Pitney Bowes Inc. · NYSE:PBI
Pitney Bowes — Investor Day (September 2006)
70 slides from Pitney Bowes's investor day presentation, Sep 13, 2006
Slide 1: 2006 Pitney Bowes Investor Update
2006 Pitney Bowes Investor Update Can you see the
Slide 2: Charles F. McBride, Vice President, Investor Relations
Charles F. McBride Vice President, Investor Relations
Slide 3: 2006 Investor Update Agenda
2006 Investor Update Agenda Time Minutes Topic Speaker
Slide 4: Forward-looking statements
The statements contained in this presentation that are not purely historical are forward-looking statements about our expected future business and financial performance Words such as “expect,” “anticipate,” “intend,” “estimate,” “project,” “plan,” and other similar words may identify forward looking
Slide 5: Non-GAAP measures
The Company’s financial results are reported in accordance with generally accepted accounting principles (GAAP). Management finds it useful at times to provide adjustments to its GAAP numbers. The Earnings Per Share and Free Cash Flow results are adjusted to exclude the impact of special items such
Slide 6: Michael J. Critelli, Chairman and CEO
Michael J. Critelli Chairman and Chief Executive Officer
Slide 7: Strategic Intent
Strategic Intent Grow and maximize profitability of core business Invest in low-risk adjacent spaces Grow revenue twice as fast as growth in SG&A Organic Revenue Growth 4% to 6% Earnings Per Share Growth 8% to 10%
Slide 8: 2006 Forecasted Revenue
Marketing Services $145 to $155 Management Services $1,085 to $1,095 Mail Services $370 to $380 International Mailing $1,010 to 1,020 Production Mail $570 to $580 US Mailing $2,340 to 2,360 Software $200 to $210 Create Produce Distribute Manage 2006 Forecasted Revenue
Slide 9: U.S. Mailing
U.S. Mailing Revenue = 41% EBIT = 68% Postal reform Channel management Multi-vendor services Financial services Supplies Growth Drivers Expected Organic Revenue Growth 2% - 3%
Slide 10: International Mailing
International Mailing Revenue = 18% EBIT = 14% Postal liberalization New products Financial services Small business Supplies Growth Drivers Expected Organic Revenue Growth 5% - 9%
Slide 11: Production Mail
Production Mail Revenue = 10% EBIT = 5% High-speed equipment Customized products Direct mail solutions Equipment for private postal companies Vertical market focus Growth Drivers Expected Organic Revenue Growth 3% - 8%
Slide 12: Software
Software Revenue = 3% EBIT = 2% Data integration Address management Document composition Business geographics Print management Growth Drivers Expected Organic Revenue Growth 8% - 15%
Slide 13: Management Services
Management Services Revenue = 19% EBIT = 6% Sales capabilities Off-site print utilization Vertical markets Higher value products Cross-selling Growth Drivers Expected Organic Revenue Growth 3% - 7%
Slide 14: Mail Services
Mail Services Revenue = 7% EBIT = 3% Standard mail sorting Greater presort discounts Postage discount program International mail services Retail solutions Growth Drivers Expected Organic Revenue Growth 9% - 13%
Slide 15: Marketing Services
Marketing Services Revenue = 2% EBIT = 2% Life event products Vehicle registration programs Campaign management Customer loyalty programs Sales incentive solutions Growth Drivers Expected Organic Revenue Growth 8% - 14%
Slide 16: Organic Revenue Growth
Organic Revenue Growth 2% to 3% 6% to 9% 28% Mailstream Services 2% to 3% 3% to 5% 72% Mailstream Solutions Total Growth 4% to 6% Improving EBIT Margin % of Total Growth Weighted Amount
Slide 17: Earnings Model
Earnings Model Organic Revenue Growth Net Income Growth Earnings Per Share Growth 4% to 6% 7% to 9% 8% to 10% 0% 2% 4% 6% 8% 10% 12%
Slide 18: Expansion Criteria
Strategic Consistent with brand image Fast growing market segment Adjacent space within mailstream Potential to be market leader Strong management team Significant revenue opportunities Return on investment over 10 percent Recurring revenue Not capital intensive Double digit organic growth Consisten
Slide 19: Forecasted Revenue Growth Rate
Marketing Services 8% to 14% Management Services 3% to 7% Mail Services 9% to 13% International Mailing 5% to 9% Production Mail 3% to 8% US Mailing 2% to 3% Software 8% to 15% Create Produce Distribute Manage Forecasted Revenue Growth Rate
Slide 20: Strategic Themes
Strategic Themes Expand and cultivate customer base Influence regulatory environment Drive margin expansion Expand into mailstream adjacencies
Slide 21: Murray D. Martin, President and COO
Murray D. Martin President and Chief Operating Officer
Slide 22: U.S. Mailing
U.S. Mailing As a percent of total Pitney Bowes Revenue EBIT 2004 2006 Forecast 2010 Forecast $2,500 45% 76% 41% 68% 36% 58%
Slide 23: U.S. Mailing Profile
U.S. Mailing Profile Moderate revenue growth Consistent margins Strong cash flow Good return on capital
Slide 24: U.S. Mailing Revenue – 2005
U.S. Mailing Revenue – 2005 Equipment Sales 27% Supplies Rentals Financing 8% 23% 28% Support Services 14%
Slide 25: U.S. Mailing Revenue Growth
U.S. Mailing Revenue Growth Recurring revenue provides consistent growth Recurring revenue stream increases as mix changes Growth levers are different for digital postage meters
Slide 26: Meter Migration
Meter Migration Longer transition period Higher leased vs. owned base Electronic to Digital 2003-2008 Phase 2 Mechanical to Electronic 1996-1999 Phase I 73% 6 Years 704,000 3 Years Transition Period 30% 665,000 % of Leased Equipment # Meters Average lease period 4-5 years
Slide 27: U.S. Mailing Margins
U.S. Mailing Margins Less incremental depreciation expense More remote service capabilities More channel diversification Declining R&D expense as a percent of revenue More operating efficiency and productivity
Slide 28: U.S. Mailing Growth – 2007
U.S. Mailing Growth – 2007 Customer Value in the Mailstream New Product and Service Offerings Cross-Selling
Slide 29: U.S. Mailing Growth – 2007: Customer Value
U.S. Mailing Growth – 2007 Customer Value in the Mailstream Approximately 1.3 million customers in the U.S. Aligning customer needs with appropriate channel
Slide 30: U.S. Mailing – Channel Diversification
U.S. Mailing – Growth in 2007 Channel Diversification Customer Value in the Mailstream Focus sales and service on complex accounts Use telesales for low volume mailers Continue to use Internet Fastest growing channel for small business solutions Continue to use direct mail
Slide 31: U.S. Mailing – Customer Segmentation
U.S. Mailing – Growth in 2007 Customer Segmentation Customer Value in the Mailstream Understand lifetime value of relationship Revenue Postage spend Transaction volumes Investment in CRM technology
Slide 32: U.S. Mailing – Customer Retention
90% customer retention rate after the first year Small business retention program for new meter customers Leverage unique solutions for competitive displacements U.S. Mailing – Growth in 2007 Customer Retention Customer Value in the Mailstream
Slide 33: U.S. Mailing – New Products and Services
U.S. Mailing – Growth in 2007 New Products and Services Adding Value in Existing Markets Financing and postage payment solutions Provide customers with greater value Create and grow small business markets New low volume meters Mail creation products Solutions selling Target marketing Cross-selling
Slide 34: U.S. Mailing – Penetrate High Growth Markets
Permit mail Financing solutions Package mail solutions Carrier shopping Inbound package management Presort discounts for meter customers U.S. Mailing – Growth in 2007 Penetrate High Growth Markets New Products and Services
Slide 35: U.S. Mailing – Supplies
Fast growing segment Now includes office supplies Single source provider for mailstream needs Acquisition of Print, Inc. Builds on supplies platform Leverages service network U.S. Mailing – Growth in 2007 Supplies New Products and Services
Slide 36: U.S. Mailing – Service Network
U.S. Mailing – Growth in 2007 Service Network New Products and Services Provides critical market intelligence Expanded service capabilities Multi-vendor services Print, Inc. acquisition Single-source provider to customer
Slide 37: U.S. Mailing – Next Generation
U.S. Mailing – Growth in 2007 Next Generation New Products and Services Integrate metering technology with business processes Expand technological architecture of digital mailing systems Example: Ohio Court System Network multiple mailing devices
Slide 38: U.S. Mailing – Cross-Selling
U.S. Mailing – Growth in 2007 Cross-Selling 80% of equipment customers on lease 70% are using postage payment products Marketing within vertical markets U.S. Mailing partners with: Management Services Production Mail Software Mail Services
Slide 39: Pitney Bowes: Engineering the flow of communication
=z PitneyBowes Engineering the flow of communication
Slide 40: Bruce P. Nolop, EVP and CFO
Bruce P. Nolop Executive Vice President and Chief Financial Officer
Slide 41: Financial Review
Financial Review
Slide 42: Revenue
$4,244 $4,440 $4,832 $5,367 $5,700 to $5,800 Revenue = Percent Growth 7.2% $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 2002 2003 2004 2005 2006 Forecast 4.6% 8.8% 11.1% 6% to 8%
Slide 43: EBITDA
$1,163 $1,395 $1,250 $1,133 $1,500 to $1,530 EBITDA* = Percent Growth $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2002 2003 2004 2005 2006 Forecast 4.2% 2.6% 7.5% 11.6% 8% to 10% *Excluding Items
Slide 44: EBIT
$874 $1,063 $944 $869 $1,160 to $1,180 EBIT* = Percent Growth $0 $200 $400 $600 $800 $1,000 $1,200 3.6% 0.6% 8.0% 12.6% 9% to 11% 2002 2003 2004 2005 2006 Forecast *Excluding Items
Slide 45: Interest Expense
$178 $164 $158 $188 $212 to $218 Interest Expense 2002 2003 2004 2005 2006 Forecast $0 $50 $100 $150 $200 $250 = Average Interest Rate 4.7% 4.4% 4.3% 4.7% 5.0%
Slide 46: Taxes
$235 $294 $261 $225 $325 to $335 Taxes* = Effective Tax Rate *Excluding Items $0 $50 $100 $150 $200 $250 $300 $350 2002 2003 2004 2005 2006 Forecast 32.5% 33.1% 33.2% 33.6% 34.5%
Slide 47: Net Income
$471 $571 $519 $459 $600 to $620 Net Income* = Percent Growth *Excluding Items $0 $100 $200 $300 $400 $500 $600 $700 5.2% 2.4% 10.3% 10.1% 6% to 8% 2002 2003 2004 2005 2006 Forecast
Slide 48: Average Shares Outstanding
241.5 236.2 234.1 231.8 ≈ 226.0 Average Shares Outstanding = Percent Reduction 2002 2003 2004 2005 2006 Forecast 2.5% 2.2% 0.9% 1.0% ≈ 2.6%
Slide 49: Earnings Per Share
$1.99 $2.46 $2.22 $2.66 to $2.72 $1.90 Earnings Per Share* = Percent Growth *Excluding Items 7.9% 4.7% 11.2% 11.1% 8% to 10% 2002 2003 2004 2005 2006 Forecast $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00
Slide 50: Free Cash Flow
Free Cash Flow* 2002 2003 2004 2005 2006 Forecast *Excluding Items $0 $100 $200 $300 $400 $500 $600 $700 $490 $540 $555 $543 $550 to $600
Slide 51: Debt/EBITDA
Debt/EBITDA* *Excluding Items 2002 2003 2004 2005 2006 Forecast 3.4x 3.1x 3.1x 3.0x ≈ 3.0x
Slide 52: Unlevered Return On Capital
Unlevered Return On Capital* *Excluding Items 15.4% 14.5% 13.6% 13.7% 2002 2003 2004 2005 2006 Forecast ≈ 14.5% 0% 5% 10% 15% 20%
Slide 53: Topical Updates
Topical Updates
Slide 54: Acquisition Portfolio
Acquisition Portfolio Cumulative Transactions 56 64 64 Investment (billions) $1.8 $1.9 $1.9 Revenue (billions) $1.3 $1.6 $1.8 Earnings Per Share 18 ¢ 22 ¢ 26 ¢ EBITDA (millions) $178 $210 $246 EBIT (millions) $139 $160 $194 2005 2006 2007
Slide 55: U.S. Pension Fund
U.S. Pension Fund 2005 2006 2007 Discount Rate 5.75% 5.60% 6.10% Pre-Tax Expense $22 $26 $23 Per Share Expense 6 ¢ 8 ¢ 7 ¢ PBO Unfunded $169 $152 $142 Accounting Impact n/a ($420) $18 ($ millions)
Slide 56: Tax Position
Tax Position $350 million payment in September 2006 $750 million to be paid in December 2006 Effective Tax Rate 33.6% 34.5% 34.5% Cash Tax Rate 22.7% 28.2% 31.7% Deferred Taxes (billions) $1.9 $0.5 $0.6 2005 2006 2007
Slide 57: Debt Structure
Fixed Rate Debt 63% Debt Structure Total Debt = $4.5 billion Floating Rate Debt 37% Average Interest Rate 2005 2006 2007 Total Debt 4.7% 5.0% 5.5% Preferred Stock 3.0% 4.7% 5.4%
Slide 58: Restructuring Program
Restructuring Program $0 $100 $200 $300 $400 Annual Benefits Cumulative Charges 2003 2004 2005 2006 $120 $280 $365 $400 $150 $120 $70 $25
Slide 59: Productivity Program
Productivity Program Business Process Reengineering Business Organizational Strategies Shared Services and Outsourcing Vendor and Expense Management Human Resource Management
Slide 60: 2007 Guidance
2007 Guidance
Slide 61: Earnings Per Share
Earnings Per Share *Excluding Items $0.00 $1.00 $2.00 $3.00 $4.00 2006 2007 2006 2007 $2.47 to $2.56 $2.90 to $2.98 $2.66 to $2.72* $2.90 to $2.98 Adjusted EPS GAAP EPS
Slide 62: Growth Rates
Growth Rates Total Revenue 5 to 8% Organic Revenue 4 to 6% EBITDA 7 to 9% EBIT 8 to 10% Net Income 7 to 9% Earnings Per Share 8 to 10%
Slide 63: Income Statement Margins
R&D D&A EBITDA EBIT 20.5% Gross Profit 53.5% SG&A 30.0% Income Statement Margins 59.5% 33.0% 26.5%
Slide 64: Free Cash Flow Sources and Uses
Finance Receivables Other Cap Ex Net Income Free Cash Flow Depreciation & Amortization Taxes Reserve Account Rental Assets Working Capital Sources Uses Free Cash Flow ($ millions) $1,100 to $1,150 $525 to $550 $575 to $625
Slide 65: Sources and Uses
Debt Increase Free Cash Flow Dividends Stock Issuance Repurchase Acquisitions Restructuring $200 to $400 $150 to $300 $280 to $300 Sources Uses Sources and Uses ($ millions) $100 to $200 $800 to $900 $700
Slide 66: Questions
Please raise your hand and we’ll give you a microphone so that the individuals on the Internet can hear your questions, comments and thoughts.
Slide 67: Reconciliation of Reported Consolidated Results to Adjusted Results
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Slide 68: Reconciliation of Free Cash Flow
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Slide 69: Forward-looking statements
The statements contained in this presentation that are not purely historical are forward-looking statements about our expected future business and financial performance Words such as “expect,” “anticipate,” “intend,” “estimate,” “project,” “plan,” and other similar words may identify forward looking
Slide 70: Non-GAAP measures
The Company’s financial results are reported in accordance with generally accepted accounting principles (GAAP). Management finds it useful at times to provide adjustments to its GAAP numbers. The Earnings Per Share and Free Cash Flow results are adjusted to exclude the impact of special items such