MONTREAL, CANADA, Jan 26, 2012 - (TSX: TMB) - Consolidated sales for the three-month period ended December 24, 2011, were $401 million, as compared to $422 million in the comparable period of the prior year. The Company generated a net loss of $16 million or $0.16 per share in the December 2011 quarter compared to a net loss of $11 million or $0.11 per share in the December 2010 quarter. Operating earnings before depreciation, amortization and other specific or non-recurring items (EBITDA) was $12 million for the three-month period ended December 24, 2011, as compared to EBITDA of $12 million a year ago and EBITDA of $19 million in the prior quarter.
Transition to IFRS
All 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 Results
The Specialty Cellulose and Chemical Pulp segment generated EBITDA of $27 million on sales of $152 million for the quarter ended December 24, 2011, compared to EBITDA of $30 million on sales of $180 million in the prior quarter. Sales decreased by $28 million primarily as a result of lower shipments.
The specialty cellulose market conditions remained favourable. A decrease in viscose grade prices was partially offset by an increase in specialty grades. Currency was also a positive factor for the Canadian mill as the Canadian dollar averaged US $0.977, a 4.5% decrease from US $1.023 in the prior quarter. Overall, pricing was relatively unchanged quarter-over-quarter. Specialty cellulose shipments were equal to 79% of capacity as compared to 92% in the prior quarter. The decline in shipments was caused primarily by unplanned equipment downtime at the two specialty cellulose facilities. Mill level costs increased by $4 million as a result of the lower productivity. The lower sales volume reduced EBITDA by a further $4 million as well.
The market conditions for Northern Bleached Softwood Kraft (NBSK) pulp weakened considerably during the quarter. The benchmark price (delivered China) declined by US $127 per tonne. With a weaker Canadian dollar and a higher sales mix factor providing a partial offset, the net effect was a reduction in EBITDA of $2 million or $52 per tonne. NBSK shipments were equal to 55% of capacity as compared to 76% in the prior quarter. During the final weeks of the prior quarter, the Company had taken 17 days of planned maintenance downtime in relation to the annual mill-wide shutdown of its NBSK mill, removing approximately 12,100 tonnes of production. Due to unforeseen problems with the mill's recovery boiler, the shutdown was extended into the current quarter for an additional 17-day period, removing a further 12,200 tonnes of production. However, as most of the maintenance work had occurred in the prior quarter, maintenance costs declined by $8 million quarter-over-quarter.
The High-Yield Pulp segment generated negative EBITDA of $9 million on sales of $74 million for the quarter ended December 24, 2011, compared to negative EBITDA of $8 million on sales of $76 million in the prior quarter. Sales decreased by $2 million as a result of lower shipments. Market conditions for high-yield pulp remained relatively weak during the most recent quarter. The US $ reference prices for bleached eucalyptus kraft (BEK) decreased over the prior quarter by US $143 per tonne. However, the drop in US $ prices for high-yield pulp was much less pronounced as prices had previously experienced significant declines. The lower Canadian dollar was a positive factor. The net effect was a reduction in EBITDA of $1 million or $8 per tonne. High-yield pulp shipments were equal to 65% of capacity as compared to 67% in the prior quarter. During the September 2011 quarter, the Company absorbed 51,300 tonnes of downtime related to an 80-day labour strike at its Matane, Quebec, facility. The strike ended in mid-September and the mill was restarted at that time. During the most recent quarter, weak market conditions led to 18,100 tonnes of market related downtime. A further 5,700 tonnes of maintenance downtime was also undertaken. The higher productivity in the most recent quarter reduced mill cost by $4 million. However, the improvement was offset by a $4 million charge relating to the reduction in the carrying values of finished goods and raw material inventories as they exceeded their estimated net realizable values. Pulp inventories were at 30 days of supply at the end of December 2011, as compared to 15 days at the end of September 2011. The abnormally low level of inventory at the end of the prior quarter was due to the Matane mill strike.
The Paper segment generated EBITDA of $10 million on sales of $85 million for the quarter ended December 24, 2011, compared to EBITDA of $6 million on sales of $84 million in the prior quarter. Higher prices and newsprint shipments were offset by lower coated bleached board shipments. In terms of markets, coated bleached board remained healthy while newsprint remained stable despite continued weaker North American demand statistics. The US $ reference prices for both grades were unchanged from the prior quarter. The weaker Canadian dollar resulted in higher prices and margins. The effect was an increase in EBITDA of $5 million. Coated bleached board shipments were equal to 87% of capacity as compared to 97% in the prior quarter. The shipment to capacity percentage for newsprint was 94%, compared to 90% in the prior quarter. Manufacturing costs were relatively unchanged quarter-over-quarter.
The Forest Products segment generated negative EBITDA of $11 million on sales of $126 million for the quarter ended December 24, 2011, compared to negative EBITDA of $10 million on sales of $121 million in the prior quarter. The increase in sales was due to higher shipments. Demand for SPF lumber remained relatively weak with shipments equal to 64% of capacity, as compared to 59% in the prior quarter. US $ reference prices for random lumber decreased by US $8 per mbf on average while stud lumber decreased by US $15 per mbf. The weaker Canadian dollar offset the decline in random lumber reference prices. The net price effect was an increase in EBITDA of $1 million or $4 per mbf. Costs increased by $2 million, primarily for timber and logs.
Outlook
The December 2011 quarterly results were lower than anticipated. Relatively weak paper pulp markets impacted selling prices and led to production curtailments in high-yield pulp. The current quarter EBITDA also absorbed a charge of $4 million relating to a net realizable value adjustment on high-yield pulp inventories. The extended maintenance downtime at the NBSK mill also impacted the December quarterly results. Looking ahead, markets for specialty cellulose pulp remain strong and we anticipate higher pricing in calendar 2012. While the prices of paper pulp have declined in recent months, we believe they have now reached their cyclical lows and we anticipate some pricing recovery in the coming quarters. The Forest Products segment continues to deal with sluggish U.S. demand for lumber and poor pricing. A slow gradual recovery in U.S. housing starts combined with the annual seasonal pickup should assist pricing in the next few quarters. Markets for coated bleached board and newsprint remain stable and we do not anticipate much change in the near term. The Company has recently disclosed a relatively large scale capital expenditure program, with a strong emphasis on its two specialty cellulose pulp mills. The cornerstone of the program is a $190 million cogeneration plant to be constructed at the Temiscaming, Quebec, site that will require two years to complete. The project will materially improve the mill's cost structure and margins. The Company expects to finalize all required agreements in order to proceed with the project in the March 2012 quarter. The Company also recently announced the sale of its two B.C. sawmills for proceeds of $60 million, subject to working capital adjustments. The transaction is expected to close at the end of the March 2012 quarter.
Tembec is a large, diversified and integrated forest products company which stands as the global leader in sustainable forest management practices. The Company's principal operations are located in Canada and France. Tembec's common shares are listed on the Toronto Stock Exchange under the symbol TMB and warrants under TMB.WT. The full quarterly report, including the interim Management Discussion and Analysis, the interim financial statements and the accompanying notes for the quarter ended December 24, 2011, can be obtained on Tembec's website at www.tembec.com or on SEDAR at www.sedar.com.
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