Abitibi announces shutdowns as forestry slump drags on
Joins Domtar and Norske in reporting results that fail to meet expectations
By BERTRAND MAROTTE / GLOBE AND MAIL
Thursday, July 28, 2005 Page B1
MONTREAL -- The crisis in Canada's forest sector is deepening as key players in one of the country's most important industries struggle to cope with a seemingly endless downturn and a fiercely competitive global market by slashing more jobs and cutting production.
Montreal-based Abitibi-Consolidated Inc. said yesterday it is reducing its work force by 655 employees as it shuts a mill in Stephenville, Nfld., and at least one machine at its plant in Kenora, Ont.
A second machine will be shut down for an indefinite period at Kenora, causing a total reduction of 284,000 tonnes of newsprint capacity.
Debt-heavy Abitibi announced this latest round of cuts as it and two other major companies in the sector disclosed worse-than-expected results against a backdrop of continued woes. Financial analysts warned of more challenges ahead.
"No one is to blame," Abitibi chief executive officer John Weaver said in a conference call about the Stephenville closing. "It's just the economics of the business."
The facilities at Stephenville are considered efficient and the work force productive, but Mr. Weaver said high energy and raw fibre costs are behind the decision after talks with the Newfoundland government fell through.
A nasty mix of factors -- including the high Canadian dollar that reduces export profits, soaring wood fibre prices in Eastern Canada, a shrinking North American newsprint market amid the growing popularity of the Internet, and high energy prices in Ontario -- have combined to bedevil the industry, which is largely missing out on the long-running commodities rally.
Veteran industry observer and consultant James Rowland said he has not seen such tough times since the early 1980s.
"With these mill closures, small-town Canada is taking a helluva hit," he said. "I suspect there is more of this to come."
Abitibi posted a second-quarter loss of $43-million or 9 cents a share, compared with a loss of $79-million or 18 cents a year earlier.
Excluding special items, the second-quarter loss was $26-million or 6 cents a share, compared with a loss of $22-million or 5 cents. Analysts had been expecting a loss of 3 cents.
Revenue increased slightly to $1.48-billion from $1.44-billion a year earlier.
Abitibi shares rose 16 cents to close at $6.12 on the Toronto Stock Exchange yesterday.
Two other major forest product companies joined the parade of disappointing results yesterday.
Domtar Inc., also based in Montreal, reported second-quarter profit of $2-million or 1 cent a share, compared with a loss of $1-million or 1 cent a year earlier.
The analysts' consensus estimate was for a profit of 4 cents.
Revenue slipped to $1.29-billion from $1.35-billion.
Although the company reported higher pulp and paper prices and continued cost cutting, it said that was offset by the higher loonie and greater costs for raw materials and energy.
The maker of office and commercial printing paper also faces stiff competition from lower-cost producers in places such as South Korea and Indonesia.
Norske Skog Canada Ltd. of Vancouver posted a second-quarter loss of 11 cents -- excluding extraordinary items -- compared with a loss of 6 cents a year earlier. The analysts' estimate was for a loss of 6 cents.
Company management warned that the worldwide pulp market is sluggish and newsprint consumption continued to decline in the quarter.
More bad news is expected today as Tembec Inc. -- Canada's third largest integrated forest products company -- reports third-quarter results.
"Until we see some changes in the way Tembec deals with the upcoming downturn in commodity prices, we are concerned that the company will not be able to cope with rapidly falling profitability and shrinking liquidity," analyst Richard Kelertas of Desjardins Securities said in a note to clients yesterday.
Mr. Kelertas said Tembec must take the "necessary steps to close or offload non-performing assets (and we realize this is easier said than done) and sell non-core assets for much needed cash and debt repayment . . ."
Stephen Atkinson, an analyst with BMO Nesbitt Burns Inc., said forest product companies in the west are having an easier time of it than their Eastern counterparts because they face far fewer restrictions on what they can do to in terms of shutting mills or consolidating mills.
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Industry in turmoil
The Abitibi paper mill in Stephenville, Nfld., became a flashpoint yesterday for the upheaval facing the forestry sector in Canada. The loss of 300 of the top-paying jobs in a community of just 8,000 comes as the pulp and paper sector cuts capacity to deal with weak markets and large company debt loads.
The companies
Raw material costs are up, energy prices have soared (especially in Ontario) and weak market demand continues to strain profits.
The small towns
While large companies can absorb the cost of mill shutdowns and write-downs, small towns face a huge impact in losing a major employer.
The politics
Companies have turned up pressure on government for breaks on energy costs, while politicians threaten retribution if mills are closed. (*)
