Baird Industrial Conference Baird Industrial Conference
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Baird Industrial Conference November November 7, 7, 2006 2006 Forward-looking statement Statements in this presentation that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements about our business outlook, assessment of market conditions, projected strategies, future plans, future sales, expectations about price levels for our major products and our major suppliers, predictions concerning inventory levels, capital spending and tax rates. These forward-looking statements are not guarantees of future performance. They are based on management’s expectations and assumptions that we believe are reasonable at the current time but involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. 2 Company Overview Forestry based business operating through two business segments $670 million in revenues – Last twelve months 3500 Employees 9 Manufacturing Facilities/8 Sales Offices Sales in over 100 countries 3 Company Overview Blount International LTM Sales (mm) (1): LTM EBITDA (mm) $670 $122 Margin 18.2% Outdoor Products Group (“OPG”) Industrial Power & Equipment Group (“IPEG”) LTM Sales (mm): LTM EBITDA (mm): $453 $109 LTM Sales (mm): LTM EBITDA (mm): $ 217 $23 Margin 24.1% Margin 10.6% • • Oregon Cutting Systems – Saw chain, bar & accessories, outdoor equipment parts ICS – Diamond cutting chain and saws for concrete industry • Forestry & Industrial Equipment – Timber harvesting equipment • Gear Products – Rotational bearings, gear components (1) Continuing operations excludes lawnmower segment – Sold July 2006 4 Outdoor Products Group Market leader in sales of chain saw components – Estimated worldwide market share in excess of 50% Channel and Geographic Diversity – 66% of sales to international markets – Solid long-term relationship with both OEM’s and distributor/dealer channels High Margin Recurring Revenue Stream – Replacement sales comprise 71% of segment’s business – EBITDA margins of 24% over last twelve months – Historical low cost producer Innovation drives growth – New product focus – Expansion of concrete cutting products 5 Oregon Cutting Systems Market Shares Market Leader * Guide Bar Market Saw Chain Market Oregon Oregon Other Other Husqvarna Carlton Stihl Stihl * Company Estimates 6 Oregon Cutting Systems - Distribution Broad Distribution * Geographical Diversity * Mass Merchants 9% Distributors 53% United States 34% Latin America 9% Far East 3% Canada 4% OEM's 30% Dealers 8% S.Asia/Pacific 10% * As a percentage of 2006 sales through September 30 Europe 40% 7 Outdoor Products Group Earnings Growth and Stability Large and growing base of installed chain saws – Installed base is estimated to be 60mm – CAGR of saws estimated to be 7% since 2000 – Geographical base of OPG sales aids stability • Not tied directly to USA pulp/paper/wood products • 66% of sales outside USA Majority (71%) of sales into replacement market – Consumed and replaced rapidly – Estimate that professional logger will replace chain every 10 days OPG Sales and EBITDA Margins $ in MM $500 $423 $452 $453 $359 $400 $308 $307 40% 35% $307 $300 30% $200 27.3% 26.4% 27.4% 26.1% 25.4% 26.7% 24.1% $100 25% 20% $0 2000 2001 2002 2003 2004 2005 LTM – Higher margin sales to OEMS 8 Outdoor Products Group Low-cost operator in industry Corporate culture focused on low cost manufacturing and high quality products – 20+ years of Total Quality Management Expansion/capital commitment to low cost countries – Entered Brazil in 1979 • Expanded in 2001/2005 – China entered 2004 – New plant • 70% of ramp up completed by year-end 2006 • Chain/Bar/IPEG components • Adds capacity at lower cost Committed to continuous cost improvement – Warehousing/logistics – China expansion – ERP driven productivity 9 Outdoor Products Group Innovation - ICS ICS is a strategic growth unit of BLT Sell specialty Concrete Saws (40% sales; ~$1500 price point) and replacement Diamond-Segmented Chain (60% sales; ~$300 price point) Markets/Users – Construction – Concrete & Stone Cutting Distribution – Multiple Brand/OEM Channels – 40% International Strong Intellectual Property & Product Pioneer – Multiple Patents & Trademarks – Future Pipeline with New Power Sources – Market Awareness & Education Emphasis 10 Industrial & Power Equipment Group A leading North American manufacturer of purpose built timber harvesting equipment – Products primarily sold in southeast U.S. – Gear Products subsidiary manufactures rotational bearings for equipment manufacturers Operates 3 manufacturing facilities in the U.S. – Focus on lean manufacturing – Successfully closed and consolidated two manufacturing facilities Distribute products to dual distribution network – Prentice products sold to Blount affiliated dealers – Caterpillar products sold to Caterpillar affiliated dealers International opportunity for expansion – Leverage Caterpillar alliance – Purchase of Swedish harvesting head manufacturer in 2006 11 Industrial & Power Equipment Group International Opportunity Timber Harvesting Equipment % of FIED Sales Market Share Deere International Other Tigercat Komatsu Blount / CAT North America North American Market International Market size Size - Estimate $1.1 Billion Size - Estimate $1 Billion 12 Blount / Caterpillar Alliance Dealers (7 Models) Shared Product Portfolio 20 Models Dealers 25 Models (13 Models) Strengthens position in forestry equipment market − Expands distribution channels and product portfolio Shares cost of R&D and Capex Increases international sales opportunity $48 million in sales generated through these agreements (LTM) Added international dealers since 2003 13 Industrial & Power Equipment Segment Adjusted EBITDA and Margins $ in MM 13.9% 35 $32 30 25 2.5% 20 15 10 $4 5 0 1998 1999 9.1% 11.3% $25 12.3% $31 16% $23 6.8% 3.3% 10.6% 11% $15 2.5% 6% $9 $5 1% $3 EBITDA Margin -5% 2000 2001 2002 2003 2004 2005 LTM IPEG performance today dependent on North American timber market – Housing starts, pulp/paper/lumber prices, GDP Aggressively manage costs to weather downturns – Plant closure/employee reduction 2001 – Plant closure August 2006 – Lean manufacturing efforts Expand international business to hedge against North American cycles – Outdoor products model 14 Financial Overview Financial Strategy • Priority has been to reduce outstanding debt and leverage of Blount Leverage $ in MM 650 7.0x $610 6.0x 575 5.0x 500 4.0x 425 $377 3.0x 350 2.0x 275 1.0x 200 0.0x 12/31/03/Debt outstanding Refinancing Total Debt Net free cash flow Repatriation of funds Sale of Dixon 9/30/06 Outstanding debt Leverage 15 Financial Overview Financial Strategy Priority remains to de-lever balance sheet – Cash flow from operations – CAPEX for capacity and productivity Strategic acquisitions only where leverage and synergies make sense – Debt/EBITDA leverage <4.25x – Complement core business – Distribution synergies Reduce costs/improve operations efficiencies – China plant – Pension redesign – IPEG closure – Leverage ERP – Logistics/warehouse opportunities – Back office efficiencies 16 Solid revenue growth over time Core OPG segment (68% of LTM sales) has grown at 8.5% CAGR since 2001 $ in MM 10.0 CAGR 800 % $703 $670 $251 $217 $423 $452 $453 2004 2005 LTM 9/30/06 $645 700 $523 600 500 $426 $221 $434 $165 400 $121 $132 300 200 $307 $307 2001 2002 $359 100 0 2003 OPG IPEG ___________________________ Note: Pro forma for the sale of the Sporting Equipment Group in December 2001, sale of lawnmower in July 2006 17 Strong EBITDA performance Strong cash flow generator throughout the economic cycle EBITDA % of Sales $ in MM 10.5 CAGR $150 % 25% $129 $134 $122 $125 $98 $100 $76 $80 20.0% $75 $50 17.9% 20% 19.1% 18.7% 18.3% 18.2% $25 $0 15% 2001 2002 2003 2004 2005 ___________________________ Note: Pro forma for the sale of the Sporting Equipment Group in December 2001, Lawnmower segment in July 2006. Excludes restructuring and other one-time expenses. LTM 9/30/06 18 Summary Blount is a global leader within the forestry equipment business – Worldwide share leader in saw chain and guide bars – Leading producer of purpose-built timber harvesting equipment Focused on consistent growth and cash flow generation – Recurring revenues from replacement sales – International expansion of IPEG opportunity – 2004 refinancing enables continued de-leveraging – Low cost producer – China/Brazil expansion, lean mfg. Opportunity for incremental growth – ICS initiative/new products – Bolt on Acquisitions 19
