Interfor Reports Q3’23 Results

Adjusted EBITDA of $32 million and Net Loss of $42 million

Interfor Corporation (“Interfor” or the “Company”) recorded a Net loss in Q3’23 of $42.4 million, or $0.82 per share, compared to a Net loss of $14.1 million, or $0.27 per share in Q2’23 and Net earnings of $3.5 million, or $0.06 per share in Q3’22.

Adjusted EBITDA was $31.9 million on sales of $828.1 million in Q3’23 versus $41.9 million on sales of $871.8 million in Q2’23 and $129.5 million on sales of $1.0 billion in Q3’22.

Notable items in the quarter:

• Lumber Production Balanced with Demand
  • Lumber production totaled 1.0 billion board feet, representing a decrease of 26 million board feet quarter-over-quarter. The decrease was primarily due to the temporary closure of a sawmill in B.C. as a result of wildfires.
  • Lumber shipments were 1.0 billion board feet, or 108 million board feet lower than Q2’23.
• Weak Lumber Prices
  • Lumber prices continued to reflect softened demand driven by the elevated interest rate environment and ongoing economic uncertainty. Lumber prices strengthened at the beginning of Q3’23 from the effects of industry production curtailments and reduced European imports combined with increased new home construction demand but began to weaken near the end of Q3’23 as increased economic uncertainty drove interest rates higher. Interfor’s average selling price was $661 per mfbm, up $12 per mfbm versus Q2’23.
• Financial Flexibility Improved
  • Net debt at quarter-end was $777.7 million, or 28.7% of invested capital, with available liquidity of $417.9 million.
  • The net debt to invested capital leverage ratio improved compared to the end of Q2’23, driven by $107.2 million of cash flow from operations, including $70.5 million from income tax refunds.
  • Collection of an additional US$24.9 million of income tax refunds related to 2022 is expected in Q4’23.
• Strategic Capital Investments
  • Capital spending was $38.5 million, including $20.1 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, while total preliminary capital expenditures for 2024 are estimated to be approximately $140.0 million.

• Ongoing Monetization of Coastal B.C. Operations
  • Over the course of Q3’23, Interfor advanced on its plans to monetize its Coastal B.C. operations, which consist primarily of forest tenure rights from the province of B.C. and related log harvesting activities.
  • On October 3, 2023, the Company entered into an agreement to settle certain contractual obligations in order to facilitate monetization of its Coastal B.C. operations. The settlement will result in an $85.0 million provision being recognized in the fourth quarter, 2023, the payment of which Interfor expects to be fully funded by net proceeds from the disposition of Coast B.C. forest tenures over the next several years.
  • On October 27, 2023, the Company reached an agreement for the disposition of Coastal B.C. forest tenures totalling approximately 162,000 cubic metres of allowable annual cut (“AAC”) for net proceeds of $21.0 million. The completion of the disposition has received Ministry of Forests approval and is expected to close in the fourth quarter of 2023, subject to customary conditions for a transaction of this kind.
  • Following this, Interfor held Coastal B.C. forest tenures totalling approximately 1,411,000 cubic metres of AAC available for disposition subject to approvals from the Ministry of Forests.
• Softwood Lumber Duties
  • On August 1, 2023, the U.S. Department of Commerce (“DoC”) published the final rates for countervailing (“CV”) and anti-dumping (“AD”) duties based on the results of its fourth administrative review (“AR4”) covering shipments for the year ended December 31, 2021. The final combined rate for 2021 was 8.05% compared to the cash deposit rate of 8.99% from January to November 2021 and 17.90% for December 2021. The combined rate of 8.05% applied to new shipments effective September 13, 2023. To reflect the lower amended final rates for 2021, Interfor recorded a $6.3 million reduction to duties expense in Q3’23 and a corresponding receivable on its balance sheet.  
  • Interfor has cumulative duties of US$540.0 million, or approximately $10.36 per share on an after-tax basis, held in trust by U.S. Customs and Border Protection as at September 30, 2023. 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 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 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.

Liquidity

Balance Sheet

Interfor’s Net debt at September 30, 2023 was $777.7 million, or 28.7% of invested capital, representing an increase of $57.3 million from the level of Net debt at December 31, 2022.

As at September 30, 2023 the Company had net working capital of $400.0 million and available liquidity of $417.9 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

Interfor’s Term Line matures in December 2026 and its Senior Secured Notes have maturities in the years 2024-2033. As of September 30, 2023, the Company had commitments for capital expenditures totaling $114.2 million for both maintenance and discretionary capital projects.

For the full Third Quarter results, click here.

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 Q3’23 are available at www.sedarplus.ca and www.interfor.com.

Contact:

Richard Pozzebon – Executive Vice President and Chief Financial Officer – (604) 422-3400

Source: Interfor Corporation