Tembec reports financial results for its second quarter ended March 24, 2012

MONTREAL, April 26, 2012 /CNW Telbec/ - Consolidated sales for the three-month period ended March 24, 2012, were $407 million, as compared to $452 million in the comparable period of the prior year. The Company generated a net loss of $14 million or $0.14 per share in the March 2012 quarter compared to net earnings of $6 million or $0.06 per share in the March 2011 quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $2 million for the three-month period ended March 24, 2012, as compared to adjusted EBITDA of $34 million a year ago and adjusted EBITDA of $12 million in the prior quarter.

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 $31 million on sales of $176 million for the quarter ended March 24, 2012, compared to adjusted EBITDA of $27 million on sales of $152 million in the prior quarter. Sales increased by $24 million primarily as a result of higher shipments.

The specialty cellulose market conditions remained favourable. A decrease in commodity viscose grade prices was offset by an increase in specialty grades. Currency was a negative factor for the Canadian mill as the Canadian dollar averaged US $0.998, a 2.1% increase from US $0.977 in the prior quarter. Currency also reduced reported sales of the French mill by $84 per tonne as the euro was 5% weaker versus the Canadian dollar. Overall, pricing was relatively unchanged quarter-over-quarter. Specialty cellulose shipments were equal to 89% of capacity as compared to 79% in the prior quarter. The relatively low level of shipments in the December 2011 quarter was due to unplanned equipment downtime at the two specialty cellulose facilities. Total cash costs were relatively unchanged quarter-over-quarter. Adjusted EBITDA increased by $2 million, primarily as a result of the previously noted increase in shipments.

The market conditions for Northern Bleached Softwood Kraft (NBSK) pulp weakened during the quarter. The benchmark price (delivered China) declined by US $26 per tonne. Combined with a stronger Canadian dollar and a lower sales mix factor, the total effect was a reduction in adjusted EBITDA of $6 million or $95 per tonne. NBSK shipments were equal to 94% of capacity as compared to 55% in the prior quarter. During the December 2011 quarter, the Company had taken 17 days of maintenance downtime in relation to the annual mill-wide shutdown of its NBSK mill, removing approximately 12,200 tonnes of production. The mill ran "full" in the March quarter and total cash costs were reduced by $7 million. Combined with higher shipments, adjusted EBITDA increased by $2 million.

The Paper segment generated adjusted EBITDA of $4 million on sales of $79 million for the quarter ended March 24, 2012, compared to adjusted EBITDA of $10 million on sales of $85 million in the prior quarter. Lower coated bleached board prices and newsprint shipments caused the $6 million reduction in sales. In terms of markets, coated bleached board weakened while newsprint remained stable despite continued weaker North American demand statistics. The US $ reference prices for coated bleached board declined by US $20 per short ton, while the reference price for newsprint was unchanged. The stronger Canadian dollar was a negative factor. The combined effect was a decrease in adjusted EBITDA of $3 million. Coated bleached board shipments were equal to 86% of capacity as compared to 87% in the prior quarter. The shipment to capacity percentage for newsprint was 85%, compared to 94% in the prior quarter. The weaker coated bleached board market conditions led to 1,200 tonnes of market related downtime in the most recent quarter. Mill level costs were relatively unchanged quarter-over-quarter.

The High-Yield Pulp segment generated negative adjusted EBITDA of $16 million on sales of $77 million for the quarter ended March 24, 2012, compared to negative adjusted EBITDA of $9 million on sales of $74 million in the prior quarter. Sales increased by $3 million, with higher shipments partially offset by lower selling prices. Market conditions for high-yield pulp remained weak in the most recent quarter. The US $ reference prices for bleached eucalyptus kraft (BEK) increased over the prior quarter by US $58 per tonne. However, the increase did not carry over to high-yield pulp as price compression had occurred in the prior quarter and the BEK increase only served to re-establish the normal differential in pricing. Currency was a negative factor as the Canadian dollar strengthened versus the US dollar. High-yield pulp prices declined by $40 per tonne, decreasing adjusted EBITDA by $6 million. High-yield pulp shipments were equal to 74% of capacity as compared to 65% in the prior quarter. Faced with continued weak market conditions, the Company reduced production to control inventory levels. During the most recent quarter, 9,300 tonnes of production were removed due to market downtime compared to 18,100 tonnes in the prior quarter. Total costs were relatively unchanged quarter-over-quarter. In the March 2012 quarter, the lower selling prices led to a $4 million charge relating to the reduction in carrying values of raw materials and finished goods inventories as they exceeded their estimated net realizable values. A $4 million charge was also recorded in the prior quarter. At the end of March 2012, the segment had accumulated $9 million of net realizable value reserves. Based on announced price increases, it is anticipated that the majority of these reserves will be reversed in the next two quarters.

The Forest Products segment generated negative adjusted EBITDA of $11 million on sales of $112 million for the quarter ended March 24, 2012, compared to negative adjusted EBITDA of $11 million on sales of $126 million in the prior quarter. The sale of the hardwood flooring operations in November 2011 reduced sales by $9 million. Lower shipments of SPF lumber were partially offset by higher lumber prices. Demand for SPF lumber remained relatively weak with shipments equal to 58% of capacity, as compared to 64% in the prior quarter. US $ reference prices for random lumber increased by US $31 per mbf on average while stud lumber increased by US $24 per mbf. Currency was a negative factor as the Canadian dollar increased versus the US dollar. The net price effect was an increase in adjusted EBITDA of $3 million or $13 per mbf. Costs increased by $3 million, primarily in the Eastern sawmills, which produced 11% less lumber. Adjusted EBITDA was unchanged quarter-over-quarter.

Outlook

The March 2012 quarterly results were lower than anticipated. While the relatively weak paper pulp markets were expected to reduce adjusted EBITDA, a stronger Canadian dollar was not in the forecast. As a result of the combined impact, the Company absorbed a $15 million decrease in adjusted EBITDA related to the selling prices of paper pulp and paper products. The current quarter adjusted EBITDA also absorbed a charge of $4 million relating to a net realizable value adjustment on high-yield pulp inventories. Looking ahead, markets for specialty cellulose remain strong except for the viscose grades, where new supply is leading to lower prices. The Company's strategy of focusing on specialty grades has proven to be the right one. Based on announced price increases for paper pulp, the March quarter will likely represent "the trough" for the NBSK and high-yield pulp mills in terms of pricing. While the anticipated seasonal increase in lumber prices did occur in the latter part of the recent quarter, it was not as pronounced as in prior years. This is not viewed as a completely negative development as the reduced price volatility may lead to more stable pricing in the next several quarters. Markets for coated bleached board and newsprint remain relatively stable and we do not anticipate much change in the near term. The Company has recently disclosed a relatively large scale capital expenditure program, with a strong emphasis on its two specialty cellulose pulp mills. The cornerstone of the program is a $190 million cogeneration plant to be constructed at the Temiscaming, Quebec, site that is scheduled to start-up in December 2013. The project will materially improve the mill's cost structure and margins. During the quarter, the purchase power agreement with Hydro-Quebec was finalized and $75 million of project financing was put in place. At the end of the March quarter, the Company also completed the sale of its two B.C. sawmills for proceeds of $66 million. These monies, along with the US $50 million raised through the issuance of additional senior notes, constitute the bulk of the funding required for the Company's capital expenditure program.

Tembec is a large, diversified and integrated forest products company which stands as the global leader in sustainable forest management practices. The Company's principal operations are located in Canada and France. Tembec's common shares are listed on the Toronto Stock Exchange under the symbol 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 24, 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)
		March 24, 2012	Sept. 24, 2011	Sept. 26, 2010
ASSETS
Current assets:
	Cash and cash equivalents	$ 120	$ 99	$ 68
	Cash held in trust	7	6	6
	Trade and other receivables	185	182	209
	Inventories (note 4)	294	261	255
	Prepaid expenses	9	6	7
		615	554	545
Property, plant and equipment (note 5)		486	491	496
Biological assets		4	4	7
Employee future benefits		1	1	-
Other long-term receivables		12	28	28
Deferred tax assets		9	15	27
		$ 1,127	$ 1,093	$ 1,103
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Operating bank loans (note 6)	$ 69	$ 6	$ 1
	Trade, other payables and accrued charges	233	246	233
	Interest payable	10	8	3
	Provisions (note 8)	2	8	5
	Current portion of long-term debt (note 7)	19	18	17
		333	286	259
Long-term debt (note 7)		314	271	271
Provisions (note 8)		15	16	17
Employee future benefits		265	285	248
Other long-term liabilities		2	2	8
		929	860	803
Shareholders' equity:
	Share capital (note 9)	564	564	564
	Deficit	(363)	(333)	(264)
	Accumulated other comprehensive earnings (loss)	(3)	2	-
		198	233	300
		$ 1,127	$ 1,093	$ 1,103

 

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

TEMBEC INC. CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Quarters and six months ended March 24, 2012 and March 26, 2011 (unaudited) (in millions of Canadian dollars, unless otherwise noted)
	Quarters		Six months
	2012	2011	2012	2011
Sales	$ 407	$ 452	$ 808	$ 874
Freight and other deductions	57	62	110	119
Lumber export taxes	3	4	5	7
Cost of sales (excluding depreciation and amortization)	326	327	642	655
Selling, general and administrative	18	19	36	37
Share-based compensation (note 9)	1	6	1	10
Depreciation and amortization	10	11	22	24
Other items (note 11)	(5)	6	(3)	8
Operating earnings (loss)	(3)	17	(5)	14
Interest, foreign exchange and other	10	12	20	24
Exchange gain on long-term debt	(6)	(6)	(8)	(11)
Net finance costs (note 12)	4	6	12	13
Earnings (loss) before income taxes	(7)	11	(17)	1
Income tax expense (note 13)	7	5	13	6
Net earnings (loss)	$ (14)	$ 6	$ (30)	$ (5)
Basic and diluted net earnings (loss) in dollars per share (note 9)	$ (0.14)	$ 0.06	$ (0.30)	$ (0.05)

TEMBEC INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters and six months ended March 24, 2012 and March 26, 2011 (unaudited) (in millions of Canadian dollars)
		Quarters		Six months
		2012	2011	2012	2011
Net earnings (loss)		$ (14)	$ 6	$ (30)	$ (5)
Other comprehensive earnings (loss):
	Foreign currency translation differences for foreign operations	-	4	(5)	2
Total comprehensive earnings (loss)		$ (14)	$ 10	$ (35)	$ (3)

 

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

TEMBEC INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited) (in millions of Canadian dollars)
		Quarter ended March 24, 2012
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period, December 24, 2011		$ 564	$ (3)	$ (349)	$ 212
Net loss for the period		-	-	(14)	(14)
Other comprehensive earnings:
	Foreign currency translation differences for foreign operations	-	-	-	-
Balance - end of period, March 24, 2012		$ 564	$ (3)	$ (363)	$ 198
		Quarter ended March 26, 2011
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period, December 25, 2010		$ 564	$ (2)	$ (275)	$ 287
Net earnings for the period		-	-	6	6
Other comprehensive earnings:
	Foreign currency translation differences for foreign operations	-	4	-	4
Balance - end of period, March 26, 2011		$ 564	$ 2	$ (269)	$ 297

 

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

TEMBEC INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited) (in millions of Canadian dollars)
	Six months ended March 24, 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 period		-	-	(30)	(30)
Other comprehensive loss:
	Foreign currency translation differences for foreign operations	-	(5)	-	(5)
Balance - end of period, March 24, 2012		$ 564	$ (3)	$ (363)	$ 198
		Six months ended March 26, 2011
		Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of year, September 26, 2010		$ 564	$  -	$ (264)	$ 300
Net loss for the period		-	-	(5)	(5)
Other comprehensive earnings:
	Foreign currency translation differences for foreign operations	-	2	-	2
Balance - end of period, March 26, 2011		$ 564	$ 2	$ (269)	$ 297

 

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 24, 2012 and March 26, 2011 (unaudited) (in millions of Canadian dollars)
			Quarters		Six months
			2012	2011	2012	2011
Cash flows from operating activities:
	Net earnings (loss)		$ (14)	$ 6	$ (30)	$ (5)
	Adjustments for:
		Depreciation and amortization	10	11	22	24
		Net finance costs (note 12)	4	6	12	13
		Income tax expense (note 13)	7	5	13	6
		Income tax paid	(10)	-	(10)	-
		Excess cash contributions over employee future benefits expense	(7)	(6)	(17)	(10)
		Other	(6)	(1)	(4)	(4)
			(16)	21	(14)	24
Changes in non-cash working capital:
	Trade and other receivables		(34)	(27)	(20)	11
	Inventories		(35)	(42)	(69)	(54)
	Prepaid expenses		(5)	(3)	(3)	(2)
	Trade, other payables and accrued charges		15	23	(2)	1
			(59)	(49)	(94)	(44)
			(75)	(28)	(108)	(20)
Cash flows from investing activities:
	Additions to property, plant and equipment		(28)	(7)	(51)	(15)
	Proceeds from sale of net assets (note 11)		66	-	83	-
	Other		6	1	3	2
			44	(6)	35	(13)
Cash flows from financing activities:
	Change in operating bank loans		21	(1)	63	1
	Cash held in trust		-	-	(2)	-
	Increase in long-term debt		51	1	55	1
	Repayments of long-term debt		-	(1)	(3)	(3)
	Interest paid		-	-	(15)	(9)
	Other		-	-	(1)	(2)
			72	(1)	97	(12)
			41	(35)	24	(45)
Foreign exchange loss (gain) on cash and cash equivalent held in foreign currencies			-	2	(3)	-
Net increase (decrease) in cash and cash equivalents			41	(33)	21	(45)
Cash and cash equivalents, beginning of period			79	56	99	68
Cash and cash equivalents, end of period			$ 120	$ 23	$ 120	$ 23

 

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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(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.

		Quarter ended March 24, 2012
		Forest Products	Specialty Cellulose & Chemical Pulp	High-Yield Pulp	Paper	Corporate	Consolidated
Sales:
	External	$ 86	$ 172	$ 70	$ 79	$  -	$ 407
	Internal	26	4	7	-	2	39
		$ 112	$ 176	$ 77	$ 79	$ 2	$ 446
Earnings (loss) before the following (adjusted EBITDA):		$ (11)	$ 31	$ (16)	$ 4	$ (6)	$ 2
	Depreciation and amortization	3	4	3	-	-	10
	Other items	(24)	-	-	-	19	(5)
	Operating earnings (loss)	$ 10	$ 27	$ (19)	$ 4	$ (25)	$ (3)
Additions to property, plant & equipment		$ 4	$ 21	$ 1	$ 2	$ -	$ 28
Total assets		$ 232	$ 502	$ 208	$ 115	$ 70	$ 1,127
		Quarter ended March 26, 2011
		Forest Products	Specialty Cellulose & Chemical Pulp	High-Yield Pulp	Paper	Corporate	Consolidated
Sales:
	External	$ 98	$ 176	$ 95	$ 83	$  -	$ 452
	Internal	26	1	7	-	2	36
		$ 124	$ 177	$ 102	$ 83	$ 2	$ 488
Earnings (loss) before the following (adjusted EBITDA):		$ (9)	$ 44	$ 2	$ 9	$ (12)	$ 34
	Depreciation and amortization	4	4	2	1	-	11
	Other items	3	-	-	-	3	6
	Operating earnings (loss)	$ (16)	$ 40	$  -	$ 8	$ (15)	$ 17
Additions to property, plant & equipment		$ 1	$ 4	$ 1	$ 1	$  -	$ 7
Total assets		$ 283	$ 444	$ 205	$ 131	$ 25	$ 1,088

TEMBEC INC. BUSINESS SEGMENT INFORMATION
(unaudited) (in millions of Canadian dollars)
				Six months ended March 24, 2012
		Forest Products	Specialty Cellulose & Chemical Pulp	High-Yield Pulp	Paper	Corporate	Consolidated
Sales:
	External	$ 186	$ 321	$ 137	$ 164	$  -	$ 808
	Internal	52	7	14	-	4	77
		$ 238	$ 328	$ 151	$ 164	$ 4	$ 885
Earnings (loss) before the following (adjusted EBITDA):		$ (22)	$ 58	$ (25)	$ 14	$ (11)	$ 14
	Depreciation and amortization	6	9	6	1	-	22
	Other items	(22)	-	-	-	19	(3)
	Operating earnings (loss)	$ (6)	$ 49	$ (31)	$ 13	$ (30)	$ (5)
Additions to property, plant & equipment		$ 8	$ 34	$ 5	$ 4	$  -	$ 51
Total assets		$ 232	$ 502	$ 208	$ 115	$ 70	$ 1,127
				Six months ended March 26, 2011
		Forest Products	Specialty Cellulose & Chemical Pulp	High-Yield Pulp	Paper	Corporate	Consolidated
Sales:
	External	$ 188	$ 321	$ 195	$ 170	$  -	$ 874
	Internal	49	4	14	-	3	70
		$ 237	$ 325	$ 209	$ 170	$ 3	$ 944
Earnings (loss) before the following (adjusted EBITDA):		$ (20)	$ 64	$ 9	$ 13	$ (20)	$ 46
	Depreciation and amortization	8	9	5	2	-	24
	Other items	3	-	-	-	5	8
	Operating earnings (loss)	$ (31)	$ 55	$ 4	$ 11	$ (25)	$ 14
Additions to property, plant & equipment		$ 3	$ 9	$ 1	$ 2	$  -	$ 15
Total assets		$ 283	$ 444	$ 205	$ 131	$ 25	$ 1,088

Investor Contact: 
Michel J. Dumas
Executive Vice President, Finance and CFO
Tel: [phone]
E-mail: [email protected]

Media Contact:
Linda Coates
Vice President, Communications and Public Affairs
Tel.: [phone]
E-mail: [email protected]