Marcum MicroCap Conference Presentation
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Transcript of Marcum MicroCap Conference Presentation
NYSE : NP
New York June 20, 2012
Neenah Paper
MARCUM MICROCAP CONFERENCE
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
Successful Strategic Evolution
Successful execution of transformation strategy
Leading positions in profitable markets with strong cash flows
Positioned to pursue new opportunities
Recent acquisition a catalyst for growth and value creation
Timeline of Strategic 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 2011 2012
Sales $574 $658 $696 $173 $198
EBIT1 34 52 59 17 22
E.P.S.1 $0.76 $1.47 $1.91 $0.54 $0.77
Oper. Margin 5.9% 7.9% 8.5% 9.8% 11.1%
Return on Capital
6% 8% 9% 8% 10%
(1) Excludes one-time items for divestitures, integration and other costs as noted in appendix
Top line growth via share gains, new products, pricing power and acquisition (Jan-12)
Faster bottom line growth with improving margins and lower debt costs
Return on Capital approaching desired double-digit levels
Strong cash generation used for debt reduction and dividend increases
5
6%
13%
30%
Sales EBIT E.P.S.
% Change 2011 vs. 2010
14%
29%
43%
Sales EBIT E.P.S.
% Change Q1 11 vs.12
First Quarter
“Lucky” 13 consecutive quarters of beating expectations!
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
Specialized technologies supported by R&D centers to meet demanding customer performance needs :
Multi-fiber 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
Success Factors
Specialized Performance
Requirements
Strong Barriers to Entry
8
Customer Intimacy and Qualification
Strategic Priorities: Technical Products
Grow in existing markets by:
Increasing mix of higher-value, specialized products (e.g.
melt blown filtration, super smooth abrasives, and specialized labels)
Gaining share with innovative new products with above average margins
Expanding international presence in filtration and other areas as we grow with and follow our global customers
Increase margins with mix improvements, volume growth and optimizing base
Enter into 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 Key Platform for Growth
NAFTA Asia Europe So. Amer. RoW
OtherNPH&VAhlstrom
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 Ability to leverage our melt blown technologies to enter into other attractive filtration markets that are growing and require performance
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
Countering Market by Extending our Reach
Source: company estimates
With high-end colors and textures, premium fine papers represents a small, specialized sliver of an uncoated free sheet market that has been in decline
Neenah has outperformed the market by:
Gaining share as clear market leader
Finding new areas of growth through expanded products, geographies, technologies and customer channels
12
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
Premium
Value Share
Uncoated
Free Sheet
Premium ~< 3%
Mohawk 30%
NP
60%
Other (10%)
Success Factors
NP Leading brands specified by designers and printers with strong pricing power
Highest quality with a wide palette of colors and textures to serve specialized high-end print needs
Supply chain and technology tools and programs to help customers optimize performance and grow share with Neenah
An effective cost position and barrier to entry with purpose-built assets that are efficiently utilized
Selective distribution resulting in brand pull and encouraging strong merchant performance
13
Wausau Brand Purchase (Jan-12)
Compelling and attractive returns
Increased share in core writing, text & cover while expanding market presence with entry into brights
Filled existing asset base with minimal added costs Provided presence in new channel (retail) with
future growth opportunities
Strategic Rationale
$21 million cash for selected premium brands, finished inventory and converting equipment.
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
Financial Returns
Acquired sales of over $100 million/yr
No dilution in attractive mid-teen EBIT margins
One-time 2012 cash integration costs of $7 million
Strategic Priorities: Fine Paper
Deliver value in 2012 through successful integration of acquired Wausau brands
Expand in targeted markets: luxury packaging, label, international, envelopes and national accounts
Develop new revenue streams – including expansion in consumer retail, photo cards and books, and digital papers
Gain share as market leader with programs and services that encourage growth with Neenah
15
Strategy Summary
Grow business through: Gaining share with innovative products and
geographic expansion with global customers Entry into attractive new market adjacencies
Improve margins to double digit levels
Counter a challenging market through: Expanding in targeted markets and with new
revenue streams Growing share in existing markets
Maintain attractive financial returns and cash flow
Technical Products
Fine Paper
Corporate
Increase overall sustainable growth rate through organic initiatives and compelling M&As
Improve efficiency with scalable infrastructure Deploy cash flows to:
Increase Return on Capital Maintain effective capital structure Provide attractive shareholder returns
16
Key Financial Objectives
Deliver consistent profitable growth
Increase Return on Capital Maintain a prudent and efficient capital structure Reward shareholders through effective cash generation
and deployment, including a meaningful dividend
17
Profitable Growth
Fine Paper
Consistent and attractive profits, cash flows and return on capital
Delivering value from Wausau brand purchase
$318
$384 $421 $424
4.6%
7.6% 8.0%
11.8%
2009 2010 2011 Q112Annualized
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
$256 $273 $275
$346
14.2% 13.7% 14.4% 15.5%
2009 2010 2011 Q112Annualized
Net Sales
OP%
Return on Capital
6%
8% 9%
10%
2009 2010 2011 Q112 TTM
% Return on Invested Capital
Primary metric to evaluate investment opportunities and measure business performance
A key component in management incentive plans
Improving with:
Profitable growth/margin improvement
Carefully managed assets/investments
Strategic moves (divest pulp, WP purchase)
Nearing desired double-digit levels
0.9
1.1 1.3
1.4
2009 2010 2011 Q112 Annualized
Sales/Assets
19
$319
$245
$186 $200
4.6x
2.8x
2.0x 2.0x
Dec 09 Dec 10 Dec 11 Mar 12
Debt and Debt/EBITDA
Target Range
1.5 – 2.5x
Capital Structure
$ millions Dec
2009
Dec
2010
Dec
2011
Mar
2012
Bonds 7 3/8%
(due Nov. 2014) $225 $223 $158 $158
ABL (due Nov. 2015)
28 - - 23
Other U.S. 41 - - -
Germany 25 22 28 19
Total Debt $319 $245 $186 $200
Total Cash $5 $48 $20 $3
Recent approved $10 million Stock Repurchase Plan (May 2012)
Purchase of Wausau brands funded by low cost ABL borrowing (Jan 2012)
Called $65 million of bonds in March 2011 and additional $10 million in April 2012
Credit rating upgrade to Ba3/BB- in 2010 20
Pro Forma Cash Flow $ 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
+ Added Cash Flow From Acquisition
Strong cash flow generation to support shareholder returns
Strong cash flow from businesses
Moderate capital spending needs with available capacity for growth
Scalable infrastructure to grow efficiently
Favorable N. America cash tax position (NOLs = $80 million)
Competitive dividend yield/room to grow
$0.40
$0.44
$0.48
2010 2011 2012
Annual Dividend per share
21
Attractive double-digit cash flow
yields result as base cash flows are
boosted by 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
Sustainable, strong cash flows helping to support growth and provide attractive investor returns
$68 $70
$86
$93
2008 2009 2010 2011
Deleveraging has resulted in sound capital structure and financial flexibility
Recent Wausau brand acquisition expected to provide compelling value creation
Strategic focus on continued expansion in technical/specialty markets and away from historical “pulp & paper” positioning
Consolidated EBITDA (U$ 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 Q1 2012
EBIT (Operating Income) $ 16.4 $ 55.1 $ 56.6 $ 16.2
Ripon Mill Closure/(Gain on Sale) 17.1 (3.4)
Integration Costs 2.5
Other 1 2.4 3.5
Adjusted EBIT $ 33.5 $ 51.7 $ 59.0 $ 22.2
Depreciation & Amortization 31.9 29.7 30.0 7.3
Amort. Equity-Based Compensation 4.7 4.9 4.3 1.6
EBITDA $ 70.1 $ 86.3 $ 93.3 $ 31.1
Earnings (Loss) per Share $ (0.12) $ 1.61 $ 1.82 $0.54
Ripon Mill Closure/(Gain on Sale) 0.76 (0.14) -
Integration Costs 0.09
Other1 0.12 - 0.09 0.14
Adjusted Earnings per Share $ 0.76 $ 1.47 $ 1.91 $ 0.77
24 1 Includes refinancing and tax costs in 2009-11 and pension settlement charge in 2012