Tembec reports financial results for its first quarter ended December 27, 2014

MONTREAL, Jan. 29, 2015 /CNW Telbec/ - Consolidated sales for the three-month period ended December 27, 2014, were $332 million, as compared to $354 million in the same quarter a year ago. The Company generated a net loss of $62 million or $0.62 per share in the December 2014 quarter compared to net earnings of $2 million or $0.02 per share in the December 2013 quarter. The current quarter results include a non-recurring debt refinancing charge of $37 million and a non-cash loss of $17 million related to the translation of US dollar denominated debt. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $20 million for the three-month period ended December 27, 2014, as compared to adjusted EBITDA of $13 million a year ago and adjusted EBITDA of $29 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $9 million on sales of $102 million for the quarter ended December 2014, compared to adjusted EBITDA of $16 million on sales of $123 million in the prior quarter. The pulp sales decrease of $20 million was due to lower shipments of both specialty and viscose grades. Demand for specialty grades declined and the market showed signs of relative weakness for certain product lines. Pricing was relatively stable in both US dollars and euros. US dollar prices for viscose grades were relatively unchanged. The viscose market remains oversupplied and prices are relatively low. Shipments were equal to 63% of capacity, compared to 80% in the September 2014 quarter. In addition to the previously noted market weakness, shipments were impacted by an 18-day production stoppage at the Temiscaming specialty pulp mill due to a labour dispute with the unionized workforce. The stoppage began in late-November and continued until mid-December. The estimated lost production and sales was 6,600 tonnes and the Company estimates the near totality of this volume would have been lower-priced viscose grade. As a result, the impact of the strike on the Temiscaming mill was relatively modest, reducing adjusted EBITDA by $1 million. The decline in specialty pulp shipments had a greater impact on the Tartas facility, which, combined with higher manufacturing costs, led to a $5 million reduction in adjusted EBITDA. Chemical business adjusted EBITDA declined by $2 million as a result of higher costs and the closure of the ethanol plant in Temiscaming.

The Forest Products segment generated adjusted EBITDA of $7 million on sales of $115 million for the quarter ended December 2014, compared to adjusted EBITDA of $11 million on sales of $113 million in the prior quarter. Sales increased by $2 million due to higher shipments of SPF lumber. Lumber shipments were equal to 88% of capacity versus 83% in the prior quarter. During the December 2014 quarter, the random length lumber reference price decreased by US $11 per mbf while the reference price for stud lumber decreased by US $19 per mbf. Currency provided an offset to the US dollar price decline as the Canadian dollar averaged US $0.881, a 4% decline from US $0.918 in the prior quarter. The net effect was that Canadian dollar selling prices were relatively unchanged quarter-over-quarter. Sawmill manufacturing costs increased by $4 million, primarily related to fibre and drying costs. The fall and winter months are seasonally higher operating cost periods.

The Paper Pulp segment generated nil adjusted EBITDA on sales of $59 million for the quarter ended December 2014, compared to nil adjusted EBITDA on sales of $73 million in the prior quarter. The $14 million decrease in sales was due to lower shipments. Market conditions for paper pulp remained relatively weak. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) increased by US $25 per tonne. However, the increase did not carry over into the high-yield paper pulp market and US dollar prices were similar quarter-over-quarter. Currency favourably impacted pricing as the Canadian dollar declined versus the US dollar. Overall, average selling prices increased by $10 per tonne, increasing adjusted EBITDA by $1 million. Pulp shipments were equal to 71% of capacity as compared to 89% in the prior quarter. December 2014 quarter shipments were impacted by a 16-day production stoppage at the Temiscaming high-yield pulp mill due to the previously noted labour dispute. The estimated lost production and sales was 11,400 tonnes and the pulp mill cost increased by $2 million quarter-over-quarter.

The Paper segment generated adjusted EBITDA of $8 million on sales of $76 million for the quarter ended December 2014, compared to adjusted EBITDA of $7 million on sales of $86 million in the prior quarter. Lower shipments of coated bleached board and newsprint led to the $10 million reduction in sales. The coated bleached board market was stable. Currency favourably impacted pricing as the Canadian dollar weakened. Overall, average selling prices for bleached board were up $27 per tonne increasing adjusted EBITDA by $1 million. The coated bleached board shipment to capacity ratio was 80% compared to 91% in the prior quarter. December 2014 quarter shipments were impacted by a 13-day production stoppage at the Temiscaming coated bleached board mill due to the labour disruption. The estimated lost production and sales was 6,700 tonnes and mill costs increased by $2 million. The newsprint market remained weak with continued decreases in North American demand. The US dollar benchmark price for newsprint declined by $5 per tonne. The previously noted decline in the relative value of the Canadian dollar more than offset this decrease and prices in Canadian dollars increased by $22 per tonne, increasing adjusted EBITDA by $1 million. Manufacturing costs at the Kapuskasing newsprint mill increased by $1 million, primarily for supplies and services.

Temiscaming Cogen Project Update

The Company had previously indicated that the total construction cost of the Temiscaming Cogen project would be approximately $265 million. As of the end of December 2014, the total construction cost had reached $270 million and a further $3 million will be spent to the end of January 2015, at which time the boiler and turbine will have been put in service. The increase is largely due to higher than anticipated labour costs. The boiler and turbine installation are essentially complete. Commissioning of the boiler on natural gas began in late-November. Commissioning of the turbine began in early January 2015, at which time the Company generated its first electricity sales. The firing of pulp mill residual liquor in the new boiler also began in January. In late January, the Company successfully met the "commercial-in-service" test set forth in the power purchase agreement with the public utility and began selling electricity at the higher "green" power rate. The Company anticipates that the Temiscaming specialty cellulose project will improve annual adjusted EBITDA by approximately $48 million. The improvement will include approximately $28 million of incremental electricity revenues, $7 million of operating and maintenance cost reduction and $13 million of productivity and margin enhancements associated with the production increase of 15,000 tonnes of specialty pulp per year. While the increased electricity revenues and lower operating costs will become effective in the March 2015 quarter, the productivity and margin enhancement will be dependent on the Company's ability to generate additional specialty pulp sales volumes, which may require an extended period of time.

Outlook

Overall, the December 2014 quarterly results were as anticipated. The benefit from the decline in the value of the Canadian dollar offset the estimated $5 million cost of the strike at the Temiscaming complex that occurred in the first half of December. The Specialty Cellulose segment results were negatively impacted by a 10,000 tonne decline in specialty grade shipments. The market is not robust and many customers drew down inventories and delayed orders into January 2015. Based on new negotiated annual prices, the Company estimates that average US dollar and euro prices for specialty grades will decline by approximately 8% on average in calendar 2015. We anticipate that volumes for certain specialty grades will also come under pressure in calendar 2015, which will likely lead to increased production and sales of viscose and other grades. We do not anticipate any improvement in the viscose grade market. The over-supply situation will likely persist throughout 2015. The Forest Products segment experienced its normal seasonal decline in US dollar lumber prices and increased operating costs. We anticipate higher pricing and profitability as we enter into the normally stronger spring and summer months. Continued improvement in US housing starts is expected to lend further support to the previously noted seasonal cycle. The Paper Pulp segment remained at break-even in terms of adjusted EBITDA. The new South American hardwood paper pulp capacity is impacting prices and we anticipate marginal profitability from this segment until the market absorbs this new capacity. The Paper segment results were relatively unchanged. The coated bleached board markets remain stable and the business should continue to generate good results. Ongoing weakness in newsprint markets has put downward pressure on price and this situation will likely persist in the coming quarters. The recent decline in oil prices, combined with the further decline in the relative value of the Canadian dollar, will benefit all business segments.

The recent completion of the Temiscaming, QC, specialty cellulose Cogen project represents a very important milestone for the Company. On January 27, 2015, the turbine successfully completed the "commercial-in-service test specified in the power purchase agreement, which qualified it to sell electricity at the more favourable "green" power rate. The new boiler and turbine will materially improve the mill's cost structure and profitability. We will begin to see the positive impact in March 2015 quarterly results.

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 $1.6 billion, Tembec has 3,400 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 27, 2014, 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. 27, 2014	Sept. 27, 2014
ASSETS
Current assets:
	Cash and cash equivalents	$ 30	$ 39
	Restricted cash	5	3
	Trade and other receivables	156	171
	Income tax receivable	3	2
	Inventories (note 3)	276	258
	Prepaid expenses	6	10
		476	483
Property, plant and equipment (note 4)		647	630
Biological assets		2	2
Employee future benefits		24	25
Other long-term receivables		4	11
Deferred tax assets		4	4
		$ 1,157	$ 1,155
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Operating bank loans (note 5)	$ 76	$ 87
	Trade, other payables and accrued charges	198	212
	Interest payable	2	12
	Provisions	5	5
	Current portion of long-term debt (note 6)	17	17
		298	333
Long-term debt (note 6)		555	455
Provisions		10	11
Employee future benefits		155	135
Other long-term liabilities		1	2
		1,019	936
Shareholders' equity:
	Share capital	568	568
	Deficit	(439)	(358)
	Accumulated other comprehensive earnings	9	9
		138	219
		$ 1,157	$ 1,155

Subsequent event (note 14)

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

TEMBEC INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters ended December 27, 2014 and December 28, 2013 (unaudited) (in millions of Canadian dollars, unless otherwise noted)
			Quarters ended
			Dec. 27, 2014	Dec. 28, 2013
Sales			$ 332	$ 354
Freight and other deductions			42	44
Lumber export taxes			-	1
Cost of sales (excluding depreciation and amortization)			256	278
Selling, general and administrative			15	17
Share-based compensation			(1)	1
Depreciation and amortization			9	8
Other items (note 8)			3	(14)
Operating earnings			8	19
Interest, foreign exchange and other			12	9
Loss on refinancing of long-term debt (note 6)			37	-
Exchange loss on long-term debt			17	12
Net finance costs (note 9)			66	21
Loss before income taxes			(58)	(2)
Income tax expense (recovery) (note 10)			4	(4)
Net earnings (loss)			$ (62)	$ 2
Basic and diluted net earnings (loss) in dollars per share (note 7)			$ (0.62)	$ 0.02
TEMBEC INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters ended December 27, 2014 and December 28, 2013 (unaudited) (in millions of Canadian dollars)
			Quarters ended
			Dec. 27, 2014	Dec. 28, 2013
Net earnings (loss)			$ (62)	$ 2
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)	(19)	29
		Income tax recovery (expense)	-	(7)
			(19)	22
	Item that may be reclassified to earnings (loss) in future periods:
		Foreign currency translation differences for foreign operations	-	11
Other comprehensive earnings (loss)			(19)	33
Total comprehensive earnings (loss)			$ (81)	$ 35

 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 27, 2014 and December 28, 2013 (unaudited) (in millions of Canadian dollars)
Quarter ended December 27, 2014
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period, September 27, 2014		$ 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)
	Income tax recovery (expense)	-	-	-	-
	Foreign currency translation differences for foreign operations	-	-	-	-
Balance - end of period, December 27, 2014		$ 568	$ 9	$ (439)	$ 138
Quarter ended December 28, 2013
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period, September 28, 2013		$ 567	$ 6	$ (354)	$ 219
Net earnings for the period		-	-	2	2
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)	-	-	29	29
	Income tax recovery (expense)	-	-	(7)	(7)
	Foreign currency translation differences for foreign operations	-	11	-	11
Balance - end of period, December 28, 2013		$ 567	$ 17	$ (330)	$ 254

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

TEMBEC INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters ended December 27, 2014 and December 28, 2013 (unaudited) (in millions of Canadian dollars)
			Quarters ended
			Dec. 27, 2014	Dec. 28, 2013
Cash flows from operating activities:
	Net earnings (loss)		$ (62)	$ 2
	Adjustments for:
		Depreciation and amortization	9	8
		Net finance costs (note 9)	66	21
		Income tax expense (recovery) (note 10)	4	(4)
		Income tax paid	(4)	(3)
		Excess cash contributions over employee future benefits expense	(1)	(8)
		Share-based compensation	(1)	1
		Gain on sale of assets (note 8)	(1)	(20)
		Impairment loss (note 8)	3	-
		Other	-	4
			13	1
Changes in non-cash working capital:
	Trade and other receivables		17	(17)
	Inventories		(17)	(9)
	Prepaid expenses		1	1
	Trade, other payables and accrued charges		(1)	2
			-	(23)
			13	(22)
Cash flows from investing activities:
	Disbursements for property, plant and equipment		(34)	(42)
	Proceeds from sale of net assets (note 8)		2	23
	Change in restricted cash		(2)	(7)
			(34)	(26)
Cash flows from financing activities:
	Change in operating bank loans		(11)	4
	Increase in long-term debt (note 6)		414	33
	Repayments of long-term debt (note 6)		(342)	(1)
	Debt prepayment penalty (note 6)		(27)	-
	Interest paid		(22)	(20)
			12	16
			(9)	(32)
Foreign exchange gain on cash and cash equivalents held in foreign currencies			-	3
Net decrease in cash and cash equivalents			(9)	(29)
Cash and cash equivalents, beginning of period			39	73
Cash and cash equivalents, end of period			$ 30	$ 44

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

TEMBEC INC. BUSINESS SEGMENT INFORMATION
Quarters ended December 27, 2014 and December 28, 2013 (unaudited) (in millions of Canadian dollars)
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
Lumber export taxes		-	-	-	-	-	-	-
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
Quarter ended December 28, 2013
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 83	$ 126	$ 65	$ 80	$  -	$  -	$ 354
	Internal	16	-	8	-	3	(27)	-
		99	126	73	80	3	(27)	354
Freight and other deductions		9	10	14	11	-	-	44
Lumber export taxes		1	-	-	-	-	-	1
Cost of sales		88	97	57	60	3	(27)	278
Selling, general and administrative		3	5	1	2	6	-	17
Share-based compensation		-	-	-	-	1	-	1
Earnings (loss) before the following (adjusted EBITDA):		(2)	14	1	7	(7)	-	13
	Depreciation and amortization	1	4	2	1	-	-	8
	Other items (note 8)	-	-	-	-	(14)	-	(14)
Operating earnings (loss)		$ (3)	$ 10	$ (1)	$ 6	$ 7	$  -	$ 19
Additions to property, plant and equipment		$ 2	$ 30	$ 1	$ 1	$  -	$  -	$ 34
Total assets		$ 151	$ 569	$ 145	$ 149	$ 61	$  -	$ 1,075
Total liabilities		$ 56	$ 236	$ 33	$ 69	$ 427	$  -	$ 821

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]