OVERVIEW

2009 was the most difficult year in the lumber business in more than fifty years.

The global financial crisis which began in late 2008 had a material impact on our industry and our Company last year. Housing starts in the U.S. fell to the lowest level in decades and lumber prices dropped dramatically. As far as we know, every publicly-traded company in the industry lost money last year, as did Interfor.

However, by acting proactively and sticking to our principles, we were able to avoid the major cash losses that many companies incurred in 2009.

We also made significant progress on a number of strategic initiatives last year:

• The Queensboro property was sold;
• The Adams Lake sawmill was completed in April and achieved pro forma production in record time;
• The Grand Forks sawmill was re-commissioned in October and set new standards for productivity and costs;
• We made important in-roads into the Chinese lumber market; and
• Our financing agreements were extended in February and again in December.

Taken together, these achievements and others will make Interfor a much stronger company in the years ahead.

MARKET COLLAPSE IMPACTS FINANCIAL RESULTS

The collapse of the North American housing market accelerated in the first part of 2009, with U.S. housing starts falling from an annualized rate of 658,000 units in the fourth quarter of 2008 to an annualized rate of 528,000 units in the first quarter of 2009.

Lumber prices followed suit as falling demand more than outpaced contractions in supply. The price of benchmark SPF 2x4 dropped from US$185 per thousand board feet in the fourth quarter to US$155 per thousand board feet in the first quarter.

For the year, housing starts in the U.S. fell by almost 40% from 2008 levels to an annualized rate of 554,000 units, the lowest level in more than fifty years, and a full 73% below the most recent peak in 2005.

For the year, SPF 2X4 averaged US$182 per thousand board feet, down US$39 per thousand board feet or 18% from 2008.

If anything, the specialty cedar business - which is normally an important contributor to our bottom line - was hit even harder than the commodity lumber business, with downward price adjustments ranging from 20% to 30% on most key items.

In light of these conditions, our decision in mid-2008 to proactively curtail operations proved to be exactly the right approach as we were able to limit the Company’s exposure to falling product prices and inventory write-downs as the market adjusted downwards.

At the end of the day, Interfor recorded a net loss (before one time items) of $33.7 million or $0.72 per share on sales of $389.8 million in 2009. Including a gain on the sale of the Queensboro property and other one-time items, the Company’s net loss was $23.9 million or $0.51 per share for the year.

QUEENSBORO SALE GENERATES $29.9 MILLION

In late September, Interfor concluded the sale of its former Queensboro mill site to Port Metro Vancouver for net proceeds of $29.9 million, resulting in a one-time after-tax gain of $19.0 million or $0.40 per share.

The sale of the Queensboro site was a critically important strategic achievement for the Company due to the uncertainty in financial and property markets that existed at the time of the transaction.

Proceeds from the sale were used to repay debt.

ADAMS LAKE PROJECT COMPLETED; WORLD CLASS START-UP ACHIEVED

In spite of the challenges we faced in 2009, we were able to stay focused on our goal of positioning the Company for long-term success.

In that regard, nothing was more important than the Adams Lake Project which was completed on-time and on-budget in April.

Construction of the new sawmill at Adams Lake, which was budgeted at $100 million, was the final stage of our Master Plan for the operation which began in 2003. Ground was broken for the new mill in August 2007 and took twenty months to complete.

The new mill commenced full operation on April 17th and achieved pro forma production on a per-hour basis on its seventeenth shift which, we believe, is the best start-up of a mill of this size anywhere, ever.

Tremendous credit is due to our Capital Projects group and the team at Adams Lake for the successful construction and start-up of the Adams Lake Project.

The operating schedule at the mill was ramped up over the last half of 2009 and by December it was operating on a full two shift basis and running consistently at 10% above pro forma.

GRAND FORKS RE-COMMISSIONED

Another significant achievement in 2009 was the re-commissioning of the Grand Forks sawmill in October.

The Grand Forks mill was acquired along with another mill in the B.C. Southern Interior at Castlegar from Pope & Talbot, Inc. in April 2008.

The Grand Forks mill had operated off and on since its acquisition and had been curtailed since January 2009; the Castlegar mill has been curtailed since its acquisition. Both mills were high cost operations at the time of the acquisition.

A number of changes have been made to the operating regime at Grand Forks which have led to new standards for productivity and costs at the mill.

The credit for these changes is due fully to the local management and crew who have taken control of their own destiny by finding new and constructive ways to work together. Other local stakeholders have also contributed to the new spirit of cooperation at Grand Forks.

So far, the results at Grand Forks have been encouraging. The mill has made a positive financial contribution to our results since resuming operations and has laid a solid foundation for future reinvestment.

Less progress has been made at Castlegar. As a result, it is unlikely that mill will re-open any time soon. That said, we continue to believe there is an attractive business opportunity at Castlegar and have identified that operation as one of our organizational priorities for 2010.

IMPORTANT IN-ROADS MADE INTO CHINA

Interfor has been working actively for a number of years to make in-roads into China.

These efforts began to bear fruit in 2009 as shipments to that market increased rapidly in the second half of the year, coincidental with the ramping up of activity at Adams Lake and the re-commissioning of Grand Forks. China is also an important market for our Acorn mill located in Delta, B.C.

In our view, the Chinese market holds tremendous potential. The efforts of the B.C. and Canadian governments and by the industry to promote North American construction technology and products fits well with China’s rapidly growing housing requirements and their focus on seismic stability, energy efficiency and carbon sequestration.

Shipments to China also help to divert product away from traditional markets in North America.

We are committed to working cooperatively with the B.C. and Canadian governments and with our industry counterparts to develop the Chinese market and to seeing our volumes to that market grow significantly in the years ahead.

BALANCE SHEET REMAINS STRONG; CREDIT FACILITIES RENEWED

In spite of the losses incurred in 2009, Interfor’s balance sheet remains one of the strongest in the sector. We ended the year with net debt of $140.7 million, $27.1 million less than year-end 2008, and with a ratio of net debt to invested capital of 28%.

In February 2009 a commitment was obtained from our lending syndicate to realign and extend our credit facilities. The net effect of this agreement, which was finalized in April, was to increase the Company’s available liquidity by $30 to $35 million.

In December, our credit facilities were further modified and increased. Once that agreement was finalized in early January, it left the Company with $265 million in total credit lines and unused credit available of $116 million.

With our strong balance sheet and renewed credit agreements, Interfor is well-positioned to withstand further market uncertainty and to take advantage of opportunities that are expected to arise in the next year or so.

SHARE PRICE BEGINS TO RECOVER BUT STILL BELOW INHERENT VALUE

Interfor’s share price began to recover in 2009, increasing from $1.70 per share at the end of 2008 to $4.69 per share at the end of 2009.

While we were pleased with the direction of the stock, we still believe the share price is well below its inherent value.

We fully expect the Company’s share price will improve as markets recover and investors come to appreciate the quality of the Company’s assets and their cash generating capability.

BUSINESS OUTLOOK IMPROVING BUT UNCERTAINTY REMAINS

Some positive signs are beginning to emerge in the U.S. and offshore laying a foundation for better market conditions in 2010.

In particular, increased demand from China and other offshore markets, along with on-going production curtailments, have contributed to improved demand/supply balances and higher prices on most commodity items.

It is important, however, to keep things in context. The economic recovery is fragile at best and employment has been slow to recover. In our view, it will likely be another year or two before a meaningful recovery takes hold in the North American housing market or in overall product demand.

In the face of this uncertainty we intend to maintain a disciplined approach to production and strict controls on capital spending.

At the same time we will continue to focus on those items within our control which need to be addressed if we expect to reach our goal of becoming one of North America’s leading lumber and building products companies.

We look forward to making good progress on these items and others in 2010.

Investor Contact

For more information on investment in Interfor, please contact:

John Horning, Corporate Secretary
International Forest Products Limited
PO Box 49114
Bentall Tower Four
3500-1055 Dunsmuir Street
Vancouver, BC V7X 1H7
T: 604-689-6800
F: 604-688-0313