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spk01: Good afternoon, ladies and gentlemen, and welcome to Green First Q4 2021 results conference call. Please note that all phone lines are muted to prevent any background noise. During this conference call, Green First 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 green first 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 both in the accompanying presentation and in our 2021 annual MD&A and annual information form, which can be accessed on our website or through CDAR. After the speaker's remarks, there will be a question and answer session, at which time you can submit questions on the bottom right of the webcast player. Mr. Doman, you may begin the conference.
spk02: Good afternoon. Thank you for joining our Q4 2021 results earning call. I am Rick Doman, CEO of Green First, and I am joined today with Michelle Lessard, our president, and Mike Liggett, our CFO. We successfully completed our first quarter with an adjusted EBITDA of $18 million after adjusting for acquisition-related expenses. Lumber markets improved in Q4, and they have remained strong in 2022. Accordingly, Q1 will be another profitable quarter, we expect. My philosophy is you may cave. when the sun is shining like a good farmer. We made significant strides in reducing reliance on transitional services arrangement with higher than human resources. IT and accounting. The integration of the Rainier assets has been a success. Most importantly, we are integrating ESG into all aspects into our operation and we expect to issue a full sustainability report in second half of 2022. Michelle, Mike, and myself will now go into our detailed remarks. We encourage you to write us questions as we move along. They will be addressed at the end. Green First is already one of Canada's top lumber producers in Canada. We are working towards becoming a global leader through five strategies, integrating ESG into all aspects of our business, Michelle will spend a significant portion of today's presentation explaining this. We are also committed to being an employer of choice. Each mill needs to be an integral part of the community. Low cost of production and operational excellence is a key focus. Based on my over 40 years in the industry, you always want to be the lowest cost producer to ensure long-term stable employment for our workforce and make competitive products for our customers. Accretive acquisitions. We are true value buyers, as demonstrated by the Rainier and Kenora acquisitions. Rational capital allocation. We first look to optimize operations with little or no capital outlay, and then as cash flow from operations provides, we plan to make selective capital investments in our operations that generate costs savings with shorter payback periods. We believe our strategies will lead to enhanced value for our shareholders and stakeholders. We have a powerful network of lumber-producing assets from timberlands, owned lands, to mills with an annual lumber production of approximately 905 million board feet per year. I find it hard to describe the value of these assets, especially at the price we paid for them. Moreover, it is truly exciting to have a Canadian management team collectively working together to maximize productivity from our assets. Our focus is simple. We plan to increase production capacity and reduce costs. In September, we were successfully in hiring a proven industry veteran, Mel Lemke, who has a track record of improving sawmill productivity and optimization. Mel worked with me at ECOM and did a great job in doing this and is working hard at Green First to do the same. He brings a fresh perspective in industry best practices and working well together with our president, Michelle Lessard, to complete these opportunities. We bought the operating assets from Rainier that did not come with back office positions like human resources, IT, and finance. As mentioned, we have made great strides in hiring and onboarding these functions. Many of them are new hires, are located at our office, which we're very proud of in North Bay, Ontario, which is closer to our operations, and we're very pleased to have established an office there. is open in the fourth quarter. The office can accommodate up to approximately 30 full-time employees and is strategically located close to our operating sites, as I mentioned. As of today, most of the transitional support from Rainier has ended, with the balance expected to finish by about the end of May 2022. Our IT and supporting infrastructure are fully operational. We bought recruiting in-house, and it is difficult to outsource such an important function. Our in-house recruiting is using their expertise to significantly improve our hiring processes for the mill. Entering into 2022, North American home construction and repair and remodeling demand for lumber was very strong. Expected rising interest rates in 2022 may moderate this demand, but we believe that will depend as to the extent of the increase of interest rates. On the supply side, we expect uncertainty around future COVID-19 waves disrupting industry production will remain throughout 2022. In addition, disruptions to most of transportation utilized by the industry have contributed to tightening supply of lumber to the North American market. Given this backdrop, we expect North American lumber prices to continue to be volatile but to remain above historical trends. Although outlook for lumber prices is expecting to remain strong, our operations supply chain and transportation and delivery services are currently experiencing a wide range of inflationary cost, pressure, and operational challenges. Increase in stumpage rates, which is tied to the price of lumber, logging costs have increased, Lumber price results in more demand for harvesters who are able to command higher wages. Quebec log costs are increasing due to tight supply and competition bidding up. Increased fuel costs. Transportation costs increases in availability issues. Softwood lumber duties associated with green firs increased to 20.2% from 8.99% after we took over. A 11.21% increase occurs on the day we acquired the Rainier assets and negatively affected our four-month earnings in Q3 and Q4. We are currently appealing this. Experiencing delays in increased costs in ordering new equipment and parts, some equipment manufacturers now have as much as 24-month backlogs. and Q1 caused canceled shifts and lower production. At the peak of Omicron, up to 11% of our workforce was absent. Albeit many of these inflationary factors are beyond our control and are not unique to Green First, I'm confident we have taken proactive measures to mitigate the impact and continue to drive production as much as possible. I'm now turning over the table to Michelle Lessard, to talk about our valuable woodlands and sustainability plans. We are a proudly bilingual company, so I've asked Michelle to present in both French and English. You can follow along with our English version of the presentation located on our website. Merci beaucoup.
spk04: So thanks, Rick. Merci, Rick. Rick summarized the effect of the offer and demand on the prices of wood and some of the inflationary pressures that we are facing. It is important to point out that the success of our society largely depends on the availability of raw materials as well as on our ability to have access directly to these materials and to maintain effective and profitable operations. Forestry management is at the heart of our activities. Forest management is the core of our business. Nos séries ont un accès de longue durée à quelques 3,7 millions de mètres cubes de matière ligneuse en vertu de permis d'aménagement forestier durable de l'Ontario et de garantie d'approvisionnement du Québec. La société croit que l'accès à ce volume de matière ligneuse est suffisant pour nous permettre d'accroître notre capacité de production de bois d'oeufs, comme nous avons prévu de le faire. Green First has long-term forestry exploitation permits on Ontario's public lands. In Quebec, Green First has a couple of rights granted through supply guarantees. The forestry development plans approved by provincial authorities have been implemented and allow us to harvest and renew our forests by applying sustainable forestry development practices. We have also implemented advanced analysis measures for our supply, so that our plants can be assured of a certified quality line material at a reasonable cost. In addition to the state land use permits, Green First has about 200,000 acres of private forest in Ontario, south of our Capuskasing plants. We are currently evaluating how to use these forests optimally. These lands have received all the appropriate use permits according to the silviculture practices provided by the law. Le 16 octobre 2021, Green First a annoncé que notre société était récipiendaire d'un prix du leadership du FSC en 2021, un prix reconnaissant les efforts d'une excellence hors du commun pour faire progresser la gestion forestière responsable et la conservation des forêts. En octobre 16 2021, Green First annoncé que c'était le récipient du 2021 FSC Leadership Award Recognizing Uncommon Excellence that Advances Responsible Forest Management and Forest Conservation. This award has been awarded to us for preserving for more than 15 years the FSC certification on more than 9 million acres of complex boreal areas in Ontario and Quebec. This award has been awarded to us for two forest regions managed by Green First, the Garden Cousins forest in Ontario et les forêts gérées par notre équipe d'Abitibi-Ouest, soit au nord de la Phare et dans le secteur de Rouyn-Noranda au Québec. Nous avons à cœur d'appliquer rigoureusement de solides pratiques environnementales, sociales et de gouvernance, car nous sommes persuadés que la croissance à long terme de Green First passe obligatoirement par ce genre de pratiques. Et cet engagement envers l'environnement procure maintenant une valeur ajoutée à nos actionnaires. During the fourth quarter, we invested in Boreal Carbon Corporation. This company was created to acquire and manage forest projects in North America in order to produce carbon credits. Our investment opens a direct window to the carbon markets. Today, we announce that our team has undertaken the exhaustive report on sustainable development, which will be published during the second half of 2022. L'élaboration d'engagements et de mesures à court et à long terme sur les plans environnemental, social et de gouvernement, soit l'ESG, seront publiés en 2023. La planification de nos engagements en matière d'ESG est fondée sur notre système de valeurs P4 ou encore P par 4. Ces quatre P sont le personnel, les principes, la planète et le progrès. Je vais vous les résumer brièvement à l'aide des deux prochaines diapos. Notre actif le plus important est notre personnel. Nos valeurs à l'égard du personnel sont les suivantes. Maintenir un milieu de travail sûr et sain. Promouvoir un milieu de travail inclusif où la diversité est bien accueillie et où règne l'égalité et la positivité. Appuyer la croissance et les réalisations des employés en leur offrant des possibilités de perfectionnement et de formation continue. Valoriser les forces de chacun et les conjuguer afin d'atteindre nos objectifs communs. En accord avec nos principes élevés, nous menons nos affaires en nous appuyant sur un processus décisionnel éthique, une saine gouvernance et des systèmes de gestion efficaces. Fabriquons des produits de qualité pour nos clients. Soutenons les initiatives qui ont des effets bénéfiques durables pour Green First, la société en général et la planète. Assumons la responsabilité de nos gestes, de nos efforts et de nos résultats. Nous devons prendre soin aussi de notre planète. Nous nous engageons donc à assurer la vérification externe de nos pratiques forestières en vertu des normes internationalement reconnues les plus rigoureuses. Réduire, réutiliser et recycler dans toutes nos activités, réduire au minimum notre empreinte écologique dans toute la chaîne de valeur. Rendre compte publiquement de notre performance environnementale. Afin d'aller constamment de l'avant, nous voulons démontrer la valeur de nos progrès en demeurant axés sur l'excellence. My last slide is is on significant growth opportunities at Green First. Currently, we have been focusing on non-capital and capital light projects with quick payback profiles. Additionally, we are also working on some priority strategic projects to prevent operational disruptions. The company is working on a three-year plan to update its sawmill, increase productivity, improving recovery and reducing processing costs. Combination of Elevated lumber prices and expectation to reduce cash costs will support free cash flow generation, which will be used to reduce leverage and fund capital expenditure plans. I will now turn to our CFO, Mike, to explain the drivers of profitability and cash. Mike?
spk03: Great. Thank you very much, Michel. Very happy to report our first full quarter of operations as green first, which we were profitable with a net income of $8 million or 4 cents per share. And this is even after including some one-time acquisition related expenses in the quarter. So we were very pleased with the results that we saw in our first full quarter of operations. On this slide, we're talking about the key drivers, key factors to drive profitability and cash flow. Clearly, the most influential factor here is lumber prices, and we've benefited from strengthening lumber prices and order files since closing the acquisition. As you know, as a commodity producer, the relationship between supply and demand, rather than changes in the cost of raw materials, determines our ability to increase prices. In connection with higher lumber prices, we're also seeing increased competitive pressure for many of our inputs. We see increased costs around personnel, materials, and equipment. And so we see some headwinds with respect to those. In addition, of course, we've got the COVID backdrop. which can create unexpected impact on our production and shipments. And, you know, we see these potentials going forward as well. Next slide. We're looking at the financial highlights for our fourth quarter. You can see that we've got total sales of 161.1 million for the fourth quarter. If we look at our segments that we report on, we report on two segments. We report on the forest product segment and our paper segment. So on the forest product segment, we had sales of 143 million on 173 million board feed shipped. And cost of sales related to those was 107 million. In our forest product segment, we also produced 149 million board feed during the quarter. after taking some downtime at one of our mills to reduce our inventory levels that had built up at the end of Q3. But by year end, our inventory levels were at target levels. So we're pleased with that adjustment that we made. Turning to the paper segment for the fourth quarter, we had net sales of 18.6 million, reflecting sales of shipments of roughly 25,000 metric tons, and a cost of sales of 24.1 million. We have increased orders in the fourth quarter, which will be for delivery in Q1 2022 and beyond, reflecting an increased demand for all products in our paper segment. Along with this increased demand, pricing has increased by $25 US per metric ton since August 28th when we closed the acquisition to today. And we're seeing additional price increases totaling $50 per metric ton in Q1 of 2022 and there's been another announcement of another $50 US per metric ton for Q2 2022. So this increased demand and pricing are expected to last throughout 2023, and we plan to bring the second paper machine online in 2022. We estimate the latest startup costs in 2022 for the second paper machine are up to $2 million. And the second paper machine is expected to be full production capacity by the end of 2022. The advantage of having the second paper machine is that it improves our overall profitability at the paper mill, given that fixed overheads will be spread over the higher volumes. It turned into a selling and general administration of expenses. They were $5 million for the quarter, reflecting personnel costs, cost-related transitional services provided by Rainier, and costs incurred related to the EIDL sawmill. Our SGN expenses are what we expected for the quarter and consistent with what we budgeted. Importantly, in the fourth quarter, was successful in hiring key corporate personnel required to transfer head office functions from Rainier to Green First. We were able to determine most of the transitional services from Rainier at the end of February 2022, with a small balance remaining that we expect to conclude by the end of May 2022. So that's a major step in our extracting these assets out of Rainier, and we're very happy with the progress we've made there. Many of our new hires are actually located in our new office in North Bay, Ontario, which we opened in the fourth quarter. We expected to accommodate up to 30 full-time employees, including people, personnel in IT, accounting, human resources, and we chose North Bay because it's strategically located close to our operating sites. Our duty expense for the quarter was $13.1 million. reflecting our duty rate of 20.23% on our software lumber sales to U.S. customers. We've challenged these levels by requesting that the U.S. Department of Commerce undertake a changed circumstances review. The U.S. Department of Commerce has so far denied the company's request for review, but the company is appealing this decision. And finally, the The company added $2.1 million in transaction-related expenses for the fourth quarter, reflecting expenses for setting up and transferring cloud-based systems from Rainier to run our operations. Turning to the next slide, you can see our reconciliation from net earnings to adjusted EBITDA. You can see we have an adjusted EBITDA of $18.4 million for the fourth quarter. Reconciling items from net earnings included our finance expenses, which is primarily interest, deferred tax recovery, depreciation and amortization, and our one-time acquisition-related transaction costs. I'll just remind everybody that an adjusted EBITDA is a non-GAAP measure, which provides an indication of Greenfield's ability to generate cash. The next slide, I want to just give an update on the acquisition accounting for Rainier, and it's a major part of our financial statements at the end of December. In Q4, we updated our purchase price accounting allocation for the Rainier asset acquisition. As you recall, we have one year, which will take us until August 22 to finalize our fair values allocated to these assets. and the assets acquired and liabilities assumed. So the changes that we've made from Q3 were really the recognition of a deferred tax liability of $5.9 million and a reduction in total consideration of $7.7 million related to an upcoming inventory arbitration, both of which resulted in a net decrease allocation to property plan equipment of $1.8 million from what was reported in Q3. Next slide. Turning to the highlights of the balance sheet, our liquidity position at year end was $83.2 million, comprised of $36.2 million in cash on hand and $47 million available under our $65 million asset-backed loan. Our asset-backed loan has remained undrawn since acquisition because we have been able to fund the seasonal log inventory buildup in Q1 2022. by cash flow from operations. As you know, Q1 of each year is where we do a significant build in our inventories from our logging activity. And in Q2, we might draw upon the asset back loan to fund our log energy buildup, but that will depend on our cash flow. I'd also like to mention that We also have $28 million in non-capital losses and $15 million in capital losses, which are unrecognized in our financial statements and which are potentially available to reduce future taxable income during the year. As Rick mentioned, some of the supply and demand dynamics that we're faced in North America, I won't repeat those. But I will highlight some of the impact we're seeing in Q1. And so in Q1, the first eight weeks of Q1, our order files remained strong, but the company did experience project shipment disruptions that increased shipping costs and impacted our shipping volumes and modes of distribution. For the first eight weeks of 2022s, Our average weekly lumber shipments were approximately 25% lower than our Q4 2021 shipment volumes. Higher lumber prices, of course, for the first eight weeks of 2022 counted the revenue impact of lower ship volumes. And our plans are to increase future shipments to make up for an offset lower ship volumes during the first eight weeks of 2022. But, of course, this is dependent on an easing of transportation disruptions going through the balance of the air. On the supply side in Q1, we had some destructions related to COVID creating some absenteeism within the company. And essentially what we've seen is our average weekly production for the first eight weeks of 2022 was down about 3% compared to the average weekly production in Q4 2021 at our sawmills. And finally, turning to the final slide on ownership alignment. This is a slide that we had in our AGM deck, and it really shows the alignment of our insiders with shareholders. And to further that alignment in the fourth quarter, we granted stock options to 111 employees so that they are rewarded for the growth in the company that they'll be contributing to. And we believe this is a very progressive approach within the forestry sector, aligning employees with shareholders in the future growth of the company. And with that, I'll hand it back to Rick.
spk02: Thank you, Mike. for taking us through the financials. It is great. We expect Q1 will be our second consecutive profitable quarter. It is truly exciting times at Greensburg, and we are proud of our accomplishments and focused on delivering more. Before closing, I did want to recognize the advice and counsel that I have been given by Paul Revet, our chairman, and the rest of the Green First Board. Their experience and business acumen have been invaluable to me and our team as we build a leading global forestry products company. We look forward to answering some of the questions that have been submitted.
spk01: Just a reminder that you can submit your questions on the bottom right of the webcast player.
spk02: The first question is, can you expand a bit on the company's growth strategies? Our strategy is very clear. Our operations currently have been running at about 600 million board feet a year. Our goal is to get our capacity and production up at our six RRAM mills. to the rated capacity of 755 million board feet per year, but we hope to get to up to 8 to 850 million board feet a year through those mills. Also, Kenora has the potential for working with the government to produce up to 150 million board feet above that. In order to do this, we're working closely with the government of Ontario. We have a significant annual allowable harvest in the company of near 3.7 million cubic meters. And we have a three-year CapEx program to help improve recovery, increase production, and reduce costs. And we're working hard on that. That's the growth plans for the company. And beyond that, we're looking at global opportunities also, which include within Canada and other countries that we continue to look at. We are focused, though, on value investments, so we look for deep value when we look at opportunities for growth.
spk04: Yeah, so other question that we got is, are you overcoming the recruiting challenges in Northern Ontario? You know, recruiting remains an issue for all the industries. But, you know, we are a great company. We are offering great advantages also. So our meals are located in very nice municipal days. We have very good quality of life. Housing also is significantly more affordable than what we can find in the big cities. We also have a very good team of recruiters that they are making the difference and they're looking for all opportunities.
spk03: Looks like the next question is for me, Mike. We noted there was no draw on the ABL and the company funded the log buildup from cash flow. Can you expand on that? Yeah, we were, as mentioned, you know, we really benefited from stronger lumber prices coming into the quarter. And that's certainly helped our cash flow even with some of the shipment disruption that we experienced in the first part. And so, you know, we have not required to draw on that ABL to fund our seasonal log buildup. As you recall, the old reason for the ABL was to allow us to build up log inventories. And so, you know, being in a position where we have benefited from stronger lumber prices, which has translated into stronger cash flow, I'm very pleased with.
spk02: The next question is Rick here. You carry the Kenora land and island at $2 million plus. Is the fair market value material above this amount? Is there a line of sight to monetize this asset? We're working very closely with the government of Ontario to restart operations potentially in Kenora for our sawmill. We have about 118 acres of land, which is very close to the town of Kenora that carries a significantly higher value than we acquired just that. And we're working on a plan both for the mill and to monetize that land. We do not know values currently, but we believe the land has... strong values for it.
spk03: Next question is, once the efficiencies and integration work is done, where would we expect a quarter like Q4 to come out on an EBITDA basis? This was our first quarter of operations. We're getting familiar with the operations. We've got some plans which we'll execute over the next two to three years to basically have the operations running the way we think they can run. So it will be very difficult at this time to say how that would translate into an EBITDA basis for this past Q4. Next question for me again is, what was the 75% number for the free cash flow which went to pay down the Blue Torch facility this quarter? We haven't calculated that yet. We're not required to pay that down until during this first quarter. So we're just working through that. Once we've calculated that, we'll be making it available for everybody in the marketplace. Next question, what were forest product line unit costs in Q4? Where do you see these unit costs for the full year 2022? You know, you can see if you look at cost of sales, you know, if you look at our cost of sales in the lumber segment, $107 million and shipments you can see those costs are coming about just over and this is fully loaded so it does it's not a cash cost or anything like that but it's fully loaded cost of of about just over $600 per thousand these costs you know this is the whole purpose why we made this investment was to reduce these costs as we see opportunities to be able to bring out reduce those costs Our focus in 2022 will really be improving operating metrics. Clearly, we've got inflationary headwinds that can make it difficult to predict where actual dollar costs will go. But from a unit cost basis, we're really looking to improve our operating metrics to bring those down for 2022. Next question, without the headwinds of supply chain disruption, What would the EBITDA have been this quarter with lumber prices at these levels? Once again, it's something we haven't calculated. I'm not quite sure whether this quarter refers to Q4 or Q1, but clearly there's a lot of things moving around. So you can't really just look at lumber price and... you know, assess what that means for EBITDA because there's a lot of other things that come into play. Like I mentioned in our commentary that, you know, higher lumber prices also create competitive pressures within the industry, looking for materials, you know, personnel, you know, log prices all increase as stumpage rates go up. So you can't really... pull out one particular factor and say our EBITDA would have been that, it would be misleading.
spk04: Other question that we got is what kind of utilizations rate should we expect when production normalize? So what we're looking is to be around the 80, 90 percent. Another question that we got is what is your expected target all in production costs per That's a good question. You know, the goal that we have is for $50 per thousand board fee Canadian at all meals. This is post-CAPEX. If we can go also below $400, that's going to be our goal. But again, that depends on the CAPEX. And all that also is before, for sure, the duties.
spk02: Great. The next question is, when will Canora come back online? We're currently working with the government of Ontario to develop a plan to restart Canora operations. We're waiting for answers to some of our questions there, and we hope to update soon. Another question is, can you touch upon the boreal carbon investment? We're very excited about boreal carbon. by CEO Brendan Abrams, and it's in the carbon credit business, in particular focused on forestry lands. We think it has a great future and very excited about our investment in that company.
spk00: Thank you for joining the call today. We weren't able to get to all the questions. We appreciate them. There's quite a lot. You wouldn't mind submitting them to investors at greenfirst.ca and we'll respond accordingly.
spk02: Thank you very much. Merci beaucoup.
spk01: Thank you. Ladies and gentlemen, this does conclude your 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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