Tembec reports financial results for its first quarter ended December 24, 2011

MONTREAL, Jan. 26, 2012 /CNW Telbec/ - (TSX: TMB) - Consolidated sales for the three-month period ended December 24, 2011, were $401 million, as compared to $422 million in the comparable period of the prior year. The Company generated a net loss of $16 million or $0.16 per share in the December 2011 quarter compared to a net loss of $11 million or $0.11 per share in the December 2010 quarter. Operating earnings before depreciation, amortization and other specific or non-recurring items (EBITDA) was $12 million for the three-month period ended December 24, 2011, as compared to EBITDA of $12 million a year ago and EBITDA of $19 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 EBITDA of $27 million on sales of $152 million for the quarter ended December 24, 2011, compared to EBITDA of $30 million on sales of $180 million in the prior quarter. Sales decreased by $28 million primarily as a result of lower shipments.

The specialty cellulose market conditions remained favourable. A decrease in viscose grade prices was partially offset by an increase in specialty grades. Currency was also a positive factor for the Canadian mill as the Canadian dollar averaged US $0.977, a 4.5% decrease from US $1.023 in the prior quarter. Overall, pricing was relatively unchanged quarter-over-quarter. Specialty cellulose shipments were equal to 79% of capacity as compared to 92% in the prior quarter. The decline in shipments was caused primarily by unplanned equipment downtime at the two specialty cellulose facilities. Mill level costs increased by $4 million as a result of the lower productivity. The lower sales volume reduced EBITDA by a further $4 million as well.

The market conditions for Northern Bleached Softwood Kraft (NBSK) pulp weakened considerably during the quarter. The benchmark price (delivered China) declined by US $127 per tonne. With a weaker Canadian dollar and a higher sales mix factor providing a partial offset, the net effect was a reduction in EBITDA of $2 million or $52 per tonne. NBSK shipments were equal to 55% of capacity as compared to 76% in the prior quarter. During the final weeks of the prior quarter, the Company had taken 17 days of planned maintenance downtime in relation to the annual mill-wide shutdown of its NBSK mill, removing approximately 12,100 tonnes of production. Due to unforeseen problems with the mill's recovery boiler, the shutdown was extended into the current quarter for an additional 17-day period, removing a further 12,200 tonnes of production. However, as most of the maintenance work had occurred in the prior quarter, maintenance costs declined by $8 million quarter-over-quarter.

The High-Yield Pulp segment generated negative EBITDA of $9 million on sales of $74 million for the quarter ended December 24, 2011, compared to negative EBITDA of $8 million on sales of $76 million in the prior quarter. Sales decreased by $2 million as a result of lower shipments. Market conditions for high-yield pulp remained relatively weak during the most recent quarter. The US $ reference prices for bleached eucalyptus kraft (BEK) decreased over the prior quarter by US $143 per tonne. However, the drop in US $ prices for high-yield pulp was much less pronounced as prices had previously experienced significant declines. The lower Canadian dollar was a positive factor. The net effect was a reduction in EBITDA of $1 million or $8 per tonne. High-yield pulp shipments were equal to 65% of capacity as compared to 67% in the prior quarter. During the September 2011 quarter, the Company absorbed 51,300 tonnes of downtime related to an 80-day labour strike at its Matane, Quebec, facility. The strike ended in mid-September and the mill was restarted at that time. During the most recent quarter, weak market conditions led to 18,100 tonnes of market related downtime. A further 5,700 tonnes of maintenance downtime was also undertaken. The higher productivity in the most recent quarter reduced mill cost by $4 million. However, the improvement was offset by a $4 million charge relating to the reduction in the carrying values of finished goods and raw material inventories as they exceeded their estimated net realizable values. Pulp inventories were at 30 days of supply at the end of December 2011, as compared to 15 days at the end of September 2011. The abnormally low level of inventory at the end of the prior quarter was due to the Matane mill strike.

The Paper segment generated EBITDA of $10 million on sales of $85 million for the quarter ended December 24, 2011, compared to EBITDA of $6 million on sales of $84 million in the prior quarter. Higher prices and newsprint shipments were offset by lower coated bleached board shipments. In terms of markets, coated bleached board remained healthy while newsprint remained stable despite continued weaker North American demand statistics. The US $ reference prices for both grades were unchanged from the prior quarter. The weaker Canadian dollar resulted in higher prices and margins. The effect was an increase in EBITDA of $5 million. Coated bleached board shipments were equal to 87% of capacity as compared to 97% in the prior quarter. The shipment to capacity percentage for newsprint was 94%, compared to 90% in the prior quarter. Manufacturing costs were relatively unchanged quarter-over-quarter.

The Forest Products segment generated negative EBITDA of $11 million on sales of $126 million for the quarter ended December 24, 2011, compared to negative EBITDA of $10 million on sales of $121 million in the prior quarter. The increase in sales was due to higher shipments. Demand for SPF lumber remained relatively weak with shipments equal to 64% of capacity, as compared to 59% in the prior quarter. US $ reference prices for random lumber decreased by US $8 per mbf on average while stud lumber decreased by US $15 per mbf. The weaker Canadian dollar offset the decline in random lumber reference prices. The net price effect was an increase in EBITDA of $1 million or $4 per mbf. Costs increased by $2 million, primarily for timber and logs.

Outlook

The December 2011 quarterly results were lower than anticipated. Relatively weak paper pulp markets impacted selling prices and led to production curtailments in high-yield pulp. The current quarter EBITDA also absorbed a charge of $4 million relating to a net realizable value adjustment on high-yield pulp inventories. The extended maintenance downtime at the NBSK mill also impacted the December quarterly results. Looking ahead, markets for specialty cellulose pulp remain strong and we anticipate higher pricing in calendar 2012. While the prices of paper pulp have declined in recent months, we believe they have now reached their cyclical lows and we anticipate some pricing recovery in the coming quarters. The Forest Products segment continues to deal with sluggish U.S. demand for lumber and poor pricing. A slow gradual recovery in U.S. housing starts combined with the annual seasonal pickup should assist pricing in the next few quarters. Markets for coated bleached board and newsprint remain 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 will require two years to complete. The project will materially improve the mill's cost structure and margins. The Company expects to finalize all required agreements in order to proceed with the project in the March 2012 quarter. The Company also recently announced the sale of its two B.C. sawmills for proceeds of $60 million, subject to working capital adjustments. The transaction is expected to close at the end of the March 2012 quarter.

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 December 24, 2011, 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)          
 
  Dec. 24,
2011
  Sept. 24,
2011
  Sept. 26,
2010
           
ASSETS          
Current assets:          
  Cash and cash equivalents $ 79   $ 99   $ 68
  Cash held in trust 7   6   6
  Trade and other receivables 158   182   209
  Inventories (note 4) 261   261   255
  Prepaid expenses 4   6   7
  Assets held for sale (note 5) 56   -   -
  565   554   545
           
Property, plant and equipment (note 6) 471   491   496
Biological assets 5   4   7
Employee future benefits (note 18) 1   1   -
Other long-term receivables 28   28   28
Deferred tax assets 12   15   27
  $ 1,082   $ 1,093   $ 1,103
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
Current liabilities:          
  Operating bank loans (note 7) $ 48   $ 6   $ 1
  Trade, other payables and accrued charges 218   246   233
  Interest payable 1   8   3
  Provisions (note 9) 2   8   5
  Current portion of long-term debt (note 8) 18   18   17
  Liabilities held for sale (note 5) 22   -   -
  309   286   259
           
Long-term debt (note 8) 269   271   271
Provisions (note 9) 15   16   17
Employee future benefits (note 18) 275   285   248
Other long-term liabilities 2   2   8
  870   860   803
           
Shareholders' equity:          
  Share capital (note 10) 564   564   564
  Deficit (349)   (333)   (264)
  Accumulated other comprehensive earnings (loss) (3)   2   -
  212   233   300
  $ 1,082   $ 1,093   $ 1,103


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

       
TEMBEC INC.
CONSOLIDATED STATEMENTS OF LOSS
       
(unaudited) (in millions of Canadian dollars, unless otherwise noted)      
       
  Quarters ended
  Dec. 24,
2011
  Dec. 25,
2010
       
Sales $ 401   $ 422
Freight and other deductions 53   57
Lumber export taxes 2   3
Cost of sales (excluding depreciation and amortization) 316   328
Selling, general and administrative 18   18
Share-based compensation (note 10) -   4
Depreciation and amortization 12   13
Other items (note 11) 2   2
Operating loss (2)   (3)
       
Interest, foreign exchange and other 10   12
Exchange gain on long-term debt (2)   (5)
Net finance costs (note 12) 8   7
Loss before income taxes (10)   (10)
       
Income tax expense (note 13) 6   1
Net loss $ (16)   $ (11)
       
Basic and diluted net loss in dollars per share (note 10) $ (0.16)   $ (0.11)
       
       
       
TEMBEC INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
       
(unaudited) (in millions of Canadian dollars)      
       
  Quarters ended
  Dec. 24,
2011
  Dec. 25,
2010
       
Net loss $ (16)   $ (11)
       
Other comprehensive loss:      
  Foreign currency translation differences for foreign operations (5)   (2)
       
Total comprehensive loss $ (21)   $ (13)


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 December 24, 2011
               
  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     (16)   (16)
Other comprehensive loss:              
  Foreign currency translation differences for foreign operations -   (5)   -   (5)
               
Balance - end of period, December 24, 2011 $ 564   $ (3)   $ (349)   $ 212
               
               
               
        Quarter ended December 25, 2010
               
  Share
capital
  Translation
of foreign
operations
  Deficit   Shareholders'
equity
               
Balance - beginning of year, September 26, 2010 $ 564   $  -   $ (264)   $ 300
               
Net loss for the period -   -   (11)   (11)
Other comprehensive loss:              
  Foreign currency translation differences for foreign operations -   (2)   -   (2)
               
Balance - end of period, December 25, 2010 $ 564   $ (2)   $ (275)   $ 287


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

       
TEMBEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
       
(unaudited) (in millions of Canadian dollars)      
       
  Quarters ended
  Dec. 24,
2011
  Dec. 25,
2010
       
Cash flows from operating activities:      
  Net loss $ (16)   $ (11)
  Adjustments for:      
    Depreciation and amortization 12   13
    Net finance costs (note 12) 8   7
    Income tax expense (note 13) 6   1
    Excess cash contributions over employee future benefits expense (10)   (4)
    Other 2   (3)
  2   3
       
Changes in non-cash working capital:      
  Trade and other receivables 14   38
  Inventories (34)   (12)
  Prepaid expenses 2   1
  Trade, other payables and accrued charges (17)   (22)
  (35)   5
  (33)   8
       
Cash flows from investing activities:      
  Additions to property, plant and equipment (23)   (8)
  Proceeds on sale of assets 17   -
  Other (3)   1
  (9)   (7)
       
Cash flows from financing activities:      
  Change in operating bank loans 42   2
  Cash held in trust (2)   -
  Increase in long-term debt 4   -
  Repayments of long-term debt (3)   (2)
  Interest paid (15)   (9)
  Other (1)   (2)
  25   (11)
  (17)   (10)
       
Foreign exchange gain on cash and cash equivalents held in foreign currencies (3)
(2)
Net decrease in cash and cash equivalents (20)   (12)
       
Cash and cash equivalents, beginning of period 99   68
Cash and cash equivalents, end of period $ 79   $ 56


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


 
TEMBEC INC.
BUSINESS SEGMENT INFORMATION
 
(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 (EBITDA). This measure is included in the internal reports that are reviewed by senior management. Segment 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 December 24, 2011
                         
  Forest
Products
  Specialty
Cellulose
& Chemical
Pulp
  High-Yield
Pulp
  Paper   Corporate
& other
  Consolidated
                       
Sales:                      
  External $ 100   $ 149   $ 67   $ 85   $  -   $ 401
  Internal 26   3   7   -   2   38
  $ 126   $ 152   $ 74   $ 85   $ 2   $ 439
Earnings (loss) before the following (EBITDA): $ (11)
$ 27
$ (9)
$ 10
$ (5)
$ 12
  Depreciation and amortization 3   5   3   1   -   12
  Other items 2   -   -   -   -   2
  Operating earnings (loss) $ (16)   $ 22   $ (12)   $ 9   $ (5)   $ (2)
Additions to property, plant & equipment $ 4   $ 13   $ 4   $ 2   $  -   $ 23
Total assets $ 256   $ 502   $ 196   $ 121   $ 6   $ 1,081
                       
                       
      Quarter ended December 25, 2010
                         
  Forest
Products
  Specialty
Cellulose
& Chemical
Pulp
  High-Yield
Pulp
  Paper   Corporate
& other
  Consolidated
                       
Sales:                      
  External $ 90   $ 145   $ 100   $ 87   $  -   $ 422
  Internal 23   3   7   -   1   34
  $ 113   $ 148   $ 107   $ 87   $ 1   $ 456
Earnings (loss) before the following (EBITDA): $ (11)
$ 20
$ 7
$ 4
$ (8)
$ 12
  Depreciation and amortization 4   5   3   1   -   13
  Other items -   -   -   -   2   2
  Operating earnings (loss) $ (15)   $ 15   $ 4   $ 3   $ (10)   $ (3)
Additions to property, plant & equipment $ 2   $ 5   $  -   $ 1   $  -   $ 8
Total assets $ 249   $ 456   $ 194   $ 123   $ 29   $ 1,051

 

SOURCE TEMBEC

For further information:

Investor Contact:    Michel J. Dumas
    Executive Vice President, Finance and CFO
    Tel: 819 627-4268
    E-mail: michel.dumas@tembec.com 
     
Media Contact:   Linda Coates
    Vice President, Communications and Public Affairs
    Tel.: 416 775-2819
    E-mail: linda.coates@tembec.com

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