gcp applied technologies › ~ › media › files › g › gcp...attractive segments of global...
TRANSCRIPT
GCP Applied Technologies
Third Quarter 2017
This document contains, and our other public communications may contain, “forward-looking statements,” that is, information
related to future, not past, events. Such statements generally include the words “believes,” “plans,” “intends,” “targets,” “will,”
“expects,” “suggests,” “anticipates,” “outlook,” “continues,” or similar expressions. Forward-looking statements include, without
limitation, statements about expected financial positions; results of operations; cash flows; financing plans; business strategy;
operating plans; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from
new technology and cost reduction initiatives, plans and objectives; and markets for securities. Like other businesses, GCP is
subject to risks and uncertainties that could cause its actual results to differ materially from its projections or that could cause
other forward-looking statements to prove incorrect. Factors that could cause actual results to materially differ from those
contained in the forward-looking statements, or that could cause other forward-looking statements to prove incorrect, include,
without limitation, risks related to: the cyclical and seasonal nature of the industries that GCP serves; foreign operations,
especially in emerging regions; changes in currency exchange rates; the cost and availability of raw materials and energy; the
effectiveness of GCP’s research and development, new product introductions and growth investments; acquisitions and
divestitures of assets and gains and losses from dispositions; developments affecting GCP’s outstanding liquidity and
indebtedness, including debt covenants and interest rate exposure; developments affecting GCP’s funded and unfunded pension
obligations; warranty and product liability claims; legal proceedings; uncertainties related to GCP’s ability to realize the
anticipated benefits of the spin-off /separation from W.R. Grace and the value of GCP’s common stock following the spin-off; the
inability to establish or maintain certain business relationships and relationships with customers and suppliers or the inability to
retain key personnel following the spin-off; and hazardous materials and the costs of compliance with environmental regulation.
These and other factors are identified and described in more detail in GCP's Annual Report on Form 10-K, which has been filed
with the U.S. Securities and Exchange Commission and is available online at www.sec.gov. Our reported results should not be
considered as an indication of our future performance. Readers are cautioned not to place undue reliance on our projections and
forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly release any
revisions to the projections and forward-looking statements contained in this document, or to update them to reflect events or
circumstances occurring after the date of this document.
Non-GAAP Financial Measures
These slides contain certain “non-GAAP financial measures”. Please refer to the Appendix for definitions of the non-GAAP
financial measures used herein.
Forward Looking Statements
2
We are inspired to influence how the world is built.
3
2016Pre-2016 2017 Future
Launch of GCPSpins off launching as a Construction
Products and Packaging company.
Transition & RealignmentSale of Darex Packaging Technologies:
generate cash for investment in
construction products technologies.
Realignment to a more market and
customer-focused organization.
W.R. GracePart of W.R. Grace & Co.
GCP Applied TechnologiesTransformation underway to establish
GCP as leading construction products
technologies company.
Progression of GCP Applied Technologies
Strategic Acquisitions
Growth through bolt-on acquisitions:
SensoCrete, Halex, Stirling Lloyd, and
Ductilcrete.
4
GCP Applied Technologies Overview
Executing a Strategy to Grow Shareholder Value
Create, Grow and Maintain Strong Positions in Attractive Segments of
Global Construction Market
Deliver on New Products, Technologies and Global Capabilities to Provide
Value to Customers
Realign Organization To Drive Commercial Effectiveness
Prudently Allocate Capital While Maintaining Financial Discipline
5
Build on strong position in construction market by focusing on:
Product performance, project design, technical service and training, connecting customers
and data, and conserving energy and materials
1 GCP Applied Technologies internal estimates. Admixtures, Additives and Verifi® reported in SCC segment. High Performance
Waterproofing and Specialty Systems reported in SBM segment.
Create, Grow and Maintain Strong Positions in
Attractive Segments of Global Construction
Market $90.6
Participate in attractive segments totaling ~$15 billion in
a $10 trillion global construction market
Grow our leading market positions in concrete
admixtures, cement additives and high-performance
waterproofing
Create categories for in-transit concrete management
(Verifi®), control flow concrete (CONCERA™) and
specialty flooring underlayments (KOVARA™)
Products which create from 5% to 30%(1) in savings for
customers through lower labor costs and construction
time, reduced materials use, and improved performance
GCP
Segments
~$15B1 $9 $4
$2
Concrete Admixtures and Cement Additives
High Performance Waterproofing
Specialty Systems
BB
B
6
1 Admixtures, Additives and Verifi® reported in SCC segment. High Performance Waterproofing and Specialty Systems reported in SBM segment.
$9 Billion Market $4 Billion Market $2 Billion Market
Concrete Admixtures
and Cement AdditivesVerifi®
High Performance
Waterproofing
Specialty
Systems
Early stage technology with
potential addressable market in
excess of $750 million
Creating an In-Transit Concrete
Management category
Delivering savings to customers
of 10% to 15% through
improved quality, productivity,
and less material usage
Provides additional stream of
high-margin revenue,
leveraging our strong position
Over 20 million cubic meters
produced
Leading positions in ready mix
concrete and cement additives,
two of the most widely used
construction materials
Providing new products which
deliver savings to the producer
and contractor
Creating value to customers
with local technical service and
application expertise
Building a position in the precast
and sprayable markets with new
technologies
Leader in advanced
waterproofing solutions and leak
repair delivering value to
commercial, infrastructure and
residential markets
Pioneer of fully bonded pre-
applied, and post-applied
membrane technologies
Provider of innovative liquid
spray applied products to
structures around the globe
Specialty portfolio includes fire
protection, floor and wall
systems, and specialty grouts
used in new construction, repair
and renovation projects
Creating a category of specialty
flooring membranes for
moisture protection
Leveraging our construction
application knowledge to re-
invent methods of construction
Strong Segment Leadership In Attractive Markets1
New technologies deliver advancements in construction
practices and create new market categories 7
Labor
Simplify installation
Reduce labor and construction costs
Improve safety
Materials
Reduce material usage
Improve effectiveness
Lower energy, water consumption and
customer CO2 footprint
Define value creation opportunity based on customer needs
Apply experts in cement chemistry, material sciences and intelligent construction solutions
Create products that become industry standards
Employ field technical application expertise
Execute through our global footprint
How We Create Value
Why Our Customers Buy Our Products
Speed
Efficient application
Reduce construction cycle time
Improve speed of occupancy
Quality
Eliminate rejects and repairs
Improve life-cycle costing
Deliver on proven performance
Products Which Provide Value To Our Customers
8
Global Capabilities
Servicing customers in over 100 countries
57 Manufacturing facilities; 33 Technical Services sites
World-class Technology center in Cambridge, MA
~900 Active and Pending patents
Over 200 R&D and Technical Service professionals
Sales and Marketing organization of ~800
Global Footprint Provides Access To
Worldwide Construction Market
9
Optimizing Organizational Structure Post
Darex Sale
Structure
− Delayering organization and placing more resources closer to customers
− Investing in marketing, research and product development
Savings
− Expected net cost reduction of $24 million to $28 million
$15 million of Darex costs eliminated in discontinued operations
$9 million to $13 million of annualized savings in continued operations,
including planned reinvestment in sales and marketing activities
− $5 million to $7 million of savings in 2017 from restructuring and
TSA cost recovery
10
Strategically Allocate Capital While
Maintaining Financial Discipline
Strategic
Investments
Capital investments less than 5% of sales to support growth and
technology development initiatives
Pursue bolt-on acquisition opportunities with technology advantages,
low capital intensity and strong financial synergies
• Acquired Ductilcrete for $32 million
Optimize Capital
Structure
Retired Term Loan outstanding balance (~$273M) and repaid
amounts outstanding on Revolving Credit Facility (~$125M) for
annualized interest expense savings of ~$15M
Opportunity to refinance $525M High Yield Bonds in February 2019
Return of Capital Consider returning excess capital to shareholders over time
11
Product/Sensor/Systems Strategy
• Target attractive, high value
segments
• Robust pipeline of
opportunities
Products
$15B
Market
Strategy: Develop and market high performance products which reduce
construction costs and improve life cycle cost
• Focused R&D and product commercialization
• Penetrate high-value vertical segments
• Extend geographic reach of growing businesses
Sensors
and DataStrategy: Disrupt market through delivery of data, productivity and
material savings
• Extend Verifi in US and international markets
• Build/acquire technology to add further value
Engineered
SystemsStrategy: Build engineered systems business with high growth, high
margins and low capital intensity
• Combine proprietary products to further reduce install costs
• Develop solutions for inside/outside the building envelope
SCC SBM
Concrete Admixtures and
Cement Additives
Waterproofing, fire protection,
roofing and flooring
underlayments, repair products
M&A
Bolt-on’s
Waterproofing for
bridge decks
Flooring moisture
mitigation
Patent portfolio
for Verifi
Concrete flooring
systems
12
5 Year Growth Framework
Market
Growth
Outlook
GCP Growth
Framework
5 Year
Annualized
Growth Rate
Global
Construction2% - 4% 2x Market 4% - 8%
GCP Bolt-on
Acquisitions2% - 4%
GCP 2017 Guidance
Revenue Growth
Constant Currency(1) 4% - 6%
Adjusted EBIT(2) $125mm - $135mm
Adjusted Tax Rate 32% - 33%
Adjusted EPS(2)(3) $0.60 - $0.65
Adjusted FCF(2) $25mm - $35mm
Capital Expenditures <5% of Sales
Long-Term Growth Framework and 2017 Guidance
(1) GCP guidance assumes September 2017 FX rates carried forward into the guidance period.
(2) Refer to Appendix for definition of non-GAAP measures.
(3) Assumes approximately 72M shares outstanding. 13
Appendix
14
15
Analysis of Operations Footnotes
GCP believes that non-GAAP financial information supplements its discussions about the performance of its businesses, improves
period-to-period comparability and provides insight to the information that management uses to evaluate the performance of its
businesses. Management uses non-GAAP measures in financial and operational decision-making processes, for internal reporting,
and as part of its forecasting and budgeting processes, as these measures provide additional transparency to GCP's core operations.
Constant currency means current period revenue in local currency translated using prior period exchange rates. GCP uses constant
currency in assessing trends in sales excluding the impact of fluctuations in foreign currency exchange rates.
Adjusted EBIT (a non-GAAP financial measure) means net income from continuing operations attributable to GCP shareholders
adjusted for interest income; interest expense and related financing costs; income taxes; currency and other financial losses in
Venezuela; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs,
expected returns on plan assets, and amortization of prior service costs/credits; gains and losses on sales of businesses, product
lines and certain other investments; third-party and other acquisition-related costs; amortization of acquired inventory fair value
adjustment; tax indemnification adjustments; and certain other items that are not representative of underlying trends. GCP uses
Adjusted EBIT to assess and measure its operating performance and in determining performance-based compensation. GCP uses
Adjusted EBIT as a performance measure because it provides improved quarter-to-quarter comparability for management's decision-
making and compensation purposes and because it allows management to measure the ongoing earnings results of the Company's
strategic and operating decisions.
Adjusted EBITDA (a non-GAAP financial measure) means Adjusted EBIT adjusted for depreciation and amortization. GCP uses
Adjusted EBITDA as a performance measure in making significant business decisions.
Adjusted Earnings Per Share (a non-GAAP financial measure) means earnings per share ("EPS") from continuing operations on a
diluted basis adjusted for costs related to restructuring and repositioning expenses and asset impairments; pension costs other than
service and interest costs, expected return on plan assets, and amortization of prior service costs/credits; gains and losses on sales
of businesses, product lines and certain other investments; third-party and other acquisition-related costs; amortization of acquired
inventory fair value adjustment; tax indemnification adjustments, other financing costs associated with the modification or
extinguishment of debt; certain other items that are not representative of underlying trends; and certain discrete tax items. GCP uses
Adjusted EPS as a performance measure to review its diluted earnings per share results on a consistent basis.
16
Adjusted Gross Profit (a non-GAAP financial measure) means gross profit adjusted for pension-related costs included in cost of goods
sold; loss in Venezuela included in cost of goods sold; and amortization of acquired inventory fair value adjustment. Adjusted Gross
Margin means Adjusted Gross Profit divided by net sales. Management uses this performance measure to understand trends and
changes and to make business decisions regarding core operations.
Adjusted Free Cash Flow (a non-GAAP financial measure) means net cash provided by or used for operating activities from
continuing operations, minus capital expenditures, plus cash paid for restructuring, repositioning and third-party and other acquisition-
related costs; cash taxes related to restructuring, repositioning and third-party and other acquisition-related costs; capital
expenditures related to repositioning; accelerated payments under defined benefit pension arrangements; and expenditures for
legacy items. GCP uses Adjusted Free Cash Flow as a liquidity measure to evaluate its ability to generate cash to support its ongoing
business operations, to invest in its businesses, to provide a return of capital to shareholders and to determine payments of
performance-based compensation.
Adjusted EBIT Return On Invested Capital (a non-GAAP financial measure) means Adjusted EBIT (on a trailing four quarters basis)
divided by the sum of net working capital, properties and equipment and certain other assets and liabilities. Management uses
Adjusted EBIT Return On Invested Capital as a performance measure to review investments and to make capital allocation decisions.
Adjusted EBIT, Adjusted EBITDA, Adjusted EPS, Adjusted Gross Margin, Adjusted Free Cash Flow, and Adjusted EBIT Return on
Invested Capital do not purport to represent income measures as defined under U.S. GAAP. These measures are provided to
improve the quarter-to-quarter comparability and peer-to-peer comparability of GCP's financial results and to ensure that investors
understand the information GCP uses to evaluate the performance of its businesses.
Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to income and
expenses from restructuring and repositioning activities, which historically has been a material component of our net income.
Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation
and amortization expense. GCP's business is substantially dependent on the successful deployment of capital, and depreciation and
amortization expense is a necessary element of its costs. GCP compensates for the limitations of these measurements by using
these indicators together with net income as measured under GAAP to present a complete analysis of its results of operations.
Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income measured under GAAP for a complete
understanding of GCP's results of operations.
The Company does not provide GAAP earnings on a forward-looking basis because the Company is unable to estimate with
reasonable certainty unusual or unanticipated charges, expenses or gains without unreasonable effort. These items are uncertain,
depend on various factors, and could be material to the Company’s results computed in accordance with GAAP.