ipg investor presentation - intertape polymer group relations... · certain statements and...

IPG Investor Presentation

IPG Investor

PresentationAugust 2017

2IPG Investor Presentation

Safe Harbor StatementCertain 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 Partnership, the

total cash consideration, and the timing and intended use of such consideration, the Company’s quarterly cash dividend, and the Company's third 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 closures, manufacturing plant rationalization initiatives, greenfield developments and other

restructuring efforts; the anticipated benefits from the Company’s acquisitions and partnerships; 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; 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

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 Presentation3

Company Profile

• The second largest tape manufacturer in North

America

• Employs ~2,450 people(1)

• Approximately 63% of sales from products with

a Top 2 market position in North America


67%

19%

14%Tapes

Films

Woven& Other

2016$809 million

Net Sales

(1) As of June 30, 2017

Manufacturing Locations


• 12 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


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


Films

Stretch

Shrink

Woven At-A-Glance

IPG Investor Presentation

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

8

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


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 opportunities to

create shareholder

value


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 of $0.56 per share

• Dividend yield(1) of 3.62%

• Since Aug. 2012, the Company has paid $121.3 million in dividends, of which $31.4 million was paid in 2016

Share repurchases

• Repurchased ~2.5 million shares in 2015 under the NCIB for a total price of $30 million

• As of July 17, 2017, 4.0 million shares remained available for repurchase under the NCIB


Capital Allocation Priorities

(1) Source: Bloomberg, as of August 23, 2017


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

• 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%

(In millions of US dollars)

(1) Amounts represent total expected costs

Expected range

Business Acquisitions


(1) IPG acquired 74% ownership stake in Powerband

Strategicrationale

Expansion:E-commerce

StrengthenMarket position: Tape manufacturing

Global Expansion: Tape manufacturing

StrengthenMarket position: Tape manufacturing

Core competency

Leading supplier of water-activated tape dispensers

Manufacturer of filament and pressure sensitive tapes

Global supplier of acrylic tapes

Manufacturer of industrial and specialty tapes

Purchase price $15.9MM $11.0MM $41.9MM $67.0MM

Acquisitiondate(1)

April 7, 2015 November 2, 2015

September 16,2016

July 1, 2017

Capstone Partnership


• On June 23, 2017, as one of the initial steps in the establishment of the partnership in Capstone Polyweave Private Limited (doing business as “Capstone”), the Company purchased substantially all of the issued and outstanding shares of Capstone, a newly-formed enterprise in India, for cash consideration of $5.1 million funded from the Company’s Revolving Credit Facility (“Capstone Partnership”).

• The principal goal of the Capstone Partnership will be to provide the Company with a globally-competitive supply of certain woven products in order to better service and grow the Company’s woven products business.

• The Company has agreed to maintain a minimum 55% interest in Capstone for total cash consideration of approximately $13 million to be provided in several tranches over a period of approximately six to twelve months from June 23, 2017.

• On August 8, 2017, the Company purchased additional shares of Capstone for a purchase price of $5.1 million.

• The majority of the Company’s total cash consideration is intended to be used by Capstone to partially finance the construction of a greenfield manufacturing facility in India which is planned to begin in 2017.


• 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 June 30th, 2017:

– Total cash and loan availability was $179 million

– Leverage 2.5x debt to TTM adjusted EBITDA

• Option to raise equity if needed

• For the quarter ending June 30, 2017, the average-total cost of funds(1) for the cash flow based loan facility was 2.47%

Source of Funds

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

Cash Flow Based Loan FacilityKey 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) Debt Service Coverage Ratio > 1.5

(3) Capex < $100MM

Maturity November 18, 2019

• Gross margin decreased to 22.5% from 25.7% primarily due to the non-recurrence of South Carolina

Flood Insurance Proceeds of $4.5 million recorded in the second quarter of 2016 and stronger

manufacturing capacity utilization in the second quarter of 2016. These unfavourable items were partially

offset by the favourable impact of the Company’s manufacturing cost reduction programs.

• Net earnings decreased primarily due to a decrease in gross profit and an increase in SG&A, partially

offset by a decrease in manufacturing facility closures, restructuring and other related charges and income

tax expense.

• Adjusted EBITDA Margin(1) decreased to 13.5% from 16.4% primarily due to a decrease in gross profit.

Included in adjusted EBITDA for the second quarter of 2017 and 2016 are advisory fees and other costs

associated with M&A activity totalling $2.3 million and $0.8 million, respectively.

2017 Q2 Results: Year-Over-Year


in millions US $Q2 2017 Q2 2016 Change %

(except per share amounts)

Revenue $210.2 $201.5 4.3%

Gross profit $47.4 $51.8 (8.5%)

Net earnings $10.2 $13.7 (25.3%)

Adj EBITDA $28.5 $33.0 (13.7%)

EPS, fully diluted $0.17 $0.22 (23.7%)

(1) Adjusted EBITDA as a percentage of revenue

• Gross margin decreased to 22.5% from 23.7% primarily due to the non-recurrence of South Carolina

Flood Insurance Proceeds of $2.1 million recorded in the first quarter of 2017 and a decrease in the

spread between selling prices and raw material costs. These unfavourable items were partially offset by a

favourable product mix variance.

• Net earnings decreased primarily due to an increase in SG&A and a decrease in gross profit.

• Adjusted EBITDA Margin(1) decreased to 13.5% from 14.3% primarily due to a decrease in gross profit

mainly related to the non-recurrence of $2.1 million of South Carolina Flood Insurance Proceeds recorded

in the first quarter of 2017. Included in adjusted EBITDA are advisory fees and other costs associated with

M&A activity totalling $0.5 million and $2.3 million in the first and second quarter of 2017, respectively.

2017 Q2 Results: Sequential


in millions US $Q2 2017 Q1 2017 Change %


Revenue $210.2 $207.1 1.5%

Gross profit $47.4 $49.1 (3.6%)

Net earnings $10.2 $13.5 (24.2%)

Adj EBITDA $28.5 $29.7 (4.0%)

EPS, fully diluted $0.17 $0.22 (23.4%)


• Gross margin decreased to 23.1% from 23.7% primarily due to stronger manufacturing capacity

utilization in the first six months of 2016, an unfavourable product mix variance, and a reduction in the

South Carolina Flood Insurance Proceeds from $4.5 million recorded in the first six months of 2016 to $2.1

million recorded in the first six months of 2017. These unfavourable items were partially offset 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, restructuring and other related charges, partially offset by an increase in SG&A.

• Adjusted EBITDA Margin(1) decreased to 13.9% from 14.5% primarily due to an increase in SG&A.

Included in adjusted EBITDA for the first six months of 2017 and 2016 are advisory fees and other costs

associated with M&A activity totalling $2.9 million and $0.9 million, respectively.

2017 Q2 Results: YTD June


in millions US $ 2017

Q2 YTD

2016

Q2 YTDChange %


Revenue $417.3 $392.3 6.4%

Gross profit $96.5 $92.9 3.9%

Net earnings $23.7 $23.2 2.0%

Adj EBITDA $58.1 $57.0 2.0%

EPS, fully diluted $0.40 $0.38 3.2%



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

– As of August 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

– Closing expected by end of 2017

• Normal course issuer bid renewed for twelve-month period starting July 17, 2017

– 4,000,000 common shares may be repurchased for cancellation

• Quarterly cash dividend declared

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


Outlook

Fiscal Year 2017 Current Guidance (1)

Gross margin 22.5% to 23%

Adjusted EBITDA $120 to $127 million

Manufacturing cost

reductions

$10 to $12 million

(upper end of range)

Total capital expenditures $75 to $85 million

Effective tax rate (2) 25% to 30%

Cash taxes paid (2) Approximately 50% of

income tax expense

• The Company expects revenue, gross margin, and adjusted EBITDA in the third quarter of 2017 to be greater than the third quarter of 2016.

(1) Includes the expected impact of the Cantech Acquisition and Capstone Partnership, net of integration costs.

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


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.

MetricFiscal 2015

Results

Revenue $782M

Adj EBITDA $102M

Adj EBITDA

Margin13.0%

Constituted by

Upgrade manufacturing plants

to achieve lowest cost

operation 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

MetricAspirational

Goals

Revenue $1.5B

Adj EBITDAAt least

$225M

Adj EBITDA

MarginAt least 15%

Thank You!


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