Cascades moves up rapidly to become world’s number 6

Hugh O’Brian

From a very simple start 40 years ago in the small town of Kinsey Falls, Quebec, Canada, Cascades Inc. has grown to become a US$2.4 billion company. Making boxboard, containerboard, fine papers, specialty papers and, of course, tissue, Cascades is run by the three Lemaire brothers, Bernard, Alain and Laurent the sons of Antonio Lemaire, the man who started the company in 1964. Although Cascades is publicly listed now, the Lemaire family still owns about 38% of the shares. Today the company has over 15,000 employees at more than 160 operating units throughout North America and Europe. Tissue has been part of Cascades product offering since 1977. After a very rapid growth spurt over the past three years, the Cascades Tissue Group is today the number 6 tissue company in the world in terms of capacity. Capacity in 2004 is rated at 540,000 short tons per year or about 500,000 metric tons. This places Cascades at number 4 in North America and second in Canada, behind Scott/Kruger.

Gross sales in 2003 amounted to CAD $644 million or about US$480 million.

SUZANNE BLANCHET IS PRESIDENT AND CEO OF THE CASCADES TISSUE GROUP. An accountant by training, Blanchet has worked with the Cascades Group for more than 26 years. Originally from nearby Kingsey Falls, Quebec, which is about an hour east of Montreal, she began her career as an accountant and gradually moved up to become corporate controller. Her career took a new turn when she moved over into mill operations and then eventually into executive management. In 1995 she was named executive vice-president of the tissue group and in 1997 Blanchet assumed the title of President and CEO.

WOMAN CEO? NO BIG DEAL. Asked about her position as perhaps the only woman president and CEO of a major tissue making company, Blanchet says it is no big deal. “I guess it is rather unique but I don’t see it as an advantage or disadvantage.

In the beginning I had to build my credibility but now they see me as a businesswoman.”

The company has expanded rapidly in the past few years mainly through acquisitions in the USA. These have included Plainwell Paper’s mills in Wisconsin and Pennsylvania in 2001, American Tissue’s Waterford, New York, Mechanicville, New York and St. Helen’s, Oregon, mill’s in June 2002 and the Memphis, Tennessee, mill in March 2003. All told the Cascades Tissue Group has 17 tissue making or converting plants, with seven located in Canada and the remaining 10 in the USA.

The recent emphasis on tissue has meant that this sector has become much more important for Cascades Inc. Tissue now makes up about 25% of the company sales but it accounts for 33% of the corporate profits. “For many years we were the baby of the group,” says Blanchet, “meaning we were important but not really in the focus. Around 1995 that changed as we made some important acquisitions that made us a bit bigger.”

Two steps which helped move Cascades Tissue into the big leagues in Canada were the acquisitions in 1995 of tissue maker and converter Perkins Papers and in 1999 of Wood Wyant, an important tissue distributor with which Cascades had a very long and close relationship. “The Wyant family had long had ties with the Cascades people. So when they wanted to sell, it was only natural that we would buy this important distributor of tissue products. It was a very good fit for us.”

The fast pace of development of the company has meant that the informal management structure of the early years has become somewhat more structured recently. “We are basically a family run company that is now 40 years old. Today there is a more clear structure to the organization but for many years we were all wearing lots of hats and everybody was doing everything. As we have grown it has become necessary to be clearer about titles but we haven’t lost the entrepreneurial spirit.”

CASCADES BRAND IS RELAUNCHED. With respect to the retail sector, Cascades is clearly focused on the private label or retailer label market for the time being. Over 90% of the company’s retails sales goes through the private label channels, while about 10% is through Cascades brand, called quite simply Cascades. The split between AFH tissue and consumer or retail is pretty much 50/50.

The company launched this brand for the first time a decade ago but it did not take off. After a very intense development effort aimed at improving quality, the Cascades brand was re-launched in early 2003. Blanchet explains: “About 10 years ago we launched Cascades. But we phased it out a couple of years after. However, after an intensive development effort, we have been able to make a much better sheet for paper towel and bathroom tissue for the Cascades brand.”

USA OFFERS BEST FUTURE. The USA is where Cascades is planning to continue its future growth. The Canadian market, says Blanchet, just doesn’t offer enough potential for volume growth. “The three majors here, meaning Scott/Kruger, Irving and ourselves, are pretty well positioned to serve the market. The problem is that the Canadian market is only 30 million people and it is not growing so rapidly. The US is a much bigger market for us to grow in so we want to be there with both production and sales. We think it is important to have our production costs in the same currency as our revenues, as the Canadian dollar has seen some pretty big swings in recent months. Sometimes that is an advantage but sometimes it is a real disadvantage.”

Clearly Cascades is already in the US market and has been for a long time. As far as sales by country, the company sells about 65% in the USA and 35% in Canada. All the way back in 1983 the company started its first machine at its Rockingham, North Carolina, mill. This was done to serve the US market, where Cascades had built up a strong position based on shipments of tonnage from its Canadian operations in Kingsey Falls.

BUY RATHER THAN BUILD. Blanchet is quite clear about Cascades’ preference to buy assets rather than building new machines. However, the door is also open to new construction under the right circumstances. “We want to continue to take advantage of opportunities that come up. Generally we prefer to buy rather than build. Buying assets is more work than building new operations but the acquisition price is usually better. We think that is a better use of our capital. So we are always looking for good assets in the right places and at the right prices. But we do build new assets from time to time and are certainly not afraid of that. ” The collapse of American Tissue in 2001 presented Cascades with a golden opportunity to get further into the US market at a relatively low cost. Blanchet agrees but offers some qualifications: “The purchase prices for the ATC assets were very reasonable, but the mills had been closed for almost a year and the machines were mothballed. So we got machines without any employees or customers! This was, and continues to be, very challenging but if we did not buy these operations someone else would have so we needed to act rapidly. Essentially this fits in with our US expansion strategy quite well.”

THE ATC ACQUISITIONS HAVE PUT A BIT OF A STRAIN ON CASCADES due to time and effort required just to get the operations running again. “Right now we are not so profitable with those assets, as they are essentially brownfield sites and we have had to rebuild the asset base, and the employee base. Also the customer base had disappeared when ATC shut things down. They closed the operations in September 2001 and we could only get the keys to the buildings in July 2002. On top of this, the events of September 11, 2001, did not help the situation either.”

As far as future acquisitions and growth, Cascades is always on the lookout for opportunities. Blanchet is clear about the aims to grow further but won’t say exactly where and when the next expansion will take place. “Historically our pattern of activity has followed a three year cycle, so I would say that you can expect something in the near future. We like to buy, digest and get things running smoothly and then move on to the next one.” •