Fiscal 2018 Fourth Quarter Earnings September 26, 2018 Safe - - PowerPoint PPT Presentation

Fiscal 2018 Fourth Quarter Earnings

September 26, 2018

2

Safe Harbor

Statements in this presentation that are not historical are considered “forward-looking statements” and are subject to change based on various factors and uncertainties that may cause actual results to differ significantly from expectations. Those factors are contained in Actuant’s Securities and Exchange Commission filings. All estimates of future performance are as of September 26, 2018. Actuant’s inclusion of these estimates or targets in the presentation is not an update, confirmation, affirmation or disavowal of the estimates or targets. In this presentation certain non-GAAP financial measures may be

• used. Please see the supplemental financial schedules at the end of

this presentation or accompanying the Q4 Fiscal 2018 earnings press release for a reconciliation to the appropriate GAAP measure.

3

Fourth Quarter 2018 Highlights

• Solid results in Q4

– Adjusted EPS growth by 105% YOY – Core sales growth of 10% – Operating Profit expansion of 65% – Cash flow very positive +$74 million,

18th consecutive year of +100% conversion

* EPS and EBITDA exclude restructuring charges, impairment & divestiture charges, and other special items.

4

Fiscal 2018 – Executing on Our Objectives

Core growth above market

• Restructure commercial processes and invest

in our selling efforts

• Significantly step up new product development

activities

• Commercial effectiveness & share capture
• Product innovation

Driving world-class operations and service

• Improve our facilities and operational efficiency
• Goal Zero – safety
• Optimized cost position

Disciplined capital deployment

• Organic growth: products, services and people
• Strategic acquisitions
• Opportunistic share repurchases

Portfolio Management

• Reposition portfolio and take action on

businesses which do not fit strategically or lack profitability

5

Fourth Quarter 2018 Highlights

• Share expansion and improved product vitality

– 12 new tool product introductions / 30 for the full year – Hydratight sales +7% for the quarter – 6 new component platform launches / 29 for the full

year

• New Products +10% of total tool and

component sales

• Portfolio Management

– Anticipated sale of Cortland Fibron – offshore O&G

systems

• New Segment Structure in 2019

– Industrial Tools & Services – Engineered Components & Systems

6

Fourth Quarter 2018 GAAP vs Non-GAAP Reconciliation

• Impairment & divestiture charges include:

– Net asset write-down and currency translation realization for Cortland Fibron (UK) – Net asset write-down for Precision-Hayes International

• Restructuring largely Energy-related

(US$ in millions except EPS)

GAAP Impairment & Divestiture Charges One-Time Tax Benefit, Net of Tax Reform Restructuring & Accelerated Debt Issuance Costs Adjusted Sales $301.4 $301.4 ($38.6) ($70.1) ($0.7) $32.2 Income Taxes ($8.5) $7.2 $1.8 $1.3 $1.8 ($37.7) ($62.9) $1.8 ($0.3) $23.7

Effective tax rate

• 18%

7%

Diluted EPS ($0.62) ($1.03) $0.02 ($0.00) $0.39 Net (Loss) Income Operating (Loss) Profit Less

7

Fourth Quarter 2018 Comparable Results (1)

F' 2017 F' 2018 Change Sales $276 $301 9% $20 $32 65% 7.1% 10.7% +360 bps Adjusted Diluted EPS $0.19 $0.39 105% Adjusted Operating Profit

(US$ in millions except Diluted EPS)

(1) Excluding restructuring, impairment & divestiture charges

8

Core Sales Trend

0% 6% 3% 4% 10%

• 5%

0% 5% 10% 15% $200 $250 $300 $350

Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

Sales (US$ in millions) Year-over-Year Core Sales

Double digit year-over-year growth in Industrial, Energy and off-highway equipment Energy maintenance grows for first time since Q3 ’16

9

Adjusted Operating Profit Margin Trend (1)

Margin %

Fourth consecutive quarter of year-over-year margin improvement

(1) Excluding impairment & divestiture and restructuring (250) 20 20 120 360

• 300
• 200
• 100

100 200 300 400 0% 2% 4% 6% 8% 10% 12%

Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

Year-Over-Year Basis Point Change

10

Sales Trend

Sales Core Sales

1 2018 2017

y-o-y change

Sales $111.6 $100.3 11% Adj Op Profit (1) $26.6 $24.1 10% Adj Op Margin (1) 23.8% 24.0% (20) bps 4th Quarter

Financial Snapshot

(US$ in millions)

(1) Excludes impairment & restructuring charges of $24 and $0.1, respectively, in fiscal 2018.

5% 9% 4% 4% 10%

0% 2% 4% 6% 8% 10% 12% $40 $60 $80 $100 $120 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

• Solid growth in Tools/Enerpac across all

verticals resulting from focused commercial efforts and an overall strong economic environment

• Heavy Lifting Technology core sales

showed meaningful improvement while concrete tensioning related core sales were up modestly

• Margins reflect expected incrementals on

standard tools, partially offset by incentive compensation expense

Industrial Segment

11

Energy Segment

Sales Trend

Sales Core Sales

2018 2017

y-o-y change

Sales $77.4 $68.6 13% Adj Op Profit (1) $3.3 ($3.7) 189% Adj Op Margin (1) 4.3%

• 5.4%

970

bps

4th Quarter

Financial Snapshot

(US$ in millions)

(1) Excludes restructuring charges of $0.7 and $1.9 in fiscal 2018 and 2017, respectively. Also excludes impairment & divestiture charges of $46 and $117 in fiscal 2018 and 2017, respectively.

• 25%
• 12%
• 8%
• 1%

15%

• 30%
• 20%
• 10%

0% 10% 20% $40 $60 $80 $100 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

• Stability in oil prices has driven better

end market macros leading to improved customer activity

• Hydratight marked its first quarter of

growth in eight quarters, capturing revenue on maintenance projects

• Upstream/offshore activity improves

while growth in non-oil & gas markets continues to provide opportunities

• Margins positively impacted by flow

through on incremental sales and prior year one-time items which did not repeat

12

Engineered Solutions Segment

Sales Trend

Sales Core Sales

1 2018 2017

y-o-y change

Sales $112.3 $106.8 5% Adj Op Profit (1) $7.6 $6.1 25% Adj Op Margin (1) 6.8% 5.7% 110

bps

4th Quarter

Financial Snapshot

(US$ in millions)

(1) Excludes restructuring charges of $(0.1) in 2017.

20% 20% 10% 7% 6%

0% 5% 10% 15% 20% 25% $60 $80 $100 $120 $140 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

• Activity continues to be solid in

agriculture, on/off highway and truck verticals

• Europe and Americas grew at double-
• digits. China truck continues to be a

headwind

• Strong margin improvement from

favorable mix of products, leverage on higher sales volumes and price actions taken in Q3

13

Fourth Quarter 2018 Cash Flow / Net Debt

Net Debt Reconciliation

Adjusted EBITDA $43 Capital Expenditures (2) Cash Interest (11) Cash Taxes (3) Trade Working Capital 21 Non-trade WC / Other 26 Free Cash Flow $74

(US$ in millions)

Net Debt - May 31, 2018 $351 FX/Other 5 Free Cash Flow (74) Net Debt - Aug 31, 2018 $282 Net Debt/EBITDA (1) 1.9

Good working capital management Net debt leverage lowest level since Q1 2015

(1) Proforma EBITDA adjusted for acquisitions/divestitures and excluding restructuring and impairment & divestiture charges.

Free Cash Flow

14

Fiscal 2018 – Full Year Results in Summary (1)

F' 2017 F' 2018 Change Original 2018 Sales $1,096 $1,183 8% $1.1 -1.13B $122 $145 19% $140 - 150 11.1% 12.3% +120 bps EPS $0.83 $1.09 31% $1.05 -1.15 $68 $100 47% $85-95 Core Sales 5% 7% 4 - 6%

• 23%
• 1%

(5)% to Flat

• Eng. Solutions

6% 10% Flat to +3%

• 4%

6% Flat to +2%

• Adj. EBITDA

Industrial Free Cash Flow Energy Consolidated

(US$ in millions except EPS)

(1) Excludes restructuring charges, one time tax items, impairment & divestiture charges.

Favorable sales growth relative to original guidance largely from ES Incremental EBITDA relative to incremental sales was 26%

15

New Product and Program Launches

Tensioner Pump – ZUTP III

High force tensioners utilizing new valve technology

Torque Wrench Pump XC-TW

Cordless torque wrench pump

Industrial Cutters

Six families of heavy duty hydraulic & electrical cutters, ranging from cable cutters to bar cutters and chain cutters

2018 Introductions 12 in 4th Quarter 30 New Product Families in 2018

Tools Components

2018 Introductions 6 in 4th Quarter 29 New Products in 2018

CC-Pilot System

New Off Highway application for

• perator interface and control

New Roof & Trunk System

Hydraulic power and control BMW 8 Series

16

Macro Industry Dynamics

• General economic factors – solid growth

rates, with inflationary concerns

– Global GDP expansion

• Industrial Tools & Services

– Positive activity continues in tool sales,

distributor optimism, retail demand

– Maintenance growth dynamics – Oil and

Gas, Wind, Nuclear …

• Off-Highway Mobile Equipment

– Strong demand in all sectors: Agriculture,

Construction Equipment and Mining

• On-Highway

– China on-highway truck stabilized at lower

industry volumes

– European truck sales stable – projecting

modest slowdown

17

Fiscal 2019 Core Sales Expectations

Core Growth 2018 2019 (guide)

2019 1H 2019 2H

Industrial Tools & Services (IT&S) 3% 3 – 5%

MSD MSD

Engineered Components & Systems (EC&S) 9% 2 – 5%

LSD MSD

Consolidated 6% 3 – 5%

MSD MSD LSD = low single digit, MSD = mid single digit, DD = double digit

• Industrial Tools & Services

– Tools: Continued positive growth and retail activity – Market growth plus NPD and pricing – Services: Stabilized and improving maintenance spending

• Engineered Components & Systems

– On-Highway: China stabilizes – in back half – Europe Truck moderating – Off-highway: Continued good dynamics

18

Fiscal 2019 Guidance Summary

(US$ in millions except EPS)

Assumptions - Full Year:

• Full year core sales +3% to +5%
• EPS of $1.09 – 1.20
• ~20% effective tax rate
• Key FX rates – approximately

$1.20/1€ and $1.35/1£

• Shares outstanding ~62 million
• Free cash flow ~$80 – 85 million
• Section 301, List 3 tariffs not

included in guidance Solid growth across both IT&S and EC&S Tax Reform driving higher year-over-year effective tax rate

2018 2019E Sales $1,183 $1,210 - 1,240 EBITDA $145 $155 - 165 Diluted EPS $1.09 $1.09 - 1.20 2018 2019E Sales $289 $295 - 305 EBITDA $24 $33 - 38 Diluted EPS $0.19 $0.20 - 0.25 Full Year First Quarter

2018 excludes restructuring, impairment & divestiture charges and other tax adjustments. 2019 guidance excludes restructuring charges and any future acquisitions, divestitures or stock repurchases not specially identified.

Assumptions - First Quarter:

• Core sales +2% to +5%
• ~10 - 15% effective tax rate

19

Tariffs

• Minimal impact to Fiscal 2018 operating results from Section 232

and 301 tariffs.

• Anticipated incremental costs from Section 232 and 301 tariffs (Lists

1 & 2) have been substantially offset by our annual pricing actions in Fiscal 2018.

• Headwinds from Section 301 tariffs, that went into effect on

September 24th at 10%, with a proposal to increase to 25% in January 2019. Potential exposure of $3 – 4 million of incremental costs.

• We are still evaluating the impact of these new tariffs and we will

continue to monitor what is a very fluid situation between the US, China and other countries.

• As the situation evolves, we expect to provide further clarification of

exposure and ability to mitigate through pricing and/or surcharge on

• ur 1st Quarter Earnings Call.

20

Tax Law Implications – FY 2019 Impact

• Expecting near-term effective tax rate to be approximately 20% based on

recent changes related to tax reform. Up from 10% in FY ’18.

• Increase from 2018 to 2019 due mostly to:
• 1. Foreign country law changes that eliminate or reduce the benefit of tax

planning that was embedded in the structure, such as debt financing.

• 2. New tax reform GILTI (Global Intangible Low-Tax Income) provisions

that effectively impose a minimum US tax on foreign earnings in excess

• f 10% of production assets.
• 3. Removal of historic US foreign tax credit mechanism for most included
• ffshore income.
• These laws continue to be clarified through various notices and complex

regulations.

• The Company will continue to execute tax planning strategies that align with

the business activities to reduce the effective tax rate; we are still evaluating the new rules and future applicability to the Company’s rate.

21

2019 EPS Guidance Bridge

EPS Description 2018 Adjusted EPS $1.09 Base businesses $0.10 - $0.13 Core sales growth, Price realization, Improved productivity and NPD Acquisitions/Divestitures $0.03 - $0.05 Equalizer / Mirage / Viking Restructuring benefits $0.04 - $0.06 Year-over-year savings Subtotal $1.26 - $1.33 FX ($0.01) - ($0.02) Euro/Pound translation headwind Shares ($0.02) - ($0.03) Stock option exercises Income Tax Rate ($0.10) - ($0.12) 20% effective tax rate vs. ~10% in Fiscal 2018 2019 EPS Guidance $1.09 - $1.20 Guidance does not reflect the impact of the Section 301 List 3 tariffs, which became effective on September 24, 2018 at 10%, or the increase to 25% in January 2019.

2018 excludes restructuring, impairment & divestiture charges, director & officer transition charges and one time tax

• adjustment. 2019 guidance excludes restructuring charges and any future acquisitions, divestitures or stock repurchases

not specially identified.

22

Concluding Remarks

General Economic factors – solid growth rates, with inflationary concerns

– Global GDP expansion

Industrial Tools & Services

– Positive activity continues in tool sales, distributor optimism, retail demand – Maintenance growth dynamics – Oil and Gas, Wind, Nuclear …

Off-Highway Mobile Equipment

– Strong demand in all sectors: Agriculture, Construction Equipment and Mining

On-Highway

– China on-highway truck stabilized at lower industry volumes – European truck sales stable – projecting modest slowdown

Q & A

Appendix

25

Reconciliation of Non-GAAP Measures

Q4 Q4 2018 2017 Net Earnings ($38) ($99) Net Financing Costs $9 $8 Income Taxes ($9) ($10) Depreciation & Amortization $10 $11 Restructuring Charges $1 $2 Impairment/Divestiture $70 $117

Adjusted EBITDA

$43 $29

EBITDA

Q4 Q4 2018 2017 Cash From Operations $71 $36 Capital Expenditures ($2) ($5) Sale of PP&E $0 $0 Other $5 $1 Free Cash Flow $74 $32

Free Cash Flow

(US$ in millions)

26

Free Cash Flow / Cash Flow Conversion

(US$ in millions)

0% 50% 100% 150% 200% 250% 300% 350% $0 $50 $100 $150 $200 $250 Free Cash Flow FCF Conversion

Eighteen consecutive years of 100+% Free Cash Flow conversion