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Industry News | Time:Nov 13 2017 2:22PM
Fortress Paper Reports Third Quarter 2017 Results
 
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VANCOUVER, Nov. 9, 2017 /CNW/ -

Third Quarter 2017 Consolidated Results

Fortress Paper Ltd. ("Fortress Paper" or the "Company") (TSX:FTP) (OTCQX:FTPLF) reported 2017 third quarter operating EBITDA of $0.2 million, a decrease of $7.4 million relative to the comparative prior year period and a decrease of $4.1 million over the previous quarter. The Security Paper Products Segment generated operating EBITDA of $1.8 million, the Dissolving Pulp Segment generated operating EBITDA loss of $0.5 million, and corporate costs were $1.1 million in the third quarter of 2017.

Third Quarter 2017 Results by Segment

The Dissolving Pulp Segment generated operating EBITDA loss of $0.5 million for the quarter ended September 30, 2017, representing a decrease of $4.0 million compared to the second quarter of 2017 and a decrease of $12.4 million compared to the prior year comparative period. An operating cost adjustment of $2.6 million representing labor and associated overhead incurred during the previously reported auxiliary system failure and consequent 11 days of lost production in September have been adjusted out of operating EBITDA. This amount does not represent the totality of the insurance claim. 

The results of the third quarter of 2017 were also negatively impacted by approximately 5% lower realized sales prices, a stronger Canadian dollar relative to the US dollar and higher costs associated with the previously mentioned evaporation bottleneck which is scheduled to be permanently remediated during the fourth quarter annual planned shutdown. In addition to the foregoing, a two day planned shutdown also impacted results. A total of 28,870 air dried metric tonnes ("ADMT") of dissolving pulp were produced in the third quarter of 2017. During the quarter ended September 30, 2017, the Fortress Specialty Cellulose ("FSC") mill sold 32,048 ADMT of dissolving pulp compared to 34,672 ADMT and 40,992 ADMT in the previous quarter and prior year comparative period, respectively.   

Dissolving pulp pricing was strong through the early part of 2017, reaching a high of US $960 per ADMT before reducing in June 2017 due primarily to a temporary build up in viscose staple fibre ("VSF") and yarn inventory levels, a drop in cotton linter prices and an increase in exports to China from an Indonesian pulp producer. However, dissolving pulp prices have gradually increased to the current price of approximately US $930 per ADMT.

The Security Paper Products Segment results were slightly better than expected and generated operating EBITDA of $1.8 million for the third quarter of 2017, a decrease of $1.0 million when compared to the second quarter of 2017, and a $3.6 million increase when compared to results in the third quarter of 2016. Results for the third quarter of 2017 were primarily impacted by a decrease in shipments due to timing and product mix compared to the previous quarter. Relative to the prior year comparative period, the third quarter of 2017 saw improved production efficiencies, product mix and waste rates. The build-out and installation of the second finishing machine has been completed and is operational. The additional finishing machine is expected to debottleneck the mill and provide more production flexibility. The Landqart mill sold 1,911 tonnes of security paper in the third quarter of 2017, compared to 3,139 and 2,431 tonnes of security paper in the second quarter of 2017 and third quarter of 2016, 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. 

Corporate and Cash

Corporate expenses in the third quarter decreased by $0.9 million compared to the previous quarter to $1.1 million. Cash and restricted cash was $46.7 million at the end of the third quarter of 2017, down from $58.5 million at the end of the previous quarter. Cash was primarily used in investing activities at both mills and was impacted by the auxiliary system failure at Thurso.

The Company repurchased 49,800 common shares in the third quarter pursuant to the Normal Course Issuer Bid for $0.3 million at an average price of $5.23 per share.

Outlook

In the fourth quarter, management expects that there will be further adjustments to EBITDA related to the production ramp up subsequent to the FSC mill restart after the auxiliary failure and related insurance recovery accrual. After the adjustment, EBITDA at Thurso is expected to slightly improve compared to the third quarter despite the planned annual shutdown in November. Assuming non-replacement of the previously announced order cancellation at Landqart, operating results will be lower as compared to the third quarter. Management is still working on multiple avenues to replace this lost order, though there can be no assurance how much, if any, of this order can be replaced in the short term.


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