IPG Investor Presentation IPG Investor Presentation September 2015 - - PowerPoint PPT Presentation

IPG Investor Presentation

IPG Investor Presentation

September 2015

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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 strengths, the

Company's strategy and priorities, including its investments in growing its business, its acquisition strategy, its dividends and share repurchases, the Company's ability to raise equity, the Company's 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, and the Company's outlook on certain financial metrics for the third quarter of 2015 and the South Carolina Project, 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, 2014 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 “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 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.

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Company Profile

• The second largest tape manufacturer in North

America

• Employs ~1,950 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

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Our Locations

• 11 Manufacturing Facilities in

North America

• 1 Manufacturing Facility in

Europe

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Tapes At-A-Glance

#1 or #2 Market Leadership Position in North America

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Carton Sealing Tapes

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

Industrial & Specialty Tapes

Paper Flatback Filament Stencil

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Woven & Other At-A-Glance

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Agro-Environmental

Structure Fabrics Woven Coated Geomembrane Hay Cover Fabrics Poultry Fabrics

Building & Construction

Lumber Wrap Fiberglass Sleeves

#1 or #2 Market Leadership Position in North America

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Films At-A-Glance

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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.

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9 47% 20% 17% 16%

Raw Materials(1)

Resin Adhesive Paper Other

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Strengths

Wide breadth

• f products

Proven management team Established relationships with customers Strong financial position and profitability Well positioned to invest in strategic

• pportunities

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Continued investment to grow our business

• Strategic high-return

projects

• R&D investment
• New distribution

channels and market verticals

Acquisitions

• Potential focus

areas include:

• Expansion in tape,

woven and packaging adjacencies and

• Geographic

expansion

• Acquisition of

Better Packages on April 7, 2015

Dividends

• On August 12, 2015

annualized dividend increased from $0.48 to $0.52 per share

• On July 7, 2014

annualized dividend increased from $0.32 to $0.48 per share

Share repurchases

• Total repurchased:

1,564,588 common shares for $21.3 million as of June 30, 2015

• NCIB renewal

effective July 10, 2015 to repurchase up to 2,000,000 additional common shares

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Strategy and Priorities

(1) The transition from an Asset-Based Loan to the Cash Flow-Based Loan facility occurred on November 18, 2014.

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• Cash Flow Based Loan Facility of $300 million negotiated in November 2014
• As of June 30, 2015

– Total cash and loan availability was $170 million – Leverage was 1.7x debt to TTM adjusted EBITDA

• Option to raise equity if needed

Cash Flow Based Loan Facility (1) - Key Terms

Facility $300 million Revolving Credit Facility Incremental Facility (Accordion Feature) $150 million Pricing LIBOR + Spread (1.00% to 2.25%) Key Financial Covenants (1) Leverage < 3.25 (2) Debt Service Coverage Ratio > 1.5 Maturity November 18, 2019

$8 $15 $198 $155 $206 $170 31‐Dec‐14 30‐Jun‐15

Cash Availability Loan Availability Cash and Loan Availability

In millions

Source of Funds

Average Cost of Debt

(1)

(1) At quarter end.

• March 18, 2015 - interest rate swap agreement to fix the floating rate 30-day LIBOR benchmark

interest rate on $40 million of debt at 1.61% through November 18, 2019

• Average cost of debt increased from Q1 2015 to Q2 2015 primarily due to the impact of the interest

rate swap agreement combined with a higher spread due to an increase in the leverage ratio

• Percent of floating debt was 61% as of June 30, 2015 which includes the impact of the interest rate

swap agreement

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• Brantford (Ont)
• Completed 2011

$4 million

• Carbondale (IL),

Richmond (KY), Tremonton (UT) & Truro (NS)

• Completed 2013

$6 million

• Columbia (SC)
• Announced: Q1 2013
• Expected to be completed: By 2017

At least $13 million(1)

Reduce Manufacturing Costs and Leverage Capacity

Key Initiatives

1) Plant consolidations 2) Material productivity gains 3) Labor and energy savings measures

• EPA 2014 and 2015

ENERGY STAR Partner of the Year

Cost Reductions Achieved

 2012 : ~ $17 million  2013 : ~ $14 million  2014 : ~ $14 million

Cost Reductions Projected

 $9 to $12 million for 2015  At least $13 million per year by 2017 for the South Carolina Project(1)

(1) The first full year benefits of at least $13 million expected to start by the beginning of 2017. (2) On an annualized basis when in full effect.

Manufacturing Rationalization Projects

Completed and in Progress $23 million in total annualized savings(2)

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Effective Tax Rate

• Decreased from 38.1% in Q2 2014 to 28.8% in Q2 2015
• Decrease is primarily due to a change in the mix of earnings between jurisdictions as

a result of the 2014 legal entity reorganization(1) which is expected to yield greater than $7 million annualized income tax benefit

• Full year 2015 is expected to be approximately 25% to 30%(2)

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

(1) Effective October 30, 2014 (2) Assuming the geographic distribution of earnings is consistent with Q2 2015

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Tax Position

Results & Outlook

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• Gross margin decreased slightly from 21.7% to 21.6% primarily due to an increase in manufacturing inefficiencies and certain

manufacturing costs, and an unfavourable product mix, partially offset by favourable results of the Company’s manufacturing cost reduction programs, an increase in the spread between selling prices and lower raw material costs, and a decrease in freight costs

• Net earnings decrease was primarily due to an increase in SG&A related to (i) stock-based compensation expense and (ii) the

Better Packages acquisition, and a decrease in gross profit, partially offset by a decrease in income tax expense

• Adjusted net earnings decrease was primarily due to a decrease in gross profit, an increase in SG&A resulting from the Better

Packages acquisition and an increase in research expenses associated with the South Carolina Project, partially offset by a decrease in income tax expense

• Adjusted EBITDA Margin decreased from 14.5% to 13.8% primarily due to a decrease in gross profit, partially offset by a

decrease in variable compensation expense

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2015 Q2 Results: Year-Over-Year

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in millions US $ (except per share amounts)

Revenue $196.6 $202.9 (3.1%) Gross profit $42.4 $44.1 (3.7%) Net earnings $11.7 $12.1 (3.0%) Adj Net Earnings $14.1 $14.7 (3.5%) Adj EBITDA $27.1 $29.5 (8.1%) EPS, fully diluted $0.19 $0.19 (1.7%) Adj EPS, fully diluted $0.23 $0.23 (2.2%)

Q2 2014 Change % Q2 2015

• Gross margin increased from 19.6% to 21.6% primarily due to an increase in the spread between selling prices and raw material

costs, a decrease in South Carolina Duplicate Overhead Costs, and a favourable product mix variance, partially offset by manufacturing ramp-up inefficiencies related to the South Carolina Project

• Net earnings decreased primarily due to an increase in SG&A related to (i) stock-based compensation expense, (ii) variable

compensation expense, and (iii) the Better Packages acquisition, and an increase in foreign exchange losses, partially offset by an increase in gross profit

• Adjusted net earnings increased primarily due to an increase in gross profit, partially offset by increases in variable compensation

expense, foreign exchange losses, and SG&A resulting from the Better Packages acquisition

• Adjusted EBITDA Margin increased from 12.5% to 13.8% primarily due to an increase in gross profit partially offset by an

increase in variable compensation expense

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2015 Q2 Results: Sequential

in millions US $ (except per share amounts)

Revenue $196.6 $189.0 4.0% Gross profit $42.4 $37.0 14.6% Net earnings $11.7 $11.8 (0.3%) Adj Net Earnings $14.1 $12.6 12.0% Adj EBITDA $27.1 $23.5 15.1% EPS, fully diluted $0.19 $0.19 0.5% Adj EPS, fully diluted $0.23 $0.20 12.8%

Q2 2015 Q1 2015 Change %

• Gross margin decreased from 21.5% to 20.6% primarily due to an increase in manufacturing inefficiencies and certain

manufacturing costs, an unfavourable product mix variance and an increase in South Carolina Duplicate Overhead Costs, partially offset by favourable results of the Company’s manufacturing cost reduction programs, an increase in the spread between selling prices and lower raw material costs and a decrease in freight costs

• Net earnings decreased primarily due to a decrease in gross profit and increase in SG&A partially offset by decreases in income

tax expense, manufacturing facility closures, restructuring and other related charges, and foreign exchange losses

• Adjusted net earnings increased primarily due to decreases in income tax expense and variable compensation expense, partially
• ffset by a decrease in gross profit
• Adjusted EBITDA Margin decreased from 13.9% to 13.1% primarily due to a decrease in gross profit partially offset by an

decrease in variable compensation expense

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2015 Q2 Results: YTD June

in millions US $ (except per share amounts)

Revenue $385.6 $402.9 (4.3%) Gross profit $79.4 $86.7 (8.4%) Net earnings $23.5 $23.7 (0.9%) Adj Net Earnings $26.8 $26.5 1.2% Adj EBITDA $50.6 $56.1 (9.8%) EPS, fully diluted $0.38 $0.38 0.0% Adj EPS, fully diluted $0.43 $0.42 2.2%

2015 Q2 YTD 2014 Q2 YTD Change %

Quarterly Gross Profit and Margin

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$US millions

Quarterly Net Earnings and Adjusted EBITDA Margins

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$US millions

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• Q3 2015 revenue is anticipated to be higher compared to Q2 2015 primarily

due seasonally higher sales volume

• Q3 2015 gross margin is anticipated to be lower compared to Q2 2015

primarily due to higher manufacturing overhead related to the planned annual maintenance shutdowns at many of the Company’s manufacturing facilities

• Q3 2015 Adjusted EBITDA is anticipated to be similar compared to Q2 2015

primarily as a result of the revenue and gross margin outlook above

• Manufacturing cost reductions for full year 2015 are expected to be between

$9 and $12 million

• Assuming there are no material changes to the Company’s expected results

and geographic source of earnings, the Company expects its effective tax rate for Q3 2015 and full year 2015 to be approximately 25% to 30%

Outlook

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• Net Savings are expected to be:

– Second Half 2015: Net negative impact but improved vs. Q2 2015 (Net negative impact

• f $1.3 million in Q2 2015)

– Full Year 2015: Net negative impact – Full Year 2016: Net positive impact with significant improvement vs. 2015 – Full Year 2017: Full $13 million savings with significant improvement vs. 2016

• South Carolina Duplicate Overhead Costs are expected to be:

– Full year 2015 approximately $5 million – Full year 2016 approximately $1 million per quarter to continue until masking tape production is fully transferred to the Blythewood facility

• Total South Carolina Project capital expenditures are expected to be

approximately $55 million

• Expected gross margin(1) of 22%-24% prior to completion of the South Carolina

Project

South Carolina Project Outlook

(1) Assuming raw material costs at current levels

Thank You!

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