Strategy and Financial Overview. Deutsche Bank Securities Inc. Thirteenth Annual Global High Yield Conference September 28, 2005

Transcription

1 Strategy and Financial Overview Deutsche Bank Securities Inc. Thirteenth Annual Global High Yield Conference September 28, 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, as amended, for

3 Company Snapshot #1 position in paperboard packaging Beverage Food Consumer products 2004 sales of $2.4 billion (NYSE: GPK) Approximately 8,000 employees worldwide Over 100 years of operating history (founded in 1884) Formed by merger of Riverwood and Graphic Packaging in

4 Business Strategy Top line growth: Continue to build strong customer base Strengthen #1 position in paperboard packaging Exceed industry growth through product innovation Adapt products to changing markets Bottom line performance: Ongoing focus on cost reduction Improve asset utilization Optimize sourcing, production and sales mix Respond to input cost volatility 4

5 Top Line Growth 5

6 Continue to Build Strong Customer Base Americas Europe Asia Pacific Anheuser-Busch Asahi Brewery Bass Brewers Birra Peroni Boston Beer Brasserie de St-Omer Britvic Cadbury-Schweppes Campbell s Carlsberg Coca-Cola ConAgra Coors Brewing Company Danone Del Monte Dr Pepper / 7-Up Femsa General Mills Georgia-Pacific Guinness Havi/Perseco Heineken Brewery Heinz Holsten Hormel Interbrew Kaiser Brewery Kellogg s Kirin Brewery Kraft Foods Labatt Lion Nathan Luigino s Masterfoods Mahou Mattel, Inc. Nestlé PepsiCo, Inc. Phillip Morris Pinnacle Foods Pripps Ringness SAB Miller San Miguel Sapporo Sara Lee Corporation Schwan s Suntory Unilever Warsteiner Whitbread Yoplait Top 10 Customers account for approximately 48% of sales Top 30 Customers account for approximately 59% of sales 6

7 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. 7

8 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 8

9 New Product Launches: In 2004, identified, evaluated, and managed over 100 new product initiatives resulting in $30 million of new revenues. Expect to match or surpass this in Kellogg s Pop Tarts in Z-Flute Nestle Hot Pockets in new Microwave Technology Quaker Oatmeal in new barrier coating package Miller Brewing: two national brands in Fridge Vendor Heineken N.V.: Heineken and Amstel Light in Fridge Vendor Heinz Easy Fries in Microwave Susceptor Kraft Taco Bell Grande in Z-Flute Pepsi s Aquafina in Fridge Vendor Q Q Anheuser-Busch s B to the E in two new basket carrier designs Coors Brewing: Grolsch Beer in a new Twin Stack package Kraft Tombstone Pizza in Microwave Susceptor Ocean Spray fruit drinks in 8-pack format of Fridge Vendor Anheuser-Busch: Budweiser aluminum bottles in new 4-pack carton Miller Brewing s fruit enhanced beer in a new six pack carton Kraft Foods club store offerings in Z-Flute 9

10 Adapt Products to Changing Markets Aluminum Beverage Cans vs. PET: U.S. Shipments Units Shipped (000's) 115, ,000 95,000 85,000 75,000 65,000 55,000 45,000 35,000 25,000 15, Aluminum Cans (beer & soft drinks) PET (beer & soft drinks) Source: CSFB, Can Manufacturers Institute (CMI); The Freedonia Group, Inc. Number of machine placements capable of packaging PET bottles in Graphic s patented Fridge Vendor carton: 2002 = = = 16 10

11 Bottom Line Performance 11

12 Ongoing Focus on Cost Reduction Continuous improvement process with 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 Harvesting full benefits of 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 12

13 Improve Asset Utilization Operating Equipment Efficency (OEE) - - US MILLS OEE = Yield Efficiency * Speed Efficiency * Hourly Efficiency 75% 74% 73% Q Q Q Q Q Q

14 Optimize Sourcing, Production and Sales Mix Board Sourcing: Reduce outside board purchases by converting more internally produced board (Total coated capacity = 1.7 million tons) Outside Board Purchases: 2003 = 356,000 tons 2004 = 323,000 tons 2005* = 242,000 tons Production Mix: Replaced approximately 50,000 tons of annual linerboard production with higher margin coated board Sales Mix: Substitute integrated folding cartons in place of open market roll-stock sales * June YTD amount annualized. 14

15 Respond to Input Cost Volatility EBITDA (CA): 2003 vs LTM 6/30/2005 ($ millions) $382 $102 $361 ($10) ($113) 2003 Market Factors Business Drivers Other LTM 6/30/2005 Market Factors: Inflation, Volume/Mix, Exchange and Price Business Drivers: Synergies, Manufacturing Strategies and Continuous Improvement Programs 15

16 Respond to Input Cost Volatility Inflation Negatively impacted by higher prices for production inputs and services 2004 = $(49.9) million 2005 June YTD = $(53.3) million Response Pass through increased board and resin costs to Food and Consumer Products customers, where contractually possible Continued commitment to continuous improvement and other cost reduction programs including Six Sigma Invest capital to ensure we maintain a competitive cost position within the industry (Manufacturing Initiatives) Improve asset utilization of existing assets Optimize production, sourcing and sales mix 16

17 Financial Results Actual YTD Actual YTD Variance ($ in millions) Q Q F/(U) Net Revenues 1, , Operating Income (27.5) Operating Income Margin 3.0% 5.4% (2.4) % EBITDA * (33.6) EBITDA Margin * 13.8% 17.0% (3.2) % Operating Cash Flow (40.2) Leverage Ratio * (0.30) Interest Coverage Ratio * (0.34) Notes: * Represents Credit Agreement EBITDA 17

18 Capital Structure 6/30/2005 $ 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) * Debt is approximately 80% fixed with interest rate swaps ** $325 million commitment 18

19 Tax Profile Net Operating Loss (NOL) carry-over at 6/30/2005 = $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 19

20 Continued Focus on De-leveraging Focus on cash flow generation and debt reduction to increase equity value Most debt reduction occurs in Q2 and Q4 as semiannual 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 debt reduction 20

21 Investment Profile Premier, value-added paperboard packaging company serving the beverage, food and consumer products industries Leading position in high-growth, higher-margin end markets Stable cash flows due to strong customer base Increased system integration, scale, and geographic presence to provide total customer solutions Acknowledged as the industry leader in innovation Cost focused company culture incorporating continuous improvement concepts Management commitment to debt reduction 21