Tembec reports financial results for its first quarter ended December 28, 2013

MONTREAL, Jan. 30, 2014 /CNW Telbec/ - Consolidated sales for the three-month period ended December 28, 2013, were $354 million, as compared to $376 million in the same quarter a year ago. The Company generated net earnings of $2 million or $0.02 per share in the December 2013 quarter compared to a net loss of $15 million or $0.15 per share in the December 2012 quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $13 million for the three-month period ended December 28, 2013, as compared to adjusted EBITDA of $19 million a year ago and adjusted EBITDA of $24 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $14 million on sales of $126 million for the quarter ended December 2013, compared to adjusted EBITDA of $22 million on sales of $117 million in the prior quarter. The pulp sales increase of $8 million was due to higher specialty grade pulp shipments. Demand for specialty grades was flat and US and euro prices were relatively unchanged quarter-over-quarter. However, with the Canadian dollar weakening versus the US dollar and the euro, Canadian dollar equivalent pricing increased by $30 per tonne. Viscose grade price realizations declined by $26 per tonne. This market remains oversupplied and prices are low. Overall, pricing increased adjusted EBITDA by $1 million. Shipments were equal to 78% of capacity as compared to 74% in the prior quarter. During the most recent quarter, the Tartas pulp mill absorbed a 12-day annual maintenance shutdown. As well, delays in commissioning new equipment installed during the shutdown affected productivity in the quarter. Overall, the pulp mill produced 11,100 fewer tonnes and costs increased by $12 million versus the prior quarter.

The Forest Products segment generated negative adjusted EBITDA of $2 million on sales of $99 million for the quarter ended December 2013, compared to nil adjusted EBITDA on sales of $105 million in the prior quarter. Sales decreased by $6 million due to lower lumber shipments, partially offset by higher prices. The rally in random length lumber prices that began in September continued into the December quarter. Stud lumber prices did not rally and continued to sell at a relatively high discount compared to random lumber prices. Overall, US $ benchmark prices for random lumber increased by US $46 per mbf while stud lumber increased by US $3 per mbf. Currency was favourable as the Canadian dollar weakened versus the US dollar. The net effect increased sales and adjusted EBITDA by $4 million or $24 per mbf. Lumber shipments were equal to 79% of capacity versus 86% in the prior quarter. Costs increased by $6 million, including $2 million for fibre. The winter months are seasonally higher operating cost periods and weather related issues hampered productivity and shipments in the most recent quarter.

The Paper Pulp segment generated adjusted EBITDA of $1 million on sales of $73 million for the quarter ended December 2013, compared to negative adjusted EBITDA of $2 million on sales of $73 million in the prior quarter. Sales were unchanged as improved pricing was offset by lower shipments. Market conditions for paper pulp remained relatively weak although demand was stable. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) decreased by US $8 per tonne. However, this decline did not affect high-yield pulp prices in the quarter. Currency was a positive as the Canadian dollar was weaker. Overall, average prices increased by $8 per tonne, improving adjusted EBITDA by $1 million. Pulp shipments were equal to 86% of capacity as compared to 88% in the prior quarter. Manufacturing costs decreased by $2 million, primarily due to higher productivity as the mills combined to manufacture 8,500 more tonnes in the most recent quarter.

The Paper segment generated adjusted EBITDA of $7 million on sales of $80 million for the quarter ended December 2013, compared to adjusted EBITDA of $8 million on sales of $81 million in the prior quarter. Lower shipments of coated bleached board, partially offset by higher volumes of newsprint, led to the $1 million decrease in sales. In terms of markets, coated bleached board improved slightly. The newsprint market weakened due to continued lower North American demand. The US $ benchmark prices for coated bleached board increased by US $13 per short ton while the US $ benchmark price for newsprint remained constant. Overall, average selling prices were unchanged quarter-over-quarter. Coated bleached board shipments were equal to 87% of capacity as compared to 94% in the prior quarter. The shipment to capacity percentage for newsprint was 89%, compared to 81% in the prior quarter. Manufacturing costs increased by $2 million, driven by higher energy costs. The Kapuskasing newsprint mill had benefitted from electricity load shedding credits in the prior quarter.

Other items

In September 2013, the Company announced the BC Lands Sale Initiative with the objective of realizing up to $75 million in gross proceeds by December 2014. During the December 2013 quarter, the Company closed the first two BC land sales transactions for total proceeds of $23 million and recorded a gain of $20 million. The remaining BC lands have been classified as assets held for sale.

Outlook

Overall, the December 2013 quarterly results were lower than anticipated. This was due to higher costs at the Tartas specialty pulp mill as well as weather related issues in late December that impacted productivity and shipments at several of the Canadian operations. The Forest Products segment saw random length lumber prices increase while stud lumber prices were relatively flat, selling at a significant discount to random length. Costs increased as expected due to the onset of winter operating conditions and the scheduled closures of the sawmills during the December holiday period. Looking ahead, the normal seasonal increase in demand and prices is anticipated, supported by continued growth in United States new home construction. At the Tartas specialty pulp mill, a 12-day annual maintenance shutdown combined with difficulties related to the start-up of a new bleaching tower reduced production by 11,100 tonnes and increased costs by $12 million. The new bleaching tower is now fully operational. The Company had previously guided that a 5% average price reduction on specialty grades was likely in calendar 2014. Negotiations with major customers are now concluded and the actual price reduction will average approximately 7%. The price decrease will impact results beginning in the March 2014 quarter.  While the Company is anticipating a year-over-year increase in specialty grade volume, it will continue to maintain a 40,000-50,000 tonne position in the viscose grade market. The latter is currently under pressure as new capacity has exceeded demand growth. The implementation of Chinese antidumping duties is contributing to the low prices and the Company is not anticipating improvement in the near term. The Paper Pulp segment generated a small profit as the two high-yield pulp mills reduced costs and generated higher selling prices. The hardwood paper pulp market remains relatively soft and the impact of new capacity will cause it to remain challenging. The Paper segment results remained relatively unchanged quarter-over-quarter. However, lower newsprint prices will reduce profitability in the upcoming quarters.

The Company continues with its capital expenditure program, with a strong emphasis on its two specialty cellulose mills. The cornerstone of the program is the high-pressure boiler and turbine currently under construction at the Temiscaming, Quebec, site. The project will materially improve the mill's cost structure and margins. Of the total forecast cost of $235 million, $163 million has been spent on the Temiscaming specialty cellulose project to the end of the December 2013 quarter. The Company has also made further progress in dealing with its defined benefit pension plan obligations. The net obligation for funded defined benefit pension plans declined from $39 million to $4 million during the most recent quarter. This will lead to a material decline in pension contributions in future periods. In September 2013, the Company launched its BC Lands Sale Initiative with the objective of realizing up to $75 million in gross proceeds by December 2014. The Company recently closed the first two lands sales transactions for total proceeds of $23 million. This will be an area of focus in the next few quarters.

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 3,500 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 28, 2013, 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. 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. 28, 2013		Sept. 28, 2013 (note 2)
ASSETS
Current assets:
	Cash and cash equivalents		$ 44		$ 73
	Restricted cash		8		1
	Trade and other receivables		174		157
	Inventories (note 3)		247		237
	Prepaid expenses		5		6
	Assets classified as held for sale		7		7
			485		481
Property, plant and equipment (note 4)			532		496
Biological assets			2		5
Employee future benefits			40		24
Other long-term receivables			10		10
Deferred tax assets			6		5
			$ 1,075		$ 1,021
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Operating bank loans (note 5)		$ 61		$ 57
	Trade, other payables and accrued charges		191		195
	Interest payable		2		10
	Income tax payable		9		8
	Provisions		6		6
	Current portion of long-term debt (note 6)		16		16
			285		292
Long-term debt (note 6)			414		369
Provisions			12		12
Employee future benefits			108		127
Other long-term liabilities			2		2
			821		802
Shareholders' equity:
	Share capital		567		567
	Deficit		(330)		(354)
	Accumulated other comprehensive earnings		17		6
			254		219
			$ 1,075		$ 1,021

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

TEMBEC INC.
CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS)
Quarters ended December 28, 2013 and December 29, 2012
(unaudited) (in millions of Canadian dollars, unless otherwise noted)
	Quarters ended
	Dec. 28, 2013		Dec. 29, 2012 (note 2)
Sales	$ 354		$ 376
Freight and other deductions	44		50
Lumber export taxes	1		1
Cost of sales (excluding depreciation and amortization)	278		286
Selling, general and administrative	17		19
Share-based compensation	1		1
Depreciation and amortization	8		11
Other items (note 8)	(14)		1
Operating earnings	19		7
Interest, foreign exchange and other	9		12
Exchange loss on long-term debt	12		4
Net finance costs (note 9)	21		16
Loss before income taxes	(2)		(9)
Income tax expense (recovery) (note 10)	(4)		6
Net earnings (loss)	$ 2		$ (15)
Basic and diluted net earnings (loss) in dollars per share (note 7)	$ 0.02		$ (0.15)

 

TEMBEC INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters ended December 28, 2013 and December 29, 2012
(unaudited) (in millions of Canadian dollars)
			Quarters ended
			Dec. 28, 2013		Dec. 29, 2012 (note 2)
Net earnings (loss)			$ 2		$ (15)
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 11)	29		5
		Income tax expense	(7)		-
			22		5
	Items that may be reclassified to earnings (loss) in future periods:
		Foreign currency translation differences for foreign operations	11		6
Other comprehensive earnings for the period			33		11
Total comprehensive earnings (loss)			$ 35		$ (4)

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 28, 2013 and December 29, 2012
(unaudited) (in millions of Canadian dollars)
		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 expense	-		-		(7)		(7)
	Foreign currency translation differences for foreign operations	-		11		-		11
Balance - end of period, December 28, 2013		$ 567		$ 17		$ (330)		$ 254
		Quarter ended December 29, 2012 (note 2)
		Share capital		Translation of foreign operations		Deficit		Shareholders' equity
Balance - beginning of period, September 29, 2012		$ 564		$ (9)		$ (455)		$ 100
Net loss for the period		-		-		(15)		(15)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)	-		-		5		5
	Foreign currency translation differences for foreign operations	-		6		-		6
Issue of warrants		3		-		-		3
Balance - end of period, December 29, 2012		$ 567		$ (3)		$ (465)		$ 99

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

 

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters ended December 28, 2013 and December 29, 2012
(unaudited) (in millions of Canadian dollars)
			Quarters ended
			Dec. 28, 2013	Dec. 29, 2012 (note 2)
Cash flows from operating activities:
	Net earnings (loss)		$ 2	$ (15)
	Adjustments for:
		Depreciation and amortization	8	11
		Net finance costs (note 9)	21	16
		Income tax expense (recovery) (note 10)	(4)	6
		Income tax paid	(3)	(2)
		Excess cash contributions over employee   future benefits expense	(8)	(11)
		Gain on sale of assets (note 8)	(20)	(2)
		Other	5	(4)
			1	(1)
Changes in non-cash working capital:
	Trade and other receivables		(17)	24
	Inventories		(9)	2
	Prepaid expenses		1	2
	Trade, other payables and accrued charges		2	(31)
			(23)	(3)
			(22)	(4)
Cash flows from investing activities:
	Disbursements for property, plant and equipment		(42)	(40)
	Proceeds from sale of assets (note 8)		23	2
	Change in restricted cash		(7)	4
			(26)	(34)
Cash flows from financing activities:
	Change in operating bank loans		4	1
	Increase in long-term debt		33	24
	Repayments of long-term debt		(1)	(1)
	Interest paid		(20)	(18)
			16	6
			(32)	(32)
Foreign exchange gain on cash and cash equivalents held in foreign currencies			3	1
Net decrease in cash and cash equivalents			(29)	(31)
Cash and cash equivalents, beginning of period			73	87
Cash and cash equivalents, end of period			$ 44	$ 56

 

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

TEMBEC INC.
BUSINESS SEGMENT INFORMATION
Quarters ended December 28, 2013 and December 29, 2012
(unaudited) (in millions of Canadian dollars)
				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
				Quarter ended December 29, 2012 (note 2)
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 85	$ 103	$ 110	$ 78	$  -	$  -	$ 376
	Internal	16	-	7	-	4	(27)	-
		101	103	117	78	4	(27)	376
Freight and other deductions		9	7	23	11	-	-	50
Lumber export taxes		1	-	-	-	-	-	1
Cost of sales		86	73	92	58	4	(27)	286
Selling, general and administrative		3	5	2	3	6	-	19
Share-based compensation		-	-	-	-	1	-	1
Earnings (loss) before the following (adjusted EBITDA):		2	18	-	6	(7)	-	19
	Depreciation and amortization	2	3	5	1	-	-	11
	Other items (note 8)	-	-	-	-	1	-	1
Operating earnings (loss)		$  -	$ 15	$ (5)	$ 5	$ (8)	$  -	$ 7
Additions to property, plant and equipment		$ 2	$ 26	$ 5	$ 1	$  -	$  -	$ 34
Total assets		$ 207	$ 426	$ 279	$ 115	$  -	$  -	$ 1,027
Total liabilities		$ 60	$ 213	$ 68	$ 123	$ 464	$  -	$ 928

 

 

 

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
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E-mail: [email protected]