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Slumping loonie, U.S. housing recovery a boon to Tembec’s bottom line

James Lopez, president and CEO of Tembec Inc. waits for the start of their meeting for the approval of the recapitalization transaction in Montreal, February 22, 2008.

christinne muschi The Globe and Mail

The weakening loonie, an encouraging U.S. housing recovery and a swing to a pension surplus are tailwinds that will boost performance at Tembec Inc., the chief executive says.

"Finally, the upside," president and chief executive officer of the forestry products company James Lopez told shareholders at the annual meeting Thursday, after Tembec announced a modest first-quarter profit.

Tembec has gone through a major transformation in the wake of the devastating hits the industry has experienced over the past decade and is now poised to reap the benefits, he said.

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Before the meeting, Mr. Lopez said the declining Canadian dollar has been a boon to the company, which exports heavily to the United States.

"That's a substantial tailwind we weren't counting on," he said.

"This is something that may have been overdue in the correction of the Canadian dollar."

The high dollar has hurt Canada's manufacturing sector – and forestry industry – to an extent that most people don't realize, he said.

"There is not a true appreciation for the damage done to the Canadian manufacturing sector in Canada."

The impact of that damage has led to the permanent shutting of mills in the industry at a huge cost in terms of jobs lost, he said.

At Tembec alone, three mills that have been closed resulted in the loss of about 1,000 jobs.

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Also helping Tembec's comeback is the solid recovery in U.S. housing starts, on which Canadian lumber exports depend, Mr. Lopez said.

But he cautioned: "It's still two years away from what we would consider a long-term sustainable number."

And the pension fund – which had a deficit of $200-million 15 months ago – is now poking into surplus territory, translating to $14-million of company cash over the next year that will go to more productive uses, he said.

"We were putting buckets of cash into the pension plan to fund this deficit."

Mr. Lopez has been spearheading a sweeping overhaul at Tembec, including the shedding of non-performing assets and a stronger focus on higher-margin specialty cellulose.

The company's other exports are commodity pulp, paper and lumber.

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Tembec reported a profit of $2-million or 2 cents per share for the first quarter, up from a loss of $15-million or 15 cents in the year-earlier period.

The performance was helped by a $4-million tax recovery in the first quarter.

Sales slipped to $354-million from $376-million in the quarter.

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