SFK Pulp Reports 2009 First Quarter Results



    LONGUEUIL, QC, May 15 /CNW Telbec/ - SFK Pulp Fund (TSX: SFK.UN) today
announced results for the first quarter ended March 31, 2009. Sales decreased
$53.0 million to $78.6 million, while earnings before amortization, financial
charges and income taxes (EBITDA)(1) amounted to a loss of $2.8 million, as
opposed to a profit of $18.6 million last year. The net loss for the quarter
totalled $15.1 million compared with net earnings of $7.7 million for the
corresponding period of 2008.


    (in thousands of Canadian dollars except      Three months ended March 31
     per Unit amounts)                                       (unaudited)
                                                            2009        2008
    Sales                                                 78,611     131,646
    EBITDA(1)                                             (2,789)     18,640
    Net (loss) earnings                                  (15,059)      7,675
    Net (loss) earnings per Unit
      - basic
      - diluted                                            (0.17)      (0.17)
                                                            0.09        0.08

    "Market conditions were difficult and further deteriorated during the
first quarter of 2009. As a result of several paper mill closures in North
America and Europe, both permanent and temporary, pulp demand was reduced to
historically low levels and prices continued to decline. This had a
significant effect on SFK Pulp's sales volumes and consequently on its
    We have already implemented a cost reduction program to further tighten
existing stringent spending controls at all sites, with increased emphasis on
margins and liquidity optimization. A second phase of this program also
focuses on minimizing costs while the mills are idled for market-related
reasons. In addition, current economic conditions have also reduced certain
commodity costs used in our production, such as fuel, certain chemicals and
    Subsequent to the quarter, on April 24, 2009, we were advised by Abitibi
that it was immediately terminating its long-term fibre and bark supply
agreements with us. All avenues are being pursued to secure optimal fibre and
bark supply arrangements for the Saint-Félicien Mill and to identify solutions
which will adequately support SFK Pulp during these challenging times.
    Accordingly, on April 29, 2009, we filed with the Québec Superior Court a
motion for the issuance of provisional, safeguard and final orders declaring
null the termination of the supply agreements. Our case was heard earlier this
week, but as of today, no judgment has been rendered. In addition, as
announced on April 27, 2009, SFK Pulp is continuining to work closely with the
Québec government to explore the types of financial assistance which will
permit SFK Pulp to manage the current crisis. Talks are proceeding positively
and we are confident of rapidly finding a solution," commented Pierre Gabriel
Côté, President and Chief Executive Officer.


    The Saint-Félicien Mill reopened on May 10, 2009 and is fully operational.
Still, SFK Pulp continues to proactively balance its order book with
manageable inventory levels and, reflecting current market demand, will be
taking additional market-related downtime towards the end of the second
quarter and early in the third quarter. Combined with downtime taken since the
beginning of 2009, these additional measures will result in 80,000 tonnes of
NBSK pulp and 93,000 tonnes of RBK pulp removed from production.


    Consolidated sales declined to $78.6 million, a decrease of $53.0 million
when compared with sales of $131.6 million in the first quarter of 2008. This
reduction reflects a $48.0 million sales decrease attributable to lower sales
volume and a $29.0 million decline due to lower pulp prices. These factors
were partially offset by a $24.0 million increase related to the lower value
of the Canadian dollar in comparison with the US currency.
    EBITDA amounted to a loss of $2.8 million, or (3.5%) of sales, as opposed
to EBITDA of $18.6 million, or 14.2% of sales, in the corresponding period of
2008. As a result, SFK Pulp posted a net loss of $15.1 million or $0.17 per
unit (basic and diluted), compared with net earnings of $7.7 million or $0.09
per basic unit ($0.08 diluted) for the first quarter of 2008.

    Adjusted distributable cash(2)

    SFK Pulp generated negative adjusted distributable cash of $6.4 million.
Including the $29.6 million reserve(3) at the end of the fourth quarter of
2008, total adjusted distributable cash available for the period amounted to
$23.2 million. As distributions remained suspended throughout the first
quarter of 2009, the reserve stood at $23.2 million as at March 31, 2009.
    Although the 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 SFK Pulp's balance sheet.
    As at March 31, 2009, SFK Pulp's balance sheet remained strong with a debt
to total capitalization ratio of 0.24, in full compliance with its credit
facility covenant. Current market conditions further impacted the carrying
value of finished products and required an additional write-down of $2.9
million during the first quarter of 2009 to reflect their lower realizable


    NBSK Pulp

    First quarter sales totalled $37.5 million, compared with $68.6 million
for the corresponding period of 2008. Sales volume was 56,116 tonnes, a
decrease of 30,892 tonnes from a year ago. This decrease is attributable to
the difficult economic conditions that caused SFK Pulp to take market-related
downtime for several weeks during the quarter. EBITDA for NBSK pulp operations
showed a loss of $4.5 million as opposed to a positive EBITDA of $15.1 million
a year earlier.
    NBSK market pulp prices (for pulp delivered in Northern Europe) decreased
by US$295 per tonne or 34% on average compared with the first quarter of 2008.
However, the year-over-year decline in the value of the Canadian currency
versus the US dollar resulted in an average sales price of CAN$729 per tonne
in the first quarter of 2009 compared with CAN$884 per tonne a year earlier.

    RBK pulp

    Sales of RBK pulp amounted to $41.1 million in the first quarter of 2009,
compared with $63.1 million a year earlier. This decrease is mainly
attributable to lower sales volume and selling prices, partially offset by a
weaker Canadian dollar compared to the US currency. First quarter sales volume
was 52,676 tonnes, compared with 88,407 tonnes last year, while average
selling prices declined by 12% in US dollars, but increased 9% in Canadian
dollars. EBITDA stood at $1.7 million, or 4.1% of sales, compared with $3.5
million, or 5.6% of sales a year earlier. In addition, our two US mills
located in Menominee and Fairmont took market-related downtime during the
first quarter.
    The US government subsidy on black liquor has resulted in a dilemma for
our RBK pulp customers to choose subsidized virgin kraft pulp rather than
recycled kraft pulp for their recycled content products. However, the Obama
administration wants to stop billions of dollars of tax credits and direct
payments to the US kraft industry under a tax provision originally intended to
promote alternative fuels for motor vehicles.


    As at March 31, 2009, SFK Pulp was in full compliance with its debt
covenants. However, the ongoing negative market conditions have resulted in
lower EBITDA than anticipated. Based on current forecasts, SFK Pulp expects to
be unable to meet the interest coverage ratio prescribed in its credit
facility before the end of 2009. In addition, in the case of an unfavorable
judgment in the litigation opposing SFK Pulp to Abitibi, SFK Pulp will no
longer benefit from the price formula for its fibre purchases from Abitibi,
which currently provides a $20/tonne price reduction from market price.
Moreover, it will need to assess the impact of this termination under the
terms of its credit agreement. Under these circumstances, the ability of SFK
Pulp to continue its operations will be dependent on the support of its
lenders or its ability to secure alternative financing.
    As a proactive measure, SFK Pulp has initiated discussions with its
lenders' agent in order to evaluate the situation and begin a planning process
should certain waivers become necessary. SFK Pulp is also assessing and
implementing strategies to ensure full compliance with its financial
covenants, including initiatives to improve profitability and reduce debt.
    "Our disagreement with Abitibi combined with current unfavorable market
pulp conditions and high worldwide inventory levels are substantial challenges
which the SFK Pulp team must face. However, recent market consensus is that
the situation will improve in the fourth quarter this year. We remain
committed to protecting our balance sheet and prudently managing our working
capital and inventory levels. SFK Pulp has great assets, a low debt level,
loyal customers and a dedicated workforce and, on behalf of all its
stakeholders, will continue to take all necessary measures to mitigate the
current challenges," concluded Mr. Côté.


    SFK Pulp will hold a conference call Tuesday, May 19, 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 416-644-3415 (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 21305794#. The replay
will be available until 11:59 PM on Wednesday, May 26, 2009.


    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.


    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, possible impact of the termination of the fibre and bark supply
agreement, possible impact of a default under its credit agreement, 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 first
quarter ended March 31, 2009 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 first quarter ended March 31,
2009 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, bark and wastepaper deliveries to
SFK Pulp will be sufficient to fulfill the mills' requirements, wood fibre,
bark and wastepaper costs will not increase materially, pulp prices, pulp
demand 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

    Note to readers: Complete unaudited 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 - First quarter ended March 31, 2009

    (in thousands of Canadian dollars except      Three months ended March 31
     per Unit amounts)                                       (unaudited)
                                                            2009        2008
                                                               $           $
    Sales                                                 78,611     131,646
    Cost of sales                                         76,635     110,804
    Selling and administrative expenses                    4,346       4,708
    Loss (gain) on derivative instruments                  1,715        (680)
    Loss on disposal of capital assets                       229           -
    Gain on foreign currency translation                  (1,525)     (1,826)
    EBITDA(1)                                             (2,789)     18,640
    Amortization of capital assets                        10,191       9,750
    Financial charges                                      3,360       3,681
    Recovery of income taxes                              (1,281)     (2,466)
    Net (loss) earnings                                  (15,059)      7,675
    Net (loss) earnings per Unit - basic                   (0.17)       0.09
                                 - diluted                 (0.17)       0.08

                                                         Three months ended
    (in thousands of Canadian dollars except                  March 31
     per Unit amounts)                                       (unaudited)
                                                            2009        2008
                                                               $           $
    Cash flows from operating activities                  (4,121)      5,791
      Capital expenditures - cash                          2,810       3,972
    Standardized distributable cash(2)                    (6,931)      1,819
    Less adjustments to standardized distributable
    Changes in non-cash working capital items               (308)     (7,775)
    Capital expenditures accruals                           (781)        187
    Amortization of deferred financing fees                  305         253
    Employee future benefits                                 293        (156)
    Adjusted distributable cash(2)                        (6,440)      9,310
    Distributions declared                                     -       2,714
    (Shortfall) excess over adjusted distributable
     cash                                                 (6,440)      6,596
    Reserve for distributions at the beginning of
     the period(3)                                        29,649      13,947
    Reserve for distributions at the end of the
     period(3)                                            23,209      20,543
    Per Unit amount
    - Standardized distributable cash                      (0.08)       0.02
    - Adjusted distributable cash                          (0.07)       0.10
    - Distributions declared                                   -        0.03

    (in thousands of Canadian    Three months ended      Three months ended
     dollars except per Unit       March 31, 2009          March 31, 2008
    amounts)                         (unaudited)             (unaudited)
                                   Total    Per Unit       Total    Per Unit
    Total distributions declared       -           -      $2,714       $0.03

    (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.

    (3) 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.
    %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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