Interfor Reports Record Q3’20 Results and Announces Share Buyback Program
EBITDA1of $222 million on Sales of $645 million
Net Debt to Invested Capital1of 8%; Liquidity of $637 millionBURNABY, British Columbia, Nov. 05, 2020 (GLOBE NEWSWIRE) — INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX: IFP) recorded net earnings in Q3’20 of $121.6 million, or $1.81 per share, compared to $3.2 million, or $0.05 per share in Q2’20 and a net loss of $35.6 million, or $0.53 per share in Q3’19. Adjusted net earnings in Q3’20 were $140.0 million compared to $10.6 million in Q2’20 and an Adjusted net loss of $11.8 million in Q3’19.Adjusted EBITDA was a record $221.7 million on sales of $644.9 million in Q3’20 versus $42.8 million on sales of $396.8 million in Q2’20.Notable items in the quarter:• Higher Lumber PricesInterfor’s average lumber selling price increased $264 per mfbm from Q2’20 to $910 per mfbm. The key benchmark prices rose significantly quarter-over-quarter with the SYP Composite, Western SPF Composite and KD H-F Stud 2×4 9’ benchmarks increasing by US$320, US$361 and US$349 per mfbm to US$748, US$711 and US$764 per mfbm, respectively. Interfor’s average selling price lags the key benchmark price changes due to timing differences between orders and shipments. While lumber prices fell sharply in the initial stages of COVID-19, industry-wide production curtailments in Q2’20 and growing demand from repair and renovation activities and U.S. housing starts contributed to the robust price environment during Q3’20.• Strengthened Financial PositionNet debt ended the quarter at $88.7 million, or 8.3% of invested capital, resulting in available liquidity of $636.7 million.Interfor generated $214.8 million of cash flow from operations before changes in working capital, or $3.19 per share.Capital spending was $23.4 million, including $16.2 million on high-return discretionary projects, primarily in the U.S. South. US$84.6 million has been spent on the Company’s Phase II strategic capital plan through September 30, 2020. Reflecting its strengthened financial position and available internal investment opportunities with attractive returns, Interfor has revised its planned capital expenditures for 2020 and 2021 to now total approximately $115.0 million and $150.0 million, respectively.• Production Increased to Meet DemandTotal lumber production in Q3’20 was 642 million board feet, representing an increase of 221 million board feet quarter-over-quarter. Production in the B.C. region increased to 193 million board feet from 115 million board feet in the preceding quarter. The U.S. South and U.S. Northwest regions accounted for 331 million board feet and 118 million board feet, respectively, compared to 230 million board feet and 76 million board feet in Q2’20.Total lumber shipments were 618 million board feet, including agency and wholesale volumes, or 120 million board feet higher than Q2’20.• Asset Write-downs and Restructuring CostsAsset write-downs and restructuring costs in Q3’20 are $9.8 million (after-tax), or $13.0 million on a pre-tax basis. This includes $10.8 million of non-cash impairments for asset write-downs on buildings, equipment and parts inventory related to the sale of the sawmill in Gilchrist, Oregon. The sale was completed on October 29, 2020.• Softwood Lumber DutiesInterfor expensed $19.7 million of duties in the quarter, representing the full amount of countervailing and anti-dumping duties incurred on its Canadian shipments of softwood lumber into the U.S. at a combined rate of 20.23%. Cumulative duties of US$121.1 million have been paid by Interfor since the inception of the current trade dispute and are held in trust by U.S. Customs and Border Protection.On February 3, 2020 the U.S. Department of Commerce issued preliminary revised combined rates of 8.37% for 2017 and 8.21% for 2018. These rates remain preliminary, with final rate determinations not expected until November 2020. At such time, the final rates will be applied to new lumber shipments. No adjustments have been recorded in the financial statements as of September 30, 2020 to reflect the preliminary revised duty rates.1 Refer to Adjusted EBITDA and Net debt to invested capital in the Non-GAAP Measures sectionNormal Course Issuer Bid (“NCIB”)The Toronto Stock Exchange (“TSX”) has approved the launch by the Company of a NCIB.The NCIB will allow for the purchase during the twelve-month period commencing on November 11, 2020 and ending on November 10, 2021 of up to 5,981,751 common shares, which represents 10% of the Company’s public float as at November 5, 2020. The Company purchased no common shares under the prior NCIB that expired on March 6, 2020. The Company was authorized to purchase up to 6,652,006 common shares under the prior NCIB.Under TSX rules, Interfor will be allowed to purchase daily a maximum of 88,590 common shares, representing 25% of the average daily trading volume of 354,363 common shares over the six-month period ending October 31, 2020, subject to certain exemptions for block purchases. As of November 5, 2020, the Company has 67,274,878 common shares issued and outstanding. All purchases will be made through open market transactions through the facilities of the TSX or other Canadian alternative trading systems and will conform to their rules and regulations. The price to be paid by Interfor for any common shares will be the market price at the time of acquisition. All common shares purchased pursuant to the NCIB will be cancelled.Interfor has also entered into an automatic securities purchase plan agreement with a securities broker under which the broker will act as the Company’s agent to acquire Interfor common shares under the NCIB during the Company’s scheduled blackout periods in the course of the NCIB. Purchases by the broker under the NCIB during these periods will be made at the broker’s discretion, subject to certain parameters established by Interfor prior to each period with respect to price and number of common shares.The Company believes that, from time to time, the market price of its common shares may be attractive and their purchase would represent a prudent allocation of capital.OutlookNear term lumber demand is expected to be impacted by uncertainties related to COVID-19 within the North American economy as well as a traditional fall/winter seasonal slowdown that can be weather dependent. Interfor expects lumber demand to continue to grow over the mid-term, as repair and renovation activities and U.S. housing starts benefit from favourable underlying economic fundamentals and trends. Interfor’s strategy of maintaining a diversified portfolio of operations allows the Company to both reduce risk and maximize returns on invested capital over the business cycle.While uncertainty remains as to the duration and extent of the economic impact from the COVID-19 pandemic, Interfor is well positioned with its strong balance sheet and significant available liquidity.Financial and Operating Highlights1 Notes:Figures in this table may not equal or sum to figures presented elsewhere due to rounding.Financial information presented for interim periods in this release is prepared in accordance with IFRS and is unaudited.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.Gross sales before duties.Based on Bank of Canada foreign exchange rates.
LiquidityBalance SheetInterfor’s net debt at September 30, 2020 was $88.7 million, or 8.3% of invested capital, representing a decrease of $136.2 million since December 31, 2019. As at September 30, 2020 the Company had net working capital of $452.8 million and available liquidity of $636.7 million, based on the full borrowing capacity under its $350 million Revolving Term Line.The Revolving Term Line and Senior Secured Notes are subject to financial covenants, including net debt to total capitalization ratios, 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 March 26, 2020, the Company issued US$50,000,000 of Series F Senior Secured Notes, bearing interest at 3.34%, and US$50,000,000 of Series G Senior Secured Notes, bearing interest at 3.25%. Each series of these Senior Secured Notes have equal payments of US$16,667,000 due on each of March 26, 2028, 2029 and on maturity in 2030.Capital ResourcesThe following table summarizes Interfor’s credit facilities and availability as of September 30, 2020:Interfor’s Revolving Term Line matures in March 2024 and its Senior Secured Notes have maturities principally in the years 2024-2030.As of September 30, 2020, the Company had commitments for capital expenditures totaling $37.8 million for both maintenance and discretionary capital projects.Non-GAAP MeasuresThis MD&A makes reference to the following non-GAAP measures: Adjusted net earnings (loss), Adjusted net earnings (loss) per share, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Net debt to invested capital, Operating cash flow per share (before working capital changes), and Return on invested capital 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 unaudited condensed consolidated interim financial statements prepared in accordance with IFRS:Note: 1 Net debt to invested capital as of the period end.
