SFK Pulp Fund reports results for its second quarter ended June 30, 2007



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

    - Sales totalled $124.1 million, an increase of $53.5 million when
      compared with the second quarter of 2006. Total sales volume reached
      170,000 tonnes.
    - EBITDA(1) reached $11.6 million, an increase of $5.5 million when
      compared to the corresponding period last year.
    - Distributions declared to unitholders totalled $13.6 million ($0.15 per
      Unit) in the second quarter. This compares with distributions of
      $0.9 million ($0.015 per Unit) declared to unitholders in the
      corresponding quarter of 2006.
    - A non-cash future income tax expense of $12.3 million recorded as a
      result of newly adopted federal legislation to implement a tax on
      distributions paid by publicly traded income trusts in Canada,
      effective in 2011. Such expense represents a significant portion of the
      net loss of $13.9 million incurred in the second quarter of 2007.
    - The Board of Directors approved two strategic capital expenditure
      projects representing a total investment of $10 million.

    TSX:SFK.UN
    

    LONGUEUIL, QC, Aug. 3 /CNW Telbec/ - For the second quarter ended
June 30, 2007, SFK Pulp recorded sales of $124.1 million. Earnings before
amortization, financial charges and income taxes (EBITDA)(1) stood at
$11.6 million and a net loss of $13.9 million was incurred. This compares with
sales of $70.6 million, EBITDA of $6.2 million and a net loss of $2.9 million
for the same period last year.
    On June 12, 2007, the Canadian Parliament substantively enacted
legislation to implement a tax on distributions paid by publicly traded income
trusts in Canada, effective in 2011. As a result of this new legislation,
Canadian GAAP requires that publicly traded income trusts reflect future
income taxes in their financial statement beginning in the second quarter
ended June 30, 2007. Accordingly, the Fund recorded a non-cash future income
tax expense to net income of $12.3 million in the second quarter 2007. With
the recording of this future income tax, the Fund recorded a net loss of
$13.9 million. Future income tax is a non-cash item that has no current impact
on our cash from operating activities.
    "The quarterly results demonstrate the positive impact of the acquisition
of the RBK pulp mills on the Fund while the Saint-Félicien Mill experienced a
more difficult quarter due to its semi-annual outage for major maintenance,
combined with a rapid strengthening of the Canadian dollar and a decrease in
sales attributable to temporary downtime taken by some of its important
customers. Despite those unfavourable events, our sales, EBITDA and
distributable cash per unit improved significantly compared with the
corresponding quarter of 2006", said André Bernier, President and Chief
Executive Officer of SFK Pulp.

    Second Quarter 2007
    -------------------

    Operating results

    Sales

    Consolidated sales in the second quarter of 2007 reached $124.1 million,
an increase of $53.5 million when compared with sales of $70.6 million in the
second quarter of 2006. This increase is attributable to the Fairmont and
Menominee Mills for $63.7 million, which was partially offset by a decrease in
sales of NBSK pulp of $10.2 million when compared with the corresponding
quarter of 2006.
    The decrease in sales of NBSK is due to a lower sales volume for
$17.3 million, which was partially offset by higher pulp prices for
$7.1 million. Sales volume were negatively impacted by temporary market
related downtime taken by some of the customers of the Saint-Félicien Mill for
approximately 10,000 tonnes. NBSK pulp inventories at the end of the second
quarter were at a normal level.
    Total sales volume reached 169,911 tonnes; RBK pulp accounting for
94,397 tonnes and NBSK pulp for 75,514 tonnes. During the second quarter of
2006, the sales volume totalled 100,123 tonnes (a record level) (for NBSK pulp
only).

    Production and cost of sales

    Production at the mills during the second quarter of 2007 totalled
178,566 tonnes, compared with 85,343 tonnes (for NBSK pulp only) for the
second quarter of 2006. The 95,201 tonnes of RBK pulp produced by the acquired
mills in Fairmont and Menominee accounted for the increase, while the NBSK
pulp production at the Saint-Félicien Mill of 83,365 tonnes was 1,978 tonnes
lower than in the corresponding quarter of 2006.
    Cost of sales for the Saint-Félicien Mill increased by 1.8% to $631 per
tonne in the second quarter of 2007 when compared with the corresponding
period of 2006 ($620). The increase resulted mainly from higher wood fibre
costs.
    Cost of sales for the Fairmont and Menominee Mills was $595 per tonne and
totalled $56.2 million for the three-month period ended June 30, 2007.

    EBITDA(1)

    EBITDA for the second quarter of 2007 totalled $11.6 million, an increase
of $5.5 million when compared with the corresponding period of 2006
($6.2 million). The Fairmont and Menominee Mills accounted for $4.0 million of
this increase, while the Saint-Félicien Mill accounted for $1.5 million.

    Distributable cash(3)

    During the second quarter of 2007, SFK Pulp generated distributable cash
of $7.6 million. Including the $29.7 million cash reserve at the end of the
first quarter 2007, total distributable cash available amounted to
$37.3 million. Of the distributable cash available, SFK Pulp declared
distributions of $13.6 million ($0.15 per unit) and retained $23.7 million as
its cash reserve, of which $1.2 million will be used for the Saint-Félicien
Mill's semi-annual outage in mid-October 2007 and the remaining $22.5 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, 2007, SFK Pulp declared distributions
of $13.6 million ($0.15 per unit), compared to $0.9 million ($0.015) per unit
in the corresponding quarter of 2006.

    SIX-MONTH PERIOD 2007
    ---------------------

    Operating results

    Sales

    Consolidated sales for the six-month period ended June 30, 2007 reached
$258.6 million, an increase of $125.5 million when compared with sales of
$133.1 million for the same period in 2006. This increase is attributable to
the Fairmont and Menominee Mills for $127.0 million, which was partially
offset by a decrease in sales of NBSK pulp of $1.5 million. The decrease in
the NBSK sales is due to a lower sales volume for $22.0 million, which was
partially offset by higher pulp prices for $20.5 million.
    Total sales volume reached 346,449 tonnes; RBK pulp accounting for
184,850 tonnes and NBSK pulp for 161,599 tonnes. During the first six months
of 2006, the sales volume totalled 193,522 tonnes (for NBSK pulp only).

    Production and cost of sales

    Production at the mills during the first six months of 2007 totalled
362,437 tonnes, compared with 174,541 tonnes (for NBSK pulp only) for the
corresponding period of 2006. The 190,368 tonnes of RBK pulp produced by the
acquired mills in Fairmont and Menominee accounted for the increase, while the
NBSK pulp production at the Saint-Félicien Mill of 172,069 tonnes was
2,472 tonnes lower than in the corresponding period of 2006.
    Cost of sales for the Saint-Félicien Mill increased by 1.0% to $603 per
tonne in the first six month of 2007 when compared with the corresponding
period of 2006 ($597) on higher fibre cost.
    Cost of sales for the Fairmont and Menominee Mills was $595 per tonne and
totalled $110.1 million for the six-month period ended June 30, 2007.

    Distributable cash(3)

    For the six-month period ended June 30, 2007, SFK Pulp generated
distributable cash of $24.8 million. Including the $24.2 million cash reserve
at the end of 2006, total distributable cash for the period amounted to
$49.0 million. Of the distributable cash available, SFK Pulp declared
distributions of $25.3 million ($0.28 per Unit) and retained $23.7 million as
its cash reserve, of which $1.2 million will be used for the Saint-Félicien
Mill's semi-annual outage in mid-October 2007 and $22.5 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

    For the six-month period ended June 30, 2007, SFK Pulp declared
distributions of $25.3 million ($0.28 per unit), compared with $0.9 million
($0.015 per unit) for the six-month period ended June 30, 2006.

    Outlook
    -------

    "Market conditions for the NBSK pulp sector remain favourable for
producers as worldwide pulp inventories continue to decline and worldwide
exports are increasing. The announced price increases for NBSK pulp delivered
in Northern Europe for the month of July have been implemented. Operations and
sales at the Saint-Félicien Mill are now normal and our inventories remain at
a normal level in anticipation of the semi-annual outage scheduled in October
2007.
    Market conditions for the RBK pulp sector are also good, with a sustained
demand for recycled pulp from the printing sector. The production at each of
the Fairmont and Menominee Mills is on budget.
    However, we remain concerned about the recent strengthening of the
Canadian dollar, the price increase of wood fibre and wastepaper and the
potential impact that these events may have on our financial results. Actions
are being taken at the Fairmont and Menominee Mills to minimize the impact of
the recent price increases of wastepaper.
    We also continue to carry out the capital expenditure strategy for our
mills which will represent investments of approximately $10.0 million in the
last two quarters of 2007. The investments largely consist of expenditures to
implement a new unbleached pulp washing system at the Saint-Félicien Mill as
well as various projects aimed at reducing power consumption.
    I am also pleased to announce that the Board of Directors approved two
strategic capital expenditure projects representing a total investment of
$10 million. Of that $10 million, $8 million will be allocated to the final
phase of the project aimed at modernizing the automated control system on the
pulp machine at the Saint-Félicien Mill. This project is scheduled to be
completed in 2009. The remaining $2 million will be invested in an alternative
pulping system for the Fairmont Mill. This project will allow the Mill to
process alternative grades of wastepaper and will contribute to reduce the
Mill's fibre cost. This project is scheduled to be completed in 2008",
continued André Bernier, 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 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, are intended to
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 the lack of accuracy and completeness of
market and industry data, adverse operating conditions, unforeseen capital
expenditures, changes in prices of raw materials and operating costs, changes
in wood fibre and waste paper costs and availability, dependence on
cross-border trade, vulnerability to economic conditions, changes in selling
prices and volume sold, competition, regulatory change, foreign exchange,
interest rates, reliance on key personnel, uninsured and underinsured losses,
the integration of the Fairmont and Menominee Mills, the ability to achieve
revenue synergies resulting from the acquisition of the Fairmont and Menominee
Mills, potential undisclosed liabilities associated with this acquisition,
changes in the business strengths of the Fairmont and Menominee Mills,
restrictions on potential growth, refinancing, credit and collection and other
factors referenced in SFK Pulp's management's discussion and analysis for the
year ended December 31, 2006 and in SFK Pulp's continuous disclosure filings,
which may be found through the Internet on SFK Pulp's website at www.sfk.ca or
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. These forward-looking statements are made as of
the date of this press release, and, except as required by applicable 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 Tuesday August 7, 2007 at 2:00 p.m.
(Eastern Time), to discuss its results. President and Chief Executive Officer
André Bernier, and Paul Bourque, Chief Financial Officer, 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 (514)
861-2255 or 1-866-696-5910, access code 3228333#. 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 3228333#(pound key). The replay
will be available until September 6, 2007.

    Attached: Summary of Results


    
     SFK Pulp - Financial Highlights - Second Quarter ended June 30, 2007

          (in thousands of Canadian dollars except per unit amounts
                           and percentage figures)

    -------------------------------------------------------------------------
                           Three months ended           Six months ended
                                 June 30                     June 30
                               (unaudited)                 (unaudited)
    -------------------------------------------------------------------------
    FINANCIAL RESULTS      2007          2006          2007          2006
    -------------------------------------------------------------------------
                              $             $             $             $
    -------------------------------------------------------------------------
    Sales               124,128        70,638       258,600       133,117
    -------------------------------------------------------------------------
    Cost of sales       103,831        62,108       207,593       115,442
    -------------------------------------------------------------------------
    Selling and
     administrative
     expenses             3,501         1,420         7,361         3,260
    Loss (gain) on
     derivative
     instruments          1,371             -          (996)            -

    Loss on foreign
     currency
     translation          3,811           960         5,144           723
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    EBITDA(1)            11,614         6,150        39,498        13,692
    -------------------------------------------------------------------------
    EBITDA Margin (%)       9.4%          8.7%         15.3%         10.3%
    -------------------------------------------------------------------------
    Amortization          9,714         7,451        19,402        14,814
    -------------------------------------------------------------------------
    Financial charges     4,216         1,588        10,923         3,139
    -------------------------------------------------------------------------
    Provision for
     income taxes        11,619 (2)        41        12,900 (2)        82
    -------------------------------------------------------------------------
    Net loss            (13,935)(2)    (2,930)       (3,727)(2)    (4,343)
    -------------------------------------------------------------------------
    Net loss per
     unit - basic
     and diluted          (0.15)        (0.05)        (0.04)        (0.07)
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    DISTRIBUTABLE          Three months ended           Six months ended
     CASH(3)                     June 30                     June 30
                               (unaudited)                 (unaudited)
    -------------------------------------------------------------------------
    FINANCIAL RESULTS      2007          2006          2007          2006
                                    (restated)(4)               (restated)(4)
    -------------------------------------------------------------------------
                              $             $             $             $
    -------------------------------------------------------------------------
    Cash flows from
     operations          12,822         6,506        29,750        10,892
    -------------------------------------------------------------------------
    Less:
      Changes in non-
       cash operating
       working capital
       items              2,918         1,779            66            95
      Capital
       expenditures       2,059         1,316         4,315         3,118
      Employee future
       benefits              26           147            66           229
      Amortization
       of deferred
       financing fees       248            59           506           117
    -------------------------------------------------------------------------
    Distributable cash    7,571         3,205        24,797         7,333
    Distributions
     declared to
     unitholders         13,571           889        25,332           889
    -------------------------------------------------------------------------
    Increase in
     distributable
     cash                (6,000)        2,316          (535)        6,444
    -------------------------------------------------------------------------
    Reserve for
     distributions at
     the beginning of
     the period          29,702        11,709        24,237         7,581
    -------------------------------------------------------------------------
    Reserve for
     distributions at
     the end of the
     period              23,702        14,025        23,702        14,025
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Distributions                     Three months ended June 30
     to unitholders                          (unaudited)
    -------------------------------------------------------------------------
    (in thousands of
     Canadian dollars
     except per unit
     amounts)                     2007                        2006
    -------------------------------------------------------------------------
                          Total      Per unit         Total      Per unit
    -------------------------------------------------------------------------
    Total distri-
     butions declared   $13,571        $0.150          $889        $0.015
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Distributions                     Six months ended June 30
     to unitholders                          (unaudited)
    -------------------------------------------------------------------------
    (in thousands of
     Canadian dollars
     except per unit
     amounts)                     2007                        2006
    -------------------------------------------------------------------------
                          Total      Per unit         Total      Per unit
    -------------------------------------------------------------------------
    Total distri-
     butions declared   $25,332        $0.280          $889        $0.015
    -------------------------------------------------------------------------


    (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) Includes a non-cash income tax expense of $12.3 million resulting
        from newly adopted federal legislation to implement a tax on
        distributions paid by publicly traded income trusts in Canada.

    (3) Distributable cash of SFK Pulp is a non-GAAP measure generally used
        by Canadian open-ended trusts as an indicator of financial
        performance and it should not be seen as a measure of liquidity or a
        substitute for comparable metrics prepared in accordance with GAAP.
        SFK Pulp's 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 distributable cash calculated
        from adjusted cash flow from operations is the most appropriate
        measure to help readers evaluate the performance of the fund as it is
        the most comparable measure from period to period. In addition, this
        measure is currently used by investors, management and other
        interested parties to evaluate the ongoing performance of SFK Pulp.

    (4) 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
        and reserve was not material.
    
    %SEDAR: 00018041EF




For further information:

For further information: Investors & Analysts: Paul Bourque, Chief
Financial Officer, (450) 677-7857 ext. 2224; Media & Other: Suzanne Lalande,
Optimum Public Relations, (514) 287-4710

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SFK PULP FUND

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