Interfor Reports Q2’19 Results

EBITDA¹ of $13 million on Sales of $481 million 
Net Debt to Invested Capital¹ of 18%; Liquidity of $392 million

VANCOUVER, British Columbia, Aug. 08, 2019 (GLOBE NEWSWIRE) -- INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX: IFP) Interfor recorded a net loss in Q2’19 of $11.2 million, or $0.17 per share, compared to a net loss of $15.3 million, or $0.23 per share in Q1’19 and net earnings of $63.7 million, or $0.91 per share in Q2’18.  Adjusted net loss in Q2’19 was $16.2 million compared to an Adjusted net loss of $12.7 million in Q1’19 and Adjusted net earnings of $68.9 million in Q2’18.

Adjusted EBITDA was $12.6 million on sales of $481.3 million in Q2’19 versus $16.3 million on sales of $451.2 million in Q1’19. 

Notable items in the quarter included:

• Lower Lumber Prices
  
  
  • The key benchmark prices decreased quarter-over-sequential-quarter with the SYP Composite, Western SPF Composite and KD H-F Stud 2x4 9’ falling by US$23, US$36 and US$19 per mfbm, respectively.  Interfor’s average lumber selling price dropped $10 from Q1’19 to $603 per mfbm.    
    
    
• Higher Shipments and Reduced Inventories
  
  
  • Total lumber production was 647 million board feet, consistent with the prior quarter.  Production in the U.S. South increased slightly to 320 million board feet from 316 million board feet in the preceding quarter as capital project-related downtime at the Monticello sawmill was more than offset by higher operating rates at most mills in the region.  The B.C. and U.S. Northwest regions accounted for 187 million board feet and 140 million board feet, respectively, compared to 195 million board feet and 135 million board feet in Q1’19.  Production was influenced by the curtailments taken in the B.C. Interior in response to weak lumber prices and continuing high log costs.
    
    
  • Total lumber shipments were 674 million board feet, including agency and wholesale volumes, or 53 million board feet higher than Q1’19.
    
    
  • Lumber inventories at June 30, 2019 were 211 million board feet, down from 229 million board feet at March 31, 2019.
    
    
  • Interfor’s operating costs were negatively impacted by an increase in its net realizable value provision for log and lumber inventories of $10.3 million in Q2’19. 
    
    
• Continued Strong Financial Position
  
  
  • Net debt ended the quarter at $198.2 million, or 17.9% of invested capital, resulting in available liquidity of $392.5 million.
    
    
  • The Company generated $9.9 million of cash flow from operations before changes in working capital, or $0.15 per share. 
    
    
  • Capital investments of $64.6 million in Q2’19 included $51.4 million primarily on U.S. South focused high-return discretionary projects, with the remainder related to maintenance capital and woodlands projects.
    
    
  • On June 28, 2019, the Company received compensation of $7.7 million from the Government of B.C. as settlement for the 2017 cancellation of two timber licences on the B.C. Coast, which is excluded from Adjusted EBITDA.
    
    
• 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 its Canadian shipments of softwood lumber into the U.S. at a combined rate of 20.23%.
    
    
  • Cumulative duties of US$76.5 million have been paid by Interfor since the inception of the current trade dispute and are held in trust by the U.S.  Except for US$3.3 million in respect of overpayments arising from duty rate adjustments, Interfor has recorded the duty deposits as an expense.

^{1 Refer to Adjusted EBITDA and Net debt to invested capital in the Non-GAAP Measures section}

Strategic Capital Plan Update

• Interfor continues to make progress on its previously announced Phase I and II strategic capital projects in the U.S. South. 
  
  
• The Phase I projects at the Meldrim, Georgia and Monticello, Arkansas sawmills were completed before quarter-end and are now in the ramp-up phase.  Total project costs are expected to be US$70.1 million versus the original budget of US$62.5 million.  The spending overage was due to vendor delays, additional steel costs and labour issues with contractors.  As of June 30, 2019, US$67.7 million has been capitalized.
  
  
• The Phase II projects at the Thomaston and Eatonton sawmills in Georgia and the Georgetown sawmill in South Carolina are on track for completion in various stages over the period of 2019 to 2022.  As of June 30, 2019, US$32.0 million has been capitalized and the projects remain on budget.

Acquisition of B.C. Interior Cutting Rights from Canfor

On June 3, 2019, Interfor entered into a purchase agreement with Canadian Forest Products Ltd.  to acquire two replaceable timber licences with annual cutting rights of approximately 349,000 cubic metres, an interest in a non-replaceable forest licence and other related forestry assets in the Adams Lake area of the B.C. Interior (the “Forestry Assets”), and assume certain liabilities relating to the Forestry Assets.  The cash purchase price of $60 million will be financed from Interfor’s available cash balance and/or borrowings under its existing bank credit facility.

The transaction is subject to various consents, including that by the Government of B.C. and is targeted to close in the third quarter, 2019.

By acquiring the Forestry Assets, Interfor will solidify its long-term log supply at its Adams Lake sawmill, supporting the continuation of a two-shift operating configuration at the mill in the face of declining allowable annual cuts in the region.  The Forestry Assets are located adjacent to Adams Lake’s woodlands operations, with log production flowing logically to the sawmill from a transportation and logistics standpoint.

Upon closing the transaction, Interfor will pursue a follow-on, high return investment opportunity by adding a new dry kiln to support additional value-added processing at the Adams Lake mill.

Interfor Appoints New Director

At its meeting today, the Interfor Board appointed Christopher Griffin of Chicago, Illinois as a director of the Company.  Mr. Griffin, who is 57, is the President & CEO of USG Corporation, a global manufacturer of gypsum wallboard and other building products.  Mr. Griffin’s appointment increases the number of directors from ten to eleven and was made in line with the Company’s Board succession plan.

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 has been restated for implementation of IFRS 16, Leases.
3. Financial information presented for interim periods in this release is prepared in accordance with IFRS and is unaudited.
4. Refer to the Non-GAAP Measures section of this release for definitions and reconciliations of these measures to figures reported in the Company’s consolidated financial statements. 
5. Gross sales before duties.
6. Based on Bank of Canada foreign exchange rates.

Liquidity

Balance Sheet

Interfor’s net debt at June 30, 2019 was $198.2 million, or 17.9% of invested capital, representing an increase of $163.8 million from the level at June 30, 2018 and an increase of $134.4 million from December 31, 2018.  These increases primarily reflect funding of capital projects, share repurchases and short term incentive compensation payments.

Net debt was negatively impacted by a weaker Canadian Dollar against the U.S. Dollar as all debt held was denominated in U.S. Dollars; this was partially hedged by the Company’s U.S. Dollar cash balances. 

On March 28, 2019, the Company completed a modernization of its credit facilities.  The new facility replaced the U.S. Operating Line, Canadian Operating Line, and Revolving Term Line with one consolidated facility.  The new facility increased credit availability to $350 million and matures in March 2024. 

As at June 30, 2019, the Company had net working capital of $253.4 million and available liquidity of $392.5 million, including cash and borrowing capacity on its term line facility. 

These resources, in addition to cash generated from operations, will be used to support working capital requirements, debt servicing commitments and capital expenditures.  We believe that Interfor will have enough liquidity to fund operating and capital requirements for the foreseeable future. 

Capital Resources

The following table summarizes Interfor’s credit facilities and availability as of June 30, 2019:

As of June 30, 2019, the Company had commitments for capital expenditures totaling $119.1 million for both maintenance and discretionary capital projects. 

Non-GAAP Measures

This release makes reference to the following non-GAAP measures: Adjusted net earnings (loss), Adjusted net earnings (loss) per share, EBITDA, Adjusted EBITDA, Net debt to invested capital and Operating cash flow per share (before working capital changes) 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:

Notes:

1. Financial information has been restated for implementation of IFRS 16, Leases.
2. Net debt to invested capital as of the period end.

Notes:

1. Financial information has been restated for implementation of IFRS 16, Leases.

Notes:

1. Financial information has been restated for implementation of IFRS 16, Leases.

Notes:

1. Financial information has been restated for implementation of IFRS 16, Leases.

Approved on behalf of the Board:
                                                       
“L. Sauder”                                                        “Thomas 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.  Generally, statements containing forward-looking information can be identified by the use of words such as: believe, expect, intend, forecast, plan, target, budget, outlook, opportunity, risk, strategy or variations or comparable language, or statements that certain actions, events or results may, could, would, should, might, or will occur or not occur.  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 annual Management’s Discussion & Analysis under the heading “Risks and Uncertainties”, which is 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 assumptions regarding 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; the effects of natural or man-made disasters; currency exchange rates; changes in government regulations; the availability of the Company’s allowable annual cut (“AAC”); claims by and treaty settlements with Indigenous peoples; the Company’s ability to export its products; the softwood lumber dispute between Canada and the U.S.; stumpage fees payable to the Province of British Columbia; environmental impacts of the Company’s operations; labour disruptions; and the efficacy of information systems security.  Unless otherwise indicated, the forward-looking information in this release is based on the Company’s expectations at the date of this release.  Interfor undertakes no obligation to update such forward-looking information, except as required by law.

ABOUT INTERFOR

Interfor is a growth-oriented lumber company with operations in Canada and the United States.  The Company has annual production capacity of approximately 3.1 billion board feet and offers one of the most diverse lines of lumber products to customers around the world.  For more information about Interfor, visit our website at www.interfor.com.

The Company’s unaudited consolidated financial statements and Management’s Discussion and Analysis for Q2’19 are available at www.sedar.com and www.interfor.com. 

There will be a conference call on Friday, August 9, 2019 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company’s release of its second quarter 2019 financial results.

The dial-in number is 1-833-297-9919.  The conference call will also be recorded for those unable to join in for the live discussion and will be available until September 7, 2019.  The number to call is
1-855-859-2056, Passcode 7768927.

For further information:
Martin L. Juravsky, Senior Vice President and Chief Financial Officer
(604) 689-6873