Tembec reports financial results for Q3
July 30, 2015 - Consolidated sales for the three-month period ended June 27, 2015, were $365 million, as compared to $404 million in the same quarter a year ago.
The company generated a net loss of $16 million or $0.16 per share in the June 2015 quarter compared to net earnings of $30 million or $0.30 per share in the June 2014 quarter. The current quarter results include approximately $12 million of incremental costs related to planned major maintenance conducted at two large operating sites. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $2 million for the three-month period ended June 27, 2015, as compared to adjusted EBITDA of $30 million a year ago and adjusted EBITDA of $12 million in the prior quarter.
Business Segment Results
The Specialty Cellulose Pulp segment generated negative adjusted EBITDA of $6 million on sales of $108 million for the quarter ended June 2015, compared to adjusted EBITDA of $3 million on sales of $105 million in the prior quarter. The sales increase of $3 million was due to higher shipments of specialty and viscose grades, as well as lignin products, partially offset by lower prices for specialty pulp grades. Weaker demand for certain specialty grades that began in late 2014 continued into the first half of calendar 2015. The $63 per tonne decline in reported Canadian dollar selling prices for specialty grades was partially due to currency as the euro weakened by 2.6%, negatively affecting pricing for the Tartas pulp mill's sales. A lower sales mix at the Temiscaming facility also contributed to lower average selling prices for specialty grades. US dollar prices for viscose grades were relatively unchanged. The viscose market remains oversupplied and prices are relatively low. Overall, lower pulp prices reduced adjusted EBITDA by $3 million. Shipments were equal to 78% of capacity, compared to 75% in the March 2015 quarter. The June 2015 quarter results were significantly impacted by major planned maintenance at both pulp mills. The Tartas facility, which takes major maintenance every 18 months, was down for approximately two weeks in April 2015. The Temiscaming facility, which conducts major maintenance every 12 months, was idled for approximately one week in May 2015. Overall, maintenance costs increased by $7 million quarter-over-quarter. The significant downtime led to a production decrease of 10,600 tonnes, generating a negative variance of $5 million for unabsorbed fixed costs. The negative impact of the higher maintenance was partially offset by a $3 million reduction in energy costs at the Temiscaming plant due largely to the continued improved efficiency of the new boiler and turbine.
The Forest Products segment generated negative adjusted EBITDA of $3 million on sales of $103 million for the quarter ended June 2015, compared to adjusted EBITDA of $4 million on sales of $113 million in the prior quarter. Sales decreased by $10 million due to lower SPF lumber prices and the seasonal decrease in third-party log sales. Lumber shipments were equal to 83% of capacity versus 81% in the prior quarter. During the June 2015 quarter, the random length lumber reference price decreased by US $44 per mbf while the reference price for stud lumber decreased by US $35 per mbf. Currency was not a significant factor as the Canadian dollar averaged US $0.813, a 0.7% increase from US $0.807 in the prior quarter. The combined effect was that Canadian dollar selling prices decreased by approximately $40 per mbf, decreasing adjusted EBITDA by $7 million. Seasonally lower manufacturing costs at the sawmills was offset by an increase in lumber export taxes of $1 million and a charge of $1 million relating to a reduction of the carrying value of finished goods inventories resulting from the relatively low lumber prices.
The Paper Pulp segment generated adjusted EBITDA of $3 million on sales of $90 million for the quarter ended June 2015, compared to adjusted EBITDA of $3 million on sales of $73 million in the prior quarter. The $17 million increase in sales was due to higher shipments. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) increased by US $35 per tonne. However, the increase did not carry over into the high-yield paper pulp market and US dollar prices declined by US $16 per tonne. Overall, average selling prices decreased by $23 per tonne, decreasing adjusted EBITDA by $3 million. Pulp shipments were equal to 104% of capacity as compared to 81% in the prior quarter. Demand for pulp in the June 2015 quarter was good and the Company was able to reduce inventories to more normal levels after absorbing increases during the winter months. In the June 2015 quarter, the two pulp mills produced 14,100 more tonnes as compared to the prior quarter. The higher productivity reduced costs by $2 million.
The Paper segment generated adjusted EBITDA of $9 million on sales of $86 million for the quarter ended June 2015, compared to adjusted EBITDA of $8 million on sales of $84 million in the prior quarter. Higher shipments partially offset by lower prices led to the $2 million increase in sales. The coated bleached board market was stable. The coated bleached board shipment to capacity ratio was 87% compared to 82% in the prior quarter. The reference price declined by US $5 per short ton. Overall, average selling prices for coated bleached board were down $26 per tonne decreasing adjusted EBITDA by $1 million. Manufacturing costs decreased by $2 million, primarily for purchased pulp and energy. The newsprint market remained weak with continued decreases in North American demand. The newsprint shipment to capacity ratio was 85% compared to 80% in the prior quarter. The US dollar benchmark price for newsprint declined by US $30 per tonne. Prices in Canadian dollars decreased by $39 per tonne, decreasing adjusted EBITDA by $2 million. Manufacturing costs at the Kapuskasing newsprint mill decreased by $3 million, primarily for electrical energy.
Overall, the June 2015 quarterly results were lower than anticipated. While the reduction in earnings related to the planned major maintenance work at Tartas and Temiscaming was foreseeable, the unexpected price declines for certain products, most notably lumber, combined with a stronger Canadian dollar, negatively impacted the prices in all of the Company's business segments. As expected, the Specialty Cellulose segment results declined by approximately $12 million due to the major maintenance work completed at both of the specialty pulp mills. Price realizations declined, due primarily to currency and mix. While shipments increased over the prior quarter, they remained relatively low. Fiscal year-to-date shipments of specialty pulp are down by approximately 17% and it is not anticipated that demand will improve in calendar 2015. This in turn will lead to increased production of viscose and other grades, which are less profitable to produce and sell. Viscose grade prices have improved modestly, but remain at relatively low levels. The over-supply situation will likely persist throughout 2015. The Forest Products segment results were disappointing. Not only did we not experience the historical seasonal pick-up in lumber prices, but average prices in the June 2015 quarter actually declined by approximately US $40 per thousand board feet. While the recent price increases in late June and July should lead to better results in the September quarter, the market does not currently have a clear direction and some volatility will likely result in the next few quarters. However, we remain bullish on the medium and longer term outlook for lumber, driven by a gradual recovery in US housing starts. The Paper Pulp segment results were similar, but remained relatively weak in terms of adjusted EBITDA. The new South American hardwood paper pulp capacity combined with the restart of high-yield pulp capacity is impacting prices and we anticipate marginal profitability from this segment until the market absorbs all of this new capacity. The Paper segment results were relatively unchanged. The coated bleached board markets remain stable and the business should continue to generate good results, bolstered by a relatively weaker Canadian dollar. Ongoing weakness in newsprint markets has put downward pressure on prices and this situation will likely persist in the coming quarters.
The commissioning and optimization of the new boiler and turbine at Temiscaming made significant progress in the June quarter. The boiler burned approximately 70% of the targeted volume of sulfite liquor, generating a net energy benefit of approximately $4 million. These values would have been higher if not for the impact of the major maintenance downtime. The Company remains confident it will attain the $3 million per month of targeted energy, operational and maintenance cost improvement from the operation of the new boiler and turbine.
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 3,400 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 27, 2015, 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.