37
Libbey Inc. Management Presentation September 30, 2019
Libbey Inc.Management Presentation
September 30, 2019
Safe Harbor DisclosuresMaterial in this presentation constitutes forward-looking statements about Libbey Inc. and its subsidiaries. These statements aresubject to risks and uncertainties, including market conditions, competitive pressures, the value of the U.S. dollar and potential significant cost increases. Please refer to the Company’s Form 10-K for fiscal year-end December 31, 2018, filed on February 27, 2019, for further information regarding risks facing the Company and an investment in the Company.
This presentation includes financial information that has not yet been audited by the Company’s independent auditors. Although the Company believes that the assumptions upon which the financial information and its forward looking statements are based are reasonable, it can give no assurances that these assumptions will prove to be accurate.
This presentation may contain non-GAAP financial measures. We believe that the Adjusted Earnings Before Interest Taxes Depreciation and Amortization, or Adjusted EBITDA; Adjusted EBITDA Margin; Adjusted Income from Operations (Adjusted IFO); Adjusted IFO Margin; Free Cash Flow; Further-Adjusted metrics; Trade Working Capital; Debt, Net of Cash to Adjusted EBITDA; Adjusted Selling, General and Administrative Expense; Return on Invested Capital (ROIC); Constant Currency; and references tofinancial measures in constant currency are meaningful measures for investors to compare our results from period to period.
Reconciliations of the non-GAAP to GAAP measures may be found within the earnings press release and the supplemental financials,as well as in the Appendix of this presentation. The presentation of our non-GAAP measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.
Key Highlights
Key Highlights
Strong Management Team with the Experience and Vision to Achieve New Strategic Initiatives
Global Tableware Leader with Best-in-Class Products and Service, Protected by High Barriers to Entry
Proven Innovation Capabilities with Robust New Product Development
Long-Tenured, Diversified Customers with Deep Installed Base in the Foodservice Channel
1
2
4
3
Balanced Capital Allocation Strategy Focused on Debt Repayment and Reinvestment
5
2018 Net Sales
BusinessHighlights
#1 supplier of glass tableware, #2 supplier of dinnerware / flatware in the U.S. & Canada (1)
Network of over 350 of the finest distributors in the U.S. & Canada
“Annuity-like” revenue stream with a strong installed base of customers reordering based on table setting placements
U.S. casual glass beverageware leader with a brick and mortar market share of ~35% (1)
Leading market share in Mexico (1)
Established retail relationships and rapidly-growing e-commerce capabilities (~13% of U.S. & Canada retail net sales) (2)
Global OEM supplier to leading breweries, distilleries, soft drink companies, craft industries, food packaging and appliance makers
Leading supplier in several product categories (1)
Select Customers
Artis
Edward Don & Company
Cristalería Mónaco
Sysco
TriMark
US Foods
Wasserstrom
WebstaurantStore
Amazon
Bed Bath & Beyond
Crate & Barrel
Dollar Tree
IKEA
Metro
Soriana
Target
Tesco
Walmart
Wayfair
Bath & Body Works
Diageo
Heineken
Newell
Star Candle
Sunbeam
Syndicate Sales
Whirlpool
2018 GeographicBreakdown
U.S. & Canada
80%
Rest of World20%
Libbey is a Global Tableware Leader
No single customer represents 10% or more of our net sales
___________________________1. Management estimates.2. For the LTM period ended Q2 2019.
1
U.S. & Canada
49%
Rest of World51%
U.S. & Canada
45%
Rest of World55%
Foodservice($328 million, 41%)
Retail($257 million, 32%)
B2B($214 million, 27%)
After blind-tasting wine in more than 80 different glasses with a professional winemaker, a sommelier, and a wine critic, we think the best everyday wine glass is the Libbey Signature Kentfield Estate All-Purpose Wine Glass. We considered over 250 glasses, and we found that the inexpensive tulip-shaped Libbey glass enhanced the aromas of both red and white wines better than most of the competition.
Libbey Inc. and their overseas manufacturing partner, pulled off what was otherwise thought of as the impossible.
– Robert Chuhak, Director Capital Equipment and Indirect Sourcing
88%12%
Best-in-Class Products and Service1High-Quality Products and Excellent Service… …Generate Superior Reviews
Libbey maintains control over production of key items toensure the highest-quality products are delivered efficiently
Best-in-class service, evidenced by On-Time In-Full rate over 90%, drives repeat customers
Global distribution with an extensive product portfolio
Significant scale advantage due to substantial unit volumes
Consistent, superior service sets Libbey apart and makes it a trusted partner
___________________________1. Pie chart reflects percentage of net sales from the specified product types as of fiscal 2018. 2. Measured by units sold in 2018.3. American Culinary Federation is a leading professional chefs’ organization in North America with over 17,500 members. The Achievement of Excellence Award is provided to one foodservice establishment supplier each year.
Sales from Ceramicware
& Metalware (1)
Sales from Glassware (1)
Over 95% (2) of Glassware Products are Manufactured Directly
All Ceramicware and Metalware are Sourced
Active Supply Chain and Production Management Globally
AMERICAN CULINARY FEDERATION AWARDS
2018
Industry Partnership
Award
2019
Achievement of Excellence
Award (3)
2018 & 2017
American Academy
of Chefs Award for Support and
Dedication to the Foodservice Industry
Libbey~35%
Top Competitor~15%
Other Competitors
~50%
Approximately 90% of Libbey’s annual U.S. foodservice glass tableware sales are replacement revenues
Establishments infrequently change tabletop settings due to high switching costs
Global distribution and extensive product line make Libbey a full-service provider
Libbey’s wide variety of sizes enables foodservice establishments to control portions, a critical component of beverage sales profitability
Leverage exhibited by ability to achieve price increases in 38 of the last 42 years in U.S. & Canada foodservice channel
Leading Share is Further Protected by High Barriers to Entry 1
Favorable Foodservice Channel Dynamics…
… Further Reinforce Leading Market Share in the U.S. & Canada (1)
… And Capital Intensive Manufacturing…
Foodservice Tabletop Market
Libbey~20%
Top Competitor~20%
Other Competitors
~60%
Capital-intensive glassware manufacturing requirements create significant barriers to entry and ongoing service
Libbey has an established international network of efficient glassware plants and robust distribution capabilities
Product molds can cost $20 - $45k per shape, making it difficult for competitors to match Libbey’s breadth of portfolio, given the variety of glassware sizes and shapes desired by customers
__________________1. Management estimates.
Retail Glassware Market B2B Glassware Market
Libbey~40%
Top Competitor~30%
Other Competitors
~30%
~$250 millionMarket Size
~$645 millionMarket Size
~$900 millionMarket Size
Proven Innovation Capabilities Support Channel Strength2Innovation is Critical for Sustaining Momentum with Customers
Red Lobster wanted to reposition its chain of 700+ restaurants, revamping its menu and food presentation
Critical to implement across the entire chain to match with timing of market launch
Selected Libbey because of experience, ability to deliver, and outstanding service
Libbey partnered with key distributor to roll out new ware to all restaurants in one month (November 2017)
Hand-painted rim
Supplier-developed durable matte glaze exclusive to Libbey
Correct proportions to improve food presentation
Foodservice Retail Introducing new products in the retail channel helps sustain and improve margins
as Libbey replaces products that are becoming commoditized with refreshed customer offerings
New products are brought to market throughout the year
Libbey launched more than 250 new products in the first quarter of 2019 at the New York Table Top Show
Case Study: Red Lobster Case Study: ClearFire®
Casual and fine dining restaurant customers, on average, reset dining experience every 5-6 years
National Restaurant Association trade show occurs every May
Libbey launched 295 new items at the 2019 show
New product releases build excitement and aim to increase velocity of reset or upgrade to improve dining experience
In 2015, Libbey developed a proprietary ClearFire® glass composition and state-of-the-art technology
Technology is used in both Master’s Reserve® foodservice products and Libbey Signature® retail products
Net sales of Libbey Signature® wine glasses on Amazon grew 26% YTD Q2 2019 vs. prior-year period
Sales of Master’s Reserve® foodservice products increased 51% between 2017 to 2018
Successful e-commerce penetration is driving increased demand from brick-and-mortar customers for this higher-margin product
$54.1
$58.4
2018 Q2'19 LTM
Robust New Product Pipeline Helping to Drive Net Sales2
New Products Gaining MomentumNew Product Development is Key to Go-Forward Strategy($ in millions)
6.8%
% of Net Sales
7.5%
Net Sales from New Products
New product development process was reprioritized in 2016
In 2017, incorporated into executive compensation metrics
In 2018, launched “impact metric” to measure the progress of new products (1)
It takes time to achieve placement of new products
Generally limited investment required
U.S. & Canada region has a strong pipeline today
Approximately 65 new projects in the development pipeline
Over 500 products launched so far in 2019
Long-term goal is to have new products generate 8-9% of annual global net sales
Libbey is exploring new product opportunities across all channels
__________________1. Measured as net sales from new products launched in the previous 36 months on a rolling basis.
(1)
Customers include large breweries and distilleries that purchase our products decorated with company logos, as well as companies using glass in candle, floral, and other OEM applications
Libbey supplies a low-cost component in end products, with service and quality enabling Libbey to achieve increased margins
≥20 years32%
15-19 years40%
10-14 years12%
<10 years16%
≥20 years88%
15-19 years8%
10-14 years0%
<10 years4%
Customers include mass merchants, department stores, pure-play e-commerce retailers or marketers, retail distributors, national retail chains, and specialty houseware stores
Annual resets of planograms for most retail customers
Libbey’s omni-channel capabilities allow retailers to create an “endless aisle”
Majority of sales are made to traditional and web-based distributors
Large installed base, with “sticky” characteristics Dining set replacement cycle is, on
average, 5-6 years
Establishments infrequently change tabletop settings due to high switching costs
Long-Tenured, Diversified Customers with Deep Installed Base in Foodservice
3
Foodservice Retail B2B
CustomerOverview
Top 50 U.S. & Canada
Customer Tenure
Distribution (1)
No single customer represents 10% or more of our net sales__________________1. Top 50 customers based on YTD channel net sales. Retail channel includes e-commerce customers.
≥20 years14%
15-19 years42%
10-14 years26%
<10 years18%
Strong Management Team with the Experience and Vision to Achieve New Strategic Initiatives
4
Mike BauerChief ExecutiveOfficer
Appointed CEO and a member of the Board in Mar. 2019 30 years of consumer products industry experience with The
Master Lock Company and Moen (units of Fortune BrandsHome & Security), most recently as president of Master Lock from 2014 to 2018 and before that as president of Moen’s U.S. business
Susan KovachSVP, General Counsel
Over 34 years of experience, including 15 in her role leading Libbey’s global legal and compliance functions
Previously General Counsel of NYSE-listed Omega Healthcare and prior to that a partner at Dykema LLP
Klay HuddlestonSVP, Chief Digital Officer
Named Chief Digital Officer in Nov. 2017; in Oct. 2019, will transition to Chief Marketing Officer, responsible for global omni-channel marketing
23 years of experience in marketing, product management and e-commerce roles with Amazon, Lane Bryant, Tween Brands and Resource/Ammirati, an IBM company
Antoine JordansGeneral Manager,EMEA
General Manager of EMEA since Jul. 2012 and before that served as Commercial Director of and in sales roles for Libbey Europe
Over 30 years of commercial experience with manufacturers of consumer goods
Bill MossingSVP, Chief Supply Chain Officer
Named SVP, Chief Supply Chain Officer in Dec. 2017; in Oct. 2019, will transition to VP, Global Supply Chain
28 years of cross-functional experience, including in supply chain, plant manager, project management, global sourcing and IT roles with Bendix and Dana
Jim BurmeisterSVP, Chief Financial Officer
Named CFO in Mar. 2017; effective Oct. 1, 2019, also Chief Operating Officer
25 years of experience in finance, operations finance, treasury and audit roles with GE, Owens Corning and The Andersons and supply chain and operations management roles (Lean / Six Sigma-certified Black Belt) with Rubbermaid and GE
Sarah ZibbelSVP, Chief Human Resources Officer
Named CHRO in Apr. 2018 Leads global talent, culture and organizational development
and effectiveness 18 years of experience in HR roles of increasing responsibility,
including with Owens Illinois, Owens Corning and Rexam
Joe HuhnGeneral Manager,U.S. & Canada
Named VP, GM, U.S. & Canada in Jan. 2019; in Oct. 2019, will transition to VP, GM, Americas, responsible for driving improved performance and growth across USC / LatAm regions
Over 15 years of experience in finance roles with Libbey,Whirlpool and Maxtor, most recently as Libbey’s VP, Corporate FP&A and Investor Relations and before that as Group CFO, USC
Pablo VillarrealGeneral Manager, LatAm
Named GM, LatAm in Apr. 2015; in Oct. 2019, will transition to VP, Global Manufacturing, responsible for optimizing our global manufacturing network
20 years of experience with GE, including plant and general manager roles with GE Consumer & Industrial and GE Healthcare and GE Lighting
ChandraMangalagiriVP, Global Engineering
Joined Libbey in Jan. 2019 and is responsible for leading the global engineering center of excellence
Over 25 years of experience in the glass and ceramic industry, most recently with Corning as Program Manager responsible for deployment of the next generation Gorilla® glass platform
Management is Pursuing a Balanced Capital Allocation Strategy
Repaid nearly $60 million in debt between 2014 and 2017
Historically cleaned down ABL drawings at each year end
Modest dividend
Opportunistic share repurchases
Historically, $45 - $55 million in capex spend per year
Focused on furnace rebuilds and equipment upgrades
Debt used to fund strategic initiatives
Large ABL provides ample liquidity
Suspended share repurchases in 2016
Suspended dividends in 2018
Target $35 - $40 million in capex for fiscal 2019
Invest in top priority strategic initiatives in e-commerce, NPD, and ERP
Focus on extending asset lives, viewing furnace rebuilds as discretionary rather than maintenance investments
Prioritize debt repayment
Target at least $70 million in liquidity
Return based on earnings growth from new management initiatives
Maximum of $40 million capex per year
Objective to reduce capex below depreciation
PastPast
PresentPresent
Strategic PrioritiesStrategic Priorities
Debt RepaymentDebt Repayment Return Capital to Shareholders
Return Capital to Shareholders Reinvest in GrowthReinvest in Growth
Management's focus is on debt repayment and a narrow set of value-add reinvestment initiatives
5
Libbey Strategic Update
Expand target markets to meet growing demand in healthcare and hospitalityExpand target markets to meet growing demand in healthcare and hospitality
Optimize asset footprint and manufacturing processes to drive ROICOptimize asset footprint and manufacturing processes to drive ROIC
Drive improved profitability and simplification in the businessDrive improved profitability and simplification in the business
2
Libbey is Strategically Responding to Evolving Landscape
4
5
Profitably increase share in existing marketsProfitably increase share in existing markets1
Grow e-commerce capabilities to adapt to an increasingly digital selling environment3
Size (1) Key Competitors Key Industry Trends Actions Taken to Increase Share
61% of Net Sales
Retail Foodservice Retail and foodservice channels are moving to e-commerce
Opportunity to leverage digital capabilities across channels as more buying occurs online
Foodservice end customers experiencing traffic declines, offset by takeout / delivery
e-commerce investments starting in 2017 have enabled Libbey to meet online purchase demand
Now have flexibility to sell directly on Amazon at Prime speed or sell to Amazon / retailers (where retailer pays last-mile freight)
Honing e-commerce selling model toward margin-accretive outcomes
19% of Net Sales
Geopolitical instability in a number of markets
Competition from China increasing as tariffs make U.S. market less viable
Centralizing supply chain planning to enhance benefits of low-cost production center
Maintaining competitiveness via breadth of distribution, scale of manufacturing capabilities
17% of Net Sales
Overcapacity enhanced by government support of manufacturing industries
Financial distress of key competitors has recently destabilized price environment
Seeing decline in mid-tier retailers, with shift toward discount and online retailing
Growth in beverageware from breweries and distilleries
Completed an extensive program in 2017 to reposition EMEA operations and customer profitability profiles
Shifting Holland production capabilities to diversify product assortment and to take advantage of growing demand in B2B channel
3% of Net Sales
Overcapacity enhanced by austerity measures, reducing demand for high-end tableware and dining
Low-cost producers now impacted by tariff regime
Announced exploration of strategic opportunities for China business in February 2019
Increasingly sourcing outside of China
Aiming to Profitably Increase Market Share1
(France)
(U.S.)
(U.S.)
(Turkey)
(China)
(Colombia) (Brazil)(Mexico) (Spain)
(Turkey) (France)(Turkey)
(Spain) (Italy)
(Thailand)(China)
(U.S.)
(France)
(Italy)
(Finland)
(U.S.)
__________________1. Based on segment contribution to net sales for the year ended December 31, 2018. Asia figure represents Other segment.
Asia
U.S
. & C
anad
aLa
tAm
EMEA
By focusing on our largest and most profitable region, we have driven +6.9% increase in EBIT in 1H 2019
Targeting Growing Markets in Healthcare and Hospitality
$4,249 $4,604 $4,998 $5,414 $5,891
2018 2019E 2020E 2021E 2022E
2
Global Hospitality Industry Provides New Vector for Expansion (3)
__________________1. American Senior Housing Association.2. U.S. Census Bureau.3. Hospitality Investment Global Outlook Industry Report, March 2019, The Business Research Company.
($ in billions)
Global hospitality industry is expected to grow from $4.2 trillion in 2018 to $5.9 trillion in 2022E, representing a CAGR of 8.5%
78% of consumer spend in the hospitality industry globally are spent on food and beverage services, with the other 22% spent on non-residential accommodation services
North America hospitality industry accounted for 25.3% of the global market in 2018, or approximately $1.1 billion in size, and is expected to grow at a 5.0% CAGR from 2018 to 2022E
Libbey’s trackable net sales in hospitality grew at a 21% CAGR from 2015-2018
Healthcare sector in foodservice channel is seeing rapid expansion given demographic shifts in the U.S.
Aging population is driving demand for more senior housing options, including retirement communities and other institutional hospitality providers
U.S. will need more than 3 million senior housing units by 2040, about 2 million of which need to be constructed (1)
4656
7482
8898
14.5% 16.8%20.6% 21.7% 22.1% 23.6%
2014 2020E 2030E 2040E 2050E 2060E
65+ U.S. Population65+ as a % of Total U.S. Population
(Population in millions)
Healthcare Segment in Foodservice Expected to Grow
Population by Age in the United States (2) Global Hospitality Market (3)
Innovation is Aiding New Penetration in Healthcare Foodservice2
Intuitive™ Diningware Designed to Service Specialized Needs of Senior Living Facilities
In August 2018, launched Intuitive™ Diningware line designed to meet the specialized needs required by Senior Living Facilities (1)
Dining experiences are a top factor that influence the decision on senior living facility choices (2)
Product line incorporates subtle design elements that make dining easier for those with limited strength, coordination, or eyesight, with features that make items easier to hold, see, and keep warm longer
Product line includes Constellation™, the first-ever porcelain dinnerware with Microban® (3) technology
Technology delivers 24/7 antimicrobial product protection, effective against a broad spectrum of bacteria that cause stains, odors and product degradation
Six Key Aspects of Product Curation and Design
EMOTION
GRIP
VISION
SAFETY
DIETARY
COORDINATION
Elements that help mitigate safety risks
Added contrast and other visual cues for the visually impaired
Easier to hold for those with limited mobility and strength
Designed to be easier to use and keep steady for those with impaired motor skills
Ideally suited for those with special nutritional or digestive requirements
Inclusive and inspiring presentations that encourage happiness, belonging andlively socialization
1 2
3
4
6
5
Product Overview
__________________1. Defined as Independent Living Facilities, Assisted Living Facilities, Skilled Nursing Facilities (Traditional Nursing Homes), and Acute Care (Hospital) Facilities.2. Per Senior Housing News.3. Microban® is a registered trademark of Microban Products Company.
Investments of $12.1 million in 2017 and $6.5 million in 2018 helped to build new technology, marketing and distribution capabilities to support e-commerce
Investments in retail channel expected to break even on a run-rate basis by the end of 2019 and become accretive in 2020
Established a dedicated in-house e-commerce team in 2018 to scale operations cost effectively
Seeing early affirmation of strategy, with +70% growth in net sales on Amazon YTD Q2 2019 vs. prior-year period:
3PL at 99% on-time shipping and 98% on-time delivery in the U.S.
Improvements in content, imagery, ratings & reviews, and superior service levels, have led to a YTD Q2 2019 conversion rate of 10% vs. 6% for the prior-year period (1)
Extending e-commerce capabilities in Europe in 2019 and then to Latin America in 2020
Goal is to have e-commerce sales represent over 20% of U.S. & Canada Retail net sales by 2021
Investments in e-commerce increasingly applicable to foodservice channel as more customers shift to online buying
Ability to leverage digital reach to influence foodservice end users
Actions Taken to Build Platform Online Selling Model
Building an e-commerce Platform to Adapt to Changes in Retail3
Manufacturing
Sold By
Inventory Held / Fulfillment
Last-Mile Freight
Libbey is increasingly moving towards the Blended Model, yet still will useSeller and Vendor Models selectively where margin-accretive
LTM e-commerce Revenue as a % of U.S. & Canada Retail Net Sales
12.1%
12.6%12.8%
Q4'18 LTM Q1'19 LTM Q2'19 LTMof U.S. & CanadaRetail Net Sales
13.2%
__________________1. Per Stackline.
Role
In Q2 2019…e-commerce generated
Seller Model Vendor Model Blended Model Blended Model
Amazon Other E-Retailers
Retailer
Retailer
U.S. & Canada Latin America EMEA Asia & Other
Ove
rvie
w
One glass manufacturing plant in Toledo, OH and one in Shreveport, LA
Actions taken with net effect to reduce furnace capacity in Shreveport, LA
Aligning assets to market by redirecting lines in the U.S. toward high-velocity SKUs and migrating SKUs with higher labor content to lower-cost production centers
One glass manufacturing plant in Monterrey, Mexico
Lowest cost supply center with largest volumes globally
Cost-efficient production capabilities include hand-blown glass items for the U.S. retail channel
Ability to manufacture borosilicate items
One glass manufacturing plant in theNetherlands and one in Portugal
Consolidated furnaces in the Netherlands in 2017 to right-size capacity
Furnace in Netherlands uses fuel-efficient OptiMelt® technology that reduces emissions
One glass manufacturing plant in Langfang, China
Announced exploration of strategic alternatives in February 2019
Strategically located near new airportsouth of Beijing
Clean technology allows plant to run even on “Blue Sky” days
Initi
ativ
es
Extending asset lives with SmartMelter® technology, used to monitor furnace performance and wear, enabling more accurate determination of when to conduct rebuilds
Assessing sale / leaseback options in select geographies to free up capital
2018
EBIT
$38.0 million / 7.9% margin (1)(2) $12.6 million / 8.5% margin $7.2 million / 5.2% margin $1.9 million / 6.8% margin
2018
EB
ITD
A (1
)
$51.4 million / 10.6% margin (1)(2) $30.1 million / 20.3% margin $14.6 million / 10.6% margin $6.3 million / 22.8% margin
__________________Note: Segment financial information excludes corporate expenses. 1. Please see Appendix for definitions of non-GAAP measures and a reconciliation to the most directly comparable U.S. GAAP measure.2. U.S. & Canada includes non-recurring adjustments for the income statement impact of e-commerce. ERP investments are allocated to Corporate segment.
Proactively Optimizing Fixed Asset Utilization and CapacityCurrent Manufacturing and Distribution Footprint
4
Langfang, ChinaMarinha Grande, Portugal
Leerdam, Netherlands
Monterrey, MexicoLaredo, TX Shreveport, LA
Toledo, OHWest Chicago, IL
7 Million TotalSquare Feet
6 ManufacturingFacilities
8 Warehousing / Distribution Centers
64% of Square Footage is Owned, 36% is Leased
Furt
her-
Adj.
Efficient Asset Utilization is Driving Financial Profitability4Profitability in U.S. & Canada is Already Meaningfully Improved
Further-Adjusted Segment EBIT in Constant Currency (1)(2)
Segment 1H2018 1H2019 Change
U.S. & Canada% Margin
$18.98.0%
$27.211.4%
+ 44.0%+339 bps
Latin America% Margin
$9.612.8%
$5.37.7%
(44.4%)(510 bps)
EMEA% Margin
$3.65.1%
$2.74.2%
(25.1%)(96 bps)
Other% Margin
($0.5)(3.4%)
($1.6)(11.6%)
(240.3%)(823 bps)
Corporate ($14.7) ($15.6) (5.8%)
Consolidated% Margin
$16.84.3%
$18.04.7%
+ 6.9%+40 bps
__________________1. Please see Appendix for definitions of non-GAAP measures and a reconciliation to the most directly comparable U.S. GAAP measure.2. Reflects non-recurring adjustments for the income statement impact of e-commerce and ERP investments.3. Reflects the midpoint of the expected cost savings from the organizational realignment plan announced August 27, 2019.4. Reflects estimated impact to ROIC from including the midpoint of the expected cost savings from the organizational realignment plan announced August 27, 2019.
($ in millions)
Efficiency initiatives delivered significant margin improvement in core markets, where management is first focusing efforts
Success is Exhibited Through Improving ROIC (1)
Extending fixed asset lives Centralizing inventory management Streamlining internal systems (IT & processes) Upside expected from ERP rationalization
4.1%4.3%
4.0%
4.5%
6.0%
7.5%
2018 Q2'19 LTM 2019E
Reported Further Adjusted Target Range
(2)
(3)(4)
(2)(3)
(1)
6.0%
Overview of Organizational Realignment Cost Savings
Costs Savings By Category
Item OpEx SG&A Total Savings
Current Workforce Reductions, Net
$3.0 - $3.6 $4.2 - $5.2 $7.2 - $8.8
Run-Rate Workforce Cost Structure Changes, Net
($0.4) - ($0.5) ($0.9) - ($1.7) ($1.3) - ($2.2)
Other Expense Reductions $0.2 - $0.3 $2.9 - $4.1 $3.1 - $4.4
Total $2.8 - $3.4 $6.2 - $7.6 $9.0 - $11.0
On August 27, 2019, Libbey announced an organizational realignment plan that is expected to reduce annual pre-tax, run-rate costs by approximately $9 - $11 million
Reflects transition to a global, functionally-aligned organization with centralized manufacturing and supply chain operations, unified by core digital capabilities
Immediate cost savings will come from two actions, expected to be communicated and/or actioned by the end 2019:
~80% from current workforce reductions, net of planned promotions
~20% from other expense and overhead reductions
Run-rate structural changes to the workforce, expected to be substantially completed by the end of Q2 2020, include:
Elimination of positions that were previously filled or are currently open
Addition of positions to align the organization to the market and effectively manage key operational initiatives
One-time cash costs to achieve of approximately $2.5 to 4.5 million and one-time non-cash costs of approximately $2.0 to $2.5 million will be recognized in 2019
Initiatives Overview
Management expects to deliver $9 - 11 million inpre-tax, run-rate cost savings by the end of 2019
Improving Profitability and Streamlining Operations5
($ in millions)
Financial Performance Review
$70.6 $71.0($13.9)
($10.4)($19.4) ($15.2) ($1.7)
$111.6
$2.6$14.5 $2.9
2016Adj. EBITDA
First Cut Margin StrategicInitiatives
Operating Other 2017Adj. EBITDA
First Cut Margin StrategicInitiatives
Operating Other 2018Adj. EBITDA
___________________________1. Please see Appendix for definitions of non-GAAP measures and a reconciliation to the most directly comparable U.S. GAAP measure.
2016 - 2018 Adjusted EBITDA (1) Bridge
First Cut Margin Strategic Initiatives Operating Other
Understanding Libbey's Historical Financial Performance
A B C D
A B C D B D
First cut margin refers to the impact of changes in sales price, volume, and product mix
2017 impacted by adverse pricing environment in USC and mix shift towards B2B and non-glass products
2018 regained with normalizing competitive backdrop in USC and successful price increases in RoW, offset by mix shift towards B2B and non-glass products
($ in millions)
(1) (1)(1)
A C
Represents EBITDA impact of investments made in e-commerce and ERP
Net spend in 2018 was ($7.5) million vs. ($10.4) million in 2017, resulting in positive $2.9 million variance Y-o-Y
e-commerce began generating revenue and a positive contribution margin in Q1 2018; run-rate EBIT expected to be positive by year-end 2019
Reflects EBITDA impact of direct input costs, impact of down-time from furnace rebuilds, and logistics costs
2017 primarily impacted by increased production costs (raw materials, labor, maintenance)
2018 reflects higher cost of downtime from rebuilds in USC, offset by greater manufacturing efficiency as operating initiatives begin
Reflects EBITDA impact from natural gas hedges and currency translation
2017 benefited from $2.1 million in positive currency impact
2018 reflects only modest currency impact offset by a change in hedge accounting treatment
$116 $112
$71 $71 $67
$10 $3 $12
$81 $74 $79
14.1% 14.1%
10.3% 9.2% 10.1%
2015 2016 2017 2018 Q2'19 LTM
Adjustments Further-Adj. Margin as a Percentage of Net Sales
$70$84
$45$37
$37
$43
2015 2016 2017 2018 Q2'19 LTM
___________________________1. Please see Appendix for definitions of non-GAAP measures and a reconciliation to the most directly comparable U.S. GAAP measure.2. Reflects non-recurring adjustments for the income statement impact of e-commerce and ERP investments.3. Reflects the midpoint of the expected cost savings from the organizational realignment plan announced August 27, 2019.4. Cash flow from operations adjustment illustratively applies a 35% tax rate to organizational realignment cost savings to estimate impact.
$200$170 $154 $155 $155
24.3% 21.4% 19.7% 19.4% 19.8%
2015 2016 2017 2018 Q2'19 LTMMargin as a Percentage of Net Sales
Historical Financial ReviewGross ProfitNet Sales
Adjusted EBITDA (1) Cash Flow From Operations
$822 $793 $782 $798 $784
2015 2016 2017 2018 Q2'19 LTM
($ in millions) ($ in millions)
($ in millions) ($ in millions)
(2) (2) (2)(3)
(3)(4)
($ in millions)
Net Sales Y-O-Y Change Y-O-Y Constant Currency (2)
$206.2 (3.5 %)(2.5 %)
$381.1 (3.6 %)(2.3 %)
Gross ProfitY-O-Y ChangeY-O-Y Constant Currency (2)
Y-O-Y Margin Change
$46.7 +0.5 %+0.4 %
+90 bps
$80.7 +0.6 %+1.3 %
+90 bps
Adjusted IFO (2)
Y-O-Y ChangeY-O-Y Constant Currency (2)
Y-O-Y Margin Change
$15.9 +22.8 %+20.4%
+160 bps
$17.3 +14.5 %+13.8 %+70 bps
Adjusted EBITDA (2)
Y-O-Y ChangeY-O-Y Constant Currency (2)
Y-O-Y Margin Change
$25.3 (5.6 %)+4.4 %
(20 bps)
$35.0 (9.5 %)(2.8 %)
(60 bps)
Q2 2019 Quarter Highlights (1)
Second Quarter
2019
Second Quarter
2019
Six Months Ended June
2019
Six Months Ended June
2019
___________________________1. As provided in the Q2 2019 earnings presentation.2. Please see Appendix for definitions of non-GAAP measures and a reconciliation to the most directly comparable U.S. GAAP measure.
Key Financial Improvements Financial Summary
Gross profit improvement of 90 bps, a result of improved pricing, lower depreciation and solid operational execution
Disciplined SG&A spending; favorable $2.7 million or 8.1% vs. prior year
Adjusted Income from Operations (IFO) (2) improved 22.8% vs. prior year
4.4% expansion of Adjusted EBITDA (2), when adjusted for constant currency
Free Cash Flow (2) improvement of $12.9 million vs. prior year
New products drove approximately $14.3 million of sales, or 6.9% of net sales
e-commerce sales represented approximately 13% of total U.S. & Canada retail sales
Reported results do not reflect adjustments for non-recurring expenses or additional savings from the organizational realignment plan announced August 27, 2019
$26.8$25.3
$0.1 $3.5 $2.3 $0.2
($4.7)
($2.7) ($0.2)
Prior Year Impact of Sales Currency Benefit Related ManufacturingActivity
Shipping &Storage Activity
SG&A(excluding Benefits)
Other Adjusted EBITDA
$38.7
$35.0$3.1 $1.9 $0.5
($3.8)
($2.6)($1.0)
($1.8)
Prior Year Impact of Sales Currency Benefit Related ManufacturingActivity
Shipping &Storage Activity
SG&A(excluding benefits)
Other Adjusted EBITDA
Q2 2019 Adjusted EBITDA (1) vs. Prior Year
YTD Q2 2019 Adjusted EBITDA (1) vs. Prior Year
Q2 2019 Adjusted EBITDA (1) Bridge vs. Prior Year (2)
($ in millions)
($ in millions)
Healthcare ($0.8) Impact of Operating Downtime +$0.3
Impact of Operating Downtime +$0.3
___________________________1. Please see Appendix for definitions of non-GAAP measures and a reconciliation to the most directly comparable U.S. GAAP measure.2. As provided in the Q2 2019 earnings presentation.
(1)
(1)
Historical Capital ExpendituresCommentary Annual Capital Expenditures
Historically, intensity of capital investment was primarily driven by furnace and production equipment rebuilding cycle
Fiscal 2019 capex target of $35-$40 million$48
$35
$48$45
$42
2015 2016 2017 2018 Q2'19 LTM
($ in millions)
Year Key Capital Expenditures
2015 ~$30 million investment in ClearFire® capabilities in the Shreveport, Louisiana plant
2016 Reduced spending due to timing of furnace rebuilds
$20 million in cash flow allocated to debt repayment
2017
Capacity in the Netherlands reduced by shutting down two furnaces and rebuilding only one smaller furnace
One furnace rebuild in Mexico
$1.4 million in e-commerce capabilities
2018
Two furnace rebuilds in the U.S.: one in Toledo, Ohio, and one in Shreveport, Louisiana
Addition of tempering capacity in Mexico
Replaced manufacturing line in U.S. to align to market demand
$2.8 million in ERP investment
$178 $170$188 $192
79.0 78.2 87.7 87.9
2015 2016 2017 2018Days Inventory Outstanding
$94$85 $90 $84
41.9 39.2 42.0 38.4
2015 2016 2017 2018Days Sales Outstanding
$72 $72$78 $75
31.8 32.9 36.6 34.2
2015 2016 2017 2018Days Payable Outstanding
Historical Trade Working Capital (1)
($ in millions)
Accounts Receivable, Net
Inventory
($ in millions)
($ in millions)
Accounts Payable, Net
Trade Working Capital (1)
($ in millions)
$201$184
$200 $201
89.1 84.4 93.2 92.1
2015 2016 2017 2018Days Trade Working Capital Outstanding
___________________________Note: Dales Sales Outstanding, Days Payable Outstanding, Days Inventory Outstanding, and Days Working Capital are calculated using the last twelve months' net sales as the denominator and are based on a 365-day year.1. Please see Appendix for definitions of non-GAAP measures and a reconciliation to the most directly comparable U.S. GAAP measure.
Appendix
Appendix of Non-GAAP Definitions Adjusted EBITDA and Adjusted EBITDA Margin
U.S. GAAP net income (loss) plus interest expense, provision for income taxes, depreciation and amortization, and special items, when applicable, that Libbey believes are not reflective of our core operating performance
Adjusted EBITDA Margin is Adjusted EBITDA divided by net sales Adjusted SG&A and Adjusted SG&A Margin
U.S. GAAP selling, general and administrative expenses less special items that Libbey believes are not reflective of our core operating performance Adjusted SG&A Margin is Adjusted SG&A divided by net sales
Adjusted Income from Operations (IFO) and Adjusted Income from Operations Margin U.S. GAAP net income (loss) plus interest expense, provision for income taxes, other (income) expense, and special items, when applicable, that Libbey believes are not reflective of our core
operating performance Adjusted Income from Operations Margin is Adjusted Income from Operations divided by net sales
Constant Currency Constant currency references regarding net sales reflect a simple mathematical translation of local currency results using the comparable prior period’s currency conversion rate Constant currency references regarding Gross Profit, Gross Profit Margin, Adjusted IFO, Adjusted IFO Margin, Adjusted EBITDA and Adjusted EBITDA Margin comprise a simple mathematical
translation of local currency results using the comparable prior period’s currency conversion rate plus the transactional impact of changes in exchange rates from revenues, expenses and assets and liabilities that are denominated in a currency other than the functional currency
Debt, Net of Cash to Adjusted EBITDA Ratio Gross debt on the balance sheet plus unamortized discount and finance fees, less cash and cash equivalents, divided by last twelve months Adjusted EBITDA (defined above)
Free Cash Flow Sum of net cash provided by operating activities and net cash used in investing activities. The most directly comparable U.S. GAAP measure is net cash provided by (used in) operating activities
Further-Adjusted References regarding a financial measure being further-adjusted indicate that the financial measure has been adjusted to reflect non-recurring e-commerce investments, non-recurring ERP
investments, and, only for the twelve-month period ended June 30, 2019, the midpoint of estimated cost savings from organizational realignment plan announced August 27, 2019 Return On Invested Capital (ROIC)
Return On Invested Capital (ROIC) is defined as Adjusted Income from Operations (IFO) (defined above), tax-effected using a 35% tax rate, divided by ending Trade Working Capital (defined above) plus net book value of property, plant and equipment
Trade Working Capital Net accounts receivable plus net inventories less accounts payable
Adjusted EBITDA and Further-Adjusted EBITDA Reconciliation
__________________1. 2019 includes a non-cash goodwill impairment charge of $46.0 million in the Latin America segment and a $0.9 million non-cash impairment charge for a trade name in the EMEA segment. 2017 includes a non-cash goodwill impairment charge recorded in the Latin America segment.2. Other represents legal and professional fees associated with a strategic initiative in 2018, work stoppage in 2016, and an environmental obligation in 2015.3. Reflects the midpoint of the expected cost savings from the organizational realignment plan announced August 27, 2019.
($ millions) Fiscal Year Ended Six Months Ended LTM2015 2016 2017 2018 Q2 2018 Q2 2019 Q2 2019
Net income (loss) (U.S. GAAP) $66.3 $10.1 ($93.4) ($8.0) $1.0 ($48.3) ($57.3)Add:
Interest expense $18.5 $20.9 $20.4 $22.0 $10.5 $11.5 $23.0Provision (benefit) for income taxes (38.2) 17.7 15.8 10.3 4.0 5.0 11.2Depreciation and amortization 42.7 48.5 45.5 44.3 23.1 19.9 41.1
Add: Special items before interest and taxes:Reorganization / restructuring charges 4.3 - 2.5 - - - -Pension curtailment and settlement charges 21.7 0.2 - - - - -Impairment of goodwill and other intangible assets (1) - - 79.7 - - 46.9 46.9Product portfolio optimization - 5.7 - - - - -Executive terminations 0.9 4.5 - - - - -Other (2) 0.2 4.2 - 2.3 - - 2.3
Adjusted EBITDA (non-GAAP) $116.3 $111.6 $70.6 $71.0 $38.7 $35.0 $67.3
Add: Further AdjustmentsNon-recurring e-commerce investments - - $10.2 $1.2 $0.8 $0.1 $0.5Non-recurring ERP investments - - - 1.6 0.5 0.6 1.7Organizational realignment adjustments (3) - - - - - - 10.0
Further-Adjusted EBITDA (non-GAAP) $116.3 $111.6 $80.8 $73.7 $40.0 $35.7 $79.5
Net sales $822.3 $793.4 $781.8 $797.9 $395.4 $381.1 $783.5Net income (loss) margin (U.S. GAAP) 8.1% 1.3% (11.9%) (1.0%) 0.3% (12.7%) (7.3%)Adjusted EBITDA margin (non-GAAP) 14.1% 14.1% 9.0% 8.9% 9.8% 9.2% 8.6%Further-Adjusted EBITDA margin (non-GAAP) 14.1% 14.1% 10.3% 9.2% 10.1% 9.4% 10.1%
Calculation of Return on Invested Capital (ROIC) and Trade Working Capital
__________________1. 2019 includes a non-cash goodwill impairment charge of $46.0 million in the Latin America segment and a $0.9 million non-cash impairment charge for a trade name in the EMEA segment. 2017 includes a non-cash goodwill impairment charge recorded in the Latin America segment.2. Reflects non-recurring adjustments for the income statement impact of e-commerce and ERP investments.3. Reflects the midpoint of the expected cost savings from the organizational realignment plan announced August 27, 2019.
($ in millions) Fiscal Year Six Months Ended LTM2018 Q2 2018 Q2 2019 Q2 2019
Reported net income (loss) ($8.0) $1.0 ($48.3) ($57.3)Add: Adjustments
Plus: Interest expense $22.0 $10.5 $11.5 $23.0Plus: Provision of income taxes 10.3 4.0 5.0 11.2Plus: Other (income) expense 2.8 (0.5) 2.2 5.4Plus: Impairment of goodwill and other intangible assets (1) - - 46.9 46.9Plus: Fees associated with a strategic initiative 2.3 - - 2.3Plus: Reorganization charges - - - -
Adjusted income from operations (non-GAAP) $29.4 $15.1 $17.3 $31.6Adjusted income from operations margin (non-GAAP) 3.7% 3.8% 4.5% 4.0%
Add: Further AdjustmentsPlus: Non-recurring adjustments (2) $2.8 $1.3 $0.7 $2.2Plus: Organizational realignment adjustments (3) - - - 10.0
Further-adjusted income from operations (non-GAAP) $32.2 $16.4 $18.0 $43.8Further-adjusted income from operations margin (non-GAAP) 4.0% 4.1% 4.7% 5.6%
Factor to apply taxes 65% 65% 65% 65%After-tax adjusted income from operations (non-GAAP) $19.1 $9.8 $11.2 $20.5Further-adjusted after-tax adjusted income from operations (non-GAAP) $20.9 $10.6 $11.7 $28.4
Reported property, plant and equipment, net $265.0 $264.2 $256.9 $256.9
Accounts receivable $84.0 $100.9 $93.0 $93.0Inventories 192.1 200.8 202.6 202.6Less: Accounts payable (74.8) (80.7) (79.6) (79.6)
Trade Working Capital (non-GAAP) $201.2 $221.1 $215.9 $215.9
Total Invested Capital $466.2 $485.3 $472.8 $472.8
Return on Invested Capital (ROIC) (non-GAAP) 4.1% 2.0% 2.4% 4.3%Further-Adjusted Return on Invested Capital (ROIC) (non-GAAP) 4.5% 2.2% 2.5% 6.0%
($ in millions) Fiscal Year Ended December 31, 2018
USC LatAm EMEA Other Segment Total Corporate Consolidated
Segment Net Sales $483.7 $148.1 $138.4 $27.6 $797.9 - $797.9
Segment EBIT $36.8 $12.6 $7.2 $1.9 $58.5 ($34.2) $24.3% Margin 7.6% 8.5% 5.2% 6.8% 7.3% 3.0%
Add: Further Adjustments
Plus: Non-recurring e-commerce investments $1.2 - - - $1.2 - $1.2
Plus: Non-recurring ERP investments - - - - - 1.6 1.6Plus: Other (2) - - - - - 2.3 2.3
Further-Adjusted Segment EBIT (non-GAAP) $38.0 $12.6 $7.2 $1.9 $59.7 ($30.3) $29.4% Margin 7.9% 8.5% 5.2% 6.8% 7.5% 3.7%
Depreciation & amortization: 13.4 17.5 7.4 4.4 42.7 1.7 44.3
Further-Adjusted EBITDA (non-GAAP) $51.4 $30.1 $14.6 $6.3 $102.3 ($28.6) $73.7% Margin 10.6% 20.3% 10.6% 22.8% 12.8% 9.2%
Segment Financial Reconciliation
FY2018 Segment Financial Reconciliation
__________________1. Represents $31.9 million in retained corporate costs and $2.3mm in fees associated with strategic initiatives.2. Other represents legal and professional fees associated with a strategic initiative that was terminated during the third quarter of 2018.
(1)
($ in millions) Six Months Ended June 30, 2019
USC LatAm EMEA Other Segment Total Corporate Consolidated
Segment Net Sales $238.8 $68.6 $60.7 $13.0 $381.1 - $381.1Currency impact (0.0) (0.3) (4.1) (0.8) (5.3) - (5.3)
Constant Currency Segment Net Sales $238.8 $68.9 $64.9 $13.8 $386.4 - $386.4
Segment EBIT $27.1 $3.8 $2.7 ($2.3) $31.3 ($63.1) ($31.8)% Margin 11.3% 5.6% 4.5% (17.9%) 8.2% (8.3%)Currency impact (0.0) (1.5) (0.0) (0.7) (2.2) - (2.2)
Constant Currency Segment EBIT $27.1 $5.3 $2.7 ($1.6) $33.5 ($63.1) ($29.6)% Margin 11.3% 7.7% 4.2% (11.6%) 8.7% (7.6%)
Add: Further AdjustmentsPlus: Non-recurring e-commerce investments 0.1 - - - $0.1 0.0 $0.1Plus: Non-recurring ERP investments - - - - - 0.6 0.6 Plus: Other (2) - - - - 46.9 46.9
Further-Adjusted Segment EBIT (non-GAAP) $27.2 $5.3 $2.7 ($1.6) $33.6 ($15.6) $18.0% Margin 11.4% 7.7% 4.2% (11.6%) 8.7% 4.7%
Depreciation & amortization: 6.3 7.6 3.4 1.8 19.1 0.8 19.9
Further-Adjusted EBITDA (non-GAAP) $33.5 $12.9 $6.1 $0.2 $52.7 ($14.8) $37.9% Margin 14.0% 18.8% 9.4% 1.3% 13.7% 9.8%
Segment Financial Reconciliation in Constant Currency
Segment Financial Reconciliation for the Six Months Ended June 30, 2019
__________________1. Includes retained corporate costs in the amount of $16.2 million and impairment of goodwill and other intangible assets in the amount of $46.9 million.2. Other includes impairment of goodwill and other intangible assets in the amount of $46.9 million.
(1)
($ in millions) Six Months Ended June 30, 2018
USC LatAm EMEA Other Segment Total Corporate Consolidated
Segment Net Sales $236.4 $74.6 $70.4 $14.0 $395.4 - $395.4
Segment EBIT $18.1 $9.6 $3.6 ($0.5) $30.8 ($15.2) $15.6% Margin 7.6% 12.8% 5.1% (3.4%) 7.8% 3.9%
Add: Further AdjustmentsPlus: Non-recurring e-commerce investments 0.8 - - - $0.8 - $0.8Plus: Non-recurring ERP investments - - - - - 0.5 0.5
Further-Adjusted Segment EBIT (non-GAAP) $18.9 $9.6 $3.6 ($0.5) $31.6 ($14.7) $16.8% Margin 8.0% 12.8% 5.1% (3.4%) 8.0% 4.3%
Depreciation & amortization: 6.4 9.2 3.9 2.6 22.2 0.9 23.1
Further-Adjusted EBITDA (non-GAAP) $25.3 $18.8 $7.6 $2.2 $53.8 ($13.8) $40.0% Margin 10.7% 25.2% 10.8% 15.4% 13.6% 10.1%
Segment Financial Reconciliation in Constant Currency (Continued)
Segment Financial Reconciliation for the Six Months Ended June 30, 2018
__________________1. Includes retained corporate costs.
(1)
Free Cash Flow Reconciliation
Free Cash Flow
($ in millions) Three Months Ended Three Months EndedQ1 2018 Q1 2019 Q2 2018 Q2 2019
Net cash provided by (used in) operating activities (U.S. GAAP) ($13.1) ($23.9) $13.9 $24.7Net cash used in investing activities (U.S. GAAP) (11.3) (10.4) (10.1) (7.9)Free Cash Flow (non-GAAP) ($24.4) ($34.3) $3.9 $16.7
Q2 2019 Reconciliations
Reconciliation of Net Income (Loss) to Adjusted Income from Operations
__________________1. Includes a non-cash goodwill impairment charge of $46.0 million in the Latin America segment and a $0.9 million non-cash impairment charge for a trade name in the EMEA segment.
Reconciliation of Net Income (Loss) to Adjusted EBTIDAThree Months Ended
Q2 2018 Q2 2019
Reported net income (loss) (U.S. GAAP) $4.0 ($43.8)
Add:
Interest expense 5.5 5.9
Provision for income taxes 6.1 6.3
Depreciation and amortization 11.2 10.0
Add special item before interest and taxes:
Impairment of goodwill and other intangible assets (1) - 46.9
Adjusted EBITDA (non-GAAP) $26.8 $25.3
Three Months EndedQ2 2018 Q2 2019
Reported net income (loss) (U.S. GAAP) $4.0 ($43.8)
Add:
Interest expense 5.5 5.9
Provision for income taxes 6.1 6.3
Other (income) expense (2.6) 0.6
Add special item before interest and taxes:
Impairment of goodwill and other intangible assets (1) - 46.9
Adjusted Income from Operations (non-GAAP) $13.0 $15.9
