Tembec reports financial results for its second quarter ended March 27, 2010
MONTREAL, April 28 /CNW Telbec/ - Consolidated sales for the three-month period ended March 27, 2010 were $476 million, up from $417 million in the comparable period of the prior year. The Company generated nil net earnings in the March 2010 quarter compared to a net loss of $99 million or $0.99 per share in the March 2009 quarter. Earnings before non-recurring items, interest, income taxes, depreciation, amortization and other non-operating expenses (EBITDA) was $32 million for the three-month period ended March 27, 2010, as compared to negative EBITDA of $63 million a year ago and EBITDA of $4 million in the prior quarter.
Business Segment Results
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The Forest Products segment generated negative EBITDA of $3 million on sales of $100 million. This compares to negative EBITDA of $8 million on sales of $95 million in the prior quarter. Sales increased by $5 million due to higher prices for SPF lumber. Demand for SPF lumber remained relatively weak with shipments equal to 44% of capacity, unchanged from the prior quarter. US $ reference prices for random lumber increased by approximately US $55 per mbf while stud lumber increased by US $53 per mbf. Currency had a negative effect on pricing as the Canadian dollar averaged US $0.960, a 2% increase from US $0.945 in the prior quarter. The net price effect was an increase in EBITDA of $5 million or $28 per mbf. Sawmill costs were relatively unchanged from the prior quarter. During the March quarter, the Company recorded a favourable adjustment of $4 million on the carrying values of log and lumber inventories. In the prior quarter, the Company recorded a favourable adjustment of $5 million related to the carrying values of logs and lumber inventories. During the March quarter, the Company incurred $3 million of lumber export taxes, up from $2 million in the prior quarter. Lumber export taxes are payable based on the 2006 agreement between Canada and the United States. Applicable export tax rates may vary based upon selling prices. During the March quarter, the Company incurred a tax of 15% on U.S. shipments, unchanged from the prior quarter.
The Pulp segment generated EBITDA of $41 million on sales of $311 million for the quarter ended March 2010 compared to EBITDA of $17 million on sales of $256 million in the prior quarter. Sales increased by $55 million primarily as a result of higher volumes and selling prices. During the most recent quarter, shipments were equal to 80% of capacity, as compared to 69% in the prior quarter. Shipments in the most recent quarter benefitted from the re-start of the Chetwynd, BC high-yield pulp mill in late January. The facility shipped 21,000 tonnes in the quarter and shipments will increase in the upcoming period as the mill reaches its run rate of approximately 55,000 tonnes per quarter. During the March quarter, the Company incurred 11,600 tonnes of market related downtime and 9,600 tonnes of maintenance downtime. This was less than in the prior quarter which included 55,600 tonnes of market related downtime and 15,900 tonnes of maintenance downtime. US $ reference prices increased by US $60-$75 per tonne over the prior quarter, as pulp markets continued to improve. Currency had a negative effect on pricing as the Canadian dollar strengthened versus the US dollar. The net price effect was an increase of $43 per tonne, improving EBITDA by $17 million. Costs declined by $7 million mainly due to a more favourable exchange rate being applied to the euro costs of the three French pulp mills. Inventories were at 22 days of supply at the end of March 2010, as compared to 19 days at the end of December 2009.
The Paper segment generated negative EBITDA of $5 million on sales of $77 million. This compares to negative EBITDA of $2 million on sales of $79 million in the prior quarter. The $2 million decline in sales was driven by lower prices. During the most recent quarter, newsprint shipments were equal to 44% of capacity, as compared to 43% in the prior quarter. As a result of the continued weak demand for newsprint, the Company undertook significant production curtailments. The Company incurred 68,300 tonnes of market related downtime and 600 tonnes of maintenance downtime in the most recent quarter. The Pine Falls, Manitoba, newsprint facility was idle for the entire quarter. One of the three newsprint machines at the Kapuskasing newsprint mill was also idle for the entire quarter. In the prior quarter, the Company incurred 68,300 tonnes of market related downtime and 3,800 tonnes of maintenance downtime. The US $ reference price for newsprint increased by US $48 per tonne while the reference price for coated bleached board was unchanged. Currency negatively impacted pricing as the Canadian dollar strengthened versus the US dollar. As well, because the Company had declined orders at the lower prices of the prior two quarters, the impact of the US $ price increase was mitigated. The combined impact on Canadian $ pricing was a reduction of $3 million in EBITDA. Manufacturing costs were relatively unchanged from the prior quarter.
Liquidity
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At the end of March 2010, the Company had net cash of $43 million plus unused operating lines of $95 million. In response to the challenging conditions facing the forest products industry, the Company has developed a focused list of initiatives that should generate approximately $100 million of incremental liquidity. As of the date of this report, $35 million has been achieved.
Outlook
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The March quarterly EBITDA of $32 million was a significant improvement over the prior quarter and well ahead of the Company's performance in fiscal 2009. The improvement occurred in spite of the strengthening Canadian dollar and very poor newsprint prices. The Company continued with selective production curtailments to manage and reduce inventories. Recent improvements in lumber prices have been mainly driven by supply constraints rather than an improvement in demand. It is anticipated this situation will continue in the near term. An improvement in U.S. housing starts will be required to support more robust lumber prices. Paper pulp markets, which had good market fundamentals, have surged since the earthquake in Chile and its impact on global paper pulp supply. Specialty and dissolving pulp markets are also enjoying favourable market fundamentals. Strong prices are expected for both of the Company's pulp businesses in the upcoming quarters. The recently announced newsprint price increases should be gradually implemented. The newsprint segment is under pressure as producers struggle with relatively poor pricing and declining demand. The economy and general business conditions continue to improve. However, the magnitude of the decline experienced in 2009 will require several more quarters before we see a more robust economic recovery. Even though operating cash flow has significantly improved, the Company continues to place major emphasis on activities to enhance liquidity. A number of initiatives have been launched with the target to raise a further $65 million over the next 12 months. This is in addition to the sale of the two French paper pulp mills. On April 19, 2010 the Company announced that it had signed an agreement to sell the mills for total consideration of approximately 100 million euros, including a 66 million euros cash component. Closing of the sale is expected in early May 2010. With the resulting increase in liquidity and improved balance sheet, combined with higher EBITDA margins, the Company will be well positioned to generate improved returns for its investors.
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 and warrants under TMB.WT. The full quarterly report, including the interim Management Discussion and Analysis, the interim financial statements and the accompanying notes for the quarter ended March 27, 2010 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 to the Company's or
management's objectives, projections, estimates, expectations or
predictions of the future and can be identified by words such as
"anticipate", "estimate", "expect", " will" and "project" or variations
of such words. These statements are based on certain assumptions and
analyses made by the Company in light of its experience 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 our 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
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.
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TEMBEC INC.
CONSOLIDATED BALANCE SHEETS
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(unaudited) (in millions of dollars)
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Mar. 27, Sept. 26,
2010 2009
(Audited)
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ASSETS
Current assets:
Cash and cash equivalents $ 43 $ 105
Accounts receivable 254 283
Inventories (note 3) 344 319
Prepaid expenses 8 13
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649 720
Investments 2 15
Fixed assets 605 626
Other assets (note 4) 29 5
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$ 1,285 $ 1,366
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans (note 5) $ 88 $ 118
Accounts payable and accrued charges 265 278
Interest payable 2 3
Current portion of long-term debt (note 5) 19 19
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374 418
Long-term debt (note 5) 359 383
Other long-term liabilities and credits (note 6) 246 252
Future income taxes 1 -
Minority interest 1 -
Shareholders' equity:
Share capital (note 7) 570 570
Contributed surplus (note 2) 5 5
Deficit (271) (262)
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304 313
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$ 1,285 $ 1,366
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TEMBEC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
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Quarters and six months ended March 27, 2010 and March 28, 2009
(unaudited) (in millions of dollars, unless otherwise noted)
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Quarters Six months
2010 2009 2010 2009
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Sales $ 476 $ 417 $ 888 $ 928
Freight and sales deductions 56 54 105 115
Lumber duties and export taxes 3 1 5 1
Cost of sales 366 402 705 823
Selling, general and administrative 19 23 37 46
Depreciation and amortization 15 18 30 36
Other items (note 8) 14 - 13 -
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Operating earnings (loss) from
continuing operations 3 (81) (7) (93)
Interest, foreign exchange and
other (note 9) 14 5 28 (9)
Exchange loss (gain) on long-term
debt (11) 7 (27) 66
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Earnings (loss) from continuing
operations before income taxes
and minority interest - (93) (8) (150)
Income tax expense (recovery)
(note 10) - 3 1 (1)
Minority interest - - 1 -
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Net earnings (loss) from
continuing operations - (96) (10) (149)
Earnings (loss) from
discontinued operations (note 2) - (3) 1 (10)
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Net earnings (loss) and
comprehensive earnings (loss) - (99) (9) (159)
Deficit, beginning of period (271) (108) (262) (48)
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Deficit, end of period $ (271) $ (207) $ (271) $ (207)
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Basic and diluted earnings (loss)
per share from continuing
operations (note 7) $ - $ (0.96) $ (0.10) $ (1.49)
Basic and diluted earnings (loss)
per share from discontinued
operations (note 7) $ - $ (0.03) $ 0.01 $ (0.10)
Basic and diluted earnings (loss)
per share (note 7) $ - $ (0.99) $ (0.09) $ (1.59)
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TEMBEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Quarters and six months ended March 27, 2010 and March 28, 2009
(unaudited) (in millions of dollars)
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Quarters Six months
2010 2009 2010 2009
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Cash flow from operating
activities:
Net earnings (loss) $ - $ (99) $ (9) $ (159)
Adjustments for:
Depreciation and amortization 15 18 30 36
Unrealized foreign exchange
and others (1) 3 3 1
Exchange loss (gain) on long-
term debt (11) 7 (27) 66
Future income taxes (recovery)
(notes 2 and 10) - 3 1 (1)
Investment tax credits and
income tax refunds - 19 - 17
Other items (note 8) 14 - 13 -
Excess of cash contributions
over pension expenses (9) (5) (9) (3)
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8 (54) 2 (43)
Changes in non-cash working
capital:
Accounts receivable (30) 50 (12) 101
Inventories (30) 28 (32) (30)
Prepaid expenses 4 (4) 5 (3)
Accounts payable and accrued
charges 27 (60) 8 (135)
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(29) 14 (31) (67)
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(21) (40) (29) (110)
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Cash flows from investing
activities:
Reduced participation in joint
venture - 8 - 8
Additions to fixed assets (5) (15) (11) (30)
Proceeds on land sales and other 3 1 5 1
Decrease in investments 2 3 2 3
Other (3) (2) (4) (1)
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(3) (5) (8) (19)
Cash flows from financing
activities:
Change in operating bank loans (20) 8 (30) 36
Increase in long-term debt 7 4 7 6
Repayments of long-term debt (1) (13) (4) (17)
Change in other long-term
liabilities 2 - 4 -
Other - 2 - 6
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(12) 1 (23) 31
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(36) (44) (60) (98)
Foreign exchange on cash and
cash equivalents held in
foreign currencies (1) 2 (2) 2
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Net decrease in cash and cash
equivalents (37) (42) (62) (96)
Cash and cash equivalents,
net of bank indebtedness,
beginning of period 80 58 105 112
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Cash and cash equivalents,
net of bank indebtedness,
end of period $ 43 $ 16 $ 43 $ 16
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Supplemental information:
Interest paid $ 8 $ 9 $ 17 $ 20
Income taxes recovered $ - $ (17) $ - $ (17)
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TEMBEC INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
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(unaudited) (in millions of dollars, unless otherwise noted)
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Quarters and six months ended March 27, 2010 and March 28, 2009
(unaudited) (in millions of dollars, unless otherwise noted)
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March 27, 2010
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Corpo-
Forest Chemi- rate Conso-
Products Pulp Paper cals & other lidated
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Sales:
External $ 78 $ 298 $ 77 $ 23 $ - $ 476
Internal 22 13 - - 1 36
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100 311 77 23 1 512
Earnings (loss)
before the
following: (3) 41 (5) 3 (4) 32
Depreciation
and
amortization 4 10 1 - - 15
Other items
(note 8) (1) - - - 15 14
Operating
earnings
(loss) from
continuing
operations (6) 31 (6) 3 (19) 3
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Net fixed asset
additions 1 3 1 - - 5
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March 28, 2009
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Corpo-
Forest Chemi- rate Conso-
Products Pulp Paper cals & other lidated
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Sales:
External $ 65 $ 204 $ 124 $ 24 $ - $ 417
Internal 19 19 - - 1 39
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84 223 124 24 1 456
Earnings (loss)
before the
following: (28) (51) 19 2 (5) (63)
Depreciation
and
amortization 6 11 1 - - 18
Other items
(note 8) 2 (4) - 1 1 -
Operating
earnings
(loss) from
continuing
operations (36) (58) 18 1 (6) (81)
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Net fixed asset
additions 2 12 1 - - 15
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Six months ended March 27, 2010 and March 28, 2009
(unaudited) (in millions of dollars)
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March 27, 2010
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Corpo-
Forest Chemi- rate Conso-
Products Pulp Paper cals & other lidated
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Sales:
External $ 152 $ 536 $ 156 $ 44 $ - $ 888
Internal 43 31 - - 3 77
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195 567 156 44 3 965
Earnings (loss)
before the
following: (11) 58 (7) 5 (9) 36
Depreciation
and
amortization 8 20 2 - - 30
Other items
(note 8) (2) - - - 15 13
Operating
earnings
(loss) from
continuing
operations (17) 38 (9) 5 (24) (7)
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Net fixed asset
additions 3 6 2 - - 11
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March 28, 2009
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Corpo-
Forest Chemi- rate Conso-
Products Pulp Paper cals & other lidated
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Sales:
External $ 172 $ 456 $ 250 $ 50 $ - $ 928
Internal 58 39 - - 3 100
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230 495 250 50 3 1,028
Earnings (loss)
before the
following: (44) (47) 38 5 (9) (57)
Depreciation
and
amortization 12 22 2 - - 36
Other items
(note 8) 2 (4) - 1 1 -
Operating
earnings
(loss) from
continuing
operations (58) (65) 36 4 (10) (93)
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Net fixed asset
additions 5 22 2 1 - 30
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For further information: Michel J. Dumas, Executive Vice President, Finance & CFO, (819) 627-4268, [email protected]; John Valley, Executive Vice President, Business Development and Corporate Affairs, (416) 775-2819, [email protected]; Source: Tembec Inc.
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