Cascades Reports Strong Results for the Fourth Quarter of 2020 and 3rd Consecutive Annual Record Levels of Sales and Adjusted OIBD

Positive containerboard industry dynamics support optimistic outlook

KINGSEY FALLS, QC, Feb. 23, 2021 /CNW/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period and fiscal year ended December 31, 2020.

Q4 2020 Highlights

• Sales of $1,284 million (compared with $1,275 million in Q3 2020 (+1%) and $1,227 million in Q4 2019 (+5%))
• As reported (including specific items)
  • Operating income of $109 million (compared with $73 million in Q3 2020 (+49%) and operating loss of $(1) million in Q4 2019)
  • Operating income before depreciation and amortization (OIBD)¹ of $181 million (compared with $154 million in Q3 2020 (+18%) and $76 million in Q4 2019 (+138%))
  • Net earnings per share of $0.72 (compared with $0.51 in Q3 2020 and net loss per share of $(0.27) in Q4 2019)
• Adjusted (excluding specific items)¹
  • Operating income of $94 million (compared with $81 million in Q3 2020 (+16%) and $75 million in Q4 2019 (+25%))
  • OIBD of $166 million (compared with $162 million in Q3 2020 (+2%) and $152 million in Q4 2019 (+9%))
  • Net earnings per share of $0.42 (compared with $0.50 in Q3 2020 and $0.30 in Q4 2019)

2020 Annual Highlights

• Sales of $5,157 million (compared with $4,996 million in 2019 (+3%))
• As reported (including specific items)
  • Operating income of $366 million (compared with $261 million in 2019² (+40%))
  • Operating income before depreciation and amortization (OIBD)¹ of $665 million (compared with $550 million in 2019² (+21%))
  • Net earnings per share of $2.04 (compared with $0.77 in 2019²)
• Adjusted (excluding specific items)¹
  • Operating income of $376 million (compared with $315 million in 2019 (+19%))
  • OIBD of $675 million (compared with $604 million in 2019 (+12%))
  • Net earnings per share of $1.95 (compared with $1.02 in 2019)
• Net debt¹ of $1,679 million as at December 31, 2020 (compared with $1,982 million as at September 30, 2020) reflecting solid cash flow from operations, the $125 million equity offering and appreciation of the Canadian dollar. Net debt to adjusted OIBD ratio¹ at 2.5x down from 3.0x at September 30, 2020.
• Adjusted free cash flow of $285 million, or $2.97 per share, in 2020, compared to $107 million, or $1.14 per share, in 2019.
• Total capital expenditures paid, net of disposals, of $195 million in 2020, compared to $231 million in 2019; Forecasted 2021 capital expenditures of between $450 million and $475 million include $250 million envelope for the Bear Island containerboard conversion project in Virginia, USA.
• Announced planned progressive and permanent closure of tissue operations at the Laval plant, located in Québec, in June 2021, and that Tissue operations in Pennsylvania ceased in December 2020.
• Reno De Medici S.p.A. (Boxboard Europe) announced the signature of a put option for the sale of its French subsidiary, which produces virgin fiber-based boxboard, in February 2021. The transaction is expected to close at the end of the second quarter of 2021.

Mario Plourde, President and CEO, commented: "We are very pleased with our strong fourth quarter performance. Consolidated adjusted OIBD of $166 million surpassed our cautious outlook for the period, represented an increase of 2% sequentially and 9% year-over, and drove annual profitability to a record level for the third consecutive year. These results demonstrate good operational execution within the context of a challenging environment, benefits being realized from our ongoing margin improvement initiatives, and the resiliency and dedication of our employees throughout the challenges of COVID-19. Sequentially, fourth quarter performance was driven by a solid contribution from the Containerboard segment, itself fueled by stronger than expected demand on both the manufacturing and converting side. The Tissue segment also generated good results, with stable consumer retail tissue demand helping to offset lower demand levels for Away-from-Home products as a result of COVID-19. The Tissue segment generated a solid fourth quarter adjusted OIBD margin of 10.5% in spite of ongoing challenging market conditions. The Specialty Products and European Boxboard segments generated slightly lower results in the quarter.

We have made significant progress on the strategic side in 2020. A large portion of our announced  modernization investments in the Tissue segment have been completed, with the remaining two state-of-the-art converting lines expected to be installed in the coming quarters. In Containerboard, we announced details of our strategic Bear Island conversion project in mid-October, and helped to de-risk the project with a concurrent $125 million equity issuance offering. The European Boxboard segment announced the acquisition of Papelera del Principado S.A. ("Paprinsa") and three affiliated companies, that will strengthen and consolidate Reno de Medici's competitive positioning within European recycled boxboard markets, and is expected to close at the end of the first quarter of 2021. At the corporate level, we continued to proactively manage our long-term debt profile, redeeming our 2023 senior notes and issuing 2028 senior notes under beneficial terms. On a broader basis, we advanced our margin improvement initiatives throughout the year, with these efforts contributing approximately $75 million to our consolidated adjusted OIBD level in 2020."

Discussing near-term outlook, Mr. Plourde commented, "Our near-term outlook is positive despite ongoing COVID-19 related uncertainty. Demand levels in Containerboard remain strong which, combined with recent industry price increases, are expected to help offset raw material pricing headwinds. In Tissue, stronger than expected volumes in December, usual seasonal softness in the first quarter, and unfavourable demand impact on Away-from-Home products related to COVID-19 are expected to translate into weaker sequential performance. We expect the ongoing modernization, cost management and margin improvement initiatives to partially counter softer demand factors. Near-term performance in Specialty Products is forecasted to remain stable sequentially, with higher average selling prices and good demand trends for consumer food packaging offsetting slightly higher raw material costs. Results in European Boxboard are expected to remain stable, with higher volumes and a favourable exchange rate mitigating higher forecasted raw material and energy costs. On a consolidated basis, raw material costs are expected to be a headwind for our businesses sequentially, with average OCC prices increasing in line with usual seasonal trends for the period. Prices for white recycled fibers remain stable, while those for virgin pulp are expected to increase given recent moves in index pricing. Raw materials remain readily available, and we do not foresee any changes in this regard.

Looking further ahead, 2021 will be a busy year. The highlight will be our Bear Island containerboard project, which will account for the lion's share of our capex program. We will also be finalizing modernization investments in our tissue converting operations, with all of these projects encompassed within our $450 to $475 million capital program for 2021. We expect these investments to be fully funded by solid projected cash flows for the year, in part driven by our ongoing margin improvement initiatives that are targeting net revenue management, production efficiency, organizational effectiveness and supply chain optimization. These initiatives are expected to contribute 1% annually to consolidated OIBD margins in both 2021 and 2022, regardless of external factors. As we continue to navigate the challenges and uncertainties inherent in the ongoing pandemic business environment, we remain focused on ensuring the health and safety of our employees, and on proactively engaging with our customers to ensure that their needs and expectations are met consistently, promptly and professionally."

Financial Summary

Selected consolidated information

Segmented OIBD as reported

Segmented adjusted OIBD¹

Analysis of results for the three-month period ended December 31, 2020 (compared to the same period last year)

Sales of $1,284 million grew by $57 million, or 5%, compared with the same period last year. This was driven 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. This was partially offset by lower volumes in the Tissue segment attributable to continued COVID-19 related market contraction in the Away-from-Home segment. Year-over-year consolidated sales levels also benefited from favourable average selling prices and sales mix, with price increases realized in Tissue and stable pricing and sales mix in both Containerboard and Specialty Products more than mitigated the impacts of a less favourable pricing and mix environment for European Boxboard. Foreign exchange rates were beneficial for the European Boxboard business, which more than offset the impact of less favourable foreign exchange rates for Tissue and Containerboard.

The Corporation generated an operating income before depreciation and amortization (OIBD) of $181 million in the fourth quarter of 2020, up from $76 million in the fourth quarter of 2019. On an adjusted basis, fourth quarter OIBD totaled $166 million, an increase of $14 million, or 9% from the $152 million generated in the same period last year. Results from the Containerboard segment increased 4% year-over-year, as benefits from higher volumes and lower production costs more than offset the impact from higher raw material prices. Stronger year-over-year Tissue results reflected more favourable sales mix and price increases, the effects of which more than mitigated the effects of lower COVID-19 related volumes and higher raw material costs. Adjusted OIBD in the Specialty Products segment increased compared to the prior year period, as higher volumes, beneficial favourable pricing and sales mix, and lower energy and production costs offset higher raw material costs. Our North American business segments also benefited from the positive impacts being generated by our margin improvement program that was started in the first quarter of 2020. In Europe, lower energy and production costs, combined with beneficial foreign exchange rates and slightly higher volume, more than offset less favourable pricing and sales mix and slightly higher raw material costs.

On an adjusted basis¹, fourth quarter 2020 OIBD stood at $166 million, versus $152 million in the previous year. The main specific items, before income taxes, that impacted our fourth quarter 2020 OIBD and/or net earnings were: 

• $40 million gain from the sale of a building and the land of the Containerboard Packaging facility located in Etobicoke, Ontario, Canada (OIBD and net earnings);
• $2 million environmental provision related to a Tissue plant in Pennsylvania, USA (OIBD and net earnings);
• $8 million of restructuring charges recorded in Tissue and Corporate Activities as part of profitability improvement and restructuring initiatives (OIBD and net earnings);
• $13 million of impairment charges, primarily in the Tissue Papers and Boxboard Europe segments, related to changes in the valuation of certain assets due to the current economic and market demand conditions (OIBD and net earnings);
• $2 million unrealized loss on financial instruments (OIBD and net earnings);
• $11 million unrealized gain on interest rate swaps and option fair value (net earnings);
• $3 million foreign exchange gain on long-term debt and financial instruments (net earnings);
• $3 million fair value revaluation loss on investments (net earnings).

For the 3-month periods ended December 31, 2020, the Corporation posted net earnings of $73 million, or $0.72 per share, compared to net loss of $26 million, or $(0.27) per share, in the same period of 2019. On an adjusted basis¹, the Corporation generated net earnings of $42 million in the fourth quarter of 2020, or $0.42 per share, compared to net earnings of $29 million, or $0.30 per share, in the same period of 2019. 

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 25, 2021 to shareholders of record at the close of business on March 10, 2021. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). Cascades purchased 190,200 shares for cancellation during the fourth quarter of 2020 at an average price of $14.46.

2020 Fourth Quarter Results Conference Call Details

Management will discuss the 2020 fourth 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 March 25, 2021 by dialing 1-855-859-2056 (international dial-in 1-416-849-0833), access code 5877077.

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, 2019.

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 (loss), 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 (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: