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 /PRNewswire/ - 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.
1 OIBD = Operating income before depreciation and amortization. |
|
2 For further details, please refer to the "Supplemental Information on non-IFRS Measures" section. |
|
3 Pro-forma basis to include 2017 and 2018 business combinations on a LTM basis. |
|
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."
1 Pro-forma basis to include 2017 and 2018 business combinations on a LTM basis. |
Financial Summary
Selected consolidated information |
|||||||||||
(in millions of Canadian dollars, except amounts per common share) (unaudited) |
Q2 2018 |
Q1 2018 |
Q2 2017 |
||||||||
Sales |
1,179 |
1,098 |
1,130 |
||||||||
As Reported |
|||||||||||
Operating income before depreciation and amortization (OIBD)1 |
131 |
167 |
104 |
||||||||
Operating income |
73 |
112 |
48 |
||||||||
Net earnings |
27 |
61 |
256 |
||||||||
per common share |
$ |
0.28 |
$ |
0.65 |
$ |
2.70 |
|||||
Adjusted1 |
|||||||||||
Operating income before depreciation and amortization (OIBD) |
134 |
105 |
107 |
||||||||
Operating income |
76 |
50 |
51 |
||||||||
Net earnings |
29 |
12 |
24 |
||||||||
per common share |
$ |
0.30 |
$ |
0.13 |
$ |
0.25 |
|||||
Margin (OIBD) |
11.4 |
% |
9.6 |
% |
9.5 |
% |
|||||
1 - Refer to the "Supplemental Information on Non-IFRS Measures" section. |
Segmented Operating Income (loss) as reported |
|||||||
(in millions of Canadian dollars) (unaudited) |
Q2 2018 |
Q1 2018 |
Q2 2017 |
||||
Packaging Products |
|||||||
Containerboard |
82 |
121 |
30 |
||||
Boxboard Europe |
22 |
19 |
13 |
||||
Specialty Products |
4 |
2 |
14 |
||||
Tissue Papers |
(9) |
(2) |
17 |
||||
Corporate Activities |
(26) |
(28) |
(26) |
||||
Operating income as reported |
73 |
112 |
48 |
Segmented adjusted OIBD1 |
|||||||
(in millions of Canadian dollars) (unaudited) |
Q2 2018 |
Q1 2018 |
Q2 2017 |
||||
Packaging Products |
|||||||
Containerboard |
105 |
77 |
56 |
||||
Boxboard Europe |
30 |
28 |
21 |
||||
Specialty Products |
9 |
7 |
20 |
||||
Tissue Papers |
7 |
13 |
35 |
||||
Corporate Activities |
(17) |
(20) |
(25) |
||||
Adjusted OIBD |
134 |
105 |
107 |
||||
1 - Refer to the "Supplemental Information on Non-IFRS Measures" section. |
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.
1 For further details, please refer to the "Supplemental Information on non-IFRS Measures" section. |
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.
CONSOLIDATED BALANCE SHEETS |
||
(in millions of Canadian dollars) (unaudited) |
June 30, |
December 31, |
Assets |
||
Current assets |
||
Cash and cash equivalents (including $26 million of restricted cash in 2018) |
97 |
89 |
Accounts receivable |
668 |
608 |
Current income tax assets |
19 |
18 |
Inventories |
539 |
523 |
Current portion of financial assets |
9 |
9 |
Assets held for sale |
— |
13 |
1,332 |
1,260 |
|
Long-term assets |
||
Investments in associates and joint ventures |
79 |
78 |
Property, plant and equipment |
2,267 |
2,104 |
Intangible assets with finite useful life |
208 |
212 |
Financial assets |
22 |
23 |
Other assets |
59 |
73 |
Deferred income tax assets |
153 |
149 |
Goodwill and other intangible assets with indefinite useful life |
545 |
528 |
4,665 |
4,427 |
|
Liabilities and Equity |
||
Current liabilities |
||
Bank loans and advances |
21 |
35 |
Trade and other payables |
699 |
683 |
Current income tax liabilities |
21 |
6 |
Current portion of long-term debt |
46 |
59 |
Current portion of provisions for contingencies and charges |
8 |
7 |
Current portion of financial liabilities and other liabilities |
84 |
101 |
879 |
891 |
|
Long-term liabilities |
||
Long-term debt |
1,616 |
1,517 |
Provisions for contingencies and charges |
33 |
36 |
Financial liabilities |
28 |
18 |
Other liabilities |
177 |
178 |
Deferred income tax liabilities |
217 |
186 |
2,950 |
2,826 |
|
Equity attributable to Shareholders |
||
Capital stock |
492 |
492 |
Contributed surplus |
15 |
16 |
Retained earnings |
1,057 |
982 |
Accumulated other comprehensive loss |
(11) |
(35) |
1,553 |
1,455 |
|
Non-controlling interests |
162 |
146 |
Total equity |
1,715 |
1,601 |
4,665 |
4,427 |
CONSOLIDATED STATEMENTS OF EARNINGS |
||||||||
For the 3-month periods ended |
For the 6-month periods ended |
|||||||
(in millions of Canadian dollars, except per common share amounts and number of common shares) (unaudited) |
2018 |
2017 |
2018 |
2017 |
||||
Sales |
1,179 |
1,130 |
2,277 |
2,136 |
||||
Cost of sales and expenses |
||||||||
Cost of sales (including depreciation and amortization of $58 million for 3-month period (2017 — $56 million) and $113 million for 6-month period (2017 — $103 million)) |
1,002 |
982 |
1,948 |
1,865 |
||||
Selling and administrative expenses |
102 |
101 |
205 |
194 |
||||
Gain on acquisitions, disposals and others |
— |
(8) |
(66) |
(8) |
||||
Impairment charges and restructuring costs |
— |
13 |
— |
14 |
||||
Foreign exchange gain |
— |
(2) |
(1) |
(1) |
||||
Loss (gain) on derivative financial instruments |
2 |
(4) |
6 |
(7) |
||||
1,106 |
1,082 |
2,092 |
2,057 |
|||||
Operating income |
73 |
48 |
185 |
79 |
||||
Financing expense |
21 |
24 |
43 |
45 |
||||
Interest expense on employee future benefits |
2 |
1 |
3 |
2 |
||||
Foreign exchange gain on long-term debt and financial instruments |
— |
(11) |
(1) |
(19) |
||||
Fair value revaluation gain on investments |
— |
(152) |
(5) |
(297) |
||||
Share of results of associates and joint ventures |
(3) |
(5) |
(4) |
(33) |
||||
Earnings before income taxes |
53 |
191 |
149 |
381 |
||||
Provision for (recovery of) income taxes |
16 |
(70) |
40 |
(43) |
||||
Net earnings including non-controlling interests for the period |
37 |
261 |
109 |
424 |
||||
Net earnings attributable to non-controlling interests |
10 |
5 |
21 |
7 |
||||
Net earnings attributable to Shareholders for the period |
27 |
256 |
88 |
417 |
||||
Net earnings per common share |
||||||||
Basic |
$ |
0.28 |
$ |
2.70 |
$ |
0.93 |
$ |
4.40 |
Diluted |
$ |
0.27 |
$ |
2.61 |
$ |
0.90 |
$ |
4.27 |
Weighted average basic number of common shares outstanding |
94,638,464 |
94,702,041 |
94,824,718 |
94,628,481 |
||||
Weighted average number of diluted common shares |
97,011,800 |
97,810,799 |
97,404,264 |
97,525,968 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
||||||||
For the 3-month periods ended |
For the 6-month periods ended |
|||||||
(in millions of Canadian dollars) (unaudited) |
2018 |
2017 |
2018 |
2017 |
||||
Net earnings including non-controlling interests for the period |
37 |
261 |
109 |
424 |
||||
Other comprehensive income (loss) |
||||||||
Items that may be reclassified subsequently to earnings |
||||||||
Translation adjustments |
||||||||
Change in foreign currency translation of foreign subsidiaries |
10 |
(16) |
50 |
(22) |
||||
Change in foreign currency translation related to net investment hedging activities |
(7) |
9 |
(30) |
15 |
||||
Cash flow hedges |
||||||||
Change in fair value of foreign exchange forward contracts |
— |
— |
(1) |
— |
||||
Change in fair value of interest rate swaps |
1 |
— |
1 |
— |
||||
Change in fair value of commodity derivative financial instruments |
2 |
(1) |
3 |
(2) |
||||
Equity investment |
— |
7 |
— |
19 |
||||
Share of other comprehensive income of associates |
— |
4 |
— |
21 |
||||
Recovery of (provision for) income taxes |
— |
(4) |
3 |
(13) |
||||
6 |
(1) |
26 |
18 |
|||||
Items that are reclassified to retained earnings |
||||||||
Actuarial gain (loss) on employee future benefits |
4 |
(7) |
5 |
(5) |
||||
Recovery of (provision for) income taxes |
(1) |
2 |
(1) |
1 |
||||
3 |
(5) |
4 |
(4) |
|||||
Other comprehensive income (loss) |
9 |
(6) |
30 |
14 |
||||
Comprehensive income including non-controlling interests for the period |
46 |
255 |
139 |
438 |
||||
Comprehensive income attributable to non-controlling interests for the period |
7 |
7 |
25 |
9 |
||||
Comprehensive income attributable to Shareholders for the period |
39 |
248 |
114 |
429 |
CONSOLIDATED STATEMENTS OF EQUITY |
||||||||
For the 6-month period ended June 30, 2018 |
||||||||
(in millions of Canadian dollars) (unaudited) |
CAPITAL |
CONTRIBUTED |
RETAINED |
ACCUMULATED |
TOTAL EQUITY |
NON- |
TOTAL |
|
Balance - Beginning of period |
492 |
16 |
982 |
(35) |
1,455 |
146 |
1,601 |
|
New IFRS adoption |
— |
— |
(2) |
2 |
— |
— |
— |
|
Adjusted Balance - Beginning of period |
492 |
16 |
980 |
(33) |
1,455 |
146 |
1,601 |
|
Comprehensive income |
||||||||
Net earnings |
— |
— |
88 |
— |
88 |
21 |
109 |
|
Other comprehensive income |
— |
— |
4 |
22 |
26 |
4 |
30 |
|
— |
— |
92 |
22 |
114 |
25 |
139 |
||
Dividends |
— |
— |
(8) |
— |
(8) |
— |
(8) |
|
Issuance of common shares upon exercise of stock options |
5 |
(1) |
— |
— |
4 |
— |
4 |
|
Redemption of common shares |
(5) |
— |
(7) |
— |
(12) |
— |
(12) |
|
Capital contribution from a non-controlling interest |
— |
— |
— |
— |
— |
1 |
1 |
|
Dividends paid to non-controlling interests |
— |
— |
— |
— |
— |
(10) |
(10) |
|
Balance - End of period |
492 |
15 |
1,057 |
(11) |
1,553 |
162 |
1,715 |
|
For the 6-month period ended June 30, 2017 |
||||||||
(in millions of Canadian dollars) (unaudited) |
CAPITAL STOCK |
CONTRIBUTED |
RETAINED |
ACCUMULATED |
TOTAL EQUITY |
NON- |
TOTAL |
|
Balance - Beginning of period |
487 |
16 |
512 |
(31) |
984 |
90 |
1,074 |
|
Comprehensive income (loss) |
||||||||
Net earnings |
— |
— |
417 |
— |
417 |
7 |
424 |
|
Other comprehensive income (loss) |
— |
— |
(4) |
16 |
12 |
2 |
14 |
|
— |
— |
413 |
16 |
429 |
9 |
438 |
||
Business combinations |
— |
— |
— |
— |
— |
57 |
57 |
|
Dividends |
— |
— |
(8) |
— |
(8) |
— |
(8) |
|
Stock options expense |
— |
1 |
— |
— |
1 |
— |
1 |
|
Issuance of common shares upon exercise of stock options |
2 |
(1) |
— |
— |
1 |
— |
1 |
|
Partial disposal of a subsidiary to non-controlling interests |
— |
— |
(1) |
— |
(1) |
1 |
— |
|
Dividends paid to non-controlling interests |
— |
— |
— |
— |
— |
(3) |
(3) |
|
Balance - End of period |
489 |
16 |
916 |
(15) |
1,406 |
154 |
1,560 |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|||||
For the 3-month periods ended |
For the 6-month periods ended |
||||
(in millions of Canadian dollars) (unaudited) |
2018 |
2017 |
2018 |
2017 |
|
Operating activities |
|||||
Net earnings attributable to Shareholders for the period |
27 |
256 |
88 |
417 |
|
Adjustments for: |
|||||
Financing expense and interest expense on employee future benefits |
23 |
25 |
46 |
47 |
|
Depreciation and amortization |
58 |
56 |
113 |
103 |
|
Gain on acquisitions, disposals and others |
— |
(8) |
(66) |
(8) |
|
Impairment charges and restructuring costs |
— |
11 |
— |
11 |
|
Unrealized loss (gain) on derivative financial instruments |
3 |
(4) |
7 |
(8) |
|
Foreign exchange gain on long-term debt and financial instruments |
— |
(11) |
(1) |
(19) |
|
Provision for (recovery of) income taxes |
16 |
(70) |
40 |
(43) |
|
Fair value revaluation gain on investments |
— |
(152) |
(5) |
(297) |
|
Share of results of associates and joint ventures |
(3) |
(5) |
(4) |
(33) |
|
Net earnings attributable to non-controlling interests |
10 |
5 |
21 |
7 |
|
Net financing expense paid |
(18) |
(10) |
(55) |
(48) |
|
Net income taxes received (paid) |
(1) |
(1) |
2 |
(6) |
|
Dividends received |
1 |
3 |
1 |
5 |
|
Employee future benefits and others |
(5) |
(6) |
(7) |
(6) |
|
111 |
89 |
180 |
122 |
||
Changes in non-cash working capital components |
5 |
(23) |
(26) |
(62) |
|
116 |
66 |
154 |
60 |
||
Investing activities |
|||||
Investments in associates and joint ventures |
— |
— |
(2) |
(16) |
|
Payments for property, plant and equipment |
(67) |
(37) |
(150) |
(98) |
|
Proceeds from disposals of property, plant and equipment |
1 |
11 |
82 |
14 |
|
Change in intangible and other assets |
(3) |
(6) |
(7) |
(11) |
|
Net cash acquired in business combinations |
— |
34 |
3 |
34 |
|
(69) |
2 |
(74) |
(77) |
||
Financing activities |
|||||
Bank loans and advances |
(2) |
1 |
(15) |
(2) |
|
Change in revolving credit facilities |
(26) |
(50) |
10 |
53 |
|
Increase in other long-term debt |
3 |
— |
11 |
6 |
|
Payments of other long-term debt |
(46) |
(14) |
(55) |
(19) |
|
Settlement of derivative financial instruments |
— |
— |
(1) |
(7) |
|
Issuance of common shares |
2 |
— |
4 |
1 |
|
Redemption of common shares |
(6) |
— |
(12) |
— |
|
Dividends paid to non-controlling interests |
(8) |
(3) |
(10) |
(3) |
|
Capital contribution from non-controlling interests |
— |
— |
1 |
— |
|
Dividends paid to the Corporation's Shareholders |
(4) |
(4) |
(8) |
(8) |
|
(87) |
(70) |
(75) |
21 |
||
Change in cash and cash equivalents during the period |
(40) |
(2) |
5 |
4 |
|
Currency translation on cash and cash equivalents |
— |
1 |
3 |
1 |
|
Cash and cash equivalents - Beginning of period |
137 |
68 |
89 |
62 |
|
Cash and cash equivalents - End of period |
97 |
67 |
97 |
67 |
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.
SALES |
|||||
For the 3-month periods ended |
For the 6-month periods ended |
||||
(in millions of Canadian dollars) (unaudited) |
2018 |
2017 |
2018 |
2017 |
|
Packaging Products |
|||||
Containerboard |
475 |
428 |
896 |
774 |
|
Boxboard Europe |
232 |
213 |
478 |
424 |
|
Specialty Products |
164 |
188 |
323 |
361 |
|
Intersegment sales |
(23) |
(27) |
(47) |
(49) |
|
848 |
802 |
1,650 |
1,510 |
||
Tissue Papers |
342 |
338 |
647 |
644 |
|
Intersegment sales and Corporate Activities |
(11) |
(10) |
(20) |
(18) |
|
1,179 |
1,130 |
2,277 |
2,136 |
||
OPERATING INCOME (LOSS) BEFORE DEPRECIATION AND AMORTIZATION |
|||||
For the 3-month periods ended |
For the 6-month periods ended |
||||
(in millions of Canadian dollars) (unaudited) |
2018 |
2017 |
2018 |
2017 |
|
Packaging Products |
|||||
Containerboard |
102 |
51 |
243 |
96 |
|
Boxboard Europe |
30 |
21 |
58 |
34 |
|
Specialty Products |
9 |
20 |
16 |
38 |
|
141 |
92 |
317 |
168 |
||
Tissue Papers |
7 |
33 |
20 |
56 |
|
Corporate Activities |
(17) |
(21) |
(39) |
(42) |
|
Operating income before depreciation and amortization |
131 |
104 |
298 |
182 |
|
Depreciation and amortization |
(58) |
(56) |
(113) |
(103) |
|
Financing expense and interest expense on employee future benefits |
(23) |
(25) |
(46) |
(47) |
|
Foreign exchange gain on long-term debt and financial instruments |
— |
11 |
1 |
19 |
|
Fair value revaluation gain on investments |
— |
152 |
5 |
297 |
|
Share of results of associates and joint ventures |
3 |
5 |
4 |
33 |
|
Earnings before income taxes |
53 |
191 |
149 |
381 |
|
PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT |
|||||
For the 3-month periods ended |
For the 6-month periods ended |
||||
(in millions of Canadian dollars) (unaudited) |
2018 |
2017 |
2018 |
2017 |
|
Packaging Products |
|||||
Containerboard |
81 |
9 |
140 |
15 |
|
Boxboard Europe |
5 |
4 |
8 |
12 |
|
Specialty Products |
11 |
6 |
17 |
9 |
|
97 |
19 |
165 |
36 |
||
Tissue Papers |
19 |
17 |
28 |
44 |
|
Corporate Activities |
6 |
5 |
9 |
8 |
|
Total acquisitions |
122 |
41 |
202 |
88 |
|
Proceeds from disposals of property, plant and equipment |
(1) |
(11) |
(82) |
(14) |
|
Capital lease acquisitions and included in other debts |
(63) |
(4) |
(66) |
(7) |
|
58 |
26 |
54 |
67 |
||
Acquisitions for property, plant and equipment included in "Trade and other payables" |
|||||
Beginning of period |
22 |
8 |
28 |
25 |
|
End of period |
(14) |
(8) |
(14) |
(8) |
|
Payments for property, plant and equipment net of proceeds from disposals |
66 |
26 |
68 |
84 |
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:
Q2 2018 |
|||||||
(in millions of Canadian dollars) |
Containerboard |
Boxboard |
Specialty |
Tissue |
Corporate |
Consolidated |
|
Operating income (loss) |
82 |
22 |
4 |
(9) |
(26) |
73 |
|
Depreciation and amortization |
20 |
8 |
5 |
16 |
9 |
58 |
|
Operating income (loss) before depreciation and amortization |
102 |
30 |
9 |
7 |
(17) |
131 |
|
Specific items: |
|||||||
Unrealized loss on financial instruments |
3 |
— |
— |
— |
— |
3 |
|
3 |
— |
— |
— |
— |
3 |
||
Adjusted operating income (loss) before depreciation and amortization |
105 |
30 |
9 |
7 |
(17) |
134 |
|
Adjusted operating income (loss) |
85 |
22 |
4 |
(9) |
(26) |
76 |
|
Q1 2018 |
|||||||
(in millions of Canadian dollars) |
Containerboard |
Boxboard |
Specialty |
Tissue |
Corporate |
Consolidated |
|
Operating income (loss) |
121 |
19 |
2 |
(2) |
(28) |
112 |
|
Depreciation and amortization |
20 |
9 |
5 |
15 |
6 |
55 |
|
Operating income (loss) before depreciation and amortization |
141 |
28 |
7 |
13 |
(22) |
167 |
|
Specific items : |
|||||||
Gain on acquisitions, disposals and others |
(66) |
— |
— |
— |
— |
(66) |
|
Unrealized loss on derivative financial instruments |
2 |
— |
— |
— |
2 |
4 |
|
(64) |
— |
— |
— |
2 |
(62) |
||
Adjusted operating income (loss) before depreciation and amortization |
77 |
28 |
7 |
13 |
(20) |
105 |
|
Adjusted operating income (loss) |
57 |
19 |
2 |
(2) |
(26) |
50 |
|
Q2 2017 |
|||||||
(in millions of Canadian dollars) |
Containerboard |
Boxboard |
Specialty |
Tissue |
Corporate |
Consolidated |
|
Operating income (loss) |
30 |
13 |
14 |
17 |
(26) |
48 |
|
Depreciation and amortization |
21 |
8 |
6 |
16 |
5 |
56 |
|
Operating income (loss) before depreciation and amortization |
51 |
21 |
20 |
33 |
(21) |
104 |
|
Specific items: |
|||||||
Gain on acquisitions, disposals and others |
(7) |
— |
— |
— |
(1) |
(8) |
|
Inventory adjustment resulting from business combination |
2 |
— |
— |
— |
— |
2 |
|
Impairment charges |
11 |
— |
— |
— |
— |
11 |
|
Restructuring costs |
— |
— |
— |
2 |
— |
2 |
|
Unrealized gain on financial instruments |
(1) |
— |
— |
— |
(3) |
(4) |
|
5 |
— |
— |
2 |
(4) |
3 |
||
Adjusted operating income (loss) before depreciation and amortization |
56 |
21 |
20 |
35 |
(25) |
107 |
|
Adjusted operating income (loss) |
35 |
13 |
14 |
19 |
(30) |
51 |
Net earnings, as per IFRS, is reconciled below with operating income, adjusted operating income and adjusted operating income before depreciation and amortization:
(in millions of Canadian dollars) (unaudited) |
Q2 2018 |
Q1 2018 |
Q2 2017 |
|
Net earnings attributable to Shareholders for the year |
27 |
61 |
256 |
|
Net earnings attributable to non-controlling interests |
10 |
11 |
5 |
|
Provision for (recovery of) income taxes |
16 |
24 |
(70) |
|
Fair value revaluation gain on investments |
— |
(5) |
(152) |
|
Share of results of associates and joint ventures |
(3) |
(1) |
(5) |
|
Foreign exchange gain on long-term debt and financial instruments |
— |
(1) |
(11) |
|
Financing expense and interest expense on employee future benefits |
23 |
23 |
25 |
|
Operating income |
73 |
112 |
48 |
|
Specific items: |
||||
Gain on acquisitions, disposals and others |
— |
(66) |
(8) |
|
Inventory adjustment resulting from business combination |
— |
— |
2 |
|
Impairment charges |
— |
— |
11 |
|
Restructuring costs |
— |
— |
2 |
|
Unrealized loss (gain) on derivative financial instruments |
3 |
4 |
(4) |
|
3 |
(62) |
3 |
||
Adjusted operating income |
76 |
50 |
51 |
|
Depreciation and amortization |
58 |
55 |
56 |
|
Adjusted operating income before depreciation and amortization |
134 |
105 |
107 |
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:
NET EARNINGS |
NET EARNINGS PER SHARE 1 |
|||||||||
(in millions of Canadian dollars, except amounts per share) (unaudited) |
Q2 2018 |
Q1 2018 |
Q2 2017 |
Q2 2018 |
Q1 2018 |
Q2 2017 |
||||
As per IFRS |
27 |
61 |
256 |
$ |
0.28 |
$ |
0.65 |
$ |
2.70 |
|
Specific items: |
||||||||||
Gain on acquisitions, disposals and others |
— |
(66) |
(8) |
— |
$ |
(0.51) |
$ |
(0.06) |
||
Inventory adjustment resulting from business combination |
— |
— |
2 |
— |
— |
$ |
0.01 |
|||
Impairment reversals |
— |
— |
11 |
— |
— |
$ |
0.07 |
|||
Restructuring costs |
— |
— |
2 |
— |
— |
$ |
0.02 |
|||
Unrealized loss (gain) on derivative financial instruments |
3 |
4 |
(4) |
$ |
0.03 |
$ |
0.03 |
$ |
(0.04) |
|
Unrealized gain on interest rate swaps |
(1) |
— |
— |
$ |
(0.01) |
— |
— |
|||
Foreign exchange gain on long-term debt and financial instruments |
— |
(1) |
(11) |
— |
$ |
(0.01) |
$ |
(0.09) |
||
Fair value revaluation gain on investments |
— |
(5) |
(152) |
— |
$ |
(0.03) |
$ |
(2.35) |
||
Share of results of associates and joint ventures |
— |
— |
(2) |
— |
— |
$ |
(0.01) |
|||
Tax effect on specific items, other tax adjustments and attributable to non-controlling interest1 |
— |
19 |
(70) |
— |
— |
— |
||||
2 |
(49) |
(232) |
$ |
0.02 |
$ |
(0.52) |
$ |
(2.45) |
||
Adjusted |
29 |
12 |
24 |
$ |
0.30 |
$ |
0.13 |
$ |
0.25 |
1 |
Specific amounts per common share are calculated on an after-tax basis and are net of the portion attributable to non-controlling interests. Per common share amounts in line item ''Tax effect on specific items, other tax adjustments and attributable to non-controlling interests'' only include the effect of tax adjustments. |
The following table reconciles cash flow from operating activities with operating income and operating income before depreciation and amortization:
(in millions of Canadian dollars) |
Q2 2018 |
Q1 2018 |
Q2 2017 |
Cash flow from operating activities |
116 |
38 |
66 |
Changes in non-cash working capital components |
(5) |
31 |
23 |
Depreciation and amortization |
(58) |
(55) |
(56) |
Net income taxes paid (received) |
1 |
(3) |
1 |
Net financing expense paid |
18 |
37 |
10 |
Gain on acquisitions, disposals and others |
— |
66 |
8 |
Impairment charges and restructuring costs |
— |
— |
(11) |
Unrealized gain (loss) on derivative financial instruments |
(3) |
(4) |
4 |
Dividend received, employee future benefits and others |
4 |
2 |
3 |
Operating income |
73 |
112 |
48 |
Depreciation and amortization |
58 |
55 |
56 |
Operating income before depreciation and amortization |
131 |
167 |
104 |
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:
(in millions of Canadian dollars, except amount per common share or otherwise mentioned) |
Q2 2018 |
Q1 2018 |
Q2 2017 |
||||
Cash flow from operating activities |
116 |
38 |
66 |
||||
Changes in non-cash working capital components |
(5) |
31 |
23 |
||||
Cash flow from operating activities (excluding changes in non-cash working capital components) |
111 |
69 |
89 |
||||
Specific items, net of current income taxes if applicable: |
|||||||
Restructuring costs |
— |
— |
2 |
||||
Adjusted cash flow from operating activities |
111 |
69 |
91 |
||||
Capital expenditures & other assets1 and capital lease payments, net of disposals of $81 million in Q1 2018 |
(72) |
(9) |
(32) |
||||
Dividends paid to the Corporation's Shareholders |
(4) |
(4) |
(4) |
||||
Adjusted free cash flow |
27 |
56 |
55 |
||||
Adjusted free cash flow per common share |
$ |
0.29 |
$ |
0.59 |
$ |
0.58 |
|
Weighted average basic number of common shares outstanding |
94,638,464 |
95,013,041 |
94,702,041 |
||||
1 Excluding increase in investments |
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):
(in millions of Canadian dollars) |
June 30, |
March 31, |
June 30, |
Long-term debt |
1,616 |
1,582 |
1,769 |
Current portion of long-term debt |
46 |
66 |
52 |
Bank loans and advances |
21 |
23 |
26 |
Total debt |
1,683 |
1,671 |
1,847 |
Less: Cash and cash equivalents (including $26 million of restricted cash in June 30, 2018 and $25 million in March 31, 2018) |
97 |
137 |
67 |
Net debt |
1,586 |
1,534 |
1,780 |
Adjusted OIBD (last twelve months) |
450 |
423 |
367 |
Net debt / Adjusted OIBD ratio |
3.5 |
3.6 |
4.9 |
Net debt / Adjusted OIBD ratio on a pro forma basis1 |
3.5 |
3.6 |
4.2 |
1 Pro-forma to include adjusted OIBD of 2017 and 2018 business acquisitions on a last twelve months basis. |
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SOURCE Cascades Inc.
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