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ANNUAL GENERAL MEETING OF SHAREHOLDERS January 26, 2012.

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Presentation on theme: "ANNUAL GENERAL MEETING OF SHAREHOLDERS January 26, 2012."— Presentation transcript:

1 ANNUAL GENERAL MEETING OF SHAREHOLDERS January 26, 2012

2 2 James V. Continenza Chairman of the Board 2

3 3 James M. Lopez President and Chief Executive Officer 3

4 4 This presentation includes forward-looking statements within the meaning of securities laws. Such statements relate, without limitation, to the Companys or managements 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 Companys 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 Companys 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 Companys 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 4

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 5

6 6 Safety – OHSA Incident Rate 6

7 7 Company Update 7 FinancialOperationalStrategic 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 8 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 9 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 10

11 11 Consolidated SGA Expense - $ Millions

12 12 Annual Interest Expense - $ Millions

13 13 Debt Reduced By $220 Million 13

14 14 Strategic Capital Investments 14

15 15 Strategic Capital Investments 15 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 16

17 17 Temiscaming COGEN Project 17 Project Details – $ Millions Specialty 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 18 Project Details – $ Millions Increase 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 19 Enhance the existing competitive position of each operating facility All facilities ranked by priority Secure 1 st or 2 nd 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 20 Financial Impact - $ Millions The $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 Companys entire cost structure

21 21 Short Term Outlook 21 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 22 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) 23 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 24 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 Companys sustainability profile

25 25 Michel J. Dumas Executive Vice President, Finance and Chief Financial Officer FINANCIAL REVIEW 25

26 26 Financial Review - 2011 Consolidated Sales - $M 26 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 - $M 27 Currency negatively impacted margins – C$ 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

28 28 Financial Review - 2011 Balance Sheet Leverage 28 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

29 29 Financial Review - 2011 Liquidity - $M 29 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 2010 2011

30 30 Fiscal 2012 – First Quarter 30 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 31

32 QUESTIONS?


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