Good morning, ladies and gentlemen, welcome to GreenFirst Q1 2023 Results Conference Call. Please note that all lines are muted to prevent any background noise. During the conference call, GreenFirst 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 both in the accompanying presentation and in our 2022 Annual Information Form, which can be accessed on our website or through SEDAR. After the speaker's remarks, there will be a question-and-answer session. Mr. Rivett, you may begin the conference.
Thank you very much, Sylvie. Good morning, everyone, thank you for joining our first-quarter call. I am Paul Rivett, the Interim CEO and Chair of the Board of GreenFirst. Joining with me today are Michel Lessard, our President; Alfred Colas, our Chief Financial Officer; of course, Gwen Webster, our Chief of Staff. As a quick overview of our company, we are now exclusively based in Ontario, with four sawmills located in the heart of the province with approximately 2.5 million cubic meters of annual allowable fiber allocation. We directly employ approximately 1,000 people. If you would like to learn more about our corporate vision and strategy, please see the CEO letter filed earlier this year on SEDAR and on our website at greenfirst.ca. For our Q1 highlights.
Despite the currently low lumber price environment, we have several positive highlights to report on this quarter. First, on March 14th, we sold both our Quebec sawmills in Béarn and La Sarre, along with related forestry operations for approximately CAD 94 million, subject to final adjustments. This sale allows us to focus our efforts in Ontario and reduce our average cost of production. Our Ontario mills continue to make productivity gains. We executed a non-binding letter of intent to sell 30 of our 118 acres of Kenora land to a regional institution for CAD 8 million. The sale is subject to conditions including government funding. Given our downsizing from 6 to 4 mills, we have initiated cost reduction initiatives, which include the streamlining of shared service roles, headcount reductions, repositioning of key roles within the organization, and a critical review of expenditures in order to reduce SG&A.
We also have significantly deleveraged our balance sheet by paying down CAD 24 million towards our debt in 2023, including full repayment of our term loan with BMO. Low lumber prices in the Q1 of 2023 led GreenFirst to report a net loss of approximately CAD 20 million based on continuing operations or a quarterly loss of CAD 0.11 per share on a fully diluted basis. This result for the Q1 includes the impact of a CAD 3.2 million net increase to the valuation provision for lumber and log inventories. Including this impact, adjusted EBITDA for the Q1 was negative CAD 15.2 million. This will, of course, be discussed in further detail by Alfred, our CFO, shortly. Last month, our executive and sales teams were in attendance at the Montreal Wood Convention.
The consensus from the industry showed optimism in lumber prices increasing in the back half of 2023 and into 2024. This is based on many factors, including the estimated US housing shortage. The majority of US builders are projecting growth in the back half of 2023 and in 2024. Residential improvements in US housing starts came in stronger than we predicted in the Q1. While inflation, rapidly increasing interest rates, and the threat of a recession are still having a negative impact on lumber markets, we saw some market support due to curtailments in B.C. and other regions of North America. If the prices continue to remain low, it is anticipated further curtailments or closures will occur. Although we are facing near-term volatility in lumber demand and pricing, we continue to believe longer-term fundamentals for lumber demand remain more favorable. Alfred will now walk through our financials.
Thanks, Paul, and good morning, everyone. As summarized by Paul, GreenFirst navigated another challenging quarter to start 2023 and reported a net loss of CAD 20.2 million on the basis of its continuing operations or a quarterly loss of CAD 0.11 a share on a diluted basis, as just mentioned by Paul. Lumber sales in the Q1 reflect lower selling prices and lower sales volumes compared to Q4 of 2022. The average selling price of lumber in the Q1 was CAD 605 per thousand board feet compared to CAD 644 in Q4 of 2022. Lumber shipments sold in the Q1 were 93.3 million board feet compared to 99.7 million board feet sold in Q4 of 2022.
The net loss for Q1 includes the impact of a CAD 3.2 million net increase to the valuation provision for lumber log inventories. Which reflects the further drop in lumber prices through the Q1 and increased volumes. While our continuing operations exclude the results of the two Quebec sawmills, those discontinued operations, which were sold on March 13th, contributed about CAD 6 million of negative adjusted EBITDA to the economics of GreenFirst during the Q1. This was before the reversal of provisions driven by accounting rules, which created a CAD 1.7 million net earnings for discontinued ops in the Q1.
Our paper shipments in the Q1 were 42,620 metric tons, which drove revenues of CAD 37.8 million, both higher than the Q4 of 2022, reflecting increased operating efficiency and production output at the second paper machine. Revenues were also driven by strong sales under key newsprint contracts. Cost of sales for the paper products was CAD 36 million in the Q1, for an operating profit of CAD 1.3 million, something that we've worked hard to achieve. Adjusted EBITDA for the Q1 was negative CAD 15.2 million compared to a higher EBITDA loss of CAD 27.4 million in the Q4 of last year. This was driven by better paper sales, lower SG&A, and a lower charge for incremental inventory valuation provision.
Looking at the elements that are added back in calculating EBITDA, finance costs, which include interest and amortized debt costs, were about CAD 900,000 in the Q1, significantly lower than the CAD 1.2 million in the Q4 of last year, and a fraction of the CAD 3.6 million in the Q1 last year. These re-reductions reflect the lower interest rate under the new credit facility negotiated last September with BMO and debt payments made, which are expected to continue based on opportunities to apply surplus cash to debt. Income taxes are another add back for EBITDA. I am pleased to say that no cash taxes are expected to be paid this year. The company repaid CAD 19 million of debt in the Q1 and CAD 30 million in the Q4 of 2022.
The debt had an outstanding balance of CAD 34 and a half million at the end of the Q1, before further repayment of $5 million against debt early in the Q2. As an asset-backed facility, the borrowing base is partially reduced by outstanding letters of credit. At 1 April 2023, the outstanding letters of credit had been negotiated down to $5.4 million, which is significantly less than the $13.7 million outstanding one year earlier at Q1 2022. Turning to liquidity, we ended the Q1 with a cash position of $24.9 and 32.3 million in undrawn availability under our credit facility for a total liquidity of $57.2 million as at 1 April .
Debt repayments have been made from part of the proceeds of the sale of the Quebec sawmills, which allows us to further reduce interest expense by paying down our asset-backed credit facility. As it is a revolving credit facility, we can reduce interest costs while keeping the flexibility to draw on the available liquidity. Taking stock of where we have come from, we are now thankfully in a position with much lower debt, with a lower interest rate, and no financial covenant ratios compared to a year ago when we had over CAD 125 million of high-cost term debt. The credit facilities are no longer subject to a minimum fixed charge coverage ratio covenant with the repayment of the term loan during the Q1, as mentioned earlier.
With our prudent management, the low level of our debt at 1 April 2023, means that our net debt is down to only CAD 9.6 million. We have responded to low lumber prices by executing several cost reduction measures. These include streamlining the organization to reduce overheads, driving cost reduction projects at the operations, which are reviewed weekly and are bolstered by management moving from the head office to our operating sites, conducting detailed reviews of accounts payable to scrutinize transactions, and focusing our strategic sourcing group where we seek savings through more competitive bids and selecting alternative contractors and suppliers. Progress on these measures has benefited greatly from excellent collaboration between the finance and operations teams. I now ask Michel to comment on the operational results in the Q1.
Thank you, Alfred. Good morning, everyone. We are pleased to report for the fifth quarter in a row, we saw an increase in both our sales and shipments from our paper mill. Higher paper productions was primarily due to efficiencies gained on the company's second paper machine. We keep trending in the right direction. That said, we have seen a slight decrease in our average selling price from the start of the year. During the Q1 of 2023, lumber production increased slightly over the Q4 of 2022. This increased production was primarily driven by better equipment reliability and efficiencies in the current period. Our lumber shipments and sales decreased in the Q1 versus the Q4 of last year. We saw lower cost of sales in the Q1 versus the Q4 of 2022.
This was primarily driven by lower shipments and a lower incremental inventory write-down adjustment. This is the new continuous dry kiln under construction at our Cochrane mill. We expect to complete the kiln by August 2023, with the startup expected in September. We also started preparation for the installation of the Kenora continuous dry kiln at Hearst. This is just a reminder, our annual production capacity at our operating sawmills is 510 million board feet. We are proud to be in forestry, a renewable resource. We continue to reinforce our ongoing commitment to environmental sustainability and responsible stewardships of the forests we manage. Along with collaborators with academia, government and environmental organization and ongoing partnerships with indigenous communities across Ontario, we work together to continuously improve sustainable forest management practices, protect rights and advance mutual interest.
2023 marks the 20th year of continuous FSC certification for the Gordon Cosens Forest located around Kapuskasing, the first forest to be awarded such certification in Canada's Boreal forest region. We have an exceptional team that are always pushing the envelope and being pioneers in better practices. Over to you, Paul.
Thank you very much, Michel. Looking ahead, we believe lumber demand and supply conditions are such that pricing should begin improving. That said, we are hoping for the best but planning for the worst. We remain committed to our strategy of increased productivity gains at our operations, rigorous expense control and SG&A reduction and prudent capital allocation through this current low end of the lumber pricing cycle. We expect to realize lower US duties and benefit favorably from lower production costs related to facility upgrades in the second half of this year. We now open things up for questions. Please submit the questions through the online portal. Okay. We have a few questions. We'll dive right in. The first question is, what is the appropriate amount of leverage for GreenFirst? I'll take that question first.
What I would say is at the bottom of the cycle, no leverage is good leverage. Good companies run into trouble with bad debt, particularly cyclical commodity businesses. We here at GreenFirst are very focused on keeping our leverage as low as possible. As Alfred mentioned, we're getting very close to net debt-free versus only less than two years ago, we had CAD 125 million of very high cost debt. So we're prudently attacking that debt, and we'll do what we can to keep it as low as possible. The next question is, given the current state of lumber prices, have we been taking downtime? Are there any plans to take downtime in the future? Michel, could you answer that one?
Yeah, sure. You know, we constantly monitor lumber prices as we monitor our production costs as per also our inventories. After that, we see if we should or not take some downtime. About the inflection point, you know, it's competitively sensitive, so but, for sure, we'll never hesitate to take downtime if we have to.
The next question is another question on details about the LOI and with respect to the sale in Kenora. We can't say much more than what we've already stated. Michel, if you wanna maybe add a little bit more.
Yeah, sure. We mentioned the million. We're certainly pleased with the CAD 8 million sale, sales price for the remaining 88 acres that we own. It is in beautiful waterfront property in Lake of the Woods. Very nice property there.
All right. Thanks, Michel. The next question is, at what average lumber price do you become cash flow positive? I would like to answer that question, but as Michel just stated, there is an inflection point at which we would take downtime. It's obviously competitively sensitive, that inflection point. We, you know, we don't talk openly, publicly about when we will take downtime and what is our cash flow break-even cost. I would say that, we're roughly in that zone now, but obviously can't specify that for competitive reasons. The next question is, the company consumed a significantly higher amount of working capital in Q1. Should that be our expectation going forward? The answer to that is absolutely not.
The Q1 is an anomaly versus the rest of the year. The Q1 is always the quarter with the highest investment in working capital as we build up roundwood inventory. That will continue to be the case for this company, that the Q1 will always be high investment in working capital. The next question is, you mentioned cost reductions. When will we start seeing the results of this? Alfred, do you wanna take that one?
Sure, Paul.
As I mentioned, you know, in my remarks earlier, our cost reductions are targeting various aspects of the company, SG&A operating costs, working capital. We are already executing on various fronts with these reductions. We see, for example, our SG&A number for Q1 is just slightly lower than what it was in Q4. That might be considered the leading edge of this, but we think that in Q2, we should expect to see some of these results, benefiting. Clearly, we have urgency, and we're focusing on executing and crystallizing these savings in the near term.
Okay. Thank you, Alfred. The next question is, what drove down paper pricing and what is the outlook for paper pricing? Michel, can you take that one?
Sure. You know about the pricing, it's all related to the, to the demand and also the inventory that is has been accumulated to our customers. About the outlook, if we're looking, so RISI outlook, that shows that the price should continue to decrease through the year. Hoping that it will not happen, but it's what we see actually in RISI's forecast.
Okay. Thanks, Michel. The next question is, in the proxy, there was a resolution to decrease capitalization by CAD 90 million. Why is that? We put that resolution in because there's a requirement as an Ontario company for us to make that change if we wanna provide dividends to our shareholders. What I would say is don't read into that we are going to provide a dividend. We want the freedom to be able to provide a dividend. As I said, we are now at this low end of the cycle with respect to lumber pricing. We're very focused on staying as close as we can to no debt or net debt free.
We do wanna have the option at some point in the future to potentially provide a dividend to our shareholders and return capital to them if it's not something we can deploy favorably inside the company. That, by getting that resolution approved, that allows us to provide dividends in the future. All right, our last question is any discussion with Interfor? I'll take that one. You know, I would say, as I've said in the past, we respect Interfor as a shareholder, but more importantly, as a competitor. It goes without saying that Ian and his team are highly respected operators in the lumber space. Beyond that, we of course, cannot comment on any discussions we may have from time to time with Interfor. With that, I think. Any more questions, Glenn?
No.
Well, thank you for joining the call today. If you have any more questions, please email us at investors@greenfirst.ca, and we'll answer them accordingly. Thank you and have a great day.
Thank you. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending, and we do ask that you please disconnect your lines.