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Investor Presentation
May 7, 2008
2 May 7, 2008
Safe Harbor Statement
Use of Forward-Looking Statements This presentation contains "forward-looking statements" as defined in the U.S. Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements speak only as of the date of this presentation and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. The company does not undertake to and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
The factors that could cause material differences in the expected results of RR Donnelley include, without limitation, the following: the successful execution and integration of acquisitions and the performance of the company's businesses following acquisitions; the ability to implement comprehensive plans for the integration of the sales force, cost containment, asset rationalization and other key strategies; competitive pressures in all markets in which the company operates; factors that affect customer demand, including changes in postal rates and postal regulations, changes in the capital markets, changes in advertising markets, the rate of migration from paper-based forms to digital format, customers' budgetary constraints and customers' changes in short-range and long-range plans; shortages or changes in availability, or increases in costs of, key materials (such as ink, paper and fuel); and other risks and uncertainties described in RR Donnelley's periodic filings with the Securities and Exchange Commission (SEC). Readers are strongly encouraged to read the full cautionary statements contained in RR Donnelley's filings with the SEC.
3 May 7, 2008
Non-GAAP Financial Information
The company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful because that information is an appropriate measure for evaluating the company’s operating performance. Internally, the company uses this non-GAAP information as an indicator of business performance, and evaluates management’s effectiveness with specific reference to these indicators. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
A reconciliation of GAAP net earnings to non-GAAP net earnings and further descriptions are presented in the tables attached to our Earnings Releases, which are available in the investors section of our website, rrdonnelley.com. Also available in the investors section of our website, rrdonnelley.com, is a description of additional non-GAAP financial measures referred to in this presentation.
4 May 7, 2008
Presenters
Tom Quinlan President and CEO
Miles McHugh EVP, CFO
Dan Leib SVP, Treasurer
Jenny Wong VP, Assistant Treasurer
5 May 7, 2008
Agenda
I. Executive Summary
II. Industry Dynamics
Consolidation
RR Donnelley’s Strategy
Impact of Distressed Printers
III. Financial Review
Q1 2008 Performance
2008 Guidance
IV. Deployment of Capital
Credit Metrics and Ratings Commitment
6 May 7, 2008
Executive Summary
Largest player in a highly fragmented marketDifferentiating front-end and logistics capabilitiesCost advantage driven by platform flexibility and economies in procurement, production and distribution
Scale
Breadth & Depth
Blue chip customer relationships; single-source provider opportunitiesBroadest offering of industry leading products and servicesIndustry experienced executive and senior management teams
FinancialStrong cash flow generation in a challenging price environmentGrowth rate has been greater than the broader print market; largest opportunity is with existing clientsSuccess in managing, acquiring and integrating core print acquisitionsFinancial discipline and productivity gains drive margin improvement
The Way Forward
Operational / productivity focusContinue targeted M&A activitiesMaintain strong investment grade credit metrics
7 May 7, 2008
Financial Strength
$576
$1,033$1,304 $1,420
$1,752
2003 2004 2005 2006 2007 2008G
$1.31$1.65
$2.94
$2.29$2.55
2003 2004 2005 2006 2007 2008G
$383
$768 $833
$1,270
$1,046
2003 2004 2005 2006 2007 2008G
(’03 – ’07)
CAGR: 22% (’03 – ’07)
CAGR: 35%
(’03 – ’07)
CAGR: 32%
(1) Excludes restructuring, impairment, integration charges and other one-time items.
EBITDA - CapexUS$ in millions
$7,156$8,430 $9,317
$11,587
$4,183
2003 2004 2005 2006 2007 2008G
(’03 – ’07)
CAGR: 29%Net RevenueUS$ in millions
PF Sales 4.1% 4.7% 2.5%Growth
EBITDA (1)US$ in millions$12,350
to$12,450
15%+ growth$3.08 to
$3.15
EPS (1)
6%+ growth
8 May 7, 2008
Business Generates Substantial Cash Flow
$376
$759
$972$904
$1,177
$183
$494 $501 $530
$695
0
200
400
600
800
1,000
1,200
2003 2004 2005 2006 2007
Cash Flow from Continuing Ops (CFFCO)CFFCO - Capex
$ in millions CAGR
39%
33%
9 May 7, 2008
Credit Metrics / Importance of Investment Grade
2007$ in millions ActualEBITDA 1,752Cash 379Total Debt 4,327Net Debt 3,948Total Debt / EBITDA 1 2.5xEBITDA / Interest 7.7x
Standard and Poor’s: BBB+
Moody’s: Baa2
Fitch: BBB
(1) The Cardinal Brands acquisition closed on 12/27/2007, as such no material impact to EBITDA in 2007.(2) EBITDA represents “Operating income (loss) excluding restructuring and impairment charges” plus “Depreciation and amortization” as reported in
the company’s press release.
10 May 7, 2008
Agenda
I. Purpose of the Meeting
II. Industry Dynamics
Consolidation
RR Donnelley’s Strategy
Impact of Distressed Printers
III. Financial Review
Q1 2008 Performance
2008 Guidance
IV. Deployment of Capital
Credit Metrics and Ratings Commitment
11 May 7, 2008
Trends Shaping Industry
Customer Relationship Management
Consolidation(Printers, Suppliers
& Customers)
Electronic Substitution
Trends generally continuing at same paceImpact differs by print sector: results in new products / services
Total System Cost Focus
Regulatory Changes
Shift toward variable (customized), higher value-add printIT / data management capabilities increasingly importantto customers
Pricing pressure & excess capacityIndustry fragmentationLarge / diversified printers are better positioned to be successful
Positive and negative implicationsPrinters’ ability to offer compliance assurance / secure environment increasingly important
Printers who are able to offer lowest total print / document management cost and higher ROI are advantaged
12 May 7, 2008
Consolidating Industry*
RR Donnelley Quebecor World Cenveo Vertis Consolidated Graphics
1980 Banta Moore RR Donnelley World Color Quebecor Cadmus Mail Well Big Flower Consolidated Graphics
Bushman Quality Color American InLine Graphics Alden Press Pendell Waverly Press American Envelope Treasure Chest AGS Custom Graphics
Danbury Printing Nielsen Ringier (SR) Ringier Eusey Press Lancaster Press Supermex Retail Graphics Eastwood Printing
Greenfield Wallace Meredith/Burda Brown (Franklin) Arcata Mack Printing Graphic Art Center Laser Tech Kelmscott
Astron 9 Commercial Co's ASG RX Label Tech Webcraft Litho Graphix
Asia Printers Group Petty Commercial Envelope County Pub Global Group
Poligrafia Maxwell Rex Corporation KTB Electricity Printing
Spencer Press Diversified Print Co Nies/Artcraft
AdPlex (Charlestown) Alco Gravure Riverside Graphcom
OfficeTiger Kable Pacific Color Annan & Bird
Perry Judd's Providence Colorstream Hennegan
Von Hoffmann Web Cyril Scott
Cardinal Brands Pikes Peak Lithographing
Pro Line Printing
Banta Moore Wallace RR Donnelley World Color Quebecor Cadmus Cenveo
Moore Wallace World Color Cadmus
Banta
2008 RR Donnelley Quebecor World Cenveo Vertis Consolidated Graphics
•Sample representation – estimated total of 39,088 printing facilities in the United States at the end of 2006 (PIA/GATF, April 3, 2007)
Source: RR Donnelley management estimates
13 May 7, 2008
Consolidating Supplier and Customer Base
Supplier Consolidation• Paper companies• Ink companies
Consolidation Runs Across Business Spectrum• Media Companies• Retailers• Catalogers• Directory Publishers• Magazine and Book Publishers• Pharmaceuticals• Automotive• Bank/Financial Institutions• Food Industry
14 May 7, 2008
The Evolution of Print Relationships
Source: Derived from InfoTrends/Cap Ventures
Single Product Relationships
Time
Cus
tom
er R
elat
ions
hips
Multiple Product Relationships
Total Cost of Process/Procurement
Function
100% of Core Product(s)
1864 2000 2006 2008+
Clients focus on print supply chain, not just print
RRD reaches across total value chain
Ability to bring scale• Procurement• Distribution• Production
Leverage the relationship• 100% Positions• Trust in place• Vested Interest
15 May 7, 2008
Print Relationships Driven by Cost Drivers in the Print Supply Chain
86%86%
14%14%
• Return Analysis
• Administration
• Postage
• Fulfillment / Distribution
• Inventory Obsolescence
• Warehousing / Archiving
• Internal Document Prep / Review
• External / Internal Creative
• Printed Product
• Printed Product
Source: Derived from InfoTrends/CAP Ventures, December 10, 2004.
16 May 7, 2008
A Large, Highly Fragmented Market Opportunity
Growth: 3.3% (2005 – 2006)
22%
7%4% 6%
45%
16%
Total U.S. Printing Industry$171.5 Bn
CommercialPrinting
TradeServices(PreMedia)
Specialty,Greeting
Forms, Labels
Packaging
Newspaper
2006 The global print Industry grew 2% in 2006 to $374 billion
• Forecast of $422.7 billion in 2011; 2.5% CAGR
The US print market grew 3.3% in 2006 to $171.5 billion
• Forecast of continued growth of 2-3% through 2010
Despite some recent consolidation, the industry remains highly fragmented
• In the EU25 states, estimate of 120,000 printing companies; mean of 8 employees
• Top 400 printers in the US account for less than 30% of the market
RR Donnelley is the largest printer in the world and the US
Source: Datamonitor, Global Commercial Printing, March 2007Source: PIA/GATF, Economic & Print Market Flash Report, April 3, 2007
17 May 7, 2008
SELECTED PRINTERS – 2007E REVENUE
PRODUCT AND SERVICE OFFERING
Note: Vertis is LTM revenue. Quad Graphics is reported annual sales per Quad’s website as of 4/30/08.(a) Estimated revenue for Information Network segment only. Total revenue is estimated to be $15.1 billion.(b) Estimated revenue for Information Communication segment only. Total revenue is estimated to be $14.7 billion.(c) Estimated revenue of ~$700 million reflect Brown Printing and Arvato.
Company Commercial Direct MarketingMCR &
Directories BooksForms and
Labels Financial PrintStatement
Outsourcing Document BPO
Quebecor WorldQuad GraphicsBrown Printing (Bertelsmann)CenveoToppan PrintingTranscontinentalVertisDeluxe CorpBowne & Co.Dai Nippon PrintingMerrillStandard RegisterConsolidated GraphicsWorkflowDSTWilliams LeaXeroxPitney BowesADPInnerworkings
(c)(a) (b)
Scale and Breadth
$ in Billions
$8.0$6.3 $5.7
$2.3 $2.1 $2.0 $1.6
$11.6
$1.4 $1.1 $0.9 $0.8 $0.7
$0.0
$5.0
$10.0
$15.0
18 May 7, 2008
RRD is Positioned to Meet Changing Needs
Buying Patterns/Needs• Cost Compression/Synergy
• Total System Cost Approach
• Economies of Scale Required
• ROI Management Focus
• Product Reengineering
• Personalization/Variability
• Outsourcing Print Procurement
RRD Strategic Selling Proposition • Diversified Global Platform
• Scale Across All Operations
• Differentiated Logistics/Fulfillment Offering
• Complete Print Management Services
• Linkage With ALL Media Types
• Ability To Expand With Customers
Master Plan
19 May 7, 2008
Master Plan
Multi-year plan drives:
• Customer targeting
• Capital allocation
• M&A priorities
End market analysis
• Growth
• Costs
• Investments
20 May 7, 2008
The Evolution of RR Donnelley’s Strategy
ManagementPut “World Class” team together
Built support infrastructure
• Admin/Finance/Ops
InvestmentDeveloped and implemented new strategy
Built, through organic investments and acquisitions, flexible full-service platform
OperationalFocused on continual productivity improvements
Absorbed equipment installs
Absorbed and integrated acquisitions
Asserted disciplines/metrics (cost compression culture)
Move quickly to restructure as pricing and demand changes
21 May 7, 2008
The RR Donnelley Strategy – A Living Process
Keys to Success
Industry and market knowledge
Sales planning
Leveraging scale as one platform
Investment prioritization
Advance planning for major cost takeout actions
Sales Growth Targets
Platform Optimization
Organic Investment
Acquisitions
22 May 7, 2008
Blue Chip Customer Relationships
Total of 40,000 customers• 155 customers with revenue > $10
million (1)
• 980 customers with revenue > $1 million (1)
Serve over 90% of Fortune 500 and have approximately 15% of their print spend
• Opportunity to continue to grow our Fortune 500 Relationships
(1) Revenue in 2007
23 May 7, 2008
Platform Optimization - Asset Utilization
2007(2)
2nd Half52%1st Half
48%
Off peak (1H) growth has exceeded peak (2H) growth from 2004 to 2007
(1) 2004 includes pro forma results of Moore Wallace for Q1 as reported in Form 8-K (6/17/04) and 3 quarters of as reported results for Q2 – Q4 2004.(2) 2007 represents full-year results as reported.(3) EBITDA represents “Operating income (loss) excluding restructuring and impairment charges” plus “Depreciation and amortization” as reported in the
company’s press release.
2004 (1)
1st Half39%
2nd Half61%
EBITDA (3)
24 May 7, 2008
One RR Donnelley (Illustrative)
Magazine Publisher
Book Publisher
Directory Publisher
Healthcare Financial Retail
Internal Process (Pricing, Production Planning)
One Global Platform
Sales and Marketing
Sheetfed
PREPARE PRODUCE DELIVERGravure Offset
DigitalBindery
25 May 7, 2008
Acquisition Criteria
Does the acquisition candidate:
1. Help our existing customers?
2. Have capacity where we are constrained?
3. Have synergy opportunities?
26 May 7, 2008
Acquisitions (Core Print)
Previous core print acquisitions’ overlap allows for straightforward integration:• Conservatively estimate savings• Considerable cost-savings available through reduction in corporate expense and
improved operational efficiencies (utilization; procurement)• Open capacity of acquired companies allows for reduced RRD capital investment
in future
Significant depth of experience integrating acquisitions and restructuring companies:
• Successfully restructured Moore in late 2000• Successfully integrated Wallace Computer Services in 2003• Successfully integrated RRD/MWI in 2004• Successfully integrated Banta, Perry Judd’s and Von Hoffmann in 2007• Successfully integrating Cardinal and Pro Line in 2008
27 May 7, 2008
The Impact of Distressed Printers
Aggressive pricing began several years agoQuebecor filed for creditor protection under the Companies’ Creditors Arrangement Act (CCAA) in Canada and Chapter 11 of the U.S. Bankruptcy Code in the U.S. on 1/21/08Market rumors of liquidity issues at other printersDifferences
• Management & culture• Breadth of product offering• Workforce relations• Ownership structure
Opportunities for RRD• Brand strength• Financial strength• Multiple products & services
28 May 7, 2008
Agenda
I. Purpose of the Meeting
II. Industry Dynamics
Consolidation
RR Donnelley’s Strategy
Impact of Distressed Printers
III. Financial Review
2008 Q1 Performance
2008 Guidance
IV. Deployment of Capital
Credit Metrics and Ratings Commitment
29 May 7, 2008
Q1 Performance
Net Sales ($ in millions)
(a) Includes synergies in forecasted periods.
$2,997$2,793$2,267
$1,927
(1) Excludes restructuring, integration and impairment expenses and ‘one-time’ items* Revenue, proforma for acquisitions, grew 1% from Q1:2007 to Q1:2008
+7.3%*
Non-GAAP EPS (1)
$0.69$0.66$0.57$0.54
2005 2006 2007 20082005 2006 2007 2008
30 May 7, 2008
2008 Guidance (Non-GAAP)
(1) Assumes no additional shares repurchased. Excludes, if any, restructuring and impairment charges and the resolution of certain tax items and other items that are not currently determinable, but may be significant. For that reason, the Company is unable to provide full-year GAAP net earnings and operating margin estimates at this time.
Revenue; $12.35 to $12.45 billion; low single-digit growth pro forma for acquisitions
Operating margin (non-GAAP) slight expansion over 2007’s 10%(1)
Depreciation and amortization; ~ $640 million, includes ~ $130 million of purchase accounting amortization
Interest expense – net; ~ $235 million
Effective tax rate (non-GAAP); ~ 33% to 34%
Non-GAAP EPS (fully diluted) = $3.08 to $3.15(1)
Capex = ~$400 millionEBITDA – Capex = Growth 15%+
31 May 7, 2008
2008 Priorities
Continue to Capture ShareContinue to
Capture Share
M&A ActivityM&A Activity
• Leverage “One RR Donnelley” platform and relationships• Employ integrated sales approach across RRD platform• Target significant Print Management opportunities; gain
additional 100% positions• Focus on filling off-peak capacity
• Continue to pursue niche core print targets that meet changing customer demands, serve our capacity needs and have cost savings opportunities
IntegrationIntegration• Finalize integration of Banta, Perry Judd’s and Von Hoffmann• Cardinal Brands and Pro Line integration underway• Direct IT investments to facilitate integration
32 May 7, 2008
Operational and Financial Flexibility
Committed available liquidity and cash of $1.5 billion
Structural and financial flexibility to react to market conditions• Manage capital deployment
– Capital spending– Share repurchase– M&A activities
• Variable cost reduction– Incentive compensation– Workforce reduction– Plant closures
Much more diversification in our business portfolio than in the past
Experienced management team with proven track record
33 May 7, 2008
Revenue Distribution by End-Markets Is Much More Diversified Now
24%
14%
10%8%
7%
5%
5%
7%
4%
15%
1%
MagCatRetail Book/Dir Var. Print F&LCom Print Logistics Fin Print Digital SolBPO GTS Int'l
37%
29%
12%
11%
2%6%
3%
MagCatRetail Book/Dir Logistics Fin Print
Digital Sol Int'l Var Print
2000 Revenue: $5.8 Billion 2007 Revenue: $11.6 Billion
34 May 7, 2008
Liquidity as of 3/31/2008
$ in millions
Cash
Committed Revolver/CP Market
1 Year – Due August ’08 1
9 Months – Due May ’08 1
Commercial Paper
Total Committed Revolver/CP Market
Available Liquidity
Total Amount
$398
2,000
$2,000
$2,398
Outstanding
$ -
300
50
517
$867
$867
Available
$398
$1,133
$1,531
(1) Replaced $400mm commercial paper balance with drawings under the $2 billion revolver in August 2007, $50mm of which was repaid in February 2008.
35 May 7, 2008
Strong Liquidity Profile
$2 billion in commercial paper program backstopped by revolver committed through January 8, 2012
• Maintained flexibility during market liquidity crunch in August 2007• Replaced a portion of CP balance with bank debt
– $350 million bank debt maturing in May and August• CP balance at 3/31/2008 was $517 million
Financial covenants of revolver:• Interest coverage ratio of not less than 3:1• Leverage ratio of not higher than 4:1 • In compliance with the covenants at 3/31/2008
36 May 7, 2008
Pro Forma Long-Term Debt Maturity Profile
$ in millions
400499
624 599499
970
$0
$200
$400
$600
$800
$1,000
$1,200
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017+
Weighted average interest rate of ~5.50% on existing long-term debt
3.75% 4.95% 4.95% 5.50% 6.65%Interest Rate 5.63%
37 May 7, 2008
Agenda
I. Purpose of the Meeting
II. Industry Dynamics
Consolidation
RR Donnelley’s Strategy
Impact of Distressed Printers
III. Financial Review
Q1 2008 Performance
2008 Guidance
IV. Deployment of Capital
Credit Metrics and Ratings Commitment
38 May 7, 2008
Prudent Capital Deployment
Dividend• Quarterly dividend has remained at $0.26 per share since July 2003
Capital expenditures• Capital investment is approximately $400mm for 2008. Reduction of
approximately $82mm from 2007
M&A• Focus on core print opportunities
Share repurchases• 7.7 million shares repurchased in 2007• Replenished in February 2008 authorization back to 10 million shares• 2.7 million shares repurchased in 2008
39 May 7, 2008
Our Commitment to Investment Grade Metrics
RRD has emerged as the leader in the commercial printing industry• Unparalleled scale in highly competitive industry• Broadest portfolio of products and services• Financial results have consistently exceeded expectations over the last four years
We are committed to strong investment grade metrics
Standard and Poor’s: BBB+
Moody’s: Baa2
Fitch: BBB