CASCADES INC. Imperial Capital Global Opportunities Conference - - PowerPoint PPT Presentation

CASCADES INC.

Imperial Capital Global Opportunities Conference September 20, 2012

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

• perating 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

3 Containerboard Specialty Products Tissue Papers

OVERVIEW – PACKAGING AND TISSUE PRODUCTS

Leading packaging and tissue manufacturer with substantial recycling capabilities

OVERVIEW – WORLDWIDE ASSET BASE

4

Canada 64% USA 21% Europe 15%

Asset Base Distribution (PP&E per region)

RENO DE MEDICI RECOVERY OPERATIONS GREENPAC PROJECT JV IN INDUSTRIAL PACKAGING BORALEX Most of our investments are not reflected in our EBITDA numbers 5

OVERVIEW – OTHER ASSETS & INVESTMENTS

Assets

• 46% ownership
• Public co: bloc worth ± $30M

Consideration

• 73% ownership
• 59.7% ownership
• $99M investment to date
• 50% ownership
• 35% ownership
• Public co: bloc worth ± $110M

Accounting

• Fully consolidated
• Equity pick-up

OVERVIEW – BALANCED PLAY

Packaging

75% of Sales 58% of EBITDA

Cascades

Q2-2012 LTM Sales1: $3,734M Q2-2012 LTM EBITDA1, 2: $293M Tissue Papers

25% of Sales 42% of EBITDA

1 Adjusted for the full year consolidation of Papersource. 2 EBITDA excluding specific items and discontinued operations. Breakdown of sales and EBITDA before eliminations & corporate activities.

Having two core sectors is working to our advantage in the current economic context

Boxboard Europe

22% of Sales 16% of EBITDA

Containerboard

31% of Sales 28% of EBITDA

Specialty Products

22% of Sales 14% of EBITDA

6 Sales to: Canada US Elsewhere 40% 37% 23%

Two healthiest sectors in P&FP and substantial recycling capabilities

Spot Purchases

20%

Internal and CAS Recovery

32%

Contractual agreements

48%

Recycled Fiber Sources - 2011

Top 5 producers' share of capacity

85% 66% 86% 76% 77% 0% 20% 40% 60% 80% 100%

North American coated boxboard European coated boxboard North American containerboard Canadian containerboard North American tissue

7

OVERVIEW – HEALTHY P&FP SECTORS AND ACCES TO FIBER

RECOVERED PAPER

• #1 Canadian collector

PACKAGING

• #1 Canadian containerboard producer
• #6 North American containerboard producer
• #2 European in coated recycled boxboard

TISSUE

• #1 “green” tissue papers retail brand in Canada
• #2 Canadian producer
• #4 North American producer

Leadership on the green scene with upstream and downstream integration RECOVERY 23 units CONVERTING 60 units FINISHED PRODUCTS MANUFACTURING 30 units 8

DOWNSTREAM Recycled fiber usage (2011): 76% (2.9M tons) NA integration rate (2011): 33% (580K tons) UPSTREAM NA integration rate (2011): 47%

Including the 6 manufacturing/converting tissue papers units and Reno De Medici’s units.

OVERVIEW – GREEN LEADERSHIP PLAY

Strong performance during the economic downturn and less cyclical end-use markets

Non- durables; 28% Durables; 9% Food; 53% Others 10%

Retail 69% Away-from- home 31%

2011 U.S. Tissue Paper End-Users 2011 U.S. Containerboard End-Users

88 96 107 121 127 110 59 85 94 72 37 62 79 51 72 84 20 40 60 80 100 120 140 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 (M $)

Recession

GAAP IFRS

EBITDA (excluding specific items)

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OVERVIEW – RECESSION PROOF PLAY

North American Box Shipments

412 411 413 424 421 428 421 405 374 386 387

300 340 380 420 460 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(billions ft2)

U.S. Total Tissue Consumption 7,844 7,896 8,028 8,201 8,053 8,219 8,319 7,600 7,800 8,000 8,200 8,400 2005 2006 2007 2008 2009 2010 2011 ('000 s.t.)

MARKET DYNAMICS – DEMAND

Exposure to relatively stable / growing demand

Sources: RISI, Fiber Box Association, Paper Packaging Canada.

Packaging Tissue

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MARKET DYNAMICS – MARKET BALANCE

Balanced supply/demand equation with utilization rates at approximately 95%

Sources: RISI, CEPI Cartonboard, Paper Packaging Canada , Fiber Box Association.

Annual Average Capacity Utilization Rates 76% 80% 84% 88% 92% 96% 100% 2007 2008 2009 2010 2011

U.S. Containerboard Industry U.S. Coated Recycled Boxboard Industry U.S. Tissue Industry

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MARKET DYNAMICS – PRODUCT PRICES

Jun-12 Jun-12 Jun-12

After approx. 30 months of flat pricing, $50/s.t. price increase announced (applicable in September) along with following box price increases

800 1,000 1,200 1,400 1,600

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

Tissue Papers - Parent Rolls

Recycled parent roll Virgin parent roll

($US/t.c.)

500 600 700 800 900 1,000 1,100 1,200

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

Boxboard Europe - Selected Products

Coated duplex (GC2) White-lined chipboard (GD2)

(Euro/t.m.)

400 500 600 700 800 900 1,000

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

Containerboard - Selected Products

Linerboard 42-lb Corrugating medium 26-lb 20-pt clay coated news (recycled folding boxboard)

($US/t.c.)

12

Source: RISI

EBITDA sensitivity to 15$US or €/s.t. change in recycled fiber costs: ±$48M Current List Prices 175 90

MARKET DYNAMICS – RAW MATERIAL COSTS

13

290 185 165 110

50 100 150 200 250 300 Jan 09 Mar 09 May 09 July 09 Sept 09 Nov 09 Jan 10 Mar 10 May 10 July 10 Sept 10 Nov 10 Jan 11 Mar 11 May 11 July 11 Sept 11 Nov 11 Jan 12 Mar 12 May 12 July 12 Sept 12 (US$/ton)

Main Recycled Fiber North Amercian OBM List Prices

White grades (SOP) Brown grades (OCC)

0% 10% 20% 30% 40%

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12

Chemical Products Index Variation

Starch Wax Latex Pigments Plastics

14 Financial results impacted by significant variable cost inflation

MARKET DYNAMICS – INPUT COST INFLATION

Source: Bloomberg

30 40 50 60 70 80 90 100 110 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 July 09 Oct 09 Jan 10 Apr 10 July 10 Oct 10 Jan 11 Apr 11 July 11 Oct 11 Jan 12 Apr 12

Crude oil (US$) Natural gas (US$)

Energy prices

Natural gas (US$/mmBtu) Crude oil (US$/barrel)

Increase over +18 months +16% +3% +8% +28% +3%

0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10 Q1 03 Q3 03 Q1 04 Q3 04 Q1 05 Q3 05 Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 Q3 08 Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 Q3 11 Q1 12 EURO/CAN$ US$/CAN$

Exchange rates

US$/CAN$ Euro/CAN$

MARKET DYNAMICS – FOREIGN EXCHANGE

Source: Bloomberg

15 EBITDA sensitivity to 1 CAN¢ change: ±$7M +49% +25%

3,449 3,692 3,862 3,481 4,033 4,025 3,877 3,182 3,625

2,500 3,000 3,500 4,000 4,500 2003 2004 2005 2006 2007 2008 2009 2010 2011 (M CAN$)

SALES

250 259 262 314 340 305 465 310 229

100 200 300 400 500 2003 2004 2005 2006 2007 2008 2009 2010 2011 (M CAN$)

EBITDA

16

FINANCIAL REVIEW – HISTORICAL PERFORMANCE

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 IFRS CANADIAN GAAP CANADIAN GAAP

2 4 5 17 10 10 13 11

• 3.0%

2.0% 7.0% 12.0% 5 10 15 20 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 (% of sales) (M CAN$)

Boxboard Europe

46 55 36 19 20 27 19 21 23

3.0% 6.0% 9.0% 12.0% 15.0% 15 30 45 60 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 (% of sales) (M CAN$)

Containerboard

24 24 23 10 16 18 28 33 39

0.0% 5.0% 10.0% 15.0% 20.0% 15 30 45 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 (% of sales) (M CAN$)

Tissue Papers

17 18 12 7 12 13 2 11 15

0.0% 3.0% 6.0% 9.0% 12.0% 15.0% 5 10 15 20 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 (% of sales) (M CAN$)

Specialty Products

EBITDA excluding specific items.

Boxboard Europe Containerboard Specialty Products Tissue

FINANCIAL REVIEW – SEGMENTED EBITDA

17

Progressing on all fronts, except for working capital

FINANCIAL REVIEW – KEY INDICATORS (KPIs)

18

692 695 663 661 902 822 776 796 829

500 600 700 800 900 1000 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 ('000 s.t.)

Total Shipments

94% 91% 87% 90% 90% 87% 86% 89% 90%

80% 84% 88% 92% 96% Q2 2010 Q3 2010 Q4 2010 Q1 2011Q2 2011Q3 2011Q4 2011 Q1 2012 Q2 2012

Capacity Utilization Rate

11.2%11.0%10.6% 9.9% 8.7% 7.4% 6.5% 7.1% 7.6%

6.0% 7.5% 9.0% 10.5% 12.0% Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012

LTM Return on Assets

15.1% 15.1% 13.9% 14.5% 14.4% 14.5% 13.2% 14.2% 14.7%

10.0% 12.0% 14.0% 16.0% Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012

Working Capital (% of Sales)

Before 2016 10% 2016 41% 2017 33% 2020 16%

Long-term Debt Maturities Distribution 90% of debt not maturing until 2016

1,805 1,658 1,570 1,533 1,454 1,508 1,462 1,397 1,445 1,298 1,370 1,485 1,524 1,585

1,000 1,200 1,400 1,600 1,800 2,000 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 (M CAN$)

Net Debt

FINANCIAL REVIEW – DEBT PROFILE

19 Cascades’ Unsecured Senior Notes

• 2020 - USD$250M @ 7.875% (YTW 6.80%)
• 2017 - USD$500M @ 7.75% (YTW 6.28%)
• 2016 - CAD$200M @ 7.75%

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FINANCIAL REVIEW – LEVERAGE RATIOS & COVENANTS

Increase in ratios due to a more challenging H2 2011 and CAPEX program

• Cascades’ financial bank covenant ratios:

Covenant Now

• Net funded debt to capitalization

≤ 65% 54%

• Interest coverage ratio

≥ 2.25x 2.9x

1 1 EBITDA excluding specific items. Starting in Q4 2011, ratios include 100% of Papersource.

57% 59% 54% 57% 59% 61% 40% 45% 50% 55% 60% 65% 2007 2008 2009 2010 2011 LTM 06/2012

Debt / Debt + Equity

4.6x 5.9x 3.3x 3.8x 5.8x 5.4x 3.0x 4.0x 5.0x 6.0x 7.0x 2007 2008 2009 2010 2011 LTM 06/2012

Net debt / LTM EBITDA

Cost Reduction, Productivity & Maintenance 74% Energy 4% Health & Safety 7% Others 15%

By project category

21

By segment

Containerboard 25% Tissue papers 25% Corporate 6% Boxboard 23% Specialty products 21%

• Capex requests for 2012 initially approved at approximately $150M
• Amount subject to change depending on operating results and economic conditions.

Gradual capex program to improve asset base while maintaining financial flexibility

FINANCIAL REVIEW – CAPEX PROGRAM

Capital Expenditures Distribution in 2011 - $141M

Improve our ROCE to exceed 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 Cap Initiative

STRATEGIC ACTION PLAN

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STRATEGIC ACTION PLAN – PRIORITY #1

Challenging Market Evolution  Proactive measures  Improved profitability CONSOLIDATION OF OUR PACKAGING OPERATIONS WITH CONCURRENT INVESTMENTS Focused investing for modernization of core operations and IT

1

ERP IMPLEMENTATION

• $80M investment program
• Blueprint and programming:

2011-2012

• Implementation:

2011-2015

• Recent investment announcements:
• $30M in our containerboard sector
• $22M in our boxboard sector

23

24

• Financial flexibility not affected
• $99M total investment
• $84M in equity
• $15M in bridge loan
• Debt non-recourse to Cascades
• Strong partnership
• Norampac (Cascades)

59.7%

• Caisse de dépôt

et placement du Québec 20.2%

• Two industry converters

20.1%

• Competitive advantage – Recycled liner
• Largest in NA
• 540,000 short tons capacity
• Most technologically advanced equipment
• Well-aligned with current market trends

Will position us amongst leaders in terms of product offering, productivity and profitability

STRATEGIC ACTION PLAN – PRIORITY #1 (cont’d)

OUR GREENPAC PROJECT

25 Challenging Market Evolution  Proactive measures  Improve profitability

• Papersource
• Modern converting plant
• Integration increased to 70% +
• Bird Packaging
• Broadens market presence in

Ontario

• Allows streamlining of

production base Optimizing capital allocation between sectors and investments

2

W/C Reduction Initiative Tuck-in acquisitions

STRATEGIC ACTION PLAN – PRIORITY #2

15.1% 15.1% 13.9% 14.5% 14.4% 14.5% 13.2% 14.2% 14.7%

10.0% 12.0% 14.0% 16.0% Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012

Working Capital (% of Sales)

26 Restructuring of under-performing units

3

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 4 closures Tissue 1 acquisition Packaging 1 investment 4 closures Tissue 1 closure

STRATEGIC ACTION PLAN – PRIORITY #3

27 Outperform rating by most buy-side analysts

INVESTMENT CONSIDERATIONS – RECOMMANDATIONS

EBITDA (M$) EPS 2012 2012 BMO CAPITAL MARKETS Outperform $5.75 326 $0.31 DESJARDINS SECURITIES Buy $6.50 341 $0.43 NATIONAL BANK FINANCIAL Outperform $6.00 331 $0.32 SCOTIA BANK Sector outperform $5.50 370 $0.42 TD Hold $5.00 311 $0.26 RBC Outperform $6.00 320 $0.21 AVERAGE $5.79 333 $0.33

Share price - Sept 10, 2012 $4.89 Potential Upside 18%

Brokerage Firm Rating Target

INVESTMENT CONSIDERATIONS – VALUATION METRICS

Undervalued compared to peer group 28

Comparable Entreprise Price / BV EV / EBITDA P / E Dividend companies Value (M$) (next) (next) yield (%) Graphic Packaging US$4,328 1.8x 6.4x 17.0x 0.0% Kapstone US$1,254 1.7x 5.9x 12.5x 0.0% Meadwestvaco US$6,509 1.6x 6.6x 20.6x 3.4% PCA US$3,900 3.5x 6.9x 16.3x 2.8% Rock Tenn US$8,067 1.3x 5.7x 15.0x 1.2% Sonoco US$4,267 2.2x 6.7x 13.2x 3.8% Average - Packaging US$4,721 2.0x 6.4x 15.8x 1.9% Clearwater Paper US$1,382 1.8x 5.5x 12.5x 0.0% Orchids Paper US$146 1.8x 8.0x 15.5x 3.9% Wausau US$571 2.2x 6.3x 22.8x 2.0% Average - Tissue US$700 1.9x 6.6x 16.9x 2.0% Cascades $2,179 0.5x 6.0x 15.3x 3.3% Sector Tissue Papers Packaging

29 Taking the steps to be ready for tailwinds

INVESTMENT CONSIDERATIONS – POTENTIAL IMPROVEMENTS

• Modernization initiatives (±$150M capex program)
• Papersource integration
• Bird Packaging integration
• Containerboard productivity rate reverting to historical levels
• Streamlining of converting operations in New England, Ontario and

Québec

• 17 sales or closures since 2008, some of which unprofitable units
• Announced price increase in containerboard sector
• Recent weakness in recycled paper prices
• Greenpac contribution and valuation
• Complete turnaround and modernization of European platform
• Complete ramp-up of Atmos tissue paper machine
• Boralex major project start-up and potential impact on valuation

Improvement in the economic environment in North America and Europe

• Economic uncertainty, particularly

in Europe

• Higher demand volatility
• Recent recycled white paper price

increase

• Energy and chemical costs

remaining high

• Lower to stable raw material costs
• Announced price increase in

containerboard sector

• Impacts of restructuring and
• ptimization measures
• Potential to improve utilization rate
• Additional contribution from

Papersource and Bird

NEAR TERM OUTLOOK: Confidence

+ I

Boxboard Europe Containerboard Specialty Products Tissue Papers Volume Slight increase Slight increase Slight increase Slight increase Selling prices Stable Slight increase Stable Stable Raw material costs Slight decrease Slight decrease Slight decrease Slight increase CDN $ vs

• ther currency

Stable Stable Energy costs Stable Stable

30