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GreenFirst announces Q2 2023 financial results: Key highlights

GreenFirst Forest Products announced the 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.

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 percent on August 1, 2023 from the previous rate of 20.23 percent. 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 percent 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.”

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.