Cascades Announces Solid Results for the Fourth Quarter and Full Year 2019

• Record Annual Sales and Adjusted OIBD Generated for the Year
• Outlook is positive for 2020

KINGSEY FALLS, QC, Feb. 27, 2020 /CNW Telbec/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period and the fiscal year ended December 31, 2019.

Q4 2019 Highlights

• Sales of $1,227 million (compared to $1,264 million in Q3 2019 (-3%) and $1,196 million in Q4 2018 (+3%))
   
• As reported^1,3 (including specific items)
   
  • Operating loss of $1 million (compared to an operating income of $105 million in Q3 2019 (-101%) and an operating loss of $35 million in Q4 2018 (+97%))
  • Operating income before depreciation and amortization (OIBD)¹ of $76 million (compared to $178 million in Q3 2019
    (-57%) and $35 million in Q4 2018 (+117%))
  • Net loss per share of $0.27 (compared to net earnings of $0.42 in Q3 2019 and a net loss of $0.71 in Q4 2018)
     
• Adjusted¹ (excluding specific items)
   
  • Operating income of $75 million (compared to $88 million in Q3 2019 (-15%) and $43 million in Q4 2018 (+74%))
  • OIBD of $152 million (compared to $161 million in Q3 2019 (-6%) and $113 million in Q4 2018 (+35%))
  • Net earnings per share of $0.30 (compared to $0.30 in Q3 2019 and $0.00 in Q4 2018)

2019 Annual Highlights

• Sales of $4,996 million (compared to $4,649 million in 2018 (+7%))
   
• As reported^1,3 (including specific items)
   
  • Operating income of $258 million (compared to $228 million in 2018 (+13%))
  • OIBD of $547 million (compared to $472 million in 2018 (+16%))
  • Net earnings per share of $0.74 (compared to $0.60 in 2018)
     
• Adjusted¹ (excluding specific items)
   
  • Operating income of $315 million (compared to $245 million in 2018 (+16%))
  • OIBD of $604 million (compared to $489 million in 2018 (+24%))
  • Net earnings per share of $1.02 (compared to $0.83 in 2018)
     
• Completed the acquisition of Orchids Paper Products² activities for total cash consideration of US$235 million in September 2019
   
• Announced the planned March 2020 closure of two U.S. tissue converting facilities at the end of October 2019
   
• Senior Notes successfully refinanced in November 2019 in the amount of $1 billion
   
• Exercised option to acquire the Caisse de dépôt et placement du Québec's ("CDPQ") 20.2% interest in the Greenpac Mill, increasing the Company's ownership to 86.3%; Transaction was effective January 3, 2020
   
• Net debt of $1,963 million as at December 31, 2019 (compared to $1,769 million as at December 31, 2018) and net debt to adjusted OIBD ratio of 3.25x, down from 3.6x at year-end 2018
   
• Impact of IFRS 16 accounting for leases: $99 million debt increase as of January 1, 2019, and approximately $30 million increase in full year OIBD for 2019

 

Mr. Mario Plourde, President and Chief Executive Officer, commented: "We are very pleased with the annual adjusted OIBD level of $604 million generated in 2019, the second consecutive year of record performance for Cascades. These historic results affirm the solid progress we are making with our growth, optimization and strategic initiatives.

On a sequential basis, fourth quarter results reflect the softer seasonal demand common to the end of the year, and less favourable pricing and sales mix in all business segments. These effects were partially mitigated by lower raw material prices for all of our segments, acquisitions completed throughout the year, and sequentially lower production costs in Tissue and European Boxboard. Year-over-year quarterly performance was similarly aided by lower raw material pricing and recent business acquisitions, in addition to lower energy costs. The resulting benefits outweighed less favourable sales pricing and mix in all segments with the exception of Tissue, and higher production costs in our North American operations in part due to the higher proportion of sales coming from converting activities.

On the strategic front, Cascades purchased the CDPQ's 20.2% interest in our Greenpac Mill on January 3, 2020. Increasing ownership of this state-of-the-art lightweight containerboard facility to 86.3% will improve available cash flow levels and reinforce the competitive positioning of the containerboard platform. In a similar vein, we continued to advance the integration of the Orchids activities during the quarter, and subsequently completed the conversion of the Barnwell paper machine from QRT to conventional paper in mid-January 2020. Finally, we successfully refinanced our senior notes in November, taking advantage of favourable market pricing conditions to proactively manage our debt profile.

Discussing near-term outlook, Mr. Plourde commented, "First quarter performance is projected to improve year-over-year, largely driven by improvements in the Tissue segment as a result of our strategic repositioning and ongoing integration of the Orchids activities. Results in our other three segments are expected to be stable, with pricing headwinds for these businesses expected to be offset by improved volumes and favourable raw material pricing in containerboard and Boxboard Europe.

Our operational outlook is positive for 2020. We are forecasting strong year-over-year improvement in the Tissue segment, moderate year-over-year improved results in Specialty Products and stable annual performance in Boxboard Europe. While pricing headwinds are expected to translate into softer annual Containerboard results, raw material prices continue to be a strong tailwind for this business, as does our focus on improved operational execution. On a consolidated basis, we expect to generate solid cash flow levels in 2020, of which approximately $250 million will be dedicated to capital expenditures. Based on current operational conditions, we expect the remaining cash flow to be in excess of $100 million. These funds will be allocated in part to the Bear Island conversion project, when approved and once the financial and operational structure is finalized, and to the reduction of our debt."

Financial Summary

 

 

 

 

 

 

Analysis of results for the three-month period ended December 31, 2019 (compared to the same period last year)

Sales of $1,227 million increased by $31 million, or 3%, compared with the same period last year. Specifically, Tissue sales increased by $57 million, or 17%, a reflection of increased volumes, higher average selling price, more favourable sales mix, and the addition of Orchids Paper assets. European Boxboard sales decreased by $2 million, or 1%, compared with the previous year, largely driven by less favourable average selling price and mix and Canadian dollar - euro exchange rate, and slightly lower volumes, the effects of which were largely mitigated by the business acquisition in Spain at the end of 2018. The Specialty Products segment generated an 8% or $8 million sales improvement year-over-year, reflecting 2018 acquisitions and slightly higher volumes, the benefits of which outweighed slightly less favourable pricing and sales mix. Lastly, sales in the Containerboard Packaging group decreased by $21 million year-over-year due to slightly lower volume and less favourable average selling price and sales mix year-over-year.

The Corporation generated an operating income before depreciation and amortization (OIBD) of $76 million in the fourth quarter of 2019. This compares with the $35 million generated in the same period last year. This reflects impairments charges of $75 million and $34 million recorded in the Tissue segment in the fourth quarters of 2018 and 2019, respectively, and additional impairment charges of $14 million related to goodwill that were recorded in our Recovery operations in 2019. On a year-over-year basis, operating results benefited from more favourable raw material prices across all four businesses, lower energy costs in all segments with the exception of Specialty Products, and business acquisitions completed in the last twelve months. Offsetting these benefits were less favourable selling prices and mix in all segments except Tissue, and higher production costs in all segments largely attributable to the higher proportion of sales coming from converting activities. Results generated by Recovery activities, accounted for with Corporate Activities as of the current quarter, negatively impacted results in the current period following year-over-year decreases in recycled fibre pricing. Operating results for 2019 also include the beneficial impact of IFRS 16 accounting for leases, which increased fourth quarter 2019 OIBD by approximately $7 million. On an adjusted basis¹, fourth quarter 2019 OIBD stood at $152 million, versus $113 million in the previous year.

The main specific items, before income taxes, that impacted our fourth quarter 2019 OIBD and/or net earnings were:

• $64 million impairment charge mainly related to certain assets in our Tissue and Boxboard Europe segments and the goodwill in Recovery operations (OIBD and net earnings)
• $10 million loss related to the sale of certain equipment, restructuring costs and other charges following facility closures and the Orchids acquisition (OIBD and net earnings)
• $2 million unrealized loss on financial instruments (OIBD and net earnings)
• $14 million charge on repurchase of long-term debt (net earnings)

For the 3-month period ended December 31, 2019, the Corporation posted a net loss of $26 million, or $0.27 per share, compared with a net loss of $67 million², or $0.71 per share, for the same period in 2018. On an adjusted basis¹, the Corporation generated net earnings of $29 million in the fourth quarter of 2019, or $0.30 per share, compared with a break even net earnings of $0 million, or $0.00 per share, for the same period in 2018.

 

 

Dividend on common shares and normal course issuer bid

The Board of Directors of Cascades declared a quarterly dividend of $0.08 per share to be paid on March 26, 2020 to shareholders of record at the close of business on March 12, 2020. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). During the fourth quarter of 2019, Cascades purchased 135,354 shares for cancellation at a weighted average price of $11.71.

2019 Fourth Quarter and Annual Financial Results Conference Call Details

Management will discuss the 2019 fourth quarter and annual financial results during a conference call today at 9:00 a.m. EST. The call can be accessed by dialing 1-888-231-8191 (international dial-in 1-647-427-7450). The conference call, including the investor presentation, will be broadcast live on the Cascades website (www.cascades.com) under the "Investors" section. A replay of the call will be available on the Cascades website and may also be accessed by phone until March 27, 2020 by dialing 1-855-859-2056, access code 6667977.

Founded in 1964, Cascades offers sustainable, innovative and value-added packaging, hygiene and recovery solutions. The company employs 11,000 women and men across a network of over 90 facilities in North America and Europe. Driven by its participative management, half a century of experience in recycling, and continuous research and development efforts, Cascades continues to provide innovative products that customers have come to rely on, while contributing to the well-being of people, communities and the entire planet. Cascades' shares trade on the Toronto Stock Exchange under the ticker symbol CAS. Certain statements in this release, including statements regarding future results and performance, are forward-looking statements (as such term is defined under the Private Securities Litigation Reform Act of 1995) based on current expectations. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic conditions, decreases in demand for the Corporation's products, increases in raw material costs, fluctuations in selling prices and adverse changes in general market and industry conditions and other factors listed in the Corporation's Securities and Exchange Commission filings.

 

 

 

 

 

 

SEGMENTED INFORMATION

The Corporation analyzes the performance of its operating segments based on their operating income before depreciation and amortization, which is not a measure of performance under International Financial Reporting Standards (IFRS); however, the chief operating decision-maker (CODM) uses this performance measure to assess the operating performance of each reportable segment. Earnings for each segment are prepared on the same basis as those of the Corporation. Intersegment operations are recorded on the same basis as sales to third parties, which are at fair market value. The accounting policies of the reportable segments are the same as the Corporation's accounting policies described in its most recent audited consolidated financial statements for the year ended December 31, 2018.

The Corporation's operating segments are reported in a manner consistent with the internal reporting provided to the CODM. The Chief Executive Officer has authority for resource allocation and management of the Corporation's performance, and is therefore the CODM. In 2019, the Corporation modified its internal reporting in accordance with CODM requirements and business analysis. As a result, the Corporation modified its segmented information disclosure and restated prior periods. The Corporation's recycling and recovery activities, previously included in the Specialty Products segment, are now included in the Corporate Activities.

The Corporation's operations are managed in four segments: Containerboard, Boxboard Europe and Specialty Products (which constitutes the Corporation's Packaging Products), and Tissue Papers.

 

 

SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES

SPECIFIC ITEMS

The Corporation incurs some specific items that adversely or positively affect its operating results. We believe it is useful for readers to be aware of these items, as they provide additional information to measure performance, compare the Corporation's results between periods, and assess operating results and liquidity, notwithstanding these specific items. Management believes these specific items are not necessarily reflective of the Corporation's underlying business operations in measuring and comparing its performance and analyzing future trends. Our definition of specific items may differ from those of other corporations, and some of them may arise in the future and may reduce the Corporation's available cash.

They include, but are not limited to, charges for (reversals of) impairment of assets, restructuring gains or costs, loss on refinancing and repurchase of long-term debt, some deferred tax asset provisions or reversals, premiums paid on long-term debt refinancing, gains or losses on the acquisition or sale of a business unit, gains or losses on the share of results of associates and joint ventures, unrealized gains or losses on derivative financial instruments that do not qualify for hedge accounting, unrealized gains or losses on interest rate swaps, foreign exchange gains or losses on long-term debt and financial instruments, specific items of discontinued operations and other significant items of an unusual, non-cash or non-recurring nature.

RECONCILIATION OF NON-IFRS MEASURES

To provide more information for evaluating the Corporation's performance, the financial information included in this analysis contains certain data that are not performance measures under IFRS ("non-IFRS measures"), which are also calculated on an adjusted basis to exclude specific items. We believe that providing certain key performance measures and non-IFRS measures is useful to both Management and investors, as they provide additional information to measure the performance and financial position of the Corporation. This also increases the transparency and clarity of the financial information. The following non-IFRS measures are used in our financial disclosures:

• Operating income before depreciation and amortization (OIBD): Used to assess operating performance and the contribution of each segment when excluding depreciation and amortization. OIBD is widely used by investors as a measure of a corporation's ability to incur and service debt and as an evaluation metric.
• Adjusted OIBD: Used to assess operating performance and the contribution of each segment on a comparable basis.
• Adjusted operating income: Used to assess operating performance of each segment on a comparable basis.
• Adjusted net earnings: Used to assess the Corporation's consolidated financial performance on a comparable basis.
• Adjusted free cash flow: Used to assess the Corporation's capacity to generate cash flows to meet financial obligations and/or discretionary items such as share repurchase, dividend increase and strategic investments.
• Net debt to adjusted OIBD ratio: Used to measure the Corporation's credit performance and evaluate financial leverage.
• Net debt to adjusted OIBD ratio on a pro-forma basis: Used to measure the Corporation's credit performance and evaluate the financial leverage on a comparable basis, including significant business acquisitions and excluding significant business disposals, if any.

Non-IFRS measures are mainly derived from the consolidated financial statements, but do not have meanings prescribed by IFRS. These measures have limitations as an analytical tool and should not be considered on their own or as a substitute for an analysis of our results as reported under IFRS. In addition, our definitions of non-IFRS measures may differ from those of other corporations. Any such modification or reformulation may be significant.

The reconciliation of operating income (loss) to OIBD, to adjusted operating income (loss) and to adjusted OIBD by business segment is as follows:

 

 

 

Net earnings (loss), as per IFRS, is reconciled below with operating income (loss), adjusted operating income and adjusted operating income before depreciation and amortization:

 

 

 

The following table reconciles net earnings (loss) and net earnings (loss) per share, as per IFRS, with adjusted net earnings and adjusted net earnings per share:

 

 

 

The following table reconciles cash flow from operating activities with operating income and operating income before depreciation and amortization:

 

 

 

The following table reconciles cash flow from operating activities with cash flow from operating activities (excluding changes in non-cash working capital components) and adjusted cash flow from operating activities. It also reconciles adjusted cash flow from operating activities to adjusted free cash flow, which is also calculated on a per share basis:

 

 

The following table reconciles total debt and net debt with the ratio of net debt to adjusted operating income before depreciation and amortization (adjusted OIBD): 

 

 

Media:
Hugo D'Amours,
Vice-President, Communications and Public Affairs
819-363-5184;

Investor :
Jennifer Aitken, MBA,
Director, Investor Relations,
514-282-2697

Source:
Allan Hogg, Vice-President and Chief Financial Officer; Investors: