Cascades Inc. · TSX:CAS
Cascades — CIBC Conference – Montreal 2016
39 slides from Cascades's conference presentation, Sep 22, 2016
Slide 1: CIBC Conference – Montreal
CASCADES INC. CIBC Conference – Montreal September 22, 2016
Slide 2: Disclaimer
DISCLAIMER Certain statements in this presentation, 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
Slide 3: Company Overview
COMPANY OVERVIEW LTM 6/30/16 Net Sales $4,002 million Segment Sales Breakdown1 • Founded in 1964 by the Lemaire family; headquartered in Kingsey Falls, QC 15% • Produces, converts and markets packaging & tissue 33% Containerboard products composed principally of recycled fibre Tissue Papers 20% Boxb
Slide 4: Leading Packaging and Tissue Paper Manufacturer
COMPANY OVERVIEW Leading Packaging and Tissue Paper Manufacturer Packaging Products Tissue Papers Containerboard Boxboard Europe Specialty Products • One of the Canadian • # 1 in Canada Position • # 2 in coated recycled • Largest paper collector in Market leaders boxboard in Europe Canada • # 5 in N
Slide 5: Sales and Operations Across North America and Europe
COMPANY OVERVIEW Sales and Operations Across North America and Europe Sales from (in %) Sales to (in %) Europe Europe 23% 23% 37% Canada 50% Canada 27% 40% US US Operating Facilities (in %) PP&E by Geographic Segment (in %) Europe 9% Europe 19% US 31% 52% Canada 60% Canada 29% US Note: Figures as of
Slide 6: Strong Financial Momentum
OPERATING PERFORMANCE AND FINANCIAL SITUATION Strong Financial Momentum Sales EBITDA (excl. specific items) (M CAN$) (M CAN$) 4,250 500 18.0% 4,002 456 4,000 450 16.0% 3,861 426 3,750 400 14.0% 3,561 342 340 3,500 350 12.0% 3,370 285 3,250 300 10.0% 3,141 3,000 250 8.0% 2,750 200 6.0% 2012 2013 2014
Slide 7: Historical Segmented EBITDA
OPERATING PERFORMANCE AND FINANCIAL SITUATION Historical Segmented EBITDA Containerboard Boxboard Europe (M CAN$) (M CAN$) 300 2012 – LTM6/30/16 CAGR: 32% 24% 100 2012 – LTM6/30/16 CAGR: 10% 24% 231 239 250 20% 80 20% 72 57 63 60 200 164 16% 60 16% 150 43 150 12% 40 12% 100 90 8% 20 8% 50 4% 0 4% 1
Slide 8: Cash Flow and Free Cash Flow per Share
OPERATING PERFORMANCE AND FINANCIAL SITUATION Cash Flow and Free Cash Flow per Share Cash Flow From Operating Activities1 Free Cash Flow per Share1,2 (M CAN$) (CAN$) 1.88 500 2.00 388 1.58 400 1.50 337 277 0.86 300 1.00 233 0.78 200 0.50 155 100 0.00 (0.28) 0 (0.50) 2012 2013 2014 2015 LTM 6/30/16 2
Slide 9: Debt Maturities and Repayment
OPERATING PERFORMANCE AND FINANCIAL SITUATION Debt Maturities Debt Repayment as at June 30, 2016 • Over last 24 months, $1 billion+ of 1,000 senior notes refinanced 710 • Extended maturities to 2021, 750 2022 and 2023 • $750 million revolving facility 500 extended to 2019 323 233 250 250 • Average i
Slide 10: Leverage Target of 3.0x – 3.5x
LEVERAGE TARGET OF 3.0x – 3.5x Achievable Without Asset Disposals 6.0x 5.8x 5.0x 5.0x 4.6x 4.7x 4.0x 4.0x 3.6x 3.6x 1 3.4x 1 3.2x 1 3.0x 2.0x 1.0x 0.0x 2014 2011 2012 2013 2015 Q2-16 2016E 2017E 2018E 1 Based on Street’s EBITDA estimates $436 million for 2016 and $432 million for 2017. Assuming stab
Slide 11: Containerboard Packaging Group: Environment Still Sound
CONTAINERBOARD PACKAGING GROUP Environment Still Sound North American Containerboard Producers Fundamentals Sound Despite Added Capacity 2015 Industry Participants Industry Operating Rates and Expected Capacity2 % of total capacity (Operating rate) 100% IP 33% 90% WestRock 19% 80% Cascades EBITD
Slide 12: Greenpac Mill
CONTAINERBOARD PACKAGING GROUP Greenpac Mill • Largest recycled linerboard mill in NA: 1,500 st/day of recycled linerboard (26 pounds) • State-of-the-art equipment • Product differentiation: Greenpac XP grades represent 82% of total production in Q2/16 (s.t./day) Greenpac Production • Take-or-pay ag
Slide 13: Tissue Papers Group: Strong Position Across North American Market
TISSUE PAPERS GROUP Strong Position Across the North American Tissue Market CAS Sales by Geography (2015) Tissue Market Demand1 160 Canada (25%) US (75%) Indexed U.S. Tissue Away-from- Away-from- 140 Home Home Demand 42% 49% 120 At-Home 100 At-Home 58% 51% 80 1996 2000 2004 2008 2012 2016e CAS Sales
Slide 14: Tissue Papers Group: Market vs Cascades
TISSUE PAPERS GROUP Market vs Cascades Away-from-Home Retail Retail Market Market Market Market Good Better Best Source: RISI 14
Slide 15: Tissue Papers Group: Diversified Capacity
TISSUE PAPERS GROUP Diversified Capacity 2015 NORTH AMERICAN TISSUE MANUFACTURERS Capacity Market Capacity Capacity ('000 s.t.) Share Retail AfH 1 Georgia-Pacific 2,849 29% 67% 33% 2 Procter & Gamble 1,494 15% 100% 0% 3 Kimberly-Clark 1,466 15% 67% 33% 4 SCA Tissue NA 772 8% 0% 100% 5 Cascades Tissu
Slide 16: Specialty Products Group
SPECIALTY PRODUCTS GROUP Stable Source of Revenue and Unique Platform for Innovation • Diversified product offerings and stable revenue stream with leading market positions • Recent initiatives have included Cascades Recovery minority (27%) acquisition completed in December 2015, and restructuring a
Slide 17: Boxboard Europe Group
BOXBOARD EUROPE GROUP Extensive European Platform • ~58% ownership of RdM, a public Italian company; 5 recycled mills & 1 virgin boxboard mill • Rationalization of production capacity, consolidation of sales forces, structure simplification and modernization investments have resulted in improved per
Slide 18: Our Four Strategic Priorities
OUR FOUR STRATEGIC PRIORITIES 1 MODERNIZE 2 OPTIMIZE core operations through capital allocation and focused investments reduce working capital Status: Ongoing Status: Ongoing 3 RESTRUCTURE 4 INNOVATE to improve and develop underperforming units processes and products Status: Well-advanced Status: Co
Slide 19: Strategic Priority: Modernize
STRATEGIC PRIORITY: MODERNIZE 1 ± $300M Invested in Modern Equipment Capital Expenditures (M$) • Divestitures and free cash $184M $161M $184M $173M $185M flow have funded Capex 200 • 2016 Capex ~ $185M 150 • Mainly growth Capex 100 • Mostly in the US • Impacted by strong US$ 50 • 2012-2013: investme
Slide 20: Tissue – Increase Footprint & Integration
TISSUE – INCREASE FOOTPRINT & INTEGRATION Building a brand new Retail Away-from-Home converting facility to increase C Converting footprint in Western US and M Manufacturing increase integration rate (Q1-17) M C CM CM C C CM CM M M M C C M C C C M C M C C Now the controlling shareholder of a convert
Slide 21: Strategic Priority: Optimize
STRATEGIC PRIORITY: OPTIMIZE 2 Strategic Initiatives Generating Results Working Capital % of sales 16% ONE Cascades, delivering results 14.4% 14% Capturing savings through: 13.5% 12.9% 12.7% 12.3% • Shared Services 11.6% 12% 11.3% 11.4% • Supply Chain • Logistics 10% Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 • Operat
Slide 22: Strategic Priority: Restructure
STRATEGIC PRIORITY: RESTRUCTURE 3 Streamlining the Portfolio Data on Asset Sales and Closures1 • Workforce reduction: ‒ 2,350 From 2011 to Q2 2016: • Sales: ‒ $1,020M • 16 closures • EBITDA: ‒ $26M • 6 asset sales • EBITDA Margin: 3% • Dopaco division also divested in 2011 to finance Greenpac, Reno
Slide 23: Strategic Priority: Innovate
STRATEGIC PRIORITY: INNOVATE 4 Objective: 20% of Sales from Innovative Products 23
Slide 24: Focused on Growth and Productivity
FOCUSED ON GROWTH AND PRODUCTIVITY Containerboard Tissue Papers Specialty Boxboard Europe Packaging Group Group Products Group Group • Increase US Away- • Improve processes • Consumer • Strengthen presence from-Home segment • Grow US converting packaging provides in growing markets • Expand footprin
Slide 25: Near Term Outlook
NEAR TERM OUTLOOK • Higher volume in Q3 + • Raw material cost & volume • FX rate still favourable headwinds in Europe I • Energy cost still favourable • Higher prices for recovered papers • Containerboard price increases in North America Boxboard EBITDA EBITDA Specialty EBITDA EBITDA 2016 – Q3 vs Q2
Slide 26: Potential Benefits Stemming from Our Initiatives
POTENTIAL BENEFITS STEMMING FROM OUR INITIATIVES Modernizing our operating platform to increase profitability • $185M Capex program in 2016 • Divestitures and closures of under-performing units • Containerboard: sound fundamentals and improved platform • Modernized converting platform and improved
Slide 27: Appendix
APPENDIX ete as
Slide 28: Business Drivers – Price Dynamics
BUSINESS DRIVERS – PRICE DYNAMICS Containerboard - Selected Benchmarks Tissue Papers - Selected Benchmarks (US$/s.t.) (US$/s.t.) 650 1,600 600 1,500 550 1,400 500 1,300 450 1,200 400 1,100 350 1,000 Linerboard 42-lb. unbleached kraft, Eastern U.S. Virgin parent rolls 300 900 Corrugating medium 26-lb
Slide 29: Business Drivers – Shipments
BUSINESS DRIVERS – SHIPMENTS • Shipments were 2% higher in Q2-2016 compared to the previous quarter • Manufacturing utilization rates2 hovering around 91% in Q2-2016 • Containerboard – 93% • Boxboard Europe – 92% • Tissue Papers – 89% CAS Total Shipments (‘000 s.t.) CAS Manufacturing Utilization Rat
Slide 30: Business Drivers – COGS
10% 6% 8% BUSINESS DRIVERS – COGS 36% LTM Q2-2016 9% 10% 6% 20% 11% 8% 37% Raw materials 8% Chemicals and production supplies Wages and employee benefits expenses Energy 20% Freight 11% Depreciation and amortization Others Raw materials Chemicals and production supplies • Raw materials (including ch
Slide 31: Raw Materials – Fibre Costs
RAW MATERIALS – FIBRE COSTS Recycled Fibre Prices Current Virgin Pulp Prices Current (US$/ton) (US$/ton) 200 (Sept.) 1,100 (Sept.) 166 1,000 995 150 900 100 100 835 800 50 700 Sept 13 Sept 14 Sept 15 June 13 Dec 13 Mar 14 June 14 Dec 14 Mar 15 June 15 Dec 15 Mar 16 Sept 16 Sept 13 June 16 Dec 13 Mar
Slide 32: Raw Materials – Sourcing Strategy
RAW MATERIALS – SOURCING STRATEGY Cascades’ NA Recycled Fibre Supply World Top Recovered Paper Suppliers (M Tonnes) 6 20151 Recovery & 5 Internal 4 Most of the fibre 25% supply comes Regular & 3 from internal Steady Volume Spot 2 sources, (Noncontractual) 25% 1 contracts and 27% 0 Contractual regula
Slide 33: Financial Information on Greenpac
FINANCIAL INFORMATION ON GREENPAC 1 Greenpac - Selected financial data (in millions of US dollars) 2014 2015 LTM Q2-2016 Sales 210-230 235-250 240-255 Adjusted EBITDA excluding specific items 38-45 65-72 63-70 Adjusted EBITDA excluding specific items - margin 16%-20% 26%-30% 25%-28% Net debt 2,3 270
Slide 34: Greenpac Impact on EPS
GREENPAC IMPACT ON EPS • Assuming a conservative multiple, Greenpac adds significant value to the Cascades story Greenpac Impact on Illustrative Value Illustrative EBITDA Cascades’ EPS per Share 1 (US$M) (CAN$) (CAN$) 60 $0.08 $1.70 80 $0.17 $2.80 100 $0.27 $3.90 EBITDA Sensitivity ±10 ±$0.55 1 For
Slide 35: Illustrative Sum of the Parts
ILLUSTRATIVE SUM OF THE PARTS CAS LTM EBITDA CAS valuation using CAS valuation using 2017e 1 (M$ CAN, unless otherwise noted) (Net of corp. activities) current analyst multiples 2 average industry multiples 3 Multiple Value Value/Share Multiple Value Value/Share • Containerboard Group 239 5.8x 1,386
Slide 36: Sustainable Development – 2013-2015 Plan Results
SUSTAINABLE DEVELOPMENT –2013-2015 PLAN RESULTS Planet Prosperity Partners Target Target Target Result Result Result ENERGY HEALTH AND -3 % SUSTAINABLE PROCUREMENT 40 % SAFETY (OSHA) 2.5 -12 % 43 % 2.6 RESIDUAL MATERIAL USAGE +6 % INNOVATION 6% EMPLOYEE 65 % ENGAGEMENT +13 % 12.7 % 56 % FINANCIAL CO
Slide 37: Sustainable Development – 2016-2020 Objectives
SUSTAINABLE DEVELOPMENT – 2016-2020 OBJECTIVES Planet Prosperity Partners ENERGY SUSTAINABLE HEALTH AND PROCUREMENT SAFETY (OSHA) -7% +40% -38% GREENHOUSE GAS NEW -7% INNOVATION EMPLOYEE ENGAGEMENT RESIDUAL MATERIAL USAGE +57% +16% +5% FINANCIAL PERFORMANCE COMMUNITY (ROCE) INVOLVEMENT WATER +43% 10
Slide 38: Geographically Diversified
GEOGRAPHICALLY DIVERSIFIED * Under construction. * Scheduled for the * end of Q1-2017. 38
Slide 39: For more information
For more information: www.cascades.com/investors Jennifer Aitken, MBA Director, Investor Relations 514-282-2697 or jennifer_aitken@cascades.com 39