PPG Capital Markets Update · 2020. 7. 28. · PPG PITT-CHAR® NX Passive Fire Protection Next...
Transcript of PPG Capital Markets Update · 2020. 7. 28. · PPG PITT-CHAR® NX Passive Fire Protection Next...
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PPG Capital
Markets UpdateVince MoralesSenior Vice President
and Chief Financial Officer
CITI BASIC MATERIALS CONFERENCE
DECEMBER 3, 2019
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This presentation contains forward-looking statements that reflect the Company’s current views with respect to future events
and financial performance. You can identify forward-looking statements by the fact that they do not relate strictly to current or
historic facts. Forward-looking statements are identified by the use of the words “aim,” “believe,” “expect,” “anticipate,”
“intend,” “estimate,” “project,” “outlook,” “forecast” and other expressions that indicate future events and trends. Any forward-
looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation
to update any forward looking statement, whether as a result of new information, future events or otherwise. You are advised,
however, to consult any further disclosures we make on related subjects in our reports to the Securities and Exchange
Commission. Also, note the following cautionary statements:
Many factors could cause actual results to differ materially from the Company’s forward-looking statements. Such factors
include global economic conditions, increasing price and product competition by foreign and domestic competitors,
fluctuations in cost and availability of raw materials, the ability to achieve selling price increases, the ability to recover
margins, customer inventory levels, our ability to maintain favorable supplier relationships and arrangements, the timing of
and the realization of anticipated cost savings from restructuring initiatives, the ability to identify additional cost savings
opportunities, difficulties in integrating acquired businesses and achieving expected synergies therefrom, economic and
political conditions in the markets we serve, the ability to penetrate existing, developing and emerging foreign and domestic
markets, foreign exchange rates and fluctuations in such rates, fluctuations in tax rates, the amount of future dividends, the
impact of future legislation, the impact of environmental regulations, unexpected business disruptions, the effectiveness of
our internal control over financial reporting, the unpredictability of existing and possible future litigation, including asbestos
litigation, and governmental investigations. However, it is not possible to predict or identify all such factors. Consequently,
while the list of factors presented here and under Item 1A of PPG’s 2018 Form 10-K is considered representative, no such list
should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present
significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in the
results compared with those anticipated in the forward-looking statements could include, among other things, lower sales or
earnings, business disruption, operational problems, financial loss, legal liability to third parties, other factors set forth in
Item 1A of PPG’s 2018 Form 10-K and similar risks, any of which could have a material adverse effect on the Company’s
consolidated financial condition, results of operations or liquidity.
All of this information speaks only as of December 3, 2019, and any distribution of this presentation after that date is not
intended and will not be construed as updating or confirming such information. PPG undertakes no obligation to update any
forward-looking statement, except as otherwise required by applicable law.
Forward Looking Statements
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A global maker of paints, coatings and
specialty materials, with net sales of
$15.4 billion (2018)
Corporate Social Responsibility Awards
• Ranked #31 on the U.S. 500 Newsweek Green Rankings (2018)
• Forbes Best Employers for Diversity (2019)
Product and Process Awards
Earned R&D 100 Awards for two technologies in mechanical devices / materials category (2018)
Customer Awards
Named Supplier of the Year by Home Depot
(2018)
• Recipient of Uni-Select’s Diamond Award (2018)
How We Rank
Our employees protect and beautify the world
Ranked among the “World’s Most Admired Companies” by
Fortune Magazine in 2018
Who We Are
A leader in all our markets: construction,
consumer products, industrial and
transportation markets and aftermarkets
Headquartered in Pittsburgh,
Pennsylvania, with operations in more
than 70 countries
Founded in 1883
Fortune 500: Ranked 191 (2018)
PPG Background and Recent Accolades
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2018 PPG Net Sales & Adjusted EBITDA Margin
PPG Business Segments
Performance Coatings
• Automotive Refinish Coatings
• Aerospace Coatings
• Protective & Marine Coatings
• Architectural Coatings Americas & Asia
Pacific
• Architectural Coatings EMEA (Europe,
Middle-East and Africa)
Industrial Coatings
• Automotive OEM Coatings
• Industrial Coatings
• Packaging Coatings
• Specialty Coatings & Materials
~60% / 17.3%
~40% /15.9%
Performance CoatingsIndustrial Coatings
Broad coatings industry participation / 2019 focus on margin recovery 4
See detailed reconciliation in appendix
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• Strong operating margin improvement: third quarter +220bps
• PPG above-market sales performance in Aerospace, Marine,
and Protective Coatings
• Broad and weakening macro industrial demand in second half
• Six consecutive quarters of greater than +2% pricing
• Self-help execution of cost savings ~$80 - $85 million
• Closed multiple acquisitions: annualized revenue ~$500 million
• Strong balance sheet flexibility remains
2019 Summary
Record reported and adjusted earnings per diluted share in
third quarter, 20195
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PPG: Creating Shareholder Value
Growth
Orientation
• Profitable organic growth led by innovation
• Aim to match or exceed coatings end-use markets
and/or regional growth rates
• Expand presence in key emerging regions
Operational
Excellence
Cash
Deployment
• Aggressively manage all elements of cost structure
• Maximize free cash flow - continuous improvement in
working capital
• Manage impact / risk of legacy items, (i.e. pensions)
• Balance cash deployment focused on business growth
and shareholder returns
• Maintain heritage of annual per share dividend increases
• Prioritize value creating M&A, including synergy capture,
with excess cash utilized for share repurchases
Drive earnings improvement through profitable growth and cash deployment 6
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Environmental Formulation Application Functionality Color
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Innovation Levers at PPGDriving innovation across all aspects of coatings technology
2016
R&D 100 Finalist
2018
R&D 100 Finalist
Low Temperature
Cure
Coating System
for Ferrari
DESOTHANE ®
Solar Heat
Management
Coatings
Innovation Levers
2019
R&D 100 Winner
Powercron ® 160
Anodic Epoxy
Electrocoat
OLYMPIC ®
SMARTGUARD,
Multisurface
Waterproofer
2018
R&D 100 Winner
2017
R&D 100 Winner
LIQUID NAILS®
Fuze*It®
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Aerospace: Technology Driving Sales Growth
Environment
• Cooler interior cabin temperature
• Reduce energy costs
Heat Management - Airplane
Lightweight: Windshields• Extend flight range and improve operating efficiency
• Composite windshields reduce aircraft weight by
more than 100 lbs.
Aerospace’s strong 2019 growth driven by leading technologies 8
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PMC: Advantaged Technology
PPG PITT-CHAR® NX
Passive Fire Protection
Next generation flexible fire protectionReduced coating thickness and weight
Faster coating application
PPG PSX Product Line
Infrastructure Corrosion Protection
Advanced Epoxy Polysiloxane (PSX)Two coat system saves time and money
Easy cleaning and touch-up extends service life
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• On track to exceed initial 2019 cost savings target of $70 million
• TiO2 reformulation: 2% reduction in usage in 2019
• Low functional costs as a percent of sales
• Corporate cost below industry averages
• Strong cash generation led by working capital reduction
Operational ExcellenceFocused on execution and results across all operations and functions
Expect further operating margin improvement in 2020
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Diverse portfolio contributes to industry leading
margins and return on capital
Adjusted EBITDA margin percent of sales (FY18)
19%16% 16%
13%11%
See detailed reconciliation in appendix
~15%
~13% ~12%
~8%
~5%
• Investment flexibility via access to extensive coatings M&A pipeline
• Experienced acquirer with leading adjusted return on capital including benefit from
M&A synergy capture
• Leading industry margins aided by ability to share innovation/technologies across
broad business portfolio
Industry leading 2018 adjusted return on capital
15%
8%
12%13%
5%
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See detailed reconciliation in appendix
https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=2ahUKEwiL0N_Y5fPgAhXqlOAKHavzBBAQjRx6BAgBEAU&url=https://www.worldofchemicals.com/media/rpm-acquires-south-african-spray-paint-manufacturer-spraymate/8157.html&psig=AOvVaw08PrB_BGDJHDoTbCZH-yW5&ust=1552177438441828https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=2ahUKEwiL0N_Y5fPgAhXqlOAKHavzBBAQjRx6BAgBEAU&url=https://www.worldofchemicals.com/media/rpm-acquires-south-african-spray-paint-manufacturer-spraymate/8157.html&psig=AOvVaw08PrB_BGDJHDoTbCZH-yW5&ust=1552177438441828
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PPG aggressively manages cost structure
SG&A as % of sales Corporate cost as % of sales
Recent PPG Cost Savings Programs
Date Focus Target
Savings
Status
Q4, 2016 Reduce Europe operational footprint, marine coatings
business unit cost structure, acquisition synergy capture
~$125 million Complete
Q2, 2018 Adjust cost structure following U.S. architectural customer
assortment changes
~$85 million Underway
Q2, 2019 Continue to optimize global cost structure ~$125 million Underway
Source: Annual company filingsSource: Annual company filings
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https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=2ahUKEwiL0N_Y5fPgAhXqlOAKHavzBBAQjRx6BAgBEAU&url=https://www.worldofchemicals.com/media/rpm-acquires-south-african-spray-paint-manufacturer-spraymate/8157.html&psig=AOvVaw08PrB_BGDJHDoTbCZH-yW5&ust=1552177438441828https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=2ahUKEwiL0N_Y5fPgAhXqlOAKHavzBBAQjRx6BAgBEAU&url=https://www.worldofchemicals.com/media/rpm-acquires-south-african-spray-paint-manufacturer-spraymate/8157.html&psig=AOvVaw08PrB_BGDJHDoTbCZH-yW5&ust=1552177438441828
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Acquisitions contribute to sales growth
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Acquisition Sales Growth Over Prior Year
Estimated
annualized sales*
Notable acquisitions:
2008 – SigmaKalon
2013 – AkzoNobel Arch. NA
2014/5 – Comex (partial years)
~3% average sales
growth from
acquisitions
(USD MM)
Acquisitions supplement organic growth
*Incremental bar represents estimated annualized sales from acquisitions completed in 2019
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Recent Acquisitions
Hemmelrath (April 2019)
• Automotive OEM Coatings
• Technology & manufacturing
• Waterborne primers
Whitford (March 2019)
• General industrial coatings
• Technology / new product line
• Low friction coatings
SEM (December 2018)
• Automotive Refinish Coatings
• Lead manufacturer of niche
products that eliminate repair
steps and require less labor
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2018
Expanded Cash Deployment
• Generated ~$1.5B of cash from
continuing operations
• $2.2B returned to shareholders
• $1.7B repurchases
• $0.5B dividends
• 7% quarterly dividend increase
• Completed 4 acquisitions
• Higher operating cash flow of
~$1.3B compared to prior year
• 6% quarterly dividend increase
• Completed 4 acquisitions
through November 2019
• Strong balance sheet remains
$0
$1,000
$2,000
$3,000
$4,000
'09 '11 '13 '15 '17 ‘18
Increased
Average
M&A Share repurchases
$MM
Cas
h d
ep
loym
en
t
Average
~$800MM
~$1.8MM
Q3 YTD 2019
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Sustainability Initiatives
2018 Progress 2025 Goals
PPG recently earned EcoVadis Gold rating for corporate social responsibility 16
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• Strong and balanced portfolio of coatings, paints, and specialty
materials businesses driving industry leading financial metrics
• Continue to invest in technology to differentiate and support
our customers’ growth
• Margin improvement is expected to continue in 2020
• Disciplined deployment of free cash flow focused on
shareholder value creation through accretive acquisitions and
share repurchases
• Well positioned for earnings growth and strong cash flow
generation
Summary
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www.ppg.com
Thank you for your interest in PPG
Industries, Inc.
Contact Information:
Investors:
John Bruno
(412) 434-3466
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Appendix
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2018 Adjusted return on capital reconciliation
(in millions, except percentages)PPG**
Sherwin-
WilliamsAkzoNobel RPM
Axalta
Coatings
Systems
Currency USD USD Euro USD USD
Net Earnings as Reported 1,323 1,109 455 338 207
Total Net Adjustments, after-tax (see details
below)
126 379 107 47 79
Adjusted Net Earnings 1,449 1,488 562 385 286
Net Interest Expense (after-tax)* 92 279 58 79 121
Adjusted Net Earnings + Net Interest Expense 1,541 1,767 620 464 407
Capital (Average Debt & Average Equity) as
Reported
9,675 13,606 11,685 3,666 5,130
Net Adjustments (see above) 126 379 107 47 79
Adjusted Average Capital 10,048 13,985 11,792 3,713 5,209
Adjusted Return on Capital 15% 13% 5% 12% 8%
Sources for Summary of Net Adjustments:
PPG: Net income impact of non-recurring items as disclosed in the 2018 Form 10-K p. 31.
Sherwin-Williams: Net income impact of non-recurring items of integration costs, environmental expenses, California litigation expense, and pension plan settlement expense as noted in the Fourth
Quarter 2018 Earnings Press Release p. 5 (assuming a tax rate of 24%). This calculation does not include the adjustment for purchase accounting impacts.
AkzoNobel: Net income impact of non-recurring identified items mainly related to transformation cost and one-off non-cash pension costs as noted in the Q4 and full-year 2018 results presentation p. 3.
RPM: Net income impact of non-recurring items of inventory-related charges, restructuring expense, charge to exit Flowcrete China, corporate governance professional fees, and ERP consolidation plan
as noted in the Reconciliation of Non-GAAP for 4th Quarter 2018 presentation slide 8 (assuming a tax rate of 24%).
Axalta Coatings Systems: Net income impact of non-recurring items of termination benefits, debt extinguishment and refinancing related costs, and offering and transaction costs as noted in the Fourth
Quarter and Full Year 2018 Financial Results presentation, slide 15.
*Tax impact calculated using a 24% tax rate
**Does not foot due to the rounding effect of net adjustments
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2018 Adjusted EBITDA reconciliation
(in millions, except percentages)
PPG Sherwin-
WilliamsAkzoNobel RPM
Axalta
Coatings
Systems
Currency USD USD Euro USD USD
Sales 15,374 17,534 9,256 5,322 4,670
Income before taxes 1,693 1,360 573 417 268
Unusual or Infrequent Charges* 189 499 193 62 92
Interest, net 95 367 52 84 160
Depreciation & Amortization 497 596 239 128 369
EBITDA, adjusted 2,474 2,822 1,057 691 889
% of Sales 16% 16% 11% 13% 19%
Adjusted EBITDA as % of Sales:
Amounts in millions, except percentages, reflect most recent year-end. Compiled from publically available segment disclosures.
PPG results from continuing operations, as disclosed in the most recent 10-K and Annual Report
Akzo Nobel results from continuing operations as disclosed in the Q4 2018 earnings release
*Unusual or Infrequent Charges:
PPG: Pre-tax impact of certain items as disclosed in the 2018 Form 10-K p. 31.
Sherwin-Williams: Mainly related to integration costs, environmental expenses, California litigation expense, and pension plan settlement expense.
AkzoNobel: Mainly related to transformation costs and one-off non-cash pension costs.
RPM: Inventory-related charges, restructuring expense, charge to exit Flowcrete China, corporate governance professional fees, and ERP consolidation plan.
Axalta Coatings Systems: Termination benefits, debt extinguishment and refinancing related costs, and offering and transaction costs
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2018 PPG Segment EBITDA ReconciliationSegment EBITDA as % of Sales:
($ in millions, except percentages)
Performance
Coatings
Industrial
Coatings
Corporate/Non-
Segment ItemsTotal PPG
Net sales* $9,087 $6,287 $0 $15,374
Segment Income* $1,300 $818 N/A $2,118
Corporate Unallocated* N/A N/A (146) $(146)
Legacy Items* N/A N/A 5 5
Depreciation & Amortization* 274 181 42 $497
EBITDA, adjusted $1,574 $999 $(99) $2,474
% of Sales 17.3% 15.9% N/A 16.1%
*Source of information is Footnote 20 – Reportable Business Segment Information in the 2018 Form 10-K (pgs. 90 and 91)