Mr. Richard Pozzebon reports

INTERFOR REPORTS Q4 2023 RESULTS

Interfor Corp. recorded a net loss in Q4 2023 of $169.0-million, or $3.29 per share, compared with a net loss of $42.4-million, or 82 cents per share, in Q3 2023 and a net loss of $72.2-million, or $1.40 per share, in Q4 2022.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was a loss of $51.4-million on sales of $785.9-million in Q4 2023, versus adjusted EBITDA of $31.9-million on sales of $828.1-billion in Q3 2023 and an adjusted EBITDA loss of $68.7-million on sales of $810.3-million in Q4 2022.

Notable items:

• Weak lumber market:
  • Lumber prices continued to reflect an imbalance of lumber supply and demand, with demand continuing to be impacted by the elevated-interest-rate environment and continuing economic uncertainty. Lumber prices weakened during Q4 2023 as reflected in Interfor's average selling price of $601 per thousand board feet (mfbm), down $60 per mfbm versus Q3 2023.
  • Lumber production totalled 1.1 billion board feet, representing a 105-million-board-feet increase over Q3 2023, which was impacted by temporary wildfire-based downtime in British Columbia. Lumber shipments were 1.0 billion board feet, or 38 million board feet higher than Q3 2023.
• Strategic capital investments:
  • Capital spending was $39.6-million, including $17.2-million of discretionary investment focused on multiyear projects in the United States South region.
  • Planned capital expenditures for 2024 have been reduced to approximately $90.0-million from the preliminary estimate of $140.0-million in response to continuing lumber market weakness and a review of expected project returns considering continuing cost inflation.
• Continuing monetization of coastal B.C. operations:
  • In November, 2023, the company sold coastal B.C. forest tenures totalling approximately 181,000 cubic metres of allowable annual cut (AAC) and related liabilities for net proceeds of $23.5-million and a gain of $23.6-million. This contributed to a reduction of the provision recorded in Q4 2023 for a contract settlement to facilitate tenure sales, from $85.0-million to a balance of $62.0-million at Dec. 31, 2023. Interfor expects sales over the next 12 to 24 months of the remaining 1,392,000 cubic metres of AAC, subject to approvals from the Ministry of Forests, to generate proceeds in excess of the remaining provision balance.
• Asset impairment:
  • During Q4 2023, the company recorded an impairment charge of $55.8-million on plant, equipment and other assets related to its operations in the U.S. Northwest. The impairment was deemed appropriate based on a combination of elevated log costs and continuing weak lumber markets.
• Financial position:
  • Net debt at quarter-end was $842.7-million, or 32.8 per cent of invested capital, with available liquidity of $339.7-million.
  • On Jan. 26, 2024, the company priced $33.3-million (U.S.) in long-term debt financing with Prudential Private Capital. The financing is expected to close in late March, 2024, with the proceeds used to settle $33.3-million (U.S.) of principal under the company's existing Series C senior secured notes due on March 26, 2024. The senior secured notes will carry an annual fixed interest rate of 6.37 per cent and have a final maturity in 2030. All other terms remain consistent with Interfor's existing senior secured notes. Following completion of the financing, Interfor's senior secured notes will have a weighted average interest rate of 5.46 per cent with laddered maturities spanning 2025 to 2033.
  • Liquidity is expected to benefit over the course of 2024 from the collection of income taxes receivable totalling $68.4-million and the continuing monetization of coastal B.C. operations.
• Softwood lumber duties:
  • Interfor expensed $18.0-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 per cent.
  • On Feb. 1, 2024, the U.S. Department of Commerce (DoC) issued its preliminary combined all other rate of 13.86 per cent for 2022. The rate is the result of the DoC's fifth administrative review and is subject to change until its final rate determinations, which are expected in mid-2024. At such time, the final rates will be applied to new lumber shipments. No adjustments have been recorded in the financial statements as of Dec. 31, 2023, to reflect the preliminary all other duty rate announced.
  • Interfor has cumulative duties of $549.6-million (U.S.), or approximately $10.32 per share on an after-tax basis, held in trust by U.S. Customs and Border Protection as at Dec. 31, 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 depressed 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. 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 Dec. 31, 2023, was $842.7-million, or 32.8 per cent of invested capital, representing an increase of $122.4-million from the level of net debt at Dec. 31, 2022.

As at Dec. 31, 2023, the company had net working capital of $337.7-million and available liquidity of $339.7-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 Jan. 26, 2024, the company priced $33.3-million (U.S.) in long-term debt financing with Prudential Private Capital. The financing is expected to close in late March, 2024, with the proceeds used to settle $33.3-million (U.S.) of principal under the company's existing Series C senior secured notes due on March 26, 2024. The senior secured notes will carry an annual fixed interest rate of 6.37 per cent and have a final maturity in 2030. All other terms remain consistent with Interfor's existing senior secured notes. Following completion of the financing, Interfor's senior secured notes will have a weighted average interest rate of 5.46 per cent with laddered maturities spanning 2025 to 2033.

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-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

An attached table summarizes Interfor's credit facilities and availability as of Dec. 31, 2023.

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

As of Dec. 31, 2023, the company had commitments for capital expenditures totalling $64.6-million for both maintenance and discretionary capital projects.

Non-GAAP (generally accepted accounting principles) measures

This news release 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 (international financial reporting standards) 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 2023 audited consolidated financial statements and management's discussion and analysis are available on SEDAR+ and on Interfor's website.

There will be a conference call on Friday, Feb. 9, 2024, at 8 a.m. Pacific Time, hosted by Interfor for the purpose of reviewing the company's release of its fourth quarter and fiscal 2023 financial results.

The dial-in number is 1-888-390-0546. A webcast will be available. The conference call will also be recorded for those unable to join in for the live discussion and will be available until March 9, 2024. The number to call is 1-888-390-0541, passcode 857111 followed by the pound key.

We seek Safe Harbor.