Cascades Announces Strong Results for the First Quarter of 2019

KINGSEY FALLS, QC, May 9, 2019 /CNW Telbec/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended March 31, 2019.

Q1 2019 Highlights⁴

• Sales of $1,230 million
  (compared to $1,196 million in Q4 2018 (+3%) and $1,098 million in Q1 2018 (+12%))
• As reported (including specific items)
  • Operating income of $72 million
    (compared to an operating loss of $37 million in Q4 2018 (+295%) and operating income $112 million in Q1 2018 (-36%))
  • OIBD¹ of $139 million
    (compared to $33 million in Q4 2018 (+321%) and $167 million in Q1 2018 (-17%))
  • Net earnings per share of $0.26
    (compared to net loss of $0.72 in Q4 2018 and net earnings of $0.65 in Q1 2018)
• Adjusted (excluding specific items)²
  • Operating income of $68 million
    (compared to $43 million in Q4 2018 (+58%) and $50 million in Q1 2018 (+36%))
  • OIBD¹ of $135 million
    (compared to $113 million in Q4 2018 (+19%) and $105 million in Q1 2018 (+29%))
  • Net earnings per share of $0.14
    (compared to $0.00 in Q4 2018 and net earnings of $0.13 in Q1 2018)
• Net debt¹ of $1,878 million as at March 31, 2019 (compared to $1,769 million as at December 31, 2018) and net debt to adjusted OIBD ratio¹ at 3.4x on a pro-forma basis³.
• Impact of IFRS 16 accounting for leases: $99 million debt increase as of January 1, 2019, and $30 million increase in full year OIBD for 2019.

Mr. Mario Plourde, President and Chief Executive Officer, commented: "We are pleased with our first quarter operational performance, with all of our business segments generating solid results that were in line with or above expectations. The Containerboard Packaging segment executed well within an environment of softer industry-wide demand and capacity utilization levels, in addition to slight decreases to index pricing levels during the quarter. While volumes were down sequentially, we maintained profitability levels in this segment as a result of lower raw material prices and improvements to sales mix which drove higher average selling prices. European Boxboard, via our equity position in Reno de Medici S.p.A., generated strong sequential results during the period that reflected recent business acquisitions, lower average raw material prices and higher average selling prices. The Specialty Products segment also generated improved sequential results in the first three months of the year. This was driven by recent business acquisitions and better performance in all packaging sub-segments, the benefits of which offset a lower contribution from the recovery sub-segment attributable to lower recycled fibre prices. Finally, we are very pleased with the important sequential improvement generated by the Tissue Papers segment. At the center of this were higher average selling prices owing to both improved sales mix and the implementation of price increases announced in 2018, in addition to lower raw material prices and lower production costs.

Other significant events announced during the first quarter include the closure of the felt floor backing plant in our Specialty Products segment in Quebec, and two paper machines in Ontario in our Tissue segment. We also announced that Jean-David Tardif was taking over the helm of the Tissue Papers segment, and the renewal of the Company's 2% annual normal course issuer bid for the March 2019 to March 2020 period."

Financial Summary

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

Sales of $1,230 million increased by $132 million, or 12%, compared to the same period last year. This reflects increases in all four business segments, most notably a $43 million or 14% increase in Tissue that was driven by improved average selling price, a more favourable exchange rate and better sales mix, the combined benefit of which offset slightly lower volume. The Containerboard Packaging group generated a 5% year-over-year increase in sales, reflecting a higher average selling price, more favourable exchange rate and sales mix, which more than mitigated the impact from lower volume during the period. Sales generated by the European Boxboard segment were up by 13% compared to the prior year. This was largely driven by the business acquisition in Spain at the end of 2018, the benefits of which were partially offset by slightly lower volume and a less favourable Canadian dollar - euro exchange rate.

Finally, first quarter sales in the Specialty Products segment improved by a strong 23% from prior year levels, reflecting the recent business acquisition of U.S. moulded pulp assets. Lower results from the Recovery & Recycling sub-segment attributable to price erosion of recycled material negatively impacted sales performance by $7 million year-over-year.

The Corporation generated an operating income before depreciation and amortization (OIBD) of $139 million in the first quarter of 2019. This compares to the $167 million generated in the same period last year, which included the $66 million gain related to the sale of the land and building of our Maspeth, NY containerboard converting facility. On a consolidated basis, the variance reflects higher average selling prices and a more favourable sales mix, lower raw material prices, and business acquisitions completed in the last twelve months. These were offset by lower comparable volume in all segments, in addition to higher production costs most notably in Tissue, which were driven by the greater percentage of converted products in the sales mix resulting in elevated logistics and sub-contracting costs.

On an adjusted basis¹, first quarter 2019 OIBD stood at $135 million, versus $105 million in the prior year.

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

• $10 million gain in the Containerboard segment from the reversal of liabilities following the termination of a lease on the Bear Island, VA facility by the lessee (OIBD and net earnings)
• $4 million impairment charge on Tissue and Bear Island equipment (OIBD and net earnings)
• $5 million of restructuring costs related to the closure of two Ontario tissue paper machines, closure of one Specialty Products plant and management changes in the Tissue Papers segment (OIBD and net earnings)
• $3 million unrealized gain on financial instruments (OIBD and net earnings)
• $6 million foreign exchange gain on long-term debt and financial instruments (net earnings)

In addition, net earnings for the first quarter reflect a $10 million increase in interest expense compared to last year related to the recognition of the fair value variation of the CDPQ's put option on its equity stake in Greenpac.

For the three-month period ended March 31, 2019, the Corporation posted net earnings of $24 million, or $0.26 per share, compared to net earnings of $61 million, or $0.65 per share, in the same period of 2018. On an adjusted basis¹, the Corporation generated net earnings of $13 million in the first quarter of 2019, or $0.14 per share, compared to net earnings of $12 million, or $0.13 per share, in the same period of 2018.

Near-Term and Strategic Outlook

Discussing the outlook for Cascades, Mr. Plourde commented: "We are expecting near-term results to improve both sequentially and year-over-year for all of our North American business segments, taking into account usual seasonal trends and current market dynamics. In containerboard, lower OCC prices are expected to moderate industry-wide demand and pricing headwinds. European Boxboard performance is expected to continue to benefit from recent acquisitions in addition to lower recycled fibre pricing, the benefits of which are expected to mitigate more moderate demand levels and second quarter holiday-related closures. We anticipate moderately improved near-term results in the Specialty Products segment, as the impact of lower recycled fibre pricing on the recovery sub-segment is expected to be offset by stronger volumes and stable pricing in packaging. Lastly, our outlook for Tissue is positive, driven by internal initiatives and expected improvements in market conditions, in addition to more favourable raw material pricing. We are making progress with our internal initiatives to realign this segment's operational and financial performance, the early effects of which we began to see in the current quarter. In addition, management is focused and confident that the steps being taken will successfully position this segment for long-term success."

Dividend on common shares and normal course issuer bid

The Board of Directors of Cascades declared a quarterly dividend of $0.04 per share to be paid on June 6, 2019 to shareholders of record at the close of business on May 22, 2019. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). During the first quarter of 2019, Cascades purchased 628,300 shares for cancellation at a weighted average price of $8.42.

2019 First Quarter Results Conference Call Details

Management will discuss the 2019 first quarter financial results during a conference call today at 8:30 a.m. EDT. 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 June 9, 2019 by dialing 1-855-859-2056, access code 4599258.

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.

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. It 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 contribution of each segment when excluding depreciation & 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 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 (loss) and adjusted net earnings (loss) per share:

The following table reconciles cash flow from operating activities with operating income (loss) 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): 

SOURCE Cascades Inc.

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

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

Source:
Allan Hogg
Vice-President and Chief Financial Officer