Modine Manufacturing Company · NYSE:MOD
Modine Manufacturing — Investor Day (June 2022)
93 slides from Modine Manufacturing's investor day presentation, Jun 22, 2022
Slide 1: Investor & Analyst Day June 22, 2022
INVESTOR & ANALYST DAYJune 22, 2022
Slide 2: Forward-Looking Statements
Forward-Looking Statements Welcome This presentation contains statements, including information about future financial performance and market conditions, accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,” “projected,” and other similar “forward-look
Slide 3: Agenda and Presenters
Agenda and Presenters WELCOME Unlocking Value in Modine Neil Brinker Performance Technologies Adrian I. Peace Air-Cooled Applications Liquid-Cooled Applications Advanced Solutions Break Climate Solutions Eric McGinnis Heat Transfer Products HVAC & Refrigeration Data Centers Financial Review Mick Luc
Slide 4: Unlocking Value: Transforming for a Sustainable Future
Unlocking Value: Transforming for A sustainable futureNeil Brinkerpresident and CEo
Slide 5: Introduction: Purpose, Mission and Values
INTRODUCTION DINE ning» Cee, eat Mois OUR PURPOSE Engineer a cleaner, healthier world OUR MISSION OUR VALUES Improve Air Quality Integrity Committed %G Reduce Water and Energy Consumption People Centric is Lower Harmful Emissions Technology Driven Enable Cleaner Running Vehicles Results Oriented of
Slide 6: Financial Objectives
Financial Objectives introduction Revenue: $2.1B EBITDA Margin: 7.7% Revenue: 6-8% CAGR EBITDA Margin: 10-12% Revenue: 8-10% CAGR EBITDA Margin: 13-15% FY2022 FY2023-24 FY2025-27 See appendix for Non-GAAP reconciliations.
Slide 7: Engineering a Cleaner, Healthier World
MMODINE Engineering a Cleaner, Healthier World
Slide 8: Our Journey
— opine OUR JOURNEY
Slide 9: Over 100 Years of Thermal Solutions Knowhow
Over 100 Years of Thermal Solutions Knowhow OUR JOURNEY 1916:A.B. Modine founds Modine Manufacturing Company 1928:Becomes public and lists on the Chicago Stock Exchange 1984:Stock transfers to NASDAQ 1985:Establishes JV’s in Germany, Mexico, Brazil and Singapore 1993:Acquires Längerer and Reich (Mod
Slide 10: Modine at a Glance
36 Manufacturing facilities in 14 countries* Americas: 13 Europe: 16 Asia: 7 11,100 Employees Our Journey Modine at a Glance FY2022 Adjusted EBITDA $158.8 Million FY2022 Sales $2.1 Billion Revenue percentages are estimates. Recast segment information will be provided with Q1 FY2023 results. See appe
Slide 11: Transformational Strategy
— MODINE TRANSFORMATIONAL STRATEGY
Slide 12: Strategy to Unlock Value
Strategy to Unlock Value Transformational strategy PERFORM and Deliver FOCUS THE ORGANIZATION Make 80/20 a core part of our DNA Build a high-performance organization Simplify and segment the business PERFORM AND DELIVER Launch the Modine Business Cycle Maximize share of target markets Simplify and i
Slide 13: Focus the Organization
FOCUS THE ORGANIZATION
Slide 14: Make 80/20 a Core Part of our DNA
Make 80/20 a Core Part of our DNA Transformational strategy 80/20 is the governing philosophy for everything we do. It is a systematic way of: Examining the business Focusing resources Prioritizing best returning opportunities FOCUS THE ORGANIZATION
Slide 15: Build a High-Performance Organization
Build a High-Performance Organization Transformational strategy Global Industrial Leadership 80/20 Experience Business Transformation Strategic Planning Business Development Operational Turnaround Commercial Excellence Convert from a large functional organization to a decentralized, market-based str
Slide 16: Simplify and Segment the Business
Simplify and Segment the Business Transformational STRATEGY PERFORMANCE TECHNOLOGIES CLIMATE SOLUTIONS Air-Cooled Applications Liquid-Cooled Applications Advanced Solutions Heat Transfer Products HVAC & Refrigeration Data Centers Air-cooled heat exchangers for vehicular, stationary power, and indust
Slide 17: Perform and Deliver
PERFORM AND DELIVER
Slide 18: Transformational Strategy: Perform and Deliver
TRANSFORMATIONAL STRATEGY PERFORM AND DELIVER
Slide 19: Maximize Share of Targeted Markets
Maximize Share of Targeted Markets TRANSFORMATIONAL STRATEGY Data Centers HVAC & R Advanced Solutions Focus on growing in existing products and markets with a proven market position and right to win Systems over components Leverage global footprint and channels New product development Pursue acquisi
Slide 20: Simplify and Improve Operating Margins
Simplify and Improve Operating Margins Transformational strategy Focus on product simplification and margin improvement over revenue growth Establish value-based pricing and rationalize product lines and manufacturing operations across Air-Cooled Applications Lower cost structure to improve profit m
Slide 21: Accelerate Profitable Growth
ACCELERATE PROFITABLE GROWTH
Slide 22: Shift to Systems Solutions versus Components
Shift to Systems Solutions versus Components TRANSFORMATIONAL STRATEGY System Design & Software Diagnostics, maintenance, telematics Thermal Systems & Controls Battery thermal management system, electronic cooling package, data center cooling, indoor air quality Essential Products Heating products,
Slide 23: Promote Geographic Expansion
Promote Geographic Expansion Transformational strategy Expanding the data center business from the UK to North America Expand Heating, IAQ and EV Systems from North America to EMEA Supporting growth through geographic expansion AND repurposing existing infrastructure ACCELERATE PROFITABLE GROWTH
Slide 24: Pursue Opportunistic M&A
Pursue Opportunistic M&A Transformational strategy Niche Products Products that complement portfolio or fill product gaps One or two steps adjacent New Geographies Targets that facilitate the expansion to new geographies Systems-Based Projects Products or technologiesthat support the move from compo
Slide 25: Conclusion
CONCLUSION
Slide 26: Investment Highlights
Investment Highlights Transformational strategy Engineering a Cleaner, Healthier World™ Building on over 100 years of excellence in thermal management 100+ year legacy in thermal management Products & solutions that help improve our environment Strategic plans in place New leadership team fully alig
Slide 27: Financial Objectives
Financial Objectives Transformational strategy Revenue: $2.1B EBITDA Margin: 7.7% Revenue: 6-8% CAGR EBITDA Margin: 10-12% Revenue: 8-10% CAGR EBITDA Margin: 13-15% FY2022 FY2023-24 FY2025-27 conclusion See appendix for Non-GAAP reconciliations.
Slide 28: Performance Technologies
— (MODINE PERFORMANCE TECHNOLOGIES
Slide 29: Performance Technologies Overview
Performance Technologies brings value to our customers by enhancing the performance of their systems through technologies and services. From enhanced fuel efficiency and durability to improved battery safety and prolonged life of components in harsh environments, these technologies help facilitate a
Slide 30: Growth Drivers
Growth Drivers PERFORMANCE TECHNOLOGIES ENERGY EFFICIENCY RAPID URBANIZATION CLIMATE CHANGE POPULATION GROWTH RESOURCE SCARCITY Battery temperature optimization Improved fuel economy Specialty vehicle cooling systems Construction equipment components Components designed to lower vehicle emissions El
Slide 31: Segment Objectives
Segment Objectives Performance technologies PERFORM AND DELIVER De-emphasize non-profitable business or end-of-life technologies Reallocate people and capital to high margin businesses – Advanced Solutions Focus on Commercial Excellence to capture value FOCUS THE ORGANIZATION Use 80/20 as a strategi
Slide 32: Focus on Margin Improvement Through Segmented Strategies
Performance technologies Liquid-Cooled Applications Liquid-Cooled Applications Air-Cooled Applications Air-Cooled Applications Advanced Solutions Rationalize & Reallocate ~35% Mature products and technologies Profitability below target levels Key Actions: Establish value-based pricing Reduce cost st
Slide 33: Product Evolution
Product Evolution PERFORMANCE TECHNOLOGIES ICE Components EV / Fuel Cell Systems EGR Coolers (Liquid) Chillers (Liquid) Battery Cooling Plates (Liquid) Engine Oil Coolers (Liquid) Retarder Coolers (Liquid) Radiators (Air) Cooling Modules (Systems) Liquid Condenser (Liquid) AL-LC Coolers (Liquid) Liq
Slide 34: Air-Cooled Applications
MODINE AIR-COOLED APPLICATIONS
Slide 35: Air-Cooled Applications Overview
Overview We design and manufacture world-class air-cooled technology for vehicular markets. Given the demands of increasingly stringent government regulations and space limitations, we work with our customers to develop cost-effective, integrated solutions that increase fuel economy, lower emissions
Slide 36: Liquid-Cooled Applications
Liquid-Cooled Applications
Slide 37: Liquid-Cooled Applications Overview
Overview We design and manufacture world class liquid-cooled technology for vehicular markets. Given the demands of increasingly stringent government regulations and space limitations we work with our customers to develop cost effective, integrated solutions that increase fuel economy, lower emissio
Slide 38: Advanced Solutions
MopINE ADVANCED SOLUTIONS
Slide 39: Advanced Solutions Overview
Overview We provide advanced thermal solutions to zero-emission and hybrid commercial vehicle and automotive customers designed to control the temperature of key components, ultimately improving battery range, safety and vehicle life. Our coatings products and application services are designed to ex
Slide 40: Product Evolution
Product Evolution PERFORMANCE TECHNOLOGIES ICE Components EV / Fuel Cell Systems EGR Coolers (Liquid) Chillers (Liquid) Battery Cooling Plates (Liquid) Engine Oil Coolers (Liquid) Charge Air Coolers (Air) BTMS (System) ECP (System) Condenser (Air) ADVANCED SOLUTIONS Retarder Coolers (Liquid) Radiato
Slide 41: Market Outlook
Market Outlook Growth Drivers Government policies in North America, Europe and China are driving investments into Electric Vehicles, as well as infrastructure necessary for wide-scale adoption Fixed route applications leading adoption to EV in North America – bus, truck, specialty vehicle and last m
Slide 42: Strategic Priorities
Strategic Priorities New product development to provide critical thermal management in EVs for safety, range and life of asset Step up technology staircase — emphasize systems and services Protect long-term content by designing advanced thermal systems with proprietary smart electric products Serve
Slide 43: Performance Technologies Financials
PERFORMANCE TECHNOLOGIESFINANCIALS
Slide 44: Significant Improvement in Revenue Mix
Significant Improvement in Revenue Mix Performance technologies Advanced Solutions CAGR of 30-35% reflects targeted share growth in EV systems and adjacencies Liquid-Cooled Applications have long-term market applications in EV, will convert over time; liquid cooling of large engines will have a long
Slide 45: Revenue Growth from Market and Price Recovery
Revenue Growth from Market and Price Recovery Performance technologies Short-term market growth driven by market and value-based pricing, with above market growth in Advanced Solutions Positive mix shift as low-margin programs wind down Potential acquisitions around specific technologies to support
Slide 46: Driving Substantial EBITDA Margin Expansion
Margin improvement through positive mix, strategic pricing, cost reduction initiatives and operational improvements expected to drive significantly higher margins over the next 24 months Further margin growth due to continued focus on higher margin business and wind down of low margin programs Drivi
Slide 47: Financial Summary: Performance Technologies
Current State FY 2022 Phase 1 FY 2024 Phase 2 FY 2027 Financial Summary Performance Technologies Revenue EBITDA Margin CapEx % of Sales $1.2 billion 6.2% 2.5% 5 - 7% CAGR 10 - 12% 2.0 - 2.5% 0 - 3% CAGR 14 - 16% 1.5 - 2.0% Revenue Growth Driven by: Accelerated growth in Advanced Solutions Largely of
Slide 48: Key Takeaways
Key Takeaways Performance technologies Build high-performance culture Drive aggressive revenue growth in Advanced Solutions Simplify product portfolio utilizing 80/20 Innovate to step up technology staircase
Slide 49: Climate Solutions
Climate SOLUTIONS ERIC mCGINNIS
Slide 50: Climate Solutions Overview
CLIMATE SOLUTIONS Heat Transfer Products HVAC & Refrigeration Data Centers Heat exchangers for a wide variety of applications, including heating, ventilation, air conditioning and refrigeration Heating, ventilation, air conditioning, and refrigeration products for commercial and select residential a
Slide 51: Growth Drivers
Growth Drivers RESOURCE SCARCITY ENERGY EFFICIENCY GLOBAL HEALTH CLIMATE CHANGE CLOUD TECHNOLOGY Indoor Growing Food Chain Refrigeration High-Efficiency Unit Heaters Free Cooling Chillers & Coolers Indoor Air Quality in Schools Hospital & Pharma Air Handling Units Leveraging Low-GWP Refrigerants Env
Slide 52: Segment Objectives
Segment Objectives Climate solutions PERFORM AND DELIVER Promote businesses with favorable market trends – HVAC&R and Data Centers – reallocate people and capital to these businesses Identify and pursue raving fan customers that appreciate our value FOCUS THE ORGANIZATION Use 80/20 as a strategic le
Slide 53: Heat Transfer Products
Heat Transfer Products
Slide 54: Heat Transfer Products Overview
Overview Climate solutions Heat Transfer Products We design, manufacture, and test heat transfer products for a variety of applications and markets. Our products promote the use of sustainable refrigerants, allowing us to partner with our customers to engineer a cleaner, healthier world. Commercial
Slide 55: Market Outlook: Heat Transfer Products
Market Outlook Climate solutions Heat Transfer Products Growth Drivers Expect global GDP growth in commercial and residential HVAC markets European and North American residential heat pump markets expected to grow >10% Demand for low-GWP refrigeration systems supported by European regulations Modine
Slide 56: Strategic Priorities
Strategic Priorities Climate solutions Deploy 80/20 to simplify product offering, reduce operational complexity and drive focus Appropriately align organization and footprint to increase execution, ownership and value capture Deploy commercial strategies to improve product mix and improve profitabil
Slide 57: HVAC and Refrigeration
HVAC and Refrigeration
Slide 58: HVAC & Refrigeration Overview
Overview Climate solutions We provide heaters, ventilation, and cooling products to the North American residential & commercial HVAC market and refrigeration and industrial cooling solutions in North America, Europe, and Asia. Heating Refrigeration KEY END MARKETS BRANDS PRODUCTS & SOLUTIONS Heating
Slide 59: Market Outlook: HVAC & Refrigeration
Market Outlook Climate solutions HVAC & Refrigeration Growth Drivers Resource scarcity creating demand for greenhouse, vertical farming, and food chain refrigeration Regulations and customer demand driving sustainable and low-GWP impact solutions COVID-related government funding to drive demand for
Slide 60: Strategic Priorities
Strategic Priorities Climate solutions Deploy 80/20 to reduce complexity and increase focus Drive growth where we have a competitive advantage Develop and launch next generation products supporting mega trends Pursue targeted M&A focused on geographic expansion 80/20 Mindset Commercial & Operational
Slide 61: Data Centers
Data Centers
Slide 62: Data Centers Overview
Overview Climate solutions We provide sustainable cooling solutions for the growing Data Center market. Although our historical market focus has been in the UK, we are expanding into the Western European and US markets leveraging Modine’s existing manufacturing footprint. Hyperscale DC Telecom KEY E
Slide 63: Market Outlook: Data Centers
Market Outlook Climate solutions Growth Drivers Exponential demand for cloud technology drives increased data center cooling demand Desire to reduce data center operating costs fuels demand for energy-efficient technologies Hyperscale & colocation data center operators focused on low-GWP refrigerant
Slide 64: Strategic Priorities
Strategic Priorities Climate solutions Deploy 80/20 to reduce complexity in product development and manufacturing Utilize 80/20 to drive growth by gaining share of wallet with key customers Drive robust pricing and profitable commercial agreements Promote geographic expansion to new markets Pursue M
Slide 65: Climate Solutions Financials
Climate SOLUTIONSFINANCIALS
Slide 66: Strong Organic Growth Plus Potential for M&A
Strong Organic Growth Plus Potential for M&A Climate solutions Data Centers Heat TransferProducts HVAC&R Acquisitions $0.9B 6-8% CAGR 15-20% CAGR Data Centers Heat TransferProducts HVAC&R Data Centers Heat TransferProducts HVAC&R HVAC&R 5-year CAGR of 12% reflects vertical- driven focus on organic g
Slide 67: Focused on Share Gains in High Growth Markets
CAGR: ~15%-20% Focused on Share Gains in High Growth Markets Volume growth driven by pursuit of HVAC&R and Data Centers business Pricing includes pass-through of commodity inflation as well as targeted increases under 80/20 disciplines Rationalize reflects our managed reduction of Heat Transfer Prod
Slide 68: Driving Substantial EBITDA Margin Expansion
FY22 FY24 FY27 Driving Substantial EBITDA Margin Expansion Climate solutions ~200 bps Volume/Mix reflects strong HVAC&R and Data Centers growth partially offset by program exits Pricing gains driven by targeted program increases under 80/20 disciplines Productivity is partially offset by inflation a
Slide 69: Financial Summary: Climate Solutions
Current State FY 2022 Phase 1 FY 2024 Phase 2 FY 2027 Financial Summary Climate solutions Revenue EBITDA Margin CapEx % of Sales $0.9 billion 10.9% 1.1% 6 - 8% CAGR 13 - 15% 2.5 - 3.0% 15 - 20% CAGR 15 - 17% 2.5 - 3.0% EBITDA and cash flow growth driven by: Positive sales mix Pricing and SG&A initia
Slide 70: Key Takeaways
Key Takeaways Climate solutions Focus on existing products and markets with a proven market position and right to win Systems over components Leverage global footprint and channels New product development Pursue inorganic opportunities in select markets Use 80/20 as a strategic lens to promote profi
Slide 71: Financial Review
mick Lucarelichief financial officer Financial review
Slide 72: Modine Revenue Breakdown
Modine Revenue Breakdown FINANCIAL REVIEW FY2022 Sales $2.1 Billion Revenue percentages are estimates. Recast segment information will be provided with Q1 FY2023 results.
Slide 73: Financial Transformation
FINANCIAL REVIEW Financial Transformation Expand Margin Profile and Build Growth Engine The first 24 months are focused on key 80/20 elements Simplification Treating businesses differently Reallocating people and capital Margin improvement over top-line growth Target 10-12% EBITDA margin within the
Slide 74: Financial Objectives
FINANCIAL REVIEW Financial Objectives Revenue: $2.1B EBITDA Margin: 7.7% Revenue: 6-8% CAGR EBITDA Margin: 10-12% Revenue: 8-10% CAGR EBITDA Margin: 13-15% FY2022 FY2023-24 FY2025-27 Focused on a two-phased financial plan, with targets tied to specific strategies See appendix for Non-GAAP reconcilia
Slide 75: Revenue Projections: Growth Drivers and Improving Mix
CAGR: ~6%-8% Revenue Projections — Growth Drivers & Improving Mix Financial Review FCF: ~6-7% CAGR: ~8%-10% Performance Technologies Performance Technologies Climate Solutions Climate Solutions Performance Technologies Climate Solutions Acquisitions CAGR of 6-8% over the next two years, driven by ma
Slide 76: EBITDA Projections: Growth and Margin Improvement
EBITDA Projections — Growth and Margin Improvement Financial Review FCF: ~6-7% ~200-400 basis point improvement over the next 24 months driven by volume, product rationalization, and improved pricing Further margin improvement beyond FY2024 achieved by leveraging higher sales volume and favorable mi
Slide 77: Disciplined Capital Allocation Prioritization
Mandatory and Optional Debt Repayment Financial Review Reallocate capital to growth businesses Target capital spending at ~3% of sales Capital Spending Strategic Acquisitions Share Repurchase Restructuring ~$20-30M cash spend in each of next 2 years ~$10-15M cash spend annually in years 3 through 5
Slide 78: Improving Free Cash Flow as a % of Sales
Improving Free Cash Flow as a % of Sales Financial review Restructuring cash required to complete rationalization of targeted portions of the Performance Technologies segment Capital spending remains below historical levels, with an emphasis on Climate Solutions and Advanced Solutions Strong cash fl
Slide 79: Cash Flow Return on Invested Capital
Cash Flow Return on Invested Capital Financial review CFROIC: ~10% CFROIC: 11-13% CFROIC: 13-15% Anticipated CFROIC improvement driven by increases in profit margins, combined with stable capital spending FY24 FY27 FY21 & 22 Average See appendix for Non-GAAP reconciliations.
Slide 80: Stable Balance Sheet to Support Future Acquisitions
Stable Balance Sheet to Support Future Acquisitions Financial Review Target Leverage ratio — 1.5x-2.5x, covenant of 3.25 Adequate liquidity to support investments in future growth and M&A Significant borrowing capacity; > $800M-$1B Manageable mandatory debt repayments — plan to refinance bank debt t
Slide 81: Strategic Acquisitions
Financial Review Strategic Acquisitions Today FY2023-24 FY2025-27 Build Acquisition Pipeline Bolt-On Targets (Revenue: $25-100M) Transformational Targets (Revenue: $300-500M) PERFORMANCE TECHNOLOGIES CLIMATE SOLUTIONS Ideal Targets Financial Discipline Expand product portfolio Broaden systems and se
Slide 82: Financial Summary
Current State FY 2022 Phase 1 FY 2024 Phase 2 FY 2027 Financial Summary Financial Review 80/20 mindset underlying all key decisions Revenue growth Phase 1: driven by market growth and pricing actions Phase 2: driven by organic and inorganic growth Significant margin expansion Phase 1: 200-400 bps fr
Slide 83: Financial Objectives
Financial Review Financial Objectives Revenue: $2.1B EBITDA Margin: 7.7% Revenue: 6-8% CAGR EBITDA Margin: 10-12% FY2022 FY2023-24 FY2025-27 The two-stage plan aligns with the overall strategy and transformation: Significant margin improvement in the next 24 months (FY23 and FY24) Reallocation of re
Slide 84: Closing
CLOSINGNeil brinkerchief executive officer
Slide 85: Strategy to Unlock Value
Strategy to Unlock Value Closing PERFORM and Deliver FOCUS THE ORGANIZATION Make 80/20 a core part of our DNA Build a high-performance organization Simplify and segment the business PERFORM AND DELIVER Launch the Modine Business Cycle Maximize share of target markets Simplify and improve operating m
Slide 86: Our Purpose, Mission and Values
DINE ning» Cee, eat Mois OUR PURPOSE Engineer a cleaner, healthier world OUR MISSION OUR VALUES Improve Air Quality Integrity Committed %G Reduce Water and Energy Consumption People Centric [ls Lower Harmful Emissions Technology Driven Enable Cleaner Running Vehicles Results Oriented nZ Use Environm
Slide 87: Q & A
Q & A Neil Brinker President & CEO Mick Lucareli EVP & CFO Eric McGinnis President- Climate Solutions Adrian I. Peace President- Performance Technologies
Slide 88: Appendix
88 Appendix
Slide 89: Non-GAAP Reconciliations
Non-GAAP Reconciliations APPENDIX * See next slide for footnotes regarding these adjustments
Slide 90: Non-GAAP Reconciliations
Non-GAAP Reconciliations APPENDIX
Slide 91: Non-GAAP Reconciliations
Non-GAAP Reconciliations APPENDIX
Slide 92: Non-GAAP Reconciliations
Non-GAAP Reconciliations appendix
Slide 93: Non-GAAP Reconciliations
Non-GAAP Reconciliations APPENDIX Forward-looking non-GAAP financial measures This presentation includes forward-looking projections of non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin, free cash flow and free cash flow as a percentage of sales, cash flow return on i