Canadian Manufacturing

Falling loonie won’t repair damage to export sectors: Tembec CEO

James Lopez said unprofitable facilities shuttered when dollar reached parity; unlikely to reopen now

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.

“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 come back, 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.

Tembec estimated that each one cent decrease in the Canadian dollar added $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., eliminating deficits in its pension plans, and a gradually improving home construction in the United States.

“We believe that Tembec is on the cusp of a very important period in our history,” he 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 it earned $2-million or two cents per share during 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 was hit by 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 it previously forecast.

The company’s paper unit 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 British Columbia this year, on top of the $300-million realized over the past four years from asset sales.

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