IPG Investor Presentation - itape.com · 2014 Q4 Results: Sequential IPG Investor Presentation 20...

IPG Investor Presentation


March 2015

2

Safe Harbor StatementCertain statements and information included in this presentation constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, "forward-looking statements"), which are made in reliance upon the protections provided by such legislation for forward-looking statements. All statements other than statements of historical facts included in this presentation, including statements regarding the Company's strengths, the Company's path forward, including its acquisition strategy and its strategies to increase revenues and reduce cost of sales, its projected cost reductions, the Company's expected annualized saving from, and timing for completion of, manufacturing rationalization projects, the Company's expected income tax benefit from the Legal Entity Reorganization, timing for fully utilizing its NOLs, and effective income tax rate for 2015, the Company's investment and share repurchase plans, and the Company's full year 2015 outlook, may constitute forward-looking statements. These forward-looking statements are based on current beliefs, assumptions, expectations, estimates, forecasts and projections made by the Company's management. Words such as "may," "will," "should," "expect," "continue," "intend," "estimate," "anticipate," "plan," "foresee," "believe" or "seek" or the negatives of these terms or variations of them or similar terminology are intended to identify such forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not guarantees of future performance. Such statements are also subject to assumptions concerning, among other things: business conditions and growth or declines in the Company's industry, the Company's customers' industries and the general economy; the anticipated benefits from the Company's manufacturing facility closures and other restructuring efforts; the quality, and market reception, of the Company's products; the Company's anticipated business strategies; risks and costs inherent in litigation; the Company’s ability to maintain and improve quality and customer service; anticipated trends in the Company’s business; anticipated cash flows from the Company’s operations; availability of funds under the Company’s Credit Facility; and the Company's ability to continue to control costs. The Company can give no assurance that these statements and expectations will prove to have been correct. Actual outcomes and results may, and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such differences may be material. You are cautioned not to place undue reliance on any forward-looking statement.

For additional information regarding some important factors that could cause actual results to differ materially from those expressed in these forward-looking statements and other risks and uncertainties, and the assumptions underlying the forward-looking statements, you are encouraged to read "Item 3. Key Information - Risk Factors," "Item 5. Operating and Financial Review and Prospects (Management's Discussion & Analysis)" and statements located elsewhere in the Company's Annual Report on Form 20-F for the year ended December 31, 2013 and the other statements and factors contained in the Company's filings with the Canadian securities regulators and the US Securities and Exchange Commission. Each of these forward-looking statements speaks only as of the date of this presentation. The Company will not update these statements unless applicable securities laws require it to do so.

This presentation contains certain non-GAAP financial measures as defined under applicable securities legislation including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Earnings, and Adjusted Earnings per Share. The Company believes such non-GAAP financial measures improve the transparency of the Company’s disclosures, and improves the period-to-period comparability of the Company’s results from its core business operations. As required by applicable securities legislation, the Company has provided definitions of these non-GAAP measures contained in this presentation, as well as a reconciliation of each of them to the most directly comparable GAAP measure, on its website at http://www.intertapepolymer.com under “Investor Relations” and “Financial Presentations.” You are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP measures to their most directly comparable GAAP measures set forth on the website and should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP.

IPG Investor Presentation3

Company Profile• The second largest tape manufacturer in North

America• Employs ~1,900 people• Approximately 61% of sales from products with

a Top 2 market position in North America

65%

19%

16%Tapes

Films

Woven &Other

2014$812.7 million

Net Sales


Our Locations• 10 Manufacturing Facilities in

North America• 1 Manufacturing Facility in

Europe


Tapes At-A-Glance#1 or #2 Market

Leadership Position in North America


Carton Sealing Tapes

Hot Melt (#2)

Natural Rubber (#1)

Water-Activated (#1)

Industrial & Specialty Tapes

Paper (#2)

Flatback (#1)

Filament (#2)

Stencil (#1)

6

Woven & Other At-A-Glance


Agro-Environmental

Structure Fabrics (#1)

Woven Coated Geomembrane (#1)

Hay Cover Fabrics (#1)

Poultry Fabrics (#1)

Building & Construction

Lumber Wrap (#2)

Fiberglass Sleeves (#1)

#1 or #2 Market Leadership Position in North America

7

Films At-A-Glance


Key Raw Materials• Raw material inputs:

– Resin– Adhesive– Paper– Other (2)

(1) Based on usage of raw materials in 2014.(2) Other includes but not limited to Latex, Fiberglass and Starch.


47%

20%

17%

16%

Raw Materials(1)

ResinAdhesivePaperOther

Strengths

Wide breadth of products

Proven management

team

Established relationships

with customers

Strong financial

position and profitability

Well positioned to invest in strategic

opportunities


Share Price – 12 YearsHighest share price in 12 yearsWe are proud of the IPG turn-around story so far


Our Strategic Path ForwardTop Line Drivers• Grow organically through

• Focus on core businesses (Tapes & Woven)• R&D (New products, Innovation, Process

Improvement)• New distribution channels and market verticals

• Execution of acquisition strategy to complement organic growth

Cost of Sales Drivers• Consolidation of capacity• Modernization of plants• Continuous improvements (IPS(1))• Minimization of labor and energy costs• Market Pricing Dynamics• Cost reduction and leverage• Target gross margin of 22%-24%(2)

(1) Intertape Performance System.(2) Expected on an annualized basis once the savings related to the South Carolina Project begin to be fully realized.

Next Steps

Continue to Create a Culture

of Growth

Continue to Grow Market Leadership

Position in Core Products

Continue to Execute on Operational

Initiatives and Efficiency Projects

Continue to Identify Profitable

High Growth Market Segments

Continue to Invest in the Business,

Grow the Business


Reduce Manufacturing Costs and Leverage CapacityKey Initiatives

1) Plant consolidations

2) Material productivity gains

3) Labor and energy savings measures

• EPA 2014 ENERGY STAR Partner of the Year

Cost Reductions Achieved

Greater than $17 million for 2012

Approx. $14 million for 2013

$14.1 million for 2014

Cost Reductions Projected

$15 to $18 million for 2015 which includes South Carolina Project savings

At least $13 million per year for the South Carolina Project(3)

(1) Starting in Q2 2011.(2) Approximately $3 million in 2013.(3) Savings expected to start in 2015 with the first full year benefits of at least $13 million expected to start in 2016.(4) On an annualized basis when in full effect.

• Brantford (Ont)•Announced: Q4 2010•Completed: Q2 2011

$4 million(1)

• Carbondale (IL), Richmond (KY), Tremonton (UT) & Truro, NS

•Announced: Q2 2012•Production transfers completed: Q1 2013

•Production start-up issues resolved: Q3 2013

$6 million(2)

• Columbia (SC)•Announced: Q1 2013•Expected to be completed: 1H 2015

At least $13 million(3)

Manufacturing Rationalization ProjectsCompleted and in Progress

$23 million in total annualized savings(4)


Transitioned from an Asset-Based Loan to a Cash Flow-Based Loan Facility

Benefits ABL - old Cash Flow - new

Increased Liquidity

• $200MM• Liquidity limited by a

borrowing base

• $300MM with $150MM accordion

• Liquidity governed by leverage ratio, which provides more flexibility

Better Pricing • LIBOR + 200 bps(current pricing)

• Pricing grid increases based on usage of line

• LIBOR + 125 bps (initial pricing)

• Pricing grid increases based on leverage ratio only

Increased Flexibility

• Stricter financial covenants and restricted payment limitations

• More flexibility with acquisitions and restricted payments (e.g., dividends, share repurchases)

*The transition from the Asset-Based Loan to the Cash Flow-Based Loan facility occurred on November 18, 2014.


Legal Entity Reorganization(1)

• $1.8 million upfront income tax expense incurred in 2014• Greater than $7 million annualized income tax benefit expected beginning on October 30,

2014• Cash taxes were still only $4.3 million for 2014

Net Operating Losses• Net Operating Losses (“NOL”) available for use (as of December 31, 2014)

• $50.7 million of US NOL• $20.6 million of Canadian NOL

• Expect to fully utilize US NOL during 2015

Effective Tax Rate(2)

• 2015 expected to be approximately 30% to 35%

Tax Position

(1) Effective October 30, 2014 in order to more efficiently manage the Company’s intercompany debt.(2) Assuming the geographic distribution of earnings is consistent with 2014.


Use of Funds


Continued investment to grow our business• Strategic high-return

projects• R&D investment

• Accelerate organic growth

• An increased focus on technologies judged to be disruptive

Acquisitions• Potential focus

areas include:• Expansion in tape,

woven and packaging adjacencies and

• Additional geographic expansion

Dividends• 50% annualized

increase announced in Q3 2014

• Current annualized dividend amount is $0.48 per share

• Total dividends paid during 2014 were $24.2 million or $0.40 per share

Share repurchases• 2014:

repurchased 597,500 shares for $7.8 million

• 2015: Our intent remains to continue to execute on this plan, which expires on July 9, 2015, but on an opportunistic basis.

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Results & Outlook


2014 Q4 Results: Year-Over-Year

• Gross margin decreased from 19.8% to 18.0% primarily due to an unfavourable product mix variance and the South Carolina Duplicate Overhead Costs of approximately $1.6 million, partially offset by net manufacturing cost reductions and an increase in the spread between selling prices and higher raw material costs. Brantford Pension non-cash charge of $0.3 million was included in the fourth quarter of 2014

• Adjusted EBITDA Margin decreased from 12.5% to 10.3% primarily due to higher SG&A and lower gross profit

• The decrease in adjusted net earnings was primarily due to the non-recurrence of the $43.0 million tax benefit recorded during the fourth quarter of 2013 to recognize the previously derecognized US deferred tax assets and the partial utilization of such deferred tax assets during the fourth quarter of 2014


in millions US $(except per share amounts)

Revenue $200.8 $191.5 4.8%Gross profit $36.2 $37.9 (4.5%)Net earnings $6.1 $53.6 (88.7%)Adj Net Earnings $11.9 $52.4 (77.3%)Adj EBITDA $20.6 $24.0 (14.0%)EPS, fully diluted $0.10 $0.86 (88.7%)Adj EPS, fully diluted $0.19 $0.84 (77.3%)

Q4 2014 Q4 2013 Change %

19

2014 Q4 Results: Sequential

• Gross margin decreased from 19.4% to 18.0% primarily due to an unfavorable product mix variance, a decrease in the spread between selling prices and higher raw material costs, incremental South Carolina Duplicate Overhead Costs of approximately $0.5 million and temporary net manufacturing cost increases, partially offset by the non-recurrence of a portion of the Brantford Pension Charge ($1.1 million)

• Adjusted EBITDA Margin decreased from 13.0% to 10.3% primarily due to lower gross profit• The decrease in adjusted net earnings compared to Q3 2014 was primarily due to lower gross profit



Revenue $200.8 $209.1 (4.0%)Gross profit $36.2 $40.7 (10.9%)Net earnings $6.1 $6.0 0.8% Adj Net Earnings $11.9 $14.0 (15.0%)Adj EBITDA $20.6 $27.1 (24.0%)EPS, fully diluted $0.10 $0.10 1.0% Adj EPS, fully diluted $0.19 $0.22 (14.8%)

Q4 2014 Q3 2014 Change %

20

2014 Results: Full Year

• Gross margin decreased slightly from 20.3% to 20.1% primarily due to the South Carolina Duplicate Overhead Costs, an unfavourable product mix variance and the non-cash Brantford Pension Charge, partially offset by an increase in the spread between selling prices and higher raw material costs and net manufacturing cost reductions

• Adjusted EBITDA margin slightly decreased from 13.2% to 12.8% primarily due to increased SG&A and R&D partially offset by higher gross profit

• The decrease in adjusted net earnings was primarily due to the non-recurrence of the $43.0 million tax benefit recorded during the year ended December 31, 2013 to recognize the previously derecognized US deferred tax assets and the partial utilization of such deferred tax assets during the year ended December 31, 2014



Revenue $812.7 $781.5 4.0%Gross profit $163.6 $158.5 3.2%Net earnings $35.8 $67.4 (46.8%)Adj Net Earnings $52.4 $103.4 (49.4%)Adj EBITDA $103.9 $103.1 0.8%EPS, fully diluted $0.58 $1.09 (47.2%)Adj EPS, fully diluted $0.84 $1.68 (49.7%)

2014 2013 Change %

21

Quarterly Adjusted EBITDA $U

S m

illio

ns


Total Debt to TTMAdjusted EBITDA


Average Cost of Debt (1)

(1) At quarter end.

• Percent of floating debt was approximately 80% as of December 31, 2014


Outlook


• Q1 2015 revenue lower than Q1 2014 primarily due to decline in resin and crude oil prices:– temporary impact from the de-stocking of inventory by our customers – decline in average selling price mainly in film products

• Q1 2015 gross margin and adjusted EBITDA lower than Q1 2014 due to the factors mentioned above, as well as South Carolina Duplicate Overhead Costs

• South Carolina Duplicate Overhead Costs of ~$2.3 million in Q1 2015 (~$0.7 million non-cash charges and will not affect adjusted EBITDA)

• South Carolina Duplicate Overhead Costs are expected to total ~$3.7 million in the first half of 2015

Outlook (continued)


• Manufacturing cost reductions for 2015 are expected to be $15 to $18 million– includes the cash savings from the South Carolina Project

• Gross margin between 22% and 24% upon completion of the South Carolina Project

• Total capital expenditures for 2015: $32 and $37 million

• 2015 effective tax rate 30% to 35% and full utilization of US net operating losses towards the end of 2015

Thank You!


IPG Investor Presentation - itape.com · 2014 Q4 Results: Sequential IPG Investor Presentation 20...

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