IFP:CC - Interfor Reports Q2'22 Results

Adjusted EBITDA of $429 million and Net Earnings of $270 million With Record Production, Shipments and Sales

BURNABY, British Columbia, Aug. 04, 2022 (GLOBE NEWSWIRE) -- INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX: IFP) recorded Net earnings in Q2’22 of $269.9 million, or $4.92 per share, compared to $397.0 million, or $6.69 per share in Q1’22 and $419.2 million, or $6.45 per share in Q2’21. Adjusted net earnings in Q2’22 were $280.2 million compared to $392.5 million in Q1’22 and $433.5 million in Q2’21.

Adjusted EBITDA was $428.6 million on record sales of $1.4 billion in Q2’22 versus $570.1 million on sales of $1.3 billion in Q1’22.

Notable items in the quarter:

• Record Lumber Production and Shipments
  • Lumber production totaled a record 1.0 billion board feet, representing an increase of 99 million board feet quarter-over-quarter and the fifth consecutive quarter of record production. This growth was mostly driven by the first full quarter of contribution from the Eastern Canada Operations; these operations produced 211 million board feet versus 96 million board feet in the preceding quarter. The U.S. South and U.S. Northwest regions accounted for 467 million board feet and 163 million board feet, respectively, compared to 452 million board feet and 173 million board feet in Q1’22. Production in the B.C. region decreased to 174 million board feet from 196 million board feet in Q1’22, in part due to the sale of the Acorn sawmill during the quarter.
  • Lumber shipments were a record 1.1 billion board feet, or 239 million higher than Q1’22.
  • Ongoing improvement in the availability of logistics contributed to a reduction of lumber inventories by 46 million board feet during the quarter. Further reductions following quarter-end have now positioned total lumber inventory volume within the Company’s targeted range.
• Moderating Lumber Prices
  • Interfor’s average selling price was $1,104 per mfbm, down $306 per mfbm versus Q1’22. The SYP Composite, Western SPF Composite, KD H-F Stud 2x4 9’ and ESPF Composite price benchmarks decreased quarter-over-quarter by US$437, US$322, US$402 and US$313 per mfbm to US$682, US$837, US$891, and US$938 per mfbm, respectively, with the majority of these decreases occurring in the second half of the quarter.
• Strong Free Cash Flow Generation
  • Interfor generated $218.2 million of cash flow from operations before changes in working capital, or $3.98 per share. A reduction in working capital investment added $175.6 million of cash flow, primarily related to the collection of trade receivables recorded at higher lumber prices and a reduction in log and lumber inventories.
  • Net debt ended the quarter at $102.0 million, or 4.6% of invested capital, resulting in ample available liquidity of $726.5 million.
• Strong results from Eastern Canada Operations
  • The Eastern Canada Operations contributed $115.7 million of Adjusted EBITDA to Interfor’s second quarter results, which is net of $17.3 million recorded in production costs related to fair value adjustments recognized at the acquisition date.
  • Since being acquired on February 22, 2022, the Eastern Canada Operations have generated $120.8 million of Adjusted EBITDA, which is net of $85.3 million recorded in production costs related to fair value adjustments recognized at the acquisition date.
• Ramp-up of DeQuincy, LA Sawmill
  • The DeQuincy, LA sawmill, with an annual two-shift capacity of 200 million board feet, has continued to ramp up ahead of schedule following its July 2021 acquisition in an idled state. Its operating schedule increased from one shift to two shifts during the quarter and the mill is expected to reach its full production run-rate in Q3 2022.
• Strategic Capital Investments
  • Capital spending was $65.1 million, including $40.6 million on discretionary projects. The majority of this discretionary spending was focused on the multi-year rebuild of the Eatonton, GA sawmill, a new planer at the Castlegar, B.C. sawmill and upgrades to the Perry, GA sawmill.
• Minority Interest in GreenFirst Forest Products Inc. (“GreenFirst”)
  • On May 2, 2022, a wholly-owned subsidiary of Interfor acquired a total of 28,684,433 common shares in the capital of GreenFirst from Rayonier A.M. Canada G.P., which represents approximately 16.2% of GreenFirst’s issued and outstanding common shares. The Company paid total cash consideration of $55.6 million.
• Ongoing Monetization of Coastal B.C. Operations
  • On May 13, 2022, the Company completed the sale of its Acorn specialty sawmill located near Vancouver, British Columbia and related working capital to an affiliate of San Industries Ltd. for cash consideration of $25.2 million, and recorded a gain of $6.2 million. With this sawmill sale completed, Interfor no longer has any lumber manufacturing assets within the Coastal B.C. region.
  • Interfor is currently undertaking a strategic review of its remaining Coastal B.C. operations, which consist solely of timber harvesting and sales related to its 1.67 million cubic meters of annual harvesting rights. Any alternatives, including disposition of harvesting rights, would be subject to consultation with First Nations and consent from the Government of B.C.
• Share Repurchases
  • During Q2’22, Interfor purchased 1,015,396 common shares under the Company’s Normal Course Issuer Bid (“NCIB”) for total consideration of $32.9 million. This completed the purchase of all 6,041,701 common shares allowable under the NCIB for total consideration of $227.2 million, representing an average price of $37.60 per share or 0.98 times book value per share at June 30, 2022.
  • On July 26, 2022, the Company announced its intention to commence a substantial issuer bid (“SIB”) pursuant to which the Company will offer to purchase up to $100,000,000 in value of its outstanding common shares for cancellation from holders of common shares for cash. The SIB will proceed by way of a “modified Dutch auction” procedure with a tender price range from $29.00 to $34.00 per common share.
• Softwood Lumber Duties
  • Interfor expensed $46.3 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 17.91%.
  • Interfor has cumulative duties of US$401.0 million held in trust by U.S. Customs and Border Protection as at June 30, 2022. Except for US$105.0 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

At its meeting today, the Interfor Board appointed Tom Temple of Kingston, Washington as a director of the Company. Mr. Temple, who is 65, is the former VP, Wood Products and Southern Resources of PotlatchDeltic, a diversified forest products company. Mr. Temple’s appointment increased the number of directors from ten to eleven, while deepening the Board’s operations and sales expertise in the U.S. in line with the Company’s Board succession plan.

Sustainability Performance

On April 22, 2022, Interfor released its fifth annual Sustainability Report, which provides detailed information on the Company’s commitments and actions, including a number of new targets and enhanced metrics. Sustainability is at the core of Interfor’s culture and integrated within its strategy, and the targets set represent an ongoing commitment to take strong action to enhance performance. Interfor’s Sustainability Report can be found at www.interfor.com .

Outlook

North American lumber markets over the near term are expected to be volatile as the economy continues to adjust to inflationary pressures, higher interest rates, supply chain constraints and labour shortages.

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 and constrained overall 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 significant available liquidity to continue pursuing its strategic plans despite ongoing economic and geo-political uncertainty globally.

Financial and Operating Highlights ¹

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.
5. Based on Bank of Canada foreign exchange rates.
   
   

Liquidity

Balance Sheet

Interfor’s Net debt at June 30, 2022 was $102.0 million, or 4.6% of invested capital, representing an increase of $264.9 million from the level of Net debt at December 31, 2021.

As at June 30, 2022 the Company had net working capital of $607.1 million and available liquidity of $726.5 million, based on the full borrowing capacity under its $500 million Revolving Term Line.

The Revolving 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 17, 2021, the Company completed an early renewal and expansion of its Revolving Term Line. The commitment under the facility was increased by $150 million to a total of $500 million, and the term was extended from March 2024 to December 2026.

Capital Resources

The following table summarizes Interfor’s credit facilities and availability as of June 30, 2022:

Interfor’s Revolving Term Line matures in December 2026 and its Senior Secured Notes have maturities principally in the years 2024-2030.

As of June 30, 2022, the Company had commitments for capital expenditures totaling $196.2 million for both maintenance and discretionary capital projects.

Non-GAAP Measures

This release makes reference to the following non-GAAP measures: Adjusted net earnings, Adjusted net earnings per share, 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:

Note: 1 Net debt to invested capital as of the period end.

Approved on behalf of the Board:

FORWARD-LOOKING STATEMENTS

This release contains forward-looking information about the Company’s business outlook, objectives, plans, strategic priorities and other information that is not historical fact. A statement contains forward-looking information when the Company uses what it knows and expects today, to make a statement about the future. Statements containing forward-looking information may include words such as: will, could, should, believe, expect, anticipate, intend, forecast, projection, target, outlook, opportunity, risk or strategy. Readers are cautioned that actual results may vary from the forward-looking information in this release, and undue reliance should not be placed on such forward-looking information. Risk factors that could cause actual results to differ materially from the forward-looking information in this release are described in Interfor’s second quarter and annual Management’s Discussion and Analysis under the heading “Risks and Uncertainties”, which are available on www.interfor.com and under Interfor’s profile on www.sedar.com . Material factors and assumptions used to develop the forward-looking information in this release include volatility in the selling prices for lumber, logs and wood chips; the Company’s ability to compete on a global basis; the availability and cost of log supply; natural or man-made disasters; currency exchange rates; changes in government regulations; Indigenous reconciliation; the Company’s ability to export its products; the softwood lumber trade dispute between Canada and the U.S.; environmental impacts of the Company’s operations; labour disruptions; information systems security; and the existence of a public health crisis. Unless otherwise indicated, the forward-looking statements in this release are based on the Company’s expectations at the date of this release. Interfor undertakes no obligation to update such forward-looking information or statements, except as required by law.

ABOUT INTERFOR

Interfor is a growth-oriented forest products company with operations in Canada and the United States. The Company has annual lumber production capacity of approximately 4.7 billion board feet and offers a diverse line of lumber products to customers around the world. For more information about Interfor, visit our website at www.interfor.com .

The Company’s unaudited condensed consolidated interim financial statements and Management’s Discussion and Analysis for Q2’22 are available at www.sedar.com and www.interfor.com .

There will be a conference call on Friday, August 5, 2022 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company’s release of its second quarter 2022 financial results.

The dial-in number is 1-888-396-8049 . The conference call will also be recorded for those unable to join in for the live discussion and will be available until September 5, 2022. The number to call is 1-877-674-7070, Passcode 637113#.

For further information:
Richard Pozzebon, Senior Vice President and Chief Financial Officer
(604) 422-3400