Q2 2015 EARNINGS PRESENTATION Presented by: Joe Nemeth, President & CEO Presented by: Kevin J. Clarke, President & CEO Brian Baarda, July 29, 2015 VP Finance & CFO Frank De Costanzo, SVP & CFO May 7, 2013 1 Q2 Earnings Presentation, July 29, 2015 March 6, 2013
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 Q2 Earnings Presentation, July 29, 2015
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 restructuring costs, adjusted EBITDA before specific items, 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 Q2 Earnings Presentation, July 29, 2015
Q2 2015 OVERVIEW: Financial Performance Financial Performance: Adjusted EBITDA for Q2 2015 was negative $19.2M vs. $14.0M in Q1 Adjusted EBITDA before specific items was $9.7M vs. $14.6M in Q1 Results were negatively impacted by a number of significant one-time events: Crofton oxygen plant outage - $4.4M impact Rumford recovery boiler upgrade - $11.0M impact Market curtailment (Rumford, Alberni & Powell) - $11.7M impact 4 Q2 Earnings Presentation, July 29, 2015
Q2 2015 OVERVIEW: Financial Performance Adjusted EBITDA before specific items $9.7M Adjusted EBITDA before restructuring costs ($18.5M) Adjusted EBITDA ($19.2M) 5 Q2 Earnings Presentation, July 29, 2015
Q2 2015 OVERVIEW: Operations Safety (compared to Q1 2015): Medical Incident Rate of 2.61 and Long-Term Incident Rate of 1.63 Operations: Rumford recovery boiler upgrade replaced 35-year-old generating bank to improve mill safety, and energy efficiency and reduce future energy cost Powell River revitalization strong productivity and cost control with annual power boiler shut completed below budget US mill performance trend positive trend in productivity and cost control Crofton oxygen plant outage rare and unforeseen maintenance event that resulted in significant lost pulp and paper production 6 Q2 Earnings Presentation, July 29, 2015
Q2 2015 OVERVIEW: Markets & Commercial Marketing: Driving Top-Line Improvements Established dedicated sales teams to accelerate our growth in market share of CFS and C1S manufactured at Rumford and lower basis weight products at Biron Consolidated our U.S. sales channels to grow CFS market share Prices/Shipments: Consolidating Brands Facilitates Freight Optimization Benchmark prices increased for coated paper and pulp, remained flat for uncoated mechanical and directory, and declined for newsprint North American demand decreased for all paper grades while NBSK shipments increased compared to Q2 2014 A third North American distribution centre is planned to reduce freight costs by avoiding back hauls to customers Formal market announcement of our coated paper brand harmonization well received 7 Q2 Earnings Presentation, July 29, 2015
FINANCIAL RESULTS ($millions, except per share amounts) Q1 Q2 Q3 Q4 Q1 Q2 Sales $ 273.9 $ 283.5 $ 272.0 $ 279.9 $ 479.3 $ 458.4 Adjusted EBITDA 25.7 7.1 8.0 6.8 14.0 (19.2) Restructuring costs - - - 0.5 0.6 0.7 Adjusted EBITDA before restructuring costs 25.7 7.1 8.0 7.3 14.6 (18.5) Adjusted EBITDA before specific items $ 25.7 $ 7.1 $ 8.0 $ 7.3 $ 14.6 $ 9.7 Adjusted EBITDA margin before restructuring costs 9.4% 2.5% 2.9% 2.6% 3.0% (4.0%) Adjusted EBITDA margin before specific items 9.4% 2.5% 2.9% 2.6% 3.0% 2.1% Net earnings (loss) attributable to the Company $ (3.8) $ (6.3) $ (22.5) $ (39.7) $ 22.2 $ (32.4) Net earnings (loss) attributable to the Company before specific items 2014 2015 6.5 (13.6) (10.8) (10.4) (12.6) (13.8) EPS from continuing operations * (0.26) (0.43) (1.55) (2.75) 1.53 (2.23) EPS before specific items * 0.45 (0.94) (0.74) (0.72) (0.87) (0.95) Average F/X spot rate (USD/CAD) 0.906 0.917 0.918 0.881 0.806 0.813 Average effective F/X rate (USD/CAD) 0.906 0.917 0.918 0.881 0.805 0.813 8 Q2 Earnings Presentation, July 29, 2015 Q2 Earnings Presentation, July 29, 2015 8
ADJUSTED EBITDA RECONCILIATION ($millions) Q1 2015 Q2 2014 2014 YTD Adjusted EBITDA in comparative period $ 14.0 $ 7.1 $ 32.8 Restructuring costs 0.6 - - Adjusted EBITDA 14.6 7.1 32.8 Paper Prices (11.7) 2.8 13.2 Pulp Prices (3.2) (7.9) (13.0) Impact of Canadian dollar (3.5) 22.5 46.1 Volume and mix (8.5) 35.5 80.3 Distribution costs (2.2) 5.6 13.0 Furnish mix and costs 0.8 (33.9) (73.0) Chemical costs 0.9 6.3 11.0 Operating supplies 0.4 (3.1) (5.1) Power and fuel costs ` (1.4) 5.6 9.4 Labour costs 6.0 (24.2) (55.7) Maintenance costs (4.9) (19.1) (42.7) Property taxes, licenses and insurance (0.2) (1.7) (3.3) Selling, general and administrative costs 2.7 (3.0) (8.5) Lower of cost or market impact on inventory (0.2) (1.2) (0.5) Power generation (2.9) 0.4 0.6 Other, net (5.2) (10.2) (8.5) Adjusted EBITDA before restructuring cost in Q2 and YTD 2015 (18.5) (18.5) (3.9) Restructuring costs (0.7) (0.7) (1.3) Adjusted EBITDA in Q2 and YTD 2015 $ (19.2) $ (19.2) $ (5.2) 9 Q2 Earnings Presentation, July 29, 2015 Q2 Earnings Presentation, July 29, 2015 9
FREE CASH FLOW 2014 2015 ($millions) Q1 Q2 Q3 Q4 Q1 Q2 Adjusted EBITDA $ 25.7 $ 7.1 $ 8.0 $ 6.8 $ 14.0 $ (19.2) Interest expense, excluding amortization (9.1) (7.7) (8.6) (8.7) (11.4) (10.2) Capital expenditures (3.1) (4.7) (5.7) (8.4) (10.4) (11.1) Employee future benefits, net of funding (1.9) (3.3) (1.7) (1.9) (0.3) (1.0) Free cash flow $ 11.6 $ (8.6) $ (8.0) $ (12.2) $ (8.1) $ (41.5) 10 Q2 Earnings Presentation, July 29, 2015
LIQUIDITY 2014 2015 ($millions) Q1 Q2 Q3 Q4 Q1 Q2 Borrowing base $ 148.2 $ 141.3 $ 139.9 $ 139.6 $ 225.0 $ 212.7 Letters of credit (18.6) (18.5) (18.6) (18.4) (22.0) (21.8) Net amount drawn (1.3) (7.8) (20.0) (29.4) (111.3) (114.0) Availablily 2 128.3 115.0 101.3 91.8 91.7 76.9 Cash on hand 9.9 8.2 9.1 10.9 9.9 8.7 Restricted cash 22.5 - - - - - Total liquidity $ 160.7 $ 123.2 $ 110.4 $ 102.7 $ 101.6 $ 85.6 1 Borrowing base for the ABL Facility is reduced by reserves of $1.3 million for pension, $3.1 million for creditor insurance deductibles, $2.9 million for landlord waivers, $3.5 million for vacation pay pay, $1.6 million for employee source deductions, $1.0 million for mark-to-market exposure on our foreign currency revenue hedges and $0.4 million related to WorkSafeBC. 2 Requirement to maintain a minimum fixed charge coverage ratio of 1.0/1.0 if excess availability falls below $28.1 million. ($21.9 million for 2014) 11 Q2 Earnings Presentation, July 29, 2015
ACQUISITION OF U.S. PAPER MILLS The revised allocation to the assets acquired and liabilities assumed on the basis of their respective preliminary fair values as at January 7, 2015 is as follows: Assets acquired: January 7, 2015 Accounts receivable $ 56.1 Inventories 80.8 Prepaids and other 0.9 Property, plant and equipment 91.7 Long-term assets 0.2 Liabilities assumed: $ 229.7 Accounts payable and accruals $ 65.6 Long-term environmental remedial obligations 5.9 Long-term pension liabilities 11.5 Other long-term liabilities 5.0 Deferred income tax liability 25.6 113.6 Fair value of acquired net assets $ 116.1 Consideration paid $ 73.9 12 Q2 Earnings Presentation, July 29, 2015
PLANNED MAJOR MAINTENANCE SHUTDOWNS IN 2015 Mill Location Tonnage Impact 2015 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 2.1 2.1 Capital 1,800 1,800 Boilers 1.2 1.2 Crofton TMO Capital Pulp 8,500 5.8 2,100 1.6 6,100 4.8 16,700 12.2 Boilers 0.2 0.2 Powell Boilers 0.1 2.7 2.8 Biron Capital 3,200 0.4 3,200 0.4 Boilers 0.3 0.3 Rumford Pulp 9,200 7.7 9,200 7.7 Boilers 3.2 3.3 0.1 6.6 Total 11,700 6.3 11,000 13.6 2,100 5.1 6,100 8.5 30,900 33.5 13 Q2 Earnings Presentation, July 29, 2015
Q2 2015 OVERVIEW: Outlook Economy: U.S. economy expected to continue leading global economic growth After strengthening somewhat in the second quarter, the Canadian dollar has been trending down Markets: An uptick in seasonal demand should support operating rates for paper in the second half of 2015 NBSK pulp prices are expected to decline moderately in the 3 rd quarter; operating rates are expected to recover in the 4 th quarter due to stronger seasonal demand and announced capacity closures in hardwood pulp Company Financials: We expect significantly improved results for the second half of 2015 due to: Seasonally strong sales demand Reduced maintenance and integration costs Substantial investments made in the last two quarters in value-adding projects Start-up of Powell s steam turbine project initiated under BC Hydro s Power Smart Program is still expected on November 1, 2015 14 Q2 Earnings Presentation, July 29, 2015
APPENDIX 15 Q2 Earnings Presentation, July 29, 2015
BACK- UP SLIDE 2015 PRODUCT APPLICATIONS Segment Specialty Printing Papers Newsprint Market Pulp Category Coated Specialties Coated Coated Freesheet Coated Mechanical Softcalendered Machine Finished Directory Brand Names Oxford Orion Vision Electracal Electrabrite Catalyst Marathon Crofton Kraft Ascent Electraprime Electrabrite Book Marathon Lite Swift River Kraft Escanaba Dependoweb Pacificote Capri Electracote Brite Consoweb Electracote Uncoated Mechanical Electrastar Basis weight (g/m 2 ) 81-104 67-118 38-118 45-52 41.5-74 29-40 38-45 n/a Applications glue-applied labels, gift wrap, envelopes, packaging, high-end magazines, direct mail, upscale retail inserts, magazines, catalogues, direct mail, commercial retail inserts, magazines, catalogues, flyers, direct retail inserts, magazines, catalogues, flyers, direct mail telephone books, catalogues newspapers, retail inserts, flyers, supplements, tissue, printing and writing papers, specialty papers products pressure-sensitive catalogues, print, brochures, mail directories face papers commercial print, reports coupons Total capacity (tonnes) 1,011,000 348,000 116,000 350,000 425,000 % of total capacity 45% 15% 5% 16% 19% 16 Q2 Earnings Presentation, July 29, 2015
ADJUSTED EBITDA SENSITIVITIES ($millions) Adjusted EBITDA (1), (2) Product prices Impact of US$10/t change in price of: Uncoated Paper $ 5 Coated Paper 11 Newsprint 4 Pulp 4 $ 24 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 2 Electricity direct purchases 8 Coal direct purchases 2 Freight cost sensitivity Impact of US$5/bbl change in price of West Texas Int. (WTI) Oil 4 (1), (4) Fibre sensitivity Impact of US$5/unit change in the price of wood chips (Bdt) 14 (1) Based on a foreign exchange rate of US$0.81. (2) Based on annualized sales of Q2 2015. (3) Based on Q2 2015 annualized net cash flows and a foreign exchange movement to US$0.82 from US$0.81 and excluding our hedging program and the impact of the translation of US dollar denominated debt. (4) Based on annualized Q2 2015 consumption levels. 17 Q2 Earnings Presentation, July 29, 2015
SUMMARY OF SEGMENTED FINANCIAL INFORMATION 2014 2015 ($millions, except where otherwise stated) Q1 Q2 Q3 Q4 Q1 Q2 LTM Sales (000 MT) Coated 50.4 45.0 49.2 49.4 225.9 216.9 541.4 Uncoated 125.5 139.9 121.9 120.6 103.0 108.4 453.9 Newsprint 77.6 93.2 82.1 94.5 81.6 89.8 348.0 Pulp 82.2 78.4 95.0 84.4 84.9 86.0 350.3 Other - - - - 15.1 10.0 25.1 335.7 356.5 348.2 348.9 510.5 511.1 1,718.7 Sales Coated $ 47.8 $ 41.8 $ 45.2 $ 46.9 $ 244.2 $ 228.5 $ 378.1 Uncoated 105.7 116.4 100.3 102.6 94.3 95.5 413.6 Newsprint 54.4 63.4 55.6 64.5 58.0 58.9 241.5 Pulp 66.0 61.9 70.9 65.9 70.5 67.7 269.2 Other - - - - 12.3 7.8 12.3 $ 273.9 $ 283.5 $ 272.0 $ 279.9 $ 479.3 $ 458.4 $ 1,314.7 Adjusted EBITDA Coated $ 0.1 $ (0.1) $ (0.2) $ (0.2) $ (5.2) $ (19.6) $ (5.7) Uncoated 5.8 0.9 (7.2) 1.4 10.6 (6.1) 5.7 Newsprint 5.5 2.4 1.9 (3.1) 2.9 (5.5) 4.1 Pulp 14.3 3.9 13.5 8.7 8.0 11.8 34.1 Other - - - - (2.3) 0.2 (2.3) Operating earnings (loss) $ 25.7 $ 7.1 $ 8.0 $ 6.8 $ 14.0 $ (19.2) $ 35.9 Coated $ (1.6) $ (1.6) $ (1.8) $ (1.9) $ (10.7) $ (25.4) $ (16.0) Uncoated (1.1) (6.6) (14.4) (21.9) 4.2 (12.2) (38.7) Newsprint 3.8 1.0 0.1 (5.5) 1.4 (7.4) (3.0) Pulp 13.7 3.3 12.9 8.1 7.3 11.1 31.6 Other - - - - (2.5) (0.1) (2.5) $ 14.8 $ (3.9) $ (3.2) $ (21.2) $ (0.3) $ (34.0) $ (28.6) Numbers for all periods exclude the results of our Snowflake mill which have been classified as discontinued operations. 18 Q2 Earnings Presentation, July 29, 2015
IMPACT OF SPECIFIC ITEMS ON NET EARNINGS (LOSS) ATTRIBUTABLE TO THE COMPANY 2014 2015 ($millions, except where otherwise stated) Q1 Q2 Q3 Q4 Q1 Q2 Net earnings (loss) attributable to the Company as reported $ (3.8) $ (6.3) $ (22.5) $ (39.7) $ 22.2 $ (32.4) Specific items, after taxes: Foreign exchange loss (gain) on long-term debt 11.2 (8.9) 12.6 9.2 27.6 (5.5) Bargain purchase price - - - - (39.3) (2.9) Market curtailment - - - - - 11.7 Crofton oxygen plant outage - - - - - 4.4 Rumford recovery boiler upgrade - - - - - 11.0 Professional fees on countervailing action - - - - - 1.1 Reduction of deferred tax asset valuation allowance - - - - (25.1) (1.9) Settlement loss on PIUMPF pension liability - - 1.2 - - - Impairment and other closure costs - - - 16.5 - - Acquisition costs related to US paper mills - - - 3.1 1.4 - Restructuring costs - - - 0.5 0.6 0.7 (Gain) loss on purchase of debt (0.9) 1.9 - - - - Net gain on sale of non-core assets - (0.3) (2.1) - - - Net earnings (loss) attributable to the Company before specific items $ 6.5 $ (13.6) $ (10.8) $ (10.4) $ (12.6) $ (13.8) Net earnings (loss) per share attributable to the Company s common shareholders before specific $ 0.45 $ (0.94) $ (0.74) $ (0.72) $ (0.87) $ (0.95) Weighted average common shares (millions) 14.5 14.5 14.5 14.5 14.5 14.5 19 Q2 Earnings Presentation, July 29, 2015
CAPITALIZATION ($millions) December 31, 2014 June 30, 2015 Term Loan, due July 2017 $ 18.5 $ 17.5 Senior secured notes, 11.0% due October 2017 (US$260.5 million; December 31, 2014 US$235.5 million) 273.1 320.0 291.6 337.5 Revolving asset based loan facility of up to $225.0 million due July 2017 29.4 114.0 Capital lease obligations 8.1 7.6 Total debt 329.1 459.1 Less: Current portion (3.0) (3.1) Total long-term debt $ 326.1 $ 456.0 20 Q2 Earnings Presentation, July 29, 2015
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