Q4 2019 Earnings Call
Welcome to the reserve for rest of adult full swing in 19 earnings conference call. All lines have been placed on mute to prevent any background noise I saw the present, the Sean will become both the quick jump on sufficient.
I would like to cure for your question. Please leave your phone receivable on press Star followed by the number one on your telephone keypad in order to withdraw your question. Please press the phone fine. Please note that this cold is being recalled that study genomic tests, yes, 2029 am eastern time, I'll now like to come.
Let me think overall to me so remaining alone senior Vice President and Chief Financial Officer. Please go ahead, you stand alone.
Thank you good morning, welcome to Resolutes fourth quarter earnings call you can follow along with the slides for today's presentation by logging onto the webcast using the link in the presentations and Webcasts page under the IR section of our website, where you can download the slides today's presentation will include non-GAAP financial information Howard.
Press release in the appendix to the slides include a reconciliation of non-GAAP information to U.S. GAAP financial measures.
We'll also make forward looking statements.
We're looking information is based on our current assumptions beliefs and expectations all of which involve a number of business risks and uncertainties and can change as conditions do.
Please review the cautionary statements in our press release and on Slide two of today's presentation I will turn the call over to eat Dotcom, President and Chief Executive Officer.
Good morning, Thank you for joining us.
We reported form your own daughters, although I, just thought they'd be locked into fourth quarter compared to 23 million on the arrows in the third quarter.
This reflects the combination of boredom of the cycle condition in market bald ongoing pricing pressures and paper grades and the snow pricing recovery in lumber.
On the positive side manufacturing costs improved as a reserve of lower maintenance costs.
We're also pleased with the quarterly increase in tissue business ended up and the progress with our initiatives are on sales growth and productivity gains.
In the water.
We took the difficult decision to I definitely I know on newsprint mill and go no go start Georgia.
With its cost position the mid awards, especially exposed to the ongoing structural decline in North American newsprint consumption.
While difficult.
This is the this is you're not allowed us to focus on dependent on more competitive males and to eliminate substantial fixed costs associated with the surplus capacity.
By segment.
We reported quarterly adjusted EBITDA or negative $12 million and market fault don't by 7 million from the took water.
Oh man hours for tissue by $3 million.
What products was unchanged at forming on doors.
Newsprint $7 million original for.
And then we don't North and specialty papers don't buy five from the previous war.
So the whole year, adjusted EBITDA was $213 million compared to $574 million in 2018.
After the height of 2018 some of the headwinds to EBITDA include a significant drop in pricing, especially in lumber end market bolt on your manufacturing costs.
Lets contribution following last year's phase of comparable and pheromone and lower overall shipments.
The pending acquisition of three saw mills in the U.S. folks on the which we expect to close in the coming days is an important step enough transformation strategy.
Combined production capacity of 550 million board feet, the transaction would give us image at scale in the not try to region with quality assets and reach fiber basket, so to growing end markets.
It gives us an unfortunately due to create value by developing operational expertise and summoning with a focus on reliability productivity and safety.
With our financial strength, we will bring to support necessary to complete the Gibson investments started from their conifex, who made the appropriate working capital, especially fiber and hundred maintenance practices.
We will further refine our plan for capital investments and operating schedules once we take control of the assets after the eminent builder dosing of the transaction.
We currently expect however to has this approximately $20 million those are the either as already know facility over a gradual ramp up period with a target started up into 2021.
We don't see any major kept at a requirement for Glenn one of course city at this time.
Our target for 2020 used to produce 265 million board feet of lumber with his assets on an annual normalized basis and to gradually increased production by the end of 2022.
We have not publicly set the specific target for synergies in the transaction, but we fully expect to leverage our scale to create value in fibrosis bright optimization corporate procurement and other corporate functions.
Let's review, our individual segment beginning with marketable.
Global demand for chemical pulp in 2019 posted a 2% entries through November against 2018.
Softwood increased by 6% and hardwood was flat, but this reflects a lead year surge in demand for both grades mostly China, mostly from China and it suggests a reversal of the inventory cycle that started with significant stocking into doors in the.
With producer inventories at the end of November backed with enormous Iran, 45 days for hardwood and surgery. The 33 days for softwood.
Operating rates for the year I'd read 93% for softwood and it is 6% for hardwood and improving.
Weaker pricing for fluff pulp and I'll be our became pull down Henri transaction price by 20 to $44 per metric ton in the quarter, even as our realized softwood prices started to improve from the third quarter.
This supports our view that the cyclical downturn reached its slow in the quarter.
Our shipments.
Also 27000 metric tons, lower which is the result of the schedule I knew at all at each other a safety Sameer as well as production disruptions and Gavin.
Finished goods inventory draw up to its lowest level since 2012 60000 metric tons.
Total us tissue consumption grew by 3% from November compared to the same period last year.
Well go to broader ship has increased by 2%, including an improvement of 3% in away from home and to pour spending at home.
Our average transaction price for tissue was up slightly in the quarter and volume was a bit lower.
When compared to the same quarter in 2018. The average transaction prize was bought by 24 cents, which reflects higher prices across the business as well as an improvement in our product mix with the percentage of collaborative projects up to 83% from 74%.
With a strong finished the year.
There were nearly 1.3 million housing stuff in the us in 2019 up by 3% compared to $2 on the which reflects a 1% injuries and singer feminist stuff and a 7% injuries in mid two from historic.
Although we realize a $22 per dollar board feet increase in the average turns on fragile lumber in the quarter on the back all the gradually improving pricing environment.
Men's were down by 30 or 39 million board feet.
This is because of us the seasonally slower fourth quarter and lingering uncertainty around the strength of the recovery, which now appears to be dissipating.
Consistent with the third quarter, we took 70 million board feet of downtime in the quarter, which brings us to 240 million board feet for the year.
North American newsprint demand by 14% in 2019 compared to 2018.
Demand demand from newsprint publishers fell by 17% why demand from commercial print theres by 9%.
Even with the slower pace of demand declined in the fourth quarter, North American shipment to capacity ratio dropped to 84%.
Global demand from newsprint was owned by 13% through November compared to the same period last year and the award newsprint shipment to capacity to reassure was 81%.
As a result, the average transaction price slipped by $30 per metric ton in the quarter, reflecting continuing weakness in offshore market, especially in Asia, and losing pressure in North America.
Nevertheless, overall shipments were unchanged in the quarter.
Domestic shipments were 65% of dollar shipments compared to 61% in the same period last year.
North American demand for uncoated mechanical papers contracted by 16% in 2019 compared to last year, reflecting a 21% drop in standard grade and 11% for supercalender grades.
Well part of northern 18, the shipment to capacity ratio for on quarter and because it could be first decrease from 90 due to 82%.
The average transaction price slip by $30 per short ton in the quarter, reflecting mostly weakness in the white paper market.
Quarter over quarter shipments, however, rose by $12 on short term due to seasonality and inventories are up to a new of 40000 short term.
I will not have Remy discuss our financial performance before I conclude with our priorities and outlook for 2020. Thank you leave we reported a net loss of $53 million in the fourth quarter or 59 cents per share excluding special items. This compares to a net loss excluding special items, a 34 million.
Dollars were 37 cents per share in the previous quarter and net income excluding special items of $4 million or four cents per diluted share in the same period last year.
Actual items in the fourth quarter include $31 million of costs associated with the indefinite idling of the Augusta mill, and non operating pension and OPEB credit of $11 million.
Our total sales in the fourth quarter were $668 million down by 37 million from the third quarter the price of lumber rose by over 6%, but it's a fact was more than offset by a 5% reduction in newsprint, 4% in market pulp and 4% in specialty papers.
While specialty paper shipments were higher overall sales volume was down due to lumber and Paul.
Our manufacturing costs decreased by $8 million in the quarter after removing the impact of volume foreign exchange and also the write down of inventory and Augusta.
Compared to the third quarter. The all in delivered cost per market pulp was unchanged as the impact of lower maintenance costs was offset by the lower shipments.
Combined with the reduction in average transaction price EBITDA decreased the minus 12 million.
Delivered cost in tissue fell by $116 per short ton in the quarter were 6% as a result of lower internal pulp cost leading to a 3 million dollar improvement in EBITDA to 4 million.
In the wood products segment, the delivered costs rose by $26 per thousand board feet due to higher costs related to road building log transportation stumpage fees as well as the lower shipments.
But the impact was largely offset by the higher average transaction price, leaving EBITDA unchanged at $4 million for the quarter.
Newsprint delivered cost was $15 per metric ton lower in the quarter, reflecting the cost benefit of idling Augusta, which only operated for less than two weeks in the quarter.
But with a lower average transaction price EBITDA fell to 7 million for the quarter.
The delivered cost in specialty papers was essentially unchanged despite production disruptions in Calhoun as overall shipments rose.
But ebitdas slip to $10 million due to the decrease in realized pricing.
We used $35 million of cash in operating activities in the quarter, which reflects lower profitability and also a payment of $14 million. Following an unfavorable court decision, which we're appealing and the Fibrek case.
There was only a 2 million dollar cash impact out of the 40 $31 million of idling relating cost or Augusta, Although we expect another outflow of up to $5 million this quarter.
Consistent with our updated guidance, we spent $31 million for capital expenditures in the quarter, bringing our net annual spend to 113 million.
For 2020, we expend to spend about the same amount on our existing asset base, not including spending on the three us sawmills.
We paid $13 million in softwood lumber duty deposits in the quarter, bringing our total deposits to 162 million, which is recorded recorded in other assets on the balance sheet.
We recently completed the board approved share repurchase program with the repurchase of 3 million shares for $12 million.
For the year, we've spent $24 million on 5 million shares over 5% of the total outstanding as part of our initiatives to return capital to shareholders.
By quarter end, we had drawn $25 million from our revolving credit facilities to support working capital needs and accordingly, we ended the quarter with $3 million of cash on the balance sheet.
Our liquidity, though remains strong at $583 million at quarter end, which includes the recently extended and Upsized $360 million senior secured facility.
Finally, we contributed $24 million to pension plans in the quarter and made OPEB payments of 2 million with a combined expense of $8 million included in adjusted EBITDA.
Consistent with our earlier indication in 2019, we made $99 million of pension contributions and $12 million of open payments within associated expense of $33 million in adjusted EBITDA.
As a result of the significant drop of 80 basis points in applicable discount rates, our debt pension and OPEB liability increased by $203 million compared to the 2018 year end.
Due to lower discount rates and the ongoing phase out of map 21 in the U.S and to late year rule changes in the province have come back we expect our corresponding funding obligation to increased by over $10 million in 2020 to more than 110 million in pension contribution and 13 million.
$1 of OPEB.
I will now turn it back to eve for concluding remarks.
Thank you Remy.
Our key business priorities in 2020 are as follows.
First and foremost first and foremost we would go through new to build on the award Clos safety performance.
2019 was our second consecutive year below a notional of total incidence rate of 0.5, and our six year below one which is the result of the coordinated efforts of our toes until in four years.
We will also go into new with our initiatives around workforce attraction and retention.
Secondly, I talked about the acquisition of three US saw me as an important step and I'll transformation strategy.
As a team we are focused on integrating the assets quickly and efficiently.
Our goal is to repeat our previous successes with sawmill integration.
Third in the tissue business, we would go through new to build on our 2019 improvement by focusing on customer portfolio optimization to improve margins and closing to converting gap to send more convert a broader and to reduce the roughly 20% of parent rolls in the business.
For.
Especially on the in the challenging conditions. We currently face in paper, we must continue to focus on maximizing operational performance and avoiding projection descript disruptions across our network.
We will also look to maximize the value generation from our existing assets reduce cost and further strengthen our carpet is enough such as our project to modernize the paper machine that can you give me to produce high grade as C plus supercalendered paper.
Finally.
We will maintain our focus on acquisition and organic opportunities to further our business transformation.
This includes initiatives such as our recently announced plans to grow in volume, but there you added with the construction of a sort of those filament blended canoga meat, which highlights the added value we can bring to fiber to our role in this transformation as we look to build the forest product and prototype industry for the future.
After a $200 per metric ton drop in that Verizon transaction price and market bought from me speak in the first quarter, we think the psycho to reach bottom in the fourth quarter.
We see stronger operating rates, especially for softwood fall as an indicator of long term demand growth for quite a bit marketable.
Together with recent domestic on strength, we believe that district Bulgur recently reported steps the industry as taken to what pricing recovery.
Properly to offset widening discounts expected in the first quarter.
As I indicated a moment ago, we expect in 2020 to build on the recent improvement or won't season for the to the gains to realize brigus if earnings growth in the tissue business.
While paper objects is going to news to be maximize their earnings power and gas generation, Although we haven't bought us expectation when it comes to this years earnings as there are limited catalyst to ship up a material improvement in the near term.
On the other hand, we're encouraged with the momentum that appears to be building in the lumber market.
Based on all the things that data and the improving pricing environment.
We believe that we achieve an attractive valuation with our pending acquisition, but the upside will come with a turnaround plan, we have for the assets as would as market conditions lifting from the soft levels of 2019.
This concludes our formal presentation operator, we'll open the call for questions. Please.
As a reminder.
Ask a question.
So Chris Paul one on your telephone so we try your question first the Paul Ohas Keith Please standby why we call prior to Q1 era.
Your first question comes from the line of Sean's Charles. Please go ahead, Sir your line is open.
Thanks, Good morning.
Morning, Sean.
Lessons on.
Capex plans first just wondering if you can go into some more detail on the the initiatives that Konaga me.
Connect the dots potentially on expected returns on the investments and and maybe if you can provide a little more detail for follow on investments for cellulose filaments and and the growth potential for that.
Business.
First if I go with the investment on the paper machine and Canoga me.
We.
We saw as you know we have to Assi mills, which is Dolbeau and can you give me there are located in the same region. So.
And.
The other paper business. The SCB consumption is going down and we saw potential by the move from higher quality paper.
Moving to.
Are there more demand on the see it close so.
We thought that by this investment that we could have a quick payback.
On both the board side of the first one being you know that.
Getting more on there and this ship listen the better return than extending the life of that paper machine and the same time, you know I mean the.
The possibility to move more SCB too.
The better let's say other five Dolbeau mill, so it's kind of a synergy between the two to two paper mill and so far we feel pretty good about it. The other thing is that the by investing in Canoga me the relation between the two with the CF project.
Having assaulted the.
Paper machine with the divested to produce a bit of paper Canoga me with the Cfos and receive loss loss.
Then we can take the time too.
You know will build the project on the CF and thus far as the CFO as you know it's pretty innovative broader.
And with the JV, we have with Mercer too on the marketing and the roadmap those markets were pretty hopeful that you know the times going if they do better on this year with the paper machine.
We can have a.
No okay market for CF and even though we can then we can use a little of it and are on the operation.
So and also a little synergy with Paul craft, you know and traveled from savings yet. So it's all located in the same regional so we're pretty optimistic about the being successful with the.
Blow us moving as CFO as Cbtwo, some craft to the CF.
And hopefully as we go you know the first.
Step is to run the CF on one shift which is.
A little volume.
And if it goes well you know hopefully we can run seven days on that the on that project.
That's a that's great detail. Thanks.
Should we think about the capex, there and I guess at El Dorado.
How does that fit into the broader Capex plan for 2020 do you have a total dollar figure.
You are comfortable going.
Yes.
I believe as Rami mentioned than the in addition, we expect putting more the same capex.
In our current asset as we have in the as we did in 2019, so and that was sick brand asset Thats exclude.
What we feel which we're going to do with the acquisition of the saw mill. So when we said that about 20 million under the Dora. The one thing is giving you a pretty good ballpark.
Yeah.
Okay. That's all I have for right now. Thank you. Thank you. Thanks.
Again, if you'd like to ask a question Chris Paul one on your telephone.
There are no further questions at this time I turn the call back over to the present US. Okay. Thank you everybody for joining us today have a good day.
Ladies and gentlemen. This concludes this conference call. Thank you for participating you may now disconnect.
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