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CIBC 2016 Retail & Consumer Conference
March 30, 2016
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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, anticipated market trends, and the execution of the Company’s strategy. 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; (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 2, 2016. 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 www.cott.com.
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Management Attendees
Jay WellsChief Financial Officer
Jerry FowdenChief Executive Officer
Jarrod LanghansHead of Investor Relations
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Cott is a Diversified Beverage Company with a Strong Health & Wellness Product Mix and Broad Channel Penetration
2015 EBITDA by Product (1)
Over 70% of EBITDA in growing product categories
Steady and dependable Home Office Delivery
“HOD” Water revenue growth
Office Coffee Service “OCS” revenue growth
Sparkling water and mixer product category growth
Other includes growing categories of energy,
powdered hot chocolate and instant coffee
Carbonated Soft Drinks “CSDs” continue in decline
Shelf Stable Juices “SSJs” are a flat to modestly
declining category
Contract manufacturing growth with a 2 year CAGR of over 50%
Source: Cott management.1 2015 EBITDA allocated based upon pro-rata revenues between DS Services EBITDA (HOD, OCS, Water and Other) and Traditional Business EBITDA (CSD, Juice / Juice Drinks, Water, Sparkling Waters / Mixers, and Other).2 2015 EBITDA by segment including corporate allocations (for reporting purposes Aimia is included as a part of UK/Europe).
Cott’s diversified beverage platform is now more reflective of the total beverage category
2015 EBITDA by Segment (2)
CSD16%
Juice / Juice Drinks
11%
HOD Water33%
OCS6%
Sparkling Waters/Mixers
10%
Water8%
Other16%
Cott North America
30%
Cott U.K./EUR
Core11%
Aimia5%
Other3%
DS Services51%
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Key Metric – To Drive Free Cash Flow Growth
Primary Focus Driving Free Cash Flow Growth
Free Cash Flow Drivers• Traditional business continuing to provide good free cash flow from a
well invested-business and asset base
• Beneficial corporate structure (cash taxes ≈$3 - $8 million annually 2015 to 2020)
• 3% plus of annual DS Service top line growth is expected to generate incremental EBITDA and free cash flow
• Additional synergy capture 2016 onwards
• Tuck-in customer list acquisitions of $10 to $20 million in total per year with the goal of generating incremental EBITDA of $3 - $6 million
• Refinancing of DS Notes in September 2017 is expected to generate significant interest savings ($350 million Notes at 10% creating ≈$10 to $20 million of annual interest savings)
Source: Cott ManagementNote: Adjusted Free Cash Flow Growth excludes future acquisitions which would be expected to deliver incremental free cash flow growth.
We focus on free cash flow generation and anticipate a mid-teen CAGR in growth from 2016 to 2018.
Adjusted Free Cash Flow
(in MM's) 2016E 2018E
Adjusted Free Cash Flow
$135 - $145 $165 - $185
Other Financial Metrics
EBITDA Drivers• DS Services organic and tuck-in
growth• Aquaterra and synergy capture• Traditional Business contract
manufacturing and sparkling water and mixer growth
Revenue & EPS (Not a leading indicator to company success)• Product mix is reshaping our traditional business pressuring our
top line revenue even though the mix in products maintains consistent dollar operating profits.
• Purchase accounting associated with transformational M&A impacts GAAP numbers in spite of post synergy cash flow per share accretion.
EBITDA Headwinds• Foreign Exchange• Traditional Business
competitive landscape• CSD/SSJ category and
private label declines
Projected EBITDA Growth of 3-4% in 2016 (@current FX)
• Successfully integrate DS Services and Aquaterra to drive synergy capture
• Stable, strong cash generation through 4Cs, supported by growth in contract manufacturing and Value Added Water offsetting PL CSD and SSJ declines
• Continue to generate top line growth
• Small tuck-in acquisitions of $10 - $20 million in HOD Water/OCS businesses annually
DS Services Growth
Acquisition Synergy Capture
Mid-to-Larger Scale
Acquisitions
Traditional Business
Cott’s VisionBuilding Upon the Platform Created – To Further Growth and Value Creation
• Focus on cash generative HOD water, coffee and tea in growing and/or higher-margin beverage categories (cash-on-cash IRR greater than cost of equity)
Shareholder Value Creation
Create a more diversified higher margin and/or
growth-oriented company with annual EBITDA and
free cash flow expansion to drive increased
multiple/stock valuation.
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Traditional BusinessCash Flow Stability through 4Cs
Control capitalexpenditures
Deliver significant free cash flow
• Understand our customers’ needs
• Build new channel relationships (contract manufacturing)
• High service standards
• One-stop shop philosophy
• Supply chain solutions
• Manage the commodity cycles
• Control SG&A costs
• Improve operating efficiencies
• 3-year $30 million cost reduction plan within traditional business (2014-2017)
• UK/Europe cost action and operational efficiency program (2015-2018)
• Manage projects tightly with a focus on cost / efficiency. Use third party funding where possible (eg warehousing) and sale leasebacks to generate cash flows
• High quality plants - all SQF Level 3 or BRC
• Focus on efficiency capex with ≈2-3 year payback
• Cost reduction minimizes capex spend
• Rigorously manage working capital
• Assist with funding to continue to reposition the business with post synergy cash accretive scale acquisitions as well as de-leveraging with the objective of reducing leverage to low 3.0x EBITDA
• Fund HOD and OCS market roll-up by DS Services.
Strengthen customerrelationships
Continue to lower operating costs
4C’s Philosophy Drives High Cash Generation
Building Value Through Cost Down Initiatives – Traditional Business
PackagingInterplant Transfers
Warehouse Projects
Plant Projects
CC + I
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 2017.
UK/Europe – 3 Phase Cost Action and Operational Efficiency Program (Late 2015 – 2018)
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
Cott North America “War on Waste”
$6 $6 $6 $6
$9 $9 $9
$-
$10
$20
$30
$40
2014 2015 2016 2017
$30
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Traditional BusinessCash Flow Stability through Copack and Value Added Water growth
Offsetting Private Label CSD and SSJ volume declines through Contract Manufacturing and Value Added Water Growth
Cott North America Contract Manufacturing Volume
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
Substantial room for Cott to grow
Serving equivalent cases (in millions)
Copack Advantages
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
Value Added Water Opportunity
Source: Cott Management
21
45
68
70 - 105
0
20
40
60
80
100
120
2013 2014 2015 2016E
50 to 80 million
case growth
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
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Source: Cott Management.
Traditional BusinessCash Flow Stability through Copack and Value Added Water growth - continued
Mix into growth areas of contract manufacturing (two year CAGR of over 50% volume growth) and sparkling waters and mixers (mid to high single digit growth) provides broad volume stability
and equivalent operating income dollars per case although at a lower revenue per case
(in millions excluding per case) Year Ended
Cott North AmericaJanuary 2,
2016January 3,
2015 Variance
Revenues $1,331 $1,434 -7.2%
per case $3.91 $4.20
Volumes 340.4 341.5 -0.3%
Gross Profit $174 $164 6.3%
per case $0.51 $0.48
Operating Income $39 $30 29.6%
per case $0.11 $0.09
On a net basis, Co-pack provides stability to the margins in our business as it is contracted for longer periods than our traditional non Co-pack business
Mix shift into growing contract manufacturing and sparkling water and mixers offsets decline in CSDs and SSJs driving volume stability
Note: Foreign exchange rates are projected to provide a headwind to operating income in 2016 as a result of the significant movement in the CAD.
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DS Services GrowthBig 3, Partnerships, and Upselling/Cross Selling
Growing HOD water through Big 3 of increased (1) consumption, (2) customers and (3) pricing
Consumption and Value/Pricing Source of Organic Customer Growth
Source: Cott Management
35%
25%
21%
16%
2%
Marketing
In-Store Retail Booths
Route Sales Reps
Sales
Other
Internet 17%
Print 18%20153.7%
3.4%3.0%
4.4%
1.6%
4.9%
3.6%
5.7%
4.6%
3.1%
4.1% 4.0%
4.6%
3.9%
4.6%
3.4%
2.6%
1.9%2.2%
-0.5%
2.3%
1.8%
3.2%2.8%
1.6%
2.3%
2.8%
3.3%
2.6%
3.3%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Revenue Growth Volume Growth
U.S. HOD Bottled Water Market Quarterly Trend
Excludes the impact of 5G at retail (Primo)
2012 2013 2014 2015
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DS Services GrowthBig 3, Partnerships, and Upselling/Cross Selling
Long Term Strategic Partnerships Drive Continued Organic Growth and Provide a Competitive Advantage
DS Retailer Booth Customers
Map represents the Primo Customers and their geographic density
Primo Customer Density Leverages Cost Structure
Source: Cott Management
2 19
91 106
154 164
190 204
0
40
80
120
160
200
2011 2012 2013 Q1 2014 Q3 Q1 2015 Q3 Feb 2016
thousands
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DS Services GrowthHOD Water and OCS Market Roll Up (Customer List Tuck-ins)
Customer List Tuck-Ins are Highly Accretive to DS
• 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
Almost Immediate Cost Savings
Increased Route Density
Improved Customer Profile
• DS has realized significant cost synergies by rationalizing assets, customer service, IT and other overhead and back-office functions
• Synergies realized by combining delivery routes and eliminating routes to increase route density driving operational leverage
Acquired Customers Show High Retention (4)
Cost per Customer Add –Acquisition vs. Organic
100 100
128
194
0
50
100
150
200
After 1 Year After 3 Years
Organic Through Acquisition
1 Assumes revenues associated with acquired entity in each transaction were applied to DS Services cost model for that period. 2 2012 included the larger Standard Coffee acquisition.3 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.4 Retention rates indexed to 100, which equals retention rate of Water Delivery Services customers added organically during relevant time period.
Successful Track Record
• Completed 58 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 scale acquisition(2) (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 post-synergy EBITDA
74100
0
50
100
150
200
Top 5 Water DeliveryServices Acquisitions(3)
2013 Average OrganicCustomer Acquisition Cost
Index
Source: Cott Management
Aquaterra
Mid-to-Larger Scale Acquisitions
Mid 5x post synergy EBITDA multiple
Mid teen cash-on-cash IRR
Purchase Price C$62 million ($45 million)
Annual revenues of C$75 million ($55 million)
70,000 customers
Future Acquisitions
Higher margin and/or higher growth
“Good for you” beverage categories
Synergistic and tuck-in opportunities
Cash accretive per share post synergy integration
Source: Cott Management13
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Shareholder Value CreationProgress in 2015 but there is significant opportunity over time.
Strong adjusted free cash flow that drives returns to shareholders through a more balanced scale business with over $350 million plus of EBITDA annually
Platform for scale M&A to enhance business profile and provide upside through synergies and cash flow per share accretion
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
4C’s philosophy concentrating on Customers, Costs, Capex and most importantly Cash
The combination of a broadly stable cash flow generation within our traditional business and furtheracquisition based diversification alongside DS Services’ integration, synergies & expansion strengthens
Cott’s financial performance and should drive valuation improvement.
2015 Adjusted FCF Yield % (1)
Source: Bloomberg, FactSet and Company data. Public market data as at December 31, 2015 (Cott share price of US$10.99).1 Adjusted free cash flow defined as cash flow from operations less capital expenditures. 2 High cash flow consumer peer group includes B&G Foods, Campbell, Pinnacle Foods, Post, Smucker’s, Synder’s-Lance, Spectrum Brands and TreeHouse. 3 Route based services peer group includes G&K Services, Unifirst, ABM Industries, Chemed, ServiceMaster, Cintas and Aramark. 4 Bottlers peer group includes National Beverage, A.G. Barr, Coca-Cola Bottling, Britvic, Coca-Cola Amatil, Coca-Cola Enterprises and Coca-Cola Femsa.
“COT is among the cheapest names in our coverage on an EV/EBITDA basis and offers a 13% FCF yield, which is more than twice our
coverage average of 5%.“
Analyst Commentary (September 2015)
(2)
(3) (4)
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Appendix
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Foreign Exchange and Adjusted EBITDA
Canadian Dollar Movement (1) and Estimated FX Headwind on EBITDA (2)
1 2015 represents actual quarterly average foreign exchange rates. 2016 rates represent Bloomberg’s forecasted rates as of 2/18/16.2 Management estimate as of 2/18/16.
0.7
0.75
0.8
0.85
0.9
Q1 Q2 Q3 Q4
2015 2016
$3 - $4$4 - $5
$2 - $3$0 - $1
1.4
1.45
1.5
1.55
1.6
Q1 Q2 Q3 Q42015 2016
$1 - $2$0 - $1$1 - $2 $0 - $1
British Pound Sterling Movement (1) and Estimated FX Headwind on EBITDA (2)
Full Year EBITDA is expected to grow 3% to 4% but will be impacted by approximately $15 million dollars of negative EBITDA headwinds which will occur predominantly in the first half of 2016.
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Adjusted Free Cash Flow Yield – Cott Corporation 2015
Source: Cott Management
NON-GAAP - ADJUSTED FREE CASH FLOW YIELD
(in millions of U.S. dollars)
Unaudited
($ in millions, except for per share amount) As of January 2, 2016
Stock Price $10.99
Total Shares Outstanding 109.7
Equity Market Capitalization $1,205.6
Year Ended
January 2, 2016
Net cash provided by operating activities $254.6
Less: Capital expenditures (110.8)
Free Cash Flow $143.80
Plus:
DSS integration capital expenditures 5.3
Acquisition and integration cash costs 13.9
Cash collateral(1) (29.4)
Adjusted Free Cash Flow $133.60
Divided by: Equity Market Capitalization $1,205.60
Adjusted Free Cash Flow Yield 11.1%
1 In connection with the DSS Acquisition, $29.4 million was required to cash collateralize certain DSS self-insurance programs. The $29.4 million was funded with borrowings against our ABL facility, and the cash collateral is included within prepaid and other current assets on our Consolidated Balance Sheet at January 3, 2015. Subsequent to January 3, 2015 additional letters of credit were issued from our available ABL facility capacity, and the cash collateral was returned to the Company, which was used to repay a portion of our outstanding ABL facility.
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