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CONFIDENTIAL
Document
Date
This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.
Company, LLC
July and July YTD Financial
August 23, 2007
Privileged and Confidential: The following material has been Your Company, LLC
Unit of measure
* Footnote
Source: Source 2
• July and July YTD Financial Product A
• Consolidated Company MD&A and Results
–Company P&L
–Balance Sheet and Cash Flow
–Safety
–LTM Bank EBITDA
• Company Business Unit MD&A and Results
–Summary
–Goods 1
–Goods 2
–Goods 3
–Goods 4
–Labels
Financial Product A Index
Unit of measure
* Footnote
Source: Source 3
($MM) July 2007 Better / (Worse) July2007 A 2006 A 2007 B 2006 A 2006 A % 2007 B 2007 B %
Financial ReviewMD&A on Consolidated Company July YTD Results
July YTD Sales Results vs. Budget July YTD Adj. EBITDA $3.1MM Favorable to Budget
• Total sales ($12.6MM) unfavorable
• Carton sales favorable 0.1% with growth in some key accounts
• Carton favorable $3.0MM, volume and strong cost reduction offset by price and board recovery
• Goods 1 on budget, fiber price impact ($8.1MM); offset by price, energy and cost reduction
Unit of measure
* Footnote
Source: Source 5
(0.9)
5.06.4
4.83.3
1.8 0.2
(1.2)(7.2)(8.2)
(0.6)
120.8117.4
$0
$20
$40
$60
$80
$100
$120
$140
July YTDBudget Adj
EBITDA
Price Volume Mix Inf lation /Deflation
AOS & OtherCosts
Procurement Capex Driven Fixed Inks & Portage Division Central Corporate July YTDActual Adj.
EBITDA
Mill Board price
$9,075M, Carton offset of
($4,698M)
Flexible Group
($6,126M), Folding Carton
($779M), Mills,
$636M
Multiwall - product
mix $852M, Carton $530M
Mill Fiber ($10,442M), Mill energy $1,093M
AOS, $6,029M, one time $2,668M,
other offsetting ($2,259M)
Salaries, SG&A
Overall AOS/Cost reduction (excl. one time) favorable to budget by $5.0MM
Bridge YTD July Budget to ActualFinancial Review
($ in Millions)
Company June YTD EBITDA ahead of Budget by $3.1MM or 3.2%
Company 7/07 YTD Budget to Actual EBITDA Bridge
Unit of measure
* Footnote
Source: Source 6
Financial Review
Cost Savings Summary vs. Budget
YTD Company is tracking $6.6MM ahead of the budgeted cost savings target. Notes (1): Favorable variance to budget includes Mill SRC rebate above budget, $0.4MM
($000)
JAN FEB MAR APR MAY JUN JULYTD 07 Actual Actual Actual Actual Actual Actual Actual
June revenue down year over year as follows: FC volume/price ($3.1MM) Mill volume/price $4.6MM Bags volume/price ($1.3MM) Plastics/Labels volume/price ($0.5)MM
June adjustments over budget by $3.3MM due to consulting fees $2.3MM, vehicle allowance program buyout $1.0MM, severance costs $0.2MM
EBITDA up $5.5MM vs. 2006BL and on budget
Unit of measure
* Footnote
Source: Source 8
YTD July YTD July 2006 Better / (Worse) YTD July($MM) 2007 A 2006 BL 2007 B 2006 BL $ 2006 BL % 2007 B $ 2007 B %
Total net revenue (inc. intercompany) 1,370.8$ 1,321.9$ 1,386.1$ 48.9$ 3.7% (15.3)$ (1.1%)
Total material costs 677.4 649.6 685.4 (27.7) (4.3%) 8.1 1.2%
Detailed Consolidated Company July YTD P&LFinancial Review
June revenue up year over year as follows FC volume/price $14.2MM Mill volume/price $18.6MM Bags volume/price $2.8MM Plstcs/Lbls volume/price
($2.8MM)
Conversion costs Carton inventory change of ($2.0MM)
June YTD adjustments over budget by $14.7MM due to severance costs $6.1MM, consulting fees $5.0MM, CC dues buyout $0.5MM, vehicle allowance program buyout $1.0MM, duplicative and
EBITDA up $16.7MM vs. 2006 BL and $3.1MM vs. budget
Unit of measure
* Footnote
Source: Source 9
Company Balance Sheet SummaryFinancial Review
Generally cash generating working capital movements since year end 2006
Difference vs. 2007 Budget (160) (165) (170) (161)
Notes:(1) Actual salaried headcount (excludes budgeted open positions)(2) Budgeted open positions and salaried headcount, pre-$11.5MM headcount reduction(3) Amounts have been restated to reflect the break out of the Specialty group
Unit of measure
* Footnote
Source: Source 16
•July and July YTD Financial Product A
•Consolidated Company MD&A and Results
–Company P&L
–Balance Sheet and Cash Flow
–Safety
–LTM Bank EBITDA
•Company Business Unit MD&A and Results
–Summary
–Goods 1
–Goods 2
–Goods 3
–Goods 4
–Labels
Financial Product A Index
Unit of measure
* Footnote
Source: Source 17
Actual Last Year Budget Actual Last Year Budget Actual Last Year Budget Actual Last Year Budget
Group Outlook and Focus AreasMD&A for July and July YTD Results
• July fiber $155/ton vs. budget of $120/ton or ($35)/ton unfavorable to budget. Total EBITDA impact of ($2.3MM) vs. budget.
• YTD Fiber pricing $142/ton vs. budget of $119/ton or ($23)/ton unfavorable to budget. YTD total fiber impact ($10.4MM) EBITDA vs. budget. Favorable fiber savings include commission refund accrual $80M and grade substitutions $450M (mostly Plant 1 and Plant 2).
• July sales price $44/ton favorable due to transfer and trade price increases, July EBITDA impact of $2.8MM versus budget, YTD price $23/ton favorable EBITDA impact $6.7MM
• YTD production favorable to budget 3,432 tons, EBITDA $760M, shipments favorable 4,962 tons; 2,223 tons F/G inventory build versus 3,753 ton F/G inventory build budgeted.
• Energy price unfavorable ($.2MM) for the month but still $1.2MM favorable YTD on hedges at legacy CPD Goods 1 and favorable oil cost at Tennessee on 50% of the volume first half of 2007. Oil at TN was favorable to budget through April at $.88/gal but has climbed to $1.13/gal in July, so the mill will not be burning oil in August. Purchase power is $200M favorable YTD due to reduced riders and energy reduction programs.
• Backlogs continued at a seasonally strong 31 days in July Industry operating rate remaining at 99+% versus 95% last year.
• Built only 285 tons of F/G inventory in July. F/G inventories 23,675 tons at 7/31/07 (versus 26M ton budget)
Customer: Implemented $100/ton price increase to Gray Box in July. Picked up 1,200 tons for Customer 4 and a new item for Customer 2 with a 3,000 ton potential annually. Also, expect to gain 5,000 tons from East Container that can be run at San Diego or any of the Midwest Goods 1. Added four new accounts at Bloomington in July - 1, 2, 3 and 4.
Focus Plant: Baltimore productivity of 372 TPD exceeded plan by 22 TPD in July for the second best month this year. July EBITDA of $719M was ($130M) unfavorable to plan due to favorable volume of 679 tons produced and 1,056 tons shipped, +$160M EBITDA offset by spread difference of ($5)/ton unfavorable or ($60M) EBITDA (sales price fav $31/ton versus fiber unfav $36/T), energy ($13)/ton or ($150M) EBITDA and higher spending on productivity improvement projects.
AOS: Continue implementation at Plants. All four Goods 1 will complete implementation by September 30. Plant 20 finished AOS implementation during 1Q. Plant results are excellent - EBITDA is $3,491M ahead of plan YTD and productivity is +38 TPD favorable to plan YTD. AOS is also beginning to gain traction at Plant 5, Plant 7 and Plant 9 as well.
Business:
Wastepaper – Cost is escalating in August by $1/ton to $149/ton. Cost is expected to remain flat in September before subsiding in Q4. However, the Q4 cost curve is Product A flat and is on average $13/ton higher than last month's forecast.
Sales Price – SP contractual increase of $34/ton effective 8/1/07 that will benefit overall division sales price by $1.30/ton.
CB supply remaining seasonally tight but stabilizing. Qualification of offshore board suppliers appears to be on the increase.
Fuel is now $.2MM/month unfavorable to budget in July due to CD hedges at $7.83/mmbtu (vs. $7.50 budget) and much higher oil prices at TN. TN not burning oil in August due to price.
August Forecast: EBITDA forecast of $5.8MM under budget by ($.2MM) – Fiber escalating by another $1 .50/ton in August over July EBITDA ($100M). San Diego 1 1/2 days annual maintenance shutdown delayed from July. San Diego cogen will be down one week for hot plate replacement costing ($150M). Fuel cost continues to be higher than plan costing ($200M). Continuation of the SC bad debt provision build is ($40M) . F/G inventory ship-out of 341 tons forecast in August.
Unit of measure
* Footnote
Source: Source 18
Company Mill Gross Pricing and Profit Contribution Per TonGoods 1
Excellent July productivity boosted margins
Pricing has increased due to the recent industry-wide price increases.
Improved operations and the March price increase are restoring margins
July July Better / (Worse) July YTD July YTD July Better / (Worse) YTD July($MM) 2007 A 2006 BL 2007 B 2006 BL % 2007 B $ 2007 B % 2007 A 2006 BL 2007 B 2006 BL % 2007 B $ 2007 B %
Goods 1 $1.3MM of fiber inflation partially offset by favorable volume, board and energy pricing resulted in Goods 1 being ahead of budget with improved
productivity
Company Goods 1 7/07 Budget to Actual EBITDA Bridge
Unit of measure
* Footnote
Source: Source 21
31,311 32,200
978636
4541,281 5
9,075
183
(1,195)(9,449) (1079)
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
YTDBUDGET
Price Volume Mix LargeVolume
Changes
Inflation /Deflation
One-timeItems
AOS Procurement CapexDriven
Fixed Other YTDACTUAL
Board prices favorable
Fiber unfavorable ($10,442M),
energy favorable $1,093M
SRC supply agreement
savings accrual
favorable, $445M
mill production
volume favorable
1,470 tons , $328M, fiber mix $782M, chemicals
$464M
SG&A
R&M ($1,805M),
freight ($76M),
other f ixed and SG&A,
$842M
+4,615 tons shipped
MRO and other
unfavorable ($843),
Coating and Chem
($381M), fiber $22M
889
Bridge YTD July Budget to Actual
Goods 1
($ in Thousands)
Despite $8.7MM of fiber inflation, Goods 1 are on budget due to price increases, volume, energy, and recognition of SC supply agreement savings
Company Goods 1 6/07 Budget to Actual YTD EBITDA Bridge
Unit of measure
* Footnote
Source: Source 22
Goods 1
Cost Savings Summary vs. Budget
YTD Goods 1 are tracking $2.1MM ahead of the budgeted cost savings target.
JAN FEB MAR APR MAY JUN JULYTD 07 Actual Actual Actual Actual Actual Actual Actual