GreenFirst Reports Strong Results for the First Quarter of 2022

May 12, 2022

By: The Working Forest Staff

TORONTO, CNW – GreenFirst Forest Products Inc. has announced results for the first quarter of 2022. The Company’s condensed consolidated interim financial statements and related Management Discussion and Analysis (“MD&A”) 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 2022 Highlights

  • First-quarter of 2022 (“Q1 2022”) net earnings were $34.0 million, or $0.18 per share (diluted), compared to $8.0 million, or $ 0.04 per share, in the fourth quarter of 2021 (“Q4 2021”), which was the Company’s first full quarter operating its acquired forest-products assets
  • Q1 2022 Adjusted EBITDA was $44.9 million (see, Reconciliation of Adjusted EBITDA), an improvement of 144% compared to the Adjusted EBITDA in Q4 2021
  • Lumber pricing improved significantly in Q1 2022 and outlook continues to be strong for the remainder of the second quarter of 2022 and beyond, with continued volatility but above-historical levels expected
  • Asset-backed revolving loan facility of $65.0 million was undrawn at quarter-end and has remained undrawn at May 11, 2022. Seasonal log inventory build-up continued to be funded from strong operating cash flow
  • The Company plans to conclude its Transition Services Agreement with Rayonier Advanced Materials by end of May 2022
  • The Government of Ontario has offered support to relocate the Kenora sawmill, an opportunity we continue to work on. The Company is also moving some equipment to our other Ontario sawmills to improve production and recovery
  • Subsequent to Q1 2022, the Company made a voluntary repayment of US$8.9 million on its outstanding term debt

“We are pleased to see the lumber markets showing strength in 2022, which helped us achieve strong results for our first quarter,” said Rick Doman, CEO of GreenFirst. “Our earnings reflect the favourable pricing in lumber, however transportation remains a challenge, which led to lower sales volume and higher inventory levels. We continue to focus on investing in our operations to improve productivity and recovery.” 

Acquisition of Sawmills and Paper Mill

On August 28, 2021, the Company acquired six sawmills and one paper mill from Rayonier Advanced Materials (the “Rayonier Asset Acquisition”) for aggregate consideration of $293.7 million. The Company has measured and recorded the identifiable assets acquired and the liabilities assumed at management’s estimates of their acquisition-date fair values. As the acquisition is within the measurement period, the Company and its external valuation experts are still assessing acquisition date fair value adjustments, including fair values of property, plant and equipment and related depreciation charges, leases and estimated final purchase price adjustments related to inventory and other items. For further information on the purchase price accounting, please refer to the Company’s first quarter interim financial statements.

Financial Highlights

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

      March 26,   December 31,   March 31,
For the quarter ended     2022   2021   2021
Net sales              
   Forest products (1)   $ 158,084 $ 142,981 $
   Paper products     14,684   18,570  
Total net sales     172,768   161,551  
Operating earnings (loss)     38,969   12,540   (1,350)
Net earnings (loss) for the period     34,043   7,953   (1,554)
Basic earnings (loss) per share     0.19   0.04   (0.07)
Diluted earnings (loss) per share     0.18   0.04   (0.07)
Adjusted EBITDA (2)     44,864   18,358   (1,448)
               
           March 26,    December 31,
As at         2022   2021
Total assets       $ 482,957 $ 415,937
Total liabilities         219,380   186,778
Total shareholders’ equity         263,577   229,159
               
1 Includes net sales to external parties only.
2 Adjusted 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 Reconciliation of Adjusted EBITDA section below.
 

The Company recorded net earnings of $34.0 million ($0.18 per share, diluted) for Q1 2022 and Adjusted EBITDA of $44.9 million. These were improvements of 328% and 144%, respectively, quarter-over-quarter.

The Company reported net sales of $172.8 million during Q1 2022, an improvement of $11.2 million or 7%, quarter-over-quarter.  

The Company reported cost of sales of $110.6 million during Q1 2022, a decrease of $19.7 million or 15%, quarter-over-quarter. This was primarily driven by the volume impact of fewer shipments due to logistical challenges in Q1 2022, which is expected to improve going into Q2 2022.

The Company reported selling, general and administrative expenses of $6.0 million during Q1 2022. Selling, general and administrative expenses in Q1 2022 increased by $1.0 million over Q4 2021, primarily driven by the ramp-up of the Company’s corporate activities and associated growth in headcounts. This was partially offset by lower information technology set-up costs and lower costs related to transitional services.

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 2022 were $16.4 million, an increase of $3.3 million or 25%, quarter-over-quarter, which was driven by higher average selling prices.

Finance costs, which include interest and accretion on the Company’s borrowings under the senior secured term credit facility, was $3.6 million in Q1 2022.

Liquidity and Borrowings

At March 26, 2022, the Company had total liquidity of $89.9 million comprised of $39.1 million cash on hand and $50.8 million, net of $14.2 million for standby letters of credit, available under its $65.0 million asset-based revolving loan (“ABL”) facility. The ABL facility was undrawn at March 26, 2022, and remains undrawn as of May 11, 2022.

At March 26, 2022, the Company had $114.4 million of borrowings under its senior secured term credit facility, net of deferred financing costs. The credit agreement contains restrictive covenants that limit the Company’s ability to undertake certain actions without the lender’s consent; it also includes the following financial covenant tests performed quarterly: a maximum leverage ratio; a minimum fixed-charge coverage ratio and a minimum liquidity requirement, all as defined in the term loan agreement. The Company monitors its performance monthly as well as its future performance expectations, adjusting as required in relation to these covenants.  The Company is fully in compliance with its secured term loan debt covenants as of March 26, 2022. Subsequent to the quarter-end reporting date, the Company made a voluntary repayment of US$8.9 million, plus accrued interest, on the term debt, in addition to a scheduled US$1.25 million quarterly repayment due at the end of March 2022, together with accrued interest relating to Q1 2022.

Outlook

Entering spring 2022, rising interest rates in response to higher inflation represented a head wind to lumber demand.  However, in the second half of April 2022, lumber market prices rebounded partly due to tightening lumber supply including the effects of international sanctions on Russia, barring Russian forest products from European markets.

Moreover, we expect COVID-19 to remain a concern through the remainder of 2022, while disruptions to modes of transportation used by the industry may also continue to be a factor that tightens the supply of lumber to the North American market. 

The combination of macro supply tightening and the risk of disruptions to lumber supply within North America underlies our expectation of continued volatility in lumber prices, with prices expected to continue above historic trends for the remainder of 2022.

Lumber prices have a material impact on the operating earnings of the Company and in the first quarter of 2022, a US $10/Mfbm difference in lumber prices would have impacted the Company’s operating earnings by approximately $1.1 million, assuming everything else remained constant. The Company currently does not have any hedges in place for lumber prices.

Inflationary pressures in North America have increased the cost of many inputs required for our operations. Furthermore, shortages of people, materials and equipment could negatively impact the Company, as well as the industry. Many of these pressures have been linked to the COVID-19 pandemic, which may still be a significant factor in 2022.

The Company has capital losses carried forward of $15.2 million, which do not expire, and non-capital losses carried forward of $26.1 million that expire at various dates up to 2041.

Reconciliation of Adjusted EBITDA

References to EBITDA in this document are earnings (loss) before interest and finance costs, income taxes, depreciation and amortization, while references to Adjusted EBITDA are EBITDA plus other non-operating costs such as acquisition and transaction-related costs and the impact of foreign exchange on the Company’s long-term debt.  Management believes that certain lenders, investors, and analysts use EBITDA and Adjusted EBITDA to measure the Company’s ability to service debt and meet other payment obligations, and as a common valuation measurement. 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.  They are not intended to replace 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.

      March 26,   December 31,   March 31,
For the quarter ended     2022   2021   2021
Net earnings (loss) for the period   $ 34,043 $ 7,953 $ (1,554)
Adjustments:              
   Finance costs, net     3,621   4,529   106
   Income taxes     2,806   (2,031)  
   Depreciation and amortization     5,895   5,835  
EBITDA     46,365   16,286   (1,448)
Foreign exchange on long-term debt     (1,501)   (18)  
   Acquisition and transaction-related

   costs

      2,090  
Adjusted EBITDA   $ 44,864 $ 18,358 $ (1,448)
               

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