Cascades Inc. · TSX:CAS
Cascades — NBF Québec Conference 2013
36 slides from Cascades's conference presentation, Jun 5, 2013
Slide 1: Cascades Inc. NBF Québec Conference
CASCADES INC. NBF Québec Conference June 5, 2013
Slide 2: Introduction
INTRODUCTION Where we come from • Unique culture – green visionaries, opportunistic turnarounds, importance of autonomy and empowerment, open book and profit sharing, decentralized structure • Business model challenged with dollar at parity and volatile recycled fibre costs Our recent performance
Slide 3: 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 Leading NA packaging and tissue manufacturer with substantial recycling capabilities 3
Slide 4: Closed-loop business model
OVERVIEW OF OUR OPERATIONS Closed-loop business model 100+ business units 77% recycled fibre (2.9M tons) NA integration rate (2012): CLIENTS 23 units 34% (520K tons) 32 units May be sent to recycling centers NA integration rate (2012): •Containerboard Group 56% 58 units •Tissue Papers Group 69% Upst
Slide 5: Balanced play in less cyclical sectors
OVERVIEW OF OUR OPERATIONS Balanced play in less cyclical sectors Cascades 2013 LTM Sales: $3,668M 2013 LTM EBITDA: $300M Packaging Products Tissue Papers 74% of Sales 26% of Sales 58% of EBITDA 42% of EBITDA Containerboard Boxboard Europe Specialty Products 32% of Sales 21% of Sales 21% of Sales 31
Slide 6: Historical performance
OUR FINANCIAL PERFORMANCE AND SITUATION Historical performance (M CAN$) Sales (M CAN$) EBITDA 4,500 500 465 2 3,929 4,017 1 4,000 3,877 400 350 2 3,625 3,645 3,668 315 310 306 304 300 3,500 1 300 3,278 3,182 229 3,000 200 2,500 100 2006 2007 2008 2009 2010 2011 2012 03/31/13 2006 2007 2008 2009 2010
Slide 7: Historical segmented EBITDA
OUR FINANCIAL PERFORMANCE AND SITUATION Historical segmented EBITDA Containerboard Boxboard Europe Containerboard Boxboard Europe (M CAN$) (% of sales) (M CAN$) (% of sales) 30 12.0% 20 12.0% 27 26 17 25 25 25 23 9.0% 15 9.0% 21 13 11 11 11 20 19 10 10 20 6.0% 10 7 6.0% 15 3.0% 5 3.0% 10 0.0% 0 0.0%
Slide 8: Key performance indicators (KPIs)
OUR FINANCIAL PERFORMANCE AND SITUATION Key performance indicators (KPIs) ('000 s.t.) Total Shipments Capacity Utilization Rate 1000 95% 92% 875 92% 808 826 804 809 831 90% 89% 750 89% 87% 88% 625 86% 500 83% Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 2012 2012 2012 2012 2013 2012 2012 2012 2012 2013 Containerbo
Slide 9: Our debt profile
OUR FINANCIAL PERFORMANCE AND SITUATION Our debt profile Maturities well spread out Objective: reduce debt below long term average • Banking Facilities: $422M • Increase in ratios due to challenging FY2011 and • Senior Notes: $958M modernization program • Other Debt (net): $201M • Total Net Debt: $1
Slide 10: Investment program
OUR FINANCIAL PERFORMANCE AND SITUATION Investment program • Capex requests for 2013 initially approved at Capital Expenditures Distribution approximately $175M in 2012 - $198M • First allocation of $150M • Including ~$60-70M of maintenance By segment capex Container- • Amount subject to change depe
Slide 11: Raw material costs
OUR BUSINESS DRIVERS Raw material costs (US$/ Main Recycled Fiber North Amercian OBM (US$/tonne) Virgin Pulp Prices ton) List Prices 300 1,100 Current 250 1,000 200 Current 900 930 150 150 800 835 100 100 700 50 600 May 13 Jan 11 July 12 Apr 11 Oct 11 July 11 Jan 12 Jan 13 Apr 12 Apr 13 Oct 12 Jan 1
Slide 12: Raw material dynamics
OUR BUSINESS DRIVERS Raw material dynamics Our North American Recycled Fibre Supply Our strategy • Short term: 2012 • constant review of our inventory Cascades strategy Recovery • prepare for Greenpac project to Currently control and Internal minimize market disruption over 80% of our Spot fibre sup
Slide 13: Cost structure and FX
OUR BUSINESS DRIVERS Cost structure and FX Raw materials, energy & supplies = 62% of 2012 COGS A weaker CAN$ would be a game changer US$/CAN$ €/CAN$ 1.10 0.85 Supplies and chemicals Raw material 1.05 0.80 12% and Maintenance consumables 7% 32% 1.00 0.75 Freight 8% 0.95 0.70 Energy 0.90 0.65 Q2-10 Q3
Slide 14: Our strategic action plan: Four priorities
OUR STRATEGIC ACTION PLAN Four priorities 1 2 3 4 Modernize Innovate Optimize ACTION PLAN core operations Restructure to improve and capital allocation PRIORITIES (and IT) through underperforming develop and reduce focused units processes and working capital investments products MEDIUM TERM Improve
Slide 15: Modernize core operations (and IT) through focused investments
1 Modernize core operations (and IT) through focused investments Initiatives undertaken since the beginning of our Action Plan • Construction of the Greenpac linerboard mill in Containerboard – Manufacturing Niagara Falls, NY Containerboard – Converting • Consolidation of our platform in Ontario Box
Slide 16: Our new Greenpac linerboard mill
OUR NEW GREENPAC LINERBOARD MILL Operational Facts Financial Structure • Largest recycled linerboard mill in NA: • $99M total investment (represents ± $1.05/share) • 328 inches • Debt non-recourse to Cascades • 1,500 s.t./day of lightweight recycled Partners Ownership linerboard (26 pounds) Cascades
Slide 17: Our containerboard converting platform in Ontario
OUR CONTAINERBOARD CONVERTING PLATFORM IN ONTARIO Objective: • Acquisition of Bird Before Now maintain our # of plants 8 7 • Closure of 3 units leading position in Ontario with • Invest $30M to Average a fully utilized modernize and capacity 725 840 state-of-the-art increase capacity at per plant co
Slide 18: The containerboard market
THE CONTAINERBOARD MARKET Changing landscape: Leading 3 North American Producers representing 68% of the market % of total capacity 2007 Industry Participants 2013 Industry Participants Smurfit Stone 20% IP 35% Weyerhaeuser 16% Rock Tenn 20% IP 11% Koch/GP 11% Georgia Pacific 11% PCA
Slide 19: The containerboard market: price increases
THE CONTAINERBOARD MARKET Two US$50/s.t. price increases since fall Market tightness supporting 2nd increase (US$/s.t.) (US$/s.t.) Ratio 1,100 850 16 20-pt clay coated news (CRB) Linerboard 42-lb 1,000 Corrugating medium 26-lb 750 15 900 14 800 650 13 700 550 12 600 450 11 500 400 350 10 Nov-09 Nov-
Slide 20: Optimize capital allocation and reduce working capital
2 Optimize capital allocation and reduce working capital Selected initiatives undertaken since the beginning of our Action Plan Tissue Papers – Converting Corporate • Acquisition of remaining interest in • Working capital reduction initiative Papersource Working Capital to Sales 16% • One of the mos
Slide 21: Our positioning in the tissue papers segment
OUR POSITIONNING IN THE TISSUE PAPERS SEGMENT Cascades’ Tissue Papers 2012 Sales – End-Users Cascades’ Tissue Papers 2012 Sales – Countries Canada (28%) Retail AfH AfH Retail 36% 45% 39% 46% 54% branded Parent rolls 16% US (72%) Branded 16% AfH Retail 90% Private 47% private label Branded 53% 43% la
Slide 22: The tissue papers market
THE TISSUE PAPERS MARKET US tissue consumption grows steadily, Upward trend in parent rolls price linked to based on demographics higher raw materials U.S. Total Tissue Consumption (US$/s.t.) +1.5% CAGR ('000 s.t.) 8,600 1,600 8,472 1,500 8,400 8,319 1,400 8,201 8,219 8,200 1,300 8,053 8,028 1,200 8
Slide 23: The tissue papers market: capacity and producers
THE TISSUE PAPERS MARKET Capacity additions in the tissue sector close to 1.5-2.0% consumption growth Top 5 – North American Tissue Producers % of total capacity ('000 s.t.) +2.4% CAGR 10,000 9,500 356 Koch/GP 30% 531 9,165 P&G 17% 9,000 8,543 (265) Kimberly-Clark 16% 8,500 Cascades 7% 8,000
Slide 24: Divestiture to finance other growth initiatives
DIVESTITURE TO FINANCE OTHER GROWTH INITIATIVES (M CAN$) Increase in debt since 2010 essentially related to consolidation of Reno ($149M) 1,700 1,600 44 1,535 1,500 83 1,397 99 1,400 250 1,300 1,200 1,100 278 (298) 1,000 900 800 (287) (20) 700 (11) Net Debt Dopaco Cash flow Var. of $CAN Acqu. & Cape
Slide 25: Restructure underperforming units
3 Restructure underperforming units Difficult decisions taken since the beginning of our Action Plan • 12 closures • Containerboard – Manufacturing Burnaby mill • Containerboard – Converting Le Gardeur, Leominster, 3 mills Greater Toronto Area • Spec. Prod. – Manufacturing East Angus pulp mill, Envi
Slide 26: Our interest in Reno and our European platform
OUR INTEREST IN RENO AND OUR EUROPEAN PLATFORM Reno is a turnaround story • Results from 2007 transaction: we received a 31% interest in exchange for our CRB mills • We now own ~50% of public Italian company (fully consolidated in our results) • Allowed for rationalization of production capacity and
Slide 27: Innovate to improve and develop processes and products
4 Innovate to improve and develop processes and products Moka – Ultrafit – Antibacterial Beige bath tissue Cup tray Towel Won prestigious HAVI Won prestigious Edison Global Supplier of the Award Gold Medal EVOKTM – Polystyrene Year and McDonald’s foam packaging using System First Award recycled mate
Slide 28: Our Specialty Products Group
OUR SPECIALTY PRODUCTS GROUP LTM sales of $960M in four main sectors of activities (including joint ventures) Recycling and Recovery (23 units) Specialty Papers (6 units) • 30% of sales • 30% of sales • Largest recycled • Eco-friendly fine and paper collector in security papers Canada Industrial Pac
Slide 29: Recent share price performance and analyst recommendations
INVESTMENT CONSIDERATIONS Recent share price performance and analyst recommendations LTM share price performance Brokerage EBITDA EPS Rating Target $5.25 2,500 firm 2013 2013 BMO Outperform 5.00 317 $0.37 $5.00 2,100 Desjardins Buy 6.00 314 $0.16 $4.75 1,700 NBF Outperform 5.25 322 $0.22 $4.50 1,300
Slide 30: Valuation metrics
INVESTMENT CONSIDERATIONS Valuation metrics Comparable Entreprise Price / BV EV / EBITDA EV / EBITDA P/E Dividend Sector companies Value (M$) (LTM) (next) (next) yield (%) Graphic Packaging US$5,110 2.8x 8.2x 7.0x 16.2x 0.0% Kapstone US$1,746 2.6x 9.8x 6.3x 14.0x 6.8% Meadwestvaco US$8,052 1.9x 10.7
Slide 31: Illustrative sum-of-the-parts valuation analysis
INVESTMENT CONSIDERATIONS Illustrative sum-of-the-parts valuation analysis Comparable Companies Illustrative Cascades’ Selected Illustrative Trading Range LTM EBITDA2 Multiple Value TEV/LTM EBITDA1 (M$ rounded, net corp. activities) (conservative) (M$ rounded) • Tissue Papers 7.0x – 12.0x 129 7.5x 9
Slide 32: Our equity investments - Boralex
INVESTMENT CONSIDERATIONS Our equity investments - Boralex • No capital allocated to Boralex; valuation does not fully reflect growth potential • Current BLX share price: $11.00 - represents ±$1.50/share for CAS Analyst Recommendations Average target 1 top pick 13.00$ 4 buys or outperforms ~12.40$ 1
Slide 33: Conclusion
CONCLUSION Potential Benefits Stemming From Our Recent Initiatives Modernizing our operating platform to increase profitability • ±$150M capex program per year • divestitures and closures of under-performing units • ERP upgrade Containerboard: great fundamentals and improved platform • modernize
Slide 34: Appendix
APPENDIX ww} Cascades PREEN BY NATURE”
Slide 35: 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 36: Notes
NOTES 1. Comparable companies include: - Graphic Packaging, Greif, IP, Meadwestvaco, Packaging Corp., Rock Tenn for Containerboard. - KP Tissue, Clearwater Paper, Kimberly-Clark and Orchids Paper for Tissue Papers. Wausau Papers trailing multiple not considered. - Reno de Medici’s current market mul