Interfor Reports Record Q1’21 Results
Interfor Corporation(“Interfor” or the “Company”) 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 2×4 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.
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.
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.
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Interfor is a growth-oriented forest products company with operations in Canada and the United States. The Company has annual production capacity of approximately 3.0 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.
Richard Pozzebon – Senior Vice President & CFO – (604) 689-6800
Source: Interfor Corporation