SFK Pulp Fund third quarter sales increase 9% to $138.3 million



    
    TSX:SFK.UN

    THIRD QUARTER HIGHLIGHTS
    ------------------------

    - EBITDA(1) reached $16.9 million or 12.2 % of sales, compared with
      $13.2 million or 10.3 % of sales from the third quarter of 2007.
    - Net earnings of $8.7 million versus year ago loss of $1.2 million.
    - Net debt to equity ratio was 0.20 as at September 30, 2008, excluding
      convertible debentures (or 0.33 including convertible debentures).
    - Cash reserve increased to $27.1 million from the $13.9 million opening
      balance in January 2008, a good position facing market uncertainties.
    

    LONGUEUIL, QC, Oct. 31 /CNW Telbec/ - SFK Pulp Fund (TSX: SFK.UN) today
announced significant improvement for the third quarter ended September 30,
2008. Sales for the period rose $11.1 million to $138.3 million from
$127.2 million. Earnings before interest, taxes and amortization (EBITDA)(1)
stood at $16.9 million, up from $13.2 million. Net earnings climbed to
$8.7 million compared to a net loss of $1.2 million for the corresponding
period of 2007.

    
    FINANCIAL HIGHLIGHTS

    -------------------------------------------------------------------------
    (in thousands of Canadian         Three months ended   Nine months ended
    dollars except per Unit amounts)        September 30        September 30
                                              (unaudited)         (unaudited)
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
                                             $         $         $         $
    -------------------------------------------------------------------------
    Sales                              138,305   127,189   406,901   385,789
    -------------------------------------------------------------------------
    EBITDA                              16,867    13,163    45,482    52,661
    -------------------------------------------------------------------------
    Net earnings (loss)                  8,657    (1,208)   13,156    (8,971)
    -------------------------------------------------------------------------
    Net earnings (loss) per Unit
      - basic                             0.10     (0.01)     0.15     (0.10)
      - diluted                           0.08     (0.01)     0.14     (0.10)
    -------------------------------------------------------------------------

    "As my first full quarter as President and CEO of SFK Pulp, I am pleased
to report a solid performance in the face of industry and global challenges.
The Saint-Félicien Mill experienced excellent productivity during the quarter,
with an average daily production increase in excess of 7% from a year ago. We
have actively sought sales opportunities, particularly in the NBSK pulp
market, to deal with inventory levels which are high, but still at manageable
levels. The weakening Canadian dollar and more favourable energy costs,
particularly bunker and natural gas, have begun to favourably impact our
bottom line results," said Pierre Gabriel Côté, President and Chief Executive
Officer.

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

    THIRD QUARTER 2008

    Consolidated sales in the third quarter of 2008 rose to $138.3 million, an
increase of $11.1 million when compared with sales of $127.2 million in the
third quarter of 2007. This increase is comprised of price increases for
$11.4 million which were partially offset by sales volume decreases for
$0.3 million.
    EBITDA totalled $16.9 million, an increase of $3.7 million when compared
with the corresponding period of 2007. The Fairmont and Menominee Mills
accounted for $3.3 million of the EBITDA, while the Saint-Félicien Mill
accounted for $13.6 million.
    Net earnings were $8.7 million or $0.10 per basic unit and $0.08 per
diluted unit, compared to a net loss of $1.2 million or $0.01 per unit, both
basic and diluted, for the corresponding period of 2007.

    Adjusted distributable cash(2)

    SFK Pulp generated adjusted distributable cash of $9.3 million. Including
the $20.5 million cash reserve at the end of the second quarter of 2008, total
adjusted distributable cash available for the period amounted to
$29.8 million. Of the adjusted distributable cash available, SFK Pulp declared
distributions of $2.7 million ($0.03 per unit) compared to $10.9 million
($0.12 per unit) in the corresponding quarter a year ago and retained
$27.1 million as its cash reserve. This cash reserve is used for the three
mills' scheduled outages and the difference is used to support SFK Pulp's
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 SFK Pulp's distribution
policy.

    NINE-MONTH PERIOD 2008

    Consolidated sales for the nine months ended September 30, 2008 reached
$406.9 million, an increase of $21.1 million compared with sales of
$385.8 million for the corresponding period of 2007. This increase is
comprised of price increases for $17.3 million and higher sales volume for
$3.8 million.
    EBITDA reached $45.5 million, or 11.2% of sales, compared with
$52.7 million, or 13.7% of sales, for the first nine months of 2007.
    Net earnings were $13.2 million, or $0.15 per basic unit and $0.14 per
diluted unit, compared with a net loss of $9.0 million or $0.10 per unit, both
basic and diluted, in the same period of 2007.

    Adjusted distributable cash(2)

    SFK Pulp generated adjusted distributable cash of $21.3 million. Including
the $13.9 million cash reserve at the end of 2007, total adjusted
distributable cash for the period amounted to $35.2 million. Of the adjusted
distributable cash available, SFK Pulp declared distributions of $8.1 million
($0.09 per unit) compared with $36.2 million ($0.40 per unit) for the
nine-month period last year and retained $27.1 million as its cash reserve.

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

    NBSK PULP

    Sales for the third quarter totalled $64.2 million, compared with
$64.8 million for the corresponding period of 2007. Sales volume was
82,379 tonnes, a decrease of 228 tonnes compared with 82,607 tonnes a year
ago.
    NBSK market pulp prices (for pulp delivered in Northern Europe) increased
by US$68 per tonne or 8% on average compared to the third quarter of 2007.
This increase resulted in a sales price of CAN$780 per tonne, CAN$4 per tonne
below the sales price of CAN$784 per tonne for the third quarter of 2007.
Since the average exchange rate is comparable for the corresponding quarters
of 2007 and 2008, the decrease in average sales prices is due to sales mix and
higher shipments overseas.
    Sales for the first nine months of 2008 were $201.2 million, compared with
$196.4 million for the same period last year. Year-to-date sales volume was
256,605 tonnes, up 12,399 tonnes from 244,206 tonnes for the first nine months
of 2007.
    NBSK market pulp prices increased 11% on average or US$86 per tonne to
reach US$886 per tonne for the first nine months this year. This increase,
combined with the strengthening of the Canadian dollar, when compared to the
corresponding period of 2007, resulted in an average sales price of
CAN$784 per tonne, CAN$20 below the sales price of CAN$804 per tonne in the
corresponding period of 2007.
    In a proactive measure to further minimize costs and alleviate upward
pressure on inventories, the scheduled semi-annual shutdown this month at the
Saint-Félicien Mill was extended from 7 to 12 days.

    RBK PULP

    Third quarter RBK pulp sales were $74.1 million, compared with
$62.4 million in 2007. This increase of $11.7 million is entirely attributable
to higher sales prices as sales volume is comparable for the two periods.
Third quarter sales volume was 94,872 tonnes, compared with 95,016 tonnes last
year. Average sales price in the third quarter increased by 18% from the same
period a year ago.
    Nine-month sales were $205.7 million, compared with $189.4 million a year
ago. This $16.3 million increase in sales is attributable to higher sales
prices for $21.3 million, partially offset by a lower sales volume for
$5.0 million. Year-to-date sales volume was 272,601 tonnes, compared to
279,866 tonnes for the same period in 2007. Nine-month average sales price
increased by 21% compared to the nine months last year.
    A major equipment failure at the Fairmont Mill forced a premature shutdown
on October 16, 2008, originally scheduled for the end of October. Production
resumed October 31st at a reduced operating rate and will not return to full
capacity for approximately one month. Management believes that this failure
should be covered by insurance, which will be subject to a standard
deductible.

    OUTLOOK
    -------

    "Both demand and prices for NBSK pulp continue to face world market
downward pressure. As for the RBK pulp, the impact is a similar downward
pressure, in light of our market-leading position in the United States. SFK
Pulp is taking all necessary measures to prudently manage working capital and
inventories. The Fund's cash reserve reached $27.1 million at the end of the
third quarter, above our policy of $20 million. While this could allow for
increased cash distributions, we have opted to further build this reserve in
order to effectively deal with potentially adverse market conditions during
the current world economic and financial crisis.
    In addition to this increased reserve, favourable exchange rates expected
through the balance of the year, reduced wastepaper prices and stringent
ongoing cost controls at our three mills position us to deal with existing
conditions.
    SFK Pulp is taking all necessary steps to maximize the potential of our
business and we remain prudently optimistic notwithstanding the headwinds
being experienced," concluded Mr. Côté.

    CONFERENCE CALL
    ---------------

    SFK Pulp will hold a conference call Monday, November 3, 2008 at
10:00 a.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. To participate in the conference call, investment
professionals and business media may dial 416-644-3423 (for all Toronto and
overseas participants) or 1-800-732-0232 (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 21287279#. The replay
will be available until 23:59 PM on Monday, November 10, 2008.

    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 in this press release and in SFK Pulp's Management's
Discussion and Analysis including, but not limited to, reallocation of pulp
sales from one customer to another, 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 MD&A for the quarter ended
September 30, 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 quarter ended September 30, 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.

    Attached: Summary of Results

    SFK Pulp - Financial Highlights - Third quarter ended September 30, 2008
    -------------------------------------------------------------------------
    (in thousands of Canadian         Three months ended   Nine months ended
    dollars except per Unit amounts)        September 30        September 30
                                              (unaudited)         (unaudited)
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
                                             $         $         $         $
    -------------------------------------------------------------------------
    Sales                              138,305   127,189   406,901   385,789
    Cost of sales                      119,342   105,989   353,999   313,582
    Selling and administrative
     expenses                            3,889     3,443    12,093    10,802
    Loss (gain) on derivative
     instruments                           257     1,039    (1,202)       43
    Loss on disposal of capital
     assets                                  -       622        18       622
    (Gain) loss on foreign currency
     translation                        (2,050)    2,933    (3,489)    8,077
    -------------------------------------------------------------------------
    EBITDA                              16,867    13,163    45,482    52,661
    Amortization of capital assets       9,859     9,726    29,285    29,128
    Financial charges                    3,664     4,081    10,871    15,004
    (Recovery of) provision for
     income taxes                       (5,313)      564    (7,830)   17,500
    -------------------------------------------------------------------------
    Net earnings (loss)                  8,657    (1,208)   13,156    (8,971)
    -------------------------------------------------------------------------
    Net earnings (loss) per Unit
      - basic                             0.10     (0.01)     0.15     (0.10)
      - diluted                           0.08     (0.01)     0.14     (0.10)
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in thousands of Canadian         Three months ended   Nine months ended
    dollars, except per Unit amounts)       September 30        September 30
                                              (unaudited)         (unaudited)
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
                                             $         $         $         $
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                         12,078       794    13,941    30,544
    -------------------------------------------------------------------------
    Less:
      Capital expenditures - cash        3,907     2,958    13,175     9,400
    -------------------------------------------------------------------------
    Standardized distributable cash(2)   8,171    (2,164)      766    21,144
    Less adjustments to standardized
     distributable cash:
      Changes in non-cash working
       capital items                    (2,218)   (9,861)  (20,975)   (9,795)
      Capital expenditures accrual
       variation                           661       576      (410)   (1,551)
      Amortization of deferred
       financing fees                      262       185       771       691
      Employee future benefits             180      (479)       84      (413)
    -------------------------------------------------------------------------
    Adjusted distributable cash(2)       9,286     7,415    21,296    32,212
    -------------------------------------------------------------------------
    Distributions declared               2,714    10,857     8,143    36,189
    -------------------------------------------------------------------------
    Excess (shortfall) over adjusted
     distributable cash                  6,572    (3,442)   13,153    (3,977)
    -------------------------------------------------------------------------
    Reserve for distributions at the
     beginning of the period            20,528    23,702    13,947    24,237
    -------------------------------------------------------------------------
    Reserve for distributions at the
     end of the period                  27,100    20,260    27,100    20,260
    -------------------------------------------------------------------------
    Per Unit amount
      - Standardized distributable
         cash                             0.09     (0.02)     0.01      0.23
      - Adjusted distributable cash       0.10      0.08      0.23      0.35
      - Distributions declared            0.03      0.12      0.09      0.40
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in thousands of Canadian         Three months ended   Nine months ended
    dollars except per Unit amounts)  September 30, 2008  September 30, 2008
                                              (unaudited)         (unaudited)
    -------------------------------------------------------------------------
                                         Total  Per Unit     Total  Per Unit
    -------------------------------------------------------------------------
    Total distributions declared        $2,714     $0.03    $8,143     $0.09
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in thousands of Canadian         Three months ended   Nine months ended
    dollars except per Unit amounts)  September 30, 2007  September 30, 2007
                                              (unaudited)         (unaudited)
    -------------------------------------------------------------------------
                                         Total  Per Unit     Total  Per Unit
    -------------------------------------------------------------------------
    Total distributions declared       $10,857    $0.120   $36,189    $0.400
    -------------------------------------------------------------------------

    (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) 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.
    
    %SEDAR: 00018041EF




For further information:

For further information: Investors & Analysts: Patsie Ducharme,
Corporate Controller, (450) 677-7857 ext. 2225.; Media & Other: Rick Leckner,
MaisonBrison, (514) 731-0000

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