Interfor Reports Q2'16 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - July 28, 2016) - INTERFOR CORPORATION ("Interfor" or the "Company") (TSX:IFP) recorded net earnings in Q2'16 of $23.2 million, or $0.33 per share, compared to $0.8 million, or $0.01 per share in Q1'16. Adjusted net earnings¹ in Q2'16 were $20.9 million, or $0.30 per share, compared to $2.6 million, or $0.04 per share, in Q1'16.

Adjusted EBITDA¹ was $56.9 million on sales of $458.8 million in Q2'16, versus Adjusted EBITDA¹ of $33.4 million on sales of $433.9 million in Q1'16.

Highlights for the quarter include:

• Higher Lumber Prices
  • Product prices were higher in Q2'16 versus Q1'16, with the Western SPF Composite and the Southern Pine ("SP") Composite up over the prior quarter by US$38 and US$27 per mfbm, respectively. As somewhat of an offsetting factor, the Canadian Dollar was stronger quarter-over-quarter, averaging 1.2886 in Q2'16 versus 1.3732 in Q1'16.
• Higher Lumber Production
  • The Company produced an additional 19 million board feet in Q2'16 versus Q1'16, mostly reflective of productivity gains at several operations as ongoing improvement initiatives take effect.
• Business Optimization Initiative
  • The Company is focused on capturing margin expansion opportunities across its operations and has taken a number of steps to advance this initiative.
  • In particular, the Company has achieved strong productivity, cost and product mix gains at its Gilchrist, Oregon operation, which resulted in a significant margin improvement over Q1'16. In addition, a number of margin improvement projects are underway across the U.S. South platform, with early stage results being realized.
• Tacoma Sawmill Monetization
  • The monetization process for the Tacoma sawmill property is proceeding on track, with the sale expected to close in the second half of 2016.
• Free Cash Flow Generation
  • Interfor generated $62.6 million of cash from operations, with a reduction in working capital contributing $6.3 million. Capital spending amounted to $15.8 million during the quarter.
  • The Company's net debt decreased by $32.1 million during the quarter to $396.0 million, or 35.2% of invested capital, providing the Company with $181.2 million of available liquidity as at June 30, 2016.

¹ Refer to Non-GAAP Measures section

Production

Lumber production in Q2'16 was 637 million board feet versus 618 million board feet in Q1'16.

Production from Canadian operations totaled 218 million board feet in Q2'16, up 8 million board feet compared to Q1'16. Production increased most significantly at Castlegar, which produced an additional 4 million board feet as productivity gains have continued following the resumption of operations at that mill in Q4'15.

Production from the Company's nine U.S. South sawmills totaled 270 million board feet, up 5 million board feet compared to Q1'16 as a result of a modest increase in total productivity.

Production from U.S. Northwest operations totaled 149 million board feet in Q2'16, an increase of 6 million board feet over the preceding quarter. The Company's three stud mills in the region contributed an additional 3 million board feet while its specialty board mill at Gilchrist also added 3 million board feet, both as a result of productivity improvements.

Lumber Markets and Pricing

Lumber markets were relatively strong in the second quarter on increased demand, as reflected by improvements in all three of Interfor's key price benchmarks over the first quarter. The Western SPF Composite improved by US$38 to US$300 per mfbm, the SP Composite increased by US$27 to US$390 per mfbm and the KD HF Stud 2x4 9' benchmark rose by US$23 to US$355 per mfbm.

Summary of Quarterly Results(1)
				2016			2015									2014
			Unit	Q2	Q1		Q4		Q3		Q2		Q1			Q4		Q3
Financial Performance (Unaudited)
Total sales			$MM	458.8	433.9		411.4		430.8		429.7		415.4			389.0		373.1
	Lumber		$MM	371.1	348.9		325.0		343.3		352.2		340.7			318.6		303.0
	Logs, residual products and other		$MM	87.7	85.0		86.4		87.5		77.5		74.7			70.4		70.1
Operating earnings (loss)			$MM	30.0	3.5		(6.3	)	(11.6	)	(25.8	)	7.8			(1.1	)	20.1
Net earnings (loss)			$MM	23.2	0.8		(3.5	)	(6.1	)	(20.6	)	(0.2	)		(5.2	)	11.0
Net earnings (loss) per share, basic and diluted			$/share	0.33	0.01		(0.05	)	(0.09	)	(0.29	)	(0.00	)		(0.08	)	0.16
Adjusted net earnings (loss)(2)			$MM	20.9	2.6		5.5		(15.4	)	(14.7	)	4.5			10.2		16.1
Adjusted net earnings (loss) per share, basic and diluted (2)			$/share	0.30	0.04		0.08		(0.22	)	(0.21	)	0.07			0.15		0.24
Adjusted EBITDA(2)			$MM	56.9	33.4		35.8		11.5		12.7		31.8			37.4		45.4
Shares outstanding - end of period			million	70.0	70.0		70.0		70.0		70.0		70.0			66.7		66.7
Shares outstanding - weighted average			million	70.0	70.0		70.0		70.0		70.0		67.8			66.7		66.7
Operating Performance
Lumber production			million fbm	637	618		568		618		672		639			578		567
Total lumber sales			million fbm	658	637		615		686		719		632			620		595
	Lumber sales - Interfor produced		million fbm	634	609		586		663		688		607			605		581
	Lumber sales - wholesale and commission		million fbm	24	28		29		23		31		25			15		14
Lumber - average selling price (3)			$/thousand fbm	564	548		529		500		490		539			514		509
Average USD/CAD exchange rate (4)			1 USD in CAD	1.2886	1.3732		1.3354		1.3089		1.2297		1.2412			1.1350		1.0890
Closing USD/CAD exchange rate (4)			1 USD in CAD	1.3009	1.2971		1.3840		1.3394		1.2474		1.2683			1.1601		1.1208

Notes:

(1) Figures in this table may not equal or sum to figures presented elsewhere due to rounding.

(2) Refer to the Non-GAAP Measures section of this press release for definitions.

(3) Gross sales before export taxes.

(4) Based on Bank of Canada foreign exchange rates.

Balance Sheet

Net debt at June 30, 2016 was $396.0 million, or 35.2% of invested capital, representing a decrease of $34.9 million from June 30, 2015 and a decrease of $56.3 million from December 31, 2015. A 6.0% strengthening of the Canadian Dollar against the U.S. Dollar contributed $28.2 million to the net debt reduction in YTD'16 as the majority of debt is denominated in U.S. Dollars.

			For the 3 months ended							For the 6 months ended
						June 30,							June 30,
Thousands of dollars			2016			2015				2016			2015
Net debt
Net debt, period opening, CAD		$	428,062		$	369,683			$	452,303		$	202,553
Net drawing (repayment) on credit facilities, CAD			(33,619	)		60,061				(33,566	)		205,812
Impact on U.S. Dollar denominated debt from (strengthening) weakening CAD			1,320			(4,897	)			(28,175	)		18,720
Decrease in cash and cash equivalents, CAD			196			6,023				5,397			3,785
Net debt, period ending, CAD		$	395,959		$	430,870			$	395,959		$	430,870
Net debt components by currency
U.S. Dollar debt, period opening, USD		$	338,692		$	305,099			$	338,699		$	190,000
Net drawing (repayment) on credit facilities, USD			(41,192	)		50,024				(41,199	)		165,123
U.S. Dollar debt, period ending, USD			297,500			355,123				297,500			355,123
Spot rate, period end										1.3009			1.2474
U.S. Dollar debt expressed in CAD										387,018			442,980
Canadian Dollar debt, including bank indebtedness, CAD										20,000			-
Canadian Dollar operating line, CAD										-			1,971
Total debt, CAD										407,018			444,951
Cash and cash equivalents, CAD										(11,059	)		(14,081	)
Net debt, period ending, CAD									$	395,959		$	430,870

Capital Resources

The following table summarizes Interfor's credit facilities and availability as of June 30, 2016:

Thousands of Canadian dollars				Operating Line		Revolving Term Line		Senior Secured Notes		U.S. Operating Line		Total
Available line of credit			$	65,000	$	200,000	$	260,180	$	65,045	$	590,225
Maximum borrowing available			$	65,000	$	200,000	$	260,180	$	65,045	$	590,225
Less:
	Drawings			13,009		133,829		260,180		-		407,018
	Outstanding letters of credit included in line utilization			9,891		-		-		3,194		13,085
Unused portion of facility			$	42,100	$	66,171	$	-	$	61,851	$	170,122
Add cash and cash equivalents												11,059
Available liquidity at June 30, 2016											$	181,181

As of June 30, 2016, the Company had commitments for capital expenditures totaling $17.5 million, related to both maintenance and discretionary capital projects.

Interfor continues to maintain its disciplined focus on monitoring discretionary capital expenditures, optimizing inventory levels and matching production with offshore and domestic demand.

As at June 30, 2016, the Company had net working capital of $161.2 million and available capacity on operating and term facilities of $170.1 million. These resources, in addition to cash generated from operations, will be used to support working capital requirements, debt servicing commitments and capital expenditures. We believe that Interfor will have sufficient liquidity to fund operating and capital requirements for the foreseeable future.

Non-GAAP Measures

This release makes reference to the following non-GAAP measures: Adjusted net earnings (loss), Adjusted net earnings (loss) per share, EBITDA, Adjusted EBITDA, Pre-tax return on total assets and Net debt to invested capital, 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 unaudited interim consolidated financial statements prepared in accordance with IFRS:

			For the 3 months ended					For the 6 months ended
					June 30,					June 30,
Thousands of Canadian dollars			2016		2015			2016		2015
Adjusted Net Earnings (Loss)
Net earnings (loss)			23,205		(20,583	)		24,000		(20,746	)
Add:
	Restructuring (recovery) costs and capital asset write-downs		2,304		(12	)		3,507		(134	)
	Other foreign exchange loss (gain)		(503	)	(2,303	)		396		3,110
	Long term incentive compensation expense (recovery)		(4,147	)	3,908			(3,969	)	2,199
	Other expense		458		162			365		29
	Beaver sawmill post-closure wind-down costs		3		11			11		352
	Tacoma sawmill post-acquisition losses and closure costs		311		7,651			683		8,659
	Income tax effect of above adjustments		(725	)	(3,505	)		(1,479	)	(3,647	)
Adjusted net earnings (1)			20,906		(14,671	)		23,514		(10,178	)
Weighted average number of shares - basic and diluted ('000)			70,030		70,030			70,030		68,937
Adjusted net earnings per share (1)			0.30		(0.21	)		0.34		(0.15	)
Adjusted EBITDA
Net earnings (loss)			23,205		(20,583	)		24,000		(20,746	)
Add:
	Depreciation of plant and equipment		18,765		18,130			38,934		34,645
	Depletion and amortization of timber, roads and other		9,652		8,909			17,621		16,853
	Restructuring (recovery) costs and capital asset write-downs		2,304		(12	)		3,507		(134	)
	Finance costs		4,965		4,088			10,149		7,162
	Other foreign exchange loss (gain)		(503	)	(2,303	)		396		3,110
	Income tax expense (recovery)		1,852		(7,199	)		(1,474	)	(7,582	)
EBITDA			60,240		1,030			93,133		33,308
Add:
	Long term incentive compensation expense (recovery)		(4,147	)	3,908			(3,969	)	2,199
	Other expense		458		162			365		29
	Beaver sawmill post-closure wind-down costs		3		10			11		350
	Tacoma sawmill post-acquisition losses and closure costs		311		7,604			683		8,585
Adjusted EBITDA(1)			56,865		12,714			90,223		44,471
Pre-tax return on total assets
Operating earnings (loss) before restructuring costs			32,281		(25,847	)		36,943		(18,161	)
Total assets(2)			1,323,788		1,343,211			1,363,683		1,216,542
Pre-tax return on total assets(3)			9.8	%	(7.7	%)		5.4	%	(3.0	%)
Net debt to invested capital
Net debt
	Total debt		407,018		444,951			407,018		444,951
	Cash and cash equivalents		(11,059	)	(14,081	)		(11,059	)	(14,081	)
Total net debt			395,959		430,870			395,959		430,870
Invested capital
	Net debt		395,959		430,870			395,959		430,870
	Shareholders' equity		727,470		703,695			727,470		703,695
Total invested capital			1,123,429		1,134,565			1,123,429		1,134,565
Net debt to invested capital(4)			35.2	%	38.0	%		35.2	%	38.0	%

Notes:

(1) Q1'15 adjusted net earnings, adjusted net earnings per share and adjusted EBITDA have been revised for inclusion of Tacoma sawmill post-acquisition losses arising during that period.

(2) Total assets at period beginning for three month periods; average of opening and closing total assets for six month periods.

(3) Annualized rate.

(4) Net debt to invested capital as of the period end.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

For the three and six months ended June 30, 2016 and 2015 (unaudited)

(thousands of Canadian dollars except earnings per share)				3 Months			3 Months			6 Months			6 Months
				June 30, 2016			June 30, 2015			June 30, 2016			June 30, 2015
Sales			$	458,813		$	429,683		$	892,757		$	845,129
Costs and expenses:
	Production			390,487			409,949			780,623			783,045
	Selling and administration			11,775			12,155			22,605			24,069
	Long term incentive compensation (recovery) expense			(4,147	)		3,908			(3,969	)		2,199
	Export taxes			-			2,479			-			2,479
	Depreciation of plant and equipment			18,765			18,130			38,934			34,645
	Depletion and amortization of timber, roads and other			9,652			8,909			17,621			16,853
				426,532			455,530			855,814			863,290
Operating earnings (loss) before restructuring costs				32,281			(25,847	)		36,943			(18,161	)
Restructuring costs (recovery)				2,304			(12	)		3,507			(134	)
Operating earnings (loss)				29,977			(25,835	)		33,436			(18,027	)
Finance costs				(4,965	)		(4,088	)		(10,149	)		(7,162	)
Other foreign exchange gain (loss)				503			2,303			(396	)		(3,110	)
Other expense				(458	)		(162	)		(365	)		(29	)
				(4,920	)		(1,947	)		(10,910	)		(10,301	)
Earnings (loss) before income taxes				25,057			(27,782	)		22,526			(28,328	)
Income tax expense (recovery)
	Current			330			308			461			472
	Deferred			1,522			(7,507	)		(1,935	)		(8,054	)
				1,852			(7,199	)		(1,474	)		(7,582	)
Net earnings (loss)			$	23,205		$	(20,583	)	$	24,000		$	(20,746	)
Net earnings (loss) per share, basic and diluted			$	0.33		$	(0.29	)	$	0.34		$	(0.30	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the three and six months ended June 30, 2016 and 2015 (unaudited)

				3 Months June 30, 2016			3 Months June 30, 2015			6 Months June 30, 2016			6 Months June 30, 2015
Net earnings (loss)			$	23,205		$	(20,583	)	$	24,000		$	(20,746	)
Other comprehensive income (loss):
Items that will not be recycled to Net earnings (loss):
	Defined benefit plan actuarial gain (loss)			(3,580	)		1,158			(2,946	)		1,440
	Income tax recovery			-			376			-			376
	Total items that will not be recycled to Net earnings (loss)			(3,580	)		1,534			(2,946	)		1,816
Items that are or may be recycled to Net earnings (loss):
	Foreign currency translation differences for foreign operations, net of tax			2,607			(7,184	)		(18,832	)		23,138
	Loss in fair value of interest rate swaps			(32	)		(10	)		(139	)		(288	)
	Total items that are or may be recycled to Net earnings (loss)			2,575			(7,194	)		(18,971	)		22,850
Total other comprehensive income (loss), net of tax				(1,005	)		(5,660	)		(21,917	)		24,666
Comprehensive income (loss)			$	22,200		$	(26,243	)	$	2,083		$	3,920

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three and six months ended June 30, 2016 and 2015 (unaudited)

(thousands of Canadian dollars)				3 Months			3 Months			6 Months				6 Months
				June 30, 2016			June 30, 2015			June 30, 2016				June 30, 2015
Cash provided by (used in):
Operating activities:
	Net earnings (loss)			$	23,205		$	(20,583	)	$	24,000		$	(20,746	)
	Items not involving cash:
		Depreciation of plant and equipment			18,765			18,130			38,934			34,645
		Depletion and amortization of timber, roads and other			9,652			8,909			17,621			16,853
		Income tax expense (recovery)			1,852			(7,199	)		(1,474	)		(7,582	)
		Finance costs			4,965			4,088			10,149			7,162
		Other assets			(83	)		26			(284	)		372
		Reforestation liability			(2,157	)		(1,931	)		(543	)		(692	)
		Other liabilities and provisions			(2,120	)		2,951			(3,295	)		(3,470	)
		Stock options			56			99			133			99
		Reversal of write-down of plant and equipment			-			-			-			(1,195	)
		Write-down of plant and equipment			1,018			-			1,018			-
		Unrealized foreign exchange loss (gain)			689			(2,355	)		698			(328	)
		Other			458			162			365			29
					56,300			2,297			87,322			25,147
	Cash generated from (used in) operating working capital:
		Trade accounts receivable and other			(11,134	)		6,170			(12,053	)		(9,421	)
		Inventories			(8,512	)		13,348			(5,768	)		9,572
		Prepayments			2,410			1,312			263			(2,848	)
		Trade accounts payable and provisions			23,703			(2,666	)		13,304			(2,483	)
		Income taxes paid			(208	)		(319	)		(466	)		(455	)
					62,559			20,142			82,602			19,512
Investing activities:
	Additions to property, plant and equipment				(9,446	)		(30,543	)		(21,997	)		(52,118	)
	Additions to logging roads				(6,148	)		(7,765	)		(11,237	)		(12,903	)
	Additions to timber and other intangible assets				(219	)		(297	)		(355	)		(1,137	)
	Proceeds on disposal of property, plant and equipment				139			587			314			3,790
	Acquisitions				-			(46,568	)		-			(223,361	)
	Investments and other assets				(8,764	)		74			(9,553	)		180
					(24,438	)		(84,512	)		(42,828	)		(285,549	)
Financing activities:
	Issuance of capital stock, net of share issue expenses				-			-			-			63,196
	Interest payments				(4,354	)		(3,679	)		(11,165	)		(6,630	)
	Debt refinancing costs				(110	)		(95	)		(842	)		(254	)
	Change in operating line components of long-term debt				(18,467	)		17,694			(11,733	)		32,921
	Additions to long term debt				28,000			42,367			28,000			362,582
	Repayments of long term debt				(43,154	)		-			(49,834	)		(189,691	)
					(38,085	)		56,287			(45,574	)		262,124
Foreign exchange gain (loss) on cash and cash equivalents held in a foreign currency					(232	)		2,060			403			128
Decrease in cash					(196	)		(6,023	)		(5,397	)		(3,785	)
Cash and cash equivalents, beginning of period					11,255			20,104			16,456			17,866
Cash and cash equivalents, end of period				$	11,059		$	14,081		$	11,059		$	14,081

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

June 30, 2016 and December 31, 2015 (unaudited)

(thousands of Canadian dollars)				June 30,			Dec. 31,
				2016			2015
Assets
Current assets:
	Cash and cash equivalents		$	11,059		$	16,456
	Trade accounts receivable and other			104,158			95,218
	Income taxes receivable			454			459
	Inventories			157,471			155,740
	Prepayments and other			14,415			15,512
	Assets held for sale			25,016			27,836
				312,573			311,221
Employee future benefits				247			1,570
Other investments and assets				14,153			3,191
Property, plant and equipment				729,420			777,590
Logging roads and bridges				19,405			20,611
Timber licences				70,889			72,429
Other intangible assets				19,489			23,601
Goodwill				152,037			160,914
Deferred income taxes				19,356			18,669
			$	1,337,569		$	1,389,796
Liabilities and Shareholders' Equity
Current liabilities:
	Trade accounts payable and provisions		$	137,862		$	130,840
	Reforestation liability			13,064			11,052
	Income taxes payable			433			398
				151,359			142,290
Reforestation liability				24,700			25,074
Long term debt				407,018			468,759
Employee future benefits				10,313			8,391
Provisions and other liabilities				16,709			20,028
Equity:
	Share capital			553,559			553,559
	Contributed surplus			7,798			7,665
	Translation reserve			58,593			77,425
	Hedge reserve			(77	)		62
	Retained earnings			107,597			86,543
				727,470			725,254
			$	1,337,569		$	1,389,796

Approved on behalf of the Board:

L. Sauder, Director

D.W.G. Whitehead, Director

FORWARD-LOOKING STATEMENTS

This release contains information and statements that are forward-looking in nature, including, but not limited to, statements containing the words "will", "should", "expects", "annualized" and similar expressions. Such statements involve known and unknown risks and uncertainties that may cause Interfor's actual results to be materially different from those expressed or implied by those forward- looking statements. Such risks and uncertainties include, among other things: price volatility, competition, availability and cost of log supply, natural or man-made disasters, currency exchange sensitivity, regulatory changes, allowable annual cut reductions, Aboriginal title and rights claims, potential countervailing and anti-dumping duties, stumpage fee variables and changes, environmental impact and performance, labour disruptions, and other factors referenced herein and in Interfor's Annual Report available on www.sedar.com and www.interfor.com. The forward-looking information and statements contained in this release are based on Interfor's current expectations and beliefs. Readers are cautioned not to place undue reliance on forward-looking information or statements. Interfor undertakes no obligation to update such forward-looking information or statements, except where required by law.

ABOUT INTERFOR

Interfor is a growth-oriented lumber company with operations in Canada and the United States. The Company has annual production capacity of approximately 3 billion board feet and offers one of the most diverse lines of lumber products to customers around the world. For more information about Interfor, visit our website at www.interfor.com.

The Company's unaudited interim condensed consolidated financial statements and Management's Discussion and Analysis for the three and six months ended June 30, 2016 are available at www.sedar.com and www.interfor.com.

There will be a conference call on Friday, July 29, 2016 at 8:00 a.m. (Pacific Time) hosted by INTERFOR CORPORATION for the purpose of reviewing the Company's release of its second quarter 2016 financial results.

The dial-in number is 1-866-233-4795. The conference call will also be recorded for those unable to join in for the live discussion, and will be available until August 12, 2016. The number to call is 1-888-203-1112, Passcode 6364992.

Interfor Corporation
John A. Horning
Executive Vice President and Chief Financial Officer
[phone]