Marcum MicroCap Conference Presentation

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Marcum MicroCap Conference Presentation

  1. 1. Neenah Paper NYSE : NPMARCUM MICROCAP New YorkCONFERENCE June 20, 2012
  2. 2. Forward Looking StatementsStatements in this presentation which are not statements of historical fact are “forward-looking statements” within the “safe harbor” provision of the Private Securities LitigationReform Act of 1995. These forward-looking statements are based on the informationavailable to, and the expectations and assumptions deemed reasonable by, Neenah Paper,Inc. at the time this presentation was made. Although Neenah Paper believes that theassumptions underlying such statements are reasonable, it can give no assurance that theywill be attained. Factors that could cause actual results to differ materially fromexpectations include the risks detailed in the section “Risk Factors” in the Company’s mostrecent Form 10-K and SEC filings.In addition, the company may use certain figures in this presentation that include non-GAAP financial measures as defined by SEC regulations. As required by those regulations,a reconciliation of these measures to what management believes are the most directlycomparable GAAP measures would be included as an appendix to this presentation andposted on the company’s web site at www.neenah.com 2
  3. 3. Company Overview Neenah is a leader in performance-based technical products and high-end printing papers used where image matters. Technical Products  Specialized, performance-based products  End markets: filtration, industrial backings, labels, and other specialties Technical Fine  Manufacturing in Germany and the U.S. Products Paper Fine Paper  Premium textured and colored papers  End markets: high-end communications and printing, luxury packaging, crafting and labelsPro Forma  Manufacturing in the U.S. Net Sales$800 million 3
  4. 4. Successful Strategic Evolution Successful execution of Technical Products transformation strategy Leading positions in profitable markets with strong cash flows Sales Mix Fine Paper Evolution Positioned to pursue new Pulp 2004 2005 2006 2007 2008 2009 2010 2011 opportunities Recent acquisition a catalyst for growth and value creation Sold Terrace Sold half of Sold Pictou Sold remaining Bay pulp mill timberlands pulp mill timberlands Nov-04 Spun off 2005 2006 2007 2008 2009 2010 2011 2012 From K-C Purchased Purchased Purchase Germany Fox River Paper premium brands Tech. Prod. from Wausau Timeline of Strategic Activities 4
  5. 5. Financial Momentum First Quarter $ millions 2009 2010 2011 2011 2012 % Change % Change Sales $574 $658 $696 2011 vs. 2010 30% $173 $198 Q1 11 vs.12 43% EBIT1 34 52 59 17 22 29% 13% E.P.S.1 $0.76 $1.47 $1.91 $0.54 $0.77 14% 6% Oper. Margin 5.9% 7.9% 8.5% 9.8% 11.1% Return Sales EBIT E.P.S. Sales EBIT E.P.S. 6% 8% 9% 8% 10% on Capital  Top line growth via share gains, new products, pricing power and acquisition (Jan-12)  Faster bottom line growth with improving margins and lower debt costs  Return on Capital approaching desired double-digit levels  Strong cash generation used for debt reduction and dividend increases “Lucky” 13 consecutive quarters of beating expectations!(1) Excludes one-time items for divestitures, integration and other costs as noted in appendix 5
  6. 6. Technical ProductsFiltrationHigh-performance filtrationmedia for fuel, air, oil, cabin airin transportation, as well asproducts for other marketsSpecialtiesProducts for a variety of endmarkets including labels, non-woven wall cover, medicalpackaging, durable printmedia and other marketsIndustrial BackingsSaturated and coated papersused for backing of specialtyabrasives and tapes 6
  7. 7. A Diversified Global Portfolio Est. Filtration Selected Key Segment Market Competitors Customers Growth Specialties Tape Ahlstrom, Mann & 2x Filtration Hummel, H&V Mahle, Hengst GDP Abrasives Specialties Sales by (Label, Medical Variety of Product Group Avery Pkg, Image competitors with Dennison, 3M, GDP+ Transfer, limited Saint-Gobain Decorative, concentration Tag…) 3M, Shurtape, Europe Industrial Wausau, IPG, Tesa, GDPBacking- Tape Ahlstrom Alpha Beta RoW Industrial 3M, St. Gobain, Ahlstrom, Backing- Hangzhou Star, GDP Asia North Munksjo Abrasives Starcke America Sales by Geography 7
  8. 8. Success Factors Specialized technologies supported by R&D centers to meet demanding customer performance needs :  Multi-fiber forming capabilities  Saturation, coating and surface treatments  Polymer chemistries Longstanding relationships and ongoing joint product development with global blue chip customers who are leaders in their markets Specialized Strong Customer Intimacy Performance Barriers and Qualification Requirements to Entry 8
  9. 9. Strategic Priorities: Technical Products Grow in existing markets by:  Increasing mix of higher-value, specialized products (e.g. melt blown filtration, super smooth abrasives, and specialized labels)  Gaining share with innovative new products with above average margins  Expanding international presence in filtration and other areas as we grow with and follow our global customers Increase margins with mix improvements, volume growth and optimizing base Enter into adjacent markets that are growing and profitable and value technical know-how and performance 9
  10. 10. Filtration: A Key Platform for Growth Neenah Net Sales Transp. Filtration Organic Growth CAGR 8%  Historically, Neenah has focused in the European auto filtration market (fuel, oil, engine & cabin air)  The business has grown at a compound annual rate of 8% from 2003-11 2003 2004 2005 2006 2007 2008 2009 2010 2011 Global Transportation FiltrationInternationalization Market Size and Share Global Market ~ US $1 billion Global engine performance and filter Otherrequirements continue to become more demanding NP H&V Alignment with leading global filter customers can Ahlstromlead to an expanded geographic presence NAFTA Asia Europe So. Amer. RoW Source: company estimates Life HVAC Science Specialty /Air Process filtration & Food Market Adjacencies media markets Dust  Ability to leverage our melt blown technologies to > $4 billion Water Control enter into other attractive filtration markets that are Gas Transpo/ growing and require performance Turbine H. Duty 10
  11. 11. Fine PaperGraphic ImagingUnique colors, textures andfinishes for identity, printcollateral, invitations,advertising, and envelopesPackaging & LabelImage enhancing colors and texturesof premium folded cartons, box wrap,bags, premium wine, beverage andspirit labels, food labels, hang tagsBrightsDeep , rich, vivid colors andtextures for flyers, posters,school supplies, crafting,direct mail advertising andpromotions 11
  12. 12. Countering Market by Extending our Reach Uncoated Premium Free Sheet Value Share With high-end colors and textures, Other (10%) premium fine papers represents a small, Mohawk 30% specialized sliver of an uncoated free sheet market that has been in decline Premium ~< 3% NP 60% Source: company estimates Customers/ Neenah has outperformed the market by: Products Supply Chain Crafts Scrapbooking Retail  Gaining share as clear market leader Brights Premium Labels Crane Digital Envelopes  Finding new areas of growth through Papers Luxury Core expanded products, geographies, Packaging Writing, Text & technologies and customer channels Cover 100% PCW Packaging China Europe South Durable America Papers Electronic Middle Printing East Applications Technology Geographies 12
  13. 13. Success Factors Leading brands specified by designers and printers NP with strong pricing power Highest quality with a wide palette of colors and textures to serve specialized high-end print needs An effective cost position and barrier to entry with purpose-built assets that are efficiently utilized Selective distribution resulting in brand pull and encouraging strong merchant performance Supply chain and technology tools and programs to help customers optimize performance and grow share with Neenah 13
  14. 14. Wausau Brand Purchase (Jan-12) Premium WTC Market Brights Market Transaction Overview (~$450 mm) (~$100 mm) $21 million cash for selected premium brands, Others 25% finished inventory and converting equipment. Others 43% NP WP Financial Returns 50% 75% Acquired sales of over $100 million/yr WP 7% No dilution in attractive mid-teen EBIT margins One-time 2012 cash integration costs of $7 millionStrategic Rationale Compelling and attractive returns Others Increased share in core writing, text & cover while NP 40% expanding market presence with entry into brights 60% Filled existing asset base with minimal added costs Provided presence in new channel (retail) with future growth opportunities Bigger share of a bigger market! 14
  15. 15. Strategic Priorities: Fine Paper Deliver value in 2012 through successful integration of acquired Wausau brands Expand in targeted markets: luxury packaging, label, international, envelopes and national accounts Develop new revenue streams – including expansion in consumer retail, photo cards and books, and digital papers Gain share as market leader with programs and services that encourage growth with Neenah 15
  16. 16. Strategy Summary  Grow business through:  Gaining share with innovative products and Technical geographic expansion with global customers Products  Entry into attractive new market adjacencies  Improve margins to double digit levels  Counter a challenging market through:  Expanding in targeted markets and with newFine Paper revenue streams  Growing share in existing markets  Maintain attractive financial returns and cash flow  Increase overall sustainable growth rate through organic initiatives and compelling M&As  Improve efficiency with scalable infrastructureCorporate  Deploy cash flows to:  Increase Return on Capital  Maintain effective capital structure  Provide attractive shareholder returns 16
  17. 17. Key Financial Objectives Deliver consistent profitable growth Increase Return on Capital Maintain a prudent and efficient capital structure Reward shareholders through effective cash generation and deployment, including a meaningful dividend 17
  18. 18. Profitable Growth Net Sales OP% $421 $424 Technical Products $384$318 11.8%  Volume growth focused on filtration, labels 7.6% 8.0% and higher growth categories4.6%  Margins expanding with higher value mix, sales growth, cost efficiency and pricing  Targeting sustainable double-digit margins2009 2010 2011 Q112 Annualized Net Sales OP% $346 Fine Paper $275$256 $273 15.5%  Consistent and attractive profits, cash flows 14.4%14.2% 13.7% and return on capital  Delivering value from Wausau brand purchase2009 2010 2011 Q112 Annualized Pricing power and cost control in both businesses has offset almost $50 million of input cost increases since 2009 18
  19. 19. Return on Capital % Return onInvested Capital 10% 9% 8%  Primary metric to evaluate investment opportunities and 6% measure business performance  A key component in management incentive plans 2009 2010 2011 Q112 TTM Sales/Assets 1.4  Improving with: 1.3 1.1  Profitable growth/margin improvement 0.9  Carefully managed assets/investments  Strategic moves (divest pulp, WP purchase)  Nearing desired double-digit levels 2009 2010 2011 Q112 Annualized 19
  20. 20. Capital Structure Dec Dec Dec Mar $ millions $319 2009 2010 2011 2012 Debt and Bonds 7 3/8% $225 $223 $158 $158 (due Nov. 2014) Debt/EBITDA $245 ABL 28 - - 23 (due Nov. 2015) 4.6x $200 Other U.S. 41 - - - $186 Target 2.8x Range 1.5 – 2.5x Germany 25 22 28 19 2.0x 2.0x Total Debt $319 $245 $186 $200 Dec 09 Dec 10 Dec 11 Mar 12 Total Cash $5 $48 $20 $3 Recent approved $10 million Stock Repurchase Plan (May 2012) Purchase of Wausau brands funded by low cost ABL borrowing (Jan 2012) Called $65 million of bonds in March 2011 and additional $10 million in April 2012 Credit rating upgrade to Ba3/BB- in 2010 20
  21. 21. Strong cash flow generation to support shareholder returnsPro Forma Cash Flow $ millions  Strong cash flow from businessesEBITDA (pre-Wausau purchase) $95  Moderate capital spending needs withInterest Expense (14) available capacity for growth  Scalable infrastructure to grow efficientlyOther (tax, wkg cap, pension, etc..) (21)  Favorable N. America cash tax position Cash From Operations $60 (NOLs = $80 million)Capital Expenditures (25)  Competitive dividend yield/room to grow Free Cash Flow $35 $0.48 Annual Dividend + Added Cash Flow From Acquisition per share $0.44 Attractive double-digit cash flow $0.40yields result as base cash flows areboosted by Wausau brand purchase 2010 2011 2012 21
  22. 22. Investment Conclusions Leading positions in profitable specialty markets with barriers to entry Momentum in sales and profits reflecting successful execution of plans Sustainable, strong cash flows helping to support growth and provide attractive investor returns $93 Deleveraging has resulted in sound capital Consolidated EBITDA structure and financial flexibility $86 (U$ millions) Recent Wausau brand acquisition expected $70 to provide compelling value creation $68 Strategic focus on continued expansion in technical/specialty markets and away from historical “pulp & paper” positioning 2008 2009 2010 2011 22
  23. 23. ContactFor more information Investor Relationsvisit our website: www.neenah.com Bill McCarthyemail: investor@neenahpaper.com VP, Financial Planning and Analysis & Investor Relations 3460 Preston Ridge Rd. Suite 600 Alpharetta, GA 30005 Phone: (678) 518-3278 Email: bill.mccarthy@neenahpaper.com 23
  24. 24. GAAP ReconciliationContinuing Operations$ millions 2009 2010 2011 Q1 2012EBIT (Operating Income) $ 16.4 $ 55.1 $ 56.6 $ 16.2 Ripon Mill Closure/(Gain on Sale) 17.1 (3.4) Integration Costs 2.5 Other 1 2.4 3.5Adjusted EBIT $ 33.5 $ 51.7 $ 59.0 $ 22.2Depreciation & Amortization 31.9 29.7 30.0 7.3Amort. Equity-Based Compensation 4.7 4.9 4.3 1.6EBITDA $ 70.1 $ 86.3 $ 93.3 $ 31.1Earnings (Loss) per Share $ (0.12) $ 1.61 $ 1.82 $0.54 Ripon Mill Closure/(Gain on Sale) 0.76 (0.14) - Integration Costs 0.09 Other1 0.12 - 0.09 0.14Adjusted Earnings per Share $ 0.76 $ 1.47 $ 1.91 $ 0.771 Includes refinancing and tax costs in 2009-11 and pension settlement charge in 2012 24

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