Interfor Reports Q4’23 Results

Adjusted EBITDA loss of $51 million and Net Loss of $169 million

BURNABY, British Columbia, Feb. 08, 2024 (GLOBE NEWSWIRE) — INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX:IFP) recorded a Net loss in Q4’23 of $169.0 million, or $3.29 per share, compared to a Net loss of $42.4 million, or $0.82 per share in Q3’23 and a Net loss of $72.2 million, or $1.40 per share in Q4’22.

Adjusted EBITDA was a loss of $51.4 million on sales of $785.9 million in Q4’23 versus Adjusted EBITDA of $31.9 million on sales of $828.1 billion in Q3’23 and an Adjusted EBITDA loss of $68.7 million on sales of $810.3 million in Q4’22.

Notable items:

Weak Lumber Market

Lumber prices continued to reflect an imbalance of lumber supply and demand, with demand continuing to be impacted by the elevated interest rate environment and ongoing economic uncertainty. Lumber prices weakened during Q4’23 as reflected in Interfor’s average selling price of $601 per mfbm, down $60 per mfbm versus Q3’23.
Lumber production totalled 1.1 billion board feet, representing a 105 million board feet increase over Q3’23, which was impacted by temporary wildfire-based downtime in B.C. Lumber shipments were 1.0 billion board feet, or 38 million board feet higher than Q3’23.

Strategic Capital Investments

Capital spending was $39.6 million, including $17.2 million of discretionary investment focused on multi-year projects in the U.S. South region.
Planned capital expenditures for 2024 have been reduced to approximately $90.0 million from the preliminary estimate of $140.0 million in response to ongoing lumber market weakness and a review of expected project returns considering ongoing cost inflation.  

Ongoing Monetization of Coastal B.C. Operations

In November 2023, the Company sold Coastal B.C. forest tenures totalling approximately 181,000 cubic metres of allowable annual cut (“AAC”) and related liabilities for net proceeds of $23.5 million and a gain of $23.6 million. This contributed to a reduction of the provision recorded in Q4’23 for a contract settlement to facilitate tenure sales, from $85.0 million to a balance of $62.0 million at December 31, 2023.   Interfor expects sales over the next 12-24 months of the remaining 1,392,000 cubic metres of AAC, subject to approvals from the Ministry of Forests, to generate proceeds in excess of the remaining provision balance.

Asset Impairment

During Q4’23, the Company recorded an impairment charge of $55.8 million on plant, equipment and other assets related to its operations in the U.S. Northwest. The impairment was deemed appropriate based on a combination of elevated log costs and ongoing weak lumber markets.  

Financial Position

Net debt at quarter-end was $842.7 million, or 32.8% of invested capital, with available liquidity of $339.7 million.
On January 26, 2024, the Company priced US$33.3 million in long-term debt financing with Prudential Private Capital. The financing is expected to close in late March 2024 with the proceeds used to settle US$33.3 million of principal under the Company’s existing Series C Senior Secured Notes due on March 26, 2024. The Senior Secured Notes will carry an annual fixed interest rate of 6.37% and have a final maturity in 2030. All other terms remain consistent with Interfor’s existing Senior Secured Notes. Following completion of the financing, Interfor’s Senior Secured Notes will have a weighted average interest rate of 5.46% with laddered maturities spanning 2025-2033.
Liquidity is expected to benefit over the course of 2024 from the collection of income taxes receivable totalling $68.4 million and the ongoing monetization of Coastal B.C. operations.

Softwood Lumber Duties

Interfor expensed $18.0 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 8.05%.
On February 1, 2024, the U.S. Department of Commerce (“DoC”) issued its preliminary combined all other rate of 13.86% for 2022. The rate is the result of the DoC’s fifth administrative review and is subject to change until its final rate determinations which are expected in mid-2024. At such time, the final rates will be applied to new lumber shipments. No adjustments have been recorded in the financial statements as of December 31, 2023 to reflect the preliminary all other duty rate announced.
Interfor has cumulative duties of US$549.6 million, or approximately $10.32 per share on an after-tax basis, held in trust by U.S. Customs and Border Protection as at December 31, 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 depressed 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. 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
For the year ended Dec. 31

 
 
Dec. 31
Dec. 31
Sep. 30
 

 
Unit
2023
2022
2023
2023
2022
2021

 
 
 
 
 
 
 
 

Financial Highlights2
 
 
 
 
 
 
 

Total sales
$MM
785.9
810.3
828.1
3,315.7
4,584.0
3,289.1

Lumber
$MM
628.5
656.3
667.1
2,661.3
3,897.4
2,926.3

Logs, residual products and other
$MM
157.4
154.0
161.0
654.4
686.6
362.8

Operating earnings (loss)
$MM
(174.2)
(114.8)
(21.1)
(252.4)
859.6
1,077.9

Net earnings (loss)
$MM
(169.0)
(72.2)
(42.4)
(266.8)
598.2
819.0

Net earnings (loss) per share, basic
$/share
(3.29)
(1.40)
(0.82)
(5.19)
10.89
12.88

Operating cash flow per share (before working capital changes)3
$/share
(0.38)
(1.75)
1.78
2.54
9.45
16.79

Adjusted EBITDA3
$MM
(51.4)
(68.7)
31.9
48.4
1,059.4
1,246.8

Adjusted EBITDA margin3
%
(6.5%)
(8.5%)
3.9%
1.5%
23.1%
37.9%

 
 
 
 
 
 
 
 

Total assets
$MM
3,400.3
3,619.8
3,577.8
3,400.3
3,619.8
2,603.5

Total debt
$MM
897.7
797.9
877.1
897.7
797.9
375.7

Net debt3
$MM
842.7
720.3
777.7
842.7
720.3
(162.9)

Net debt to invested capital3
%
32.8%
26.2%
28.7%
32.8%
26.2%
(11.1%)

Annualized return on capital employed3
%
(28.0%)
(13.8%)
(4.5%)
(9.7%)
29.6%
55.7%

 
 
 
 
 
 
 
 

Operating Highlights
 
 
 
 
 
 
 

Lumber production
million fbm
1,102
874
997
4,152
3,792
2,891

U.S. South
million fbm
485
404
470
1,897
1,792
1,545

U.S. Northwest
million fbm
157
135
162
626
631
600

Eastern Canada
million fbm
275
212
247
1,020
718
–

B.C.
million fbm
185
123
118
609
651
746

Lumber sales
million fbm
1,046
939
1,008
4,174
3,928
2,852

Lumber – average selling price4
$/thousand fbm
601
699
661
638
992
1,026

 
 
 
 
 
 
 
 

Key Statistics
 
 
 
 
 
 
 

Benchmark lumber prices5
 
 
 
 
 
 
 

SYP Composite
US$ per mfbm
373
461
429
423
704
764

KD H-F Stud 2×4 9′
US$ per mfbm
423
461
474
444
818
1,016

Eastern SPF Composite
US$ per mfbm
461
498
510
480
836
947

Western SPF Composite
US$ per mfbm
374
420
412
389
742
847

 
 
 
 
 
 
 
 

USD/CAD exchange rate6
 
 
 
 
 
 
 

Average
1 USD in CAD
1.3624
1.3578
1.3414
1.3497
1.3013
1.2535

Closing
1 USD in CAD
1.3226
1.3544
1.3520
1.3226
1.3544
1.2678

Notes:

Figures in this table may not equal or sum to figures presented elsewhere due to rounding.
Financial information presented for interim periods in this release is prepared in accordance with IFRS and is unaudited.
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.
Gross sales including duties and freight.
Based on Random Lengths Benchmark Lumber Pricing.
Based on Bank of Canada foreign exchange rates.

Liquidity

Balance Sheet

Interfor’s Net debt at December 31, 2023 was $842.7 million, or 32.8% of invested capital, representing an increase of $122.4 million from the level of Net debt at December 31, 2022.

As at December 31, 2023 the Company had net working capital of $337.7 million and available liquidity of $339.7 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.

 
For the three months ended
For the year ended

 
Dec. 31,
Dec. 31,
Sept. 30,
Dec. 31,
Dec. 31,

Millions of Dollars
2023
2022
2023
2023
2022

 
 
 
 
 
 

Net debt
 
 
 
 
 

Net debt (cash), period opening
$777.7
$249.7
$815.7
$720.3
$(162.9)

Net issuance (repayment) of Senior Secured Notes
–
270.2
–
(7.1)
263.2

Term Line net drawings (repayments)
39.9
133.5
(61.2)
128.2
129.6

Decrease in cash and cash equivalents
43.9
73.8
5.6
20.3
480.3

Foreign currency translation impact on U.S. Dollar denominated
 cash and cash equivalents and debt
(18.8)
(6.9)
17.6
(19.0)
10.1

Net debt, period ending
$842.7
$720.3
$777.7
$842.7
$720.3

 
 
 
 
 
 

On January 26, 2024, the Company priced US$33.3 million in long-term debt financing with Prudential Private Capital. The financing is expected to close in late March 2024 with the proceeds used to settle US$33.3 million of principal under the Company’s existing Series C Senior Secured Notes due on March 26, 2024. The Senior Secured Notes will carry an annual fixed interest rate of 6.37% and have a final maturity in 2030. All other terms remain consistent with Interfor’s existing Senior Secured Notes. Following completion of the financing, Interfor’s Senior Secured Notes will have a weighted average interest rate of 5.46% with laddered maturities spanning 2025-2033.

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 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 December 31, 2023:

 
 
 
Revolving
Senior
 

 
 
 
Term
Secured
 

Millions of Canadian Dollars
Line
Notes
Total

Available line of credit and maximum borrowing available
$600.0
$639.8
$1,239.8

Less:
 
 
 
 
 

Drawings
 
 
257.9
639.8
897.7

Outstanding letters of credit included in line utilization
57.4
–
57.4

Unused portion of facility
 
$284.7
$       –
284.7

Add:
 
 
 
 
 

Cash and cash equivalents
 
 
55.0

Available liquidity at December 31, 2023
 
 
$339.7

 
 
 
 

Interfor’s Term Line matures in December 2026 and its Senior Secured Notes have maturities in the years 2024-2033.

As of December 31, 2023, the Company had commitments for capital expenditures totaling $64.6 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 …

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