Tembec reports financial results for its second fiscal quarter ended March 25, 2017

MONTREAL, May 2, 2017 /CNW Telbec/ - Consolidated sales for the three-month period ended March 25, 2017, were $387 million, as compared to $380 million in the same quarter a year ago. The Company generated net earnings of $24 million or $0.24 per share in the March 2017 quarter compared to net earnings of $27 million or $0.27 per share in the March 2016 quarter. The prior year quarter included a non-cash gain of $27 million related to the translation of US dollar denominated debt. The March 2017 quarter includes a non-cash debt translation gain of $7 million. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $54 million for the three-month period ended March 25, 2017, as compared to adjusted EBITDA of $36 million a year ago and adjusted EBITDA of $34 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $28 million on sales of $120 million for the quarter ended March 25, 2017, compared to adjusted EBITDA of $10 million on sales of $103 million in the December 2016 quarter. The pulp sales increase of $15 million was due to higher shipments. Canadian dollar selling prices for specialty grades improved by $7 per tonne. While euro prices for specialty pulp at the Tartas mill increased by approximately 6%, this was largely offset by a weaker euro and a lower value sales mix at the Temiscaming pulp mill. Overall, Canadian dollar selling prices were relatively unchanged quarter-over-quarter. The $43 per tonne increase in the selling price of viscose and other grades was due to higher US dollar selling prices. Shipments were equal to 86% of capacity, compared to 73% in the December 2016 quarter. During the December 2016 quarter, the Tartas specialty cellulose pulp mill was idled for 11 days due to its major maintenance outage. These occur at 18 month intervals. The Temiscaming specialty cellulose pulp mill also incurred a two-day planned maintenance outage. There were no major maintenance outages in the March 2017 quarter. As a result, the two pulp mills produced 14,600 more tonnes in the March 2017 quarter. Manufacturing costs decreased by $17 million quarter-over-quarter, including $5 million for maintenance material and $10 million of fixed costs absorption associated with the aforementioned productivity increase. Chemical business adjusted EBITDA increased by $1 million.

The Forest Products segment generated adjusted EBITDA of $10 million on sales of $110 million for the quarter ended March 25, 2017, compared to adjusted EBITDA of $9 million on sales of $113 million in the prior quarter. SPF lumber sales decreased by $3 million due to lower shipments, partially offset by higher prices. During the March 2017 quarter, the random length lumber reference price increased by US $23 per mbf while the reference price for stud lumber increased by US $33 per mbf. Currency was not a significant factor as the Canadian dollar averaged US $0.755, a 0.5% increase from US $0.751 in the prior quarter. The combined effect was that Canadian dollar selling prices increased by $28 per mbf, increasing adjusted EBITDA by $5 million. Lumber shipments were equal to 87% of capacity, as compared to 95% in the prior quarter. The cash cost of SPF lumber increased by $3 million, primarily for purchased fibre.

The Paper Pulp segment generated adjusted EBITDA of $9 million on sales of $85 million in the March 2017 quarter, compared to adjusted EBITDA of $7 million on sales of $83 million in the December 2016 quarter. The $2 million increase in sales was due to higher selling prices and shipments. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) increased by US $77 per tonne. US dollar prices for high-yield pulp followed a similar but less pronounced trend, increasing by US $10 per tonne quarter-over-quarter. Overall, average selling prices for external sales in Canadian dollars increased by $11 per tonne, increasing adjusted EBITDA by $1 million. Pulp shipments were equal to 95% of capacity in both quarters. The two pulp mills produced 6,800 more tonnes than in the prior quarter and manufacturing costs were relatively unchanged.

The Paper segment generated adjusted EBITDA of $16 million on sales of $96 million for the quarter ended March 25, 2017, compared to adjusted EBITDA of $17 million on sales of $96 million in the December 2016 quarter. There were no significant changes to shipments or prices quarter-over-quarter. The US dollar reference price for coated bleached board was unchanged quarter-over-quarter. Overall, average selling prices for coated bleached board were down $22 per tonne decreasing adjusted EBITDA by $1 million. The coated bleached board shipment to capacity ratio was 106% compared to 101% in the prior quarter. Manufacturing costs increased by $2 million. The US dollar benchmark price for newsprint was unchanged quarter-over-quarter. The newsprint mill experienced a less favourable sales mix and US dollar prices declined by US $8 per tonne. Overall, average selling prices for newsprint decreased by $14 per tonne, reducing adjusted EBITDA by $1 million. The newsprint shipment to capacity ratio was 79% compared to 82% in the prior quarter. Costs increased by $2 million, primarily for electrical energy.

Lumber Duty Deposits

On April 24, 2017, the U.S. Department of Commerce (USDOC) announced its preliminary determination on countervailing duties (CVD) and imposed a preliminary duty rate of 19.88% on the Company's shipments of lumber into the U.S. The Company as well as other Canadian lumber producers and the Federal and Provincial governments strongly disagree with the preliminary determination made by the USDOC. The Company intends to aggressively defend its position on this matter. More details are provided in the Subsequent Event section of the Company's March 2017 quarterly filings.

Outlook

Overall, the March 2017 quarterly results exceeded expectations as all four business segments generated operating earnings ahead of forecast. Currency was not a significant factor as the Canadian dollar averaged 0.5% higher versus the US dollar in the March 2017 quarter.

The $18 million increase in adjusted EBITDA for the Specialty Cellulose segment was largely expected. The combination of reduced maintenance, higher productivity and higher prices for certain specialty grades and viscose grades were all contributing factors that increased adjusted EBITDA margins beyond 25% for the quarter. While the Company anticipates continued strong results from this line of business, the June 2017 financial results will be impacted by the planned major maintenance outage at the Temiscaming mill in the month of May. Lumber markets continued to perform well and prices increased quarter-over-quarter. The recently announced CVD preliminary determination will impact the Company's financial results and liquidity in future periods. A preliminary determination on antidumping duties (ADD) is expected in the June quarter. The Company anticipates that a portion of the CVD and ADD will be passed on to customers in the form of higher lumber prices. The implementation of CVD and ADD deposits will likely lead to more volatility as Canadian producers adapt to the changing circumstances. The Paper Pulp segment results continue to exceed expectations. Anticipated new BEK pulp capacity has been ramping up at a slower pace than initially expected. However, this new capacity will eventually occur, putting pressure on the hardwood pulp market. The Paper segment generated adjusted EBITDA of $16 million, which represents another solid quarter for the segment and it should continue to perform well. The coated bleached board market is well balanced leading to continued pricing stability. The newsprint market continues to experience declining demand and will require further capacity reduction to maintain a balanced market.

With trailing twelve-month adjusted EBITDA of $171 million, including $8 million of share-based compensation expense, the Company continued to demonstrate the positive impact on margins of the Temiscaming cogeneration project as well as other cost reduction and productivity initiatives. The Company will continue to focus on controllable items such as cost and working capital items with a goal of further improving operating margins. While the CVD and ADD deposits will impact future cash flow, the Company's relatively high liquidity combined with anticipated improving margins have put it in a good position to continue to reduce its level of indebtedness and proceed with cost reducing capital expenditures.

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 approximately 3,000 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 March 25, 2017, 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 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)
			Mar. 25, 2017			Sept. 24, 2016
ASSETS
Current assets:
	Cash and cash equivalents	$	55		$	44
	Restricted cash		2			2
	Trade and other receivables		147			153
	Inventories (note 3)		305			273
	Prepaid expenses		8			9
	Assets classified as held for sale (note 4)		-			10
			517			491
Property, plant and equipment (note 5)			628			639
Biological assets			3			3
Employee future benefits			40			23
Other assets			7			2
Deferred tax assets			3			2
		$	1,198		$	1,160
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Operating bank loans (note 6)	$	4		$	7
	Trade, other payables and accrued charges		215			193
	Interest payable		13			13
	Income tax payable		1			-
	Provisions		2			4
	Current portion of long-term debt (note 7)		5			22
	Liabilities classified as held for sale (note 4)		-			1
			240			240
Long-term debt (note 7)			688			679
Provisions			12			12
Employee future benefits			136			169
Other long-term liabilities			1			1
			1,077			1,101
Shareholders' equity:
	Share capital (note 8)		568			568
	Accumulated other comprehensive earnings		10			15
	Deficit		(457)			(524)
			121			59
			$    1,198			$     1,160

Subsequent event (note 15)

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

TEMBEC INC. CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS)
Quarters and six months ended March 25, 2017 and March 26, 2016 (unaudited) (in millions of Canadian dollars, unless otherwise noted)
	Quarters				Six months
	2017		2016		2017		2016
Sales	$	387	$	380	$	757	$	734
Freight and other deductions		47		49		93		96
Cost of sales (excluding depreciation and amortization)		266		279		536		543
Selling, general and administrative		16		16		32		31
Share-based compensation		4		-		8		(1)
Depreciation and amortization		13		13		25		25
Other items (note 9)		-		-		1		1
Operating earnings		41		23		62		39
Interest, foreign exchange and other		20		22		36		39
Foreign exchange loss (gain) on long-term debt		(7)		(27)		9		(3)
Net finance costs (income) (note 10)		13		(5)		45		36
Earnings before income taxes		28		28		17		3
Income tax expense (note 11)		4		1		2		4
Net earnings (loss)	$	24	$	27	$	15	$	(1)
Basic and diluted net earnings (loss) in dollars per share (note 8)	$	0.24	$	0.27	$	0.15	$	(0.01)

TEMBEC INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters and six months ended March 25, 2017 and March 26, 2016 (unaudited) (in millions of Canadian dollars)
			Quarters				Six months
				2017		2016		2017		2016
Net earnings (loss)			$	24	$	27	$	15	$	(1)
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 12)		4		(33)		54		(24)
		Income tax expense		-		-		(2)		-
				4		(33)		52		(24)
	Item that may be reclassified to earnings (loss) in future periods:
		Foreign currency translation differences for foreign operations		5		(4)		(5)		(1)
Other comprehensive earnings (loss)				9		(37)		47		(25)
Total comprehensive earnings (loss)			$	33	$	(10)	$	62	$	(26)

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

TEMBEC INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Quarters and six months ended March 25, 2017 and March 26, 2016 (unaudited) (in millions of Canadian dollars)
			Quarters					Six months
				2017		2016		2017		2016
Share capital			$	568	$	568	$	568	$	568
Accumulated other comprehensive earnings:
	Balance - beginning of period		$	5	$	19	$	15	$	16
	Foreign currency translation differences for foreign operations			5		(4)		(5)		(1)
	Balance - end of period		$	10	$	15	$	10	$	15
Deficit:
	Balance - beginning of period		$	(485)	$	(532)	$	(524)	$	(513)
	Net earnings (loss) for the period			24		27		15		(1)
	Other comprehensive earnings (loss):
		Defined benefit pension plans and other benefit plans (note 12)		4		(33)		54		(24)
		Income tax expense		-		-		(2)		-
	Balance - end of period		$	(457)	$	(538)	$	(457)	$	(538)
Shareholders' equity			$	121	$	45	$	121	$	45

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

TEMBEC INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters and six months ended March 25, 2017 and March 26, 2016 (unaudited) (in millions of Canadian dollars)
			Quarters				Six months
				2017		2016		2017		2016
Cash flows from operating activities:
	Net earnings (loss)		$	24	$	27	$	15	$	(1)
	Adjustments for:
		Depreciation and amortization		13		13		25		25
		Net finance costs (income) (note 10)		13		(5)		45		36
		Foreign exchange and bank charges		(1)		(3)		(1)		(3)
		Income tax expense (note 11)		4		1		2		4
		Income tax refund (paid)		(2)		2		(4)		-
		Difference between cash contributions and employee future benefits expense		-		(1)		1		(2)
		Share-based compensation		4		-		8		(1)
		Other		(2)		1		(4)		(1)
				53		35		87		57
Changes in non-cash working capital:
	Trade and other receivables			(6)		4		7		16
	Inventories			(37)		(43)		(31)		(47)
	Prepaid expenses			-		(1)		-		(1)
	Trade, other payables and accrued charges			31		8		21		3
				(12)		(32)		(3)		(29)
				41		3		84		28
Cash flows used in investing activities:
	Disbursements for property, plant and equipment			(9)		(7)		(23)		(18)
	Proceeds from sale of Senneterre sawmill (note 4)			-		-		8		-
	Change in restricted cash			-		4		-		(4)
				(9)		(3)		(15)		(22)
Cash flows from (used in) financing activities:
	Repayment of asset-based loan			-		-		-		(105)
	Proceeds from new asset-based loan			-		-		-		61
	Change in operating bank loans			(16)		8		(9)		6
	Increase in long-term debt (note 7)			-		2		-		80
	Repayments of long-term debt (note 7)			(1)		(2)		(18)		(3)
	Interest paid			(4)		(5)		(30)		(30)
				(21)		3		(57)		9
				11		3		12		15
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies				1		-		(1)		-
Net increase in cash and cash equivalents				12		3		11		15
Cash and cash equivalents, beginning of period				43		33		44		21
Cash and cash equivalents, end of period			$	55	$	36	$	55	$	36

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

TEMBEC INC. CONSOLIDATED BUSINESS SEGMENT INFORMATION
Quarters ended March 25, 2017 and March 26, 2016 (unaudited) (in millions of Canadian dollars)
							Quarter ended March 25, 2017
			Forest Products	Specialty Cellulose			Paper Pulp		Paper	Corporate		Consolidation adjustments		Consolidated
Sales:
	External	$	94	$	120	$	77	$	96	$	-	$	-	$	387
	Internal		16		-		8		-		1		(25)		-
			110		120		85		96		1		(25)		387
Freight and other deductions			11		10		16		10		-		-		47
Cost of sales			86		78		58		68		1		(25)		266
Selling, general and administrative			3		4		2		2		5		-		16
Share-based compensation			-		-		-		-		4		-		4
Earnings (loss) before the following (adjusted EBITDA):			10		28		9		16		(9)		-		54
	Depreciation and amortization		2		7		3		1		-		-		13
	Other items (note 9)		-		-		-		-		-		-		-
Operating earnings (loss)		$	8	$	21	$	6	$	15	$	(9)	$	-	$	41
Additions to property, plant and equipment		$	1	$	2	$	-	$	2	$	1	$	-	$	6
Total assets		$	189	$	674	$	128	$	153	$	54	$	-	$	1,198
Total liabilities		$	58	$	268	$	45	$	72	$	634	$	-	$	1,077
							Quarter ended March 26, 2016
			Forest Products	Specialty Cellulose			Paper Pulp		Paper	Corporate		Consolidation adjustments		Consolidated
Sales:
	External	$	90	$	119	$	69	$	102	$	-	$	-	$	380
	Internal		18		1		8		-		1		(28)		-
			108		120		77		102		1		(28)		380
Freight and other deductions			10		11		16		12		-		-		49
Cost of sales			94		88		58		66		1		(28)		279
Selling, general and administrative			3		4		1		3		5		-		16
Share-based compensation			-		-		-		-		-		-		-
Earnings (loss) before the following (adjusted EBITDA):			1		17		2		21		(5)		-		36
	Depreciation and amortization		2		7		3		1		-		-		13
	Other items (note 9)		-		-		-		-		-		-		-
Operating earnings (loss)		$	(1)	$	10	$	(1)	$	20	$	(5)	$	-	$	23
Additions to property, plant and equipment		$	1	$	4	$	1	$	1	$	-	$	-	$	7
Total assets		$	196	$	688	$	140	$	172	$	12	$	-	$	1,208
Total liabilities		$	56	$	255	$	30	$	81	$	741	$	-	$	1,163

TEMBEC INC. CONSOLIDATED BUSINESS SEGMENT INFORMATION
Six months ended March 25, 2017 and March 26, 2016 (unaudited) (in millions of Canadian dollars)
							Six months ended March 25, 2017
		Forest Products		Specialty Cellulose			Paper Pulp		Paper	Corporate		Consolidation adjustments		Consolidated
Sales:
	External	$	190	$	223	$	152	$	192	$	-	$	-	$	757
	Internal		33		-		16		-		2		(51)		-
			223		223		168		192		2		(51)		757
Freight and other deductions			22		19		32		20		-		-		93
Cost of sales			176		158		117		134		2		(51)		536
Selling, general and administrative			6		8		3		5		10		-		32
Share-based compensation			-		-		-		-		8		-		8
Earnings (loss) beforethe following (adjusted EBITDA):			19		38		16		33		(18)		-		88
	Depreciation and amortization		3		14		6		2		-		-		25
	Other items (note 9)		-		-		-		-		1		-		1
Operating earnings (loss)		$	16	$	24	$	10	$	31	$	(19)	$	-	$	62
Additions to property, plant and equipment		$	4	$	5	$	2	$	4	$	1	$	-	$	16
Total assets		$	189	$	674	$	128	$	153	$	54	$	-	$	1,198
Total liabilities		$	58	$	268	$	45	$	72	$	634	$	-	$	1,077
							Six months ended March 26, 2016
			Forest Products	Specialty Cellulose			Paper Pulp		Paper	Corporate		Consolidation adjustments		Consolidated
Sales:
	External	$	183	$	227	$	128	$	196	$	-	$	-	$	734
	Internal		35		2		17		-		2		(56)		-
			218		229		145		196		2		(56)		734
Freight and other deductions			22		21		30		23		-		-		96
Cost of sales			190		163		113		131		2		(56)		543
Selling, general and administrative			6		9		2		5		9		-		31
Share-based compensation			-		-		-		-		(1)		-		(1)
Earnings (loss) before the following (adjusted EBITDA):			-		36		-		37		(8)		-		65
	Depreciation and amortization		3		14		6		2		-		-		25
	Other items (note 9)		-		-		-		-		1		-		1
Operating earnings (loss)		$	(3)	$	22	$	(6)	$	35	$	(9)	$	-	$	39
Additions to property, plant and equipment		$	3	$	9	$	3	$	2	$	-	$	-	$	17
Total assets		$	196	$	688	$	140	$	172	$	12	$	-	$	1,208
Total liabilities		$	56	$	255	$	30	$	81	$	741	$	-	$	1,163

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]

Related Links

http://www.tembec.com/en