Woodward, Inc. · NASDAQ:WWD
Woodward — Investor Presentation (February 2015)
86 slides from Woodward's investor presentation, February 2015
Slide 1: Clear Path to Growth
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Slide 2: Cautionary Statement
CAUTIONARY STATEMENT Information in this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including, but not limited to, statements regarding future sales, earnings, liquidity, relative p
Slide 3: Clear Path to Growth
CLEAR PATH TO GROWTH Global infrastructure • Transportation of goods, people • Power generation, control • Energy extraction and distribution Emission reductions High performance • Energy/Fuel efficiency • Harsh conditions • Consistent, safe operation Aerospace and Energy PAGE 3 - Proprietary Inform
Slide 4: Woodward on a Page
WOODWARD ON A PAGE What we do… • Control system solutions and components for the aerospace and energy markets Our Technology… • Innovative flow, combustion, electrical, and motion control systems help our customers offer cleaner, more reliable, and more efficient equipment Our Customers… • Leading o
Slide 5: Aerospace and Energy
AEROSPACE AND ENERGY Aerospace • Emerging economies - passenger miles • Higher fuel prices - more fuel efficient aircraft • Low cost financing • New programs near launch Energy • Disruption - fuel supply diversity and availability • Emerging economies - demand growth • Emission requirements PAGE 5 -
Slide 6: Sales by Segment – FY2014
SALES BY SEGMENT – FY2014 Energy Aerospace $917 million $1.1 billion Total Sales = $2.0 Billion PAGE 6 - Proprietary Information -
Slide 7: Business Model
BUSINESS MODEL • Strategic Partners • Solutions Customer • Collaboration Focus • Risk Sharing • Operational Excellence Growth • Long Cycle Investment • Optimized Solutions Technology • Technology Alignment • Always Innovating PAGE 7 - Proprietary Information -
Slide 8: R&D Investments Driving Growth
R&D INVESTMENTS DRIVING GROWTH 2013 R&D as % of Sales 8.0% Woodward R&D investment clearly outpaced peer group 7.0% Generally 3-5 points of earnings 6.0% impact each year Peer Companies 5.0% 4.0% 3.0% Generating market share gains and clear path to growth 2.0% 1.0% 0.0% PAGE 8 - Proprietary Informat
Slide 9: We Are Winning
WE ARE WINNING….. Growth Capacity • Narrowbody program launches • Golden Age of Gas Major projects • Rockford, IL – Aircraft Turbine • Fort Collins, CO – Energy • Niles, IL – Airframe Driving significant productivity and improved margins PAGE 9 - Proprietary Information -
Slide 10: Investments to Increase Capacity
INVESTMENTS TO INCREASE CAPACITY Capital Expenditures Facility expansions $300 $ in millions • $500 million incremental investment over ~4 years $250 • New equipment Taking advantage of low capital $200 cost $150 Still anticipate return to “maintenance” level in ~2017 $100 $50 Goal is to 100% self-f
Slide 11: Cash Flow Funding Growth
CASH FLOW FUNDING GROWTH $300 $ in millions Strong cash from operations $250 Self-funding facility $200 expansion $150 Working capital utilization • Inventory management $100 • Sales timing $50 $0 2011 2012 2013 2014 Cash from ops Free cash flow Note: See appendix for calculation of free cash flow.
Slide 12: Improving Profitability
IMPROVING PROFITABILITY Lean implementation Supply chain integration Value-differentiated technology Process Innovation PAGE 12 - Proprietary Information -
Slide 13: Clear Path to Growth
CLEAR PATH TO GROWTH Clear strategy – Energy control and optimization Compelling market drivers & industry dynamics • Energy efficiency and emissions reduction • Aerospace & Energy Strategically positioned with industry leaders Market share gains through • Collaboration • Technological leadership En
Slide 14: Woodward Energy
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Slide 15: Energy Market Drivers
ENERGY MARKET DRIVERS Disruption - fuel supply diversity and availability Emerging economies - demand growth Emission requirements PAGE 15 - Proprietary Information -
Slide 16: Energy Market Drivers: Requirements
ENERGY MARKET DRIVERS Energy Markets Market Drivers Availability Power Output Reliability Maintainability $/kW - $/kW hr Requirements System Fast Start Load Following Fuel Flexibility Efficiency System Cost Emissions Compliance System Optimization Technology Advanced Controls Metering/Actuation Igni
Slide 17: Energy Outlook - Supply
ENERGY OUTLOOK - SUPPLY Natural gas and renewables fastest growing energy sources • Account for 50% of the growth in energy supply • Other sources are growing • $8 Trillion of investment thru 2035 Reference: BP Energy Outlook 2030,2013 Edition TOE = Tonne of oil equivalent PAGE 17 - Proprietary Info
Slide 18: Key Energy Market Leaders
KEY ENERGY MARKET LEADERS Industrial Gas Turbines Small Aero Large Recip Engines Lg Diesel / Gas Sm Diesel / Gas Steam Turbines Compressors PAGE 18 - Proprietary Information -
Slide 19: Energy Applications
ENERGY APPLICATIONS Extraction Compression Power Generation Power Generation Processing Mined Resources Wind Renewable Processing Compression Marine Utilization-CNG/LNG Transportation Distribution PAGE 19 - Proprietary Information -
Slide 20: Energy Value Stream
ENERGY VALUE STREAM PAGE 20 - Proprietary Information -
Slide 21: Solutions for Gas Turbines
SOLUTIONS FOR GAS TURBINES G SERVICES Atlas II MicroNet Plus Electronic Control PAGE 21 - Proprietary Information -
Slide 22: Systems Approach to Total Engine Control
SYSTEMS APPROACH TO TOTAL ENGINE CONTROL PAGE 22 - Proprietary Information -
Slide 23: Gas Turbine Market Update
GAS TURBINE MARKET UPDATE Gas Turbine Market Forecast by Value ($B) Market Drivers $30 • Distributed power $25 • Peaking power $20 Drive Increased • Quick start/stop $15 Maintenance $10 • Part load operation $5 • Fuel flexibility $0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 • Natural gas pro
Slide 24: Gas Turbine Update
GAS TURBINE UPDATE Market consolidation has positioned the ‘Big Three’ across the TurboMachinery markets Heavy Frame Aero-Derivative Steam Compressor Gas Turbine Gas Turbine Turbine Leverage capabilities within and across customer base PAGE 24 - Proprietary Information -
Slide 25: Natural Gas Utilization
NATURAL GAS UTILIZATION
Slide 26: Natural Gas Utilization in Road Transport
NATURAL GAS UTILIZATION IN ROAD TRANSPORT Source: IEA, Medium-Term Gas Market Report 2014 Environmental concerns, fuel flexibility, and energy costs driving demand for Woodward solutions PAGE 26 - Proprietary Information -
Slide 27: Natural Gas Utilization – Engine Producers
NATURAL GAS UTILIZATION – ENGINE PRODUCERS Weichai Cummins Hyundai DDE Doosan SDEC Wuxi Yuchai Furuise Hauling SANY Providing solutions to global market leaders PAGE 27 - Proprietary Information -
Slide 28: Natural Gas Utilization – Locomotives
NATURAL GAS UTILIZATION – LOCOMOTIVES Working on dual-fuel development projects with major locomotive OEMs More U.S. railways interested in demonstration programs Timing of full production dependent on operational, regulatory, and other infrastructure developments Woodward meeting the complex challe
Slide 29: Process Industries
PROCESS INDUSTRIES
Slide 30: Spotlight on Process Industries
SPOTLIGHT ON PROCESS INDUSTRIES Medium-term outlook varies by product and region • US, Middle East, China forecast solid growth • Ethylene forecasts - largest growth Source: IHS Chemical, Technip PAGE 30 - Proprietary Information -
Slide 31: Process Industry Market Leaders
PROCESS INDUSTRY MARKET LEADERS • Compressors • Steam Turbine Shaanxi Blower • China Only • Compressors • China Only • 3 party Steam Turbine (HTC) rd • Compressors • 3rd party Steam Turbine (HTC) • Compressors • Compressors • Compressors • Steam Turbine • Steam Turbine • Compressors • Steam Turbine
Slide 32: Why We Win
WHY WE WIN
Slide 33: Technology and System Solutions
TECHNOLOGY AND SYSTEM SOLUTIONS Woodward Enabling customer Innovation success through improvements in: • Efficiency Advanced Combustion • Emissions • Reliability System Optimization Technologies System Integration • Availability Advanced Air/Fuel • Maintainability Metering • Safety Technologies Adva
Slide 34: R&D Validation Capabilities
R&D VALIDATION CAPABILITIES Engine System Test Center Engine System Test Rig Combustion Test Center High Flow Test System PAGE 34 - Proprietary Information -
Slide 35: Margin Expansion
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Slide 36: Lean Deployment
LEAN DEPLOYMENT Lean mixed-model flow • Low volume / high mix • Productivity and velocity Process innovation • Semi-automation • Quality control • Error proofing Leader/member training PAGE 36 - Proprietary Information -
Slide 37: Facility Investments
FACILITY INVESTMENTS Capacity for growth Enabling Lean - designed from the inside out Lincoln Campus – Fort Collins, CO Technology Center – Windsor, CO PAGE 37 - Proprietary Information -
Slide 38: Supply Chain Integration
SUPPLY CHAIN INTEGRATION Early supplier involvement Strategic alignment Value engineering Collaborate To Cost™ PASSION FOR EXCELLENCE Project Management Partnership CREATING VALUE Early Supplier Design for Involvement Design Producability (ESI) (DFP) Performance Innovation Value Stream Supply Chain
Slide 39: Financial Performance
FINANCIAL PERFORMANCE Margin expansion • Margin target = 16+% • Sales leverage • Aftermarket expansion • Productivity – Lean/facilities PAGE 39 - Proprietary Information -
Slide 40: Woodward Aerospace
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Slide 41: Market – Clear Path to Growth
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Slide 42: Strategic Growth - Value Model
STRATEGIC GROWTH - VALUE MODEL Return Investment Cycle Cycle Original Equipment Sales R&D New Product Intro Aftermarket (Initial provisioning & MRO) 5-10 years 4-6 years ~30 years Long Cycle Strong Returns PAGE 42 - Proprietary Information -
Slide 43: Life of Program Value Model
LIFE OF PROGRAM VALUE MODEL A320 737MAX/A350 Return Cycle Passport 20 & 787/747-8 Silvercrest/E2/ C Series Investment Cycle R&D$ Expensed PAGE 43 - Proprietary Information -
Slide 44: Aerospace Segment – FY2014 Sales
AEROSPACE SEGMENT – FY2014 SALES Military Aftermarket 34% 38% OEM Civil 62% 66% Motion Propulsion Control Control 52% 48% Sales - $1.1 billion PAGE 44 - Proprietary Information -
Slide 45: FY2014 Sales by Market
FY2014 SALES BY MARKET Civil Rotor Wing Bizjet/GA 6% 12% Precision Guidance Civil A/M 7% 26% Civil OEM Commercial 40% Transport Mil Rotor 49% Military A/M Wing 10% 12% Mil Fixed Military OEM Wing 22% 16% PAGE 45 - Proprietary Information -
Slide 46: Markets - Status
MARKETS - STATUS Commercial large transport • High delivery demand Civil • New platforms introduced Private • Legacy platform replacement 18% • Traffic growth continues Commercial Military Transport Military 33% 49% • Global instability • Increasing international demand Civil private • New platforms
Slide 47: Large Transport Market Outlook
LARGE TRANSPORT MARKET OUTLOOK OEM AFTERMARKET Fleets growing 21,270 Post-9/11 deliveries come into 58% heavy maintenance +36,770 Growth Replacement 15,500 Favorable Woodward fleet 42% dynamics 2013 2033 © 2014 Boeing Unprecedented up cycle Regional jets join single and twin aisles New model introdu
Slide 48: Commercial Transport Deliveries
COMMERCIAL TRANSPORT DELIVERIES 2010 2020 1100 Aircraft 1930 Aircraft Delivered Forecast PAGE 48 - Proprietary Information -
Slide 49: Commercial Transport Deliveries
COMMERCIAL TRANSPORT DELIVERIES 100% 52% 58% 2010 2020 1100 Aircraft 1930 Aircraft Delivered Forecast //// Aircraft with significant Woodward content System strategy execution, key acquisitions drive share gains PAGE 49 - Proprietary Information -
Slide 50: New Platforms – Clear Path to Growth
NEW PLATFORMS – CLEAR PATH TO GROWTH 1800 1600 1400 737 MAX 1200 A320neo EJet E2 1000 SINGLE AISLE CSeries 800 600 777X 400 A330neo A350XWB 787 200 TWIN AISLE 747-8 2010 2015 2020 Deliveries grow, applications grow, sales per platform grow PAGE 50 - Proprietary Information -
Slide 51: Woodward Integrated Propulsion Systems
WOODWARD INTEGRATED PROPULSION SYSTEMS Evolved from components provider to total systems supplier Products line grew from internal development and acquisitions PAGE 51 - Proprietary Information -
Slide 52: Woodward Motion Control Systems
WOODWARD MOTION CONTROL SYSTEMS PAGE 52 - Proprietary Information -
Slide 53: Key Platforms/Content – Twin Aisle
KEY PLATFORMS/CONTENT – TWIN AISLE CURRENT DEVELOPMENT Production 1 767 ~$25,000 787 ~$210,000 4Q 2015 A330 ~$40,000 A350 ~$55,000 4Q 2017 777 ~$275,000 A330neo $TBD 2020 747-8 ~$795,000 777X $TBD 2 1GEnx engine option A380 ~$370,000 2GP7200 engine option Content may vary based on options selected P
Slide 54: Key Platforms/Content – Single Aisle
KEY PLATFORMS/CONTENT – SINGLE AISLE CURRENT DEVELOPMENT 2H 2017 737NG ~$125,000 737 MAX ~$290,000 4Q 2015 A320 ~$80,000 A320neo ~$225,000 4Q 2015 CRJ ~$110,000 CSeries ~$225,000 1H 2018 EJet ~$250,000 EJets E2 ~$185,000 Content may vary based on options selected PAGE 54 - Proprietary Information -
Slide 55: Military Market Outlook
MILITARY MARKET OUTLOOK OEM AFTERMARKET Worldwide Military MRO Forecast Military Aftermarket graphic New Normal $ Billions Source: Forecast International (Global ex China) Source: ICF International F-35 ,KC-46 tanker offset legacy Global instability drives utilization program declines ‘Asia pivot’ s
Slide 56: Key Platforms/Content – Defense
KEY PLATFORMS/CONTENT – DEFENSE CURRENT DEVELOPMENT Production F-16 ~$125,000 F-35 ~$300,000 F/A-18 ~$335,000 Black Hawk ~$55,000 2017 KC-46 Tanker ~$545,000 V-22 ~$645,000 Apache ~$145,000 Content may vary based on options selected PAGE 56 - Proprietary Information -
Slide 57: Civil Private Market Outlook
CIVIL PRIVATE MARKET OUTLOOK OEM AFTERMARKET Civil Private MRO Civil Private Aftermarket graphic CAGR=6.0% CAGR=0.7% CAGR=9.4% CAGR=3.6% Bizjet Engine MRO CAGR 2.5% Source: ICF International Civil Rotorcraft MRO CAGR 4.3% Business Jets - Units Source: Honeywell Gradual growth follows trough Primary
Slide 58: Key Platforms/Content – Business Jets
KEY PLATFORMS/CONTENT – BUSINESS JETS CURRENT DEVELOPMENT 2017 Global Express ~$230,000 Global 7000/8000 ~$385,000 G550 ~$185,000 2017 G500/G600 ~$180,000 G650 ~$205,000 2017 Falcon 7X ~$150,000 Falcon 5X ~$60,000 Content may vary based on options selected PAGE 58 - Proprietary Information -
Slide 59: Paving the Path to Growth
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Slide 60: Product Portfolio
PRODUCT PORTFOLIO Integrated propulsion systems Flight deck controls Electromechanical and hydraulic actuation PAGE 60 - Proprietary Information -
Slide 61: R&D – Program Execution
R&D – PROGRAM EXECUTION Single aisle NPI nears completion • High certification test load ramps down early 2015 • Flight test support • Production readiness System Endurance Test System Cold Test Fire Test PAGE 61 - Proprietary Information -
Slide 62: IR&D – Aircraft Technology Demands
IR&D – AIRCRAFT TECHNOLOGY DEMANDS Aerodynamic efficiency • Long, thin wings • Air flow management Turbine fuel efficiency • Higher pressures Source: NASA • Higher temperatures • Lower weight • Air flow management Lower emissions • Innovative atomization • Increased combustion control Source: NASA A
Slide 63: Still Winning
STILL WINNING….. Gulfstream G500 and G600 • PurePower PW800F engine content • Airframe content Boeing 777X TRAS • TRAS More to come… PAGE 63 - Proprietary Information -
Slide 64: Margin Expansion
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Slide 65: Aftermarket – Paths to Grow Share
AFTERMARKET – PATHS TO GROW SHARE Growth opportunities (esp. motion control products) Commercial large transport (esp. TRAS products) Develop/deliver modifications and upgrades PAGE 65 - Proprietary Information -
Slide 66: Capacity and Productivity
CAPACITY AND PRODUCTIVITY New facilities • Floor space • Semi-automation Productivity Increased Automation • New platforms/ technologies improve Machine Measure margins • Supply chain and labor productivity Adjust • Fixed cost leverage and reductions Compensate? Manufacture to Zero Defects PAGE 66 -
Slide 67: Lean Transformation
LEAN TRANSFORMATION Lean “designed in” to new facilities – parts flow and automation Member inputs plus over 60 benchmarked Assembly Error Proofing facilities Lean value stream layouts and floor space consolidation Product Test Semi-Automation PAGE 67 - Proprietary Information -
Slide 68: Rock Cut Campus
ROCK CUT CAMPUS Initial occupancy early 2015 PAGE 68 - Proprietary Information -
Slide 69: Niles Facility
NILES FACILITY Initial occupancy November 2014 Consolidate four-building campus into one site PAGE 69 - Proprietary Information -
Slide 70: Financial Performance
FINANCIAL PERFORMANCE Margins • Margin target = 20% • Sales leverage • Aftermarket expansion • Amortization reduction • R&D as % of sales declining • Productivity – Lean/facilities PAGE 70 - Proprietary Information -
Slide 71: Woodward Financials
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Slide 72: Woodward Sales
WOODWARD SALES Total Sales Solid long-term sales growth 2,500 $ in millions Recent impacts from 7% CAGR 2,000 • Economic environment • Defense • China CNG volatility 1,500 Strength going forward 1,000 1,936 2,001 1,866 • Aerospace awards 1,712 1,457 • Natural gas / oil 500 0 2010 2011 2012 2013 2014
Slide 73: Energy Sales
ENERGY SALES 1,200 Natural gas and oil growth $ in millions • Processing plants 1,000 • Gas turbine aftermarket Global economy slowly 800 improving 600 Renewables volatile 970 917 869 874 China regulatory 400 688 environment uncertain 200 0 2010 2011 2012 2013 2014 PAGE 73 - Proprietary Information
Slide 74: Aerospace Sales
AEROSPACE SALES 1,200 $ in millions Commercial transport strong • OEM and aftermarket 1,000 Biz-jet/helicopter 800 • Large cabin improving • Oil and gas 600 1,084 Defense contraction 1,061 896 • Upgrade programs 400 769 843 • Contract timing • Moderate WWD impact 200 0 2010 2011 2012 2013 2014 PAGE
Slide 75: Segment Earnings
SEGMENT EARNINGS Segment Margins Earnings highlights 16% • Company-wide Lean initiatives • Improved renewables • Cost control 14% • Solid aftermarket • Lower defense 12% 15.7% Anticipate 100 bps 14.6% 14.7% improvement for 2015 10% 11.3% Long-term (5 year cycle) • Aerospace 20% • Energy 16+% 8% Ener
Slide 76: R&D Investments
R&D INVESTMENTS Market share gains and new 160 $ in millions 10.0% program certifications • Narrowbody awards 120 8.0% • Energy customer and market penetration 6.0% • Common rail diesel 80 143 138 130 4.0% Anticipate % of sales 116 decrease as new programs 40 83 2.0% launch 0 0.0% 2010 2011 2012 201
Slide 77: Cash Flow
CASH FLOW $300 $ in millions $250 Consistently strong cash from operations funding $200 • Facilities expansions to accommodate sales growth $150 • R&D investment 268 223 Working capital utilization $100 • Inventory management 144 115 • Sales timing $50 79 81 66 61 $0 2011 2012 2013 2014 Cash from op
Slide 78: Debt and EBITDA
DEBT AND EBITDA 800 $ in millions 700 Strong balance sheet and 600 track record of debt pay-down 500 Cash flow funding growth 400 Share buybacks in 2013/2014 300 200 Solid EBITDA growth 100 0 2010 2011 2012 2013 2014 EBITDA Debt Note: See appendix for calculation of EBITDA. PAGE 78 - Proprietary Inf
Slide 79: Debt to EBITDA Leverage
DEBT TO EBITDA LEVERAGE Leverage Ratio 2.5 Conservative leverage 2.0 Maintain capacity • Growth • Acquisitions 1.5 • Share buybacks 2.2 1.0 1.8 1.8 1.5 1.3 0.5 0.0 2010 2011 2012 2013 2014 Note: See appendix for calculation of leverage ratio. PAGE 79 - Proprietary Information -
Slide 80: Operating Expense Leverage
OPERATING EXPENSE LEVERAGE Selling, General & Admin Expenses 180 $ in millions 10.0% Improving leverage 9.0% 150 • Sales growth 8.0% • Cost control 120 • Realignment 7.0% • Facility rationalization 90 6.0% • Lean initiatives 5.0% 60 4.0% 30 3.0% 0 2.0% 2010 2011 2012 2013 2014 SG&A as % of sales PAG
Slide 81: Return on Invested Capital
RETURN ON INVESTED CAPITAL 12.0% 11.1% 11.0% 10.9% 10.0% 10.0% Acquisition impacts 9.5% 9.5% 9.0% Path to future growth • Enhanced margins 8.0% • Increasing free cash flow 7.0% 6.0% 5.0% 2010 2011 2012 2013 2014 *ROIC= net earnings before interest expense / invested capital at September 30 of each y
Slide 82: Cumulative Total Return on Common Stock
CUMULATIVE TOTAL RETURN ON COMMON STOCK COMPARISON OF 10 YEAR CUMULATIVE TOTAL RETURN* Among Woodward, Inc., the S&P Midcap 400 Index and the S&P Industrial Machinery Index $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 9/04 9/05 9/06 9/07 9/08 9/09 9/10 9/11 9/12 9/13 9/14 Woodward, Inc. S&P M
Slide 83: FY2015 Outlook
FY2015 OUTLOOK Earnings Per Share Revenue $3.00 • Between $2.05 and $2.15 billion Earnings per diluted share • Between $2.65 and $2.90 per share $2.00 Assumptions • Commercial aerospace remains strong $2.65 – $2.90 $2.45 • Global economy continues slow $2.10 $1.00 $2.01 improvement $1.89 • Defense s
Slide 84: Woodward Values
1 = =} = EthicalStrong Committed as gE ii euresehe Sm = Reliable! crowing = +E =Focused | pices) B Solid H Solid iiccessfull ri Technical,: Supportive Trad Expe Al VW WOODWARD Values = Baa Conservative
Slide 85: Appendix
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Slide 86: EBITDA, Free Cash Flow, Leverage Ratio
EBITDA, FREE CASH FLOW, LEVERAGE RATIO Year Ending September 30, Year Ending September 30, 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 Net earnings $ 165,844 $ 145,942 $ 141,589 $ 132,235 $ 111,162 Woodward Reported Trailing 12 Month EBITDA $ 327,130 $ 300,234 $ 291,885 $ 287,825 $ 259,367 Inc