growth, value and stability in a challenging...
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10-02-08 1
Growth, Value and StabilityGrowth, Value and Stabilityin a Challenging Environmentin a Challenging Environment
Presentation byFrank C. Sullivan, President and Chief Executive Officer
October 2, 2008
10-02-08
Forward-Looking StatementsThis presentation contains “Forward-Looking Statements” as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from expectations and are subject to certain risks and uncertainties such as those described in RPM’s periodic reports and statements filed with the Securities and Exchange Commission andavailable through the company’s website, www.rpminc.com. The company does not intend to update any forward-looking statements made in this presentation.
Regulation GThis presentation includes certain company data that do not directly conform to generally accepted accounting principles, or GAAP, and certain company data that has been restated for improved clarity, understanding and comparability, or pro forma. All non-GAAP data in this presentation are indicated by footnote. Tables reconciling such data with GAAP measures are available through our website, www.rpminc.com under InvestorInformation/Presentations.
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RPM Overview
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$3.8 billion globally diversified manufacturer of specialty coatings, sealants and building materials
Leading brands serving consumer and industrial marketsBalanced growth strategy built on solid organic growth and an industry-leading acquisition program
Consistent and strong financial performance across all economic cycles
61 years of profitable growth and strong cash flow34 consecutive years of cash dividend increases
Historically low valuation at 11x EPS and a 4% dividend yield
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FY 2008 Financial ResultsFY 2008 Financial Results
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Consolidated Statements of Income(as reported)
($ in thousands, except per share and percent data) Fiscal Year Ended May 31,
2008 % 2007 % % Chg.Net Sales $ 3,643,791 $ 3,338,764 9.1Cost of Sales 2,145,254 58.9 1,978,312 59.2Gross Profit 1,498,537 41.1 1,360,452 40.8SG&A 1,124,419 30.8 1,020,884 30.6Asbestos Charges 288,100 7.9 (15,000) (0.4)EBIT* 86,018 2.4 354,568 10.6 (75.7)Interest Expense, Net 46,964 1.3 47,033 1.4Income Before Taxes 39,054 1.1 307,535 9.2Tax Provision (8,655) (0.2) 99,246 3.0Net Income $ 47,709 1.3 $208,289 6.2 (77.1)
Diluted EPS $0.39 $1.64 (76.2)
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*Non-GAAP measure
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Consolidated Statements of Income(adjusted, excluding asbestos-related items)
($ in thousands, except per share and percent data) Fiscal Year Ended May 31,
2008(1) % 2007(2) % % Chg.Net Sales $ 3,643,791 $ 3,338,764 9.1Cost of Sales 2,145,254 58.9 1,978,312 59.2Gross Profit 1,498,537 41.1 1,360,452 40.8SG&A 1,124,419 30.8 1,020,884 30.6EBIT* 374,118 10.3 339,568 10.2 10.2Interest Expense, Net 46,964 1.3 47,033 1.4Income Before Taxes 327,154 9.0 292,535 8.8Tax Provision 94,393 2.6 93,961 2.8Net Income $ 232,761 6.4 $ 198,574 6.0 17.2
Diluted EPS $1.81 $1.57 15.3
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*Non-GAAP measure
(1) The fiscal year ended May 31, 2008 excludes the $288.1 million pre-tax asbestos charge made May 31, 2008(2) Fiscal 2007 excludes $15.0 million pre-tax in asbestos-related insurance receipts received November 2006
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Segment Statements of Income.
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*Non-GAAP measure
($ in thousands, except per share and percent data) Fiscal Year Ended May 31,
Industrial Segment 2008 % 2007 % % Chg.Net Sales $ 2,365,496 $ 2,100,386 12.6Cost of Sales 1,366,433 57.8 1,215,245 57.9Gross Profit 999,063 42.2 885,141 42.1SG&A 737,406 31.1 650,084 30.9EBIT* $ 261,657 11.1 $ 235,057 11.2 11.3
($ in thousands, except per share and percent data) Fiscal Year Ended May 31,
Consumer Segment 2008 % 2007 % % Chg.Net Sales $ 1,278,295 $ 1,238,378 3.2Cost of Sales 778,611 60.9 763,036 61.6Gross Profit 499,684 39.1 475,342 38.4SG&A 338,472 26.5 320,951 25.9EBIT* $ 161,212 12.6 $ 154,391 12.5 4.4
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($ in millions)
Balanced to Grow in All Economic Environments
Sales CAGR (Past 25 Years) = 13.8%
Recession Slow GDP Growth (<2.5%)Source: Bureau of Economic Analysis
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
$2,800
$3,200
$3,600
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
RPM Sales
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Strategic OverviewStrategic Overview
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Competitive Advantage of Unique Entrepreneurial Operating Philosophy
$3.6 BillionConsumer Segment Industrial Segment
CustomDAP
PhenosealPlastic Wood
FlectoMartin Mathys
Modern MastersOkonParks
Rust-Oleum CBGRust-Oleum IBG
Rust-Oleum EuropeTestor
TorWatcoZinsser
CCIChemspecDay-Glo
DryvitKop-Coat
Mantrose HaeuserRadiant ColorRPM/Belgium
TCIVandex
WestfieldWood Finishes
BoralCompact Tech.Euclid Chemical
illbruckIncrete
Productos CaveProsytecTremco
Tremco EuropeTremco RoofingTremco Sealants
Tremco Barrier Solutions
A/D FireCarboline/Plasite
EcolocF&H MarineFibergrateFlowcrete
Star MalingStonCor Europe
Stonhard
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Competitive Advantage of Leading Brands
$3.6 BillionConsumer Segment Industrial Segment
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Polymer flooring systems
Leading Brands in Huge, Fragmented Leading Brands in Huge, Fragmented IndustrialIndustrial MarketsMarkets
Roofing systems and sealants
Corrosion control coatings
Competitive Advantage of Leading Brands
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Fluorescent pigments and dyes
Leading Shares in Specialty Niche Leading Shares in Specialty Niche IndustrialIndustrial MarketsMarkets
Exterior insulation and finish systems (EIFS)
Pleasure marine coatings
Competitive Advantage of Leading Brands
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Small project paints & coatings
The Leading Brands in North American The Leading Brands in North American ConsumerConsumer MarketsMarkets
Primer-sealers Caulks & sealants
Competitive Advantage of Leading Brands
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Deliberate Balance to Markets and Growth
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Consumer markets + Industrial markets +Internal growth + Acquisition growth +
Expanding in global markets =
Consistent growth and industryleading performance
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Balance Between Consumer & Industrial Markets
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$ in thousands
Sal
es
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Balance Between Internal and Acquisition Growth
Organic Revenue GrowthAcquisition Growth, Net of Divestitures
(Fiscal year ended May 31)
6.5%
13.2%
2.0%
4.0%
2.5%
11.6%
1.9%0.4%
0.9%
2.0%-
3.9%
1.0% 9.1%
3.3%
9.5%
1.2%
10.8%
6.9%
6.7%
4.3%
6.9%
2.2%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
1998 1999 2000* 2001* 2002 2003 2004 2005 2006 2007 2008
(1) Through December 31, 2007
TotalOrganicM&AGDP
9.5%5.5%4.0%3.0%
CAGR (1998-2008)
(1)
* Restructuring years
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Balanced to GrowNew Product Growth
Increte Decorative Concrete Company New high-growth concrete category for Euclid Chemical
Nu-Chem Intumescent Coatings New epoxy intumescent fireproofing product line rounding out Carboline’s fireproofing offerings
DAP 3.0 New Kwik Dry Technology “Is All You Need to Know”
Rust-Oleum Universal“The Best Paint in the Universe”High-end category innovation
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Balanced to GrowGeographic Expansion
Filling out Western Europe and expanding
south and eastProsytec acquisition
Russia, Slovakia, Austria, Hungary,
Middle East, Ukraine
Expanding in Europe, Asia and South AfricaFlowcrete acquisition
(polymer flooring)Star Maling acquisition
(corrosion control and marine coatings)
European coatings expansion
Watco acquisitionTor acquisition
India expansion with Kemrock Industries
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Expanding in Global Markets
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$ in thousands
Sal
es
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2008 Global SalesGlobal Growth Opportunities
$77621%
$782% $59
2%
$2,69174%
FY 2008 Sales by Region (in millions)Total Sales - $3.6 billion
NORTH AMERICA
SOUTH AMERICA
AFRICA/MIDDLE EAST
AUSTRALIA/NEW ZEALAND
EUROPE
ASIA
Plant Locations
$401%
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Unique entrepreneurial operating philosophy
Competitive advantage of leading brands
Deliberate balance between consumer and industrial markets, internal and acquisition growth and a growing geographic presence
Execution
Strategic Differentiation
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FY 2009 OutlookFY 2009 Outlook
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Balanced to GrowExpected 2009 Market Dynamics
• Continuing expansion in global industrial markets – oil & gas, offshore, power generation impacting Carboline, Stonhard, Fibergrate
• Continuing U.S. consumer market challenges partly offset by maintenance & repair product characteristics, new product success, energy efficiency products and market share gains – impacting Rust-Oleum, DAP, Zinsser
• U.S. commercial new construction – possible slowing of growth – shift to renovation opportunities and energy efficiency needs
• Raw material cost increases driving product price increases across all product lines
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Balanced to GrowFY2009 Outlook
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• Consumer segment sales flat – mostly price driven
• Industrial segment sales growth 6% to 8% – 50/50 units to price – mix sensitive
• Raw material cost driven margin pressure minimizing bottom line leverage
• Consolidated sales and earnings growth up 5% to 6% from one-time tax benefit adjusted 2008 base of $1.75
• Guidance: 2009 EPS up $.04 to $1.85 per share from 2008 reported $1.81 per share
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Financial Condition and LiquidityFinancial Condition and Liquidity
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Driving Operating Cash Flow.
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*Preliminary unaudited results**Non-GAAP measure
Fiscal Year Ended May 31,
($ in millions) 2008* % Growth 2007
Cash Flow from Operations $ 235 16% $ 202
Capital Expenditures (72) (70)
Free Cash Flow** $ 163 24% $ 132
Dividends $ 91 $ 82
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*These figures exclude the May 2008 asbestos charge. 5/31/08 balance sheet items are shown pro forma for the July 2008 conversion to equity of RPM’s $150 million convertible bonds due 2023.1
Significant balance sheet/capital structure/liquidity progress despite $587 million of debt funded acquisitions and $886 million of pre-tax asbestos charges through the RPM Income Statement, driving anegative impact on net worth of approximately $576 million.
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Sales $1,985.0 $3,643.8Net Income $63.0 *$232.8Book Net Worth $639.7 $1,286.8Total Debt $963.0 $923.4Liquidity $97.0 $626.3Debt/Cap 60.1% 41.8%Interest Coverage 3.6x *7.6xDividend Payout 80.4% *38.9%Working Capital/Sales 26.7% 24.2%Return on Invested Capital 7.8% *13.3%Return on Equity 9.7% *18.3%
($ in millions) 5/31/01 *5/31/08
Balanced to GrowProgress Since 2001
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3434thth Consecutive Year of Cash Dividend IncreasesConsecutive Year of Cash Dividend IncreasesTop 1% of U.S. CompaniesTop 1% of U.S. Companies
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
$0.45
$0.50
$0.55
$0.60
$0.65
$0.70
'75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07
10/04/07:+8.6%
Today5
1520
4%6%
11%20%
Power of Compounding Rewards Long-term Stockholders
Approx. Yield onOriginal Investment
Years Held
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Growth, Value and Stability in a Challenging EnvironmentGrowth, Value and Stability in a Challenging EnvironmentBalanced to Grow
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“Hire the best people you can find. Create an atmosphere that will keep them. Then let them do their jobs.”
Frank C. Sullivan, 1947
168The Value of
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