Paper products CEO says industry in for slow recovery, massive overhaul

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TORONTO - Ever since Richard Garneau began his tenure as chief executive of Catalyst Paper (TSX:CTL) in 2007, he has watched the prices of its products plummet beyond anything he'd experienced over his 30 years in the industry.

Garneau has guided the Vancouver-area company through one of the most brutal slumps in the pulp and paper industry.
Demand for newsprint has collapsed and prices and profitability in the industry has deteriorated, due to the rise of digital media, and aggravated by the recession.
And Garneau said it's unlikely the industry will ever return to 2005 levels of consumption.
"I'm no fool that in 2010 we're going to see improvement," said Garneau, who announced last week that he will be leaving the company in April.
"I think it may take probably another year before we see a recovery."
The Forest Products Association of Canada is expected to release Monday the findings of a study recommending a course of action for the industry's survival.
Lower demand is expected to be permanent given the loss of newspaper advertising and circulation as electronic media continues to rise.
Meanwhile, Garneau's departure to deal with family issues at home in Quebec means he will not be able to complete his goal of reshaping Catalyst into a company with a sustainable future.
But given the problems Garneau faces as head of one of the country's largest paper makers, he says his semi-retirement seems like "an eternity away."
Garneau is renowned for his unwavering commitment to cost-cutting and he has pledged to work as intensely as ever during his last three months at the company.
"Every day you have to look at how you do things and you have to always ask the question: is there a better way to do it? Is there a cheaper way...it's the only way basically to ensure you're going to be there long term."
Garneau's most dramatic effort to reduce costs was orchestrating a tax revolt in B.C. municipalities where the company claimed it was being charged unfair rates while being hammered by the recession.
Catalyst had been paying $23 million a year in taxes in four B.C. municipalities, but Garneau cut that down to $6 million. The move garnered strong support from other industrial taxpayers.
Garneau said that if B.C. wants to maintain its industrial base, the tax issue will have to be resolved quickly.
Paul Quinn, a paper and forestry analyst at RBC Capital Markets said taxes on the B.C. coast are some of the highest in the country.
"Over time you've seen decreased economics from those mills and those mills losing money but there's no change in terms of the tax base where the mills pay the vast majority of the tax base in those communities," Quinn said.
Garneau has also sought contentious concessions from Catalysts' paper workers union that he says are necessary to the company's survival. He continues to lobby for a deal that changes working conditions to save the company $80 a tonne in production costs.
Quinn said Garneau successfully reduced staffing levels, changed benefits and scheduling, to reduce labour costs.
"I think Richard and his team did a great job in communicating to the workers that 'this isn't sustainable, we can't keep losing money year after year with employment levels staying put."
Despite industry-wide union concessions, a recovery isn't coming soon enough for hundreds of Canada's forestry workers who have watched employment slide 9.5 per cent from 90,700 in 2008 to an estimated 82,000 in 2009.
Figures from the Conference Board of Canada predict employment will fall to 77,000 jobs in 2010. The report said the industry's capacity utilization rate has fallen to 73.1 per cent, its lowest point since 1975.
Forestry firms have cut capacity by as much as 50 per cent, but the decline in demand has been so rapid that they could not make cuts quickly enough. As a result, they have closed mills and laid off hundreds of workers to try to stave off deeper losses.
The Conference Board estimates that the paper products industry lost $1.2 billion in 2009, and will lose another $227 million in 2010, marking the eighth year in a row that the sector has lost money overall, with a cumulative loss of more than $4 billion.
Garneau agreed that pulp and paper companies must now make an extraordinary switch if they want to survive.
"With the recession you have to have a different mind set, you have to put in your mind that you produce only what your customers are willing to buy."

Organizations: Catalyst Paper, TSX, Forest Products Association of Canada RBC Capital Markets Conference Board of Canada

Geographic location: TORONTO, B.C., Vancouver Quebec Canada

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