Q2 2021 Stella-Jones Inc Earnings Call
Sure.
Good morning, ladies and gentlemen, thank you for setting by welcome to Stella Jones Q2, 2021earnings conference call.
At this time all participants are in a lesson only mode for all.
During the presentation, we'll conduct a question and answer session and instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference. Please press star followed by zero for operator assistance at any time before turning the meeting over to management. Please be had.
That this conference call will contain statements that are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated I would like to remind everyone that this conference call is being recorded on Tuesday August <unk> 'twenty 'twenty 1.
I will now turn the conference over to Russell President and CEO. Please go ahead.
Good morning, ladies and gentlemen on here for Silvana Travaglini, Chief Financial Officer of Stella Jones. Thank you for joining us for this discussion on the financial and operating result for Stella Jones in the second quarter ended June 32021.
Our press release reported Q2 results was published earlier this morning, along with our MD&A can also be found on our website at www Dot Stella Jones Dot com and will be posted on SEDAR today as well.
Let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated.
Stella Jones delivered strong performance in Q2.
Marked by solid sales growth in each of our 3 main product categories.
Volume gains in utility Poles and railway ties.
With record high prices volume of lumber.
Both sales to over $900 million and EBITDA to a quarter record.
Increased profitability translated into strong cash flow from operations, which allowed us to reduce the indebtedness incurred in Q1 for the seasonal build in working capital.
Investing strategically in our network and continue to return capital to shareholders.
Yeah.
Sales for the second quarter reached $903 million up from $768 million for the same period in 2020.
Excluding the negative impact of the currency conversion pressure treated wood sales rose $136 million or 18%, while sales for logs and lumber increased by $64 million.
I will now discuss in more detail the performance by product category.
Utility pole sales increased to $236 million up from $230 million into corresponding period last year, excluding the currency conversion effect utility pole sales climbed $30 million or 13% driven by improved maintenance demand for distribution poles.
Upward price adjustments and better sales mix strengthened by added fire resistant rep pull sales volumes. This growth was partially offset by less project related volumes.
Railway tie sales reached $216 million versus sales of $225 million in the same period last year.
Excluding currency conversion railway tie sales increased $15 million or 7% largely attributable to higher volumes for class 1 customers due to the timing of shipments.
The higher sales volumes were offset in part by pricing pressures for non class, 1 customers, which eased somewhat during the quarter.
Residential lumber sales rose to $330 million compared to $257 million in the period last year, excluding the currency conversion effect sales increased by $84 million or 33% driven by the exceptional rise and the market price of lumber.
This increase was partially offset by lower sales volumes stemming from softening customer demand.
Industrial product sales for $36 million compared to sales of $33 million in the quarter last year, largely due to more timber and piling projects offset in part by lower project related bridge and crossing sales.
The sales of logs and lumber category used to optimize procurement.
Was up 3 fold.
2 it pardon me was up threefold to $85 million compared to $23 million in the corresponding period last year.
This exceptional increase was due to the rise in the lumber price of market during the quarter.
So on and I'll provide further details regarding our results and financial position before I conclude with our outlook Silvana.
Thank you, Eric and good morning, everyone.
Turning to profitability.
Driven by our strong sales growth gross profit increased 50% to $197 million.
That's a gross profit of $131 million in the second quarter last year.
Similarly, EBITDA and operating income rose, 50% to $180 million and.
59% to $161 million respectively.
The increase was largely driven by the rise in sales prices for residential lumber, which exceeded the higher cost of London as well as improved pricing and volume gains for utility poles, partially offset by lower residential lumber demand.
As a result net income for the quarter increased over 65% to $115 million.
On a dollar and 76 cents per share GAAP.
That's a 69 million for $1 or a.
$1.2 per share in Q2 of 2020.
Turning to liquidity and capital resources.
We generated $173 million of cash flow from operations in the quarter, primarily driven by a significantly improved profitability.
Our capital allocation approach remains focused on balancing growth and returns.
During the quarter, we invested $16 million in capital expenditures and returned capital to shareholders by paying dividends of $24 million.
And buying back nearly 300000 shares for a total of $14 million.
There are now $1.1 million shares outstanding for repurchase under our normal course issuer bid.
During the quarter, we repaid in full our short term indebtedness and increased our long term debt by $26 million.
As at the end of the quarter Stella Jones as long term debt, including the current portion stood at $682 million.
We maintained a strong financial position with a low net debt to trailing 12 month EBITDA ratio of 1.7 times and had available liquidity of $395 million.
Subsequent to the quarter end the company obtained a 1 year extension of its unsecured syndicated revolving credit facility to February 27.2026.
Yesterday, the board of directors of Stella Jones declared a quarterly dividend of <unk> 18 per can.
Common share payable on September 17, 2021 to the shareholders of record at the close of business on September 1st.
I will now turn the call back to Eric for the outlook.
Right.
Thank you sylvana.
We have revised our full year financial forecast to reflect the softening of residential lumber demand in the second half of 2021.
We continue to foresee solid EBITDA growth in 2021 compared to 2020, but expect EBITDA to be in the range of $410 million to $440 million in 2021 compared to the previously disclosed guidance of $450 million to $480 million.
The margin expansion, we realized in the first half of 2021 is projected to offset the margin compression expected from declining market prices of lumber until the company average is down it has higher cost of inventory as.
As a result, the company anticipate EBITDA margins as a percentage of sales for 2021 to remain comparable to 2020.
Excluding the impact of currency conversion of about $130 million on sales the companys projecting sales growth in the low to high teens for 2021 compared to 2020.
Residential lumber sales are forecasted to increase 15% to 20 per cent compared to 2020 down from the previously disclosed forecasted increase of 45% to 65%.
For utility Poles, the sales growth forecasted remains unchanged, we expect sales to increase in the high single digit range compared to 2020.
We increased our sales growth expectations for railway ties and industrial products. We now project sales increased in the low single digit range for both categories compared to 2020.
Our priorities to create superior value for our stakeholders have not changed we intend to be active on the acquisition front focus on innovation continue to improve our operating efficiency and expand our capacity to sustained profitability.
On that front in the coming months, we will be starting up our Kirkland Lake, Ontario facility to support the strong growth and pulls demand.
The underlying fundamentals of each of our key product categories remains strong.
Even as lumber markets conditions normalize.
We expect our residential lumber product category sales to benefit from strong and enduring customer relationships for our leading utility Poles and railway ties product categories. We are confident that they will remain the core drivers of our sustained growth.
This concludes our prepared remarks, we will now be pleased to answer any questions you may have.
Thank you as a reminder, if you'd like to ask a question press star 1 on your telephone keypad to withdraw your question.
Press Star 1 again.
Please wait for recon for all the questions.
And your first question comes from the line of Walter <unk> with RBC capital markets. Please go ahead.
Yes, thanks, very much operator, good morning, everyone.
Good morning, Roger So Eric perhaps too.
To start on your guidance change with regards to residential lumber that debt.
Makes sense, given given where the market has been going just curious to size that are you assuming in that new guidance.
A deeper decline in from a pricing or on demand are you looking at kind of where we're at.
Ended the quarter and assume just to get to.
A flavor for the conservatism that you built into your guidance for residential lumber.
I appreciate it thank you.
Certainly thank you for the question of Walter on the topic definitely deserves.
Some discussion.
So if we think about our Q2 results were very strong results for the residential lumber product category.
2 dynamics, where underlying in those great results 1 is.
Pricing on the pricing of our sales prices that we were able to pass on to our customers.
Were higher than expected, but there were also offset by lower customer demand and it's really that lower customer customer demand trend and then when you're talking about the customer on that I'm talking about the retail.
And customers at the retail level.
Seeing that demand drop off where we're seeing strength continue into the second half of the year. So I would say 2 thirds of our guidance.
Adjustment is related is related to the volume aspect to dropping versus last year.
The other aspect to consider is a sharp decline in the pricing of lumber.
At the tail end of Q2.
Net sharp drop.
That has put some pressures on pricing that we were going to give to our customers.
But we need a bit of time to average on our cost of inventory. So I would say a third of our guidance decline is related to margin compression. So the sharp decline.
On pricing, obviously market prices have dropped over 60% and we're not dropping our sales prices bye bye.
By that magnitude, but we are conceding some presses to customer, but the fact that we need to average down on cost of inventory. They will take a while for us to be able to to average on the cost and therefore there'll be some margin compression.
Okay, that's great color.
My second question is on your go forward strategy and I know you.
You touched on it there in your closer and closer to in your prepared remarks.
But really what you've had here is a multi quarter.
Best described as a windfall.
That is that has cleaned up your balance sheet, so pointing to 1.7 times debt to EBITDA of $400 million on available liquidity.
You've used a portion of that to buyback some stock.
And in Prime your balance sheet.
I guess my question from here on I know you mentioned acquisitions, but there have been very high.
Those have been.
Kind of on.
Lower on the activity level there.
Are you are you armed now with this new.
Windfall on the balance sheet has created can you go into the market now and become more aggressive with acquisitions, even if they are at a little bit of a higher price.
Given some of the opportunities that are out there for growth for growing your business or is there just not many opportunities there and if not.
What are you looking at in terms of capital return strategy are you looking at significantly increasing your payout ratio or are you amping up your buyback.
Curious to hear your thoughts longer term in terms of that strategy.
So thank you Walter.
So I'll answer the M&A part first and then.
I'll follow up with the second part I guess, it's a bit more on capital allocation. So on the M&A front.
Happy to report, we're still discussing with the same companies that we were last quarter.
We're progressing in our process and I can't say much more than that obviously, because otherwise I'd be announcing a deal which I am not.
But things are progressing well and we are we're moving positively towards.
Being able to complete a transaction by.
In.
Short period of time ahead of us.
That being said our leverage has been down or has been.
Excellent our debt levels have been excellent for for several quarters. So.
We are definitely well positioned to be able to begin to make an accurate.
And it's not really about the pricing for the deal but more about.
The process to get to to being able to conclude a deal.
So with regards to capital allocation with the clarification, we provided last year.
I think we're going to keep being mindful of the free cash flow, we generate I think we have ample availability on our facilities to be able to execute on Emma.
But also to be able to continue to.
Return to shareholders in the form of dividends or share buybacks.
Okay I appreciate the time, thank you very much Eric.
Okay.
And your next question comes from the line of Amir <unk> with CIBC capital markets. Please go ahead.
Hi, good morning.
Eric Good morning America, what sort of annual volume change is embedded in the res lumber sales guide of up 15% to 20%.
Okay.
Yes for 30% of volume in the second half so on the second half our guidance, if you want to 30% of volume decline year over year.
And what was the volume change in the first half of the year.
Okay.
Year to date about 15% to 20% up yes.
Yes.
Okay, and then down 30 on the back out Okay and then.
We look out to 2022.
You know, who knows where lumber prices go but from a volume standpoint.
What are you hearing from your key customers are they expecting volumes to be up year over year next year in 'twenty 2.
So key customers have not started discussing 2022 yet.
I guess, maybe the best way to look at it and you touched a bit on and I think if we start pre pandemic for 2019 as a starting point.
And to that I guess, you need to factor 2 things 1 and you just mentioned it is where the price of lumber going going to.
To settle.
Lucy futures as well as I do around call. It the $700 Mark for next year could compare that to our 2019, let's say call. It baseline I think the other thing we need to consider is the strong relationships. We have developed in the last 18 months in the market with customers and new customers and net debt would be sort of added volume.
From 2 to that baseline if you want so not to I guess quantify right now what it looks like but that's how we're sort of thinking about 'twenty 2022.
Okay Fair enough that's helpful and just turning to the railway tie business.
If I look at the untreated tie prices it looks like there from those benchmarks are up.
Low single digits since the end of Q2 and almost up double digits year over year. So are you seeing that.
Inflation on.
On the raw material side and can you just remind us how the pass throughs work in that category.
Yes, so we are observing exactly that.
There is less availability of hardwood logs in the market right now there's less availability of hardwood logs, but the sawmills are also being offered a lot of money to cut pallet stock so thats sort of.
Prompting our industry to raise prices for the saw mills to incursion took up more railway ties so you're completely right, where we're seeing that debt that situation occur. So consequence for that is obviously and we've had the discussion before we will see our average cost of inventory increase slowly.
As we procure month over month, and then we will have the opportunity to this.
Execute clauses in our class 1 contracts, if you want and adjusted pricing Accordingly, so there might be a little lag before we can adjust with the class 1 customers and with regards to according to the non class 1 thats really quoting exercise. So every month as we're seeing our cost of material increase we will adjust our <unk>.
For the markets could take another quarter or 2 to 4.5 months, let's say to to be able to fully scope and the cost of debt of that fiber costs.
Okay, great. Thanks, Thanks, Eric that's that's all I had.
My pleasure. Thank you.
And your next question comes from the line of Michael Hoffman.
TD Securities. Please go ahead.
Thank you and good morning.
Good morning, Mike.
Maybe just a housekeeping question to start you have given us updated guide.
Guidance not not only for the EBITDA, obviously, but in terms of our sales guidance and some details around the.
Product categories, the new sales guidance, it's clear that that's organic growth guidance.
Low to high teens for the year I'm just wondering when you provide all of the product category.
Sales guidance is that also all on a on an organic basis.
Yes. It is.
Okay perfect.
Next question relates to to your margins and you've indicated that you expect full year 2021, EBITDA margins to be comparable to 2000 twenty's level. So that was about 15, 1% last year.
Obviously margins have had some uplift as a result of strong residential lumber markets since the start of the pandemic in early 2020.
I'm wondering though Eric if you can talk about.
What you see as a sustainable normalized annual EBITDA margin for Stella Jones business as we look forward.
So on numbers just trying to understand how we should think about a sustainable margin and how that compares to this approximately 15% level you're guiding to for this year and that you did last year.
And Michael I would guide to that 15% I think it is something that we can achieve.
Other parts of our business are still growing red utility poles have debt.
The high single digit growth now for a couple of years are we've got some efficiencies in our facilities.
No.
Even though we're seeing so on some normalizing in the residential lumber product category I guess it will resume.
Toric low margins, but all in all when you consider the whole of the company going forward into 2022, 3% to 15% Mark would be would be debt.
The day margin too to think about it.
And also fair to say.
Even beyond 2022 as well.
Correct, Yes, yes, yes definitely.
Okay perfect.
The growth you did in the pools business in the quarter strong at 13% I guess 2 questions number 1 are you able to break down.
Where that growth came from <unk>.
You've indicated.
Qualitatively some of the drivers I'm, just wondering how how important or how much weight each of those carried so things like improved maintenance demand and higher pricing in the.
And mix that would be question, 1 and then number 2 would be you've maintained your organic growth guidance for that product category in the high single digit range, you did 13%, though in the second quarter. So what is it.
Yes, I think youre running kind of high single digit growth on a year to date basis, but but that sort of implies maybe a bit of a slowdown from Q2 and I realize.
On what they're just very good but what would be the drivers.
From a slowdown from the 13% range you did in second quarter.
Yes.
So maybe a bit of for color on the first half of this year H 1.
For the year, it's simple when you combine both quarters.
We're about to 9% growth.
And that growth stemmed.
Call it 30% from.
30% from volume and.
70% from from pricing. So that's that's how that was comprising I think if you take a look at our whole year guidance.
It will go to 50%, 50% to 50% on pricing 50% on volume.
So I mean.
We did slightly adjust on Ot noticed we went from mid to high single digits.
Talking in our outlook for only high single digits. So I think it's it would be a bit with the 9% we achieved in the in each 1.
Okay.
Okay I'll leave it there thank you very much.
Thank you Michael.
And your next question comes from the line of for Noah <unk> with Deutsche Bank. Please go ahead.
Yes, good morning, good morning Silvana.
Good morning, Ben on just to come yes, just to come back on the residential lumber could you may be provide some color about the overall inventory levels are treated wood.
Stella Jones, but also for your customer level and how it could influence demand for 2022.
Yes.
Great Great question has been on us so.
As highlighted previously.
Demand in the second quarter was.
On a bit less on what do we expect US we did finish.
Q2, with a bit higher levels of treated inventory than we would in normal years, So youre completely right in your day.
And I guess on what Youre thinking is that we do have a bit more inventory on the books that we usually have.
That's why we're sort of guiding to the fact that we will have a bit of margin compression until we can average down our costs. So we've adjusted our procurement.
Starting back in June we've adjusted our procurement practices to be able to.
To reduce our inventories were also working with our customers our customer adult typically hold a lot of inventory, we sort of hold it for them. So we're sort of working jointly here looking at pricing or we don't dictate the pricing.
Actually.
Are looking at strategies to make sure that they have.
Pricing that's attractive for the end consumer bring them into in the stores and will help us. This will help us move inventory I referred to in the past too.
Our partnership with our customers and this is where the partnership is being leverage obviously.
Market at market prices of lumber have dropped 60% and that's not that's not we have not dropped our sales prices that much. So we're working collectively with our customers to be able to move to move that inventory. So.
To answer the second part of your question with the volumes of sales, we're still forecasting for the balance of the year.
Strongly believe that we will be able to reduce our inventory levels average on our cost before the end of the year and be ready you reset for a good 2022 season.
Okay, and then would it be fair debt the implied guidance assumes that the inventory level was finished more on a normalized level at the end of the year Eric Yes.
Yes that is correct, okay, okay, perfect and just in terms of working cap how should we be thinking in terms of working capital consumption or release for this big enough given the dynamics with the lumber price.
Yes, certainly I'll, let Kelvin answer that you should spend some time looking into that we're anticipating the question yeah.
So for the year, we would expect that the changes on working capital to be flat or contributed slightly so definitely for the second half we would expect.
Our contribution and the main reason for that is that the typical build in inventory that we usually see in that in that in the last quarter of the year to support our sales growth of the following year are expected to be offset by Eric just mentioned the depletion on that.
Higher around level of residential land inventory also impacting it.
Is that is also railway ties.
As mentioned also by adequate tighter.
On the ability at our fiber might also.
We won't have as much of a balance because of that also for a wrap for railway ties.
Okay. That's great when you say flat to slight slight contribution would you see positive or negative slight contribution on silvana.
A slight positive contribution for the year.
For the year perfect. Okay, that's great and just for utility pole you augment already mentioned good color about volume and pricing, but I was curious to know if you're seeing a further acceleration of maintenance work in second half or.
The recent resurgence sense of dependent make worlds.
Slow things down again.
After the.
The portion of your question on the pandemic is really difficult to predict right now we're not seeing any signs of demand slowing down and probably say the order book now sort of reflects.
On a good part of the balance of the year. So.
Ken Ken answer necessarily clearly on pandemic, because thats really a bit of a wildcard, but right now we're not we're not definitely not.
Not seeing that and maybe.
Maybe remind me the first part of your question.
Oh no no it was on volume.
Yeah exactly so that's perfect okay. So for.
Thank you very much more at a time.
Thank you Bruno.
And your next question comes from the line of Troy Sun with Laurentian Bank Securities. Please go ahead.
Good morning.
Good morning Troy.
Eric I'm just wondering if you can make a comment on the fire resistant poles product there just given all the natural disasters, we've seen can.
Can you, maybe just speak to the potential growth for that category as well.
You don't just the general competitive landscape, there and how your products are differentiated versus the competitors there.
Yes, so it's a great question right.
Yeah.
We definitely.
While we definitely believe that wood products is the best solution for this type of restaurant infrastructure.
We've proven.
Over different engineering tests, and lab tests debt under intense fire conditions with would still outperform.
And concrete and the addition of the fire retardant mesh actually.
Net debt much better.
Paul has been subject to.
Stimulated wildfires and actually pull that have been observed in the in the field haven't gone through in the past years <unk> through the wildfire conditions actually perform exceptionally well. So if you think about the environmental footprint. Our products are definitely way ahead of.
Okay substitute products.
With regards to pricing is still a better product and so we're more competitive on the on the pricing for for our customers and to deliver the same value and we all know debt.
Pull on average will last on 65 years. So I think it's it's a great. It's a great opportunity that we've developed and with regards to the potential youre required to right now we're seeing a 5% to 10% of the total product categories growth being shifted towards towards the product right. So.
It's not new demand as our customers electing to say well I was appalled thats wrapped now instead of a robot pull that's not that's not rap that potentially could that attract new customers to apologize because we have this offering yes.
5% to 10% is what we're guiding right now.
Okay, Great that's Super Super helpful and that's it for me. Thank you.
Thank you.
And your next question comes from the line of Maxon.
With National Bank financial Please go ahead hi.
Hi, good morning.
Good morning.
Eric just I was wondering obviously as we are hoping for the vitamin plan to to actually come through in the U S was curious.
Now that you had a chance to take a look on this if there was any potential positive spillover effect in terms of your kind of end markets based on your understanding right now.
Sure.
In general so the answer to your question is yes, I think there will be a positive impact to to the infrastructure Bill what we've observed in the past any types of.
Grant or stimulus money for infrastructure usually.
It is as.
Welcomed by the rail industry for example, and what will the rail industry will take advantage of it we see it. This year for example, we know we have.
2 we have grants that are given by different infrastructure bodies.
At the government level in the U S. There is also the federal tax credit of 45 day credit, which is also supporting infrastructure maintenance for short line and we're seeing the positive effect of that on general demand, So and I think it will be the same with the infrastructure Bill going forward I think it will sustain.
Sustained healthy demand.
I am talking a bit about.
On the railway tie business now, but I think it is also true for utility Poles as utility Poles were targeted at.
In a few areas of the.
Bill version that I've read anyhow alright.
Alright, and is it too early to potentially quantify them and could add 1 or 2.
Points of growth, assuming it goes through and it's kind of existing form.
Yes.
It is a bit difficult to quantify at this point Maxim maybe we could pick up this question.
At the next quarter call, we'll have a better idea of how our customers are thinking about it so right now I guess on.
For our customers are getting their mindset around what does that mean for them how they can leverage first.
So it's a bit difficult to see how it is going to transpire in which part of our customer demand. So unfortunately difficult to quantify but I would think that it would be a positive.
Or have a positive.
Addition to what we're currently guiding.
Okay, and then you made a comment around increased.
Market penetration on the resi side do you mind, maybe discussing in greater detail in terms of what that could actually enable you to do in a in a down market on the resi side.
So I guess any benefits from from greater market share and how that can lead to.
Improved margin or something like that that you can quantify it.
So so.
So definitely we are.
Throughout the last I guess 18 months, we had cycles of tightening inventory availability of inventory availability of different.
Sizing dimension, if we talk about the 10 sports on decking.
We've been very our team has been very.
Our strong and executing and making sure we have a proper product mix and offerings. So that has attracted some customers.
2.2 <unk> product offering.
Yes.
If we compare of additional volumes could represent.
Between.
556%. Additionally in volume.
For a less I think.
Yes.
Thats, what im thinking about at this point.
Okay. That's for helpful. And then just last 1 on the resi I mean, obviously lots of news flow around fires on things like that are you seeing.
Some of some of your clients on kind of rethinking there.
Stocking dynamic because I mean pricing started to move up a little bit off of the low was like what's what's actually kind of happening as we speak on on the ground as possible.
So.
On the distribution.
<unk> did.
The industry is.
It is quite different so.
So at this point I'm, not talking about Microsoft or from our customers or the Stella Jones customers directly, but so we understand that certain <unk>.
Certain retailers have higher level of inventory at this higher cost and if it's not at the retail level.
Either it's in the supply chain, so I think.
I think it will take a wildcard at the cycle I think it will help to some extent or prevent.
2 quick of a drop in market prices as well.
No 1 wants to write off inventory or have to sell it off at a loss. So I think it needs to take its time to work through and that's why we're guiding when you think about our own situation and how our customers are working with US we're saying that we're confident that in the next 6 months, we'll be able to reduce our inventory by new inventory at lower prices.
And average down is that is that helpful. Yes, Yes, and then actually just if we can come back for a second to cost of goods sold on the resi on which obviously impacted the margin profile do you anticipate this to be roughly kind of split evenly between Q3 Q for or how should we think about it or is it really kind of lumpy in Q3 and then.
On the sort of the tail end in Q4, just just so that we can calibrate the XL.
Yes, I think it's going to trend with the volumes right is typically Q4.
For winter months and the renovation is not on depending on parts of the country I guess, but it's no it's not.
It's not a great season for renovation. So I would think that the margin compression would come more in Q3, just because as it trends with the volumes.
Super helpful. That's it for me. Thank you so much.
Thank you Maxime.
Again, if you'd like to ask a question press star 1 on your telephone keypad and your next question comes from the line of Michael <unk> with.
TD Securities. Please go ahead.
Just a couple of follow ups first off Eric just sorry, I missed a little bit about what you were just commenting on in respect of <unk> questions with respect to.
Our market share gains that the 5% to 6% of additional volume is that what you've already achieved as a result of these additional.
The traditional business through through share gains or is that what you expect to achieve given additional business you've picked up.
That's what we've.
And obviously it always depends on your base of comparison, but I would say that's what we've achieved so far.
And we have ongoing discussions with <unk>.
Are there potential new customers that are.
Still on defense deciding who is going to be their supplier for next year, but we feel good about the fact that certain customers might.
I decided.
To include us as their supplier base.
Okay, and just from a in terms of understanding.
That growth is relative to what relative to where you would've been pre pandemic or is that just what you've achieved in 2021 versus 2020, yes.
I think it goes back to the exploration with giving as you think about 2019, where we had a certain.
Footprint of customers.
This for the last 18 months has broadened that much more volume to us. So I think that would be the best way to think about it.
Okay perfect.
And then I appreciate the comment earlier I think it was towards the beginning of the Q&A.
In terms of your volume expectations for residential lumber in the second half thing Youre thinking volumes.
Down 30% a year.
Year over year, and a half to 2021 can you.
Similar to what we were just talking about there can you put the volumes you would expect to do in half 2.2021.
In residential lumber.
Relative to 2019 base level like where would that leave you compared.
Compared to 2019 second half.
Yes.
It would be we'd be about a drop off.
I'd say, 20%, we need to do the math, Michael to be honest and calculated but.
Thinking about it I think so somewhere around the 20% would be fair.
Okay. So the kind of activity levels, we're seeing or expect to see in the second half of this year or actually below pre pandemic levels.
Correct.
Okay, Yes, that's the assumption we are using in the guidance yes.
Okay.
And that's inclusive I know, we're getting a little bit specifically, but that's inclusive of the 5% to 6% pick up that you've already realized like so so the market is actually down like 25% versus second half 2019, and then you've got back 5 or 6% from the all share gains.
I guess as market total margin would be or it would still be 20% overall for the company.
If were reflective of the entire market I would say, yes, it's just a question on <unk>.
Proportion of the market Stella Jones is getting versus the competition.
Okay.
But topic the thanks for earlier for some of the commentary around progression on the M&A discussions that is helpful.
Going back to last quarter's call. There was some talk of undertaking a bit of a.
Sort of a special initiative, whereby you were looking at whether or not there was an opportunity to add on additional adjacent product category and sort of a new but adjacent area.
Is there any update on that front.
Okay.
No updates on that front, Michael if I remember I was answering a question on someone enquiring about could there be a fourth product categories are.
What what are your thoughts on it and it's something that we keep discussing at the board level and considering I guess the messages, we're not closing the door to any new opportunities, but there's a share.
Certain criteria for us to consider a considered an acquisition and obviously it needs to be a good fit with our business needs to be accretive good multiples. It also needs to make sense with Stella Jones of skill set so I guess, that's maybe that's the bit of the.
Precision on to bring to that discussion point.
Certainly I didn't expect that you had concluded that process and determined 1 way or the other or settled on something I just.
But fair to say then that that sort of that.
<unk> debt potential still is an ongoing from an ongoing process, yes, correct yes.
Okay, and then just lastly.
Thank you Savana for the commentary around working capital changes in noncash working capital for this year.
Assuming.
Maybe this is not a great assumption, but assuming we have sort of pricing and residential lumber sort of hold in at these kinds of levels or something around here.
If we look out to 2022 in terms of in terms of changes in noncash working capital what would be the right way to think about.
That for your business on a full year basis, assuming again.
No.
Volatility and commodity prices at this point.
Yes, so if we assume.
You mentioned certain stability in the pricing and no significant swing.
We would assume.
The usual bill.
Build that we need at the end of the year at which we usually say on approximately about a $50 million of build.
Depending on the sales growth that is anticipated for this for the following year.
Okay. Okay. That's helpful. Thank you.
Thank you Michael.
And your next question comes from the line of spinoff Wahid with Vishal day. Please go ahead.
Yeah. So.
Respect to your M&A remarks, you kind of mentioned innovation.
I was wondering if you could provide more color about what are you looking for in terms of innovation, whether it's specific to <unk>.
Segment or it could be something else.
Well Benoit.
I don't think its time to.
Due to deep dive on that topic, because we're looking at.
A lot of a lot of opportunities.
Safe to say no.
What's gross close at heart as anything there'll be wood treating obviously, because we're the experts we understand that very well.
And anything that would be we'd be adjacent.
For those industries, but other than that I don't want to start.
A discussion on non specific.
Specific segments or opportunities.
Okay, that's great color and last 1 for me could you maybe provide an update on the ERP implementation and the current capex forecast, whether it's still a $50 million to $60 million for the year.
Yes.
So capex.
Capex, yes, $50 million to $60 million it will be it will be at the top end of debt.
<unk>.
As far as our last estimate show with regards to the ERP project.
No.
We're successfully we have successfully run now for several months III pilot plants.
We have launched the first wave this week.
Our residential lumber sorry in our railway tie division things are going well on that front as well.
I guess lessons learned for US is that we're seeing how demanding it is to prepare a wave.
To be able to structure and be successful at doing it.
Expect the.
On the deployment of our solution to extend beyond 2022, and we're working on a schedule, but it's really the deployment at this point because the day solution has been built and we've proven it is functioning successfully so all in all it's going very well integrate success.
That's it thank you very much.
Thank you Ben.
And there are no further questions at this time I will turn the call back over to <unk> for closing remarks.
Thank you Julie and thank you everyone for joining us on this call. We look forward to speaking with you again at our next quarterly call. Thank you.
This concludes today's conference call on you may now disconnect.
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Yes.
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Yes.
Okay.
Yes.
Thank you.