IPG Investor Presentation IPG Investor Presentation November 2016 - - PowerPoint PPT Presentation

IPG Investor Presentation

IPG Investor Presentation

November 2016

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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 expected financial performance of certain recently-acquired

• perations, the TaraTape closure and the expected synergies from the TaraTape acquisition, the payment of the South Carolina Flood insurance claim settlement and the related

impact on net earnings in the fourth quarter of 2016, the Company's update on the South Carolina Project and the Company's fourth quarter and full year 2016 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 and the Company's customers' industries; changes in general economic, political, social, fiscal or other conditions in any of the countries where the Company operates; the anticipated benefits from the Company's manufacturing facility closures and other restructuring efforts; the anticipated benefits from the Company’s acquisitions; the anticipated benefits from the Company’s capital expenditures; 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; 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, safety regulations, import restrictions and duties, 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, 2015 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, Adjusted Earnings per Share, 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 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.

IPG Investor Presentation

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Company Profile

• The second largest tape manufacturer in North

America

• Employs ~2,200 people
• Approximately 63% of sales from products with

a Top 2 market position in North America

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66% 19% 15%

Tapes Films Woven & Other 2015

$781.9 million Net Sales

Our Locations

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

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Tapes At-A-Glance

#1 or #2 Market Leadership Position in North America

IPG Investor Presentation

Carton Sealing Tapes

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

Industrial & Specialty Tapes

Paper Flatback Filament Stencil

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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 Fiberglass Sleeves

#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 usage of raw materials in 2015 (2) Other includes but not limited to Latex, Fiberglass and Starch

IPG Investor Presentation

9 36% 22% 20% 22%

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

• New product

categories

• Geographic

expansion

Dividends

• Reinstated a

dividend policy on

• Aug. 14, 2012
• Annualized dividend
• f $0.56 per share

announced on August 11, 2016

• Dividend yield(1) of

3.1%

• Since Aug. 2012, the

Company has paid $96.5 million in dividends, of which $29.7 million was paid in 2015

Share repurchases

• Repurchased ~2.5

million shares in 2015 under the NCIB for a total price

• f $30 million
• As of July 14, 2016,

4.0 million shares remained available for repurchase under the NCIB

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Capital Allocation Priorities

(1) Source: Bloomberg, as of November 15, 2016

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Capital Expenditures

• Capacity expansion(1):

– Water-activated tapes ~ $44-$49 million

• Greenfield expansion in North

Carolina

– India expansion ~ $20 million

• Greenfield + current facility

– Shrink film ~ $11 million

• Product expansion(1):

– Specialty Tape ~ $10 million

• Maintenance CapEx expected to be

between $8 and $12 million in 2016

• High-return projects expected to yield

after-tax returns of at least 15%

(In millions of US dollars)

Expected range

(1) Amounts represent total expected costs

Acquisitions

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(1) Better Packages and Taratape: Anticipated to be generated during 2016 fiscal year; Powerband Industries Private Limited’s most recently completed fiscal year (2) IPG acquired 74% ownership stake in Powerband

Strategic rationale Expansion: E-commerce Strengthen Market position: Tape manufacturing Global Expansion: Tape manufacturing Core competency Leading supplier of water-activated tape dispensers Manufacturer of filament and pressure sensitive tapes Global supplier of acrylic tapes and stretch films Purchase price $15.9MM $11.0MM $42.0MM Annual revenue(1) $18MM $20MM ~$32MM Acquisition date(2) April 7, 2015 November 2, 2015 September 16, 2016

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• Cash flow based loan facility of $300 million negotiated in November 2014
• As of September 30, 2016:

– Total cash and loan availability was $117 million – Leverage 1.9x debt to TTM adjusted EBITDA

• Option to raise equity if needed
• For the quarter ending September 30, 2016, the average-total cost of funds(1) for

the cash flow based loan facility was 2.76%

Source of Funds

Cash Flow Based Loan Facility

Key Terms

Facility $300 million Revolving Credit Facility Incremental Facility (Accordion Feature) $150 million Pricing LIBOR + Spread (1.25% to 2.25%) Key Financial Covenants (1) Leverage < 3.25 (2) Debt Service Coverage Ratio > 1.5 (3) Capex < $50MM + carry-forward Maturity November 18, 2019

(1) Includes unused line fees, letters of credit and USD fixed interest rate swap costs

• Gross margin increased to 21.7% from 21.3% primarily due to the favourable impact of the Company’s manufacturing cost

reduction programs and an increase in the spread between selling prices and lower raw material costs, partially offset by the negative impact of the South Carolina Flood.

• Net earnings decreased primarily due to increases in SG&A and manufacturing facility closures, restructuring and other related

charges.

• Adjusted net earnings increased primarily due to a decrease in income tax expense and an increase in gross profit, partially offset

by an increase in SG&A.

• Adjusted EBITDA Margin(1) decreased to 13.2% from 13.4% primarily due to an increases in SG&A partially offset by an increase

in gross profit.

2016 Q3 Results: Year-Over-Year

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in millions US $

Q3 2016 Q3 2015 Change %

(except per share amounts)

Revenue $206.6 $200.6 3.0% Gross profit $44.9 $42.8 4.8% Net earnings $6.3 $15.7 (60.1%) Adj Net Earnings $19.9 $12.9 54.3% Adj EBITDA $27.2 $26.8 1.6% EPS, fully diluted $0.10 $0.26 (60.1%) Adj EPS, fully diluted $0.33 $0.21 54.3%

(1) Adjusted EBITDA as a percentage of revenue

• Gross margin decreased to 21.7% from 25.7% primarily due to the non-recurrence of the South Carolina Flood insurance claim

settlement proceeds received in the second quarter of 2016, an increase in the negative impact of the South Carolina Flood and higher manufacturing overhead related to planned annual maintenance shut downs of certain manufacturing facilities.

• Net earnings decreased primarily due to a decrease in gross profit and an increase in manufacturing facility closures, restructuring

and other related charges, partially offset by a decrease in income tax expense mainly due to lower earnings.

• Adjusted net earnings decreased primarily due to a decrease in gross profit, partially offset by a decrease in income tax expense.
• Adjusted EBITDA Margin(1) decreased to 13.2% from 16.4% primarily due to an decrease in gross profit.

2016 Q3 Results: Sequential

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in millions US $

Q3 2016 Q2 2016 Change %

(except per share amounts)

Revenue $206.6 $201.5 2.5% Gross profit $44.9 $51.8 (13.4%) Net earnings $6.3 $13.7 (54.2%) Adj Net Earnings $19.9 $20.3 (1.9%) Adj EBITDA $27.2 $33.0 (17.4%) EPS, fully diluted $0.10 $0.22 (54.3%) Adj EPS, fully diluted $0.33 $0.33 (2.0%)

(1) Adjusted EBITDA as a percentage of revenue

• Gross margin increased to 23.0% from 20.8% primarily due to an increase in the spread between selling prices and lower raw

material costs and the favourable impact of the Company’s manufacturing cost reduction programs, partially offset by the negative impact of the South Carolina Flood.

• Net earnings decreased primarily due to increases in SG&A and manufacturing facility closures, restructuring and other related

charges, partially offset by an increase in gross profit and a decrease in income tax expense.

• Adjusted net earnings increased primarily due to an increase in gross profit, a decrease in income tax expense and additional

adjusted net earnings in 2016 derived from business acquisitions, partially offset by an increase in SG&A.

• Adjusted EBITDA Margin(1) increased to 14.1% from 13.2% primarily due to an increase in gross profit and additional adjusted

EBITDA in 2016 derived from business acquisitions, partially offset by increases in SG&A.

2016 Q3 Results: YTD September

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in millions US $

2016 Q3 YTD 2015 Q3 YTD Change %

(except per share amounts)

Revenue $598.9 $586.2 2.2% Gross profit $137.8 $122.2 12.7% Net earnings $29.4 $39.2 (24.9%) Adj Net Earnings $54.3 $39.7 36.7% Adj EBITDA $84.3 $77.5 8.8% EPS, fully diluted $0.49 $0.64 (24.2%) Adj EPS, fully diluted $0.90 $0.65 37.9%

(1) Adjusted EBITDA as a percentage of revenue

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Columbia, SC Flood Update

1) Insurance claim settlement proceeds to date total $10 million of which $5.0 million was recorded in manufacturing facility closures, restructuring and other related charges in the fourth quarter of 2015 and $4.5 million and $0.5 million were recorded in cost of sales and manufacturing facility closures, restructuring and other related charges, respectively, in the second quarter of 2016. 2) Reflects lost gross profit on lost sales and quality-related masking tape product returns totalling $3.1 million and $3.4 million for the third quarter and first nine months of 2016, as well as incremental costs from alternative product sourcing. “South Carolina Duplicate Overhead Costs” refers to temporary operating cost increases related to operating both plants in South Carolina simultaneously and performing planned actions to mitigate risk associated with new technology, including state-of-the-art equipment, to support the South Carolina Project. 3) Charges relate to property damage as well as subsequent clean-up and insurance claim preparation costs.

Impacts to Results – Millions of USD Q3 2016 YTD Q3 2016 Q2 2016 Estimated revenue reduction (20.5) (9.9) (5.5) Estimated gross profit / adjusted EBITDA improvement (reduction) (1)(2) (7.3) (7.0) 2.5 Manufacturing facility closures, restructuring and other related charges (1)(3) 3.9 1.0 1.4 Estimated net earnings improvement (reduction) (6.9) (5.0) 0.7 Estimated adjusted net earnings improvement (reduction) (4.4) (4.3) 1.6 Insurance settlement claim proceeds(1) 5.0 Nil 5.0

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Other Significant Items

• Quarterly cash dividend declared

– On November 10, 2016, the Board of Directors declared a quarterly cash dividend of $0.14 per common share payable on December 30, 2016 to shareholders of record at the close of business on December 15, 2016

• TaraTape Closure

– Fairless Hills, PA facility to close and production is being transferred to Carbondale, IL and Danville, VA manufacturing facilities – Total expected synergies from the TaraTape acquisition has been increased to between $4 and $6 million in additional adjusted EBITDA by the end of 2017 (previous expectation was between $2 and $4 million)

• South Carolina Flood Insurance Claim Settlement Reached for $30.0 million in

October 2016 – Expected to result in a payment of $19.5 million and a significant positive impact

• n net earnings in the fourth quarter of 2016

– Payment represents total proceeds less $0.5 million deductible and $10.0 million in insurance claim proceeds received to date

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Update on South Carolina Project

Actual Project Results – Millions of USD Q3 2016 YTD Q3 2016 Q2 2016 South Carolina Commissioning Revenue Reduction (1) 6.3 masking Nil 2.1 masking Net positive (negative) impact on gross profit and adjusted EBITDA (2) 2.0 0.5 0.2

1) Refers to the sales attributed to the commissioning efforts of the production lines that were accounted for as a reduction of revenue and a corresponding reduction of the cost of the South Carolina Project 2) Includes cost savings, net of production ramp-up inefficiencies and South Carolina duplicate overhead costs

• Duct tape production is at targeted levels
• Working through masking tape production ramp-up
• While we expect this project to yield significant savings, it is uncertain if and when

we will realize net savings approaching the estimated $13 million

• Future savings will be achieved incrementally over time as we work through

inefficiencies in the masking tape productions

• Do not currently expect material amount of additional capital expenditures

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Outlook

• The Company expects gross margin for 2016 to be between 23% and 24%,

excluding the impact of the South Carolina Flood

• Adjusted EBITDA for 2016 is expected to be $117 to $123 million, excluding the

impact of the South Carolina Flood

• Manufacturing cost reductions for 2016 are expected to be closer to the upper end of

the previously announced range of between $8 and $11 million. This range excludes any cost savings related to the South Carolina Project

• Total capital expenditures for 2016 are expected to be between $55 and $65 million
• The Company expects a 25% to 30% effective tax rate for 2016. Cash taxes paid in

2016 are expected to be approximately half of the income tax expense in 2016

• The Company expects revenue, gross margin and adjusted EBITDA to be greater in

the fourth quarter of 2016 than in the fourth quarter of 2015

IPG Investor Presentation

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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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