deutsche bank leveraged finance...
TRANSCRIPT
Deutsche Bank Leveraged Finance Conference
October 1, 2014
244844-64 - CTB investor day - 15Apr14 - V17 (Roy script).pptx 1Draft—for discussion only
Safe Harbor
This presentation contains what the Company believes are forward-looking statements related to future financial results and business operations for Cooper Tire & Rubber Company. Actual results may differ materially from current management forecasts and projections as a result of factors over which the Company may have limited or no control. Information on certain of these risk factors and additional information on forward-looking statements are included in the Company’s reports on file with the Securities and Exchange Commission and set forth at the end of this presentation.
CTB investor day - 6May14 - VF.pptx 2Draft—for discussion only
Americas Tire Operations Business Overview
• Established in 2007
• One manufacturing facility near Guadalajara with our JV partner
• ~1,100 total employees including JV partner
• 4th largest manufacturer in North America1
• Three tire manufacturing facilities (Findlay, Tupelo and Texarkana)
• ~4,900 employees
• Max-Trac Tire Co., Inc. dba Mickey Thompson Performance Tires & Wheels; wholly-owned Cooper subsidiary
• Acquired in 2003• Premium brand,
performance positioning• ~65 employees
Deegan 38CooperDiscoverer AT3
Cooper CS5Ultra Touring
CooperClassic
1. Based on production capacity. Source: Tire Business 2013 Global Tire Report
CTB investor day - 6May14 - VF.pptx 3Draft—for discussion only
North America 2013 Unit Sales Breakdown
Cooper increasing exposure to the fastest growing and most attractive segments with a strong portfolio of house brands
Replacement Focus Diversified Product Mix Principally Branded
1%OE Market
Replacement Market
Privatelabel
Housebrands
2% Specialty
1% TBR3% Winter
LightTruckPassenger 74% 20%
99%
69% 31%
CTB investor day - 6May14 - VF.pptx 4Draft—for discussion only
Winning Formula for North America Tire Operations
Strategic Focus Areas
Mix and margin enhancement
Continue product launch successes
Focus on growth of the Cooper brand
Convert capacity to grow more premium units
Grow in underpenetrated channels
Deemphasize wholesale private-label business
Become an established OE
supplierGrow OE segment
No more than 10% of business
Enter car dealer replacement channel
Further advance Cooper technology
Grow in Commercial
VehiclesRecover and grow Roadmaster share
Grow in OE segment
Enter fleet replacement channel
Leverage footprint to grow in Latin America
Expand Mexico manufacturing
Continue success in Mexico and Central America
Leverage footprint to grow in the rest of Latin America
1 2 3 4
Diversify and grow in the most attractive segmentsto be our customers' best service/value supplierVision
CTB investor day - 6May14 - VF.pptx 5Draft—for discussion only
We Have Been Successfully Shifting Our Mix Toward Premium Segments…
1. Winter, UHP, V-rated, H-rated and SUVSource: Cooper internal data
Cooper PCR / SUV mix Several Drivers of Premium Mix Shift
• Increasing pace of branded new product development with focus on premium segments
• Accelerating capacity conversion to support premium unit growth
• Growing our branded PCR and SUV share in underpenetrated channels
• Continuing Mickey Thompson growth in the specialty segment
• Raising brand awareness through targeted advertising spend2009
% of Cooper volume
20132011
T & below
Premium segments(Winter, UHP, H, V, and SUV)
Next level(by 2017)
Operating profits for “premium segments" 5 to 15 timeshigher than T & below rated tires
Mix & margin enhancement1
CTB investor day - 6May14 - VF.pptx 6Draft—for discussion only
Cooper Becoming an Established OE Supplier in North America
0
250
500
Million units
OE
Replacement79%
21%
2017E
2.6%
333
2013
368
23%
77%
4%
2%
CAGR'13-17
Become an established OE supplier2
We expect OE to be no more than 10% of our businesswhile maintaining focus on the replacement segment
OE is a faster-growing segment and market conditions for OE profitability have improved
We have the right technology and products
OE generates pull for replacement market, increases penetration in car dealership channels
Also enhances brand awareness
Ultimately, it compels us to always get better!
OE Growing Twice as Fast as Replacement Market1 in North America2
We Have a Strong Rationale for Entering the OE Business Now
1. Includes PCR and LT. 2. United States, Canada, and Mexico. Source: LMC Automotive
CTB investor day - 6May14 - VF.pptx 7Draft—for discussion only
We Are Increasing Our TBR Market Share in North America...
Our Focus on Recuperating Roadmaster Share in 2014... ...While Growing in Fleet and OE
Significant growth opportunity for Cooper, and currently building in-house expertise and capabilities:
• National Accounts Program• 24/7 Fleet Emergency Service• Fleet Engineer team
Success in fleets also a pull-through in OE segment
Increased investments in sales and marketing
Our TBR margins ~2–3 times higher than PCR/LT margins
Grow in Commercial Vehicles3
TBR unit sales -46%
+33% CAGR
2013201220102008
Supply issue due to labor disruptions at CCT resolved
Began delivering Roadmaster products in Q1 2014
Winning back positions with key customers
CTB investor day - 6May14 - VF.pptx 8Draft—for discussion only
...And Growing in Mexico, Brazil and Latin America by Leveraging Mexico LCC Manufacturing
Low cost, near-sourced manufacturing facility• Lower labor and distribution cost• Faster response to market demand changes
Reduced duties for major Latin American markets
Opportunity to raise capacity by 50% to accelerate LT and PCR production
Chile 2017F(Millions)
Population 18Replacementtire demand1 5
Brazil 2017F(Millions)
Population 206Replacementtire demand1 47
Colombia 2017F (Millions)
Population 48Replacement tire demand1 7
We are targeting 4–5 million units in Latin America by 2020
Leverage footprint to grow in Latin America4
Mexico 2017F (Millions)
Population 128Replacementtire demand1 27
Cooper tire manufacturing
facility near Guadalajara
1. Annual replacement unit demand for PCR, LT and TBRSource: LMC Automotive
Leveraging Strong Asset in Mexico… ...To Grow in Latin America
CTB investor day - 6May14 - VF.pptx 9Draft—for discussion only
International Tire Operations Business Overview
Cooper Tire Asia
~5,800 employees
Established operations in 2006
Two manufacturing facilities in China: Rongcheng (CCT) and Kunshan (CKT)
Asia Technical Center opened in 2008, moved to new facility in 2014
Cooper Tire Europe
~1,400 employees
Acquired operations in 1997
Two manufacturing facilities in Europe: Melksham (U.K.) and Krusevac (Serbia)
European Technical Center opened in 2007
CTB investor day - 6May14 - VF.pptx 10Draft—for discussion only
International Segment 2013 Unit Sales Breakdown
Improving product and channel mixwith strong house brands
OE Market
Replacement Market
Motorcycle2% Winter
Light TruckPassenger
TBR
UHP
Privatelabel8%House
brands
Source: Cooper internal data
Replacement Focus Product Diversification Principally Branded
85%
15%
44%
26%
13%
7% 8%
92%
CTB investor day - 6May14 - VF.pptx 11Draft—for discussion only
Winning Formula for International Tire Operations
Achieve profitable, sustainable growth in our International segment to account for 50% of total company salesVision
PCR / TBR growth in China
Penetrate China OE market
Profitable growth in
Western Europe
Strategic Focus Areas
Leverage our sourcing for growth in Eastern Europe
Increase pace of new product launches to meet customer needs
Grow in long distance and city bus, as well as long-haul truck
Improve PCR/TBRdistribution channels
Expand our OEposition in China
Generate consumer pull via increased brand recognition
Clarify and strengthen product offering to customers
Improve Cooper brand awareness and growth
Grow profitably in key markets (U.K., Germany)
Improve service through local sourcing
Improve manufacturing cost competitiveness
Grow in high potential Eastern European countries and Russia
1 2 43
CTB investor day - 6May14 - VF.pptx 12Draft—for discussion only
We Quickened the Pace of New Product Introductions to Meet Customer Needs in PCR and TBR
Near-termtarget
+81%
20132008
+72%
Total PCR SKUs
Unique R&D center: local design and
faster time to market
Unique footprint with two
manufacturing facilities
1
Cooper Weather-Master Ice 100
Dean D280
New product focus on driving meaningful
position in long-haul truck & bus segments
Strong PCR offering across major segments
• 4x4/SUV • UHP• Winter• Low rolling
resistance
In Recent Years, We Launched More New Products Than Ever Before
Cooper Now Positioned to Address Customer Needs in PCR/TBR
PCR/TBR growth in China
CTB investor day - 6May14 - VF.pptx 13Draft—for discussion only
OE Presence is Vital to Win in China
2 Penetrate China OE market
Note: Figures include demand for PCR and Light TruckSource: LMC Automotive
0
250
500
12%
2017E
375
60%
40%
2013
235
57%
43%
Million units
In China, OE Accounts for ~40%of total PCR and LT demand Growth in OE is Vital to Win in China
OE segment for PCR and LT make up ~40% of market demand in China and growing rapidly at ~11% per year
Consumers have a strong sense of brand in China and OE fittings drive consumer pull for replacement tires
• High preference for OE brand in first and second replacements
OE presence also important to raise brand awareness and consideration
11%
ReplacementOE
13%
CTB investor day - 6May14 - VF.pptx 14Draft—for discussion only
We Are Focused on Growing our Solid Position in the U.K. and Capturing Profitable Growth in Germany
GermanyUnited
Kingdom
Note: Figures include demand for PCR, light truck and TBRSource: LMC Automotive
United Kingdom
3533
0
20
40
60
Total replacementdemand (M units)
1%
2017F2013
Germany
6458
0
50
100
2017F
Total replacementdemand (M units)
3%
2013
• Largest market in Europe• Increased market share in 2013
with strong growth in W,Y,Z rated PCR and SUV segments
• Leveraging new product successes to grow Cooper brand awareness
3 Profitable growth in Western Europe
• Cooper one of the top 5 players with well established brands and distribution footprint
• Melksham production facility to serve local demand
• Profitable niche and premium strategy (e.g. UHP, motorcycle, racing tires)
CTB investor day - 6May14 - VF.pptx 15Draft—for discussion only
Plans to Expand Presence in High Potential Countries in Eastern Europe
RussiaEstonia
Latvia
Lithuania
Romania
Bulgaria
Ukraine
Hungary
Czech Rep.
Poland
Belarus
Serbia
Note: Figures include OE and replacement demand for PCR, light truck and TBRSource: LMC Automotive
Eastern Europe (including Russia)
163
129
0
50
100
150
200
Total demand (units)
2017F
6%
2013
• Fastest growing markets in Europe
• Leverage manufacturing presence in Serbia – LCC cost advantage – Duty free into both EU & Russia
• Plans to increase sales force and resources in Eastern Europe
4 Leverage our sourcing for growth in Eastern Europe
Slovakia
Financial Update
CTB investor day - 6May14 - VF.pptx 17Draft—for discussion only
2014 Off to a Great Start with Strong Results
...And Operating Margin Increased 12 Percent
889 884
0
200
400
600
800
1,000
2Q ‘14
Net sales ($M)1%
2Q ‘13
8.67.8
0
5
10
15
2Q ‘132Q ‘14
Operating margin
+12%
9
5
0
2
4
6
8
10
NorthAmerica
2Q '14 – 2Q '13 volume growth (%)
International
2Q Net sales Rose 1 Percent From Strong Unit Growth
Source: Cooper quarterly financial reports
CTB investor day - 6May14 - VF.pptx 18Draft—for discussion only
We Have a Strong Balance Sheet That Gives us Financial Flexibility
398346
0
200
400
600
Cash and cash equivalents ($M)+15%
Q4 ’13Q4 ’07
16
38
0
20
40
2013
-22
Debt/Enterprise value1
2008
$200MAsset backed revolving
credit facilityParent
company
Asiasubsidiary
$175MAccounts receivable
securitization program
$348MUnsecured annually renewable
credit lines
1. Debt is short-term debt, current portion of long-term debt and long-term debt
...With Ample Financing FlexibilityHealthy Balance Sheet...
CTB investor day - 6May14 - VF.pptx 19Draft—for discussion only
We Carefully Consider How to Best Allocate Capital to High Shareholder Return Opportunities
16 1611
2214
-14
8
-20
-10
0
10
20
30
2011 2012 20132010
ROIC1
2007 20092008
1. Return on Invested Capital, including non-controlling equity
ROIC weighted averagein last five years = 16%
Different Alternatives forUsing Excess Cash
Fund maintenance projects
Pursue high ROIC projects• E.g. U.S. plant automation, product mix change
Expand capacity to support growth• Within current plant footprint ...• ... or beyond, e.g., Serbia
Maintain strong balance sheet including pension funding
Return capital to shareholders: • Regular dividends (set based on ability to
maintain through recessions)• Buybacks or special dividend
In the Last Five Years, We Efficiently Deployed Capital
CTB investor day - 6May14 - VF.pptx 20Draft—for discussion only
CCT Ownership Key to Decisions About Capital Deployment
Independent valuation firm
determined the fair market value of the
joint venture
• Well-built asset with a great track record
• Likely to continue to look at other growth opportunities, e.g. M&A
• Cooper maintains supply via offtakerights for at least three years
• Several options available, e.g. brown and greenfield
Must be resolved before we can determine long-term capital deployment plans
Cooper Buys CCT Cooper Sells CCT
CTB investor day - 6May14 - VF.pptx 21Draft—for discussion only
We Have Set Bold Aspirations for the Future
Cooper today
Long-term (end of decade)
$3.4Bnet sales
7%operating
margin
8-10%operating margin on a
consistent basis
$5-6Bnet sales
10+%operating
margin
CTB investor day - 6May14 - VF.pptx 22Draft—for discussion only
It is possible that actual results may differ materially from projections or expectations due to a variety of factors, including but not limited to: • volatility in raw material and energy prices, including those of rubber, steel, petroleum based products and natural gas and the unavailability of such raw materials or energy sources; • the failure of the Company’s suppliers to timely deliver products in accordance with contract specifications; • changes in economic and business conditions in the world; • failure to implement information technologies or related systems, including failure by the Company to successfully implement an ERP system; • increased competitive activity including actions by larger competitors or lower-cost producers; • the failure to achieve expected sales levels; • changes in the Company’s customer relationships, including loss of particular business for competitive or other reasons; • the ultimate outcome of litigation brought against the Company, including stockholders lawsuits relating to the Apollo merger as well as products liability claims, in each case which
could result in commitment of significant resources and time to defend and possible material damages against the Company or other unfavorable outcomes; • changes to tariffs or the imposition of new tariffs or trade restrictions; • changes in pension expense and/or funding resulting from investment performance of the Company’s pension plan assets and changes in discount rate, salary increase rate, and
expected return on plan assets assumptions, or changes to related accounting regulations; • government regulatory and legislative initiatives including environmental and healthcare matters; • volatility in the capital and financial markets or changes to the credit markets and/or access to those markets; • changes in interest or foreign exchange rates; • an adverse change in the Company’s credit ratings, which could increase borrowing costs and/or hamper access to the credit markets; • the risks associated with doing business outside of the United States; • the failure to develop technologies, processes or products needed to support consumer demand; • technology advancements; the inability to recover the costs to develop and test new products or processes; • the impact of labor problems, including labor disruptions at the Company, its joint ventures, including CCT, or at one or more of its large customers or suppliers; • failure to attract or retain key personnel; • consolidation among the Company’s competitors or customers; • inaccurate assumptions used in developing the Company’s strategic plan or operating plans or the inability or failure to successfully implement such plans; • failure to successfully integrate acquisitions into operations or their related financings may impact liquidity and capital resources; • the ability to sustain operations at CCT, including obtaining financial and other operational data of CCT; • changes in the Company’s relationship with its joint-venture partners, or changes in the ownership structure of its joint ventures, including changes resulting from the previously
announced agreement between the Company and the CCT joint-venture partner; • the inability to obtain and maintain price increases to offset higher production or material costs; • inability to adequately protect the Company’s intellectual property rights; • inability to use deferred tax assets; and • the ultimate outcome of legal actions brought by the Company against wholly-owned subsidiaries of Apollo Tyres Ltd.
Risks
CTB investor day - 6May14 - VF.pptx 23Draft—for discussion only
Available Information
You can find Cooper Tire on the web at coopertire.com. Our company webcasts earnings calls and presentations from certain events that we participate in or host on the investor relations portion of our website (http://coopertire.com/investors.aspx). In addition, we also make available a variety of other information for investors on the site. Our goal is to maintain the investor relations portion of the website as a portal through which investors can easily find or navigate to pertinent information about Cooper Tire, including:
• Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material or furnish it to the Securities and Exchange Commission (“SEC”);
• Information on our business strategies, financial results and selected key performance indicators;• Announcements of our participation at investor conferences and other events;• Press releases on quarterly earnings, product and service announcements and legal developments;• Corporate governance information; and,• Other news and announcements that we may post from time to time that investors may find relevant.
The content of our website is not intended to be incorporated by reference into this presentation or in any report or document we file with or furnish to the SEC, and any references to our website are intended to be inactive textual references only.