Domtar Corporation (UFS)

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Domtar Corporation (UFS)

Q4 2012 Earnings Call

February 01, 2013 11:00 am ET

Executives

Pascal Bossé – VP, Investor Relations

John Williams – President, Chief Executive Officer

Daniel Buron – SVP, Chief Financial Officer

Analysts

George Staphos – Bank of America Merrill Lynch

Phil Gresh – JP Morgan

Chip Dillon – Vertical Research

Alex Ovshey – Goldman Sachs

Paul Quinn – RBC Capital Markets

Mark Wilde – Deutsche Bank

Jeff Gates – Gates Capital

John Tumazos – Vary Independent Research

Robert Howard – Prospector Partners

Matt Teplitz – Guyasuta Investment Advisors

Presentation

Operator

Good day, ladies and gentlemen. Welcome to Domtar Corporation’s Fourth Quarter 2012 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded today, Friday, February 1, 2013.

I would now like to turn the meeting over to Pascal Bossé. Please go ahead sir.

Pascal Bossé

Great, thank you, Mitchell. Good morning and welcome to our fourth quarter 2012 earnings call. So, our speakers for today will be John Williams, President and CEO, as well as Daniel Buron, Chief Financial Officer. John and Daniel will begin with prepared remarks, after which we will take questions.

During the call, references will be made to supporting slides, and you can find this presentation in the Investors Section of our website. As a reminder, all statements made during the call that are not based on historical facts are forward-looking statements subject to a number of risks and uncertainties, and many of which are outside of our control. I invite you to review Domtar’s filings with the Securities Commissions for a listing of those. And finally, certain non-U.S. GAAP financial measures will be presented and discussed and you can find the reconciliation to the closest GAAP measures in the appendix of this morning’s release, as well as on our website.

So, with that, I will turn the call over to John. John?

John Williams

Thank you, Pascal. Good morning, everyone. Let’s begin by taking a look at our fourth quarter results. Our paper and pulp businesses performed largely in line with expectations on both pricing and volumes. Demand for uncoated free sheet reflected the usual year-end seasonality, but December was weak mostly due to bad season impacting days of operations for our customers.

Higher cost for fiber energy an unexpected cost incurred on pulp mill following a planned maintenance outage also affected results. Daniel will further discuss these impacts in his prepared remarks. On non-core asset divestments, we closed the sale of the Ottawa-Gatineau hydro assets of $46 million. This brings total proceeds of non-core asset sales of $295 million since 2009.

Finally, despite higher cost and the issues I just discussed, we generated $75 million of free cash flow and we continue to buy back stock in the quarter. With these brief remarks, I’ll turn the call over to Daniel for the financial review and I’ll come back with a recap of the year and the 2013 outlook. Daniel?

Daniel Buron

Thank you, John, and good morning, everyone. Let’s start by going over the financial highlights of the quarter on slide four and I will cover the full year results in a few minutes. We reported this morning net earnings of $0.55 per share for the fourth quarter compared to net earnings of $1.84 per share for the third quarter of 2012. Adjusting for items, our earnings were $1.31 per share in the fourth quarter compared to earnings of $1.87 per share for the third quarter. EBITDA before items amounted to $180 million, compared to $207 million in the prior quarter. Free cash flow totaled $75 million compared to $140 million in the third quarter.

Turning to the sequential variation in earnings on slide five, consolidated sales were $62 million lower than the third quarter, primarily driven by lower shipments and lower selling prices for both pulp and paper. SG&A was $10 million higher than Q3, mostly due to the amortization of certain post retirement benefit plans that have a favorable impact in Q3.

Our fourth quarter earnings include total and restructuring cost of $27 million impart related to the announced closure of the top line and boiler at our Kamloops market both facility. Also in the quarter we incurred an impairment charge of $12 million lead mostly by the accelerated depreciation of the Kamloops top line and related assets. In addition, impairment charge of $12 million will be recorded in the first quarter of 2013 to complete the depreciation of those assets before the actual permanent shutdowns expect at the end of March.

This closure will result in the permanent reduction of our annual softwood production capacity by approximately 120,000 tons and will also affect 125 employees. We expect no incremental negative impact on unit costs from the closure of the top line, however the full optimization of the remaining assets, which should be finalized in the third quarter will record a full earnings potential of the mill.

Interest expense was $22 million, $2 million higher than last quarter due to the full impact of the 30 year senior notes issued during the third quarter. In the fourth quarter we reported a tax expense of $1 million or 5% compared to a tax expense of $22 million of 25% in the previous quarter. The low tax expense was from the impact of inactive tax rate changes mostly in Sweden and some other tax benefit recorded in Q4.

Now turning to the cash flow statement on slide six. Cash flow provided from operating activities amounted to $140 million for the fourth quarter. Capital expenditure amounted to $65 million, this resulted in free cash flow of $75 million. In the fourth quarter we also received $49 million from the disposition of assets.

Read the rest of this transcript for free on seekingalpha.com