Interfor Corporation
TSX : IFP

Interfor Corporation

April 28, 2016 17:01 ET

Interfor Reports Q1'16 Results

Higher Commodity Lumber Prices and Volumes in Q1'16 vs. Q4'15

VANCOUVER, BRITISH COLUMBIA--(Marketwired - April 28, 2016) - INTERFOR CORPORATION ("Interfor" or the "Company") (TSX:IFP) recorded Adjusted EBITDA1 of $33.4 million on sales of $433.9 million in Q1'16 versus Adjusted EBITDA1 of $35.8 million on sales of $411.4 million in Q4'15.

Adjusted net earnings1 in Q1'16 were $2.6 million, or $0.04 per share, compared to $5.5 million, or $0.08 per share, in Q4'15. Net earnings were $0.8 million, or $0.01 per share, compared with net losses of $3.5 million, or $0.05 per share, in Q4'15.

Highlights for the quarter include:

  • Higher Lumber Prices
    • Product prices were higher in Q1'16 versus Q4'15, with the Western SPF Composite and the Southern Pine ("SP") Composite up over the prior quarter by US$6 and US$20 per mfbm, respectively.

  • Weaker Canadian Dollar
    • The Canadian Dollar was weaker on average against the U.S. Dollar as compared to the prior quarter, averaging 1.3732 in Q1'16 versus 1.3354 in Q4'15. However, the Canadian Dollar strengthened significantly against the U.S. Dollar in the latter half of Q1'16 to close the period up 6.3% over the rate at December 31, 2015.

  • Higher Lumber Production
    • The Company produced an additional 50 million board feet in Q1'16 versus Q4'15. The production increase is a result of: (i) the return to a normal operating schedule at the Castlegar mill in Q1'16 versus the mill restart during Q4'15; (ii) the improvement in weather conditions near the Georgetown mill that negatively impacted operations in Q4'15; and (iii) incremental operating days in Q1'16 versus the holiday-impacted schedule in Q4'15.

  • Free Cash Flow Generation
    • Adjusted EBITDA was impacted by: (i) reduced profitability in the B.C. Coastal business due to seasonally lower log production, an increase in the percentage of helicopter logging, and lumber product mix changes; and (ii) variances in quarter end log and lumber inventory reserve adjustments.
    • Interfor generated $31.0 million of cash from operations before working capital changes. In the quarter, working capital increased by $11.0 million, primarily as a result of reductions in payables outstanding. Capital spending amounted to $17.8 million during the quarter.
    • The Company's net debt decreased by $24.2 million during the quarter to $428.1 million, or 37.8% of invested capital, providing the Company with $148.2 million of available liquidity as at March 31, 2016.

  • Tacoma Sawmill Monetization
    • The monetization process for the Tacoma sawmill property is proceeding on track, with the sale expected to close in the second half of 2016.

  • Business Optimization Initiative
    • Over the past several years, Interfor has completed a series of growth initiatives, including five acquisitions and two major capital projects.
    • The expanded platform has created a significant number of additional margin expansion opportunities.
    • The Company is focused on capturing these opportunities and has taken a number of steps to advance this initiative over the past several months.

1 Refer to Non-GAAP Measures section

Production

Lumber production in Q1'16 was 618 million board feet versus 568 million board feet in Q4'15.

Production from the Company's nine U.S. South sawmills totaled 265 million board feet, up 22 million board feet compared to Q4'15. In addition to the increase in operating days in Q1'16, the production at the Georgetown sawmill increased by 9 million board feet following the impact of severe weather events in Q4'15.

Production from Canadian operations totaled 210 million board feet in Q1'16, up 24 million board feet compared to Q4'15. Production increased most significantly at Castlegar, which produced an additional 12 million board feet as the sawmill resumed more normal operations following the start-up curve in Q4'15. In Q1'16, Interfor shipped approximately 105 million board feet of lumber to U.S. markets from its B.C. sawmills, which represents approximately 17% of Interfor's total current quarterly production. The 12-month standstill period of the Softwood Lumber Agreement, which precludes trade action by the U.S., continues through October 11, 2016. Preliminary discussions on lumber trade between the Canadian and U.S. governments have been held, however uncertainty remains regarding resolution of the matter.

Production from Northwest operations totaled 143 million board feet in Q1'16, an increase of 4 million board feet over the preceding quarter driven by improved productivity at the Company's three stud mills in the region.

Lumber Markets and Pricing

Beginning this quarter, Interfor changed its references to market benchmark prices for Western SPF and SYP from 2x4's to the respective Composites. The change is due to 2x4 references being for a specific product, whereas the Composites include a mix of dimensions and grades that better reflect our product mix, particularly for Southern Yellow Pine.

The Western SPF Composite improved over the course of the first quarter of 2016 as dealers expanded inventories for the spring building season following a mild winter. The Western SPF Composite benchmark took a step down to US$251 per mfbm in January before rebounding to US$281 per mfbm in March. The SP Composite also improved during Q1'16, increasing to US$374 per mfbm in March compared to US$353 per mfbm in December 2015.

Interfor expects demand for lumber to continue to grow over the mid-term as the U.S. housing market recovers and market promotion efforts in North America and offshore take full effect.

Interfor's strategy of maintaining a diversified portfolio of lumber operations allows the Company to both reduce risk and maximize returns on invested capital over the business cycle. Interfor will continue its disciplined approach to production, cost control, inventory management and capital spending. At the same time, Interfor will remain alert to growth opportunities to position the Company for long term success.

Summary of Quarterly Results(1)
2016 2015 2014
Unit Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Financial Performance (Unaudited)
Total sales $MM 433.9 411.4 430.8 429.7 415.4 389.0 373.1 390.2
Lumber $MM 348.9 325.0 343.3 352.2 340.7 318.6 303.0 325.2
Logs, residual products and other $MM 85.0 86.4 87.5 77.5 74.7 70.4 70.1 65.0
Operating earnings (loss) $MM 3.5 (6.3 ) (11.6 ) (25.8 ) 7.8 (1.1 ) 20.1 3.8
Net earnings (loss) $MM 0.8 (3.5 ) (6.1 ) (20.6 ) (0.2 ) (5.2 ) 11.0 7.4
Net earnings (loss) per share, basic and diluted $/share 0.01 (0.05 ) (0.09 ) (0.29 ) (0.00 ) (0.08 ) 0.16 0.11
Adjusted net earnings (loss)(2) $MM 2.6 5.5 (15.4 ) (14.7 ) 4.5 10.2 16.1 21.0
Adjusted net earnings (loss) per share, basic and diluted(2) $/share 0.04 0.08 (0.22 ) (0.21 ) 0.07 0.15 0.24 0.31
Adjusted EBITDA(2) $MM 33.4 35.8 11.5 12.7 31.8 37.4 45.4 47.3
Shares outstanding - end of period million 70.0 70.0 70.0 70.0 70.0 66.7 66.7 66.7
Shares outstanding - weighted average million 70.0 70.0 70.0 70.0 67.8 66.7 66.7 66.7
Operating Performance
Lumber production million fbm 618 568 618 672 639 578 567 582
Total lumber sales million fbm 637 615 686 719 632 620 595 628
Lumber sales - Interfor produced million fbm 609 586 663 688 607 605 581 607
Lumber sales - wholesale and commission million fbm 28 29 23 31 25 15 14 21
Lumber - average selling price(3) $/thousand fbm 548 529 500 490 539 514 509 518
Average USD/CAD exchange rate(4) 1 USD in CAD 1.3732 1.3354 1.3089 1.2297 1.2412 1.1350 1.0890 1.0905
Closing USD/CAD exchange rate(4) 1 USD in CAD 1.2971 1.3840 1.3394 1.2474 1.2683 1.1601 1.1208 1.0676
Notes:
(1) Figures in this table may not equal or sum to figures presented elsewhere due to rounding.
(2) Refer to the Non-GAAP Measures section of this press release for definitions.
(3) Gross sales before export taxes.
(4) Based on Bank of Canada foreign exchange rates.

Balance Sheet

Net debt at March 31, 2016 was $428.1 million, or 37.8% of invested capital, representing an increase of $58.4 million from March 31, 2015 and a decrease of $24.2 million from December 31, 2015. A 6.3% strengthening of the Canadian Dollar against the U.S. Dollar contributed $29.5 million to the net debt reduction in Q1'16 as the majority of debt is denominated in U.S. Dollars.

For the 3 months ended
March 31,
Thousands of dollars 2016 2015
Net debt
Net debt, period opening, CAD $ 452,303 $ 202,553
Net drawing on credit facilities, CAD 53 145,751
Impact on U.S. Dollar denominated debt from (strengthening) weakening CAD (29,495 ) 23,617
Decrease (increase) in cash and equivalents, CAD 5,201 (2,238 )
Net debt, period ending, CAD $ 428,062 $ 369,683
Net debt components by currency
U.S. Dollar debt, period opening, USD $ 338,699 $ 190,000
Net drawing (repayment) on credit facilities, USD (7 ) 115,099
U.S. Dollar debt, period ending, USD 338,692 305,099
Spot rate, period end 1.2971 1.2683
U.S. Dollar debt expressed in CAD 439,317 386,957
Canadian Dollar debt, CAD - 2,830
Total debt, CAD 439,317 389,787
Cash and cash equivalents, CAD (11,255 ) (20,104 )
Net debt, period ending, CAD $ 428,062 $ 369,683

Capital Resources

The following table summarizes Interfor's credit facilities and availability as of March 31, 2016:

Revolving Senior U.S.
Operating Term Secured Operating
Thousands of Canadian dollars Line Line Notes Line Total
Available line of credit $ 65,000 $ 200,000 $ 259,420 $ 64,855 $ 589,275
Maximum borrowing available $ 65,000 $ 200,000 $ 259,420 $ 64,855 $ 589,275
Less:
Drawings 12,971 149,167 259,420 17,759 439,317
Outstanding letters of credit included in line utilization 9,767 - - 3,210 12,977
Unused portion of facility $ 42,262 $ 50,833 $ - $ 43,886 $ 136,981
Add cash and cash equivalents 11,255
Available liquidity at March 31, 2016 $ 148,236

As of March 31, 2016, the Company had commitments for capital expenditures totaling $4.6 million, related to both maintenance and discretionary capital projects.

Interfor continues to maintain its disciplined focus on monitoring discretionary capital expenditures, optimizing inventory levels and matching production with offshore and domestic demand.

As at March 31, 2016, the Company had net working capital of $170.2 million and available capacity on operating and term facilities of $137.0 million. 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 sufficient liquidity to fund operating and capital requirements for the foreseeable future.

Non-GAAP Measures

This MD&A makes reference to the following non-GAAP measures: Adjusted net earnings (loss), Adjusted net earnings (loss) per share, EBITDA, Adjusted EBITDA, Pre-tax return on total assets and Net debt to invested capital, 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 unaudited interim consolidated financial statements prepared in accordance with IFRS:

For the 3 months ended
March 31,
Thousands of Canadian dollars 2016 2015
Adjusted Net Earnings
Net earnings (loss) 795 (163 )
Add:
Restructuring costs and capital asset write-downs 1,203 (122 )
Other foreign exchange gain 899 5,413
Long term incentive compensation expense (recovery) 178 (1,709 )
Other income (93 ) (133 )
Beaver sawmill post-closure wind-down costs 8 341
Tacoma sawmill post-acquisition losses 372 1,008
Income tax effect of above adjustments (754 ) (142 )
Adjusted net earnings(1) 2,608 4,493
Weighted average number of shares - basic and diluted ('000) 70,030 67,830
Adjusted net earnings per share(1) 0.04 0.07
Adjusted EBITDA
Net earnings (loss) 795 (163 )
Add:
Depreciation of plant and equipment 20,169 16,515
Depletion and amortization of timber, roads and other 7,969 7,944
Restructuring costs and capital asset write-downs 1,203 (122 )
Finance costs 5,184 3,074
Other foreign exchange loss 899 5,413
Income tax recovery (3,326 ) (383 )
EBITDA 32,893 32,278
Add:
Long term incentive compensation expense (recovery) 178 (1,709 )
Other income (93 ) (133 )
Beaver sawmill post-closure wind-down costs 8 340
Tacoma sawmill post-acquisition losses 372 981
Adjusted EBITDA(1) 33,358 31,757
Pre-tax return on total assets
Operating earnings before restructuring costs 4,662 7,686
Total assets(2) 1,389,796 1,068,523
Pre-tax return on total assets(3) 1.3 % 2.9 %
Net debt to invested capital
Net debt
Total debt 439,317 389,787
Cash and cash equivalents (11,255 ) (20,104 )
Total net debt 428,062 369,683
Invested capital
Net debt 428,062 369,683
Shareholders' equity 705,214 729,839
Total invested capital 1,133,276 1,099,522
Net debt to invested capital(4) 37.8 % 33.6 %
Notes:
(1) Q1'15 adjusted net earnings, adjusted net earnings per share and adjusted EBITDA have been revised for inclusion of Tacoma sawmill post-acquisition losses arising during that period.
(2) Total assets at period beginning.
(3) Annualized rate.
(4) Net debt to invested capital as of the period end.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the three months ended March 31, 2016 and 2015 (unaudited)
(thousands of Canadian dollars except earnings per share) 3 Months 3 Months
Mar. 31, 2016 Mar. 31, 2015
Sales $ 433,944 $ 415,446
Costs and expenses:
Production 390,136 373,096
Selling and administration 10,830 11,914
Long term incentive compensation expense (recovery) 178 (1,709 )
Depreciation of plant and equipment 20,169 16,515
Depletion and amortization of timber, roads and other 7,969 7,944
429,282 407,760
Operating earnings before restructuring costs 4,662 7,686
Restructuring costs (recovery) 1,203 (122 )
Operating earnings 3,459 7,808
Finance costs (5,184 ) (3,074 )
Other foreign exchange loss (899 ) (5,413 )
Other income 93 133
(5,990 ) (8,354 )
Loss before income taxes (2,531 ) (546 )
Income tax expense (recovery)
Current 131 164
Deferred (3,457 ) (547 )
(3,326 ) (383 )
Net earnings (loss) $ 795 $ (163 )
Net earnings (loss) per share, basic and diluted $ 0.01 $ (0.00 )
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 2016 and 2015 (unaudited)
3 Months 3 Months
Mar. 31, 2016 Mar. 31, 2015
Net earnings (loss) $ 795 $ (163 )
Other comprehensive income:
Items that will not be recycled to Net earnings (loss):
Defined benefit plan actuarial gain 634 282
Items that are or may be recycled to Net earnings (loss):
Foreign currency translation differences for foreign operations, net of tax (21,439 ) 30,322
Loss in fair value of interest rate swaps (107 ) (278 )
Total items that are or may be recycled to Net earnings (loss) (21,546 ) 30,044
Total other comprehensive (loss) income, net of tax (20,912 ) 30,326
Comprehensive (loss) income $ (20,117 ) $ 30,163
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2016 and 2015 (unaudited)
(thousands of Canadian dollars) 3 Months 3 Months
Mar. 31, 2016 Mar. 31, 2015
Cash provided by (used in):
Operating activities:
Net earnings (loss) $ 795 $ (163 )
Items not involving cash:
Depreciation of plant and equipment 20,169 16,515
Depletion and amortization of timber, roads and other 7,969 7,944
Income tax recovery (3,326 ) (383 )
Finance costs 5,184 3,074
Other assets (201 ) 346
Reforestation liability 1,614 1,239
Other liabilities and provisions (1,175 ) (6,421 )
Stock options 77 -
Reversal of write-down of plant and equipment - (1,195 )
Unrealized foreign exchange loss 9 2,027
Other (93 ) (133 )
31,022 22,850
Cash generated from (used in) operating working capital:
Trade accounts receivable and other (919 ) (15,591 )
Inventories 2,744 (3,776 )
Prepayments (2,147 ) (4,160 )
Trade accounts payable and provisions (10,399 ) 183
Income taxes paid (258 ) (136 )
20,043 (630 )
Investing activities:
Additions to property, plant and equipment (12,551 ) (21,575 )
Additions to logging roads (5,089 ) (5,138 )
Additions to timber and other intangible assets (136 ) (840 )
Proceeds on disposal of property, plant and equipment 175 3,203
Acquisitions - (176,793 )
Investments and other assets (789 ) 106
(18,390 ) (201,037 )
Financing activities:
Issuance of share capital, net of share issue expenses - 63,196
Interest payments (6,811 ) (2,951 )
Debt refinancing costs (732 ) (159 )
Change in operating line components of long term debt 6,734 15,227
Additions to long term debt - 320,215
Repayments of long term debt (6,680 ) (189,691 )
(7,489 ) 205,837
Foreign exchange gain (loss) on cash and cash equivalents held in a foreign currency 635 (1,932 )
Increase (decrease) in cash (5,201 ) 2,238
Cash and cash equivalents, beginning of period 16,456 17,866
Cash and cash equivalents, end of period $ 11,255 $ 20,104

See accompanying notes to consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31, 2016 and December 31, 2015 (unaudited)
(thousands of Canadian dollars) Mar. 31, Dec. 31,
2016 2015
Assets
Current assets:
Cash and cash equivalents $ 11,255 $ 16,456
Trade accounts receivable and other 92,817 95,218
Income tax receivable 394 459
Inventories 148,806 155,740
Prepayments and other 16,785 15,512
Assets held for sale 26,087 27,836
296,144 311,221
Employee future benefits 884 1,570
Investments and other assets 4,781 3,191
Property, plant and equipment 736,780 777,590
Logging roads and bridges 20,350 20,611
Timber licences 71,566 72,429
Other intangible assets 20,875 23,601
Goodwill 151,631 160,914
Deferred income taxes 20,777 18,669
$ 1,323,788 $ 1,389,796
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable and provisions $ 113,637 $ 130,840
Reforestation liability 12,059 11,052
Income taxes payable 243 398
125,939 142,290
Reforestation liability 26,775 25,074
Long term debt 439,317 468,759
Employee future benefits 8,432 8,391
Provisions and other liabilities 18,111 20,028
Equity:
Share capital 553,559 553,559
Contributed surplus 7,742 7,665
Translation reserve 55,986 77,425
Hedge reserve (45 ) 62
Retained earnings 87,972 86,543
705,214 725,254
$ 1,323,788 $ 1,389,796
Approved on behalf of the Board:
"L. Sauder" "D.W.G. Whitehead"
Director Director

FORWARD-LOOKING STATEMENTS

This release contains information and statements that are forward-looking in nature, including, but not limited to, statements containing the words "will", "should", "expects", "annualized" and similar expressions. Such statements involve known and unknown risks and uncertainties that may cause Interfor's actual results to be materially different from those expressed or implied by those forward-looking statements. Such risks and uncertainties include, among other things: price volatility, competition, availability and cost of log supply, natural or man-made disasters, currency exchange sensitivity, regulatory changes, allowable annual cut reductions, Aboriginal title and rights claims, potential countervailing and anti-dumping duties, stumpage fee variables and changes, environmental impact and performance, labour disruptions, and other factors referenced herein and in Interfor's Annual Report available on www.sedar.com and www.interfor.com. The forward-looking information and statements contained in this release are based on Interfor's current expectations and beliefs. Readers are cautioned not to place undue reliance on forward-looking information or statements. Interfor undertakes no obligation to update such forward-looking information or statements, except where 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 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 interim condensed consolidated financial statements and Management's Discussion and Analysis for the three months ended March 31, 2016 are available at www.sedar.com and www.interfor.com.

There will be a conference call on Friday, April 29, 2016 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company's release of its first quarter 2016 financial results.

The dial-in number is 1-866-233-4795. The conference call will also be recorded for those unable to join in for the live discussion, and will be available until May 13, 2016. The number to call is 1-888-203-1112, Passcode 2393403.

Contact Information

  • Interfor Corporation
    John A. Horning
    Executive Vice President and Chief Financial Officer
    (604) 689-6829