Release Date: November 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- GreenFirst Forest Products Inc (ICLTF, Financial) completed the spin-out of Kap Paper, allowing it to focus solely on its lumber operations.
- The company benefited from a reduced duty rate of 14.4%, down from 20.2%, resulting in a potential recovery of approximately US $14.2 million.
- GreenFirst plans to invest $50 million in strategic CapEx projects over 2025 and 2026, aiming to increase EBITDA by $18 million annually.
- The company achieved production records at its Chapleau and Kapuskasing mills, indicating operational efficiency improvements.
- GreenFirst reported a positive adjusted EBITDA of $15.9 million in Q3 2024, a significant improvement from negative $6.1 million in Q2 2024.
Negative Points
- GreenFirst Forest Products Inc (ICLTF) faced a net loss from continuing operations in Q3 2024, adjusted for one-time duty recovery.
- The company experienced low lumber prices in July, with prices at $338 per thousand FDM, impacting profitability.
- There is uncertainty regarding the settlement of duty deposits, with no imminent resolution between Canadian and US governments.
- The lumber industry continues to face lower demand due to housing affordability issues and increased mortgage rates.
- Despite improvements, the company still faces challenges with oversupply in the lumber market, affecting pricing.
Q & A Highlights
Q: With the recent duty rate adjustment announced, what are the future possibilities of collecting on these duty deposits in the future?
A: Michel Lessard, President, explained that there is currently no imminent settlement being contemplated between the Canadian and US Governments. The Canadian lumber industry, including GreenFirst, will continue to work closely with the Canadian Government to find a fair settlement for the imposed duties.
Q: Under the worst-case scenario with the Trump tariff, how does this impact GreenFirst?
A: Joel Fournier, CEO, stated that GreenFirst is preparing for a potential 30% tariff beginning in August 2025. Historically, rising tariffs have led to rising lumber prices, which could offset the impact of increased duties.
Q: How does the completion of the spin-out impact my share?
A: Peter Ferrante, CFO, clarified that shareholders of GreenFirst will be issued a new class of shares for Kap Corporation, which will not be publicly traded on any stock exchanges.
Q: Do you still expect there will be continued targeted curtailment in Q4, as pricing has increased since July lows?
A: Joel Fournier, CEO, mentioned that they are not currently forecasting any future curtailment. At today’s market price, they are confident in generating positive EBITDA from their mills, inclusive of SG&A.
Q: How confident are you in the business executing the strategic CapEx plan in the future?
A: Joel Fournier, CEO, expressed confidence in executing the strategic CapEx plan, noting that the projects are turnkey in nature with proven technology and performance guarantees from vendors to minimize risk.
Q: Does the completion of the spin-out mean the company has found a buyer for the paper mill? What is the plan for Kap Paper?
A: Peter Ferrante, CFO, stated that Kap Paper has been spun out as its own operating entity, aiming to be a standalone profitable business. The plan is to return Kap to at least break-even in Q4.
Q: With the announcement of the rights offering, do you expect to raise the full $97 million and will all of it be used for strategic CapEx?
A: Peter Ferrante, CFO, indicated that the final amount raised will be known by mid-December. They have $20 million committed by a new key investor, Ravenswood, and are prepared for multiple scenarios regarding the use of funds.
Q: Will management and large shareholders be participating in the rights offering?
A: Joel Fournier, CEO, mentioned that several key shareholders and Board members have indicated they will participate to varying extents, but no commitments to exact dollar amounts have been disclosed yet.
Q: What is the status with Kenora and the other land that we have for sale?
A: Michel Lessard, President, stated that they remain interested in monetizing the Kenora land and are working with interested parties. They have sold around 2,300 acres of other lands and are in discussions with the Town of Kapuskasing for additional sales.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
