09:26:16 EDT Sat 29 Apr 2017
Enter Symbol
or Name
USA
CA



Fortress Paper Ltd
Symbol C : FTP
Shares Issued 14,286,092
Close 2017-03-20 C$ 7.99
Recent Sedar Documents

Fortress loses $7.27-million in Q4

2017-03-20 20:53 ET - News Release

Mr. Yvon Pelletier reports

FORTRESS PAPER ANNOUNCES FOURTH QUARTER 2016 RESULTS

Fortress Paper Ltd. had fourth quarter 2016 operating EBITDA (net income before interest, income taxes, depreciation, amortization, non-operating income and expenses, and stock-based compensation) of $6.4-million, an increase of $3.1-million versus the prior-year period and a decrease of $1.2-million over the previous quarter. The dissolving pulp segment generated operating EBITDA of $6.7-million, and the security paper products segment generated operating EBITDA of $1.6-million. Corporate costs included in operating EBITDA were $1.9-million.

"Management is pleased to report an improved quarter of operating EBITDA compared to the prior year. As noted in our third quarter release, the fourth quarter is typically a seasonally slow period due to the annual maintenance shut and the winter conditions experienced at the FSC mill. We are very encouraged that the fourth quarter at the FSC mill represented the best fourth quarter for the mill since its restart after its conversion to a dissolving pulp mill. We produced 5 per cent more tonnes versus the prior-year period, and quality improved significantly," stated chief executive officer Yvon Pelletier. "The company's first quarter is expected to result in a larger year-over-year improvement partly because management believes that the FSC mill has made significant progress in resolving issues related to digester productivity encountered during previous winters. Management anticipates company operating EBITDA to materially improve in 2017 compared to 2016."

Fourth quarter 2016 segment results

The dissolving pulp segment generated operating EBITDA of $6.7-million for the quarter ended Dec. 31, 2016, representing an increase of $5.2-million compared with the prior-year period and a decrease of $5.2-million compared with the third quarter. The fourth quarter of 2016 was favourably impacted by improvements in sales and production volume, pricing and pulp quality, which resulted in a lower discount to list price relative to the prior-year period, but were partially offset by lower revenues for the cogeneration facility. Operating EBITDA results for the fourth quarter compared with the third quarter were negatively impacted by higher costs associated with the planned maintenance shutdown, seasonality and investment in quality through longer production times and fibre management. Pulp quality improved significantly year over year in both the fourth quarter and full year. The discount to list price realized at the FSC mill was reduced by over 50 per cent on average or approximately $25 per tonne for the year ended Dec. 31, 2016, relative to the prior year in part due to quality improvement. During the quarter ended Dec. 31, 2016, the Fortress specialty cellulose (FSC) mill sold 30,962 air-dry metric tonnes of dissolving pulp compared with 40,992 air-dry metric tonnes in the previous quarter and 29,424 air-dry metric tonnes in the prior-year comparative period.

The security paper products segment generated operating EBITDA of $1.6-million for the fourth quarter of 2016, an increase of $3.4-million when compared with the third quarter of 2016, and a $2.3-million decrease when compared with results in the fourth quarter of 2015. The Landqart mill sold 2,474 tonnes of security paper in the fourth quarter of 2016, compared with 2,431 and 2,523 tonnes of security paper sales in the third quarter of 2016 and fourth quarter of 2015, respectively. Security paper production includes banknotes and passports, which result in varying degrees of costs and margins depending on the complexity of the security features included.

Management's outlook

Dissolving pulp segment

The FSC mill experienced its best fourth quarter operating EBITDA result since the mill conversion completed in 2011. In the fourth quarter of 2016, the FSC mill's production costs, including amortization of some of the shutdown costs and the positive impact of the cogeneration facility, averaged $926 per air-dry metric tonne (excluding the $77-per-air-dry-metric-tonne impact of the shutdown) of dissolving pulp produced, which was above trend. Production costs are expected to be lower in the first quarter of 2017, relative to the prior-year comparative period, due, in part, to significant progress in resolving issues related to digester production encountered during previous winters. The outlook for the rest of 2017 is also positive.

Management continues to focus on cost reductions, production improvement and power generation to improve margins at the FSC mill. The lean six sigma program has continued to improve mill efficiencies and stabilize operations. In October, 2016, the FSC mill appointed a new president of the dissolving pulp segment with significant expertise in lean six sigma, which management expects will contribute to further improvements at the mill.

Assuming production cost improvement and based on current dissolving pulp pricing and foreign exchange rates, management anticipates that FSC will generate materially higher operating EBITDA in 2017 versus 2016.

Management expects improving viscose staple fibre (VSF) and dissolving pulp pricing through the first quarter of 2017 and into the stronger seasonal summer months in part due to increasing demand in yarn and textile markets. Supporting this outlook was a stable dissolving pulp price of $935 (U.S.) per tonne during the typically weak holiday and Chinese new year (CNY) period, as well as a subsequent rise after CNY to $955 (U.S.) as of March 16, 2017, which represents a 15-per-cent increase compared with the same time last year. Dissolving pulp and VSF prices have increased by $128 (U.S.) per tonne and $747 (U.S.) per tonne, respectively, year over year.

Security paper products segment

The Landqart mill continues to build on a strong order book for 2017 and is expanding the 2018 order book, composed of a mix of new and repeat orders. Management is pleased to announce a new Durasafe customer. This order is anticipated to begin shipping in 2017. Durasafe also continues to be tested by multiple customers, and trials are anticipated to result in at least one incremental order in the next 12 months. Management also expects that the installation of a previously announced finishing machine will increase capacity in 2017 relative to 2016. Management anticipates operating EBITDA to materially improve in 2017 compared with 2016.

Corporate and cash

Corporate expenses in the fourth quarter were down $600,000 from the previous quarter to $1.9-million. Most of this decrease was due to lower transition expenses, which are not expected to recur. Quarterly 2017 corporate expenses are anticipated to be closer to the fourth quarter levels than the third quarter in 2016.

Cash and restricted cash ended the year at $37.1-million down from $95.3-million in the previous quarter, of which $36.2-million of this decrease is attributed to the repayment of the company's 2016 debentures. In addition, cash on hand as at Dec. 31, 2016, was impacted lower by the timing of working capital items. In the first week of January, the receipt of $10.5-million from trade accounts receivable at the Landqart mill improved the cash balance. Also, subsequent to the end of the fourth quarter, the company closed on a long-term loan secured by the cogeneration assets and thereafter repaid early the outstanding convertible debentures due in 2017. The net effect of the financing and repayment of debt transactions that occurred subsequent to the fourth quarter added approximately $10.2-million of cash and $3.6-million of restricted cash to the balance sheet. During 2016 and subsequent to year-end, Fortress used cash of $72.5-million to reduce debt and added $40.0-million of debt repayable over 14 years and $4.0-million of debt repayable over seven years.

Management is pleased with the increased liquidity profile created in 2016 and believes that cash on hand and anticipated cash generated from operations are sufficient to meet all obligations and future business initiatives.

For a summary of significant developments, please refer to management's discussion and analysis for the three- and 12-month periods ended Dec. 31, 2016 (available on SEDAR).

Selected financial information

The selected financial information presented herein is qualified in its entirety by, and should be read in conjunction with, the company's audited consolidated financial statements as at Dec. 31, 2016, the related notes thereto, and management's discussion and analysis, which are available on SEDAR.

Reference is made in this news release to operating EBITDA (defined as net income before interest, income taxes, depreciation, amortization, non-operating income and expenses, and stock-based compensation), which the company considers to be an indicative measure of operating performance and a metric to evaluate profitability. Operating EBITDA is not a generally accepted earnings measure and should not be considered as an alternative to net loss or cash flows as determined in accordance with international financial reporting standards. As there is no standardized method of calculating this measure, the company's operating EBITDA may not be directly comparable with similarly titled measures used by other companies.

                    SELECTED FINANCIAL INFORMATION AND STATISTICS
                      (thousands of dollars, except shipments)

                                               Q4 2016        Q3 2016        Q4 2015

Sales                                          $80,863        $82,148        $74,576
Operating EBITDA                                 6,352          7,628          3,335
Net (loss) income                               (7,274)         20,301        (3,680)
Adjusted net (loss)                             (6,980)        (3,847)        (4,239)
Paper shipments (tonnes)                         2,474          2,431          2,523
Pulp shipments (air-dry metric tonnes)          30,962         40,992         29,424
                                               -------        -------        -------

A conference call to discuss the financial results for the fourth quarter 2016 will be held on March 21, 2017, at 9 a.m. PDT. To participate in the conference call, please dial one of the following numbers:

Vancouver:  604-681-8564

Calgary or international:  403-532-5601

Edmonton:  780-429-5820

Toronto:  416-623-0333

Ottawa:  613-212-0171

Montreal:  514-687-4017

Toll-free dial-in number:  1-855-353-9183 from Canada and the United States

Participant passcode:  15086 followed by the number sign

Conference reference No.:  1212986 followed by the number sign

A replay of the conference call will be available until midnight, April 20, 2017. To access the replay, listeners may dial 1-855-201-2300 from Canada or the U.S. or dial 403-255-0697 from local Calgary or international. The conference reference number is 1212986 followed by the number sign, and the participant passcode to access the replay is 15086 followed by the number sign.

A presentation to complement the company's fourth quarter earnings conference call is available under the investor relations section at the Fortress website or by sending a request to info@fortresspaper.com.

About Fortress Paper Ltd.

Fortress Paper operates internationally in two distinct business segments: dissolving pulp and security paper products. The company operates its dissolving pulp business at the Fortress specialty cellulose mill located in Canada, which has expanded into the renewable energy generation sector with the construction of a cogeneration facility. The company operates its security paper products business at the Landqart mill located in Switzerland, where it produces banknote, passport, visa, and other brand protection and security papers.

We seek Safe Harbor.

© 2017 Canjex Publishing Ltd. All rights reserved.