Interfor Reports Q4’21 Results
Interfor Corporation (“Interfor” or the “Company”) recorded Net earnings in Q4’21 of $69.7 million, or $1.15 per share, compared to $65.6 million, or $1.05 per share in Q3’21 and $149.1 million, or $2.24 per share in Q4’20. Adjusted net earnings in Q4’21 were $78.2 million compared to $46.7 million in Q3’21 and $164.7 million in Q4’20.
Adjusted EBITDA was $149.5 million on sales of $675.9 million in Q4’21 versus $93.9 million on sales of $664.3 million in Q3’21.
Interfor recorded Net earnings of $819.0 million, or $12.88 per share in 2021, compared to $280.3 million, or $4.18 per share in 2020. Adjusted EBITDA was $1.2 billion on sales of $3.3 billion.
Notable items in the quarter:
Record Lumber Production
– Total lumber production in Q4’21 was 758 million board feet, representing an increase of 27 million board feet quarter-over-quarter and setting an Interfor production record. The U.S. South and U.S. Northwest regions accounted for 409 million board feet and 166 million board feet, respectively, compared to 411 million board feet and 156 million board feet in Q3’21. Production in the B.C. region increased to 183 million board feet from 164 million board feet in Q3’21, which was impacted by wildfire-related log supply constraints.
– Total lumber shipments were 719 million board feet, or 33 million lower than Q3’21 in part due to weather-related logistics constraints in B.C. and the U.S. Northwest.
Strengthening Lumber Prices
– Interfor’s average selling price was $822 per mfbm, up $78 per mfbm versus Q3’21. The SYP Composite, Western SPF Composite and KD H-F Stud 2×4 9’ lumber price benchmarks increased quarter-over-quarter by US$176, US$174 and US$175 per mfbm to US$644, US$653 and US$733 per mfbm, respectively, with the majority of these increases occurring in the latter half of the quarter.
– Benchmark lumber prices have continued to strengthen into 2022, rising to all-time record levels for the month of January.
Enhanced Financial Flexibility
– Interfor’s financial flexibility was enhanced substantially in the quarter through significant cash flow generation and an expansion of its revolving credit facility. Available liquidity increased to $1.0 billion, and cash exceeded debt by $162.9 million at quarter-end.
– Interfor generated $133.1 million of cash flow from operations before changes in working capital, or $2.19 per share. This was partially offset by a $46.9 million investment in working capital driven by weather-related shipment constraints and a seasonal build up of log inventories in B.C.
– On December 17, 2021, the Company completed an early renewal and expansion of its Revolving Term Line. The commitment under the facility has been increased by $150 million to a total of $500 million, and the term has been extended from March 2024 to December 2026.
Strategic Capital Investments
– Capital spending was $63.0 million, including $38.6 million on high-return discretionary projects. The majority of this discretionary spending was focused on the ongoing multi-year rebuild of the Eatonton, GA sawmill, which will begin ramp-up in Q1’22 towards its proforma 230 million board foot annual capacity.
Restart of the DeQuincy, LA Sawmill
– Lumber production at the sawmill in DeQuincy, LA restarted on January 9, 2022, well ahead of schedule. The sawmill is currently operating on one shift with plans underway to ramp-up to two shifts and its 200 million board foot annual capacity by the end of 2022.
Normal Course Issuer Bid (“NCIB”) Renewal
– On November 4, 2021, the Company announced a renewal of its NCIB commencing on November 11, 2021 and ending on November 10, 2022, for the purchase of up to 6,041,701 common shares, which represents 10% of the Company’s public float.
– Interfor did not purchase any of its common shares during the quarter.
Softwood Lumber Duties Rate Adjustment
– In Q4’21, the U.S. Department of Commerce (“the DoC”) published the final rates for countervailing (“CV”) and anti-dumping (“AD”) duties based on the results of its second administrative review covering shipments for the year ended December 31, 2019. The final combined rate for 2019 was 17.91%, compared to the cash deposit rate of 20.23%. To reflect the lower amended final rates for 2019, Interfor recorded a $4.3 million reduction to duties expense in Q4’21 and a corresponding receivable on its balance sheet.
– On January 31, 2022, the DoC issued its preliminary combined all other rate of 11.64% for 2020. The rate is the result of the DoC’s third administrative review and is subject to change until its final rate determinations which are expected in August 2022. 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, 2021 to reflect the preliminary all other duty rate announced.
– Cumulative duties of US$170.4 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$36.2 million in respect of overpayments arising from duty rate adjustments, Interfor has recorded the duty deposits as an expense.
Acquisition of EACOM Timber Corporation
On November 23, 2021, the Company announced that it had reached an agreement with an affiliate of Kelso & Company to acquire 100% of the equity interests of EACOM Timber Corporation (“EACOM”). The acquisition includes seven sawmills with a combined lumber production capacity of 985 million board feet, an I-Joist plant with annual production of 70 million linear feet, and a value-added remanufacturing plant with annual production capacity of 60 million board feet.
The transaction remains subject to customary conditions and regulatory approvals for a transaction of this kind and is currently expected to close in the first quarter of 2022. The acquisition is expected to be funded from existing available liquidity.
Deferral of Old-Growth Logging in B.C.
On November 2, 2021, the B.C. government announced its intention to work in partnership with First Nations to temporarily defer harvest of up to 2.6 million hectares of old growth forests. The process remains ongoing as the majority of more than 200 First Nations in the province have indicated to the B.C. government that they require more time to review the proposed deferral plans before making decisions. Interfor does not currently anticipate any significant impact on its lumber production volumes in B.C. as a result of the proposed old growth deferrals, though other impacts may arise depending on the nature and alignment of decisions by First Nations. Interfor’s operations within the coastal and interior regions of B.C. account for 4% and 19% of its total lumber production capacity, respectively.
North American lumber markets over the near term are expected to remain above historical trends driven by continued strong demand from new housing starts and repair and remodel activity, albeit with volatility as the economy adjusts to the COVID-19 pandemic recovery.
Interfor expects lumber demand to continue to grow over the mid-term, as repair and renovation activities and new housing starts in the U.S. benefit from favourable underlying demand fundamentals. However, the potential for rising interest rates in the U.S. exists, which could reduce housing affordability and slow the growth in demand for lumber.
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. 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.
For the full fourth quarter results, click here.
Interfor is a growth-oriented forest products company with operations in Canada and the United States. The Company has annual production capacity of approximately 3.9 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) 422-3400
Source: Interfor Corporation