IPG Investor Presentation IPG Investor Presentation December 2017 - - PowerPoint PPT Presentation

IPG Investor Presentation

IPG Investor Presentation

December 2017

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IPG Investor Presentation

Safe Harbor Statement

Certain 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 capital allocation priorities, including its investment strategies, acquisition strategies and anticipated annualized dividends, the Company's capital expenditures, including its cost and return expectations, the Capstone Partnership, including the goal of the Capstone Partnership, the total cash consideration, and the timing and intended use of such consideration, the Company’s quarterly cash dividend, and the Company's fourth quarter and full year 2017 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 expansions, greenfield developments, manufacturing cost reduction programs and other restructuring efforts; the anticipated benefits from the Company’s acquisitions and partnerships; accounting adjustments; the anticipated benefits from the Company’s capital expenditures; the quality and market reception of the Company's products; the effective tax rate and income tax expenses; the Company's anticipated business strategies; risks and costs inherent in litigation; risks and costs inherent in the Company’s intellectual property; the Company’s ability to maintain and improve quality and customer service; the Company’s ability to retain, and adequately develop and incentivize, its management team and key employees; anticipated trends in the Company's business; anticipated cash flows from the Company’s operations; availability of funds under the Company’s Revolving Credit Facility; the Company's ability to continue to control costs; movements in the prices of key inputs such as raw material, energy and labor; government policies, including those specifically regarding the manufacturing industry, such as industrial licensing, environmental regulations, labor and safety regulations, import restrictions and duties, intellectual property laws, excise duties, sales taxes, and value added taxes; accidents and natural disasters; changes to accounting rules and standards; and other factors beyond the Company's control. 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 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, 2016 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, Trailing Twelve Month (“TTM”) Adjusted EBITDA, and Debt to TTM Adjusted EBITDA. 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 “Events and Presentations” and “Investor 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

• nly 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 Presentation

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Company Profile

• The second largest tape manufacturer in North

America

• Employs ~2,500 people(1)
• Approximately 63% of sales from products with

a Top 2 market position in North America(2)

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67% 19% 14%

Tapes Films 2016

$809 million Net Sales

(1) As of September 30, 2017 (2) Based on sales in 2016

Manufacturing Locations

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• 13 Manufacturing Facilities in North America
• 1 Manufacturing Facility in Europe
• 1 Manufacturing Facility in Asia

Tapes At-A-Glance

#1 or #2 Market Leadership Position in North America

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Carton Sealing Tapes

Hot Melt Acrylic Natural Rubber Water-Activated Water-Activated Machine Dispensers

Industrial & Specialty Tapes

Paper Flatback Filament Sheathing Stencil

Films At-A-Glance

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Films

Stretch Shrink

Woven At-A-Glance

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Agro-Environmental

Structure Fabrics Woven Coated Geomembrane Hay Cover Fabrics Poultry Fabrics

Building & Construction

Lumber Wrap

#1 or #2 Market Leadership Position in North America

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Key Raw Materials

• Raw material inputs:

– Resin – Adhesive – Paper – Other (2)

(1) Based on purchases of raw materials in 2016 (2) Other includes but not limited to Latex, Fiberglass and Starch

IPG Investor Presentation

9 37% 17% 23% 23%

Raw Materials(1)

Resin Adhesive Paper Other

Strengths

Attractive product bundle Focus on customer relationships and service Deep institutional knowledge in the industry Proven and accessible management team Well-positioned to invest in strategic

• pportunities to

create shareholder value

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Continued investment to grow our business

• Strategic high-return

projects

• Capacity expansion
• R&D investment
• New distribution

channels and market verticals

Acquisitions

• Potential focus

areas include:

• Expansion /

consolidation of current product lines

• Addition of new

product categories

• Geographic

expansion

Dividends

• Reinstated our

dividend policy on

• Aug. 14, 2012
• Annualized dividend
• f $0.56 per share
• Dividend yield(1) of

3.3%

• Since Aug. 2012, the

Company has paid $129.4 million in dividends.

Share repurchases

• As of Nov. 10, 2017,

repurchased ~ 0.5 million shares under the NCIB for a total price of ~$7 million.

• Approximately 3.5

million shares remain available to repurchase.

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Capital Allocation Priorities

(1) Source: Bloomberg, as of November 30, 2017

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Capital Expenditures •

Capacity Expansion(1):

– Water-Activated Tapes Project ~ $44-$49 million

• Greenfield expansion in North Carolina

– Portuguese Shrink Film ~$11 million – Powerband Investment Projects ~ $20 million

• Greenfield + current facility

– Stretch film ~ $11 million – Utah Shrink film ~ $9 million – Capstone woven products greenfield ~$30 million

• Product Expansion(1):

– Specialty tape ~ $10 million

• Maintenance CapEx expected to be

between $10 and $12 million in 2017

• High-return projects expected to yield

after-tax returns of at least 15%

• All strategic initiatives are currently

proceeding as planned both in terms of timeline and expenditure levels

(In millions of US dollars)

Expected range (2)

(1) Amounts represent total expected costs (2) Revised from the previously stated range of $75-85 million

Business Acquisitions

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(1) IPG acquired 74% ownership stake in Powerband

Strategic rationale Expansion: E-commerce Strengthen Market position: Tape manufacturing Global Expansion: Tape manufacturing Strengthen Market position: Tape manufacturing Core competency Leading supplier

• f water-

activated tape dispensers Manufacturer of filament and pressure sensitive tapes Global supplier

• f acrylic tapes

Manufacturer of industrial and specialty tapes Purchase price $15.9MM $11.0MM $41.9MM $67.0MM Acquisition date(1) April 7, 2015 November 2, 2015 September 16, 2016 July 1, 2017

Capstone Partnership

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• On June 23, 2017, the Company established a partnership, Capstone Polyweave Private

Limited (doing business as “Capstone”), with the non-controlling shareholders of Capstone, who are also the shareholders and operators of Airtrax Polymers Private Limited (doing business as “Airtrax”). Airtrax manufactures and sells woven products that are used in various applications, including applications in the building and construction industry

– The Company has contributed $10.2 million in total to Capstone as of September 30, 2017 – The shareholders of Airtrax have agreed to arrange a contribution in kind to Capstone of the net assets attributed to Airtrax’s existing woven product manufacturing operations, which are estimated to have a value of approximately $12 million. The legal process to make the contribution of the net assets has begun and is expected to be completed in the first half of 2018

• The majority of the Company’s total cash consideration, of approximately $13 million over a six

to twelve month period from June 23, 2017, is intended to be used by Capstone toward the construction of a greenfield manufacturing facility in India ("Capstone Greenfield Project")

– This project has begun and capital expenditures year-to-date total $7.7 million – Total project cost is expected to be approximately $30 million (which is expected to be funded in part by the Company's cash consideration and in part by debt financing) and commercial operations are expected to commence in the first half of 2019

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• Cash flow based loan facility of $300 million negotiated in November 2014
• Amended in June 2017 and increased $150 million to $450 million. As of September 30th,

2017: – Total cash and loan availability was $162 million – Leverage 2.4x debt to TTM adjusted EBITDA

• Option to raise equity if needed
• For the quarter ending September 30, 2017, the average-total cost of funds(1) for the cash

flow based loan facility was 3.3%

Source of Funds

(1) Includes unused line fees, letters of credit and USD fixed interest rate swap costs (2) * Leverage ratio threshold increased 50bps to 3.75 in 3Q17 due to permitted acquisition; threshold returns to 3.25 in 3Q18.

Cash Flow Based Loan Facility

Key Terms

Facility $450 million Revolving Credit Facility Incremental Facility (Accordion Feature) $150 million Pricing LIBOR + Spread (1.00% to 2.25%) Key Negative Financial Covenants (1) Leverage < 3.25 (2) (2) Debt Service Coverage Ratio > 1.5 (3) Capex < $100MM Maturity November 18, 2019

• Gross margin decreased to 20.9% from 21.7% primarily due to the dilutive impact of the Cantech Acquisition

resulting mainly from non-cash purchase price accounting adjustments and certain manufacturing production inefficiencies occurring mainly in older facilities. These unfavourable items were partially offset by the favourable impact of the Company’s manufacturing cost reduction programs.

• Net Earnings increased primarily due to a decrease in SG&A, primarily due to a decrease in share-based

compensation, and manufacturing facility closures, restructuring and other related charges, and an increase in gross profit, partially offset by an increase in income tax expense.

• Adjusted EBITDA Margin(1) decreased to 13.3% from 13.6% primarily due to the dilutive impact of the

Cantech Acquisition.

2017 Q3 Results: Year-Over-Year

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in millions US $

Q3 2017 Q3 2016 Change %

(except per share amounts)

Revenue $243.4 $206.6 17.9% Gross profit $50.9 $44.9 13.4% Net earnings $19.2 $6.3 208% Adj EBITDA(1,2) $32.4 $28.0 15.9% EPS, fully diluted $0.32 $0.10 215%

(1) The Company has modified its definition of adjusted EBITDA to also exclude advisory fees and other costs associated with mergers and acquisitions activity, including due diligence, integration and

certain non-cash purchase price accounting adjustments (“M&A Costs”). Prior period amounts have been conformed to the new definition of adjusted EBITDA.

(2) Non-GAAP financial measure. Please see “Safe Harbor Statement” for an explanation of the Company’s use of this measure and a cross-reference to a reconciliation to its most directly comparable

GAAP measure.

(3) Adjusted EBITDA as a percentage of revenue.

• Gross margin decreased to 20.9% from 22.5% primarily due to the dilutive impact of the Cantech

Acquisition resulting mainly from non-cash purchase price accounting adjustments.

• Net Earnings increased primarily due to a decrease in SG&A, primarily due to a decrease in share-based

compensation, and an increase in gross profit, partially offset by an increase in income tax expense.

• Adjusted EBITDA Margin(3) decreased to 13.3% from 14.8% primarily due to an increase in variable

compensation expense resulting from an improvement in expected operating results and the dilutive impact of the Cantech Acquisition

2017 Q3 Results: Sequential

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in millions US $

Q3 2017 Q2 2017 Change %

(except per share amounts)

Revenue $243.4 $210.2 15.8% Gross profit $50.9 $47.4 7.4% Net earnings $19.2 $10.2 88.7% Adj EBITDA(1,2) $32.4 $31.1 4.3% EPS, fully diluted $0.32 $0.17 88.8%

(1) The Company has modified its definition of adjusted EBITDA to also exclude advisory fees and other costs associated with mergers and acquisitions activity, including due diligence, integration and

certain non-cash purchase price accounting adjustments (“M&A Costs”). Prior period amounts have been conformed to the new definition of adjusted EBITDA.

(2) Non-GAAP financial measure. Please see “Safe Harbor Statement” for an explanation of the Company’s use of this measure and a cross-reference to a reconciliation to its most directly comparable

GAAP measure.

(3) Adjusted EBITDA as a percentage of revenue.

• Gross margin decreased to 22.3% from 23.0% primarily due to stronger manufacturing capacity

utilization in the first nine months of 2016 and the dilutive impact of the Cantech Acquisition resulting mainly from non-cash purchase price accounting adjustments. These unfavourable items were partially

• ffset by the favourable impact of the Company’s manufacturing cost reduction programs.
• Net Earnings increased primarily due to an increase in gross profit and a decrease in manufacturing

facility closures and restructuring and other related charges, and a decrease in SG&A, partially offset by an increase in income tax expense.

• Adjusted EBITDA Margin(3) decreased to 14.2% from 14.4% primarily due to the dilutive impact of the

Cantech Acquisition

2017 Q3 Results: YTD September

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in millions US $

2017 Q3 YTD 2016 Q3 YTD Change %

(except per share amounts)

Revenue $660.7 $598.9 10.3% Gross profit $147.4 $137.8 7.0% Net earnings $42.9 $29.4 45.7% Adj EBITDA(1,2) $93.9 $86.4 8.7% EPS, fully diluted $0.72 $0.49 47.9%

(1) The Company has modified its definition of adjusted EBITDA to also exclude advisory fees and other costs associated with mergers and acquisitions activity, including due diligence, integration and

certain non-cash purchase price accounting adjustments (“M&A Costs”). Prior period amounts have been conformed to the new definition of adjusted EBITDA.

(2) Non-GAAP financial measure. Please see “Safe Harbor Statement” for an explanation of the Company’s use of this measure and a cross-reference to a reconciliation to its most directly comparable

GAAP measure.

(3) Adjusted EBITDA as a percentage of revenue.

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Other Significant Items

• The Company’s call option on all of the shares owned by the minority

shareholders of Powerband triggered on July 3, 2017

– Executed a binding term sheet on July 4, 2017 – As of November 10, 2017, no shares have been purchased by the Company under this agreement as the parties continue to work through the exit provisions stipulated in the term sheet

• Normal course issuer bid renewed for twelve-month period starting July 17,

2017

– 4,000,000 common shares may be repurchased for cancellation – 487,300 common shares have been repurchased and cancelled for a total purchase price of approximately $7 million as of November 10, 2017

• Quarterly cash dividend declared

– On November 10, 2017, the Board of Directors declared a quarterly cash dividend of $0.14 per common share payable on December 29, 2017 to shareholders of record at the close of business on December 15, 2017

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Outlook

• Revenue in the fourth quarter of 2017 is expected to be greater than the fourth quarter
• f 2016
• Gross margin and adjusted EBITDA in the fourth quarter of 2017 are expected to be

greater than the fourth quarter of 2016, excluding the impact of the South Carolina Flood insurance proceeds in the fourth quarter of 2016

(1) Excluding the potential impact of any significant tax reform legislation and changes in the mix of earnings between jurisdictions.

Fiscal Year 2017 Current Guidance

Gross margin 22.0% to 22.5% Adjusted EBITDA $126 to $130 million Manufacturing cost reductions Exceed the previously stated range of $10 to $12 million Total capital expenditures $85 to $90 million Effective tax rate(1) 25% to 30% Cash taxes paid(1) Approximately 1/3rd of income tax expense

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Strategic Vision

5-7 YEAR OBJECTIVE

Primarily North American manufacturer of tape, film and woven coated products with approximately 2,000 employees and 13 manufacturing facilities. A global world class manufacturer focused on tape, film, woven coated products and adjacent packaging products with future success coming from industry consolidation, higher growth and higher margin business segments, and new geographic markets.

Metric Fiscal 2015 Results Revenue $782M Adj EBITDA $102M Adj EBITDA Margin 13.0%

Constituted by

Upgrade manufacturing plants to achieve lowest cost

• peration with world class

assets Invest in R&D

5

INITIATIVES

Strengthen position in current product portfolio Enter into new high growth, high margin products Geographic expansion into higher growth and/or lower cost jurisdictions

Rationalized by

Stable competitive environment Stable workforce/union relations

5

ASSUMPTIONS

Stable macroeconomic conditions No significant disruptive technology Consistent environmental regulations

Achieved by

Capital investments Sales & marketing Continuous improvement Innovation

5

METHODS

Merger and acquisitions program

Metric Aspirational Goals Revenue $1.5B Adj EBITDA At least $225M Adj EBITDA Margin At least 15%

Thank You!

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