Cascades Reports Strong Results for the Second Quarter of 2020

Record quarterly adjusted OIBD highlights resiliency of our business model

KINGSEY FALLS, QC, Aug. 6, 2020 /CNW Telbec/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended June 30, 2020.

Q2 2020 Highlights

• Sales of $1,285 million
  (compared with $1,313 million in Q1 2020 (-2%) and $1,275 million in Q2 2019 (+1%))
• As reported (including specific items)
  • Operating income of $94 million
    (compared with of $90 million in Q1 2020 (+4%) and an operating income of $82 million in Q2 2019 (+15%))
  • Operating income before depreciation and amortization (OIBD)¹ of $169 million
    (compared with $161 million in Q1 2020 (+5%) and $154 million in Q2 2019 (+10%))
  • Net earnings per share of $0.57
    (compared with $0.24 in Q1 2020 and $0.33 in Q2 2019)
• Adjusted (excluding specific items)¹
  • Operating income of $111 million
    (compared with $90 million in Q1 2020 (+23%) and $84 million in Q2 2019 (+32%))
  • OIBD of $186 million
    (compared with $161 million in Q1 2020 (+16%) and $156 million in Q2 2019 (+19%))
  • Net earnings per share of $0.61
    (compared with $0.42 in Q1 2020 and $0.28 in Q2 2019)
• Net debt¹ of $2,077 million as at June 30, 2020 (compared with $2,212 million as at March 31, 2020) reflecting favourable foreign exchange variance and solid cash flow from operations and including acquisition of CDPQ's interest in Greenpac Mill ($121 million) realized in the first quarter; Net debt to adjusted OIBD ratio¹ of 3.1x as at June 30, 2020, down from 3.5x at March 31, 2020.

Mario Plourde, President and CEO, commented: "Our operations executed and adapted well during the second quarter, delivering improved consolidated results on both a sequential and year-over-year basis. This strong performance resulted in a record quarterly adjusted OIBD for the Corporation, highlighting the resiliency of our business model focused on providing customers with essential, sustainable quality packaging and tissue solutions. The ability of our business segments to successfully navigate through the challenging second quarter business environment is a testament to the commitment and hard work of our dedicated employees, and a measurable indication of the operational improvements and cost reduction initiatives being generated by our strategic investments of the past few years.

Sales in the second quarter decreased by 2% sequentially as the elevated Covid-19 related demand levels present in the first quarter eased. As expected, this resulted in lower volumes in all segments with the exception of Specialty Products. Sales increased modestly when compared to the comparable period last year, supported by a 12.5% growth in Tissue.

Second quarter adjusted OIBD of $186 million, representing a 14.5% margin, was a quarterly record for the Corporation, and was 16% above the prior quarter and 19% over the prior year period. The sequential performance was driven by improved results in all segments except Containerboard. Results of both the Tissue and Containerboard segments were negatively impacted by slightly lower volumes and higher raw material costs compared to the prior quarter. As mentioned at the end of the first quarter, the Corporation viewed the sharp increases in prices of recycled fibers as temporary. Pricing has since decreased and is expected to remain within these more normalized levels. The year-over-year adjusted OIBD increase of $30 million was largely driven by the Tissue segment and, to a lesser extent, Boxboard Europe. Specialty Products results were stable year-over-year, while those of Containerboard decreased mainly due to higher raw material costs and less favourable selling price and mix."

Discussing near-term outlook, Mr. Plourde commented, "Looking ahead, we are cautiously optimistic regarding our operational performance given the weighting of our production that falls within essential tissue and packaging segments, and the adaptability demonstrated by our business segments within the challenging business environment. In the near-term, this is counterbalanced by the ongoing potential economic impact related to Covid-19, and evolving consumption trends in end markets that have resulted from the pandemic. With this in mind, we are expecting consolidated results to decrease sequentially, as benefits from favourable raw materials pricing are anticipated to be offset by lower expected volumes, notably in the Away-from-Home Tissue business and the usual lower seasonal third quarter volumes in Europe. Given continued uncertainty around Covid-19, we are focused on the health and safety of our employees and maintaining flexibility in our operations to meet the evolving product needs of our customers. We are committed in our support of community initiatives helping people navigate the current environment, and continue to work closely with our suppliers and customers being impacted. As always, management of our cash flow remains a priority along with reducing operational and SG&A costs. We continue to expect our projected available liquidity levels to meet future requirements including management of our debt level, and will readjust our investment plans should the need become apparent. At this time, we do not have any update on our Bear Island conversion project, for which analysis has continued at a slower pace given current circumstances."

Financial Summary

Selected consolidated information

Segmented OIBD as reported

Segmented adjusted OIBD¹

Analysis of results for the three-month period ended June 30, 2020 (compared to the same period last year)

Sales of $1,285 million grew by $10 million, or 1%, compared with the same period last year. This was largely a reflection of the volume-driven 12.5% increase in the Tissue segment, favourable foreign exchange impacts for all business segments and a positive contribution from recovery operations as a result of higher raw material prices. These benefits were partially offset by lower average selling prices and/or less favourable sales mix in all business segments except Specialty Products, in which year-over-year sales performance levels were nonetheless negatively impacted as a result of the mill closure and business divestiture completed in 2019.

The Corporation generated an operating income before depreciation and amortization (OIBD) of $169 million in the second quarter of 2020, down from $154 million in the second quarter of 2019. On an adjusted basis, second quarter OIBD totaled $186 million in the current period, a new quarterly record for the Corporation. This compares with the $156 million generated in the same period last year, an increase of $30 million, or 19%. The annual improvement in adjusted OIBD reflects increases of $36 million from Tissue and $13 million from Boxboard Europe and stable results in the Specialty Products segment. These benefits were partially offset by a decrease of $19 million from the Containerboard segment, largely due to higher raw material costs and a less favourable selling price and sales mix year-over-year. On a consolidated basis, higher raw material costs, a less favourable average selling price and sales mix negatively impacted adjusted OIBD performance compared to the prior year period. These effects were more than offset by lower production costs, lower energy costs, beneficial foreign exchange impact and a favourable contribution from recovery operations as a result of higher raw material pricing. Research and development tax credits of $9 million were recorded in the current quarter.

On an adjusted basis¹, second quarter 2020 OIBD stood at $186 million, versus $156 million in the previous year.  The main specific items, before income taxes, that impacted our second quarter 2020 OIBD and/or net earnings were:

• $13 million of impairment charges and $2 million of restructuring charges were recorded by the Containerboard and Tissue segments as part of network optimization and profitability improvement initiatives (OIBD and net earnings)
   
• $4 million environmental provision was recorded in the Specialty Products segment related to plants in Canada that were closed in the past (OIBD and net earnings)
   
• $3 million gain in the Specialty Products segment related to the sale of a non-core equity investment (OIBD and net earnings)
   
• $1 million unrealized loss on financial instruments (OIBD and net earnings)
   
• $9 million foreign exchange gain on long-term debt and financial instruments (net earnings)

For the 3-month periods ended June 30, 2020, the Corporation posted net earnings of $54 million, or $0.57 per share, compared to net earnings of $31 million, or $0.33 per share, in the same period of 2019. On an adjusted basis¹, the Corporation generated net earnings of $58 million in the second quarter of 2020, or $0.61 per share, compared to net earnings of $26 million, or $0.28 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 September 3, 2020 to shareholders of record at the close of business on August 20, 2020. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). Cascades did not purchase any shares for cancellation during the second quarter of 2020.

2020 Second Quarter Results Conference Call Details

Management will discuss the 2020 second 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 September 6, 2020 by dialing 1-855-859-2056 (international dial-in 1-416-849-0833), access code 5819259.

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 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.

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 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. 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 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