Mr. Joe
Nemeth reports
CATALYST PAPER Q2 RESULTS IMPACTED BY PLANNED MAINTENANCE
Catalyst Paper Corp. recorded
adjusted earnings before interest, taxes, depreciation and amortization
for the second quarter of $7.1-million compared with $25.7-million in the previous quarter. Strong operating performance was
overshadowed by a planned maintenance outage at the Crofton pulp mill,
higher power costs due to a hydroelectricity rate increase, a stronger
Canadian dollar, and lower transaction prices for pulp and all paper
grades. Sales of $283.5-million exceeded the prior quarter by $9.6-million and reflected higher paper sales due in part to the delivery of
shipments delayed by the first quarter container truck driver strike at Port Metro
Vancouver.
Catalyst recorded a net loss of $6.3-million (43 cents per common share)
and a net loss before specific items of $13.6-million in second quarter. This compared with
a net loss of $3.8-million (26 cents per common share) and net earnings
before specific items of $6.5-million the previous quarter. Free cash
flow for the quarter was negative $8.6-million. Liquidity decreased
$37.5-million from the prior quarter due to a lower borrowing base,
debt redemption and buybacks in the quarter, the impact of the Crofton
maintenance shut, and a scheduled interest payment.
Paper production volumes for the quarter were 3.5 per cent higher than average
production in 2013 and 2 per cent higher than the first quarter of 2014 due to
improved paper productivity. Two major debottlenecking initiatives
were completed on the pulp mill during the scheduled maintenance outage
to increase future pulp production.
"Our operating results were hampered by the cost and production impact
of the recovery boiler shut, the hydroelectricity rate increase and
the strengthening Canadian dollar," said Catalyst president and chief executive officer Joe
Nemeth. "On the upside, we achieved a new record in paper productivity
in the quarter, we're already seeing improved pulp production as a
result of the debottlenecking work completed on the pulp mill, and our
program to identify and implement opportunities for improvement is on
track to realize significant benefits in 2014 and beyond."
Quarter highlights
On July 24, 2014, the Ministry of Energy and Mines and B.C. Hydro
introduced a new energy efficiency program that provides a three-year
financing injection of $100-million, with $45-million allocated to
Catalyst Paper. The B.C. Hydro Power Smart program is aimed at reducing
the energy intensity and improving the energy efficiency of
thermal-mechanical pulping facilities in British Columbia. The program
will benefit Catalyst Paper's three mills located in Crofton, Port
Alberni and Powell River by financing 75 per cent of the required capital
investment on projects that will improve the energy efficiency of these
mills. The first project at the Powell River mill is in the advanced
stages of planning, has an expected cost of $25-million, of which 75 per cent
will be covered by Power Smart financing, and will reduce the company's
annual energy costs by approximately $5-million.
Catalyst redeemed the $19.4-million (U.S.) outstanding balance on the
floating-rate senior secured notes due 2016. The company repurchased
$5.0-million (U.S.) of its PIK toggle senior secured notes due 2017 on the
open market.
Market conditions
North American demand decreased from the second quarter of 2013 for all
paper grades except uncoated paper. Benchmark prices for coated and
uncoated paper declined from the previous quarter while remaining flat
for directory and newsprint. For NBSK pulp, the benchmark price
decreased by 3.1 per cent compared with first quarter due to short-term destocking in the
quarter.
SELECTED HIGHLIGHTS
(in millions of Canadian dollars, except where otherwise stated)
2014 2013
YTD Q2 Q1 Total Q4 Q3 Q2 Q1
Sales $ 557.4 $ 283.5 $ 273.9 $ 1,051.4 $ 272.1 $ 268.8 $ 263.4 $ 247.1
Operating earnings (loss) 10.9 (3.9) 14.8 (87.8) (79.5) 4.9 (12.0) (1.2)
Depreciation and amortization 21.9 11.0 10.9 47.0 11.7 11.5 11.4 12.4
Adjusted EBITDA 32.8 7.1 25.7 46.1 19.1 16.4 (0.6) 11.2
Before restructuring costs 32.8 7.1 25.7 47.3 20.2 16.4 (0.5) 11.2
Net earnings (loss) attributable
to the company (10.1) (6.3) (3.8) (127.6) (95.0) 5.2 (28.0) (9.8)
Before specific items (7.1) (13.6) 6.5 (31.5) 1.7 (3.5) (18.1) (11.6)
Adjusted EBITDA margin 5.9% 2.5% 9.4% 4.4% 7.0% 6.1% (0.2%) 4.5%
Before restructuring costs 5.9% 2.5% 9.4% 4.5% 7.4% 6.1% (0.2%) 4.5%
Net earnings (loss) per share
attributable to
The company's common shareholders
(in dollars)
Basic and diluted from continuing
operations $ (0.70) $ (0.43) $ (0.26) $ (9.01) $(6.55) $ 0.36 $(1.93) $ (0.89)
Basic and diluted from discontinued
operations -- -- -- 0.21 -- -- -- 0.21
Before specific items (0.49) (0.94) 0.45 (2.17) 0.12 (0.24) (1.25) (0.80)
(in thousands of tonnes)
Sales 692.2 356.5 335.7 1,373.3 346.5 350.6 346.6 329.6
Production 702.5 349.7 352.8 1,382.6 350.2 357.6 338.5 336.3
Outlook
The decline in demand for coated and uncoated mechanical paper is
expected to continue for the rest of the year. Demand for
directory paper will continue to decrease due to electronic
substitution. While newsprint demand is expected to continue to
contract as circulation and page counts fall, the North American market
is expected to remain stable due to pending newsprint machine
conversions.
Global pulp inventories are very low, and this may put upward pressure on
future pulp pricing. However, China's seasonally low demand and tight
monetary policy are expected to negatively impact the softwood pulp
market. Pulp is therefore expected to trade in a narrow range for the
balance of the year.
The Power Smart program will result in improved energy efficiency and
will partly mitigate the impact of energy cost rate increases.
Discussions will continue with key stakeholders on a suite of potential
initiatives to further mitigate the impact of energy rate escalation.
Third quarter earnings will reflect a scheduled total mill outage at
Powell River and power boiler shuts at all three mills.
Further quarterly results materials
This release, along with the full annual management's discussion and
analysis, financial statements, and accompanying notes, is available on
the company's website. This material is also filed with SEDAR in Canada and EDGAR in the
United States.
We seek Safe Harbor.
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