GreenFirst Reports Financial Results for Fiscal 2023

GreenFirst Forest Products Inc. (“GreenFirst” or the “Company”) announced results for the fiscal year ended December 31, 2023. The Company’s audited financial statements (“Financial Statements”) and related Management’s Discussion and Analysis (“MD&A”) for the fiscal year ended December 31, 2023 are available on GreenFirst’s website at www.greenfirst.ca and on SEDAR+ at www.sedarplus.ca.

Highlights

• Fourth quarter 2023 net loss from continuing operations was $21.6 million or $0.12 per share (diluted), compared to net earnings of $2.7 million or earnings of $0.01 per share (diluted) in the third quarter of 2023. For fiscal 2023, net loss from continuing operations was $48.8 million or $0.27 per share (diluted), compared to a net loss of $4.1 million or $0.02 per share (diluted) in 2022 on the same basis.
• Average lumber prices for Q4 2023 were lower than Q3 2023, with an average selling price of $611/mfbm compared to $642/mfbm in Q3 2023. There was strong pricing momentum in the first half of Q3 2023 due to supply related concerns, which benefited results at the beginning of the third quarter. Despite lower prices, volumes in Q4 2023 were higher than Q3 2023 due to increased demand in the latter half of Q4 driven by positive trends in US housing starts and the central banks indicating a pause of further interest rate hikes.
• The valuation provision for lumber and log 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 fiscal 2023.
• US Department of Commerce’s (“US DOC”) Final Determination of its Fourth Administrative Review resulted in a final duty rate of 8.05%. The Company stands to benefit from an approximate US$6.9 million (CAD$9.2 million) recovery on duties paid in 2021, as recorded in 2023. Additionally, the ongoing lower duty rate has positively impacted the Company’s earnings and free cash flow since August 1, 2023.
• There continues to be downward pressure on newsprint and paper products prices.
• On November 6, 2023, the company appointed Joel Fournier as its new Chief Executive Officer. Mr. Fournier is a seasoned executive with over two decades of hands-on experience in lumber mills across both Eastern and Western Canada.
• A corporate reorganization was concluded to separate the assets from the lumber mills and the paper mill. This reorganization aims to provide for increased alignment of incentives, cost control measures and focus on the unique aspects of each business. On January 16, 2024, Terry Skiffington was engaged as Chief Executive Officer of the paper mill division. Mr. Skiffington is a skilled executive with a broad range of experience in the pulp and paper sector in Canada and globally.

“Despite ongoing pricing pressures in the fourth quarter, we are starting to see some positive momentum in lumber markets at the beginning of 2024,” said Paul Rivett, GreenFirst’s Executive Chair. “This coupled with an enhanced operational focus with Joel at the helm are factors that bode well for GreenFirst’s resiliency in the current environment. On the paper side we expect productivity gains and a better cost profile with Terry’s tenacious focus on operations, along with his many years of experience in this area.”

Financial Highlights

The Company reported net sales from continuing operations of $103.2 million during Q4 2023, an increase of $7.5 million or 8%, compared to Q3 2023. The increase in net sales was primarily due to higher volumes shipped as a result of increased demand driven by positive macroeconomic indicators for housing, along with central banks being committed to holding interest rates. This was partially offset by lower lumber pricing, as prices in Q3 2023 were higher as a result of forest fire related disruptions. Paper segment sales also increased due to higher volumes but partially offset by the continued decline in paper pricing.

 The Company reported cost of sales of $115.7 million during Q4 2023, an increase of $26.0 million or 29%, compared to Q3 2023. This increase reflected the impact of higher lumber and paper shipments in Q4 2023 along with higher charges related to inventory net realizable value recorded and higher maintenance costs at the Kapuskasing paper mill.

 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 December 31, 2023, 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 reported selling, general and administration expenses for continuing operations of $5.7 million during Q4 2023 which was an increase of $0.7 million compared to Q3 2023.  This was primarily due to the prior quarter being impacted by credits related to recoveries on fringe benefits.

Cost Improvement at the Paper Mill and Operational Decentralization

The paper mill improved its cost profile with two operational paper machines and increased efficiencies in 2023. The paper mill continues to face many headwinds, primarily price pressures related to the secular decline of its paper products.

GreenFirst’s paper mill operation has key operational and performance metrics that are very different from the lumber mill operations. As such, in 2023 the Board of Directors 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, better alignment of incentives and more entrepreneurialism. This corporate decentralization was completed, with the appointment of a new paper mill CEO in January 2024.

Liquidity and Borrowings

At December 31, 2023, the Company had $28.9 million, less $5.4 million for standby letters of credit, of excess availability under the asset based lending (“ABL”) portion of the Credit Facility and an additional $25.0 million of equipment financing under the Credit Facility. Subsequent to Q4 2023 the Company made net borrowings of $20.8 million against the Credit Facility, including $5.3 million on its equipment lending facility to finance a key strategic project. The borrowings are primarily to support the Company’s seasonal harvesting activities.

New Board of Directors Slate

The Board of Directors has unanimously agreed to reduce its size to five directors at the next Annual General Meeting of our Shareholders on April 19, 2024 (The “AGM”).  As previously disclosed, this reduction in the size of the Board of Directors is necessary to align with the reduced size and location of GreenFirst’s operations. Three Board members graciously volunteered for this reduction, Barbara Anie, Sean Willy and Candice Bergen, and as such they will not be put forward on the slate for re-election at the AGM. Ms. Anie and Mr. Willy will continue to the AGM and Ms. Bergen has resigned.

“On behalf of the Board of Directors and the entire staff of GreenFirst, we want to thank Barbara, Sean and Candice for their dedication and service to the company,” said Paul Rivett, GreenFirst’s Executive Chair.

Outlook

High interest rates, macroeconomic concerns and tensions in Middle East and Europe 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. However, there is indication from the US Federal Reserve and Bank of Canada for interest rate cuts in 2024, which could positively impact lumber demand.

In the longer-term, lack of available housing inventory, record levels of immigration in Canada, aging of homes in the US and demographic driven demand are expected to positively impact lumber markets.

Despite continued curtailment of lumber production in British Columbia and some other regions of North America, short-term pricing benefits have not been material. Reduced lumber demand and low inventory maintenance continue to balance out supply side pressures in the short-term. However, these curtailments may provide a positive effect in the long-term.

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.

During the third quarter of the year ended December 31, 2023, the Company recorded a US$6.9 million (CAD$9.2 million) recovery related to 2021 duties recoverable, following the US Department of Commerce’s Final Determination of its Fourth Administrative Review.

For the full results, click here.

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.

Source: GreenFirst Forest Products Inc.