News...ain't pretty but I suppose it could be worse.
FOR: THE CANFIBRE GROUP LTD.
Shares Issued and Outstanding: 37,920,088
Canadian Dealing Network SYMBOL: CFGL
OTC Bulletin Board SYMBOL: CNFBF
AUGUST 9, 2000 - 17:27 EDT
CanFibre Losses Continue From Riverside Operations
TORONTO, ONTARIO--The CanFibre Group Ltd. ("CanFibre"), (CDN:
"CFGL"; Nasdaq BB: "CNFBF"), a subsidiary of Kafus Industries Ltd.
("Kafus"), (AMEX: "KS"), reports that performance at its Riverside
medium density fiberboard facility has not met expectations during
the past three months with losses being incurred from operations
before interest, taxes and depreciation. As a result, CanFibre
and CanFibre of Riverside, Inc. ("CanFibre of Riverside") are
experiencing a critical working capital shortage despite
moderately increasing revenues. Highlights from the three months
ended July 31, 2000, include:
* Production has averaged approximately 55% of capacity.
* Sales have not kept pace with production, resulting in finished
goods inventories valued at approximately $2 million having
accumulated.
* Until very recently, quality of the product has been
inconsistent with both excellent quality and poor quality being
produced on a somewhat random basis.
* Production costs to date have been considerably higher than
originally forecast primarily due to a combination of fixed costs
being spread over smaller production volumes and resin and power
usage per unit being higher than projected.
* Cost reduction programs have been, and continue to be,
implemented but realization of a cost-per-unit savings is expected
to take several months.
Sales are lower than forecast for several reasons including: a
short-term reduction resulting from the mutual termination by the
Company and Timber Products Co. Limited Partnership of their
contract to purchase and resell all of CanFibre of Riverside's
medium density fiberboard; an historical inconsistency in the
quality of the board that management believes has been corrected;
and a seasonal slowdown during June and July. CanFibre of
Riverside expects to clear its excess inventory by the end of
September and to maintain a balance between production and sales
thereafter. Sales forecasts for August and September indicate
shipments should exceed 60% of capacity with a continual but
gradual ramp-up to capacity during the 6 months thereafter.
Management's sales forecasts are based on the following:
* The Home Depot sales program announced February 29, 2000 has
continued unabated.
* The National Distribution Program announced May 24, 2000 now
includes 68 distribution locations among 30 distributors in
western North America and 91 distribution locations among 13
distributors in eastern North America.
* All of the distributors have taken delivery of at least their
first order of product.
* The plant has taken its first orders to ship several containers
of material to Asia in August.
* The Mouldings program announced July 12, 2000 is growing rapidly
with Mouldings sales of $92,000 and $275,000 having been achieved
in June and July respectively and continued growth expected.
The foregoing, in combination with financial setbacks earlier in
the year that arose from the termination of CanFibre of
Riverside's engineering, procurement and construction contract
with Stone & Webster Engineering Corporation due to poor
performance by Stone & Webster Engineering Corporation, has
resulted in CanFibre of Riverside requiring additional working
capital to finance accumulated start-up, operating, capital
improvements and other expenses.
CanFibre and CanFibre of Riverside are exploring alternatives for
obtaining this required additional capital.
Despite passage of the applicable performance tests, CanFibre of
Riverside has not achieved final completion of the facility in
accordance with the requirements of the senior bond financing for
the facility. Failure to achieve such final completion resulted
from, among other things, CanFibre of Riverside's operating
expenses deficits and CanFibre of Riverside's inability to operate
fully in compliance with all conditions of its air permit.
Management has taken steps to obtain permit variances. If the
variances are not forthcoming, management believes that other
alternatives are available, including the purchase of offsets
and/or the making of plant modifications.
Construction of CanFibre's Lackawanna medium density fiberboard
facility is proceeding. Commissioning of sub-systems is well
advanced and construction is almost complete. However, delays in
completion have resulted from the termination by CanFibre of
Lackawanna LLC ("CanFibre of Lackawanna") of its engineering,
procurement and construction contract with Stone & Webster
Engineering Corporation. First board is now expected in late
October, 2000 and final performance testing is now expected in
April, 2001 (rather than December, 2000 as provided in the EPC
Contract). By reason of the use of contingency funds to cover
payments that Stone & Webster Engineering Corporation failed to
make to sub-contractors and vendors, additional funds are required
to cover start-up expenses. CanFibre of Lackawanna will require
additional capital to achieve its final completion.
CanFibre of Lackawanna and CanFibre of Riverside intend to pursue
claims against Stone & Webster Engineering Corporation in that
company's bankruptcy proceedings. Although management believes
that these claims have merit and will result in the realization of
cash in the long-term, management does not expect to realize cash
from these claims in the near-term.
Pursuant to an announcement on August 4, 2000 by Kafus, CanFibre
is not relying on Kafus to fund any of CanFibre's debts or
obligations. Accordingly, in the event that CanFibre, CanFibre of
Riverside and/or CanFibre of Lackawanna are unable to obtain
additional financing, they may be forced to take action to protect
their assets.
As a result of performance not yet meeting expectations in
Riverside, CanFibre has deferred development efforts of all
additional plants until it has proven Riverside to be an
operational and economic success. In addition, while CanFibre has
continued to develop its Barkboard technology, it is seeking an
industry partner to continue development of the project.
Toll Free Customer Inquiries: (888) 355-4733
The foregoing contains forward-looking statements, which are
subject to contingencies and uncertainties. Such forward looking
statements are not guarantees of future performance, and are based
on numerous assumptions about future conditions that could prove
to be inaccurate including without limitation, that there is
market acceptance for its products. Actual events, transactions,
and results may differ materially from anticipated events,
transactions or results described in such statements. Material
uncertainties about the future of the company exist.
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FOR FURTHER INFORMATION PLEASE CONTACT:
The CanFibre Group Ltd.
George DeCristoforo
Director
(416) 681-9990
(416) 681-9992 (FAX)
Email: canfibre@direct.ca
Website: www.canfibre.com
or
The CanFibre Group Ltd.
Chris Carl
President
(416) 681-9990
(416) 681-9992 (FAX)
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