Cascades has reported its unaudited financial results for the three-month period ended 31 March 2017 .
Q1 2017 Highlights
- Sales of $1,006 million
- (compared to $979 million in Q4 2016 (+3%) and $1,003 million in Q1 2016 (stable))
- Operating income of $31 million
- (compared to $33 million in Q4 2016 (-6%) and $73 million in Q1 2016 (-58%))
- OIBD 12 of $78 million
- (compared to $83 million in Q4 2016 (-6%) and $120 million in Q1 2016 (-35%))
- Net earnings per common share of $1.70
- (compared to $0.04 in Q4 2016 and $0.79 in Q1 2016)
Adjusted (excluding specific items)
- Operating income of $28 million
- (compared to $32 million in Q4 2016 (-13%) and $59 million in Q1 2016 (-53%))
- OIBD of $75 million
- (compared to $82 million in Q4 2016 (-9%) and $106 million in Q1 2016 (-29%)
- Net earnings per common share of $0.13
- (compared to $0.16 in Q4 2016 and $0.35 in Q1 2016)
- Important increase recorded in shareholder equity following revaluation of Boralex investment to reflect market value
- Net debt 1 of $1,617 million as at March 31, 2017 (compared to $1,532 million as at December 31, 2016 ) and net debt to adjusted OIBD ratio 1 at 4.3x.
- Ownership in Greenpac Mill LLC increased from 59.7% to 62.5%, with results to be fully consolidated with those of Cascades beginning in Q2 2017.
Mr. Mario Plourde , President and Chief Executive Officer, commented: "Our first quarter results were hampered by several short-term elements, namely higher raw material prices, our product repositioning and new facility construction initiatives in our Tissue Papers segment, and the ongoing implementation of our ERP platform. That said, our packaging operations executed well in the first quarter, with all three divisions delivering improvements in total shipments and capacity utilization rates on both a sequential and year-over-year basis.
In the case of Containerboard, the significant increase in average OCC prices in the first three months of 2017 more than offset benefits accruing from the gradual implementation of the Fall 2016 price increase during the quarter, and put additional pressure on margins due to the timing mismatch ahead of the roll-out of the subsequent US$50 per short ton price increase that was announced in February.
While detrimental to Containerboard performance, higher recycled fibre costs benefited results in our Specialty Products division, as higher margin levels obtained from recovery and recycling activities provided a partial hedge against the impact that higher input costs had on manufacturing margins. In Europe , Reno de Medici improved results sequentially, as improving market fundamentals helped mitigate the impact of higher average fibre and chemical costs.
Regarding our Tissue activities, first quarter results were lower on both a sequential and year-over-year basis. This performance reflects higher raw material costs, lower jumbo roll sales in the slower first quarter, ongoing costs associated with our new West Coast U.S. conversion facility and marketing costs linked to recent product re-branding and repositioning.
Finally, at the corporate level, costs related to our ERP implementation and internal business process optimizations increased significantly on a year-over-year basis and marginally when compared to the previous quarter. These initiatives are progressing well, and we remain focused on finalizing them by the end of the year.
Looking at our financial profile, total net debt levels increased by 6% or $85 million sequentially, reflecting lower operating cash flow due to interest payments that are incurred in the first and third quarters, seasonally higher working capital requirements, and incremental capital expenditures and investments during the period. Consequently, our leverage ratio increased to 4.3x at the end of March, from 3.8x at the end of 2016.
Our higher leverage ratio in Q1 is common during this period due to seasonal trends in our businesses, and the increased working capital requirements and interest costs that are characteristic of the period. We expect this to revert to more normalized levels in the near-term and continue to be focused on lowering our leverage ratio to within a range of 3.0x – 3.5x.
Lastly, I wanted to highlight an important change that was announced in early April. We are very pleased that results from our Greenpac Mill will be consolidated within our results beginning in the second quarter, as this represents the successful achievement of one of our objectives, and will provide our shareholders with greater clarity with regards to our North American containerboard platform and operational performance.
Analysis of results for the three-month period ended March 31, 2017 (compared to the same period last year)
Sales of $1,006 million increased by $3 million compared to the same period last year. This reflects a notable 16% increase in Specialty Products attributable to $31 million of additional sales generated by recovery and recycling activities due to higher raw material pricing, and a 3% increase in Containerboard driven by better volume and U.S. selling price. Offsetting these were a $32 million negative currency-related impact, and lower sales from the Tissue segment which reflects the reduced volumes of the softer first quarter.
First quarter operating income stood at $31 million , down from $73 million last year. Specific items recorded in the current period (please refer to the ''Supplemental Information on Non-IFRS Measures'' below for more details) increased operating income by $3 million . On an adjusted basis, first quarter operating income stood at $28 million , down from $59 million in the prior year period. The decrease reflects higher raw material costs which negatively impacted contribution levels from Containerboard, Tissue and Europe , higher corporate costs related to the continuing ERP platform implementation, and additional costs linked to recent product repositioning and the new converting facility in Oregon in the Tissue division.
The specific items, before income taxes, that impacted our first quarter 2017 operating income and/or net earnings were:
- a $1 million cost associated with restructuring initiatives in the European Boxboard operations (operating income, net earnings)
- a $4 million unrealized gain on derivative financial instruments (operating income, net earnings)
- a $8 million gain on foreign exchange on long-term debt and financial instruments (net earnings)
- a $1 million gain related to the Corporation's share of associate unrealized gains on financial instruments (net earnings)
- a $160 million fair-value revaluation and dilution gain related to our Boralex investment (net earnings)
For the first quarter of 2017, the Corporation posted net earnings of $161 million , or $1.70 per common share, compared to net earnings of $75 million , or $0.79 per common share in the same period of 2016.
On an adjusted basis, the Corporation generated net earnings of $12 million during the first quarter of 2017, or$0.13 per common share, compared to net earnings of $34 million or $0.35 per common share in the same period of 2016. Please see the "Supplemental Information on Non-IFRS Measures" section for reconciliation of the amounts detailed above.