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Interfor Reports Q1’19 Results

EBITDA1 of $16 million on Sales of $451 million
Net Debt to Invested Capital1 of 16%; Liquidity of $425 million

/EIN News/ -- VANCOUVER, British Columbia, May 02, 2019 (GLOBE NEWSWIRE) -- INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX: IFP) recorded a net loss in Q1’19 of $15.3 million, or $0.23 per share, compared to $13.5 million, or $0.20 per share in Q4’18 and net earnings of $32.7 million, or $0.47 per share in Q1’18.  Adjusted net loss in Q1’19 was $12.7 million compared to $20.2 million in Q4’18 and Adjusted net earnings of $36.5 million in Q1’18.

Adjusted EBITDA was $16.3 million on sales of $451.2 million in Q1’19 versus $8.9 million on sales of $468.5 million in Q4’18.  The Q1’19 Adjusted EBITDA included approximately $1.2 million of expenses that were refinements of prior estimates.

Other notable items in the quarter included:

  • Marginally Higher Lumber Prices

    • The key benchmark prices improved marginally quarter-over-quarter with the SYP Composite, Western SPF Composite and KD H-F Stud 2x4 9’ increasing by US$10, US$41 and US$21 per mfbm, respectively.  Interfor’s average lumber selling price increased $14 from Q4’18 to $613 per mfbm.   

  • Increased Production/Reduced Shipments

    • Total lumber production was 646 million board feet, or 39 million board feet more than the prior quarter with a return to normal operating schedules after the holidays and the easing of temporary production curtailments in the B.C. Interior.  Production in the U.S. South increased to 316 million board feet from 303 million board feet in the preceding quarter.  The B.C. and U.S. Northwest regions accounted for 195 million board feet and 135 million board feet, respectively, compared to 174 million board feet and 130 million board feet in Q4’18. 

    • Total lumber shipments were 621 million board feet, including agency and wholesale volumes, or 26 million board feet lower than Q4’18.

    • On April 25, 2019, the Company announced temporary reductions in operating hours at its sawmills in the B.C. Interior for the month of May 2019 due to a combination of weak lumber prices and continuing high log costs.

  • Continued Strong Financial Position

    • Net debt ended the quarter at $172.7 million, or 15.6% of invested capital, resulting in available liquidity of $425.3 million. 

    • On March 28, 2019, the Company completed a modernization of its credit facilities.  The new facility replaces 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, which is in addition to the Company’s US$200 million of Senior Secured Notes, and matures in March 2024. 

    • The Company generated $17.1 million of cash flow from operations before changes in working capital, or $0.25 per share.  During the quarter, working capital increased by $75.4 million as a result of the payment of 2018 incentive compensation as well as typical seasonal factors including a build up of lumber and log inventories in the B.C. Interior.

    • Capital investments of $43.8 million in Q1’19 included $32.1 million primarily on U.S. South focused high-return discretionary projects, with the remainder related to maintenance capital and woodlands projects.

    • Interfor purchased and cancelled 515,100 of its Common Shares (“Shares”) at a cost of $7.8 million in Q1’19.  The Company’s normal course issuer bid (“NCIB”) was renewed on March 4, 2019 and permits the purchase of up to 6,652,006 Shares until its expiry on March 6, 2020. 
  • Softwood Lumber Duties

    • Interfor expensed $11.1 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$68.7 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 recorded as a long-term receivable 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 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 are scheduled for completion in May 2019.  Total project costs are expected to be within a 10% variance of the original US$62.5 million budget.  As of March 31, 2019, US$48.7 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 2021.  As of March 31, 2019, US$21.7 million has been capitalized and the projects remain on budget.

Financial and Operating Highlights 1 

           
      For the three months ended  
      Mar.  31   Mar.  31   Dec.  31  
  Unit   2019   2018   2018  
        (restated)2   (restated)2  
Financial Highlights3          
Total sales $MM   451.2   527.6   468.5  
Lumber $MM   380.5   445.9   387.7  
Logs, residual products and other $MM   70.7   81.7   80.8  
Operating earnings (loss) $MM   (16.8 ) 46.8   (16.9 )
Net earnings (loss) $MM   (15.3 ) 32.7   (13.5 )
Net earnings (loss) per share, basic $/share   (0.23 ) 0.47   (0.20 )
Adjusted net earnings (loss)3 $MM   (12.7 ) 36.5   (20.2 )
Adjusted net earnings (loss) per share, basic4 $/share   (0.19 ) 0.52   (0.29 )
Operating cash flow per share (before working capital changes)4 $/share   0.25   1.12   0.14  
Adjusted EBITDA4 $MM   16.3   83.5   8.9  
Adjusted EBITDA margin4 %   3.6%   15.8%   1.9%  
           
Total assets $MM   1,491.5   1,448.2    1,565.3  
Total debt $MM    267.3    257.9    272.8  
Net debt4 $MM    172.7    127.1    63.8  
Net debt to invested capital4 %   15.6%   12.4%   6.2%  
Annualized return on invested capital4 %   6.1%   33.5%   3.6%  
           
Operating Highlights          
Lumber production million fbm    646    666    607  
Total lumber sales million fbm    621    648    647  
  Lumber sales - Interfor produced million fbm    610    635    639  
  Lumber sales - wholesale and commission million fbm    11    13    8  
Lumber - average selling price5 $/thousand fbm    613    688    599  
           
Average USD/CAD exchange rate6 1 USD in CAD    1.3295    1.2647    1.3204  
Closing USD/CAD exchange rate6 1 USD in CAD    1.3363    1.2894    1.3642  

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 March 31, 2019 was $172.7 million, or 15.6% of invested capital, representing an increase of $108.9 million from the level at December 31, 2018.  This increase includes funding of capital projects, short term incentive compensation payments, inventory builds, share capital repurchases, and finance and leasing costs. 

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.  

 
    For the three months ended
 
    Mar.  31,   Dec.  31,   Mar.  31,  
Thousands of Dollars   2019   2018   2018  
         
Net debt        
Net debt, period opening   $63,825   $3,800   $119,300  
Net drawing (repayment) on credit facilities   750    (1)    (1)  
Impact on U.S. Dollar denominated debt from (strengthening) weakening CAD    (6,330)    13,941    6,981  
Decrease in cash and cash equivalents   68,890    7,286    2,509  
Decrease in marketable securities   41,766   49,871    -  
Impact on U.S. Dollar denominated cash and cash equivalents and marketable securities from strengthening (weakening) CAD   3,845   (11,072)   (1,725)  
Net debt, period ending, CAD   $172,746   $63,825   $127,064  
 

On March 28, 2019, the Company completed a modernization of its credit facilities.  The new facility replaces 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 March 31, 2019, the Company had net working capital of $306.8 million and available liquidity of $425.3 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 March 31, 2019:

         
    Revolving Senior  
    Term Secured  
Thousands of Canadian Dollars   Line Notes Total
Available line of credit   $350,000 $ 267,260 $617,260
Maximum borrowing available   $350,000 $ 267,260 $617,260
Less:        
Drawings    -    267,260   267,260
Outstanding letters of credit included in line utilization    19,249    -     19,249
Unused portion of facility   $330,751   $           -     330,751
         
Add:        
Cash and cash equivalents         94,514
Available liquidity at March 31, 2019       $425,265
           

As of March 31, 2019, the Company had commitments for capital expenditures totaling $154.4 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, 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:

 
    For the three months ended
 
    Mar.  31,     Mar.  31,     Dec.  31,  
Thousands of Canadian Dollars except number of shares and per share amounts 2019     2018     2018  
        (restated)¹     (restated)¹  
Adjusted Net Earnings (Loss)                
Net earnings (loss)   $(15,302)   $32,665   $(13,512)  
Add:        
  Restructuring costs and capital asset write-downs   1,665     236     4,551  
  Other foreign exchange gain   (340)     (111)     (3,330)  
  Long term incentive compensation expense (recovery)   1,983     4,858     (9,180)  
  Other income (expense)   164     178     (1,254)  
  Post closure wind-down costs and losses   -     4     -  
  Income tax effect of above adjustments   (875)     (1,374)     2,530  
Adjusted net earnings (loss)   $(12,705)   $36,456   $(20,195)  
Weighted average number of shares - basic ('000)   67,348     70,033     68,884  
Adjusted net earnings (loss) per share   $(0.19)   $0.52   $(0.29)  
         
Adjusted EBITDA        
Net earnings (loss)   $(15,302)   $32,665   $(13,512)  
Add:        
  Depreciation of plant and equipment   19,722     20,021     19,241  
  Depletion and amortization of timber, roads and other   9,737     11,764     11,229  
  Restructuring costs and capital asset write-downs   1,665     236     4,551  
  Finance costs   4,176     3,411     2,758  
  Other foreign exchange gain   (340)     (111)     (3,330)  
  Income tax expense (recovery)   (5,508)     10,467     (1,553)  
EBITDA   14,150     78,453     19,384  
Add:        
  Long term incentive compensation expense (recovery)   1,983     4,858     (9,180)  
  Other income (expense)   164     178     (1,254)  
  Post closure wind-down costs and losses   -     4     -  
Adjusted EBITDA   $16,297   $83,493   $8,950  
Sales   451,163     527,644     468,544  
Adjusted EBITDA margin   3.6%     15.8%     1.9%  
         
Net debt to invested capital        
Net debt        
  Total debt   $267,260   $257,880   $272,840  
  Cash and cash equivalents   (94,514)     (130,816)     (166,152)  
  Marketable securities   -     -     (42,863)  
Total net debt   $172,746   $127,064   $63,825  
Invested capital        
  Net debt   $172,746   $127,064   $63,825  
  Shareholders' equity   933,509     896,215     968,766  
Total invested capital   $1,106,255   $1,023,279   $1,032,591  
Net debt to invested capital2   15.6%     12.4%     6.2%  
         
Operating cash flow per share (before working capital changes)        
Cash (used in) provided by operating activities   $(58,350)   $21,073   $21,096  
Cash used in (generated from) operating working capital   75,435     57,050     (11,253)  
Operating cash flow (before working capital changes)   $17,085   $78,123   $9,843  
Weighted average number of shares - basic ('000)   67,348     70,033     68,884  
Operating cash flow per share (before working capital changes)   $0.25   $1.12   $0.14  
         
Return on invested capital        
Adjusted EBITDA   $16,297   $83,493   $8,950  
Invested capital, beginning of period   $1,032,591   $968,853   $984,189  
Invested capital, end of period   1,106,255     1,023,279     1,032,591  
Average invested capital   $1,069,423   $996,066   $1,008,390  
Adjusted EBITDA divided by average invested capital   1.5%     8.4%     0.9%  
Annualization factor   4.0     4.0     4.0  
Return on invested capital   6.1%     33.5%     3.6%  

Notes:

  1. Financial information has been restated for implementation of IFRS 16, Leases.
  2. Net debt to invested capital as of the period end.
   
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
 
For the three months ended March 31, 2019 and 2018 (unaudited)
 
(thousands of Canadian Dollars except earnings per share)   Three Months   Three Months  
      Mar. 31, 2019   Mar. 31, 2018  
        (restated)¹  
           
Sales
  $451,163   $527,644  
Costs and expenses:      
  Production   413,183   417,397  
  Selling and administration   10,565   13,829  
  Long term incentive compensation expense   1,983   4,858  
  U.S. countervailing and anti-dumping duty deposits   11,118   12,929  
  Depreciation of plant and equipment   19,722   20,021  
  Depletion and amortization of timber, roads and other   9,737   11,764  
      466,308   480,798  
       
Operating earnings (loss) before write-downs and restructuring   (15,145)   46,846  
       
Capital asset write-downs and restructuring costs   1,665   236  
Operating earnings (loss)   (16,810)   46,610  
       
Finance costs    (4,176)    (3,411)  
Other foreign exchange gain   340   111  
Other expense   (164)   (178)  
    (4,000)   (3,478)  
         
Earnings (loss) before income taxes   (20,810)   43,132  
         
Income tax expense (recovery):       
  Current   160   770  
  Deferred   (5,668)   9,697  
    (5,508)   10,467  
         
Net earnings (loss)   $(15,302)   $32,665  
       
Net earnings (loss) per share, basic and diluted   $(0.23)   $0.47  


     
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
For the three months ended March 31, 2019 and 2018 (unaudited)
 
(thousands of Canadian Dollars)   Three Months   Three Months
      Mar. 31, 2019   Mar. 31, 2018
      (restated)¹
         
Net earnings (loss)
  $(15,302)   $32,665 
         
Other comprehensive income (loss):      
Items that will not be recycled to Net earnings (loss):      
  Defined benefit plan actuarial gain, net of tax   572     885
         
Items that are or may be recycled to Net earnings (loss):      
  Foreign currency translation differences for foreign operations, net of tax (12,873)     12,833
Total other comprehensive income (loss), net of tax   (12,301)     13,718
       
Comprehensive income (loss)   $(27,603)   $46,383

Notes:

  1. Financial information has been restated for implementation of IFRS 16, Leases.
     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the three months ended March 31, 2019 and 2018 (unaudited)
 
(thousands of Canadian Dollars)   Three Months     Three Months  
      Mar. 31, 2019     Mar. 31, 2018  
          (restated)¹  
Cash provided by (used in):
Operating activities:
     
     
  Net earnings (loss)   $(15,302)   $32,665  
  Items not involving cash:      
    Depreciation of plant and equipment   19,722     20,021  
    Depletion and amortization of timber, roads and other   9,737     11,764  
    Income tax expense (recovery)   (5,508)     10,467  
    Finance costs   4,176     3,411  
    Other assets   17     (295)  
    Reforestation liability   2,507     2,289  
    Provisions and other liabilities   (203)     (2,816)  
    Stock options   108     137  
    Write-down of plant, equipment and intangibles   1,723     219  
    Unrealized foreign exchange loss (gain)   (56)     83  
    Other expense   164     178  
      17,085     78,123  
  Cash generated from (used in) operating working capital:      
    Trade accounts receivable and other   (14,575)     (10,748)  
    Inventories   (27,170)     (34,037)  
    Prepayments   (2,869)     (4,255)  
    Trade accounts payable and provisions   (30,524)     (7,839)  
    Income taxes paid   (297)     (171)  
    (58,350)     21,073  
       
Investing activities:      
  Additions to property, plant and equipment   (35,926)     (12,039)  
  Additions to roads and bridges   (7,844)     (6,082)  
  Additions to timber licences and other intangible assets   (52)     13  
  Proceeds on disposal of property, plant and equipment   108     109  
  Net proceeds from (additions to) investments and other assets   46,771     (502)  
    3,057     (18,501)  
         
Financing activities:      
  Share issuance, net of expenses    63     143  
  Share repurchase   (7,825)     -  
  Interest payments   (2,580)     (3,033)  
  Lease liability payments   (2,986)     (2,189)  
  Debt refinancing costs   (1,019)     (1)  
  Change in operating line components of long term debt   -     (1)  
  Additions to long term debt   197,925     -  
  Repayments of long term debt   (197,175)     -  
      (13,597)     (5,081)  
         
Foreign exchange gain (loss) on cash and cash equivalents      
  held in a foreign currency   (2,748)     1,725  
Decrease in cash and cash equivalents   (71,638)     (784)  
       
Cash and cash equivalents, beginning of period   166,152     131,600  
       
Cash and cash equivalents, end of period   $94,514   $130,816  

Notes:

  1. Financial information has been restated for implementation of IFRS 16, Leases.
     
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 
March 31, 2019, December 31, 2018 and January 1, 2018 (unaudited)
 
(thousands of Canadian Dollars)        
      Mar. 31, 2019 Dec. 31, 2018 Jan. 1, 2018
          (restated)¹ (restated)¹
Assets
Current assets:
       
       
  Cash and cash equivalents   $94,514 $166,152 $131,600
  Marketable securities   -   42,863   -
  Trade accounts receivable and other   104,528   90,384   112,470
  Income taxes receivable   2,938   3,008   1,289
  Inventories   235,231   209,178   165,156
  Prepayments   19,513   16,833   12,186
      456,724   528,418   422,701
         
Employee future benefits   1,058   303   502
Deposits and other assets   11,362   16,842   6,404
Right of use assets   38,220   37,778   38,600
Property, plant and equipment   726,778   723,773   669,165
Roads and bridges   32,776   29,829   24,092
Timber licences   63,549   64,153   66,589
Other intangible assets   4,358   5,288   14,170
Goodwill   155,819   158,799   147,081
Deferred income taxes   872   133   253
         
    $1,491,516 $1,565,316 $1,389,557
         
Liabilities and Shareholders’ Equity        
Current liabilities:        
  Trade accounts payable and provisions   $124,945 $154,869 $152,355
  Reforestation liability   14,212   13,947   12,873
  Lease liability   10,577   10,158   8,019
  Income taxes payable    202   356   224
    149,936   179,330   173,471
           
Reforestation liability
  30,879   28,235   27,535
Lease liability
  33,660   33,954   36,165
Long term debt
  267,260   272,840   250,900
Employee future benefits
  8,880   8,687   8,249
Provisions and other liabilities
  16,252   16,421   25,808
Deferred income taxes
  51,140   57,083   17,877
           
Equity:          
  Share capital   533,539   537,534   555,388
  Contributed surplus   3,931   3,851   8,582
  Translation reserve   71,520   84,393   40,733
  Retained earnings   324,519   342,988   244,849
         
      933,509   968,766   849,552
           
    $1,491,516 $1,565,316 $1,389,557

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 Q1’19 are available at www.sedar.com and www.interfor.com

There will be a conference call on Friday, May 3, 2019 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company’s release of its first 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 June 2, 2019.  The number to call is 1-855-859-2056, Passcode 8868218.

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

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