Business News

Cascades reports second quarter results

Tuesday 05. August 2008 - Cascades Inc. ("Cascades") (CAS on the Toronto stock exchange) reports a net loss excluding specific items(1) of $11 million ($0.11 per share) compared to net earnings of $7 million ($0.07 per share) for the same quarter in 2007.

When including specific items(1), the net loss for the second quarter of 2008 amounted to $25 million ($0.25 per share) compared to net earnings of $45 million ($0.45 per share) for the same period in 2007.

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Financial Highlights

Selected consolidated information
(in millions of Canadian dollars, —————————-
except amounts per share) Q2/2008 Q2/2007 Q1/2008
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Sales 999 1,008 959
Operating income before depreciation and
amortization (OIBD)(1) 61 81 45
Operating income (loss) from continuing
operations 8 30 (6)
Net earnings (loss) (25) 45 (4)
per common share $(0.25) $0.45 $(0.04)
Cash flow from operations (adjusted) from
continuing operations(1) 36 46 17
per common share(1) $0.37 $0.46 $0.17
Excluding specific items(1)
Operating income before depreciation and
amortization (OIBD) 63 87 59
Operating income from continuing operations 10 36 8
Net earnings (loss) (11) 7 (9)
per common share $(0.11) $0.07 $(0.09)
Cash flow from operations (adjusted) from
continuing operations 42 48 26
per common share $0.43 $0.48 $0.26
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Note 1 – see the supplemental information on non-GAAP measures note.
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Additional highlights

– Decrease in profitability compared to last year largely explained by
the fact selling price increases and cost cutting measures were not
sufficient to offset cost inflation experienced since the beginning of
the year and the stronger Canadian dollar;

– Stable operating profits compared to Q1 2008 due to:
– Increased selling prices and higher shipments of converted products;
– Improved results in tissue and specialty products more than
offsetting significantly lower profitability in boxboard;

– Net income negatively impacted by the non cash net variation of
$13 million in the fair market value of hedging instruments on our US$
denominated debt;

– Norampac management acting proactively to implement major restructuring
and cost-cutting measures in the North American boxboard and folding
carton operations:

– Indefinite closure of the Toronto coated recycled boxboard mill,
effective at the latest by mid-September;

– Headcount reduction of more than 200 people by the end of 2008; and

– Cascades named amongst the best 50 corporate citizens in Canada by
Corporate Knights magazine for the second year in a row.
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Commenting on the quarterly results, Mr. Alain Lemaire, President and Chief Executive Officer stated: “The business environment during the second quarter deteriorated significantly in comparison to the same period last year. Aggressive cost-cutting and restructuring throughout our business groups together with increased selling prices were not sufficient to offset the negative impact of sharply higher costs and difficult market conditions in our boxboard operations. On a positive note we were encouraged by the second quarter improvement of the tissue group as well as improving demand observed late in the quarter in most of our business sectors. Moreover, during the quarter Norampac moved quickly to initiate action plans aimed at returning the boxboard group to higher profitability before the end of the year.”

Three-month period ended June 30, 2008
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In comparison with the same period last year, sales remained relatively flat reflecting generally higher prices offset by lower shipments and the impact of the appreciation of the CAN$.

Operating income from continuing operations amounted to $8 million compared to $30 million achieved for the same period last year. When excluding specific items, operating income from continuing operations amounted to $10 million in comparison to $36 million for the same quarter in 2007. Specific items include $7 million of unrealized gain on financial instruments, $5 million of closure and restructuring costs, $3 million of impairment loss on property, plant and equipment and a $1 million inventory adjustment resulting from a business acquisition. The net loss for the quarter includes a pre-tax $15 million foreign exchange loss on U.S. denominated debt ($0.13 per share after-tax); The $0.45 net earnings per share for the second quarter of 2007 mainly included a foreign exchange gain on long-term debt of $0.21 per share as well as a $0.15 per share gain reflecting the dilution of an equity investment in Boralex (BLX on the Toronto stock exchange).

Six-month period ended June 30, 2008
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Sales decreased 2.5% during the first half of 2008 amounting to $1.96 billion in comparison to the $2 billion achieved last year.

Operating income from continued operations amounted to $2 million compared to $87 million achieved for the same period last year. Operating income from continuing operations excluding specific items amounted to $18 million. This amount compares to $69 million achieved in the first half of 2007. Specific items mainly include $13 million of closure and restructuring costs, $3 million of impairment loss on property, plant and equipment, a $7 million loss resulting from the transaction with Reno de Medici S.p.A. and a $7 million unrealized gain on financial instruments.

Near term outlook
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Mr. Alain Lemaire, President and Chief Executive Officer added: “Notwithstanding the general economic uncertainty, the gradual implementation of previously announced price increases combined with the seasonal pick up in demand allow us to be cautiously optimistic for the third quarter. The successful turnaround of our North American boxboard operations is key to improved future profitability and continues to be our top priority. The management team at Norampac has a solid track record when it comes to restructuring and we have every confidence that they will deliver on this important objective. However, if improved results cannot be achieved rapidly through restructuring, other strategic alternatives will be considered.”

Dividend on Common Shares and normal course issuer bid
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The Board of Cascades declared a quarterly dividend of $0.04 per share to be paid September 19, 2008 to shareholders of record at the close of business on September 5, 2008. This dividend paid by Cascades is an “eligible dividend” as per the proposed changes to the Income Tax Act (Bill C-28, Canada). In addition, in the first six months of the year, in accordance with its normal course issuer bid, Cascades has purchased for cancellation 336,500 common shares at an average price of $7.68 per share representing an aggregate amount of approximately $2.6 million.

Supplemental information on non-GAAP measures
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Operating income, cash flow from operations and cash flow from operations per share are not measures of performance under Canadian GAAP. The Company includes operating income, cash flow from operations and cash flow from operations per share 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, cash flow from operations and cash flow from operations per share does not represent, and should not be used as a substitute for net earnings 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, cash flow from operations and cash flow from operations per share 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 and cash flow from operations per share is determined by dividing cash flow from operations by the weighted average number of common shares of the period.

Operating income excluding specific items, net earnings excluding specific items, net earnings per common share excluding specific items, cash flow from operations excluding specific items and cash flow from operations per share 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.