CHECKPOINT SYSTEMS, INC. INVESTOR PRESENTATION June 2013

Transcription

1 CHECKPOINT SYSTEMS, INC. INVESTOR PRESENTATION June 2013 Global Reach Powerful Partnerships

2 FORWARD-LOOKING STATEMENT This presentation includes information that constitutes forward-looking statements. Forward-looking statements often address our expected future business and financial performance, and often contain words such as expect, anticipate, intend, plan, believe, seek, or will. By their nature, forward-looking statements address matters that are subject to risks and uncertainties. Any such forward-looking statements may involve risk and uncertainties that could cause actual results to differ materially from any future results encompassed within the forward-looking statements. Factors that could cause or contribute to such differences include: the impact upon operations of legal compliance matters or internal controls review, improvement and remediation, including the detection of wrongdoing, improper activities, or circumvention of internal controls; our ability to integrate acquisitions and to achieve our financial and operational goals for our acquisitions; changes in international business conditions; foreign currency exchange rate and interest rate fluctuations; lower than anticipated demand by retailers and other customers for our products; slower commitments of retail customers to chain-wide installations and/or source tagging adoption or expansion; possible increases in per unit product manufacturing costs due to less than full utilization of manufacturing capacity as a result of slowing economic conditions or other factors; our ability to provide and market innovative and cost-effective products; the development of new competitive technologies; our ability to maintain our intellectual property; competitive pricing pressures causing profit erosion; the availability and pricing of component parts and raw materials; possible increases in the payment time for receivables as a result of economic conditions or other market factors; changes in regulations or standards applicable to our products; the ability to successfully Implement global cost reductions in operating expenses including, field service, sales, and general and administrative expense, and our manufacturing and supply chain operations without significantly impacting revenue and profits; our ability to maintain effective internal control over financial reporting; and additional matters disclosed in our Securities and Exchange Commission filings. We do not undertake to update our forward-looking statements, except as required by applicable securities laws. 2

3 BUSINESS OVERVIEW Except as noted, this presentation reflects Checkpoint s U.S. and Canadian CheckView business as discontinued operations 3

4 CORPORATE PROFILE Listed on the New York Stock Exchange - CKP Founded in 1969; incorporated in Pennsylvania Headquartered in Thorofare, New Jersey Direct operations in 29 countries 2012 revenues $690.8 million % Revenues by Region Europe 40% North America 27% Asia 28% International Americas 5% % Revenues by Line of Business SMS 65% ALS 27% RMS 8% Employees 6,160(Q1 2012) 5,145 (Q1 2013) 4

5 THREE BUSINESS LINES FOCUSED ON RETAIL Shrink Management Solutions (SMS) Revenues $450.1 million; Gross Profit Margin 44.1% Diversified line of security and inventory management solutions that help retailers combat theft, reduce out-of-stocks and improve inventory accuracy. Electronic Article Surveillance (EAS) Systems and EAS Consumables * Alpha High-Theft Solutions * Merchandise Visibility Solutions RFID (radio frequency identification) Apparel Labeling Solutions (ALS) Revenues $185.0 million; Gross Profit Margin 25.2% Foremost competency is labels and tags that serve as carriers for EAS-RF & RFID solutions. Price tickets * Integrated EAS-RF/RFID labels * Graphic tags * Printed labels * Woven labels * Heat transfers Retail Merchandising Solutions (RMS) Revenues $55.7 million; Gross Profit Margin 45.7% Label applicators and tags for retail price marking, promotion displays and customer queuing systems. Largely focused on European markets. METO hand-held labeling systems * Promotion displays * Retail signage 5

6 BUSINESS STRENGTHS Shrink Management Solutions EAS Systems and EAS Consumables Strong market position with scalable, energy-efficient technology - leader in source tagging Continuing to win new customers and conversions from competitors Expanding into new verticals - apparel, hard discount - and new geographies Alpha Market leader in high-theft merchandise protection Innovative legacy introducing new products/applications to existing customers Developing product line for under-served geographies Merchandise Visibility Solutions OATSystems recognized leader in RFID-based application software Single-source provider software, hardware, labels, installation and service Gaining traction with major European and U.S. retailers 6

7 BUSINESS STRENGTHS Apparel Labeling Solutions Extensive web-based data management service and network of service bureaus located close to where apparel is manufactured Offers on-demand printing of variable information onto apparel labels and tags Manufacturing focus is on labels and tags that support redefined strategy integrating EAS and RFID to provide dual benefits of theft protection and inventory management while outsourcing lower-margin products Retail Merchandising Solutions Focused on Europe and Asia METO is leading provider of hand-held price marking solutions - high margin business with high recurring sales Retail display and queuing systems for supermarkets and DIY where signage is important for in-store communication with customers 7

8 MARKETS AND COMPETITORS (a) Shrink Management Solutions Global Market $3.5 billion EAS Systems and Consumables Global market $1.0 billion; growth rate 1% to 2% Tyco Retail Solutions, Nedap, Sentry Technology Corporation, Ketec, Inc., All-Tag Security S.A. Alpha - Global market $750 million; growth rate 5% to 7% USS Corporation, Vanguard Protex Global Corporation, Se-Kure Controls, Inc., Invue Security Products, Century Merchandise visibility - Global apparel market $400 million; growth rate 35% to 40% Avery Dennison Corporation, Tyco Retail Solutions, Nedap Apparel Labeling Solutions Global Market $3.2 billion Growth rates in Europe and North America 1% to 2%; Asia 5% Avery Dennison Corporation, SML Group, R-Pac International Corporation, NexGen, Fineline Technologies Retail Merchandising Solutions Focused on European and Asian markets METO Hand-held Labeling Solutions Contact Labeling Systems, SATO DCS & Labeling Worldwide, Garvey Products Inc., Hallo, Avery Dennison Corporation and Prix International Retail Display Systems HL Display AB and VFK Renzel GmbH (a) Sources: Industry research and Checkpoint Systems estimates. 8

9 2012 A YEAR OF MEASURED PROGRESS 9

10 2012 KEY INITIATIVES TO DRIVE PROFITABILITY STRENGTHENED FINANCIAL FOOTING Amended debt agreements Responded to fall-off in Q revenues Prevented potential to trip financial covenants Enabled restructuring to continue Introduced new working capital initiatives (inventory, AR, AP) expected to generate $50 million to $60 million by June 2013 Improve forecast process to reduce inventory balances Improve billing process to reduce accounts receivable and days sales outstanding Improve accounts payable terms and management Tighten worldwide operating cash management CONDUCTED STRATEGIC BUSINESS EVALUATION OF EACH LINE OF BUSINESS Led to redefined focus, organizational changes and expanded global restructuring Restructuring targets Expected annual savings of $102 million by end of 2013 Expected expense of $68 million to $73 million by end of 2013 Headcount reduction - 2,400 10

11 2012 KEY INITIATIVES TO DRIVE PROFITABILITY BROADENED VALUE PROPOSITION From shrink management to provider of MERCHANDISE AVAILABILITY SOLUTIONS that help retailers to reduce shrink, reduce time to shelf, improve inventory accuracy and increase sales Remain recognized global leader in SHRINK MANAGEMENT and MERCHANDISE VISIBILITY solutions to the retail and apparel industries Leverage competitive advantage in APPAREL LABELING in the printing of variable data onto labels and tags that increasingly carry RFID circuits for merchandise tracking STREAMLINED BUSINESS AND SHARPENED FOCUS Aligned Global Sales by line of business to maximize focus, streamline decision-making and ensure accountability Placed business leaders in roles commensurate with their expertise Began consolidating Apparel Labeling Solutions in Asia and rationalized product line and customer base Reduced corporate overhead and initiated new, deep cost controls across organization Ongoing productivity improvements are creating a more efficient, nimble and profitable organization 11

12 OPERATIONAL IMPROVEMENTS LED TO SOLID FINISH Realignment of Global Sales organization increased focus and execution New compensation plans drove increased sales of EAS labels and Alpha solutions Organizational stability and key-account focus drove Apparel Labeling Solutions revenues significantly better than expectations Expanded Global Restructuring Plan and expense control drove decline in SG&A Set up 2013 profit improvement 12

13 LOOKING AHEAD AND BEYOND 13

14 2013 FIRST QUARTER PERFORMANCE Market share gains in Shrink Management Solutions led to better-than-expected revenue growth, up 3.2%, 3.8% on a constant dollar basis Driven by EAS systems rollouts in Europe, demand for Alpha high-theft solutions in North America and increased sales of EAS consumables in Europe and Asia Increased demand from key strategic accounts in Apparel Labeling offset impact of revenue deductions resulting from global restructuring Gross margins declined slightly from 36.8% in Q to 36.2% in Q Principally impacted by sizeable rollouts of EAS systems in Europe and temporary, unfavorable revenue mix in Alpha Partially offset by significantly higher margins in EAS consumables and Apparel Labeling Solutions (ALS) reflecting manufacturing improvements in both businesses and ALS plant consolidation in China Non-GAAP operating expenses declined 14.9% compared with Q Driven by $9.6 million in incremental savings from global restructuring, tight expense control and reduced bad-debt expense Working capital initiatives generated $11.6 million in free cash flow Process improvements and accountability have reduced inventories, accounts receivable and accounts payable by $64.1 million since June 2012 Expect to deliver $50 million to $60 million improvement by June 2013 Completed quarter well within debt covenant ratios Total debt reduced by $32.7 million in past 12 months 14

15 EXPANDED GLOBAL RESTRUCTURING PLAN Expected ANNUAL SAVINGS $102 million by end of 2013 Incremental savings realized at Q $60.9 million $44.9 attributable to SG&A at Q Initiatives lowered costs in Q by an additional $15.3 million compared with reductions achieved through Q $9.6 million attributable to SG&A in Q Expected EXPENSE $68 million to $73 million by end of 2013 Expense since inception $68.0 million ($15.0 million non-cash) Expense in Q $2.0 million; ($0.7 million non-cash) TOTAL HEADCOUNT reduction over 2,400 Headcount reduction at Q ,066 15

16 CHECKVIEW SALE Completed sale of U.S. and Canadian CheckView business on April 28, 2013 for $5.4 million Remaining businesses now fully aligned with MERCHANDISE AVAILABILITY STRATEGY MERCHANDISE AVAILABILITY SOLUTIONS DISPLAY MERCHANDISE LOSS PREVENTION INVENTORY MANAGEMENT APPAREL METO SHOWSAFE LABELS & TAGS ALPHA HIGH-THEFT SOLUTIONS EAS HARDWARE EAS TAGS LABELING SOURCE RFID- BASED EAS MERCHANDISE VISIBILITY HARDWARE & SOFTWARE 16

17 OUTLOOK $ in millions Net revenues $675 - $695 Gross profit margin 41.2% % Operating expenses $233 - $243 Non-GAAP operating income $45 - $50 Full year non-gaap effective income rate 27% - 29% Non-GAAP diluted net earnings per share attributable to Checkpoint Systems, Inc. Free Cash Flow (cash flow from operations less capital expenditures) $ $0.75 $50 - $60 Profit improvement driven by cost savings programs in COGS & Opex This guidance is based on an assessment of current market conditions and assumes continuation of current foreign exchange rates. It does not include impact of acquisitions, divestitures, restructuring and one-time or unusual charges resulting from debt refinancing, litigation, certain tax reserves and gains or losses generated by non-routine operating matters which the Company may record during the year. 17

18 GROWTH OPPORTUNITIES Initiatives underway to drive revenue growth SHRINK MANAGEMENT SOLUTIONS Escalate investment on incremental product development for new vertical markets and opportunities in China, India and Latin America Aggressively develop next generation hardware and consumable products for continued market leadership MERCHANDISE VISIBILITY SOLUTIONS Leverage OATSystems software suite, best-in-class hardware, extensive technological expertise and worldwide field service Expand data analytics capabilities to give retailers insight into massive amount of information afforded by RFID APPAREL LABELING SOLUTIONS Complete restructuring to be appropriately sized and equipped to profitably support apparel customers Leverage variable data management capabilities to rapidly grow RFID business Growth opportunities would leverage cost restructure 18

19 INVESTMENT THESIS Strong global brand with substantial installed base and recurring sales RF technology superiority Worldwide sales and service teams Rapidly developing and best-in-class RFID capability Apparel Labeling Solutions trimmed and appropriately structured meets retailers merchandising needs and delivers RFID capability Acquisition and restructuring initiatives substantially complete by end of 2013 Strong balance sheet, with certain short-term restrictions Modest revenue growth coupled with significant improvement in gross margins and opex in 2013 Long-term value in retail industry-wide RFID adoption Thank you for your attention! 19

20 APPENDIX 20

21 SEGMENT REVENUES & GROSS PROFIT MARGINS BY QUARTER Q to Q Shrink Management Solutions Retail Merchandising Solutions Apparel Labeling Solutions Q1 12 Q2 12 Q3 12 Q4 12 Q113 Shrink Management Solutions 44.7% 44.6% 46.0% 41.8% 39.8% Apparel Labeling Solutions 16.4% 28.8% 24.2% 29.4% 27.3% Retail Merchandising Solutions 44.6% 41.0% 46.9% 50.0% 37.8% Total gross profit 36.8% 39.7% 40.7% 39.3% 36.2% $ in millions $200.2 $144.2 $15.8 $40.4 $177.6 $168.8 $12.6 $12.5 $51.7 $41.8 $14.8 $51.1 $148.8 $13.1 $40.4 $88.0 $113.3 $114.5 $134.3 $95.3 Q Q Q Q Q

22 SUMMARY INCOME STATEMENT Data is presented on a non-gaap basis, which excludes restructuring expenses and other charges First Quarter First Quarter (millions except EPS and percents) Net revenues $ $ Gross profit Selling, general & admin expenses Research and development Other operating income Operating loss (5.7) (17.0) Net loss from continuing operations attributable to Checkpoint Systems, Inc. $ (8.5) $ (8.5) Net loss from continuing operations attributable to Checkpoint Systems, Inc., per share - diluted $ (0.21) $ (0.21) Shares outstanding, diluted 41,188 40,812 Ratios Gross margin 36.2 % 36.8 % Operating margin (3.8) % (11.8) % Net margin (5.7) % (5.9) % 22

23 SUMMARY BALANCE SHEET AND CASH FLOW March 31 December 30 Summary Consolidated Balance Sheet (millions) Cash equivalents $ $ Working capital Current assets Total debt Total equity Total assets $ $ Free Cash Flow YTD (a) $ 11.6 $ 49.8 (a) Free cash flow is defined as cash flow from operations less capital expenditures. 23