Modine Manufacturing Company Investor Presentation August 2018 · Operating income $ 28.5 $ 10.9...
Transcript of Modine Manufacturing Company Investor Presentation August 2018 · Operating income $ 28.5 $ 10.9...
Modine Manufacturing Company
Investor PresentationAugust 2018
2
This presentation contains statements, including information about future financial performance and market
conditions, accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,”
and other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995.
Modine's actual results, performance or achievements may differ materially from those expressed or implied in
these statements because of certain risks and uncertainties, including, but not limited to those described under
“Risk Factors” in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended March 31,
2018 and under Forward-Looking Statements in Item 7 of Part II of that same report and in the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2018. Other risks and uncertainties include, but
are not limited to, the following: Modine’s ability to realize the anticipated synergies associated with the Luvata
HTS acquisition and to achieve projected cash flows sufficient to maintain a desirable leverage ratio; the overall
health and price-down focus of Modine’s customers; uncertainties regarding the costs and benefits of Modine’s
restructuring activities; operational inefficiencies as a result of program launches, unexpected volume increases
and product transfers; economic, social and political conditions, changes and challenges in the markets where
Modine operates and competes, including foreign currency exchange rate fluctuations (particularly the value of
the euro, Brazilian real and British pound relative to the U.S. dollar), tariffs, inflation, changes in interest rates,
recession, restrictions associated with importing and exporting and foreign ownership, and the general
uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, that
have been or may be implemented in the U.S. or by its trade partners, and continuing uncertainty regarding
“Brexit”; the impact on Modine of any significant increases in commodity prices, particularly aluminum, copper,
steel and stainless steel (nickel), and our ability to pass increasing prices on to customers; Modine's ability to
successfully execute its strategic and operational plans; the nature of and Modine’s significant exposure to the
vehicular industry and the dependence of this industry on the health of the economy; the concentration of sales
within our CIS segment attributed to one customer; Modine’s ability to recruit and maintain managerial and
leadership talent; Modine’s ability to protect its proprietary information and intellectual property from theft or
attack; costs and other effects of environmental investigation, remediation or litigation; and other risks and
uncertainties identified by the Company in public filings with the U.S. Securities and Exchange Commission. The
Company does not assume any obligation to update any forward-looking statements.
Forward-Looking Statements
3
Modine Manufacturing Company has been
leading the way in thermal management
since 1916. We design, manufacture and
test heat transfer products for a wide
variety of applications and markets.
We're at work in practically every corner of
the world, delivering the solutions our
customers need, where they need them.
Modine at a Glance
Ticker MOD (NYSE)
Founded 1916 in Racine, WI
FY’18 Net Sales $2.1 billion
Employees 11,700
59%32%
9% Vehicular ThermalSolutions*
Commercial &Industrial Solutions
Building HVACSystems
46%43%
11%Americas
EMEA
Asia
FY’18 Sales by Geographic Region
FY’18 Sales by Business Segment
A Diversified Industrial Company with a Well Positioned Product Portfolio
* Intercompany coils sales are excluded for VTS segment sales.
4
25%
14%
17%
23%
8%
7%
6%
Automotive Commercial Vehicle
Off-Highway/Specialty Vehicle Commercial HVAC
Refrigeration Data Center
Industrial (Power & Other)
78%
22%
Commercial HVAC
Data Center
46%
27%
15%
12%Commercial HVAC
Refrigeration
Data Center
Industrial (Power &Other)
End-Markets Profile
42%
24%
29%
5%Automotive
Commercial Vehicle
Off-Highway/SpecialtyVehicle
Other
FY’18 Sales - Vehicular Thermal Solutions
FY’18 Sales - Commercial & Industrial Solutions
FY’18 Sales - Building HVAC Systems
39% Auto/Truck
Industrial sales make up more than 60%
of the Modine Portfolio
All graphs based on Fiscal 2018 net sales.
61% Industrial
5
Best-in Class Thermal Management Solutions
$191M (9%)FY’18 NET SALES
----------------------
• Large install base, barrier to
entry
• Long-term distributor
relationships
• Increased focus on energy
efficiency and total cost of
ownership
• Demand for free-cooling and
full product-line solutions
BuildingHVAC Systems
(BHVAC)
$676M (32%)FY’18 NET SALES
----------------------
• Growing global demand
across multiple verticals:
— AC in commercial and
residential markets
— Chilled and frozen food
consumption
— Data storage
• New regulations driving
demand for energy efficiency
and alternative refrigerants
Commercial & Industrial Solutions
(CIS)
$1.3B (59%)FY’18 NET SALES*
----------------------
• Engine Product solutions and
Powertrain Cooling (PTC)
• New heat exchangers needed
to meet emissions standards
and demand for advanced
technologies, such as
electrification
• Customers demand global
product design, quality
standards & support
Vehicular Thermal Solutions
(VTS)
Best-in Class Thermal Management Solutions
* Intercompany coils sales are excluded for VTS segment sales.
6
Product Overview
Segment Product Offerings
VTSPowertrain Cooling / Engine Products
• Radiators
• Charge-air-Coolers (and Liquid cooled)
• Oil Coolers (Air and Liquid cooled)
• Exhaust Gas Recirculation Coolers (EGRCs)
• Battery Cooling & Heating
• Cooling Modules
CIS• Coils
– Heat Exchanger/Microchannel
• Coolers
– Remote Condensers
– Transformer Oil Coolers
• Coatings
– Electro® Fin Coating
– Insitu® spray Coating
BHVAC• Unit/Infrared Heaters
• Duct Furnaces
• Make-up Air Units
• Single Packaged Vertical Units
• Commercial Hydronic Units
• Chillers
• Air Handling Units
• Precision AC
7
Customer ProfileV
TSC
ISB
HV
AC
Effinity™ Heating Atherion® Ventilation DeltaChill™ FreeCool School Systems
8
Modine Strategy
Strengthen Diversify & Grow (SDG)
Strengthen - Deliver higher operating margins and cash flows through manufacturing optimization and
SG&A controls
Diversify - Reduce customer concentration and exposure to cyclical end markets by increasing
exposure to higher-margin industrial end markets
Grow - Embrace technological advancement and make strategic investments where we have the right
to win, seeking high returns on invested capital
FY Ended March 31,Pre-SDG
2015
Post-SDG
2018
Net sales $1,496.4 $2,103.1 +41%
Adjusted OpInc*Margin
$66.94.5%
$120.15.7%
+80%+120 bps
Free Cash Flow*Margin
$5.20.3%
$52.82.5%
+$47.6+220 bps
% of Industrial Sales 44% 61%
(in millions)
* See Appendix for Non-GAAP reconciliations
9
Strategic Next Steps
Completed strategic portfolio assessment
Addressing underperforming businesses
Implementing capital prioritization process
Driving SG&A process improvement
Diversify through acquisitions
Target higher margin & cash generating industrial businesses
Further reduce customer concentration and impact of economic cycles
Re-allocate capital to drive growth and profitability
Concentrate growth in areas with leading positions and technology or market drivers
• Electric vehicles• Data centers• Mobile refrigeration • Greenhouses/Urban
farming
Further operating margin improvement
A greater mix of sales to Industrial markets
Increase revenue
growth; both organic
and inorganic
STRENGTHEN DIVERSIFY GROW
SDG will continue to drive our strategic decisions
10
Financial Highlights and Outlook
FY’18 Results
• Net sales up 40% to $2.1 billion
• Adjusted operating income up 66% to
$120.1 million
• Adjusted EPS up $0.76 to $1.54
• Free cash flow of $52.8 million up
$75.6 million
FY’19 Guidance
• Net sales up 3% to 8%
• Adjusted operating income of $135 to
$145 million up 12% to 21%
• Adjusted EPS of $1.50 to $1.65
• Free cash flow outlook driven by
projected earnings growth
* See Appendix for Non-GAAP reconciliations
$1,000
$1,500
$2,000
$2,500
FY'16 FY'17 FY'18 FY'19
Net sales
$-
$50
$100
$150
FY'16 FY'17 FY'18 FY'19
Adjusted OpInc
$(25)
$-
$25
$50
$75
$100
FY'16 FY'17 FY'18 FY'19
Free Cash Flow
(In ‘000s)
11
Highlights
• Reorganized company into three segments with global operations
and scale
• Set to deliver another year of revenue and earnings growth and
free cash flow in FY’19
• Strengthen, Diversify and Grow will continue to guide strategic
decisions
• Investigating opportunities for industrial acquisitions to strengthen
product portfolio and further diversification
• Accelerating our transformation into a more diversified global
thermal management company
Appendix
13
Vehicular Thermal Solutions
* See Appendix for Non-GAAP reconciliations
42%
24%
29%
5%
Automotive
Commercial Vehicle
Off-Highway/Specialty Vehicle
Aftermarket/Genset/Other
FY 2018 Sales Mix (59%)• 18 manufacturing facilities around the globe
• Focused significant resources on strategic review of our product portfolio
• Diversified revenue mix across major end-markets
• Strengthening business by optimizing global manufacturing and operational capabilities
• Our teams in each region are heavily involved in electrical vehicle pursuits
• Key customers: Daimler, Volkswagen, CAT, Volvo, Deere, Navistar, FCA, CNH, Denso, ZF, Sogefi, GM, Oshkosh, Hyundai, PACCAR
FY Ended
March 31,2018 2017
Net sales $1,295.7 $1,152.2
Adjusted
operating income*92.9 78.2
Adjusted
Operating margin*7.2% 6.8%
(in millions)
14
Commercial and Industrial Solutions
* See Appendix for Non-GAAP reconciliations
FY 2018 Sales Mix (32%)• 16 manufacturing facilities in North America, Europe
and Asia (closed Austria manufacturing facility)
• Primary products include Coils, Coolers and Coatings
• CIS is a pioneer in bringing microchannel technology to the HVAC&R industry, which has been used in the auto industry for more than 20 years
• Broadens and complements Building HVAC sales channels
• Fiscal 2017 financial results represent the four months ended March 31, 2017
FY Ended
March 31,2018 2017
Net sales $675.7 $231.8
Adjusted
operating income*38.1 10.9
Adjusted
Operating margin*5.6% 4.7%
(in millions)
46%
27%
15%
12%
Commercial HVAC
Refrigeration
Data Center
Industrial (Power & Other)
15
41%
23%
14%
5%
17%
Commercial Heating - NA
Air Conditioning - EMEA
Commercial Ventilation - NA
Commercial Ventilation - UK
Aftersales - Controls, service, spares
Building HVAC Systems
* See Appendix for Non-GAAP reconciliations
• Four manufacturing facilities in North America and United Kingdom
• Complementary business that provides diversification to Modine’s vehicular segment
• Strong financials due to product differentiation, manufacturing efficiencies and brand strength
• Pursuing growth opportunities based on energy efficiency and other “green” initiatives
• Ventilation and data center cooling
FY Ended
March 31,2018 2017
Net sales $191.2 $171.6
Adjusted
operating income*21.9 13.9
Adjusted
Operating margin*11.5% 8.1%
(in millions)
FY 2018 Product Sales Mix (9%)
16
Non-GAAP Reconciliations
Commercial and Industrial Solutions 2018 2017
Operating income 28.5$ 10.9$
Restructuring expenses 8.3 -
Impairment charge 1.3 -
Adjusted operating income 38.1$ 10.9$
Net sales 675.7$ 231.8$
Adjusted operating margin 5.6% 4.7%
Years ended March 31,
Building HVAC Systems 2018 2017
Operating income 20.3$ 13.2$
Restructuring expenses 0.4 0.7
Impairment charge 1.2 -
Adjusted operating income 21.9$ 13.9$
Net sales 191.2$ 171.6$
Adjusted operating margin 11.5% 8.1%
Years ended March 31,
Vehicular Thermal Solutions 2018 2017
Operating income 84.2$ 68.4$
Restructuring expenses 7.3 9.9
Environmental and legal charges 1.4 1.9
Gain on sale of facilities - (2.0)
Adjusted operating income 92.9$ 78.2$
Net sales 1,295.7$ 1,152.2$
Adjusted operating margin 7.2% 6.8%
Years ended March 31,
Segment adjusted operating income and margin
(In millions)
17
Non-GAAP Reconciliations
(a) Includes environmental charges and related legal costs associated with a previously-owned manufacturing
facility in North America. In addition, during fiscal 2017, the Company increased a legal reserve in Brazil by
$1.6 million, which has since been settled.
Adjusted EPS
2018 2017 2016
Earnings (loss) per share attributable to
Modine shareholders - diluted 0.43$ 0.29$ (0.03)$
U.S. tax reform charges 0.74 - -
Restructuring expenses 0.26 0.17 0.27
Impairment charges 0.04 - 0.21
Acquisition-related costs and adjustments 0.06 0.28 0.01
Strategy consulting fees 0.05 - -
Environmental and legal charges (a) 0.02 0.04 0.02
Tax valuation allowances (0.06) 0.04 (0.06)
Gain on sale of facilities - (0.04) -
Gain from fire insurance recovery - - (0.19)
Pension settlement losses - - 0.54
Adjusted EPS - diluted 1.54$ 0.78$ 0.76$
Years ended March 31,
Adjusted operating income and margin
(In millions) 2018 2017 2016 2015
Operating income 92.2$ 42.3$ 37.1$ 54.4$
Restructuring expenses 16.0 10.9 16.6 4.7
Impairment charges 2.5 - 9.9 7.8
Acquisition-related costs and adjustments 4.3 19.1 0.5 -
Strategy consulting fees 3.7 - - -
Environmental and legal charges (a) 1.4 1.9 1.6 3.2
Gain on sale of facilities - (2.0) - (3.2)
Adjusted operating income 120.1$ 72.2$ 65.7$ 66.9$
Net sales 2,103.1$ 1,503.0$ 1,352.5$ 1,496.4$
Adjusted operating margin 5.7% 4.8% 4.9% 4.5%
Years ended March 31,
18
Non-GAAP Reconciliations
Our fiscal 2019 guidance includes adjusted operating income, adjusted EPS and free cash flow. These are non-GAAP measures,
which exclude certain cash and non-cash charges or gains. These charges and gains may be significant and include items such
as restructuring expenses (including severance costs and plant consolidation and relocation expenses), acquisition and
integration costs, impairment charges and certain other items. These adjustments for fiscal years 2015 through 2018 are
presented on slide 17 of this presentation. Estimates of these adjustments for fiscal 2019 are not available due to the low visibility
and unpredictability of these items.
Forward-Looking Non-GAAP Financial Measures
Free cash flow
(In millions) 2018 2017 2016 2015
Net cash provided by operating activities 123.8$ 41.6$ 72.4$ 63.5$
Capital expenditures (71.0) (64.4) (62.8) (58.3)
Free cash flow 52.8$ (22.8)$ 9.6$ 5.2$
Net sales 2,103.1$ 1,503.0$ 1,352.5$ 1,496.4$
Free cash flow margin 2.5% -1.5% 0.7% 0.3%
Years ended March 31,
Thank You