november 2016 - multi packaging solutions limited/media/files/m/mps-ir/reports-and...service in...
TRANSCRIPT
Baird Industrials Conference Investor Presentation
November 2016
Forward‐Looking StatementsForward Looking StatementsThese slides contain (and the accompanying oral discussion will contain) “forward‐looking statements”. All statements other than statements of historical fact or relating to present facts or current conditions are forward‐looking statements. In many cases, you can identify forward‐looking statements by terms such as “may,” “will,” “should,” “expected,” “plan,” “anticipates,” “believes,” “estimates,” predicts,” “potential” or other comparative terminology. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by the Company and its subsidiaries, conditions affecting the Company’s customers and suppliers, competitor responses to the Company’s products and services, the overall market acceptance of such products and services, increases in the Company’s cost structure, the rate of economic development and growth in emerging markets, the Company’s exposure to fluctuations in currencies, the Company’s ability to successfully implement its strategic initiatives to increase cost savings and improve operating margins, the integration of acquisitions and other factors disclosed in the Company’s Form 10‐K including those described under the headings “Risk Factors” and “Forward‐Looking Statements.” Consequently, such forward‐looking statements should be regarded as the Company’s current plans, estimates and beliefs. Any financial projections are based on contingencies that are beyond the Company’s control. Actual results during the period or periods covered by such projections may differ significantly from the projected results and no assurance can be given that the projected results will be realized. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward‐looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. All of the Company’s forward‐looking statements should be considered in light of these factors. Non‐GAAP Financial MeasuresThe historical financial information included in this presentation includes financial information that is not presented in accordance with generally accepted accounting principles in the United States (“GAAP”), including Adjusted Net Income, Adjusted Operating Income, Adjusted EBITDA, Free Cash Flow and Free Cash Flow Yield. Management uses these non GAAP financial measures in the analysis of financial and operating performance because they assist in the evaluation of underlying trends in our business. Our use of the terms Adjusted Net Income, Adjusted Operating Income, and Adjusted EBITDA, Free Cash Flow and Free Cash Flow Yield may differ from that of others in our industry. These items should not be considered as alternatives to net income (loss), operating income (loss), or any other performance measures prepared in accordance with GAAP as measures of operating performance or operating cash flows or as measures of liquidity. Adjusted Net Income, Adjusted Operating Income, and Adjusted EBITDA have important limitations as analytical tools and should be considered in conjunction with, and not as substitutes for, our results as reported under GAAP. This presentation includes a reconciliation of certain non GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP.Market and Industry DataThis presentation also contains market data and other statistical information that are based on independent industry publications, reports by market research firms or published independent sources. Some market data and statistical information are also based on the Company’s good faith estimates, which are derived from management’s knowledge of its industry and such independent sources referred to above. While the Company is not aware of any misstatements regarding its market and industry data presented herein, such data involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in the Company’s Form 10‐K.Long‐Term Goals DisclaimerThis presentation includes long‐term goals that are forward‐looking, are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results will vary and those variations may be material. For discussion of some of the important factors that could cause these variations, please consult the “Risk Factors” section of the Company’s Form 10‐K. Nothing in this presentation should be regarded as a representation by any person that these goals will be achieved and the Company undertakes no duty to update its goals.
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47%47%
6%North America
Asia
Europe47%
47%
6%North America
Europe
Asia
61%14%
8%6%
11%Premium Folding Cartons
Rigid Packaging
Other
Labels
Inserts
GeographyGeography
61%13%
8%6%
12%
Premium Folding Cartons
OtherRigid
Packaging
Labels
Inserts
50%39%
11%
50%40%
10%
Net Sales $1,661 $1,610
Adj. EBITDA $254 $237
Adj. EBITDA Margin 15.3% 14.7%
Free Cash Flow (2) $78 $65
Adj. Free Cash Flow (3) $113 $101
Company Overview
A leading global provider of specialty packaging solutions
― High value‐added products and services for the consumer, healthcare and multi‐media end markets
― Frontline of branding, product integrity and regulatory compliance
― $15+ bn market opportunity with leading positions
― Diverse customer base with long‐term relationships with major pharma, consumer and media customers
― Global footprint of 59 sites in North America, Europe and Asia (1)
Financial Highlights
Note: Dollars in millions.(1) As of 6/30/2016. Does not take into consideration FY17 acquisitions or announced reorganization activities.(2) Free Cash Flow is defined as cash provided by operating activities (a GAAP measure) less capital expenditures, plus proceeds from sale of assets.(3) Adjusted Free Cash Flow is defined as adjusted EBITDA plus proceeds from sale of assets, less capital expenditures, cash interest, cash taxes, changes in working capital, and pension
payments.
End MarketEnd Market
ProductProduct
TTM 9/30/16
Fiscal Year Ended 6/30/16
Multi‐Media
Healthcare Consumer Consumer Healthcare
Multi‐Media
2
Net Sales as of:
Fiscal Year ended6/30/16
TTM 9/30/16
Strategically Built Platform…
BuildBuild
TransformTransform
Add‐On StrategicAdd‐On Strategic
July 2005
April 2006
April 2006
February 2008
March 2008
Belgium 2008
Idaho Falls2010 April 2014
November 2014
April 2009
June 2011
Merged February 2014
April 2014 February 2015
July 2014
July 2015
Printing and Packaging
Establish presence in core products and end markets in North America
Create global specialty packaging leader serving customers worldwide
Expand and deepen geographic and product footprint
Transactions focused on penetrating new end markets, geographies and adding manufacturing processes and technologies
MPS has completed 18 transactions since 2005
January 2016
January 2005 October 2016
November 2016
3
…Well‐Positioned to Serve Our Customers Globally…
Truly Global Manufacturing Footprint (1)
33 Manufacturing Facilities33 Manufacturing Facilities
47% of Sales47% of Sales
47% of Sales47% of Sales
6% of Sales6% of Sales
23 Manufacturing Facilities23 Manufacturing Facilities
3 Manufacturing Facilities3 Manufacturing Facilities
North America
Asia
Europe
(1) Percentages based on total sales on a TTM basis through 9/30/2016. Site locations are as of 6/30/2016. Does not take into consideration FY17 acquisitions or announced reorganization activities.
Over $320mm in capex invested in manufacturing platform over the last 5 years to provide:
― Scale & geographic coverage
― Operational flexibility, enhanced productivity
― Security of redundant capabilities
― Site accreditation
Commitment to LEAN manufacturing
― Six LEAN coordinators
― 50%+ of employees trained on LEAN
Annual capex to sales in a range of 3.0% to 3.7%
Well‐Invested Asset Base
4
$231
$266
$253
$100
$150
$200
$250
$300
FY 2015 FY 2016 TTM 9/30/2016
FX Impact
FX Impact
77% Cash Flow Conversion
78% Cash Flow Conversion
$254
…Resulting in Strong Growth, Margin and Cash Flow Conversion (1)
Adj. EBITDA
(1) Cash flow conversion is defined as adjusted EBITDA less capital expenditures divided by adjusted EBITDA.
(3)
5
74% Cash Flow Conversion
$237
Consumer Healthcare Multi‐Media
TTM 9/30/2016 % of Sales
50% 40% 10%
Industry Market Growth in Units (1)
2015E – 2020E CAGR
2% 6% (15)%
Key Strategy Invest for growth Invest for growth Manage for cash
Key Drivers
Brand differentiation
Product innovation
Rapid refresh cycles
Premiumization
Demographics
Product innovation
Rapid refresh cycles
Product proliferation
Regulatory requirements
Commemorative, special editions
Product innovation
Games and gaming platforms
(1) Management estimates.
Large, Stable End Markets
Consumer and Healthcare ~90% of sales, with mix shift accelerating in the near term
6
Addressable Market Opportunity (1)
A Global Market Leader in Fragmented Industry
MPS TTM 09/30/16 Net Sales Mix
$15+ Billion IncrementalMarket
Opportunity for MPS
Note: Dollars in millions unless otherwise noted.(1) Addressable market opportunity based on management estimates.(2) Does not include approximately $200M incremental addressable market opportunity in Europe.
Clear runway to attack $15+ billion incremental market opportunity
~$8+bn
~$17+bn~$8+bn
~$0.3+bn
Consumer Healthcare Media Total
(2)
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$814 $1,610
$636
$160
Consumer Healthcare Media Total
A Global Market Leader in Fragmented Industry (Cont’d)
Broad array of value‐added premium products…
Premium Folding Cartons
Inserts Labels Rigid PackagingOther Consumer
Packaging
FY 2016 % of Sales
61% 13% 8% 6% 12%
Products
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Manage customers' digital assetsManage customers' digital assetsDigital WorkflowDigital Workflow
Creative ServicesCreative Services Structural and graphic design teamStructural and graphic design team
Pre‐Press ServicesPre‐Press Services Around‐the‐clock team for same day or next day serviceAround‐the‐clock team for same day or next day service
VMI / EDIVMI / EDI Manage production based on customer demand; interface directly with customers’ IT systemsManage production based on customer demand; interface directly with customers’ IT systems
Late Stage CustomizationLate Stage Customization Customized products on‐demandCustomized products on‐demand
Co‐Located FacilitiesCo‐Located Facilities
Equipment and staffing for printing and packaging production located within customers' facilitiesEquipment and staffing for printing and packaging production located within customers' facilities
Brand ProtectionBrand Protection Magnetic inks, invisible bar codes, holographic cold foilMagnetic inks, invisible bar codes, holographic cold foil
A Global Market Leader in Fragmented Industry (Cont’d)
…Supported by a comprehensive services platform
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Untapped Cross‐Sell Potential
Cross‐Sell PotentialPremium Confectionary Customer Case Study
Graphic/Design Rigid Box Booklet
Product Cross‐Sell ‐ Bosch
Geographic Cross‐Sell
Strategically positioned to serve growing global customers and gain share
The customer is a global provider of high end premium confectionery
products (“Customer X”)
MPS has been a leading provider to them in Germany, and offers a
unique in line metallized product combined with unique low migration
inks
Leading Product Development Capabilities and Speed‐to‐Market
High‐End Premium Packaging Solutions
Unique Global Footprint and Design Capabilities
As the customer continues to expand globally, the need to have a
supplier who can offer these unique elements in a timely and
consistent way across the globe creates an opportunity for the
customer and MPS to work together
Through the merger of MPS and Chesapeake, and the later acquisition
of ASG, MPS provides a unique footprint available to this customer,
allowing MPS to offer this unique combination of technology and
service in China, Germany, Poland, the United States, and France
MPS continues to expand serving global customers
6%
92%
19%
70%
10%
10
Customer X Sales
2015 2016
China Germany Poland
France United States
Next Generation and Innovation
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SupplyChainSupplyChain
PrintingPrintingCutting & FoldingCutting & Folding
GluingGluing
AssemblyAssembly
Special Applications
Special Applications
E‐InksNear Field
Communication
Child Resistant & Tamper Evident Electro‐Luminescence
LED
AugmentedReality
CapacitiveTouch
Diverse, Blue Chip Customer Base
…with no customer concentration (1)
4% 4%3%3%2%
9%
75%All Other
Customer 6‐10
Customer 4
Customer 1Customer 2
Customer 3
Customer 5
A key partner in our customers’ supply chain…
Long‐term customer relationships with significant cross‐selling opportunities across products and geographies
Average length of relationship with our top 20 customers exceeds 34 years
Risk averse customer set focused on suppliers with high quality products and service capabilities
Multi‐Media
Healthcare
Consumer
Largest customer represents 4% of sales
(1) As of June 30, 2016.12
Recent Transactions
• Supplies high quality self‐adhesive labels to the Beauty and Personal Care, Confectionery, Beverage and Household sectors.
• Employs approx.. 80 people, are an award‐winning supplier to a wide range of blue chip multinational and UK customers.
• Based in Littlehampton, United Kingdom.
• Offers a fully‐integrated solution for creating and personalizing plastic transaction cards including pre‐paid gift and loyalty cards.
• Pioneered new in‐line production techniques that offer customers improved delivery time, quality and increased product security.
• Based in Dallas, Texas.
Proven Acquisition Track Record
Broad Opportunity Set of Potential Targets
MPS has an ~10% share of a $17+bn addressable market(1)
18 transactions since 2005, 17 of which identified by management outside a formal process
Attractive acquisition multiples both pre‐ and post‐synergies
Track record of achieving and exceeding synergy targets
Successful Track Record
<$50 million $50 ‐ $200 million
$200+ million
Size Range by Target Sales
~15+ ~8+ ~4+
~$400mm ~$600mm ~$2,000mm
# of Companies
Aggregate Sales
MPS has ongoing dialogues with multiple targets
(1) As of June 30, 2016.
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Favorable Mix Shift
Incremental Synergies from Completed Acquisitions
Value‐Added Products, Servicing
Attractive End Markets
Operational DisciplineEfficiency Capex
Attractive Margins with Upside Opportunities
Strong Margins with Defined Path for
Improvement
Facility Rationalization
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…Resulting in Strong Margin and Cash Flow
15
Long‐term Adj. EBITDA Margin Potential
.
13.5%
+17.0%
0.6%
+1.7%
1.2%
15.3%
12%
13%
14%
15%
16%
17%
18%
Pro FormaFY'2015
FY'2016 Activity Pro FormaFY'2016
TargetImprovement
Long term target
Operational Improvements
Acquisition Synergies
Quarter Ended 9/30/16 Update
Adj. EBITDA
Gross Profit
Note: Dollars in millions. MPSX fiscal year end June 30th.(1) Free Cash Flow is defined as cash provided by operating activities (a GAAP measure) less capital expenditures, plus proceeds from sale of assets.(2) Adjusted Free Cash Flow is defined as adjusted EBITDA plus proceeds from sale of assets, less capital expenditures, cash interest, cash taxes, changes in working capital, and pension
payments.(3) Free Cash Flow Conversion is defined as Adjusted EBITDA less capital expenditures divided by adjusted EBITDA.
Adjusted Free Cash Flow (3)
Net SalesCommentaryFX Impact
FX Impact
$459$425
Q1 FY'16 Q1 FY'17
$99$84
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
Q1 FY'16 Q1 FY'17
$30
$17
Q1 FY'16 Q1 FY'17
$77
$63
Q1 FY'16 Q1 FY'17
16
Net sales declined by approximately 4% due to:
― Negative FX impact of $17
― Lower North American sales due to decline in media sales, and health care customers experiencing weaker sales (not lost customers)
― Lower European sales principally due to FX headwinds following Brexit and weakness in the European drinks market
Adjusted EBITDA of $60 million vs. $77 million
― Adjusted EBITDA margin of 14.7% vs. 16.8%
Free Cash Flow (1) of $8 million vs. $21 million
Adjusted Free Cash Flow (2) of $17 million vs. $30 million
Recent Activity
Completed debt refinancing transaction in October 2016
Completed two acquisitions in October 2016 with combined trailing 12 months revenue of $25 million
Announced plant reorganizations
84% Cash Flow
Conversion
89% Cash Flow
Conversion
FX Overview
FX DetailFY ‘16 by Currency
Our FX exposure is primarily translational in nature
― In most circumstances, sales and costs are denominated in matching currency which create natural hedges
Beginning in January 2015, changes in FX exchange rates began to significantly impact sales
― Sales were negatively impacted by ~$77 million for fiscal 2016 as compared to fiscal 2015
― On a constant currency basis using average exchange rates for 2014, the past two years sales have been negatively impacted by more than ~$230 million cumulatively. EBITDA was impacted in the same period by ~$32 million cumulatively
― Continued weakness in foreign currency rates, primarily the GBP during Q1 fiscal 2017 negatively impacted net sales by ~$17 million as compared to Q1 fiscal 2016. These headwinds are expected to continue throughout the remainder of fiscal 2017
• Our borrowings include USD, GBP, and EUR term loans intended to naturally hedge the cash flows of the business
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CAD4% CNY
5%
EUR18%
GBP27%
HKD1%
MXN1%
PLN2%
USD42%
Sales
Strong, Growing FCF Profile
Significant debt reduction from free cash flow and IPO
― Results in a reduction of the cash interest run rate to $41 ‐ $42 million per year subsequent to October 2016 refinancing
― Low capex requirements: 3.0% to 3.7% of net sales
Disciplined approach to capital investment
Significant impact of NOLs in excess of $100mm (1)
― $86mm relates to US Federal and state NOLs
― Remainder principally in foreign jurisdictions
Note: Dollars in millions.(1) As of June 30, 2016.(2) Based on management estimates keeping all other components of free cash flow constant.(3) Other not specifically identified.(4) Based on 77,452,946 common shares outstanding as of September 30, 2016.
Pro Forma Free Cash FlowFree Cash Flow Drivers since IPO
LTM 9/30/16 Adj. EBITDA: $237
Less: Annual Capex (60)
Less: Annual Cash Interest (41) ‐ (42)
Less: Annual Cash Taxes (13) ‐ (15)
Less: Annual changes in core working capital (5) ‐ (10)
Less: Other (3) (3) ‐ (5)
Adj. Free Cash Flow $105 ‐ $115
Adj. Free Cash Flow per Share (4) $1.36 ‐ $1.48
Every 100 bps of Adj. EBITDA Margin expected to result in incremental $0.21 of Free Cash Flow per
Share(2)
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Continued Balance Sheet Improvement
Flexible, Long‐Dated Capital StructureSignificant Reduction in Annualized Cash Interest
Note: Dollars in millions. Outstanding debt balances exclude debt discounts.(1) Includes Capital Leases and Foreign Debt.(2) Adjusted EBITDA does not include i3 plastic cards or AJS labels. (3) The pro forma column includes new term loan D borrowing of $220mm, the proceeds of which were used to redeem the $200mm, 8.5% notes as well as pay debt extinguishment charges
and related expenses.
$60
$41 ‐ $42
FY' 2016 Pro forma annual run rate
Pre‐IPO Current Pro forma
Capitalization Maturity 30‐Jun‐15 30‐Sep‐16 30‐Sep‐16
Cash and equivalents – $56 $51 $51
Term loans Sep‐20 $994 $717 $717
New term loan Sep‐23 $0 $0 $220
Other debt (1) Various $14 $2 $2
8.500% Senior Unsecured Notes Aug‐21 $200 $200 $0
Total debt $1,208 $919 $939
Pre‐IPO LTMPro forma
LTM
Credit statistics 30‐Jun‐15 30‐Sep‐16 30‐Sep‐16
Adj. EBITDA (2) $231 $237 $237
Cash interest expense $71 $57 $41 ‐ $42
Total debt / Adj. EBITDA 5.2x 3.9x 4.0x
Net debt / Adj. EBITDA 5.0x 3.7x 3.7x
Adj. EBITDA / Cash interest expense 3.3x 4.2x 5.8x
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Attractive EBITDA growth and cash conversion
Leverage positions in growing end markets
Convert pipeline of acquisition targets
Drive margin upside through operational excellence and synergy realization
Capital discipline
MPS’ Strategy Drives Attractive EBITDA Growth and Cash Conversion
11
22
33
44
Goal of 2% ‐ 3% organic net sales growth (1)
product/end market mix shift accelerating growth in the near term; continued share gain
$50 ‐ $100mm in acquisitions per annum at average 4x post‐synergy multiple
Goal of 17%+ targeted Adj. EBITDA margins
Favorable Free Cash Flow characteristics
Long‐Term Goals Disclaimer: This presentation includes long‐term goals that are forward‐looking, are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results will vary and those variations may be material. For discussion of some of the important factors that could cause these variations, please consult the “Risk Factors” section of the preliminary prospectus. Nothing in this presentation should be regarded as a representation by any person that these goals will be achieved and the Company undertakes no duty to update its goals.
(1) Excluding media and tobacco, assuming a constant currency, and excluding acquisitions.
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Awarded in the UK ‐ Packaging Company of the Year!
21
Appendix
Adj. EBITDA to Net Income Reconciliation
Non-GAAP Adjusted EBITDA
(amounts in thousands)
Consolidated net income $ 4,590 $ 7,026 $ 12,869 $ 13,084 Depreciation and amortization 129,000 131,703 29,441 33,311 Interest expense 64,543 75,437 14,642 18,729 Income tax expense 4,592 (1,880) 3,152 5,231
EBITDA 202,725 212,286 60,104 70,355
Adjustments related to operating incomeTransaction related expenses 3,838 13,630 284 350 Stock based and deferred compensation expenses 26,818 5,722 309 (272) Purchase accounting adjustments 966 3,094 228 331 Restructuring related costs 10,684 6,419 2,868 2,826 Loss on sale of fixed assets 1,410 584 107 194 Other adjustments to operating income (2,741) (1,928) (907) (455)
Adjustments related to operating income (A) 40,975 27,521 2,889 2,974
Adjustments related to non-operating incomeForeign currency (gains) losses 5,183 (12,171) (2,440) 2,867 Debt extinguishment charges 3,968 1,019 — — Other adjustments to non-operating income 1,452 2,307 (497) 1,000
Adjustments related to non-operating income 10,603 (8,845) (2,937) 3,867
Total adjustments (B) 51,578 18,676 (48) 6,841
Adjusted EBITDA $ 254,303 $ 230,962 $ 60,056 $ 77,196
Pre-acquisition Adjusted EBITDA 851 16,172 — 297 Proforma Adjusted EBITDA $ 255,154 $ 247,134 $ 60,056 $ 77,493
For the Twelve Months Ended Three Months Ended
June 30, September 30,
2016 2015 2016 2015
23
Adjusted Operating and Adjusted Net Income Reconciliation
(A) ‐ (B) See related total reconciled on Adjusted EBITDA reconciliation.
Non-GAAP Adjusted Net Income
(amounts in thousands, except per share data)
Consolidated net income $ 4,590 $ 7,026 $ 12,869 $ 13,084 Adjustments related to net income (B) 51,578 18,676 (48) 6,841 Tax impact of adjusting entries (8,773) (3,496) (145) (1,743)
Adjusted net income 47,395 22,206 12,676 18,182
Net loss (income) attributable to noncontrolling interest 805 (527) 380 (77) Adjusted net income attributable to shareholders of Multi Packaging Solutions International Limited $ 48,200 $ 21,679 $ 13,056 $ 18,105
Weighted average number of common shares outstanding – diluted 72,661 61,939 77,453 61,939
Adjusted net income per share $ 0.66 $ 0.35 $ 0.17 $ 0.29
June 30, September 30,
For the Twelve Months Ended Three Months Ended
2016 2015 2016 2015
24
Non-GAAP Adjusted Operating Income
(amounts in thousands)
Operating income $ 27,726 $ 40,679 $ 27,726 $ 40,679 Adjustments related to operating income (A) — — 2,889 2,974
Adjusted operating income $ 27,726 $ 40,679 $ 30,615 $ 43,653
For the Three Months Ended Three Months Ended
September 30, September 30,
2016 2015 2016 2015
Historical Financial Summary ‐Markets
25
(amounts in millions) Consumer $ 216 $ 233 $ 894 $ 816 Healthcare 156 158 663 644 Multi-Media 53 68 181 158 FX Impact (17) — (77) —
Net Sales $ 408 $ 459 $ 1,661 $ 1,618
Consumer $ 206 $ 233 $ 841 $ 816 Healthcare 154 158 640 644 Multi-Media 48 68 180 158
Net Sales $ 408 $ 459 $ 1,661 $ 1,618
Three Months Ended Twelve Months Ended
September 30, June 30,
2016 2015 2016 2015
Historical Financial Summary ‐ Regions
26
(amounts in millions) North America $ 190 $ 216 $ 797 $ 738 Europe 211 221 847 821 Asia 24 22 94 59 FX Impact (17) — (77) —
Net Sales $ 408 $ 459 $ 1,661 $ 1,618
North America $ 189 $ 216 $ 784 $ 738 Europe 196 221 786 821 Asia 23 22 91 59
Net Sales $ 408 $ 459 $ 1,661 $ 1,618
Three Months Ended Twelve Months Ended
September 30, June 30,
2016 2015 2016 2015