Archive for the ‘Banknotes’ Category

Fortress Paper Announces Fourth Quarter 2011 Results

Posted: Monday, March 5th, 2012

Fortress Paper Ltd. (“Fortress Paper” or the “Company”) (TSX:FTP) reported 2011 fourth quarter EBITDA loss of $1.5 million. For the third quarter of 2011, EBITDA loss was $0.8 million and for the fourth quarter of 2010, EBITDA was $3.6 million.

Fortress reported an adjusted net loss of $6.3 million, or diluted adjusted loss per share of $0.44 for the fourth quarter of 2011 on sales of $49.5 million. In the third quarter of 2011, the Company reported an adjusted net loss of $7.8 million or diluted adjusted loss per share of $0.54 on sales of $84.0 million and for the fourth quarter of 2010 adjusted net loss of $1.7 million or diluted loss per share of $0.14 on sales of $83.5 million.

The fourth quarter of 2011 re-defined the Pulp Segment as the Company transitioned from a northern bleached hardwood kraft (“NBHK”) and specialty pulp producer to a dissolving pulp producer. Production of dissolving pulp commenced in early December and the Company has since ramped up production to approximately 72% of the planned capacity. Dissolving pulp sales are anticipated to provide materially higher margins than previous NBHK and specialty pulp sales.

The Wallpaper Base Segment continued its strong performance in the fourth quarter and achieved record results in the 2011 fiscal year. Margins remain strong and the order log is healthy. Overall, the global non-woven wallpaper market experienced growth in traditional and emerging regions in 2011. Following completion of upgrades to our paper machine in the summer of 2011, production speed increased to 450 metres per minute, representing a theoretical capacity of approximately 55,000 tonnes per year at the Dresden mill. Improvements in production efficiency, reduced pulp prices, full utilization of the Company’s new dry waste plant, together with a slight increase in sales prices, resulted in improved EBITDA margins.

The Security and Specialty Papers Segment experienced another challenging quarter. Throughout 2011, product mix, high raw material prices, pricing pressure, a strong Swiss currency, and less than optimal production efficiency on the Landqart mill’s paper machines contributed to a disappointing and difficult fourth quarter of 2011. Industry over-capacity during 2011, due in part to the postponement of several major currencies, was another factor that impacted performance at the Landqart mill, however the Company expects that banknote orders in 2012 will improve utilization and require the capacity of both paper machines to meet demands through the last three quarters of the year.

Fortress reported EBITDA of $3.3 million for the year ended December 31, 2011, compared to $25.9 million for the year ended December 31, 2010. Excluding corporate costs, the three business segments’ combined EBITDA was $11.1 million and $31.1 million in the years ended December 31, 2011 and 2010, respectively. Despite the economic challenges experienced in Europe during 2011, the Wallpaper Base Segment was able to contribute a record $31.5 million EBITDA which was significantly higher than the previous year at $22.7 million. The Security and Specialty Papers Segment generated significant losses in 2011 ($23.1 million EBITDA loss) compared to the prior year ($0.3 million EBITDA loss). The Pulp Segment which commenced operating in mid-2010, generated approximately $2.8 million and $8.7 million EBITDA in the years ended December 31, 2011 and 2010, respectively. Corporate costs contributed to EBITDA loss in the amount of $7.8 million in 2011 and $5.2 million in 2010.

Adjusted net loss for the year ended December 31, 2011 was $20.6 million or ($1.47) per share (diluted). Adjusted net income for the prior comparative period was $8.2 million or $0.67 per share (diluted).

Management’s Outlook

Dissolving Pulp Segment

Substantial progress is being made within the Company’s expanding dissolving pulp business. Since commencing production in December 2011, production has ramped up steadily to a current average rate of 415 tonnes per day (“tpd”), or approximately 72% of the planned capacity. The Company is aiming to achieve full planned production capacity by the end of the second quarter of 2012. The Company’s dissolving pulp product is currently exceeding quality expectations and meeting customer specifications.

Although the Company is still assessing and attempting to mitigate the impact of previously disclosed issues that arose during the fourth quarter of 2011, the schedule for the completion of the cogeneration project remains materially on-time for the fourth quarter of 2012 in accordance with the Company’s energy delivery obligations. However, in the latter part of the first quarter of 2012, the Company also reassessed the cogeneration project and identified certain deficiencies in a previous estimate from an engineering firm and scope of work adjustments necessary in order to commence delivery of power by this time.

Demand for dissolving pulp has historically been determined by the level of economic growth and has been closely tied to overall business activity. As the global economy slowed in late 2011, dissolving pulp prices weakened substantially, dropping to approximately US$1,100 per tonne. A stronger than expected demand for textiles in early 2012 saw a rebound of dissolving pulp prices to approximately US$1,280 per tonne in February 2012 with prices currently at approximately US$1,250 per tonne. The demand for dissolving pulp is expected to increase as the demand for textile fibres increases with the continued growth of the global population. Demand is also expected to be driven by the development of new applications for dissolving pulp and an increased focus on environmental awareness. The Company believes that favourable market conditions exist for additional dissolving pulp capacity entering the market. The Company’s strategy is to expand its dissolving pulp segment and pursue additional acquisitions and unique opportunities for conversion projects. See “Subsequent Event”.

Security Paper Products Segment

The outlook for the banknote industry remains generally positive with global demand for banknotes growing at approximately 4% per annum. The key driver of this growth continues to be the policies of central banks to upgrade the security and quality of their banknotes more frequently, thereby increasing the volumes of new notes that need to be printed. The growing automation of all aspects of the cash cycle, be it through Automated Teller Machines (ATMs) that dispense cash or the increased use of high speed banknote sorting equipment to process and sort cash, stimulates demand by requiring the withdrawal of increasing volumes of used banknotes from circulation and their replacement with new banknotes.

The banknote paper segment of the market continues to share in this growth. However, the continued overcapacity in this sector of the industry has led to fierce competition and price pressure in the high volume tender markets. Raw material prices (especially for cotton) have eased back from the acute levels seen in the first half of last year and there has been less exchange rate volatility since the intervention of the Swiss National Bank to set a ceiling for the Swiss franc appreciation against the Euro. Although recent market conditions have created difficulties for papermakers in general, Landqart remains focused on its strategy of expanding its markets beyond Europe and marketing its innovative proprietary technology to key customers. In 2011, Landqart secured orders from new customers in Asia, Africa and Latin America. It also completed the first production run of its new composite substrate, Durasafe. Interest in Durasafe from central banks is encouraging and Landqart is seeking to secure several new orders over the next 12 months.

An unexpected delay in the production and delivery of a significant order occurred in the fourth quarter of 2011 which has continued into the first quarter of 2012. Although this delay resulted in a temporary disruption in the production schedule, the Company expects to be able to resume production and deliveries in the second quarter.

The acquisition and integration of OTM has given Fortress a stake in the important and high value security thread market. The Company’s wholly owned subsidiary, Fortress Optical Features Ltd. (“Fortress Optical”) is currently engaged in developing the next generation of OTM products while continuing to produce OTM components for the colour shifting security thread market.

Fortress Optical will continue to work with preferred channel partners to convert the OTM component into a finished thread with the aim to sell these products into the banknote paper industry largely through its sister company, Landqart. The OTM colour shifting technologies will allow Landqart to offer its own highly secure and technically advanced security threads to its central bank customers. This is an important step forward towards greater vertical integration of the supply chain.

Specialty Papers Segment

The non-woven wallpaper market is expected to continue to grow at over 10% per year. Growth drivers include substitution of standard paper-based wallpaper and other types of wallcoverings with non-woven wallpaper in traditional and emerging markets. The overall wallpaper market is expected to benefit from a recovery in residential construction and remodeling.

Following the paper machine upgrade in 2010, production speed reached 450 m/min, as planned, which translated to an increased capacity of approximately 55,000 tonnes per year of non-woven wallpaper base at the Dresden mill.

Significant Developments

Overall, 2011 was a year of significant transformation including the following developments:

  • The successful conversion of the Fortress Specialty Cellulose mill from a NBHK pulp producer to a dissolving pulp producer. Dissolving pulp production is anticipated to provide materially higher margins relative to NBHK pulp and specialty pulp previously produced at the mill.
  • Continued margin and market share growth in the non-woven wallpaper market achieved by the Dresden mill.
  • Security paper capacity at the Landqart mill increased from 2,500 tonnes to 10,000 tonnes. Significant headwinds were experienced in 2011 as this new capacity became available at a time where there was a general softening in the banknote industry and the postponement of several major currencies.

In January 2011, Fortress completed the acquisition of the assets from the Bank of Canada’s Optical Security Material division which it now uses to produce OTM contained in various banknotes. The Company paid a purchase price of $0.75 million for the assets and granted the Bank of Canada a royalty-free license to use the intellectual property sold to the Company for Canadian banknote applications. The assets have been relocated to the Fortress Optical Facility which the Company built adjacent to its Fortress Specialty Cellulose mill in Quebec.

The Company completed two bought deal short form prospectus offerings in 2011. In February 2011, the Company completed an offering (the “2011 Share Offering”) of 1,112,050 of its common shares (including the exercise in full of the underwriters’ over-allotment option) at a price of $51.75 per share, resulting in aggregate gross proceeds of $57.5 million. Proceeds of the 2011 Share Offering were used to finance certain capital expenditures relating to the Company’s Fortress Specialty Cellulose mill and the construction of the Fortress Optical Facility. In December 2011, the Company completed an offering (the “2011 Debenture Offering”) of 6.50% convertible unsecured subordinated debentures, including the exercise in full of the underwriters’ over-allotment option, resulting in aggregate gross proceeds of $40.25 million. The debentures are listed and posted for trading on the Toronto Stock Exchange under the symbol “FTP:DB”. Holders of debentures may, at their option, convert debentures into common shares at any time prior to maturity at a price of $37.50 per share. The proceeds of the 2011 Debenture Offering were used to reduce outstanding indebtedness, to fund costs arising from the Fortress Specialty Cellulose project and for working capital and general corporate purposes.

Subsequent Event

Consistent with the Company’s desire to grow its dissolving pulp segment, in January 2012, the Company announced that it, through a wholly-owned subsidiary, signed an asset purchase agreement (“APA”) to acquire, together with 9109-3294 Quebec Inc. (“9109″), an affiliate of the Quebec Government, the assets relating to a pulp mill situated in Lebel-sur-Quevillon, Quebec owned by Domtar Inc. (the “LSQ Mill”), with the intent to convert the LSQ Mill into a dissolving pulp operation. As part of the acquisition, the Company will acquire a 30-megawatt non-operating cogeneration facility at the LSQ Mill, which it intends to restart and is expected to result in material energy savings. In addition, a cogeneration expansion project will increase power capabilities to 50 megawatts of total power in respect of which the company is seeking a long-term power supply agreement with Hydro Quebec which, once completed, is expected to provide the necessary power required to operate the mill.

The closing of the APA is subject to various conditions, including (i) the entering into of a collective agreement with the unionized employees of the LSQ Mill, (ii) the entering into of a loan agreement with Investissement Quebec (“IQ”) securing financing to implement the Company’s proposed business plan at the LSQ Mill, (iii) the parties to the APA entering into a trust agreement, (iv) the entering into of satisfactory lease and other ownership and access agreements with 9109, (v) finalizing satisfactory fibre supply arrangements with the Quebec Government, and (vi) Domtar Inc. completing its agreement with the City of Lebel-sur-Quevillon in respect of certain property taxes.

EBITDA is defined as net income before interest, income taxes, depreciation, amortization, non-operating income and expenses and stock based compensation which the Company considers to be a key performance indicator. Reference is also made to adjusted net income (loss) (calculated as net income (loss) less specific items affecting comparability with prior periods – for the full calculation, see reconciliation included in the tables titled “Net Loss to Adjusted Net Loss Reconciliation”) and adjusted net income (loss) per share (calculated as adjusted net income (loss) divided by the weighted average number of shares outstanding in the period). EBITDA, adjusted net income (loss) and adjusted net income (loss) per share are not generally accepted earnings measures and should not be considered as an alternative to net income or cash flows as determined in accordance with IFRS. As there is no standardized method of calculating these measures, the Company’s EBITDA, adjusted net income (loss) and adjusted net income (loss) per share may not be directly comparable with similarly titled measures used by other companies.

Selected Financial Information

The selected financial information presented herein is qualified in its entirety by, and should be read in conjunction with, our audited consolidated financial statements as at and for the year ended December 31, 2011 and the related notes thereon and our Management’s Discussion and Analysis (“MD&A”) filed on SEDAR.

Three Months Ended December 31, 2011
(thousands of dollars, except shipments, unaudited) Q4 2011 Q3 2011 Q4 2010
Sales 49,524 83,995 83,467
EBITDA1 (1,491 ) (758 ) 3,647
Operating loss (5,607 ) (4,876 ) (10,399 )
Net loss (9,171 ) (7,237 ) (12,790 )
Adjusted net loss2 (6,273 ) (7,762 ) (1,721 )
Paper Shipments (tonnes) 13,035 13,383 15,406
Pulp Shipments (tonnes) 8,168 55,918 62,038
See Net Loss to EBITDA Reconciliation.
See Net Loss to Adjusted Net Loss Reconciliation available in the MD&A
Net income to EBITDA reconciliation:
(thousands of dollars, unaudited) Q4 2011 Q3 2011 Q4 2010
Net loss (9,171 ) (7,237 ) (12,790 )
Income tax (388 ) 2,051 1,623
Foreign exchange loss (gain) 2,898 (526 ) 513
Interest expense 1,057 836 255
Amortization 3,793 3,668 3,062
Stock based compensation 320 450 5,984
Executive cash award - - 5,000
EBITDA (1,491 ) (758 ) 3,647

The Company

The Company was incorporated on May 30, 2006 under the laws of the Province of British Columbia. In the 2011 fiscal year, Fortress operated internationally in three distinct business segments: the Pulp Segment, Security and Specialty Papers Segment and Wallpaper Base Segment. The Company operates its dissolving pulp business at the Fortress Specialty Cellulose mill located in Canada which is also in the process of expanding into the renewable energy generation sector with the construction of a cogeneration facility. The Company operates its wallpaper base business at the Dresden mill located in Germany, where it is a leading international producer of specialty non-woven wallpaper base products. The Company operates its security paper products business at the Landqart mill located in Switzerland, where it produces banknote, passport, visa and other brand protection and security papers, and at its Fortress Optical facility located in Canada, where it manufactures optically variable thin film material (“OTM”). The segmentation of the Company’s manufacturing operations is based on a number of factors, including production, production processes, and economic characteristics.

Conference Call

A conference call to discuss the financial results for the fourth quarter 2011 will be held on March 6, 2012 at 9:30 a.m. (PST). To attend the conference call, please dial one of the following numbers:

North America: 1-855-353-9183
International: 1-403-532-5601
Participant pass code: 15086#
Conference Reference Number: 765945

A replay of the conference call will be available for 7 days. To access the replay, listeners may dial 1-855-201-2300 from North America or 403-255-0697 International. The conference reference number is 765945 # and the participant pass code to access the replay is 15086 #.

Forward-Looking Statements

Some information in this news release contains forward-looking statements that reflect the current views and/or expectations of the Company with respect to its performance, business and future events. The reader is cautioned that forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements including, without limitation, those relating to damage to our reputation, competition, maintaining our market position, marketability and price of our products, technology and protection of our intellectual property, dependence on our major customers, fluctuations in the price and supply of raw materials, fluctuations in foreign exchange and other risk factors detailed in our filings with Canadian securities regulatory authorities. These risks, as well as others, could cause actual results and events to vary significantly. Fortress Paper Ltd. does not undertake any obligation to release publicly any revisions for updating any voluntary forward-looking statements.

SOURCE: Marketwire

Fortress Paper Updates Status of Dissolving Pulp Production

Posted: Tuesday, January 17th, 2012

Fortress Paper Ltd.  (“Fortress Paper” or the “Company”) (TSX:FTP)  is pleased to announce that it has ramped up production of dissolving pulp at its Fortress Specialty Cellulose Mill to approximately 60% of final targeted capacity since it announced production of dissolving pulp had commenced on December 5, 2011. The ramp up of production continues substantially as planned and we expect meaningful improvements in the short term followed by smaller productivity gains as we approach our targeted production capacity. Our dissolving pulp is meeting customer specifications and after aggregating inventory, customer shipments commenced in the final week of December.

Chad Wasilenkoff, Chief Executive Officer of Fortress Paper, commented: “We are extremely pleased with the speed at which the ramp up of dissolving production is proceeding at our Fortress Specialty Cellulose Mill and are focused on achieving our planned production capacity as soon as possible. With the shipment of our first orders, we have demonstrated our ability to successfully produce dissolving pulp that meets the stringent specifications of our customers.”

SOURCES: Fortress Paper Ltd., and Marketwire

Financial Post Q and A with Fortress Paper CEO

Posted: Tuesday, November 22nd, 2011

Fortress Paper CEO looks for opportunity where others see problems, “Paper Profit”. The Canadian forest and paper products sector is far away from it’s peak. Companies have been hit hard by the financial crisis, penalized by the strong Canadian dollar, and crippled by balance sheets that are over leveraged. However, out of challenging times, emerges opportunity for Canadian business. Chad Wasilenkoff, CEO of Fortress Paper Ltd. — which operates a banknote business, a wallpaper business and a pulp mill and Financial Post reporter Jonathan Ratner sat down for lunch to discuss how he is capitalizing the market.

Q The economy is on everyone’s mind these days. Are your businesses equally sensitive to growth?
A Our banknote business generally could be considered recession-proof. Banknotes are growing at 4% per year and they’ve done that for decades. Even in a financial crisis there is a little bit of noise, but not very much. Countries used to change over their banknotes every 14 or 15 years, but with the advent of colour photocopiers, scanners and digital processing equipment, they are changing their series every seven or eight years. There is also quite a bit of growth globally in emerging economies. They are all moving up in income status, but they still buy their fruits, vegetables and sandals off street vendors. That means more and more ATM machines on street corners, which is actually a driver for our business.

Q What about the wallpaper business?
A We had a few bad months, but we found it was just our customers reducing inventory. They were uncertain, but once they ran out of product, they quickly came back and had to order more. Historical data show that wallpaper also happens to be somewhat recession-proof. During the recession, people were forced to stay in their existing homes a little bit longer. But they still want to improve their surroundings, so they are do more renovations.

Q What’s the status of your third business?
A We’re going through a major conversion to make dissolving pulp at the mill we bought in Quebec. It will be shipped over to China, go through more conversion processes, then ultimately be made into rayon. The finished product is a substitute for cotton. Typically, rayon trades at a premium to cotton because it is a better product. However, the cost structure is significantly lower than cotton, so there is always going to be some margin whether it is for us, or the rayon producers. We’ve actually pre-sold about 80% of our production — half on dissolving pulp spot prices and the other half on the rayon price. So wherever the margin goes, we’ll be sharing in it fairly consistently.

Q How do you deal with fluctuating commodity prices?
A While there are no synergies between the businesses, we end up with some natural hedges, which helps. For example, when cotton prices take off, it hurts our banknote business. But at the same time, our dissolving pulp — being a replacement for cotton — does exceptionally well. Similarly, as prices go up it’s great for our paper pulp mill, but it hurts margins at our wallpaper division. When cotton spiked at the start of the year, the specialized cotton we use in banknotes was up 350% in the course of four months. It is very, very difficult to try to maintain any margins when you’re bidding on a deal today, and you’re underwater by the time you get the cotton.

Q When you make a pitch to investors, how do you characterize Fortress?
A We’re a growth story and we’re very opportunistic. There are very few synergies between our different segments and businesses, but the similarities are that they have very high barriers to entry, a good macro environment in terms of the growth profile, and supply and demand drivers. I always look at the industry first, then I go and try to find the best assets available in the world. I’m always interested is growing out each of those divisions individually, but at the same time they are also for sale at all times.

Q What is your experience doing business in China?
A I have a strong focus on China. I have been doing business there for about eight years and go there at least once a quarter. But I learned some hard lessons during the first couple of trips. I went over with a Western business style, but never got those return calls. So I’ve since hired cultural coaches to help understand how the Chinese do business. It’s all about developing relationships and trust.

Q How did you break into the ultra-exclusive banknote business?
A It was by far the most challenging investment I’ve ever had to make. It is a very secretive industry. They obviously don’t want a lot of publicity or press in terms of people knowing what is going on with security features and things like that. You have to have clearance. Once we owned a mill and we were part of this closed group, people still didn’t like to talk. A lot of the companies have been around for decades and are still family-owned. The customers — national banks — are very slow, conservative and methodical. You may have a great product and the right price, but everything needs to be absolutely perfect and the timing must be right. Once we develop the relationship and help cultivate it, it is great business because it is very sticky. The national banks are reluctant to change once you’re their supplier.

Q What is the biggest misconception about this industry?
A Most of the forestry sector is going through tough times. They spent a lot of capital and they are high-cost producers, so it is difficult to compete. We get thrown in with forestry companies where everyone says nobody can make money. But we are one of these unique companies in that we are coming in late, picking up assets at next to nothing because nobody else is looking, then turning them around. We have a longer growth profile, so we are not in a hurry. We’re also always looking to be the lowest-cost producer in anything we get involved in, so we can ride out these trends. I don’t know when forestry is going to turn or come back in vogue — if it ever will — but in the meantime we have to be prepared for a long, hard slog through these different businesses.



Fortress Paper Featured on Small Business Week- three part series

Posted: Friday, October 14th, 2011

The ‘Small Business Week will be featuring Fortress Paper’s CEO, Chad Wasilenkoff. The three part video series starts this week on Tuesday, October 17th .

Small Business Week will take place Oct. 16-22 , and this year’s theme, according to the Business Development Bank of Canada (BDC), is “Power Up Your Business. Invest. Innovate. Grow’. For over thirty years, the BDC has organized Small Business Week to pay tribute to Canadian entrepreneurs.



Fortress Paper will be presenting at The Vancouver Small-Cap Conference

Posted: Friday, October 14th, 2011

Fortress Paper will be presenting at The Vancouver Small-Cap Conference on October 20th at the Vancouver Convention Centre and invites you to attend. Fortress Paper will have a corporate booth at the event and Chad Wasilenkoff will be presenting at 6:30pm.

Presenting companies come from a variety of industries including mining, technology, telecommunications, oil and gas, financial, manufacturing, and more. The guest speakers will be sharing their outlook on the markets and current economic conditions, and will be providing their top picks for 2011.

Fortress Paper and Chad Wasilenkoff looks forward to seeing you this Thursday at his 6:30pm presentation or at the Fortress Paper booth.