You see
impressive
results.
T
R
O
P
E
R
L
A
U
N
N
A
0
2
0
2
S
E
D
A
C
S
A
C
We see
unbreakable
commitment.
2020 Annual Report
2020 at a Glance
Containerboard
Packaging
A Canadian leader
6th largest producer
in North America
Specialty
Products
A North American leader
in industrial and food packaging
A leading North American producer
of honeycomb paperboard
Tissue Papers
A leader in tissue papers
production in Canada
4th largest producer
in North America
Boxboard
Europe1
2nd largest producer
of coated recycled
boxboard in Europe
Recovery
A Canadian leader
in the recovery
of recycled fibres
1.33
OSHA rate
3.4 M
short tons of recycled fibres
are used by our North American
and European paper mills
15%4
reduction in our energy
consumption since 2010
82%
of the fibres used to
manufacture our products
in North America and
Europe are recycled
51%5
reduction in our greenhouse
gas emissions since 1990
80%
of our mills’ manufacturing
waste is put to beneficial use
22%4
reduction in our water
consumption since 2010
$244 M
Invested in property, plant & equipment,
excluding right-of-use assets
17th
16th
Global 100 Most Sustainable
Corporations in the World
according to Corporate Knights
Canada’s top 50 corporate
citizens according to
Corporate Knights
$5,157 M
Sales
$665 M
OIBD2
$675 M
Adjusted OIBD2
10th consecutive
year
most responsible company
and brand according to Quebecers,
as measured by the Barometer
of Responsible Consumption
Canada’s Top 100
Employers
according to Mediacorp
Canada Inc.
1 Via our 57.6% equity ownership in Reno de Medici S.p.A. (at Dec. 31, 2020), a public Italian company.
2 Please refer to the “Forward-looking Statements” and “Supplemental Information on Non-IFRS Measures” sections for more details.
3 OSHA frequency rate: Number of accidents with lost time or temporary assignments or medical treatments X 200,000 hours/hours worked.
4 Intensity: Water (Cubic metres of waste water/Metric tonne of sealable products); Energy (Gigajoules of energy purchased/Metric tonne of sealable products).
5 Intensity. Direct Emissions. Preliminary data.
Financial Snapshot
(in millions of Canadian dollars, unless otherwise noted)
2020
20191
2018
AS REPORTED
Sales
Operating income
% of sales
Operating income before depreciation and amortization (OIBD)2
% of sales
Net earnings
per share (in dollars)
Dividend per share (in dollars)
ADJUSTED2
Operating income
% of sales
Operating income before depreciation and amortization (OIBD)2
% of sales
Net earnings
per share (in dollars)
Return on assets2, 3
Return on capital employed2, 4
FINANCIAL POSITION (AS AT DECEMBER 31)
Total assets
Capital employed4
Net debt2
Net debt /adjusted OIBD2
Equity attributable to shareholders
per share (in dollars)
Working capital as a % of sales7
KEY INDICATORS
Total shipments (in thousands of short tons (s.t.))5
Manufacturing capacity utilization rate6
US$/CAN$ - Average rate
5,157
366
7.1%
665
12.9%
198
$2.04
$0.32
376
7.3%
675
13.1%
187
$1.95
13.1%
6.2%
5,412
4,313
1,679
2.5x
1,753
$17.14
9.6%
3,494
93%
$0.75
4,996
261
5.2%
550
11.0%
72
$0.77
$0.24
315
6.3%
604
12.1%
96
$1.02
12.0%
5.4%
5,188
4,206
1,963
3.25x
1,492
$15.83
10.1%
3,366
92%
$0.75
4,649
228
4.9%
472
10.2%
57
$0.60
$0.16
245
5.3%
489
10.5%
79
$0.83
10.6%
4.6%
4,948
3,881
1,769
3.5x
1,506
$15.99
10.6%
3,225
93%
$0.77
1 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated
Financial Statements for more details.
2 See “Forward-looking Statements” and “Supplemental Information on Non-IFRS Measures” sections for more details.
3 Return on assets is a non-IFRS measure defined as the last twelve months’ (“LTM”) adjusted OIBD/LTM quarterly average of total assets less cash and cash equivalents.
4 Return on capital employed is a non-IFRS measure and is defined as the after-tax amount of the LTM adjusted operating income, including our share of core associates
and joint ventures, divided by the LTM quarterly average of capital employed. Capital employed is defined as the quarterly total average assets less trade and other payables
and cash and cash equivalents.
5 Shipments do not take into account the elimination of business sector inter-segment shipments. Shipments from our Specialty Products segment are not presented
as it uses different units of measure.
6 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding Specialty Products segment manufacturing activities.
7 Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less trade and other payables. Percentage of sales =
Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals.
Financial Highlights
Symbol: CAS
(ON THE TORONTO STOCK EXCHANGE)
102.3 million
Common shares
outstanding
as at December 31, 2020
133.7 million
Total number of common
shares traded
in 2020
S&P / TSX
Indices
- COMPOSITE
- SMALL CAP
- DIVIDEND
- RENEWABLE ENERGY
& CLEAN TECHNOLOGY
$0.08
Quarterly dividend
per share
in 2020
2.2%
Annual
dividend yield
as at December 31, 2020
$17.62
Intraday high
in 2020
$9.94
Intraday low
in 2020
$1.49 billion
Market capitalization
as at December 31, 2020
Moody’s: Ba2 (stable)
S&P: BB- (stable)
Corporate credit ratings
as at December 31, 2020
Cascades Share Price Performance
in 2020
$14.55
as at December 31, 2020
$18.00
$16.00
$14.00
$12.00
$10.00
Jan
Feb
March
April
May
June
July
Aug
Sept
Oct
Nov
Dec
CAS–TSX – Closing price ($)
Table of
Contents
04
06
10
13
130
132
Message from Alain Lemaire
Executive Chairman of the Board
A Committed Partnership
Message from Mario Plourde
President and Chief
Executive Officer
An Unbreakable Determination
Our Values,
our Commitment
Financial Information
Management’s Discussion
and Analysis, Management’s
Report, Independent Auditor’s
Report and Consolidated
Financial Statements
Raw Materials and
Overview of our Results
Cascades
Worldwide
Cascaders on the cover page:
Jessica Carbonneau, Production Manager
Parfait Mutwarangabo, Security Guard
Van-An Dang Vu, Continuous Improvement
and Quality Coordinator
Stéphane Couture, Welder
Cascades Inc.’s 2020 Annual Information Form will
be available, upon request, from the Corporation’s head
office as of March 30, 2021.
The document will also be accessible via the Corpora-
tion’s website (www.cascades.com) and will be filed on
SEDAR (www.sedar.com) as of this date.
On peut se procurer la version française du présent rapport
annuel en s’adressant au siège social de la Société à l’adresse
suivante :
Secrétaire corporatif
Cascades inc.
404, boulevard Marie-Victorin
Kingsey Falls (Québec)
J0A 1B0
Transfer Agent and Registrar
Computershare
Shareholders Services
1500 Robert-Bourassa Boulevard Suite 700
Montréal, Québec H3A 3S8 Canada
Telephone: 514-982-7555
Toll-free (Canada): 1-800-564-6253
Fax: 514-982-7635
service@computershare.com
Head Office
Cascades Inc.
404 Marie-Victorin Blvd.
Kingsey Falls, Québec J0A 1B0 Canada
Telephone: 819-363-5100
Fax: 819-363-5155
Investor Relations
Cascades Inc.
772 Sherbrooke Street West Suite 100
Montréal, Québec H3A 1G1 Canada
Jennifer Aitken, MBA
Director, Investor Relations
investor@cascades.com
Telephone : 514-282-2697
www.cascades.com/investors
3
Alain
Lemaire
Executive Chairman
of the Board of Directors
4
2020 Annual Report
2020 Annual Report A Committed
Partnership
Dear Shareholders,
2020 was a difficult year in many respects and the tragic human toll and global economic contraction caused
by the COVID-19 pandemic will forever be etched in our collective memories. Cascades is proud to have
counted itself among those companies in a position to deliver essential products and services during this
time of great crisis. We fulfilled this mission in a professional, efficient and dependable manner all through
the year.
During times of great uncertainty and turbulence, more than ever, the members of the Cascades Board of Directors must
actively engage with Senior Management to successfully carry out their roles and responsibilities. Over the past year, this
involved regular updates and rigorous appraisals of the Corporation’s COVID-19 action plans, including the steps taken to
safeguard production continuity, ensure supply chain integrity and management, and provide employees with compre-
hensive health protocols for the workplace and with personal support when it was needed. Equally central was the priority
to communicate and coordinate proactively with customers to ensure their dynamic demand needs were being met.
The Board’s engagement encompasses more than provi-
ding an additional
layer of operational and financial
vigilance during periods of instability. It also involves com-
prehensive and continuous oversight of a multitude of
business risks and practices, be they environmental, social,
or governance related. The first of these, sustainability, has
been ingrained in the Corporation’s internal and business
practices for decades. This commitment is well illustrated
by the Corporation’s MSCI ESG Rating of A and was further
recognized by Cascades’ being ranked 17th in the Top 100
Most Sustainable Corporations in the World—placing first in
its sector—in the Corporate Knights 2020 annual survey of
8,080 companies worldwide. On the social side, Cascades
has a long-standing employee profit-sharing plan, prides
itself on supporting employees in their work goals, and has
implemented a continuous improvement approach to work-
place health and safety. Diversity is also a key social consi-
deration to which Management and the Board are
committed. Currently, 6 of the 13 members of the Cascades
Board of Directors are women, a level that will reach 6 of 12
following the planned retirement of one Board member
in 2021. Furthermore, Cascades has practices in place
to ensure that diversity and
inclusion are prioritized
throughout the Corporation.
Looking back over a turbulent 2020, Cascades demons-
trated the resiliency of its operational platforms during
a period of great uncertainty disrupted by numerous
obstacles. The events of the past year serve as a reminder
that companies like Cascades can have an important role to
play in society, and can have a positive impact by working
together with all of their stakeholders. This engagement to
social responsibility has always been a central tenet of
Cascades and the decisions it makes, and is one that the
Corporation remains resolutely committed to.
I would be remiss if I did not take this opportunity to thank
Mr. Louis Garneau who will be retiring from the Board after
25 years of loyal service. When Louis joined our Board he
brought with him the energy and innovative mindset of
someone who was both a dynamic young entrepreneur and
a former world class and Olympic athlete. Throughout his
years as a director Louis has continually challenged us to
improvement of the marketing of our products
seek
through innovation and creative thinking contributing in his
own unique way to making Cascades a better company.
for
On behalf of myself and the Board of Directors, we join
with the Cascades Management team in thanking every
Cascades employee
tireless commitment,
flexibility, and dedication through these turbulent times. In a
similar spirit, we thank our shareholders and our business
partners for your continued trust and support. We wish
you and your loved ones good health and the very best for
the coming year.
their
5
You see impressive results. We see unbreakable commitment. Mario
Plourde
President and Chief
Executive Officer
6
2020 Annual Report
2020 Annual Report An Unbreakable
Determination
Dear Fellow Shareholders,
People, products, and purpose have been fundamental to Cascades for over 55 years, playing essential roles
in our culture, core values and our achievements over the decades. Our commitment to these key elements
was vital in 2020 as our employees, customers and suppliers, together with the communities in which we
operate, navigated the wide-ranging human and economic consequences of the COVID-19 pandemic.
People are at the heart of what we do — and of how and why we do it. The public health crisis over the past year underlined
the value of collaboration, demonstrating the important and much needed benefits that can be achieved from working
collectively. Cascades is proud to have strengthened our many partnerships in 2020 by working closely with our customers to
meet their evolving everyday needs, by supporting our suppliers and local communities, and by maintaining open lines of
communication with our employees, offering assistance and guidance when needed. Against the challenging backdrop of the
last year, we are inspired by the resolute dedication and resilience demonstrated by our employees. Their adaptability and
teamwork showed tremendous commitment.
They went above and beyond when most needed, and
ensured our customers continued to receive our industry-
leading products, customer service and support during a
time of great uncertainty.
Our solutions provide our customers with the essential
daily products they need. As a producer of innovative,
eco-friendly tissue and packaging solutions, our products
play a vital role in the everyday lives of businesses, families,
and individuals. The importance of this role was heightened
in 2020, as apprehensions related to the pandemic led to an
even greater need for our essential products. The substan-
tial investments made in our platforms, equipment and
technology over recent years meant we were well prepared
to meet the changing needs of our customers throughout
the year. In addition to reinforcing the resiliency of our
operations and the quality of our products, our strategic
investments have equipped Cascades to be a reliable and
essential partner for our customers not only during
periods of great need, but every day.
Our purpose defines our everyday actions. Cascades
strives to reveal the full potential of materials, people and
ideas in our daily conduct and activities. In so doing, our goal
is to provide businesses and individuals with sustainable,
quality, and innovative solutions that bring value to their
lives, day in and day out. This has remained true for over five
decades, and will continue to drive our focus, growth, and
strategy in the future.
Convictions that generate results. Our commitment to
people, products and purpose was a driving force behind our
strong results in 2020. Several of the key highlights,
announcements and achievements of 2020 include:
-> Increased consolidated revenue by 3% year-over-year
to $5.2 billion
-> Delivered adjusted OIBD1 of $675 million (13.1% margin),
a 3rd consecutive year of record levels for the Corporation
-> Generated strong adjusted cash flow1 from operating
activities of $582 million, and adjusted free cash flow1
of $285 million after capital investments
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for reconciliation of these figures.
7
You see impressive results. We see unbreakable commitment. Cascades shares are undervalued compared to many of
our peers, currently trading at levels below where we would
like and expect. We are committed to providing shareholders
with better returns and are confident that the strategic
actions we have completed over recent years and continue
today are positioning Cascades to do just that. Many of
Cascades’ management and employees are shareholders
its plans,
and as such, the Corporation evaluates
investments and decisions by using both a strategic lens
and a shareholder mindset.
I would like to close by saying that if every cloud has a
silver lining, then the silver lining of the challenges and
uncertainties of 2020 would be that they pushed us to be
the best we could be, confirmed the value created by our
in assets, equipment and technology by
investments
resiliency of our operations, and
highlighting
the
unquestionably demonstrated the exemplary dedication of
our employees. As we look to 2021 and beyond, we are
focused on advancing our strategic initiatives, building value
for our shareholders, supporting our employees, and
strengthening our partnerships with our customers,
suppliers, and the communities in which we operate.
On behalf of myself, Cascades senior management and
employees, we wish you and your family a healthy, happy,
and successful year ahead, and thank you for your
continued support and trust.
-> Successfully decreased net debt1 to $1,679 million from
$1,963 million at the end of 2019, and decreased net
leverage1 to 2.5x from 3.25x at the end of 2019
-> Announced the Bear Island containerboard conversion
project in Virginia in conjunction with a $125 million equity
important strategic move that will drive
offering, an
long-term competitive positioning of the Containerboard
business.
-> Cascades was named 17th out of the World’s 100 Most
Sustainable Corporations and 1st
in our sector by
Corporate Knights in 2020, following an analysis of
8,080 organizations worldwide with more than $1 billion
in revenues.
Our multi-year focus to build capital flexibility by strengthe-
ning earnings quality, by expanding profitability levels in a
sustainable way, by lowering working capital requirements,
and by improving the balance sheet enabled us to success-
fully advance our strategic initiatives during the year. While
the COVID-19 pandemic may have added some logistical
hurdles, we completed a total of $195 million of capital
investments, net of disposals, in 2020, a large portion of
which went toward modernizing our tissue platform and our
Bear Island containerboard conversion project. I am pleased
important margin
to note
improvement initiatives in 2020 that are expected to add
1% annually to consolidated EBITDA levels in both 2021
and 2022, on top of the $75 million contribution to
OIBD1 levels that this program has already realized in 2020.
Broadly, these efforts are targeting four key areas: revenue
expansion, organizational effectiveness, capital efficiency
maximization, and supply chain optimization. These
initiatives — along with our ongoing strategic capital
investments — are laying the foundation for pivotal growth
and important value creation going forward.
that we also
launched
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for reconciliation of these figures.
8
2020 Annual Report
2020 Annual Report Sales ($M)
OIBD2 ($M)
OIBD
AJUSTED OIBD
5,250
5,000
4,750
4,500
4,250
4,000
3,750
5,157
4,996
4,649
675
665
604
550
489
472
700
600
500
400
300
200
100
0
2018
2019
2020
2018
20191
2020
Return on capital employed
6.2%
5.4%
4.6%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Total shipments and manufacturing
capacity utilization rate (’000 s.t. and %)
3,494
3,500
100%
3,366
3,250
3,225
93%
92%
93%
3,000
2,750
2,500
2,250
95%
90%
85%
80%
2018
2019
2020
2018
2019
2020
Net debt / Adjusted OIBD2, 3
3.5 x
3.25 x
2.5 x
4.0 x
3.0 x
2.0 x
1.0 x
0.0 x
1 2019 results have been adjusted to reflect retrospective adjustments
of purchase price allocation. Please refer to Note 5 of the 2020
Audited Consolidated Financial Statements for more details.
2 Please refer to the “Supplemental Information on Non-IFRS Measures”
section for reconciliation of these figures.
3 Pro-forma up to 2018 to include business acquisitions on a last twelve
months basis.
2018
2019
2020
You see impressive results. We see unbreakable commitment.
9
You see impressive results. We see unbreakable commitment. Our Values,
our Commitment
At Cascades, we’re not afraid of a challenge. We believe adversity
creates new opportunities and gives us a chance to realize our
fullest potential.
In 2020, we were able to count on the determination of our Cascaders.
That essential determination draws strength from solid values that
are reflected in everything we do.
Subir Biswas
Machine Operator
In overcoming the challenges
of the past year, we’re proud to have shown
solidarity, responsibility, authenticity,
and a commitment to excellence.
10
2020 Annual Report
Fierce
Determination
We believe in giving everything we’ve got.
When faced with a challenge, we meet
it head on and move forward.
Carolanne Fréchette
Project Leader – Operations
Stronger
Together
To persevere, move forward
and win with our partners is one
of our greatest strengths.
You see impressive results. We see unbreakable commitment.
11
11
Naturally
Respectful
We believe society thrives on an underlying respect for people,
communities and the environment. Our desire to create a difference
makes everything we undertake more meaningful.
Mohamad El Chayeb
Senior Project Leader -
Operations Support
Speak Truthfully
We’re open to discussion and we tell it like it is.
Because communicating with sincerity and honesty brings
us together and gives us the power to move forward.
12
12
2020 Annual Report
Financial
Information
14
Management’s Discussion and Analysis
67
Management’s Report
to the Shareholders of Cascades Inc.
68
Independent Auditor’s Report
to the Shareholders of Cascades Inc.
72
Consolidated Financial Statements
77
Segmented Information
79
Notes to Consolidated Financial Statements
127
Board of Directors
128
Historical Financial Information — 10 Years
You see impressive results. We see unbreakable commitment.
13
OUR BUSINESS
Cascades Inc. is a paper and packaging company that produces, converts and sells packaging and tissue products composed primarily of
recycled fibres. Established in 1964 in Kingsey Falls, Québec, Canada, the Corporation was founded by the Lemaire brothers, who saw the
economic and social potential of building a company focused primarily on the sustainable development principles of reusing, recovering
and recycling. More than 55 years later, Cascades is a multinational business with 85 operating facilities1 and approximately
11,700 employees1 across Canada, the United States and Europe. The Corporation currently operates four business segments:
(Business segments)
PACKAGING PRODUCTS
Containerboard
Boxboard Europe3
Specialty Products
TISSUE PAPERS
Number of
Facilities1
2020 Sales2
(in $M)
2020
Operating Income
Before Depreciation
and Amortization
(OIBD)2 (in $M)
2020 Adjusted OIBD2,4
(in $M)
2020 Adjusted OIBD
Margin2,4 (%)
25
7
18
17
1,918
1,052
473
1,615
436
122
58
145
403
129
60
175
21.0%
12.3%
12.7%
10.8%
The location of our plants5 and employees around the world are as follows:
Production units and sorting facilities
(in figure and in %)
Count of employees worldwide (in figure)
7
8%
28
33%
50
59%
Canada
Europe
United States
CHANGE IN SEGMENTED INFORMATION
892
1,768
4,279
1,991
2,784
Canada - Québec
United States
Canada - Ontario
Europe
Canada - Other provinces
In 2019, the Corporation modified its internal reporting in accordance with CODM requirements and business analysis. The Corporation's
Recovery and Recycling activities, previously included in the Specialty Products segment, are now included in Corporate Activities since
they support our North American Packaging and Tissue Papers segments and are analyzed separately.
1 Including associates and joint ventures. The Corporation also has 18 Recovery and Recycling facilities which are included in Corporate Activities.
2 Excluding associates and joint ventures not included in consolidated results. Refer to Note 8 of the 2020 Audited Consolidated Financial Statements for more information on associates and
joint ventures.
3 Via our equity ownership in Reno de Medici S.p.A., an Italian public company.
4 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
5 Excluding sales offices, distribution and transportation hubs and corporate offices. Including main associates and joint ventures.
14
2020 Annual Report
BUSINESS DRIVERS
Cascades’ results may be impacted by fluctuations in the following areas:
EXCHANGE RATES
On a year-over-year basis, the average value of the Canadian
dollar decreased by 1% compared to the US dollar and by 3%
compared to the euro in 2020.
ENERGY COSTS
The average price of natural gas decreased by 21% in 2020
compared to the previous year. In the case of crude oil, the
average price was 29% lower in 2020 than in 2019.
0.90
0.85
0.80
0.75
0.70
0.65
0.60
0.90
0.85
0.80
0.75
0.70
0.65
0.60
4.00
3.00
2.00
1.00
—
100
80
60
40
20
—
Q1
18
Q2
18
Q3
18
Q4
18
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Q1
18
Q2
18
Q3
18
Q4
18
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
US$/CAN$
EURO€/CAN$
Natural gas (US$/mmBtu)
Crude oil (US$/barrel)
2018
YEAR
Q1
Q2
Q3
Q4
2019
YEAR
Q1
Q2
Q3
Q4
0.77 $
0.75 $
0.75 $
0.76 $
0.76 $
0.75 $
0.74 $
0.72 $
0.75 $
0.77 $
0.73 $
0.75 $
0.76 $
0.76 $
0.77 $
0.77 $
0.71 $
0.74 $
0.75 $
0.79 $
0.65 $
0.66 $
0.67 $
0.68 $
0.68 $
0.67 $
0.68 $
0.66 $
0.64 $
0.64 $
0.64 $
0.67 $
0.67 $
0.69 $
0.69 $
0.69 $
0.64 $
0.66 $
0.64 $
0.64 $
2020
YEAR
0.75
0.79
0.65
0.64
3.09 $
3.15 $
2.64 $
2.23 $
2.50 $
2.63 $
1.95 $
1.72 $
1.98 $
2.67 $
2.08
US$/CAN$ - Average rate
US$/CAN$ End of period rate
EURO€/CAN$ - Average rate
EURO€/CAN$ End of period rate
Natural Gas Henry Hub - US$/
mmBtu
Source: Bloomberg
$
$
$
$
$
RAW MATERIALS
Reference prices - fibre costs in North America1
The brown grade recycled paper No. 11 (old corrugated containers, OCC) and the
recycled paper No. 56 (sorted residential papers, SRP) index prices increased by
54% and 40%, respectively, in 2020 compared to 2019. The white grade recycled
paper No. 37 (sorted office papers, SOP) decreased by 15% in 2020 compared to
2019. The variances in fibre costs reflected changes in both supply and demand
levels of fibre throughout the year as a result of the COVID-19 pandemic.
Reference prices - virgin pulp in North America1
In 2020, the reference price for NBSK and NBHK decreased by 8% and 15%,
respectively, compared to 2019, reflecting global demand supply dynamics.
1,600
1,400
1,200
1,000
800
600
240
200
160
120
80
40
0
2018
2019
2020
Recycled paper No. 37 (SOP) (Northeast) (US$/s.t.)
Recycled paper No. 11 (OCC) (Northeast) (US$/s.t.)
Recycled paper No. 56 (SRP) (Northeast) (US$/s.t.)
1 Source: RISI, excluding mixed papers
2018
2019
2020
Bleached hardwood kraft, mixed, Canada / U.S. (US$/m.t.)
Northern bleached softwood kraft, Canada (US$/m.t.)
15
You see impressive results. We see unbreakable commitment.
HISTORICAL MARKET PRICES OF MAIN PRODUCTS AND RAW MATERIALS
These indexes should only be used as trend indicators;
they may differ
from our actual selling prices and
purchasing costs.
Selling prices (average)
PACKAGING PRODUCTS
Containerboard (US$/short ton)
Linerboard 42-lb. unbleached kraft,
Eastern US (open market)
Corrugating medium 26-lb.
semichemical, Eastern US
(open market)
Boxboard Europe (euro/metric ton)
Recycled white-lined chipboard (WLC)
index1
Virgin coated duplex boxboard (FBB)
index2
Specialty Products (US$/short ton)
Uncoated recycled boxboard - 20-pt.
bending chip (series B)
TISSUE PAPERS (US$/short ton)
2018
2019
2020 2020 vs. 2019
YEAR
Q1
Q2
Q3
Q4
YEAR
Q1
Q2
Q3
Q4
YEAR Change
%
747 752 735 725 725 734 715 715 715 748 723
(11)
(1%)
662 650 640 630 630 638 615 615 615 648 623
(15)
(2%)
674 672 672 672 669 671 653 661 665 654 658
(13)
(2%)
1,072 1,117 1,117 1,117 1,115 1,117 1,099 1,096 1,095 1,095 1,096
(21)
(2%)
696 730 730 730 730 730 710 700 700 720 708
(22)
(3%)
Parent rolls, recycled fibres (transaction)
Parent rolls, virgin fibres (transaction)
1,093 1,151 1,164 1,143 1,109 1,142 1,111 1,138 1,123 1,110 1,120
1,395 1,441 1,444 1,420 1,411 1,429 1,416 1,450 1,427 1,418 1,428
(2%)
(22)
(1) —
Raw materials prices (average)
RECYCLED PAPER
North America (US$/short ton)
Sorted residential papers, No. 56
(SRP - Northeast average)
Old corrugated containers, No. 11
(OCC - Northeast average)
Sorted office papers, No. 37 (SOP -
Northeast average)
Europe (euro/metric ton)
Recovered paper index3
VIRGIN PULP (US$/metric ton)
Northern bleached softwood kraft,
Canada
Bleached hardwood kraft, mixed,
Canada/US
Source: RISI and Cascades.
36
24
16
10
8
15
8
18
30
30
21
6
40%
74
61
40
33
30
41
36
94
58
65
63
22
54%
193 183 140 101
88 128
89 160 109
80 109
(19) (15%)
105
96
87
71
49
76
33
82
56
76
62
(14) (18%)
1,342 1,380 1,292 1,170 1,115 1,239 1,127 1,158 1,140 1,138 1,141
(98)
(8%)
1,152 1,180 1,100 970 893 1,036 890 897 875 868 883 (153) (15%)
1 The Cascades Recycled White-Lined Chipboard Selling Price Index is based on published indexes and represents an approximation of Cascades' recycled-grade selling prices in Europe. It is
weighted by country and has been rebalanced as at January 1, 2018.
2 The Cascades Virgin Coated Duplex Boxboard Selling Price Index is based on published indexes and represents an approximation of Cascades' virgin-grade selling prices in Europe. It is
weighted by country and has been rebalanced as at January 1, 2018.
3 The Cascades Recovered Paper Index is based on published indexes and represents an approximation of Cascades' recovered paper purchase prices in Europe. It is weighted by country,
based on the recycled fibre supply mix, and has been rebalanced as at January 1, 2018.
16
2020 Annual Report
SENSITIVITY TABLE1
The following table provides a quantitative estimate of the impact that potential changes in the prices of our main products, the costs of
certain raw materials, energy and the exchange rates may have on Cascades’ annual OIBD, assuming, for each price change, that all
other variables remain constant. Estimates are based on Cascades’ 2020 manufacturing and converting external shipments and
consumption quantities. It is important to note that this table does not consider the Corporation's use of hedging instruments for risk
management. These hedging policies and portfolios (see the “Risk Factors” section) should also be considered in order to fully analyze the
Corporation’s sensitivity to the highlighted factors.
Potential indirect sensitivity to the CAN$/US$ exchange rate is not considered in this table. Some of Cascades’ selling prices and raw
material costs in Canada are based on US dollar reference prices and costs that are then converted into Canadian dollars. Consequently,
fluctuations in the exchange rate may have a direct impact on the value of sales and purchases of Canadian facilities in Canada. However,
because it is difficult to measure the precise impact of this fluctuation, we do not take it into consideration in the following table. The impact
of the exchange rate on the working capital items and cash positions denominated in currencies other than CAN$ at the Corporation's
Canadian units is also excluded. Fluctuations in foreign exchange rates may also impact the translation of the results of our non-Canadian
units into CAN$.
SHIPMENTS/
CONSUMPTION ('000
SHORT TONS, '000 MMBTU
FOR NATURAL GAS)
INCREASE
OIBD IMPACT
(IN MILLIONS OF CAN$)
SELLING PRICE (MANUFACTURING AND CONVERTING)2
North America
Containerboard Packaging
Linerboard 42-lb. unbleached kraft, Eastern US
Corrugating medium 26-lb. semichemical, Eastern US
Converting products
Tissue Papers
Europe
Boxboard
RAW MATERIALS2
Recycled Papers
North America
Brown grades (OCC and others)
Groundwood grades (SRP and others)
White grades (SOP and others)
Europe
Brown grades (OCC and others)
Groundwood grades (SRP and others)
White grades (SOP and others)
Virgin pulp
North America
Europe
Natural gas
North America
Europe
Exchange rate3
Sales less purchases in US$ from Canadian operations
U.S. subsidiaries translation
European subsidiaries translation
430
330
780
1,540
650
2,190
1,310
1,630
120
410
2,160
990
150
100
1,240
3,400
200
90
290
9,300
5,100
14,400
US$25/s.t.
US$25/s.t.
US$25/s.t.
US$25/s.t.
€25/s.t.
US$15/s.t.
US$15/s.t.
US$15/s.t.
€15/s.t.
€15/s.t.
€15/s.t.
US$30/s.t.
€30/s.t.
US1.00/mmBtu
€1.00/mmBtu
CAN$/US$ 0.01 change
CAN$/US$ 0.01 change
CAN$/€ 0.01 change
14
11
25
50
21
71
50
(32)
(2)
(8)
(42)
(23)
(3)
(2)
(28)
(70)
(8)
(4)
(12)
(12)
(8)
(20)
—
3
1
1 Sensitivity calculated according to 2020 volumes or consumption with year-end closing exchange rate of CAN$/US$ 1.30 and CAN$/€ 1.54, excluding hedging programs and the impact of
related expenses such as discounts, commissions on sales and profit-sharing.
2 Based on 2020 external manufacturing and converting shipments, as well as fibre and pulp consumption. Including purchases sourced internally from our recovery and recycling operations.
Adjusted to reflect acquisitions, disposals and closures, if needed.
3 As an example, from CAN$/US$ 1.30 to CAN$/US$ 1.31 and from CAN$/€ 1.54 to CAN$/€ 1.55.
17
You see impressive results. We see unbreakable commitment.
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 repurchase of long-term debt, 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 and option fair value revaluation, foreign exchange gains or losses on long-term debt and financial instruments, fair value
revaluation gain or losses on investments, specific items of discontinued operations and other significant items of an unusual, non-cash or
non-recurring nature.
SPECIFIC ITEMS INCLUDED IN OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION AND
NET EARNINGS
The Corporation incurred the following specific items in 2020 and 2019:
GAIN ON ACQUISITIONS, DISPOSALS AND OTHERS
2020
The Containerboard Packaging segment recorded a $40 million gain from the sale of a building and the land of Etobicoke, Ontario,
Canada, Containerboard Packaging facility.
The Containerboard Packaging segment recorded a $5 million gain following the release of the escrow amount pertaining to the sale of a
building in 2018 located in Maspeth, New York, USA.
The Specialty Products segment recorded a $5 million environmental provision related to plants in Canada, that were closed in the
previous years.
The Specialty Products segment also recorded a $3 million gain on the sale of a non significant associate investment.
The Tissue Papers segment recorded a $2 million gain from the sale of assets and a $2 million environmental provision related to closed
plants in the USA.
2019
The lease on our Bear Island facility in Virginia was terminated by the lessee. As such, the Containerboard Packaging segment recorded a
gain of $10 million following the reversal of liabilities related to lease incentives to the lessee and to accrued carrying costs. In the wake of
the lease termination, the segment recorded a loss of $4 million following the sale of newsprint equipments no longer needed.
The Containerboard Packaging segment also recorded a gain of $2 million from the sale of a building and piece of land of a closed plant.
The Specialty Products segment concluded the sale of its two plants in France which convert cardboard into packaging for the paper
industry, and recorded a loss of $1 million. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements for more details.
The Tissue Papers segment recorded a gain of $25 million following the acquisition Orchids Paper Products Company activities. The
Corporate Activities incurred $9 million in fees as part of the Orchids acquisition. Please refer to the “Business Highlights” section and
Note 5 of the 2020 Audited Consolidated Financial Statements for more details.
An environmental provision of $4 million related to a plant sold and for which the Corporation retained environmental responsibility was
recorded by the Corporate Activities.
The Corporate Activities also recorded a gain of $5 million on the settlement of litigation in compensation for a flooding that occurred years
ago at our fine paper mill in St-Jérôme, Québec, Canada, which has since been sold.
18
2020 Annual Report
INVENTORY ADJUSTMENT RESULTING FROM BUSINESS COMBINATION
2019
During the year, operating results in the Tissue Papers segment were negatively impacted by $2 million. This was the result of the
inventory acquired at the acquisition of Orchids being recognized at fair value, with no profit recorded on its subsequent sale.
IMPAIRMENT CHARGES
2020
The Containerboard Packaging segment recorded an impairment charge of $6 million on some equipment as part of the network
optimization and profitability improvement initiatives.
The Boxboard Europe segment recorded an impairment charge of $9 million on some assets as their recoverable amount was lower than
their carrying amount. Recoverable amount of the assets was based on their fair value less cost of disposal.
The Tissue Papers segment recorded an impairment charge of $13 million on the assets of certain plants as their recoverable amount was
lower than the carrying amount due to and the current declining demand in the Away-from-Home market due to the COVID-19 pandemic.
The Tissue Papers segment also recorded an impairment charge of $10 million on some assets as part of the network optimization and
profitability improvement initiatives.
The Corporate Activities recorded an impairment charge of $1 million related to renewable energy assets.
2019
As a result of the lease termination on the Bear Island facility, described above, the Containerboard Packaging segment recorded an
impairment charge of $5 million on some assets that will not be used in the future.
The Boxboard Europe segment recorded an impairment charge of $13 million on the assets of its La Rochette mill. The segment also
recorded an impairment charge of $1 million on intangible assets.
The Specialty Products segment incurred an impairment charge of $1 million on spare parts stemming from the closure of the Trois-
Rivières, Québec, Canada, plant that manufactured felt backing for flooring.
The Tissue Papers segment recorded an impairment charge of $5 million on unused assets.
The Tissue Papers segment reviewed the recoverable value of some equipment and spare parts of the Arizona and Waterford, USA,
converting facilities and an impairment charge of $30 million. The closures of these facilities were completed during the second quarter
of 2020. Please refer to the “Business Highlights” section for more details.
The Corporate Activities recorded an impairment charge of $14 million on the goodwill and intangible assets of its Recovery and Recycling
activities. The recoverable amount was established based on the fair market value of the property, plant and equipment.
RESTRUCTURING COSTS
2020
The Containerboard Packaging segment recorded restructuring charges totaling $3 million as part of the network optimization and
profitability improvement initiatives.
The Containerboard Packaging segment also recorded restructuring charges totaling $3 million following the announcement of the closure
of its Etobicoke, Ontario, Canada, converting facility which is expected to permanently close no later than August 31, 2021.
The Containerboard Packaging segment also recorded a gain of $2 million as a reversal of a contingency related to plant sold in
prior years.
The Tissue Papers segment recorded restructuring charges totaling $4 million as part of the network optimization and profitability
improvement initiatives.
The Tissue Papers segment recorded restructuring charges totaling $3 million following the announcement of the closure of plants in
Pittson and Ransom, Pennsylvania, and Waterford, New York, USA.
The Corporate Activities recorded restructuring charges totaling $2 million as part of profitability improvement initiatives.
19
You see impressive results. We see unbreakable commitment.
2019
The Containerboard Packaging segment recorded $1 million of severance costs related to changes in the management teams of
certain plants.
The Specialty Products segment recorded $1 million of restructuring costs stemming from the closure of the Trois-Rivières, Québec,
Canada, plant that manufactured felt backing for flooring.
The Tissue Papers segment recorded $5 million of restructuring costs related to the closure of two tissue paper machines and facilities in
Ontario, Canada and changes in the segment's senior management. As well, restructuring costs of $2 million related to the closure of the
Arizona and Waterford, USA, converting facilities were recorded. The closures of these facilities were completed during the second quarter
of 2020. Please refer to the “Business Highlights” section for more details.
DERIVATIVE FINANCIAL INSTRUMENTS
In 2020, the Corporation recorded an unrealized loss of $1 million, compared to an unrealized gain of $2 million in 2019, on certain
derivative financial instruments not designated for hedge accounting.
LOSS ON REPURCHASE OF LONG-TERM DEBT
2020
The Corporation redeemed US$200 million of its unsecured senior notes and recorded an early repurchase premium of $4 million and
wrote off $2 million of related unamortized financing costs.
2019
The Corporation redeemed US$400 million and $250 million of its unsecured senior notes and recorded an early repurchase premium of
$11 million and wrote off $3 million of related unamortized financing costs.
INTEREST RATE SWAPS
In 2019, the Corporation recorded in line item “Financing expenses” an unrealized gain of $1 million on interest rate swaps.
OPTION FAIR VALUE REVALUATION
In 2020, the Corporation recorded in line item “Interest expense (revenue) on employee future benefits and other liabilities” an unrealized
gain of $13 million, compared to an unrealized loss of $1 million in 2019, on the fair value revaluation of a one-time option granted to White
Birch to purchase an interest of up to 10% in the Bear Island containerboard mill project.
In 2020, the Corporation also recorded in line item “Interest expense (revenue) on employee future benefits and other liabilities” an
unrealized loss of $2 million pertaining to a call option granted by the Corporation to one of the minority shareholders of
Falcon Packaging LLC.
FOREIGN EXCHANGE GAIN ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
In 2020, the Corporation recorded a gain of $6 million on its US$- denominated debt and related financial instruments, compared to a gain
of $6 million in 2019. This is composed of a gain of $3 million in 2020, compared to nil in 2019 on our US$- denominated long-term debt,
net of our net investment hedges in the US, as well as forward exchange contracts designated as hedging instruments. It also includes a
gain of $3 million in 2020, compared to a gain of $6 million in 2019, on foreign exchange forward contracts not designated for
hedge accounting.
FAIR VALUE REVALUATION LOSS ON INVESTMENTS
In 2020, the Corporation recorded a fair value revaluation loss on investments of $3 million on a joint venture.
PROVISION FOR INCOME TAXES
In 2020, the Corporation reassessed the probability of recovering unrealized capital losses following the redemption of its
US$- denominated debts, which resulted in the recognition of tax assets totaling $3 million, of which $2 million was recorded in results,
compared to the recognition of tax assets totaling $12 million, of which $11 million was recorded in results in 2019.
20
2020 Annual Report
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.
This 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 the 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 the 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:
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and amortization
Specific items:
Loss (gain) on acquisitions, disposals and others
Impairment charges
Restructuring costs
Unrealized loss (gain) on derivative financial instruments
Adjusted operating income (loss) before depreciation and
amortization
Adjusted operating income (loss)
Containerboard
Boxboard
Europe
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
2020
321
115
436
(45)
6
4
2
(33)
403
288
74
48
122
—
9
—
(2)
7
129
81
42
16
58
2
—
—
—
2
60
44
72
73
145
—
23
7
—
30
175
102
(143)
47
(96)
—
1
2
1
4
(92)
(139)
366
299
665
(43)
39
13
1
10
675
376
21
You see impressive results. We see unbreakable commitment.
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and amortization
Specific items:
Loss (gain) on acquisitions, disposals and others
Inventory adjustment resulting from business combination
Impairment charges
Restructuring costs
Unrealized loss (gain) on derivative financial instruments
Adjusted operating income (loss) before depreciation and
amortization
Adjusted operating income (loss)
Containerboard
Boxboard
Europe
Specialty
Products
Tissue Papers1
Corporate
Activities
Consolidated
2019
328
115
443
(8)
—
5
1
—
(2)
441
326
45
47
92
—
—
14
—
2
16
108
61
36
16
52
1
—
1
1
—
3
55
39
6
61
67
(25)
2
35
7
—
19
86
25
(154)
50
(104)
8
—
14
—
(4)
18
(86)
(136)
261
289
550
(24)
2
69
9
(2)
54
604
315
Net earnings, as per IFRS, are reconciled below with operating income, adjusted operating income and adjusted operating income before
depreciation and amortization:
(in millions of Canadian dollars)
Net earnings attributable to Shareholders for the period
Net earnings attributable to non-controlling interests
Provision for income taxes
Fair value revaluation loss on investments
Share of results of associates and joint ventures
Foreign exchange gain on long-term debt and financial instruments
Financing expense and interest expense (revenue) on employee future benefits and other liabilities and loss on
repurchase of long-term debt
Operating income
Specific items:
Gain on acquisitions, disposals and others
Inventory adjustment resulting from business combination
Impairment charges
Restructuring costs
Unrealized loss (gain) on derivative financial instruments
Adjusted operating income
Depreciation and amortization
Adjusted operating income before depreciation and amortization
2020
198
36
45
3
(14)
(6)
104
366
(43)
—
39
13
1
10
376
299
675
20191
72
28
19
—
(9)
(6)
157
261
(24)
2
69
9
(2)
54
315
289
604
1 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements
for more details.
22
2020 Annual Report
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 amount per share)
As per IFRS
Specific items:
Gain on acquisitions, disposals and others
Inventory adjustment resulting from business combination
Impairment charges
Restructuring costs
Unrealized loss (gain) on derivative financial instruments
Loss on repurchase of long-term debt
Unrealized gain on interest rate swaps and options fair value
Foreign exchange gain on long-term debt and financial
instruments
Fair value revaluation loss on investments
Tax effect on specific items, other tax adjustments and
attributable to non-controlling interests1
Adjusted
2020
198
(43)
—
39
13
1
6
(11)
(6)
3
(13)
(11)
187
NET EARNINGS
20192
72 $
(24) $
2
69 $
9 $
(2) $
14 $
— $
(6) $
— $
(38) $
24 $
96 $
NET EARNINGS PER SHARE1
20192
2020
0.77
2.04 $
(0.38) $
— $
0.29 $
0.10 $
0.02 $
0.05 $
(0.12)
(0.05) $
0.02
(0.02) $
(0.09) $
1.95 $
(0.28)
0.02
0.53
0.07
(0.02)
0.11
—
(0.06)
—
(0.12)
0.25
1.02
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. Please refer to “Provision for income taxes” above in this section for more details.
2 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements
for more details.
The following table reconciles cash flow from operating activities with operating income and operating income before depreciation
and amortization:
(in millions of Canadian dollars)
Cash flow from operating activities
Changes in non-cash working capital components
Depreciation and amortization
Net income taxes paid
Net financing expense paid
Premium paid on repurchase of long-term debt
Gain on acquisitions, disposals and others
Impairment charges and restructuring costs
Unrealized gain (loss) on derivative financial instruments
Dividend received, employee future benefits and others
Operating income
Depreciation and amortization
Operating income before depreciation and amortization
2020
587
(20)
(299)
9
79
4
43
(52)
(1)
16
366
299
665
20191
460
(59)
(289)
27
133
11
27
(68)
2
17
261
289
550
1 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements
for more details.
23
You see impressive results. We see unbreakable commitment.
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 share or as otherwise mentioned)
Cash flow from operating activities
Changes in non-cash working capital components
Cash flow from operating activities (excluding changes in non-cash working capital components)
Specific items paid
Adjusted cash flow from operating activities
Capital expenditures, other assets1 and lease obligations payments, net of disposals of $55 million (2019 - $27 million)
Dividends paid to the Corporation's Shareholders and to non-controlling interests
Adjusted free cash flow
Adjusted free cash flow per share
Weighted average basic number of shares outstanding
1 Excluding increase in investments.
2020
587
(20)
567
15
582
(250)
(47)
285
$
2.97 $
2019
460
(59)
401
24
425
(278)
(40)
107
1.14
95,924,835
93,987,980
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)
Long-term debt
Current portion of long-term debt
Bank loans and advances
Total debt
Less: Cash and cash equivalents
Net debt
Adjusted OIBD (last twelve months)
Net debt / Adjusted OIBD
December 31,
2020
December 31,
2019
1,949
102
12
2,063
384
1,679
675
2.5x
2,022
85
11
2,118
155
1,963
604
3.25x
24
2020 Annual Report
MANAGEMENT'S DISCUSSION & ANALYSIS
FINANCIAL OVERVIEW - 2020
In 2020, the Corporation posted net earnings of $198 million, or $2.04 per share, compared to net earnings of $72 million, or $0.77 per
share, in 20191. On an adjusted basis2, the Corporation generated net earnings of $187 million during 2020, or $1.95 per share, compared
to net earnings of $96 million, or $1.02 per share, in 2019.
Annual consolidated sales reached $5,157 million in 2020, an increase of $161 million, or 3%, compared to 2019. This performance
reflected strong sales driven mostly by increased demand in the Tissue Papers consumer products and overall packaging solutions, mainly
attributable to the repercussions of the COVID-19 pandemic which contributed to higher demand for the essential products we
manufacture, and favourable exchange rates. However, these were partly offset by lower average selling prices and mix of products for the
Packaging Products segments.
The Corporation recorded an operating income before depreciation and amortization (OIBD) of $665 million during the year, compared to
$550 million in 20191. On an adjusted basis2, operating income before depreciation and amortization stood at $675 million in 2020,
compared to $604 million in 2019. This largely reflects year-over-year improved results in the Tissue Papers segment. Energy cost were
lower for all segments while raw material were also beneficial for all segments except for Containerboard. Volume increased for all
segments while year-over-year average selling price and mix were lower for Packaging Products segments and positive for Tissue Papers.
Recovery and Recycling activities results included in the Corporate Activities segment were positively impacted by increased prices of
recycled brown paper and contributed positively to the operating income.
Given the uncertainty regarding the potential impact from the COVID-19 pandemic over the coming months, we continue to regularly
update our financial and cash flow forecasts. Although the pandemic had an overall favourable impact on volume levels in 2020, the
Corporation continues to monitor its credit risk due to the high level of uncertainty in the market.
FINANCIAL OVERVIEW - 2019
Annual consolidated sales totaled $4,996 million, an increase of $347 million or 7% compared to 2018 levels. This performance reflected
business acquisitions, higher average selling price and beneficial foreign exchange rate. These were partly offset by lower volumes and
lower sales from our Recovery and Recycling activities attributable to lower market price of recovered papers.
Operating income before depreciation and amortization (OIBD) increased by $78 million, or 17%, to $550 million in 20191. This largely
reflects strong year-over-year improved results in the Tissue Papers segment, higher average selling price, business acquisitions and
lower raw material and energy costs. However, volume were down from prior year levels and production costs were higher partly due to a
the change in mix of product sold.
MARGIN IMPROVEMENT PROGRAM
In the first quarter of 2020, the Corporation initiated an important profit margin improvement program for its North American operations
focused on improving competitiveness, efficiency and productivity thereby limiting the potential negative effects related to economic
downturns or adverse market conditions. A similar program was already underway in the European operations.
The program is built on five strategic pillars: net revenue management, production efficiency, optimization of sales and operations
planning, supply chain efficiency and organizational effectiveness.
The objective of this program is to improve adjusted OIBD margin by 1% annually in 2020, 2021 and 2022, with these improvements
calculated from the levels of 2019, our baseline year.
Although the pandemic delayed the implementation of some initiatives, we were able to exceed our target for 2020 by achieving
approximately $75 million of adjusted OIBD, net of related costs to implement such initiatives. These benefits offset some negative impacts
related to COVID-19, increased raw materials costs and reduced selling prices for certain products.
1 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements
for more details.
2 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
25
You see impressive results. We see unbreakable commitment.
KEY PERFORMANCE INDICATORS
We use several key performance indicators to monitor our action plan and analyze the progress we are making toward achieving our long-
term objectives. These include the following:
2018
YEAR
Q1
Q2
Q38
Q4
20198
YEAR
Q1
Q2
Q3
Q4
2020
YEAR
OPERATIONAL
Total shipments (in ’000 s.t.)1
Packaging Products
Containerboard
Boxboard Europe
Tissue Papers
Total
Integration rate2
Containerboard
Tissue Papers
Manufacturing capacity
utilization rate3
Packaging Products
Containerboard
Boxboard Europe
Tissue Papers
Consolidated total
FINANCIAL
Return on assets4
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
1,475
1,125
2,600
625
3,225
342
333
675
146
821
363
331
694
155
849
377
321
698
161
859
365
305
670
167
837
1,447
1,290
2,737
629
3,366
374
351
725
181
906
360
326
686
167
853
411
316
727
145
872
399
312
711
152
863
1,544
1,305
2,849
645
3,494
57%
70%
59%
76%
59%
77%
58%
76%
58%
75%
58%
76%
57%
73%
57%
70%
53%
70%
55%
79%
56%
73%
93%
94%
90%
93%
20%
15%
11%
2%
88%
96%
87%
91%
20%
15%
13%
1%
91%
95%
92%
93%
20%
14%
16%
2%
94%
93%
93%
93%
20%
14%
21%
4%
92%
88%
84%
90%
20%
15%
21%
7%
91%
93%
88%
92%
98%
101%
88%
97%
20%
15%
21%
7%
20%
15%
20%
9%
92%
94%
87%
92%
19%
17%
20%
12%
98%
91%
73%
91%
18%
18%
20%
13%
97%
90%
86%
92%
18%
18%
22%
13%
96%
94%
83%
93%
18%
18%
22%
13%
Consolidated return on assets
Return on capital employed5
10.6%
4.6%
11.0%
4.8%
11.2%
4.9%
11.4%
4.9%
12.0%
5.4%
12.0%
5.4%
12.3%
5.6%
12.7%
6%
12.8%
5.9%
13.1%
6.2%
13.1%
6.2%
Working capital6
In millions of $, at end of period
As a percentage of sales7
455
500
525
502
416
416
10.6%
10.4%
10.3%
10.3%
10.1%
10.1%
488
9.9%
494
9.7%
465
9.8%
365
9.6%
365
9.6%
1 Shipments do not take into account the elimination of business sector inter-segment shipments. Shipments from our Specialty Products segment are not presented as it uses different units
of measure.
2 Defined as: Percentage of manufacturing shipments transferred to our converting operations.
3 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding Specialty Products segment manufacturing activities.
4 Return on assets is a non-IFRS measure defined as the last twelve months' (“LTM”) adjusted OIBD/LTM quarterly average of total assets less cash and cash equivalents.
5 Return on capital employed is a non-IFRS measure and is defined as the after-tax amount of the LTM adjusted operating income, including our share of core associates and joint ventures,
divided by the LTM quarterly average of capital employed. Capital employed is defined as the quarterly total average assets less trade and other payables and cash and cash equivalents.
6 Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less trade and other payables.
7 Percentage of sales = Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals.
8 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements
for more details.
26
2020 Annual Report
HISTORICAL FINANCIAL INFORMATION
(in millions of Canadian dollars, unless
otherwise noted)
Sales
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Inter-segment sales
Tissue Papers
Inter-segment sales and
Corporate Activities
Total
Operating income (loss)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers2
Corporate Activities
Total
Adjusted OIBD1
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate Activities
Total
2018
YEAR
1,840
933
358
(14)
3,117
1,352
Q1
Q2
Q32
Q4
YEAR
Q1
Q2
Q3
Q4
YEAR
20192
2020
441
279
129
(4)
845
348
462
270
135
(3)
864
377
473
256
123
(4)
848
387
451
243
105
(3)
796
397
1,827
1,048
492
(14)
3,353
1,509
458
272
113
(3)
840
446
454
265
120
(5)
834
424
506
261
117
(4)
880
364
500
254
123
(6)
871
381
1,918
1,052
473
(18)
3,425
1,615
180
37
34
29
34
134
27
27
31
32
117
4,649
1,230
1,275
1,264
1,227
4,996
1,313
1,285
1,275
1,284
5,157
381
62
24
467
(122)
(117)
228
410
97
33
540
17
(68)
489
84
18
9
111
(8)
(31)
72
104
29
14
147
9
(21)
135
84
19
12
115
1
(34)
82
113
30
16
159
18
(21)
156
91
14
10
115
34
(41)
108
118
25
16
159
24
(22)
161
69
(6)
5
68
(21)
(48)
(1)
106
24
9
139
35
(22)
152
328
45
36
409
6
(154)
261
441
108
55
604
86
(86)
604
74
20
8
102
28
(40)
90
99
30
12
141
45
(25)
161
54
30
11
95
31
(32)
94
94
43
17
154
54
(22)
186
71
19
11
101
3
(31)
73
100
29
16
145
36
(19)
162
122
5
12
139
10
(40)
109
110
27
15
152
40
(26)
166
321
74
42
437
72
(143)
366
403
129
60
592
175
(92)
675
Adjusted OIBD / Sales (%)
10.5%
11.0%
12.2%
12.7%
12.4%
12.1%
12.3%
14.5%
12.7%
12.9%
13.1%
Net earnings (loss)2
Adjusted1
Net earnings (loss) per share (in
dollars)
Basic2
Diluted2
Basic, adjusted1
Cash flow from operating activities
(excluding changes in non-cash
working capital components)
Net debt1
57
79
24
13
31
26
43
28
(26)
29
72
96
22
39
54
58
49
48
73
42
198
187
$ 0.60
$ 0.26
$ 0.33
$ 0.45
$ (0.27)
$ 0.77
$ 0.24
$ 0.57
$ 0.51
$ 0.72
$ 2.04
$ 0.56
$ 0.26
$ 0.32
$ 0.44
$ (0.27)
$ 0.75
$ 0.23
$ 0.57
$ 0.50
$ 0.72
$ 2.02
$ 0.83
$ 0.14
$ 0.28
$ 0.30
$ 0.30
$ 1.02
$ 0.42
$ 0.61
$ 0.50
$ 0.42
$ 1.95
361
82
124
104
91
401
153
162
106
146
567
1,769
1,878
1,861
2,070
1,963
1,963
2,212
2,077
1,982
1,679
1,679
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
2 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements
for more details.
27
You see impressive results. We see unbreakable commitment.
CHANGE IN SEGMENTED INFORMATION
In 2019, the Corporation modified its internal reporting in accordance with CODM requirements and business analysis. The Corporation's
Recovery and Recycling activities, previously included in the Specialty Products segment, are now included in Corporate Activities since
they support our North American Packaging and Tissue Papers segments and are analyzed separately.
The following graphics show the breakdown of sales, before corporate activities and inter-segment eliminations, operating income before
depreciation and amortization, and adjusted operating income before depreciation and amortization by business segment:
SALES BREAKDOWN1
OPERATING INCOME BEFORE
DEPRECIATION AND AMORTIZATION
BREAKDOWN 2,3,4
ADJUSTED OPERATING INCOME
BEFORE DEPRECIATION AND
AMORTIZATION BREAKDOWN2,3
% OF TOTAL SALES
% OF TOTAL OIBD
% OF TOTAL ADJUSTED OIBD
100.0%
100.0%
100.0%
37.4%
37.9%
50.0%
—%
30.9%
31.9%
50.0%
21.5%
10.2%
2019
20.8%
9.4%
2020
—%
67.7%
14.1%
10.2%
8.0%
2019
57.3%
16.0%
19.1%
7.6%
2020
50.0%
—%
63.9%
15.6%
12.5%
8.0%
2019
52.6%
16.8%
22.8%
7.8%
2020
Containerboard Packaging
Boxboard Europe
Specialty Products
Tissue papers
FORWARD-LOOKING STATEMENTS
The following document is the quarterly financial report and Management’s Discussion and Analysis (“MD&A”) of the operating results and
financial position of Cascades Inc. (“Cascades” or “the Corporation”), and should be read in conjunction with the Corporation's
consolidated financial statements and accompanying notes for the years ended December 31, 2020 and 2019. Information contained
herein includes any significant developments as at February 24, 2021, the date on which the MD&A was approved by the Corporation’s
Board of Directors. For additional information, readers are referred to the Corporation’s Annual Information Form (“AIF”), which is published
separately. Additional information relating to the Corporation is also available on SEDAR at www.sedar.com.
The financial information contained herein, including tabular amounts, is expressed in Canadian dollars, unless otherwise specified, and is
prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board
(IFRS), unless otherwise specified. Unless otherwise specified or if required by context, the terms “we”, “our” and “us” refer to Cascades
Inc. and all of its subsidiaries, joint ventures and associates.
This MD&A is intended to provide readers with information that Management believes is necessary for an understanding of Cascades'
current results and to assess the Corporation's future prospects. Consequently, certain statements herein, including statements regarding
future results and performance, are forward-looking statements within the meaning of securities legislation, 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, prices and availability of raw material, changes in relative values of certain currencies, fluctuations in selling prices,
and adverse changes in general market and industry conditions. Cascades disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise, except as required under applicable
securities regulations. This MD&A also includes price indices, as well as variance and sensitivity analysis that are intended to provide the
reader with a better understanding of the trends with respect to our business activities. These items are based on the best estimates
available to the Corporation.
1 Excluding inter-segment sales and Corporate activities.
2 Excluding Corporate activities.
3 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
4 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements
for more details.
28
2020 Annual Report
BUSINESS HIGHLIGHTS
From time to time, the Corporation enters into transactions to optimize its asset base and streamline its cost structure. The following
transactions should be taken into consideration when reviewing the overall and segmented analysis of the Corporation’s 2020 and
2019 results.
BUSINESS START-UP, ACQUISITION, DISPOSAL AND CLOSURE
SPECIALTY PRODUCTS
•
•
On September 30, 2019, the Corporation concluded the sale of its two facilities in France that convert cardboard into packaging for
the paper industry.
In July 2019, the Corporation closed its plant that manufactured felt backing for flooring, located in Trois-Rivières, Québec, Canada.
TISSUE PAPERS
•
•
On September 13, 2019, the Corporation completed the acquisition of Orchids' assets. The assets include the Barnwell, South
Carolina, USA and Pryor, Oklahoma, USA plants.
In the second quarter of 2019, the Corporation closed its tissue paper machines and facilities located in Whitby and Scarborough,
Ontario, Canada.
SIGNIFICANT FACTS AND DEVELOPMENTS
2020
•
On February 15, 2021, Reno de Medici S.p.A, a subsidiary of the Corporation in the Boxboard Europe segment, announced the
signature of a put option for the sale of its French subsidiary, which produces virgin fiber-based boxboard. The transaction is expected
to close at the end of the second quarter of 2021 and total enterprise value is set at €29 million ($45 million). The transaction will not
result in significant gain or loss on disposal and will result in discontinued operations.
•
•
•
•
•
On December 11, 2020, Greenpac entered into an agreement with its lenders to extend and amend its credit facilities. The amended
credit agreement still provides Greenpac with a revolving credit of US$50 million while the principal of the term loan was reduced, with
cash on hand and utilization of the revolving line of credit, to US$75 million, from US$122 million at the time of the amendment. The
term of
terms and conditions remain
essentially unchanged.
the amended credit agreement
to December 2023. The
is extended
financing
On November 25, 2020, the Corporation announced that it will progressively and permanently close tissue converting operations at its
Laval plant, located in Québec, Canada. The volume will be moved to other Cascades plants and filled by additional capacity.
Operations are expected to be terminated in June 2021.
On October 8, 2020, the Corporation announced that it will progressively and permanently close tissue production and converting
operations at its Ransom and Pittston plants, located in Pennsylvania, USA. The volume will be moved to other Cascades plants and
filled by additional capacity. Operations ceased in December 2020 and January 2021.
On October 5, 2020, the Corporation announced plans to proceed with the strategic Bear Island mill conversion project to recycled
containerboard located in Virginia, USA. To finance the equity portion of the project, the Corporation entered into an agreement with
underwriters pursuant to which the Corporation issued and the underwriters purchased on a bought deal basis 7,441,000 common
shares at a price of $16.80 per common share for gross proceeds of $125 million.
On September 30, 2020, the Boxboard Europe segment, through its equity ownership in Reno de Medici S.p.A., announced that it had
signed four preliminary agreements for the acquisition of 100% of the share capital of Papelera del Principado S.A. (“Paprinsa”) and
three smaller adjoining companies, in Spain. The deals cover the acquisition of one of the main European players of the coated
chipboard industry for a price based on the enterprise value that can vary between €27 million ($42 million) and €33 million
($51 million). The transaction is expected to close in the first quarter of 2021.
29
You see impressive results. We see unbreakable commitment.
•
•
•
•
On August 17, 2020, the Corporation announced that it had completed its private offering of US$300 million aggregate principal
amount of 5.375% senior notes due in 2028. The new notes were issued at a price of 104.25%, resulting in an effective yield of
4.69%. Transaction fees amounted to $4 million. The net proceed from the notes offering was used by the Corporation to redeem all
of its outstanding 5.75% US$200 million senior notes due in 2023 and repay certain amounts outstanding under its revolving
credit facility. The Corporation also paid $4 million of premium and wrote off $2 million of unamortized financing costs related to
these notes.
On July 28, 2020, the Corporation announced the closure of its Etobicoke, Ontario, Canada, Containerboard Packaging facility as part
of the strategic repositioning of its containerboard platform in Ontario, Canada. Operations will permanently close no later than
August 31, 2021 and production capacity will be gradually redeployed to other units within the region.
On May 26, 2020, the Corporation announced the closure of the Brown Containerboard Packaging facility located in Burlington,
Ontario, Canada, as part of the Corporation's continuing optimization initiatives for its Containerboard Packaging business. Production
was redeployed to our other units in Ontario, Canada.
The Corporation exercised its option to purchase the 20.20% interest in Greenpac Holding LLC (“Greenpac”) held by the Caisse de
dépôt et placement du Québec (CDPQ) on November 30, 2019 for an exercise price of US$93 million ($121 million). The transaction
closed January 3, 2020 and increased the Corporation's direct and indirect ownership interest in Greenpac to 86.35%.
2019
•
On November 26, 2019, the Corporation announced that it had completed its private offering of US$350 million aggregate principal
amount of 5.125% senior notes due 2026, US$300 million aggregate principal amount of 5.375% senior notes due 2028 and
$175 million aggregate principal amount of 5.125% senior notes due 2025. The net proceeds from the notes offering were used by the
Corporation to redeem all of its outstanding $250 million aggregate principal amount of 5.50% senior notes due 2021 and
US$400 million aggregate principal amount of 5.50% senior notes due 2022 and repay certain amounts outstanding under its
revolving credit facility. The Corporation also paid $11 million of premiums and wrote off $3 million of unamortized financing costs
related to these notes.
On October 30, 2019, the Corporation announced the closure of its Waterford, New York, USA and Kingman, Arizona, USA tissue
converting facilities, which produced a combined total volume of 9 million cases of tissue products. This volume has been transferred
to the Corporation's other Tissue Papers facilities with available capacity and the newly acquired Orchids activities (see Note 5 of the
2020 Audited Consolidated Financial Statements for more details). The closures of these facilities were completed during the second
quarter of 2020.
On August 9, 2019, the Corporation announced that its quarterly dividend would be increased from $0.04 to $0.08 per share.
On May 31, 2019, the Corporation entered into an agreement with its lenders to extend and amend its existing $750 million revolving
credit facility. The amendment extends the term of the facility to July 2023. The financial conditions remain unchanged.
•
•
•
30
2020 Annual Report
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2020, COMPARED TO
THE YEAR ENDED DECEMBER 31, 2019
SALES
Sales increased by $161 million, or 3%, to $5,157 million in 2020, compared with $4,996 million in 2019. This was largely a reflection of the
net volume increase in all segments, especially in the Tissue Papers segment where COVID-19 related demand and the Orchids
acquisition had a positive impact. Average selling price in the Tissue Papers was favourable year-over-year. The 1% and 3% average
depreciation of the Canadian dollar compared to the US dollar and euro, respectively, was also beneficial. These benefits were partially
offset by lower average selling prices and/or less favourable sales mix in Packaging Products business segments. In Specialty Products
year-over-year sales performance levels were nonetheless negatively impacted as a result of a plant closure and a business divestiture
completed in 2019.
Sales by geographic segment are as follows:
Sales from (in %):
Sales to (in %):
37%
20%
43%
21%
32%
47%
Canada
Europe and others
United States
Canada
Europe and others
United States
The main variances in sales in 2020, compared to 2019, are shown below (in millions of Canadian dollars):
58
16
243
(43)
(56)
5,157
(57)
4,996
9
1
0
2
l
s
e
a
S
e
m
u
o
V
l
X
F
/
$
N
A
C
g
n
i
l
c
y
c
e
R
&
y
r
e
v
o
c
e
R
r
e
h
O
t
i
.
n
s
u
B
l
a
s
o
p
s
d
i
e
c
i
r
P
i
x
M
&
0
2
0
2
l
s
e
a
S
e
r
u
s
o
c
&
l
31
You see impressive results. We see unbreakable commitment.
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION (OIBD)
The Corporation generated an OIBD of $665 million in 2020, compared with $550 million in 20191, an increase of $115 million. Specific
items2 recorded in both years impacted the OIBD by an increase of $44 million. Excluding specific items, the $71 million adjusted OIBD
increase is mainly explained by the higher volumes and lower energy costs in all segments. Conversely, lower average selling prices and
sales mix had a negative impact for all Packaging Products segments, while favourable selling price and mix positively impacted results in
Tissue Papers. Higher average raw material prices negatively impacted margins in 2020 compared to 2019 in Containerboard. All the other
segments were less affected by the volatility of raw material prices. The positive impact of the network optimization and profitability
improvement initiatives deployed by the Corporation is reflected in lower production costs. Recovery and Recycling included in the
Corporate Activities segment added $16 million to OIBD due to better market pricing for recovered paper in 2020. Also, research and
development (R&D) tax credits amounting to $19 million in 2020, compared to $15 million in 2019, had a positive impact on OIBD levels
in 2020.
Adjusted OIBD2 totaled $675 million in 2020, an increase from $604 million in 2019.
The main variances in OIBD in 2020, compared to 2019, are shown below (in millions of Canadian dollars):
12
3
16
38
(3)
(19)
81
675
665
(57)
(10)
54
604
550
9
1
0
2
D
B
O
I
s
m
e
t
i
c
i
f
i
c
e
p
S
9
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D
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u
o
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e
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&
y
r
e
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r
e
h
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&
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&
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0
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0
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B
O
I
.
j
d
A
s
m
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t
i
c
i
f
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p
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0
2
0
2
D
B
O
I
Adjusted OIBD
Raw materials
(OIBD)
F/X CAN$
(OIBD)
Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
The impacts of these estimated costs are based on production costs per unit shipped externally or inter-segment, which are affected by yield, product
mix changes, inbound freight costs and purchase and transfer prices. In addition to market pulp and recycled fibre, these costs include purchases of
external boards and parent rolls for the converting sector, and other raw materials such as plastic and wood chips.
The estimated impact of the exchange rate is based on the Corporation’s Canadian export sales less purchases, denominated in US$, that are
impacted by exchange rate fluctuations and by the translation of our non-Canadian subsidiaries OIBD into CAN$. It also includes the impact of
exchange rate fluctuations on the Corporation’s Canadian units in currency other than the CAN$ working capital items and cash positions, as well as
our hedging transactions. It excludes indirect sensitivity (please refer to the “Sensitivity Table” section for further details).
Other production costs and mix (OIBD)
These costs include the impact of variable and fixed costs based on production costs per unit shipped externally, which are affected by downtime,
efficiency and product mix changes.
Recovery and Recycling activities (Sales
and OIBD)
While this sub-segment is integrated within the other segments of the Corporation, any variation in the results of Recovery and Recycling activities
are presented separately and on a global basis in the charts.
The sales and OIBD variances analysis by segment is shown in each business segment review (please refer to the “Business Segment
Review” section for more details).
The Corporation incurred certain specific items in 2020 and 2019 that adversely or positively affected its operating results2.
1 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements
for more details.
2 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
32
2020 Annual Report
BUSINESS SEGMENT REVIEW
PACKAGING PRODUCTS - CONTAINERBOARD
Our Industry
U.S. containerboard industry production and capacity utilization rate1
Total U.S.containerboard production amounted to 38.1 million short tons in
2020, an increase of 3% compared to 2019, a reflection of stronger
demand levels driven by the COVID-19 pandemic. As a result, the
industry's capacity utilization rate increased to 92.3% in 2020 from 91.6%
in 2019.
U.S. containerboard inventories at box plants and mills2
The average inventory level decreased by 3.9% year-over-year in 2020,
and was also below 2018 levels, as demand for corrugated products
increased with changing demand patterns related to the COVID-19
pandemic, leading to lower inventory levels. The number of weeks of
supply in inventory averaged 3.8x for the year, down from 4.0x in 2019.
40,000
35,000
30,000
25,000
20,000
38,144
97%
2018
36,840
38,064
92%
2019
92%
2020
100%
95%
90%
85%
3,000
2,500
2,000
1,500
1,000
500
—
2,494
2,584
3.9
2018
4.0
2019
2,484
3.8
2020
5.0
4.5
4.0
3.5
3.0
Total production ('000 s.t.)
Capacity utilization rate
Average inventory level ('000 s.t.)
Weeks of supply
U.S corrugated box industry shipments2
Total U.S. corrugated box shipments increased by 4% in 2020 compared
to 2019. This reflects strong demand related to continued essential
manufacturing activity, in addition to heightened demand, including e-
commerce, related to the COVID-19 pandemic.
Canadian corrugated box industry shipments3
Canadian corrugated box shipments increased by 4% in 2020 compared to
2019. This reflects continuation of essential manufacturing and services, in
addition to heightened demand, including e-commerce, related to the
COVID-19 pandemic.
392.5
392.6
406.8
450.0
400.0
350.0
300.0
33.7
33.7
35.2
40.0
35.0
30.0
25.0
2018
2019
2020
2018
2019
2020
Total shipments (Billion sq. ft.)
Total shipments (Billion sq. ft.)
Reference prices - containerboard1
2020 reference prices for linerboard and corrugating medium decreased
by 1% and 2%, respectively, compared to 2019. This was largely driven by
demand dynamics, largely in the first half of the year, as a result of the
COVID-19 pandemic.
Reference prices - recovered papers (brown grade)1
The average reference price of old corrugated containers no.11 (“OCC̑
̑”)
increased by 55% in 2020 compared to 2019. This was largely due to
increased demand levels for the fibre throughout the year as demand for
packaging products increased as a result of the COVID-19 pandemic.
800
700
600
500
747
662
734
638
723
623
2018
2019
2020
Corrugating medium 26-lb. semichemical, Eastern U.S. (open market) (US$/s.t.)
100
80
60
40
20
—
74
41
63
2018
2019
2020
Linerboard 42-lb. unbleached kraft, Eastern U.S. (open market) (US$/s.t.)
Old corrugated containers, no. 11 (OCC - Northeast average) (US$/s.t.)
1 Source: RISI
2 Source: Fibre Box Association
3 Source: Canadian Corrugated and Containerboard Association
33
You see impressive results. We see unbreakable commitment.
Our Performance
200
150
100
50
0
450
400
350
300
250
OIBD and adjusted OIBD (M CAN$)
Sales and adjusted OIBD margin
111
104
114
113
120
118
106
98
102
99
94
83
101
100
150
110
441 462 473 451 458 454
506 500
600
500
400
300
200
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
OIBD (M CAN$)
Adjusted OIBD (M CAN$)
SALES (M CAN$)
Adj. OIBD margin (% of sales)
Shipments and manufacturing capacity
utilization rate
363 377 365
360
342
374
411 399
100%
95%
90%
85%
1,350
1,300
1,250
1,200
1,150
1,100
Average selling price
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Shipments ('000 s.t.)
Utilization rate
(CAN$/s.t.)
(US$/s.t.)
30%
25%
20%
15%
10%
1,200
1,100
1,000
900
800
The main variances1 in sales and operating income before depreciation and amortization for the Containerboard Packaging segment in
2020, compared to 2019, are shown below:
SALES ($M)
122
10
1,918
(41)
1,827
OIBD ($M)
57
10
443
441
(2)
33
436
(41)
403
(64)
9
1
0
2
l
s
e
a
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X
F
/
$
N
A
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P
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M
&
0
2
0
2
l
s
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a
S
9
1
0
2
D
B
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s
m
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f
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9
1
0
2
D
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.
j
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2
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2
D
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.
j
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0
2
0
2
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The Corporation incurred certain specific items in 2020 and 2019 that adversely or positively affected its operating results2.
1 For definitions of certain sales and operating income before depreciation and amortization (OIBD) variation categories, please refer to the “Financial results for the year ended
December 31, 2020, compared to the year ended December 31, 2019” section for more details.
2 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
34
2020 Annual Report
2019
2020
Change in %
Shipments2 (’000 s.t.)
1,447
1,544
Average Selling Price
(CAN$/unit)
1,262
1,242
Sales ($M)
1,827
1,918
OIBD1 ($M)
(as reported)
% of sales
(adjusted)1
% of sales
443
24%
441
24%
436
23%
403
21%
Operating income ($M)
(as reported)
328
326
(adjusted)1
321
288
7%
-2%
5%
-2%
-9%
-2%
-12%
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for
reconciliation of these figures.
2 Shipments do not take into account the elimination of business sector inter-segment
shipments. Including 14.0 billion square feet in 2020 compared to 13.1 billion square
feet in 2019, an increase of 7%.
3 Including sales to other partners in Greenpac.
Shipments increased by 97,000 s.t., or 7%, in 2020 compared to
2019. This reflects a 59,000 s.t., or 8% increase in external
shipments from our containerboard mills due to higher market
demand in the current period and a 5% increase in the capacity
utilization rate. Consequently, the mill integration rate of 56% during
2020, decreased from 58% in 2019. Including sales to other
partners3, the integration rate was 69% in 2020, down slightly from
71% in the prior year. On the converting side, shipments increased
by 6%. This outperformed the Canadian market increase of 4% and
the US market increase of 3%.
in Canadian dollars
The average selling price denominated
decreased by 7% for parent rolls, and by 1% for converted products.
The 1% average depreciation of the Canadian dollar compared to the
US dollar favorably impacted average selling prices and partly offset
these decreases.
Sales increased by $91 million, or 5%, compared to 2019. Higher
volume added $122 million to sales, while the 1% average
depreciation of the Canadian dollar against the US dollar added
$10 million. These benefits were partly offset by a less favourable
mix of products sold and a lower average selling price which had a
combined negative impact of $41 million.
Operating income before depreciation and amortization (OIBD)
decreased by $7 million, or 2% in 2020, compared to 2019.
Excluding specific items1 in both years, the $38 million, or 9%,
decrease reflects a lower average selling price and less favourable
mix of products sold, which had a combined negative impact of
$41 million. Higher costs of brown recycled fibre grades subtracted a
further $64 million. Conversely, the 7% increase in volumes and
lower energy costs added $57 million and $10 million to our
results, respectively.
The segment incurred some specific items1 in 2020 and 2019 that
affected OIBD1.
35
You see impressive results. We see unbreakable commitment.
PACKAGING PRODUCTS - BOXBOARD EUROPE
Our Industry
European industry order inflow of coated boxboard1
In Europe, order inflows of white-lined chipboard (WLC) totaled approximately 3.3 million of metric tonnes in 2020, an increase of 4%
compared to 2019. The folding boxboard (FBB) industry recorded order inflows of approximately 2.4 million of metric tonnes in 2020,
representing an increase of 1% compared to 2019.
Coated recycled boxboard industry's order inflow from Europe
(White-lined chipboard (WLC) - 5-week weekly moving average) (m.t. per week)
Coated virgin boxboard industry's order inflow from Europe
(Folding boxboard (FBB) - 5-week weekly moving average) (m.t. per week)
90,000
80,000
70,000
60,000
50,000
40,000
70,000
60,000
50,000
40,000
30,000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
2018
2019
2020
2018
2019
2020
Reference prices - boxboard in Europe2,3,4
White-lined chipboard prices decreased by 2% in Western European countries in
2020 compared to 2019. Folding boxboard prices also decreased by 2% throughout
the year.
Reference prices - recovered papers in Europe2,5
Recovered paper prices decreased by 18% in 2020 compared to 2019, as prices
decreased in the second half ot the year following the reopening of many
businesses that resulted in a greater supply of material becoming available. Prices
began increasing in the last quarter due to heightened demand for containerboard.
1,200
1,100
1,000
900
800
700
600
500
1,072
1,117
1,096
674
671
658
2018
2019
2020
Recycled white-lined chipboard (WLC) index (Euros/m.t.)
Virgin folding boxboard (FBB) index (Euros/m.t.)
150
100
50
—
105
76
62
2018
2019
2020
Recovered paper index (Euros/m.t.)
1 Source: CEPI Cartonboard
2 Source: RISI
3 The Cascades recycled white-lined chipboard selling prices index represents an approximation of Cascades’ recycled grade selling prices in Europe. It is weighted by country. For each country,
we use an average of PPI Europe prices for white-lined chipboard.
4 The Cascades virgin coated duplex boxboard selling prices index represents an approximation of Cascades’ virgin grade selling prices in Europe. It is weighted by country. For each country, we
use an average of PPI Europe prices for coated duplex boxboard.
5 The recovered paper index represents an approximation of Cascades’ recovered paper purchase prices in Europe. It is weighted by country. For each country, we use an average of PPI Europe
prices for recovered papers. This index should only be used as a trend indicator and may differ from our actual purchasing costs and our purchase mix.
36
2020 Annual Report
Our Performance
45
30
15
0
400
350
300
250
200
OIBD and adjusted OIBD (M CAN$)
43
42
29
29
30
30
25
25
24
31
30
31
29
27
18
8
300
200
100
0
Sales and adjusted OIBD margin
279 270 256 243
272 265 261 254
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
OIBD (M CAN$)
Adjusted OIBD (M CAN$)
SALES (M CAN$)
Adj. OIBD margin (% of sales)
Shipments and manufacturing capacity
utilization rate
333 331 321 305
351
326 316 312
110%
100%
90%
80%
850
800
750
700
650
600
Average selling price
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Shipments ('000 s.t.)
Utilization rate
(CAN$/s.t.)
(EURO€/s.t.)
20%
15%
10%
5%
0%
600
550
500
450
The main variances1 in sales and operating income before depreciation and amortization for the Boxboard Europe segment in 2020,
compared to 2019, are shown below:
SALES ($M)
12
29
1,048
1,052
(37)
OIBD ($M)
8
3
2
19
26
129
122
(37)
(7)
16
108
92
9
1
0
2
l
s
e
a
S
X
F
/
$
N
A
C
e
m
u
o
V
l
e
c
i
r
P
i
x
M
&
0
2
0
2
l
s
e
a
S
9
1
0
2
D
B
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I
s
m
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t
i
c
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f
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S
9
1
0
2
D
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.
j
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/
$
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&
0
2
0
2
s
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0
2
0
2
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D
B
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.
j
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A
The Corporation incurred certain specific items in 2020 and 2019 that adversely or positively affected its operating results2.
1 For definitions of certain sales and operating income before depreciation and amortization (OIBD) variation categories, please refer to the “Financial results for the year ended
December 31, 2020, compared to the year ended December 31, 2019” section for more details.
2 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
37
You see impressive results. We see unbreakable commitment.
Recycled boxboard shipments increased by 5,000 s.t., or 1%, in
2020 compared to 2019. Shipments of virgin boxboard increased by
12,000 s.t., or 8%, while converted products shipments decreased by
2,000 s.t..
The average selling price decreased in euros by 3% but slightly
increased in Canadian dollars year-over-year as a result of the 3%
average depreciation of the Canadian dollar compared to the euro.
Year-over-year, the average selling price of recycled boxboard
decreased by €14, or 3%, while the average selling price of virgin
boxboard decreased by €22, or 3%.
The $4 million year-over-year increase in sales in 2020 reflects the
3% average depreciation of the Canadian dollar compared to the
euro, which contributed $29 million, and higher volumes, which
added $12 million to sales in 2020. Offsetting this was the lower
average selling price, which impacted sales by $37 million.
Operating income before depreciation and amortization (OIBD)
increased by $30 million, or 33%, in 2020 compared to 2019.
Excluding specific items1 in both years, the $21 million, or 19%,
increase is attributable to lower raw material and energy costs
(including tax credits), as well as other positive variances, which
added $26 million, $19 million and $8 million, respectively. These
were partially offset by lower average selling prices, which subtracted
$37 million. As well, the 3% average depreciation of the Canadian
dollar compared to the euro added $2 million to OIBD levels while
volume added $3 million.
The segment incurred some specific items1 in 2020 and 2019 that
affected OIBD1.
2019
2020
Change in %
Shipments2 (’000 s.t.)
1,290
1,305
Average Selling Price3
(CAN$/unit)
773
521
(euro€/unit)
775
507
1%
—
-3%
Sales ($M)
1,048
1,052
—
OIBD1 ($M)
(as reported)
% of sales
(adjusted)1
% of sales
92
9%
108
10%
122
12%
129
12%
Operating income ($M)
(as reported)
45
61
(adjusted)1
74
81
33%
19%
64%
33%
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for
reconciliation of these figures.
2 Shipments do not take into account the elimination of business sector inter-
segment shipments
3 Average selling price is a weighted average of virgin, recycled and converted
boxboard shipments.
38
2020 Annual Report
PACKAGING PRODUCTS - SPECIALTY PRODUCTS
CHANGE IN SEGMENTED INFORMATION
In 2019, the Corporation modified its internal reporting in accordance with CODM requirements and business analysis. The Corporation's
Recovery and Recycling activities, previously included in the Specialty Products segment, are now included in Corporate Activities since
they support our North American Packaging and Tissue Papers segments and are analyzed separately.
Our Performance
OIBD and adjusted OIBD (M CAN$)
Sales and adjusted OIBD margin
16
16
16
14
14
13
12
11
9
9
17
16
16
16
15
15
20
15
10
5
0
150
100
50
0
129 135
123
105 113 120 117 123
20%
15%
10%
5%
0%
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
OIBD (M CAN$)
Adjusted OIBD (M CAN$)
SALES (M CAN$)
Adj. OIBD margin (% of sales)
The main variances1 in sales and operating income before depreciation and amortization for the Specialty Products segment in 2020,
compared to 2019, are shown below:
SALES ($M)
48
4
492
(15)
473
(56)
0
2
0
2
l
s
e
a
S
e
r
u
s
o
c
&
l
.
o
p
s
d
i
i
.
n
s
u
B
9
1
0
2
l
s
e
a
S
e
m
u
o
V
l
X
F
/
$
N
A
C
e
c
i
r
P
i
x
M
&
OIBD ($M)
12
13
(2)
(3)
3
55
52
60
58
(15)
(2)
9
1
0
2
D
B
O
I
s
m
e
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f
i
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e
p
S
9
1
0
2
D
B
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.
j
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.
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.
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&
0
2
0
2
D
B
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I
.
j
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A
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f
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0
2
0
2
D
B
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I
The Corporation incurred certain specific items in 2020 and 2019 that adversely or positively affected its operating results2.
1 For definitions of certain sales and operating income before depreciation and amortization (OIBD) variation categories, please refer to the “Financial results for the year ended
December 31, 2020, compared to the year ended December 31, 2019” section for more details.
2 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
39
You see impressive results. We see unbreakable commitment.
2019
492
52
11%
55
11%
Sales ($M)
OIBD1 ($M)
(as reported)
% of sales
(adjusted)1
% of sales
2020
473
58
12%
60
13%
Operating income ($M)
(as reported)
36
39
(adjusted)1
42
44
Change in %
-4%
12%
9%
17%
13%
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for
reconciliation of these figures.
Sales decreased by $19 million, or 4% in 2020 compared to 2019.
This was primarily due to the $56 million impact related to the
divestiture of our European activities and closure of the vinyl backing
felt mill in 2019. The lower average selling price and a less
favourable sales mix reduced sales levels by a further $15 million in
2020. These were partly offset by increased volume in all our sub-
segments, which added $48 million to sales, as well as a favourable
exchange rate which added $4 million.
Operating income before depreciation and amortization (OIBD)
increased by $6 million, or 12%, in 2020 compared to 2019.
Excluding specific items1 in both years, the adjusted OIBD increased
by $5 million, or 9%. This reflects higher volumes, and lower raw
material costs in all sub-segments, with the exception of industrial
packaging, which added $13 million and $12 million, respectively, to
results. These benefits were offset by a lower average selling price
and changes in sales mix and higher operating and maintenance
costs, which negatively
impacted results by $15 million and
$2 million, respectively. The elimination of the $3 million of OIBD
generated by the divested European activities and closed vinyl
backing felt mill in the second half of 2019 also contributed to partly
offset the increase.
The segment incurred some specific items1 in 2020 and 2019 that
affected OIBD1.
40
2020 Annual Report
TISSUE PAPERS
Our Industry
U.S. tissue paper industry production (parent rolls) and capacity
utilization rate1
Total parent roll production increased by 7% in 2020, the tenth consecutive year of
growth. The average capacity utilization rate of 97% in 2020 increased by 4%
compared to 93% in 2019. Increased demand levels, most notably for retail tissue
products, related to the COVID-19 pandemic was an important underlying
contributor to these metrics.
U.S. tissue paper industry converted product shipments1
In 2020, shipments for the retail and the away-from-home markets increased by
16% and decreased by 9%, respectively, compared to 2019. This largely reflects the
increased demand for retail tissue products and lower demand for Away-from-Home
tissue products as a result of the COVID-19 pandemic.
11,000
10,000
9,000
8,000
7,000
8,984
93%
2018
9,245
93%
2019
8,000
6,000
4,000
2,000
—
100%
98%
96%
94%
92%
90%
9,890
97%
2020
Total parent roll production ('000 s.t.)
Capacity utilization rate
5,924
6,028
2,871
2,972
7,013
2,719
2018
2019
2020
Shipments - Away-from-Home market ('000 s.t.)
Shipments - Retail market ('000 s.t.)
Reference prices - parent rolls1
In 2020, the reference price for recycled and virgin parent rolls respectively
decreased by 2% and remained stable, compared to 2019.
Reference prices - recovered papers (white grade)1
The reference price of sorted office papers No.37 (“SOP”) decreased by 15% in
2020 compared to 2019.
2,000
1,500
1,000
500
—
1,395
1,093
1,429
1,142
1,428
1,120
2018
2019
2020
Recycled parent roll (average publication price) (US$/s.t.)
Virgin parent roll (average publication price) (US$/s.t.)
193
250
200
150
100
50
—
128
109
2018
2019
2020
Sorted office papers, no. 37 (SOP - Northeast average) (US$/s.t.)
Reference prices - market pulp1
In 2020, the reference price for NBSK and NBHK decreased by 8% and 15%,
respectively, compared to 2019, reflecting global demand supply dynamics.
1,342
1,152
1,239
1,036
1,141
883
2018
2019
2020
Bleached hardwood kraft, mixed, Canada / U.S. (US$/m.t.)
Northern bleached softwood kraft, Canada (US$/m.t.)
2,000
1,500
1,000
500
—
1 Source: RISI
41
You see impressive results. We see unbreakable commitment.
Our Performance3
100
50
0
-50
200
150
100
50
0
OIBD and adjusted OIBD (M CAN$)
Sales and adjusted OIBD margin
49
24
45
45
54
48
35
36
25
40
27
17
18
4
9
(3)
500
400
300
200
100
0
348 377 387 397
446 424
364 381
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
OIBD (M CAN$)
Adjusted OIBD (M CAN$)
SALES (M CAN$)
Adj. OIBD margin (% of sales)
Shipments and manufacturing capacity
utilization rate
146 155 161 167 181 167
145 152
100%
90%
80%
70%
2,600
2,400
2,200
Average selling price
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
Shipments ('000 s.t.)
Utilization rate
(CAN$/s.t.)
(US$/s.t.)
30%
20%
10%
0%
2,000
1,900
1,800
1,700
1,600
1,500
The main variances1 in sales and operating income before depreciation and amortization for the Tissue Papers segment in 2020,
compared to 20193, are shown below:
SALES ($M)
30
15
1,615
61
1,509
OIBD ($M)
11
13
8
1
175
145
(30)
26
30
19
86
67
9
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The Corporation incurred certain specific items in 2020 and 2019 that adversely or positively affected its operating results2.
1 For definitions of certain sales and operating income before depreciation and amortization (OIBD) variation categories, please refer to the “Financial results for the year ended
December 31, 2020, compared to the year ended December 31, 2019” section for more details.
2 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
3 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements
for more details.
42
2020 Annual Report
2019
2020
Change in %
Shipments3 (’000 s.t.)
645
629
Average Selling Price
(CAN$/unit)
2,400
2,505
Sales ($M)
1,509
1,615
OIBD1 2 ($M)
(as reported)
% of sales
(adjusted)1
% of sales
67
4%
86
6%
145
9%
175
11%
Operating income2 ($M)
(as reported)
6
25
(adjusted)1
72
102
3%
4%
7%
116%
103%
1,100%
308%
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for
reconciliation of these figures.
2 2019 consolidated results have been adjusted to reflect retrospective adjustments of
purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated
Financial Statements for more details.
3 Shipments do not take into account the elimination of business sector inter-segment
shipments.
External manufacturing shipments increased by 10,000 s.t., or 7%, in
2020 compared to 2019. This largely reflects better inventory
management and additional sales efforts, the effects of which
resulted in a lower integration rate of 73% in 2020, down from 76% in
2019. Converted product shipments increased by 6,000 s.t., or 1%.
This was mainly driven by an increase in demand in the Consumer
Products market counterbalanced by a decrease of our volume of
35,000 s.t., or 15%, for Away-from-Home products due to COVID-19.
The 4% increase in the average selling price was primarily due to a
favourable mix of converted products sold, price increases related to
our net revenue management initiatives and the 1% average
depreciation of the Canadian dollar compared to the US dollar. These
benefits were partially offset by a higher proportion of sales
attributable to parent rolls.
The 7% increase in sales in 2020 was driven by a $61 million
increase related to higher volumes, which includes the impact of the
Orchids acquisition in 2019, and by a $15 million beneficial impact
related to the favourable exchange rate. The net impact of higher
selling prices and mix of customers and products sold also added
$30 million to sales.
Operating income before depreciation and amortization (OIBD)
increased by $78 million, or 116%, in 2020 compared to 2019.
Excluding specific items1 in both years, the adjusted OIBD increased
by $89 million, or 103%, and is mainly due to the above mentioned
factors, and lower virgin pulp and white recycled paper costs which
had a $13 million positive impact. Higher volumes also contributed
$8 million to OIBD levels. In addition, results benefited from lower
transportation and fixed costs due to network optimization efforts.
Furthermore, lower expenses due to good control, cost savings
initiatives and a prior years research and development tax credits
recorded also contributed positively to results. These factors had a
combined favourable impact of $26 million, while lower energy costs
added an additional $11 million.
The segment incurred some specific items1 in 2020 and 2019 that
affected OIBD1.
43
You see impressive results. We see unbreakable commitment.
CORPORATE ACTIVITIES
Corporate Activities incurred some specific items1 in 2020 and 2019 that affected OIBD1. Corporate activities registered an adjusted OIBD1
loss of $92 million in 2020, compared to a loss of $86 million in 2019. The better performance of our Recovery and Recycling activities,
due to improved market pricing of recycled fibers, had a year-over-year positive OIBD variance of $30 million (2019 results included an
impairment charges $14 million). This favourable impact was partly offset by higher corporate costs in the current period that were related
to our strategic initiatives to optimize our profitability through improvements in production efficiency, supply chain, sales and operation
planning and net revenue management.
STOCK-BASED COMPENSATION EXPENSE
Stock-based compensation expense recognized in Corporate Activities amounted to $7 million in 2020, compared to $3 million in 2019. For
more details on stock-based compensation, please refer to Note 21 of the 2020 Audited Consolidated Financial Statements.
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
OTHER ITEMS ANALYSIS
DEPRECIATION AND AMORTIZATION
The depreciation and amortization expense increased by $10 million to $299 million in 2020, compared to $289 million in 2019. The
increase is mainly attributable to the Orchids acquisition in the second half of 2019, capital expenditure investments completed during the
last twelve months and a reduction of the useful life of some equipments following a review. Impairment charges recorded in 2019 and
2020 partly offset this increase.
FINANCING EXPENSE AND INTEREST EXPENSE (REVENUE) ON EMPLOYEE FUTURE BENEFITS AND OTHER LIABILITIES
The financing expense and interest expense on employee future benefits and other liabilities amounted to $98 million in 2020, compared to
$143 million in 2019, a decrease of $45 million.
The variance is mainly attributable to the 2019 fair value revaluation recognized on the CDPQ put option in the Greenpac investment,
which amounted to $35 million in 2019 due to Greenpac's improving financial performance during the year.
In 2020, the Corporation recorded an unrealized gain of $13 million, compared to an unrealized loss of $1 million in 2019, on the fair value
revaluation of a one-time option granted to White Birch to purchase an interest of up to 10% in the Bear Island containerboard mill project,
which was not exercised. In 2020, the Corporation also recorded an unrealized loss of $2 million pertaining to a call option granted by the
Corporation to one of the minority shareholders of Falcon Packaging LLC.
In 2019, the Corporation recorded an unrealized gain of $1 million in 2019, on interest rate swaps (nil in 2020).
On July 12, 2019, S&P Global Ratings revised the Corporation’s outlook to “stable” from “positive” on higher leverage; the corporate rating
of BB- was reaffirmed.
LOSS ON REPURCHASE OF LONG-TERM DEBT
2020
The Corporation redeemed US$200 million of its unsecured senior notes and recorded an early repurchase premium of $4 million and
wrote off $2 million of related unamortized financing costs.
2019
The Corporation redeemed US$400 million and $250 million of its unsecured senior notes and recorded an early repurchase premium of
$11 million and wrote off $3 million of related unamortized financing costs.
FAIR VALUE REVALUATION LOSS ON INVESTMENTS
In 2020, the Corporation recorded a fair value revaluation loss on investments of $3 million on a joint venture.
44
2020 Annual Report
PROVISION FOR INCOME TAXES
In 2020, the Corporation recorded an income tax provision of $45 million, which compares to $19 million in 2019.
(in millions of Canadian dollars)
Provision for income taxes based on the combined basic Canadian and provincial income tax rate
Adjustment for income taxes arising from the following:
Difference in statutory income tax rate of foreign operations
Prior years reassessment
Change in future income taxes resulting from enacted tax rate change
Permanent differences
Change in deferred income tax assets relating to capital tax losses
Change in temporary differences
Other
Provision for income taxes
2020
74
(3)
(5)
(1)
(12)
(8)
—
—
(29)
45
2019
31
(2)
3
—
(3)
(11)
3
(2)
(12)
19
The Corporation reassessed the probability of recovering unrealized capital losses following the redemption of its US$ denominated debts
in 2020, which resulted in the recognition of tax assets totaling $3 million, of which $2 million was recorded in results, compared to the
recognition of tax assets totaling $12 million, of which $11 million was recorded in results in 2019.
Greenpac is a limited liability company (LLC) and partners agreed to account for it as a disregarded entity for tax purposes. Consequently,
income taxes associated with Greenpac net earnings are proportionately recorded by each partner based on its respective share in the
LLC and no income tax provision is included in Greenpac’s net earnings. As such, although Greenpac is fully consolidated in the
Corporation’s results, only 92% of pre-tax book income is considered for tax provision purposes (71.8% prior to the acquisition of CDPQ
20.2% participation in Greenpac on January 3, 2020).
The effective tax rate and income taxes are affected by the results of certain subsidiaries and joint ventures located in countries where the
income tax rates are different from those in Canada, notably the United States, France and Italy. The normal effective tax rate is expected
to be in the range of 24% to 28%. The weighted-average applicable tax rate for the year ended December 31, 2020 was 25.35% (2019 -
25.50%).
SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
Share of results of associates and joint ventures amounted to $14 million in 2020, compared to $9 million in 2019. Refer to Note 8 of the
2020 Audited Consolidated Financial Statements for more information on associates and joint ventures.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operating activities generated $587 million in 2020, compared to $460 million generated in 2019. Changes in non-cash
working capital components generated $20 million of liquidity in 2020, compared to $59 million generated in 2019. Significant efforts have
been deployed in accounts receivable, inventory management and accounts payable which have led to a working capital reduction in both
years. As at December 31, 2020, average LTM working capital as a percentage of LTM sales stood at 9.6%, compared to 10.1% as at
December 31, 2019.
Cash flow from operating activities, excluding changes in non-cash working capital components, stood at $567 million in 2020, compared
to $401 million in 2019. This cash flow measurement is relevant to the Corporation’s ability to pursue its capital expenditure program and
reduce its indebtedness.
On August 17, 2020, the Corporation issued US$300 million of unsecured senior notes due in 2028 and redeemed its US$200 million
unsecured senior notes due in 2023. The Corporation paid $4 million in premium for the early redemption of its US$200 million unsecured
senior notes due in 2023.
Following the redemption of unsecured senior notes on November 26, 2019, an interest payment normally planned for January 2020 was
made in December 2019 in the amount of $23 million. In 2019, before the Corporation purchased the CDPQ equity participation in
Greenpac Holding LLC on January 3, 2020 (see “Business Highlights” section for more details), financing expense paid included interest
(dividends) payments in the amount of $21 million made to CDPQ as its participation was considered as a liability for accounting purposes.
The Corporation also paid $9 million in income taxes in 2020, compared to $27 million paid in 2019.
45
You see impressive results. We see unbreakable commitment.
INVESTING ACTIVITIES
Investing activities used $203 million in 2020, compared to $540 million used in 2019. The 2019 investment activities include the
$311 million related to the Orchids Paper Products acquisition concluded in September 2019. A purchase price adjustment of $2 million
was received in 2020.
DISPOSALS OF ASSOCIATES AND JOINT VENTURES
2020
The Corporation increased its participation in an associate for a contribution of $1 million and disposed of one of its investments for total
proceeds of $4 million.
2019
The Corporation received $1 million following the sale of shares of one of its joint ventures.
CHANGE IN INTANGIBLE AND OTHER ASSETS
2020
The Corporation invested $10 million for its ERP information technology system and other software developments and $2 million for an
additional participation in one of its equity investments.
2019
The Corporation invested $11 million for its ERP information technology system and other software development needed to support our
business and received $3 million from a note receivable included in other assets.
PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
(in millions of Canadian dollars)
Total acquisitions
Variation of acquisitions for property, plant and equipment included in “Trade and other payables”
Right-of-use assets acquisitions and acquisitions included in other debts
Payments for property, plant and equipment
Proceeds from disposals of property, plant and equipment
Payments for property, plant and equipment net of proceeds from disposals
New capital expenditure projects, including right-of-use assets, by segment in 2020 were as follows (in $M):
63
85
22
31
22
84
2020
307
6
(63)
250
(55)
195
2019
317
(9)
(50)
258
(27)
231
Tissue Papers
Containerboard
Corporate Activities
Boxboard Europe
Specialty Products
Right-of-use assets
The major capital projects that were initiated, are in progress or were completed in 2020 are as follows:
CONTAINERBOARD PACKAGING
•
Investments for an electric boiler and other equipment to reduce our environmental footprint and revalue production by-products at our
Cabano, Québec, Canada, manufacturing mill.
Bear Island assets in Virginia, USA for site preparation before conversion of equipment to containerboard manufacturing.
Investment in a second semi-automatic laminator at our Schenectady, NY, USA converting plant to add capacity, reduce lead time on
specialty products, improve customer experience and better serve the increasing demand for our industrial packaging strategic market
in the US North East region.
•
•
46
2020 Annual Report
SPECIALTY PRODUCTS
•
Investment in a fully automated thermoformer and an extruder upgrade in Drummondville, Québec, Canada to meet the requirements
of one of our strategic customers.
TISSUE PAPERS
•
Investment in new converting lines at our Wagram, North Carolina and Scappoose, Oregon, USA facilities and acquisition of other
converting equipments to continue upgrading our asset base.
PROCEEDS FROM DISPOSALS OF PROPERTY, PLANT AND EQUIPMENT
The main disposals of property, plant and equipment are as follows:
2020
The Containerboard Packaging segment received $42 million from the sale of a building of a closed plant in Ontario, Canada.
The Containerboard Packaging segment also received $5 million following the release of the escrow amount pertaining to the sale in 2018
of a building located in Maspeth, New York, USA.
The Tissue Papers segment received $2 million from the sale of assets of a closed plant.
2019
The Containerboard Packaging segment received $5 million from the sale of a building and piece of land of a closed plant.
The Corporation acquired all of the outstanding units of OPP Acquisition Mexico S. de R.L. de C.V., designated as assets held-for-sale at
acquisition date, which were resold the same day for US$14 million ($19 million) (please refer to the “Business Highlights” section or
Note 5 of the Audited Consolidated Financial Statements of 2020 for more details).
CASH RECEIVED (PAID) IN BUSINESS COMBINATIONS
The Corporation acquired the activities of Orchids Paper Products Company, for a total consideration of $307 million including a cash
consideration of US$235 million ($311 million) paid in 2019. In the first quarter of 2020, the Corporation received a purchase price
adjustment of US$2 million ($2 million) (please refer to the “Business Highlights” section or Note 5 of the Audited Consolidated Financial
Statements of 2020 for more details).
PROCEEDS ON DISPOSALS OF A SUBSIDIARY, NET OF CASH DISPOSED
2019
In the third quarter, the Corporation sold its 90% participation Cascades Europe S.A.S., which owns Cascades Rollpack, a packaging
manufacturer located in France, for a cash consideration of €7 million ($10 million) less cash disposed of €1 million ($1 million), for a total
net proceeds of €6 million ($9 million) (please refer to Note 5 of the Audited Consolidated Financial Statements of 2020 for more details).
FINANCING ACTIVITIES
Financing activities used $156 million in liquidity in 2020, compared to $121 million generated in 2019, including $31 million ($23 million in
2019) of dividend payments to the Corporation's shareholders.
ISSUANCE AND REPURCHASE OF UNSECURED SENIOR NOTES
2020
On August 17, 2020, the Corporation issued unsecured senior notes for an aggregate principal amount of US$300 million ($396 million)
with a nominal interest rate of 5.375% due in 2028 at a price of 104.25% resulting in a US$13 million ($17 million) premium for total
proceed of US$313 million ($413 million) and an effective yield of 4.69%. Transaction fees amounted to $4 million. The Corporation used
the proceed from this offering to fund the redemption of its 5.75% US$200 million ($264 million) unsecured senior notes due in 2023 and
paid premium of US$3 million ($4 million). The Corporation also wrote off $2 million of unamortized financing costs related to these notes.
Issuance proceed was used as follows:
(in millions of Canadian dollars)
Debt issuance
Premium received on debt issuance
Offering fees
Repurchase of 2023 Notes
Premium paid on repurchase of long-term debt
Decrease of credit facility and increase in cash and cash equivalent
2020
396
17
(4)
(264)
(4)
141
47
You see impressive results. We see unbreakable commitment.
2019
On November 26, 2019, the Corporation issued $175 million aggregate principal amount of 5.125% due in 2025, US$350 million aggregate
principal amount of 5.125% due in 2026 and US$300 million aggregate principal amount of 5.375% due in 2028, totaling $1,026 million, net
of transaction fees of $13 million.
The Corporation used the proceeds from this offering to fund the redemption of its US$400 million of its 5.50% unsecured senior notes due
in 2022 for an amount of US$405 million ($533 million) and its $250 million of its 5.50% unsecured senior notes due in 2021 for an amount
of $254 million, including premiums of US$5 million ($7 million) and $4 million. The Corporation also wrote off $3 million of unamortized
financing costs related to these notes.
Issuance proceeds were used as follows:
(in millions of Canadian dollars)
Debt issuance
Offering fees
Repurchase of 2021 and 2022 Notes
Premium paid on repurchase of long-term debt
Decrease of credit facility
2019
1,039
(13)
(776)
(11)
239
VARIANCE IN OTHER DEBTS WITHOUT RECOURSE TO THE CORPORATION
On December 11, 2020, Greenpac entered into an agreement with its lenders to extend and amend its credit facilities. The amended credit
agreement still provides Greenpac with a revolving credit of US$50 million while the principal of the term loan was reduced, with cash on
hand and utilization of the revolving line of credit, to US$75 million, from US$122 million at the time of the amendment. The term of the
amended credit agreement is extended to December 2023. The financing terms and conditions remain essentially unchanged.
SETTLEMENT OF DERIVATIVE FINANCIAL INSTRUMENTS
In 2020, the Corporation also received $1 million from the settlement of derivative financial instruments.
ISSUANCE OF COMMON SHARES ON PUBLIC OFFERING
On October 5, 2020, the Corporation entered into an agreement with underwriters pursuant to which the Corporation issued and the
underwriters purchased on a bought deal basis 7,441,000 common shares at a price of $16.80 per common share for gross proceeds of
$125 million. Transactions fees amounted to $5 million before income tax recovery of $1 million. The transaction closed on
October 22, 2020.
ISSUANCE OF COMMON SHARES UPON EXERCISE OF STOCK OPTION AND REDEMPTION OF COMMON SHARES
The Corporation issued 1,225,489 shares at an average price of $5.89 as a result of the exercise of stock options in 2020, representing an
aggregate amount of $7 million (2019 - $5 million for 1,048,434 common shares issued).
The Corporation purchased 635,554 shares for cancellation at an average price of $12.41 for $8 million in 2020 (2019 - $9 million for
966,654 common shares).
PAYMENT OF OTHER LIABILITIES
On January 3, 2020, the Corporation paid an amount of other liabilities of $121 million related to the purchase of CDPQ interest in
Greenpac Holding LLC (see “Business Highlights” section for more details).
DIVIDENDS PAID TO NON-CONTROLLING INTERESTS
Dividends paid to non-controlling interests amounted to $16 million in 2020 ($17 million in 2019). These payments are the result of
dividends paid to the non-controlling shareholders of Greenpac and/or Reno de Medici.
48
2020 Annual Report
CONSOLIDATED FINANCIAL POSITION
AS AT DECEMBER 31, 2020, 2019 AND 2018
The Corporation’s financial position and ratios are as follows:
(in millions of Canadian dollars, unless otherwise noted)
December 31, 2020
Cash and cash equivalents
Working capital1
As a percentage of sales2
Total assets
Total debt3
Net debt3 (total debt less cash and cash equivalents)
Equity attributable to Shareholders
Non-controlling interests
Total equity
Total equity and net debt
Ratio of net debt/(total equity and net debt)
Shareholders' equity per share (in dollars)
December 31, 20194
155
416
10.1%
5,188
2,118
1,963
1,492
177
1,669
3,632
384
365
9.6%
5,412
2,063
1,679
1,753
204
1,957
3,636
December 31, 2018
123
455
10.6%
4,948
1,892
1,769
1,506
180
1,686
3,455
51.2%
15.99
$
46.2%
17.14
$
54.0%
15.83
$
1 Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less trade and other payables.
2 Percentage of sales = Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals, respectively, of the last twelve months.
3 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
4 2019 consolidated results have been adjusted to reflect retrospective adjustments of purchase price allocation. Please refer to Note 5 of the 2020 Audited Consolidated Financial Statements
for more details.
The following table reflects the Corporation’s secured debt rating/corporate rating/unsecured debt rating:
Credit rating (outlook)
MOODY'S
Baa3/Ba2/Ba3 (stable)
STANDARD & POOR'S
BB+/BB-/BB- (stable)
NET DEBT1 RECONCILIATION
The variances in the net debt (total debt less cash and cash equivalents) in 2020 are shown below (in millions of dollars), with the
applicable financial ratios included.
1,963
(567)
(120)
(22)
(20)
18
48
63
121
195
1,679
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1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for reconciliation of these figures.
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49
You see impressive results. We see unbreakable commitment.
Liquidity available via the Corporation’s credit facilities, cash and cash equivalent balance and the anticipated cash flow generated by its
operating activities are expected to provide sufficient funds to meet our financial obligations and to fulfill our capital expenditure program
for at least the next twelve months. As at December 31, 2020, the Corporation had $737 million (net of letters of credit in the amount of
$13 million) available on its $750 million credit facility (excluding the credit facilities of our subsidiaries Greenpac and Reno de Medici).
Cash and cash equivalents as at December 31, 2020 are comprised as follows: $252 million in the parent company and restricted
subsidiaries (as defined in the credit agreement) and $132 million in unrestricted subsidiaries, mainly Greenpac and Reno de Medici.
EMPLOYEE FUTURE BENEFITS
The Corporation’s employee future benefits assets and liabilities amounted to $495 million and $656 million respectively as at
December 31, 2020, including an amount of $105 million for post-employment benefits other than pension plans. The pension plans
include an amount of $72 million, which does not require any funding by the Corporation until it is paid to the employees. This amount is
not expected to increase, as the Corporation has reviewed its benefits program to phase out some of them for future retirees.
With regard to pension plans, the Corporation’s risk is limited, since all defined benefit pension plans are closed to new employees and
less than 10% of its active employees are subject to those pension plans, while the remaining employees are part of the Corporation’s
defined- contribution plans, such as group RRSPs or 401(k). Based on their liabilities balances as at December 31, 2020, 92% of the
Corporation pension plans have been evaluated on December 31, 2019 (23% in 2018).
Considering the assumptions used and the asset ceiling limit, the deficit status for accounting purposes of its pension plans amounted to
$69 million as at December 31, 2020, compared to $47 million in 2019. The 2020 pension plan expense was $8 million and the cash
outflow was $7 million. Due to the investment returns in 2020 and the change in the assumptions, the expected expense for these pension
plans is $6 million in 2021. As for the cash flow requirements, these pension plans are expected to require a net contribution of
approximately $7 million in 2021. Finally, on a consolidated basis, the solvency ratio of the Corporation’s pension plans has remained
stable at approximately 100%.
COMMENTS ON THE FOURTH QUARTER OF 2020
For the 3-month period ended December 31, 2020, the Corporation posted net earnings of $73 million, or $0.72 per share, compared with
a net loss of $26 million, or $0.27 per share, for the same period in 2019. On an adjusted basis1, the Corporation generated net earnings of
$42 million in the fourth quarter 2020, or $0.42 per share, compared with net earnings of $29 million, or $0.30 per share, for the same
period in 2019.
Sales of $1,284 million increased by $57 million, or 5%, compared with the same period last year. This was driven by higher volumes in all
our packaging segments combined with a higher average selling price in the Tissue segment. As well, higher sales from Recovery and
Recycling activities stemming from the higher market prices for recycled fibers, and the favourable euro exchange rate also benefited sales
in the fourth quarter.
The Corporation generated an operating income before depreciation and amortization (OIBD) of $181 million in the fourth quarter 2020.
This compares with $76 million generated in the same period last year. On an adjusted basis1, fourth quarter 2020 OIBD stood at
$166 million, versus $152 million in the previous year. The $14 million adjusted OIBD1 increase reflects several factors. These include the
higher average selling price in the Tissue segment, higher volumes in the Packaging segments, lower energy costs primarily in the
European activities, higher profitability in Recovery and Recycling activities and lower production and selling and administrative expenses.
Conversely, higher market prices of brown recycled fibers partially offset these benefits, most notably in the Containerboard
Packaging segment.
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
50
2020 Annual Report
The main variances1 in sales and operating income before depreciation and amortization in the fourth quarter of 2020, compared to the
same period of 2019, are shown below:
SALES ($M)
16
6
29
1,284
(23)
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13
7
29
6
2
15
181
166
(43)
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The Corporation incurred certain specific items in 2020 and 2019 that adversely or positively affected its operating results2.
The main specific items, before income taxes, that impacted our fourth quarter 2020 results were:
•
•
•
•
•
$40 million gain from the sale of a building and the land of the Containerboard Packaging facility located in Etobicoke, Ontario,
Canada;
$2 million environmental provision related to a Tissue plant in Pennsylvania, USA;
$13 million of impairment charges, primarily in the Tissue Papers and Boxboard Europe segments, related to changes in the
valuation of certain assets due to the current economic and market demand conditions;
$8 million of restructuring charges recorded in Tissue and Corporate Activities as part of profitability improvement and
restructuring initiatives;
$2 million unrealized loss on financial instruments.
1 For definitions of certain sales and operating income before depreciation and amortization (OIBD) variation categories, please refer to the “Financial results for the year ended
December 31, 2020, compared to the year ended December 31, 2019” section for more details.
2 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
51
You see impressive results. We see unbreakable commitment.
The following table reconciles net earnings (loss) and net earnings (loss) per share, as per IFRS, with adjusted net earnings and adjusted
net earnings per share:
(in millions of Canadian dollars, except amount per share)
As per IFRS
Specific items:
Loss (gain) on acquisitions, disposals and others
Inventory adjustment resulting from business combination
Impairment charges
Restructuring costs
Unrealized loss on derivative financial instruments
Loss on repurchase of long-term debt
Unrealized gain on interest rate swaps and option fair value
Foreign exchange loss (gain) on long-term debt and financial
instruments
Fair value revaluation loss on investments
Tax effect on specific items, other tax adjustments and
attributable to non-controlling interests1
Adjusted
NET EARNINGS (LOSS)
Q4 2020
73
Q4 2019
(26) $
NET EARNINGS (LOSS) PER SHARE1
Q4 2019
Q4 2020
0.72 $
(0.27)
(38)
—
13
8
2
—
(11)
(3)
3
(5)
(31)
42
5 $
2
64 $
3 $
2 $
14
(1) $
1 $
— $
(35)
55 $
29 $
(0.34) $
— $
0.09 $
0.05 $
0.02 $
— $
(0.12) $
(0.02) $
0.02
— $
(0.30) $
0.42
0.04
0.02
0.49
0.02
0.01
0.11
(0.01)
0.01
—
(0.12)
0.57
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. Please refer to “Provision for income taxes” on the "Supplemental Information on Non-IFRS
Measures" section for more details.
The reconciliation of operating income (loss) to OIBD, to adjusted operating income (loss) and to adjusted OIBD by business segment is
as follows:
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and amortization
Specific items:
Loss (gain) on acquisitions, disposals and others
Impairment charges (reversals)
Restructuring costs
Unrealized loss on derivative financial instruments
Adjusted operating income (loss) before depreciation and
amortization
Adjusted operating income (loss)
Containerboard
Boxboard
Europe
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
For the 3-month period ended December 31, 2020
122
28
150
(40)
(2)
—
2
(40)
110
82
5
13
18
—
9
—
—
9
27
14
12
3
15
—
—
—
—
—
15
12
10
17
27
2
5
6
—
13
40
23
(40)
11
(29)
—
1
2
—
3
(26)
(37)
109
72
181
(38)
13
8
2
(15)
166
94
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and amortization
Specific items:
Loss on acquisitions, disposals and others
Inventory adjustment resulting from business acquisition
Impairment charges
Restructuring costs
Unrealized loss (gain) on derivative financial instruments
Adjusted operating income (loss) before depreciation and
amortization
Adjusted operating income (loss)
Containerboard
Boxboard
Europe
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
For the 3-month period ended December 31, 2019
69
29
98
4
—
2
1
1
8
106
77
(6)
14
8
—
—
14
—
2
16
24
10
5
4
9
—
—
—
—
—
—
9
5
(21)
18
(3)
—
2
34
2
—
38
35
17
(48)
12
(36)
1
—
14
—
(1)
14
(22)
(34)
(1)
77
76
5
2
64
3
2
76
152
75
52
2020 Annual Report
NEAR-TERM OUTLOOK
Our near-term outlook is positive despite ongoing COVID-19 related uncertainty. Demand levels in Containerboard remain strong which,
combined with recent industry price increases, are expected to help offset raw material pricing headwinds. In Tissue, stronger than
expected volumes in December, usual seasonal softness in the first quarter, and unfavourable demand impact on Away-from-Home
products related to COVID-19 are expected to translate into weaker sequential performance. We expect the ongoing modernization, cost
management and margin improvement initiatives to partially counter softer demand factors. Near-term performance in Specialty Products
is forecasted to remain stable sequentially, with higher average selling prices and good demand trends for consumer food packaging
offsetting slightly higher raw material costs. Results in European Boxboard are expected to remain stable, with higher volumes and a
favourable exchange rate mitigating higher forecasted raw material and energy costs. On a consolidated basis, raw material costs are
expected to be a headwind for our businesses sequentially, with average OCC prices increasing in line with usual seasonal trends for the
period. Prices for white recycled fibers remain stable, while those for virgin pulp are expected to increase given recent moves in index
pricing. Raw materials remain readily available, and we do not foresee any changes in this regard.
Looking further ahead, 2021 will be a busy year. The highlight will be our Bear Island containerboard project, which will account for the
lion's share of our capex program. We will also be finalizing modernization investments in our tissue converting operations, with all of these
projects encompassed within our $450 to $475 million capital program for 2021. We expect these investments to be fully funded by solid
projected cash flows for the year, in part driven by our ongoing margin improvement initiatives that are targeting net revenue management,
production efficiency, organizational effectiveness and supply chain optimization. These initiatives are expected to contribute 1% annually
to consolidated OIBD margins in both 2021 and 2022, regardless of external factors. As we continue to navigate the challenges and
uncertainties inherent in the ongoing COVID-19 business environment, we remain focused on ensuring the health and safety of our
employees, and on proactively engaging with our customers to ensure that their needs and expectations are met consistently, promptly
and professionally.
CAPITAL STOCK INFORMATION
SHARE TRADING
Cascades’ stock is traded on the Toronto Stock Exchange under the ticker symbol “CAS”. From January 1, 2020 to December 31, 2020,
Cascades' share price fluctuated between $10.17 and $17.61. During the same period, 74.1 million Cascades shares were traded on the
Toronto Stock Exchange. On December 31, 2020, Cascades shares closed at $14.55. This compares with a closing price of $11.21 on the
same closing day last year.
SHARES OUTSTANDING
As at December 31, 2020, the Corporation’s issued and outstanding capital stock consisted of 102,276,230 shares (94,245,295 as at
December 31, 2019) and 2,433,090 issued and outstanding stock options (3,476,296 as at December 31, 2019). In 2020, the Corporation
purchased 635,554 shares for cancellation, while 1,225,489 stock options were exercised, 184,193 stocks options were granted and
1,910 stock options were forfeited.
On October 5, 2020, the Corporation entered into an agreement with underwriters pursuant to which the Corporation issued and the
underwriters purchased on a bought deal basis 7,441,000 common shares at a price of $16.80 per common share for gross proceeds of
$125 million. Transactions fees amounted to $5 million before income tax recovery of $1 million. The transaction closed on
October 22, 2020.
As at February 24, 2021, issued and outstanding capital stock consisted of 102,281,072 shares and 2,428,248 stock options.
NORMAL COURSE ISSUER BID PROGRAM
The normal course issuer bid announced on March 14, 2019 enabled the Corporation to purchase for cancellation up to 1,878,456 shares
between March 19, 2019 and March 18, 2020. During that period, the Corporation purchased 780,308 shares for cancellation. The current
normal course issuer bid announced on March 17, 2020 enables the Corporation to purchase for cancellation up to 1,886,220 shares
between March 19, 2020 and March 18, 2021. During the period between March 19, 2020 and February 24, 2021, the Corporation
purchased 279,700 shares for cancellation.
DIVIDEND POLICY
On February 24, 2021, Cascades’ Board of Directors declared a quarterly dividend of $0.08 per share to be paid on March 25, 2021 to
shareholders of record at the close of business on March 10, 2021. On February 24, 2021, dividend yield was 2.0%.
53
You see impressive results. We see unbreakable commitment.
TSX Ticker: CAS
Shares outstanding (in millions)1
Closing price1
Average daily volume2
Dividend yield1
Q1
Q2
Q3
2018
Q4
Q1
Q2
Q3
2019
Q4
Q1
Q2
Q3
2020
Q4
95.0
94.6
94.2
94.2
93.6
93.6
94.2
94.2
94.3
95.0
95.0
102.3
$ 13.33
$ 11.77
$ 12.61
$ 10.23
$ 8.34
$ 10.54
$ 11.58
$ 11.21
$ 12.57
$ 14.79
$ 16.84
$ 14.55
246,940
201,563
215,882
218,696
238,606
202,448
164,371
146,157
256,827
298,267
257,710
363,795
1.2%
1.4%
1.3%
1.6%
1.9%
1.5%
2.8%
2.9%
2.5%
2.2%
1.9%
2.2%
1 On the last day of the quarter.
2 Average daily volume on the Toronto Stock Exchange.
CASCADES’ SHARE PRICE FOR THE PERIOD FROM JANUARY 1, 2018 TO DECEMBER 31, 2020
$18.00
$16.00
$14.00
$12.00
$10.00
$8.00
Q1
18
Q2
18
Q3
18
Q4
18
Q1
19
Q2
19
Q3
19
Q4
19
Q1
20
Q2
20
Q3
20
Q4
20
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Corporation’s principal contractual obligations and commercial commitments relate to outstanding debt, capital expenditures, services
agreements and obligations for its pension and post-employment benefit plans. The following table summarizes these obligations as at
December 31, 2020:
CONTRACTUAL OBLIGATIONS
Payment due by period (in millions of Canadian dollars)
Long-term debt, including capital and interest
Commitments for capital expenditures and intangibles assets
Services agreements and exempted leases
Pension plans and other post-employment benefits1
Total contractual obligations
TOTAL
2,647
61
28
950
3,686
LESS THAN
ONE YEAR
BETWEEN ONE
AND FIVE YEARS
OVER FIVE YEARS
202
58
17
35
312
1,002
3
10
144
1,159
1,443
—
1
771
2,215
1 These amounts represent all the benefits payable to current members during the following years and thereafter without limitations. The majority of benefit payments are payable from trustee-
administered funds. The difference will come from future investment returns expected on plan assets and future contributions that will be made by the Corporation for services rendered after
December 31, 2020.
FACTORING OF ACCOUNTS RECEIVABLE
The Corporation sells its accounts receivable from one of its European subsidiaries through a factoring contract with a financial institution.
The Corporation uses factoring of accounts receivable as a source of financing by reducing its working capital requirements. When the
accounts receivable are sold, the Corporation removes them from the balance sheet, recognizes the amount received as the consideration
for the transfer and records a loss on factoring, which is included in “Financing expense”. As at December 31, 2020, the off-balance sheet
impact of the factoring of accounts receivable amounted to $56 million (€36 million). The Corporation expects to continue to sell accounts
receivable on an ongoing basis. Should it decide to discontinue this contract, its working capital and bank debt requirements
would increase.
54
2020 Annual Report
TRANSACTIONS WITH RELATED PARTIES
The Corporation has also entered into various agreements with its joint-venture partners, significantly influenced companies and entities
that are affiliated with one or more of its directors for the supply of raw material including recycled paper, virgin pulp and energy, as well as
the supply of unconverted and converted products, and other agreements entered into in the normal course of business. Aggregate sales
by the Corporation to its joint-venture partners and other affiliates totaled $265 million and $248 million for 2020 and 2019 respectively.
Aggregate sales to the Corporation from its joint-venture partners and other affiliates came to $84 million and $87 million for 2020 and
2019 respectively.
CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
A. NEW IFRS ADOPTED
Amendment to IFRS 16 LEASES
In May 2020, the IASB issued an amendment to IFRS 16 Leases, with the objective of providing practical relief to lessees in accounting for
rent concessions arising as a result of the COVID-19 pandemic. The amendment introduces an optional practical expedients for lessees to
not account for rent concessions as lease modifications if they are a direct consequence of the COVID-19 pandemic and meet
certain conditions.
This amendment to IFRS 16 was adopted effective on April 1, 2020. The Corporation was not in a position to apply any of the practical
expedient to the existing contracts.
B. RECENT IFRS PRONOUNCEMENT NOT YET ADOPTED
LIBOR reform with amendments to IFRS 9, IAS 29, IFRS 7 and IFRS 16
In August 2020, the IASB issued Interest Rate Benchmark Reform-Phase 2, which amends IFRS 9 Financial Instruments, IAS 39 Financial
Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures and IFRS 16 Leases. The amendments
complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate
benchmark with an alternative benchmark rate as a result of the reform. The standard will be effective on January 1, 2021 for the
Corporation. The Corporation is currently evaluating the impact of this standard on its financial statements.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, and the reported
amounts of revenues and expenses during the reporting period. On a regular basis and with the information available, Management
reviews its estimates, including those related to environmental costs, employee future benefits, collectability of accounts receivable,
financial instruments, contingencies, income taxes, useful life and residual value of property, plant and equipment and impairment of
property, plant and equipment and intangible assets. Actual results could differ from those estimates. When adjustments become
necessary, they are reported in earnings in the period in which they occur.
A. IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
In determining the recoverable amount of an asset or CGU, based on the market approach, management uses the value of comparable
assets on the market. In determining the recoverable amount of an asset or CGU, based on the income approach, management uses
several key assumptions, including estimated shipments levels, foreign exchange rates, revenue growth rates, operating income before
depreciation (OIBD) margins, discount rates and capital expenditures.
The Corporation believes its assumptions are reasonable. Based on available information at the assessment date, however, these
assumptions involve a high degree of judgment and complexity. Management believes that the following assumptions are the most
susceptible to change and therefore could impact the valuation of the assets in the next year.
55
You see impressive results. We see unbreakable commitment.
DESCRIPTION OF SIGNIFICANT
Financial Statements)
IMPAIRMENT TESTING ASSUMPTIONS
(see Note 26 of Audited Consolidated
REVENUES, OPERATING INCOME BEFORE DEPRECIATION (OIBD) MARGINS, CASH FLOWS AND GROWTH RATES
The assumptions used were based on the Corporation's internal budget. Revenues, OIBD margins and cash flows were projected for a
period of five years and a perpetual long-term growth rate was applied thereafter. In arriving at its forecasts, the Corporation considers past
experience, economic trends such as gross domestic product growth and inflation, as well as industry and market trends.
DISCOUNT RATES
The Corporation assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate represents a
weighted average cost of capital (WACC) for comparable companies operating in similar industries of the applicable CGU, group of CGUs
or reportable segment based on publicly available information.
FOREIGN EXCHANGE RATES
When estimating the fair value less cost of disposal, foreign exchange rates are determined using the financial institution's average
forecast for the first two years of forecasting. For the following three years, the Corporation uses the last five years' historical average of
the foreign exchange rate. Terminal rate is based on historical data of the last twenty years and adjusted to reflect Management's
best estimate.
SHIPMENTS
The assumptions used are based on the Corporation's internal budget for the next year and are usually held constant for the forecast
period. In arriving at its budgeted shipments, the Corporation considers past experience, economic trends as well as industry and
market trends.
Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse changes in one or a combination
of the Corporation's key assumptions could cause a significant change in the carrying amounts of these assets.
B. INCOME TAXES
The Corporation is required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value for
existing tax losses based on the Corporation's assessment of its ability to use them against future taxable income before they expire. If the
Corporation's assessment of its ability to use the tax losses proves inaccurate in the future, more or less of the tax losses might be
recognized as assets, which would increase or decrease the income tax expense and, consequently, affect the Corporation's results in the
relevant year.
C. EMPLOYEE BENEFITS
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity
approximating the terms of the related pension liability.
The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro-
rated on years of service and Management's best estimate of expected plan investment performance, salary escalations, retirement ages
of employees and expected health care costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation
date. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are
reviewed annually.
D. GOODWILL, INTANGIBLE ASSETS AND BUSINESS COMBINATIONS
Goodwill and client lists have arisen as a result of business combinations. The acquisition method, which also requires significant
estimates and judgments, is used to account for these business combinations. As part of the allocation process in a business combination,
estimated fair values are assigned to the net assets acquired. These estimates are based on forecasts of future cash flows, estimates of
economic fluctuations and an estimated discount rate. The excess of the purchase price over the estimated fair value of the net assets
acquired is then assigned to goodwill. In the event that actual net assets fair values are different from estimates, the amounts allocated to
the net assets could differ from what is currently reported. This would then have a direct impact on the carrying value of goodwill.
Differences in estimated fair values would also have an impact on the amortization of definite life intangibles.
E. FAIR VALUE OF BUSINESS COMBINATION
The Corporation makes a number of estimates when allocating fair values to the assets and liabilities acquired in a business acquisition.
Fair values are estimated using valuation techniques that take into account several assumptions such as production, amount and timing of
earnings and expenses, revenue growth, discount rate and capital expenditures.
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CRITICAL JUDGMENTS IN APPLYING THE CORPORATION'S ACCOUNTING POLICIES
CRITICAL JUDGMENTS REGARDING THE PANDEMIC IMPACT
As a response to the effects of the COVID-19 pandemic, the Corporation reviewed the assumptions for operating plans, valuation of
property plant and equipment and accounts receivable. The exercise resulted in no additional expected credit loss for accounts
receivables. The Corporation continues to closely monitor the COVID-19 situation: the duration, spread or intensity of the pandemic as it
continues to evolve, along with the supply chain, market pricing and customer demand. These factors may further impact the Corporation’s
operating plan, its cash flows, its ability to raise funds and the valuation of its long-lived assets.
CONTROLS AND PROCEDURES
EVALUATION OF THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES, AND INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Corporation’s President and Chief Executive Officer, and its Vice-President and Chief Financial Officer have designed, or caused to be
designed under their supervision, disclosure controls and procedures (DC&P) and internal controls over financial reporting (ICFR), as
defined in National Instrument 52-109, “Certification of Disclosure in Issuer’s Annual and Interim Filings”.
The DC&P have been designed to provide reasonable assurance that important information relevant to the Corporation is communicated to
the President and Chief Executive Officer and to the Vice-President and Chief Financial Officer by other people and that information
required to be disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by the Corporation under
securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. The
President and Chief Executive Officer and the Vice-President and Chief Financial Officer have concluded, based on their evaluation, that
the DC&P of the Corporation were effective as at December 31, 2020.
The ICFR was designed to provide reasonable assurance that the financial information presented is reliable and that the financial
statements were prepared according to the IFRS. The President and Chief Executive Officer and the Vice-President and Chief Financial
Officer have evaluated the effectiveness of the ICFR as at December 31, 2020 based on the control framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 COSO Framework). Based on this evaluation, they have concluded that the
Corporation’s ICFR were effective as of the same date. During the year ended December 31, 2020, there were no changes in the
Corporation’s ICFR that materially affected or are reasonably likely to materially affect the Corporation’s ICFR.
RISK FACTORS
As part of its ongoing business operations, the Corporation is exposed to certain market risks, including risks ensuing from changes in
selling prices for its principal products, costs of raw material, interest rates and foreign currency exchange rates, all of which impact the
Corporation’s financial position, operating results and cash flows. The Corporation manages its exposure to these and other market risks
through regular operating and financing activities and, on a limited basis, through the use of derivative financial instruments. We use these
derivative financial instruments as risk management tools, not for speculative investment purposes. The following is a discussion of key
areas of business risks and uncertainties that we have identified, and our mitigating strategies. The risk areas below are listed in no
particular order, as risks are evaluated based on both severity and probability. Readers are cautioned that the following is not an
exhaustive list of all the risks we are exposed to, nor will our mitigation strategies eliminate all risks listed.
Risks Relating to the Corporation’s Business
If the Corporation does not successfully manage the demand, supply and operational challenges associated with the effects of
the novel coronavirus (COVID-19) pandemic or other similar widespread public health concerns, our results will be
negatively impacted.
The Corporation’s business may be negatively impacted by the fear of exposure to, actual effects of, or government response to,
COVID-19, such as travel restrictions, business shutdowns or limitations, shelter-in-place orders, recommendations or mandates from
governmental authorities to avoid large gatherings or to self-quarantine as a result of COVID-19, or other shutdowns and restrictions.
These impacts include, but are not limited to:
•
Significant reductions in demand or significant volatility in demand for one or more of the Corporation’s products, which may be
caused by, among other things: quarantine or other travel restrictions, financial hardship, shifts in demand away from one or
more of the Corporation’s products, including our away-from-home products or our industrial packaging products, or consumer
stockpiling activity which may result in a decrease in demand for our products in one period as a result of excessive purchases of
the Corporation’s products in another period; if prolonged, these events further increase the difficulty of planning for operations
and may adversely impact the Corporation’s results;
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You see impressive results. We see unbreakable commitment.
•
•
•
•
Inability to meet the Corporation’s customers’ needs and achieve cost targets due to disruptions in the Corporation’s
manufacturing and supply arrangements caused by constrained workforce capacity or the loss or disruption of other significant
manufacturing or supply materials such as raw materials or other finished product components, transportation, or other
manufacturing and distribution capability. While the Corporation has not been required to do so to date, in the future the
Corporation may be required to limit or shut down our manufacturing facilities to comply with any future, more stringent
government mandates, which may adversely impact the Corporation’s results;
Failure of third parties on which the Corporation rely, including its suppliers, contract manufacturers, distributors and other
contractors, to meet their obligations to the Corporation, or significant disruptions in their ability to do so, which may be caused
by their own financial or operational difficulties or their inability to deliver goods or services based on governmental restrictions or
other mandates and may adversely impact the Corporation’s operations;
Increased expenses related to the implementation of procedures to comply with governmental regulations and recommendations
and maintain the health and safety of the Corporation’s employees such as remote working (which, in turn, creates additional
cyber security risks), health screenings and enhanced cleaning and sanitation protocols; the Corporation expects to continue to
incur costs related to its mitigation efforts and it may have to enact additional, more expensive measures to continue to comply
with governmental regulations and recommendations, which may become more stringent in the future, in order to ensure the
health and safety of its employees; or
Government actions in one or more of the jurisdictions in which Cascades operate, resulting in Cascades no longer having the
benefits of being deemed an “essential business” (or other government actions undertaken to restrict the business activities of
businesses they deem essential) and, as a result, forcing the Corporation to scale back its operations or halt them entirely, or
government action resulting in any of our suppliers, contract manufacturers, distributors and other contractors no longer being
deemed essential and thus impacting the Corporation’s ability to deliver its products and services to its customers, which may
adversely impact its operations and results.
Despite the Corporation’s efforts to manage and remedy these impacts to the Corporation, their ultimate impact also depends on factors
beyond its control, including the duration and severity of the COVID-19 pandemic as well as third-party actions taken to contain its spread
and mitigate its public health effects. The adverse effects described above may also apply to other epidemics, pandemics and other public
health emergencies.
To the extent the COVID-19 pandemic adversely affects the Corporation’s business, operations, financial condition and operating results, it
may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to the
Corporation’s high level of indebtedness, its need to generate sufficient cash flows to service its indebtedness, and its ability to comply with
the covenants contained in the agreements that govern its indebtedness.
The markets for some of the Corporation’s products tend to be cyclical in nature and prices for some of its products, as well as
raw material and energy costs, may fluctuate significantly, which can adversely affect its business, operating results, profitability
and financial position.
The markets for some of the Corporation’s products, particularly containerboard and boxboard, are cyclical. As a result, prices for these
types of products and for its two principal raw material, recycled paper and virgin fibre, have fluctuated significantly in the past and will
likely continue to fluctuate significantly in the future, principally due to market imbalances between supply and demand. Demand is heavily
influenced by the strength of the global economy and the countries or regions in which Cascades does business, particularly Canada and
the United States, the Corporation’s two primary markets. Demand is also influenced by fluctuations in inventory levels held by customers
and consumer preferences. Supply depends primarily on industry capacity and capacity utilization rates. In periods of economic weakness,
reduced spending by consumers and businesses results in decreased demand, which can potentially cause downward price pressure.
Industry participants may also, at times, add new capacity or increase capacity utilization rates, potentially causing supply to exceed
demand and exerting downward price pressure. In addition, in the event of depressed market prices for recycled paper, the availability of
recycled paper may decrease.
Depending on market conditions and related demand, Cascades may have to take market-related downtime. In addition, the Corporation
may not be able to maintain current prices or implement additional price increases in the future. If Cascades is unable to do so, its
revenues, profitability and cash flows could be adversely affected. In addition, other participants may introduce new capacity or increase
capacity utilization rates, which could also adversely affect the Corporation’s business, operating results and financial position.
Prices for recycled and virgin fibre also fluctuate considerably. The costs of these materials present a potential risk to the Corporation’s
profit margins, in the event that it is unable to pass along price increases to its customers on a timely basis. Although changes in the price
of recycled fibre generally correlate with changes in the price of products made from recycled paper, this may not always be the case. If
Cascades were unable to implement increases in the selling prices for its products to compensate for increases in the price of recycled or
virgin fibre, the Corporation’s profitability and cash flows would be adversely affected.
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2020 Annual Report
In addition, Cascades uses energy, mainly natural gas and fuel oil, to generate steam, which it then uses in the production process and to
operate machinery. Energy prices, particularly for natural gas and fuel oil, have continued to remain very volatile. Cascades continues to
evaluate its energy costs and consider ways to factor energy costs into its pricing. However, should energy prices increase, the
Corporation’s production costs, competitive position and operating results would be adversely affected. A substantial increase in energy
costs would adversely affect the Corporation’s operating results and could have broader market implications that could further adversely
affect the Corporation’s business or financial results.
Cascades faces significant competition and some of its competitors may have greater cost advantages, be able to achieve
greater economies of scale or be able to better withstand periods of declining prices and adverse operating conditions, which
could negatively affect the Corporation’s market share and profitability.
The markets for the Corporation’s products are highly competitive. In some of the markets in which Cascades competes, such as tissue
papers, it competes with a small number of other producers. In some businesses, such as the containerboard industry, competition tends
to be global. In others, such as the tissue industry, competition tends to be regional. In the Corporation’s packaging products segment, it
also faces competition from alternative packaging materials, such as, plastic and Styrofoam, which can lead to excess capacity, decreased
demand and pricing pressures.
Competition in the Corporation’s markets is primarily based on price, as well as customer service and the quality, breadth and performance
characteristics of its products. The Corporation’s ability to compete successfully depends on a variety of factors, including:
•
•
•
the Corporation’s ability to maintain high plant efficiencies, operating rates and lower manufacturing costs;
the availability, quality and cost of raw materials, particularly recycled and virgin fibre, as well as labour; and
the cost of energy.
Some of the Corporation’s competitors may, at times, have lower fibre, energy and labour costs, and less restrictive environmental and
governmental regulations to comply with than Cascades. For example, fully integrated manufacturers, or those whose requirements for
pulp or other fibre are met fully from their internal sources, may have some competitive advantages over manufacturers that are not fully
integrated, such as Cascades, in periods of relatively high raw material pricing, in that the former are able to ensure a steady source of
these raw material at costs that may be lower than prices in the prevailing market. In contrast, competitors that are less integrated than
Cascades may have cost advantages in periods of relatively low pulp or fibre prices because they may be able to purchase pulp or fibre at
prices lower than the costs the Corporation incurs in the production process. Other competitors may be larger in size or scope than
Cascades, which may allow them to achieve greater economies of scale on a global basis or to better withstand periods of declining prices
and adverse operating conditions.
In addition, there has been an increasing trend among the Corporation’s customers towards consolidation. With fewer customers in the
market for the Corporation’s products, the strength of its negotiating position with these customers could be weakened, which could have
an adverse effect on its pricing, margins and profitability.
Because of the Corporation’s international operations, it faces political, social and exchange rate risks that can negatively affect
its supply chain, manufacturing capabilities, distribution activities, operating results, net earnings and financial condition.
The Corporation’s international operations present it with a number of risks and challenges, including:
•
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effective marketing of its products in other countries;
tariffs and other trade barriers;
different regulatory schemes and political environments applicable to the Corporation’s operations in areas such as
environmental and health and safety compliance; and
exposure to health epidemics and pandemics such as the ongoing coronavirus outbreak and other highly communicable
diseases or viruses.
Cascades has customers and operations located outside Canada. In 2020, sales outside Canada, in Canadian dollars, represented
approximately 68% of the Corporation’s consolidated sales, including 47% in the United States. In 2020, 17% of sales from Canadian
operations were made to the United States.
In addition, the Corporation’s consolidated financial statements are reported in Canadian dollars, while a portion of its sales is made in
other currencies, primarily the U.S. dollar and the Euro. A decrease of the Canadian dollar against the U.S. dollar or the Euro could
adversely affect the Corporation’s operating results and financial condition. As at December 31, 2020, the Corporation had, on a
consolidated basis, total U.S. dollar-denominated debt of US$1,316 million and total Euro-denominated debt of €71 million.
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You see impressive results. We see unbreakable commitment.
Moreover, in some cases, the currency of the Corporation’s sales does not match the currency in which it incurs costs, which can
negatively affect the Corporation’s profitability. Fluctuations in exchange rates can also affect the relative competitive position of a
particular facility, where the facility faces competition from non-local producers, as well as the Corporation’s ability to successfully market
its products in export markets. As a result, if the Canadian dollar were to remain permanently strong compared to the US dollar and the
euro, it could affect the profitability of the Corporation’s facilities, which could lead Cascades to shut down facilities either temporarily or
permanently, all of which could adversely affect its business or financial results.
The Corporation uses various foreign exchange forward contracts and related currency option instruments to anticipate sales net of
purchases, interest expenses and debt repayment. These hedging instruments may not be effective in offsetting risks, may generate
losses or otherwise may adversely affect the Corporation’s financial results as compared to what its results would have been had the
hedges not been implemented.
The Corporation’s operations are subject to comprehensive environmental regulation and involve expenditures which may be
material in relation to its operating cash flow.
The Corporation is subject to environmental laws and regulations imposed by the various governments and regulatory authorities in all
countries in which it operates. These environmental laws and regulations impose stringent standards on the Corporation regarding, among
other things:
•
•
•
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air emissions;
water discharges;
use and handling of hazardous materials;
use, handling and disposal of waste; and
remediation of environmental contamination.
The Corporation is also subject to the U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)
as well as to other applicable legislation in the United States, Canada and Europe that holds companies accountable for the investigation
and remediation of hazardous substances. The Corporation’s European subsidiaries and some of our Québec plants are also subject to an
emissions market, aimed at reducing worldwide CO2 emissions. Each unit has been allocated emission rights (“CO2 quota”). On a
calendar year basis, the Corporation must buy the necessary credits to cover its deficit, on the open market, if its emissions are higher
than quota.
The Corporation’s failure to comply with applicable environmental laws, regulations or permit requirements may result in civil or criminal
fines, penalties or enforcement actions. These may include regulatory or judicial orders enjoining or curtailing operations, or requiring
corrective measures, the installation of pollution control equipment or remedial actions, any of which could entail significant expenditures. It
is difficult to predict the future development of such laws and regulations, or their impact on future earnings and operations, but these laws
and regulations may require capital expenditures to ensure compliance. In addition, amendments to, or more stringent implementation of,
current laws and regulations governing the Corporation’s operations could have a material adverse effect on its business, operating results
or financial position. Furthermore, although Cascades generally tries to plan for capital expenditures relating to environmental and health
and safety compliance on an annual basis, actual capital expenditures may exceed those estimates. In such an event, Cascades may be
forced to curtail other capital expenditures or other activities. In addition, the enforcement of existing environmental laws and regulations
has become increasingly strict. The Corporation may discover currently unknown environmental problems or conditions in relation to its
past or present operations, or may face unforeseen environmental liabilities in the future.
These conditions and liabilities may:
•
•
require site remediation or other costs to maintain compliance or correct violations of environmental laws and regulations; or
result in governmental or private claims for damage to person, property or the environment.
Either of these possibilities could have a material adverse effect on the Corporation’s financial condition or operating results.
Cascades may be subject to strict liability and, under specific circumstances, joint and several (solidary) liability for the investigation and
remediation of soil, surface and groundwater contamination, including contamination caused by other parties on properties that it owns or
operates and on properties where the Corporation or its predecessors have arranged for the disposal of regulated materials. As a result,
the Corporation is involved from time to time in administrative and judicial proceedings and inquiries relating to environmental matters. The
Corporation may become involved in additional proceedings in the future, the total amount of future costs and other environmental
liabilities of which could be material.
To date, the Corporation is in compliance, in all material respects, with all applicable environmental legislation or regulations. However, the
Corporation expects to incur ongoing capital and operating expenses in order to achieve and maintain compliance with applicable
environmental requirements.
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Cascades may be subject to losses that might not be covered in whole or in part by its insurance coverage.
Cascades carries comprehensive liability, fire and extended coverage insurance on all of its facilities, with policy specifications and insured
limits customarily carried in its industry for similar properties. In addition, some types of losses, such as losses resulting from wars, acts of
terrorism or natural disasters, are generally not insured because they are either uninsurable or not economically practical. Moreover,
insurers have recently become more reluctant to insure against these types of events. Should an uninsured loss or a loss in excess of
insured limits occur, Cascades could lose capital invested in that property, as well as the anticipated future revenues derived from the
manufacturing activities conducted on that property, while remaining obligated for any mortgage indebtedness or other financial obligations
related to the property. Any such loss could adversely affect its business, operating results or financial condition.
Labour disputes or shortages could have a material adverse effect on the Corporation’s cost structure and ability to run its mills
and plants as it depends on attracting and retaining qualified personnel.
As at December 31, 2020, the Corporation employed approximately 11,700 employees, of whom roughly 9,054 were employees of its
Canadian and United States operations, and approximately 34% of which workforce is unionized. In addition, in Europe, some of the
Corporation's operations are subject to national industry collective bargaining agreements that are renewed on an annual basis. The
Corporation’s inability to negotiate acceptable contracts with these unions upon expiration of an existing contract could result in strikes or
work stoppages by the affected workers, and increased operating costs as a result of higher wages or benefits paid to union members. If
the unionized workers were to engage in a strike or another form of work stoppage, Cascades could experience a significant disruption in
operations or higher labour costs, which could have a material adverse effect on its business, financial condition, operating results and
cash flow. Of the 35 collective bargaining agreements in North America, 5 have expired and are currently under negotiation, 5 will expire in
2021 and 11 will expire in 2022.
The Corporation generally begins the negotiation process several months before agreements are due to expire and is currently in the
process of negotiating with the unions where the agreements have expired or will soon expire. However, Cascades may not be successful
in negotiating new agreements on satisfactory terms, if at all.
Cascades's success depends in part upon its ability to continue to attract and retain qualified management, regulatory, technical, and sales
and marketing executives and personnel in various geographical locations. The failure to attract, integrate, motivate, and retain skilled and
qualified personnel could have a material adverse effect on the business. The Corporation competes for such personnel against numerous
companies. There can be no assurance that it will be successful in attracting or retaining such personnel and the failure to do so could
have a material adverse effect on our financial condition and results of operations.
Cascades may make investments in entities that it does not fully control and may not receive dividends or returns from those
investments in a timely fashion or at all.
Cascades has established joint ventures, made investments in associates and acquired significant participation in subsidiaries in order to
increase its vertical integration, enhance customer service and increase efficiency in its marketing and distribution in the United States and
other markets. The Corporation’s principal joint ventures, associates and significant participations in subsidiaries are:
•
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two 50%-owned joint ventures with Sonoco Products Corporation, of which one is in Canada (two plants) and one is in the United
States (two plants), that produce specialty paper packaging products such as headers, rolls and wrappers;
a 57.60%-owned subsidiary, Reno de Medici S.p.A., a European manufacturer of recycled boxboard; and
a 79.90%-owned subsidiary, Greenpac Holding LLC, a North American manufacturer of linerboard. The percentage including
indirect ownership stands at 86.35% for consolidation and accounting purposes (see Note 8 of the Audited Consolidated
Financial Statements for more details).
Apart from Reno de Medici S.p.A. and Greenpac Holding LLC, Cascades does not have control over these entities. The Corporation’s
inability to control entities in which it invests may affect its ability to receive distributions from these entities or to fully implement its
business plan. The incurrence of debt or entrance into other agreements by an entity not under the Corporation’s control may result in
restrictions or prohibitions on that entity’s ability to pay distributions to the Corporation. Even where these entities are not restricted by
contract or by law from paying dividends or making distributions to Cascades, the Corporation may not be able to influence the payout or
timing of these dividends or distributions. In addition, if any of the other investors in a non-controlled entity fail to observe their
commitments, the entity may not be able to operate according to its business plan or Cascades may be required to increase its level of
commitment. If any of these events were to transpire, the Corporation’s business, operating results, financial condition and ability to make
payments on the indebtedness could be adversely affected.
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You see impressive results. We see unbreakable commitment.
In addition, the Corporation has entered into various shareholder agreements relating to its joint ventures and equity investments. Some of
these agreements contain “shotgun” provisions, which provide that if one Shareholder offers to buy all the shares owned by the other
parties to the agreement, the other parties must either accept the offer or purchase all the shares owned by the offering Shareholder at the
same price and conditions. Some of the agreements also stipulate that, in the event that a Shareholder is subject to bankruptcy
proceedings or otherwise defaults on any indebtedness, the non-defaulting parties to that agreement are entitled to invoke the “shotgun”
provision or sell their shares to a third party. The Corporation’s ability to purchase the other Shareholders’ interests in these joint ventures if
they were to exercise these “shotgun” provisions could be limited by the covenants in the Corporation’s credit facility and the indenture.
In addition, Cascades may not have sufficient funds to accept the offer or the ability to raise adequate financing should the need arise,
which could result in the Corporation having to sell its interests in these entities or otherwise alter its business plan.
Acquisitions have been, and are expected to continue to be a substantial part of the Corporation’s growth strategy, which could
expose the Corporation to difficulties in integrating the acquired operation, diversion of management time and resources, and
unforeseen liabilities, among other business risks.
Acquisitions have been a significant part of the Corporation’s growth strategy. Cascades expects to continue to selectively seek strategic
acquisitions in the future. The Corporation’s ability to consummate and to effectively integrate any future acquisitions on terms that are
favourable to it may be limited by the number of attractive acquisition targets, internal demands on its resources and, to the extent
necessary, its ability to obtain financing on satisfactory terms, if at all. Acquisitions may expose the Corporation to additional
risks, including:
•
•
•
•
•
•
difficulties in integrating and managing newly acquired operations and improving their operating efficiency;
difficulties in maintaining uniform standards, controls, procedures and policies across all of the Corporation’s businesses;
entry into markets in which Cascades has little or no direct prior experience;
the Corporation’s ability to retain key employees of the acquired company;
disruptions to the Corporation’s ongoing business; and
diversion of management time and resources.
In addition, future acquisitions could result in Cascades' incurring additional debt to finance the acquisition or possibly assuming additional
debt as part of it, as well as costs, contingent liabilities and amortization expenses. The Corporation may also incur costs and divert
management's attention for potential acquisitions that are never consummated. For acquisitions Cascades does consummate, expected
synergies may not materialize. The Corporation’s failure to effectively address any of these issues could adversely affect its operating
results, financial condition and ability to service debt, including its outstanding senior notes.
Although Cascades performs a due diligence investigation of the businesses or assets that it acquires and anticipates continuing to do so
for future acquisitions, the acquired business or assets may have liabilities that Cascades fails or is unable to uncover during its due
diligence investigation and for which the Corporation, as a successor owner, may be responsible. When feasible, the Corporation seeks to
minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some
instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained,
may not fully cover the liabilities because of their limited scope, amount or duration, or the financial resources of the indemnitor or
warrantor, or for other reasons.
The Corporation undertakes impairment tests, which could result in a write-down of the value of assets and, as a result, have a
material adverse effect.
IFRS requires that Cascades regularly undertake impairment tests of long-lived assets and goodwill to determine whether a write-down of
such assets is required. A write-down of asset value as a result of impairment tests would result in a non-cash charge that reduces the
Corporation’s reported earnings. Furthermore, a reduction in the Corporation’s asset value could have a material adverse effect on the
Corporation’s compliance with total debt-to-capitalization tests under its current credit facilities and, as a result, limit its ability to access
further debt capital.
Certain insiders of Cascades collectively own a substantial percentage of the Common Shares.
Messrs. Bernard, Laurent, Alain Lemaire and their families (“the Lemaires”) collectively own a substantive percentage of the Common
Shares, and there may be situations in which their interests and the interests of other holders of shares do not align. Because the
Corporation’s remaining shares are widely held, the Lemaires may be effectively able to:
•
•
•
elect all of the Corporation’s directors and, as a result, control matters requiring board approval;
control matters submitted to a shareholder vote, including mergers, acquisitions and consolidations with third parties and the sale
of all or substantially all of the Corporation’s assets; and
otherwise control or influence the Corporation’s business direction and policies.
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2020 Annual Report
In addition, the Lemaires may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could
enhance the value of their equity investment, even though the transactions might involve increased risk to the holders of the
Common Shares.
If Cascades is not successful in retaining or replacing its key personnel, including its President and Chief Executive Officer, its
Vice-President and Chief Financial Officer, its Chief of Strategy, Legal Affairs and Corporate Secretary and its Executive
Chairman of the Board and co-founder Alain Lemaire, the Corporation's business, financial condition or operating results could
be adversely affected.
Although Cascades believes that its key personnel will remain active in the business and that Cascades will continue to be able to attract
and retain other talented personnel and replace key personnel should the need arise, competition in recruiting replacement personnel
could be significant. Cascades does not carry key-man insurance on the members of its senior management.
Cascade’s business activities, intellectual property, operating results and financial position could suffer if Cascades is unable to
protect its information systems against, or effectively respond to, cyber-attacks or other cyber incidents.
The Corporation relies on information technology, other computer resources and its employees to process, transmit and store electronic
data in its daily business activities, and to carry out important operational and marketing activities. Despite the implementation of security
measures, the Corporation’s technology systems, and those of third parties on which it relies, are vulnerable to damage, disability or failure
due to computer viruses, malware or other harmful circumstance, intentional penetration or disruption of the Corporation’s information
technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security
controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure,
intentional or unintentional personnel actions (including the failure to follow its security protocols), or lost connectivity to its networked
resources. A significant and extended disruption in the functioning of these resources would result in an interruption of the Corporation’s
operations and could damage its reputation and cause the Corporation to lose customers, sales and revenue.
In addition, security breaches involving the Corporation’s systems or third party providers may occur, such as unauthorized access, denial
of service, computer viruses and other disruptive problems caused by hackers. This could result in the unintended public disclosure or the
misappropriation of proprietary, personal and confidential information, or in the inability to access company data (including due to
ransomware), and require the Corporation to incur significant expense to address and resolve these kinds of issues. The release of
confidential information may also lead to identity theft and related fraud, litigation or other proceedings against the Corporation by affected
individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include penalties or fines,
could have a material and adverse effect on its business activities, intellectual property, operating results and financial condition. The
occurrence of any of these incidents could result in adverse publicity, loss of consumer confidence or employees, and reduced sales and
profits. In addition, the costs of maintaining adequate protection against such threats, including potentially higher insurance costs, as they
develop rapidly in the future (or as legal requirements related to data security increase) could be material. Cyber security represents a
company-wide challenge and the related risks are part of the enterprise risk management program that is presented to the Corporation’s
audit and finance committee.
As a result of the foregoing, the Corporation may have to modify its business systems and practices with the goal of further improving data
security, which would result in increased expenditures and operating complexity. Although the Corporation has to date not experienced any
material losses relating to cyber-attacks or other information security breaches, there can be no assurance that it will not incur such losses
in the future. The Corporation’s risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving
nature of these threats. As cyber threats continue to evolve, the Corporation’s may be required to expend additional resources to continue
to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.
Climate change could negatively affect Cascades’ business and operations.
There is concern that carbon dioxide and other greenhouse gases in the atmosphere have an adverse impact on global temperatures,
weather patterns and the frequency and severity of extreme weather and natural disasters. The Corporation operates plants and delivers
products to clients in locations that may be subject to climate stress events such as sea-level rise and increased storm frequency or
intensity. Caused by climate change or not, the occurrence of one or more natural disasters or extreme weather conditions, such as a
hurricane, tornado, earthquake or flooding, may disrupt the productivity of the Corporation’s facilities or the operation of its supply chain
and unfavorably impact the demand for, or its consumers’ ability to purchase, its products. Further, climate changes could require higher
remediation and insurance costs for the Corporation.
63
You see impressive results. We see unbreakable commitment.
Concern over climate change may result in new or increased regional, federal and/or global legal and regulatory requirements to reduce or
mitigate the effects of greenhouse gases, or to limit or impose additional costs on commercial water use due to local water scarcity
concerns. In the event that such regulation is more stringent than current regulatory obligations or the measures that the Corporation is
currently undertaking to monitor and improve its energy efficiency and water conservation, the Corporation may experience disruptions in,
or significant increases in its costs of, operation and delivery and the Corporation may be required to make additional investments in
facilities and equipment or relocate its facilities. In particular, increasing regulation of fuel emissions could substantially increase the cost of
energy, including fuel, required to operate the Corporation’s facilities or transport and distribute its products, thereby substantially
increasing the distribution and supply chain costs associated with its products. As a result, the effects of climate change could negatively
affect the Corporation’s business and operations.
There is also increased focus, including by governmental and non-governmental organizations, investors, customers and consumers on
environmental sustainability matters, including deforestation, land use, climate impact, water use and recyclability or recoverability of
packaging, including plastic. The Corporation’s reputation could be damaged if it or others in its industry do not act, or are perceived not to
act, responsibly with respect to the Corporation’s impact on the environment.
Risks Relating to the Corporation’s Indebtedness
The significant amount of the Corporation’s debt could adversely affect its financial health and prevent it from fulfilling its
obligations under its outstanding indebtedness.
The Corporation has a significant amount of debt. As at December 31, 2020, it had $1,679 million of debt outstanding on a consolidated
basis, including lease obligations.
On November 26, 2019, the Corporation issued $175 million aggregate principal amount of 5.125% due in 2025, US$350 million aggregate
principal amount of 5.125% due in 2026 and US$300 million aggregate principal amount of 5.375% due in 2028, totaling $1,026 million, net
of transaction fees of $13 million. The Corporation used the proceeds from this offering to fund the redemption of its US$400 million of its
5.50% unsecured senior notes due in 2022 for an amount of US$405 million ($533 million) and its $250 million of its 5.50% unsecured
senior notes due in 2021 for an amount of $254 million, including premiums of US$5 million ($7 million) and $4 million. The Corporation
also wrote off $3 million of unamortized financing costs related to these notes.
On August 17, 2020, the Corporation issued unsecured senior notes for US$300 million ($396 million) aggregate principal amount of
5.375% due in 2028 at a price of 104.25% resulting in a US$13 million ($17 million) premium for total proceed of US$313 million
($413 million) and an effective yield of 4.69%. Transaction fees amounted to $4 million. The Corporation used the proceed from this
offering to fund the redemption of its 5.75% US$200 million ($264 million) unsecured senior notes due in 2023 and paid premium of
US$3 million ($4 million). The Corporation also wrote off $2 million of unamortized financing costs related to these notes.
•
•
The Corporation’s leverage could have major consequences for holders of its shares. For example, it could:
make it more difficult for the Corporation to satisfy its obligations with respect to its indebtedness;
increase the Corporation’s vulnerability to competitive pressures and to general adverse economic or market conditions and
require it to dedicate a substantial portion of its cash flow from operations to servicing debt, reducing the availability of its cash
flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
limit its flexibility in planning for, or reacting to, changes in its business and industry; and
limit its ability to obtain additional sources of financing.
•
•
The Corporation’s ability to service its indebtedness will depend on its ability to generate cash in the future. The Corporation cannot
provide assurance that its business will generate sufficient cash flow from operations or that future borrowings will be available in an
amount sufficient to enable it to service its indebtedness or to fund other liquidity needs. Additionally, if the Corporation is not in compliance
with the covenants and obligations under its debt instruments, it would be in default, and the lenders could call the debt, which would have
a material adverse effect on its business.
Cascades may incur additional debt in the future, which would intensify the risks it now faces as a result of its leverage as
described above.
Even though the Corporation is substantially leveraged, it and its subsidiaries will be able to incur substantial additional indebtedness in the
future. Although its credit facility and the indentures governing the notes restrict the Corporation and its restricted subsidiaries from
incurring additional debt, these restrictions are subject to important exceptions and qualifications. As at December 31, 2020, the
Corporation had $737 million (net of letters of credit in the amount of $13 million) available on its $750 million revolving credit facility
(excluding the credit facilities of its subsidiaries Greenpac Holding LLC and Reno de Medici S.p.A.). If the Corporation or its subsidiaries
incur additional debt, the risks that it and they now face as a result of its leverage could intensify.
64
2020 Annual Report
The Corporation’s operations are substantially restricted by the terms of its debt, which could limit its ability to plan for or react
to market conditions, or to meet its capital needs.
The Corporation’s credit facilities and the indenture governing its senior notes include a number of significant restrictive covenants. These
covenants restrict, among other things, the Corporation’s ability to:
•
•
•
•
•
•
•
•
•
•
•
incur debt;
pay dividends on stock, repurchase stock or redeem subordinated debt;
make investments;
sell assets, including capital stock in subsidiaries;
guarantee other indebtedness;
enter into agreements that restrict dividends or other distributions from restricted subsidiaries (solely in the case of the
Corporation’s credit facility);
enter into transactions with affiliates;
create or assume liens securing debt;
sell or transfer and leaseback transactions;
engage in mergers or consolidations; and
enter into a sale of all or substantially all of our assets.
These covenants could limit the Corporation’s ability to plan for or react to market conditions or to meet its capital needs.
The Corporation’s current credit facility contains other, more restrictive covenants, including financial covenants that require it to achieve
certain financial and operating results, and maintain compliance with specified financial ratios. The Corporation’s ability to comply with
these covenants and requirements may be affected by events beyond its control, and it may have to curtail some of its operations and
growth plans to maintain compliance.
The restrictive covenants contained in the Corporation’s senior note indenture, along with the Corporation’s credit facility, do not apply to its
joint ventures, minority investments and unrestricted subsidiaries.
The Corporation’s failure to comply with the covenants contained in its credit facility or its senior note indenture, including as a
result of events beyond its control or due to other factors, could result in an event of default that could cause accelerated
repayment of the debt.
If Cascades is not able to comply with the covenants and other requirements contained in the indenture, its credit facility or its other debt
instruments, an event of default under the relevant debt instrument could occur. If an event of default does occur, it could trigger a default
under its other debt instruments, Cascades could be prohibited from accessing additional borrowings and the holders of the defaulted debt
could declare amounts outstanding with respect to that debt, which would then be immediately due and payable. The Corporation’s assets
and cash flow may not be sufficient to fully repay borrowings under its outstanding debt instruments. In addition, the Corporation may not
be able to re-finance or re-structure the payments on the applicable debt. Even if the Corporation were able to secure additional financing,
it might not be available on favourable terms. A significant or prolonged downtime in general business and difficult economic conditions
may affect the Corporation’s ability to comply with the covenants in its debt instruments, and could require it to take actions to reduce its
debt or to act in a manner contrary to its current business objectives.
Cascades is a holding corporation and depends on its subsidiaries to generate sufficient cash flow to meet its debt
service obligations.
Cascades is structured as a holding corporation and its only significant assets are the capital stock or other equity interests in its
subsidiaries, joint ventures and minority investments. As a holding corporation, Cascades conducts substantially all of its business through
these entities. Consequently, the Corporation’s cash flow and ability to service its debt obligations are dependent on the earnings of its
subsidiaries, joint ventures and minority investments, and the distribution of those earnings to Cascades, or on loans, advances or other
payments made by these entities to Cascades. The ability of these entities to pay dividends or make other payments or advances to
Cascades will depend on their operating results and will be subject to applicable laws and contractual restrictions contained in the
instruments governing their debt. In the case of the Corporation’s joint ventures, associates and minority investments, Cascades may not
exercise sufficient control to cause distributions to itself. Although its credit facility and the indenture, respectively, limit the ability of its
restricted subsidiaries to enter into consensual restrictions on their ability to pay dividends and make other payments to the Corporation,
these limitations do not apply to its joint ventures, associates, minority investments or unrestricted subsidiaries. The limitations are also
subject to important exceptions and qualifications.
65
You see impressive results. We see unbreakable commitment.
The ability of the Corporation’s subsidiaries to generate cash flow from operations that is sufficient to allow the Corporation to make
scheduled payments on its debt obligations will depend on their future financial performance, which will be affected by a range of
economic, competitive and business factors, many of which are outside of the Corporation’s control. If the Corporation’s subsidiaries do not
generate sufficient cash flow from operations to satisfy the Corporation’s debt obligations, Cascades may have to undertake alternative
financing plans, such as refinancing or re-structuring its debt, selling assets, reducing or delaying capital investments, or seeking to raise
additional capital. Re-financing may not be possible, and assets may not be able to be sold, or, if they are sold, Cascades may not realize
sufficient amounts from those sales. Additional financing may not be available on acceptable terms, if at all, or the Corporation may be
prohibited from incurring it, if available, under the terms of its various debt instruments in effect at the time. The Corporation’s inability to
generate sufficient cash flow to satisfy its debt obligations, or to re-finance its obligations on commercially reasonable terms, would have
an adverse effect on its business, financial condition and operating results. The earnings of the Corporation’s operating subsidiaries and
the amount that they are able to distribute to the Corporation as dividends or otherwise may not be adequate for the Corporation to service
its debt obligations.
Variable rate indebtedness subjects Cascades to interest rate risk, which could cause its debt service obligations to
increase significantly.
The Corporation’s borrowings under its credit facility bear interest at variable rates and, accordingly, expose the Corporation to interest rate
risk. If interest rates increase, our debt service obligations on our variable rate indebtedness could increase even though the amount
borrowed remained the same, and our net income could decrease. The applicable margin with respect to the loans under the Corporation’s
credit facility is a percentage per annum equal to a reference rate plus the applicable margin. In order to manage its exposure to interest
rate risk, the Corporation has entered into and may in the future enter into derivative financial instruments, typically interest rate swaps and
caps, involving the exchange of floating for fixed rate interest payments. If the Corporation is unable to enter into interest rate swaps, it
may adversely affect its cash flow and may impact its ability to make required principal and interest payments on its indebtedness.In
addition, a transition away from LIBOR as a benchmark for establishing the applicable interest rate may affect the cost of servicing its debt
under the Corporation’s credit facility. The Financial Conduct Authority of the United Kingdom has announced that it plans to phase out
LIBOR by the end of 2021. Although these borrowing arrangements provide for alternative base rates, such alternative base rates may or
may not be related to LIBOR, and the consequences of the phase out of LIBOR cannot be entirely predicted at this time. For example, if
any alternative base rate or means of calculating interest with respect to the Corporation’s outstanding variable rate indebtedness leads to
an increase in the interest rates incurred, it could result in an increase in the cost of such indebtedness, impact its ability to refinance some
or all of its existing indebtedness or otherwise have a material adverse impact on its business, financial condition and results of operations.
Risks related to the Common Shares
The market price of the Common Shares may fluctuate and purchasers may not be able to resell the Common Shares at or above
the Offering Price.
The market price of the Common Shares may fluctuate due to a variety of factors relative to the Corporation’s business, including
announcements of new developments, fluctuations in the Corporation’s operating results, sales of the Common Shares in the marketplace,
failure to meet analysts’ expectations, general conditions in all of our segments or the worldwide economy, especially in the context of the
COVID-19 pandemic and related uncertainty, many of which are beyond the Corporation’s control. In recent years, the Common Shares,
the stock of other companies operating in the same sectors and the stock market in general have experienced significant price fluctuations,
which have been unrelated to the operating performance of the affected companies. There can be no assurance that the market price of
the Common Shares will not continue to experience significant fluctuations in the future, including fluctuations that are unrelated to the
Corporation’s performance.
Payments of Dividends
Any decisions to pay dividends on the Common Shares is subject to the discretion of the board of directors and based on, among other
things, Cascades’ earnings and financial requirements for operations, the satisfaction of applicable solvency testes for the declaration and
payment of dividends and other conditions existing from time to time. As a result, no assurance can be given as to whether Cascades will
declare and pay any dividends in the future, or the frequency or amount of any such dividend.
Potential Dilution
The Corporation’s articles permit the issuance of an unlimited number of Common Shares and an unlimited number of Class A and Class B
preferred shares, issuable in series. In order to successfully complete targeted acquisitions or to fund its other activities, the Corporation
may issue additional equity securities that could dilute share ownership. The dilutive effect of these issuances may adversely affect the
Corporation’s ability to obtain additional capital or impair the Corporation’s share price.
66
2020 Annual Report
MANAGEMENT'S REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
February 24, 2021
The accompanying Consolidated Financial Statements are the responsibility of the Management of Cascades Inc. and have been reviewed
by the Audit and Finance Committee and approved by the Board of Directors.
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board (IFRS) and include certain estimates that reflect Management’s best judgment.
The Management of the Corporation is also responsible for all other information included in this Annual Report and for ensuring that this
information is consistent with the Corporation’s Consolidated Financial Statements and business activities.
The Management of the Corporation is responsible for the design, establishment and maintenance of appropriate internal controls and
procedures for financial reporting, to ensure that financial statements for external purposes are fairly presented in conformity with IFRS.
Such internal control systems are designed to provide reasonable assurance on the reliability of the financial information and the
safeguarding of assets.
Independent auditor and internal auditors have free and independent access to the Audit and Finance Committee, which comprises
outside independent directors. The Audit and Finance Committee, which meets regularly throughout the year with members of
Management and the external and internal auditors, reviews the Consolidated Financial Statements and recommends their approval to the
Board of Directors.
The Consolidated Financial Statements have been audited by PricewaterhouseCoopers LLP, whose report is provided below.
/s/ Mario Plourde
MARIO PLOURDE
/s/ Allan Hogg
ALLAN HOGG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KINGSEY FALLS, CANADA
VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER
KINGSEY FALLS, CANADA
67
You see impressive results. We see unbreakable commitment.
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of
Cascades Inc. and its subsidiaries (together, the Corporation) as at December 31, 2020 and 2019, and its financial performance and its
cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS).
What we have audited
The Corporation’s consolidated financial statements comprise:
•
•
•
•
•
•
the consolidated balance sheets as at December 31, 2020 and 2019;
the consolidated statements of earnings for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to consolidated financial statements, which include significant accounting policies and other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Corporation in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.
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2020 Annual Report
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial
statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
How our audit addressed the key audit matter
Our approach to addressing the matter involves the following
procedures, among others:
• Tested how management determined the recoverable amounts
of the assets or CGUs related to property, plant and equipment
for which an indicator of impairment was identified, which
included the following:
◦ Tested the appropriateness of the methods used and the
mathematical accuracy of the fair value less costs of disposal
calculations.
◦ Tested the underlying data used in the fair value less cost of
disposal calculations.
◦ Tested the reasonableness of the assumptions related to
estimated shipments, foreign exchange rates, revenue growth
rates, OIBD margins and capital expenditures by considering
(i) the budget approved by the Board of Directors (ii) the
current and past performance of the CGUs, (iii) the external
market and industry data, and (iv) whether these assumptions
were aligned with evidence obtained in other areas of
the audit.
◦ Professionals with specialized skill and knowledge in the field
of valuation assisted in testing the reasonableness of the
discount rates applied by management based on available
data of comparable companies and the reasonableness of
comparable assets used in the market approach.
Key audit matters
Impairment assessment of property, plant and equipment
Refer to note 2, Summary of significant accounting policies, note 4,
judgments and note 26,
Critical accounting estimates and
Impairment charges and restructuring costs (gains)
the
consolidated financial statements.
to
Total net book value of property, plant and equipment amounted to
$2,772 million as at December 31, 2020. Property, plant and
equipment is tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment is recognized when the recoverable
amount of an asset or cash-generating unit (CGU) is lower than its
carrying amount. A CGU is the lowest level of a group of individual
assets or group of assets for which there are separately identifiable
cash inflows. The recoverable amount is the higher of fair value
less cost of disposal and value in use of an asset or CGU. The
recoverable amount of each asset or CGU is determined using the
fair value less cost of disposal based on the market approach if a
market exists or the income approach. Where impairment exists,
the asset or CGU is written down to its recoverable amount. In
determining the recoverable amount of an asset or CGU, based on
the market approach, management uses the value of comparable
assets on the market. In determining the recoverable amount of an
asset or CGU, based on the income approach, management uses
several key assumptions, including estimated shipments, foreign
exchange rates, revenue growth rates, operating income before
depreciation
rates and capital
expenditures.
(OIBD) margins, discount
We considered this a key audit matter due to the inherent judgment
required by management in determining the recoverable amounts
of assets or CGUs related to property, plant and equipment for
which an indicator of impairment was identified, including the use
of key assumptions. This has resulted in a high degree of
subjectivity and complexity in applying audit procedures to test the
recoverable amounts of assets or CGUs determined by
management. Professionals with specialized skill and knowledge in
the field of valuation assisted us in performing the procedures.
69
You see impressive results. We see unbreakable commitment.
Other information
Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis, which
we obtained prior to the date of this auditor’s report and the information, other than the consolidated financial statements and our auditor’s
report thereon, included in the annual report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there
is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we
read the information, other than the consolidated financial statements and our auditor’s report thereon, included in the annual report, if we
conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibilities of management and those charged with governance for the consolidated financial
statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and
for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Corporation’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Corporation or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Corporation’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
•
•
•
70
2020 Annual Report
•
•
•
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Corporation’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Corporation to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves
fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Corporation to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the
audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in
our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Jean-François Lecours.
/s/ PricewaterhouseCoopers LLP1
Montréal, Québec
February 24, 2021
1 CPA auditor, CA, public accountancy permit No. A126402
71
You see impressive results. We see unbreakable commitment.
CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Current income tax assets
Inventories
Current portion of financial assets
Long-term assets
Investments in associates and joint ventures
Property, plant and equipment
Intangible assets with finite useful life
Financial assets
Other assets
Deferred income tax assets
Goodwill and other intangible assets with indefinite useful life
Liabilities and Equity
Current liabilities
Bank loans and advances
Trade and other payables
Current income tax liabilities
Current portion of long-term debt
Current portion of provisions for contingencies and charges
Current portion of financial liabilities and other liabilities
Long-term liabilities
Long-term debt
Provisions for contingencies and charges
Financial liabilities
Other liabilities
Deferred income tax liabilities
Equity
Capital stock
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Equity attributable to Shareholders
Non-controlling interests
Total equity
NOTE
December 31,
2020
December 31,
2019
Adjusted, Note 5
27
6
7
16
8
9 and 14
10
16
11
19
10
27
12
13 and 27
15
16 and 17
13 and 27
15
16
17
19
20
21
22
8
384
659
23
569
5
1,640
82
2,772
160
16
50
170
522
5,412
12
861
17
102
14
25
1,031
1,949
57
6
202
210
3,455
622
13
1,146
(28)
1,753
204
1,957
5,412
155
610
32
598
10
1,405
80
2,770
182
16
55
153
527
5,188
11
792
17
85
5
137
1,047
2,022
49
5
198
198
3,519
491
15
1,003
(17)
1,492
177
1,669
5,188
The accompanying notes are an integral part of these Audited Consolidated Financial Statements.
Approved by the Board of Directors
/s/ Alain Lemaire
Alain Lemaire - DIRECTOR
72
/s/ Michelle Cormier
Michelle Cormier - DIRECTOR
2020 Annual Report
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31 (in millions of Canadian dollars, except per common share
amounts and number of common shares)
NOTE
Sales
Cost of sales and expenses
Cost of sales (including depreciation and amortization of $299 million (2019 — $289 million))
Selling and administrative expenses
Gain on acquisitions, disposals and others
Impairment charges and restructuring costs
Foreign exchange gain
Loss (gain) on derivative financial instruments
Operating income
Financing expense
Interest expense (revenue) on employee future benefits and other liabilities
Loss on repurchase of long-term debt
Foreign exchange gain on long-term debt and financial instruments
Fair value revaluation loss on investments
Share of results of associates and joint ventures
Earnings before income taxes
Provision for income taxes
Net earnings including non-controlling interests for the year
Net earnings attributable to non-controlling interests
Net earnings attributable to Shareholders for the year
Net earnings per common share
Basic
Diluted
Weighted average basic number of common shares outstanding
Weighted average number of diluted common shares
The accompanying notes are an integral part of these Audited Consolidated Financial Statements.
14 and 23
23
5 and 25
26
16
14 and 27
27
13
8
8
19
8
$
$
2020
5,157
4,321
460
(43)
52
—
1
4,791
366
105
(7)
6
(6)
3
(14)
279
45
234
36
198
2.04 $
2.02 $
95,924,835
97,061,136
2019
Adjusted, Note 5
4,996
4,232
453
(24)
78
(2)
(2)
4,735
261
101
42
14
(6)
—
(9)
119
19
100
28
72
0.77
0.75
93,987,980
95,515,822
73
You see impressive results. We see unbreakable commitment.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31 (in millions of Canadian dollars)
NOTE
Net earnings including non-controlling interests for the year
Other comprehensive income (loss)
Items that may be reclassified subsequently to earnings
Translation adjustments
Change in foreign currency translation of foreign subsidiaries
Change in foreign currency translation related to net investment hedging activities
Cash flow hedges
Change in fair value of foreign exchange forward contracts
Change in fair value of interest rate swaps
Change in fair value of commodity derivative financial instruments
Recovery of (provision for) income taxes
Items that are not released to earnings
Actuarial loss on employee future benefits
Recovery of income taxes
Other comprehensive income (loss)
Comprehensive income including non-controlling interests for the year
Comprehensive income attributable to non-controlling interests for the year
Comprehensive income attributable to Shareholders for the year
The accompanying notes are an integral part of these Audited Consolidated Financial Statements.
22
22
18
19
2020
234
2019
Adjusted, Note 5
100
(7)
3
—
—
2
(2)
(4)
(22)
6
(16)
(20)
214
43
171
(75)
45
1
(1)
(2)
1
(31)
(3)
1
(2)
(33)
67
14
53
74
2020 Annual Report
CONSOLIDATED STATEMENTS OF EQUITY
(in millions of Canadian dollars)
NOTE
CAPITAL STOCK
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
For the year ended December 31, 2020
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTERESTS
TOTAL EQUITY
Balance - End of previous
year, as reported
Business combinations
Adjusted balance -
Beginning of year
Comprehensive income (loss)
Net earnings
Other comprehensive
income (loss)
Dividends
Issuance of common shares on
public offering
Stock options expense
Issuance of common shares
upon exercise of stock
options
Redemption of common shares
Balance - End of year
5
20
20
20
491
—
491
—
—
—
—
125
—
10
(4)
622
15
—
15
—
—
—
—
—
1
(3)
—
13
1,000
3
1,003
198
(16)
182
(31)
(4)
—
—
(4)
(17)
—
(17)
—
(11)
(11)
—
—
—
—
—
1,489
3
1,492
198
(27)
171
(31)
121
1
7
(8)
1,146
(28)
1,753
177
—
177
36
7
43
(16)
—
—
—
—
204
1,666
3
1,669
234
(20)
214
(47)
121
1
7
(8)
1,957
(in millions of Canadian dollars)
NOTE
CAPITAL STOCK
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
Adjusted balance -
Beginning of year
Comprehensive income (loss)
Net earnings
Other comprehensive loss
Dividends
Issuance of common shares
upon exercise of stock
options
Redemption of common shares
Disposal of a subsidiary
Acquisition of non-controlling
interests
Balance - End of year
20
20
490
—
—
—
—
6
(5)
—
—
491
16
—
—
—
—
(1)
—
—
—
15
989
72
—
72
(23)
—
(4)
—
(31)
1,003
The accompanying notes are an integral part of these Audited Consolidated Financial Statements.
For the year ended December 31, 2019
Adjusted, Note 5
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTERESTS
TOTAL EQUITY
2
1,497
180
1,677
—
(19)
(19)
—
—
—
—
—
(17)
72
(19)
53
(23)
5
(9)
—
(31)
1,492
28
(14)
14
(17)
—
—
(1)
1
177
100
(33)
67
(40)
5
(9)
(1)
(30)
1,669
75
You see impressive results. We see unbreakable commitment.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 (in millions of Canadian dollars)
NOTE
2020
2019
Adjusted, Note 5
27
13
5 and 25
26
19
8
8
8
13
8
16 and 18
27
25
5
5
27
13 and 27
13 and 27
13 and 27
13
16
20
20
20
17
8
Operating activities
Net earnings attributable to Shareholders for the year
Adjustments for:
Financing expense and interest expense (revenue) on employee future benefits and other liabilities
Loss on repurchase of long-term debt
Depreciation and amortization
Gain on acquisitions, disposals and others
Impairment charges and restructuring costs
Unrealized loss (gain) on derivative financial instruments
Foreign exchange gain on long-term debt and financial instruments
Provision for income taxes
Fair value revaluation loss on investments
Share of results of associates and joint ventures
Net earnings attributable to non-controlling interests
Net financing expense paid
Premium paid on repurchase of long-term debt
Net income taxes paid
Dividends received
Provisions for contingencies and charges and others liabilities
Changes in non-cash working capital components
Investing activities
Disposals of associates and joint ventures
Payments for property, plant and equipment
Proceeds from disposals of property, plant and equipment
Change in intangible and other assets
Cash received (paid) for business combinations
Proceeds on disposals of a subsidiary, net of cash disposed
Financing activities
Bank loans and advances
Change in credit facilities
Issuance of unsecured senior notes, net of related expenses
Repurchase of unsecured senior notes
Increase in other long-term debt
Payments of other long-term debt, including lease obligations
Settlement of derivative financial instruments
Issuance of common shares on public offering, net of transaction fees
Issuance of common shares upon exercise of stock options
Redemption of common shares
Payment of other liabilities
Dividends paid to non-controlling interests
Dividends paid to the Corporation’s Shareholders
Change in cash and cash equivalents during the year
Currency translation on cash and cash equivalents
Cash and cash equivalents - Beginning of the year
Cash and cash equivalents - End of the year
The accompanying notes are an integral part of these Audited Consolidated Financial Statements.
76
198
98
6
299
(43)
52
1
(6)
45
3
(14)
36
(79)
(4)
(9)
10
(26)
567
20
587
3
(250)
55
(13)
2
—
(203)
1
(131)
409
(264)
33
(156)
1
120
7
(8)
(121)
(16)
(31)
(156)
228
1
155
384
72
143
14
289
(27)
68
(2)
(6)
19
—
(9)
28
(133)
(11)
(27)
9
(26)
401
59
460
1
(258)
27
(8)
(311)
9
(540)
(5)
39
1,026
(776)
6
(125)
—
—
5
(9)
—
(17)
(23)
121
41
(9)
123
155
2020 Annual Report
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 Note 2.
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.
For the years ended December 31 (in
millions of Canadian dollars)
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Canada
United States
Italy
Other countries
SALES TO
Total
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Intersegment sales
Tissue Papers
Intersegment sales and Corporate
Activities
1,130
1,079
—
165
—
136
787
—
305
746
—
304
(13)
(13)
(5)
(1)
1,282
278
115
1,675
1,202
257
124
1,583
1,087
1,336
1,049
1,242
2
10
2,425
2,301
—
322
—
—
322
—
—
322
—
309
2
—
311
—
—
311
1
730
3
—
734
1
—
735
2
739
50
—
791
10
—
801
1,918
1,052
473
(18)
3,425
1,615
117
5,157
1,827
1,048
492
(14)
3,353
1,509
134
4,996
For the years ended December 31 (in millions of Canadian dollars)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate Activities
Operating income before depreciation and amortization
Depreciation and amortization
Financing expense and interest expense (revenue) on employee future benefits and other liabilities
Loss on repurchase of long-term debt
Foreign exchange gain on long-term debt and financial instruments
Fair value revaluation loss on investments
Share of results of associates and joint ventures
Earnings before income taxes
OPERATING INCOME BEFORE
DEPRECIATION AND AMORTIZATION
2020
436
122
58
616
145
(96)
665
(299)
(98)
(6)
6
(3)
14
279
2019
Adjusted, Note 5
443
92
52
587
67
(104)
550
(289)
(143)
(14)
6
—
9
119
77
You see impressive results. We see unbreakable commitment.
For the years ended December 31 (in millions of Canadian dollars)
PAYMENTS FOR PROPERTY, PLANT AND
EQUIPMENT
2020
2019
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate Activities
Total acquisitions
Proceeds from disposals of property, plant and equipment
Right-of-use assets acquisitions and acquisitions included in other debts
Acquisitions for property, plant and equipment included in “Trade and other payables”
Beginning of year
End of year
Payments for property, plant and equipment net of proceeds from disposals
(in millions of Canadian dollars)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate Activities
Intersegment eliminations
Investments in associates and joint ventures
Other investments
Information by geographic segment is as follows:
(in millions of Canadian dollars)
Canada
United States
Italy
Other countries
(in millions of Canadian dollars)
Canada
United States
Italy
Other countries
78
111
41
25
177
104
26
307
(55)
(63)
189
46
(40)
195
83
56
20
159
110
48
317
(27)
(50)
240
37
(46)
231
December 31,
2020
TOTAL ASSETS
December 31,
2019
Adjusted, Note 5
2,196
799
283
3,278
1,314
821
(88)
5,325
82
5
5,412
2,152
748
270
3,170
1,325
656
(47)
5,104
80
4
5,188
PROPERTY, PLANT AND EQUIPMENT
December 31,
2020
December 31,
2019
Adjusted, Note 5
945
1,463
200
164
2,772
924
1,492
192
162
2,770
GOODWILL, CUSTOMER RELATIONSHIPS
AND CLIENT LISTS, AND OTHER FINITE AND
INDEFINITE USEFUL LIFE INTANGIBLE
ASSETS
December 31,
2020
December 31,
2019
375
275
29
3
682
394
285
27
3
709
2020 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts are in millions of Canadian dollars, except per common share and option amounts and number of common shares
and options.)
NOTE 1
GENERAL INFORMATION
Cascades Inc. and its subsidiaries (together “Cascades” or the “Corporation”) produce, convert and market packaging and tissue products
composed mainly of recycled fibres. Cascades Inc. is incorporated and domiciled in Québec, Canada. The address of its registered office
is 404, Marie-Victorin Boulevard, Kingsey Falls. Its shares are listed on the Toronto Stock Exchange under the ticker symbol “CAS”.
The Board of Directors approved the Consolidated Financial Statements on February 24, 2021.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Corporation prepares its financial statements in accordance with Canadian generally accepted accounting principles (GAAP) as set
forth in Part I of the Chartered Professional Accountants of Canada (CPA Canada) Handbook – Accounting, which incorporates IFRS as
issued by the International Accounting Standards Board. The key accounting policies applied in the preparation of these Consolidated
Financial Statements are described below.
BASIS OF MEASUREMENT
The Consolidated Financial Statements have been prepared under the historical cost convention, except for the revaluation of certain
financial assets and liabilities, including derivative instruments, which are measured at fair value.
BASIS OF CONSOLIDATION
These Consolidated Financial Statements include the accounts of the Corporation, which include:
A. SUBSIDIARIES
Subsidiaries are all entities over which the Corporation has control, where control is defined as the power to direct decisions about relevant
activities. The existence and effect of potential voting rights that are exercisable or convertible are considered when assessing whether the
Corporation controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Corporation.
They are unconsolidated from the date on which control ceases. Accounting policies of subsidiaries have been changed, where necessary,
to ensure consistency with the policies adopted by the Corporation. The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Corporation. Results of operations are consolidated commencing on the date of acquisition. The
purchase consideration is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at
the date of exchange. The transaction costs directly attributable to the acquisition are expensed. Identifiable assets acquired, as well as
liabilities and contingent liabilities assumed in a business combination, are measured initially at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interests. The excess of the purchase consideration over the fair value of the Corporation's
share of the identifiable net assets acquired is recorded as goodwill. If the purchase consideration is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of earnings. Intercompany
transactions, balances and unrealized gains on transactions between subsidiaries are eliminated.
The following are the principal subsidiaries of the Corporation:
Cascades Canada ULC
Cascades USA Inc.
Greenpac Holding LLC1
Reno de Medici S.p.A. (RDM)
1 Including indirect ownership, percentage stands at 86.35% for accounting purposes. See Note 8 for more details.
PERCENTAGE OWNED (%)
JURISDICTION
100
100
79.90
57.60
Canada
Delaware
Delaware
Italy
79
You see impressive results. We see unbreakable commitment.
B. TRANSACTIONS AND CHANGE IN OWNERSHIP
Acquisitions or disposals of equity interests in subsidiaries that do not result in the Corporation obtaining or losing control are treated as
equity transactions. When the Corporation obtains or loses control, the revaluation of the previously held interest or the non-controlling
interests that results in gains or losses for the Corporation is recognized in the consolidated statement of earnings.
C. ASSOCIATES
Associates are all entities over which the Corporation has significant influence but not control, generally accompanying a shareholding of
between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially
recognized at cost.
Unrealized gains on transactions between the Corporation and its associates are eliminated to the extent of the Corporation's interest in
the associates. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by
the Corporation. Dilution gains and losses arising from changes in the level of investments in associates are recognized in the consolidated
statement of earnings.
The Corporation assesses, at each year-end, whether there is any objective evidence that its interest in associates is impaired. If impaired,
the carrying value of the Corporation's investment is written down to its estimated recoverable amount (being the higher of fair value less
cost of disposal or value in use) and charged to the consolidated statement of earnings.
JOINT VENTURES
D.
A joint venture is an entity in which the Corporation holds a long-term interest and for which it shares joint control over decisions regarding
relevant activities. The Corporation reports its interests in joint ventures using the equity method. Accounting policies of joint ventures have
been adjusted where necessary to ensure consistency with the policies adopted by the Corporation.
E. STRUCTURED ENTITIES
Structured entities are entities controlled by the Corporation which were designed so that voting or similar rights are not the dominant factor
in deciding who controls the entity. Structured entities are consolidated if, based on an evaluation of the substance of its relationship with
the Corporation, the Corporation concludes that it controls the structured entity. Structured entities controlled by the Corporation were
established under terms that impose strict limitations on the decision-making powers of the structured entities’ management and that
results in the Corporation receiving the majority of the benefits related to the structured entities’ operations and net assets, being exposed
to the majority of risks incident to the structured entities’ activities, and retaining the majority of the residual or ownership risks related to
the structured entities or their assets.
REVENUE FROM CONTRACT WITH CUSTOMERS
The revenues of the Corporation come mainly from sales of packaging and tissue products that are recognized at a point in time. Sales of
goods in the consolidated statement of earnings are recognized by the Corporation when control of the goods has been transferred, being
when the goods are delivered to customers and when all performance obligations have been fulfilled.
The amounts recognized as sales of goods represent the fair values of the considerations received or receivable from third parties on the
sales of goods to customers, net of returns, volume rebates and discounts, at which time there are no conditions for the payment to
become due other than the passage of time. Accumulated experience is used to estimate and provide for discounts and returns (expected
value method), whereas volume discounts are assessed based on anticipated annual sales (most likely amount method). The transaction
price is not adjusted for the time value of money since all sales are due within twelve months.
FINANCIAL INSTRUMENTS AND HEDGING RELATIONSHIPS
Financial assets and financial liabilities are recognized when the Corporation becomes a party to the contractual provisions of the
instrument. Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet when there
is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or to realize the asset and
settle the liability simultaneously.
CLASSIFICATION
On initial recognition, the Corporation determines the financial instruments classification as per the following categories:
•
•
•
instruments measured at amortized cost;
instruments measured at fair value through other comprehensive income (FVOCI);
instruments measured at fair value through net income (FVTPL)
80
2020 Annual Report
The financial instruments' classification under IFRS 9 is based on the business model in which a financial asset is managed and on its
contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial instrument in the scope of the
standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVTPL:
•
•
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.
Equity investments not subject to significant influence and held for trading are classified as FVTPL. The Corporation, on initial recognition,
may irrevocably elect to present subsequent changes in the investment's fair value in other comprehensive income (OCI). This election is
made on an investment-by-investment basis.
Financial liabilities are measured at amortized cost unless they must be measured at FVTPL (such as derivatives) or if the Corporation
elects to measure them at FVTPL.
EVALUATION
Financial instruments at amortized cost
Financial instruments at amortized cost are initially measured at fair value, and subsequently at amortized cost, using the effective interest
method, less any impairment loss. Interest income, foreign exchange gains and losses and impairment are recognized in the consolidated
statement of earnings.
Financial instruments at fair value
Financial instruments are initially and subsequently measured at fair value and transaction costs are accounted for in the consolidated
statement of earnings. When the Corporation elects to measure a financial liability at FVTPL, gains or losses related to the Corporation's
own credit risk are accounted for in the consolidated statement of earnings.
IMPAIRMENT
The Corporation prospectively estimates the expected credit losses associated with the debt instruments accounted for at amortized cost
or FVOCI. The impairment methodology used depends on whether there is a significant increase in the credit risk or not. For trade
receivables, the Corporation measures loss allowances at an amount equal to lifetime expected credit loss (ECL) as allowed by IFRS 9
under the simplified method.
DERECOGNITION
Financial assets
The Corporation derecognizes a financial asset when, and only when, the contractual rights to the cash flows from the financial asset have
expired or when contractual rights to the cash flows have been transferred.
Financial liabilities
The Corporation derecognizes a financial liability when, and only when, it is extinguished, meaning when the obligation specified in the
contract is discharged, canceled or expired. The difference between the carrying amount of the extinguished financial liability and the
consideration paid or payable, including non-cash assets transferred or liabilities assumed, is recognized in the consolidated statement
of earnings.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument, and, if so, the nature of the item being hedged. The Corporation designates certain derivative financial instruments
as either:
i) hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge);
ii) hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge); or
iii) hedges of a net investment in a foreign operation (net investment hedge).
The Corporation formally documents, at the inception of the transaction, the relationship between hedging instruments and hedged items,
as well as its risk management objectives and strategy for undertaking various hedging transactions. The Corporation also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
81
You see impressive results. We see unbreakable commitment.
The full fair value of a hedging derivative is classified as a long-term asset or liability when the remaining maturity of the hedged item is
more than twelve months and as a current asset or liability when the remaining maturity of the hedged item is less than twelve months.
Trading derivatives are classified as current assets or liabilities.
A. FAIR VALUE HEDGE
The periodic change in fair value of the hedging derivative is recorded in net earnings. The periodic change in the cumulative gain or loss
on the hedged item is recorded as an adjustment to its carrying amount on the balance sheet and is also recorded in net earnings.
Hedging ineffectiveness is automatically recorded to net earnings as the difference between the above amounts recorded in net earnings.
Realized gains and losses on the hedging item, resulting from the difference between the payments on the receive leg and the pay leg of
the hedging derivative, are recorded on an accrual basis in net earnings.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the
effective interest method is used is amortized to profit or loss over the period to maturity using a recalculated effective interest rate.
B. CASH FLOW HEDGE
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in the
consolidated statement of other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the
consolidated statement of earnings.
Amounts accumulated in equity are reclassified to earnings against the gain (loss) on the hedged item when the latter is realized (for
example, when the forecasted sale that is hedged takes place).
When a hedging instrument expires or is sold or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or
loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the
consolidated statement of earnings. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately transferred to the consolidated statement of earnings.
C. NET INVESTMENT HEDGE
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging
instrument relating to the effective portion of the hedge is recognized in the consolidated statement of other comprehensive income. The
gain or loss relating to the ineffective portion is recognized immediately in the consolidated statement of earnings. Gains and losses
accumulated in equity are included in the consolidated statement of earnings when the foreign operation is partially disposed of or sold.
The Corporation also uses cross-currency interest rate swaps and forward contracts to manage the currency fluctuations risk associated
with forecasted cash flows in foreign currency. These cross-currency interest rate swaps are designated as a foreign exchange hedge of its
net investment in foreign operations. The portion of the gains and losses arising from the translation of those derivatives that are
determined to be an effective hedge is recognized in other comprehensive income, counterbalancing gains and losses arising from the
translation of the Corporation's net investment in its foreign operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, bank balances and short-term liquid investments with original maturities of three
months or less.
ACCOUNTS RECEIVABLE
Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method,
less an expected credit loss allowance that is based on expected collectability.
INVENTORIES
Inventories of finished goods are valued at the lower of cost, which is established using the average production cost, and net realizable
value. Inventories of raw materials as well as supplies and spare parts are valued at the lower of cost and replacement value, which is the
best available measure of their net realizable value. Cost for both raw materials and supplies and spare parts is determined using the
average cost. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion
and the estimated costs necessary to make the sale.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are recorded at cost, including capitalized interest incurred during the construction period of qualifying
assets, less accumulated depreciation and net impairment losses. Repairs and maintenance costs are charged to the consolidated
statement of earnings during the period in which they are incurred. Residual values, method of depreciation and useful lives of the assets
are reviewed annually and adjusted if appropriate.
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2020 Annual Report
Depreciation is calculated on a straight-line basis as follows:
Between 10 and 33 years
Buildings
Between 3 and 30 years
Machinery and equipment
Automotive equipment
Between 5 and 10 years
Other property, plant and equipment Between 3 and 10 years
Right-of-use assets
Lease term
GRANTS AND INVESTMENT TAX CREDITS
Grants and investment tax credits for property, plant and equipment are accounted for using the cost reduction method and are amortized
to earnings as a reduction of depreciation using the same basis as that used to depreciate the related property, plant and equipment. The
grants related to any other operational activities and/or economical circumstances are accounted as reduction of the costs they refer to.
BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended use, are added to the cost of those assets until all the activities necessary to
prepare the asset for its intended use are complete. The capitalized borrowing costs for major acquisition, construction or production of
qualifying assets, which are financed through non directly attributable sources, are calculated using the actual interest rate, if not available
the Cascades' long term incremental borrowing rate. All other borrowing costs are recognized in the consolidated statement of earnings in
the period in which they are incurred.
INTANGIBLE ASSETS
Intangible assets consist primarily of customer relationships and client lists as well as application software. They are recorded at cost less
accumulated amortization and impairment losses and amortized on a straight-line basis over the estimated useful lives as follows:
Application software
Enterprise Resource Planning (ERP)
Customer relationships and client lists
Other intangible assets with finite useful life
Between 3 and 10 years
7 years
Between 2 and 20 years
Between 2 and 20 years
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
GOODWILL AND OTHER INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE
Goodwill and other intangible assets with an indefinite useful life are recognized at cost less any accumulated impairment losses. They
have an indefinite useful life due to their permanent nature since they are acquired rights or not subject to wear and tear.
IMPAIRMENT
A. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS WITH FINITE USEFUL LIFE
At the end of each reporting period, the Corporation assesses whether there is an indicator that the carrying amount of an asset or a group
of assets may be higher than its recoverable amount which is described in section C hereunder. For that purpose, assets are grouped at
the lowest levels for which there are separately identifiable cash inflows (cash generating units (CGUs)). If there is any indication that an
individual asset may be impaired, the recoverable amount shall be estimated for the individual asset.
When the recoverable amount is lower than the carrying amount, the carrying amount is reduced to the recoverable amount. Impairment
losses are recorded immediately in the consolidated statement of earnings in the line item “Impairment charges and restructuring costs”.
Impairment losses are evaluated for potential reversals when events or changes in circumstances warrant such consideration. The
revalued carrying value is the lower of the estimated recoverable amount and the carrying amount that would have been determined had
no impairment loss been recognized and depreciation had been taken previously on the asset or CGU. A reversal of impairment loss is
recorded directly in the consolidated statement of earnings in the line item “Impairment charges and restructuring costs”.
B. GOODWILL AND OTHER INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE
Goodwill and other intangible assets are reviewed for impairment annually on December 31 or when an event or a circumstance occurs
and indicates that the value could be permanently impaired. Goodwill is allocated to CGUs for the purpose of impairment testing based on
the level at which Management monitors it, which is not higher than an operating segment. The allocation is made to CGUs that are
expected to benefit from the business combination in which the goodwill and other intangible assets with an indefinite useful life arose.
Impairment loss on goodwill is not reversed.
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You see impressive results. We see unbreakable commitment.
C. RECOVERABLE AMOUNTS
A recoverable amount is the higher of fair value less cost of disposal and value in use. To determine the recoverable amount of each asset
or CGU, the Corporation uses the fair value less cost of disposal calculation based on the market approach if a market exists for the asset
or CGU or the income approach.
LONG-TERM DEBT
Long-term debt is recognized initially at fair value, net of financing costs incurred. Long-term debt is subsequently carried at amortized
cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement
of earnings over the period of the term of the debt using the effective interest method.
Financing costs paid on establishment of the revolving credit facility are recognized as deferred financing costs in the consolidated balance
sheet under intangible assets with finite useful life and are amortized on a straight-line basis over the anticipated period of the
credit facility.
LEASES
The Corporation recognize, in the consolidated balance sheet, a lease liability and a corresponding right-of-use asset at the date at which
the leased asset is available for use. Subsequently, lease payments are allocated between the liability and finance cost. Right-of-use
assets are depreciated over the lease term on a straight-line basis.
The lease liability equals the net present value of the lease payments discounted using the interest rate implicit in the lease or the
Corporation’s incremental borrowing rate which is determined for each lease.
Right-of-use assets are measured at cost which includes the initial lease liability amount, lease payments made at or before the lease
commencement date less lease incentives, initial direct costs and restoration costs.
The Corporation uses the low-value exception as well as the short-term exception on all categories of assets, except buildings.
The Corporation does not apply IFRS 16 to leases of intangibles assets.
PROVISIONS FOR CONTINGENCIES AND CHARGES
Provisions for contingencies include mainly legal and other claims. A provision is recognized when the Corporation has a legal or
constructive obligation as a result of a past event and it is probable that settlement of the obligation will require a financial payment or
cause a financial loss, and a reliable estimate of the amount of the obligation can be made.
If some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is
recorded in the consolidated balance sheet as a separate asset, but only if it is virtually certain that the reimbursement will be received.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a discount rate that
reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to
the passage of time is recognized as a financing expense in the consolidated statement of earnings.
ENVIRONMENTAL RESTORATION OBLIGATIONS AND ENVIRONMENTAL COSTS
An obligation to incur restoration and environmental costs arises when environmental disturbance is caused by the development or
ongoing production of a plant or landfill site. Such costs arising from the installation of a plant and other site preparation work are provided
for and capitalized at the start of each project, or as soon as the obligation to incur such costs arises. Decommissioning costs are recorded
at the estimated amount at which the obligation could be settled at the consolidated balance sheet date and are charged against earnings
over the life of the operation through the depreciation of the asset and the unwinding of the discount on the provision. The discount rate is
the pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Costs for restoring
subsequent site damage that is created on an ongoing basis during production are provided for at their present values and charged against
earnings as the obligation arises.
Changes in the measurement of a liability relating to the decommissioning of a plant or other site preparation work resulting from changes
in the estimated timing or amount of the cash flow or a change in the discount rate are added to or deducted from the cost of the related
asset in the current year. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately in
the consolidated statement of earnings. If the asset value is increased and there is an indication that the revised carrying value is not
recoverable, an impairment test is performed in accordance with the accounting policy for impairment testing.
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2020 Annual Report
EMPLOYEE BENEFITS
The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group registered
retirement savings plans (RRSPs) that provide retirement benefit payments for most of its employees. The defined benefit pension plans
are usually contributory and are based on the number of years of service and, in most cases, the average salaries or compensation at the
end of a career. Retirement benefits are not adjusted based on inflation. The Corporation also offers its employees some post-employment
benefit plans, such as a retirement allowance, group life insurance and medical and dental plans. However, these benefits, other than
pension plans, are not funded. Furthermore, the medical and dental plans upon retirement are being phased out and are no longer offered
to the majority of new retirees and the retirement allowance is not offered to those who do not meet certain criteria.
The liability recognized in the consolidated balance sheet in respect of defined benefit pension plans is the present value of the defined
benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated at least
every three years by independent actuaries using the projected unit credit method and updated regularly by Management for any material
transactions and changes in circumstances, including changes in market prices and interest rates up to the end of the reporting period.
As well, when an asset is recorded for a pension plan, its carrying value cannot be greater than the future economic benefit that the
Corporation will get from the asset. The future economic benefit includes the suspension of contribution if the pension plan provisions allow
for it under the minimum funding requirements. When there is a minimum funding requirement, it can increase the liability recorded. All
special contributions legally required to fund a plan deficit are considered. For plans for which an actuarial evaluation is required as at
December 31, 2020, a schedule of contributions is estimated to establish the minimum funding requirement. For other plans, we have used
contributions from the most recent actuarial report.
Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are
recorded in the consolidated statement of other comprehensive income and recognized immediately in retained earnings without recycling
to the consolidated statement of earnings. Past service costs are recognized immediately in the consolidated statement of earnings.
When restructuring a plan results in a curtailment and settlement occurring at the same time, the curtailment is accounted for before
the settlement.
Interest costs on pension and other post-employment benefits are recognized in the consolidated statement of earnings as “Interest
expense on employee future benefits”. The measurement date of employee future benefit plans is December 31 of each year. An actuarial
evaluation is performed at least every three years. Based on their balances as at December 31, 2020, 92% of the plans were evaluated on
December 31, 2019 (23% in 2018).
INCOME TAXES
The Corporation uses the liability method to recognize deferred income taxes. According to this method, deferred income taxes are
determined using the difference between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities
are measured using enacted or substantively enacted tax rates at the consolidated balance sheet date that are expected to apply when the
deferred income taxes are expected to be recovered or settled. Deferred income tax assets are recognized when it is probable that the
asset will be realized.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
FOREIGN CURRENCY TRANSLATION
Items included in the financial statements of each of the Corporation's entities are measured using the currency of the primary economic
environment in which the business unit operates (the “functional currency”). The Consolidated Financial Statements are presented in
Canadian dollars, which is Cascades' functional currency.
A. FOREIGN CURRENCY TRANSACTIONS
Transactions denominated in currencies other than the business unit's functional currency are recorded at the rate of exchange prevailing
at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing
at the consolidated balance sheet date. Unrealized gains and losses on translation of monetary assets and liabilities are reflected in the
consolidated statement of earnings.
B. FOREIGN OPERATIONS
The assets and liabilities of foreign operations are translated into Canadian dollars at the exchange rate prevailing at the consolidated
balance sheet date. Revenues and expenses are translated at the average monthly exchange rate. Translation gains or losses are
deferred and included in “Accumulated other comprehensive income”.
85
You see impressive results. We see unbreakable commitment.
SHARE-BASED PAYMENTS
The Corporation uses the fair value method of accounting for stock-based compensation awards granted to officers and key employees.
This method consists in recording expenses to earnings based on the vesting period of each tranche of options granted. The fair value of
each tranche is calculated based on the Black-Scholes option pricing model. This model was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable. When stock options are exercised, any considerations paid by
employees, as well as the related stock-based compensation, are credited to capital stock.
DIVIDEND DISTRIBUTION
Dividend distribution to the Corporation's Shareholders is recognized as a liability in the Consolidated Financial Statements in the period in
which the dividends are approved by the Corporation's Board of Directors.
EARNINGS PER COMMON SHARE
Basic earnings per common share are determined using the weighted average number of common shares outstanding during the period.
Diluted earnings per common share are determined by adjusting the weighted average number of common shares outstanding for dilutive
instruments, which are primarily stock options, using the treasury stock method to evaluate the dilutive effect of stock options. Under this
method, instruments with a dilutive effect, which is when the average market price of a share for the period exceeds the exercise price, are
considered to have been exercised at the beginning of the period and the proceeds received are considered to have been used to redeem
common shares of the Corporation at the average market price for the period.
NOTE 3
CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
A. NEW IFRS ADOPTED
Amendment to IFRS 16 LEASES
In May 2020, the IASB issued an amendment to IFRS 16 Leases, with the objective of providing practical relief to lessees in accounting for
rent concessions arising as a result of the COVID-19 pandemic. The amendment introduces an optional practical expedients for lessees to
not account for rent concessions as lease modifications if they are a direct consequence of the COVID-19 pandemic and meet
certain conditions.
This amendment to IFRS 16 was adopted effective on April 1, 2020. The Corporation was not in a position to apply any of the practical
expedient to the existing contracts.
B. RECENT IFRS PRONOUNCEMENT NOT YET ADOPTED
LIBOR reform with amendments to IFRS 9, IAS 29, IFRS 7 and IFRS 16
In August 2020, the IASB issued Interest Rate Benchmark Reform-Phase 2, which amends IFRS 9 Financial Instruments, IAS 39 Financial
Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures and IFRS 16 Leases. The amendments
complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate
benchmark with an alternative benchmark rate as a result of the reform. The standard will be effective on January 1, 2021 for the
Corporation. The Corporation is currently evaluating the impact of this standard on its financial statements.
NOTE 4
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, and the reported
amounts of revenues and expenses during the reporting period. On a regular basis and with the information available, Management
reviews its estimates, including those related to environmental costs, employee future benefits, collectability of accounts receivable,
financial instruments, contingencies, income taxes, useful life and residual value of property, plant and equipment and impairment of
property, plant and equipment and intangible assets. Actual results could differ from those estimates. When adjustments become
necessary, they are reported in earnings in the period in which they occur.
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2020 Annual Report
A. IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
In determining the recoverable amount of an asset or CGU, based on the market approach, management uses the value of comparable
assets on the market. In determining the recoverable amount of an asset or CGU, based on the income approach, management uses
several key assumptions, including estimated shipments levels, foreign exchange rates, revenue growth rates, operating income before
depreciation (OIBD) margins, discount rates and capital expenditures.
The Corporation believes its assumptions are reasonable. Based on available information at the assessment date, however, these
assumptions involve a high degree of judgment and complexity. Management believes that the following assumptions are the most
susceptible to change and therefore could impact the valuation of the assets in the next year.
DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS (see Note 26 of Consolidated Financial Statements)
REVENUES, OPERATING INCOME BEFORE DEPRECIATION (OIBD) MARGINS, CASH FLOWS AND GROWTH RATES
The assumptions used were based on the Corporation's internal budget. Revenues, OIBD margins and cash flows were projected for a
period of five years and a perpetual long-term growth rate was applied thereafter. In arriving at its forecasts, the Corporation considers past
experience, economic trends such as gross domestic product growth and inflation, as well as industry and market trends.
DISCOUNT RATES
The Corporation assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate represents a
weighted average cost of capital (WACC) for comparable companies operating in similar industries of the applicable CGU, group of CGUs
or reportable segment based on publicly available information.
FOREIGN EXCHANGE RATES
When estimating the fair value less cost of disposal, foreign exchange rates are determined using the financial institution's average
forecast for the first two years of forecasting. For the following three years, the Corporation uses the last five years' historical average of
the foreign exchange rate. Terminal rate is based on historical data of the last twenty years and adjusted to reflect Management's
best estimate.
SHIPMENTS
The assumptions used are based on the Corporation's internal budget for the next year and are usually held constant for the forecast
period. In arriving at its budgeted shipments, the Corporation considers past experience, economic trends as well as industry and
market trends.
Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse changes in one or a combination
of the Corporation's key assumptions could cause a significant change in the carrying amounts of these assets.
B. INCOME TAXES
The Corporation is required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value for
existing tax losses based on the Corporation's assessment of its ability to use them against future taxable income before they expire. If the
Corporation's assessment of its ability to use the tax losses proves inaccurate in the future, more or less of the tax losses might be
recognized as assets, which would increase or decrease the income tax expense and, consequently, affect the Corporation's results in the
relevant year.
C. EMPLOYEE BENEFITS
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity
approximating the terms of the related pension liability.
The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro-
rated on years of service and Management's best estimate of expected plan investment performance, salary escalations, retirement ages
of employees and expected health care costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation
date. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are
reviewed annually.
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You see impressive results. We see unbreakable commitment.
D. GOODWILL, INTANGIBLE ASSETS AND BUSINESS COMBINATIONS
Goodwill and client lists have arisen as a result of business combinations. The acquisition method, which also requires significant
estimates and judgments, is used to account for these business combinations. As part of the allocation process in a business combination,
estimated fair values are assigned to the net assets acquired. These estimates are based on forecasts of future cash flows, estimates of
economic fluctuations and an estimated discount rate. The excess of the purchase price over the estimated fair value of the net assets
acquired is then assigned to goodwill. In the event that actual net assets fair values are different from estimates, the amounts allocated to
the net assets could differ from what is currently reported. This would then have a direct impact on the carrying value of goodwill.
Differences in estimated fair values would also have an impact on the amortization of definite life intangibles.
E. FAIR VALUE OF BUSINESS COMBINATION
The Corporation makes a number of estimates when allocating fair values to the assets and liabilities acquired in a business acquisition.
Fair values are estimated using valuation techniques that take into account several assumptions such as production, amount and timing of
earnings and expenses, revenue growth, discount rate and capital expenditures.
CRITICAL JUDGMENTS IN APPLYING THE CORPORATION'S ACCOUNTING POLICIES
CRITICAL JUDGMENTS REGARDING THE PANDEMIC IMPACT
As a response to the effects of the COVID-19 pandemic, the Corporation reviewed the assumptions for operating plans, valuation of
property plant and equipment and accounts receivable. The exercise resulted in no additional expected credit loss for accounts
receivables. The Corporation continues to closely monitor the COVID-19 situation: the duration, spread or intensity of the pandemic as it
continues to evolve, along with the supply chain, market pricing and customer demand. These factors may further impact the Corporation’s
operating plan, its cash flows, its ability to raise funds and the valuation of its long-lived assets.
NOTE 5
A. BUSINESS COMBINATIONS
2019
Orchids Paper Products
On September 13, 2019, the Corporation acquired the assets of Orchids Paper Products Company (Orchids) for a total consideration of
$307 million, which consisted of US$235 million ($311 million) in cash, less US$2 million ($2 million) for a purchase price adjustment and
the settlement of a net liability of $2 million with the acquiree prior to the transaction. The Corporation recorded a bargain purchase gain on
acquisition of the distressed assets of $25 million before transaction fees of $9 million.
The assets include the Barnwell, South Carolina and Pryor, Oklahoma Tissue plants. As part of the transaction, the Corporation acquired
all of the outstanding units of OPP Acquisition Mexico S. de R.L. de C.V., designated as assets held-for-sale at acquisition date, which
were resold the same day for US$14 million ($19 million).
This acquisition will accelerate the modernization of the Corporation's U.S. consumer product tissue platform by strengthening our
operations and improving our geographic positioning.
The $15 million fair value of accounts receivables is equal to gross contractual cash flows, which were all expected to be collected at the
time of the acquisition.
The purchase price allocation was finalized in 2020 and the adjustments were retroactively recorded at the date of acquisition.
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2020 Annual Report
Assets acquired and liabilities assumed were as follows:
(in millions of Canadian dollars)
Fair values of identifiable assets acquired and liabilities assumed:
Accounts receivable
Inventories
Assets held-for-sale
Property, plant and equipment
Other assets
Total assets
Trade and other payables
Deferred income tax liabilities
Net assets acquired
Bargain purchase gain on acquisition
Net cash paid
Purchase price adjustment (received in the first quarter of 2020)
Settlement of liability with acquiree before the transaction
Total consideration
B. DISPOSAL
BUSINESS SEGMENT:
ACQUIRED COMPANIES:
2019
Tissue Papers
Orchids Paper Products
Adjusted preliminary
allocation as at
December 31, 2019
Adjustments
Final allocation
14
24
19
290
1
348
(12)
(7)
329
(22)
307
311
(2)
(2)
307
1
—
—
3
—
4
—
(1)
3
(3)
—
—
—
—
—
15
24
19
293
1
352
(12)
(8)
332
(25)
307
311
(2)
(2)
307
2019
Cascades Europe S.A.S.
On September 30, 2019, the Corporation sold its participation of 90% in Cascades Europe S.A.S. which owns Cascades Rollpack, a
cardboard packaging converter for the paper industry, for a total consideration of €10 million ($15 million), including €7 million ($10 million)
of cash received as well as €4 million ($6 million) of long-term debt assumed and €1 million ($1 million) of cash balance disposed. A loss
on disposal of $1 million was recorded.
Assets and liabilities at the time of disposal were as follows:
(in millions of Canadian dollars)
Assets and liabilities disposed:
Cash and cash equivalents
Accounts receivable
Inventories
Property, plant and equipment
Total assets
Trade and other payables
Long-term debt
Net assets disposed
Non-controlling interests
Loss on disposal
Total consideration received
BUSINESS SEGMENT:
DISPOSAL COMPANY:
2019
Specialty Products
Cascades Europe
S.A.S.
1
7
9
9
26
(8)
(6)
12
(1)
(1)
10
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You see impressive results. We see unbreakable commitment.
NOTE 6
ACCOUNTS RECEIVABLE
(in millions of Canadian dollars)
Accounts receivable - Trade
Receivables from related parties
Less: expected credit loss allowance
Trade receivables - net
Other
NOTE
2020
2019
Adjusted, Note 5
29
569
33
(14)
588
71
659
544
27
(12)
559
51
610
As at December 31, 2020, trade receivables of $147 million (December 31, 2019 - $131 million) were past due.
Movements in the Corporation's expected credit loss allowance are as follows:
(in millions of Canadian dollars)
Balance at beginning of year
Provision for expected credit loss allowance
Receivables written off during the year as uncollectable
Exchange differences
Balance at end of year
2020
2019
12
4
(2)
—
14
15
2
(4)
(1)
12
The change in the expected credit loss allowance has been included in “Selling and administrative expenses” in the consolidated
statement of earnings.
The maximum exposure to credit risk at the reporting period approximates the carrying value of each class of receivable mentioned above.
NOTE 7
INVENTORIES
(in millions of Canadian dollars)
Finished goods
Raw materials
Supplies and spare parts
2020
243
116
210
569
2019
295
105
198
598
As at December 31, 2020, finished goods, raw materials and supplies and spare parts inventories have been adjusted to their net
realizable value (NRV) requiring a provision of $9 million, $2 million and $14 million, respectively (December 31, 2019 - $8 million,
$2 million and $15 million).
No reversal of previously written-down inventory occurred in 2020 or 2019. The cost of raw materials and supplies and spare parts
included in “Cost of sales” amounted to $1,754 million (2019 - $1,682 million).
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2020 Annual Report
NOTE 8
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
A.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES ARE DETAILED AS FOLLOWS:
(in millions of Canadian dollars)
Investments in associates
Investments in joint ventures
2020
18
64
82
2019
13
67
80
INVESTMENTS IN ASSOCIATES
B.
The Corporation did not hold any significant participation in associates in 2020 and 2019.
INVESTMENT IN JOINT VENTURES
C.
The following are the principal joint ventures of the Corporation and the Corporation's percentage of equity owned:
Cascades Sonoco US Inc.1
Cascades Sonoco inc.1
Maritime Paper Products Limited Partnership (MPPLP)2
Tencorr Holdings Corporation3
1 Joint ventures producing specialty paper packaging products such as headers, rolls and wrappers.
2 MPPLP is a Canadian corporation converting containerboard.
3 Tencorr Holdings Corporation operates as a supplier of corrugated sheet stock.
2020-2019
PERCENTAGE EQUITY
OWNED (%)
50
50
40
33.33
PRINCIPAL ESTABLISHMENT
Birmingham, Alabama and Tacoma, Washington,
United States
Kingsey Falls and Berthierville, Québec, Canada
Dartmouth, Nova Scotia, Canada
Brampton, Ontario, Canada
The Corporation's joint ventures information (100%), translated in millions of Canadian dollars if required, is as follow:
(in millions of Canadian dollars)
Condensed balance sheet
Cash and cash equivalents
Current assets (other than cash and cash equivalents and current
financial assets)
Long-term assets (other than long-term financial assets)
Current liabilities (other than current financial liabilities)
Current financial liabilities
Long-term liabilities (other than long-term financial liabilities)
Long-term financial liabilities
Condensed statement of earnings
Sales
Depreciation and amortization
Financing expense
Provision for income taxes
Net earnings
Other comprehensive income (loss)
Translation adjustment
Total comprehensive income
Dividends received from joint ventures
CASCADES SONOCO US INC.
CASCADES SONOCO INC.
MARITIME PAPER
PRODUCTS LIMITED
PARTNERSHIP
TENCORR HOLDINGS
CORPORATION
2020
3
18
39
9
1
6
6
89
5
2
1
2
(1)
1
1
2
22
14
7
1
2
1
79
2
—
2
5
—
5
4
7
23
28
6
—
—
—
97
3
—
—
8
—
8
1
12
19
9
25
1
3
—
128
1
—
1
2
—
2
—
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You see impressive results. We see unbreakable commitment.
(in millions of Canadian dollars)
Condensed balance sheet
Cash and cash equivalents
Current assets (other than cash and cash equivalents and current
financial assets)
Long-term assets (other than long-term financial assets)
Current liabilities (other than current financial liabilities)
Current financial liabilities
Long-term liabilities (other than long-term financial liabilities)
Long-term financial liabilities
Condensed statement of earnings
Sales
Depreciation and amortization
Financing expense
Provision for income taxes
Net earnings
Other comprehensive income (loss)
Translation adjustment
Total comprehensive income
Dividends received from joint ventures
CASCADES SONOCO US INC.
CASCADES SONOCO INC.
MARITIME PAPER
PRODUCTS LIMITED
PARTNERSHIP
TENCORR HOLDINGS
CORPORATION
2019
2
26
43
10
5
6
12
110
5
2
1
4
(2)
2
2
—
26
16
7
1
2
1
91
2
—
2
5
—
5
5
3
23
28
4
1
—
2
97
3
—
—
3
—
3
—
—
18
10
14
2
3
—
132
1
—
—
1
—
1
—
There is no in commitment in the joint ventures (nil in 2019).
D. SUBSIDIARIES WITH NON-CONTROLLING INTERESTS
The Corporation's information for its subsidiaries with significant non-controlling interests is as follows:
2020
2019
(in millions of Canadian dollars, unless otherwise noted)
RENO DE MEDICI S.p.A.
GREENPAC HOLDING LLC
RENO DE MEDICI S.p.A.
GREENPAC HOLDING LLC
Principal establishment
Percentage of shares held by non-controlling interests
(accounting basis)
Net earnings attributable to non-controlling interests
Non-controlling interests accumulated at the end of the year
Dividends paid to non-controlling interests
Condensed balance sheet
Cash and cash equivalents
Current assets (other than cash and cash equivalents and current
financial assets)
Current financial assets
Long-term assets (other than long-term financial assets)
Long-term financial assets
Current liabilities (other than current financial liabilities)
Current financial liabilities
Long-term liabilities (other than long-term financial liabilities)
Long-term financial liabilities
Condensed statement of earnings
Sales
Depreciation and amortization
Provision for income taxes
Net earnings
Condensed cash flow
Cash flows from operating activities
Cash flows used for investing activities
Cash flows used for financing activities
92
Milan, Italy
New York,
United States
Milan, Italy
New York,
United States
42.40%
13.65%
42.05%
13.65%
22
153
2
98
292
—
412
—
246
33
77
80
1,052
48
19
51
110
(35)
(41)
13
47
14
28
127
3
520
8
60
11
1
126
438
39
—
95
143
(6)
(142)
11
125
2
59
295
—
397
—
246
39
72
94
1,048
47
14
23
95
(42)
(39)
17
48
15
36
105
3
569
11
37
9
—
167
438
38
—
100
136
(5)
(131)
2020 Annual Report
In November 2019, the Corporation exercised its call option and repurchased the CDPQ (Caisse de dépôt et placement du Québec)
20.20% participation in Greenpac of $121 million. The consideration has been paid on January 3, 2020 and was accounted in other
liabilities as at December 31, 2019. With this additional participation, the Corporation's direct ownership in Greenpac increased to 79.90%
from 59.70% whereas indirect ownership, through our 53% participation in Containerboard Partners (Ontario) Inc., remained at 6.40%. For
accounting purposes, the CDPQ participation was accounted for as a liability because of the put option associated with it. With the
exercise of the call option, the CDPQ put option became void and the 20.20% participation was treated as equity for accounting purposes.
The combined effect of the participation buyout and designation of it as equity decreased the minority interest share to 13.65%
from 17.11%.
E. NON-SIGNIFICANT ASSOCIATES AND JOINT VENTURES
The carrying value of investments in associates and joint ventures that do not have significant impact on the Corporation is as follows:
(in millions of Canadian dollars)
Non-significant associates
Non-significant joint ventures
The shares of results of non-significant associates and joint ventures for the Corporation are as follows:
(in millions of Canadian dollars)
Non-significant associates
Non-significant joint ventures
2020
18
13
31
2020
3
3
6
2019
13
18
31
2019
—
3
3
The Corporation received dividends of $4 million from these associates and joint ventures as at December 31, 2020 (December 31, 2019 -
$2 million).
The Corporation recorded a fair value revaluation loss on investments of $3 million from a joint venture as at December 31, 2020.
93
You see impressive results. We see unbreakable commitment.
NOTE 9
PROPERTY, PLANT AND EQUIPMENT
(in millions of Canadian dollars)
As at January 1, 2019
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2019 (Adjusted,
Note 5)
Opening net book amount
Additions
Disposals
Depreciation
Business disposal
Business combinations
IFRS 16 adjustment
Impairment charges
Others
Exchange differences
Closing net book amount
As at December 31, 2019 (Adjusted, Note 5)
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2020
Opening net book amount
Additions
Disposals
Depreciation
Impairment charges
Others
Exchange differences
Closing net book amount
As at December 31, 2020
Cost
Accumulated depreciation and impairment
Net book amount
NOTE
LAND
BUILDINGS
MACHINERY AND
EQUIPMENT
AUTOMOTIVE
EQUIPMENT
OTHERS
RIGHT-OF-USE
ASSETS
(Note 14)
5
5
26
175
—
175
175
—
—
—
—
—
—
—
13
(7)
181
181
—
181
181
—
—
—
26
(2)
—
3
182
184
2
182
950
401
549
549
35
(1)
(36)
(6)
—
—
(8)
68
(18)
583
978
395
583
583
18
(1)
(21)
—
23
(4)
598
1,006
408
598
3,445
2,002
1,443
1,443
52
(24)
(153)
(3)
312
—
(38)
(23)
(53)
1,513
3,548
2,035
1,513
1,513
92
(2)
(174)
(25)
91
(3)
1,492
3,624
2,132
1,492
115
74
41
41
10
(1)
(11)
—
—
—
—
6
(1)
44
123
79
44
44
11
—
(12)
—
—
1
44
131
87
44
333
124
209
209
174
(3)
(14)
—
—
—
(5)
(75)
(8)
278
454
176
278
278
124
(1)
(11)
—
(114)
(1)
275
393
118
275
123
35
88
88
46
(3)
(42)
—
—
87
—
—
(5)
171
243
72
171
171
62
(4)
(48)
—
—
—
181
285
104
181
TOTAL
5,141
2,636
2,505
2,505
317
(32)
(256)
(9)
312
87
(51)
(11)
(92)
2,770
5,527
2,757
2,770
2,770
307
(8)
(266)
(27)
—
(4)
2,772
5,623
2,851
2,772
Other property, plant and equipment include buildings and machinery and equipment in the process of construction or installation with a
book value of $188 million (December 31, 2019 - $203 million) and deposits on purchases of machinery and equipment amounting to
$15 million (December 31, 2019 - $2 million).
In 2020, $1 million (2019 - $3 million) of interest incurred on qualifying assets was capitalized. The weighted average capitalization rate on
funds borrowed in 2020 was 4.86% (2019 - 5.56%).
94
2020 Annual Report
NOTE 10
GOODWILL AND OTHER INTANGIBLE ASSETS WITH FINITE AND INDEFINITE USEFUL LIFE
(in millions of Canadian dollars)
As at January 1, 2019
Cost
Accumulated amortization and impairment
Net book amount
Year ended December 31, 2019
Opening net book amount
Additions
Impairment charges
Amortization
Exchange differences
Closing net book amount
As at December 31, 2019
Cost
Accumulated amortization and impairment
Net book amount
Year ended December 31, 2020
Opening net book amount
Additions
Amortization
Others
Exchange differences
Closing net book amount
As at December 31, 2020
Cost
Accumulated amortization and impairment
Net book amount
APPLICATION
SOFTWARE
AND ERP
CUSTOMER
RELATIONSHIPS
AND
CLIENT LISTS
NOTE
OTHER
INTANGIBLE
ASSETS WITH
FINITE
USEFUL LIFE
TOTAL
INTANGIBLE
ASSETS WITH
FINITE
USEFUL LIFE
OTHER
INTANGIBLE
ASSETS WITH
INDEFINITE
USEFUL LIFE
TOTAL
INTANGIBLE
ASSETS WITH
INDEFINITE
USEFUL LIFE
GOODWILL
26
158
65
93
93
8
—
(19)
(1)
81
165
84
81
81
10
(19)
—
1
73
176
103
73
218
105
113
113
—
—
(13)
(2)
98
216
118
98
98
—
(13)
—
(1)
84
215
131
84
34
32
2
2
2
—
(1)
—
3
36
33
3
3
—
(1)
1
—
3
9
6
3
410
202
208
208
10
—
(33)
(3)
182
417
235
182
182
10
(33)
1
—
160
400
240
160
551
3
548
548
—
(14)
—
(13)
521
538
17
521
521
—
—
—
(4)
517
526
9
517
7
—
7
7
—
(1)
—
—
6
7
1
6
6
—
—
(1)
—
5
6
1
5
558
3
555
555
—
(15)
—
(13)
527
545
18
527
527
—
—
(1)
(4)
522
532
10
522
NOTE 11
OTHER ASSETS
(in millions of Canadian dollars)
Long-tem notes receivable
Other investments
Other assets
Employee future benefits
Less: Current portion, included in accounts receivables
NOTE
2020
2019
18
7
5
25
15
52
(2)
50
1
4
23
29
57
(2)
55
95
You see impressive results. We see unbreakable commitment.
NOTE 12
TRADE AND OTHER PAYABLES
(in millions of Canadian dollars)
Trade payables
Payables to related parties
Provisions for volume rebates
Accrued expenses
Movements in the Corporation's provision for volume rebates are as follows:
(in millions of Canadian dollars)
Balance at beginning of year
Provision for volume rebates
Business combinations
Volume rebates payments
Exchange differences
Balance at end of year
NOTE 13
LONG-TERM DEBT
(in millions of Canadian dollars)
NOTE
29
NOTE
5
2020
593
8
72
188
861
2020
70
131
—
(128)
(1)
72
2019
589
4
70
129
792
2019
50
124
1
(103)
(2)
70
NOTE
MATURITY
2020
2019
Revolving credit facility, nil as at December 31, 2020 (December 31, 2019 - consists of
$108 million and US$11 million)
5.75% Unsecured senior notes of US$200 million repurchased in 2020
5.125% Unsecured senior notes of $175 million
5.125% Unsecured senior notes of US$350 million
5.375% Unsecured senior notes of US$600 million (including net unamortized premium of
$16 million) (December 31, 2019 - US$300 million)
Term loan of US$165 million, interest rate of 2.25% as at December 31, 2020
Lease obligations of subsidiaries
Other debts of subsidiaries
Lease obligations without recourse to the Corporation
Other debts without recourse to the Corporation
Less: Unamortized financing costs
Total long-term debt
Less:
Current portion of lease obligations of subsidiaries
Current portion of other debts of subsidiaries
Current portion of lease obligations without recourse to the Corporation
Current portion of other debts without recourse to the Corporation
2023
2023
2025
2026
2028
2025
13(d)
13(a)
13(c)
13(c)
13(a) (c)
13(e)
13(e)
13(b)
—
—
175
445
780
210
167
39
35
217
2,068
17
2,051
36
23
12
31
102
1,949
123
260
175
455
390
221
153
39
35
272
2,123
16
2,107
28
14
11
32
85
2,022
96
2020 Annual Report
a. On August 17, 2020, the Corporation issued unsecured senior notes for US$300 million ($396 million) aggregate principal amount of
5.375% due in 2028 at a price of 104.25% resulting in a US$13 million ($17 million) premium for total proceed of US$313 million
($413 million) and an effective yield of 4.69%. Transaction fees amounted to $4 million. The Corporation used the proceed from this
offering to fund the redemption of its 5.75% US$200 million ($264 million) unsecured senior notes due in 2023 and paid premium of
US$3 million ($4 million). The Corporation also wrote off $2 million of unamortized financing costs related to these notes.
Issuance proceed was used as follows:
(in millions of Canadian dollars)
Debt issuance
Premium received on debt issuance
Offering fees
Repurchase of 2023 Notes
Premium paid on repurchase of long-term debt
Decrease of credit facility and increase in cash and cash equivalent
2020
396
17
(4)
(264)
(4)
141
b. On December 11, 2020, Greenpac entered into an agreement with its lenders to extend and amend its credit facilities. The amended
credit agreement still provides Greenpac with a revolving credit of US$50 million while the principal of the term loan was reduced, with
cash on hand and utilization of the revolving line of credit, to US$75 million, from US$122 million at the time of the amendment. The term
of the amended credit agreement is extended to December 2023. The financing terms and conditions remain essentially unchanged.
c. On November 26, 2019, the Corporation issued $175 million aggregate principal amount of 5.125% due in 2025, US$350 million
aggregate principal amount of 5.125% due in 2026 and US$300 million aggregate principal amount of 5.375% due in 2028, totaling
$1,026 million, net of transaction fees of $13 million. The Corporation used the proceeds from this offering to fund the redemption of its
US$400 million of its 5.50% unsecured senior notes due in 2022 for an amount of US$405 million ($533 million) and its $250 million of
its 5.50% unsecured senior notes due in 2021 for an amount of $254 million, including premiums of US$5 million ($7 million) and
$4 million. The Corporation also wrote off $3 million of unamortized financing costs related to these notes.
Issuance proceeds were used as follows:
(in millions of Canadian dollars)
Debt issuance
Offering fees
Repurchase of 2021 and 2022 Notes
Premium paid on repurchase of long-term debt
Decrease of credit facility
2019
1,039
(13)
(776)
(11)
239
d. On May 31, 2019, the Corporation entered into an agreement with its lenders to extend and amend its existing $750 million revolving
credit facility. The amendment extends the term of the facility to July 2023. The financial conditions remain unchanged.
As at December 31, 2020, accounts receivable and inventories totaling approximately $798 million (December 31, 2019 - $785 million)
as well as property, plant and equipment totaling approximately $246 million (December 31, 2019 - $230 million) were pledged as
collateral for the Corporation's revolving credit facility.
e. The Corporation has leases for various items of property, plant and equipment. Lease obligations are secured, as the rights to the
leased asset revert to the lessor in the event of default. For more details on future payments, see Note 16.4 C.
97
You see impressive results. We see unbreakable commitment.
NOTE 14
LEASES
a. The consolidated balance sheets include, in “Property, plant and equipment”, the amounts hereunder as right-of-use assets relating to
leases. 2020 and 2019 right-of-use assets under IFRS16 are split as follows:
(in millions of Canadian dollars)
Buildings
Machinery and equipment
Automotive equipment
Net book amount
Additions to the right-of-use assets during the 2020 financial year were $62 million (2019 - $46 million).
b. The consolidated statements of earnings include the following amounts relating to leases:
(in millions of Canadian dollars)
Depreciation and amortization of right-of-use assets (included in “Cost of sales”)
Buildings
Machinery and equipment
Automotive equipment
Financing expense (included in “Financing expense”)
2020
129
10
42
181
2019
109
10
52
171
2020
2019
22
3
23
48
9
17
2
23
42
9
Expenses relating to short-term leases, low-value assets and variable lease payments not included in lease obligation amount to
$3 million in 2020 (2019 - $3 million).
c. The total cash outflow for leases in 2020 was $56 million (2019 - $51 million).
d. Refer to Note 16.4 C for future contractual payments of lease obligations.
98
2020 Annual Report
NOTE 15
PROVISIONS FOR CONTINGENCIES AND CHARGES
(in millions of Canadian dollars)
As at January 1, 2019
Additional provision
Payments
Revaluation
Unwinding of discount
Other
Exchange differences
As at December 31, 2019
Additional provision
Payments
Revaluation
Unwinding of discount
As at December 31, 2020
Analysis of total provisions:
(in millions of Canadian dollars)
Long-term
Current
ENVIRONMENTAL
RESTORATION
OBLIGATIONS
ENVIRONMENTAL
COSTS
LEGAL CLAIMS
SEVERANCES
OTHERS
TOTAL
PROVISIONS
17
—
—
1
1
—
(1)
18
—
—
4
1
23
16
1
(1)
4
—
—
—
20
3
(1)
4
—
26
3
—
(1)
—
—
—
—
2
2
(1)
—
—
3
10
1
(2)
—
—
(1)
—
8
4
(3)
1
—
10
2
8
(5)
—
—
1
—
6
13
(10)
—
—
9
2020
57
14
71
48
10
(9)
5
1
—
(1)
54
22
(15)
9
1
71
2019
49
5
54
ENVIRONMENTAL RESTORATION
The Corporation uses some landfill sites. A provision has been recognized at fair value for the costs to be incurred for the restoration of
these sites.
ENVIRONMENTAL COSTS
An environmental provision is recorded when the Corporation has an obligation caused by its ongoing or abandoned operations.
LEGAL CLAIMS
In the normal course of operations, the Corporation is party to various legal actions and contingencies, mostly related to contract disputes,
environmental and product warranty claims, and labor issues. While the final outcome with respect to legal actions outstanding or pending
as at December 31, 2020 cannot be predicted with certainty, it is Management's opinion that the outcome will not have a material adverse
effect on the Corporation's consolidated financial position, the results of its operations or its cash flows.
The Corporation is currently working with representatives of the Ontario Ministry of the Environment (MOE) - Northern Region and
Environment Canada - Great Lakes Sustainability Fund in Toronto regarding its potential responsibility for an environmental impact
identified at its former Thunder Bay facility. Both authorities lead the working group and they are developing a site management plan
relating to the sediment quality adjacent to Thunder Bay's lagoon. Several meetings have been held during the past years with the MOE
and Environment Canada and a management plan based on sediment dredging has been proposed by a third party consultant. Both
governments are looking at this proposal with stakeholders to agree on this remediation action plan that would likely be implemented in the
coming years.
The Corporation has recorded an environmental reserve to address its estimated exposure for this matter.
99
You see impressive results. We see unbreakable commitment.
NOTE 16
FINANCIAL INSTRUMENTS
16.1 FAIR VALUE OF FINANCIAL INSTRUMENTS
The classification of financial instruments as at December 31, 2020 and 2019, along with the respective carrying amounts and fair values,
is as follows:
(in millions of Canadian dollars)
NOTE
CARRYING AMOUNT
FAIR VALUE
CARRYING AMOUNT
FAIR VALUE
2020
2019
Financial assets at fair value through profit
or loss
Derivatives
Equity investments
Financial liabilities at fair value through profit
or loss
Derivatives
Financial liabilities at amortized cost
Long-term debt
Derivatives designated as hedge
Asset derivatives
Liability derivatives
16.4
16.4
21
1
(8)
21
1
(8)
22
—
(3)
22
—
(3)
(2,051)
(2,137)
(2,107)
(2,159)
—
(7)
—
(7)
4
(10)
4
(10)
16.2 DETERMINING THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount of consideration that would be received upon the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants as at the measurement date.
(i) The fair value of cash and cash equivalents, accounts receivable, notes receivable, bank loans and advances, trade and other payables
and provisions approximate their carrying amounts due to their relatively short maturities.
(ii) The fair value of investment in shares is based on observable market data and is quoted on the Toronto Stock Exchange and classified
as level 1.
(iii) The fair value of long-term debt and some other liabilities is based on observable market data and on the calculation of discounted
cash flows. Discount rates were determined based on local government bond yields adjusted for the risks specific to each of the
borrowings and for the credit market liquidity conditions and are classified as levels 1 and 3.
(iv) The fair value of derivative instruments, which include forward contracts, swap agreements and embedded derivatives accounted for
separately, is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield curve and
forward foreign exchange rate. Assumptions are based on market conditions prevailing at each reporting date and are classified as
level 2. The fair value of derivative instruments reflect the estimated amounts that the Corporation would receive or pay to settle the
contracts at the reporting date.
16.3 HIERARCHY OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
The following table presents information about the Corporation's financial assets and financial liabilities measured at fair value on a
recurring basis as at December 31, 2020 and 2019 and indicates the fair value hierarchy of the Corporation's valuation techniques to
determine such fair value. Three levels of inputs that may be used to measure fair value are:
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or
similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities
Level 3 – Inputs that are generally unobservable and typically reflect Management's estimates of assumptions that market participants
would use in pricing the asset or liability.
100
2020 Annual Report
(in millions of Canadian dollars)
Financial assets
Equity investments
Derivative financial assets
Financial liabilities
Derivative financial liabilities
(in millions of Canadian dollars)
Financial assets
Derivative financial assets
Financial liabilities
Derivative financial liabilities
CARRYING AMOUNT
QUOTED PRICES IN ACTIVE
MARKETS FOR IDENTICAL
ASSETS (LEVEL1)
SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
2020
SIGNIFICANT
UNOBSERVABLE INPUTS
(LEVEL 3)
1
21
22
(15)
(15)
1
—
1
—
—
—
21
21
(15)
(15)
—
—
—
—
—
CARRYING AMOUNT
QUOTED PRICES IN ACTIVE
MARKETS FOR IDENTICAL
ASSETS (LEVEL1)
SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
2019
SIGNIFICANT
UNOBSERVABLE INPUTS
(LEVEL 3)
26
26
(13)
(13)
—
—
—
—
26
26
(13)
(13)
—
—
—
—
16.4 FINANCIAL RISK MANAGEMENT
The Corporation's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash
flow interest rate risk and price risk), credit risk and liquidity risk. The Corporation's overall risk management program focuses on the
unpredictability of the financial market and seeks to minimize potential adverse effects on the Corporation's financial performance. The
Corporation uses derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by a central treasury department and a management committee acting under policies approved by the
Board of Directors. They identify, evaluate and hedge financial risks in close cooperation with the business units. The Board provides
guidance for overall risk management, covering specific areas, such as foreign exchange risk, interest rate risk and credit risk, use of
derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.
Summary
(in millions of Canadian dollars)
ASSETS
LIABILITIES
2020
RISK
Currency risk
Price risk
Interest risk
NOTE
SHORT-TERM
LONG-TERM
TOTAL
SHORT-TERM
LONG-TERM
TOTAL
16.4 A (i)
16.4 A (ii)
16.4 A (iii)
—
5
—
5
3
13
—
16
3
18
—
21
(8)
—
(1)
(9)
(5)
—
(1)
(6)
(13)
—
(2)
(15)
2019
(in millions of Canadian dollars)
ASSETS
LIABILITIES
RISK
Currency risk
Price risk
Interest risk
Other risk
NOTE
SHORT-TERM
LONG-TERM
TOTAL
SHORT-TERM
LONG-TERM
TOTAL
16.4 A (i)
16.4 A (ii)
16.4 A (iii)
16.4 A (iv)
5
4
1
—
10
—
16
—
—
16
5
20
1
—
26
(2)
(3)
(2)
(1)
(8)
(3)
(1)
(1)
—
(5)
(5)
(4)
(3)
(1)
(13)
A. MARKET RISK
Currency risk
i.
The Corporation operates internationally and is exposed to foreign exchange risks arising from various currencies as a result of its export
of goods produced in Canada, the United States, France, Italy, Spain and Germany. Foreign exchange risk arises from future commercial
transactions, recognized assets and liabilities, and net investments in foreign operations. These risks are partially covered by purchases
and debt.
101
You see impressive results. We see unbreakable commitment.
The Corporation manages the foreign exchange exposure by entering into various foreign exchange forward contracts and currency option
instruments related to anticipated sales, purchases, interest expense and repayment of long-term debt. Management has implemented a
policy for managing foreign exchange risk against its functional currency. The Corporation's risk management policy is to hedge 25% to
90% of anticipated cash flows in each major foreign currency for the next twelve months and to hedge 0% to 75% for the subsequent
twenty-four months. The Corporation may designate these foreign exchange forward contracts as a cash flow hedge of future anticipated
sales, cost of sales, interest expense and repayment of long-term debt denominated in foreign currencies. Gains or losses from these
derivative financial instruments designated as hedges are recorded in “Accumulated other comprehensive income” net of related income
taxes and are reclassified to earnings as adjustments to sales, cost of sales, interest expense or foreign exchange loss (gain) on long-term
debt in the period in which the respective hedged item affected earnings.
In 2020, approximately 17% of sales from Canadian operations were made to the United States and 13% of sales from European
operations were made in countries whose currencies were other than the euro.
The following table summarizes the Corporation's commitments to buy and sell foreign currencies as at December 31, 2020 and 2019:
EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT
(IN MILLIONS)
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
2020
Repayment of long-term debt and Net Investment Hedge
Derivatives at fair value through profit or loss and classified in
Foreign exchange loss (gain) on long-term debt:
Currency option to sell € for CAN$
Currency option to sell US$ for CAN$
Foreign exchange forward contracts to buy US$ for CAN$
Net investment hedge
1.6000
1.3290
1.3290
December 2021 € 1 to 25
July 2023 US$ 50 to 122
July 2023 US$
102
Foreign exchange forward contracts to to sell € for CAN$
1.5273
December 2021 €
145
Forecasted sales and purchases
Derivatives at fair value through profit or loss and classified in Loss
on derivative financial instruments:
Foreign exchange forward contracts to buy US$ for CAN$
Currency option instruments to sell US$ for CAN$
Currency option instruments to buy US$ for CAN$
1.2833
1.3350
1.2710
0 to 12 months US$ 42
0 to 12 months US$ 5
0 to 12 months US$ 18.5
(1)
3
(6)
(4)
(6)
—
—
—
—
(10)
102
2020 Annual Report
Repayment of long-term debt and Net Investment Hedge
Derivatives at fair value through profit or loss and classified in
Foreign exchange loss (gain) on long-term debt:
Currency option to buy € for CAN$
Currency option instruments to sell US$ for CAN$
Cross-currency swap US$ for CAN$
Net investment hedge
Cross-currency swap CAN$ for €
Forecasted sales and purchases
Derivatives at fair value through profit or loss and classified in Loss
on derivative financial instruments:
Foreign exchange forward contracts to buy € for US$
Currency option instruments to sell US$ for CAN$
Currency option instruments to buy € for US$
Currency option instruments to sell US$ for CAN$
EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT
(IN MILLIONS)
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
2019
1.4740
1.3290
1.3290
December 2020 € 4 to 49
July 2023 US$ 29 to 129
July 2023 US$
102
1.4740
December 2020 €
145
1.1215
1.3257
1.0985
1.3375
0 to 12 months €
—
0 to 12 months US$ 30 to 53
0 to 12 months € 2 to 3
13 to 36 months
US$ 5 to 10
1
—
(4)
(3)
3
—
—
—
—
—
—
The fair values of foreign exchange forward contracts and currency options are determined using the discounted value of the difference
between the value of the contract at expiry, calculated using the contracted exchange rate and the exchange rate the financial institution
would use if it renegotiated the same contract under the same conditions as at the consolidated balance sheet date. The discount rates are
adjusted for the credit risk of the Corporation or of the counterparty, as applicable. When determining credit risk adjustments, the
Corporation considers master netting agreements, if applicable.
In 2020, if the Canadian dollar had strengthened by $0.01 against the US dollar on average for the year with all other variables held
constant, operating income before depreciation and amortization for the year would have been approximately $3 million lower. This is
based on the net exposure of total US sales less US purchases of the Corporation's Canadian operations and operating income before
depreciation and amortization of the Corporation's US operations, but excludes the effect of this change on the denominated working
capital components. The interest expense would have remained relatively stable.
In 2020, if the Canadian dollar had strengthened by $0.01 against the euro with all other variables held constant, operating income before
depreciation and amortization for the year would have been approximately $1 million lower following the translation of operating income of
the Corporation's European operations.
CURRENCY RISK ON TRANSLATION OF SELF-SUSTAINING FOREIGN SUBSIDIARIES
The Corporation has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The
Corporation may designate part of its long-term debt denominated in foreign currencies as a hedge of the net investment in self-sustaining
foreign subsidiaries. Gains or losses resulting from the translation to Canadian dollars of long-term debt denominated in foreign currencies
and designated as net investment hedges are recorded in “Accumulated other comprehensive income”, net of related income taxes.
The table below shows the effect on consolidated equity of a 10% change in the value of the Canadian dollar against the US dollar and the
euro as at December 31, 2020 and 2019. The calculation includes the effect of currency hedges of net investment in US foreign entities
and assumes that no changes occurred other than a single currency exchange rate movement.
The exposures used in the calculations are the foreign currency-denominated equity and the hedging level as at December 31, 2020
and 2019, with the hedging instruments being the long-term debt denominated in US dollars.
Consolidated Shareholders' equity: Currency effect before tax of a 10% change:
(in millions of Canadian dollars)
10% change in the CAN$/US$ rate
10% change in the CAN$/euro rate
BEFORE HEDGES
HEDGES
83
21
83
16
2020
NET IMPACT
—
5
BEFORE HEDGES
HEDGES
71
17
71
15
2019
NET IMPACT
—
2
103
You see impressive results. We see unbreakable commitment.
Price risk
ii.
The Corporation is exposed to commodity price risk on old corrugated containers, commercial pulp, electricity and natural gas. The
Corporation uses derivative commodity contracts to help manage its production costs. The Corporation may designate these derivatives as
cash flow hedges of anticipated purchases of energy. Gains or losses from these derivative financial instruments designated as hedges
are recorded in “Accumulated other comprehensive income” net of related income taxes and are reclassified to earnings as adjustments to
“Cost of sales” in the same period, as the respective hedged item affects earnings.
The fair value of these contracts is as follows:
QUANTITY
MATURITY
2020
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
Forecasted purchases
Derivatives designated as held for trading and reclassified in “Cost of sales”
Natural gas:
US portfolio
1,470.923 mmBtu
2021 to 2025
—
—
2019
QUANTITY
MATURITY
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
Forecasted purchases
Derivatives designated as held for trading and reclassified in “Cost of sales”
Electricity
39,420 MW
2020
Derivatives designated as cash flow hedges and reclassified in “Cost of sales”
(effective portion)
Natural gas:
US portfolio
1,805,600 mmBtu
2020 to 2024
—
(2)
(2)
In 2013, the Corporation entered into an agreement to purchase steam. The agreement includes an embedded derivative and the fair
value as at December 31, 2020 was an asset of $7 million (2019 - $7 million). Greenpac also has an agreement to purchase steam that
includes an embedded derivative with a positive fair value of $11 million as at December 31, 2020 (2019 - $13 million).
The European operations of the Corporation entered into energy contracts designated as derivatives at fair value through profit or loss,
with a nil fair value in 2020 (2019 a loss of $2 million).
The fair value of derivative financial instruments other than options is established utilizing a discounted future expected cash flows method.
Future expected cash flows are determined by reference to the forward price or rate prevailing on the assessment date of the underlying
financial index (exchange or interest rate or commodity price) according to the contractual terms of the instrument. Future expected cash
flows are discounted at an interest rate reflecting both the maturity of each flow and the credit risk of the party to the contract for which it
represents a liability (subject to the application of relevant credit support enhancements). The fair value of derivative financial instruments
that represent options is established utilizing similar methods that reflect the impact of the potential volatility of the financial index
underlying the option on future expected cash flows.
The table below shows the effect of changes in the price of natural gas and electricity as at December 31, 2020 and 2019. The calculation
includes the effect of price hedges of these commodities and assumes that no changes occurred other than a single change in price.
The exposures used in the calculations are the commodity consumption and the hedging level as at December 31, 2020 and 2019, with
the hedging instruments being derivative commodity contracts.
Consolidated commodity consumption: Price change effect before tax:
(in millions of Canadian dollars1)
US$30/s.t. change in commercial pulp price
US$1/mmBTU. change in natural gas price
US$1/MWh change in electricity price
2020
2019
BEFORE HEDGES
HEDGES
NET IMPACT
BEFORE HEDGES
HEDGES
NET IMPACT
12
11
2
—
2
—
12
9
2
9
12
2
—
2
—
9
10
2
1 Sensitivity calculated with an exchange rate of 1.30 CAN$/US$ for 2020 and 1.30 CAN$/US$ for 2019.
104
2020 Annual Report
Interest rate risk
iii.
The Corporation has no significant interest-bearing assets.
The Corporation's interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Corporation to cash
flow interest rate risk. Borrowings issued at fixed rates expose the Corporation to fair value interest rate risk.
When appropriate, the Corporation analyzes its interest rate risk exposure. Various scenarios are simulated taking into consideration
refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Corporation calculates the
impact on earnings of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios
are run only for liabilities that represent the major interest-bearing positions. As at December 31, 2020, approximately 18% (2019 - 15%) of
the Corporation's long-term debt was at variable rates.
Based on the outstanding long-term debt as at December 31, 2020, the impact on interest expense of a 1% change in rate would be
approximately $4 million (impact on net earnings is approximately $3 million).
The Corporation holds interest rate swaps through RDM and Greenpac. RDM swaps are contracted to fix the interest rate on a notional
amount of €39 million and are maturing from 2021 to 2024. Greenpac swaps are contracted to fix the interest rate on a notional amount of
US$25 million maturing in 2021. Some of these swaps have decreasing notional amount to match expected debt level. Fair value of these
agreements is a liability of $2 million as at December 31, 2020 (December 31, 2019 - $3 million).
iv. Loss (gain) on derivative financial instruments is as follows:
(in millions of Canadian dollars)
Unrealized loss (gain) on derivative financial instruments
2020
1
2019
(2)
B. CREDIT RISK
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions. The
Corporation reduces this risk by dealing with credit-worthy financial institutions.
The Corporation is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Corporation's
credit policies include the analysis of the financial position of its customers and the regular review of their credit limits. In addition, the
Corporation believes there is no particular concentration of credit risk due to the geographic diversity of customers and the procedures for
the management of commercial risks. Derivative financial instruments include an element of credit risk should the counterparty be unable
to meet its obligations.
Trade receivables are recognized initially at fair value and are subsequently measured at amortized cost using the effective interest
method, less loss allowance. An expected credit loss allowance of trade receivables is established when there is objective evidence that
the Corporation will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties
of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are
considered indicators that the trade receivable is impaired. Each trades receivable is evaluated considering the collection historic to identify
impairment. The amount of the expected credit loss allowance represents the estimated credit loss. The carrying amount of the asset is
reduced through the use of an allowance account and the amount of the loss is recorded in the consolidated statement of earnings in
“Selling and administrative expenses”. When a trade receivable is not collectible, it is written off against the loss allowance. Subsequent
recoveries of amounts previously written off are credited against “Selling and administrative expenses” in the consolidated statement
of earnings.
Loans and notes receivables from business disposals are recognized at fair value. There is no past due amount as at December 31, 2020.
105
You see impressive results. We see unbreakable commitment.
C. LIQUIDITY RISK
Liquidity risk is the risk that the Corporation will not be able to meet its obligations as they fall due. The following are the contractual
maturities of financial liabilities as at December 31, 2020 and 2019:
(in millions of Canadian dollars)
Non-derivative financial liabilities:
Bank loans and advances
Trade and other payables
Term loan
Unsecured senior notes
Lease obligations of subsidiaries
Other debts of subsidiaries
Lease obligations without recourse to the Corporation
Other debts without recourse to the Corporation
Derivative financial liabilities
(in millions of Canadian dollars)
Non-derivative financial liabilities:
Bank loans and advances
Trade and other payables
Revolving credit facility
Term loan
Unsecured senior notes
Lease obligations of subsidiaries
Other debts of subsidiaries
Lease obligations without recourse to the Corporation
Other debts without recourse to the Corporation
Derivative financial liabilities
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
LESS THAN
ONE YEAR
BETWEEN
ONE AND
TWO YEARS
BETWEEN
TWO AND
FIVE YEARS
12
861
210
1,384
167
39
35
217
15
12
861
232
1,888
212
42
36
225
15
12
861
11
73
43
17
12
34
9
—
—
11
73
32
6
6
36
—
2,940
3,523
1,072
164
—
—
210
393
60
12
10
153
6
844
2020
MORE THAN
FIVE YEARS
—
—
—
1,349
77
7
8
2
—
1,443
2019
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
LESS THAN
ONE YEAR
BETWEEN
ONE AND
TWO YEARS
BETWEEN
TWO AND
FIVE YEARS
MORE THAN
FIVE YEARS
11
792
123
221
1,280
153
39
35
272
13
11
792
139
279
1,739
207
40
37
275
13
11
792
5
15
68
36
8
12
32
8
2,939
3,532
987
—
—
5
15
68
31
8
10
187
2
326
—
—
129
46
449
56
22
9
55
3
—
—
—
203
1,154
84
2
6
1
—
769
1,450
As at December 31, 2020, the Corporation had unused credit facilities of $901 million (December 31, 2019 - $794 million), net of
outstanding letters of credit of $22 million (December 31, 2019 - $27 million).
D. OTHER RISK
FACTORING OF ACCOUNTS RECEIVABLE
The Corporation sells its accounts receivable from one of its European subsidiaries through a factoring contract with a financial institution.
The Corporation uses factoring of accounts receivable as a source of financing by reducing its working capital requirements. When the
accounts receivable are sold, the Corporation removes them from the balance sheet, recognizes the amount received as the consideration
for the transfer and records a loss on factoring, which is included in “Financing expense”. As at December 31, 2020, the off-balance sheet
impact of the factoring of accounts receivable amounted to $56 million (€36 million). The Corporation expects to continue to sell accounts
receivable on an ongoing basis. Should it decide to discontinue this contract, its working capital and bank debt requirements
would increase.
STOCK-BASED COMPENSATION
The Corporation entered into an agreement to hedge the share price volatility related to its Deferred Share Units and Performance Share
Unit plans. As at December 31, 2020, the agreement's notional amount was 566,000 shares at a price of $14.60 (December 31, 2019 -
notional amount : 566,000, share price: $12.44). The fair value as at December 31, 2020 was a liability less than a million dollars
(December 31, 2019 - liability: $1 million).
106
2020 Annual Report
NOTE 17
OTHER LIABILITIES
(in millions of Canadian dollars)
Employee future benefits
Consideration payable for the purchase of the CDPQ participation in Greenpac
Other
Less: Current portion
NOTE
18
8
21
2020
189
—
29
218
(16)
202
2019
179
120
28
327
(129)
198
As at December 31, 2020, the balance on the line “Other” includes an amount of $5 million (December 31, 2019 - $3 million) pertaining to
a call option granted by the Corporation to one of the minority shareholders of Falcon Packaging LLC.
As at December 31, 2019, the line “Other” included an amount of $13 million representing the fair value of a one time option granted to
White Birch to purchase an interest of up to 10% in the Bear Island containerboard mill project. White Birch notified the Corporation that it
would not exercise the option and therefore the liability extinguished. The Corporation recorded a gain of $13 million on the reversal of the
liability, accounted for in the consolidated statement of earnings in “Interest expense (revenue) on employee future benefits and
other liabilities”.
In November 2019, the Corporation exercised its call option and repurchased the CDPQ (Caisse de dépôt et placement du Québec)
20.20% participation in Greenpac of $121 million. The consideration has been paid on January 3, 2020.
NOTE 18
EMPLOYEE FUTURE BENEFITS
The Corporation operates various post-employment plans, including both defined benefit and defined contribution pension plans and post-
employment benefit plans, such as retirement allowance, group life insurance and medical and dental plans. The table below outlines
where the Corporation’s post-employment amounts and activity are included in the Consolidated Financial Statements.
(in millions of Canadian dollars)
Consolidated balance sheet obligations for
Defined pension benefits
Post-employment benefits other than defined benefit pension plans
Net long-term liabilities on consolidated balance sheet
Expenses recorded in consolidated statement of earnings for
Defined pension benefits
Defined contribution benefits
Post-employment benefits other than defined benefit pension plans
Consolidated other comprehensive income remeasurements for
Defined pension benefits
Post-employment benefits other than defined benefit pension plans
NOTE
18 A
18 B
18 A
18 B
2020
69
105
174
8
33
5
46
19
3
22
2019
47
103
150
7
29
6
42
(5)
8
3
A. DEFINED BENEFIT PENSION PLANS
The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group RRSPs that
provide retirement benefit payments for most of its employees. The defined benefit pension plans are usually contributory and are based
on the number of years of service and, in most cases, the average salaries or compensation at the end of a career. Retirement benefits are
not partially adjusted based on inflation.
The majority of benefit payments are payable from trustee administered funds; however, for the unfunded plans, the Corporation meets the
benefit payment obligation as it falls due. Plan assets held in trusts are governed by local regulations and practices in each country.
107
You see impressive results. We see unbreakable commitment.
Responsibility for governance of the plans - overseeing all aspects of the plans, including investment decisions and contribution schedules
- lies with the Corporation. The Corporation has established Investment Committees to assist in the management of the plans and has also
appointed experienced,
investment consultants, actuaries
and custodians.
independent professional experts such as
investments managers,
The movement in the net defined benefit obligation and fair value of plan assets of defined benefit pension plans over the year is
as follows:
PRESENT VALUE
OF OBLIGATION
FAIR VALUE OF
PLAN ASSETS
(445)
—
(16)
(16)
TOTAL
35
5
1
6
(35)
(35)
—
—
—
(35)
—
(8)
(1)
31
(474)
—
(13)
—
(13)
42
1
—
8
(2)
(8)
—
—
39
5
2
1
8
(28)
(28)
—
—
—
—
(28)
—
(7)
(1)
28
(495)
2
38
2
—
14
2
(7)
—
—
56
IMPACT OF
MINIMUM
FUNDING
REQUIREMENT
(ASSET CEILING)
20
—
1
1
—
—
—
(13)
(13)
—
—
—
—
8
—
—
—
—
—
—
—
—
5
5
—
—
—
—
13
TOTAL
55
5
2
7
(35)
42
1
(13)
(5)
(2)
(8)
—
—
47
5
2
1
8
(28)
2
38
2
5
19
2
(7)
—
—
69
480
5
17
22
—
42
1
—
43
(2)
—
1
(31)
513
5
15
1
21
—
2
38
2
—
42
2
—
1
(28)
551
(in millions of Canadian dollars)
As at January 1, 2019
Current service cost
Interest expense (income)
Impact on consolidated profit or loss
Remeasurements
Return on plan assets, excluding amounts included in interest income
Loss from change in financial assumptions
Experience loss
Change in asset ceiling, excluding amounts included in interest expense
Impact of remeasurements on consolidated other comprehensive income (loss)
Exchange differences
Contributions
Employers
Plan participants
Benefit payments
As at December 31, 2019
Current service cost
Interest expense (income)
Business closures
Impact on consolidated profit or loss
Remeasurements
Return on plan assets, excluding amounts included in interest income
Loss from change in demographic assumptions
Loss from change in financial assumptions
Experience loss
Change in asset ceiling, excluding amounts included in interest expense
Impact of remeasurements on consolidated other comprehensive income (loss)
Exchange differences
Contributions
Employers
Plan participants
Benefit payments
As at December 31, 2020
108
2020 Annual Report
The defined benefit obligation and plan assets are composed by country as follows:
(in millions of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Impact of minimum funding requirement (asset ceiling)
Present value of unfunded obligations
Liabilities on consolidated balance sheet
(in millions of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Impact of minimum funding requirement (asset ceiling)
Present value of unfunded obligations
Liabilities on consolidated balance sheet
The significant actuarial assumptions are as follows:
CANADA
UNITED STATES
EUROPE
469
488
(19)
13
36
30
10
7
3
—
—
3
—
—
—
—
36
36
CANADA
UNITED STATES
EUROPE
436
467
(31)
8
36
13
10
7
3
—
—
3
2020
—
—
—
—
31
31
2020
TOTAL
479
495
(16)
13
72
69
2019
TOTAL
446
474
(28)
8
67
47
2019
Discount rate obligation (ending period)
Discount rate obligation (beginning period)
Discount rate (current service cost)
Salary growth rate
Inflation rate
CANADA
UNITED STATES
EUROPE
CANADA
UNITED STATES
EUROPE
2.50%
3.10%
2.70%
Between
2.00% and
2.50%
2.00%
2.00%
2.90%
2.00%
N/A
0.50%
0.90%
0.50%
N/A
N/A
1.50%
3.10%
3.80%
3.20%
Between
2.25% and
2.75%
2.25%
2.90%
3.90%
2.90%
N/A
0.90%
1.90%
0.90%
N/A
N/A
1.75%
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each
territory. For Canadian pension plans, which represent 92% of all pension plans, these assumptions translate into an average life
expectancy in years for a pensioner retiring at age 65:
Retiring at the end of the reporting period
Male
Female
Retiring 20 years after the end of the reporting period
Male
Female
2020
21.9
24.3
22.9
25.2
2019
21.8
24.2
22.9
25.2
The sensitivity of the Canadian defined benefit obligation to changes in assumptions is set out below. The effects on each plan of a change
in an assumption are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented.
Discount rate
Salary growth rate
Life expectancy
IMPACT ON DEFINED BENEFIT OBLIGATION
CHANGE IN ASSUMPTION
INCREASE IN ASSUMPTION
DECREASE IN ASSUMPTION
0.25%
0.25%
(3.00%)
0.40%
3.20%
(0.30%)
INCREASE / DECREASE BY ONE YEAR IN ASSUMPTION
3.00%
109
You see impressive results. We see unbreakable commitment.
Plan assets, which are funding the Corporation’s defined pension plans, are comprised as follows:
(in millions of Canadian dollars)
Cash and short-term investments
Bonds
Canadian bonds
Shares
Canadian shares
Foreign shares
Mutual funds
Foreign bond mutual funds
Canadian equity mutual funds
Foreign equity mutual funds
Alternative investments funds
Other
Insured annuities
(in millions of Canadian dollars)
Cash and short-term investments
Bonds
Canadian bonds
Shares
Canadian shares
Foreign shares
Mutual funds
Money market funds
Foreign bond mutual funds
Canadian equity mutual funds
Foreign equity mutual funds
Alternative investments funds
Other
Insured annuities
LEVEL 1
LEVEL 2
LEVEL 3
5
55
29
5
34
—
8
—
—
8
—
—
102
—
42
—
—
—
7
1
50
25
83
268
268
393
—
—
—
—
—
—
—
—
—
—
—
—
—
LEVEL 1
LEVEL 2
LEVEL 3
4
84
28
5
33
—
—
7
—
—
7
—
—
128
—
51
—
—
—
1
7
1
42
25
76
219
219
346
—
—
—
—
—
—
—
—
—
—
—
—
—
—
TOTAL
5
2020
%
1.0%
97
19.6%
29
5
34
7
9
50
25
91
268
268
495
TOTAL
4
6.9%
18.4%
54.1%
2019
%
0.8%
135
28.5%
28
5
33
1
7
8
42
25
83
219
219
474
7.0%
17.5%
46.2%
The plan assets include shares of the Corporation for an amount of less than $1 million. These shares were bought by one of the asset
managers. The Corporation has purchased annuity contracts of an approximate value of $268 million to fulfill future benefits payments.
110
2020 Annual Report
B. POST-EMPLOYMENT BENEFITS OTHER THAN DEFINED BENEFIT PENSION PLANS
The Corporation also offers its employees some post-employment benefit plans, such as retirement allowance, group life insurance and
medical and dental plans. However, these benefits, other than pension plans, are not funded. Furthermore, the medical and dental plans
upon retirement are being phased out and are no longer offered to the majority of new retirees and the retirement allowance is not offered
to the majority of employees hired after 2002.
The amounts recognized in the consolidated balance sheet composed by country are determined as follows:
(in millions of Canadian dollars)
Present value of unfunded obligations
Liabilities on consolidated balance sheet
CANADA
UNITED STATES
EUROPE
79
79
4
4
22
22
(in millions of Canadian dollars)
Present value of unfunded obligations
Liabilities on consolidated balance sheet
CANADA
UNITED STATES
EUROPE
77
77
4
4
22
22
The movement in the net defined benefit obligation for post-employment benefits over the year is as follows:
(in millions of Canadian dollars)
As at January 1, 2019
Current service cost
Interest expense
Plan changes
Impact on consolidated profit or loss
Remeasurements
Loss from change in financial assumptions
Experience loss (gain)
Impact of remeasurements on consolidated other comprehensive income (loss)
Exchange differences
Benefit payments
As at December 31, 2019
Current service cost
Interest expense
Post-employment variation
Impact on consolidated profit or loss
Remeasurements
Loss from change in financial assumptions
Experience loss (gain)
Impact of remeasurements on consolidated other comprehensive income (loss)
Exchange differences
Benefit payments
As at December 31, 2020
PRESENT VALUE OF
OBLIGATION FAIR VALUE OF PLAN ASSET
99
2
3
1
6
6
2
8
(2)
(8)
103
2
2
1
5
4
(1)
3
1
(7)
105
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2020
TOTAL
105
105
2019
TOTAL
103
103
TOTAL
99
2
3
1
6
6
2
8
(2)
(8)
103
2
2
1
5
4
(1)
3
1
(7)
105
The method of accounting, assumptions relating to discount rate and life expectancy, and the frequency of valuations for post-employment
benefits are similar to those used for defined benefit pension plans, with the addition of actuarial assumptions relating to the long-term
increase in health care costs of 4.81% a year on average (2019 - 4.89%).
111
You see impressive results. We see unbreakable commitment.
The sensitivity of the defined benefit obligation to changes in assumptions is set out below. The effects on each plan of a change in an
assumption are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented.
Discount rate
Salary growth rate
Health care cost increase
Life expectancy
IMPACT ON OBLIGATION FOR POST-EMPLOYMENT BENEFITS
CHANGE IN ASSUMPTION
INCREASE IN ASSUMPTION
DECREASE IN ASSUMPTION
0.25 %
0.25 %
1.00 %
(2.30) %
0.40 %
1.40 %
2.50 %
(0.40) %
(1.30) %
INCREASE / DECREASE BY ONE YEAR IN ASSUMPTION
1.30 %
C. RISKS AND OTHER CONSIDERATIONS RELATIVE TO POST-EMPLOYMENT BENEFITS
Through its defined benefit plans, the Corporation is exposed to a number of risks, the most significant of which are detailed below.
Asset volatility
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields and if plan assets underperform this
yield, it will create an experience loss. Most of pension plans hold a proportion of equities, which are expected to outperform corporate
bonds in the long term while contributing volatility and risk in the short term.
The Corporation intends to reduce the level of investment risk by investing more in assets that better match the liabilities when the financial
situation of the plans improves and/or the rate of return on bonds used for solvency valuations increases.
As at December 31, 2020, 57% of the plan's invested assets are in fixed income. As at December 31, 2020, the total value of insured
annuities is $268 million.
However, the Corporation believes that due to the long-term nature of the plan liabilities and the strength of the supporting group, a level of
continuing equity investment is an appropriate element of the Corporation’s long-term strategy to manage the plans efficiently. Plan assets
are diversified, so the failure of an individual stock would not have a big impact on the plan assets taken as a whole. The pension plans do
not face a significant currency risk.
Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the
plans’ bond holdings, particularly for plans in a good financial position that have a greater proportion of bonds.
Inflation risk
The benefits paid are not indexed. Only future benefits for active members are based on salaries. Therefore, this risk is not significant.
Life expectancy
The majority of the plans’ obligations are to provide benefits for the member's lifetime, so increases in life expectancy will result in an
increase in the plans’ liabilities.
Each sensitivity analysis disclosed in this note is based on changing one assumption while holding all other assumptions constant. In
practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the
defined benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit
obligation calculated using the projected unit credit method at the end of the reporting period) has been applied as for calculating the
liability recognized in the consolidated balance sheet.
As at December 31, 2020, the aggregate net surplus of the Corporation’s funded pension plans (mostly in Canada) amounted to
$16 million (a surplus of $28 million as at December 31, 2019). Current agreed expected service contributions amount to $4 million and will
be made in the normal course of business. As for the cash flow requirement, these pension plans are expected to require a net contribution
of approximately $4 million in 2021.
The weighted average duration of the defined benefit obligation is 12 years (2019 - 11 years).
112
2020 Annual Report
Expected maturity analysis of undiscounted pension and other post-employment benefits:
(in millions of Canadian dollars)
Pension benefits
Post-employment benefits other than defined benefit pension plans
As at December 31, 2020
ONE YEAR
TWO YEARS
BETWEEN THREE
AND FIVE YEARS
BETWEEN SIX
AND TEN YEARS
29
6
35
29
6
35
88
21
109
679
92
771
TOTAL
825
125
950
These amounts represent all the benefits payable to current members during the following years and thereafter without limitations. The
majority of benefit payments are payable from trustee administered funds. The difference will come from future investment returns
expected on plan assets and future contributions that will be made by the Corporation for services rendered after December 31, 2020.
NOTE 19
INCOME TAXES
a. The provision for income taxes is as follow:
(in millions of Canadian dollars)
Current taxes
Deferred taxes
2020
27
18
45
2019
21
(2)
19
b. The provision for income taxes based on the effective income tax rate differs from the provision for income taxes based on the combined
basic rate for the following reasons:
(in millions of Canadian dollars)
Provision for income taxes based on the combined basic Canadian and provincial income tax rate
Adjustment for income taxes arising from the following:
Difference in statutory income tax rate of foreign operations
Prior years reassessment
Change in future income taxes resulting from enacted tax rate change
Permanent differences
Change in deferred income tax assets relating to capital tax losses
Change in temporary differences
Other
Provision for income taxes
2020
74
(3)
(5)
(1)
(12)
(8)
—
—
(29)
45
Weighted average income tax rate for the year ended December 31, 2020 was 25.35% (2019 - 25.50%).
c. The provision for (recovery of) income taxes relating to components of consolidated other comprehensive income is as follows:
(in millions of Canadian dollars)
Foreign currency translation related to hedging activities
Actuarial loss on post-employment benefit obligations
Recovery of income taxes
2020
2
(6)
(4)
2019
31
(2)
3
—
(3)
(11)
3
(2)
(12)
19
2019
(1)
(1)
(2)
113
You see impressive results. We see unbreakable commitment.
d. The analysis of deferred tax assets and deferred tax liabilities, without taking into consideration the offsetting of balances within the
same tax jurisdiction, is as follows:
(in millions of Canadian dollars)
Deferred income tax assets:
Deferred income tax assets to be recovered after more than twelve months
Deferred income tax liabilities:
Deferred income tax liabilities to be used after more than twelve months
2020
331
371
(40)
2019
Adjusted, Note 5
312
357
(45)
When taking into consideration the offsetting of balances within the same tax jurisdiction, the net deferred tax liability of $40 million is
presented on the consolidated balance sheet as $170 million of “Deferred income tax asset” and $210 million of “Deferred income
tax liabilities”.
e. The movement of the deferred income tax account is as follows:
(in millions of Canadian dollars)
Balance at beginning of year
Through consolidated statement of earnings
Variance of income tax credit, net of related income tax
Through consolidated statement of comprehensive income
Through business combinations
Acquisition of non controlling interest
IFRS 16 adjustment
Others
Exchange differences
Balance at end of year
NOTE
2020
2019
Adjusted, Note 5
5
(45)
(18)
15
4
—
—
—
2
2
(40)
(67)
2
11
2
(8)
8
3
(2)
6
(45)
114
2020 Annual Report
f. The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows:
DEFERRED INCOME TAX ASSET
(in millions of Canadian dollars)
NOTE
As at January 1, 2019
Through consolidated statement of
earnings
Variance of income tax credit
Through consolidated statement of
comprehensive income
Through business combinations
5
Acquisition of non-controlling interest
IFRS 16 adjustment
Others
As at December 31, 2019
Through consolidated statement of
earnings
Variance of income tax credit
Through consolidated statement of
comprehensive income
Others
Exchange differences
As at December 31, 2020
RECOGNIZED
TAX BENEFIT
ARISING FROM
INCOME TAX
LOSSES
105
27
—
—
—
—
—
—
132
6
—
—
—
2
140
DEFERRED INCOME TAX LIABILITIES
(in millions of Canadian dollars)
As at January 1, 2019
Through consolidated statement of earnings
EMPLOYEE
FUTURE
BENEFITS
EXPENSE ON
RESEARCH
UNUSED TAX
CREDITS
FINANCIAL
INSTRUMENTS
AND OTHER
LIABILITIES
LONG TERM
DEBT FINANCE
LEASES
27
1
—
(1)
—
—
—
—
27
3
—
6
—
—
36
5
5
—
—
—
—
—
—
10
—
—
—
—
—
10
42
(1)
11
—
—
—
—
—
52
2
7
—
—
—
(1)
—
—
8
(2)
(8)
15
—
—
—
65
—
—
—
—
—
—
28
—
5
(6)
9
3
(1)
38
—
—
—
—
—
38
OTHERS
47
TOTAL
228
(2)
—
—
—
—
—
—
45
(4)
—
—
1
—
42
65
11
4
(6)
8
3
(1)
312
(5)
15
6
1
2
331
PROPERTY,
PLANT AND
EQUIPMENT
FOREIGN
EXCHANGE
LOSS ON LONG-
TERM DEBT
NOTE
INTANGIBLE
ASSETS
INVESTMENTS
OTHERS
TOTAL
Adjusted, Note 5
Through consolidated statement of comprehensive income
Through business combinations
5
Others
Exchange differences
As at December 31, 2019 (Adjusted, Note 5)
Through consolidated statement of earnings
Through consolidated statement of comprehensive income
Others
As at December 31, 2020
220
71
—
2
—
(6)
287
25
—
—
312
2
(2)
2
—
—
2
4
2
—
8
56
(7)
—
—
—
—
49
16
1
—
—
—
—
17
(14)
(1)
—
—
35
—
—
16
1
—
—
—
1
—
2
(1)
—
(1)
—
295
63
2
2
1
(6)
357
13
2
(1)
371
g. The Corporation has recognized accumulated losses for income tax purposes amounting to approximately $557 million, which may be
carried forward to reduce taxable income in future years. The future tax benefit of $140 million resulting from the deferral of these losses
has been recognized in the accounts as a deferred income tax asset. Deferred income tax assets are recognized for tax loss carry
forward to the extent that the realization of the related tax benefits through future taxable profits is probable.
115
You see impressive results. We see unbreakable commitment.
NOTE 20
CAPITAL STOCK
A. CAPITAL MANAGEMENT
Capital is defined as long-term debt, bank loans and advances net of cash and cash equivalents and Shareholders' equity, which includes
capital stock.
(in millions of Canadian dollars)
Cash and cash equivalents
Bank loans and advances
Long-term debt, including current portion
Total equity
Total capital
2020
(384)
12
2,051
1,679
1,957
3,636
2019
Adjusted, Note 5
(155)
11
2,107
1,963
1,669
3,632
The Corporation's objectives when managing capital are:
•
•
•
•
to safeguard the Corporation's ability to continue as a going concern in order to provide returns to Shareholders;
to maintain an optimal capital structure and reduce the cost of capital;
to make proper capital investments that are significant to ensure that the Corporation remains competitive; and
to redeem common shares based on an annual redemption program.
The Corporation sets the amount of capital in proportion to risk. The Corporation manages its capital structure and makes adjustments to it
in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
structure, the Corporation may adjust the amount of dividends paid to Shareholders, return capital to Shareholders, issue new shares and
acquire or sell assets to improve its financial performance and flexibility.
The Corporation monitors capital on a monthly and quarterly basis based on different financial ratios and non-financial performance
indicators. Also, the Corporation must conform to certain financial ratios under its various credit agreements. These ratios are calculated on
an adjusted consolidated basis of restricted subsidiaries only. These are a maximum ratio of funded debt to capitalization of 65% and a
minimum interest coverage ratio of 2.25x. The Corporation must also comply with a consolidated interest coverage ratio to incur additional
debt. Funded debt is defined as liabilities as per the consolidated balance sheet, including guarantees and liens granted in respect of
funded debt of another person but excluding other long-term liabilities, trade accounts payable, obligations under operating leases and
other accrued obligations (2020 - $1,773 million; 2019 - $1,782 million). The capitalization ratio is calculated as “Shareholders' equity” as
shown in the consolidated balance sheet plus the funded debt. Shareholders' equity is adjusted to add back the effect of IFRS adjustments
as at December 31, 2010 in the amount of $208 million. The interest coverage ratio is defined as operating income before depreciation and
amortization (OIBD) to financing expense. The OIBD is defined as net earnings of the last four quarters plus financing expense, income
taxes, amortization and depreciation, expense for stock options and dividends received from a person who is not a credit party (2020 -
$507 million; 2019 - $398 million). Excluded from net earnings are the share of results of equity investments and gains or losses from non-
recurring items. Financing expense is calculated as interest and financial charges determined in accordance with IFRS plus any capitalized
interest, but excluding the amortization of deferred financing costs, up-front and financing costs and unrealized gains or losses arising from
hedging agreements. It also excludes any gains or losses on the translation of long-term debt denominated in a foreign currency.
The consolidated interest coverage ratio to incur additional debt is calculated as defined in the Senior notes indentures dated
November 26, 2019.
As at December 31, 2020, the funded debt-to-capitalization ratio stood at 47.47% and the interest coverage ratio was 5.47x. The
Corporation is in compliance with the ratio requirements of its lenders.
The Corporation's credit facility is subject to terms and conditions for loans of this nature, including limits on incurring additional
indebtedness and granting liens or selling assets without the consent of the lenders.
The unsecured senior notes are subject to customary covenants restricting the Corporation's ability to, among other things, incur additional
debt, pay dividends and make other restricted payments as defined in the Indentures dated November 26, 2019.
116
2020 Annual Report
The Corporation historically invests between $150 million and $250 million annually on purchases of property, plant and equipment,
excluding major strategic projects. These amounts are carefully reviewed during the course of the year in relation to operating results and
strategic actions approved by the Board of Directors. These investments, combined with annual maintenance, enhance the stability of the
Corporation's business units and improve cost competitiveness through new technology and improved process procedures.
The Corporation has an annual share redemption program in place to redeem its outstanding common shares when the market price is
judged appropriate by Management. In addition to limitations on the normal course issuer bid, the Corporation's ability to redeem common
shares is limited by its senior notes indenture.
ISSUED AND OUTSTANDING
B.
The authorized capital stock of the Corporation consists of an unlimited number of common shares without nominal value and an unlimited
number of Class A and B shares issuable in series without nominal value. Over the past two years, the common shares have fluctuated
as follows:
NOTE
NUMBER OF
COMMON SHARES
IN MILLIONS OF
CANADIAN DOLLARS
NUMBER OF
COMMON SHARES
IN MILLIONS OF
CANADIAN DOLLARS
2020
2019
Balance at beginning of year
Common shares issued on public offering
Common shares issued on exercise of stock options
Redemption of common shares
Balance at end of year
20 D
20 D
20 C
94,245,295
7,441,000
1,225,489
(635,554)
102,276,230
491
125
10
(4)
622
94,163,515
—
1,048,434
(966,654)
94,245,295
490
—
6
(5)
491
C. REDEMPTION OF COMMON SHARES
In 2020, in the normal course of business, the Corporation renewed its redemption program of a maximum of 1,886,220 common shares
with the Toronto Stock Exchange, said shares representing approximately 2% of issued and outstanding common shares. The redemption
authorization is valid from March 19, 2020 to March 18, 2021. In 2020, the Corporation redeemed 635,554 common shares under this
program for an amount of $8 million (2019 - $9 million for 966,654 common shares).
D. COMMON SHARE ISSUANCE
On October 5, 2020, the Corporation entered into an agreement with underwriters pursuant to which the Corporation issued and the
underwriters purchased on a bought deal basis 7,441,000 common shares at a price of $16.80 per common share for gross proceeds of
$125 million. Transactions fees amounted to $5 million before income tax recovery of $1 million. The transaction closed on
October 22, 2020.
The Corporation issued 1,225,489 common shares upon the exercise of options for an amount of $7 million (2019 - $5 million for
1,048,434 common shares issued).
E. NET EARNINGS PER COMMON SHARE
The basic and diluted net earnings per common share are calculated as follows:
Net earnings available to common shareholders (in millions of Canadian dollars)
Weighted average number of basic common shares outstanding (in millions)
Weighted average number of diluted common shares outstanding (in millions)
Basic net earnings per common share (in Canadian dollars)
Diluted net earnings per common share (in Canadian dollars)
2020
198
96
97
2.04 $
2.02 $
2019
Adjusted, Note 5
72
94
96
0.77
0.75
$
$
As at December 31, 2020, no stock option had an antidilutive effect (2019 - 543,676). As of February 24, 2021, no common share had
been redeemed by the Corporation since the beginning of the 2021 financial year.
F. DETAILS OF DIVIDENDS DECLARED PER COMMON SHARE ARE AS FOLLOWS:
Dividends declared per common share (in Canadian dollars)
$
2020
0.32 $
2019
0.24
117
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NOTE 21
STOCK-BASED COMPENSATION
A. OPTIONS
Under the terms of a share option plan adopted on December 15, 1998, amended on March 15, 2013, and approved by Shareholders on
May 8, 2013, a remaining balance of 1,558,724 common shares is specifically reserved for issuance to officers and key employees of the
Corporation. Each option will expire at a date not to exceed 10 years following the grant date of the option. The exercise price of an option
shall not be lower than the market value of the share at the date of grant, determined as the average of the closing price of the share on
the Toronto Stock Exchange on the five trading days preceding the date of grant. The terms for exercising the options are 25% of the
number of shares under option within twelve months after the first anniversary date of grant, and up to an additional 25% every twelve
months after the second, third and fourth anniversaries of grant date. Options cannot be exercised if the market value of the share at
exercise date is lower than the book value at the date of grant. Options exercised are settled in shares. The stock-based compensation
cost related to these options amounted to $1 million in 2020 (2019 - $1 million).
Changes in the number of options outstanding as at December 31, 2020 and 2019 are as follows:
Balance at beginning of year
Granted
Exercised
Forfeited
Balance at end of year
Options exercisable - at end of year
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE ($)
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE ($)
2020
2019
3,476,296
184,193
(1,225,489)
(1,910)
2,433,090
1,981,675
7.24
13.95
5.89
12.39
8.42
7.36
4,409,358
200,354
(1,048,434)
(84,982)
3,476,296
3,005,435
6.45
11.97
4.43
11.96
7.24
6.46
The weighted average share price at the time of exercise of the options was $13.20 (2019 - $11.25).
The following options were outstanding as at December 31, 2020:
YEAR GRANTED
NUMBER OF OPTIONS
OPTIONS OUTSTANDING
WEIGHTED AVERAGE
EXERCISE PRICE ($)
NUMBER OF OPTIONS
OPTIONS EXERCISABLE
WEIGHTED AVERAGE
EXERCISE PRICE ($)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
199,984
365,879
304,203
300,030
291,095
246,592
199,652
150,342
191,528
183,785
2,433,090
6.26
4.46
5.18
6.10
7.66
9.75
14.28
12.39
11.97
13.95
199,984
365,879
304,203
300,030
291,095
246,592
150,937
75,111
47,844
—
1,981,675
6.26
4.46
5.18
6.10
7.66
9.75
14.28
12.39
11.97
—
EXPIRATION DATE
2021
2022
2022 - 2023
2022 - 2024
2022 - 2025
2022 - 2026
2021 - 2027
2022 - 2028
2022 - 2029
2030
FAIR VALUE OF THE SHARE OPTIONS GRANTED
Options were priced using the Black-Scholes option pricing model. Expected volatility is based on the historical share price volatility over
the past six years. The following weighted average assumptions were used to estimate the fair value of $4.01 (2019 - $3.17) as at the date
of grant of each option issued to employees:
Grant date share price
Exercise price
Risk-free interest rate
Expected dividend yield
Expected life of options
Expected volatility
118
$
$
2020
14.13
13.95
$
$
0.50%
2.26%
6 years
37%
2019
12.03
11.97
1.50%
2.66%
6 years
35%
2020 Annual Report
B. SHARE PURCHASE PLAN
The Corporation offers its Canadian employees a share purchase plan for its common shares. Employees can voluntarily contribute up to a
maximum of 5% of their salary and, if certain conditions are met, the Corporation will contribute 25% of the employee's contribution to
the plan.
The shares are purchased on the market on a predetermined date each month. For the year ended December 31, 2020, the Corporation's
contribution to the plan amounted to $1 million (2019 - $1 million).
C. PERFORMANCE SHARE UNIT PLAN
The Corporation has a Performance Share Unit (PSU) Plan for the benefit of officers and key employees, allowing them to receive a
portion of their annual compensation in the form of PSUs. A PSU is a notional unit equivalent in value to the Corporation's common share.
Periodically, the number of PSUs forming part of the award shall be adjusted depending upon the three-year average return on capital
employed of the Corporation (ROCE). Such adjusted number shall be obtained by multiplying the number of PSUs forming part of the
award by the applicable multiplier based on the ROCE level. Participants are entitled to receive the payment of their PSUs in the form of
cash based on the average price of the Corporation's common shares as traded on the open market during the five days before the
vesting date.
The PSUs vest over a period of two years starting on the award date. The expense and the related liability are recorded during the vesting
period. The liability is adjusted periodically to reflect any variation in the market value of the common shares, the expected average ROCE
and the passage of time. As at December 31, 2020, the Corporation had a total of 626,324 PSUs outstanding (2019 - 573,372 PSUs), for a
fair value of $3 million (2019 - less than $1 million). In 2020, the Corporation made payment of less than $1 million in relation to PSUs
(2019 - nil).
D. DEFERRED SHARE UNIT PLAN
The Corporation has a Deferred Share Unit Plan for the benefit of its external directors, officers and key employees, allowing them to
receive all or a portion of their annual compensation in the form of Deferred Share Units (DSUs). A DSU is a notional unit equivalent in
value to the Corporation's common share. Upon resignation from the Board of Directors or the Corporation, participants are entitled to
receive the payment of their cumulated DSUs in the form of cash based on the average price of the Corporation's common shares as
traded on the open market during the five days before the date of the participant's resignation.
The DSU expense and the related liability are recorded at the grant date. The liability is adjusted periodically to reflect any variation in the
market value of the common shares. As at December 31, 2020, the Corporation had a total of 684,454 DSUs outstanding (2019 -
607,193 DSUs), representing a liability of $12 million (2019 - $9 million). In 2020, the Corporation made payment of $2 million in relation to
DSUs (2019 - nil). On January 15, 2021, the Corporation issued 62,457 DSUs.
NOTE 22
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(in millions of Canadian dollars)
Year ended December 31, 2019
Opening net book amount
Other comprehensive income (loss)
Closing net book amount
Year ended December 31, 2020
Opening net book amount
Other comprehensive income (loss)
Closing net book amount
TRANSLATION
ADJUSTMENTS
NET CHANGES IN CASH
FLOW HEDGES
TOTAL
2
(17)
(15)
(15)
(13)
(28)
—
(2)
(2)
(2)
2
—
2
(19)
(17)
(17)
(11)
(28)
119
You see impressive results. We see unbreakable commitment.
NOTE 23
COST OF SALES BY NATURE
(in millions of Canadian dollars)
Raw materials
Wages and employee benefits expenses
Energy
Delivery
Depreciation and amortization
Other
SELLING AND ADMINISTRATIVE EXPENSES BY NATURE
(in millions of Canadian dollars)
Wages and employee benefits expenses
Information technology
Publicity and marketing
Other
NOTE 24
EMPLOYEE BENEFITS EXPENSES
(in millions of Canadian dollars)
Wages and employee benefits expenses
Share options granted to directors and employees
Pension costs - defined benefit plans
Pension costs - defined contribution plans
Post-employment benefits other than defined benefit pension plans
2020
1,754
831
298
533
299
606
4,321
2020
349
26
15
70
460
2020
1,180
1
8
33
5
2019
1,682
812
327
525
289
597
4,232
2019
332
34
15
72
453
2019
1,144
1
7
29
6
NOTE
23
21 A
18
18
18
In 2020, the Corporation received $3 million from “Canada Emergency Wage Subsidy” grant program, that was accounted for in “Wages
and employee benefits expenses”.
KEY MANAGEMENT COMPENSATION
Key management includes the members of the Board of Directors, Presidents and Vice Presidents of the Corporation. The compensation
paid or payable to key management for their services is shown below:
1,227
1,187
(in millions of Canadian dollars)
Salaries and other short-term benefits
Post-employment benefits
Share-based payments
2020
14
2
7
23
2019
11
1
5
17
120
2020 Annual Report
NOTE 25
GAIN ON ACQUISITIONS, DISPOSALS AND OTHERS
(in millions of Canadian dollars)
Gain on disposal of an equity
investment
Gain on disposal of assets
Environmental provisions
PACKAGING PRODUCTS
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
—
(45)
—
(45)
—
—
—
—
(3)
—
5
2
(3)
(45)
5
(43)
—
(2)
2
—
—
—
—
—
2020
TOTAL
(3)
(47)
7
(43)
2019
Adjusted, Note 5
(in millions of Canadian dollars)
Loss (gain) on business
acquisitions and disposals and
related transaction fees
Gain on reversal liabilities and gain
on settlement of litigation
Loss on disposal of assets
Environmental provisions
PACKAGING PRODUCTS
NOTE
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
TOTAL
5
—
(10)
2
—
(8)
—
—
—
—
—
1
—
—
—
1
1
(10)
2
—
(7)
(25)
—
—
—
(25)
9
(5)
—
4
8
(15)
(15)
2
4
(24)
2020
The Containerboard Packaging segment recorded a $40 million gain from the sale of a building and the land of Etobicoke, Ontario,
Canada, Containerboard Packaging facility.
The Containerboard Packaging segment recorded a $5 million gain following the release of the escrow amount pertaining to the sale of a
building in 2018 located in Maspeth, New York, USA.
The Specialty Products segment recorded a $5 million environmental provision related to plants in Canada, that were closed in the
previous years.
The Specialty Products segment also recorded a $3 million gain on the sale of a non significant associate investment.
The Tissue Papers segment recorded a $2 million gain from the sale of assets and a $2 million environmental provision related to closed
plants in the USA.
2019
The lease on our Bear Island facility in Virginia was terminated by the lessee. As such, the Containerboard Packaging segment recorded a
gain of $10 million following the reversal of liabilities related to lease incentives to the lessee and to accrued carrying costs. In the wake of
the lease termination, the segment recorded a loss of $4 million following the sale of newsprint equipments no longer needed.
The Containerboard Packaging segment also recorded a gain of $2 million from the sale of a building and piece of land of a closed plant.
The Specialty Products segment concluded the sale of its two plants in France which convert cardboard into packaging for the paper
industry, and recorded a loss of $1 million. See Note 5 for more details.
The Tissue Papers segment recorded a gain of $25 million following the acquisition Orchids Paper Products Company activities. The
Corporate Activities incurred $9 million in fees as part of the Orchids acquisition. See Note 5 for more details.
An environmental provision of $4 million related to a plant sold and for which the Corporation retained environmental responsibility was
recorded by the Corporate Activities.
The Corporate Activities also recorded a gain of $5 million on the settlement of litigation in compensation for a flooding that occurred years
ago at our fine paper mill in St-Jérôme, Québec, Canada, which has since been sold.
121
You see impressive results. We see unbreakable commitment.
NOTE 26
IMPAIRMENT CHARGES AND RESTRUCTURING COSTS
A.
IMPAIRMENT CHARGES ON SPARE PARTS AND ON PROPERTY, PLANT AND EQUIPMENT
The Corporation recorded impairment charges totaling $39 million in 2020 and $69 million in 2019. The recoverable amount of CGUs was
determined using a fair value less cost of disposal model based on the income approach, unless otherwise indicated. Level 2 inputs are
used to measure fair value. Impairments are detailed as follows:
(in millions of Canadian dollars)
Spare parts
Property, plant and equipment
PACKAGING PRODUCTS
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
—
6
6
—
9
9
—
—
—
—
15
15
12
11
23
—
1
1
(in millions of Canadian dollars)
Spare parts
Property, plant and equipment
Goodwill and other intangible assets with
indefinite useful life
PACKAGING PRODUCTS
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
—
5
—
5
—
13
1
14
1
—
—
1
1
18
1
20
2
33
—
35
—
—
14
14
2020
TOTAL
12
27
39
2019
TOTAL
3
51
15
69
2020
The Containerboard Packaging segment recorded an impairment charge of $6 million on some equipment as part of the network
optimization and profitability improvement initiatives.
The Boxboard Europe segment recorded an impairment charge of $9 million on some assets as their recoverable amount was lower than
their carrying amount. Recoverable amount of the assets was based on their fair value less cost of disposal.
The Tissue Papers segment recorded an impairment charge of $13 million on the assets of certain plants as their recoverable amount was
lower than the carrying amount due to and the current declining demand in the Away-from-Home market due to the COVID-19 pandemic.
The Tissue Papers segment also recorded an impairment charge of $10 million on some assets as part of the network optimization and
profitability improvement initiatives.
The Corporate Activities recorded an impairment charge of $1 million related to renewable energy assets.
2019
As a result of the lease termination on the Bear Island facility, described in Note 25, the Containerboard Packaging segment recorded an
impairment charge of $5 million on some assets that will not be used in the future.
The Boxboard Europe segment recorded an impairment charge of $13 million on the assets of its La Rochette mill, as their recoverable
amount was lower than their carrying amount. Sustained production inefficiencies led to insufficient profitability to support the carrying
value of the assets. Recoverable amount of the assets was based on their fair value less cost of disposal.
The Specialty Products segment incurred an impairment charge of $1 million on spare parts stemming from the closure of the Trois-
Rivières, Québec, Canada, plant that manufactured felt backing for flooring.
The Tissue Papers segment recorded an impairment charge of $5 million on unused assets following the reassessment of its recoverable
amount based on estimated selling price.
122
2020 Annual Report
The recoverable value of some equipment and spare parts of the Arizona and Waterford, USA, converting facilities, was reviewed by the
Tissue Papers segment triggering an impairment charge of $7 million. The closures of these facilities were completed during the second
quarter of 2020.
The Tissue Papers segment recorded impairment charges totaling $23 million on the assets of the Waterford, New York, USA and
Kingman, Arizona, USA tissue converting facilities, as their recoverable amount was lower than their carrying amount. Sustained
production inefficiencies led to insufficient profitability to support the carrying value of the assets. Recoverable amount of the assets was
based on their fair value less cost of disposal.
IMPAIRMENT CHARGES ON GOODWILL AND OTHER INDEFINITE USEFUL LIFE INTANGIBLE ASSETS
B.
Allocation of goodwill and other indefinite useful life intangible assets is as follows:
• Containerboard Packaging segment goodwill of $472 million is allocated to the Containerboard segment;
• Specialty Products segment goodwill is allocated to the partitioning activities sub-segment for $3 million;
• Tissue Papers segment goodwill of $36 million is allocated to the Tissue Papers segment;
• Boxboard Europe segment goodwill of $7 million is allocated to the segment;
• Boxboard Europe segment water rights of $4 million are allocated to the segment.
Annually, the Corporation must test all of its goodwill for impairment, however reliance can be put on the quantitative calculation previously
done, if following criteria are met:
•
•
the assets and liabilities making up the unit have not changed significantly since the most recent recoverable amount calculation;
the most recent recoverable amount calculation resulted in an amount that exceeded the carrying amount of the unit by a substantial
margin; and
based on an analysis of events that have occurred and circumstances that have changed since the most recent recoverable amount
calculation, the likelihood that a current recoverable amount determination would be less than the current carrying amount of the unit
is remote.
•
All three conditions were met for the Containerboard Packaging and Tissue Papers segments.
2019
The Boxboard Europe segment recorded an impairment charge of $1 million on intangible assets.
The Corporate Activities recorded an impairment charge of $14 million on the goodwill and intangible assets of its Recovery and Recycling
activities. The recoverable amount was established based on the fair market value of the property, plant and equipment.
C. RESTRUCTURING COSTS
Restructuring costs are detailed as follows:
(in millions of Canadian dollars)
Restructuring costs
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
4
—
—
4
7
2
PACKAGING PRODUCTS
(in millions of Canadian dollars)
Restructuring costs
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
1
—
1
2
7
—
PACKAGING PRODUCTS
2020
TOTAL
13
2019
TOTAL
9
2020
The Containerboard Packaging segment recorded restructuring charges totaling $3 million as part of the network optimization and
profitability improvement initiatives.
The Containerboard Packaging segment also recorded restructuring charges totaling $3 million following the announcement of the closure
of its Etobicoke, Ontario, Canada, converting facility which is expected to permanently close no later than August 31, 2021.
The Containerboard Packaging segment also recorded a gain of $2 million as a reversal of a contingency related to plant sold in
prior years.
123
You see impressive results. We see unbreakable commitment.
The Tissue Papers segment recorded restructuring charges totaling $4 million as part of the network optimization and profitability
improvement initiatives.
The Tissue Papers segment recorded restructuring charges totaling $3 million following the announcement of the closure of plants in
Pittson and Ransom, Pennsylvania, and Waterford, New York, USA.
The Corporate Activities recorded restructuring charges totaling $2 million as part of profitability improvement initiatives.
2019
The Containerboard Packaging segment recorded $1 million of severance costs related to changes in the management teams of
certain plants.
The Specialty Products segment recorded $1 million of restructuring costs stemming from the closure of the Trois-Rivières, Québec,
Canada, plant that manufactured felt backing for flooring.
The Tissue Papers segment recorded $5 million of restructuring costs related to the closure of two tissue paper machines and facilities in
Ontario, Canada and changes in the segment's senior management. As well, restructuring costs of $2 million related to the closure of the
Arizona and Waterford, USA, converting facilities were recorded. The closures of these facilities were completed during the second quarter
of 2020.
NOTE 27
ADDITIONAL INFORMATION
A. CHANGES IN NON-CASH WORKING CAPITAL COMPONENTS ARE DETAILED AS FOLLOWS:
(in millions of Canadian dollars)
Accounts receivable
Current income tax assets
Inventories
Trade and other payables
Current income tax liabilities
2020
(51)
10
30
50
(19)
20
2019
76
(3)
3
(19)
2
59
B. FINANCING EXPENSE AND INTEREST EXPENSE (REVENUE) ON EMPLOYEE FUTURE BENEFITS AND OTHER LIABILITIES
(in millions of Canadian dollars)
Interest on long-term debt (including lease obligations interests)
Interest income
Amortization of financing costs
Other interest and banking fees
Interest expense on employee future benefits
Interest expense (revenue) other liabilities
NOTE
14(b)
2020
95
(1)
4
7
4
(11)
98
2019
91
(1)
4
7
6
36
143
Interest expense (revenue) other liabilities
In 2020, the Corporation recorded an unrealized gain of $13 million, compared to an unrealized loss of $1 million in 2019, on the fair value
revaluation of a one-time option granted to White Birch to purchase an interest of up to 10% in the Bear Island containerboard mill project,
that was not exercised.
In 2020, the Corporation also recorded an unrealized loss of $2 million pertaining to a call option granted by the Corporation to one of the
minority shareholders of Falcon Packaging LLC.
In 2019, the expense is mainly attributable to the fair value revaluation recognized on the CDPQ put option in the Greenpac investment,
which amounted to $35 million due to Greenpac's improving financial performance during the year.
124
2020 Annual Report
C. TOTAL NET DEBT FROM FINANCING ACTIVITIES
NOTE
CASH AND
CASH EQUIVALENT
BANK LOANS
AND ADVANCES
(in millions of Canadian dollars)
As at January 1, 2019
Cash flow
Change in cash and cash equivalents
Bank loans and advances
Change in credit facilities
13
13
5
Issuance of unsecured senior notes, net of financing costs
Repurchase of unsecured senior notes
Increase in other long-term debt
Payments of other long-term debt, including lease
obligations
Non-cash changes
IFRS 16 adjustment
Business disposal
Foreign exchange translation on long-term debt and
financial instruments
Right-of-use assets acquisitions and acquisitions included
in other debts
Amortization of financing costs
Write off of unamortized financing costs following
repurchase of unsecured senior notes
Other
Exchange differences
As at December 31, 2019
Cash flow
Change in cash and cash equivalents
Bank loans and advances
Change in credit facilities
Issuance of unsecured senior notes, net of financing costs
Repurchase of unsecured senior notes
13
13
Increase in other long-term debt
Payments of other long-term debt, including lease
obligations
Non-cash changes
Foreign exchange translation on long-term debt and
financial instruments
Right-of-use assets acquisitions and acquisitions included
in other debts
Right-of-use assets disposals
Amortization of financing costs
Write off of unamortized financing costs following
repurchase of unsecured senior notes
Other
Exchange differences
As at December 31, 2020
NOTE 28
COMMITMENTS
(123)
(41)
—
—
—
—
—
—
—
—
—
—
—
—
—
9
(155)
(228)
—
—
—
—
—
—
—
—
—
—
—
—
(1)
(384)
16
—
(5)
—
—
—
—
—
—
—
—
—
—
—
—
—
11
—
1
—
—
—
—
—
—
—
—
—
—
—
—
12
LONG-TERM DEBT
1,876
NET DEBT
1,769
—
—
39
1,026
(776)
6
(125)
99
(6)
(43)
50
4
3
2
(48)
2,107
—
—
(131)
409
(264)
33
(156)
(17)
65
(3)
3
2
7
(4)
2,051
(41)
(5)
39
1,026
(776)
6
(125)
99
(6)
(43)
50
4
3
2
(39)
1,963
(228)
1
(131)
409
(264)
33
(156)
(17)
65
(3)
3
2
7
(5)
1,679
Capital expenditures, intangible assets and service agreements contracted at the end of the reporting period but not yet incurred are
presented in the following table:
(in millions of Canadian dollars)
No later than one year
Later than one year but no later than five years
More than five years
PROPERTY,
PLANT AND
EQUIPMENT
INTANGIBLE
ASSETS
50
2
—
52
8
1
—
9
2020
SERVICE
AGREEMENTS
AND EXEMPTED
LEASES
17
10
1
28
PROPERTY,
PLANT AND
EQUIPMENT
INTANGIBLE
ASSETS
48
—
—
48
9
3
—
12
2019
SERVICE
AGREEMENTS
AND EXEMPTED
LEASES
4
6
2
12
125
You see impressive results. We see unbreakable commitment.
Preliminary agreements for the acquisition
On September 30, 2020, the Boxboard Europe segment, through its equity ownership in Reno de Medici S.p.A., announced that it had
signed four preliminary agreements for the acquisition of 100% of the share capital of Papelera del Principado S.A. (“Paprinsa”) and three
smaller adjoining companies, in Spain. The deals cover the acquisition of one of the main European players of the coated
chipboard industry for a price based on the enterprise value that can vary between €27 million ($42 million) and €33 million ($51 million).
The transaction is expected to close in the first quarter of 2021.
NOTE 29
RELATED PARTY TRANSACTIONS
The Corporation entered into the following transactions with related parties:
(in millions of Canadian dollars)
For the year ended December 31, 2020
Sales to related parties
Purchases from related parties
For the year ended December 31, 2019
Sales to related parties
Purchases from related parties
These transactions occurred in the normal course of operations and are measured at fair value.
The following balances were outstanding at the end of the reporting period:
(in millions of Canadian dollars)
Receivables from related parties
Joint ventures
Associates
Payables to related parties
Joint ventures
Associates
JOINT VENTURES
ASSOCIATES
191
34
176
32
74
50
72
55
December 31,
2020
December 31,
2019
10
23
5
3
8
19
3
1
The receivables from related parties arise mainly from sale transactions. The receivables are unsecured in nature and bear no interest.
There are no provision held against receivables from related parties. The payables to related parties arise mainly from purchase
transactions. The payables bear no interest.
NOTE 30
EVENT AFTER THE REPORTING PERIOD
On February 15, 2021, Reno de Medici S.p.A, a subsidiary of the Corporation in the Boxboard Europe segment, announced the signature
of a put option for the sale of its French subsidiary, which produces virgin fiber-based boxboard. The transaction is expected to close at the
end of the second quarter of 2021 and total enterprise value is set at €29 million ($45 million). The transaction will not result in significant
gain or loss on disposal and will result in discontinued operations.
126
2020 Annual Report
Board of Directors
Cascades’ Board of Directors (BoD) and management believe that quality corporate governance helps ensure that the Corporation is run
efficiently and that investor confidence is maintained. In order to stay the course in this regard, Cascades regularly reviews its governance
practices to remain in compliance with applicable legislation and to improve efficiency.
The composition of the Board of Directors must be carefully determined since its responsibilities include ensuring good corporate
governance, among other things. Cascades draws on the expertise of a highly experienced team of directors and recognizes the importance
of independent directors. As of December 31, 2020, nine of the thirteen Board members were independent. They meet at least once yearly
without the presence of non-independent directors or senior managers. New Board members are also offered an orientation and training
program, to familiarize themselves with Cascades’ activities as well as the issues and challenges it faces.
1
6
11
2
7
3
8
4
9
5
10
12
13
2 Louis Garneau
President
Louis Garneau Sports Inc.
Saint-Augustin-de-Desmaures,
Québec Canada
Director since 1996
Independent
6 Mario Plourde
President and Chief Executive
Officer, Cascades Inc.
Kingsey Falls, Québec Canada
Director since 2014
Non-independent
10 Hubert T. Lacroix
Strategic Counsel, Blake,
Cassels & Graydon LLP
Westmount, Québec Canada
Director since 2019
Independent
3 Sylvie Lemaire
Director of Companies
Otterburn Park, Québec Canada
Director since 1999
Non-independent
4 Élise Pelletier
Director of Companies
Sutton, Québec Canada
Director since 2012
Independent
7 Michelle Cormier
Operating Partner, Wynnchurch
Capital Canada
Montréal, Québec Canada
Director since 2016
Independent
11 Mélanie Dunn
President and CEO, Cossette
Montréal, Québec Canada
Director since 2019
Independent
8 Martin Couture
Chief Executive Officer
Sanimax Inc. (Canada)
Montréal, Québec Canada
Director since 2016
Independent
12 Nelson Gentiletti
Director of Companies
Kirkland, Québec Canada
Director since 2019
Independent
1 Alain Lemaire
Executive Chairman
of the Board
Kingsey Falls, Québec Canada
Director since 1967
Non-independent
5 Sylvie Vachon
Director of Companies
Longueuil, Québec Canada
Director since 2013
Independent
9 Patrick Lemaire
Director of Companies
Kingsey Falls, Québec Canada
Director since 2016
Non-independent
13 Elif Lévesque
Chief Financial Officer, Nomad
Royalty Company Ltd
Montréal, Québec Canada
Director since 2019
Independent
127
HISTORICAL FINANCIAL INFORMATION - 10 YEARS
For the years ended December 31,
(in millions of Canadian dollars, except per common share amounts and ratios) (unaudited)
Financial information is not adjusted to reclassify the impact of discontinued operations, if any.
Highlights - Consolidated Results
Sales
Cost of sales and expenses
Adjusted operating income before depreciation and amortization (OIBD adjusted)
Depreciation and amortization
Adjusted operating income
Financing expense and interest expense on employee future benefits
Foreign exchange loss (gain) on long-term debt and financial instruments
Specific items
Provision for (recovery of) income taxes
Share of results of associates and joint ventures
Net earnings (loss) attributable to non-controlling interests
Net earnings (loss)
Net earnings (loss) per common share
Highlights - Consolidated Cash Flow
Cash flow generated by operating activities
Cash flow from operations
per common share
Payments for property, plant and equipment net of proceeds from disposals
Business combinations and cash from a joint venture
Proceed from business disposals
Net change in long-term debt
Dividends on common shares
per common share
Dividend yield
Highlights - Consolidated Balance Sheet (As at December 31)
Current assets less current liabilities
Property, plant & equipment
Total assets
Total long-term debt
Non-controlling interests
Shareholders' equity
per common share
Stock Market Highlights
Shares issued and outstanding (in millions)
Trading volume (in millions)
Market capitalization
Closing price
High
Low
Key Financial Ratios
Net earnings (loss)/sales
Sales/total assets
Total assets/average Shareholders' equity
Return on Shareholders' equity
Return on total assets (OIBD/average total assets)
OIBD/sales
OIBD/interest
Current assets less current liabilities/sales
Net debt/OIBD
Total debt/total debt + Shareholders' equity
Price to earnings
Price to book value
128
2020
2019
5,157
4,482
675
299
376
98
(6)
19
265
45
(14)
36
198
2.04
587
567
5.91
195
2
—
109
31
0.32
2.20%
609
2,772
5,412
2,051
204
1,753
17.14
102.3
74.1
1,488
14.55
17.61
10.17
3.80%
1.00x
3.30x
12.20%
12.70%
13.10%
6.90x
11.80%
2.50x
54.10%
7.10x
0.80x
$
$
$
$
$
$
$
4,996
4,392
604
289
315
143
(6)
68
110
19
(9)
28
72
0.77
460
401
4.27
231
(311)
9
(170)
23
0.24
2.10%
358
2,770
5,188
2,107
177
1,492
15.84
94.2
47.1
1,056
11.21
13.33
7.87
1.40%
1.00x
3.50x
4.80%
11.90%
12.10%
4.20x
7.20%
3.30x
58.70%
14.60x
0.70x
$
$
$
$
$
$
$
2020 Annual Report
2018
2017
2016
2015
2014
2013
2012
2011
$
$
$
$
$
$
$
4,649
4,160
489
244
245
99
4
12
130
48
(11)
36
57
0.60
373
361
3.82
253
(100)
—
(94)
15
0.16
1.60%
421
2,505
4,948
1,876
180
1,506
15.99
94.2
54.9
963
10.23
16.55
9.54
1.20%
0.90x
3.30x
3.90%
10.40%
10.50%
4.90x
9.10%
3.60x
55.70%
17.10x
0.60x
$
$
$
$
$
$
$
4,321
3,928
393
215
178
97
(23)
(298)
402
(81)
(39)
15
507
5.35
173
260
2.75
178
9
—
179
15
0.16
1.20%
356
2,117
4,427
1,576
146
1,455
15.32
95.0
57.5
1,294
13.62
18.20
11.43
11.70%
1.00x
3.60x
41.60%
9.50%
9.10%
4.10x
8.20%
3.90x
52.50%
2.50x
0.90x
$
$
$
$
$
$
$
4,001
3,598
403
192
211
93
(22)
(10)
150
45
(32)
2
135
1.42
372
316
3.34
177
16
—
153
15
0.16
1.30%
299
1,635
3,813
1,566
90
984
10.41
94.5
43.5
1,144
12.10
13.67
7.72
3.40%
1.00x
4.10x
14.60%
10.50%
10.10%
4.30x
7.50%
3.80x
61.80%
8.50x
1.20x
$
$
$
$
$
$
$
3,885
3,462
423
190
233
97
91
99
(54)
39
(37)
9
(65)
(0.69)
270
307
3.25
156
—
(40)
100
15
0.16
1.30%
398
1,625
3,848
1,744
96
867
9.10
95.3
39.7
1,211
12.71
13.00
6.49
(1.70%)
1.00x
4.40x
(7.40%)
11.20%
10.90%
4.40x
10.20%
4.10x
67.30%
N/A
1.40x
$
$
$
$
$
$
$
3,953
3,595
358
183
175
108
30
191
(154)
(11)
—
4
(147)
(1.57)
250
251
2.67
172
—
(36)
88
15
0.16
2.30%
308
1,592
3,673
1,596
110
893
9.48
94.2
45.0
661
7.02
7.60
5.64
$
$
$
$
$
$
$
(3.70%)
1.10x
3.70x
(14.90%)
9.50%
9.10%
3.30x
7.80%
4.50x
64.80%
N/A
0.70x
3,849
3,497
352
182
170
115
(2)
28
29
12
3
3
11
0.11
232
226
2.41
136
—
—
(30)
15
0.16
2.30%
414
1,684
3,831
1,579
113
1,081
11.52
93.9
25.2
646
6.88
6.92
4.07
0.30%
1.00x
3.70x
1.10%
9.40%
9.10%
3.10x
10.80%
4.60x
60.20%
62.50x
0.60x
$
$
$
$
$
$
$
3,645
3,341
304
199
105
115
(8)
33
(35)
(4)
(2)
(7)
(22)
(0.23)
199
154
1.64
141
14
—
(54)
15
0.16
3.90%
295
1,659
3,694
1,475
116
978
10.42
93.9
20.2
385
4.10
5.18
3.85
$
$
$
$
$
$
$
(0.60%)
1.00x
3.70x
(2.20%)
8.20%
8.30%
2.60x
8.10%
5.00x
61.40%
N/A
0.40x
3,760
3,517
243
186
57
100
(4)
(148)
109
27
(14)
(3)
99
1.03
115
121
1.26
110
60
(292)
143
15
0.16
3.60%
400
1,703
3,728
1,407
136
1,029
10.87
94.6
33.8
419
4.43
7.75
3.51
2.60%
1.00x
3.30x
8.70%
6.50%
6.50%
2.40x
10.60%
6.10x
59.30%
4.30x
0.40x
129
You see impressive results. We see unbreakable commitment.
Raw
Materials
23 %
~3.0 million s.t.
Fibre Consumed, Purchased
or Brokered by Cascades
in North America1
%
7
%
7
1
5 %
5 %
9 %
9 %
%
0
7
Recycled fibre used
by Cascades — 70%
Pulp used by Cascades — 7%
Fibre sold externally — 23%
Fibre Consumed by Cascades
in North America
~2.4 million s.t.
%
9
6
Brown recycled fibre — 69%
White recycled fibre — 17%
Pulp — 9%
Groundwood recycled fibre — 5%
In Europe, Reno de Medici uses
approximately 1.3 M s.t. of additional
recycled and virgin fibres in its annual
production of boxboard2.
In addition, a total of approximately
440,000 s.t. of wood chips were used
in the North American and Boxboard
Europe2 operations in 2020.
1 Including associates and joint ventures.
2 Via our 57.6% equity position in Reno de Medici S.p.A.
130130
2020 Annual Report
2020 Annual Report R
Edmonton, AB
C
R
Calgary, AB
R
Kelowna, BC
Prince George, BC
R
Nanaimo, BC
Victoria, BC
R
R
R
Vancouver, BC
Surrey, BC
R
C
Richmond, BC
Tacoma, WA
C
St. Helens, OR
Scappoose, OR
M
C
C R
Winnipeg, MB
Kingsey Falls, QC
Eau Claire, WI
CM
Grand Rapids, MI
C
Clarion, IA
C
Aurora, IL
C
Brook, IN
C
Warrenton, MO
C
C
Brownsville, TN
C
Memphis, TN
M
Rockingham, NC
C M
C
C
Kinston, NC
Wagram, NC
CM
Pryor, OK
Birmingham, AL
C
Barnwell, SC
CM
Grand Prairie, TX
C
Ottawa
R R
Belleville
C
Trenton
M
Vaughan
C
RC
C
Scarborough
CC
R
Etobicoke
Mississauga
C
M
F
Burlington
C
St. Marys
Guelph
C
R
Putnam
R
Brantford
North America
Cascades
Worldwide1
Legend
Head Office
Containerboard
Packaging
Boxboard
Europe2
Specialty
Products
M Manufacturing facility
C Converting facility
Tissue Papers
CM Converting and
Recovery
& Recycling
manufacturing facility
R
Recovery facility
1 Including main associates and joint ventures.
2 Via our 57.6% equity ownership in Reno de Medici S.p.A., a public Italian company.
Ontario
Prince George, BC
R
R
Edmonton, AB
C
R
Calgary, AB
Nanaimo, BC
Victoria, BC
Vancouver, BC
R
Surrey, BC
R
C
R
R
Richmond, BC
R
Kelowna, BC
Tacoma, WA
C
St. Helens, OR
Scappoose, OR
M
C
C R
Winnipeg, MB
Kingsey Falls, QC
Eau Claire, WI
CM
Grand Rapids, MI
C
Clarion, IA
C
Aurora, IL
C
Brook, IN
C
Warrenton, MO
C
C
Brownsville, TN
Memphis, TN
C
M
Rockingham, NC
C M
C
C
Kinston, NC
Wagram, NC
Barnwell, SC
CM
CM
Pryor, OK
Birmingham, AL
C
Grand Prairie, TX
C
851
facilities across Canada,
the US and Europe
11,700
employees
in 6 countries
Production
Facilities1
Cabano
M
B Y S EGMENT
E - 1 7
TIS S U
U
NIT
E
D
S
T
A
T
E
S
-
2
8
R
E
C
O
V
E
R
Y
&
R
E
C
Y
C
L
I
N
G
- 1
8
CONTAIN
E
R
B
B Y MARKET
E U R O P E2
7
O
A
R
D
P
A
C
K
A
G
I
N
G
-
2
5
2 - 7
EUROPE
0
5
-
A
D
A
N
CA
Berthierville
C C
Lachute
CM
Laval
C
Vaudreuil
C
C
Montréal
CM
Candiac
C C C
Drummondville
C
Saint-Césaire
R
Lachine
C Granby
C
Victoriaville
M M
CM
C C C
Kingsey Falls
SPECIALTY PR O D U C T
S - 1 8
1 Including associates and joint ventures.
2 Via our 57.6% equity ownership in Reno
de Medici S.p.A., a public Italian company.
Québec
Niagara Falls, NY
M M
R
Depew, NY
R
Lancaster, NY
C
Rochester, NY
Schenectady, NY
C
M
Mechanicville, NY
M
Arnsberg, DE
M
Blendecques, FR
C
Newtown, CT
La Rochette, FR
M
Santa Giustina, IT
M
M
Ovaro, IT
C
Piscataway, NJ
M
Barcelona Cartonboard, ES
Villa Santa Lucia, IT
M
Northeastern United States
Europe
C
O
N
T
A
I
N
E
R
B
O
C
A
N
A
D
A
-
3
2
%
C
A
N
A
D
A
-
3
7
%
A
R
D
P
A
C
I
K
A
G
N
G
-
3
8
%
SALES2
Overview of
our Results
3 - 21%
E
P
O
R
U
E
3 - 17 %
PE
O
R
U
E
B Y SEGMENT1
P
E C I A L T Y
O D U C T S - 9 %
S
R
P
TO
EUR O P E
1 %
3 - 2
F ROM
EUROP E3 - 2 0 %
$5,157 M
U
N
I
T
E
D
S
TATES - 4 3 %
U
NIT
E
D STATES - 47%
TISSUE - 32%
B Y SEGMENT2, 4
S P E C I A L T Y
R O D U C T S - 8 %
B Y MARKET4, 5
3 - 1 9 %
E
P
P
EU R O
$675 M
ADJUSTED
OIBD2, 4
C
A
N
A
D
A
-
3
2
%
%
2
5
-
G
N
I
G
A
K
C
A
P
D
R
A
O
B
R
E
C O NTAIN
U
N
I
T
E
T
I
S
S
U
E
- 2
3
%
D S
T
ATES - 49%
3 - 16 %
PE
O
R
U
E
T
I
S
S
U
E
- 1
9
%
1 Before inter-segment sales and corporate activities.
2 Percentage excluding corporate activities.
3 Via our 57.6% equity ownership in Reno de Medici S.p.A.
(at December 31, 2020), a public Italian company.
4 Please refer to the “Forward-looking Statements”
and “Supplemental Information on Non-IFRS
Measures” sections for more details.
5 Including corporate activities.
B Y S EGMENT2, 4
S P E C I A L T Y
P R O D U C T S - 8 %
B Y M ARKET4, 5
EURO P E 3 - 1 8 %
C
A
N
A
$665 M
U
N
I
T
E
D S
T
ATES - 46 %
OIBD2, 4
%
7
5
-
G
N
I
G
A
K
C
A
P
D
R
A
O
N T AINERB
D
A
-
3
6
%
O
C
cascades.com
Printed on Rolland EnviroTM Satin, 60 lb. Text and Rolland EnviroTM Print
® and EcoLogo and are made using renewable biogas energy.
Production: Communications Department of Cascades — Design: Absolu — Prepress and printing: Héon & Nadeau
Photography: Brühmüller photographe
Printed in Canada