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Press release from CNW Group

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

Thursday, July 26, 2012

Tembec reports financial results for its third quarter ended June 23, 201208:39 EDT Thursday, July 26, 2012MONTREAL, 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 IFRSAll 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 ResultsThe 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.OutlookThe 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 $2 billion, Tembec has 4,000 employees and is listed on the TSX (TMB). The full quarterly report, including the interim Management Discussion and Analysis, the interim financial statements and the accompanying notes for the quarter ended June 23, 2012, can be obtained on Tembec's website at www.tembec.com or on SEDAR at www.sedar.com.This press release includes "forward-looking statements" within the meaning of securities laws.  Such statements relate, without limitation, to the Company's or management's objectives, projections, estimates, expectations or predictions of the future and can be identified by words such as "may", "will", "could", "anticipate", "estimate", "expect" and "project", the negative or variations thereof, and expressions of similar nature.  Forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience, information available to it and its perception of future developments. Such statements are subject to a number of risks and uncertainties, including, but not limited to, changes in foreign exchange rates, product selling prices, raw material and operating costs and other factors identified in the Company's periodic filings with securities regulatory authorities. Many of these risks are beyond the control of the Company and, therefore, may cause actual actions or results to materially differ from those expressed or implied herein. The forward-looking statements contained herein reflect the Company's expectations as of the date hereof and are subject to change after such date. The Company disclaims any intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable securities legislation.  TEMBEC INC.CONSOLIDATED BALANCE SHEETS(unaudited) (in millions of Canadian dollars)     June 23, 2012Sept. 24,2011Sept. 26,2010ASSETS    Current assets:    Cash and cash equivalents$ 100$ 99$ 68 Cash held in trust166 Trade and other receivables185182209 Inventories (note 4)272261255 Prepaid expenses1067 568554545     Property, plant and equipment (note 5)498491496Biological assets (note 6)447Employee future benefits (note 10)11-Other long-term receivables122828Deferred tax assets (note 16)61527 $ 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 charges219246233 Interest payable183 Provisions (note 9)285 Current portion of long-term debt (note 8)161817 306286259     Long-term debt (note 8)318271271Provisions (note 9)151617Employee future benefits (note 10)260285248Other long-term liabilities228 901860803Shareholders' equity:    Share capital (note 11)564564564 Deficit(368)(333)(264) Accumulated other comprehensive earnings (loss)(8)2- 188233300 $ 1,089$ 1,093$ 1,103The 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)      QuartersNine months 2012201120122011Sales$ 415$ 448$ 1,223$ 1,322Freight and other deductions5961169180Lumber export taxes13610Cost of sales (excluding depreciation   and amortization) (note 13)311335953990Selling, general and administrative (note 13)18185455Share-based compensation (note 11)(1)(2)-8Depreciation and amortization11123336Other items (note 14)2(7)(1)1Operating earnings1428942Interest, foreign exchange and other742728Exchange loss (gain) on long-term debt81-(10)Net finance costs (note 15)1552718Earnings (loss) before income taxes(1)23(18)24      Income tax expense (note 16)461712Net 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)      QuartersNine months 2012201120122011Net earnings (loss)$ (5)$ 17$ (35)$ 12      Other comprehensive earnings (loss):     Foreign currency translation differences for foreign operations(5)2(10)4Total comprehensive earnings (loss)$ (10)$ 19$ (45)$ 16The accompanying notes are an integral part of these interim consolidated financial statements.     TEMBEC INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYQuarters ended June 23, 2012 and June 25, 2011(unaudited) (in millions of Canadian dollars)          June 23, 2012 SharecapitalTranslationof foreignoperationsDeficitShareholders'equityBalance - 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 SharecapitalTranslationof foreignoperationsDeficitShareholders'equityBalance - beginning of period, March 26, 2011$ 564$ 2$ (269)$ 297     Net loss for the period--1717Other 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 SharecapitalTranslationof foreignoperationsDeficitShareholders'equityBalance - 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 SharecapitalTranslationof foreignoperationsDeficitShareholders'equityBalance - beginning of year, September 26, 2010$ 564$ -$ (264)$ 300     Net loss for the period--1212Other comprehensive earnings:     Foreign currency translation differences   for foreign operations-4-4 Balance - end of period, June 25, 2011$ 564$ 4$ (252)$ 316The accompanying notes are an integral part of these interim consolidated financial statements.     TEMBEC INC.CONSOLIDATED STATEMENTS OF CASH FLOWSQuarters and nine months ended June 23, 2012 and June 25, 2011(unaudited) (in millions of Canadian dollars)                 Quarters            Nine months 2012201120122011Cash flows from operating activities:     Net earnings (loss)$ (5)$ 17$ (35)$ 12 Adjustments for:      Depreciation and amortization11123336  Net finance costs (note 15)1552718  Income tax expense (note 16)461712  Income tax paid(3)-(13)-  Excess cash contributions over employee future benefits expense(6)(5)(23)(15)  Other-(8)(4)(12) 16 272 51Changes in non-cash working capital:     Trade and other receivables(1)3(21)14 Inventories2043(49)(11) Prepaid expenses(1)1(4)(1) Trade, other payables and accrued charges(15)(16)(17)(15) 331(91)(13) 1958(89)38Cash flows from investing activities:     Additions to property, plant and equipment(24)(14)(75)(29) Proceeds from sale of net assets (note 14)1178417 Other3(2)6- (20)115(12)Cash flows from financing activities:     Change in operating bank loans(1)-621 Cash held in trust6-4- Increase in long-term debt-4555 Repayments of long-term debt(6)(4)(9)(7) Interest paid(18)(15)(33)(24) Other1(1)-(3) (18)(16)79(28) (19)435(2) Foreign exchange loss on cash and cash equivalents held in foreign currencies(1)-(4)-Net increase (decrease) in cash and cash equivalents(20)431(2) Cash and cash equivalents, beginning of period120239968Cash and cash equivalents, end of period$ 100$ 66$ 100$ 66The 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 ForestProductsSpecialtyCellulose & ChemicalPulpHigh-YieldPulpPaperCorporateConsolidationadjustmentsConsolidatedSales:        External$ 72$ 164$ 93$ 86$  -$ -$ 415 Internal1438-4(29)- 86167101864(29)415Freight and other deductions8192111--59Lumber export taxes1-----1Cost of sales7612473634(29)311Selling, general and administrative36234-18Share-based compensation----(1)-(1)Earnings (loss) before the following (adjusted EBITDA):(2)1859(3)-27 Depreciation and amortization254---11 Other items----2-2Operating earnings (loss)$ (4)$ 13$ 1$ 9$ (5)$ -$ 14Additions to property, plant   and equipment$ -$ 21$ 1$ 1$ 1$ -$ 24Total assets$ 209$ 518$ 210$ 120$ 32$ -$ 1,089                   June 25, 2011 ForestProductsSpecialtyCellulose& ChemicalPulpHigh-YieldPulpPaperCorporateConsolidationadjustmentsConsolidatedSales:        External$ 91$ 186$ 86$ 85$ -$ -$ 448 Internal2227- 2(33)- 11318893852(33)448Freight and other deductions12172012--61Lumber export taxes3-----3Cost of sales11111976602(33)335Selling, general and administrative46134-18Share-based compensation--- -(2)-(2)Earnings (loss) before  the following (adjusted EBITDA):(17)46(4)10(2)-33 Depreciation and amortization453---12 Other items----(7)-(7)Operating earnings (loss)$ (21)$ 41$ (7)$ 10$ 5$ -$ 28Additions to property, plant   and equipment$ 3$ 10$ 1$  - $ -$ -$ 14Total 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 ForestProductsSpecialtyCellulose & ChemicalPulpHigh-YieldPulpPaperCorporateConsolidation adjustmentsConsolidatedSales:        External$ 258$ 485$ 230$ 250$ -$ -$ 1,223 Internal661022-8(106)- 3244952522508(106)1,223Freight and other deductions32505433--169Lumber export taxes6-----6Cost of sales2993542131858(106)953Selling, general and administrative11155914-54Share-based compensation-------Earnings (loss) before the following (adjusted EBITDA):(24)76(20)23(14)-41 Depreciation and amortization814101--33 Other items(22)---21-(1)Operating earnings (loss)$ (10)$ 62$ (30)$ 22$ (35)$ -$ 9Additions to property, plant and equipment$ 8$ 55$ 6$ 5$ 1$ -$ 75Total assets$ 209$ 518$ 210$ 120$ 32$ -$ 1,089                   June 25, 2011 ForestProductsSpecialtyCellulose& ChemicalPulpHigh-YieldPulpPaperCorporateConsolidationadjustmentsConsolidatedSales:        External$ 279$ 507$ 281$ 255$ -$ -$ 1,322 Internal71621- 5(103)-  3505133022555(103)1,322Freight and other deductions35496234--180Lumber export taxes10-----10Cost of sales3293362331905(103)990Selling, general and administrative13182814-55Share-based compensation----8-8Earnings (loss) before the following (adjusted EBITDA):(37)110523(22)-79 Depreciation and amortization121482- -36 Other items3---(2)-1Operating earnings (loss)$ (52)$ 96$ (3)$ 21$ (20)$ -$ 42Additions to property, plant and equipment$ 6$ 19$ 2$ 2$ - $ -$ 29Total assets$ 259$ 451$ 185$ 129$ 42$ -$ 1,066 SOURCE: TEMBECFor 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