Neenah NYSE: NP. Jefferies industrials conference

Transcription

1 Neenah NYSE: NP Jefferies industrials conference August 10, 2016

2 Neenah makes specialty materials for premium niche markets Two primary business segments: Technical Products Fine Paper & Pkg Performance-based TECHNICAL PRODUCTS Image-oriented FINE PAPER & PACKAGING ~$1 billion sales Sales in more than 80 countries Global manufacturing base: U.S. (12 sites), Germany (2 sites), U.K. and India (small JV) 2

3 strategy execution delivering shareholder value Increasing our sustainable growth rate in a capital efficient manner as we diversify portfolio away from paper Stock Performance NP R2000 Avg Peers + 217% + 33% + 31% Enhance leading positions in high value, core categories Expanding our geographic presence in transportation filtration Building our global base in performance backings Leveraging our strong position in premium fine papers Invest in growing and defensible niche markets Focus on filtration, premium packaging and performance materials Prioritize organic growth; supplement with value-adding M&A Employ multiple technologies with nonwovens, glass and coatings Deliver consistent, attractive returns Disciplined capital deployment and double-digit Return on Capital Strong financial position with catalysts to continue growing Return to shareholders including an attractive dividend 3

4 Technical Products Filtration High-performance filtration media for transportation, water and other markets Filtration 45% ~ $500 million net sales Performan ce Materials 55% Performance Materials Backings Saturated and coated backings for specialty abrasives and tapes Specialties Includes label security papers, decorative coverings, and others 4

5 Filtration Value Drivers Positioning in Growing Niche Markets A platform in markets where media carries a high value due to performance differentiation and significant cost of failure Limited competitive alternatives, long qualification, high cost of entry/switching Technical Abilities Our ability to combine multiple technologies to meet ever more demanding filter media performance needs Wet laid natural, glass & synthetic fibers, resin/polymer toolbox, solvent saturation, meltblown, lamination, cutting, calendaring Customer Relationships & Support Preferred service, strong technical support and development relationships with lead customers, many of whom are global Innovation partner for new products, flexibility to meet capacity needs and exceed competitive service offerings 5

6 Filtration profitable growth engine in specialty niches Transportation Media (75%) Global market growing ~4%/year with sales split: 20% OEMs/ 80% aftermarket Filter needs continuing to become more demanding (fuel, oil, engine & cabin air) Neenah growing twice the market with share gains due to superior performance, innovation and increased mix of higher value products Net Sales Organic CAGR 8% Other Filtration Media (25%) Neenah filtration sales in markets including water, industrial and beverage Attractively growing markets to support organic initiatives and potential M&A Products employ multiple technologies, including cellulose and synthetic wet laid nonwovens, glass and melt blown 8.0% 5.9% Est. Market Growth % 4.7% 7.1% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: BCC Research Neenah markets 6

7 Geographic expansion a runway for growth in Transportation Filtration After building leading position in Europe, international expansion provides an attractive growth path Current operations based in Germany; existing capacity consumed in 2016 US first priority. Historical entry constraint expired; capital-efficient repurposing of Fine Paper asset to start up in Q Global Transportation Filtration Market Sizes and Shares Global Market ~ US $1 billion Other Neenah H&V Ahlstrom In US, customers desire choice and support our entry as common competitors currently hold 95% share Disciplined expansion providing attractive returns. Projected to consume capacity in Asia NAFTA Europe RoW 4-5 years Source: company estimates 7

8 Performance Materials Value Drivers Product Design & Performance Know-how and ability to combine multiple ingredients to create proprietary formulations that deliver the best durability, conformability, printability Mfg. Capabilities and Utilization Flexibility and wide breadth of capabilities to support customers and help efficiently utilize capacity utilization & realize economies of scale Service and Customer Relationships Leading market positions, with flexibility to support customer needs with tailored products on short notice using our global footprint 8

9 Performance Materials: products transformed by specialty applications Backings (55%) Sizeable global category primarily comprised of media used in production of tapes and abrasives Focused on performance niches requiring downstream applications Markets generally growing with global GDP Specialties (45%) Many smaller, specialized markets including labels, security, medical packaging, décor, and others Similarly utilize saturating and coating to impart unique characteristics Markets generally growing at GDP+ 9

10 Technical Products Financial Trends $514 $464 $414 $364 $314 $264 Net Sales Adjusted EBIT % $353 $336 $404 12% $429 13% $465 14% 17% 13% Top-line reflects growing markets and share gains, both due to organic initiatives and acquisitions Margin expansion through higher value mix, volume-driven growth, and cost efficiencies $214 $164 10% 11% 9% Filtration a key driver, with fastest growth and above average margins $ LTM % 10

11 Fine Paper & Packaging Graphic Imaging Predominantly branded papers known for unique colors, textures and finishes and used for high-end commercial printing and consumer needs Graphic Imaging 78% Premium Packaging 15% Filing/Office 7% ~ $500 million net sales Premium Packaging Image-enhancing colors and textures of folded cartons, curved box wrap, bags & labels for premium products Filing/Office High quality boards used for record management, classification, binder covers, and other professional applications 11

12 Fine paper Value Drivers Strong, leading brands in high end markets Leading brands drives demand in high-end markets where image matters and supports pricing to offset input cost inflation Manufacturing Capabilities Purpose-built assets to produce variety of colors and textures for specialized small orders provides leading cost position and strong barrier to entry Supply Chain Innovation Rapid prototyping with experienced teams and state-of-the-art facilities provides customers with holistic solutions. Ability to meet quick turnaround and delivery times also a differentiator 12

13 Graphic Imaging premium paper when image matters Graphic Imaging NA Printing & Writing $20+ bn Niche market focused on high quality, textured and colored papers End uses include premium printing, marketing collateral and advertising, and specialty retail products Despite growth-challenged market; we have grown both organically and through highly accretive consolidating M&A Clear leadership position in both commercial and retail channels Primarily US operations and sales #1 #1 Neenah 65% Others 10% Mohawk Fine Papers 25% Market Share Commercial Channel ~$500 million Uncoated Free sheet $10 bn Premium Fine Paper ~ $650 mm Neenah 55% Others 45% Market Share Retail Channel ~$150 million 13

14 Premium packaging high value in small packages Premium Packaging Global market, growing 3-5% annually Fragmented category with no clear market leader Leverages strength of our high end color and texture capabilities Initial targeted market of $450 million focused in beauty (cosmetics, fragrances), alcohol (labels, packages) and retail Global Pkg Mkt $42 bn Premium Market $2 bn (5%) Target $450 mm (<1%) $450 million target market composition provides opportunity to grow share from ~15% today 14

15 FP&P Financial Trends % % % Net Sales Adjusted EBIT % $402 $428 $436 14% 14% 14% $443 $457 15% 15% LTM % 31.0% 29.0% 27.0% 25.0% 23.0% 21.0% 19.0% 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% Consistent, attractive mid-teen EBIT margins, with brand equity that supports pricing to offset input costs Capital efficient, generating strong cash flows and high return on capital Market pressures countered growth via premium packaging, acquisitions, share gains and new revenue streams 15

16 KEY FINANCIAL OBJECTIVES Consistent and profitable growth High Return on Capital/Return on Equity Flexible and prudent capital structure Attractive shareholder returns 16

17 A history of effective capital deployment Our businesses generate substantial cash flows which we have deployed to deliver: Acquisitio ns $225mm [CATEGOR Y NAME] $75mm [CATEGOR Y NAME] $100mm Double digit earnings growth High Return on Capital Increased cash returns to shareholders Low debt and a strong balance sheet Market-beating shareholder returns Five-year cash generation ~$450 million 17

18 Delivering consistent profitable growth $ millions Q2 15 Q2 16 Q2 % 20.0% 18.0% % Annual Growth % 19% Net Sales $ 626 $ 738 $ 782 $ 840 $ 888 $211 $246 16% Adj. EBIT % % ROS 9.1% 10.4% 10.7% 11.1% 12.2% 13.1% 14.3% Adj. E.P.S. 1 $ 1.84 $ 2.63 $ 2.87 $ 3.21 $ 3.70 $0.96 $ % 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 9% Sales Adj. EBIT Adj. E.P.S (1) Excludes acquisition integration costs, prior period tax credits and other items noted in GAAP table Five-year growth reflecting share gains, new products, price/mix improvement and acquisitions Margin improvement through focus on market-back pricing, cost control and efficiencies, and mix shift to higher value products Adjusted E.P.S. $1.84 $2.63 $2.87 $3.21 $3.70 $ LTM

19 while maintaining a high return on invested capital Primary measure to evaluate investments, judge business performance and a key metric in management compensation plans 9% 11% 12% 13% 12% 13% WACC ~ 8-10% LTM 2016 Maintaining attractive double-digit returns through: Profitable growth/margin expansion Management focus on asset efficiency Disciplined organic capital spending/good returning projects Value-adding acquisitions (and divestitures) 19

20 and a flexible and prudent capital structure $ millions Bonds 5.25% (due Nov. 2021) Global ABL Rate Libor +125 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Jun 2016 $ 158 $ 90 $ 175 $ 175 $ 175 $ Debt ($ millions) $183 $180 $207 $228 $229 $ Other Debt Reptd $ 186 $ 182 $ 212 $ 234 $ 234 $224 Debt Issue Costs (3) (3) (5) (6) (5) (5) x 1.6x 1.7x 1.8x 1.6x Debt/ EBITDA 1.3 Debt $ 183 $ 180 $ 207 $ 228 $ 229 $ 219 Cash $ 13 $ 8 $ 73 $ 73 $ 4 $ 5 0 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Jun Balance sheet providing financial strength and capacity for growth Debt/EBITDA well below targeted range of 2 to 3x Attractive bonds with debt rating of Ba3/BB and low coupon rate Global ABL sized at $200 million with added flexibility/borrowing capacity 20

21 Cash generation and deployment Cash Generation Strong business cash flows, supplemented by acquisitions Efficient asset base; maintenance cap-ex < $15 mm/year Significant US R&D tax credits; wellfunded pension plan Pro Forma Cash Flow ($ millions) EBITDA $ $170 Interest Expense (10) Other (tax, wkg cap, pension, etc.) (25-30) Cash From Operations $ Total Capital Spend (3-5% sales) (30-50) Free Cash Flow $ Cash Deployment Priority on highest returning investments Organic initiatives Value-adding M&A Committed to cash returns via attractive and growing dividend Opportunistic $25 mm stock repurchase plan FCF/Share $ $ Cash From Operations $57 $66 * $84 $95 $111 $ Dividends per share $0.44 $0.48 $0.70 $1.20 $1.32 $ LTM * excludes one-time costs for acquisition accounting and other items 21

22 Compensation philosophy Performance-based and aligned with shareholders All incentive plans are tied to performance achievement 50% cash, based on growth in business profit/ebitda 50% equity, based (options and performance shares) Performance shares based on: Return on Capital Improvement Revenue Growth Total Shareholder Return (vs. Russell 2000 index) Management required to hold a multiple of salary in stock (CEO = 6x) 22

23 M&A - a component of growth Active and disciplined process with dedicated resources Targeting growing, profitable niche markets (filtration, performance materials, premium packaging, etc ) with a strategic linkage Strategic Growth Touch points Products/ End Markets Technologies Most targets sized between $50 and $250 million of sales Demonstrated track record and competency in deal execution and integration to capture value Customers Geographies Divested Pulp Mills FiberMark Germany 2006 (TP) Fox River 2007 (FP&P) Wausau brands 2012 (FP&P) Southworth brand 2013 (FP&P) Crane Filtration 2014 (TP) FiberMark US 2015 (TP/FP) Divested Lahnstein Oct-15 23

24 Well-positioned to continue profitable grow in specialty niche markets Leading positions in defensible and profitable core categories Catalysts to enhance growth Transportation filtration - Europe Performance Materials Fine Paper Transportation Filtration geographies Added premium packaging capabilities Adjacent filtration markets Financial strength and double-digit Return on Invested Capital Strong cash flow generation Low debt w/ financial flexibility Clear track record of value-adding capital deployment Double-digit growth and ROIC Top quartile shareholder returns Dividend tripled over last 5 years 24

25 contact For more information visit our website: Investor Relations Bill McCarthy VP, Financial Planning and Analysis & Investor Relations 3460 Preston Ridge Rd., Suite 600 Alpharetta, GA Phone: (678)

26 GAAP Reconciliation Continuing Operations $ millions Q215 Q216 EBIT (Operating Income) $ 66.9 $ 82.6 $ 86.6 $ $ 27.7 $ 33.9 Integration/Restructuring Costs Other Adjusted EBIT $ 76.8 $ 83.7 $ 92.6 $ $ 27.7 $ 35.3 Depreciation & Amortization Amort. Equity-Based Compensation Adjusted EBITDA $ $ $ $ $ 35.4 $ 44.7 Earnings (Loss) per Share $ 2.26 $ 2.91 $ 3.99 $ 3.53 $ 0.96 $ 1.21 Integration/Restructuring Costs Prior Period R&D Tax Credits (0.08) (1.00) (0.07) Other Adjusted Earnings per Share $ 2.63 $ 2.87 $ 3.21 $ 3.70 $ 0.96 $ 1.26 Results for year ended December 31, 2012, include integration and restructuring costs of $5.8 million, a pension settlement charge of $3.5 million and costs related to the early extinguishment of debt of $0.6 million. December 31, 2013, include integration and restructuring costs of $0.4 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 $2.3 million, a pension plan settlement charge of $3.5 million and costs related to the early extinguishment of debt of $0.2 million. Results for the year ended December 31, 2015, include integration and restructuring costs of $6.5 million. 26

27 GAAP Reconciliation 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. 27

28 Forward Looking Statements 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 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 28