Monday, November 2nd, 2009
SFK Pulp planning 10 per cent cut in labour costs over uncertain markets
MONTREAL - SFK Pulp Fund (TSX:SFK.UN) employees face the prospect of job cuts along with salary and benefit reductions next year as the pulp producer responds to fragile market conditions.
The move to trim labour costs by 10 per cent is expected to save $4 million annually, although the exact impact on jobs and operations has yet to be determined.
The changes are required despite improving market conditions, SFK president and CEO Pierre Gabriel Cote said during a conference call Monday to discuss financial results that were released late last week.
"We fully realize this will, unfortunately, impact some of our employees but we must continue to improve our cost structure and productivity given the uncertainty of market conditions and increased fibre costs," Cote said.
The company employs about 550 people at three mills in Saint-Felicien, Que., Fairmont, W.Va., , and Menominee, Mich.
Market conditions have improved since June in the NBSK pulp segment, but results remain very sensitive to fluctuations of the Canadian dollar, which have largely offset higher pulp prices and volumes.
Two earlier rounds of cost-cutting are expected to net more than $10 million in savings by the end of 2009. The company froze executive salaries and eliminated bonuses. It also reduced fixed costs when mills were shut for maintenance down time.
The proposed labour cost reductions come ahead of contract negotiations.
Chief financial officer Patsie Ducharme wouldn't rule out wage cuts, since some of SFK's competitors have made such requests.
"Anything to do with labour costs is included (for consideration): head count, salary, bonuses, benefits, everything," she said in an interview.
The rising Canadian dollar has wiped out monthly NBSK pulp price increases. And Quebec-based SFK pays the highest fibre costs in North America.
"We have to mitigate somewhere the increase (cost) of our products and raw materials," she said.
SFK Pulp announced Friday it lost $14.5 million in the third quarter, compared with a profit a year ago.
The income trust said the loss amounted to 16 cents per diluted unit for the quarter ended Sept. 30 compared with a profit of $8.7 million or eight cents per diluted unit a year ago.
Sales totalled $112.8 million, down from $138.3 million.
Cote also said SFK has been able to mitigate part of the $20 per tonne fibre cost increase contained in its agreement with insolvent paper giant AbitibiBowater.
Better transportation logistics and species mix have allowed the company to save $5 to $10 per tonne of the cost increase, he said.
SFK Pulp is reviewing possible projects at its St-Felicien mill after being awarded $20.9 million from the $1-billion federal green initiative for the embattled forestry sector.
"The projects that we are looking at are all related to energy, boilers and all that are part of the mill," Cote said.
The fund said pulp and paper markets continued to improve during the third quarter, fuelled by strong demand in China and the temporary and permanent closures of several pulp mills in North America and Europe.
On the Toronto Stock Exchange, SFK units closed at 86 cents, up three cents or 3.61 per cent in Monday trading.
