GFP:CC - GreenFirst Reports Financial Results for the Third Quarter of 2022
GreenFirst Forest Products Inc. (TSX: GFP) (“GreenFirst” or the “Company”) today announced results for the third quarter of 2022. The Company’s condensed consolidated interim financial statements ("Financial Statements") and related Management Discussion and Analysis ("MD&A") for the third quarter and three quarters ended September 24, 2022 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.
Third Quarter of 2022 Highlights
- Third quarter 2022 (“Q3 2022”) net loss was $23.3 million or a $0.13 loss per share (diluted), compared to net earnings of $30.7 million or $0.16 per share in the second quarter of 2022 (“Q2 2022”). This quarter marked the one-year point for the Company operating its acquired forest- products assets.
- Q3 2022 Adjusted EBITDA was a loss of $7.9 million , compared to Adjusted EBITDA in Q2 2022 of $54.3 million. Adjusted EBITDA before duties expensed for Q3 2022 was $5.1 million, compared to $76.6 million in Q2 2022.
- Lumber continued to experience price volatility in Q3 2022, with an average selling price of $780/ mfbm compared to $1,255/mfbm in Q2 2022. Steeply rising interest rates and inflation reduced demand for lumber products from the second quarter onward, and remain a concern impacting US housing starts and homebuilders' confidence.
- On September 23, 2022, the Company entered into a credit agreement with a tier-1 Canadian bank for up to $140.0 million consisting of a term loan of $15.0 million and an asset-backed revolving credit facility of up to $125.0 million (collectively, the "Credit Facility"). This refinancing replaced a high yield secured term loan (US$87.3 million outstanding at extinguishment) and a $65.0 million asset-backed loan facility (undrawn at time of extinguishment).
- On November 7, 2022, the Company announced the sale of its 203,000 acres of private forest land south of Kapuskasing, Ontario, to a third party for cash proceeds of $49.2 million.
“In the third quarter, we saw the global lumber markets softening, which along with higher softwood lumber duties is reflected in our results,” said Rick Doman, CEO of GreenFirst. “We will continue to monitor the external challenges we currently face, and work towards cost reduction and operational improvement.”
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 $296.1 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. For further information on the purchase price accounting, please refer to the Company’s third quarter interim financial statements.
Financial Highlights
The following selected financial information is from the Company’s second quarter interim financial statements and MD&A:
| (In thousands of CAD, except per share amounts) For the quarter ended |
| September 24, |
| June 25, |
| September 25, |
| Net sales |
|
|
|
|
|
|
| Forest products (2) |
| $ |
| 127,397 |
|
|
| $ |
| 191,828 |
| $ |
| 22,796 |
|
|
| Paper products |
|
|
| 26,027 |
|
|
|
|
| 22,736 |
|
|
| 6,132 |
|
|
| Total net sales |
|
|
| 153,424 |
|
|
|
|
| 214,564 |
|
|
| 28,928 |
|
|
| Operating (loss) earnings |
|
|
| (12,366 |
| ) |
|
|
| 50,168 |
|
|
| (6,046 |
| ) |
| Net (loss) earnings for the period |
|
|
| (23,259 |
| ) |
|
|
| 30,650 |
|
|
| (13,122 |
| ) |
| Basic (loss) earnings per share |
|
|
| (0.13 |
| ) |
|
|
| 0.17 |
|
|
| (0.16 |
| ) |
| Diluted (loss) earnings per share |
|
|
| (0.13 |
| ) |
|
|
| 0.16 |
|
|
| (0.16 |
| ) |
| Adjusted EBITDA (3) |
|
|
| (7,907 |
| ) |
|
|
| 54,307 |
|
|
| (4,724 |
| ) |
| (In thousands of CAD, except per share amounts) |
|
|
| September 24, |
| September 25, |
| For the three quarters ended |
|
|
|
|
| 2022 |
|
|
| 2021 (1) |
| Net sales |
|
|
|
|
|
|
| Forest products (2) |
|
|
| $ |
| 477,309 |
| $ |
| 22,796 |
|
|
| Paper products |
|
|
|
|
| 63,447 |
|
|
| 6,132 |
|
|
| Total net sales |
|
|
|
|
| 540,756 |
|
|
| 28,928 |
|
|
| Operating earnings (loss) |
|
|
|
|
| 78,500 |
|
|
| (7,771 |
| ) |
| Net earnings (loss) for the period |
|
|
|
|
| 42,705 |
|
|
| (17,208 |
| ) |
| Basic earnings (loss) per share |
|
|
|
|
| 0.24 |
|
|
| (0.40 |
| ) |
| Diluted earnings (loss) per share |
|
|
|
|
| 0.22 |
|
|
| (0.40 |
| ) |
| Adjusted EBITDA (3) |
|
|
|
|
| 91,264 |
|
|
| (6,691 |
| ) |
| 1 Certain prior period amounts have been restated as a result of the Company finalizing its purchase price accounting related to the Rayonier Asset Acquisition, as allowed under IFRS. Please refer to Note 4 - Acquisition of Sawmills and Paper Mill, in the Company's Financial Statements for further information. |
| 2 Includes net sales to external parties only. |
| 3 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. |
| (In thousands of CAD) |
| September 24, |
| December 31, |
| As at |
|
|
| 2022 |
|
|
| 2021 (1) |
| Total assets |
| $ |
| 441,876 |
| $ |
| 417,394 |
| Total liabilities |
|
|
| 175,656 |
|
|
| 186,778 |
| Total shareholders' equity |
|
|
| 266,220 |
|
|
| 230,616 |
| 1 Certain prior period amounts have been restated as a result of the Company finalizing its purchase price accounting related to the Rayonier Asset Acquisition, as allowed under IFRS. Please refer to Note 4 - Acquisition of Sawmills and Paper Mill, in the Company's Financial Statements for further information. |
During Q3 2022 the Company recorded a net loss of $23.3 million ($0.13 loss per share, diluted) and Adjusted EBITDA loss of $7.9 million. These were declines compared to Q2 2022 where net earnings were $30.7 million ($0.16 per share, diluted) and Adjusted EBITDA was $54.3 million.
The Company reported net sales of $153.4 million during Q3 2022, a decline of $61.1 million or 28%, compared to Q2 2022. This decrease was primarily due to declining lumber prices as the average selling price decreased to $780/mfbm compared to $1,255/mfbm in Q2 2022.
The Company reported cost of sales of $150.9 million during Q3 2022, higher by $13.4 million or 10%, compared to Q2 2022. This increase correlates with higher volume of lumber and paper sales, in addition to price inflation in Q3 2022, compared to Q2 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 Q3 2022 were $13.0 million, a decrease of $9.3 million or 42%, quarter-over-quarter, which was driven by a lower average sales price on volumes shipped and exported compared to Q2 2022. Excluding the impact of duties expensed, Adjusted EBITDA for the third quarter and three quarters ended September 24, 2022 was $5.1 million and $142.9 million, respectively.
The Company reported selling, general and administration expenses of $5.9 million during Q3 2022 which was a decrease of $1.0 million compared to Q2 2022, primarily due to lower spend on information technology set-up related activities and lower costs related to transitional services that the Company incurred in the first half of 2022.
Finance costs, which include interest and accretion on the Company’s borrowings under the now extinguished term loan, was $4.0 million in Q3 2022.
In connection with the extinguishment of the term loan and the asset-backed loan facility, the Company recognized a loss of $11.2 million, which primarily reflects the write-offs of $7.7 million and $1.0 million of remaining capitalized fees related to the term loan and the asset-backed loan facility, respectively. In addition, there was a $2.5 million prepayment premium related to the early extinguishment of the term loan.
As part of the purchase price consideration for the Rayonier Asset Acquisition, the Company had recorded a $5.3 million receivable related to estimated final inventory adjustments at closing (See Note 4 - Acquisition of Sawmills and Paper Mill in the Company's Financial Statements) , which reflected the estimate of the amount subject to the arbitration process as at September 24, 2022. On November 4, 2022, the arbitrator provided a final and binding written determination which resulted in the Company revising the carrying value of this receivable to . The Company has accounted for this transaction as an adjusting subsequent event by recording a loss of $5.3 million for the third quarter and three quarters ended September 24, 2022, presented as “Other non-operating loss” in the Financial Statements.
Liquidity and Borrowings
At September 24, 2022, the Company had total liquidity of $52.5 million comprising $29.9 million in cash on hand and $35.3 million, net of $12.7 million for standby letters of credit, available under its new Credit Facility. The Company has drawn down $84.0 million under the Credit Facility at September 24, 2022.
At September 24, 2022, the Company had $83.4 million of borrowings under its Credit Facility, net of deferred financing costs. The Company’s Credit Facility contains restrictive covenants that limit the Company’s ability to undertake certain actions without the lender’s consent, and it also includes the following financial covenant tests performed quarterly: a minimum fixed-charge coverage ratio and a maximum annual capital expenditure amount relative to budget, all as defined in the Credit Agreement. The Company monitors its performance monthly as well as its future performance expectations, adjusting as required, so it remains in compliance with these covenants. The Company was in compliance with its covenants under the Credit Agreement as at September 24, 2022.
Outlook
During the third quarter of 2022, further interest rate rises in response to ongoing inflation continued to soften lumber demand. This was evidenced by a decline in lumber market prices throughout Q3 2022 and leading into Q4 2022. Despite this, throughout Q3 2022 there were short windows of price support and tightening lumber supply, spurred on by the curtailment of lumber production announced by mills in the province of British Columbia.
COVID-19 remains a concern during Q4 2022 and as we approach 2023, although disruptions to trucking and rail logistics, seen during the first half of 2022, are not expected to recur to the same degree in the remaining two months of the year.
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. However, with recent interest rate increases announced in Q4 2022, we expect that lumber prices will continue to be under pressure.
Lumber prices have a material impact on the operating earnings of the Company. In the third quarter of 2022, a US $10/mfbm difference in lumber prices would have impacted the Company’s operating earnings by approximately $1.4 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 the near 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 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 and loss on extinguishment of debt. 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, 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. Please refer to the Company's MD&A for further information on non-GAAP measures.
| (In thousands of CAD) |
| September 24, |
| June 25, |
| September 25, |
| For the quarter ended |
| 2022 |
| 2022 (1) |
| 2021 (1) |
| Net earnings (loss) for the period |
| (23,259 |
| ) |
| 30,650 |
|
|
| (13,122 |
| ) |
| Adjustments: |
|
|
|
|
|
|
| Finance costs, net |
| 3,993 |
|
|
| 4,034 |
|
|
| 1,480 |
|
|
| Income taxes |
| (14,918 |
| ) |
| 12,041 |
|
|
| — |
|
|
| Depreciation and amortization |
| 4,459 |
|
|
| 4,139 |
|
|
| 1,302 |
|
|
| EBITDA |
| (29,725 |
| ) |
| 50,864 |
|
|
| (10,340 |
| ) |
| Foreign exchange on long-term debt |
| 5,311 |
|
|
| 4,086 |
|
|
| 10 |
|
|
| Loss on extinguishment of debt |
| 11,187 |
|
|
| — |
|
|
| — |
|
|
| Gain on investment |
| — |
|
|
| (643 |
| ) |
| — |
|
|
| Acquisition and transaction related costs |
| — |
|
|
| — |
|
|
| 5,606 |
|
|
| Other non-operating losses |
| 5,320 |
|
|
| — |
|
|
| — |
|
|
| Adjusted EBITDA |
| (7,907 |
| ) |
| 54,307 |
|
|
| (4,724 |
| ) |
| 1 Certain prior period amounts have been restated as a result of the Company finalizing its purchase price accounting related to the Rayonier Asset Acquisition, as allowed under IFRS. Please refer to Note 4 - Acquisition of Sawmills and Paper Mill, in the Company's Financial Statements for further information. |
| (In thousands of CAD) |
|
September 24, |
|
September 25, |
| Net earnings (loss) for the period |
| 42,705 |
|
|
| (17,208 |
| ) |
| Adjustments: |
|
|
|
|
| Finance costs, net |
| 11,648 |
|
|
| 1,658 |
|
|
| Income taxes |
| 387 |
|
|
| — |
|
|
| Depreciation and amortization |
| 12,764 |
|
|
| 1,302 |
|
|
| EBITDA |
| 67,504 |
|
|
| (14,248 |
| ) |
| Foreign exchange on long-term debt |
| 7,896 |
|
|
| (111 |
| ) |
| Loss on extinguishment of debt |
| 11,187 |
|
|
| — |
|
|
| Gain on investment |
| (643 |
| ) |
| — |
|
|
| Acquisition and transaction related costs |
| — |
|
|
| 7,668 |
|
|
| Other non-operating losses |
| 5,320 |
|
|
| — |
|
|
| Adjusted EBITDA |
| 91,264 |
|
|
| (6,691 |
| ) |
| 1 Certain prior period amounts have been restated as a result of the Company finalizing its purchase price accounting related to the Rayonier Asset Acquisition, as allowed under IFRS. Please refer to Note 4 - Acquisition of Sawmills and Paper Mill, in the Company's Financial Statements for further information. |
Earnings Conference Call
GreenFirst will host a conference call to review third-quarter 2022 financial results on Wednesday, November 9, 2022 at 8:30am (Eastern). The live webcast of the earnings conference call can be accessed via web: http://momentum.adobeconnect.com/greenfirst3/ and via phone: (+1) 416 764 8658 or (+1) 888 886 7786. A replay of the webcast and presentation slides will be available on GreenFirst’s website following the conference call.
About GreenFirst
GreenFirst Forest Products is a forest-first business, focused on sustainable forest management and lumber production. The Company owns 7 sawmills and 1 paper mill across Ontario and Quebec. GreenFirst is a significant lumber producer in Canada. GreenFirst’s mills are located in rich wood baskets proudly operating over 9.2 million hectares of FSC® certified public and private Canadian 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. GreenFirst’s long-term vision is to be a leader in the global forestry industry.
Forward Looking Information
Certain information in this news release constitutes forward-looking statements under applicable securities laws. Any statements that are contained in this news release that are not statements of historical fact are forward-looking statements. Forward looking statements are often identified by terms such as “may”, “should”, “anticipate”, “expect”, “potential”, “believe”, “intend”, “estimate” or the negative of these terms and similar expressions. Forward-looking statements are based on certain assumptions and, while GreenFirst considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. In addition, forward-looking statements necessarily involve known and unknown risks, including those set out in GreenFirst’s public disclosure record filed under its profile on www.sedar.com . Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement and reflect our expectations as of the date hereof, and thus are subject to change thereafter. GreenFirst disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
For more information, please visit: www.greenfirst.ca
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