N@N

Solid second quarter results in spite of U.S. currency weakness

^{Published on 2011-08-03 16:26:39 - Market Wire}
 

TSX: FBK
[ www.fibrek.com ]

SECOND QUARTER HIGHLIGHTS
Compared to the second quarter of 2010:

• North American NBSK pulp prices reached a new historical high of US$1,035 per tonne
• Solid pulp demand throughout the second quarter
• Financial expenses reduced by 35.7% reflecting the benefits of our debt reduction initiatives
• US dollar was 6% weaker compared to the Canadian dollar
• RBK price increases influenced by higher wastepaper prices

RECENT DEVELOPMENTS

• Further deleveraged capital structure with the redemption of remaining convertible debentures, also reducing the interest expense
• New collective agreement signed with Saint-Félicien Mill employee union

MONTREAL, Aug. 3, 2011 /CNW Telbec/ - Fibrek Inc. (TSX: FBK), a leading producer and marketer of high-quality virgin and recycled kraft pulp, announced today its results for the second quarter ended June 30, 2011. Second quarter 2010 results have been restated as appropriate to be in accordance with the recently adopted International Financial Reporting Standards (IFRS).  All results are in Canadian dollars unless otherwise stated.

CONSOLIDATED RESULTS

Commenting on these results, Pierre Gabriel Côté, President and Chief Executive Officer, indicated: "The second quarter results showed strong demand and high pulp prices, resulting in positive business fundamentals which were negatively impacted by the strengthening of the Canadian dollar. For the RBK segment, we continued to face higher wastepaper prices. We have restrained the impact of these increasing prices by successfully passing through price increases to a significant portion of our volume. We also continued to pursue a variety of longer term actions and initiatives to address the challenges of the RBK segment. We continued to deleverage our capital structure by completing the redemption of our remaining convertible debentures, further strengthening our balance sheet and positioning ourselves to take advantage of future opportunities. After six months in 2011, we are encouraged by our net earnings showing improvement over last year."

Transition to IFRS
Fibrek's unaudited condensed consolidated interim financial report for the quarter ended June 30, 2011 has been prepared using IFRS. Comparative figures and amounts related to the year ended December 31, 2010 have been restated to reflect the adoption of IFRS. Details of the significant accounting differences can be found in the notes of our first quarter 2011 interim financial report and related MD&A.

SECOND QUARTER 2011 COMPARED WITH SECOND QUARTER 2010
In the second quarter of 2011, consolidated sales reached $148.3 million, a reduction of $6.5 million when compared with sales of $154.8 million in the second quarter of 2010. This decrease is mainly attributable to an unfavourable exchange rate for $9.2 million and a lower sales volume, almost entirely RBK pulp, for $2.2 million, which were partially offset by higher pulp prices and a favourable sales mix for $4.9 million.

Cost of products sold totalled $115.3 million in the second quarter of 2011, a reduction of $3.3 million when compared with the corresponding period of 2010. This decrease is primarily due to a lower sales volume for $1.7 million and the impact of the exchange rate on our US operating costs, which were partially offset by higher wastepaper prices.

EBITDA for the second quarter of 2011 was $16.6 million (or 11.2% of sales), compared to $21.7 million (or 14.0% of sales) for the corresponding period of 2010.

Net earnings of $5.6 million were recorded in the second quarter of 2011, compared with net earnings of $10.3 million in the corresponding period of 2010.

Net earnings per share amounted to $0.04 (basic and diluted) in the second quarter of 2011, compared with net earnings per share of $0.11 ($0.08 diluted) in the corresponding period of 2010. In the second quarter of 2011, an average of 130,075,556 shares were outstanding compared with 90,472,708 in the second quarter of 2010.

SIX MONTHS ENDED JUNE 30, 2011 COMPARED TO SIX MONTHS ENDED JUNE 30, 2010
For the first six months of 2011, consolidated sales reached $280.4 million, a reduction of $12.5 million when compared with sales of $292.9 million for the corresponding period of 2010. This decrease is mainly attributable to an unfavourable exchange rate for $16.5 million as well as a lower sales volume for $12.8 million, which were partially offset by higher pulp prices and a favourable sales mix for $16.8 million.

Cost of products sold totalled $218.3 million for the six-month period ended June 30, 2011, a decrease of $8.9 million when compared with the corresponding period of 2010.This reduction is primarily due to a lower sales volume for $10.0 million and the impact of the exchange rate on our US operating costs, which were partially offset by higher wastepaper prices.

EBITDA for the six-month period ended June 30, 2011 reached $32.4 million (or 11.5% of sales), compared to EBITDA of $37.8 million (or 12.9% of sales) for the corresponding period of 2010.

Net earnings of $9.1 million were recorded in the six-month period ended June 30, 2011, compared with net earnings of $8.7 million in the corresponding period of 2010.

Net earnings per share amounted to $0.07 (basic and diluted) in the six-month period ended June 30, 2011, compared with net earnings per share of $0.10 ($0.07 diluted) in the corresponding period of 2010. In the six-month period ended June 30, 2011, an average of 130,075,556 shares were outstanding compared with 90,472,708 in the corresponding period of 2010.

SEGMENT REVIEW

NBSK Pulp Results

SECOND QUARTER 2011 COMPARED WITH SECOND QUARTER 2010
Sales for the second quarter ended June 30, 2011 totalled $74.4 million, compared with $77.6 million for the corresponding period of 2010, representing a reduction of $3.2 million. This decrease is attributable to a stronger Canadian dollar compared to the US currency for $4.6 million, which was partly offset by higher pulp prices for $1.4 million.

NBSK market pulp price (for pulp delivered in North America) was higher by US$32 per tonne or 3% on average during the second quarter of 2011 when compared with the corresponding quarter of 2010. The increase in NBSK market pulp prices, more than offset by a stronger Canadian dollar when compared with the second quarter of 2010, resulted in an average sales price of CAN$992 per tonne, CAN$29 per tonne below the average sales price recorded in the corresponding quarter of 2010.

The NBSK pulp sales volume totalled 89,720 tonnes in the second quarter of 2011, a decrease of 115 tonnes when compared with 89,835 tonnes for the corresponding period of 2010. The relatively stable sales volume was mainly attributable to sustained good market conditions.

EBITDA for the second quarter of 2011 was $15.2 million (or 20.5% of sales), compared to $16.8 million (or 21.6% of sales) for the corresponding period of 2010, reflecting the reduction in sales and increased delivery costs, partially offset by lower fibre costs and improved productivity.

SIX MONTHS ENDED JUNE 30, 2011 COMPARED TO SIX MONTHS ENDED JUNE 30, 2010
Sales for the six-month period ended June 30, 2011 totalled $146.6 million, compared with $147.9 million for the corresponding period of 2010, representing a $1.3 million decrease. This reduction is mainly attributable to a stronger Canadian dollar compared to the US currency for $8.6 million and to a lower sales volume for $0.5 million, partly offset by higher net realized pulp prices for $7.8 million.

Average NBSK market pulp prices (for pulp delivered in North America) for the six-month period ended June 30, 2011 was US$998 per tonne, an increase of US$61 per tonne or 7%. This increase in average market pulp prices, partly offset by a stronger Canadian dollar, when compared to the corresponding period of 2010, resulted in an average sales price of CAN$974 per tonne, CAN$5 above the sales price of CAN$969 per tonne in the corresponding period of 2010.

During the six-month period ended June 30, 2011, the Saint-Félicien Mill's sales volume was 179,919 tonnes of NBSK pulp, a reduction of 520 tonnes when compared to the corresponding period of 2010 (180,439 tonnes). The relatively stable sales volume was mainly attributable to sustained good market conditions.

EBITDA for the six-month period ended June 30, 2011 reached $30.4 million (or 20.7% of sales), compared to EBITDA of $28.9 million (or 19.6% of sales) for the corresponding period of 2010, reflecting a reduction in the cost of sales mainly attributable to lower fibre costs as well as improved productivity.

RBK Pulp Results

SECOND QUARTER 2011 COMPARED WITH SECOND QUARTER 2010
For the second quarter ended June 30, 2011, the RBK pulp segment recorded sales of $74.0 million, compared with $77.2 million for the corresponding period of 2010. This reduction of $3.2 million is mainly attributable to an unfavourable exchange rate for $4.6 million and a lower sales volume for $2.0 million, which were partly offset by higher net realized pulp prices for $3.4 million.

The RBK pulp sales volume reached 100,502 tonnes, compared with 103,205 tonnes for the corresponding period of 2010. This reduction is mainly due to a lower export sales volume, other than Europe, in 2011. RBK pulp average sales prices increased by 4% compared with the corresponding period in 2010, mainly driven by higher wastepaper prices. However, as a result of a stronger Canadian dollar, sales per tonne decreased by 2%.

EBITDA for the second quarter of 2011 was $1.3 million (or 1.8% of sales), compared to $4.9 million (or 6.4% of sales) for the corresponding period of 2010, reflecting lower sales, increased wastepaper prices and higher delivery costs primarily due to fuel surcharge.

SIX MONTHS ENDED JUNE 30, 2011 COMPARED TO SIX MONTHS ENDED JUNE 30, 2010
For the six-month period ended June 30, 2011, the RBK pulp segment recorded sales of $133.8 million compared to sales of $145.0 million in the corresponding period of 2010. This $11.2 million reduction in sales is attributable to a lower sales volume for $11.7 million and by an unfavourable exchange rate for $7.9 million, partly offset by higher net realized pulp prices for $8.4 million.

The RBK pulp sales volume reached 183,695 tonnes during the six-month period ended June 30, 2011, compared with 199,752 tonnes for the corresponding period of 2010. RBK pulp average sales prices increased by 6%. The impact of the stronger Canadian dollar offset this increase, leaving the sales per tonne at approximately the same level as in the corresponding period of 2010.

EBITDA for the six-month period ended June 30, 2011 reached $2.0 million (or 1.5% of sales), compared to EBITDA of $8.8 million (or 6.1% of sales) for the corresponding period of 2010, reflecting lower sales, increased wastepaper costs and higher delivery costs primarily due to fuel surcharge.

CASH FLOW AND FINANCIAL POSITION

As of June 30, 2011, the Company had available liquidities of $42.4 million compared to $67.2 million at the end of the previous quarter. This reduction results from the early redemption of the remaining convertible debentures.

Operations generated $12.4 million of cash flow in the second quarter of 2011, compared with $21.3 million in the second quarter of 2010. These funds were mainly used to reduce debt.

As at June 30, 2011, the ratio of total debt to total capitalization under IFRS was 25.6%, compared with 27.1% at the end of the previous quarter, clearly demonstrating Fibrek's objective to reduce debt. Our term loan provides for an exclusion of up to $150 million of equity reduction following the adoption of IFRS. Therefore, the total debt to total capitalization ratio for covenant purposes was 19.3% as at June 30, 2011, compared with 20.4% at the end of the previous quarter.

RECENT DEVELOPMENTS

Redemption of Convertible Debentures
On June 28, 2011, Fibrek completed the redemption of the remaining convertible debentures for an aggregate principal amount of $25,875,000. The Company paid to the holders of redeemed debentures a redemption price equal to the principal amount of the redeemed debentures, plus accrued and unpaid interest up to but excluding the redemption date, for a total of $26,758,373.

Collective Agreement Signed
On July 5, 2011, Fibrek signed a new collective bargaining agreement with Saint-Félicien Mill employee union based on the agreement in principle concluded last April 29. The new labour conditions are retroactive to May 1, 2009 and will be effective until April 30, 2014. The negotiations unfolded in a climate of respect, cooperation and transparency reflecting Fibrek's corporate values.

The agreement contains several measures to improve the mill's productivity, achieve greater flexibility in the maintenance department, reorganize the workforce and improve employee training and development. The Company will also implement a new pension plan for future service, effective April 1, 2014, that will have a fixed employer contribution.

Wood Chips Supply Agreements
Negotiations are currently underway with our wood chips suppliers. Given the continued depressed housing market which is affecting lumber production, Canadian sawmills are taking market-related downtime. Lower production of wood chips will result in temporary price increases during the summer months.

OUTLOOK

"Having recently reached historical highs, NBSK pulp prices have begun to soften. Price decreases were announced for the beginning of July and August, which would amount to a US$45 per tonne reduction from the recent high of US$1,035 per tonne. Global inventory levels remain below the 30-day balanced market. Margins are expected to be squeezed over the next quarter as a result of pulp price reductions and anticipated wood chips price increases. Our margins could also be negatively impacted by a further strengthening of the Canadian dollar which, given current global economic conditions, remains a possibility.

The RBK pulp markets continue to be negatively impacted by increasing wastepaper prices and relatively low prices in the hardwood kraft pulp market. Price increases have been implemented, influenced by the increase in input costs, but these prices are making the recycled pulp less competitive with net prices reaching the levels of softwood pulp. Given this situation, sales volumes could be negatively impacted for the remaining of 2011. Production volumes will be impacted in the third quarter as we are planning a two-week shutdown in September at our Fairmont Mill. This extended shutdown is required to replace two decker drums. We continue to focus on increasing margins of the RBK business through product development, improving the sales mix and increasing the amount of cost-plus business.

The current changes in market conditions may result in a softer demand in the summer months, while NBSK market fundamentals support a fairly strong return into the fall season when maintenance shutdowns are occurring for many producers," said Pierre Gabriel Côté.

CONFERENCE CALL
Fibrek will hold a conference call on Thursday, August 4, 2011 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 a conference call followed by a question-and-answer session. To participate in the conference call, investment professionals and business media may dial 416-644-3425 (for all Toronto and overseas participants) or 1-800-732-1073 (for all other North American calls), access code 4460075#. Participants not able to listen to the live call can access a replay by calling 1-877-289-8525, access code 4460075#. The replay will be available from Thursday, August 4, 2011, 1:00 p.m. until Thursday, August 11, 2011, 11:59 p.m.

About Fibrek
Fibrek (TSX: FBK) is a leading producer and marketer of high-quality virgin and recycled kraft pulp. The company operates three mills located in Saint-Félicien, Québec, Fairmont, West Virginia, and in Menominee, Michigan with a combined annual production capacity of 760,000 tonnes. Fibrek has approximately 500 employees. The Saint-Félicien mill provides northern bleached softwood kraft pulp (product known as NBSK pulp) to various sectors of the paper industry mainly in Canada, the United States and Europe, for use in the production of specialized products. The Fairmont and Menominee mills manufacture air-dried recycled bleached kraft pulp (product known as RBK pulp) and primarily supply manufacturers of fine uncoated paper, tissue paper for commercial and industrial uses, and coated paper in the United States.

Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of applicable securities laws. These statements include, but are not limited to, statements about completion of the Hydro Québec project on budget or on schedule, expected collection of accounts receivable, expected capital expenditures, estimated sufficiency of wood fibre deliveries, expected sufficiency of cash flows to fund operating needs and capital expenditures and to meet contractual obligations, recoverability of capital assets and similar statements concerning Fibrek's future outlook, business strategy, plans, expectations, results or actions, or the assumptions underlying any of the foregoing. Forward-looking statements can generally be identified by words such as "may", "should", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "outlook" and similar expressions. These statements are based on information currently available to Fibrek's management ("Management") and on the current assumptions, intentions, plans, expectations and estimates of Management regarding Fibrek's future growth, results of operations, performance, business prospects and opportunities and ability to attract and retain customers as well as the economic environment in which it operates. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors which could cause actual results of Fibrek to differ materially from the conclusion, forecast or projection stated in such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to: general economic conditions, pulp prices and sales volume, exchange rate fluctuations, cost and supply of wood fibre, wastepaper and other raw materials, pension contributions, competitive markets, dependence upon key customers, increased production capacity, equipment failure, disruptions of production, capital requirements and other factors referenced in Fibrek's continuous disclosure filings which are available on SEDAR at [ www.sedar.com ]. Readers should not place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this press release, and, except as required by applicable securities laws, Fibrek assumes no obligation to update or revise them to reflect new events or circumstances.

Fibrek Inc.
Financial Highlights - Second quarter and six months ended June 30, 2011

Financial Position