Cascades Reports Results for the Third Quarter of 2022

Cascades Inc. reports its unaudited financial results for the three-month period ended September 30, 2022.

Q3 2022 Highlights

• Sales of $1,174 million (compared with $1,119 million in Q2 2022 and $1,030 million in Q3 2021)
• As reported (including specific items)
  • Operating income of $25 million (compared with $32 million in Q2 2022 and $73 million in Q3 2021)
  • Operating income before depreciation and amortization (OIBD) of $92 million (compared with $95 million in Q2 2022 and $136 million in Q3 2021)
  • Net loss per common share of $(0.02) (compared with net earnings per common share of $0.10 in Q2 2022 and net earnings per common share of $0.32 in Q3 2021)
• Adjusted (excluding specific items¹)
  • Operating income of $44 million (compared with $28 million in Q2 2022 and $44 million in Q3 2021)
  • Operating income before depreciation and amortization (OIBD) of $111 million (compared with $91 million in Q2 2022 and $107 million in Q3 2021)
  • Net earnings per common share of $0.20 (compared with net earnings per common share of $0.10 in Q2 2022 and a net loss per common share of ($0.01) in Q3 2021)
• Net debt¹ of $2,011 million as of September 30, 2022 (compared with $1,712 million as of June 30, 2022). Net debt to adjusted OIBD ratio¹ of 6.2x, up from 5.4x as of June 30, 2022.
• Total capital expenditures, net of disposals, of $121 million in Q3 2022 and $333 million in the first nine months of 2022. Forecasted 2022 net capital expenditures of $450 – $470 million, including $310 – $330 million for the Bear Island containerboard conversion project in Virginia, USA.
• On October 19, 2022, the Corporation announced that it had successfully amended its existing credit facility to reinforce its financial flexibility. The updated agreement increased the authorized term loan to US$260 million from US$160 million while extending the maturity by two years to December 2027. Concurrently, the term of the Corporation’s revolving facility was extended by one year to July 2026.

1 Some information represents Non-IFRS financial measures, other financial measures or Non-IFRS ratios which are not standardized under IFRS and therefore might not be comparable to similar financial measures disclosed by other corporations. Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.

Mario Plourde, President and CEO, commented: “Our third quarter performance was in line with expectations notwithstanding the fact that our Tissue segment continued to face unprecedented cost inflation and reduced productivity due to labour scarcity and inefficiencies. Company-wide, improvements in volume, pricing and sales mix mitigated continued cost headwinds on a sequential and year-over-year basis. Importantly, the profitability initiatives that have been deployed throughout our Tissue business absorbed this segment’s higher costs during the quarter. While these measures trailed the cadence of cost headwinds in the first nine months of the year, we are encouraged with how they are now tracking, and continue to expect additional benefits going forward.

The Bear Island project advanced well during the quarter and we are preparing the commissioning of certain key equipment. As we pointed to in our second quarter release, supply chain constraints in 2022 slowed delivery of some materials which delayed certain construction milestones. These conditions continued in the third quarter and as a result start-up of the facility will occur in the first quarter of 2023. The capital investments for this project totaled $83 million in the third quarter and $228 million year-to-date. These elevated investment levels underline the environment of high cost inflation, and have resulted in an important increase in our leverage, a trend we expect to reverse in 2023 with improved business performance and the contribution from this facility following its start-up. A prominent FX impact and higher working capital requirements, driven by inflation, were similarly important factors in the increase in our debt levels in the third quarter.”

Discussing near-term outlook, Mr. Plourde commented, “In view of the persistent inflationary pressures on costs and current macroeconomic environment, we are taking a conservative approach to our near-term outlook. Accordingly, we expect sequentially stable results in our packaging businesses, with lower raw material cost tailwinds projected to counterbalance lower volumes. For our Tissue segment, we anticipate improved sequential results driven by accruing benefits from profitability initiatives and stable demand levels. Our initiatives have delivered according to expectations thus far, despite certain timing delays in their implementations. The exception to this is meeting our production targets, where we continue to put in place additional measures to narrow the shortfall. The temporary shutdown of one of the machines at our St. Helen’s facility in Oregon has not impacted our annualized longer-term Tissue profitability objectives. Production is expected to resume by mid-December, and costs associated with the shutdown will total approximately $6 million.

As we have highlighted previously, our tissue business performance has been impacted by persistent cost inflation this year. The effect on results is immediate, whereas the roll-out of corrective pricing and other commercial initiatives takes time to be implemented and generate benefits. Given the significant impact that this interval has had in the current year, our Tissue segment is expected to generate $8 to $12 million of adjusted OIBD¹ in the fourth quarter of 2022 and, as such, will not achieve the $25 – $40 million adjusted OIBD¹ target in the calendar year 2022. More importantly, notwithstanding these challenging conditions, our Tissue segment remains on track to deliver on its long-term objectives.”

Analysis of results for the three-month period ended September 30, 2022 (compared to the same period last year)

Sales of $1,174 million increased by $144 million compared with the same period last year. This reflects $147 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 $26 million to sales levels on a consolidated basis. These factors were partially offset by a $26 million impact related to lower volumes mainly in the Tissue Papers business segment.

The Corporation generated an operating income before depreciation and amortization (OIBD) of $92 million in the third quarter of 2022, down from $136 million in the third quarter of 2021. On an adjusted basis¹, third quarter OIBD totaled $111 million, an increase of $4 million, or 4%, from the $107 million generated in the same period last year. This increase is attributable to $138 million of improvements related to selling price and mix in all businesses, the benefits of which outweighed higher raw material, production, energy and logistics costs in all segments.

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

• $2 million of impairment charges in the Containerboard Packaging segment on some equipment as part of the continuing optimization initiatives of the platform in Ontario, Canada (OIBD and a net loss);
• $14 million of impairment charges in the Tissue Papers segment on spare parts and on some property, plant and equipment related to a permanently closed plant in the USA (OIBD and a net loss);
• $3 million unrealized loss on financial instruments (OIBD and a net loss);
• $10 million foreign exchange loss on long-term debt and financial instruments (a net loss).

For the 3-month period ended September 30, 2022, the Corporation posted a net loss of $(2) million, or $(0.02) per common share, compared to net earnings of $32 million, or $0.32 per common share, in the same period of 2021. On an adjusted basis¹, the Corporation generated net earnings of $20 million in the third quarter of 2022, or $0.20 per common share, compared to a net loss of $(1) million, or ($0.01) per common share, in the same period of 2021.

1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.

For the complete press release, click here.

About Cascades Inc.

Founded in 1964, Cascades (TSX: CAS) offers sustainable, innovative and value-added packaging, hygiene and recovery solutions. The company employs more than 11,700 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.

Contact:

Jennifer Aitken – Director, Investor Relations – jennifer_aitken@cascades.com – (514) 282-2697

Source: Cascades Inc.