August 2014 Investor Presentation

Transcription

1 August 2014 Investor Presentation Presented by: Joe Nemeth, President & CEO Brian Baarda, VP Finance & CFO August 14, 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, the degree to which our debt may limit financing and operating activities, 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, equipment failure and maintenance, fluctuations in foreign exchange or interest rates, raw material prices and supply (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, potential impacts of claims of aboriginal rights and title, 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 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

4 MANUFACTURING CAPACITY Leading Producer of Specialty Printing Papers, Newsprint, and Pulp Largest producer of mechanical printing papers in Western North America and the fourth largest on the continent Only western North American producer of coated mechanical and SC paper Freight logical pulp capacity to Asia 3 Mills with 1.5 Million Tonnes of Annual Capacity Serving retailers, publishers, commercial printers, and manufacturers across North America, Latin America and the Pacific Rim Headquartered in Richmond, BC, Canada with Over 1,600 Employees 4

5 MANUFACTURING PLATFORM 2014 Capacity by Mill Location and Production Line 1 Mill Location Number Of Paper Machines Specialty Printing Papers 1 Newsprint 1 Market Pulp Uncoated Coated Mechanical Mechanical Directory Newsprint NBSK Pulp Total Crofton, B.C , , , Segment Breakdown (% dollar sales) Newsprint 18% 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% Market Pulp 22% Specialty Printing Paper 60% 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. 5

6 FREIGHT LOGICAL SALES WITH A GLOBAL REACH Global Reach 2013 Revenue by Geography* Newsprint Market Pulp Latin America 33% Asia and Australia 23% Canada 23% United States 21% Asia and Australia 100% Specialty Printing Paper Asia and Australia 6% Latin America 5% Canada 14% United States 75% 6 *Based on % tonnes

7 INVESTMENT HIGHLIGHTS Focus on Operational Excellence Safety Cost control Productivity SG&A Growing Market Share Service excellence and innovation Continued product development Steadily Improving Financial Results Steadily Improving Balance Sheet Experienced Management Team 7

8 IT ALL STARTS WITH SAFETY Monthly Medical Incident (MI) Frequency YTD MI World Class YTD Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Monthly Lost Time Incident (LTI) Frequency YTD LTI World Class YTD Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 8

9 COST CONTROL Initiated a Formal Program to Identify, Analyze and Implement Improvement Opportunities To date, more than 790 potential opportunities have been identified On track to realize significant benefits in key operating areas including productivity, energy consumption, and fibre yield Restructuring of the Senior Management Team Corporate executive group from 8 to 4 Elevate importance of key functions Mill General Managers report directly to the CEO Major spend categories, fibre, energy, chemicals report to CEO / CFO Line-by-Line Cost Reviews Formal review of all expense line items in the Company Electricity Rate Mitigation Worked with BC Hydro and the BC Government to develop the $100 million Mechanical Pulping Fund (allocation to Catalyst of $45 million) Announced first project at Powell River which will reduce energy cost by $5 million annually Definitive discussions continue on further rate mitigation and elimination of the Provincial Sales Tax on Energy 9

10 PRODUCTIVITY IMPROVEMENTS Re-Engineered Capital Planning Process Maximize profit adding projects Operational Excellence (Productivity) Focus in the Mills Speed and efficiency Two major debottlenecking initiatives were completed which significantly improved the sprint rate of the pulp mill Increase pulp sales by reducing internal kraft usage Paper (Active Machines) Tonnes / Day Crofton Pulp Tonnes / Day 2,901 2,941 2,951 3,000 2,937 3,027 1, ,042 1,058 1,046 1, June YTD June YTD 10

11 SG&A COST TREND ($ millions) $50 $45 $40 $30 Catalyst SG&A Costs $43 $40 $34 $33 $30 Catalyst Resolute Glatfelter NewPage Peer Comparison (FY 2013 SG&A % Net Sales) Median: 5.3% Verso $20 Tembec Neenah $10 Sappi $0 2009A 2010A 2011A 2012A 2013A 2014F Appvion 0% 2% 4% 6% 8% 10% Catalyst has a successful track record of cost reductions On track to reduce ~$15 million SG&A costs since 2009 The Company s SG&A as a % of net sales is 3.6%, compared to a peer median of 5.3% 11

12 MT 000 s SERVICE EXCELLENCE AND INNOVATION NA P&W Demand Catalyst Market Share Trend Catalyst Market Share Annual % 10, % 8,000 6,000 4,000 2, % 10.5% 10.0% 9.5% CYT Share of NA P&W Demand A 2011A 2012A 2013A 2014F 9.0% The Company has been able to drive increased market share despite softening in North American printing and writing end-market demand 12 Source: PPPC excluding woodfree

13 CONTINUED PRODUCT DEVELOPMENT (MOVING UP THE VALUE CHAIN) TOTAL CAPACITY (TONNES) 224, , , , ,000 13

14 SIGNIFICANT IMPROVEMENT IN EBITDA ($ millions) LTM Sales LTM Adjusted EBITDA* $1,038 $1,037 $1,040 $1,051 $1,078 $1,098 $49 Foreign Exchange $62 $47 $32 $34 $ US$ / CDN$ Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 ' LTM Free Cash Flow $10 ($1) ($21) ($53) ($51) ($67) Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 14 *EBITDA excludes restructuring costs

15 STEADILY IMPROVING BALANCE SHEET ($millions) December 31, 2013 June 30, 2014 Term Loan, due July 2017 $ - $ 19.5 Senior secured notes, 11.0% due October 2017 (US$235.5 million; December 31, 2013 US$250.0 million) Floating rate senior secured notes, due September 2016 (December 31, 2013 US$19.4 million) Revolving asset based loan facility of up to $175.0 million due July Capital lease obligations Total debt Less: Current portion (2.0) (2.4) Total long-term debt $ $ Reduced debt levels by US$15.9 million and annual interest by US$3.0 million March 27, 2014, repurchased US$9.5 million of PIK Toggle Senior Secured Notes on the open market April 1, 2014, repurchased an additional US$5.0 million of PIK Toggle Senior Secured Notes on the open market April 19, 2014, redeemed the US$19.4 million outstanding balance on the Floating Rate Senior Secured Notes with proceeds from the $20.0 million Term Loan entered into on March 20,

16 STRONG LIQUIDITY ($millions) Q1 Q2 Q3 Q4 Q1 Q2 Borrowing base $ $ $ $ $ $ Letters of credit (22.1) (19.8) (19.8) (19.3) (18.6) (18.5) Net amount drawn (4.7) - (11.8) (10.6) (1.3) (7.8) Available to be drawn 2 $ $ $ $ $ $ Cash on hand Total liquidity 3 $ $ $ $ $ $ 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 Excludes restricted cash. 16

17 EXPERIENCED MANAGEMENT TEAM Operationally focused management team with deep industry knowledge Joe Nemeth President and CEO 30 years of experience in the pulp and paper industry Brian Baarda VP, Finance and CFO 25 years of experience in the paper industry Pursuing proactive value creating strategies to maximize long-term growth Jim Bayles SVP, Sales and Marketing 38 years of experience with Catalyst Len Posyniak SVP, Human Resources and Corporate Affairs 35 years of human resource and labour relations experience across a variety of sectors 17

18 OUTLOOK Economy: Economic growth expected to continue for the United States Continued volatility in the Canadian dollar, with a softening trend Markets: Paper pricing environment expected to be very competitive in North America Continued focus on new value added paper products including lightweight newsprint and new 70 pound Ascent targeting magazine cover stock Softwood pulp expected to trade in a narrow range with current global pulp inventories at a very low level Operations: Progress is ramping up on our Opportunities for Improvement program with 790 suggestions received in the first half of the year Debottlenecking of pulp operations expected to increase annual pulp capacity Target to mitigate enacted and future power increases Positive product mix for Q3 vs. Q2: Powell total mill outage in Q3 (tonnage impact uncoated, out lowest CM product) vs. recovery boiler outage in Q2 (tonnage impact pulp out highest CM product) 18

19 APPENDIX

20 PRODUCT AND END MARKETS 2014 PRODUCT APPLICATIONS Segment Specialty printing papers Newsprint Market pulp Category Uncoated mechanical Softcalendered Machinefinished Coated mechanical Directory Newsprint NBSK pulp Brand names Electracal Electraprime Electrabrite Electrabrite Lite Electrastar Electra Max Electrabrite Book Electracote Electracote- Brite Pacificote Ascent Catalyst Marathon Marathon Lite Crofton Kraft Basis weight (g/m 2 ) n/a Applications retail inserts, magazines, catalogues, flyers, direct mail, directories retail inserts, magazines, supplements, flyers, direct mail, books, corporate communication books/manuals retail inserts, magazines, catalogues, direct mail telephone books, catalogues newspapers, retail inserts, flyers, supplements, directories tissue, printing and writing papers, specialty paper products, containerboard Total capacity (tonnes) 469, , , , ,000 2 % of total capacity 31% 15% 8% 23% 23% 20 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.

21 SUMMARY OF SEGMENTED FINANCIAL INFORMATION ($millions, except where otherwise stated) Q1 Q2 Q3 Q4 Q1 Q2 LTM Sales (000 MT) Specialty printing papers Newsprint Pulp ,389.3 Sales Specialty printing papers $ $ $ $ $ $ $ Newsprint Pulp $ 1,098.3 Adjusted EBITDA Specialty printing papers $ 7.7 $ (0.8) $ 6.5 $ 11.6 $ 5.9 $ 0.8 $ 24.8 Newsprint Pulp 1.4 (2.9) (0.6) $ 68.3 Adjusted EBITDA before restructuring costs Specialty printing papers $ 7.7 $ (0.8) $ 6.5 $ 12.2 $ 5.9 $ 0.8 $ 25.4 Newsprint Pulp 1.4 (2.9) Operating earnings (loss) $ 11.2 $ (0.5) $ 16.4 $ 20.2 $ 25.7 $ 7.1 $ 69.4 Specialty printing papers $ (2.9) $ (10.7) $ (3.4) $ (85.3) $ (2.7) $ (8.2) $ (99.6) Newsprint Pulp 1.0 (3.2) $ (1.2) $ (12.0) $ 4.9 $ (79.5) $ 14.8 $ (3.9) $ (63.7) 21 Numbers for all periods exclude the results of our Snowflake mill which have been classified as discontinued operations.

22 SIGNIFICANT IMPROVEMENT IN EBITDA ($ millions) $90.0 $36.5 $80.0 $70.0 $60.0 $50.0 $40.0 $47.3 ($10.6) ($4.3) ($4.2) ($15.3) $13.2 ($5.1) $11.3 $7.6 ($3.3) $1.4 ($5.4) $69.1 $30.0 $20.0 $10.0 $ *EBITDA excludes restructuring costs

23 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 1 Electricity direct purchases 8 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) $ 8 (1) Based on a foreign exchange rate of US$0.92. (2) Based on annualized sales of Q (3) Based on Q annualized net cash flows and a foreign exchange movement to US$0.93 from US$0.92 and excluding our hedging program and the impact of the translation of U.S. dollar denominated debt. (4) Based on annualized Q consumption levels

24 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 10, , , Boilers Powell TMO 9, , Capital Boilers Total 10, , , , Mtce Cost ($mm) 24

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