Mr. Richard Pozzebon reports

INTERFOR REPORTS Q3'23 RESULTS

Interfor Corp. recorded a net loss in Q3 2023 of $42.4-million, or 82 cents per share, compared with a net loss of $14.1-million, or 27 cents per share, in Q2 2023 and net earnings of $3.5-million, or six cents per share, in Q3 2022.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $31.9-million on sales of $828.1-million in Q3 2023, versus $41.9-million on sales of $871.8-million in Q2 2023 and $129.5-million on sales of $1.0-billion in Q3 2022.

Notable items in the quarter:

• Lumber production balanced with demand:
  • Lumber production totalled 1.0 billion board feet, representing a decrease of 26 million board feet quarter over quarter. The decrease was primarily due to the temporary closure of a sawmill in British Columbia as a result of wildfires.
  • Lumber shipments were 1.0 billion board feet or 108 million board feet lower than Q2 2023.
• Weak lumber prices:
  • Lumber prices continued to reflect softened demand driven by the elevated interest rate environment and continuing economic uncertainty. Lumber prices strengthened at the beginning of Q3 2023 from the effects of industry production curtailments and reduced European imports combined with increased new home construction demand but began to weaken near the end of Q3 2023 as increased economic uncertainty drove interest rates higher. Interfor's average selling price was $661 per thousand board feet (mfbm), up $12 per mfbm versus Q2 2023.
• Financial flexibility improved:
  • Net debt at quarter-end was $777.7-million, or 28.7 per cent of invested capital, with available liquidity of $417.9-million.
  • The net debt to invested capital leverage ratio improved compared with the end of Q2 2023, driven by $107.2-million of cash flow from operations, including $70.5-million from income tax refunds.
  • Collection of an additional $24.9-million (U.S.) of income tax refunds related to 2022 is expected in Q4 2023.
• Strategic capital investments:
  • Capital spending was $38.5-million, including $20.1-million of discretionary investment focused on multiyear projects in the United States South region.
  • Total capital expenditures planned for 2023 remains unchanged from prior guidance at approximately $210.0-million, while total preliminary capital expenditures for 2024 are estimated to be approximately $140.0-million.
• Continuing monetization of coastal B.C. operations:
  • Over the course of Q3 2023, Interfor advanced on its plans to monetize its coastal B.C. operations, which consist primarily of forest tenure rights from the province of B.C. and related log harvesting activities.
  • On Oct. 3, 2023, the company entered into an agreement to settle certain contractual obligations in order to facilitate monetization of its coastal B.C. operations. The settlement will result in an $85.0-million provision being recognized in the fourth quarter of 2023, the payment of which Interfor expects to be fully financed by net proceeds from the disposition of coast B.C. forest tenures over the next several years.
  • On Oct. 27, 2023, the company reached an agreement for the disposition of coastal B.C. forest tenures totalling approximately 162,000 cubic metres of allowable annual cut (AAC) for net proceeds of $21.0-million. The completion of the disposition has received Ministry of Forests approval and is expected to close in the fourth quarter of 2023, subject to customary conditions for a transaction of this kind.
  • Following this, Interfor held coastal B.C. forest tenures totalling approximately 1,411,000 cubic metres of AAC available for disposition subject to approvals from the Ministry of Forests.
• Softwood lumber duties:
  • On Aug. 1, 2023, 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 fourth administrative review (AR4) covering shipments for the year ended Dec. 31, 2021. The final combined rate for 2021 was 8.05 per cent, compared with the cash deposit rate of 8.99 per cent from January to November, 2021, and 17.90 per cent for December, 2021. The combined rate of 8.05 per cent applied to new shipments effective Sept. 13, 2023. To reflect the lower amended final rates for 2021, Interfor recorded a $6.3-million reduction to duties expense in Q3 2023 and a corresponding receivable on its balance sheet.
  • Interfor has cumulative duties of $540.0-million (U.S.), or approximately $10.36 per share on an after-tax basis, held in trust by U.S. Customs and Border Protection as at Sept. 30, 2023. Except for $161.8-million (U.S.) 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 volatile as the economy continues to adjust to inflationary pressures, elevated interest rates, labour shortages and geo-political uncertainty.

Interfor expects that over the midterm, 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. Interfor is well positioned with its strong balance sheet and available liquidity to continue pursuing its strategic plans despite continuing economic and geo-political uncertainty globally. In the event of a sustained lumber market downturn, Interfor maintains flexibility to significantly reduce capital expenditures and working capital levels, and to pro-actively adjust its lumber production to match demand.

Liquidity

Balance sheet

Interfor's net debt at Sept. 30, 2023, was $777.7-million, or 28.7 per cent of invested capital, representing an increase of $57.3-million from the level of net debt at Dec. 31, 2022.

As at Sept. 30, 2023, the company had net working capital of $400.0-million and available liquidity of $417.9-million, based on the available borrowing capacity under its $600.0-million revolving term line.

The term line and senior secured notes are subject to financial covenants, including a net debt to total capitalization ratio and an EBITDA interest coverage ratio.

Management believes, based on circumstances known today, that Interfor has sufficient working capital and liquidity to finance operating and capital requirements for the foreseeable future.

On Dec. 16, 2022, the company completed an expansion of its term line. The commitment under the term line was increased by $100.0-million to a total of $600.0-million.

On Dec. 1, 2022, the company issued $200.0-million (U.S.) of Series H senior secured notes, bearing interest at 7.06 per cent with principal payments of $66.7-million (U.S.) due on Dec. 26, 2031, 2032 and on final maturity in 2033.

Capital resources

The attached table summarizes Interfor's credit facilities and availability as of Sept. 30, 2023.

Interfor's term line matures in December, 2026, and its senior secured notes have maturities in the years 2024 to 2033.

As of Sept. 30, 2023, the company had commitments for capital expenditures totalling $114.2-million for both maintenance and discretionary capital projects.

Non-GAAP (generally accepted accounting principles) measures

The mangaement's discussion and analysis (MD&A) makes reference to the following non-GAAP measures: EBITDA, adjusted EBITDA, adjusted EBITDA margin, net debt to invested capital, operating cash flow per share (before working capital changes) 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 with similar measures presented by other issuers.

About Interfor Corp.

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 5.2 billion board feet and offers a diverse line of lumber products to customers around the world.

The company's unaudited condensed consolidated interim financial statements and its MD&A for Q3 2023 are available on SEDAR+ and on the company's website.

There will be a conference call on Friday, Nov. 3, 2023, at 8 a.m. Pacific Time, hosted by Intefor for the purpose of reviewing the company's release of its third quarter 2023 financial results.

The dial-in number is 1-888-396-8049. The conference call will also be recorded for those unable to join in for the live discussion and will be available until Dec. 3, 2023. The number to call is 1-877-674-7070, passcode 026550 followed by the pound key.

We seek Safe Harbor.