Cascades Reports Results for the Fourth Quarter and Full Year 2022

A stronger end to a challenging year

KINGSEY FALLS, QC, Feb. 23, 2023 /CNW/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period and fiscal year ended December 31, 2022.

Q4 2022 Highlights

• Sales of $1,135 million (compared with $1,174 million in Q3 2022 and $1,028 million in Q4 2021)
• As reported
  • Operating loss of $(20) million (compared with $25 million in Q3 2022 and $(90) million in Q4 2021)
  • Net loss per common share of $(0.27) (compared with a net loss per common share of ($0.02) in Q3 2022 and net earnings per common share of $1.04 in Q4 2021)
• Adjusted (excluding specific items¹)
  • Earnings before interest, taxes, depreciation and amortization (EBITDA (A)) of $116 million (compared with $111 million in Q3 2022 and $62 million in Q4 2021)
  • Net earnings per common share of $0.22 (compared with net earnings per common share of $0.20 in Q3 2022 and a net loss per common share of ($0.09) in Q4 2021)

2022 Annual Highlights

• Sales of $4,466 million (compared with $3,956 million in 2021)
• As reported
  • Operating income of $33 million (compared with $50 million in 2021)
  • Net loss per common share of $(0.34) (compared with net earnings per common share of $1.60 in 2021)
• Adjusted (excluding specific items¹)
  • Earnings before interest, taxes, depreciation and amortization (EBITDA (A)) of $376 million (compared with $389 million in 2021)
  • Net earnings per common share of $0.37 (compared with net earnings per common share of $0.26 in 2021)
• Net debt¹ of $1,966 million as of December 31, 2022 (compared with $2,011 million as of September 30, 2022). Net debt to adjusted EBITDA (A) ratio¹ of 5.2x, down from 6.2x as of September 30, 2022.
• Total capital expenditures, net of disposals, of $149 million in Q4 2022 and $482 million in 2022. Forecasted 2023 net capital expenditures of approximately $325 million, including $175 million for the Bear Island containerboard conversion project in Virginia, USA.

Mario Plourde, President and CEO, commented: "We are pleased with our fourth quarter consolidated performance, which showed continued positive momentum in our Tissue Papers segment, and good underlying performance in our packaging segments. The wide-ranging profitability and operational initiatives that we have been progressively implementing throughout our operations gained traction as the year progressed, and fuelled the 10.2% consolidated EBITDA (A) margins in Q4. Our operations have faced more than $475 million of production, raw material, freight and energy cost headwinds within the span of the calendar year 2022 alone, and our teams have done an excellent job at executing multiple countermeasures. These have taken longer in our Tissue Papers segment, where price rebalancing takes time to be realized, but we are encouraged by the progress being made and expect continued benefits to be generated from operational and profitability initiatives across our operations.

Our Containerboard segment generated solid results in the fourth quarter. As expected, sales decreased 5% sequentially, reflecting slightly softer shipment levels and average selling prices. These impacts were more than mitigated at the EBITDA (A) level by benefits from lower raw material pricing, more favourable FX, production and energy cost levels, and a $5 million partial insurance settlement related to water effluent treatment issues that occurred at our Niagara Falls, NY complex in mid-2021. Sequentially, fourth quarter sales levels also decreased for our Specialty Products business, largely driven by lower volumes in the cardboard and plastics sub-segments, resulting in lower EBITDA (A) levels for this business. Sales in our Tissue Papers segment were stable sequentially. This reflected higher selling prices and favourable FX, offset by lower volumes. This business doubled its EBITDA (A) as benefits from lower transportation costs, lower raw material costs and pricing initiatives mitigated the impact from lower volumes and higher production costs, the latter of which includes the impact of the temporary curtailment of one of our paper machines at our St. Helens, Oregon tissue facility since mid-September. Lastly, Corporate Activities generated a higher negative EBITDA (A) in the fourth quarter, a reflection of the impact that lower recycled paper prices and volume had on results in the Company's Recovery & Recycling operations.

The start-up of the Bear Island project is scheduled for the end of March. Capital investments for this project totaled $107 million in the fourth quarter and $335 million in the calendar year 2022. The Company expects to invest $175 million to complete the project in 2023, with these investments weighted to the first half of the year. As we have stated previously, the elevated capital investment levels for this project combined with lower profitability levels generated by our Tissue Papers segment resulted in an important increase in our leverage ratio in 2022. We expect this trend to reverse as production is ramped up at our Bear Island facility, and operational and financial performance of our Tissue Papers segment continue to improve."

Discussing near-term outlook, Mr. Plourde commented, "We are remaining prudent in our outlook, as macro-economic conditions continue to be challenging and unpredictable, and inflationary pressures on costs, while easing, continue. Despite this, we have started 2023 in a good position to drive growth throughout the year. We expect sequentially lower results in our Containerboard segment in Q1. This reflects the $5 million partial insurance settlement received in the current quarter and a continuation of slightly softer volume and selling prices, the impacts of which will not be offset by lower raw material cost tailwinds. The Specialty Products business is expected to generate moderately stronger results in the first quarter, as favourable trends in pricing and volume counter the persistently higher production cost environment. Lastly, we expect results in our Tissue Papers segment to slightly improve sequentially. While we anticipate continued positive momentum from operational and profitability initiatives, more favourable raw material prices, and good demand from retail tissue products, our tempered outlook for this segment reflects softer demand for Away-from-Home products, and the delayed restart of the machine at our St. Helens, Oregon facility that occurred on February 10. As far as our longer-term outlook, we will provide a comprehensive update of our 2022- 2024 Strategic Plan in conjunction with our Q1 2023 results on May 11, 2023."

Financial Summary

Selected consolidated information

Segmented sales

Segmented EBITDA (A)¹

Analysis of results for the three-month period ended December 31, 2022 (compared to the same period last year)

Sales of $1,135 million increased by $107 million compared with the same period last year. This reflects $139 million of combined benefits from improvements in selling prices and sales mix in all business segments. The Canadian dollar - US dollar exchange rate was also favourable for all businesses, contributing $54 million to sales levels on a consolidated basis. These factors were partially offset by a $73 million impact related to lower volumes mainly in the Tissue Papers business segment.

The fourth quarter EBITDA (A)¹ totaled $116 million, an increase of $54 million, or 87%, from the $62 million generated in the same period last year. This increase reflects the net consolidated benefits of $106 million related to price increases and changes in sales volumes and product assortment sold, and $7 million from more favourable raw material and FX. These benefits outweighed higher production, energy and logistics costs in all segments, and a negative contribution from Recovery & Recycling operations as a result of lower volume and recycled paper prices.

The main specific items, before income taxes, that impacted our fourth quarter 2022 operating loss and/or net loss were:

• $8 million impairment charge on property, plant and equipment for Containerboard Packaging plants (operating loss and net loss);
• $3 million impairment charge on goodwill in the Specialty Products segment (operating loss and net loss);
• $75 million impairment charge on property, plant and equipment for Tissue Papers plants in USA (operating loss and net loss);
• $10 million gain from the sale of land related to a closed Specialty Products plant in Canada (operating loss and net loss);
• $2 million restructuring costs in the Tissue Papers segment (operating loss and net loss);
• $4 million unrealized gain on financial instruments (operating loss and net loss);
• $3 million foreign exchange gain on long-term debt and financial instruments (net loss);
• $3 million deferred tax benefit as a result of a tax election related to the discontinued operations realized in 2021 (net loss).

For the 3-month period ended December 31, 2022, the Corporation posted a net loss of $(27) million, or $(0.27) per common share, compared to net earnings of $105 million, or $1.04 per common share, in the same period of 2021. On an adjusted basis¹, the Corporation generated net earnings of $22 million in the fourth quarter of 2022, or $0.22 per common share, compared to a net loss of $(9) million, or ($0.09) per common share, in the same period of 2021.

Dividend on common shares and normal course issuer bid
The Board of Directors of Cascades declared a quarterly dividend of $0.12 per common share to be paid on March 23, 2023 to shareholders of record at the close of business on March 9, 2023. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). During the fourth quarter of 2022, Cascades purchased no common shares for cancellation.

2022 Fourth Quarter Results Conference Call Details
Management will discuss the 2022 fourth quarter financial results during a conference call today at 9:00 a.m. EDT. The call can be accessed by dialing 1-888-390-0620 (international 1-416-764-8651). 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 23, 2023 by dialing 1-888-390-0541 (international 1-416-764-8677), access code 473784.

Founded in 1964, Cascades offers sustainable, innovative and value-added packaging, hygiene and recovery solutions. The company employs approximately 10,000 women and men across a network of close to 80 facilities in North America. 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 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.

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

SEGMENTED INFORMATION

The Corporation's operations are managed in three segments: Containerboard and Specialty Products (which constitutes the Corporation's Packaging Products) and Tissue Papers. The accounting policies of the reportable segments are the same as the Corporation's accounting policies described in Note 2.

The Corporation's operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The Chief Executive Officer has authority for resource allocation and management of the Corporation's performance and is therefore the CODM. During the year ended December 31, 2022, the CODM assesses the performance of each reportable segment based on sales and earnings before interest, taxes, depreciation and amortization, adjusted to exclude specific items (EBITDA (A)). The CODM considers EBITDA (A) to be the best performance measure of the Corporation's activities.

Sales for each segment are prepared on the same basis as those of the Corporation. Inter-segment operations are recorded on the same basis as sales to third parties, which are at fair market value.

EBITDA (A) does not have a standardized meaning under IFRS; accordingly, it may not be comparable to similarly named measures used by other companies. Investors should not view EBITDA (A) as an alternative measure to, for example, net earnings, or as a measure of operating results, which are IFRS measures.

The reconciliation of operating income (loss) to EBITDA (A) by business segment is as follows:

SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES AND OTHER FINANCIAL 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 that of other corporations and some of these items 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 gains or losses on investments, specific items of discontinued operations and other significant items of an unusual, non-cash or non-recurring nature.

RECONCILIATION AND USES OF NON-IFRS AND OTHER FINANCIAL 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 and capital measures, as well as 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 and other financial measures are used in our financial disclosures:

Non-IFRS measures

• Adjusted earnings before interest, taxes, depreciation and amortization or EBITDA (A): Used to assess operating performance and the contribution of each segment on a comparable basis.
• Adjusted net earnings: Used to assess the Corporation's consolidated financial performance on a comparable basis.
• Adjusted 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.
• Free cash flow: Used to measure the excess cash the Corporation generates by subtracting capital expenditures (excluding strategic projects) from the EBITDA (A).
• Working capital: Used to assess the short-term liquidity of the Corporation.

Other financial measures

• Total debt: Used to calculate all the Corporation's debt, including long-term debt and bank loans. Often put in relation to equity to calculate the debt-to-equity ratio.
• Net debt: Used to calculate the Corporation's total debt less cash and cash equivalents. Often put in relation to EBITDA (A) to calculate net debt to EBITDA (A) ratio.

Non-IFRS ratios

• Net debt to EBITDA (A) ratio: Used to assess the Corporation's ability to pay its debt and evaluate financial leverage.
• EBITDA (A) margin: Used to assess operating performance and the contribution of each segment on a comparable basis calculated as a percentage of sales.
• Adjusted net earnings per common share: Used to assess the Corporation's consolidated financial performance on a comparable basis.
• Net debt / Net debt + Shareholders' equity: Used to evaluate the Corporation's financial leverage and thus the risk to Shareholders.
• Working capital as a percentage of sales: Used to assess the Corporation's operating liquidity performance.
• Adjusted cash flow per common share: Used to assess the Corporation's financial flexibility.
• Free cash flow ratio: Used to measure the liquidity and efficiency of how much more cash the Corporation generates than it uses to run the business by subtracting capital expenditures (excluding strategic projects) from the EBITDA (A) calculated as a percentage of sales.

Non-IFRS and other financial 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 and other financial measures may differ from those of other corporations. Any such modification or reformulation may be significant.

During the year ended December 31, 2022, the CODM assesses the performance of each reportable segment based on sales and earnings before interest, taxes, depreciation and amortization, adjusted to exclude specific items (EBITDA (A)¹). The CODM considers EBITDA (A)¹ to be the best performance measure of the Corporation's activities.

The reconciliation of operating income (loss) to EBITDA (A)¹ by business segment is as follows:

The following table reconciles net earnings (loss) and net earnings (loss) per common share, as reported, with adjusted net earnings (loss)¹ and adjusted net earnings (loss)¹ per common share:

The following table reconciles cash flow from (used by) operating activities from continuing operations with EBITDA (A)¹:

The following table reconciles cash flow from (used by) 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 operations¹. It also reconciles adjusted cash flow from operating activities from continuing operations¹ to adjusted cash flow used¹, which is also calculated on a per common share basis:

The following table reconciles total debt¹ and net debt¹ with the ratio of net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA (A))¹:

SOURCE Cascades Inc.

Media
Hugo D'Amours
Vice-President, Communications, Public Affairs and Sustainable Development
Cascades Inc.
819-363-5164
hugo_damours@cascades.com

Investors
Jennifer Aitken, MBA
Director, Investor Relations, Cascades Inc.
514-282-269
jennifer_aitken@cascades.com

Source
Allan Hogg
Vice-President and Chief Financial Officer
Cascades Inc.