Tembec reports financial results for its fourth fiscal quarter ended September 24, 2016

MONTREAL, Nov. 17, 2016 /CNW Telbec/ - Consolidated sales for the three-month period ended September 24, 2016, were $389 million, as compared to $373 million in the same quarter a year ago. The Company generated net earnings of $12 million or $0.12 per share in the September 2016 quarter compared to a net loss of $32 million or $0.32 per share in the September 2015 quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $57 million for the three-month period ended September 24, 2016, as compared to adjusted EBITDA of $36 million a year ago and adjusted EBITDA of $26 million in the prior quarter.

For the fiscal year ended September 24, 2016, consolidated sales were $1.5 billion as compared to $1.4 billion in the prior year. The Company generated net earnings of $20 million or $0.20 per share compared to a net loss of $150 million or $1.50 per share in fiscal 2015. The prior year loss included a non-cash loss of $81 million related to the translation of US dollar denominated debt. Adjusted EBITDA was $148 million compared to $70 million in the prior year. Operating earnings increased from $31 million to $99 million.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $23 million on sales of $122 million for the quarter ended September 24, 2016, compared to adjusted EBITDA of $10 million on sales of $111 million in the June 2016 quarter. The pulp sales increased by $12 million due to higher shipments and prices. Canadian dollar selling prices for specialty grades improved by $30 per tonne. The increase was currency and mix driven as US dollar and euro prices for specialty pulp were relatively unchanged quarter-over-quarter. The higher effective Canadian dollar prices increased adjusted EBITDA by $1 million. The selling price of viscose and other grades increased by $51 per tonne due to higher US dollar selling prices and a weaker Canadian dollar, which declined by 1.2% versus the prior quarter. The higher viscose grade prices increased adjusted EBITDA by $1 million. Shipments were equal to 94% of capacity, compared to 85% in the June 2016 quarter. During the June 2016 quarter, the Temiscaming specialty cellulose pulp mill was idled for six days as part of its annual major maintenance outage. There were no major maintenance outages in the September 2016 quarter and the two pulp mills produced 8,800 more tonnes. Manufacturing costs declined by $9 million including $5 million of fixed cost absorption associated with the aforementioned productivity improvement. The higher pulp shipments combined with a higher percentage of specialty grades generated a favourable $2 million variance. Chemical business adjusted EBITDA was relatively unchanged.

The Forest Products segment generated adjusted EBITDA of $12 million on sales of $113 million for the quarter ended September 24, 2016, compared to adjusted EBITDA of $4 million on sales of $102 million in the prior quarter. SPF lumber sales increased by $4 million due to higher prices. Sales of logs increased by $5 million due to the seasonal increase in activity in the summer months. During the September 2016 quarter, the random length lumber reference price increased by US $20 per mbf (thousand board feet) while the reference price for stud lumber increased by US $30 per mbf. Currency was a positive factor as the Canadian dollar weakened. The net effect was that Canadian dollar selling prices increased by $20 per mbf, increasing adjusted EBITDA by $4 million. Lumber shipments were equal to 82% of capacity, unchanged from the prior quarter. In response to relatively low stud lumber prices, the Company idled the Senneterre, Quebec, sawmill in early February 2016, removing approximately 20 million board feet in the June 2016 quarter. The Senneterre sawmill operated on its normal two-shift basis in the September 2016 quarter. The delivered cash cost of SPF lumber declined by $22 per mbf. The summer months are normally lower cost operating periods.

The Paper Pulp segment generated adjusted EBITDA of $8 million on sales of $83 million for the quarter ended September 24, 2016, compared to adjusted EBITDA of $1 million on sales of $86 million in the June 2016 quarter. The $3 million decrease in sales was due to lower shipments, partially offset by higher selling prices. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) decreased by US $17 per tonne. However, US dollar prices for high-yield pulp actually increased by US $18 per tonne, allowing it to close the significant discount gap that had occurred over the last several quarters. Average selling prices for external sales in Canadian dollars increased by $29 per tonne, increasing adjusted EBITDA by $4 million. Pulp shipments were equal to 98% of capacity as compared to 107% in the prior quarter. Mill level costs declined by $3 million.

The Paper segment generated adjusted EBITDA of $19 million on sales of $97 million for the quarter ended September 24, 2016, compared to adjusted EBITDA of $16 million on sales of $99 million in the June 2016 quarter. The $2 million decrease in sales was due to lower newsprint shipments, partially offset by higher prices for coated bleached board and newsprint. The US dollar reference price for coated bleached board was unchanged quarter-over-quarter. The weaker Canadian dollar was a positive factor. Overall, average selling prices for coated bleached board were up $7 per tonne increasing adjusted EBITDA by $1 million. The coated bleached board shipment to capacity ratio was 107% compared to 105% in the prior quarter. Manufacturing costs were relatively unchanged. The US dollar benchmark price for newsprint increased by US $25 per tonne. The previously noted decline in the relative value of the Canadian dollar also favourably impacted price realizations which increased by $29 per tonne, increasing adjusted EBITDA by $1 million. The newsprint shipment to capacity ratio was 78% compared to 94% in the prior quarter. The Kapuskasing newsprint mill incurred nine days of downtime as part of an electrical load shedding program that reduces its average annual cost of purchased electricity. Despite producing 4,200 less tonnes, mill costs remained relatively unchanged quarter-over-quarter.

Subsequent Event

On October 31, 2016, the Company completed the previously announced sale of the Senneterre, Quebec, sawmill and related forestry assets. The sale also included certain working capital items. The Company received proceeds of $9 million on closing, subject to normal post-closing working capital adjustments. The transaction will not give rise to a gain or a loss on disposition. During the 12-month period ended September 2016, the sawmill had sold 61 million board feet of stud lumber, generating sales of $24 million. Chip and by-product sales added a further $7 million. The sawmill generated negative adjusted EBITDA of $5 million.

Outlook

Overall, the September 2016 quarterly results were better than anticipated. The absence of major maintenance combined with an approximate 1% decrease in the value of the Canadian dollar versus the US dollar led to improvement in operating results in all business segments. The $13 million increase in Specialty Cellulose segment adjusted EBITDA was expected due to the absence of any planned major maintenance at the two specialty pulp mills. The Temiscaming mill had been idled for six days in the June 2016 quarter to carry out annual planned major maintenance. While US dollar and euro specialty cellulose prices were stable, exchange rates led to higher effective Canadian dollar selling prices. Prices for viscose grades increased during the quarter and this trend is expected to continue into the December quarter. The December 2016 quarterly results will be impacted by a two-week major maintenance outage at the Tartas specialty pulp mill. The pulp mill takes these outages at 18-month intervals. Lumber markets showed some "late season" strength and continue to do so at time of writing. Although normal seasonal weakness is anticipated in the coming quarter, the lumber market fundamentals should continue to gradually improve over time. The $7 million increase in the Paper Pulp adjusted EBITDA was caused by higher prices and reduced costs. Hardwood paper pulp markets continue to be soft, as evidenced by the price decline in the benchmark BEK grade. This market will remain challenging. The Paper segment adjusted EBITDA increased by $3 million, with the weaker Canadian dollar being the primary driver. US dollar prices for newsprint also improved quarter-over-quarter. This segment should continue to perform well. With trailing twelve-month adjusted EBITDA having reached $148 million, the Company has been able to demonstrate the positive impact on margins generated by the Temiscaming Cogen project as well as year-over-year cost reductions in all business segments. The Company will continue to focus on cost and working capital reductions with a goal of further improving operating results and reducing the Company's overall level of indebtedness.

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 September 24, 2016, 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)



Sept. 24,
2016

Sept. 26,
2015

ASSETS



Current assets:




Cash and cash equivalents

$ 44

$ 21


Restricted cash

2

2


Trade and other receivables

153

161


Income tax receivable

-

5


Inventories (note 3)

273

287


Prepaid expenses

9

9


Assets classified as held for sale (note 4)

10

-


491

485




Property, plant and equipment (note 5)

639

652

Biological assets

3

2

Employee future benefits

23

29

Other long-term receivables

2

4

Deferred tax assets

2

4


$ 1,160

$ 1,176




LIABILITIES AND SHAREHOLDERS' EQUITY



Current liabilities:




Operating bank loans (note 6)

$ 7

$ 114


Trade, other payables and accrued charges

193

188


Interest payable

13

13


Provisions

4

4


Current portion of long-term debt (note 7)

22

11


Liabilities classified as held for sale (note 4)

1

-


240

330




Long-term debt (note 7)

679

613

Provisions

12

12

Employee future benefits

169

149

Other long-term liabilities

1

1


1,101

1,105

Shareholders' equity:




Share capital (note 8)

568

568


Accumulated other comprehensive earnings

15

16


Deficit

(524)

(513)


59

71


$ 1,160

$ 1,176

 

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 years ended September 24, 2016 and September 26, 2015

(unaudited) (in millions of Canadian dollars, unless otherwise noted)



Quarters

Years


2016

2015

2016

2015

Sales

$ 389

$ 373

$ 1,499

$ 1,418

Freight and other deductions

48

49

193

188

Lumber export taxes

-

1

-

2

Cost of sales (excluding depreciation and amortization)

270

273

1,097

1,102

Selling, general and administrative

15

15

62

59

Share-based compensation

(1)

(1)

(1)

(3)

Depreciation and amortization

15

12

53

43

Other items (note 9)

-

-

(4)

(4)

Operating earnings

42

24

99

31






Interest, foreign exchange and other

18

15

75

54

Loss on refinancing of long-term debt

-

-

-

37

Foreign exchange loss (gain) on long-term debt

8

38

(6)

81

Net finance costs (note 10)

26

53

69

172

Earnings (loss) before income taxes

16

(29)

30

(141)






Income tax expense (note 11)

4

3

10

9

Net earnings (loss)

$ 12

$ (32)

$ 20

$ (150)

Basic and diluted net earnings (loss) in dollars per share (note 8)

$ 0.12

$ (0.32)

$ 0.20

$ (1.50)

 


TEMBEC INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)


Quarters and years ended September 24, 2016 and September 26, 2015

(unaudited) (in millions of Canadian dollars)



Quarters

Years


2016

2015

2016

2015

Net earnings (loss)

$ 12

$ (32)

$ 20

$ (150)

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)

5

(12)

(31)

(5)



Income tax recovery

-

1

-

-


5

(11)

(31)

(5)


Item that may be reclassified to earnings (loss) in future periods:







Foreign currency translation differences for foreign operations

5

14

(1)

7

Other comprehensive earnings (loss)

10

3

(32)

2

Total comprehensive earnings (loss)

$ 22

$ (29)

$ (12)

$ (148)

 

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

 


TEMBEC INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


Quarters ended September 24, 2016 and September 26, 2015

(unaudited) (in millions of Canadian dollars)



Quarter ended September 24, 2016


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity

Balance - beginning of period

$ 568

$ 10

$ (541)

$ 37

Net earnings for the period

-

-

12

12

Other comprehensive earnings (loss), net of income taxes:






Defined benefit pension plans and other benefit plans (note 12)

-

-

5

5


Income tax expense

-

-

-

-


Foreign currency translation differences for foreign operations

-

5

-

5

Balance - end of period

$ 568

$ 15

$ (524)

$ 59







Quarter ended September 26, 2015


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity

Balance - beginning of period

$ 568

$ 2

$ (470)

$ 100

Net loss for the period

-

-

(32)

(32)

Other comprehensive earnings (loss), net of income taxes:






Defined benefit pension plans and other benefit plans (note 12)

-

-

(12)

(12)


Income tax recovery

-

-

1

1


Foreign currency translation differences for foreign operations

-

14

-

14

Balance - end of period

$ 568

$ 16

$ (513)

$ 71






Years ended September 24, 2016 and September 26, 2015

(unaudited) (in millions of Canadian dollars)



Year ended September 24, 2016


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity

Balance - beginning of year

$ 568

$ 16

$ (513)

$ 71

Net earnings for the year

-

-

20

20

Other comprehensive earnings (loss), net of income taxes:






Defined benefit pension plans and other benefit plans (note 12)

-

-

(31)

(31)


Income tax expense

-

-

-

-


Foreign currency translation differences for foreign operations

-

(1)

-

(1)

Balance - end of year

$ 568

$ 15

$ (524)

$ 59







Year ended September 26, 2015


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity

Balance - beginning of year

$ 568

$ 9

$ (358)

$ 219

Net loss for the year

-

-

(150)

(150)

Other comprehensive earnings (loss), net of income taxes:






Defined benefit pension plans and other benefit plans (note 12)

-

-

(5)

(5)


Income tax expense

-

-

-

-


Foreign currency translation differences for foreign operations

-

7

-

7

Balance - end of year

$ 568

$ 16

$ (513)

$ 71

 

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

 


TEMBEC INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


Quarters and years ended September 24, 2016 and September 26, 2015

(unaudited) (in millions of Canadian dollars)



Quarters

Years


2016

2015

2016

2015

Cash flows from operating activities:






Net earnings (loss)

$ 12

$ (32)

$ 20

$ (150)


Adjustments for:







Depreciation and amortization

15

12

53

43



Net finance costs (note 10)

26

53

69

172



Foreign exchange and bank charges

-

2

(4)

6



Income tax expense (note 11)

4

3

10

9



Income tax paid

(2)

(1)

(3)

(10)



Excess cash contributions over employee future benefits expense

(3)

(2)

(6)

(7)



Share-based compensation

(1)

(1)

(1)

(3)



Settlement on sale of pulp mills (note 9)

-

-

(5)

-



Gain on sale of assets (note 9)

-

-

(1)

(1)



Gain on settlement of a pension plan (note 9)

(1)

-

(1)

-



Gain on settlement of a non-recourse debt (note 9)

-

-

-

(9)



Impairment loss - Temlam loan receivable (note 9)

-

-

-

3



Other

(2)

-

(5)

-


48

34

126

53






Changes in non-cash working capital:






Trade and other receivables

(13)

(13)

7

3


Inventories

9

(6)

12

(29)


Prepaid expenses

(2)

-

(1)

(2)


Trade, other payables and accrued charges

10

(13)

3

(5)


4

(32)

21

(33)


52

2

147

20






Cash flows from investing activities:






Disbursements for property, plant and equipment

(11)

(11)

(40)

(66)


Proceeds from sale of net assets (note 9)

-

1

7

3


Change in restricted cash

1

-

-

1


Other long-term receivables

-

-

-

4


(10)

(10)

(33)

(58)






Cash flows from financing activities:






Repayment of asset-based loan (note 6)

-

-

(105)

-


Proceeds from new asset-based loan (note 6)

-

-

61

-


Change in operating bank loans

(36)

17

(65)

27


Increase in long-term debt (note 7)

-

-

87

419


Repayments of long-term debt (note 7)

(3)

(2)

(8)

(349)


Debt prepayment penalty

-

-

-

(27)


Interest paid

(4)

(2)

(61)

(50)


(43)

13

(91)

20


(1)

5

23

(18)

Foreign exchange gain on cash and cash equivalents held in foreign currencies

1

-

-

-

Net increase (decrease) in cash and cash equivalents

-

5

23

(18)






Cash and cash equivalents, beginning of period

44

16

21

39

Cash and cash equivalents, end of period

$ 44

$ 21

$ 44

$ 21

 

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

 


TEMBEC INC.

BUSINESS SEGMENT INFORMATION


Quarters ended September 24, 2016 and September 26, 2015

(unaudited) (in millions of Canadian dollars)



Quarter ended September 24, 2016


Forest
Products

Specialty
Cellulose
Pulp

Paper
Pulp

Paper

Corporate

Consolidation
adjustments

Consolidated

Sales:









External

$ 96

$ 121

$ 75

$ 97

$  -

$  -

$ 389


Internal

17

1

8

-

1

(27)

-


113

122

83

97

1

(27)

389

Freight and other deductions

10

12

16

10

-

-

48

Lumber export taxes

-

-

-

-

-

-

-

Cost of sales

88

84

58

66

1

(27)

270

Selling, general and administrative

3

3

1

2

6

-

15

Share-based compensation

-

-

-

-

(1)

-

(1)

Earnings (loss) before the following (adjusted EBITDA):

12

23

8

19

(5)

-

57


Depreciation and amortization

2

7

3

2

1

-

15


Other items (note 9)

-

-

-

-

-

-

-

Operating earnings (loss)

$ 10

$ 16

$ 5

$ 17

$ (6)

$  -

$ 42

Additions to property, plant and equipment

$ 6

$ 9

$ 1

$ 1

$  -

$  -

$ 17

Total assets

$ 173

$ 689

$ 131

$ 162

$ 5

$  -

$ 1,160

Total liabilities

$ 48

$ 265

$ 29

$ 82

$ 677

$  -

$ 1,101






Quarter ended September 26, 2015


Forest
Products

Specialty
Cellulose
Pulp

Paper
Pulp

Paper

Corporate

Consolidation
adjustments

Consolidated

Sales:









External

$ 91

$ 119

$ 72

$ 91

$  -

$  -

$ 373


Internal

16

2

8

-

1

(27)

-


107

121

80

91

1

(27)

373

Freight and other deductions

11

11

16

11

-

-

49

Lumber export taxes

1

-

-

-

-

-

1

Cost of sales

88

90

56

65

1

(27)

273

Selling, general and administrative

3

5

1

2

4

-

15

Share-based compensation

-

-

-

-

(1)

-

(1)

Earnings (loss) before the following (adjusted EBITDA):

4

15

7

13

(3)

-

36


Depreciation and amortization

-

7

3

1

1

-

12


Other items (note 9)

-

-

-

-

-

-

-

Operating earnings (loss)

$ 4

$ 8

$ 4

$ 12

$ (4)

$  -

$ 24

Additions to property, plant and equipment

$ 4

$ 6

$ 1

$  -

$  -

$  -

$ 11

Total assets

$ 159

$ 683

$ 147

$ 163

$ 24

$  -

$ 1,176

Total liabilities

$ 50

$ 260

$ 32

$ 77

$ 686

$  -

$ 1,105





Years ended September 24, 2016 and September 26, 2015

(unaudited) (in millions of Canadian dollars)






Year ended September 24, 2016


Forest
Products

Specialty
Cellulose
Pulp

Paper
Pulp

Paper

Corporate

Consolidation
adjustments

Consolidated

Sales:









External

$ 368

$ 457

$ 282

$ 392

$  -

$  -

$ 1,499


Internal

65

5

32

-

5

(107)

-


433

462

314

392

5

(107)

1,499

Freight and other deductions

42

43

64

44

-

-

193

Lumber export taxes

-

-

-

-

-

-

-

Cost of sales

363

333

236

267

5

(107)

1,097

Selling, general and administrative

12

17

5

9

19

-

62

Share-based compensation

-

-

-

-

(1)

-

(1)

Earnings (loss) before the following (adjusted EBITDA):

16

69

9

72

(18)

-

148


Depreciation and amortization

7

28

11

6

1

-

53


Other items (note 9)

-

-

-

-

(4)

-

(4)

Operating earnings (loss)

$ 9

$ 41

$ (2)

$ 66

$ (15)

$  -

$ 99

Additions to property, plant and equipment

$ 10

$ 24

$ 5

$ 5

$  -

$  -

$ 44

Total assets

$ 173

$ 689

$ 131

$ 162

$ 5

$  -

$ 1,160

Total liabilities

$ 48

$ 265

$ 29

$ 82

$ 677

$  -

$ 1,101






Year ended September 26, 2015


Forest
Products

Specialty
Cellulose
Pulp

Paper
Pulp

Paper

Corporate

Consolidation
adjustments

Consolidated

Sales:









External

$ 375

$ 434

$ 272

$ 337

$  -

$  -

$ 1,418


Internal

63

2

30

-

9

(104)

-


438

436

302

337

9

(104)

1,418

Freight and other deductions

43

43

60

42

-

-

188

Lumber export taxes

2

-

-

-

-

-

2

Cost of sales

370

355

225

247

9

(104)

1,102

Selling, general and administrative

11

17

4

10

17

-

59

Share-based compensation

-

-

-

-

(3)

-

(3)

Earnings (loss) before the following (adjusted EBITDA):

12

21

13

38

(14)

-

70


Depreciation and amortization

5

22

11

4

1

-

43


Other items (note 9)

-

-

-

-

(4)

-

(4)

Operating earnings (loss)

$ 7

$ (1)

$ 2

$ 34

$ (11)

$  -

$ 31

Additions to property, plant and equipment

$ 13

$ 35

$ 5

$ 4

$  -

$  -

$ 57

Total assets

$ 159

$ 683

$ 147

$ 163

$ 24

$  -

$ 1,176

Total liabilities

$ 50

$ 260

$ 32

$ 77

$ 686

$  -

$ 1,105

 

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, Human Resources and Corporate Affairs, Tel.: 416 775-2819, E-mail: linda.coates@tembec.com


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