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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 2x4 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. 31Mar. 31Dec. 31
 Unit202320222022
     
Financial Highlights2    
Total sales$MM829.91,349.0810.3
Lumber$MM642.51,212.5656.3
Logs, residual products and other$MM187.4136.5154.0
Operating earnings (loss)$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$/share0.476.18(1.75)
Adjusted EBITDA3$MM26.1570.1(68.7)
Adjusted EBITDA margin3%3.1%42.3%(8.5%)
     
Total assets$MM3,695.13,081.43,619.8
Total debt$MM946.2403.1798.0
Net debt3$MM880.0340.2720.4
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 productionmillion fbm1,031917874
Lumber salesmillion fbm1,004843939
Lumber - average selling price4$/thousand fbm6391,410699
     
Average USD/CAD exchange rate61 USD in CAD1.35251.26621.3578
Closing USD/CAD exchange rate61 USD in CAD1.35331.24961.3544

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. 31Dec. 31Mar. 31
Thousands of Dollars202320222022
    
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 drawings149,478133,43031,150
Decrease in cash and cash equivalents10,81073,812478,203
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:

 RevolvingSenior 
 TermSecured 
Thousands of Canadian DollarsLineNotesTotal
Available line of credit and maximum borrowing available$600,000$661,989$1,261,989
Less:   
Drawings284,193661,989946,182
Outstanding letters of credit included in line utilization60,622-60,622
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. 31Mar. 31Dec. 31
Thousands of Canadian Dollars except number of shares and per share amounts202320222022
    
Adjusted EBITDA   
Net earnings (loss)$(41,289)$397,031$(72,175)
Add:   
Depreciation of plant and equipment45,05433,11339,594
Depletion and amortization of timber, roads and other12,2359,12411,668
Finance costs10,9445,1694,643
Income tax expense (recovery)(11,497)132,026(40,687)
EBITDA15,447576,463(56,957)
Add:   
Long-term incentive compensation expense (recovery)2,6363,671(4,202)
Other foreign exchange gain(17)(12,823)(11,274)
Other expense (income) excluding business interruption insurance6,424(395)4,719
Asset write-downs and restructuring costs (recoveries)1,5943,198(1,033)
Adjusted EBITDA$26,084$570,114$(68,747)
Sales$829,882$1,349,038$810,361
Adjusted EBITDA margin3.1%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' equity1,985,2461,817,3712,027,038
Total invested capital$2,865,239$2,157,551$2,747,399
Net debt to invested capital130.7%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 capital108,82985,478(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 costs10,9445,1694,643
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 debt52,4406,7697,336
Current portion of lease liabilities14,80315,01414,796
Capital employed, end of period$3,419,371$2,630,448$3,315,968
Capital employed, beginning of period3,315,9682,303,1772,938,800
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 factor4.04.04.0
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 MonthsThree Months
 Mar. 31, 2023Mar. 31, 2022
   
Sales$829,882$1,349,038
Costs and expenses:  
Production776,732733,830
Selling and administration17,20117,628
Long-term incentive compensation expense2,6363,671
U.S. countervailing and anti-dumping duty deposits10,66935,817
Depreciation of plant and equipment45,05433,113
Depletion and amortization of timber, roads and other12,2359,124
 864,527833,183
   
Operating earnings (loss) before asset write-downs and restructuring costs(34,645)515,855
   
Asset write-downs and restructuring costs1,5943,198
Operating earnings (loss)(36,239)512,657
   
Finance costs(10,944)(5,169)
Other foreign exchange gain1712,823
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 MonthsThree Months
 Mar. 31, 2023Mar. 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 tax6492,786
    
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 MonthsThree Months
 Mar. 31, 2023Mar. 31, 2022
   
Cash provided by (used in):  
Operating activities:  
Net earnings (loss)$(41,289)$397,031
Items not involving cash:  
Depreciation of plant and equipment45,05433,113
Depletion and amortization of timber, roads and other12,2359,124
Deferred income tax expense (recovery)(6,028)9,446
Current income tax expense (recovery)(5,469)122,580
Finance costs10,9445,169
Other assets116(40)
Reforestation liability4,8421,736
Provisions and other liabilities(3,249)(12,910)
Stock options226241
Write-down of plant, equipment and other1,4541,223
Unrealized foreign exchange loss (gain)184(10,281)
Other expense (income)5,620(8,746)
Income taxes paid(399)(180,994)
 24,241366,692
Cash generated from (used in) operating working capital:  
Trade accounts receivable and other(53,890)(61,629)
Inventories(32,468)(21,412)
Prepayments3,4852,860
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 acquired536(537,679)
Proceeds on disposal of property, plant and equipment and other      4,114 1,190
Net proceeds from deposits and other assets915392
  (58,095)(586,965)
    
Financing activities:  
Issuance of share capital, net of expenses104377
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 drawings149,47831,150
 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 period77,606538,561
   
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, 2023Dec. 31, 2022
   
Assets  
Current assets:  
Cash and cash equivalents$66,189$77,606
Trade accounts receivable and other228,419174,053
Income tax receivable109,753104,082
Inventories429,376396,908
Prepayments22,15725,932
 855,894778,581
   
Employee future benefits18,77618,445
Deposits and other assets275,099281,628
Right of use assets33,69133,998
Property, plant and equipment1,713,6231,701,197
Roads and bridges32,09938,050
Timber licences176,274178,443
Goodwill and other intangible assets587,095588,098
Deferred income taxes2,5541,393
   
 $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 debt52,4407,336
Reforestation liability17,94117,926
Lease liabilities14,80314,796
Income taxes payable58335
 342,977325,997
   
Reforestation liability33,75028,671
Lease liabilities20,22020,456
Long-term debt893,742790,631
Employee future benefits10,2329,888
Provisions and other liabilities20,70224,166
Deferred income taxes388,236392,986
   
Equity:  
Share capital408,861408,713
Contributed surplus5,6575,475
Translation reserve174,403175,885
Retained earnings1,396,3251,436,965
   
 1,985,2462,027,038
   
 $3,695,105$3,619,833

Approved on behalf of the Board of Directors:

 L. SauderT.V. Milroy
 DirectorDirector
   

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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