Tembec reports financial results for its first fiscal quarter ended December 24, 2016

MONTREAL, Jan. 26, 2017 /CNW Telbec/ - Consolidated sales for the three-month period ended December 24, 2016, were $370 million, as compared to $354 million in the same quarter a year ago. The Company generated a net loss of $9 million or $0.09 per share in the December 2016 quarter compared to a net loss of $28 million or $0.28 per share in the December 2015 quarter. The December 2016 quarter included a non-cash loss of $16 million related to the translation of US dollar denominated debt. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $34 million for the three-month period ended December 24, 2016, as compared to adjusted EBITDA of $29 million a year ago and adjusted EBITDA of $57 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $10 million on sales of $103 million for the quarter ended December 24, 2016, compared to adjusted EBITDA of $23 million on sales of $122 million in the September 2016 quarter. The pulp sales decrease of $18 million was due to lower shipments, partially offset by higher selling prices. Canadian dollar selling prices for specialty grades improved by $11 per tonne. The increase was currency and mix driven as US dollar and euro prices for specialty pulp were relatively unchanged quarter-over-quarter. The higher effective Canadian dollar prices increased adjusted EBITDA by $1 million. The $154 per tonne increase in the selling price of viscose and other grades was due to higher US dollar selling prices and a weaker Canadian dollar, which declined by 2.1% versus the prior quarter. The higher viscose grade prices increased adjusted EBITDA by $1 million. Shipments were equal to 73% of capacity, compared to 94% in the September 2016 quarter. During the December 2016 quarter, the Tartas specialty cellulose pulp mill was idled for 11 days due to its major maintenance outage. These occur at 18 month intervals. The Temiscaming specialty cellulose pulp mill also incurred a two-day planned maintenance outage. There had been no maintenance outages at either facility in the September 2016 quarter. As a result, the pulp mills produced 13,900 fewer tonnes in the December 2016 quarter. Manufacturing costs increased by $12 million quarter-over-quarter, including $4 million for maintenance material and $6 million of unabsorbed fixed costs associated with the aforementioned productivity decrease. The lower pulp shipments generated an unfavourable $2 million variance. Chemical business adjusted EBITDA declined by $2 million as the fall and winter months are seasonally slower for the lignosulfonate business.

The Forest Products segment generated adjusted EBITDA of $9 million on sales of $113 million for the quarter ended December 24, 2016, compared to adjusted EBITDA of $12 million on sales of $113 million in the prior quarter. SPF lumber sales increased by $2 million due to higher prices and shipments. Sales of logs decreased by $2 million due to the seasonal decrease in activity in the fall and winter months. During the December 2016 quarter, the random length lumber reference price decreased by US $21 per mbf while the reference price for stud lumber decreased by US $7 per mbf. Currency was a positive factor as the Canadian dollar averaged US $0.751, a 2.1% decrease from US $0.767 in the prior quarter. The net effect was that Canadian dollar selling prices increased by $6 per mbf, increasing adjusted EBITDA by $1 million. Lumber shipments were equal to 95% of capacity, as compared to 82% in the prior quarter. The September 2016 quarter capacity included the Senneterre sawmill. The current quarter does not include the capacity of the Senneterre sawmill as it was sold. The cash cost of SPF lumber increased by $4 million, primarily for purchased fibre. The fall and winter months are normally higher cost operating periods.

The Paper Pulp segment generated adjusted EBITDA of $7 million on sales of $83 million for the quarter ended December 24, 2016, compared to adjusted EBITDA of $8 million on sales of $83 million in the September 2016 quarter. Sales were unchanged as higher prices offset lower shipments. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) increased by US $18 per tonne. US dollar prices for high-yield pulp followed a similar trend, increasing by US $9 per tonne quarter-over-quarter. Currency was a favourable factor as the Canadian dollar weakened versus the US dollar. Overall, average selling prices for external sales in Canadian dollars increased by $24 per tonne, increasing adjusted EBITDA by $3 million. Pulp shipments were equal to 95% of capacity as compared to 98% in the prior quarter. Mill level costs increased by $3 million as the two pulp mills produced 9,800 fewer tonnes.

The Paper segment generated adjusted EBITDA of $17 million on sales of $96 million for the quarter ended December 24, 2016, compared to adjusted EBITDA of $19 million on sales of $97 million in the September 2016 quarter. The $1 million decrease in sales was due to lower coated bleached board shipments, partially offset by higher coated bleached board prices and higher newsprint shipments. The US dollar reference price for coated bleached board was unchanged quarter-over-quarter. Currency was a positive factor as the Canadian dollar was weaker. Overall, average selling prices for coated bleached board were up $22 per tonne increasing adjusted EBITDA by $1 million. The coated bleached board shipment to capacity ratio was 101% compared to 107% in the prior quarter. Manufacturing costs increased by $2 million. The US dollar benchmark price for newsprint was unchanged quarter-over-quarter. The previously noted decline in the relative value of the Canadian dollar favourably impacted price realizations, but this was partially offset by a less favourable sales mix. Overall, average selling prices for newsprint increased by $2 per tonne and did not impact adjusted EBITDA. The newsprint shipment to capacity ratio was 82% compared to 78% in the prior quarter. Costs were similar to the prior quarter.

Outlook

Overall, the December 2016 quarterly results were as anticipated. The $13 million adjusted EBITDA decrease in the Specialty Cellulose segment was expected due to significant planned major maintenance. The 11-day maintenance outage at the Tartas specialty pulp mill cost more than originally forecast due to additional repairs on the biomass boiler. Higher viscose prices combined with a weaker Canadian dollar had a positive impact on Canadian dollar selling prices. A significant rebound in profitability in the March 2017 quarter is expected. Non-acetate specialty grade prices will increase by 5% to 7% and there will be no planned major maintenance in the quarter at either of the two specialty pulp mills. Lumber markets continued to show "late season" strength and prices were relatively robust during what is normally a slow period. Lumber market fundamentals should continue to gradually improve over time. The Paper Pulp segment results were better than anticipated. The market reacted positively to the news that a large BEK expansion project would be ramping up at a slower rate than initially expected. However, this new capacity will eventually occur, putting pressure on the hardwood pulp market. The Paper segment adjusted EBITDA of $17 million represented another solid quarter for this segment and it should continue to perform well. With trailing twelve-month adjusted EBITDA having reached $153 million, the Company has been able to demonstrate the positive impact on margins generated by the Temiscaming Cogen project as well as other cost reduction initiatives. The Company will continue to focus on cost and working capital reductions with a goal of further improving operating results and reducing the Company's overall level of indebtedness.

Tembec is a manufacturer of forest products – lumber, pulp, paper and specialty cellulose – and a global leader in sustainable forest management practices. Principal operations are in Canada and France. With annual sales of approximately $1.5 billion, Tembec has approximately 3,000 employees and is listed on the TSX (TMB). The full quarterly report, including the interim Management Discussion and Analysis, the interim financial statements and the accompanying notes for the quarter ended December 24, 2016, can be obtained on Tembec's website at www.tembec.com or on SEDAR at www.sedar.com.

The Company`s financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). All financial references are stated in Canadian dollars, unless otherwise noted. All references to quarterly information relate to Tembec's fiscal quarters. Adjusted EBITDA and certain other financial measures utilized in the press release are non-IFRS financial measures. As they have no standardized meaning prescribed by IFRS, they may not be comparable to similar measures presented by other companies. Non-IFRS financial measures are described in the Definitions section of the interim Management Discussion and Analysis (MD&A).

This press release includes "forward-looking statements" within the meaning of securities laws. Such statements relate, without limitation, to the Company's or management's objectives, projections, estimates, expectations or predictions of the future and can be identified by words such as "may", "will", "could", "anticipate", "estimate", "expect" and "project", the negative or variations thereof, and expressions of similar nature. Forward‑looking statements are based on certain assumptions and analyses made by the Company in light of its experience, information available to it and its perception of future developments. Such statements are subject to a number of risks and uncertainties, including, but not limited to, changes in foreign exchange rates, product selling prices, raw material and operating costs and other factors identified in the Company's periodic filings with securities regulatory authorities, including under the "risk factors" section of the Company's most recent Annual Information Form. Many of these risks are beyond the control of the Company and, therefore, may cause actual actions or results to materially differ from those expressed or implied herein. The forward-looking statements contained herein reflect the Company's expectations as of the date hereof and are subject to change after such date. The Company disclaims any intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable securities legislation.

TEMBEC INC.
CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions of Canadian dollars)
		Dec. 24, 2016		Sept. 24, 2016
ASSETS
Current assets:
	Cash and cash equivalents	$	43	$	44
	Restricted cash	2		2
	Trade and other receivables	137		153
	Inventories (note 3)	267		273
	Prepaid expenses	9		9
	Assets classified as held for sale (note 4)	-		10
		458		491
Property, plant and equipment (note 5)		633		639
Biological assets		3		3
Employee future benefits		37		23
Other long-term receivables		2		2
Deferred tax assets		3		2
		$	1,136	$	1,160
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Operating bank loans (note 6)	$	15	$	7
	Trade, other payables and accrued charges	180		193
	Interest payable	2		13
	Provisions	2		4
	Current portion of long-term debt (note 7)	6		22
	Liabilities classified as held for sale (note 4)	-		1
		205		240
Long-term debt (note 7)		694		679
Provisions		12		12
Employee future benefits		136		169
Other long-term liabilities		1		1
		1,048		1,101
Shareholders' equity:
	Share capital (note 8)	568		568
	Accumulated other comprehensive earnings	5		15
	Deficit	(485)		(524)
		88		59
		$	1,136	$	1,160

The accompanying notes are an integral part of these interim consolidated financial statements.

TEMBEC INC.
CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS)
Quarters ended December 24, 2016 and December 26, 2015
(unaudited) (in millions of Canadian dollars, unless otherwise noted)
	Quarters ended
	Dec. 24, 2016		Dec. 26, 2015
Sales	$	370	$	354
Freight and other deductions	46		47
Cost of sales (excluding depreciation and amortization)	270		264
Selling, general and administrative	16		15
Share-based compensation	4		(1)
Depreciation and amortization	12		12
Other items (note 9)	1		1
Operating earnings	21		16
Interest, foreign exchange and other	16		17
Foreign exchange loss on long-term debt	16		24
Net finance costs (note 10)	32		41
Loss before income taxes	(11)		(25)
Income tax expense (recovery) (note 11)	(2)		3
Net loss	$	(9)	$	(28)
Basic and diluted net loss in dollars per share (note 8)	$	(0.09)	$	(0.28)

TEMBEC INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters ended December 24, 2016 and December 26, 2015
(unaudited) (in millions of Canadian dollars)
			Quarters ended
			Dec. 24, 2016		Dec. 26, 2015
Net loss			$	(9)	$	(28)
Other comprehensive earnings, net of income taxes:
	Items that will never be reclassified to earnings (loss):
		Defined benefit pension plans and other benefit plans (note 12)	50		9
		Income tax expense	(2)		-
			48		9
	Item that may be reclassified to earnings (loss) in future periods:
		Foreign currency translation differences for foreign operations	(10)		3
Other comprehensive earnings			38		12
Total comprehensive earnings (loss)			$	29	$	(16)

The accompanying notes are an integral part of these interim consolidated financial statements.

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Quarters ended December 24, 2016 and December 26, 2015
(unaudited) (in millions of Canadian dollars)
		Quarter ended December 24, 2016
		Share capital		Translation of foreign operations		Deficit		Shareholders' equity
Balance - beginning of period		$	568	$	15	$	(524)	$	59
Net loss for the period		-		-		(9)		(9)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 12)	-		-		50		50
	Income tax expense	-		-		(2)		(2)
	Foreign currency translation differences for foreign operations	-		(10)		-		(10)
Balance - end of period		$	568	$	5	$	(485)	$	88
		Quarter ended December 26, 2015
		Share capital		Translation of foreign operations		Deficit		Shareholders' equity
Balance - beginning of period		$	568	$	16	$	(513)	$	71
Net loss for the period		-		-		(28)		(28)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 12)	-		-		9		9
	Foreign currency translation differences for foreign operations	-		3		-		3
Balance - end of period		$	568	$	19	$	(532)	$	55

The accompanying notes are an integral part of these interim consolidated financial statements.

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters ended December 24, 2016 and December 26, 2015
(unaudited) (in millions of Canadian dollars)
			Quarters ended
			Dec. 24, 2016		Dec. 26, 2015
Cash flows from operating activities:
	Net loss		$	(9)	$	(28)
	Adjustments for:
		Depreciation and amortization	12		12
		Net finance costs (note 10)	32		41
		Income tax expense (recovery) (note 11)	(2)		3
		Income tax paid	(2)		(2)
		Difference between cash contributions and employee future benefits expense	1		(1)
		Share-based compensation	4		(1)
		Other	(2)		(2)
			34		22
Changes in non-cash working capital:
	Trade and other receivables		13		12
	Inventories		6		(4)
	Trade, other payables and accrued charges		(10)		(5)
			9		3
			43		25
Cash flows used in investing activities:
	Disbursements for property, plant and equipment		(14)		(11)
	Proceeds from sale of Senneterre sawmill (note 4)		8		-
	Change in restricted cash		-		(8)
			(6)		(19)
Cash flows from (used in) financing activities:
	Repayment of asset-based loan		-		(105)
	Proceeds from new asset-based loan		-		61
	Change in operating bank loans		7		(2)
	Increase in long-term debt (note 7)		-		78
	Repayments of long-term debt (note 7)		(17)		(1)
	Interest paid		(26)		(25)
			(36)		6
			1		12
Foreign exchange loss on cash and cash equivalents held in foreign currencies			(2)		-
Net increase (decrease) in cash and cash equivalents			(1)		12
Cash and cash equivalents, beginning of period			44		21
Cash and cash equivalents, end of period			$	43	$	33

The accompanying notes are an integral part of these interim consolidated financial statements.

TEMBEC INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
Quarters ended December 24, 2016 and December 26, 2015
(unaudited) (in millions of Canadian dollars)
		Quarter ended December 24, 2016
		Forest Products		Specialty Cellulose Pulp		Paper Pulp		Paper		Corporate		Consolidation adjustments		Consolidated
Sales:
	External	$	96	$	103	$	75	$	96	$	-	$	-	$	370
	Internal	17		-		8		-		1		(26)		-
		113		103		83		96		1		(26)		370
Freight and other deductions		11		9		16		10		-		-		46
Cost of sales		90		80		59		66		1		(26)		270
Selling, general and administrative		3		4		1		3		5		-		16
Share-based compensation		-		-		-		-		4		-		4
Earnings (loss) before the following (adjusted EBITDA):		9		10		7		17		(9)		-		34
	Depreciation and amortization	1		7		3		1		-		-		12
	Other items (note 9)	-		-		-		-		1		-		1
Operating earnings (loss)		$	8	$	3	$	4	$	16	$	(10)	$	-	$	21
Additions to property, plant and equipment		$	3	$	3	$	2	$	2	$	-	$	-	$	10
Total assets		$	153	$	672	$	128	$	152	$	31	$	-	$	1,136
Total liabilities		$	43	$	266	$	31	$	74	$	634	$	-	$	1,048
		Quarter ended December 26, 2015
		Forest Products		Specialty Cellulose Pulp		Paper Pulp		Paper		Corporate		Consolidation adjustments		Consolidated
Sales:
	External	$	93	$	108	$	59	$	94	$	-	$	-	$	354
	Internal	17		1		9		-		1		(28)		-
		110		109		68		94		1		(28)		354
Freight and other deductions		12		10		14		11		-		-		47
Cost of sales		96		75		55		65		1		(28)		264
Selling, general and administrative		3		5		1		2		4		-		15
Share-based compensation		-		-		-		-		(1)		-		(1)
Earnings (loss) before the following (adjusted EBITDA):		(1)		19		(2)		16		(3)		-		29
	Depreciation and amortization	1		7		3		1		-		-		12
	Other items (note 9)	-		-		-		-		1		-		1
Operating earnings (loss)		$	(2)	$	12	$	(5)	$	15	$	(4)	$	-	$	16
Additions to property, plant and equipment		$	2	$	5	$	2	$	1	$	-	$	-	$	10
Total assets		$	152	$	698	$	145	$	168	$	32	$	-	$	1,195
Total liabilities		$	44	$	254	$	32	$	76	$	734	$	-	$	1,140

SOURCE Tembec

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Investor Contact: Michel J. Dumas, Executive Vice President, Finance and CFO, Tel: [phone], E-mail: [email protected]; Media Contact: Linda Coates, Vice President, Human Resources and Corporate Affairs, Tel.: [phone], E-mail: [email protected]

Related Links

http://www.tembec.com/en