Q1 2021 Cascades Inc Earnings Call
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Adjusted earnings.
President and C O L. A the tissue papers group they will all be available for the question and answer period at the end of the call.
Before I turn the call over to my colleagues I would like to highlight that ran into the ditches interim report released on April 29th can be viewed on <unk> website.
I would also note that certain statements made during this call will discuss historical and forward looking matters.
The accuracy of these statements are subject to risk factors that can have a material impact on actual results. These risks are listed in our public filings.
These statements the investor presentation in the press release to also include data that are not measures of performance under I F. R. S. Please refer to our two 120 21 investor presentation for details.
This presentation along with their first quarter press release can be found an investor section of our website.
If you have any questions. Please feel free to contact <unk> to contact us. After this session I will now turn the call over to our C. E O W.
[noise], Thank you Jennifer and good morning, everyone.
Before beginning I would like to thank our employee for their continued artwork and resiliency or customer supplier. There can you see which we upgrade for their strong partnership as well as our share over for their own gooey support.
Our results from the first three months of the year speak directly to today's dynamic business environment by far the most important driver of our performance this quarter, whereas the medical direction and reset and away from home D C volume.
Oh, you're raw material prices and transportation cost inflation also limited the first quarter performance of Arkansas, Billboard and looks bored Europe segment.
Some of the results from our North American packaging segment, driven by all your demands is sales prices and containerboard upset the slightly low volumes and the specialty products segment, good sequential marches improvement.
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On our country's databases first quarter sales levels decreased five per cent from two four and 7% from a year ago, while I just decreased by 13% and 10% respectively.
Slide 45 provide details of each of our business segment I would provide additional detail above the performance of each of our business segment in a few minutes.
On the Red material side highlighted on slide six day to an.
Average index price for OCC, a free 97% year over year and was 9% a year then queue for.
This reflects the domestic demand levels for this fiber as containerboard production levels and respond to pandemic buying pattern and export activity.
Result benefited from solid sales and a higher average selling price.
However, these were offset by higher raw material and transportation costs.
And lower volume related to seasonality and planned downtime that I just mentioned.
Year over year sales increased 10% driven by better volume improve sales mix and higher average selling prices, partially offset by the impact of a less favorable FX.
Adjusted EBITDA increased 9% year over year.
Our tissue business and a difficult first quarter on a comparative basis sales decreased 23% sequentially as.
As I mentioned earlier this was driven by lower volume and was also impacted by weather related production loss in one of our southern new west tissue plants and continued lower volume ADB away from one side.
Less favorable FX and realized pricing in the sales mix also impacted sales sequentially.
Adjusted Q1, EBITDA decreased 50% from the same reason however, lower production costs was a positive contributor to results.
On a year over year basis, the factor driving tissue performance were similar with volume contraction being the most important factor behind both the sales and adjusted EBITDA decrease.
Q1 sales from the Europe, Inbox, BARDA increased 13% sequentially, reflecting better volume and sales prices and the beneficial impact of a more favorable exchange rates.
Adjusted EBIT decreased $4 million from Q4 levels, reflecting higher raw material prices and energy costs.
Year over year sales increased 7% driven by volume and better pricing and mix.
Conversely.
EBITDA decreased by $7 million from prior year levels as the beneficial impact on sales were more than mitigated by higher raw material prices and your energy and production costs.
The specialty products segment generated solid Q1 results sequentially and year over year sequentially Q1 sales were stable decreasing by $1 million.
Adjusted EBITDA increased $3 million in both cases, better pricing and sales mix drove these results.
When compared to the prior year Q1 sales increased by $9 million, driven by a stronger volume and better pricing and mix the benefit of which more than offset a less favorable exchange rates.
Adjusted EBITDA levels increased by 50% or $6 million year over year, with higher volume better pricing and mix and lower production costs more than offsetting the impact of higher raw material costs and net favorable exchange rates.
I'll now pass the call to add only will discuss the main highlights of our financial performance and I will be back after out of it.
Thank you Matteo and good morning, everyone. So before discussing our financial results I would like to highlight that following the European box set.
Segment announcement to set its urgent hybrid manufacturing mill in France that these operations are not presented in discontinued with rest trust retrospective adjustments, we provide relevant details regarding the changes to the financials concerts and results on slide 13 note that this transaction closed last.
April 30.
Looking now.
An overview of our key keep your eyes on slide 14, our first quarter shipments increased by 6000 short tons or 1% from Q4. This was driven by a 16% increase in box Board Europe offset by a decrease of 19% in tissue and a slight 2% increase in containerboard.
First quarter Capex due to this renewal rate of 91% decreased 1% compared to the prior year and increased 3% from the fourth quarter levels.
Average working capital came in at nine 5% of sales down from nine six in Q4, while constantly 10 return on assets stood at 13% down slightly from $13 one in Q4.
Moving now to sales as detailed on slide 16 at 16 <unk>.
Posting softer results sequentially due to raw material price inflation specialty products and corporate activities board generated improved results from the period.
Our quarterly results continued to benefit from our margin improvement initiatives as we move towards our objective of improving our EBITDA margin by 1% for the second consecutive year when compared to our baseline year of 2019.
On that basis, we have realized $40 million in the first three months and every initiative that we have implemented are mitigating market headwinds and cost inflation and also improving the execution of our business processes.
Slide 19, and 20 illustrate the specific items recorded during the quarter than.
The main item is worth mentioning our 5 million from restructuring charges recorded in containerboard and tissue segment.
Related to restructuring and profitability improvement initiatives.
And $8 million unrealized loss on financial instruments, and a <unk> three.
$3 million.
Foreign exchange gain on long term defense financial instruments.
Slide 21, and 'twenty two illustrate the year over year and sequential volumes of our Q1 adjusted earnings per share and the re consultation with the specific items that affected our quarterly results as reported earnings per share were <unk> 22, since the first quarter this compared to earnings per share for 2004 since last year both per year.
Specific items.
On an adjusted basis EPS decreased by <unk> compared to last year results lower operating results and higher depreciation expense were partially offset by lower financing expenses and a lower earnings attributable to non controlling interests.
On an adjusted basis sequential first quarter EPS decreased also by 13% 13 <unk>.
<unk> per share from Q4 2020, reflecting the same factors. In addition to our positive <unk>, resulting from a tax asset.
The reassessment of prior Years' losses, which occurred in Q4 of last year.
As highlighted on slide 23 for the first quarter adjusted cash flow from operations decreased by $47 million year over year to $102 million and adjusted free cash flow levels decreased by $59 million year over year.
This reflected lower operating results higher net financing expense base and higher capex incurred including the Maryland project, which is well underway and going as planned.
Moving now to our net debt reconciliation on slide 24.
Our net debt decreased by $25 million in the quarter, reflecting reflecting a positive exchange rate impact of $21 million as free cash flow was slightly negative net debt was also adjusted to reflect discontinued operations are.
Our leverage ratio of 2.5 is unchanged from the end of 2020.
We would also like to report that we just extended our revolving bank credit facility for two years to July 2025, with the same terms and conditions.
This along with other financial reassure and information about maturities are detailed on slide 25.
Slide 26 provides details about our capital investment plans for 2021.
We remain unchanged in a range of $450 million to $475 million, which includes $250 million of investment associated with our by Ireland from conversion project.
Capital expenditures net of disposal totaled $78 million in Q1.
We remain focused on prudently managing our cash flow and debt profile with the objective of keeping our leverage ratio within a range of two five to three times, while we execute our balanced project.
At the end of the first quarter, we had cash and revolver availability of approximately 1 billion stable with year end 2020.
Mohit will come from the <unk> the call with some brief comments before we begin the question period.
Thank you Ellen.
We provide details regarding our near term outlook on slide 28 of the presentation. As a reminder, this outlook is based on what we are seeing to date and may change in the coming months, given the dynamic nature of the ongoing unusual circumstances.
Our near term outlook for containerboard segment is good stable sequentially and up year over year, we continue to see solid demand in both the manufacturing and converting site and the rollout of the announced price increase is underway as the second market price increase should be largely in place by the end of Q3.
These factors are expected to offset higher raw material pricing and upward pressure on transportation side.
Highlights that we have planned maintenance downtime of approximately 15000 short ton in Q2 slightly higher than the 11700 short tons, we took in Q1.
We are expecting steady sequential results from specialty product segment. This reflects stable volume and a higher average selling price of setting your raw material costs year over year result are expected to increase reflecting improvement in both volume and selling price.
Near term performance in European Box Board is also expected to be stable sequentially with stable volume and better pricing offsetting higher raw material costs year over year results are expected to decrease as the impact of higher raw material costs is expected to more than mitigate volume and pricing improvement.
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Our cautious near term outlook for the tissue segment is for stable sequential results.
Volume are expected to remain stable at lower levels on a sequential basis.
With production cost structure efficiently key mitigating the APAC a value of raw material and transportation costs.
Year over year tissue result will be down from last year strong results driven by elevated COVID-19 demand on the retail tissue side.
Pricing improvement will support resolved going forward.
As the single digit price increase we announced for consumer in the wafer a moment tissue products in North America will begin to take effect in the third quarter.
While first quarter results were disappointing for this segment, we view this underlying cause as temporary.
A long term, we expect demand level for both consumer and away from home tissue product to return to a normalized level as inventory rebalancing and businesses and the economy reopens.
Modernization and margin improvement initiatives as not only a quick this segment to better mitigate navigate the current challenging environment, but also position this business for our loans on market competitiveness.
Moving now to the raw material outlook. The recovered paper market saw increased activity in the first quarter, which you usually.
Usual seasonality linked to lower generation of material.
Mystic demand remain robust and export prices remain high.
Limited container availability in port congestion, we maintained good inventory levels finished the quarter well supplied and that net had difficult security needed fiber.
We have seen higher generation of material in the past month, and we expect similar with the key dynamics to persist for the coming months with domestic demand remains robust.
Export activity in OTC trading with a narrow range of the current level.
Condition for their white grade, where more complex and are more difficult to predict material as remains readily available. Then we have continued to maintain good inventory level lower demands for away from home product.
He's demand looking ahead, the recent increase in Virgin pulp prices will likely put an indirect upward pressure on cost and recycled white grades.
The Virgin pulp market saw a continuation of the rapid surge in pricing at year end during the first quarter. This was driven by strong demand and the extended planned and unplanned downtime at pulp mill we.
We should expect market conditions to ease as mill net net it's completed and production is resumed.
Currently our meals are supply and we will continue to manage our at need this support by our long term supplier relationships and good inventory management.
With that we will now be Abbvie to answer your question operator.
Thanks, Steven fully poison.
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So it looks like maybe Tim if I may.
People believe that Susan what's I guess, Jim Cabos into coffee.
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Well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Sean Stewart with TD Securities. Your line is open.
Thank you and good morning.
Questions.
John David wondering if you can give us some context on when you expect.
Tumor tissue destocking.
Worked through the system it sounds like Q2, you're expecting an ongoing overhang.
Any clarity on when that situation will resolve.
Yes, good morning, Sean.
Just to give you some numbers.
To support what we believe if you look at the.
Total U S converted shipments over the last few years.
The increase versus 2018 to 2019 through 2020.
We see that there is about.
Full month of inventory that went into the system. So from eight 8% to 9% to $9 7 million tonnes into the market. So you can see that there is half a million ton that will shift in 2020, maybe more than what the consumer consumer so which equal about one month of the retail sales totaled so.
If you look also at the Nielsen data.
April is the first month that we see positive increase from month over month. So we believe that the consumer are pretty much done with the inventory at their level, but they are still higher inventory as a retailer or distributor and also a day manufacturers. So all in all we believe.
That there is maybe two to three months still.
On balance, but still we see better sales in Q2 did in Q1 on our site.
That's that's great detail. Thank you for that.
Second question is on OCC costs in particular were seeing ongoing pressure.
Inflation in the second quarter.
Yes.
Wondering if you can handicap the various factors at play here offshore shipments domestic consumption and seasoning.
Containerboard mills start production.
Generation rates, what's what's driving it.
More so than other factors.
And any visibility on when you might expect to see some relief on that front.
Well.
It all on what we see obviously it always that the.
Containerboard activity is.
It's their domestic business is strong and robust. So this is obviously a significant component of.
Of the market. The generation itself is also in the part of the first quarter over a year is always a quiet quarter for fiber generation when you get into the March April season.
The generation increased significantly and this is very.
Very stable year over year after year, you could see the same the same trend.
And fiber generation in <unk>.
2021 makes no exception, we've seen a significant increase in generation in the last few weeks.
More recently there's been.
More export activity mainly to India.
And.
We've seen the last few weeks.
Some.
Yes.
This was led president for a couple of reasons, you probably have seen that.
Recycle from pulp in China.
Bit of oversupply and softening in the pricing.
And obviously China.
An important final destination.
For recycled pulp and linerboard and we believe also that the current challenges that India has with the pandemic is also impacting the demand so what we've seen in our region.
We are more active which is northeast U S Canada.
It's definitely.
A significant softening in the market conditions.
Yes, the day rate the proposed.
Amy.
Stable pricing for us.
For the northeast.
Desktop even.
A small decrease on the state based on that.
Our all perception so.
Please shows that something is.
We're getting in a more favorable season.
With fiber to ratio. Another thing also that we need to accounts as there is.
The challenge with logistics with containers availability difficulty of booking.
And.
The concerns that people have to export materials. These days with what's going on in India.
Thats.
All of these conditions.
So first quarter is always a more.
Our most sensitive quarter because of the lower generation and net this year yes.
<unk> because the mills.
The containerboard sales up in.
Fairly busy.
So.
That's partly why the market was a little bit tighter than it normally is but.
Things have evolved from more favorably for us.
The last few weeks.
Thank you for that that's useful context, I will get back in queue.
Okay.
Your next question comes from the line of <unk> Shah with BMO capital markets. Your line is open.
Hi, good morning.
I was wondering when your leverage at two five times and containerboard markets clearly improving can you give any thoughts around incremental capital returns to shareholders, just what youre thinking right now.
Well good morning.
We said when we announced bear island.
At least significant.
Investment and wed rather remain prudent during that time and now that we can't see that tissue was affected in the first quarter. So for now.
Our plan is maybe more to remain on the sales side with until the Maryland project is completed.
Okay. Thank you.
And then when you think about the pandemic and weighted.
The impact that's had on your tissue business has it made you think about any potential shifts in your mix between consumer and away from home.
Hey, good morning.
Few years ago or mix was close to 50 50, a work from home and retail.
Now if we look at last quarter at $65 to 35, but for sure. The market is below so I think we will end up after than they make around 60 40, which is in line with the market is consuming so we are free.
We're pleased with the mix that we have now.
We've invested a lot to renew or converting assets over the last few years. So we were pretty much there.
At the right level.
Great. Thank you and I just wanted to ask one last one about cyber security.
The issues faced by some of your competitors.
And in Canada.
Measures have you taken to protect yourself.
We now.
Well, we have our internal security grew that always measure in.
Monitors.
We may have we.
We do have insurance to cover ourselves, but we also have outside supplier.
Anything happened that would recover rapidly in case of our end somewhere but so far.
You saw a few in the industry and I think it proves that our systems are quite solid and we have improved since because we said that the paper industry was under a lot of pressure. So we improved this is weighted.
Safety since end.
We will keep on improving as we go move forward anyway, because it will never stop something we did also if need be to accelerating the plan for a recovery if any situation happens.
In our non production facilities with the system team.
We accelerate.
Given.
What we saw but.
We were.
Doing a lot from the last four five years, but again thats not you said, it's a continuous program, we need to improve and be really really careful and mindful of anything so we'll be monitoring that.
Great. Thank you very much.
Okay.
Your next question comes from the line of heavier Patel with CIBC capital markets. Your line is open.
Hi, good morning.
Charles could you could you give us an update as to.
With Bear Island.
Where the sort of order books.
For that and how you see.
What are you targeting by the time you start up.
Yes, Hello, Adam here.
So just first maybe on <unk>.
On the Bear Island project is going.
As unscheduled right now so the work on the site.
It's progressing well so we still are aiming to to start in December 2022.
In regards to the volume I mean, our goal at the beginning was too.
Tried to secure.
About 150000 tons.
A different agreement.
So I'm going to wait for the agreements to be signed officially but we are in.
In discussion with with current and.
New customers also to secure that volume.
So once we're going to have more formal agreements we will.
Inform on that but it's going in the right direction I can say at this point.
Okay. Thanks, Charles that's helpful and just turning to containerboard demand.
Can you speak to if you're noticing any differences.
<unk>, Canada and the U S.
How is that e-commerce growth and <unk> been trending this year.
So the demand I would say.
There is a bit of a difference depending on the seasonality between you.
The U S and Canada, but nothing major both are very good as we speak still.
Our first quarter, we were very happy with the with the demand and the way that things are going and we see that.
From what we see beginning of Q2, where the demand is still.
Very strong. So this is this is a good sign and this is on both side of the border.
Yeah.
So this is good and on the e-commerce.
We are seeing that.
There is high.
High demand for <unk>.
Product that are moving on the E. Commerce, we are starting to see now that some of these changes are probably going to stay.
For the long term, which is which is good.
Because these goods when they travel.
With the supply chain on e-commerce they need.
Packaging and corrugated.
So this is a good sign so we are seeing positive signs.
On the demand coming from the E Commerce and the good news.
That is when we look at the Bear Island.
The new mill that we have also the greenback offering lighter weight.
So it helps reducing the weight per packaging on e-commerce, and we are well equipped to offer that to our customers. So we're very positive on that site.
Okay, great. Thanks.
Ed I'll turn it over.
Okay.
Your next question comes from the line of Zachary <unk> with National Bank Financial Your line is open.
Thank you good morning, everyone.
Can you give us a little more detail on the tissue modernization push wrapping up and where you think that leads to a segment in a more normalized environment margin wise.
Okay.
We've done a lot over the last two years.
So as you know we've shut seven sites, we installed 13, new converting lines.
About one third was for retail two <unk> was far away from low, but we curtailed.
We retired a lot of assets at the same price. So all in all the capacity increase by about 13%.
Converting capacity.
This is where we're at right now so the.
All of the efforts that we've put in.
Help us last year to generate still 11%.
With the Atwood from low market being really low.
Still we will have more capacity on the retail side next year that we had last year. So all in all when when the market on the away from home side will come back. We believe there will be in a strong position to execute.
<unk> set out a target of 15% EBITDA margin.
Without that.
The retail.
Slowdown unexpected slowdown I will say, we were targeting a 12% this year for sure. It is input cost inflation, but we're still committed to deliver because everything we've done I think it's really.
Nice improvement.
Over the fundamentals of the group and so we're in much better shape than we were two.
2019 or 2018.
That's helpful. Thanks, and then for specialty products very strong quarter and can you dive into the structural improvements that drove that and then how much is more transitory in nature.
Yes that can be actually.
As a result, we had this quarter.
Include no extraordinary results I mean, it's.
It's normal results from the corrective operation we have so we have a better product mix.
You explained earlier that we spent quite a lot of efforts in margin improvement.
We're very involved in that process and we're starting to see the benefits of.
These efforts and the last thing also.
Obviously, we.
We made the investment.
The last couple of years to go more about the food packaging business threshold packaging business.
I think it was it was a good decision growth orientation and with the solid demand in fresh food packaging business that we see now we are also benefiting from that.
Excellent. Thank you I'll turn it over.
Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes from the line of Paul Quinn with RBC capital markets. Your line is open.
Yes, thanks, very much morning, gentlemen, just a couple.
A question starting on I guess containerboard just.
Wondering how the.
The November price increase was implemented what do you see any change for the for the March April price increase.
Yes, Paul so.
We were.
Successful in implementing.
November price price increase.
So when I look at the.
The realization of.
The increase.
We did we did very well so I can say that.
At the end of Q1, it's mainly fully implemented there may be some small exception because of contract or things like that but we can say that that this is this is a well done on our side.
The impact right now that we can see.
About.
So your question on basis.
About $25 million of.
The impact on the on our on our cash guidance, so which is which is good.
And we are deploying right now.
Second price increase which is.
Going going well.
We did announce that both on the box side.
Also on the.
Containerboard.
At the same time so.
We are deploying as we speak and.
We see that things are progressing well.
Right now so.
With the demand that is happening right now and our low inventory level.
We are focusing on making this happen and we are working also at the same time with our customers.
Two to minimize also the impact for them, but.
We are fully aligned for realization of the increase.
Okay. So then when I can relate that back to that slide 28 day near term factors, where you see.
Essentially flat.
Flat results sequentially just.
Yes.
And I see increased maintenance downtime in Q2 here, but I would've thought.
Limitation of the price second price increase would've would've pushed into seasonality in that business, but I would put that more positive than plot.
Yes there.
There is.
Major annual shutdown that we have provided in our guidance that we show there.
The maintenance is R&R Jaeger a fault complex. So we have three of our pay per machine that will be affected.
We also have been cautiously with the <unk>.
Increase of the OCC.
That's what we've factored in.
In our numbers.
Okay, and then maybe just over on the tissue side. I mean, you guys are probably seeing some significant cost increases on pulp.
Segment fiber side, just wondering how.
Price increases are being implemented whether you're whether you're confident that you'll be able to offset that contemplation.
But as you know both the price increase acceptance.
Follow the market dynamics. So we believe that there is there's good fundamentals to support those price increase of this moment that we're we're not alone thinking this also in the market. So.
We're going to work really hard to get as much as we can out of those price increase for July and August So it's hard to say for now.
Will it work every day.
Alright, Thats all I had best of luck guys. Thanks.
Thank you there are no further questions at this time Mr. <unk>. Please continue.
Alright, Thank you everyone for being on the line.
Morning, and we are looking forward to meet you on the Q2 results have a good day everyone.
Yes, Tim Adams initiatives like coffee and I'll Stifel today.
Thank you ladies and gentlemen. This concludes today's conference call you may now disconnect.
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