Cascades Inc. · TSX:CAS
Cascades — Non-Deal Roadshow (June 2018)
46 slides from Cascades's roadshow presentation, Jun 20, 2018
Slide 1: Investor Presentation: Winnipeg, Calgary & Vancouver
INVESTOR PRESENTATION: WINNIPEG, CALGARY & VANCOUVER June 20-21, 2018
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: 50+ Years of Sustainable Development & Innovation
50+ YEARS OF SUSTAINABLE PUBLICLY TRADED FOR 35 YEARS; DEVELOPMENT & INNOVATION $1.2 B MARKET CAP3 • Founded in 1964 by the Lemaire brothers in • 94.7 M common shares: ~32% held by Kingsey Falls, Quebec founders, Board & employees 3 • 80% of Cascades’ products are made with • Avg. daily trading : 20
Slide 4: Capital Allocation Program Supported by Strong FCF
CAPITAL ALLOCATION PROGRAM SUPPORTED BY STRONG FCF INNOVATION CAPEX 1 • Drive growth in key geographic & • RETURN > WACC 1 customer industries • IRR target of 15% + • Customer-centric product • Reduce fixed cost base through development: work closely with our modernization & portfolio optimization c
Slide 5: Financial Metrics LTM Q1/18 and Sales Breakdown
Financial Metrics LTM Q1/18 Sales by Geography ✓ Revenues: $4.4 B (+6.6% 5-yr CAGR3) 2017 SALES FROM 2017 SALES TO (SOURCE) (DESTINATION) ✓ Adj. EBITDA: $423 M (+6.6% 5-yr CAGR3) 21% Europe1 21% ✓ Adj. CF Ops.: $312 M (+11.7% 5-yr CAGR3) 30% U.S. 40% ✓ Net debt stable at $1.5 B ✓ Net debt/Adjusted E
Slide 6: Near-Term Tailwinds and Headwinds
NEAR-TERM TAILWINDS ✓ Containerboard: • implementation of US$50/s.t. price increase • lower OCC costs • start-up of new conversion facility in NJ (positive contribution beginning 2019) ✓ Tissue: • sales volume increases at new converting facility in Oregon • announced jumbo roll price increases: US$
Slide 7: Operating Performance and Financial Situation
OPERATING PERFORMANCE AND FINANCIAL SITUATION Sales (CAN$ M) Operating Income & Margin (CAN$ M and %) CAGR: + 6.7% CAGR: + 27.3% 300 256 8.0% 5000 4,321 4,413 250 221 4500 176 175 6.0% 3,861 4,001 200 153 4000 3,561 137 5.5% 5.8% 3,370 150 5.2% 4.0% 3500 3,141 72 4.0% 4.0% 100 3.8% 3000 2.0% 50 2.3%
Slide 8: Operating Performance and Financial Situation
OPERATING PERFORMANCE AND FINANCIAL SITUATION Net Debt / LTM Adjusted OIBD1 Interest Coverage Ratio2 5.0x 4.7x 4.7x 4.6x 4.6x 4.3x 3 4.5x3 4.0x 3.8x 3.6x 3 3.6x 3 3.0x 3.4x 3.4x 2012 2013 2014 2015 2016 2017 Q1 2012 2013 2014 2015 2016 2017 Q1 2018 2018 Net Debt1 / Net Debt + Total Equity Long-Term
Slide 9: Operating Performance and Financial Situation: Leverage Ratio
OPERATING PERFORMANCE AND FINANCIAL SITUATION 6.0x 5.8x LEVERAGE RATIO TARGET: 2.5x 5.0x 5.0x 4.6x 4.7x 4.0x 3.8x 4.0x 3.6x1 3.6x1 2 2.9x 3.0x 2.4x 2 2.3x2 2.0x 1.0x 0.0x Q1-2018 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E Based on analyst estimates2, and assuming FX US$/CAN$ at 1.25 and $1
Slide 10: Raw Material Costs – Index List Prices
RAW MATERIAL COSTS – INDEX LIST PRICES Recycled Fibre Prices Current Virgin Pulp Prices Current (US$/ton) (US$/ton) 250 (June) (June) 1,400 225 218 1,300 1,330 200 1,200 175 1,150 150 1,100 125 1,000 100 900 75 68 800 50 700 Sept 15 Sept 16 Sept 17 Mar 15 Mar 16 Mar 17 Mar 18 June 15 June 16 June 17
Slide 11: Containerboard Packaging
CONTAINERBOARD PACKAGING ▪ Largest Canadian corrugated box producer (~32% market share) 10% ▪ #6 NA containerboard producer (based on capacity) 15% ▪ 73%1 integration rate, targeting 85%1 in the mid-term ▪ Strong Canadian platform & growing presence in U.S. 2017 20% Northeast Sales ▪ Annual capacity
Slide 12: Containerboard Packaging: Market Trends & Technologies
CONTAINERBOARD PACKAGING Thriving on Market Trends & Technologies New Conversion Plant in The E-Commerce Piscataway, NJ opportunity • New state of the art conversion facility housing • Growth in e-commerce is shifting the balance of 1st quartile equipment power from brands/retailers to consumers. •
Slide 13: Containerboard Packaging: Competitive Landscape
CONTAINERBOARD PACKAGING Consolidated North American Competitive Landscape 2007 2013 2017 Smurfit Stone 20% IP 35% IP 33% Weyerhaeuser 16% Rock Tenn 20% WestRock2 20% IP 11% Koch/GP 11% Koch/GP 10% GP 11% PCA 7% PCA 10% Temple Inland 9% Cascades1 4% Kapstone2 4% PCA 6
Slide 14: Containerboard Packaging: Fundamentals Sound Despite Added Capacity
CONTAINERBOARD PACKAGING Fundamentals Sound Despite Added Capacity • Capacity growth of ±1.8% annually Industry Operating Rates1 over 2015 - 2020 period 100% • Strong industry fundamentals (May/18): 90% 80% Cascades adjusted OIBD increases ~$3.75M ✓ YTD capacity utilization: 96.8% (98.5% in May) 70%
Slide 15: Containerboard Packaging: Business Drivers
CONTAINERBOARD PACKAGING Business Drivers Containerboard Benchmark Market Prices Brown Grades Recycled Fibre Prices (US$/s.t.) (US$/s.t.) 800 200 750 180 700 160 140 650 120 600 100 550 80 500 60 450 40 Linerboard 42-lb. unbleached kraft, Eastern U.S. Old corrugated containers no. 11 (Northeast) 400
Slide 16: Containerboard Industry Statistics
CONTAINERBOARD INDUSTRY STATISTICS U.S. Corrugated Boxes Shipments (BSF) RISI Forecast 2017 – 2022 CAGR: + 2.1% 397 409 418 426 429 360 360 364 369 376 386 345 357 359 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F U.S Containerboard Production & Utilization Capacity Rate
Slide 17: Boxboard Europe
BOXBOARD EUROPE ▪ 57.8% equity ownership of Reno de Medici, a public Italian company; 5 recycled (885K m.t.) & 1 virgin boxboard (165K m.t.) mills ▪ Reno de Medici share price3: €0.92 vs. €0.35 (+260% YoY) 20% ▪ 2nd largest coated recycled boxboard producer in Europe ▪ Simplified structure: one-comp
Slide 18: Boxboard Europe: Leading European Producer of Coated Board
BOXBOARD EUROPE Leading European Producer of Coated Board 1 Top Cartonboard Producers Top FBB Producers1 Top WLC Producers1 (Total Market) (Virgin) (Recycled) Mayr-Melnhof Metsä Board Mayr-Melnhof Metsä Board Stora Enso Reno De Medici Stora Enso Kotkamills Weig Karton Reno De Medici Mayr-Melnhof Smu
Slide 19: Boxboard Europe: Business Drivers
BOXBOARD EUROPE Business Drivers Boxboard Benchmark Market Prices1 Recycled Fibre Prices2 After trending downward for the last two years, Chinese recovered paper import WLC prices increased €30/m.t. in Q2-2017; more restrictions behind recent decreases in price increases announced for recycled produ
Slide 20: Specialty Products
SPECIALTY PRODUCTS ▪ Diversified industrial & consumer products packaging player 20% ▪ Largest paper collector in Canada with 19 facilities2 and 1.4 million s.t. of material processed in 2017 2017 ▪ A leading position in industrial packaging with Sales Cascades Sonoco JV 52% $703M ▪ Growth potential
Slide 21: Specialty Products: Cascades Recovery+
SPECIALTY PRODUCTS 1 CASCADES RECOVERY+ SUB-SEGMENT NA Recycled Fibre (2.9M st) Recovery & Recycling is our “forest” and Brown recycled manages procurement of all raw material purchased & used fibre for our North American operations. White recycled 34% 34% purchased & used CIRCULAR ECONOMY APPROACH
Slide 22: Tissue Papers
TISSUE PAPERS ▪ 5th largest tissue producer in NA based on capacity 14% (650K s.t.) ▪ Growing footprint in Western U.S. 2017 ▪ 67% integration rate, targeting 85% in the mid-term 45% Sales ▪ Repositioned and rebranded AfH product lines under $1,268M Cascades PRO brand to simplify product offering 41
Slide 23: Tissue Papers: Strong Position Across North American Market
TISSUE PAPERS Strong Position Across the North American Tissue Market CAS Sales by Country (2017) Tissue Market Demand1 Canada (26%) US (74%) 160 1.8% growth represents ~175K s.t. / year Branded Away-from- Branded Away-from- Indexed U.S. Tissue 25% 140 41% Home Home Demand 43% 50% 120 Private Priva
Slide 24: Tissue Papers: Diversified Capacity and Positioning
TISSUE PAPERS Diversified Capacity and Positioning 2017 NORTH AMERICAN TISSUE MANUFACTURERS Capacity Market Capacity Capacity ('000 s.t.) Share Retail AfH 1 Georgia-Pacific 2,849 29% 67% 33% 2 Procter & Gamble 1,494 15% 100% 0% 3 Kimberly-Clark 1,466 15% 67% 33% 4 Essity (ex-SCA) 721 7% 0% 100% 5 Ca
Slide 25: Tissue Papers: Business Drivers
TISSUE PAPERS Business Drivers U.S. Parent Roll Production & Capacity U.S. Converted Products Price Variation YoY Strong annual seasonality in parent roll 2017 volatility in industrial paper towel market production; underlying growth in capacity over reflects aggressive marketing and pricing past 5
Slide 26: Tissue Papers: Business Drivers – Fibre Prices
TISSUE PAPERS Business Drivers Virgin Fibre Prices White Grades Recycled Fibre Prices (US$/s.t.) 1,400 1,300 1,200 1,100 1,000 900 800 700 NBSK 600 NBHK 500 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun
Slide 27: Updated Near Term Outlook
UPDATED NEAR TERM OUTLOOK • US$50/s.t. containerboard price increase • Continuing challenging market conditions for reflected in RISI on March 23, 2018; the Tissue Papers segment corrugated box price increases in progress • Higher NBSK and NBHK pulp prices • Higher SOP recycled grade prices + • OCC
Slide 28: Strategic Plan 2017-2022
2017-2022 STRATEGIC PLAN ete as
Slide 29: 2017–2022 Strategy: Building on Our Past, Positioning for the Future
BUILDING ON OUR PAST, POSITIONING FOR THE FUTURE 2011 - 2016 2017 – 2022 STRATEGY WE MODERNIZED $400M+ in modern equipment WE OPTIMIZED 1 UPGRADE PLATFORMS Decreased working capital to ~10% of sales from 15% in 2011 CREATE WE RESTRUCTURED Closed 16 non-performing assets, SUSTAINABLE VALUE 2 complete
Slide 30: Upgrade Our Platforms: Modernization, Integration, Footprint
1 UPGRADE OUR PLATFORMS Accelerate Modernization + Increase Integration + Optimize Footprint • Replace older equipment • Increase our integration rate • Improve geographic footprint • Invest in organic growth to 85% by investing in to better serve our customers, conversion capacity increase penetrat
Slide 31: Upgrade Our Platforms: Strategic 2018 Capex
1 UPGRADE OUR PLATFORMS Strategic 2018 CAPEX for important investments to consolidate position 5% • Investing in businesses with solid fundamental long- term growth profiles & supports growth in our core 2018 CAPEX markets 39% 35% $335 - $385M1 • Aligned with 2017-2022 strategy: ($250 - $300M net of
Slide 32: 2018 Capex – Important Investments to Consolidate Position
1 UPGRADE OUR PLATFORMS 2018 CAPEX – Important Investments to Consolidate Position SEGMENT MAJOR PROJECTS INVESTMENT IMPACT BUSINESS CASE ($M CAN) Piscataway, NJ ✓ Integration ±5% Containerboard conversion plant $80 - $85 H2 2018 ✓ Improve footprint and asset quality Europe Paper machine upgrade ±$1
Slide 33: Create Value: Disciplined, Strategic Capital Allocation
2 CREATE VALUE Disciplined, Strategic & Targeted Capital Allocation Aligned with Long-Term Value Creation INVEST IN OUR CONTINUED FOCUS ON SHAREHOLDERS ASSET BASE DEBT REDUCTION • Modernize • Maintain current equipment • Allocate $100M of FCF toward debt dividend strategy • Opportunistic M&A reducti
Slide 34: Multi-Pronged Approach to Increase Profitability Margin to 15%
CREATE VALUE 2 Multi-Pronged Approach to Increase Profitability Margin to 15% IN PROGRESS • Growth from targeted investments and potential strategic M&A • Continued ramp-up of new Oregon tissue & NJ containerboard conversion facilities IN PROGRESS • Cumulative transformation program benefits & reduc
Slide 35: Focus on Customers and Innovation
3 FOCUS ON CUSTOMERS AND INNOVATION Cascades’ new Innovation Centre Containerboard is focused on: Specialty Products • Coordinating multigroup programs 37 people Tissue Papers • Developing new expertise (ex. A.I.) dedicated to Supported by: • Gathering market intelligence innovation Cascades’ Innova
Slide 36: Focus on Customers and Innovation: Products
3 FOCUS ON CUSTOMERS AND INNOVATION Hand towel dispenser with new, patented dispenser technology Produces innovative, lightweight recycled linerboard – XP grades Low-density PETE containing 80% post- consumer material OBJECTIVES: • 20% of sales from innovative products in 2020 • Leverage our diverse
Slide 37: Appendix
APPENDIX ete as
Slide 38: Capital Expenditures
CAPITAL EXPENDITURES Significant Repositioning and Investments Completed from 2011 – 2016 (CAN M$) CAPEX 250 (excludes M&A) $221M $206M 200 $184M $184M $173M $161M 150 100 50 0 2012 2013 2014 2015 2016 2017 Containerboard Boxboard Europe Specialty Products Tissue Papers Corporate & IT ✓ CAPEX funded
Slide 39: Q1 2018 Performance – Financial Results
Q1 2018 PERFORMANCE – FINANCIAL RESULTS 107 106 105 112 105 256 75 161 48 51 45 31 57 61 12 24 33 19 13 12 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 2017 2017 2017 2017 2018 2017 2017 2017 2017 2018 Operating Income Adjusted OIBD 1 Net Earnings Adjusted Net Earnings 1 Figures above in millions of CAN$ Figures a
Slide 40: Business Segments: Operating Income and Margin
BUSINESS SEGMENTS Historical Segmented Operating Income and Margin Containerboard (CAN$ M and %) Boxboard Europe2 (CAN$ M and %) 300 252 22% 50 48 7% 250 40 29 34 170 164 17% 30 5% 200 158 19 5% 150 104 108 20 11 4% 3% 15% 12% 10 3 3% 100 13% 2% 1% 50 9% 12% 10% 7% 0 9% -10 0% 1% (3%) -1% 0 2% -20 -
Slide 41: Business Segments: Adjusted OIBD and Margin
BUSINESS SEGMENTS Historical Segmented Adjusted OIBD3 and Margin Containerboard (CAN$ M and %) Boxboard Europe2 (CAN$ M and %) 300 279 22% 90 82 10% 231 247 20% 80 72 250 216 63 68 9% 18% 70 57 53 9% 8% 200 150 164 16% 60 9% 18% 43 8% 7% 150 16% 16% 14% 50 40 7% 8% 90 15% 12% 30 7% 6% 100 14% 14% 5%
Slide 42: Historical Results
HISTORICAL RESULTS (In million of Canadian dollars) Q1-18 2017 Q4-17 Q3-17 Q2-17 Q1-17 2016 2015 2014 Sales Containerboard 421 1,652 440 438 428 346 1,370 1,301 1,181 Boxboard Europe 246 838 212 202 213 211 796 825 841 Specialty Products 159 703 161 181 188 173 620 579 568 Tissue Papers 305 1,268 30
Slide 43: Sensitivity Table
SENSITIVITY TABLE 1 SHIPMENTS/CONSUMPTION INCREASE OIBD IMPACT (‘000 s.t, ‘000 mmBtu for Natural Gas) (in CAN$ M) SELLING PRICE2 (Manufacturing & Converting) Containerboard 1,490 US$25/s.t. 47 North America Tissue Papers 590 US$25/s.t. 19 Europe Boxboard 1,120 €25/s.t. 42 MATERIALS2 (Recycled papers
Slide 44: Shareholders & Analyst Coverage
SHAREHOLDERS & ANALYST COVERAGE Major Shareholders % Analyst City Bank Lemaire Brothers, BoD & employees 32.5% Letko Brosseau 13.8% Leon Aghazarian Montréal National Bank Caisse de Dépôt et Placement du QC 4.4% Keith Howlett Toronto Desjardins Dimensional Fund Advisors 4.1% Benoît Laprade Montréal S
Slide 45: Geographically Diversified
GEOGRAPHICALLY DIVERSIFIED 45
Slide 46: For more information
For more information: www.cascades.com/investors Jennifer Aitken, MBA Director, Investor Relations 514-282-2697 or [email protected] 46