C S S I n d u s t r i e s O v e r v i e w ( N Y S E : C S S ) S e p t e m b e r 2 7,

Transcription

1 C S S I n d u s t r i e s O v e r v i e w ( N Y S E : C S S ) S e p t e m b e r 2 7,

2 Forward Looking Statements This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, among others, statements relating to: the Company s expected levels of net sales, net loss, and adjusted EBITDA for fiscal 2019; the Company s strategic priorities and goals; and the Company s capital allocation strategy and priorities. Forward-looking statements are based on the beliefs of the Company s management as well as assumptions made by and information currently available to the Company s management as to future events and financial performance with respect to the Company s operations. Forwardlooking statements speak only as of the date made. The Company undertakes no obligation to update any forward-looking statements to reflect the events or circumstances arising after the date as of which they were made. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including without limitation: inherent uncertainties associated with assumptions used to forecast fiscal 2019 net sales, net loss and adjusted EBITDA; execution risks that may impact the Company s ability to achieve the levels of net sales, net loss and adjusted EBITDA currently forecasted for fiscal 2019, including the risk that the Company s planned integration and cost reduction activities may not be successfully implemented in fiscal 2019; risks associated with the Simplicity acquisition, including the risk that the Company may not realize the strategic benefits that are currently expected and the risk that expected synergies will not be realized in the amounts currently expected, or at all, and that any such synergies may not be realized within the timeframe currently expected; risks associated with the plan to exit a product line and restructure the specialty gift product line; risks associated with consolidating certain operations in the United Kingdom; risks associated with the base business, including the risk that currently forecasted base business sales may not be achieved; uncertainties associated with projecting the impact on the Company of potential future tariffs on products imported from China; risks associated with restructuring and integration activities, including the risk that expected synergies and cost savings may not be achieved; risks associated with acquisitions, including difficulties identifying and evaluating suitable acquisition opportunities, acquisition integration costs and the risk that the Company may not be able to integrate and derive the expected benefits and synergies from acquisitions; increased competition (including competition from foreign products which may be imported at less than fair value and from foreign products which may benefit from foreign governmental subsidies); general market and economic conditions; information technology risks, such as cyberattacks and data breaches; increased operating costs, including labor-related and energy costs and costs relating to the imposition or retrospective application of duties on imported products; currency risks and other risks associated with international markets; the risk that customers may become insolvent, may delay payments or may impose deductions or penalties on amounts owed to the Company; costs of compliance with governmental regulations and government investigations; liability associated with noncompliance with governmental regulations, including regulations pertaining to the environment, Federal and state employment laws, and import and export controls and customs laws; and other factors described more fully in the Company s annual report on Form 10-K for the fiscal year ended March 31, 2018 and elsewhere in the Company s filings with the Securities and Exchange Commission. As a result of these factors, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, the Company. 2

3 Introduction Introduce CSS to the investing community What is CSS and what do we do? How have we changed and where are we going? Cover our strategic plan to grow sales and profits Drive product offerings that bring differentiation to the marketplace Identify trends and lead the market with a strong product portfolio Drive ideation and excitement to enhance product usage Leverage our market expertise to enhance our value with our customers Build upon a strong foundation to reshape the portfolio Maintain our core legacy businesses and successfully compete in the marketplace Identify and execute upon material, strategic acquisitions Drive impact thru the execution of strategic initiatives Drive growth and development of our omni-channel business model Enhance returns thru process of continuous improvement in our legacy and acquired businesses Achieve long-term targets Robust sales & earnings growth, driven primarily by acquisitions Continue strong free cash flow generation 3

4 Who We Are Creative Consumer Products Making Life Memorable! We are a creative consumer products company, focused on the craft, gift and seasonal categories. For these design driven categories, we engage in the creative development, manufacture, procurement, distribution and sale of our products with an Omni-Channel approach focused principally on mass market retailers. Our core products within the craft category include ribbons, trims, buttons, sewing patterns, knitting needles, needle arts and kids crafts. For the gift category our core products include social expression gifts for baby and bridal, as well as stickers, memory books and stationery. In the seasonal category we focus on gift packaging in the form of wrapping paper, bags, boxes, tags, ribbons, bows, greeting cards and gift card holders, as well as specific holiday themed decorations, accessories and activities, such as Easter egg dyes and Valentine s Day classroom exchange cards. In keeping with our corporate mission, all of our products are designed to help make life memorable. 4

5 Our Mission and Vision Mission Our creative craft, seasonal and gift products inspire our consumers and spark their participation. We deliver our high quality, trend-driven and innovative products with a focus on value through an Omni-Channel approach, designed to make life s moments more memorable. Vision To be the market leader in creative craft, seasonal and gift products by delivering an innovative and high valued experience to our customers. When we delight our customers, we provide value to our stockholders. We strive to help make life s everyday moments and special events more memorable. We Make it Memorable for our customer, our consumers, our employees and our shareholders Everyday! 5

6 Our Markets Seasonal The seasonal product category is defined as products designed, produced and sold to mass market retailers for holidays and seasonal events, including Christmas, Valentine's Day, Easter and back-to-school. Products include Christmas packaging ribbons and bows, boxed greeting cards, gift tags, gift card holders, gift bags, gift wrap, tissue paper, Valentine s Day classroom exchange cards, Easter egg dyes and novelties, and educational products. Production forecasts for these products are generally known well in advance of shipment. Gift The gift product category is defined as products primarily designed to enhance certain life events or special occasions such as weddings, birthdays, anniversaries, graduations, and the birth of a child. These products are primarily sold into mass and specialty retailers. Products include infant products, journals, gift card holders, all occasion boxed greeting cards, memory books, scrapbooks, stationery, stickers and other items that commemorate life's celebrations. Products in this category are generally ordered on a replenishment basis throughout the year. Craft The craft product category is defined as products used for craft activities, and includes ribbons, buttons, sewing patterns, knitting needles, needle arts and kids crafts. These products are sold to mass market and specialty retailers and are generally ordered on a replenishment basis throughout the year. 6

7 Seasonal Gift Crafts Total Market Size (at retail*): $212.6B $46.2B $43.9B CSS Market Segments: $159.2B $36.2B $21.5B Competitive Dynamic: Key Market Dynamics: Our Markets (Cont.) Narrow market with leading brands by season for key product segments Mass drives the market and most purchases are still brick & mortar focused Highly fragmented with few category specific brands and no leading national brands Purchases shifting from specialty stores to mass accounts and online sales Highly fragmented with category specific brands, but no leading national brands Increasing direct import focus to address retailer margin pressure * Based on consumer reported spending 7

8 CSS Industries Strategy Map Premier partner for our customers Superior returns for our shareholders Exceptional opportunities for our employees STRATEGIC PILLARS Defend the base business Grow Sales and Earnings While Improving ROIC Build a Collaborative, Dynamic ONE CSS Culture Identify adjacent product categories with a focus on brands Improve ROIC by maximizing margins while minimizing capital investment Build an Omni- Channel business model KEYS TO SUCCESS Design, Product Innovation, Category Leadership Communication, Accountability, Talent Infusion Focus on Fragmented Markets, Brands, Omni-Channel Fix Underperforming Product Lines, Focus on WC Dedicated Resources, Leverage Technology GOALS Decline at a slower pace than the market Aligned & engaged workforce driving for results Complete at least one material acquisition per year Improve ROIC >1% Every Year Achieve online sales of >$50 million annually 8

9 What are we looking for? Acquisition Criteria Strategic fit with our existing business Go-to-market synergies where we can enhance sales Product development synergies to bring new product lines or strengthen existing lines; focus on brand Operational synergies to better leverage capabilities and utilization Reverse synergies such as stronger E-Commerce platform, sourcing or distribution capabilities Well recognized brands Stable or growing product lines with a key focus on brands Market leading positions in its core spaces Stickiness in the retail space Companies in highly fragmented industries ready for consolidation Primary manufacturing and distribution in North America Profitable or clear path to profitability with synergies 9

10 CSS Competitive Advantages Managing product category complexity Design and merchandising Flexible distribution close to customers Category/POS management Strong direct retailer senior executive and buyer relationships Tied to our relationship and service driven sales and marketing teams Expanding due to expanding portfolio size Category leadership across many product lines Flexible supply chain with a mix of USA and imported key product categories Narrow woven and extruded ribbon and sewing patterns made in the USA High-end sewing and craft buttons sourced for variety from around the world Gift and gift packaging products from value oriented Asian sources Trend-driven and custom product design with a broad product portfolio Customers look to us to communicate/validate trends Becoming a go-to company for private label stationery production Strong financial position Strong historical free cash flow Low/no leverage 10

11 Multi-Channel Distribution CSS is a trusted partner to its customer base of leading mass, craft, food & drug, discount, gift & specialty retailers and warehouse clubs: Exceptional reputation in the industry Breadth of product offerings (cross selling, production and sourcing capabilities) Customized programs Deep, long term relationships with multiple buyers per retailer and continuity over many years Dedicated internal sales staff across all categories and national sales reps to extend reach in gift & specialty We sell to many luxury retailers, such as Tiffany, Aveda, Nordstrom, Lush, Ghirardelli, Vera Bradley S a m p l e C u s t o m e r s b y C h a n n e l Mass Discount Craft Warehouse Clubs Food & Drug 11

12 CSS Family of Brands Dates back to 1945 #1 in packaging ribbon Dates back to 1863 #2 in home sewing patterns Dates back to 1876 #1 in craft ribbon Dates back to 1877 #1 in craft buttons Dates back to 1927 #1 in home sewing patterns Dates back to 1870 Leader in gift and stationery categories Dates back to 1897 #1 in trims and tapes #1 in knitting and crocheting tools Dates back to 2006 #1 in gift card holders Dates back to 1976 #1 in needle arts Dates back to 1990 #1 in fusible beads Dates back to 1906 #1 in floral ribbon Long History of Industry Leadership 12

13 Driven by Design We are the category leaders for many of our customers they come to us for input on design trends in our categories. We subscribe to top trend services, purchase reports and shop internationally throughout the year to identify trends. We attend a broad range of trade shows and seminars. We partner with top licensors and designers to complement our internal design collections. 13

14 Licensing Expertise is a Competitive Advantage Selected Properties 14

15 Broad Manufacturing and Sourcing Capabilities 200+ Asia partners with broad capabilities 8 owned or leased manufacturing sites Plastic extruded ribbon and bows, woven ribbon, sewing patterns, and trims MANUFACTURING Excellence in managing complexity Leading Performance Category leading domestic Distribution Capability 3,000+ Orders Imported Direct to Retailers, 99% on-time Broad Market Coverage 13,000+ customers Retail, wholesale, on-line 50,000+ SKUs Numerous product categories 15

16 Coupled with Domestic Distribution is How We Win Domestic Replenishment - 6,000 ship-to locations - 2+ million order lines/month - $500 average order size - Lead-time < 2 weeks DISTRIBUTION CENTERS - ~$300+ million revenue/year Retailers increasing pressure on suppliers to manage inventory and we are well positioned 16

17 Leadership Team with Diverse Experience Title Age Year Joined CSS Previous Roles / Employers Chris Munyan President and Chief Executive Officer CEO since 2006; Chief Operating Officer, President Berwick Offray Keith Pfeil Executive Vice President and Chief Financial Officer year CSS tenure; held key leadership positions within Finance; previously worked for professional service firms including Arthur Andersen and KPMG Carey Edwards Executive Vice President - Sales years in sales leadership roles at Calvin Klein and Elizabeth Arden Jack White Executive Vice President - Operations years in senior operations and supply chain roles at DuPont Cara Farley Executive Vice President - Marketing and Product Development years in senior marketing roles across branded consumer goods including Kids, Craft, Gift and Seasonal categories Jeff DeSandre Vice President - CIO years at First Quality Enterprises (2 yrs as CIO); 12 years in IT leadership roles at CSS, Deloitte and News Corp 17

18 Financial Overview

19 $ millions Net Sales Financial Overview Net sales expected to grow 10% to 14% due to Simplicity and McCall Net loss in FY2018 largely driven by intangibles impairment and acquisition-related costs Adjusted EBITDA growth in FY19 primarily reflects contributions from acquisitions Net Income (Loss) (GAAP) Adjusted EBITDA 19

20 Investment Highlights Long history of category leadership #1 or #2 in most categories Decades-long relationships with customers Trusted design partner and category leader Defendable business model New leadership brings new ideas Licensing portfolio, unmatched pattern library U.S. manufacturing capabilities Ability to handle SKU complexity and replenishment business model 3 of 6 senior leaders are new within the past three years Diversity of experience from large companies in the retail, chemicals and electronics industries Strong balance sheet and cash flow generation Disciplined buyer in fragmented industry Strong cash flow generation historically Significant cash on hand and $110 million available under our credit facility at 3/31/18 Low debt levels ($40 million as of 3/31/18) Long list of family or private equity owned businesses expected to sell Challenging retail environment reducing competition for deals Significant value can be created from acquisitions at the right price 20

21 Capital Allocation Strategy Priorities 1. Pay dividend $0.80 per share annually 2. Strategic acquisitions, primarily in Craft and Gift Product tuck-ins Adjacent product categories 3. Share repurchases As of June 30, 2018, 303K shares authorized We are actively repurchasing shares based on our existing authorization Dividends $14.6M 21

22 Why You Should Own CSS We have strong positions in our markets and are working to further grow our position We are viewed as experts in our categories We maintain a strong balance sheet and are actively deploying it We will leverage our core strengths to drive growth We will be a premier creative consumer products company 22

23 23 Appendix

24 Net Sales History $ millions Growth driven by acquisitions in Craft 24

25 Non-GAAP Reconciliation Fiscal Year Ended March 31, 2019E 2018A 2017A 2016A 2015A Net (loss) income ($7.5) - ($5.0) (36.5) $28.5 $17.2 $17.0 Interest expense (income) (0.1) 0.0 Other expense (income) (0.5) (0.4) $0.0 -$0.3 $0.0 Income tax (benefit) expense (1.1) - (0.6) (9.5) Depreciation and amortization Goodwill and intangible impairment Loss (gain) on bargain purchases (20.0) Acquisition integration and other Inventory step-up amortization Adjusted EBITDA $ $29.0 $ 24.3 $ 25.1 $ 35.6 $ 35.3 Use of Non-GAAP Measures and the Reconciliation of GAAP to Non-GAAP Measures In addition to the results reported in accordance with accounting principles generally accepted in the United States ( U.S. GAAP ) in this presentation, the Company has provided certain non-gaap financial information, specifically adjusted EBITDA. These measures are non-gaap metrics that exclude various items that are detailed in the accompanying financial tables reconciling U.S. GAAP results to non-gaap results that are included in this presentation. Management believes that the presentation of these non-gaap financial measures provides useful information to investors because the information may allow investors to better evaluate ongoing business performance and certain components of the Company s results. In addition, the Company believes that the presentation of these financial measures enhances an investor s ability to make period to period comparisons of the Company s operating results. The presentation of our non-gaap measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The Company has reconciled the non-gaap information included in this presentation to the nearest U.S. GAAP measures, as required under the rules of the Securities and Exchange Commission regarding the use of non-gaap financial measures. 25

26 C S S I n d u s t r i e s, I n c P l y m o u t h R o a d, S u i t e P l y m o u t h M e e t i n g, P A CSS Industries, Inc. All Rights Reserved