VANCOUVER, British Columbia, Global Newswire — Interfor Corporation recorded a net loss in Q3’19 of $35.6 million, or $0.53 per share, compared to a net loss of $11.2 million, or $0.17 per share in Q2’19 and net earnings of $28.2 million, or $0.40 per share in Q3’18.
Adjusted net loss in Q3’19 was $11.8 million compared to an Adjusted net loss of $16.2 million in Q2’19 and Adjusted net earnings of $28.3 million in Q3’18.
Adjusted EBITDA was $16.8 million on sales of $486.5 million in Q3’19 versus $12.6 million on sales of $481.3 million in Q2’19.
Included in the Company’s results for Q3’19 are $23.2 million (after-tax) for capital asset write-downs and restructuring costs, or $31.8 million on a pre-tax basis. This includes $14.0 million of non-cash impairments for capital asset write-downs on buildings, equipment and other assets related to the permanent closure of Interfor’s Hammond sawmill and $17.8 million of accruals for the settlement of various human resource matters related to the reconfiguration of the Company’s B.C. Coastal business and succession arrangements related to the announced retirement of Interfor’s CEO.
Other notable items in the quarter included:
- Mixed Lumber Price Movements
- Movements in key benchmark prices were mixed quarter-over-quarter with the SYP Composite dropping by US$18 to US$355 per mfbm while the Western SPF Composite benchmark rose by US$15 to US$338 per mfbm and the KD H-F Stud 2×4 9’ benchmark remained relatively flat at US$337 per mfbm. Interfor’s average lumber selling price fell $20 from Q2’19 to $583 per mfbm.
- Production Increased; Balanced with Shipments
- Total lumber production was 685 million board feet, up 38 million board feet from the prior quarter. Production in the U.S. South region increased to 348 million board feet from 320 million board feet in the preceding quarter as the Monticello and Meldrim sawmills ramped up production after completion of the Phase I capital projects at these locations. The B.C. and U.S. Northwest regions accounted for 205 million board feet and 131 million board feet, respectively, compared to 187 million board feet and 140 million board feet in Q2’19. Production in Q2’19 was affected by the curtailments taken in the B.C. Interior in response to weak lumber prices and continuing high log costs.
- Total lumber shipments were 692 million board feet, including agency and wholesale volumes, or 18 million board feet higher than Q2’19.
- Lumber inventories at September 30, 2019 were 215 million board feet, up 4 million board feet quarter-over-quarter.
- Continued Strong Financial Position
- Net debt ended the quarter at $212.7 million, or 19.4% of invested capital, resulting in available liquidity of $380.9 million.
- Interfor generated $2.3 million of cash flow from operations before changes in working capital, or $0.03 per share. Total cash generated from operations was $29.7 million, primarily the result of reduced log inventories in B.C.
- Capital spending was $35.7 million in Q3’19, including $25.5 million on high-return discretionary projects, primarily in the U.S. South and the remainder related to maintenance capital and woodlands projects.
- Softwood Lumber Duties
- Interfor expensed $12.1 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 rate of 20.23%.
- Cumulative duties of US$85.8 million have been paid by Interfor since the inception of the current trade dispute and are held in trust by the U.S. Except for US$3.3 million in respect of overpayments arising from duty rate adjustments, Interfor has recorded the duty deposits as an expense.
1 Refer to Adjusted EBITDA and Net debt to invested capital in the Non-GAAP Measures section
Reconfiguration of B.C. Coastal Business
On September 3, 2019, Interfor announced a plan to reconfigure its B.C. Coastal business, including the permanent closure of its Hammond sawmill, located in Maple Ridge, B.C., and the reorganization of its forestry and woodlands operations.
This plan is expected to result in the repatriation of working capital tied up at Hammond, the monetization of related real estate and improved results in the years ahead. In addition, the Company’s B.C. Coastal forestry and woodlands operations will be reorganized to focus on value realization rather than operational integration with Hammond.
The closure is expected to be completed in the fourth quarter, after the mill’s remaining log and lumber inventories are processed and shipped.
Strategic Capital Plan Update
Interfor’s previously announced Phase I strategic capital projects at the Meldrim, Georgia and Monticello, Arkansas sawmills were substantially completed at the end of the prior quarter and are now in the ramp-up phase. Total project costs are expected to be US$70.9 million. As of September 30, 2019, US$69.9 million has been capitalized.
The Phase II projects at the Thomaston and Eatonton sawmills in Georgia and the Georgetown sawmill in South Carolina, with a budget of US$240 million, are on track for completion in various stages over the period of 2019 to 2022. As of September 30, 2019, US$43.9 million has been capitalized and the projects remain on budget.
Acquisition of B.C. Interior Cutting Rights from Canfor
On June 3, 2019, Interfor entered into a purchase agreement with Canadian Forest Products Ltd. to acquire two replaceable timber licences with annual cutting rights of approximately 349,000 cubic metres, an interest in a non-replaceable forest licence and other related forestry assets in the Adams Lake area of the B.C. Interior and assume certain liabilities for total cash compensation of $60 million.
The transaction remains subject to various consents, including that by the Government of B.C. and is currently targeted to close in the fourth quarter, 2019 as consultation with stakeholders continues.
Senior Leadership Transition
On August 26, 2019, Interfor announced that long-time President & CEO Duncan Davies will step down on December 31, 2019 and Ian Fillinger, currently, the Company’s Senior Vice President & COO, has been appointed President & CEO effective January 1, 2020. Mr. Fillinger will also serve on the Company’s Board of Directors following this date.
Mr. Davies will also step down from his role as a director of the Company and has agreed to remain with the Company in an advisory capacity through the end of 2020.
Interfor’s net debt at September 30, 2019, was $212.7 million, or 19.4% of invested capital, for an increase of $208.9 million from the level on September 30, 2018, and an increase of $148.8 million from December 31, 2018.
YTD’19 net debt was positively impacted by a stronger Canadian Dollar against the U.S. Dollar as all debt held was denominated in U.S. Dollars; this was partially offset by the Company’s U.S. Dollar cash balances.
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