CASCADES INC. Goldman Sachs 2014 Montréal Paper & Forest Products Investor Event March 18 th , 2014
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 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 or reversal of 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. 2
INTRODUCTION Where we come from • Unique culture – green visionaries, turnarounds, entrepreneurial philosophy • Business model challenged by strong CAD$ and volatile recycled fibre costs Our recent performance and financial situation • Cost inflation in 2011/2012 but less volatile cost environment at the moment • Low economic growth in Canada and Europe but favorable FX • Productivity and profitability improving more to come • 2011 left us with an over-levered balance sheet but improving ratios Our action plan • Started at the end of 2011: a lot has been done but not completed yet • Investments reflected on balance sheet but not yet in results • New state-of-the-art Greenpac mill ramping-up according to plan Doing all the right things to improve a success story 3
OVERVIEW OF OUR OPERATIONS Green packaging and tissue product offering Packaging Products Tissue Papers Containerboard Boxboard Europe Specialty Products 1 st containerboard 1 st tissue paper 2 nd 1 st producer of in Canada producer in Canada producer paper collector in 6 th in North America 4 th in North America in Europe Canada Leading NA packaging and tissue manufacturer with substantial recycling capabilities 4
OVERVIEW OF OUR OPERATIONS Closed-loop business model 100+ business units 77% recycled fibre (3.0M tons 2 ) NA integration rate (2013): CLIENTS 20 units 27% (550K tons) 34 units 2 Trims and rejects sent to recycling centers NA integration rate (2013): Containerboard 1 : 56% 58 units 2 Tissue Papers: 70% Upstream and downstream integration in North America 1 Integration rate for our containerboard activities in North America. 5 2 Including Reno De Medici’s units and Greenpac. Also including 7 manufacturing/converting tissue papers units which are counted in both Converting and Manufacturing.
OVERVIEW OF OUR OPERATIONS Balanced play in less cyclical sectors Cascades 2013 Sales: $3,849M 2013 EBITDA: $352M EBITDA Margin: 9% Packaging Products Tissue Papers 74% of Sales 26% of Sales 62% of EBITDA 34% of EBITDA EBITDA Margin: 13% Containerboard Boxboard Europe Specialty Products 33% of Sales 21% of Sales 20% of Sales 38% of EBITDA 13% of EBITDA 15% of EBITDA EBITDA Margin: 11% EBITDA Margin: 6% EBITDA Margin: 7% EBITDA excluding specific items. Breakdown of sales and EBITDA before eliminations & corporate activities. Exposure to two healthiest sectors in the Pulp and Paper industry 6
OUR FINANCIAL PERFORMANCE Historical performance SALES EBITDA (M CAN$) (M CAN$) 4,000 400 3,849 352 2 310 304 3,625 3,645 300 3,500 229 1 3,182 200 3,000 100 0 2,500 2010 2011 2012 2013 2010 2011 2012 2013 IFRS IFRS EBITDA excluding specific items. Note 1 – Elimination of joint venture consolidation Note 2 – Impact of Dopaco divestiture and elimination of joint venture consolidation Results progressing as productivity, FX and pricing environment improve 7
OUR FINANCIAL PERFORMANCE Historical segmented EBITDA Containerboard Boxboard Europe (M CAN$) (M CAN$) (% of sales) (% of sales) 55 16% 25 12% 46 21 42 44 20 12% 9% 33 26 25 25 13 33 15 11 23 11 11 21 10 9 8% 6% 10 19 7 22 10 4% 3% 11 5 0 0% 0 0% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2012 2012 2012 2013 2013 2013 2013 2011 2012 2012 2012 2012 2013 2013 2013 2013 Specialty Products Tissue Papers (M CAN$) (M CAN$) (% of sales) (% of sales) 20 12% 44 20% 39 39 16 16 35 15 15 33 15 32 33 31 15 9% 33 15% 29 28 11 11 8 10 6% 22 10% 5 3% 11 5% 2 0 0% 0 0% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2012 2012 2012 2013 2013 2013 2013 2011 2012 2012 2012 2012 2013 2013 2013 2013 8 EBITDA excluding specific items.
OUR BUSINESS DRIVERS – PRICES Containerboard - Selected Products Tissue Papers - Selected Products (US$/s.t.) (US$/s.t.) 1 100 1 600 1 500 1 000 1 400 900 1 300 800 1 200 700 1 100 600 1 000 20-pt clay coated news (CRB) 500 Virgin parent rolls Linerboard 42-lb 900 Recycled parent rolls Corrugating medium 26-lb 400 800 Jan 11 July 11 Nov 11 Jan 12 July 12 Nov 12 Jan 13 July 13 Nov 13 Jan 14 Feb 14 Jan 11 July 11 Nov 11 Jan 12 July 12 Nov 12 Jan 13 July 13 Nov 13 Jan 14 Mar 11 May 11 Sept 11 Mar 12 May 12 Sept 12 Mar 13 May 13 Sept 13 Mar 11 May 11 Sept 11 Mar 12 May 12 Sept 12 Mar 13 May 13 Sept 13 • Prices relatively stable throughout the year • Recycled grade prices under pressure: 2013 • Additional capacity coming to market • Reasonable recovered paper prices Price increases in containerboard have been beneficial 9
OUR BUSINESS DRIVERS – ENERGY AND FX A prolonged weakness of the CAN$ Energy costs higher than last year would be a game changer Crude oil Natural gas US$/CAN$ €/CAN$ (US$) (US$) 8.00 110 1.10 0.95 7.00 100 1.05 0.90 6.00 90 1.00 0.85 5.00 80 0.95 0.80 4.00 70 0.90 0.75 3.00 60 0.85 0.70 2.00 0.80 0.65 1.00 50 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Natural gas (US$/mmBtu) Crude oil (US$/barrel) US$/CAN$ €/CAN$ • EBITDA sensitivity of $5M to every change of 0.01 CAN$ vs US$ Downward trend for CAN$; Recent price increase for natural gas Source: Bloomberg 10
OUR BUSINESS DRIVERS – RAW MATERIAL COSTS Recycled Fiber North American List US OCC Costs Highly Correlated with Prices Asian Board Market (US$ / ton) Greenpac GreenFence 4,500 300 300 start-up program July 15 4,000 250 250 Current (March) 3,500 200 200 165 3,000 150 150 125 2,500 100 100 2,000 50 50 Apr 2009 Jul 2009 Apr 2010 Jul 2010 Apr 2011 Jul 2011 Apr 2012 Jul 2012 Apr 2013 Jul 2013 Jan 2009 Oct 2009 Jan 2010 Oct 2010 Jan 2011 Oct 2011 Jan 2012 Oct 2012 Jan 2013 Oct 2013 Jan 2014 Jan 12 Mar 12 May 12 July 12 Sept 12 Nov 12 Jan 13 Mar 13 May 13 July 13 Sept 13 Nov 13 Jan 14 Mar 14 White grades (SOP) Brown grades (OCC) Kraft-Top liner 175g - Domestic Price - China (RMB/tonne) OCC (11) - US - LA/SF export to China - CFR (US$/ton) • Experts estimate Chinese collection rate at approx. 46% • Will increase as domestic consumption increases Partially due to harsh weather, brown grades increased by $15/s.t. in March 11 Sources: RISI
OUR BUSINESS DRIVERS – RAW MATERIAL STRATEGY Our North American Recycled Fibre Supply Our Strategy • Short term: 2013 • constant review of our inventory strategy Cascades Currently control • Long term: Recovery and Spot over 60% of our Internal • ensure control over fiber supply fibre supply Purchase 28% • develop substitute grades despite greater 37% Contractual • potential to increase virgin concentration Agreement content in certain circumstances on the supply 35% side • continue to close the loop with customers retailers Largest recycled paper collector in Canada 12
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