GreenFirst Reports Financial Results for the Second Quarter of 2023

Press Release

TORONTO, ON, August 9, 2023 / GreenFirst Forest Products Inc. (TSX: GFP) (“GreenFirst” or the “Company”) today announced results for the second quarter and two quarters ended July 1, 2023. The Company’s interim financial statements and related Management Discussion and Analysis for the second quarter and two quarters ended July 1, 2023 are available on GreenFirst’s website at www.greenfirst.ca and on SEDAR+ at www.sedarplus.ca.

Highlights

• Second quarter 2023 net loss from continuing operations was $9.7 million or a loss of $0.05 per share (diluted), compared to net loss of $20.2 million or a loss of $0.11 per share (diluted) in the first quarter of 2023 on the same basis.
• Average lumber prices for Q2 2023 were slightly lower than Q1 2023, with an average selling price of $596/mfbm compared to $605/mfbm in Q1 2023. There was strong pricing momentum toward the latter half of the second quarter, with volumes also seeing an increase compared to Q1 2023. The valuation provision for lumber and logs inventory was decreased to $4.3 million from $8.7 million at the end of Q4 2022, generating a $4.4 million credit to cost of sales in the two quarters ended July 1, 2023.
• GreenFirst’s softwood lumber duty rate dropped to 7.99% on August 1, 2023 from the previous rate of 20.23%. The lower duty rate will directly improve the Company’s earnings and free cash flow.
• GreenFirst is expecting reimbursement of an overpayment of duties of US$21 million, since August 2021, due to the difference between the Company’s prior duty rate of 20.23% and the duty rate charged to its Canadian peers. However, at this time we cannot be certain about when this reimbursement may occur. Beyond this overpayment, GreenFirst has an additional US$51 million of duties on deposit (which continues to grow) pending a broader industry settlement.
• The turnaround of the Kapuskasing paper mill continues with an increase in operating earnings of $9.4 million in the first two quarters of 2023 compared to the same period last year.
• A corporate reorganization will begin in the fall of this year to separate the lumber mill assets from the paper mill assets in order to provide for increased alignment of incentives and focus on the unique performance parameters of each business.
• Emphasis on decentralizing operations to reduce overhead and operating costs while increasing production efficiencies. The Company has performed a series of operational reviews to better align with its smaller footprint and strategic direction.
• GreenFirst announced the departure of CFO, Alfred Colas and appointed VP of Finance, Ankit Kapoor as Interim CFO. This transition will be completed by September 15, 2023.
• Signed a non-binding letter of intent earlier this year to sell approximately 30 of 118 acres of the land in Kenora for approximately $8 million.
• As of August 9th, the Company has reduced its outstanding net debt to $23 million.

“We continue to systematically review all aspects of our business. Our paper mill increased operating earnings by $9.4 million in the first six months of 2023 compared to last year, and our lumber mills are positioned for a stronger second half of the year with stabilized pricing and the recently reduced duty rate,” said Paul Rivett, GreenFirst’s Chairman and Interim CEO. “We have come to appreciate the unique characteristics of our lumber mills and paper mill, with distinct operational drivers and key performance indicators. We are taking steps to decentralize these businesses in separate corporate entities with distinct management teams.”

Financial Highlights

The following selected financial information is from the Company’s financial statements and MD&A:

¹Certain prior period amounts have been restated as a result of the Company finalizing its purchase price accounting related to the Rayonier Asset Acquisition, as allowed under IFRS. Please refer to Note 4 – Acquisition of Sawmills and Paper Mill, in the  Company’s Annual Financial Statements for the year ended December 31, 2022 for further information.
²Certain prior period amounts have been restated as a result of a change in presentation of the Company’s Financial Statements for continuing and discontinued operations under IFRS. Please refer to Note 4 – Discontinued Operations, in the Company’s Financial Statements for the second quarter and two quarters ended July 1, 2023 for further information.
³Adjusted 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 July 1, 2023.
⁴Includes net sales to external parties only.The Company reported net sales for continuing operations of $111.6 million during Q2 2023, an increase of $12.5 million or 13%, compared to Q1 2023. This increase was primarily driven by higher volume of lumber sold as a result of buyers building up inventory in response to uncertainties around the historic wildfires and some positive signs for US housing starts.

The Company reported cost of sales of $109.8 million during Q2 2023, lower by $3.0 million or 3%, compared to Q1 2023. This decrease reflects the impact of lower cost per unit of shipments in the lumber and paper segment and due to a recovery related to inventory net realizable value recorded in the second quarter of 2023.

The Company’s softwood lumber sales to US customers are subject to countervailing and anti-dumping duties as determined by the US Department of Commerce. The initial duty deposit rate, totaling  20.23%, has remained in effect since the Company’s acquisition of its sawmill and paper mill assets and has resulted in an overpayment in relation to its Canadian peers as at July 1, 2023 of US$21 million. The Company became eligible for the rate applied to all other lumber exporters from August 1, 2023 onward, calculated by the US Department of Commerce to be 7.99%, following the results of the US DOC Administrative Review.

The Company reported selling, general and administration expenses for continuing operations of $4.9 million during Q2 2023 which was a decrease of $0.3 million compared to Q1 2023. The second quarter benefited from the Company recording a recovery on a previously written-off accounts receivable balance related to its discontinued operations, which was partially offset by higher corporate development costs and higher fringe benefits in the current period.

Turnaround of the Paper Mill and Move for Operational Decentralization

GreenFirst has benefited from improving results at its paper mill during the first and second quarters of 2023, compared to the prior year in which the mill’s contribution remained negative for all four quarters. For the two quarters ended July 1, 2023, the operating income from the paper products segment was $3.2 million compared to an operating loss of $6.2 million in the prior year two quarters ended June 25, 2022. This turnaround is primarily driven by the restart and efficiency gains of the second paper machine, which continues to trend positively.  However, the paper mill is faced with continued headwinds, including pricing pressures, related to its secularly declining paper products along with input supply pressure related to wood chips, which is key to ongoing productivity levels.

GreenFirst’s paper mill operation has key operational and performance metrics that are very different from the lumber mill operations. With the paper mill now a contributing financial and operational performer within GreenFirst, after considerable consultation, the Board of Directors has determined to separate the lumber mill assets from the paper mill assets. It is believed that this separation of businesses and decentralization of management will provide for more expedient decision making, alignment of incentives and entrepreneurialism. This corporate decentralization will begin in the fall of this year and will also include some further reductions of overhead and operating costs.

Chief Financial Officer Change

GreenFirst’s CFO, Alfred Colas, will be leaving the Company, effective September 15, 2023. The Company’s Vice President of Finance, Ankit Kapoor, will become the Interim CFO.

“We thank Alfred for his contributions to the Company and we wish him well with his new career opportunity,” said Paul Rivett, GreenFirst’s Chairman. “Ankit has excelled in the accounting and finance function at GreenFirst and we are excited to elevate him into this senior role.” 

Liquidity and Borrowings

At July 1, 2023, the Company has $48.2 million, less $5.3 million for standby letters of credit, of excess availability under the revolving portion of the Credit Facility. The Company has made net repayments of $29.0 million against the Credit Facility during the first half of 2023 and the Company is no longer subject a minimum fixed-charge coverage ratio. Subsequent to Q2 2023 the Company made an additional repayment of $2.0 million against the Credit Facility.

Outlook

The impact of higher interest rates, in response to rising inflation, has resulted in softened lumber demand since the midpoint of 2022. This led to a decline in lumber market prices throughout the second half of 2022, with those levels persisting in the first half of 2023. Further monetary tightening and interest rate increases could continue to put downward pressure on lumber market prices, which are expected to remain volatile over the near term. However, there is optimism amongst US homebuilders for growth during the balance of 2023, which started to positively impact lumber pricing from June 2023 onward.

The industry is also experiencing tightening lumber supply, spurred on by the curtailment of lumber production in the Province of British Columbia. Additionally, there have been several disruptions and uncertainty around forestry activities due to historic levels of wildfires seen in Canada this summer. These supply constraints have provided positive pricing support.

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 acquisition and transaction-related costs, 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, gain 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. Please refer to the Company’s MD&A for further information on non-GAAP measures.

¹Certain prior period amounts have been restated as a result of the Company finalizing its purchase price accounting related to the Rayonier Asset Acquisition, as allowed under IFRS. Please refer to Note 4 – Acquisition of Sawmills and Paper Mill, in the  Company’s Annual Financial Statements for the year ended December 31, 2022 for further information.
²Certain prior period amounts have been restated as a result of a change in presentation of the Company’s Financial Statements for continuing and discontinued operations under IFRS. Please refer to Note 4 – Discontinued Operations, in the Company’s Financial Statements for the second quarter and two quarters ended July 1, 2023 for further information.
³Adjusted 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 July 1, 2023.

For more information, please visit: www.greenfirst.ca or contact Investor Relations (416) 775 2821

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