Q2 2020 EARNINGS CALL | August 7 th , 2020 DOMTAR CORPORATION SECOND QUARTER 2020 EARNINGS CALL August 7 th , 2020 (All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)
Q2 2020 EARNINGS CALL | August 7 th , 2020 SAFE HARBOR Forward-Looking Statements All statements in this presentation about our plans, expectations and future performance, including the statements under “Outlook” and under “Strategic Initiatives,” are “forward-looking statements.” Actual results may differ materially from those suggested by these statements for a number of reasons, including the COVID-19 pandemic and the resulting decrease in paper sales and the challenges we face in maintaining manufacturing operations, changes in customer demand and pricing, changes in manufacturing costs, future acquisitions and divestitures, including facility closings, the failure to achieve our cost containment goals, costs of conversion in excess of our expectations, demand for linerboard, and the other reasons identified under “Risk Factors” in our Form 10-K for 2019 as filed with the SEC and as updated by subsequently filed Form 10-Qs. Except to the extent required by law, we expressly disclaim any obligation to update or revise these forward-looking statements to reflect new events or circumstances or otherwise. . Risk Factors For a summary of the risk factors, please refer to Domtar’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission and as updated by subsequently filed Form 10-Q’s. Non-GAAP Financial Measures This presentation refers to non-GAAP financial information. For a reconciliation to GAAP financial measures, please refer to the investors section of the company’s website at http://www.domtar.com (Refer to Earnings in the Investor Relations section of the website).
Q2 2020 EARNINGS CALL | August 7 th , 2020 OVERVIEW Second Quarter 2020 Highlights Implemented various actions to maintain financial flexibility and reduce costs Announced several key strategic initiatives that will help best position Domtar for the future Paper business impacted by significantly lower demand and market-related downtime costs Strong demand in certain pulp end-use markets including tissue, towel and hygiene Solid EBITDA margin quarter in Personal Care 3
Q2 2020 EARNINGS CALL | August 7 th , 2020 2020 OUTLOOK Expect the overall environment to continue to be challenging Paper demand expected to remain weak, with some recovery expected in the third quarter and towards year-end Near-term pulp markets will be impacted by seasonal softness, elevated global inventories, and weak demand trends from paper end- markets Personal Care will continue to benefit from the impact of new customer wins and productivity gains Overall raw material costs are expected to remain stable 4
Q2 2020 EARNINGS CALL | August 7 th , 2020 FINANCIAL HIGHLIGHTS Second Quarter 2020 Net earnings of $0.34 per share, earnings before items * of $0.36 EBITDA before items * of $91 million Cash flow from operating activities of $67 million Capital expenditures of $40 million Free cash flow * of $27 million Net debt-to-total capitalization ratio * at 30% as of June 30, 2020 Total liquidity of $906 million at quarter-end *Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website) 5
Q2 2020 EARNINGS CALL | August 7 th , 2020 EARNINGS STATEMENT 2Q’20 vs. 1Q’20 (in millions of dollars) 1Q’20 2Q’20 Lower Paper and Personal Care Sales 1,278 1,012 sales Cost of sales 1,083 837 Depreciation and amortization 72 71 SG&A 102 93 Closure and restructuring costs - 1 Other operating (income) loss, net 2 (4) Operating income 19 14 Interest expense, net 14 15 Non-service components of net periodic benefit cost (4) (5) Mix of earnings, additional tax Income tax expense (benefit) 3 (15) credits and CARES Act Equity loss, net of taxes 1 - Net earnings 5 19 6
Q2 2020 EARNINGS CALL | August 7 th , 2020 CASH FLOW STATEMENT 2Q’20 vs. 2Q’19 (in millions of dollars) 2Q’19 2Q’20 Net earnings 18 19 Depreciation and amortization 74 71 Deferred income taxes and tax uncertainties 2 (13) Impairment of long-lived assets 15 - Changes in assets and liabilities Changes in working capital 7 (9) Other 3 (1) Cash flows from operating activities 119 67 Additions to PP&E (55) (40) Proceeds from disposal of PP&E 1 - Acquisition of business, net of cash acquired - (30) Cash flows used for investing activities (54) (70) Dividend payments and stock repurchases (36) (25) Changes in borrowings (31) - Other - (1) Cash flows used for financing activities (67) (26) 7
Q2 2020 EARNINGS CALL | August 7 th , 2020 EBITDA BEFORE ITEMS * 2Q’20 vs. 1Q’20 ( in millions of dollars) 5 2 5 16 32 Energy: 5 41 Personal Care: 1 Fiber: (1) (61) Wage subsidy: 25 Non-production Paper: (49) agreement: 7 (43) (1) Personal Care: (8) Pulp: (4) 95 91 1Q'20 Maintenance Other Fixed costs Raw materials SG&A FX Volume/ mix Productivity Selling prices 2Q'20 *Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website) 8
Q2 2020 EARNINGS CALL | August 7 th , 2020 PULP AND PAPER SEGMENT (in millions of dollars) 2Q’20 vs. 1Q’20 vs. 2Q’19 22% 27% Sales $802 EBITDA before items * $66 $58 COVID-related restrictions, closures and the resulting impact on consumer mobility had a significant effect on paper demand Made several adjustments to our mill operations to mitigate the impact of lower paper demand including 297,000 of market downtime Reduced paper inventory by 22,000 tons in Q2 and 52,000 tons year-to-date. Strong pulp demand from end-use markets such as tissue, towel & personal care *Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website) 9
Q2 2020 EARNINGS CALL | August 7 th , 2020 PULP AND PAPER SEGMENT PAPER (in millions of dollars ) 2Q’20 vs. 1Q’20 vs. 2Q’19 34% 36% Sales $512 $41 EBITDA before items * $59 $56 2Q’20 vs. 1Q’20 vs. 2Q’19 Shipments 32% 33% 459 (manufactured, in thousands of short tons) $16 Transaction prices $55 (US$ / ton – net, all regions) *Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website) 10
Q2 2020 EARNINGS CALL | August 7 th , 2020 PULP AND PAPER SEGMENT PULP (in millions of dollars) 2Q’20 vs. 1Q’20 vs. 2Q’19 Sales 4% $290 12% (incl. intersegment sales) $2 EBITDA before items * $7 $41 2Q’20 vs. 1Q’20 vs. 2Q’19 Shipments 427 10% 15% (in thousands of ADMT) Transaction prices $126 $17 (US$ / ADMT – net, all regions) As a result of changes in our organization structure, we have changed our segment reporting. Starting January 1, 2020, our materials business EAM, a manufacturer of high quality airlaid and ultrathin laminated cores, previously reported under our Personal Care segment is now presented under our Pulp and Paper segment. Prior period segment results have been restated to the new segment presentation with no significant impact on segment results. 11 * Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website)
Q2 2020 EARNINGS CALL | August 7 th , 2020 PULP AND PAPER SEGMENT INVENTORIES PAPER PULP (Sequential variations in thousands of tons) (Sequential variations in thousands of metric tons) 34 24 24 22 17 17 15 (2) (2) (7) (9) (15) (19) (22) (30) (36) 3Q'18 4Q'18 1Q'19 2Q'19 3Q'19 4Q'19 1Q'20 2Q'20 3Q'18 4Q'18 1Q'19 2Q'19 3Q'19 4Q'19 1Q'20 2Q'20 12
Q2 2020 EARNINGS CALL | August 7 th , 2020 PERSONAL CARE SEGMENT (in millions of dollars) 2Q’20 vs. 1Q’20 vs. 2Q’19 14% Sales $229 $1 EBITDA before items * $33 $13 14% Same Currency Sales (@ 1Q’20 FX rate) $229 - Same Currency Sales (@ 2Q’19 FX rate) $232 - 2% Lower sequential sales due mostly to pantry loading in Q1’20 Reduced SG&A spend, good cost control and improved operational efficiencies supported a solid EBITDA performance EBITDA margin of 14.4%, which was nearly a 160 basis point improvement when compared to Q1’20 and the highest divisional margin since Q4’15 Good performance in several channels including scale-up of new customer wins 13 * Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website)
Q2 2020 EARNINGS CALL | August 7 th , 2020 MAINTENANCE COSTS (in millions of dollars) 150 135 128 124 124 106 94 94 1Q 2Q 3Q 4Q 2019 Actual 2020 Actual/ Estimate Total maintenance costs includes planned maintenance, maintenance over $100k outside of planned shutdown period, and day-to-day maintenance expenses in Pulp and Paper 14
Recommend
More recommend
