GCP Applied Technologies. Strategy Update August 3, 2017

Transcription

1 GCP Applied Technologies Strategy Update August 3, 2017

2 Forward Looking Statements This document contains, and our other public communications may contain, forward-looking statements, that is, information related to future, not past, events.. Such statements generally include the words believes, plans, intends, targets, will, expects, suggests, anticipates, outlook, continues, or similar expressions. Forward-looking statements include, without limitation, statements about the proposed transaction and the anticipated timing thereof; expected financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost reduction initiatives, plans and objectives; and markets for securities. Like other businesses, GCP is subject to risks and uncertainties that could cause its actual results to differ materially from its projections or that could cause other forward-looking statements to prove incorrect. Factors that could cause actual results to materially differ from those contained in the forward-looking statements, or that could cause other forward-looking statements to prove incorrect, include, without limitation, the possibility that the expected strategic benefits or opportunities from the Darex divestiture may not be realized, or may take longer to realize than expected; risks related to: the cyclical and seasonal nature of the industries that GCP serves; foreign operations, especially in emerging regions; changes in currency exchange rates; the cost and availability of raw materials and energy; the effectiveness of GCP s research and development, new product introductions and growth investments; acquisitions and divestitures of assets and gains and losses from dispositions; developments affecting GCP s outstanding liquidity and indebtedness, including debt covenants and interest rate exposure; developments affecting GCP s funded and unfunded pension obligations; warranty and product liability claims; legal proceedings; uncertainties related to GCP s ability to realize the anticipated benefits of the spin-off /separation from W.R. Grace and the value of GCP s common stock following the spinoff; the inability to establish or maintain certain business relationships and relationships with customers and suppliers or the inability to retain key personnel following the spin-off; hazardous materials and the costs of compliance with environmental regulation and those factors set forth in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which have been filed with the Securities and Exchange Commission ("SEC") and are available on the Internet at Our reported results should not be considered as an indication of our future performance. Readers are cautioned not to place undue reliance on our projections and forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly release any revisions to the projections and forward-looking statements contained in this document, or to update them to reflect events or circumstances occurring after the date of this document. Non-GAAP Financial Measures These slides contain certain non-gaap financial measures. Please refer to the Appendix for definition of the non-gaap financial measures used herein and a reconciliation of those non-gaap financial measures to their most comparable GAAP measures. 2

3 We are inspired to influence how the world is built. 3

4 Progression of GCP Applied Technologies Launch of GCP Spins off launching as a Construction Products and Packaging company. GCP Applied Technologies Transformation underway to establish GCP as leading construction products technologies company Pre Future W.R. Grace Part of W.R. Grace & Co. Strategic Acquisitions Growth through bolt-on acquisitions: SensoCrete, Halex, Stirling Lloyd. Transition & Realignment Sale of Darex Packaging Technologies: generate cash for investment in construction products technologies. Realignment to a more market and customer-focused organization. 4

5 GCP Applied Technologies Overview Executing a Strategy to Grow Shareholder Value Create, Grow and Maintain Strong Positions in Attractive Segments of Global Construction Market Deliver on New Products, Technologies and Global Capabilities to Provide Value to Customers Realign Organization To Drive Commercial Effectiveness Prudently Allocate Capital While Maintaining Financial Discipline 5

6 Create, Grow and Maintain Strong Positions in Attractive Segments of Global Construction Market $90.6 Participate in attractive segments totaling ~$15 billion in a $10 trillion global construction market Grow our leading market positions in concrete admixtures, cement additives and high-performance waterproofing $4 B $2 B GCP Segments ~$15B 1 $9 B Create categories for in-transit concrete management (Verifi ), control flow concrete (CONCERA ) and specialty flooring underlayments (KOVARA ) Products which create from 5% to 30% (1) in savings for customers through lower labor costs and construction time, reduced materials use, and improved performance Concrete Admixtures and Cement Additives High Performance Waterproofing Specialty Systems Build on strong position in construction market by focusing on: Product performance, project design, technical service and training, connecting customers and data, and conserving energy and materials 1 GCP Applied Technologies internal estimates. Admixtures, Additives and Verifi reported in SCC segment. High Performance Waterproofing and Specialty Systems reported in SBM segment. 6

7 Products Which Provide Value To Our Customers How We Create Value Define value creation opportunity based on customer needs Apply experts in cement chemistry, material sciences and intelligent construction solutions Create products that become industry standards Employ field technical application expertise Execute through our global footprint Why Our Customers Buy Our Products Simplify installation Efficient application Labor Reduce labor and construction costs Speed Reduce construction cycle time Improve safety Improve speed of occupancy Materials Reduce material usage Improve effectiveness Lower energy, water consumption and customer CO2 footprint Quality Eliminate rejects and repairs Improve life-cycle costing Deliver on proven performance 7

8 Global Footprint Provides Access To Worldwide Construction Market Global Capabilities Servicing customers in over 100 countries 58 Manufacturing facilities; 33 Technical Services sites World-class Technology center in Cambridge, MA ~900 Active and Pending patents Over 200 R&D and Technical Service professionals Sales and Marketing organization of ~800 8

9 Strong Segment Leadership In Attractive Markets 1 $9 Billion Market $4 Billion Market $2 Billion Market Concrete Admixtures and Cement Additives Verifi High Performance Waterproofing Specialty Systems Leading positions in ready mix concrete and cement additives, two of the most widely used construction materials Providing new products which deliver savings to the producer and contractor Creating value to customers with local technical service and application expertise Building a position in the precast and sprayable markets with new technologies Early stage technology with potential addressable market in excess of $750 million Creating an In-Transit Concrete Management category Delivering savings to customers of 10% to 15% through improved quality, productivity, and less material usage Provides additional stream of high-margin revenue, leveraging our strong position Over 20 million cubic meters produced Leader in advanced waterproofing solutions and leak repair delivering value to commercial, infrastructure and residential markets Pioneer of fully bonded preapplied, and post-applied membrane technologies Provider of innovative liquid spray applied products to structures around the globe Specialty portfolio includes fire protection, floor and wall systems, and specialty grouts used in new construction, repair and renovation projects Creating a category of specialty flooring membranes for moisture protection Leveraging our construction application knowledge to reinvent methods of construction New technologies deliver advancements in construction practices and create new market categories 1 Admixtures, Additives and Verifi reported in SCC segment. High Performance Waterproofing and Specialty Systems reported in SBM segment. 9

10 Optimizing Organizational Structure Post Darex Sale Structure Delayering organization and placing more resources closer to customers Investing in marketing, research and product development Savings Expected net cost reduction of $22 million to $25 million; $15 million of Darex costs eliminated in discontinued operations $7 million to $10 million of annualized savings in continued operations, including planned reinvestment in sales and marketing activities $5 million to $7 million of savings in 2017 from restructuring and TSA cost recovery 10

11 Strategically Allocate Capital While Maintaining Financial Discipline Strategic Investments Capital investments less than 5% of sales to support organic growth and technology development initiatives Pursue bolt-on acquisition opportunities with technology advantages, low capital intensity and strong financial synergies Optimize Capital Structure Repaid Term Loan outstanding balance (~$273M) on July 31, 2017; plan to pay down amounts outstanding on Revolver of ~$125M by end of 2017 (~$15M annualized interest expense savings) Opportunity to refinance $525M High Yield Bonds in February 2019 Return of Capital Consider returning excess capital to shareholders over time 11

12 Strategically Allocate Capital While Maintaining Financial Discipline Strategic Criteria For M&A Robust M&A Pipeline Further penetrate construction segments with complementary products and technologies Geographically attractive markets Capitalize on selling relationships and distribution channels Enable diversification among commercial, infrastructure, residential and repair/renovation segments Financial Discipline: Earnings and Cash Accretion IRR & Payback Margin Expansion Low Capital Intensity Enabling Technologies Specialty Systems Concrete Admixtures and Cement Additives Highperformance Waterproofing 12

13 Long-Term Growth Framework and 2017 Guidance 5 Year Growth Framework GCP 2017 Guidance Market Growth Outlook GCP Growth Framework 5 Year Annualized Growth Rate GCP Revenue Growth (1) 5% - 8% Global Construction 2% - 4% 2x Market 4% - 8% Adjusted EBIT (2) $145mm - $160mm Adjusted Tax Rate 32% - 33% GCP Bolt-on Acquisitions 2% - 4% Adjusted EPS (2)(3) $ $0.88 Adjusted FCF (2) $40mm - $50mm Capital Expenditures <5% of Sales Reaffirming 2017 guidance based on: Improved project activity in 2H17 and positive impact of growth programs Contribution from acquisitions of Halex and Stirling Lloyd Reduced operating expenses - elimination of stranded costs and restructuring actions Adjusted Free Cash Flow improvement with working capital conversion and debt reduction (1) 2017 GCP guidance assumes June 2017 FX rates carried forward into the guidance period. (2) Refer to Appendix for definition of non-gaap measures. (3) Assumes approximately 72M shares outstanding. 13

14 Appendix 14

15 Analysis of Operations Footnotes GCP believes that non-gaap financial information supplements its discussions about the performance of its businesses, improves period-to-period comparability and provides insight to the information that management uses to evaluate the performance of its businesses. Management uses non-gaap measures in financial and operational decision-making processes, for internal reporting, and as part of its forecasting and budgeting processes, as these measures provide additional transparency to GCP's core operations. Constant currency means current period revenue in local currency translated using prior period exchange rates. GCP uses constant currency in assessing trends in sales excluding the impact of fluctuations in foreign currency exchange rates. Adjusted EBIT (a non-gaap financial measure) means net income from continuing operations attributable to GCP shareholders adjusted for interest income; interest expense and related financing costs; income taxes; currency and other financial losses in Venezuela; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; gains and losses on sales of businesses, product lines and certain other investments; third-party and other acquisition-related costs; amortization of acquired inventory fair value adjustment; tax indemnification adjustments; and certain other items that are not representative of underlying trends. GCP uses Adjusted EBIT to assess and measure its operating performance and in determining performance-based compensation. GCP uses Adjusted EBIT as a performance measure because it provides improved quarter-to-quarter comparability for management's decisionmaking and compensation purposes and because it allows management to measure the ongoing earnings results of the Company's strategic and operating decisions. Adjusted EBITDA (a non-gaap financial measure) means Adjusted EBIT adjusted for depreciation and amortization. GCP uses Adjusted EBITDA as a performance measure in making significant business decisions. Adjusted Earnings Per Share (a non-gaap financial measure) means earnings per share ("EPS") from continuing operations on a diluted basis adjusted for costs related to restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected return on plan assets, and amortization of prior service costs/credits; gains and losses on sales of businesses, product lines and certain other investments; third-party and other acquisition-related costs; amortization of acquired inventory fair value adjustment; tax indemnification adjustments, other financing costs associated with the modification or extinguishment of debt; certain other items that are not representative of underlying trends; and certain discrete tax items. GCP uses Adjusted EPS as a performance measure to review its diluted earnings per share results on a consistent basis. 15

16 Adjusted Gross Profit (a non-gaap financial measure) means gross profit adjusted for pension-related costs included in cost of goods sold; loss in Venezuela included in cost of goods sold; and amortization of acquired inventory fair value adjustment. Adjusted Gross Margin means Adjusted Gross Profit divided by net sales. Management uses this performance measure to understand trends and changes and to make business decisions regarding core operations. Adjusted Free Cash Flow (a non-gaap financial measure) means net cash provided by or used for operating activities from continuing operations, minus capital expenditures, plus cash paid for restructuring, repositioning and third-party and other acquisitionrelated costs; cash taxes related to restructuring, repositioning and third-party and other acquisition-related costs; capital expenditures related to repositioning; accelerated payments under defined benefit pension arrangements; and expenditures for legacy items. GCP uses Adjusted Free Cash Flow as a liquidity measure to evaluate its ability to generate cash to support its ongoing business operations, to invest in its businesses, to provide a return of capital to shareholders and to determine payments of performance-based compensation. Adjusted EBIT Return On Invested Capital (a non-gaap financial measure) means Adjusted EBIT (on a trailing four quarters basis) divided by the sum of net working capital, properties and equipment and certain other assets and liabilities. Management uses Adjusted EBIT Return On Invested Capital as a performance measure to review investments and to make capital allocation decisions. Adjusted EBIT, Adjusted EBITDA, Adjusted EPS, Adjusted Gross Margin, Adjusted Free Cash Flow, and Adjusted EBIT Return on Invested Capital do not purport to represent income measures as defined under U.S. GAAP. These measures are provided to improve the quarter-to-quarter comparability and peer-to-peer comparability of GCP's financial results and to ensure that investors understand the information GCP uses to evaluate the performance of its businesses. Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to income and expenses from restructuring and repositioning activities, which historically has been a material component of our net income. Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation and amortization expense. GCP's business is substantially dependent on the successful deployment of capital, and depreciation and amortization expense is a necessary element of its costs. GCP compensates for the limitations of these measurements by using these indicators together with net income as measured under GAAP to present a complete analysis of its results of operations. Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income measured under GAAP for a complete understanding of GCP's results of operations. The Company does not provide GAAP earnings on a forward-looking basis because the Company is unable to estimate with reasonable certainty unusual or unanticipated charges, expenses or gains without unreasonable effort. These items are uncertain, depend on various factors, and could be material to the Company s results computed in accordance with GAAP. 16