GreenFirst Forest Products Inc.

Good morning ladies and gentlemen and welcome to Green First third quarter 2024 results conference call. Please note that all 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's 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 in Green First MD&A and Annual AIF, which can be accessed in the company website or through CEDAR+. Please, after the speaker's remark, there will be a question and answer session. Please submit your questions through the online portal. I will now pass it over to Joël Fournier to begin the management presentation. Please go ahead.

Thank you very much, Sylvie, and good morning, everyone, and welcome to our Q3 2024 earning call. I'm Joël Fournier, the Chief Executive Officer of Green First Forest Products. Today, I'm joined by Peter Ferrante, her new CFO, Therese Kiffington, CEO of Cap Paper, and Michel Lessard, her president. Since her last earning call, we've continued to make progress on her strategy. I'm pleased to announce that the spin-out of Cap Paper was completed in November as planned. Now, both entities are completely separated, and Green First Forest Products is a pure play lumber company that will focus on the future growth of its sawmills. CAP Corporation will continue to exist as a standalone paper mill operation with TERI and newly announced Board of Directors at the helm. On August 12, 2024, a new duty rate went into effect as a result of the U.S. Department of Commerce final determination of its fifth administrative review with respect to import of softwood lumber product. This determination assessed or new duty rate at 14.4%, which was lower than the company paid in 2022 at 20.2%. Based on this final rate, the company would stand to benefit from an approximate $14.2 million US or $19.2 million Canadian recovery on duty paid in 2022. We will continue to advocate for a shareholder to see a timely return on those overpayments. In addition, we continue to seek a fair settlement of all remaining duty deposits. These duties will be settled with the rest of the Canadian softwood lumber industry, and consequently, the amount of refund remains uncertain at this time. In addition to the duty receivable recognized in Q3 2024, we also announced the launch of the right offering in October that will allow the company to execute on its strategic plan. Green First continues to be in a unique situation where we have access to excess wood supply and through the execution of our strategic plan we're aiming to grow our annual capacity by using that wood supply. Our mission is to become a top quartile cost operation and we want to be one of the largest Ontario lumber producers. We firmly believe that executing a strategic CapEx plan off-cycle while market prices are low is key for the long-term profitability when markets rebound. There are many advantages to undertake such capital projects off-cycle. For example, project costs will be lower, startup time will be quicker for those CapEx projects, and we can maximize the return on every dollar we will spend. These investment opportunities will change the current profitability of Green First. As you can see in the slideshow, we are looking to spend approximately $50 million in 2025 and 2026, with an expected increased EBITDA of approximately $18 million per year. This investment will help reduce her costs by roughly 10% and increase her current capacity by 20%. It will also lower EBITDA break-even point by approximately 15% after the completion of the Phase 1 of our strategy. The company is looking to do a total of eight projects for the Phase 1 across the four sawmills in Ontario. Those projects will increase capacity, reduce cost, and improve EBITDA going forward. The company will continue to work with the Board of Directors to obtain approval on these initiatives. More detail will follow in subsequent press releases. The company finished the third quarter at a net loss from continuing operation, adjusted for one-time duty recovery. This was primarily due to operation in July, where pricing was at its lowest in conjunction with the company taking targeted curtailment in order to manage liquidity tightly. Towards the end of the quarter, we saw market improvement and we believe we hit the bottom for lumber price in July. July was our lowest month with pricing at $338 per thousand FBM on a Western basis. Since then, price has steadily increased month over month and we're now sitting at $445 a thousand FBM on a Western base. Under those current price, per mil are now positive EBITDA. The reduction in capacity recently announced by our competitor and the housing supply shortage in the United States are expected to continue to put pressure on pricing. Going forward, we believe the fundamentals that drive lumber price are favorable for green first and for the lumber industry. Aside from the targeted curtailment we had in July, Her operation did run smoothly in Q3, while certain locations were breaking production records. Green First continues to promote a culture of continuous improvement and has seen higher levels of efficiency when we compare to fiscal 2023. As you can see in the presentation, her sawmill continues to improve by increasing production, reducing costs overall, and our breakeven mill net EBITDA improved by 20% from 2022. Peter will now take us through the financial results of the quarter. Over to you, Peter.

Good morning, everyone. The company's net income from continuing operations, now excluding cap paper, in Q3 2024 was $14.8 million. Adjusted EBITDA from continuing operations from Q3 2024 was positive $15.9 million. This compares to an adjusted EBITDA of negative 6.1 million in Q2 2024. As Joelle previously shared, during the third quarter of 2024, the company recorded a recovery of approximately 14.2 million U.S. or 19.2 million Canadian related to duties paid, plus accrued interest of 2.3 million U.S. or 3.1 million Canadian. This recovery has positively impacted our net earnings and adjusted EBITDA in Q3 and on a year-to-date basis for 2024. For Q3 2024, we had positive contribution from continuing operation of approximately $1 million. Net sales recorded in the quarter were $70.8 million, closely compared to $69.6 million in Q2 2024. The increase in net sales is due to higher volume shift offset by lower pricing realized for the quarter. The industry continues to face lower demand as housing affordability continues to be significantly impacted by increased mortgage rates. In addition, an oversupply of lumber inventory, despite the tournaments in North America, continues to impact pricing. There continues to be low level of field inventory in the industry, and there were lower takeaways following the first half of the year. Cost of sales in the lumber segment were $69.8 million compared to $72.5 million in Q2 2024. The decrease in cost of sales in the third quarter was primarily due to lower charges related to inventory net realizable value recorded compared to the second quarter of 2024. In addition to inventory being sold during the third quarter, which was produced primarily in the previous quarter at a lower cost. Compared to Q3 of last year, the company's net sales increased by about 4%. This was driven by higher production in the quarter, offset by lower pricing realized in the current quarter. Demand in both periods were heavily impacted by weaker buyer sentiment, resulting from sustained interest rate increases, combined with pricing being being lower in the third quarter of 2024 compared to the same period last year. Cost of sales in the quarter improved by approximately 16% compared to Q3 of last year, primarily due to significantly higher volume sold and higher charges related to inventory net realizable value recorded in the third quarter of 2024 compared to a recovery in the third period of 2023. year over year on a year-to-date basis net sales increased by one percent due to higher average selling prices realized combined with higher volumes shipped selling general general and administrative expenses of 3.5 million in q3 2024 were lower compared to 3.9 million in q2 of 2024. this was primarily related to the company occurring higher third-party fees related to corporate re-organization efforts, including the planned spinoff of CAP paper in the second quarter of 2024. The company generated finance income of $1.9 million for Q3 2024 and incurred a finance cost or expense of $0.2 million for the three quarters on a year-to-date basis. This primarily represents interest income related to duties recovery recorded during the period offset by interest charges on the company's outstanding debt under the credit facility. During Q3 2024, the company made net repayments against its revolving portion of the credit facility of $4.2 million and $0.7 million related to its equipment term loan with the bank. The company continues to monitor inventory levels and is accelerating initiatives to open up additional liquidity in the short term through the recent announcement of a rights offering. I will now pass it back to Joël for his commentary on the operations of the business.

Thank you, Peter. As mentioned earlier, Q3 was a challenging quarter due to poor market conditions across the industry. The lumber business faced continued pressure with particularly low prices in July. However, recent announcements of capacity reduction by a competitor have contributed to improved pricing. pricing since then. Our industry operates within a cyclical market and we are emerging from a difficult phase. Throughout the quarter, we maintain tight cash management to navigate through those conditions. In Q1 and Q2, we have reported on several production records that were achieved by our mills. I'm happy to report that we continue to have production records in Q3 2024 and primarily related to our Chapleau mill and Capscasing sawmill operation. Capscasing achieved its highest production level for August and September in the mill history, while Chapleau reached its highest production shift ever. We also continue to see reduction in our SG&E run rate that is currently at $33 per thousand FDM on a target of $40 per thousand FDM announced previously in Q1 this year. We will continue to monitor our SG&E and we look for future opportunities to reduce costs. We remain committed to reducing costs in other areas of the business. In addition to our SG&E cost reduction, we continue to make improvements on our costing and processing costs year after year. Our costs went down by 6% from 2022 to 2024. despite high inflation and other outside pressure. Green first continue to drive a culture of continuous improvement, as we believe this is a key component in maximizing the future return on capital investment within the business. This year so far, we had identified and executed on specific non-CAPEX initiative in order to drive a saving of approximately $8 million in our operation on a year-to-date basis compared to 2023 results. A little bit more on the operations side, our sales volume increased from Q2, driven by starting the quarter with a high inventory and ending in a good position in September as the market improved through the quarter. Production was lower in Q3 compared to Q2 due to a targeted meal curtailment that happened in July. On the sales side, We are pleased to report that we increased our volume with our big box store customer and added an additional distribution center with them. In the open market, inventory remained very low, and we are beginning to see positive price momentum following recent mail curtailment announcement. Safety remains our top priority, and we must stay focused on executing our plan to improve safety outcomes. As a core value at Green First, safety is incredibly important to our entirety. That's it for this section. I will pass this over to Therese Keffington for his comment on the paper operation.

Thanks, Joël, and good morning, everyone. Firstly, we concluded the restructuring last week that places CAAT paper as a standalone entity. Therefore, this will be our last investor call as part of Green First. We are starting a new chapter in the long history of this business and we are looking forward to maintaining a very close working relationship with Green First. I'll give a brief synopsis of cap paper from Q3 and forward into Q4. To begin, we had no recordable injuries in the quarter and we are tracking on a 12-month trailing basis at a 0.76 injury rate. which puts us close to, if not at the top of the list for safest pulp and paper mills in Canada. Mill operational performance remained flat in Q3 versus Q2. Q3 is a difficult quarter for operations as we needed to curtail the mill multiple times to bring the mill electrical load down as low as possible to minimize the ISO global adjustment charges for 2025. This impacted operating efficiency by 2% as compared to Q2. offsetting improved daily operating performance. As I mentioned previously, all North American newsprint manufacturers announced a price increase for September 1 of $50 US. There has been considerable pushback from North American customers as demand has softened. As such, the effective price increase has been lower. At the same time, we are seeing increased shipments into the global export market from all sources, including increased shipments through the Red Sea. This has caused significant drop in export trading prices. Q4 mill operational performance has stepped up as expected with October seeing the mill return to a standard level of operating efficiency, returning to pre-2020 operating levels and achieving the lowest cost of manufacturing for the year. And this is continuing now through November. However, as mentioned, downward pricing pressure in all markets is of concern. Our focus remains on higher operating efficiency and lower manufacturing costs to offset reduced market price. Thank you, and I'll pass over to Joel to complete this call.

Thank you, Terry. I would like to thank everyone for joining the call. We will now answer any questions that have come through.

A reminder to please submit your question via the web portal.

Okay, this is Joel again. We do have a question. With the recent duty rate adjustment announced, what are the future possibilities of collecting on these duty deposits in the future? I will ask Michel Lessard to answer the question.

Yeah, thanks, Joel. So, you know, it's a good question. Regarding the duties, there's currently no imminent settlement being contemplated between the Canadian and U.S. governments. And we saw, so, you know, with the last election in U.S., we'll see all the Trump administration will want to approach this. That being said, so the Canadian lumber industry and Green First as part of it, we continue to work very closely with the Canadian government also, and we will continue to try to find a fair settlement for all the duties that are imposed. So it's something to follow very closely.

Okay, I just noticed there's another question that came up around the duty. Under the worst-case scenario with the Trump tariff, how does this impact Green First? I can answer this question. We're already preparing for the 30% potential tariff beginning in August 2025, but we have no clarity on what the new U.S. administration will do. We're presently paying very high duty. And our expectation is we're going to continue to pay duty going forward. However, historically, given the amount of lumber that was sold in the US, the rising tariffs has led to rising lumber price as well. And if people recall, when we had a duty increase this year in 2024, our rate went from 8% to 14.4%. And the lumber price caught up on the duty rate in three weeks. We have another question here. How does the completion of the spin-out will impact my share? I will ask Peter Ferente to answer the question.

Thank you, Joel. We have recently released the management information circular, and we have also released multiple press releases outlining this process. Shareholders of Green First will be issued a new class of shares for CAP Corporation, which will now be publicly traded on any of the stock exchanges.

Thank you, Peter. We have another question here. Do you still expect there will be continued targeted curtailment in Q4 as pricing has increased since July lows? Will the company be able to generate positive EBITDA under this condition, and will this be inclusive of its G&E? I can't answer this question. Earlier this year, we accelerated maintenance activity while the markets were weak in order to allow us to catch up on inventory. We are not currently forecasting any future curtailment, and at today's market price, we are confident that we will be able to generate positive EBITDA from our mill going forward. As we made significant reductions in our G&A On a year-over-year basis, we anticipate to also be in a positive position, inclusive of SG&E. For more clarity, with today's current price, we're positive EBITDA going forward. I have another question here in relation of the capital expenditure plan. How confident in the business in executing the strategic CapEx plan in the future? So I will answer that question. These projects that we identify are familiar with their management team, and some of them have been completed in the past. Those projects, to minimize risk, those projects are turnkey in nature, and also we're looking to install proven technology. Finally, to minimize the risk, our vendors are committed to provide performance guarantee on those projects. So if you think about having a three-weekly project that kind of reduces the risk on the cost side and having the vendor working to provide performance guarantee, this will provide more certainty on the payback of those projects. We do have another question, but this one is CAP paper related. The company announced the completion of the spin-out. Does that mean the company has found a boyer for the paper mill? What is the plan for capped paper? I will pass this one over to you, Terry.

Okay, thanks, Joel. As it stands, capped paper has been spun out as its own operating entity and is working towards its goal of being a standalone profitable business through the execution of our plan. And just to refresh, the plan for CAP announced in Q1 of this year was to return CAP to being at least break even in Q4. That is unchanged. We are on that trajectory, actually slightly ahead of that in terms of Q4 operating performance.

Okay, thank you, Peter. We do have a couple of more questions here. One, it's about the right offering. With the announcement of the right offering, do you expect to raise the full $97 million, and will all of it be used for strategic capex? I will pass this one over to you, Peter.

We will not know the final amount raised related to the rights offering until mid-December. However, as we've stated in our press release, we already have $20 million of that that has been committed to as part of the rights offering by a new key investor, which is Ravenswood. We are prepared for multiple scenarios with regards to the use of funds depending on the final outcome. This will include management of our current working capital, investment in various CapEx projects that we're talking about, as well as any other future potential strategic opportunities. Hopefully that clarifies that question.

Thank you, Peter. We do have another question that came up around the right offering. Will offer management and large shareholder will be participating in the right offering? I will answer this question. So we have been told by several key shareholder and board member that they will participate to varying extent. However, no commitment to exact dollar amounts have been disclosed yet.

Okay, we do have a couple of more questions here.

One is about what is the status with Kenora and the other land that we have for sale. I'll pass this one over to Michel.

Thanks, Joel. About Kenora, as I mentioned in the last quarters, our interest remains to monetize that land. That is not sold yet, but that being said, we continue to work with interested parties. We're hoping to be able to finalize an agreement in the next, I would say, following months. About the other lands, we already mentioned that we had some lands for sale around Kepskissing and Timmins. We sold around 2,300 acres on that, so a pretty good value also. There's some other land so that we're in discussion with a lot of capsizing. But other than that, I would say everything has been solved. So very good for us again and we executed as planned on that.

Okay, I would like to thank everyone on this call. I guess we answered most of the questions. So that will conclude the call for today. Thank you very much. Have a good day.

Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.