In addition, for the first time in arrears, the annual average value of the Canadian dollar rose above parity with the American dollar. Lastly, a decrease in shipments reduced our production capacity utilization rate. Being sensitive to these factors, our financial results suffered throughout the year. Despite this, I believe there is reason to be optimistic for 2012 and the years to come. Since September, market conditions have improved. Furthermore, from a strategic standpoint, we moved forward on several major initial dives that will begin to pay off in the coming years.

The most significant developments without a doubt were the divestiture of TOPCA for IIS$pointillism and our investment in the Greengage project, a new state of the art landlord mill. As you know, C cascades initiated a major strategic shift some years ago when we decided to focus on packaging and tissue paper, two market segments we felt had the most potential for the future. Since then we have taken steps to further focus our activities in these segments. In addition, we sold and shut down many non-core or under performing facilities.

In this perspective, 2011 was a year to fine tune our strategy and establish precise action plans to improve our operational and financial performance. We continue to believe that our exposure to the packaging and tissue paper segments is the right strategy. With this in mind, our future actions will revolve around four strategic priorities. First, we need to increase our level of investment toward modernizing our operations and information systems. Thus, we will prioritize organic growth and productivity improvement through modernization as opposed to growth through acquisitions.

This change in our approach can be seen in the deployment of our new ERP system as well as several major investments and improvements to our operations announced in 2011. First and foremost among these is our Greengage project. Together with financial and strategic partners, a total of $430 million will be invested in Greengage to construct a new centerboard’s mill in Niagara Falls (NY) that will be the most modern and among the most high-performance mills of its type in North America. Our second priority is to continue to optimize our capital. This meaner we will continue to implement measures to do more, and do it better, with less.

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Closing our centerboard’s mills in Quo©beck City and Eel Guarder to increase production efficiency in our to her units is a prime example. Consolidating our New England corrugated box operations is another. Likewise, acquiring full control of Procedures, a high-tech tissue paper converting plant, will allow us to optimize production in several Tissue Group mills, ensuring that we convert the right products at the right locations. We also plan to increase our financial flexibility by improving our return on epidemiological (RACE) and by reducing our working capital.

We believe that there is still a lot of potential and liquidity to be unlocked through a rigorous exercise and the use of best practices. Third, we must continue to focus on innovation. In a mature industry such as ours, efficiency and cost control are key; but in terms of sales, offering superior service and better meeting ever-changing customer needs is absolutely essential. This is where innovation becomes crucial. Without it, Cascades cannot hope to set itself apart from its competitors, increase its sales and profitability and remain a leader in its market segments.

This is why we invested in the Atoms technology at our Candida tics u paper mill, becoming the first manufacturer in North America to use this technology, which allows us to produce a premium-quality bathroom tissue from recycled fiber using less energy, and water and fewer chemicals. The fourth pillar of our strategy is to continue and, in some cases, accelerate the restructuring of our less-profitable units. Like any investment portfolio, it takes only a few under performing assets to undermine the overall performance. We can no longer soup rot non-profitable units with an uncertain future.

The only option available for these assets is to restructure them to achieve the desired profitability, and when this is not feasible, sell them or shut them down. This is what guided our decisions in regard to our Eliminates, Versailles, Hebrew, Foot-Fall©e and Burnable facilities in 2011. By focusing on four main areas, we aim to achieve a RACE that is at least equal to our cost of capita over a complete cycle . In this way, we are convinced that we will be able to ensure our company’s sustainability by creating value for our shareholders.

This is what we achieved fortissimo to 2009, when our VOID increased by more than 15% per year. We believe Cascades is very well positioned in growth sectors. Our challenge for the coming years will be to optimize our asset base while ensuring a sound management of our capital. This is why our strategy for the coming years will be guided by four priorities: modernization, optimization, innovation and restructuring. In 2012, we will gradually and selectively increase our investments in order to reach our objectives. The divestiture of TOPCA provided us with flexibility to make the investments to support our strategic initiatives.

However, we will remain prudent and disciplined to allow our debt to be educed in the medium term as our profits improves. We are committed to achieving better financial flexibility and maintaining it as we move forward with our plan. Improving our profitability and strengthening our balance sheet will not be achieved in a matter of months. We will have to intensify our efforts in the next few years to do so, and we are convinced that this will result in the creation of added value for our shareholders. Cascades Inc. – Locations And Subsidiaries Head Office 404 Marie-Victoria Blvd P. O.

BOX 30 Kingies Falls ICQ JOE BIB Canada Tell: +1 819 3635100 Fax: +1 819 3635155 Other Locations & Subsidiaries Cascades Inc. , Subsidiaries I Cascades S. A. Avenue Maurice Frank La Rochester’s France I Cascades Recovery Inc. 66 Shoreline Road -Romanization SKI candidate: +1 416 2312525 | cascades Canada, Inc. 404 Mane-vocation Boulevard’s Objectionable: +1 819 3635100 | Cascades Backboard Group, Inc. 404 Marie-Victoria Boulevard’s 1 Backhand I Moroccan Inc. 1061 Parent Street Saint-Broadcasted I Cascades Tissue Group – Arizona Inc. 4625, Interstate Way Kinsman 86401 United States I Cascades Tissue Group – Oregon Inc. 300, Easter Road SST. Wholesomeness United States I Cascades Sonic Inc. 170, Collage Drive BirminghamAL352171Jnited States I Procedures Converting Mill Corp.. 901, boll Industries Cranberry’s Canadian I Section 2 – Company Analysis Cascades Inc. – Business Description Cascades Inc. (Cascades) is a recycling company, principally converts corrugated packaging containers, folding cartons, tissue and several specialized products, as well as collects and processes recycled papers. It operates over 100 modern and flexible production units in North America and Europe.

The principal products and services offered include recovery, tissue papers, FL nee papers, industrial and commercial kayaking, food packaging, consumer products, furniture and construction materials. The company principally operates through two reportable business segments, namely, Packaging Products and Tissue Papers. The Packaging Products segment is organized into three business segments, namely, Backboard, Centerboard’s and Specialty Products. Cascades’ Backboard Group is the largest producer of coated and recycled backboard in Canada and is also the sixth largest producer of recycled and coated baseboards in North America.

It operates through seven coated backboard manufacturing units, for the production of folding cartons and microfiche packaging. It has three backboard mills in Canada, two in France, and one each in the US, Germany and Sweden. The group also owns research and development department to develop products by considering the customer needs. The Centerboard’s segment includes the operations of Moroccan, one of the largest centerboard’s producers in Canada and the sixth largest in North America.

It is involved in the manufacturing of a variety o f centerboard’s and several corrugated packaging products, ranging from everyday box to specialty box, principally manufactured from recycled fiber. It is the foremost producer of landlord and corrugated medium in Canada and one of the leader in corrugated production in North America. Currently, Moroccan operates 37 establishments in Canada, United States and France, including six centerboard’s mills, 23 corrugated products plants, four folding boxes plants, one graphic center and one packaging and innovation center.

The company’s product ranges from graphic-design services to a full range of papers in different basis weights and colors. The company also offers high definition and specialty printing. It offers products and services to paper, wine and spirits, food, and several consumer products companies. Through the Specialty Products segment, the many activities principally span four major areas: Industrial Packaging, Consumer Product Packaging, Specialty papers, and Recovery and Recycling.

It is among largest producers of polystyrene foam containers for food industry converters and honeycomb packaging products in Canada. In addition, the group is the largest producer of packaging for paper mills in North America. The Specialty Products group of the company operates 44 units across North America and Europe. Through a Joint venture with Metro Waste Paper Recovery Inc. , the group owns and manages 20 recovery plants spread throughout the US and Canada. For the fiscal year ended December 2011 , the Packaging Products segment reported revenue of CAD,mom, reflecting an increase of 18. % over that in 2010. The segment accounted for 76. 2% of the company’s total revenue in 2011. The Tissue Papers sector activities include manufacturing and conversion of tissue paper for the commercial and institutional, and retail markets. Under this sector, the company operates through Cascades Tissue Group, which is a reportable producer of tissue paper in North America. The principal products offered include paper hand towels, paper towels, hand wipes, bathroom tissue and facial tissue, napkins and pipers.

The group provides a comprehensive range of finished products to its consumer market customers. It operates through 16 manufacturing and converting plants in Canada and the US, employing close to 2,000 people. Its products and services are marketed under various brand names, which include Decor, North River, Horizon, Privilege and Wiping Solutions. For the fiscal year ended December 2011, the Tissue Papers segment reported revenue of ACADIA m, reflecting an increase of 2. 1% over that in 2010. The segment accounted for 23. 8% of the company’s total revenue


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