GreenFirst Reports Financial Results for the First Quarter of 2023
GreenFirst Forest Products Inc. (“GreenFirst” or the “Company”) announced results for the first quarter ended April 1, 2023. The Company’s interim financial statements (“Financial Statements”) and related Management Discussion and Analysis (“MD&A”) for the first quarter ended April 1, 2023 are available on GreenFirst’s website at www.greenfirst.ca and on SEDAR at www.sedar.com. All amounts are in thousands of Canadian dollars unless indicated otherwise.
First Quarter of 2023 Highlights
- First quarter 2023 (“Q1 2023”) net loss from continuing operations was $20.2 million or a $0.11 loss per share (diluted), compared to net loss of $25.9 million or $0.15 loss per share (diluted) in the fourth quarter of 2022 (“Q4 2022”) on the same basis. Lumber prices dropped, reflecting economic headwinds and lower demand in Q1 2023, with an average selling price of $605/mfbm compared to $644/mfbm in Q4 2022. The Q1 2023 valuation provision for lumber and logs inventory was increased to $11.9 million from $8.7 million at the end of Q4 2022.
- Sold its two Quebec mills for gross proceeds of $94.1 million, subject to working capital adjustments, at a $3.5 million loss on disposal.
- Reducing overheads and operating costs while increasing production efficiencies.
- Signed a non-binding letter of intent to sell approximately 30 of 118 acres of the land in Kenora.
- The Company has significantly deleveraged its balance sheet by reducing its outstanding debt and is no longer subject to financial covenant ratios.
“GreenFirst is now focused on optimizing its core assets in Ontario, supported by a streamlined, cost-effective operating platform. We have strengthened our balance sheet and our recent efforts to improve operational efficiencies have begun to yield positive results”, said Paul Rivett, interim CEO and executive Chairman of GreenFirst. “In August 2023, we expect the duty rates to drop from 20.23% to 8.24%, which will increase profitability”, added Paul Rivett.
The Company reported net sales for continuing operations of $99.1 million during Q1 2023, a decline of $1.1 million or 1%, compared to Q4 2022. This decrease was primarily due to declining lumber prices ($605/mfbm average realized in Q1 2023 compared to $644/mfbm in Q4 2022), partially offset by higher sales for the paper segment.
The Company reported cost of sales of $106.9 million during Q1 2023, lower by $12.7 million or 11%, compared to Q4 2022. This decrease reflects the impact of lower lumber shipments and lower overall costs compared to Q4 2022.
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. Duties expensed in Q1 2023 were $6.6 million, a decrease of $1.2 million or 15%, quarter-over-quarter. In August 2023, the company expects its duty rates to drop from from 20.23% to 8.24%.
The Company reported selling, general and administration expenses for continuing operations of $5.2 million during Q1 2023 which was a decrease of $0.7 million or 12% compared to Q4 2022.
Liquidity and Borrowings
At April 1, 2023, the Company has $62.6 million, less $5.4 million for standby letters of credit, of excess availability under the revolving portion of the Credit Facility. The Company made net repayments of $19.0 million against the Credit Facility during the first quarter ended April 1, 2023 (with a further repayment of $5.0 million subsequent to April 1) and the Company is no longer subject a minimum fixed-charge coverage ratio.
The impacts of rising interest rates in response to ongoing inflation resulted in softened lumber demand since mid year 2022. This led to a decline in lumber market prices throughout the second half of 2022, with those levels persisting in the first quarter of 2023 and through early spring thus far. Further monetary tightening and interest rate rises would 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.
Partially offsetting the negative impact is the tightening lumber supply, spurred on by the curtailment of lumber production in the province of British Columbia and in other regions of North America. There is an expectation that there could be further curtailments in British Columbia and the Pacific North West if the current low levels of pricing persist.
The Company continues to experience challenges with an ongoing tight labour market, with some residual impacts of COVID-19 in early 2023. This continues to cause disruptions in the flow of production at the Company’s mills. From a logistics standpoint, disruptions in trucking and rail have only been limited since the second quarter of 2022.
Inflationary pressures in North America have raised the cost of many inputs required for our operations. Ongoing shortages of people, materials or equipment could negatively impact the Company, as well as the industry. Many of these pressures arose due to the COVID-19 pandemic, and they continue to be a significant factor affecting our business.
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.
For the full first quarter results, click here.
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 6.1 million hectares of FSC® certified public Ontario forestlands (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.