Oct 29, 2007. On a year-to-date basis, the company generated a net loss of $22.9 million or $0.78 per share.

Printing Papers

Fraser Papers reduced net loss to $22.9 million in January-September 2007

Oct 29, 2007. /Lesprom Network/. Fraser Papers Inc. reported financial results for the third quarter and year-to-date period ended September 29, 2007. The company generated net earnings of $24.8 million or $0.84 per share during the third quarter. These results included a one-time gain on the sale of the company's interest in Acadian Timber Income Fund of $38.4 million (after tax, $1.08 per share), one-time restructuring charges related to machine closures previously announced of $3.7 million (after tax, $0.13 per share) and a one-time tax recovery of $13.8 million ($0.478 per share). Excluding the impact of these unusual items, Fraser Papers generated a net loss of $17.2 million, or $0.59 per share. "Our third quarter was challenging, as we expected it would be. Unprecedented cost pressures from energy and fibre, combined with the significant surge in the strength of the Canadian dollar, continue to put pressure on our operating margins. While we were able to generate improvement in our operations to partially offset these, the full impact of many of the initiatives we have undertaken have yet to be realized," said Peter Gordon, president and CEO of Fraser Papers. On a year-to-date basis, the company generated a net loss of $22.9 million or $0.78 per share. Excluding a gain on the sale of the company's interest in Acadian Timber Income Fund, restructuring charges related to paper machine closures of $16.5 million (after tax, $0.56 per share) and a one-time tax recovery, net loss for the nine months ended September 29, 2007 was $52.1 million. This represents a deterioration from the $32.3 million loss (excluding unusual items) in the first nine months of 2006. Unusual items in 2006 included a gain on the sale of the Company's New Brunswick timberlands of $71.0 million ($2.03 per share), losses related to the bankruptcy of an equity investee of $107.4 million ($3.39 per share) and the cost of closing a pulp mill of $50.3 million ($1.03 per share). Fraser Papers generated an EBITDA loss of $5.6 million for the third quarter of 2007, compared to an EBITDA loss of $18.0 million in the second quarter. During the second quarter, the company took planned maintenance outages at its integrated pulp mill in Edmundston, New Brunswick and its paper mill in Gorham, New Hampshire. These shuts negatively affected results by approximately $10.0 million. Excluding the impact of these shuts, EBITDA in the third quarter improved by $2.4 million compared to the second quarter. During the third quarter, the Company benefited from higher selling prices for pulp and lumber, while net realizations for paper were unchanged. These price increases, along with the benefits of improved throughput at the sawmills and pulp mill and more efficient use of fibre and energy, were partly offset by higher energy costs and the impact of the stronger Canadian dollar. The Canadian/US dollar exchange rate averaged CAD 1.00 equals $ 0.96 in the third quarter compared to CAD 1.00 equals $ 0.91 in the second quarter, while benchmark oil prices increased 12%. Energy, chemical, and foreign exchange increased manufacturing costs by $8 million, quarter over quarter. On a year-to-date basis, the company generated an EBITDA loss of $26.2 million, compared to an EBITDA loss of $7.5 million in 2006. The company generated margin improvements of $14.6 million, compared to 2006, as a result of improved fibre and chemical utilization and improved product mix from continued sales and marketing efforts. Unfortunately, the impact of foreign exchange, and energy and chemical cost increases amounted to $16.9 million. Results from the paper operations deteriorated $13.5 million dollars, relative to 2006, reflecting second quarter downtime and increased costs partly offset by margin improvements. Results from the company's lumber operations were lower by $13.0 million on a year-to-date basis in 2007 as a result of very weak lumber markets and a stronger Canadian dollar. Year-to-date the Canadian/US dollar exchange rate averaged CAD 1.00 equals $ 0.90, compared to CAD 1.00 equals $ 0.88 in same period in 2006. Pulp operations improved by $10.3 million, reflecting the closure of the Berlin, New Hampshire pulp mill in April 2006, improved selling prices and margin improvements, partly offset by increased costs. The company has been negatively impacted by increasing input costs, weak lumber markets and a strengthening Canadian dollar relative to 2006. Cost reduction is essential to combating these negative effects. Outlook Unprecedented cost and currency exchange pressures continue to negatively impact results across the North American paper and forest products industry. Fraser Papers, with an integrated operating model that includes assets located in both Canada and the United States, has been negatively impacted by the confluence of a number of factors including an increase in the Canadian/US dollar exchange rate, rising oil and fibre costs, and a sharp decline in lumber prices. These have only been partially offset by improved prices for the company's pulp and paper products. Fraser Papers' strategy to lower costs and increase productivity is well underway. The rationalization of the highest cost manufacturing capacity at the company's East Papers operations will improve the mill's competitive position and narrow the product mix toward higher margin opportunities. The focus on energy efficiency and conservation will improve costs as well as lower overall greenhouse gas emissions. Increased throughput from internal pulp operations will reduce purchases of higher priced market pulp. The Company estimates the combined annualized benefit of these initiatives at $19 million. In addition, during what is anticipated to be an extended period of weak lumber prices and a strong Canadian dollar, additional sources of chips are being sought as an alternative to operating Fraser Papers' Canadian sawmill facilities at significant cash operating losses. The company is focused on growing its position in niche segments of the broader North American paper market. Demand for specialty paper in food packaging applications is expected to remain stable as consumers continue to demonstrate a preference for lightweight, recyclable, paper-based products. With many broad and differing applications, demand for Fraser Papers' lightweight specialty print papers is well diversified and expected to remain stable. Continued growth in high bright groundwood papers is expected from the substitution for higher cost, traditional freesheet in certain publishing and print applications. The company will continue to reduce its exposure to commodity freesheet markets. Industry-wide capacity rationalization is expected to keep commodity markets in better balance than in previous periods. Fraser Papers is able to offer FSC certified papers as a differentiated product within these segments. List prices for northern bleached hardwood kraft pulp continue to improve. Delayed commissioning at greenfield sites, labour issues and pulp log constraints at a number of global market pulp mills has led to a tight market. The company expects higher realizations from external sales of hardwood pulp to continue in the short term, subject to the continuing impact of the rising Canadian dollar on results at its Thurso, Quebec mill. Fraser Papers has scheduled annual maintenance outages at the cogeneration facility in Edmundston, New Brunswick and the pulp mill in Thurso, Quebec during the fourth quarter. These outages are estimated to negatively impact EBITDA by $9 million in the fourth quarter, of which $6 million relates to maintenance expense with the balance related to lost production. Fraser Papers is an integrated specialty paper company which produces a broad range of specialty packaging and printing papers. The company has operations in New Brunswick, Maine, New Hampshire and Quebec. Fraser Papers is listed on the Toronto Stock Exchange.