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CASCADES INC. Goldman Sachs 2013 Montréal Paper & Forest Products Investor Event March 13, 2013
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 and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic conditions, decreases in demand for the Corporation’s products, the prices and availability of raw materials, changes in the relative values of certain currencies, fluctuations in selling prices and adverse changes in general market and industry conditions. This presentation may also include price indices as well as variance and sensitivity analyses that are intended to provide the reader with a better understanding of the trends related to our business activities. These items are based on the best estimates available to the Corporation. The financial information included in this presentation also contains certain data that are not measures of performance under IFRS (“non-IFRS measures”). For example, the Corporation uses earnings before interest, taxes, depreciation and amortization (EBITDA) because it is the measure used by management to assess the operating and financial performance of the Corporation’s operating segments. Such information is reconciled to the most directly comparable financial measures, as set forth in the “Supplemental Information on Non-IFRS Measures” section of our most recent quarterly report or annual report. Specific items are defined as items such as charges for impairment of assets, for facility or machine closures, accelerated depreciation of assets due to restructuring measures, debt restructuring charges, gains or losses on sales of business units, unrealized gains or losses on derivative financial instruments that do not qualify for hedge accounting, foreign exchange gains or losses on long-term debt and other significant items of an unusual or non-recurring nature. All amounts in this presentation are in Canadian dollars unless otherwise indicated.
DISCLAIMER
2
GREEN PACKAGING AND TISSUE PRODUCT OFFERING
3
Packaging Tissue Papers Boxboard Europe Containerboard Specialty Products
Leading NA packaging and tissue manufacturer with substantial recycling capabilities
BALANCED PACKAGING AND TISSUE PLAY
4
Packaging Products 74% of Sales
57% of EBITDA
Cascades 2012 Sales: $3,645M 2012 EBITDA1: $304M
Tissue Papers 26% of Sales
43% of EBITDA
Boxboard Europe 21% of Sales
13% of EBITDA
Containerboard 32% of Sales
29% of EBITDA
Specialty Products 21% of Sales
15% of EBITDA
Exposure to less cyclical end-markets
1 EBITDA excluding specific items. Breakdown of sales and EBITDA before eliminations & corporate activities.
CLOSED-LOOP BUSINESS MODEL
5
100+ business units
32 units
23 units
58 units
May be sent to recycling centers
77% recycled fibre (2.9M tons)
NA integration rate (2012):
34% (520K tons)
NA integration rate (2012): 51%
Including seven manufacturing/converting tissue papers units and Reno De Medici’s units.
Upstream and downstream integration
500
600
700
800
900
1,000
Mar
-10
May
-10
Jul-1
0S
ep-1
0N
ov-1
0Ja
n-11
Mar
-11
May
-11
Jul-1
1S
ep-1
1N
ov-1
1Ja
n-12
Mar
-12
May
-12
Jul-1
2S
ep-1
2N
ov-1
2Ja
n-13
Mar
-13
May
-13
20-pt clay coated news (CRB)Linerboard 42-lbCorrugating medium 26-lb
($US/s.t.)
MARKET DYNAMICS – CONTAINERBOARD
6
Containerboard industry fundamentals are positive
Sources: RISI, Fiber Box Association, Paper Packaging Canada.
North American Box Shipments
428 421
405
374
386 387 389
370
385
400
415
430
445
2006 2007 2008 2009 2010 2011 2012
(billions ft2)
Containerboard Price Increases
Second $US50/s.t. price increase announced for April 1st
MARKET DYNAMICS – CONTAINERBOARD
7 Sources: Company estimates, RISI, Fiber Box Association, Paper Packaging Canada.
93%
85%
95% 96% 96%
86%
82%
86%
90%
94%
98%
2008 2009 2010 2011 2012 NRP
Containerboard Utilization Rate
Balanced supply/demand equation with industry utilization rates exceeding 95%
Major Producers : Top 3 = 65%
IP 35%
Rock-Tenn 19%
Graphic Pack. 11%
PCA 7%
Pratt 3%
Cascades 3%
Others 22%
7,896
8,028
8,201
8,053
8,219
8,319
8,472
7,800
8,000
8,200
8,400
8,600
2006 2007 2008 2009 2010 2011 2012
( 000 s.t.)
MARKET DYNAMICS – TISSUE PAPERS
8
New capacity to have more impact on national brands but potential trickle-down to AfH
US tissue consumption
Sources: RISI, Fiber Box Association, Paper Packaging Canada.
8,512
8,902496154
7,000
7,500
8,000
8,500
9,000
9,500
2011 NATissue Capacity
New capacity '12-'13
(TAD and TADe)
New capacity '12-'13
(other grades)
Expectedclosures
2013 NATissue Capacity
(estimate)
('000 s.t.)
(260)
Capacity additions in the tissue sector
+4.5%
+1.5%
9 Source: RISI and Company estimates; sales by countries exclude parent roll sales
Cascades’ Tissue Papers 2012 Sales – End-Users
Branded 57%
Private label 43%
Branded 16%
Private label 84%
Cascades’ Tissue Papers 2012 Sales – Countries
Retail 54%
AfH 46%
Retail 53%
AfH 47%
Canada (28%)
US (72%)
Retail 45%
Parent rolls 16%
AfH 39%
90% private label
36% branded
Exposure to relatively stable / growing demand
MARKET DYNAMICS – TISSUE PAPERS
OBM Average Annually List Prices 2011 2012 YoY YTD-2013Brown grades - OCC No. 11 (New England) 158 119 -25% 108White grades - SOP No. 37 (New England) 242 168 -31% 165
290
175165165
90
115
0
50
100
150
200
250
300
Jan
09
Apr
09
July
09
Oct
09
Jan
10
Apr
10
July
10
Oct
10
Jan
11
Apr
11
July
11
Oct
11
Jan
12
Apr
12
July
12
Oct
12
Jan
13
(US$/ton) Main Recycled Fiber North Amercian OBM List Prices
White grades (SOP) Brown grades (OCC)
Recent price increases but costs not expected to average significantly more in 2013 Sources: RISI, Bloomberg.
MARKET DYNAMICS – RAW MATERIAL COSTS
Current
10
Mar
13
Cascades’ North American Fibre Supply
11
Control over 70% of our fibre supply despite greater concentration on the supply side
Contractual Agreements
46%
Cascades Recovery
and Internal 35%
Spot Purchases
19%
2008
Contractual Agreements
40%
Cascades Recovery
and Internal 33%
Spot Purchases
27%
2012
MARKET DYNAMICS – RAW MATERIAL COSTS
12
Financial results impacted negatively by stronger CAD$ and variable cost inflation
Source: Bloomberg
Increase +17% +0% +10% +21% +7% over +24 months
Chemicals – Increase over last 2 years
MARKET DYNAMICS – OTHER DRIVERS
0.600.650.700.750.800.850.900.951.00
0.800.850.900.951.001.051.10
Q1-10
Q2-10
Q3-10
Q4-10
Q1-11
Q2-11
Q3-11
Q4-11
Q1-12
Q2-12
Q3-12
Q4-12
EURO/CAN$US$/CAN$
US$/CAN$ Euro/CAN$
Canadian dollar - recent 52-week high
Improve our ROCE to reach our cost of capital Reach industry comparable leverage ratios
Improving our profitability and financial situation through our Action Plan
ACTION PLAN PRIORITIES
TOOL OR PROCESS
MEDIUM TERM OBJECTIVES
Focused investing for modernization of core operations
(and IT)
Optimizing capital allocation &
reducing working capital
Restructuring of under-performing
units
2 3 1
Innovation
4
ERP Working Capital Initiative
OUR STRATEGIC ACTION PLAN
13
ACTING ON OUR STRATEGIC PRIORITIES
14
Challenging Market Evolution Proactive measures Improved profitability
IMPROVED PACKAGING PLATFORM
Focused investing for modernization of core operations and IT 1
ERP
• Consolidation of our corrugated products sector in Ontario with the acquisition of Bird and concurrent investments totaling $30M
• Consolidation of our folding carton and microlithography operations with investments totaling $20M
• Important investment program
• Blueprint and programming: 2011-2012
• Implementation: 2011-2015
15
• $99M total investment • Represents ± $1.05/share
• Debt non-recourse to Cascades Partners Ownership Cascades 59.7% CDPQ 20.2% Two industry converters 20.1%
• Largest recycled linerboard mill in NA: • 328 inches • 1,500 s.t./day of lightweight recycled
linerboard (26 pounds) • Most technologically advanced equipment
Will position us amongst leaders in terms of offering, productivity and profitability
Manufacturing capacity breakdown Before After Greenpac Greenpac Linerboard 28% 51% Medium 72% 49% Canada 72% 49% USA 18% 51%
Financial Structure Operational Facts
TOWARDS MODERNIZATION : GREENPAC
ACTING ON OUR STRATEGIC PRIORITIES
16
Challenging Market Evolution Proactive measures Improve profitability
• Acquired one of the most modern converting plants in NA
• Integration level increased to 70% + • Reinforces positioning in away-
from-home sector • 10 converting lines
Optimizing capital allocation; reducing working capital 2
W/C Reduction Papersource Acquisition
14.5% 14.4% 14.5%
13.2%14.2% 14.7% 14.3%
12.4%
8%
10%
12%
14%
16%
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
Working Capital (% of Sales)
ACTING ON OUR STRATEGIC PRIORITIES
17
Restructuring of under-performing units
Challenging Market Evolution Proactive measures Improved profitability
Periods 2004-2006 2006-2008 2008-2010
2011-2012
Strategic measures
Packaging 5 acquisitions 7 closures 2 sales Tissue 1 sale 1 closure 1 acquisition
Packaging 2 mergers 4 closures 4 sales 2 acquisitions 1 partnership
Packaging 2 closures 2 acquisitions Tissue 1 investment 1 acquisition
Packaging 4 sales 1 investment 10 closures Tissue 1 acquisition
3
ACTING ON OUR STRATEGIC PRIORITIES
18
Challenging Market Evolution Proactive measures Improve profitability
Improvement and development of processes and products through innovation 4
Two-finger drink carrier
Moka – Beige bath tissue
Closing system reducing air exchange
3,692 3,862
3,481
4,033 4,025 3,877
3,182
3,625 3,645
2,500
3,000
3,500
4,000
4,500
2004 2005 2006 2007 2008 2009 2010 2011 2012
(M CAN$) SALES
259 262314
340305
465
310
229
304
0
100
200
300
400
500
2004 2005 2006 2007 2008 2009 2010 2011 2012
(M CAN$) EBITDA
HISTORICAL FINANCIAL PERFORMANCE
19
Results impacted by challenging market conditions, lower shipments and higher cost input
EBITDA excluding specific items but including discontinued operations. Canadian GAAP (not adjusted for IFRS). 2010 and 2011 figures presented under IFRS and exclude discontinued operations of Dopaco.
IFRS CANADIAN GAAP IFRS CANADIAN GAAP
KEY PERFORMANCE INDICATORS (KPIs)
Need for improvement in productivity The capacity utilization rate is defined as: Shipments/Practical capacity. Paper manufacturing only. 20
661
902822
774 808 826 804 809
500
625
750
875
1000
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
('000 s.t.) Total Shipments
90% 90%
87%86%
89% 90%
87% 88%
80%
83%
86%
89%
92%
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
Capacity Utilization Rate
KEY PERFORMANCE INDICATORS (KPIs)
Return on assets progressing; major improvement in working capital management Return on assets is defined as : LTM EBITDA excluding specific items/ LTM Average of total quarterly assets. It includes discontinued operations. Working capital includes accounts receivable plus inventories less accounts payable.
21
9.9%
8.7%
7.4%
6.5%7.1%
7.6% 7.5%8.1%
6%
7%
8%
9%
10%
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
LTM Return on Assets
14.5% 14.4% 14.5%
13.2%14.2% 14.7% 14.3%
12.4%
8%
10%
12%
14%
16%
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
Working Capital (% of Sales)
5
17
10 1013
11
7
11
0.0%
3.0%
6.0%
9.0%
12.0%
0
5
10
15
20
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
(% of sales)(M CAN$)Boxboard Europe
19 20
27
19 2123
26 25
0.0%
3.0%
6.0%
9.0%
12.0%
10
15
20
25
30
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
(% of sales)(M CAN$)Containerboard
1016
18
2833
3935
31
0.0%
5.0%
10.0%
15.0%
20.0%
0
10
20
30
40
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
(% of sales)(M CAN$)Tissue Papers
7
12 13
2
11
15 15
8
0.0%
3.0%
6.0%
9.0%
12.0%
0
5
10
15
20
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
(% of sales)(M CAN$)Specialty Products
HISTORICAL SEGMENTED EBITDA
EBITDA excluding specific items. 22
Tissue Papers
Boxboard Europe Containerboard
Specialty Products
BLX growth not fully reflected in its valuation; still represents ±$1.35/share for CAS 23
PERFORMANCE OF OUR EQUITY INVESTMENTS - BORALEX
Source: Bloomberg and Boralex’ website; refer to October 2012 Investor Presentation for footnotes.
Analyst Recommendations Average target 1 top pick 13.00$ 4 buys or outperforms ~12.00$ 1 sector outperform 11.25$ 2 market or sector perform ~10.50$ Comparative Valuation Matrix BLX INE NPI (based on 2013 figures) Price/Book 1.2x 1.6x 4.4x Price/Cash flow 8.4x 12.9x 12.1x EV/EBITDA 10.5x 17.3x 12.2x
Reno is a turnaround story in a tough economic environment 24
• 30.6% interest received in 2007 in exchange for our CRB mills
• RDM is a public company • Market cap: 57M € • TEV/EBITDA: 5.5x (LTM); 3.5x (2013E) • P/BV: 0.4x
• Current ownership : 48.5% • Put option requiring us to buy additional 9% • Fully consolidated in our results
Cascades’ Ownership in Reno de Medici
• 2nd supplier of boxboard in Europe • Excellent geographical coverage of Western
Europe with production facilities in main markets
• Wide range of packaging products – virgin and recycled
• Competitive cost structure will allow to compete against Asian supply
• Three WLC units seen as European class facilities
• Capital structure in good position
Competitive Positioning
PERFORMANCE OF OUR EQUITY INVESTMENTS - RDM
40 30 26
0
20
40
60
2010 2011 2012
(millions €) Reno de Medici’s EBITDA
DEBT PROFILE
25
Leverage ratio improvement due to increased profitability Note: EBITDA excluding specific items. Starting in Q2 2011, LTM EBITDA / Interest includes 100% of RDM. Starting in Q4 2011, also includes 100% of Papersource. Cascades’ bank debt financial covenant ratios: Net funded debt to capitalization < 65% (currently at 55%),interest coverage ratio > 2.25x (currently at 3.01x).
57%59%
54%
57%59%
61%
45%
50%
55%
60%
65%
2007 2008 2009 2010 2011 2012
Debt / Debt + Equity
4.6x
5.9x
3.3x
4.5x
5.8x
5.0x
3.0x
4.0x
5.0x
6.0x
7.0x
2007 2008 2009 2010 2011 2012
Net debt / LTM EBITDA
3.4x3.0x
4.6x
2.9x2.5x
3.1x
1.0x
2.0x
3.0x
4.0x
5.0x
2007 2008 2009 2010 2011 2012
Interest Coverage Ratio
Before 20169%
201641%
201733%
202017%
Long-term Debt Maturities Distribution
CREDIT AGREEMENT TERMS
26
Advantageous credit terms providing flexibility
February 2011 February 2012
Structure $750 M revolving credit facility $750 M revolving credit facility
Maturity February 2015 February 2016
Interest rate LIBOR + 212.5 bps LIBOR + 175 bps
Standby fees 48 bps 35 bps
Covenants1 Funded Debt to Capitalization Ratio ≤ 65% Interest Coverage Ratio ≥ 2.25x
Funded Debt to Capitalization Ratio ≤ 65% Interest Coverage Ratio ≥ 2.25x
1 On an adjusted consolidated basis
Current Debt / Cap Ratio : 51% Current Interest Coverage Ratio : 3.3x
27
CAPITAL ALLOCATION
Important capital allocation decisions since FY2010 1 EBITDA excluding specific items. Starting in Q4 2011, ratios include 100% of Papersource. 2012E and 2013E ratios are based on forecasts by analysts and debt remaining at Q2 2012 level.
1,397
1,535
(298)
(287)
278
25099
8344
700800900
10001100120013001400150016001700
Total Debt12/31/2010
Dopacosale
Cash flowfrom op.
Var. ofworkingCapital
$CAN Acqu. &consol.
Capex,net of disp.
Greenpacinvestment
Leases &others
Dividends&
buy-backs
Net Debt12/31/2012
(M CAN$)
(20) (11)
CAPEX PROGRAM
28
Gradual capex program to improve asset base while maintaining financial flexibility
Capital Expenditures Distribution in 2012 - $198M
Capex requests for 2013 initially approved at approximately $175M First allocation of $150M Amount subject to change depending on operating results and economic conditions
Corporate 24%
Boxboard Europe
15%
Tissue papers
17%
Specialty products
8%
Container -board 36%
By segment
Others 25%
Health & Safety
3% Energy
5%
Cost Reduction,
Productivity &
Maintenance 67%
By project category
29
Taking the steps to be ready for tailwinds
POTENTIAL BENEFITS STEMMING FROM OUR RECENT INITIATIVES
• Modernization initiatives (±$150M capex program per year) • Papersource integration
• Bird Packaging integration • Announced price increases in the containerboard sector • Containerboard productivity rate to revert to historical levels • Streamlining of converting operations in New England, Ontario and
Québec • 18 divestitures/closures since 2008, some of which unprofitable units • Greenpac contribution and valuation • Complete turnaround and modernization of European platform
• Complete ramp-up of Atmos tissue paper machine • Boralex project pipeline
• Benefits from ERP upgrade
Improvement in the
economic environment
in North America
and Europe