Tembec reports financial results for its third quarter ended June 27, 2015

MONTREAL, July 30, 2015 /CNW Telbec/ - Consolidated sales for the three-month period ended June 27, 2015, were $365 million, as compared to $404 million in the same quarter a year ago. The Company generated a net loss of $16 million or $0.16 per share in the June 2015 quarter compared to net earnings of $30 million or $0.30 per share in the June 2014 quarter. The current quarter results include approximately $12 million of incremental costs related to planned major maintenance conducted at two large operating sites. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $2 million for the three-month period ended June 27, 2015, as compared to adjusted EBITDA of $30 million a year ago and adjusted EBITDA of $12 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated negative adjusted EBITDA of $6 million on sales of $108 million for the quarter ended June 2015, compared to adjusted EBITDA of $3 million on sales of $105 million in the prior quarter. The sales increase of $3 million was due to higher shipments of specialty and viscose grades, as well as lignin products, partially offset by lower prices for specialty pulp grades. Weaker demand for certain specialty grades that began in late 2014 continued into the first half of calendar 2015. The $63 per tonne decline in reported Canadian dollar selling prices for specialty grades was partially due to currency as the euro weakened by 2.6%, negatively affecting pricing for the Tartas pulp mill's sales. A lower sales mix at the Temiscaming facility also contributed to lower average selling prices for specialty grades. US dollar prices for viscose grades were relatively unchanged. The viscose market remains oversupplied and prices are relatively low. Overall, lower pulp prices reduced adjusted EBITDA by $3 million. Shipments were equal to 78% of capacity, compared to 75% in the March 2015 quarter. The June 2015 quarter results were significantly impacted by major planned maintenance at both pulp mills. The Tartas facility, which takes major maintenance every 18 months, was down for approximately two weeks in April 2015. The Temiscaming facility, which conducts major maintenance every 12 months, was idled for approximately one week in May 2015. Overall, maintenance costs increased by $7 million quarter-over-quarter. The significant downtime led to a production decrease of 10,600 tonnes, generating a negative variance of $5 million for unabsorbed fixed costs. The negative impact of the higher maintenance was partially offset by a $3 million reduction in energy costs at the Temiscaming plant due largely to the continued improved efficiency of the new boiler and turbine.

The Forest Products segment generated negative adjusted EBITDA of $3 million on sales of $103 million for the quarter ended June 2015, compared to adjusted EBITDA of $4 million on sales of $113 million in the prior quarter. Sales decreased by $10 million due to lower SPF lumber prices and the seasonal decrease in third-party log sales. Lumber shipments were equal to 83% of capacity versus 81% in the prior quarter. During the June 2015 quarter, the random length lumber reference price decreased by US $44 per mbf while the reference price for stud lumber decreased by US $35 per mbf. Currency was not a significant factor as the Canadian dollar averaged US $0.813, a 0.7% increase from US $0.807 in the prior quarter. The combined effect was that Canadian dollar selling prices decreased by approximately $40 per mbf, decreasing adjusted EBITDA by $7 million. Seasonally lower manufacturing costs at the sawmills was offset by an increase in lumber export taxes of $1 million and a charge of $1 million relating to a reduction of the carrying value of finished goods inventories resulting from the relatively low lumber prices.

The Paper Pulp segment generated adjusted EBITDA of $3 million on sales of $90 million for the quarter ended June 2015, compared to adjusted EBITDA of $3 million on sales of $73 million in the prior quarter. The $17 million increase in sales was due to higher shipments. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) increased by US $35 per tonne. However, the increase did not carry over into the high-yield paper pulp market and US dollar prices declined by US $16 per tonne. Overall, average selling prices decreased by $23 per tonne, decreasing adjusted EBITDA by $3 million. Pulp shipments were equal to 104% of capacity as compared to 81% in the prior quarter. Demand for pulp in the June 2015 quarter was good and the Company was able to reduce inventories to more normal levels after absorbing increases during the winter months. In the June 2015 quarter, the two pulp mills produced 14,100 more tonnes as compared to the prior quarter. The higher productivity reduced costs by $2 million.

The Paper segment generated adjusted EBITDA of $9 million on sales of $86 million for the quarter ended June 2015, compared to adjusted EBITDA of $8 million on sales of $84 million in the prior quarter. Higher shipments partially offset by lower prices led to the $2 million increase in sales. The coated bleached board market was stable. The coated bleached board shipment to capacity ratio was 87% compared to 82% in the prior quarter. The reference price declined by US $5 per short ton. Overall, average selling prices for coated bleached board were down $26 per tonne decreasing adjusted EBITDA by $1 million. Manufacturing costs decreased by $2 million, primarily for purchased pulp and energy. The newsprint market remained weak with continued decreases in North American demand. The newsprint shipment to capacity ratio was 85% compared to 80% in the prior quarter. The US dollar benchmark price for newsprint declined by US $30 per tonne. Prices in Canadian dollars decreased by $39 per tonne, decreasing adjusted EBITDA by $2 million. Manufacturing costs at the Kapuskasing newsprint mill decreased by $3 million, primarily for electrical energy.

Outlook

Overall, the June 2015 quarterly results were lower than anticipated. While the reduction in earnings related to the planned major maintenance work at Tartas and Temiscaming was foreseeable, the unexpected price declines for certain products, most notably lumber, combined with a stronger Canadian dollar, negatively impacted the prices in all of the Company's business segments. As expected, the Specialty Cellulose segment results declined by approximately $12 million due to the major maintenance work completed at both of the specialty pulp mills. Price realizations declined, due primarily to currency and mix. While shipments increased over the prior quarter, they remained relatively low. Fiscal year-to-date shipments of specialty pulp are down by approximately 17% and it is not anticipated that demand will improve in calendar 2015. This in turn will lead to increased production of viscose and other grades, which are less profitable to produce and sell. Viscose grade prices have improved modestly, but remain at relatively low levels. The over-supply situation will likely persist throughout 2015. The Forest Products segment results were disappointing. Not only did we not experience the historical seasonal pick-up in lumber prices, but average prices in the June 2015 quarter actually declined by approximately US $40 per thousand board feet. While the recent price increases in late June and July should lead to better results in the September quarter, the market does not currently have a clear direction and some volatility will likely result in the next few quarters. However, we remain bullish on the medium and longer term outlook for lumber, driven by a gradual recovery in US housing starts. The Paper Pulp segment results were similar, but remained relatively weak in terms of adjusted EBITDA. The new South American hardwood paper pulp capacity combined with the restart of high-yield pulp capacity is impacting prices and we anticipate marginal profitability from this segment until the market absorbs all of this new capacity. The Paper segment results were relatively unchanged. The coated bleached board markets remain stable and the business should continue to generate good results, bolstered by a relatively weaker Canadian dollar. Ongoing weakness in newsprint markets has put downward pressure on prices and this situation will likely persist in the coming quarters.

The commissioning and optimization of the new boiler and turbine at Temiscaming made significant progress in the June quarter. The boiler burned approximately 70% of the targeted volume of sulfite liquor, generating a net energy benefit of approximately $4 million. These values would have been higher if not for the impact of the major maintenance downtime. The Company remains confident it will attain the $3 million per month of targeted energy, operational and maintenance cost improvement from the operation of the new boiler and turbine.

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 3,400 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 27, 2015, 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 on the last page 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 27, 2015	Sept. 27, 2014
ASSETS
	Current assets:
	Cash and cash equivalents		$ 16	$ 39
	Restricted cash		2	3
	Trade and other receivables		144	171
	Income tax receivable		6	2
	Inventories (note 3)		278	258
	Prepaid expenses		9	10
			455	483
Property, plant and equipment (note 4)			642	630
Biological assets			2	2
Employee future benefits			36	25
Other long-term receivables			4	11
Deferred tax assets			4	4
			$ 1,143	$ 1,155
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Operating bank loans (note 5)		$ 98	$ 87
	Trade, other payables and accrued charges		197	212
	Interest payable		2	12
	Provisions		4	5
	Current portion of long-term debt (note 6)		8	17
			309	333
Long-term debt (note 6)			579	455
Provisions			12	11
Employee future benefits			142	135
Other long-term liabilities			1	2
			1,043	936
Shareholders' equity:
	Share capital (note 7)		568	568
	Deficit		(470)	(358)
	Accumulated other comprehensive earnings		2	9
			100	219
			$ 1,143	$ 1,155

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 27, 2015 and June 28, 2014
(unaudited) (in millions of Canadian dollars, unless otherwise noted)
	Quarters		Nine months
	2015	2014	2015	2014
Sales	$ 365	$ 404	$ 1,045	$ 1,120
Freight and other deductions	51	55	139	143
Lumber export taxes	1	-	1	-
Cost of sales (excluding depreciation and amortization)	299	302	829	864
Selling, general and administrative	14	15	44	50
Share-based compensation	(2)	2	(2)	2
Depreciation and amortization	12	9	31	26
Other items (note 8)	1	(13)	(4)	(21)
Operating earnings (loss)	(11)	34	7	56
Interest, foreign exchange and other	17	10	39	28
Loss on refinancing of long-term debt (note 6)	-	-	37	-
Exchange loss (gain) on long-term debt	(11)	(12)	43	11
Net finance costs (note 9)	6	(2)	119	39
Earnings (loss) before income taxes	(17)	36	(112)	17
Income tax expense (recovery) (note 10)	(1)	6	6	13
Net earnings (loss)	$ (16)	$ 30	$ (118)	$ 4
Basic and diluted net earnings (loss) in dollars per share (note 7)	$ (0.16)	$ 0.30	$ (1.18)	$ 0.04

TEMBEC INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters and nine months ended June 27, 2015 and June 28, 2014
(unaudited) (in millions of Canadian dollars)
			Quarters		Nine months
			2015	2014	2015	2014
Net earnings (loss)			$ (16)	$ 30	$ (118)	$ 4
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 11)	21	(2)	7	7
		Income tax recovery (expense)	(1)	1	(1)	(1)
			20	(1)	6	6
	Item that may be reclassified to earnings (loss) in future periods:
		Currency translation differences for foreign operations	1	(9)	(7)	9
Other comprehensive earnings (loss)			21	(10)	(1)	15
Total comprehensive earnings (loss)			$ 5	$ 20	$ (119)	$ 19

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

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Quarters ended June 27, 2015 and June 28, 2014
(unaudited) (in millions of Canadian dollars)
Quarter ended June 27, 2015
			Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period, March 28, 2015			$ 568	$ 1	$ (474)	$ 95
Net loss for the period			-	-	(16)	(16)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)		-	-	21	21
	Income tax recovery (expense)		-	-	(1)	(1)
	Currency translation differences for foreign operations		-	1	-	1
Balance - end of period, June 27, 2015			$ 568	$ 2	$ (470)	$ 100
Quarter ended June 28, 2014
			Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of period, March 29, 2014			$ 567	$ 24	$ (373)	$ 218
Net earnings for the period			-	-	30	30
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)		-	-	(2)	(2)
	Income tax recovery (expense)		-	-	1	1
	Currency translation differences for foreign operations		-	(9)	-	(9)
	Issue of warrants		1	-	-	1
Balance - end of period, June 28, 2014			$ 568	$ 15	$ (344)	$ 239

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

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended June 27, 2015 and June 28, 2014
(unaudited) (in millions of Canadian dollars)
Nine months ended June 27, 2015
			Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of year, September 27, 2014			$ 568	$ 9	$ (358)	$ 219
Net loss for the period			-	-	(118)	(118)
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)		-	-	7	7
	Income tax recovery (expense)		-	-	(1)	(1)
	Currency translation differences for foreign operations		-	(7)	-	(7)
Balance - end of period, June 27, 2015			$ 568	$ 2	$ (470)	$ 100
Nine months ended June 28, 2014
			Share capital	Translation of foreign operations	Deficit	Shareholders' equity
Balance - beginning of year, September 28, 2013			$ 567	$ 6	$ (354)	$ 219
Net earnings for the period			-	-	4	4
Other comprehensive earnings (loss), net of income taxes:
	Defined benefit pension plans and other benefit plans (note 11)		-	-	7	7
	Income tax recovery (expense)		-	-	(1)	(1)
	Currency translation differences for foreign operations		-	9	-	9
	Issue of warrants		1	-	-	1
Balance - end of period, June 28, 2014			$ 568	$ 15	$ (344)	$ 239

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 27, 2015 and June 28, 2014
(unaudited) (in millions of Canadian dollars)
			Quarters		Nine months
			2015	2014	2015	2014
Cash flows from operating activities:
	Net earnings (loss)		$ (16)	$ 30	$ (118)	$ 4
	Adjustments for:
		Depreciation and amortization	12	9	31	26
		Net finance costs (note 9)	6	(2)	119	39
		Income tax expense (recovery) (note 10)	(1)	6	6	13
		Income tax paid	(2)	(7)	(9)	(27)
		Excess cash contributions over employee future benefits expense	(1)	(3)	(5)	(16)
		Share-based compensation	(2)	2	(2)	2
		Gain on settlement of a non-recourse debt (note 8)	-	-	(9)	-
		Impairment loss (note 8)	-	-	3	-
		Gain on sale of assets (note 8)	-	(14)	(1)	(35)
		Settlement loss on pension plan (note 8)	-	-	-	7
		Other	-	(2)	4	2
			(4)	19	19	15
Changes in non-cash working capital:
	Trade and other receivables		(1)	(22)	16	(14)
	Inventories		51	46	(23)	(28)
	Prepaid expenses		(1)	(2)	(2)	(4)
	Trade, other payables and accrued charges		(16)	(19)	8	16
			33	3	(1)	(30)
			29	22	18	(15)
Cash flows from investing activities:
	Disbursements for property, plant and equipment		(13)	(44)	(55)	(119)
	Proceeds from sale of net assets (note 8)		-	16	2	40
	Change in restricted cash		3	5	1	(2)
	Other long-term receivable		-	-	4	-
			(10)	(23)	(48)	(81)
Cash flows from financing activities:
	Change in operating bank loans		-	7	10	30
	Increase in long-term debt (note 6)		-	23	419	64
	Repayments of long-term debt (note 6)		(3)	(3)	(347)	(5)
	Debt prepayment penalty (note 6)		-	-	(27)	-
	Interest paid		(24)	(22)	(48)	(43)
	Other		(1)	-	-	-
			(28)	5	7	46
			(9)	4	(23)	(50)
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies			-	(1)	-	3
Net increase (decrease) in cash and cash equivalents			(9)	3	(23)	(47)
Cash and cash equivalents, beginning of period			25	23	39	73
Cash and cash equivalents, end of period			$ 16	$ 26	$ 16	$ 26

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

TEMBEC INC.
BUSINESS SEGMENT INFORMATION
Quarters ended June 27, 2015 and June 28, 2014
(unaudited) (in millions of Canadian dollars)
Quarter ended June 27, 2015
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 88	$ 108	$ 83	$ 86	$  -	$  -	$ 365
	Internal	15	-	7	-	3	(25)	-
		103	108	90	86	3	(25)	365
Freight and other deductions		11	11	18	11	-	-	51
Lumber export taxes		1	-	-	-	-	-	1
Cost of sales		91	99	68	63	3	(25)	299
Selling, general and administrative		3	4	1	3	3	-	14
Share-based compensation		-	-	-	-	(2)	-	(2)
Earnings (loss) before the following (adjusted EBITDA):		(3)	(6)	3	9	(1)	-	2
	Depreciation and amortization	2	6	3	1	-	-	12
	Other items (note 8)	-	-	-	-	1	-	1
Operating earnings (loss)		$ (5)	$ (12)	$  -	$ 8	$ (2)	$  -	$ (11)
Additions to property, plant and equipment		$ 3	$ 5	$ 1	$ 2	$  -	$  -	$ 11
Total assets		$ 157	$ 653	$ 139	$ 165	$ 29	$  -	$ 1,143
Total liabilities		$ 50	$ 258	$ 32	$ 77	$ 626	$  -	$ 1,043
Quarter ended June 28, 2014
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 94	$ 126	$ 95	$ 89	$  -	$  -	$ 404
	Internal	14	-	7	-	4	(25)	-
		108	126	102	89	4	(25)	404
Freight and other deductions		11	11	21	12	-	-	55
Lumber export taxes		-	-	-	-	-	-	-
Cost of sales		89	91	77	66	4	(25)	302
Selling, general and administrative		3	5	1	3	3	-	15
Share-based compensation		-	-	-	-	2	-	2
Earnings (loss) before the following (adjusted EBITDA):		5	19	3	8	(5)	-	30
	Depreciation and amortization	1	4	2	1	1	-	9
	Other items (note 8)	-	-	-	-	(13)	-	(13)
Operating earnings		$ 4	$ 15	$ 1	$ 7	$ 7	$  -	$ 34
Additions to property, plant and equipment		$ 1	$ 34	$ 1	$ 1	$  -	$  -	$ 37
Total assets		$ 162	$ 633	$ 149	$ 151	$ 44	$  -	$ 1,139
Total liabilities		$ 59	$ 266	$ 33	$ 71	$ 471	$  -	$ 900

TEMBEC INC.
BUSINESS SEGMENT INFORMATION
Nine months ended June 27, 2015 and June 28, 2014
(unaudited) (in millions of Canadian dollars)
Nine months ended June 27, 2015
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 284	$ 315	$ 200	$ 246	$  -	$  -	$ 1,045
	Internal	47	-	22	-	8	(77)	-
		331	315	222	246	8	(77)	1,045
Freight and other deductions		32	32	44	31	-	-	139
Lumber export taxes		1	-	-	-	-	-	1
Cost of sales		282	265	169	182	8	(77)	829
Selling, general and administrative		8	12	3	8	13	-	44
Share-based compensation		-	-	-	-	(2)	-	(2)
Earnings (loss) before the following (adjusted EBITDA):		8	6	6	25	(11)	-	34
	Depreciation and amortization	5	15	8	3	-	-	31
	Other items (note 8)	-	-	-	-	(4)	-	(4)
Operating earnings (loss)		$ 3	$ (9)	$ (2)	$ 22	$ (7)	$  -	$ 7
Additions to property, plant and equipment		$ 9	$ 29	$ 4	$ 4	$  -	$  -	$ 46
Total assets		$ 157	$ 653	$ 139	$ 165	$ 29	$  -	$ 1,143
Total liabilities		$ 50	$ 258	$ 32	$ 77	$ 626	$  -	$ 1,043
Nine months ended June 28, 2014
		Forest Products	Specialty Cellulose Pulp	Paper Pulp	Paper	Corporate	Consolidation adjustments	Consolidated
Sales:
	External	$ 272	$ 380	$ 215	$ 253	$  -	$  -	$ 1,120
	Internal	47	-	22	-	11	(80)	-
		319	380	237	253	11	(80)	1,120
Freight and other deductions		31	32	46	34	-	-	143
Lumber export taxes		-	-	-	-	-	-	-
Cost of sales		273	282	181	197	11	(80)	864
Selling, general and administrative		9	15	4	8	14	-	50
Share-based compensation		-	-	-	-	2	-	2
Earnings (loss) before the following (adjusted EBITDA):		6	51	6	14	(16)	-	61
	Depreciation and amortization	4	11	7	3	1	-	26
	Other items (note 8)	-	-	-	-	(21)	-	(21)
Operating earnings (loss)		$ 2	$ 40	$ (1)	$ 11	$ 4	$  -	$ 56
Additions to property, plant and equipment		$ 4	$ 104	$ 3	$ 2	$  -	$  -	$ 113
Total assets		$ 162	$ 633	$ 149	$ 151	$ 44	$  -	$ 1,139
Total liabilities		$ 59	$ 266	$ 33	$ 71	$ 471	$  -	$ 900

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]