Cascades Inc. · TSX:CAS
Cascades — NBF Annual Quebec Conference 2022
58 slides from Cascades's conference presentation, Jun 9, 2022
Slide 1: NBF Annual Quebec Conference
NBF Annual Quebec Conference TORONTO June 9, 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 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’ success by leading the way for sustainable packaging, hygie
Slide 4: Investment Thesis
Investment Thesis ✓ Robust 2022-2024 Strategic Plan focused on delivering: • OIBD1 margin of 11% - 13% in 2022 and 13% - 15% in 2024 • Free cash flow equal to 9% - 11% of revenue (post Bear Island project completion) • Capital expenditures limited to 4% of revenue in 2023 and 2024 • Leverage ratio o
Slide 5: Sustainability Is in Our DNA
SUSTAINABILITY IS IN OUR DNA Nearly 60 years ago, long before businesses began incorporating environmental principles into their practices, our company became a pioneer of the circular economy by making products from recycled materials. True to our values and dedicated to helping our customers reduc
Slide 6: Our Sustainable Products
Our Sustainable Products We have been making products from recycled materials for almost 60 years. Our Our markets We are aligned Our supply Our products operations are are growing with industry chain is are eco- sustainable trends responsible designed 6
Slide 7: Innovative and sustainable solutions
Innovative and sustainable solutions 7
Slide 8: Financial Performance
FINANCIAL PERFORMANCE The Covid-19 pandemic led to important fluctuations in demand, added significant inflationary pressure on costs and impacted labour availability… 8
Slide 9: Q1 2022 Overview
Q1 2022 Overview Main Variances Q1-2022 vs Q4-2021 : • Pricing & Mix: $35 million • Freight & Logistics: ($17) million • Volume & FX: ($8) million • Raw Material & Energy: ($11) million Demand: • Containerboard: Good market demand, slightly offset by lower converting order intake levels in Québec an
Slide 10: Q1 2022 Results
Q1 2022 Results (in millions of CAD$, except per share amounts) Q1 2022 Q4 2021 Q1 20212 Sales 1,038 1,028 942 Operating Income (4) (90) 44 Adjusted OIBD1 58 62 122 Net earnings (loss) (15) 105 22 Adjusted net earnings (loss) (15) (9) 29 Net earnings (loss) per common share ($0.15) $1.04 $0.22 Adjus
Slide 11: Selling Prices - Index Reference Prices
Selling Prices - Index Reference Prices Containerboard - Selected Products Current Specialty Products - Selected Products Current (US$/s.t.) (May-22) (May-22) (US$/s.t.) 935 1,050 865 Tissue Papers - Selected Products Current (US$/s.t.) (Apr-22) 1,656 1,323 Source: RISI 11
Slide 12: Recycled Fibre Costs – Index Prices
Recycled Fibre Costs – Index Prices OCC: ($ US/s.t.) Current • Stable market, good inventories at our mills (June-22) 243 • Favourable pricing trend sequentially; higher YoY • Persistent challenges with transportation • Export levels limited by port congestion and container availability; Ocean freig
Slide 13: Virgin Fibre Costs – Index List Prices
Virgin Fibre Costs – Index List Prices VIRGIN PULP: Current ($ US/s.t.) (May-22) • Supply impacted by multiple events: maintenance downtime, idling of production due to logistics 1,745 constraints, labour disruptions • Significant challenges with transportation: pulp tonnage 1,520 in transit remains
Slide 14: 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: $415 M1 Includes ~CAD$275 M for Bear Island conversion (1) Amount is subject to change depending on business and/or economic con
Slide 15: Financial Ratios & Debt Maturities
Financial Ratios & Debt Maturities Net Debt / Adjusted OIBD1,3 Interest Coverage Ratio2,3 5.0x 4.8x 6.7x 4.6x 4.7x 5.8x 6.0x 4.0x 3.8x 4.0x 3.6x 3.5x 3.5x 4.7x 4.6x 4.6x 4.3x 4.2x 2.5x 3.0x 3.4x 3.4x 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Q1 2012 2013 2014 2015 2016 2017 2018 2019 2020 20
Slide 16: Our Modernized Asset Base: Same Roots, Different Company
OUR MODERNIZED ASSET BASE Same Roots, Different Company 16
Slide 17: Strategically Repositioned
Strategically Repositioned Over the last 10 years, Cascades has repositioned our operations with 17 closures, 11 divestitures, 15 strategic transactions and 4 new projects, to meet evolving market dynamics and customer needs. 2012 2014 2016 2018 • Consolidated 3 box • Exited Kraft paper • Acquired 1
Slide 18: A Modernized Asset Base
A Modernized Asset Base Investments and modernization initiatives have improved the competitiveness* of our assets. CONTAINERBOARD CONTAINERBOARD CONTAINERBOARD Manufacturing (with Bear Island) Converting Sheeting 16% 20% 31% 36% Total 15% Total # of Capacity Capacity Machines 63% 6% 69% 44% Tier 1
Slide 19: Annual Historical Performance
Annual Historical Performance Our modernization initiatives, investments and strategy have delivered results, leading to significant and steady growth. SALES (in 000’s CAN$) ADJUSTED OIBD1 & OIBD MARGIN LEVERAGE RATIO (M CAN$, % of sales) 12.0% 12.6% 13.3% 11.0% 10.9% 10.5% 10.1% 9.9% 9.3% 9.8% 1,05
Slide 20: Capital Allocation
Capital Allocation In the last 5 years $2.1 billion of adjusted OIBD2 was generatedincludes ~ CAN$275 M for Bear Island conversion Source of Funds 2017 -2021 Use of Funds 2017 - 2021 $143 $188 Share Issuance $747 $592 Dividends & Share Repurchases Business Disposals Debt Repayment $1,417 $1,527 Capi
Slide 21: Packaging Businesses
PACKAGING BUSINESSES fresh: ries oe res . fres 18
Slide 22: Containerboard
Containerboard 6th largest containerboard producer in N.A. (CAN $ M) 600 14% 2,009 Annual capacity: 44% 2,000 1,918 1,840 1,827 1,575 k s.t. 54% 1,652 22.3% 24.1% 21.0% 500 86% 441 20.5% 1,500 410 403 400 Recycled Virgin Linerboard Medium 372 381 15.0% 328 321 300 1,000 247 230 200 Manufacturing Con
Slide 23: Containerboard
Containerboard Quarterly Operating Income & Adjusted OIBD1 (M CAN$) ➢ Lower first quarter 2022 shipments reflect record levels in prior year period, lower order intake in Quebec and Ontario in current period due to transportation constraints and customer erosion related to profitability initiatives.
Slide 24: Containerboard
Containerboard The North American market offers good returns and attractive growth potential Market share: top 4 players = 75%1 North American Capacity and Operating Rate2 • Forecasted 2021 - 2026 CAGR capacity growth of ~ 2.7% • Operating rate average ~93.0% over 2021 - 2026 51.8 51.0 Pratt +2.9% 4
Slide 25: Containerboard
Containerboard North American Containerboard Key Market Growth Drivers Expected Production Net Exports (M Tons) Containerboard consumption (M Tons) e-Commerce adoption • COVID-19 accelerated adoption amongst all + 2.8% population segments 6.2 6.4 6.1 5.9 5.0 5.6 • Consumer behavior changes, increase
Slide 26: Containerboard
Containerboard Box Shipment Growth1 Box Demand Growth Segmentation2 3% 3.5% 25% Agriculture, Food & Beverage 2.6% 2020-2025 Manufacturing 2.2% demand growth 1.9% + 46.7 B ft2 E-Commerce 1.8% 1.7% 57% 15% Retail, Wholesale & 1.0% Other 0.3% • Average box demand forecasted growth1: +2.0% (CAGR) 2021-2
Slide 27: Containerboard
Containerboard Our platform is well positioned to capitalize on market growth Distribution/E-com Produce Food Processing Consumer (CPG) Industrial (In MSF) Food processing Others 37% 2% Others 6% Produce Food 4% processing* CPG 48% Produce 7% 7% Cascades Industry Industrial CPG 8% Distribution/ 16%
Slide 28: Containerboard - Bear Island Project
Containerboard - Bear Island Project Full START DATE: 12/2022 ≤ 2021 2022 2023 2024 2025 potential PROJECT COST: $175 $210 $50 - - US $425 M - $450 M PRODUCTION RAMP UP ~ 70% ~ 94% ~ 97% 100% ANNUAL PRODUCTION (‘000 s.t.) ~ 330,000 ~ 435,000 ~ 450,000 ~ 465,000 OIBD1 (US$M) ~$40-$55 ~$70-$85 ~$80-$9
Slide 29: Containerboard - Bear Island Project Update
Containerboard - Bear Island Project Update With our investment in Bear Island, we have significant growth opportunity to meet market demand. (in millions of Canadian dollars unless otherwise specified) STATUS PROJECT COST US $425 - $450 M On track INVESTMENT TO DATE US $188 M ($241 M) On track STAR
Slide 30: Specialty Products
Specialty Products3 Comprehensive Packaging Solutions Provider Focused on Strategic Scalable Markets 2021 sales of $548 M increased 16% from 2020 (CAN $ M) 600 100 548 90 492 500 473 13.1% 80 74 12.7% 70 34% 400 358 11.2% 37% 339 2021 2021 60 59 60 sales 55 sales 300 50 63% 66% 10.0% 9.2% 42 40 200
Slide 31: Specialty Products
Specialty Products Quarterly Operating Income & Adjusted OIBD1 (M CAN$) ➢ Q1 2022 adjusted OIBD1 of $22 M was the second consecutive record quarterly level, and increased 5% sequentially and 22% versus prior year ➢ Industrial packaging: results benefited from improved selling price and more favourab
Slide 32: 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 33: Specialty Products
Specialty Products Our sustainable packaging solutions are aligned with growing market segments. (1) Sources: Freedonia "Molded Pulp Packaging" USA, April 2020; Freedonia "Egg Cartons" USA, Retail, July 2020; Freedonia "Fresh Produce" USA, Retail, March 2021; Freedonia "Case Ready Fresh Protein Pack
Slide 34: Tissue Papers Business
TISSUE PAPERS BUSINESS 34 34
Slide 35: Tissue Papers
Tissue Papers 4th largest tissue producer in N.A. (CAN $ M) 25% 2,000 300 32% USA 2021 2021 Recycled Annual Annual 250 Canada Sales Sales Virgin 1,615 68% 1,600 1,509 200 75% 10.8% 1,352 175 1,268 1,272 150 1,200 7.4% 5.7% 94 100 86 72 2.1% 1.3% 50 800 28 27 17 6 0 Retail Away-from- Parent -37 -50 T
Slide 36: Tissue Papers
Tissue Papers More than $400 M invested between 2017 – 2021 to strengthen and modernize our platform. 2022 2019 ACTION EQUIPMENT CAPACITY 17% 9% 9% 26% 4 paper machines 104 K s.t. Closed 22% 48% 7 facilities 10% 28 converting lines 16 M cases 82% 18% 13 converting lines (6 Added sites) 15 M cases 62
Slide 37: Tissue Papers – What happened in 2021?
Tissue Papers – What happened in 2021? Volume + raw material headwinds accounted for 80% of the reduction in adjusted OIBD1 (CAN$ Millions) Covid-19 had a significant disruptive and unpredictable impact on demand & production Average US Monthly Parent Roll Capacity & Production2 (‘000 s.t.) US Tissu
Slide 38: Tissue Papers – What happened in 2021?
Tissue Papers – What happened in 2021? Our US and Canadian businesses are interconnected 52% of our annual capacity is in the US… …while 64% of our 2021 volume was sold in the U.S. …. in 2021 only 47% came from there Annual Capacity: 2021 Volume Shipped: 80M cases Production 57 M cases 64% 25% 31% 3
Slide 39: Tissue Papers
Tissue Papers ➢ Continued to see positive demand level momentum for Quarterly Operating Income & Adjusted OIBD1 (M CAN$) both Away-from-Home and Retail tissue as effects of pandemic stabilize and economic reopening continues. ➢ Significant increase in input and logistics costs during the quarter imp
Slide 40: Tissue Papers – Strategic Plan Update
Tissue Papers – Strategic Plan Update • Our plan is progressing as expected despite significant 1 additional cost headwinds in recycled fibre, virgin pulp and $60 - $80 M energy (~$15 M) and transportation (~$35 M). 2022 target of 65-70 M cases is now revised to ~64 M. • Profitability initiatives, a
Slide 41: Tissue Papers
Tissue Papers The majority of our retail tissue business is in growing retail segments. (5-year CAGR) Total Paper Private Label Cascades Others 5% 3% 4% 1% Drug: (0.5%) 4% 4% 1% • ~60% of Private Label volume is sold in Club 5% 5% Online: 22.6% 4% 11% and Mass Merchandiser customer segments 5% Dolla
Slide 42: Tissue Papers
Tissue Papers Tissue Capacity1 Key Market Growth Drivers3 (‘000 tonnes) Retail 10,000 • Premiumization; demand for Ultra and + 1.1% + 0.3% Premium product segments + 2% 9,600 72% • Consumers increasingly brand agnostic, 9,200 willing to purchase private label 8,800 Away-from-Home 8,400 (AFH) 2017 20
Slide 43: Where We Are Going
WHERE WE ARE GOING Our 2022-2024 Strategic Plan outlines our detailed actionable objectives – Our Path Forward 43
Slide 44: 2022 Outlook
2022 OUTLOOK Good demand dynamics for Price of natural gas Packaging products Announced selling price increases Availability and cost of in all business segments logistics Return to normalized demand levels in the Raw material costs, tissue as the reopening of the economy particularly white recycled
Slide 45: 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 46: 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 47: 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 CAPEX: ~ $415 M in 2022 (incl. $275M for Bear Island) 3 ~ 4% of revenue in 2023 -
Slide 48: Appendices
APPENDICES 48
Slide 49: Recovery Operations
Recovery Operations A natural extension of our operations, delivering financial and strategic value. Largest source of Among Cascades’ lowest Excellent source of market recovered fiber landed cost sources with intelligence, active in all fiber contributing about 25% of ability to raise value through
Slide 50: Recovery Operations
Recovery Operations Cascades recovery and recycling services & solutions provide our operations with the raw material they need, but also help our partners and customers to divert close to 40% of their waste from landfills. 4% 8% 24% 13% ~ 3.0 M s.t. ~ 2.3 M s.t. of fibre consumed, of fibre used by
Slide 51: Sustainability Accomplishments
Sustainability Accomplishments We have been recognized for our sustainable business practices and focus on our employees. 51
Slide 52: Driving Positive Change
Driving Positive Change Our track record and our sustainability action plan both show we are solutions driven, and we can enable our customers to reduce their footprint through our value-added eco-friendly products and services. Where We Are Where We’re Going 50% greenhouse gas (GHG) intensity ESG s
Slide 53: Sustainability Action Plan 2021-2025
Sustainability Action Plan 2021-2025 Ambitious targets, a robust action plan, GHG reduction targets have been approved by the Science Based Targets initiative (SBTi). Climate Change 38.7% IN 2030 VS 2019 27.5% IN 2030 VS 2019 22% IN 2030 VS 2019 Respectful scopes 1 + 2, mills (kg of CO2 scopes 1 + 2
Slide 54: Quarterly Financial Results & KPIs
Quarterly Financial Results & KPIs 20202 2021 2022 (In millions of CAN$, except per common share amounts, where noted) Q1 Q2 Q3 Q4 Year Q12 Q2 Q3 Q4 Year Q1 FINANCIAL RESULTS Sales 1,041 1,020 1,014 1,030 4,105 942 956 1,030 1,028 3,956 1,038 Operating income (loss) 70 64 54 104 292 44 23 73 (90) 50
Slide 55: Cash Flow Overview
Cash Flow Overview 2020 4 2021 2022 (In millions of CAN$, except per common share amounts) Q1 Q2 Q3 Q4 Year Q1 4 Q2 Q3 Q4 Year Q1 Cash flow from operations 124 125 78 131 458 82 87 58 20 247 21 Specific items1 — — 9 6 15 4 2 12 31 49 7 Adjusted cash flow from operations2 124 125 87 137 473 86 89 70
Slide 56: Historical Reference Prices and Fibre Costs
Historical Reference Prices and Fibre Costs Source: RISI 56
Slide 57: Sensitivities
SENSITIVITIES1 SHIPMENTS /CONSUMPTION (‘000 s.t, ‘000 mm Btu for Natural Gas) INCREASE OIBD IMPACT (in CAN$ M) 2 SELLING PRICE (Manufacturing & Converting) Linerboard, Eastern US 400 US$25/s.t. 13 North Corrugated medium, Eastern US 330 US$25/s.t. 10 America Converted products 840 US$25/s.t. 26 Tiss
Slide 58: Investor Relations Contact
www.cascades.com/investors Jennifer Aitken, MBA Director, Investor Relations 514-282-2697 / investisseur@cascades.com