Ladies and gentlemen, thank you for standing by, and welcome to Interfor's quarterly analyst call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Mr. Ian Fillinger. Thank you. Please go ahead.
Thank you, RJ. Welcome to our Q1 2022 analyst call. With me today, you have Rick Pozzebon, our Senior Vice President and Chief Financial Officer, and Bart Bender, our Senior Vice President of Sales and Marketing. Our agenda today will start off with myself providing a recap of our financial results, our strategic focus, and our improvement efforts. I'll then pass the call to Rick, who will cover our financial matters, and then Rick will pass the call to Bart, who will cover our markets. Turning to our financial results, our Q1 Adjusted EBITDA was $570 million, approximately 4x higher than Q4. All lumber benchmark prices increased significantly throughout most of the quarter before peaking in mid-March. We are executing on our strategic plan, and we're generating industry-leading lumber margins and returns on capital.
I encourage you to look through our investor deck on our website at these metrics. Our improvement efforts were again balanced across the company as we made progress in all regions. Production volumes were again an all-time high quarterly record, which included the addition of our Eastern Canadian region and the ramp-up of our DeQuincy, Louisiana mill and strong operational performance across most of our other operations. Our total unit production cost increased slightly due to higher log costs in the U.S. and conversion costs in all regions, driven by, largely by the ongoing inflationary pressures. We continued on our CapEx improvement plans in every region, spending CAD 51 million in the quarter, down slightly from the previous quarter, but on track and on target for the CAD 275 million for the full year, of which approximately CAD 200 million will be on discretionary high payback projects.
Turning to our financial capacity, we continue to have significant financial capacity to consider several further capital deployments, which Rick will cover off shortly. I'd also like to provide an update on the early integration of our Eastern Canadian platform. You'll recall the acquisition of EACOM was completed on February 22nd, and since then, we've been onboarding and have had several welcome events with our new teammates at Interfor. Our key focus areas in the near term are to enhance operational performance, identify further opportunities for easy improvements in synergy realization, planning for back-office, corporate, and system integrations, and assessing potential long-term strategic investments. Since the acquisition of our Eastern team, we've performed well, and in many areas, we've had productivity at best-ever performances, in fact, at 5/ 7 mills in the last 8 weeks.
While still early and more work to do, we have already realized almost half of our CAD 25 million synergy target within the first 8 weeks, and we expect more operational synergies to be tracked and tackled over the next short, coming months. Turning to our strategic focus, we continue to push forward on achieving greater returns on capital through our unrelenting focus on operational excellence and capital deployment. As such, I wanna outline a few key initiatives. Our DeQuincy mill in Louisiana continues to progress well, and we now have moved to a two-shift operation several months ahead of schedule. In Georgia, our largest capital project at our Eatonton mill continues on track and will be fully completed in the next month. We expect a new standard to be set for our U.S. South operations in terms of volume, conversion cost, and earnings.
In BC, we're nearing completion on the sale of our Acorn mill to the San Group. In Eastern Canada, we recently announced our purchase of 16% of GreenFirst shares from RAM. In summary, our capital returns are again exceptional for Q1, generating a year-to-date 87% return on capital. We continue to work hard on our capital allocation discipline to ensure the best returns for our shareholders, and we continue to see strong performances from our internal projects and recent acquisitions. That concludes my opening remarks, and I'll now pass the call over to Rick.
Thank you, Ian, and good morning. First off, I'll refer you to cautionary language regarding forward-looking information in our Q1 MD&A. The first quarter saw Interfor continue its rapid transformation into one of the largest and most profitable lumber producers in the world. We added nearly 1 billion board feet of annual lumber capacity upon closing the EACOM acquisition and further diversified into a new region with attractive fiber fundamentals. Closing on EACOM capped an 11-month span in which we grew our total lumber capacity by over 60%. This rapid growth drove our lumber production and shipments in Q1 to record levels. The exciting part is that the most positive impacts of our growth are just now starting to be reflected in our results. Growth through acquisition has been just one facet of our disciplined and balanced approach to capital allocation in the quarter.
We continued to make great progress in our multi-year strategic capital program. We saw significant value in buying back our own shares and completed our 10% Normal Course Issuer Bid program shortly after quarter end. We further rationalized our portfolio with the sale of the Acorn specialty mill. Collectively, these actions have positioned our balance sheet with conservative leverage and further optimized our portfolio to continue generating best-in-class returns on capital. In terms of first quarter financial results, Interfor generated adjusted EBITDA of CAD 570 million. Included in this figure is CAD 68 million of non-recurring purchase accounting expense, driven by having to record the acquired EACOM inventories at fair value. Adjusting for this, EBITDA would have been a quarterly record of CAD 638 million.
We expect a further CAD 17 million of similar fair value adjustments to impact our second quarter results as we sell through the remaining acquired inventory. First quarter earnings benefited from the strong operating performance and elevated lumber prices, while we continued to face inflationary pressures on the cost side and a challenging logistics environment. In terms of cash flow, we generated CAD 379 million from operations. Of this, CAD 98 million was invested in working capital, with seasonal inventory builds and increased receivables driven by lumber prices. Working capital reductions are anticipated in the second quarter. We also invested CAD 51 million in capital projects and returned CAD 194 million to shareholders through share buybacks at an attractive average price. We ended the quarter with our balance sheet in a conservative leverage position and ample liquidity to continue advancing on our strategic plans.
These plans include spending about CAD 275 million on capital improvements for the full year 2022, which is similar to prior guidance. We continue to see significant opportunity to enhance our returns through capital reinvestment. At the same time, we will continue looking for attractive opportunities to deploy capital on lumber-focused growth and to return additional capital to shareholders. To wrap up, Q1 was a transformational record-setting quarter for Interfor, and we are well positioned financially and operationally to continue our momentum in growing value for our shareholders. That concludes my remarks. I'll now turn the call over to Bart.
Thank you, Rick. Good morning, everyone. I'll provide a few comments on our lumber markets. First off, we're very pleased to welcome the Eastern Canadian operations to the Interfor team. With that comes virtually 1 billion ft of pure SPF production in the East, both dimension and studs. In addition, we now have a regional office in Montreal servicing our customers. Further, we increased our product offerings to include I-Joist and remanufactured lumber. We're excited about this diversification, the strategic customer base, and the group of professionals we now get to work alongside in Eastern Canada. Now to the markets. The fundamentals remain consistent quarter-over-quarter, however, not without some areas of uncertainty. Specifically, tailwinds remain strong when it comes to household balance sheets, demographics, rising home equity, age of housing stock, all encouraging when considering the demand for lumber in North America.
In terms of uncertainty, inflation, interest rates, and ultimately affordability come into question. New home construction seems to have such a degree of pent-up demand that growth in this area still feels very strong. Repair and remodel, which is perhaps a bit more sensitive, is showing a level of volatility as we work through Q1 into Q2. Lastly, the Russian-Ukraine war will bring shifts to supply lines globally. We expect voids left in Europe and Asia from cessation of Russian softwood lumber imports to draw from European imports to North America and also add to exports from North America to some parts of Asia. Specifically speaking about the repair and remodel end use sector, we started Q1 off very strong, both from an inventory and consumption perspective. In the latter part of the quarter, we started to see consumption temper.
However, so far in Q2, consumption has started to increase. It's important to point out that the inventory position at the box stores this year is very different from the circumstances 1 year ago. From our perspective, the inventories are well managed. The new home construction end use sector continues to show encouraging demand. Starts at close to 1.8 million. It's encouraging but far outpacing the completions, which are running at 1.3 million. We see this situation positively as we expect supply chain issues to subside in all products, which should increase the rate of completions, which translates to more demand for lumber in this sector. Supply chain is a word we are using considerably more these days and remains an interesting dynamic in our business. We are expecting constraints to continue in all modes right through Q2 into Q3 and quite possibly Q4.
At Interfor, our operations are well diversified, not only geographically, but also in terms of transportation modes and carriers. Overall, our markets for Q2 remain resilient, and we're encouraged in what we see for the balance of the year. With that, Ian, I'll turn it back over to you. Thanks.
Okay. Thanks, Bart. Operator, we're ready to take questions from the analysts now.
Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. Again, that is star, then the number one. To withdraw your question, please press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sean Steuart with TD Securities. Your line is open.
Thanks. Good morning, everyone. A couple questions. Ian, I wanna start with the GreenFirst investment. Can you give us some of the context behind the motivation there? Is it fiber security potential for the sawmill synergies, maybe all of the above, but any context on the motivation and appetite for consolidation on that front? Further to that, does more M&A potentially temper your appetite for further returns of capital to shareholders?
Yeah, for sure, Sean. You know, I would kinda just refer to the press release that we put out. It was an investment opportunity that we saw, and that's really about it. You know, there was a seller and we were a buyer and, you know, it was done last Monday and you know, not much more to comment on that, Sean. You know, we're concentrating on, you know, what we're doing at Interfor when it comes to sales and marketing and operations and you know, capital investment. Just saw that as a good opportunity to make that investment and we saw GreenFirst as an attractive opportunity for the company to pick up those shares. Rick, anything?
Okay. Understood.
No, I think that covers it, Ian.
Okay. Question for Ian or Bart. Any sense that transportation headwinds are starting to ease? More to the point, I'm looking for some guidance on the inventory that you've built up over the last couple of quarters, about 100 million board feet increase to your finished goods inventory. How long do you expect it'll take to work through that surplus at the mill level?
Okay. Sean, it's Bart here. I'll tackle that question. First off, I think our inventory build, you know, in excess of the shortfall in production versus shipments was CAD 61 million. I think the 100 you're referring to is perhaps some of the eastern operations' normal course volumes. So we'll have to get used to carrying a bit more inventory than we usually do from that perspective. You know, I would say pre-COVID days, we would've been in that 18 days of production. That'd be our normal range, and I'd say post the EACOM acquisition, that's probably bumped up to more like 20 days that we would normally carry in inventory. Today, we're at roughly 23. So we actually feel pretty good about where we're at with inventories.
We'll continue to work hard and keeping those well managed as we go forward. When it comes to transportation capacity, you know, I think it's been one of those volatile sort of files for everyone, quite frankly. I think some months are good, and some months aren't. It depends on what mode and what region and. We still think we're dealing with quite a bit of congestion and disruption from that standpoint, and we expect that to continue through the balance of Q2. We have been given some ideas that we'll see improvements in Q3 and further improvements in Q4. I think, you know, this situation with on the logistics side isn't gonna fix itself overnight.
I don't believe it's gonna fix itself within Q2. It'll take a bit longer, but when it comes to Interfor, you know, we feel very comfortable with where we're at from an inventory perspective, and we'll continue to manage those accordingly.
Okay. Thanks for that, Bart. That's all I have for now. Thanks, everyone.
Thanks, Sean.
Thanks, Sean.
Your next question comes from the line of Hamir Patel with CIBC Capital Markets. Your line is open.
Hi. Good morning. Bart, I was wondering if you could give us a sense as to, you know, what you're seeing in some of the other end markets, like R&R and industrial.
Well, repair and remodel, I think I commented a little bit about that on our opening comments. Repair and remodel started off the quarter very, very strong, quite frankly. It was a decent momentum. It wasn't until partway through that we saw some pause. But really, you know, when I talked about the inventory position this year versus, say, last year, and it was in a position to really manage that shift in demand. I would have to say that the shift wasn't that dramatic. Since then, we've seen things pick back up. Repair and remodel as we go into Q2 seems fairly stable, I think is the best way I'd put that.
I think most importantly, the inventories that have been allocated to that end-use segment are well managed. I think that's the difference this year versus what we saw last year. From an industrial standpoint, you know, our customers are very active. That's kind of an end-use sector that's quite stable and has been stable. We're not seeing anything that would, you know, give us any different opinion on that. Overall, both of those items are in a good spot.
Great. Thanks. That's helpful. You know, wanna get your sense as to, you know, Ontario and Quebec, obviously a new region for you. How do you see log costs there, evolving over, the next year or 2?
Yeah. I mean, you know, we are very positive on the log cost dynamics in Ontario and Quebec and, you know, especially when you compare to British Columbia, there's definitely an advantage, you know, that the Eastern Canadian region has. We feel very good about it, Hamir. You know, we've got good log costs and low log costs in the South. You know, obviously some creep up there depending upon where the mill might be located. You know, we're very pleased with that. The bolt-on for our Eastern Canadian new region is we have a very favorable outlook on the log cost.
Great. Thanks, Ian. That's helpful. I'll get back in queue.
Thank you.
As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Again, that is star, then the number one. Your next question comes from the line of Paul Quinn with RBC Capital Markets. Your line is open.
Yeah, thanks very much. Morning, guys.
Hey, Paul.
All right. Just if you could outline the EACOM's Q1 contributions. What are they generating EBITDA in Q1?
Well, we completed it on February 22nd, so not a lot of track history there. You know, Rick, maybe you can kind of give a context around that.
Yeah, for sure. We disclosed they produced around 100 million board feet and sold just less than that. We commented on the purchase accounting adjustment. If you back out that purchase accounting adjustment, it'd be north of $70 million of EBITDA for their 6 weeks of ownership.
Pretty impressive. Maybe you can just remind me, where are the residuals of EACOM going to?
Yeah. Various takers in the region, well-capitalized facilities. Paul, we've got no real concerns around the residual offtake from the operations.
Okay. Do you think residuals is a concern back here for other companies?
No, we don't think so, Paul. I mean, the takeaway, as Rick alluded to, is strong. We have arrangements and agreements and contracts in place and, you know, multiyear and strong, you know, customers that are taking away the residuals. Nope, we're feeling good about this.
Okay. Just on the cost side, you know, you've got a couple of mills starting up in Q2. Do you expect your costs to move up, materially as a result?
With the startup of like DeQuincy going in two shifts in Eatonton? No.
Yeah. Plus more contribution from the EACOM plant.
Yeah, no, we think our costs will, you know, be reduced on a unit basis with that added production coming in and being well, helping the individual mills but also spread out across the company. We should see cost reductions going forward.
Okay. That's all I had. Great quarter. Thanks.
Thanks, Paul.
Thank you.
There are no further questions over the phone line at this time. I will now let you turn the call back to Ian.
Okay, great. Thank you, operator. Just concluding remarks in closing. We are focused on maintaining the health and safety and well-being of our employees. We continue to drive cost reductions across the company, and we're matching our production rates to our order files, and we're continuing with a balanced approach to our capital allocation. I'd like to thank everybody for dialing in and participating in our update call this morning and your interest in our company. If you have any further questions, feel free to reach out to myself, Rick, or Bart at any time. Thank you, operator.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.