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Investor Presentation May 7, 2008

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... which are available in the investors section of our website, rrdonnelley.com. ... Target significant Print Management opportunities; gain additional 100% positions ... – PowerPoint PPT presentation

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Title: Investor Presentation May 7, 2008


1
Investor PresentationMay 7, 2008
2
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
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 companys operating performance.
    Internally, the company uses this non-GAAP
    information as an indicator of business
    performance, and evaluates managements
    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
Presenters
  • Tom Quinlan President and CEO
  • Miles McHugh EVP, CFO
  • Dan Leib SVP, Treasurer
  • Jenny Wong VP, Assistant Treasurer

5
Agenda
  • Executive Summary
  • Industry Dynamics
  • Consolidation
  • RR Donnelleys Strategy
  • Impact of Distressed Printers
  • Financial Review
  • Q1 2008 Performance
  • 2008 Guidance
  • Deployment of Capital
  • Credit Metrics and Ratings Commitment

6
Executive Summary
  • Largest player in a highly fragmented market
  • Differentiating front-end and logistics
    capabilities
  • Cost advantage driven by platform flexibility and
    economies in procurement, production and
    distribution
  • Blue chip customer relationships single-source
    provider opportunities
  • Broadest offering of industry leading products
    and services
  • Industry experienced executive and senior
    management teams
  • Strong cash flow generation in a challenging
    price environment
  • Growth rate has been greater than the broader
    print market largest opportunity is with
    existing clients
  • Success in managing, acquiring and integrating
    core print acquisitions
  • Financial discipline and productivity gains drive
    margin improvement
  • Operational / productivity focus
  • Continue targeted MA activities
  • Maintain strong investment grade credit metrics

7
Financial Strength
EBITDA (1) US in millions
Net Revenue US in millions
(03 07) CAGR 32
6 growth
(03 07) CAGR 29
12,350 to 12,450
PF Sales 4.1
4.7 2.5 Growth
EBITDA - Capex US in millions
15 growth
EPS (1)
(03 07) CAGR 22
(03 07) CAGR 35
3.08 to 3.15
  • Excludes restructuring, impairment, integration
    charges and other one-time items.

8
Business Generates Substantial Cash Flow
CAGR
in millions
33
39
9
Credit Metrics/Importance of Investment Grade
Standard and Poors BBB Moodys Baa2 Fitch BBB
  • The Cardinal Brands acquisition closed on
    12/27/2007, as such no material impact to EBITDA
    in 2007.
  • EBITDA represents Operating income (loss)
    excluding restructuring and impairment charges
    plus Depreciation and amortization as reported
    in the companys press release.

10
Agenda
  • Purpose of the Meeting
  • Industry Dynamics
  • Consolidation
  • RR Donnelleys Strategy
  • Impact of Distressed Printers
  • Financial Review
  • Q1 2008 Performance
  • 2008 Guidance
  • Deployment of Capital
  • Credit Metrics and Ratings Commitment

11
Trends Shaping Industry
  • Pricing pressure excess capacity
  • Industry fragmentation
  • Large / diversified printers are better
    positioned to be successful

Consolidation (Printers, Suppliers Customers)
Total System Cost Focus
  • Printers who are able to offer lowest total print
    / document management cost and higher ROI are
    advantaged

Customer Relationship Management
  • Shift toward variable (customized), higher
    value-add print
  • IT / data management capabilities increasingly
    importantto customers

Electronic Substitution
  • Trends generally continuing at same pace
  • Impact differs by print sector results in new
    products / services

Regulatory Changes
  • Positive and negative implications
  • Printers ability to offer compliance assurance /
    secure environment increasingly important

12
Consolidating Industry
  • 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
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
The Evolution of Print Relationships
  • 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

Total Cost of Process/Procurement Function
Customer Relationships
100 of Core Product(s)
Multiple Product Relationships
Single Product Relationships
1864
2008
2000
2006
Time
Source Derived from InfoTrends/Cap Ventures
15
Print Relationships Driven by Cost Drivers in the
Print Supply Chain
  • Return Analysis
  • Printed Product
  • Printed Product
  • Administration
  • External / Internal Creative
  • Postage
  • Internal Document Prep / Review
  • Fulfillment / Distribution
  • Warehousing / Archiving
  • Inventory Obsolescence

Source Derived from InfoTrends/CAP Ventures,
December 10, 2004.
16
A Large, Highly Fragmented Market Opportunity
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

Total U.S. Printing Industry
171.5 Bn
CommercialPrinting
Newspaper
Packaging
Forms, Labels
TradeServices(PreMedia)
Specialty,Greeting
Growth 3.3 (2005 2006)
Source Datamonitor, Global Commercial Printing,
March 2007
Source PIA/GATF, Economic Print Market Flash
Report, April 3, 2007
17
Scale and Breadth
in Billions
SELECTED PRINTERS 2007E REVENUE
(c)
(a)
(b)
PRODUCT AND SERVICE OFFERING
  • Note Vertis is LTM revenue. Quad Graphics is
    reported annual sales per Quads website as of
    4/30/08.
  • Estimated revenue for Information Network segment
    only. Total revenue is estimated to be 15.1
    billion.
  • Estimated revenue for Information Communication
    segment only. Total revenue is estimated to be
    14.7 billion.
  • Estimated revenue of 700 million reflect Brown
    Printing and Arvato.

18
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
Master Plan
  • Multi-year plan drives
  • Customer targeting
  • Capital allocation
  • MA priorities
  • End market analysis
  • Growth
  • Costs
  • Investments

20
The Evolution of RR Donnelleys Strategy
  • Put World Class team together
  • Built support infrastructure
  • Admin/Finance/Ops
  • Developed and implemented new strategy
  • Built, through organic investments and
    acquisitions, flexible full-service platform
  • Focused 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
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
Blue Chip Customer Relationships
  • Total of 40,000 customers
  • 155 customers with revenue gt 10 million (1)
  • 980 customers with revenue gt 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
Platform Optimization - Asset Utilization
Off peak (1H) growth has exceeded peak (2H)
growth from 2004 to 2007
EBITDA (3)
(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 companys press release.
24
One RR Donnelley (Illustrative)
Sales and Marketing
Directory Publisher
Book Publisher
Magazine Publisher
Healthcare
Financial
Retail
Internal Process (Pricing, Production Planning)
One Global Platform
PREPARE
PRODUCE
DELIVER
Gravure
Offset
Bindery
Sheetfed
Digital
25
Acquisition Criteria
  • Does the acquisition candidate
  • Help our existing customers?
  • Have capacity where we are constrained?
  • Have synergy opportunities?

26
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 Judds and
    Von Hoffmann in 2007
  • Successfully integrating Cardinal and Pro Line in
    2008

27
The Impact of Distressed Printers
  • Aggressive pricing began several years ago
  • Quebecor 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 1/21/08
  • Market rumors of liquidity issues at other
    printers
  • Differences
  • Management culture
  • Breadth of product offering
  • Workforce relations
  • Ownership structure
  • Opportunities for RRD
  • Brand strength
  • Financial strength
  • Multiple products services

28
Agenda
  • Purpose of the Meeting
  • Industry Dynamics
  • Consolidation
  • RR Donnelleys Strategy
  • Impact of Distressed Printers
  • Financial Review
  • 2008 Q1 Performance
  • 2008 Guidance
  • Deployment of Capital
  • Credit Metrics and Ratings Commitment

29
Q1 Performance
Non-GAAP EPS (1)
Net Sales ( in millions)
7.3
2005
2006
2007
2008
2007
2008
2005
2006
  • Excludes restructuring, integration and
    impairment expenses and one-time items
  • Revenue, proforma for acquisitions, grew 1
    from Q12007 to Q12008

(a) Includes synergies in forecasted periods.
30
2008 Guidance (Non-GAAP)
  • Revenue 12.35 to 12.45 billion low
    single-digit growth pro forma for acquisitions
  • Operating margin (non-GAAP) slight expansion over
    2007s 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 million
  • EBITDA Capex Growth 15

(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.
31
2008 Priorities
Continue to Capture Share
  • 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

Integration
  • Finalize integration of Banta, Perry Judds and
    Von Hoffmann
  • Cardinal Brands and Pro Line integration underway
  • Direct IT investments to facilitate integration
  • Continue to pursue niche core print targets that
    meet changing customer demands, serve our
    capacity needs and have cost savings opportunities

MA Activity
32
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
  • MA 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
Revenue Distribution by End-Markets Is Much More
Diversified Now
2000 Revenue 5.8 Billion
2007 Revenue 11.6 Billion
34
Liquidity as of 3/31/08
  • Replaced 400mm commercial paper balance with
    drawings under the 2 billion revolver in August
    2007, 50mm of which was repaid in February 2008.

35
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 31
  • Leverage ratio of not higher than 41
  • In compliance with the covenants at 3/31/2008

36
Pro Forma Long-Term Debt Maturity Profile
  • Weighted average interest rate of 5.50 on
    existing long-term debt

in millions
3.75
4.95
4.95
5.50
6.65
Interest Rate
5.63
37
Agenda
  • Purpose of the Meeting
  • Industry Dynamics
  • Consolidation
  • RR Donnelleys Strategy
  • Impact of Distressed Printers
  • Financial Review
  • Q1 2008 Performance
  • 2008 Guidance
  • Deployment of Capital
  • Credit Metrics and Ratings Commitment

38
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
  • MA
  • 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
Our Commitment to Investment Grade Ratings
Standard and Poors BBB Moodys Baa2 Fitch BBB
  • 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
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