Tembec reports financial results for its fourth quarter ended September 29, 2012

MONTREAL, Nov. 15, 2012 /CNW Telbec/ - Consolidated sales for the three-month period ended September 29, 2012, were $443 million, as compared to $421 million in the comparable period of the prior year. The Company generated a net loss of $47 million or $0.47 per share in the September 2012 quarter compared to a net loss of $17 million or $0.17 per share in the September 2011 quarter. The most recent quarter results include a non-cash asset impairment charge of $50 million relating to the recently idled Chetwynd, British Columbia, pulp mill. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $23 million for the three-month period ended September 29, 2012, as compared to adjusted EBITDA of $19 million a year ago and adjusted EBITDA of $27 million in the prior quarter.

For the fiscal year ended September 29, 2012, consolidated sales were $1.7 billion, unchanged from the prior year. The Company generated a net loss of $82 million or $0.82 per share compared to a net loss of $5 million or $0.05 per share in fiscal 2011. Adjusted EBITDA was $64 million compared to $98 million in the prior year.

Transition to IFRS

All financial information in this press release, including comparative figures pertaining to Tembec's fiscal 2011 quarterly results, have been prepared in accordance with International Financial Reporting Standards (IFRS).

Business Segment Results

The Specialty Cellulose and Chemical Pulp segment generated adjusted EBITDA of $16 million on sales of $167 million for the quarter ended September 29, 2012, compared to adjusted EBITDA of $18 million on sales of $167 million in the prior quarter. Sales were relatively unchanged with lower prices offset by higher shipments. US dollar and euro prices for specialty grades and commodity viscose grades were relatively unchanged quarter-over-quarter. However, with the Canadian dollar strengthening by 1.2% versus the US dollar and by 4.0% versus the euro, Canadian dollar equivalent pricing declined by $4 million or $60 per tonne sold.

The specialty cellulose market conditions remained favourable. Specialty cellulose shipments were equal to 84% of capacity as compared to 80% in the prior quarter. The relatively low level of shipments in the June 2012 quarter was due to the annual maintenance shutdown at the Tartas mill, which lasted 11 days. A shorter four day planned maintenance outage also occurred at the Temiscaming facility. During the most recent quarter, the two specialty pulp mills had only 3.5 days of scheduled maintenance, including one day at the Tartas mill. The higher productivity at the latter facility reduced mill level cash costs, including the positive impact of the weaker euro, by $10 million. Overall, the two pulp mills generated $7 million more of adjusted EBITDA than in the prior quarter.

The market conditions for Northern Bleached Softwood Kraft (NBSK) pulp remained relatively weak. The benchmark price (delivered China) decreased by US $60 per tonne. Overall, realized Canadian dollar prices decreased by $50 per tonne, reducing adjusted EBITDA by $3 million. NBSK shipments were equal to 89% of capacity as compared to 91% in the prior quarter. During the most recent quarter, the Skookumchuck pulp mill proceeded with its planned annual maintenance shutdown, which lasted seven days. As a result, mill level costs increased by $7 million. Overall, adjusted EBITDA declined by $11 million.

The Paper segment generated adjusted EBITDA of $14 million on sales of $96 million for the quarter ended September 2012, compared to adjusted EBITDA of $9 million on sales of $86 million in the prior quarter. Higher coated bleached board and newsprint shipments caused the $10 million increase in sales. In terms of markets, coated bleached board was stable. Newsprint also remained stable despite continued weaker North American demand statistics. The US $ reference prices for coated bleached board declined by US $13 per short ton while the US $ reference price for newsprint was unchanged. Currency was slightly negative as the Canadian dollar averaged US $1.003, a 1.2% increase from US $0.991 in the prior quarter. The combined effect was a decrease of $3 million of adjusted EBITDA due to price. Coated bleached board shipments were equal to 111% of capacity as compared to 96% in the prior quarter. The shipment to capacity percentage for newsprint was 103%, compared to 87% in the prior quarter. Both mills saw improved productivity and also sold from inventory. The improved productivity led to a reduction in mill level costs of $5 million, primarily for energy and fixed cost absorption. The higher sales volume also led to higher adjusted EBITDA.

The High-Yield Pulp segment generated negative adjusted EBITDA of $9 million on sales of $100 million for the quarter ended September 29, 2012, compared to adjusted EBITDA of $5 million on sales of $101 million in the prior quarter. Market conditions for high-yield pulp remained weak in the most recent quarter. The US $ reference price for bleached eucalyptus kraft (BEK) decreased over the prior quarter by US $32 per tonne. When combined with a higher sales mix factor, high-yield pulp prices declined by $5 per tonne, reducing adjusted EBITDA by $1 million. High-yield pulp shipments were equal to 91% of capacity as compared to 89% in the prior quarter. During the most recent quarter, weak market conditions led to a production curtailment at the Chetwynd pulp mill for the last 30 days of the fiscal quarter. The mill remains indefinitely idled at time of writing and the Company has incurred a $50 million asset impairment charge to reduce the carrying values of the mill assets to estimated net recoverable amounts. The reduced productivity increased mill costs by $2 million over the prior quarter. In the September 2012 quarter, the lower selling prices led to a decrease of $3 million in the carrying values of finished goods and raw material inventories, decreasing adjusted EBITDA. This is the opposite of what occurred in the prior quarter when increased selling prices had led to an $8 million increase in the carrying values of finished goods and raw materials.

The Forest Products segment generated adjusted EBITDA of $8 million on sales of $108 million for the quarter ended September 29, 2012, compared to negative adjusted EBITDA of $2 million on sales of $86 million in the prior quarter. Sales increased by $22 million due primarily to higher shipments of lumber and sawmill by-products. Demand for SPF lumber improved with shipments equal to 70% of capacity, as compared to 59% in the prior quarter. US $ reference prices for random lumber increased by US $8 per mbf on average while stud lumber increased by US $7 per mbf. When combined with a higher sales mix factor, the net price effect was an increase in adjusted EBITDA of $3 million or $15 per mbf. Mill level manufacturing costs improved by $5 million. Costs are normally lower in the summer months and the sawmills also benefited from more continuous operations in the most recent quarter.

Outlook

Overall, the September 2012 quarterly results were in line with expectations, with improving lumber profitability offsetting the negative impact of difficult paper pulp markets. The Forest Products segment had its best quarter in several years, both in terms of lumber demand and prices. The summer months are also seasonally more productive and lower cost as well. Looking ahead, the normal seasonal decline in prices is anticipated in the December quarter. While the recent housing statistics in the United States are encouraging, we continue to forecast a slow and gradual recovery in housing, with lumber demand and prices following a similar pattern. The Specialty Cellulose and Chemical Pulp segment results were negatively impacted by currency as the Canadian dollar strengthened versus the US dollar and the euro. Market conditions for specialty cellulose were stable while those for NBSK pulp were very weak, with US $ pricing reaching "trough" levels. The annual mill-wide maintenance outage at the Skookumchuck pulp mill, which is the Company's most expensive outage, also impacted the segment's quarterly results. We anticipate a stable market for specialty and viscose pulps in the coming quarters. There are price increases announced for NBSK and they should be implemented. The adjusted EBITDA decline in the High-Yield Pulp segment was somewhat distorted by inventory adjustments. The prior quarter had benefited from an $8 million favourable adjustment to net realizable value inventory reserves as compared to a $3 million unfavourable adjustment in the September 2012 quarter. Absent the aforementioned adjustments, the decline in profitability was relatively modest and in line with expectations. Lower prices and the additional costs of idling the 240,000 tonnes per year Chetwynd, BC, mill led to the decline in High-Yield Pulp segment profitability. While price increases are being implemented, we expect market conditions for high-yield pulp to remain relatively weak. As well, future profitability will be enhanced as the Company will be operating its two lowest cost facilities going forward. The Paper segment had improved results due to good productivity and higher shipments. Stable paper markets are anticipated. However, profitability will be lower as the September 2012 quarter level of shipments is not sustainable. The Company continues with its capital expenditure program, with a strong emphasis on its two specialty cellulose mills. The cornerstone of the program is a $190 million high-pressure boiler and turbine to be installed at the Temiscaming, Quebec, site. The project will materially improve the mill's cost structure and margins. A total of $59 million has been spent on the Temiscaming specialty cellulose project to the end of the September 2012 quarter. The Company also has several other smaller capital projects, which are either in start-up mode or nearing completion. These projects will begin to positively impact adjusted EBITDA in the coming 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 $2 billion, Tembec has 4,000 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 September 29, 2012, can be obtained on Tembec's website at www.tembec.com or on SEDAR at www.sedar.com.

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)
		Sept. 29, 2012	Sept. 24, 2011	Sept. 26, 2010
ASSETS
Current assets:
	Cash and cash equivalents	$ 87	$ 99	$ 68
	Cash held in trust	5	6	6
	Trade and other receivables	200	182	209
	Inventories (note 4)	255	261	255
	Prepaid expenses	7	6	7
		554	554	545
Property, plant and equipment (note 5)		485	491	496
Biological assets		4	4	7
Employee future benefits		-	1	-
Other long-term receivables		12	28	28
Deferred tax assets		4	15	27
		$ 1,059	$ 1,093	$ 1,103
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Operating bank loans (note 6)	$ 68	$ 6	$ 1
	Trade, other payables and accrued charges	230	240	233
	Interest payable	10	8	3
	Income tax payable	3	6	-
	Provisions (note 8)	3	8	5
	Current portion of long-term debt (note 7)	16	18	17
		330	286	259
Long-term debt (note 7)		323	271	271
Provisions (note 8)		17	16	17
Employee future benefits		285	285	248
Other long-term liabilities		2	2	8
		957	860	803
Shareholders' equity:
	Share capital (note 9)	564	564	564
	Deficit	(453)	(333)	(264)
	Accumulated other comprehensive earnings (loss)	(9)	2	-
		102	233	300
		$ 1,059	$ 1,093	$ 1,103

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 29, 2012 and September 24, 2011 (unaudited) (in millions of Canadian dollars, unless otherwise noted)
		Quarters		Years
		2012	2011	2012	2011
Sales		$ 443	$ 421	$ 1,666	$ 1,743
Freight and other deductions		63	57	232	237
Lumber export taxes		1	3	7	13
Cost of sales (excluding depreciation and amortization)		337	331	1,290	1,321
Selling, general and administrative		20	17	74	72
Share-based compensation (note 9)		(1)	(6)	(1)	2
Depreciation and amortization		13	12	46	48
Other items (note 11)		51	2	50	3
Operating earnings (loss)		(41)	5	(32)	47
Interest, foreign exchange and other		14	3	41	31
Exchange loss (gain) on long-term debt		(13)	11	(13)	1
Net finance costs (note 12)		1	14	28	32
Earnings (loss) before income taxes		(42)	(9)	(60)	15
Income tax expense (note 13)		5	8	22	20
Net loss		$ (47)	$ (17)	$ (82)	$ (5)
Basic and diluted net loss in dollars per share (note 9)		$ (0.47)	$ (0.17)	$ (0.82)	$ (0.05)
TEMBEC INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters and years ended September 29, 2012 and September 24, 2011  (unaudited) (in millions of Canadian dollars)
		Quarters		Years
		2012	2011	2012	2011
Net loss		$ (47)	$ (17)	$ (82)	$ (5)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans	(42)	(64)	(42)	(64)
	Other benefit plans	4	-	4	-
	Foreign currency translation differences for foreign operations	(1)	(2)	(11)	2
Total comprehensive loss		$ (86)	$ (83)	$ (131)	$ (67)

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 29, 2012 and September 24, 2011 (unaudited) (in millions of Canadian dollars)
		Quarter ended September 29, 2012
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period, June 23, 2012		$ 564	$ (8)	$ (368)	$ 188
Net loss for the period		-	-	(47)	(47)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans	-	-	(42)	(42)
	Other benefit plans	-	-	4	4
	Foreign currency translation differences   for foreign operations	-	(1)	-	(1)
Balance - end of period, September 29, 2012		$ 564	$ (9)	$ (453)	$ 102
		Quarter ended September 24, 2011
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period, June 25, 2011		$ 564	$ 4	$ (252)	$ 316
Net loss for the period		-	-	(17)	(17)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans	-	-	(64)	(64)
	Other benefit plans	-	-	-	-
	Foreign currency translation differences for foreign operations	-	(2)	-	(2)
Balance - end of period, September 24, 2011		$ 564	$ 2	$ (333)	$ 233
Years ended September 29, 2012 and September 24, 2011 (unaudited) (in millions of Canadian dollars)
		Year ended September 29, 2012
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of year, September 24, 2011		$ 564	$ 2	$ (333)	$ 233
Net loss for the year		-	-	(82)	(82)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans	-	-	(42)	(42)
	Other benefit plans	-	-	4	4
	Foreign currency translation differences for foreign operations	-	(11)	-	(11)
Balance - end of year, September 29, 2012		$ 564	$ (9)	$ (453)	$ 102
		Year ended September 24, 2011
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of year, September 26, 2010		$ 564	$  -	$ (264)	$ 300
Net loss for the year		-	-	(5)	(5)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans	-	-	(64)	(64)
	Other benefit plans	-	-	-	-
	Foreign currency translation differences for foreign operations	-	2	-	2
Balance - end of year, September 24, 2011		$ 564	$ 2	$ (333)	$ 233

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 29, 2012 and September 24, 2011 (unaudited) (in millions of Canadian dollars)
			Quarters		Years
			2012	2011	2012	2011
Cash flows from operating activities:
	Net loss		$ (47)	$ (17)	$ (82)	$ (5)
	Adjustments for:
		Depreciation and amortization	13	12	46	48
		Net finance costs (note 12)	1	14	28	32
		Income tax expense (note 13)	5	8	22	20
		Income tax paid	(1)	(1)	(14)	(1)
		Excess cash contributions over employee future benefits expense	(11)	(7)	(34)	(22)
		Provisions	3	-	12	1
		Impairment loss (note 11)	50	-	67	-
		Gain on sale of assets and deconsolidation of a subsidiary	-	-	(30)	(7)
		Other	(2)	4	(2)	(2)
			11	13	13	64
Changes in non-cash working capital:
	Trade and other receivables		(9)	19	(30)	33
	Inventories		9	4	(40)	(7)
	Prepaid expenses		3	2	(1)	1
	Trade, other payables and accrued charges		3	23	(14)	8
			6	48	(85)	35
			17	61	(72)	99
Cash flows from investing activities:
	Additions to property, plant and equipment		(33)	(36)	(108)	(65)
	Proceeds from sale of net assets (note 11)		-	-	84	17
	Other		(7)	2	(1)	2
			(40)	(34)	(25)	(46)
Cash flows from financing activities:
	Change in operating bank loans		-	4	62	5
	Cash held in trust		(4)	-	-	-
	Increase in long-term debt		19	3	74	8
	Repayments of long-term debt		(2)	(1)	(11)	(8)
	Interest paid		(1)	(1)	(34)	(25)
	Other		-	1	-	(2)
			12	6	91	(22)
			(11)	33	(6)	31
Foreign exchange loss on cash and cash equivalentsheld in foreign currencies			(2)	-	(6)	-
Net increase (decrease) in cash and cash equivalents			(13)	33	(12)	31
Cash and cash equivalents, beginning of period			100	66	99	68
Cash and cash equivalents, end of period			$ 87	$ 99	$ 87	$ 99

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

 

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TEMBEC INC.
BUSINESS SEGMENT INFORMATION

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Quarters and years ended September 29, 2012 and September 24, 2011
(unaudited) (in millions of Canadian dollars)

The Forest Products segment consists primarily of forest and sawmills operations, which produce lumber and building materials. The Specialty Cellulose and Chemical Pulp segment consists primarily of manufacturing and marketing activities of specialty cellulose and chemical pulps including the transformation and sale of resins and pulp by-products. A significant portion of chemical product sales are related to by-products generated by the two specialty cellulose pulp mills. The High-Yield Pulp segment includes the manufacturing and marketing activities of high-yield pulps. The Paper segment consists primarily of production and sales of coated bleached board and newsprint. Intersegment transfers of wood chips, pulp and other services are recorded at transfer prices agreed to by the parties, which are intended to approximate fair market value. The basis of presentation and the accounting policies used in these business segments are the same as those described in notes 2 and 3.

The financial performance of each segment is measured based on earnings before interest, income taxes, depreciation and amortization, and other specific or non-recurring items (adjusted EBITDA). This measure is included in the internal reports that are reviewed by senior management. Segment adjusted EBITDA is used to measure performance as management believes that such information is the most relevant in evaluating financial results relative to other entities that operate within similar businesses. Net finance costs and income tax are not allocated to operating segments.

Quarters ended September 29, 2012 and September 24, 2011 (unaudited) (in millions of Canadian dollars)
				Quarter ended September 29, 2012
		Forest Products	Specialty Cellulose & Chemical Pulp	High-Yield Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 90	$ 165	$ 92	$ 96	$ -	$ -	$ 443
	Internal	18	2	8	-	5	(33)	-
		108	167	100	96	5	(33)	443
Freight and other deductions		9	18	23	13	-	-	63
Lumber export taxes		1	-	-	-	-	-	1
Cost of sales		86	127	85	67	5	(33)	337
Selling, general and administrative		4	6	1	2	7	-	20
Share-based compensation		-	-	-	-	(1)	-	(1)
Earnings (loss) before the following (adjusted EBITDA):		8	16	(9)	14	(6)	-	23
	Depreciation and amortization	2	7	3	1	-	-	13
	Other items (note 11)	-	-	50	-	1	-	51
Operating earnings (loss)		$ 6	$ 9	$ (62)	$ 13	$ (7)	$ -	$ (41)
Additions to property, plant and equipment		$ 4	$ 36	$ 2	$ 2	$ 1	$ -	$ 45
Total assets		$ 216	$ 544	$ 156	$ 120	$ 23	$ -	$ 1,059
				Quarter ended September 24, 2011
		Forest Products	Specialty Cellulose & Chemical Pulp	High-Yield Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 96	$ 174	$ 67	$ 84	$ -	$ -	$ 421
	Internal	25	6	9	-	2	(42)	-
		121	180	76	84	2	(42)	421
Freight and other deductions		12	17	17	11	-	-	57
Lumber export taxes		3	-	-	-	-	-	3
Cost of sales		112	128	66	65	2	(42)	331
Selling, general and administrative		4	5	1	2	5	-	17
Share-based compensation		-	-	-	-	(6)	-	(6)
Earnings (loss) before the following (adjusted EBITDA):		(10)	30	(8)	6	1	-	19
	Depreciation and amortization	2	5	3	1	1	-	12
	Other items (note 11)	-	-	-	-	2	-	2
Operating earnings (loss)		$ (12)	$ 25	$ (11)	$ 5	$ (2)	$ -	$ 5
Additions to property, plant   and equipment		$ 4	$ 19	$ 3	$ 3	$ -	$ -	$ 29
Total assets		$ 267	$ 491	$ 173	$ 122	$ 40	$ -	$ 1,093
				Year ended September 29, 2012
		Forest Products	Specialty Cellulose & Chemical Pulp	High-Yield Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 348	$ 650	$ 322	$ 346	$ -	$ -	$ 1,666
	Internal	84	12	30	-	13	(139)	-
		432	662	352	346	13	(139)	1,666
Freight and other deductions		41	68	77	46	-	-	232
Lumber export taxes		7	-	-	-	-	-	7
Cost of sales		385	481	298	252	13	(139)	1,290
Selling, general and administrative		15	21	6	11	21	-	74
Share-based compensation		-	-	-	-	(1)	-	(1)
Earnings (loss) before the following (adjusted EBITDA):		(16)	92	(29)	37	(20)	-	64
	Depreciation and amortization	10	21	13	2	-	-	46
	Other items (note 11)	(22)	-	50	-	22	-	50
Operating earnings (loss)		$ (4)	$ 71	$ (92)	$ 35	$ (42)	$ -	$ (32)
Additions to property, plant   and equipment		$ 12	$ 91	$ 8	$ 7	$ 2	$ -	$ 120
Total assets		$ 216	$ 544	$ 156	$ 120	$ 23	$ -	$ 1,059
				Year ended September 24, 2011
		Forest Products	Specialty Cellulose & Chemical Pulp	High-Yield Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 375	$ 681	$ 348	$ 339	$  -	$  -	$ 1,743
	Internal	96	12	30	-	7	(145)	-
		471	693	378	339	7	(145)	1,743
Freight and other deductions		47	66	79	45	-	-	237
Lumber export taxes		13	-	-	-	-	-	13
Cost of sales		441	464	299	255	7	(145)	1,321
Selling, general and administrative		17	23	3	10	19	-	72
Share-based compensation		-	-	-	-	2	-	2
Earnings (loss) before the following (adjusted EBITDA):		(47)	140	(3)	29	(21)	-	98
	Depreciation and amortization	14	19	11	3	1	-	48
	Other items (note 11)	3	-	-	-	-	-	3
Operating earnings (loss)		$ (64)	$ 121	$ (14)	$ 26	$ (22)	$  -	$ 47
Additions to property, plant   and equipment		$ 10	$ 38	$ 5	$ 5	$  -	$  -	$ 58
Total assets		$ 267	$ 491	$ 173	$ 122	$ 40	$  -	$ 1,093

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]