Cott is a highly cash generative diversified beverage company with the largest volume-based national presence in the North American and European home and office bottled water delivery industry, a leader in custom coffee roasting and blending of iced tea for the U.S. foodservice industry, and one of the world’s largest producers of beverages on behalf of retailers, brand owners and distributors. Our platform reaches over 2.3 million customers or delivery points across North America and Europe supported by strategically located sales and distribution facilities and fleets, as well as wholesalers and distributors. This enables us to efficiently service residences, businesses, restaurant chains, hotels and motels, small and large retailers, and healthcare facilities.
Each year we undertake an annual business planning process or strategic review in which we look out over the next 3, 5, 7 and 10 years. This analysis takes place at the back half of the year and we review categories, trends, economic indicators, shifts in consumer behavior and numerous other factors. It was during this strategic review in 2013 that we developed the diversification strategy that we have implemented over the last few years.
The end result of our strategic analysis was the creation of our go forward strategy to drive shareholder value. The two key components of this strategy was to utilize organic measures to drive volume stability within our traditional business in order to maintain its strong free cash flows while accelerating the pace and scale of our asset based diversification with a focus on the water and coffee segments both of which had modest topline growth as well as longer term projections for continued modest growth as a part of the “health and wellness” or “better for you” trend. Our goal, Cott’s goal was and continues to be to transition our business through a combination of organic actions and synergistic transactional activity in order to progressively shift towards a higher margin and/or higher growth business, while keeping a strong focus on our 4 C’s (customers first, products at a low or fair cost, tight controls over capital spend, and in turn the generation of strong free cash flows) in order to drive free cash flow generation, with the goal of building a more predictable, lower risk business with strong compound growth in adjusted free cash flow for many years to come.
Since announcing this strategy we have undertaken a significant amount of both organic and transactional activity.
The combination of these actions now in place provides a significantly improved business profile with meaningfully lower customer concentration, reduced exposure to mature categories, a decreased proportion of our business in large format retail and an attractive outlook for free cash flow generation.
In 2014, we acquired DS Services the market leader in the growing U.S. home and office water delivery segment, as well as a top five position in U.S. office coffee services and a smaller but fast growing water filtration business.
In addition to transactional activity, such as the acquisition of DS Services, we focused on growing our contract manufacturing and value added and sparkling waters product categories in order to offset the market and private label declines in carbonated soft drinks and shelf stable juices in our traditional North America business.
Since the beginning of 2014 we have won over 50 million serving equivalent cases of contract manufacturing business and grown our value added and sparkling waters business significantly allowing our traditional businesses plants to maintain stable and consistent volumes driving high asset utilization and strong free cash flows.
After integrating the DS Services business and in order to continue to execute our strategy we acquired Aquaterra in January of 2016 (the leading home and office water delivery business in Canada) creating the largest North American home and office water delivery platform.
In June of 2016 we announced our move into European home and office water delivery with the acquisition of Eden Springs, Europe’s largest home and office water delivery business as well as a top five position in filtration and office coffee services and in August of 2016 we announced the acquisition of S&D Coffee & Tea, a leading US based manufacturer, distributor and service provider of custom coffee roasting and tea blending.
With our significantly improved business profile, lower customer concentration, and reduced exposure to mature categories we believe that these actions will allow us to improve on our already success free cash flow generation in which we have generated $100 plus million dollars of adjusted free cash flow over the last 8 years (2009-2016) and with the current shape of our business we have a strong outlook for compound growth in free cash flow with adjusted 2019 free cash flow estimated at $225 plus million. This is driven by the continued stability of free cash flows and cash extraction generated from our traditional business, growth of our water and coffee solutions businesses, the capture of additional synergies across our water and coffee solutions platform, incremental growth from small overlapping tuck-in acquisitions within our water and coffee solutions businesses, and the attractive opportunity for us to refinance high interest debt in 2017 and deleverage over the coming years. Since announcing our strategy we have refined our vision and created/updated the drivers which reflect our current priorities and are designed to strengthen the business and continue to progressively move the business to one with higher free cash flows, lower customer concentration, and hence lower risk. Vision - To become the leading North American and European Water, Coffee, Tea and Filtration service provider within Home and Office Delivery, Foodservice, Convenience and Hospitality channels.
The five drivers of this vision are:
One: To drive 2% to 3% organic growth of our home and office water delivery, coffee, tea and filtration platforms.
Two: To add small value creative tuck-in acquisitions within our water and coffee solutions segment which are deleveraging in and of themselves.
Three: To leverage and deliver the synergies across our water and coffee solutions platform (home and office delivery water, coffee, tea and filtration).
Four: To maintain free cash flow generation and optimize cash extraction from our traditional business.
Five: To strengthen our balance sheet through strong compound free cash flow growth, interest reduction and deleveraging.