Canada’s dollar was already well on its way north when Richard Garneau was appointed president and CEO of Catalyst Paper Corp. (CTL-T) in late March 2007. A veteran executive of major Quebec players including Donohue Inc., Finlay Forest Products and Domtar Inc. (UFX-T), Garneau moved to B.C. in the midst of what some have now billed the worst year ever for the B.C. forest products sector.
The rising loonie hammered Catalyst’s revenues, which dropped 8.9 per cent to $1.7 billion last year, while losses nearly doubled to $31.6 million. When Garneau took the helm of Catalyst, every dollar of U.S. revenue was generating $1.16 in Canadian funds; by November, the U.S. dollar was valued at just 92 cents Canadian. While the currencies have been trading almost on par since then, the loonie has regularly edged into a stronger position – and as Garneau explains, a rise of a cent versus the greenback removes about $12 million of revenue. “[When] you remove 25 to 30 times $12 million, we have lost on the exchange itself over $300 million of revenues.”
Rising energy costs and a shortage of fibre have also boosted production costs, further hurting Catalyst’s competitive position. And then there are the high municipal taxes paid on industrial properties, which Garneau believes discourage new investment and innovation in mills across the province. “Our municipal taxes are way too high in B.C., and that affects our competitive position compared to other jurisdictions in Canada and especially the U.S.,” Garneau says. “It’s an impediment to reinvestment in our facilities.”
What good news there was last year wasn’t entirely good, either: Catalyst trimmed 600 workers from its payroll, which shrank to 3,038 last year, saving itself about $67 million a year. “It’s not good news for the employees,” Garneau concedes. “It’s always difficult for the communities, but it was something we had to do to remain competitive and ensure, long-term, that we will save jobs.” It wasn’t just cost-cutting measures helping to staunch the flow of red ink last year. A focus on specialization also buoyed revenues, exemplified by the recent acquisition of a mill in Snowflake, Arizona, in April 2008. The mill, which uses recycled fibre, granted Catalyst relief from the prevailing shortage of fibre from sawmills and provides a hedge against currency fluctuations. With two-thirds of Catalyst’s paper sold in the U.S., the Arizona mill will be able to serve the U.S. Southwest more effectively.
On the other hand, 2008 will pose challenges. An economic downturn in the U.S. market and the ongoing shift to online media are hurting demand for newsprint and, in turn, Catalyst’s performance. Moreover, consolidation of the industry will continue to pressure existing companies to boost efficiency and to adapt to shifting market conditions. Catalyst’s own plans include increasing automation in its plants, a move that will trim costs and ultimately save more jobs than if upgrades weren’t made. To do so, it will also need to negotiate flexible labour agreements with many of its employees – an issue that will likely be on Garneau’s mind during one of the regular walks he takes with his wife on Vancouver’s Seawall.