Q EARNINGS PRESENTATION

Transcription

1 Q EARNINGS PRESENTATION Presented by: Joe Nemeth, President & CEO Presented by: Kevin J. Clarke, President & CEO Brian Baarda, November 9, 2016 VP Finance & CFO Gerrie Kotze, VP, Finance May 7, March 6, 2013

2 FORWARD-LOOKING STATEMENTS The presentation and answers to questions today contain forward-looking statements. Forward-looking statements are statements that address or discuss activities, events or developments that we expect or anticipate may occur in the future and can be identified by the use of words such as believe, expect, anticipate, intend, plan, likely, predicts, estimates, forecasts, and similar words or phrases or the negative of such words or phrases. These forward-looking statements reflect our current beliefs, intentions or expectations based on certain assumptions and estimates, which could prove to be significantly incorrect, including our ability to develop, manufacture and sell new products and services that meet the needs of our customers and gain commercial acceptance, our ability to continue to sell our products and services in the expected quantities at the expected prices and expected times, our ability to successfully obtain cost savings from our cost reduction initiatives, our ability to implement business strategies and pursue opportunities, expected cost of goods sold, expected component supply costs and constraints and expected foreign exchange and tax rates. While considered reasonable by management, these forward-looking statements are inherently subject to known and unknown risks and uncertainties and other factors that could cause actual results or events to differ from historical or anticipated results or events. These risks, uncertainties and other factors include the impact of general economic conditions in the countries in which we do business, conditions in the capital markets and our ability to obtain financing and refinance existing debt, market conditions and demand for our products (including declines in advertising and circulation), product selling prices, the implementation of trade restrictions in jurisdictions where our products are marketed, fluctuations in foreign exchange or interest rates, raw material prices (including wood fibre, chemicals and energy), our ability to successfully obtain cost savings from our cost reduction initiatives, the effect of, or change in, environmental and other governmental regulations, labour relations, the availability of qualified personnel, legal proceedings, the effects of competition from domestic and foreign producers, our ability to implement business strategies and pursue opportunities, the risk of natural disaster and other factors beyond our control. As a result, no assurance can be given that any of the events or results anticipated by such forward-looking statements will occur or, if they do occur, what benefit they will have on our operations or financial condition. Readers are cautioned not to place undue reliance on these forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 2

3 NON-GAAP MEASURES Except where otherwise indicated, the financial information in this presentation is determined on the basis of US GAAP. Adjusted EBITDA is a non-gaap measure, calculated as operating earnings (loss) plus depreciation and amortization and impairment. We focus on adjusted EBITDA as we believe this measure enables comparison of our results between periods without regard to debt service, income taxes, capital expenditure requirements, and impairment. Adjusted EBITDA before specific items, net earnings (loss) before specific items, and net earnings (loss) per share before specific items are non-gaap measures. We use measures excluding specific items in evaluating our results between periods without regard to specific items that adversely or positively affect our adjusted EBITDA and net earnings (loss). Free cash flow is a non-gaap measure, calculated as adjusted EBITDA after capital expenditures, interest and taxes paid, and adjustments to reflect employee future benefit payments. The closest GAAP measure is cash provided by operating activities less cash used by investing activities. We report free cash flow as we believe it is useful for investors and other users to be aware of this measure so they can better assess our operating performance. 3

4 Q OVERVIEW Catalyst reported significantly improved earnings in the third quarter: Despite non-cash impairment write-down of $186.4 million at our Canadian paper mills. Net earnings before non-cash impairment write-down and other significant items was $7.6 million Positive third quarter operating results: Adjusted EBITDA of $31.9 million (vs negative $5.3 million Q2) Free cash flow of $9.8 million (vs negative $30.0 million Q2) Liquidity of $77.5 million 4

5 5 Q OVERVIEW: Operations Safety: Medical Incident Rate (MIR): 3.06 (Q3), 2.41 (YTD) Lost Time Incident Rate (LTI): 1.29 (Q3), 0.92 (YTD) Operations: $63.1 million OFI savings year-to-date - Cost Reduction (Mill Revitalization Program) - Top Line Growth (product mix optimization, supply chain initiatives and new specialty paper sales growth) Discontinuance of lawsuits filed against Catalyst by the Halalt First Nation, Sunvault Energy Inc., and Aboriginal Power Corp.

6 Q OVERVIEW: Sales & Markets Top-Line Improvement Initiatives: Strong sales of Coated One Side - Sales increased by more than 50% over same period of 2015 Commercialized Glide Graphics - New specialty grade for large-size graphic applications - Ongoing product development and innovation NBSK pulp demand was steady in the quarter; prices traded in a narrow range CVD Update: Preliminary Results of the Expedited Review delayed; decision public Nov. 17,

7 Q OVERVIEW: Sales & Markets Sustainability Achievement: Earned the prestigious EarthCare Award presented by Sierra Club U.S. - Recognizes Catalyst s role in establishing the Great Bear Rainforest, one of the world s largest remaining relatively intact temperate rainforest areas 7

8 Q OVERVIEW: KGI & Alternate Recap Plan Update KGI & Alternate Recapitalization Plan May 23: Principal Securityholders and KGI enter into letter of intent June 30: Principal Securityholders and KGI enter into Support Agreement Aug 16: Principal Securityholders and KGI amend Support Agreement Oct 26: Catalyst announces receipt of an alternative recapitalization plan Oct. 31: Catalyst enters into a Support Agreement with its Principal Securityholders related to the proposed alternate recapitalization plan 8 Both Plans Would Benefit Catalyst Strengthen the company s financial position Provide certainty for the future Enable the company to pursue transformational initiatives

9 FINANCIAL RESULTS ($millions, except per share amounts) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Sales $ $ $ $ $ $ $ Adjusted EBITDA 14.0 (19.2) (5.3) 31.9 Adjusted EBITDA before specific items (1.1) 35.3 Adjusted EBITDA margin before specific items 3.3% 2.1% 7.6% 3.9% 3.5% -0.2% 7.0% Net earnings (loss) $ 22.2 $ (32.4) $ (12.9) $ (26.3) $ 16.9 $ (26.6) $ (185.0) Net earnings (loss) before specific items (12.6) (13.8) 8.4 (10.0) (5.1) (27.3) 7.6 EPS 1.53 (2.23) (0.89) (1.82) 1.17 (1.84) (12.76) EPS before specific items (0.87) (0.95) 0.58 (0.69) (0.35) (1.88) 0.52 Average F/X spot rate (USD/CAD) Average effective F/X rate (USD/CAD)

10 ADJUSTED EBITDA RECONCILIATION 1 Refer to section 6, Non-GAAP measures

11 FREE CASH FLOW ($millions) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Adjusted EBITDA 14.0 (19.2) (5.3) 31.9 Interest expense, excluding amortization (11.4) (10.2) (12.4) (11.1) (11.0) (10.9) (11.7) Capital expenditures (10.4) (11.1) (2.9) (10.1) (5.1) (10.3) (3.1) Income taxes paid (0.1) - Employee future benefits, net of funding (0.3) (1.0) (0.1) (5.3) (2.7) (3.4) (7.3) Free cash flow $ (8.1) $ (41.5) $ 23.4 $ (11.4) $ (1.7) $ (30.0) $

12 LIQUIDITY ($millions) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Borrowing base 1 $ $ $ $ $ $ $ Letters of credit (22.0) (21.8) (22.1) (22.4) (24.4) (24.1) (23.2) Net amount drawn (111.3) (114.0) (121.7) (117.1) (125.0) (135.9) (150.3) Availablily Cash on hand Total liquidity $ $ 85.6 $ 86.2 $ 93.8 $ 84.0 $ 74.5 $ The borrowing base at September 30, 2016, is reduced by reserves for a landlord waiver reserve in respect of rent of approximately $2.7 million, a pension reserve not exceeding the sum of normal cost pension contributions, special and catch-up payments and any other payments in respect of a Canadian pension plan that are past due of approximately $1.4 million, a reserve for credit insurance deductibles of $3.2 million, a reserve for vacation pay of $3.1 million, a reserve of $1.5 million for employee source deductions, and a reserve of $0.3 million for workers compensation costs. 12

13 PLANNED MAJOR MAINTENANCE: 2016 Shutdowns Mill Location Tonnage Impact 2016 Q1 Q2 Q3 Q4 Total Mtce Cost ($mm) Tonnage Impact Mtce Cost ($mm) Tonnage Impact Mtce Cost ($mm) Tonnage Impact Mtce Cost ($mm) Tonnage Impact Mtce Cost ($mm) Alberni Other Boilers Crofton TMO 7, , Capital 7,900 7,900 Pulp 12, , Boilers Powell Boilers Biron Boilers Rumford Capital 1,500 1,500 Pulp 4, , Boilers Other Total , , ,

14 Q OVERVIEW: Outlook Markets: Continued pressure on North American paper markets Price increases announced Nov. 1 for supercalendered paper (US $50 per short ton) and coated groundwood paper (US $40 per short ton) Stable pricing for newsprint Pulp pricing declines Operations: Seasonally stronger sales demand Continued OFI savings Major maintenance spending 14

15 Q&A Appendix 15

16 ADJUSTED EBITDA SENSITIVITIES ($millions) Adjusted EBITDA (1), (2) Product prices Impact of US$10/t change in price of: Uncoated Paper $ 6 Coated Paper 13 Newsprint 4 Pulp 5 $ 28 Foreign exchange (3) Impact of $0.01 change in US dollar relative to the Canadian dollar 10 (1), (4) Energy cost sensitivity Impact of 5% change in price of: Natural gas and oil direct purchases 1 Electricity direct purchases 9 Coal direct purchases 1 Freight cost sensitivity Impact of US$5/bbl change in price of West Texas Int. (WTI) Oil 1 (1), (4) Fibre sensitivity Impact of US$5/unit change in the price of wood chips (Bdt) 17 (1) Based on a foreign exchange rate of US$0.77. (2) Based on annualized sales of Q (3) Based on Q annualized net cash flows and a foreign exchange movement to US$0.78 from US$0.77 and excluding our hedging program and the impact of the translation of US dollar denominated debt. (4) Based on annualized Q consumption levels. 16

17 SUMMARY OF SEGMENTED FINANCIAL INFORMATION ($millions, except where otherwise stated) Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Sales (000 MT) Coated Uncoated Newsprint Pulp Other , Sales Coated $ $ $ $ $ 1,033.8 $ $ $ Uncoated Newsprint Pulp Other $ $ $ $ $ 1,991.1 $ $ $ Adjusted EBITDA Coated $ (5.2) $ (19.6) $ 15.1 $ 8.6 $ (1.1) $ 11.3 $ 9.9 $ 13.6 Uncoated 10.6 (6.1) (3.9) 3.4 Newsprint 2.9 (5.5) (0.4) (0.1) (3.1) (2.3) (5.4) 4.0 Pulp (4.6) 12.8 Other (2.3) 0.2 (0.8) (1.1) (4.0) (5.5) (1.3) (1.9) Operating earnings (loss) $ 14.0 $ (19.2) $ 38.8 $ 15.1 $ 48.7 $ 17.1 $ (5.3) $ 31.9 Coated $ (10.7) $ (25.4) $ 9.1 $ 1.9 $ (25.1) $ 6.1 $ 5.3 $ (46.3) Uncoated 4.2 (12.2) - (3.2) (11.2) (4.1) (9.6) (83.8) Newsprint 1.4 (7.4) (2.3) (2.1) (10.4) (4.0) (7.3) (48.0) Pulp (5.3) 12.1 Other (2.5) (0.1) (0.9) (1.5) (5.0) (6.1) (1.7) (2.2) $ (0.3) $ (34.0) $ 23.8 $ (2.2) $ (12.7) $ 2.7 $ (18.6) $ (168.2) Numbers for all periods exclude the results of our Snowflake mill which have been classified as discontinued operations. 17

18 IMPACT OF SPECIFIC ITEMS ON NET EARNINGS (LOSS) ($millions, except where otherwise stated) Q1 Q2 Q3 Q4 Q1 Q2 Q3 LTM Net earnings (loss) $ 22.2 $ (32.4) $ (12.9) $ (26.3) $ 16.9 $ (26.6) $ (185.0) $ (221.0) Specific items, after taxes: - Foreign exchange loss (gain) on long-term debt 27.6 (5.5) (22.6) (7.6) Bargain purchase price (39.3) (2.9) (1.7) Market curtailment Crofton oxygen plant outage (insurance recovery) (2.7) - - (2.7) Rumford recovery boiler upgrade Professional fees & duties on countervailing action Crofton waterline breach, net of insurance recovery Net settlement gain (5.5) - (5.5) Reduction of deferred tax asset valuation allowance (25.1) (1.9) (3.4) Acquisition costs related to US paper mills Restructuring costs Impairment Net earnings (loss) before specific items $ (12.6) $ (13.8) $ 8.4 $ (10.0) $ (5.1) $ (27.3) $ 7.6 $ (34.8) Net earnings (loss) per share before specific items $ (0.87) $ (0.95) $ 0.58 $ (0.69) $ (0.35) $ (1.88) $ 0.52 $ (2.40) Weighted average common shares (millions)

19 CAPITALIZATION ($millions) December 31, 2015 September 30, 2016 Term loan, due July 31, 2017 $ 16.0 $ 14.8 Senior secured notes, 11.0% due October 30, 2017 (US$260.5 million; December 31, 2015 US$260.5 million) Revolving asset based loan facility of up to $250.0 million (December 31, $225.0 million) due July 31, Capital lease obligations Total debt Less: currenty portion (3.2) (165.1) Total long-term debt $ $

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