FIBREK ANNOUNCES IMPROVED NET EARNINGS FOR THE FIRST QUARTER OF 2011

TSX: FBK

www.fibrek.com

FIRST QUARTER HIGHLIGHTS

Compared to the first quarter of 2010

  • Sales were down 4.3%, reflecting a decline in RBK export volume
  • Record daily production level at the Saint-Félicien mill resulting from the machine press installation during the fourth quarter of 2010
  • EBITDA margin was 11.9%, up from 11.6% last year
  • Net earnings were up $5.1 million
  • RBK margins negatively impacted by increasing wastepaper prices

CORPORATE DEVELOPMENTS

  • Completed redemption of about 50% of outstanding convertible debentures, resulting in a net debt reduction of $12.5 million
  • Concluded an agreement with a large U.S.-based customer to supply a significant volume of RBK pulp, under a cost-plus arrangement, increasing cost-plus contracts from approximately 30% to above 50% of its sales starting in 2013

LONGUEUIL, QC, May 18 /CNW Telbec/ - Fibrek Inc. (TSX: FBK), a leading producer and marketer of high-quality virgin and recycled kraft pulp, announced today its results for the first quarter ended March 31, 2011, in accordance with the newly adopted International Financial Reporting Standards (IFRS).  All results are in Canadian dollars unless otherwise stated.

CONSOLIDATED RESULTS

(in thousands of Canadian dollars except per share figures) Three months ended March 31 (unaudited)
  2011 2010
Sales 132,083 138,089
EBITDA(1) 15,779 16,072
Profit from operations 6,668 7,304
Net earnings (loss) 3,457 (1,672)
Net earnings (loss) per share(2)
Basic
Diluted
0.03
0.03
(0.02)
(0.02)

Commenting on these results, Pierre Gabriel Côté, President and Chief Executive Officer, indicated: "Prices in the NBSK pulp market were up from 2010 high closing levels, and were up 10% over the first quarter of last year. These increases enabled us to improve our NBSK EBITDA margin to almost 21% from 17% last year, even while facing a currency headwind. However, the gains of the NBSK segment were offset by the decline in the RBK segment performance, as these market conditions remained very challenging. While we are taking a variety of actions to address these issues, a number of initiatives are not short-term in nature and thus will take some time for results to be evident. Meanwhile, we continue to deleverage our capital structure, further strengthening our balance sheet and positioning ourselves to take advantage of future opportunities."

Transition to IFRS

Fibrek's unaudited condensed consolidated interim financial statements for the quarter ended March 31, 2011 have been prepared using IFRS. Amounts relating to the year ended December 31, 2010 have been restated to reflect the adoption of IFRS. Details of the significant accounting differences can be found in our first quarter MD&A and notes to our interim financial statements.

FIRST QUARTER 2011
In the first quarter of 2011, consolidated sales reached $132.1 million, a reduction of $6.0 million when compared with sales of $138.1 million in the first quarter of 2010. This decrease is mainly attributable to a lower sales volume, almost entirely RBK pulp, of $10.5 million and an unfavourable exchange rate of $7.3 million, which were partially offset by higher pulp prices and a favourable sales mix of $11.8 million.

Cost of products sold totalled $103.0 million in the first quarter of 2011, a reduction of $5.6 million when compared with the corresponding period of 2010. This decrease is primarily due to a lower sales volume of $8.2 million and the impact of the exchange rate on our U.S. operating costs, which were partially offset by higher input prices, such as wastepaper, wastepaper yield and maintenance expenses.

EBITDA for the first quarter of 2011 was $15.8 million (or 11.9% of sales), compared with $16.1 million (or 11.6% of sales) for the corresponding period of 2010.

Net earnings of $3.5 million were recorded in the first quarter of 2011, compared with a net loss of $1.7 million in the corresponding period of 2010.

Net earnings per share amounted to $0.03 (basic and diluted) in the first quarter of 2011, compared with a net loss per share of $0.02 (basic and diluted) in the corresponding period of 2010. In the first quarter of 2011, an average of 130,075,556 shares were outstanding, compared with 90,472,708 for the first quarter of 2010.

SEGMENT REVIEW

NBSK Pulp Results

(in thousands of Canadian dollars except per share figures) Three months ended March 31 (unaudited)
  2011 2010
Sales 72,226 70,239
EBITDA(1) 15,107 12,177
Profit from operations 7,403 4,869

FIRST QUARTER 2011
Sales for the first quarter ended March 31, 2011 totalled $72.2 million, compared with $70.2 million for the corresponding period of 2010, representing an increase of $2.0 million. This increase is attributable to higher pulp prices of $6.3 million, which were partly offset by a stronger Canadian dollar compared to the U.S. currency of $4.0 million and a lower sales volume of $0.3 million.

NBSK market pulp price (for pulp delivered in North America) was higher by US$90 per tonne or 10% on average during the first quarter of 2011 when compared with the corresponding quarter of 2010. The increase in NBSK market pulp prices, was partly offset by a stronger Canadian dollar, when compared with the first quarter of 2010, resulting in an average sales price of $956 per tonne, $40 per tonne above the average sales price recorded in the corresponding quarter of 2010.

The NBSK pulp sales volume totalled 90,199 tonnes in the first quarter of 2011, a decrease of 405 tonnes when compared with 90,604 tonnes for the corresponding period of 2010. The relatively stable sales volume was mainly attributable to sustained good market conditions.

Production at the Saint-Félicien Mill during the first quarter ended March 31, 2011, totalled 93,595 tonnes, compared with 88,515 tonnes for the first quarter of 2010. The increase in production volume was due to better productivity following the installation of a machine press in November 2010.

RBK Pulp Results

(in thousands of Canadian dollars except per share figures) Three months ended March 31 (unaudited)
  2011 2010
Sales 59,857 67,850
EBITDA(1) 672 3,895
(Loss) profit from operations (735) 2,435

FIRST QUARTER 2011
For the first quarter ended March 31, 2011, the RBK pulp segment recorded sales of $59.9 million, compared with $67.9 million for the corresponding period of 2010. This reduction of $8.0 million is mainly attributable to a lower sales volume of $9.6 million and an unfavourable exchange rate of $3.3 million, which were partly offset by higher net realized pulp prices of $4.9 million.

The RBK pulp sales volume reached 83,193 tonnes, compared with 96,547 tonnes for the corresponding period of 2010. This reduction is mainly due to a lower export sales volume in 2011. RBK pulp average sales prices increased by 8%, compared with the corresponding period of 2010, mainly driven by higher wastepaper prices. However, as a result of a stronger Canadian dollar, sales per tonne only increased by 2% for the quarter.

Production at the Fairmont and Menominee Mills totalled 91,651 tonnes for the quarter, compared with 87,584 tonnes for the corresponding quarter of 2010. The increase in production volume was due to more operating time in 2011.

CASH FLOW AND FINANCIAL POSITION
Operations generated $6.4 million of cash flow in the first quarter of 2011, compared with $15.1 million in the first quarter of 2010. Working capital used $7.7 million of cash flow compared with cash generated of $0.9 million in the first quarter of 2010.

As at March 31, 2011, the ratio of total debt to total capitalization was 20.4%, compared with 22.2% at the beginning of the quarter, clearly demonstrating Fibrek's objective to reduce debt. Our term loan provides for an exclusion of up to $150 million of equity reduction following the adoption of IFRS. Considering the equity reduction, the total debt to total capitalization ratio would have been 27.1% as at March 31, 2011.

CORPORATE DEVELOPMENTS

Redemption of Convertible Debentures
Fibrek redeemed approximately 50% of its outstanding 7% convertible debentures maturing on December 31, 2011, representing an aggregate principal amount of $25,874,000, on February 28, 2011. These debentures were redeemed using available funds at a price equal to the principal amount, plus accrued and unpaid interest, for a total of $26.2 million.

Conclusion of an Important Agreement for RBK Pulp
The Company concluded an agreement with a large U.S.-based customer to supply significant volumes of RBK pulp under a cost-plus arrangement, which will increase its cost-plus contracts from approximately 30% to above 50% of its sales starting in 2013.

OUTLOOK

"The NBSK pulp market remained tight throughout the first quarter and fundamentals continue to be favourable, with global softwood inventories at 24 days and increased downtime just ahead as we approach the heavy upcoming spring maintenance season. At our Saint-Félicien mill, a four day unscheduled shutdown was required in April to repair a leaking tube at the recovery boiler. We took this opportunity to perform minor maintenance, thus eliminating the need for our usual spring shutdown.

The RBK pulp markets continue to be negatively impacted by peaking wastepaper prices and low prices in the hardwood kraft pulp market. We continue to focus on increasing margins of the RBK business through product development, improving the sales mix and increasing the amount of cost-plus business.

Prevailing raw material market conditions are pressuring our input costs, however, good demand for both our virgin and recycled pulps supports a strong pricing environment," said Pierre Gabriel Côté.

CONFERENCE CALL
Fibrek will hold a conference call on Thursday, May 19, 2011 at 8:30 a.m. (Eastern time), to discuss its results. President and Chief Executive Officer, Pierre Gabriel Côté, and Patsie Ducharme, Vice President and Chief Financial Officer, will host a conference call followed by a question-and-answer session. Members of the financial community will be able to access the conference call and ask questions. Media representatives may attend as listeners only. To participate in the conference call, investment professionals and business media may dial 416-644-3425 (for all Toronto and overseas participants) or 1-800-732-1073, access code 4438827# (for all other North American calls). Participants not able to listen to the live call can access a replay by calling 1-877-289-8525, access code 4438827#. The replay will be available from Thursday, May 19, 2011, 1:00 p.m. until Thursday, May 26, 2011, 11:59 p.m.

About Fibrek
Fibrek (TSX: FBK) is a leading producer and marketer of high-quality virgin and recycled kraft pulp.  The company operates three mills located in Saint-Félicien, Québec, Fairmont, West Virginia, and in Menominee, Michigan with a combined annual production capacity of 760,000 tonnes. Fibrek has approximately 500 employees. The Saint-Félicien mill provides northern bleached softwood kraft pulp (product known as NBSK pulp) to various sectors of the paper industry mainly in Canada, the United States and Europe, for use in the production of specialized products. The Fairmont and Menominee mills manufacture air-dried recycled bleached kraft pulp (product known as RBK pulp) and primarily supply manufacturers of fine uncoated paper, tissue paper for commercial and industrial uses, and coated paper in the United States

Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of applicable securities laws. These statements include, but are not limited to, statements about completion of the Hydro Québec project on budget or on schedule, expected collection of accounts receivable, expected capital expenditures, estimated sufficiency of wood fibre deliveries, expected sufficiency of cash flows to fund operating needs and capital expenditures and to meet contractual obligations, recoverability of capital assets and similar statements concerning Fibrek's future outlook, business strategy, plans, expectations, results or actions, or the assumptions underlying any of the foregoing. Forward-looking statements can generally be identified by words such as "may", "should", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "outlook" and similar expressions. These statements are based on information currently available to Fibrek's management ("Management") and on the current assumptions, intentions, plans, expectations and estimates of Management regarding Fibrek's future growth, results of operations, performance, business prospects and opportunities and ability to attract and retain customers as well as the economic environment in which it operates. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors which could cause actual results of Fibrek to differ materially from the conclusion, forecast or projection stated in such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to: general economic conditions, pulp prices and sales volume, exchange rate fluctuations, cost and supply of wood fibre, wastepaper and other raw materials, pension contributions, competitive markets, dependence upon key customers, increased production capacity, equipment failure, disruptions of production, capital requirements, labour relations and other factors referenced in Fibrek's continuous disclosure filings which are available on SEDAR at www.sedar.com. Readers should not place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this press release, and, except as required by applicable securities laws, Fibrek assumes no obligation to update or revise them to reflect new events or circumstances.

Note to readers: Complete unaudited condensed consolidated financial statements and Management's Discussion & Analysis are available on the Company's web site at: www.fibrek.com and SEDAR web site at: www.sedar.com.

Fibrek Inc.
Financial Highlights - First quarter ended March 31, 2011

     
(in thousands of Canadian dollars except per share figures) Three months ended
  March 31
  2011 2010
(unaudited) $ $
Sales 132,083 138,089
Cost of products sold 102,970 108,573
Delivery costs 10,015 10,252
Selling and administrative expenses 3,319 3,192
EBITDA(1) 15,779 16,072
Amortization 9,111 8,768
Profit (loss) from operations 6,668 7,304
Finance expense 3,497 4,672
Finance income (152) (2)
(Gain) loss on derivative instruments (1,965) 2,248
Loss (gain) on disposal of property, plant and equipment 10 (13)
Loss on foreign currency translation 1,821 2,071
Net earnings (loss) 3,457 (1,672)
Net earnings (loss) per share(2)
- Basic
- Diluted
0.03
0.03
(0.02)
(0.02)
     
     
Financial Position    
(in thousands of Canadian dollars) As at
  March 31, December 31,
(unaudited) 2011 2010
Cash & Cash Equivalent 10,196 16,421
Accounts Receivable 74,076 68,424
Inventories 78,690 77,187
Property, Plant and Equipment 373,012 382,609
Total Consolidated Assets 540,856 555,900
Accounts Payable and Accrued Liabilities 53,060 56,092
ABL Credit Facility 13,887 -
Long-term Debt 82,242 82,798
Equity 334,883 335,273

(1) References to "EBITDA" are to earnings before amortization, financial charges and income taxes and also before other non-operating income and expense such as gain or loss on derivative instruments, disposal of capital assets and foreign currency translation.  EBITDA is not a recognized measure under IFRS and is unaudited. Management believes that this measure is useful supplemental information as it provides investors with an indication of cash available for distribution prior to debt service, capital expenditures and income taxes.  Investors should be cautioned however that this information should not be confused with or used as an alternative for net earnings determined in accordance with IFRS as an indicator of Fibrek's performance or cash flows from operating, investing and financing activities as a measure of liquidity and cash flows. Fibrek's method for calculating this information may differ from that used by other issuers and, accordingly, this information may not be comparable to measures used by other issuers. EBITDA shown herein represents earnings before amortization, financial charges, other non-operating income and expense as well as income
(2) The average number of shares outstanding in the first quarter of 2011 was 130,075,556, compared with 90,472,708 in the first quarter of 2010, the difference being attributable to a common share issuance completed in July 2010.

 

 

 

SOURCE FIBREK INC.

For further information:

Investor Relations: Patsie Ducharme (450) 442-8884
  Vice President and Chief Financial Officer
     
Media Relations: Dany Paradis (450) 442-8882
  Vice President, Change Management and Supply Chain

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FIBREK INC.

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