August 9, 2016 By Maria Church Canadian Forest Industries
Fortress Paper Ltd. is continuing to focus on cost reductions, production improvement and power generation to improve margins at its Fortress Specialty Cellulose (FSC) mill in Thurso, Que.
The company reports that its Lean Six Sigma program, recently implemented at the FSC mill, resulted in both the elimination of the blockage issue experienced during the first quarter of 2016 and uptime improvements in the digester area of the mill. The Lean Six Sigma program will now focus on mill efficiency improvement for the winter months.
Fortress Paper reported 2016 second quarter operating EBITDA of $6.3 million, an increase of $5.2 million and $2.2 million over the previous quarter and prior year comparative period, respectively. The dissolving pulp segment generated operating EBITDA of $3.2 million and the security paper products segment generated EBITDA of $4.7 million. Corporate costs included in operating EBITDA were $1.6 million.
“Management is pleased to report another positive quarter of operating EBITDA, our best consolidated operating EBITDA result since the restart of Thurso after its conversion to a dissolving pulp mill,” CEO Yvon Pelletier said in a news release. “Overall results are much improved over the prior quarter and prior year. Although the second quarter results at Thurso were below management’s expectations, the trend is positive and encouraging. Despite a decline in average realized US dissolving pulp prices and unfavourable US exchange rates in the second quarter compared to the first quarter, operating costs contributed to a much improved result. The costs were in the low $800 range for June and July with cogeneration revenues back on track for the third quarter. We look for continued improvements at the mill from our lean six sigma project teams, which are already improving costs and reliability at the mill.”
Dissolving pulp segment generated operating EBITDA of $3.2 million for the quarter ended June 30, 2016 representing an increase of $1.9 million when compared to the first quarter of 2016. The results for the quarter ended June 30, 2016 were favourably impacted mainly by improvements in productivity. Operating EBITDA results for the second quarter of 2016 increased by $1.1 million compared to the second quarter of 2015. The results of the second quarter of 2016 compared to the second quarter of 2015 were impacted by higher dissolving pulp prices and favourable foreign exchange rates on sales.
During the quarter ended June 30, 2016, the FSC mill sold 39,931 ADMT of dissolving pulp compared to 31,762 ADMT and 39,664 ADMT in the previous quarter and prior year comparative period, respectively.
Fortress Paper completed the sale of its pulp mill and sawmill in Lebel-sur-Quévillon, Que., in July for $15.4 million. The asset purchase agreement included the sale of the buildings, equipment and other ancillary property relating to the non-operating pulp mill and sawmill, as well as the energy generation, connection and transmission plant and related equipment.
The company also announced the addition of Ezra Gardner – co-founder and a partner of Varana Capital Partners, LP, a New York based investment partnership – to its board of directors.
Dissolving pulp prices began improving in May 2016; yet still remain below trend pricing, which continues to impact results. However, management believes that improving market conditions, a relatively favourable foreign exchange rate to the US dollar and further anticipated improvements in production costs will add to the positive momentum at the FSC mill. The viscose staple fibre and rayon filament markets, which are key drivers in dissolving pulp demand, have experienced improved supply and demand balance and improved pricing since bottoming in 2015.
The collective agreements with unionized employees at the FSC mill expired on April 30, 2016. Bargaining negotiations are completed and the union membership has voted in favour of the new collective agreement.
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