Checkpoint Systems, Inc. Morgan Keegan Security and Defense Conference August 9, 2011

Transcription

1 Impulse Theft Organized Retail Theft Internal Losses Supply Chain Visibility Merchandising Security & Asset Protection Checkpoint Systems, Inc. Morgan Keegan Security and Defense Conference August 9, 2011

2 Forward Looking Statements 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: our ability to integrate the Shore To Shore acquisition we acquired last quarter and other prior 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 implement cost reduction in 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; risks generally associated with our company-wide implementation of an enterprise resource planning (ERP) system 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 About Checkpoint Systems, Inc. Around the world, from the point of manufacture to the point of sale, Checkpoint Systems advanced technologies enable retailers and their suppliers to keep close track of merchandise, prevent loss through shrink or misplacement, and boost sales by having the right goods available when shoppers are ready to buy. Checkpoint also provides complete apparel labeling solutions for retailers, brand owners and manufacturers worldwide. 3

4 Corporate Snapshot NYSE listed CKP Founded in 1969; incorporated in Pennsylvania Corporate headquarters Philadelphia, PA 2010 Revenues - $834.5 million Direct operations in 31 countries 27 service bureaus 5,814 employees worldwide 4

5 Strategic Business Segments Shrink Management Solutions helps retailers to combat theft and keep their stores secure. A diversified line of security and tracking products prevent inventory losses caused by theft or misplacement, reduce selling costs through lower staff requirements, and boost sales by having the right goods available when shoppers are ready to buy. EAS * systems EAS consumables Alpha High-Theft Solutions CheckView video, fire, intrusion systems Merchandise Visibility solutions - RFID Apparel Labeling Solutions provides major retailers and brand owners a full range of tickets, tags and labels for apparel manufacturing worldwide. Check-Net data management platform allows for global control of variable data, and 27 service bureaus in 21 countries supply local support and order fulfillment, wherever goods are being made. Woven labels Printed labels Heat transfers Price tickets Graphic tags Integrated EAS-RF/RFID labels * Electronic Article Surveillance 5

6 Objectives and Strategy Become the recognized global leader in shrink management and merchandise visibility solutions to the retail and apparel industry Be the recognized number two global provider of apparel labeling solutions Converging Fields Merchandise Visibility Solutions Tyco Sensormatic * Avery Dennison RBIS * Shrink Management Solutions Apparel Labeling Solutions * Leading competitors 6

7 Checkpoint s Holistic Portfolio Addressing Retailers Needs with End-to-End Solutions Impulse Theft Organized Retail Theft EAS Systems EAS Consumables High-theft Item Security (Hard Tags, Spider Wraps, Keepers and Bottle Security) RF- and AM-compatible Solutions Internal Losses Supply Chain Visibility Security & Asset Protection Data Analytics Auditing and Compliance Visitor Counting On-demand Labeling Service Bureau Woven and Printed Labels (Brilliant Label) Source Tagging Merchandising Intrusion and Fire alarms CCTV and Digital Video Solutions Central Station Monitoring RFID tags and Readers Inventory Visibility Software In-store RFID Expertise 7

8 Shrink Management Solutions Merchandise shrink continues to be a drain on retailers profitability, particularly in weak economic times. $107.3 billion worldwide according to 2010 Global Retail Theft Barometer Retailers face a multi-layered shrink threat from impulse theft to organized retail theft to employee theft to administrative errors Retailers do not merely want products. They want products tagged for security and tracking, giving merchandise visibility from source to store - essential to increasing sales at lowest cost Source tagging gives retailers floor-ready, secured consumer packaged goods and apparel Global Retail Trends Open merchandising - enabling consumers to pick up and handle high-theft merchandise - encourages sales Retailers seek EAS technologies that transcend their operations, adding incremental value beyond loss prevention 8

9 Shrink Management Solutions 2010 Global Retail Theft Barometer (a) Global US Loss prevention spending totaled only 0.3% of total retail sales Customer theft, shoplifting and organized retail theft resulted in losses to retailers of $46 billion Employee theft resulted in losses to retailers of $38 billion Of retailers top fifty most stolen product lines, 26% are still not protected Retailers lost $40 billion in stolen goods Organized retail crime (ORC) continues to grow as 48% of retailers reported increased losses from ORC 2.4 million shoplifters and employee thieves were apprehended Average amount stolen per incident totaled $2,012 Retailers increased loss prevention spending by 13% from last year (a) Survey period for 12 months ended June

10 Apparel Labeling Solutions Global Retail Trends Apparel retailers and brand owners depend on global sourcing to reduce costs and improve supply chain velocity Retailers moving toward more frequent seasonal sales, lower inventories and speed-to-shelf. Emphasis on merchandise visibility Labels and tags carrying RF and increasingly RFID will continue to change the competitive game Retailers seek sourcing consolidation (one-stopshop) for trim items Key determinants of competitive strength in apparel include speed of service, price and quality Differentiation possible in variable data management, with a global footprint, and in sustainability products 10

11 Checkpoint Gives Visibility from Source to Store Checkpoint s one-stop-shop solution enables brand owners, apparel manufacturers and retailers to track, trace and protect their merchandise at every point throughout the supply chain 11

12 Catalysts for the Future

13 The EVOLVE System EAS Antennas, Accessories and Software Records shrink footprints which store/day/hour is at highest risk Measures and manages conversion rates (# customers/# sales) 35% 30% High-risk time for theft 25% 20% 15% 10% Traffic POS D11 Alarm 5% 0% 8 to 11 AM 11 to 2 noon 2 to 5 PM 5 to 8 PM Eight weeks of data 8 to 11 PM Cashier sweet-hearting? Evolve gives us enhanced networked data collection, improved performance and a unique EAS signal that we will use to identify pharmacy theft. Leading Drug Retailer 13

14 Merchandise Visibility Solutions OATSystems RFID Software Engineering Manufacturer/Clothing Supplier Distribution Center Retail Store Vendor (Manufacturer) Advanced Shipping Notice Shipping Distribution Center Out-of- Stock Store (Back-end) Security Focus On Stock Availability Store (Front-end) Consumer (Returns, Warranty) Source management Shipment validation Incorrect Pallet Loaded on Truck Ship and receive automation Pick and pack Correct Pallet Received: DC Store-level inventory visibility Theft prevention Receipt automation Source tagging Hardware Installation Field Service and Management Real Time Insight from Supplier to Store 14

15 Merchandise Visibility RFID Opportunity 2008 established clear goal to be a leader in merchandise visibility through RFID Major catalysts for widespread adoption in apparel and footwear now in place 2010 created a separate line of business to focus on merchandise visibility Addressable market in excess of $1 billion by 2015 Checkpoint opportunity within five years $150 million to $200 million 15

16 Alpha High-Theft Solutions Complete Secure Merchandising Pyramid Low Volume High Risk High Price 3 Alarm Higher Cost Case by Case Store Driven Keepers Spider Wraps CableLoks Hand apply hard and soft tags at store High Volume Medium - High Risk Minimum Cost Automated Process Driven Applying hard and soft tags at distribution centers Source tagging in packaging and integrated with service bureau ticketing EAS fundamentals of source tagging merchandise; high volume, medium risk, low cost 16

17 SG&A Restructuring Plan Broad metrics announced November 2, 2010 Targeted at streamlining operations and realizing efficiencies from common ERP platform Program expected to reduce SG&A costs by $20 million to $25 million with full benefit in 2012 Roughly $15 million to $17 million to be realized in 2011 Cost of program expected to be $20 million to $25 million 17

18 Shore to Shore Acquisition May 17, 2011 announced completion of acquisition of Shore to Shore, Inc. Global retail apparel and footwear product identification business with production locations in 13 countries 2011 revenues expected to be $50 million to $55 million Expected to be accretive to earnings in 2011 Initial purchase price for the all cash transaction $62.95 million less any debt; additionally, contingent payments of up to $23.75 million may be made if certain financial results are realized for the calendar year ended December 31,

19 Financial Goals Grow Checkpoint into a winning global company with revenues of at least $1.3 billion by end of 2014 through a combination of organic and acquisition growth Strive for sustainable and ongoing operating margins of 10 percent in 2012 and 12 percent in 2014 Improve ROIC by at least 100 basis points each year commencing from

20 Impulse Theft Organized Retail Theft Internal Losses Supply Chain Visibility Merchandising Security & Asset Protection Checkpoint Systems, Inc. Morgan Keegan Security and Defense Conference August 9, 2011

21 Appendix

22 Shrink Management Solutions Segment 2010 Sales $589.6 million 2010 Gross Margin 42.4% Shrink management solutions market size is roughly $2.5 billion to 3 billion Leader in drug and pharmacy, supermarkets and food, department stores and home improvement; opportunity to grow apparel share Diversified line of security and tracking products : EAS systems designed to act as a deterrent to theft in retail stores EAS labels that can be matched to specific retail requirements and delivered at source Complete physical and electronic store security services, including networked video surveillance and fire and intrusion alarms 24/7 central station monitoring Broad range of high-theft protection products designed to facilitate open display of merchandise Source-to-store Merchandise Visibility solutions - RFID 22

23 Shrink Management Solutions EAS Systems Growth Drivers Incremental data and communications features help retailers identify new sales strategies and operational improvements Emerging and underpenetrated markets In-store merchandise visibility through RFID ECO program focused on products that conserve energy EVOLVE family of antennas, a flexible, upgradable platform delivering superior performance and data analytics. Consumes up to 75% less energy than competing technologies. 23

24 Shrink Management Solutions EAS Consumables Growth Drivers Source tagging enables tags to be attached or embedded into products at point of manufacture Enhanced Performance (EP) labels used to protect smaller products. Hard Source program offers strong visual theft deterrent with pointof-manufacture tagging and subsequent recovery ECO program focused on products that conserve energy and natural resources Checkpoint is the largest integrator of RF circuits in packaged goods. 24

25 Shrink Management Solutions CheckView CheckView offers comprehensive design, installation, and service for Advanced physical and electronic security systems, with an exclusive focus on retail clients. Growth Drivers Interactive Public View monitor, designed to integrate with EAS systems; allows retailers to leverage their video surveillance dollars Retail Monitoring Center offers upgraded, state-of-the-art equipment; new online features and reports. Advanced IP video solutions with analytics to provide real-time alerts and business information across the enterprise. 25

26 Shrink Management Solutions Alpha Growth Drivers Customers experience an ROI justifying purchase in under 12 months Increasing penetration in Europe and Asia Fast turnaround from product development to market introduction as quick as three months In-house product design and manufacture from concept to finalization Leveraging relationships with customers. 48 of top 50 US retailers are customers Alpha solutions are designed to complement EAS systems; they enable retailers to safely display high-theft merchandise in an open environment. 26

27 Shrink Management Solutions Merchandise Visibility Our complete end-to-end merchandise visibility solution - hardware, software, tags and labels, service and support is uniquely available from one source, differentiating Checkpoint from the competition. Growth Drivers Leveraging success in EAS by building new capabilities in merchandise visibility, including: Experienced, focused leadership New approach to solution selling, Faster pace of innovation Establishing strategic partnerships Providing visibility as well as enhanced shrink management capabilities Giving retailers and their suppliers solutions to gain deeper visibility of merchandise throughout the supply chain 27

28 Apparel Labeling Solutions Segment 2010 Sales $172.9 million 2010 Gross Margin 35.7% Apparel labeling solutions market size is roughly $3 billion to 4 billion Third largest provider of tickets, tags and labels to retail apparel industry; targeting No. 2 slot Central to Apparel Labeling Solutions is Check-Net, Checkpoint s web-enabled apparel labeling solutions platform and network of 27 service bureaus situated in 21 countries 2009 acquisition of Brilliant Label Manufacturing Ltd. increases printing capacity; strengthens presence in China; enables Checkpoint to meet greater demand for woven and printed fabric labels 2011 acquisition of Shore to Shore, Inc. expands capabilities and broadens footprint to support global apparel industry needs 28

29 Apparel Labeling Solutions Growth Drivers Geographic expansion; increased sales force in Asia Pacific Acquisitions to strengthen position with retailers and brands Adding product capabilities Driving new applications, technologies and go-to-market innovation Focusing on ECO product range Checkpoint is the largest connected printing and logistics network in the industry. 29

30 Financial Information

31 Revenues and Gross Margins by Segment (dollars in millions) Shrink Management Solutions Apparel Labeling Solutions Retail Merchandising Solutions $834 $917 Total $773 $834 $611 $688 $554 $589 $127 $135 $142 $173 $96 $94 $77 $72 42% 41% 44% 42% 35% 35% 37% 36% 48% 49% 48% 49% 41% 41% 43% 42%

32 Segment Revenues by Quarter 1Q Q 2011 (dollars in millions) Shrink Management Solutions Apparel Labeling Solutions Retail Merchandising Solutions $238 $236 $159 $18 $182 $18 $35 $194 $18 $35 $24 $44 $187 $18 $40 $208 $203 $16 $17 $48 $39 $21 $46 $185 $18 $41 $220 $18 $54 $28 $113 $129 $141 $170 $129 $144 $147 $169 $126 $148 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q

33 Segment Gross Margins by Quarter 1Q Q 2011 (dollars in millions) Shrink Management Solutions Apparel Labeling Solutions Retail Merchandising Solutions 43% 47% 44% 40% 42% 49% 43% 46% 39% 44% 48% 37% 35% 43% 50% 38% 48% 38% 40% 48% 31% 48% 35% 38% 49% 39% 48% 29% 36% 34% 42% 43% 45% 45% 43% 45% 42% 40% 38% 41% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q

34 Summary Income Statement (a) Second Quarter and Year (millions except EPS and percents) Second Quarter Year to Date Net Revenues $ $ $ $ Gross Profit Selling, General & Admin Expenses Research and Development Other Operating Income Operating Income Net Earnings $ 12.6 $ 10.0 $ 4.6 $ 13.9 Earnings Per Share, Diluted $ 0.31 $ 0.25 $ 0.11 $ 0.35 Shares Outstanding, Diluted 40,914 40,510 40,903 40,301 Ratios Gross Margin 38.9 % 43.6 % 38.5 % 43.3 % Operating Margin 7.3 % 7.4 % 1.8 % 5.4 % Net Margin 5.7 % 4.8 % 1.1 % 3.5 % Effective Tax Rate 13.6 % 24.1 % 11.7 % 25.2 % (a) All data is presented on a non-gaap basis which reflects the elimination of restructuring and other charges. 34

35 Summary Balance Sheet and Cash Flow June 26 December 26 Summary Consolidated Balance Sheet (millions) Cash equivalents $ $ Working capital Current assets Total debt Total equity Total assets $ 1,192.0 $ 1, Guidance 2010 Free Cash Flow (a) (millions) $45.0 to $55.0 $ (12.8) (a) Free cash flow is defined as cash flow from operations less capital expenditures. 35

36 2011 Guidance (a) Net revenues in the range of $920 million to $940 million Non-GAAP diluted net earnings per share in the range of $1.24 to $1.34 Non-GAAP operating income margin in the range of 7.4% to 7.8% An annualized tax rate in the range of 20% to 23% Free cash flow (cash flow from operations less capital expenditures) in the range of $45 million to $55 million (a) Based on an assessment of current market conditions on August 2, Does not include the impact of unusual charges, such as additional restructuring charges that the Company may incur during the year, and assumes a continuation of current exchange rates. Exchange rate volatility could impact the amounts reported for revenue, gross profit, operating expense, operating profit and net income in the second half of the year. This guidance includes the impact of Shore to Shore, Inc. commencing in the second quarter. 36

37 Key Factors Impacting Financial Outlook - Second Half 2011 Compared to First Half 2011 (a) Revenues Typically strong seasonal trends in Shrink Management Solutions. Strong Alpha / CheckView backlog Shore to Shore acquisition adds $44 to $49 million in second half revenues vs. $6M in second quarter ALS North America growth trend expected to continue and Europe expected to flatten Merchandise Visibility pipeline expected to yield revenue growth late 2011 Gross Profit Expected revenue growth is most significant factor in second half gross profit improvement Gross margin improvement actions - price increases across all businesses and continuing operational improvements Operating Expenses Operating expense restructuring and other cost reduction initiatives expected to improve second half by approximately $10 to12 million One time costs (i.e. ERP implementation, commission on sales type lease extension, share based compensation forfeitures) increased first half SG&A expense by approximately $7 million from first half SG&A base run rate SG&A expense expected to increase approximately $12 to14 million in second half due to Shore to Shore acquisition as well as variable costs associated with projected revenue increases (i.e. selling expense, sales commissions). (a) Based on an assessment of current market conditions on August 2, Does not include the impact of unusual charges, such as additional restructuring charges that the Company may incur during the year, and assumes a continuation of current exchange rates. Exchange rate volatility could impact the amounts reported for revenue, gross profit, operating expense, operating profit and net income in the second half of the year. This guidance includes the impact of Shore to Shore, Inc. commencing in the second quarter. 37