Interfor Reports Record Q1’21 Results

EBITDA¹ of $392 million on Sales of $849 million
Net Cash Position and Available Liquidity of $944 million

BURNABY, British Columbia, May 06, 2021 (GLOBE NEWSWIRE) -- INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX: IFP) recorded Net earnings in Q1’21 of $264.5 million, or $4.01 per share, compared to $149.1 million, or $2.24 per share in Q4’20 and $6.3 million, or $0.09 per share in Q1’20. Adjusted net earnings in Q1’21 was $270.6 million compared to $164.7 million in Q4’20 and $0.7 million in Q1’20.

Adjusted EBITDA was a record $392.1 million on sales of $849.3 million in Q1’21 versus $248.6 million on sales of $662.3 million in Q4’20.

Notable items in the quarter:

• Strong Free Cash Flow Generation

  • Interfor generated $377.7 million of cash flow from operations before changes in working capital, or $5.73 per share. Working capital investment increased by $92.6 million, primarily related to higher trade receivables driven by lumber prices and seasonally higher log inventories in B.C.

  • Net debt ended the quarter at $(236.0) million, or (21.7)% of invested capital, resulting in available liquidity of $943.6 million.

• Strategic Capital Investments

  • Capital spending was $29.2 million, including $18.7 million on high-return discretionary projects. The majority of this discretionary spending was focused on a new kiln at the Adams Lake, BC sawmill and the ongoing multi-year rebuild of the Eatonton, Georgia sawmill.

  • The new kiln installed at our Adams Lake sawmill was fully operational by mid-February and allows for increased site-wide production and a significantly improved grade mix. This project was complementary to Interfor’s Q1’20 acquisition of 349,000 cubic metres of annual cutting rights from Canfor Corporation which solidified Adams Lake’s long-term log supply and operational platform.

  • The major rebuild of our Eatonton, Georgia sawmill is on-track for completion in Q4 of 2021, with full ramp-up expected to take approximately nine months thereafter. This project will add approximately 110 million board feet of annual production capacity and result in lower cash conversion costs and improved grade mix. Inclusive of this project, US$108 million has been spent on the Company’s Phase II strategic capital plan through March 31, 2021.

  • The Company has received Board approval to proceed with strategic capital investments at its sawmills in Castlegar, BC, and Perry, Georgia of approximately $35 million and US$30 million, respectively. These investments will provide a combination of benefits in the form of higher production, improved lumber recovery and grade mix, and lower conversion costs. Completion of both projects is expected in Q3 of 2022.

  • Interfor’s total capital expenditures are expected to be approximately $150 million in 2021 and in the range of $150 - $180 million in 2022, as the Company continues to execute on its strategic capital plans with attractive returns at conservative lumber prices.

• Acquisition of Summerville sawmill

  • On March 12, 2021, Interfor concluded the acquisition of sawmill operations in Summerville, South Carolina from WestRock Company for total consideration of US$58,618,000 ($73,630,000).

• Normal Course Issuer Bid (“NCIB”)

  • During Q1’21, Interfor purchased 774,420 common shares under the Company’s NCIB for total consideration of $20.3 million.

• Record Lumber Market

  • Interfor’s average selling price was $1,143 per mfbm, up $301 per mfbm versus Q4’20. The key benchmark prices rose significantly quarter-over-quarter with the SYP Composite, Western SPF Composite and KD H-F Stud 2x4 9’ benchmarks increasing by US$312, US$283 and US$355 per mfbm to US$915, US$935 and US$1,162 per mfbm, respectively.

• Continued Strong Production

  • Total lumber production in Q1’21 was 687 million board feet, which was consistent with Q4’20 and only 1 million board feet below Interfor’s production record for a quarter. The U.S. South and U.S. Northwest regions accounted for 338 million board feet and 141 million board feet, respectively, compared to 361 million board feet and 136 million board feet in Q4’20. Production in the B.C. region increased to 208 million board feet from 190 million board feet in the preceding quarter.

  • Total lumber shipments were 666 million board feet, including agency and wholesale volumes, or 17 million board feet lower than Q4’20.

• Softwood Lumber Duties

  • Interfor expensed $12.4 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 8.99%.

  • Cumulative duties of US$143.1 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$32.9 million in respect of overpayments arising from duty rate adjustments, Interfor has recorded the duty deposits as an expense.
    

¹ _{Refer to Adjusted EBITDA in the Non-GAAP Measures section}

Outlook

North American lumber markets over the near term are expected to remain robust and above historical trends, albeit volatile, as relatively low levels of lumber inventories industry-wide combined with growing demand from new housing starts and repair and remodel activity put pressure on available lumber supply from manufacturers.

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

			For the three months ended
			Mar. 31,			Mar. 31,			Dec. 31,
	Unit		2021			2020			2020
Financial Highlights2
Total sales	$MM		849.3			479.6			662.3
Lumber	$MM		762.4			379.3			575.0
Logs, residual products and other	$MM		86.9			100.3			87.3
Operating earnings	$MM		355.6			14.6			203.2
Net earnings	$MM		264.5			6.3			149.1
Net earnings per share, basic	$/share		4.01			0.09			2.24
Adjusted net earnings3	$MM		270.6			0.7			164.7
Adjusted net earnings per share, basic3	$/share		4.11			0.01			2.47
Operating cash flow per share (before working capital changes)3	$/share		5.73			0.57			3.05
Adjusted EBITDA3	$MM		392.1			36.6			248.6
Adjusted EBITDA margin3	%		46.2	%		7.6	%		37.5	%
Total assets	$MM		2,159.7			1,569.5			1,843.2
Total debt	$MM		377.3			425.6			382.0
Net debt3	$MM		(236.0	)		322.0			(75.4	)
Net debt to invested capital3	%		(21.7	)%		26.7	%		(7.5	)%
Annualized return on capital employed3	%		79.2	%		4.0	%		48.4	%
Operating Highlights
Lumber production	million fbm		687			627			687
Total lumber sales	million fbm		666			641			683
Lumber sales - Interfor produced	million fbm		662			632			675
Lumber sales - wholesale and commission	million fbm		4			9			8
Lumber - average selling price4	$/thousand fbm		1,143			592			842
Average USD/CAD exchange rate5	1 USD in CAD		1.2660			1.3449			1.3030
Closing USD/CAD exchange rate5	1 USD in CAD		1.2575			1.4187			1.2732

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 consolidated financial statements.

4. Gross sales before duties.

5. Based on Bank of Canada foreign exchange rates.
   
   

Liquidity

Balance Sheet

Interfor’s Net debt at March 31, 2021 was $(236.0) million, or (21.7)% of invested capital, representing a decrease of $160.5 million from the level of Net debt at December 31, 2020.

As at March 31, 2021 the Company had net working capital of $744.5 million and available liquidity of $943.6 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.

		For the three months ended
		Mar. 31,			Dec. 31,			Mar. 31,
Thousands of Dollars		2021				2020			2020
Net debt
Net debt, period opening		$	(75,432	)	$	88,705		$	224,860
Issuance of Senior Secured Notes			-			-			140,770
Revolving Term Line net repayments			-			-			(59	)
Impact on U.S. Dollar denominated debt from (strengthening) weakening CAD			(4,710	)		(18,210	)		25,139
Increase in cash and cash equivalents			(162,167	)		(165,294	)		(68,984	)
Impact on U.S. Dollar denominated cash and cash equivalents from strengthening CAD			6,343			19,367			310
Net debt, period ending		$	(235,966	)	$	(75,432	)	$	322,036

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 Resources

The following table summarizes Interfor’s credit facilities and availability as of March 31, 2021:

		Revolving			Senior
		Term			Secured
Thousands of Canadian Dollars		Line			Notes			Total
Available line of credit and maximum borrowing available		$	350,000		$	377,250		$	727,250
Less:
Drawings			-			377,250			377,250
Outstanding letters of credit included in line utilization			19,613			-			19,613
Unused portion of facility		$	330,387		$	-			330,387
Add:
Cash and cash equivalents									613,216
Available liquidity at March 31, 2021								$	943,603

Interfor’s Revolving Term Line matures in March 2024 and its Senior Secured Notes have maturities principally in the years 2024-2030.

As of March 31, 2021, the Company had commitments for capital expenditures totaling $75.7 million for both maintenance and discretionary capital projects.

Non-GAAP Measures

This release makes reference to the following non-GAAP measures: Adjusted net earnings, Adjusted net earnings per share, 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			2021			2020			2020
Adjusted Net Earnings
Net earnings		$	264,487		$	6,309		$	149,148
Add:
Asset write-downs and restructuring costs			142			371			1,793
Other foreign exchange loss			2,346			849			8,162
Long term incentive compensation expense (recovery)			7,670			(8,946	)		10,254
Other (income) expense			(1,996	)		115			92
Post closure wind-down costs			224			-			949
Income tax effect of above adjustments			(2,229	)		2,043			(5,652	)
Adjusted net earnings		$	270,644		$	741		$	164,746
Weighted average number of shares - basic ('000)			65,927			67,260			66,687
Adjusted net earnings per share		$	4.11		$	0.01		$	2.47
Adjusted EBITDA
Net earnings		$	264,487		$	6,309		$	149,148
Add:
Depreciation of plant and equipment			21,474			20,061			21,947
Depletion and amortization of timber, roads and other			6,968			10,530			10,511
Finance costs			4,524			4,096			1,891
Income tax expense			86,256			3,205			43,889
EBITDA			383,709			44,201			227,386
Add:
Long term incentive compensation expense (recovery)			7,670			(8,946	)		10,254
Other foreign exchange loss			2,346			849			8,162
Other (income) expense			(1,996	)		115			92
Asset write-downs and restructuring costs			142			371			1,793
Post closure wind-down costs			224			-			947
Adjusted EBITDA		$	392,095		$	36,590		$	248,634
Sales		$	849,307		$	479,646		$	662,301
Adjusted EBITDA margin			46.2	%		7.6	%		37.5	%
Net debt to invested capital
Net debt
Total debt		$	377,250		$	425,610		$	381,960
Cash and cash equivalents			(613,216	)		(103,574	)		(457,392	)
Total net debt		$	(235,966	)	$	322,036		$	(75,432	)
Invested capital
Net debt		$	(235,966	)	$	322,036		$	(75,432	)
Shareholders' equity			1,322,222			882,917			1,080,312
Total invested capital		$	1,086,256		$	1,204,953		$	1,004,880
Net debt to invested capital1			(21.7	)%		26.7	%		(7.5	)%
Operating cash flow per share (before working capital changes)
Cash provided by operating activities		$	285,080		$	19,319		$	229,947
Cash used in (generated from) operating working capital			92,604			19,109			(26,514	)
Operating cash flow (before working capital changes)		$	377,684		$	38,428		$	203,433
Weighted average number of shares - basic ('000)			65,927			67,260			66,687
Operating cash flow per share (before working capital changes)		$	5.73		$	0.57		$	3.05
Annualized return on capital employed
Net earnings		$	264,487		$	6,309		$	149,148
Add:
Finance costs			4,524			4,096			1,891
Income tax expense			86,256			3,205			43,889
Earnings before income taxes and finance costs		$	355,267		$	13,610		$	194,928
Capital employed
Total assets		$	2,159,692		$	1,569,508		$	1,843,187
Current liabilities			(263,526	)		(149,748	)		(189,726	)
Less:
Current portion of long term debt			6,811			-			6,897
Current portion of lease liabilities			12,169			11,819			11,745
Capital employed, end of period		$	1,915,146		$	1,431,579		$	1,672,103
Capital employed, beginning of period			1,672,103			1,214,375			1,555,212
Average capital employed		$	1,793,624		$	1,322,977		$	1,613,657
Earnings before income taxes and finance costs divided by average capital employed			19.8	%		1.0	%		12.1	%
Annualization factor			4.0			4.0			4.0
Annualized return on capital employed			79.2	%		4.0	%		48.4	%

Note: 1 Net debt to invested capital as of the period end.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended March 31, 2021 and 2020 (unaudited)
(thousands of Canadian Dollars except earnings per share)		Three Months			Three Months
		Mar. 31, 2021			Mar. 31, 2020
Sales		$	849,307		$	479,646
Costs and expenses:
	Production		432,167			423,228
	Selling and administration		12,879			9,228
	Long term incentive compensation expense (recovery)		7,670			(8,946	)
	U.S. countervailing and anti-dumping duty deposits		12,390			10,600
	Depreciation of plant and equipment		21,474			20,061
	Depletion and amortization of timber, roads and other		6,968			10,530
			493,548			464,701
Operating earnings before restructuring costs			355,759			14,945
Restructuring costs			(142	)		(371	)
Operating earnings			355,617			14,574
Finance costs			(4,524	)		(4,096	)
Other foreign exchange loss			(2,346	)		(849	)
Other (income) expense			1,996			(115	)
			(4,874	)		(5,060	)
Earnings before income taxes			350,743			9,514
Income tax expense
	Current		83,173			329
	Deferred		3,083			2,876
			86,256			3,205
Net earnings		$	264,487		$	6,309
Net earnings per share
Basic		$	4.01		$	0.09
Diluted		$	4.00		$	0.09

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2021 and 2020 (unaudited)
(thousands of Canadian Dollars)		Three Months			Three Months
		Mar. 31, 2021			Mar. 31, 2020
Net earnings		$	264,487		$	6,309
Other comprehensive income:
Items that will not be recycled to Net earnings:
	Defined benefit plan actuarial gain (loss), net of tax		4,472			(713	)
Items that are or may be recycled to Net earnings:
	Foreign currency translation differences for foreign operations, net of tax		(8,887	)		46,083
Total other comprehensive income (loss), net of tax			(4,415	)		45,370
Comprehensive income		$	260,072		$	51,679

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2021 and 2020 (unaudited)
(thousands of Canadian Dollars)					Three Months			Three Months
					Mar. 31, 2021			Mar. 31, 2020
Cash provided by (used in):
Operating activities:
	Net earnings				$	264,487		$	6,309
	Items not involving cash:
			Depreciation of plant and equipment			21,474			20,061
			Depletion and amortization of timber, roads and other			6,968			10,530
			Deferred income tax expense			3,083			2,876
			Current income tax expense			83,173			329
			Finance costs			4,524			4,096
			Other assets			(431	)		936
			Reforestation liability			496			2,766
			Provisions and other liabilities			495			(10,293	)
			Stock options			196			256
			Unrealized foreign exchange loss			3,011			441
			Other (income) expense			(1,996	)		115
	Income taxes (paid) refunded			(7,796			)		6
						377,684			38,428
	Cash generated from (used in) operating working capital:
			Trade accounts receivable and other			(67,859	)		(23,413	)
			Inventories			(24,352	)		1,355
			Prepayments			(3,348	)		(2,113	)
			Trade accounts payable and provisions			2,955			5,062
						285,080			19,319
Investing activities:
	Additions to property, plant and equipment					(26,331	)		(24,872	)
	Additions to roads and bridges					(2,885	)		(2,704	)
	Acquisitions					(73,630	)		(56,606	)
	Proceeds on disposal of plant and equipment					5,693			162
	Net proceeds from (additions to) deposits and other assets					157			(198	)
						(96,996	)		(84,218	)
Financing activities:
	Issuance of share capital, net of expenses					1,945			-
	Share repurchases					(20,303	)		-
	Interest payments					(4,258	)		(3,758	)
	Lease liability payments					(3,301	)		(2,934	)
	Debt refinancing costs					-			(136	)
	Operating line net repayments					-			(59	)
	Additions to long term debt					-			140,770
						(25,917	)		133,883
Foreign exchange loss on cash and cash equivalents held in a foreign currency						(6,343	)		(310	)
Increase in cash						155,824			68,674
Cash and cash equivalents, beginning of period						457,392			34,900
Cash and cash equivalents, end of period					$	613,216		$	103,574

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31, 2021 and December 31, 2020 (unaudited)
(thousands of Canadian Dollars)
		Mar. 31, 2021			Dec. 31, 2020
Assets
Current assets:
	Cash and cash equivalents	$	613,216		$	457,392
	Trade accounts receivable and other		182,436			117,371
	Income taxes receivable		179			169
	Inventories		191,169			160,188
	Prepayments		21,027			17,970
			1,008,027			753,090
Employee future benefits			4,880			106
Deposits and other assets			48,770			48,957
Right of use assets			36,673			35,471
Property, plant and equipment			778,831			729,163
Roads and bridges			22,640			22,379
Timber licences			114,059			114,953
Goodwill and other intangible assets			145,128			138,838
Deferred income taxes			684			230
		$	2,159,692		$	1,843,187
Liabilities and Shareholders’ Equity
Current liabilities:
	Trade accounts payable and provisions	$	148,880		$	150,509
	Current portion of long term debt		6,811			6,897
	Reforestation liability		16,551			16,181
	Lease liabilities		12,169			11,745
	Income taxes payable		79,115			4,394
			263,526			189,726
Reforestation liability			30,281			29,735
Lease liabilities			29,129			28,541
Long term debt			370,439			375,063
Employee future benefits			9,734			11,137
Provisions and other liabilities			27,320			26,637
Deferred income taxes			107,041			102,036
Equity:
	Share capital		520,151			523,605
	Contributed surplus		4,500			5,157
	Translation reserve		40,959			49,846
	Retained earnings		756,612			501,704
			1,322,222			1,080,312
		$	2,159,692		$	1,843,187

Approved on behalf of the Board:

“L. Sauder” Director

“T.V. Milroy” 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; 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 trade dispute between Canada and the U.S.; stumpage fees payable to the Province of British Columbia (“B.C.”); environmental impacts of the Company’s operations; labour disruptions; information systems security; and the existence of a public health crisis (such as the current COVID-19 pandemic). 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, 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 production capacity of approximately 3.2 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 Q1’21 are available at www.sedar.com and www.interfor.com.

There will be a conference call on Friday, May 7, 2021 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company’s release of its first quarter 2021 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 June 7, 2021. The number to call is 1-855-859-2056, Passcode 4759584.

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