Interfor Reports Q2'23 Results

Adjusted EBITDA of $42 million and Net Loss of $14 million

BURNABY, British Columbia, Aug. 03, 2023 (GLOBE NEWSWIRE) -- INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX: IFP) recorded a Net loss in Q2’23 of $14.1 million, or $0.27 per share, compared to $41.3 million, or $0.80 per share in Q1’23 and Net earnings of $269.9 million, or $4.92 per share in Q2’22.

Adjusted EBITDA was $41.9 million on sales of $871.8 million in Q2’23 versus $26.1 million on sales of $829.9 million in Q1’23 and $428.6 million on sales of $1.4 billion in Q2’22.

Notable items in the quarter:

• Record Lumber Shipments Outpaced Production
  • Lumber shipments were a record 1.1 billion board feet, or 112 million board feet higher than Q1’23, which outpaced production resulting in a 16% reduction in lumber inventories.
  • Lumber production totaled 1.0 billion board feet, representing a decrease of 8 million board feet quarter-over-quarter.
  • The U.S. South and U.S. Northwest regions accounted for 468 million board feet and 165 million board feet, respectively, compared to 473 million board feet and 142 million board feet in Q1’23. The Eastern Canada region produced 249 million board feet versus 250 million board feet in Q1’23. Production in the B.C. region decreased to 141 million board feet from 166 million board feet in Q1’23.
• Stabilizing Lumber Prices
  • Lumber prices continued to reflect softened demand driven by the elevated interest rate environment and several supply-side factors. However, lumber prices began to strengthen near the end of Q2’23 from the effects of industry production curtailments and reduced European imports combined with increased new home construction demand. Interfor’s average selling price was $649 per mfbm, up $10 per mfbm versus Q1’23.
  • The SYP Composite and KD H-F Stud 2x4 9’ increased quarter-over-quarter by US$4 and US$24 per mfbm to US$446 and US$452 per mfbm, respectively, while the Western SPF Composite decreased quarter-over-quarter by US$27 per mfbm to US$372 per mfbm. The ESPF Composite remained at US$474 per mfbm quarter-over-quarter.
• Financial Flexibility Improved
  • Net debt at quarter-end was $815.7 million, or 29.6% of invested capital, with available liquidity of $366.1 million.
  • The net debt to invested capital leverage ratio improved compared to the end of Q1’23, driven by $123.0 million of cash flow from operations, including $97.4 million from inventory reductions.
  • Liquidity is expected to be further strengthened during the remainder of 2023 by income tax refunds totaling approximately $100.0 million related to over-installments for the 2022 tax year.
• Strategic Capital Investments
  • Capital spending was $57.7 million, including $40.2 million of discretionary investment focused on multi-year projects in the U.S. South region.
  • Total capital expenditures planned for 2023 remains unchanged from prior guidance at approximately $210.0 million, with continued flexibility to adjust this based on various factors including market conditions.
• Ongoing Monetization of Coastal B.C. Operations
  • The Company is continuing to work with the Ministry of Forests to subdivide and transfer a number of forest tenures from its 1.57 million cubic metres of annual harvesting rights. The timing remains uncertain as to when Ministry approval will be received and certain contractual matters are finalized.
• Softwood Lumber Duties
  • Interfor expensed $17.0 million of duties in the quarter, representing the full amount of countervailing (“CV”) and anti-dumping (“AD”) duties incurred on shipments of softwood lumber from its Canadian operations to the U.S. at a combined rate of 8.59%.
  • On August 1, 2023, the U.S. Department of Commerce (“DoC”) published the final rates for CV and AD duties based on the results of its fourth administrative review covering shipments for the year ended December 31, 2021. The final combined rate for 2021 was 7.99% compared to the cash deposit rate of 8.99% from January to November 2021 and 17.90% for December 2021. The finalization of the fourth administrative review rates indicated an overpayment of duty deposits in 2021 of $18.6 million. The combined rate of 7.99% applied to new shipments effective August 1, 2023.
  • Interfor has cumulative duties of US$530.9 million, or approximately $9.97 per share on an after-tax basis, held in trust by U.S. Customs and Border Protection as at June 30, 2023. Except for US$156.8 million recorded as a receivable in respect of overpayments arising from duty rate adjustments and the fair value of rights to duties acquired, Interfor has recorded the duty deposits as an expense.

Interfor Appoints New Director

On May 19, 2023, the Interfor Board appointed Nicolle Butcher of Toronto, Ontario as a director of the Company. Ms. Butcher is the Chief Operating Officer of Ontario Power Generation, where she has held a wide range of roles with increasing responsibility over the past 22 years. Ms. Butcher’s appointment increased the number of directors to eleven and was in line with the Company’s Board succession plan.

Outlook

North American lumber markets over the near term are expected to remain volatile as the economy continues to adjust to inflationary pressures, elevated interest rates, labour shortages and geo-political uncertainty. Additionally, potential remains for supply-side disruption in the near term from the record wildfire season in progress in Canada as well as impacts from the protracted port strike in B.C.

Interfor expects that over the mid-term, lumber markets will continue to benefit from favourable underlying supply and demand fundamentals. Positive demand factors include the advanced age of the U.S. housing stock, a shortage of available housing and various demographic factors, while growth in lumber supply is expected to be limited by extended capital project completion and ramp-up timelines, labour availability and constrained global fibre availability.

Interfor’s strategy of maintaining a diversified portfolio of operations in multiple regions allows the Company to both reduce risk and maximize returns on capital over the business cycle. Interfor is well positioned with its strong balance sheet and available liquidity to continue pursuing its strategic plans despite ongoing economic and geo-political uncertainty globally. In the event of a sustained lumber market downturn, Interfor maintains flexibility to significantly reduce capital expenditures and working capital levels, and to proactively adjust its lumber production to match demand.

Financial and Operating Highlights¹

Notes:

1. Figures in this table may not equal or sum to figures presented elsewhere due to rounding.
2. Financial information presented for interim periods in this release is prepared in accordance with IFRS and is unaudited.
3. Refer to the Non-GAAP Measures section of this release for definitions and reconciliations of these measures to figures reported in the Company’s unaudited condensed consolidated interim financial statements.
4. Gross sales including duties and freight.
5. Financial information has been adjusted for a reclassification in the presentation of unrealized foreign exchange loss (gain) within cashflow from operations resulting in a $/share change of $0.45 – Q2 2022 and $0.23 - YTD Q2 2022.
6. Based on Bank of Canada foreign exchange rates.

Liquidity

Balance Sheet

Interfor’s Net debt at June 30, 2023 was $815.7 million, or 29.6% of invested capital, representing an increase of $95.4 million from the level of Net debt at December 31, 2022.

As at June 30, 2023 the Company had net working capital of $482.6 million and available liquidity of $366.1 million, based on the available borrowing capacity under its $600.0 million Revolving Term Line (“Term Line”).

The Term Line and Senior Secured Notes are subject to financial covenants, including a net debt to total capitalization ratio and an EBITDA interest coverage ratio.

Management believes, based on circumstances known today, that Interfor has sufficient working capital and liquidity to fund operating and capital requirements for the foreseeable future.

On December 16, 2022, the Company completed an expansion of its Term Line. The commitment under the Term Line was increased by $100.0 million to a total of $600.0 million.

On December 1, 2022, the Company issued US$200.0 million of Series H Senior Secured Notes, bearing interest at 7.06% with principal payments of US$66.7 million due on December 26, 2031, 2032 and on final maturity in 2033.

Capital Resources

The following table summarizes Interfor’s credit facilities and availability as of June 30, 2023:

Interfor’s Term Line matures in December 2026 and its Senior Secured Notes have maturities in the years 2024-2033.

As of June 30, 2023, the Company had commitments for capital expenditures totaling $135.5 million for both maintenance and discretionary capital projects.

Non-GAAP Measures

This MD&A makes reference to the following non-GAAP measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Net debt to invested capital, Operating cash flow per share (before working capital changes), and Annualized return on capital employed which are used by the Company and certain investors to evaluate operating performance and financial position. These non-GAAP measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.

The following table provides a reconciliation of these non-GAAP measures to figures as reported in the Company’s audited consolidated financial statements (unaudited for interim periods) prepared in accordance with IFRS: