GreenFirst Forest Products Inc. ($GFP)

Good morning, ladies and gentlemen, and welcome to GreenFirst's Fourth Quarter of 2025 Results Conference Call. [Operator Instructions] During this conference call, GreenFirst's 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 GreenFirst'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 GreenFirst's MD&A and annual AIF, which can be accessed on the company's website through SEDAR+. [Operator Instructions] I will now pass it over to Joel Fournier to begin the management presentation.

Thank you very much, Sylvie, and good morning, everyone, and welcome to our year-end and fourth quarter 2025 earnings call. I'm Joel Fournier, the Chief Executive Officer of GreenFirst. Today, I'm joined by Peter Ferrante, our Chief Financial Officer; and Michel Lessard, our President. The first point worth noting for our shareholders is the safety record of our employee achieved in 2025. All mills finished the year with their lowest severity and incident frequency rate in their history. These results position GreenFirst among the best in the industry from a safety perspective and demonstrate a strong commitment to our safety culture. We did finish the quarter with a negative EBITDA of $21.7 million. This was mainly due to weaker market condition, whereby benchmark pricing was at its lowest point for the year in December. Additionally, this was the first full quarter the company was subject to the higher combined antidumping and countervailing duty rate of 35.16%. Furthermore, in October 2025, the U.S. administration imposed a 10% tariff on lumber under Section 232. To help with the situation, the federal Canadian government announced support program for the forest industry in response to those tariffs. Through these programs, GreenFirst secured a $30 million loan with its banking partner, BMO, under the Softwood Lumber program. Additional programs are available, and we are exploring how the company can benefit from them. I will now go through some 2025 and Q4 highlights compared to last year. For sales volume, we finished the year with 401 million MFBM in 2025 versus 408 million MFBM in 2024. This was impacted by lower production for the year. For the quarter, we did finish with sales volume at 108 million MFBM, which was higher than previous quarter and higher than Q4 last year. Production. Production, we finished the year with 401 MFBM in 2025 versus 414 MFBM in 2024. For Q4, we produced 93 million MFBM, which was lower than previous quarter. The decrease was primarily due to the installation and ramp-up of the new saw line at Chapleau and also market-driven curtailment at other mills in December. Without this curtailment, production would have been higher in 2025 versus 2024. The production loss for the Chapleau line installation was expected. Quality. We made significant improvement in grading and quality in 2025 with the upper grade output increased by approximately 15% by year-end. We expect continued benefit into 2026. Continuous improvement. Our employees identified and executed initiatives generating approximately $7 million in EBITDA gain non-CapEx related during the year of 2025. Now I'm going to speak a little bit about capital expenditure and continuous improvement. As part of previously announced $50 million capital investment program aimed at improving our cost structure, GreenFirst is proceeding with only selected strategic projects at this time. As communicated in previous quarter in Q3 2025, the primary focus has been the installation of the new saw line at Chapleau, a new planer mill and the cogeneration refurbishment. While the downtime impacted Q3 results, it allowed us to complete the installation during a period of weaker market conditions. Commissioning began in November and December and ramp-up is continuing through Q1 2026. Currently, production is approximately 80% of target, while recovery rates are fully on target. The new planer mill is performing as expected with improved product and quality. The cogeneration refurbishment has delivered the anticipated benefit in drying capacity and energy production as well. These projects are now complete and fully operational, positioning us to capture the production gain expected from the new saw line at Chapleau. I'm also pleased to report that the saw line project will be completed below budget cost, supported by $6 million in funding from the provincial government in form of a grant and loan. In the short term, our focus will remain on completing the commissioning of the Chapleau line. We will defer additional strategic capital expenditure for now. In 2025, we also executed routine maintenance capital expenditure of around $9 million with no issue. I will now cover 2025 and Q4 lumber market. The lumber markets remained challenging through 2025 and Q4. Price were stronger in the first quarter, but declined steadily during the year, reaching their lowest point in December 2025. The Western-based price benchmark was at $380 a thousand in December compared to $492 in Q1 of 2025. We continue to see in 2025 market headwinds with lots of uncertainty around the market created by the geopolitical situation. We're still seeing high cost for housing. And even though the interest rate -- the mortgage rate declined in 2025, there's still lots of uncertainty around those numbers. On the strategic side, GreenFirst continued to strengthen its partnership with key home center customers, increasing volume with that segment by approximately 30% in 2025. The sales team will continue to explore additional opportunity in Canada where it makes sense strategically and economically. While housing start came in below expectation and declining during 2025, the repair and remodeling market show a modest growth during the year. This is one of the reasons GreenFirst is positioning itself to increase exposure and business within that segment. For 2026, we remain cautious in our forecast, anticipating only modest price increase in the back half of 2026. In the short term, we expect demand to increase slightly following the seasonal trend with housing start. Over to you, Peter, for the financial section.

Thank you, Joel, and good morning to everyone. Please refer to the cautionary language regarding forward-looking information in our Q4 2025 financial discussion and analysis. For the fourth quarter ended December 31, 2025, total revenues were $76.9 million, up from $69.9 million in Q4 2024. Lumber sales increased to $70.7 million, while byproducts and other sales were slightly lower at $6.3 million. Shipment volumes were 108 million board feet, broadly in line with prior periods. Average selling prices in Q4 were $654, down from $680 in Q4 2024. While duties and tariffs are paid by GreenFirst and included in the commodity prices charged to our customers, earlier in the year, we saw price increases reflecting the temporary introduction of tariffs. In Q4, however, despite further duty increases on Section 232 tariffs, prices did not rise correspondingly, suggesting weaker market demand and limited pass-through. Total cost of sales for Q4 were $86 million, up from $67.3 million in Q4 2024, driven by inventory write-downs, downtime associated with the Chapleau large log line and other operational factors. Other expenses in the quarter included $15.1 million of duties with combined duty and tariff rates reaching approximately 45% in Q4 2025 compared to 14% in Q4 2024. SG&A totaled $1.5 million. During the quarter, the company identified that certain costs previously capitalized to inventory and subsequently expensed as cost of sales was more appropriately categorized as selling, general and administrative expenses during the year ended December 31, 2024. The impact on the December 31, 2024, inventory balance was not material and has not been adjusted in these consolidated financial statements. The company has recorded a reclassification of $4.8 million to reduce cost of sales and increased selling, general and administrative expenses in the year 2024 financial statements. This adjustment has no impact on net loss, the statement of cash flows or the statement of changes in shareholders' equity. Year-over-year fluctuations otherwise primarily reflect inflationary pressures and the timing of corporate initiatives rather than structural changes. In addition, during 2025, the company identified indicators of impairment related to lumber operations driven by continuous weakness in market prices, macroeconomic conditions and elevated duties and tariffs. As a result, the company performed an impairment assessment at the lumber operations cash generating unit level, reflecting the integrated nature of its manufacturing and forest assets. Using a discounted cash flow approach over a 5-year projection plus terminal value, the company determined that the recoverable amount of the cash-generating unit was $9 million lower than its carrying value, resulting in an impairment charge of allocated to selected fixed assets on a pro rata basis. Key assumptions included lumber prices, sales volumes, log and production costs, capital expenditures, duties and tariffs, terminal growth and a post-tax discount rate of 12%. Sensitivity analysis confirmed that reasonable changes to these assumptions would not materially change the conclusion. This impairment contributed to pressure on net loss and EBITDA for the quarter. Leading to adjusted EBITDA from continuing operations for Q4 was negative $21.7 million compared to negative $900,000 in Q4 2024. This reflects inventory write-downs, operational downtime, higher tariffs, while underlying -- the underlying core manufacturing performance remained relatively stable. Turning over to liquidity and capital resources. As at December 31, 2025, the company maintained strong liquidity with total available borrowing capacity of approximately $107 million, including the revolver, equipment term loan and the $30 million Softwood Lumber program loan, which was finalized in January 2026 in terms of funding. Drawdowns at the end of the year totaled $28.9 million on the revolving credit facility with letters of credit totaling $3.9 million leaving approximately $74.4 million of available liquidity to support ongoing operations and working capital needs. For comparison purposes, at the end of December 31, 2024, total borrowing capacity was $72 million with $13.7 million drawn and letters of credit of $8.3 million, leaving approximately $50.1 million available liquidity. So at the end of December 31, 2025, this shows approximately a $24 million addition. The year-over-year increase in available liquidity reflects both drawdowns on the revolver, equipment term loan and the potential benefit of the Softwood Lumber program financing, which would have significantly increased capacity had it been funded prior to year-end. Overall, the company continues to maintain a conservative approach to leverage, ensuring flexibility to manage working capital, operational downtime and market volatility in the lumber sector. This financial flexibility allows GreenFirst to navigate seasonal harvesting cycles in addition to market volatility and capital project funding while maintaining a strong balance sheet. Overall, the fourth quarter mirrored the trends seen throughout 2025 with margin pressures from higher duties, market conditions and operational disruptions, while operational performance remained consistent with expectations. This concludes my remarks. We will now pass it over to Joel.

Thank you very much, Peter. And finally, I would like to say GreenFirst will remain committed to continuous improvement as a core strategy to enhance business performance. At the same time, we'll maintain a prudent and disciplined approach to cash management to ensure the company is well positioned to navigate through those potential economic headwinds and emerging market challenge. I would like to thank everyone for joining the call. We will now answer any questions that have come through. Thank you.

Okay. Good morning, everyone. We do have one question that came through. With the completion of the Chapleau large log line, have you seen any meaningful increase in production volumes or quality of output? When can we expect to see this reflected in the financial results? So I'm going to take this one. So far, we hit our target on lumber recovery, and we're still in ramp-up mode for production. Production is currently, like I said, around 80% range of the expected target, and we expect the ramp-up to be completed in Q2. We also see better quality of lumber going through the planner in terms of overall quality, and we saw a trim loss reduction and grade improvement so far. So this is very encouraging. We're also pleased to report that we expect the project to be under cost overall. In addition, we have the participation in the project from the provincial government. There's another question similar to this one that just came through. I'm going to answer it right away. It's what do you expect CapEx spending to be in 2026? And can you break it out in maintenance versus strategic? So as far as strategic CapEx for 2026, we're going to go with the minimum. There's still lots of uncertainty there on the market. So our approach now is we're going to spend minimum amount on strategic. We may change route during the year, but it will all depend on market and what's the condition of GreenFirst during that time. As far as maintenance of business, we're going to continue with only minimum selected project as we usually do compared to previous year. Really, our focus for 2026 will be the ramp-up of the Chapleau line. We invest quite a bit of money in that project last year and all in will be on deck to make sure that project deliver the results. And one quick thing I would like to mention is the -- we -- the line -- the project line is almost full paid out in 2025. So we need to get the line up to speed in 2026 and turn that into a benefit for this year. Okay. So we do have another question here. Could you provide some insight into what you're seeing with regard to current market level and pricing? I'm going to take this one. So during 2025, we observed a decline in average mortgage rates, which could support future housing demand. This continue to be -- we continue to see an underbuilt situation, both in the United States and Canada. And both governments have introduced program to stimulate housing starts and construction. In the United States, the government signed an executive order in March aimed at reducing regulatory burdens to accelerate homebuilding and improve access to mortgage credit. Similarly, the Canadian government is focusing on financial support and policy measures to encourage housing development. We do have another question here. Could you share the company perspective on actual duties and additional tariffs as per CUSMA negotiation? I will let Michel, our President, answer that question.

Thanks, Joel. The current combined duties and tariff rate, as we mentioned many times, at 45.16%, certainly not sustainable for the forest industry. At this level, it's extremely difficult for U.S. customers to absorb the additional cost, particularly also in environment with interest rates remain elevated and broader market also uncertainties continue to impact the demand. From what we know, Canada's Department of International Trade has entered into a renewal discussion with the U.S. and Mexico of the Canada-U.S.-Mexico free trade agreement, you know the CSMA. Primary focus, what you know will be to renew the agreement, ensuring also free trade for the majority of Canadian exports. Certainly, that the removal of the Section 232 tariffs, the tariffs that represent 10% will certainly be a significant point of negotiation to renew the trade agreement. And I would add also that Canada has undertaken consultation with the industry and provinces and is also committed to raise the softwood lumber dispute in these discussions. So more to come on that.

We have another question here. We've seen that you're one of the few companies that enter into the agreement with BDC under the Softwood Lumber program. Was this completed out of necessity or growth? I will let Peter, our Chief Financial Officer, answer that question.

Thank you, Joel. We entered into the Softwood Lumber program proactively to strengthen our balance sheet and enhance financial flexibility. This positions us to navigate challenging lumber market conditions, support ongoing mill ramp-ups and capitalize on favorable market opportunities as they arise. With a strong balance sheet and strong liquidity and borrowing capacity entering into 2026, we are well equipped now to manage seasonal swings, duties and capital needs while entering -- while maintaining disciplined spending and cash flow oversight.

Okay. We have another question here. There's been a lot of discussion around potential housing shortage in U.S. Could you comment when you think this could translate into real-world incremental lumber demand? I will try to answer this one. So there's currently a housing shortage, as we mentioned in previous quarter in U.S., both in U.S. and Canada. Like I said, both government had announced a plan to foster more housing. The U.S. government had signed 2 orders in March to eliminate the regularity burden on new house. And the federal government had announced a measure to help improve affordability and house financing to catalyze housing start. But I already mentioned that. I guess the additional question that I received is more around lumber outlook and what will happen with the market there. So I'm sorry if I did repeat there. I thought it was good to mention that there's still on the macroeconomic level, a gap, but we didn't see that gap to close yet or to really materialize into real demand. So if you look at what's happening on the market right now, there's still lots of uncertainty. Duties and tariffs have effectively become a structural component that we need to deal with. It's an ongoing headwind. Normally, we used to pass this a portion to the customer. But lately, because the demand was not good in late 2025, we were not able to pass the duty and tariff down to the customer as we usually did in the past. So this is something important to say there. Okay. We do have another question here. Could you provide some reasoning behind the curtailment taken in December and into January? Are you expecting this to impact Q1 results as well? So I'm going to take this one. We had to take curtailment unfortunately, in December, because of market. The price we were selling our wood was not bringing any contribution to the company. Therefore, it was better to shut down. We also had to take 1 week in January as we already press released in the past. Going forward, when the market reached a low point, we'll continue to evaluate if downtime is required or not. But it's not only an economical decision. When we make those difficult decisions to curtail, it's to reduce our exposure on cost and on inventory. Like it's not our intention to overproduce at low price. So when the market is low, we make a full assessment. And unfortunately, we had to take some downtime. Okay. So we do have a question here. What new market do you anticipate the company entering into a near future? I will answer this one. So right now, in the current environment with high antidumping and countervailing and tariff, of course, we've been looking at other alternatives to diversify our market, minimize risk and increase our margin. So what we're looking in the short term is we're going to target specific grade on the spot market, and we're actually targeting more Canadian sales. If you think about where GreenFirst is located, all of our mills are in Ontario. We're close to big center like Toronto and we're prime positioned to target those markets with competitive freight advantage. So in the short term, we're going to target home centers, mainly located in Canada, and we're going to try -- we're going to switch spot market sales in U.S. and focus more on the Canadian market. Another thing we're looking at as well is we're looking at overseas opportunity. We're looking at England, Egypt and other areas in the world. But those 2 markets got your attention. We don't see a huge advantage to start shipping in England right now, but we're going to closely continue to monitor every week if those markets are worth it or not. There's another question that came here. In February, the U.S. Supreme Court upheld a U.S. Court of International trade ruling that found the International Emergency Economic Power Act, IEEPA tariff of 25% were imposed illegally. What does it represent for GreenFirst? I will let Michel, our President, answer that question.

Thanks, Joel. Yes. So the U.S. Court of International Trade has determined that IEEPA tariffs should be refunded to importers. Just a bit of context also on that about the Canadian imports, including Softwood Lumber were subject to these tariffs for only 3 days in March 2025 before just that both government agreed to eliminate them under the free trade agreement. As a result of that, I would say that the financial impact on GreenFirst is not material. Now the government of Canada has indicated that company will need to pursue their own recourse to update any refunds. This matter is still evolving, and we are awaiting further clarity on the refund process.

Okay. There's another question here. Our freight rail rates materially increased in Q1. So one thing I would like to mention is the way our operational structure, it kind of helped us a little bit in 2025 because we do harvest all the wood or most of the wood for 2 of our mill during winter. So when prices were not escalating high, when price were acceptable, we did cut haul most of the wood for 2 of our mill in 2025. So all that wood is sitting in our yard right now, and we're going to cut it in 2026. As far as the shipments, we did see some increase with rails and truck related to higher fuel price. We're closely monitoring this every day. But normally, when we sell lumber, we pass the transportation cost to the customer. But it's a situation we're closely monitoring right now. We do have another question here. How is the uncertainty around Kap Paper and how it's affecting GreenFirst? I will let Michel, our President, answer the question.

Thanks, Joel. So first, I will reiterate that Kap Paper is certainly an important partner for us as it consume a significant portion of our chips and bark also that is produced by 3 of our 4 saw mills. In the current environment, for sure, the uncertainty around the future of Kap Paper does create some risk for GreenFirst, particularly in terms of residual management and logistics. That said, we have been proactively managing this exposure and have also contingency plans in place. I would add on that, that we are also encouraged by the work being done to secure the long-term potential conversion of the site to an MDF mill. This would provide a more sustainable and stable outlet for our byproducts over time. However, this type of projects will require certainly some government support and will take time to implement. In the meantime, we will continue to work closely with all stakeholders and to develop alternative solution to ensure we can manage our byproducts effectively.

We do have another question related to byproduct. Can you clarify the company's plan to address actual exposure related to byproducts? I will let Michel to answer that question.

Thanks, Joel. So as you know, the pulp and paper sector remains under pressure with several mills closure in Ontario and Quebec over the past 2 years. We mentioned that also in the past earnings call with the closure of 2 major pulp and paper mills in Ontario, and we saw also recently some other closures in Quebec side. That being said, also, our current exposure is limited as we have long-term agreement with RYAM and Kap Paper, which allow us to place or redirect the majority of our chips. At the same time, we are actively working to reduce our reliance on the pulp paper sector by developing alternative uses and higher value for our byproducts. If I go specifically for Chapleau, we are working with a company to evaluate the feasibility of building a facility to produce certified pellet for the energy sector. We have also secured funding to advance feasibility and pre-engineering work. And we are also evaluating additional opportunities across our sites, including biofuels. Finally, I would say on that, that we're progressing discussions with partners and potential customers with LOIs in place. While we cannot share more details at this stage, we expect to provide updates in the coming quarters.

So we do have another question here. Do you anticipate the mass timber market becoming a viable market for GreenFirst? If so, when? So I have to say we do sell lumber right now to people that produce mass timber, trusses and other component that goes into housing and engineering product. However, our strategy in the short term is to reduce our cost. Our cost structure, our goal is to become top quartile and we're going to continue to focus to reduce our costs going forward from a strategic perspective. GreenFirst is kind of a unique situation if you look across Canada and North America because we do have access to wood. We can cut more wood. We can use this wood to reduce our cost and become a top quartile. Down the road, maybe this is something we're going to look at. But right now, we're going to remain focused on our core strategy, which is reduce costs. Can you give us some insight? We have another question here more financial related. Can you give us some insight into the inventory provision taken this quarter? What's driving the significant increase this quarter specifically? I will let Peter, our CFO, to answer that question.

I'm going to start by first stating it's a noncash expense. Let me start also by clarifying how we compute net realizable value, which translates into the inventory provision. It is the estimated selling price in the ordinary course of business, less estimated cost of completion and costs necessary to make the sale. As such, the increase in the inventory provision is primarily driven by lower benchmark market prices that Joel shared to us earlier, combined with the duties and tariffs that have increased in Q4 with benchmark prices reaching its lowest levels in December. Additionally, higher production costs associated with ramp-up operations have contributed to the increase in the provision. In the coming quarters, as we see improvements from market recovery, the Chapleau ramp-up, and the efforts of our strategic downtime. Collectively, this will help reverse the adjustments recorded in the upcoming quarters.

Okay. We don't have any more questions. So that concludes the call. Thank you very much for your participation. Thank you.

Thank you, sir. 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.