jefferies consumer conference june 20, 2017 · pdf file3. a diversified beverage company...
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Jefferies Consumer ConferenceJune 20, 2017
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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 December 31, 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, and adjusted free cash flow 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 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.
Safe Harbor Statements
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Management Attendees
2
Jarrod LanghansVice President Investor Relations
Jerry HoyleChief Financial Officer – Cott DS Services Division
Tracy GingChief Commercial Officer – Cott S&D Coffee and Tea Division
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A Diversified Beverage Company Focused on Better-For-You Products and Broad Channel Penetration
The Company operates through two major business segments:
Water and Coffee Solutions (“WCS”) Platform: provides bottled water, coffee, tea and water filtration services to customers across 20 countries. Segment includes DS Services, Aquaterra, Eden Springs and S&D business lines
Growing products and channels associated with “Better-for-You” beverages including leading, scale platforms in home and office water delivery, coffee, tea and filtration services within North America and Europe
Large categories with low single digit growth across HOD Water, Custom Coffee Roasting and Tea Blending
Over 2.3 million customers providing a diverse customer base
Traditional Cott: produces beverages on behalf of retailers, brand owners and distributors. Focus on cash generation and cash extraction to grow our WCS platform and deleverage.
Volume stability through value-added and sparkling water product category growth and growing contract manufacturing channel offsetting sugar sweetened beverage (“SSB”) (Carbonated Soft Drinks “CSDs” and Shelf Stable Juices “SSJs”) market declines
Customer base includes the world’s leading brand owners and retailers in the grocery, mass-merchandise and drug store channels
___________________________Note: Financials based on FY 2016. Source: Company information, Management estimates. Terms: Home and Office Delivery (“HOD”).Other product category includes concentrates, filtration services and other. Sparkling waters includes mixers. (1) 2016 Pro forma Adjusted EBITDA allocated based upon pro-rata 2016 revenues by product category and channel between DS Services (HOD Water, OCS, Water and Other), Traditional Cott (CSD, Juice/Juice Drinks, Sparkling Waters and Other), Eden (HOD Water, OCS, Water and Other) and S&D (Coffee & Tea).(2) Corporate costs allocated based upon management estimates
1
2
Pro Forma 2016 (1)Adjusted EBITDA
CSD11%
Juice/Juice Drinks
8%
Sparkling Water8%
HOD Water34%
Water8%
Coffee & Tea18%
Other13%
Private Label Retail27%
Branded Retail10%
HOD Water34%
Foodservice5%
Convenience Retailing
2%
Distribution4%
OCS5%
Contract Packaging7%
Other6%
Product(1)
Channel(1)
Cott is a leading provider in the direct-to-consumer beverage services industry with 2017 projected sales of over $3.7 billion and strong free cash flow growth.
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1• 2% to 3% Organic Growth Within Our Water and Coffee
Solutions Segment
2• Accretive Small HOD Water, OCS and Filtration Tuck-In
Acquisitions in North America and Europe
3• Synergy Capture and Integration Within Our Water and Coffee
Solutions Businesses
4• Maintain Free Cash Flow Generation and Optimize Cash
Extraction From Our Traditional Business
5• Strengthening Balance Sheet Through Strong Compound Free
Cash Flow Growth, Interest Reduction, and Deleveraging
Cott’s 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
Vision Drives Shareholder Value Creation Via: Leading North American and European Water, Coffee, Tea and Filtration Service Provider
With Higher Margins and Compound Growth in Revenue and Free Cash Flow
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Strategic Initiatives Drive Diversification
Diversified beverage platform (low product, channel and customer concentration)
1
2
3
4
5
“Better-for-You” product offerings (positioned in growing categories of water, coffee, tea, filtration and extracts)
Leading Home Office Water Delivery, Coffee Roasting, Tea Blending and Office Coffee Service platforms (multiple accretive tuck-in opportunities)
Recent scale acquisitions (meaningful synergies/cost savings opportunities with longer term cross selling opportunities)
Strong free cash flow generation and de-leveraging (mid teen compound annual growth in adjusted free cash flow)
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Diversified Beverage Platform With Low Product, Channel and Customer Concentration Increasingly Focused on Growing Categories of Water, Coffee, Tea and Filtration
Private label & branded
retail76%
Co-pack15%
Other9%
Prod
ucts
Cha
nnel
sB
ette
r For
You
Better For You68%
Other32%
Pro Forma Adj EBITDA 2016(2)Adj EBITDA 2008(1) Adj EBITDA 2014(1)
CSD11% Juice
8%
Sparkling waters
8%
HOD Water34%
Water8%
Coffee & Tea18%
Other13%
Better For You19%
Other81%
CSD34%
Juice24%
Sparkling water19%
Other23%
Private label retail73%
Branded retail14%
Co-pack11%
Other2%
Better For You11%
Other89%
Private label retail27%
HOD Water34%
Branded retail10%
Co-pack7%
Foodservice5%
Other17%
(1) Cott Traditional 2008 and 2014 adjusted EBITDA allocated based upon pro-rata revenues by product category and channel. (2) 2016 pro forma adjusted EBITDA allocated based upon pro-rata 2016 pro forma revenues by product category and channel between DS Services (HOD Water, OCS, Water & Other), Traditional Cott (CSD,
Juice, Sparkling Water and Other), Eden (HOD Water, OCS, Water and Other) and S&D (Coffee & Tea).(3) Other products include concentrates, Eden Springs’s filtration services and other.(4) Other channels include office coffee services, distribution, convenience retailing and other. (5) Better For You platform includes HOD Water, OCS, Coffee & Tea, Water and Sparkling Waters / Mixers
(4)
CSD52%
Water11%
Other37%
(3)
1
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Our strategic shift to higher margin/growth markets - “Better-For-You” Product Offering Positioned Against Growth Categories
Water filtrationmarket
Out of home coffee market(1)
Hospitality tea market(2)
HOD watermarket
Source: Beverage Marketing Corporation, The Automatic Merchandiser, October 2014 EY Analysis, Mintel Group Ltd.(1) Includes roasted, single-cup, instant, ready-to-drink and cold-brew, and refrigerated cold-brew / concentrate U.S. coffee retail sales at current prices; projections exclude
refrigerated cold-brew / concentrate coffee retail sales. Excludes wholesale revenue.(2) Includes canned / bottled, refrigerated, bagged / loose leaf, and single-cup U.S. tea sales at current prices. Excludes wholesale revenue.
Building Attractive Platform…with potential to build multiple leadership
positions
Acquired Dec 2014 Acquired Jan 2016
Acquired Aug 2016 Acquired Aug 2016
≈ 3%
≈ 4%
≈ 7%
≈ 4%
’13-’17E CAGR
2
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Eden geographic presence
BWC water position(3)
Eden4%
Other89%
Eden20%
Company A
3%Company
B3%
Next 513%
Other61%
Company A6%
DS Services
~31%
Nestle~30%
Smaller Competitor
s~39%
DS Services~3%
Remainder of Top 5~17%
Smaller Competitors
~80%
DS Services – U.S. Market Leader
HOD Water(1) OCS(2)
Eden Springs – European Market Leader
HOD Water OCS
S&D has approximately 20% share of the growing foodservice channel and is the largest supplier of fresh-brewed iced tea to the U.S. foodservice industry.
S&D Coffee and Tea – U.S. Leader Aquaterra – Canadian Market Leader
Aquaterra is Canada’s oldest and largest HOD Water business with a leading position and over 70,000 customers.
___________________________Note: 2015 market shares based on management estimates.(1) Source: Beverage Marketing Corporation. Category size of $1.7 billion reflects only bottled water and excludes items such as cooler rent, cups, etc.(2) Source: ‘Coffee sales rise, so do costs: State of the Coffee Service Industry’, Automatic Merchandiser, September 2015.Source: Company information, Management estimates(3) BWC represents total bottled water coolers but is not a market in and of itself as the HOD water business consists of coolers, bottled water as well as other products such as case pack water and single serve products
Water and Coffee solutions – Leading HOD water, coffee, tea and filtration services provider across 20 countries with multiple accretive tuck-in opportunities
3
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Strategic Rationale
CostSynergies
Scales business and meaningfully enhances margin profile
Diversifies product mix and improves growth
Broadens channel mix
Meaningful synergies and new revenue opportunities generated from new channel and new routes to market
Expected to generate $25mm of synergies over 3 years
$21mm of $25mm realized to-date
Expected to achieve run-rate synergies by the end of FY2017
Improves product and channel mix, while reducing exposure to “Big Box” retail and input costs
Creates an international HOD platform with leading market share across all regions, with significant consolidation opportunities
Increases scale, margin and growth profile
Provides scaled growing coffee and tea production and delivery platform
Furthers Cott’s platform diversification strategy across multiple products and channels
Significant synergies with existing coffee business
___________________________(1) Eden Springs synergies converted from EUR to USD using 1.102Source: Company information, Management estimates
Recent Acquisitions Provide Meaningful Cost Savings Opportunities
($ in millions)
Eden Springs and S&D Coffee acquisitions are expected to generate total cost synergies of $23mm(1) by 2020
$4
$12
$21$23
2017 2018 2019 2020
4
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$155 -$175
$225 -$275
2017E 2019E
Strong Free Cash Flow Generation and Compound Annual Growth in Adjusted Free Cash Flow Supports Rapid De-Leveraging
Full-year impact and associated free cash flow from Eden Springs and S&D Coffee & Tea
~$23mm of synergy generation from Eden Springs and S&D Coffee & Tea as these businesses become fully integrated
Maintain free cash flow generation and optimize cash extraction from our traditional business
Organic growth of 2% to 3% from our Water, Coffee & Tea service businesses
Continue to execute-on highly accretive, synergisticand deleveraging tuck-in acquisitions in the HOD water, office coffee and filtration industries
Opportunistically refinance high coupon debt at lower rates and better terms in 2017, subject to market conditions
___________________________(1) Adjusted free cash flow calculated as cash flow from operations (excluding acquisition, integration and transaction costs) less capital expenditures(2) See appendix for adjusted free cash flow reconciliationSource: Company information
($ in millions)
Adjusted Free Cash Flow (1)
Free Cash Flow DriversAdjusted Free Cash Flow (1)(2)
($ in millions)
5
$107
$134$150
$155 - $175
2014 2015 2016 2017E
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High 4x(1)
~3.0x
PF2016 2017E 2018E 2019E Long-term netleverage target
(1) Pro Forma Leverage subsequent to closing Eden Springs and S&D Coffee and Tea in August 2016. See modeling deck presented August 17, 2016.Source: Company information
Proven track-record of quickly deleveraging after acquisitions
Significant free cash flow conversion allows for accelerated deleveraging
Additional deleveraging through cash extraction from traditional business (e.g. sale leasebacks, tight capital
control, various monetization options)
Capital deployment strategy assessed upon reaching 3x range
Strong Free Cash Flow Generation and Compound Annual Growth in Adjusted Free Cash Flow Supports Rapid De-Leveraging -Continued
Pro Forma Net Debt to Adj. EBITDA
5
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Value Creation
Highly diversified product, package and channel mix.
Strong and growing adjusted free cash flow that drives returns to shareholders through a more balanced scale
business with a goal of $225 plus million in adjusted free cash flow by the end of 2019.
Rapid deleveraging results in transfer of value from debt to equity holders.
Shareholder Value Creation Via: Leading North American and European Water, Coffee, Tea and Filtration Service Provider With Higher Margins
and Compound Growth in Revenue and Free Cash Flow
Note: Adjusted free cash flow yield defined as cash flow from operations less capital expenditures / market capitalization. Market data as of December 31, 2016 (Cott share price: $11.33).(a) High cash flow consumer peer group includes B&G Foods, Campbell, Pinnacle Foods, Post Holdings, JM Smucker, Snyder’s-Lance, Spectrum Brands and TreeHouse Foods(b) Bottlers peer group includes National Beverage, A.G. Barr, Britvic, Coca-Cola Amatil, Coca-Cola European Partners and Coca-Cola Femsa(c) Route base services peer group includes G&K Services, Unifirst, ABM Industries, Chemed, ServiceMaster, Cintas and AramarkSource: Company filings, Factset
FREE CASH FLOW YIELD
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Questions and Answers
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Appendix
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Cott's Diversified Business Platform
___________________________(1) Eden Springs figures translated using EUR to USD FX rate of 1.102(2) See appendix for reconciliation of Eden Springs and S&D Coffee reported to pro forma net revenueSource: Company information
Water and Coffee Services Traditional
DS Services(incl. Aquaterra) Eden Springs S&D Coffee
Description
Direct-to-consumer providers of HOD water and filtration services across the U.S. (DS Services), Europe (Eden Springs) and Canada (Aquaterra)
Provides access and leadership position in the growing HOD water and filtration services industry
Leading custom coffee roaster and services company in the U.S. that provides vertical integration benefits
Improves overall growth profile by providing access to new customers, channels and growing categories
Provides a leadership position within the growing “On-the-Go” coffee category
Leading SSJ, CSD, and sparkling water / mixer manufacturer and distributor with a focus on private label and contract manufacturing
Customers include leading grocers, drug stores, mass-merchandisers and global brand owners
High cash flow generation through 4C’s (strong customer relationships, low operating costs, rigorous capexmanagement and strong free cash flow)
Cash generation and extraction used for Water and Coffee Solutions growth and deleveraging
2016 Pro Forma Net Revenue $1,067mm $389mm(1)(2) $558mm(2) $1,784mm
Footprint
Largest or second-largest HOD water provider in 39 of 43 largest U.S. cities and market leader in Canada
Leading European market player across 18 countries via the Eden Springs platform
Strong platform for accretive tuck-ins across geographies in both North America and Europe at attractive multiples
37 plants and 15 water sources in the U.S. and Canada
27 water sources across 18 countries in Europe (~1/3 owned)
Four production facilities: two dedicated coffee facilities, one tea facility and one extract and ingredient facility
Production space: 625,000 ft.2 with the ability to add multiple roasters over the coming years as necessary
Capable of producing 130-150 million pounds of coffee and 40-50 million pounds of tea annually
Since 2010, S&D has invested over $50mm to expand and upgrade its production facilities
Global manufacturing footprint with over 30 facilities in the U.S., Canada, UK and Mexico
High service levels and low freight costs Fully integrated concentrate facility with
strong R&D capabilities and vertical integration
Customer relationships with over 500 leading retailers and global brand owners
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Water Delivery Services
64%OCS11%
Retail15%
Other / Filtration Services10%
DS Services (Including Aquaterra)A leading US Direct-to-Consumer Services Provider Across HOD Water, Office Coffee and Filtration Services
___________________________(1) Figures represent regional market share(2) Market share based on consumption volume(3) Other net revenue included in Filtration Services net revenue(4) Includes Aquaterra net revenue of $61mmSource: Company information
Overview Geographic Coverage and Brand Ownership(1)
Net Revenue ContributionProducts & Services
Water Delivery Services
Office Coffee Services (“OCS”)
Retail
Filtration Services
$681mm
$118mm
$165mm
$104mm
2016 Net Revenue(4): $1,067mm
% of WCS: 53%% of Total Cott: 28%
(3)
Leading bottled water, including many well-known brands, and coffee direct-to-consumer services provider to ~1.6mm customers locations through daily operation of >2,000 routes that cover ~90% of the US 37 plants National DSD (direct-store-delivery) system Vast customer base of homes and small office
Includes Aquaterra, the largest Canadian distributor of HOD water including well-known brands such as Labrador Source and Canadian Springs to ~70,000 customers
Leading market share (~31%) in the 2015 U.S. HOD bottled water category(2)
1
1
1
1
11
1 2
1
11 3
2
1
1 2
2
1
3
11
1
111
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Water Services63%Office Coffee
Services19%
Retail12%
Filtration6%
___________________________(1) BWC represents total bottled water coolers but is not a market in and of itself as the HOD water business consists of coolers, bottled water as well as other products such as case pack water and single serve products(2) Market share based on consumption volumeSource: Company information
Overview Geographic Coverage
Net Revenue ContributionProducts & Services
Water Services
Office Coffee Services
Filtration
Retail
€224mm
2016 Net Revenue: €353mm
% of WCS: 19%% of Total Cott: 10%
Europe’s largest office water and office coffee services company with operations across 18 countries and ~800,000 customers
Meaningful scale across Europe with access to attractive end-markets with positive growth outlook (A leading European player with multiple value-creative tuck-in acquisition opportunities)
Expands direct-to-consumer business – High-quality and loyal customer base (Combination of DS Services, Aquaterra and Eden Springs has >2 million direct to customer delivery points)
Eden SpringsEurope’s Leading Direct-to-Consumer (Home and Office) Water and Office Coffee Services Provider
€22mm
€41mm
€66mm
Eden Springs geographic presence
BWC water position(1)
31
1
1
1
1
1 2 2
2
2
112
1
22
2
Portugal Spain
France Switzerland
Germany
UK NetherlandsDenmark
Norway
Sweden
Finland
EstoniaLatvia
Lithuania
Russia
Israel
Poland
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QSR & Restaurants48%
Convenience Retailing
19%
Distribution32%
Other1%
___________________________(1) Market share based on consumption volumeSource: Company information
Overview Geographic Coverage
Net Revenue ContributionProducts & Services
Coffee
Tea
Specialty extracts & Ingredients(e.g. Cold Brew Coffee)
$269mm
$104mm
$181mm
$5mm
2016 Net Revenue: $558mm
% of WCS: 28%% of Total Cott: 15%
One of the largest custom coffee roasters and distributor of coffee and tea-based beverage solutions to the U.S. foodservice industry
Four facilities contain dedicated coffee and tea manufacturing capabilities, extract and ingredient technology, and over 625,000 total square feet of warehouse space
Serves over 24,000 blue-chip customers mainly in the foodservice industry, and delivers to over 102,000 customer locations across U.S.
S&D Coffee and TeaLeading U.S. Foodservice Coffee, Tea Manufacturing and Services Company
Direct Route & Third-Party DistributionThird-Party Distribution
3rd Party Distribution sales accounted for ~80% of total
2015 net revenue
Attractive Synergy and Distribution Opportunity with DS Services OCS Business
Direct route sales accounted for ~20%of 2015 net revenue
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CSD31%
Juice / Juice Drinks22%
Sparkling Waters / Mixers23%
Other24%
___________________________Source: Company information
Overview & Strategic Rationale Geographic Coverage
Net Revenue ContributionProducts & Services
CSDs
Juice / Juice Drinks
Sparkling Waters / Mixers
Other
$559mm
2016 Net Revenue: $1,784mm
% Better-for-You: 22%% of Total Cott: 47%
Industry-leading beverage manufacturer and distributor focused on private label, contract manufacturing and own brands Leader in private label shelf stable juices, CSDs
and value-added and sparkling water in North America with a growing contract manufacturing business
Fully integrated concentrate facility with strong R&D capabilities and vertical integration with high service, low-cost production model supplying quality concentrates and exports to customers outside of North America
Customer relationships with over 500 leading retailers in the grocery, mass-merchandise and drug store channels and band owners
$392mm$401mm
$432mm
Traditional BusinessLeading Beverage Platform With Extensive Manufacturing Footprint for Private Label, Contract Manufacturing and Own Brands
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Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)Sangs (McDuff)
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MEXICO U.K.
U.S.
Canada
Hot FillCold Fill
Other
PueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPueblaPuebla
Mexico
The strong FCF from the Traditional Business enables us to delever quickly and invest in our growing “WCS” platform