Cascades Announces Record Sales and Adjusted OIBD for the Second Quarter of 2019; Quarterly Dividend Increased from $0.04 to $0.08 Per Share

KINGSEY FALLS, QC, Aug. 9, 2019 /PRNewswire/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended June 30, 2019.

Q2 2019 Highlights

• Sales of $1,275 million
  
  (compared to $1,230 million in Q1 2019 (+4%) and $1,180 million in Q2 2018 (+8%))
• As reported (including specific items)
• Operating income of $82 million
  
  (compared to $72 million in Q1 2019 (+14%) and $73 million in Q2 2018 (+12%))
• Operating income before depreciation and amortization (OIBD)¹ of $154 million
  
  (compared to $139 million in Q1 2019 (+11%) and $131 million in Q2 2018 (+18%))
• Net earnings per share of $0.33
  
  (compared to $0.26 in Q1 2019 and $0.28 in Q2 2018)
• Adjusted (excluding specific items)¹
• Operating income of $84 million
  
  (compared to $68 million in Q1 2019 (+24%) and $76 million in Q2 2018 (+11%))
• OIBD of $156 million
  
  (compared to $135 million in Q1 2019 (+16%) and $134 million in Q2 2018 (+16%))
• Net earnings per share of $0.28
  
  (compared to $0.14 in Q1 2019 and $0.30 in Q2 2018)
• Net debt¹ of $1,861 million as at June 30, 2019 (compared to $1,878 million as at March 31, 2019) and net debt to adjusted OIBD ratio¹ at 3.3x on a pro-forma basis².

Mr. Mario Plourde, President and Chief Executive Officer, commented: "Cascades delivered record quarterly sales and adjusted OIBD that were in line with expectations in the second quarter. All our segments executed well. Tissue results were supported by favourable input costs and selling prices and better operational performance, notably at the St. Helens mill in Oregon, Containerboard Packaging performance reflected lower OCC prices and good operational flexibility within a context of softer demand and pricing pressure, while European Boxboard and Specialty Products results benefited from recent business acquisitions.

On the strategic front, we announced the acquisition of substantially all of the Orchids Paper Products assets in early July. This move provides compelling optimization opportunities for our Tissue platform while reinforcing the operational foundation of this segment's U.S. consumer product business. Furthermore, the addition of these assets accelerates our ongoing Tissue modernization plan, is aligned with our efforts to enhance the quality of the products we manufacture, and reinforces our initiatives to support the growth of our customers and the segment. On the Containerboard side, analysis of the Bear Island conversion project in Virginia is advancing, with added time being taken to determine the optimal structure to successfully execute the project and to minimize risk. We expect to provide additional information by the end of the year.

Finally, we are pleased to announce that we are increasing our quarterly dividend from $0.04 to $0.08 per share. This step reflects our strong asset base and financial fundamentals. We continue to prioritize capital investments and debt reduction in our capital allocation, and believe that this dividend increase, amounting to approximately $15 million annually, will not impact our financial flexibility to continue to focus on these priorities for creation of shareholder value. At the same time, we will provide our shareholders with a higher cash return on their investment that is better aligned with the industry."

Financial Summary

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

Sales of $1,275 million increased by $95 million, or 8%, compared to the same period last year, attaining a record level for the second quarter. Specifically, Tissue sales increased by $34 million or 10%, reflecting a higher average selling price, a more favourable sales mix and exchange rate, partially offset by slightly lower volume following the previously announced closure of 2 paper machines in Ontario. European Boxboard sales increased by $38 million, or 16%, compared to the prior year. This was largely driven by the business acquisition in Spain at the end of 2018, which served to more than offset less favourable selling price and mix and Canadian dollar - euro exchange rate. The Specialty Products segment generated an 18% or $29 million sales improvement year-over-year, reflecting 2018 acquisitions and improved pricing, sales mix and volumes on the packaging side. Combined, these benefits more than offset lower results from the Recovery & Recycling sub-segment due to price erosion of recycled material. Finally, sales in the Containerboard Packaging group decreased by $13 million or 3% year-over-year. This was entirely driven by lower volume, which more than mitigated the benefits of a more favourable exchange rate and sales mix, while average selling prices were stable year-over-year.

The Corporation generated an operating income before depreciation and amortization (OIBD) of $154 million in the second quarter of 2019. This compares to the $131 million generated in the same period last year. This reflects higher average selling prices, a more favourable sales mix and lower raw material prices in the Tissue and Containerboard segments. In the case of both segments, these benefits were partially offset by lower volumes during the period. Tissue results also benefited from ongoing efforts to realign the financial performance by reducing costs and improving execution. This segment also recorded $4 million of prior year U.S. tax credits during the second quarter.  Business acquisitions completed in the last twelve months contributed to the year-over-year improvements generated by Specialty Products and European Boxboard. Results in the Specialty Products segment also benefited from volume and selling price improvements in packaging sub-segments compared to the prior year, the benefits of which offset lower Recovery results attributable to raw material pricing erosion. 2019 operating results also include the beneficial impact of IFRS 16 accounting for leases, which increased second quarter 2019 OIBD by approximately $7 million.

On an adjusted basis¹, second quarter 2019 OIBD stood at $156 million, versus $134 million in the prior year.

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

• $4 million charge in Corporate Activities related to an environmental provision (OIBD and net earnings)
• $5 million gain in Corporate Activities related to an insurance settlement from a prior year event (OIBD and net earnings)
• $4 million charge in Corporate Activities associated with transaction fees paid for the Orchids' assets acquisition (OIBD and net earnings)
• $6 million unrealized gain on the fair value revaluation of an option granted in the Bear Island project (net earnings)

For the 3-month period ended June 30, 2019, the Corporation posted net earnings of $31 million, or $0.33 per share, compared to net earnings of $27 million, or $0.28 per share, in the same period of 2018. On an adjusted basis¹, the Corporation generated net earnings of $26 million in the second quarter of 2019, or $0.28 per share, compared to net earnings of $29 million, or $0.30 per share, in the same period of 2018.

Near-Term and Strategic Outlook

Discussing the outlook for Cascades, Mr. Plourde commented: "Near-term results in the Containerboard business segment are expected to improve both sequentially and year-over-year, following usual seasonal trends and current market dynamics, while Tissue performance is expected to continue its positive trend in the third quarter. European Boxboard performance is expected to benefit from its recent acquisition on a year-over-year basis, while sequential performance is expected to moderate as a result of lower seasonal demand following holiday-related closures in the third quarter, and lower pricing. We anticipate stable near-term results in the Specialty Products segment both year-over-year and sequentially, as the impact of ongoing lower recycled fibre pricing on the recovery operations is expected to be offset by stable pricing and volumes in packaging. On a consolidated basis, third quarter performance is expected to improve year-over-year and be moderately higher on a sequential basis."

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 6, 2019 to shareholders of record at the close of business on August 21, 2019. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). During the second quarter of 2019, Cascades did not purchase any shares.

2019 Second Quarter Results Conference Call Details

Management will discuss the 2019 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 9, 2019 by dialing 1-855-859-2056, access code 8885738.

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): 

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SOURCE Cascades Inc.