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Press release from CNW Group

Tembec reports financial results for its second quarter ended March 30, 2013

Monday, April 29, 2013

Tembec reports financial results for its second quarter ended March 30, 2013

08:05 EDT Monday, April 29, 2013

MONTREAL, April 29, 2013 /CNW Telbec/ - Consolidated sales for the three-month period ended March 30, 2013, were $407 million, unchanged from the same quarter a year ago. The Company generated a net loss of $26 million or $0.26 per share in the March 2013 quarter compared to a net loss of $14 million or $0.14 per share in the March 2012 quarter. The financial results for the most recent quarter include a non-cash impairment charge of $22 million related to an asset held for sale. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $24 million for the three-month period ended March 30, 2013, as compared to adjusted EBITDA of $2 million a year ago and adjusted EBITDA of $19 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $14 million on sales of $120 million for the quarter ended March 30, 2013, compared to adjusted EBITDA of $18 million on sales of $103 million in the prior quarter. The $14 million increase in pulp sales was due to higher shipments of viscose grades. Demand for specialty grades was flat and US and euro prices were relatively unchanged quarter-over-quarter. However, with the Canadian dollar weakening by 1.8% versus the US dollar and 3.6% versus the euro, Canadian dollar equivalent pricing increased by $52 per tonne. The viscose grade market remains oversupplied and prices continued to decline in the March quarter. Canadian dollar equivalent pricing declined by $76 per tonne. Overall, pricing was slightly favourable, improving adjusted EBITDA by $1 million. Mill manufacturing costs declined by $5 million. The prior quarter had absorbed the cost of the Temiscaming mill's annual maintenance shutdown. However, this improvement was more than offset by the negative mix variance associated with the shipment of higher volumes of viscose grade pulp.

The Forest Products segment generated adjusted EBITDA of $7 million on sales of $104 million for the quarter ended March 30, 2013, compared to adjusted EBITDA of $2 million on sales of $101 million in the prior quarter. Sales increased by $3 million due to higher selling prices for lumber, partially offset by lower shipments. Lumber shipments were equal to 76% of capacity versus 84% in the prior quarter. The decrease was due primarily to seasonal and logistic issues. Market conditions continued to improve as the quarter progressed. US $ reference prices for random lumber increased by US $58 per mbf while stud lumber increased by US $50 per mbf. Currency was also favourable as the Canadian dollar weakened versus the US dollar. The combined effect increased sales and adjusted EBITDA by $9 million or $53 per mbf. Mill level costs increased by $4 million. The winter months are seasonally lower productivity and higher cost periods.

The Paper Pulp segment generated adjusted EBITDA of $4 million on sales of $122 million for the quarter ended March 30, 2013, compared to nil adjusted EBITDA on sales of $117 million in the prior quarter. The $5 million increase in sales was due to higher prices and shipments of Northern Bleached Softwood Kraft (NBSK) pulp, partially offset by lower shipments of high-yield pulp. The benchmark price (delivered China) for NBSK increased by US $16 per tonne while reference prices for bleached eucalyptus kraft (BEK) increased by US $50 per tonne. Currency was also a slight positive as the Canadian dollar weakened versus the US dollar. Overall, average paper pulp prices increased by $15 per tonne, improving adjusted EBITDA by $3 million. Paper pulp shipments were equal to 98% of capacity, unchanged from the prior quarter. Manufacturing costs were relatively unchanged quarter-over-quarter.

The Paper segment generated adjusted EBITDA of $5 million on sales of $87 million for the quarter ended March 30, 2013, compared to adjusted EBITDA of $6 million on sales of $78 million in the prior quarter. Higher coated bleached board and newsprint shipments caused the $9 million increase in sales. In terms of markets, coated bleached board was relatively stable. The newsprint market weakened due to continued lower North American demand combined with the restart of previously idled capacity. The US $ reference prices for coated bleached board declined by US $20 per short ton while the US $ reference price for newsprint declined by US $25 per tonne. This was the first newsprint price change since October 2010. Currency was a positive as the Canadian dollar weakened versus the US dollar. The net effect was a small reduction in average newsprint price, reducing adjusted EBITDA by $1 million. Coated bleached board shipments were equal to 97% of capacity as compared to 86% in the prior quarter. The shipment to capacity percentage for newsprint was 99%, compared to 89% in the prior quarter. Manufacturing costs were relatively unchanged quarter-over-quarter.

Temiscaming Specialty Cellulose Project Update

In March 2012, the Company announced a $190 million capital investment to upgrade its specialty cellulose mill in Temiscaming, Quebec. The project includes the replacement of three low-pressure boilers with a single new high-pressure boiler designed to burn waste sulphite liquor generated by the specialty cellulose manufacturing process. The project also includes the installation of a new 50-megawatt electrical turbine.

The project cost and schedule have recently been revised and now reflect a budget of $235 million with project completion expected in September 2014. The decision to purchase a larger and more efficient boiler was the major factor influencing the increased cost. The estimated project benefits have also been revised from $42 million to $48 million per year.

Assets Held for Sale

The current period balance sheet classifies the assets and liabilities related to the Skookumchuck Northern Bleached Softwood Kraft (NBSK) pulp mill as "held for sale". This reclassification is required by IFRS as the Company is currently engaged in a formal sales process and expects to sell the facility within the twelve-month time frame specified under IFRS rules.

Outlook

Overall, the March 2013 quarterly results were in line with expectations. The Forest Products segment results improved on stronger pricing, which more than offset the seasonally higher cost winter period. The quarter ended very positively with stud lumber prices increasing to the same level as random lumber prices. As expected, the continued gradual recovery in United States new home construction has had a very positive effect on lumber prices. We expect this trend to continue for the next several quarters. Specialty Cellulose Pulp segment results were negatively impacted by a relatively high percentage of viscose grade shipments as well as higher costs at the Temiscaming pulp mill. While pricing for specialty grades remained stable, demand has been softer than anticipated. We continue to assess the market with our customers and are adjusting our production plans accordingly. We anticipate that it will be one or two quarters before we see an increase in demand for specialty grades. Market conditions for viscose grade prices continued to trend downwards. The latter market is currently under pressure as new capacity is exceeding demand growth. The Company will continue to maintain a relatively modest exposure of 30,000 to 40,000 tonnes per year to the viscose market. The return of the Paper Pulp segment to positive adjusted EBITDA was encouraging, but the market remains relatively soft with no clear direction. While we have seen the implementation of small increment price increases, we expect new capacity will cause this market to remain challenging. Paper segment results declined as newsprint prices saw their first decline in nearly two and half years. Recently restarted newsprint capacity combined with continued declining North American demand have had a predictable effect on prices. The Company continues with its capital expenditure program, with a strong emphasis on its two specialty cellulose mills. The cornerstone of the program is the high-pressure boiler and turbine to be installed at the Temiscaming, Quebec, site. The project will materially improve the mill's cost structure and margins. A total of $94 million has been spent on the Temiscaming specialty cellulose project to the end of the March 2013 quarter. The assets and liabilities of the Skookumchuck, BC, NBSK pulp mill have been classified as held for sale. The completion of the sale of the pulp mill will be a priority for the Company.

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 3,700 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 30, 2013, 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)
       
  Mar. 30,
2013
Sept. 29,
2012
     
ASSETS    
       
Current assets:    
  Cash and cash equivalents $ 34 $ 87
  Restricted cash 1 5
  Trade and other receivables 167 200
  Inventories (note 3) 270 255
  Biological assets 1 -
  Prepaid expenses 10 7
Assets classified as held for sale (note 4) 126 -
  609 554
Property, plant and equipment (note 5) 433 485
Biological assets 5 4
Other long-term receivables 11 12
Deferred tax assets 2 4
  $ 1,060 $ 1,059
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
     
Current liabilities:    
  Operating bank loans (note 6) $ 86 $ 68
  Trade, other payables and accrued charges 211 230
  Interest payable 10 10
  Income tax payable 5 3
  Provisions (note 8) 2 3
  Current portion of long-term debt (note 7) 16 16
  Liabilities classified as held for sale (note 4) 32 -
  362 330
     
Long-term debt (note 7) 353 323
Provisions (note 8) 17 17
Employee future benefits 190 285
Other long-term liabilities 2 2
  924 957
Shareholders' equity:    
  Share capital (note 9) 567 564
  Deficit (426) (453)
  Accumulated other comprehensive loss (5) (9)
  136 102
  $ 1,060 $ 1,059


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 30, 2013 and March 24, 2012
(unaudited) (in millions of Canadian dollars, unless otherwise noted)
         
  Quarters Six months
  2013 2012 2013 2012
Sales $ 407 $ 407 $ 783 $ 808
Freight and other deductions 54 57 104 110
Lumber export taxes - 3 1 5
Cost of sales (excluding depreciation and amortization) 310 326 596 642
Selling, general and administrative 19 18 38 36
Share-based compensation (note 9) - 1 1 1
Depreciation and amortization 9 10 20 22
Other items (note 10) 23 (5) 24 (3)
Operating loss (8) (3) (1) (5)
         
Interest, foreign exchange and other 6 10 13 20
Exchange loss (gain) on long-term debt 6 (6) 10 (8)
Net finance costs (note 11) 12 4 23 12
Loss before income taxes (20) (7) (24) (17)
         
Income tax expense (note 12) 6 7 12 13
Net loss $ (26) $ (14) $ (36) $ (30)
         
Basic and diluted net loss in dollars per share (note 9) $ (0.26) $ (0.14) $ (0.36) $ (0.30)
 
 
 
TEMBEC INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
 
Quarters and six months ended March 30, 2013 and March 24, 2012
(unaudited) (in millions of Canadian dollars)
         
  Quarters Six months
  2013 2012 2013 2012
Net loss $ (26) $ (14) $ (36) $ (30)
         
Other comprehensive earnings (loss), net of income taxes:        
  Defined benefit pension plans and other   benefit plans (note 13) 63 - 63 -
  Foreign currency translation differences for foreign operations (2) - 4 (5)
         
Total comprehensive earnings (loss) $ 35 $ (14) $ 31 $ (35)


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 30, 2013 and March 24, 2012
(unaudited) (in millions of Canadian dollars)
         
        Quarter ended March 30, 2013
  Share
capital
Translation
of foreign
operations
Deficit Shareholders'
equity
Balance - beginning of period, December 29, 2012 $ 567 $ (3) $ (463) $ 101
         
Net loss for the period - - (26) (26)
Other comprehensive earnings (loss), net of income taxes:        
  Defined benefit pension plans and other   benefit plans (note 13) - - 63 63
  Foreign currency translation differences   for foreign operations - (2) - (2)
Issue of warrants (note 9) - - - -
         
Balance - end of period, March 30, 2013 $ 567 $ (5) $ (426) $ 136
           
         
        Quarter ended March 24, 2012
  Share
capital
Translation
of foreign
operations
Deficit Shareholders'
equity
Balance - beginning of period, December 24, 2011 $ 564 $ (3) $ (349) $ 212
         
Net loss for the period (14) (14)
Other comprehensive earnings (loss), net of income taxes:        
  Foreign currency translation differences   for foreign operations
         
Balance - end of period, March 24, 2012 $ 564 $ (3) $ (363) $ 198
 
 
Six months ended March 30, 2013 and March 24, 2012
(unaudited) (in millions of Canadian dollars)
         
        Six months ended March 30, 2013
  Share
capital
Translation
of foreign
operations
Deficit Shareholders'
equity
Balance - beginning of year, September 29, 2012 $ 564 $ (9) $ (453) $ 102
         
Net loss for the period - - (36) (36)
Other comprehensive earnings (loss), net of income taxes:        
  Defined benefit pension plans and other   benefit plans (note 13) - - 63 63
  Foreign currency translation differences   for foreign operations - 4 - 4
Issue of warrants (note 9) 3 - - 3
         
Balance - end of period, March 30, 2013 $ 567 $ (5) $ (426) $ 136
         
         
        Six months ended March 24, 2012
  Share
capital
Translation
of foreign
operations
Deficit Shareholders'
equity
Balance - beginning of year, September 24, 2011 $ 564 $ 2 $ (333) $ 233
         
Net loss for the period - - (30) (30)
Other comprehensive earnings (loss), net of income taxes:        
  Foreign currency translation differences   for foreign operations - (5) - (5)
         
Balance - end of period, March 24, 2012 $ 564 $ (3) $ (363) $ 198


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 30, 2013 and March 24, 2012
(unaudited) (in millions of Canadian dollars)
         
  Quarters Six months
  2013 2012 2013 2012
Cash flows from operating activities:        
  Net loss $ (26) $ (14) $ (36) $ (30)
  Adjustments for:        
    Depreciation and amortization 9 10 20 22
    Net finance costs (note 11) 12 4 23 12
    Income tax expense (note 12) 6 7 12 13
    Income tax paid (6) (10) (8) (10)
    Excess cash contributions over employee   future benefits expense (6) (7) (17) (17)
    Provisions - 7 - 9
    Impairment loss (note 10) 22 16 22 17
    Gain on sale of assets (note 10) - (24) (2) (28)
    Other - (5) (4) (2)
  11 (16) 10 (14)
         
Changes in non-cash working capital:        
  Trade and other receivables (20) (34) 4 (20)
  Inventories (33) (35) (31) (69)
  Prepaid expenses (7) (5) (5) (3)
  Trade, other payables and accrued charges 33 15 2 (2)
  (27) (59) (30) (94)
  (16) (75) (20) (108)
         
Cash flows from investing activities:        
  Disbursements for property, plant and equipment (22) (28) (62) (51)
  Proceeds from sale of net assets (note 10) - 66 2 83
  Other 1 6 1 3
  (21) 44 (59) 35
         
Cash flows from financing activities:        
  Change in operating bank loans 17 21 18 63
  Change in restricted cash - - 4 (2)
  Increase in long-term debt - 51 24 55
  Repayments of long-term debt (1) - (2) (3)
  Interest paid (1) - (19) (15)
  Other - - - (1)
  15 72 25 97
  (22) 41 (54) 24
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies - - 1 (3)
Net increase (decrease) in cash and cash equivalents (22) 41 (53) 21
         
Cash and cash equivalents, beginning of period 56 79 87 99
Cash and cash equivalents, end of period $ 34 $ 120 $ 34 $ 120


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


TEMBEC INC.
BUSINESS SEGMENT INFORMATION


Quarters and six months ended March 30, 2013 and March 24, 2012
(unaudited) (in millions of Canadian dollars)


The Company operates an integrated forest products business, which is managed in four segments. During the December 2012 quarter, the Company reorganized its internal reporting structure. The High-Yield Pulp segment was renamed the Paper Pulp segment and now includes the chemical pulp mill that was previously part of the Specialty Cellulose and Chemical Pulp segment. The latter was then renamed the Specialty Cellulose Pulp segment. The Forest Products and the Paper segments were unaffected by the organizational changes. The segments are:

  • The Forest Products segment consists primarily of forest and sawmills operations, which produce lumber and building materials.
  • The Specialty Cellulose Pulp segment consists primarily of manufacturing and marketing activities of specialty cellulose including the transformation and sale of resins and pulp by-products. A significant portion of chemical products sales are related to by-products generated by the two specialty cellulose pulp mills.
  • The Paper Pulp segment includes the manufacturing and marketing activities of high-yield pulps and chemical 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 note 2 and 3 of the Company's audited consolidated financial statements for the year ended September 29, 2012. Comparative prior period segment information has been restated to conform with the new segment presentation.

The performance of each segment is evaluated by management of the Company against short-term and long-term financial objectives as well as environmental, safety and other key criteria. The financial performance 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 March 30, 2013 and March 24, 2012
(unaudited) (in millions of Canadian dollars)
               
      Quarter ended March 30, 2013
  Forest
Products
Specialty
Cellulose
Pulp
Paper
Pulp
Paper Corporate Consolidation
adjustments
Consolidated
Sales:              
  External $ 86 $ 120 $ 114 $ 87 $ - $ - $ 407
  Internal 18 - 8 - 2 (28) -
  104 120 122 87 2 (28) 407
Freight and other deductions 10 9 24 11 - - 54
Lumber export taxes - - - - - - -
Cost of sales 84 92 92 68 2 (28) 310
Selling, general and administrative 3 5 2 3 6 - 19
Share-based compensation - - - - - - -
Earnings (loss) before the following (adjusted EBITDA): 7 14 4 5 (6) - 24
  Depreciation and amortization 2 3 3 1 - - 9
  Other items (note 10) - - 22 - 1 - 23
Operating earnings (loss) $ 5 $ 11 $ (21) $ 4 $ (7) $ - $ (8)
Additions to property, plant and equipment $ - $ 22 $ 1 $ 2 $ 1 $ - $ 26
Total assets $ 196 $ 442 $ 278 $ 120 $ 24 $ - $ 1,060
Total liabilities $ 79 $ 230 $ 67 $ 124 $ 424 $ - $ 924
               
               
      Quarter ended March 24, 2012
  Forest
Products
Specialty
Cellulose
Pulp
Paper
Pulp
Paper Corporate Consolidation
adjustments
Consolidated
Sales:              
  External $ 86 $ 133 $ 109 $ 79 $  - $  - $ 407
  Internal 26 - 11 - 2 (39) -
  112 133 120 79 2 (39) 407
Freight and other deductions 12 9 25 11 - - 57
Lumber export taxes 3 - - - - - 3
Cost of sales 105 91 107 60 2 (39) 326
Selling, general and administrative 3 5 1 4 5 - 18
Share-based compensation - - - - 1 - 1
Earnings (loss) before the following (adjusted EBITDA): (11) 28 (13) 4 (6) - 2
  Depreciation and amortization 3 2 5 - - - 10
  Other items (note 10) (24) - - - 19 - (5)
Operating earnings (loss) $ 10 $ 26 $ (18) $ 4 $ (25) $  - $ (3)
Additions to property, plant and equipment $ 4 $ 19 $ 3 $ 2 $ - $  - $ 28
Total assets $ 232 $ 353 $ 357 $ 115 $ 70 $  - $ 1,127
Total liabilities $ 77 $ 170 $ 72 $ 132 $ 478 $  - $ 929
 
Six months ended March 30, 2013 and March 24, 2012
(unaudited) (in millions of Canadian dollars)
       
      Six months ended March 30, 2013
  Forest
Products
Specialty
Cellulose
Pulp
Paper
Pulp
Paper Corporate Consolidation
adjustments
Consolidated
Sales:              
  External $ 171 $ 223 $ 224 $ 165 $ - $ - $ 783
  Internal 34 - 15 - 6 (55) -
  205 223 239 165 6 (55) 783
Freight and other deductions 19 16 47 22 - - 104
Lumber export taxes 1 - - - - - 1
Cost of sales 170 165 184 126 6 (55) 596
Selling, general and administrative 6 10 4 6 12 - 38
Share-based compensation - - - - 1 - 1
Earnings (loss) before the following (adjusted EBITDA): 9 32 4 11 (13) - 43
  Depreciation and amortization 4 6 8 2 - - 20
  Other items (note 10) - - 22 - 2 - 24
Operating earnings (loss) $ 5 $ 26 $ (26) $ 9 $ (15) $ - $ (1)
Additions to property, plant and equipment $ 2 $ 48 $ 6 $ 3 $ 1 $ - $ 60
Total assets $ 196 $ 442 $ 278 $ 120 $ 24 $ - $ 1,060
Total liabilities $ 79 $ 230 $ 67 $ 124 $ 424 $ - $ 924
               
               
      Six months ended March 24, 2012
  Forest
Products
Specialty
Cellulose
Pulp
Paper
Pulp
Paper Corporate Consolidation
adjustments
Consolidated
Sales:              
  External $ 186 $ 256 $ 202 $ 164 $ - $ - $ 808
  Internal 52 21 4 (77)
  238 256 223 164 4 (77) 808
Freight and other deductions 24 19 45 22 - 110
Lumber export taxes 5 - 5
Cost of sales 223 175 195 122 4 (77) 642
Selling, general and administrative 8 9 3 6 10 - 36
Share-based compensation - - - - 1 - 1
Earnings (loss) before the following (adjusted EBITDA): (22) 53 (20) 14 (11) - 14
  Depreciation and amortization 6 4 11 1 - - 22
  Other items (note 10) (22) - - - 19 - (3)
Operating earnings (loss) $ (6) $ 49 $ (31) $ 13 $ (30) $ - $ (5)
Additions to property, plant and equipment $ 8 $ 31 $ 8 $ 4 $ - $ - $ 51
Total assets $ 232 $ 353 $ 357 $ 115 $ 70 $ - $ 1,127
Total liabilities $ 77 $ 170 $ 72 $ 132 $ 478 $ - $ 929

 

 

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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