RPM International Inc.

Good morning, everybody, and welcome.

Thanks for joining us today for RPN's Investor Day. I'm Ashley. I'm Senior Director of Investor Relations at RPN. We really appreciate everyone making the trip, including those joining us online. So I'll start off with some legal language. based on current expectations that involve risks and uncertainties, which will cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM's reports filed with the SEC. During this presentation, references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, RPM is supposed to reconcile the most directly comparable GAAP financial statements on our website at www.rpmweek.com. And now I'll give you a brief overview of today's agenda. So we'll kick things off with our Chairman and CEO, Frank Sullivan. We'll give an overview of our agenda. Then Tim Kinzer, our Vice President of Operations, will provide more details on that in 2025. And then Rusty Gordon, our Vice President and Chief Financial Officer, will give us an update on our capital. Next, we'll have Tracy Crandall, who's our Vice President of Compliance and Sustainability, the Associate General Counselor. I'll shortly give you more details on Building a Better World, our PMS Sustainability Program. Then we'll have Paul Humigun, who's our CPG Group President, who will give you a deep dive into his and the incentives that he oversees. And then finally, Frank will wrap things up, and then we'll open the floor for him. So again, we appreciate you having everyone here today, and I'll turn it over to Frank. I'm Matt, Senior Director of Investor Relations with 15 year experience with other public companies. And so we are really pleased to have you here. And he's already making our investor outreach more effective, and so you'll be hearing more and seeing more of Matt. So Matt, thank you. I also want to introduce a number of RPM people that are here today as well, starting with Rusty Gordon, our Chief Financial Officer, and Rusty and his team have been doing a great job as we've evolved RPM from a holding company with a small type financial accounting team to being more center-led in a number of areas. Tina Sherman is in the back. opportunity very much. Tracy Crandall is here. She's our Associate General Counsel. Tracy's going to be talking to you today about our sustainability activities, our Building a Better World initiative, which she leads across RPM. It's been doing a great job. And we made a lot of progress in our sustainability efforts and with our Building a Better World initiative. So I'm looking forward to that. Thank you. Tammy Zolnar, the Senior Director of Communications. And then I think last but not least, we have Tim Kinzer. Tim is VP of Operations for RPM. You'll be hearing from Tim shortly after me. He had a incredible career in the power energy business. And thankfully for us, his wife didn't appreciate us traveling around activities and really did an extraordinary job in consolidating procurement, led to about $150 million in savings, a critical element of our successful 2020 NAFTA growth program. And now as VP of operations, he's leading the entire effort across the manufacturing operations and procurement. We'll be hearing from Tim shortly. And then lastly, Paul Benamoun. Paul is the group president of our Trentville Construction Products Group. Paul came to RPM in an IT capacity many years ago, was our SEP, Manufacturing and Operations, reporting directly to me, and then has been at Trenco for seven or eight years now, Paul? Tenth year. Tenth year at Trenco. And has pulled together our construction products businesses, which were very district, and today is our largest and highest performing operating entity And so again, I'm grateful. It's awesome to see in person a lot of folks that we've known for a long time and followed RPN as analysts or investors and also meet some new people. So thanks for being here. For 75 years, RPN has been building upon my grandfather's founding operating philosophy, hire the best people you can find, create an atmosphere to keep them and let them do their jobs. Over that 75-year period, we've been able to transform RPM at the appropriate times from a single manufacturing facility producing a single product, illumination 301, to my father's efforts beginning in the early 1970s through his retirement in 2002, and effectively doing an industry roll-up in the coatings and construction chemical space before anybody had coined that phrase. to the six-group structure that we began to organize our 40 or 50 independent operating companies into in 2002, really siloing those businesses, but getting a tremendous bang from reorganizing from a true holding company into the group. You all have seen these slides before, but from 2002 until 2016, we had a tremendous performance outperforming the broader market and our peers. And our performance was better than that because underlying that was the ultimate resolution over about a 15-year period of a building for asbestos liability challenge. And so I mentioned that reorganization. It really powered organic growth. It really allowed us to start to get synergies together. within our six groups in ways that rpm hadn't before and that worked for about 15 years the next transformation and probably the most profound one was driven by our 2020 map to growth operating improvement program We sought to take that entrepreneurial culture, close-to-market decision-making, allowing for our PM to drive organic growth that for most of our industry has been in excess of our industry averages, and marry it up with operating efficiency. And it was executed exceedingly well by Tim Kinzer, Rorty Hyde, Steve Kanuka, some of the operating efficiencies that were out there. As I remarked to our board with the incredible effectiveness of our MS168 focus on bringing lean manufacturing disciplines into our operations on a consistent basis and introducing continuous improvement into our businesses effectively. While lean manufacturing disciplines aren't new, they've been around for 40 years, they were new to RPM. and our people executed on them exceedingly well. I think the big aha between the operating efficiencies that we knew were out there, and concern about the entrepreneurial spirit, was that we could do both. And I think through the Amp2Growth program, we were able to prove that. This is our structure today, and what I think is most profound about it is RPM is solidly in the middle, and not at the top of the company structure. to be exceptional leaders and also reporting in four segments. So our investors, I think you have more visibility into our businesses and also really what we and our employees see in terms of how we're organized and how we think about attacking the market. Construction products group, creating and driving the market for high energy performance in the built environment as well as new construction. Our performance coding group, infrastructure. Our consumer group, principally North America, but also in the UK and Europe, really the drivers of unique niche platforms serving consumers that revolutionized Small Project Pay in North America and really had an incredible bond. But what happened there, and now their efforts are part of this new MAP25 that you'll see, is that we went from, in North America, in small project pain, patch repair, most of the categories we're in, 25 years ago, market shares in the mid-teens to 20%, and through being innovative, new product introduction, delivering more opportunities to consumers, to market shares that exceed 50%. And today, we are changing and be more consumer user-focused, and we're really excited about what's happening there. And then lastly, our specialty products group. Still that traditional RPM model being a great home for entrepreneurial companies. We're a very different collection of independent companies, but this will also serve as an incubator for potential future platforms. I'll just give you one example. coating for apples, a water wash coating for apples that inhibited browning of apples, really revolutionized sliced apples. We are why you can get sliced apples in a bag in the store. We are why a McDonald's student can serve apple fries. That product went off patent. We saw the results and the impact over the last four or five years. We've acquired some other 20% or higher, getting price where appropriate, driving incredible margin profitability. So the opportunity for us to create out of the specialty products group potentially new platforms in the future is very exciting for us. Lastly is the power of RPM. It's an entrepreneurial approach to customers with leading brands and innovation driving growth. It's today being center-led in manufacturing and operations and administration. And lastly, and most importantly, it's what we call the value of 168, operating with transparency, trust, and respect in all that we do and the connections across all of our businesses. We have a proud track record of delivering for shareholders. An important part of that is our dividend. We've grown our dividend with a dividend increase of 5% approved by our board yesterday and announced at our annual meeting 5%. annualized basis for at least one year, we will deliver to our shareholders $1.68 per share of cash dividends. That's an auspicious number for RPM. I want to conclude before I turn it over to Tim Kinzer. work through the COVID disruptions in our factories, in our plants, within our supply chain. The effort of our R&D people and our tech service people over the last two years, literally in the face of supply chain challenges, reformulate and recertify thousands of products. times of production because during the normal time in any particular week we had pretty raw materials that just didn't show up. It's been an extraordinary period of time and the 16,800 associates of Arcane Round and Glow are the ones that create our success. So I have the privilege of leading and as I said, as I turn it over to Tim Kinser, public company that makes it worth all the money he's paid? And my answer was, I get to do the abba dabba, and you guys get to do the do. And so with that, let me turn it over to Tim Kinzer, our VP of Operations, who has literally led a lot of the do in our successful 2020 MAP Growth Program, and will be the principal leader in our new MAP 2025 program. Thank you, Tim.

Thank you, Frank, and good morning. I am Tim Kinzer. I have been with RPM for 15 years. As Frank said, the first 11 were with DAP. And in 2018, at the start of our Map to Growth initiative, I came to the corporate office. I led the procurement work stream throughout Map 2020, and this morning I had the privilege of being able to talk a little bit about our Map 2025 plan. So I'm going to begin with a recap of our Map to Grow journey because it's very important as it ties into our Map 2025 plan. So this is a slide from our investor day in November of 2018. And the part that I'm focusing on here is the vision where we set out to transform RPM into a more connected and efficient company focused on operational excellence and continuous improvement. while maintaining the strengths of the entrepreneurial culture. The structural changes that we made included adoption of a center-led model for manufacturing, procurement, and administration. At the end of our fiscal 21, we exceeded our targets on efficiency improvements that were within our control by delivering savings of 320 million versus our communicated target of 200 million. As we move forward, it's important to understand, and I'll spend a few minutes on this, the activities that happened starting in March of 2020, with the first being the COVID lockdowns. This was a very significant event beyond just the lockdowns in that the oil and gas refineries ran at reduced rates for nine months during this timeframe due to less demand for gasoline and jet fuel. What this did was pull down feedstocks and lead to very low inventories during this time. In mid-February of 2021, winter stormed Murrigette, the Gulf Coast, and it caused many critical petrochemical facilities to go offline for months. This had a tremendous impact on the supply of feedstocks, materials, and their inventories, which were already very low due to refineries being down from the lockdowns. We also began to experience logistics challenges as ports became congested and the trucking industry became strained. In April of 2021, a major US producer of alkyd resins and a key supplier of RPMs suffered a catastrophic event that left alkyd resins significantly constrained in the US. And these events set the stage for extreme supply chain disruptions and unprecedented material inflation. And in February of this year, the Russian-Ukraine conflict began that has caused further uncertainty. The point of going through these is that through our map to growth initiatives, RPM was well positioned to take these challenges on. We worked closely with our suppliers, utilized our value engineering work to find alternative materials, insourced more materials than ever, and collaborated across the companies to ensure that materials that were short were utilized in the most effective manner to minimize the impact to our customers and our shareholders. The macroeconomic and industry challenges I just covered had a material impact on our ability to meet our MAP 2020 financial goals in FY21. These headwinds continued through fiscal year 22, and our margins were further challenged by worsening supply chain disruptions and inflation. Our consumer group was especially challenged as the full effect of the alkyd resin shortages began to have serious impacts throughout the industry. It is worth pointing out that these financial results would have been significantly worse if not for the contributions from the operating efficiency improvements that I've covered earlier from Map2Growth. Beyond the operating efficiencies of Map2Growth, we have laid a foundation for continued success. Critical activities to support our continued success has been to work to consolidate our ERPs to four common platforms from the 75 instances we had in fiscal year 18. This has allowed development and implementation of RPM-wide systems and better data analytics that will be key to our MAP 2025 initiatives. We've been working on Optimizing our footprint and consolidating our accounting locations to drive further efficiencies, we have repurchased 633 million of stock and adopted an improved goal setting methodology that allows for better long-term planning. And as previously mentioned, we have greatly increased our insourcing to address supply issues and better utilization of our assets. Perhaps the most significant benefit of our map to growth effort has been the enhanced collaboration and coordination across the R&D companies. The picture shown here is our four group presidents, Paul Hoevenboom from our construction products group who you'll hear from shortly, Dave Denstead from our performance codings group, Bill Spaulding from our consumer group, and Ron Holman from our specialty products group. These four are the leaders that champion the intercompany interactions that we call Connections Creative Value. We have instilled a culture that allowed for the successful implementation of global shared service centers, RPM-wide systems, and incentives that encourage collaboration. An excellent example of RBM's collaborative mindset is the purchase last year of the Corsicana, Texas chemical facility. This facility is managed by the construction products group, but all four RBM segments utilize materials produced at Corsicana. In fact, the primary beneficiary of the construction products group plant is the consumer group as the facility has developed the ability to produce alkaline resins to help us offset the loss of the industry supplier I spoke of earlier. This level of cooperation and collaboration positions RPM well as we move forward into MAP 2025. Just as we start, as I stated in our map to growth vision statement, RPM has transformed into a more connected and efficient company. We exceeded our operating efficiency targets and the enhanced collaboration and coordination throughout RPM not only helped us navigate the macroeconomic headwinds of the last several years, it has positioned us well for future success. Our view of MAP 2020 is that its completion was a milestone and not the finish line. We have not stopped our continuous improvement activities, and we have the resources, systems, and very importantly, the culture to position RPM for sustained profitable growth. And now let's shift to where we're going. In 2018, when we launched MAP2Growth, MAP was an acronym for Margin Acceleration Plan. Through MAP2Growth, we have successfully built a structure to accelerate our margins. As we launched MAP 2025, MAP is now an acronym for Margin Achievement Plan. And the margin we are most focused on achieving is a 16% even margin. This slide summarizes our MAP 2025 goals. We plan to grow our revenue to $8.5 billion. And as I mentioned on the previous slide, our focus is on achieving a 16% EBIT margin. We believe that most of the improvements driving the achievement of our EBIT goal will be reflected in cost of goods sold. Thus, achieving a gross margin of 42% will be critical to our success. Similar to our MAP 2020, these goals are on a run-rate basis to be fully realized in fiscal year 26. Our revenue growth was developed through a bottoms-up forecast from our operating companies and totals up to a 5% CAGR for the core growth revenue. We also expect revenue growth through strategic investments, that the operating companies are pursuing, as well as a new work stream for MAP 2025 called CS168, where we'll be implementing systems to drive commercial excellence. A few examples of the many strategic investments we are planning include CarbonLine diversifying their end markets, CPG driving the market through solutions to building efficiency, and investment that our specialty product group is making in Greensboro, North Carolina, to create an R.P.M. coding center of excellence that all of our operating groups will participate in. In addition, we expect to add $250 million of revenue from mergers and acquisitions. And lastly, our MAP 2025 plan assumes modest GDP growth. On this slide, we show the work streams that might be the significant drivers of the gross margin improvement on MAP 2025 planning. We plan to continue expansion of improvements in both manufacturing and procurement, and the newly added commercial work stream is also on this page. For the manufacturing work stream, we'll be expanding our very successful management system, or MS168, into additional facilities. We will continue to look for opportunities to optimize our footprint and use new approaches to plant efficiency, such as AI and Internet of Things that we have started activities on. In procurement, we will continue to expand our strategic supplier relationships which has proven advantageous for both our suppliers and our PM. We have also made investments in the procurement team to support expansion to additional categories. With our baseline of fiscal year 22 being near a cycle high, we do expect costs to return to a more historic normal during not 2025, so our plan does include a benefit from commodity cycle recovery. As I previously mentioned, the plan for our newest workstream, CS168, is to implement systems to drive commercial excellence through use of data analytics to receive appropriate value for the differentiated value our products deliver and increase the overall effectiveness of the sales force. Similar to MAP 2020, we have broken out the workstream savings into waves, with wave one being our fiscal year 23, and targeting a savings of 120 million of improvements. Wave two is our fiscal year 24, and we'll be adding an additional 160 million of improvements, and wave three, our fiscal year 25, with targeted improvements of 185 million. As we reported on our earnings call earlier this week, we are off to a very good start with 30 million of savings realized in our first quarter of fiscal year 23. On the EBIT bridge, we break out the contributions from organic sales, mergers and acquisitions, and the matched work streams. which as you can see is the most significant contributor to our unit improvement. We have also included offsets for SG&A inflation we expect to incur through MAP 2025. This is something we did not include in our MAP degrowth plan for MAP 2020. This shows our goals versus our baseline of fiscal year 22. Our targets include growing our revenue to $8.5 billion, as I've covered, and increasing our gross margin to 42%, largely through the benefits of the map or streams. The SG&A increase is to support our strategic growth revenue and SG&A inflation. The EBIT is being driven by the improvements in gross margin as well as contributions from our revenue growth. And lastly, I just want to comment a little bit. We have been and continue to experience an extremely volatile, uncertain, complex, and ambiguous time. As a result of this, there are factors that are outside of our control that could lead to us achieving our plan faster or slower. Some factors that could negatively impact the timing of achieving our plan include a global energy crisis, a prolonged recession, or a strong US dollar. On the upside, accelerated mergers and acquisitions, A larger commodity cycle recovery or strong GDP growth could all lead to achieving a plan soon. Thank you for your time, and I will now turn it over to Rusty Gordon to give the capital welcome.