resolute fp - gs paper and forest products conference - 03-15-2012
TRANSCRIPT
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Resolute Forest Products
March 2012
(AbitibiBowater Inc. now does business as Resolute Forest Products)
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Cautionary Statements Regarding Forward-Looking Information
Statements in this presentation that are not reported financial results or other historical information of Resolute ForestProducts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.They include, for example, statements relating to our: efforts to continue to reduce costs and increase revenues andprofitability, including our cost-reduction initiatives regarding selling, general and administrative expenses; business
and operating outlook; assessment of market conditions; prospects, growth strategies and the industry in which weoperate; and strategies for achieving our goals generally. Forward-looking statements may be identified by the use offorward-looking terminology such as the words should, would, could, will, may, expect, believe,
anticipate, attempt, project and other terms with similar meaning indicating possible future events or potentialimpact on our business or Resolute Forest Products shareholders.
The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees offuture performance. These statements are based on managements current assumptions, beliefs and expectations, allof which involve a number of business risks and uncertainties that could cause actual results to differ materially. Thepotential risks and uncertainties that could cause our actual future financial condition, results of operations andperformance to differ materially from those expressed or implied during the presentation include those set forth underthe heading Risk Factors in Part I, Item 1A in our annual report on Form 10-K for the year ended December 31,2011, filed with the U.S. Securities and Exchange Commission and the Canadian securities regulatory authorities onFebruary 29, 2012.
All forward-looking statements in this presentation are expressly qualified by the cautionary statements contained orreferred to in this section and in our other filings with the SEC and the Canadian securities regulatory authorities. Wedisclaim any obligation to publicly update or revise any forward-looking information, whether as a result of newinformation, future events or otherwise, except as required by law.
All figures in USD unless otherwise noted.
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United States,
60%
Canada, 13%
Brazil, 3%
Mexico, 3%
Italy, 2%
Korea, 2%
Other, 17%
Newsprint
38%
Coated
11%
Specialty
27%
Pulp14%
Wood Products
10%
United States
43%
Canada
53%
S. Korea
4%
Lower cost North American forest products company
Strengthened strategic position:
Eliminated approximately $900 million of annual fixed costs
Closed marginal assets
Newsprint reduced from 48% of sales at the merger to 38%
Total annual operating capacity of 6.2 million metric tons of pulp and paperand 2.7 billion board feet of lumber (current fiber supply limits productioncapacity to 2.2 billion board feet)
Proximity to deep sea ports facilitates access to international newsprintmarkets
Sales by Country Production by CountrySales by Product
Resolute Forest Products: the New AbiBow
FY 2011 Revenues = $4.8 bn
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Results of the AbiBow Restructuring
Corporate Number of employees
Capacity
Operations
Number of machines
Newsprint (mm tons)
CPP (mm tons)
Pulp (mm tons)
Wood products (bn bf)
Pulp & paper sites
Wood product sites
At timeof
Merger
18,000
62
5.6
3.7
1.1
3.1
31
35
Resolutenow
10,400
31
3.1
2.1
1.1
2.8
18
23
Change
(7,600)
(31)
(2.5)
(1.6)
0.0
(0.3)
(13)
(12)
Change(%)
(42%)
(50%)
(45%)
(43%)
0%
(10%)
(42%)
(34%)
Source: Company
Closed marginal assets, dramatically reducedoverhead and materially improved competitive position
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Mokpo
South
Korea
PonderayFort Frances
Thunder Bay
Iroquois Falls
Thorold
Amos
Baie Comeau
AlmaKnogami
Clermont
MerseyLaurentide
Montreal
Calhoun Greenville
Catawba
AugustaCoosa PinesGrenada
Flexible Mill Portfolio
Note: Map excludes sawmills, recycling operations and hydro facilities
Newsprint (mm tons)
Coated (mm tons)
Pulp (mm tons)
Wood products (bnbf)
NewABH
3.1
0.6
1.1
2.8
Capacity
Flexible portfolio allows us to mitigate secular declines in the N.A. newsprint market
through increased exports to growing markets
Uncoated (mm tons) 1.4
Pulp
Newsprint
Uncoated Paper
Coated Paper
Headquarters OfficeU.S. Corporate Office
Port Access
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2011: A Year of Transformation
New executive team
Repaid $264 million of senior secured notes; net debt of
approximately $250 million at year end
Launched the Resolute Forest Products brand
Joined WWFs Climate Savers Program
Issued first full-scale sustainability report
Improved adjusted EBITDA by 57%
Normalized SG&A approaching $20/ton
Continued focus on mill optimization
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2011 Financial Highlights
(In millions of US dollars) Q1 2011 Q2 2011 Q3 2011 Q4 2011 2011
Sales $1,185 $1,200 $1,224 $1,147 $4,756
Adjusted EBITDA 99 110 150 122 481
Operating income (loss) 27 52 72 47 198
Net income (loss) 30 61 (44) (6) 41
Interest expense 30 28 19 18 95
Net debt 668 416 417 252 252
Debt to equity 26% 19% 19% 18% 18%
Long-term debt to LTMadjusted EBITDA
2.5x 1.6x 1.3x 1.3x 1.3x
Note: The implementation of the plans of reorganization and the application of fresh start accounting materially changed the carrying amountsand classifications reported in the Companys consolidated financial statements. Accordingly, the Companys operating results, including
depreciation, for periods before December 31, 2010, are not comparable to the operating results after December 31, 2010.Please refer to the appendix for additional information, including the companys calculation of adjusted EBITDA.
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2012 EBITDA Sensitivities
Note: Presented on a U.S. GAAP consolidated basis1Assuming general consumption of 812 thousand tonnes
Variable Metric Change EBITDA ($ millions)
Newsprint Pricing $/mt - / + $25
CPP Pricing $/mt - / + $25
Lumber Pricing $/mbf - / + $25
Pulp Pricing $/mt - / + $25
Net Foreign Exchange C$/US$ + / - $0.01
ONP Prices1 $/mt + / - $10
Natural Gas $/gj + / - $0.50
-/+ $52
-/+ $67
-/+ $6
-/+ $8
-/+ $26
-/+ $16
-/+ $41
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Raw Material Sourcing - 2011
Newsprint Recycle Content
VirginFiber80%
ONP/OMG
20%
Energy Consumption Purchased Energy
Virgin Fiber
Sawmills and other internalfiber sources
46%
Open Market Purchases54%
PurchasedEnergy
57%
Internal Biomass
40%
Electricity
55% Fossil Fuels25%
Biomass20%
Internal Hydroelectric3%
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Financial Priorities
Control fixed charges to generate cash flow throughout cycle
Debt reduction
Capital spending focused on our low cost operations
No speculative hedging
Maintain ample liquidity
Capital structure without financial maintenance covenants
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Executive Incentive Compensation
Annual STIP
Payout based on weighted performance measures
Target: 100% / max: 150% of base salary (no minimum)
Payout limited to 7% of free cash flow
Annual LTIP:
50/50 mix of RSUs and options
Award based on base salary: 225% for CEO and 125%
for his direct reports
Resales subject to stock ownership guidelines
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Our Strategy
Operations
Leverage low-cost position
Continue to drive out costs and optimize asset portfolio
Capitalize on mill locations export markets for newsprint
Focus on selling only profitable tons
Manage inventory levels prudently
Corporate
Continue to de-leverage Spend capital in a disciplined, strategic and focused manner
Continue to reduce overhead costs
Strategic
Take opportunistic approach to consolidation Focus on cost position, product diversification and future growth
markets
Balance opportunities to return cash to shareholders against potentialvalue creating investments in our business
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Modest leverage with approximately $585 million of debt1
Undrawn credit facility of $600 million (except for ordinary course letters of credit), recentlyextended to 2016
No maintenance financial covenants Long-term corporate rating upgraded by S&P to BB- from B+ on September 30, 2011
Key Highlights
Forest ProductsLeader
Highly
CompetitiveCost Structure
Flexible MillPortfolio
DiversifiedRevenue Base
ConservativeCapital
Structure
Global leader in the forest products industry Established leading NA presence in our key segments: newsprint, coated and uncoated
mechanical papers, pulp, lumber and engineered wood products
One of the lowest cost producers in the industry as a result of aggressive cost reductionsand mill rationalizations
Highly efficient operations, strong economies of scale and access to competitive sourcesof energy and fiber
U.S. and Canadian mills strategically located near customer base or deep sea ports Balanced mix of U.S. and Canadian mills provides natural currency hedge Multiple fiber furnishes available at several sites provide ability to produce multiple grades
Diversified product mix and end markets Balanced portfolio of products Products marketed in close to 90 countries; non-U.S. sales represent 40% of total
Low cost platform and low leverage capital structureprovides opportunity for further improvement
Reduction ofFixed Costs
SG&A reduced by over 50% since 2007 Significant reduction in annual defined benefit pension contributions Dramatically reduced interest cost
Excludes deferred financing fees
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PRODUCTS
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Newsprint
Largest producerglobally by capacity
3.1 mm metric tons or9% of total worldwidecapacity
2.9 mm metric tons or36% of North Americancapacity
11 newsprint facilities in
North America and 1 inSouth Korea
(In millions of US dollars)Q1
11Q2
11Q3
11Q4
11
Sales $429 $462 $468 $457
Adjusted EBITDA $39 $43 $36 $44
Operating income
(loss)
$19 $26 $18 $26
Shipments (000tonnes)
656 697 706 694
Transaction price
($/t)
$654 $663 $663 $658
Source: CompanyPlease refer to the appendix for additional information, including the companys calculation of adjusted EBITDA.
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Newsprint - Capacity
3,103
0 1,000 2,000 3,000 4,000
Resolute
Norske Skog
UPM-Kymmene
Stora Enso
White Birch
'000 mt
2,902
0 500 1,000 1,500 2,000 2,500 3,000 3,500
Resolute
White Birch
Kruger
Catalyst
Norpac
'000 mt
The worlds largest newsprint producer by capacity
Source: RISI 2011; Resolute shows current operating capacity
World
NorthAmerica
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(5.2%)
(7.4%)
(3.0%)
(6.4%)
(2.0%)(1.3%)
World North America Western
Europe
Asia Eastern Europe Latin America
Global demand down 5.2% in 2011 anddown 4.0% in January
Industry Overview
NewsprintCommentary
Newsprint pricing has been stable forover 18 months
Demand down 7.4% for North America
in 2011 and down 7.7% in Jan 2012 Industry capacity in NA continues to
decline with 2012 capacity projected tobe 500K tonnes lower vs. 2011
Source: PPPC
World Newsprint Demand by Market
% change 2011 vs. 2010
Total U.S. Newsprint Consumption
0
2
4
6
8
10
2007 2008 2009 2010 2011
millionsofmt
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Diversified Newsprint Shipments
North America
55%
North America
55%
Latin America
21%
Latin America
21%
Europe8%
Europe8%
Asia
14%
Asia
14%Africa/
Middle East2%
Africa/
Middle East2%
Source: Company 2011 newsprint shipments
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Uncoated Mechanical Papers
Largest North Americanproducer by capacity
1.4 mm metric tons or31% of North Americancapacity
End uses include books,retail advertising, directmail, coupons and otherapplications
(In millions of US dollars)Q1
11Q2
11Q311
Q411
Sales $330 $320 $316 $309
Adjusted EBITDA $11 $24 $39 $37
Operating income
(loss) $ - $11 $27 $24
Shipments (000
tons) 473 442 422 416
Transaction price
($/t)$698 $724 $747 $745
Source: CompanyPlease refer to the appendix for additional information, including the companys calculation of adjusted EBITDA
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1,425
0 500 1,000 1,500 2,000 2,500 3,000 3,500
UPM
Stora Enso
Resolute
Norske Skog
Holmen
'000 mt
Uncoated Mechanical Papers - Capacity
1,425
0 500 1,000 1,500 2,000 2,500
Resolute
Catalyst
NewPage
Irving
Norpac
'000 mt
Source: RISI 2011; Resolute shows current operating capacity
World
NorthAmerica
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0
2
4
6
8
2007 2008 2009 2010 2011
million
sofmt
(400)
(350)
(300)
(250)
(200)
(150)
(100)
(50)
-
50
Total SC - A /A+ SC-B STD LW
(00
0mt)
-7.8% -7.8% +2.8% -7.5% -20.8%
-1300
-1200
-1100
-1000
-900
-800
-700
-600
-500-400
-300
-200
-100
0
100
TOTAL UM UW CW CM
(000)tonnes
-5.2% -7.8% -3.4% -2.8% -8.6%
Total North American printing & writing paper
demand down 5.2% in 2011 and down 6.6% in
January 2012
Demand for all SC papers down 4.2% in 2011 and
down 25% in January
Standard and directory papers were down 8% and
21%, respectively, in 2011 and down 10% and 9%,
respectively, in January 2012.
Source: RISI, PPPC
Industry Overview
Printing & Writing Papers
Commentary NA Printing & Writing Demand by Grade
% change 2011 vs. 2010
Uncoated Mechanical Demand by Grade
% change 2011 vs. 2010
North American Uncoated MechanicalDemand
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Coated Mechanical Papers
Third largest NorthAmerican producer by
capacity
Approximately 637kmetric tons or 16% ofNorth American capacity
Sold to majorcommercial printers,publishers, catalogersand retailers formagazines, catalogs andinserts
Lowest cost producer inNorth America
(In millions of US dollars)Q1
11Q2
11Q3
11Q4
11
Sales $134 $132 $140 $132
Adjusted EBITDA $12 $31 $27 $22
Operating income $3 $23 $18 $13
Shipments (000tons)
169 161 167 160
Transaction price($/t)
$794 $822 $837 $821
Source: CompanyPlease refer to the appendix for additional information, including the companys calculation of adjusted EBITDA
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Coated Mechanical Papers - Capacity
637
0 500 1,000 1,500
NewPage
Verso
Resolute
UPM-Kymmene
Kruger
'000 mt
637
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
UPM/Myllykoski
Stora Enso
Sappi
Burgo Group
NewPage
Norske Skog
Verso
Nippon Paper
Resolute
Leipa
'000 mt
Source: RISI 2011; Resolute shows current operating capacity
World
North
America
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Industry Overview
Coated Mechanical Papers
Commentary NA Coated Mechanical Paper Demand
North American demanddecreased 8.6% in 2011 and
4.2% in January
North American shipments in thedomestic market declined 8.0% in2011 vs 2010, 5.3% in January
NA imports were down 13.4% in2011
Shipment to capacity ratioaveraged 90% in 2011 and 89%in January
Source: PPPC, Magazine Publishers of North America
U.S. Magazine Advertising
12 months trailing sum
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2006 2007 2008 2009 2010 2011
('000mt)
N.A. CM Imports N.A. CM Domestic Shipments
-35%
-25%
-15%
-5%
5%
15%
25%
'06 '07 '08 '09 '10 '11
YOY%c
hang
Pages Revenue
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Commercial Printing Papers
North America91%
North America91%
Latin America
3%
Latin America
3%
Europe1%Europe1%Asia
4%
Asia
4%Africa/
Middle East
1%
Africa/
Middle East
1%
Source: Company 2011 commercial printing paper shipments
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Market Pulp
Operating capacity of 1mm metric tons or 6% ofNorth American capacity,
including 272K tonnes offluff pulp
About 75% softwood
End use is a range ofconsumer productsincluding tissue,commercial printingpaper products, diapers,
absorbent products andother products
(In millions of US dollars)Q1
11Q2
11Q3
11Q4
11
Sales $176 $171 $175 $137
Adjusted EBITDA $30 $21 $44 $20
Operating income $23 $14 $36 $12
Shipments (000tonnes) 239 223 236 204
Transaction price($/t)
$735 $767 $741 $674
Source: CompanyPlease refer to the appendix for additional information, including the companys calculation of adjusted EBITDA
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1,050
0 500 1,000 1,500 2,000 2,500
Koch
Domtar
Weyerhaueser
Canfor
West Fraser
Tembec
Resolute
International Paper
Mitsubishi
'000 mt
North America
A major producer of market pulp
Source: RISI; annual reports; Resolute shows current operating capacity
Market Pulp - Capacity
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70
75
80
85
90
95
100
105
110
2006 2007 2008 2009 2010 2011Shipment/Cap
acityRatio
Industry OverviewMarket Pulp
Global demand ofapproximately 53 million
tonnes
Global shipments up 4.8% in2011 and up 2.4% in Jan 2012
China up 31% in 2011 and
16% in Jan 2012
NBSK shipment to capacityratio of 91% in 2011 and 97%in Jan 2012
Source: PPPC Market Pulp Global 100
Commentary Market Pulp Demand (% Growth Dec 2011 YTD)
Northern Softwood Shipments / Capacity
(2006-2011)
Dec 2011 96%2011YTD 91%
4.8%
(3.6%) (3.1%) (3.1%) (2.9%)
3.1%
30.5%
3.0%1.2%
(20%)
(10%)
0%
10%
20%
30%
40%
50%
World North
America
Western
Europe
Eastern
Europe
Latin
America
Japan China Other
Asia
Oceania
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Pulp Shipments
Americas
59%
Americas
59%
Europe26%
Europe26%
Asia
13%
Asia
13%Africa/
Middle East2%
Africa/
Middle East2%
Source: Company 2011 market pulp shipments
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Wood Products
Operate 18 sawmills inCanada that producedimension (stud and
random) SPF lumbersold in North America
Operate 5 engineeredand remanufactured
wood products facilitiesin Canada that produceproducts for specializedapplications such aswood i-joists, trusses and
bed frames
(In millions of US dollars)Q1
11Q2
11Q3
11Q4
11
Sales $116 $115 $125 $112
Adjusted EBITDA $4 $(4) $5 $3
Operating income(loss) $(3) $(14) $(3) $(5)
Shipments (mbf)375 397 417 397
Transaction price($/mbf)
$310 $290 $298 $280
Source: CompanyPlease refer to the appendix for additional information, including the companys calculation of adjusted EBITDA
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2,710
0 1,000 2,000 3,000 4,000 5,000 6,000
West Fraser Timber
Weyerhaeuser
Canfor
Resolute
Tolko
Koch
million board feet
A major producer of wood products
North America
Source: Forest Economic Advisors; Resolute produced 1,683 million board feet in 2011
Lumber - Capacity
* Current fiber supply limits production capacity to 2.2 billion board feet
*
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Industry Overview
Wood Products
Source: U.S. Census Bureau
Annual U.S. Housing Starts
US housing starts are expected toimprove over time with the generaleconomy
U.S. housing starts were 610,000 in2011 and 699 in Jan 2012 (SAAR)
U.S. demographics support a naturallevel around 1.3 million housing startsover the long term
Commentary
0.0
0.5
1.0
1.5
2.0
2.5
2005 2006 2007 2008 2009 2010 2011
U.S.
HousingSta
rts(mm)
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Appendix
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Resolute Forest ProductsMarch 2012