Cascades Inc.

from Q1 and were essentially stable year-over-year. This performance was in line with our expectations. Volume, pricing, and exchange rate drove the sequential improvement. Year-over-year sales mix and exchange rate were both tailwinds, while volume and pricing were headwinds. Consolidated EBITDA of $112 million increased 9% from Q1, reflecting stronger pricing and favorable volume and mix freight and energy costs. These were offset by higher raw material and production costs. Year-over-year consolidated EBITDA decreased 20%, mostly due to higher raw material costs and decrease in average selling prices. Our second quarter results also include a $5 million one-time compensation expense related to CO transition. On the raw material side, highlighted on slide 5 and 6, the second quarter average index price for OCC increased 9% from Q1. and 134% year-over-year. The market for these materials are consistent demand domestically, including growing amounts needed for new recycled container-borne mills. We have no problem supplying our operations with good inventory management in our internal supply network. We expect relatively stable market in the coming months. Average Q2 index prices for white recycled paper grades decreased 6% versus Q1, and 27% from last year. The market was balanced, with readily available volumes and fibers translating into a small decrease in pricing in the quarter. Bulk prices were higher sequentially, up 18% in the case of softwood and 17% for hardwood. Year-over-year prices were also higher, up 12% and 13% respectively. Our mails were adequately supplied throughout the period. 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, Q2 sales increased by 5% sequentially, reflecting higher selling prices and volume, and better sales mix and exchange rate. Shipments increased 1% from Q1, driven by converted products. Sequentially, converting shipments increased 5.9% in Canada, slightly below the 6.2% increase in the Canadian market. U.S. converting shipments decreased 2.1%, below the 3.3% U.S. market increase, reflecting the sale of our Newtown facility during the quarter. Excluding that sale, U.S. converting shipments increased 0.3% from Q1. EBITDA in Q2 was $60 million, or 10% on a margin basis. This represents a 20% increase from Q1. Results benefited from recent market price increases, offset by continued iron material costs. We also recorded the $4 million R&D credit during the quarter. This was in line with the range we provided with our Q1 results, but nonetheless impacted by a prolongation of planned maintenance downtime at our Greenback and Bear Island mills. The additional downtime reduced our production capacity by a further 8,000 short tons in the quarter. Year-over-year sales increased by 4%, with benefits from higher volumes and more favorable sales mix and exchange rates, upsetting the impact from lower sending prices. EBITDA levels decreased by 38%, a reflection of the combined impact from lower pricing and higher raw materials. Year-over-year shipments increased by 4% in Q2, mostly driven by the new Bear Island volume. Converting shipments increased by 8% in Canada, outperforming the 6% increase in the Canadian market. U.S. converting shipments increased 0.6%, slightly below the 1.1% U.S. market increase. Excluding Newtown, U.S. converting shipments increased 3.2% from the year-ago period. Continuing with our packaging business, our specialty product division continued to deliver strong results. Q2 sales were up 4% from Q1 on improved selling price, sales mix, exchange rate, and higher volume in plastic food packaging. EBITDA was up 4% or 2 million from Q1, and the margin of 15.6% remained solid and unchanged from Q1. Year-over-year sales increased 2% in Q2, with exchange rate and higher selling prices in certain products driving this growth. EBITDA improved by 2 million to 26 million as lower operating costs offset lower realized spreads due to higher raw material. Moving now to our tissue business. Second quarter sales increased 8% sequentially, largely due to volume increases of 16% in the away-from-home market and 3% in the retail market, both of which reflects seasonality new business gains, and promotional activities. EBITDA of $54 million increased 8% from Q1, driven by higher volume and lower transportation costs. These benefits were partially offset by higher raw material costs. Q2 margin of 13.6% remained stable with Q1 levels. Sales decreased 5% year-over-year, reflecting lower shipment levels. This was driven by a decrease in parent roll shipments following meal closures and higher internal consumption. As a result, the integration rate increasing to 94% from 83% in the year-ago period. On the converting side, shipments increased by 3%, the result of a 4% decrease in away-from-home following plant closures, offset by a 9% increase in retail. The average selling price increased by 4%, driven by lower proportion of parent roles in the sales mix and the beneficial exchange rate. Year over year, EBITDA increased by $10 million, or 23%. This is the outcome of favorable product mix and lower production costs, the latter of which reflects the beneficial impact from recent plant closures. I will now pass the call to Alain, who will briefly discuss some of the financial highlights. Alain?

Yes, thank you, Eric, and good morning, everyone. Slides 13 and 14 illustrate the specific items recorded during the quarter. The main item that impacted EBITDA were $10 million of restructuring costs related to the closure of plants, mainly incontainable and tissue, that occurred over the last 12 months. Slide 15 and 16 illustrate the year-over-year and sequential variance of our Q2 adjusted earnings per share and the reconciliation with the specific items that affected our quarterly results. As reported, Q2 net earnings per share was $0.01. This compared to net earnings per share of $0.22 last year and a net loss per share of $0.20 in Q1. On an adjusted basis, net earnings per share were $0.08 in the current quarter. This compared to net earnings per share of $0.27 in last year's results and zero in the first quarter. This variance mainly reflects lower EBITDA and higher financing and depreciation expenses, while sequential variance reflects higher EBITDA levels. As highlighted on slide 17, second quarter adjusted cash flow farm operations was 95 million, down from 122 million in the year-ago period, but up 49 million sequentially. Adjusted cash flow used in the second quarter improved Year-over-year, largely reflecting the higher levels of capital investments associated with Bay Island in the year-ago period. Sequentially, adjusted cash flow from operations also improved due to lower net financing expenses paid. Slide 18 provides detail about our capital investments. New investments in the second quarter total $62 million. For 2024, our planned capital investments will be below our initial forecast, $175 million. Moving now to our net debt reconciliation, as detailed on slide 19, sequentially our net debt increased by $73 million in the second quarter. Despite higher cash flow pharma operations in Q2, net debt increased due to the exchange rate, our paid capital investments, leases renewal, and a negative working capital volume. We also dispose of some assets for $17 million, largely related to the Newtown Connecticut Converting Facility in the second quarter. Higher levels of net debt and lower EBITDA levels on an LTM basis increased leverage to 4.2 times at the end of Q2 from 3.8 times at the end of Q1. Financial ratios and information about maturities are detailed on slide 20, And other information and analysis can be found on slides 23 through 30 of the deck. I will now pass the call back to Hugues, who will conclude with some brief comments on our near-term outlook before we begin the question period. Hugues?

Thank you, Alain. We've outlined our near-term outlook on slide 21 of the presentation. As a reminder, actual results may differ from this outlook in the event of movements in index pricing, both in terms of raw material costs and selling prices. Beginning with our packaging businesses, we expect Q3 results to be stronger sequentially in container board. Two main factors are driving this outlook. The first is the benefit being realized as price increases continue to be implemented. The second is improved operational efficiency following the important shutdowns in Q2 and good volumes given stronger seasonality. We expect raw material costs to continue to be a headwind for the business. We're planning approximately 11,000 short tons of maintenance scheduled on time in the quarter. Results in the specialty product segments are expected to be stable sequentially. This reflects higher selling prices in certain product categories and gains from efficiency improvements. These tailwinds are expected to offset any impact from higher production costs. Finally, we expect third quarter results to be softer sequentially for our tissue business. While we anticipate stable volumes, this will be outweighed by higher raw material costs and less favorable sales mix. Looking further ahead, our outlook is positive as we have announced a price increase of up to 8.5% for Canadian retail tissue products and some U.S. customers at the end of Q3. We also secured additional U.S. retail business volume that will be starting in Q4. we're focused on four main work streams. The first is the ongoing ramp-up of the Bear Island facility. Second is solidifying efficiency improvements across all of our production facilities. Third is on further improving customer satisfaction levels with our partners and remaining the supplier of choice. And last but certainly not least is the diligent implementation of already announced price increases. We remain cautious, giving the economy and persistent inflation, and are committed to continuous improvement throughout our business while remaining rigorous when it comes to capital allocation. Let me finish by saying that in my eight weeks with Cascade, I've been very impressed with the fashion and the commitment of every employee. People are dedicated and proud and doing everything they can to meet customers' expectations. To me, clearly, the saying, a company is its people, rings very true for Cascade, and I'm looking forward for the next step as we continue to grow our company. And before I pass it to the operator, I want to thank the people around the table with me here. They made my life easy on this first call. Back to the operator. Thank you.

Merci. Si vous voulez poser une question, Veuillez s'il vous plaît composer l'étoile suivie du 1 sur votre clavier téléphonique. Et si vous voulez retirer votre question, composez l'étoile suivie du 2. Thank you. If you would like to ask a question, simply press star then the number 1 on your telephone keypad. And if you would like to withdraw your question, please press star then number 2. Again, if you have a question, please press star then 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question will be from Jonathan Goldman at Scotiabank. Please go ahead.

Hi, good morning, and thanks for taking my questions. Maybe just one on the industry generally. Can you discuss how container board and user demand trends have evolved since May? Yes, I'll let Charles take this question.

Yeah, so we see a general uptake due to the seasonal demand, but overall the demand is pretty good and our third quarter demand right now is pretty solid.

Solid relative to Q2 or as solid as Q2? Relative to Q2, yeah. And it looks like another quarter where container board shipments outperformed the industry. Actually, it looks in my model like the eighth quarter in a row. What do you think is driving that outperformance?

So basically, like we mentioned, we made some significant investments, strategic investments in our group, starting with Bear Island, but also on the converting, we made a major investment in Piscataway. investment also in central Canada and Ontario. So this also gave us some competitive advantage on the market and growth potential.

Okay, that makes sense. And then I guess maybe switching to Bear Island, can you give us a status update on the ramp of the facility and maybe specifically how the transition to using more mixed paper is going?

So the Bear Island ramp-up continues. We are now able to supply all the grades that we were supposed to do and that they've been qualified to the customer, which is a very good news. So now we can provide to the customers on a regular basis 21 pounds and over. um and uh so we're working with our customers and potential future customers also to deploy that on the on the market and uh on the the ramp up and the use of the uh the mixed ways uh we're going gradually increasing the uh the mix percentage uh but we're doing so and making sure that the quality of the product is there so we're balancing more mix but at the same time monitoring the quality of our product to our customers.

No, that's good to hear. Thanks for taking my questions. I'll turn it over to the line. Thank you.

Thank you. Next question will be from Amir Patel at CIBC World Markets. Please go ahead.

Hi. Good morning. I realize it's only been eight weeks, but can you maybe speak to some of the potential areas that you expect to – to look to make changes to, just given your operating background?

Yes, thank you. As you said, it's been eight weeks. Clearly, as I said in the outlook, The Bear Island ramp-up is going to be a focus to make sure that we go as fast as we can to get to capacity. Very satisfied with what we've seen so far. The next coming quarter is going to be really important as we have a good order farm and we need this production to be coming as planned. The second one is on operational efficiencies to make sure that we capture all the potential efficiencies that we have with our current assets.

Fair enough. Thanks. And just the last question for Alan. Just given the lower CapEx you're pointing to, how should we think about CapEx for 2025? And when you think about larger strategic projects for the business, you know, what's kind of left other than maybe some more box plants over time?

Yeah. So, Amir, I'll take that question and that As Alan mentioned, we will be spending less than $175 million in CapEx this year. We're currently doing a diligent work on how to allocate cash. So that will be coming in the coming months. But we'll be really focused on capital allocation to make sure that what we do with cash will add long-term and sustainable value.

So priority will remain debt reduction in the coming quarters, for sure.

Fair enough. Thanks. That's all I had. I'll turn it over.

Thank you. Next question will be from Kasia Kopetek at TD Cowen. Please go ahead.

Hi. Good morning, everyone. Kasia on the line. Maybe I'll just pick at that capital allocation thread a little more. You mentioned CapEx and that reduction. Just curious around the deleveraging front, any preliminary thoughts on reducing that, not just by a higher EBITDA, but actually reducing debt levels?

Well, yes. There's some initiative ongoing with some working capital items, looking at everything on that, and there are some assets that we're looking to dispose of following some closure in the recent quarters, but that's just as we did with Newtown in the second quarter. So that may be other items to further reduce debt in the nominal dollar. But the objective remains to be under three times. So it's just delayed, but as Ed mentioned, rigorous capital allocation will get us there.

I'm glad you mentioned that target. That was going to be my follow-up. But, Alan, any sense of the order of magnitude on the working cap reduction and or asset disposal?

Well, asset disposal, you know, it can change rapidly. It's maybe too early to give you amounts. And working cap, I think we are under 10% of sales. a slight improvement here and there, but we are pretty in good shape, but there's always opportunities. So a couple of millions, but we don't have any amount to state at this time.

Okay, gotcha. The June container board price hikes, how are those progressing? Do you expect to get the full hike? Any pushback from customers?

I'm not going to be too specific on the price increase, but what I can tell you is we are still... implementing the price increase, so there's some benefits in the Q2, but continuing in Q3. So yes, we are diligently working with our customers to work with them in passing on the price increase.

And just beyond the price hikes themselves, any prospects or other prospects, rather, for recouping margins in container boards beyond price sites and OCC relief. And if you can get a sense, maybe, of how much Bear Island has undermined margins to this point, that would be helpful.

So, as far as the improvement, as Alan and Charles mentioned, Some of it will come from working CAP. We have work streams on margin improvement and cost reduction in all of our businesses. And we're doing diligent work to track these changes with milestones that we have regularly. And on the specific mill with Bear Island, I'm not going to go specific on one mill, but Bear Island is part of the process that I've just mentioned.

Numbers you can share around targets for how much margins can improve based on the efficiency and other streamlining measures you referred to?

Yeah, and we're not going to put any number at this point, but let me tell you that we're really working diligently to make sure that we cover back enough margins so that we can further reduce our debt level.

Gotcha. Okay. Thanks a lot, everyone. Appreciate it.

Thank you. Next question will be from Matthew McKellar at RBC. Please go ahead.

Hi, good morning. Thanks for taking my questions. I think in your prepared remarks, you mentioned securing some additional U.S. retail tissue volumes beginning in Q4. Can you maybe just provide a bit of color around how material the volumes associated with that new business should be?

Yes, I'll let Jean-David respond to that.

Yeah, good morning. It's a nice business, honestly. It's slightly above 4 million cases for a major retailer in the US. Our reviews of those negotiations and discussion and the outcome.

OK, thanks for that. Are you able to provide any more additional color around the mechanical break at Bear Island in the quarter?

Yeah, so basically, as you know, it's a ramp up paper mills. So the items, there was a breakdown on the paper machine, and the team worked diligently to ramp this up. But this is behind us right now, and it's not anything that will affect the future of the mill.

Okay, thanks. That's helpful. And then maybe the last for me. Earlier this year, you talked about relocating some tissue converting equipment from your operations in Oregon that are now closed elsewhere in your network. Could you maybe speak to how that's progressing and maybe where you are in that process?

Yeah, those four lines are already running in our other facilities. So the four million cases I was just talking about is going to fill about 50% of the capacity that we're adding. The remaining two are in ramp-up, and those two are for away-from-home market. So we still have some open capacity short-term in the away-from-home, but overall, I would say that those line relocation went pretty well and are according to the plan.

Okay, thanks very much. That's all from me. I'll turn it back.

Thank you. Again, if you would like to ask a question, please press star then number one on your telephone keypad. And your next question will be from Zachary Evershed at National Bank Financial. Please go ahead.

Good morning. It's actually Thomas calling in for Zach. Could you give us a little bit more color regarding the issue that makes the consumer trade down?

Yeah, we still have a private label going up. So if you look at the Nielsen data for the last quarter, private label is going up. gaining share again. In terms of trading down into the category, we see some, I would say, moderate trading. But I think the biggest uplift that we see is retail price going down at some retailers, some important retailers in the U.S. that adjusted their sales. So we see good uplift in volume for our own business and retail U.S. mainly.

That's helpful, thank you. And I'm sorry if I missed this, but given the mechanical issues at Bear Island, are we expecting to see a catch-up in shipments in the third quarter?

Yes, the third quarter outlook is positive compared to the Q2 outlook. And this is a combination of market and also more availability on our production.

But also, all the shutdown we took in Q2 are much larger than what we expect in Q3. So, yes, we should see pickup in shipments.

Perfect. That's helpful. Thank you, guys.

Thank you. There are no further questions at this time. Mr. Simon, please continue.

All right. Well, in conclusion, thanks, everyone, for taking the time to attend our quarterly call, and we're looking forward to meet some of you in person in the near future. Thank you, everyone. Thank you.

Merci. Mesdames et messieurs, cela met fin à la conférence d'aujourd'hui. Vous pouvez maintenant raccrocher. Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect your lines.