UCI International, Inc. Q4 2014 Results | March 5, 2015 - - PowerPoint PPT Presentation

UCI International, Inc.

Q4 2014 Results | March 5, 2015 Confidential

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Disclaimer

This presentation may contain “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward- looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward- looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. UCI International, Inc. (“UCI” or the “Company”) undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: our comments relating to growth of, or changes in, the light and heavy-duty vehicle aftermarket; maintaining existing sales levels with our current customers while attracting new ones; operating in international markets and expanding into adjacent markets while strengthening our market share in our existing markets; initiating effective cost cutting initiatives; and financial projections. The Company derives many of its forward-looking statements from its operating budgets and forecasts, which are based upon many detailed

• assumptions. While the Company believes that its assumptions are reasonable, you are cautioned that it is very difficult to predict the impact
• f known factors, and it is impossible for the Company to anticipate all factors that could affect its actual results. Important factors that could

cause actual results to differ materially from expectations are disclosed under the “Risk Factors” section in our Annual Report on Form 20-F. All written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in the Company’s public

• communications. You should evaluate all forward-looking statements made in this presentation in the context of these risks and

uncertainties. Some financial information in this presentation has been rounded and, as a result, the figures shown as totals in this presentation may vary slightly from the exact arithmetic aggregation of the figures that precede them.

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Disclaimer

Explanatory Note on Non-GAAP Financial Measures In this presentation, we utilize certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA, that in each case are not recognized under U.S. GAAP or IFRS. These measures are presented as we believe that they and similar measures are widely used in the markets in which we operate as a means of evaluating a company’s operating performance and financing structure. They may not be comparable to other similarly titled measures of other companies and are not measurements under U.S. GAAP, IFRS or other generally accepted accounting principles, nor should they be considered as substitutes for the information contained in the financial statements included in this presentation. EBITDA, a measure used by our management to measure operating performance, is defined as profit (loss) from continuing operations plus income tax, net financial expenses, depreciation of property, plant and equipment and amortization of intangible assets. EBITDA is not a measure of our financial condition, liquidity or profitability and should not be considered as a substitute for profit (loss) for the year, operating profit or any other performance measures derived in accordance with U.S. GAAP or as a substitute for cash flow from operating activities as a measure of our liquidity in accordance with U.S. GAAP. Adjusted EBITDA is calculated as EBITDA adjusted for particular items relevant to explaining operating performance. These adjustments include significant items of an unusual nature that cannot be attributed to ordinary business operations, including items such as integration, restructuring, defense against class action litigation and business optimization costs. Covenant Adjusted EBITDA is defined as Adjusted EBITDA as adjusted to provide the full- period effect for businesses acquired after the beginning of a period and the full-period effect to implemented cost saving programs. Adjusted EBITDA is not a presentation made in accordance with U.S. GAAP, is not a measure of financial condition, liquidity or profitability and should not be considered as an alternative to profit (loss) for the period determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. The determination of Adjusted EBITDA and Covenant Adjusted EBITDA contains a number of estimates and assumptions that may prove to be incorrect and differ materially from actual results. Additionally, EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense, working capital needs, tax payments and capital expenditures. We believe that the inclusion of EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA in this presentation is appropriate to provide additional information to investors about our operating performance to provide measures of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Because not all companies calculate EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA identically, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures in other companies. See a reconciliation of these non- GAAP financial measures to net income (loss) in the Appendix.

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Presenters Overview

Bruce Zorich Chief Executive Officer Ricardo Alvergue Chief Financial Officer

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Q4 2014 Highlights

• Macroeconomic conditions improved during the quarter

̶

Unemployment rate declined to 5.6% during the quarter (from 5.9% in September 2014)

̶

Consumer confidence increased to 92.6 during the quarter (vs. 86.0 in September 2014)

̶

Retail gas prices decreased 12.5% on average from Q4 2013

̶

Miles driven increased 2.2% in Q4 2014 vs. Q4 2013

̶

Heavy duty market – diesel prices decreased during the quarter and were 12.1% below vs. last year; and most other indices showed slight improvements during the quarter

• Industry specific conditions continued to have a negative impact on our businesses

̶

Vehicle and product improvements driving oil change intervals to about 6,000 miles (up about 10% from 2011)

̶

Improvement in OE parts quality and longevity in recent years, leading to lower aftermarket sales for fuel pumps

̶

Increased market participation by low-cost-country suppliers

̶

Consumer purchases shifting from Do-It-Yourself (DIY) to Do-It-For-Me (DIFM) outlets

• Revenue increased 4.0% for the quarter ($255 million in Q4 2014 vs. $246 million in Q4 2013), and

Adjusted EBITDA increased 5.5% ($30.7 million in Q4 2014 vs. $29.1 million in Q4 2013)

̶

Higher cooling systems revenue from continued OE program sales, and higher vehicle electronic sales from new product roll-outs and new business, were partially offset by lower sales in our filtration and fuel delivery product lines

̶

Adjusted EBITDA increased as improved material and operating costs related to our cost savings initiatives and higher sales volumes overcame lower customer pricing and unfavorable sales mix

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Q4 2014 revenue increased by 4.0% to $255 million, driven

primarily by

–

Increased cooling systems sales of $5.7 million, mainly due to OE program sales

–

Increased vehicle electronic sales of $5.3 million, mainly due to new product roll-outs in the retail and traditional channels

–

These increases were partially offset by a decline in our fuel delivery sales of $2.0 million, mainly due to lower customer pricing

FY 2014 revenue increased to $1.0 billion, driven primarily by

–

Increased cooling systems sales of $48.1 million, mainly due to OE program sales

–

Increased vehicle electronics sales of $10.4 million, mainly due to new product roll-outs in the retail channel, partially offset by lower pricing

–

These increases were partially offset by

• Lower filtration sales of $32.0 million, primarily due to lower related

party sales volumes to FRAM Group and lower private label customer pricing

• Lower fuel delivery sales of $12.6 million, due primarily to lower

customer pricing and the continued effect of competitive pressures in the fuel delivery market

Revenue

Q4 2013 vs. Q4 2014

($ in millions)

FY 2013 vs. FY 2014

($ in millions)

$246 $255 Q4 2013 Q4 2014 $996 $1,010 YTD 2013 YTD 2014 + 4.0% + 1.4%

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• Adjusted EBITDA increased by 5.5% to $30.7 million in Q4 2014

(EBITDA margin rate increased to 12.0%); results primarily driven by:

–

Increased volume of $6.3 million, primarily due to sales increases in our cooling system and vehicle electronics product lines

–

Reductions in OE program start-up costs of $4.2 million

–

Lower overall SG&A expenses of $3.8 million due to improved expense leverage including lower wages, professional fees and other costs

–

Partially offset by

• Lower customer pricing of $8.5 million, mainly due to lower fuel delivery

pricing and lower filtration private label pricing

• Unfavorable operations costs of $2.8 million, mainly due to inefficiencies

from start-up of new business in our filtration product line

• Unfavorable product mix of $1.8 million driven by our vehicle electronics

product line

• FY 2014 Adjusted EBITDA declined by 2.6% to $111.7 million, primarily

as a result of:

–

Lower customer pricing of $40.4 million, mainly due to lower fuel delivery pricing and lower filtration private label pricing, but also due to lower retail pricing across other product lines

–

Unfavorable product mix of $9.2 million, driven by our vehicle electronics product line

–

Partially offset by :

• Reductions in OE program start-up costs of $15.1 million,
• Lower overall SG&A expenses of $12.9 million, due to improved

expense leverage including lower wages, professional fees and other costs

• Improved material and operating costs of $11.8 million, primarily due to
• ur cost savings initiatives
• Impact from increased sales volumes of $6.2 million, largely due to

increases in cooling systems and vehicle electronics sales

Adjusted EBITDA

Q4 2013 vs. Q4 2014

($ in millions)

FY 2013 vs. FY 2014

($ in millions) 13.8% 11.3% 12.0% 12.3% 11.2% 10.8% 11.5% 11.8% 10.7% 11.4% 12.7% 11.0%

$29.1 $30.7 Q4 2013 Q4 2014

11.8% 12.0%

$114.7 $111.7 YTD 2013 YTD 2014

11.5% 11.1%

+ 5.5%

• 2.6%

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Capital Expenditures

For Q4 2014, capital expenditures decreased by $8 million

and included:

–

Investments related to restructuring and manufacturing footprint

• ptimization in our fuel delivery and filtration product lines ($5

million in Q4 2013 vs. $1 million in Q4 2014),

–

Investments for new OEM business ($4 million in Q4 2013 vs. $1 million in Q4 2014)

For FY 2014, capital expenditures decreased by $7 million

and included:

–

Investments related to restructuring and manufacturing footprint

• ptimization in our fuel delivery and filtration product lines ($3

million YTD 2013 vs. $10 million YTD 2014)

–

Investments for new OEM business ($7 million YTD 2013 vs. $3 million in YTD 2014)

–

2013 included $6 million for a new facility in our vehicle electronics line

Q4 2013 vs. Q4 2014

($ in millions)

FY 2013 vs. FY 2014

($ in millions)

$25 $21 $6 $3 $10 $7 $3 $41 $34 YTD 2013 YTD 2014 $6 $5 $5 $1 $4 $1 $15 $7 Q4 2013 Q4 2014 Restructuring OEM Business Building Facility Base CapEx

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Appendix

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Cost Savings and Synergies Update

$ millions Current Implemented Savings Achieved Implemented Annualized Savings to be Achieved Cost Savings and Synergies Procurement savings $24.0 $5.5 $18.5 In-sourcing 5.1 3.4 1.7 Operations improvements 21.8 6.9 14.9 Total $50.9 $15.8 $35.1 Active Projects at December 31, 2014

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Capitalization Summary

Net Multiple December 31,

• f LTM Covenant

$ millions 2014 Adjusted EBITDA (4) Cash and cash equivalents $ 44.5 Revolver (1) 20.0 Term Loan 288.0 Total Senior Debt $ 308.0 1.8x Senior Notes 400.0 Other Debt (2) 0.5 Total Debt $ 708.5 4.5x LTM Covenant Adjusted EBITDA (3) $ 146.8

(1) $75 million revolving credit facility with $20 million borrowings at December 31, 2014. In addition, $6.5 million of the revolving

credit facility capacity was utilized to support outstanding letters of credit at December 31, 2014. On February 27, 2015, UCI borrowed an additional $10 million under the revolver.

(2) Other Debt consists of capital lease obligations and an economic development loan related to the vehicle electronics product

line.

(3) LTM Covenant Adjusted EBITDA includes the impact of cost savings programs implemented but not yet achieved in LTM

results.

(4) Multiples are calculated using net debt amounts (debt less cash and cash equivalents).

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Covenant Adjusted EBITDA

LTM Covenant Adjusted EBITDA $ millions Q4 2014 Net loss ($36.2) Income tax (benefit) expense (24.7) Net interest expense 50.4 Depreciation and amortization expense 56.1 EBITDA 45.6 Trademark impairment loss 38.0 Restructuring costs, net 16.9 New business changeover and sales commitment costs 4.5 Business optimization costs 3.1 Strategic review costs 2.6 Costs related to implementation of cost sharing and manufacturing arrangements with FRAM Group 0.5 Patent litigation costs 0.2 Unrealized loss on derivatives 0.2 Environmental accrual adjustment 0.1 Costs of defending class action litigation and other litigation 0.1 Gain on forgiveness of debt (0.1) Adjusted EBITDA $111.7 Annualization of cost savings programs 35.1 Covenant Adjusted EBITDA $146.8

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