Innophos Holdings, Inc.

Transcription

1 Innophos Holdings, Inc. Jefferies Global Industrials Conference 1 August 13, 2014

2 Safe Harbor During the course of this presentation, management may make forward-looking statements regarding financial performance and future events. We will attempt to identify these statements by use of words such as expect, believe, anticipate, intend, and other words that denote future events. You should understand that, even though our forward looking statements are based on assumptions we believe are reasonable when made, they are still subject to uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important risk and other factors as set forth in the forwardlooking statements section and in Item 1A risk factors in our Annual Reports on Form 10-K as filed with the U.S. Securities and Exchange Commission that could cause actual results to differ from those in the forward-looking statements as contained in this presentation. Forward looking statements made herein are summaries of previous public disclosures, do not represent revised guidance, and we do not undertake to revise or update them from the date or dates of previous disclosure. 2

3 Overview Of Innophos Leading international producer of performance-critical and nutritional Specialty Ingredients for Food, Beverage, Nutritional Supplements and Industrial end markets (NASDAQ: IPHS) Listed in 2006, 100% free float > 500% Total Shareholder Return since IPO < 1x Net Debt / LTM Adjusted EBITDA Over a century of phosphates experience with a growing capability in other nutritional ingredients; formerly a division of Rhodia, taken private by Bain Capital in 2004 Annual revenues $844 million (FY 2013) Total assets $745 million (FY 2013) Headquartered in Cranbury, NJ with operations in U.S., Mexico, Canada and China Innovate with Phosphate 3

4 We Have Transformed Innophos Since Becoming A Public Company, Delivering > 500% TSR 2006 Step change and sustained improvement in profitability Deleveraged balance sheet Award winning innovation; Sales to emerging markets almost tripled 2014 Primarily focused on specialty ingredients for food and beverage 4 Diversified raw material supply and substantially reduced margin volatility More than doubled dividend plus $50 million share buyback program Added >$50 million minerals/botanicals nutritional ingredients business

5 Our Strategic Progress And Our Strong Market Position In An Attractive Industry Are Key To Our Success Excellent Financial Track Record 6% Revenue CAGR over last 6 years (14% in target markets) Step change, sustainable improvement in specialty phosphate margins 15% ROIC on core Specialty Phosphates business Improved balance sheet and strong cash flows support future growth Sustainable Strategic Advantage Excellent product & market position in North America Fundamental repositioning of Mexico business Industry leading supply chain Demonstrated ability to maintain margins in inflationary raw material environment Attractive Industry Customers value differentiated products Attractive growth opportunities High barriers to entry Relatively stable end markets 5

6 Specialty Phosphates Includes 3 Product Groups With Specialty Ingredients The Primary Focus; GTSP & Other Is Reported Separately Reporting Segments Specialty Phosphates US/Canada Mexico GTSP & Other Product Groups % 8% 17% Food Grade PPA GTSP & Other Detergent Grade PPA & STPP 66% Specialty Ingredients Sales to Consumer Oriented Applications > 60% of Total Total Sales 579 Total Sales % Specialty Ingredients Pharma, Food, Beverage, Oral Care Industrial Detergents CAGR 6% 5% -10% 6% 14% Fertilizer & Horticulture 6

7 Supply Chain Strength, Especially In Food Grade PPA And Specialty Ingredients, Supports Strong Market Position Phosphate Rock & Sulfur Merchant Grade Acid (MGA) (fertilizer) Purified Phosphoric Acid (PPA) Specialty Ingredients & Sodium Tripolyphosphate (STPP) Product Groups Rock Supply Merchant Grade Acid Food Grade PPA Specialty Phosphate Salts & Acids Specialty Ingredients Food Grade PPA Detergent Grade PPA Detergent Grade STPP Detergent Grade STPP & PPA Co-Product GTSP & Other 7

8 Specialty Phosphate Margins / MT Are 2-3 Times 2006 Levels And Sustained Since 2010 Despite Raw Materials More Than Doubling From 2010 To Early 2012 And Then Declining Through End 2013 Back To Early 2010 Levels 800 Adjusted Operating Income per MT Indexed to 1Q thru 2009: After an exceptional 2008, margins by end 2009 settled at more than 2x the prior level C 2010 through 2013: Despite significant raw material inflation 2010 to early 2012, followed by significant deflation back to 2010 levels by the end of 2013, improved margins maintained through effective pricing Prior to 2007: Stable margins, but below target margin volatility now reduced: Raw material contracts fundamentally reworked to eliminate cause of prior volatility

9 Ongoing Success In The Specialty Ingredients Product Group Is Key To Achieving Our Goals Specialty Ingredients Applications Bakery Leavening Toothpaste Abrasives Water Treatment Deli Meat Ingredients Pharmaceutical Tablet Excipients Asphalt Modifiers Seafood Mineral Fortification Fire Suppressant Innophos Ingredients Are Typically: key to end product performance low % of end product cost We Are North American Market leader in Phosphate Ingredients Building Growing Position in Mineral & Botanical Ingredients Primary Focus Is On Consumer Oriented Applications Targeted Industrial Applications Also High Value And Growing Consumer Markets 9

10 Growth Drivers Are Innovation And Geographic Expansion, Targeted To Exceed Market Growth Rate By 2-3% 1 Innovation 1-2% Geographic Expansion 1-2% Market Growth 1-2% 10

11 Innovation: Driven By Industry Trends Provides Growth And Future Sustainability KEY INDUSTRY TRENDS: Low Sodium Active Lifestyle Fortification Digestive Health Product Industry Product Description Cal-Rise Baked Goods Calcium leavening allowing for up to a 30% reduction in sodium Textur-Melt LS-50 SuperBind & So-Lo 93 VersaCAL Clear Macro- Micronutrients Dairy Meat & Seafood Beverage Nutrition Low sodium texture and melt control of cheese products Low sodium / high potassium meat phosphate exceeding guidelines for reduced sodium while extending yield; Winner of Industry Innovation Award Calcium fortification for clear beverages; Winner of 2010 Health Ingredients Europe Excellence Award Calcium phosphate for bone and gut health Magnesium, iron and zinc bisglycinates 11

12 5 Dividend Increases In 3.5 Years, Nearly Tripling Rate; Primary Focus Remains On Investing To Support Growth Capital Expenditures expected to average ~ $40 million from 2014 through 2016 ($33 in 2013); maintenance capex $20-25 million which leaves $15-20 million for growth and profit improvement projects Bolt-on Acquisitions targeted to double organic growth rate Capital Allocation 3Q14 dividend increased 20% to $0.48/sh, future increases expected commensurate with OI growth; 562k shares repurchased 11-14; program to continue at a minimum offsetting annual dilution from LTIP grants 12

13 Innophos Acquisition Strategy Aims To Support Growth Through: 1 Core Acquisitions 2 Adjacent Acquisitions Accelerate Growth In Specialty Phosphates Extending Product Range In Higher Growth Market Niches Kelatron (Oct 2011), AMT (July 2012), Triarco (Dec 2012) and CMI (Oct 2013) adjacent acquisitions give Innophos a strong position in the attractive nutritional ingredients market Market estimated to be growing in high single digits, with key applications including food & beverage and dietary supplements Minerals businesses performed strongly from acquisition date through 2013; acquisitions overall represent > $50 million in revenue at EBITDA margins greater than the overall Specialty Phosphates business 13

14 Acquisitions In Bioactive Minerals And Botanical Ingredients Have Built A Strong Position In Nutritional Ingredients Attractive Market Dynamics Specialty markets growing strongly (e.g. sports nutrition) Major food / beverage Companies looking to strengthen nutrition offerings Science supports benefit of Innophos nutritional ingredient range, for example: Magnesium for bone health and general wellbeing Calcium Phosphate beneficial for gut health Chromium for managing glycemic response Anticipate 6-8% long term market growth rate A Platform For Growth Strong customer and sales channel synergy, both domestically and in emerging markets Formulating across Phosphates, Minerals and Botanicals Strengthens Innovation Operating Synergies Ahead Of Target With Longer Term Benefits In View Minerals businesses grew at twice the market growth rate for 2013 Nutrition businesses overall expected to grow within the market rate for

15 Strong Year Over Year Performance For Specialty Phosphates Based On Improved Operations And Margins In Mexico Specialty Phosphates 2Q14 Disclosures 2Q14 sales up 1% sequentially but declined 2% YOY primarily due to lower STPP sales US/Can sales down 1% YOY on 2% lower prices but 1% higher volumes Mexico Specialty Phosphates sales down 6% YOY on 2% higher prices but 8% lower volumes primarily from the timing of STPP orders Expect volume growth for 2014 to be at the low end of the 3-5% target range. Improved operations at Coatzacoalcos supporting growth, but 1H14 headwinds for some nutrition business customers exporting to China and low US asphalt market demand due to uncertain federal transportation funding caused 100 bps drag on growth rates. Five consecutive quarters of sequential improvement in phosphoric acid yields at Coatzacoalcos and price increases achieved ahead of cost increases due to inventory lags supports increased profits Operating income up $7 million YOY and $2 million vs. adjusted 2Q13 US and Canada down $2 million YOY due to lower selling prices Mexico up $9 million YOY; $4 million against adjusted 2Q13 2Q14 Operating Income margins at 16%, above full year target of 14-15% 15

16 GTSP & Other Break-Even In 2Q14 On Improved Selling Prices And Higher Volumes; Expect $1 Million Operating Income In 3Q % US & Canada Specialty Phosphates 20% 8% Mexico Specialty Phosphates 8% Of The Innophos Portfolio Granular Triple Super Phosphate (GTSP) Market Update GTSP & Other primarily includes revenue on sales of our fertilizer co-product This segment sees demand and pricing more closely linked to overall phosphate fertilizer market conditions; end fourth quarter and beginning first quarter usually weaker seasonally Innophos margins typically advantaged in inflationary market conditions with raw material cost increases lagging changes in fertilizer market prices by 3+ months; similarly, margins can be disadvantaged during deflationary market conditions GTSP margin volatility greatly reduced by restructuring raw material contracts and shortening the lag period before raw material costs adjust to reflect changed market prices Phosphate fertilizer market prices increased in first half of 1Q14, then stabilized at break-even levels for second quarter 16

17 Strong Balance Sheet Improvement; ROIC Decline Since 2011 Due To Lower OI From GTSP Declines & Mexico Operating Issues Limiting Volumes, While Acquisitions Add Both Capital Employed & Intangible Amortization Expense ($ in millions) Q14 Gross Debt $149 $152 $176 $163 $139 Net Debt $85 $117 $149 $130 $101 Stockholders Equity $331 $393 $444 $463 $476 ROIC (1) 18% 19% 13% 10% (2) 11% (2) $246 million of notes redeemed in 2010 with on hand cash and new $225 million five year bank credit facility; annualized interest expense improved by $17 million ($.47 per share) as of 4Q10 Bank credit facility amended and restated in 4Q12 to reduce interest rates by 75 basis points, increase capacity by $100 million and extend term an additional 2 years to 2017; $100 million of LIBOR exposure swapped for 5 years at % (1) calculations adjusted for the effects of the P&L adjustments noted in the Appendix; invested capital based on rolling 5 quarter average (2) Core Specialty Phosphates business ROIC is 14% for 2013 and 15% for 2Q14 17

18 We Are Proud Of Our Track Record Since Becoming A Public Company, But Our Focus Is On The Future: 1 We are targeting growth through product innovation and geographic expansion, organically and through acquisition 2 We aim to maintain and improve our margins through the value of our products and the strength of our business mix 3 4 We will further strengthen our already attractive strategic position particularly by continuing to enhance our industry leading supply chain We expect continued strong cash flow supporting growth investment as well as cash returns to shareholders All Of Which We Believe Creates A Compelling Case For Investing In Innophos 18

19 Appendix 19

20 SP Operating Income Stable Through 2012, Margin Decline Due To Higher RM Costs, 2013 Lower Due To Volume Loss From 1H13 Mexico Production Issues; Total IPHS Further Affected Since 2012 By GTSP Losses Due To Lower Fertilizer Market Prices IPHS ($ in millions, except EPS) 2010 (1) Adjusted 2011 (2) Adjusted 2012 (3) Adjusted 2013 (4) Adjusted 1H14 Net Sales $714 $810 $862 $844 $436 EBITDA % Margin Operating Income % Margin $165 23% $116 16% $178 22% $134 16% $150 17% $105 12% $127 15% $92 11% $71 16% $54 12% Diluted EPS $2.90 $3.81 $3.08 $2.59 $1.57 SPECIALTY PHOSPHATES (4) Adjusted 1H14 EBITDA % Margin $155 24% $154 22% $148 20% $134 17% $74 19% Operating Income % Margin $111 17% $116 16% $108 14% $101 13% $58 15% $ millions pretax adjustments: (1) $21.0 Mexican water duties, $10.8 call premiums & deferred financing (2) $(1.5) EBITDA and $(3.4) Operating Income for Mexican water duties and translation (3) $(3.9) EBITDA and $(4.7) OI for Mexican water duties, Rhodia settlement & out of period, $0.5 deferred financing and interest rate premiums (4) $10.4 EBITDA and $8.2 OI for Mexican water duties, translation, first half elevated costs from production issues caused by premature equipment failures in Mexico and first quarter one-off cost issues in US & Canada. Specialty Phosphates portion of these adjustments are $14.4 EBITDA and $12.8 OI. 20

21 Jefferies Global Industrials Conference August 13, 2014