EnPro Industries Investor Presentation. Engineered Products for a Demanding and Safer World

Transcription

1 EnPro Industries Investor Presentation Engineered Products for a Demanding and Safer World Q

2 Forward-Looking Statements Statements in presentation that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements under the Private Securities Litigation Reform Act of They involve a number of risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risks and uncertainties include, but are not limited to: general economic conditions in the markets served by our businesses, some of which are cyclical and experience periodic downturns; the effect of changes in currency exchange rates, expected volumes of purchases of parts denominated in euros used for engines to be sold in U.S. dollars; prices and availability of raw materials; and the amount of any payments required to satisfy contingent liabilities related to discontinued operations of our predecessors, including liabilities for certain products, environmental matters, employee benefit obligations and other matters. In addition, adverse developments could arise in regard to voluntary petitions filed by certain of our subsidiaries in U.S. Bankruptcy Court to establish a trust that would resolve all current and future asbestos claims. Our filings with the Securities and Exchange Commission, including the Form 10-K for the year ended December 31, 2017, describe these and other risks and uncertainties in more detail. We do not undertake to update any forward-looking statement made in this presentation to reflect any change in management's expectations or any change in the assumptions or circumstances on which such statements are based. We own a number of direct and indirect subsidiaries and, from time to time, we may refer collectively to EnPro and one or more of our subsidiaries as we or to the businesses, assets, debts or affairs of EnPro or a subsidiary as ours. These and similar references are for convenience only and should not be construed to change the fact that EnPro and each subsidiary is an independent entity with separate management, operations, obligations and affairs. This presentation also contains certain non-gaap financial measures as defined by the Securities Exchange Commission. A reconciliation of these measures to the most directly comparable GAAP equivalents is included as an appendix to this presentation. We will also be referencing certain pro forma unaudited condensed consolidated financials. Please refer to our earnings releases for important information regarding how pro forma financial information is derived, as well as related risks and uncertainties. 2

3 EnPro Introduction Company Snapshot Company Overview: Founded in 2002 (spin-off from Goodrich Corp.) Portfolio of niche businesses Several brands over 100 years old Corporate HQ in Charlotte, NC 6,000+ employees worldwide Reporting Segments: Sealing Products Engineered Products Power Systems Trading Statistics (1) : NYSE Ticker: NPO Market Cap: ~$1.5 billion Shares Outstanding: ~21.6 million Dividend: $0.96/share Dividend Yield: ~1.2% $ in millions $ in millions $ in millions Pro Forma Sales & Gross Margin (2) $1,338 $1,403 $1,433 35% 35% 35% LTM Q1 '18 Pro Forma Adjusted EBITDA & Margin (2) $186 $215 $213 14% 15% 15% LTM Q1 '18 Free Cash Flow & Conversion Rate (3) $170 $158 $116 62% 79% 74% LTM Q1 '18 (1) Trading metrics as of 5/3/18. (2) See appendix for pro forma financial reconciliations. (3) FCF Conversion Rate defined as (EBITDA less capex less changes in TTM NWC) / EBITDA. 3

4 Attractive Portfolio of Businesses Business Characteristics Target Applications Commercial & Strategic Advantages Highly demanding and extreme operating environments Leadership in niche markets with established, premium brands Mission-critical applications that require high product quality and reliability High level of customer loyalty with significant switching costs and barriers to entry Product and market characteristics provide granular pricing opportunities Sales Mix (1) Sales by Geography Sales by Market Sales by Channel Europe 21% ROW 12% Semiconductor Automotive Oil & Gas Aerospace Other 7% 7% 8% 4% 4% HD/MD Truck 26% 48% Aftermarket (1) Based on pro forma sales. 67% North America Chemical & Material Processing 9% Navy & Marine 10% 11% 15% General Industrial Power Generation OEM 52% 4

5 Segment Overview Sealing Products Engineered Products Power Systems Representative Markets: Representative Markets: Representative Markets: Aerospace Food & Pharma Processing Semiconductor Automotive ConAg General Industrial Navy & Marine Oil & Gas Heavy-Duty Trucking Metals & Mining Oil & Gas Chemical Processing Natural Gas Transmission Power Generation Segment LTM Q1 18 Pro Forma (1) : Sales: $906M Adjusted EBITDA Margin: 18% (1) See appendix for pro forma financial reconciliations. Segment LTM Q1 18 Pro Forma (1) : Sales: $312M Adjusted EBITDA Margin: 17% Segment LTM Q1 18 Pro Forma (1) : Sales: $219M Adjusted EBITDA Margin: 15% 5

6 Sealing Products Snapshot Pro Forma Historical Financials (1) Representative Products $852 $894 $906 36% 35% 35% Sanitary Hoses Hydrodynamic Seals Bearing Isolators 18% 19% 18% LTM Q1 '18 Sales Gross Margin Adjusted EBITDA Margin Metal Seals Wheel End Products Sales Mix (2) Sales by Geography Sales by Market Sales by Channel Europe 13% ROW 12% 75% North America Chemical & Material Processing Powergen Oil & Gas Aerospace Other 8% 9% Semicon 6% 5% 6% 11% 15% HD/MD Truck 40% General Industrial OEM 49% 51% Aftermarket (1) See appendix for pro forma financial reconciliations. (2) Based on pro forma segment sales. 6

7 Engineered Products Snapshot Pro Forma Historical Financials (1) Representative Products $278 $302 $312 38% 39% 39% Bushings Metal Bearings Plastic & Polymer Bearings 13% 16% 17% LTM Q1 '18 Sales Gross Margin Adjusted EBITDA Margin Ring Valves Lubrication Systems Sales by Geography Sales Mix (2) Sales by Market Sales by Channel ROW 16% Europe Aerospace Other Powergen 7% 3% 2% Oil & Gas 8% Automotive 31% Aftermarket 31% North America 33% 51% Chemical & Material Processing 22% 27% General Industrial OEM 69% (1) See appendix for pro forma financial reconciliations. (2) Based on pro forma segment sales. 7

8 Power Systems Snapshot Pro Forma Historical Financials (1) Representative Products $211 $212 $219 24% 28% 27% 17% 15% 11% LTM Q1 '18 Colt-Pielstick Engine Model PA6B Opposed Piston Engine Model 38 Nextgen Opposed Piston Engine (4Q17 launch) Sales Gross Margin Adjusted EBITDA Margin Sales Mix (2) Sales by Geography Sales by Market Sales by Channel ROW Oil & Gas Europe 13% 7% Powergen 32% 2% OEM 41% 65% 59% 80% North America Navy & Marine Aftermarket (1) See appendix for pro forma financial reconciliations. (2) Based on pro forma segment sales. 8

9 Poised to Accelerate Shareholder Value Completed Asbestos Claims Resolution Process Investments In Infrastructure & People Poised to Accelerate Shareholder Value Investments In Innovation & New Product Development Active Portfolio Management Including Strategic Acquisitions 9

10 EnPro s Plan for Shareholder Value Creation Segment-Specific Value Creation Strategies Sealing Products Engineered Products Power Systems Disciplined Capital Allocation Net working capital management Capex and inorganic investments Dividends & share repurchases Portfolio management 10

11 Segment-Specific Value Creation Strategy Sealing Products Engineered Products Power Systems Strategy Overview: Leverage leading market positions to grow business units with excellent financial characteristics Strategy Overview: Continue improving margins and ROIC, while selectively pursuing attractive adjacent growth opportunities Strategy Overview: Defend military marine core while transforming into a comprehensive power systems provider Leverage Market Leading Brands Pursue Adjacent Growth Defend Military Marine Core Enhance Access to Markets & Customers Eliminate Unprofitable Business Commercialize Trident OP Engine Grow Technical Expertise Drive Productivity & Efficiency Grow In Distributed Power Markets 11

12 Disciplined Capital Allocation Capital Allocation Strategy Shareholder Dividends $20 - $25M (~15%) Sustaining & Maintenance Capex $30 - $35M (~25%) Long-Term R&D Growth Capex $10 - $15M (~10%) Strategic Acquisitions $100 - $120M (~50%) Key Objectives Invest in new product development, new applications, and new markets Pursue bolt-on acquisitions to support business unit growth strategies Fund disciplined growth and maintenance capital expenditures Return capital to shareholder base Pro forma net leverage was ~1.9x at the end of Q4 Note 1: Percentages indicate the estimated portion of total capital allocated to each respective area going forward; dollar ranges indicate estimated allocation of current annual cash flows. Note 2: Net debt ratio above excludes the carryback of the 2017 loss resulting from the ACRP trust funding, which is expected in

13 2018 Guidance Guidance Commentary At the end of Q1, increased our expectation for full year 2018 sales and EBITDA We expect sales to be up between 6% and 8% over last year, and adjusted EBITDA between $224 and $230 million for the year About $3.5 million of the EBITDA increase over prior guidance is due to the estimated impact of currency, and the balance of the increase is a result of current momentum in our businesses $ in millions Low 2018 Guidance (1) High Sales Growth 6.0% 8.0% EBITDA $224M $230M (1) Ranges includes the impact from the previously announced Qualiseal and CVC acquisitions and excludes any impact of further M&A activity, changes in foreign exchange rates from the end of the first quarter (March 31, 2018), accounting adjustments associated with the reconsolidation of GST and OldCo, and any litigation or environmental charges. 13

14 3-Year Segment Targets Performance is on track to meet or exceed 3 year targets in all segments and across EnPro before Year Performance Targets Segment 3-Year Sales Growth CAGR Adjusted EBITDA Margin Adjusted EBITDA $ 2019 Target 3-Year CAGR Growth Target 2017 Actuals 2019 Target 2017 Actuals Sealing Products Engineered Products 2.0% - 2.5% 4.9% 19.5% % 18.8% $175M - $185M $ % - 1.5% 8.5% 15.5% % 16.1% $43M - $48M $48 Power Systems 3.5% - 4.5% 0.2% 14.0% % 16.9% $32M - $37M $36 Total Segment 2.0% - 2.5% 4.8% 18.0% % 17.9% $250M - $270M $252 Total EnPro (1) 2.0% - 2.5% 4.8% 15.5% % 15.3% $220M - $230M $215 (1) Excludes future acquisitions, restructuring costs and the impact of changes driven by foreign exchange and any litigation or environmental charges. 14

15 Net Debt & Liquidity Summary Pro Forma Net Debt Bridge $ millions Mar. 31, 2018 Credit Facility $162 Senior Notes 450 A Debt Components $612 Cash and Equivalents 118 Remaining Asbestos Insurance To Be Received in B Cash and Equivalents $134 C = (A B) Net Debt $478 D LTM March 31, 2018 Pro Forma Adjusted EBITDA $213 E = (C / D) Leverage Ratio 2.2x 1) Does not include expected tax benefits from funding asbestos claims trust as contemplated in the terms of the consensual comprehensive settlement. Including the approximate $128 million tax refund that we expect to receive in 2018, the adjusted net debt-to-ltm pro forma adjusted EBITDA multiple would be approximately ~1.6x. 15

16 Why Invest in EnPro? Attractive Share Price Relative to Peers Critical Nature of Products Leads to Commercial & Strategic Advantages Leading Brands Drive a Portfolio of Attractive, Recurring Business ACRP Resolution Complete Highly Diversified Business Leads to Stable Cash Flows Disciplined Capital Allocation Strategy Growth Focus Includes Multiple Levers 16

17 Appendix 17

18 Pro Forma Adjusted EBITDA & FCF Reconciliation ($ in millions) LTM Q1 18 Pro Forma Net Income (Loss) Plus: Interest Expense, net Income Tax Expense (Benefit) Depreciation and Amortization Restructuring Costs Environmental Reserve Adjustment Goodwill and Intangible Impairment Loss on Debt Exchange AT Dynamics Impairment Charge Acquisition Expenses Other Pro Forma Adjusted EBITDA Less: Capital Expenditures (52.1) (48.6) (52.1) Less: Changes in Net Working Capital (1) (17.9) 3.8 (2.8) Pro Forma Free Cash Flow (2) (1) Net Working Capital defined as trailing twelve months (trade accounts receivables plus inventories plus prepaid expenses) less (accounts payables plus accrued expenses). For purposes of clarity, net working capital used herein excludes cash and tax assets and debt, interest, tax, and asbestos liabilities. (2) FCF defined as adjusted EBITDA less capex less changes in TTM net working capital. 18

19 Reconciliation of Net Sales to Pro Forma Net Sales $ in millions Sealing Products LTM Q1 18 Net Sales Adjustments: Sales of Unconsolidated Entities Intercompany Sales (42.5) (29.6) (17.0) Pro Forma Net Sales Engineered Products LTM Q1 18 Net Sales Adjustments: Sales of Unconsolidated Entities Intercompany Sales (1.5) (1.1) (0.7) Pro Forma Net Sales Power Systems LTM Q1 18 Net Sales Adjustments: Sales of Unconsolidated Entities Intercompany Sales (1.4) (2.0) (0.5) Pro Forma Net Sales EnPro LTM Q1 18 Net Sales 1, , ,382.6 Adjustments: Sales of Unconsolidated Entities Intercompany Sales (45.8) (33.0) (18.5) Pro Forma Net Sales 1, , ,

20 Reconciliation of Segment Profit to Pro Forma Adjusted Segment EBITDA $ in millions Sealing Products LTM Q1 18 Segment Profit Adjustments: Segment Profit of Unconsolidated Entities Pro Forma Acquisition Date FV Inventory Adjustment Pro Forma D&A Adjustments (10.0) (5.8) (3.3) Pro Forma Segment Profit Acquisition Expenses Restructuring Costs Depreciation and Amortization Expenses Pro Forma Adjusted Segment EBITDA Engineered Products LTM Q1 18 Segment Profit Adjustments: Segment Profit of Unconsolidated Entities Pro Forma D&A Adjustments Pro Forma Segment Profit Acquisition Expenses Restructuring Costs Depreciation and Amortization Expenses Pro Forma Adjusted Segment EBITDA Power Systems LTM Q1 18 Segment Profit Adjustments: Segment Profit of Unconsolidated Entities Pro Forma D&A Adjustments Pro Forma Segment Profit Restructuring Costs Depreciation and Amortization Expenses Pro Forma Adjusted Segment EBITDA

21 Calculation of Last Twelve Months (LTM) Pro Forma Adjusted EBITDA ($ in millions) Consolidated Net Income (Loss) Consolidated Adjusted EBITDA Pro Forma Adjusted EBITDA Plus: Three Months Ended March 31, 2018 (1) Year Ended December 31, 2017 (2) Less: Three Months Ended March 31, 2017 (1) LTM Ended March 31, (1) For reconciliations of consolidated net income to consolidated adjusted EBITDA and to pro forma net income, and of pro forma net income to pro forma adjusted EBITDA for the three months ended March 31, 2018 and 2017, please refer to our first quarter 2018 earnings release dated May 2, 2018 and available at our website. (2) As previously reported and reconciled - for reconciliations of consolidated net income to consolidated adjusted EBITDA and to pro forma net income and of pro forma net income to pro forma adjusted EBITDA for the year ended December 31, 2017, please refer to our fourth quarter 2017 earnings release dated February 13, 2018 and available at our website. 21

22 Calculation of Last Twelve Months (LTM) Pro Forma Segment Sales Sealing Products Engineered Products ($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales ($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales Plus: Plus: Three Months Ended Mar. 31, 2018 (1) Three Months Ended Mar. 31, 2018 (1) Year Ended December 31, (29.6) Year Ended December 31, (1.1) Less: Less: Three Months Ended Mar. 31, 2017 (1) (12.6) Three Months Ended Mar. 31, 2017 (1) (0.4) 75.2 LTM Ended March 31, (17.0) LTM Ended March 31, (0.7) Power Systems EnPro ($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales ($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales Plus: Plus: Three Months Ended Mar. 31, 2018 (1) Three Months Ended Mar. 31, 2018 (1) Year Ended December 31, (2.0) Year Ended December 31, , (33.0) 1,402.5 Less: Less: Three Months Ended Mar. 31, 2017 (1) (1.5) 44.3 Three Months Ended Mar. 31, 2017 (1) (14.5) LTM Ended March 31, (0.5) LTM Ended March 31, , (18.5) 1,433.4 (1) Information from our first quarter 2018 earnings release dated May 2, 2018 and available at our website. 22

23 Calculation of Last Twelve Months (LTM) Pro Forma Adjusted Segment EBITDA ($ in millions) Plus: Less: Segment Profit Segment Profit of Deconsolidated Entities Pro Forma D&A Adjustments Sealing Products Pro Forma Inventory FMV Adjustment Pro Forma Segment Profit Acquisition Expenses Restructuring Costs D&A Expense Pro Forma Adjusted Segment EBITDA Three Months Ended Mar. 31, 2018 (1) Year Ended December 31, (5.8) Three Months Ended Mar. 31, 2017 (1) (2.5) LTM Ended March 31, (3.3) ($ in millions) Plus: Less: Segment Profit Segment Profit of Deconsolidated Entities Pro Forma D&A Adjustments Engineered Products Pro Forma Inventory FMV Adjustment Pro Forma Segment Profit Acquisition Expenses Restructuring Costs D&A Expense Pro Forma Adjusted Segment EBITDA Three Months Ended Mar. 31, 2018 (1) Year Ended December 31, Three Months Ended Mar. 31, 2017 (1) LTM Ended March 31, ($ in millions) Plus: Less: Segment Profit Segment Profit of Deconsolidated Entities Pro Forma D&A Adjustments Power Systems Pro Forma Inventory FMV Adjustment Pro Forma Segment Profit Acquisition Expenses Restructuring Costs D&A Expense Pro Forma Adjusted Segment EBITDA Three Months Ended Mar. 31, 2018 (1) Year Ended December 31, Three Months Ended Mar. 31, 2017 (1) LTM Ended March 31, (1) Information from our first quarter 2018 earnings release dated May 2, 2018 and available at our website. 23