Tembec

Montreal, Quebec, Canada, 21 November 2007 -- Consolidated sales for the fourth quarter ended 29 September 2007 were CAD 675 million, down from CAD 781 million in the comparable period last year. The company generated net earnings of CAD 22 million or CAD 0.25 per share compared to a net loss of CAD 52 million or CAD 0.62 per share in the corresponding quarter ended 30 September 2006, and a net loss of CAD 164 million or CAD 1.91 per share in the previous quarter. Earnings before unusual items, interest, income taxes, depreciation, amortization, and other nonoperating expenses (EBITDA) was CAD 23 million, as compared to EBITDA of CAD 26 million a year ago and up from EBITDA of CAD 4 million in the prior quarter.

The September 2007 quarterly financial results include an after-tax gain of CAD 71 million or CAD 0.83 per share relating to the gain on translation of foreign debt. After adjusting for this item and certain other items, the company would have generated a net loss of CAD 51 million or CAD 0.60 per share. This compares to a net loss of CAD 43 million or CAD 0.51 per share in the corresponding quarter ended 30 September 2006 and a net loss of $76 million or CAD 0.88 per share in the previous quarter. The impact of specific items on the company’s financial performance is discussed further in the Management Discussion and Analysis (MD&A) of its financial results.

For the fiscal year ended 29 September 2007, sales were CAD 2.8 billion as compared to CAD 3.0 billion in the prior year. The company generated a net loss of CAD 49 million or CAD 0.58 per share compared to a net loss of CAD 292 million or CAD 3.41 per share in fiscal 2006. EBITDA increased to CAD 65 million from CAD 42 million a year ago.

The fiscal 2007 annual financial results include an after-tax gain of CAD 124 million or CAD 1.45 per share on the translation of its U.S. dollar denominated debt and an after-tax gain of CAD 185 million or CAD 2.16 per share related to the refund of lumber duties and interest thereon. After adjusting for these items and certain other items, the company would have generated a net loss of CAD 152 million or CAD 1.79 per share. This compares to a net loss of CAD 252 million or CAD 2.94 per share in the prior year.

Business Segment Results

The Forest Products segment generated negative EBITDA of CAD 13 million on sales of CAD 203 million. This compares to negative EBITDA of CAD 21 million on sales of CAD 212 million in the prior quarter. The sales decrease of CAD 9 million was caused primarily by lower shipments of SPF lumber.

U.S. dollar reference prices for random lumber increased by approximately USD 5 per mbf while stud lumber decreased by USD 1 per mbf. Currency negatively impacted sales as the Canadian dollar averaged USD 0.957, a 5% increase from USD 0.913 in the prior quarter. The currency impact was offset by higher average net sales values.

Given the relatively soft lumber market conditions, the company has made a decision to reduce the quantity of lower grade lumber produced in its sawmills. The net price effect was an increase in EBITDA of CAD 1 million or CAD 3 per mbf. Margins were positively impacted by lower operating costs. During the quarter, the company incurred CAD 5 million of lumber export taxes, unchanged from the prior quarter. Lumber export taxes are payable based on the 2006 agreement between Canada and the United States. Applicable export tax rates vary based upon selling prices. During the September quarter, the Company incurred a tax of 5% on Eastern shipments and 15% on Western shipments, unchanged from the prior quarter.

The Pulp segment generated EBITDA of CAD 51 million on sales of CAD 369 million for the quarter ended September 2007 compared to EBITDA of CAD 33 million on sales of CAD 380 million in the June 2007 quarter. Lower effective Canadian dollar selling prices combined with lower shipments generated the CAD 11 million decline in sales. Reflecting the strength of the pulp market, inventories were at 19 days of supply at the end of September, down from 20 days at the end of the prior quarter. U.S. dollar reference prices increased for all grades of pulp. The increases in U.S. dollar reference prices were not enough to offset the negative impact of the stronger Canadian dollar. The net price effect was a decrease of CAD 8 per metric ton, decreasing EBITDA by CAD 4 million. Margins were assisted by lower manufacturing costs. The summer months have lower energy costs and lower maintenance downtime. In the prior quarter, the company had taken 13,700 tonnes of maintenance downtime compared to only 1300 metric tons in the September 2007 quarter. While the local currency costs of the French pulp mills declined in Euros, the stronger Canadian dollar resulted in a further reduction of CAD 4 million in reported Canadian dollar manufacturing costs.

The Paper segment generated negative EBITDA of CAD 10 million on sales of CAD 116 million. This compares to negative EBITDA of $1 million on sales of $128 million in the prior quarter. The sales decrease of CAD 12 million was due to lower effective prices. The U.S. dollar reference price for newsprint declined by USD 25 per metric ton, while the reference price for coated bleached board increased by USD 20 per short ton. The stronger Canadian dollar also negatively impacted selling price. The net price effect was a decrease of CAD 54 per metric ton, decreasing EBITDA by CAD 9 million.

Manufacturing costs remained relatively unchanged from those of the prior quarter. The company incurred 3500 metric ton of market related downtime in the September 2007 quarter, up from 900 metric tons of maintenance downtime in the June 2007 quarter. In June 2007, the company announced that the paper mill located in St. Francisville, Louisiana, USA, would be indefinitely idled as of the end of July. The company has not identified a feasible restructuring plan to resume operations at the facility. The assets, liabilities, and financial results of the St. Francisville operation have been reclassified as discontinued operations.

Other

Liquidity at the end of September 2007 was CAD 217 million, consisting of CAD 14 million of cash and CAD 203 million of unused operating lines of credit. The company continues with initiatives to improve liquidity. The target for 2007 was to generate CAD 100 million of additional liquidity through a combination of asset sales and increased working capital facilities. To date, a total of CAD 103 million has been generated through these initiatives.

The company is exploring strategic alternatives to improve its capital structure and enhance liquidity. Strategic alternatives under consideration include noncore asset sales, cost reduction initiatives, refinancing, or repayment of debt and issuance of new debt or equity. The review of strategic alternatives is being undertaken by Tembec’s management and is being overseen by the Special Committee for Strategic Purposes and the board of directors. BMO Capital Markets is providing financial advice to Tembec. The company remains focused on improving its operations in the context of a relatively difficult environment for forest products, while retaining a collaborative relationship with its customers, suppliers, and employees.

Outlook

Overall, the September quarterly operating results were in line with the company’s expectations. The rapid appreciation of the Canadian dollar and the Euro versus the U.S. dollar negatively impacted all of the company’s business segments. Lumber and newsprint prices, when converted to Canadian dollars, are at trough levels. Looking ahead, pulp markets are expected to remain strong and price increases have already been announced for the December quarter. Newsprint and lumber will continue to be challenging as producers will need to adapt to relatively weak demand fundamentals. As for the company, it will continue to focus on controllable items such as costs and operating efficiency, the key elements of its recovery plan. Management will also be expending considerable efforts to work with its financial advisors to develop and review potential strategic alternatives to address its current leveraged capital structure.

Tembec is a large, diversified, and integrated forest products company. With operations principally located in North America and in France, the company employs approximately 9000 people. Tembec’s common shares are listed on the Toronto Stock Exchange under the symbol TBC. Additional information on Tembec is available on its website at www.tembec.com