Tembec cuts 100 more jobs, slashes spending in cost-reduction plan
Published Saturday February 14th, 2009
MONTREAL - Forestry company Tembec Inc. (TSX:TMB) is cutting 100 white collar jobs, permanently closing a small Ontario sawmill and clamping down on spending as the battered lumber and pulp and paper producer struggles to stem mounting losses.
While declining to say how many of its workers will face layoffs, Tembec said a significant number will be permanent terminations and retirements. The reduction will take place across its operations and involve staff and management positions, including sales jobs.
The Quebec-based producer has also frozen all salaries for 2009, cut bonuses for executives, plans to reduce travel expenses and is reviewing its participation in associations and research institutes to conserve cash.
Tembec has already announced plans to lay off nearly half of its unionized workforce as it shuts mills in British Columbia, Manitoba and Ontario.
"The actions announced today are extraordinary measures for our company," said Jim Lopez, president and CEO of the Montreal company. "However, these are extraordinary times for the economy generally, and for forest products in particular."
"The recapitalization of our company completed a year ago gave us a strong balance sheet and liquidity. We intend to take the steps necessary to preserve that position, and to allow Tembec to weather this economic storm."
The forestry sector has been bogged down by depressed markets for lumber, pulp and newsprint amid the widespread economic slowdown in North America and around the world.
About 3,400 of the company's 7,000 workers have been idled in earlier plant closures and workforce cuts affecting mills in Canada and France.
Tembec is also pressing suppliers to reduce their materials costs by 10 per cent and services costs by 20 per cent.
In a related development Friday, Tembec also announced the permanent closure of its hardwood sawmill in Mattawa, Ont., with the loss of 59 jobs. The mill had been idled since last July.
Tembec operates just four of its 11 sawmills. They are located in Chapleau, Ont., and the Quebec communities of La Sarre, Taschereau and Senneterre.
Tembec also revealed Friday that its 50-per-cent owned joint venture Marathon Pulp Inc. is shutting down its northern Ontario mill by the end of February. Tembec said it will book a $3 million gain from the move.
In its latest financial report, Tembec said it lost $4 million for the July-September quarter, as lower sales helped reverse a $22 million profit in the year-earlier period. Sales fell to $629 million from $675 million.
The company is expected to release its year-end financial report in the next few weeks.
Analyst Paul Quinn of RBC Capital Markets said he doubts the lumber business will get materially weaker but that pulp markets will continue to worsen because oversupply will further drive down prices.
"There's probably more reductions on the pulp side, maybe not on a permanent nature, but definitely on an indefinite basis," he said in an interview.
Quinn said Tembec's review of its participation in associations won't generate a lot of savings but demonstrates the company's determination to preserve cash, which he says is adequate.
The company faces the challenge of trimming expenses without compromising its operational efficiency.
"You can cut, cut, cut but at some point you start getting very inefficient at what you're doing," he added.
Canada's forestry companies have been cutting jobs and streamlining mills in moves to conserve cash in one of the worst periods in years for the sector. With the U.S. housing market in a deep slump, demand for lumber, construction panels, plywood and other building products has dropped off sharply.
As well, the industry faces trade restrictions under the 2006 Canada-U.S. softwood lumber agreement.
On the pulp and paper side, the troubles in the U.S. newspaper industry and a shift towards online advertising and news, have reduced demand for newsprint, leading to mill closures and job cuts at paper companies such as AbitibiBowater (TSX:ABH) and Domtar (TSX:UFS).
Earlier this week, Domtar announced that more than 113 job cuts at its sawmill and related operations in Ear Falls, Ont. About 55 of the mill's 131 workers will be affected by the layoffs as will 58 contract employees who cut and haul timber.
Late Thursday, International Forest Products Ltd. (TSX:IFP.A), a major lumber producer based in Vancouver, reported its losses nearly doubled in the fourth quarter as lumber markets remain depressed.
The company, known as Interfor, reported a net loss of $18.5 million for the fourth quarter, compared with a net loss of $8.9 million in the fourth quarter of 2007. Interfor said its mills operated at less than 40 per cent of available capacity in the fourth quarter..
"Interfor's results for the fourth quarter reflect the sharp decline in business conditions and product prices which began in mid-September," the company said.
In Friday trading on the TSX, Tembec shares fell four cents to $1, a drop of 3.85 per cent.
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