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Interfor Reports Q3'16 Results

/EINPresswire.com/ -- Optimization Initiative Contributes to Record EBITDA(1) of $58.1 million; Net Debt Reduced by $49.0 million

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov 3, 2016) - Interfor Corporation ("Interfor" or the "Company") (TSX:IFP) recorded net earnings in Q3'16 of $15.1 million, or $0.22 per share, compared to $23.2 million, or $0.33 per share in Q2'16. Adjusted net earnings1 in Q3'16 were $22.8 million, or $0.33 per share, compared to $20.9 million, or $0.30 per share, in Q2'16.

Adjusted EBITDA1 was $58.1 million on sales of $457.6 million in Q3'16, versus Adjusted EBITDA of $56.9 million on sales of $458.8 million in Q2'16.

Highlights for the quarter include:

  • Strong Free Cash Flow
    • Interfor generated $67.7 million of cash from operations, including $12.8 million from working capital.
    • The resulting free cash flow enabled Interfor to reduce net debt by $49.0 million during the quarter to $346.9 million, or 31.8% of invested capital.
  • Mixed Lumber Prices/Higher Sales Realizations
    • Key benchmark lumber prices were mixed in Q3'16 compared to the preceding quarter. The Western SPF Composite was up US$11 to US$311 per mfbm. However, the Southern Pine Composite and KD HF Stud 2x4 9' benchmark, which represent the largest share of
      Interfor's production, declined US$8 to US$382 per mfbm and US$19 to US$336 per mfbm, respectively.
    • In spite of the drop in benchmark prices, Interfor's average realization increased $16 to $580 per mfbm in Q3'16, reflecting a positive shift in product mix and the benefits of a lower Canadian dollar.
  • Business Optimization Initiative
    • The B.C. Interior and U.S. Northwest regions generated strong operating and financial results reflecting the benefits from the Company's multi-year capital investment programs. Focus continues on optimizing log supply, productivity and product mix to drive further margin improvements.
    • The U.S. South region continued to implement a series of capital and optimization initiatives focused on mill reliability, debottlenecking and product mix. A number of small capital projects were completed in the quarter, with more underway or in the planning stage. Benefits related to product mix, lumber recovery and productivity improvements were realized at a number of mills in the quarter. However, there was a short term negative impact on production volume and conversion costs in Q3'16, as a result of the projects' impact on operating hours. The initiative remains on track to meet or exceed the targeted $35 million in annualized EBITDA gains by the end of 2017.
  • Tacoma Sawmill Monetization
    • The monetization process for the Tacoma sawmill property is proceeding on track, with the sale expected to close in Q4'16.
1 Refer to Non-GAAP Measures section

Production

Lumber production in Q3'16 was 628 million board feet versus 637 million board feet in Q2'16.

Production from Canadian operations totaled 239 million board feet in Q3'16, up 21 million board feet compared to Q2'16.

Production from the Company's nine U.S. South sawmills totaled 248 million board feet, down 22 million board feet compared to Q2'16.

Production from U.S. Northwest operations totaled 141 million board feet in Q3'16, a decrease of 8 million board feet over the preceding quarter.

Summary of Quarterly Results(1)

2016 2015 2014
Unit Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Financial Performance (Unaudited)
Total sales $MM 457.6 458.8 433.9 411.4 430.8 429.7 415.4 389.0
Lumber $MM 374.8 371.1 348.9 325.0 343.3 352.2 340.7 318.6
Logs, residual products and other $MM 82.8 87.7 85.0 86.4 87.5 77.5 74.7 70.4
Operating earnings (loss) $MM 20.1 30.0 3.5 (6.3 ) (11.6 ) (25.8 ) 7.8 (1.1 )
Net earnings (loss) $MM 15.1 23.2 0.8 (3.5 ) (6.1 ) (20.6 ) (0.2 ) (5.2 )
Net earnings (loss) per share, basic and diluted $/share 0.22 0.33 0.01 (0.05 ) (0.09 ) (0.29 ) (0.00 ) (0.08 )
Adjusted net earnings (loss)(2) $MM 22.8 20.9 2.6 5.5 (15.4 ) (14.7 ) 4.5 10.2
Adjusted net earnings (loss) per share, basic and diluted (2) $/share 0.33 0.30 0.04 0.08 (0.22 ) (0.21 ) 0.07 0.15
Adjusted EBITDA(2) $MM 58.1 56.9 33.4 35.8 11.5 12.7 31.8 37.4
Shares outstanding - end of period million 70.0 70.0 70.0 70.0 70.0 70.0 70.0 66.7
Shares outstanding - weighted average million 70.0 70.0 70.0 70.0 70.0 70.0 67.8 66.7
Operating Performance
Lumber production million fbm 628 637 618 568 618 672 639 578
Total lumber sales million fbm 647 658 637 615 686 719 632 620
Lumber sales - Interfor produced million fbm 627 634 609 586 663 688 607 605
Lumber sales - wholesale and commission million fbm 20 24 28 29 23 31 25 15
Lumber - average selling price (3) $/thousand fbm 580 564 548 529 500 490 539 514
Average USD/CAD exchange rate (4) 1 USD in CAD 1.3050 1.2886 1.3732 1.3354 1.3089 1.2297 1.2412 1.1350
Closing USD/CAD exchange rate (4) 1 USD in CAD 1.3117 1.3009 1.2971 1.3840 1.3394 1.2474 1.2683 1.1601
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.

Liquidity

Balance Sheet

Net debt at September 30, 2016 was $346.9 million, or 31.8% of invested capital, representing a decrease of $114.5 million from September 30, 2015 and a decrease of $105.4 million from December 31, 2015. A 5.2% strengthening of the Canadian Dollar against the U.S. Dollar contributed $25.7 million to the net debt reduction in YTD'16 as the majority of debt is denominated in U.S. Dollars.

For the 3 months ended For the 9 months ended
September 30, June 30, September 30,
Thousands of dollars 2016 2015 2016 2016 2015
Net debt
Net debt, period opening, CAD $ 395,959 $ 430,870 $ 428,062 $ 452,303 $ 202,553
Net drawing (repayment) on credit facilities, CAD (44,138 ) (3,656 ) (33,619 ) (77,704 ) 202,156
Impact on U.S. Dollar denominated debt from (strengthening) weakening CAD 2,441 32,079 1,320 (25,734 ) 50,799
Decrease (increase) in cash and equivalents, CAD (7,333 ) 2,181 196 (1,936 ) 5,966
Net debt, period ending, CAD $ 346,929 $ 461,474 $ 395,959 $ 346,929 $ 461,474
Net debt components by currency
U.S. Dollar debt, period opening, USD $ 297,500 $ 355,123 $ 338,692 $ 338,699 $ 190,000
Net drawing (repayment) on credit facilities, USD (22,791 ) (9,166 ) (41,192 ) (63,990 ) 155,957
U.S. Dollar debt, period ending, USD 274,709 345,957 297,500 274,709 345,957
Spot rate, period end 1.3117 1.3394
U.S. Dollar debt expressed in CAD 360,336 463,374
Canadian Dollar debt, including bank indebtedness, CAD 4,985 10,000
Total debt, CAD 365,321 473,374
Cash and cash equivalents, CAD (18,392 ) (11,900 )
Net debt, period ending, CAD $ 346,929 $ 461,474

Capital Resources

The following table summarizes Interfor's credit facilities and availability as of September 30, 2016:

Thousands of Canadian dollars Operating
Line
Revolving
Term
Line
Senior
Secured
Notes
U.S.
Operating
Line
Total
Available line of credit $ 65,000 $ 200,000 $ 262,340 $ 65,585 $ 592,925
Maximum borrowing available $ 65,000 $ 200,000 $ 262,340 $ 65,585 $ 592,925
Less:
Drawings 10,493 90,246 262,340 2,242 365,321
Outstanding letters of credit included in line utilization 9,826 - - 3,220 13,046
Unused portion of facility $ 44,681 $ 109,754 $ - $ 60,123 $ 214,558
Add cash and cash equivalents 18,392
Available liquidity at September 30, 2016 $ 232,950

As of September 30, 2016, the Company had commitments for capital expenditures totaling $10.5 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 September 30, 2016, the Company had net working capital of $154.6 million and available capacity on operating and term facilities of $214.6 million. These resources, in addition to cash generated from operations, will be used to support ongoing 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 release 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 For the 9 months ended
September 30, June 30, September 30,
Thousands of Canadian dollars 2016 2015 2016 2016 2015
Adjusted Net Earnings (Loss)
Net earnings (loss) 15,093 (6,133 ) 23,205 39,093 (26,879 )
Add:
Restructuring costs and capital asset write-downs 1,492 10,097 2,304 4,999 9,963
Other foreign exchange loss (gain) (792 ) (986 ) (503 ) (396 ) 2,124
Long term incentive compensation expense (recovery) 8,321 (16,965 ) (4,147 ) 4,352 (14,766 )
Other (income) expense (7 ) 77 458 358 106
Beaver sawmill post-closure wind-down costs 6 7 3 17 359
Tacoma sawmill post-acquisition losses and closure costs 94 1,652 311 777 10,311
Income tax effect of above adjustments (1,408 ) (3,100 ) (725 ) (2,887 ) (6,747 )
Adjusted net earnings (loss) 22,799 (15,351 ) 20,906 46,313 (25,529 )
Weighted average number of shares - basic and diluted ('000) 70,030 70,030 70,030 70,030 69,305
Adjusted net earnings (loss) per share(1) 0.33 (0.22 ) 0.30 0.66 (0.37 )
Adjusted EBITDA
Net earnings (loss) 15,093 (6,133 ) 23,205 39,093 (26,879 )
Add:
Depreciation of plant and equipment 18,624 18,365 18,765 57,558 53,010
Depletion and amortization of timber, roads and other 9,441 9,891 9,652 27,062 26,744
Restructuring costs and capital asset write-downs 1,492 10,097 2,304 4,999 9,963
Finance costs 4,379 4,948 4,965 14,528 12,110
Other foreign exchange loss (gain) (792 ) (986 ) (503 ) (396 ) 2,124
Income tax expense (recovery) 1,445 (9,492 ) 1,852 (29 ) (17,074 )
EBITDA 49,682 26,690 60,240 142,815 59,998
Add:
Long term incentive compensation expense (recovery) 8,321 (16,965 ) (4,147 ) 4,352 (14,766 )
Other (income) expense (7 ) 77 458 358 106
Beaver sawmill post-closure wind-down costs 6 7 3 17 357
Tacoma sawmill post-acquisition losses and closure costs 94 1,645 311 777 10,230
Adjusted EBITDA 58,096 11,454 56,865 148,319 55,925
Pre-tax return on total assets
Operating earnings (loss) before restructuring costs 21,610 (1,489 ) 32,281 58,553 (19,650 )
Total assets(1) 1,337,569 1,364,560 1,323,788 1,358,294 1,226,137
Pre-tax return on total assets(2) 6.5 % (0.4 %) 9.8 % 5.7 % (2.1 %)
Net debt to invested capital
Net debt
Total debt 365,321 473,374 407,018 365,321 473,374
Cash and cash equivalents (18,392 ) (11,900 ) (11,059 ) (18,392 ) (11,900 )
Total net debt 346,929 461,474 395,959 346,929 461,474
Invested capital
Net debt 346,929 461,474 395,959 346,929 461,474
Shareholders' equity 745,333 718,540 727,470 745,333 718,540
Total invested capital 1,092,262 1,180,014 1,123,429 1,092,262 1,180,014
Net debt to invested capital(3) 31.8 % 39.1 % 35.2 % 31.8 % 39.1 %
Notes:
(1) Total assets at period beginning for three month periods; average of opening and closing total assets for nine month periods.
(2) Annualized rate.
(3) Net debt to invested capital as of the period end.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the three and nine months ended September 30, 2016 and 2015 (unaudited)
(thousands of Canadian dollars except earnings per share) 3 Months 3 Months 9 Months 9 Months
Sept. 30, 2016 Sept. 30, 2015 Sept. 30, 2016 Sept. 30, 2015
Sales $ 457,647 $ 430,835 $ 1,350,404 $ 1,275,964
Costs and expenses:
Production 388,733 405,847 1,169,356 1,188,892
Selling and administration 10,918 12,451 33,523 36,520
Long term incentive compensation expense (recovery) 8,321 (16,965 ) 4,352 (14,766 )
Export taxes - 2,735 - 5,214
Depreciation of plant and equipment 18,624 18,365 57,558 53,010
Depletion and amortization of timber, roads and other 9,441 9,891 27,062 26,744
436,037 432,324 1,291,851 1,295,614
Operating earnings (loss) before restructuring costs 21,610 (1,489 ) 58,553 (19,650 )
Restructuring costs 1,492 10,097 4,999 9,963
Operating earnings (loss) 20,118 (11,586 ) 53,554 (29,613 )
Finance costs (4,379 ) (4,948 ) (14,528 ) (12,110 )
Other foreign exchange gain (loss) 792 986 396 (2,124 )
Other income (expense) 7 (77 ) (358 ) (106 )
(3,580 ) (4,039 ) (14,490 ) (14,340 )
Earnings (loss) before income taxes 16,538 (15,625 ) 39,064 (43,953 )
Income tax expense (recovery)
Current 288 (162 ) 749 310
Deferred 1,157 (9,330 ) (778 ) (17,384 )
1,445 (9,492 ) (29 ) (17,074 )
Net earnings (loss) $ 15,093 $ (6,133 ) $ 39,093 $ (26,879 )
Net earnings (loss) per share, basic and diluted $ 0.22 $ (0.09 ) $ 0.56 $ (0.39 )
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended September 30, 2016 and 2015 (unaudited)
3 Months 3 Months 9 Months 9 Months
Sept. 30, 2016 Sept. 30, 2015 Sept. 30, 2016 Sept. 30, 2015
Net earnings (loss) $ 15,093 $ (6,133 ) $ 39,093 $ (26,879 )
Other comprehensive income (loss):
Items that will not be recycled to Net earnings (loss):
Defined benefit plan actuarial loss (42 ) (1,834 ) (2,988 ) (394 )
Income tax recovery - - - 376
Total items that will not be recycled to Net earnings (loss) (42 ) (1,834 ) (2,988 ) (18 )
Items that are or may be recycled to Net earnings (loss):
Foreign currency translation differences for foreign operations, net of tax 2,622 22,886 (16,210 ) 46,024
Gain (loss) in fair value of interest rate swaps 93 (130 ) (46 ) (418 )
Total items that are or may be recycled to Net earnings (loss) 2,715 22,756 (16,256 ) 45,606
Total other comprehensive income (loss), net of tax 2,673 20,922 (19,244 ) 45,588
Comprehensive income $ 17,766 $ 14,789 $ 19,849 $ 18,709
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and nine months ended September 30, 2016 and 2015 (unaudited)
(thousands of Canadian dollars) 3 Months 3 Months 9 Months 9 Months
Sept. 30, 2016 Sept. 30, 2015 Sept. 30, 2016 Sept. 30, 2015
Cash provided by (used in):
Operating activities:
Net earnings (loss) $ 15,093 $ (6,133 ) $ 39,093 $ (26,879 )
Items not involving cash:
Depreciation of plant and equipment 18,624 18,365 57,558 53,010
Depletion and amortization of timber, roads and other 9,441 9,891 27,062 26,744
Income tax expense (recovery) 1,445 (9,492 ) (29 ) (17,074 )
Finance costs 4,379 4,948 14,528 12,110
Other assets (22 ) 155 (306 ) 527
Reforestation liability 2,235 832 1,692 140
Other liabilities and provisions 4,288 (9,170 ) 993 (12,640 )
Stock options 97 56 230 155
Reversal of write-down of plant and equipment - - - (1,195 )
Write-down of plant and equipment - 140 1,018 140
Unrealized foreign exchange gain (698 ) (13 ) - (341 )
Other (7 ) 76 358 105
54,875 9,655 142,197 34,802
Cash generated from (used in) operating working capital:
Trade accounts receivable and other 2,195 14,595 (9,858 ) 5,174
Inventories 5,507 35,176 (261 ) 44,748
Prepayments 254 4,838 517 1,990
Trade accounts payable and provisions 5,123 (28,368 ) 18,427 (30,851 )
Income taxes paid (265 ) (180 ) (731 ) (635 )
67,689 35,716 150,291 55,228
Investing activities:
Additions to property, plant and equipment (15,223 ) (21,600 ) (37,220 ) (73,718 )
Additions to logging roads (7,484 ) (8,015 ) (18,721 ) (20,918 )
Additions to timber and other intangible assets (633 ) (240 ) (988 ) (1,377 )
Proceeds on disposal of property, plant and equipment 2 852 316 4,642
Proceeds on disposal of investments 10,342 - 10,342 -
Acquisitions - 98 - (223,263 )
Investments and other assets (1,347 ) 132 (10,900 ) 312
(14,343 ) (28,773 ) (57,171 ) (314,322 )
Financing activities:
Issuance of capital stock, net of share issue expenses - - - 63,196
Interest payments (2,268 ) (4,685 ) (13,433 ) (11,315 )
Debt refinancing costs (167 ) (24 ) (1,009 ) (278 )
Change in operating line components of long-term debt 2,937 (3,656 ) (8,796 ) 29,265
Additions to long term debt - - 28,000 362,582
Repayments of long term debt (47,074 ) - (96,908 ) (189,691 )
(46,572 ) (8,365 ) (92,146 ) 253,759
Foreign exchange gain (loss) on cash and cash equivalents held in a foreign currency 559 (759 ) 962 (631 )
Increase (decrease) in cash 7,333 (2,181 ) 1,936 (5,966 )
Cash and cash equivalents, beginning of period 11,059 14,081 16,456 17,866
Cash and cash equivalents, end of period $ 18,392 $ 11,900 $ 18,392 $ 11,900
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, 2016 and December 31, 2015 (unaudited)
(thousands of Canadian dollars) Sept. 30, Dec. 31,
2016 2015
Assets
Current assets:
Cash and cash equivalents $ 18,392 $ 16,456
Trade accounts receivable and other 101,975 95,218
Income taxes receivable 387 459
Inventories 151,951 155,740
Prepayments and other 14,168 15,512
Assets held for sale 25,224 27,836
312,097 311,221
Employee future benefits 257 1,570
Other investments and assets 5,203 3,191
Property, plant and equipment 729,041 777,590
Logging roads and bridges 20,009 20,611
Timber licences 70,040 72,429
Other intangible assets 18,592 23,601
Goodwill 153,191 160,914
Deferred income taxes 18,362 18,669
$ 1,326,792 $ 1,389,796
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable and provisions $ 145,073 $ 130,840
Reforestation liability 12,064 11,052
Income taxes payable 392 398
157,529 142,290
Reforestation liability 26,999 25,074
Long term debt 365,321 468,759
Employee future benefits 10,587 8,391
Provisions and other liabilities 21,023 20,028
Equity:
Share capital 553,559 553,559
Contributed surplus 7,895 7,665
Translation reserve 61,215 77,425
Hedge reserve 16 62
Retained earnings 122,648 86,543
745,333 725,254
$ 1,326,792 $ 1,389,796
Approved on behalf of the Board of Directors:
"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 and nine months ended September 30, 2016 are available at www.sedar.com and www.interfor.com.

There will be a conference call on Friday, November 4, 2016 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company's release of its third 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 December 4, 2016. The number to call is 1-888-203-1112, Passcode 3632006.

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