Deutsche Bank Global Industrials & Materials Summit. Potential Q&As

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1 Deutsche Bank Global Industrials & Materials Summit Potential Q&As 2Q17e Trends: What are you seeing QTD relative to 1Q trends, by geography and key product line (crawler cranes, tower cranes, mobile hydraulic cranes, boom trucks)? A: Market conditions continue to be low but have not deteriorated further from Q We continue to see excellent reception to our new models, but the market has not fundamentally changed. (do not disclose, but order trends are down Q2 17 vs Q1 17) Geographically, mobile cranes continue to be muted in the Americas and Middle East region, in particular the North American market for crawler cranes continues to be weak given persistently lower used crane values and soft rental rates. Slightly offsetting these declines, tower sales in Europe saw a year-over-year growth mainly due to continued strength in resi/comm construction markets, coupled with new model introductions. Have your orders continued to grow Y/Y, or have you seen a slowdown post- ConExpo? How much of your backlog is expected to ship during 2Q; does this imply a result better than normal seasonality? Can you comment on pricing and market share trends QTD? A: ConExpo exceeded our expectations on several fronts: 1) overall positive customer sentiment on the long-term outlook was encouraging, and 2) our products were exceptionally well received, especially the new products we displayed developed from ground up in the last six to nine months. Order intake post-conexpo is what we expected, reflecting the overall market being a challenge. Our backlog phasing is much like we ve seen historically, where it s dependent upon production lead times, finished goods inventory, and customer demand lead time. (do not disclose Q2 17 over y/y is most likely going to be down). In general pricing is holding up; however, there are projects where we elect not to participate at the risk of margin compression to protect the brands. We do not disclose market share numbers due to competitive reasons. What are you seeing in Brazil given recent economic weakness? A: We see continued weakness in Brazil and in general Latin America due to structural issues (macroeconomic, low level of construction activity, Fx, political issues, etc). Are you seeing any incremental demand from your O&G customers, or have the Y/Y declines just subsided? 1

2 A: Land based U.S. oil rig counts (893 as of June 2) are coming off historic low points that are not translating to new crane sales, Middle East recovery is still dependent upon oil prices recovering on a sustained basis. 2017e Revenue Guidance: How much confidence do you have in your guidance for an 8-10% Y/Y revenue decline in the context of YTD order activity? A: Our 1H order intake and current demand levels continue to support our present revenue guidance. Is there risk to the downside, particularly if 1Q order strength proves unsustainable? Within your full year revenue outlook, what have you embedded by geography and product line? A: Normal seasonality of demand is embedded in our full year revenue guidance. We assume market continuing at trough levels YOY with no further decline in demand from current levels which reflect the most challenging economic times in the crane history in the last 40 years. 2017e Margin Guidance: You reported another quarter of negative operating profit during 1Q when do you expect this to turn positive, based on your outlook for revenue by quarter? A: Our 10x20 strategy reflects our aspiration to achieve double digit operating margins by 2020 which includes a target to achieve Bpts margin improvement each year. We do not provide quarterly guidance. What are the biggest risks to your full year margin guidance; is this in the bag given payback from your restructuring actions, so long as revenue does not slip vs. your guidance? A: The Lean culture of the company using the principles of the Manitowoc Way is helping drive margin improvements, which are facing strong macroeconomic headwinds. 2020e Margin Target: You have guided for 10%+ operating margins (exitems) by 2020e; can you elaborate on how you will get there, particularly without the benefit of volume leverage (since you re embedding very little top-line growth)? A: We remain committed to our 10x20 target, and continue to strive for our target. Reducing our manufacturing footprint and the associated fixed costs, growing our aftermarket business, further SG&A reductions, and new product introductions are all key elements to supporting this target. 2

3 How much of this is being driven by manufacturing footprint rationalization? How much of your manufacturing square footage do you plan to shut down over time, and how do you know that this is the right level of capacity, assuming that a recovery does happen some day? What are the right mid-cycle and peak margins for your business, in your view, and can you expand margins cycle over cycle? A: A significant part of the restructuring cost entails the manufacturing footprint rationalization in line with market demand. We are further evaluating where and how to eliminate waste from our global manufacturing facilities New US Administration: How might the policies of the new US Administration impact your business how do you plan for the long-term given potential for changing tax policies, etc.? What are your thoughts on the viability/probability of an infrastructure stimulus in the US, and how would this impact your revenue? A: We look to the administration to support having a more level playing field (infers that there are measures in place to curtail currency manipulation by other countries). For the industry, the pro-business initiatives on regulatory easing for permits to build various infrastructure projects and tax policies, coupled with a renewed commitment to addressing the aging infrastructure in the U.S. at the federal level, are both encouraging. However, any meaningful impact to cranes will be in 2018 and beyond. Pricing: You have noted that pricing has been competitive for some time now, largely blamed on Japanese competitors (Tadano, Link-Belt); does this remain a challenge? Given expectations for continued USD strength, how do you plan to combat this issue over the medium-term? What can you do to differentiate your product offering or do you simply need to find a way to cut prices? A: In general pricing is holding up; however, there are projects where we elect not to participate at the risk of margin compression to protect the brands. Our competitive edge is the continuous introduction of new products that provide excellent return on invested capital for our customers with industry-leading features the help our customers make more money. Price/Cost: How much of a margin headwind was price/cost during 1Q given elevated raw material costs, and how do you expect this to trend throughout the remainder of the year, assuming the current pricing environment prevails (and commodity prices stabilize)? A: Q1 impact was not very large, less than $1M. In 2017, contracts are generally in place with steel to mitigate cost increases. We are also 3

4 offsetting any cost increases with pricing and productivity improvements in our operations. We continue to evaluate sourcing strategies, make/buy decisions based on how to best serve customers and balance that will being competitive. E.g., we are outsourcing hydraulic cylinders vs producing our own. Used Crane Market: How healthy is the used crane market now, within each major region? What are you seeing with respect to current inventory and pricing? How would you characterize your distributors inventories relative to current end market demand (and how does this compare to peers)? A: Used crane market has stabilized but has not improved. Used crane prices are still low, with lower utilization rates. In general, dealer inventory is correlated with market demand conditions. A new dynamic that has becoming an obstacle is the balance of both used and new crane inventory at the dealer level. That said, in general our dealers are managing their balance sheets. Rental Utilization: Can you comment on current crane rental utilization within which categories are you seeing signs of recovery, and where does utilization remain particularly weak? Where do you think utilization needs to move to drive demand for new cranes? A: We see a shift to rental vs purchase among our end market customers. Specific utilization levels are not publicly disclosed. Market Share: We have heard some suggest that Terex has lost market share in recent years; do you believe you have gained share in response, and if so, why did this happen? Have there been other major market share shifts (i.e. Japanese competitors)? Do you have plans to try to increase share in the future and if so, how will you do this? A: We are winning especially with the new products introduced in the last year. self-erecting towers and top slewing towers and All-terrain cranes in key markets. Cite: 1) TMS Truck mounted crane, 2) Family of new GRT RT cranes (100t, 80t and the recently announced GRT655L, a new 55- ton class crane with technology and platform commonality with GRT8100 and 880), 3) new Hup family of self-erecting cranes and MDT City Class cranes with CCS. We are committed to the long-term growth of the mobile and tower cranes markets as we are a listening to the customer and focusing our innovation that the customer values, such as increased lifting capacity, and reduced transportation costs with industry-leading quality and reliability. Chinese Competition: Investors concerns about Chinese crane competition has ebbed and flowed over the years, and seems relatively muted now, but how do you 4

5 view your Chinese competitors? How have they evolved over the years, and what do they need to do to gain a real foothold in the developed world? Have you seen Chinese OEMs have success in other EM (i.e. Brazil, Africa)? How much of a risk is this over the next cycle? A: Competition continues to be fierce with new products, but not specifically related to Chinese manufacturers. Manitowoc s competitive advantages are: 1) Superior products.lift capacity, quality, reliability, 2) industry-leading resale values, 3) industry-leading aftermarket support globally Crane Care. VPC Offering: How have customers received your VPC cranes; has demand remained robust? What are you hearing from current users of VPC cranes? Is there any risk of elevated warranty expenses as these cranes go into service? Have you seen competitors develop anything comparable to date? A: Customer response continues to be excellent with the optional Variable Position Counterweight (VPC) on our larger crawlers that is an industryexclusive feature. Customers tell us they are so much more productive in tight maneuvering situations on jobsites, and lower transportation costs. At ConExpo we introduced a 300 ton fixed counterweight model (developed in six months) to serve the segment of customers who prefer a duty-cycle application, also upgradeable to a VPC configuration. This underscores the versatility of Manitowoc cranes. Crane Cycle: Where do you think we are in the global crane cycle currently? Why do you believe crane industry revenue is below prior trough levels, while other equipment categories (i.e. aerials, earthmoving) have recovered from the trough? Is it possible that the installed base of cranes post supercycle is simply absorbing incremental project activity? A: Crane market reached its trough on mobile cranes with sustained levels of lower demand, in one of the most challenging economic times in the last 40 years due to lower oil prices, lower rental rates and resales values, partially offset by increasing demand for tower cranes due to resi/comm construction markets. Crane fleet companies depreciate their assets 7-8 years to enable a replacement cycle where they turn their fleet. The new phenomenon in this cycle is there is no secondary market for used Tier 4 cranes outside of U.S. as they cannot be consumed in other markets. Products from the are utilized to a certain degree given the longer useful life of cranes vs AWP or earthmoving equipment. US Non-Resi Construction Cycle: Are you concerned that US private nonresi construction expenditure is nearing absolute prior peak levels? Do you believe this could be an extended cycle, given that the resi housing market remains robust and we have not seen signs of slowing within nonresi data? 5

6 A: We see resi/comm construction continuing to grow. Europe Construction Cycle: European construction demand has not recovered much since the sovereign debt crisis, yet you have commented that tower crane sales into this region have been a bright spot recently; what do you believe is driving this? What are you seeing in Europe, at the country level? What could drive a European construction recovery, in your view? A: EU we saw slight growth. All-terrain sales, namely GMK4100L-1 and GMK5150/5250L, drove growth in non-residential and infrastructure projects. These new cranes have been well received by customers as they have more lift capacity, are more compact and versatile than other cranes in their respective classes. Brazil Construction Cycle: Clearly, Brazil crane sales are depressed; do you see any signs of an impending construction recovery? Are you concerned about the medium-term outlook for the country, given recent economic weakness? A: The Latin America market including Brazil continues to be very soft, with outlook continuing to be weak. Revenue Exposure: Now that O&G has faced two years of decline, what percent of your sales go to O&G customers today? What was this percentage at the peak, and how does it split between upstream, midstream, and downstream? A: Oil and gas: 32% (source: 2016YE data). We do not break out the O&G segments we serve. Mid-Cycle Framework: Assuming you do see a modest revenue recovery and reach your 10% margin target, what is your view on the mid-cycle and peak EPS framework for MTW? A: We do not publicly disclose. Credit Rating Downgrade: Does the recent credit rating downgrade by Moody s mean Manitowoc s outlook has changed? A: No. We remain committed to our full-year guidance. We believe the Moody s decision reflects their concern about end-market weakness, and not necessarily Manitowoc s business or liquidity. Our liquidity forecast remains quite strong, as mentioned in the Moody s press release. Credit Rating Impact on Business: What impact does the recent credit rating downgrade have on Manitowoc? 6

7 A: Credit ratings have no impact on our current capital structure. We have had discussions with a handful of vendors regarding payment terms, but have seen no interruption to the business. Other Credit Ratings Changes: Is there concern other rating agencies will follow Moody s and downgrade Manitowoc? A: We have close relationships and have had recent discussions with several rating agencies around the globe. We feel any intended actions by those institutions has already been announced. 7