Consumables

Cascades continues to improve its results during the second quarter of 2012

Friday 10. August 2012 - Cascades Inc. (TSX: CAS), a leader in the recovery and manufacturing of green packaging and tissue paper products, announces its financial results for the three-month period ended June 30, 2012.

Q2-2012 Financial Highlights
Sales of $944 million
(compared to $891 million in Q1-2012 (+6%) and $991 million in Q2-2011 (-5%))
Excluding specific items
EBITDA of $84 million
(compared to $72 million in Q1-2012 (+17%) and $62 million in Q2-2011 (+35%))
Net earnings per share of $0.08
(compared to net earnings of $0.04 in Q1-2012 and a net loss of $0.09 in Q2-2011)
Including specific items
EBITDA of $77 million
(compared to $75 million in Q1-2012 (+3%) and $68 million in Q2-2011 (+13%))
Net earnings per share of $0.08
(compared to $0.06 in Q1-2012 and $1.27 in Q2-2011)
Net debt of $1,585 million (compared to $1,524 million as at March 31, 2012), including $134 million of non-recourse debt
Strategic Initiatives
Consolidation of our corrugated products sector in Ontario with the integration of the operations of Bird Packaging Limited and concurrent investments totaling $30 million in Vaughan, Etobicoke, St. Marys and Belleville
Agreement allowing for the continuation of operations at the Trenton containerboard mill
Important equipment upgrades to be undertaken this summer at Cascades’ mill in La Rochette and Reno de Medici’s mill in Villa Santa Lucia in Europe
Greenpac project machine installation proceeding as planned with expected start-up in July 2013
Mr. Alain Lemaire, President and Chief Executive Officer, had the following comments on the second quarter results and near-term outlook:
“As a result of higher volumes, lower energy costs and a weaker Canadian dollar, our profitability improved again sequentially during the second quarter of 2012. Most importantly, these results highlight that our strategy focused on our two core sectors, Tissue Papers and Packaging, is working to our advantage in a soft economic environment. Our Tissue Papers Group posted good results and our Specialty Products Group performed according to expectations. These two sectors accounted for most of the gain. As well, we are working to resolve operational issues in our Containerboard manufacturing operations to bring them back to expected productivity levels. This will be particularly important as the state of the containerboard market is finally allowing for more favorable conditions for producers. In Europe, the economic situation had a negative impact on the demand for our products in the first semester but order flows and backlogs indicate a return to more acceptable levels.
Hence, we are confident despite the economic environment in North America which continues to be uncertain. White grades recycled paper prices have increased recently but current availability leads us to believe that prices will be stable in the short term. As for brown grades, supply is good and prices have recently decreased which is positive. Usual seasonality associated with the third quarter, the impact of our recent strategic initiatives and expected improvements in our productivity rate should contribute to improved financial performance. The European economic environment remains challenging and we continue to focus on the project we started a few years ago to equip ourselves with a more competitive operational platform. Irrespective of the economic environment, we are committed to continue to improve our financial and operational performance.”
Financial Summary

Results analysis for the three-month period ended June 30, 2012 (compared to the previous year)
In comparison with the same period last year, sales decreased by 5% to $944 million as of result of lower volumes, lower average selling prices and the net impact of business divestitures and closures over acquisitions that more than offset a more favourable exchange rate.
The above-mentioned factors combined with lower raw material costs resulted in operating income, excluding specific items, amounting to $37 million compared to $15 million in Q2-2011. On a segmented basis, our three sectors in North America surpassed 2011 second quarter’s results due to lower recycled fiber costs, a more favourable exchange rate and the contribution from acquisitions. Our Boxboard sector in Europe suffered from lower volumes and an unfavourable exchange rate that more than offset lower raw material prices. When including specific items, the operating income amounted to $29 million in comparison to $21 million for the same period of last year.
In the second quarter of 2012, these specific items impacted our operating income and/or net earnings (before tax):
a $2 million unrealized loss on financial instruments (impact on operating income and net earnings);
a $5 million loss resulting from impairment charges and restructuring costs (operating income and net earnings);
a $1 million expense related to accelerated depreciation of assets due to restructuring measures (operating income and net earnings);
a $5 million foreign exchange gain on long-term debt and financial instruments (net earnings);
a $2 million gain included in our share of associates and joint ventures (net earnings).
For further details, see the following tables on IFRS and non-IFRS measures reconciliation included herewith.
Net earnings excluding specific items amounted to $7 million ($0.08 per share) in the second quarter of2012 compared to a net loss of $9 million ($0.09 per share) for the same period of last year. Including specific items, net earnings amounted to $7 million ($0.08 per share) compared to $122 million ($1.27 per share) for the same quarter in 2011, period at which a gain related to the divestiture of Dopaco was recorded.
Results analysis for the three-month period ended June 30, 2012 (compared to the previous quarter)
In comparison to the previous quarter, sales increased by 6% mostly due the impact of higher volumes. Acquisitions and a favourable foreign exchange rate also contributed to counterbalance the impact of lower selling prices due to a less favourable product mix. Excluding specific items, operating income increased by $11 million to reach $37 million while net earnings improved by 75% reaching $7 million primarily due to volume growth that more than offset an increase in raw material prices.
Net earnings excluding specific items for the quarter were also reduced by a higher tax rate in Europe and by a lower contribution of earnings from our associates and joint ventures representing approximately $4 million.
Net debt increased by $61 million to $1,585 million due to an unfavorable exchange rate and as a result of capital investments including the acquisition of Bird Packaging and the completion of the funding of our investment in the Greenpac project.
Dividend on common shares and normal course issuer bid
The Board of Directors of Cascades declared a quarterly dividend of $0.04 per share to be paid September 13, 2012 to shareholders of record at the close of business on August 31, 2012. This dividend paid by Cascades is an “eligible dividend” as per the Income Tax Act (Bill C-28, Canada).
In the second quarter of 2012, Cascades purchased for cancellation 61,900 shares at an average price of $4.35 representing an aggregate amount of approximately $0.3 million.
Supplemental information on non-IFRS measures
Operating income before depreciation and amortization, earnings before interests, taxes, depreciation and amortization, operating income and cash flow from operations are not measures of performance under IFRS. The Corporation includes operating income before depreciation and amortization, earnings before interests, taxes, depreciation and amortization, operating income and cash flow from operations because they are measures used by management to assess the operating and financial performance of the Corporation’s operating segments. Additionally, the Corporation believes that these items provide additional measures often used by investors to assess a company’s operating performance and its ability to meet debt service requirements. However, operating income before depreciation and amortization, earnings before interests, taxes, depreciation and amortization, operating income and cash flow from operations do not represent, and should not be used as a substitute for net earnings or cash flows from operating activities as determined in accordance with IFRS, and they are not necessarily an indication of whether cash flow will be sufficient to fund our cash requirements. In addition, our definition of operating income before depreciation and amortization, earnings before interests, taxes, depreciation and amortization, operating income and cash flow from operations may differ from those of other companies. Cash flow from operations is defined as cash flow from operating activities as determined in accordance with IFRS excluding the change in working capital components.
Operating income before depreciation and amortization excluding specific items, earnings before interests, taxes, depreciation and amortization excluding specific items, operating income excluding specific items, net earnings excluding specific items, net earnings per common share excluding specific items and cash flow from operations excluding specific items are non-IFRS measures. The Corporation believes that it is useful for investors to be aware of specific items that have adversely or positively affected its IFRS measures, and that the above mentioned non-IFRS measures provide investors with a measure of performance with which to compare its results between periods without regard to these specific items. The Corporation’s measures excluding specific items have no standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation.
Specific items are defined to include charges for impairment of assets, charges for facility or machine closures, accelerated depreciation of assets due to restructuring measures, debt restructuring charges, gains or losses on sale of business unit, unrealized gains or losses on derivative financial instruments that do not qualify for hedge accounting, foreign exchange gains or losses on long-term debt and other significant items of an unusual or non-recurring nature.
Net earnings (loss), which is a performance measure defined by IFRS is reconciled below to operating income (loss), operating income excluding specific items and operating income before depreciation excluding specific items or earnings before interests, taxes, depreciation and amortization excluding specific items:

The following table reconciles net earnings (loss) and net earnings (loss) per share to net earnings (loss) excluding specific items and net earnings (loss) per share excluding specific items:

The following table reconciles cash flow provided by (used from) operating activities to cash flow (adjusted) from operations excluding specific items: