SFK Pulp Fund reports results for its second quarter ended June 30, 2008



    TSX:SFK.UN

    
    SECOND QUARTER HIGHLIGHTS
    -------------------------

    - Effective July 21, 2008, Pierre Gabriel Côté is the President and Chief
      Executive Officer of SFK Pulp. Mr. Côté was President of Bombardier,
      Business Aircraft from July 2006 to July 2008. His prior business
      experience includes more than 20 years of service in the pulp and paper
      industry in various management positions.

    - Consolidated sales totalled $137.0 million, an increase of
      $12.9 million when compared with the second quarter of 2007. Total
      sales volume reached 176,541 tonnes, an increase of 6,630 tonnes when
      compared with the second quarter of 2007.

    - EBITDA(1) reached $10.0 million or 7.3 % of sales, compared with
      $11.6 million or 9.4 % of sales in the corresponding quarter of 2007.

    - Distributions declared to unitholders totalled $2.7 million
      ($0.03 per unit) in the second quarter of 2008, compared with
      $13.6 million ($0.15 per unit) in the corresponding quarter of 2007.
      The cash reserve increased from $13.9 million as of January 2008 to
      $20.5 million at the end of June 2008.
    

    LONGUEUIL, QC, Aug. 6 /CNW Telbec/ - For the second quarter ended
June 30, 2008, SFK Pulp recorded sales of $137.0 million. Earnings before
interest, taxes and amortization (EBITDA)(1) stood at $10.0 million and a net
loss of $3.2 million was incurred. This compares with sales of $124.1 million,
EBITDA of $11.6 million and a net loss of $18 million (of which $16.3 million
represented a non-cash future income tax provision recorded as a result of the
adoption of federal legislation implementing a tax on distributions paid by
publicly traded income trusts in Canada, effective in 2011) for the
corresponding period of 2007.
    "Earnings for the second quarter of 2008 were positively impacted by
strong pulp demand at the beginning of the quarter, coupled with increased
sale prices for both our products. However, these factors were offset by a
strong Canadian dollar, the continuing increase of wastepaper prices and
higher energy costs. By the end of the quarter, the typical seasonal slowdown
and the reduced demand for printing and writing grades began to affect our
pulp sales volume. On the operations side, all three mills took their
scheduled shutdowns of five to seven days and both US mills achieved
production levels above expectations. The Saint-Félicien mill experienced a
slower start-up after the April shutdown and also suffered from unscheduled
repairs at the recovery boiler, resulting in lower productivity and higher
repair costs for the quarter," said Pierre Gabriel Côté, President and Chief
Executive Officer of SFK Pulp.

    SECOND QUARTER 2008
    -------------------

    Operating results

    Sales

    Consolidated sales in the second quarter of 2008 reached $137.0 million,
an increase of $12.9 million when compared with sales of $124.1 million in the
second quarter of 2007. This increase is attributable to price increases for
$7.9 million and higher sales volume for $5.0 million.
    Total sales volume reached 176,541 tonnes, RBK pulp accounting for
89,322 tonnes and NBSK pulp, for 87,219 tonnes. During the second quarter of
2007, the sales volume totalled 169,911 tonnes, RBK pulp accounting for
94,397 tonnes and NBSK pulp, for 75,514 tonnes.
    On June 17, 2008, SFK Pulp received a notice from AbitibiBowater Inc.
informing SFK Pulp of AbitibiBowater's intention not to renew the agreement
providing for purchases of 25,000 tonnes of NBSK pulp per year, effective
January 1, 2009. Management feels confident that over the next six months this
tonnage will be reallocated with new or existing customers (see
"Forward-Looking Statements").

    Production and cost of sales

    Production at the mills during the second quarter of 2008 totalled
177,938 tonnes, compared with 178,566 tonnes for the second quarter of 2007.
NBSK pulp production accounted for 80,778 tonnes, compared with 83,365 tonnes
in the corresponding quarter of 2007, while RBK pulp production accounted
97,160 tonnes, compared with 95,201 tonnes in 2007.
    Cost of sales per tonne increased by 14.9% in the second quarter of 2008
when compared with the corresponding period of 2007. This increase is mainly
attributable to higher wastepaper prices, higher energy and chemical costs and
to additional repair material costs when compared with the second quarter of
2007.

    EBITDA(1)

    EBITDA for the second quarter of 2008 totalled $10.0 million, a decrease
of $1.6 million when compared with the corresponding period of 2007
($11.6 million). The Fairmont and Menominee Mills accounted for $4.3 million
of the EBITDA, while the Saint-Félicien Mill accounted for $5.7 million of the
EBITDA.

    Adjusted distributable cash(2)

    During the second quarter of 2008, SFK Pulp generated adjusted
distributable cash of $2.7 million. Including the $20.5 million cash reserve
at the end of the first quarter of 2008, total adjusted distributable cash
available for the period amounted to $23.2 million. Of the adjusted
distributable cash available, SFK Pulp declared distributions of $2.7 million
($0.030 per unit) and retained $20.5 million as its cash reserve. Of this cash
reserve, $3.1 million will be used for the Saint-Félicien Mill's semi-annual
outage in mid-October 2008 and the remaining $17.4 million will be used to
support our capital investment strategy, to provide for scheduled amortization
payments under the term facility and to reduce the impact of any negative
fluctuations in future cash flows, the whole in accordance with our
distribution policy.

    Distributions to unitholders

    During the quarter ended June 30, 2008, SFK Pulp declared distributions
of $2.7 million ($0.03 per unit), compared to $13.6 million ($0.15 per unit)
in the corresponding quarter of 2007.

    SIX-MONTH PERIOD 2008
    ---------------------

    Operating results

    Sales

    Consolidated sales for the six-month period ended June 30, 2008 reached
$268.6 million, an increase of $10.0 million when compared with sales of
$258.6 million for the corresponding period of 2007. This increase is
attributable to price increases for $6.0 million and higher sales volume for
$4.0 million.
    Total sales volume for the six-month period ended June 30, 2008 reached
351,955 tonnes, RBK pulp accounting for 177,729 tonnes and NBSK pulp, for
174,226 tonnes. For the six-month period ended June 30, 2007, the sales volume
totalled 346,449 tonnes, RBK pulp accounting for 184,850 tonnes and NBSK pulp,
for 161,599 tonnes.

    Production and cost of sales

    Production at the mills during the six-month period ended June 30, 2008
totalled 366,502 tonnes, compared with 362,437 tonnes for the corresponding
period of 2007.
    Cost of per tonne increased by 11.4% in the six-month period ending June
30, 2008 when compared with the corresponding period of 2007. This increase is
mainly attributable to higher wastepaper prices, higher energy and fuel costs
and to additional repair material costs.

    Adjusted distributable cash(2)

    For the six-month period ended June 30, 2008, SFK Pulp generated adjusted
distributable cash of $12.0 million. Including the $13.9 million cash reserve
at the end of 2007, total adjusted distributable cash for the period amounted
to $25.9 million. Of the adjusted distributable cash available, SFK Pulp
declared distributions of $5.4 million ($0.060 per unit) and retained
$20.5 million as its cash reserve. Of this cash reserve, $3.1 million will be
used for the Saint-Félicien Mill's semi-annual outage in mid-October 2008 and
the remaining $17.4 million will be used to support our capital investment
strategy, to provide for scheduled amortization payments under the term
facility and to reduce the impact of any negative fluctuations in future cash
flows, in accordance with our distribution policy.

    Distributions to unitholders

    For the six-month period ended June 30, 2008, SFK Pulp declared
distributions of $5.4 million ($0.06 per unit), compared with $25.3 million
($0.28 per unit) for the six-month period ended June 30, 2007.

    OUTLOOK
    -------

    "Market conditions for NBSK pulp are showing signs of uncertainty with
respect to demand and prices. The typical seasonal slowdown coincides with
downward forecasts for demand of printing and writing grades in the United
States. The planned $20 price increase for the month of July for the US market
is gaining additional support from producers, but is not yet fully
implemented. For European markets, the announced $40 price increase of April
1st has been partially implemented and producers are still working on the
remainder of this increase. European demand for printing and writing grades is
also expected to be lower in the second half of the year.
    The RBK pulp market also experiences a seasonal slowdown and, as for
printing and writing grades, demand for tissue grades is showing some downward
trend. RBK pulp prices were last increased in May 2008 and will be closely
monitored through a supply and demand analysis. The price of wastepaper is
showing signs of stabilization.
    On the operations side, all mills are currently running well and
according to expectations. Additional focus will be given to our production
costs as external factors such as fuel prices, wastepaper prices, chemical and
fibre costs continue to increase and affect our cost structure. Capital
projects implemented since the beginning of 2008, as well as the remaining
capital expenditures scheduled for this year, will help mitigate the impact of
these increases. In addition to focusing on costs, special attention will be
given to inventory and cash management in order to be ready to face
anticipated market conditions", said Pierre Gabriel Côté, President and Chief
Executive Officer of SFK Pulp.

    ABOUT SFK PULP
    --------------

    SFK Pulp operates, through its subsidiaries, the Saint-Félicien Mill, the
Fairmont Mill and the Menominee Mill and employs approximately 550 people. The
Saint-Félicien Mill (located in Saint-Félicien, Québec, approximately
450 kilometres north of Montréal) has an annual production capacity of
375,000 metric tonnes of NBSK pulp and supplies NBSK pulp to various sectors
of the paper industry in Canada, the United States and in Europe for use in
speciality products. The Fairmont Mill (located in Fairmont, West Virginia)
and the Menominee Mill (located in Menominee, Michigan), with a combined
annual production capacity of 360,000 metric tonnes, both manufacture
air-dried market recycled bleached kraft (RBK) pulp and primarily supply RBK
pulp to manufacturers of uncoated freesheet, commercial and away-from-home
tissue and coated paper in the United States.

    FORWARD-LOOKING STATEMENTS
    --------------------------

    Certain statements made in this press release and in SFK Pulp's
management's discussion and analysis for the quarter ended June 30, 2008,
including, but not limited to, expected capital expenditures, estimated
sufficiency of wood fibre deliveries, estimated wood fibre costs, expected
ability to make monthly distributions, 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, exchange
rate fluctuations, wood fibre or wastepaper supply and costs at the mills,
cost and supply of raw materials, 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 management's discussion and
analysis for the quarter ended June 30, 2008 and in SFK Pulp's continuous
disclosure filings, which may be found through the Internet on the Canadian
System for Electronic Document Analysis and Retrieval (SEDAR) at
www.sedar.com. 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
statement contained in this press release 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.

    SFK Pulp will hold a conference call Thursday, August 7, 2008 at
2:00 p.m. (Eastern Time), to discuss its results. President and Chief
Executive Officer Pierre Gabriel Côté, and Patsie Ducharme, Corporate
Controller, will host the conference call and a question-and-answer session to
discuss earnings. The first 30 minutes will be devoted to questions from
investment professionals while media representatives will be in listening mode
only. This will be followed by a question period for business media. To
participate in the conference call, investment professionals and business
media may dial 1-514-861-1531 in Montreal or 1-877-667-7766 from outside
Montreal. Participants not able to listen to the live call can access a replay
of the archived call by calling (514) 861-2272 or 1-800-408-3053, access code
3266121#. The replay will be available until August 31, 2008.

    Attached: Summary of Results

    
    SFK Pulp - Financial Highlights - Second Quarter ended June 30, 2008

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (in thousands of Canadian    Three months              Six months
     dollars except per unit        ended                     ended
     amounts and as otherwise      June 30                   June 30
     indicated)                  (unaudited)               (unaudited)
    -------------------------------------------------------------------------
                              2008         2007         2008         2007
                                       restated(2)               restated(2)
    -------------------------------------------------------------------------
                                 $            $            $            $
    -------------------------------------------------------------------------
    Sales                  136,950      124,128      268,596      258,600
    Cost of sales          123,853      103,831      234,657      207,593
    Selling and
     administrative
     expenses                3,514        3,501        8,222        7,361
    Loss (gain) on
     derivative
     instruments              (779)       1,371       (1,459)        (996)
    Loss (gain) on foreign
     currency translation      387        3,811       (1,439)       5,144
    -------------------------------------------------------------------------
    EBITDA(1)                9,975       11,614       28,615       39,498
    Amortization of
     capital assets          9,676        9,714       19,426       19,402
    Financial charges        3,526        4,216        7,207       10,923
    (Recovery of) provision
     for income taxes(2)       (51)      15,655 (2)   (2,517)      16,936 (2)
    -------------------------------------------------------------------------
    Net (loss) earnings(2)  (3,176)     (17,971)(2)    4,499       (7,763)(2)
    -------------------------------------------------------------------------
    Net (loss) earnings per
     Unit - basic and
     diluted(2)              (0.04)       (0.20)(2)     0.05        (0.09)(2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                 Three months              Six months
                                    ended                     ended
                                   June 30                   June 30
    DISTRIBUTABLE CASH           (unaudited)               (unaudited)
    -------------------------------------------------------------------------
    (in thousands of Canadian
     dollars except per
     unit amounts and
     as otherwise             2008         2007         2008         2007
     indicated)                       (restated)(*)             (restated)(*)
    -------------------------------------------------------------------------
                                 $            $            $            $
    -------------------------------------------------------------------------
    Cash flows from
     operating
     activities(3)          (3,928)      12,822        1,863       29,750
    -------------------------------------------------------------------------
    Less:
      Capital expenditures
       - cash                5,296        2,473        9,268        6,442
    -------------------------------------------------------------------------
    Standardized
     distributable cash     (9,224)      10,349       (7,405)      23,308
    Less adjustments to
     standardized
     distributable cash:
      Changes in non-cash
       working capital
       items(4)            (10,982)      (2,918)     (18,757)          66
      Capital
       expenditures
       accrual
       variation(4)         (1,257)        (414)      (1,078)      (2,127)
      Amortization of
       deferred
       financing
       fees(4)                 256          248          509          506
      Employee future
       benefits(4)              60           26          (96)          66
    -------------------------------------------------------------------------
    Adjusted
     distributable
     cash(4)                 2,699        7,571       12,009       24,797
    -------------------------------------------------------------------------
    Distributions
     declared                2,714       13,571        5,428       25,332
    -------------------------------------------------------------------------
    Excess over
     adjusted
     distributable
     cash                      (15)      (6,000)       6,581         (535)
    -------------------------------------------------------------------------
    Reserve for
     distributions
     at the
     beginning of
     the period             20,543       29,702       13,947       24,237
    -------------------------------------------------------------------------
    Reserve for
     distributions
     at the end of
     the period             20,528       23,702       20,528       23,702
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Per Unit amount
      - Standardized
         distributable
         cash               (0.102)       0.114       (0.082)       0.258
      - Adjusted
         distributable
         cash                0.030        0.084        0.133        0.274
      - Distributions
         declared            0.030        0.150        0.060        0.280
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Distributions to unitholders
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (in thousands of            Three months              Six months
     Canadian dollars              ended                     ended
     except per                June 30, 2008             June 30, 2008
     Unit amounts)              (unaudited)               (unaudited)
    -------------------------------------------------------------------------
                             Total     Per Unit        Total     Per Unit
    -------------------------------------------------------------------------
    Total distributions
     declared               $2,714       $0.030       $5,428       $0.060
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (in thousands of            Three months              Six months
     Canadian dollars              ended                     ended
     except per                June 30, 2007             June 30, 2007
     Unit amounts)              (unaudited)               (unaudited)
    -------------------------------------------------------------------------
                             Total     Per Unit        Total     Per Unit
    -------------------------------------------------------------------------
    Total distributions
     declared              $13,571       $0.150      $25,332       $0.280
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (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 revised its non-cash provision for future income taxes as of
        and for the three- month and six-month periods ended June 30, 2007 at
        $16.3 million, an increase of $4.0 million from the amount previously
        recorded. Accordingly, the amount of net loss for the three-month
        period was restated at $18.0 million ($0.20 per unit) from $
        13.9 million ($0.15 per unit) as previously reported, and the amount
        of net loss for the six-month period was restated at $7.8 million
        ($0.09 per unit) from $3.7 million ($0.04 per unit), as previously
        reported.

    (3) SFK Pulp retroactively applied the recommendations of the Canadian
        Securities Administrators staff notice 52-306 issued on
        August 4, 2006. According to this notice, the Canadian Securities
        Administrators staff is of the view that distributable cash should be
        calculated from cash flows from operating activities as presented in
        the issuer's financial statements rather than from EBITDA. The
        retroactive impact of this change on SFK Pulp's distributable cash
        (standardized and adjusted) reserve was not material.

    (4) 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.
    




For further information:

For further information: Investors & Analysts: Patsie Ducharme,
Corporate Controller, (450) 677-7857 ext. 2225; Media & Other: Mathieu Claise,
Optimum Public Relations, (418) 521-3770

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SFK PULP FUND

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