john o’donnell - s22.q4cdn.coms22.q4cdn.com/.../2017/11/np_2017_investor_presentation.pdf ·...
TRANSCRIPT
• John O’Donnell Chief Executive Officer
• Bonnie Lind Chief Financial Officer
• Bill McCarthy VP - Financial Analysis/IR
2
3
Image-oriented
FINE PAPER & PACKAGING
Performance-based
TECHNICAL
PRODUCTS
End markets: filtration media, tape and abrasive
backings, labels, and other specialized products
End markets: premium packaging and print
communications, and crafting
Portfolio evolution prompts dropping “paper” from name
4
Sales of over US$ 1 billion in more than 80 countries
Global manufacturing footprint:
U.S. (10 sites, plus Atlanta HQ)
Europe & U.K. (4 sites)
India (small JV)
>2,600 employees worldwide
Spun off from Kimberly-Clark in 2004
Enhance our leading positions in high
value core categories
Accelerate growth through capital efficient investments in growing
and defensible niche markets
Maintain a strong financial position
and provide shareholders with attractive returns
5
2010 2011 2012 2013 2014 2015 2016 Q317
Total Shareholder Return2010-17
NP
R2000 Value
S&P 500
89%
87%
87%
82%
Credible management
Strong focus on ROIC
Effective business strategy
Effective strategy execution
Describes Neenah
Top Drivers of Value2017 Independent Perception Study
Filtration45%
> $550 million
net sales
6
Performance Materials
55%
7
Strong customer
relationships with
long qualification periods
Leading Positions
in Defensible Niche Markets
Broad Range of Technical Abilities
Innovative offerings from a global footprint
Long-term joint development relationships
Strong technical support and service
High value, growing specialty markets
Long customer qualifications - strong barrier
Our media a key performance driver, but small part of final product cost
Multiple technologies and chemistries
Proprietary formulations & strong “dark” IP
Leading performance and innovation
Europe NAFTA Asia RoW
Other
Neenah
H&V
Ahlstrom
Transportation Media (75%)
Consolidated global market growing
~4%, with >80% of sales in aftermarket
Products include air, fuel, oil and
cabin air filters for cars and trucks
More demanding engines requiring
higher performing filters
Global capacity remains tight
Other Filtration Media (25%)
Expanding in other fast-growing markets
including water, industrial, and beverage
8
35
55
75
95
115
135
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 16
Net Sales
Organic
CAGR 8%
Long Runway for Future Growth
After becoming leaders in Europe and
consuming available capacity there, we
started up best in class US asset in 2017
Five year ramp up to $80 mm EOC sales
Asia an exciting future opportunity
Global Transportation Filtration Market/Shares
~ US $1 billion
Impressive organic growth trend!
Backings (50%)
Sizeable global category with media
primarily used in tapes and abrasives
Focused on performance niches
requiring downstream applications
Markets generally grow with global GDP
Specialties (50%)
Smaller, specialty markets include digital
transfer, labels, security, décor, others
Saturating and coating know-how used
to impart unique characteristics
Markets generally growing at GDP+
9
10
Strong Strategic Fit
Coldenhove (sales of $45 million) is a leading global producer of dye sublimation
media used for digital image transfer for clothing, sportswear, and other materials
Combined with heat transfer, represents a fast-growing
~$200 million digital transfer market
Complementary performance-based products that expands our ourour existing digital transfer technology platform and geographic
base, with the ability to leverage complementary customer and
market access and combine technologies
Provides Neenah leading market position
Attractive Purchase Price & Returns
Acquired EBITDA of $6 mm and immediately accretive
Purchase price of ~$45 million representing a EBITDA 7.5x multiple
Synergies (purchasing, sales, manufacturing, new products) to further grow returns
Neenah28%
Others72%
Digital Transfer Market ~$200 million
$353
$404 $429
$466 $479
11%
12%
13%
14%
12%
14%
6%
8%
10%
12%
14%
16%
18%
20%
$114
$164
$214
$264
$314
$364
$414
$464
$514
2013 2014 2015 2016 LTM
Q317Net SalesAdjusted EBIT %Excluding US Filtration Start-Up
Increasing top line
present in growing markets
gaining share with performance,
innovation and geographic expansion
investing organically and through M&A
11
Expanding margins
cost efficiencies and scale
mix enhancement, led by profitable and
fast growing filtration products
R&D investments leading to new or
improved products valued by customers
~ $450 million
net sales
12
Graphic Imaging 80%
Premium Packaging
15%
Specialty5%
LeadingBrands
13
Go To MarketInnovation
Best in Class Manufacturing
Capabilities
Creating image and leading brand equity pulls demand
Demonstrated ability to recoup changes in input costs
Highest quality products with a variety of colors and textures
Unique purpose-built assets able to provide fast, flexible and low cost offerings
Specialty coating, saturation, colors and textures allow creation of a unique and customized breadth of portfolio
Design and rapid prototyping, provides customers a more holistic solution and create barriers for competitors
Able to replicate short lead times with outstanding service
14
Consolidated $650 million niche market of premium textured and colored papers
Neenah is the clear market leader in both commercial and consumer channels
Uses include high-end commercial print, marketing collateral and well-known brands at retail
Market pressured by electronic substitution
Neenah63%
Mohawk Fine Papers
19%
Others18%
Market Size
~$650 million
15
Premium niche market growing 3-5% annually
Products include spirit & wine labels, premium folding board, luxury box wrap, and others
Targeting beauty, alcohol and retail categories; largest opportunity in beauty (cosmetics, fragrance, etc..)
Paper (gift) cards growing as “green” alternative to plastic. Recent investment able to accelerate growth.
Utilizes Fine Paper assets with their high quality and breadth of texture/color capabilities to provide customer-preferred products unique to their brands
Neenah design center helps customers visualize final products , allowing us to more quickly commercialize
Beauty49%
Alcohol29%
Retail/ Other22%
$450 million addressable market is < 1% of total packaging market
$428$436
$443
$452$455
14% 14%15% 16% 16%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
30.0%
32.0%
34.0%
36.0%
38.0%
40.0%
350
358
366
374
382
390
398
406
414
422
430
438
446
454
462
470
478
486
494
2013 2014 2015 2016 LTM
Q317
Net Sales
Adjusted EBIT %
16
Consistently strong financial results
stable mid-teen EBIT margins with brand equity that
supports pricing through input costs
efficient cost position and high ROIC
substantial cash generation
price optimization and realization
Packaging growth/other initiatives help to
offset secular pressures in print
Gaining share in fragmented packaging market
and in growing digital and wide format categories
Recent investments in capabilities to accelerate
growth rate
potential for small, consolidating acquisitions
Consistent, profitable growth
High Return on Capital/Return on Equity
Flexible and prudent capital structure
Attractive shareholder returns
17
Double digit earnings growth
High Return on Capital
Increasing cash returns to shareholders
Strong balance sheet
Market-beating shareholder returns
Return to Shareholders
$125mm
Value-Adding Organic Capital
$150mm
Acquisitions $220mm
Our businesses provide substantial cash flowsthat we’ve deployed in a balanced manner to result in:
Five-year key cash deployment
18
$2.87 $3.21$3.70
$4.54
$4.37
$4.86
2013 2014 2015 2016 LTM
Q317
Adjusted
E.P.S.
Five-year sales growth reflecting share
gains, new products, price/mix
improvement and acquisitions
Faster earnings growth with focus on
market-back pricing, cost control and
efficiencies, and mix shift to higher
value products
8%
16%
20%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Sales Adj. EBIT Adj. E.P.S
% Annual
Growth
2011- 2016$782
$840$888
$942 $956
11%11%
12%
13%
11%
13%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
500
550
600
650
700
750
800
850
900
950
1000
2013 2014 2015 2016 LTM
Q317Net Sales
Adjusted EBIT %
Excl. U.S. Filtration Start-Up
19
*adjusted to exclude U.S. Filtration start-up
12%13%
12%13%
11%
14%
2013 2014 2015 2016 LTM
2017*
WACC~ 7-10%
Delivering double-digit ROIC through:
Profitable growth
Focus on asset efficiency
Disciplined organic capital spending
Good returning projects
Value-adding acquisitions (and divestitures)
Primary measure to evaluate investment decisions and judge business performance and a key compensation plan metric
20
*2017 excluding U.S. Filtration start-up
175 175 175 175 175
3253 54 46 48
1.7x1.8x
1.6x1.4x
1.5x
0
0.5
1
1.5
2
2.5
3
0
50
100
150
200
250
Dec 13 Dec 14 Dec 15 Dec 16 Sept 17
Bonds S-T Debt
$207
$229$228$221 $223
Debt/EBITDA below targeted range
of 2 to 3x (even after Coldenhove,
ratio remains well below 2x)
$175 mm bond due in 2021with
attractive 5.25% rate and rating of
Ba3/BB
Short-term debt primarily ABL (currently sized at $200 million)
Capital structure and availability
provides significant flexibility to act
on opportunities
Debt
($ millions)
21
Debt/
EBITDA
Pro Forma Cash Flow ($ millions)
EBITDA $ 150 - $175
Interest Expense (10 - 15)
Other (tax, wkg cap, pension, etc.) (25 - 30)
Cash From Operations $ 105 – 140
Total Capital Spend (3-5% sales) ~(40)
Free Cash Flow $ 65 – 100
Cash Deployment
Priority on highest returning investments Organic initiatives
Value-adding M&A
Committed to cash returns via attractive and growing dividend
Authorized $25 mm stock repurchase plan
Cash Generation
Strong business cash flows, compounded with acquisitions
Significant US R&D tax credits; well-funded pension plan
Efficient asset base; maintenance cap-ex < $20 mm/year
$0.48
$0.70
$1.02$1.20
$1.32$1.48
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2012 2013 2014 2015 2016 2017
Dividends
per share
22
$84$95
$111 $116$100
0
20
40
60
80
100
120
140
2013 2014 2015 2016 LTM2017*
Cash From
Operations
*2017 includes losses from US filtration asset start up
All employees have a
component of pay that is
performance-based
Management is required to hold
a multiple of their salary in stock
(CEO = 6x, NEO = 4x)
Majority of pay is performance-
based (CEO = 70%) that is split:
Cash: based on growth in
business profit/EBITDA
Equity: stock options and
performance shares
Performance-based and aligned with shareholders
23
Return on
Capital
Total
Shareholder
Return
(vs. Russell 2000)
Revenue
Growth
Performance Share Metrics
Earnings
per Share
Active and disciplined process with
dedicated resources
Ideas come from robust network of
sources
Focused on growing, profitable and
defensible niche markets, with bias to
performance-based technical products
Most targets sized between $50 and
$250 million of sales
Expect strategic fit to unlock synergies
Strategic Touch Points
Geographies
TechnologiesProducts/
End Markets
Customers
24
Effective process leading to demonstrated record of value-adding deal execution and integration and a continued strong pipeline of targets
Leading positions in defensible and profitable core categories generating cash and double digit Return on Capital
Catalysts to enhance organic growth Transp. Filtration geographic share gains
Adjacent technical product markets
Premium packaging expansion
Financial strength and flexibility to act on attractive opportunities
Track record of value-adding capital deployment and execution
25
Fine Paper &
Packaging
Technical Products
Neenah Today
Fine Packaging & PaperTechnical
Products
Neenah Future
For more information
visit our website: www.neenah.com
email: [email protected]
Investor Relations
Bill McCarthy
VP, Financial Planning and Analysis &
Investor Relations
3460 Preston Ridge Rd., Suite 600
Alpharetta, GA 30005
Phone: (678) 518-3278
Email: [email protected]
26
Continuing Operations
$ millions 2013 2014 2015 2016LTM
2017
GAAP Operating Income $ 82.6 $ 86.6 $ 101.4 $ 114.1 $ 107.1
Acquisition/Integration/Restructuring Costs 0.4 2.3 6.5 7.0 4.2
Pension/Insurance Settlement/Other 0.7 3.7 0.8 (2.4)
Adjusted Operating Income $ 83.7 $ 92.6 $ 107.9 $ 121.9 $ 108.9
Depreciation & Amortization 25.1 25.0 27.5 30.1 30.6
Amort. Equity-Based Compensation 4.9 6.0 6.5 5.8 5.7
Adjusted EBITDA $ 113.7 $ 123.6 $ 141.9 $ 157.8 $ 145.2
Earnings (Loss) per Share $ 2.91 $ 3.99 $ 3.53 $ 4.26 $ 4.53
Acquisition/Integration/Restructuring Costs 0.01 0.08 0.24 0.25 0.16
Prior Period R&D Tax Credits (0.08) (1.00) (0.07)
Prior Period Tax Adjustment (0.24)
Pension/Insurance Settlement/Other 0.03 0.14 0.03 (0.09)
Adjusted Earnings per Share $ 2.87 $ 3.21 $ 3.70 $ 4.54 $ 4.36
Results for year ended December 31, 2013, include integration and restructuring costs of $0.4 million, a post-retirement benefit plan settlement charge of
$0.2 million and costs related to the early extinguishment of debt of $0.5 million. Results for the year ended December 31, 2014, include integration and
restructuring costs of $2.3 million, a pension plan settlement charge of $3.5 million and costs related to the early extinguishment of debt of $0.2 million.
Results for the year ended December 31, 2015, include integration and restructuring costs of $6.5 million. Results for the year ended December 31, 2016,
include integration and restructuring costs of $7.0 million and a pension plan settlement charge of $0.8 million.
27
Statements in this presentation which are not statements of historical fact are “forward-looking statements” within the “safe harbor”' provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the information available to, and the expectations and assumptions deemed reasonable by, Neenah Paper, Inc. at the time this presentation was made. Although Neenah Paper believes that the assumptions underlying such statements are reasonable, it can give no assurance that they will be attained. Factors that could cause actual results to differ materially from expectations include the risks detailed in the section “Risk Factors” in the Company’s most recent Form 10-K and SEC filings.
In addition, the company may use certain figures in this presentation that include non-GAAP financial measures as defined by SEC regulations. As required by those regulations, a reconciliation of these measures to what management believes are the most directly comparable GAAP measures would be included as an appendix to this presentation and posted on the company’s web site at www.neenah.com
28