Morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Cascades Fourth Quarter 2025 Financial Results conference call. Note that all lines are currently in the listen-only mode. After the speaker's remarks, there will be a question-and-answer session. I will now pass the call over to Jennifer Aitken, Director of Investor Relations for Cascades. Ms. Aitken, you may begin.
Thank you, operator. Good morning, everyone, and thank you for joining our fourth quarter 2025 conference call. We will begin with an overview of our operational and financial results, followed by some concluding remarks, after which we will begin the question period. Today's speakers will be Hugues Simon, President and CEO, and Allan Hogg, CFO. Before turning over the call, I would like to highlight that certain statements made during this call will discuss historical and forward-looking matters. The accuracy of these statements is factors that can have a material impact on actual results. These risks are listed in our public filings. These statements, the investor presentation, and the press release also include data that are not measures of performance under IFRS. Please refer to our Q4 2025 investor presentation. This presentation, along with our fourth quarter press release, found in the investor section of our website.
If you have any questions, please contact us after the session. I will now turn over the call to our CEO, Hugues Simon, who will begin with a review of our Q4 performance. Hugues?
Thank you, Jennifer. Good morning, everyone. Our fourth quarter consolidated performance was in line with our projections. Forecasted sales and adjusted EBITDA levels both decreased marginally from Q3 levels, affecting usual softer volumes in the current geopolitical environment. Our key focus initiatives continue to deliver good results. Our Bear Island facility averaging 88% total capacity during the quarter, while running at a lower average basis weight. We have also successfully reached our capacity speed targets in all of our grades. Our Pryor, Oklahoma facility made significant progress during the quarter, increasing its total output by 11% from Q3. Globally, our overall margin improved to 12.9%, led by a 17.4% margin in our packaging sector. Year-over-year consolidated sales decreased 1%. It was driven by lower volumes in packaging, which fully offset pricing and favorable mixed benefits in both segments.
Consolidated Adjusted EBITDA of CAD 155 million increased 9%, reflecting lower corporate costs. We continue to remain focused on our balance sheet, allocating free cash flow to reduce our debt. Sequentially, net debt decreased by CAD 127 million, and leverage decreased to 3.3x from 3.6x at the end of Q2. For the full year, sales increased to CAD 4.8 billion, and Adjusted EBITDA increased 15% to CAD 576 million on a consolidated basis, reflecting a solid improvement from our packaging segment. EBITDA margins increased 140 basis points of 0.1% for the year. We provide a more detailed breakdown of factors that impacted results sequentially and year-over-year on slide five. Trends continue to be favorable for raw material costs in Q4.
Find an overview of average quarterly costs and trends on slides six and seven. Moving now to the results of our business segments, which are highlighted on slide eight through 13. Beginning with packaging, our fourth quarter sales decreased 5% sequentially. In addition to usual softer seasonal volumes, this reflects lower average selling prices, driven by changes in customer and sales mix for the converted products. Notwithstanding this, our box shipments increased 1.5%, outperforming the industry's 2.4% decrease. Fourth quarter-adjusted EBITDA decreased 3% sequentially to CAD 132 million, in line with expectations. Driven by the volume and selling price factors that I just discussed, offset by benefits from lower operating and raw material costs. EBITDA margins improved sequentially to 17.4% from 17.1% in Q3.
We had a solid quarter at our Bear Island facility. In addition to running the mill at 88% of its total production capacity, we increased production levels of lower basis weight paper by 7% sequentially, a key differentiating factor from an industry perspective, while remaining focused on machine availability. We do continue to see this positive operational pace in early 2026. Year-over-year sales in this business decreased by 3%, driven by lower volumes that reflect the permanent closure and/or sales of facilities and a decrease in corrugated shipments following strong demand in the year-ago period. Higher selling prices and favorable mix partially offset these impacts. Adjusted EBITDA was stable year over year as selling price and raw material cost tailwinds fully offset volume-related impacts. Margins improved to 17.4% from 16.9% last year.
Before moving to tissue, I'd like to say that we're pleased with the growing resiliency of profitability levels in this segment. Improvements made to our cost and organizational structures are being captured and are helping to offset cost inflation and other external headwinds. Initiatives we've put in place are gaining traction, key amongst which is ensuring that the right product is produced on the right equipment. This, along with other decisive actions we're taking, are positioning Cascades to be more resilient in an ever-changing business environment. Moving now to our tissue segment. Fourth quarter results were below expectations. In addition to efficiency and logistics execution falling short of our targets, our North Carolina Wagram facility experienced a major electrical outage. These factors reduced output, increased operational support requirements, and required our network volume to be redirected to other plants, increasing logistics costs.
Sales in this segment decreased by 1% sequentially, driven by a 3% decrease in the away-from-home market that reflects expected seasonality, partially offset by a slight increase in the retail market. Segment Adjusted EBITDA of CAD 42 million decreased 9% sequentially. While lower raw material costs were a tailwind, benefits were more than offset by higher operating costs as well as negative volume, which includes effects related to the power outage at our Wagram plant. Year-over-year sales increased 3%, driven by an 8% increase in retail and stable volume in away-from-home. Adjusted EBITDA decreased 7% from last year, with benefits from raw material cost, volume, and higher selling prices offset by higher operating costs. While we're disappointed with quarterly results in this business, countermeasures already in place to strengthen our operation are gaining traction.
Temporary challenge at the Wagram facility should also not overshadow the good progress being made at our Pryor, Oklahoma mill. Efficiency improvement initiatives at this facility are generating benefits and helped drive the 11% sequential increase in converting production in Q4. Similarly, our recent investments, our Kingsey Falls and Grand Bay facilities, are delivering good results. Confident that the actions we have taken will successfully strengthen this business, both from a profitability and cash flow generation standpoint. I'll now pass the call to Allan, who will briefly discuss some of the financial highlights. Allan?
Thank you, Hugues, and good morning, everyone. Let's start with the specific items recorded during the quarter, which impacted operating income by CAD 7 million on slide 14 and 15. Main items were CAD 25 million of impairment charges related to facilities closed in Canada and the U.S., and CAD 4 million of restructuring costs. Check the company's ongoing optimization initiatives. In addition, there were gains totaling CAD 22 million from the sale of our Flexible Packaging activities and on derivative financial instruments. 16 and 17 illustrate the year-over-year and sequential variance of our Q4 adjusted earnings per share and the reconciliation with the specific items that affected our quarterly results. As reported, Q4 net earnings per share were CAD 0.37, this compared to a net loss per share of CAD 0.13 last year, and net earnings of CAD 0.29 per share in Q3.
On an adjusted basis, net earnings per share were CAD 0.40 in the current quarter, as compared to net earnings per share of CAD 0.25 last year and CAD 0.38 in the third quarter of 2025. The year-over-year increase was driven by stronger Adjusted EBITDA in the current quarter, while the sequential improvement reflects lower depreciation and financing expense. Added the 2025 year-over-year earnings per share reconciliation on page 18. As highlighted on Slide 19, fourth quarter adjusted cash flow from operations was CAD 165 million, up from CAD 129 million in the year-ago period, and CAD 137 million in Q3. Adjusted cash flow generated in the fourth quarter improved year-over-year and sequentially, mainly reflecting stronger operating results, higher dividends received from our JV partners, and lower financing expense paid. Capital investments and lease obligations payments increased slightly.
Slide 20 provides detail about our capital investments. Investment for the fourth quarter totaled CAD 42 million, bringing the full-year level to CAD 152 million. For 2026, we expect CapEx to total approximately CAD 175 million. Moving now to our net debt reconciliation, as detailed on Slide 21 and 22. Net debt decreased by CAD 127 million in the fourth quarter, mainly due to stronger cash flow from operations, a reversal in working capital requirements, proceeds from business disposal, and a more favorable exchange rate on our U.S.-denominated debt. Our leverage ratio decreased 3.3x from 3.6 at the end of the third quarter. The full year, net debt decreased by CAD 200 million, and our 3.3x leverage ratio decreased from 4.2 times at the end of 2024.
Our available liquidity under our credit facility stood at CAD 737 million at the end of 2025. In early 2026, we announced that we've completed the sale of our Richmond, B.C., packaging plant and the exit from the Honeycomb packaging and partition business segments. Cash proceeds received of CAD 69 million have gone toward debt repayment in the first quarter. A minimal closing adjustment may occur within the first quarter. Including this amount, we have achieved our objective of generating CAD 120 million in proceeds from the sale of redundant and non-core assets ahead of our mid-2026 schedule. Financial ratios and information about maturities are detailed on slide 23. Additional information and analysis can be found on slides 27 through 36 of the presentation, including our updated sensitivity analysis based on our 2025 consumption and shipment levels on slide 34.
I'll now pass the call back to Hugues, who will conclude with some brief comments before we begin the question period. Hugues?
Thank you, Allan. To provide our outlook for Q1 on slide 24, we're expecting our consolidated results to decrease sequentially, but to increase year-over-year for the sixth consecutive quarter. Packaging, we're expecting softer sequential results. Usual demand seasonality. Additionally, we're planning maintenance downtime totaling approximately 16,000 tons across our platform in Q1, including at Bear Island, at our uncoated recycled paperboard mill in Kingsey Falls, where we're completing an upgrade to increase capacity. Raw material and selling price trends are expected to remain largely stable, while energy and logistics costs will be headwinds following the challenging weather in early 2026. Sequential decrease we're forecasting in tissue is driven by lower seasonal demand, mainly in away-from-home, and impacts stemming from the severe weather in the U.S. early in 2026.
Ramp-up at the Wagram plant, following the power outage, is progressing well. We expect the facility to return to full production capacity before the end of Q1. Raw material prices are expected to remain largely stable, while energy and logistics costs will be higher due to inflation and ongoing adjustments within our network due to weather-related impacts. Looking ahead, we're focused on executing our 2026 plan. We're centered on the key drivers we control to mitigate external headwinds. To this end, our internal objective: generate Adjusted EBITDA above CAD 600 million in 2026, before factoring any net effect of selling price increases. Target is being driven by our strategic objectives, which are centered on increasing our baseline annualized profitability levels by CAD 100 million. Made meaningful progress in 2025, generating CAD 30 million, and are focused on accelerating this momentum throughout 2026.
Similarly, we achieved our concurrent objective of generating CAD 120 million in proceeds from asset sales ahead of schedule. We're now targeting an additional CAD 100 million of proceeds, the divestiture of redundant assets this year, which will bring the total to approximately CAD 230 million over two years. Our strategy is anchored on strengthening the company's resiliency, performance, and competitiveness, grounded by a customer-centric vision that includes best-in-class service. Drive strong execution across our organization. We work within a focused 90-day cycle. At each of these cycles, our teams commit to a set of clear, measurable targets and ensure that we're aligned, disciplined, and fully focused on delivering results. Targets are refined and recalibrated as needed to reflect evolving economic conditions. Our path forward remains very clear. Successfully navigating this landscape requires agility, flexibility, and resilience. Qualities are key elements of our strategy.
Alongside these, we remain committed to reducing debt levels to strengthen the company's financial flexibility and unlock future growth opportunities. We can now open the call to questions. Operator?
Thank you. Si vous voulez poser une question, veuillez s'il vous plaît composer l'étoile suivi du 1 sur votre clavier téléphonique. Et si vous voulez retirer votre question, composez l'étoile suivi du two. Thank you. If you would like to ask a question, simply press Star, then number one on your telephone keypad. If you would like to withdraw your question, please press Star, then number two. Again, if you have a question, please press Star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Ahmed Abdullah at National Bank of Canada. Please go ahead.
Good morning, and thanks for taking my question. You've achieved CAD 120 million of proceeds or ahead of that, as you're targeting asset sales, and now you're targeting another CAD 100 million. Can you tell us what's the mix of what you've already identified that you want to sell versus what's still to be determined? Can we expect any EBITDA dyssynergies from such sales?
Yeah, thank you for your question. Basically, when we talk about the CAD 120 million that we've achieved so far ahead of schedule, the number is more like CAD 126 million-CAD 127 million. We are targeting another CAD 100 million. We have identified all of the CAD 100 million, and to be quite clear, we identified more, understanding than some of the things that we were looking to sell are likely not going to work. We do not anticipate any EBITDA erosion overall in the additional CAD 100 million that we're targeting.
To be clear, you still expect to have an EBITDA that's above CAD 600 million at the end of 2026, despite all these sales?
Yes, sir. Exactly. That's correct.
Just touching on the recent price hike announcements that have taken place in the industry, pressure, including yourself, pressures seem to still be there as demand remains modest. We saw last week that open market prices are highlighting some cracks there. How have discussions unfolded around price hikes that are actually expected to be implemented by next week?
Yeah. We were kind of surprised with the CAD 20 decrease that was announced last week. That's not what we're seeing in our order file. If we go back to December, we made that decision to run our paper mills during the Christmas holidays, because what we saw for us looking ahead was the right thing to do. If we had to make that decision again, we'd do the same decision. We have a good order file. We ship some of our rolls to our internal box plants. When we look at what we ship externally, we feel confidence with what we have. Clearly, in the first quarter, there's a typical seasonal slowdown.
That's one of the reason why we try to take the opportunity as much as we can to make some annual outage. We're doing a major shutdown at the Bear Island facility. We just restarted from the one in Kingsey Falls that restarted this morning, and full restart. You know, when we look at the spring, we look at the inventory that we have. We're focused on implementing the CAD 70 increase that we've announced in linerboard, CAD 60 in URB and the additional increase as well in the medium mill. We don't see any reduction in pace in the rolls. What is clear for us is that when we look at 2025, there was a significant reduction of capacity in North America.
We see the rolls market being tight. There is some capacity in box making right now, and it's a seasonal low, but it's different than what we see in rolls, clearly.
Yeah, that's very appreciated color. Thank you. Just finally on the tissue outage EBITDA impact, have you quantified how much or how much you expect as a spillover into the first quarter?
Yeah.
I know you provided guidance.
Yeah.
I just wanted to get the number, perhaps.
When we look at the first quarter, obviously it is within our guidance. The restart of the operation at our Wagram facility, we were able to run, but to run with a slightly lower volume at the start, and then we pushed our volume back to be more almost at pace. The additional cost was the thing that was significant, where we had a switchgear failure that comes from the provider of power at the facility, and they had a replacement, and it was not successful. We took the decision to put some generator, and the generator brought some additional cost. The restart of the main switchgear, that's the one that's gonna be there for a long time, actually happened yesterday. We had a good restart.
We're still looking at making sure that all the equipment have stable power and they have protection because the switchgear provides stability of power.
Yeah
... for some of the equipment to make sure it's safe. What we're seeing so far is very positive. We have sent our experts from from our excellence teams in in Canada into the U.S. to make sure that we do the proper tracking and that we're more preventive. Although it's an external switchgear, it's a Cascades impact. In the first quarter, we expect to be much lower than what we had in Q4, understanding that the restart happened yesterday, so roughly two out of the three months of the first quarter of the year. Maybe I can add the
Sure.
One of the key reasons why we decided to put some generators is that, you know, you look at the North American industry of tissue, and I'll give you the example of retail. In Canada, the top two sellers or the top two retailers basically sell 50% of the tissue in Canada. In the U.S., if you look at the top three, they're basically 2/3 of the sales in the U.S. Customer first for us, we wanted to make sure that it was as transparent as possible for our customers because they're in the heart of everything we do, and we want to maintain those, you know, long-term trust and make sure that we supply and we continue to grow with them. We did spend additional money in the fourth quarter.
We see that as obviously a cost, it does have an impact on our EBITDA in the fourth quarter, but also as an investment to show our dedication to our customers that we're there for the long term. When things happen at the mill, it has to be as transparent as possible for them.
Well, thanks for that. I appreciate the color. I'll jump back in queue.
Thank you. Next question will be from Hamir Patel at CIBC Capital Markets. Please go ahead.
Hi, good morning, Hugues. Just following up on the pricing moves. You know, obviously, you recently cut the benchmark by CAD 20 ton. Given that, I know you've got your ongoing hike, it's for March. Historically, even when these hikes are recognized, it typically only follows a month later. Should we expect, just given the recent move, that your realized containerboard prices would decline sequentially in Q1? I know you're also working on increasing the mix of lightweight, so is there a bit of a mix impact as well?
Yeah. Good question. I mean, as I said, we were surprised by the CAD 20 reduction, understanding that, you know, we're two months into Q1. We do have a mix, a mix impact as well. You look at what we've announced for March 2nd, you know, it's a CAD 70 hike. When you look at Q1, it's within the range of the guidance that we've provided.
Okay, great. Hugues, just thinking around, you know, USMCA, if you could, just maybe update us on how you've been adjusting the business to prepare for different scenarios around, you know, potential future tariffs.
Yeah. This is a never moving, you know, question on tariff. If you remember back in early 2025, we did position ourselves for tariffs that lasted for three days. Since then, we've done additional work, and I'll provide you an example with tissue. We, you know, we're able to add some SKUs in the U.S. for U.S. sales, and those SKUs were produced in Canada before. We're still, you know, have a good list of things that we can do to minimize any potential impacts. In some of the cases, like, the recent potential 15% across the board for the next 150 days will not impact Canada. What will impact other countries, and some of them were already impacted.
There will be pockets of opportunities, short term. The biggest thing for us, it provides for instability and, you know, like, customers want to keep, since some cases, less inventory because they're unsure about the economy in the U.S. We're looking at all alternative to make sure that we minimize, and that will include, like, trading and swapping volumes with others.
Great. Thank you. That's all I had. I'll turn it over.
Next question will be from Sean Steuart at TD Cowen. Please go ahead.
Thanks. Good morning. One follow-up question on the containerboard price volatility. Can you remind us what % of your containerboard or corrugated box volume is officially tied to RISI in your contracts?
Roughly, and I mean, that varies, you know, depending of the period and the season, with what customers are using. You know, we, I think using a 2/3, 1/3, 2/3 being contracted, one term non-contracted is a good, like, trend numbers to use. We did include that, you know, when we, because obviously in the first quarter, it, I mean, it doesn't have an impact, understanding that we're basically in March right now. You look at the guidance that we provided, I mean, our CAD 600 million of EBITDA before any net impact of all this, like this CAD -20 and the announcement, for us remains, and that's what we target, and we have a clear path to that, with the current state of the economy.
Okay, understood. On the tissue results, you know, appreciate Wagram was a big part of this, but, you know, there were further comments around execution and efficiency headwinds that the company dealt with. I'm just trying to understand, is that follow on from the Wagram outage and having to shift your business around to other assets, or is it broader issues across the platform? If so, I guess how concentrated were those issues in the fourth quarter, and what's the time frame to remedy that?
Yeah, great question, and I mean, all of what I'm gonna share with you here is included in our guidance for Q1. Basically, when you look at our system, given the concentration of, you know, where the consumer buys tissue needs, when you have one facility that's lagging, and in this case, in Q4, it was Wagram, we make sure that it's as transparent as possible for our customers. We move stuff around. Then in January, we had this severe weather in the U.S., and when you look at the location of our facilities, I mean, we were impacted quite drastically by this cold front, including snow. It delayed a bit more, and it also put some pressure in freight costs.
Logistic costs, if to answer the second part of your question, it's really concentrated within the U.S. for U.S. deliveries, where, you know, cold weather and extreme weather, they're not as used to it, and it takes a while to come back to normal. There's a small impact on sales if they close their distribution center, but it's just, you know, a time issue. It's really the cost to deliver. With the Wagram facility now back up, which, I mean, it took like basically over four and a half months for us to go back to normal, incurring some additional costs on the generators and also the movement of material. We feel that this is behind us.
The weather will continue to have some impact for us, as long as we don't see like, you know, good weather for a while. I mean, we're basically getting into March and April here, so it's not going to be an issue as much. We do have plans that we've put in place, including in execution of operation and logistics to be ahead of the game. We want to be a couple steps ahead. There will be snowstorms and cold weather next year, so, you know, we need as a group to be more prepared for that. That being said, the industry is running at close to full capacity, and every case we make is sold.
We're apt to operate in a tight market, which is something that we're, you know, overall, we're happy with that. We like that. We want to maintain a level of service to our customers to continue to be their number one choice.
Thank you for that detail. That's all I have for now.
Thank you. If you would like to ask a question, please press star, then number one on your telephone keypad. Thank you. Next question will be from Matthew McKellar at RBC. Please go ahead.
Good morning. Thanks for taking my questions. First, just reflecting on the packaging segment result in Q4. I think in your outlook, as in Q3, you expected favorable average selling prices. Your sequential bridge would suggest that selling prices in mix were a meaningful, I guess, drag on your results sequentially. I think you mentioned a change in customer mix for converted boxes in your prepared remarks. Could you help us understand, I guess, what happened and how the quarter developed against your expectations as of early November, please? Thanks.
Yeah. I mean, you know, when you look at the plan we have in packaging, we want to simplify the business, and we want to make sure that we sell the right product on the right machine, you know, to the right set of customers. I mean, the selling price is one thing, but then you have the operating costs as well. We're really looking at profitability per hour, making sure that, you know, we increase the level of resiliency that we have in volume. Reduce a bit, you know, some of the seasonality as much as we can. When you look, you know, at food and beverage, more stable business that doesn't swing as much between quarter.
Sometimes, you know, from a percentage standpoint of profitability, it might be low, but when you look at the overall for the year and the long term of Cascades, it's the right thing to do. Reducing the number of SKUs, have longer runs on our equipment, higher efficiencies, so the profitability per, by hour of operation, will increase and in some cases have already increased. Also increasing the number of hours that we run our equipment. Something that, you know, we're pushing to do where, you know, box plant is not a given, like paper machine, that they run 24/7. We want to take advantage at running more hours where the economy is giving us the opportunity.
Thanks for that color. That's helpful. Then just last for me, you talked about wanting to be between 2.5x and 3x levered, I think, and you actually did, 2025 at 3.3x . You've got some further proceeds from asset monetization plans in the pipeline. Now that that 3x marker is coming into clearer view, is there anything you can share with us today about potential priorities for capital allocation or strategic CapEx, specifically, beyond your current plans for 2026? Thank you.
Yeah, great question. I mean, we have started a while ago to look at the alternative and really, when you know, you look back, we, our ratio was above four, so, I mean, expansion, buying things or building things was not like a short-term thing that we had in mind. We wanted to provide for options for Cascades, and that's exactly what's happening. We do have a roadmap internally on, you know, what are the options, what is best. What's driving this, you know, is a, you know, long-term view of supply, demand, return on capital for our projects and shareholders. ROIC has a big thing to do. The nice thing here is that you look at both segments. We have opportunities in both to expand.
We have a good set of customers that also have good growth plans as well. We're well positioned to choose. We're, you know, internally, we're looking at what the options are, what's best for Cascades. For now, the focus is really like, let's make that 2.5x-3x behind us so that it's not a. You know, we do have a clear path to it this year, but we want to say, you know, check mark, like the CAD 120 million, it's done, and we can move to other things, and we'll be ready for the options that we have.
Great. Thanks very much. I'll turn it back.
Thank you. There are no further questions at this time. Monsieur Simon, please continue.
Yeah, thank you. I mean, great question. We're very happy with the quarter and packaging, as you can feel. I mean, we have some work to do. We, in tissue, we did the actions that we had to do. We're looking forward for the 2026 quarters, which is going to bring its own share of interesting things, given what the geopolitical is doing. Thank you very much.
Thank you. Merci. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.