Tembec reports financial results for its fourth quarter ended September 27, 2014

MONTREAL, Nov. 20, 2014 /CNW Telbec/ - Consolidated sales for the three-month period ended September 27, 2014, were $371 million, as compared to $352 million in the same quarter a year ago. The Company generated net earnings of $5 million or $0.05 per share in the September 2014 quarter compared to net earnings of $14 million or $0.14 per share in the September 2013 quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $29 million for the three-month period ended September 27, 2014, as compared to adjusted EBITDA of $24 million a year ago and adjusted EBITDA of $30 million in the prior quarter.

For the fiscal year ended September 27, 2014, consolidated sales were $1.5 billion, unchanged from the prior year. The Company generated net earnings of $9 million or $0.09 per share compared to a net loss of $39 million or $0.39 per share in fiscal 2013. Adjusted EBITDA was $90 million compared to $97 million in the prior year.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $16 million on sales of $123 million for the quarter ended September 2014, compared to adjusted EBITDA of $19 million on sales of $126 million in the prior quarter. The pulp sales increase of $1 million was due to higher shipments of specialty grades. Demand for specialty grades was flat while US and euro prices were relatively unchanged quarter-over-quarter. The euro weakened by 3.5% versus the Canadian dollar, reducing the reported sales of the Tartas, France mill by $2 million. Canadian dollar equivalent pricing for specialty grades declined by $28 per tonne. US dollar prices for viscose grades were relatively unchanged and prices increased by $11 per tonne. The viscose market remains oversupplied and prices are relatively low. Overall, pricing reduced adjusted EBITDA by $1 million. Shipments were equal to 80% of capacity in both quarters. Costs increased by $3 million due to net realizable value write downs as the Temiscaming mill produced more viscose grade pulp than it shipped.

The Forest Products segment generated adjusted EBITDA of $11 million on sales of $113 million for the quarter ended September 2014, compared to adjusted EBITDA of $5 million on sales of $108 million in the prior quarter. Sales increased by $5 million due to higher selling prices. Lumber shipments were equal to 83% of capacity versus 84% in the prior quarter. During the September 2014 quarter, the random length lumber reference price increased by US $13 per mbf while the reference price for stud lumber increased by US $28 per mbf. The price gap between the two grades narrowed as expected. Currency did not impact selling prices as the Canadian dollar averaged US $0.918, relatively unchanged from US $0.917 in the prior quarter. The net effect increased sales and adjusted EBITDA by $4 million or $23 per mbf. Costs decreased by $2 million. The spring and summer months are seasonally lower operating cost periods.

The Paper Pulp segment generated nil adjusted EBITDA on sales of $73 million for the quarter ended September 2014, compared to adjusted EBITDA of $3 million on sales of $102 million in the prior quarter. The $29 million decrease in sales was due to lower shipments and selling prices. Market conditions for paper pulp remained relatively weak although demand was stable. Pulp shipments were equal to 89% of capacity as compared to 117% in the prior quarter. Shipments in the prior quarter were unusually high as the Company dealt with a backlog created by winter storms that led to delays and congestion at several East Coast ports. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) decreased by US $13 per tonne, and the decline impacted high-yield pulp prices. Average selling prices declined by $32 per tonne, reducing adjusted EBITDA by $4 million. Manufacturing costs were relatively unchanged quarter-over-quarter. 

The Paper segment generated adjusted EBITDA of $7 million on sales of $86 million for the quarter ended September 2014, compared to adjusted EBITDA of $8 million on sales of $89 million in the prior quarter. Lower shipments of coated bleached board led to the $3 million reduction in sales. The coated bleached board market was stable. The shipment to capacity ratio was 91% compared to 96% in the prior quarter. The US $ benchmark price for coated bleached board was unchanged at US $1,195 per short ton. Overall, average selling prices for coated bleached board were unchanged quarter-over-quarter. Bleached board costs were also unchanged quarter-over-quarter. The newsprint market remained weak with continued decreases in North American demand. The shipment to capacity ratio was 92% compared to 89% in the prior quarter. The US $ benchmark price for newsprint was unchanged at US $605 per tonne. Manufacturing costs at the Kapuskasing newsprint mill were similar in both quarters.

BC Land Sales Initiative

The Company made further progress on the BC Lands Sale Initiative. The objective is to realize up to $70 million in total sales by December 2014. As at the end of September 2014, the Company had generated sales of $60 million from the BC Land Sales Initiative. To date, the Company has sold approximately 59,800 hectares, representing 91% of the land area included in the BC Land Sales Initiative. The remaining 6,100 hectares to be sold relate to several small properties of various estimated values, which total approximately $10 million in aggregate. Given the characteristics of these properties, the Company considers it unlikely that they will all be sold by December 2014. It will take a longer period of time to ensure fair value is received for the remaining properties. Future sales of BC lands will be disclosed as they occur.

Temiscaming Cogen Project Update

The Company had previously indicated that the total construction cost of the Temiscaming Cogen project would be approximately $255 million. Updated projections now indicate that the total construction cost will be approximately $265 million. The increase is largely due to higher labour costs. The prior estimate contemplated total direct labour man-hours of 927,000. To the end of September 2014, labour man-hours had reached 933,000 and projections indicate a further 57,000 man-hours will be required to complete the construction work, for a projected total of 990,000 man-hours. The boiler and turbine installation are essentially complete and the remaining work will focus on commissioning and start-up. The turbine was previously scheduled to produce contract power by late-November 2014. This is now expected to occur in mid-December, a delay of approximately two weeks. 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 occur when the boiler and turbine become operational, 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 September 2014 quarterly results were better than anticipated. Higher lumber prices accounted for a significant portion of the outperformance. The Specialty Cellulose segment results were as expected. The recovery in specialty grade volumes has been relatively slow, increasing by approximately 4% year-over-year. The Company has had to place greater reliance on the less profitable viscose grade market, which is negatively impacting segment results. Similar market conditions are expected in the coming quarter. The improved results in the Forest Products segment were driven by higher prices for lumber. Stud lumber prices increased by a larger margin, closing the gap with random lumber. We anticipate seasonally weaker prices in the coming quarter. The Paper Pulp segment results declined as a result of lower high-yield pulp prices. 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 market is stable, but the export market for newsprint, on which North American producers are placing greater reliance, is under pressure.

The Company is looking forward to completing the construction of the Temiscaming, QC, specialty cellulose Cogen project in the coming quarter. While the total estimated cost has increased, the project remains a critical element that will materially improve the mill's cost structure and margins. The Company has placed significant emphasis on training and commissioning in order to ensure a successful start-up of the boiler and turbine. 

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 September 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)
			Sept. 27, 2014	Sept. 28, 2013 (note 2)
ASSETS
Current assets:
	Cash and cash equivalents		$ 39	$ 73
	Restricted cash		3	1
	Trade and other receivables		171	157
	Income tax receivable		2	-
	Inventories (note 3)		258	237
	Prepaid expenses		10	6
	Assets classified as held for sale		-	7
			483	481
Property, plant and equipment (note 4)			630	496
Biological assets			2	5
Employee future benefits			25	24
Other long-term receivables			11	10
Deferred tax assets			4	5
			$ 1,155	$ 1,021
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Operating bank loans (note 5)		$ 87	$ 57
	Trade, other payables and accrued charges		212	195
	Interest payable		12	10
	Income tax payable		-	8
	Provisions		5	6
	Current portion of long-term debt (note 6)		17	16
			333	292
Long-term debt (note 6)			455	369
Provisions			11	12
Employee future benefits			135	127
Other long-term liabilities			2	2
			936	802
Shareholders' equity:
	Share capital		568	567
	Deficit		(358)	(354)
	Accumulated other comprehensive earnings		9	6
			219	219
			$ 1,155	$ 1,021
Subsequent events (note 14)
The accompanying notes are an integral part of these interim consolidated financial statements.

TEMBEC INC. CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS)
Quarters and years ended September 27, 2014 and September 28, 2013 (unaudited) (in millions of Canadian dollars, unless otherwise noted)
	Quarters		Years
	2014	2013 (note 2)	2014	2013 (note 2)
Sales	$ 371	$ 352	$ 1,491	$ 1,534
Freight and other deductions	48	43	191	201
Lumber export taxes	-	1	-	3
Cost of sales (excluding depreciation and amortization)	277	268	1,141	1,160
Selling, general and administrative	16	16	66	72
Share-based compensation	1	-	3	1
Depreciation and amortization	11	11	37	40
Other items (note 8)	(14)	1	(35)	29
Operating earnings	32	12	88	28
Interest, foreign exchange and other	5	13	33	45
Exchange loss (gain) on long-term debt	15	(7)	26	14
Net finance costs (note 9)	20	6	59	59
Earnings (loss) before income taxes	12	6	29	(31)
Income tax expense (recovery) (note 10)	7	(8)	20	8
Net earnings (loss)	$ 5	$ 14	$ 9	$ (39)
Basic and diluted net earnings (loss) in dollars per share (note 7)	$ 0.05	$ 0.14	$ 0.09	$ (0.39)

TEMBEC INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters and years ended September 27, 2014 and September 28, 2013 (unaudited) (in millions of Canadian dollars)
			Quarters		Years
			2014	2013 (note 2)	2014	2013 (note 2)
Net earnings (loss)			$ 5	$ 14	$ 9	$ (39)
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)	(20)	44	(13)	151
		Income tax recovery (expense)	1	(11)	-	(11)
			(19)	33	(13)	140
	Item that may be reclassified to earnings (loss) in future periods:
		Foreign currency translation differences for foreign operations	(6)	3	3	15
Other comprehensive earnings (loss)			(25)	36	(10)	155
Total comprehensive earnings (loss)			$ (20)	$ 50	$ (1)	$ 116
The accompanying notes are an integral part of these interim consolidated financial statements.

TEMBEC INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Quarters ended September 27, 2014 and September 28, 2013 (unaudited) (in millions of Canadian dollars)
Quarter ended September 27, 2014
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period, June 28, 2014		$ 568	$ 15	$ (344)	$ 239
Net earnings for the period		-	-	5	5
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)	-	-	(20)	(20)
	Income tax recovery (expense)	-	-	1	1
	Foreign currency translation differences for foreign operations	-	(6)	-	(6)
Issue of warrants (note 7)		-	-	-	-
Balance - end of period, September 27, 2014		$ 568	$ 9	$ (358)	$ 219
Quarter ended September 28, 2013 (note 2)
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period, June 29, 2013, as restated		$ 567	$ 3	$ (401)	$ 169
Net earnings for the period		-	-	14	14
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)	-	-	44	44
	Income tax recovery (expense)	-	-	(11)	(11)
	Foreign currency translation differences for foreign operations	-	3	-	3
Issue of warrants (note 7)		-	-	-	-
Balance - end of period, September 28, 2013		$ 567	$ 6	$ (354)	$ 219
The accompanying notes are an integral part of these interim consolidated financial statements.

TEMBEC INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended September 27, 2014 and September 28, 2013 (unaudited) (in millions of Canadian dollars)
Year ended September 27, 2014
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of year, September 28, 2013		$ 567	$ 6	$ (354)	$ 219
Net earnings for the period		-	-	9	9
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)	-	-	(13)	(13)
	Income tax recovery (expense)	-	-	-	-
	Foreign currency translation differences for foreign operations	-	3	-	3
Issue of warrants (note 7)		1	-	-	1
Balance - end of period, September 27, 2014		$ 568	$ 9	$ (358)	$ 219
Year ended September 28, 2013 (note 2)
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of year, September 29, 2012		$ 564	$ (9)	$ (455)	$ 100
Net loss for the period		-	-	(39)	(39)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)	-	-	151	151
	Income tax recovery (expense)	-	-	(11)	(11)
	Foreign currency translation differences for foreign operations	-	15	-	15
Issue of warrants (note 7)		3	-	-	3
Balance - end of period, September 28, 2013		$ 567	$ 6	$ (354)	$ 219
The accompanying notes are an integral part of these interim consolidated financial statements.

TEMBEC INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters and years ended September 27, 2014 and September 28, 2013 (unaudited) (in millions of Canadian dollars)
			Quarters		Years
			2014	2013 (note 2)	2014	2013 (note 2)
Cash flows from operating activities:
	Net earnings (loss)		$ 5	$ 14	$ 9	$ (39)
	Adjustments for:
		Depreciation and amortization	11	11	37	40
		Net finance costs (note 9)	20	6	59	59
		Income tax expense (recovery) (note 10)	7	(8)	20	8
		Income tax paid	(4)	(2)	(31)	(15)
		Excess cash contributions over employee future benefits expense	(4)	(8)	(20)	(33)
		Share-based compensation	1	-	3	1
		Gain on sale of assets (note 8)	(15)	-	(50)	(1)
		Settlement loss on pension plan (note 8)	-	-	7	-
		Impairment loss (note 8)	-	-	-	22
		Other	2	(3)	4	(6)
			23	10	38	36
Changes in non-cash working capital:
	Trade and other receivables		3	(7)	(11)	16
	Inventories		7	-	(21)	3
	Prepaid expenses		3	2	(1)	1
	Trade, other payables and accrued charges		1	1	17	(33)
			14	(4)	(16)	(13)
			37	6	22	23
Cash flows from investing activities:
	Disbursements for property, plant and equipment		(39)	(34)	(158)	(127)
	Proceeds from sale of net assets (note 8)		19	1	59	100
	Change in restricted cash		-	(1)	(2)	4
	Other		-	(1)	-	1
			(20)	(35)	(101)	(22)
Cash flows from financing activities:
	Change in operating bank loans		-	-	30	(11)
	Increase in long-term debt		3	12	67	40
	Repayments of long-term debt		(4)	(3)	(9)	(8)
	Interest paid		(2)	(2)	(45)	(40)
			(3)	7	43	(19)
			14	(22)	(36)	(18)
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies			(1)	1	2	4
Net increase (decrease) in cash and cash equivalents			13	(21)	(34)	(14)
Cash and cash equivalents, beginning of period			26	94	73	87
Cash and cash equivalents, end of period			$ 39	$ 73	$ 39	$ 73
The accompanying notes are an integral part of these interim consolidated financial statements.

TEMBEC INC. BUSINESS SEGMENT INFORMATION
Quarters ended September 27, 2014 and September 28, 2013 (unaudited) (in millions of Canadian dollars)
				Quarter ended September 27, 2014
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 96	$ 123	$ 66	$ 86	$  -	$  -	$ 371
	Internal	17	-	7	-	4	(28)	-
		113	123	73	86	4	(28)	371
Freight and other deductions		10	12	14	12	-	-	48
Lumber export taxes		-	-	-	-	-	-	-
Cost of sales		89	90	58	64	4	(28)	277
Selling, general and administrative		3	5	1	3	4	-	16
Share-based compensation		-	-	-	-	1	-	1
Earnings (loss) before the following (adjusted EBITDA):		11	16	-	7	(5)	-	29
	Depreciation and amortization	3	4	4	-	-	-	11
	Other items (note 8)	-	-	-	-	(14)	-	(14)
Operating earnings (loss)		$ 8	$ 12	$ (4)	$ 7	$ 9	$  -	$ 32
Additions to property, plant and equipment		$ 4	$ 31	$ 1	$ 2	$  -	$  -	$ 38
Total assets		$ 164	$ 656	$ 142	$ 144	$ 49	$  -	$ 1,155
Total liabilities		$ 64	$ 260	$ 31	$ 69	$ 512	$  -	$ 936
				Quarter ended September 28, 2013 (note 2)
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 88	$ 117	$ 66	$ 81	$  -	$  -	$ 352
	Internal	17	-	7	-	4	(28)	-
		105	117	73	81	4	(28)	352
Freight and other deductions		10	9	13	11	-	-	43
Lumber export taxes		1	-	-	-	-	-	1
Cost of sales		92	81	60	59	4	(28)	268
Selling, general and administrative		2	5	2	3	4	-	16
Share-based compensation		-	-	-	-	-	-	-
Earnings (loss) before the following (adjusted EBITDA):		-	22	(2)	8	(4)	-	24
	Depreciation and amortization	3	4	3	1	-	-	11
	Other items (note 8)	-	-	-	-	1	-	1
Operating earnings (loss)		$ (3)	$ 18	$ (5)	$ 7	$ (5)	$  -	$ 12
Additions to property, plant and equipment		$ 4	$ 38	$ 2	$ 3	$  -	$  -	$ 47
Total assets		$ 155	$ 538	$ 142	$ 137	$ 49	$  -	$ 1,021
Total liabilities		$ 58	$ 210	$ 32	$ 71	$ 431	$  -	$ 802

TEMBEC INC. BUSINESS SEGMENT INFORMATION
Years ended September 27, 2014 and September 28, 2013 (unaudited) (in millions of Canadian dollars)
				Year ended September 27, 2014
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 368	$ 503	$ 281	$ 339	$  -	$  -	$ 1,491
	Internal	64	-	29	-	15	(108)	-
		432	503	310	339	15	(108)	1,491
Freight and other deductions		41	44	60	46	-	-	191
Lumber export taxes		-	-	-	-	-	-	-
Cost of sales		362	372	239	261	15	(108)	1,141
Selling, general and administrative		12	20	5	11	18	-	66
Share-based compensation		-	-	-	-	3	-	3
Earnings (loss) before the following (adjusted EBITDA):		17	67	6	21	(21)	-	90
	Depreciation and amortization	7	15	11	3	1	-	37
	Other items (note 8)	-	-	-	-	(35)	-	(35)
Operating earnings (loss)		$ 10	$ 52	$ (5)	$ 18	$ 13	$  -	$ 88
Additions to property, plant and equipment		$ 8	$ 135	$ 4	$ 4	$  -	$  -	$ 151
Total assets		$ 164	$ 656	$ 142	$ 144	$ 49	$  -	$ 1,155
Total liabilities		$ 64	$ 260	$ 31	$ 69	$ 512	$  -	$ 936
				Year ended September 28, 2013 (note 2)
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 354	$ 460	$ 388	$ 332	$  -	$  -	$ 1,534
	Internal	66	-	30	-	12	(108)	-
		420	460	418	332	12	(108)	1,534
Freight and other deductions		39	36	80	46	-	-	201
Lumber export taxes		3	-	-	-	-	-	3
Cost of sales		351	331	325	250	11	(108)	1,160
Selling, general and administrative		11	20	8	11	22	-	72
Share-based compensation		-	-	-	-	1	-	1
Earnings (loss) before the following (adjusted EBITDA):		16	73	5	25	(22)	-	97
	Depreciation and amortization	9	14	14	3	-	-	40
	Other items (note 8)	-	-	23	-	6	-	29
Operating earnings (loss)		$ 7	$ 59	$ (32)	$ 22	$ (28)	$  -	$ 28
Additions to property, plant and equipment		$ 7	$ 110	$ 10	$ 9	$ 1	$  -	$ 137
Total assets		$ 155	$ 538	$ 142	$ 137	$ 49	$  -	$ 1,021
Total liabilities		$ 58	$ 210	$ 32	$ 71	$ 431	$  -	$ 802

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]