JP Morgan Packapalooza Graphic Packaging Corporation Strategy and Financial Update. March 29, 2005

Transcription

1 JP Morgan Packapalooza 2005 Graphic Packaging Corporation Strategy and Financial Update March 29, 2005

2 Forward Looking Statements Statements of the Company's expectations made during this event are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and its present expectations. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made. Additional information regarding risks facing the Company is contained in the Company's periodic filings with the SEC, including our Form 10-K for

3 Company Overview Premier, value-added added paperboard packaging company serving the beverage, food and consumer product industries Leading positions in attractive, higher margin end markets with enhanced revenue growth opportunities. Increased system integration, scale, and geographic presence to provide total customer solution. Substantial free cash flow for significant debt reduction. - Paid down approximately $129 million of debt in Net operating loss of $1.3 billion available to shield pre-tax profits. Extremely attractive investment profile for creditors, supported by public equity value, significant asset value and #1 position in stable market segments 3

4 Successful Merger Integration and Synergy Achievement During 2004, achieved an annualized run rate of $72 million in synergies. Recognized greater amount of synergies, at a faster rate than originally planned. Exceeded goals in all synergy categories including: Integration of Company s paperboard production into its carton converting system. More effective leveraging of purchasing power. Disciplined reduction of excess overhead. Rationalization of manufacturing capacity. 4

5 Business Strategy Deliver superior financial results and apply cash flow to debt reduction. r Top line growth: Maintain strong customer base. Capitalize on significant cross-selling selling opportunities. Strengthen #1 position in paperboard packaging. Expand share in attractive higher margin end markets. Exceed industry growth through product innovation. Bottom line improvement: Ongoing focus on cost reduction (i.e. Six Sigma). Optimize sales mix. Maintain low cost integrated system. 5

6 Maintain Strong Customer Base Graphic Packaging Largest Customers Company Anheuser-Busch Kraft / Philip Morris Miller Brewing General Mills Coors Brewing Pepsi / Quaker Coca-Cola Bottlers Kellogg Georgia Pacific / Dixie Schwan s Length of Relationship (yrs) >10 >30 >10 >30 >30 >30 >10 >30 >25 >25 Top 10 Customers account for approximately 48% of sales. Top 30 Customers account for approximately 59% of sales. 6

7 Capitalize on Significant Cross-Selling Opportunities Significant cross-selling opportunities for both legacy companies as a result of existing strong domestic and international customer relationships. - Legacy Riverwood s Z-Flute product applications for legacy Graphic s consumer products customers. Kellogg s Pop-Tarts. Quaker Oats Single Serve Oatmeal. Kraft Taco Bell Grande. Kraft Nabisco Zoo Animal Fruit Snacks. - Legacy Graphic s laminated product applications for beverage customers of Riverwood. Significant opportunities as a result of legacy Riverwood s global system. - Sizeable microwave product opportunity in Europe. New package for lasagna and meat pies in Germany and France. - Expanded global position with existing customers. New Tower Pack point-of-purchase dispenser in the UK. Now providing cereal boxes to Kellogg s in the UK. - Expanded geographical presence for targeting. 7

8 Strengthen #1 Position in Paperboard Packaging Overall U.S. Folding Carton Market: : Approximately $8.6 BN 1 Beverage Graphic Packaging 55% Other 4% Mead- Westvaco 41% Caraustar 3% Field 4% Rock-Tenn 7% All Others 41% IP 9% Graphic Packaging 19% MeadWestvaco Smurfit- 9% Stone 8% Annual Growth 1% Consumer Products Other 45% Graphic Packaging 13% Smurfit Caraustar 10% 4% MWV 4% Field IP 10% 5% Rock-Tenn 9% Annual Growth 1-2% 1 1 Source: Paperboard Packaging Council, Company Reports, Fredonia report and management estimates for the U.S. folding carton market. Based on 2003 data. 8

9 Expand Share in Attractive Higher Margin End Markets #1 market share in Beverage and Consumer Product packaging markets. Low cost mill production and converting network. Best-in-Class at each stage (CUK/CRB production, converting, carton design, machine capability). Total systems approach drives value proposition and higher margins. Sophisticated product development and marketing capabilities. 9

10 Exceed Industry Growth Through Product Innovation Technology and Innovation Focused on Customer Needs Package Differentiation Product Protection Enhanced Strength Consumer Convenience Impulse Buy Freshness Durability Ease of Use Brand Recognition Extended Shelf Life Tear Resistant Time Saving * * *2004 Paperboard Packaging Council Competition Award 10

11 New Product Launches: 2004 In 2004, identified, evaluated, and managed over 100 new product initiatives resulting in $30 million of new revenues. Q1 Kelloggs Pop Tarts in Z-Flute. Nestle Hot Pockets in new Microwave Technology. Celestial Tea and Quaker Oatmeal in new barrier coating package. Q2 Miller Brewing: two national brands in Fridge Vendor. Heineken N.V: both Heineken and Amstel Light in Fridge Vendor. Heinz Easy Fries in Microwave Susceptor. Kraft Taco Bell Grande in Z-Flute. Q3 Pepsi s Aquafina in Fridge Vendor. Cin-Made launch of DorPak Rigid Barrier Container. Sepp s Gourmet Foods first in our new Quilt Wave microwave technology. Q4 Coca Cola Enterprises (CCE) 12-oz. PET bottles in Fridge Vendor. SABMiller 18-can Fridge Pack with new dispensing feature. Molinaro Foods frozen pizzas utilizing Micro-Rite Susceptor Disc. 11

12 Major Cost Components and Inflation Impact Major Cost Inputs Energy (natural gas, purchased electricity, fuel oil). Chemicals, coatings and resins. Fiber, outside board, corrugated shipping containers. Freight Outside Services (Sarbanes-Oxley compliance) Other (including Wages and Benefits) Total Inflation: 2004 vs 2003 $12.0 million $5.9 million $14.0 million $7.2 million $5.6 million $5.2 million $49.9 million * * Majority occurred in Q4. 12

13 Ongoing Focus On Combating Inflation Continuous improvement process including proven tools such as Six Sigma. $27 million in annual cost reduction achieved in 2004 through Continuous Improvement programs and embedded in cost structure. Full year 2005 cost savings expected to approximate 2004 level. Begin to recognize full benefits from Manufacturing Rationalization Beverage Manufacturing Strategy Approximate $75 million investment expected to result in over $30 million of annual improvement in productivity and cost structures. Food and Consumer Products Sheet Fed Strategy Approximate $26 million investment expected to result in almost $20 million of annual improvement in productivity and cost structures. 13

14 Optimize Sales Mix Substitute integrated packaging cartons in place of lower margin containerboard and open market roll-stock sales. Market expanding for new higher margin products like Fridge Vendor, Z-Flute, and Microwave technology. Re-direct coated board (CUK) purchased from others to own mills. - Outside purchases reduced from 50,000 tons per year to an approximate 15,000 ton annual run rate. Convert cartons using SBS or CRB to CUK. - Since the merger, CUK volume increased by an annualized 40,000 tons. 14

15 Maintain Low-Cost Integrated System Low cost manufacturing assets Broadest converting capability in the industry Total customer packaging solution 15

16 Capital Structure 12/31/2004 $ millions Outstanding Instrument Balance Maturity Revolver $ Term Loan C * $ 1, ($12.5 million annually; Bullet in 2010) 8.5% Senior Note $ (Bullet in 2011) 9.5% Senior Sub Note $ (Bullet in 2013) Fixed/floating proportion on entire debt portfolio was approximately 80% fixed with swaps. Key Ratios 12/31/04 Interest Coverage: 5.13 Required 6.15 Consolidated Leverage: 2.81 Required 2.25 * Effective swapped interest rate on Term Loan C was 5.08%. 16

17 Tax Profile Net Operating Loss (NOL) carry-over at 12/31/2004 = $1.3 billion. All income generated by the company will be offset by the NOL up to any limitation that may occur. Absolute value of the NOL is approximate $455 million. ($1.3 billion * 35% tax) Net present value of NOL is conservatively estimated to be between $200 - $300 million. 17

18 Significant De-leveraging Opportunities Focus on Cash Flow Generation and Significant De-leveraging Opportunities to Increase Equity Value. Most debt reduction occurs in Q2 and Q4 as semi-annual fixed debt interest of $38 million is due during Q1 and Q3. Proceeds from potential asset sales of non-core assets could further assist in rapid debt reduction. Total Net Debt Reduction expected to be approximately $100 million in

19 Capital Expenditures Number one goal is debt reduction -- while still positioning the Company for future growth. 2004: Reduced net debt by approximately $119 million while investing over $137 million in capital expenditures. 2005: Targeting a debt reduction of approximately $100 million with a capital expenditure budget of approximately $135 - $140 million Capital Expenditure Categories (approximate): 35% Maintenance 32% Cost Reduction, Productivity, Synergies 18% Environmental/Industrial Safety 15% Expansion 19

20 Graphic Packaging: Preliminary 2004 Results 1 Actual Pro Forma Variance ($ in millions) F/(U) Net Revenues 2, , Operating Income (5.9) Operating Income Margin 4.8% 5.3% (0.5) % EBITDA EBITDA Margin % 16.6% 0.0 % Operating Cash Flow Leverage Ratio Interest Coverage Ratio Notes: 1 It should be noted that as a result of Sarbanes-Oxley requirements, 2004 year-end financial statements will not be certified by management until the Company completes its review of internal reporting controls and finalizes its annual Form 10-K. The Company expects to file its Form 10-K with the SEC by March 16, Represents Credit Agreement EBITDA. 3 Represents GAAP. 20

21 Graphic Packaging Summary Premier, value-added paperboard packaging company serving the beverage, food and consumer product industries. Leading positions in attractive, higher margin end markets. Increased system integration, scale, and geographic presence to provide total customer solution. Deliver superior financial results and apply cash flow toward debt reduction. 21