Leveraging our strengths to drive shareholder value. SunTrust Robinson Humphrey Conference Atlanta, Georgia April, 2007

Transcription

1 Leveraging our strengths to drive shareholder value SunTrust Robinson Humphrey Conference Atlanta, Georgia April, 2007

2 Safe Harbor Disclosure Statement under the Private Securities Litigation Act of 1995: Certain of the statements contained in this presentation, including, but not limited to, information regarding the future economic performance and financial condition of the company, the plans and objectives of the company s management, and the company s assumptions regarding such performance and plans are forward-looking in nature. Actual results could differ materially from the forward-looking information in this presentation due to a variety of factors. The Scotts Miracle-Gro Company encourages investors to learn more about these risk factors. A detailed explanation of these factors are available in the company s publicly filed quarterly and annual reports. 2

3 ScottsMiracle-Gro: Clear competitive advantages and a compelling investment story Industry-leading brands and consumer relationships Efficient operational platform Operating Income Future growth engine in ScottsLawnService Solid financials and strong shareholder returns 3

4 Leveraging our strengths to drive shareholder value SMG has consistently outperformed competitors and the market Since 2001 Sales have grown at a 10% CAGR Adjusted net income has grown at a 23% CAGR Cumulative free cash flow has exceeded $800 million Returned $900 million to shareholders through dividends and share repurchases SMG-US SPX-US 5-year total return: 135% 4

5 North America and Scotts LawnService will remain the primary drivers of top and bottom line growth Percent of Total Company 2006 Net Sales Smith & Hawken (6%) Scotts LawnService (8%) International (15%) North America (71%) 5

6 Driving Growth and Value in North America

7 Our track record translates into solid top and bottom line growth with a forecast of continued success Sales CAGR: 9% Goal: 5-7%* Operating Profit CAGR: 8% Goal: 7-9%* $2.5B $550M % % * Excluding acquisitions and pricing. 7

8 Scotts has consistently driven growth and gained share in the Lawn and Garden consumables category $3.6 Lawn and Garden Consumables Retail Category Sales $3.6 $4.1 ($ Billions) $4.6 $4.8 $5.0 $1.7 $1.8 $2.1 $2.3 $2.5 $2.7 Scotts Share = 49% 53% 8

9 Our brands connect with consumers in all categories Recent innovations and advertising focus promote easy-to-use products that resonate with consumers and drive POS growth Plant Food Growing Media Insect Control Weed Control Lawn Products LiquaFeed: 06 sales $40mm Moisture Control: +31% in 06 Bug B Gon Max +22% in 06 Extended Control +46% in 06 Bonus S Max: +26% YTD Total POS: +9% Total POS: +18% Total POS: +7% Total POS: -2% Total POS: +14% All data reflects 2006 results except Bonus S Max 9

10 Advertising remains critical to consumer relationships, but future efforts will focus on other touch points Advertising & Innovation: A powerful combination Other levers to reach consumers $1,800 $1,500 Online Content partnerships Media GRP's LiquaFeed POS$ $1,200 $900 $600 $300 Direct-to- Consumer Direct Mail Consumer promotions Event Marketing % share of voice reinforces our brands above all others in the category $0 Retail Marketing Partnerships In-store events Counseling Win at Wall merchandising NASCAR National Garden Association 10

11 Our in-store presence and sales force is a major advantage 1,800+ merchandisers ensure that store displays are maximized to drive sales In-store counselors solve consumers problems, recommend ScottsMiracle-Gro products for help Continued investment in sales force as competitors scale back 11

12 Supply Chain infrastructure is a competitive advantage ScottsMiracle-Gro has emerged as the premier supply chain operation in the home center retail channel Increased capacity and integrated systems have improved product fill rates and reduced lead times 99.8% in 2006 vs. 92% in 2001 Scotts competency has helped enable retail partners to improve inventory turns and return on investment, driving retailer productivity 12

13 Scotts LawnService: A powerful growth engine

14 Launched in Ohio in 1998, Scotts LawnService has built a broad geographic footprint Legend: Pink = franchise; Purple = Company-owned territory 14

15 Solid revenue and margin improvement is expected to continue throughout our current strategic planning cycle Strong sales and earnings growth anticipated for fiscal 2007 Sales Operating Profit CAGR: Goal: 28% 10-15% $340M CAGR: Goal: 15% 13-18% $35M % %

16 Creating a differentiated customer experience will continue to build customer loyalty and retention Service Experience Service Based Differentiation Relationship/Experience Based Consumer Insights: Customers Assume great products & great results Evaluate us on service Desire individual attention Hold us accountable Execution Insights: A differentiated service experience enables higher retention, justifies premium pricing and reinforces our brand Transaction Based Price Great Local People are critical Neither products nor hard work alone are a competitive advantage Great local people who embrace and execute our commitment to quality are the key to our success 16

17 Financial overview

18 Our historic results, in tandem with our strategic plan for the next four years, gives us confidence that: Cash flows are strong, consistent and stable Our business is largely non-cyclical The North American business, as well as LawnService, is geographically diverse Only modest capital investment (relative to our cash flow) is required to support growth in our North America and LawnService businesses Capital for our International and Smith & Hawken segments will be targeted and more limited in scale Increased emphasis on working capital management can accelerate cash flow generation 18

19 Near term acquisition capital will be modest with a focus on opportunities close to the core Characteristics of future acquisitions Expanding adjacencies Filling in geographies Adding new technology and innovation Enhancing access to raw materials Significant, transformational transactions have been largely ruled out during the plan period ( 07-11) 19

20 These facts supported our conclusion to recapitalize and return $750 million to shareholders Average Debt /EBITA leverage ratio (pro forma) increased from 1.8 to 3.8 at September 30, 2006 What we did + 1. Replaced $1,050 million revolver and $200 million subordinated notes with $2,150 million credit facility (Revolver & Term A). 2. Purchased $245 million of shares in modified Dutch auction. 3. Paid $510 million special one-time dividend. 4. Built plan based on a goal of returning to 2006 leverage ratio by Preserved flexibility to consider future increases to the regular dividend and share repurchases. Other influencing factors 1. Leveraging event created opportunity to lower average cost of capital and increase economic value. 2. Special dividend allowed shareholders to benefit from current favorable tax environment. 3. Timing of transaction allowed Company to take advantage of current, favorable debt markets. 4. Event creates environment which puts premium on disciplined focus on core business and cash management. 20

21 2007 guidance reflects continued growth as well as the impact from recapitalization efforts $ in millions (except EPS) Net Sales $ 2, % - 10%* Adj Gross Margin % 35.4% Flat SG&A % - 12% Other Income (9.2) (11)% - (14)% Amortization % - 4% Operating Income % - 10% Interest Expense 39.6 $75 - $80 Adjusted Net Income $ flat EPS $2.62 flat * Includes approximately 2% in pricing and full year impact of 2006 acquisitions. 21

22 We are confident in our ability to continue delivering strong financial performance Goals for (stated in annual terms) Organic sales growth of 6 to 8 percent* Gross margin rate improvement ranging up to 40 bps Operating income growth of 8 to 10 percent ROIC improvement of 30 to 50 bps * Excludes pricing and acquisitions. 22