Cascades Inc. · TSX:CAS
Cascades — Investor Presentation (December 2022)
43 slides from Cascades's investor presentation, December 2022
Slide 1: Investor Presentation December 2022
Investor Presentation December 2022 1
Slide 2: Disclaimer
DISCLAIMER FORWARD-LOOKING STATEM ENT 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 num
Slide 3: Who We Are
~9,950 employees, 78 facilities WHO WE ARE Eco-Friendly Packaging, Hygiene & Recovery Solutions OUR MISSION To improve the well-being of people, communities and the planet by providing sustainable and innovative solutions that create value. OUR VISION To be a key contributor to our customers’ succes
Slide 4: Sustainability Track Record: Driving Positive Change
Sustainability Track Record: Driving Positive Change Where We Are Where We’re Going 50% greenhouse gas (GHG) intensity ESG strategy aligned with UN’s emissions reduction (scope 1) since 1990 Sustainable Development Goals 45% fewer GHG emissions Aggressive GHG reduction targets (scopes 1 and 2) than
Slide 5: Investment Thesis
INVESTMENT THESIS ✓ 2022-2024 Strategic Plan Focused on margin expansion, cash flow generation and leverage improvement while limiting CAPEX to 4% of revenue in 2023 and 20241 ✓ Modernized, well-financed asset base Positioned to capitalize on growth trends in key markets ✓ Strong sustainability trac
Slide 6: Returning Value to Shareholders
Returning Value to Shareholders (in millions of CAD$, except dividend yield amounts in %) $80 7.0% 6.0% $60 5.0% $26 4.0% $40 $9 $8 3.0% $9 $20 2.0% $20 $41 $36 $31 $23 1.0% $15 $15 $- 0.0% 2017 2018 2019 2020 2021 YTD Q3 2022 Dividends Share Repurchases Dividend Yield 6
Slide 7: Q3 2022 Results
Q3 2022 Results (in millions of CAD$, except per share amounts) Q3 2022 Q2 2022 Q3 2021 Sales 1,174 1,119 1,030 Operating Income 25 32 73 Adjusted OIBD1 111 91 107 Margin (Adj. OIBD1/Sales) 9.5% 8.1% 10.4% Net earnings (loss) (2) 10 32 Adjusted net earnings (loss) 20 10 (1) Net earnings (loss) per c
Slide 8: Q3 2022 – Consolidated Profitability Drivers
Q3 2022 – Consolidated Profitability Drivers (in millions of CAD$) Consolidated Adjusted OIBD1 Quarter-over-Quarter Year-over-Year Year-to-Date Variation Drivers Q3 2022 vs Q2 2022 Q3 2022 vs Q3 2021 2022 vs 2021 Pricing & Mix $41 million $132 million $347 million Freight & Production Costs ($10) mi
Slide 9: Recycled Fibre Costs – Index Prices
Recycled Fibre Costs – Index Prices OCC: ($ US/s.t.) Current (Nov-22) • Rapidly evolving market with persistently lower demand 2592 for the material related to easing of activity at containerboard mills and lower export demand • Solid inventories at our mills • Lower pricing YoY and sequentially; an
Slide 10: Virgin Fibre Costs – Index List Prices
Virgin Fibre Costs – Index List Prices ($ US/s.t.) Current VIRGIN PULP : (Oct-22) • Slight improvement in market dynamics sequentially 1,770 • Transportation constraints beginning to recover, with 1,620 rail car availability improving and port congestion easing • Mills adequately supplied, robust in
Slide 11: Capital Investments
Capital Investments (in property, plant & equipment, in millions of Canadian dollars, excluding new leases, disposal of assets and accounts payable variation) 2022F CAPEX: $450 M - $470 M1 Includes ~CAD$310 M - $330 M for Bear Island conversion (1) Amount is subject to change depending on business a
Slide 12: Financial Ratios & Debt Maturities
Financial Ratios & Debt Maturities Net Debt / Adjusted OIBD1,3 Interest Coverage Ratio2,3 6.7x 6.2x 5.8x 6.0x 6.1x 5.0x 4.6x 4.7x 4.7x 4.6x 4.3x 4.6x 4.0x 3.8x 3.6x 3.5x 4.0x 3.5x 3.4x 3.4x 3.0x 2.5x 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Q3 2012 2013 2014 2015 2016 2017 2018 2019 2020 20
Slide 13: Packaging Businesses
PACKAGING BUSINESSES Tier 1 Tier 2 Tier 3 Investments and modernization Specialty Packaging 45% 43% 12% initiatives have improved the Containerboard - Sheeting 20% 44% 36% competitiveness* of Containerboard - Converting 69% 15% 16% our assets. Conainerboard - Manufacturing 63% 6% 31% (including Bear
Slide 14: Containerboard
Containerboard 6th largest containerboard producer in N.A. 2,200 600 (CAN $ M) 14% 2,009 2,000 1,918 Annual capacity: 44% 1,840 1,827 500 1,575 k s.t. 54% 1,652 22.3% 24.1% 441 21.0% 86% 410 403 18.5% 1,500 16.0% 400 372 Recycled Virgin Linerboard Medium 352 381 328 321 15.0% 300 1,000 247 230 224 2
Slide 15: Containerboard – Quarterly Performance
Containerboard – Quarterly Performance Quarterly Operating Income & Adjusted OIBD1 (M CAN$) • Sequential Q3 shipments of converted products: Canada -1.9% (vs. market -3.1%) US +1.1% (vs. market -3.8%) • Year-over-year Q3 shipments of converted products: Canada -4.8% (vs. market -3.2%) US +9.1% (vs.
Slide 16: Containerboard – Well-Positioned for Growth
Containerboard – Well-Positioned for Growth ✓ Consumer demand driving shift to responsible packaging ✓ Brand owners seeking solutions with greater recycled content ✓ Greater usage of Lightweight containerboard Distribution/E-com Produce Food Processing Consumer (CPG) Industrial (In MSF) Others Food
Slide 17: Containerboard - Market
Containerboard - Market North American Containerboard Expected Production1 North American Capacity and Operating Rate1 5-Yr CAGR : + 1.6% 5-Yr CAGR: +1.9% 49.1 49.4 48.3 6.0 6.3 6.5 6.5 46.9 5.7 5.0 5.6 44.9 45.7 43.2 2021-26 42.9 average: 93.7% 34.7 37.3 37.3 37.5 38.4 39.3 39.8 94.0% 93.8% 92.9% 9
Slide 18: Containerboard – Market Pricing
Containerboard – Market Pricing ($ US/s.t.) $1,000 $915 $800 $600 SPREAD NOV. 2022 RISI $400 US$882/s.t. FORECASTS $200 $33 $0 Semichemical Corrugated Medium (26 lbs), NY Average Kraftliner (42 lbs) US East Average Recycled Linerboard (30-31 lbs) East Average OCC (11) NY Average 1 Source: RISI 18
Slide 19: Containerboard - Bear Island Project
Containerboard - Bear Island Project SITE WHEN ACQUIRED PROJECT COST • US $470 - $485 M INVESTMENT TO • US $318 M ($405 M) Lightweight DATE (2018–Q3/22) START-UP • Q1 2023 BUILDING EXTENSION - JUNE 2022 Recyclability/ • Production: ~265,000 s.t. Sustainability 2023 FORECAST4 • OIBD: US $20 - $30 M •
Slide 20: Specialty Products
Specialty Products3 Comprehensive Packaging Solutions Provider Focused on Strategic Scalable Markets 2021 sales of $548 M increased 16% from 2020 (CAN $ M) 700 120 644 600 14.4% 548 100 492 93 500 473 13.5% 81 80 34% 12.7% 74 37% 400 358 2021 2021 339 11.2% sales 60 59 60 sales 55 63% 66% 300 10.0%
Slide 21: Specialty Products – Quarterly Performance
Specialty Products – Quarterly Performance Quarterly Operating Income & Adjusted OIBD1 (M CAN$) ➢ Q3 2022 adjusted OIBD1 of $25 M, or 15% on a margin basis, was stable sequentially and increased 47% versus the prior-year. ➢ Industrial packaging: results improved sequentially, with favourable raw mat
Slide 22: Specialty Products
Specialty Products With 50% of our 2021 sales coming from the fresh produce, egg packaging, food services & isothermal distribution markets, our eco-friendly packaging solutions are well positioned to capitalize on market trends. North American Fresh Produce and Key Market Growth Drivers Foodservice
Slide 23: Tissue Papers Business
TISSUE PAPERS BUSINESS Tier 1 Tier 2 Tier 3 Converting Lines 62% 22% 17% Investments and modernization initiatives have improved the Converted Cases Capacity 82% 9% 9% competitiveness* of our assets. Manufacturing Capacity 43% 28% 29% * Competitiveness (Tier 1, 2 or 3) of manufacturing and convertin
Slide 24: Tissue Papers
Tissue Papers 4th largest tissue producer in N.A. (CAN $ M) 25% 2,000 400 32% USA 2021 2021 Recycled Annual Annual 300 Canada Sales Virgin 1,615 Sales 68% 1,600 1,509 75% 10.8% 1,377 1,352 200 1,268 5.7% 175 1,272 7.4% 1,200 94 1.3% 86 100 72 2.1% 28 17 27 -2.0% 6 0 800 -27 -37 Retail Away-from- Par
Slide 25: Tissue Papers – Quarterly Performance
Tissue Papers – Quarterly Performance ➢ Continued good demand levels for Away-from-Home Quarterly Operating Income & Adjusted OIBD1 (M CAN$) tissue products (shipments +3% YoY, stable QoQ), and Retail tissue products (shipments + 5% YoY, +6% QoQ). ➢ The cumulative impact of continued unprecedented c
Slide 26: Tissue Papers – Breaking down the impact of inflation
Tissue Papers – Breaking down the impact of inflation YTD Q3 2022 vs. YTD Q3 2021: • $141 M of cost headwinds (raw material, energy, production supplies, logistics & freight) • $90 M of profitability initiatives to date (volume, selling price & mix) • $51 M SHORTFALL BEING ADDRESSED WITH ADDITIONAL
Slide 27: Tissue Papers – Covid Impact on Market
Tissue Papers – Covid Impact on Market Avg US Monthly Parent Roll Capacity & Production1 (‘000 s.t.) US Tissue Converted Products Shipments1 (‘000 s.t.) 880 900 +34% 860 -26% 840 700 820 +48% 800 500 -34% 780 -11% +11% 760 300 740 720 100 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 D
Slide 28: Tissue Papers – Strategic Plan Update
Tissue Papers – Strategic Plan Update ➢ Benefits realized to date from pricing initiatives are tracking in ➢ Expected Q4 2022 adjusted OIBD1 of $8 - $12 million will reflect line with expectations, but have not kept pace with additional benefits from ongoing profitability initiatives. However, persi
Slide 29: Tissue Papers – Market
Tissue Papers – Market Effective Tissue Capacity – North America1 Top 10 N.A. Tissue Producers (2021)3 (‘000 tonnes) All others 12% 10,500 + 0.7% + 1.6% Sofidel America Georgia Pacific + 1.1% 3% 27% 10,000 Irving Tissue 4% Clearwater Paper 9,500 4% Kruger Tissue 4% 9,000 First Quality 5% Essity P&G
Slide 30: Where We Are Going
WHERE WE ARE GOING 30
Slide 31: Near-Term Factors
NEAR-TERM FACTORS vs Q3 2022 vs Q4 2021 Q4 2022 • Logistics and production costs: expect continued pressure OIBD Trend on costs YoY and QoQ in Q4 for all business segments. • Containerboard: QoQ performance to reflect lower average raw material prices offset by softer volume and elevated operational
Slide 32: 2022 – 2024 Strategic Plan: Top Priorities
2022 – 2024 Strategic Plan: Top Priorities An integrated company with strong assets to drive value for shareholders 1 Deliver on the profitability plan in Tissue 2 Complete the Bear Island start up Our Top Continue to grow our sustainable packaging Priorities 3 business with U.S. capacity expansion
Slide 33: 2022 – 2024 Strategic Plan: Business Objectives
2022 – 2024 Strategic Plan: Business Objectives CONTAINERBOARD SPECIALTY PRODUCTS TISSUE PAPERS Be the go-to solution Be the leader in The path forward to for businesses sustainable packaging improved profitability • Increase pace of new sustainable • Leverage well invested asset base • Complete Bea
Slide 34: 2022 – 2024 Strategic Plan: Financial Targets
2022 – 2024 Strategic Plan: Financial Targets Focused on free cash flow generation + maintaining financial flexibility 1 Revenue: ~$5.0 B+ in 2024 OIBD4 ~11% - 13% in 2022 2 Margin: ~13% - 15% in 2024 Financial Targets CAPEX5: ~ $415 M in 2022 (incl. $275M for Bear Island) 3 ~ 4% of revenue in 2023
Slide 35: Appendices
APPENDICES 35
Slide 36: Recovery Operations
Recovery Operations A natural extension of our operations, delivering financial and strategic value. Largest source of Among Cascades’ lowest Excellent source of market recovered fiber landed cost sources with intelligence, active in all fiber contributing about 25% of ability to raise value through
Slide 37: Recovery Operations
Recovery Operations Cascades recovery and recycling services & solutions provide our operations with the raw material they need, but also help our partners and customers to divert close to 40% of their waste from landfills. 4% 8% 24% 13% ~ 3.0 M s.t. ~ 2.3 M s.t. of fibre consumed, of fibre used by
Slide 38: Sustainability Action Plan 2021-2025
Sustainability Action Plan 2021-2025 Ambitious targets, a robust action plan, GHG reduction targets have been approved by the Science Based Targets initiative (SBTi). Climate Change 38.7% IN 2030 VS 2019 27.5% IN 2030 VS 2019 22% IN 2030 VS 2019 Respectful scopes 1 + 2, mills (kg of CO2 scopes 1 + 2
Slide 39: Quarterly Financial Results & KPIs
Quarterly Financial Results & KPIs (In M of CAN$, except per common share amounts, 20202 2021 2022 where noted) Year Q12 Q2 Q3 Q4 Year Q1 Q2 Q3 YTD5 LTM6 Financial Results Sales 4,105 942 956 1,030 1,028 3,956 1,038 1,119 1,174 3,331 4,359 Operating income (loss) 292 44 23 73 (90) 50 (4) 32 25 53 (3
Slide 40: Cash Flow Overview
Cash Flow Overview 20204 2021 2022 (In millions of CAN$, except per common share amounts) Year Q14 Q2 Q3 Q4 Year Q1 Q2 Q3 YTD5 LTM6 Cash flow from operations 458 82 87 58 20 247 19 81 60 160 180 Specific items1 15 4 2 12 31 49 7 — 2 9 40 Adjusted cash flow from operations2 473 86 89 70 51 296 26 81
Slide 41: Historical Reference Prices and Fibre Costs
Historical Reference Prices and Fibre Costs Source: RISI 41
Slide 42: Sensitivities
SENSITIVITIES1 SHIPMENTS / CONSUMPTION (‘000 s.t, ‘000 mm Btu for Natural Gas) INCREASE OIBD IMPACT (Annually, CAN$ M) SELLING PRICE2 (Manufacturing & Converting) Linerboard, Eastern US 400 US$25/s.t. 13 Corrugated Medium, Eastern US 330 US$25/s.t. 10 Converted Products 840 US$25/s.t. 26 Tissue Pape
Slide 43: Investor Relations Contact
www.cascades.com/investors Jennifer Aitken, MBA Director, Investor Relations 514-282-2697 / investor@cascades.com