ANNUAL GENERAL MEETING OF SHAREHOLDERS January 26, 2012.
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Transcript of ANNUAL GENERAL MEETING OF SHAREHOLDERS January 26, 2012.
ANNUAL GENERAL MEETING OF SHAREHOLDERS
January 26, 2012
2 2
James V. Continenza Chairman of the Board
3 3
James M. Lopez President and Chief Executive Officer
4 4
This presentation includes “forward-looking statements” within the meaning of securities laws. Such statements relate, without limitation, to the Company’s or management’s objectives, projections, estimates, expectations or predictions of the future and can be identified by words such as “may“, “will”, “could”, “anticipate”, “estimate”, “expect” and “project”, the negative or variations thereof, and expressions of similar nature. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience, information available to it and its perception of future developments. Such statements are subject to a number of risks and uncertainties, including, but not limited to, changes in foreign exchange rates, product selling prices, raw material and operating costs and other factors identified in the Company’s periodic filings with securities regulatory authorities. Many of these risks are beyond the control of the Company and, therefore, may cause actual actions or results to materially differ from those expressed or implied herein. The forward-looking statements contained herein reflect the Company’s expectations as of the date hereof and are subject to change after such date. The Company disclaims any intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable securities legislation.
The information contained in this presentation is current only as of its date and has not been, and unless required pursuant to applicable securities laws, will not be, updated to reflect any changes or facts or circumstances that occurred after such date that may make such information inaccurate or incomplete. In addition, the market data included in this presentation, including information related to the Company’s relative position in the industry, is based on internal studies, market research and publicly available information and industry publications. Although the Company believes that such studies, research, information and publications are reliable as of the date of this presentation, they may prove to be inaccurate because of the method by which the Company obtained some of the data for its estimates or because this information cannot always be verified with certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. In addition, the Company has not independently verified any of the data from third-party sources nor has it ascertained the underlying economic assumptions relied upon therein. As a result, market, ranking and other similar industry data included in this presentation, and estimates and beliefs based on the data, may not be accurate and complete.
Disclaimer
5 5
Future Vision of Tembec
Strong and stable earnings: Specialty Cellulose Pulp
Predictable earnings: Energy investments
Upside: Lumber
Result:
More stable cash flow throughout the cycle
and significant upside for shareholders
6 6
Safety – OHSA Incident Rate
2005 2006 2007 2008 2009 2010 20110
2
4
6
8
10
12
14
16
1816.6
13.413
9.2
7.8
6.3
4.7
7 7
Company Update
Financial Operational Strategic
Balance sheet and liquidity
in good shape
Term Debt maturity – 2018
New ABL termed out to 2016
Transformation of the
Company will continue
Strategic capital investments
Focus on Specialty
Cellulose Pulp
Uncompetitive assets
sold/closed – remaining
assets low cost or have
potential to become low
cost
SGA downsized to new
sales level
Efficiency improvement
projects underway
Higher CAPEX in 2011 will
positively impact results in
2012 and 2013
8 8
Significant External Events of 2011
European debt crisis stalled economic recovery in Europe
No material improvement in the U.S. housing market
Global wood fibre and recovered paper prices continued upward
trend
Demand for paper pulp weakened in the second half of the calendar
year
Prices for commodity dissolving declined throughout the year to
more normalized levels
Strong demand for Specialty Cellulose fuelled price increases
9 9
Significant Internal Events of 2011
Significant and ongoing health and safety improvements
Board of Directors accelerates the strategic repositioning of the
Company
Deal to sell B.C. sawmills to Canfor
Sold Smooth Rock Falls hydro dam
Sold Hardwood Flooring Division
Conditional approval of Temiscaming energy project
Construction of Matane, Tartas and Bearn energy projects
10 10
Improved Productivity - $000s Sales Per Employee
2006 2007 2008 2009 2010 2011 2012B
$327 $333 $342$315
$439$420
$465
11 11
2004 2005 2006 2007 2008 2009 2010 2011
$184$177
$153$141
$109
$88$75 $74
Consolidated SGA Expense - $ Millions
12 12
2006 2007 2008 2009 2010 2011
$135$125
$55
$35$30 $32
Annual Interest Expense - $ Millions
13 13
Debt Reduced By $220 Million
Net Debt - March 2010
Interest on Indebtedness
CAPEX EBITDA Sale of French Mills
Working Capi-tal and Other
Net Debt - Sep-tember 2011
$423
$44
$69 $191
$127
$15 $203
14 14
Strategic Capital Investments
15 15
Strategic Capital Investments
Industry/Company circumstances have led to low re-investment since 2005
Closed/divested facilities to focus capital investments
Company has developed detailed multi-year CAPEX plan for remaining facilities
High returning projects – proven technology/equipment
Two main categories:
Green Energy
Business Improvement Plan (BIP) – Cost reduction and productivity increases
Focus on Specialty Cellulose Pulp
16 16
Green Energy
Annual
Completed/Approved CAPEX Startup EBITDA $M
38 MW Biomass
Cogen - New Contract
Methane Biogas $25M /
Displace Fossil Fuel Net $1M
8 - 9 MW Biomass
Turbine - New Contract
Pending
30 - 40 MW Waste Liquor
Cogen - New Contract
Hog Boiler $13M /
Optimization - 7 MW Net $9M
Under Study
30,000 TPY Expansion
10 MW Waste Liquor Cogen
Skookumchuck BC NBSK Mill 2012-2013 $5M
Temiscaming QC Specialty Cellulose Mill $100M Dec 2015 $41M
$42MTemiscaming QC Specialty Cellulose Mill $190M
June 2012
June 2012
Dec 2013
$21M
Aug 2010 $10M
Matane QC High-Yield Pulp Mill
Tartas France Specialty Cellulose Mill
Skookumchuck BC NBSK Mill $2M
$6M
$8M
17 17
Temiscaming COGEN Project
PAYBACK - YEARS 4.0
Productivity (5,000 TPY) $6
$42
PROJECT COST
FUNDING
ANNUAL EBITDA IMPACT
$31
$85Internal Funds - Free Cash Flow
$105
Total
New Project Term Debt
Net Incremental Capex
Gross CAPEX Investment - 2012 to 2013
$170
Electricity Revenues
Cost Reduction $5
$190
Project Details – $ MillionsSpecialty Cellulose mill is currently very
profitable despite current cost structure
Three old low pressure boilers
approaching end of useful life – high
maintenance – require $20M to extend life
Cornerstone of project is “Green”
Purchase Power Agreement (PPA) with
Hydro Quebec – 50 Megawatts
Boiler/turbine to be sized to allow for a
30,000 TPY capacity expansion
Very attractive rates on project financing
Leverage/debt service will remain at very
manageable levels
18 18
Temiscaming Expansion Project
PAYBACK - YEARS 2.4
Productivity (30,000 TPY) $27
$41Total
Cost Reduction $7
PROJECT COST
FUNDING
ANNUAL EBITDA IMPACT
$7
$100Internal Funds - Free Cash Flow
CAPEX Investment - 2014 to 2015
Electricity Revenues
$100
Project Details – $ MillionsIncrease Specialty Cellulose production
by 30,000 tonnes per year and electricity
production by a further 10 Megawatts
COGEN project will ensure
boiler/turbine/PPA sized for the expansion
Replace 11 original digesters (pressure
cooking vessels) with 10 new larger
stainless steel digesters
Funding provided by COGEN cash flow
Initial incremental production to
commodity dissolving – gradual increase
to Specialty Cellulose to minimize market
impact
19 19
Business Improvement Plan (BIP) Objectives
Enhance the existing competitive position of each operating facility
All facilities ranked by priority
Secure 1st or 2nd quartile cost position for each operating facility
Funded by operating cash flows
4 to 5 year timeline – can be accelerated if capital available
Increase enterprise value of the Company – high return projects
20 20
Strategic Capital Investments
EBITDA PAYBACK
CAPEX IMPACT YEARS
$134
$102
$236
1.5
3.1
2.2$519TOTAL
$198
Green Energy
BIP
$321
Financial Impact - $ MillionsThe $198M in BIP projects represents
83 different CAPEX investments
Low execution risk – projects relatively small
and technology proven
Very short payback – mainly cost reduction
Timing of BIP projects limited by cash flow
generation and focus on Green Energy
projects
Approximately $343M (66%) earmarked for
the Specialty Cellulose mills – goal is to
have two of the most modern facilities in the
world
Overall plan repositions the Company’s
entire cost structure
21 21
Short Term Outlook
Slow improvement in the U.S. will improve business conditions
European situation will suppress demand from this region
Asian economic growth decelerating but demand for commodities will
continue to grow
Challenging results in paper pulp sector in first half of year with recovery in
the second half
Strong Specialty Cellulose markets in 2012 with price increases
22 22
Short Term Outlook
Continued slow recovery in lumber supported by gradual improvements in
U.S. housing starts and sales to China
Stable pricing in newsprint with demand declines supported by capacity
reductions
Stable coated board prices supported by a relatively balanced market
Challenging overall results in the first half of 2012 with better results in the
second half of the year
Higher level of capital investments
23 23
Outlook – Medium Term (3 years)
Increased capital investment - $70-80M per year excluding Temiscaming
COGEN
Continue to reposition the Company
Specialty Cellulose pulp is main driver of earnings/cash flow
Energy investments become a game-changer
BIP projects gradually increase margins as they are completed
Maintain strong balance sheet
24 24
2012 Priorities
Continued improvements in the Health & Safety performance
Generate cash flow despite challenging economic environment
Maintain liquidity
Continue the strategic repositioning of the Company
Start-up of Matane and Tartas energy projects
Begin construction of Temiscaming energy project
Maintain the Company’s sustainability profile
25 25
Michel J. Dumas Executive Vice President, Financeand Chief Financial Officer
FINANCIAL REVIEW
26 26
2007 2008 2009 2010 2011
2,750
2,376
1,7861,877
1,743
Financial Review - 2011
Consolidated Sales - $M
7% decrease in sales
Sold two chemical pulp mills in latter
half of prior year – reduced sales by
$191M
Continued with significant production
curtailments in lumber – shipments at
57% of capacity
Sales
27 27
Financial Review - 2011
EBITDA - $M
Currency negatively impacted margins –
C$ up 5.5% vs US$
Improved profitability in Specialty
Cellulose and Chemical Pulp (+$18M)
and Paper (+$30M)
Forest Products EBITDA declined by
$36M as lumber prices were lower
High-Yield Pulp EBITDA down $51M due
to lower prices
Margins
2007 2008 2009 2010 2011-125
-100
-75
-50
-25
0
25
50
75
100
125
150
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
65
21
-108
132
95
EBITDA $ millions (left scale)
EBITDA % Sales (right scale)
28 28
Financial Review - 2011
Balance Sheet Leverage
February 2008 recapitalization “fixed” the
balance sheet
Recession led to higher leverage in 2009
– corrected in 2010
Balance sheet remains strong
Net Debt to Total Capitalization
2007 2008 2009 2010 20110%
10%
20%
30%
40%
50%
60%
70%
63%
30%
42%
28% 27%
Actual Objective < 40%
29 29
Financial Review - 2011
Liquidity - $M
Sale of two French pulp mills in Fiscal
2010 Q3 boosted liquidity
Used a portion of the proceeds in Fiscal
2010 Q4 to pay down term debt and
cover refinancing fees and costs
New ABL put in place in Fiscal 2011 Q2
increased liquidity by $55M
Liquidity
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q40
50
100
150
200
250
300
129138
270
174
139
200219
229
2010 2011
30 30
Fiscal 2012 – First Quarter
Sales of $401M
EBITDA of $12M
Net loss of $16M or $0.16 per share
December 2011 Quarterly Resuts
31 31
James V. Continenza Chairman of the Board
QUESTIONS?