Q EARNINGS PRESENTATION

Transcription

1 Q EARNINGS PRESENTATION Presented by: Joe Nemeth, President & CEO Presented by: Kevin J. Clarke, President & CEO Brian Baarda, May 7, 2014 VP Finance & CFO Brian Baarda, VP Finance & CFO May 7, Q1 Earnings Presentation, May 7, 2014 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, predict, estimate, forecast, 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 Q1 Earnings Presentation, May 7, 2014

3 NON-GAAP MEASURES Except where otherwise indicated, the financial information in this presentation is determined on the basis of U.S. 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 restructuring costs, net earnings (loss) attributable to the Company before specific items, and net earnings(loss) per share attributable to the Company s common shareholders 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 Q1 Earnings Presentation, May 7, 2014

4 Q1 OVERVIEW Financial Performance Adjusted EBITDA of $25.7M was $6.6M higher than Q driven mainly by a weaker Canadian dollar, higher pulp prices and improved production Third consecutive cash flow positive quarter with free cash flow of $11.6M and total liquidity of $138.2M net of restricted cash Manufacturing costs driven higher by increased fibre, natural gas, chemical and distribution costs Assets and Liabilities Refinancing of highest cost debt and secured note buybacks will reduce annual interest expense by US$3M Entered $20M Term Loan, redeemed US$19.4M Floating Rate Notes, and repurchased US$14.5M PIK Toggle Notes 4 Q1 Earnings Presentation, May 7, 2014

5 Q1 OVERVIEW Operational Overview Productivity improved by 2.1% compared to prior year average and 4.9% compared to Q Extended container truck driver strike in Port Metro Vancouver delayed 8,000 tonnes paper sales into Q2 and increased distribution costs by $0.8 million Achieved safety targets by reducing medical incident rate and lost time incident frequency by more than 20% More than 560 opportunities for operational improvement identified Market Overview North American paper demand declined from Q and benchmark prices declined compared to Q NBSK Pulp shipments were down from Q while prices for China increased from Q Q1 Earnings Presentation, May 7, 2014

6 DEMAND & SHIPMENTS Decline in North American demand for all paper segments and NBSK pulp shipments * Uncoated mechanical is comprised of high-gloss and standard grades 6 Q1 Earnings Presentation, May 7, 2014

7 FINANCIAL RESULTS ($millions, except per share amounts) Q1 Q2 Q3 Q4 Q1 Sales $ $ $ $ $ Adjusted EBITDA 11.2 (0.6) Restructuring costs Adjusted EBITDA before restructuring costs $ 11.2 $ (0.5) $ 16.4 $ 20.2 $ 25.7 Adjusted EBITDA margin before restructuring costs 4.5% (0.2%) 6.1% 7.4% 9.4% Net earnings (loss) attributable to the Company $ (9.8) $ (28.0) $ 5.2 $ (95.0) $ (3.8) Net earnings (loss) attributable to the Company before specific items 2014 (11.6) (18.1) (3.5) EPS from continuing operations * (0.89) (1.93) 0.36 (6.55) (0.26) EPS before specific items * (0.80) (1.25) (0.24) Average F/X spot rate (USD/CAD) Average effective F/X rate (USD/CAD) * Per share information for Q and LTM based on 14.5 million weighted average common shares; total common shares issued as of March were 14,527,571 7 Q1 Earnings Presentation, May 7, 2014 Q1 Earnings Presentation, May 7,

8 ADJUSTED EBITDA RECONCILIATION ($millions) Q Q Adjusted EBITDA (before restructuring costs) $ 20.2 $ 11.2 Paper Prices (3.2) (5.7) Pulp Prices Impact of Canadian dollar Volume and mix Distribution costs (1.2) (0.7) Furnish mix and costs (3.2) (5.9) Power and fuel costs (0.1) (3.0) Labour costs (2.0) (1.5) Maintenance costs De-recognition of interest in PREI - (4.3) Power generation (0.8) 0.9 Other, net (3.4) (0.8) 2014 Q1 Adjusted EBITDA (before restructuring costs) Depreciation (10.9) (10.9) 2014 Q1 Adjusted Operating Earnings (Loss) Restructuring (costs) recovery Q1 Reported Operating Earnings (Loss) $ 14.8 $ Q1 Earnings Presentation, May 7, 2014

9 FREE CASH FLOW ($millions) Q1 Q2 Q3 Q4 Q1 Adjusted EBITDA before restructuring costs $ 11.2 $ (0.5) $ 16.4 $ 20.2 $ 25.7 Restructuring costs - (0.1) - (1.1) - Adjusted EBITDA 11.2 (0.6) Interest expense, excluding amortization (10.6) (8.2) (8.0) (8.7) (9.1) Capital expenditures (5.9) (8.5) (5.3) (3.7) (3.1) Reorganization costs (0.6) Employee future benefits, net of funding (1.9) (2.0) (2.3) (0.8) (1.9) Net operating cash flow from discontinued operations (1.0) Free cash flow $ (8.8) $ (19.3) $ 0.8 $ 5.9 $ Q1 Earnings Presentation, May 7, 2014

10 LIQUIDITY ($millions) Q1 Q2 Q3 Q4 Q1 Borrowing base $ $ $ $ $ Letters of credit (22.1) (19.8) (19.8) (19.3) (18.6) Net amount drawn (4.7) - (11.8) (10.6) (1.3) Available to be drawn 2 $ $ $ $ $ Cash on hand Restricted cash Total liquidity $ $ $ $ $ Borrowing base for the ABL Facility is reduced by reserves of $1.3 million for pension, $1.9 million for creditor insurance deductibles, $2.0 million for landlord waivers, $1.6 million for employee source deductions, and $0.3 million related to WorkSafeBC. 2 Requirement to maintain a minimum fixed charge coverage ratio of 1.0/1.0 if excess availability falls below $21.9 million. 3 Consists of cash held in trust for the redemption of US$19.4 million Floating Rate Notes with settlement on April 19, Q1 Earnings Presentation, May 7, 2014

11 PLANNED MAJOR MAINTENANCE SHUTDOWNS IN Q1 Q2 Q3 Q4 Total Mtce Mtce Mtce Mtce Cost Tonnage Cost Tonnage Cost Tonnage Cost Tonnage ($mm) Impact ($mm) Impact ($mm) Impact ($mm) Impact Mill Location Tonnage Impact Alberni TMO Boilers Crofton TMO Pulp 6, , , Boilers Powell TMO 9, , Capital Boilers Total 6, , , , Mtce Cost ($mm) 11 Q1 Earnings Presentation, May 7, 2014

12 OUTLOOK Economy: Continued weakness in the C$ Economic growth expected to continue for the United States and globally Markets: Ongoing secular decline in all grades of paper with a seasonal up-tick for specialties in the second half Short-term destocking in China will put downward pressure on softwood pulp prices Operations: Second quarter earnings will be negatively impacted by: higher power costs due to rate increase on April 1 st of 9%; increased maintenance costs due to Crofton s recovery boiler shut; higher fibre costs based on pulp pricing; and chemical, coating and distribution costs driven higher by strong U.S. dollar. 12 Q1 Earnings Presentation, May 7, 2014

13 APPENDIX 13 Q1 Earnings Presentation, May 7, 2014

14 MANUFACTURING CAPACITY 2014 CAPACITY BY MILL LOCATION AND PRODUCT LINE 1 Specialty Printing Papers 1 Newsprint 1 Market Pulp Total Mill Location Number Of Paper Machines Uncoated Mechanical Coated Mechanical Directory Newsprint NBSK Pulp Crofton, B.C , , ,000 Port Alberni, B.C , , ,000 Powell River, B.C , ,000 Total capacity (tonnes) 7 469, , , , ,000 1,513,000 % of total capacity 31% 15% 8% 23% 23% 100% 1 Capacities expressed in the above tables can vary as we are able to switch production between products, particularly newsprint, directory and machine-finished uncoated grades. 2 Total pulp capacity at Crofton is 393,000 tonnes, of which 355,000 tonnes are designated as market pulp with the remaining 38,000 tonnes being consumed internally. 3 No. 1 paper machine at Crofton remains indefinitely curtailed. 14 Q1 Earnings Presentation, May 7, 2014

15 ADJUSTED EBITDA SENSITIVITIES ($millions) Adjusted EBITDA (1), (2) Product prices Impact of US$10/t change in price of: Specialty printing papers $ 8 Newsprint 3 Pulp 3 Foreign exchange (3) Impact of $0.01 change in US dollar relative to the Canadian dollar 8 (1), (4) Energy cost sensitivity Impact of 5% change in price of: Natural gas and oil direct purchases 2 Electricity direct purchases 7 Freight cost sensitivity Impact of US$5/bbl change in price of West Texas Int. (WTI) Oil 3 (1), (4) Fibre sensitivity Impact of US$5/unit change in the price of wood chips (Bdt) $ 9 (1) Based on a foreign exchange rate of US$0.91. (2) Based on annualized sales of Q (3) Based on Q annualized net cash flows and a foreign exchange movement to US$0.92 from US$0.91 and excluding our hedging program and the impact of the translation of U.S. dollar denominated debt. (4) Based on annualized Q consumption levels Q1 Earnings Presentation, May 7, 2014

16 SUMMARY OF SEGMENTED FINANCIAL INFORMATION ($millions, except where otherwise stated) Q1 Q2 Q3 Q4 Q1 LTM Sales (000 MT) Specialty printing papers Newsprint Pulp ,379.4 Sales Specialty printing papers $ $ $ $ $ Newsprint Pulp $ 1,078.2 Adjusted EBITDA Specialty printing papers $ 7.7 $ (0.8) $ 6.5 $ $ 23.2 Newsprint Pulp 1.4 (2.9) (0.6) $ 60.6 Adjusted EBITDA before restructuring costs Specialty printing papers $ 7.7 $ (0.8) $ 6.5 $ $ 23.8 Newsprint Pulp 1.4 (2.9) Operating earnings (loss) $ 11.2 $ (0.5) $ 16.4 $ $ 61.8 Specialty printing papers $ (2.9) $ (10.7) $ (3.4) $ (85.3) (2.7) $ (102.1) Newsprint Pulp 1.0 (3.2) $ (1.2) $ (12.0) $ 4.9 $ (79.5) 14.8 $ (71.8) Numbers for all periods exclude the results of our Snowflake mill which have been classified as discontinued operations. 16 Q1 Earnings Presentation, May 7, 2014

17 IMPACT OF SPECIFIC ITEMS ON NET EARNINGS (LOSS) ATTRIBUTABLE TO THE COMPANY ($millions, except where otherwise stated) Net earnings (loss) attributable to the Company as reported $ (9.8) $ (28.0) $ 5.2 $ (95.0) $ (3.8) $ (121.6) Specific items, after taxes: Foreign exchange loss (gain) on long-term debt (6.1) Impairment (recovery) and other closure costs Restructuring costs (recovery) Reorganization items, net (Gain) Loss on purchase of debt 2.3 (0.9) 1.4 Net gain on sale of non-core assets (9.4) (2.1) - (0.7) - (2.8) Settlement gain on special pension portability election - - (2.6) - - (2.6) Net earnings (loss) attributable to the Company before specific items $ (11.6) $ (18.1) $ (3.5) $ 1.7 $ 6.5 $ (13.4) Net earnings (loss) per share attributable to the Company s common shareholders before specific items Q $ (0.80) $ (1.25) $ (0.24) $ 0.12 $ 0.45 $ (0.92) Weighted average common shares (millions) Q2 Q3 Q4 Q1 LTM 17 Q1 Earnings Presentation, May 7, 2014

18 CAPITALIZATION ($millions) Recourse December 31, 2013 March 31, 2014 Floating rate senior secured notes, due September 2016 (US$19.4 million; December 31, 2012 US$35.0 million) $ 20.2 $ 21.1 Senior secured notes, 11.0% due October 2017 (US$240.5 million) Term Loan, due July Revolving asset based loan facility of up to $175.0 million due July Capital lease obligations Total debt Less: Current portion (2.0) (1.8) Total long-term debt $ $ Q1 Earnings Presentation, May 7, 2014

19 19 Q1 Earnings Presentation, May 7, 2014