Cascades Announces Strong Annual Net Earnings for 2017, and Releases Results for the Fourth Quarter of 2017

KINGSEY FALLS, QC, March 1, 2018 /PRNewswire/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period and the fiscal year ended December 31, 2017.

Q4 2017 Highlights

• Sales of $1,082 million (compared to $1,103 million in Q3 2017 (-2%) and $979 million in Q4 2016 (+11%))
• As reported (including specific items)
• Operating income of $45 million (compared to $51 million in Q3 2017 (-12%) and $33 million in Q4 2016 (+36%))
• OIBD¹ of $104 million (compared to $104 million in Q3 2017 and $83 million in Q4 2016 (+25%))
• Net earnings per common share of $0.60 (compared to net earnings of $0.35 in Q3 2017 and net earnings of $0.04 in Q4 2016)
• Adjusted² (excluding specific items)
• Operating income of $46 million (compared to $53 million in Q3 2017 (-13%) and $32 million in Q4 2016 (+44%))
• OIBD of $105 million (compared to $106 million in Q3 2017 (-1%) and $82 million in Q4 2016 (+28%))
• Net earnings per common share of $0.14 (compared to net earnings of $0.20 in Q3 2017 and net earnings of $0.16 in Q4 2016)
• US 2017 tax reform reduces future tax liabilities by $57 million

2017 Annual Highlights

• Sales of $4,321 million (compared to $4,001 million in 2016 (+11%))
• As reported (including specific items)
• Operating income of $175 million (compared to $221 million in 2016 (-21%))
• OIBD of $390 million (compared to $413 million in 2016 (-6%))
• Net earnings per common share of $5.35 (compared to net earnings of $1.42 in 2016)
• Adjusted² (excluding specific items)
• Operating income of $178 million (compared to $211 million in 2016 (-16%))
• OIBD of $393 million (compared to $403 million in 2016 (-2%))
• Net earnings per common share of $0.72 (compared to net earnings of $1.21 in 2016)
• Net debt of $1,522 million as at December 31, 2017 (compared to $1,532 million as at December 31, 2016) and net debt to adjusted OIBD ratio³ of 3.6x, down from 3.8x at year-end 2016.

Mr. Mario Plourde, President and Chief Executive Officer, commented: "Our fourth quarter results reflect year-over-year improvements in shipments, sales, and operating income on a consolidated basis. This was driven by solid performances from our containerboard division and European subsidiary Reno de Medici, where more favourable pricing and mix outweighed the impact of higher average raw material costs. In the case of containerboard, results also benefited from the consolidation of the Greenpac Mill results beginning in the second quarter of 2017. The specialty products segment delivered results that were below prior year levels due to a lower contribution from recovery and recycling activities. Our tissue division continued to face challenging market conditions in the fourth quarter, which resulted in production downtime to manage inventory. These factors, combined with a less favourable sales price and product mix, higher raw material prices and costs related to the ramp up of the new Oregon converting facility, impacted sales and profitability levels in this segment.

Sequentially, consolidated fourth quarter results reflected a less pronounced seasonal contraction than in prior years. This was primarily driven by results in our containerboard division, which generated increases in sales and operating income compared to the previous quarter, reflecting lower raw material prices and healthy demand. European boxboard operations also performed well, highlighting stronger business conditions, while results in our specialty products division remained relatively stable. Finally, our tissue segment performance was negatively impacted by lower volumes related to both seasonal demand variations and difficult market conditions, and a less favourable sales price and product mix.

We continued to make progress on strategic initiatives in 2017. At the corporate level, our internal business process transformation and ERP system initiatives progressed well, with implementations now largely completed. In the containerboard group, we finalized the sale of the Maspeth, NY, converting facility in January 2018 for US$72 million, increased our ownership position in the Greenpac Mill to 66.1%, began the construction of a new state-of-the-art containerboard converting facility in New Jersey, and strengthened our position in Canada with the acquisition of three converting plants and purchase of an interest in Tencorr Holdings Corporation. The European boxboard segment also acquired the Italian boxboard processing company Pac Service S.p.A, by purchasing the 66.67% of shares that it did not already own. Finally, we continued to deliver on our commitment to lower our debt. To this end, our leverage ratio¹ stood at 3.6x as of the end of 2017, down from 3.8x in 2016, and we successfully redeemed US$200 million of our US-denominated debt, which reduces our interest expense and exposure to currency fluctuations."

Financial Summary

Analysis of results for the three-month period ended December 31, 2017 (compared to the same period last year)

Sales of $1,082 million increased by $103 million or 11% compared to the same period last year. This was driven by the consolidation of results from the Greenpac Mill beginning in the second quarter, improvements realized in pricing and sales mix in all of the Corporation's business segments with the exception of tissue, and improved volumes in the European boxboard and tissue segments. These benefits were partially offset by a less favourable sales and pricing mix in the tissue segment, and less advantageous foreign exchange rates. 

Fourth quarter operating income stood at $45 million, a notable improvement from the $33 million generated last year. This increase is largely attributable to the consolidation of Greenpac and a more favourable pricing and sales mix in the containerboard segment. Partially offsetting these benefits were higher raw material costs in all business segments, and higher amortization and depreciation expense as a result of business combinations. On an adjusted basis, fourth quarter operating income stood at $46 million, versus $32 million in the prior year.

The main specific items, before income taxes, that impacted our fourth quarter 2017 operating income and/or net earnings were:    

• $2 million reversal of impairment (operating income and net earnings).   
• $1 million restructuring costs associated with the closure of a sales unit (operating income and net earnings).   
• $2 million unrealized loss on financial instruments (operating income and net earnings).   
• $4 million foreign exchange loss on long-term debt and financial instruments (net earnings).   
• $14 million loss related to the early repurchase of long-term debt (net earnings).    
• $59 million income tax gain resulting mainly from the U.S. tax reform announced at the end of 2017 (net earnings).  

The Corporation generated net earnings of $57 million, or $0.60 per common share in the fourth quarter of 2017, versus net earnings of $4 million, or $0.04 per common share in the comparable period of 2016. On an adjusted basis, the Corporation generated net earnings of $13 million, or $0.14 per common share, during the last three months of 2017. This compares to net earnings of $15 million or $0.16 per common share in the same period of 2016. Please see the "Supplemental Information on Non-IFRS Measures" section for reconciliation of the amounts detailed above.

Near-Term and Strategic Outlook

Discussing the outlook for Cascades, Mr. Plourde commented: "We expect several external factors to support results in the near term. The first of these is the combined beneficial impact on our operational performance of the current lower average price for OCC, which accounts for a large portion of the raw materials we use across our operations, and the price increases in linerboard, medium and corrugated products announced for March 5, 2018 in our containerboard segment. The second is the recent corporate tax reform in the US, which will reduce our US corporate tax rate to approximately 25% for 2018, from 38% previously. In addition, underlying industry fundamentals remain positive for both the containerboard business in North America and boxboard operations in Europe. Our tissue division, however, continues to face difficult market conditions, new industry capacity additions, and a slower than anticipated ramp-up of the new Oregon converting facility. On this last point, we are pleased to report that our increased sales and marketing efforts on the West Coast are making inroads in this new end market, and we are confident that this facility will evolve into a solid contributor to our tissue division performance.

As we move forward, we will continue to focus on optimizing our new business platform, and harvesting the gains in productivity, efficiency and cost savings generated through our more customer-centric and efficient processes. On a broader scale, we will continue to advance our strategic plan to position Cascades for the long-term. To this end, in the coming year we intend to invest $250 to $300 million, which will include strategic projects focused on increasing integration, improving operational performance through investments in modern equipment, and optimizing our geographic footprint. Furthermore, we are planning additional investments in tissue over the next several years that will modernize the retail and away-from-home business platforms, and equip this segment with an asset base that is competitively positioned for long-term growth. Each and every investment decision will be made with the goal of delivering quality, innovative and competitive products to our customers within a framework focused on optimal capital allocation, long-term market leadership and return while remaining fully committed to our objective of reducing 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 March 28, 2018, to shareholders of record at the close of business on March 14, 2018. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). Cascades did not purchase any common shares for cancellation during the fourth quarter of 2017.

2017 Fourth Quarter and Annual Financial Results Conference Call Details

Management will discuss the 2017 fourth quarter and annual financial results during a conference call today at 9:00 a.m. EST. 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 April 1, 2018 by dialing 1-855-859-2056, access code 1999496.

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, 2016.

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, 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: