Cascades Continues its Solid Performance in the Third Quarter of 2019 ...

Cascades Continues its Solid Performance in the Third Quarter of 2019; Positive outlook in Tissue supported by operational improvements and recent strategic initiatives

KINGSEY FALLS, QC, Nov. 8, 2019 /CNW Telbec/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended September 30, 2019.

Q3 2019 Highlights

• Sales of $1,264 million
  (compared with $1,275 million in Q2 2019 (-1%) and $1,175 million in Q3 2018 (+8%))
• As reported (including specific items)
  • Operating income of $135 million
    (compared with $82 million in Q2 2019 (+65%) and $78 million in Q3 2018 (+73%))
  • Operating income before depreciation and amortization (OIBD)¹ of $208 million
    (compared with $154 million in Q2 2019 (+35%) and $139 million in Q3 2018 (+50%))
  • Net earnings per share of $0.74
    (compared with $0.33 in Q2 2019 and $0.38 in Q3 2018)
• Adjusted (excluding specific items)¹
  • Operating income of $88 million
    (compared with $84 million in Q2 2019 (+5%) and $76 million in Q3 2018 (+16%))
  • OIBD of $161 million
    (compared with $156 million in Q2 2019 (+3%) and $137 million in Q3 2018 (+18%))
  • Net earnings per share of $0.30
    (compared with $0.28 in Q2 2019 and $0.40 in Q3 2018)
• Completed acquisition of Orchids Paper Products² for total cash consideration of US$237 million on September 13, 2019.
• On October 30, 2019, announced planned closure of two tissue converting facilities in the U.S. by March 2020.
• Net debt¹ of $2,077 million as at September 30, 2019 (compared with $1,861 million as at June 30, 2019) and net debt to adjusted OIBD ratio¹ at 3.7x. This includes the acquisition of Orchids, detailed above, with no related contribution to adjusted OIBD.

 

 

Mr. Mario Plourde, President and Chief Executive Officer, commented: "Cascades delivered solid consolidated third quarter 2019 results, as demonstrated by the 24.9% OIBD margin realized by the Containerboard segment. In addition to our improved execution at the operational level, we benefited from favourable raw material pricing and customary seasonal demand levels across our platforms, notwithstanding some softness in Containerboard and European Boxboard end-pricing. The Tissue segment delivered very encouraging year-over-year and sequential financial improvements, with positive raw material costs and selling price levels providing additional support for the benefits being derived from ongoing growth investments and initiatives in this segment.

We concluded the acquisition of the Orchids activities during the third quarter, and subsequently announced, at the end of October, the closure of two tissue converting facilities in the U.S. by March 2020, as part of our strategic repositioning and optimization efforts in the Tissue segment. In a similar vein, we advanced our capital investments and projects across our operations, and continued to align our Specialty Products platform with the Company's longer-term strategic objectives via the sale of our European industrial packaging operations."

Discussing the outlook for Cascades, Mr. Plourde continued "After nine months, the Company is well positioned to generate solid annual adjusted OIBD in 2019, with results after the first three quarters 15% above full year 2017 performance and already equal to 92% of full year 2018 adjusted OIBD performance. On a consolidated basis we expect fourth quarter results to improve year-over-year, with operational enhancements in tissue and favourable raw material pricing mitigating the usual seasonal trends across our business platforms. On a segmented basis, near-term results in Containerboard are expected to decrease sequentially and be stable year-over-year reflecting a combination of usual seasonality and market dynamics. Tissue results are expected to show important year-over-year improvements in the fourth quarter, while sequential performance will be down reflecting the usual seasonal trends. European Boxboard performance is expected to slightly decrease sequentially but improve year-over-year as a result of lower raw material costs and a modest recovery in volume. Lastly, we anticipate stable results in Specialty Products year-over-year and a slight decrease sequentially, as the impact of lower recycled fibre prices on recovery operations and seasonality in packaging are expected to be offset by stable selling prices and beneficial raw material costs in packaging."

Financial Summary

 

 

 

 

Analysis of results for the three-month period ended September 30, 2019 (compared to the same period last year)

Sales of $1,264 million increased by $89 million, or 8%, compared with the same period last year, attaining a record level for the third quarter. Specifically, Tissue sales increased by $23 million, or 6%, reflecting a higher average selling price, the addition of Orchids Paper assets as of mid-September and a more favourable exchange rate. These benefits were partially offset by slightly lower volume following the previously announced closure of two paper machines in Ontario. European Boxboard sales increased by $46 million, or 22%, compared with the previous year, largely driven by the business acquisition in Spain at the end of 2018. Year-over-year results similarly benefited from slightly higher comparable volume, while less favourable selling price and mix and Canadian dollar - euro exchange rate negatively impacted results in the current period. The Specialty Products segment generated a 7% or $12 million sales improvement year-over-year, reflecting 2018 acquisitions and a slight improvement in pricing and sales mix. Combined, these benefits more than offset lower results from the Recovery & Recycling sub-segment due to price erosion of recycled material. Lastly, sales in the Containerboard Packaging group increased by $1 million year-over-year, as improved volume and more favourable exchange rate were largely offset by less favourable average selling price and sales mix year-over-year.

The Corporation generated an operating income before depreciation and amortization (OIBD) of $208 million in the third quarter of 2019. This compares with the $139 million generated in the same period last year. This increase reflects a $52 million gain in the Tissue segment related to the acquisition of Orchids Paper assets, more favourable raw material prices across all four businesses, slightly higher volumes in all segments with the exception of Tissue, and business acquisitions completed in the last twelve months. More favourable selling prices and sales mix in Tissue also contributed to the year-over-year improvement, the benefits of which were partially offset by adverse average selling price trends in Containerboard and European Boxboard during the period. Operating results for 2019 also include the beneficial impact of IFRS 16 accounting for leases, which increased third quarter 2019 OIBD by approximately $7 million. On an adjusted basis¹, third quarter 2019 OIBD stood at $161 million, versus $137 million in the previous year.

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

• $52 million gain in Tissue Papers related to the acquisition of Orchids (OIBD and net earnings)
• $4 million charge in Corporate Activities associated with transaction fees paid for the Orchids' asset acquisition (OIBD and net earnings)
• $2 million gain in Containerboard Packaging related to the sale of a building and land (OIBD and net earnings)
• $2 million loss following the conclusion of the sale of the Specialty Products operations in France and the closure of a facility in the second quarter (OIBD and net earnings)
• $7 million unrealized loss on the fair value revaluation of an option granted in the Bear Island project (net earnings)

For the 3-month period ended September 30, 2019, the Corporation posted net earnings of $70 million, or $0.74 per share, compared with net earnings of $36 million, or $0.38 per share, for the same period in 2018. On an adjusted basis¹, the Corporation generated net earnings of $28 million in the third quarter of 2019, or $0.30 per share, compared with net earnings of $38 million, or $0.40 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 December 5, 2019 to shareholders of record at the close of business on November 21, 2019. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). During the third quarter of 2019, Cascades purchased 203,000 shares for cancellation at a weighted average price of $11.46.

2019 Third Quarter Results Conference Call Details

Management will discuss the 2019 third quarter financial results during a conference call today at 9:00 a.m. ET. 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 December 8, 2019 by dialing 1-855-859-2056, access code 6979777.

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 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 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, as per IFRS, is reconciled below with operating income, adjusted operating income and adjusted operating income before depreciation and amortization:

 

 

The following table reconciles net earnings and net earnings 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

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

Source:
Allan Hogg
Vice-President and Chief Financial Officer