stella Jones an attractive partner to sawmills. Our procurement group can negotiate advantage of pricing because of ongoing trading activity, making our team best in class. It was our team that had the foresight to take the necessary measures to ensure we have continual supply, including sourcing premium lumber from Europe. We are very pleased with what we have achieved so far and see many opportunities to continue to advance our operating efficiencies in this product category. With that, Rhiannah Carver will discuss ESG at Stella-Jones. Thank you.

So good morning, everyone. It's great to be with you this morning. And I'm excited to share a little bit about what ESG means at Stella-Jones and what our vision for sustainability looks like. I joined the company about a year ago. And I've been really inspired by my colleagues who are not only passionate about the quality products we produce, but also the impact we have and the benefit we bring to the communities we operate in. Our management team has been incredibly supportive, and they've created a solid foundation of sustainability values that are shared from the plant to the boardroom. I'm looking forward to helping progress our ESG initiatives in a meaningful and targeted way for Stella-Jones. So sustainability is nothing new to Stella-Jones. Our pressure-treated wood products, by their nature, are renewable with more trees planted annually in North America than harvested. Our products also store significantly more carbon than they emit over their lifetime, which is why wood products can offer a meaningful natural solution to reduce carbon in the atmosphere and help mitigate the effects of climate change. By choosing Stella-Jones products, our customers are supporting their own sustainable development objectives. As government and business act to address climate change, the shift to a low-carbon economy presents a real opportunity for Stella-Jones. We see this impacting our business in 3 key ways: one, the drive for electrification leading to increased pole demand; two, utilities are increasingly looking to harden their networks against the impact of wildfire, and Stella-Jones is well positioned with our market-leading fire-resistant pole wrap. And third, our rail customers will also need a consistent supply of rail ties as more goods shift from road transport to the more environmentally friendly mode of rail. Overall, the climate challenge does present real opportunity for Stella-Jones, and we're well placed to capitalize on it. So as we continue to execute on our corporate strategy, we are committed to growing in a purposeful and sustainable way that helps deliver meaningful environmental and social impact. As part of this commitment, today, we're giving you a sneak peek of our new ESG strategy that will be published in our upcoming ESG report in Q3 of this year. The tagline connecting our sustainable future embodies how we help connect communities and economies via railroads and energy infrastructure. And this first strategy for Stella-Jones is all about connecting the ESG initiatives already underway across the organization into a vision from more sustainable Stella-Jones. The full strategy covers our ambitions and targets for the 6 key ESG topics at Stella-Jones. However, today, I will touch on just a few of the targets that we're excited to share in advance of the full strategy. First, let's talk about climate change and greenhouse gas targets. While we believe in our products as climate-positive solutions, we also recognize the importance of doing what we can to reduce greenhouse gas emissions from our operational processes. Our climate change and greenhouse gas reduction strategy outlines our ambition to reduce carbon emissions from our operations and advanced renewable wood products as part of the climate solution. We have 2 targets, I'll read them out. The first is a 32% reduction in Scope 1 and 2 greenhouse gas emissions by 2030 from a 2022 base year. The second target is to measure our Scope 3 emissions and assess a science-based target by 2025. We are confident in our plan to achieve a 32% reduction by 2030. But we also recognize the need to strive for a science-based target, which would be in line with the reduction needed to keep global warming on a 1.5-degree trajectory. This is why we've included Target 2 to assess what a science-based target would look like for Stella-Jones, including the potential solutions and pathways as well as the investment required. We intend to continue to explore reduction options in ways that create meaningful impact and permanent greenhouse gas abatement as well as create business value. Our strategy to achieve our 32% reduction target is focused on 3 key areas. The first is energy efficiency, making sure all our facilities are operating in an energy-efficient manner that reduces operational costs. A key focus in this strategy is real-time energy monitoring to ensure our teams on the ground to have visibility into the performance of equipment in real time. We are also continuing site-specific energy efficiency audits, which helped to develop the process and equipment improvements needed to ensure best management practices across our network. This audit program began back in 2021 with our first site in Gatineau, Quebec. This resulted in the investment of new electric kilns at the site, which has helped reduce carbon emissions by over 70%. We've just completed our third audit and are in the process of project planning for project delivery. The second focus is renewable energy, both from on-site installation and procurement of renewable energy. As mentioned by Patrick, in 2022, we completed our first solar power installation at our Clanton, Alabama facility. Our current plan is for 9 additional installations between now and 2030 for a total investment of over $10 million, which we forecast will help reduce our Scope 2 emissions by over 40%. Solar power is the cheapest form of renewable energy and our turnkey solutions utilize government incentives to reduce payback periods. The third focus is innovation, where we're seeking partnerships to maximize the carbon sequestered timeframe and improve options for product end-of-life. On this front, we have a few customer contracts that take old utility poles and use them as biomass in cogeneration electricity plants. The main roadblock to rolling out end of product -- end-of-life product options for customers is the high freight costs involved with ties and poles widely disbursed across geographies. It makes bringing them back to a centralized point for users biomass or other recycling options costly. Next one is the social pillar, where we have a safety target to achieve an annual recordable safety incident rate below the industry average. Safety is a core value at Stella-Jones and our health and safety program shield was introduced over a decade ago. Since then, it's grown more robust and comprehensive. We've spent the last few years working on the consistency of implementation across our network and aligning the company around our safety first culture. As you can see, our safety statistics are starting to show this in results. With our total recordable injury rate trending down and reducing by 22% in 2022 when compared to 2021, our lowest year to date. Looking forward, we are focused on identifying areas for improvement, sharing and adapting successful practices and engaging our people to make safety personal. On this last front, in 2023, we are focused on a new safety campaign, safety matters because you matter, which aims to engage all our employees on the personal responsibility to create a safe work environment. Next, also under the social pillar, we will be launching our indigenous people strategy. With one of our goals to have 100% of Canadian areas with forest management obligations covered by relationship with willing Nations by 2030. Currently, we just have 1 land management area with forest management obligations, which is in British Columbia. Our team of foresters regularly engages with over 14 different indigenous groups in this area. To support this strategy, earlier this year, we published our indigenous peoples policy, which outlines our commitment to improving our awareness and understanding of indigenous cultures and history, developing mutually beneficial and collaborative relationships and ensuring we continue to include indigenous perspectives in our forestry practices. The policy, which is publicly available on our website, was developed in recognition and acknowledgment of the United Nations declaration on the rights of indigenous people and the cause to action of Canada's Truth and Reconciliation Commission. Building and sustaining relationships with indigenous is critical to our ongoing access to fiber in British Columbia. And we really do view our indigenous people strategy as an opportunity to continue to secure our long-term sustainable fiber supply in this region. Moving on to governance. Our responsible supply chain strategy focuses on supplier engagement and sustainable forestry practices. We have a target to complete an ESG due diligence assessment for 25% of our Tier 1 suppliers by the end of 2027. This is no small feat. We have a very large supplier base with Tier 1 encompassing over 180 suppliers. The intent behind the ESG due diligence process is to profile our supplier base and understand where we may be exposed to environmental, social or governance risks and then work in a proactive manner to mitigate those risks and jointly improve practices with our suppliers. Our approach to supply chain due diligence also includes our work for the task force on financial -- task force on climate-related financial disclosures, the TCFD regulations that we can expect in Canada -- for companies in Canada sometime after 2024. This year, we will review the climate-related transitional and market risks with the help of third-party experts focusing on our fiber supply chain, which we know can be significantly impacted by climate and weather events. Also under the topic of the supply chain and sustainable forestry, we are planning for the task force on nature-related financial disclosures, the TNFD regulations, which we expect to come at a much faster rate than the TCFD. As a company that relies on healthy forests for our long-term success, we take seriously the framework for biodiversity, and we look forward to understanding these nature-related risks in more detail, which brings me to the ESG rating agencies. We track 5 different scores, and we are currently rated in the middle of our peer group across all agencies. We also know which of these agencies a few in the view in this room follow, and we will continue to prioritize those relationships. Our current plan is to more actively engage on our scores in Q3 and Q4 of this year. Once our new ESG strategy has been published to help ensure the most up-to-date information is being used in the scores. We do expect them to -- the overall score to improve once we have the ESG strategy formally published as well as the targets. So thank you. That's it for me. I look forward to sharing the full ESG strategy in our next ESG publication this year. And with that, I will hand it over to Silvana.

Good morning, everyone. I'm Silvana Travaglini, Senior Vice President and Chief Financial Officer. I've been with Stella-Jones over 3 years now, and it has been a privilege to work within an organization that continues to deliver strong performances year-after-year while maintaining an industry-leading position in the markets that we serve. By now, you likely have greater visibility on what each of our divisional leaders are focusing on and the growth that lies ahead. Shortly, I will share in greater detail some commentary on our updated 3-year financial goals. But first, a few comments on Stella-Jones. When we look at Stella-Jones, we can see that we have a resilient business in place. This is attributable to the steady maintenance demand for our products and the extensive network of facilities that we have to service our customers. We have an established industry-leading customer base and with our procurement capabilities, we are able to continually capitalize on the growing demand opportunities. This is evidenced by our track record of sustainable, profitable growth. We have achieved many milestones in the last financial year, and that momentum has continued into 2023. Let me highlight some of those achievements. First, 2022 was the 22nd consecutive year of sales growth for Stella-Jones. We achieved sales over $3.6 billion -- $3 billion, sorry, which is almost double the sales that we realized just 7 years ago. And when we compare this to 2021, we grew our sales by over $300 million or 11%. Our EBITDA also reached a record high last year of $448 million. This represents an increase of 12% year-over-year, outpacing our strong double-digit sales growth. And our EPS followed suit, increasing by 13% in 2022 versus the prior year. While our EBITDA grew year-over-year, you will note that our EBITDA margin has remained relatively stable. This is particularly noteworthy, given that we were faced with cost inflation pressures, volatile commodity prices and supply chain issues. We were able to navigate exceptionally well through this challenging environment. This is due in part to our infrastructure-related sales, which are largely contractual and include cost pass-through clauses that insulate us from rising costs. And for residential lumber, as Brian mentioned, we do have a business model that provides resiliency against lumber market volatility. Our business also generates a strong level of operating cash flow. This allows us to actively invest in our business, notably in our inventory position to meet customer demand. We are able to expand our pulp production capacity as well as these new growth opportunities. Over the past 3 years, we were able to convert approximately 40% of our EBITDA into free cash flow. And we have remained committed to returning capital to shareholders as evidenced by the almost $500 million that we have returned to our shareholders over the last 3 years through dividends and buybacks, an increase of over $300 million compared to the prior 3 years. Since we began to buy back shares back in 2018, we have reduced our share count by 11 million or 16%. Today, we are providing you with our updated 3-year financial plan. As you have listened to each of my colleagues speak about their business categories, we hope that you can better understand the catalysts that will help us to achieve our 3-year goals, which now extend to 2025. We plan to build on the momentum that we have seen across our businesses. We are excited to deliver an acceleration in the top line, expecting our sales to exceed $3.6 billion by 2025, while reaching an EBITDA margin of 16% through 2025, which is an improvement of 140 basis points when we compare it to the margin that we realized in 2022. We also plan to return over $500 million of capital to shareholders over the next 3 years while maintaining our net debt-to-EBITDA ratio between 2 and 2.5x. Now let me discuss each of our financial targets. Our plan to achieve sales of over $3.6 billion by 2025, which is a 6% CAGR from 2022 is based on organic growth only. This growth is driven by our infrastructure-related businesses whose sales are expected to increase at an annual compound rate of 9% from 2022 to 2025. And the key driver of this growth is our utility poles product category. The significant increase in demand, as Ian explained, and our proactivity and capacity to support that demand growth explains the 15% CAGR projected for utility poles over the next 3 years. A large part of that increase is expected to be realized in the earlier years. Building on the growth that we saw in 2022, we expect our utility poles sales to increase at a compound annual rate of 20% from 2022 to 2024 before reducing to a mid-single-digit growth in 2025. Over the outlook period, we are projecting that approximately 40% of the overall increase in the sales will come from volume growth with the remaining increase coming from higher pricing. Most of the volume gains will be realized by 2024. And for pricing, no significant increases are anticipated beyond 2023. As a result, the projected sales growth that we are expecting in 2025, which is the mid-single-digit growth that I just mentioned, is strictly driven by operational efficiency and inflationary price increases. In terms of the relative sales proportion, we expect our utility poles sales to grow from 40% of total sales in 2022 to representing over 50% of our total sales by 2025. Turning to our railway tie business. We expect the annual growth sales to continue to be in the low single-digit range. This is in line with our historical averages and supported by the stable maintenance and replacement CapEx of the railroads. The railway tie business remains a stable source of revenue for Stella-Jones with the potential to grow beyond GDP growth. The significant funding from the U.S. infrastructure bill for rail improvement projects and new higher-margin product offerings a potential catalyst for us to grow this product category above GDP. As Brian explained for residential lumber, favorable industry fundamentals should support further growth for this product category. And being the largest pressure-treated lumber supplier in Canada, we are well positioned to capitalize on this growth. Given, however, that the dynamics of the lumber market as well as consumer trends are difficult to predict, we have maintained our annual sales projection for residential lumber between $600 million and $650 million. We are confident that we can consistently generate this level of annual sales given the business model and the unique value proposition that we have in that product category. Our sales projection of $600 million to $650 million is based on pre-pandemic volumes and on the current random length 2 x 6 delivered Toronto prices, which, as Brian mentioned, have remained relatively stable over the last 12 months. Compared to the sales that we realized in 2022, the $600 million to $650 million annual sales projection does anticipate a 15% pullback or a negative CAGR of 5% from 2022 to 2025. With the significant growth that we are anticipating for our utility poles product category and the residential lumber pullback, we now anticipate that our residential lumber product category will represent less than 20% through 2025. We continue to project our infrastructure-related businesses to account for 75% to 80% of our total sales. Top line growth is important, but so is profitable growth. To that end, we see our EBITDA margin expanding by 100 basis points from the previously disclosed target accelerating to 16%. As a result, we anticipate our EBITDA to reach approximately $575 million by 2025, which implies a compound annual growth rate of 9%, outpacing our projected sales CAGR of 6%. There are a number of factors driving the upside in our EBITDA margin, the most significant factor being the greater proportion of the higher-margin utility poles in our portfolio. Utility poles are expected to contribute approximately 50% to the company's sales mix throughout the periods. Given the strong growth environment, particularly for utility poles, we also expect to leverage higher pricing and economies of scales to drive Stella-Jones' margin up and improve our profitability. Over the years, we have maintained a very disciplined capital allocation approach, balancing growth through investment while returning capital to our shareholders. In terms of our capital allocation priorities, we remain focused on reinvesting in our business. To that end, we are targeting to invest between $65 million and $75 million annually, up from our previously disclosed annual CapEx targets of $50 million to $60 million. The higher level of annual CapEx spend takes into account the larger scale of our network, the newly established ESG initiatives as well as inflationary cost pressures, which have affected all aspects of our capital projects. Our annual program will continue to include CapEx to maintain the quality of our assets and to ensure that our facilities remain safe and reliable. We will also allocate funds to projects that will improve productivity and drive cost efficiencies, such as the robotic pull framers that Ian mentioned, the use of robotics for railway ties and the installation of wrapping machine across our residential lumber facilities. And we will also prioritize projects that support our sustainability initiatives like the installation of more solar panels at our plants. In addition to our regular CapEx program, we will continue to execute on our growth CapEx for utility poles, actively increasing are drying, peeling and treating capacity to support the anticipated growth in utility poles demand. The growth of CapEx program for utility poles is relatively unchanged from what we had previously disclosed. We did invest $33 million in 2022, and we are targeting an additional $80 million over the next 3 years for a total of $115 million. A large part of the remaining $80 million of investment is projected to be spent and invested in 2023. As such, we anticipate that the total CapEx program for the year 2023 for the company will be approximately $125 million. The growth investments in utility poles are expected to increase our capacity by approximately 20%. As I mentioned, most of this additional capacity will be online and contribute to sales by 2024. As a result, the payback on these investments will be less than 3 years. Though our targets are modeled on the current CapEx program, Stella-Jones has the ability to undertake additional capacity-enhancing projects to cater to additional demand opportunities. In terms of returning capital to our shareholders, the consistent payout of dividend is a staple of the company's strategy. We take great pride in the fact that we have increased our dividend every year for the last 19 years. As you all know, our policy is to pay out 20% to 30% of our prior year's EPS as dividends. The expected increase in profitability as well as the continued buyback in shares will contribute to higher EPS going forward, and as a result, ongoing dividend growth. Our company is highly cash generative, and this provides us with the financial flexibility to also fund growth opportunities and as well to continue to be active in share repurchases. We anticipate returning to shareholders over $500 million on a cumulative basis over the next 3 years through dividends and buybacks. This is in addition to the almost $500 million that we have returned to shareholders over the last 3 years. It's also important for us to maintain a solid financial position. So we continue to target a net debt-to-EBITDA ratio between 2 and 2.5x. Our healthy balance sheet allows us to invest and maintain the inventory necessary to meet our customers' demands. As you know, the inventory that we carry for our infrastructure customers needs to be air dried for a period of time that can exceed 9 months, and therefore, our inventory turnover is relatively low. Inventory is the largest asset on Stella-Jones' balance sheet. At the end of 2022 in order to service our customers, we had $1.2 billion of inventory on hand. The financial capacity to maintain this level of inventory puts us in a very strong and unique position to leverage the growing demand for our products. Our low leverage target also provides us with the flexibility to increase that target beyond the high end of the range if the right strategic opportunity comes along. So to wrap up, Stella-Jones continues to consistently deliver profitable growth while managing efficiently through a volatile macro environment. We hope that today's presentations clearly highlighted the strength of our healthy business and the numerous opportunities that lie ahead of us. The company continues to reach new financial records each year, and we plan to build on those achievements. Our knowledgeable team knows what we need to do to drive financial excellence, and we see a clear path forward to continue to deliver sustainable, profitable growth for our shareholders. With that, I will turn it back to Eric for his concluding remarks.

Thank you to Stella-Jones' team for all the great presentations. And I hope everybody got the most out of it this morning. We're going to take a brief moment to set up the room for the Q&A session. I'll thank everybody for joining us this morning. I want to thank the Stella-Jones' team to -- for the time be dedicated to us today and to share with all of us in why they're so passionate about the work they do at Stella-Jones. We're making a concerted effort to engage with the investment community. Earlier this year, we conducted an investor perception study. And we heard from many of you that you wanted to meet our senior leadership. We also heard that you had an appetite to learn more about each of our product categories. So today, through our inaugural Investor Day, we believe that we achieved this goal of presenting our team and as well giving you some more insight in our product categories. What I would like to impress upon you today is we see strong momentum in growth for our utility poles product category. We expect steady demand for our railway tie product categories as well over our forecast period. We have a loyal and dedicated customer base for residential lumber product category. And finally, everything we do is rooted in ESG principles that cascade throughout our organization. So with that, we just going to take a moment to set up the stage. We will take some questions from the room and as well from our attendants that are online. You just simply need to put the information in the chat, and it will pop up here for me, and I'll read those out as we get organized. If you give us maybe 5 minutes, we'll set this up quickly. Thank you.

Just to step up and ask a few questions. And as you guys are getting organized, maybe I'll start off by reading one of the questions we received online, and I'll read it out, which is, in what inning are we for North American utility pole and railway tie consolidation? So I'll take this one, but my plan today is to have the team answer most of the questions. So I want to answer that question, I guess, in a couple of ways. First, as we see our market or demand in the utility pole demand or the utility pole industry increase, we are addressing that market through our growth CapEx, and we're investing to be able to participate as much as we can in that demand. As I mentioned in my remarks, I do believe that there's still a few acquisition targets that are available, that we would love to be able to add to the Stella-Jones' network. With regards to railway ties, my belief is that there are fewer targets available, but we have maybe 1 or 2 [indiscernible] and in all cases, those acquisitions will happen when the owners are good and ready to proceed. We have relationships in many cases, with all of them. They know Stella-Jones very well, they know how good a partner we are when it comes to M&A. And we'll keep addressing those opportunities as they present themselves. And as we've shown in the last few years, we've kept on executing on certain acquisitions to increase our networks. Maybe, Benoit, since you're standing there upfront?

Yes, Benoit Poirier from Desjardins. So thank you very much for hosting the Investor Day. First question, if I look at the EBITDA margin, obviously, Q1 was a strong achievement in terms of EBITDA margin. You mentioned great color also on the conference call about the visibility to kind of achieve a 16% even this year. So when I look at the 16% disclosed in 2025, how conservative is the 16% EBITDA margin in light of the growth drivers and the tailwinds that you foresee?

So maybe I'll pass that along to Silvana. Obviously, we had a great first quarter to the year, which is not representative of the whole year, but Silvana will provide more color about our expectations on EBITDA margin.

Yes. Just to build on what Eric just said, maybe just to clarify, the 16.9% that we realized in the first quarter does not take into account the -- all the product categories in terms of the relative proportion, as you all know, residential lumber, the busy season is Q2 and into Q3, which has a bit of a lower margin. So in terms of the relative proportion, we should see that margin basically stabilizing closer to the 16% as we go through the year. In terms of our projections for 2025, we feel confident that we'll be able to continue to reproduce and deliver that 16% could there be potential for more operational efficiencies as we keep growing our network and adding capacity to our network. There could be some additional efficiencies there. And depending on the demand environment, particularly for utility poles, there might be some other opportunities to leverage higher pricing. But for now, we were very comfortable with the 16%.

Super. Yes. Mike?

Mike Tupholme, TD Securities. Also a question for Silvana. Just the growth projections for the utility poles segment, I think you said 15% CAGR over the next 3 years dropping to sort of mid-single-digit growth in 2025. I guess if you can just clarify what goes into that mid-single-digit assumption for 2025? And maybe put some context around why it drops down to that level, considering it's been so strong recently. Are you being conservative? Or what's the thinking behind the sort of the drop down to mid-single digits?

So the mid-single digit, first of all, takes into account our current CapEx program. As I mentioned, we will pretty much be completed by end of 2024. So in terms of volumes, we are pretty much running at capacity. We have no additional volumes. So there's no additional sort of volume growth through capacity increases, the only growth that we factored into 2025 are operational efficiency. So it does limit it based on the current CapEx program. And in terms of pricing, we've just factored in just inflationary price increases, as I mentioned, because most of the price increases or the more significant price increases we basically just have not gone beyond 2023. We feel quite confident, obviously, that this year, the price increases will be higher than inflationary pressures as you saw in Q1 but no assumptions beyond that other than just normal inflation.

And I'm sorry, I just want to add something to that, Mike. So every year, we prepare a 5-year plan. And each of their respective leaders with their teams sort of look at the volumes on the crystal ball, the volumes you're going to see. So we know what we know today, and certain customers have plans that haven't been this close to us. So 2025 is a far -- further period out. We would have time to react and adjust with more growth CapEx if we needed to. So right now, we're forecasting what we know. We're very confident with this forecast that we'll execute it. That's why we said [indiscernible] and [ $3.6 ] billion on sales. It's just that we know we can react quickly. Ian mentioned, we build our facility in Mississippi in 10 months, and we know we can do a lot of things quickly. We have that building knowledge in-house. So -- but just to give you a bit more color on how we're approaching this.

Okay. That's helpful. Second question, just sort of building on the first question you received about M&A. I think when you unveiled your 3-year plan in early 2022, the original 3-year plan, you were talking about the possibility of looking at adjacent markets, expanding into adjacent markets as part of your broader M&A strategy. I didn't see that mentioned specifically today. Can you just comment on what's happening with that -- the valuation of that opportunity and if that's still something of interest?

So you're right, I didn't use the words of adjacent I sort of view it, I guess, another vocabulary, right? I'm talking about complementary products or products that are different materials or complementary to the needs of the utilities and the railroad. So perhaps similar vocabulary, if you want. But it still comes back to when we engage with our customers on utilities in rail, they are consistently now bringing up requirements that they have our needs and other products and how they design lines today and how the new engineering teams, the younger generation that are coming up are thinking a bit differently about things. And they look towards us and go like, "hey, Stella-Jones, we'd like you to be able to do a bit more for us. We'd appreciate that you have the distribution networks, you've got the financial means. We trust you, you guys deliver on your words. And so it comes back to a bit what I was suggesting in, I'd say, in last year this quarter, if you want. But I do believe firmly now that we're hearing more of this, and there are some opportunities that would present ourselves -- to ourselves in coming years that we will not just turn away and say, well, it's not treated wood or no, it's not this. I think we need to turn ourselves there, just to make sure that we maintain that leadership position in North America and remain that supplier that our customers need.

James McGarragle from RBC Capital Markets. So I just had a question on the utility pole outlook. You've highlighted a large percentage of your poles throughout North America or upcoming on their useful life. So are you able to quantify how many that is? And what percentage are you assuming that you're going to replace in the guidance that you provided today?

That would be a good one for you?

Sure. That's nice to start with an easy question. Well, I think that when we look at this, we talk to many, many customers on a regular basis to sort of formulate our business plan going forward. And so we've got several large customers that have given us forecasts that are going out 5 to 10 years as far as a replacement plan. Conversations with customers change on a weekly, monthly basis. And so it's really interesting because we take what we know and we formulate a plan. We know the plan is going to change. our sense is that the trend is that we're going to have -- we're going to have more requests coming at us. And so then the challenge for us is how do we react to that to actually quantify and say, well, what percentage of that is replacement is difficult to quantify, and we don't really track it that way. We look at the business as a whole, and we say, okay, collectively, when we look at these 1,000 customers, what does that overall demand look like and how are we going to service that and then try to contemplate, well, what else could be coming. But we tend to take a pretty conservative approach. We don't start modeling things because we can get really, I think, sidetrack pretty quickly because there's so many variables. So we tend to just take the information we have, build it into our business plan and then look out from there. So that's kind of how we approach that.

And more on sort of the retail side of the business, you'd highlighted a pullback kind of a normalization of demand. So how are you kind of managing your capacity to plan for a pullback in the next couple of years, but at the same time, trying to plan for growth longer term?

James, you want to say retail, are you referring to residential lumber?

Yes.

Perfect. Yes. Go ahead, Brian.

We have the capacity. And like I said, we're looking at 2019 volumes plus a little bit of growth on top of that. So yes, the managing of the capacity we've got, we're positioned to adjust and respond to increased demand levels, however, we need to. So it's -- yes.

And sometimes it's a question of adding a second shift or not or adding a weekend shift, right? So that's how we'll scale it back if you want.

So a lot of questions are queuing up here, so maybe we'll take a few that have come from online, and then we can come back to the floor in a minute. This next question will be for actually Ian and Patrick. It's -- and I'll read it out, what are the utility pole and railway tie inventory levels or current customers or clients? And how does that inventory look like relatively to inventory levels in the past decade. So maybe we'll start, Patrick, I guess, the question is like do our customers hold a lot of inventory. And what does that look like? How does it impact our business?

The maintenance demand for railway ties has been consistent over that 10-year period. We do see an ebb and flow in some years, it grows in some years, it shrinks. I would say they are pretty consistent and each of the Class 1s is continuing to maintain a similar program. I do anticipate that in 2023, we'll see several of those programs grow in some way.

Patrick, I think the question is referring a bit more to the inventory. Do we have visibility on like, let's say, how much are they maintaining of black tie in their network?

It's very different from Class 1 to Class 1. Some Class 1s maintain -- want to maintain million ties, others maintain 200,000. It's really Class 1 specific, but I would suggest that their strategy hasn't changed and what they're maintaining.

Got it. Perfect. And on pole side, Ian.

Yes. On the pole side, I'd say that a lot of our large customers rely on us to keep their inventory. We talked about a larger finished goods network is and you saw through some of the videos of how much material we carry on a day-to-day basis. So they rely on us to do that stocking for them. They've got limited storage space at their yards. And in some cases, we've got customers that are really taking material and they're putting it in the ground the same day. So it depends on the project. It depends on the size of the utility. It depends on a variety of factors, but I'd say, certainly, inventory levels that the customer have not grown, that's for sure.

If you -- maybe I'll add to that. If you remember in Ian's presentation on the map of North America, you had all our plants with green dots and you had a distribution network with bronze or golden dots. So those are the sides that will hold the finished goods to have it closer to the customer. So that's why they sort of rely on us for the inventory. And I believe on the video outside, we have a shoot an overhead view of our finished good yard in California, right? And I think that yard holds 12,000, 15,000 poles?

Oh, no, much greater than that. We're talking 40,000, 50,000.

There you go. So -- that's how...

To hold the inventory level.

Right. So when that gives you an idea of what those yards look like in the magnitude of what they represents. So our customers really view us as like you guys have got this, and we rely on you. Great. Thank you, guys. Benoit?

Yes. So question is around the infrastructure plan. Part of your 2022-2024 strategic plan, there was no big assumption with respect to tailwind that would come from the infrastructure spending. You've been talking about $1.2 billion to come and talking at the engineering and construction firm. We haven't seen yet a lot of fund flow coming to -- from that infrastructure plan. So I'm just wondering what kind of assumptions are you building right now as part of your 2025 objective. And assuming we see more fund flow, could we see a boost to the $3.6 billion revenue target that you're looking at?

Right. Well, thank you, Benoit. So that's a great question. It has multiple aspects, right? So simple answer from a financial projection, we haven't included any impacts of infrastructure tailwinds, if you want. But what I'd like to do is take your question and maybe go to Ian and Patrick and ask them how they're seeing in their respective businesses. Are we seeing this money flow through? What are their thoughts and give you an honest impression because it's sometimes hard to decipher, but maybe we'll start with Ian on that one.

Sure. Well, let's -- any time that government announces large spending initiatives, it's challenging to track where that money is going, when it's going to surface -- but I guess when I look at the dollars we're talking about and what we've seen, I would categorize that we're at the tip of the iceberg. So I guess what does that really mean? And how do you build that into your business model and say, well, when are these projects going to get released? And is there going to be -- what we sort of hope is that and believe is that there will be the rate in which the money will get spent and get built out will be controlled by a number of levers because you're going to have limitations on people like services and equipment. And so I think it may get queued up and we may see more things coming to the queue. But the -- ultimately, if you look at the dollars that we're talking about, it all can't happen at once. It's physically impossible, right? So how you actually model that is really challenging. So we we're just really starting to feel and see the change now.

Great. Thank you. Patrick?

It's a similar situation in the tie side. We're at the tip of the iceberg. We're just starting to see additional quotes come in from those commercial and industrial customers. Most of them are related to the Christie Grant program. It's hard to say what that's going to look like by the end of this year, but we certainly see it picking up now, and I would expect that to continue through the third and fourth quarter of this year. So we'll have a better idea of what that looks like.

So Patrick, that would really hit more the commercial side more than the Class 1 business, right?

Right.

So that touches a bit to my comment on the 5-year plan. We're planning what we know. But as Patrick and Ian expressed, it's difficult to speculate and now I mean if we put it in our forecast, we'd have a list of caveats and then I think you'd be having a hard time trying to figure out what we're trying to convey this morning. So we kept that simple and we'll leave it up to you to put in an extra layer of upside, if you feel like...

That's great, color. Thank you very much. And second question is on M&A. You've been very vocal in the past that there was still about $200 million of potential acquired revenues to be done in your core market with respect to woods. Now it seems that you're opening the door for complementary products outside of wood that could be complementary to better serve your customer for utility and railroads. I would be curious if you define what could be the size of the market that you're looking at right now in terms of potential pool of M&A candidates inside that complementary products?

So maybe 3 aspects there. So I'll go back to our growth CapEx. So we're building it because in certain cases, we can't buy it. In certain regions, not available. So we need to make sure that we create that capacity. Secondly, on the wood treating business for poles and ties. I still believe there's another $200 million in annual sales that we could acquire over time. And last but not least, on those other products, it is a very large universe, Benoit. And we need to be very careful as we select and I mentioned those criterias in my presentation. I mean the size of that universe would be in tens of billions of dollars. And obviously, that's not our sites, obviously, but we'll be going through it in a very disciplined manner and making sure that we acquire through my criterias accretive to the business, seasoned management team to support that decision, and we will navigate this very carefully. I'll jump quickly back online. We've got a question for utility pole, so it will be for Ian, and I'll read it out. What percentage of the current utility pole sales are towards renewables, so that would mean specifically wind farms and solar grid deployment. And what percentage do you reasonably think will this represent in 5 years. Ian, you want to take a shot?

I'll take a shot at that. I would say as a percentage today, it's very low. When you look at the volume of business that we do across the continent and where our poles are going today, it will be low single digits as a percentage of our sales for green energy projects. So I guess, does that percentage grow potentially. I guess it depends on how we grow overall in our portfolio. So it's a bit of a tricky one because if we -- if our growth, it may be static as a percentage, but it will still grow organically regardless. So I think that it's -- it complements our sales profile and our forecast. But I think that -- when I look at some of the other growth drivers in our sector, there's going to be much greater sales as a percentage coming from some of the other lines.

Great. Great. We do have a question here on infrastructure and the impact on our business. I believe we've addressed that one. I've got another question here is would you think your full cycle of organic volume growth in utility poles and ties are? So I guess I'll be -- should be referring back to our 3-year guidance. And I guess the question is more on the volume perspective and maybe Silvana, when we sort of laid out that plan may be by product category, how do we -- what are the assumptions behind there?

Yes. So for the volume growth in utility poles, like I mentioned in the presentation, with the current program that we have in place, we would expect our utility pole capacity to increase by 20%. And that, as I mentioned, most of that will be online and start contributing to sales by 2024. So that would -- and as I answered the previous question, no other growth -- volume growth is anticipated in 2025 other than just some operational efficiencies. In the case of -- is there also the question on railway ties?

Yes, both. Yes. Yes.

Yes. On the question of railway ties. This year, we are seeing pricing increases as you saw in the first quarter impacting. So when we lap year-over-year, that increase is still expected to be a factor in 2023. Our volumes, as you saw in the first quarter were down in railway ties and that is really just a function of availability. As Patrick explained, we had very low untreated tie inventory last year. So that translates into less treated tie this year given the time that we need to rebuild that inventory and get the treated product. So going forward, in 2024 and 2025, the assumptions is that -- in terms of the mid -- in the low single-digit growth that we would have a combination there of both volume and pricing growth.

Super. Thank you. You are up.