Slide 1: Creating Value at Sensient Technologies
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Creating Value at Sensient Technologies Change at Ferro – Path(NYSE: Corporation to Value SXT) Creation Presentation by: FrontFour Capital Group LLC March 25, 2014
Slide 2: Overview of FrontFour
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC RIDER 1 Overview of FrontFour FrontFour Capital Group LLC (together with its affiliates, “FrontFour”) is a value, event-driven investment manager which seeks to make passive investments in partnership with strong management teams and defensible business m
Slide 3: Overview of Sensient
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Overview of Sensient Sensient is a leading global manufacturer and marketer of colors, flavors and fragrances with operations in over 70 locations and in more than 35 countries Sensient is comprised of two key segments: the Flavors & Fragrances Group (“F&
Slide 4: Change Is Necessary At Sensient
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC RIDER 5 Change Is Necessary At Sensient Weak Operating and Financial Performance ― Despite increased capital expenditures and SG&A spending, operating income margins have declined within the F&F segment, and free cash flow has declined over the past 4 yea
Slide 5: Change Is Necessary At Sensient (cont'd)
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Change Is Necessary At Sensient (cont’d) Internal Conflicts Are Rampant ― Paul Manning, son of former CEO, Kenneth Manning, appointed CEO in February 2014 ― Overlap of Board members between Sensient and Sealed Air Corporation Long Tenure and Lack of Inv
Slide 6: Weak Financial Performance
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurWeak Financial Nominees are Performance Better 5
Slide 7: Weak Historical Financial Performance
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Weak Historical Financial Performance Even with strong tailwinds supporting its businesses, growth has been lackluster and margins have deteriorated Revenues SG&A (excl. R&D) 300 16.3% 16.3% 17% 2,000 16.0% Revenues ($mm) 5.1% CAGR 250 15.8% % of Revenues S
Slide 8: EBITDA Margins are Poor Compared to Direct Peers
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC EBITDA Margins are Poor Compared to Direct Peers 25.00% 2013 Average Peer EBITDA Margin ~21% 20.00% EBITDA Margins (% ) 17.45% 15.00% 10.00% 5.00% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 IFF Givaudan Symrise Sensient Source: Company Filings, Bloom
Slide 9: Sensient's Gross Margins Reflect Underperformance
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Sensient’s Gross Margins Reflect Gross Underperformance 55.00% 50.00% 45.00% Gross Margin (% ) 40.00% 2013 Average Peer Gross Margin ~43% 35.00% 32.55% 30.00% 25.00% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 IFF Givaudan Symrise Sensient Source: Com
Slide 10: Free Cash Flow Margins Below Peers
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Free Cash Flow Margins Below Peers 30.00% 25.00% Free Cash Flow / Revenues (% ) 20.00% 15.00% 10.00% 2013 Average Peer FCF Margin ~12% 5.00% 3.36% 0.00% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -5.00% IFF Givaudan Symrise Sensient Source: Company F
Slide 11: Poor Stock Performance
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurPoor Stock Performance Nominees are Better 10
Slide 12: 3-Year Annualized Stock Performance Vs. Company-Defined Peer Group
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC 3-Year Annualized Stock Performance Vs. Company-Defined Peer Group FrontFour Capital operates with a long-term investment horizon 80% and has taken into account Sensient's consistently poor, long- 70% term stock performance 60% 50% 40% Sensient Peer 3-Year
Slide 13: 5-Year Annualized Stock Performance
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC 5-Year Annualized Stock Performance It is clear that Sensient is not “executing a clear strategy to create 80% sustainable long-term shareholder value” as stated in Sensient’s 70% March 17th letter to shareholders 60% 50% 40% Sensient Peer 5-Year Annualized
Slide 14: Culture of Poor Returns
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurANominees Culture of are PoorBetter Returns 13
Slide 15: Return on Capital Metrics Are Poor
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Return on Capital Metrics Are Poor Underperforming metrics are concerning because intrinsic share value will not improve if the Company cannot earn its cost of capital Return on Equity (ROE) Performance 2009 2010 2011 2012 2013 Sensient ROE 10.0% 11.3% 11.9
Slide 16: Sensient DOES NOT Earn Its Cost of Capital
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Sensient DOES NOT Earn Its Cost of Capital Company has not provided guidance on expected returns and when combined with historical precedent, we assume that this trend will continue ― With a significant capex budget which is at the high end of the peer gr
Slide 17: Increased Capex + Poor ROIC = Continued Value Destruction
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Increased Capex + Poor ROIC = Continued Value Destruction Sensient has admitted fault in its poor return on its capital metrics, yet no improvements have been made and the trend has only worsened Investors continue to be left in the dark around the elev
Slide 18: Poor Balance Sheet & Cost Management
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurPoor Balance Nominees Sheet are & Cost Management Better 17
Slide 19: Balance Sheet is Sub-Optimally Managed
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Balance Sheet is Sub-Optimally Managed Significant cash is trapped in working capital as shown by Sensient’s inventory turnover of 2.3x versus the peer average of 3.0x ― We believe upwards of $150 million of cash is tied up in excessive inventory Inventor
Slide 20: Bloated Cost Structure
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Bloated Cost Structure Sensient has had a chronically inflated and inefficient cost structure Sensient has engaged in restructuring initiatives and spent significant shareholder dollars on capex over the past ten years which has not resulted in meaningful
Slide 21: Declining Margins Reflect A Lack of Cost Discipline
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Declining Margins Reflect A Lack of Cost Discipline 25.00% 20.00% EBIT Margins (% ) 15.00% 10.00% 5.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 F&F Colors Source: Company Filings, Bloomberg. Lack of execution and discipline hav
Slide 22: Culture Of Disconnect Between Pay And Performance
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurCulture Of Disconnect Nominees are Better Between Pay And Performance 21
Slide 23: A Culture of Execution Failures and Missed Targets
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC A Culture of Execution Failures and Missed Targets MANAGEMENT’S MISSED COMPENSATION TARGETS (2009-2013) Metric 2013 Result 2012 Result 2011 Result 2010 Result 2009 Result Consolidated EPS Passed Passed Passed Passed Passed Revenues N/A Failed N/A N/A N/A Ca
Slide 24: A History of Overpromising and Under Delivering
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC A History of Overpromising and Under Delivering Sensient’s Statement on F&F Margins: Richard F. Hobbs: “So we are nicely up into that 16% range. Certainly, as we look ahead to next year, we see ourselves operating there or above that range.” Bloomberg Q4 20
Slide 25: A History of Overpromising and Under Delivering (cont'd)
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC A History of Overpromising and Under Delivering (cont’d) Sensient’s Statement on Return on Equity (ROE): Analyst: “Looking at the return on equity back in the early 2000s, you were 15, 16%, 14%. Do you think you'll get back to those sort of...? Kenneth Mann
Slide 26: A Culture of Excessive Compensation
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC A Culture of Excessive Compensation ($USD in millions) Compensation Incentive Multiple of Base Executive Officer Target Grade Base Salary Compensation (1) Salary Kenneth Manning 2013 75.0% $1.067 $5.065 4.7x 2012 40.0% $1.035 $4.604 4.4x 2011 60.0% $0.996 $
Slide 27: Sensient Pays Executives Significantly Above Peers
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Sensient Pays Executives Significantly Above Peers Compensation practices raise serious questions regarding Director independence $3,500,000 0.50% Avg. Executive Total Comp / Revenues (%) $3,000,000 0.40% Avg. Executive Total Comp ($ in USD) $2,500,000 0.30
Slide 28: A Culture Of Poor Governance At Sensient
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC A Culture Of Poor Governance At Sensient “…The CEO received above-target “…As such, the despite falling short bonus payouts and a significant of three out of five performance restricted stock grant at the same goals, the CEO received a payout at level as 20
Slide 29: A Culture Of Poor Governance At Sensient (cont'd)
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC A Culture Of Poor Governance At Sensient (cont’d) With regard to Sensient’s pay-for-performance: “…executive compensation received a D grade in our propriety pay-for-performance model…” “…The CEO was paid moderately more than the median CEO compensation of
Slide 30: Internal Conflicts Are Rampant
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurInternal NomineesConflicts Are Rampant are Better 29
Slide 31: Internal Conflicts Are Rampant
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Internal Conflicts Are Rampant Paul Manning, son of former CEO Kenneth Manning, became CEO effective February 2014 We believe that the Company never ran an unbiased search process for a new CEO, as Ken had for years hand-chosen Paul to succeed him ― We no
Slide 32: Sensient's Overlapping History with Sealed Air Is Concerning
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Sensient’s Overlapping History with Sealed Air Is Concerning Interlocking director relationships In 2002, Kenneth Manning joined the board of Sealed Air where he served alongside current Sensient directors William Hickey and Hank Brown ― Hickey was CEO an
Slide 33: Long Tenure & Lack of Investment Risk
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurCurrent Board: Nominees are Long BetterTenure & Lack of Investment Risk 32
Slide 34: The Board of Directors Is Stale And Lacks Relevant Skills
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC The Board of Directors Is Stale And Lacks Relevant Skills Average tenure of the current Board member is 13 years ― Excluding new CEO, Paul Manning, the average tenure is a staggering 14 years Most directors do not possess a technical food sciences or a
Slide 35: Independent Directors Lack Any Real Ownership In Sensient
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Independent Directors Lack Any Real Ownership In Sensient Are the interests of the current Board truly Shares Held aligned with all shareholders? Director Outright(1)(2) % of Outstanding Shares Kenneth Manning 272,630 5% Hank Brown 19,089 4% Edward H. Cichu
Slide 36: Directors Are Compensated Lavishly
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Director Are Compensated Lavishly Directors’ deferred compensation plan offers an egregious, guaranteed return The deferred compensation plan allows directors to defer fees into investment accounts which guarantee a rate of return of 8% through term of di
Slide 37: Key Executives Are Short-Term Investors
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Key Executives Are Short-Term Investors Stock and option sales by Management and the Board are concerning $0 ($10,000,000) ($20,000,000) ($30,000,000) Cumulative Stock Sold ($40,000,000) ($50,000,000) ($60,000,000) ($70,000,000) 2004 2009 2013 Source: Bloom
Slide 38: Our Board Is Reactive, NOT Proactive
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurBoard Is Reactive, Nominees NOT Proactive are Better 37
Slide 39: The Company Lacks Urgency and a Plan of Action
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC The Company Lacks Urgency and a Plan of Action New CEO, Paul Manning, states: “Well, specific to restructuring, we don’t have any plans specially for 2014 at this time, but really like any good company, we’re always looking to make improvements and I think
Slide 40: Recent Pressure From FrontFour Has Led To Reactionary Changes
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Recent Pressure From FrontFour Has Led To Reactionary Changes Strategic Initiatives Sensient’s Actions Post-FrontFour Involvement Restructuring initiatives to achieve $20-$25 million annual cost savings Cost We have significant concerns in management’s ab
Slide 41: Board Of Directors Needs To Change
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Board Of Directors Needs To Change Incumbent Reasons for Change Nominee James A.D. • Director since 1997 (17 year tenure) Croft • Chairman of Compensation Committee - should be held accountable for disconnect between pay and (Age: 76) performance • Recently
Slide 42: Our Nominees Are Better
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurOur Nominees Nominees areAre Better Better 41
Slide 43: Our Nominees: Have the Relevant Skills To Maximize Shareholder Value
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Our Nominees: Have the Relevant Skills To Maximize Shareholder Value James • Substantial Executive and Financial Experience, Particularly in Restructuring Henderson • Significant Public Company Board Experience (Age: 56) • Operator and Investor Perspective
Slide 44: James Henderson
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC James Henderson Significant CEO experience: ― Interim CEO of School Specialty since August 2013 ― Acting CEO of ECC International Corp. from July 2002 until March 2003 ― CEO of WebBank, a wholly-owned subsidiary of Steel Holdings, from November 2004 to Ma
Slide 45: James Hyman
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC James Hyman Relevant Industry Experience: Currently serving as the President and Chief Executive Officer of TestAmerica Laboratories, Inc., the nation’s largest laboratory network providing advanced testing services at over 90 locations in the U.S. and gl
Slide 46: Stephen Loukas
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Stephen Loukas Significant Financial and Investment Experience: Mr. Loukas is Partner and Portfolio Manager of FrontFour Capital Group LLC and FrontFour Capital Corp ― Started career at Zolfo Cooper, a financial restructuring firm, where he assisted corpo
Slide 47: William Redmond
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC William Redmond Industry Experience: ― Previously served as Chief Executive Officer and a director of General Chemical Corporation, a manufacturer of performance chemicals ― Also served as CEO of GCC’s publicly-traded predecessor, GenTek Inc. Significan
Slide 48: FrontFour's Plan For Value Creation
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurFrontFour’s NomineesPlan are For Value Creation Better 47
Slide 49: FrontFour's Nominees Will Seek To Address the Fundamental Issues At Sensient
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC FrontFour’s Nominees Will Seek To Address the Fundamental Issues At Sensient EXECUTION CULTURE GOVERNANCE Board has not driven Nepotism throughout the Board reactionary to address improvement across organization has created a shareholder concerns Sens
Slide 50: Aggressive Cost Actions and Discipline is Needed
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Aggressive Cost Actions and Discipline is Needed Gross profit margins and SG&A costs must be improved through aggressive actions over the next 24 months: ― Cost structure improvement of at least $75 million; Sensient’s cost structure should be at least ~300
Slide 51: Sensient's Culture Must Be Changed
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Sensient’s Culture Must Be Changed Perform a thorough strategic evaluation of the Company's businesses: Full understanding of industry structure and competitive positioning on both the Colors and F&F segments Understand drivers behind underperformance o
Slide 52: Appendix
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC OurAppendix Nominees are Better 51
Slide 53: How Did We Select Our Comparative Peer Group?
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC How Did We Select Our Comparative Peer Group? The Company’s self-defined peer group as indicated in their proxy includes Aceto, Albemarle, Cabot, Cambrex, Church & Dwight, Elizabeth Arden, FMC, H.B. Fuller, IFF, McCormick, Minerals Technologies, Nu Skin,
Slide 54: Disclaimer
NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC Disclaimer THIS PRESENTATION IS FOR DISCUSSION AND GENERAL INFORMATIONAL PURPOSES ONLY. IT DOES NOT HAVE REGARD TO THE SPECIFIC INVESTMENT OBJECTIVE, FINANCIAL SITUATION, SUITABILITY, OR THE PARTICULAR NEED OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS PRES