Tembec reports financial results for its first fiscal quarter ended December 26, 2015

MONTREAL, Jan. 28, 2016 /CNW Telbec/ - Consolidated sales for the three-month period ended December 26, 2015, were $354 million, as compared to $332 million in the same quarter a year ago. The Company generated a net loss of $28 million or $0.28 per share in the December 2015 quarter compared to a net loss of $62 million or $0.62 per share in the December 2014 quarter. The current quarter results include a non-cash loss of $24 million related to the translation of US dollar denominated debt. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $29 million for the three-month period ended December 26, 2015, as compared to adjusted EBITDA of $20 million a year ago and adjusted EBITDA of $36 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $19 million on sales of $109 million for the quarter ended December 26, 2015, compared to adjusted EBITDA of $15 million on sales of $121 million in the September 2015 quarter. The pulp sales decrease of $8 million was due to lower shipments of specialty grades. Chemical sales declined by $4 million due primarily to lower shipments of resin products. Canadian dollar selling prices for specialty grades were relatively unchanged. The benefit of a weaker Canadian dollar for the Temiscaming mill was offset by a weaker sales mix, which reduced average US dollar selling prices. The $78 per tonne increase in the selling price of viscose and other grades was due to higher US dollar selling prices and the weaker Canadian dollar. Overall, the higher viscose grade prices increased adjusted EBITDA by $2 million. Shipments were equal to 80% of capacity, compared to 87% in the September 2015 quarter. There was no major maintenance downtime at either pulp mill in the September 2015 or December 2015 quarters. The Temiscaming mill saw improved productivity and produced 4,200 more tonnes than in the prior quarter. The increased production combined with lower costs for chemicals, energy and maintenance material reduced costs by $5 million at that facility versus the prior quarter. This was partially offset by a $2 million negative volume variance due to the lower volumes of specialty pulp. Chemical business adjusted EBITDA declined by $1 million versus the prior quarter.

The Forest Products segment generated negative adjusted EBITDA of $1 million on sales of $110 million for the quarter ended December 26, 2015, compared to adjusted EBITDA of $4 million on sales of $107 million in the prior quarter. Sales increased by $3 million due to higher SPF lumber shipments, partially offset by lower lumber prices. Lumber shipments were equal to 92% of capacity versus 84% in the prior quarter. During the December 2015 quarter, the random length lumber reference price decreased by US $5 per mbf while the reference price for stud lumber decreased by US $32 per mbf. Currency was a favourable factor as the Canadian dollar averaged US $0.749, a 2.1% decline from US $0.765 in the prior quarter. The net effect was that Canadian dollar selling prices decreased by $22 per mbf, reducing adjusted EBITDA by $4 million. Sawmill manufacturing costs increased by $1 million. The fall and winter months are normally higher operating cost periods.

The Paper Pulp segment generated negative adjusted EBITDA of $2 million on sales of $68 million for the quarter ended December 26, 2015, compared to adjusted EBITDA of $7 million on sales of $80 million in the September 2015 quarter. The $12 million decrease in sales was due to lower shipments and prices. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) decreased by US $40 per tonne. The high-yield paper pulp market followed a similar pattern, with average prices declining by US $33 per tonne. The decline in the relative value of the Canadian dollar partially offset the drop in US dollar prices. Overall, average selling prices in Canadian dollars declined by $30 per tonne, reducing adjusted EBITDA by $4 million. Pulp shipments were equal to 83% of capacity as compared to 92% in the prior quarter. In the December 2015 quarter, the two pulp mills produced 30,500 fewer tonnes as compared to the prior quarter. In response to weak market conditions, the Temiscaming mill was idled for a total of 33 days. The Matane mill also lost five days due to scheduled major maintenance. As a result, costs increased by $4 million.

The Paper segment generated adjusted EBITDA of $16 million on sales of $94 million for the quarter ended December 26, 2015, compared to adjusted EBITDA of $13 million on sales of $91 million in the September 2015 quarter. Higher newsprint shipments led to the $3 million increase in sales. The coated bleached board market was stable. The coated bleached board shipment to capacity ratio was 90% compared to 93% in the prior quarter. The US dollar reference price was unchanged at US $1,180 per short ton. The weaker Canadian dollar was a positive factor. Overall, average selling prices for coated bleached board were up $32 per tonne increasing adjusted EBITDA by $1 million. Manufacturing costs were relatively unchanged. The newsprint market remained weak with continued decreases in North American demand. The newsprint shipment to capacity ratio was 98% compared to 77% in the prior quarter. The US dollar benchmark price for newsprint declined by US $13 per tonne. A weaker sales mix reduced US dollar prices by a further US $11 per tonne. The previously noted decline in the relative value of the Canadian dollar partially offset the lower US dollar price and Canadian dollar newsprint selling prices declined by $19 per tonne, reducing adjusted EBITDA by $1 million. Manufacturing costs at the Kapuskasing newsprint mill declined by $3 million due to higher productivity and lower energy costs.

Outlook

Overall, the December 2015 quarterly operating results were better than anticipated. The decline in lumber and high-yield pulp US dollar prices was expected. On the positive side, all business segments benefited from the decline in the relative value of the Canadian dollar. In addition, the December 2015 quarterly results of the Specialty Cellulose segment increased by $4 million as the full benefits of the Temiscaming cogeneration project were realized for the first time. The pulp mill had lower energy and operating costs as well as higher productivity. Negotiations with specialty cellulose customers for calendar 2016 prices and volumes are now completed. Overall, there will be very little change in US dollar and euro prices year-over-year, but there will likely be a 1% to 2% reduction due to sales mix. As specialty pulp volumes are expected to be similar, the increased production at the Temiscaming mill will be primarily directed towards the viscose markets. The Forest Products segment adjusted EBITDA declined by $5 million due to lower prices, with "stud" grades experiencing the largest decline. The lumber markets are currently difficult to assess, but relatively low levels of inventory combined with the seasonal improvement in demand should lead to higher prices in the coming quarters. The Paper Pulp segment adjusted EBITDA declined by $9 million as a result of weak demand and prices. In response, the Temiscaming mill was idled for 33 days, which led to higher costs. Some improvement in pricing and demand is anticipated, but the next quarter will remain fairly challenging. The Paper segment adjusted EBITDA increased by $3 million due primarily to lower costs at the Kapuskasing newsprint mill. A US $20 per tonne price increase has recently been implemented for newsprint and additional increases could occur. While demand for coated bleached board is stable, currency shifts have led to increased competition from European producers and pricing pressure in certain bleached board markets. Looking ahead, the recent drop in the value of the Canadian dollar will have a favourable impact on financial results. While the Company expects a significant improvement in the year-over-year operating results, the extent of the increase will be impacted by external factors such as foreign exchange rates and the level of global economic activity.

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 3,250 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 26, 2015, 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 on the last page 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. 26 2015	Sept. 26, 2015
ASSETS
Current assets:
	Cash and cash equivalents	$ 33	$ 21
	Restricted cash	10	2
	Trade and other receivables	149	161
	Income tax receivable	5	5
	Inventories (note 3)	293	287
	Prepaid expenses	10	9
	Assets classified as held for sale	2	-
		502	485
Property, plant and equipment (note 4)		652	652
Biological assets		3	2
Employee future benefits		33	29
Other long-term receivables		2	4
Deferred tax assets		3	4
		$ 1,195	$ 1,176
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Operating bank loans (note 5)	$ 69	$ 114
	Trade, other payables and accrued charges	182	188
	Interest payable	2	13
	Provisions	4	4
	Current portion of long-term debt (note 6)	14	11
		271	330
Long-term debt (note 6)		711	613
Provisions		12	12
Employee future benefits		145	149
Other long-term liabilities		1	1
		1,140	1,105
Shareholders' equity:
	Share capital (note 7)	568	568
	Deficit	(532)	(513)
	Accumulated other comprehensive earnings	19	16
		55	71
		$ 1,195	$ 1,176

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

TEMBEC INC.
CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS)
Quarters ended December 26, 2015 and December 27, 2014
(unaudited) (in millions of Canadian dollars, unless otherwise noted)
	Quarters ended
	Dec. 26, 2015	Dec. 27, 2014
Sales	$ 354	$ 332
Freight and other deductions	47	42
Cost of sales (excluding depreciation and amortization)	264	256
Selling, general and administrative	15	15
Share-based compensation	(1)	(1)
Depreciation and amortization	12	9
Other items (note 8)	1	3
Operating earnings	16	8
Interest, foreign exchange and other	17	12
Loss on refinancing of long-term debt	-	37
Foreign exchange loss on long-term debt	24	17
Net finance costs (note 9)	41	66
Loss before income taxes	(25)	(58)
Income tax expense (note 10)	3	4
Net loss	$ (28)	$ (62)
Basic and diluted net loss in dollars per share (note 7)	$ (0.28)	$ (0.62)

TEMBEC INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters ended December 26, 2015 and December 27, 2014
(unaudited) (in millions of Canadian dollars)
			Quarters ended
			Dec. 26, 2015	Dec. 27, 2014
Net loss			$ (28)	$ (62)
Other comprehensive earnings (loss), net of income taxes:
	Items that will never be reclassified to earnings (loss):
		Defined benefit pension plans and other benefit plans (note 11)	9	(19)
		Income tax recovery	-	-
			9	(19)
	Item that may be reclassified to earnings (loss) in future periods:
		Foreign currency translation differences for foreign operations	3	-
Other comprehensive earnings (loss)			12	(19)
Total comprehensive loss			$ (16)	$ (81)

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 26, 2015 and December 27, 2014
(unaudited) (in millions of Canadian dollars)
			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 11)	-	-	9	9
	Foreign currency translation differences for foreign operations	-	3	-	3
Balance - end of period		$ 568	$ 19	$ (532)	$ 55
			Quarter ended December 27, 2014
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period		$ 568	$ 9	$ (358)	$ 219
Net loss for the period		-	-	(62)	(62)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)	-	-	(19)	(19)
	Foreign currency translation differences for foreign operations	-	-	-	-
Balance - end of period		$ 568	$ 9	$ (439)	$ 138

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

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters ended December 26, 2015 and December 27, 2014
(unaudited) (in millions of Canadian dollars)
			Quarters ended
			Dec. 26, 2015	Dec. 27, 2014
Cash flows from operating activities:
	Net loss		$ (28)	$ (62)
	Adjustments for:
		Depreciation and amortization	12	9
		Net finance costs (note 9)	41	66
		Income tax expense (note 10)	3	4
		Income tax paid	(2)	(4)
		Excess cash contributions over employee future benefits expense	(1)	(1)
		Share-based compensation	(1)	(1)
		Impairment loss (note 8)	-	3
		Gain on sale of assets (note 8)	-	(1)
		Other	(2)	-
			22	13
Changes in non-cash working capital:
	Trade and other receivables		12	17
	Inventories		(4)	(17)
	Prepaid expenses		-	1
	Trade, other payables and accrued charges		(5)	(1)
			3	-
			25	13
Cash flows from investing activities:
	Disbursements for property, plant and equipment		(11)	(34)
	Proceeds from sale of net assets (note 8)		-	2
	Change in restricted cash		(8)	(2)
			(19)	(34)
Cash flows from financing activities:
	Repayment of asset-based loan (note 5)		(105)	-
	Proceeds from new asset-based loan (note 5)		61	-
	Change in operating bank loans		(2)	(11)
	Increase in long-term debt (note 6)		78	414
	Repayments of long-term debt (note 6)		(1)	(342)
	Debt prepayment penalty		-	(27)
	Interest paid		(25)	(22)
			6	12
			12	(9)
Foreign exchange gain on cash and cash equivalents held in foreign currencies			-	-
Net increase (decrease) in cash and cash equivalents			12	(9)
Cash and cash equivalents, beginning of period			21	39
Cash and cash equivalents, end of period			$ 33	$ 30

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

TEMBEC INC.
BUSINESS SEGMENT INFORMATION
Quarters ended December 26, 2015 and December 27, 2014
(unaudited) (in millions of Canadian dollars)
				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 8)	-	-	-	-	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
				Quarter ended December 27, 2014
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 102	$ 102	$ 52	$ 76	$  -	$  -	$ 332
	Internal	13	-	7	-	3	(23)	-
		115	102	59	76	3	(23)	332
Freight and other deductions		11	10	11	10	-	-	42
Cost of sales		94	79	47	56	3	(23)	256
Selling, general and administrative		3	4	1	2	5	-	15
Share-based compensation		-	-	-	-	(1)	-	(1)
Earnings (loss) before the following (adjusted EBITDA):		7	9	-	8	(4)	-	20
	Depreciation and amortization	1	4	3	1	-	-	9
	Other items (note 8)	-	-	-	-	3	-	3
Operating earnings (loss)		$ 6	$ 5	$ (3)	$ 7	$ (7)	$  -	$ 8
Additions to property, plant and equipment		$ 5	$ 18	$ 1	$ 1	$  -	$  -	$ 25
Total assets		$ 159	$ 673	$ 148	$ 148	$ 29	$  -	$ 1,157
Total liabilities		$ 65	$ 258	$ 33	$ 79	$ 584	$  -	$ 1,019

SOURCE Tembec

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]