WELL POSITION ED - Stella-Jones

1 WELLPOSITIONED2014 ANN UAL RE PORT2014 ANN UAL RE PORTSTELLA-JONE THE LAST FIF TEEN YEARS, THE STORY OF Stella-Jones HAS BEEN CHARACTERIZED BY STEADY EXPANSION AND CAREFUL NETWORK INTEGRATION. THE COMPANY S PROGRESS HAS BEEN MARKED EQUALLY BY A RELENTLESS EMPHASIS ON PRODUCTIVITY IMPROVEMENT, GREATER PENETRATION OF CORE MARKETS AND ENHANCEMENT OF SHAREHOLDER VALUE. Stella-Jones TODAY CONSI STS OF A CONTINENTAL PRODUCTION AND DISTRIB UTION NETWORK THAT AFFORDS BROAD MARKET COVERAGE AND A LEADING ROLE IN THE WOOD TREATING INDUSTRY. WITH UNRIVALLED SUPPLY SOURCES, A QUALITY PRODUCT OFFERING AND A REPUTATION STEEPED IN TRUST AND RELIABIL ITY, Stella-Jones IS well POSITIONED TO CONTINUE ITS GROWTH POSITIONEDFOR GROWTHCORPORATE INFORMATIONA nnual Meeting of ShareholdersApril 29, 201510:00 Omni Mont-RoyalSalon Pierre de Coubertin1050 Sherbrooke Street WestMontr al, Qu becStock InformationShares listed: Toronto Stock ExchangeTicker symbol: SJInitial public offering: 199452-week high/low (Jan.)

2 1 Dec. 31, 2014): $ / $ price at March 12, 2015: $ shares outstanding as at December 31, 2014: millionDividend PolicyThe Board of Directors considers a dividend on a quarterly basis, subjectto the company s financial covenants and conditional upon its financialperformance and cash March 12, 2015, the Board of Directors declared a quarterlydividend of $ per common Agent and RegistrarComputershare Investor Services LLPL egal CounselFasken Martineau Dumoulin LLPF oley & Lardner LLP2014 Annual Report1234167891011121314151617201918212 223252652728241. New Westminster, BC 2. Prince George, BC 3. Galloway, BC 4. Carseland, AB 5. Guelph, ON 6. Gatineau, QC 7 . Delson, QC 8. Sorel-Tracy, QC 9. Truro, NS 10. Arlington, WA 11. Tacoma, WA 12.

3 Sheridan, OR 13. Eugene, OR 14. Silver Springs, NV 15. Eloy, AZ 16. Russellville, AR 17 . Alexandria, LA 18. Bangor, WI 19. Memphis, TN 20. Electric Mills, MS21. Fulton, KY 22. Winslow, IN 23. Montevallo, AL 24. Clanton, AL25. Cordele, GA 26. Goshen, VA 27 . Dubois, PA 28. McAllisterville, PATreating FacilitiesCoal Tar DistilleryWELL POSITIONED GEOGRAPHIC ALLYS tella-Jones HIGHLIGHTSSTELLA-JONES GENERATED RECORD SALES AND PROFIT FOR THE FOURTEENTH CONSECUTIVE YEAR, WHILE SUSTAINING ITS STRATEGY OF CONTINENTAL EXPANSION AND CONTINUING TO MAXIMIZE ITS NETWORK EFFICIENCIES. REVENUES REACHED $ BILLION, WHILE NET INCOME AMOUNTED TO $ MILLION. In an increasingly confident North American economy, with investments being made in physical infrastructure, demand was healthy for Stella-Jones core products, namely, railway ties and utility poles.

4 The Company also manufactured the highest volume of residential lumber in its history an offering for the consumer market that leverages its wood treating expertise. With the May 2014 acquisition of Boatright Railroad Products in Alabama, the Company s network of plants and distribution facilities once again expanded its footprint to better serve its core markets. In addition, productivity was enhanced throughout the organization, as Stella-Jones shared best practices while optimizing capacity and logistics across its expanded solid cash flow generation allowed Stella-Jones to maintain a healthy financial POSITION . Annual dividends paid to shareholders totalled $ per share in 2014, representing the tenth consecutive year of dividend Annual Report3 well POSITIONED FINANCIALLYFOR THE YEARS ENDED DECEMBER 31 2014 2013 2012 2011 2010(millions of dollars, except per share data and ratios) $ $ $ $ $ OPERATING RESULTSS ales 1, 1, income 1 income POSITIONW orking capital assets 1, 1, debt 2 equity SHARE DATAB asic earnings per common share earnings per common share value per share number of shares outstanding (000 s) 68,802 68,681 64,313 63,782 60,652 Average number of diluted shares outstanding (000 s)

5 69,027 69,053 64,597 64,027 60,816 Shares outstanding at year end (000 s) 68,949 68,697 68,674 63,821 63,691 FINANCIAL RATIOSO perating margin on average equity debt 2 to total capitalization :1 :1 :1 :1 :1 Total debt 2 to trailing 12-month EBITDA 1 capital Operating income before depreciation of property, plant and equipment and amortization of intangible assets ( EBITDA ) and operating income are financial measures not prescribed by International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standard Board and Chartered Professional Accountant Canada Handbook Part 1 and are not likely to be comparable to similar measures presented by other issuers. Management considers they represent useful information for comparison with other similar operations in the industry, as they present financial results related to industry practice, not affected by non-cash charges or capital structure.

6 Operating income before depreciation of property, plant and equipment and amortization of intangible assets and operating income are readily reconcilable to net income presented in the IFRS financial statements, as there are no adjustments for unusual or non-recurring Including short-term bank (in millions of $) ,011. 3131, INCOME 1(in millions of $) INCOME(in millions of $) ON FROM OUR THEME STRONGER TOGETHER IN 2013, THE THEME OF OUR 2014 ANNUAL REPORT IS well POSITIONED . Stella-Jones IS INDEED well POSITIONED, BOTH OPERATIONALLY AND GEOGRAPHICALLY, TO SERVICE ITS MARKETS AND CUSTOMERS AND TO TAKE FULL ADVANTAGE OF THE IMPROVING ECONOMIC CONDITIONS IN NORTH AMERICA. IN ADDITION TO OUR TWENTY-SEVEN TREATING PLANTS, WE HAVE TEN PEELING YARDS, ONE COAL TAR DISTILLATION PLANT AND A WIDE DISTRIBUTION INFRASTRUCTURE, ALL OF WHICH GIVES Stella-Jones A STRATEGIC PRESENCE THROUGHOUT THE CONTINENT.

7 Our successful growth by acquisition continued in 2014 with the purchase of Boatright Railroad Products and its two large railway tie manufacturing plants in Alabama. They lie also in an area with very good raw material supply which is especially advantageous at a time when we and our competitors have been facing a challenge to source sufficient quantities of untreated ties. Throughout 2014, our untreated tie inventories were at historically low levels across the continent, leading to longer treatment cycles and therefore additional costs. We expect tie inventories to return to normal levels during the first half of 2015. As can be seen from the financial statements, Stella-Jones has exceeded the $ billion mark in 2013 as a result of a change in accounting policy with regards to revenue recognition for non-pole quality logs, and has comfortably exceeded that mark, at $ billion, in 2014.

8 Net profit was $ million compared with $ million the previous year. The 2014 figures include seven months of contribution from the two Boatright plants. In excess of of Stella-Jones sales are now in the United States and America s strengthening economy gives us much confidence that 2015 will be a very robust year for the Company. Our carefully planned growth strategy over recent years leaves Stella-Jones truly well positioned. One of our independent directors, Barrie Shineton, has chosen not to seek re-election to the Board at our annual meeting of shareholders. Barrie s deep knowledge of the wood products industry and experience both in Canada and the United States has enabled him to make a significant contribution to the working and success of the Company and I thank him for his commitment.

9 On behalf of the Board, I thank our customers and shareholders for their continued support, and I congratulate all our employees on their contribution to another fine result. Tom A. Bruce Jones, CBEC hairmanCHAIRMAN S REPORT2014 Annual Report5IN 2014, Stella-Jones AGAIN STRENGTHENED ITS ABIL ITY TO SERVE ITS CORE MARKETS BY WAY OF ENHANCED NETWORK EFFICIENCIES AND A STRATEGIC ACQUIS ITION. THE RESULT WAS ANOTHER RECORD YEAR IN TERMS OF SALES AND NET INCOME, REPRESENTING OUR FOURTEENTH CONSECUTIVE YEAR OF GROWTH. Higher sales came from both organic growth and the broadened markets that Stella-Jones has entered through the acquisition process. This dual approach has been, and remains, a principal characteristic of our business model a model which has progressively positioned the Company for growth and the enhancement of shareholder value.

10 Sales in 2014 amounted to $ billion, a increase over the previous year. The additional contribution from the operations of The Pacific Wood Preserving Companies , which we acquired in November 2013, was $ million. The contribution from our acquisition of Boatright Railroad Products in May 2014 was $ million. In addition, year-over-year variations in the value of the Canadian dollar, our reporting currency, versus the dollar, increased our denominated sales by approximately $ million when compared with the previous year. If we exclude the contributions from acquisitions, and the exchange rate effect, our 2014 sales increased by Net income for the year came to $ million, or $ per share, fully diluted, compared with $ million, or $ per share the previous year.