IFP Interfor Corporation

INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX: IFP) recorded a Net loss in Q2’24 of $75.8 million, or $1.47 per share, compared to a Net loss of $72.9 million, or $1.42 per share in Q1’24 and a Net loss of $14.1 million, or $0.27 per share in Q2’23.  

Adjusted EBITDA was a loss of $16.7 million on sales of $771.2 million in Q2’24 versus a loss of $22.3 million on sales of $813.2 million in Q1’24 and Adjusted EBITDA of $41.9 million on sales of $871.8 million in Q2’23.

Notable items:

• Production Curtailments to Reflect Ongoing Weak Lumber Market
  • In Q2’24, lumber production totalled 1.0 billion board feet, representing a 35 million board foot decrease over the prior quarter. This decrease partially reflects the temporary production curtailments announced on April 30, 2024 and the indefinite curtailment of the Philomath, OR sawmill.
  • 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 slightly during Q2’24 as reflected in Interfor’s average selling price of $602 per mfbm, down $8 per mfbm versus Q1’24.
  • In response to the ongoing market weakness, Interfor plans to temporarily reduce its total lumber production by approximately 280 to 350 million board feet between August and December of 2024, representing 15 to 18% of its normal operating stance. The Company will continue to monitor market conditions across all its operations and adjust its plans accordingly.
• Financial Position
  • Interfor’s net debt to invested capital ratio was 35.0% at quarter-end, which was comparable to the preceding quarter-end ratio of 34.7%.
  • The Company’s financial position benefited in the second quarter from $48.0 million of positive operating cash flow, including a $72.0 million reduction of working capital. This reduction of working capital was due in part to seasonal factors as well as the realization of sustainable operational efficiencies.
  • The Company’s available liquidity improved $30.8 million quarter-over-quarter to $330.5 million at June 30, 2024.
  • The collection of income tax refunds of approximately $59.0 million and the ongoing monetization of Coastal B.C. operations continue to be expected in the second half of 2024.

• Ongoing Monetization of Coastal B.C. Operations
  • The Company sold Coastal B.C. forest tenures totalling approximately 50,000 cubic metres of allowable annual cut (“AAC”) and related assets and liabilities for proceeds of $8.3 million and a gain of $8.2 million. Interfor held approximately 1,137,000 cubic metres of AAC for disposition at June 30, 2024, subject to approvals from the Ministry of Forests.
  • Subsequent to quarter-end on July 29, 2024, Interfor sold 104,689 cubic metres of AAC for cash proceeds of $13.2 million.
• Sale of Property and Assets of the former Philomath, OR sawmill
  • On June 27, 2024, the Company sold property and assets of the former Philomath, OR sawmill for cash consideration of US$15.0 million. A net non-cash charge of $4.3 million was recorded in conjunction with the disposition.
• Capital Investments
  • Capital spending was $17.9 million, including $6.6 million of discretionary investment focused mainly on the multi-year rebuild of the Thomaston, GA sawmill.
  • Total capital expenditures for 2024 are now estimated to be approximately $70.0 million, reduced by $20.0 million from prior guidance. This reduction is the result of a review of project returns considering the ongoing lumber market weakness.
• Softwood Lumber Duties
  • Interfor expensed $10.8 million of duties in the quarter, representing the full amount of countervailing (“CV”) and anti-dumping (“AD”) duties incurred on shipments of softwood lumber from its Canadian operations to the U.S. at a combined rate of 8.05%.
  • Interfor has cumulative duties of US$569.1 million, or approximately $11.05 per share on an after-tax basis, held in trust by U.S. Customs and Border Protection as at June 30, 2024. Except for US$161.8 million recorded as a receivable 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.

Outlook

North American lumber markets over the near term are expected to remain depressed as the economy continues to adjust to inflationary pressures, elevated interest rates, 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 six months ended
		June 30	June 30	March 31		June 30	June 30
	Unit	2024	2023	2024		2024	2023
Financial Highlights2
Total sales	$MM	771.2	871.8	813.2		1,584.4	1,701.7
Lumber	$MM	634.8	723.2	670.7		1,305.5	1,365.7
Logs, residual products and other	$MM	136.4	148.6	142.5		278.9	336.0
Operating loss	$MM	(63.3)	(20.8)	(80.9)		(144.2)	(57.1)
Net loss	$MM	(75.8)	(14.1)	(72.9)		(148.7)	(55.4)
Net loss per share, basic	$/share	(1.47)	(0.27)	(1.42)		(2.89)	(1.08)
Adjusted EBITDA3	$MM	(16.7)	41.9	(22.3)		(39.0)	67.9
Adjusted EBITDA margin3	%	(2.2%)	4.8%	(2.7%)		(2.5%)	4.0%
Total assets	$MM	3,306.8	3,603.9	3,426.3		3,306.8	3,603.9
Total debt	$MM	970.0	918.5	980.7		970.0	918.5
Net debt3	$MM	876.9	815.7	897.4		876.9	815.7
Net debt to invested capital3	%	35.0%	29.6%	34.7%		35.0%	29.6%
Annualized return on capital employed3	%	(11.1%)	(1.1%)	(9.1%)		(10.2%)	(3.1%)
Operating Highlights
Lumber production	million fbm	1,034	1,023	1,069		2,104	2,054
U.S. South	million fbm	476	468	480		956	941
U.S. Northwest	million fbm	124	165	141		265	307
Eastern Canada	million fbm	276	249	288		565	499
B.C.	million fbm	158	141	160		318	307
Lumber sales	million fbm	1,055	1,116	1,100		2,155	2,120
Lumber - average selling price4	$/thousand fbm	602	649	610		606	644
Key Statistics
Benchmark lumber prices5
SYP Composite	US$ per mfbm	356	446	383		370	444
KD H-F Stud 2x4 9’	US$ per mfbm	424	452	455		440	440
Eastern SPF Composite	US$ per mfbm	469	474	489		479	474
Western SPF Composite	US$ per mfbm	385	372	416		401	386
USD/CAD exchange rate6
Average	1 USD in CAD	1.3683	1.3428	1.3486		1.3586	1.3477
Closing	1 USD in CAD	1.3687	1.3240	1.3550		1.3687	1.3240

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 unaudited condensed consolidated interim financial statements.
4. Gross sales including duties and freight.
5. Based on Random Lengths Benchmark Lumber Pricing.
6. Based on Bank of Canada foreign exchange rates.

Liquidity

Balance Sheet

Interfor’s Net debt at June 30, 2024 was $876.9 million, or 35.0% of invested capital, representing an increase of $34.2 million from the level of Net debt at December 31, 2023.

As at June 30, 2024 the Company had net working capital of $314.4 million and available liquidity of $330.5 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 June 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 June 30,			For the six months ended June 30,
Millions of Dollars	2024	2023		2024	2023
Net debt
Net debt, period opening	$897.4	$880.0		$842.7	$720.3
Net repayment of Senior Secured Notes	-	(7.1)		-	(7.1)
Term Line net drawings (repayments)	(20.5)	-		40.4	149.5
Increase in cash and cash equivalents	(9.1)	(40.0)		(36.7)	(29.2)
Foreign currency translation impact on U.S. Dollar denominated cash and cash equivalents and debt	9.1	(17.2)		30.5	(17.8)
Net debt, period ending	$876.9	$815.7		$876.9	$815.7

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 June 30, 2024:

	Revolving	Senior
	Term	Secured
Millions of Dollars	Line	Notes	Total
Available line of credit and maximum borrowing available	$600.0	$662.1	$1,262.1
Less:
Drawings	307.9	662.1	970.0
Outstanding letters of credit included in line utilization	54.7	-	54.7
Unused portion of facility	$237.4	$       -	237.4
Add:
Cash and cash equivalents			93.1
Available liquidity at June 30, 2024			$330.5

Interfor’s Term Line matures in December 2026 and its Senior Secured Notes have maturities in the years 2025-2033.

As of June 30, 2024, the Company had commitments for capital expenditures totalling $32.4 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 six months ended
	June 30	June 30	March 31	June 30	June 30
Millions of Dollars except number of shares and per share amounts1	2024	2023	2024	2024	2023
Adjusted EBITDA
Net loss	$(75.8)	$(14.1)	$(72.9)	$(148.7)	$(55.4)
Add:
Depreciation of plant and equipment	46.7	46.7	46.7	93.4	91.8
Depletion and amortization of timber, roads and other	11.4	9.9	10.9	22.3	22.1
Finance costs	11.8	13.3	11.9	23.7	24.2
Income tax recovery	(22.3)	(8.1)	(10.8)	(33.1)	(19.6)
EBITDA	(28.2)	47.7	(14.2)	(42.4)	63.1
Add:
Long-term incentive compensation expense (recovery)	(2.4)	2.8	(1.7)	(4.1)	5.4
Other foreign exchange loss (gain)	6.2	(13.7)	16.6	22.8	(13.7)
Other expense (income) excluding business interruption insurance	16.8	5.0	(25.7)	(8.9)	11.4
Asset write-downs (recoveries) and restructuring costs	(9.1)	0.1	2.7	(6.4)	1.7
Adjusted EBITDA	$(16.7)	$41.9	$(22.3)	$(39.0)	$67.9
Sales	$771.2	$871.8	$813.2	$1,584.4	$1,701.7
Adjusted EBITDA margin	(2.2%)	4.8%	(2.7%)	(2.5%)	4.0%
Net debt to invested capital
Net debt
Total debt	$970.0	$918.5	$980.7	$970.0	$918.5
Cash and cash equivalents	(93.1)	(102.8)	(83.3)	(93.1)	(102.8)
Total net debt	$876.9	$815.7	$897.4	$876.9	$815.7
Invested capital
Net debt	$876.9	$815.7	$897.4	$876.9	$815.7
Shareholders' equity	1,626.1	1,943.2	1,689.7	1,626.1	1,943.2
Total invested capital	$2,503.0	$2,758.9	$2,587.1	$2,503.0	$2,758.9
Net debt to invested capital2	35.0%	29.6%	34.7%	35.0%	29.6%
Annualized return on capital employed
Net loss	$(75.8)	$(14.1)	$(72.9)	$(148.7)	$(55.4)
Add:
Finance costs	11.8	13.3	11.9	23.7	24.2
Income tax recovery	(22.3)	(8.1)	(10.8)	(33.1)	(19.6)
Loss before income taxes and finance costs	$(86.3)	$(8.9)	$(71.8)	$(158.1)	$(50.8)
Capital Employed
Total assets	$3,306.8	$3,603.9	$3,426.3	$3,306.8	$3,603.9
Current liabilities	(307.4)	(318.9)	(332.3)	(307.4)	(318.9)
Less:
Current portion of long-term debt	45.6	44.1	45.2	45.6	44.1
Current portion of lease liabilities	21.7	15.8	20.5	21.7	15.8
Capital employed, end of period	$3,066.7	$3,344.9	$3,159.7	$3,066.7	$3,344.9
Capital employed, beginning of period	3,159.7	3,419.3	3,125.4	3,125.4	3,316.0
Average capital employed	$3,113.2	$3,382.1	$3,142.6	$3,096.1	$3,330.4
Loss before income taxes and finance costs divided by average capital employed	(2.8%)	(0.3%)	(2.3%)	(5.1%)	(1.5%)
Annualization factor	4.0	4.0	4.0	2.0	2.0
Annualized return on capital employed	(11.1%)	(1.1%)	(9.1%)	(10.2%)	(3.1%)

Notes:

1. Figures in this table may not equal or sum to figures presented elsewhere due to rounding.
2. Net debt to invested capital as of the period end.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the three and six months ended June 30, 2024 and 2023 (unaudited)
(millions of Canadian Dollars except per share amounts)	Three Months	Three Months	Six Months	Six Months
	June 30, 2024	June 30, 2023	June 30, 2024	June 30, 2023
Sales	$771.2	$871.8	$1,584.4	$1,701.7
Costs and expenses:
Production	763.5	798.5	1,571.7	1,575.3
Selling and administration	13.6	17.6	33.4	34.8
Long-term incentive compensation expense (recovery)	(2.4)	2.8	(4.1)	5.4
U.S. countervailing and anti-dumping duty deposits	10.8	17.0	18.3	27.7
Depreciation of plant and equipment	46.7	46.7	93.4	91.8
Depletion and amortization of timber, roads and other	11.4	9.9	22.3	22.1
	843.6	892.5	1,735.0	1,757.1
Operating loss before asset write-downs (recoveries) and restructuring costs	(72.4)	(20.7)	(150.6)	(55.4)
Asset write-downs (recoveries) and restructuring costs	(9.1)	0.1	(6.4)	1.7
Operating loss	(63.3)	(20.8)	(144.2)	(57.1)
Finance costs	(11.8)	(13.3)	(23.7)	(24.2)
Other foreign exchange gain (loss)	(6.2)	13.7	(22.8)	13.7
Other income (expense)	(16.8)	(1.8)	8.9	(7.4)
	(34.8)	(1.4)	(37.6)	(17.9)
Loss before income taxes	(98.1)	(22.2)	(181.8)	(75.0)
Income tax expense (recovery):
Current	(3.6)	(12.6)	(1.0)	(18.1)
Deferred	(18.7)	4.5	(32.1)	(1.5)
	(22.3)	(8.1)	(33.1)	(19.6)
Net loss	$(75.8)	$(14.1)	$(148.7)	$(55.4)
Net loss per share
Basic	$(1.47)	$(0.27)	$(2.89)	$(1.08)
Diluted	$(1.47)	$(0.27)	$(2.89)	$(1.08)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended June 30, 2024 and 2023 (unaudited)
(millions of Canadian Dollars)	Three Months	Three Months	Six Months	Six Months
	June 30, 2024	June 30, 2023	June 30, 2024	June 30, 2023
Net loss	$(75.8)	$(14.1)	$(148.7)	$(55.4)
Other comprehensive income (loss):
Items that will not be recycled to Net loss:
Defined benefit plan actuarial gain, net of tax	0.4	-	3.0	0.7
Items that may be recycled to Net loss:
Foreign currency translation differences for foreign operations, net of tax	11.6	(28.2)	41.1	(29.7)
Total other comprehensive income (loss), net of tax	12.0	(28.2)	44.1	(29.0)
Comprehensive loss	$(63.8)	$(42.3)	$(104.6)	$(84.4)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and six months ended June 30, 2024 and 2023 (unaudited)
(millions of Canadian Dollars)	Three Months	Three Months	Six Months	Six Months
	June 30, 2024	June 30, 2023	June 30, 2024	June 30, 2023
Cash provided by (used in):
Operating activities:
Net loss	$(75.8)	$(14.1)	$(148.7)	$(55.4)
Items not involving cash:
Depreciation of plant and equipment	46.7	46.7	93.4	91.8
Depletion and amortization of timber, roads and other	11.4	9.9	22.3	22.1
Deferred income tax expense (recovery)	(18.7)	4.5	(32.1)	(1.5)
Current income tax recovery	(3.6)	(12.6)	(1.0)	(18.1)
Finance costs	11.8	13.3	23.7	24.2
Other assets	-	0.2	(0.4)	0.3
Reforestation liability	(2.6)	(10.1)	0.5	(5.3)
Provisions and other liabilities	(3.2)	5.4	(4.4)	8.1
Stock option vesting	0.2	0.2	0.3	0.4
Net write-down (recovery) of plant, equipment and other	(10.0)	-	(8.9)	1.5
Unrealized foreign exchange loss (gain)	3.8	(8.6)	14.5	(8.4)
Gain on lease modification	(0.7)	-	(0.7)	-
Other expense (income)	16.8	1.8	(8.9)	7.4
Income taxes refunded (paid)	(0.1)	(1.4)	1.5	(1.8)
	(24.0)	35.2	(48.9)	65.3
Cash generated from (used in) operating working capital:
Trade accounts receivable and other	35.2	16.2	37.0	(37.7)
Inventories	56.4	97.4	68.2	64.9
Prepayments	(8.2)	(12.3)	(4.7)	(8.8)
Trade accounts payable and provisions	(11.4)	(13.5)	(20.2)	(45.2)
	48.0	123.0	31.4	38.5
Investing activities:
Additions to property, plant and equipment	(16.0)	(57.5)	(42.5)	(120.6)
Additions to roads and bridges	(1.9)	(0.2)	(1.4)	(0.7)
Acquisitions, net of cash acquired	-	-	-	0.5
Proceeds on disposal of property, plant, equipment and other	21.0	0.6	22.1	4.7
Net proceeds (payments) related to B.C. Coast monetization	(2.1)	-	26.9	-
Net proceeds from deposits and other assets	1.6	0.4	0.6	1.3
	2.6	(56.7)	5.7	(114.8)
Financing activities:
Issuance of share capital, net of expenses	-	-	-	0.1
Interest payments	(15.2)	(15.0)	(29.1)	(28.1)
Lease liability payments	(5.8)	(4.2)	(11.7)	(8.7)
Debt refinancing costs	-	-	-	(0.2)
Revolving Term Line net drawings (repayments)	(20.5)	-	40.4	149.5
Additions to Senior Secured Notes	-	-	45.3	-
Repayments of Senior Secured Notes	-	(7.1)	(45.3)	(7.1)
	(41.5)	(26.3)	(0.4)	105.5
Foreign exchange gain (loss) on cash and cash equivalents held in a foreign currency	0.7	(3.4)	1.4	(4.0)
Increase in cash	9.8	36.6	38.1	25.2
Cash and cash equivalents, beginning of period	83.3	66.2	55.0	77.6
Cash and cash equivalents, end of period	$93.1	$102.8	$93.1	$102.8

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, 2024 and December 31, 2023 (unaudited)
(millions of Canadian Dollars)	June 30, 2024	Dec. 31, 2023
Assets
Current assets:
Cash and cash equivalents	$93.1	$55.0
Trade accounts receivable and other	153.3	184.4
Income tax receivable	67.9	68.4
Inventories	275.5	339.2
Prepayments	32.0	26.9
	621.8	673.9
Employee future benefits	16.9	15.5
Deposits and other assets	275.0	274.6
Right of use assets	42.7	37.1
Property, plant and equipment	1,576.3	1,612.9
Roads and bridges	26.5	35.9
Timber licences	167.4	170.4
Goodwill and other intangible assets	573.0	574.7
Deferred income taxes	7.2	5.3
	$3,306.8	$3,400.3
Liabilities and Shareholders’ Equity
Current liabilities:
Trade accounts payable and provisions	$225.1	$258.9
Current portion of long-term debt	45.6	44.1
Reforestation liability	14.7	15.8
Lease liabilities	21.7	17.2
Income taxes payable	0.3	0.2
	307.4	336.2
Reforestation liability	30.6	28.4
Lease liabilities	21.6	23.1
Long-term debt	924.4	853.6
Employee future benefits	11.3	11.3
Provisions and other liabilities	47.3	54.6
Deferred income taxes	338.1	362.7
Equity:
Share capital	408.9	408.9
Contributed surplus	6.5	6.2
Translation reserve	186.6	145.5
Retained earnings	1,024.1	1,169.8
	1,626.1	1,730.4
	$3,306.8	$3,400.3

Approved on behalf of the Board of Directors:
“L. Sauder”		“C. Griffin”
Director		Director

FORWARD-LOOKING STATEMENTS

This release contains forward-looking information about the Company’s business outlook, objectives, plans, strategic priorities and other information that is not historical fact. A statement contains forward-looking information when the Company uses what it knows and expects today, to make a statement about the future. Statements containing forward-looking information may include words such as: will, could, should, believe, expect, anticipate, intend, forecast, projection, target, outlook, opportunity, risk or strategy. Readers are cautioned that actual results may vary from the forward-looking information in this release, and undue reliance should not be placed on such forward-looking information. Risk factors that could cause actual results to differ materially from the forward-looking information in this release are described in Interfor’s second quarter and annual Management’s Discussion and Analysis under the heading “Risks and Uncertainties”, which are available on www.interfor.com and under Interfor’s profile on www.sedarplus.ca. Material factors and assumptions used to develop the forward-looking information in this release include the timing and value of proceeds received from the disposition of Coast B.C. forest tenures; availability and cost of logs; competition; currency exchange sensitivity; environment; government regulation; health and safety; Indigenous reconciliation; information technology and cyber security; labour availability; logistics availability and cost; natural and man-made disasters and climate change; price volatility; residual fibre revenue; softwood lumber trade; and tax exposures. Unless otherwise indicated, the forward-looking statements in this release are based on the Company’s expectations at the date of this release. Interfor undertakes no obligation to update such forward-looking information or statements, except as required by law.

ABOUT INTERFOR

Interfor is a growth-oriented forest products company with operations in Canada and the United States. The Company has annual lumber production capacity of approximately 5.0 billion board feet and offers a diverse line of lumber products to customers around the world. For more information about Interfor, visit our website at www.interfor.com.

The Company’s unaudited condensed consolidated interim financial statements and Management’s Discussion and Analysis for Q2’24 are available at www.sedarplus.ca and www.interfor.com.

There will be a conference call on Friday, August 9, 2024 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company’s release of its second quarter 2024 financial results.

The dial-in number is 1-888-390-0546 or webcast URL: https://app.webinar.net/NYD9jBVj8xr. The conference call will also be recorded for those unable to join in for the live discussion and will be available until September 9, 2024. The number to call is 1-888-390-0541, Passcode 530436#.

For further information:Richard Pozzebon, Executive Vice President and Chief Financial Officer(604) 422-3400