Adjusted EBITDA loss of $22 million and Net Loss of $106 million
BURNABY, British Columbia, Nov. 06, 2024 (GLOBE NEWSWIRE) -- INTERFOR CORPORATION ("Interfor” or the "Company”) (TSX: IFP) recorded a Net loss in Q3'24 of $105.7 million, or $2.05 per share, compared to a Net loss of $75.8 million, or $1.47 per share in Q2'24 and a Net loss of $42.4 million, or $0.82 per share in Q3'23.
Adjusted EBITDA was a loss of $22.0 million on sales of $692.7 million in Q3'24 versus a loss of $16.7 million on sales of $771.2 million in Q2'24 and Adjusted EBITDA of $31.9 million on sales of $828.1 million in Q3'23.
Notable items:
- Production Curtailments to Reflect Ongoing Weak Lumber Market
- In Q3'24, lumber production totalled 904 million board feet, representing a 130 million board foot decrease over the prior quarter. This decrease reflects the temporary production curtailments announced on August 8, 2024, which included the indefinite curtailment of the Meldrim, GA and Summerville, SC sawmills. The Company will continue to monitor market conditions across all its operations and adjust its operating plans accordingly.
- In response to persistently weak lumber market conditions, on August 19, 2024, Interfor announced the indefinite curtailment of operations at its sawmills in Meldrim, GA and Summerville, SC, which have a combined annual capacity of 330 million board feet. As a result of the curtailments, the Company recorded an impairment charge of $17.3 million against plant, equipment, intangibles and other.
- Lumber prices continue to reflect an imbalance of lumber supply and demand, with demand continuing to be impacted by the elevated interest rate environment and ongoing economic uncertainty. Lumber prices decreased during Q3'24 as reflected in Interfor's average selling price of $570 per mfbm, down $32 per mfbm versus Q2'24.
- Exit of Quebec Operations
- On October 16, 2024, Interfor announced plans to exit its operations in Quebec, Canada, including the sale of its three manufacturing facilities and the closure of its Montreal corporate office. The Val-d'Or and Matagami sawmills have a combined lumber production capacity of 255 million board feet per year, representing approximately 5% of Interfor's total company-wide capacity.
- As part of the exit plan, the Company announced it had reached an agreement to sell its sawmills in Val-d'Or and Matagami as well as its Sullivan remanufacturing plant in Val-d'Or, along with all associated forestry and business operations, to Chantiers Chibougamau Ltee for cash consideration of approximately $30.0 million. The completion of the transaction is subject to customary conditions, including regulatory approvals, and is expected to close in the fourth quarter of 2024.
- Associated with this sale, the Company recorded an impairment charge of $73.8 million against plant, equipment, intangibles, roads and timber licences. Upon the transaction closing, it is expected that an incremental loss on disposal of goodwill of approximately $33.0 million will be recorded.
- Financial Position
- Net debt at quarter-end was $849.9 million, or 36.1% of invested capital compared to net debt at Q2'24 of $876.9 million, or 35.0% of invested capital.
- The Company's financial position benefited in the third quarter from $38.1 million of positive operating cash flow, primarily resulting from the collection of $55.6 million of income tax refunds and a $6.7 million reduction of working capital. In October 2024, the Company collected an additional $12.6 million of income tax refunds and expects to continue its ongoing monetization of Coastal B.C. operations over the fourth quarter of 2024 and into 2025.
- The Company's available liquidity improved $22.3 million quarter-over-quarter to $352.8 million at September 30, 2024.
- Ongoing Monetization of Coastal B.C. Operations
- The Company sold Coastal B.C. forest tenures totalling approximately 125,000 cubic metres of allowable annual cut ("AAC”) and related assets and liabilities for proceeds of $15.7 million and a gain of $16.5 million. Interfor held approximately 1,013,000 cubic metres of AAC for disposition at September 30, 2024, subject to approvals from the Ministry of Forests.
- Capital Investments
- Capital spending was $15.7 million, including $6.6 million of discretionary investment primarily focused on the multi-year rebuild of the Thomaston, GA sawmill.
- Total capital expenditures planned for 2024 remain unchanged from prior guidance at approximately $70.0 million, while total capital expenditures for 2025 are estimated to be approximately $75.0 million.
- Softwood Lumber Duties
- On August 19, 2024, the U.S. Department of Commerce ("DoC”) published the final rates for countervailing ("CV”) and anti-dumping ("AD”) duties based on the results of its fifth administrative review ("AR5”) covering shipments for the year ended December 31, 2022. The final combined rate for 2022 was 14.54%, which was subsequently amended on September 24, 2024 to correct a ministerial error to 14.40%. This compared to the cash deposit rate of 17.90% from January 1 to January 9, 2022, 17.91% from January 10 to August 8, 2022 and 8.59% from August 9 to December 31, 2022. To reflect the amended final rates for 2022, Interfor recorded a $3.4 million reduction to duties expense in Q3'24 and a corresponding receivable and payable on its balance sheet. The combined rate of 14.40% was retroactively applied to new shipments effective August 19, 2024.
- Interfor has paid cumulative duties of US$579.6 million, or approximately $11.10 per share on an after-tax basis, as at September 30, 2024. Except for a US$165.0 million net receivable recorded in respect of overpayments arising from duty rate adjustments and the fair value of rights to duties acquired, Interfor has recorded the duty deposits as an expense.
North American lumber markets over the near term are expected to be volatile as the economy continues to adjust to changing monetary policies, labour shortages and geo-political uncertainty, and as industry-wide lumber production continues to adjust to match demand.
Interfor expects that over the mid-term, lumber markets will continue to benefit from favourable underlying supply and demand fundamentals. Positive demand factors include the advanced age of the U.S. housing stock, a shortage of available housing and various demographic factors, while growth in lumber supply is expected to be limited by extended capital project completion and ramp-up timelines, labour availability and constrained global fibre availability.
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. In the event of a sustained lumber market downturn, Interfor maintains flexibility to significantly reduce capital expenditures and working capital levels, and to proactively adjust its lumber production to match demand.
Financial and Operating Highlights1
| For the three months ended | For the nine months ended | ||||||
| Sept. 30 | Sept. 30 | Jun. 30 | Sept. 30 | Sept. 30 | |||
| Unit | 2024 | 2023 | 2024 | 2024 | 2023 | ||
| Financial Highlights2 | |||||||
| Total sales | $MM | 692.7 | 828.1 | 771.2 | 2,277.1 | 2,529.8 | |
| Lumber | $MM | 542.2 | 667.1 | 634.8 | 1,847.7 | 2,032.8 | |
| Logs, residual products and other | $MM | 150.5 | 161.0 | 136.4 | 429.4 | 497.0 | |
| Operating loss | $MM | (172.2) | (21.1) | (63.3) | (316.4) | (78.2) | |
| Net loss | $MM | (105.7) | (42.4) | (75.8) | (254.4) | (97.8) | |
| Net loss per share, basic | $/share | (2.05) | (0.82) | (1.47) | (4.94) | (1.90) | |
| Adjusted EBITDA3 | $MM | (22.0) | 31.9 | (16.7) | (61.0) | 99.8 | |
| Adjusted EBITDA margin3 | % | (3.2%) | 3.9% | (2.2%) | (2.7%) | 3.9% | |
| Total assets | $MM | 3,049.9 | 3,577.8 | 3,306.8 | 3,049.9 | 3,577.8 | |
| Total debt | $MM | 882.0 | 877.1 | 970.0 | 882.0 | 877.1 | |
| Net debt3 | $MM | 849.9 | 777.7 | 876.9 | 849.9 | 777.7 | |
| Net debt to invested capital3 | % | 36.1% | 28.7% | 35.0% | 36.1% | 28.7% | |
| Annualized return on capital employed3 | % | (18.8%) | (4.5%) | (11.1%) | (13.3%) | (3.6%) | |
| Operating Highlights | |||||||
| Lumber production | million fbm | 904 | 997 | 1,034 | 3,008 | 3,050 | |
| U.S. South | million fbm | 443 | 470 | 476 | 1,399 | 1,412 | |
| U.S. Northwest | million fbm | 80 | 162 | 124 | 345 | 469 | |
| Eastern Canada | million fbm | 216 | 247 | 276 | 780 | 745 | |
| B.C. | million fbm | 165 | 118 | 158 | 484 | 424 | |
| Lumber sales | million fbm | 951 | 1,008 | 1,055 | 3,106 | 3,128 | |
| Lumber - average selling price4 | $/thousand fbm | 570 | 661 | 602 | 595 | 650 | |
| Key Statistics | |||||||
| Benchmark lumber prices5 | |||||||
| SYP Composite | US$ per mfbm | 338 | 429 | 356 | 359 | 439 | |
| KD H-F Stud 2x4 9' | US$ per mfbm | 359 | 474 | 424 | 413 | 451 | |
| Eastern SPF Composite | US$ per mfbm | 454 | 510 | 469 | 471 | 486 | |
| Western SPF Composite | US$ per mfbm | 380 | 412 | 385 | 394 | 394 | |
| USD/CAD exchange rate6 | |||||||
| Average | 1 USD in CAD | 1.3641 | 1.3414 | 1.3683 | 1.3604 | 1.3456 | |
| Closing | 1 USD in CAD | 1.3499 | 1.3520 | 1.3687 | 1.3499 | 1.3520 | |
- Figures in this table may not equal or sum to figures presented elsewhere due to rounding.
- Financial information presented for interim periods in this release is prepared in accordance with IFRS and is unaudited.
- Refer to the Non-GAAP Measures section of this release for definitions and reconciliations of these measures to figures reported in the Company's unaudited condensed consolidated interim financial statements.
- Gross sales including duties and freight.
- Based on Random Lengths Benchmark Lumber Pricing.
- Based on Bank of Canada foreign exchange rates.
Balance Sheet
Interfor's Net debt at September 30, 2024 was $849.9 million, or 36.1% of invested capital, representing an increase of $7.2 million from the level of Net debt at December 31, 2023.
As at September 30, 2024 the Company had net working capital of $207.7 million and available liquidity of $352.8 million, based on the available borrowing capacity under its $600.0 million Revolving Term Line ("Term Line”).
The Term Line and Senior Secured Notes are subject to financial covenants, including a maximum net debt to total capitalization ratio of 50.0% and a minimum EBITDA interest coverage ratio of two times, which becomes effective if the net debt to total capitalization ratio exceeds 42.5%. As at September 30, 2024, Interfor was fully in compliance with all covenants relating to the Term Line and Senior Secured Notes.
Management believes, based on circumstances known today, that Interfor has sufficient working capital and liquidity to fund operating and capital requirements for the foreseeable future.
| For the three months ended Sept. 30, | For the nine months ended
Sept. 30, | ||||
| Millions of Dollars | 2024 | 2023 | 2024 | 2023 | |
| Net debt | |||||
| Net debt, period opening | $876.9 | $815.7 | $842.7 | $720.3 | |
| Net repayment of Senior Secured Notes | - | - | - | (7.1) | |
| Term Line net drawings (repayments) | (75.2) | (61.2) | (34.8) | 88.3 | |
| Increase (decrease) in cash and cash equivalents | 60.5 | 5.6 | 23.8 | (23.6) | |
| Foreign currency translation impact on U.S. Dollar denominated cash and cash equivalents and debt | (12.3) | 17.6 | 18.2 | (0.2) | |
| Net debt, period ending | $849.9 | $777.7 | $849.9 | $777.7 | |
On March 26, 2024, the Company issued US$33.3 million of Series I Senior Secured Notes, bearing interest at 6.37% with principal repayment due at final maturity on March 26, 2030. The proceeds were used to settle US$33.3 million of principal under the Company's existing Series C Senior Secured Notes due on March 26, 2024.
Capital Resources
The following table summarizes Interfor's credit facilities and availability as of September 30, 2024:
| Revolving | Senior | ||
| Term | Secured | ||
| Millions of Dollars | Line | Notes | Total |
| Available line of credit and maximum borrowing available | $600.0 | $653.0 | $1,253.0 |
| Less: | |||
| Drawings | 229.0 | 653.0 | 882.0 |
| Outstanding letters of credit included in line utilization | 50.3 | - | 50.3 |
| Unused portion of facility | $320.7 | $ - | 320.7 |
| Add: | |||
| Cash and cash equivalents | 32.1 | ||
| Available liquidity at September 30, 2024 | $352.8 |
Interfor's Term Line matures in December 2026 and its Senior Secured Notes have maturities in the years 2025-2033.
As of September 30, 2024, the Company had commitments for capital expenditures totalling $28.8 million for both maintenance and discretionary capital projects.
Non-GAAP Measures
This MD&A makes reference to the following non-GAAP measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Net debt to invested capital and Annualized return on capital employed 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 audited consolidated financial statements (unaudited for interim periods) prepared in accordance with IFRS:
| For the three months ended | For the nine months ended | ||||
| Sept. 30 | Sept. 30 | Jun. 30 | Sept. 30 | Sept. 30 | |
| Millions of Dollars except number of shares and per share amounts1 | 2024 | 2023 | 2024 | 2024 | 2023 |
| Adjusted EBITDA | |||||
| Net loss | $(105.7) | $(42.4) | $(75.8) | $(254.4) | $(97.8) |
| Add: | |||||
| Depreciation of plant and equipment | 42.4 | 46.7 | 46.7 | 135.8 | 138.5 |
| Depletion and amortization of timber, roads and other | 10.3 | 7.6 | 11.4 | 32.6 | 29.7 |
| Finance costs | 9.5 | 10.2 | 11.8 | 33.2 | 34.4 |
| Income tax recovery | (41.7) | (5.1) | (22.3) | (74.8) | (24.7) |
| EBITDA | (85.2) | 17.0 | (28.2) | (127.6) | 80.1 |
| Add: | |||||
| Long-term incentive compensation expense (recovery) | 2.7 | (1.3) | (2.4) | (1.4) | 4.1 |
| Other foreign exchange loss (gain) | (8.8) | 14.0 | 6.2 | 14.0 | 0.3 |
| Other expense (income) excluding business interruption insurance | (25.5) | 2.2 | 16.8 | (34.4) | 13.6 |
| Asset write-downs (recoveries) and restructuring costs | 94.8 | - | (9.1) | 88.4 | 1.7 |
| Adjusted EBITDA | $(22.0) | $31.9 | $(16.7) | $(61.0) | $99.8 |
| Sales | $692.7 | $828.1 | $771.2 | $2,277.1 | $2,529.8 |
| Adjusted EBITDA margin | (3.2%) | 3.9% | (2.2%) | (2.7%) | 3.9% |
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