GreenFirst Forest Products Inc. (TSX: GFP) reported a net loss of $13.4 million for the first quarter of 2024, influenced by a $4.9 million deferred tax expense and negative Adjusted EBITDA of $3.5 million. Despite the losses, the company remains optimistic about a market recovery in the latter half of the year.
The lumber segment of the business showed positive contributions with sales reaching $69 million, while the paper segment faced challenges, reflected in $24 million in sales.
The company is actively pursuing cost-saving measures, strategic planning, and monetization of non-core assets to improve financial performance.
Key Takeaways
- GreenFirst reported a Q1 net loss of $13.4 million, including a significant deferred tax expense.
- Lumber sales contributed positively, while the paper segment struggled, leading to a negative Adjusted EBITDA.
- The company is optimistic about a market rebound in the second half of 2024.
- Strategic initiatives include cost-saving measures, a new strategic plan, and monetizing non-core assets.
- GreenFirst is working with Rayonier (NYSE:RYN) to resell chips and is exploring options to support the industry through government collaboration.
Company Outlook
- GreenFirst anticipates a market recovery in H2 2024.
- The company is focused on returning the paper mill to profitability by year-end.
- They remain committed to sustainable forestry practices and safety.
- GreenFirst is working with governments to receive funds for studies on green energy and power.
Bearish Highlights
- The industry is experiencing curtailments and closures, affecting operations.
- The paper mill faced external power failures and equipment delays in Q1.
- There is a challenge in finding room for excess chips due to mill closures.
Bullish Highlights
- GreenFirst is optimistic about the lumber market, citing potential interest rate cuts and undersupply in the housing market.
- Lumber production increased in Q1 and is expected to continue rising in Q2.
- April showed improvements for the paper mill, marking the best month in some time.
Misses
- Lower overall volumes led to a slight decrease in sales.
- The paper segment is still not profitable, despite recent improvements.
Q&A Highlights
- The company is in discussions to sell Pena Island and Kenora land, among other private lands.
- GreenFirst is confident in its contract with Rayon for the purchase of chips.
- There are no current plans to shut down any machines at the paper mill.
GreenFirst Forest Products Inc. is navigating a challenging market with a strategic approach aimed at overcoming current setbacks and positioning itself for future growth.
The company's leadership is actively engaging with potential buyers for its non-core assets and is exploring various avenues to optimize operations and enhance profitability.
With a clear focus on sustainable practices and industry support, GreenFirst is setting the stage for what it believes will be a strong recovery in the latter part of 2024. Investors and stakeholders are keeping a close eye on the company's next moves as they await the second quarter results.
Full transcript - None (ICLTF) Q1 2024:
Operator: Good morning, ladies and gentlemen, and welcome to the GreenFirst First Quarter 2024 Results Conference Call. Please note that all lines have been placed on mute to prevent any background noise. During this conference call, GreenFirst representatives will be making certain statements about future financial and operational performance, business outlook and capital plans. These statements may contain forward-looking information or forward-looking statements within the meaning of Canadian Securities Law. Such statements involve certain risks, uncertainties and assumptions, which may cause GreenFirst's actual or future results and performance to be materially different from those expressed or implied in these statements. Additional information about these risks, factors, and assumptions is included in GreenFirst's MD&A, which can be accessed on the company's website or through SEDAR+. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Mr. Rivett, you may now begin the conference.
Paul Rivett: Thank you very much, Sylvie. Good morning, everyone, and welcome to our first quarter 2024 earnings call. As Sylvie mentioned, I am Paul Rivett, Chair of GreenFirst. Today I am joined by our esteemed management team led by Joel Fournier, our CEO; Terry Skiffington, CEO of Cap Paper; Ankit Kapoor, our Interim CFO; and Michel Lessard, our President. We entered 2024 as a much more focused organization with Joel leading our operations and Terry who was brought in to focus on the paper mill. So far 2024 has been a roller coaster ride for the industry. We saw some positive price momentum during portions of the quarter with that momentum subsiding in the recent months. This has brought forth curtailments in our industry, particularly in Western Canadian region with significant pressures to operations in the East as well. In addition, with recent indefinite closures of the Domtar (NYSE:UFS) Espanola and Birla AV Terrace Bay pulp mills and now with the announcement of the indefinite closure to Temiscaming HPC operations, there is a perfect storm impacting the lumber ecosystem in Northern Ontario. We remain confident that these short-term pressures are a precursor to a strong second half of '24 and beyond. The long-term fundamentals for the lumber industry remain promising. However, the industry continues to face near-term challenges. Inflationary pressures continue to be stubborn, which is delaying potential interest rate cuts by the U.S. Federal Reserve and Bank of Canada, a boost that is much needed for the rebound of lumber markets. With prices hopefully bottoming in recent weeks, we remain optimistic for a market recovery later in the year and into 2025. Supply side pressures continue to mount in the industry with mill closures in British Columbia and other parts of North America. We again want to reiterate that we are very thankful to operate in Ontario in these tough times. Ontario is a province that is business friendly and supportive of lumber producers and is solutions focused for the Forest Products ecosystem. On the paper side, we faced some disruptions caused by external events as well as pricing erosion which has led to deeper losses which Terry will discuss in more detail. We are very focused on exploring ways to reduce the negative financial impact of the paper mill on our overall results. Our management team will now take us through the results of the quarter and year starting off with Ankit giving us the financial highlights. Over to you Ankit.
Ankit Kapoor: Thanks, Paul, and good morning, everyone. The company's net loss in Q1 was $13.4 million, this includes a $4.9 million deferred tax expense in Q1. Adjusted EBITDA for Q1 was negative $3.5 million compared to an adjusted EBITDA of negative $18 million in Q4 2023. For Q1, we had positive contribution from our lumber segment, which was offset by losses in the paper segment and overhead. Net lumber sales recorded in the quarter were $69 million closely compared to $70 million in Q4. Q1 saw higher prices on average compared to Q4, but this was offset by lower overall volumes in Q1. Pricing in Q1 showed some resilience. However, the momentum was lost toward the end of the quarter and into Q2, driven by weaker housing affordability as mortgage rates in the U.S. started to climb. There was some volume support in Q1 due to field takeaways driven by unseasonably warmer climate, which aided buyer sentiment. Cost of sales in the lumber segment were $62 million compared to $76 million in Q4. This was due to a $6 million swing in net realizable value adjustments as Q4 had an increase to NRV provisions, while Q1 had a net credit. Additionally, cost of sales decreased due to lower volumes sold and gained efficiencies in Q1. Compared to Q1 of last year, the company's net sales in the Forest Products segment improved by over 12% as demand in the comparative Q1 of 2023 was heavily impacted by weak buyer sentiment resulting from sustained interest rate increases. Cost of sales in the lumber segment improved by 14% compared to Q1 of last year, primarily due to a net benefit related to inventory NRV recorded compared to a charge recorded in the first quarter of last year and due to better efficiencies. This was partially offset by the impact of higher volumes sold in the first quarter of 2024. The Paper segment saw net sales of $24 million in Q1 versus $33 million in Q4. Sales were negatively impacted due to lower average pricing and lower volumes sold in North American markets. Cost of sales for Paper segment decreased to $33 million compared to $39 million in Q4 as a result of lower volume sold. Both Q4 and Q1 saw higher maintenance related costs due to production related disruptions. Compared to Q1 of last year, the company's net sales in Paper segment decreased by 36%. This was primarily driven by the lower volume due to production related disruptions and continued pricing pressures seen during the course of 2023 and into 2024. Cost of sales in the Paper segment compared to Q1 of last year decreased by 8%. This decrease in cost of sales in the first quarter of 2024 was primarily due to lower paper production and sales offset by higher costs related to unplanned maintenance. SG&A expenses of 2.5 million in Q1 were lower compared to 5.7 million in Q4. This was primarily due to a recovery of 1.5 million related to the reversals of incentive payouts that were accrued last year, lower spend on external services and credits related to fringe benefits. For Q1 2024, finance costs were 1.1 million primarily reflecting interest charges on the company's outstanding debt under the credit facility. During Q1 2024, the company made net borrowings of 20.5 million against the revolving portion of the credit facility, primarily to support the company's seasonal harvesting activities. The company also made a draw of 5.3 million on its equipment lending facility, which has a $25 million gross availability and this was done to finance a key strategic project. Subsequent to Q1, the company was able to access an additional $10 million under the equipment lending facility. This was done to provide the company added flexibility and liquidity as we continue to manage our liquidity through the volatile lumber markets and harvesting season. We're ensuring tight inventory management at the mill level. Our lending facilities [Technical Difficulty] I will now pass it over to Joel for his commentary. Joel?
Joel Fournier: Good morning to all our shareholders, analysts and my colleague on this call. In my last call, I had indicated certain short-term opportunities we had identified during my first few months with GreenFirst Forest Products. In Q1 and since we have executed on several of those items to position the company for long-term success. As part of an effort to right size our overhead, we made some tough and difficult decision to downsize certain support functions and we also evaluated various external service firm and consultant and have established a transition plan to reduce spend over the course of the year. This is an area where we identify a clear opportunity and our goal is to achieve a long-term sustainable run rate by the end of this year. In an effort to support our sawmill more efficiently and without being a drag on the profitability. We are on track now to achieve our target cost for SG&A of $40 per thousand FDM and we'll continue to report progress to our shareholder. This represents a saving of $8 Million in cost. We have already made some good progress in Q1 to attain this goal. At the mill level, we have already seen significant positive momentum that have been created during Q1 of 2024. In fact, we broke 19 meaningful production record in Q1. And I just wanted to highlight a few. During the quarter, our shuffle mill had its highest monthly production and broke multiple weekly production record. Also in April, we had a solid start and broke the monthly record again. Our capes casing sawmill had its best Q1 production ever. And I would like to share also they had a solid start in April and broke the monthly record again. Also at our Hearst sawmill, they broke a couple of production record at the planer as well. This is a testament to dedication and hard work of all our staff at the mills. Whoever in the volatile lumber market are laser focused on improving what they control and position the company operation for success during the rebound, which we anticipate to follow in the second half of the year and into 2025. Despite this improvement, we still have a lot of work to do to improve the business and there's still much more initiative we can put together and we're going to continue to put together to drive the business forward. We need to ensure such production is maintained and continue on a consistent basis going forward. To continue to drive a culture of continuous improvement across the company, we have identified specific non CapEx initiative to drive saving of approximately $14 million compared to 2023 results. We have positioned mill incentive in line with this goal and they remain a top priority for the team. The team has also worked very hard to draft the new strategic plan that we are confident and believe that it provides a good blueprint for the company future success. I will be sharing this plan in our Q2 earning call with our investors. Her focus under that plan is clear. We want to grow her capacity in Ontario with targeted strategic capital project. We want to continue to focus on continuous improvement initiative and we're looking to utilize all the available log that we have with GreenFirst. In the mid- to long-term, we want to ensure we are in the top quartile for processing costs and are able to use, like I said, all the available wood we have in Ontario. The future position of GreenFirst will have a cost profile to be profitable through the cyclical lumber market. With the successful split of the lumber and paper mill operations, we are now able to focus on optimizing each business separately. With this, we continue to empower our mill manager and there is no doubt that this effort has led to production record we have seen lately. We continue to look at opportunities to monetize our noncore asset. We are in a process to sell and maximize the value of the Pena Island located on the Lake of the Woods. We also have reached agreement on other noncore lands, which are much smaller scale that we expect to close for this year. We remain bullish on lumber market despite short-term shock to pricing. The possibility of interest rate cut beginning in 2024, the undersupply housing market and record level of immigration remain key fundamental driver for the ribbon in lumber price. We also wanted to ensure investor that GreenFirst remain well positioned to find a home for its residual in an increasingly challenging market dynamic with Ontario Pulp Mill recently shutting down or scaling back operation. In fact, on April 29th, RYAM Advanced Material issued a press release announcing that effective July 2, 2024, it will suspend operation at this Temiscaming High Purity Cellulose planned for an indefinite period. GreenFirst has a long agreement in place with RYAM to supply chip from its mill located in Chapleau and Cochrane. Discussion with Rayonier are ongoing and we are working together to resell the portion of the chip RYAM is committed to purchase from us. The contract, we do have a contract with them and the contract is clear. RYAM needs to continue to take chip. We have already identified a different option and made progress to date. Sales saw a slight decrease in Q4 due to worry around mortgage rates that impact affordability of homes. Some positive driver for sale were warmer climates and allow for more field takeaways, which Bayer (OTC:BAYRY) already maintaining low field inventory level. We see this as an opportunity as we anticipate a rebound later in 2024. Low field inventory level coupled with anticipated decline in interest rate will provide a much-needed boost to demand and buyer activities. During the first quarter of 2024, lumber production saw an increase over the fourth quarter. This uptick in production was driven by less maintenance downtime and better mill performance, particularly at the Chapleau and Kapuskasing sawmill as I referenced earlier. We expect this trend to continue in Q2. The sawmill operation had a solid start in April with production record being broken again in Q2. In fact, Chapleau and Kapuskasing had their highest production record for the month of April like I mentioned earlier. I would like also to comment the team on the improvement to our safety record. We have seen incremental improvement over last year and into 2024. Safety is a core value at GreenFirst and it's very important for us and our team. That's it for this section. I will pass it over to Terry Skiffington for his comments on the paper operation.
Terry Skiffington: Thanks, Joel, and good morning, everyone. Coming off a tough quarter in Q4 '23, we started the year with some spillover impact of issues that were felt in Q1. In addition to this, we had 2 external power failures that were outside of our control. These were particularly bad as both failures took the mill to a block state. As a result for both events, there was significant equipment damage in addition to the process interruptions. Significant time and costs were incurred to return the mill to normal operations. Dealing with one of these is tough enough in Kenora and we had just happened to have to be faced with 2. We also saw some equipment delays from suppliers during the quarter that prolonged some of the maintenance related activities. This series of events made it very tough for the mill to stabilize during the first quarter. We have implemented several measures at the mill level that I had discussed in the previous call, which came as a result of my initial evaluation of the mill and from what I had seen when I was engaged in 2023 to help advise on operations at the paper mill. These efforts are particularly focused on paper machine performance and equipment reliability. We have engaged our world-renowned maintenance consultants to implement preventive maintenance programs and maintenance systems, which unfortunately deteriorated during the pandemic. We also have brought in paper machine operations specialists to focus on paper machine efficiency, which is the priority to return the Cap mill to profitability. As a result, we have been pleased with the improvements seen since Q1 and the mill has markedly stabilized compared to Q4 and Q1 of this year. April has been our best month in some time both from a production cost and EBITDA perspective. We also continue to be impacted by pricing particularly in the North American markets. Q1 is historically the low point in the annual cycle. For demand and pricing, we're expecting pricing to strengthen this year, however, very modestly. In the export world, the overall market is challenging. However, we have seen an uptick in demand and pricing in the export areas that are affected by shipping constraints in the Red Sea (NYSE:SE) due to the Middle East conflict. We remain committed to operating the paper mill efficiently as a taker of chips and biomass from the GreenFirst sawmill. Our goal and operating plan is to return Cat Paper to positive earnings by year-end. From a safety perspective, there has been a very positive trend in 2024 versus last year. We have taken a very serious business approach to making the paper mill a safe place to work. All my managers understand what is expected and are delivering. I'll pass it back to Joel to complete this earnings call.
Joel Fournier: We are extremely proud of our forestry operation base solely in Ontario, where we focus on sustainable practice. We prioritize on developmental stewardship by promoting biodiversity, maintaining forest health and complete utilization of the tree we harvest. Her commitment to sustainability extend to all aspects of our business, ensuring that our lumber and paper products are produced safely. This not only protect our employee in the environment, but also have long-term value for our stakeholders. Her Gordon Cosens Forest near Kapuskasing has been FSC certified for more than 20 years and was the first forest to be FSC certified in the Canadian boreal forest showcasing her dedication to sustainable forestry. Her team is committed to excellence and implementing best practice for a sustainable future. I would like to thank everybody on the call. That concludes the first part of the presentation. We're going to be ready to answer any questions shortly. And if you have any questions, please submit them into the Q&A pod. Thank you.
Q - Paul Rivett: Okay. So we've got some questions. So what as we've done in the past, please do submit your questions into the portal and I will read off the questions and then we'll have the management team answer them. So our first question is, can you discuss the projects that required you to draw $15 million on our equipment finance facility? And I'll turn that one over to Ankit.
Ankit Kapoor: Thanks, Paul. So as we described in our MD&A, so the first portion of this $15 million about $5 million of it was drawn down to specifically finance the project related to our kiln buildup in Cochran, whereas the balance of that we leveraged the appraised value of our existing equipment. To give this was done to give added flexibility and liquidity. It wasn't done for a specific project per se.
Paul Rivett: Okay. Thanks, Ankit. The next question is, are you able to monetize your pension assets near-term? On that one, we are working first to deal with the pension liability. So we're looking at a plan to be able to potentially sell the pension liability in the back half of the year. But after we've done that, then we can look at potentially unleashing the surplus. So we are working on that. The next question is, can you expand on the expense reduction initiatives for overhead and SG&A? How much of it is done and how much of it is needed to get the run rate? Joel, if you could answer that one?
Joel Fournier: So right now we made the press release that we're going to reduce SG&A costs going forward. We made some progress. If we look at the run rate we commit to our shareholder, it was a $40 per thousand. If we look at the rate we had in Q1, we achieved $42 per thousand. So we're almost there. But we had some onetime adjustment that happened in Q1 that kind of helped to drive this number lower. So we're going to continue to track it. We're going to continue to report to our shareholder, but we're well on plan to achieve our targets here.
Paul Rivett: The next question is the cap paper results in Q4 were very bad and now Q1. What are you doing about this? Is Q2 also going to be a bad quarter? And can you comment on how you're going to be profitable by the end of the year?
Terry Skiffington: So what I can say is that many of the issues most of the issues, let's say, that carried over from Q4 into Q1 have been resolved n the quarter. And as I mentioned earlier, of course, we had 2 very serious external events, which significantly resulted in core results in Q1. In Q2, so far, as I mentioned, April has been our best month some time and our operation performance has improved and we're going to be seeing barring unforeseen external events, let's say we're going to be seeing a substantially better quarter in Q2. In terms of returning the mill to profitability, particularly at the bottom of the market cycle, If we take a look at Cap Paper pre-COVID and we look at the operating performance of pre-COVID compared to today, returning Cap Paper to the operating performance that it has demonstrated its ability to deliver, which is not exceptional, I'd say, but in terms of standard operating performance with a number of cost reduction activities, which are all tracking right now by the end of this year, let's say Q4, the paper mill will be in a cash positive position. And as I mentioned earlier and that's only with very modest pricing increases coming through this year if any. So the mill as it stands today in terms of its ability to deliver in terms of operating performance can be in at least a breakeven EBITDA position.
Paul Rivett: We're fortunate to have Terry on this. It's been a frustrating first quarter, but as he said, we're making progress. The next question is, how much money do you plan to spend on CapEx this year? Spending to date has been so minimal, are we compromising the mills? Joel, that's for you.
Joel Fournier: Generally, the first quarter is CapEx light. We do have several maintenance project that will occur in the summer and beyond that help maintain mill performance. From a strategic standpoint, we are taking a very prudent approach. We have project identified that we would like to execute on. However, we do not want to compromise overall financial position until we see lumber market turn and sustain some positive momentum.
Paul Rivett: The next question is how are you engaging with governments to support the broader industry? I'll start on that one and then turn it over to Michelle. So we have been I think as was stated by Joel in the prepared remarks, we are working with all levels of government. Government has been assisting particularly in areas of green energy, green power and so that we have been as has been provided to others in the industry, been receiving funds to help us with studies with respect to the future of not only the use of residuals, but the use of what we believe is a supersided cap. So rest assured, we're working with all levels of government and thankfully, they understand the necessity to bolster that ecosystem in Northern Ontario. The next question is with Rayonier selling their duties, why are you not considering this? Please rest assured we have as I've said on prior calls, we're looking at all options to monetize the assets we have. And particularly in this prolonged down cycle, we are looking at ways to release liquidity and we are exploring options with respect to the duty monetization. Other than that, I can't say much more. With respect to newsprint prices falling, do you see a shutdown of the second line or taking any downtime? What I will say that's obviously Terry's area, but what I can say is that we do not have any current intentions to shut down any machine. However, as we said in the past, from a broader perspective, we will take a careful look at the operations. And if we are anticipating prolonged losses, we'll have to do what's best for shareholders. But for now, we continue to look at our costs. And as Terry is saying, we're working on what we can control and we're focused on ensuring that the negative contribution from the paper mill is minimized as soon as possible and with a, with what we think is a path to getting to breakeven or better by the end of the year. The next question is, can you provide an update on the Kenora letter of intent and the rest of the Kenora land? That's probably best for you, Michel.
Michel Lessard: Yes. Thanks Paul. So regarding the Kenora land LOI, so we remain in discussion with the interested party. Our interest that said remains to monetize that land ASAP. So and we're working on different options actually for the sale. We have also some other private lands that we have for sale or that are still for sale. So we made pretty great progress on that. So big majority of it found buyers and we are in discussion for the sale of the remaining lands that are located around the Kapuskasing area and again we remain very confident to get the agreement in the next month.
Paul Rivett: Thanks, Michelle. I think this next question is going to be for you as well. What does the Temiscaming facility closure mean for GreenFirst chips? What ways are you exploring to use these excess chips?
Michel Lessard: Yes. That's a good one. I would start to say that's a challenge for the entire industry now in Ontario to find room for chips. That started also with the closure of Espanola and also Berlioz EBITDA as Bay. And now it's just going to be worst with the announcement that the Rayonier made in a few weeks ago. So that being said, we maintain confidence in our contract with Rayon under they are required to take chips from us. So in the event that they are not able to take the chips directly, so as it's going to be again after July 2nd, so they have to find an alternative. And we are in a constant communication with the Rayon about that and they confirm that they will take care of the chips. So it's a good news and again our contract that we have in place is pretty strong.
Paul Rivett: No, and I can say that in our dealings with Rayon since the purchase of the various assets that we bought from them, they've been stand up in every way and have met their commitments and we expect they'll meet their commitments here as well. Next question. Are the mills able to sustain these record-breaking trends? And it has been incredible what we've seen particularly since you've arrived, Joel. So that's over to you.
Joel Fournier: Our goal is to ensure our mills are consistently performing at an optimal level. We're very proud of the team and all the record that they've been broken for Q1. However, like I mentioned previously, there's a lot of work that needs to be done and we can continue to push this to the next level. I'm pleased to say that this momentum has carried into second quarter and our operation with their continuous improvement mindset are determined to break even more records and set the ship up nicely for the expected rebound in lumber price when such trends will be mostly cut there for the company.
Paul Rivett: So that's it for the questions we're seeing in the portal. So we'll maybe just pause for a minute to see if there's any other questions that come in. Okay. So thank you very much everyone for attending. That ends the call. There are no further questions and we look forward to bringing you the second quarter results very soon. Thanks again and have a great day.
Operator: Thank you, sir. Ladies and gentlemen, this does indeed include the conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
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