Pollard Banknote Limited · TSX:PBL
Pollard Banknote — Investor Presentation (June 2015)
38 slides from Pollard Banknote's investor presentation, June 2015
Slide 1: Investor Presentation June 2015
INVESTOR PRESENTATION June 2015
Slide 2: Forward-Looking Statements; Use of Non-GAAP Financial Measures
FORWARD-LOOKING STATEMENTS Certain statements in this presentation may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, perfor
Slide 3: Pollard Banknote Overview
Pollard Banknote Overview Company Overview Product Overview • Founded in 1907 • 2nd largest instant ticket provider in the world • 100% focus on the Lottery market for • Over 12 billion tickets produced annually the last 25 years • Growing presence in iLottery • Publicly traded for 10 years • Leadin
Slide 4: Financial Highlights
Financial Highlights ($Millions) 2014 2013 2012 2011 2010 SALES $194.5 $184.9 $162.4 $172.0 $163.4 INCOME BEFORE INCOME TAXES $12.5 $9.4 $8.8 $4.8 $3.5 NET INCOME $8.7 $5.4 $6.5 $3.1 $1.8 ADJUSTED EBITDA $25.6 $21.8 $20.2 $17.8 $17.3
Slide 5: Experienced and Aligned Management
John Pollard Co-CEO Experienced and Aligned • • 18 years as Co-CEO, 29 years with PBL Responsible for manufacturing, technical Management • and finance Previously worked as a senior associate with Deloitte Doug Pollard Co-CEO Rob Young EVP Operations • 4 years as Co-CEO, 18 years with PBL • 3 years
Slide 6: Board of Directors
Board of Directors Jerry Gray Del Crewson Garry Leach • Dean Emeritus of Asper • Former Vice-Chair of Deloitte & • Former CEO of Gerdau MRM School of Business, University Touche Steel of Manitoba • 10 years a Pollard director • 5 years a Pollard director • 10 years a Pollard director Doug Pollard Jo
Slide 7: Capital Structure
Capital Structure • Approximately 73% owned by Pollard family, fully committed and supportive of the business • Committed to a dividend policy to generate return for investors • Committed to increasing the size of our float as part of our future growth
Slide 8: Strong Governance
Strong Governance With a majority ownership position by the Pollard Family, we have taken a number of steps to ensure effective governance is in place: • 50/50 split independent/Pollard family directors • Independent lead director appointed • Audit, Compensation and Governance and Nominating committ
Slide 9: Our Primary Product: Instant Win Scratch Lottery Tickets
Our Primary Product: Instant Win Scratch Lottery Tickets • 90% of our revenue • Diversified product mix and client mix • Over 12 billion standard tickets produced per year (2” by 4”) • Almost 30 years of experience in producing instant win lottery tickets
Slide 10: Our Primary Product: Instant Win Scratch Lottery Tickets
Our Primary Product: Instant Win Scratch Lottery Tickets • Most business awarded through formal RFP • Contracts are 3-5 years in length with usually 1-3 years in renewals • Contracts can be exclusive, primary (supplier produces the majority) or secondary (less than majority) • We currently serve app
Slide 11: Specialty and Proprietary Instant Win Scratch Lottery Tickets
Specialty and Proprietary Instant Win Scratch Lottery Tickets • A number of patented specialty products generates value added sales opportunities • Scratch F/X (Glossy scratch off) & Gamebooks (multiple games in one book) are 2 very successful products • A number of other print innovations exist to
Slide 12: Licensed Games
Licensed Games • Sale of licensed property generates additional royalty income • Themed merchandise prize packs often provided by Pollard • Incremental sales opportunity for leveraging into new customers
Slide 13: iLottery
iLottery • Pollard has formed a joint venture with a technological provider to pursue iLottery opportunities in North America • We won the RFP to operate the Michigan Lottery iLottery site which went live in 2014 • Full turn key operation offering instant tickets and keno • Early results have been v
Slide 14: App-Based Games
App-Based Games Over a 75% increase in digital related revenue in 2014
Slide 15: Charitable Games
Charitable Games • Approximately 10% of our revenue • Overall industry is steady • Our business generates solid profits • Increasing market share in both pull tabs and bingo paper • Opportunity for industry consolidation
Slide 16: Largest Lotteries by Retail Sales of Instant Tickets (2014)
Largest Lotteries by Retail Sales of Instant Tickets (2014) Rank Lottery Country Total Sales Pollard (US$MM) Customer 1 Lottomatica S.p.A. Italy 11.429 2 La Française des Jeux France 7,043 * 3 U.K. National Lottery U.K. 3,866 4 New York Lottery United States 3,744 * 5 California Lottery United State
Slide 17: Pollard Canadian Customers
Pollard Canadian Customers Total Sales Pollard Customer (US$MM) Primary Secondary Ontario Gaming and Lottery Corporation $882 X Loto-Quebec $370 X Atlantic Lottery Corporation $274 X Western Canada Lottery Corporation $268 X B.C. Lottery Corporation $194 X Canadian Lotteries Ranked By 2014 Retail Sa
Slide 18: Robust Industry
Robust Industry • Approximately 200 lotteries operate in the world • Two main products: Instant Win Scratch tickets and Draw Based Games (649, Powerball, etc.) • Instant ticket revenue have grown dramatically over the past decade, now generating 55% of lottery revenue • Draw based games have remaine
Slide 19: Instant Ticket Strengths
Instant Ticket Strengths • Strong, growing consumer demand for tickets • Constantly changing number and types of games • Increasing price points (ie $20, $50 even $100) have increased overall sales • Improved prize payouts, from 50% to 60% or even higher prize payouts • Increasing diversity of offer
Slide 20: Worldwide Instant Sales 2009-2014
Worldwide Instant Sales 2009 – 2014 Annual Retail Sales $90.0 $85.0 $83.1B $80.0 U.S. $ Billions $75.0 31% $70.0 growth $63.5B from $65.0 2009 to $60.0 2014 $55.0 $50.0 2009 2010 2011 2012 2013 2014 Annual Sales Source: La Fleur’s World Lottery Almanac
Slide 21: Barriers to Entry
Barriers to Entry • Extremely difficult to produce, technological know how is very hard to learn • Lotteries are very risk adverse and have no interest in trying a new supplier • Most RFP’s require extensive, long term experience • Lotteries’ business based on credibility, not willing to risk that •
Slide 22: iLottery
iLottery • Starting in 2012 individual U.S. state lotteries were allowed to sell lottery products over the Internet • So far only a handful have started. Approximately 35 remaining U.S. lotteries are studying • To date sales have been mixed, very low in most jurisdictions EXCEPT Michigan • Canada an
Slide 23: Few Competitors
Few Competitors Currently only 2 other companies compete MARKET SHARE with Pollard in this space, a market situation that has been in place for over the last 5 years Sci Games Pollard Gtech 8% 22% 20 years ago there were 10-12 producers, but 70% economies of scale, technical proficiency and risk adv
Slide 24: Company Growth Strategies
Company Growth Strategies • Grow revenue and market share • Grow capacity to deliver instant tickets • Expand offerings in mobile and interactive • Increase commitment to innovation • Extend product offerings in customer’s value chain • Increase our presence through additional strategic alliances in
Slide 25: Expanded Capacity
Expanded Capacity • Purchased new Tresu 22 station inline press • Installed in Ypsilanti, Michigan • Target to be live June 2015 • Relocate existing Ypsilanti press line to Winnipeg (2016) • Investment of approximately C$25MM in total • Corporate net capacity increase of 35%
Slide 26: TRESU Press
TRESU Press POLLARD banknote |imited
Slide 27: Michigan iLottery Sales Success
Michigan iLottery Sales Success • Launched ontime August 2014 % of Lottery Sales • Other North 7 American lotteries 10% struggling for 1% Of Lottery Sales 3 of sales • Michigan paper 2015 YTD Run-rate ticket sales have continued to grow
Slide 28: Fiscal Sales
Fiscal Sales ($M) $192 $195 $200 Foreign Exchange Rate Adjusted $181 $184 $184 $180 $168 $172 $165 $168 $172 $160 $154 $150 $143 $140 $120 $114 $98 $100 $80 $60 $40 $20 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Slide 29: Fiscal 2014 Sales
Fiscal 2014 Sales ($M) $210.0 $0.9 $5.4 $5.4 $9.0 $0.3 $194.5 $200.0 $184.9 $190.0 $180.0 $170.0 $160.0 $150.0 $140.0 2013 Higher Higher Higher LMS Lower Lower 2014 Revenue AVG Selling and Sales Charitable Due to Price Licensed Volumes Games Weaker Games CAD $ Revenue
Slide 30: Adjusted EBITDA
Adjusted EBITDA ($M) $30.0 $25.8 $25.0 $21.8 $20.2 $20.0 $17.3 $17.8 $15.0 $10.0 $5.0 $0.0 2010 2011 2012 2013 2014
Slide 31: 2014 Adjusted EBITDA
2014 Adjusted EBITDA ($M) $2.7 $1.9 $30.0 $5.4 $1.6 $25.8 $25.0 $21.8 $20.0 $15.0 $10.0 $5.0 $0.0 2013 Higher AVG Weaker CAD Higher SG + A Lower Sales 2014 Selling Price Dollar Expenditures Volumes
Slide 32: Q1 2015 Highlights
Q1 2015 HIGHLIGHTS ($M) Q1 2015 Q1 2014 Sales $54.4 $50.7 Gross Margin $10.0 $9.5 Gross Margin % 18.4% 18.7% SG + A $5.9 $5.5 Income from $4.2 $4.0 Operations Adjusted EBITDA $6.7 $6.3 Net Income $1.4 $1.1
Slide 33: Q1 2015 Sales
Q1 2015 Sales New Quarterly Record ($M) $3.5 $3.2 $60.0 $4.0 $0.2 $0.4 $54.4 $50.7 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 Q1 2014 Higher Impact of Lower Lower Lower AVG Q1 2015 Volume Weaker Ancillary Charitable Price CAD $ Sales Gaming Sales
Slide 34: Q1 2015 Adjusted EBITDA
Q1 2015 Adjusted EBITDA ($M) $0.8 $0.4 $8.0 $0.4 $0.4 $6.7 $7.0 $6.3 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 Q1 2014 Higher Impact of Higher SG+A Lower AVG Q1 2015 Volume Weaker Price CAD $
Slide 35: Q1 Highlights
Q1 Highlights • Higher sales volumes due to large volume of in transit based goods at year end recorded as sales in 2015 • Stable average selling prices versus Q1 2014 • Similar manufacturing cost structure compared to prior quarters • Weaker Canadian dollar contributes to higher EBITDA and operatin
Slide 36: Looking Ahead
Looking Ahead Industry outlook remains very strong Contract portfolio and production capacity in place to efficiently produce higher volumes New press installation on schedule, production of live tickets to begin shortly Michigan iLottery operation continuing to grow • Weak Canadian dollar i
Slide 37: Investment Thesis
Investment Thesis Revenue is $200 million recurring in in Revenue nature Government Growing Contract EBITDA Base Leading Lottery Expanding Large Barriers Experienced Supplier Market to Entry Management • Leader in instant • Strong instant • Complex • Management has ticket market ticket growth techno
Slide 38: For More Information Contact
FOR MORE INFORMATION CONTACT: Doug Pollard John Pollard Co-Chief Executive Officer Co-Chief Executive Officer Telephone: (204) 474-2323 Telephone: (204) 474-2323 E-mail: dpollard@pbl.ca E-mail: jpollard@pbl.ca Rob Rose Chief Financial Officer Telephone: (204) 474-2323 E-mail: rrose@pbl.ca