H.B. Fuller Company. J.P. Morgan Securities

Transcription

1 Michele Volpi President & Chief Executive Officer Jim Giertz Senior Vice President and Chief Financial Officer Steven Brazones Director, Investor Relations J.P. Morgan Securities New York, New York June 4, 2008

2 H.B. Fuller: At A Glance A 120-year-old manufacturer and marketer of specialty chemical products, with corporate headquarters in St. Paul, Minnesota Recognized for quality adhesives, sealants, coatings and paints Core technology in emulsion polymerization, water-based adhesives formulation, thermoplastic hot melt technology and thermoset technology based on epoxy, polyurethane, acrylic and silicone chemistry Worldwide in scope: direct presence in 30 countries, reaching customers in approximately 100 3,200 employees 2007 net revenue of $1.4 billion Public company since 1968; listed on the NYSE (FUL) Slide 2

3 Industry Landscape* GLOBAL MARKET SHARE [100% = $30B] TECHNOLOGY [100% = $30B] 57% 5% 6% 32% 11% 16% 11% 20% 42% Henkel Bostik H.B. Fuller All Others Water Based 1-Part Reactive Hot Melt 2-Part Reactive Other END MARKETS [100% = $30B] GEOGRAPHY [100% = $30B] 17% 11% 17% 9% 8% 10% 28% 34% 22% 8% 36% Packaging Construction Transportation Assembly Tape & Label Consumer Other North America Asia Pacific Europe Rest Of World * The information presented in these graphs are estimates based upon available information; sources include ChemQuest, the Adhesive and Sealant Council, and company reports Slide 3

4 Market Segments Fast Moving Consumer Goods Construction Specialty Packaging Case and carton Flexible packaging Container labels Reinforcement tapes Hygiene Disposable diapers Feminine care Adult incontinence Disposable medical garments Textile Footwear Leather goods Performance Wood Furniture Cabinetry Windows Doors Flooring Tile adhesives Mortars Grouts Tile installation tools Sealers Tapes Liquid Paint Interior Exterior Architectural Marine Industrial Highway Industrial Market Segments of Focus Converting Tape and label Corrugation Tissue and towel Tubewinding Paperboard lamination Assembly/MRO Appliances Filters Electronics Medical Slide 4

5 Global Presence* Millions $, Trailing Twelve Months Q EUROPE Net Revenue $413.2M % of Total 29.7% Operating Income $41.2M Operating Margin 10.0% Facilities 6 NORTH AMERICA Net Revenue $645.1M % of Total 46.4% Operating Income $84.2M Operating Margin 13.1% Facilities 17 ASIA PACIFIC Net Revenue $115.4M % of Total 8.3% Operating Income $7.1M Operating Margin 6.1% Facilities 3 LATIN AMERICA Net Revenue $215.9M % of Total 15.5% Operating Income $8.9M Operating Margin 4.1% Facilities 7 CONSOLIDATED Net Revenue $1,390M Operating Income $141.3M Operating Margin 10.2% Facilities 33 * Segment Operating Income is defined at Gross Profit less SG&A Expense; Corporate expenses are fully allocated to each reporting segment Slide 5

6 Financial Profile TTM Q Net Revenue $1.231B $1.330B $1.386B $1.400B $1.390B EBITDA Margin* 8.6% 9.6% 11.3% 13.8% 13.6% Free Cash Flow* $74M $146M $104M $88M Return on Gross Investment 5.9% 7.3% 7.5% 9.6% 9.0% EPS Growth (Cont Ops) 101.5% 33.1% 37.0% 29.5% * This is a non-gaap financial measure; please see slides for detailed reconciliations and definitions Slide 6

7 Credit Profile TTM Q Cash $66M $158M $255M $246M $195M Total Debt $174M $146M $259M $173M $215M Debt / Total Capital 23.8% 20.0% 25.0% 17.8% 21.9% Debt / EBITDA Ratio* 1.6x 1.1x 1.7x 0.9x 1.1x Value of Shares Repurchased $0M $0M $0M $100M $161M * This is a non-gaap financial measure; please see slide 17 for detailed reconciliation and definition Slide 7

8 Solid Foundation Built Enhanced profitability profile Robust processes developed through Lean Six Sigma methodology Pricing Productivity Value-added/Differentiated products and services and brands Global footprint Foundation Strengths Technology portfolio Leverage Factors Balance Sheet Investment grade credit rating Underlevered Scalable organization Capacity utilization Customer relationships Distribution channels Empowered and talented associates Catalyst For Growth Slide 8

9 Phases of Transformation Chapter 1 Turnaround Improved pricing discipline Addressed cost structure Established Lean Six Sigma Started repositioning of product lines and business portfolio Started addressing capital structure Improved drive and accountability of Net Working Capital New leadership and organization introduced Invest to Grow Chapter 2 Strengthen the Core LSS focus on growth Customer intimacy Innovation Resource key programs Talent enhancement Invest To Grow Geographic expansion M&A and divestitures Chapter 3 Expansion Talent acquisition Partnerships Transformational Journey Slide 9

10 Geographic Expansion Area of Focus Eastern Europe Middle East Africa India China Brazil Mexico Rationale Faster GDP Growth Leverage local strengths and capabilities Capture migration of manufacturing Emerging consumer class Go To Market Models Acquisitions Joint Ventures Greenfield SG&A Investment Additional CAPEX Faster Growth Areas... Key Component of Growth Slide 10

11 Long Term Financial Goals Organic Growth Goal: 3 5% CAGR Growth Metrics Eliminates noise from acquisitions and foreign currency translation Diluted Earnings Per Share Growth Goal: 10 15% CAGR Commitment to consistent EPS growth EBITDA Margin* Profitability Metrics 2012 Goal: % Cash operating margin More supportive of growth Return on Gross Investment (ROGI) Goal: 10 12% Includes goodwill, important to M&A discipline Strongly correlated to TSR Sustainable Profitable Growth * EBITDA is a non-gaap financial measure defined as gross profit less SG&A expense plus depreciation expense plus amortization expense, divided by net revenue Slide 11

12 2008 Top Line Evolution + + Asia Pacific Adhesives North America Packaging Solutions Latin America Paints + / - Europe Adhesives Latin America Adhesives Asia Pacific Consumer -- North America Adhesives North America Insulating Glass North America Specialty Construction New Business & Geographic Expansion Mitigating NA Slowdown Slide 12

13 Raw Material Inflation Sustained raw material cost inflation continues to impact the adhesive industry for fourth year in a row 2008 situation is quite unique cost inflation coupled with weak end-market demand Raw material costs Up approximately 30% cumulatively since 2004 First quarter 2008 expectation was 3 5% in could be worse than 2005 (before taking into consideration any adverse hurricane activity in 2008) Expectations of increased supply coming on-line in 2008 have failed to materialize to a large extent Weakness of US Dollar has exacerbated the overall situation Slide 13

14 Disciplined Spending While Still Investing SG&A expense down $6.6M YOY in Q1 2008, or 9.3% Ability to variablize the cost structure of the back office Cost Controls Discretionary spending Productivity gains SG&A Driven through Lean Six Sigma Headcount down from 4,500 in 2004 to 3,200 at the end of 2007 Investments Asia Pacific New technology center Sales & Marketing Latin America Equipment Sales & Marketing Eastern Europe Sales & Marketing Strong Cost Controls; Still Investing For Growth Slide 14

15 Summary Transitioning from a commodity model to a differentiated model Recognized global player in adhesion technology Investing in both front-line and geographic expansion initiatives Solid balance sheet position with investment grade credit rating Disciplined portfolio management approach Strong cost control capabilities to respond to market conditions Strong free cash flow generation with balanced approach to returning capital to shareholders Utilizing Lean Six Sigma globally to drive pricing and process improvements Low fixed cost manufacturing model provides key leverage factor Slide 15

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17 Regulation G INCOME STATEMENT: $ Millions Q Q Q Q TTM Q Net Revenue 1, , , , ,389.6 Cost of Sales Gross Profit SG&A Expense Operating Income Depreciation Expense Amortization Expense EBITDA Gross Profit Margin [Gross Proifit/Net Revenue] 27.3% 27.6% 29.3% 29.9% 29.8% 30.2% 29.7% 28.4% 29.5% Operating Profit Margin [Operating Income/Net Revenue] 4.5% 5.9% 7.9% 10.2% 10.3% 11.0% 11.0% 8.2% 10.2% EBITDA Margin [EBITDA/Net Revneue] 8.6% 9.6% 11.3% 13.8% 13.7% 14.5% 14.3% 11.8% 13.6% BALANCE SHEET: $ Millions Q Q Q Q TTM Q Short Term Debt Long Term Debt Total Debt EBITDA Total Debt / EBITDA 1.6x 1.1x 1.7x 0.9x 1.1x STATEMENT OF CASH FLOWS: $ Millions Q Q Q Q TTM Q Cash Flows Provided by Operating Activities (15.3) Less: Capital Expenditures Less: Dividends Paid Free Cash Flow (22.2) 87.8 Slide 17

18 Regulation G ROGI CALCULATION: H.B. FULLER DEFINITION USING NON-GAAP METHODOLOGY $ Millions Q Q Q Q TTM Q Net revenue ,389.6 Less: Cost of goods sold Gross Profit Less: SG&A expense Operating income Operating income Less: Taxes at assumed 29% rate Plus: Depreciation expense Plus: Amortization expense Less: Maintenance CAPEX at assumed 50% of depreciation expense Gross cash flow Total assets of continuing operations 1,328.4 Plus: Accumulated depreciation Less: Non-debt current liabilities of continuing operations Less: Cash Gross investment 1,452.0 Gross cash flow Divided by: Gross investment 1,452.0 Return on gross investment (ROGI) 9.0% Slide 18

19 Regulation G ROGI CALCULATION: USING ONLY GAAP NUMBERS $ Millions Q Q Q Q TTM Q Net revenue ,389.6 Less: Cost of goods sold Gross Profit Less: SG&A expense Operating income Operating income Effective Tax Rate 29.1% 28.5% 24.3% 29.0% 27.6% Less: Income taxes on Operating Income at Effective Rate Plus: Depreciation expense Plus: Amortization expense Less: Capital Expenditures Gross cash flow Total assets of continuing operations 1,328.4 Plus: Accumulated depreciation Less: Non-debt current liabilities of continuing operations Less: Cash Gross investment 1,452.0 Gross cash flow Divided by: Gross investment 1,452.0 Return on gross investment (ROGI) 9.2% Slide 19