Interfor Reports Q2’24 Results

Adjusted EBITDA loss of $17 million and Net Loss of $76 million

BURNABY, British Columbia, Aug. 08, 2024 (GLOBE NEWSWIRE) -- INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX: IFP) recorded a Net loss in Q2’24 of $75.8 million, or $1.47 per share, compared to a Net loss of $72.9 million, or $1.42 per share in Q1’24 and a Net loss of $14.1 million, or $0.27 per share in Q2’23.  

Adjusted EBITDA was a loss of $16.7 million on sales of $771.2 million in Q2’24 versus a loss of $22.3 million on sales of $813.2 million in Q1’24 and Adjusted EBITDA of $41.9 million on sales of $871.8 million in Q2’23.

Notable items:

  • Production Curtailments to Reflect Ongoing Weak Lumber Market
    • In Q2’24, lumber production totalled 1.0 billion board feet, representing a 35 million board foot decrease over the prior quarter. This decrease partially reflects the temporary production curtailments announced on April 30, 2024 and the indefinite curtailment of the Philomath, OR sawmill.
    • Lumber prices continue to reflect an imbalance of lumber supply and demand, with demand continuing to be impacted by the elevated interest rate environment and ongoing economic uncertainty. Lumber prices decreased slightly during Q2’24 as reflected in Interfor’s average selling price of $602 per mfbm, down $8 per mfbm versus Q1’24.
    • In response to the ongoing market weakness, Interfor plans to temporarily reduce its total lumber production by approximately 280 to 350 million board feet between August and December of 2024, representing 15 to 18% of its normal operating stance. The Company will continue to monitor market conditions across all its operations and adjust its plans accordingly.
  • Financial Position
    • Interfor’s net debt to invested capital ratio was 35.0% at quarter-end, which was comparable to the preceding quarter-end ratio of 34.7%.
    • The Company’s financial position benefited in the second quarter from $48.0 million of positive operating cash flow, including a $72.0 million reduction of working capital. This reduction of working capital was due in part to seasonal factors as well as the realization of sustainable operational efficiencies.
    • The Company’s available liquidity improved $30.8 million quarter-over-quarter to $330.5 million at June 30, 2024.
    • The collection of income tax refunds of approximately $59.0 million and the ongoing monetization of Coastal B.C. operations continue to be expected in the second half of 2024.
  • Ongoing Monetization of Coastal B.C. Operations
    • The Company sold Coastal B.C. forest tenures totalling approximately 50,000 cubic metres of allowable annual cut (“AAC”) and related assets and liabilities for proceeds of $8.3 million and a gain of $8.2 million. Interfor held approximately 1,137,000 cubic metres of AAC for disposition at June 30, 2024, subject to approvals from the Ministry of Forests.
    • Subsequent to quarter-end on July 29, 2024, Interfor sold 104,689 cubic metres of AAC for cash proceeds of $13.2 million.
  • Sale of Property and Assets of the former Philomath, OR sawmill
    • On June 27, 2024, the Company sold property and assets of the former Philomath, OR sawmill for cash consideration of US$15.0 million. A net non-cash charge of $4.3 million was recorded in conjunction with the disposition.
  • Capital Investments
    • Capital spending was $17.9 million, including $6.6 million of discretionary investment focused mainly on the multi-year rebuild of the Thomaston, GA sawmill.
    • Total capital expenditures for 2024 are now estimated to be approximately $70.0 million, reduced by $20.0 million from prior guidance. This reduction is the result of a review of project returns considering the ongoing lumber market weakness.
  • Softwood Lumber Duties
    • Interfor expensed $10.8 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 8.05%.
    • Interfor has cumulative duties of US$569.1 million, or approximately $11.05 per share on an after-tax basis, held in trust by U.S. Customs and Border Protection as at June 30, 2024. Except for US$161.8 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.

Outlook

North American lumber markets over the near term are expected to remain depressed as the economy continues to adjust to inflationary pressures, elevated interest rates, labour shortages and geo-political uncertainty, and as industry-wide lumber production continues to adjust to match demand.

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.   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  

  For the three months ended For the six months ended
  June 30June 30March 31 June 30June 30
 Unit202420232024 20242023
        
Financial Highlights2       
Total sales$MM771.2871.8813.2 1,584.41,701.7
Lumber$MM634.8723.2670.7 1,305.51,365.7
Logs, residual products and other$MM136.4148.6142.5 278.9336.0
Operating loss$MM(63.3)(20.8)(80.9) (144.2)(57.1)
Net loss$MM(75.8)(14.1)(72.9) (148.7)(55.4)
Net loss per share, basic$/share(1.47)(0.27)(1.42) (2.89)(1.08)
Adjusted EBITDA3$MM(16.7)41.9(22.3) (39.0)67.9
Adjusted EBITDA margin3%(2.2%)4.8%(2.7%) (2.5%)4.0%
        
Total assets$MM3,306.83,603.93,426.3 3,306.83,603.9
Total debt$MM970.0918.5980.7 970.0918.5
Net debt3$MM876.9815.7897.4 876.9815.7
Net debt to invested capital3%35.0%29.6%34.7% 35.0%29.6%
Annualized return on capital employed3%(11.1%)(1.1%)(9.1%) (10.2%)(3.1%)
        
Operating Highlights       
Lumber productionmillion fbm1,0341,0231,069 2,1042,054
U.S. Southmillion fbm476468480 956941
U.S. Northwestmillion fbm124165141 265307
Eastern Canadamillion fbm276249288 565499
B.C.million fbm158141160 318307
Lumber salesmillion fbm1,0551,1161,100 2,1552,120
Lumber - average selling price4$/thousand fbm602649610 606644
        
Key Statistics       
Benchmark lumber prices5       
SYP CompositeUS$ per mfbm356446383 370444
KD H-F Stud 2x4 9’US$ per mfbm424452455 440440
Eastern SPF CompositeUS$ per mfbm469474489 479474
Western SPF CompositeUS$ per mfbm385372416 401386
        
USD/CAD exchange rate6       
Average1 USD in CAD1.36831.34281.3486 1.35861.3477
Closing1 USD in CAD1.36871.32401.3550 1.36871.3240

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. Based on Random Lengths Benchmark Lumber Pricing.
  6. Based on Bank of Canada foreign exchange rates.

Liquidity

Balance Sheet

Interfor’s Net debt at June 30, 2024 was $876.9 million, or 35.0% of invested capital, representing an increase of $34.2 million from the level of Net debt at December 31, 2023.

As at June 30, 2024 the Company had net working capital of $314.4 million and available liquidity of $330.5 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 maximum net debt to total capitalization ratio of 50.0% and a minimum EBITDA interest coverage ratio of two times, which becomes effective if the net debt to total capitalization ratio exceeds 42.5%.   As at June 30, 2024, Interfor was fully in compliance with all covenants relating to the Term Line and Senior Secured Notes.

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.  

 For the three months ended
June 30,
 For the six months ended
June 30,
Millions of Dollars20242023 20242023
Net debt     
Net debt, period opening$897.4$880.0 $842.7$720.3
Net repayment of Senior Secured Notes-(7.1) -(7.1)
Term Line net drawings (repayments)(20.5)- 40.4149.5
Increase in cash and cash equivalents(9.1)(40.0) (36.7)(29.2)
Foreign currency translation impact on U.S. Dollar denominated cash and cash equivalents and debt9.1(17.2) 30.5(17.8)
Net debt, period ending$876.9$815.7 $876.9$815.7
      

On March 26, 2024, the Company issued US$33.3 million of Series I Senior Secured Notes, bearing interest at 6.37% with principal repayment due at final maturity on March 26, 2030. The proceeds were used to settle US$33.3 million of principal under the Company’s existing Series C Senior Secured Notes due on March 26, 2024.

Capital Resources

The following table summarizes Interfor’s credit facilities and availability as of June 30, 2024:

 RevolvingSenior 
 TermSecured 
Millions of DollarsLineNotesTotal
Available line of credit and maximum borrowing available$600.0$662.1$1,262.1
Less:   
Drawings307.9662.1970.0
Outstanding letters of credit included in line utilization54.7-54.7
Unused portion of facility$237.4$       -237.4
Add:   
Cash and cash equivalents  93.1
Available liquidity at June 30, 2024  $330.5
    

Interfor’s Term Line matures in December 2026 and its Senior Secured Notes have maturities in the years 2025-2033.

As of June 30, 2024, the Company had commitments for capital expenditures totalling $32.4 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 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:

 For the three months endedFor the six months ended
 June 30June 30March 31June 30June 30
Millions of Dollars except number of shares and per share amounts120242023202420242023
      
Adjusted EBITDA     
Net loss$(75.8)$(14.1)$(72.9)$(148.7)$(55.4)
Add:     
Depreciation of plant and equipment46.746.746.793.491.8
Depletion and amortization of timber, roads and other11.49.910.922.322.1
Finance costs11.813.311.923.724.2
Income tax recovery(22.3)(8.1)(10.8)(33.1)(19.6)
EBITDA(28.2)47.7(14.2)(42.4)63.1
Add:     
Long-term incentive compensation expense (recovery)(2.4)2.8(1.7)(4.1)5.4
Other foreign exchange loss (gain)6.2(13.7)16.622.8(13.7)
Other expense (income) excluding business interruption insurance16.85.0(25.7)(8.9)11.4
Asset write-downs (recoveries) and restructuring costs(9.1)0.12.7(6.4)1.7
Adjusted EBITDA$(16.7)$41.9$(22.3)$(39.0)$67.9
Sales$771.2$871.8$813.2$1,584.4$1,701.7
Adjusted EBITDA margin(2.2%)4.8%(2.7%)(2.5%)4.0%
      
Net debt to invested capital     
Net debt     
Total debt$970.0$918.5$980.7$970.0$918.5
Cash and cash equivalents(93.1)(102.8)(83.3)(93.1)(102.8)
Total net debt$876.9$815.7$897.4$876.9$815.7
Invested capital     
Net debt$876.9$815.7$897.4$876.9$815.7
Shareholders' equity1,626.11,943.21,689.71,626.11,943.2
Total invested capital$2,503.0$2,758.9$2,587.1$2,503.0$2,758.9
Net debt to invested capital235.0%29.6%34.7%35.0%29.6%
      
Annualized return on capital employed     
Net loss$(75.8)$(14.1)$(72.9)$(148.7)$(55.4)
Add:     
Finance costs11.813.311.923.724.2
Income tax recovery(22.3)(8.1)(10.8)(33.1)(19.6)
Loss before income taxes and finance costs$(86.3)$(8.9)$(71.8)$(158.1)$(50.8)
Capital Employed     
Total assets$3,306.8$3,603.9$3,426.3$3,306.8$3,603.9
Current liabilities(307.4)(318.9)(332.3)(307.4)(318.9)
Less:     
Current portion of long-term debt45.644.145.245.644.1
Current portion of lease liabilities21.715.820.521.715.8
Capital employed, end of period$3,066.7$3,344.9$3,159.7$3,066.7$3,344.9
Capital employed, beginning of period3,159.73,419.33,125.43,125.43,316.0
Average capital employed$3,113.2$3,382.1$3,142.6$3,096.1$3,330.4
Loss before income taxes and finance costs divided by average capital employed(2.8%)(0.3%)(2.3%)(5.1%)(1.5%)
Annualization factor4.04.04.02.02.0
Annualized return on capital employed(11.1%)(1.1%)(9.1%)(10.2%)(3.1%)

Notes:

  1. Figures in this table may not equal or sum to figures presented elsewhere due to rounding.
  2. Net debt to invested capital as of the period end.
 
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the three and six months ended June 30, 2024 and 2023 (unaudited)
(millions of Canadian Dollars except per share amounts)Three MonthsThree MonthsSix MonthsSix Months
 June 30, 2024June 30, 2023June 30, 2024June 30, 2023
     
Sales$771.2$871.8$1,584.4$1,701.7
     
Costs and expenses:    
Production763.5798.51,571.71,575.3
Selling and administration13.617.633.434.8
Long-term incentive compensation expense (recovery)(2.4)2.8(4.1)5.4
U.S. countervailing and anti-dumping duty deposits10.817.018.3 27.7
Depreciation of plant and equipment46.746.793.491.8
Depletion and amortization of timber, roads and other11.49.922.322.1
 843.6892.51,735.01,757.1
     
Operating loss before asset write-downs (recoveries) and restructuring costs(72.4)(20.7)(150.6)(55.4)
     
Asset write-downs (recoveries) and restructuring costs(9.1)0.1(6.4)1.7
Operating loss(63.3)(20.8)(144.2)(57.1)
     
Finance costs(11.8)(13.3)(23.7)(24.2)
Other foreign exchange gain (loss)(6.2)13.7(22.8)13.7
Other income (expense)(16.8)(1.8)8.9(7.4)
 (34.8)(1.4)(37.6)(17.9)
     
Loss before income taxes(98.1)(22.2)(181.8)(75.0)
     
Income tax expense (recovery):    
Current(3.6)(12.6)(1.0)(18.1)
Deferred(18.7)4.5(32.1)(1.5)
 (22.3)(8.1)(33.1)(19.6)
     
Net loss$(75.8)$(14.1)$(148.7)$(55.4)
     
Net loss per share    
Basic$(1.47)$(0.27)$(2.89)$(1.08)
Diluted$(1.47)$(0.27)$(2.89)$(1.08)


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended June 30, 2024 and 2023 (unaudited)
(millions of Canadian Dollars)Three MonthsThree MonthsSix MonthsSix Months
 June 30, 2024June 30, 2023June 30, 2024June 30, 2023
     
Net loss$(75.8)$(14.1)$(148.7)$(55.4)
     
Other comprehensive income (loss):    
Items that will not be recycled to Net loss:    
Defined benefit plan actuarial gain, net of tax0.4-3.00.7
     
Items that may be recycled to Net loss:    
Foreign currency translation differences for foreign operations, net of tax11.6(28.2)41.1(29.7)
Total other comprehensive income (loss), net of tax12.0(28.2)44.1(29.0)
     
Comprehensive loss$(63.8)$(42.3)$(104.6)$(84.4)
     


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and six months ended June 30, 2024 and 2023 (unaudited)
(millions of Canadian Dollars)Three MonthsThree MonthsSix MonthsSix Months
 June 30, 2024June 30, 2023June 30, 2024June 30, 2023
     
Cash provided by (used in):    
Operating activities:    
Net loss$(75.8)$(14.1)$(148.7)$(55.4)
Items not involving cash:    
Depreciation of plant and equipment46.7  46.793.491.8
Depletion and amortization of timber, roads and other11.49.922.322.1
Deferred income tax expense (recovery)(18.7)4.5(32.1)(1.5)
Current income tax recovery(3.6)(12.6)(1.0)(18.1)
Finance costs11.813.323.724.2
Other assets-0.2(0.4)0.3
Reforestation liability(2.6)(10.1)0.5(5.3)
Provisions and other liabilities(3.2)5.4(4.4)8.1
Stock option vesting0.20.20.30.4
Net write-down (recovery) of plant, equipment and other(10.0)-(8.9)1.5
Unrealized foreign exchange loss (gain)3.8(8.6)14.5(8.4)
Gain on lease modification(0.7)-(0.7)-
Other expense (income)16.81.8(8.9)7.4
Income taxes refunded (paid)(0.1)(1.4)1.5(1.8)
 (24.0)35.2(48.9)65.3
Cash generated from (used in) operating working capital:    
Trade accounts receivable and other35.216.237.0(37.7)
Inventories56.497.468.264.9
Prepayments(8.2)(12.3)(4.7)(8.8)
Trade accounts payable and provisions(11.4)(13.5)(20.2)(45.2)
 48.0123.031.438.5
     
Investing activities:    
Additions to property, plant and equipment(16.0)(57.5)(42.5)(120.6)
Additions to roads and bridges(1.9)(0.2)(1.4)(0.7)
Acquisitions, net of cash acquired---0.5
Proceeds on disposal of property, plant, equipment and other21.00.622.14.7
Net proceeds (payments) related to B.C. Coast monetization(2.1)-        26.9-
Net proceeds from deposits and other assets1.60.40.61.3
 2.6(56.7)5.7(114.8)
     
Financing activities:    
Issuance of share capital, net of expenses---0.1
Interest payments(15.2)(15.0)(29.1)(28.1)
Lease liability payments(5.8)(4.2)(11.7)(8.7)
Debt refinancing costs---(0.2)
Revolving Term Line net drawings (repayments)(20.5)-40.4149.5
Additions to Senior Secured Notes--45.3-
Repayments of Senior Secured Notes-(7.1)(45.3)(7.1)
 (41.5)(26.3)(0.4)105.5
     
Foreign exchange gain (loss) on cash and cash equivalents held in a foreign currency0.7(3.4)1.4(4.0)
Increase in cash 9.836.638.125.2
     
Cash and cash equivalents, beginning of period83.366.255.077.6
     
Cash and cash equivalents, end of period$93.1$102.8$93.1$102.8
     


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, 2024 and December 31, 2023 (unaudited)
(millions of Canadian Dollars)June 30, 2024Dec. 31, 2023
   
Assets  
Current assets:  
Cash and cash equivalents $93.1 $55.0
Trade accounts receivable and other153.3184.4
Income tax receivable67.968.4
Inventories275.5339.2
Prepayments32.026.9
 621.8673.9
   
Employee future benefits16.915.5
Deposits and other assets275.0274.6
Right of use assets42.737.1
Property, plant and equipment1,576.31,612.9
Roads and bridges26.535.9
Timber licences167.4170.4
Goodwill and other intangible assets573.0574.7
Deferred income taxes7.25.3
   
 $3,306.8$3,400.3
   
Liabilities and Shareholders’ Equity  
Current liabilities:  
Trade accounts payable and provisions$225.1$258.9
Current portion of long-term debt45.644.1
Reforestation liability14.715.8
Lease liabilities21.717.2
Income taxes payable0.30.2
 307.4336.2
   
Reforestation liability30.628.4
Lease liabilities21.623.1
Long-term debt924.4853.6
Employee future benefits11.311.3
Provisions and other liabilities47.354.6
Deferred income taxes338.1362.7
   
Equity:  
Share capital408.9408.9
Contributed surplus6.56.2
Translation reserve186.6145.5
Retained earnings1,024.11,169.8
   
 1,626.11,730.4
   
 $3,306.8$3,400.3


Approved on behalf of the Board of Directors:   
“L. Sauder”  “C. Griffin” 
Director Director 
    

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.sedarplus.ca. Material factors and assumptions used to develop the forward-looking information in this release include the timing and value of proceeds received from the disposition of Coast B.C. forest tenures; availability and cost of logs; competition; currency exchange sensitivity; environment; government regulation; health and safety; Indigenous reconciliation; information technology and cyber security; labour availability; logistics availability and cost; natural and man-made disasters and climate change; price volatility; residual fibre revenue; softwood lumber trade; and tax exposures. 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 5.0 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 Q2’24 are available at www.sedarplus.ca and www.interfor.com.

There will be a conference call on Friday, August 9, 2024 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company’s release of its second quarter 2024 financial results.

The dial-in number is 1-888-390-0546 or webcast URL: https://app.webinar.net/NYD9jBVj8xr. The conference call will also be recorded for those unable to join in for the live discussion and will be available until September 9, 2024. The number to call is 1-888-390-0541, Passcode 530436#.

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


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