Resolute reports 2014 operating loss
Feb. 6, 2015 – Resolute Forest Products announced that it generated an operating loss of $174 million in 2014, compared to a loss of $2 million in 2013.
Part of the increase in the loss was due to lower paper pricing and lower shipments of market pulp and specialty papers, which was only partly offset by the increase in the average transaction price for market pulp and the 7% increase in lumber shipments. The weaker Canadian dollar improved operating results by $98 million.
Costs were essentially unchanged after removing the favorable effect of currency exchange and that of the lower overall volume, but this reflected a number of offsetting items, the most important of which included the significant costs in the first quarter as a result of the abnormally cold winter ($55 million), offset by lower start-up costs and pension and OPEB expenses (together, $62 million).
In 2014, the company incurred $278 million of accelerated depreciation and other closure-related costs in connection with its asset optimization initiatives, including the closures announced or implemented at Iroquois Falls, Baie-Comeau, Clermont and Laurentide, as well as the permanent closure of a paper machine in Catawba in the second quarter.
"Our cash position grew by $72 million in the quarter, bringing our net debt down to $260 million at year-end," said Jo-Ann Longworth, senior vice president and chief financial officer. "After rising interest rates helped to reduce the net pension and OPEB liability on our balance sheet by nearly $700 million in 2013, interest rates shifted downward in 2014, finishing the year even below 2012 levels. But thanks to strong asset returns, the favorable currency impact and amendments to our OPEB plans, our balance sheet net pension and OPEB liabilities increased by $330 million this year, to $1.6 billion, compared to the $2.0 billion in 2012. This increase also includes the significant impact of longer life expectancy assumptions in both Canada and the U.S. Despite this increase in the liability, we expect our pension funding levels to come down by about $20 million in 2015 compared to 2014, to approximately $145 million, due to the impact of the weaker Canadian dollar. We are required, however, to amortize the increase in the liability starting this year, which will result in an increase of our pension and OPEB expense by approximately $55 million in 2015, which, given the volatility of interest rates, could reverse in subsequent years. Although the higher expense does not have a cash impact, it creates headwind for our EBITDA expectations in 2015."
As far as the outlook for Resolute Forest Products is concerned, Richard Garneau, president and chief executive officer, added: "There is no good time to close a mill for the communities and the people affected. Although our recent closure announcements have been difficult – half a million tons of newsprint capacity and 200,000 tons of specialty papers capacity – they immediately improve Resolute's competitive position. By streamlining our production to adapt to changing market dynamics, we are able: to optimize assets by maximizing the utilization of our most cost-effective mills; and to reduce fixed costs and avoid a costly and inefficient rotating downtime strategy.
Looking to end-markets, prices for dimensional lumber trailed off toward the end of the year, but we remain cautiously optimistic in our outlook for 2015. Although demand for building products is particularly sensitive to macro-economic factors, we've seen sustained lumber demand despite the slow recovery in U.S. housing starts. We continue to believe that the wood products business is a great area in which to grow. We continue to believe in the global pulp market fundamentals, and the way we fit into it, particularly with our competitive assets, even as prices started to come off their recent highs. We expect the recent positive price momentum for coated and supercalender grades to carry into the first quarter, which otherwise tends to be a seasonal low. But newsprint continues to adjust to an accelerating pace of structural decline and currency-driven weakness in export markets. Finally, while it's still early, so far this winter we've not seen a repeat of the same harsh conditions we experienced at this time last year, which caused a material increase in energy costs, production disruptions, equipment failures and distribution constraints. We also implemented a number of measures to reduce our exposure to these types of events."
February 6, 2015 By Andrew Macklin
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