Investor Update: KeyBanc Basic Materials Conference. September 2016

Transcription

1 Investor Update: KeyBanc Basic Materials Conference September 2016

2 Safe Harbor Cautionary Note on Forward-Looking Statements Certain statements in this presentation may constitute forward-looking statements within the meaning of Federal securities laws. These statements are subject to a variety of uncertainties, unknown risks and other factors concerning the Company s operations and business environment. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements and that could adversely affect the Company s future financial performance include the following: demand in the industries into which Ferro sells its products may be unpredictable, cyclical or heavily influenced by consumer spending; Ferro's ability to successfully implement its value creation strategy; Ferro s ability to successfully implement and/or administer its cost-saving initiatives, including its restructuring programs, and produce the desired results, including projected savings; restrictive covenants in the Company s credit facilities could affect its strategic initiatives and liquidity; the effectiveness of the Company s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques; the availability of reliable sources of energy and raw materials at a reasonable cost; currency conversion rates and economic, social, regulatory, and political conditions around the world; Ferro s presence in certain geographic regions, including Latin America and Asia-Pacific, where it can be difficult to compete lawfully; increasingly aggressive domestic and foreign governmental regulations on hazardous materials and regulations affecting health, safety and the environment; Ferro s ability to successfully introduce new products or enter into new growth markets; sale of products into highly regulated industries; limited or no redundancy for certain of the Company s manufacturing facilities and possible interruption of operations at those facilities; Ferro s ability to complete future acquisitions or dispositions, or successfully integrate future acquisitions; competitive factors, including intense price competition; Ferro s ability to protect its intellectual property or to successfully resolve claims of infringement brought against the Company; management of Ferro s general and administrative expenses; Ferro s multijurisdictional tax structure; the impact of the Company s performance on its ability to utilize significant deferred tax assets; the effectiveness of strategies to increase Ferro s return on capital; the impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations; stringent labor and employment laws and relationships with the Company s employees; the impact of requirements to fund employee benefit costs, especially post-retirement costs; implementation of new business processes and information systems; the impact of interruption, damage to, failure, or compromise of the Company s information systems; exposure to lawsuits in the normal course of business; risks and uncertainties associated with intangible assets, including the final amount of impairment and other charges; liens on the Company s assets by its lenders affect its ability to dispose of property and businesses; Ferro may not pay dividends on its common stock in the foreseeable future; and other factors affecting the Company s business that are beyond its control, including disasters, accidents, and governmental actions. The risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely affect the Company. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations. This presentation contains time-sensitive information that reflects management s best analysis only as of the date of this presentation. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this presentation. Additional information regarding these risks can be found in our Annual Report on Form 10-K for the period ended December 31,

3 3 A Stronger Business Today, Well-Positioned for Growth Ferro today a leading functional coatings and color solutions company Transformed to a more focused, fundamentally strong business A market leader in 90% of revenue base; attractive markets Strong operating performance and cash flow to fund strategic growth Highly variable, asset-light cost structure provides scalability and operating leverage Global scale and footprint enables broad geographic coverage Heavy customer touch and innovation drive competitive advantage with significant additional opportunities for profitable growth

4 Ferro Today Functional Coatings and Color Solutions Company $1.1B 2015 NET SALES $155M 2015 Adj EBITDA Performance Coatings $533M 2015 NET SALES $127M (23.8 % ) 2015 GROSS MARGIN Glass coatings Ceramic tile and metal (PE) substrates Construction and consumer product markets Performance Colors & Glass $377M 2015 NET SALES $128M (34.0 % ) 2015 GROSS MARGIN Glass coatings Glass substrates Transportation and consumer goods markets Pigments, Powders & Oxides (Color Solutions) $165M 2015 NET SALES $46M (27.7 % ) 2015 GROSS MARGIN Functional, color pigments Used in coatings Construction and industrial markets 4

5 5 Transformed to a More Focused, Fundamentally Strong Business

6 What We Have Accomplished: Phase One Business performance improvement/ turnaround Asset/facility rationalization Operating efficiencies Commercial effectiveness SG&A reduction infrastructure leverage 6

7 What We Have Accomplished: Phase Two Creating a more focused company and coherent portfolio Exit Pharma, Solar and Metal Powders Exit Plastics and Polymer Additives Note: Cash flow defined as adjusted EBITDA less cash items (from continuing operations for 2015). 7

8 What We Have Accomplished: Phase Three Profitable growth more to come Completed 7 acquisitions in 24 months

9 An Industry Leader in Approx. 90% of Revenue Base; Attractive Sales Growth Opportunities Performance Coatings Performance Color & Glass Color Solutions 2015 Revenue by Application 1 Other 1% Leader in Tile Leader in Porcelain Enamel Leader in Auto Leader in Deco Leader in Industrial Leader In Inorganic Pigments Niche player at high end of market for Surface Technologies Industrial Products Household 7% Furnishings 8% Transportation/ Automotive 14% Containers/ Packaging 9% Appliances 9% Misc. Electronics 5% Select Market Growth Rates Weighted Avg GDP 2.5% Building & Renovation Residential 29% Building & Renovation Commercial 18% Niche player at high end of market for Electronics 2016 Global Construction Growth 3.1% 2016 Global Auto Growth 3.6% 9 1 Management estimates 2 Oxford Economic estimates

10 Strong Operating Performance and Operating Cash Flow to Fund Strategic Growth (current portfolio, constant currency, US $ millions) Revenue 1 Gross Profit EBITDA EBITDA Free Cash Flow $1,400 $1,200 $1,000 $800 $400 ~5.0% CAGR ~13% CAGR $350 29% $300 27% $250 26% 23% $200 31% $250 $200 $150 ~32% CAGR 14% 12% 17% $600 $400 $200 $150 $100 $50 $100 $50 9% 32% 32% 51% 47% 10 $ $ Net Sales is midpoint of guidance: Revenue $1,140M - $1,150M; Gross Profit 30.5% %; EBITDA $190M-$195M; Free Cash Flow $85M-$95M $

11 Highly Variable Cost Structure: Asset-light Business Model Provides for Scalability and Operating Leverage Low Fixed-Cost Structure Maintenance Cap Ex (current portfolio, $ in millions, % of sales) 1.5% Fixed 10% 0.9% 1.1% $15.2 Variable 90% $8.5 $

12 Global Scale and Footprint Enables Broad Geographic Coverage Operations in all key geographies around the globe Ability to compete locally while leveraging global infrastructure and resources North America 20% Revenue Western Europe 26% Revenue Eastern Europe 9% Revenue MENA 10% Revenue Asia Pacific 19% Revenue Latin America 16% Revenue Performance Coatings Manufacturing Facilities 19 Performance Colors & Glass Manufacturing Facilities 14 Pigments, Powders & Oxides Manufacturing Facilities 11 Technical Facilities 11 Note: Sales on ship-to basis; financials pro forma for full year of Nubiola and Al Salomi acquisitions. 12

13 Heavy Customer Touch and Innovation Drive Competitive Advantage Core Technology Competencies Differentiated Technical Service Industry-specific Specialties Particle sizing per customer specifications Customized formulations Customer-specific surface & application solutions Specialized use of inorganic chemistry & ceramic science Milling and curing technology to meet customer specifications Dedicated employees in customer plants Local technical and application support Co-development with customers Glass science Color science Metallurgy High performance pigment chemistry High temperature smelting of glasses Chemistry of ceramic and glass surfaces 13

14 14 Each Business Segment Strong Market Positions and Poised for Growth

15 Performance Colors & Glass The Performance Color and Glass business is a market-leading supplier of specialty glass-based coatings for glass substrates. Automotive Decoration Electronics Industrial Flat Glass Coatings Black Band Glass Colors & Coatings Electronic Packaging Materials Conductive Silver Pastes Container Glass, Dinnerware Colors & Coatings Multilayer Materials Functional Glasses & Pigments 15

16 Performance Colors & Glass 2015 Business Overview Financial Performance $ 377M Net SALES $ 128M GROSS PROFIT 34.0 % GROSS MARGIN Sales by Application 1 Containers /Packaging 18% Transportation 37% Household & Appliances 21% Industrial Products 2% Electronics 11% Building & Renovation 11% Industry Structure Well-established competitors Technical product requirements High-value pricing dynamics North America 25% Sales by Region 2 Asia Pacific 27% Latin America 8% MENA 2% E. Europe 10% W. Europe 28% 16 1 Sales by application based on management estimates 2 Sales by region based on ship-to locations

17 Performance Coatings Performance Coatings is a leading supplier of glass coatings and decorating systems for ceramic tile and metal substrates. Tile Porcelain Enamel 17

18 Performance Coatings 2015 Business Overview Sales by Application 1 Household & Appliances 20% Industrial Products 3% 18 $ 533M Net SALES Financial Performance Industry Structure Bifurcated market: lower and higher-end Higher end pays for value and service, growing in North America & Western Europe Select emerging market countries (warm climates) have potential for higher-end $ 127M GROSS PROFIT growth Competition is well-established and majority privately held Lower end are price sensitive markets mostly supplied from China with many competitors Porcelain Enamel markets are mature and concentrated 1 Sales by application based on management estimates 2 Sales by region based on ship-to locations 23.8 % GROSS MARGIN Building & Renovation 77% Sales by Region 2 Latin America 23% Asia Pacific 15% North America 10% W. Europe 24% MENA 19% E. Europe 9%

19 Pigments, Powders & Oxides (Color Solutions) Pigments is a leader in the production of specialty inorganic pigments and color solutions for a variety of substrates and end applications. Paint Roofing Plastics Cosmetics Glass CMP Ophthalmic Automotive 19

20 Pigments, Powders & Oxides (Color Solutions) Sales by Application Business Overview 3 $ 165M Net SALES Financial Performance $ 46M GROSS PROFIT Industry Structure Well-established competitors Competitors are private middlemarket companies and divisions of larger multinationals Global customer base 27.7 % GROSS MARGIN Electronics 6% Household &Appliances 5% Transportation 12% Containers / Packaging 12% Industrial Products 27% Building & Renovation 33% Sales by Region 2 Latin America 10% Asia Pacific 18% Other 5% W. Europe 24% E. Europe 4% 1 Sales by application based on management estimates 2 Sales by region based on ship-to locations gross profit includes a $5.8 million charge associated with Nubiola purchase accounting North America 42% MENA 2% 20

21 A Stronger Business Today, Well-Positioned for Growth Ferro Today a leading functional coatings and color solutions company Transformed to a more focused, fundamentally strong business Market leader in 90% of revenue base; attractive markets Strong operating performance and operating cash flow to fund strategic growth Highly variable, asset-light cost structure provides scalability and operating leverage Global scale and footprint enables broad geographic coverage Heavy customer touch and innovation drives competitive advantage with significant additional opportunities for profitable growth 21

22 Ferro Second Quarter 2016 Financial Conference Highlights Call Presentation July 28, 2016

23 Net Sales $(MM) Op Profit % of Net Sales Quarterly Net Sales cc and Operating Trend - Continuing Constant Currency cc $251.7 $249.3 $259.4 $298.0 $ % 16% $300 $ % 10.7% % 12% $ % 10% 8% $ % $100 4% $50 2% $ Q2 CC 2014 Q2 CC 2015 Q2 CC 2016 Q2 0% Base Acquisitions Operating Profit Acquisitions include Nubiola, Al Salomi, Ferer and Pinturas; Acquisitions owned for more than 12 months are included in the base business, including Vetriceramici which was acquired in Dec Vetriceramici net sales for 2015 Q2 CC were $16.5M Continuing Businesses exclude discontinued operations and other divestitures CC Constant currency: 2015, 2014 and 2013 results restated using 2016 average FX rates 23

24 Net Sales $(MM) Op Profit % of Net Sales Full Year and TTM Net Sales cc and Operating Trend - Continuing Constant Currency cc $930.6 $949.6 $ $ $1, % 14% $1, % % $ % 10% $ % 8% $ % 4% $200 2% $ CC 2014 CC 2015 CC 2016 TTM CC 0% Base Acquisitions Operating Profit Acquisitions include Nubiola, Al Salomi, Ferer and Pinturas; Acquisitions owned for more than 12 months are included in the base business, including Vetriceramici which was acquired in Dec Vetriceramici net sales for 2014 CC and 2015 CC were $3.7M and $58.3M respectively Continuing Businesses exclude discontinued operations and other divestitures CC Constant currency: 2016 TTM, 2015, 2014 and 2013 results restated using 2016 average FX rates 24

25 Quarterly Adjusted EBITDA Trend - Continuing Constant Currency cc $26.6 $34.2 $36.2 $56.6 $ % 20% $ % 14.0% % 16% EBITDA $(MM) $40 $30 $20 $ % % 12% 10% 8% 6% 4% EBITDA % of Net Sales 2% $ Q2 CC 2014 Q2 CC 2015 Q2 CC 2016 Q2 EBITDA from Base EBITDA from Acquisitions % of Sales cc 0% Acquisitions include Nubiola, Al Salomi, Ferer and Pinturas; Acquisitions owned for more than 12 months are included in the base business Continuing Businesses exclude discontinued operations and other divestitures Constant currency: 2015, 2014 and 2013 results restated using 2016 average FX rates CC 25

26 EBITDA $(MM) EBITDA % of Net Sales Full Year and TTM Adjusted EBITDA Trend - Continuing Constant Currency cc $85.3 $114.5 $149.0 $180.6 $180 $ % 16.3% % 16% $ % % $120 $ % 12% 10% $80 $ % 6% $ % $20 2% $ CC 2014 CC 2015 CC 2016 TTM CC EBITDA from Base EBITDA from Acquisitions % of Sales cc 0% Acquisitions include Nubiola, Al Salomi, Ferer and Pinturas; Acquisitions owned for more than 12 months are included in the base business Constant currency: 2016 TTM, 2015, 2014 and 2013 results restated using 2016 average FX rates CC 26

27 EBITDA $(MM) % FCF Conversion Adjusted EBITDA and Cash Conversion Trend - Continuing Nominal Currency $200 60% $180 $ % 46.9% 50% $140 $120 $100 $80 $60 $40 $20 $0 29.2% 25.8% TTM EBITDA Free Cash Flow FCF Conversion 40% 30% 20% 10% 0% Notes: 1) Cash Conversion = Free Cash Flow as a percent of Adjusted EBITDA 2) Free Cash Flow = Adjusted EBITDA from Continuing Operations Less Cash Expenses 27

28 Segment Results Performance Colors & Glass (PCG) ($MM) Q2 Financial Metrics - PCG Q2'16 Q2'15 Q2'14 Q2'13 Reported Sales Sales CC Reported GP Adjusted GP cc (1) Adjusted GP cc % of Sales cc 38.3% 34.0% 33.8% 29.6% Full Year Financial Metrics - PCG FY'16 TTM FY'15 FY'14 FY'13 Reported Sales Sales CC Reported GP Adjusted GP cc (1) Adjusted GP cc % of Sales cc 35.5% 34.0% 33.3% 29.3% (1) Adjusted GP CC : Gross profit less non recurring items Constant currency: 2016 TTM, 2015, 2014 and 2013 results restated using 2016 average FX rates CC 28

29 Segment Results Pigments, Powders & Oxides (PPO) ($MM) Q2 Financial Metrics - PPO Q2'16 Q2'15 Q2'14 Q2'13 Reported Sales Sales CC Reported GP Adjusted GP cc (1) Adjusted GP cc % of Sales cc 36.5% 30.9% 23.1% 27.8% Full Year Financial Metrics - PPO FY'16 TTM FY'15 FY'14 FY'13 Reported Sales Sales CC Reported GP Adjusted GP cc (1) Nubiola Purchase Price Adj ("PPA") Adjusted GP cc Incl PPA % of Sales cc 33.3% 31.2% 24.9% 26.4% (1) Adjusted GP CC : Gross profit less non recurring items Constant currency: 2016 TTM, 2015, 2014 and 2013 results restated using 2016 average FX rates CC 29

30 Segment Results Performance Coatings (PC) ($MM) Q2 Financial Metrics - PC Q2'16 Q2'15 Q2'14 Q2'13 Reported Sales Sales CC Reported GP Adjusted GP cc (1) Adjusted GP cc % of Sales cc 27.9% 25.5% 24.7% 23.3% Full Year Financial Metrics - PC FY'16 TTM FY'15 FY'14 FY'13 Reported Sales Sales CC Reported GP Adjusted GP cc (1) Adjusted GP cc % of Sales cc 25.5% 24.5% 22.7% 23.0% (1) Adjusted GP CC : Gross profit less non recurring items Constant currency: 2016 TTM, 2015, 2014 and 2013 results restated using 2016 average FX rates CC 30

31 Full Year SG&A $(MM) SG&A % of Net Sales SG&A Expenditures Trend - Continuing Constant Currency cc $184.2 $170.7 $185.4 $196.8 $200 $180 $ % 20% $140 $120 $ % 18.0% 17.9% 17.8% % $80 10% $60 $40 $20 $ CC 2014 CC 2015 CC 2016 TTM CC 5% 0% Functional Services including acquisitions Base Strategic Svcs Acquisition Strategic Svcs Incentive Comp % of Sales Note: Included in functional services SG&A shown above is pension income for the U.S. defined benefit pension plan. From 2015 CC to 2016 TTM CC, the income for the U.S. plan declined by $3.2 million, from $10.5 million to $7.3 million. Acquisitions include Nubiola, Al Salomi, Ferer and Pinturas; Acquisitions owned for more than 12 months are included in the base business Constant currency: 2016 TTM, 2015, 2014 and 2013 results restated using 2016 average FX rates CC 31

32 Invested Capital $(MM) ROIC % Adjusted Return on Invested Capital (ROIC) Trend - Nominal Currency $1,000 $900 $800 $ % 11.2% 13.7% 11.6% 16% 14% 12% $600 10% $500 $400 $300 $ % 6% 4% $100 2% $ TTM 0% Invested Cap ROIC Notes: 1) ROIC = Adjusted after tax return on invested capital 2) Invested Capital = Total Invested Capital including acquisitions 3) Adjusted ROIC excludes the impact of recent acquisitions. In Q4 2015, Adjusted ROIC also excludes the release of tax valuation allowances 32

33 QTR EPS Full Year EPS Adjusted EPS Trend - Nominal Currency 2016 EPS is equivalent to mid-point of Company guidance of $ $1.05 $0.40 $1.40 $0.35 $0.30 $0.25 $0.20 $0.15 $0.33 $0.62 $0.85 $1.03 $1.20 $1.00 $0.80 $0.60 $0.10 $0.40 $0.05 $0.20 $ Guidance Q1 Q2 Q3 Q4 FY $

34 Ferro Corporation Contact Information John Bingle Treasurer and Dir. Investor Relations