Cascades Inc. · TSX:CAS
Cascades — Investor Presentation (September 2017)
44 slides from Cascades's investor presentation, Sep 11, 2017
Slide 1: Investor Presentation, Montreal
INVESTOR PRESENTATION, MONTREAL September 11, 2017
Slide 2: Disclaimer
DISCLAIMER FORWARD-LOOKING STATEMENT 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 numb
Slide 3: Investment Thesis
INVESTMENT THESIS • Founded in 1964 by the Lemaire brothers in Kingsey Falls, Quebec, Canada 50+ Years of • 89 facilities1, 11,000 employees, operations in Canada, US and Production & Europe2 Focus on • 80% of Cascades’ products are made with recycled fibres Sustainable • Long-term circular economy
Slide 4: Investment Thesis
INVESTMENT THESIS Leading market positions in growing North American packaging and Diversified tissue business segments, well-positioned in Europe Player, Strong # 6 containerboard producer in North America Competitive # 5 tissue producer in North America 1 Positioning # 2 coated recycled boxboard p
Slide 5: Investment Thesis: Financial Metrics and Sales Mix
INVESTMENT THESIS Financial Metrics 2016 Sales by Geography ✓ Revenues: $4.0 B (+6.2% 5-yr CAGR) 2016 SALES FROM 2016 SALES TO (SOURCE) (DESTINATION) ✓ Adj. EBITDA: $403 M (+9.0% 5-yr CAGR) 21% Europe1 22% ✓ Adj. CF Ops.: $324 M (+20.2% 5-yr CAGR) 28% U.S. 39% ✓ Net debt reduced by 11% to $1.5 B ✓ N
Slide 6: Investment Thesis: Tailwinds and Headwinds
INVESTMENT THESIS Tailwinds ✓ Full implementation of linerboard and medium price increases in containerboard ✓ Benefits from business process modernization and implementation of ERP platform ✓ Ramp-up of new state of the art tissue converting facility in Oregon ✓ New containerboard facility in NJ wi
Slide 7: Operating Performance and Financial Situation: Strong Financial Profile
OPERATING PERFORMANCE AND FINANCIAL SITUATION Strong Financial Profile Sales (CAN$ M) Operating Income & Margin (CAN$ M and %) CAGR: + 6.3% CAGR: + 19.7% 250 221 8.0% 4500 4,001 4,136 176 3,861 200 162 6.0% 4000 153 3,561 150 137 3,370 5.2% 5.5% 4.0% 3500 3,141 100 72 4.0% 3.9% 3.8% 3000 50 2.0% 2.3
Slide 8: Consolidated Financial Ratios and Debt Maturities
OPERATING PERFORMANCE AND FINANCIAL SITUATION Consolidated Financial Ratios & Debt Maturities Net Debt / LTM Adjusted OIBD1 Interest Coverage Ratio2 5.0x 4.6x 4.7x 4.7x 4.6x 4.7x 3 4.0x 3.8x 4.2x 3 3.0x 3.4x 3.4x 2012 2013 2014 2015 2016 Q2 2012 2013 2014 2015 2016 Q2 2017 2017 Net Debt1 / Net Debt
Slide 9: Near-Term Leverage Target of 3.0x - 3.5x
OPERATING PERFORMANCE AND FINANCIAL SITUATION Near-Term Leverage Target of 3.0x – 3.5x 6.0x 5.8x 5.0x 5.0x 4.6x 4.7x 4.0x 3.8x 4.0x 3.2x 1 3.0x 2.4x 1 2.2x 1 2.0x 1.0x 0.0x 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E The $288 M of proceeds from the sale of our equity stake in Boralex on July 27,
Slide 10: Raw Material Costs - Index List Prices
RAW MATERIAL COSTS – INDEX LIST PRICES (US$/ton) Recycled Fibre Prices Current (US$/ton) Virgin Pulp Prices Current (Sept.) (August) 200 1,200 175 179 1,100 1,100 150 155 1,000 975 125 900 100 75 800 50 700 Sept 14 Sept 15 Sept 16 Sept 17 Mar 15 Mar 16 Mar 17 June 14 June 15 June 16 June 17 Dec 14 D
Slide 11: Containerboard Packaging Group
CONTAINERBOARD PACKAGING GROUP A Leading Canadian and Major North American Player ▪ Largest corrugated box producer in Canada with 8% ~32% market share 16% 15% Manufacturing - CAN ▪ 64%1 integration rate, targeting 85%1 in the mid-term 2016 Manufacturing - US ▪ Strong platform in Canada and growing
Slide 12: Containerboard: Modernizing and Upgrading - Organic Growth
CONTAINERBOARD PACKAGING GROUP Modernizing and Upgrading - Organic Growth New Conversion Plant in Piscataway, NJ • New state of the art conversion facility housing Largest recycled 1st quartile equipment linerboard mill in • US$80 M project largely funded by sale of land of North America NYC plant (
Slide 13: Consolidated North American Competitive Landscape
CONTAINERBOARD PACKAGING GROUP Consolidated North American Competitive Landscape 2007 2013 2016 Smurfit Stone 20% IP 35% IP 33% ❖ Weyerhaeuser 16% ❖ Rock Tenn 20% ❖ WestRock 19% IP 11% Koch/GP 11% Koch/GP 10% GP 11% PCA 7% PCA 9% Temple Inland 9% Cascades1 4% Kapstone 4% PC
Slide 14: Containerboard: Sound Environment
CONTAINERBOARD PACKAGING GROUP Sound Environment Fundamentals Sound Despite Added Capacity • Capacity growth of ±1.8% annually Industry Operating Rates1 over 2015 - 2019 period 100% 90% • Sound industry fundamentals (July/17): 80% Cascades adjusted EBITDA increases ~$2.5M 70% with every 1% increase
Slide 15: Containerboard: Business Drivers
CONTAINERBOARD PACKAGING GROUP Business Drivers Containerboard Benchmark Market Prices Brown Grades Recycled Fibre Prices (US$/s.t.) (US$/s.t.) 750 200 700 180 650 160 140 600 120 550 100 500 80 450 60 400 40 Linerboard 42-lb. unbleached kraft, Eastern U.S. Old corrugated containers no. 11 (Northeas
Slide 16: Containerboard Industry Statistics
CONTAINERBOARD INDUSTRY STATISTICS U.S. Corrugated Boxes Shipments (BSF) RISI Forecast 2017 – 2021 CAGR: + 1.9% 408 414 392 399 384 376 364 369 357 359 360 360 345 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F U.S Containerboard Production & Utilization Capacity Rate (tons &
Slide 17: Boxboard Europe Group
BOXBOARD EUROPE GROUP Second Largest Coated Recycled Boxboard Producer in Europe ▪ 57.7% equity ownership of Reno de Medici, a public Coated Italian company; 5 recycled (885K m.t.) & 1 virgin 22% recycled boxboard (165K m.t.) mills 2016 boxboard ▪ Operations in Italy, France and Germany Sales ▪ Simp
Slide 18: Leading European Producer of Coated Board
BOXBOARD EUROPE GROUP Leading European Producer of Coated Board Cartonboard Producers by Grade1 (2016) WLC Producers1 (2016) Mayr-Melnhof Reno De Medici Weig Karton Smurfit Kappa Buchmann Fiskeby Board Barcelona Cartonboard KappaStar Pulp Mill Holding Paprinsa 0 500 1000 1500 1 Source: PÖYRY, 2016,
Slide 19: Specialty Products Group
SPECIALTY PRODUCTS GROUP A Diversified Packaging Player ▪ Largest paper collector in Canada with 19 facilities Recovery and 1.4 million s.t. of material processed in 2016 24% ▪ A leading position in industrial packaging with Cascades Sonoco JV 2016 Industrial Sales 46% packaging ▪ Strong growth pote
Slide 20: Cascades Recovery+ Sub-Segment
SPECIALTY PRODUCTS GROUP Cascades Recovery+ Sub-Segment 1 NA Recycled Fibre (2.6M st) • Business unit created via the merger of recovery operations & recycled fibre Brown recycled purchased buying group White recycled purchased • Manages procurement of all raw material 38% 31% (1.0M st) (0.8M st) fi
Slide 21: Tissue Papers Group
TISSUE PAPERS GROUP A Canadian Leader and Important North American Player ▪ 5th largest tissue producer in NA based on capacity (650K s.t.) 17% Retail ▪ Growing footprint in Western U.S. 2016 ▪ 68% integration rate, targeting 85% in the mid-term Sales 46% Away-from- ▪ Repositioned and rebranded AfH
Slide 22: Strong Position Across the North American Tissue Market
TISSUE PAPERS GROUP Strong Position Across the North American Tissue Market CAS Sales by Country (2016) Tissue Market Demand1 Canada (25%) US (75%) 160 Branded Away-from- Branded Away-from- Indexed U.S. Tissue 27% 140 43% Home Home Demand 42% 47% 120 Private Private Label At-Home At-Home 100 Label
Slide 23: Tissue: Diversified Capacity and Positioning
TISSUE PAPERS GROUP Diversified Capacity and Positioning 2016 NORTH AMERICAN TISSUE MANUFACTURERS Capacity Market Capacity Capacity ('000 s.t.) Share Retail AfH 1 Georgia-Pacific 2,849 29% 67% 33% 2 Procter & Gamble 1,494 15% 100% 0% 3 Kimberly-Clark 1,466 15% 67% 33% 4 SCA Tissue NA 784 8% 0% 100%
Slide 24: Tissue Papers: Business Drivers
TISSUE PAPERS GROUP Business Drivers Tissue Papers Benchmark Market Prices White Grades Recycled Fibre Prices (US$/s.t.) (US$/s.t.) 1,500 350 1,400 300 1,300 250 1,200 200 1,100 150 1,000 100 900 Virgin parent rolls 50 Sorted office papers no. 37 (Northeast) Recycled parent rolls Sorted office paper
Slide 25: North American Tissue Market
TISSUE PAPERS GROUP North American Tissue Market N.A. Retail Tissue Product N.A. Away-from-Home Tissue Consumption (2016) Product Consumption (2016) 1% 2% 2% Bathroom Toweling tissue 7% 7% 18% Toweling Bathroom tissue 44% Facial Napkins 52% 33% Napkins Facial 34% Sanitary Sanitary Towel and bathroom
Slide 26: Strategic Plan 2017-2022
2017-2022 STRATEGIC PLAN ete as
Slide 27: Positioning for Growth: Building on the Past
POSITIONING FOR GROWTH Building on the Past, Positioning for the Future 2011 - 2016 Acquisition of Consolidation WE MODERNIZED New tissue paper Papersource machine in Oregon of Recovery • Invested more than $500M in ownership modern equipment Acquisition of Start-up of the a corrugated Greenpac Mill
Slide 28: Positioning for Growth: Capital Expenditures
POSITIONING FOR GROWTH Building on the Past, Positioning for the Future Capital Expenditures (M$) • 2017B Capex ~ $200M 250 $206M ✓ Mainly growth Capex $200M 200 $184M $184M $173M ✓ Mostly in the US $161M 150 • Strong free cash flow has funded Capex 100 • Impacted by strong US$ 50 • Important invest
Slide 29: Strategy: Positioning for Growth
POSITIONING FOR GROWTH Building on the Past, Positioning for the Future UPGRADE OUR VALUE 1 PLATFORMS 2 CREATION - Invest in organic growth - Increase profitability margin from 10% to 15% - Increase integration rate to 85% - Disciplined capital allocation - Grow US platform - Sustainable free cash f
Slide 30: Upgrade Our Platforms
1 UPGRADE OUR PLATFORMS Accelerate Modernization + Increase Integration + Optimize Footprint • Replace older equipment • Increase our integration rate • Improve geographic footprint • Invest in organic growth by investing in conversion to better serve our customers, capacity increase penetration of
Slide 31: Create Value: Profitability Margin and Capital Allocation
2 CREATE VALUE ↑ Profitability Margin to 15% + Disciplined Capital Allocation • Growth associated with potential Cash Flow from Operations 4 strategic investments and acquisitions INVEST IN OUR ASSET BASE • Modernize equipment • Transformation program benefits & • Opportunistic M&A • Increase integr
Slide 32: Focus on Customers and Innovation
3 FOCUS ON CUSTOMERS AND INNOVATION Hand towel dispenser with new, patented dispenser technology Produces innovative, lightweight recycled linerboard – XP grades Low-density PETE containing 80% post- consumer material OBJECTIVE: 20% of sales from innovative products in 2020 Recyclable insulated cont
Slide 33: Appendix
APPENDIX ete as
Slide 34: Q2 2017 Performance - Financial Results
Q2 2017 PERFORMANCE – FINANCIAL RESULTS 112 103 107 323 82 75 65 50 48 161 33 31 36 35 20 30 24 4 15 12 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 2016 2016 2016 2017 2017 2016 2016 2016 2017 2017 Operating Income Adjusted OIBD 1 Net Earnings Adjusted Net Earnings 1 Figures above in millions of CAN$ Figures abov
Slide 35: Business Segments: Historical Segmented Operating Income and Margin
BUSINESS SEGMENTS Historical Segmented Operating Income and Margin Containerboard (CAN$ M and %) Boxboard Europe2 (CAN$ M and %) 170 158 135 14% 40 29 5% 150 104 108 12% 30 19 22 13% 10% 20 11 3% 100 12% 8% 10 3% 9% 3 2% 3% 1% 50 9% 9% 6% 0 4% 0% 1% -1% 0 2% -10 (3%) -50 (13) 0% -20 -3% (1%) -2% -30
Slide 36: Business Segments: Historical Segmented Adjusted OIBD and Margin
BUSINESS SEGMENTS Historical Segmented Adjusted OIBD3 and Margin Containerboard (CAN$ M and %) Boxboard Europe2 (CAN$ M and %) 250 231 216 19% 80 72 9% 202 63 200 17% 70 57 55 8% 150 164 18% 15% 60 9% 53 43 7% 150 16% 13% 50 7% 8% 90 14% 14% 14% 40 7% 7% 6% 100 11% 30 9% 20 6% 5% 50 10% 7% 10 4% 0 5
Slide 37: Historical Results
HISTORICAL RESULTS (In million of Canadian dollars) Q2-17 Q1-17 2016 Q4-16 Q3-16 Q2-16 Q1-16 2015 2014 Sales Containerboard 428 346 1,370 336 356 342 336 1,301 1,181 Boxboard Europe 213 211 796 191 189 197 219 825 841 Specialty Products 188 173 620 156 158 157 149 579 568 Tissue Papers 338 306 1,305
Slide 38: Near Term Outlook
NEAR TERM OUTLOOK • Gradual price increase in corrugated boxes following the US$50/st containerboard price • Higher OCC costs in North America and increase reflected in RISI in April 2017 Europe + • US$20/st corrugating medium price increase • Other recovered paper prices in North I reflected in RIS
Slide 39: Greenpac Mill Acquisition - Accounting Factsheet
CONTAINERBOARD PACKAGING GROUP Greenpac Mill Acquisition – Accounting Factsheet Fact Sheet • Interest of one partner classified in other liabilities due to put option • Cascades share of profit before tax 78.3% • Minority interest 21.7% • Client list and amortizable fixed assets increase $53 m
Slide 40: Newest Investment: Converting Facility in Oregon
TISSUE PAPERS GROUP Newest Investment: Converting Facility in Oregon • Expands tissue footprint on US West Coast • US$64M investment • 40% integration with St. Helens, OR tissue paper plant, located ~12 km away, resulting in a ~9% increase in overall integration rate to 78% • State-of-the-art facili
Slide 41: 5-Year Shareholder Return
5-YEAR SHAREHOLDER RETURN CAS vs. Indices TSX TSX Container- Tissue CAS Composite Small Cap board Index Index 550% 1 Year 119% 103% 98% 126% 81% 3 Year 241% 97% 92% 112% 80% 450% 5 Year 291% 123% 104% 211% 106% 350% 250% 150% 50% 2012-09 2012-12 2013-03 2013-06 2013-09 2013-12 2014-03 2014-06 2014-0
Slide 42: Shareholders and Analyst Coverage
SHAREHOLDERS & ANALYST COVERAGE Major Shareholders % Analyst City Bank Lemaire Brothers, BoD & employees 33.7% Letko Brosseau 14.2% Leon Aghazarian Montréal National Bank Caisse de Dépôt et Placement du QC 5.0% Keith Howlett Toronto Desjardins Dimensional Fund Advisors 3.4% Benoît Laprade Montréal S
Slide 43: Geographically Diversified
GEOGRAPHICALLY DIVERSIFIED 43
Slide 44: For more information
For more information: www.cascades.com/investors Jennifer Aitken, MBA Director, Investor Relations 514-282-2697 or [email protected] 44