Tembec reports financial results for its third quarter ended June 26, 2010
MONTREAL, July 29 /CNW Telbec/ - Consolidated sales for the three-month period ended June 26, 2010 were $545 million, up from $407 million in the comparable period of the prior year. The Company generated net earnings of $59 million or $0.59 per share in the June 2010 quarter compared to a net loss of $38 million or $0.38 per share in the June 2009 quarter. Operating earnings before depreciation, amortization and other specific or non-recurring items (EBITDA) was $60 million for the three-month period ended June 26, 2010, as compared to negative EBITDA of $42 million a year ago and EBITDA of $32 million in the prior quarter.
Business Segment Results
------------------------
The Forest Products segment generated EBITDA of $6 million on sales of $126 million. This compares to negative EBITDA of $3 million on sales of $100 million in the prior quarter. Sales increased by $26 million due to higher prices and volumes for SPF lumber. Demand for SPF lumber remained relatively weak with shipments equal to 56% of capacity, up from 44% in the prior quarter. US $ reference prices for random lumber increased by approximately US $5 per mbf while stud lumber increased by US $23 per mbf. Currency had a small negative effect on pricing as the Canadian dollar averaged US $0.973, a 1% increase from US $0.960 in the prior quarter. The net price effect was an increase in EBITDA of $5 million or $22 per mbf. Sawmill costs improved by $7 million versus the prior quarter. During the June quarter, the Company recorded a favourable adjustment of $2 million on the carrying values of log and lumber inventories. In the prior quarter, the Company recorded a favourable adjustment of $4 million related to the carrying values of logs and lumber inventories. During the June quarter, the Company incurred $3 million of lumber export taxes, unchanged from 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 June quarter, the Company incurred 15% on Western mill shipments in April, 10% in May and no taxes in June. The Eastern mill shipments were taxed at 15% in April, 13% in May and 10% in June.
The Pulp segment generated EBITDA of $58 million on sales of $331 million for the quarter ended June 2010 compared to EBITDA of $41 million on sales of $311 million in the prior quarter. Sales increased by $20 million primarily as a result of higher selling prices. During the most recent quarter, shipments were equal to 96% of capacity, as compared to 80% in the prior quarter. On May 7, 2010, the Company completed the sale of two kraft pulp mills and related operations located in Southern France. During the June 2010 quarter, these operations contributed $43 million to sales, $10 million to EBITDA and $8 million to operating earnings. The two mills shipped 55,300 tonnes in the June quarter. Shipments in the most recent quarter also benefited from the re-start of the Chetwynd, BC, high-yield pulp mill in late January. The facility shipped 57,700 tonnes in the quarter as compared to 21,000 tonnes in the prior quarter. During the June quarter, the Company incurred 1,600 tonnes of maintenance downtime. This was less than in the prior quarter which included 11,600 tonnes of market related downtime and 9,600 tonnes of maintenance downtime. US $ reference prices increased by US $95-$125 per tonne over the prior quarter, as paper pulp markets continued to improve. Specialty pulp pricing was relatively unchanged from the prior quarter. Currency had a small negative effect on pricing as the Canadian dollar strengthened. The net price effect was an increase of $40 per tonne, improving EBITDA by $16 million. Overall, costs were similar to those of the prior quarter. Inventories were at 21 days of supply at the end of June 2010, as compared to 22 days at the end of March 2010.
The Paper segment generated EBITDA of $1 million on sales of $96 million. This compares to negative EBITDA of $5 million on sales of $77 million in the prior quarter. The $19 million increase in sales was driven by higher shipments of bleached board. Strong demand resulted in shipments reaching 115% of capacity versus 83% in the prior quarter. During the most recent quarter, newsprint shipments were equal to 47% of capacity, as compared to 44% 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 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 600 tonnes of maintenance downtime. The US $ reference price for newsprint increased by US $45 per tonne while the reference price for coated bleached board was up by US $40 per short ton. Currency negatively impacted pricing as the Canadian dollar strengthened. The combined impact on Canadian $ pricing was an increase of $1 million in EBITDA. Newsprint manufacturing costs declined versus the prior quarter.
Previous Guidance
-----------------
On June 18, 2010, the Company issued a forecast for the third quarter ended June 26, 2010. At that time, the Company was having discussions with certain investors regarding its previously announced plans to enhance its liquidity and improve its balance sheet. Such discussions could have led to questions regarding the June quarter and it was deemed prudent to provide guidance. At that time, the Company expected that EBITDA would be in the range of $47 million to $53 million. Liquidity was expected to be approximately $250 million at the end of the June quarter. Liquidity consists of cash and undrawn revolving lines of credit.
Actual EBITDA for the June quarter was $60 million. The outperformance was due to several factors. The results include a $4 million positive net realizable value adjustment on the carrying value of inventories. As this adjustment is based on the actual selling prices of the month of June, it could not have been accurately estimated at the time the guidance was given. The balance of the outperformance relates to better than anticipated results in the Forest Products and Pulp segments in the month of June. Actual liquidity was $270 million. In addition to the higher EBITDA, the Company generated additional liquidity by reducing working capital, primarily inventories.
Liquidity
---------
At the end of June 2010, the Company had cash of $125 million plus unused operating lines of $145 million. In response to the challenging conditions facing the forest products industry, the Company had 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. While the Company will continue to pursue the identified initiatives, it will discontinue reporting a cumulative achievement total compared to a pre-set target. The realization of individual initiatives will be disclosed in a timely and appropriate manner as they occur.
Subsequent Event
----------------
On June 30, 2010, a fire occurred at the Chetwynd, BC high-yield pulp mill. The fire and related damages were primarily concentrated in the log storage and chip pile area of the mill site. Approximately 50,000 cubic meters of chips and logs were destroyed. The mill was out of service for a period of 12 days and has since resumed production at a reduced rate. The anticipated total loss of production should be approximately 19,000 tonnes. The Company maintains property and business interruption insurance on all of its facilities and the deductible to be absorbed by the Company for this event is $5 million. Total costs are expected to exceed this amount and the Company will absorb a $5 million charge in its September 2010 quarterly financial results.
Outlook
-------
The June quarterly EBITDA of $60 million was a significant improvement over the prior quarter and well ahead of fiscal 2009 performance. All of the Company's business segments experienced improved results versus the prior quarter. In lumber, the Company continued with selective production curtailments to manage and control inventory levels. Demand and pricing improved in April and May, but fell back in June. Continued pricing volatility is anticipated as relatively weak lumber demand is balanced against low supply chain inventories. An improvement in U.S. housing starts will be required to support more sustained lumber demand and prices in the medium and longer term. Paper pulp markets, which had good market fundamentals, surged after the earthquake in Chile and its impact on global paper pulp supply. Now that supply disruptions are largely resolved, prices should decline in the coming quarters. However, good demand fundamentals should ensure that the prices will still be attractive for paper pulp producers. Specialty and dissolving pulp markets are also enjoying favourable market fundamentals. Strong prices are expected to continue in the upcoming quarters. The results of the paper business should show better margins, driven by higher selling prices for newsprint and coated paperboard. 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. The recent sale of the two French mills has significantly strengthened the Company's balance sheet, increasing liquidity to $270 million and reducing leverage below 30%.
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 June 26, 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.
-------------------------------------------------------------------------
TEMBEC INC.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
(unaudited) (in millions of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sept. 26,
June 26, 2009
2010 (Audited)
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 120 $ 105
Cash held in trust (note 8) 5 -
Accounts receivable 187 283
Inventories (note 3) 267 319
Prepaid expenses 9 13
-------------------------------------------------------------------------
588 720
Investments 2 15
Fixed assets 506 626
Other assets (note 4) 30 5
Future income taxes (note 10) 29 -
-------------------------------------------------------------------------
$ 1,155 $ 1,366
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans (note 5) $ - $ 118
Accounts payable and accrued charges 209 278
Interest payable 2 3
Current portion of long-term debt (note 5) 16 19
-------------------------------------------------------------------------
227 418
Long-term debt (note 5) 333 383
Other long-term liabilities and credits (note 6) 232 252
Shareholders' equity:
Share capital (note 7) 570 570
Contributed surplus (note 2) 5 5
Deficit (212) (262)
-------------------------------------------------------------------------
363 313
-------------------------------------------------------------------------
$ 1,155 $ 1,366
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TEMBEC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
-------------------------------------------------------------------------
Quarters and nine months ended June 26, 2010 and June 27, 2009
(unaudited) (in millions of dollars, unless otherwise noted)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarters Nine months
2010 2009 2010 2009
-------------------------------------------------------------------------
Sales $ 545 $ 407 $ 1,433 $ 1,335
Freight and sales deductions 70 55 175 170
Lumber duties and export taxes 3 1 8 2
Cost of sales 394 372 1,099 1,195
Selling, general and
administrative 18 21 55 67
Depreciation and amortization 14 19 44 55
Other items (note 8) (10) - 3 -
-------------------------------------------------------------------------
Operating earnings (loss) from
continuing operations 56 (61) 49 (154)
Interest, foreign exchange and
other (note 9) 14 16 42 7
Exchange loss (gain) on
long-term debt 1 (25) (26) 41
-------------------------------------------------------------------------
Earnings (loss) from continuing
operations before income taxes
and minority interest 41 (52) 33 (202)
Income tax expense (recovery)
(note 10) (20) - (19) (1)
Minority interest 1 (1) 2 (1)
-------------------------------------------------------------------------
Net earnings (loss) from
continuing operations 60 (51) 50 (200)
Earnings (loss) from discontinued
operations (note 2) (1) 13 - 3
-------------------------------------------------------------------------
Net earnings (loss) and
comprehensive earnings (loss) 59 (38) 50 (197)
Deficit, beginning of period (271) (207) (262) (48)
-------------------------------------------------------------------------
Deficit, end of period $ (212) $ (245) $ (212) $ (245)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted earnings (loss)
per share from continuing
operations (note 7) $ 0.60 $ (0.51) $ 0.50 $ (2.00)
Basic and diluted earnings (loss)
per share from discontinued
operations (note 7) $ (0.01) $ 0.13 $ - $ 0.03
Basic and diluted earnings (loss)
per share (note 7) $ 0.59 $ (0.38) $ 0.50 $ (1.97)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TEMBEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
Quarters and nine months ended June 26, 2010 and June 27, 2009
(unaudited) (in millions of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarters Nine months
2010 2009 2010 2009
-------------------------------------------------------------------------
Cash flow from operating
activities:
Net earnings (loss) $ 59 $ (38) $ 50 $ (197)
Adjustments for:
Depreciation and amortization 14 19 44 55
Unrealized foreign exchange
and others 4 (3) 7 (2)
Exchange loss (gain) on
long-term debt 1 (25) (26) 41
Future income taxes (recovery)
(notes 2 and 10) (20) 3 (19) 2
Investment tax credits and
income tax refunds - - - 17
Other items (note 8) (10) - 3 -
Gain on sale of mill site -
discontinued operations
(note 2) - (16) - (16)
Excess of cash contributions
over pension expenses (4) (3) (13) (6)
-------------------------------------------------------------------------
44 (63) 46 (106)
Changes in non-cash working
capital:
Accounts receivable - (1) (12) 100
Inventories 50 82 18 52
Prepaid expenses (2) - 3 (3)
Accounts payable and accrued
charges 3 11 11 (124)
-------------------------------------------------------------------------
51 92 20 25
-------------------------------------------------------------------------
95 29 66 (81)
-------------------------------------------------------------------------
Cash flows from investing
activities:
Reduced participation in joint
venture - - - 8
Additions to fixed assets (6) (6) (17) (36)
Proceeds on sale of mill site -
discontinued operations (note 2) - 7 - 7
Proceeds on sale of French mills
(note 8) 86 - 86 -
Proceeds on land sales and other 1 - 6 1
Decrease in investments - - 2 3
Other 1 2 (3) 1
-------------------------------------------------------------------------
82 3 74 (16)
Cash flows from financing
activities:
Change in operating bank loans (88) (5) (118) 31
Cash held in trust (note 8) (5) - (5) -
Increase in long-term debt 1 3 8 9
Repayments of long-term debt (3) (3) (7) (20)
Change in other long-term
liabilities (3) (1) 1 (1)
Other (2) (2) (2) 4
-------------------------------------------------------------------------
(100) (8) (123) 23
-------------------------------------------------------------------------
77 24 17 (74)
Foreign exchange on cash and
cash equivalents held in
foreign currencies - - (2) 2
-------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 77 24 15 (72)
Cash and cash equivalents, net
of bank indebtedness, beginning
of period 43 16 105 112
-------------------------------------------------------------------------
Cash and cash equivalents, net
of bank indebtedness, end of
period $ 120 $ 40 $ 120 $ 40
-------------------------------------------------------------------------
Supplemental information:
Interest paid $ 6 $ 9 $ 23 $ 29
Income taxes recovered $ - $ - $ - $ (17)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TEMBEC INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
-------------------------------------------------------------------------
Quarters ended June 26, 2010 and June 27, 2009
(unaudited) (in millions of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
June 26, 2010
-------------------------------------------------------------------------
Corpo-
Forest Chemi- rate Conso-
Products Pulp Paper cals & other lidated
-------------------------------------------------------------------------
Sales:
External $ 104 $ 319 $ 96 $ 26 $ - $ 545
Internal 22 12 - - 1 35
-------------------------------------------------------------------------
126 331 96 26 1 580
Earnings
(loss)
before the
following: 6 58 1 3 (8) 60
Depreciation
and
amortization 4 8 1 1 - 14
Other items
(note 8) - (12) - - 2 (10)
Operating
earnings
(loss) from
continuing
operations 2 62 - 2 (10) 56
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net fixed
asset
additions 1 4 - 1 - 6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
June 27, 2009
-------------------------------------------------------------------------
Corpo-
Forest Chemi- rate Conso-
Products Pulp Paper cals & other lidated
-------------------------------------------------------------------------
Sales:
External $ 54 $ 220 $ 109 $ 24 $ - $ 407
Internal 18 19 - - - 37
-------------------------------------------------------------------------
72 239 109 24 - 444
Earnings
(loss)
before the
following: (18) (22) - 3 (5) (42)
Depreciation
and
amortization 6 11 1 1 - 19
Other items
(note 8) - - - - - -
Operating
earnings
(loss) from
continuing
operations (24) (33) (1) 2 (5) (61)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net fixed
asset
additions - 5 1 - - 6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended June 26, 2010 and June 27, 2009
(unaudited) (in millions of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
June 26, 2010
-------------------------------------------------------------------------
Corpo-
Forest Chemi- rate Conso-
Products Pulp Paper cals & other lidated
-------------------------------------------------------------------------
Sales:
External $ 256 $ 855 $ 252 $ 70 $ - $ 1,433
Internal 65 43 - - 4 112
-------------------------------------------------------------------------
321 898 252 70 4 1,545
Earnings
(loss)
before the
following: (5) 116 (6) 8 (17) 96
Depreciation
and
amortization 12 28 3 1 - 44
Other items
(note 8) (2) (12) - - 17 3
Operating
earnings
(loss) from
continuing
operations (15) 100 (9) 7 (34) 49
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net fixed
asset
additions 4 10 2 1 - 17
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
June 27, 2009
-------------------------------------------------------------------------
Corpo-
Forest Chemi- rate Conso-
Products Pulp Paper cals & other lidated
-------------------------------------------------------------------------
Sales:
External $ 226 $ 676 $ 359 $ 74 $ - $ 1,335
Internal 76 58 - - 3 137
-------------------------------------------------------------------------
302 734 359 74 3 1,472
Earnings
(loss)
before the
following: (62) (69) 38 8 (14) (99)
Depreciation
and
amortization 18 33 3 1 - 55
Other items
(note 8) 2 (4) - 1 1 -
Operating
earnings
(loss) from
continuing
operations (82) (98) 35 6 (15) (154)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net fixed
asset
additions 5 27 3 1 - 36
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For further information: Michel J. Dumas, Executive Vice President, Finance & CFO, Tel: 819-627-4268, E-mail: [email protected]; John Valley, Executive Vice President, Business Development and Corporate Affairs, Tel: 416-775-2819, E-mail: [email protected]; Source: Tembec Inc.
Share this article