Cascades swings to Q4 net income of C$5M from loss of C$12M a year earlier, with Papersource transaction helping to offset lower shipments, higher raw material costs; 16.6% sales increase to C$913M helped by acquisition revenues

KINGSEY FALLS, Quebec , February 23, 2012 (press release) – Cascades Inc. (TSX: CAS), a leader in the recovery and manufacturing of green packaging and tissue paper products, announces its unaudited financial results for the three-month period and the fiscal year ended December 31, 2011.

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

Fiscal Year 2011 Strategic Highlights

Modernization measures:

  • Construction kick-off for the new, state-of-the-art, Greenpac containerboard mill located in Niagara Falls (New York).
  • Start-up of a new Atmos tissue machine to produce Premium and Ultra quality tissue papers.
  • Modernization of the equipment at the Kingsey Falls moulded pulp mill, the Breakeyville and Auburn deink pulp mills, and the Winnipeg and Cobourg folding carton plants.
Restructuration measures:
  • Divestiture of Dopaco for US$395 million, the Avot-Vallée white-top linerboard plant and the Versailles and Hebron boxboard facilities.
  • Consolidation of corrugated box operations in New England.
  • Closure of the Burnaby containerboard facility, the Leominster and Le Gardeur corrugated box facilities and of the East-Angus pulp mill.
Capital optimization measures:
  • Acquisition of Papersource, a leading tissue paper converter.
  • Increase of our interest in Reno De Medici ("RdM") to close to 45%, the second largest European producer of coated recycled boxboard.
  • 2.1 million shares redeemed (2.1% of shares outstanding) at an average price of $5.22.
Fiscal year highlights
  • Total sales increased by 14 % compared to 2010 (including the impact of acquisitions and divestitures).
  • Total shipments up 15 % compared to 2010 (including the impact of acquisitions and divestitures).
  • Net earnings per share including specific items of $1.03 compared to $0.43 in 2010. Net loss per share excluding specific items of $0.14 compared to net earnings of $0.83 in 2010.
  • Operating income before depreciation and amortization (EBITDA) excluding specific items of $229 million compared to $310 million in 2010.
  • Net debt increased by 6% to $1.485 billion, including $156 million of non-recourse debt. Availability of $460 million under our revolving credit facility.
  • Appointment of Mario Plourde as Chief Operating Officer.
Fourth quarter highlights
  • Net earnings per share including specific items of $0.05 compared to a net loss of $0.21 in the previous quarter and a net loss of $0.12 in the corresponding period of last year. Net loss per share excluding specific items of $0.04 compared to a net loss of $0.02 in the previous quarter and net earnings of $0.17 in the same period of last year.
  • EBITDA excluding specific items of $51 million compared to $79 million in Q3 2011 and $72 million in Q4 2010.
  • Net debt increased by $115 million compared to previous quarter.
Financial Summary

 

Selected consolidated information            
(in millions of Canadian dollars, except amounts per share) 2011 2010   Q4/2011 Q4/2010 Q3/2011
 
Sales 3,625 3,182   913 783 947
Excluding specific items 1
  Operating income before depreciation and amortization (OIBD or EBITDA) 229 310   51 72 79
  Operating income 49 155   - 34 33
  Net earnings (loss) (14) 80   (4) 17 (2)
    per common share $(0.14) $0.83   $(0.04) $0.17 $(0.02)
  Cash flow from operations (adjusted) 133 197   40 41 61
As reported
Operating income before depreciation and amortization (OIBD or EBITDA) 1 188 258   37 45 53
Operating income (loss) 8 103   (14) 7 7
Net earnings (loss) 99 41   5 (12) (20)
    per common share $1.03 $0.43   $0.05 $(0.12) $(0.21)
Cash flow from operations (adjusted)  1 126 193   35 41 60

Commenting on the annual and fourth quarter results, Mr. Alain Lemaire, President and Chief Executive Officer stated:

"After two quarters of improvements, 2011 has ended on a disappointing note. First, the decline in the cost of recycled fibre witnessed at the end of the year only began to impact results in the second half of the quarter. Then, the important increase of the cost of many of our inputs and the strength of the Canadian dollar had a significant impact on our profit margins and our capacity to generate cash flows. Two other factors also influenced the fourth quarter performance. Seasonality inherent to this quarter and softer demand experienced throughout the industry have resulted in lower shipments. Also, lower operational efficiency at certain of our production units has contributed to higher production costs and lower profitability.

Despite these unfavourable conditions, we continue to focus on what we can influence and have achieved great successes in 2011 such as the orderly progression of our Greenpac project, the start-up of the new Atmos machine in Candiac, the progressive implementation of our ERP system and performance improvements achieved at certain of our facilities without major investments. The past year was the opportunity to fine tune the execution of our strategic plan. We have demonstrated in the recent past that we can make difficult decisions to improve our operational and financial performance and we will continue to do so in order to fully profit from the impacts of more favourable market conditions when they occur."

Results analysis for the three-month period ended December 31, 2011 (compared to the previous year)

In comparison with the same period last year, sales rose by 17% to $913 million resulting from higher selling prices, the net contribution of business acquisitions over divestitures and the full consolidation of the results of RdM since Q2 2011.

The operating income excluding specific items was nil compared to $34 million in Q4 2010. Higher selling prices and the contribution of business acquisitions were more than offset by the negative impacts of lower shipments and higher raw material costs. On a segmented basis, our tissue and European boxboard segments posted better results while our containerboard and specialty products segments experienced weaker profitability. When including specific items, the operating loss amounted to $14 million in comparison to an operating income of $7 million in the same period of last year.

In the fourth quarter of 2011, these specific items impacted our operating income and/or net earnings (before tax):
  • A reduction of net asset value of $44 million (operating income and net earnings);
  • Closure and restructuration costs of $3 million (operating income and net earnings);
  • Unrealized loss of $1 million on financial instruments (operating income and net earnings);
  • Net gain of $34 million mainly related to the Papersource transaction (operating income and net earnings);
  • Foreign exchange gain on long-term debt and financial instruments of $9 million (net earnings);
  • Other specific items increasing net earnings by $3 million.
For further details, see the two following tables on IFRS and non-IFRS measures reconciliation.

Net loss excluding specific items amounted to $4 million ($0.04 per share) in the fourth quarter of 2011 compared to net earnings of $17 million ($0.17 per share) for the same period of last year. Financing expenses were slightly lower than in Q4 2010 while the recovery of income taxes was significantly higher. Including specific items, net earnings were $5 million ($0.05 per share) compared to a net loss of $12 million ($0.12 per share) for the same quarter in 2010.

Results analysis for the three-month period ended December 31, 2011 (compared to the previous quarter)

In comparison to the previous quarter, sales decreased by 3.5% due to a 6% decrease in shipments. The favourable impacts of lower raw material prices have been offset by lower shipments.

We incurred important F/X gains on working capital items and cash flow management related to the sale of Dopaco during the third quarter of 2011 which explains the $21 million variance in EBITDA with the current quarter.

Results analysis for the fiscal year ended December 31, 2011

In comparison to last year, sales increased by 14% to $3.6 billion reflecting higher selling prices, the net contribution of business acquisitions over divestitures and the full consolidation of the results of RdM since Q2 2011. These factors were partly offset by the negative impact of a stronger Canadian dollar.

Despite higher selling prices in most of our business segments and the net contribution from acquisitions, the operating income from continuing operations excluding specific items decreased to $49 million compared to $155 million last year mainly as a result of the higher cost for raw material, energy, chemical products and transportation as well as by lower shipments. In addition, profitability suffered from lower selling prices in Canadian dollar and a 17-day business interruption at one of our tissue mill due to a flood which resulted in a $4 million financial impact. Operating income from continuing operations including specific items decreased by $95 million to $8 million.

In 2011, the net loss excluding specific items amounted to $14 million ($0.14 per share) compared to net earnings of $80 million ($0.83 per share) last year. Including specific items, net earnings reached $99 million ($1.03 per share) compared to $41 million ($0.43 per share) in 2010.

Near-term outlook

Mr. Alain Lemaire added: "Entering 2012, economic indicators are positive in North America and point to an unstable environment in Europe. Demand for our products remains volatile but we should improve our performance in comparison to the same period last year. In particular, we should benefit from the full consolidation of Reno de Medici and Papersource during the first quarter of 2012.

We expect to continue to face challenges as it relates to the volatility of raw material costs and the value of the Canadian dollar but we believe there are reasons for optimism for 2012 and future years. Indeed, since the later part of 2011, we have witnessed more favourable market conditions. From a strategic perspective, our plan still stands: modernize, restructure, optimize and innovate. We expect to begin benefiting from decisions taken as part of our strategic plan since the beginning of the year, particularly with respect to the acquisition of Papersource and the consolidation of some of our operational centers.

To execute our strategy, we plan to invest to improve our operational performance. However we will deploy our capital in a prudent and gradual way to equip Cascades with a portfolio of assets that are competitive from a manufacturing cost and product offering perspective while maintaining an acceptable level of debt. We wish to maintain our financial flexibility and expect to increase it from return generated on capital invested, working capital reduction efforts and supply chain optimization. This will allow us to pursue our growth initiatives and return value to our shareholders, as we did in the past."

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 on March 23, 2012 to shareholders of record at the close of business on March 9, 2012. This dividend paid by Cascades is an "eligible dividend" as per the Income Tax Act (Bill C-28, Canada).

In 2011, Cascades purchased for cancellation 2,057,563 shares at an average price of $5.22 representing an aggregate amount of approximately $10.8 million.

Transition to International Financial Reporting Standards (IFRS)

All financial information, including comparative figures pertaining to Cascades' 2010 results, has been prepared in accordance with International Financial Reporting Standards (IFRS). Until December 31, 2010, the Corporation prepared its consolidated financial statements and interim financial statements in accordance with Canadian generally accepted accounting principles (GAAP). Comparative figures presented pertaining to Cascades' 2010 results have been restated to be in accordance with IFRS. A reconciliation of certain comparative figures from previous GAAP to IFRS is provided in the Fourth Quarter results investor presentation. For further details, please refer to the investor presentation on the impact of adoption of IFRS, the fourth quarter 2011 report and the 2010 annual report. These documents are available at www.cascades.com/investors.

Founded in 1964, Cascades produces, converts and markets packaging and tissue products composed mainly of recycled fibres. The Company employs close to 11,000 men and women in close to a 100 units located in North America and Europe. Its management philosophy, its more than 45 years of experience in recycling and its continued efforts in research and development are strengths which enable Cascades to create new products for its customers. Cascades' shares trade on the Toronto Stock Exchange, under the ticker symbol CAS.

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