SFK Pulp Fund reports 2008 year-end results and plans further downtime to face market conditions



    
    TSX:SFK.UN

    FOURTH QUARTER HIGHLIGHTS
    -------------------------
    - EBITDA(1) of $14.9 million, up from $8.9 million in the fourth quarter
      a year ago.
    - Net earnings of $4.0 million, or $0.04 per unit, versus a loss of $0.4
      million last year.
    - Reserve(2) further increased to $29.6 million.

    YEAR-END HIGHLIGHTS
    -------------------
    - EBITDA of $60.4 million, stable in comparison with $61.5 million a year
      ago.
    - Net earnings of $17.1 million, or $0.19 per unit, versus year ago loss
      of $9.4 million.
    - Solid financial position with debt to total capitalization ratio of
      0.22 as at December 31, 2008.
    

    LONGUEUIL, QC, Feb. 25 /CNW Telbec/ - SFK Pulp Fund (TSX: SFK.UN) today
announced results for the fourth quarter and year ended December 31, 2008.
Fourth quarter sales rose 0.6% to $125.1 million, while earnings before
amortization, financial charges and income taxes (EBITDA)(1) reached $14.9
million, up from $8.9 million. Net earnings for the quarter totalled $4.0
million compared with a net loss of $0.4 million for the corresponding period
of 2007. For the year, sales grew 4.3% to $532.0 million, EBITDA remained
relatively stable at $60.4 million and net earnings totalled $17.1 million
compared with a loss of $9.4 million in 2007.

    
    FINANCIAL HIGHLIGHTS
    --------------------

    -------------------------------------------------------------------------
    (in thousands of
     Canadian dollars             Three months ended              Year ended
     except per Unit                     December 31             December 31
     amounts)                             (unaudited)               (audited)
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
                                       $           $           $           $
    -------------------------------------------------------------------------
    Sales                        125,132     124,354     532,033     510,143
    -------------------------------------------------------------------------
    EBITDA                        14,892       8,866      60,374      61,527
    -------------------------------------------------------------------------
    Net earnings (loss)            3,964        (382)     17,120      (9,353)
    -------------------------------------------------------------------------
    Net earnings (loss) per Unit
        - basic                     0.04       (0.00)       0.19       (0.11)
        - diluted                   0.03       (0.00)       0.17       (0.11)
    -------------------------------------------------------------------------
    

    "We have completed 2008 with a healthy balance sheet, a particularly
noteworthy accomplishment in view of the industry's current market conditions
and the global slowdown. While sales volume for the fourth quarter was down by
some 28,000 tonnes compared to last year, reflecting lower demand, sales
remained stable at $125 million, due in large part to the weakened Canadian
dollar, and profitability improved following a reduction in input costs. SFK
Pulp has been highly proactive in managing its balance sheet during the second
half of the year. This has positioned us to better face the severe headwinds
the entire industry is currently facing," stated Pierre Gabriel Côté,
President and Chief Executive Officer.

    PLANNED DOWNTIME
    ----------------

    In order to proactively align production with current market demand, SFK
Pulp is also announcing today that it will be halting production at its
Saint-Félicien, Québec mill for a six-week period, and for a one-month period
at its Fairmont, West Virginia mill. These measures include the scheduled
spring maintenance shutdowns that will immediately follow the respective
downtime periods.
    These actions will take effect in March and will result in the temporary
layoff of up to 225 workers at the Saint-Félicien mill. The measures will
remove approximately an additional 45,000 tonnes of NBSK pulp and 25,000
tonnes of RBK pulp.

    OPERATING RESULTS
    -----------------

    FOURTH QUARTER 2008

    Consolidated sales rose to $125.1 million, an increase of 0.6% when
compared with sales of $124.4 million in the fourth quarter of 2007. This
increase is comprised of a $10.5 million sales increase in RBK pulp sales,
partially offset by a $9.8 million sales decrease in NBSK pulp. While pulp
sales volume and pricing were both down during the quarter, the decrease in
the value of the Canadian dollar in comparison with the US currency had a
favourable impact of $24 million on sales.
    EBITDA totalled $14.9 million, or 11.9% of sales, an increase of $6.0
million over EBITDA of $8.9 million, or 7.1% of sales, in the corresponding
period of 2007. RBK pulp operations contributed $9.8 million to EBITDA, while
NBSK pulp accounted for $5.1 million.
    Net earnings were $4.0 million or $0.04 per basic unit ($0.03 diluted),
compared with a net loss of $0.4 million or $0.00 per unit, both basic and
diluted, for the corresponding period of 2007.

    Adjusted distributable cash(3)

    SFK Pulp generated adjusted distributable cash of $5.3 million. Including
the $27.1 million reserve at the end of the third quarter of 2008, total
adjusted distributable cash available for the period amounted to $32.4
million. Of this amount, SFK Pulp declared distributions of $2.7 million
($0.03 per unit) compared with $3.6 million ($0.04 per unit) in the
corresponding quarter a year ago and retained $29.6 million as its reserve(2).
    Although the year-end reserve is above the $20 million target set by the
Board of Directors, Management remains committed to prudently administer the
level of the reserve through the difficult times currently being faced by the
industry and SFK Pulp, and as such, does not intend to reinstate the monthly
distributions which were suspended in January 2009 until market conditions
substantially improve. Moreover, Management believes it should continue
improving its financial flexibility to protect and potentially further improve
SFK Pulp's balance sheet.

    2008 YEAR-END

    Consolidated sales reached $532.0 million, an increase of $21.9 million,
or 4.3%, over sales of $510.1 million in 2007. This increase reflects an
increase of nearly $26.9 million in RBK pulp sales, partially offset by a $5.0
million reduction in NBSK pulp sales.
    EBITDA amounted to $60.4 million, or 11.4% of sales, compared with $61.5
million, or 12.1% of sales, in 2007. EBITDA of NBSK pulp operations increased
$0.3 million to $39.5 million, while EBITDA for RBK pulp decreased $1.4
million to $20.9 million.
    Net earnings were $17.1 million, or $0.19 per basic unit ($0.17 diluted),
compared with a net loss of $9.4 million or $0.11 per unit, both basic and
diluted, in 2007.
    As at December 31, 2008, SFK Pulp's balance sheet remained strong with a
debt to total capitalization ratio of 0.22, as per our credit facility
covenant.

    Adjusted distributable cash(3)

    SFK Pulp generated adjusted distributable cash of $26.6 million.
Including the $13.9 million reserve at the end of 2007, total adjusted
distributable cash available for the period amounted to $40.5 million. Of this
amount, SFK Pulp declared distributions of $10.9 million ($0.12 per unit)
compared with $39.8 million ($0.44 per unit) last year and retained $29.6
million as its reserve(2).

    SEGMENT REVIEW
    --------------

    NBSK PULP

    Fourth quarter sales totalled $50.2 million, compared with $60.0 million
for the corresponding period of 2007. Sales volume was 64,895 tonnes, a
decrease of 14,744 tonnes from 79,639 tonnes a year ago. This decrease is
attributable to customers taking market-related downtime, which resulted in a
three-week production shutdown at the Saint-Félicien Mill that began on
December 19, 2008.
    NBSK market pulp prices (for pulp delivered in Northern Europe) decreased
by US$152 per tonne or 18% on average compared to the fourth quarter of 2007.
However, the year-over-year decline in the value of the Canadian currency
versus the US dollar (partly offset by an unfavourable market mix) resulted in
an average sales price of CAN$773 in the fourth quarter of 2008 compared with
CAN$753 in the fourth quarter of 2007.
    Sales for the year ended December 31, 2008 were $251.4 million, compared
with $256.4 million last year. Sales volume reached 321,501 tonnes, down 2,344
tonnes from 323,845 tonnes in 2007.
    NBSK market pulp prices (for pulp delivered in Northern Europe) increased
4.9% on average or US$39 per tonne. This increase, combined with a slightly
stronger Canadian dollar, on average, in 2008 and an unfavourable market mix
yielded an average sales price of CAN$782 per tonne, CAN$10 below the average
sales price of CAN$792 per tonne of 2007.

    RBK PULP

    Sales of RBK pulp amounted to $75.0 million in the fourth quarter of
2008, compared with $64.4 million a year earlier. This increase is mainly
attributable to higher sales prices, further supplemented by the decline in
the value of the Canadian dollar, as sales volume was down between the two
comparable periods. Fourth quarter sales volume was 86,073 tonnes, compared
with 99,030 tonnes last year, a decrease related to a major equipment failure
at the Fairmont Mill, on October 16, 2008, that prematurely stopped production
ahead of a scheduled shutdown followed by resumption at a reduced operating
rate for most of November.
    2008 sales were $280.7 million, compared with $253.7 million a year ago.
This $27.0 million increase is attributable to higher sales prices, partially
offset by a lower sales volume. Sales volume of RBK pulp in 2008 reached
358,674 tonnes compared with 378,895 tonnes for 2007, and average sales price
increased by 17% compared to 2007.

    OUTLOOK
    -------

    The difficult market conditions have resulted in a collapse of global
pulp demand, an increase in world pulp inventories, and therefore, a reduction
in pulp prices. SFK Pulp's practice is to balance its order book with
manageable inventory levels and, accordingly, has taken market related
downtime at all locations in December 2008 and January 2009, totalling
approximately 32,000 tonnes (22,000 tonnes of NBSK pulp and 10,000 tonnes of
RBK pulp). As noted above, further market-related downtimes will be taken
during the first and second quarters this year. Management will continue
taking appropriate actions as market conditions evolve.
    Pulp prices have been under significant pressure over the past number of
months and declined rapidly in the fourth quarter of 2008. The current market
conditions impacted the carrying value of finished products and required a
write-down of $3.5 million dollars during the fourth quarter of 2008 to
reflect their lower realizable value.
    "As part of our proactive management strategy, SFK Pulp has implemented
additional cost reduction measures in 2009 to further tighten the existing
stringent cost controls at all sites and to optimize margins and liquidity.
Furthermore, we are already seeing that current economic conditions have
resulted in cost reductions for commodities used in our production such as
fuel, certain chemicals and wastepaper.
    We expect 2009 will pose unprecedented difficulties. As such, we will
continue to take all necessary measures to face these challenges by further
protecting our strong balance sheet as well as prudently managing our working
capital and inventory levels," commented Mr. Côté.

    CONFERENCE CALL

    SFK Pulp will hold a conference call Thursday, February 26, 2009 at 10:00
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 the conference call and a question-and-answer
session to discuss earnings. To participate in the conference call, investment
professionals and business media may dial 416-644-3428 (for all Toronto and
overseas participants) or 1-800-587-1893 (for all other North American calls).
Participants not able to listen to the live call can access a replay of the
archived call by calling 1-877-289-8525, access code 21298334#. The replay
will be available until 23:59 PM on Thursday, March 5, 2009.

    ABOUT SFK PULP

    SFK Pulp (TSX: SFK.UN), a leading producer and marketer of premium virgin
and recycled kraft pulp, operates three mills in Saint-Félicien, Québec,
Fairmont, West Virginia, and Menominee, Michigan. SFK Pulp employs
approximately 550 people and has a total annual production capacity of 735,000
metric tonnes. The Saint-Félicien Mill supplies northern bleached softwood
kraft (NBSK) pulp to various sectors of the paper industry in Canada, the
United States and Europe for use in specialty products. The Fairmont and
Menominee Mills manufacture air-dried market recycled bleached kraft (RBK)
pulp and primarily supply manufacturers of uncoated freesheet, commercial and
away-from-home tissue and coated paper in the U.S.

    Forward-looking Statements

    Certain statements in this press release and in SFK Pulp's Management's
Discussion and Analysis including, but not limited to, expected impact of
future market-related downtimes on production, expected collection of
receivables, expected capital expenditures, estimated sufficiency of wood
fibre deliveries, estimated wood fibre costs, expected sufficiency of cash
flows to fund operating needs and capital expenditures and to meet contractual
obligations, recoverability of capital assets and other statements that are
not historical facts, are "forward-looking statements" which reflect the
intentions, plans, expectations and beliefs of SFK Pulp's management
("Management") regarding SFK Pulp's future growth, results of operations,
performance and business prospects and opportunities. In certain instances,
these statements require Management to make assumptions and there is
significant risk that these assumptions may not be correct. The words "may",
"would", "could", "will", "intend", "plan", "anticipate", "believe",
"estimate", "expect", and similar expressions, as they relate to SFK Pulp or
Management, often identify forward-looking statements. Such forward-looking
statements reflect Management's current beliefs and are based on information
currently available to Management. Forward-looking statements involve known
and unknown risks, uncertainties and other factors outside Management's
control. A number of factors could cause actual results of SFK Pulp to differ
materially from the results discussed in the forward-looking statements,
including, but not limited to: risks associated with pulp prices and sales
volume, exchange rate fluctuations, wood fibre or wastepaper supply and costs
at the mills, cost and supply of raw materials (including chemicals),
competition, dependence upon key customers, increased production capacity in
the market, equipment failure, disruptions of production, capital
requirements, absence of guarantee of cash distributions and other factors
referenced in SFK Pulp's MD&A for the year ended December 31, 2008 and in SFK
Pulp's continuous disclosure filings. Although the forward-looking statements
contained herein are based upon what Management believes to be reasonable
assumptions, Management cannot assure investors that actual results will be
consistent with these forward-looking statements. Certain assumptions
underlying the forward-looking statements contained herein and in SFK Pulp's
MD&A for the year ended December 31, 2008 include assumptions to the effect
that future cash flows will be sufficient to cover capital expenditures, no
extraordinary event will require increased capital expenditures, wood fibre
and wastepaper deliveries to SFK Pulp will be sufficient to fulfill the mills'
requirements, wood fibre and wastepaper costs will not increase materially,
pulp prices and exchange rates will not significantly deteriorate, future cash
flows will be sufficient to cover operating needs contemplated and contractual
obligations, SFK Pulp will generate positive distributable cash, operation
costs will not increase materially, and interest expenses and production
outputs will remain stable. These forward-looking statements are made as of
the date of this press release, and, except as required by applicable
securities laws, Management assumes no obligation to update or revise them to
reflect new events or circumstances. These statements do not reflect the
potential impact of any special items or of any business combination or other
transaction that may be announced or that may occur after the date hereof.
Readers are cautioned not to place undue reliance on these forward-looking
statements.

    
    Note to readers: Complete audited consolidated financial statements and
                     Management's Discussion & Analysis are available on SFK
                     Pulp's website at www.sfk.ca

    Attached: Summary of Results

       SFK Pulp - Financial Highlights - Year ended December 31, 2008

    -------------------------------------------------------------------------
    (in thousands of
     Canadian dollars,            Three months ended              Year ended
     except per Unit                     December 31             December 31
     amounts)                             (unaudited)               (audited)
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
                                       $           $           $           $
    -------------------------------------------------------------------------
    Sales                        125,132     124,354     532,033     510,143
    Cost of sales                114,164     111,110     468,163     424,692
    Selling and administrative
     expenses                      4,776       3,729      16,869      14,531
    (Gain) loss on
     derivative instruments         (149)         13      (1,351)         56
    Loss on disposal of
     capital assets                  (14)          -           4         624
    (Gain) loss on foreign
     currency translation         (8,537)        636     (12,026)      8,713
    -------------------------------------------------------------------------
    EBITDA                        14,892       8,866      60,374      61,527
    Amortization of
     capital assets               10,300       9,585      39,585      38,713
    Financial charges              4,243       4,024      15,114      19,028
    (Recovery of) provision
     for income taxes (4)         (3,615)     (4,361)    (11,445)     13,139
    -------------------------------------------------------------------------
    Net earnings (loss)            3,964        (382)     17,120     (9,353)
    -------------------------------------------------------------------------
    Net earnings (loss) per Unit
        - basic                     0.04       (0.00)       0.19      (0.11)
        - diluted                   0.03       (0.00)       0.17      (0.11)
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in thousands of
     Canadian dollars,            Three months ended              Year ended
     except per Unit                     December 31             December 31
     amounts)                             (unaudited)             (unaudited)
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
                                       $           $           $           $
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                      225       8,611      14,166      39,155
    -------------------------------------------------------------------------
    Less:
        Capital expenditures
         - cash                    4,322       5,728      17,497      15,128
    -------------------------------------------------------------------------
    Standardized distributable
     cash (3)                     (4,097)      2,883      (3,331)     24,027
      Less adjustments to
       standardized distributable
       cash:
      Changes in non-cash
       working capital items      (9,306)      4,118     (30,281)     (5,677)
      Capital expenditures
       accruals                     (399)      1,258        (809)       (293)
      Amortization of deferred
       financing fees                287         232       1,058         923
      Employee future benefits        58         (36)        142        (449)
    -------------------------------------------------------------------------
    Adjusted distributable
     cash (3)                      5,263      (2,689)     26,559      29,523
    -------------------------------------------------------------------------
    Distributions declared         2,714       3,624      10,857      39,813
    -------------------------------------------------------------------------
    Excess (shortfall) over
     adjusted distributable cash   2,549      (6,313)     15,702     (10,290)
    -------------------------------------------------------------------------
    Reserve for distributions
     at the beginning of
     the period(2)                27,100      20,260      13,947      24,237
    -------------------------------------------------------------------------
    Reserve for distributions
     at the end of the period(2)  29,649      13,947      29,649      13,947
    -------------------------------------------------------------------------
    Per Unit amount
     - Standardized
       distributable cash          (0.05)       0.03       (0.04)       0.27
     - Adjusted distributable
       cash                         0.06       (0.03)       0.29        0.33
     - Distributions declared       0.03        0.04        0.12        0.44
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
     (in thousands of
     Canadian dollars             Three months ended              Year ended
     except per Unit               December 31, 2008       December 31, 2008
     amounts)                             (unaudited)               (audited)
    -------------------------------------------------------------------------
                                   Total    Per Unit       Total    Per Unit
    -------------------------------------------------------------------------
    Total distributions
     declared                     $2,714       $0.03     $10,857       $0.12
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
     (in thousands of
     Canadian dollars             Three months ended              Year ended
     except per Unit               December 31, 2007       December 31, 2007
     amounts)                             (unaudited)               (audited)
    -------------------------------------------------------------------------
                                   Total    Per Unit       Total    Per Unit
    -------------------------------------------------------------------------
    Total distributions
     declared                     $3,624       $0.04     $39,813       $0.44
    -------------------------------------------------------------------------

    (1) Earnings before amortization, financial charges and income taxes
        ("EBITDA") is not a recognized measure under Canadian GAAP 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 GAAP as an
        indicator of SFK Pulp's performance or cash flows from operating,
        investing and financing activities as a measure of liquidity and cash
        flows. SFK Pulp'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 and
        income taxes in the Financial Statements.

    (2) SFK Pulp's reserve is a key financial indicator comprised of working
        capital and cash, established to protect SFK Pulp's long standing
        commitment to capital investment, including its major maintenance
        program, provide for scheduled debt reimbursement and reduce the
        impact of negative fluctuations in future cash flows.

    (3) During the third quarter of 2007 and in accordance with the Canadian
        Institute of Chartered Accountants' interpretive release
        "Standardized Distributable Cash in Income Trusts and Other flow-
        through Entities" issued in July 2007, SFK Pulp amended the
        distributable cash calculation to conform with this section of the
        new guidance. In summary, standardized distributable cash is defined
        as the periodic cash flows from operating activities as reported in
        the GAAP financial statements, including the effects of changes in
        non cash-working capital items less total capital expenditures (cash)
        as reported in the GAAP financial statements.

        Although SFK Pulp has decided to conform with this new guidance,
        Management nonetheless makes a number of other adjustments to cash
        flows from operations to determine cash available for distributions.
        Accordingly, Management also makes adjustments for changes in non-
        cash working capital items, capital expenditures accruals,
        amortization of deferred financing fees and employee future benefits.
        Standardized distributable cash as adjusted by Management is referred
        to herein as "adjusted distributable cash".

        Adjusted distributable cash is a non-GAAP measure generally used by
        Canadian open-ended trusts as an indicator of the issuer's ability to
        generate cash that could be used for distributions to unitholders and
        it should not be seen as a measure of cash flows or a substitute for
        comparable metrics prepared in accordance with GAAP. SFK Pulp's
        adjusted distributable cash may differ from similar calculations as
        reported by other similar entities and accordingly may not be
        comparable to distributable cash as reported by such entities.
        Management believes that SFK Pulp's adjusted distributable cash
        calculated from cash flows from operations is the most appropriate
        measure to help readers evaluate the ability of SFK Pulp to generate
        cash that could be used for distributions.

    (4) Includes a non-cash income tax expense of $12.6 million (or $0.14 per
        Unit) in 2007 resulting from the adopted federal legislation to
        implement a tax on distributions paid by publicly traded income
        trusts in Canada. In 2008, this non-cash income tax expense of $12.6
        million (or $0.09 per diluted Unit) was reversed as a result of
        changes in the estimated temporary differences expected to reverse in
        or after 2011. See Note 11 to the Financial Statements.
    
    %SEDAR: 00018041EF




For further information:

For further information: Investors and Analysts: Mrs. Patsie Ducharme,
SFK Pulp, Vice-President and Chief Financial Officer, (450) 677-7857 ext.
2225; Media and others: Mr. Dany Paradis, SFK Pulp, Vice-President, Change
Management and Public Affairs, (450) 677-7857 ext. 2227; Mr. Rick Leckner,
MaisonBrison, (514) 731-0000 ext. 222

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