neenah ir presentation february 2015
TRANSCRIPT
Image-oriented
high-end textured and
colored graphic papers
End Markets: premium
print communications,
luxury packaging and
premium labels, crafting
Manufacturing in
the U.S.
Premium Paper
& Packaging Technical Products
2
Specialty,
performance-based
products
End Markets: filtration,
industrial backings,
labels and other
specialties
Manufacturing in
Germany and the U.S. > $900 million
net sales
$384
$421 $407 $416
$467
7.6% 8.0%
9.2% 9.3%
10.1%
5.0%
8.0%
11.0%
320330340350360370380390400410420430440450460470
2010 2011 2012 2013 2014
Net Sales
OP %
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Technical Products
Top-line reflects growing markets and share gains, boosted by July 2014 acquisition
Margins expanding with higher value mix,
volume-driven growth and cost efficiencies
Further opportunities to grow in new markets and geographies, organically & through M&A
$273 $275
$373 $402 $409
13.6% 14.4% 15.0% 15.0% 15.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
-20
80
180
280
380
480
2010 2011 2012 2013 2014
Net SalesOP %
2010 2011 2012
Premium Paper & Packaging
Growing organically via share gains and expansion in targeted markets
Maintaining attractive margins, cash flow and
returns on capital
Highly accretive brand acquisition in 2012 further boosting returns
2013 2010 2011 2012 2013 2014 2014
CAGR 5.0%
CAGR 10.6%
Extend leading positions in core categories
Increase positions in core markets (transportation filtration, specialty backings,
premium fine paper) that provide us with leading positions and value
performance or image
Allocate resources to expand in new geographies and market adjacencies
Strong margins with pricing expected as a sign of defensibility
Increase presence and size in profitable and defensible growth markets that value our capabilities
Invest behind high value performance and image-driven products (e.g. specialty
filtration, premium packaging, performance media) in defensible growth markets
Leverage capabilities to develop “new to Neenah” products and markets
Supplement organic growth with value-adding acquisitions
Deliver consistent, attractive returns
Return on Capital a key performance and decision-making metric
Continuous improvement in efficiencies to drive financials “up and to the right”
Meaningful cash returns to shareholder through an attractive dividend
4
5
Filtration Specialties Backings
High-performance
filtration media for
transportation,
water and other
markets
Includes labels, non-
woven wall cover,
medical packaging,
durable print media
and other markets
Saturated and
coated backings for
specialized abrasives
and tapes
Filtration 45%
Specialties Backings
Filtration
Specialties 25%
Backings
Filtration
Specialties Backings
30%
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Key technologies
Multi-fiber forming
capabilities
Polymer chemistries
Saturation, coating
and surface treatments
R&D facilities in U.S.
and Germany
Ability to Meet
Specialized Performance Requirements
Customer Intimacy
and Qualification
Long-standing relationships
Global market-leading
customers
Intricate qualification
requirements
Ongoing joint product
development
Filtration
Specialties
Backings
New Product Sales (% launched within 36 months)
11% 14%
16% 16%
2011 2012 2013 2014
Innovative New Next
Generation Products
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Strategic
Priorities
Est.
Market Growth
Geography
Filtration
(transportation, water,
other)
Invest and grow through
High performing products
Geographic expansion
New market adjacencies
2x
GDP
Specialties
(labels, durable print
media, NW wall cover,
others)
Grow and optimize mix
Performance labels
Durable print applications
Non-woven wall cover
Others (medical packaging, image transfer, industrials)
GDP+
Backings (tape &
abrasives)
Differentiate with specialized products via saturating/coating
Work with customers to develop solutions/unique products
Enter new adjacencies
Follow global customers
GDP
Europe
NAFTA
Asia/
RoW
Europe
NAFTA Asia/
RoW
Europe
NAFTA
Asia/
RoW
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Asia NAFTA Europe RoW
Other
NP
H&V
Ahlstrom
Global Transportation Filtration Market Size and Share Global Market ~ US $1 billion
Grow Core Transportation Filtration
Global market growing ~4%/year with filter needs continuing to become more demanding (fuel, oil, engine & cabin air)
Neenah has been growing twice the rate of the market with share gains and our
focus on higher value products
Sales are to OEMs and aftermarket (70+%)
Geographic Expansion
Neenah has become the leader in the
European market from our base in Germany
Europe represents over 70% of sales today, but exports have been growing at a double digit pace
Our global customers desire for us to have an expanded geographic presence
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Net Sales
CAGR 8%
Source: company estimates
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Ahlstrom 49%
H&V 45%
Neenah 4%
Others 2%
NAFTA MARKET SHARES $250+ MM Market Size
• Originally restricted from operating in the U.S., Neenah today has just a small share of the NAFTA transportation filtration
market, but has been growing at a double-digit annual pace.
• The market continues to evolve to higher-performing products, including solvent-saturated solutions that Neenah is known for.
• With the meaningful global growth in this category, we
expect to consume our capacity in Germany by 2017.
• To meet growing global needs, we will repurpose a fine paper asset - made available through productivity gains - to make transportation filtration.
• By replicating our German paper machine design and
advanced saturating and finishing capabilities, we can develop a more flexible global footprint able to serve the future needs of our global customers.
• The project is expected to start up in late 2016/early 2017 and will deliver attractive financial returns (mid-teen IRR).
• Capital spending will be maintained within our stated target
of 3-5% of net sales (roughly $30 to $50 million)
Source: Company estimates
Transaction Summary
• Acquired July 1, 2014 for $72 million
(including $8 mm tax benefit)
• Almost $50 mm of sales; non-dilutive to existing mid-teen EBITDA margins
Strategic Fit and Benefits
Expands into adjacent, high-growth filtration media markets that value performance, with leading share positions and strong customer relationships
Establishes US filtration expertise and manufacturing base with available capacity for growth
Adds new wetlaid nonwoven technologies/processes with potential to leverage filtration knowledge to pursue
additional market opportunities
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Craneglas: • Wetlaid glass
media • ~33% of revenue
Beverage Filtration Micro/Ultrafiltration (6-12% growth)
Water Filtration Reverse Osmosis (8-10% growth)
Environmental (4-5% growth)
Energy Management (3-4% growth)
Thermal & Acoustical Insulation (2-3% growth)
Cranemat: • Wetlaid polyester
media • ~67% of revenue
Products End Markets
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Specialty
Retail
Graphic
Imaging
Premium
Packaging
Branded specialty
papers sold to
consumers for school
supplies, posters,
crafting, business and
resume papers,
advertising and
promotions
Unique colors,
textures and finishes
for identity, print
collateral, invitations,
advertising, and
other high-end
commercial printing
Image-enhancing
colors and textures of
premium folded
cartons, box wrap,
bags, hang tags and
wine, spirit and food
labels
Graphic 70%
Pkg
Retail
Graphic
Pkg 10%
Retail
Graphic
Pkg
Retail 20%
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Brands known > 2:1
over competition,
specified by printers
and designers
Technology tools to
drive demand and
improve supply chain
efficiencies
Widely distributed at
major retailers
Purpose-built assets
considered
youngest in the
industry
Redundant
capabilities, unique
in our category with
a variety of texture
and color
Leading Brands and Supply Chain
Capabilities
Superior Asset Base with a Leading Cost
Position
Uncoated
Free Sheet
Premium ~< 3%
Mohawk 30%
NP
60%
Other 10%
Premium Fine
Paper Market
~ $650 mm
Source: company estimates
Global Packaging
Market
$42 Billion
Premium Packaging
Market
$2 bn (5%)
Near Term Targeted
$300 Million (<1%)
• Global market, growing 3-5%
• $300 million addressable market; currently fragmented with no clear leader
• Targeting 4 niche areas (RACE)
Cosmetics & Fragrance
Alcohol
Electronics
Retail
3%
24% 20%
11%
Cosm /Frag
Alcohol Electronics Retail
2014 Est Neenah Market Shares
13
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Consistent and profitable growth
Return on Capital focused
Efficient and prudent capital structure
Attractive shareholder returns, with a meaningful cash
component
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$ millions 2010 2011 2012
2013 2014
% YTD
14 vs. 13
Sales $ 658 $ 696 $ 809 $ 845 $ 903 7%
Adj. EBIT1 52 59 80 85 94 11%
% ROS 7.9% 8.5% 9.9% 10.1% 10.4%
Adj. E.P.S.1 $ 1.47 $ 1.91 $ 2.78 $ 2.93 $ 3.28 12%
(1) Excludes one-time items for divestitures, integration and other costs as noted
in GAAP table
Top line growth in both segments via share gains,
new products, price/mix and acquisitions
Faster bottom line growth via margin improvement
and debt reduction
$1.47
$1.91
$2.78 $2.93
$3.28
2010 2011 2012 2013 2014
Adjusted
E.P.S.
Full Year
8%
16%
22%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Sales Adj. EBIT Adj. E.P.S
% Annual Growth
2010-2014
8%
9%
11% 12%
13%
2010 2011 2012 2013 2014
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Delivering improvements through:
Profitable growth/margin expansion
Focus on asset efficiency
Disciplined capital spending/good returning projects
Strategic moves (divest pulp, capital-efficient acquisitions)
WACC
~ 8%
Primary measure to evaluate investments, judge business performance
and also a key metric in management compensation plans
$245
$186 $182
$212 $234
2.8x
2.0x
1.6x
1.8x 1.8x
1
1.5
2
2.5
3
3.5
0
50
100
150
200
250
300
350
Dec 10 Dec 11 Dec 12 Dec 13 Dec 14
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$ millions
Dec
2010
Dec
2011
Dec
2012
Dec
2013
Dec
2014
Bonds 5.25%
(due Nov. 2021) $ 223 $ 158 $ 90 $ 175 $ 175
Global ABL (due Nov. 2017)
- - 56 - 50
Term Loan - - 30 - -
Germany 22 28 6 37 9
Debt $ 245 $ 186 $ 182 $ 212 $ 234
Cash $ 48 $ 13 $ 8 $ 73 $ 73
Strong balance sheet with low leverage and net cash; currently below targeted
range of 2 – 3 x Debt/EBITDA
December 2014 global revolver providing added flexibility and capacity
Debt rating on bonds upgraded to Ba3/BB- in May 2013
Debt/Net Debt ($ millions)
Targeted Debt/EBITDA
Range 2.0x – 3.0x
Cash
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Pro Forma Cash Flow ($ millions)
EBITDA $ 135
Interest Expense (10)
Other (tax, wkg cap, pension, etc.)
(25 - 30)
Cash From Operations $ 95 – 100
Capital Spending (3-5% sales) (30 - 45)
Free Cash Flow $ 50 – 70
FCF/Share > $3.50
Cash Deployment
Priority on highest returning investments
Organic initiatives
Value-adding M&A
Committed to attractive cash returns via dividend; moving towards targeted 3% yield
Approved stock repurchase plan of $25 million
Cash Generation
Strong operating cash flows from businesses
Pension plan well
funded
Significant US R&D tax credits
Efficient capital with only $10 – 12
mm/year needed for maintenance cap-ex
$0.40 $0.44 $0.48 $0.60
$0.80
$0.96 $1.08
$1.20
0
0.5
1
1.5
Annual Dividend (per share)
2010 2011 2012 2013 2H
2013 1H
2014 1H
2014 2H
2015 1H
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Performance-based and aligned with shareholders
All incentive plans are tied to performance achievement
Short-term bonus metric: growth in business profit/EBITDA
Approximately 50% of pay is equity-based (options and performance
shares) and management is required to hold a multiple of base salary
in Neenah stock (for example CEO = 6x)
Performance share metrics based equally on:
Return on Capital improvement
Revenue growth
Free cash flow (as a % of sales)
Total Shareholder Return (vs. Russell 2000 value index)
Active process with dedicated resources
Demonstrated track record and competency in deal execution and
integration to capture value
Focused on performance-oriented markets
that are growing and offer profitable, defendable niches (filtration, performance
media, premium packaging, etc…)
May include bolt-ons as well as targets that
broaden growth platform
Strategic Growth
Touch points
Geographies
Technologies Products/
End Markets
Customers
Value-adding, with returns above risk-adjusted cost of capital
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Sustainable, strong cash flows and
sound capital structure providing flexibility
to pursue value adding opportunities
Attractive shareholder returns resulting from
organic growth, strategic activities and
increasing cash return to shareholders
Despite our name, strategy focused on
expansion in growing specialty markets,
further from historical “paper” positioning
$86
$93
$113 $119
$129
2010 2011 2012 2013 2014
Consolidated
Adjusted EBITDA (U$ millions)
Leading positions in defensible and profitable niche markets with
attractive margins and opportunities for growth
Consistent record of growth in sales, profits and ROIC with
successful execution of plans
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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]
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Continuing Operations
$ millions 2010 2011 2012
2013
2014
EBIT (Operating Income) $ 55 $ 57 $ 70 $ 84 $ 87
Ripon Mill Close/(Gain on Sale) (3)
Acquisition integration costs 6 1
Other1 2 4
Adjusted EBIT $ 52 $ 59 $ 80 $ 85 $ 94
Depreciation & Amortization 29 30 28 29 30
Amort. Equity-Based Compensation 5 4 5 5 5
Adjusted EBITDA $ 86 $ 93 $ 113 $ 119 $ 129
Earnings (Loss) per Share $ 1.61 $ 1.82 $ 2.41 $ 2.96 $ 4.03
Ripon Mill Close/(Gain on Sale) (0.14)
Acquisition integration costs 0.22 0.02 0.11
R&D Tax Credit (0.08) (1.00)
Other1 0.09 0.15 0.03 0.14
Adjusted Earnings per Share $ 1.47 $ 1.91 $ 2.78 $ 2.93 $ 3.28
1 Results for year ended December 31, 2011, includes $2.4 million of costs related to the early extinguishment of debt, results for the year ended
December 31, 2012, include a supplemental executive pension plan settlement charge of $3.5 million and costs related to the early
extinguishment of debt of $0.6 million, results for the year ended December 31, 2013, include integration and restructuring costs of $0.6 million, a
post-retirement benefit plan settlement charge of $0.2 million and costs related to the early extinguishment of debt of $0.5 million, results for the
year ended December 31, 2014, include integration and restructuring costs of $2.9 million, a post-retirement benefit plan settlement charge of
$3.5 million and costs related to the early extinguishment of debt of $0.2 million.
EBITDA, Adjusted EBITDA and Free Cash Flow as presented in these slides, are supplemental measures of our performance, and Net Debt, as presented in these slides, is a supplemental measure of our financial position. In each case, these measures are not required by, or presented in accordance with, generally accepted accounting principles in the United States (‘‘GAAP’’). EBITDA, Adjusted EBITDA and Free Cash Flow are not measurements of our financial performance or financial position under GAAP and should not be considered as alternatives to net sales, net income (loss), operating income or any other performance measures derived in accordance with GAAP or as alternatives to cash flow from operating activities as a measure of our liquidity.
Adjusted EBITDA consists of operating income plus depreciation, amortization and stock-based compensation expense. We also exclude acquisition-related costs, gain (loss) on sale of fixed assets, SERP settlement charge and costs related to early retirement of debt, as these amounts are not considered as part of usual business operations. Our management considers EBITDA, Adjusted EBITDA and Free Cash Flow to be measurements of performance which provide useful information to both management and investors. Because EBITDA, Adjusted EBITDA and Free Cash Flow are not calculated identically by all companies, our measurements of EBITDA, Adjusted EBITDA and Free Cash Flow may not be comparable to similarly titled measures reported by other companies. All amounts in USD unless otherwise noted.
EBITDA, Adjusted EBITDA and Free Cash Flow, as presented herein, are 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 is included as an appendix to this presentation.
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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
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