Investor Presentation

Transcription

1 Investor Presentation September 2017

2 Forward Looking Statements Any statements of the Company s expectations in these slides constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of Such statements, including but not limited to, expected increases in Adjusted EBITDA and cash flow, as well as expected capital spending, pension expense, cash taxes, depreciation and amortization, pension amortization, interest expense, effective tax rate, and net leverage, are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company's present expectations. These risks and uncertainties include, but are not limited to, inflation of and volatility in raw material and energy costs, cutbacks in consumer spending that reduce demand for the Company s products, continuing pressure for lower cost products, the Company s ability to implement its business strategies, including productivity initiatives and cost reduction plans, currency movements and other risks of conducting business internationally, and the impact of regulatory and litigation matters, including the continued availability of the Company s net operating loss offset to taxable income, and those that impact the Company s ability to protect and use its intellectual property. Undue reliance should not be placed on such forwardlooking statements, as such statements speak only as of the date on which they are made and the Company undertakes no obligation to update such statements except as required by law. Additional information regarding these and other risks is contained in the Company's periodic filings with the SEC. 2

3 We are a Packaging Company Making Products for the World s Food, Beverage and Consumer Products Companies Food Beverage Household and Personal Care 3

4 US$, M The Graphic Packaging Story Pure Play leading folding carton producer No.1 share (~37%) in the N.A. (US + Canada) folding carton market Outside N.A. (19% of revenue), hold strategic positions in Europe, Mexico, Australia, Japan Nearly 100% of revenues from defensive food, beverage, and consumer product end-markets Fully integrated (mill to converting plants) position Short paperboard tons on a global basis Track record of Adjusted EBITDA and FCF growth Baseline ($200M) capital spend drives productivity in excess of labor inflation Compelling return profile on: (1) capital above baseline level, (2) acquisitions EBITDA/FCF CAGR of 5.3%/8.9% from Robust cash flow to increase shareholder value Projected 9.4% FCF yield to equity vs. Peers of 5.5% Acquisitions target $100-$150M per annum Dividends/Share repurchase 2.3% yield, room for growth; executing on 2 nd $250M repurchase program Optionality exists leverage at 2.76X at end of 4Q 16 - FCF yield is based on the mid-point of our projected 2017E $370-$390M Cash Flow guidance and market cap. as of 9/1/17 - Dividend yield is based on our annualized dividend per share of $0.30 and share price as of 9/1/17 - Peers: ATR, AVY, BERY, BLL, BMS, CCK, SEE, SLGN, SON Source: PPC, management estimate Note: WestRock market share is pro forma for the Multi Packaging Solutions Acquisition North America Folding Carton Market Other, 35% WestRock, 28% Graphic Packaging, 37% FCF (CFO Capex) E FCF 2017E reflects the mid-point of our $370-$390M Cash Flow guidance 4

5 Key Strategic Priorities Operational Excellence Re-Investment In The Business Capital Allocation Outperform in tough endmarket volume environment Primary food and beverage endmarkets are highly stable, but are not growing Brand Building Convenience Food Service Strength Substrate substitution away from SBS, corrugated into CUK Focus on mid-tier customers that are winning in the market place Ensure price offsets commodity inflation over reasonable timeframe Roughly, 50% of the contracts that adjust use an index pricing model and 50% is on a cost-model Focused on shifting business away from index to cost models over the next 2 years Drive productivity in excess of labor inflation within baseline capital spend Baseline capital spend = $200M Maintenance = $100M Return focused = $100M When capital exceeds $200M, clearly outline the project scope and return profile Size of projects typically in the $15-$40M range Target after-tax IRR s in mid-to-high teens Three key projects in 2016 that were above baseline capital spend Machine upgrade at W. Monroe $40M investment Projected $12M EBITDA by yearend 2017 Curtain coater installation at Macon $30M investment Projected $10M EBITDA by yearend 2017 Menasha, WI and Piscataway, NJ plant consolidation $15M investment Projected $10M EBITDA by yearend 2017 Acquisitions Purchase assets at post-synergy multiple well below our current valuation trading multiple Continue to increase our integrated (mill to converting) position, to drive cash flow engine Extend run-way for organic capital deployment at compelling IRRs Dividends Recently increased dividend by 50% to an annualized $0.30/share At $0.30/share, dividend/cash flow ratio is 25% Good run-way to grow dividend Share repurchases Excess cash flow after acquisitions and dividends back to shareholders via share repurchases, when valuation for our stock is compelling 5

6 Net Debt/EBITDA US$, M EBITDA US$ M US$ M 15.8% EBITDA Margins (%) 17.8% Key Financial Metrics Adjusted EBITDA and EBITDA Margins Cash Flow from Operations (CFO), Capex, FCF $800 $750 $700 $650 $600 $550 $500 $450 $ Adjusted EBITDA Adjusted EBITDA (excluding divested business) Adjusted EBITDA Margins 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% Adjusted EBITDA Margins (excluding divested business) (200) (400) CFO Capex FCF Capex Avg. Net Debt/Adjusted EBITDA Dividends and Share Repurchases Net Debt/Adjusted EBITDA Dividends Share Repurchases 6

7 Adjusted EBITDA Growth Algorithm Performance (productivity) is the key driver of our Adjusted EBITDA growth Acquisitions add to EBITDA and extend runway for further productivity gains We are focused on offsetting our commodity input costs with pricing over time 2016 was a difficult pricing year driving the negative change in price/commodity costs Over time, we continue to expect that pricing will offset commodity input costs 7

8 A Vertically Integrated Business Drives Cash Flow by Selling Folding Cartons to leading CPG companies Innovative Cartons Efficient Converting Low Cost Mills Generate ~1-2% growth annually from innovation Focused on consumer trends: Sustainability Specialty Brands Convenience Freshness Healthier Choices Innovation centers world-wide 40+ Global Converting Plants U.S. National Accounts Located close to mills to minimize logistics costs U.S. Regional Accounts Located close to customers to optimize response time Europe Acquired network of high quality, low cost assets Drives Long- Term EBITDA & Cash Flow 2 Virgin Paper Mills located near Southeast low cost pine wood baskets Largest producer of CUK in world at ~1.4M tons 5 Recycled Mills located near largest customers Largest N. America producer of CRB at ~1.0M tons Recent investments: Reduce energy footprint Reduce chemical usage Reduce water usage 8

9 Vertically Integrated Business Model Offers Tremendous Operating Leverage Grow converting volume Invest in the mills Add incremental capacity (when clearly required) Reduce costs Expand product offering New product development Conversions from other substrates into CUK/CRB Targeted share gains Acquisitions Drives EBITDA and Cash Flow Outsource to support additional demand Europe Other International North America Fill the mills Maintain/grow open market and integrated sales volume Optimize the mix 9

10 New Product Development (NPD) Summary NPD adds roughly $40-$50M to revenues per annum GPK s core volume has roughly been flat over the last 5-years as NPD and growth with new customers and in new geographies offset the end-market trend in packaged food NPD focus areas Brand Building, Convenience, Food Service, Strength substrate substitution opportunities Brand Building Differentiate product on shelf Substrate substitution Shrink wrap to CUK Convenience Improved convenience features for customers On the go consumption Proprietary microwave technology Growing vertical Substrate substitution SBS to CUK Food Service Strength Exposed to the Club Store channel Substrate substitution Corrugated to CUK Drives savings to CPG Improved shelf appeal and convenience features 10

11 Recent North American Acquisitions Provide Profitable Growth Platform in Key Geographies and End Markets RECENT ACQUISITIONS JAN 2015 JUL 2017 Combined Expected 2017 Sales ~$520M Combined Expected 2017 EBITDA of ~$68M Tijuana, Mexico G-Box (Jan 16) Walter G. Anderson (Feb 16) Hamel, MN Newton, IA Monterrey, Mexico Carton Craft (Jul 17) New Albany, IN Rose City (Jan 15) Metro Packaging & Imaging (Mar 16) Wayne, NJ Cascades Norampac Mill (Feb 15) Cascades Norampac (Feb 15) Carded Graphics (Oct 15) Expected annual EBITDA of ~$85-95M in 12 months Added 13 folding carton facilities and a CRB mill Increased U.S. East Coast presence Extended reach in Western U.S., Canada and Mexico Integrated additional tons Broadened customer base Offering new and existing customers a wider range of products Gained outstanding leadership and a talented workforce Enabled closure of 3 higher cost, legacy facilities (Renton, WA; Piscataway, NJ; Menasha, WI) 11

12 European Expansion by Applying our Successful North American Strategy into a Fragmented European Market We have built a successful European business since December 2012: $600M Revenue base Low double digits EBITDA margins Current European Manufacturing Footprint Folding Cartons Plants 11 plants convert ~300k tons per year Strong market positions in Beverage, Food, Convenience Significant opportunity to further consolidate market through acquisitions Large, stable, and steadily growing folding carton market, 10B No. 2 market share position, but less than 10% of the market 12

13 Large European Folding Carton Market Served by a Broad Range of Converters European Folding Carton Market European Converters Food ~ 4.1B $1.0B $0.3B Beverage ~ 0.9B Non-Food (consumables) ~ 3.6B $0.7B $0.3B Durable/Household Total Folding Carton ~ 1.5B ~ 10B $0.6B $0.3B $0.5B $0.2B Source: Company estimates and ECMA 13

14 Colorpak Acquisition Expanded Presence in Key Geographies and End Markets COLORPAK ACQUISITION Enterprise Value of ~A$90M ($68M USD) 1 FY15 2 Sales of ~A$160M ($122M USD) 1 Sydney, Australia FY15 EBITDA of ~A$13M ($10M USD) 1 Expected to contribute $5-6M USD of EBITDA in 2016 Run rate EBITDA of $11-13M USD in months Melbourne, Australia Auckland, New Zealand Three converting facilities Grows business in developed food and beverage end use markets Allows further expansion of proven integrated supply chain Better serves new and existing customers Compliments existing Australian Beverage business 1 Assumes an Exchange Rate of $0.76 USD per $1.00 AUD (Apr 16 FX rate) 2 FY15 represents the Colorpak fiscal year July 14 June 15 14

15 US$ M Shares O/S Capital Allocation Priorities Key priorities Capital above baseline level ($200M) to generate compelling IRRs Acquisitions at ~5X-6X post-synergy EV/EBITDA multiples vs. current ~8.7X FY2017 multiple Dividends Annual $0.20/share dividend announced on 2/4/15 Recent 50% increase to $0.30/share Room for further growth Share repurchases Completed 1 st $250M repurchase program authorized on 2/4/15 Executing on 2 nd $250M repurchase program $291M in shares purchased as of 6/30/17 Track record of share repurchases Shares outstanding have declined by 22% since year-end 2011 Optionality exists given reasonable leverage (2.76X) at end of 4Q2016 Target leverage ratio is X Significant deleveraging through organic cash flow generation since % 40% 35% 30% 25% 20% 15% 10% 5% 0% Notes: (1) GPK pro forma assumes: $0.30/share dividend, annualized share repurchase of $140M, and the mid-point of GPK s 2017E Cash Flow guidance of $370-$390M (2) Packaging Peers: ATR, AVY, BERY, BLL, BMS, CCK, SEE, SLGN, SON (3) Paper Peers include: IP, PKG, WRK Source: Company data, management estimate. 0 (50) (100) (150) (200) (250) (300) (350) 17% 25% GPK GPK (*FY2016) Proforma Dividend/Cash Flow 21% 42% Packaging Paper Wgtd Avg Wgtd Avg (FY2015) (FY2015) Share Repurchases % S&P Share Repurchase Shares O/S 15

16 Appendix 16

17 US$, M Strong Track Record of Capital Allocation and Compelling Valuation Multiple Compared to Packaging Peers Mid-to-high teens IRR on organic capital investments that drive spending above the baseline $200M level Post-synergy multiple of ~5X on completed acquisitions Recently increased dividend to annualized $0.30/share (2.3% yield); room to grow Establishing consistent share repurchase profile Since commencing $250M share repurchase on 2/5/2015 have repurchased $291M or 22M shares for ~$13/share, which is equivalent to ~7% of shares outstanding as of 4Q2014 The share count has declined 22% since year-end 2011 Compelling valuation multiple compared to Packaging peers M&A Since 2012 EV/EBITDA Multiple , BLL SEE ATR AVY SLGN BERY BMS CCK SON GPK Notes: EV/EBITDA Multiple Based on 2017 Consensus Estimates Source: Capital IQ 17

18 2017 Guidance Cash Flow available for Net Debt Reduction, Dividends & Share Repurchase (before M&A/Capital Markets activity) 2016 Actual 2017 Guidance $358M $370-$390M Capital Expenditures $295M $250M Cash Pension Contributions $51M $30-$40M Pension Expense/(Income) (includes pension amortization) $22M ($4M) Cash Taxes $15M $15-$25M Depreciation & Amortization (excluding pension amortization) $299M $300-$320M Pension Amortization $28M $7M Interest Expense $77M $80-$90M Effective Tax Rate (Normalized) 35.6% 35-37% Year End Net Leverage Ratio 2.76x 2.5x-3.0x 18

19 Food ~60% of Revenue Strong competitive position High share across core CRB/SUS food market Strong track record of innovation Low cost converting network Optimized freight position Markets are highly stable, but not growing Cereal, dry foods, frozen foods Focus on outperforming tough end-market environment Brand building Convenience Food Service Strength Substrate substitution from corrugated, SBS to CUK Focus on mid-tier customers that are winning in the market place GPK s volume flattish over the last 5-years, despite difficult end-market environment Grow business through acquisitions Closed 6 acquisitions in N.A. over the last 18 months Acquisitions provide significant runway for cost savings via closure of higher cost assets 19

20 Beverage ~30% of revenue Strong competitive position Leading global market position across all paperboard multipack geographies ~80% of Global Beverage business is running on our machines ~40% of business is protected by proprietary innovation Mature markets are stable with pockets of growth Big beer represents the majority of the portfolio Volume trended slightly positive in 2016 Carbonated soft drink (CSD) volume continues to decline The pace moderated slightly in 2016 Growth in other areas helping offset CSD decline Craft beer Sparkling water Ready-to-drink teas and energy drinks Other opportunities for growth Beer is growing globally with paperboard taking share from shrink, reflecting the premiumization trend globally 20

21 Non-Food Consumer Products ~10% of revenue Market exposure Selling into highly stable non-food consumer product end-markets Household products Pet care Laundry Personal care Non-food cartons highly complimentary to food cartons Strong track record of innovation Convenience features Substrate substitution 21

22 Americas Food, Beverage, Consumer Products ~82% of revenue Current profile N.A (US + Canada), Mexico, Brazil represents about $3.5B in revenue N.A. is ~$ B Mexico and Brazil is ~$ M N.A. Leading market positions across the food, beverage, and household products verticals Established position in food-service Leader in innovation Low cost mill and converting network Optimized freight position for food in the US Midwest Dedicated plants for Beverage Mexico Recent G-Box acquisition expands footprint in Mexico beyond beverage and provides platform for further acquisitions End-market exposure Food 60% Beverage 30% Household and Consumer Products 10% 22

23 Europe Food, Beverage, Consumer Products ~15% of revenue Current profile Europe represents about $600M in revenue UK is about 50% and rest of Europe (primarily W. Europe) is 50% Achieved material margin improvement as Europe acquisitions Contego, A&R Carton, and Benson have been integrated low double digits EBITDA margin vs. 4% in 2012 On track to ship 150k+ tons of CUK to Europe in 2016, up from 90k into 2014 No. 2 market share position in a fragmented market Significant opportunity to grow via M&A Balanced end-market exposure Beverage 50% Food 20% Consumer Products 10% Convenience 10% Food Service 10% 23

24 Rest of the World Australia/Japan/China ~3% Current profile Established positions in growing markets around the world Australia/New Zealand China Japan Majority of business is beverage, with strong market share positions Recent Colorpak acquisition expands footprint in Australia/New Zealand beyond beverage and provides platform for further acquisitions Potential for continued growth via bolt-on acquisitions 24

25 US$, M YoY % Change Recession Resistant Model Nearly 100% of revenue from defensive end-markets Food 60% Beverage 30% Consumer staples folding cartons 10% North America 80% of revenues Integrated mill to converting network Short paperboard tons on a global basis What happened in 2009? Core paper folding carton volume was down 3.6% in 2009 GPK s Adjusted EBITDA was up $81 million yoy in 2009 to $556 million or 14% Altivity acquisition closed in March 2008 and added $26 million to EBITDA Excluding Altivity, EBITDA increased by $54 million yoy driven by positive price/cost spread, productivity, synergies realization Adjusted EBITDA and Converting Volume End-Market Exposure Non-Food, 10% Food Service, 5% Food, 55% Beverage, 30% % 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Adjusted EBITDA Net Tons Sold Y/Y % Chg. 25

26 Reconciliation of Non-GAAP Financial Measures: Adjusted EBITDA Reconciliation of Non-GAAP Financial Measures For the year ended December 31, In millions Consolidated Net Sales $ 4,298.1 $ 4,160.2 $ 4,240.5 $ 4,478.1 $ 4,337.1 $ 4,206.3 $ 4,095.0 $ 4,095.8 $ 4,079.4 Net Income Attributable to Graphic Packaging Holding Company $ $ $ 89.7 $ $ $ $ 10.7 $ 56.4 $ (99.7) Add (Subtract): Net (Loss) Income Attributable to Noncontrolling Interests - - (0.7) 0.1 (2.5) (1.7) Income Tax Expense (Benefit) (229.8) Equity Income of Unconsolidated Entities (1.8) (1.2) (1.7) (1.5) (2.3) (2.1) (1.6) (1.3) (1.1) Interest Expense, Net Depreciation and Amortization EBITDA Loss (Gain) on Sale, Shutdown, or Impairment of Assets (17.9) Business Combinations and Other Special Charges Goodwill Impairment Charge Alternative Fuel Tax Credits Net of Expenses (137.8) - Loss on Modification or Extinguishment of Debt Adjusted EBITDA $ $ $ $ $ $ $ $ $ Adjusted EBITDA Margin % 17.8% 18.1% 16.8% 15.0% 14.9% 14.1% 14.0% 13.6% 11.7% Net Income Attributable to Graphic Packaging Holding Company $ $ $ 89.7 $ $ $ $ 10.7 $ 56.4 $ (99.7) Loss (Gain) on Sale, Shutdown, or Impairment of Assets (17.9) Business Combinations and Other Special Charges Accelerated Depreciation Related to Shutdown Loss on Modification or Extinguishment of Debt Tax Impact on Non-recurring Items (12.6) (6.3) (65.1) (10.2) (14.7) (21.8) Alternative Fuel Tax Credits Net of Expenses (137.8) - Goodwill Impairment Charge Tax Benefit Associated with Release of Tax Valuation Allowance (265.2) One-time Discrete Tax Item (22.4) Adjusted Net Income $ $ $ $ $ $ $ 74.2 $ 10.4 $ (42.1) Adjusted Earnings Per Share - Basic $ 0.73 $ 0.75 $ 0.72 $ 0.52 $ 0.37 $ 0.27 $ 0.22 $ 0.03 $ (0.13) Adjusted Earnings Per Share - Diluted $ 0.73 $ 0.75 $ 0.72 $ 0.52 $ 0.37 $ 0.26 $ 0.22 $ 0.03 $ (0.13) Weighted Average Number of shares Outstanding - Basic Weighted Average Number of shares Outstanding - Diluted Calculation of Net Debt: Short Term Debt and Current Portion of Long-Term Debt $ 63.4 $ 36.6 $ 32.2 $ 77.4 $ 79.8 $ 30.1 $ 26.0 $ 17.6 $ 18.6 Long-Term Debt(a) 2, , , , , , , , ,165.2 Less: Cash and Cash Equivalents (59.1) (54.9) (81.6) (52.2) (51.5) (271.8) (138.7) (149.8) (170.1) Total Net Debt $ 2,108.7 $ 1,834.3 $ 1,892.7 $ 2,201.4 $ 2,281.8 $ 2,094.0 $ 2,440.4 $ 2,650.4 $ 3,013.7 Net Leverage Ratio (Net Debt/Adjusted EBITDA) $ 2.76 $ 2.44 $ 2.66 $ 3.28 $ 3.52 $ 3.54 $ 4.25 $ 4.76 $ 6.33 (a) Excludes unamortized deferred debt issuance costs. 26