Q4 2023 Cascades Inc Earnings Call
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Good morning, My name is Julie and that will be a conference.
Today.
At this time I would like to welcome everyone to the Cascades fourth quarter of 2023 financial results Conference call.
All lines are currently in the lesson only mode.
After the speakers.
And I'm sorry session.
<unk> call to Jennifer Atkins director of Investor Relations for Cascade.
In your conference.
Thank you should be.
Good morning, everyone and thank you for joining our fourth quarter 2023 conference call you.
We will begin with an overview of our operational and financial results followed by some concluding remarks, after which we will begin the question period.
Today speakers will be Matthew appealed president and CEO and Allen hug CFO.
Joining us to the question period at the end of the call will be shell Marlowe, President and C. O L. As containerboard packaging <unk>, President and kilo, a specialty products <unk> and T as well as tissue papers and <unk> Senior V P of corporate services.
Before I turn the call over to my colleagues I would like to highlight 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.
Risks are listed in our public filings the statement the Investor presentation and the press release also include data that are not measures of performance under Ifr ash.
Please refer to our queue for 2023 investor presentation for details.
This presentation, along with that for quite a press release can be found in the investors section of our website. If you have any questions. Please feel free to contest contact us after this session.
Now can the call over twice a eagle Matthew.
Thank you to different good morning, everyone.
Let me begin with a quick overview of our full year 2023 result.
We've increased sales elapid, though by 4% and 48% respectively from 2022 levels.
We are pleased with just solid performance and the turnaround in our tissue business in particular were favorable market condition and our wide ranging profitability initiative successfully repositioned this business operation and equipped to generate inhibitor is 182 medium.
In the year.
We finished the year with a slightly lower net debt levels notwithstanding the significant investment made throughout the year in the Berlin facility and improve our leverage to treat 44 times from 5.2 time last year.
Moving now to our queue for result, unaccountable data bases sales were stable year over year, well adjusted EBITDA for 122 million rose, 5% from the prior year.
Pricing was a headwind for top line performance the effect of which were upset by stronger volume.
You have a year did the levels were also impacted by lower pricing, but this was mitigated by low or raw material production energy and freight costs and better volume packaging businesses.
Sequentially sales decreased 5% impacted by lower pricing in addition to lower volume.
The effect of which more than a <unk> of a more favorable exchange rate.
Decreased 24% from two treat due to all were containerboard performance, which was impacted by lower selling prices and volume and your raw material cost.
Are the raw materials side I liked it on slide five and six the queue for average index fries for OCC increased 127%, 37% you over a year and 41% from Q3.
The USCC Marquette's, a consistent strong demand and lower seasonal generation levels, which resulted in tighter market dynamics and put upward pressure on pricing, we have no problems applying the needs of our operations with good inventory management.
Average few for index prices for white recycled paper greatly decreased 5% sequentially and 44% from the prior year year levels.
We begin to see less favorable market dynamics over the water with index prices continuing to Bradley Mirror Virgin Paul.
Pricing for these fiber were slightly higher sequentially with price increase starting late in 2023.
Over here Whereever prices for both hardwood softwood, Paul remain lower down 33 per cent and 25% respectively.
Market conditions reflects lower softwood pulp supply.
Following downtime and permanent closure in North America.
Uncertainty around short term Asia, and the middle level and potential effect from the conflict in the Red Sea.
Not withstanding these market condition. The material has been readily available for our meals moving now to resolve that each of our business segment as highlighted on page seven to 12 of the presentation.
Beginning with containerboard sequencer sales decreased 5% in queue for this reflect lower volume driven by a 30% sequential decreasing thyroid will shipments and a lower average selling prices.
As previously announced with 219000 short tons of maintenance at some time in the water and an additional 30000 short.
One time, giving seasonality and softer end of year, Mark yet condition.
Gwen Shirley converting shipment increased 0.6% in Canada slightly below the 0.9% increase in the Canadian market U S converting shipment increased 5.6% well above the 0.2% U S. Marquette decrease Q.
Q for adjusted EBITDA, 67 million or 12% on the margin bases was 35% below two three levels.
Reflecting the impact from lower average selling prices and volume and how your raw materials and production costs.
Year over year sales decreased by 6 million with the impact of law or selling prices upset by your volume ended the level decreased by 44% with the impact from the lower pricing and are your are your raw material and operational costs more than upsetting.
Improved volume and lower energy costs.
You have a year shipment increased by 10% in queue for largely related to the new Verizon volume converting shipment increased by 7.4% in Canada outperforming the 4.6% increase in the <unk> market.
U S converting shipment increase 11.2% once again significantly outperforming the 0.4% U S market increase.
Moving before moving on to the specialty products <unk> I would like to add some color regarding the sequential performance of our containerboard segment.
As we stated in our press release Forequarter resolved, we're below expectation converted products Shipman remains solid, but usual, Susan <unk> and softer demanded barrick gold impacted resolved.
Will low integration right also impacted us this quarter following decrease in in the pricing.
C. C. Cos also continue to increase in the quarter, which when coupled with the lower selling prices put pressure on margin.
With their island ramping up in recent invest million are converting facility. Our operating platform is more agile more competitive and better position regardless of the economic backdrop, and we are focused on generating benefits from its increased agility and Marquette responsiveness.
This contribute to our decision to permanently closed three of our facility, giving their future capital investment requirements current market dynamics and they're all your level of operating costs due to the age of its equipment.
Continuing with our packaging businesses Q.
Q for sales levels in our specialty products segment increased by 2% sequentially, reflecting your volume in a bowl with Bob business in a more favorable exchange rate EBITDA decreased by 2 million sequentially, driven by lower volume and some sudden segment and your year end.
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Oprah eating cause we're slightly <unk> and realized spread were stable when compared to the prior year year Q for sales were stable decreasing 1 million as the impacts from lower selling prices was upset by benefit from all your volume maybe.
<unk> decreased by 1 million euro per year to $19 billion in queue for as the impacts from lower selling prices and higher production costs were partially offset by raw material costs and beneficial volume and mix.
Moving now to our tissue business, which generated the swamp quarterly did a margin of 15.6%.
This performance was driven by better spread but it's also a testament to the benefit being realized from the wide ranging initiatives implemented over the recent quarter that involve repositioning of its operational platform, including closer.
<unk> several facilities.
<unk> sales decreased 8% sequentially.
Reflect a 10% reduction in shipman levels, which was driven by 3% decrease in shipment on it converting side.
60% decrease in fabric rose shipment itself reflect the closure of our worst Satan meal and now your integration rate of 94% in queue for <unk>.
Shipment of converted.
For a moment in retail product decreased 7% and 1% respectively from Q3, both of which are an outcome of what'd you sold in huge re from facility that were recently close.
The average selling price increased by 3% driven by the lower proportion of Benadryl in this sales mix and a favorable exchange rate.
These benefits were partially upset by a slightly lower average selling price is converted product due to the contracted pricing model agreement.
<unk> 61 million or 15.6% on the margin bases west table with Q3 level.
This is the outcome of benefit related to newer fixed cost level. Following the plant closure fully upsetting impact from a net negative volume and sales mix SA.
You are a year sales rose, 2%, which sells mixed in this etsy.
Assessing the impact from lower pricing and volumes.
<unk> 53 million from the prior year year period.
This was driven by lower production raw materials and energy costs.
<unk> will now discuss the main highlight of our financial performance Adam Yes.
Yes, Thank you Matthew and a good morning, everyone. So slight 13 and 14 illustrated the specific items Ricardo during the quarter that means items that impacted EBITDA war $61 million of charges really attached to come to a newborn announcement last week and other restructuring costs mailing tissue related.
Closure of clients in the U S.
Slight 15, and 16 illustrate the yoga you in sequential volumes of our queue for adjusted earnings per share and every consternation with a specific items that affected our quarterly results.
As reported Q for net loss per share was 57 cents this compared to a net loss per share of 27 cents last year and that's earnings per share of 34 cents into three of this year.
On an adjusted basis net earnings per share, where five Samson a current quarter. This compared to net earnings per shift 22 essentials in last year's results.
And that's earnings per share of 44 cents in Q3, yeah.
Yoga year, <unk>, mainly reflects improve EBITDA offset by higher financing and depreciation expenses and income tax <unk>.
Why sequential volumes reflects lower to middle levels and income taxes Varga.
Volumes.
As highlighted on slide 17, Fort quarter, adjusted cash flow from operations West stable you over a year to 103 million and adjusted cash flow improved by 106 million from Q4 last year.
This was driven by a lower neck capex paid in the current quarter. Following the completion of their balance project investments.
Sequentially fourth quarter adjusted casual farm operations were stable and adjusted cash flow improved by 28 million from Q3, reflecting lower capex and dividends paid sir.
Slight 18 provides details about our capital investments new investments. This year total 289 million and paid capital expenditures net of disposal and accounts payable variation totaled $343 million of which 46 was in Q4.
Four 2024, our plan capital investments of 175 million have not changed.
Moving now <unk> d'etre conciliation as detail on slightly 19, our net debt decreased by 206 million in the fourth quarter, reflecting a stronger cash flow morphia.
We will exchange rate in a positive working capital Vargas.
For the full year as detail on slide 20, net debt levels are down 84 million with benefits from our Swogger Castro and a positive working capital volumes, which was reduced by capex associated with the about an investment and dividend, Spain in 2023.
Note that in the fourth quarter, we entered into annoying recourse monthly receivables Monetizations facility.
At the end of the year, we had 53 million use on the facility M. The receivables or do you recognize from the balance sheet and reduce on the depth for the same amount.
<unk> three four time is down from 5.2 times at the end of 2022, driven by a stronger and <unk> and <unk> <unk>.
Like I just mentioned.
Financial ratios and information about maturities are detailed on strike 21, and other information and analysis can be found on slides 24 through 31 of the day.
<unk> will now conclude the call with some brief comments and <unk> before we begin to question failure Mhm Yep.
Thank you out as well.
We provide detailed regarding our near term outlook on slide 22 of the presentation.
As a reminder, this outlook is based on current forecasts and expectation and May change.
Starting with containerboard segment, we are expecting a Q1 result to be lower boats sequentially and year over year.
This reflect your raw material costs, the newer selling prices both of which are linked to index. As you know energy prices will also be Edwin sequentially.
Our production costs will be a year in Q1 as we expect to take approximately 18000 short term of downtime in the first quarter.
For maintenance and inventory management following the softer demand in Q4 of last year. In addition, the closure of are trained to Neil will remove approximately 36000 short term.
Capacity in Q1.
Giving our current contract agreement, we do not expect benefit from pricing initiative in recent index changes to be reflected in a word Q1 results.
These will begin in Q2 and be fully implemented by Q4 at being approximately 50 <unk>.
Two EBITDA level in 2024.
Result of this specialty products segment are expected to be slightly stronger sequentially, reflecting stable selling prices <unk> and raw material costs.
Efficiency improvement in several sub this segment year over year results are expected to be slightly softer.
Alright look for tissue is four first quarter result to be slightly softer sequentially, reflecting usual seasonality and all year round material costs. These will be upset by ongoing benefit from profitability initiative results are forecast to be significantly above prior year level.
Rules do vary by this segment improved performance since the second half of 20, when you <unk>.
Two preamp question that I am sure you all have about I worked 2024 objective. We are pleased that we have successfully achieved the main business objectives set out in the plan, namely delivery delay D livery significant profitability improvement in the tissue paper segment.
And a successful start up their island containerboard facility.
We will not be providing any additional details financial update going forward.
Wherever <unk> regarding these objective and giving existed market condition <unk>.
Most notably in containerboard, we currently expect to fall short of our 5 billion consolidated sales objected and at the lower end of the target range for <unk> and free cash flow.
Given this our leverage ratio at the end of 2024 E. Four is forecasted to be slightly higher than our target of between 2.523 times.
Ongoing profitability improvement initiative is all business segment in recent price increase announced in the containerboard segment will support I work 2024 financial performance.
That said, let me see the following.
We are confident about the future performance of our businesses and our recent initiative an announcement I light, we will continue to manage each of them with a view of driving perhaps stability efficiency productivity and their competitive positioning.
Our current strategy plan ends in December of this year and we have begun the early process of outlining and analyzing our objective for the year to come.
With that we can open to call to question operator.
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Yes.
I good morning.
Mario you you know <unk> reference some some fingers around that containerboard segment, how much of the $70 per ton price increase are you assuming is implemented a no pump pump pay per week are reflected $40 recently.
Charles can you take just one so I'm here Charles we are still you know we announced a 110 on the medium.
70 on the.
The liner.
And we are still continuing to work towards achieving this now the pulp and paper recognize deindex move by 60.
Dollars on the medium and $40 in the liner so when you look at our current apparent roles and the contracts that we have we figured that the average is about $50 and that's why we base the impact of $50 million for this year.
Okay. Great. Thanks, Thanks for that Charles said, you know if you think about where maybe run rate EBITDA containerboard is at the end of the year because obviously this it sounds.
Like the price hikes full effects will only be felt by by the end of the year and then there's the you know Trenton rationalization.
What type of annualize deep it would you expect out of containerboard by by the end of 24.
Well I mean this is not something we will disclose we said that we will not be providing any more guidance for this year, So and we will not disclose any number in that regards.
Okay.
Alan and and just a question on Bear Island I know.
What are the objectives, there was to be able to utilize significant.
Significantly more mixed paper, how far along are you in that transition.
Yeah. So maybe just a 20th on to cover that their island first of all.
We are above a ramp up.
Production, so which is very good news.
Actually we just now is that we're able to provide all sorts of the market.
High performance recycled linerboard, 18 time and over so which is which is a very good news. This product has been qualify and it is running well. So this is gonna add up to our portfolio of product that we are able to offer to the to the market.
We also <unk> the the percentage of Miss that we're including so we went up to 30% which is not.
The maximum that we can use that as a as we speak right. Now. This is the what we were able to achieve in the ramp up process you have to understand that we also we want to make sure that we do it properly making sure that that we tried the quality of the product and and following the ramp up awesome.
And so it causes your objective to eventually take that as high as 60 per cent.
We can do a bit higher than that on the medium. We can go higher than that in the liner, but again I don't want to give a number right now because we're still.
In the process to to make sure that we provide good quality and ensure that the right the ramp up with the machine, but but we can we we have the flexibility to deal with the investment that we made to to go a bit higher than that.
Per cent.
Okay Fair enough and just the last question I had Mario on you know on the tissue side, we've seen one of your competitor.
Competitors Clearwater paper lunch with strategic alternatives review for their tissue business. Do you think you know that could perhaps lead to more industry consolidation in the tissue sector.
And would cats get you know be open to growing and tissue or Conversely, essentially selling into somebody looking to consolidate in that space.
Well it opened the doors to it I don't know who will present itself to this deal for our part as you said in the past you know we won't be participating in the consolidation because our focus right now who's to deliver on our plan 2024, and redo saw leverage so we have not changed.
Our focus in each of new dynamic in the market was the.
Open then.
Looking at the West moving on before at the moment, we have not changed our focus so.
Okay.
Thanks, very well I'll turnover.
Thank you.
Hi, Good morning, Thanks for taking my questions first for your containerboard out look for Q1 could you maybe delineate between your expectations for shipments versus production level, just given the desire to manage inventories you called out and maybe speak.
Your expectations for converted product shipments versus perron real shipments corner recorded.
Well I might you I can go higher level, our volume will be <unk>, but as we said in the press release will will produce a bit less to manage inventory. So that will incur some additional cost but sales volume will be hired in Q4.
Okay. Thanks is don't give that we don't give the split of.
Boxers all paranoid about box charge, you can complete but bugs that man, it's still it's still it goes it goes so I'm recovering side the the the name is still.
And so the the.
The growth that we've been experiencing we're still seeing the same friend right. Now. So this is this is a good good news for following investment that we made both in in in your facility and also in the <unk>.
A region, we're still ramping up and can you did logging in your new business.
Great. Thanks for that color, maybe the stick with containerboard.
I know you're not gonna provide any financial guidance here, but can you give us a sense of the magnitude of the benefits you should see from the closures of Trenton and the two converting facilities you announced earlier in February.
Well imagine we have not disclose a dot number so it will be get gradually.
In 2024, but as we mentioned and if volume that will be transferring other facilities at a lower cost so that should bring benefits, but we have not and we do not want to quantify the benefits of that but you can imagine that there's a higher fixed costs <unk>.
Structure in the meal, we close so that's an immediate benefit on each one that will be produced elsewhere. So so there's this.
This is Charles so <unk> is one of the benefits more efficient we're gonna produce product and more efficient facility then whether it produce right now and we're also looking at the.
Improving the overall network logistic aspects. So these are the three things that we're really focusing on right now on the benefits of the announced closure.
Okay. Thanks, very much Uhm last one for me just switching over to the tissue business.
He noted continuing benefits from profitability initiatives as part of your outlook for Q1 can you remind us or give us a sense of how significant do you expect the incremental benefits from these initiatives to be as we progress through 2024.
So that the early to see <unk>.
I think we just don't know what will happen with the raw materials with what I've done with the bulk with what happened with the recycled fiber prices. So.
Difficult to predict the impact of the structure so loaded into.
More.
More precisely 2024, but overall I can tell you that we have so many initiatives on the table to continue to improve the bottom line to compensate for those those pressure from the open market.
We have for converting lines from Oregon. This we are actually removing or reinstalling into our network that should give us a few million cases of additional capacity drove the year.
So and that should also help us to to come visit so we're really can fit into.
Last year.
Yeah.
I don't know if I answered your question.
<unk> that's helpful. Thanks, very much that's that's all from me I'll turn it back.
Hi, Good morning, everyone question on the account.
Price hike.
This is a cough.
I kept calling through your discussions with customers and that's why I'm training to be a little bit more difficult to implement breakfast prior around <unk>.
Consolidation.
I can report an issue right now.
So a price increase is always a discussion between our customers and in enough.
So we've we've done quite a few over the years. So I would say that every time, we need to spend the time to for them. You mentioned that this one and you saw the input costs and inflation.
Which our customers are seeing the same thing also so this is the level of discussion, we're having with them that in order to be as apply for the long term and being able to reinvest in the business.
That's why we're pushing 40 inquiry. So we were working on implementing and that's the the line that we're using costs are going up for everybody and we're talking about energy.
Chemicals transportation ability inflation, that's a slow down a bit there's still there compared to two.
Two years ago. So this is the level of conversation, we're having our customers.
Okay. Thanks for that and just turning over to their island provided at the commentary there already are you able to quantify that EBITDA consultations for their island and two four and how that's trending now in 2024, and how you expect that to try and call me.
So we're not going to disclose any numbers. The only thing we can say is that and thank you for its is it achieve a breakeven so for for a quarter four quarter and we expect the that the the meal will start contributing in 2024.
Okay. Thank you last one for me.
Touched on possible take your price hike pressure just you the government.
Incentives is that something that went away or you saw him or her that this quarter or maybe just some commentary around with your price hikes or ticket prices rather.
It went to we're we'll see because of the inflation to continue in the pricing on the call been recycled fiber to continue to increase so honestly.
We don't foresee made your replacement insertion into in the future and I believe we can even see price increase at some point is being sent to you to to go that way.
Is we're gonna continue to.
To follow the market carefully as as we we want to protect our margin.
Yeah.
Alright.
Final line in here just on recycled fiber prices do you have on it.
Where they're heading.
What is your inventory situation like right now.
Well I wonder if it's a resort pretty good actually we all just you manage the closure of the <unk> and moved it dawns around on with Us.
Meals and we have someone to send that this season is a typical <unk> season. So it's not unusual to be to be in the conditions. We are now with a whole generation.
Some systems to demand and so we do expect that over the next two weeks typically in March degeneration, with a cough and the the market doesn't make one move positively in terms of.
<unk> currently in a situation where the demand is consistent the domestic demand. It's got the steps we on the lowest generation season and the export is not the correct me if I <unk>.
I think the market at this level.
<unk> I'm talking to you.
Okay, let's take a moment.
<unk> okay.
Good morning, everyone.
Good morning.
It's been a bit of an issue in the past the times that can you comment on any discrepancies between what you're seeing in terms of pricing in the market versus black refuse reporting for either linerboard or media.
I'm not gonna comment on publication or market. The only thing as I mentioned that we're working with our customers on on.
On our pricing, but I'm not going to comment on that.
Pick of the index compared to what the market is the actual over.
I'm not gonna go there.
Gotcha.
And giving your mix of integration and shipments can you remind us of how the timing of how your contracts and containerboard interact with changes in the benchmark and how much of that business has suggested automatically.
Yeah, so with with the contracts on and we're talking right now the what what is the the publication index move.
As I mentioned, we're still working on initiatives to implement what we have announced which is higher than what.
That sounds recognize.
So in our system with the contracts, it's on a period of.
Six months, so fully implemented by thank you for 2024.
Goals are apparent roles being faster within the two months and then the rest of the the contracts that we have to take it until until the end of the year with your package, we mentioned of approximately $50 million.
That here.
Thank you and it looks like your Capex for your cannon ball a little guidance.
Give us any commentary on what's driving that and will there be a catch up later.
Well, we <unk>, we <unk> cash flow carefully we had a we were slightly above what we said last year due to the accounts payable variations on a cash basis were slightly higher Butler on a gross basis, but to answer your question.
No there's no significant ketchup it will we still have the envelope buzzer 170 542024.
Thank you very much I'll turn it over.
Okay.
Thank you.
Alright, Thank you everyone for being able to call. This morning, and looking forward to talk to you on to the next quarter have a good day everyone. Thank you. Thank you.
Mmm.
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