Cascades Inc. (CAS) Earnings Call Transcript & Summary

So the motion was introduced and supported. So you have only 1 electronic ballot. So click in favor or abstention next to each one of the candidate's name to the position. [Voting]

Now the next point is the appointment of the independent auditor for 2024. So the Board of Directors propose that PricewaterhouseCoopers, the certified professional accounting corporation, be named as the independent auditor and that the officers have to establish their salaries. So now PricewaterhouseCoopers is being introduced as a motion as the certified independent auditor for the next financial year. So thank you. Michael? Can someone support the proposal?

My name is Allan, a shareholder. So I second the motion.

So it's done. So either click on in favor or abstention relatively to the appointment of PricewaterhouseCoopers as independent auditor of our corporation. The next one is the approval of the advisory resolution accepting the approach by the corporation on the remuneration of the members of higher management members. So I can see that the motion is introduced accepting the approach by the corporation on the remuneration of the members of senior direction. So then it is also seconded by Allan. So thank you. The motion was introduced and seconded. Then you can click either on in favor or abstention regarding the advisory resolution accepting the approach by the corporation for the remuneration. So now we have at Annex A the solicitation of a mandate. After discussing with the corporation, we have withdrawn the 3 of 5 of them. So no right will be given to the ones that were withdrawn. I would also ask to introduce a motion on the proposed motions by shareholders. Mr. Louis Chauvette, take the floor.

So good day, Mr. President. I have the power for the minute. And firstly, I will introduce the motions that will be for voting and then the ones not for vote. The first one, actually, which the meeting asked to put for, is the return in person of the shareholders based on the government's principles that was adopted by several other companies like the CIBC, Laurentian Bank, the BMO, the Air Transat, Air Canada as well as [indiscernible]. So I would invite shareholders to defend the rights to be able to deliberate in person with the management in regards to the major policies. So more personally now, my father is an entrepreneur. And this kind of event, such as shareholders meeting, is a wonderful event to meet with people and establish some business relationship or future contracts. There's no danger for the higher management meet with the shareholders. All to the contrary, it is necessary for entrepreneurial democracy to do so. The shareholders are no danger. The fact that you meet with them has nothing to do with Cascades. So I would like to introduce the Proposal A4. And then on the advisory vote on environmental policies are in the same spirit. We propose that the corporation offers an advisory policy for the meeting. Therefore, the corporation in the circular is against the motion because it has an action plan as far as environment is concerned. So I believe that the management of our enterprise is right to say that they trust their action plan. If it is so, it has nothing to fear from the shareholders if there is an advisory vote that takes place in regards to the environmental policy. For this reason, I will invite the shareholders to vote in favor of the motion A2 and A4 to reaffirm our rights as shareholders to have insight on the rights of shareholders. Now the motions that were withdrawn, like A1 remuneration with respect to the [ OG ] proposals to introduce our orientation, as far as remuneration is concerned, to all the employees the performance of our corporation. So there were very convincing actions from the corporation, and this is why we decided that we would not submit that motion to vote. And then also were the disclosure of the language to be their preference. So I applause the initiative of having interpretation during this meeting. And a similar actually initiative was put forth by the Laurentian Bank. Finally, the advisory vote on the remuneration for the higher management. The Board of Directors have to give the information and the level of satisfaction in regards to the remuneration policy. We are totally satisfied by the answer that was given, and it is at Section 5 of our circular. And the Board of Directors proceeded with different modifications of the remuneration aspect. So there is an approach that seems absolutely agreeable. So if these are all of the motions, then I'd like to conclude my intervention by repeating the importance of returning to personal attendance. The pandemic is over, and I'd like to congratulate in person next year, our Board of Directors, for the excellent work that they do. Thank you very much, Mr. Chair.

So thank you very much, Mr. Chauvette. As you well know, the Board of Directors indicated its position with respect to the motion submitted at the solicitation, and they were against both of the proposals. If it hasn't already done, we would invite you to vote on all of the points on the agenda: the appointment of the officers, the approval, the plan for remuneration of the higher management and to motions that were submitted. Now we will tell you that shareholders who have already voted in advance have to ignore the ballot. So we are giving you another 30 seconds to proceed with the voting. We would ask, once the vote is over, to simply proceed with the results of the votes. We'll give you a few instance to do so. [Voting]

Now the report from scrutineers on preliminary results of the votes now will be read out.

Thank you, Mr. Lemaire. With regard to the election of the officers, I confirm that the 11 candidates were duly elected to the Board. And the motion as far as appointing PricewaterhouseCoopers, as well as the advisory motion to admit to Cascades members of the corporation and the 2 motions were rejected, which were the ones that were presented.

Thank you. The final results will be available on SEDAR tomorrow. I would now invite Mr. Mario Plourde to take the floor.

So thank you to all of you, and thank you for joining us today. This year is a new step in the year of Cascades. At our 60th anniversary, 2024 will be a year of festivities that will give us the opportunity to remember together our rich history and the men and women who made it. The theme of our celebration together is unifying and evocative. It highlights the team spirit and strength of the group, the same values that have enabled Cascades to be so successful and so well positioned for the future. A few months ago, our company was saddened by the departure of one of our founders, Bernard Lemaire, a figure head of our company, but also of Quebec Inc. He was a model of vision and passion. His death plunged thousands of Cascaders, men and women, in mourning, but also allowed us to remember who we are and where we come from. Our story is that of a very small company will be the values of the Lemaire families, which has grown to become a major player in North American and even European scene for several decades, an exceptional story of vision and passion, but also of determination and know-how. On my behalf and on behalf of the management team and our Board of Directors, I would like to thank our shareholders, customers and suppliers for their support throughout these years. I would also like to thank our employees for their commitment and dedication. Their resilience and hard work have been catalysts for Cascades' superior performance over the years. This was certainly the case in 2023, as their efforts were the driving force behind the successful startup of commercial production at our Bear Island carton board plant in early May. For many reasons, this facility is strategic for our paperboard segment. It is very well located and from a competitive point of view, has not only made its way into the top quartile of the North American industry, but its production meets the growing market demand, of course, sustainable, recycled and lightweight packaging. The running in of the machine is progressing very well, and we are optimistic about the future contribution of these installation to the activities of our carton sector and Cascades as a whole. The determination of our employees was also at the heart of the significant changes made across our Tissue Paper business in 2023. We have significantly repositioned the industry's operating platform and have implemented extensive business efficiency and productivity initiatives. As evidenced by the 2023 results, these changes have been a key driver of the sector's significant recovery in financial performance. More generally, the demand remained good for the Packaging and Tissue products in 2023, while favorable commodity prices changed the course and began to rise in the second half of the year. Similarly, our operations have been under upward cost pressure due to the persistence of the higher installation levels. Against this backdrop, sales in 2023 totaled $4.6 billion, up 4% from 2022 levels. This increase is attributable to higher volumes and more favorable sales mix and exchange rates that were more favorable also. Earnings before interest, the EBITDA amounted to $558 million in 2023, an increase of 48% over the previous year. On a margin basis, this represents 12% of sales in 2023 compared to 8.4% in 2022. As noted in our annual returns and statements, this performance is a result of a significant recovery of the performance of Tissue Paper business and lower year-over-year average commodity prices. [indiscernible] last year was a busy one, and we were able to advance strategic investments across our sectors throughout the year. On a consolidated basis, we've invested $343 million in our plants and equipments. Approximately 57% of this amount, or $197 million, was spent in the carton board sector, the majority of which was used to complete the conversion of a strategic plant in Bear Island, Virginia. Overall, investments made throughout the year were aimed at improving competitiveness, productivity, efficiency and long-term creation, as far as the value was concerned. Despite significant strategic investment in 2023, we have reduced the net debt by $84 million over 12 months. This reduction is due to increased cash flow from operations and a favorable exchange rate. Our slightly over debt level and improved the earnings levels contributed to our leverage ratio falling to 3.4x at year-end, a significant improvement from 5.2x at year-end 2022. Now here we go with an overview of how each of our business performed in 2023. Our carton board business performed well last year with year-over-year sales essentially stable at $2.3 billion. Volumes were higher, and exchange rates and average commodity prices were favorable in this sector. In turn, the selling prices were under pressure, and we continue to face inflationary pressures at cost levels. Now in the Packaging sector, sales in our Specialty Products segment declined slightly, down 2%, while EBITDA remained stable at $91 million or 14.2% on a margin basis. Selling prices were higher, and commodity prices and exchange rates were favorable over 12 months. These results were offset by the lower volumes and higher operating costs due to inflationary pressures. Finally, the results of our Tissue Paper improved significantly in 2023. Sales increased 14% to $1.6 billion, and the EBITDA rebounded from a challenging 2022 year to $102 billion or 11.3% on a margin basis. We are very pleased with this turnaround and the ongoing earnings from the repositioning of the industry's operating platform and the implementation of large-scale profitability initiatives. Now I will give the floor to Allan, who will give you the outlook of first quarter 2024 results that we released earlier this morning. Allan?

Thanks, everyone, for joining us today. While Mario has presented the highlights of our operational and financial results for 2023, I'll talk about the findings for the first quarter of 2024, which were published earlier this morning. Sales in the first quarter of 2024 totaled $1.1 billion. This is 2.5% below the levels recorded in the fourth quarter of 2023 during the same period last year. Over the last 12 months, sales levels reflected lower than average selling prices in all of our business segments. The effects were partially offset by a favorable sales mix in our Tissue Papers business on a positive impact from higher volume in our Containerboard business. However, our Tissue Paper sector experienced lower volume as a result of changes to its operating platform, including production and unit closures over the past year. Let's look briefly at the changes in raw material prices, all of which were unfavorable compared to the last quarter of 2023. Average prices for corrugated board rose by 22%, while those for white recycled fiber rose marginally by 2%. Similarly, market pulp prices also rose by 10% and 13%, respectively. Compared with the first quarter of 2023, prices for old corrugated board rose by substantial 206%, while white recycled fibers fell by 36%. Market pulp prices also fell by 14% and 20%, respectively. Now to our consolidated operating profit and adjusted EBITDA in the first quarter. We generated operating volume of $9 million in the first quarters, well ahead of operating loss in the same period last year, which included total of $152 million in -- of impairment charges related to the repositioning of our Tissue and Containerboard operating platforms. Consolidated EBITDA decreased by 23% or $31 million year-on-year, due to lower than average selling prices, particularly in our Containerboard business and raw material costs in our Packaging business. Our Tissue Paper sector continues to perform well, thanks to the success of operational and commercial initiatives implemented over the past year, which partially mitigated these negative effects. Now to the evolution of net debt in the first quarter. Cash flow from operating activities was more than offset by the negative currency effect, capital expenditure and seasonal working capital requirements over the past 3 years. As a result, net debt has increased by $138 million or 70% from December 31, 2023 levels, resulting in our leverage ratio increasing to 3.8x compared to the increase of 3.4x at the end of 2023, due to the lower profitability levels. Capital investment levels are expected to be approximately $175 million in 2024. Since my overview of our results for the first quarter of 2024 was brief, I invite you to consult our investors presentation, press release and our management report for more information. In addition, a replay of our quarterly conference call earlier this morning is available on our website. Thank you for your attention. And now over to Mario to talk about our perspectives for 2024.

Thank you, Allan. As we've seen, that we are well positioned with regard to our strategic plan 2022, '24. We are pleased with the progress we have made so far, in particular, the achievement of our tissue profitability plan and the rapid progress of Bear Island mill since its start-up in last May. The growth of our U.S. Packaging business, the achievement of the goals set out in our sustainability plan and the ongoing recruitment, training and development of employees are on track, ongoing and remain key to Cascades' future growth and success. We're working hard to achieve the financial targets set for 2024 and the strategic plan. Headwinds are blowing in the Containerboard sector, where a significant portion of our sales are linked to the indexation of raw materials prices and selling prices, which has had an impact on the profitability of around USD 150 per tonne. As a result, we expect to reach the lower end of our established targets. Our capital expenditure plan for 2024 is that at $175 million, as we focus on debt reduction following our Bear Island investment. While the current turbulence in our Containerboard business may disrupt the achievement of these objectives by the end of the calendar year 2024, we remain committed to their achievement. We are confident that the corrective measures we have implemented in all of our business segments will help us achieve these objectives and generate long-term value for Cascades' stakeholders. And we would do so while respecting our core values, including responsibility and respect for the environment, communities and individuals. Our commitment to sustainable development defines and distinguishes us and has done since the beginning -- our beginning 70 years ago. At a time when our customers need guidance in their choices more than ever, we have the experience and the recognition to put us in an enviable position. We're extremely proud that our work and commitment continues to be recognized. Once again, this year, Cascades has been included in the prestigious Global 100 ranking of the world's most sustainable companies, still ranking first in Packaging category, Cascades is 38th most sustainable company in the world. We've also been named one of Canada's top 100 employers. Importantly, our efforts are also being recognized by our consumers, as evidenced by Walmart awarding us the title of Giga-guru for our leadership in reducing greenhouse gas emissions. We're proud of these achievements and many others, and are determined to continue our work in this direction. These awards are no accident. They're the result of a 360-degree vision of a structured approach based on 3 complementary and inseparable pillars that structure all of our actions in terms of sustainable development, eco-designed products, responsible sourcing and sustainable operations. This approach enables us not only to reduce our own footprint, but also to support our customers in their efforts to reduce their own through our value-added ecological products and services. Our convincing results and ambitious action plan demonstrate that we are a solution-based company and will continue to drive progress, as well as continuing to make progress on the targets we set ourselves in our last plan. We continue to post a number of statistics that demonstrate our leadership position in our industry. Our ESG strategy is aligned with the UN Sustainable Development Goals, and we have ambitious targets for reducing greenhouse gas emissions. We remain committed to ensuring that all of our packaging is recyclable, compostable or reusable by 2023. At a time when consumers and our customers are increasingly demanding, we are in the right place at the right time. Innovation goes hand in hand with our determination to bring about positive change and is at the heart of our commitment to providing our customers with responsible and sustainable solutions. Among the innovative solutions recently implemented by Cascades, our EnVision packaging for Specialty Products, our cardboard tray for vegetable and protein products and our fresh fruit and vegetable basket. All of these packaging solutions are recyclable and made from 100% recycled fibers. They are eco-designed and eco-responsible innovations that have won several industry awards in the past year. In the future, we will continue to enrich our offer with innovative, ecological solutions as well as being an integral part of our sustainable DNA. We firmly believe that this commitment will also be a driver of future value creation for Cascades, our customer and our shareholders. Before concluding, I'd like to thank Alain for his masterful Chairmanship of the Board of Directors over the past decade. I'd also like to thank him for his constant support and underline his commitment to the success and growth of Cascades. I'm delighted that he will remain on the Board and that the company will continue to benefit from his wealth of experience in the years to come. I'm also very pleased that Patrick has accepted this mandate. He has all the qualities required to take on this role successfully. Thank you for accepting, Patrick. Dear shareholders, our 60th anniversary gives us the opportunity to look back and celebrate our achievements, but also and above all, to look forward and embrace the future with optimism. Looking back with gratitude and moving forward with conviction, we are ready to write the next chapters of this extraordinary story together. I want to reiterate that we are not only optimistic, but also confident about the future. The strategic investment initiatives and changes that we have made in recent years have significantly strengthened our operating platforms and will enable Cascades to create significant value for the company and all our stakeholders in the future. Thank you for your continued confidence and support. We look forward to updating you on our progress throughout the year.

Thank you, Mario. Thank you, Allan. And now we'll go to our question period. For every -- for each question received in the discussion box, we will summarize it and read out the name of the person who asked the question and where applicable, the name of the entity that they represent. [Operator Instructions] We haven't received any questions quite yet. Perhaps we can wait a few seconds more. As there are no further questions, we are now going to put an end to the question period for this general assembly. And since all of the -- all of our agenda has been covered, I declare the meeting adjourned for the last time as Executive Chairman of our Board of Directors. It's been an honor and a privilege to serve Cascades in this capacity for 10 years. I'm extremely proud of what we did choose together and of the work of the teams who make our company shine. Well done to the members of the Board in the invaluable -- for their invaluable contribution to the growth of this organization, which is part of my DNA. I'm passing the torch to Patrick, and I have every confidence in his ability to chart the course of the future. Once again, thank you. Any journalists wishing to conduct one-on-one interviews following the meeting are invited to contact Hugo D'Amours, who's Vice President, Communications, Public Affairs and Sustainable Development, whose contact details appear on your screen. Thanks for your attention. Take care. [Statements in English on this transcript were spoken by an interpreter present on the live call.]