Interfor Reports Q1’23 Results

Interfor Reports Q1’23 Results

Adjusted EBITDA of $26 million and Net Loss of $41 million

BURNABY, British Columbia, May 04, 2023 (GLOBE NEWSWIRE) — INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX: IFP) recorded a Net loss in Q1’23 of $41.3 million, or $0.80 per share, compared to $72.2 million, or $1.40 per share in Q4’22 and Net earnings of $397.0 million, or $6.69 per share in Q1’22.

Adjusted EBITDA was $26.1 million on sales of $829.9 million in Q1’23 versus negative Adjusted EBITDA of $68.7 million on sales of $810.3 million in Q4’22 and Adjusted EBITDA of $570.1 million on sales of $1.3 billion in Q1’22.

Notable items in the quarter:

  • Lower Lumber Prices
    • Lumber prices continued to reflect softened demand driven by the elevated interest rate environment. Interfor’s average selling price was $639 per mfbm, down $60 per mfbm versus Q4’22. The Western SPF Composite, SYP Composite, KD H-F Stud 2×4 9’ and ESPF Composite price benchmarks decreased quarter-over-quarter by US$21, US$19, US$33 and US$24 per mfbm to US$399, US$442, US$428 and US$474 per mfbm, respectively.
  • Lumber Production Balanced with Demand
    • Lumber production totaled 1.0 billion board feet, representing an increase of 157 million board feet quarter-over-quarter. This growth was mostly driven by a decrease in temporary production curtailments in Q1’23 compared to Q4’22 and the first full quarter of contribution from two sawmills acquired in November 2022.
    • The U.S. South and U.S. Northwest regions accounted for 473 million board feet and 142 million board feet, respectively, compared to 404 million board feet and 135 million board feet in Q4’22. The Eastern Canada region produced 250 million board feet versus 212 million board feet in Q4’22. Production in the B.C. region increased to 166 million board feet from 123 million board feet in Q4’22.
    • Lumber shipments were 1.0 billion board feet, or 65 million board feet higher than Q4’22.
  • Financial Flexibility Maintained
    • Net debt at quarter-end was $880.0 million, or 30.7% of invested capital, while available liquidity was ample at $321.4 million.
    • Liquidity is expected to be strengthened during the remainder of 2023 by the draw down of seasonally high working capital and income tax refunds totaling approximately $98.0 million related to over-installments for the 2022 tax year.
  • Strategic Capital Investments
    • Capital spending was $63.7 million, including $45.4 million on discretionary projects. The majority of this discretionary spending was focused on the multi-year rebuild of the Thomaston, GA sawmill, a new planer at the Castlegar, B.C. sawmill and upgrades to the Perry, GA sawmill.
    • Total capital expenditures planned for 2023 have been reduced to approximately $210.0 million from $240.0 million in response to ongoing lumber market weakness. This reduction reflects the delay of certain components of ongoing strategic capital projects.
  • 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 the Ministry approval and certain contractual consents may be received.
  • Softwood Lumber Duties
    • Interfor expensed $10.7 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%.
    • Interfor has cumulative duties of US$520.6 million, or approximately $10.00 per share after-tax, held in trust by U.S. Customs and Border Protection as at March 31, 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.

Outlook

North American lumber markets over the near term are expected to be volatile as the economy continues to adjust to inflationary pressures, elevated interest rates, labour shortages and geo-political uncertainty.

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 significant 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  

    For the three months ended
    Mar. 31 Mar. 31 Dec. 31
  Unit 2023 2022 2022
         
Financial Highlights2        
Total sales $MM 829.9 1,349.0 810.3
Lumber $MM 642.5 1,212.5 656.3
Logs, residual products and other $MM 187.4 136.5 154.0
Operating earnings (loss) $MM (36.2) 512.7 (114.8)
Net earnings (loss) $MM (41.3) 397.0 (72.2)
Net earnings (loss) per share, basic $/share (0.80) 6.69 (1.40)
Operating cash flow per share (before working capital changes)3,5 $/share 0.47 6.18 (1.75)
Adjusted EBITDA3 $MM 26.1 570.1 (68.7)
Adjusted EBITDA margin3 % 3.1% 42.3% (8.5%)
         
Total assets $MM 3,695.1 3,081.4 3,619.8
Total debt $MM 946.2 403.1 798.0
Net debt3 $MM 880.0 340.2 720.4
Net debt to invested capital3 % 30.7% 15.8% 26.2%
Annualized return on capital employed3 % (5.0%) 86.6% (13.8%)
         
Operating Highlights        
Lumber production million fbm 1,031 917 874
Lumber sales million fbm 1,004 843 939
Lumber – average selling price4 $/thousand fbm 639 1,410 699
         
Average USD/CAD exchange rate6 1 USD in CAD 1.3525 1.2662 1.3578
Closing USD/CAD exchange rate6 1 USD in CAD 1.3533 1.2496 1.3544

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 $(0.20) – Q1 2022.
  6. Based on Bank of Canada foreign exchange rates.

Liquidity

Balance Sheet

Interfor’s Net debt at March 31, 2023 was $880.0 million, or 30.7% of invested capital, representing an increase of $159.6 million from the level of Net debt at December 31, 2022.

As at March 31, 2023 the Company had net working capital of $512.9 million and available liquidity of $321.4 million, based on the available borrowing capacity under its $600 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.

  For the three months ended
  Mar. 31 Dec. 31 Mar. 31
Thousands of Dollars 2023 2022 2022
       
Net debt      
Net debt (cash), period opening $720,361 $249,718 $(162,886)
Net issuance of Senior Secured Notes 270,160
Revolving Term Line net drawings 149,478 133,430 31,150
Decrease in cash and cash equivalents 10,810 73,812 478,203
Foreign currency translation impact on U.S. Dollar denominated cash and cash equivalents and debt (656) (6,759) (6,287)
Net debt, period ending $879,993 $720,361 $340,180

On December 16, 2022, the Company completed an expansion of its Term Line. The commitment under the Term Line was increased by $100 million to a total of $600 million.

On December 1, 2022, the Company issued US$200 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 March 31, 2023:

  Revolving Senior  
  Term Secured  
Thousands of Canadian Dollars Line Notes Total
Available line of credit and maximum borrowing available $600,000 $661,989 $1,261,989
Less:      
Drawings 284,193 661,989 946,182
Outstanding letters of credit included in line utilization 60,622 60,622
Unused portion of facility $255,185 $- 255,185
Add:      
Cash and cash equivalents     66,189
Available liquidity at March 31, 2023     $321,374

Interfor’s Term Line matures in December 2026 and its Senior Secured Notes have maturities in the years 2023-2033.

As of March 31, 2023, the Company had commitments for capital expenditures totaling $156.9 million for both maintenance and discretionary capital projects.

Non-GAAP Measures

This release 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:

  For the three months ended
  Mar. 31 Mar. 31 Dec. 31
Thousands of Canadian Dollars except number of shares and per share amounts 2023 2022 2022
       
Adjusted EBITDA      
Net earnings (loss) $(41,289) $397,031 $(72,175)
Add:      
Depreciation of plant and equipment 45,054 33,113 39,594
Depletion and amortization of timber, roads and other 12,235 9,124 11,668
Finance costs 10,944 5,169 4,643
Income tax expense (recovery) (11,497) 132,026 (40,687)
EBITDA 15,447 576,463 (56,957)
Add:      
Long-term incentive compensation expense (recovery) 2,636 3,671 (4,202)
Other foreign exchange gain (17) (12,823) (11,274)
Other expense (income) excluding business interruption insurance 6,424 (395) 4,719
Asset write-downs and restructuring costs (recoveries) 1,594 3,198 (1,033)
Adjusted EBITDA $26,084 $570,114 $(68,747)
Sales $829,882 $1,349,038 $810,361
Adjusted EBITDA margin 3.1% 42.3% (8.5%)
       
Net debt to invested capital      
Net debt      
Total debt $946,182 $403,112 $797,967
Cash and cash equivalents (66,189) (62,932) (77,606)
Total net debt $879,993 $340,180 $720,361
Invested capital      
Net debt $879,993 $340,180 $720,361
Shareholders’ equity 1,985,246 1,817,371 2,027,038
Total invested capital $2,865,239 $2,157,551 $2,747,399
Net debt to invested capital1 30.7% 15.8% 26.2%
       
Operating cash flow per share (before working capital changes)2      
Cash provided by (used in) operating activities $(84,588) $281,214 $10,306
Cash used in (generated from) operating working capital 108,829 85,478 (100,284)
Operating cash flow (before working capital changes) $24,241 $366,692 $(89,978)
Weighted average number of shares – basic (‘000) 51,438 59,357 51,435
Operating cash flow per share (before working capital changes) $0.47 $6.18 $(1.75)
       
Annualized return on capital employed      
Net earnings (loss) $(41,289) $397,031 $(72,175)
Add:      
Finance costs 10,944 5,169 4,643
Income tax expense (recovery) (11,497) 132,026 (40,687)
Earnings (loss) before income taxes and finance costs $(41,842) $534,226 $(108,219)
Capital employed      
Total assets $3,695,105 $3,081,351 $3,619,833
Current liabilities (342,977) (472,686) (325,997)
Less:      
Current portion of long-term debt 52,440 6,769 7,336
Current portion of lease liabilities 14,803 15,014 14,796
Capital employed, end of period $3,419,371 $2,630,448 $3,315,968
Capital employed, beginning of period 3,315,968 2,303,177 2,938,800
Average capital employed $3,367,670 $2,466,812 $3,127,384
Earnings (loss) before income taxes and finance costs divided by average capital employed (1.2%) 21.7% (3.5%)
Annualization factor 4.0 4.0 4.0
Annualized return on capital employed (5.0%) 86.6% (13.8%)

Notes:

  1. Net debt to invested capital as of the period end.
  2. 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 $(0.20) – Q1 2022.
 
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the three months ended March 31, 2023 and 2022 (unaudited)
(thousands of Canadian Dollars except per share amounts) Three Months Three Months
  Mar. 31, 2023 Mar. 31, 2022
     
Sales $829,882 $1,349,038
Costs and expenses:    
Production 776,732 733,830
Selling and administration 17,201 17,628
Long-term incentive compensation expense 2,636 3,671
U.S. countervailing and anti-dumping duty deposits 10,669 35,817
Depreciation of plant and equipment 45,054 33,113
Depletion and amortization of timber, roads and other 12,235 9,124
  864,527 833,183
     
Operating earnings (loss) before asset write-downs and restructuring costs (34,645) 515,855
     
Asset write-downs and restructuring costs 1,594 3,198
Operating earnings (loss) (36,239) 512,657
     
Finance costs (10,944) (5,169)
Other foreign exchange gain 17 12,823
Other income (expense) (5,620) 8,746
   (16,547) 16,400
      
Earnings (loss) before income taxes (52,786) 529,057
     
Income tax expense (recovery):    
Current (5,469) 122,580
Deferred (6,028) 9,446
  (11,497) 132,026
     
Net earnings (loss) $(41,289) $397,031
     
Net earnings (loss) per share    
Basic $(0.80) $6.69
Diluted $(0.80) $6.66

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 2023 and 2022 (unaudited)
(thousands of Canadian Dollars) Three Months Three Months
  Mar. 31, 2023 Mar. 31, 2022
     
Net earnings (loss) $(41,289) $397,031
Other comprehensive loss:    
Items that will not be recycled to Net earnings (loss):    
Defined benefit plan actuarial gain, net of tax 649 2,786
       
Items that are or may be recycled to Net earnings (loss):    
Foreign currency translation differences for foreign operations, net of tax (1,482) (24,729)
Total other comprehensive loss, net of tax (833) (21,943)
     
Comprehensive income (loss) $(42,122) $375,088

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS    
For the three months ended March 31, 2023 and 2022 (unaudited)    
(thousands of Canadian Dollars) Three Months Three Months
  Mar. 31, 2023 Mar. 31, 2022
     
Cash provided by (used in):    
Operating activities:    
Net earnings (loss) $(41,289) $397,031
Items not involving cash:    
Depreciation of plant and equipment 45,054 33,113
Depletion and amortization of timber, roads and other 12,235 9,124
Deferred income tax expense (recovery) (6,028) 9,446
Current income tax expense (recovery) (5,469) 122,580
Finance costs 10,944 5,169
Other assets 116 (40)
Reforestation liability 4,842 1,736
Provisions and other liabilities (3,249) (12,910)
Stock options 226 241
Write-down of plant, equipment and other 1,454 1,223
Unrealized foreign exchange loss (gain) 184 (10,281)
Other expense (income) 5,620 (8,746)
Income taxes paid (399) (180,994)
  24,241 366,692
Cash generated from (used in) operating working capital:    
Trade accounts receivable and other (53,890) (61,629)
Inventories (32,468) (21,412)
Prepayments 3,485 2,860
Trade accounts payable and provisions (25,956) (5,297)
  (84,588) 281,214
     
Investing activities:    
Additions to property, plant and equipment (63,145) (51,023)
Additions to roads and bridges (515) 155
Acquisitions, net of cash acquired 536 (537,679)
Proceeds on disposal of property, plant and equipment and other       4,114 1,190
Net proceeds from deposits and other assets 915 392
   (58,095) (586,965)
      
Financing activities:    
Issuance of share capital, net of expenses 104 377
Share repurchases, net of expenses (194,308)
Interest payments (13,089) (5,012)
Lease liability payments (4,457) (4,470)
Debt refinancing costs (163) (189)
Term line net drawings 149,478 31,150
  131,873 (172,452)
     
Foreign exchange gain (loss) on cash and cash equivalents held in a foreign currency (607) 2,574
Decrease in cash (11,417) (475,629)
     
Cash and cash equivalents, beginning of period 77,606 538,561
     
Cash and cash equivalents, end of period $66,189 $62,932

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31, 2023 and December 31, 2022 (unaudited)
(thousands of Canadian Dollars) Mar. 31, 2023 Dec. 31, 2022
     
Assets    
Current assets:    
Cash and cash equivalents $66,189 $77,606
Trade accounts receivable and other 228,419 174,053
Income tax receivable 109,753 104,082
Inventories 429,376 396,908
Prepayments 22,157 25,932
  855,894 778,581
     
Employee future benefits 18,776 18,445
Deposits and other assets 275,099 281,628
Right of use assets 33,691 33,998
Property, plant and equipment 1,713,623 1,701,197
Roads and bridges 32,099 38,050
Timber licences 176,274 178,443
Goodwill and other intangible assets 587,095 588,098
Deferred income taxes 2,554 1,393
     
  $3,695,105 $3,619,833
     
Liabilities and Shareholders’ Equity    
Current liabilities:    
Trade accounts payable and provisions $257,735 $285,604
Current portion of long-term debt 52,440 7,336
Reforestation liability 17,941 17,926
Lease liabilities 14,803 14,796
Income taxes payable 58 335
  342,977 325,997
     
Reforestation liability 33,750 28,671
Lease liabilities 20,220 20,456
Long-term debt 893,742 790,631
Employee future benefits 10,232 9,888
Provisions and other liabilities 20,702 24,166
Deferred income taxes 388,236 392,986
     
Equity:    
Share capital 408,861 408,713
Contributed surplus 5,657 5,475
Translation reserve 174,403 175,885
Retained earnings 1,396,325 1,436,965
     
  1,985,246 2,027,038
     
  $3,695,105 $3,619,833

Approved on behalf of the Board of Directors:

  L. Sauder T.V. Milroy
  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 first 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 softwood lumber trade dispute between Canada and the United States; environmental impacts of the Company’s operations; labour availability; and information systems security. 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 5.2 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 Q1’23 are available at www.sedar.com and www.interfor.com.

There will be a conference call on Friday, May 5, 2023 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company’s release of its first quarter 2023 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 June 4, 2023. The number to call is 1-877-674-7070, Passcode 786874#.

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

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