ipg investor presentation - intertape polymer group...– a significant net positive impact is...
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IPG Investor Presentation
IPG Investor Presentation
March 2016
2IPG Investor Presentation
Safe Harbor StatementCertain statements and information included in this presentation constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively,"forward-looking statements"), which are made in reliance upon the protections provided by such legislation for forward-looking statements. All statements other than statements ofhistorical facts included in this presentation, including statements regarding investment strategies, acquisition strategies, the Company's capital expenditure initiatives, including therelated timing, cost and yield expectations, the expected financial performance of certain recently-acquired operations, certain projected cost reductions and manufacturingrationalization projects, the effective tax rate and expected cash taxes paid for 2016, the expected NOL utilization, expected insurance settlement claim proceeds, the update on theSouth Carolina Project, including the expected cost savings and the expected capital expenditures for the project, the Company's dividends, and the Company's first quarter and fullyear 2016 outlook, may constitute forward-looking statements. These forward-looking statements are based on current beliefs, assumptions, expectations, estimates, forecasts andprojections made by the Company's management. Words such as "may," "will," "should," "expect," "continue," "intend," "estimate," "anticipate," "plan," "foresee," "believe," or "seek" orthe negatives of these terms or variations of them or similar terminology are intended to identify such forward-looking statements. Although the Company believes that theexpectations reflected in these forward-looking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not guarantees of futureperformance. Such statements are also subject to assumptions concerning, among other things: business conditions and growth or declines in the Company's industry, the Company'scustomers' industries; changes in general economic, political, social, fiscal or other conditions in any of the countries where the Company operates; the anticipated benefits from theCompany's manufacturing facility closures and other restructuring efforts; the quality, and market reception, of the Company's products; the Company's anticipated business strategies;risks and costs inherent in litigation; the Company’s ability to maintain and improve quality and customer service; anticipated trends in the Company's business; anticipated cash flowsfrom the Company’s operations; availability of funds under the Company’s Credit Facility; the Company's ability to continue to control costs; movements in the prices of key inputs suchas raw material, energy and labor; government policies, including those specifically regarding the manufacturing industry, such as industrial licensing, environmental regulations, safetyregulations, import restrictions and duties, excise duties, sales taxes, and value added taxes; accidents and natural disasters; changes to accounting rules and standards; and otherfactors beyond the Company's control. The Company can give no assurance that these statements and expectations will prove to have been correct. Actual outcomes and resultsmay, and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such differences may be material. You are cautioned not to place unduereliance on any forward-looking statement.
For additional information regarding important factors that could cause actual results to differ materially from those expressed in these forward-looking statements and other risks anduncertainties, and the assumptions underlying the forward-looking statements, you are encouraged to read "Item 3. Key Information - Risk Factors," "Item 5. Operating and FinancialReview and Prospects (Management's Discussion & Analysis)" and statements located elsewhere in the Company's annual report on Form 20-F for the year ended December 31,2014 and the other statements and factors contained in the Company's filings with the Canadian securities regulators and the US Securities and Exchange Commission. Each of theseforward-looking statements speaks only as of the date of this presentation. The Company will not update these statements unless applicable securities laws require it to do so.
This presentation contains certain non-GAAP financial measures as defined under applicable securities legislation, including Adjusted EBITDA, EBITDA margin, Adjusted EBITDAMargin, Adjusted Net Earnings, Adjusted Earnings per Share, Trailing Twelve Month (“TTM”) Adjusted EBITDA, and Debt to TTM Adjusted EBITDA. The Company believes such non-GAAP financial measures improve the transparency of the Company’s disclosures, and improves the period-to-period comparability of the Company’s results from its core businessoperations. As required by applicable securities legislation, the Company has provided definitions of these non-GAAP measures contained in this presentation, as well as areconciliation of each of them to the most directly comparable GAAP measure, on its website at http://www.intertapepolymer.com under “Investor Relations” and “Events andPresentations” and “Investor Presentations“. You are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP measures to their most directlycomparable GAAP measures set forth on the website and should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measuresof financial performance prepared in accordance with GAAP.
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Company Profile• The second largest tape manufacturer in North
America• Employs ~2,000 people• Approximately 63% of sales from products with
a Top 2 market position in North America
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66%
19%
15%Tapes
Films
Woven& Other
2015$781.9 million
Net Sales
Our Locations• 12 Manufacturing Facilities in
North America• 1 Manufacturing Facility in
Europe
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Tapes At-A-Glance #1 or #2 Market Leadership Position in North America
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Carton Sealing Tapes
Hot Melt
Natural Rubber
Water-Activated
Water-Activated Machine Dispensers
Industrial & Specialty Tapes
Paper
Flatback
Filament
Stencil
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Woven & Other At-A-Glance
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Agro-Environmental
Structure Fabrics
Woven Coated Geomembrane
Hay Cover Fabrics
Poultry Fabrics
Building & Construction
Lumber Wrap
Fiberglass Sleeves
#1 or #2 Market Leadership Position in North America
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Films At-A-Glance
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Films
Stretch
Shrink
Key Raw Materials• Raw material inputs:
– Resin– Adhesive– Paper– Other (2)
(1) Based on usage of raw materials in 2015.(2) Other includes but not limited to Latex, Fiberglass and Starch.
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36%
22%
20%
22%
Raw Materials(1)
ResinAdhesivePaperOther
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Strengths
Wide breadth of products
Proven management
team
Established relationships
with customers
Strong financial
position and profitability
Well positioned to invest in strategic
opportunities to create
shareholder value
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Continued investment to grow our business• Strategic high-return
projects• Capacity expansion• R&D investment• New distribution
channels and market verticals
Acquisitions• Potential focus
areas include:• Expansion in tape,
woven and packaging adjacencies and
• Geographic expansion
• Acquisition ofBetter Packages on April 7, 2015
• Acquisition of TaraTape on November 2, 2015
Dividends• Reinstated a
dividend policy on Aug. 14, 2012
• Annualized dividend of $0.52 per share
• Dividend yield of 3.7% as of March 21, 2016 (1)
• Since Aug. 2012, the Company has paid $73.3 million in cumulative dividends, of which $29.7 million was paid in 2015
Share repurchases• Repurchased
approximately 2.5 million shares in 2015 under the NCIB for a total price of $30 million
• As of Dec. 31, 2015, approximately 2.5 million shares remained available for repurchase under the NCIB
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Capital Allocation Priorities
(1) Source: Bloomberg
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Capital Expenditures• Capacity expansion:
– Water-Activated Tapes• Construction of a greenfield
manufacturing facility in Cabarrus County, NC
• Estimated total project spend ~$44-$49MM
– Shrink film• Estimated total project spend
~$11MM• Product expansion:
– Specialty Tape• Estimated total project spend
~$10MM• Maintenance CapEx expected to be
between $8 and $12 million in 2016• Projects expected to yield after-tax
returns of at least 15%
(In millions of US dollars)
Expected range
Acquisitions• The Company acquired RJM
Manufacturing, Inc. (“TaraTape”) on November 2, 2015
– Manufacturer of filament and pressure sensitive tapes
– Purchase price of $11.0 million
– Opportunity to realize synergies between $2 and $4 million in additional adjusted EBITDA by the end of 2017
– The company expects approximately $20 million in revenue and EBITDA margin(1) of slightly below 10% (excluding synergies) in 2016
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• The Company acquired BP Acquisition Corporation (“Better Packages”) on April 7, 2015– Better Packages is a leading
supplier of water-activated tape dispensers
– The Company paid a purchase price of $15.9 million in cash
– The company expects approx. $18 million in annual revenue with over 15% EBITDA margin in 2016
(1) EBITDA as a percentage of revenue
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• Cash Flow Based Loan Facility of $300 million negotiated in November 2014 • As of December 31, 2015:
– Total cash and loan availability was $182 million– Leverage 1.5x debt to TTM adjusted EBITDA
• Option to raise equity if needed
Cash Flow Based Loan Facility - Key Terms
Facility $300 million Revolving Credit Facility
Incremental Facility (Accordion Feature)
$150 million
Pricing LIBOR + Spread (1.00% to 2.25%)
Key Financial Covenants
(1) Leverage < 3.25(2) Debt Service Coverage Ratio > 1.5
Maturity November 18, 2019
Source of Funds
8 24
15 14 18
198
160 155 160 165
206
184 170 174
182
4Q14 1Q15 2Q15 3Q15 4Q15
Cash Availability Loan Availability Cash and Loan Availability$in Millions
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Effective Tax Rate• Decreased from 39.0% in 2014 to 16.2% in 2015• Decrease in the effective tax rate for 2015 compared to 2014 is primarily due to a favourable change in the mix of earnings between jurisdictions and the recognition of previously derecognized Canadian deferred tax assets
• The Company still expects a 25% to 30% effective tax rate for 2016
Net Operating Losses and Cash Taxes• Net Operating Losses (“NOL”) available for use (as of December 31, 2015)• $3.1 million of US NOL• $14.3 million of Canadian NOL
• The Company expects to utilize remaining US NOL in 2016• The Company expects cash taxes paid in 2016 to be approximately half of the 2016 income tax expense
Tax Position
• Gross margin increased to 21.5% from 20.1% primarily due to an increase in the spread between selling prices and raw materialcosts
• Net earnings increased primarily due to a significant reduction in the effective tax rate due mainly to a favourable change in the mix of earnings between jurisdictions and the recognition of previously derecognized Canadian deferred tax assets
• Adjusted net earnings increased primarily due to the recognition of previously derecognized Canadian deferred tax assets and decreases in finance costs and variable compensation expenses, partially offset by a decrease in gross profit and an increase in certain other SG&A expenses
• Adjusted EBITDA Margin(1) increased from 12.8% to 13.0% primarily due to a decrease in variable compensation expense and gross margin expansion partially offset by an increase in research expenses primarily associated with the South Carolina Project
2015 Results: Full Year
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in millions US $ 2015 2014 Change %(except per share amounts)
Revenue $781.9 $812.7 (3.8%)Gross profit $168.0 $163.6 2.7%Net earnings $56.7 $35.8 58.2%Adj Net Earnings $58.6 $52.4 11.9%Adj EBITDA $102.0 $103.9 (1.8%)EPS, fully diluted $0.93 $0.58 60.7%Adj EPS, fully diluted $0.96 $0.84 13.6%
(1) Adjusted EBITDA as a percentage of revenue
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• Permanent shutdown of the Columbia, SC facility due to significant flood damage 8 to 9 months in advance of the planned shutdown by the end of Q2 2016
• The Company believes that it has sufficient property and business interruption insurance coverage, and expects that the losses exceeding the $0.5 million deductible will be substantially covered by those insurance policies
Columbia, SC Flood on October 4, 2015
*Recorded in manufacturing facility closures, restructuring and other related charges. Partially offsetting charges related to damage to real and personal property as well as subsequent clean-up and idle facility costs.
**Reflects lost gross profit on lost sales as well as incremental costs from alternative product sourcing, partially offset by the reduction in South Carolina Duplicate Overhead Costs associated with the unexpected, permanent shut down of the Columbia, SC manufacturing facility.
Impacts to Results Q4 2015
Manufacturing facility closures, restructuring and other related charges
$6.5MM
Insurance settlement claim proceeds* $5.0MM
Estimated revenue reduction ~$9MM
Estimated gross profit and adjusted EBITDA reduction** ~$3MM
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Update on South Carolina Project
Actual Project Results Q4 2015 FY2015
South Carolina Commissioning Revenue Reduction $0.5MMmasking
$11MM
Net negative impact, of ramp‐up production inefficiencies net of project savings, on gross profit and adjusted EBITDA
<$0.1MM $1.9MM
South Carolina Duplicate Overhead Costs Nil $4.3MM
Net negative impact of both components above on gross profit and adjusted EBITDA*
<$0.1MM $6.2MM
South Carolina Project Capital Expenditures $1.9MM $7.9MM
* Adjusted EBITDA excludes the impact of non‐cash South Carolina Duplicate Overhead Costs.
• Expected cost savings from the South Carolina Project remain unchanged with impacts on gross profit and Adjusted EBITDA as follows:
– A significant net positive impact is expected in 2016 compared to 2015– Full realization of the expected $13 million annual cost savings by beginning of 2017
• Total project capital expenditures, from inception, are now expected to be approximately $60MM
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Outlook• The Company expects gross margin for 2016 to be between 22% and 24% and to reach the upper
end of this range by the fourth quarter
• Adjusted EBITDA for 2016 is expected to be $117 to $123 million, excluding the impact of the South Carolina Flood. While South Carolina Flood costs and lost sales are expected to be substantially offset by insurance proceeds, the timing of the recovery of the insurance proceeds is uncertain
• Manufacturing cost reductions for 2016 are expected to be between $8 and $11 million excluding any cost savings related to the South Carolina Project
• Total capital expenditures for 2016 are expected to be between $55 and $65 million
• The Company still expects a 25% to 30% effective tax rate for 2016. Cash taxes paid in 2016 are expected to be approximately half of the income tax expense in 2016
• Revenue in the first quarter of 2016 is expected to be similar to the first quarter of 2015
• Gross margin in the first quarter of 2016 is expected to be greater than the first quarter of 2015
• Adjusted EBITDA in the first quarter of 2016 is expected to be greater than the first quarter of 2015
Thank You!
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