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spk03: Good afternoon, ladies and gentlemen, and welcome to the Green First Q2 2022 results conference call. Please note that all lines are muted to prevent any background noise. During the conference call, Green First representatives will be making 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. Mr. Doman will now begin the presentation.
spk04: Thank you very much. Good afternoon. Thank you for joining our Q2 earnings call. I am Rick Doman, CEO of Green First, and I'm pleased to be joined today by Michelle Lessard, our president, and Alfred Colas, our CFO. As we begin, I would like to acknowledge the dedication, hard work, and strength of our employees. Over the last quarter, they continued to persevere amidst a challenging operating environment. We completed our acquisition through COVID-19 last year, and I couldn't be prouder of this hardworking team and the challenges it has overcome. We are working towards a common goal, bearing in mind an unpredictable lumber market, one which needs to be closely and strategically adjusted accordingly. I'm pleased to report that Green First has another strong quarter with an adjusted EBITDA of $54.3 million in the second quarter. This was evidenced by lumber pricing remaining strong during Q2 and some improvements seen with the logistical challenges that impacted us in Q1. The company continues to work on further improving on the logistical issues by working closely with all key stakeholders. The company also saw an improvement in operations with higher production as a result of fewer COVID-19 cases compared to Q1. Minimal shutdowns and improved weather as we came out of the harsh winter conditions. Alfred will provide some details on financials later in this presentation. We continue to work on some of our top priority items. As we reported earlier, we intend to monetize our 203 acres of prime private forest land located south of Campus Casing, Ontario. The company is evaluating the growing market for carbon credits and opportunities to surface value from this asset. Additionally, the company continues to work on a potential relocation of its Kenora sawmill. The company is evaluating a proposal by the Ontario government to rebuild the sawmill at a different site in Kenora. The company is also evaluating its options to potentially sell the underlying 114-acre parcel of prime Lake of the Woods waterfront property in Kenora and a four-acre island adjacent to this land. The potential values that may be realized from the monetization of these properties may be materially different than the carrying values at which they are presently recorded. The company has commenced the dismantling of the equipment at Kenora and is preparing to move that equipment to our other sawmills. We expect North American lumber pricing to remain volatile as we see the impacts of inflation and rapidly increasing interest rates, putting pressure on demand and builder confidence. However, in our paper segment, we continue to see strong demand and have announced further price increases in Q3 2022. Interest rates and inflation also have a negative impact on our operations as we continue to see higher input costs. increases in stumpage rates, logging costs, fuel transportation costs, along with availability issues. I also want to point out that on August 3rd, the U.S. Department of Commerce reduced duty rates for Canada to 8.59% with publishing of the final determination for the third administrative review. However, green first continues to be assessed at a rate of 20.23% for the next 12 months. We are appealing this decision. I will now pass it over to Alfred for your remarks, Alfred.
spk06: Thank you, Rick. I'm happy to report that for the second quarter, Green first generated net income of $29.5 million, or 15 cents per share, based on net sales totaling $215 million. This was our third full quarter of forest operations since closing on our six sawmills and one paper mill late in Q3 2021. In the second quarter, we benefited from lumber selling prices that averaged 1,255 Canadian dollars per thousand board feet combined with improved shipping logistics. Our forest product segment had net sales of 192 million on 143 million board feed shipped, which by the way is 24% higher than what we shipped in the first quarter, with a cost of sales of $113 million. We produced 149 million board feed during the quarter. Turning to our paper segments, for the second quarter we had net sales of $22.7 million, reflecting shipments of 26,600 metric tons, with a cost of sales of $26 million. The company increased orders in the second quarter for delivery in Q3 and beyond, reflecting higher demand for all paper products. Along with higher demand, pricing increased during Q2 with another price increase of 50 US dollars announced for Q3. The commissioning of our second paper machine commenced during the second quarter and it is expected to reach full production capacity during the second half of 2022. Selling, general, and administrative expenses were $6.9 million in the second quarter, mainly reflecting personnel costs, office-related and IT infrastructure costs, and costs incurred related to the idle Kenora sawmill. SG&A expense increased by about $1 million compared to the first quarter, mainly reflecting additional hirings that enabled us to end our reliance on transitional services from Rainier, which happened in May. Our North Bay office has over 30 full-time employees in IT, accounting, and human resources, and is strategically located close to our operating sites. We recorded EBITDA of $50.9 million for the second quarter. Reconciling items from net earnings include finance expenses, income tax expenses, and depreciation and amortization. adjusted EBITDA was $54.3 million, as remarked by Rick earlier, and this excluded an unrealized $4.1 million foreign exchange loss on our US dollar debt. Now, considering the impact of duties paid on US shipments, if we exclude the $22.3 million in duties that we expensed in the second quarter, second quarter adjusted EBITDA before duties was $76.6 million. Turning to our balance sheet, our liquidity position at the end of Q2 was $125 million, including $74 million in cash on hand and $51 million available under our $65 million asset-backed loan, which is net of standby letters of credit. Our asset-backed loan has remained undrawn since acquisition to today. After the seasonal buildup during the first quarter, Raw materials log inventory dropped by $28 million during the second quarter. We also have $26 million in non-capital loss pools and $15 million in capital loss pools that would be available to reduce future taxable income. During the second quarter, we updated the basis of tax depreciation for 2022, which reduced the expected taxable profits and resulted in a deferred tax liability and no income tax is payable as at June 25, 2022, based on current estimates. Et alors, je repasse la parole à Michel.
spk00: Merci, Alfred. I will continue in French, but the slides will remain in English. Je suis heureux de faire une présentation sur nos activités pour ce trimestre. J'aborderai quelques points. Nous avons vu que nos expéditions de bois et de papier ont augmenté par rapport au premier trimestre. Malgré quelques améliorations depuis le premier trimestre, les expéditions restent un sujet de préoccupation, car nous continuons à être affectés par les perturbations touchant les moyens de transport. Nous sommes en train d'utiliser notre équipe et d'évaluer comment atténuer certaines des préoccupations majeures liées à ce problème affectant l'ensemble de l'industrie et non juste Green First. Nous nous attendons à ce que la production dans les séries au troisième trimestre soit légèrement inférieure à celle du deuxième trimestre en raison principalement des arrêts qui étaient planifiés. Au cours du deuxième trimestre, nous avons annoncé nos projets concernant notre propriété et notre série de Kenora. Nous avons commencé à démonter les équipements, comme Rick l'a mentionné plus tôt, afin de nous préparer à les déplacer vers certaines de nos autres séries. Nous avons aussi pu redémarrer avec succès notre deuxième machine à papier au cours du deuxième trimestre à notre usine de papier de capuscaising. Le projet progresse comme prévu et nous prévoyons atteindre la pleine production durant le quatrième trimestre. En ce qui concerne le bois d'œuvre, le deuxième trimestre s'est avéré plus solide que le premier, les expéditions ayant été favorisées par de meilleures conditions météorologiques et la réduction des perturbations liées à la COVID-19. De même, une réduction des cas de COVID dans nos opérations et une meilleure efficacité opérationnelle ont entraîné une augmentation de la production. On the paper side, demand has remained strong, while some improvements in logistics have also contributed to the increase in expeditions. The increase in production is mainly due to the increased efficiency of our paper machine in operation, but also to the restart of the second paper machine. As part of this restart, we have added 40 new jobs, and despite the initial efforts required integrate and train new employees, we have been able to improve our efficiency and achieve the goals set. Our paper mill has also seen its production improve significantly due to the end of difficult winter conditions and the absence of external power outages, as we saw in the first trimester. To recap, Our annual production capacity for wood is currently estimated at $905 billion, and we will strive to both maximize our capacity and increase it. The Society maintains its goal of investing around $60 million in strategic investment for its exploitation activities over the three years of the 2022-2024 period, in order to reduce its production costs. This excludes all potential expenses for Kenora. As mentioned, we will also move part of Kenora's equipment to other series, which should contribute to improving our production capacity. The company's objective is to better match our annual cut to our production capacity. Forestry Green First is committed to respecting increasingly high sustainability standards for all of its activities. The company manufactures quality wood and paper products in a safe and responsible way, by trying to protect its employees, to preserve the environment, to create long-term value for its stakeholders, and to positively contribute to our collective future. The Green First foundation is based on values and principles aimed at prioritizing people, the planet, and progress. The company will make a point in terms of sustainability later this year. We apply ESG criteria to the entire company. This is a subject that we take very seriously. We have formed an internal ESG committee, and we intend to realize the continuation of our commitments with the help of certain external resources, en fournissant des données au cours du second semestre de l'année prochaine. Je vais laisser la parole à Rick pour conclure la présentation.
spk04: Merci, Michelle. Thank you for joining our earnings call today. We really appreciate it. We are going to open the floor for questions now.
spk03: Thank you. Ladies and gentlemen, if you would like to ask a question, please submit them in the Q&A pod of the webinar. and identify the company you are from. Once again, if you would like to ask a question over the web, please submit them in the Q&A pod and identify the company you are from. As a reminder, ladies and gentlemen, if you would like to ask a question over the web, please submit them in the Q&A pod and identify the company you are from.
spk06: Okay, it's Alfred here. I'm going to start reading some of the questions as they come in. So one is here, how does the company plan to adjust and to deal with declining lumber prices, especially if we go into a recession?
spk04: Thank you, Alfred. It's Rick here. We are focused on improving our balance sheet. That is key to the company. and also carefully planning CapEx at our various operations to improve recovery and reduce costs.
spk01: Another question here.
spk06: What are the expected proceeds from the sales of land that were referred to in the presentation?
spk04: Thank you again, Alfred. It is too early to determine potential values. looking at that currently and reviewing opportunities.
spk05: Here's another one. We still see high levels of inventory at the end of Q2.
spk06: How does management plan to monetize that? I would say that with lumber sales that were up 24% in Q2 over Q1, as I briefly mentioned inventory dropped, including a $28 million drop in raw materials. And as logistics difficulties have improved, we are seeing inventory levels continue to drop to sort of normal levels through July and to date in Q3.
spk01: Michel, any progress
spk06: with government discussions on Kenora to relocate the sawmill?
spk00: You know, with the recent election in Ontario, so it is something that we are looking at in the near future with the new minister and his staff.
spk06: One just came in. Why are you still subject to 20% duties and not the new rate?
spk05: You know, that's
spk00: That's a good question. I would say that maybe the simple answer to that would be because we buy the assets of Freionaire and we didn't buy the share. So in doing so, we're recognized as a new company, even though we're operating the same assets with the same employees that were there before. So that being said, it's something that we are contesting actually. So we're contesting that decision.
spk01: Another question here.
spk06: Have you noticed increased in demand for paper products with bans across Canada of the use of single-use plastic?
spk04: We're very pleased with our growing market share for our food services bag component at our campus casing paper mill. We are seeing increases in demand, and that is part of the reason, including increases in demand for newsprint and bulky book paper. why we added the second machine.
spk06: What is minimum liquidity required to survive a two-year downturn? Why not pay down more debt? We do always manage our balance sheet very carefully. And as we reported, we have $74 million in cash at the end of the second quarter. And we do plan on prudently managing our debt and taking opportunities as we did during the beginning of the second quarter where we paid down $8.9 million against our U.S. dollar term debt. We'll continue to take opportunities to reduce our debt and continue to manage the balance sheet prudently. In terms of minimum liquidity, we're going to manage conservatively so that we never have to look at being hand-to-mouth, if you will. Is there any update on securing lumber supply in Kenora?
spk04: In terms of Kenora, as Michelle said earlier, we are awaiting the government's decisions in regards to potential additional log supply, which we require to consider rebuilding the sawmill.
spk06: We're going to end the questions, and we appreciate all the questions that have been submitted.
spk02: Thank you. We'll conclude this call. If you have any questions that we were unable to answer, please email to investors at greenfirst.ca. Thank you, and have a great day.
spk03: Thank you. Ladies and gentlemen, this does indeed 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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