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Tembec says falling dollar won't repair permanent damage to export sectors

MONTREAL - The falling Canadian dollar is helping to breathe new life into the country's exports, but it won't bring back all the plants that closed or all of the jobs lost when the loonie soared, the head of forest products company Tembec said Thursday.

"I think there's not a true appreciation for the damage done to the manufacturing sectors in Canada with the strong Canadian dollar and certainly to our industry," James Lopez told reporters ahead of the company's annual meeting.

He said many unprofitable facilities were shuttered and taken apart when the loonie approached parity.

The Quebec-based company closed three locations — in Smooth Rock Falls, Ont.; Pine Falls, Man., and a joint venture with Kruger in Marathon, Ont., affecting a total of about 1,000 jobs.

Lopez said the falling dollar may enable some production to make a comeback, but doubted just how much of a difference it would make.

"I don't think it's going to be material because a lot of those mills have been dismantled and a lot of times the wood has been reallocated to other companies," he said.

The Forest Products Association of Canada says the sector lost about 100,000 jobs over the past decade as 48 pulp and paper facilities and 30 wood products operations were close under the weight of a high dollar, the switch to digital media and a weak U.S. economy that punished the housing sector.

Executive vice-president Catherine Cobden said the exchange rate is a critical driver of the sector's competitiveness, which has also become more productive

"This lower value will contribute to the turnaround in the Canadian forest products industry," she said in an email.

Tembec (TSX:TMB) estimates that each one-cent decrease in the Canadian dollar adds $6 million in profits.

The company also expects a $135-million turnaround in its cash flow in 2015 from a major energy investment in Temiscaming, Que., the elimination of deficits in its pension plans and the gradually improving U.S. home construction.

"We believe that Tembec is on the cusp of a very important period in our history," Lopez said, pointing to the transformation flowing from its 2008 recapitalization.

"(Shareholders) have been very patient with us and we believe they are going to be rewarded over the next two or three years so we're happy about where we are and we're excited about the future and I can't get there fast enough."

Lopez said the improved cash flow should help boost the company's share price, but said Tembec was not in a position to pay a dividend or buy back its shares.

Tembec reported Thursday that it earned $2 million or two cents per share in the seasonally slow quarter, up from a loss of $15 million or 15 cents per share in the year-earlier period.

The latest quarter, which ended Dec. 28, included a $4-million tax recovery. Excluding one-time items, it earned no money while adjusted earnings before interest, taxes, depreciation and amortization fell to $13 million from $19 million a year ago.

Sales were also down year-over-year, dropping to $354 million from $376 million.

The company said the quarter saw higher maintenance costs from a shutdown at its Tartas specialty pulp mill and weather-related issues that affected productivity and shipments in late December.

Analyst Paul Quinn of RBC Capital Markets said the results were negative as specialty cellulose pulp earnings fell on higher costs. Prices are expect to be down about seven per cent in 2014, more than the five per cent drop previously forecast.

The company's Paper pulp earned a small profit on higher prices and currency gains that offset lower shipments. Lumber lost $2 million despite higher prices, while paper earned $7 million on lower shipments.

Tembec's optimism about the future is rooted in the elimination of a $200-million pension deficit over the last 15 months, which will save $14 million in annual contributions, and the $235 million investment at its Temiscaming pulp mill.

It plans to sell another $50 million worth of land in B.C. this year, on top of the $300 million realized over the past four years from asset sales.

Tembec shares closed down more than seven per cent, or 22 cents, at $2.90 in Thursday trading.

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The Canadian Press

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