Cascades Inc.

Good morning. My name is Julie and I will be your conference operator today. At this time, I would like to welcome everyone to the Cascades First Quarter 2023 Financial Results Conference Call. All lines are currently in a lesson-only mode. After the speaker's remarks, there will be a question-and-answer session. I will now pass the call over to Jennifer Hetkin, Director of Investor Relations for Cascade. Ms. Hetkin, you may begin your conference.

Thank you, Operator. Good morning, everyone, and thank you for joining our first quarter 2023 conference call. We will begin with an overview of our operational and financial results. followed by some concluding remarks and highlights of our 2022 to 2024 strategic plan update that was released this morning, after which we will begin the question period. Today's speakers will be Mario Plould, President and CEO, and Alan Hogg, CFO. Also joining us for the question period at the end of the call are Charles Malot, 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 listed 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 Q1 2023 investor presentation for details. This presentation, along with our first quarter press release, can be found in the investor section of our website. The company's 2022 to 2024 strategic plan update document can also be found on our website and on CDAR later today. If you have any questions, please feel free to contact us after the session. I will now turn the call over to our CEO, Mario.

Thank you, Jennifer, and good morning, everyone. Before discussing our first quarter results, I would like to mention that we published our updated 2022 to 2024 strategic plan this morning. I will briefly discuss some of the highlights at the end of this call. This document is available on CEDAW and on our website. Moving now to our first quarter results, we are pleased with our Q1 consolidated performance. First quarter sales increased 9% year-over-year, while adjusted EBITDA of $134 million, more than doubled from last year. In both cases, selling prices and foreign exchange were beneficial, while volume and sales mix had a net negative impact. Lower raw material costs was a tailwind at the EBITDA level, offsetting the impact of higher production costs year over year. Sequentially, sales were stable. As negative impact from pricing, sales mix and foreign exchange fully offset the benefit of stronger volume in all business segments. EBITDA increased 18 million or 16% sequentially. This was driven by a raw material pricing tailwind favorable volume and mix in our packaging segments and stronger results from our tissue segment. On the raw material side, highlighted on slide six and seven, the Q1 average index price for OCC decreased 76% year-over-year and 6% from Q4. The OCC market was relatively balanced in the first quarter, with limited export activity counterbalancing the lower seasonal generation. Index prices saw a marginal correction recently to a more normalized level, but remain at historic lows. We are not expecting any material pricing movement in the short term, giving the slow export levels an higher seasonal generation. Average index prices for white recycled paper grades decreased 11% in Q1 but remained 8% above the prior year levels. We saw more favorable market dynamics over the quarter and more recently similar trends were seen with virgin pulp. The hardwood pulp index decreased 5% sequentially but was 16% higher year-over-year, while softwood pulp index prices decreased 4% from Q4 and were up 10% year-over-year. Conditions have improved for virgin pulp following lower demand from Asia, improved logistics, and steadier domestic production and new capacity. Pricing indexes have been going down rapidly recently, which will provide some cost relief in our tissue segment Material is available, and our meals are adequately supplied. Moving now to the results of each of our business segments, as highlighted on page 8 through 13 of the presentation. Beginning with the sequential performance, sales in container board decreased 1% in Q1. This was driven by a less favorable mix and lower U.S. dollar selling prices for both parent roles and converted products. The 5% volume increase reflects a 16% increase in shipment of parent roll and a 4% decrease in converted product shipments. Sequentially, converting shipments decreased by 3% in Canada, underperforming the 0.5% increase in the Canadian market. U.S. converting shipment decreased 8.4%, below the 1% U.S. market decrease. I would highlight that Cascades outperformed both the Canadian and the U.S. market in the previous quarter, impacting sequential relative performance in the current quarter. Q1 adjusted EBITDA of $126 million, or 22.5% on a margin basis, was 6% above the Q4 levels. Q1 results include the final 7 million insurance settlements from water effluent treatment issued in mid-2021 at our Niagara Falls complex, while those of Q4 include the first 5 million partial settlements related to this claim. Sequentially, EBITDA level benefited from higher volume and lower raw material, energy, and production costs. These were partially offset by lower U.S. selling prices and a less favorable sales mix. Year-over-year, sales increased by 5%, driven by pricing, volume, and foreign exchange. EBITDA increased by 58%, or $46 million, reflecting lower raw material costs, more favorable exchange rate, and a slight selling price benefit. Year-over-year shipment increased by 3%, reflecting a 10% increase in external parent roles, offset by a 4% decrease in converting shipments, mainly driven by lower volume in the Canadian market. Continuing with our packaging business, Q1 sales levels in our specialty product segment were stable sequentially. This reflected slightly higher volume in our cardboard and molotov segment and higher average selling price in our plastic activities, upset by a less favorable mix and lower average selling price primarily in cardboard. It did increase by $7 million sequentially, reflecting better realized spread in most of our segments, higher volume, and lower transportation costs. These were partially upset by higher operational costs during the quarter. When compared to the prior year, Q1 sales increased by 4 million, or 3%, driven by higher average selling prices and a more favorable exchange rate. EBITDA level increased 23% or $5 million as higher realized spread and a more favorable exchange rate more than a set the lower volume in plastic and cardboard and higher transportation and production costs. Moving now to tissue business, sales were stable sequentially in Q1 while adjusted EBITDA levels doubled to $16 million. Top-line performance reflects higher selling prices and slightly stronger volume, as well as ongoing profitability and productivity initiatives, partially offset by a less favorable mix. Shipments increased 1% from Q4, reflecting a 3% decrease in shipment of converted product and a 27% increase in parent roll shipments following the restart of our machine at the St. Helens facility in February. Sequentially, EBITDA improved, was largely driven by benefit from improved selling prices and lower raw material prices. Year-over-year, sales levels rose 23%, with pricing and sales mix initiative and more favorable exchange rate offsetting the impact of lower volume. Q1, a bit of $16 million compared to a loss of $17 million in the prior year period. This year-over-year improvement was driven by higher selling prices and lower transportation costs. the benefit of which more than offset our raw material, labor, and production costs. Alan will now discuss the main highlight of our financial performance, after which I will discuss the highlight of our updated 2022 to 2024 strategic plan and conclude our presentation.