Cascades Announces Strong Results for the Second Quarter of 2018

• Solid containerboard fundamentals and improved operating efficiencies supporting positive outlook for 2018
• Strategic investments improving competitiveness of core businesses

KINGSEY FALLS, QC, Aug. 9, 2018 /CNW Telbec/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended June 30, 2018.

Q2 2018 Highlights

• Record sales of $1,179 million
  (compared to $1,098 million in Q1 2018 (+7%) and $1,130 million in Q2 2017 (+4%))
• As reported (including specific items)
• Operating income of $73 million
  (compared to $112 million in Q1 2018 (-35%) and $48 million in Q2 2017 (+52%))
• Operating income before depreciation and amortization (OIBD)¹ of $131 million
  (compared to $167 million in Q1 2018 (-22%) and $104 million in Q2 2017 (+26%))
• Net earnings per common share of $0.28
  (compared to net earnings of $0.65 in Q1 2018 and net earnings of $2.70 in Q2 2017)
• Adjusted (excluding specific items)²
• Operating income of $76 million
  (compared to $50 million in Q1 2018 (+52%) and $51 million in Q2 2017 (+49%))
• OIBD of $134 million
  (compared to $105 million in Q1 2018 (+28%) and $107 million in Q2 2017 (+25%))
• Net earnings per common share of $0.30
  (compared to net earnings of $0.13 in Q1 2018 and net earnings of $0.25 in Q2 2017)
• Net debt² of $1,586 million as at June 30, 2018 (compared to $1,534 million as at March 31, 2018) and net debt to adjusted OIBD ratio² at 3.5x on a pro-forma basis³.

Mr. Mario Plourde, President and Chief Executive Officer, commented: "We are pleased with our consolidated second quarter financial and operating performance. The Containerboard Packaging and European Boxboard divisions benefited from solid market and pricing conditions and delivered strong results that were in line with expectations. The Specialty Products division also met expectations in spite of the continued pressure on results from the recovery operations due to lower raw material prices. Results from our Tissue segment were down, reflecting the competitive marketplace and higher virgin pulp and white recycled fibre costs. This was in line with our updated outlook of stronger sales and shipment levels during the period. Transportation costs and availability also presented challenges for our North American operations.

On the strategic front, production began ramping up in May at the new containerboard converting facility in NJ, on schedule. Existing volumes will continue to be transferred to the site from other facilities, most notably the NY converting asset that will cease production by year-end. In late July, we announced the acquisition of the Bear Island facility in Virginia, and our intention to convert the asset into a state-of-the-art containerboard machine capable of producing lightweight recycled liner and medium. The scope and project plans are expected to be finalized in 2019, subject to Board approval, with a targeted production start up in 2021. While the project will involve important capital expenditures, it is directly in line with our strategy to modernize our platforms and optimize and grow our geographic footprint. The European Boxboard division, via our 57.8% equity position in Reno de Medici S.p.A., announced the acquisition of Barcelona Cartonboard SAU, an important European producer of coated cartonboard based in Spain, that is expected to close by the end of 2018. Finally, our leverage ratio stood at 3.5x¹ at the end of the second quarter, a slight improvement from the end of 2017."

Financial Summary

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

Sales of $1,179 million increased by $49 million or 4% compared to the same period last year. This was driven by an 11% increase in the Containerboard division, reflecting higher sales prices, the acquisition of Ontario converting facilities at the end of 2017, and higher volume during the period. The European boxboard segment also contributed to the improved results, with the 9% year-over-year increase in sales attributable to the January 2018 acquisition of PAC Service, improved pricing and sales mix, and a favorable Canadian dollar - euro exchange rate. These increases were partially offset by a 13% decrease in the Specialty Product division's sales levels, as a result of lower sales in recovery activities following the significant decrease in raw material prices, and slightly lower volume. Sales in the Tissue segment increased marginally compared to prior year levels, as the benefit of higher volumes was offset by a less favourable product mix and Canadian dollar - US dollar exchange rate.

Second quarter operating income stood at $73 million, a notable improvement from the $48 million generated last year. This increase was largely driven by the Containerboard and European boxboard segments, where strong results reflected the improved end product and raw material pricing as discussed above. In the case of Containerboard, this was partially offset by higher production costs, while the European boxboard segment results were partially offset by higher energy costs. The Specialty Products division contribution decreased compared to prior year levels, reflecting the impact of lower raw material prices on the recovery sub-segment. Finally, higher raw material prices, and a less favourable pricing and sales mix contributed to the weaker Tissue performance in the quarter, and more than offset the beneficial impact of higher sales volumes in this segment. Higher transportation costs negatively impacted the results of all of the Company's North American business divisions. On an adjusted basis¹, second quarter operating income stood at $76 million, versus $51 million in the prior year.

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

• a $3 million unrealized loss on financial instruments (operating income and net earnings).
• a $1 million gain on interest rates swaps (net earnings).

The Corporation generated net earnings of $27 million, or $0.28 per common share in the second quarter of 2018, versus net earnings of $256 million, or $2.70 per common share in the comparable period of 2017. On an adjusted basis¹, net earnings were $29 million, or $0.30 per common share, during the second quarter of 2018, compared to net earnings of $24 million or $0.25 per common share in the same period of 2017.

Near-Term and Strategic Outlook

Discussing short-term expectations, Mr. Plourde commented: "We are optimistic for the third quarter. Central to this positive outlook is continued strength in the Containerboard business, where solid market fundamentals, ongoing roll-out of the US$50/st price increase and stable raw material prices continue to drive results. The lower seasonal volumes common in the third quarter in Europe suggest a softer quarter for the European boxboard division, notwithstanding the underlying support provided by good industry fundamentals. The Specialty Products division is expected to generate stronger results sequentially, largely due to improvements in pricing, and more stable results from the recovery sub-segment. Finally, we expect sequentially flat results from the Tissue segment, as benefits from anticipated volume growth continue to be muted by higher raw material pricing and more competitive market dynamics. Finally, we anticipate that elevated transportation costs will continue to impact results for our North American operations. We continue to analyze and implement strategies to optimize our logistic strategies in light of this new higher pricing reality.

From a broader and more strategic standpoint, we will continue to optimize our business platform, and increase the depth of productivity and efficiency benefits. We are similarly focused on the successful execution of our planned 2018 investment program, ramping up operations at the new containerboard converting facility in NJ, and accelerating market penetration of our converted Tissue products in Oregon. Following our recently announced acquisition of the Bear Island asset in Virginia, our project team will also be putting significant effort toward completing the final project analysis for the planned conversion of the machine to lightweight recycled containerboard. Finally, given our capital expenditure plans, we believe it is important to reemphasize our commitment to diligently manage our capital allocation to create sustainable value for our shareholders. We are confident that we can be successful in this regard, all the while executing our strategy of modernizing our equipment base, optimizing the geographic footprint of our platforms, increasing our integration rate, delivering innovative solutions to our customers, and managing our leverage."

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 September 6, 2018, to shareholders of record at the close of business on August 22, 2018. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). During the second quarter of 2018, Cascades purchased 504,500 common shares for cancellation at a weighted average price of $12.51.

2018 Second Quarter Results Conference Call Details

Management will discuss the 2018 second 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 September 7, 2018 by dialing 1-855-859-2056, access code 5399416.

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.