Q&A with Interfor CEO Duncan Davies

Interfor CEO Duncan Davies | BCBusiness
CEO Duncan Davies has been the CEO of Interfor since 2000.

In a notoriously cyclical industry, International Forest Products Ltd. chose not to just weather the storm of recent years, but aggressively invested in upgrades and acquisitions. President and CEO Duncan Davies explains how the company just might point the way to the future of the B.C. lumber industry

Interfor posted a profit in 2013, after six consecutive years of losses. Was it just a good year, or do you see it as a turning point for the company?
I think we’re seeing a turnaround in the U.S. housing market, which is the largest market for all the major lumber producers in North America. We’ve been through a pretty difficult period over the last six or seven years and we’re seeing gradual recovery, so I’m optimistic that things are starting to move in the right direction. And as the market recovers, obviously conditions are much better for companies like ours.

How much of last year’s success is due to improving market conditions, and how much to your strategy of investing in acquisitions and operations upgrades?
It’s a combination of the two. Obviously with better markets you have more opportunities, more volume you can produce and sell into the market. But a number of those things we’ve done over the last several years are really starting to come to fruition. The capital investments that we’ve made in our facilities, both in Canada and the U.S., are delivering very good returns for us. And the growth that we’ve undertaken over the last number of years is also making a significant contribution to those results.

The major part of your recent growth has been acquisitions in the U.S. southeast. How much of your operations are now in B.C., versus in the U.S.?
B.C. is now about 40 per cent of our production capacity, after the closing of the Tolleson Lumber Co. acquisition in Georgia [announced in February]. But over the last six or seven years we’ve invested actively in B.C. to rebuild and upgrade our operations in the province as well as growing in the U.S. So we’ve been actively doing both and they’re both generating attractive returns for us.

What was the thinking behind the decision to expand in the U.S.?
The U.S. is the biggest lumber market in the world, by a long shot. As part of our investment strategy, we wanted to produce product for the U.S. market from the continental U.S. So we saw opportunities both in the Pacific Northwest and the U.S. southeast to be able to establish ourselves in those areas, which we’ve done.

What are the opportunities for growth in B.C.? Are they equally attractive as in the U.S.?
We look at both as areas of opportunity. I don’t think you’ll see much in the way of expansion of the industry in B.C., just because of some of the constraints resulting from the impact of the mountain pine beetle infestation. But we’ve bought businesses in B.C. over the last number of years, including one last year and we continue to look for other opportunities to grow our platform in the province. At the same time a big focus of our attention in the last 10 years or so has been in the U.S., initially in the Pacific Northwest and more recently the southeast.

How significant is the impact of the beetle infestation on the B.C. lumber industry in the long run?
It’s a natural disaster of massive proportions and it’s going to have a major impact on production, particularly from the B.C. Interior, for a long period of time. There has been a significant number of mill closures over the last couple of years and there are a few more that have been announced that are coming this spring. What’s important though, in context, is that the B.C. Interior is one of the largest lumber-producing regions in North America and it’s a major source of supply worldwide. As supply is impacted in that region it will have material impacts globally and will create other opportunities for investment as the remaining capacity is retooled to match the timber resource that will be available in the years to come.

Everyone has been targeting Asia, China in particular, in recent years. How much potential is there?
China is growing in leaps and bounds, and Japan has always been an important market, particularly for coastal B.C. producers, but increasingly for Interior B.C producers. We’ve got offices in all of those countries and it’s part of our strategy to maintain a diversified market approach to our business. So we see China as being very important and the growth in China has been incredibly important over the last five or six years. We see it continuing to be a piece of the puzzle for us going forward.

Forestry has historically been a cornerstone of the B.C. economy and its contribution has shrunk in recent years. Do you think it will ever come back to be the dominant industry it once was?
Probably not, but the industry is still a significant player in the B.C. economy and will always be a significant player. As our economy matures and other opportunities are developed, however—both in other natural resources like LNG, or in service industries and technology industries—the percentage that forestry contributes to total GDP will likely decline. But I’m convinced that forestry is going to continue to be a player in B.C. and that’s one of the reasons why we continue to invest here.