Cascades Inc. · TSX:CAS
Cascades — Non-Deal Roadshow (May 2014)
31 slides from Cascades's roadshow presentation, May 26, 2014
Slide 1: Institutional Investor Roadshow – Western Canada
CASCADES INC. Institutional Investor Roadshow – Western Canada May 26-27, 2014
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: Introduction
INTRODUCTION Where we come from ü • Unique culture – green visionaries, turnarounds, entrepreneurial philosophy • Business model challenged by strong CAD$ and higher recycled fibre costs Our recent performance and financial situation • Cost inflation in 2011/2012 but less volatile cost environment
Slide 4: Overview of our operations: green packaging and tissue product offering
OVERVIEW OF OUR OPERATIONS Green packaging and tissue product offering Packaging Products Tissue Papers Containerboard Boxboard Europe Specialty Products 1st containerboard 2nd 1st 1st tissue paper producer in Canada producer in Canada producer paper collector in 6th in North America in Europe Canad
Slide 5: Overview of our operations: closed-loop business model
OVERVIEW OF OUR OPERATIONS Closed-loop business model 100+ business units 77% recycled fibre (3.0M tons) NA integration rate (2013): CLIENTS 20 units 27% (0.55M tons) 34 units2 Trims and rejects sent to recycling centers NA integration rate (2013): • Containerboard Group1 56% 58 units2 • Tissue Pape
Slide 6: Overview of our operations: balanced play in less cyclical sectors
OVERVIEW OF OUR OPERATIONS Balanced play in less cyclical sectors Cascades Q1-2014 LTM Sales: $3,929M Q1-2014 LTM EBITDA: $364M Q1-2014 LTM EBITDA Margin: 9% Packaging Products Tissue Papers 74% of Sales 26% of Sales 69% of EBITDA 31% of EBITDA EBITDA Margin: 12% Containerboard Boxboard Europe Speci
Slide 7: Our financial performance: historical performance
OUR FINANCIAL PERFORMANCE Historical performance (M CAN$) SALES (M CAN$) EBITDA 364 4,500 400 2 352 3,849 3,929 310 304 4,000 300 3,625 3,645 229 3,500 200 3,182 1 3,000 100 2,500 0 2010 2011 2012 2013 LTM 2010 2011 2012 2013 LTM 03/31/2014 03/31/2014 IFRS IFRS EBITDA excluding specific items. Note
Slide 8: Historical segmented EBITDA
OUR FINANCIAL PERFORMANCE Historical segmented EBITDA (M CAN$) Containerboard (% of sales) (M CAN$) Boxboard Europe (% of sales) 46 48 16% 28 16% 42 33 33 21 23 36 12% 21 12% 26 25 25 24 21 23 8% 14 13 8% 11 11 11 10 9 7 12 4% 7 4% 0 0% 0 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2012
Slide 9: Our business drivers – prices
OUR BUSINESS DRIVERS – PRICES Containerboard - Selected Products Tissue Papers - Selected Products (US$/s.t.) (US$/s.t.) (US$/s.t.) 800 1 600 800 1 500 750 700 1 400 1 300 600 700 1 200 500 650 1 100 1 000 400 600 900 300 Virgin parent rolls Linerboard 42-lb 800 550 Recycled parent rolls 200 Corruga
Slide 10: Our business drivers – raw material costs
OUR BUSINESS DRIVERS – RAW MATERIAL COSTS Recycled Fiber North American List US OCC Costs Highly Correlated with Prices Asian Board Market (US$/ton) 300 4,500 300 250 4,000 250 Current 200 (May) 3,500 200 150 160 3,000 150 100 110 2,500 100 50 2,000 50 July 11 July 12 July 13 Jan 11 Jan 12 Jan 13 Ja
Slide 11: Our business drivers – raw material strategy
OUR BUSINESS DRIVERS – RAW MATERIAL STRATEGY Our North American Recycled Fibre Supply Our Strategy • Short term: 2013 • constant review of our inventory strategy Cascades Currently control • Long term: Recovery and over 60% of our Internal Spot Purchase • ensure control over fiber supply fibre suppl
Slide 12: Our business drivers – energy and FX
OUR BUSINESS DRIVERS – ENERGY AND FX A prolonged weakness of the CAN$ Energy costs higher than last year would be a game changer Natural gas Crude oil (US$) (US$) US$/CAN$ Euro€/CAN$ 8.00 110 1.10 0.95 7.00 100 1.05 0.90 6.00 90 1.00 0.85 5.00 0.95 0.80 80 4.00 0.90 0.75 3.00 70 0.85 0.70 2.00 60 0.
Slide 13: Our strategic action plan: four priorities
OUR STRATEGIC ACTION PLAN Four priorities 1 2 3 4 Modernize Optimize Innovate ACTION PLAN core operations capital Restructure to improve and PRIORITIES through allocation and underperforming develop focused reduce working units processes and investments capital products MEDIUM Improve our ROCE to re
Slide 14: Modernize core operations through focused investments
1 Modernize core operations through focused investments Initiatives undertaken since the beginning of our Action Plan Containerboard – Manufacturing • Construction of the Greenpac linerboard mill in Niagara Falls, NY Containerboard – Converting • Consolidation of our platform in Ontario Boxboard – •
Slide 15: Our new Greenpac linerboard mill
OUR NEW GREENPAC LINERBOARD MILL Key Facts Ramp-up Highlights • Largest recycled linerboard mill in NA: • Satisfied with productivity and board quality • 1,500 s.t./day of lightweight • Average production Q1-2014: 944 tons/day recycled linerboard (26 pounds) • Produced to capacity for a few days in
Slide 16: Illustrative Greenpac contribution to EPS
ILLUSTRATIVE GREENPAC CONTRIBUTION TO EPS Cascades' EPS (excluding specific items) 2011 ($0.14) 2012 $0.05 2013 $0.31 LTM 03/31/2014 $0.36 Greenpac Depreciation Income Net CAS' CAS' share of Impact on Value per share EBITDA & Interest tax (39%) income interest income Cascades using 7x (M$) (M$) (M$)
Slide 17: The containerboard market
THE CONTAINERBOARD MARKET Changing landscape: Leading 3 North American Producers representing 62% of the market % of total capacity 2007 Industry Participants 2013 Industry Participants Smurfit Stone 20% IP 33% v Weyerhaeuser 16% v Rock Tenn 19% w IP 11% w Koch/GP 10% x Georgia Pacific 11
Slide 18: Optimize capital allocation and reduce working capital
2 Optimize capital allocation and reduce working capital Selected initiatives undertaken since the beginning of our Action Plan Corporate – Working cap initiative Tissue Papers – Western US • Acquisition and conversion of Boise LTM Working Capital (% of LTM Sales) paper machine next to our existing
Slide 19: The tissue papers market
THE TISSUE PAPERS MARKET Future capacity additions CAGR of 1.9%, not Top 5 – North American Tissue so far from annual consumption growth Producers 9,400 211 9,352 % of total capacity 9,200 470 9,141 Koch/GP 29% 9,000 v P&G 16% 8,800 157 8,671 w Kimberly-Clark 15% 8,600 149 8,514 x Cascades 7%
Slide 20: Our positioning in the tissue papers segment
OUR POSITIONNING IN THE TISSUE PAPERS SEGMENT Cascades’ Tissue Papers 2013 Sales – Cascades’ Tissue Papers 2013 Sales – End-Users Countries Canada (30%) AfH Retail 38% AfH 47% Retail 53% branded 40% 45% Parent rolls 15% US (70%) Branded 96% Private 14% AfH Retail private label Branded 48% 52% label
Slide 21: Our equity investment in Boralex
OUR EQUITY INVESTMENT IN BORALEX • Valuation does not fully reflect growth potential • Current BLX share price: ~ $14.00 - represents ± $2.00/share for CAS Boralex has tremendous pipeline of projects 1 Refer to Boralex’s presentations 2 Refer to Boralex’s presentations 21
Slide 22: Our interest in Reno and our European platform
OUR INTEREST IN RENO AND OUR EUROPEAN PLATFORM • Results from 2007 transaction: we received a 31% interest in exchange for our recycled mills • We now own ~58% of public Italian company (fully consolidated in our EBITDA) • Allowed for rationalization of production capacity and amalgamation of sales
Slide 23: Restructure underperforming units
3 Restructure underperforming units Difficult decisions taken since the beginning of our Action Plan • 14 closures • Containerboard: 1 manufacturing mill + 5 converting plants • Boxboard North America: 1 converting plant • Boxboard Europe: 2 mills + 1 paper machine; closure of our Sweden boxboard mi
Slide 24: Innovate to improve and develop processes and products
4 Innovate to improve and develop processes and products Ultrafit – Antibacterial Moka – Cup tray Towel Beige bath tissue Won prestigious HAVI Won prestigious Global Supplier of the Innovative Technology EVOKTM – Polystyrene foam Year and McDonald’s by Novation packaging using recycled System First
Slide 25: Our Specialty Products Group
OUR SPECIALTY PRODUCTS GROUP 2013 sales of $965M in four main sectors of activities (including joint ventures) Recycling and Recovery (20 units) Specialty Papers (6 units) • 32% of sales • 37% of sales • Largest recycled • Eco-friendly fine and paper collector in security papers Canada Industrial Pa
Slide 26: Our financial situation: investment program
OUR FINANCIAL SITUATION Investment program • Capital expenditures for 2013 stood at $172M Capital Expenditures Distribution ($157M excluding IT) for FY2013 - $157M • 2014 level to revolve around $160M, including IT • Including ~$60-70M of maintenance capex By segment • Amount subject to change depen
Slide 27: Financial ratios & debt maturities
OUR FINANCIAL SITUATION Financial Ratios & Debt Maturities Long-term Debt Maturities Distribution 2016 47% 2020 18% 2017 35% Net debt / LTM EBITDA Interest Coverage Ratio 7.0x 5.0x 4.6x 5.8x 6.0x 4.0x 3.4x 3.4x 5.0x 4.6x 4.7x 2.9x 3.0x 5.0x 3.0x 4.5x 2.5x 4.0x 2.0x 3.3x 3.0x 1.0x 2009 2010 2011 2012
Slide 28: Net debt reconciliation
OUR FINANCIAL SITUATION Net Debt Reconciliation (M CAN$) +11% 1,750 170 1,708 1,700 1,650 1,600 1,550 1,535 125 1,500 1,450 88 1,400 1,350 57 1,300 19 1,250 (286) 1,200 Net Debt Cash flow Dividends Var. in non- Investments F/X Rate Capital Net Debt 12/31/2012 from op. paid cash work. and others inve
Slide 29: Illustrative sum-of-the-parts valuation analysis
ILLUSTRATIVE SUM-OF-THE-PARTS VALUATION ANALYSIS Comparable Companies Illustrative Cascades’ Selected Illustrative Trading Range 1 LTM EBITDA Multiple Value TEV/LTM EBITDA (M$ rounded, net corp. activities) (conservative) (M$ rounded)• • Tissue Papers 8.5x – 11.5x 124 7.5x 930 • Containerboard 6.5x
Slide 30: Potential benefits stemming from our recent initiatives
POTENTIAL BENEFITS STEMMING FROM OUR RECENT INITIATIVES Modernizing our operating platform to increase profitability • ±$150M capex program per year, including ERP upgrade • Divestitures and closures of under-performing units ü • Containerboard: great fundamentals and improved platform • Modernized
Slide 31: Notes
NOTES 1. Comparable companies include: - Graphic Packaging, IP, Kapstone, Meadwestvaco, Packaging Corp. and Rock Tenn for Containerboard. - KP Tissue, Clearwater Paper, Kimberly-Clark and Orchids Paper for Tissue Papers. Wausau Papers trailing multiple not considered. - Holmen, Mayr Melhnof , Mesta