Cascades Reports Strong Results for the Second Quarter of 2020

August 6, 2020

By: The Working Forest Staff

KINGSEY FALLS, QC, CNW Telbec — Cascades Inc. 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)1of $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 debt1of $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

       
(in millions of Canadian dollars, except amounts per share) (unaudited) Q2 2020 Q1 2020 Q2 2019
       
Sales 1,285 1,313 1,275
As Reported      
Operating income before depreciation and amortization (OIBD)1 169 161 154
Operating income 94 90 82
Net earnings 54 22 31
per share $ 0.57 $ 0.24 $ 0.33
Adjusted1      
Operating income before depreciation and amortization (OIBD) 186 161 156
Operating income 111 90 84
Net earnings 58 39 26
per share $ 0.61 $ 0.42 0.28
Margin (OIBD) 14.5% 12.3% 12.2%
1 – Refer to the “Supplemental Information on Non-IFRS Measures” section.      

Segmented OIBD as reported

       
(in millions of Canadian dollars) (unaudited) Q2 2020 Q1 2020 Q2 2019
       
Packaging Products      
Containerboard 83 102 114
Boxboard Europe 42 31 30
Specialty Products 16 11 16
       
Tissue Papers 48 45 17
       
Corporate Activities (20) (28) (23)
OIBD as reported 169 161 154

Segmented adjusted OIBD1

       
(in millions of Canadian dollars) (unaudited) Q2 2020 Q1 2020 Q2 2019
       
Packaging Products      
Containerboard 94 99 113
Boxboard Europe 43 30 30
Specialty Products 17 12 16
       
Tissue Papers 54 45 18
       
Corporate Activities (22) (25) (21)
Adjusted OIBD 186 161 156
1 – Refer to the “Supplemental Information on Non-IFRS Measures” section.      

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.

 
 

 

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