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Interfor Reports Q1’18 Results

EBITDA(1) of $81.1 million on Sales of $527.6 million
Operating Cash Flow(1) of $1.08 per share
32% Return on Invested Capital

VANCOUVER, British Columbia, May 03, 2018 (GLOBE NEWSWIRE) -- INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX:IFP) recorded net earnings in Q1’18 of $33.0 million, or $0.47 per share, compared to $36.2 million, or $0.52 per share in Q4’17 and $19.7 million, or $0.28 per share in Q1’17.  Adjusted net earnings in Q1’18 were $36.8 million or $0.52 per share, compared to $45.1 million, or $0.64 per share in Q4’17 and $22.7 million, or $0.32 per share in Q1’17.

Adjusted EBITDA was $81.1 million on sales of $527.6 million in Q1’18 versus $89.5 million on sales of $532.8 million in Q4’17.

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$37, US$33 and US$63 per mfbm, respectively.  Interfor’s average lumber selling price increased $38 from Q4’17 to a record $688 per mfbm.   

• Increased Production/Reduced Shipments

  • Total lumber production was 666 million board feet or 11 million board feet more than the prior quarter.  Production in the U.S. South region increased to 302 million board feet from 296 million board feet in the preceding quarter.  The B.C. and U.S. Northwest regions accounted for 218 million board feet and 146 million board feet, respectively, compared to 219 million board feet and 140 million board feet in Q4’17, respectively.

  • Total lumber shipments were 648 million board feet, including agency and wholesale volumes, or 38 million board feet lower than Q4’17.  This reduction was the result of industry-wide logistics issues, particularly due to weather-impacted rail constraints in B.C.

• Continued Financial Flexibility

  • Net debt ended the quarter at $127.1 million, or 12.4% of invested capital, resulting in available liquidity of $444.6 million.

  • Interfor generated $75.5 million of cash from operations before changes in working capital, or $1.08 per share.  Total cash generated from operations was $18.5 million after considering an increase in working capital, including a $34.0 million increase in inventories, a $10.9 million increase in accounts receivable due primarily to higher lumber prices, and the payment of annual employee incentive compensation.

  • Capital spending was $18.1 million on a mix of high-return discretionary, maintenance and woodlands projects.

• Softwood Lumber Duties

  • Interfor expensed $12.9 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 mandated final rate of 20.23%.

(1) Refer to Adjusted EBITDA and Operating cash flow per share in the Non-GAAP Measures section

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 previously announced projects at the Company’s Meldrim and Monticello sawmills are on track for completion in Q1’19. 

  • The Company completed the installation of an autograding system at its Perry, Georgia sawmill in Q1’18.

  • Other large capital projects to enhance existing operations are continuing to be advanced from an engineering and feasibility standpoint.  In particular, the Company is refining plans for a series of substantial capital investment opportunities at three of its U.S. South sawmills.  It is expected that these projects could be completed between 2019 and 2021.  These projects will be subject to Board approval in the normal course.

  • The greenfield sawmill opportunity in the Central Region of the U.S. South is in the final stages of assessment with a decision on the project expected by mid-2018.

Financial and Operating Highlights (1) 

           
          For the three months ended
          Mar. 31
  Mar. 31
  Dec. 31
 
  Unit       2018
  2017
  2017
 
               
Financial Highlights(2)              
Total sales $MM       527.6   456.8   532.8  
Lumber $MM       445.9   389.6   446.0  
Logs, residual products and other $MM       81.7   67.2   86.8  
Operating earnings $MM       46.5   30.4   47.9  
Net earnings $MM       33.0   19.7   36.2  
Net earnings per share, basic $/share         0.47     0.28     0.52  
Adjusted net earnings(3) $MM       36.8   22.7   45.1  
Adjusted net earnings per share, basic(3) $/share         0.52     0.32     0.64  
Operating cash flow per share (before working capital changes)(3) $/share       1.08   0.85   1.19  
Adjusted EBITDA(3) $MM       81.1   60.3   89.5  
Adjusted EBITDA margin(3) %       15.4 % 13.2 % 16.8 %
               
Total assets $MM         1,410.1     1,318.8     1,353.0  
Total debt $MM         257.9     325.4     250.9  
Net debt to invested capital(3) %       12.4 % 27.6 % 12.3 %
Return on invested capital(3) %       32.4 % 22.0 % 36.4 %
               
Operating Highlights              
Lumber production million fbm         666     640     655  
Total lumber sales million fbm         648   645   686  
Lumber sales - Interfor produced million fbm       635   624   666  
Lumber sales - wholesale and commission million fbm       13   21   20  
Lumber - average selling price(4) $/thousand fbm       688   604   650  
               
Average USD/CAD exchange rate(5) 1 USD in CAD       1.2647   1.3238   1.2713  
Closing USD/CAD exchange rate(5) 1 USD in CAD       1.2894   1.3322   1.2545  


 
Notes:
  (1)   Figures in this table may not equal or sum to figures presented elsewhere due to rounding.
  (2)   Financial information presented for interim periods in this release is prepared in accordance with IFRS and is unaudited.
  (3)   Refer to the Non-GAAP Measures section of this release for definitions and reconciliations of these measures to figures reported in the Company’s consolidated financial statements. 
  (4)   Gross sales before duties.
  (5)   Based on Bank of Canada foreign exchange rates.
       

Liquidity

Balance Sheet

Interfor maintained a strong financial position throughout Q1’18.  Net debt at March 31, 2018 was $127.1 million, or 12.4% of invested capital, representing a decrease of $179.6 million from March 31, 2017, and an increase of $7.8 million from December 31, 2017.  The majority of the increase in net debt in Q1’18 is as a result of the weakened Canadian Dollar against the U.S. Dollar as all debt held was denominated in U.S. Dollars. 

       
      For the three months ended
      Mar. 31,
  Dec. 31,
  Mar. 31,
 
Thousands of Dollars      2018     2017    2017  
           
Net debt          
Net debt, period opening, CAD     $  119,300   $  177,787   $  289,551  
Net drawing (repayment) on credit facilities, CAD        (1 )    (1 )    19,250  
Impact on U.S. Dollar denominated debt from (strengthening) weakening CAD       6,981      1,301      (2,704 )
Increase in cash and cash equivalents, CAD        784      (59,787 )   579  
Net debt, period ending, CAD     $  127,064   $  119,300   $  306,676  
           
Net debt components by currency          
U.S. Dollar debt, period opening, USD     $  200,000   $  200,000   $  230,000  
Net repayment on credit facilities, USD        -      -      5,979  
U.S. Dollar debt, period ending, USD       200,000      200,000      235,979  
           
Spot rate, period end       1.2894      1.2545      1.3322  
           
U.S. Dollar debt expressed in CAD       257,880      250,900      314,371  
Canadian Dollar debt, CAD       -     -     4,987  
Canadian Dollar operating line, CAD       -     -     6,009  
Total debt, CAD       257,880     250,900     325,367  
Cash and cash equivalents, CAD       (130,816 )    (131,600 )    (18,691 )
Net debt, period ending, CAD     $ 127,064   $  119,300   $  306,676  
                       

As at March 31, 2018, the Company had net working capital of $316.0 million and available liquidity of $444.6 million, including cash and borrowing capacity on operating and term line facilities. 

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

The following table summarizes Interfor’s credit facilities and availability as of March 31, 2018:

    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 $ 257,880 $ 64,470 $ 587,350
Maximum borrowing available $ 65,000 $ 200,000 $ 257,880 $ 64,470 $ 587,350
Less:          
Drawings   -   -   257,880   -   257,880
Outstanding letters of credit included in line utilization   12,168   -   -   3,172   15,340
Unused portion of facility $ 52,832 $ 200,000 $ - $ 61,298   314,130
                                     
Add: Unrestricted cash and cash equivalents                                   130,453
Available liquidity at March 31, 2018                                 $ 444,583
                                     

As of March 31, 2018, the Company had commitments for capital expenditures totaling $29.5 million. 

Non-GAAP Measures

This release makes reference to the following non-GAAP measures: Adjusted net earnings, Adjusted net earnings per share, EBITDA, Adjusted EBITDA, Net debt to invested capital, Operating cash flow per share (before working capital changes) and Return on 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 three months ended
    Mar. 31,   Mar. 31,
  Dec. 31,
 
Thousands of Canadian Dollars except number of shares and per share amounts   2018     2017     2017  
             
Adjusted Net Earnings            
Net earnings       $   32,976   $   19,667   $   36,196  
Add:            
  Restructuring costs and capital asset write-downs         236     345     7,422  
  Other foreign exchange loss (gain)         (111 )   181     (412 )
  Long term incentive compensation expense         4,858     3,593     3,110  
  Other expense         178     189     995  
  Post closure wind-down costs and losses         4     8     5  
  Income tax effect of above adjustments         (1,374 )   (1,249 )   (2,260 )
Adjusted net earnings       $  36,767   $  22,734   $  45,056  
Weighted average number of shares - basic ('000)         70,033     70,030     70,030  
Adjusted net earnings per share       $  0.52   $  0.32   $  0.64  
             
Adjusted EBITDA            
Net earnings       $  32,976   $  19,667   $  36,196  
Add:            
  Depreciation of plant and equipment         20,068     19,603     19,217  
  Depletion and amortization of timber, roads and other         9,417     6,297     11,879  
  Restructuring costs and capital asset write-downs         236     345     7,422  
  Finance costs         2,905     4,062     3,139  
  Other foreign exchange loss (gain)         (111 )   181     (412 )
  Income tax expense         10,533     6,320     7,968  
EBITDA         76,024     56,475     85,409  
Add:            
  Long term incentive compensation expense         4,858     3,593     3,110  
  Other expense         178     189     995  
  Post closure wind-down costs and losses         4     8     5  
Adjusted EBITDA       $  81,064   $  60,265   $  89,519  
             
Net debt to invested capital            
Net debt            
  Total debt       $  257,880   $  325,367   $  250,900  
  Cash and cash equivalents         (130,816 )   (18,691 )   (131,600 )
Total net debt       $  127,064   $  306,676   $  119,300  
Invested capital            
  Net debt       $  127,064   $  306,676   $  119,300  
  Shareholders' equity         901,176     804,748     854,188  
Total invested capital       $  1,028,240   $ 1,111,424   $  973,488  
Net debt to invested capital(1)         12.4 %   27.6 %   12.3 %
             
Operating cash flow per share (before working capital changes)          
Cash provided by operating activities       $  18,511   $  4,682   $  86,749  
Cash used in (generated from) operating working capital         56,973     55,033     (3,332 )
Operating cash flow (before working capital changes)       $  75,484   $  59,715   $  83,417  
Weighted average number of shares - basic ('000)         70,033     70,030     70,030  
Operating cash flow per share (before working capital changes)     $  1.08   $  0.85   $  1.19  
           
Return on invested capital          
Adjusted EBITDA     $ 81,064   $ 60,265   $ 89,519  
Invested capital, beginning of period     $ 973,488   $ 1,076,218   $ 995,463  
Invested capital, end of period       1,028,240     1,111,424     973,488  
Average invested capital     $ 1,000,864   $ 1,093,821   $ 984,476  
Adjusted EBITDA divided by average invested capital       8.1 %   5.5 %   9.1 %
Annualization factor       4.0     4.0     4.0  
Return on invested capital       32.4 %   22.0 %   36.4 %
                       


Notes: 
  (1)   Net debt to invested capital as of the period end.


     
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS    
For the three months ended March 31, 2018 and 2017 (unaudited)      
(thousands of Canadian Dollars except earnings per share)     Three Months
  Three Months
 
        Mar. 31, 2018
  Mar. 31, 2017
 
           
Sales
Costs and expenses:
    $ 527,644   $ 456,780  
       
  Production       419,582     384,077  
  Selling and administration       14,073     12,446  
  Long term incentive compensation       4,858     3,593  
  U.S. countervailing and anti-dumping duty deposits       12,929     -  
  Depreciation of plant and equipment       20,068     19,603  
  Depletion and amortization of timber, roads and other       9,417     6,297  
          480,927     426,016  
         
Operating earnings before restructuring costs       46,717     30,764  
         
Restructuring costs       236     345  
Operating earnings       46,481     30,419  
         
Finance costs        (2,905 )   (4,062 )
Other foreign exchange gain (loss)       111     (181 )
Other expense       (178 )   (189 )
        (2,972 )   (4,432 )
           
Earnings before income taxes       43,509     25,987  
           
Income tax expense:         
  Current       770     306  
    Deferred       9,763     6,014  
        10,533     6,320  
           
Net earnings     $ 32,976   $ 19,667  
         
Net earnings per share, basic and diluted     $ 0.47   $ 0.28  


     
     
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME    
For the three months ended March 31, 2018 and 2017 (unaudited)      
(thousands of Canadian Dollars)     Three Months Three Months
 
        Mar. 31, 2018 Mar. 31, 2017
 
         
Net earnings
    $ 32,976 $ 19,667  
         
Other comprehensive income (loss):        
Items that will not be recycled to Net earnings:        
    Defined benefit plan actuarial gain, net of tax       885   824  
           
Items that are or may be recycled to Net earnings:        
  Foreign currency translation differences for foreign operations, net of tax       12,847   (2,505 )
  Loss in fair value of interest rate swaps       -   (11 )
  Total items that are or may be recycled to Net earnings       12,847   (2,516 )
Total other comprehensive income (loss), net of tax       13,732   (1,692 )
         
Comprehensive income     $ 46,708 $ 17,975  
         


     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS    
For the three months ended March 31, 2018 and 2017 (unaudited)      
(thousands of Canadian Dollars)     Three Months
  Three Months
 
        Mar. 31, 2018
  Mar. 31, 2017
 
           
Cash provided by (used in):
Operating activities:
       
       
  Net earnings     $ 32,976   $ 19,667  
  Items not involving cash:        
    Depreciation of plant and equipment       20,068     19,603  
    Depletion and amortization of timber, roads and other       9,417     6,297  
    Income tax expense       10,533     6,320  
    Finance costs       2,905     4,062  
    Other assets       (295 )   (49 )
    Reforestation liability       2,289     2,543  
    Provisions and other liabilities       (2,842 )   815  
    Stock options       137     106  
    Write-down of intangibles       219     -  
    Unrealized foreign exchange gains and other       (101 )   (8 )
    Other expense       178     359  
          75,484     59,715  
  Cash used in operating working capital:        
    Trade accounts receivable and other       (10,896 )   (15,568 )
    Inventories       (34,037 )   (15,240 )
    Prepayments and other       (4,325 )   (2,784 )
    Trade accounts payable and accrued liabilities       (7,544 )   (21,150 )
    Income taxes paid       (171 )   (291 )
        18,511     4,682  
         
Investing activities:        
  Additions to property, plant and equipment     (12,039 )   (12,743 )
  Additions to roads and bridges     (6,082 )   (7,102 )
  Additions to timber and other intangible assets     13     (834 )
  Proceeds (costs) on disposal of property, plant and equipment     109     (25 )
  Investments and other assets     (486 )   (117 )
        (18,485 )   (20,821 )
           
Financing activities:        
  Issuance of share capital, net of expenses        143     -  
  Interest payments       (2,676 )   (3,542 )
  Debt refinancing costs       (1 )   (128 )
  Change in operating line components of long-term debt       (1 )   40,853  
  Additions to long term debt       -     76,107  
  Repayments of long term debt       -     (97,710 )
          (2,535 )   15,580  
           
Foreign exchange gain (loss) on cash and cash equivalents        
  held in a foreign currency       1,725     (20 )
Decrease in cash and cash equivalents       (784 )   (579 )
         
Cash and cash equivalents, beginning of period       131,600     19,270  
         
Cash and cash equivalents, end of period     $ 130,816   $ 18,691  


     
     
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION    
March 31, 2018 and December 31, 2017 (unaudited)      
(thousands of Canadian Dollars)        
        Mar. 31, 2018 Dec. 31, 2017
           
Assets
Current assets:
       
       
Cash and cash equivalents     $ 130,816 $ 131,600
Trade accounts receivable and other       124,310   112,470
Income taxes receivable       917   1,289
Inventories       201,070   165,156
Prepayments and other           17,193   12,562
          474,306   423,077
         
Employee future benefits       1,577   502
Investments and other assets       7,032   6,404
Property, plant and equipment       673,912   670,830
Roads and bridges       23,141   24,092
Timber licences       65,968   66,589
Other intangible assets       12,362   14,170
Goodwill       150,809   147,081
Deferred income taxes       976   251
         
      $ 1,410,083 $ 1,352,996
         
Liabilities and Shareholders’ Equity        
Current liabilities:        
 Trade accounts payable and provisions     $ 144,455 $ 152,854
 Reforestation liability       13,526   12,873
 Income taxes payable        341   224
        158,322   165,951
           
Reforestation liability         29,965   27,535
Long term debt         257,880   250,900
Employee future benefits         8,234   8,249
Provisions and other liabilities         24,122   26,976
Deferred income taxes         30,384   19,197
           
Equity:          
 Share capital       555,602   555,388
 Contributed surplus       8,648   8,582
 Translation reserve       53,567   40,720
 Retained earnings       283,359   249,498
         
          901,176   854,188
           
      $ 1,410,083 $ 1,352,996
         

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 “believes”, “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, cyber-security measures, 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 3.1 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 Q1’18 are available at www.sedar.com and www.interfor.com

There will be a conference call on Friday, May 4, 2018 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company’s release of its first quarter 2018 financial results.

The dial-in number is 1-866-559-8291.  The conference call will also be recorded for those unable to join in for the live discussion, and will be available until June 3, 2018.  The number to call is 1-855-859-2056, Passcode 9897303.

For further information:
Martin L. Juravsky, Senior Vice President and Chief Financial Officer
(604) 689-6873

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