Cascades Reports Solid Results for the Third Quarter of 2023

Tissue Papers segment generates record quarterly results

KINGSEY FALLS, QC, Nov. 9, 2023 /PRNewswire/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended September 30, 2023.

Q3 2023 Highlights

• Sales of $1,198 million (compared with $1,168 million in Q2 2023 and $1,174 million in Q3 2022);
• Operating income of $80 million (compared with $64 million in Q2 2023 and $25 million in Q3 2022);
• Net earnings per common share of $0.34 (compared with net earnings per common share of $0.22 in Q2 2023 and a net loss per common share of ($0.02) in Q3 2022);
• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA (A)¹) of $161 million (compared with $141 million in Q2 2023 and $111 million in Q3 2022);
• Adjusted net earnings per common share¹ of $0.44 (compared with $0.27 in Q2 2023 and $0.20 in Q3 2022);
• Net debt¹ of $2,088 million as of September 30, 2023 (compared with $2,076 million as of June 30, 2023). Net debt to EBITDA (A) ratio¹ of 3.8x, down from 4.1x as of June 30, 2023;
• Total capital expenditures, net of disposals, of $56 million in Q3 2023, compared to $104 million in Q2 2023. The Corporation's 2023 forecasted net capital expenditures of approximately $325 million is unchanged.
• Sales of $1,198 million (compared with $1,168 million in Q2 2023 and $1,174 million in Q3 2022);
• Operating income of $80 million (compared with $64 million in Q2 2023 and $25 million in Q3 2022);
• Net earnings per common share of $0.34 (compared with net earnings per common share of $0.22 in Q2 2023 and a net loss per common share of ($0.02) in Q3 2022);
• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA (A)¹) of $161 million (compared with $141 million in Q2 2023 and $111 million in Q3 2022);
• Adjusted net earnings per common share¹ of $0.44 (compared with $0.27 in Q2 2023 and $0.20 in Q3 2022);
• Net debt¹ of $2,088 million as of September 30, 2023 (compared with $2,076 million as of June 30, 2023). Net debt to EBITDA (A) ratio¹ of 3.8x, down from 4.1x as of June 30, 2023;
• Total capital expenditures, net of disposals, of $56 million in Q3 2023, compared to $104 million in Q2 2023. The Corporation's 2023 forecasted net capital expenditures of approximately $325 million is unchanged.

Mario Plourde, President and CEO, commented: "We are pleased with our solid third quarter results. Sequential sales growth of 2.6% reflects stronger Containerboard volume and more favourable sales mix in Tissue Papers. Quarterly EBITDA (A)¹ improved 14%, exceeding expectations, fuelled by a robust 39% increase in Tissue Papers as benefits from lower raw material costs, price increases, and repositioning of this segment's operational platform and other profitability, efficiency and productivity initiatives undertaken over the past year continued to yield results. Sequentially, raw material costs were a headwind for our packaging businesses, but remained below prior year levels, while production costs were a tailwind. Notwithstanding a less favourable exchange rate, we maintained our net debt levels stable due to strong cash flows from operations and lower capital expenditures during the quarter. Consequently, our leverage ratio¹ improved to 3.8x from 4.1x at the end of Q2."

Discussing near-term outlook, Mr. Plourde commented, "On a consolidated basis, we are forecasting fourth quarter results to decrease sequentially. This is driven by lower expected results in our Containerboard segment due to higher raw material costs, slightly lower average selling prices and usual softer seasonal volumes in the fourth quarter. Results in the Specialty Packaging and Tissue Papers segments are expected to remain stable on a sequential basis. More broadly, we continue to remain prudent on the demand-side, most notably in our packaging businesses, due to general economic uncertainty. Notwithstanding this, we are very pleased with the continued ramp-up of production at the Bear Island facility, and the benefits being realized in our Tissue Papers segment following the wide-ranging measures executed in recent quarters. In both cases, the benefits from these strategic actions will continue to generate long-term commercial and competitive advantages for Cascades and sustainable value for our shareholders."

Financial Summary

Selected consolidated information

Segmented sales

Segmented operating income (loss)

Segmented EBITDA (A)¹

Analysis of results for the three-month period ended September 30, 2023 (compared to the same period last year)
The third quarter sales of $1,198 million increased by $24 million compared with the same period last year. This increase reflects a net benefit of $46 million that was driven by stronger volume in Containerboard and a favourable FX impact for all business segments. These increases were partially offset by lower indexed selling prices in Containerboard, the effects of which outweighed the increase generated by higher average selling prices in Tissue Papers.

The third quarter EBITDA (A)¹ totaled $161 million, an increase of $50 million, or 45%, from the $111 million generated in the same period last year. This increase was driven by a significant improvement in the Tissue Papers segment, which generated an EBITDA (A)¹ of $61 million in the quarter, or 14.5% on a margin basis, reflecting profitability initiatives implemented over recent quarters, and lower raw material, logistics and energy costs. On a consolidated basis, results benefited from more favourable volume and sales mix and lower raw material and logistics costs. These impacts were partially offset by lower average selling prices in packaging, most notably in Containerboard following decreases in index prices, and higher production costs in all businesses due to inflationary pressures in the last twelve months.

The main specific items, before income taxes, that impacted our third quarter 2023 operating income and/or net earnings were:

• $12 million of impairment charges on US assets, restructuring costs and an other loss related to the closure plants in the USA (operating income and net earnings);
• $2 million foreign exchange loss on long-term debt and financial instruments (net earnings).

For the three-month period ended September 30, 2023, the Corporation posted net earnings of $34 million, or $0.34 per common share, compared to a net loss of $(2) million, or ($0.02) per common share, in the same period of 2022. On an adjusted basis¹, the Corporation posted net earnings of $45 million in the third quarter of 2023, or $0.44 per common share, compared to net earnings of $20 million, or $0.20 per common share, in the same period of 2022.

Dividend on common shares and normal course issuer bid
The Board of Directors of Cascades declared a quarterly dividend of $0.12 per common share to be paid on December 7, 2023 to shareholders of record at the close of business on November 24, 2023. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). During the third quarter of 2023, Cascades purchased no common shares for cancellation.

2023 Third Quarter Results Conference Call Details
Management will discuss the 2023 third quarter financial results during a conference call today at 9:00 a.m. EDT. The call can be accessed by dialing 1-888-390-0620 (international 1-416-764-8651). 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 9, 2023 by dialing 1-888-390-0541 (international 1-416-764-8677), access code 557685.

Founded in 1964, Cascades offers sustainable, innovative and value-added packaging, hygiene and recovery solutions. The company employs approximately 10,000 women and men across a network of more than 70 facilities in North America. 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. Certain statements in this release, including statements regarding future results and performance, are forward-looking statements 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.

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

SEGMENTED INFORMATION

The Corporation's operations are managed in three segments: Containerboard and Specialty Products (which constitutes the Corporation's Packaging Products) and Tissue Papers. The accounting policies of the reportable segments are the same as the Corporation's accounting policies described in Note 2.

The Corporation's operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The Chief Executive Officer has authority for resource allocation and management of the Corporation's performance and is therefore the CODM. The CODM assesses the performance of each reportable segment based on sales and earnings before interest, taxes, depreciation and amortization, adjusted to exclude specific items (EBITDA (A)). The CODM considers EBITDA (A) to be the best performance measure of the Corporation's activities.

Sales for each segment are prepared on the same basis as those of the Corporation. Inter-segment operations are recorded on the same basis as sales to third parties, which are at fair market value.

EBITDA (A) does not have a standardized meaning under IFRS; accordingly, it may not be comparable to similarly named measures used by other companies. Investors should not view EBITDA (A) as an alternative measure to, for example, net earnings, or as a measure of operating results, which are IFRS measures.

Sales by country by business segment are presented in the following table:

EBITDA (A) by business segment is reconciled to IFRS measure, namely operating income (loss), and is presented in the following table:

Payments for property, plant and equipment by business segment are presented in the following table:

SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES AND OTHER FINANCIAL 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 that of other corporations and some of these items 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 repurchase of long-term debt, 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 and option fair value revaluation, foreign exchange gains or losses on long-term debt and financial instruments, fair value revaluation gains or losses on investments, specific items of discontinued operations and other significant items of an unusual, non-cash or non-recurring nature.

RECONCILIATION AND USES OF NON-IFRS AND OTHER FINANCIAL 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 and capital measures, as well as 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. This also increases the transparency and clarity of the financial information. The following non-IFRS measures and other financial measures are used in our financial disclosures:

Non-IFRS measures

• Adjusted earnings before interest, taxes, depreciation and amortization or EBITDA (A): represents the operating income before depreciation and amortization excluding specific items. Used to assess recurring operating performance and the contribution of each segment on a comparable basis.
• Adjusted net earnings: Used to assess the Corporation's consolidated financial performance on a comparable basis.
• Adjusted cash flow: Used to assess the Corporation's capacity to generate cash flows to meet financial obligations and/or discretionary items such as share repurchases, dividend increases and strategic investments.
• Free cash flow: Used to measure the excess cash the Corporation generates by subtracting capital expenditures (excluding strategic projects) from the EBITDA (A).
• Working capital: Used to assess the short-term liquidity of the Corporation.

Other financial measures

• Total debt: Used to calculate all the Corporation's debt, including long-term debt and bank loans. Often put in relation to equity to calculate the debt-to-equity ratio.
• Net debt: Used to calculate the Corporation's total debt less cash and cash equivalents. Often put in relation to EBITDA (A) to calculate net debt to EBITDA (A) ratio.

Non-IFRS ratios

• Net debt to EBITDA (A) ratio: Ratio used to assess the Corporation's ability to pay its debt and evaluate financial leverage.
• EBITDA (A) margin: Ratio used to assess operating performance and the contribution of each segment on a comparable basis calculated as a percentage of sales.
• Adjusted net earnings per common share: Ratio used to assess the Corporation's consolidated financial performance on a comparable basis.
• Net debt / Net debt + Shareholders' equity: Ratio used to evaluate the Corporation's financial leverage and thus the risk to Shareholders.
• Working capital as a percentage of sales: Ratio used to assess the Corporation's operating liquidity performance.
• Adjusted cash flow per common share: Ratio used to assess the Corporation's financial flexibility.
• Free cash flow ratio: Ratio used to measure the liquidity and efficiency of how much more cash the Corporation generates than it uses to run the business by subtracting capital expenditures (excluding strategic projects) from the EBITDA (A) calculated as a percentage of sales.

Non-IFRS and other financial 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 and other financial measures may differ from those of other corporations. Any such modification or reformulation may be significant.

The CODM assesses the performance of each reportable segment based on sales and earnings before interest, taxes, depreciation and amortization, adjusted to exclude specific items (EBITDA (A)¹). The CODM considers EBITDA (A)¹ to be the best performance measure of the Corporation's activities.

EBITDA (A)¹ by business segment is reconciled to IFRS measure, namely operating income (loss), and is presented in the following table:

The following table reconciles net earnings (loss) and net earnings (loss) per common share, as reported, with adjusted net earnings¹ and adjusted net earnings per common share¹:

The following table reconciles cash flow from (used by) operating activities with EBITDA (A)¹:

The following table reconciles cash flow from (used by) operating activities with cash flow from operating activities (excluding changes in non-cash working capital components) and adjusted cash flow from operating activities¹. It also reconciles adjusted cash flow from operating activities¹ to adjusted cash flow generated (used)¹, which is also calculated on a per common share basis:

The following table reconciles total debt¹ and net debt¹ with the ratio of net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA (A))¹:

SOURCE Cascades Inc.

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