Cascades Inc. (OTCPK:CADNF) Q2 2022 Results Conference Call August 4, 2022 12:00 PM ET
Company Participants
Mario Plourde – President, Chief Executive Officer
Allan Hogg – Chief Financial Officer
Charles Malo – President, Chief Operating Officer of Containerboard Packaging
Luc Langevin – President, Chief Operating Officer of Specialty Products
Jean-David Tardif – President, Chief Operating Officer of Tissue Papers
Jennifer Aitken – Director of Investor Relations
Conference Call Participants
Hamir Patel – CIBC Capital Markets
Zachary Evershed – National Bank Financial
Frederic Tremblay – Desjardins
Benoit Laprade – Scotiabank
Mark Wilde – BMO
Matthew McKellar – RBC
Operator
Good afternoon. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cascades Second Quarter 2022 Financial Results Conference Call. [Operator Instructions]
I will now pass the call to Jennifer Aitken, Director of Investor Relations for Cascade. Ms. Aitken, you may begin the conference.
Jennifer Aitken
Thank you. Good afternoon, everyone, and thank you for joining our second quarter 2022 conference call. We will begin with an overview of our operational and financial results, followed by some concluding remarks, after which we will begin the question period.
Today’s speakers will be Mario Plourde, President and CEO; and Allan Hogg, CFO. Also joining us for the question period at the end of the call are Charles Malo, President and COO of Containerboard Packaging; Luc Langevin, President and COO of Specialty Products; and Jean-David Tardif, President and CEO of Tissue Paper.
Before I turn the call over to my colleagues, I would like to highlight that certain statements made during this call will discuss historical and forward-looking matters. The accuracy of these statements is subject to risk factors that can have a material impact on actual results. These risks are listed in our public filings. These statements, the investor presentation and the press release also include data that are not measures of performance under IFRS. Please refer to our Q2 2022 investor presentation for details. The presentation, along with our second quarter press release, can be found in the Investors section of our website. If you have any questions, please feel free to call us after the session.
I will now turn the call over to our CEO. Mario?
Mario Plourde
Thank you, Jennifer, and good afternoon, everyone. Before discussing each of our business segments, let me begin by saying that we are pleased with our improved sequential performance. The price increases we have put in place mitigated the impact of persistently higher costs. We provide a breakdown of the factors impacting our EBITDA levels on Slide 3. As these numbers highlights, we are operating in a rapidly changing and challenging costly environment in which energy, logistics, production supplies and certain raw material costs continue to increase.
Year-to-date, our initiatives do not fully offset the significant cost headwinds our operation has been facing, but we’ll continue to close the gap as important benefits are realized in the second half of the year, the most prominent of which are expected in our Tissue segment.
Moving now to our financial results. On a consolidated basis, second quarter sales increased 17% year-over-year and 8% from Q1 while adjusted EBITDA decreased 7% from last year results, but improved [57%] sequentially, reflecting the sales price increases implemented in all of our business segments.
On the raw material side, highlighted on Slide 5 and 6. The Q1 average index price for OCC increased 34% year-over-year and decreased by 2% from Q1. Increased seasonal generation of OCC and lower export demand supported availability, resulting in a slightly lower pricing trend sequentially. Our mills are well supplied and the market was generally stable in Q2.
Average index prices for white recycled paper grade continued to increase in Q2, increasing 94% year-over-year and 14% from Q1. These cost headwinds are clearly reflected in our tissue results. This is also the case on the virgin pulp side. The hardwood pulp index increased 16% sequentially while softwood pulp index price rose 14%. Year-over-year, these index increased by 17% and 9%, respectively.
Notwithstanding the fact that the market remains challenging for white fiber grade with price remaining high, our mills are adequately supplied.
Moving now to the results of each of our business segments as highlighted on Page 7 through 14 of the presentation. Beginning with the sequential performance, sales in the containerboard increased 7% in Q2. This was largely driven by higher selling prices and volume. The 2% volume increase reflects a 2% increase in shipments of both converted product and parent roll.
Sequentially, converting shipments increased by 1.3% in millions of square feet outperforming the flat performance in the Canadian market and the 0.5% increase in the U.S. market.
On a per day basis, our converting shipment increased by 5.2% sequentially following softer Q1 performance. This outperformed a decrease of 0.1% in the Canadian market and 2.1% increase in the U.S. market.
Q2 adjusted EBITDA of $99 million or 17.4% on a margin basis was $19 million or 24% above the Q1 levels. This reflects $36 million of higher selling prices and volume benefit and lower raw material costs, which successfully upset a $17 million impact from higher production and freight costs in the quarter.
Year-over-year, sales increased by 14%, while adjusted EBITDA decreased by a marginal 1%. In this case, a more favorable exchange rate and $71 million of benefit there is from selling price and mix improvement were offset by $74 million of higher raw material production, freight and energy costs.
Year-over-year converting shipments decreased by 3.1% in millions of square feet. This underperformed the 0.3% increase in the Canadian market and the 2.4% decrease in the U.S. market. On a per day basis, converting shipments were down 3.3% below the 0.5% increase and the 2.4% decrease in the Canadian and U.S. market, respectively.
Lower year-over-year volume reflects a return to normalized levels following elevated demand in the year ago period. I would highlight that the converting shipments are 4% above second quarter 2020 levels.
Let me now provide you an update on the Bear Island project. As we highlighted in our press release, cost inflation, continued constraint in labor and logistics for certain construction material has meant that our team has had to be extremely adaptable day-to-day. The rising cost environment has increased total project costs to a range of USD 470 million to USD 485 million from USD 425 million USD 450 million previously. Delivery constraint for certain construction materials have also delayed progress of certain construction milestone, which may delay the start-up to the first quarter of 2023.
Our team is working with our contractor in order to meet the mid-December 2022 plan startup date. Despite this, we are pleased with the performance of the Containerboard business this quarter, which benefited from good demand and our ability to drive commercial initiatives.
Specialty Products continued to generate solid results sequentially with Q2 sales up 7% from the prior quarter. This reflects the implementation of price increases in response to cost inflation and favorable product mix in the plastic and the cardboard segment.
Adjusted EBITDA increased $3 million or 14% sequentially as higher prices and volume offset the impact of higher operating and transportation costs.
When compared to the prior year, Q2 sales increased by $34 million or 28% and adjusted EBITDA level increased by $7 million or 39% as higher realized spread and increased volume offset higher transportation and operating costs. We are pleased with the performance of the Specialty Products business this quarter. The third consecutive quarter of increased EBITDA levels on both a year-over-year and a sequential basis. EBITDA has grown at a faster pace than sales, highlighting the progress being made to deliver a margin range of 17% to 19% by 2024.
Moving now to our Tissue business. Sales increased 7% sequentially in Q2, while adjusted EBITDA levels improved $9 million to a loss of $8 million. Top line growth was driven by higher volume and pricing and sales mix initiative, while sequential EBITDA improvement reflected $21 million of benefit generated by improved selling price, offset by inflationary headwinds on the production and raw material cost side.
Year-over-year, sales level rose 15% and adjusted EBITDA decreased $9 million. This reflects the $44 million positive contribution for higher average selling price and the impact that persistent increases on the cost side have had on EBITDA.
Pricing and other cost-saving initiatives continue to be implemented. And we have stated in the past, these efforts are expected to generate positive upside that is heavily weighted to the second half of 2022.
To this end, we have provided an update on our profitability plan initiatives in our Tissue Paper segment on Slide 14. Given the normal lag between unprecedented cost inflation and the timing that benefits are realized from the implementation of pricing initiatives, we have now — we are now expecting of the Tissue segment to generate $25 million to $40 million of EBITDA in the calendar year 2022. This downward revision is largely due to timing. The impact of cost inflation is almost immediate, whereas pricing implementation takes time to be rolled out.
Added to this, our sales volumes are lower than anticipated due to lower production output. Both of these areas are being addressed by extensive initiatives currently underway, and I continue to be encouraged by the progress we are making in our profitability plan.
To this end, we continue to expect that these initiatives will allow the Tissue segment to meet its 2024 target of $150 million of adjusted EBITDA.
Allan will now discuss the main highlights of our financial performance. Allan?
Allan Hogg
Yes. Thank you, Mario, and good afternoon, everyone. So Slide 15 and 16, illustrate the specific items recorded during the quarter. The main items that impacted operating income before depreciation were a $4 million gain on settlement of our supply agreement in our Tissue segment and a $3 million FX loss on long-term debt and financial instruments.
Slide 17 and 18 illustrate the year-over-year and sequential volumes of our Q2 adjusted earnings per share and the reconciliation with the specific items that affected our quarterly results.
As reported, net earnings per share were $0.10 in the second quarter. This compared to net earnings per share of $0.02 last year and a net loss per share of $0.15 in Q1. On an adjusted basis, net earnings per share were also $0.10 in the current quarter. This compared to a net loss per share of $0.15 in the first quarter of 2022 and net earnings per share of $0.07 in last year’s results.
As highlighted on Slide 19, second quarter adjusted cash flow from operations decreased by $8 million year-over-year to $81 million, and adjusted free cash flow levels decreased by $59 million year-over-year. This reflects lower operating results and higher net CapEx paid in the coming period, largely associated with our Bear Island conversion project.
Sequentially, second quarter adjusted cash flow from operations increased by $55 million and adjusted free cash flow level increased by $36 million. This reflects improved operating results and lower net financing expenses paid, offset by higher net CapEx in the current period, driven again by our Bear Island project.
Slide 20 provides details about our capital investments. Capital expenditures paid during the quarter totaled [$116] million and totaled $212 million for the first 6 months. Of this amount, $145 million was for Bear Island.
For 2022, our total capital investment forecast has increased to a range of CAD 450 million to CAD 470 million. With this increase driven by updated forecasted project costs for Bear Island of between CAD 310 million and CAD 330 million, as discussed earlier by Mario.
Moving now to our net debt reconciliation on Slide 21. Our net debt increased by $163 million in Q2. This is a reflection of the combined effect of our current investment in Bear Island, higher working capital requirements and unfavorable FX impact in the period. Our leverage ratio of 5.4x is up from 4.8x at the end of Q1 and 3.5x at the end of 2021. As we have mentioned in the past, we expect this leverage trend to reverse with improved operational performance and results in the start-up of operations at the Bear Island facility.
When excluding cash investment made to date for Bear Island, our leverage ratio would stand at 4.3x.
I would highlight that our bank agreement do not include a leverage ratio covenant. Financial ratios and information about maturities are detailed on Slide 22 and sequential and year-over-year sales and EBITDA performance analysis can be found on Slide 25 to 28 of the debt and historical index pricing on Slide 29 and 30.
Mario will now conclude the call with some brief comments before we begin the question period. Mario?
Mario Plourde
Thank you, Allan. We provide details regarding our near-term outlook on Slide 23 of the presentation. As always, this outlook is based on what we are seeing today and may change in the coming months. Our near-term outlook for Containerboard is for stable sequential results, volume is forecasted to be stable despite some inventory rebalancing observed with certain customers.
This, combined with higher production levels being achieved in all our other mills has led us to temporarily shut down machine 2 at our Niagara Falls facility for a minimum of 5 weeks to manage inventory level of our corrugated medium. The planned downtime began in July and will total approximately 10,000 short term over the coming months. We are expecting continued positive momentum from the Specialty Products segment sequentially, with stable results reflecting good volume and favorable selling trend expected to offset cost inflation pressure and continued labor challenge in certain facilities.
As I mentioned earlier, we expect the profitability action plan underway in the Tissue segment to generate growing benefits as we continue to be implemented. We are disappointed that the unprecedented escalation in costs and timing adjustment of certain pricing initiatives have reduced expected EBITDA level for this business for the 2022 calendar years. But we have remained optimistic about the capacity to drive meaningful improvement and the financial and operational performance of our Tissue business.
To this end, results in Tissue are expected to revert to one-off positive contributions beginning in Q3 and our long-term EBITDA target for 2024 for this business remain unchanged.
Let me finish by saying that in terms of our primary raw material, OCC, we are expecting positive trends on the pricing side driven by softer export activity, lower demand level and good availability.
We will now be happy to answer all the questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] And your first question will be from Hamir Patel at CIBC Capital Markets.
Hamir Patel
My first question is on the Containerboard side. Charles, there have been some reports in the Trade magazine that Cascade is planning to produce Kraft Paper at Bear Island. So can you speak more to what’s led to that perhaps shift in strategy? How we should think about product mix and how that would evolve and then also how that would impact the capacity of the facility.
Charles Malo
Okay. So thank you, Hamir, for the question. I would not say a switch in strategy. Maybe we did not at the beginning take specific on the possibility of the machine. This is a market that we see our first potential with the replacement of plastic with reusable material and recyclable.
The machine — because of the investment that we made, we’ll be able to produce the specific rate required to produce that. So our work salespeople are meeting customers right now, and we’re developing a product that we know that we’ll be able to produce on the machine and that’s why we’re starting to promote this. That will give us more flexibility and a better offering product for our customers. We did say that the machine primarily — we built it to supply high-performance lightweight recycled linerboard, but the machine will also be able to produce some medium and also being able to produce other products. So that’s when we mentioned. And that’s why we are looking at market opportunities.
At this point, we are not going to put a volume tag on the mix because we’re still meeting the customer and so we’ll give an update in the future on that.
Hamir Patel
Okay. Appreciate that. And is there any way — how do we think about — I guess the mix is still in flux, but in so far as you’re running a portion of it as Kraft Paper, how does that dynamic affect the capacity of the mill?
Charles Malo
As I said, at this point, the volume would not be or it has not been determined. So you can consider that the total output of either mill would not change from what we’ve announced, capacity would be 465,000 tons per year or so.
Hamir Patel
Okay. That’s helpful. And just the last question I had was, Allan, with respect to CapEx, can you give us an indication of how we should think about 2023, just given the inflation you’re seeing? And I imagine there’s some portion of the Bear Island spend that shows up in ’23 as well?
Allan Hogg
Yes, exactly. What we see right now with Bear Island is approximately USD 90 million that is planned to be paid in early 2023, which is the first part of the year. And for the remaining of the business, it will be kept at minimum, there’s no major project on the go. And as we said in our [strategic] update end of February, we want to limit at 4% of revenue. So — and it might be adjusted a bit down depending on our financial profile. So there’s only Bear Island for now — for next year.
Operator
Next question will be from Zachary Evershed at National Bank Financial.
Zachary Evershed
I just wanted to kick off with maybe you could help us quantify the risks of a delayed start-up at Bear Island? What do you think the probability of the over-under is going beyond schedule? And what kind of costs that could cause you to incur?
Mario Plourde
Charles, do you want to take this one?
Charles Malo
Yes. As we mentioned, we are still working towards making the date or the December start-up is still achievable. Our team are working towards that. We have said that there are some delays in certain aspects, and we mentioned them and Mario explained that and its effect. But if it slides into Q1 at this point, from what we see, it would not have a major impact on the 2023 year. Is that what your question is.
Zachary Evershed
That’s clear. And then in terms of the recent industry talk about customer inventory correction over the last few months and maybe continuing into the next quarter, can you give color as what you experienced thus far and how it’s tracking into Q3 on the Containerboard side?
Charles Malo
Yes. So we have seen with some of our customers, a correction on the inventory level. Our customers are seeing or having the same issues that we have, whether it’s on labor, although not able to produce. So some of our customers are making adjustments up for the inventory.
So we are seeing that, and that’s why when we look at our Q3 right now, our forecasting are looking for about stable compared to our Q2 and we’re following that very closely. What we’re seeing right now is maybe slower beginning of the Q3 and then picking up towards the end of Q3. That’s why we’re calling for flat. And what we’re expecting is that with the back-to-school and the prep for the holiday season, our forecast, we’re expecting the demand to increase towards in Q3.
Zachary Evershed
That’s helpful. Then just one last one for me, switching gears to Tissue here. Can you comment on any impact or possible impact from seasonality on the profitability initiatives in place and how the price hikes might flow through for the balance of 2022?
Allan Hogg
Yes, Zach, we don’t foresee any differences, I would say, in terms of seasonality versus the previous years. But I can say that the demand is pretty good. Right now, the limitation is really our ability to produce those cases. Right now, the demand in both markets, away-from-home and retail is pretty good. So we should see improvement in our tonnage or shipments for the next coming quarters one after the other.
Operator
And your next question will be from Matthew McKellar at RBC Capital Markets.
Matthew McKellar
In Tissue, it sounds like price increases should start to show up again in Q3. So you’ll get something closer to a full run rate benefits in Q4. With that, you noted that your expected performance in the segment to be slightly lower year-over-year. So with that, should we expect operating income before depreciation in Q3 to be materially above breakeven? And then how should we think about the progression from Q3 to Q4 in that context?
Allan Hogg
Well, I’ll take that first, and I’ll let Jean-David speak. We have guided a bit lower than last year, but we have not specified any numbers. So last it was 12 million. So anything close to that or slightly lower. So that’s what we can expect for Q3.
So remaining cautious because — price of input costs are still very volatile. So remaining cautious, but a lot of our price increase initiative and other initiatives will continue to take place with it having a full run rate by year-end. So that’s why we say that the second half of the year should be much better than the first one.
Mario Plourde
If I can add also price increases that we announced in retail for August, we’re negotiating actually. And as you may know, competitors announced also later dates, so we’re negotiating with our customers, but feel that the full impact will be in Q4 more than in Q3. And as Allan said, we’re prudent on the inflation level as well for the coming quarter.
Matthew McKellar
Okay. Great. Then it sounds like you’re expecting somewhat lower OCC costs sequentially in Q3. Could you talk a bit about what you see is driving that trend? And maybe talk to where do you expect cost to trend through the balance of the year?
Luc Langevin
Yes. This is Luc, Matthew. We’re actually seeing a switch in the market environment in June, actually in early June. Early — the beginning of the second quarter, the market was more balanced, but by early June, we started to see a decrease in the demand and still strong generation. And this situation has amplified, obviously, in the month of July.
And we are in a situation that we are indefinitely in excess of our offer in the market. We would have expected the correction in pricing from — in the publication in July, it didn’t show up. But I think now that the conditions we’ve seen in the market where we operate clearly indicates there is likely going to be a correction.
Matthew McKellar
Okay. And then last one for me. I just wanted to hit on the leverage as you work to complete Bear Island, are you contented, I guess, what leverage kind of normalize with CapEx tapering off results improving given that you’re not constrained by a debt-to-EBITDA based covenant? Or would you consider taking any kind of action to accelerate delevering? And then maybe as a follow-on, how should we think about capital allocation overall following its completion in the context of your comments that CapEx is likely to be kept at a minimum?
Allan Hogg
Yes. Obviously, CapEx will be managed and debt profile or leverage will be managed first. So to make sure that we get back to our stated target of between 2.5 and 3x once the Bear Island project is up and running. So that will be the first priority in terms of capital allocation to adjust that balance sheet profile before continuing to invest in strategic projects.
Operator
Next question is from Frederic Tremblay at Desjardins.
Frederic Tremblay
A couple of questions on the Tissue segment. I was wondering if you’re seeing some consumers switch to private label from branded products. Is that something that you’re witnessing currently and how that may impact your business given your product mix?
Mario Plourde
Yes, the growth of private label just continue year after year. We achieved recently highest level ever. So I think there’s — the acceptance of consumer is really good. The quality of those private label is getting better and better. So I think we’re well positioned. As you know, more than 90% of our business is private label in the retail. We’re also well positioned with the customer mix that we have with the mass merchant clubs. So I think the economic situation will only — can be positive for our Tissue business.
Also, the market segment that we’re playing in, in the private label is also maybe positive if consumers are trading down because of the financial situation. So all in all, I think it’s positive.
Frederic Tremblay
Right. Makes sense. And then you commented earlier on some customers in containerboard drawing down inventories. Can you comment on inventory levels in the Tissue retail and away-from-home market.
Mario Plourde
Good question. I think the away-from-home business is getting better, not at the previous level. But we’re in line with the market improvement. So again, as I said earlier, it’s really our ability to serve those customers like the demand is pretty good in both market segments.
Operator
Next question will be from Benoit Laprade at Scotiabank.
Benoit Laprade
A quick one for me. Just wanted to go back to the earlier Tissue question in terms of guidance. If I’m not mistaken, we are at minus $25 million after the first 6 months, you’re guiding to $25 million to $40 million, which implies the second half in the $50 million to $65 million range, which means that even if you would meet the $12 million from last year, that would imply a $38 million to $52 million quarter for Q4. Am I missing something? Or is that what you’re implying?
Allan Hogg
No, Benoit, I think I would — we’ve put in the slide, I think Slide 14 in the deck that illustrates that. So we see that there’s a lot of positive benefit that are still to come true for next year. And so there’s a portion of that will come in, in the last section of the year. So obviously, all the profitability initiatives will kick in more than the impact of the cost — the inflation. So you’re right, it’s second half of the year should be much better.
Benoit Laprade
Okay. And then but if I push that reasoning a little further, you’re still guiding for 2024 in the $150 million range, but Q4 annualized — and typically, Q4 is a weak seasonally speaking quarter. That kind of assumes that you’ll be slowing down from there, while you probably have some initiatives that should be improving the performance. So I’m just trying to reconcile the Q4 ’22 and the 2024 full year guidance at 150.
Allan Hogg
Exactly. If you do the math, you’re right, but we have kept our guidance for ’24 for now. It’s still a long way to go, but that’s why we remain confident that this target will be achieved. Maybe it will be so fast if you do that math, as you mentioned, but we’re maintaining that the target will be achieved. So it has to be proven because the next — the upside, as Jean-David is mentioning that we have in issue after all of these initiatives is that on the volume side, there’s still opportunity to drive improvement in volume and production volumes, so in sales so —
Operator
Next question will be from Mark Wilde at BMO.
Mark Wilde
I wanted to just start by following on Benoit’s question. I’m just curious about guidance generally. We’ve had a number of guidance cuts this year. Anything you can give us to increase confidence that we don’t have more to come here in the second half of the year?
Allan Hogg
Well, if I can start, if you only take that Tissue guidance we did in Q1, the difference with the guidance right now is mainly driven by continued increase in raw materials in addition to chemical and energy costs that were higher than our assumption when we did our last forecast and also slightly lower production output than expected.
So these are the main drivers why we have reduced our guidance this time in Tissue and not in Q1 because in Q1, we had these assumptions at different levels. So that’s the reason between the two.
So going forward, price increases, negotiations are being implemented and a very high level of probability of being done or achieved and going a bit further, as I explained, there’s potential of additional production output to be delivered in tissue. So that’s why remaining confident about the 2024 target.
Mark Wilde
Okay. And if I could just add, is there any wiggle room, any kind of negative contingencies in the guidance? I mean we all see good things happening, but have we also have room for kind of any additional negative surprises?
Mario Plourde
Yes, we still have inflation in our cost, Mark, and we anticipate that raw material will continue to grow higher in Q3 and probably even higher after. So that’s part of the assumption that we’re taking.
Allan Hogg
That’s why there’s in Tissue, we have stated a range because it’s continued risk.
Mark Wilde
Okay. All right. The second thing I want to ask was just that medium inventory overhang at Niagara Falls can you give any color around what drove that?
Mario Plourde
Yes. So yes, this is part of the — our production has been pretty good in our system. What we have made our inventory level has been higher than where we feel comfortable. And as we mentioned, we are seeing some of our customers are taking some inventory adjustment, which by ripple effect is causing us the same thing. So we took down the machine that was the less contributing to our system, and this is in Niagara Falls, and we evaluate again that the adjustment was about 10,000 tons. So that’s the reason behind our taking it first 5 weeks.
Mark Wilde
Yes. So would it be your sense now that the medium market is in balance at this point? Or how would you term it? Because if I go back for much of the last 2 years, medium has actually been the tighter side of the industry. And if you’re taking inventory downtime right now, it would suggest that, that’s no longer the case.
Mario Plourde
Well, it is in a way. But as you know, we have — we’re very high on the medium when you compare it to our liner so when you look at the adjustments that were made by our customers, it seems like the medium side was a bit more effective than the liner.
Mark Wilde
Okay. And then just turning to Bear Island and the potential delay into the first quarter. Does that have any effect on the preselling that you had talked about in the past on that machine?
Mario Plourde
No, at this point, we’re still working towards the December starting date. Again, if it slides into Q1 from what we see right now, we are going to be okay with the ramp-up that we have and the inventory levels that we’re going to go into Q1. And we are working also with our customers to make sure that we’ll be able to service everybody. If there is a slide in Q1, the potential is probably 10,000 to 15,000 tons, something like that, worst-worst scenario. So on the overall scheme of things will be okay.
Mark Wilde
Okay. All right. Then the last one for me, for either kind of Allan or Mario. Just curious, you made a significant move up just a while ago in your dividend. And with leverage going up right now, can you just — can you talk with us about how you think about the security of the dividend?
Mario Plourde
At the moment, we had not changed our position regarding the dividends. The forecast we see in terms of cash flow generation, and a set of inflation in our cost doesn’t guide us to move on the dividend right now. So we maintain the dividend at the same level.
Mark Wilde
Okay. And you’re comfortable with your ability to maintain that dividend is really what I’m asking?
Mario Plourde
Yes, we are.
Operator
Thank you. There are no further questions at this time. Mr. Plourde, please continue.
Mario Plourde
Thank you, everyone, to be on the line today and looking forward to talking to you for our Q3 results. Have a nice weekend.
Allan Hogg
Thank you.
Operator
Thank you, ladies and gentlemen. This does conclude today’s conference call. You may now disconnect.
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