GREENPAC. The Future is Now

Transcription

1 GREENPAC The Future is Now June 27, 2011

2 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 Company 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 also includes 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 Company. 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 Company 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 Company 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 annual report or earnings press release. Specific items are defined as items such as charges for impairment of assets, for facility or machine closures, 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

3 AGENDA 1. Strategy and Market Fundamentals 2. Key Success Factors 3. Financial Overview 4. Concluding Remarks 3

4 STRATEGY AND MARKET FUNDAMENTALS 4

5 GREENPAC AT A GLANCE What? New state of the art lightweight recycled linerboard mill One 328-inch wide machine 540,000 short tons in total annual production capacity, largest recycled-based in North America Where? Niagara Falls (NY) How much? Total estimated cost: US$430 M Who? Norampac (Cascades, 59.7%), Caisse de dépôt et placement du Québec (20.2%), Jamestown Container and another industry converter (20.1%) When? Expected start-up: summer 2013 Why? Strategic fit Key success factors 5

6 STRATEGIC FIT Closure of Quebec City (QC) corrugated box plant Sale of Avot- Vallée (France) linerboard mill Sale of Dopaco Greenpac Closure of Regina (SK) corrugated box plant Closure of Leominster (MA) corrugated box plant Sale of Versailles (CT) & Hebron (KY) boxboard facilities & ann. upgrade of CAN operations Cascades is proactively adjusting its asset base, redeploying capital towards core segments in order to improve its product offering, competitiveness and profitability 6

7 STRATEGIC FIT (%) Cascades' return on assets Target Greenpac is expected to generate ROA above our consolidated target Return on assets (ROA) is defined as: EBITDA excluding specific items/total assets 7

8 STRATEGIC FIT Norampac mills (with capacity in s.t.) Linerboard: Kingsey Falls (QC) 103,000 Mississauga (ON) 173,000 Greenpac (NY) 540, ,000 Medium: Burnaby (BC) 128,000 Trenton (ON) 194,000 Cabano (QC) 242,000 Niagara Falls (NY) 275, ,000 Manufacturing capacity breakdown Before Greenpac After Greenpac Before Greenpac After Greenpac Linerboard: 25% Linerboard: 49% Canada: 75% Canada: 51% Medium: 75% Medium: 51% USA: 25% USA: 49% Greenpac allows Norampac to rebalance its manufacturing and geographical exposure Return on assets is defined as: EBITDA excluding specific items/total assets 8

9 HEALTHY MARKET FUNDAMENTALS (M s.t.) North American containerboard capacity change and operating rate Avrg (ex. 2009)=94% % 95% 90% 85% 80% Capacity change Capacity utilization rate With the exception of 2009, containerboard market conditions have e been healthy during the past years, with high operating rates and low level of inventories Source: RISI. 9

10 HEALTHY MARKET FUNDAMENTALS Price (US$/s.t.) Linerboard Market Selling price and Spread Over Old Corrugated Container (OCC) Costs Spread (US$/s.t.) YTD 2011 Selling price Selling price/occ cost spread 300 Given improved operating rates, selling prices have moved upward and offset higher OCC costs Source: RISI. Reference selling price for the unbleached linerboard 42-lb kraft (East). Average OCC costs for the New York and Chicago areas. 10

11 PROJECTED HEALTHY FUTURE MKT FUNDAMENTALS (M s.t.) 45 North American Forecasted Containerboard Capacity and Operating Rate 100% 43 Avrg. 2011F-2020F=96% 98% Greenpac represents 1% of current North American capacity F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 96% 94% 92% 90% Capacity Capacity utilization rate Going forward, additional capacity and production (1-2%/year) is expected to be absorbed by improving internal demand (1%/year) and growing exports (6%/year) Source: RISI. 11

12 KEY SUCCESS FACTORS 12

13 ALIGNED WITH MARKET TRENDS Unbleached Recycled Linerboard Consumption Greenpac: Basis weight range = 20# - 35 # Avrg. 31# Reduced packaging trend = shift towards higher performance, lightweight linerboard Source: Pöyry. North American consumption figures. 13

14 ALIGNED WITH MARKET TRENDS North American Corrugator Width Distribution 3 significant trends Larger corrugators Improved board quality and stability for smoothness and printability Stronger board for running corrugators at higher speed Greenpac s machine width and product offering will be optimal for most corrugators rugators Source: RISI. North American figures 14

15 EFFICIENT AND LOW COST Unbleached Linerboard Assets Benchmarking Greenpac s machine will be one the largest of its kind in North America Source: Pöyry. North American consumption figures. 15

16 EFFICIENT AND LOW COST Paper machine 328-inch width 540,000 total production capacity Manufacturer: Metso Multi-Fourdrinier design allows maximum product parameter optimization Size press for improved smoothness and use of lower quality recycled material Stock preparation & anaerobic effluent equipment Manufacturer: Voith The latest in cleaning technology will supply excellent fibre to the machine Power and control technology Manufacturer: Siemens Modern controls allow on-the-run analysis of major problems from any location The equipment used to construct the Greenpac mill represents the most proven recent technological advances in recycled linerboard production 16

17 EFFICIENT AND LOST COST North American Unbleached Linerboard Assets Benchmarking Low Cost Structure Favourable steam costs Favourable electricity costs Reduced freight costs Other fixed and labour costs low due to economies of scale 1 st quartile 2 nd quartile 3 rd quartile 4 rd quartile Despite high OCC costs, Greenpac will be positioned in the first quartile on the cost curve Source: Pöyry. Cost modeling based on 100% operating rate estimated at 42#. Exchange rate=0.97 US$/CAN$. North American consumption figures. 17

18 EFFICIENT AND LOST COST 40% 35% 30% 25% 20% North American Containerboard Industry EBITDA Benchmarking Norampac Industry's average RockTenn Acquisition of Southern Container (Solvay mill) 15% 10% 5% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q RockTenn,, with the acquisition of the Solvay mill, has become the most profitable p player in the containerboard industry Greenpac targets the same level of profitability Source: company filings, Cascades. Industry includes Greif, International Paper, RockTenn, Temple-Inland, Packaging Corp. of America, Smurfit-Stone. EBITDA adjusted for specific and extraordinary items. Industry EBITDA mainly for the containerboard operations (manufacturing, converting), but can also include some other operations (boxboard, kraft, pulp, etc.) 18

19 INTEGRATED UPSTREAM Cascades North American Fibre Supply Cascades recovery; 31% 2010 Brokers; 13% 87% supplied internally or contracted Converting plants; 5% Contractual agreements; 51% Greenpac will benefit from Cascades recovery operations (amongst the largest in North America), expertise, and strong control over its fibre supply 19

20 INTEGRATED UPSTREAM OCC Supply potential in an area with freight costs of US$30/s.t. or less (train or truck) = 7 M s.t. Greenpac expected consumption Year 1 = +/- 440,000 st Year 2 = +/- 590,000 st Significant and numerous OCC sources in the region 20

21 INTEGRATED DOWNSTREAM Contracted Mill Production (in 000 short tons / % of total production) Norampac; 170; 31,5% Customer 1; 120; 22,2% Customer 2; 50; 9,3% Customer 4; 50; 9,3% Customer 3; 45; 8,3% 81% of mill production sold under contract 21

22 STRONG PROJECT MANAGEMENT TEAM Steering Committee comprised of Norampac & MiniMill Technologies (MMT): Past Experience of Construction Team K.G. Rajan, Project Manager, President of MMT, 30+ years of experience. Was involved in the management & construction of the former Southern Container (now Rock-Tenn) Solvay Mill. Elgie Harrison, SVP Manufacturing, 40+ years of experience. Was involved in the start-up and management of two machines of the Cedar River mills. Ken Carter, Construction Manager, 30+ years of construction experience. Has managed the construction of five world-class paper machine installations, mainly with Willamette and Weyerhaeuser. Donnie Parks, VP Production, 40 years of experience. Has started and restarted more than a dozen mini-mills across N.A.. Project Budget (M US$) Real cost vs. budget Duration vs. scheduled Paper machine 477 -% On time Paper machine 380 -% On time Paper machine 600 (1)% + 3 weeks Paper machine 500 -% On time Paper machine 280 -% Early Boiler & Turbine generator % Early Particleboard Mfg Facility 100 -% On time Paper machine rebuild 80 -% On time Powerhouse & scales 40 -% On time Paper machine rebuild 30 (2)% Early Shoe press 24 (18)% On time Secondary fibre upgrade 14 (3)% On time Precipitator upgrade 14 +3% On time Paper machine rebuild 12 -% On time Chip storage & reclaim 7 +1% On time TOTAL 2,782 -% First class project management team to reduce cost and time overrun run risk; Norampac to be in charge of the day-to to-day operations at start-up Source: MMT. 22

23 FINANCIAL OVERVIEW 23

24 CAPITAL STRUCTURE (M US$) % of total equity % of total capitalization Equity Cascades % 19% Caisse de dépôt et placement % 6% Industry converter % 2% Industry converter % 4% Total equity % 31% Senior debt Term loan % Revolver % Total senior debt % Subordinated debt 1 Cascades % Caisse de dépôt et placement % Total subordinated debt % Capitalized interests during construction % Total for Cascades = US$99 M (Greenpac s debt without recourse) TOTAL % Balanced capital structure 1 Subordinated debt to bridge expected refundable tax credits in years 2 to 6. 24

25 GREENPAC FINANCIAL POTENTIAL (% of sales) EBITDA Margins Benchmarking Norampac's N. American mills Norampac's best 2 performing mills Greenpac Market linerboard selling price/occ cost spread (US$/s.t.) US$/CAN$ In most market conditions, Greenpac s profitability is expected to be one of the best in the industry Sources: RISI, Bloomberg. EBITDA excluding specific items. Greenpac s EBITDA margins based on Norampac s internal financial model. 25

26 FINANCIAL IMPACT (P/L) FOR CASCADES No full or proportionate consolidation Greenpac s results will flow through Share of results line in Statements of Earnings Factor Norampac s purchase volume discount Norampac s management fees to Greenpac Cascades bridge loan to Greenpac Cascades equity investment Greenpac s net earnings Greenpac s dividends Impact on Cascades Statements of Earnings & Cash Flow (+) EBITDA & Cash flow (+) EBITDA & Cash flow (-) Financing expenses, (+) Cash flow (+) Financing expenses, (-) Cash flow (+) EPS (+) Cash flow All in all, Greenpac is expected to have a positive impact on Cascades EBITDA, net results and cash flow once ramp-up is achieved EBITDA and EPS excluding specific items. 26

27 FINANCIAL IMPACT (B. SHEET) FOR CASCADES March 31, 2011 (adjusted for the sale of Dopaco) March 31, 2011 (adjusted for the sale of Dopaco and full investment in Greenpac) Change Long-term assets Investments in associates and JVs Other assets (31) Long-term liabilities Long-term debt 1,079 1, M US$ M CAN$ Equity Bridge loan Already invested (March 31, 2011) (31) (31) To invest (before year-end 2011) Cascades investment in Greenpac to have marginal impact on total debt 27

28 CONCLUDING REMARKS 28

29 CONCLUDING REMARKS Through Greenpac, 1. Norampac positions itself amongst sector leaders in terms of: Product offering Productivity Profitability 2. Cascades maintains and carefully manages: Financial flexibility Operational risk Objective: maintain sound balance sheet with continuing to invest strategically 29

30 APPENDICES 30

31 TIMELINE Start of Detailed Engineering/Remediation October 2010 Breaking ground July 2011 Completion of Paper Machine & OCC Building March 2012 Completion of Electrical & Instrumentation Installation April 2013 Completion of Mechanical & Piping Installation May 2013 Checkout and Commissioning Complete June 2013 Sheet on Reel (not later than) July 2013 Approximately 2 years until start-up of production 31

32 For more information: Didier Filion Director, Investor Relations CREDIT: IMAGE ECOterre