Fortress Paper Announces Third Quarter 2016 Results

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Vancouver, British Columbia, November 14, 2016 Fortress Paper Ltd. ("Fortress Paper" or the "Company") reported 2016 third quarter operating EBITDA of $7.6 million, an increase of $1.3 million and $2.1 million over the previous quarter and prior year comparative period, respectively. The Dissolving Pulp Segment generated operating EBITDA of $11.9 million and the Security Paper Products Segment incurred EBITDA loss of $1.8 million. Corporate costs included in operating EBITDA were $2.5 million.

"Management is pleased to report an improved quarter of operating EBITDA compared to the prior quarter and our best consolidated operating EBITDA result since the restart of the FSC mill after its conversion to a dissolving pulp mill," stated CEO Yvon Pelletier. "The Company's fourth quarter results, as is typical, will be impacted by the annual scheduled maintenance shutdown and subsequent ramp up. Incorporating the impact of the planned shutdown, management expects fourth quarter results at the FSC mill to be lower relative to the prior quarter. Management believes the third quarter results at the Landqart mill are not representative of the future profitability of the order book. The Landqart mill incurred certain unanticipated expenses in the third quarter, as well as expenditures for investment in future sales growth that are not expected to reoccur. The Landqart mill is expected to contribute positively in the fourth quarter."

Third Quarter 2016 Segment Results

Dissolving Pulp Segment generated operating EBITDA of $11.9 million for the quarter ended September 30, 2016 representing an increase of $8.7 million compared to the second quarter of 2016. The third quarter of 2016 was favourably impacted by an improved cost structure, improved pricing and an increase in cogeneration revenues. Operating EBITDA results for the third quarter of 2016 increased by $6.5 million compared to the third quarter of 2015. This improvement was a result of higher dissolving pulp prices and an improved cost structure. During the quarter ended September 30, 2016, the Fortress Specialty Cellulose ("FSC") mill sold 40,992 ADMT of dissolving pulp compared to 39,931 ADMT and 45,377 ADMT in the previous quarter and prior year comparative period, respectively.

Security Paper Products Segment operating EBITDA loss was $1.8 million for the quarter ended September 30, 2016, a $6.5 million decrease when compared to the second quarter of 2016, and a $4.0 million decrease when compared to results in the third quarter of 2015. The Landqart mill sold 2,431 tonnes of security paper in the third quarter of 2016, compared to 2,714 and 2,456 tonnes of security paper sales in the second quarter of 2016 and third quarter of 2015, respectively. Security paper production includes banknotes, 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 quarterly results since the mill conversion completed in 2011. In the third 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 $787 per ADMT of dissolving pulp produced, representing a significant improvement from the previous quarter. Production costs are expected to be higher in the fourth quarter of 2016 due to the annual maintenance shutdown and some seasonal impact going into the winter months.

Management expects consistent Viscose staple fibre ("VSF") and dissolving pulp pricing through the fourth quarter of 2016 in part due to increasing demand in yarn and textile markets. Dissolving pulp and VSF prices have increased by US$145 per tonne and US$504 per tonne, respectively, from lows in early 2016. Increased cotton pricing continues to put upward pressure on all fibre pricing.

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 improved mill efficiencies and stabilized operations. In October 2016, the mill appointed an experienced President of the Dissolving Pulp segment with significant expertise in Lean Six Sigma which management expects will contribute to further improvements at the mill.

Security Paper Products Segment

The Landqart mill continues to build on a strong order book for the remainder of 2016 and 2017, comprised of a mix of new and repeat orders. Results at the Landqart mill for the quarter ended September 30, 2016 were not in line with management expectations, nor representative of the future profitability of the order book. While unusual for the Landqart mill, technical challenges led to mill inefficiencies for the third quarter. Additionally, a breakdown of an asset used for chemical treatment heavily influenced the manufacturing line. This has since been remediated.

Management has taken strong corrective actions and initiatives to improve results at the Landqart mill with a further expansion of the Company's current Lean Six Sigma program.

For a summary of significant developments please refer to the Management's Discussion andAnalysis for the three and nine month periods ended September 30, 2016 (available on SEDAR at www.sedar.com).

View complete report

Source: Fortress Paper

 

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