Interfor Reports Q2’20 Results

Interfor Corporation (“Interfor” or the “Company”) recorded net earnings in Q2’20 of $3.2 million, or $0.05 per share, compared to $6.3 million, or $0.09 per share in Q1’20 and a net loss of $11.2 million, or $0.17 per share in Q2’19. Adjusted net earnings were $10.6 million in Q2’20 compared to $0.7 million in Q1’20 and an Adjusted net loss of $16.2 million in Q2’19.

Adjusted EBITDA was $42.8 million on sales of $396.8 million in Q2’20 versus $36.6 million on sales of $479.6 million in Q1’20.

Notable items in the quarter included:

Strengthened Financial Position

– Net debt ended the quarter at $239.1 million, or 21.6% of invested capital, resulting in available liquidity of $496.9 million.
– Interfor generated $37.6 million of cash flow from operations before changes in working capital, or $0.56 per share. Working capital investment decreased by $65.4 million from efforts to optimize lumber and log inventory levels in response to the COVID-19 pandemic.
– Capital spending was $23.6 million, including $18.9 million on high-return discretionary projects, primarily in the U.S. South. US$76.1 million has been spent on the Company’s Phase II strategic capital plan through June 30, 2020.
– With its strengthened financial position, Interfor has increased its planned capital expenditures for 2020 by $20 million to a total of approximately $120 million.

Lumber Production Decline Due to COVID-19 Related Curtailments

– Total lumber production in Q2’20 was 421 million board feet, down 206 million board feet quarter-over-quarter. This decline reflects Interfor’s previously announced plan to temporarily reduce production across its operations in response to the COVID-19 pandemic. By the end of Q2’20, the Company’s lumber production had returned to rates typical for the period preceding the pandemic.
– Production in the B.C. region declined to 115 million board feet from 186 million board feet in the preceding quarter. The U.S. South and U.S. Northwest regions accounted for 230 million board feet and 76 million board feet, respectively, compared to 311 million board feet and 130 million board feet in Q1’20.
– Lumber inventory levels decreased 68 million board feet over the course of Q2’20.

Mixed Lumber Price Movements

– Movements in the key benchmark prices were mixed quarter-over-quarter with the Western SPF Composite and KD H-F Stud 2×4 9’ benchmarks decreasing by US$30 and US$16 per mfbm to US$350 and US$415 per mfbm, respectively, while the SYP Composite increased by US$77 per mfbm to US$428 per mfbm. Interfor’s average lumber selling price increased $53 from Q1’20 to $646 per mfbm.
– While lumber prices fell sharply in the initial stages of COVID-19, industry-wide production curtailments and growing demand have contributed to the strengthening price environment since mid-April 2020.

Softwood Lumber Duties

– Interfor expensed $7.4 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 20.23%. Cumulative duties of US$106.7 million have been paid by Interfor since the inception of the current trade dispute and are held in trust by U.S. Customs and Border Protection.
– On February 3, 2020 the U.S. Department of Commerce issued preliminary revised combined rates of 8.37% for 2017 and 8.21% for 2018. These rates remain preliminary, with final rate determinations not expected until November 2020. At such time, the final rates will be applied to new lumber shipments. No adjustments have been recorded in the financial statements as of June 30, 2020 to reflect the preliminary revised duty rates.

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

Outlook

Near-term lumber demand is expected to remain strong, as repair and renovation lumber demand continues to be robust and U.S. housing starts recover from the initial impacts of the COVID-19 pandemic. Industry-wide lumber production curtailments in March resulted in supply shortages and higher lumber prices. However, recovery of the economy in North America continues to be impacted by uncertainties related to COVID-19.

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.

Chief Financial Officer Appointment

At its meeting earlier today, the Company’s Board of Directors confirmed the appointment of Rick Pozzebon as Senior Vice-President & Chief Financial Officer, effective August 6, 2020. Mr. Pozzebon, who is 42 and a CPA, CA and CFA Charterholder, joined Interfor in January 2014. As Vice President, Corporate Controller, he has led the Company’s corporate finance and tax functions. He has more than 18 years of experience working with one of the big four accounting firms in both the US and Canada and in various senior corporate finance roles.

Liquidity

Balance Sheet

Interfor’s net debt at June 30, 2020 was $239.1 million, or 21.6% of invested capital, representing an increase of $14.3 million since December 31, 2019.

In response to COVID-19, the Company has taken steps to significantly reduce its working capital through balancing inventory levels with demand and reducing discretionary spending and commitments. The Company also continues to actively review the evolving Canadian and U.S. government stimulus programs to access any available support for its business operations and employees.

As at June 30, 2020 the Company had net working capital of $275.7 million and available liquidity of $496.9 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 that could affect the Company’s borrowing capacity under the Revolving Term Line.

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 full second quarter results, click here.

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 3.0 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.

Contact:

Ian Fillinger – President & CEO – (604) 689-6800

Source: Interfor Corporation