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Edited Transcript of CWX.TO earnings conference call or presentation 9-May-19 9:30pm GMT

Q1 2019 CanWel Building Materials Group Ltd Earnings Call

VANCOUVER May 24, 2019 (Thomson StreetEvents) -- Edited Transcript of CanWel Building Materials Group Ltd earnings conference call or presentation Thursday, May 9, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ali Mahdavi

CanWel Building Materials Group Ltd. - Head of IR

* Amardeip Singh Doman

CanWel Building Materials Group Ltd. - Chairman & CEO

* James S. Code

CanWel Building Materials Group Ltd. - CFO

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Conference Call Participants

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* Colin Healey

Haywood Securities Inc., Research Division - Research Analyst of Mining

* Hamir Patel

CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst

* Paul C. Quinn

RBC Capital Markets, LLC, Research Division - Analyst

* Steven P. Hansen

Raymond James Ltd., Research Division - SVP

* Yuri Lynk

Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst

* Zachary Evershed

National Bank Financial, Inc., Research Division - Associate

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Presentation

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Operator [1]

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Good afternoon, and welcome to the CanWel Building Materials Group First Quarter 2019 Financial Results Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Ali Mahdavi. Please go ahead.

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Ali Mahdavi, CanWel Building Materials Group Ltd. - Head of IR [2]

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Thank you, operator. Good afternoon, everyone, and thanks for joining us for CanWel Building Materials First Quarter 2019 Financial Results Conference Call. Joining us this afternoon are CanWel's Chairman and Chief Executive Officer, Amar Doman; and Chief Financial Officer, James Code.

If you've not seen the news release, which was issued after the close of markets today, it is available on the company's website at canwel.com as well as on SEDAR, along with our MD&A and financial statements.

I would also like to remind you that a replay of this call will be accessible until midnight on May 23, 2019. Following management's remarks, we'll conduct a question-and-answer session for analysts only. Instructions will be provided at that time for you to join the queue for questions.

Before we begin, we are required to provide the following statements regarding forward-looking information, which is made on behalf of CanWel Building Materials Group Ltd. and all of its representatives on this call. Remarks and answers to your questions today may contain forward-looking information about future events or the company's future performance. The information is subject to risks and uncertainties that may cause actual events or results to differ materially. Any information regarding forward-looking statements is made as of the date of this call and the company does not undertake to update any forward-looking statements. Please read the forward-looking statements and risk factors in the MD&A as these outline the material factors, which could cause or would cause actual results to differ. The company will not provide guidance regarding future earnings during today's call, and management does not anticipate providing guidance in future quarterly or interim communications with investors.

I'll now turn the call over to Amar.

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [3]

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Thanks, Ali, and good afternoon, everybody. Thank you for joining us on today's call. Let me begin by highlighting some of our financial metrics, followed by some color on our operations during the first quarter and what we're seeing so far, which gives us continued confidence across our business segments, then I will hand the call over to Jay Code who can drill further into the numbers.

In addition to the seasonal nature of our business, the first quarter proved to be a challenging period as a result of external factors including year-over-year declines and downward pricing pressure in lumber, OSB and plywood markets. The pricing environment has impacted the entire industry, and we are seeing evidence of this especially with pure play lumber and related product companies reporting their interim results, which are falling well below expectations. In addition, the construction industry across Canada and in some of our key markets in the U.S. were impacted by unfavorable winter weather conditions which reduced overall product volumes. Despite the severity of the pricing decline and the impact of weather on our key end markets, I'm once again pleased with the resilience of our business model and our ability to generate meaningful, positive EBITDA.

Evidently, our overall financial performance was softer than the comparative period in 2018. However, through our ongoing cost controls and operational efficiencies, we minimized and worked through the impact of the aforementioned external factors and protected our gross margin to the extent possible, a key metric as most of you are well aware of.

So in summary, revenues amounted to $282 million. Despite the pricing pressures, gross margin remained robust at 14.6%. Adjusted EBITDA amounted to $15.1 million that includes the impact of IFRS 16, which Jay will cover shortly and we paid a quarterly dividend of $0.14 per share.

During the quarter, our core distribution business continued to perform in line with our expectations. We also remain pleased with the overall performance of our Forestry business segment. We remain very enthusiastic and confident about the growth prospects as we kick off our peak seasonal periods in Q2 and Q3 and look forward to further demonstrating the strength and leverage available in our business model as we can continue to take advantage of all sensible organic opportunities as well as strategic scenarios where we can accelerate growth and profitability.

Subsequent to quarter-end, we concluded the acquisition of Lignum Forest Products, a specialty professional lumber trading operation based in Vancouver that is well established. We are very happy to have Lignum in the family and continue to power up our sales in the U.S. and primarily in the markets we don't service and with new product lines, such as MSR and specialty cedar products. The acquisition is expected to be accretive in 2019 and was paid for through our existing debt facility.

Commodity pricing environment continues to show volatility even at the lower end of historical levels. We remain confident in our ability to work through this environment as we have during other weak cycles. We are extremely well positioned to benefit from return to more normalized pricing levels and as we get busy in the spring and summer months. The early showings based on activity levels and customer feedback are pointing to a more positive view, and we remain focused and motivated as ever with a cautiously optimistic view as we get deeper into the second quarter.

We continue our disciplined approach of managing and growing our core business while tracking and executing on accretive growth opportunities, further strengthening our financial performance and enhancing shareholder value based on a fundamentally sound and sustainable growth plan.

With that, I would like to ask Jay Code, our CFO, to take over and provide a review of the company's first quarter and financial results in greater detail and then we're going to open the call up for questions. Jay?

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James S. Code, CanWel Building Materials Group Ltd. - CFO [4]

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Thank you, Amar. Good afternoon, everyone. As Amar touched on earlier, our 2019 first quarter marks the company's adoption of the new lease accounting standard known as International Financial Reporting Standards 16. The impact of IFRS 16 is described extensively in our Q1 financial statement disclosures, as well as our management discussion and analysis for the quarter. During today's call, I'll also point out significant areas affected by the new standard.

Sales for the quarter ended March 31, 2019 were $281.9 million compared to $295 million in the same period in 2018, representing a decrease of $13 million or 4.4% due to the factors that follow. Sales for the Distribution segment decreased by $15 million or 5.3%, largely due to the impact of the construction materials market on the company's operating results, as pricing generally continued on a downward trend throughout the quarter, as well as adverse weather conditions throughout Eastern Canada and Northern California. These negative impacts were partially offset by the inclusion of results from the 2018 acquisitions and the company's continuing focus on its product mix strategies and target customer base.

Sales for the Forestry segment increased by $2.1 million or 14.9%. The increase in sales relative to the same quarter in 2018 was largely driven by increased demand for agricultural posts, as well as an increase in timber harvested and sold. The seasonally adjusted annual housing start rate for the quarter was approximately 13% lower than the same period last year. The company's sales in the quarter were made up of 56% construction materials compared to 59% in the same quarter last year, with the remaining balance of sales resulting from specialty and allied products at 35% and forestry and other comprising the remaining 9% of our sales.

Gross margin dollars decreased to $41 million in the quarter compared to $45.7 million in the same quarter of 2018, a decrease of $4.7 million. Gross margin percentage was 14.6% in the quarter, a decrease from the 15.5% achieved in the same quarter of 2018. This decrease in margin dollars and margin percentage is mainly attributable to the aforementioned downward trend in construction material pricing, which was partially offset by the inclusion of the results from the 2018 acquisitions.

Expenses for the quarter ended March 31, 2019 were $36.4 million compared to $34.4 million in the same quarter in 2018, an increase of $2 million or 5.8%. Total expenses were impacted by the adoption of IFRS 16, in the amount of a $1.4 million increase in the quarter. Excluding the impact of IFRS 16 adoption, expenses increased by $574,000 or 1.7% compared to 2018, due to the factors that follow. As a percentage of sales, expenses were 12.9% in the quarter compared to 11.7% during the same quarter in 2018.

Distribution, selling and administration expenses decreased by $4.2 million or 13.8% to $25.9 million in the first quarter of 2019, from $30.1 million in the same period of 2018. Excluding the impact of IFRS 16 adoption, distribution, selling and administration expenses increased by $884,000 or 2.9%, largely due to the additional expenses relating to the 2018 acquisitions' operations. As a percentage of sales, these expenses were 9.2% in the quarter compared to 10.2% in the same quarter in 2018.

Depreciation and amortization expenses increased by $6.1 million from $4.3 million to $10.5 million. Depreciation and amortization expenses for the Distribution segment increased by $5.4 million, largely due to the impact of the adoption of IFRS 16. Depreciation and amortization expense for the Forestry segment increased by $764,000.

Finance cost for the first quarter of 2019 were $5.1 million compared to $2.4 million in the same quarter in 2018, an increase of $2.7 million, partly due to the impact of the adoption of IFRS 16 and partly due to higher average borrowings in support of the company's working capital requirements.

EBITDA and adjusted EBITDA for the 3 months ended March 31, 2019 were $15.1 million versus $15.6 million in the comparative quarter of 2018, a decrease of $483,000. Excluding the impact of IFRS 16 adoption, EBITDA decreased by $5.5 million, largely due to the aforementioned downward trend in construction materials pricing throughout the quarter and adverse weather conditions impacting construction activities relative to the same quarter in 2018, which was partially offset by the inclusion of the results from 2018 acquisitions.

As a result of the foregoing factors, the net loss for the quarter ended March 31, 2019 was $356,000 compared to net earnings of $6.5 million in the same quarter of 2018, a decrease of $6.8 million due to the foregoing factors impacting the overall performance of the company.

Turning now to the statement of cash flows. Operating activities generated $11.5 million in cash before noncash working capital changes compared to $12.5 million in the same quarter of 2018. This decrease in cash generated is primarily the result of the aforementioned year-over-year decrease in net earnings, and partially offset by the impact of adopting IFRS 16, which resulted in an increase in cash generated from operating activities and the corresponding decrease in cash provided by financing activities. Changes in noncash working capital items used $81.9 million in cash compared to $119.2 million in the same period in 2018. The company recorded a significant increase in inventory towards the end of the fourth quarter of 2018, built up to address a strong order backlog with treated lumber customers and to take advantage of favorable buying conditions during the period. This resulted in reduced inventory expenditures during the first quarter of 2019 and the year-over-year $37.3 million positive variance in cash consumed.

Financing activities generated $76.2 million of cash compared to $95.3 million in the same period in 2018. Shares issued during the quarter generated $317,000 of cash compared to $210,000 in 2018. Repurchase our common shares pursuant to our normal course issuer bid consumed $616,000 of cash compared to 0 in 2018. Scheduled repayments related to the nonrevolving term loan consumed $667,000 consistent with 2018. Payment of lease liabilities, including interest consumed $5.6 million of cash due to the impact of adopting IFRS 16, which is offset, again, by a corresponding increase in cash from operating activities.

Dividends paid to shareholders amounted to $10.9 million, consistent with the same period in 2018. The dividends declared and paid on a per share basis were unchanged at $0.14 per share for the quarter.

The revolving loan facility increased by $94 million compared to $107.3 million in the same quarter in 2018. And we note the company was not in breach of any of its lending covenants during the 3 months ended March 31, 2019.

Investing activities consumed $1.9 million of cash, consistent with 2018. Cash purchases of property, plant and equipment relating to the Distribution segment were $652,000 compared to $732,000 in 2018, and cash purchases of property, plant and equipment relating to the Forestry segment were $1.2 million compared to $1.1 million in 2018.

The company's cash flows from operations, the subsequent temporary increase in our revolving loan facility as well as its other credit facilities are expected to be sufficient to meet operating requirements, capital expenditures and anticipated dividends. The company's lease obligations require monthly installments and these payments are all current.

This concludes our formal commentary, and we would be happy now to respond to any questions you may have. Thank you. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from Paul Quinn from RBC Capital Markets.

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [2]

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Just a question, you cited a Canadian housing activity and on a seasonally adjusted basis, and I suspect those adjustments are pretty significant in Q1. Any idea what that is nonadjusted?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [3]

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I don't have that one off hand, Paul, but we can come back. I can tell you the multies were pretty weak and it was just a poor quarter from all fronts weather-related, et cetera, et cetera that I think had something to play in that start number. But we can try and find that when I get back to you offline.

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [4]

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And more importantly, on the single-family side, was the figure as near as bad as a negative 33% year-over-year comparison?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [5]

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Yes. I would say so. And I think we're getting a little bit of a rebound in the multies. But we're not seeing as much on the singles yet. But it's still early in the year and there's been a lot of weather issues that have delayed things. So we're still optimistic that certain provinces are going to power up [and be okay here].

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [6]

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Okay. And then you guys cited the working capital build primarily I guess for the treating side. Have we started to see some significant takeaways on the treating? It's been a slower start, obviously, to this year's home building season. But have you started to see that go out of the door?

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James S. Code, CanWel Building Materials Group Ltd. - CFO [7]

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Yes. Paul, this is Jay here. Definitely, it was a slow start, a very adverse weather, winter, spring and -- both in Eastern Canada and California, Northern California in particular. But we are now seeing things are starting to move certainly in California that's really taken off in the last few weeks and Eastern Canada now is finally showing some signs of life.

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [8]

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Okay. And then just lastly, if you could give us an update on, I guess, the product pipeline in Hawaii for Honsador or an [ex] of Honsador?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [9]

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Yes. Sure. So currently, this year, we're ahead of last year on both sales and EBITDA. So last year, we had stronger results coming out of our electrical division. We had some great projects that we wrapped. We still have several strong projects coming on the electrical side that are booked for kind of Q2, 3 and 4 this year. So we're okay there. And the LBM side is up and it's strong. So projects are busy. The outer islands are busy. So we're quite happy with Q1 coming out of Hawaii.

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Operator [10]

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Our next question will come from Hamir Patel from CIBC Capital Markets.

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Hamir Patel, CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst [11]

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Amar, I wanted to get your thoughts on weakness we're seeing in lumber and panel markets. What's your sense as to where inventories are in the channel?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [12]

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Yes. So I think just due sort of the sloppy spring and it just hasn't broken nicely, but it's starting to come now. I think the pipeline is relatively stocked up. There's nobody clamoring for material. They could -- it's not in a frenzy, sort of the spring rush, if you will. So I would say the pipeline is healthy. I wouldn't say it's stuffed, but I think it's healthy. And I think in another month you might start to see a little bit of torque happen as these inventories start to go down and then we might get into a little bit of an underbought situation because everybody is kind of used to kind of staring at their inventory. And I've seen markets like this over the years where we might get a little torque up.

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Hamir Patel, CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst [13]

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Great. That's helpful. And maybe if you can just give us an update on what you're seeing on the M&A front and if there has been any change in vendor expectations?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [14]

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No. We're still in current dialogue with certain acquisition targets. And right now, we're digesting the 3 we've done in 12 months being Oregon, Woodland and then Lignum. So certainly we're trying to get everything going at those operations and keeping our dialogue going. We haven't seen evaluations changing too, too much, but what we are understanding is that private equity money is getting more on the sidelines in this cycle now and maybe opening up room for strategics like us to buy down the multiples a little bit where we feel that we can be disciplined and buy business at a pretty fair price that will fit into our systems. So I think from that front, we'll have less competition, I think, on some of the assets that we're currently looking at.

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Hamir Patel, CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst [15]

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Great. And then I just want to clarify on the Hawaii. I know you guys stopped giving the revenue breakdown for Honsador. But was it -- would it have been a year-over-year up for revenue growth?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [16]

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Yes, it is. Absolutely. Up on all metrics, sales margin and EBITDA.

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Hamir Patel, CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst [17]

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Okay. But is it fair to say, sequentially, maybe might have pulled back a bit with seasonality?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [18]

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No. I just -- there are some projects that got going that we're waiting on we thought were going to happen in Q3 and 4 last year. And Hawaii, like anywhere else, maybe more in Hawaii, when things get delayed or they have to do a water study, I mean, these things, they're on the books, they're ready to go, they get stalled, but they happen. That's the good news. And a lot of things started to come together in Hawaii this year. So I think our sales there, just on a percentage basis, would be up, call it 10%.

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Hamir Patel, CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst [19]

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That's year-over-year or sequentially?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [20]

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Quarter-over-quarter or year-over-year, yes.

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Operator [21]

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Our next question will come from Zachary Evershed with National Bank Financial.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Associate [22]

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Starting with a quick one. You guys mentioned you're digesting your recent acquisitions. Maybe you can provide a little more color on your M&A appetite versus your capacity for integration and same versus your leverage level.

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [23]

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Sure. I think currently, right now, again being in digestion mode and starting to get these companies more and more integrated, our buying strategy is all lined up into the certain operations in the U.S. are coming together. We've made some recent hires with great experience to help consolidate some of the synergy activities we've been working on. So we're very excited about that. So working on the team internally. But acquisitions that we're in current talks with owners, they go on and sometimes they just happen. So currently, there's nothing that we want to disclose in where we're at. But we're pretty happy with what we've got going and really trying to work on that. And we've got room in the credit facility. Obviously, this time of the year we're lowering up on inventory and of course we'll swing down by north of $100 million or $140 million. So we've got ample room to do acquisitions when required. And certainly not going to the markets of anything. So we're pretty healthy, we don't really see anything coming tomorrow morning that is happening. We're just kind of running the plumbing and running the business right now and trying to navigate our way through this new world with lower commodity pricing as well.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Associate [24]

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That's helpful. And speaking to your comments on the swing in inventory. We saw a pretty beefy spend in Q4, which pulled forward a bit of the inventory investment in Q1. Will working capital investment follow historical patterns going forward this year?

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James S. Code, CanWel Building Materials Group Ltd. - CFO [25]

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Yes. Zachary, it's Jay here. We would expect it to return to normalcy looking -- by sort of the beginning of the summer we should be back at normal working capital levels, and we'll see that fall off in working capital throughout the summer months into the fall.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Associate [26]

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Last one from me. Could you give us the Distribution segment organic growth?

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James S. Code, CanWel Building Materials Group Ltd. - CFO [27]

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Yes. It's a little -- Distribution wise, we're tracking a little under 2% over the last 3 years. So it's as expected.

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [28]

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Pretty much goes with GDP, Zach. And I think one thing that can distort our numbers is the price of lumber. So last year it was virtually 60% higher than it is today. And markets moving around the amount of wood products we sell whether it's the whitewood lumber treated commodity plywood OSB, that really moves around. So we can still be growing on volume, but it's not going to show the top line if the commodity price is low.

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Operator [29]

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Our next question will come from Yuri Lynk from Canaccord Genuity.

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Yuri Lynk, Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst [30]

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Amar, can you -- you talked about the 3 acquisitions that you're digesting. How do we think about the impacts these are going to have on a go-forward basis? Can you -- I know you don't want to get too specific on any one, but can you kind of give us some numbers for what the 3 of them would add in terms of revenue potential on an annualized basis?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [31]

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Yes. I mean, I can give you a total, but they're very different operations. So Oregon is a start-up, as you know, that we bought a plant that was almost completed, and we've been treating and doing trials, and we're just into production now on that. So that's going to be more of a back half story of this year where we're going to be producing and selling more lumber in volume there. Woodland is a treating plant that we acquired that we were booking out, virtually 100% of that plant. So by acquiring it now, we've brought that manufacturing margin in-house, which will allow us to compete further in the Northern California markets and into Southern Oregon as well. And then Lignum just came in, which is a much different operation where it's lumber wholesale operation. The top line on that is over $100 million. The other ones will be smaller because they're smaller treating plants, but different margin profiles as well. So the treating plants will have a much higher margin profile. Lignum will have a lower margin profile, high returns.

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James S. Code, CanWel Building Materials Group Ltd. - CFO [32]

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Again, Yuri, just on the Woodland acquisition. Of course as Amar mentioned, we were booking that out for trading services. So not a huge impact on revenue because we were already experiencing the revenue out of our California Cascade division. It's more of a margin enhancement.

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Yuri Lynk, Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst [33]

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Okay. Okay. Jay, while, I've got you, IFRS 16. Does this have a net negative impact on your bottom line, on your net income?

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James S. Code, CanWel Building Materials Group Ltd. - CFO [34]

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It's neutral over the life of the leases. But there is some timing differences. So the lease expense is now going to be classified as depreciation and interest. And that interest piece starts out a little bit higher when you combine it with depreciation versus the rental payments. But eventually, a line will be crossed and it will be lower for the back half of these leases. So over the life of the leases, it's the same.

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Yuri Lynk, Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst [35]

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Right. But like for Q1, for example, you've got a $5 million benefit to EBITDA, but below the EBITDA line you're penalized $6.6 million. So...

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James S. Code, CanWel Building Materials Group Ltd. - CFO [36]

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Yes. Yes. That is the interest being a little higher.

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Yuri Lynk, Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst [37]

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Okay. And so the D&A number kind of stays, the $5.4 million, that's kind of going to stay that way through the next couple of quarters? And the interest number might come down a little bit?

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James S. Code, CanWel Building Materials Group Ltd. - CFO [38]

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The interest number will come down as long as we're not entering into significant new leases, but yes.

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Operator [39]

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And next we'll go to Colin Healey with Haywood Securities.

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Colin Healey, Haywood Securities Inc., Research Division - Research Analyst of Mining [40]

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I just wanted to get some color on the sales side of things. Can you talk about how much of the decline in revenue would you say is pricing related versus decline in volume shift? Just trying to draw a correlation between kind of the reduction in housing starts and demand for volume versus its impact on price.

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [41]

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It's certainly a downward draft on both. Doug fir California last year was in the high $500s, touching USD 600 on Doug fir Portland. And today, it's call it $330. Western SPF last year was in the $500s -- upward $500s around this time. Today, it's $340, $330 and it's softer in the cash market than future. So that's going to definitely tell you that we did pick up some volumes against those pricing headwinds. I think our volumes collectively we're down about 5% or 6% on lumber plywood OSB as a company, which for what we are faced with we think was a pretty good weathering of a tough storm on stuff we couldn't control.

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Colin Healey, Haywood Securities Inc., Research Division - Research Analyst of Mining [42]

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Okay. Yes, that's great. That's helpful. And just on -- in terms of the expenses kind of below the cost of sales line. If you guys see like further sustained weakness, is there anywhere -- to be identified, any areas where you could possibly save some money?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [43]

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I think what's good about our business model is, we're very elastic. So once the trucks are full with orders, we don't roll them, we contract them, in Canada. The U.S., we do own some trucks. But our U.S. business is really, I would say, ramping up to what we thought it would. It's just late. And Hawaii is fine. California, the orders now are just -- our treating plants are running full tilt and our distribution segment down, and we're reducing peripheral products like composite decking and fencing and aluminum railing systems and things like that. Extremely busy. So we kind of went from sitting on our hands through all that poor weather and it was flooding in Sacramento to going strong. So we kind of look at everything. We're not in kind of cost-cutting mode, because the business is elastic. It's a long answer to your question, but we're not looking to cut out the costs here at this point. It's certainly -- the season's really just getting going and it's late.

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Colin Healey, Haywood Securities Inc., Research Division - Research Analyst of Mining [44]

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No. That's great. I don't think you necessarily need to be in that mode right now. I just wanted to know a bit more about how you're thinking about it.

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [45]

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Welcome.

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Operator [46]

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Our next question will come from Steven Hansen with Raymond James.

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Steven P. Hansen, Raymond James Ltd., Research Division - SVP [47]

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Just one quick one from me was just around, Jay, I think you referred to at the Jemi side, there was a quite an uptick in the post business. Is there something to be read into there? Were you focused on new markets? Was it just an abnormal surge in activity? Or what was really driving that effect?

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James S. Code, CanWel Building Materials Group Ltd. - CFO [48]

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Yes. No, Steve, we're seeing a very strong order backlog going into the year. And in fact, we haven't seen an order backlog like this in the post and pole business since we acquired Jemi 3 years ago. And yes, those deliveries just started to happen in the first quarter, and we expect it to continue that. Amar, did you want to comment on that?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [49]

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Yes. No, it's strong, and we're booked out. So right now I think our order files are out 3 or 4 months, which is great. And you know it's all farming business. So these guys will now start to receive product and we're shipping strong -- we'll ship strong in the first quarter with [cold and clear] in our areas, so that was good. And we got a lot of production moving even though it's cold. But we've got ways to continue treating with accelerated fixation, all that stuff. So it's very healthy, and we had a nice 3 months at logging as well so that was very decent.

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Steven P. Hansen, Raymond James Ltd., Research Division - SVP [50]

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Okay. Great. And just one follow-up, if I could, is on, I'm not sure if I missed it at the beginning, but just how is the new facility operating as it stands here going into spring -- sorry, the new treatment facility south of the border?

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Amardeip Singh Doman, CanWel Building Materials Group Ltd. - Chairman & CEO [51]

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Yes. So we've been doing our borate treating down there, and we're going to be moving into the CAB side of things, which is more for the residential decking, fencing business, virtually now. And we look like, again, the area of the whole West Coast is still busy. Housing starts have kind of simmered a bit, but they're still strong. There's lot of activity. So we're pretty excited about gaining new business in that market, the kind of the I-5 corridor being right in kind of the central part of Oregon. So we can now touch Washington State and have all Oregon as well. Kind of 250, 300 miles north and south, we're dead center. So we're pretty excited about that and hopefully in our next quarter, we'll be able to tell you that we started to get some material volume going.

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Operator [52]

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And that does conclude our question-and-answer session. At this time, I'd like to turn it back to Ali Mahdavi for closing remarks.

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Ali Mahdavi, CanWel Building Materials Group Ltd. - Head of IR [53]

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Once again, on behalf of the CanWel team, I would like to thank you all for joining us this afternoon. We look forward to speaking to you again during our second quarter 2019 results conference call. Have a great evening. This concludes today's call. Operator?

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Operator [54]

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Thank you. Once again, this does concludes our conference for today. Thank you for your participation.