Composites Solutions - Intertape Polymer Group...Title: Composites Solutions Author: Drew Clemens...
Transcript of Composites Solutions - Intertape Polymer Group...Title: Composites Solutions Author: Drew Clemens...
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IPG Investor Presentation
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IPG Investor
PresentationNovember 2016
2IPG Investor Presentation
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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 of
historical facts included in this presentation, including statements regarding the Company's capital allocation priorities, including its investment strategies, acquisition strategies and
anticipated annualized dividends, the Company's capital expenditures, including its cost and return expectations, the expected financial performance of certain recently-acquired
operations, the TaraTape closure and the expected synergies from the TaraTape acquisition, the payment of the South Carolina Flood insurance claim settlement and the related
impact on net earnings in the fourth quarter of 2016, the Company's update on the South Carolina Project and the Company's fourth quarter and full year 2016 outlook, may constitute
forward-looking statements. These forward-looking statements are based on current beliefs, assumptions, expectations, estimates, forecasts and projections made by the Company's
management. Words such as "may," "will," "should," "expect," "continue," "intend," "estimate," "anticipate," "plan," "foresee," "believe," or "seek" or the negatives of these terms or
variations of them or similar terminology are intended to identify such forward-looking statements. Although the Company believes that the expectations reflected in these forward-
looking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not guarantees of future performance. Such statements are also subject
to assumptions concerning, among other things: business conditions and growth or declines in the Company's industry and the Company's customers' industries; changes in general
economic, political, social, fiscal or other conditions in any of the countries where the Company operates; the anticipated benefits from the Company's manufacturing facility closures
and other restructuring efforts; the anticipated benefits from the Company’s acquisitions; the anticipated benefits from the Company’s capital expenditures; 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 flows from the Company’s operations; availab ility of funds under the Company’s Credit Facility; the
Company's ability to continue to control costs; movements in the prices of key inputs such as raw material, energy and labor; government policies, including those specifically regarding
the manufacturing industry, such as industrial licensing, environmental regulations, safety regulations, import restrictions and duties, excise duties, sales taxes, and value added taxes;
accidents and natural disasters; changes to accounting rules and standards; and other factors 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 results may, 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 undue reliance 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 and
uncertainties, and the assumptions underlying the forward-looking statements, you are encouraged to read "Item 3. Key Information - Risk Factors," "Item 5. Operating and Financial
Review 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,
2015 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 these
forward-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, Adjusted EBITDA Margin, 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 business operations. As
required by applicable securities legislation, the Company has provided definitions of these non-GAAP measures contained in this presentation, as well as a reconciliation of each of
them to the most directly comparable GAAP measure, on its website at [http://www.intertapepolymer.com under “Investor Relations” and “Events and Presentations” and “Investor
Presentations“]You are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP measures to their most directly comparable 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, measures of financial performance
prepared in accordance with GAAP.
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Company Profile
• The second largest tape manufacturer in North
America
• Employs ~2,200 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
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Our Locations
• 12 Manufacturing Facilities in North America
• 1 Manufacturing Facility in Europe
• 1 Manufacturing Facility in Asia
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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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Films At-A-Glance
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Films
Stretch
Shrink
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Woven 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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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)
Resin
Adhesive
Paper
Other
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Strengths
Attractive product bundle
Focus on customer
relationships and service
Deep institutional
knowledge in the industry
Proven and accessible
management team
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 / consolidation of current product lines
• New product categories
• Geographic expansion
Dividends
• Reinstated a dividend policy on Aug. 14, 2012
• Annualized dividend of $0.56 per share announced on August 11, 2016
• Dividend yield(1) of 3.1%
• Since Aug. 2012, the Company has paid $96.5 million in dividends, of which $29.7 million was paid in 2015
Share repurchases
• Repurchased ~2.5 million shares in 2015 under the NCIB for a total price of $30 million
• As of July 14, 2016, 4.0 million shares remained available for repurchase under the NCIB
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Capital Allocation Priorities
(1) Source: Bloomberg, as of November 15, 2016
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Capital Expenditures
• Capacity expansion(1):
– Water-activated tapes ~ $44-$49
million
• Greenfield expansion in North
Carolina
– India expansion ~ $20 million
• Greenfield + current facility
– Shrink film ~ $11 million
• Product expansion(1):
– Specialty Tape ~ $10 million
• Maintenance CapEx expected to be
between $8 and $12 million in 2016
• High-return projects expected to yield
after-tax returns of at least 15%
(In millions of US dollars)
Expected range
(1) Amounts represent total expected costs
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Acquisitions
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(1) Better Packages and Taratape: Anticipated to be generated during 2016 fiscal year; Powerband Industries Private Limited’s most recently completed fiscal year
(2) IPG acquired 74% ownership stake in Powerband
Strategic rationale Expansion:E-commerce
Strengthen Market position: Tape manufacturing
Global Expansion: Tape manufacturing
Core competency Leading supplier of water-activated tape dispensers
Manufacturer of filament and pressure sensitive tapes
Global supplier of acrylic tapes and stretch films
Purchase price $15.9MM $11.0MM $42.0MM
Annual revenue(1) $18MM $20MM ~$32MM
Acquisition date(2) April 7, 2015 November 2, 2015 September 16, 2016
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• Cash flow based loan facility of $300 million negotiated in November 2014
• As of September 30, 2016:
– Total cash and loan availability was $117 million
– Leverage 1.9x debt to TTM adjusted EBITDA
• Option to raise equity if needed
• For the quarter ending September 30, 2016, the average-total cost of funds(1) for the cash flow based loan facility was 2.76%
Source of Funds
Cash Flow Based Loan FacilityKey Terms
Facility $300 million Revolving Credit Facility
Incremental Facility (Accordion Feature)
$150 million
Pricing LIBOR + Spread (1.25% to 2.25%)
Key Financial Covenants(1) Leverage < 3.25(2) Debt Service Coverage Ratio > 1.5(3) Capex < $50MM + carry-forward
Maturity November 18, 2019
(1) Includes unused line fees, letters of credit and USD fixed interest rate swap costs
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• Gross margin increased to 21.7% from 21.3% primarily due to the favourable impact of the Company’s manufacturing cost
reduction programs and an increase in the spread between selling prices and lower raw material costs, partially offset by the
negative impact of the South Carolina Flood.
• Net earnings decreased primarily due to increases in SG&A and manufacturing facility closures, restructuring and other related
charges.
• Adjusted net earnings increased primarily due to a decrease in income tax expense and an increase in gross profit, partially offset
by an increase in SG&A.
• Adjusted EBITDA Margin(1) decreased to 13.2% from 13.4% primarily due to an increases in SG&A partially offset by an increase
in gross profit.
2016 Q3 Results: Year-Over-Year
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in millions US $Q3 2016 Q3 2015 Change %
(except per share amounts)
Revenue $206.6 $200.6 3.0%
Gross profit $44.9 $42.8 4.8%
Net earnings $6.3 $15.7 (60.1%)
Adj Net Earnings $19.9 $12.9 54.3%
Adj EBITDA $27.2 $26.8 1.6%
EPS, fully diluted $0.10 $0.26 (60.1%)
Adj EPS, fully diluted $0.33 $0.21 54.3%
(1) Adjusted EBITDA as a percentage of revenue
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• Gross margin decreased to 21.7% from 25.7% primarily due to the non-recurrence of the South Carolina Flood insurance claim
settlement proceeds received in the second quarter of 2016, an increase in the negative impact of the South Carolina Flood and
higher manufacturing overhead related to planned annual maintenance shut downs of certain manufacturing facilities.
• Net earnings decreased primarily due to a decrease in gross profit and an increase in manufacturing facility closures, restructuring
and other related charges, partially offset by a decrease in income tax expense mainly due to lower earnings.
• Adjusted net earnings decreased primarily due to a decrease in gross profit, partially offset by a decrease in income tax expense.
• Adjusted EBITDA Margin(1) decreased to 13.2% from 16.4% primarily due to an decrease in gross profit.
2016 Q3 Results: Sequential
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in millions US $Q3 2016 Q2 2016 Change %
(except per share amounts)
Revenue $206.6 $201.5 2.5%
Gross profit $44.9 $51.8 (13.4%)
Net earnings $6.3 $13.7 (54.2%)
Adj Net Earnings $19.9 $20.3 (1.9%)
Adj EBITDA $27.2 $33.0 (17.4%)
EPS, fully diluted $0.10 $0.22 (54.3%)
Adj EPS, fully diluted $0.33 $0.33 (2.0%)
(1) Adjusted EBITDA as a percentage of revenue
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• Gross margin increased to 23.0% from 20.8% primarily due to an increase in the spread between selling prices and lower raw
material costs and the favourable impact of the Company’s manufacturing cost reduction programs, partially offset by the negative
impact of the South Carolina Flood.
• Net earnings decreased primarily due to increases in SG&A and manufacturing facility closures, restructuring and other related
charges, partially offset by an increase in gross profit and a decrease in income tax expense.
• Adjusted net earnings increased primarily due to an increase in gross profit, a decrease in income tax expense and additional
adjusted net earnings in 2016 derived from business acquisitions, partially offset by an increase in SG&A.
• Adjusted EBITDA Margin(1) increased to 14.1% from 13.2% primarily due to an increase in gross profit and additional adjusted
EBITDA in 2016 derived from business acquisitions, partially offset by increases in SG&A.
2016 Q3 Results: YTD September
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in millions US $ 2016
Q3 YTD
2015
Q3 YTDChange %
(except per share amounts)
Revenue $598.9 $586.2 2.2%
Gross profit $137.8 $122.2 12.7%
Net earnings $29.4 $39.2 (24.9%)
Adj Net Earnings $54.3 $39.7 36.7%
Adj EBITDA $84.3 $77.5 8.8%
EPS, fully diluted $0.49 $0.64 (24.2%)
Adj EPS, fully diluted $0.90 $0.65 37.9%
(1) Adjusted EBITDA as a percentage of revenue
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Columbia, SC Flood Update
1) Insurance claim settlement proceeds to date total $10 million of which $5.0 million was recorded in manufacturing facility closures,
restructuring and other related charges in the fourth quarter of 2015 and $4.5 million and $0.5 million were recorded in cost of sales and
manufacturing facility closures, restructuring and other related charges, respectively, in the second quarter of 2016.
2) Reflects lost gross profit on lost sales and quality-related masking tape product returns totalling $3.1 million and $3.4 million for the third
quarter and first nine months of 2016, as well as incremental costs from alternative product sourcing. “South Carolina Duplicate Overhead
Costs” refers to temporary operating cost increases related to operating both plants in South Carolina simultaneously and performing
planned actions to mitigate risk associated with new technology, including state-of-the-art equipment, to support the South Carolina Project.
3) Charges relate to property damage as well as subsequent clean-up and insurance claim preparation costs.
Impacts to Results – Millions of USD Q3 2016 YTD
Q3 2016 Q2 2016
Estimated revenue reduction (20.5) (9.9) (5.5)
Estimated gross profit / adjusted EBITDA improvement(reduction) (1)(2)
(7.3) (7.0) 2.5
Manufacturing facility closures, restructuring and other related charges (1)(3)
3.9 1.0 1.4
Estimated net earnings improvement (reduction) (6.9) (5.0) 0.7
Estimated adjusted net earnings improvement (reduction) (4.4) (4.3) 1.6
Insurance settlement claim proceeds(1) 5.0 Nil 5.0
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Other Significant Items
• Quarterly cash dividend declared
– On November 10, 2016, the Board of Directors declared a quarterly cash dividend of $0.14 per common share payable on December 30, 2016 to shareholders of record at the close of business on December 15, 2016
• TaraTape Closure
– Fairless Hills, PA facility to close and production is being transferred to Carbondale, IL and Danville, VA manufacturing facilities
– Total expected synergies from the TaraTape acquisition has been increased to between $4 and $6 million in additional adjusted EBITDA by the end of 2017 (previous expectation was between $2 and $4 million)
• South Carolina Flood Insurance Claim Settlement Reached for $30.0 million in October 2016
– Expected to result in a payment of $19.5 million and a significant positive impact on net earnings in the fourth quarter of 2016
– Payment represents total proceeds less $0.5 million deductible and $10.0 million in insurance claim proceeds received to date
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Update on South Carolina Project
Actual Project Results – Millions of USDQ3 2016
YTDQ3 2016 Q2 2016
South Carolina Commissioning Revenue Reduction (1)6.3
maskingNil
2.1masking
Net positive (negative) impact on gross profit and adjusted EBITDA (2)
2.0 0.5 0.2
1) Refers to the sales attributed to the commissioning efforts of the production lines that were accounted for as a reduction of revenue and a
corresponding reduction of the cost of the South Carolina Project
2) Includes cost savings, net of production ramp-up inefficiencies and South Carolina duplicate overhead costs
• Duct tape production is at targeted levels
• Working through masking tape production ramp-up
• While we expect this project to yield significant savings, it is uncertain if and when
we will realize net savings approaching the estimated $13 million
• Future savings will be achieved incrementally over time as we work through
inefficiencies in the masking tape productions
• Do not currently expect material amount of additional capital expenditures
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Outlook
• The Company expects gross margin for 2016 to be between 23% and 24%, excluding the impact of the South Carolina Flood
• Adjusted EBITDA for 2016 is expected to be $117 to $123 million, excluding the impact of the South Carolina Flood
• Manufacturing cost reductions for 2016 are expected to be closer to the upper end of the previously announced range of between $8 and $11 million. This range excludes 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 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
• The Company expects revenue, gross margin and adjusted EBITDA to be greater in the fourth quarter of 2016 than in the fourth quarter of 2015
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IPG Investor Presentation22
Strategic Vision
5-7 YEAR OBJECTIVE
Primarily North American
manufacturer of tape,
film and woven coated
products with
approximately 2,000
employees and 13
manufacturing facilities.
A global world class
manufacturer focused on tape,
film, woven coated products
and adjacent packaging
products with future success
coming from industry
consolidation, higher growth
and higher margin business
segments, and new
geographic markets.
MetricFiscal 2015
Results
Revenue $782M
Adj EBITDA $102M
Adj EBITDA
Margin13.0%
Constituted by
Upgrade manufacturing plants
to achieve lowest cost
operation with world class
assets
Invest in R&D
5 INITIATIVES
Strengthen position in current
product portfolio
Enter into new high growth,
high margin products
Geographic expansion into
higher growth and/or lower
cost jurisdictions
Rationalized by
Stable competitive environment
Stable workforce/union relations
5 ASSUMPTIONS
Stable macroeconomic conditions
No significant disruptive
technology
Consistent environmental
regulations
Achieved by
Capital investments
Sales & marketing
Continuous improvement
Innovation
5 METHODS
Merger and acquisitions
program
MetricAspirational
Goals
Revenue $1.5B
Adj EBITDAAt least
$225M
Adj EBITDA
MarginAt least 15%
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Thank You!
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