HxlJefferies Investor Presentation 8-13-13
Transcript of HxlJefferies Investor Presentation 8-13-13
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Jefferies 2013
Industrial ConferenceInvestor Presentation
August 13, 2013
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©2013 Hexcel1
Risks, Uncertainties and Other Factors with Respect to “Forward-Looking Statements”
Certain statements contained in this presentation constitute “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Act of 1995.Such statements that are not of historical fact constitute “forward-looking statements”and accordingly, involve estimates, assumptions, judgments and uncertainties. Thereare a number of factors that could cause actual results or outcomes to differ materiallyfrom those addressed in the forward-looking statements. Such factors are detailed inthe Forward Looking Statements and Risk Factors sections of the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2012 and its secondquarter 2013 quarterly report on Form 10Q with the Securities and ExchangeCommission. We do not undertake an obligation to update our forward-lookingstatements to reflect future events.
Forward-Looking Statements Disclaimer
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©2013 Hexcel2
Leading advanced composites company – 65 years in the industry
Focused on aerospace and wind – FY 2012 sales of ~$1.6 Billion
Sales by region: ~46% US, ~43% Europe and ~11% Other
About 5,000 Employees – primarily split between Americas and Europe
Leading position in all of our key markets
High barriers to entry Sustainable competitive advantage
Technology leader, broad range of products/qualifications
Excellent customer relationships
Growing share of long term growth markets
Cyclical and secular growth combined
Demonstrated operational excellence
Strong balance sheet (net debt/EBITDA < 1x)
Investment Highlights
Hexcel – Overview
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©2013 Hexcel3
Hexcel – Leader in Advanced Composites
Carbon Fiber A350 fuselage F-35 wings
Reinforcements Aircraft radomes Lamborghini roof
Carbon Prepregs
A380 Fuselage beam GE90 Fan blade Eurofighter Tail
Glass Prepregs Wind blades Wing-to-body
fairings in aero
Honeycomb Helicopter blades Aircraft flooring Nacelle structures Acousti-Cap®
Engineered Products
Structural Assemblies HexMC® parts Machined Core HexTool® Tooling System
Key properties
Fatigue and corrosion resistantLight Weight (density)High Strength (tensile)
Stiffness (modulus)
Broad Range of Composite Materials and Applications
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©2013 Hexcel4
Technology Requirements and Focus
Stronger
Lighter
Weight (density)… 30% Lighter than aluminum
Application: Long Range Aircraft - Fuel Burn
Strength … Carbon prepreg = 5x aluminum Application: Helicopter & Fan Blade Reliability
Stiffness … Carbon prepreg = 2x Glass
Application: Composite wing, wind blade deflection
Toughness … Damage tolerance
Application: Primary structure, Fan blades, Automotive
Durability … Up time / keep them fly ing
Application: Aerospace
Technology is a Key Driver for Future Growth
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©2013 Hexcel5
Sales by Market
I n d u s t r i a l
CommercialAerospace
Space &Defense
S p a c e
&
D e f e n s e
C o m m e r c i a l
A e r o s p a c e
Industrial
Airbus
Boeing
Engines/Nacelles
Regional/Business
Helicopters
Military Aircraft
Launch Vehicles
Satellites
Wind Energy
Recreation
Transportation
Other
LTM Q2 2013 Sales $1,618 Million
62%
23%14%
YoY Growth Rates
2004 15%
2005 14%
2006 10%2007 12%
2008 13%
2009 -16%
2010 6%
2011 19%
2012 13%
LTM Q2 2013 7%
Growing Share of Long Term Growth Markets
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©2013 Hexcel6
$227$267 $280
$294$313
$253$218
$249 $277$234
2004 2005 2006 2007 2008 2009 2010 2011 2012 LTMQ2
2013
Industrial Market
Recreation
Industrial Revenues
Transportation
Glass Prepreg
Glass and CarbonPrepreg $ millions
Broad Range of Performance Applications …Wind Energy Drives Industrial Market Segment
Wind Energy Tooling
14%
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©2013 Hexcel7
Space & Defense Market
Diverse Range of Applications
Carbon Fiber Prepreg the standard since B-2
Over 100 Active Programs for Hexcel, includes:
Transport Aircraft Fighters
Helicopters Launch Vehicles Over a third of sales outside the U.S.
Top 10 Programs:
Represent a little more than 50% of Segment V22 is largest program but <15% of Segment
Hexcel Intermediate Modulus (IM) fiber the
industry standard
Rotorcraft ~60% of sales and growing
New composite blade designs providing retrofit
opportunities
More Hexcel value-added content
JSF, A400M growth ahead
Space & Defense Revenues
$201$220 $222
$256
$302 $299 $311 $319$357
$377
2004 2005 2006 2007 2008 2009 2010 2011 2012 LTMQ2
2013
$ millions
23%
Hexcel Positioning
Space & Defense Revenues Well Diversified
F-35 Joint Strike Fighter (JSF)
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©2013 Hexcel8
Space and Defense Outlook − Overall
Rotorcraft
New Fixed Wing(JSF, A400M)Fixed Wing PhasingOut (C17, F18, F22)
Continued Single Digit Growth Expected
Last Five YearsRotorcraft Growth Offsets Declines
In other Programs
Next Five YearsNew Fixed Wing Programs lead Growth
Helos cover V22 cuts
Today
All Other
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©2013 Hexcel9
Commercial Aerospace Market
9,800+ planes in Airbus & Boeing backlog orover 7 years based on est. 2013 deliveries
2012 was, and 2013 is expected to be,another record year for deliveries
Introduction of new composite-intensiveaircraft provides Hexcel secular salesgrowth
New programs (B787, B747-8, A350 & A380)make up over 30% of Commercial Aerospacesales
Strong Global Demand
45%
40%
15%
Regional &Business
Airbus
Boeing
Commercial Aerospace Revenueby Sub Segment
Commercial Aerospace Revenues
LTM Q2 2013
62%
$409 $470
$547$622
$710
$556$645
$823
$944 $1,007
2004 2005 2006 2007 2008 2009 2010 2011 2012 LTMQ2
2013
Airbus and Boeing Business and Regional Jet
$ millions
Growth led by Increasing Buildrates and New Aircraft Programs
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©2013 Hexcel12
-$2
-$1
$0
$1
$2
$3
$4
$5
$6
$7
R e l a t i v e H e x c e l C o n t e
n t p e r P l a n e $ M
Wtd Avg of BacklogLegacy $/Aircraft
Hexcel content on New Programs up to 5X the composites of older aircraft they replace
Each bubble represents Hexcel’s current $ per shipset x number of planes in Airbus and Boeing backlog
Growing Penetration of Composites
Commercial Aerospace – Composites Penetration
Wtd Avg of Backlog
New Programs $/Aircraft
1st Half ‘13 New Program Sales are more than twice 2010 run rate,and the Ramp-up is Just Beginning
NarrowBody
( A320, A320neo,737 & 737 MAX)
LegacyWideBody
A380Super Jumbo
New A350Wide Body
New 787 &747-8
Wide Body
New aircraft now represent about 30% ofHexcel Commercial Aerospace sales
+
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©2013 Hexcel14
Summary Outlook
Build rates and new programs should result in “double digit growth” foryears to come for Commercial Aerospace market
Cost control, increased in-house carbon fiber and productivity initiativesshould deliver 23% incremental Operating Income leverage
Over the mid-term, we expect to generate significant Free Cash Flow withcapital expenditure spending average less than $200 million per year
Our Priorities for Cash Usage:
1. Organic Growth – Investing in R&T and Capacity to support expected Demand2. M&A opportunities – Technology, adjacencies or bolt-on that fit Focus
3. Return to shareholders ($50 million share repurchase completed in 1H 2013and an additional $150 million recently authorized)
Balance Sheet and Outlook to Deliver Growth (Organic + M&A)and Return to Shareholders
We are a technology driven company focused on Advanced Composi tes , targeting markets with long termgrowth potential where we can establish a sustainable, competitive advantage
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Investor Presentation:
Exhibits
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©2013 Hexcel16
Exhibit A – Q2 2013 Results
First Quarter and LTM Results
$ millions except EPS Q2 2012 Q2 2013
YoY %
Change
LTM Q2
2012
LTM Q2
2013
YoY %
Change
Net Sales $399 $423 6% $1,506 $1,618 7%
Gross Margin% 26.4% 27.6% 25.5% 26.2%
Adj. Operating Income $64.4 $71.9 12% $223.0 $249.1 12%
Adj. OI% 16.1% 17.0% 14.8% 15.4%
Adj. Diluted EPS $0.42 $0.48 14% $1.57 $1.65 5%
Growth with Improved Productivity
Q2 comments:
Record sales, gross margin ($ and %), adj OI ($ and %) and adj Net Income
Commercial Aero sales remain strong -- increased 15.1% in constant currency
S&D sales also remain strong -- increased 9.3% in constant currency
Industrial sales (including wind) weak across the board, down nearly 29%. But up 8.5% overQ1 2013
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©2013 Hexcel17
$ millions 2008 2009 2010 2011 2012 2012 2013
GAAP Operating Income 130.9$ 103.7$ 129.8$ 192.0$ 248.8$ 134.5$ 134.9$
Litigation Settlements/Legal Fees - 7.5 - - - - -
Gain on Sale of Lane (1) - - - - (4.9) - -
Other Operating Expense (2) 2.7 (1.7) - (5.7) (9.6) (9.5) -
Environmental Expense (3) 7.6 1.7 3.5 2.7 5.0 - -
Business Consol & Restructuring Exp. 3.8 - - - - - -
Non-GAAP Operating Income 145.0$ 111.2$ 133.3$ 189.0$ 239.3$ 125.0$ 134.9$
Non-GAAP Operating Income % of sales 10.9% 10.0% 11.4% 13.6% 15.2% 15.6% 16.1%
GAAP Operating Income % of sales 9.9% 9.4% 11.1% 13.8% 15.8% 16.8% 16.1%
YTD June 30,
Exhibit D – Adjusted Operating Income
Reconciliation of GAAP and Non-GAAP Measures
1) 2012 includes gain of $4.9M from sales of land.
2) Other operating expenses include $9.6M from business interruption insurance settlement, $5.7M benefit from curtailment of a pensionplan in Q1 2011, $1.7M adjustment to prior year gain on sale of operations in 2009, $2.7M of US pension settlement in 2008, and $9.4Mof expense related to partial settlement of US Pension and $3.2M associated with the impairment of purchased technology and fixedassets in 2007
3) Environmental charge of $5.0M, $2.7M, $3.5M, $1.7M and $7.6 million in 2012, 2011, 2010, 2009 and 2008 respectively, reflect chargesrelated to environmental remediation liabilities for sold facilities
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©2013 Hexcel18
Exhibit E – Adjusted Net Income
Reconciliation of GAAP and Non-GAAP Measures
1) 2012 includes the after tax gain from sales of land. 2008 includes a $11.7 million after tax gain from the sale of our share in BHA AeroComposites Parts Co. Ltd. 2006 includes $9.6 million after tax gain from the sale of our 50% share in Clark-Schwebel Tech-FiberCompany
2) Represents the after tax impact of the adjustments described on the preceding page
3) Represents tax benefits resulting from the reversal of valuation allowances or tax credits recorded that relate to activities from a prioryear
$ millions 2008 2009 2010 2011 2012 2012 2013
GAAP Net Income 111.2$ 56.3$ 77.4$ 135.5$ 164.3$ 87.6$ 92.1$
Litigation Settlements/Legal Fees - 5.6 - - - - - Gain on sale of assets (net of tax)(1) (11.7) - - - (3.1) - -
Other Operating Expense (net of tax) (2) 1.7 (1.1) - (4.1) (6.0) (6.0) -
Environmental Expense (net of tax) (2) 4.7 1.1 2.2 1.8 3.2 - -
Acceleration of Deferred Financing Costs - - 4.3 3.0 0.7 0.7 0.6
Loss on early retirement of debt (net of tax) - - - - - - -
Tax Adjustments (3) (26.2) - (6.4) (11.3) - - -
Non-GAAP Net Income 79.7$ 61.9$ 77.5$ 124.9$ 159.0$ 82.3$ 92.7$
YTD June 30,