Catalyst Paper reported significantly improved third quarter 2015 results after investing in capital expenditures in the first half of the year to strengthen its North American operating platform and create a solid foundation for delivering sustainable improved financial results.
Adjusted earnings before tax, depreciation and amortization (EBITDA) in the third quarter was $38.8 million and adjusted EBITDA before specific items was $39.4 million compared to adjusted EBITDA of negative $19.2 million and adjusted EBITDA before specific items of $9.7 million in the second quarter of 2015.
In the third quarter, the company recorded a net loss of $12.9 million (primarily due to a foreign exchange loss on the translation of U.S. denominated debt) and net earnings of $6.6 million before specific items. This compares to a net loss of $32.4 million and a net loss of $13.8 million before specific items in the second quarter. Free cash flow generated in the third quarter was $23.4 million and the liquidity available at the end of the third quarter was $86.2 million.
“We are pleased with the progress we made in the third quarter,” said Joe Nemeth, President & Chief Executive Officer. “We believe our results are a concrete step towards delivering positive, sustainable earnings levels.”
Our U.S. operations had the largest step change in performance improvement. Results were achieved through a combination of product mix changes, cost control and productivity improvements. The indefinite curtailment of paper machine No. 12 at the Rumford mill permitted the optimization of manufacturing capabilities, while effectively balancing production with customer demand.
Our Canadian operations continued to demonstrate improved performance resulting from our specific focus on productivity and cost control. The Powell River mill, which launched a formal revitalization initiative at the end of 2014, led the Canadian operations in performance improvements by implementing staff, system and process changes that have resulted in substantive cost savings. Learnings are being shared across the company as all mills implement formal revitalization initiatives based on the successful Powell River template.
Our third quarter results benefited from lower than average planned maintenance and capital spending of $2.9 million.
In October, Catalyst commissioned its new turbine generator project at Powell River following months of planning, construction and testing. The project identified as G13 refers to the installation of a turbine that uses medium pressure steam to generate electricity. With the completion of G13, Catalyst will reduce its annual energy costs by approximately $4.7 million, thereby mitigating the pressure of escalating electricity rates in British Columbia.
During the third quarter, we increased sales and shipments despite challenging market conditions across all paper segments. We successfully implemented a number of product mix improvements including the launch of an expanded Oxford C1S product offering and new coated freesheet web products. We also strengthened our sales capacity by recruiting additional experienced talent primarily focused on promoting our coated freesheet products in the commercial print sector.
Several new non-printing and writing grades were commercialized in the third quarter. We also have a number of additional new products in development.
As we reported on October 14, 2015, the U.S. Department of Commerce imposed an “all others” countervailing duty of 18.85% on supercalendered paper produced by our company in Canada and exported into the U.S. Based on our current sales mix, the duty will be imposed on approximately 4% of total sales. This rate is based on the weighted average of the final rates assigned by the Department of Commerce to each of Port Hawkesbury and Resolute Forest Products. We are disappointed with this decision and once the Department of Commerce issues its Final Order in December 2015, we intend to request an expedited review pursuant to which our company would be examined individually.
We believe our fourth quarter performance will contribute positively to second half 2015 EBITDA. We anticipate, however, that results will be negatively impacted by greater maintenance spending and the imposition of countervailing duties on exports to the U.S. of supercalendered paper. These challenges will be partially offset by a continued focus on product mix optimization, productivity and cost control, as well as increasing energy self-sufficiency at the Rumford and Powell River mills.