Business News

Catalyst posts improved results but market challenges persist

Wednesday 04. November 2009 - Catalyst Paper (TSX:CTL) recorded net earnings of $13.2 million ($0.03 per common share) on sales of $263.4 million for the third quarter of 2009 compared to a net loss of $1.9 million ($0.01 per common share) on sales of $291.5 million in the second quarter. Net earnings reflect a $33 million after-tax gain on translation of long-term U.S. dollar denominated debt, comparable to the gain in the second quarter.

Before this specific item, Catalyst posted a net loss in the third quarter of $19.8 million ($0.05 per common share), compared to a net loss before specific items of $25.6 million in the second quarter ($0.06 per common share). Catalyst’s third quarter operating loss of $13.0 million compared favorably to $29.7 million ($17.4 million before restructuring) in the preceding quarter. However, sales revenues continue to be eroded by the stronger Canadian dollar and weak paper markets.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter were $22.9 million, up significantly from $6.1 million in the second quarter, due primarily to the absence of restructuring costs. Free cash flow was $6.3 million in the third quarter, compared to negative free cash flow of $6.4 million in the preceding quarter. Overall liquidity increased by $16.7 million during the quarter.

“With the exception of pulp, the best that can be said about third quarter markets is that demand decline has slowed down,” said President and CEO Richard Garneau. “Looking to the fourth quarter and into 2010, we expect results to come under heavy pressure due to the continued weak markets, uncertainty in pricing recovery, and the negative impact of an escalating Canadian dollar.”

To align production with customer orders, curtailments continued at the previous quarter’s level, and represented 42 per cent of total capacity. All three paper machines at Elk Falls remained indefinitely idled and the Snowflake recycled paper mill continued to take periodic curtailment. NBSK production at Crofton remained down through the third quarter, although market improvement enabled the re-start of one pulp line on October 5, 2009. Fibre constraints prevented restart of the second line.

Market conditions generally remained weak across all paper grades, due to the slowdown in retail advertising and declining demand for newsprint. Paper prices were down from the previous quarter across all segments. Pulp prices improved, as inventory levels tightened and Chinese demand strengthened.

Further reductions were achieved in operating and fixed costs, and average delivered cash costs per tonne were reduced for speciality printing papers and newsprint. Implementation of measures to achieve lower manufacturing costs continued.

Powell River Energy Inc. (PREI) closed its previously announced refinancing in the third quarter, replacing $75 million of debt with a new $95 million issue of non-recourse first mortgage bonds. PREI is a 50 per cent joint venture between Catalyst and Great Lakes Hydro Income Fund. Catalyst also continues to assess refinancing alternatives for its senior unsecured notes in advance of their 2011 and 2014 maturity dates.

Subsequent to quarter end an extension was granted on the amortization payments for the unfunded liability for the company’s defined benefit pension plans. As a result, $8.6 million in cash payments will be deferred over the rest of 2009 and 2010. Catalyst also qualified in October for $18 million in credits under the federal Green Transformation Program, use of which will require capital expenditures on green energy and/or energy efficiency and environmental improvement projects.

On October 16, 2009, the BC Supreme Court dismissed one of four petitions brought by Catalyst to set aside the Class 4 property tax rates in BC municipalities where its mills are located. Catalyst has until November 16 to appeal the decision. A reserve equal to the unpaid property taxes and associated penalties is in place.

There is little indication yet of a sustained recovery in print advertising levels. Specialty printing paper prices are expected to remain weak in the fourth quarter, with further price erosion for directory in 2010. Despite the announced fourth quarter price increases for newsprint, sustained recovery is not expected considering the low operating rates in North America. Similarly, China demand slowdown could temper recent market pulp price increases. High levels of production curtailment and cash flow pressures are expected to continue through year-end and into 2010 as a result of historically low industry operating rates and the recent strength of the Canadian dollar.

http://www.catalystpaper.com
Back to overview