Business News

Cascades reports third quarter results

Friday 12. November 2010 - Cascades Inc. (CAS on the Toronto stock exchange), a leader in the recovery of recyclable materials and the manufacturing of green packaging and tissue paper products, announces its financial results for the three months ended September 30, 2010.

(All amounts in this press release are in Canadian dollars unless otherwise indicated.)

Third quarter highlights

Net earnings per share excluding specific items of $0.29 compared to $0.22 in the previous quarter and $0.36 in the same period of last year. Including specific items, net earnings per share of $0.31 compared to $0.22 in the previous quarter and $0.35 in the corresponding period of last year.
Operating income before depreciation and amortization (EBITDA) excluding specific items of $115 million, up 7% in comparison to Q2 2010. EBITDA excluding specific items amounted to $127 million in the third quarter of 2009.
Cash flow from operations (adjusted) of $82 million compared to $71 million in the second quarter of 2010 and $94 million in the same period of last year.
Net debt down $37 million and $54 million in comparison to the previous period and to the third quarter of last year respectively. Debt-to-capitalization ratio at its lowest level in 6 years.
Total shipments up 5% compared to the third quarter of 2009 (excluding the impact of acquisitions).
Highest quarterly EBITDA of containerboard operations since 2006.


Financial Summary


Commenting on the third quarter results, Mr. Alain Lemaire, President and Chief Executive Officer stated: “As anticipated, our results continued to recover sequentially after hitting a soft patch in the first three months of the year. Demand remained solid, in line with the usual seasonality and a moderate and uncertain economic recovery. Our North American and European packaging operations benefited from selling price increases implemented during or prior to the third quarter. Of particular note is the fact that our containerboard segment posted its highest quarterly EBITDA since we acquired the full ownership of Norampac in 2006. This achievement is significant considering that the Canadian dollar was around 88 U.S. cents and recycled fibre costs were more than 30% lower in 2006.
 
In our tissue operations, as a result of very competitive retail markets, we were unable to fully offset the cost inflation through better selling prices. However, all in all, given our diversified business mix and the numerous restructuring measures realized over the years, I am pleased that Cascades continues to generate good net earnings and free cash flow to pay down debt despite high recycled fibre costs and a strong Canadian dollar.”
 
Results analysis for the three-month period ended Sept 30, 2010
(compared to the previous year)
 
In comparison with the same period last year, sales rose by 6% to $1,028 million resulting from higher selling prices, business acquisitions and a 5% increase in shipments (excluding the impact of the acquisition of the tissue assets of Atlantic Packaging). This was partly offset by the 6% appreciation of the Canadian dollar.

The operating income excluding specific items amounted to $62 million compared to $74 million in Q3 2009. Improved volumes and selling prices were more than offset by the rise of raw material costs and the Canadian dollar. When including specific items, operating income amounted to $58 million in comparison to $76 million in the same period of last year. The improved results in our containerboard segment were more than offset by a lower operating income in our tissue and corporate segments.

Net earnings excluding specific items amounted to $28 million ($0.29 per share) in the third quarter of2010 compared to $35 million ($0.36 per share) for the same period of last year. Including specific items, net earnings amounted to $30 million ($0.31 per share) compared to $34 million ($0.35 per share) for the same quarter in 2009. Net earnings of the third quarter of 2010 include a $3 million favorable adjustment for income tax provisions of prior periods.

As a result of the appreciation of the Canadian dollar and free cash flow generation, net debt decreased by $37 million compared to June 30th 2010 and by $54 million year-over-year.

In the third quarter of 2010, these specific items impacted our operating income and/or net earnings (before tax):

$4 million in unrealized loss on financial instruments (impact on operating income and net earnings);
$2 million gain on disposal and others (impact on operating income and net earnings);
$1 million impairment loss (impact on operating income and net earnings);
$1 million in closure and restructuring costs (impact on operating income and net earnings);
$9 million gain resulting mainly from our share of the gain realized by Boralex following its acquisition of Boralex Power Income Fund (impact on net earnings).
$4 million foreign exchange loss on long-term debt and financial instruments (impact on net earnings).

For further details, see the two following tables on GAAP and non-GAAP measures reconciliation.

Results analysis for the three-month period ended Sept 30, 2010 (compared to the previous quarter)

In comparison to the previous quarter, sales, operating income as well as net earnings improved mostly due to higher selling prices. Total shipments remained relatively stable mainly as a result of lower seasonal demand in our boxboard operations and raw material costs continued to negatively impact profitability.

Fourth quarter outlook

Mr. Alain Lemaire, President and Chief Executive Officer added: “Looking ahead to the fourth quarter, despite selling price inflation in some of our sectors, we expect a sequential decrease in profitability as a result of lower volumes due to normal seasonality and planned maintenance downtimes. In addition, recycled fibre costs and the Canadian dollar have recently begun to trend up and might remain higher than in the previous quarter until the end of the year.”

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 December 17, 2010 to shareholders of record at the close of business on December 3, 2010. This dividend paid by Cascades is an “eligible dividend” as per the Income Tax Act (Bill C-28, Canada). In addition, in the third quarter of 2010, in accordance with its normal course issuer bid program, Cascades purchased for cancellation 70,000 shares at an average price of $6.28 representing an aggregate amount of approximately $0.4 million. After nine months in 2010, Cascades purchased for cancellation 633,181 shares at an average price of $7.18 representing an aggregate amount of approximately $4.5 million

Supplemental information on non-GAAP 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 Canadian GAAP. The Company 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 Company’s operating segments. Additionally, the Company 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 earning s or cash flows from operating activities as determined in accordance with Canadian GAAP, 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 Canadian GAAP 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-GAAP measures. The Company believes that it is useful for investors to be aware of specific items that have adversely or positively affected its GAAP measures, and that the above mentioned non-GAAP measures provide investors with a measure of performance with which to compare its results between periods without regard to these specific items. The Company’s measures excluding specific items have no standardized meaning prescribed by GAAP 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, 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.