Cascades Inc.

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Cascade's third quarter 2022 financial results conference call. Note that all lines are currently in a listen-only mode. After the speaker's remarks, there will be a question and answer session. I will now pass the call to Jennifer Aitken, Director of Investor Relations for Cascade. Ms. Aitken, you may begin the conference.

Thank you, and good morning, everyone. Thank you for joining our third quarter 2022 conference call. 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's speakers will be Mario Ploult, President and CEO, and Alan Hogg, CFO. Also joining us for the question period at the end of the call are Charles Malou, President and COO of Container Board Packaging, Luc Langevin, President and COO of Specialty Products, and Jean-David Tardif, President and COO of Tissue Papers. 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 is subject to risk factors that can have a material impact on actual results. These risks are outlined in our public filings. These statements, the investor presentation, and the press release also include data that are not measures of performance under IFRS. Please refer to our Q3 2022 investor presentation for details. This presentation, along with our third quarter press release, can be found in the investor section of our website. If you have any questions, please feel free to call us after the session. I will now turn the call over to our CEO. Mario?

Thank you, Jennifer, and good morning, everyone. Our Q3 results met expectations, and we are satisfied with our improved sequential performance in light of unprecedented cost inflation and labor constraints we faced during the year. Company-wide, the price increases we have put in place mitigated the impact of persistent cost inflation quarter over quarter. We provide a breakdown of the factor impacting our EBITDA level on slide three. As the number highlights, however, benefits from these and other initiatives lack the impact of cost inflation year-to-date by 67 million, the lion's share of which are within our tissue segment. Moving now to our financial results. On a consolidated basis, third quarter sales increased 14% year-over-year and 5% from Q2, while adjusted EBITDA increased 4% from last year levels and 22% sequentially. Reflecting the sales, price increases implemented in all our business segments and improved results in our tissue paper business driven by profitability initiatives. On the raw materials side, highlighted on slide five and six, the Q3 average index price for OCC decreased 33% year over year, and 20% from Q2. Reduced demand levels following lower activity at container board mills and less export led to an excess of fiber in all North American market. This resulted in a rapid decrease in pricing for this grade during the quarter, and all of our mills are well supplied. Average index price for white recycled paper grade continued to increase in Q3, up a substantial 60% year-over-year and 7% from Q2. As we have highlighted in the past, these unrelenting cost headwinds have had an important impact on our tissue results. The same can be said about virgin pulp. The hardwood pulp index increased 7% sequentially, while the softwood pulp index prices rose a more moderate 3%. Year-over-year, these indexes have increased by 23% and 17% respectively. While the market remains challenging for the white fiber grade, with prices remaining high, we have begun to see some easing in recent weeks in our meals are adequately supplied. Moving now to the result of each of our business segments, as highlighted on page 7 through 14 of the presentation. Beginning with the sequential performance, sales in container board increased 5% in Q3. This was largely driven by higher selling price for both parent roles and converted products, higher volume levels, and a beneficial exchange rate. The 3% volume increase reflects an 8% increase in shipments of parent rolls and a 1% decrease in converted product shipments. Sequentially, converting shipment decreased by 1.9% in Canada, outperforming the 3.1% decrease in the Canadian market. U.S. converting shipment increased 1.1%, well above the 3.8% U.S. market decrease. On a per-day basis, our total converted shipments were stable sequentially. This outperformed the decrease of 3.2% in the Canadian market and 5.3% in the U.S. market. Q3 adjusted EBITDA of $103 million, or 17.3% on a margin basis, was 4% above the Q2 levels. This reflects benefits from higher selling price and lower raw material costs, offsetting higher energy costs and less favorable sales mix in the quarter. Year-over-year, sales increased by 17% driven by pricing and volume. Adjusted EBITDA increased by 10% for the same reason I just mentioned. Year-over-year shipment increased by 4%, reflecting a 9% increase in external parent role shipments and a 1% decrease in total converting shipments, mainly driven by lower volume in the Canadian market. On a per-day basis, our global converting shipments were also stable, outperforming the 4.5% decrease in both the Canadian and the U.S. markets. Moving now to our Bear Island project, we are continuing to make good progress during the quarter and we are preparing the commissioning of certain key equipment. Despite the progress in the construction over the past three months, the supply chain constraint that delayed certain construction milestones in Q2 continue in the current quarter. As a result, startup of the machine is now scheduled for Q1 2023. A multi-year project of this magnitude is complex in the best of time and was made even more so by cost inflation and supply chain and labor constraints. We are focused on starting up the facility and rounding up production. Given this slightly modified timeline, 2023 production is expected to total 265,000 short-term and adjusted EBITDA is forecast to be $20 to $30 million U.S. dollar. Under current market conditions, total expected returns for the project remain within our target and despite the higher project cost level. Continuing with our packaging business, Q3 sales levels in our specialty product segment were stable sequentially. This reflected the implementation of price increases in response to cost inflation and a favorable exchange rate, the benefit of which offset lower volume. Adjusted EBITDA was also stable sequentially as higher selling prices mitigated the impact of related to volume and sales mix as well as higher production and energy costs. When compared to the prior year, Q3 sales increased by 24 million, or 17%, and adjusted EBITDA levels increased by 8 million, or 47%. As a higher realized spread, more than counterbalance, a slightly less favorable volume and sales mix, and higher operating costs. We are pleased with the performance trends of the specialty product business this year, which reinforce the progress being made toward meeting a targeted margin range of 17% to 19% by 2024. Moving now to our tissue business, sales increased 12% sequentially in Q3, while adjusted EBITDA level improved 12 million to 4 million. Top-line growth was driven by pricing and sales mix initiative, higher volume, and favorable exchange rate. Sequentially, improvement was largely driven by benefit generated by improvement selling prices, offsetting higher costs for energy and raw material. Year-over-year, sales level rose 11% with pricing and sales mix initiatives, offsetting the impact from lower volumes. adjusted the decrease 8 million year-over-year mainly due to our raw material costs offsetting benefits from our profit initiative. We have provided an update on our Tissue Profitability Plan initiative on slide 14. The impact of rapid escalating costs in this business has been unrelenting and pronounced in 2022. and the financial performance of this business here today clearly demonstrate the immediate effect that this has had on results ahead of benefits being realized from corrective measures. Pricing and other cost-saving initiatives continue to be implemented to offset these headwinds, and we are expected to generate additional positive upside in the fourth quarter throughout 2023. To this end, we are focusing adjusted EBITDA of $8 to $12 million for the segment for the fourth quarter. This outlook, however, implies that the tissue segment will not achieve the objective of $25 to $40 million of the adjusted EBITDA for the calendar year 2022. Notwithstanding this, we continue to expect that these initiatives will allow the tissue segment to deliver on its long-term 2024 target. Alan will now discuss the main highlight for our financial performance, after which I will conclude our presentation.