Safe Harbor Statements

Transcription

1 RBC Investor Roadshow November 18,

2 Safe Harbor Statements Forward Looking Statements: This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and applicable Canadian securities laws conveying management's expectations as to the future based on plans, estimates and projections at the time the Company makes the statements. Forward-looking statements involve inherent risks and uncertainties and the Company cautions you that a number of important factors could cause actual results to differ materially from those contained in any such forward-looking statement. The forward-looking statements contained in this presentation include, but are not limited to, statements related to expected future operating results of the Company, the potential impact the acquisition of DSS Group, Inc. will have on the Company and the estimated synergies resulting from such transaction. The forwardlooking statements are based on assumptions regarding management's current plans and estimates. Management believes these assumptions to be reasonable but there is no assurance that they will prove to be accurate. Factors that could cause actual results to differ materially from those described in this presentation include, among others: (1) changes in estimates of future earnings; (2) expected synergies and cost savings are not achieved or achieved at a slower pace than expected; (3) integration problems, delays or other related costs; and (4) unanticipated changes in laws, regulations, or other industry standards affecting the companies. The foregoing list of factors is not exhaustive. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers are urged to carefully review and consider the various disclosures, including but not limited to risk factors contained in the Company's Annual Report in the Form 10-K for the year ended January 3, 2015 and its quarterly reports on Form 10-Q, as well as other periodic reports filed with the securities commissions. The Company does not, except as expressly required by applicable law, undertake to update or revise any of these statements in light of new information or future events. Non-GAAP Measures: The Company routinely supplements its reporting of GAAP measures by utilizing certain non-gaap measures to separate the impact of certain items from its underlying business results. In this presentation, we use non-gaap measures such as EBITDA, adjusted EBITDA, adjusted free cash flow and adjusted free cash flow yield and certain ratios using these measures. Since the Company uses these non-gaap measures in the management of its business, management believes this supplemental information, including on a pro forma basis, is useful to investors for their independent evaluation and understanding of the business. Any non-gaap financial measures used by the Company are in addition to, and not meant to be considered superior to, or a substitute for, the Company's financial statements prepared in accordance with GAAP. In addition, the non-gaap financial measures included in this presentation reflects management's judgment of particular items, and may be different from, and therefore may not be comparable to, similarly titled measures reported by other companies. A reconciliation of this non-gaap measure may be found on 2

3 Cott is a Diversified Beverage Company with an Increased Health & Wellness Product Mix and Broad Channel Penetration Cott s diversified beverage platform is more reflective of the total beverage category Approximately 75% of EBITDA in growing product categories. Steady and dependable Home Office Deliver HOD Water revenue growth (3% to 4% per year) Sparkling water and mixer product category growth (mid to high single digit growth annually) Office Coffee Service OCS (single serve coffee growth of high single to low double digits) Other includes growing categories of energy, powdered hot chocolate and instant (microground) coffee as well as RTD teas. Significant presence in Good-for-You beverage categories especially via DS Services with both organic growth and tuck-in acquisitions providing a platform for growth in coming years as well as a growing sparkling water and mixer category within our Traditional Business Contract manufacturing growth with a 2 year CAGR of over 50% in categories such as juice and juice drinks, RTD teas, energy drinks, sparkling and flavored waters as well as a variety of other products and packages. Less exposure to large format retailers (less than 50% of 2015 revenues) with sparkling water and mixer / contract manufacturing growth offsetting private label CSD and Juice declines. Sparkling Waters/Mixers 10% 2015 YTD EBITDA by Product (1) Other 25% DS Services 51% OCS 6% CSD 16% 2015 EBITDA by Segment (2) Juice / Juice Drinks 11% HOD Water 32% Cott North America 32% Highly cash generative combination driven by well invested fixed assets that are able to manufacture a variety of products and can economically be re-tooled with the changing demands and tastes of the market. Other 3% Aimia 5% Cott U.K./EUR Core 9% Source: Cott management. 1. YTD represents nine-months ending October 3, EBITDA allocated based upon pro-rata revenues using DS Services EBITDA (HOD, OCS and Other) and Traditional Business EBITDA (CSD, Juice / Juice Drinks, Sparkling Waters / Mixers, and Other) estimated EBITDA by segment including corporate allocations (for reporting purposes Aimia is included as a part of UK/Europe). 3

4 Cott is a Diversified Beverage Company with Strong and Growing Free Cash Flow Cott s diversified beverage platform is expected to drive free cash flow growth in the mid-tohigh teens from 2016 to Adjusted Free Cash Flows Per Share (in MM's) 2018E 2015E 2014 Adjusted Free Cash Flows $165 - $185 $ $ Diluted Stock Count* Cash Earnings Per Share $1.50 to $1.65 $1.03 $1.13 *Assumes flat stock count from 2015 to Traditional Business Free Cash Flow Drivers Six years of consistently generating $100 million of adjusted free cash flows (2009 to 2014) Well invested fixed assets ( $100 million of depreciation and amortization vs $50 to $55 million of capex requirements) Beneficial tax structure (cash taxes $3 to $6 million 2015 to 2018) Source: Cott Management DS Services Free Cash Flow Drivers 3% to 4% of annual top line growth generates incremental EBITDA and free cash flow $30 million of synergy capture from 2015 to 2017 Tuck-in customer list acquisitions of $10 to $20 million per year generates incremental EBITDA of $3 - $6 million Refinancing of DS Notes in September 2017 generates significant interest savings ($350 million Notes at 10% creating $10 to $20 million of annual interest savings) ` 4

5 Cott s Vision Building Upon the Platform Created To Further Growth and Value Creation Shareholder Value Creation Create a more diversified and growth-oriented company with annual EBITDA and free cash flow expansion to drive increased multiple/stock valuation. + Mid-to-Larger Scale Acquisitions in HOD Water, OCS, Value Brand or Other Beverage Diversification Focus on growing, higher-margin beverage categories outside of CSDs, SSJs and large format retail with appropriate free cash flow and EBITDA growth parameters as well cash-on-cash IRR greater than cost of equity. + Market Roll-Up (Tuck-ins) Acquire $10-$20 million in HOD Water/OCS businesses annually + DS Services Synergy Capture Successfully integrate DS Services and Capture full $30 million in synergies by end DS Services Organic Growth Continue to generate 3%-4% top line growth Traditional Business Foundation of the Plan Broad stability / cash generation through 4Cs, supported by growth in Copack and Value Added Water offsetting PL CSD and SSJ declines Source: Cott Management 5

6 Traditional Business Foundation of the Plan Stability through 4Cs, Copack and VAW growth, and Cash Generation/Deleveraging 1 Building Value Through Cost Down Initiatives Traditional Business Strengthen customer relationships Understand our customers needs Build new channel relationships High service standards One-stop shop philosophy Supply chain solutions 4C s Philosophy Drives High Cash Generation Continue to lower operating costs Manage the commodity cycles Control SG&A costs Improve operating efficiencies 3-year $30 million cost reduction plan within traditional business ( ) Control capital expenditures Manage projects tightly with a focus on cost / efficiency. Use third party funding where possible (eg warehousing) High quality plants - all SQF Level 3 or BRC Focus on efficiency capex with 2-3 year payback Cost reduction minimizes capex spend Deliver significant free cash flow Rigorously manage working capital Assist rapid de-leveraging and interest benefit with the goal of reducing leverage to low 3.0x EBITDA by Fund HOD and OCS market roll-up by DS Services with post synergy multiples of approximately 3.0x EBITDA. Sale and leasebacks executed / opportunity. Packaging Interplant Transfers Warehouse Projects Plant Projects CC + I $35 $30 Cott North America War on Waste $30 UK/Europe 3 Phase Cost Action and Operational Efficiency Program ( ) $25 $20 $15 $10 $5 $0 $ In the second half of 2014, the Cott North America Business Unit initiated a three-year cost savings program War on Waste to take $30 million of costs out of the business through Phase One SG&A / Cost Actions Head count and benefit reductions Manufacturing and operational costs Phase Two Warehouse Program Third Party Warehouse Investment Significant shunt and shuttle cost savings Phase Three High-speed rainbow pack line Hard discounter business wins Increased production efficiencies 6

7 Traditional Business Foundation of the Plan Stability through 4Cs, Copack and VAW growth, and Cash Generation/Deleveraging 1 Offsetting Private Label CSD and SSJ declines through Contract Manufacturing and Value Added Water Growth Copack Advantages Provides gross margins that are consistent with Cott s historical rates Dollar profit (operating income per case) is equivalent to Cott s other products Brand owners normally supply the ingredients and packaging materials Limited commodity exposure drives stable margin contribution Lowers working capital requirements and improves line efficiency Capitalizes on outsourcing trends by brand owners Increases asset utilization especially hot-fill assets and offsets PL CSD and SSJ decline Serving equivalent cases (in millions) Copack Opportunities E 2016E Substantial room for Cott to grow Value Added Water Opportunity Capitalize on consumer movement to healthy products such as sparkling and flavored water as well as ice type beverages which are generating high single digit to low double digit growth annually. Resources will be allocated to this beverage category which have retailer support and where the private label segment controls a larger percentage of the market relative to other categories such as CSDs. Target high single to low double digit compound annual volume growth in value added water. Source: Cott Management 7

8 Traditional Business Foundation of the Plan Stability through 4Cs, Copack and VAW growth, and Cash Generation/Deleveraging 1 Growth in Contract Manufacturing and Value Added Water Offsetting Private Label CSD and SSJ declines (in millions excluding per case) Nine-Months Ended Cott North America October 3, 2015 September 27, 2014 Variance Revenues $1,026 $1, % per case $2.08 $2.19 Volumes % Gross Profit $135 $ % per case $0.27 $0.26 Operating Income $34 $ % per case $0.07 $0.05 Mix shift into growing contract manufacturing and sparkling water and mixers offsets decline in CSDs and SSJs driving volume stability. Mix into growth areas of contract manufacturing (two year CAGR of over 50% growth) and sparkling and flavored water (mid to high single digit growth) provide volume stability and equivalent operating income dollars per case although at a lower revenue per case. With volume stability, focus on fixed cost and operational efficiencies is able to expand gross profit and operating income. 8 Source: Cott Management.

9 DS Services Organic Growth Big 3, Partnerships, and Upselling/Cross Selling 2 Growing HOD water through Big 3 of increased (1) consumption, (2) customers and (3) pricing Consumption Source of Organic Customer Growth U.S. HOD Bottled Water Market Revenue (billions) $2.0 $1.8 $1.6 $1.4 $1.70 $1.74 $1.66 $1.48 $1.43 $1.43 $1.48 $1.54 $1.62 $1.64 $1.2 $ TTM Q % Vs. PY +2.4 (4.4) (10.6) (3.5) (0.1) Value / Pricing U.S. HOD Bottled Water Market Quarterly Trend 8.0% Revenue Growth Volume Growth 6.0% 4.0% 3.7% 3.4% 3.0% 4.4% 4.9% 3.6% 5.7% 4.6% 3.1% 4.1% 4.0% 4.6% 2.0% 0.0% 3.4% 2.6% 1.9% 2.2% 1.6% 2.3% 1.8% 3.2% 2.8% 1.6% 2.3% 2.8% 3.3% -2.0% -0.5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Source: Cott Management Excludes the impact of 5G at retail (Primo) 9

10 DS Services Organic Growth Big 3, Partnerships, and Upselling/Cross Selling 2 Long Term Strategic Partnerships Drive Continued Organic Growth and Provide a Competitive Advantage DS Retailer Booth Customers Primo Customer Density Leverages Cost Structure Map represents the Primo Customers and the geographic density Source: Cott Management 10

11 DS Services Organic Growth Big 3, Partnerships, and Upselling/Cross Selling 2 Cross Selling and Upselling Opportunity for Coffee within DS HOD Water Customer Base is Significant Residential Water Delivery Commercial Ship-To s Commercial Water & Coffee 4.8% Water, No Coffee 95.2% 30,000 28,000 Commercial Water Delivery Ship-To Customers Purchasing Coffee 27,790 26,000 24,000 24,422 26,110 22,000 20, TTM P % of Commercial Ship-To Customers 4.2% 4.5% 4.8% Source: Cott Management 11

12 DS Services Synergy Capture $30 million through Cott s DS Services Acquisition Continues to Drive Cost and Revenue Synergies Cost Synergies ($23 Million) Procurement Leverage Cott s scale $5.0 Freight savings $0.5 Combined efficiencies SG&A $9.0 Back office efficiencies Insurance / Health Cost Actions $9.0 Implement Cott s philosophy Integrated systems Revenue Synergies ($7 million) Sparkling waters Increase the DS Services product offerings with sparkling waters manufactured by Cott Range substitution Transfer the production of certain DS Services thirdparty products to Cott s manufacturing plants Flavored Sparkling Water Launch flavored sparkling water range distributed via DS Services Vertical integration and supply Estimated three-year synergy target increased to $30mm (up from $25mm) Source: Cott Management 12

13 DS Services Synergy Capture $30 million through Additional Opportunity Above Basic Synergies Cross Selling and Upselling through Vertical Integration with Traditional Business Access to New Channels DS Services can distribute Cott s higher margin products to channels that were difficult for Cott to serve. (Future opportunities) C-Stores Gas Stations Mom and pop stores Portfolio Expansion Cott can expand the offering of products available to DS Services customers. (Action plans: ) Sparkling Waters Flavored Waters Juices and Drinks RTD Tea and Coffee Cott Cold Fill Cott Hot Fill DS Services Production Facility Hot / Powdered R&D / Concentrate DS Services Distribution Network Traditional Cott s manufacturing capabilities and DS Services home and office distribution network combine to create potential revenue synergies 13

14 HOD Water and OCS Market Roll Up (Tuck-ins) $10 to $20 million per year (approx $3-$6 million of EBITDA) 4 Proven Acquisition Track Record Successful Track Record DS has a proven ability to identify and execute both tuck-ins and transformational transactions Completed 48 acquisitions since 2007, with an average synergy-adjusted EBITDA multiple of less than 3.0x (1) Targets have ranged from small tuck-ins to a transformational acquisition (average HOD acquisition price ~$2.5 million) Target $10 to $20 million per year allocation of funds to tuck-ins with anticipated $3 - $6 million of incremental postsynergy EBITDA EBITDA Multiples Paid by DS (PF for Synergies) (1) 2.8x 2.0x 2.4x 3.2x 2.8x 3.4x 2.4x 2.8x No. of Acquisitions Total Cash $28.0 $8.1 $14.7 $33.6 $13.9 $74.6 $7.5 $4.0 Note: $ in millions. 1. Assumes revenues associated with acquired entity in each transaction were applied to DS Services cost model for that period included the larger Standard Coffee acquisition. 14

15 HOD Water and OCS Market Roll Up (Tuck-ins) $10 to $20 million per year 4 Acquisitions are Highly Accretive to DS Almost Immediate Cost Savings DS has realized significant cost synergies by rationalizing assets, customer service, IT and other overhead and back-office functions Following the Standard Coffee acquisition, DS was able to close 350 mini warehouses in < 90 days, convert the customer base to Oracle in 120 days and close the Standard headquarters in 5 months Increased Route Density Synergies realized by combining delivery routes to increase route density DS was able to eliminate over 100 routes in the Standard Coffee acquisition Customer retention is also higher due to the acquisition of seasoned customers Cost per new customer through M&A compares favorably to traditional, organic channels Acquired customers show higher retention than organically acquired customers Cost per Customer Add Acquisition vs. Organic Acquired Customers Show High Retention (2) Improved Customer Profile After 1 Year Organic After 3 Years Through Acquisition 1. Customer acquisition cost index based on cost per acquired customer calculated through third party valuations; includes a total of ~165,000 customers acquired through Abita, O Premium, Yosemite, Mt. Olympus and Deep Rock transactions vs. Total 2013 customer acquisition via all organic mechanisms. 2. Retention rates indexed to 100, which equals retention rate of Water Delivery Services customers added organically during relevant time period. 15

16 6 Shareholder Value Creation We have done well in 2015 but there is significant opportunity to grow. The combination of a broadly stable traditional business and further acquisition based diversification alongside DS Services integration, synergies & expansion strengthens Cott s financial performance and should drive valuation improvement. More balanced scale business with $3 billion of revenue and $350 million plus of EBITDA annually. Rapid deleveraging results in transfer of value from debt to equity holders. Highly diversified product, package and channel mix High-quality, efficient and well-utilized facilities with multiple product and package capabilities Low-cost philosophy concentrating on Customers, Costs, Capex and Cash Platform for M&A to enhance business profile and provide upside through synergies Strong adjusted free cash flow that drives returns to shareholders 2014 Adjusted FCF Yield % (1) Multiple Lift Opportunity Cott vs. Peers (2) 16% 6% 5% 5% 2% Cott High Cash Flow Consumer Mid Cap Beverages Large Cap Beverages Private Label European 1. Source: Company data, FactSet, Bloomberg. Large cap beverages: Coca-Cola, PepsiCo. Mid cap beverages: Britvic, Coca-Cola Enterprises, Dr. Pepper Snapple, Lessonde Industries, Monster. Private label European: Ontex, Refresco Gerber. High cash flow consumer: B&G, Pinnacle, Post, Smucker s, Snyder s-lance, Spectrum Brands, TreeHouse. Adjusted free cash flow yield defined as (adjusted free cash flow / shares outstanding) / share price. Represents a non-gaap measure. This measure does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Please refer to slide 2 of this presentation for more information regarding the use of this measure and the appendix of this presentation for a reconciliation to GAAP figures. Market data as of 1/3/2015 (Cott share price of $7.00). Adjusted free cash flow for peer set calculated as cash flow from operations less capital expenditures. 2. Source: IBES consensus estimates per FactSet, company filings. 7/15/15 stock price. Bottlers (National Beverage, A.G. Barr, Coca-Cola Bottling, Britvic, Coca-Cola Amatil, Coca-Cola Enterprises, Coca-Cola Femsa) Route Based Services (G&K Services, Unifirst, ABM Industries, Chemed, Servicemaster, Cintas Corp, Aramark) 16