Cascades Reports Results for the First Quarter of 2021

Volume headwinds in Tissue limit consolidated performance

KINGSEY FALLS, QC, May 6, 2021 /CNW Telbec/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended March 31, 2021.

Q1 2021 Highlights (comparative figures have been restated to reflect discontinued operations²)

• Sales of $1,182 million (compared with $1,242 million in Q4 2020 (-5%) and $1,265 million in Q1 2020 (-7%))
• As reported (including specific items)
  • Operating income of $52 million (compared with $113 million in Q4 2020 (-54%) and $87 million in Q1 2020 (-40%))
  • Operating income before depreciation and amortization (OIBD)¹ of $128 million (compared with $183 million in Q4 2020 (-30%) and $157 million in Q1 2020 (-18%))
  • Net earnings per share of $0.22 (compared with $0.72 in Q4 2020 and $0.24 in Q1 2020)
• Adjusted (excluding specific items)¹
  • Operating income of $65 million (compared with $92 million in Q4 2020 (-29%) and $87 million in Q1 2020 (-25%))
  • OIBD of $141 million (compared with $162 million in Q4 2020 (-13%) and $157 million in Q1 2020 (-10%))
  • Net earnings per share of $0.29 (compared with $0.42 in Q4 2020 and $0.42 in Q1 2020)
• Net debt¹ of $1,654 million as at March 31, 2021 (compared with $1,679 million as at December 31, 2020). Net debt to adjusted OIBD ratio^{1, 3} of 2.5x is unchanged from December 31, 2020.
• Adjusted free cash flow¹ of ($4) million, or ($0.04) per share, in Q1 2021, compared to $83 million, or $0.83 per share, in Q4 2020 and $55 million, or $0.58 per share, in Q1 2020.
• Total capital expenditures, net of disposals, of $78 million in Q1 2021, compared to $37 million in Q4 2020 and to $73 million in Q1 2020; Forecasted 2021 capital expenditures of between $450 million and $475 million, encompassing $250 million for the Bear Island containerboard conversion project in Virginia, USA, is unchanged.
• Following the February 2021 announcement by Reno De Medici S.p.A. (Boxboard Europe) regarding the sale of its French virgin fibre boxboard subsidiary, financial information of this facility are now presented as discontinued operations. The transaction closed April 30, 2021.

 

Mario Plourde, President and CEO, commented: "Our first quarter consolidated results highlight the dynamic and challenging business environment in view of the ongoing COVID-19 pandemic. The sequential decrease in our results was largely driven by an important contraction in retail tissue demand as customers worked through high inventory levels built up throughout 2020, and continued lower volumes in Away-from-Home. Tissue volumes were also impacted by inclement weather in the quarter, which resulted in lost production in one of the Corporation's Southern U.S. tissue plants. Conversely, the European Boxboard segment generated strong sequential sales growth in the period, the beneficial impact of which was offset by a notable increase in raw material prices and higher energy costs in the period. Solid demand levels and higher selling prices in the Containerboard segment were largely offset by transportation and raw material cost increases, and lower volume related to seasonality and scheduled maintenance downtime in the first three months of the year. Specialty Products generated strong sequential margin improvement.

Within the context of today's unpredictable business environment, we are pleased with the progress we made in our strategic initiatives and investments during the first quarter. The optimization and modernization of our Tissue platform is nearing completion, and the strategic decisions and investments made in recent years have better equipped this business to navigate the current challenging market dynamics. In Containerboard, our Bear Island conversion project is advancing on schedule and on budget, and the European Boxboard segment is expected to close its acquisition of Papelera del Principado S.A. ("Paprinsa") at the end of June 2021. We continued to focus on our margin improvement program, with these initiatives expected to contribute 1% annually to our consolidated adjusted OIBD level based on our 2019 reference year."

Discussing near-term outlook, Mr. Plourde commented, "In light of continued uncertainty regarding the COVID-19 pandemic, we are maintaining a cautiously optimistic view for our near-term performance. Sequential results from our Tissue business are expected to remain stable, with performance over the longer-term expected to improve as consumer tissue demand normalizes once inventories are re-balanced,  Away-from-Home demand increases as the economy and businesses reopen, and benefits are realized from the high single digit price increase announced for consumer and Away-from-Home tissue products beginning in the third quarter. We expect near-term Containerboard performance to reflect good demand and cumulative benefits from announced price increases, counterbalanced by raw material price inflation and planned maintenance downtime at our two Niagara Falls facilities in the second quarter. Near-term results for the Specialty Products are forecasted to remain stable sequentially, with higher volume and average selling prices offsetting slightly higher raw material costs. Lastly, sequential performance from the European Boxboard segment is expected to remain stable as good volumes and higher average selling price as a result of announced price increases should mitigate higher raw material costs.

More broadly speaking, we are focused on advancing our Bear Island containerboard project, and finalizing modernization investments in our tissue converting operations. These investments will be fully funded by projected operational cash flows for the year. We continue to remain vigilant on ensuring the health and safety of our employees, and on actively working with our customers to meet their evolving needs and expectations."

Financial Summary

Selected consolidated information

 

Segmented OIBD as reported

 

Segmented adjusted OIBD¹

 

Analysis of results for the three-month period ended March 31, 2021 (compared to the same period last year²)

Sales of $1,182 million decreased by $83 million, or 7%, compared with the same period last year. This was driven by lower volumes in the Tissue segment attributable to continued COVID-19 related market softness in the Away-from-Home segment, and an important contraction in consumer retail product volumes as customers rebalanced inventory levels that had been built up in response to elevated Covid-19 demand. This was partially offset by stronger volumes in all packaging segments, most notably in the Containerboard segment which benefited from strong demand on both the manufacturing and converting side. Year-over-year consolidated sales levels also benefited from more favourable average selling prices and sales mix, with price increases realized in Tissue and Containerboard. Foreign exchange rates were beneficial for the European Boxboard business, but these benefits were more than offset by the impact of less favourable foreign exchange rates in North America.

The Corporation generated an operating income before depreciation and amortization (OIBD) of $128 million in the first quarter of 2021, down from $157 million in the first quarter of 2020. On an adjusted basis¹, first quarter OIBD totaled $141 million, a decrease of $16 million, or 10% from the $157 million generated in the same period last year. This decrease is largely attributable to lower Tissue results, which reflected difficult year-over-year comparisons following elevated Covid-19 related demand in the year-ago period and customer inventory management in the current period that impacted retail consumer demand levels. European Boxboard adjusted OIBD levels also decreased from the year ago period, as material cost inflation more than offset the benefits from improved volumes. Good results from the North American packaging segments partially counterbalanced these headwinds. Results from the Containerboard segment increased 9% year-over-year, with higher volumes and beneficial selling price and sales mix mitigating the impact of higher raw material prices, while those of Specialty Products increased 50% compared to the prior year period, driven by higher volumes and better realized spreads. Results also benefited from lower SG&A costs as a $10 million expected credit loss provision on accounts receivable amounts was recorded in 2020 in relation to the COVID-19 pandemic.

The main specific items, before income taxes, that impacted our first quarter 2021 OIBD and/or net earnings were: 

• $5 million of restructuring charges recorded in Containerboard and Tissue as part of profitability improvement and restructuring initiatives (OIBD and net earnings);
• $8 million unrealized loss on financial instruments (OIBD and net earnings);
• $3 million foreign exchange gain on long-term debt and financial instruments (net earnings);

For the 3-month period ended March 31, 2021, the Corporation posted net earnings of $22 million, or $0.22 per share, compared to net earnings of $22 million, or $0.24 per share, in the same period of 2020. On an adjusted basis¹, the Corporation generated net earnings of $29 million in the first quarter of 2021, or $0.29 per share, compared to net earnings of $39 million, or $0.42 per share, in the same period of 2020. 

 

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 June 3, 2021 to shareholders of record at the close of business on May 19, 2021. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). Cascades purchased no share for cancellation during the first quarter of 2021.

2021 First Quarter Results Conference Call Details

Management will discuss the 2021 first quarter financial results during a conference call today at 9:00 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 6, 2021 by dialing 1-855-859-2056 (international dial-in 1-416-849-0833), access code  1148359.

Founded in 1964, Cascades offers sustainable, innovative and value-added packaging, hygiene and recovery solutions. The company employs 12,000 women and men across a network of 85 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.

 

CONSOLIDATED BALANCE SHEETS

 

CONSOLIDATED STATEMENTS OF EARNINGS

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

CONSOLIDATED STATEMENTS OF EQUITY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

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, 2020.

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 repurchase of long-term debt, 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 and option fair value revaluation, foreign exchange gains or losses on long-term debt and financial instruments, fair value revaluation gain or losses on investments, 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, 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 from continuing operations with operating income and operating income before depreciation and amortization: 

 

The following table reconciles cash flow from operating activities from continuing operations with cash flow from operating activities from continuing operations (excluding changes in non-cash working capital components) and adjusted cash flow from operating activities from continuing operations. It also reconciles adjusted cash flow from operating activities from continuing operations 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