GreenFirst Reports Financial Results for the Second Quarter of 2024
Press Release
TORONTO, ON, August 12, 2024 GreenFirst Forest Products Inc. (TSX: GFP) (“GreenFirst” or the “Company”) announced results for the second quarter ended June 29, 2024. The Company’s interim financial statements (“Financial Statements”) and related Management’s Discussion and Analysis (“MD&A”) for the second quarter ended June 29, 2024 are available on GreenFirst’s website at www.greenfirst.ca and on SEDAR+ at www.sedarplus.ca.
Highlights
- Q2 2024 net loss from continuing operations was $14.5 million or $0.08 per share (diluted), compared to net loss of $13.4 million or loss of $0.08 per share (diluted) in Q1 2024. Adjusted EBITDA for Q2 2024 was negative $12.1 million compared to negative $3.5 million in Q1 2024. Both the lumber and paper operations had a negative contribution to Q2 2024 as a result of weak market conditions.
- Lumber sales volumes in Q2 2024 were lower than Q1 2024 due to the continued drag on lumber demand as housing affordability remains significantly impacted by high mortgage rates. There also remain an oversupply of lumber, which resulted in lower field takeaways. Average realized lumber prices of $637/mfbm for Q2 2024 were also lower than the $644/mfbm pricing realized in Q1 2024. Benchmark prices continued to be under pressure subsequent to Q2 2024. The recent cuts by the Bank of Canada is signalling a reversal in monetary policy.
- The valuation provision for lumber and log inventory was increased to $3.2 million from $1.0 million at the end of Q1 2024, generating a $2.2 million charge to lumber cost of sales in Q2 2024.
- Our lower duty rate has positively impacted the Company’s earnings and free cash flow since August 1, 2023. The Company’s initial duty deposit rate, totaling 20.23%, remained in effect for almost two years, since the Company’s acquisition of its sawmill and paper mill assets on August 28, 2021. This resulted in US$22 million in higher duties paid compared to its Canadian peers. The Company anticipates an increase in duty deposit rate in mid-August 2024, in line with its industry peers.
- The Company plans to complete a spin-out transaction of Kap Corporation (“Kap”), the holding company of Kap Paper Inc. (“Kap Paper”), which holds all operating assets related to the paper mill operations. The shares of Kap will be held directly by the shareholders of the Company as of the completion of the Spin-out. The Spin-out is expected to be completed in Q4 2024. The Spin-out of Kap is part of the natural progression of the decentralization and deconsolidation of the paper mill that was originally disclosed by GreenFirst in the Fall of 2023.
- During Q2 2024, Kap Paper entered into a $24.0 million term loan agreement with the Province of Ontario (the “Kap Term Loan”). The financing is integral to Kap Paper’s long-term strategy and ability to improve its competitiveness in a challenging environment.
- On August 9, 2024, the Company purchased a buy-out group annuity that transfers approximately $26.5 million of defined benefit pension obligations to a Canadian insurance company.
“We continue to see macroeconomic pressures impacting our business as lumber prices regressed during Q2 2024. It is times like this where we must focus on things we can control and I am proud of the team’s operational accomplishments in our sawmills which continued to see production records being established in the first half of 2024. We also continue to manage liquidity on all fronts through this down cycle, including focusing on sale of non-core assets to better position the Company.” said Joel Fournier, GreenFirst’s Chief Executive Officer. “On the paper side, as part of our previously announced decentralization efforts for this business, we plan to complete a spin-out transaction which will result in Kap gaining operational independence and flexibility to consider independent financing alternatives and partnerships in the future, such as the Kap Term Loan. This will also enable GreenFirst to focus on its core business of being a pure-play lumber producer. We also saw continued stabilization of paper operations following a challenging couple quarters.”
Financial Highlights
The following selected financial information is from the Company’s financial statements and MD&A:
| (In thousands of CAD, except per share amounts) | June 29, | March 30, | July 1, |
| For the quarter ended | 2024 | 2024 | 2023 |
| Net sales from continuing operations | |||
| Forest products(2) | $ 66,309 | $ 68,853 |
$ 73,475 |
| Paper products | 28,068 | 24,215 | 38,153 |
| Total net sales from continuing operations | 94,377 | 93,068 | 111,628 |
| Operating loss from continuing
operations |
(16,279) | (7,441) | (9,453) |
| Net loss | (14,529) | (13,351) | (9,671) |
| Net loss from continuing operations | (14,529) | (13,351) | (9,671) |
| Basic loss per share | (0.08) | (0.08) | (0.05) |
| Basic loss per share from continuing
operations |
(0.08) | (0.08) | (0.05) |
| Diluted loss per share | (0.08) | (0.08) | (0.05) |
| Diluted loss per share from continuing operations | (0.08) | (0.08) | (0.05) |
| Adjusted EBITDA from continuing operations(1) | $ (12,104) | $ (3,468) | $ (5,012) |
| (In thousands of CAD) | June 29, | December 31, |
| As at | 2024 | 2023 |
| Total assets | $ 281,716 | $ 277,944 |
| Total liabilities | 127,327 | 92,706 |
| Total shareholders’ equity | $ 154,389 | $ 185,238 |
1Adjusted EBITDA is a Non‐GAAP measure and does not have standardized meaning under GAAP or IFRS. As a result, it may not be comparable to information presented by other companies. For an explanation and reconciliation of Adjusted EBITDA to related comparable financial information presented in the Financial Statements prepared in accordance with IFRS, refer to the Non-GAAP Measures section in the MD&A for the second quarter and two quarters ended June 29, 2024.
2Includes net sales to external parties only.
Forest Products (Lumber)
During Q2 2024, the Company saw contribution (net sales less cost of sales) of negative $3.7 million from the lumber segment.
Net sales were $66.3 million in Q2 2024, a decrease of approximately 4% compared to Q1 2024, on lower volumes and realized pricing. Housing affordability continues to be significantly impacted by increased mortgage rates. In addition, an oversupply of lumber inventory, despite curtailments in North America, continues to impact pricing. There continues to be low maintenance of field inventory and there were lower takeaways following the first quarter.
Cost of sales were $70.0, an increase of approximately 13% compared to Q1 2024. This is primarily driven by higher charges related to inventory net realizable value recorded in the second quarter of 2024.
Paper Products
During Q2 2024, the Company saw contribution (net sales less cost of sales) of negative $5.2 million from the paper segment.
Net sales were $28.1 million in Q2 2024, an increase of approximately 16% compared to Q1 2024. Total volume shipped in the second quarter of 2024 was 42,483 metric tonnes (MT) compared to 38,108 MT in the first quarter of 2024. The Company had higher sales due to fewer production related disruptions impacting volume levels in the second quarter of 2024. In addition, there was some pricing momentum in the second quarter for paper products due to supply related challenges in the export market.
Cost of sales were $33.3 million, which was relatively flat compared to Q1 2024. Paper production was 42,805 MT compared to 38,105 MT in the first quarter of 2024. The increase in production was largely due to improved efficiencies as the first quarter of 2024 was significantly impacted by production related disruptions. Certain disruptions and maintenance costs in the first quarter of 2024 related to external events. In the second quarter of 2024 there were improvements made that positively impacted the rate of production and cost profile. The Company continues to work on gaining sustained efficiencies.
Consistent with all major North American newsprint producers, the Company announced a US$50\MT price increase effective September 1, 2024.
Other Expenses
The initial duty deposit rate, totaling 20.23%, had remained in effect since the Company’s acquisition of its sawmill and paper mill assets and has resulted in a higher payment in relation to our Canadian peers as at June 29, 2024, totaling US$22 million. The Company became eligible for the rate applied to all other lumber exporters from August 1, 2023 onwards, calculated by the US DOC to be 8.05%, following the results of the US DOC’s Fourth Administrative Review. The Company anticipates an increase in duty deposit rate in mid-August 2024, in line with its industry peers.
SG&A expenses of $4.5 million in Q2 2024 were higher compared to $2.5 million in Q1 2024. The first quarter had a recoveries related to the difference between accrued and actual incentive payout for 2023 and credits related to fringe benefits. Excluding the impact of these one time items, SG&A expenses were relatively flat in Q2 2024 where lower salaries and benefits were offset by costs related to corporate reorganization efforts, including the planned spin-off of Kap.
Liquidity and Borrowings
At June 29, 2024, the Company had $5.2 million in cash on hand and $15.4 million, less $5.4 million for standby letters of credit, of excess availability under its asset based lending (“ABL”), or revolving, portion of the credit facility. In addition, the Company also had access to $9.4 million remaining under its equipment financing portion of the credit facility (or, “equipment financing agreement”). The Company had drawn down $29.9 million under its ABL and $15.6 under its equipment financing agreement at June 29, 2024. The Company had also received $9.0 million of the $24.0 million under the Kap Term Loan during Q2 2024, with the balance received in August 2024.
Outlook
High interest rates, overall macroeconomic concerns continue to negatively impact lumber demand and pricing. The positive impact on new home builds in the US, due to lack of activity in the resale market, has also subsided as affordability continues to be negatively impacted by higher interest rates. The slowing of activity in the repair and remodeling segment has added to the downward pressure on lumber prices. Near term prospects for lumber markets continue to be challenging, with field inventories remaining extremely lean along with a significant slowdown in takeaway.
In the longer-term, lack of available housing inventory, record levels of immigration in North America, aging of homes in the US and demographic driven demand are expected to positively impact lumber markets.
Despite continued curtailment of lumber production in the Province of British Columbia and some other regions of North America, there remains an overall surplus in all lumber species that has been contributing to the price erosion in recent weeks. Reduced lumber demand and low inventory maintenance continue to drive supply side pressures in the short-term. However, as curtailments mount, lumber pricing could see some positive support. The recent interest rate cuts by the Bank of Canada does signal a positive reversal in monetary policy. However, high mortgage rates continue to have a significant impact on affordability.
Reconciliation of Adjusted EBITDA
References to EBITDA in this document are measures of earnings (loss) before interest and finance costs, income taxes, depreciation and amortization, while references to Adjusted EBITDA reflect EBITDA plus other non-operating costs such as impact of valuation changes on the Company’s investments, the impact of foreign exchange on the Company’s long-term debt, loss on extinguishment of debt, loss on sale of assets and other non-operating losses. Management believes that certain lenders, investors, and analysts use EBITDA and Adjusted EBITDA as a common valuation measurement and to measure the Company’s ability to service debt and meet other payment obligations. EBITDA and Adjusted EBITDA are not intended to replace net earnings (loss), or other measures of financial performance and liquidity reported in accordance with GAAP. For more information on non-GAAP measures, please see the Company’s MD&A.
| (In thousands of CAD) | |||
| For the quarter ended | June 29, 2024 |
March 30, 2024 |
July 1, 2023 |
| Net loss from continuing operations | $ (14,529) | $ (13,351) |
$ (9,671) |
| Adjustments: | |||
| Finance costs, net | 1,101 | 1,056 | 478 |
| Income taxes | (2,367) | 4,924 | (260) |
| Depreciation and amortization | 4,175 | 3,973 | 4,441 |
| EBITDA | (11,620) | (3,398) | (5,012) |
| Gain on sale of assets | (484) | (70) | — |
| Adjusted EBITDA from continuing operations(1) | $ (12,104) | $ (3,468) |
$ (5,012) |
1Adjusted EBITDA is a Non‐GAAP measure and does not have standardized meaning under GAAP or IFRS. As a result, it may not be comparable to information presented by other companies. For an explanation and reconciliation of Adjusted EBITDA to related comparable financial information presented in the Financial Statements prepared in accordance with IFRS, refer to the Non-GAAP Measures section in the MD&A for the second quarter and two quarters ended June 29, 2024.
Earnings Conference Call
GreenFirst will host a conference call to review the Q2 2024 financial results on Tuesday, August 13, 2024 at 8:00am (Eastern). The live webcast of the earnings conference call can be accessed via web: http://momentum.adobeconnect.com/greenfirstq2/ and via phone: (+1) 416 764 8658 or (+1) 888 886 7786. A replay of the webcast and presentation slides will be available on GreenFirst’s website following the conference call.
About GreenFirst
GreenFirst Forest Products is a forest-first business, focused on sustainable forest management and lumber production. The Company owns four sawmills located in rich wood baskets proudly operating over six million hectares of FSC® certified public Ontario forest lands (FSC®-C167905). The Company believes that responsible forest practices, coupled with the long-term green advantage of lumber, provide GreenFirst with significant cyclical and secular advantages in building products.
For more information, please visit: www.greenfirst.ca or contact Investor Relations (416) 775 2821
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