the BMO Capital Markets Farm to Market Conference

Cott Corporation
The BMO Capital Markets
2014 Farm to Market Conference
May 21-22, 2014
Jerry Fowden, CEO
Jay Wells, CFO
1
Safe Harbor Statement
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 reflecting management’s current expectations regarding
future results of operations, economic performance and financial condition. Forward-looking statements
are subject to certain risks and uncertainties which could cause actual results to materially differ from
current expectations. These risks and uncertainties are detailed from time to time in the Company's
securities filings. The information set forth herein should be considered in light of such risks and
uncertainties. Certain material factors or assumptions were applied in drawing conclusions or making
forecasts or projections reflected in the forward-looking information. Additional information about the
material factors or assumptions applied in drawing conclusions or making forecasts or projections
reflected in the forward-looking information is available in the Company’s annual report on Form 10-K
for the year ended December 28, 2013, its quarterly reports on Form 10-Q, as well as other periodic
reports filed with the securities commission. The company does not, except as expressly required by
applicable law, assume any obligation to update the information contained in this presentation.
NON-GAAP Measurers: To supplement its reporting of financial measures determined in accordance with
GAAP, Cott utilizes certain non-GAAP financial measures. Cott utilizes EBITDA and Adjusted EBITDA to
separate the impact of certain items from the underlying business. Because Cott uses these adjusted
financial results in the management of its business, management believes this supplemental information
is useful to investors for their independent evaluation and understanding of Cott’s underlying business
performance and the performance of its management. Additionally, Cott supplements its reporting of
net cash provided by operating activities determined in accordance with GAAP by excluding capital
expenditures, which management believes provides useful information to investors about the amount of
cash generated by the business that, after the acquisition of property and equipment, can be used for
strategic opportunities, including investing in our business, making strategic acquisitions, and
strengthening the balance sheet. The non-GAAP financial measures described above are in addition to,
and not meant to be considered superior to, or a substitute for, Cott’s financial statements prepared in
accordance with GAAP. In addition, the non-GAAP financial measures included in this presentation
reflect 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 these nonGAAP measures may be found on www.cott.com, as well as on the Appendix of this presentation.
2
Agenda
• Company Overview
• Business Mission and Priorities
• Financial and Debt Summary
• Question & Answer
3
Cott Company Overview
1 Leader in private label beverages across Juice,
Drinks, Energy, CSD, New Age and others with
customer relationships at over 500 retailers
globally
Revenues in excess of $2 billion provides
procurement and scale leverage
2 Strong private label beverage manufacturing footprint
in US, Canada and UK
High service level (98%+)(1) and low freight costs
Substantial competitive advantage to service
national and super-regional accounts
3 High quality facilities (SQF / BRC certified) with
multiple product and package capabilities
Diversified product offering beyond traditional
CSDs
4 Ownership of Royal Crown Cola International
(“RCCI” or “RC Brand”) outside North America and
a fully integrated concentrate facility with strong
R&D capabilities
High quality concentrates (blind taste tests) and
formulas used for own operations and exported to
approximately 50 countries
5 Efficient and highly utilized facilities
Industry leading asset turnover of 1.5x with low
capex demands (2–3% of revenues)
6 Low cost philosophy concentrating on Customers,
Costs, Capex and Cash
Highly cash generative with annual FCF of ~$100+
million and a solid balance sheet
Strong ROIC and cash flow yield
(1) Service level refers to in full, on-time delivery of all SKUs at appropriate quality.
4
Beverage Leader
Cott is one of the world’s largest manufacturers of beverages on behalf of
retailers, brand owners and distributors
Business overview
•
2013 Channel mix
Industry-leading beverage manufacturer and
distributor focused on private label and contract
manufacturing
− Clear leadership in shelf stable juices and CSD
% revenue
Co-Pack
6%
% volume
RCCI
2%
Value /
Control
Brand
7%
Value /
Control
Brand
9%
− Growing positions in attractive segments
(sparkling waters, energy, ready-to-drink alcohol
and sports drinks)
Private
label
83%
Equiv.(1)
Volume
From
Concentrat
es 23%
Revenue: $2.1bn
•
Substantial R&D capabilities and vertical integration
within a high service, low-cost production model
•
2013 Geographic mix
•
High product quality with consistency in products
and category innovation
Customer relationship with over 500 leading
retailers in the grocery, mass-merchandise and drug
store channels
Private
label
65%
Volume: 1.1bn
% revenue
•
Co-Pack
5%
Canada
9%
RCCI
2%
% volume
Mexico
1%
Canada
5%
Mexico
2%
UK
18%
UK
24%
Revenues in excess of $2 billion provides
procurement and scale leverage
Source: Management.
Note: Volume in cases of 8oz equivalent units.
(1)
Ready-to-drink 8oz volume equivalents of 257mm cases made from RCCI shipped concentrate.
US
53%
US
64%
RCCI
(1)
22%
Revenue: $2.1bn
Volume: 1.1bn
5
Strong Beverage Manufacturing Footprint
Extensive, high-quality manufacturing footprint and product facilities drive high
service and low-cost freight lanes
34 Strategically Located Beverage / Concentrate Manufacturing
and Fruit Processing Facilities
Surrey, BC
Calgary, AB
CANADA
Scoudouc, NB
Walla Walla, WA
Pointe Claire, QB
Toronto, ON
Warrens, WI
E. Freetown, MA
Dunkirk, NY
Fredonia, NY
UNITED STATES
Fontana, CA
Springville, UT
San Bernardino, CA
North East, PA
St. Louis, MO
Joplin, MO
Concordville, PA
Sikeston, MO
Sangs (McDuff)
Wilson, NC
Greer, SC
Blairsville, GA
Ft. Worth, TX
San Antonio, TX
Columbus, GA
UNITED KINGDOM
Nelson
Bondgate
Tampa, FL
MEXICO
Wrexham
Puebla
Kegworth
Elmhurst
Cold Fill
Hot Fill
6
High Quality Facilities with Diversified Capabilities
Product offering beyond traditional shelf stable juices and CSDs
Diversified manufacturing capabilities
•
Carbonated soft drinks (natural and preserved)
•
100% shelf stable juices and juice-based
products
•
Clear, still and sparkling flavored waters
•
Energy products, shots and liquid enhancers
•
Sports products
Product diversity (2013 revenue)
CSD
Concentrates
2%
Fruit drinks /
Juices
25%
CSD
36%
Sparkling water
13%
•
New age beverages
•
Ready-to-drink teas
•
Ready-to-drink alcohol beverages
•
Dilute-to-Taste (DTT)
Source: Management.
Tea
1%
DTT
2%
Alcohol-based
1%
Flavored water
2%
Energy
8%
Water
2%
Sports / fitness
3%
All other
5%
7
High Quality Facilities with Diversified Capabilities
Broad capabilities across packaging and flavors
Solutions in every major beverage segment
CSD
Waters
Energy
Liquid
enhancers
Teas
Sports
drinks
Juices,
cocktails
& drinks
Smoothies
RTD
Alcohol
Package sizes and capabilities
PET
8oz
Aluminum
128oz
Source: Management.
8oz
Shots &
Enhancers Overwraps
Soda
Stream
Jubblies &
Freezables
Lunchbox
Sports cap carton
Pouch
24oz
8
Ownership of RC Brand Outside North America - Supply of
Concentrates to Approximately 50 Countries
Royal Crown Cola International (RCCI)
•
Ship concentrate to approximately 50 countries
•
Meaningful brand penetration in the Philippines and
Israel with strong concentrate position in multiple
markets
Selected products
− Ready-to-drink 8oz volume equivalents of 257mm
cases made from RCCI shipped concentrate
Global customer base
Geographic mix(1)
Asia / Pacific
53%
Latin America /
Caribbean
27%
Western
Europe
1%
Eastern Europe
8%
Middle East /
Africa
11%
Source: Management.
(1)
Geographic mix data represents % of revenue.
9
Efficient and Highly Utilized Facilities - Well Invested in
Facilities with Low Capital Demand and High Asset Turnover
Efficient and highly utilized facilities produce Industry leading
asset turnover with low capex requirements
2013 Asset turnover(1)
2013 Capex as a % of revenue
6.2%
1.5x
1.0x
4.1%
0.9x
0.7x
Brand owners
Source:
Note:
(1)
(2)
International
bottlers
Value foods /
private label
2.8%
International
bottlers
Brand owners
2.0%
(2)
Value foods /
private label
Wall Street research as of 12/28/2013.
International bottlers: CCE, Femsa, Amatil, Hellenic and Arca Continental; Value foods / private label: TreeHouse, ConAgra, Pinnacle Foods, Diamond Foods and Brand owners: Dr Pepper Snapple Group, Coca Cola, Pepsico, Monster Beverage, Green Mountain
Coffee.
Asset turnover calculated as total revenue / total assets.
2013 capex excludes additional ~$13 million for vertical integration of bottle blowing (including this amount, capex represents 2.7% of 2013 revenue).
10
Low Cost Philosophy Concentrating on Customers, Costs,
Capex and Cash (4 Cs) - Low Cost and Highly Cash Generative
Cott follows its
•
•
company-wide
Strengthen customer relationships
•
High quality supply chain and customer collaboration
− Understand our customers’ needs
•
Winner of Walmart Supply Chain
− Build new channel relationships
Collaboration Award 2011
− High service standards
− Best of 4,000 suppliers
− One-stop shop philosophy
•
Private label soft drink supplier
of the year (2012/2011) – Grocer Award
Continue to lower operating costs
•
SG&A at 7–8% of revenue is top decile performance
amongst industry peers
•
Zero-based budget philosophy
− Manage the commodity cycles
− Control SG&A costs (best in class)
− Improve operating efficiencies
•
Control capital expenditures
− Capex $30–$50 million below depreciation
− Capex focus on cost / efficiency
•
High quality plants all QSF Level 3 and BRC
• Focus on efficiency
• Cost reduction drives capex at 2–3% of revenue
− Manage projects tightly
•
Deliver significant free cash flow
•
− Rigorously manage working capital
Approximately $100+ million in annual FCF
generation
− Assist rapid de-leveraging and interest
− 2013 free cash flow yield(1) of 18.6%
benefit
Source: Management.
(1)
Cash flow yield calculated as (Adjusted EBITDA – capex) / equity market capitalization as of 12/28/13.
11
Low Cost Philosophy Concentrating on Customers, Costs,
Capex and Cash (4 Cs)
Strong cash flow and ROIC vs. private label / sector peers
Private label
beverage scale
>$2 billion
revenue
Strong
manufacturing
footprint &
advantaged
freight lanes
High quality
plants that are
QSF / BRC
certified with
multiple
capabilities
Own R&D,
vertically
integrated
concentrate
plant &
ownership of
RC Brand
18.6%
16.0%
12.6%
11.9%
9.6%
Low Cost
Philosophy
and the 4 C’s
Top tier LTM ROIC(2) vs. top 5 peers
Top tier 2013 cash flow yield(1) vs. top 5 peers
12.8%
Efficient &
highly utilized
plants with top
tier industry
asset turnover
9.4%
14.4%
10.4%
9.4%
9.2%
6.8%
Source: Wall Street research as of 12/28/2013.
(1)
Cash flow yield calculated as (Adjusted EBITDA – capex) / equity market capitalization as of 12/28/2013.
(2)
ROIC calculated as (Adjusted EBITDA less taxes) / (book capitalization – deferred tax assets – cash and cash equivalents). Balance sheet data as of latest SEC filing.
12
Agenda
• Company Overview
• Business Mission and Priorities
• Financial and Debt Summary
• Question & Answer
13
Our Mission
Build shareholder value by managing our core
business to maximize cash generation while
diversifying product, package and channel
offerings to provide growth.
14
Key Facts and Trends from Recent Strategic Review
Macro Market Dynamics / Factors
• Declining North American Carbonated Soft Drinks
(CSD) and Shelf Stable Juice (SSJ) markets
• Excess industry capacity pressuring margins
• Aggressive National Brand promotion and pricing
activity in pursuit of volume is reducing price gap to
private label
• Continued large format retail consolidation and
growth in smaller discount formats
• Attractive financing markets at the present time
15
Cott’s Situation and Attributes
Cott Specific Factors
• High asset turn, sales per employee and quality
Source:
Wall Street research as of 12/28/2013.
16
Cott’s Situation and Attributes
Cott Specific Factors
• High asset turn, sales per employee and quality
• Best in class SG&A leverage
Industry Non-strategic SG&A/sales
Source:
Wall Street research as of 12/28/2013.
17
Cott’s Situation and Attributes
Cott Specific Factors
• High asset turn, sales per employee and quality
• Best in class SG&A leverage
• Strong cash generation and cash yield
• Strong balance sheet with net debt targets achieved during 2013
• Attractive corporate tax structure
• Sixty percent business concentration in the declining CSD and SSJ segments
Invest to shift our business mix
in order to support and accelerate
cash generation
18
Five Strategic Priorities As We Look Forward
• Continuation of our
generation
approach including tight operating controls and a focus on cash
• Increased allocation of dedicated commercial and other resources against contract
manufacturing which has been showing good growth
• Refinancing of our 2018 Senior Notes, expansion of our debt capacity, and reduction of our
interest rate
• Over the next twelve months, increase our return of funds to shareholders up to 50% of our
free cash flow via an increase in our opportunistic stock repurchase program and the
continuance of our dividend
• Acceleration of acquisition based diversification outside of Carbonated Soft Drinks (CSDs)
and Shelf Stable Juices (SSJs)
Acquisition to center on beverages and beverage adjacencies with a focus
on further channel diversification.
19
Agenda
• Company Overview
• Business Mission and Priorities
• Financial and Debt Summary
• Question & Answer
20
2013 Financial Overview
Full Year Comparisons
Volume (8oz - millions)
Revenue
Gross Margins
SG&A - % of Revenue
Adj. Net Income*
Adj. EBITDA*
Free Cash Flow*
2011
1,314
$2,335M
11.8%
7.4%
$44M
$199M
$115M
2012
1,247
$2,251M
12.9%
7.9%
$52M
$213M
$103M
2013
1,143
$2,094M
12.0%
7.7%
$36M
$197M
$100M
130
Full Year 2013 Performance Summary
•
•
•
•
•
Difficult trading environment with declines in CSD / SSJ markets pressuring volume and revenue
Continued strong SG&A control with SG&A 8% of revenue
Reduction of debt by redemption of $200mm of our 2017 Senior Notes
Strong cash generation – fifth consecutive year of >$100mm
Returned $32 million to Shareowners
*See accompanying non-GAAP reconciliation
21
Strong Free Cash Generation Leads to
Improved Balance Sheet
• Debt Reduction
Net Leverage
− Redeemed $200M of our 2017 Senior Notes in
2013. This was accomplished by utilizing cash on
hand and our ABL, with a net reduction to gross
debt of $163M
Net Debt / Adjusted EBITDA
4x
4
− Reduces interest expense by $15mm
3x
3
2x
2
1x
1
• Increased Interest Coverage
− 3.8x in 2013 from 2.6x in 2008 (Adjusted EBITDA
to Interest Expense)
• Strong Cash Generation
− $100mm of free cash flow from operations
0x
0
2010 PF
Post-Cliffstar
2013 PF
Post-Note
Redemption
− $108mm of adjusted free cash flow after $8mm
cash cost of reducing 2017 Notes
• Opportunity to refinance our 2018 Senior
Notes imminent
22
Cott Corporation
Question & Answer
Jerry Fowden, CEO
Jay Wells, CFO
23
APPENDIX
24
Asset Turnover
COTT CORPORATION
SUPPLEMENTARY INFORMATION - NON-GAAP ASSET TURNOVER
(in millions of U.S. dollars)
Unaudited
For the Year Ended
December 28, 2013
Total Revenue
Divided by: Total Assets
Asset Turnover
$
2,094.0
1,426.1
1.5
25
Capex
COTT CORPORATION
SUPPLEMENTARY INFORMATION - NON-GAAP - CAPEX DEMANDS
(in millions of U.S. dollars)
Unaudited
For the Year Ended
December 28, 2013
Capex
Divided by: Total Revenues
Percentage of Revenue
$
55.6
2,094.0
2.7%
26
Free Cash Flow
COTT CORPORATION
SUPPLEMENTARY INFORMATION - NON-GAAP - FREE CASH FLOW
(in millions of U.S. dollars)
Unaudited
For the Year Ended
Net cash used in operating activities
December 28, 2013
December 29, 2012
December 31, 2011
$
$
$
Less: Capital expenditures
Free Cash Flow
155.2
(55.6)
$
99.6
173.0
(69.7)
$
103.3
163.5
(48.8)
$
114.7
27
Cash Flow Yield
COTT CORPORATION
SUPPLEMENTARY INFORMATION - NON-GAAP - CASH FLOW YIELD
(in millions of U.S. dollars excluding stock price)
Unaudited
Stock Price
Total Shares
Equity Market Capitalization
$
$
December 28, 2013
8.06
94.2
759.6
For the Year Ended
December 28, 2013
Net income attributed to Cott Corporation
Interest expense, net
Income tax expense (benefit)
Depreciation & amortization
Net income attributable to non-controlling interests
EBITDA
$
$
Restructuring and asset impairments
Bond redemption costs
Tax reorganization and regulatory costs
Acquisition and integration
17.0
51.6
2.2
100.8
5.0
176.6
2.0
12.7
1.4
4.1
Adjusted EBITDA
$
196.8
Adjusted EBITDA
Less: Capex
Total
Divided by: equity market capitalization
Cash Flow Yield
$
196.8
(55.6)
141.2
759.6
18.6%
28
Adjusted Net Income
COTT CORPORATION
SUPPLEMENTARY INFORMATION - NON-GAAP - ADJUSTED NET INCOME
(in millions of U.S. dollars)
Unaudited
For the Year Ended
Net income attributed to Cott Corporation
December 28, 2013
December 29, 2012
December 31, 2011
$
$
$
Restructuring and asset impairments, net of tax
Bond redemption costs, net of tax
Tax reorganization and regulatory costs, net of tax
Acquisition and integration, net of tax
Adjusted net income attributed to Cott Corporation
17.0
1.8
12.7
1.4
3.4
$
36.3
47.8
4.1
$
51.9
37.6
2.0
4.1
$
43.7
29
Adjusted EBITDA
COTT CORPORATION
SUPPLEMENTARY INFORMATION - NON-GAAP - EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION
& AMORTIZATION
(EBITDA)
(in millions of U.S. dollars)
Unaudited
For the Year Ended
December 29, 2012
December 28, 2013
Net income attributed to Cott Corporation
Interest expense, net
Income tax expense (benefit)
Depreciation & amortization
Net income attributable to non-controlling interests
EBITDA
$
$
Restructuring and asset impairments
Bond redemption costs
Tax reorganization and regulatory costs
Acquisition and integration
Adjusted EBITDA
17.0
51.6
2.2
100.8
5.0
176.6
$
$
2.0
12.7
1.4
4.1
$
196.8
47.8
54.2
4.6
97.7
4.5
208.8
December 31, 2011
$
$
4.1
$
212.9
37.6
57.1
(0.7)
95.3
3.6
192.9
2.0
4.1
$
199.0
30
Interest Coverage
COTT CORPORATION
SUPPLEMENTARY INFORMATION - NON-GAAP - INTEREST COVERAGE
(in millions of U.S. dollars)
Unaudited
For the Year Ended
December 28, 2013
Net income (loss) attributed to Cott Corporation
$
Interest expense, net
Income tax expense (benefit)
Depreciation & amortization
Net income attributable to non-controlling interests
EBITDA
$
Restructuring, asset and goodwill impairments
17.0
December 27, 2008
$
(122.8)
51.6
32.3
2.2
(19.5)
100.8
80.7
5.0
1.7
176.6
$
(27.6)
2.0
Bond redemption costs
112.9
12.7
-
Tax reorganization and regulatory costs
1.4
-
Acquisition and integration
4.1
-
Adjusted EBITDA
$
196.8
$
85.3
For the Year Ended
December 28, 2013
Adjusted EBITDA
Divided by: Interest Expense
Interest Coverage
$
196.8
December 27, 2008
$
85.3
51.6
32.3
3.8
2.6
31