Tembec reports financial results for its third quarter ended June 23, 2012

MONTREAL, July 26, 2012 /CNW Telbec/ - Consolidated sales for the three-month period ended June 23, 2012, were $415 million, as compared to $448 million in the comparable period of the prior year. The Company generated a net loss of $5 million or $0.05 per share in the June 2012 quarter compared to net earnings of $17 million or $0.17 per share in the June 2011 quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $27 million for the three-month period ended June 23, 2012, as compared to adjusted EBITDA of $33 million a year ago and adjusted EBITDA of $2 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 adjusted EBITDA of $18 million on sales of $167 million for the quarter ended June 23, 2012, compared to adjusted EBITDA of $31 million on sales of $176 million in the prior quarter. Sales decreased by $9 million primarily as a result of lower shipments.

The specialty cellulose market conditions remained favourable. A decrease in commodity viscose grade prices was offset by an increase in specialty grades. Currency was not a factor for the Canadian mill as the Canadian dollar averaged US $0.991, a 0.7% decrease from US $0.998 in the prior quarter. Overall, pricing was relatively unchanged quarter-over-quarter. Specialty cellulose shipments were equal to 80% of capacity as compared to 89% in the prior quarter. The relatively low level of shipments in the June 2012 quarter was due to the annual maintenance shutdown at the Tartas mill, which lasted 11 days. A shorter four day planned maintenance outage also occurred at the Temiscaming facility. These two events reduced production by 6,000 tonnes and increased cost of sales by $7 million. Adjusted EBITDA was further reduced by $3 million due to the 7,000 tonnes reduction in specialty cellulose pulp shipments.

The market conditions for Northern Bleached Softwood Kraft (NBSK) pulp remained relatively weak. The benchmark price (delivered China) increased by US $3 per tonne. Overall, realized Canadian dollar prices increased by $18 per tonne, increasing adjusted EBITDA by $1 million. NBSK shipments were equal to 91% of capacity as compared to 94% in the prior quarter. There was no major maintenance downtime in either quarter. Cash costs increased by $3 million due to lower electricity revenues as the contract with the utility provides for lower prices during the April to September period. On a net basis, adjusted EBITDA declined by $2 million.

The Paper segment generated adjusted EBITDA of $9 million on sales of $86 million for the quarter ended June 2012, compared to adjusted EBITDA of $4 million on sales of $79 million in the prior quarter. Higher coated bleached board and newsprint shipments caused the $7 million increase in sales. In terms of market, coated bleached board was stable. Newsprint also remained stable despite continued weaker North American demand statistics. The US $ reference prices for coated bleached board and for newsprint were unchanged. Overall, prices were unchanged quarter-over-quarter. Coated bleached board shipments were equal to 96% of capacity as compared to 86% in the prior quarter. The shipment to capacity percentage for newsprint was 87%, compared to 85% in the prior quarter. Manufacturing costs at the coated bleached board facility declined by $2 million primarily as a result of higher productivity as the mill produced 9% more tonnes. Manufacturing costs at the newsprint mill declined by $1 million, primarily due to lower energy costs.

The High-Yield Pulp segment generated adjusted EBITDA of $5 million on sales of $101 million for the quarter ended June 23, 2012, compared to negative adjusted EBITDA of $16 million on sales of $77 million in the prior quarter. Sales increased by $24 million based on a combination of higher shipments and prices. Market conditions for high-yield pulp remained weak in the most recent quarter. While the US $ reference prices for bleached eucalyptus kraft (BEK) increased over the prior quarter by US $62 per tonne, it did so from a very low price. The increase did not carry over fully to high-yield pulp as price compression had occurred previously and the BEK increase served to re-establish the normal differential in pricing. High-yield pulp prices increased by $39 per tonne, increasing adjusted EBITDA by $7 million. High-yield pulp shipments were equal to 89% of capacity as compared to 74% in the prior quarter. The increase in demand resulted in more uptime at the mills, which produced 7% more pulp in the June quarter. As a result, mill costs decreased by $6 million. In the June 2012 quarter, the higher selling prices led to an increase of $8 million in the carrying values of finished goods and raw material inventories, increasing adjusted EBITDA. The inventories had been written down by $4 million in each of the December 2011 and March 2012 quarters as their carrying values had exceeded their estimated net realizable values.

The Forest Products segment generated negative adjusted EBITDA of $2 million on sales of $86 million for the quarter ended June 23, 2012, compared to negative adjusted EBITDA of $11 million on sales of $112 million in the prior quarter. The sale of the Company's two B.C. sawmills at the end of the prior quarter had a significant impact on sales. The sawmills had shipped 91 million board feet of lumber in the prior quarter and had generated lumber, chip and by-product revenues of $44 million. Higher prices and shipments from the Company's Eastern sawmills partially offset the decrease. Demand for SPF lumber remained relatively weak with shipments equal to 59% of capacity, as compared to 58% in the prior quarter. US $ reference prices for random lumber increased by US $33 per mbf on average while stud lumber increased by US $61 per mbf. The net price effect was an increase in adjusted EBITDA of $7 million or $42 per mbf. Manufacturing costs were relatively unchanged quarter-over-quarter. The balance of the improvement in adjusted EBITDA relates to the divestiture of the two B.C. sawmills, which had generated negative $2 million of adjusted EBITDA in the prior quarter.

Outlook

The June 2012 quarterly results were in line with expectations. The $25 million improvement in adjusted EBITDA was driven primarily by higher lumber and paper pulp prices. The full effect of the higher prices was more pronounced in the High-Yield Pulp segment, which reversed $8 million of previously recorded net realizable value inventory reserves. The reserves had been caused by the low prices experienced in the December 2011 and March 2012 quarters. The improvement in adjusted EBITDA would have been even greater if not for the significant amount of planned maintenance work completed at the Company's two specialty pulp mills. Looking ahead, markets for specialty cellulose remain strong except for the viscose grades, where new supply is leading to lower prices. The Company's strategy of focusing on specialty grades has proven to be the right one. Paper pulp markets are expected to remain challenging. Capacity expansions will likely mitigate and delay a recovery in prices. The Company has recently announced the indefinite idling of its 240,000 tonnes per year, Chetwynd, B.C., high-yield pulp mill later in September. We expect lumber prices to hold at their current level until the normal seasonal decline in the fall. The housing statistics in the United States point to a slow and gradual recovery and lumber pricing should follow a similar pattern. Markets for coated bleached board and newsprint should remain relatively stable over the near term. The Company will continue with its capital expenditure program, with a strong emphasis on its two specialty cellulose mills. The cornerstone of the program is a $190 million high-pressure boiler and turbine to be installed at the Temiscaming, Quebec, site that is scheduled to start-up in December 2013. The project will materially improve the mill's cost structure and margins. A total of $31 million has been spent on the Temiscaming specialty cellulose project to the end of the June 2012 quarter. The Company has recently secured a further $30 million of project financing, attaining its target of $105 million of total project financing. The Company also has several other smaller capital projects, which are either in start-up mode or nearing completion. These projects will begin to positively impact adjusted EBITDA in the coming quarters.

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 $2 billion, Tembec has 4,000 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 23, 2012, 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)
       
  June 23,
2012
Sept. 24,
2011
Sept. 26,
2010
ASSETS      
  Current assets:      
  Cash and cash equivalents $ 100 $ 99 $ 68
  Cash held in trust 1 6 6
  Trade and other receivables 185 182 209
  Inventories (note 4) 272 261 255
  Prepaid expenses 10 6 7
  568 554 545
         
Property, plant and equipment (note 5) 498 491 496
Biological assets (note 6) 4 4 7
Employee future benefits (note 10) 1 1 -
Other long-term receivables 12 28 28
Deferred tax assets (note 16) 6 15 27
  $ 1,089 $ 1,093 $ 1,103 
 
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
  Operating bank loans (note 7) $ 68 $ 6 $ 1
  Trade, other payables and accrued charges 219 246 233
  Interest payable 1 8 3
  Provisions (note 9) 2 8 5
  Current portion of long-term debt (note 8) 16 18 17
  306 286 259
         
Long-term debt (note 8) 318 271 271
Provisions (note 9) 15 16 17
Employee future benefits (note 10) 260 285 248
Other long-term liabilities 2 2 8
  901 860 803
Shareholders' equity:      
  Share capital (note 11) 564 564 564
  Deficit (368) (333) (264)
  Accumulated other comprehensive earnings (loss) (8) 2 -
  188 233 300
  $ 1,089 $ 1,093 $ 1,103

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

         
TEMBEC INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Quarters and nine months ended June 23, 2012 and June 25, 2011
(unaudited) (in millions of Canadian dollars, unless otherwise noted)
         
  Quarters Nine months
  2012 2011 2012 2011
Sales $ 415 $ 448 $ 1,223 $ 1,322
Freight and other deductions 59 61 169 180
Lumber export taxes 1 3 6 10
Cost of sales (excluding depreciation   and amortization) (note 13) 311 335 953 990
Selling, general and administrative (note 13) 18 18 54 55
Share-based compensation (note 11) (1) (2) - 8
Depreciation and amortization 11 12 33 36
Other items (note 14) 2 (7) (1) 1
Operating earnings 14 28 9 42
Interest, foreign exchange and other 7 4 27 28
Exchange loss (gain) on long-term debt 8 1 - (10)
Net finance costs (note 15) 15 5 27 18
Earnings (loss) before income taxes (1) 23 (18) 24
           
Income tax expense (note 16) 4 6 17 12
Net earnings (loss) $ (5) $ 17 $ (35) $ 12
           
Basic and diluted net earnings (loss) in dollars per share (note 11) $ (0.05) $ 0.17 $ (0.35) $ 0.12
         
         
         
TEMBEC INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Quarters and nine months ended June 23, 2012 and June 25, 2011
(unaudited) (in millions of Canadian dollars)
         
  Quarters Nine months
  2012 2011 2012 2011
Net earnings (loss) $ (5) $ 17 $ (35) $ 12
           
Other comprehensive earnings (loss):        
  Foreign currency translation differences for foreign operations (5) 2 (10) 4
Total comprehensive earnings (loss) $ (10) $ 19 $ (45) $ 16

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 23, 2012 and June 25, 2011
(unaudited) (in millions of Canadian dollars)
         
        June 23, 2012
  Share
capital
Translation
of foreign
operations
Deficit Shareholders'
equity
Balance - beginning of period, March 24, 2012 $ 564 $ (3) $ (363) $ 198
         
Net loss for the period  - - (5) (5)
Other comprehensive loss:        
  Foreign currency translation differences   for foreign operations - (5) (5)
 
Balance - end of period, June 23, 2012 $ 564 $ (8) $ (368) $ 188
         
         
        June 25, 2011
  Share
capital
Translation
of foreign
operations
Deficit Shareholders'
equity
Balance - beginning of period, March 26, 2011 $ 564 $ 2 $ (269) $ 297
         
Net loss for the period - - 17 17
Other comprehensive earnings:        
  Foreign currency translation differences   for foreign operations - 2 - 2
 
Balance - end of period, June 25, 2011 $ 564 $ 4 $ (252) $ 316
         

Nine months ended June 23, 2012 and June 25, 2011
(unaudited) (in millions of Canadian dollars)
         
        June 23, 2012
  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 - - (35) (35)
Other comprehensive loss:        
  Foreign currency translation differences   for foreign operations - (10) - (10)
 
Balance - end of period, June 23, 2012 $ 564 $ (8) $ (368) $ 188
         
         
        June 25, 2011
  Share
capital
Translation
of foreign
operations
Deficit Shareholders'
equity
Balance - beginning of year, September 26, 2010 $ 564 $ - $ (264) $ 300
         
Net loss for the period - - 12 12
Other comprehensive earnings:        
  Foreign currency translation differences   for foreign operations - 4 - 4
 
Balance - end of period, June 25, 2011 $ 564 $ 4 $ (252) $ 316

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 23, 2012 and June 25, 2011
(unaudited) (in millions of Canadian dollars)
         
             Quarters             Nine months
  2012 2011 2012 2011
Cash flows from operating activities:        
  Net earnings (loss) $ (5) $ 17 $ (35) $ 12
  Adjustments for:        
    Depreciation and amortization 11 12 33 36
    Net finance costs (note 15) 15 5 27 18
    Income tax expense (note 16) 4 6 17 12
    Income tax paid (3) - (13) -
    Excess cash contributions over employee future benefits expense (6) (5) (23) (15)
    Other - (8) (4) (12)
  16 27 2 51
Changes in non-cash working capital:        
  Trade and other receivables (1) 3 (21) 14
  Inventories 20 43 (49) (11)
  Prepaid expenses (1) 1 (4) (1)
  Trade, other payables and accrued charges (15) (16) (17) (15)
  3 31 (91) (13)
  19 58 (89) 38
Cash flows from investing activities:        
  Additions to property, plant and equipment (24) (14) (75) (29)
  Proceeds from sale of net assets (note 14) 1 17 84 17
  Other 3 (2) 6 -
  (20) 1 15 (12)
Cash flows from financing activities:        
  Change in operating bank loans (1) - 62 1
  Cash held in trust 6 - 4 -
  Increase in long-term debt - 4 55 5
  Repayments of long-term debt (6) (4) (9) (7)
  Interest paid (18) (15) (33) (24)
  Other 1 (1) - (3)
  (18) (16) 79 (28)
  (19) 43 5 (2)
 
Foreign exchange loss on cash and cash equivalents held in foreign currencies (1) - (4) -
Net increase (decrease) in cash and cash equivalents (20) 43 1 (2)
 
Cash and cash equivalents, beginning of period 120 23 99 68
Cash and cash equivalents, end of period $ 100 $ 66 $ 100 $ 66

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 (adjusted EBITDA). This measure is included in the internal reports that are reviewed by senior management. Segment adjusted 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.

Quarters ended June 23, 2012 and June 25, 2011
(unaudited) (in millions of Canadian dollars)
     
       
      June 23, 2012
  Forest
Products
Specialty
Cellulose
& Chemical
Pulp
High-
Yield
Pulp
Paper Corporate Consolidation
adjustments
Consolidated
Sales:              
  External $ 72 $ 164 $ 93 $ 86 $  - $ - $ 415
  Internal 14 3 8 - 4 (29) -
  86 167 101 86 4 (29) 415
Freight and other deductions 8 19 21 11 - - 59
Lumber export taxes 1 - - - - - 1
Cost of sales 76 124 73 63 4 (29) 311
Selling, general and administrative 3 6 2 3 4 - 18
Share-based compensation - - - - (1) - (1)
Earnings (loss) before the following (adjusted EBITDA): (2) 18 5 9 (3) - 27
  Depreciation and amortization 2 5 4 - - - 11
  Other items - - - - 2 - 2
Operating earnings (loss) $ (4) $ 13 $ 1 $ 9 $ (5) $ - $ 14
Additions to property, plant   and equipment $ - $ 21 $ 1 $ 1 $ 1 $ - $ 24
Total assets $ 209 $ 518 $ 210 $ 120 $ 32 $ - $ 1,089
               
               
      June 25, 2011
  Forest
Products
Specialty
Cellulose
& Chemical
Pulp
High-
Yield
Pulp
Paper Corporate Consolidation
adjustments
Consolidated
Sales:              
  External $ 91 $ 186 $ 86 $ 85 $ - $ - $ 448
  Internal 22 2 7 2 (33) -
  113 188 93 85 2 (33) 448
Freight and other deductions 12 17 20 12 - - 61
Lumber export taxes 3 - - - - - 3
Cost of sales 111 119 76 60 2 (33) 335
Selling, general and administrative 4 6 1 3 4 - 18
Share-based compensation - - - (2) - (2)
Earnings (loss) before  the following (adjusted EBITDA): (17) 46 (4) 10 (2) - 33
  Depreciation and amortization 4 5 3 - - - 12
  Other items - - - - (7) - (7)
Operating earnings (loss) $ (21) $ 41 $ (7) $ 10 $ 5 $ - $ 28
Additions to property, plant   and equipment $ 3 $ 10 $ 1 $  -  $ - $ - $ 14
Total assets $ 259 $ 451 $ 185 $ 129 $ 42 $ - $ 1,066
               
       
Nine months ended June 23, 2012 and June 25, 2011
(unaudited) (in millions of Canadian dollars)
     
       
      June 23, 2012
  Forest
Products
Specialty
Cellulose
& Chemical
Pulp
High-
Yield
Pulp
Paper Corporate Consolidation
adjustments
Consolidated
Sales:              
  External $ 258 $ 485 $ 230 $ 250 $ - $ - $ 1,223
  Internal 66 10 22 - 8 (106) -
  324 495 252 250 8 (106) 1,223
Freight and other deductions 32 50 54 33 - - 169
Lumber export taxes 6 - - - - - 6
Cost of sales 299 354 213 185 8 (106) 953
Selling, general and administrative 11 15 5 9 14 - 54
Share-based compensation - - - - - - -
Earnings (loss) before the following (adjusted EBITDA): (24) 76 (20) 23 (14) - 41
  Depreciation and amortization 8 14 10 1 - - 33
  Other items (22) - - - 21 - (1)
Operating earnings (loss) $ (10) $ 62 $ (30) $ 22 $ (35) $ - $ 9
Additions to property, plant and equipment $ 8 $ 55 $ 6 $ 5 $ 1 $ - $ 75
Total assets $ 209 $ 518 $ 210 $ 120 $ 32 $ - $ 1,089
               
               
      June 25, 2011
  Forest
Products
Specialty
Cellulose
& Chemical
Pulp
High-
Yield
Pulp
Paper Corporate Consolidation
adjustments
Consolidated
Sales:              
  External $ 279 $ 507 $ 281 $ 255 $ - $ - $ 1,322
  Internal 71 6 21 5 (103)
  350 513 302 255 5 (103) 1,322
Freight and other deductions 35 49 62 34 - - 180
Lumber export taxes 10 - - - - - 10
Cost of sales 329 336 233 190 5 (103) 990
Selling, general and administrative 13 18 2 8 14 - 55
Share-based compensation - - - - 8 - 8
Earnings (loss) before the following (adjusted EBITDA): (37) 110 5 23 (22) - 79
  Depreciation and amortization 12 14 8 2 - 36
  Other items 3 - - - (2) - 1
Operating earnings (loss) $ (52) $ 96 $ (3) $ 21 $ (20) $ - $ 42
Additions to property, plant and equipment $ 6 $ 19 $ 2 $ 2 $ -  $ - $ 29
Total assets $ 259 $ 451 $ 185 $ 129 $ 42 $ - $ 1,066

 

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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TEMBEC

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