Wednesday, January 29, 2020

 


Cascades Inc
(TSX: CAS.TO) Add to Watchlist
$11.75
+0.21 (+1.82%)
as of Jan 28, 2020

Cascades Announces Record Sales and Adjusted OIBD for the Second Quarter of 2019; Quarterly Dividend Increased from $0.04 to $0.08 Per Share

Cascades Inc. (TSX:CAS.TO) reports its unaudited financial results for the three-month period ended June 30, 2019.

Q2 2019 Highlights

-- Sales of $1,275 million (compared to $1,230 million in Q1 2019 (+4%) and $1,180 million in Q2 2018 (+8%))

-- As reported (including specific items)

-- Operating income of $82 million (compared to $72 million in Q1 2019 (+14%) and $73 million in Q2 2018 (+12%))

-- Operating income before depreciation and amortization (OIBD)1 of $154 million (compared to $139 million in Q1 2019 (+11%) and $131 million in Q2 2018 (+18%))

-- Net earnings per share of $0.33 (compared to $0.26 in Q1 2019 and $0.28 in Q2 2018)

-- Adjusted (excluding specific items)1

-- Operating income of $84 million (compared to $68 million in Q1 2019 (+24%) and $76 million in Q2 2018 (+11%))

-- OIBD of $156 million (compared to $135 million in Q1 2019 (+16%) and $134 million in Q2 2018 (+16%))

-- Net earnings per share of $0.28 (compared to $0.14 in Q1 2019 and $0.30 in Q2 2018)

-- Net debt1 of $1,861 million as at June 30, 2019 (compared to $1,878 million as at March 31, 2019) and net debt to adjusted OIBD ratio1 at 3.3x on a pro-forma basis2.

1 For further details, please refer to the "Supplemental Information on non-IFRS Measures" section.
2 Pro-forma basis to include 2018 business combinations on a LTM basis and IFRS 16 Leases impact on an annualized basis as at June 30, 2019.

Mr. Mario Plourde, President and Chief Executive Officer, commented: "Cascades delivered record quarterly sales and adjusted OIBD that were in line with expectations in the second quarter. All our segments executed well. Tissue results were supported by favourable input costs and selling prices and better operational performance, notably at the St. Helens mill in Oregon, Containerboard Packaging performance reflected lower OCC prices and good operational flexibility within a context of softer demand and pricing pressure, while European Boxboard and Specialty Products results benefited from recent business acquisitions.

On the strategic front, we announced the acquisition of substantially all of the Orchids Paper Products assets in early July. This move provides compelling optimization opportunities for our Tissue platform while reinforcing the operational foundation of this segment's U.S. consumer product business. Furthermore, the addition of these assets accelerates our ongoing Tissue modernization plan, is aligned with our efforts to enhance the quality of the products we manufacture, and reinforces our initiatives to support the growth of our customers and the segment. On the Containerboard side, analysis of the Bear Island conversion project in Virginia is advancing, with added time being taken to determine the optimal structure to successfully execute the project and to minimize risk. We expect to provide additional information by the end of the year.

Finally, we are pleased to announce that we are increasing our quarterly dividend from $0.04 to $0.08 per share. This step reflects our strong asset base and financial fundamentals. We continue to prioritize capital investments and debt reduction in our capital allocation, and believe that this dividend increase, amounting to approximately $15 million annually, will not impact our financial flexibility to continue to focus on these priorities for creation of shareholder value. At the same time, we will provide our shareholders with a higher cash return on their investment that is better aligned with the industry."

Financial Summary

Selected consolidated information
(in millions of Canadian dollars, except amounts per share) (unaudited)   Q2 2019       Q1 2019       Q2 2018
Sales                                                                         1,275         1,230         1,180
As reported
Operating income before depreciation and amortization (OIBD)1                 154           139           131
Operating income                                                              82            72            73
Net earnings                                                                  31            24            27
per share                                                                 $   0.33      $   0.26      $   0.28
Adjusted1
Operating income before depreciation and amortization (OIBD)                  156           135           134
Operating income                                                              84            68            76
Net earnings                                                                  26            13            29
per share                                                                 $   0.28      $   0.14      $   0.30
Margin (OIBD)                                                                 12.2  %       11.0  %       11.4  %
1 - Refer to the "Supplemental Information on Non-IFRS Measures" section.
Segmented OIBD as reported
(in millions of Canadian dollars) (unaudited) Q2 2019 Q1 2019 Q2 2018
Packaging Products
Containerboard                                114     111     102
Boxboard Europe                               30      29      30
Specialty Products                            13      11      9
Tissue Papers                                 17      4       7
Corporate Activities                          (20)    (16)    (17)
OIBD as reported                              154     139     131
Segmented adjusted OIBD1
(in millions of Canadian dollars) (unaudited) Q2 2019            Q1 2019            Q2 2018
Packaging Products
Containerboard                                113                104                105
Boxboard Europe                               30                 29                 30
Specialty Products                            13                 12                 9
Tissue Papers                                 18                 9                  7
Corporate Activities                          (18)               (19)               (17)
Adjusted OIBD                                 156                135                134
1 - Refer to the "Supplemental Information on Non-IFRS Measures" section.

Analysis of results for the three-month period ended June 30, 2019 (compared to the same period last year)

Sales of $1,275 million increased by $95 million, or 8%, compared to the same period last year, attaining a record level for the second quarter. Specifically, Tissue sales increased by $34 million or 10%, reflecting a higher average selling price, a more favourable sales mix and exchange rate, partially offset by slightly lower volume following the previously announced closure of 2 paper machines in Ontario. European Boxboard sales increased by $38 million, or 16%, compared to the prior year. This was largely driven by the business acquisition in Spain at the end of 2018, which served to more than offset less favourable selling price and mix and Canadian dollar - euro exchange rate. The Specialty Products segment generated an 18% or $29 million sales improvement year-over-year, reflecting 2018 acquisitions and improved pricing, sales mix and volumes on the packaging side. Combined, these benefits more than offset lower results from the Recovery & Recycling sub-segment due to price erosion of recycled material. Finally, sales in the Containerboard Packaging group decreased by $13 million or 3% year-over-year. This was entirely driven by lower volume, which more than mitigated the benefits of a more favourable exchange rate and sales mix, while average selling prices were stable year-over-year.

The Corporation generated an operating income before depreciation and amortization (OIBD) of $154 million in the second quarter of 2019. This compares to the $131 million generated in the same period last year. This reflects higher average selling prices, a more favourable sales mix and lower raw material prices in the Tissue and Containerboard segments. In the case of both segments, these benefits were partially offset by lower volumes during the period. Tissue results also benefited from ongoing efforts to realign the financial performance by reducing costs and improving execution. This segment also recorded $4 million of prior year U.S. tax credits during the second quarter. Business acquisitions completed in the last twelve months contributed to the year-over-year improvements generated by Specialty Products and European Boxboard. Results in the Specialty Products segment also benefited from volume and selling price improvements in packaging sub-segments compared to the prior year, the benefits of which offset lower Recovery results attributable to raw material pricing erosion. 2019 operating results also include the beneficial impact of IFRS 16 accounting for leases, which increased second quarter 2019 OIBD by approximately $7 million.

On an adjusted basis1, second quarter 2019 OIBD stood at $156 million, versus $134 million in the prior year.

The main specific items, before income taxes, that impacted our second quarter 2019 OIBD and/or net earnings were:

-- $4 million charge in Corporate Activities related to an environmental provision (OIBD and net earnings)

-- $5 million gain in Corporate Activities related to an insurance settlement from a prior year event (OIBD and net earnings)

-- $4 million charge in Corporate Activities associated with transaction fees paid for the Orchids' assets acquisition (OIBD and net earnings)

-- $6 million unrealized gain on the fair value revaluation of an option granted in the Bear Island project (net earnings)

For the 3-month period ended June 30, 2019, the Corporation posted net earnings of $31 million, or $0.33 per share, compared to net earnings of $27 million, or $0.28 per share, in the same period of 2018. On an adjusted basis1, the Corporation generated net earnings of $26 million in the second quarter of 2019, or $0.28 per share, compared to net earnings of $29 million, or $0.30 per share, in the same period of 2018.

1 For further details, please refer to the "Supplemental Information on non-IFRS Measures" section.

Near-Term and Strategic Outlook

Discussing the outlook for Cascades, Mr. Plourde commented: "Near-term results in the Containerboard business segment are expected to improve both sequentially and year-over-year, following usual seasonal trends and current market dynamics, while Tissue performance is expected to continue its positive trend in the third quarter. European Boxboard performance is expected to benefit from its recent acquisition on a year-over-year basis, while sequential performance is expected to moderate as a result of lower seasonal demand following holiday-related closures in the third quarter, and lower pricing. We anticipate stable near-term results in the Specialty Products segment both year-over-year and sequentially, as the impact of ongoing lower recycled fibre pricing on the recovery operations is expected to be offset by stable pricing and volumes in packaging. On a consolidated basis, third quarter performance is expected to improve year-over-year and be moderately higher on a sequential basis."

Dividend on common shares and normal course issuer bid

The Board of Directors of Cascades declared a quarterly dividend of $0.08 per share to be paid on September 6, 2019 to shareholders of record at the close of business on August 21, 2019. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). During the second quarter of 2019, Cascades did not purchase any shares.

2019 Second Quarter Results Conference Call Details

Management will discuss the 2019 second quarter financial results during a conference call today at 9:00 a.m. EDT. The call can be accessed by dialing 1-888-231-8191 (international dial-in 1-647-427-7450). The conference call, including the investor presentation, will be broadcast live on the Cascades website (www.cascades.com under the "Investors" section). A replay of the call will be available on the Cascades website and may also be accessed by phone until September 9, 2019 by dialing 1-855-859-2056, access code 8885738.

Founded in 1964, Cascades offers sustainable, innovative and value-added packaging, hygiene and recovery solutions. The company employs 11,000 women and men across a network of over 90 facilities in North America and Europe. Driven by its participative management, half a century of experience in recycling, and continuous research and development efforts, Cascades continues to provide innovative products that customers have come to rely on, while contributing to the well-being of people, communities and the entire planet. Cascades' shares trade on the Toronto Stock Exchange under the ticker symbol CAS. Certain statements in this release, including statements regarding future results and performance, are forward-looking statements (as such term is defined under the Private Securities Litigation Reform Act of 1995) based on current expectations. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic conditions, decreases in demand for the Corporation's products, increases in raw material costs, fluctuations in selling prices and adverse changes in general market and industry conditions and other factors listed in the Corporation's Securities and Exchange Commission filings.

CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars) (unaudited)                    June 30,  December 31,
                                                                 2019      2018
Assets
Current assets
Cash and cash equivalents                                        98        123
Accounts receivable                                              690       635
Current income tax assets                                        29        29
Inventories                                                      605       606
Current portion of financial assets                              8         10
Assets held for sale                                             3         --
                                                                 1,433     1,403
Long-term assets
Investments in associates and joint ventures                     81        81
Property, plant and equipment                                    2,532     2,505
Intangible assets with finite useful life                        189       204
Financial assets                                                 18        20
Other assets                                                     53        42
Deferred income tax assets                                       144       134
Goodwill and other intangible assets with indefinite useful life 545       556
                                                                 4,995     4,945
Liabilities and Equity
Current liabilities
Bank loans and advances                                          16        16
Trade and other payables                                         768       781
Current income tax liabilities                                   32        23
Current portion of long-term debt                                77        55
Current portion of provisions for contingencies and charges      8         6
Current portion of financial liabilities and other liabilities   104       101
                                                                 1,005     982
Long-term liabilities
Long-term debt                                                   1,866     1,821
Provisions for contingencies and charges                         44        42
Financial liabilities                                            7         14
Other liabilities                                                190       202
Deferred income tax liabilities                                  194       200
                                                                 3,306     3,261
Equity
Capital stock                                                    487       490
Contributed surplus                                              16        16
Retained earnings                                                1,022     997
Accumulated other comprehensive income (loss)                    (14)      2
Equity attributable to Shareholders                              1,511     1,505
Non-controlling interests                                        178       179
Total equity                                                     1,689     1,684
                                                                 4,995     4,945
CONSOLIDATED STATEMENTS OF EARNINGS
                                                                                                                                                                           For the 3-month periods ended         For the 6-month periods ended
                                                                                                                                                                           June 30,                              June 30,
(in millions of Canadian dollars, except per share amounts and number of shares) (unaudited)                                                                               2019               2018               2019                 2018
Sales                                                                                                                                                                              1,275              1,180              2,505        2,278
Cost of sales and expenses
Cost of sales (including depreciation and amortization of $72 million for 3-month period (2018 -- $58 million) and $139 million for 6-month period (2018 -- $113 million))         1,081              1,003              2,139        1,949
Selling and administrative expenses                                                                                                                                                111                102                215          205
Loss (gain) on acquisitions, disposals and others                                                                                                                                  3                  --                 (7)          (66)
Impairment charges and restructuring costs                                                                                                                                         1                  --                 10           --
Foreign exchange gain                                                                                                                                                              (1)                --                 (1)          (1)
Loss (gain) on derivative financial instruments                                                                                                                                    (2)                2                  (5)          6
                                                                                                                                                                                   1,193              1,107              2,351        2,093
Operating income                                                                                                                                                                   82                 73                 154          185
Financing expense                                                                                                                                                                  25                 19                 50           39
Interest expense on employee future benefits and other liabilities                                                                                                                 10                 4                  24           7
Foreign exchange gain on long-term debt and financial instruments                                                                                                                  (1)                --                 (7)          (1)
Fair value revaluation gain on investments                                                                                                                                         --                 --                 --           (5)
Share of results of associates and joint ventures                                                                                                                                  (2)                (3)                (4)          (4)
Earnings before income taxes                                                                                                                                                       50                 53                 91           149
Provision for income taxes                                                                                                                                                         10                 16                 18           40
Net earnings including non-controlling interests for the period                                                                                                                    40                 37                 73           109
Net earnings attributable to non-controlling interests                                                                                                                             9                  10                 18           21
Net earnings attributable to Shareholders for the period                                                                                                                           31                 27                 55           88
Net earnings per share
Basic                                                                                                                                                                      $       0.33       $       0.28       $       0.59       $ 0.93
Diluted                                                                                                                                                                    $       0.32       $       0.27       $       0.58       $ 0.90
Weighted average basic number of shares outstanding                                                                                                                                93,636,771         94,638,464         93,900,400   94,824,718
Weighted average number of shares                                                                                                                                                  95,058,479         97,011,800         95,395,585   97,404,264
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                                                                    For the 3-month periods ended For the 6-month periods ended
                                                                                    June 30,                      June 30,
(in millions of Canadian dollars) (unaudited)                                       2019           2018           2019           2018
Net earnings including non-controlling interests for the period                     40             37             73             109
Other comprehensive income (loss)
Items that may be reclassified subsequently to earnings
Translation adjustments
Change in foreign currency translation of foreign subsidiaries                      (21)           10             (58)           50
Change in foreign currency translation related to net investment hedging activities 14             (7)            35             (30)
Cash flow hedges
Change in fair value of foreign exchange forward contracts                          --             --             1              (1)
Change in fair value of interest rate swaps                                         (1)            1              (1)            1
Change in fair value of commodity derivative financial instruments                  (1)            2              (2)            3
Recovery of income taxes                                                            --             --             --             3
                                                                                    (9)            6              (25)           26
Items that are not released to earnings
Actuarial gain (loss) on employee future benefits                                   (10)           4              (15)           5
Recovery (provision) of income taxes                                                1              (1)            3              (1)
                                                                                    (9)            3              (12)           4
Other comprehensive income (loss)                                                   (18)           9              (37)           30
Comprehensive income including non-controlling interests for the period             22             46             36             139
Comprehensive income attributable to non-controlling interests for the period       7              7              9              25
Comprehensive income attributable to Shareholders for the period                    15             39             27             114
CONSOLIDATED STATEMENTS OF EQUITY
                                                     For the 6-month period ended June 30, 2019
(in millions of Canadian dollars)                    CAPITAL STOCK CONTRIBUTED SURPLUS RETAINED EARNINGS ACCUMULATED              TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS NON-CONTROLLING INTERESTS TOTAL EQUITY
(unaudited)                                                                                              OTHER COMPREHENSIVE
                                                                                                         LOSS
Balance - End of previous period, as reported        490           16                  1,000             2                        1,508                                     180                       1,688
Business combination                                 --            --                  (3)               --                       (3)                                       (1)                       (4)
Adjusted balance - End of previous period            490           16                  997               2                        1,505                                     179                       1,684
New IFRS adoption                                    --            --                  (9)               --                       (9)                                       --                        (9)
Adjusted balance - Beginning of period               490           16                  988               2                        1,496                                     179                       1,675
Comprehensive income
Net earnings                                         --            --                  55                --                       55                                        18                        73
Other comprehensive loss                             --            --                  (12)              (16)                     (28)                                      (9)                       (37)
                                                     --            --                  43                (16)                     27                                        9                         36
Dividends                                            --            --                  (7)               --                       (7)                                       --                        (7)
Redemption of shares                                 (3)           --                  (2)               --                       (5)                                       --                        (5)
Dividends paid to non-controlling interests          --            --                  --                --                       --                                        (10)                      (10)
Balance - End of period                              487           16                  1,022             (14)                     1,511                                     178                       1,689
                                                     For the 6-month period ended June 30, 2018
(in millions of Canadian dollars)                    CAPITAL STOCK CONTRIBUTED SURPLUS RETAINED EARNINGS ACCUMULATED              TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS NON-CONTROLLING INTERESTS TOTAL EQUITY
(unaudited)                                                                                              OTHER COMPREHENSIVE LOSS
Balance - Beginning of period                        492           16                  982               (35)                     1,455                                     146                       1,601
New IFRS adoption                                    --            --                  (2)               2                        --                                        --                        --
Adjusted Balance - Beginning of period               492           16                  980               (33)                     1,455                                     146                       1,601
Comprehensive income
Net earnings                                         --            --                  88                --                       88                                        21                        109
Other comprehensive income                           --            --                  4                 22                       26                                        4                         30
                                                     --            --                  92                22                       114                                       25                        139
Dividends                                            --            --                  (8)               --                       (8)                                       --                        (8)
Issuance of shares upon exercise of stock options    5             (1)                 --                --                       4                                         --                        4
Redemption of shares                                 (5)           --                  (7)               --                       (12)                                      --                        (12)
Capital contribution from a non-controlling interest --            --                  --                --                       --                                        1                         1
Dividends paid to non-controlling interests          --            --                  --                --                       --                                        (10)                      (10)
Balance - End of period                              492           15                  1,057             (11)                     1,553                                     162                       1,715
CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                         For the 3-month periods ended For the 6-month periods ended
                                                                                         June 30,                      June 30,
(in millions of Canadian dollars) (unaudited)                                            2019           2018           2019           2018
Operating activities
Net earnings attributable to Shareholders for the period                                 31             27             55             88
Adjustments for:
Financing expense and interest expense on employee future benefits and other liabilities 35             23             74             46
Depreciation and amortization                                                            72             58             139            113
Loss (gain) on acquisitions, disposals and others                                        3              --             (6)            (66)
Impairment charges and restructuring costs                                               --             --             5              --
Unrealized loss (gain) on derivative financial instruments                               (2)            3              (5)            7
Foreign exchange gain on long-term debt and financial instruments                        (1)            --             (7)            (1)
Provision for income taxes                                                               10             16             18             40
Fair value revaluation gain on investments                                               --             --             --             (5)
Share of results of associates and joint ventures                                        (2)            (3)            (4)            (4)
Net earnings attributable to non-controlling interests                                   9              10             18             21
Net financing expense paid                                                               (16)           (18)           (59)           (55)
Net income taxes received (paid)                                                         (2)            (1)            (2)            2
Dividends received                                                                       2              1              2              1
Employee future benefits and others                                                      (15)           (5)            (22)           (7)
                                                                                         124            111            206            180
Changes in non-cash working capital components                                           (36)           5              (66)           (26)
                                                                                         88             116            140            154
Investing activities
Investments in associates and joint ventures                                             1              --             1              (2)
Payments for property, plant and equipment                                               (53)           (67)           (119)          (150)
Proceeds from disposals of property, plant and equipment                                 1              1              2              82
Change in intangible and other assets                                                    (1)            (3)            (2)            (7)
Net cash acquired (paid) in business combinations                                        (14)           --             (14)           3
                                                                                         (66)           (69)           (132)          (74)
Financing activities
Bank loans and advances                                                                  (2)            (2)            --             (15)
Change in credit facilities                                                              1              (26)           65             10
Increase in other long-term debt                                                         7              3              7              11
Payments of other long-term debt                                                         (38)           (46)           (79)           (55)
Settlement of derivative financial instruments                                           --             --             --             (1)
Issuance of common shares upon exercise of stock options                                 --             2              --             4
Redemption of common shares                                                              --             (6)            (5)            (12)
Dividends paid to non-controlling interests                                              (6)            (8)            (10)           (10)
Capital contribution from non-controlling interests                                      --             --             --             1
Dividends paid to the Corporation's Shareholders                                         (3)            (4)            (7)            (8)
                                                                                         (41)           (87)           (29)           (75)
Change in cash and cash equivalents during the period                                    (19)           (40)           (21)           5
Currency translation on cash and cash equivalents                                        --             --             (4)            3
Cash and cash equivalents - Beginning of the period                                      117            137            123            89
Cash and cash equivalents - End of the period                                            98             97             98             97

SEGMENTED INFORMATION

The Corporation analyzes the performance of its operating segments based on their operating income before depreciation and amortization, which is not a measure of performance under International Financial Reporting Standards (IFRS); however, the chief operating decision-maker (CODM) uses this performance measure to assess the operating performance of each reportable segment. Earnings for each segment are prepared on the same basis as those of the Corporation. Intersegment operations are recorded on the same basis as sales to third parties, which are at fair market value. The accounting policies of the reportable segments are the same as the Corporation's accounting policies described in its most recent audited consolidated financial statements for the year ended December 31, 2018.

The Corporation's operating segments are reported in a manner consistent with the internal reporting provided to the CODM. The Chief Executive Officer has authority for resource allocation and management of the Corporation's performance, and is therefore the CODM.

The Corporation's operations are managed in four segments: Containerboard, Boxboard Europe and Specialty Products (which constitutes the Corporation's Packaging Products), and Tissue Papers.

SALES
                                                                                         For the 3-month             For the 6-month
                                                                                         periods ended               periods ended
                                                                                         June 30,                    June 30,
(in millions of Canadian dollars) (unaudited)                                            2019          2018          2019          2018
Packaging Products
Containerboard                                                                           462           475           903           896
Boxboard Europe                                                                          270           232           549           478
Specialty Products                                                                       193           164           389           323
Intersegment sales                                                                       (15)          (23)          (37)          (47)
                                                                                         910           848           1,804         1,650
Tissue Papers                                                                            377           343           725           648
Intersegment sales and Corporate Activities                                              (12)          (11)          (24)          (20)
                                                                                         1,275         1,180         2,505         2,278
                                                                                         OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
                                                                                         For the 3-month             For the 6-month
                                                                                         periods ended               periods ended
                                                                                         June 30,                    June 30,
(in millions of Canadian dollars) (unaudited)                                            2019          2018          2019          2018
Packaging Products
Containerboard                                                                           114           102           225           243
Boxboard Europe                                                                          30            30            59            58
Specialty Products                                                                       13            9             24            16
                                                                                         157           141           308           317
Tissue Papers                                                                            17            7             21            20
Corporate Activities                                                                     (20)          (17)          (36)          (39)
Operating income before depreciation and amortization                                    154           131           293           298
Depreciation and amortization                                                            (72)          (58)          (139)         (113)
Financing expense and interest expense on employee future benefits and other liabilities (35)          (23)          (74)          (46)
Foreign exchange gain on long-term debt and financial instruments                        1             --            7             1
Fair value revaluation gain on investments                                               --            --            --            5
Share of results of associates and joint ventures                                        2             3             4             4
Earnings before income taxes                                                             50            53            91            149
                                                                                         PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
                                                                                         For the 3-month             For the 6-month
                                                                                         periods ended               periods ended
                                                                                         June 30,                    June 30,
(in millions of Canadian dollars) (unaudited)                                            2019          2018          2019          2018
Packaging Products
Containerboard                                                                           14            81            36            140
Boxboard Europe                                                                          17            5             28            8
Specialty Products                                                                       8             11            14            17
                                                                                         39            97            78            165
Tissue Papers                                                                            18            19            47            28
Corporate Activities                                                                     6             6             14            9
Total acquisitions                                                                       63            122           139           202
Proceeds from disposals of property, plant and equipment                                 (1)           (1)           (2)           (82)
Lease acquisitions                                                                       (18)          (63)          (33)          (66)
                                                                                         44            58            104           54
Acquisitions for property, plant and equipment included in "Trade and other payables"
Beginning of period                                                                      32            22            37            28
End of period                                                                            (24)          (14)          (24)          (14)
Payments for property, plant and equipment net of proceeds from disposals                52            66            117           68

SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES

SPECIFIC ITEMS

The Corporation incurs some specific items that adversely or positively affect its operating results. We believe it is useful for readers to be aware of these items, as they provide additional information to measure performance, compare the Corporation's results between periods, and assess operating results and liquidity, notwithstanding these specific items. Management believes these specific items are not necessarily reflective of the Corporation's underlying business operations in measuring and comparing its performance and analyzing future trends. Our definition of specific items may differ from those of other corporations, and some of them may arise in the future and may reduce the Corporation's available cash.

They include, but are not limited to, charges for (reversals of) impairment of assets, restructuring gains or costs, loss on refinancing and repurchase of long-term debt, some deferred tax asset provisions or reversals, premiums paid on long-term debt refinancing, gains or losses on the acquisition or sale of a business unit, gains or losses on the share of results of associates and joint ventures, unrealized gains or losses on derivative financial instruments that do not qualify for hedge accounting, unrealized gains or losses on interest rate swaps, foreign exchange gains or losses on long-term debt and financial instruments, specific items of discontinued operations and other significant items of an unusual, non-cash or non-recurring nature.

RECONCILIATION OF NON-IFRS MEASURES

To provide more information for evaluating the Corporation's performance, the financial information included in this analysis contains certain data that are not performance measures under IFRS ("non-IFRS measures"), which are also calculated on an adjusted basis to exclude specific items. We believe that providing certain key performance measures and non-IFRS measures is useful to both management and investors, as they provide additional information to measure the performance and financial position of the Corporation. It also increases the transparency and clarity of the financial information. The following non-IFRS measures are used in our financial disclosures:

-- Operating income before depreciation and amortization (OIBD): Used to assess operating performance and contribution of each segment when excluding depreciation and amortization. OIBD is widely used by investors as a measure of a corporation's ability to incur and service debt and as an evaluation metric.

-- Adjusted OIBD: Used to assess operating performance and contribution of each segment on a comparable basis.

-- Adjusted operating income: Used to assess operating performance of each segment on a comparable basis.

-- Adjusted net earnings: Used to assess the Corporation's consolidated financial performance on a comparable basis.

-- Adjusted free cash flow: Used to assess the Corporation's capacity to generate cash flows to meet financial obligations and/or discretionary items such as share repurchase, dividend increase and strategic investments.

-- Net debt to adjusted OIBD ratio: Used to measure the Corporation's credit performance and evaluate financial leverage.

-- Net debt to adjusted OIBD ratio on a pro-forma basis: Used to measure the Corporation's credit performance and evaluate the financial leverage on a comparable basis, including significant business acquisitions and excluding significant business disposals, if any.

Non-IFRS measures are mainly derived from the consolidated financial statements, but do not have meanings prescribed by IFRS. These measures have limitations as an analytical tool and should not be considered on their own or as a substitute for an analysis of our results as reported under IFRS. In addition, our definitions of non-IFRS measures may differ from those of other corporations. Any such modification or reformulation may be significant.

The reconciliation of operating income (loss) to OIBD, to adjusted operating income (loss) and to adjusted OIBD by business segment is as follows:

Q2 2019
(in millions of Canadian dollars) (unaudited)                         Containerboard Boxboard Europe Specialty Products Tissue Papers Corporate Activities Consolidated
Operating income (loss)                                               84             19              6                  1             (28)                 82
Depreciation and amortization                                         30             11              7                  16            8                    72
Operating income (loss) before depreciation and amortization          114            30              13                 17            (20)                 154
Specific items:
Loss on acquisitions, disposals and others                            --             --              --                 --            3                    3
Restructuring costs                                                   --             --              --                 1             --                   1
Unrealized gain on financial instruments                              (1)            --              --                 --            (1)                  (2)
                                                                      (1)            --              --                 1             2                    2
Adjusted operating income (loss) before depreciation and amortization 113            30              13                 18            (18)                 156
Adjusted operating income (loss)                                      83             19              6                  2             (26)                 84
                                                                      Q1 2019
(in millions of Canadian dollars) (unaudited)                         Containerboard Boxboard Europe Specialty Products Tissue Papers Corporate Activities Consolidated
Operating income (loss)                                               84             18              3                  (8)           (25)                 72
Depreciation and amortization                                         27             11              8                  12            9                    67
Operating income (loss) before depreciation and amortization          111            29              11                 4             (16)                 139
Specific items :
Gain on acquisitions, disposals and others                            (10)           --              --                 --            --                   (10)
Impairment charges                                                    3              --              --                 1             --                   4
Restructuring costs                                                   --             --              1                  4             --                   5
Unrealized gain on derivative financial instruments                   --             --              --                 --            (3)                  (3)
                                                                      (7)            --              1                  5             (3)                  (4)
Adjusted operating income (loss) before depreciation and amortization 104            29              12                 9             (19)                 135
Adjusted operating income (loss)                                      77             18              4                  (3)           (28)                 68
                                                                      Q2 2018
(in millions of Canadian dollars) (unaudited)                         Containerboard Boxboard Europe Specialty Products Tissue Papers Corporate Activities Consolidated
Operating income (loss)                                               82             22              4                  (9)           (26)                 73
Depreciation and amortization                                         20             8               5                  16            9                    58
Operating income (loss) before depreciation and amortization          102            30              9                  7             (17)                 131
Specific items:
Unrealized loss on financial instruments                              3              --              --                 --            --                   3
                                                                      3              --              --                 --            --                   3
Adjusted operating income (loss) before depreciation and amortization 105            30              9                  7             (17)                 134
Adjusted operating income (loss)                                      85             22              4                  (9)           (26)                 76

Net earnings, as per IFRS, is reconciled below with operating income, adjusted operating income and adjusted operating income before depreciation and amortization:

(in millions of Canadian dollars) (unaudited)                                         Q2 2019 Q1 2019 Q2 2018
Net earnings attributable to Shareholders                                             31      24      27
Net earnings attributable to non-controlling interests                                9       9       10
Provision for income taxes                                                            10      8       16
Share of results of associates and joint ventures                                     (2)     (2)     (3)
Foreign exchange gain on long-term debt and financial instruments                     (1)     (6)     --
Financing expense, interest expense on employee future benefits and other liabilities 35      39      23
Operating income                                                                      82      72      73
Specific items:
Loss (gain) on acquisitions, disposals and others                                     3       (10)    --
Impairment charges                                                                    --      4       --
Restructuring costs                                                                   1       5       --
Unrealized loss (gain) on derivative financial instruments                            (2)     (3)     3
                                                                                      2       (4)     3
Adjusted operating income                                                             84      68      76
Depreciation and amortization                                                         72      67      58
Adjusted operating income before depreciation and amortization                        156     135     134

The following table reconciles net earnings and net earnings per share, as per IFRS, with adjusted net earnings and adjusted net earnings per share:

(in millions of Canadian dollars, except amounts per share) (unaudited)                           NET EARNINGS              NET EARNINGS PER SHARE 1
                                                                                                  Q2 2019 Q1 2019 Q2 2018   Q2 2019     Q1 2019     Q2 2018
As per IFRS                                                                                       31      24      27        $    0.33   $    0.26   $    0.28
Specific items:
Loss (gain) on acquisitions, disposals and others                                                 3       (10)    --        $    0.03   $    (0.11) --
Impairment charges                                                                                --      4       --        --          $    0.03   --
Restructuring costs                                                                               1       5       --        $    0.01   $    0.04   --
Unrealized loss (gain) on derivative financial instruments                                        (2)     (3)     3         $    (0.02) $    (0.02) $    0.03
Unrealized gain on interest rate swaps and option fair value                                      (6)     --      (1)       $    (0.06) --          $    (0.01)
Foreign exchange gain on long-term debt and financial instruments                                 (1)     (6)     --        $    (0.01) $    (0.06) --
Tax effect on specific items, other tax adjustments and attributable to non-controlling interest1 --      (1)     --        --          --          --
                                                                                                  (5)     (11)    2         $    (0.05) $    (0.12) $    0.02
Adjusted                                                                                          26      13      29        $    0.28   $    0.14   $    0.30
1 Specific amounts per share are calculated on an after-tax basis and are net of the portion attributable to non-controlling interests. Per share amounts in line item ''Tax effect on specific items, other tax adjustments and attributable to non-controlling interests'' only include the effect of tax adjustments.

The following table reconciles cash flow from operating activities with operating income and operating income before depreciation and amortization:

(in millions of Canadian dollars)                          Q2 2019 Q1 2019 Q2 2018
Cash flow from operating activities                        88      52      116
Changes in non-cash working capital components             36      30      (5)
Depreciation and amortization                              (72)    (67)    (58)
Net income taxes paid                                      2       --      1
Net financing expense paid                                 16      43      18
Gain (loss) on acquisitions, disposals and others          (3)     9       --
Impairment charges and restructuring costs                 --      (5)     --
Unrealized gain (loss) on derivative financial instruments 2       3       (3)
Dividend received, employee future benefits and others     13      7       4
Operating income                                           82      72      73
Depreciation and amortization                              72      67      58
Operating income before depreciation and amortization      154     139     131

The following table reconciles cash flow from operating activities with cash flow from operating activities (excluding changes in non-cash working capital components) and adjusted cash flow from operating activities. It also reconciles adjusted cash flow from operating activities to adjusted free cash flow, which is also calculated on a per share basis:

(in millions of Canadian dollars, except amount per common share or otherwise mentioned)       Q2 2019     Q1 2019     Q2 2018
Cash flow from operating activities                                                            88          52          116
Changes in non-cash working capital components                                                 36          30          (5)
Cash flow from operating activities (excluding changes in non-cash working capital components) 124         82          111
Specific items, net of current income taxes if applicable:
Restructuring costs                                                                            1           3           --
Adjusted cash flow from operating activities                                                   125         85          111
Capital expenditures & other assets1 and capital lease payments, net of disposals              (64)        (76)        (72)
Dividends paid to the Corporation's Shareholders and to non-controlling interests              (9)         (8)         (12)
Adjusted free cash flow                                                                        52          1           27
Adjusted free cash flow per share                                                              $     0.56  $     0.01  $     0.29
Weighted average basic number of shares outstanding                                            93,636,771  94,166,959  94,638,464
1 Excluding increase in investments

The following table reconciles total debt and net debt with the ratio of net debt to adjusted operating income before depreciation and amortization (adjusted OIBD):

(in millions of Canadian dollars)                    June 30,  2019 December 31, 2018 June 30, 2018
Long-term debt                                       1,866          1,821             1,616
Current portion of long-term debt                    77             55                46
Bank loans and advances                              16             16                21
Total debt                                           1,959          1,892             1,683
Less: Cash and cash equivalents                      98             123               97
Net debt                                             1,861          1,769             1,586
Adjusted OIBD (last twelve months)                   541            489               450
Net debt / Adjusted OIBD ratio                       3.4            3.6               3.5
Net debt / Adjusted OIBD ratio on a pro forma basis1 3.3            3.5               3.5
1 Pro-forma to include adjusted OIBD of 2017 and 2018 business acquisitions on a last twelve months basis and IFRS 16 Leases impact on an annualized basis as at June 30, 2019.

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