VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 13, 2013) -
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
Fortress Paper Ltd. (TSX:FTP) ("Fortress Paper", "we", "our", "us" or the "Company") reported 2013 first quarter EBITDA loss of $2.6 million. Excluding corporate costs, combined EBITDA loss of the three business segments Fortress operated in during the first quarter of 2013 was $0.3 million in the three months ended March 31, 2013. The recently discontinued Specialty Papers Segment contributed $10.5 million EBITDA, while the Dissolving Pulp Segment and the Security Paper Products Segment generated EBITDA losses of $8.7 million and $2.1 million, respectively. Corporate costs contributed to EBITDA loss in the amount of $2.3 million.
Fortress reported a net loss (including discontinued operations) of $12.4 million, or diluted loss per share of $0.85 for the first quarter of 2013 on sales of $99.7 million. In the fourth quarter of 2012, the Company reported a net loss of $4.2 million or diluted loss per share of $0.29 on sales of $96.1 million, and for the first quarter of 2012 net loss of $10.7 million or diluted loss per share of $0.75 on sales of $61.4 million.
The Fortress Specialty Cellulose mill is still considered to be in ramp up mode working towards full capacity and operating efficiencies. Although market prices for dissolving pulp improved in the first quarter of 2013, our sales in one quarter are typically secured by the end of the previous quarter. The combination of the lower realized dissolving pulp prices and challenges experienced at the mill contributed to disappointing results in the first quarter of 2013.
The Security Paper Products Segment had its best quarterly result in the past two years. Metrics continue to improve as the Landqart mill experienced its highest sales volumes and revenues relative to any comparative period in 2012 and 2011. However, less than favourable conditions, including impacts on our business as a result of the strength of the Swiss franc against the Euro, overcapacity in the banknote paper industry and increased competition for orders continue to adversely impact the results of the Security Paper Products Segment.
The Specialty Papers Segment, which has been discontinued with the sale of the Dresden mill in April 2013, had a strong first quarter. See "Significant Developments" for an update on the sale of the Dresden mill.
Management's Outlook
Dissolving Pulp Segment
Dissolving pulp markets improved during the first quarter of 2013 but remain challenging due to continued excess supply. The market price of dissolving pulp in China, as reported by China Chemical Fibers & Textiles Consultancy Group (CCF), a leading professional data analysis company relied upon in the dissolving pulp industry, improved from December lows of US$830-840 per air dried metric tonne (ADMT) to approximately US$930 per ADMT in February and March. Management believes that current depressed dissolving pulp prices are indicative of unusual market conditions and are not sustainable, as the global industry has been experiencing mill shutdowns and mills swinging capacity to produce paper pulps. We expect that dissolving pulp prices will remain under pressure until new expected capacity is absorbed.
Viscose staple fibre demand in China has been stable in the first quarter of 2013 as operating rates remain healthy, although fibre prices weakened at the end of March. Cotton prices remained relatively stable in China during the first quarter of 2013. However, when compared to 2011, cotton prices still remain low which could lead to possible cotton crop plantation reductions in 2013. Cotton reserve management, particularly in China, may affect future cotton pricing.
The Fortress Specialty Cellulose mill pulp production rates remained below management expectations during the first quarter of 2013 as the mill faced on-going challenges with digester and evaporator capacity issues. The mill recently completed a ten day maintenance shut down that began in late April. We expect that the maintenance shut down will address issues in order to improve production, generate stable operations and reduce production costs. Finished goods inventory levels at the end of the first quarter were minimal.
The cogeneration project continues in its commissioning and start-up phase. Power generation is expected by the end of the second quarter following the completion of testing and adjustments.
Although depressed dissolving pulp prices have impacted the Fortress Specialty Cellulose mill results, the Company is continuing the implementation of its comprehensive "Operating Excellence" program designed to improve overall efficiency and productivity. In parallel, we have commenced an aggressive cost reduction program. In the third quarter of 2013 we expect to realize significant benefits from production improvements, cost reduction initiatives and the cogeneration facility. In addition the Company has strengthened mill management and with new leadership expects to make material progress towards targets over the remainder of the year.
The Fortress Global Cellulose ("FGC") mill project continues to advance. Engineering design for the conversion to produce dissolving pulp is near completion with an updated capital expenditure estimate of $250 million plus or minus 10%. A comprehensive review of the overall project is ongoing. We have incorporated learnings from our Thurso capital projects including a more gradual ramp-up curve. This results in additional cash requirements of $70-$100 million for working capital, including start-up costs, raw materials, inventory and various other items, to fund the entire FGC mill project and its operational ramp-up. As a result, the Company is evaluating options for different sources of funds to cover increased budgeted capital expenditures and provide ramp-up working capital. Final budgeted costs and financial models are being further refined.
The Company is currently in the process of exploring strategic options to mitigate the financial risk, including alternative financing structures, joint ventures and partnership opportunities. While the project economics continue to be attractive, the Company will be comparing the FGC mill investment opportunity to other strategic options for shareholder value creation. Due to changing economics and market conditions, there is no assurance that the FGC mill project will proceed to completion as previously planned. The Company intends to report its decision regarding the strategic direction of the FGC mill early in the third quarter.
Security Paper Products Segment
The Security Paper Products Segment continues to be adversely impacted by a strong Swiss franc relative to the Euro and overcapacity in the industry resulting in fierce competition for tenders. Despite these difficulties, the Landqart mill has a strong order book with good visibility well into the second half of the year. The mill is currently operating at full capacity. Estimated volumes to be produced and sold in 2013 are expected to be significantly higher than in 2012. Landqart is now producing its second order of its new composite paper-polymer-paper substrate Durasafe® and is pursuing several more sales opportunities for this new product. This second order of Durasafe® includes security threads from Fortress Paper's optical thin film division. The Landqart mill has also been awarded paper orders in several new markets during the first quarter of 2013. These orders are expected to be produced and delivered later this year.
The Landqart mill has substantially completed the majority of the production of its largest banknote order and has delivered over 70% of its contract volume. The Landqart mill is continuing its efforts to enter into new markets to diversify its customer base in preparation for the completion of this contract. The Company is confident that it will continue to meet its sales target through a combination of repeat orders in established markets together with new business. Landqart has improved operational results systematically over the past two quarters and management anticipates this trend to continue through the second quarter of 2013.
Significant Developments
Sale of the Dresden Mill
In March 2013, the Company and its wholly owned subsidiary, Fortress Security Papers AG ("FSP"), entered into a share purchase agreement (the "Share Purchase Agreement") with Glatfelter Gernsbach GmbH & Co. KG ("Glatfelter Gernsbach") and its parent, P.H. Glatfelter Co. ("Glatfelter"), pursuant to which FSP agreed to sell all of the shares of its wholly owned subsidiary, Dresden Papier GmbH ("Dresden"), to Glatfelter Gernsbach for an aggregate purchase price of EUR160 million (approximately CDN$213 million), subject to a working capital adjustment. Pursuant to the terms of the Share Purchase Agreement, the Company agreed to guarantee the obligations of FSP and Glatfelter agreed to guarantee the obligations of Glatfelter Gernsbach thereunder.
The sale of the Dresden mill completed on April 30, 2013. Net proceeds received from the sale, after closing working capital adjustments and the settlement of Dresden's outstanding loans, guarantees and factoring arrangements with Commerzbank AG and CommerzFactoring GmbH, as applicable, were approximately EUR120 million (approximately $159 million), which is subject to post closing working capital and tax adjustments.
With the sale of the Dresden mill, the Company no longer operates in the Specialty Papers (wallpaper base) industry.
Selected Financial Information
The selected financial information presented herein is qualified in its entirety by, and should be read in conjunction with, our unaudited condensed consolidated interim financial statements as at and for the three month period ended March 31, 2013 and the related notes thereto and our Management's Discussion and Analysis filed on SEDAR at www.sedar.com.
Three Months Ended March 31, 2013
Selected Financial Information and Statistics
| (thousands of dollars, except shipments, unaudited) | Q1 2013 | Q4 2012 | Q1 2012 |
| Sales from continuing operations | 57,559 | 58,748 | 23,711 |
| EBITDA from continuing operations(1) | (13,162) | (9,023) | (11,333) |
| EBITDA(2)(3) | (2,627) | 242 | (1,987) |
| Net loss from continuing operations | (18,814) | (9,829) | (14,206) |
| Net loss(3) | (12,373) | (4,227) | (10,670) |
| Adjusted net loss from continuing operations(4) | (20,618) | (11,138) | (15,436) |
| Paper shipments (tonnes)(5) | 2,179 | 1,688 | 995 |
| Pulp shipments (ADMT) | 39,147 | 46,909 | 35,682 |
(1) See Net Loss to EBITDA Reconciliation for Continuing Operations.
(2) See Net Loss to EBITDA Reconciliation including Discontinued Operations.
(3) Including discontinued operations.
(4) See Net Loss to Adjusted Net Loss Reconciliation for Continuing Operations.
(5) From continuing operations.
Net Loss to Adjusted Net Loss Reconciliation for Continuing Operations:
| (thousands of dollars, except per share amounts, unaudited) | Q1 2013 | Q4 2012 | Q1 2012 |
| Net loss | (18,814) | (9,829) | (14,206) |
| Foreign exchange loss (gain) | 56 | (1,309) | (1,230) |
| Non-core asset sale | (1,860) | - | - |
| Adjusted net loss | (20,618) | (11,138) | (15,436) |
| Basic and diluted net loss per share | (1.30) | (0.68) | (0.99) |
| Adjusted net loss per share, basic and diluted | (1.42) | (0.77) | (1.08) |
Net Loss to EBITDA Reconciliation for Continuing Operations:
| (thousands of dollars, unaudited) | Q1 2013 | Q4 2012 | Q1 2012 |
| Net loss | (18,814) | (9,829) | (14,206) |
| Income tax | (1,815) | (5,779) | (1,141) |
| Foreign exchange loss (gain) | 56 | (1,309) | (1,230) |
| Net finance expense | 4,009 | 3,049 | 1,705 |
| Amortization | 4,334 | 4,215 | 3,128 |
| Non-core asset sale | (1,860) | - | - |
| Stock based compensation | 928 | 630 | 411 |
| EBITDA | (13,162) | (9,023) | (11,333) |
Net Loss to EBITDA Reconciliation Including Discontinued Operations:
| (thousands of dollars, unaudited) | Q1 2013 | Q4 2012 | Q1 2012 |
| Net loss | (12,373) | (4,227) | (10,670) |
| Income tax | 1,144 | (3,375) | 642 |
| Foreign exchange loss (gain) | 81 | (1,293) | (1,208) |
| Net finance expense | 4,373 | 3,391 | 4,841 |
| Amortization | 5,080 | 5,116 | 3,997 |
| Non-core asset sale | (1,860) | - | - |
| Stock based compensation | 928 | 630 | 411 |
| EBITDA | (2,627) | 242 | (1,987) |
Adoption of Advance Notice Policy
Fortress Paper also announces the approval by its board of directors (the "Board") of an advance notice policy (the "Policy"). The purpose of the Policy is to provide shareholders, directors and management of the company with a clear framework for nominating directors. The Policy fixes a deadline by which director nominations must be submitted to Fortress Paper prior to any annual or special meeting of shareholders and sets forth the information that must be included in the notice to Fortress Paper in order for a nominee to be eligible for election. No person will be eligible for election as a director of Fortress Paper unless nominated in accordance with the Policy.
In the case of an annual meeting, notice to Fortress Paper must be given not less than 30 nor more than 65 days prior to the date of such meeting; provided that if the meeting is to be held on a date that is less than 50 days after the date on which the first public announcement of the date of such meeting was made, notice may be given no later than the close of business on the 10th day following such public announcement.
In the case of a special meeting called for the purpose of electing directors that is not also an annual meeting, notice to the company must be made no later than the close of business on the 15th day following the day on which the first public announcement of the date of such special meeting was made.
The Policy is effective and in full force and effect as of the date it was approved by the Board. In accordance with the terms of the Policy, the Policy will be placed before shareholders of Fortress Paper for approval at the next annual general meeting ("AGM") of shareholders of the Company to be held in 2014. If the Policy is not confirmed at the next AGM by ordinary resolution of shareholders, the Policy will terminate and be of no further force and effect following the termination of the next AGM.
The full text of the Policy is available under Fortress Paper's profile on SEDAR at www.sedar.com.
The Company
During the three months ended March 31, 2013, Fortress Paper operated internationally in three distinct business segments: the Dissolving Pulp Segment, the Security Paper Products Segment, and the Specialty Papers Segment. The Specialty Papers Segment was sold subsequent to the completion of the first quarter of 2013. Accordingly, references in this news release to "discontinued operations" refer to the Specialty Papers Segment. The Company operates its dissolving pulp business at the Fortress Specialty Cellulose mill located in Canada, which is also in the process of expanding into the renewable energy generation sector with the construction of a cogeneration facility. The Company is also seeking to expand its dissolving pulp capacity with the recent acquisition of the Fortress Global Cellulose mill located at Lebel-sur-Quévillon, Québec, which the Company is evaluating to convert into a dissolving pulp mill and re-start the 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, and at its high security production and research facility located in Canada, where it manufactures optically variable thin film material. The segmentation of the Company's manufacturing operations is based on a number of factors, including production, production processes, and economic characteristics.
Conference Call
A conference call to discuss the financial results for the first quarter 2013 will be held on May 14, 2013 at 9:00 a.m. (PST). To participate in the conference call, please dial one of the following numbers:
North America: 1-855-353-9183
Vancouver: 604-681-8564
Calgary and international: 403-532-5601
Edmonton: 780-429-5820
Toronto: 416-623-0333
Ottawa: 613-212-0171
Montreal: 514-687-4017
Participant pass code: 15086#
Conference Reference Number: 957288#
A replay of the conference call will be available for 30 days. To access the replay, listeners may dial 1-855-201-2300 from North America or 403-255-0697 International. The conference reference number is 957288# and the participant pass code to access the replay is 15086 #.
Forward-Looking Information
This news release contains certain forward-looking information that reflects the current views and/or expectations of the Company with respect to its expectations, beliefs, assumptions, estimates and forecasts about its business and the industry and markets in which it operates. The reader is cautioned that statements constituting forward-looking information are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other factors which are difficult to predict and that may cause actual results or events to differ materially from those anticipated in such forward-looking information. Accordingly, readers should not place undue reliance on forward-looking information. Examples of such forward-looking information contained in this news release include: growth and future prospects of our business; market conditions for dissolving pulp and our other products; expected returns on certain business segments; our intentions relating to the FGC mill project; our perceptions of the industry and markets in which we operate and anticipated trends in such markets; benefits that may accrue to the Company as a result of certain acquisitions, dispositions, capital expenditure programs, equipment upgrades and maintenance shutdowns, as well as our "Operating Excellence" program; and the anticipated benefits, cost, timing and completion dates for projects. Assumptions underlying the Company's expectations regarding forward-looking information contained in this news release include, among others: that the Company will be able to effectively market its products; the ability of the Company to complete the ramp-up of its dissolving pulp production at the Fortress Specialty Cellulose mill to reach maximum capacity; the ability of the Company to realize additional savings and efficiencies at the Fortress Specialty Cellulose mill; that there will be no further delays or disruptions affecting the completion of the Fortress Specialty Cellulose mill cogeneration facility and that the Company will be able to commence timely delivery of power therefrom; that dissolving pulp will experience continued and improved demand in the marketplace at favourable prices; that the Landqart mill will continue operating on a consistent and regular basis in order to produce and deliver on its banknote orders; the general stability of the economic, political and regulatory environments within the countries where the Company conducts operations; the ability of the Company to obtain additional financing (if necessary) on acceptable terms; that all necessary approvals, arrangements and engineering designs will be obtained, finalized and/or completed in a satisfactory manner in order to support a decision to proceed with the Fortress Global Cellulose mill project; and that our equipment will operate at expected levels. Persons reading this news release are cautioned that forward-looking information only reflects predictions, and that the Company's actual future results or performance are subject to certain risks and uncertainties including, without limitation: those relating to potential disruptions to production and delivery, including as a result of equipment failures, labour issues, the complex integration of processes and equipment and other factors; labour relations; failure to meet regulatory requirements; changes in the market; potential downturns in economic conditions; fluctuations in the price and supply of required materials; fluctuations in the market price of products sold; trade restrictions or import duties imposed by foreign governments; availability of financing (as necessary); foreign exchange fluctuations; dependence on major customers; and other risk factors detailed in our filings with Canadian securities regulatory authorities. These risks, as well as others, could cause actual results and events to vary significantly. The Company does not undertake any obligation to release publicly any revisions for updating any voluntary disclosure of forward-looking information, except as required by applicable securities law.
Contact Information:
Mr. Chadwick Wasilenkoff
Chief Executive Officer
604-904-2328
info@fortresspaper.com