Sept 2009 Chattem Chtt Presentation
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Barclays Capital Back-To-School Consumer Conference September 10, 2009
Forward Looking Statements Non-GAAP Financial Measures
Statements concerning the Company’s business outlook, anticipated profitability, sales or expenses and sales growth, together with other statements made in this presentation that are not historical facts, including management’s beliefs and expectations, are “forward-looking statements” as that term is defined under federal securities law. It is possible that actual results might differ materially from the statements made in the presentation. All forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected, including those risk factors described in the Company’s filings with the Securities and Exchange Commission. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of these in light of new information or future events A reconciliation of the non-GAAP financial measures contained in this presentation to the most comparable GAAP financial measures is contained in the earnings release for our second quarter and first six months of fiscal 2009 which can be found on the investor relations section of the Company’s website at www.chattem.com.
2
Corporate Mission To be the best mid-sized company in the Health & Beauty Care market in America. The following principles guide us in this endeavor: • Achieve outstanding shareholder value through superior growth in sales and profits • Develop innovative products and passionate marketing programs to create enthusiastically satisfied customers • Provide a work environment that fosters teamwork, collaboration and mutual respect • Make a difference in our community
3
The Chattem Difference •
Diverse portfolio of leading OTC brands
•
Proven record of acquiring, integrating and organically growing brands
•
Focused consumer driven product development function
•
Effective and efficient advertising and promotion strategy
•
Dedicated sales force
•
Internal manufacturing and purchasing operations
4
Leading Positions in Appropriate Categories % of Total Revenues 1st Half 2009
Big 6 Brands are 72% of Total Revenues
Topical Pain Care 19%
Oral Care 15%
Medicated Dandruff Shampoos 8%
Medicated Skin Care Products 33%
Other OTC & Toiletries 6% Internal OTC 10%
Dietary Supplements 4%
International 5%
5
Disciplined Growth Strategy
Proven Organic Growth
Focused Acquisitions
6
2009 New Products 1. Focused on current or adjacent categories 2. Innovative products with a unique point of difference 3. Significant revenue opportunity through share gain and category growth 4. High gross margins 5. Researched extensively with both the consumer and the trade 6. Significant A&P expenditure
7
Acquisition Criteria OTC brands with these characteristics: • Small to medium sized OTC categories • Leadership position, with growth opportunity • High gross margins • Advertising (vs. promotion) sensitive • F,D&M channels Financially conservative: • Immediately accretive to earnings • Reasonable purchase price • Appropriate capital structure
8
Financial Review
9
Revenues & EPS
Revenues
EPS*
($’s in millions)
R= CAG
$500
14%
$400 $300
$234
$258
$279
$423
R= CAG
$455
$301
$2.00
$100
$1.00
$0
$0.00
2005
2006
2007
2008
$4.25
$4.90
2008
2009E
$3.36
$4.00 $3.00
2004
$4.80‐
$5.00
$200
2003
29%
$1.19
2003
$1.69
2004
$2.09
$1.95
2005
2006
2007
*Excludes where applicable, debt extinguishment, product recall, impairment, loss on product divestitures, litigation settlement, executive severance and SFAS 123R expense.
10
Reconciliation of Total Revenues ($ in 000’s)
Revenues, as reported Impact of International division Promotion programs focused as price reduction Discontinued businesses (Heat Therapy and Pro Therapy) Revenues reconciled Revenues, as reported for YAGO periods of FY 2008 % change
2009 Q2 YTD $ 237,922 6,600 6,800 2,500 $ 253,822 $ 237,489 6.9%
11
Strong Financial Metrics A&P
Gross Margin
(as a % of total revenues)
71.6% 71.6% 71.4% 70%
(as a % of total revenues) 30.2%
71.1% 68.7%
30.0%
32.0% 29.0% 27.5%
26.5%
26.0%
69.6%
69.5%
23.4%
15.0%
65% 2003
2004
2005
2006
2007
2008
2009 Q2 YTD
0.0% 2003
SG&A 17.5% 17.1% 16.9%
15.6%
2005
2006
2007
2008
EBITDA Margin*
(as a % of total revenues)
20.0%
2004
(as a % of total revenues)
40%
13.6% 13.7%
30%
12.4%
28.9% 26.0% 27.5% 24.4%
31.6%
33.9%
2009 Q2 YTD
36.3%
20%
10.0%
10% 0%
0.0% 2003
2004
2005
2006
2007
2008
2009 Q2 YTD
2003
2004
2005
2006
2007
2008
2009 Q2 YTD
12
Current Financial Perspective Leverage (LTM)
Free Cash Flow
(Net Debt to EBITDA)
($’s in millions)
FY ‘08 Target Under 3.0x
4
$100 $87.5 $80.4
3.7x
3.7x 3.0x
2.8x
3
$50.7 $49.7
2.3x 1.7x
2
2.0x
1.9x
$50
$41.0 $31.5 $25.9
1 0
$0
2002
2003
2004
2005
2006
2007
2008 2009E
2002 2003 2004 2005 2006 2007 2008
13
Benefits of the Cash Tax Shield Summary Cash Tax Savings Amortization Period Remaining Approx. 5 years
Estimated Annual Tax Benefit $6
Present Value $24
Brands Acquired January 2007
13 years
10
77
Purchased Call for Convertibles
5 years
3 $19
12 $113
Various Brands
Schedule estimates amortization expense for tax purposes (cash tax savings) that is not required to be recorded as amortization or interest expense for book/EPS purposes.
14
Capital Structure Cash
As of 8/31/2009 $ 59,400
Revolver ($100 million) Term Loan B Senior Secured Debt
0 105,250 105,250
2.0% Convertible Notes 1.625% Convertible Notes Total Senior Debt
96,300 100,000 301,550
7.0% Senior Subordinated Notes
98,370
Total Debt
$ 399,920
Net Debt
$ 340,520
15
Capital Structure Recent/Near Term Dynamics •
Share repurchases total 491,392 shares for $26.1 million or an average price of $53.13 per share
•
Repurchased $9.1 million of our 7% Senior Sub Notes at an average price of par
•
Convertible debt accounting change effective Q1 of FY 2010
16
Current Environment •
Retail trade: ¾ Private label ¾ SKU rationalization/Inventory reduction ¾ Focus on retail price
•
Media
•
Input Costs
•
Regulatory environment
•
Acquisition opportunities
•
Capital markets
17
Fiscal 2009 Key Factors •
Revenues to rise at or below the low end of our mid-to-high single digit long term target for organic growth
•
Earnings $4.80-$4.90* per share
•
Continued strong advertising and promotion support for North American business
•
Alterations in trade promotion strategy impact treatment of such expenses for GAAP purposes and YOY comparison of operating metrics
•
International revenues estimated to decline $8-$10 million, with no negative earnings impact
•
Strong cash flow will reduce Net Debt/EBITDA to below 2.0x assuming no further share repurchase or acquisitions
•
Capital structure and acquisition opportunities will be explored
*Excludes non-cash stock option expense under SFAS 123R of $0.26 per share, any asset value impairment charge and any loss on debt extinguishment. 18
Forward Looking Statements Non-GAAP Financial Measures
Statements concerning the Company’s business outlook, anticipated profitability, sales or expenses and sales growth, together with other statements made in this presentation that are not historical facts, including management’s beliefs and expectations, are “forward-looking statements” as that term is defined under federal securities law. It is possible that actual results might differ materially from the statements made in the presentation. All forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected, including those risk factors described in the Company’s filings with the Securities and Exchange Commission. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of these in light of new information or future events A reconciliation of the non-GAAP financial measures contained in this presentation to the most comparable GAAP financial measures is contained in the earnings release for our second quarter and first six months of fiscal 2009 which can be found on the investor relations section of the Company’s website at www.chattem.com.
2
Corporate Mission To be the best mid-sized company in the Health & Beauty Care market in America. The following principles guide us in this endeavor: • Achieve outstanding shareholder value through superior growth in sales and profits • Develop innovative products and passionate marketing programs to create enthusiastically satisfied customers • Provide a work environment that fosters teamwork, collaboration and mutual respect • Make a difference in our community
3
The Chattem Difference •
Diverse portfolio of leading OTC brands
•
Proven record of acquiring, integrating and organically growing brands
•
Focused consumer driven product development function
•
Effective and efficient advertising and promotion strategy
•
Dedicated sales force
•
Internal manufacturing and purchasing operations
4
Leading Positions in Appropriate Categories % of Total Revenues 1st Half 2009
Big 6 Brands are 72% of Total Revenues
Topical Pain Care 19%
Oral Care 15%
Medicated Dandruff Shampoos 8%
Medicated Skin Care Products 33%
Other OTC & Toiletries 6% Internal OTC 10%
Dietary Supplements 4%
International 5%
5
Disciplined Growth Strategy
Proven Organic Growth
Focused Acquisitions
6
2009 New Products 1. Focused on current or adjacent categories 2. Innovative products with a unique point of difference 3. Significant revenue opportunity through share gain and category growth 4. High gross margins 5. Researched extensively with both the consumer and the trade 6. Significant A&P expenditure
7
Acquisition Criteria OTC brands with these characteristics: • Small to medium sized OTC categories • Leadership position, with growth opportunity • High gross margins • Advertising (vs. promotion) sensitive • F,D&M channels Financially conservative: • Immediately accretive to earnings • Reasonable purchase price • Appropriate capital structure
8
Financial Review
9
Revenues & EPS
Revenues
EPS*
($’s in millions)
R= CAG
$500
14%
$400 $300
$234
$258
$279
$423
R= CAG
$455
$301
$2.00
$100
$1.00
$0
$0.00
2005
2006
2007
2008
$4.25
$4.90
2008
2009E
$3.36
$4.00 $3.00
2004
$4.80‐
$5.00
$200
2003
29%
$1.19
2003
$1.69
2004
$2.09
$1.95
2005
2006
2007
*Excludes where applicable, debt extinguishment, product recall, impairment, loss on product divestitures, litigation settlement, executive severance and SFAS 123R expense.
10
Reconciliation of Total Revenues ($ in 000’s)
Revenues, as reported Impact of International division Promotion programs focused as price reduction Discontinued businesses (Heat Therapy and Pro Therapy) Revenues reconciled Revenues, as reported for YAGO periods of FY 2008 % change
2009 Q2 YTD $ 237,922 6,600 6,800 2,500 $ 253,822 $ 237,489 6.9%
11
Strong Financial Metrics A&P
Gross Margin
(as a % of total revenues)
71.6% 71.6% 71.4% 70%
(as a % of total revenues) 30.2%
71.1% 68.7%
30.0%
32.0% 29.0% 27.5%
26.5%
26.0%
69.6%
69.5%
23.4%
15.0%
65% 2003
2004
2005
2006
2007
2008
2009 Q2 YTD
0.0% 2003
SG&A 17.5% 17.1% 16.9%
15.6%
2005
2006
2007
2008
EBITDA Margin*
(as a % of total revenues)
20.0%
2004
(as a % of total revenues)
40%
13.6% 13.7%
30%
12.4%
28.9% 26.0% 27.5% 24.4%
31.6%
33.9%
2009 Q2 YTD
36.3%
20%
10.0%
10% 0%
0.0% 2003
2004
2005
2006
2007
2008
2009 Q2 YTD
2003
2004
2005
2006
2007
2008
2009 Q2 YTD
12
Current Financial Perspective Leverage (LTM)
Free Cash Flow
(Net Debt to EBITDA)
($’s in millions)
FY ‘08 Target Under 3.0x
4
$100 $87.5 $80.4
3.7x
3.7x 3.0x
2.8x
3
$50.7 $49.7
2.3x 1.7x
2
2.0x
1.9x
$50
$41.0 $31.5 $25.9
1 0
$0
2002
2003
2004
2005
2006
2007
2008 2009E
2002 2003 2004 2005 2006 2007 2008
13
Benefits of the Cash Tax Shield Summary Cash Tax Savings Amortization Period Remaining Approx. 5 years
Estimated Annual Tax Benefit $6
Present Value $24
Brands Acquired January 2007
13 years
10
77
Purchased Call for Convertibles
5 years
3 $19
12 $113
Various Brands
Schedule estimates amortization expense for tax purposes (cash tax savings) that is not required to be recorded as amortization or interest expense for book/EPS purposes.
14
Capital Structure Cash
As of 8/31/2009 $ 59,400
Revolver ($100 million) Term Loan B Senior Secured Debt
0 105,250 105,250
2.0% Convertible Notes 1.625% Convertible Notes Total Senior Debt
96,300 100,000 301,550
7.0% Senior Subordinated Notes
98,370
Total Debt
$ 399,920
Net Debt
$ 340,520
15
Capital Structure Recent/Near Term Dynamics •
Share repurchases total 491,392 shares for $26.1 million or an average price of $53.13 per share
•
Repurchased $9.1 million of our 7% Senior Sub Notes at an average price of par
•
Convertible debt accounting change effective Q1 of FY 2010
16
Current Environment •
Retail trade: ¾ Private label ¾ SKU rationalization/Inventory reduction ¾ Focus on retail price
•
Media
•
Input Costs
•
Regulatory environment
•
Acquisition opportunities
•
Capital markets
17
Fiscal 2009 Key Factors •
Revenues to rise at or below the low end of our mid-to-high single digit long term target for organic growth
•
Earnings $4.80-$4.90* per share
•
Continued strong advertising and promotion support for North American business
•
Alterations in trade promotion strategy impact treatment of such expenses for GAAP purposes and YOY comparison of operating metrics
•
International revenues estimated to decline $8-$10 million, with no negative earnings impact
•
Strong cash flow will reduce Net Debt/EBITDA to below 2.0x assuming no further share repurchase or acquisitions
•
Capital structure and acquisition opportunities will be explored
*Excludes non-cash stock option expense under SFAS 123R of $0.26 per share, any asset value impairment charge and any loss on debt extinguishment. 18
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