Fibrek Reports Fourth Quarter and 2011 Financial Results

TSX: FBK
www.fibrek.com

Compared to 2010:

  • Sales decrease of 3.4% to $537.7 million
  • EBITDA decreased $28.2 million to $41.3 million, EBITDA margin at 7.7%
  • Finished goods inventory write-down of $4.6 million
  • Other non-recurring events (Hydro-Québec power failure and provincial-wide construction union walk-out during the major maintenance outage at Saint-Félicien Mill) of $2.0 million

Compared to the fourth quarter of 2010:

  • Sales decrease of 9.5% to $119.0 million
  • EBITDA decreased $15.2 million to negative $3.5 million
  • Finished goods inventory write-down of $3.9 million
  • Major maintenance outage at Saint-Félicien Mill
  • Other non-recurring events (Hydro-Québec power failure and provincial-wide construction union walk-out during the major maintenance outage at Saint-Félicien Mill) of $2.0 million

Impact of the take-over bid:

  • Fees related to the potential acquisition of a tissue company which was interrupted by the Abitibi unsolicited Insider Bid ($1.0 million in the fourth quarter and $1.7 million for the year)
  • Fees related to the Abitibi unsolicited Insider Bid of $2.0 million
  • Triggered a need to conduct an impairment test which resulted in a $63.0 million write-down of assets in the RBK segment

MONTREAL, Feb. 22, 2012 /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 quarter and year ended December 31, 2011. Results for the quarter and year ended December 31, 2010 have been restated as appropriate to be in accordance with the recently adopted International Financial Reporting Standard (IFRS). All dollar amounts are expressed in Canadian dollars unless otherwise stated.

CONSOLIDATED RESULTS

         
(in thousands of Canadian dollars except per share figures) Three months ended December 31 Year ended December 31
  2011 2010 2011 2010
Sales 119,000 131,454 537,690 556,539
EBITDA(1) (3,482) 11,681 41,259 69,507
Impairment(2) 62,985 - 62,985 -
Net (loss) earnings (79,897) 2,564 (64,031) 16,594
Net (loss) earnings per share        
  - Basic (0.61) 0.02 (0.49) 0.15
  - Diluted (0.61) 0.02 (0.49) 0.12

FOURTH QUARTER 2011

Sales in the fourth quarter of 2011 totalled $119.0 million, compared with sales of $131.5 million for the same period last year. The reduction of $12.5 million in sales is mainly attributable to lower sales volumes in both business segments and lower NBSK sales prices, which were partially offset by higher RBK sales prices and a weaker Canadian dollar compared to the US currency. The total sales volume reached 152,878 tonnes in the fourth quarter of 2011, compared to 169,149 tonnes in the same period of 2010.

Production at the Mills during the quarter ended December 31, 2011 totalled 171,811 tonnes, compared with 166,117 tonnes for the fourth quarter of 2010. The change in production level is attributable to productivity improvements at all Mills in 2011.

Cost of products sold totalled $106.2 million in the fourth quarter of 2011, an increase of $1.3 million when compared with the corresponding period of 2010.

Selling and administrative expenses in the fourth quarter of 2011 totalled $6.7 million, compared with $4.8 million for the fourth quarter of 2010. This increase is attributable to higher consulting fees mainly related to efforts expended by Fibrek to seek out value-maximizing alternatives to the unsolicited insider bid (the "Insider Bid") from Abitibi (as hereinafter defined) as well as to a potential acquisition opportunity in line with the Company's strategy which was interrupted by the Insider Bid.

EBITDA was negative $3.5 million compared to $11.7 million in the fourth quarter of 2010.

Financial expenses decreased from $3.6 million in the fourth quarter of 2010 to $2.5 million in the fourth quarter of 2011. This $1.1 million reduction results mainly from a lower debt level due to the redemption of the Debentures, thereby reducing interest for the fourth quarter of 2011.

In the fourth quarter of 2010, the Company accounted for $5.5 million in gain on settlement of a claim, representing the initial distribution of common shares of Abitibi to the creditors pursuant to the procedures undertaken by Abitibi under the Companies' Creditors Arrangement Act.

In the fourth quarter of 2011, the Company recorded an impairment totalling $63.0 million in the RBK segment. The Insider Bid from Abitibi triggered a need to conduct an impairment test which resulted in a $63.0 million write-down of assets in the RBK segment.

A net loss of $79.9 million was recorded in the fourth quarter of 2011, compared with net earnings of $2.6 million for the corresponding period of 2010. The net loss per share amounted to $0.61 (basic and diluted) in the fourth quarter of 2011, compared with net earnings per share of $0.02 (basic and diluted) in the corresponding period of 2010.

FULL YEAR 2011

In 2011, consolidated sales reached $537.7 million, a decrease of $18.8 million when compared with sales of $556.5 million in 2010. This reduction is mainly attributable to an unfavourable exchange rate for $22.2 million and a lower sales volume for $18.9 million, which were partially offset by higher pulp prices and a favourable sales mix for $22.3 million.

Cost of products sold totalled $436.4 million in 2011, an increase of $4.6 million when compared with the corresponding period of 2010. This increase is primarily due to higher input prices, mainly wastepaper, and a write-down to net realizable value of finished products inventory, which were partially offset by a lower sales volume for $15.4 million and the impact of the exchange rate on our US operating costs.

Selling and administrative expenses in 2011 totalled $17.9 million, compared with $13.8 million in the corresponding period of 2010. This increase is primarily attributable to higher consulting fees mainly related to efforts expended by Fibrek to seek out value-maximising alternatives to the Insider Bid from Abitibi as well as to a potential acquisition opportunity in the tissue sector interrupted by the Insider Bid, for a total of $3.7 million.

EBITDA for 2011 was $41.3 million (7.7% of sales), compared to $69.5 million (12.5% of sales) for the corresponding period of 2010.

Financial expenses decreased from $17.3 million in 2010 to $11.4 million in 2011. This $5.9 million reduction results mainly from a lower debt level due to the redemption of the Debentures, which reduced interest for 2011. In 2010, the Company wrote-off $0.7 million of deferred financing fees following the repayment of the old credit facilities and recorded lower interest accretion on Debentures of $2.4 million.

In 2010, the Company recorded a gain on settlement of a claim totalling $5.5 million related to the claim filed pursuant to the procedures undertaken by Abitibi under the Companies' Creditors Arrangement Act.

In 2011, the Company recorded an impairment totalling $63.0 million in the RBK segment. The Insider Bid from Abitibi triggered a need to conduct an impairment test which resulted in a $63.0 million write-down of assets in the RBK segment.

A net loss of $64.0 million was recorded in 2011, compared with net earnings of $16.6 million in the corresponding period of 2010. The net loss per share amounted to $0.49 (basic and diluted) in 2011, compared with net earnings per share of $0.15 ($0.12 diluted) in the corresponding period of 2010.

SEGMENT REVIEW

NBSK Pulp Results        
(in thousands of Canadian dollars) Three months ended December 31 Year ended December 31
  2011 2010 2011 2010
Sales 61,005 72,042 274,688 284,815
EBITDA(1) 19 8,026 43,841 56,315
(Loss) profit from operations (7,715) 866 13,526 27,645


FOURTH QUARTER 2011

For the fourth quarter of 2011, NBSK pulp sales reached $61.0 million, compared to $72.0 million for the same period of 2010. The sales volume reached 78,453 tonnes, 10,815 tonnes lower than in the corresponding quarter of 2010. The reduction is mainly due to markets softening in the fourth quarter of 2011.

According to Resource Information Systems Inc. ("RISI"), the NBSK market pulp price (for pulp delivered in North America) decreased by US$47 per tonne or 5% on average compared to the fourth quarter of 2010. However, the year-over-year reduction in the value of the Canadian currency compared to the US dollar resulted in an average sales price of $778 per tonne in the fourth quarter of 2011 compared with $807 per tonne in the fourth quarter of 2010.

Production at the Saint-Félicien Mill during the quarter ended December 31, 2011 totalled 77,031 tonnes, compared with 73,057 tonnes for the fourth quarter of 2010. The change in production level is attributable to improved producivity mainly related to the machine press installed in November 2010.

On a per tonne basis, cost of products sold in the fourth quarter of 2011 increased by 6%, when compared with the corresponding period of 2010. The increase is mainly attributable to higher energy costs and the impact of the inventory write-down.

FULL YEAR 2011

Sales for the year ended December 31, 2011 totalled $274.7 million, compared with $284.8 million for the corresponding period of 2010, representing a reduction of $10.1 million. This reduction is attributable to a stronger Canadian dollar compared to the US currrency for $11.3 million and a lower sales volume for $1.8 million, which were partly offset by higher pulp prices for $3.0 million.

According to RISI, the NBSK market pulp price (for pulp delivered in North America) was higher by US$17 per tonne or 2% on average during 2011 when compared with 2010. The increase in NBSK average market pulp price was more than offset by a stronger Canadian dollar when compared with 2010, resulting in an average sales price of $967 per tonne, $22 per tonne below the average sales price recorded in 2010.

The NBSK pulp sales volume totalled 341,441 tonnes in 2011, a reduction of 2,186 tonnes when compared with 343,627 tonnes for the corresponding period of 2010.

During 2011, 11% of our sales of NBSK pulp were realized in Canada, 70% in the United States, 14% in Europe and 5% in other regions. Over the same period last year, these percentages were 14%, 62%, 21% and 3%, respectively.

Production at the Saint-Félicien Mill during the year ended December 31, 2011 totalled 356,043 tonnes, compared with 339,701 tonnes in 2010. The increase in production volume was due to an increase in productivity mainly related to the machine press installed in November 2010.

On a per tonne basis, cost of products sold in 2011 remained at the same level compared with the same period of 2010. Higher chemical and energy costs as well as a finished goods inventory write-down were offset by lower wood fibre costs as well as lower fixed costs per tonne attributable to better productivity.

RBK Pulp Results        
(in thousands of Canadian dollars) Three months ended December 31 Year ended December 31
  2011 2010 2011 2010
Sales 57,995 59,412 263,002 271,724
EBITDA(1) (3,501) 3,655 (2,582) 13,192
(Loss) profit from operations (4,996) 2,263 (8,138) 7,377


FOURTH QUARTER 2011

The RBK pulp sales reached $58.0 million in the fourth quarter of 2011, compared with sales of $59.4 million for the corresponding period of 2010. The sales volume totalled 74,425 tonnes in the fourth quarter of 2011, compared with a sales volume of 79,881 tonnes in the corresponding period of 2010. The reduction is mainly due to markets softening in the fourth quarter of 2011.

Production at the Fairmont and Menominee Mills during the quarter ended December 31, 2011 totalled 94,780 tonnes, compared with 93,060 tonnes for the fourth quarter of 2010. The increase in production volume is attributable to productivity improvements in 2011.

On a per tonne basis, cost of products sold in the fourth quarter of 2011 increased by 18% compared to the same period last year. The increase is mainly due to the inventory write-down.

FULL YEAR 2011

For the year ended December 31, 2011, the RBK pulp segment recorded sales of $263.0 million, compared with $271.7 million for the corresponding period of 2010. This reduction of $8.7 million is mainly attributable to a lower sales volume for $16.7 million and an unfavourable exchange rate for $10.9 million, which were partly offset by higher net realized pulp prices for $18.9 million.

The RBK pulp sales volume reached 346,481 tonnes in 2011, compared with 368,538 tonnes for 2010. In 2011, RBK pulp average sales prices increased by 7% (3% when translated in Canadian dollars) compared with 2010.

During 2011, 86% of RBK pulp sales were realized in the United States, 10% in Europe and 4% in other regions. Over the same period last year, these percentages were 80% in the United States, 10% in Europe and 10% in other regions.

Production at the Fairmont and Menominee Mills totalled 370,822 tonnes in 2011, compared with 360,543 tonnes in 2010. The increase in production volume was due to improved productivity in 2011.

On a per tonne basis, cost of products sold for 2011 increased by 9%, compared with the same period of 2010. Wastepaper price increases represented almost the total of the increase. Other factors, such as a finished goods inventory write-down, were partly offset by the impact of the stronger Canadian dollar on the US dollar mills' costs.

TAKE-OVER BID

On November 28, 2011, AbitibiBowater Inc., doing business as Resolute Forest Products ("Abitibi") announced its intention to make an Insider Bid to purchase all outstanding common shares of Fibrek (the "Common Shares") for a consideration per Common Share of $1.00 payable in cash only, in Abitibi shares only, or a combination of both. On December 15, 2011, Abitibi officially launched its Insider Bid.

On December 18, 2011, the Board of Directors of Fibrek received an opinion from its financial advisor, TD Securities Inc. ("TD Securities"), that the consideration offered to shareholders of Fibrek (other than those who entered into lock-up agreements with Abitibi) pursuant to the Insider Bid was inadequate, from a financial point of view, to such shareholders. On January 3, 2012, the Board of Directors of Fibrek announced that it filed its Directors' Circular recommending that Fibrek shareholders REJECT the Abitibi Insider Bid. The Board of Directors of Fibrek also recommended that any shareholders who had tendered their Common Shares WITHDRAW them immediately. Its formal recommendation and the reasons supporting such recommendation are outlined in its Directors' Circular dated December 26, 2011.

On February 6, 2012, the Board of Directors of Fibrek announced the results of Canaccord Genuity Corporation's ("Canaccord Genuity") formal valuation of Fibrek's Common Shares complying with the requirements of Multilateral Instrument 61-101 - Protection of Minority Securityholders in Special Transactions. Based upon and subject to the analyses and assumptions set out in its valuation, Canaccord Genuity was of the opinion that, as at February 3, 2012, the fair market value of a Common Share of Fibrek was in the range of $1.25 to $1.45.

On February 10, 2012, Fibrek announced that it had entered into a support agreement (the "Support Agreement") with Mercer International Inc. ("Mercer") pursuant to which Mercer will offer to acquire all of the issued and outstanding Common Shares of Fibrek (the "Mercer Offer") by way of takeover bid. The consideration to be offered for each Common Share of Fibrek under the Mercer Offer will be $1.30 payable in cash only, in Mercer shares only, or a combination of both. Such consideration represents a premium of approximately 70% over the volume weighted average price of the Common Shares of Fibrek on the Toronto Stock Exchange ("TSX") for the 20 trading days ending on November 28, 2011, and a premium of 81% over the closing price the day before the announcement of the Insider Bid of Abitibi. The consideration also represents a 30% premium over Abitibi's Insider Bid.

The Board of Directors of Fibrek also indicated on February 10, 2012 that it had received a fairness opinion from its financial advisor, TD Securities, that the consideration to be received under the Mercer Offer is fair, from a financial point of view, to the shareholders of Fibrek (other than those who entered into lock-up agreements with Abitibi).

Full details of the Mercer Offer will be included in a take-over bid circular which is expected to be mailed to holders of Common Shares of Fibrek by February 29, 2012.

Mercer and Fibrek also entered into a special warrant agreement (the "Special Warrant Agreement") pursuant to which Mercer agreed to purchase 32,320,000 special warrants of Fibrek (the "Special Warrants") on a private placement basis, at a price of $1.00 per Special Warrant for total subscription proceeds of $32,320,000. The Special Warrants are convertible into Common Shares of Fibrek on a one-for-one basis. Proceeds from the Special Warrants are initially to be used by Fibrek to reduce the amount drawn on its ABL Credit Facility given (i) the recent costs associated with its strategic alternatives review process in response to Abitibi's Insider Bid, (ii) the high level of RBK Pulp inventories and lower than anticipated sales which have resulted in a 5-week market shutdown of the Fairmont Mill effective February 20, 2012, and an increased need for liquidity, and (iii) capital expenditures required in connection with Fibrek's power-generation initiatives and other growth and diversification opportunities.

On February 13, 2012, Abitibi applied to the Bureau de décision et de révision (Québec) (the "Bureau"), the administrative tribunal with statutory jurisdiction in securities and regulatory matters in Québec, to have the Mercer Offer and the Special Warrants cease-traded. Additionally, three shareholders, including Fairfax Financial Holdings Limited ("Fairfax"), who entered into lock-up agreements with Abitibi and Steelhead Partners, LLC, who is, like Fairfax, a significant shareholder of Abitibi, have also, through counsel, sought to stop the issuance of the Special Warrants before the TSX. Fibrek is currently awaiting the decisions of the Bureau and of the TSX.

OUTLOOK

NBSK pulp prices continued to decline in all markets during the last quarter of 2011. Having reached a low of US$825 per tonne in December, Northern Europe prices are now expected to remain relatively flat through the first quarter of 2012. However, an additional reduction of US$20 per tonne in North-America prices was announced in January, bringing the price down to US$870 per tonne. The global NBSK market is currently showing signs that prices have reached the bottom of the cycle. For the first time in seven months, February presented no price reductions and China spot prices were increased by US$20 per tonne. An announcement was also made by a leading producer of NBSK for an additional US$20 per tonne on China spot prices for the month of March. Furthermore, paper machines which had taken market-related downtime during the holidays are now being restarted. The Company anticipates a gradual recovery in both demand and prices during the second quarter of 2012.

During the fourth quarter of 2011, RBK pulp markets continued to be negatively impacted by high wastepaper prices and low hardwood kraft pulp prices. This situation, in conjunction with market-related downtime on green paper production in the Printing & Writing sector, and substitution to hardwood kraft pulp in the tissue sector, resulted in a decrease on the demand. Due to these difficult market conditions, Fibrek announced on February 10, 2012 that it will be taking market-related downtime for approximately five weeks, beginning February 20, 2012, at the Fairmont Mill to manage inventory levels. Looking forward, the Companybelieves the return to a balanced level of harwood inventories should have a positive impact on the RBK pulp demand.

On October 26, 2011, the Québec Government adopted a regulation which allows Hydro-Québec to purchase electric power produced by cogeneration facilities from residual forest biomass from a renewable energy source producer. The program was approved by the Régie de l'énergie on December 15, 2011 and formally launched by Hydro-Québec on December 20, 2011. Fibrek believes that its Saint-Félicien Mill qualifies as a renewable energy source producer under this program. On January 27, 2012, the Company submitted its proposal to be awarded the equivalent of the existing installed green energy capacity of 33MW under the 150 MW available for allocation in this cogeneration program.

CONFERENCE CALL
Due to current circumstances related to the take-over bid, Fibrek will not hold a conference call to discuss its fourth quarter and 2011 financial results.

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, household 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 can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical facts and include 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: actions taken by Abitibi or Mercer, actions taken by shareholders of Fibrek in respect of Abitibi's Insider Bid and the Mercer Offer, the possible effect of Abitibi's Insider Bid and the Mercer Offer on Fibrek's business, the award of a power purchase agreement to Fibrek under the Québec Government new cogeneration program, 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, dependance upon key customers, increased production capacity, equipment failure, disruptions of production, capital requirements 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 audited 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 - Fourth quarter and year ended December 31, 2011

         
(in thousands of Canadian dollars except per share figures) Three months ended
December 31
Year ended
December 31
  2011 2010 2011 2010
Sales 119,000 131,454 537,690 556,539
Cost of products sold 106,168 104,902 436,377 431,774
Delivery costs 9,629 10,103 42,165 41,494
Selling and administrative expenses 6,685 4,768 17,889 13,764
EBITDA(1) (3,482) 11,681 41,259 69,507
Depreciation 9,229 8,552 35,871 34,485
(Loss) profit from operations (12,711) 3,129 5,388 35,022
Financial expenses 2,520 3,649 11,380 17,336
Financial income (12) (6) (192) (30)
Loss (gain) on financial instruments 2 (15) (3,492) 3,216
Loss on disposal of property, plant and equipment 304 79 390 74
Loss (gain) on foreign currency translation 1,468 2,402 (1,530) 3,381
Gain on settlement of a claim - (5,544) (55) (5,544)
Impairment(2) 62,985 - 62,985 -
(Loss) earnings before income taxes (79,978) 2,564 (64,098) 16,589
Recovery of income taxes (81) - (67) (5)
Net (loss) earnings (79,897) 2,564 (64,031) 16,594
Net (loss) earnings per share        
  - Basic (0.61) 0.02 (0.49) 0.15
  - Diluted (0.61) 0.02 (0.49) 0.12


Financial Position

     
(in thousands of Canadian dollars) As at December 31
  2011 2010
Cash and cash equivalents 5,576 16,421
Accounts receivable 63,294 68,424
Inventories 99,868 77,187
Property, plant and equipment 307,553 382,609
Total Consolidated assets 481,792 555,900
Accounts payable and accrued liabilities 66,488 56,092
ABL Credit facility 34,789 -
Debentures - 49,609
Long-term debt 80,864 82,798
Equity 257,095 335,273


(1) References to "EBITDA" are to earnings before depreciation, financial expenses and income taxes and also before other non-operating income and expense such as gain or loss on financial instruments, disposal of property, plant and equipment, impairment 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 generated 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 depreciation, financial expenses, other non-operating income and expense as well as income taxes in the Financial Statements
(2) Triggered by the Insider Bid

 

SOURCE FIBREK INC.

For further information:

Investor Relations:
Patsie Ducharme (514) 871-0550
Vice President and Chief Financial Officer

Media Relations:
Dany Paradis (514) 871-0550
Vice President, Change Management and Supply Chain

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FIBREK INC.

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