Tembec Reports Financial Results for its Third Fiscal Quarter Ended June 24, 2017

MONTREAL, July 26, 2017 /CNW Telbec/ - Consolidated sales for the three-month period ended June 24, 2017, were $419 million, as compared to $376 million in the same quarter a year ago. The Company generated net earnings of $17 million or $0.17 per share in the June 2017 quarter compared to net earnings of $9 million or $0.09 per share in the June 2016 quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $59 million for the three-month period ended June 24, 2017, as compared to adjusted EBITDA of $26 million a year ago and adjusted EBITDA of $54 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $22 million on sales of $124 million for the quarter ended June 24, 2017, compared to adjusted EBITDA of $28 million on sales of $120 million in the March 2017 quarter. Pulp sales were relatively unchanged with higher specialty pulp prices offset by lower shipments. Canadian dollar selling prices for specialty grades improved by $96 per tonne. While US dollar and euro prices for specialty pulps were relatively unchanged quarter-over-quarter, the increase was largely driven by a more favourable sales mix at the Temiscaming mill as well as a weaker Canadian dollar versus the US dollar. The higher specialty grade prices increased adjusted EBITDA by $4 million. The selling price of viscose and other grades was similar, as lower US dollar selling prices were offset by currency gains. Shipments were equal to 82% of capacity, compared to 86% in the March 2017 quarter. During the June 2017 quarter, the Temiscaming specialty cellulose pulp mill was idled for nine days due to its major maintenance outage. These occur at 12 month intervals. There were no major maintenance outages in the March 2017 quarter. As a result, the Temiscaming mill produced 7,000 less tonnes in the June 2017 quarter. Manufacturing costs increased by $7 million quarter-over-quarter, including $4 million for maintenance material and $3 million of fixed cost under-absorption associated with the aforementioned productivity decrease. Chemical business adjusted EBITDA increased by $2 million due to a combination of higher prices and lower costs.

The Forest Products segment generated adjusted EBITDA of $20 million on sales of $114 million for the quarter ended June 24, 2017, compared to adjusted EBITDA of $10 million on sales of $110 million in the prior quarter. SPF lumber sales increased by $11 million due primarily to higher prices. The June 2017 quarter also experienced the normal seasonal decline in log sales, which decreased by $9 million. During the June 2017 quarter, the random length lumber reference price increased by US $45 per mbf while the reference price for stud lumber increased by US $76 per mbf. Currency was also favourable as the Canadian dollar averaged US $0.742, a 1.7% decrease from US $0.755 in the prior quarter. The combined effect was that Canadian dollar selling prices increased by $60 per mbf, increasing adjusted EBITDA by $10 million. Lumber shipments were equal to 87% of capacity, unchanged from the prior quarter. Cost were similar quarter-over-quarter.

The Paper Pulp segment generated adjusted EBITDA of $15 million on sales of $99 million in the June 2017 quarter, compared to adjusted EBITDA of $9 million on sales of $85 million in the March 2017 quarter. The $14 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 $65 per tonne. US dollar prices for external high-yield pulp shipments followed a similar but less pronounced trend, increasing by US $40 per tonne quarter-over-quarter. Currency was also favourable as the Canadian dollar decreased versus the US dollar. Overall, average selling prices for external sales in Canadian dollars increased by $64 per tonne, increasing adjusted EBITDA by $8 million. Pulp shipments were equal to 102% of capacity in the June 2017 quarter as compared to 95% in the prior quarter. The June 2017 quarter saw increased major maintenance and the two pulp mills produced 3,400 fewer tonnes, with costs increasing by $2 million.

The Paper segment generated adjusted EBITDA of $18 million on sales of $102 million for the quarter ended June 24, 2017, compared to adjusted EBITDA of $16 million on sales of $96 million in the March 2017 quarter. The $6 million increase in sales was due to higher shipments of newsprint and higher prices for coated bleached board. The US dollar reference price for coated bleached board increased by US $20 per short ton quarter-over-quarter. Overall, average selling prices for coated bleached board were up $57 per tonne increasing adjusted EBITDA by $2 million. The coated bleached board shipment to capacity ratio was 103% compared to 106% in the prior quarter. Manufacturing costs increased by $2 million, primarily for purchased pulp. 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 $5 per tonne. The previously noted decline in the value of the Canadian dollar offset the price decrease and average selling prices were relatively unchanged quarter-over-quarter. The newsprint shipment to capacity ratio was 92% compared to 79% in the prior quarter. Costs decreased by $1 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 lumber shipments into the U.S. During the June 2017 quarter, the Company incurred an operating expense of $4 million related to CVD deposits. On June 26, 2017, the USDOC announced its preliminary determination on antidumping duties (ADD) and imposed a preliminary duty rate of 6.87% on the Company's lumber shipments into the U.S. There was no expense in the June 2017 quarter related to ADD deposits.

The Company as well as other Canadian lumber producers and the Federal and Provincial governments strongly disagree with the preliminary determinations made by the USDOC. The Company intends to aggressively defend its position on this matter. More details are provided in the Company's June 2017 quarterly filings.

Outlook

Overall, the June 2017 quarterly results exceeded expectations as several business units generated earnings ahead of forecast. Currency helped all four business segments as the Canadian dollar averaged 1.7% lower versus the US dollar.

The $6 million decrease in adjusted EBITDA for the Specialty Cellulose segment was expected. The annual major maintenance outage at the Temiscaming mill increased quarterly costs by $7 million. The Company anticipates continued strong results from this business segment. There will be no major maintenance at either of the two pulp mills in the September 2017 quarter. Lumber markets continued to be strong and US dollar prices increased quarter-over-quarter. The recently announced CVD and ADD preliminary determinations are impacting prices. The Company had anticipated that a portion of the deposits would be passed on to lumber customers in the form of higher prices. The Company incurred a $4 million charge in the June 2017 quarter for CVD deposits only. ADD deposits will begin in the September 2017 quarter. The Company is subject to the "All Other" preliminary combined rate of 26.75%, which will generate an expense of $8 million to $10 million per quarter, depending on the price of lumber. The Paper Pulp segment results exceeded expectations due to strong demand and slower than expected new hardwood pulp capacity start-ups. It appears that high-yield pulp prices have reached their peak and small declines are expected in the second half of the calendar year. The Paper segment generated adjusted EBITDA of $18 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 $204 million, including $18 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 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 June 24, 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)
		June 24, 2017			Sept. 24, 2016
ASSETS
Current assets:
	Cash and cash equivalents	$	68		$	44
	Restricted cash		2			2
	Trade and other receivables		170			153
	Inventories (note 3)		274			273
	Prepaid expenses		8			9
	Assets classified as held for sale (note 4)		-			10
			522			491
Property, plant and equipment (note 5)			628			639
Biological assets			3			3
Employee future benefits			39			23
Other assets			6			2
Deferred tax assets			2			2
		$	1,200		$	1,160
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Operating bank loans (note 6)	$	4		$	7
	Trade, other payables and accrued charges		205			193
	Interest payable		2			13
	Income tax payable		2			-
	Provisions		2			4
	Current portion of long-term debt (note 7)		5			22
	Liabilities classified as held for sale (note 4)		-			1
			220			240
Long-term debt (note 7)			685			679
Provisions			12			12
Employee future benefits			143			169
Other long-term liabilities			1			1
			1,061			1,101
Shareholders' equity:
	Share capital (note 8)		568			568
	Accumulated other comprehensive earnings		16			15
	Deficit		(445)			(524)
			139			59
		$	1,200		$	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 nine months ended June 24, 2017 and June 25, 2016 (unaudited) (in millions of Canadian dollars, unless otherwise noted)
		Quarters						Nine months
		2017			2016			2017		2016
Sales	$	419		$	376		$	1,176	$	1,110
Freight and other deductions		51			49			144		145
Cost of sales (excluding depreciation and amortization)		282			284			818		827
Selling, general and administrative		16			16			48		47
Share-based compensation		11			1			19		-
Depreciation and amortization		12			13			37		38
Other items (note 9)		9			(5)			10		(4)
Operating earnings		38			18			100		57
Interest, foreign exchange and other		20			18			56		57
Foreign exchange loss (gain) on long-term debt		(5)			(11)			4		(14)
Net finance costs (note 10)		15			7			60		43
Earnings before income taxes		23			11			40		14
Income tax expense (note 11)		6			2			8		6
Net earnings	$	17		$	9		$	32	$	8
Basic and diluted net earnings in dollars per share (note 8)	$	0.17		$	0.09		$	0.32	$	0.08

TEMBEC INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters and nine months ended June 24, 2017 and June 25, 2016 (unaudited) (in millions of Canadian dollars)
				Quarters						Nine months
				2017			2016			2017			2016
Net earnings			$	17		$	9		$	32		$	8
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)		(7)			(12)			47			(36)
		Income tax recovery		2			-			-			-
				(5)			(12)			47			(36)
	Item that may be reclassified to earnings (loss) in future periods:
		Foreign currency translation differences for foreign operations		6			(5)			1			(6)
Other comprehensive earnings (loss)				1			(17)			48			(42)
Total comprehensive earnings (loss)			$	18		$	(8)		$	80		$	(34)

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

TEMBEC INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Quarters and nine months ended June 24, 2017 and June 25, 2016 (unaudited) (in millions of Canadian dollars)
					Quarters					Nine months
					2017			2016			2017			2016
Share capital				$	568		$	568		$	568		$	568
Accumulated other comprehensive earnings:
		Balance - beginning of period		$	10		$	15		$	15		$	16
		Foreign currency translation differences for foreign operations			6			(5)			1			(6)
		Balance - end of period		$	16		$	10		$	16		$	10
Deficit:
		Balance - beginning of period		$	(457)		$	(538)		$	(524)		$	(513)
		Net earnings for the period			17			9			32			8
		Other comprehensive earnings (loss):
			Defined benefit pension plans and other benefit plans (note 12)		(7)			(12)			47			(36)
			Income tax recovery		2			-			-			-
		Balance - end of period		$	(445)		$	(541)		$	(445)		$	(541)
Shareholders' equity				$	139		$	37		$	139		$	37

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

TEMBEC INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters and nine months ended June 24, 2017 and June 25, 2016 (unaudited) (in millions of Canadian dollars)
				Quarters						Nine months
				2017			2016			2017			2016
Cash flows from operating activities:
	Net earnings		$	17		$	9		$	32		$	8
	Adjustments for:
		Depreciation and amortization		12			13			37			38
		Net finance costs (note 10)		15			7			60			43
		Foreign exchange and bank charges		(2)			(1)			(3)			(4)
		Income tax expense (note 11)		6			2			8			6
		Income tax paid		(2)			(1)			(6)			(1)
		Difference between cash contributions and employee future benefits expense		1			(1)			2			(3)
		Share-based compensation		11			1			19			-
		Settlement on sale of pulp mills (note 9)		-			(5)			-			(5)
		Gain on sale of assets (note 9)		(1)			(1)			(1)			(1)
		Other		(1)			(2)			(5)			(3)
				56			21			143			78
	Changes in non-cash working capital:
		Trade and other receivables		(17)			4			(10)			20
		Inventories		32			50			1			3
		Prepaid expenses		-			2			-			1
		Trade, other payables and accrued charges		(21)			(10)			-			(7)
				(6)			46			(9)			17
				50			67			134			95
Cash flows used in investing activities:
	Disbursements for property, plant and equipment			(13)			(11)			(36)			(29)
	Proceeds from sale of net assets			2			7			10			7
	Change in restricted cash			-			3			-			(1)
				(11)			(1)			(26)			(23)
Cash flows used in financing activities:
	Repayment of asset-based loan			-			-			-			(105)
	Proceeds from new asset-based loan			-			-			-			61
	Change in operating bank loans			-			(35)			(9)			(29)
	Increase in long-term debt (note 7)			-			7			-			87
	Repayments of long-term debt (note 7)			(2)			(2)			(20)			(5)
	Interest paid			(25)			(27)			(55)			(57)
				(27)			(57)			(84)			(48)
				12			9			24			24
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies				1			(1)			-			(1)
Net increase in cash and cash equivalents				13			8			24			23
Cash and cash equivalents, beginning of period				55			36			44			21
Cash and cash equivalents, end of period			$	68		$	44		$	68		$	44

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

TEMBEC INC. CONSOLIDATED BUSINESS SEGMENT INFORMATION
Quarters ended June 24, 2017 and June 25, 2016 (unaudited) (in millions of Canadian dollars)
Quarter ended June 24, 2017
			Forest Products		Specialty Cellulose Pulp				Paper Pulp			Paper	Corporate			Consolidation adjustments			Consolidated
Sales:
	External	$	102		$	124		$	91		$	102		$	-		$	-		$	419
	Internal		12			-			8			-			2			(22)			-
			114			124			99			102			2			(22)			419
Freight and other deductions			11			12			17			11			-			-			51
Cost of sales			80			85			66			71			2			(22)			282
Selling, general and administrative			3			5			1			2			5			-			16
Share-based compensation			-			-			-			-			11			-			11
Earnings (loss) before the following (adjusted EBITDA):			20			22			15			18			(16)			-			59
	Depreciation and amortization		2			5			2			2			1			-			12
	Other items (note 9)		4			-			-			-			5			-			9
Operating earnings (loss)		$	14		$	17		$	13		$	16		$	(22)		$	-		$	38
Additions to property, plant and equipment		$	2		$	5		$	1		$	1		$	-		$	-		$	9
Total assets		$	163		$	693		$	138		$	155		$	51		$	-		$	1,200
Total liabilities		$	39		$	276		$	33		$	72		$	641		$	-		$	1,061
Quarter ended June 25, 2016
			Forest Products		Specialty Cellulose Pulp				Paper Pulp			Paper	Corporate			Consolidation adjustments			Consolidated
Sales:
	External	$	89		$	109		$	79		$	99		$	-		$	-		$	376
	Internal		13			2			7			-			2			(24)			-
			102			111			86			99			2			(24)			376
Freight and other deductions			10			10			18			11			-			-			49
Cost of sales			85			86			65			70			2			(24)			284
Selling, general and administrative			3			5			2			2			4			-			16
Share-based compensation			-			-			-			-			1			-			1
Earnings (loss) before the following (adjusted EBITDA):			4			10			1			16			(5)			-			26
	Depreciation and amortization		2			7			2			2			-			-			13
	Other items (note 9)		-			-			-			-			(5)			-			(5)
Operating earnings (loss)		$	2		$	3		$	(1)		$	14		$	-		$	-		$	18
Additions to property, plant and equipment		$	1		$	6		$	1		$	2		$	-		$	-		$	10
Total assets		$	166		$	678		$	129		$	167		$	6		$	-		$	1,146
Total liabilities		$	41		$	261		$	28		$	84		$	695		$	-		$	1,109
TEMBEC INC. CONSOLIDATED BUSINESS SEGMENT INFORMATION
Nine months ended June 24, 2017 and June 25, 2016 (unaudited) (in millions of Canadian dollars)
Nine months ended June 24, 2017
			Forest Products		Specialty Cellulose Pulp				Paper Pulp			Paper	Corporate				Consolidation adjustments		Consolidated
Sales:
	External	$	292		$	347		$	243		$	294		$	-		$	-		$	1,176
	Internal		45			-			24			-			4			(73)			-
			337			347			267			294			4			(73)			1,176
Freight and other deductions			33			31			49			31			-			-			144
Cost of sales			256			243			183			205			4			(73)			818
Selling, general and administrative			9			13			4			7			15			-			48
Share-based compensation			-			-			-			-			19			-			19
Earnings (loss) before the following (adjusted EBITDA):			39			60			31			51			(34)			-			147
	Depreciation and amortization		5			19			8			4			1			-			37
	Other items (note 9)		4			-			-			-			6			-			10
Operating earnings (loss)		$	30		$	41		$	23		$	47		$	(41)		$	-		$	100
Additions to property, plant  and equipment		$	6		$	10		$	3		$	5		$	1		$	-		$	25
Total assets		$	163		$	693		$	138		$	155		$	51		$	-		$	1,200
Total liabilities		$	39		$	276		$	33		$	72		$	641		$	-		$	1,061
Nine months ended June 25, 2016
			Forest Products		Specialty Cellulose Pulp				Paper Pulp			Paper	Corporate			Consolidation adjustments			Consolidated
Sales:
	External	$	272		$	336		$	207		$	295		$	-		$	-		$	1,110
	Internal		48			4			24			-			4			(80)			-
			320			340			231			295			4			(80)			1,110
Freight and other deductions			32			31			48			34			-			-			145
Cost of sales			275			249			178			201			4			(80)			827
Selling, general and administrative			9			14			4			7			13			-			47
Share-based compensation			-			-			-			-			-			-			-
Earnings (loss) before the following (adjusted EBITDA):			4			46			1			53			(13)			-			91
	Depreciation and amortization		5			21			8			4			-			-			38
	Other items (note 9)		-			-			-			-			(4)			-			(4)
Operating earnings (loss)		$	(1)		$	25		$	(7)		$	49		$	(9)		$	-		$	57
Additions to property, plant  and equipment		$	4		$	15		$	4		$	4		$	-		$	-		$	27
Total assets		$	166		$	678		$	129		$	167		$	6		$	-		$	1,146
Total liabilities		$	41		$	261		$	28		$	84		$	695		$	-		$	1,109

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