Linamar Corporation · TSX:LNR

Linamar — Q2 2018 Earnings Presentation

55 slides from Linamar's earnings presentation, Aug 7, 2018

  1. Slide 1: Conference Call Presentation

    Conference Call Presentation Q2 2018 Conference Call Information Local: (647) 427-3383 Toll Free: (888) 424-9894 (North America) Conference ID 8482418 Linda Hasenfratz August 7, 2018

  2. Slide 2: Forward Looking Information, Risk and Uncertainties

    Forward Looking Information, Risk and Uncertainties Certain information regarding Linamar set forth in this presentation and oral summary, including managements assessment of the Company’s future plans and operations may constitute forward-looking statements. This information is based on current exp

  3. Slide 3: Sales, Earnings and CPV

    Sales, Earnings and CPV

  4. Slide 4: Sales, Earnings, and Margins (in millions CAD)

    Sales, Earnings, and Margins (in millions CAD) Q2 2018 Q2 2017 %  Record Sales, up 22.1% Helped By:  Record Normalized OE up 20%  MacDon acquisition performing Sales 2,157.4 1,766.2 22.1%  Industrial segment representing strongly Operating Earnings (“OE”) 272.3 215.6 26.3% nearly 50% of earnings

  5. Slide 5: Capital Expenditures (in millions CAD)

    Capital Expenditures (in millions CAD) Q2 2018 Q2 2017  Normal range 6-8%  Expect both 2018 and 2019 to be mid range Capital Expenditures (Capex) 119.7 100.8  Using disciplined approach to spending given economic Capex as a % of Sales 5.5% 5.7% uncertainties QTR Capex Capex as a % of Sales 7.4% 6

  6. Slide 6: Leverage (in millions CAD)

    Leverage (in millions CAD) Q2 2018 Q1 2018 Q2 2017  Leverage improving Net Debt 2,156.5 2,160.8 1,000.0  Net Debt back under 1x EBITDA within 18 Net Debt to Proforma months 1.75x 1.79x 0.92x EBITDA1 Net Debt to Proforma EBITDA¹ 1.11x 0.96x 0.97x 0.92x 0.92x 0.83x 1.79x 1.75x Q3 2016 Q4 2016 Q1 201

  7. Slide 7: Automotive Sales & Content Per Vehicle (CPV)

    Automotive Sales & Content Per Vehicle (CPV) CPV Q2 2018 CPV Q2 2017 CPV % Change Vehicle Automotive Automotive Automotive Production Units Sales Q2 2018 Sales Q2 2017 Sales % Change % Change (CAD Millions) (CAD Millions) North America 165.44 160.71 2.9% (1.1%) 748.7 735.3 1.8% Europe 80.02 69.48 15

  8. Slide 8: Commercial & Industrial Sales (in millions CAD)

    Commercial & Industrial Sales (in millions CAD) Q2 2018 Q2 2017 %  MacDon acquisition, performing strongly  Skyjack market share growth in robust Sales 745.7 452.4 64.8% markets driving double digit growth performance 64.8% QvQ¹ Commercial and Industrial Sales Growth 34.4% 29.9% 27.4% 18.8% 13.4%

  9. Slide 9: Market Outlook

    Market Outlook

  10. Slide 10: Market Snapshot 2018 & 2019

    Market Snapshot 2018 & 2019 As of August 2018 Transportation Industrial Transportation Industrial 2018 2019 Automotive (LV) Commercial Truck Agriculture Skyjack Automotive (LV) Commercial Truck Skyjack North America Flat Growth Moderate Growth Strong Growth North America Flat Flat Moderate Growth Eu

  11. Slide 11: New Business

    New Business

  12. Slide 12: Global Total Addressable Market

    Global Total Addressable Market Pure Battery EV penetration reaches 20% of the market by 2030 Updated August 2018 © Linamar Corporation 12

  13. Slide 13: Launches

    Launches Launching nearly $4.5 billion of new work today 4,500.00 4,000.00 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 - 2017 2018 2019 2020 2021 2022 $700 to $800 Million in 2018 Sales from Launch add: $1.2 to $1.3 Billion in 2019 © Linamar Corporation 13

  14. Slide 14: Key Growth Considerations

    Key Growth Considerations  Market growth predictions coupled with CPV  Launches  $700 to $800 Million in 2018  $1.2 to $1.3 Billion in 2019 Growth 2018 2019  Skyjack Growth Outlook  Market predicted to see double digit growth 2018  Skyjack should perform in line to slightly better than market

  15. Slide 15: Outlook Strong for the Future

    Outlook Strong for the Future Q2 2018 Sales by Region 12,000 10,000 Target 8,000 $ Millions 6,000 4,000 2,000 - 2012 2017 2022 Actual Actual Estimate North America Europe Asia Target - Business to be Booked © Linamar Corporation 15

  16. Slide 16: Strategic Update

    Strategic Update

  17. Slide 17: New Business Wins: Subframe & Node Package

    New Business Wins: Subframe & Node Package Package Volume 1 million / year Subframe and node package – product diversification for Linamar light SOP Year metal casting 2020 Peak Volume Year 2022 Production Location Europe © Linamar Corporation 17

  18. Slide 18: New Business Wins: Transmission Sprockets

    New Business Wins: Transmission Sprockets Package Volume 185,000 / year Significant transmission sprocket win SOP Year for Asia 2020 Peak Volume Year 2020-2021 Production Location © Linamar Corporation 18

  19. Slide 19: New Business Wins: Cylinder Heads

    New Business Wins: Cylinder Heads Package Volume 43,000 / year Major off-highway truck cylinder head SOP Year program 2018 Peak Volume Year 2019 Production Location © Linamar Corporation 19

  20. Slide 20: New Business Wins: Transmission Turbine Shaft

    New Business Wins: Transmission Turbine Shaft Package Volume 260,000 / year Turbine shaft takeover from SOP Year competitor, quick start in 2018 2018 Peak Volume Year 2019 Production Location © Linamar Corporation 20

  21. Slide 21: New Business Wins: Camshafts

    New Business Wins: Camshafts Package Volume 200,000 / year Significant camshaft win for a SOP Year Japanese OEM 2020 Peak Volume Year 2022 Production Location © Linamar Corporation 21

  22. Slide 22: New Business Wins: Cylinder Heads / Blocks

    New Business Wins: Cylinder Heads / Blocks Package Volume >1.5 million / year 3 major aluminum cylinder head / block wins, >$30 million in aggregate SOP Year annual sales 2018 Peak Volume Year 2019 Production Location © Linamar Corporation 22

  23. Slide 23: New Business Wins: Balance Shafts

    New Business Wins: Balance Shafts Package Volume 100,000 / year Major balance shaft program for next SOP Year generation, fuel-efficient engines 2022 Peak Volume Year Mid-2020s Production Location © Linamar Corporation 23

  24. Slide 24: Key Market Strategies

    Key Market Strategies  Transportation  Increase CPV in BEV, HEV, FCV  Mine opportunistic ICE market as volumes decline but addressable market increases  Grow integrated casting and forging business  Light weighting and noise reduction  Infrastructure (Skyjack)  Globalize and expand product li

  25. Slide 25: Innovation Update

    Innovation Update

  26. Slide 26: Skyjack 2018 Innovation Launch: Telematics

    Skyjack 2018 Innovation Launch Telematics  Offering Skyjack customers increased value through real-time data that can be used to help run their business  Focus on most important info ie machine data, use, alerts, overload, location, PM etc  Significant number of 2018 units will be telematics equi

  27. Slide 27: Skyjack 2018 Innovation Launch: Continuously Variable Transmission

    Skyjack 2018 Innovation Launch Continuously Variable Transmission (CVT)  First mechanical CVT for Telehandlers  No need for gear selection  Increased Efficiency  Reduces damage due to operator misuse and hard driving, reducing rental owner costs  Available on all Skyjack TH series © Linamar Cor

  28. Slide 28: Skyjack 2018 Innovation Launch: VR Simulation

    Skyjack 2018 Innovation Launch VR Simulation  Promoting VR simulation as the future of operator training  Training modules developed using Skyjack models and best practice  In collaboration with Serious Labs, Alberta © Linamar Corporation 28

  29. Slide 29: Linamar Gear Lab | First Gear

    Linamar Gear Lab | First Gear  Gear Lab installed in Tech Centre in Guelph  Prototypes to support growing e-axle gearbox business  Process development  Design development  18 days to install and produce first gear! © Linamar Corporation 29

  30. Slide 30: iHub – Construction Starting Sep 2018

    iHub – Construction Starting Sep 2018 Incubate innovation ideas Explore tangential products & markets Develop manufacturing partnerships © Linamar Corporation 30

  31. Slide 31: Digitization with AI/ML

    Digitization with AI/ML 60 Plants 1,124 LMMS Data 2,590 851 Traceability Collection Connections Robots Marking Stations 1,164 x10 2,189 RFID Stations 823 Vision Systems 1,788 Connected Machines 2 Traceability Read Stations AGVs August 2018 © Linamar Corporation 31

  32. Slide 32: Operations Update

    Operations Update

  33. Slide 33: Linamar China | New Wuxi Casting Facility

    Linamar China | New Wuxi Casting Facility © Linamar Corporation 33

  34. Slide 34: Linamar Hungary | New Machining and Assembly Facility

    Linamar Hungary | New Machining and Assembly Facility © Linamar Corporation 34

  35. Slide 35: NAFTA

    NAFTA

  36. Slide 36: Trade Balances – The Facts

    Trade Balances – The Facts CHINA N o CANADA C o Tr v $356 a e d $272 $291 r e Billion Billion e Billion A gr $23 Billion Net Services $4 Billion d e Goods sold to Goods purchased from Net Goods & Services b e Surplus with Canada y m Canada Canada Surplus with Canada Net Goods & Services Deficit e n

  37. Slide 37: NAFTA Next Steps

    NAFTA Next Steps  It feels like progress is being made and we are close to an auto agreement  If an agreement can be reached by the end of Aug it can be put to the sitting Mexican government for 90 day review and approved before Obridor takes power Dec 1st – everyone (including Obridor) wants that

  38. Slide 38: Steel and Aluminum Tariffs in US

    Steel and Aluminum Tariffs in US  25% tariff on imported steel, 10% on imported aluminum imposed effective June 1, 2018 on Canada, Mexico and EU citing security concerns under Section 232 despite earlier exemptions  400k Americans work in metal producing industries vs 4.5 million in industries tha

  39. Slide 39: Impact of Metal Tariffs

    Impact of Metal Tariffs  Impact starting to build in many American companies  Ford, GM comment on impact being felt and on outlook  Other companies seeing higher costs, feeling impact to demand  Pain is slowly building  Linamar impact minimal  No direct impact to US facilities re no purchase o

  40. Slide 40: Vehicle and Parts Tariffs

    Vehicle and Parts Tariffs Parts tariffs are different to metal tariffs in 2 important ways 1. Auto parts cross borders on average 7 times before a vehicle is finished – 7x25%=175% extra cost – estimated at between $5,000 and $9,000 per vehicle x 18 million vehicles 2. Time to move or resource most p

  41. Slide 41: The Good News

    The Good News  Auto industry and economy can’t withstand a $126 Billion price increase for long meaning the trade war will have to come to a ceasefire within a very short time  2- 4 months maximum  Impact to Linamar should be minimal if this rational holds outside of a brief period of production

  42. Slide 42: Financial Review

    Financial Review Dale Schneider

  43. Slide 43: Sales, Earnings, and Margins (in millions CAD)

    Sales, Earnings, and Margins (in millions CAD) Q2 2018 Q2 2017 %  Record Sales of $2.2 billion Sales 2,157.4 1,766.2 22.1%  Record Net Earnings of $197.1million Operating Earnings (“OE”) 272.3 215.6 26.3% Operating Margin 12.6% 12.2% OE – Normalized6 267.5 222.9 20.0%  Double digit growth: OE – N

  44. Slide 44: Foreign Exchange Gain/Loss (in millions CAD)

    Foreign Exchange Gain/Loss (in millions CAD)  $9.1 FX gain from the revaluation of operating Q2 2018 Q2 2017 +/- FX (Gain)/Loss – Operating1 (9.1) 7.3 (16.4) balances FX (Gain)/Loss – Financing 0.3 0.9 (0.6) Total FX (Gain)/Loss (8.8) 8.2 (17.0)  Strong operating margins that are over 12% Operatin

  45. Slide 45: Transportation Sales, Earnings, and Margins (in millions CAD)

    Transportation Sales, Earnings, and Margins (in millions CAD) Q2 2018 Q2 2017  Sales increased by $101.7 or 7.2% mainly due  higher volumes on Sales 1,506.8 1,405.1  launching programs;  European light vehicles; Operating Earnings 138.8 161.5  medium and heavy trucks; and Foreign Exchange1 (Gai

  46. Slide 46: Transportation Sales, Earnings, and Margins (in millions CAD)

    Transportation Sales, Earnings, and Margins (in millions CAD) Q2 2018 Q2 2017  Normalized OE declined by $23.4 or 14.6% mainly due to Sales 1,506.8 1,405.1  the lower program volumes on mature, high margin programs in North America; and Operating Earnings 138.8 161.5  Increased management, R&D an

  47. Slide 47: Industrial Sales, Earnings, and Margins (in millions CAD)

    Industrial Sales, Earnings, and Margins (in millions CAD) Q2 2018 Q2 2017  Sales increased $289.5 or 80.2% mainly due to:  the addition of MacDon; Sales 650.6 361.1  strong access equipment volumes; and Operating Earnings 133.5 54.1  market share growth for access equipment in certain regions. F

  48. Slide 48: Industrial Sales, Earnings, and Margins (in millions CAD)

    Industrial Sales, Earnings, and Margins (in millions CAD) Q2 2018 Q2 2017  Normalized OE increased $68.0 or 108.5% mainly due to: Sales 650.6 361.1  the acquisition of MacDon; Operating Earnings 133.5 54.1  the strong access equipment volumes; partially offset by Foreign Exchange1 (Gain)/Loss (4.

  49. Slide 49: Operating Expenses (in millions CAD)

    Operating Expenses (in millions CAD)  Strong Gross Margin of 17.9% Q2 2018 Q2 2017 +/- % Sales 2,157.4 1,766.2 391.2 22.1% Cost of Goods Sold 1,771.8 1,453.4 318.4 21.9%  Amortization increased $10.7 due to the addition of Gross Margin 385.6 312.8 72.8 23.3% MacDon and the impact of launching prog

  50. Slide 50: Finance Expenses & Income Tax (in millions CAD)

    Finance Expenses & Income Tax (in millions CAD)  Finance expenses increased to $9.7 due Q2 2018 Q2 2017 +/- primarily due to: Finance Expense 12.6 2.9 9.7  the acquisition debt to purchase MacDon; Effective Interest Rate 2.8% 2.2% 0.6%  the related impact on borrowing spreads; and Effective Tax R

  51. Slide 51: Leverage (in millions CAD)

    Leverage (in millions CAD) Q2 2018 Q2 2017  Net Debt to Proforma EBITDA decreased from Q1 18 Cash Position 417.1 510.6 to 1.75x as expected due to the MacDon acquisition. Available Cash on Credit Facilities 595.3 649.1  The expectation is to delever under 1.0x in the next 18 months. Net Debt to Pr

  52. Slide 52: Conclusion

    Conclusion  Another record quarter for sales and earnings  Double Digit Sales and OE growth  Sales up 22.1%  Operating Earnings up 26.3%  Finance Expenses increased due to the MacDon acquisition and will delever within the next 18 months  Net Earnings up 21.7%  Solid Financial Performance © L

  53. Slide 53: Question and Answer

    Question and Answer © Linamar Corporation 53

  54. Slide 54: Key Messages

    Key Messages 1) Another quarter of record sales and record earnings both growing more than 20%. 2) Fantastic performance of our industrial segment, now delivering half of our earnings and doing a great job of offsetting a bit of softness on the auto side. 3) Strong new business wins which we are del

  55. Slide 55: Thank You

    Thank You @linamarcorp @linamarcorp Linamar Corporation www.linamar.com Linamar Corporation

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