AbitibiBowater Reports First Quarter 2008 Loss
May 8, 2008 - AbitibiBowater Inc. today reported a net loss for the first quarter 2008 of $248 million, or $4.32 per diluted share, on sales of $1.7 billion. These results compare with a net loss of $35 million, or $1.19 per diluted share, on sales of $772 million for the first quarter of 2007, which consisted of only Bowater Incorporated results.
The Company's 2008 first quarter results reflect the full quarter results for Abitibi-Consolidated Inc. and Bowater Incorporated as a combined company following their combination on October 29, 2007.
First quarter 2008 special items, net of tax, consisted of the following: a $44 million gain relating to foreign currency changes, a $16 million gain on asset sales, a $17 million loss related to asset closures and severance and a $76 million charge related to tax adjustments. Excluding these special items, the net loss for the quarter would have been $215 million, or $3.74 per diluted share. Reconciliations of non-GAAP measures are contained in Notes 5 and 6 of this release.
"Important progress was achieved during the first full quarter of AbitibiBowater," stated President and CEO David J. Paterson. "We set out with a disciplined approach and a commitment to deliver sustainable long-term value. Our EBITDA improvement, this quarter over the fourth quarter of last year, is an important step in positioning the Company as the industry's great turnaround story."
During the first quarter, AbitibiBowater successfully completed a series of financing transactions, totaling $1.4 billion, designed to address near-term debt maturities and general liquidity needs for its Abitibi-Consolidated subsidiary.
Earnings for the coated papers segment for the first quarter increased $19 million from the fourth quarter to $34 million and EBITDA improved from $24 million to $44 million. The Company's average transaction price for coated papers increased $77 per short ton during the quarter, while average operating costs decreased $21 per short ton due to less repair spending. The Company has implemented an April price increase of $60 per short ton.
Earnings for the market pulp segment of $31 million for the first quarter were flat compared to the fourth quarter of 2007, while EBITDA improved from $44 million to $45 million. The average market pulp transaction price for the Company increased $23 per metric ton. Average operating costs increased $16 per metric ton compared to the fourth quarter, mainly as a result of higher fiber and energy costs.
For the first quarter, the newsprint segment had a loss of $69 million, compared to a loss of $79 million for the fourth quarter, while EBITDA improved from a negative $11 million to a positive $14 million. The Company's average transaction price increased $26 per metric ton. Average operating costs increased $7 per metric ton, compared to the fourth quarter. The Company has implemented the previously announced $20 per metric ton per month price increases for newsprint for the first five months of this year and anticipates implementing the June $20 per metric ton price increase.
The specialty papers segment had a loss of $39 million, compared to a loss of $46 million for the fourth quarter and EBITDA improved from $8 million to $30 million. The Company's average transaction price increased $22 per short ton during the quarter, while average operating costs decreased $4 per short ton. The Company is implementing announced April price increases, averaging $50 to $60 per ton, for most grades of uncoated mechanical papers.
For the first quarter, the wood products segment had a loss of $35 million, compared to a loss of $59 million for the fourth quarter and EBITDA improved from a loss of $50 million to a loss of $24 million. The average transaction price for the Company decreased $18 per thousand board feet, while average operating costs decreased $73 per thousand board feet compared to the fourth quarter due primarily to the idling of higher cost facilities.
In November 2007, AbitibiBowater announced the results of a Phase 1 comprehensive strategic review, which resulted in the removal of approximately 1 million metric tons of unprofitable newsprint and commercial printing paper capacity and 500 million board feet of wood products from the marketplace.
The Phase 1 announcement also: increased the Company's annual synergy target to $375 million from the $250 million target announced at the time of the Company's merger; identified $500 million in asset sales through the sale of the Snowflake (Arizona) newsprint mill as well as non-core assets; suspended the dividend; and committed to a further review of all aspects of the business in Eastern Canada in light of inherent competitive disadvantages. AbitibiBowater confirmed today that the announced closures were completed early in the first quarter of 2008 and other commitments are on track to be met or exceeded.
"When the merger closed, we began a strategic review of all aspects of the new company and committed to take decisive action to be a stronger, more sustainable organization," said John W. Weaver, Executive Chairman. "We are making good progress and are beginning to benefit from improving business conditions. AbitibiBowater remains focused on continued cost reductions, improvement of our manufacturing platform and better positioning the Company in the global marketplace."
Phase 2 Update
Since November, the Company has engaged in discussions with governments, employees, communities and other stakeholders to reduce operating costs, enhance the viability of several operations and improve overall competitiveness. These actions, in addition to increased market prices for Company products, are improving financial results. AbitibiBowater expects improved quarter-over-quarter profitability based on stronger business fundamentals, announced price increases, operating efficiencies and synergies. Significant progress has been made; however, at this time, no paper mill closures or idlings are being announced beyond the continued indefinite idling of the Mackenzie (British Columbia) and Donnacona (Quebec) paper mills.
Cooperative efforts with stakeholders have enhanced the competitiveness of various Company facilities such as the woodland and sawmill operations in the Lac-Saint-Jean (Quebec) region. Collaborative outreach will continue in all of Eastern Canada in light of market conditions as well as high labor, energy and fiber costs, further exacerbated by the strong Canadian dollar. AbitibiBowater will maintain a flexible approach and may take further restructuring actions, if required.
"We will continue our collaborative approach with various stakeholders in an effort to find long-term, sustainable solutions," stated Mr. Paterson. "We are confident AbitibiBowater is taking the right steps to manage our business and set the stage for meaningful improvement in earnings, efficiencies and overall growth."
Recognizing the challenges facing the North American newsprint market, AbitibiBowater continues to realize success in diversifying its sales to international markets, in the more than 90 countries where its products are already sold. The Company is committed to expanding sales in growing markets. To further the expansion of the global sales effort, the Company will work with North American governments and other stakeholders to ensure needed infrastructure improvements at ports supporting operations.
The Company will raise the bar in continued cost reduction efforts and look to increase profitability on some of its paper machine assets by considering the conversion of newsprint capacity to coated and other value-added papers over the next several years. Such conversions would be expected to generate higher returns. Management expects to complete the first stage of this review by the third quarter of 2008 and is considering the possibility of manufacturing a light-weight coated product, containing recycled content. The Company is confident in its ability to successfully convert a newsprint machine to a high-margin product, based in part on the Catawba (South Carolina) mill success story.
AbitibiBowater also formally announced today two new product offerings, EcoLaser(TM) and Ecopaque(TM). These uncoated freesheet substitutes represent innovative solutions for the printing industry, providing environmental benefits while also reducing costs for end-users. "We will continue to support growth and diversification of our product mix while positioning the Company as the wise choice for environmentally sensitive customers, offering sustainable solutions to them and their clients," stated Mr. Weaver.
In addition to removing 500 million board feet of lumber capacity through Phase I actions, the Company has further lowered its high-cost lumber capacity through consolidations, idlings and various temporary shutdowns at sawmills. The cumulative effect of these measures has reduced AbitibiBowater's lumber capacity to nearly 50% of pre-merger levels, resulting in an avoided cost of $45 per fbm. Furthermore, production costs at operating sawmills have been reduced by 7% in the first quarter of 2008.
The Company confirms that it expects to meet the asset sales target of $500 million by the end of 2008, having achieved sales of approximately $220 million to date. AbitibiBowater is targeting an additional $250 million in asset sales by the end of 2009. The Company has launched a process for the sale of its Mokpo, South Korea paper mill, and is moving forward with additional sales including forest lands, sawmills, hydroelectric sites and other assets.
In addition, AbitibiBowater reiterates its synergy target of $375 million by the end of 2009. At the end of the first quarter, the Company had achieved an annual run rate of approximately $180 million in captured synergies.
SOURCE: AbitibiBowater Inc.