Interfor reports second quarter results

Interfor Corporation
August 03, 2018
By Interfor Corporation
Aug. 3, 2018 - Interfor Corporation has recorded net earnings in Q2’18 of $63.8 million, or $0.91 per share, compared to $33.0 million, or $0.47 per share in Q1’18 and $24.5 million, or $0.35 per share in Q2’17. Adjusted net earnings in Q2’18 were $68.9 million or $0.98 per share, compared to $36.8 million, or $0.52 per share in Q1’18 and $28.7 million, or $0.41 per share in Q2’17.

Adjusted EBITDA was a record $123.8 million on sales of $619.9 million in Q2’18 versus $81.1 million on sales of $527.6 million in Q1’18.

Notable items in the quarter included:

• Higher Lumber Prices
  • The key benchmark prices improved quarter-over-quarter with the SYP Composite, Western SPF Composite and KD H-F Stud 2x4 9’ increasing by US$73, US$61 and US$94 per mfbm, respectively.  Interfor’s average lumber selling price increased $65 from Q1’18 to $753 per mfbm.   
• Increased Production and Shipments
  • Total lumber production was a record 688 million board feet or 22 million board feet more than the prior quarter. Production in the U.S. South region increased to 325 million board feet from 302 million board feet in the preceding quarter. The B.C. and U.S. Northwest regions accounted for 215 million board feet and 148 million board feet, respectively, compared to 218 million board feet and 146 million board feet in Q1’18, respectively. In Q2’18, the B.C Interior operations were negatively impacted by seven days of downtime at the Grand Forks mill, due to severe flooding in the region.

  • Total lumber shipments were 700 million board feet, of which 689 million board feet were Interfor produced volumes, with the balance of 11 million board feet being agency and wholesale volumes. Total lumber shipments were 52 million board feet higher than Q1’18, as Q1’18 shipments were negatively impacted by industry-wide logistics issues, and particularly by weather-impacted rail constraints in B.C. The company’s lumber inventory volume at June 30, 2018 was comparable to March 31, 2018.   
• Strong Cash Flows and Liquidity
  • Interfor generated $123.2 million of cash from operations before changes in working capital, or $1.76 per share.  Total cash generated from operations was $133.7 million.

  • Net debt ended the quarter at $34.4 million, or 3.4 per cent of invested capital, resulting in available liquidity of $542.3 million. 

  • Capital spending was $23.3 million on a mix of high-return discretionary, maintenance and woodlands projects.
• Softwood Lumber Duties
  • Interfor expensed $14.8 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 per cent.

Strategic Capital Plan

• Interfor continues to make progress on its multi-year strategic capital plan that involves a number of discretionary projects designed to capture the opportunities within its current operating platform and to pursue opportunities for further growth. The strategic capital plan was advanced over the past quarter, including site preparation and mill readiness initiatives for the previously announced US$65 million of projects at the Meldrim, GA and Monticello, AR sawmills. The projects remain on track for completion in Q1’19. These projects are designed to increase production capacity by approximately 150 million board feet per year, as well as generate other benefits related to costs and product mix.

• In addition, the company has received Board approval to proceed with three new strategic capital projects totaling US$240 million at its Thomaston, GA, Eatonton, GA and Georgetown, SC sawmills. These projects include major modernizations and rebuilds, and are designed to increase production capacity by approximately 275 million board feet per year, as well as substantially reduce cash conversion costs, improve lumber recovery and enhance grade outturns and product mix. The projects are expected to generate a pre-tax cash payback of less than five years, using conservative lumber price assumptions. The projects are expected to be completed in various phases during 2019 to 2021.

• The company is also undertaking a number of machine center upgrades at certain mills in B.C., the U.S. Northwest and the U.S. South. These projects are planned for completion over the next 12 to 18 months.    

• The timeline for assessing and deciding upon greenfield sawmill opportunities in the Central Region of the U.S. South has been extended beyond mid-2018, as the company focused on completing plans for its strategic capital projects. With those projects now underway, the company is in a position to further develop greenfield opportunities over the coming months. A decision is dependent upon satisfactory conclusion of due diligence and assessment against Interfor’s investment criteria.

Debt Financing
In conjunction with the planned increase in capital spending over the coming several years, Interfor modified its debt financing arrangements in order to further enhance its financial flexibility. In particular, the company entered into an agreement to extend US$84 million of its 2021 to 2023 term debt maturities to 2027 to 2029. This transaction is expected to close in mid-August, upon which Interfor’s weighted average interest rate on its term debt will be 4.47 per cent. In addition, Interfor recently extended the maturity of its US$50 million U.S. Operating Line by two years to June 15, 2021. 

Liquidity

Balance Sheet
Interfor maintained a strong financial position throughout Q2’18. Net debt at June 30, 2018 was $34.4 million, or 3.4 per cent of invested capital, representing a decrease of $183.8 million from June 30, 2017, and a decrease of $84.9 million from Dec. 31, 2017. The majority of the decrease in net debt in Q2’18 is attributed to strong cash flows generated from operations. Net debt was negatively impacted by a weakened 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. 

As of June 30, 2018, the company had net working capital of $417.1 million and available liquidity of $542.3 million, including unrestricted cash and borrowing capacity on operating and term line facilities. 

On June 15, 2018, the company extended the maturity of its U.S. Operating line from May 1, 2019 to June 15, 2021, with no other significant changes. On July 10, 2018, Interfor entered into an agreement to extend US$84 million of its 2021 to 2023 Senior Secured Note maturities to 2027 to 2029. Upon completion of this transaction, which is expected in mid-August, Interfor’s weighted average interest rate on its term debt will be 4.47 per cent.   

These resources, in addition to cash generated from operations, will be used to support capital expenditures, working capital requirements and debt servicing commitments.  We believe that Interfor will have sufficient liquidity to fund operating and capital requirements for the foreseeable future.

Capital Resources
As of June 30, 2018, the company had commitments for capital expenditures totaling $44.9 million. 



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 Q2’18 are available at www.sedar.com and www.interfor.com

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