Graphic Packaging International, Inc.s1.q4cdn.com/921353404/files/doc_presentations/2011/GPK... ·...

© 2011 Graphic Packaging Holding Company

Graphic Packaging International, Inc.

Baird’s 2011 Industrial Conference

November 8, 2011


Disclaimer / Safe Harbor

1

Any statements of the Company’s expectations in this presentation constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such statements, including but not limited to, pricing, debt reduction, cost reduction, the effect of the Macon Biomass project and the availability of the Company’s net operating loss to offset taxable income in the U.S., are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company's present expectations. These risks and uncertainties include, but are not limited to, the Company’s substantial amount of debt, inflation of and volatility in raw material and energy costs, continuing pressure for lower cost products, the Company’s ability to implement its business strategies, including productivity initiatives and cost reduction plans, currency movements and other risks of conducting business internationally, the Company’s ability to successfully integrate acquired businesses, including Sierra Pacific Packaging, Inc., and the impact of regulatory and litigation matters, including the continued availability of the Company’s net operating loss offset to taxable income, and those that impact the Company’s ability to protect and use its intellectual property. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made and the Company undertakes no obligation to update such statements. Additional information regarding these and other risks is contained in the Company's periodic filings with the SEC.


Graphic Packaging at a Glance

• Provides innovative packaging solutions

• Largest folding carton manufacturer in the

U.S.

• Vertically integrated, low cost supplier

• Global presence for global customers with

facilities in

• U.S., Canada, Mexico, Europe, Asia

Pacific and Brazil

• Q3’11 TTM Segment Revenue Breakdown

• Paperboard Packaging: 83%

• Flexible Packaging: 17%

• Q3’11 TTM Financial Summary

• Revenue: $4,166mm

• Adjusted EBITDA: $578mm

• Operating Cash Flow: $368mm

Key Products

Food & Consumer

Packaging

Beverage Carrier

Cartons

Household and

Personal Care

Packaging

Microwaveable Products

Multi-wall

Bags

Heat Transfer &

Lithographic

Labels

Packaging Systems &

Machinery

Specialty Plastics

2


U.S. and Canada Central & South America Europe Pac Rim

Major Customers

55 Locations 3 Locations 6 Locations 3 Locations

Major Customers Major Customers Major Customers

Our Customers Are Global Food, Beverage and Consumer Products Companies

3

We Grow Globally with Our Customers

http://www.conagrafoods.com/

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http://www.conagrafoods.com/

http://en.wikipedia.org/wiki/File:Heinz.svg

http://images.google.com/imgres?imgurl=http://newsimg.bbc.co.uk/media/images/38625000/jpg/_38625937_fosters-300.jpg&imgrefurl=http://news.bbc.co.uk/2/hi/business/2603333.stm&h=180&w=300&sz=8&hl=en&start=1&um=1&tbnid=smLydGrIgAOr3M:&tbnh=70&tbnw=116&prev=/images?q=fosters+logo&um=1&hl=en&rlz=1T4GFRC_enUS218US218

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© 2011 Graphic Packaging Holding Company 4

GPK 55%

MWV 45%

Graphic

Packaging

13%

MeadWestvaco

9%

Smurfit Stone

8%

IP

7%

Rock-Tenn

7% Riverwood

5%

Other

51%

GPK 34%

Cascades 19%

RKT 24%

Paperworks 12%

Other 11%

GPK 32%

RKT 13%

MWV 9%

Atlas Hldg 5%

CSAR 3%

Other 38%

Graphic is a Leader in the Consolidating North American Folding Carton Sector

2001 Today a Transformed Industry

Source: Bain competitive analysis document, QSR/Foodservice Market Analysis and Management estimates.

Resulting in Leading

Market Share

CRB CUK


Beverage Carriers

33%

Food 55%

Consumer Products

12%

Centralized Managed Integrated Global Supply Chain to Our Customers

83% of Q3’11 TTM Revenue ($3,470mm)

Largest U.S. producer of folding cartons

Focused on food & beverage end markets

Vertically integrated network of 34 converting facilities and 7 mills (80+% integrated)

2 virgin (CUK) mills produced ~1.5 mm tons in FY2010

5 recycled (CRB & URB) mills produced ~0.9 mm tons in FY2010

5

Paperboard Packaging Business Overview

Industry End Markets Key Facts

Fiber Supply

Packaging Machinery

Carton Converting

Global Innovation & Carton Development

Paperboard Production

Wood

OCC


Flexible Packaging Business Overview

Industry End Markets

Other

11%

Key Facts

Agri-Chem

&

Food

41%

Building

Materials

17%

Pet & Pet

Care

11%

Chemicals

10%

Minerals

10%

Other

11%

17% of Q3’11 TTM Revenue ($696mm)

Consistent track record of solid cash flow generation

Recent initiatives include consolidating volumes in facilities, reducing cost structure and managing our capital expenditures

Leading market share position in multi-wall bags and heat transfer labels

Focused on agriculture, pet and building supply end markets and markets with cyclical upside

16 manufacturing facilities

Dedicated plant for woven polypropylene

New Innovative Market Launches to Drive Growth

Woven Poly Prop MWB with FreshLok

and Next Generation Slider

Hybrid Bag

Paper/Plastic

Combination

HTL Di Na

Tech Labels

6


Challenging Market Environment

• Food inflation, inability to raise prices => pressure on profits

• Pushing for “retail-ready” solutions

• Unique packages per retailer • Direct buy of packaging

Reta

ilers

CP

G

Cu

sto

mers

• High unemployment > 9% • Low confidence, frugal spending • Risk averse to try new products

• High input inflation, limited new product/promotional activity

• Pressures on growth, profit • Cost reduction/substitution

alternatives • More industry consolidation

Co

nsu

mers

Macro-Environment Impacting Packaging Industry

US Civilian Unemployment Rate

6.9%

8.2%

9.3%9.7%

10.0%9.7% 9.6% 9.6% 9.6%

8.9%9.1% 9.1%

4%

5%

6%

7%

8%

9%

10%

11%

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2009 2010 2011

FAO – Annual Food Price Indices

US Civilian Unemployment Rate

The Index of Consumer Sentiment

7


Multifaceted Strategy Proven During Difficult Operating Environment

• Optimize our core business

• Supply chain optimization and disciplined investments in asset base to gain operational efficiencies

• Implement price increases to recover cost inflation

• Grow by leveraging our strengths

• Invest in innovation

• Opportunistically evaluate strategic acquisitions

• Continue to broaden global reach

• Build a high performance culture

• Extensive continuous improvement programs to reduce costs

• Invest in energy solutions and sustainable packaging

• Results in significant cost reductions ($60-$80 million per year)

8


Source: Bain Consulting.

Continue to Optimize Supply Chain

GPK Converting Facility

GPK Paperboard Mill

Industry Average

Ca

sh

Co

st

Example: Cereal Customers

West Coast Region /Private Label

• Craft Beer

• Facial tissue

• Raisins

• Frozen Foods

• Soap & Detergent

Midwest Region / Private Label

• Meat

• Facial tissue

• Frozen Foods

• Dairy/Ice Cream

East Region / Private Label

• Confectionary

• Bakery

• Meat

• QSR/Food Service

Centrally Managed Support Functions

• Overall Demand / Capacity Balance

• Raw Material Planning & Procurement

• Graphics / Prepress Support

Locally Managed Support Functions

• Customer Service

• Sales

• Manufacturing

• Field Technical Service

National Accounts Regional Accounts Low Cost Mills

Combined Operations Yield Board from Low Cost Mills in the U.S. to Low Cost Converting Plants

9


Key project savings over next 3 years

• Energy reduction/sourcing

• Biomass boiler

• Heat recovery

• Productivity investments

• Higher pressure drying cans

• Automated threading systems

• New top felt run

• Waste reduction

• Productivity Investments

• Make ready improvement

• Decrease in press conversion times

• Plant consolidation

• Plant consolidation

Mills

Converting

Flexible

Strong Backlog of Cost Reduction Projects

10 1) Presented on a pro forma basis.

SG&A

• Cost reduction projects that will deliver $60-$80 million annual benefit over next 3 years have been planned and/or in process

• Dedicated continuous improvement resources to drive execution

• Capex approved for major projects

Continuous Improvement Cost Reduction


Making Strategic Investments to Optimize, Grow and Build

11

- Productivity investments

- Energy reduction/sourcing

- Example – Biomass will make mill self-sufficient for electric and steam generation reducing dependency on fossil fuel-based alternatives

Performance Enhancement

Initiatives

(i.e. Macon Biomass)

- Optimizes manufacturing footprint

- Better aligns volumes within geographies

- Leverages Mills

- Lowers transportation costs

- Better matches orders with production facilities

- Streamlines overhead functions

Tuck-Under Acquisitions (i.e. Sierra Pacific)

Facility Expansions

(i.e. Perry & W. Monroe)

Enterprise Wide Systems

- Grows a unique portfolio of solutions to help customers

- Differentiate products

- Lower distribution costs

- Improve sustainability metrics

- Example – over 75k new tons annually of CUK carton to replace litho-laminated structure

Product

Innovation

Focuses

on better,

faster,

smarter,

cheaper

solutions

to the

market

Enables Graphic

to Deliver - Innovative cost

saving solutions to

customers

At the Same Time - Growing earnings

- Generating cash


Growth from New Product Innovation

Consumer Convenience Active consumer, grab and go

Brand Building Differentiating in a crowded space

Value and Cost Reduction Sustainability & substitution

Microwave: 6% year-over-year growth for 2010

Fridge Vendor: now available in 26 countries with 80% GPK share of U.S. energy drink market

Z-Flute and Hi Caliper cartons increasingly replacing corrugate

New technology launches for cat litter and detergent reducing fiber usage by 20%

12

Shape differentiation

Holographic, metallic laminations and hot stamping decorating technologies

Interactive technology connecting consumers to brands in real time


GPI’s efforts in China are focused on the fast growing

dairy and beverage segments

• Large dairy market unveiled for multipack and world’s largest beer consumption with over 5% growth

• Urbanization and brand competition leads the multipack potential: increasing income and growing middle class have triggered the demand for premium products in soft drinks, beer and dairy

• Trends of switching from manual to automated packaging machines to drive labor-cost-savings and higher production efficiency

Aseptic Pkgs Can Solutions JC Wraps

Broaden Global Reach Right Products for Right Geographies

13


Virgin mills use 100% locally grown pine

as fiber source

CRB is made from 100% recycled fibers

Since 2008, our mills have reduced their

carbon footprint by 6%

Reduced water usage by 2% on a per

ton basis

15% less packaging than original box

Saves enough packaging in one year to

wrap the world in a ring of new boxes

Made from renewable material (pine

trees)

Still recyclable

Renew

Recycle

Regenerate

Our Products Address Global Concerns Regarding Sustainability

Compost

New CUK Carton to Replace Litho-Lam

Graphic Packaging Mills

14


Financial Overview

15


Strengthened Financial Performance During Downturn

Revenue Adjusted EBITDA

Cash Flow from Operations

(US$ in millions)

16

Adjusted EBITDA Margin


Industry Leading Paperboard Packaging Segment Drives Financial Gains

Paperboard Packaging

(US$ in millions)

Revenue & Growth YoY

Flexible Packaging

EBITDA² & Margin

(EBITDA² – Capex) &

% of Revenue

17 1) Presented on a pro forma basis.

2) Note: Segment EBITDA excludes corporate expense.


Consolidation and Productivity Improvements Drives Financial Gains

Poised for Continued Performance Improvement

• Increased operating leverage with no capacity reduction

• Strong infrastructure for creating value with “tuck under acquisitions”

• Continued investment in product development to expand addressable market

• $60-$80 million annual cost reduction

• Mitigating business risk with contractual inflation recovery and “net purchaser of paperboard” position

$565

~$111

~($21)

~($120) ~($29)

~$87

~($15)

$578

$200

$300

$400

$500

$600

$700

$800

Q3-10 TTM Price Volume/Mix Input Inflation Labor & Benefit Inflation Performance FX/Other Q3-11 TTM

Ad

j.

EB

ITD

A i

n $

mil

lio

ns


Actively Manage Risk of Input Cost Inflation and Paperboard Demand

Customer supply agreements contain inflation recovery provisions

• ~85% of paperboard packaging business under multiyear contract

• Contracts contain “look back” inflation recovery calculation – average 9 month look back period

• ~$100 million of 2010 input inflation – YTD Sept 2011 price gain of ~$89 million

Convert more paperboard than mills produce

• Over 200,000 tons purchased

• Optimize mill production – throughput, waste, trim

• Maintain “sold out” position of mills – mitigate market demand risk

Converting

Folding Carton Cost Breakdown

Secondary Fiber

14.4%

Energy

12.4%

Freight/Packaging

5.9%

Virgin Wood

15.2% Labor &

Overhead

33.7%

Chemicals

18.5%

Variable

Costs

21.1%

Fixed Costs

24.4%

Board

54.5% 80+%

Vertically

Integrated

Paperboard Production


Q3 2011 Earnings Benefit from Price and Debt Reduction

$ millions

• Revenues up by ~3%

• Adjusted Net Income up ~40% Q3’11 and ~80% YTD

• Adjusted for $80.0 million net non-cash goodwill impairment

• Lower cash interest driven by debt reduction

• Utilizing $1.2 billion NOL tax shield

20

Q3'11 Q3'10 Var

YTD

Sep'11

YTD

Sep'10 Var

Revenues $1,073.3 $1,042.8 $30.5 $3,154.6 $3,083.4 $71.2

Adjusted EBITDA $152.0 $151.3 $0.7 $444.8 $441.2 $3.6

Net Income ($47.5) $17.6 ($65.1) $11.3 ($8.9) $20.2

Adjusted Net Income $33.8 $24.1 $9.7 $95.1 $53.6 $41.5


Strong Cash Generation Leads to Strong Debt Reduction

1) Since March 2008.

2) Shown on a pro forma basis; GAAP based ratio was 6.3x.

Debt Profile

• Low cost secured loan facilities at LIBOR +2.41%

• Well positioned to refinance 2014 maturities

• Rating agency upgrades

• S&P to BB and Moody’s to Ba3

• Significant liquidity of ~$525 million (at 9/11)

• Expect ~$200-$220 million net debt reduction in

2011

21

Cumulative Net Debt Reduction Since 2008¹ Net Leverage

Key Highlights

Amount

Cash & Cash in Equivalents 157$

Revolver (Matures in 2013) -$

Term Loan B (Matures in 2014) 769

Term Loan C (Matures in 2014) 909

9.500% Notes (Matures in 2017) 425

7.785% Notes (Matures in 2018) 250

Other 11

Net Debt 2,207$

0.0x

x Q3'11 TTM EBITDA

3.6x

1.3x

2.9x

3.8x

4.1x

4.1x


Diluted Adjusted Earnings Per Share

Meaningful EPS Growth

• Strengthening balance sheet

• Rapidly approaching optimal 3.0x-2.5x leverage

• Continued cost reduction drives margin improvement

• New products expand addressable market

• Tax shield with $1.2 billion NOL

• Strategic acquisitions with significant synergies

• 13% cash flow yield

Attractive Earnings Growth

Summary Value Proposition

22 1) Presented on pro forma basis.


Paperboard Packaging Focus ▲ “Purest play” public U.S. paperboard packaging stock

Market Leader ▲ Strong market positions and scale in attractive product categories

Growing End Markets ▲ Diverse global customers in stable food, beverage and consumer

sectors with growing emerging market exposure

Innovative Products ▲ Innovative products with a focus on sustainability

Technological Prowess ▲ Proprietary system solutions for global beverage packaging

Margin Enhancing Business Model ▲ Vertically integrated, low cost supplier with inflation pass-through

capability and track record of cost reductions

Strong Financial Performance ▲ Significant free cash flow generation and decreasing leverage

Disciplined Investments ▲ Successful capital investments and proven acquisition track record

Attractive Earnings Growth ▲ Attractive earnings growth supported by significant NOL of ~$1.2bn

Proven Management Team ▲ Best-in-class management with proven track record

Key Investment Considerations

23


Appendix

24


Reconciliation of Non-GAAP Financial Measures

In millions, except per share amounts 2011 2010

Net (Loss) Income $ (47.5) $ 17.6

Add (Subtract):

Income Tax (Benefit) Expense (5.6) 11.0

Equity Income of Unconsolidated Entities (0.7) (0.6)

Interest Expense, Net 34.8 44.0

Depreciation and Amortization 73.4 72.8

EBITDA 54.4 144.8

Goodwill Impairment Charge 96.3 -

Loss on Modification or Extinguishment of Debt 1.3 6.5

Adjusted EBITDA $ 152.0 $ 151.3

Three Months Ended

September 30,

The tables below set forth the calculation of the Company's earnings before interest expense, income

tax expense, equity income of unconsolidated entities, depreciation and amortization (“EBITDA”),

Adjusted EBITDA, Adjusted Net Income and Net Leverage Ratio. Adjusted EBITDA and Adjusted Net

Income exclude charges associated with the Company's combination with Altivity Packaging, LLC and

the acquisition of the assets of Sierra Pacific Packaging, Inc. as well as charges associated with

modification or extinguishment of debt. The Company's management believes that the presentation of

EBITDA, Adjusted EBITDA, Adjusted Net Income and Net Leverage Ratio provides useful information to

investors because these measures are regularly used by management in assessing the Company's

performance. EBITDA, Adjusted EBITDA, Adjusted Net Income and Net Leverage Ratio are financial

measures not calculated in accordance with generally accepted accounting principles in the United

States (“GAAP”), and are not measures of net income, operating income, operating performance or

liquidity presented in accordance with GAAP.EBITDA, Adjusted EBITDA, Adjusted Net Income and Net

Leverage Ratio should be considered in addition to results prepared in accordance with GAAP, but

should not be considered substitutes for or superior to GAAP results. In addition, our EBITDA, Adjusted

EBITDA, Adjusted Net Income and Net Leverage Ratio may not be comparable to Adjusted EBITDA or

similarly titled measures utilized by other companies since such other companies may not calculate

such measures in the same manner as we do.




September 30, December 31, December 31, December 31,

Calculation of Net Debt: 2011 2010 2009 2008 1

Short-Term Debt and Current Portion of Long-Term Debt 19.4 26.0$ 17.6$ 18.6$

Long-Term Debt 2,344.3 2,553.1 2,782.6 3,165.2

Less:

Cash and Cash Equivalents (157.1) (138.7) (149.8) (170.1)

Total Net Debt 2,206.6$ 2,440.4$ 2,650.4$ 3,013.7$

Adjusted EBITDA 577.5 573.9$ 556.4 502.0

Net Leverage Ratio 3.8 4.3 4.8 6.0

1) Presented on a pro forma basis.

The table below sets forth the calculation of the Company's Total Net Debt and Net Leverage Ratio. The Company's management believes that

the presentation of Total Net Debt and Net Debt Leverage provides useful information to investors because these measures are regularly used by

management in assessing the Company's performance. Total Net Debt is a financial measure not calculated in accordance with generally

accepted accounting principles in the United States ("GAAP"). Total Net Debt and Net Leverage Ratio should be considered in addition to

results prepared in accordance with GAAP, but should not be considered superior to GAAP results. In addition, our Total Net Debt and Net

Leverage Ratio may not be comparable to similarly titled measures utilized by other companies since other companies may not calculate such a

measure in the same manner as we do.




TTM Ended

In millions September 30, 2011 2010 2009 2008 1

Net Sales 4,166.2$ 4,095.0$ 4,095.8$ 4,079.4$

Altivity Net Sales - - - 335.6

Consolidated Net Sales 4,166.2$ 4,095.0$ 4,095.8$ 4,415.0$

Net Income (Loss) 30.9$ 10.7$ 56.4$ (99.7)$

Add (Subtract):

Income Tax Expense 2.4 27.5 24.1 34.4

Equity Income of Unconsolidated Entities (1.8) (1.6) (1.3) (1.1)

Interest Expense, Net 151.2 174.5 196.4 215.4

Depreciation and Amortization 293.7 299.3 326.8 269.2

Adjusted EBITDA 476.4 510.4 602.4 418.2

Charges Associated with Combination with Altivity - 55.1 71.7 17.7

Charges Associated with Sierra Acquisition 1.7 - - -

Asset Impairment and Shutdown Charges - - 13.0 .

Goodwill Impairment Charge 96.3 - - -

Inventory Step Up Related to Altivity - - - 24.4

Loss on Modification or Extinguishment of Debt 3.1 8.4 7.1 -

Alternative Fuel Tax Credits Net of Expenses - - (137.8) -

Adjusted EBITDA 577.5 573.9 556.4 460.3

Altivity Adjusted EBITDA - - - 26.2

Consolidated Adjusted EBITDA 577.5$ 573.9$ 556.4$ 486.5$

Net Income (Loss) 30.9$ 10.7$ 56.4$ (99.7)$

Altivity Net Loss - - - (24.5)



Goodwill Impairment Charge 80.0 - - -




Asset Impairment and Shutdown Charges - - 13.0 15.5

Adjusted Net Income (Loss) 115.7$ 74.2$ 10.4$ (66.6)$

Per Share - Basic and Diluted

Net Income (Loss) 0.08$ 0.03$ 0.16$ (0.29)$

Altivity Net Loss - - - (0.07)$






Asset Impairment and Shutdown Charges - - 0.04 0.05

Adjusted Net Income (Loss) Per Share * 0.31$ 0.22$ 0.03$ (0.19)$

* May not foot due to rounding

Weighted Average Number of Shares Outstanding - Basic 364.5 343.8 343.1 341.6

Weighted Average Number of Shares Outstanding - Diluted 369.8 347.4 344.6 341.6

1) Presented on a pro forma basis.

Year Ended

December 31,

The following pro forma results for 2008, give effect to Graphic Packaging Corporation's combination with Altivity Packaging, LLC as if it had occurred on January 1, 2008

and exclude the 2008 results for the two coated-recycled board mills divested in September 2008. The Company's management believes that the pro forma presentation

provides useful information to investors in light of the Company's combination with Altivity Packaging, LLC. The pro forma information is not necessarily indicative of what

the combined companies' results of operations actually would have been if the transaction had been completed on the date indicated.




TTM Ended

In millions September 30, 2011 2010 2009 2008

Net Sales by Segments:

Paperboard Packaging 3,470.0$ 3,419.4$ 3,423.5$ 3,565.7$

Flexible Packaging 696.2 675.6 672.3 849.3

Total Net Sales 4,166.2$ 4,095.0$ 4,095.8$ 4,415.0$

Adjusted EBITDA by Segments:

Paperboard Packaging 568.5$ 555.5$ 542.5$ 484.0$


Corporate (37.9) (31.2) (41.0) (58.1)

Total Adjusted EBITDA 577.5$ 573.9$ 556.4$ 502.0$

Adjusted EBITDA Margin by Segment:

Paperboard Packaging 16.4% 16.2% 15.8% 13.6%

Flexible Packaging 6.7% 7.3% 8.2% 9.0%

Total Adjusted EBITDA Margin 13.9% 14.0% 13.6% 11.4%

Capex by Segments:



Corporate 2.6 4.3 13.5 29.1

Total Capex 157.3$ 122.8$ 129.9$ 203.7$

EBITDA - Capex by Segments:



Corporate (40.5) (35.5) (54.5) (87.2)

Total EBITDA - Capex 420.2$ 451.1$ 426.5$ 298.3$

(EBITDA - Capex) & % of Revenue by Segments:

Paperboard Packaging 12.1% 12.9% 12.7% 9.1%

Flexible Packaging 5.7% 6.8% 6.9% 7.1%

Year Ended

December 31,

Graphic Packaging International, Inc.s1.q4cdn.com/921353404/files/doc_presentations/2011/GPK... ·...

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