Slide 1: Presentation to Hexcel Stockholders
OSS Capital Management LP April 2008 1 Presentation to Hexcel Stockholders
Slide 2: Disclaimer
THIS PRESENTATION IS FOR GENERAL INFORMATIONAL PURPOSES ONLY. IT DOES NOT HAVE REGARD TO THE SPECIFIC INVESTMENT OBJECTIVE, FINANCIAL SITUATION, SUITABILITY, OR THE PARTICULAR NEED OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS PRESENTATION, AND SHOULD NOT BE TAKEN AS ADVICE ON THE MERITS OF ANY INVEST
Slide 3: About OSS Capital LP
Founded in Nov. 2001 by Oscar S. Schafer and Andrew J. Goffe $ 2.2 billion under management Long / Short investment partnership Long-term investment approach Hexcel stockholders since August 2005 3 About OSS Capital LP
Slide 4: Why Hexcel?
Great secular story Significant barriers to entry Emerging market and international growth Margin expansion story-economies of scale Stock inexpensive based on peer performance 4 Why Hexcel?
Slide 5: OSS Capital's Goals
To enhance the relevant expertise of the Hexcel Board in order to give Hexcel senior management more complete resources to: Enhance margins Increase Hexcel’s competitive edge Operate in a more efficient, global, and cost competitive manner To have all stockholders benefit from Hexcel’s increased suc
Slide 6: The Key Issue
Hexcel’s margins are far below its competitors’: Trailing Twelve Months, millions $ Toray Cytec Hexcel Composite revenues 693.0 669.7 975.8 Composite operating inc. 154.0 132.3 142.8 % revenues 22.2% 19.8% 14.6% Hexcel has not provided a plausible explanation for their inferior margin performance OS
Slide 7: Margins Consistently Fall Short
Operating Income As % Of Sales 7 Margins Consistently Fall Short
Slide 8: The Key Issue, Magnified
An “apples to apples” margin comparison amplifies the point: Toray and Cytec allocate corporate overhead to their composite subsidiaries, while Hexcel does not Hexcel had approximately $50 million of unallocated expenses in the trailing twelve months 8 The Key Issue, Magnified
Slide 9: Adjusted Composite Margins
Trailing Twelve Months, millions $ Toray Cytec Hexcel* Composite revenues 693.0 669.7 975.8 Composite operating inc. 154.0 132.3 142.8 Less 80% of unall. exp. Adjusted operating income % revenues 22.2% 19.8% *As Hexcel’s composite business is approximately 80% of corporate revenues, assumes 80% pro-
Slide 10: Adjusted Margin Shortfall Is Even More Dramatic
Operating Income As % Of Sales * *As Hexcel’s composite business is approximately 80% of corporate revenues, assumes 80% pro-rata allocation of corporate expenses to composite subsidiary 10 Adjusted Margin Shortfall Is Even More Dramatic
Slide 11: Hexcel's margins are consistently and dramatically below competitors'
11 Hexcel’s margins are consistently and dramatically below their competitors’ margins.
Slide 12: Hexcel's Analysis Is Misleading
In its April 2008 investor presentation, Hexcel presents misleading statements about OSS Capital’s nominees: Hexcel claims Ed Blechschmidt was the CEO of Gentiva for 30 months Ed was the CEO of Olsten/Gentiva for 4 years Hexcel claims no aerospace experience evident in Jake Hirsch’s background At Te
Slide 13: Hexcel's Analysis Is Misleading
In its April 2008 investor presentation, Hexcel presents a misleading peer margin comparable analysis: Hexcel includes multiple customers as its peer group Most customers are not peers Hexcel’s direct peers are Cytec and Toray Cytec is a customer and peer However, a comparison of total corporate mar
Slide 14: Hexcel's Analysis Is Misleading
In its April 2008 investor presentation, Hexcel presents weak explanations for sub-peer performance: US health care costs Foreign exchange Investment for growth Wage inflation Raw material costs Cost pressures are not unique; competitors face these same challenges and they do not have the same scale
Slide 15: Hexcel's margins in the composite business are just too low
No matter how the company is analyzed and no matter what qualitative adjustments or explanations are made, Hexcel is underperforming and needs help. 15 Hexcel’s margins in the composite business are just too low.
Slide 16: The Value Gap
If Hexcel realized composite operating margins similar to its peers, its composite operating income could be $60+ million higher Trailing Twelve Months, millions $ Toray Cytec Hexcel Hexcel Adj. Composite revenues 693.0 669.7 975.8 975.8 Composite operating inc. 154.0 132.3 142.8 204.9 % revenues 22
Slide 17: Bridging The Value Gap
At $60 million in additional EBIT: Current EV/EBIT multiple = 17.6x TTM EBIT Additional equity value = $1.1 billion Shares outstanding = 95.8 million This represents a value gap of $11.50 per share. 17 Bridging The Value Gap This represents a value gap of $11.50 per share.
Slide 18: The Aerospace Opportunity
In our view: The secular aerospace boom presents a huge opportunity Hexcel’s depressed profitability may hinder the company’s ability to generate enough cash to fully support the development of next generation composite aircraft Hexcel should not be a second tier player on next generation aircraft…t
Slide 19: Why These Nominees?
The three business executives that OSS Capital has nominated are committed to these priorities and have the expertise to help 19 Why These Nominees?
Slide 20: Meet The Nominees
All three nominees possess successful manufacturing backgrounds that are international in scope Each has demonstrated success in operating in cost competitive environments Each enhances the Hexcel Board’s ability to move the company to greater operating efficiency and profitability 20 Meet The Nomin
Slide 21: Ed Blechschmidt
21 Proven CEO experience in expanding shareholder value Novelis ($10 billion worldwide aluminum company), 2006-2007 Gentiva ($1.5 billion healthcare company), 2000-2002 Olsten Corp. ($5 billion worldwide conglomerate), 1998-2000 Diverse public board experience Manufacturing, Technology, Healthcare C
Slide 22: Joachim "Jake" Hirsch
More than 30 years of international manufacturing experience in Europe, Asia, and North America Broad industry experience in automotive, industrial, aerospace, and private equity industries Significant turn-around experience as a CEO Deep knowledge of plant level operations and manufacturing best pr
Slide 23: Timothy Leuliette
23 Experienced CEO of multi-billion enterprises with broad based, global business and corporate governance expertise: Turn-around experience: ITT Industries, Penske Corp. Corporate build-up: Siemens A.G. Private equity build-up and exit: Metaldyne/Asahi Tec First non-German to become a corporate off
Slide 24: Conclusion
OSS Capital’s objective is to elect these three highly qualified nominees in order to facilitate Hexcel’s ability to: Increase margins Enhance profitability Maximize stockholder value Vote the white proxy card for a more qualified Board at Hexcel 24 Conclusion
Slide 25: Thank you, we appreciate your support
Thank you, we appreciate your support 25 Conclusion