Tembec reports financial results for its second fiscal quarter ended March 26, 2016

MONTREAL, May 3, 2016 /CNW Telbec/ - Consolidated sales for the three-month period ended March 26, 2016, were $380 million, as compared to $348 million in the same quarter a year ago. The Company generated net earnings of $27 million or $0.27 per share in the March 2016 quarter compared to a net loss of $40 million or $0.40 per share in the March 2015 quarter. The current quarter results include a non-cash gain of $27 million related to the translation of US dollar denominated debt. The comparable quarter of the prior year included a non-cash loss of $37 million related to the translation of US dollar denominated debt. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $36 million for the three-month period ended March 26, 2016, as compared to adjusted EBITDA of $12 million a year ago and adjusted EBITDA of $29 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $17 million on sales of $120 million for the quarter ended March 26, 2016, compared to adjusted EBITDA of $19 million on sales of $109 million in the December 2015 quarter. The pulp sales increase of $12 million was due to higher shipments of specialty and viscose grades. Canadian dollar selling prices for specialty grades declined by $39 per tonne. The benefit of a weaker Canadian dollar for the Temiscaming mill was more than offset by a weaker sales mix, which reduced average US dollar selling prices and led to a $2 million decline in adjusted EBITDA. The $52 per tonne increase in the selling price of viscose and other grades was due to higher US dollar selling prices and the weaker Canadian dollar. Overall, the higher viscose grade prices increased adjusted EBITDA by $2 million. Shipments were equal to 94% of capacity, compared to 80% in the December 2015 quarter. There was no major maintenance downtime at either pulp mill in the December 2015 or March 2016 quarters. Costs increased by $3 million quarter-over-quarter, including a $2 million negative variance on net realizable value adjustments related to the carrying values of non-specialty grade finished goods inventories. Chemical business adjusted EBITDA increased by $1 million versus the prior quarter.

The Forest Products segment generated adjusted EBITDA of $1 million on sales of $108 million for the quarter ended March 26, 2016, compared to negative adjusted EBITDA of $1 million on sales of $110 million in the prior quarter. Sales decreased by $2 million due to lower SPF lumber shipments, partially offset by higher lumber prices and by-product shipments. During the March 2016 quarter, the random length lumber reference price increased by US $2 per mbf while the reference price for stud lumber decreased by US $5 per mbf. Currency was a favourable factor as the Canadian dollar averaged US $0.727, a 2.9% decline from US $0.749 in the prior quarter. The net effect was that Canadian dollar selling prices increased by $19 per mbf, increasing adjusted EBITDA by $3 million. Lumber shipments were equal to 81% of capacity versus 92% in the prior quarter. In response to relatively low stud lumber prices, the Company idled the Senneterre, Quebec, sawmill in early February 2016, removing approximately 14 million board feet of production in the March 2016 quarter. Sawmill manufacturing costs increased by $1 million. The fall and winter months are normally higher operating cost periods.

The Paper Pulp segment generated adjusted EBITDA of $2 million on sales of $77 million for the quarter ended March 26, 2016, compared to negative adjusted EBITDA of $2 million on sales of $68 million in the December 2015 quarter. The $9 million increase in sales was due to higher shipments. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) decreased by US $94 per tonne. The high-yield paper pulp market followed a similar pattern, but the decline was less pronounced as pricing was already relatively low. Average US dollar prices for high-yield pulp declined by US $16 per tonne quarter-over-quarter. Currency was favourable as the Canadian dollar declined versus the US dollar. Overall, average selling prices in Canadian dollars were relatively unchanged and did not impact adjusted EBITDA. Pulp shipments were equal to 92% of capacity as compared to 83% in the prior quarter. In the March 2016 quarter, the two pulp mills produced 24,500 more tonnes as compared to the prior quarter. In response to weak market conditions, the Temiscaming mill was idled for a total of 33 days in the December 2015 quarter as compared to only eight days in the March 2016 quarter. The Matane mill also lost five days due to scheduled major maintenance in the December 2015 quarter. The higher production generated a $4 million favourable cost variance related to the absorption of fixed manufacturing costs.

The Paper segment generated adjusted EBITDA of $21 million on sales of $102 million for the quarter ended March 26, 2016, compared to adjusted EBITDA of $16 million on sales of $94 million in the December 2015 quarter. The increase in sales was due to higher shipments of coated bleached board and higher selling prices for both coated bleached board and newsprint. The US dollar reference price for coated bleached board was unchanged at US $1,180 per short ton. Currency was a positive factor due to the previously noted Canadian dollar decline. Overall, average selling prices for coated bleached board were up $59 per tonne increasing adjusted EBITDA by $2 million. The coated bleached board shipment to capacity ratio was 99% compared to 90% in the prior quarter. Manufacturing costs were relatively unchanged. The US dollar benchmark price for newsprint increased by US $33 per tonne. The weaker Canadian dollar favourably impacted price realizations, which improved by $41 per tonne, increasing adjusted EBITDA by $2 million. The newsprint shipment to capacity ratio was 91% compared to 98% in the prior quarter. Manufacturing costs at the Kapuskasing newsprint mill declined by $1 million due to higher productivity and lower energy costs.

Outlook

Overall, the March 2016 quarterly results were better than anticipated. All business segments benefited from the 3% decline in the relative value of the Canadian dollar versus the US dollar. The $2 million decline in Specialty Cellulose segment adjusted EBITDA was expected as the Company shipped a lower mix of specialty pulp as well as a higher percentage of viscose grade. This situation will likely continue for at least several quarters. The Temiscaming specialty cellulose pulp mill will be down for its annual maintenance outage in May, which will reduce June 2016 quarterly profitability by approximately $6 million. The expected seasonal improvement in US dollar lumber prices has been muted to date, resulting in low profitability for the Forest Products segment. The lumber market remains difficult to assess, but relatively balanced inventory levels combined with some improvement in demand should lead to higher prices. The $4 million improvement in the Paper Pulp segment results was due to less market downtime and higher productivity at the Temiscaming mill. Hardwood paper pulp markets continue to be soft, as evidenced by the recent price decline in the benchmark BEK grade. This market will remain challenging. The Paper segment adjusted EBITDA increased by $5 million. In addition to the currency benefit, quarterly results benefited from the first US dollar newsprint price increase in several years. This segment should continue to perform well, albeit with a decrease in margins due to the recent strengthening of the Canadian dollar versus the US dollar. While the Company expects a significant improvement in year-over-year operating results, the extent of the increase will be impacted by external factors such as the US dollar price for certain products as well as foreign exchange rates.

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 3,250 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 March 26, 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)



Mar. 26
2016

Sept. 26,
2015

ASSETS



Current assets:




Cash and cash equivalents

$ 36

$ 21


Restricted cash

7

2


Trade and other receivables

143

161


Income tax receivable

2

5


Inventories (note 3)

335

287


Prepaid expenses

10

9


Assets classified as held for sale

2

-


535

485

Property, plant and equipment (note 4)

644

652

Biological assets

2

2

Employee future benefits

22

29

Other long-term receivables

2

4

Deferred tax assets

3

4


$ 1,208

$ 1,176

LIABILITIES AND SHAREHOLDERS' EQUITY



Current liabilities:




Operating bank loans (note 5)

$ 77

$ 114


Trade, other payables and accrued charges

189

188


Interest payable

14

13


Provisions

4

4


Current portion of long-term debt (note 6)

16

11


300

330

Long-term debt (note 6)

685

613

Provisions

12

12

Employee future benefits

165

149

Other long-term liabilities

1

1


1,163

1,105

Shareholders' equity:




Share capital (note 7)

568

568


Deficit

(538)

(513)


Accumulated other comprehensive earnings

15

16


45

71


$ 1,208

$ 1,176


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

TEMBEC INC.

CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS)


Quarters and six months ended March 26, 2016 and March 28, 2015

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



Quarters

Six months


2016

2015

2016

2015

Sales

$ 380

$ 348

$ 734

$ 680

Freight and other deductions

49

46

96

88

Cost of sales (excluding depreciation and amortization)

279

274

543

530

Selling, general and administrative

16

15

31

30

Share-based compensation

-

1

(1)

-

Depreciation and amortization

13

10

25

19

Other items (note 8)

-

(8)

1

(5)

Operating earnings

23

10

39

18






Interest, foreign exchange and other

22

10

39

22

Loss on refinancing of long-term debt

-

-

-

37

Foreign exchange loss (gain) on long-term debt

(27)

37

(3)

54

Net finance costs (income) (note 9)

(5)

47

36

113

Earnings (loss) before income taxes

28

(37)

3

(95)






Income tax expense (note 10)

1

3

4

7

Net earnings (loss)

$ 27

$ (40)

$ (1)

$ (102)

Basic and diluted net earnings (loss) in dollars per share (note 7)

$ 0.27

$ (0.40)

$ (0.01)

$ (1.02)

TEMBEC INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)


Quarters and six months ended March 26, 2016 and March 28, 2015

(unaudited) (in millions of Canadian dollars)



Quarters

Six months


2016

2015

2016

2015

Net earnings (loss)

$ 27

$ (40)

$ (1)

$ (102)

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)

(33)

5

(24)

(14)



Income tax

-

-

-

-


(33)

5

(24)

(14)


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







Foreign currency translation differences for foreign operations

(4)

(8)

(1)

(8)

Other comprehensive loss

(37)

(3)

(25)

(22)

Total comprehensive loss

$ (10)

$ (43)

$ (26)

$ (124)


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

TEMBEC INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


Quarters ended March 26, 2016 and March 28, 2015 

(unaudited) (in millions of Canadian dollars)



Quarter ended March 26, 2016


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity

Balance - beginning of period

$ 568

$ 19

$ (532)

$ 55

Net earnings for the period

-

-

27

27

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






Defined benefit pension plans and other benefit plans (note 11)

-

-

(33)

(33)


Foreign currency translation differences for foreign operations

-

(4)

-

(4)

Balance - end of period

$ 568

$ 15

$ (538)

$ 45












Quarter ended March 28, 2015


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity

Balance - beginning of period

$ 568

$ 9

$ (439)

$ 138

Net loss for the period

-

-

(40)

(40)

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






Defined benefit pension plans and other benefit plans (note 11)

-

-

5

5


Foreign currency translation differences for foreign operations

-

(8)

-

(8)

Balance - end of period

$ 568

$ 1

$ (474)

$ 95


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

TEMBEC INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


Six months ended March 26, 2016 and March 28, 2015 

(unaudited) (in millions of Canadian dollars)



Six months ended March 26, 2016


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity

Balance - beginning of year

$ 568

$ 16

$ (513)

$ 71

Net loss for the period

-

-

(1)

(1)

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






Defined benefit pension plans and other benefit plans (note 11)

-

-

(24)

(24)


Foreign currency translation differences for foreign operations

-

(1)

-

(1)

Balance - end of period

$ 568

$ 15

$ (538)

$ 45














Six months ended March 28, 2015


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity

Balance - beginning of year

$ 568

$ 9

$ (358)

$ 219

Net loss for the period

-

-

(102)

(102)

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






Defined benefit pension plans and other benefit plans (note 11)

-

-

(14)

(14)


Foreign currency translation differences for foreign operations

-

(8)

-

(8)

Balance - end of period

$ 568

$ 1

$ (474)

$ 95


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

TEMBEC INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


Quarters and six months ended March 26, 2016 and March 28, 2015

(unaudited) (in millions of Canadian dollars)



Quarters

Six months


2016

2015

2016

2015

Cash flows from operating activities:






Net earnings (loss)

$ 27

$ (40)

$ (1)

$ (102)


Adjustments for:







Depreciation and amortization

13

10

25

19



Net finance costs (income) (note 9)

(5)

47

36

113



Income tax expense (note 10)

1

3

4

7



Income tax refund (paid)

2

(3)

-

(7)



Excess cash contributions over employee future benefits expense

(1)

(3)

(2)

(4)



Share-based compensation

-

1

(1)

-



Gain on settlement of a non-recourse debt (note 8)

-

(9)

-

(9)



Impairment loss (note 8)

-

-

-

3



Gain on sale of assets (note 8)

-

-

-

(1)



Other

(2)

4

(4)

4




35

10

57

23

Changes in non-cash working capital:






Trade and other receivables

4

-

16

17


Inventories

(43)

(57)

(47)

(74)


Prepaid expenses

(1)

(2)

(1)

(1)


Trade, other payables and accrued charges

8

25

3

24




(32)

(34)

(29)

(34)




3

(24)

28

(11)

Cash flows from investing activities:






Disbursements for property, plant and equipment

(7)

(8)

(18)

(42)


Proceeds from sale of net assets (note 8)

-

-

-

2


Change in restricted cash

4

-

(4)

(2)


Other long-term receivables

-

4

-

4




(3)

(4)

(22)

(38)

Cash flows from financing activities:






Repayment of asset-based loan (note 5)

-

-

(105)

-


Proceeds from new asset-based loan (note 5)

-

-

61

-


Change in operating bank loans

8

21

6

10


Increase in long-term debt (note 6)

2

5

80

419


Repayments of long-term debt (note 6)

(2)

(2)

(3)

(344)


Debt prepayment penalty

-

-

-

(27)


Interest paid

(5)

(2)

(30)

(24)


Other

-

1

-

1




3

23

9

35




3

(5)

15

(14)

Foreign exchange gain on cash and cash equivalents





held in foreign currencies

-

-

-

-

Net increase (decrease) in cash and cash equivalents

3

(5)

15

(14)






Cash and cash equivalents, beginning of period

33

30

21

39

Cash and cash equivalents, end of period

$ 36

$ 25

$ 36

$ 25








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

TEMBEC INC.

BUSINESS SEGMENT INFORMATION


Quarters ended March 26, 2016 and March 28, 2015

(unaudited) (in millions of Canadian dollars)



Quarter ended March 26, 2016


Forest
Products

Specialty
Cellulose
Pulp

Paper
Pulp

Paper

Corporate

Consolidation
adjustments

Consolidated

Sales:









External

$ 90

$ 119

$ 69

$ 102

$  -

$  -

$ 380


Internal

18

1

8

-

1

(28)

-


108

120

77

102

1

(28)

380

Freight and other deductions

10

11

16

12

-

-

49

Cost of sales

94

88

58

66

1

(28)

279

Selling, general and administrative

3

4

1

3

5

-

16

Share-based compensation

-

-

-

-

-

-

-

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

1

17

2

21

(5)

-

36


Depreciation and amortization

2

7

3

1

-

-

13


Other items (note 8)

-

-

-

-

-

-

-

Operating earnings (loss)

$ (1)

$ 10

$ (1)

$ 20

$ (5)

$  -

$ 23

Additions to property, plant and equipment

$ 1

$ 4

$ 1

$ 1

$  -

$  -

$ 7

Total assets

$ 196

$ 688

$ 140

$ 172

$ 12

$  -

$ 1,208

Total liabilities

$ 56

$ 255

$ 30

$ 81

$ 741

$  -

$ 1,163
























Quarter ended March 28, 2015


Forest
Products

Specialty
Cellulose
Pulp

Paper
Pulp

Paper

Corporate

Consolidation
adjustments

Consolidated

Sales:









External

$ 94

$ 105

$ 65

$ 84

$  -

$  -

$ 348


Internal

19

-

8

-

2

(29)

-


113

105

73

84

2

(29)

348

Freight and other deductions

10

11

15

10

-

-

46

Cost of sales

97

87

54

63

2

(29)

274

Selling, general and administrative

2

4

1

3

5

-

15

Share-based compensation

-

-

-

-

1

-

1

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

4

3

3

8

(6)

-

12


Depreciation and amortization

2

5

2

1

-

-

10


Other items (note 8)

-

-

-

-

(8)

-

(8)

Operating earnings (loss)

$ 2

$ (2)

$ 1

$ 7

$ 2

$  -

$ 10

Additions to property, plant and equipment

$ 1

$ 6

$ 2

$ 1

$  -

$  -

$ 10

Total assets

$ 191

$ 669

$ 152

$ 155

$ 31

$  -

$ 1,198

Total liabilities

$ 66

$ 265

$ 38

$ 87

$ 647

$  -

$ 1,103

TEMBEC INC.

BUSINESS SEGMENT INFORMATION


Six months ended March 26, 2016 and March 28, 2015

(unaudited) (in millions of Canadian dollars)



Six months ended March 26, 2016


Forest
Products

Specialty
Cellulose
Pulp

Paper
Pulp

Paper

Corporate

Consolidation
adjustments

Consolidated

Sales:









External

$ 183

$ 227

$ 128

$ 196

$  -

$  -

$ 734


Internal

35

2

17

-

2

(56)

-


218

229

145

196

2

(56)

734

Freight and other deductions

22

21

30

23

-

-

96

Cost of sales

190

163

113

131

2

(56)

543

Selling, general and administrative

6

9

2

5

9

-

31

Share-based compensation

-

-

-

-

(1)

-

(1)

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

-

36

-

37

(8)

-

65


Depreciation and amortization

3

14

6

2

-

-

25


Other items (note 8)

-

-

-

-

1

-

1

Operating earnings (loss)

$ (3)

$ 22

$ (6)

$ 35

$ (9)

$  -

$ 39

Additions to property, plant and equipment

$ 3

$ 9

$ 3

$ 2

$  -

$  -

$ 17

Total assets

$ 196

$ 688

$ 140

$ 172

$ 12

$  -

$ 1,208

Total liabilities

$ 56

$ 255

$ 30

$ 81

$ 741

$  -

$ 1,163
























Six months ended March 28, 2015


Forest
Products

Specialty
Cellulose
Pulp

Paper
Pulp

Paper

Corporate

Consolidation
adjustments

Consolidated

Sales:









External

$ 196

$ 207

$ 117

$ 160

$  -

$  -

$ 680


Internal

32

-

15

-

5

(52)

-


228

207

132

160

5

(52)

680

Freight and other deductions

21

21

26

20

-

-

88

Cost of sales

191

166

101

119

5

(52)

530

Selling, general and administrative

5

8

2

5

10

-

30

Share-based compensation

-

-

-

-

-

-

-

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

11

12

3

16

(10)

-

32


Depreciation and amortization

3

9

5

2

-

-

19


Other items (note 8)

-

-

-

-

(5)

-

(5)

Operating earnings (loss)

$ 8

$ 3

$ (2)

$ 14

$ (5)

$  -

$ 18

Additions to property, plant and equipment

$ 6

$ 24

$ 3

$ 2

$  -

$  -

$ 35

Total assets

$ 191

$ 669

$ 152

$ 155

$ 31

$  -

$ 1,198

Total liabilities

$ 66

$ 265

$ 38

$ 87

$ 647

$  -

$ 1,103

 

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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