Business News
Cost reductions help Catalyst achieve positive operating earnings in Q3
Tuesday 04. November 2008 - Catalyst Paper (TSX:CTL) recorded a net loss of $10.9 million ($0.03 per common share) on sales of $504.8 million in the third quarter. This compares to a net loss of $124.3 million ($0.34 per common share) on sales of $452.9 million in the preceding quarter, and represents significantly improved operating results despite deteriorating economic conditions.
Improvement in the third quarter reflects restructuring-related cost savings, pricing momentum, and a full quarter of operations for the Snowflake mill and Port Alberni A4 paper machine, while a one-time restructuring impairment charge heavily impacted second quarter results.
Net earnings before specific items in the third quarter were $7.2 million ($0.02 per common share), compared to a net loss before specific items of $22.7 million ($0.06 per common share) in the second quarter. Catalyst posted operating earnings during the third quarter of $14.0 million, compared to an operating loss before impairment charge of $16.8 million in the previous quarter.
There was continued progress in earnings before interest, taxes, depreciation and amortization (EBITDA), which came in at $53.1 million, compared to $29.5 million in the second quarter and $12.1 million in the first quarter. Higher paper prices and reduced labour and maintenance costs figured prominently among the factors contributing to this improvement. EBITDA before specific items (primarily severance related) was $66.2 million compared to $30.7 million in the preceding quarter.
“Our restructuring program savings and other cost reductions more than offset input cost increases on fibre and distribution,” said Richard Garneau, president and chief executive officer. “Continued focus on cost reductions, along with the Snowflake acquisition and Port Alberni A4 restart helped improve profitability in the third quarter. However, the economic slowdown may affect our operations going forward.”
While production was up over the preceding quarter, Catalyst continued to match production with customer orders. The indefinite curtailment of the Elk Falls # 1 paper machine continued, and a 30-day curtailment of Crofton # 1 paper machine was initiated in mid-September.
Pulp and white top linerboard production was periodically curtailed at Elk Falls during Q3 contributing to an operating loss for the pulp segment in the quarter. The decision was made to permanently close Elk Falls pulp and white top linerboard production effective November 30, 2008 due to a permanent loss of sawdust fibre.
Weakening demand in a worsening economic climate was offset, somewhat, by ongoing global production curtailments. Catalyst’s specialty papers and newsprint segments delivered positive operating earnings, despite demand declines for newsprint, directory and coated groundwood grades.
In August Catalyst successfully replaced its revolving operating facility, maturing in July 2009, with a new $330 million revolving asset based loan facility maturing in August 2013. Availability under the facility, subject to covenants, at the end of Q3 was $166.1 million, with total liquidity of $172.3 million.
Both fibre-supply and product-demand conditions going forward are expected to be impacted by the economic slowdown and the company expects to take further production curtailment in the fourth quarter. Input-cost inflation is expected to moderate, and the weakening Canadian dollar in October will be a significant revenue benefit at current levels.
Catalyst is at an early stage in negotiations on a new labour agreement with the two main unions representing its employees. Despite a recent vote at the three affected mills in BC indicating union member willingness to strike if necessary, the company remains optimistic that a negotiated settlement can be reached.