Cascades Announces Solid Results for the Third Quarter of 2018

• Strong quarterly performance driven by record containerboard results
• Solid Containerboard fundamentals support favourable near-term outlook

KINGSEY FALLS, QC, Nov. 8, 2018 /PRNewswire/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended September 30, 2018.

Q3 2018 Highlights

• Sales of $1,172 million
  
  (compared to $1,179 million in Q2 2018 (-1%) and $1,103 million in Q3 2017 (+6%))
• As reported (including specific items)
• Operating income of $78 million
  
  (compared to $73 million in Q2 2018 (+7%) and $51 million in Q3 2017 (+53%))
• OIBD¹ of $139 million
  
  (compared to $131 million in Q2 2018 (+6%) and $104 million in Q3 2017 (+34%))
• Net earnings per common share of $0.38
  
  (compared to net earnings of $0.28 in Q2 2018 and net earnings of $0.35 in Q3 2017)
• Adjusted (excluding specific items)²
• Operating income of $76 million
  
  (compared to $76 million in Q2 2018 (stable) and $53 million in Q3 2017 (+43%))
• OIBD of $137 million
  
  (compared to $134 million in Q2 2018 (+2%) and $106 million in Q3 2017 (+29%))
• Net earnings per common share of $0.40
  
  (compared to net earnings of $0.30 in Q2 2018 and net earnings of $0.20 in Q3 2017)
• European Boxboard subsidiary, via equity position in Reno De Medici S.p.A., closed the acquisition of Barcelona Cartonboard on October 31, 2018
• Net debt² of $1,573 million as at September 30, 2018 (compared to $1,586 million as at June 30, 2018) and net debt to adjusted OIBD ratio² at 3.2x on a pro-forma basis³

 

 

Mr. Mario Plourde, President and Chief Executive Officer, commented: "Strong fundamentals in Containerboard Packaging were the driving factor behind our solid third quarter performance. This was reinforced by successful margin realignment in Recovery activities, which contributed to improved quarterly earnings in Specialty Products. Results in the Tissue division continued to be impacted by rising raw material and logistics costs, in addition to the capacity-driven competitive reality. While margins in this division were below expectations as a result of these factors and weather-related events, the solid quarterly sales performance highlights the underlying strength of our tissue platform, and supports the strategic investments being made to propel long-term competitive positioning. Finally, the European Boxboard segment, via our 57.8% equity position in Reno de Medici S.p.A., announced solid results in the seasonally softer third quarter that delivered a marked improvement in profitability year-over-year.

On the strategic front, ramp-up of the new containerboard converting facility in Piscataway, NJ progressed very well, and production from the Maspeth, NY has been transferred to the new facility earlier than expected. Engineering work and project analysis continue to be advanced for the Bear Island project in Virginia, with scope and plans expected to be finalized in the first half of 2019. Reno de Medici S.p.A. announced that it had received the necessary approval from the Spanish Antitrust Authority and closed the acquisition of Barcelona Cartonboard SAU on October 31, 2018."

Financial Summary

 

 

 

 

Analysis of results for the three-month period ended September 30, 2018 (compared to the same period last year)

Sales of $1,172 million increased by $69 million or 6% compared to the same period last year. This was driven by a 12% increase in the Tissue segment, reflecting volume improvements, a more favourable sales mix, exchange rate and higher average sales prices during the period. An 8% increase in the Containerboard Packaging division similarly benefited sales, and was driven by higher sales prices and the acquisition of Ontario converting facilities at the end of 2017. Sales generated by the European Boxboard segment were up marginally compared to the prior year, as lower shipments were offset by improvements in both pricing and sales mix, and a favourable Canadian dollar - euro exchange rate. Finally, third quarter sales in the Specialty Products division were below prior year levels, reflecting the lower sales in recovery activities following the significant decrease in year-over-year prices of brown recycle fibres.

Third quarter operating income stood at $78 million, a notable improvement from the $51 million generated last year. This increase was driven primarily by the Containerboard Packaging segment, where strong results reflect the improved raw material pricing environment and implementation of the industry-wide US$50/st price increase. Operating income similarly benefited from improved results generated by the European Boxboard segment, reflecting lower raw material pricing and higher average selling prices. As was the case in the second quarter, the contribution from the Specialty Products division decreased slightly compared to last year as a result of the impact of lower raw material prices on recovery activities. Lastly, results in the Tissue division reflected higher raw material and transportation costs, the effects of which mitigated the benefits derived from a more favourable pricing and sales mix, and higher volumes.

On an adjusted basis¹, third quarter operating income stood at $76 million, versus $53 million in the prior year.

The specific items, before income taxes, that impacted our third quarter 2018 operating income and/or net earnings were:

• a $2 million unrealized gain on financial instruments (operating income and net earnings)
• a $1 million restructuring charge related to the forthcoming closure of two sheets plants in Ontario (operating income and net earnings)
• a $1 million gain related to a plant closed in a previous year (operating income and net earnings)
• a $3 million foreign exchange gain on long-term debt and financial instruments (net earnings)

For the three-month period ended September 30, 2018, the Corporation posted net earnings of $36 million, or $0.38 per common share, compared to net earnings of $33 million, or $0.35 per common share in the same period of 2017. On an adjusted basis¹, the Corporation generated net earnings of $38 million in the third quarter of 2018, or $0.40 per common share, compared to net earnings of $19 million, or $0.20 per common share, in the same period of 2017.

 

 

Near-Term and Strategic Outlook

Discussing short-term expectations, Mr. Plourde commented: "We expect solid market conditions to continue to drive results in the Containerboard business within the framework of the softer seasonal demand typical of the fourth quarter. While recent announcements regarding future capacity additions have led to some concern about longer-term demand-supply balance in the containerboard market, current data suggests that the market will remain well balanced over the medium-term. Given this, the containerboard division is expected to continue to be an important contributor to our business performance over this timeframe. Turning to Tissue, capacity additions and elevated raw material costs will continue to impact the performance of this segment in the near-term. As such, we remain focused on realizing recently announced price increases, maximizing efficiency, optimizing our operational performance, and we remain committed to strategically investing in the modernization of our asset base to reinforce our market positioning.

Strategically, we are focused on successfully carrying out our 2018 investment program, ramping up production at our recently opened containerboard converting facility, broadening our tissue sales penetration in Oregon, and completing engineering analysis for the Bear Island project in Virginia. On a broader scale, our daily operational focus and our longer-term strategic plans continue to be driven by our commitment to be meticulous with our capital allocation practices, to diligently manage our leverage, and to successfully position our asset base for long term success."

Dividend on common shares and normal course issuer bid

The Board of Directors of Cascades declared a quarterly dividend of $0.04 per common share to be paid on December 5, 2018, to shareholders of record at the close of business on November 21, 2018. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). During the third quarter of 2018, Cascades purchased 488,900 common shares for cancellation at a weighted average price of $13.27.

2018 Third Quarter Results Conference Call Details

Management will discuss the 2018 third quarter financial results during a conference call today at 10:00 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 December 8, 2018 by dialing 1-855-859-2056, access code 1998599.

Founded in 1964, Cascades produces, converts and markets packaging and tissue products that are composed mainly of recycled fibres. The Corporation employs 11,000 employees, who work in more than 90 units located in North America and Europe. With its management philosophy, half a century of experience in recycling, and continuous efforts in research and development as driving forces, Cascades continues to serve its clients with innovative products. 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, 2017.

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, 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 & 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 obligation 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 the 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 common share, as per IFRS, with adjusted net earnings and adjusted net earnings per common 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 common 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.