Wells Fargo Denver Food Symposium

Report
Wells Fargo Denver Food Symposium
January 2015
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 the Company's expected 2014 results, expected future operating results of Cott, DS Services and the combined
company, and the potential impact the acquisition will have on the Company. The forward-looking 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 and cash flows; (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; (4) retention of customers and suppliers; (5) the cost of
capital necessary to finance the transaction; and (6) 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 on Form 10-K for the year ended December 28, 2013 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: Cott routinely supplements its reporting of GAAP measured by utilizing certain non-GAAP measures to separate the impact
of certain items from its underlying business results. 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 transaction with DS Services. The non-GAAP financial measures described above 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 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 non-GAAP measures may be found
on www.cott.com. The inability to access information with respect to DSS Group makes a reconciliation of 2014 expected DSS Group and pro
forma EBITDA (and measures utilizing 2014 expected DSS Group and pro forma EBITDA) impracticable, and as a result, reconciliations for such
items have not been provided.
2
Management Presenters
Jerry Fowden
Chief Executive Officer
Jay Wells
Chief Financial Officer
3
Agenda
A. The New Diversified Cott – Balanced Business Model for Superior Cash Flow Generation
B. Legacy Cott Business – One of the World’s Largest Producers of Beverages on Behalf of
Retailers, Brand Owners and Distributors
C. DS Services – Largest National Presence in Home and Office Delivery of Bottled Water
and Office Coffee Services
D. Financial Highlights of the New Balanced Business Model
Appendix
4
4
The New Diversified Cott – Balanced Business Model for
Superior Cash Flow Generation
The New Diversified Cott
New platform provides a balanced business model for superior cash flow generation
Highlights
Pro Forma Financials
LTM 9/30/2014
Cott
 Less exposure to large format retailers with largest customer
exposure reducing to below 18% of sales
 Carbonated soft drink (“CSD”) concentration drops below 20% and
overall Private Label concentration drops below 50%
 Introduces significant presence in growing “Good‐for‐You”
beverage categories
 Substantial cash flow generation
 Strong focus on rapidly deleveraging
 Continuation of staple dividend
Revenue
Pro Forma
~ $3,000+
Gross Profit
% margin
~ $825+
Adj. EBITDA(1)
% margin
~ $350+
Adj. EBIT
% margin
~ $140+
27.0%
12.0%
5.0%
Diversified Beverage Platform
Retail Private Label
Own Brands
 Leading private label CSD and juice
manufacturer
 Higher margins through leveraged fixed
costs
 Long-standing relationships with top
retailers
 Benefits of foodservice contracts
 Extensive manufacturing facilities
 Higher price point for value brands
 Market leading water brands
Contract Manufacturing
 Significant growth opportunities
 Capitalize on outsourcing trends
Direct-to-Consumer
 Leading player in Home Office Delivery
(“HOD”) Water
 Increase existing asset utilization
 Leading player in Office Coffee Services
(“OCS”)
 Reduces exposure to commodity
volatility
 Growing Filtration business
 Requires lower working capital
investments
 One of the largest national production
and distribution networks in North
America
 Ability to add volume onto existing
operations with minimum incremental
costs
Source: Wall Street research.
(1)
Adjustments to EBITDA for Cott include: Restructuring and asset impairments, bond redemption and other financing costs, tax reorganization and regulatory costs, acquisition and integration costs, and Aimia
EBITDA. Adjustments to EBITDA for DSS include: other expense (income), stock option compensation expense, acquisition adjustments, transaction and refinance expense, other adjustments, adjusted ESC fee,
adjusted business exit costs and management fee to sponsor.
6
Legacy Cott Business – One of the World’s Largest Producers of
Beverages on Behalf of Retailers, Brand Owners and Distributors
Leading Beverage Platform –Extensive Manufacturing Footprint for
Private Label, Contract Manufacturing and Own Brands
Business Overview
•
Diversified Manufacturing Capabilities
Industry-leading beverage manufacturer and distributor focused on
private label, contract manufacturing and own brands with revenues in
excess of $2 billion which provides procurement and scale leverage
CANADA
UNITED STATES
•
•
Leader in private label shelf stable juices and CSD in North
America with a rapidly growing contract manufacturing business
for top tier brand owners and growing positions in attractive
segments (sparkling waters, energy, ready-to-drink alcohol and
sports drinks)
Sangs
Sangs
Sangs
Sangs(McDuff)
(McDuff)
(McDuff)
(McDuff)
(McDuff)
Sangs
Sangs
Sangs
Sangs
(McDuff)
(McDuff)
(McDuff)
MEXICO
MEXICO
Ownership of Royal Crown Cola International (“RCCI” or “RC
Brand”) outside North America
UNITED KINGDOM
Puebla
Puebla
Puebla
Puebla
•
Fully integrated concentrate facility with strong R&D capabilities and
vertical integration with high service, low-cost production model
supplying high quality concentrates (blind taste tests) and exports to
approximately 50 countries
•
Customer relationship with over 500 leading retailers in the grocery,
mass-merchandise and drug store channels
•
Low cost philosophy concentrating on
Customers, Costs, Capex
and Cash resulting in a highly cash generative business with annual FCF
of +/-$100 million and a solid balance sheet
•
Highly recognized award-winning services (service awards from
Walmart, Publix, and Walgreens in North America, as well as Grocer
Gold Award in UK)
Cold Fill
Hot Fill
Other
Nelson
Nelson
Nelson
Nelson
Nelson
Nelson
Nelson
Nelson
Merseyside
Merseyside
Merseyside
Merseyside
Merseyside
Merseyside
Merseyside
Merseyside
Wrexham
Wrexham
Wrexham
Wrexham
Wrexham
Wrexham
Wrexham
Wrexham
Bondgate
Bondgate
Bondgate
Bondgate
Bondgate
Bondgate
Bondgate
Bondgate
Kegworth
Kegworth
Kegworth
Kegworth
Kegworth
Kegworth
Kegworth
Kegworth
Industry-leading Manufacturer with Global Footprint
532904_1.WOR (NY007LA7)
•
Strong beverage manufacturing footprint in US, Canada and UK with 34
strategically located beverage manufacturing and fruit processing
facilities providing a substantial competitive advantage to service
national and super-regional accounts, with high service levels (98%+)
and low freight costs.
•
High quality facilities (SQF / BRC certified) with multiple product and
package capabilities offering a diversified product portfolio beyond
traditional CSDs
•
Efficient and highly utilized facilities producing industry leading asset
turnover of 1.5x with low capex demands (2–3% of revenues)
Source: Cott management
8
High Quality Facilities with Diversified Capabilities
Product offering beyond traditional shelf stable juices and CSDs
Diversified manufacturing capabilities

Carbonated soft drinks (natural and preserved)

Ready-to-drink teas

100% shelf stable juices and juice-based products

Ready-to-drink alcohol beverages

Clear, still and sparkling flavored waters and new age beverages

Freezables

Energy products, shots and liquid enhancers

Powdered hot chocolate and coffee

Sports products

Creamers/whiteners malt drinks

Dilute-to-Taste (DTT) and beverage concentrates

Cereals
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
Aluminum
Shots &
Enhancers
Overwraps
Soda
Stream
Jubblies &
Freezables
Sports cap
Lunchbox
carton
Pouch
8oz
8oz
128oz
24oz
9
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
− High gross margins of ~40%
− Ready-to-drink 8oz volume equivalents of 257mm cases
made from RCCI shipped concentrate
Global customer base
Geographic mix(1)
Latin America / Caribbean
27%
Asia / Pacific
53%
Western Europe
1%
Eastern Europe
8%
Middle East / Africa
11%
(1)
Geographic mix data represents % of 2013 revenue.
10
Cott Follows Its
Strong customer relationships
1
•
2 Low cost operator
High service levels and customer recognition
o
o
3
Low Cost Philosophy
Best-in-Class SG&A Leverage 2013 – Non-Strategic SG&A / Revenue (Legacy Cott)
42%
2014 Own-Label Supplier of the Year –
Grocer Award, U.K.
35%
22% 22%
20% 19%
18% 18%
Recognized for service in 2014 by both Publix and Walgreens
o
2014 Walmart Top 10 Private Brand Supplier
o
2011 Supplier of Year Collaboration Award - Walmart USA
15% 16% 17% 16% 15% 14%
13%
10% 9%
Stringent capital controls
8%
4 Focus on free cash flow
Legacy Capex as a % of revenue (Capital Expenditures of $50-$55 million per year)
Top tier 2013 cash flow yield(1) vs. top 4 peers(2)
(Legacy Cott)
18.6%
6.2%
12.6%
11.9%
4.2%
9.6%
9.4%
Peer C
Peer D
2.8%
2.0%
International
Bottlers
Brand
Owners
Value Foods /
Private Label
Peer A
Peer B
Cott
Concentrating on customers, costs, capital expenditure and cash flow
Source:
(1)
(2)
Cott management.
Cash flow yield calculated as (Adjusted EBITDA – capex) / equity market capitalization as of 12/28/13.
Peer A: ConAgra Foods; Peer B: Pinnacle Foods; Peer C: TreeHouse Foods; Peer D: B&G Foods.
11
Significant Growth Potential in Contract Pack
Co-Pack
Advantages
•
•
•
•
•
Recent Wins
• Expanded North America co-pack cases from ~18 million to ~34 million from the first nine months of 2013 to the first nine months of
2014 with two additional significant contracts signed for 13 – 18 million 8oz equivalent cases with shipments to begin at the end of Q4
2014 and beginning of Q1 2015.
• Recent customer wins
‒ Ready-to-drink Teas
‒ Hot Fill Drinks
‒ Shelf-stable Juice
‒ Ready-to-drink Alcohol Can
‒ Energy Drinks
‒ CSD Food Service
Limited commodity exposure drives stable margin contribution
Provides gross margins that are consistent with Cott’s historical rates
Lower working capital requirements and improves line efficiency rates
Capitalize on outsourcing trends by brand owners
Increase asset utilization
* Excludes volume from Aimia acquisition for which contract manufacturing represents 35%
of sales as projected volume is based on organic growth only.
(1) Management has established a three year goal (2014-2016) of growing our contract
manufacturing business by 50-80 million 8oz equivalent cases. This chart depicts the
actual volume recorded in 2013 as well as the projected total contract manufacturing
volumes over the next three years as this incremental growth is incorporated into our
business.
Performance
Cott’s Current Share of Co-Pack Market Within Cott’s
Capabilities
Opportunities
Cott’s Share of Co-Pack Market
Within Cott’s Capabilities by 2016
Targeting 50-80 million in
8oz equivalent cases in
contract packaging volume
over next three years
12
Note: Opportunities section is the result of Cott Management’s estimates based upon Cott’s manufacturing capabilities as of the end of 2013 as well as the markets in which Cott operating in.
DS Services – Largest National Presence in Home and Office
Delivery of Bottled Water andDS
Office
Services
Coffee
Overview
Services
DS Services Overview – A Leading Direct-to-Consumer Services Provider
Water Delivery Services
LTM 2014 Revenue: $665mm (69%)
Source:
Note:
Office Coffee Services
Revenue $966
million LTM as
of 9/30/14
LTM 2014 Revenue: $145mm (15%)
Retail
Filtration Services
LTM 2014 Revenue: $132mm (14%)
LTM 2014 Revenue: $24mm (2%)
DSS management.
LTM revenue as of 9/30/2014.
14
DS Services is a Scale Business in Expanding Categories and Improves
Cott’s Overall Growth Profile
Expanding categories
HOD Water Industry
HOD Water Volume (gallons in millions)
1,155
819
1,204
1,174
852
835
1,225
 Total bottled water volumes show consistent growth:
•
HOD accounted for 12.1% of bottled water volume
•
Increased consumption driven by focus on health and water safety
863
 Per capita bottled water consumption reached a historical high of more
than 32 gallons in 2013
337
339
352
362
2010
2011
2012
2013
DSS
•
Growing at 4.0+% since 2010
All Others
U.S. Office Coffee Services (“OCS”) Industry
Net Revenues ($ in billions)
$3.7
2010
$3.9
2011
 Office coffee services growth driven by:
$4.1
2012
$4.3
•
An increase in the number of workplaces offering beverage programs
•
An increase in the number of employees at these workplaces
•
Strong demand for single-cup among consumers
•
The premiumization of offerings
2013
Source: Beverage Marketing Corporation, The Automatic Merchandiser.
15
DS Services – Leadership Position in Attractive Growth Categories
A
Market Leader in Growing Water and Coffee Services Categories
B
Established National Direct-to-Consumer Distribution Network – Diverse Customer Base and Service Focus
C
Market Leader in Brands with Strong Regional Heritage
D
Attractive Growing Financial Profile
Market Leader in Growing Water and
Coffee Services Industries
A
•
•
•
Established National Direct-toConsumer Distribution Network
B
90% coverage of the US population
Customer density enables low cost operations
Growing HOD water, OCS and water filtration markets
•
•
Unrivaled infrastructure consisting of ~2,100 routes
stemming from ~180 depots and 28 manufacturing
facilities
Highly diversified customer base
Volume(1) CAGR 2010 – 2013
CAGR
~10%
~5%
~2%
Water, Coffee and Filtration Locations
Coffee and Filtration Locations
2010
2011
HOD
2012
OCS
2013
Water Filtration
Production Facilities
Co-Packer
Water, Coffee and Filtration Coverage
Coffee and Filtration Coverage
Source: Beverage Marketing, Packaged Facts, Zenith International, Management estimates, Ernst & Young.
(1)
Volume indexed to 2010.
16
DS Services – Leadership Position in Attractive Growth Categories (cont’d)
C
A
Market Leader in Growing Water and Coffee Services Categories
B
Established National Direct-to-Consumer Distribution Network – Diverse Customer Base and Service Focus
C
Market Leader in Brands with Strong Regional Heritage
D
Attractive Growing Financial Profile
Market Leader in Brands with Strong
Regional Heritage
Attractive Growing Financial
Profile
D
Net Revenue
($ in millions)
$765
2011A
$894
$928
2012A
2013A
$154
$161
2012A
2013A
$966
LTM 2014 (1)
Adj. EBITDA
($ in millions)
$129
2011A
Source: DSS management.
(1)
LTM as of 9/30/2014.
$170
LTM 2014 (1)
17
A
Market Leader in Growing Water and Coffee Services Categories
Water Delivery Services
• DS has the largest HOD water national presence with ~90%
coverage of the US population and ~30% market share
• Remaining ~40% of the market is made up of roughly
Office Coffee Services
• DS is a top 5 player, with top five making up only 20% of
the market
• Remaining market is highly fragmented
3,000 regional players
On-trend category with health & wellness, and
environmental focus
• 2013 Category Size: $2.3bn(1)
• 2010-2013 Category Growth: ~2%
• Market Share: ~30%
Smaller
Competitors
40%
• 2013 Category Size: $4.3bn(2)
• 2010-2013 Category Growth: ~5%
• Market Share: ~4%
DS Services
4%
DS Services
30%
Nestle
30%
Source:
(1)
(2)
Stable commercial customer base with significant growth
potential from single-cup expansion
Smaller
Competitors
80%
Remainder
of Top 5
16%
Beverage Marketing, Packaged Facts, Zenith International, Management estimates, Ernst & Young.
Includes 1, 2.5 and 5 gallon jugs, bulk and PET product sold off truck.
‘Coffee sales rise, so do costs: State of the Coffee Service Industry’, Automatic Merchandiser, September 2014.
18
Established National Direct-to-Consumer Distribution Network– Diverse
Customer Base and Service Focus
B
Direct Route-to-Market Overview
Route Service Representatives
Diverse Customer Base – Top Water Delivery Services Customers
• Extremely diversified customer base with top 20 HOD Water customers accounting for
only 4.0% of total revenue
% of Water Delivery
Services Revenue
Largest national presence in the HOD bottled
•
% of Total
Revenue
water with a footprint that covers ~90% of
6%
U.S. households
•
Leading market positions in most major cities
•
Provide customers with regular personalized
4%
5%
4%
3%
point of contact
•
~1.5 million customers
•
~45 million deliveries per year
Proprietary Routing Technology
#1
Top 5
Top 10
Top 20
Top 20
Diverse Customer Base – Top Brewed Beverages Customers
Additional 15+% of route truck cube
•
% of Brewed Beverages Revenue
space available for portfolio
expansion
•
Route optimization software
•
Operates ~2,100 routes stemming
from ~200 depots and 28
20%
23%
% of Total
Revenue
27%
10%
4%
manufacturing facilities
Tracks key performance metrics at
•
#1
Top 5
Top 10
Top 20
Top 20
the route level
DSS’ extensive and diverse customer base with opportunity to expand and grow combined water and coffee platform
Source:
DSS management 2013.
19
B
Established National Direct-to-Consumer Distribution Network–
Diverse Customer Base and Service Focus - Continued
• Strong customer retention
• Small acquisitions since 2007 deliver an average synergy-adjusted multiple of approximately 3.0x(1)
• M&A is an alternative route for customer acquisition (high retention for acquired customers)
Improved Customer Retention(2)
Adjusted Cooler Retention
Proven Acquisition Track Record
Post Synergy EBITDA Multiples for Acquisitions
2.4x
2.8x
77%
79%
82%
81%
81%
75%
2009A
2010A
2011A
2012A
2013A
TTM Q2
2014
4.2
4.2
2013A
TTM Q2
2014
3.4x
3.2x
2.8x
2.4x
Retention Over Time
2007
2008
2009
2010
2011
2012
2013
Source:
DSS management.
(1)
Assumes revenues associated with acquired entity in each transaction were applied to DS Services cost model for that period.
(2)
Adjusted year-over-year cooler retention rates exclude the impact of customers that quit in the same year they started the service.
Avg Tenure per Water Delivery
Services Customer in years
2.0x
4.1
3.9
3.9
2010A
2011A
3.7
2009A
2012A
20
C
Market Leader in Brands with Strong Regional Heritage
•
Highly-recognized brands with long lived heritages in both HOD Water and OCS
•
Largest or second-largest HOD Water provider in 39 of 43 largest cities
•
Offers customers products under other leading brands, which include:
•
Ferrarelle and Fiji water
•
Starbucks Coffee, Caribou Coffee, Peet’s Coffee & Tea and Mars Alterra
Regional Brands & Heritage
Leadership in Regional Brands
#1
#1
#3
#1
#1
#2
#2
#1
#1
#1
#1
#2
#1
#1
#1
#1
Belmont
1876
Hinckley
1888
Deep Rock
1896
Mount Olympus
1898
Alhambra
1902
Crystal Springs
1921
Sparkletts
1925
Sierra
1950
Kentwood
1965
#3
#2
#1
National Brands & Heritage
#2
Standard Coffee
1919
Nursery
1948
Athena Water
2003
Relyant
2009
Source: DSS management.
21
D
Attractive, Predictable and Dependable Financial Profile
Financial Profile
 Growth across all drivers of revenue
• Customer base has grown both organically and via acquisition
• Improved pricing through shift to higher revenue products (e.g. OCS) and best-in-
Adjusted EBITDA & Margin
($ in millions)
$154
$161
$170
class customer service
• Business model primarily subscription style / recurring monthly revenue model.
 Improved EBITDA margin structure
• Reformulated energy surcharge in 2012 to pass through ~90% of future volatility in
$129
16.8%
17.2%
17.4%
17.6%
2011A
2012A
2013A
LTM 2014
energy costs
• Route Service Representatives (“RSRs”) paid on commission linked to retention,
revenue and new customers
• Costco agreement based on variable commission structure
• Market leading route network and capacity enables additional volume onto existing
EBITDA Margin
routes
Net Revenue
 Predictable maintenance capital expenditures; growth capital expenditures directly
linked to net customer growth
 Proven ability to grow platform through highly synergistic acquisitions
• Acquisition of Standard Coffee in 2012 increased exposure to OCS market=
Forward Model
 2014LTM to 2018 Revenue ~4.5-5% CAGR Driven By
• Price – 0.5%
• Customer Growth – 1.5%
• Consumption – 1.5% - 2%
• Primo Lift 2015
(1)
($ in millions)
$ 894
$ 765
$ 169
$ 150
$ 44
$ 125
$ 571
$ 600
2011A
2012A
Water Delivery Services
$ 928
$ 966
$ 149
$ 156
$ 148
$ 145
$ 631
$ 665
2013A
Office Coffee Services
LTM 2014
Other
(1)
 Capital Expenditures of approximately $65-$70 million per year
Source:
(1)
DSS management.
As of 9/30/2014.
22
TheFinancial
ExpectedHighlights
Results ofofthe
theNew
NewBusiness
BusinessModel
Model
Financial Highlights of the New Diversified Business Model
1
Significantly Diversified Overall Business
2
Cost and Revenue Synergies
3
Scale Business With An Enhanced Growth Profile
4
Accretive to Adjusted Free Cash Flow Per Share Enabling Rapid Deleveraging
24
1
Significantly Diversified Overall Business
• Less exposure to large format retailers
• CSD concentration drops below 20%
• Private Label concentration drops below 50%
• Introduces significant presence in growing “Good-for-You” beverage categories
2014E Products
Other
18%
2014E Channel
CSD
19%
Sparkling /
Mixers /
New Age
14%
Juice / Juice
Drinks
17%
OCS
5%
HOD Water
27%
Source: Cott and DSS management.
Note: Based on 2014E revenue and post synergy management estimates as of November 2014.
Co-Pack
8%
Own Brands
11%
Private Label
49%
Home &
Office
Delivery
32%
25
2
Cost and Revenue Synergies
Cost Synergies – $18 million
 Procurement (~$3.5 million)
‒

Range substitution
‒
Implement Cott’s

Integrated systems
Flavored Sparking Water
‒
philosophy
Cost Actions (~$2.5 million)
‒
Transfer the production of certain DSS third-party
products to Cott’s manufacturing plants
Back office efficiencies
Cost Actions (~$5 million)
‒


Combined efficiencies
Increase the DSS product offerings to sparkling
waters manufactured by Cott
SG&A (~$5 million)
‒

‒
Leverage Cott’s scale
Freight savings (~$1.5 million)
‒

Revenue Synergies – $7 million
 Sparkling waters
Launch Flavored Sparking Water range distributed
via DSS

Vertical integration and supply
Estimated run rate synergies of $25 million per year phased-in over three years
$25.00
$18.75
$6.25
Estimated
Cost to Achieve:
2015E
2016E
$4 – 8 million
$4 – 8 million
2017E
Source: Cott management.
26
Scale Business With An Enhanced Growth Profile
3
($ in millions)
CAGR
3%
~
~$3,300
~$3,000
Revenue
LTM 2014
2018E
CAGR
~4%
~$400
~$350
EBITDA
LTM 2014
(1)
2018E
Acquisition of DSS enhances growth profile and creates balance in business model
Source:
Note:
(1)
Cott and DSS management.
Revenue and EBITDA figures illustrative; Pro forma EBITDA figures include synergies of ~$6 million in 2015 and $25 million in 2018.
LTM as of 9/30/2014.
LTM 2014 EBITDA includes adjustments.
27
Accretive to Adjusted Free Cash Flow Per Share Enabling Rapid
Deleveraging
4
4C’s Philosophy Drives High Cash Generation

•
•
•
•

Strengthen customer
relationships
Understand our customers’
needs
Build new channel
relationships
•
•
•
High service standards
One-stop shop philosophy

Continue to lower
operating costs
Manage the commodity
cycles
Control SG&A costs (best
in class)
Improve operating
efficiencies
•
•
•
•
Adjusted Free Cash Flow Per Share(1) (2) (2014E – 2018E Cott and DSS)
•
Adjusted free cash flow per
share(1) accretive beginning in
2015
$1.65
CAGR
~18%

Control capital
expenditures
•
Manage projects tightly with a
focus on cost / efficiency
•
High quality plants for all SQF
Level 3 and BRC
•
Focus on efficiency with
industry leading asset
turnover of 1.5x
Deliver significant free
cash flow
Rigorously manage working
capital
Assist rapid de-leveraging and
interest benefit
Pro forma 2014E unlevered
FCF generation over
$200mm(2)
Cost reduction minimizes
capex spend
Pro Forma Net Debt to EBITDA (2) (2014E – 2018E)
•
Delever in excess of $4.00 per share by the end of 2018
•
Continuation of dividend policy
•
Suspension of share repurchase program
~4.5x
~3.0-3.5x
$0.84
Cott 2014E
2015E
2016E
Source: Cott and DSS management.
(1) Inclusive of the preferred shares on an unconverted basis.
(2) Based on estimates as of November 2014.
2017E
2018E
2014
Pro Forma
Leverage
2015E
2016E
2017E
2018E
28
Appendix
The State of U.S. Bottled Water
U.S. BOTTLED WATER MARKET
Per Capita Consumption and Annual Change
Gallons per Capita
35.0
30.8
30.0
29.0
28.5
27.6
28.3
2007
2008
2009
2010
27.6
32.0
29.2
25.4
25.0
23.2
21.6
20.0
15.0
10.0
2003
Percent Change
2004
2005
2006
2011
2012
2013
+7.5%
+9.7% +8.4% +5.3% (1.8%) (3.2%) +2.7% +3.1% +5.3% +4.0%
Source: Beverage Marketing Corporation
30
U.S. Bottled Water Category Performance – Q3 2014
Total Bottled Water Category
Total U.S. Bottled Water Volume Growth vs. Revenue
Revenue Growth
12%
Volume Growth
10.1%
10%
8.2%
8%
5.8%
5.6%
6%
5.3%
4%
8.8%
5.5%
5.2%
6.4%
4.2%
3.1%
6.4%
6.9%
3.1%
4.1%
5.3%
4.5%
4.8% 4.8% 4.5%
4.7% 4.5%
5.3%
6.3%
7.5%
6.0%
3.6%
2.9%
2%
6.3%
7.6%
2.5%
1.9%
0%
Q1
Q2
2011

Q3
Q4
Q1
2012
Q2
Q3
Q4
Q1
2013
Q2
Q3
Q4
Q1
Q2
Q3
Q3
YTD
2014
Total U.S. bottled water volume and revenue continue to post strong year-over-year growth
Source: Beverage Marketing Corporation
31
U.S. Bottled Water Category Performance – Q3 2014
PET Bottled Water Segment
PET Bottled Water Volume Growth vs. Revenue
12%
11.3%
10.1%
10%
8.4%
8.1%
7.6%
7.1%
8%
8.2%
6.1%
9.0%
6.0%
5.4% 5.5%
6%
4%
8.7%
5.7%
3.5%
5.2%
5.7%
6.0%
4.7%
4.4%
4.5%
3.6%
8.6%
6.1%
5.5%
3.0%
2%
6.1%
8.5%
5.5%
5.2%
4.2%
3.3%
Revenue Growth
Volume Growth
0%
Q1
Q2
2011

Q3
Q4
Q1
2012
Q2
Q3
Q4
Q1
2013
Q2
Q3
Q4
Q1
2014
Q2
Q3
Q3
YTD
Volume growth continues to outpace revenue growth
Source: Beverage Marketing Corporation
32
U.S. Bottled Water Category Performance – Q3 2014
Bulk Water Segment
Bulk Water Volume Growth vs. Revenue
8%
6.7%
5.9%
6%
3.1%
4%
2%
0%
2.9%
2.2%
0.6%
0.4%
-2%
-0.2%
0.8%
-1.4%
0.3%
2.5%
5.4%
2.2%
1.8%
1.7%
3.9%
3.0%
0.6%
2.4%
2.5%
1.9%
1.0%
0.2%
1.1%
0.7%
4.5%
3.4%
1.8%
0.2%
-0.8%
-1.6%
Revenue Growth
-4%
Volume Growth
-6%
Q1
Q2
2011

Q3
Q4
Q1
2012
Q2
Q3
Q4
Q1
2013
Q2
Q3
Q4
Q1
Q2
2014
Q3
Q3
YTD
Retail Bulk has recorded 13 consecutive quarters where revenue change has surpassed volume
change vs. prior year
Source: Beverage Marketing Corporation
33
U.S. Bottled Water Category Performance – Q3 2014
HOD Bottled Water Segment
HOD Bottled Water Volume Growth vs. Revenue
Revenue Growth
8%
Volume Growth
Volume Growth (adjusted)
3.7%
4%
2%
5.7%
Revenue Growth (adjusted)
6%
2.1%
1.7%
1.9%
4.9%
4.4%
3.4%
3.2%
1.9% 2.2%
0.0%
4.5%
4.6%
3.4% 3.0%
2.6%
1.2%
4.4%
1.6%
1.0%
0%
4.8%
3.6%
2.3%
1.8%
Q2
Q3
3.2%
3.1%
2.8%
2.1%
1.0%
-0.4%
-0.5%
-2%
Q1
2011
Q2
Q3
Q4
Q1
2012
Q2
Q3
Q4
Q1
2013
Q4
Q1
2014
Q2
Q3
Q3
YTD
 Please note these 2014 HOD numbers only include route sales and were adjusted to exclude 3 and 5 gallon jugs
sold at retail locations
 HOD bottled water category volume grew +3.1% in Q3 2014 with revenues up +4.5%
 This marks the 11th consecutive quarter that HOD revenues grew faster than HOD volume and the 13th
consecutive quarter of HOD category revenue growth.
Source: Beverage Marketing Corporation
34
DS Services Key Growth Drivers
Cott ownership
Prior ownership
2014E (3)
General
Net revenue
growth
Gross margin
Synergies &
integration costs
Taxes





Total net revenue: ~6– 7%
Water delivery (w/ Primo): ~5 – 6%
Water delivery (ex-Primo): ~3 – 4%
OCS: ~(1 – 2)%
Filtration: ~10%





Total net revenue: ~5 – 6%
Water delivery (w/ Primo): ~5 – 6%
Water delivery (ex-Primo): ~3 – 4%
OCS: ~2 – 3%
Filtration: ~7 – 8%




Total net revenue: ~3 – 4%
Water delivery: ~2 – 4%
OCS: ~3 – 5%
Filtration: ~7 – 8%

Commission and freight costs other than
plants to DS branches excluded from COGS

~66 – 67% of net revenue

~65 – 66% of net revenue

~65 – 66% of net revenue

~$3 million additional rent expense

~$3 million additional rent expense
22% fixed and 78% variable


~61 – 63% of net revenue

~60 – 63% of net revenue
Crestview transaction added amortization of
~$36 million per year

~$3 million Cott LTIP

~$3 million Cott LTIP

Incremental amortization from Cott
transaction

Incremental
million

Incremental amortization(1) of
~$23million in 2016, stepping down to
~$10 million by 2018

Run rate synergies of $25 million by 2017

~$10 million of cost to achieve


Synergies of $6.25 million

Integration expenses of ~$4 – 8 million
Synergies of $18.75 million in 2016 and
$25 million in 2017
Integration expenses of $4 – 8 million
in 2016

Advantaged Cott Canadian ownership
structure

Statutory tax rate of 38.4%

New Cott not expected to be US corporate tax payer for near term


Leveraged capital structure

GAAP tax benefit of ~$20 – 25 million

Significant US NOLs at Cott and DSS

Significant NOLs
GAAP tax benefit of ~$10 – 15 million
in 2016, stepping down to ~zero by
2017

~6 – 8% of revenue

~$69 – 74 million

Higher capex in 2014 due to
increased investment in new plant
Ongoing capex $65 – 70 million per
year


Ongoing capex $65 – 70 million per
year

Additional integration capex of
$5million
~$80 – 90 million

~$95 – 105 million

~$115 – 120 million per year
Capex
Unlevered free cash
flow(2)
Source:
(1)
(2)
(3)
2016E+ (3)
Market growth
 Water delivery: ~2% in volume (69% of DSS
net revenue)
 OCS: ~5% in dollars (15% of DSS net revenue)
 Filtration: ~10% (2% of DSS net revenue)


SG&A
2015E (3)

~$95 – 125 million annually
Cott & DSS management and company filings.
Most of incremental amortization expected to be included in SG&A.
Unlevered free cash flow calculated as cash flow from operations – capex + interest.
Based on estimates as of November 2014.


~59 – 61% of net revenue
N/A
amortization(1)
of ~$28

35
DS Services COGS and SG&A Prior to Transaction
COGS breakdown (2013)
SG&A breakdown (2013)
Info Tech
3%
Resale Product Cost
28%
Water Product
Materials
32%
Equipment
Sanitation /
Refurbishment
4%
Credit & Collections
4%
Retail Operating
Expense
2%
Other
3%
Advertising
4%
Customer Service
4%
Sales
9%
Freight
13%
Water Product
Conversion Costs
23%
Route Delivery / Fleet
57%
Branch Operations
14%
36
DS Services Capital Expenditures
 Capital expenditures are generally predictable
− Fleet: average life of 18-20 years, expenditure is predictable and relatively discretionary in any given year
− Customer Equipment, Bottles & Racks: includes Coolers and Brewers that are tied to new customer wins and replacement of older equipment
 Investment in coolers / customer equipment elevated in past several years due to dispenser model upgrade
 Additional integration capex of $5 million in 2015
Capital expenditures (3)
($ in millions)
$69
$5
$9
$12
$50
$70 – 75
$74
$72
$65 – 70
$65 – 70
2016E
2017E
$11
$18
$14
$16
$8
$6
$31
$34
$29
$15
$15
$13
$14
2011A
2012A
$22
2013A(1)
Bottles & Racks
(1)
(2)
(3)
Customer Equipment
2013 includes Predecessor and Successor financials, reflecting the Crestview acquisition.
Other includes IT, machinery and equipment, call center buildout and facilities.
Based on estimates as of November 2014.
2014E
2015E
Fleet
Other (2)
Integration
37
DS Services Adjusted Unlevered Free Cash Flow
($ in millions)
2012
2013
LTM
9/30/2014
Reported EBITDA
$125
$124
$148
Adjustments:
Refinancing and reorg costs
Mergers and Acquisitions
Non-Cash Compensation
Non-Cash Asset Write-Offs
Non-One Time Cash Items
Pro-forma results
Adjusted EBITDA
7
8
2
3
(0)
10
$154
23
3
2
2
3
2
$161
9
2
3
2
5
1
$170
(1)
Cott Adjustments in Computing FCF
Non-One Time Cash Items
Pro-forma results
0
(10)
(3)
(2)
(5)
(1)
Capex
Change in Working Capital
(72)
(3)
(74)
(4)
(69)
(16)
Adjusted Unlevered Free Cash Flow
$69
$78
$78
Source: DSS filings and Ernst & Young.
(1)
2013 Financials are the combination of DSS's Predecessor and Successor periods, while excluding certain costs specific to DSS's acquisition by Crestview Capital in Q3 2013.
38
Preferred Equity Overview
(Preferred Convertible shares cannot convert to common shares until 3 years after issuance)
Convertible
preferred
equity
Convertible
preferred
equity
Non-convertible preferred equity
Capital structure
rank
•
•
Ranks senior to all common shares and other capital stock
Pari passu with non-convertible preferred equity
•
•
Ranks senior to all common shares and other capital stock
Pari passu with convertible preferred equity
Size
•
Limited to 19.9% of current Cott market capitalization
•
N/A
•
Dividend
Cumulative quarterly dividend at annual rate of 9.0%, with rate
increasing 1.0% per year for first five years:
‒ 2015 – 9.0%
‒ 2016 – 10.0%
‒ 2017 – 11.0%
‒ 2018 – 12.0%
‒ 2019 – 13.0%
Only convertible beginning three years after issuance
Converts 1:1 into common shares at the option of the holders
Redemption notice is subject to right of conversion (after 3 years)
Conversion rate is 159.24 and is subject to adjustment based on certain
events.
• Upon conversion, right to designate Board members as follows:
‒ If 10% or more of common shares, 2 directors
‒ If greater than 6% but less than 10% of common shares, 1 director
‒ If less than 6% of common shares, 0 directors
•
N/A
•
•
Redeemable at any time or any amount at par and at choice of Cott
Right to require the Company to redeem shares in change of control
•
•
Could be redeemed at par at the option of the Company
Right to require the Company to redeem shares in nine years or upon
change of control
•
No voting rights in the first 18 months:
‒ Between 18 and 36 months after issuance, can vote alongside
common shares on as-converted basis (except on the election of
directors)
‒ After 36 months, can vote alongside common shares on as-converted
basis with no restrictions
•
No voting rights
•
•
•
•
Conversion
Redemption
Voting
Cumulative quarterly dividend at annual rate of 10.0%, with rate
increasing 1.0% per year for first five years:
− 2015 – 10.0%
− 2016 – 11.0%
− 2017 – 12.0%
− 2018 – 13.0%
− 2019 – 14.0%
• Payable in cash or in-kind
•
39
Sources and Uses and Pro Forma Capitalization
Sources and Uses
($ in millions)
Sources
ABL Draw
New Senior Debt
Rollover DSS Notes
Convertible Preferred
Non-Convertible Preferred
Cash
Total Sources
Uses
$
$
180
625
350
116
33
50
1,354
Purchase Equity
Refinanced DSS Debt
Rollover DSS Notes
Fees and Expenses
$
633
317
350
54
Total Uses
$
1,354
Financing Overview
•
$625 million senior unsecured debt with 5 year maturity at 6.75%.
•
Amended and upsized Cott ABL facility from $300 million to $400 million
•
Rolled over of existing DSS 10.00% Senior Unsecured Notes (with consent)
•
$116 million convertible preferred security issued to the sellers (19.9% as converted)
•
$33 million non-convertible preferred security issued to the sellers
Source: Cott and DS management, FactSet.
40

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