Northern Timber Nova Scotia Corp. – Q3 Review 2010
Wayne Gosse, Chief Executive and Chief Financial Officer
Northern Timber Nova Scotia Corporation (“Northern Timber” or the “Company”) owns approximately 420,000 acres of timberland in Nova Scotia, which it acquired in a transaction with Neenah Paper Company of Canada in March 2010.
The Company’s largest revenue source is from the sale of standing timber stumpage through a Stumpage Agreement with an affiliate, Northern Pulp Nova Scotia Corporation (“Northern Pulp”). In addition, the Company receives revenue from land use activities such as campsites, cell towers and gravel pit leases. The Company recognizes depletion expense on its land as the standing timber is sold. Adjusted EBITDA for Q3 2010 was positive and liquidity remains strong, with positive cash balances at quarter’s end. Average monthly sales volumes are expected to be lower in Q4, reflecting seasonally lower production rates.
Northern Pulp Nova Scotia Corp. – Q3 Review 2010
Tim Lowe, Chief Executive
Northern Pulp Nova Scotia Corporation (“Northern Pulp,” the “Company” or the “Mill”) had two recordable safety incidents in Q3 2010, yielding a year-to-date recordable incident rate of 1.92, which is better than the Mill’s target of 2.00. The Mill’s 12-month rolling RIR is 1.44. The Company continues to focus on safety on a daily basis through the ongoing promotion of its SAFESTART program. The Company is also developing a new safety management system (“SMS”), which it expects to introduce either in late 2010 or early 2011.
During Q3, demand from China declined and there were also three mill restarts in Canada — two in British Columbia and one in Ontario — resulting in an increase of approximately 1 million tonnes of pulp into the marketplace. In addition, Chile appeared to have experienced a full recovery from its February earthquake disaster with the exception of one mill. World inventories of softwood bleached kraft pulp grew by approximately eight days in August and September, while the Canadian dollar remained strong.
The Mill achieved a number of production records in the quarter, including best quarterly production; best monthly production; and the best five daily production days ever. Year-to-date, the Mill improved its daily production run-rate. Mill reliability also improved from 78.4% in 2009 to 91.5% in 2010.
Adjusted EBITDA for Q3 2010 was strong. Work continued on a number of cost saving initiatives identified under the Mill’s Continuous Improvement Program. Substantial savings in energy usage continued to be realized and chemical consumption improvements were also achieved.
In Q3, considerable effort went into advancing the Green Transformation Program projects that are funded by our grant from the Canadian government. The identified projects have been clustered into three primary groups: odor reduction; improvements to the recovery cycle; and a power boiler upgrade. In addition, the Mill continued to move forward on a proposed renewable energy project.
Looking forward, pulp prices are expected to soften in Q4 and into next year as a result of mill restarts and a potential slowdown in economic recovery. The strong Canadian dollar and high fiber costs represent the greatest risks to the business at this time.
A Report to our Partners, Investors, Employees and Friends
We are pleased to report that our family of businesses continued to post strong operating and financial results in Q3 2010 and that we significantly expanded our international footprint.
The last several months have been transformative for Atlas — we acquired the global AGI media packaging business from MeadWestvaco Corporation and, in early November, our newly formed Detroit Renewable Energy LLC acquired Detroit Thermal, LLC and a very large energy-from- waste facility — critical infrastructure and power generation assets in Detroit, Michigan. In addition, we added key players as Operating Partners and to our management team to support our new endeavors.
Safety performance was consistent with Q2 2010 levels, marking our best two consecutive quarters since inception. Notably, Bridgewell has ZERO recordable incidents to date for 2010, and RedBuilt, Chester Wood Products and Moncure had ZERO recordable incidents for Q3.
On November 4, Finch Paper hosted our annual cross-company Atlas Safety Committee, which convened to discuss best practices to prevent repetitive motion injuries and to review progress on the implementation of each company’s 5-year safety plan. Led by Operating Partners Bill Corbin and Lee Alford, we discussed expectations for the 2011 safety plans, which each company will formally present at our Naples meeting in January. We greatly appreciate Bill’s and Lee’s contribution to our effort to achieve world-class safety performance and also want to thank Joe Raccuia, Sandy LeBarron and the entire Finch Paper team for hosting a first-class event.
From our visit and tour of the mill, it is clear that Finch is undergoing a radical cultural transformation from its historic “command and control” management style to an environment of employee engagement, empowerment and accountability. Nowhere does a transition of this sort show up more quickly than in safety performance, and Finch has a safety track record in 2010 that is second to none. We will set aside some time at our Naples meeting for the Senior Leadership Team of Finch to share some of their “war stories” on this front.
The overall financial performance of our businesses in Q3 2010 exceeded Q2 2010 levels, buoyed by particularly strong performances from Northern Pulp, Forest Resources (both Hartford City Paper and Canampac), Finch Paper and Phoenix International Services. In each case, operating performance was excellent and improving market conditions supported strong sales and margins. Capital Equipment Resources’ performance accelerated modestly as order rates for spare parts and new equipment increased in line with the slow recovery in global manufacturing. After a very strong Q2 driven by short-term supply disruptions caused by the Chilean earthquake and wet weather in the U.S. South, market conditions and, consequently, financial performance, for Wood Resources deteriorated in Q3 as the residential and commercial construction markets in the U.S. remained anemic. As well, in this challenging construction environment, RedBuilt continued to struggle to fill its order book. Notwithstanding a disappointing Q3 from a financial performance standpoint, both Wood Resources and RedBuilt are very well managed and highly competitive businesses that are poised to capture the market upturn when it inevitably occurs.
On September 30, 2010, we acquired the AGI media packaging businesses from MeadWestvaco Corporation (NYSE: MWV). AGI is a network of global media and entertainment packaging businesses. The AGI businesses specialize in innovative packaging for Blu-ray discs, DVDs and video games. Principal operations are in the U.S., U.K., Austria, France, Ireland, Germany, Poland, the Netherlands and Australia.
This acquisition is consistent with our investment strategy. It leverages our extensive operating expertise in the packaging sector and we were able to acquire the business at compelling value, arguably well below the intrinsic value of the enterprise. This “bargain purchase” was facilitated, in part, because of the complex transition required to move AGI from a large corporate parent to a stand-alone operation. We would like to thank Mark Caines, CEO of Boehmer Box, for assisting in the due diligence and transition of the business.
While not a Q3 event, in early November we completed the simultaneous acquisitions of (i) Detroit Thermal, LLC, the City of Detroit’s underground district heating system, (ii) a Detroit- based energy-from-waste plant that produces power for sale to DTE Energy and steam for Detroit Thermal and (iii) several other ancillary businesses. These businesses, which we now operate as Detroit Renewable Energy LLC (“DRE”), control a group of assets critical to the infrastructure of Detroit and we believe that their linkage under common ownership, together with our commitment to revitalize the assets, creates an opportunity for significant long-term value.
The extraordinary complexity of the transaction, which required us to manage and resolve environmental, operational, technical, political and union issues, provided a pathway to purchase the subject businesses at a deep discount to intrinsic value, notwithstanding the growing appetite of many institutional investors for infrastructure businesses. DRE is also a natural extension of Atlas’ core competencies in that it leverages significant operating expertise and experience managing power generation and steam assets that we have garnered at our industrial businesses.
We have added a number of key players to the Atlas team and have repositioned others to manage our growth. In that regard, we are very excited to have named our Operating Partner Jim Toya as Bridgewell’s new Chairman, Operating Partner Bill Corbin as Wood Resources’ new Chairman and Henrik Jensen as the new CEO of Capital Equipment Resources. We are also very pleased to have had several of our most recently added Operating Partners join us in the diligence phase, and subsequently in the management and oversight, of DRE. We couldn’t be happier to welcome these Operating Partners and the 1500+ employees of AGI and DRE to the Atlas family.
As we look forward to the U.S. Thanksgiving holiday, we reflect on the many things for which we are grateful. We have a strong group of companies, terrific managers, Operating Partners and employees and a growing pipeline of investment opportunities that we are assessing.
We appreciate your hard work and support.
Sincerely,
Andrew Bursky
Managing Partner
To contact Andy by email, please click here
Timothy Fazio
Managing Partner
To contact Tim by email, please click here
New Atlas Leaders
About Bill Corbin
Bill Corbin, a former Executive Vice President of Weyerhaeuser Company, was a member of the Board of Managers of Wood Resources before being appointed Chairman of the Board.
“Bill’s background in wood products, timber resources and business management has already had a tremendous impact on Wood Resources,” said Andrew M. Bursky, Chairman of Atlas Holdings, at the time of the appointment. “We are excited and privileged that Bill has agreed to serve as Chairman and we look forward to the contributions he will continue to make to our business.”
Mr. Corbin held the position of Executive Vice President, International and Industrial Wood Products of Weyerhaeuser Company until his retirement in 2006. Previously, Mr. Corbin had served as Executive Vice President, Wood Products; and Executive Vice President, Timberlands and Distribution, for Weyerhaeuser.
Before joining Weyerhaeuser, Mr. Corbin held senior positions at Crown Zellerbach Corporation and International Paper Company. He is also a member of the Board of Directors of Con- way Inc., a publicly traded transportation and logistics company, and serves on the Boards of Managers of Bridgewell Resources LLC and RedBuilt LLC, two members of the Atlas Holdings group of companies.
About Henrik Jensen
Henrik Jensen joins the Pangborn Group as President and Chief Executive Officer after a distinguished career with Sauer-Danfoss, where he served as Managing Director, Executive Vice President and President of the Work Function Division. In this capacity, Mr. Jensen led an international team of more than 3,000 employees serving the mobile equipment market with advanced systems for the distribution and control of power.
Andrew M. Bursky, Chairman of Capital Equipment Resources, said everyone at the Pangborn Group is excited that Mr. Jensen is joining the team. “Henrik has a successful track record leading high-performance global management teams, and his background in the industries the Pangborn Group serves will be a huge benefit as we broaden our products and services offerings across the globe,” Mr. Bursky said. “Henrik’s contagious enthusiasm, deep integrity and proven effectiveness are invaluable assets as he takes the helm of our strong management team. We look forward to working with Henrik over the coming months and years.”
In his career with Sauer-Danfoss, Mr. Jensen held positions in sales, marketing, engineering and general management and was responsible for operations in the U.S., Brazil, Eastern and Western Europe, China and India. Mr. Jensen holds a B.S. in mechanical engineering from the University of Southern Denmark, an S.E.P. from the London School of Business, and an M.B.A. from the Duke University School of Business.
About Jim Toya
Jim Toya began his career as a certified public accountant before earning a master’s degree in finance from the Wharton School of Business. He worked 18 years for Credit Suisse Group, holding various roles in sales, trading and management.
“Jim has a track record of building successful, globally focused trading organizations and shares our vision of reinvigorating a strong, decades-old culture based on merit and entrepreneurism,” Atlas Holdings Chairman Andrew Bursky said. “Having Jim actively engaged in Bridgewell is an exciting development for the organization.”
Mr. Toya spent the last 5 years of his tenure at Credit Suisse Group as co-head of the U.S. interest rates products division and as a member of the fixed income operating committee. Mr. Toya recently retired to become more engaged as an Operating Partner of Atlas Holdings.
“I am extremely excited to have the opportunity to work with the talented people who comprise Bridgewell Resources,” Mr. Toya said. “The organization shares my core beliefs that by focusing on customers first and foremost and offering value-added services everyday you can build a global enterprise that creates wealth for both owners and employees. Bridgewell already has some world-class divisions and its unique platform affords us a tremendous opportunity to explore new products and global markets that fit well with our core competencies.”
