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NEWS RELEASE TRANSMITTED BY CANADIAN CORPORATE NEWSFOR: TEMBEC INC.
ME, TSE SYMBOL: TBC.ANOVEMBER 18, 1998
Tembec Inc.: Fourth Quarter Results (Part 1 of 2, Tablesto Follow)
MONTREAL, QUEBEC--Tembec reports record sales and operating
earnings for its fourth quarter ended September 30, 1998.
Consolidated gross sales for the three months ended September 30,
1998 reached a record $462.1 million, a 21 percent increase from
$382.1 million in the comparable period last year. Operating
earnings were a record high of $68.4 million, a significant
improvement over operating earnings of $38.7 million a year ago
and up from $58.8 million in the previous quarter. The Company
generated net income applicable to common shareholders of $28.1
million ($0.40 per share) compared to $12.7 million ($0.25 per
share) in the corresponding quarter ended September 30, 1997 and
$12.9 million ($0.18 per share) in the previous quarter. Free
cash flow totalled $35.8 million in the quarter, up from $13.9
million a year ago.
For the fiscal year ended September 30th, gross sales also set a
record exceeding $1.6 billion, an increase of 19 percent over
1997. The consolidation of the Spruce Falls operation for the
entire year and the acquisition of the Pine Falls newsprint
facility in February of 1998 accounted for the majority of the
increase. Operating earnings reached $224.9 million, nearly
triple the $81.7 million of 1997. Net income applicable to common
shareholders was $59.4 million ($0.85 per share) compared to a
loss of $10.3 million ($0.19 per share) in the prior year. Free
cash flow for all of fiscal 1998 was $90.3 million, exceeding the
objective of $80 million established at this time last year. Forest Products
During the quarter, the forest products group generated operating
earnings of $23.7 million on sales of $150.8 million. This
compares to operating earnings of $16.1 million in the prior
quarter ended June 1998. As anticipated, the volume of SPF lumber
sold declined by approximately 9 percent from the previous quarter
due to the planned annual shutdowns of the Company's sawmills. A
small decline in US$ selling prices was offset by a weaker
Canadian dollar and as a result average revenues per MFBM remained
relatively unchanged from the prior quarter.
Shipments of OSB increased by 208 percent as the Timmins OSB plant
gradually increased production to reach normal capacity during the
quarter. The average price of OSB increased by 39 percent over
the prior quarter and was more than double that of the same
quarter a year ago. On September 30th, the Company sold its
Timmins OSB plant to Grant Forest Products. Details of the
transaction are outlined in a subsequent section of this report.
Strong demand in North America has offset the increased lumber
supply. However, slower economic growth and a less robust housing
market should keep lumber prices at relatively low levels in the
near term. To maintain margins and returns, the group will
continue to focus on reducing stumpage and processing costs. Pulp
The pulp group generated operating earnings of $4.9 million on
sales of $130.1 million for the quarter ended September 30th, a
small increase over earnings of $2.5 million in the prior quarter
and significantly better than the operating loss of $2.4 million a
year ago. Shipments reached a new record of 191,800 tonnes, an
increase of 13 percent over the prior quarter. The Company's 50
percent share of the AV Cell dissolving pulp mill located in
Atholville, New Brunswick, added 11,200 tonnes to our sales. The
balance of the increase was due to increased sales of high yield
pulp produced at the Temiscaming, Quebec mill. Average selling
prices showed a small increase over the prior quarter. However,
this was due primarily to the weaker Canadian dollar. Average US$
selling prices declined in the quarter.
The turnaround in the pulp group's financial performance
represents an important success story. With relatively little
improvement in average prices, the group's operating earnings for
fiscal 1998 are $40.4 million higher than those of the prior year.
Our continuing cost reduction program is providing the expected benefits.
The outlook for pulp in the near term will be characterized by
relatively weak demand where producer discipline will be required
to maintain acceptable pricing levels. However, in the longer
term, we see improvement in this segment of our business. Recent
announcements of permanent market pulp mill closures combined with
little or no capacity additions will create a more favourable
market environment. The remaining producers will be stronger and
better able to earn satisfactory returns on their investments.
Publishing Papers
Consolidated quarterly gross sales and operating earnings were
$129.8 million and $39.3 million respectively, a small improvement
over the prior quarter's results. Average selling prices
increased by $30 a tonne, all of which can be attributed to the
weaker Canadian dollar.
Market conditions were assisted by the strike at Abitibi
Consolidated as the work stoppage led to a balanced market
offsetting the significant drop in overseas exports of Canadian
newsprint. The outlook in the near term will depend on producer
discipline. Demand is expected to remain stable. Paperboard
The segment generated an operating loss of $0.2 million in the
quarter, a decrease from operating earnings of $2.5 million in the
prior quarter. For all of fiscal 1998, the paperboard operations
generated $5.6 million in operating earnings compared to $6.7
million in the prior year.
We have seen a gradual weakening in the board market throughout
the year, although pricing has remained fairly stable. The focus
of the Temboard operations in the coming year will be to reduce
costs and increase the productivity of the board machine in Temiscaming.
Chemical Products
The Company's ethanol, lignin and resin divisions generated an
operating profit of $0.5 million compared to $0.6 million in the
prior quarter. Despite significant strengthening in the OSB
business, the resin market has remained very competitive. Other
Net interest expense for the quarter included losses of $15.3
million realized on US$ forward contracts. Although the Company's
operating margins continue to benefit from the weakness of the
Canadian dollar versus the US dollar, the hedging program
effectively mitigates the overall positive impact to net income.
On September 30th, 1998, the Company sold the Timmins OSB plant
and related spares to Grant Forest Products for cash consideration
of $161.5 million. The sale reduced the Company's OSB capacity by
approximately 85 percent. Proceeds of the sale were applied to
reduce debt and for general corporate purposes. The sale generated
a pre-tax gain of $54.6 million which is included in unusual items.
The gain was partially offset by a $32.0 million write down of
goodwill associated with the acquisition of Malette Inc. in 1995,
also shown as an unusual item. After giving effect to income
taxes, earnings for the period were increased by $2.6 million as a
result of these unusual items.
On October 2, 1998, the Company announced that it had received the
required approvals to proceed with a normal course issuer bid.
The Company can repurchase for cancellation up to 3,490,000 of its
Class A shares between October 6, 1998 and October 5, 1999.
During the month of October, 416,100 Class A shares were
repurchased at an average price of $7.64 per share.
The Company is currently completing a review of all its production
and management information systems to assess the impact of year
2000. A detailed timetable has been established to audit the
systems, identify any shortcomings and, if necessary, take
corrective action. The Company anticipates that the program will
be substantially complete by mid 1999. The cost of the corrective
measures will not be material in relation to the Company's normal
ongoing investments to upgrade processes and technology. Summary
The $68.4 million of quarterly operating earnings represents a new
record for Tembec. This is also the 11th consecutive quarter of
operating earnings growth for the Company. The focus on cost
reduction, supported by the commitment of our employees, has
contributed significantly to the improved results.
The recent sale of the OSB mill in Timmins has allowed us to
strengthen our balance sheet as well. We have positioned the
Company to effectively deal with current uncertainty surrounding the markets.
The above commentary contains statements that are forward-looking
in nature. Such statements involve known and unknown risks and
uncertainties that may cause the actual results of the Company to
be materially different from those expressed or implied by such
forward-looking statements. Such items include, among others:
general economic and business conditions; product selling prices;
raw material and operating costs; changes in foreign currency
exchange rates and other factors referenced herein and in the
Company's annual report.-30- |
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