Mar 2012 np presentation sidoti conference
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Transcript of Mar 2012 np presentation sidoti conference
SIDOTI & COMPANY INSTITUTIONAL INVESTOR
FORUM
NYSE : NP
New York City March 19, 2012
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
Forward Looking Statements
2
Neenah is a leader in performance-based technical products
and high-end printing papers used where image matters.
Company Overview
Fine Paper Premium textured and colored papers
End markets: high-end communications and
printing, luxury packaging, crafting and labels
Manufacturing in the U.S.
Technical Products Specialized, performance-based products
End markets: filtration, industrial backings,
labels, and other specialties
Manufacturing in Germany and the U.S. Fine
Paper
Technical
Products
Pro Forma Net Sales
$800 million 3
Sold Pictou pulp mill
Sold Terrace Bay pulp mill
Sold half of timberlands
Purchased Germany
Tech.Prod.
Purchased Fox River Paper
Sold remaining timberlands
Purchase premium brands
from Wausau
2005 2006 2007 2008 2009 2010 2011
A History of Strategic Execution
Successful execution of transformation strategy following company formation in 2004
Leading positions in profitable specialty markets with meaningful barriers to entry
Positioned to pursue new opportunities with sound capital structure and strong cash flows
Recent catalyst for growth and value creation following January 2012 purchase of premium brands from Wausau Paper Corp.
Timeline of
Activities
Pulp
Fine Paper
Technical Products
2004 2005 2006 2007 2008 2009 2010 2011
Sales Mix Evolution
2012 Nov-04
Spun off
From K-C
4
Financial Momentum
$ millions 2009 2010 2011
Revenue $574 $658 $696
Operating Income1 34 52 59
E.P.S.1 $0.76 $1.47 $1.91
EBITDA1 $73 $87 $93
Debt $319 $245 $186
Return on Capital 6% 8% 9%
(1) Excludes one-time items for closure/sale of Ripon mill, debt refinancing and tax adjustments
Top line growth via share gains, new products and pricing power Bottom line reflecting sales growth, improving margins and lower debt costs Cash generation used for debt reduction and dividend increases Return on Capital approaching desired double-digit levels
5
6%
14%
30%
Sales EBIT E.P.S.
% Change 2011 vs. 2010
$0.76
$1.47
$1.91
2009 2010 2011
E.P.S.1 2009-2011
Industrial Backings Saturated and coated papers used for backing of specialty abrasives and tapes
Filtration High-performance filtration media for fuel, air, oil, cabin air in transportation, as well as products for other markets
Technical Products
Specialties Products for a variety of end markets including labels, non-woven wall cover, medical packaging, durable print media and other markets
6
Filtration
Tape
Abrasives
Specialties
Europe
North
America
Asia
RoW
A Diversified Global Portfolio
Segment Selected
Competitors
Key
Customers
Est.
Market
Growth
Filtration Ahlstrom,
H&V
Mann &
Hummel,
Mahle, Hengst
2x
GDP
Specialties
(Label, Medical
Pkg, Image
Transfer,
Decorative,
Tag…)
Variety of
competitors with
limited
concentration
Avery
Dennison, 3M,
Saint-Gobain
GDP+
Industrial
Backing- Tape
Wausau,
Ahlstrom
3M, Shurtape,
IPG, Tesa,
Alpha Beta
GDP
Industrial
Backing-
Abrasives
Ahlstrom,
Munksjo
3M, St. Gobain,
Hangzhou Star,
Starcke
GDP
Sales by
Product Group
Sales by
Geography
7
Ability to meet customer performance needs with specialized technologies:
Multi-fiber technologies and forming capabilities
Saturation, coating and surface treatments
Polymer chemistries
Longstanding relationships and ongoing joint product development with global blue chip customers who are leaders in their markets
Specialized know-how supported by R&D centers in Germany and the U.S.
Success Factors
Customer Intimacy and Qualification
Specialized Performance Requirements
Strong Barriers to Entry
8
Key Priorities: Technical Products
Grow share by developing and commercializing innovative new products with above average margins
Drive growth in higher value specialty products (e.g. melt blown filtration, super smooth abrasives, and specialized labels)
Expand international presence in filtration and other areas by growing with and following our global customers
Enter adjacent markets that are growing and profitable and value technical know-how and performance
9
Life Science
Process & Food
Water
Transpo/H. Duty
Gas Turbine
Dust Control
HVAC /Air
2003 2004 2005 2006 2007 2008 2009 2010 2011
Neenah Net Sales
Transp. Filtration
CAGR 8%
Filtration: A Platform for Growth
NAFTA Asia Europe So. Amer. RoW
Other
NP
H&V
Ahlstrom
Global Transportation Filtration
Market Size and Share
Global Market ~ US $1 billion
Source: company estimates
Organic Growth
Historically, Neenah has focused in the European auto filtration market (fuel, oil, engine & cabin air)
The business has grown at a compound annual rate of 8% from 2003-11
Market Adjacencies Other filter applications and markets share similar technologies and represent areas of potential growth
Specialty
filtration
media markets
> $4 billion
Internationalization
Global engine performance and filter requirements continue to become more demanding
Alignment with leading global filter customers can lead to an expanded geographic presence
10
Packaging & Label Image enhancing colors and textures of premium folded cartons, box wrap, bags, premium wine, beverage and spirit labels, food labels, hang tags
Brights Deep , rich, vivid colors and textures for flyers, posters, school supplies, crafting, direct mail advertising and promotions
Graphic Imaging Unique colors, textures and finishes for identity, print collateral, invitations, advertising, and envelopes
Fine Paper
11
Extending our Reach Premium Fine
Paper Value
Share
Source: company estimates
Premium fine papers represents a sliver of the uncoated free sheet (UFS) market. UFS has declined 3-4 percent per year over the past ten years
As the clear leader in what is essentially a two-player market for premium fine papers, Neenah has gained share and grown as the market consolidates
In addition, we continue to identify and pursue new areas of growth through expanded products, geographies, technologies and customer channels
12
Uncoated
Free Sheet
Premium ~< 3%
Customers/ Supply Chain
Geographies Technology
Products
Premium Labels Envelopes
Core
Writing,
Text &
Cover
Retail
Middle East
Europe
China
South America
Luxury Packaging
Brights
Digital Papers
Electronic Printing
Applications
Crane
Crafts Scrapbooking
100% PCW Packaging
Durable Papers
Mohawk 30%
NP
60%
Other 10%
Gro
wth
Ad
jace
ncy
Ma
p
Success Factors
NP Leading brands that are often specified by designers and printers and that provide pricing power
Highest quality papers with a wide palette of colors and textures to serve specialized high-end print needs
Technology and supply chain tools to help customers optimize performance and grow share with Neenah
Purpose-built assets providing an effective cost position and barrier to entry
Selective distribution resulting in brand pull and encouraging strong merchant performance
13
Wausau Transaction
Expands market participation with entry into brights
Increases share in core writing, text & cover
Fills existing asset base with minimal added costs and no dilution in attractive EBIT margins
Provides presence in new channel (retail) with future growth opportunities
Delivers substantial value and compelling returns
Strategic Rationale
$21 million cash payment for: • Astrobright, Astroparche, and Royal brands • Perpetual license for Exact TM bright, index, tag, and
bristol papers • One-month finished inventory and selected assets
Acquired sales of over $100 million/yr One-time integration costs of $10 million in 2012
Transaction Overview
NP 60%
Others 40%
NP 50%
WP 7%
Others 43% WP
75%
Others 25%
Premium WTC Market (~$450 mm)
Brights Market (~$100 mm)
Bigger share of a bigger market! 14
Key Priorities: Fine Paper
Gain share in a consolidating market with programs and information that encourages growth with Neenah
Expand in targeted areas: luxury packaging, label, international, envelopes and national accounts
Develop new revenue streams – including expansion in retail, photo cards and books, and digital papers
Deliver value in 2012 through successful integration of recently acquired Wausau brands
15
Strategy Summary
Grow size of business through: Geographic expansion with global customers New products/innovation Entry into market adjacencies
Improve margins to double digit levels
Counter challenging market through: Growing share in consolidating market Expanding in targeted growth areas
Maintain attractive financial returns Opportunistically take part in market
consolidation
Technical Products
Fine Paper
Corporate
Ge
ne
rate
Att
ract
ive
Ret
urn
s to
Sh
are
ho
lde
rs b
y:
Allocate cash flows effectively to: Increase Return on Capital Maintain prudent capital structure Provide attractive shareholder returns
Ensure scalability of corporate costs Pursue M&As where strategic fit and
financial returns are compelling 16
Financial Objectives
Deliver consistent profitable growth while:
Increasing Return on Capital through growth in operating income, margin expansion and asset efficiencies
Maintaining a prudent capital structure Rewarding shareholders through cash generation and
meaningful dividend yield
17
Profitable Growth
$256
$273 $275
14.2%
13.6%
14.4%
2009 2010 2011
Net Sales
OP % Fine Paper
Delivering consistent and attractive profits , cash flows and return on capital
Growing share and in targeted niches to offset challenging market conditions
$318
$384 $421
4.6%
7.6% 8.0%
2009 2010 2011
Net Sales
OP%
Technical Products
Volume growth focused on filtration, labels and higher growth categories
Margins expanding with higher value mix, sales growth, cost efficiency and pricing
Targeting sustainable double-digit margins
Pricing power and cost control in both businesses has offset almost $50 million of input cost increases since 2009 18
Return on Capital
6%
8%
9%
2009 2010 2011
% Return on Invested Capital Primary metric used to measure
business performance and evaluate investment opportunities
Increasing ROIC a primary component of management compensation plans
Improving with
Profitable growth
Careful control of assets and capital investments
Divestiture of pulp
Nearing desired double-digit levels
0.9
1.1 1.2
2009 2010 2011
Sales/Assets
19
$319
$245
$186
4.4x
2.8x
2.0x
Dec 09 Dec 10 Dec 11
Debt and Debt/EBITDA
Target Range
1.5 – 2.5x
Capital Structure
$ millions Dec
2009
Dec
2010
Dec
2011
Bonds 7 3/8%
(due Nov. 2014) $225 $223 $158
ABL (due Nov. 2015)
28 0 0
Other U.S. 41 0 0
Germany 25 22 28
Total Debt $319 $245 $186
Total Cash $5 $48 $20
$95 million North American revolving credit facility expires in late 2015
Completed call of $65 million bonds in March 2011 (saving $5 million/year in interest)
Credit rating upgraded to Ba3/BB- in 2010
Recent $21 million purchase of Wausau brands funded by low cost ABL borrowing
20
Pro Forma $ millions
EBITDA (pre-Wausau purchase) $95
Interest Expense (14)
Other (tax, wkg cap, pension, etc..) (21)
Cash From Operations $60
Capital Expenditures (25)
Free Cash Flow $35
FCF/share $2.35
FCF Yield 1 8%
(1) Based on $30 NP stock price
Attractive cash flows and returns
Strong cash flow base
Ability to grow efficiently with scalable infrastructure
Moderate capital spending with capacity available for growth
Efficient N. America cash tax position (NOLs = $80 million)
Competitive dividend yield; consecutive annual increases with room to grow
$0.40
$0.44
$0.48
2010 2011 2012
Annual Dividend per share
21
Attractive cash flows and yield
even before including returns from
Wausau brand purchase
Investment Conclusions
Leading positions in profitable specialty markets with barriers to entry
Momentum in sales and profits reflecting successful execution of plans
Deleveraging has resulting in sound capital structure and financial flexibility
$69 $73
$87
$93
2008 2009 2010 2011
Sustainable, strong cash flows helping to support growth and provide attractive investor returns
Recent Wausau brand acquisition expected to provide compelling value creation
Strategic focus on continued expansion in specialty markets and evolution away from historical “pulp & paper” positioning
Consolidated EBITDA (U$ millions)
22
Contact
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]
23
GAAP Reconciliation
Continuing Operations
$ millions 2009 2010 2011 EBIT (Operating Income) $ 16 $ 55 $57 Ripon Mill Closure/(Gain on Sale) 17 (3) - Loss on retirement of bonds - - 2 Adjusted EBIT $ 34 $ 52 $ 59 Depreciation & Amortization 34 32 31 Amort. Equity-Based Compensation 5 3 3
EBITDA $ 73 $ 87 $ 93 Earnings (Loss) per Share $ (0.12) $ 1.61 $1.82 Ripon Mill Closure/(Gain on Sale) 0.76 (0.14) - Refinancing Costs/Tax Items 0.12 - 0.09 Adjusted Earnings per Share $ 0.76 $ 1.47 $1.91
24