Tembec reports financial results for its third fiscal quarter ended June 25, 2016

MONTREAL, July 28, 2016 /CNW Telbec/ - Consolidated sales for the three-month period ended June 25, 2016, were $376 million, as compared to $365 million in the same quarter a year ago. The Company generated net earnings of $9 million or $0.09 per share in the June 2016 quarter compared to a net loss of $16 million or $0.16 per share in the June 2015 quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $26 million for the three-month period ended June 25, 2016, as compared to adjusted EBITDA of $2 million a year ago and adjusted EBITDA of $36 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $10 million on sales of $111 million for the quarter ended June 25, 2016, compared to adjusted EBITDA of $17 million on sales of $120 million in the March 2016 quarter. The pulp sales decrease of $10 million was due to lower prices and lower shipments of viscose and other grades of pulp. Canadian dollar selling prices for specialty grades declined by $49 per tonne. The decrease was currency driven as US dollar and euro prices for specialty pulp were relatively unchanged quarter-over-quarter. The lower effective Canadian dollar prices reduced adjusted EBITDA by $2 million. The stronger Canadian dollar also led to a $90 per tonne decrease in the selling price of viscose and other grades. The lower viscose grade prices decreased adjusted EBITDA by $1 million. Shipments were equal to 85% of capacity, compared to 94% in the March 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. Pulp mill costs increased by $6 million due to higher maintenance costs and lost production. Chemical business adjusted EBITDA was relatively unchanged.

The Forest Products segment generated adjusted EBITDA of $4 million on sales of $102 million for the quarter ended June 25, 2016, compared to adjusted EBITDA of $1 million on sales of $108 million in the prior quarter. SPF lumber sales increased by $3 million due to higher prices and shipments. Sales of logs declined by $9 million as there is normally less activity in the spring months. During the June 2016 quarter, the random length lumber reference price increased by US $39 per mbf while the reference price for stud lumber increased by US $43 per mbf. Currency was a negative factor as the Canadian dollar averaged US $0.776, a 6.7% increase from US $0.727 in the prior quarter. The net effect was that Canadian dollar selling prices increased by $12 per mbf, increasing adjusted EBITDA by $2 million. Lumber shipments were equal to 82% of capacity versus 81% 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 and a further 20 million board feet in the June 2016 quarter. Sawmill manufacturing costs were relatively unchanged quarter-over-quarter.

The Paper Pulp segment generated adjusted EBITDA of $1 million on sales of $86 million for the quarter ended June 25, 2016, compared to adjusted EBITDA of $2 million on sales of $77 million in the March 2016 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 $21 per tonne. However, US dollar prices for high-yield pulp actually increased by US $14 per tonne, allowing it to close the significant discount gap that had occurred over the last several quarters. Currency was an unfavourable factor as the Canadian dollar strengthened versus the US dollar. Overall, average selling prices in Canadian dollars declined by $15 per tonne, reducing adjusted EBITDA by $3 million. Pulp shipments were equal to 107% of capacity as compared to 92% in the prior quarter. Mill level costs declined by $1 million.

The Paper segment generated adjusted EBITDA of $16 million on sales of $99 million for the quarter ended June 25, 2016, compared to adjusted EBITDA of $21 million on sales of $102 million in the March 2016 quarter. The decrease in sales was due to lower selling prices, partially offset by higher shipments of coated bleached board and newsprint. The US dollar reference price for coated bleached board declined by US $20 per short ton. Currency was a negative factor due to the stronger Canadian dollar. Overall, average selling prices for coated bleached board were down $133 per tonne decreasing adjusted EBITDA by $6 million. The coated bleached board shipment to capacity ratio was 105% compared to 99% in the prior quarter. Manufacturing costs declined by $3 million, mainly for purchased fibre and freight. The US dollar benchmark price for newsprint increased by US $12 per tonne. The previously noted appreciation in the relative value of the Canadian dollar unfavourably impacted price realizations, which declined by $30 per tonne, decreasing adjusted EBITDA by $2 million. The newsprint shipment to capacity ratio was 94% compared to 91% in the prior quarter. Manufacturing costs at the Kapuskasing newsprint mill increased by $1 million due to lower productivity.

Outlook

Overall, the June 2016 quarterly results were as anticipated. A relatively heavy major maintenance schedule combined with an approximate 7% increase in the value of the Canadian dollar versus the US dollar led to the decline in operating results. The $7 million decline in Specialty Cellulose segment adjusted EBITDA was expected as the Temiscaming specialty pulp mill was idled for six days to carry out annual planned major maintenance. While US dollar and euro specialty cellulose prices were stable, exchange rates led to lower effective Canadian dollar selling prices. The September 2016 quarter results will be substantially better as both mills will see full operations. Lumber prices improved in the second half of the June 2016 quarter and appear to have stabilized. Stud lumber prices have been significantly below random length lumber prices, negatively impacting the Company's results. The lumber market remains difficult to assess, but relatively balanced inventory levels combined with some improvement in demand should lead to quarter-over-quarter price increases. The $1 million decrease in the Paper Pulp adjusted EBITDA was caused by currency. 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 decreased by $5 million, with a stronger Canadian dollar being once again the primary cause. US dollar prices for newsprint improved quarter-over-quarter while there was a slight weakening of coated bleached board US dollar prices. This segment should continue to perform well. With trailing twelve-month adjusted EBITDA having reached $127 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 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 June 25, 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)



June 25,
2016

Sept. 26,
2015




ASSETS






Current assets:




Cash and cash equivalents

$ 44

$ 21


Restricted cash

3

2


Trade and other receivables

139

161


Income tax receivable

2

5


Inventories (note 3)

285

287


Prepaid expenses

8

9


481

485




Property, plant and equipment (note 4)

638

652

Biological assets

2

2

Employee future benefits

21

29

Other long-term receivables

2

4

Deferred tax assets

2

4


$ 1,146

$ 1,176




LIABILITIES AND SHAREHOLDERS' EQUITY






Current liabilities:




Operating bank loans (note 5)

$ 43

$ 114


Trade, other payables and accrued charges

177

188


Interest payable

2

13


Provisions

4

4


Current portion of long-term debt (note 6)

6

11


232

330




Long-term debt (note 6)

689

613

Provisions

12

12

Employee future benefits

175

149

Other long-term liabilities

1

1


1,109

1,105




Shareholders' equity:




Share capital (note 7)

568

568


Deficit

(541)

(513)


Accumulated other comprehensive earnings

10

16


37

71


$ 1,146

$ 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 nine months ended June 25, 2016 and June 27, 2015

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







Quarters

Nine months


2016

2015

2016

2015






Sales

$ 376

$ 365

$ 1,110

$ 1,045

Freight and other deductions

49

51

145

139

Lumber export taxes

-

1

-

1

Cost of sales (excluding depreciation and amortization)

284

299

827

829

Selling, general and administrative

16

14

47

44

Share-based compensation

1

(2)

-

(2)

Depreciation and amortization

13

12

38

31

Other items (note 8)

(5)

1

(4)

(4)

Operating earnings (loss)

18

(11)

57

7






Interest, foreign exchange and other

18

17

57

39

Loss on refinancing of long-term debt

-

-

-

37

Foreign exchange loss (gain) on long-term debt

(11)

(11)

(14)

43

Net finance costs (note 9)

7

6

43

119

Earnings (loss) before income taxes

11

(17)

14

(112)






Income tax expense (recovery) (note 10)

2

(1)

6

6

Net earnings (loss)

$ 9

$ (16)

$ 8

$ (118)






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

$ 0.09

$ (0.16)

$ 0.08

$ (1.18)

 


TEMBEC INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)


Quarters and nine months ended June 25, 2016 and June 27, 2015

(unaudited) (in millions of Canadian dollars)



Quarters

Nine months


2016

2015

2016

2015






Net earnings (loss)

$ 9

$ (16)

$ 8

$ (118)






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)

(12)

21

(36)

7



Income tax expense

-

(1)

-

(1)


(12)

20

(36)

6


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







Foreign currency translation differences for foreign operations

(5)

1

(6)

(7)






Other comprehensive earnings (loss)

(17)

21

(42)

(1)






Total comprehensive earnings (loss)

$ (8)

$ 5

$ (34)

$ (119)






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 25, 2016 and June 27, 2015

(unaudited) (in millions of Canadian dollars)



Quarter ended June 25, 2016


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity






Balance - beginning of period

$ 568

$ 15

$ (538)

$ 45






Net earnings for the period

-

-

9

9

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






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

-

-

(12)

(12)


Income tax expense

-

-

-

-


Foreign currency translation differences for foreign operations

-

(5)

-

(5)






Balance - end of period

$ 568

$ 10

$ (541)

$ 37












Quarter ended June 27, 2015


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity






Balance - beginning of period

$ 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 expense

-

-

(1)

(1)


Foreign currency translation differences for foreign operations

-

1

-

1






Balance - end of period

$ 568

$ 2

$ (470)

$ 100






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 25, 2016 and June 27, 2015

(unaudited) (in millions of Canadian dollars)



Nine months ended June 25, 2016


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity






Balance - beginning of year

$ 568

$ 16

$ (513)

$ 71






Net earnings for the period

-

-

8

8

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






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

-

-

(36)

(36)


Income tax expense

-

-

-

-


Foreign currency translation differences for foreign operations

-

(6)

-

(6)






Balance - end of period

$ 568

$ 10

$ (541)

$ 37









Nine months ended June 27, 2015


Share
capital

Translation
of foreign
operations

Deficit

Shareholders'
equity






Balance - beginning of year

$ 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 expense

-

-

(1)

(1)


Foreign currency translation differences for foreign operations

-

(7)

-

(7)






Balance - end of period

$ 568

$ 2

$ (470)

$ 100






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 25, 2016 and June 27, 2015

(unaudited) (in millions of Canadian dollars)



         Quarters

         Nine months


2016

2015

2016

2015






Cash flows from operating activities:






Net earnings (loss)

$ 9

$ (16)

$ 8

$ (118)


Adjustments for:







Depreciation and amortization

13

12

38

31



Net finance costs (note 9)

7

6

43

119



Foreign exchange and bank charges

(1)

(1)

(4)

4



Income tax expense (recovery) (note 10)

2

(1)

6

6



Income tax paid

(1)

(2)

(1)

(9)



Excess cash contributions over employee future benefits expense

(1)

(1)

(3)

(5)



Share-based compensation

1

(2)

-

(2)



Settlement on sale of pulp mills (note 8)

(5)

-

(5)

-



Gain on sale of assets (note 8)

(1)

-

(1)

(1)



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

-

-

-

(9)



Impairment loss (note 8)

-

-

-

3



Other

(2)

1

(3)

-


21

(4)

78

19






Changes in non-cash working capital:






Trade and other receivables

4

(1)

20

16


Inventories

50

51

3

(23)


Prepaid expenses

2

(1)

1

(2)


Trade, other payables and accrued charges

(10)

(16)

(7)

8


46

33

17

(1)


67

29

95

18






Cash flows from investing activities:






Disbursements for property, plant and equipment

(11)

(13)

(29)

(55)


Proceeds from sale of net assets (note 8)

7

-

7

2


Change in restricted cash

3

3

(1)

1


Other long-term receivables

-

-

-

4


(1)

(10)

(23)

(48)






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

(35)

-

(29)

10


Increase in long-term debt (note 6)

7

-

87

419


Repayments of long-term debt (note 6)

(2)

(3)

(5)

(347)


Debt prepayment penalty

-

-

-

(27)


Interest paid

(27)

(24)

(57)

(48)


Other

-

(1)

-

-


(57)

(28)

(48)

7


9

(9)

24

(23)






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

(1)

-

(1)

-

Net increase (decrease) in cash and cash equivalents

8

(9)

23

(23)






Cash and cash equivalents, beginning of period

36

25

21

39

Cash and cash equivalents, end of period

$ 44

$ 16

$ 44

$ 16






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

 


TEMBEC INC.

BUSINESS SEGMENT INFORMATION


Quarters ended June 25, 2016 and June 27, 2015

(unaudited) (in millions of Canadian dollars)



Quarter ended June 25, 2016


Forest
Products

Specialty
Cellulose
Pulp

Paper
Pulp

Paper

Corporate

Consolidation
adjustments

Consolidated

Sales:









External

$ 89

$ 109

$ 79

$ 99

$  -

$  -

$ 376


Internal

13

2

7

-

2

(24)

-


102

111

86

99

2

(24)

376









Freight and other deductions

10

10

18

11

-

-

49

Lumber export taxes

-

-

-

-

-

-

-

Cost of sales

85

86

65

70

2

(24)

284

Selling, general and administrative

3

5

2

2

4

-

16

Share-based compensation

-

-

-

-

1

-

1









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

4

10

1

16

(5)

-

26


Depreciation and amortization

2

7

2

2

-

-

13


Other items (note 8)

-

-

-

-

(5)

-

(5)

Operating earnings (loss)

$ 2

$ 3

$ (1)

$ 14

$  -

$  -

$ 18

Additions to property, plant and equipment

$ 1

$ 6

$ 1

$ 2

$  -

$  -

$ 10

Total assets

$ 166

$ 678

$ 129

$ 167

$ 6

$  -

$ 1,146

Total liabilities

$ 41

$ 261

$ 28

$ 84

$ 695

$  -

$ 1,109


















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

 


TEMBEC INC.

BUSINESS SEGMENT INFORMATION


Nine months ended June 25, 2016 and June 27, 2015

(unaudited) (in millions of Canadian dollars)



Nine months ended June 25, 2016


Forest
Products

Specialty
Cellulose
Pulp

Paper
Pulp

Paper

Corporate

Consolidation
adjustments

Consolidated

Sales:









External

$ 272

$ 336

$ 207

$ 295

$  -

$  -

$ 1,110


Internal

48

4

24

-

4

(80)

-


320

340

231

295

4

(80)

1,110









Freight and other deductions

32

31

48

34

-

-

145

Lumber export taxes

-

-

-

-

-

-

-

Cost of sales

275

249

178

201

4

(80)

827

Selling, general and administrative

9

14

4

7

13

-

47

Share-based compensation

-

-

-

-

-

-

-









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

4

46

1

53

(13)

-

91


Depreciation and amortization

5

21

8

4

-

-

38


Other items (note 8)

-

-

-

-

(4)

-

(4)

Operating earnings (loss)

$ (1)

$ 25

$ (7)

$ 49

$ (9)

$  -

$ 57

Additions to property, plant and equipment

$ 4

$ 15

$ 4

$ 4

$  -

$  -

$ 27

Total assets

$ 166

$ 678

$ 129

$ 167

$ 6

$  -

$ 1,146

Total liabilities

$ 41

$ 261

$ 28

$ 84

$ 695

$  -

$ 1,109














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

 

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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