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CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
CSChemicalConference_2006_Handout
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CSChemicalConference_2006_Handout

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  • 1. AVERY DENNISON Credit Suisse 2006 Chemical Conference September 19, 2006 Daniel R. O’Bryant Executive Vice President and Chief Financial Officer Slide 1
  • 2. Forward-Looking Statements Certain information presented in this document or discussed during this presentation may constitute “forward-looking” statements. These statements and financial or other business targets are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or expected results depending on a variety of factors, including but not limited to fluctuations in cost and availability of raw materials; ability of the Company to achieve and sustain targeted cost reductions; foreign currency exchange rates; worldwide and local economic conditions; impact of competitive products and pricing; selling prices; impact of legal proceedings, including the U.S. Department of Justice (“DOJ”) criminal investigation, as well as the European Commission (“EC”), Canadian Department of Justice, and Australian Competition and Consumer Commission investigations, into industry competitive practices and any related proceedings or lawsuits pertaining to these investigations or to the subject matter thereof (including purported class actions seeking treble damages for alleged unlawful competitive practices, and purported class actions related to alleged disclosure and fiduciary duty violations pertaining to alleged unlawful competitive practices, which were filed after the announcement of the DOJ investigation, as well as a likely fine by the EC in respect of certain employee misconduct in Europe); impact of potential violations of the U.S. Foreign Corrupt Practices Act based on issues in China; impact of epidemiological events on the economy and the Company’s customers and suppliers; successful integration of acquisitions; financial condition and inventory strategies of customers; timely development and market acceptance of new products; fluctuations in demand affecting sales to customers; and other matters referred to in the Company’s SEC filings. The Company believes that the most significant risk factors that could affect its ability to achieve its stated financial expectations in the near-term include (1) potential adverse developments in legal proceedings and/or investigations regarding competitive activities, including possible fines, penalties, judgments or settlements; (2) the impact of economic conditions on underlying demand for the Company's products; (3) the impact of competitors’ actions, including expansion in key markets, product offerings and pricing; (4) the degree to which higher raw material and energy-related costs can be passed on to customers through selling price increases (and previously implemented selling price increases can be sustained), without a significant loss of volume; and (5) the ability of the Company to achieve and sustain targeted cost reductions. The 2006 financial information presented in this document represents preliminary, unaudited financial results. The document contains certain non-GAAP financial measures; a reconciliation of these measures to the nearest GAAP measures is provided at the Company’s website and in attachments A-2 to A-4 of the Company’s quarterly press release financials.
  • 3. First Half 2006 At A Glance • E.P.S. up 14% on lower sales (before restructuring charges and discontinued ops), due to improved gross profit margin, operating expense ratio, and tax rate • Adjusted unit volume growth has improved • The shortfall between top line growth and the Company’s medium-term organic sales growth target of 4% - 6% is explained by last year’s price-related share loss in North America – Anticipate 2 to 3 points of improvement in underlying unit volume over the next few quarters Slide 3
  • 4. First Half 2006 At A Glance (continued) • Slightly behind inflation curve in first half… expect previously implemented selling price increases and procurement savings in second half to neutralize impact of inflation for the full year • Projected savings from restructuring actions increased to $85 to $100 mil. (annualized) when completed Slide 4
  • 5. Management Analysis of Underlying Sales Trends (continuing operations) Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Core volume growth (est.) 1.0% (1.1)% (4.6)% 1.6% 0.8% Comparability adjustments(1) (1.0)% 0.8% 4.6% 0.4% 1.7% “Underlying” volume growth 0.0% (0.3)% 0.0% 2.0% 2.5% Other factors impacting reported sales growth: Acquisitions, Net of Divestitures 0.6% 0.3% 0.0% (0.3)% (1.4)% Price/Mix + 2% + 2% + 1% + 1% + 1% Currency 3.2% 0.8% (0.6)% (2.7)% (0.3)% Reported Sales Growth 7.1% 2.0% (4.5)% (0.4)% (0.1)% Adj. Organic Sales Growth(2) 2.3% 1.7% 0.7% 3.0% 3.2% (1) Adjustments for comparability: Q2-05 -- Shift in timing of back-to-school orders from Q3 to Q2, estimated short-term benefit of competitor plant strike in Europe, and final customer inventory depletions related to 2004 buying ahead of price increase. Q3-05 -- Shift in timing of back-to-school orders from Q3 to Q2. Q4-05 -- Extra week of sales and pre-buy activities in 2004 ahead of price increase. Q1-06 -- Decision to exit certain low margin private label business. Q2-06 – Decision to exit certain low margin private label business, shift in timing of back-to-school orders from Q2 to Q3 (return to normal order pattern), prior year short-term benefit of competitor plant strike in Europe. (2) Reported Sales Growth less the impacts of foreign currency translation, acquisition and divestitures, and comparability adjustments Slide 5
  • 6. Medium-term top-line growth target in line with historical average Organic Sales Growth* 7.4% 4% to 6% 4.9% 4.7% 2.5% 1.2% 2000 2001 2002 2003 2004 2005 Target -1.8% * Excluding currency, acquisitions, and divestitures Slide 6
  • 7. Operating margins have improved… quot;Corequot; Operating Margin* Margin (% of sales) impact of 11.0 option expense 10.5 Guidance 10.0 Range 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- 2006 03 03 03 03 04 04 04 04 05 05 05 05 est. * Excludes restructuring charges and RFID spending Slide 7
  • 8. … and we expect substantial margin expansion ahead Sources of Change in Operating Margin 2008 vs. Today ? 11.0% 9.6% 2005 Productivity Price/Raw Capacity RFID Segment Mix Other 2008 TARGET Materials Utilization Business Slide 8 Realities
  • 9. Overview of Today’s Portfolio 2005 Segment Mix 3-5 Yr Sales Operating Sales Op Profit Growth Drivers Growth Target* Margin Target Pressure- • Emerging markets 5-7% 10-12% sensitive • Increased penetration of PS Materials label technology for product ID (food & beverage) • Share gain in durables • RFID adoption driving carton labeling penetration Office & • Increased penetration of down 18-20% Consumer core products modestly Products • New category innovation; existing product upgrades • Global consolidation Retail Info 6-8% 10-12% Services • New products and services • Emerging markets Other Specialty 10%+ > 10% Converting • New products, niche applications * Excluding acquisitions and divestitures Slide 9
  • 10. International operations growing faster-than- average… and profitability is expanding 2005 Revenue 2005 Operating Margin**, by Region International Operations (before intergeographic eliminations) 10.0% Latin Other* America 9.0% Asia 8.0% U.S. Eastern 7.0% Europe 6.0% 5.0% Western 2003 2004 2005 Europe * “Other” includes Canada, Australia, and South Africa ** Excluding restructuring charges Slide 10
  • 11. We’ve increased our participation in the rapidly growing emerging markets… Emerging Markets Share of Total Sales 2000 2005 2010 Contribution to Overall 0.2 pts. 2.4 pts. 3.5 pts. Growth: Emerging Markets Local Management Leveraging Global Capabilities Slide 11
  • 12. … and these markets are contributing significantly to our profit growth and returns Operating Profit from Emerging Markets* ($ millions) > 200 ~ 115 ~ 40 2000 2005 2010 * Figures are approximate. Estimates do not include allocation of expenses incurred in North America and Europe for direct support of businesses in emerging markets (particularly significant for RIS). Largest single growth platform today Slide 12
  • 13. Key Growth Priorities By Business • Grow materials businesses through expansion in emerging markets, increased service leadership, and innovation in new applications • Invest in new marketing programs to accelerate growth of Avery-brand printable media products • Accelerate growth of RIS business with new products and continued geographic expansion • Expand new RFID business through share gain of rapidly expanding carton label market and innovation in new applications for selected markets Slide 13
  • 14. RFID… fundamental improvement in competitive position vs. a year ago • Manufacturing speeds, yields beating internal targets • Customers, other partners recognize our technical capabilities • Continue to target significant share gain for carton labeling applications (market share objective of 30%+) • Sufficient progress to begin broadening reach: – Develop and commercialize HF products – Increase pharmaceutical, apparel, other item level engagements – Expand activities in Europe / Asia Slide 14
  • 15. Margin expansion is key near-term priority for the Company • Maintain our pricing rigor • Targeting $85 to $100 million of annual savings from restructuring actions currently underway • Productivity improvement initiatives across all businesses • Enterprise Lean Sigma to drive continuous improvement Slide 15
  • 16. Expect to generate significant free cash flow; solid financial flexibility • 2006 Free Cash Flow target (after cap ex and software invt.) = $300 to $350 mil. • Debt-To-Total Capital ratio currently below our target range • Priorities for use of free cash: – Invest to grow business (including acquisitions) – Maintain healthy dividend – Reinitiate share repurchase program, as appropriate Slide 16
  • 17. Expect continued modest increase to dividend $1.80 30 consecutive years of dividend increase… ~ 13% compound annual growth $1.60 $1.40 Dividends per share $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 Slide 17
  • 18. Key Takeaways • Solid progress against near-term goals… balanced strategy for growth and margin expansion • Net restructuring savings of $45-$50 mil. in ’06, incremental $40-$50 mil. in ’07 • Expect to accelerate organic sales growth over medium term to 4-6% (in line with history) – Rapidly growing emerging markets represent an increasing share (> 20%) of portfolio – Solid secular growth drivers for PSM and RIS segments – Increasing marketing investment to accelerate growth of highly profitable Printable Media (OCP segment) – Horizons growth process embedded throughout Company • Significant free cash flow potential… intend to reinitiate share repurchase when appropriate Slide 18

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