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 the Cascade third quarter 2023 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 over to Jennifer Aitken, Director of Investor Relations for Cascade. Ms. Aitken, you may begin the conference.

Thank you, Sylvie. Good morning, everyone, and thank you for joining our third quarter 2023 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 Malot, President and COO of Container Board Packaging, Jérôme Parlier, President and COO of Specialty Products, Jean-David Tardif, President and COO of Tissue Papers, and Luc Langevin, Senior VP 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 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 Q3 2023 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 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 results, I would like to announce that we have some sad news this morning. Mr. Bernard Lamar, founders of our company, died yesterday. Even though Bernard has retired from Cascade several years ago, he remained the heart and the soul of the company and never ceased to inspire us. Cascade will be mourning for this great man and will celebrate his memory and exceptional achievement. On behalf of all Cascade employees, I would like to offer Our most sincere condolences to the Le Maire family and Bernard Loves One. Beginning with the calls. We are pleased with our strong Q3 consolidated results and, in particular, the record quarterly performance of our tissue paper segment. On a consolidated basis, sales increased 2% year-over-year, while adjusted EBITDA of 161 million rose 45% from the prior year. In both cases, strong results in the tissue paper segment were the main driver as benefits from our strategic action yield result. More broadly, year-over-year top line growth benefited from strong volume in container boards, which include Bear Island, and a favorable foreign exchange for all of our business segments. While our packaging businesses saw lower average selling prices following the index decrease, the impact at that consolidated level was partially offset by higher selling price in tissue. The over-year bid to improve was also driven by stronger tissue results and lower raw material prices for all segments. Freight and energy costs were lower, but benefits were largely offset by higher production costs. Sequentially, sales increased 2.6%. This was driven by higher volume in container board and a more favorable mix in tissue paper. Selling prices were lower for both our container board and tissue paper segment. EBITDA increased 14% sequentially. This was driven by improved volume in container board and tissue paper and lower overall production costs. Raw material prices were headwinds for our packaging businesses, but were tailwinds for our tissue operation. On the raw material side, highlighted on slide five and six, the Q3 average index price for OCC decreased 46% year over year, but increased 26% from Q2. The OCC market saw a more active export market in Q3, with increased volume to Asia leading to some pressure on pricing. Seasonal fiber generation remained good, albeit at a slower pace than recent years. We have had no problems supplying the needs of our operation, which have increased with the ramp-up of Bear Island. Average Q3 index prices for white recycled paper grades decreased 22% sequentially and 42% from the prior year levels. We saw favorable market dynamics over Q3, with the index prices continuing to reduce but at a slower pace than previous quarter. Similar trends were seen with the virgin pop. The hardwood pop index decreased 20% sequentially and 37% year-over-year, while softwood pop index prices decreased 14% from Q2 and 28% year-over-year. Market conditions have begun to reverse following more demand from China and a scheduled downtime and closer announce at multiple mills in North America. Notwithstanding these changes in the market condition, the material has been readily available for our mills. Near-term market dynamics will be influenced by whether or not Asian markets continue supporting both export activity and pricing. Moving now to the results of each of our business segments, as highlighted on page 7 through 12 of the presentation. Beginning with Container Board, sequentially sales increased 6% in Q3. This reflects higher volume due to usual seasonality and the addition of the volume from Bear Island. These were partially upset by the impact from lower average selling prices related to the index changes and the less favorable sales mix given the greater weighting of the parent role. The 8% increase in shipment reflects increases of 12% in parent rolls and 4% in converted product. Sequentially, converting shipment increased 4.3% in Canada, outperforming the 0.4% increase in the Canadian market. U.S. converting shipment increased 1% above the 0.4% U.S. market increase. Q3 adjusted EBITDA of $101 million, or 17% on a margin basis, was 5% above the Q2 levels, reflected higher volume and lower operating costs. These were partially offset by lower selling prices and higher raw material and transportation costs. The contribution of Bear Island improved sequentially, but is still a negative contributor to our performance, giving the mill is ramping up. Year-over-year sales in EBITDA both decreased by 2 million, with the impact of lower selling prices largely offset by higher volumes at the top line, while tailwinds at the EBITDA level also include lower raw materials, energy, and transportation costs. Year-over-year shipment increased by 10% in Q3, reflecting a 14% increase in external parent row shipment, largely related to the New Bear Island volume, and a 6% increase in converting shipment. Specifically, converting shipment increased by 5.7% in Canada year-over-year, outperforming the 0.8% increase in the Canadian market. U.S. converting shipment increased 9.5%, once again significantly outperforming the 4% of the U.S. market decrease. Continuing with our packaging business, Q3 sales and levels in our specialty product segment decreased by 4% sequentially, following lower volume in motor pulp and cardboard product. Production challenges in our motor pulp activity during the quarter are now resolved and volumes are expected to be back to normalized levels in Q4. EBITDA decreased by 3 million sequentially, driven by lower realized spread in some subsegments, mainly due to product mix and lower volume. When compared to the prior year, Q3 sales decreased by 11 million, or 7%, driven by softer volume primarily in cardboard and lower selling prices in almost all subsegments. These were partially mitigated by a more favorable exchange rate, EBITDA level decreased by 4 million year-over-year to 21 million in Q3, as benefits from higher realized spread were more than offset by the impact from lower volume and higher production costs. Moving now to our tissue business, which generated a solid quarterly EBITDA margin of 14.5%. This strong performance reflects benefits from favorable raw material pricing and recent wide-ranging commercial, operational, and strategic initiatives that include the repositioning of this segment's operational platform. This repositioning includes closure of several facilities, all of which have now been completed. The decommissioning process is underway and on schedule. with limited impact on our customer thanks to good planning by our team and production being shifted to other plants. Moving now to results, sales were stable sequentially, increasing 1%, which reflects 5% growth in converting site. This was partially offset by lower parent role sales following the closure of our Saint-Hélène-Oregon mill and higher integration within our own network. The average selling price increased by 1% driven by the lower proportion of parent goal in the sales mix. The benefit of this partially offset by a lower average selling price in converted products that reflects a less favorable mix and lower prices with some key customer due to contracted pricing model agreement. Approximately 50% of our retail volume are linked to such agreement. Shipments were stable in Q2, reflecting a 5% increase in converted product and a 24% decrease in parent growth following the closure of the St. Helene Mill. Q3 EBITDA, $61 million, or $14.5 million on a margin basis, improved $17 million, or 39% from Q2. This increase was driven by benefit from lower raw material and freight, and a decrease in fixed costs level following the plant closure. These were partially offset by lower selling prices for the converted product and higher energy costs. Year-over-year, sales rose 10% with pricing and sales mix initiative and a more favorable exchange rate contributing to the stronger performance. EBITDA increased $57 million from the prior year period, This was driven by higher selling prices, favorable sales mix, and lower raw material and energy costs. Alain will now discuss the main highlight of our financial performance.