POSITIONED...POSITIONED Delivering Results FOR GROWTH Analyst & Investor Day October 14, 2015 Ann B....
Transcript of POSITIONED...POSITIONED Delivering Results FOR GROWTH Analyst & Investor Day October 14, 2015 Ann B....
POSITIONED
Delivering Results
FOR GROWTH
Analyst & Investor Day
October 14, 2015
Ann B. Gugino
Executive Vice President, CFO & Treasurer
Patterson Companies
Ann Gugino
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• Former vice president of strategy and planning at Patterson Companies
• Former vice president of finance and operations at Patterson Dental
• Previously worked for Ernst & Young LLP
Executive Vice President, CFO & Treasurer
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Financial Platform Strengths
• Strong cash flow enables key investments • Poised to accelerate return on invested capital (ROIC) • Multi-pronged capital allocation strategy • Conservative, well-capitalized balance sheet • Financial flexibility
Transformation Overview
Acquisition of Animal Health International
Terms
• Purchase price – $1.1B in cash
• Represented approx 16 multiple of LTM March 2015 EBITDA of $68M or
11.5 multiple post-synergy benefits
Financing • New $1.5B unsecured credit facilities
• Currently levered at 2.2x
Benefits • Transaction will be accretive from year one onward
• Proceeds of $715M from sale of Medical used to offset purchase price
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Benefits
Revenue Breakdown
56%
33%
11%
Fiscal 2015
49% 51%
Animal Health
Dental
2015 Pro Forma
Medical
Veterinary
Dental
20% 80%
United States
International
Pro Forma by Geography
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Net Synergies of $20M-30M Over 3 Years
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Net Synergies Range
Benefit ($M)
Back Office/Shared Services $8 – 12
Companion Health 3 – 5
Supply Chain 12 – 17
Dis-Synergies
$20 – 30
(3) – (4)
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Reported Consolidated ROIC 12.8%
Less: Patterson Medical ROIC 5.8%
Continuing Operations ROIC 17.4%
ROIC Analysis FY15
Sustained Sales Growth (Continuing Operations)
2,380 2,382 2,454
755
1,203
1,457
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY13 FY14 FY15
3,135
3,585
3,911
In millions of $
Dental Veterinary
CAGR =
11.7%
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$
1.62
1.75
1.89
1.50
1.75
2.00
FY13 FY14 FY15
* Excludes deal amortization ** Excludes deal amortization and transaction costs
$
**
CAGR =
8.0%
Consistent Adjusted Diluted EPS Growth (Continuing Operations)
* *
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Cash Returned to Shareholders
147
417
223
182
130
292
0
50
100
150
200
250
300
350
400
450
FY11 FY12 FY13 FY14 FY15 FY16 (E)
In millions of $
*
* Subject to market conditions and operating performance
$
92
200
10
82
48
96
86 43
179
55
362
50
97
Share Repurchases
Dividends
Cash Returned to Shareholders
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Capital Allocation
Expect to
generate $1.5B of
free cash flow
over next 5 years
In millions of $
226
292 279
156
200 230
250
290
330
370
0
50
100
150
200
250
300
350
400
11 12 13 14 15 16(E) 17(E) 18(E) 19(E) 20(E)FY
Investments to drive
organic growth
Opportunistic acquisitions/ investments
Continuous dividend growth
Share repurchases
$
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Cash Repatriation
• Acquisition of Animal Health International & sale of Medical
created unique opportunity to efficiently repatriate excess foreign cash balances
• Repatriating roughly $200M in cash from both Patterson Medical & Patterson Dental Canada
• Performing all repatriations in same FY creates tax synergies, with estimated tax savings in the range of $15M – 20M
• Also allowed us to pay down $100M on revolving credit line needed for acquisition, save on future interest expense & invest in buybacks
• Full cost of repatriation recorded as additional income tax expense in FY16 Q1, about $12M
• For full year, expect normalized income tax rate of about 35%
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Patterson Has Focused on Investing in the
Business, Returning Excess Capital
7-year total capital allocation as % OCF
$32
2009 2010 2011 2012
30%
2013 2014 2015
23%
28%
$48
$125
$30
$12
$54
$37
$50
$52
$97
$30
$55
$23
$362
$22
$43
$15
$179
$40
$86
$146
$96
$63
$86
$82
$97
$11
Capex Acquisitions Dividends Share Repurchases Total
15% 25% 19% 45% 104%
Capex Acquisitions Dividends Share Repurchases
$266
$124
$263
$321
$299
$196
$263
FY:
In millions of $
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Operating CF
.
. . . .
. .
Returning Capital to Shareholders
(% of cumulative 3-year operating cash flow)*
110%
215%
111%
109%
103%
85%
0 20 40 60 80 100 120 140 160 200 300
17% 23% 28% 43%
61% 81% 62% 12%
11% 48% 20% 32%
12% 45% 14% 38%
12% 46% 46%
16% 52% 7% 11%
Peer median % of Cumulative OCF 109%
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Capex Acquisitions Dividends Share Repurchases
*Source: J.P. Morgan
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Adjusted Operating Margin
FY2015 FY16 Target
Dental* 12.6% 12.8-13.0%
Animal Health 4.4%** 4.6-4.8%
Consolidated 8.1% 7.0-8.0%
Target Assumptions
• Minimum of 2-3% sales growth required to maintain margin levels
• 3-5% sales growth results in 20-30bps increase in margins
• 5+% sales growth yields 50bps gain in margins
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FY17-20
Up 30-50bps
Up 30-50bps
Depends on mix
* Excludes Corporate ** Companion only
Perform FY16 Q1 Performance
• Sales from continuing operations of $1.1B
• Dental consumables sales rise 3.8% in constant currency,
excluding Q1’s extra week
• Animal Health sales climbed 48% in constant currency,
reflecting contribution of acquisition
• Adjusted EPS from continuing operations of $0.47, plus EPS
from discontinued Medical operations of $0.10
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Fiscal 2016 Guidance
Guidance Assumptions
• Stable North American & international markets; conditions similar to FY15
• Excludes transaction-related costs, integration expense & deal amortization, non-recurring IT initiative training costs & financial impact from cash repatriation
• Includes 10.5 months of contribution from Animal Health International acquisition
• Includes impact of extra week in FY16 vs. previous year
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1.00
1.50
2.00
2.50
FY13 FY14 FY15 FY16E
1.89
2.40- 2.50
1.75 1.62
Adjusted EPS: $2.40-2.50 (Continuing Operations)
$
**
* Excludes deal amortization ** Excludes deal amortization and transaction costs
* *
5-Year Financial Objectives
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2016-2020
8-12% 4-6%
15+%
EPS Growth Organic RevenueGrowth
ROIC Free Cash FlowConversion
Aggressive, Yet Realistic Organic Targets
100%
POSITIONED
Delivering Results
FOR GROWTH
Questions?
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