Cascades Inc. · TSX:CAS
Cascades — Investor Presentation (October 2014)
30 slides from Cascades's investor presentation, Oct 14, 2014
Slide 1: Institutional Investor Meeting – Montréal
CASCADES INC. Institutional Investor Meeting – Montréal October 14, 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: Company Overview: Balance Play in Healthier Sectors of the Paper Industry
COMPANY OVERVIEW Balance Play in Healthier Sectors of the Paper Industry FY 2013 Net Sales $3.7 billion1 • Founded in 1964 and headquartered in Kingsey Falls, QC Segment Sales Breakdown 1 • Produces, converts and markets packaging and tissue products principally composed of 16% Containerboard recycl
Slide 4: Leading Packaging and Tissue Paper Manufacturer
COMPANY OVERVIEW Leading Packaging and Tissue Paper Manufacturer Packaging Products Tissue Papers Containerboard Boxboard Europe Specialty Products • Leading containerboard • # 2 producer in Europe • Largest paper collector in • Leading tissue paper Market Position producer in Canada Canada producer
Slide 5: Closed-loop Business Model
COMPANY OVERVIEW Closed-loop Business Model Recovery Manufacturing2 • 20 units 77% recycled fibre (3.0M tons) • Containerboard 8 units NA integration rate (2013): • Boxboard Europe: 7 units 27% (0.55M tons) • Specialty Products: 3 units • Tissue Papers: 12 units 30 units CLIENTS NA integration rate
Slide 6: Business Drivers: Price Dynamics
BUSINESS DRIVERS Price Dynamics Containerboard - Selected Benchmarks Tissue Papers - Selected Benchmarks (US$/s.t.) (US$/s.t.) 750 1,600 700 1,500 650 1,400 600 1,300 550 1,200 500 1,100 450 1,000 Linerboard 42-lb 400 900 Virgin parent rolls Corrugating medium 26-lb Recycled parent rolls 350 800 May
Slide 7: Business Drivers: Shipments
BUSINESS DRIVERS Shipments1 (s.t.) Containerboard (s.t.) Boxboard Europe 360 300 286 287 290 334 337 273 283 340 280 324 267 263 320 314 260 309 247 249 297 298 293 296 300 240 280 220 260 200 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2012 2012 2012 2013 2013 2013 2013 2014 2014 2012 201
Slide 8: Business Drivers: Foreign Exchange Rates
BUSINESS DRIVERS Foreign Exchange Rates Foreign exchange – Historical Foreign exchange – Forecasts US$/CAN$ Euro€/CAN$ Average 1 Q4 14 Q1 15 Q2 15 2015 1.10 0.95 CAN$/US$ 1.11 1.12 1.14 1.14 1.05 0.90 CAN$/EURO 1.42 1.42 1.43 1.41 1.00 0.85 0.95 0.80 0.90 0.75 0.85 0.70 0.80 0.65 • Sensitivity to ev
Slide 9: Business Drivers: Costs
BUSINESS DRIVERS Costs Costs of sales by nature (LTM Q2-2014)1 North American Fiber List Prices (US$/ton) 1,050 Raw materials 950 Chemicals and 850 12% production supplies 750 6% Wages and employee 33% 650 benefits expenses Jan 12 Jan 13 Jan 14 July 11 Oct 11 Apr 12 July 12 Oct 12 Oct 13 Apr 13 July
Slide 10: Raw Materials: Reliable Sourcing Strategy
RAW MATERIALS Reliable Sourcing Strategy Cascades’ North American Recycled Fiber Supply Our Strategy • Short term: 2013 • constant review of our inventory strategy Spot Purchase 37% • Long term: Cascades Contractual • ensure control over fiber supply with Recovery and Agreement potential increase of
Slide 11: Containerboard: Attractive Market Conditions
CONTAINERBOARD Attractive Market Conditions Fundamentals remain strong despite Top-3 Producers = 63% of capacity added capacity 2014 Industry Participants Operating Rates IP 33% 100% 90% Rock Tenn 20% 80% 70% Koch/GP 10% 60% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 PCA 9% 2007 2008 2009 2010 2011 2012 2013 2
Slide 12: Containerboard: Our Strategic Move: Greenpac
CONTAINERBOARD Our Strategic Move: Greenpac • Largest recycled linerboard mill in NA: 1,500 s.t./day of lightweight recycled linerboard (26 pounds) • Product differentiation • State-of-the-art equipment • Ramp-up according to plan: Positive EBITDA beginning Q4 2013 • Take-or-pay agreement for 81% of
Slide 13: Boxboard Europe: Strengthened with Rationalizations and Asset Improvements
BOXBOARD EUROPE Strengthened with Rationalizations and Asset Improvements • ~58% ownership of RdM, a public Italian company, and 100% of the La Rochette mill in France • Rationalization of production capacity (from 10 machines to 7) and consolidation of sales forces have resulted in improved perform
Slide 14: Tissue Papers: Industry Trends
TISSUE PAPERS Industry Trends Future capacity additions CAGR of 2.0%, close Top 5 – North American Tissue to annual consumption growth Producers 211 9,393 % of total capacity 9,400 511 9,182 9,200 First Quality (2) St. Croix Tissue Koch/GP 29% 9,000 P&G 16% 8,800 157 8,671 Kimberly-Clark 15% 8
Slide 15: Tissue Papers: Our Market Positioning
TISSUE PAPERS Our Market Positioning Sales End-Users (2013) • AfH (40%) Candiac, QC - Manufacturing and Conversion • Private Label (44%) / Branded (56%) Granby, QC • Retail (45%) - Conversion Kingsey Falls, QC • Private Label (86%) / Branded (14%) Whitby, ON - Manufacturing and Conversion • Parent R
Slide 16: Specialty Products Group: Stable Source of Revenue and Platform for Innovation
SPECIALTY PRODUCTS GROUP1 Stable Source of Revenue and Unique Platform for Innovation • Diverse and stable revenue stream with leading market positions • Recent initiatives have included • Sale of Fine Papers division (3 units) • Exit from the kraft paper market (1 unit) • Disposal of a smaller unit
Slide 17: Our Equity Investment in Boralex
OUR EQUITY INVESTMENT IN BORALEX • ~35% ownership • Tremendous pipeline of projects • Valuation does not fully reflect growth potential 1 Refer to Boralex’s presentation Current BLX share price: ~$13.20 – represents ±$1.90/share for CAS Source: Boralex’s public disclosure 17
Slide 18: Our Strategic Action Plan
OUR STRATEGIC ACTION PLAN 1 2 Modernize Optimize core operations through capital allocation and focused investments reduce working capital (M CAN$) (M CAN$) 400 250 364 228 200 300 224 Focus on operations to drive increased 150 CFFO EBITDA 123 200 profitability and operating cash flows 100 100 50 0
Slide 19: Modernize
1 MODERNIZE Containerboard – Manufacturing • Construction of the Greenpac linerboard mill in Niagara Falls, NY Containerboard – Converting • Consolidation of the platform in Ontario Tissue Papers – Manufacturing • Installation of a new paper machine in Oregon (Q4-2014) Tissue Papers – Converting • A
Slide 20: Optimize
2 OPTIMIZE Corporate initiative – Allocate capital towards core sectors – Improving working capital management Tissue papers example LTM Working Capital (% of LTM Sales) • Acquisition and conversion of Boise paper 16.0% machine adjacent to our existing tissue 15.0% 14.8% 14.4% 14.0% machine 14.0% 13
Slide 21: Restructure
3 RESTRUCTURE 15 closures 6 asset sales • Containerboard: • Containerboard – Manufacturing • 1 manufacturing mill + 5 converting plants • Avot-Vallée mill • Boxboard North America: • Boxboard – Manufacturing • 1 converting plant • Versailles mill • Boxboard Europe: • Boxboard – Converting • 3 mills
Slide 22: Innovate
4 INNOVATE RespakTM UltratillTM EVOKTM Recyclable, compostable Low-density PETE Polystyrene foam packaging and made from 50% containing 80% of post- using recycled material. recycled fibre. Best consumer material. alternative to polycoated paperboard. Some activities aim to achieve 10% of sales from
Slide 23: Financial Performance and Situation: Strong Financial Momentum
FINANCIAL PERFORMANCE AND SITUATION Strong Financial Momentum Sales1 EBITDA (excl. specific items)1 (M CAN$) (M CAN$) 4,000 400 16.0% 364 342 3,785 3,750 300 291 3,655 12.0% 224 3,443 3,500 200 3,426 8.0% 3,250 100 3,000 0 4.0% 2011 2012 2013 LTM 06/30/2014 2011 2012 2013 LTM 06/30/20141 Results pro
Slide 24: Historical Segmented EBITDA
FINANCIAL PERFORMANCE AND SITUATION Historical Segmented EBITDA1 (M CAN$) Containerboard (% of sales) (M CAN$) Boxboard Europe (% of sales) 48 46 16% 28 16% 42 43 23 24 33 33 20 36 12% 21 12% 26 25 25 23 12 12 11 12 11 24 8% 14 8% 6 12 4% 7 4% 0 0% 0 0% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q
Slide 25: Financial Performance and Situation: Investment Program
FINANCIAL PERFORMANCE AND SITUATION Investment Program Capital Expenditures Distribution • Capital expenditures for 2013 stood at $172M for FY2013 - $157M ($157M excluding IT) • 2014 level to revolve around $170M, including IT By segment • Including ~$60-70M of maintenance capex • Amount subject to
Slide 26: Financial Ratios and Maturities
FINANCIAL PERFORMANCE AND SITUATION Financial Ratios and Maturities Net debt / LTM EBITDA Interest Coverage Ratio 7.0x 5.0x 4.6x 5.8x 6.0x 4.0x 3.4x 3.5x 5.0x 2.9x 3.0x 5.0x 3.0x 4.5x 4.6x 4.5x 2.5x 4.0x 2.0x 3.3x 3.0x 1.0x 2009 2010 2011 2012 2013 LTM 2009 2010 2011 2012 2013 LTM 06/30/2014 06/30/2
Slide 27: Selected Performance Indicators
SELECTED PERFORMANCE INDICATORS 1 1 1 Q2-2014 LTM Q2-2014 LTM Selected Performance Indicators 2011 2012 2013 excl. disc. op. incl. disc. op. Shipments ('000 s.t.) 3,159 3,243 3,359 3,358 3,205 Employees 12,126 12,123 12,221 12,221 11,693 2 Units (excl. Recovery) 86 83 85 85 81 Sales (M$) 3,625 3,645
Slide 28: Illustrative Sum-of-the-Parts Valuation Analysis
ILLUSTRATIVE SUM-OF-THE-PARTS VALUATION ANALYSIS Comparable Companies Illustrative Cascades’ Selected Illustrative Trading Range LTM EBITDA Multiple Value TEV/LTM EBITDA 1 (M$ rounded, net corp. activities) (conservative) (M$ rounded) • Tissue Papers 9.0x – 11.5x 114 7.5x 855 • Containerboard 6.5x -
Slide 29: 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 • Containerboard: great fundamentals and improved platform • Modernized
Slide 30: 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