Westinghouse Air Brake Technologies Corporation · NYSE:WAB
Westinghouse Air Brake Technologies — Investor Day (May 2018)
79 slides from Westinghouse Air Brake Technologies's investor day presentation, May 7, 2018
Slide 1: Investor Conference May 7, 2018
Investor Conference May 7, 2018 Exhibit 99.2
Slide 2: Forward-Looking Statements
Statements contained in this presentation, which are not historical facts, are forward-looking statements as that item is defined in the Private Securities Litigation Reform Act of 1995. This presentation contains forward-looking statements and certain information contained in this presentation invo
Slide 3: Agenda
WelcomeTim Wesley, VP-Investor Relations Strategic PlanRay Betler, CEO Stéphane Rambaud-Measson, COO Pat Dugan, CFO Transit SegmentStéphane Freight SegmentRay PTC Status/RoadmapBob Bourg, VP-Signaling, Strategy & Growth Q&A AGENDA
Slide 4: Leading, global provider of equipment, components and services for freight and transit rail
Leading, global provider of equipment, components and value-added services for freight and transit rail History of innovation dating back to 1869 when George Westinghouse invented air brakes 3,000+ active patents and 1,500+ engineers Operations in 30+ countries and sales in 100+ countries World-clas
Slide 5: Global Presence
/| GLOBAL PRESENCE © Operating Units Il Investor Conference, May 7, 2018
Slide 6: Compelling Industry Dynamics
COMPELLING INDUSTRY DYNAMICS Source: World Rail Market Study 2016 - UNIFE/Roland Berger. Global, accessible rail supply market exceeds $100 billion annually, with average annual growth of about 3% through 2021 New rolling stock expected to grow at about 3% CAGR, mainly in Europe (Metro and Regional)
Slide 7: Experienced Management Team
Experienced Management team Management has average of more than 20 years in transportation industry and more than 10 years with Wabtec, highlighted by extensive international experience.
Slide 8: A Track Record of Growth
$ millions, unless indicated 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2017* Sales $1,088 $1,360 $1,575 $1,402 $1,507 $1,968 $2,391 $2,566 $3,044 $ 3,308 $2,931 $3,882 Income from Operations $ 130 $ 180 $ 213 $ 180 $ 203 $ 281 $ 392 $ 437 $ 527 $ 608 $ 513 $ 508 Operating Margin 11.9%
Slide 9: Vision for the Future
(Actual Performance, 2006-17: Sales CAGR of 12% • EPS CAGR of 13%) VISION FOR THE FUTURE TO AVERAGE DOUBLE-DIGIT EPS GROWTH THROUGH THE BUSINESS CYCLE
Slide 10: Performance-Driven Growth Strategies
Wabtec Excellence Program drives our investment in these Growth Strategies: PERFORMANCE-DRIVEN GROWTH STRATEGIES PRODUCT INNOVATION & NEW TECHNOLOGIES GLOBAL & MARKET EXPANSION AFTERMARKET PRODUCTS AND SERVICES ACQUISITIONS
Slide 11: Strategic Plan
OY Wabtec CORPORATION //| STRATEGIC PLAN
Slide 12: The Wabtec Vision & DNA
the Wabtec Vision & DNA Core Values: Serve our three main stakeholders: customers, investors and employees Safety: Zero accident goal across company Customer Focus:Dedication to customer satisfaction: quality, on-time delivery, service and support Continuous Improvement: Measurable progress via stri
Slide 13: Mission & Core Competencies
Mission & core competencies Mission: To provide highly engineered, value-added products and services to our freight rail, passenger transit and industrial customers around the world to help them increase their safety, efficiency and productivity Core Competencies: Adhering to the Wabtec Excellence P
Slide 14: 2018-2022 Strategic Planning Process
First combined Strategic Plan after Faiveley acquisition Focus on vision of industry leadership and aggressive growth Drawing best practices from both companies Wabtec’s unrelenting focus on top- and bottom-line growth, Porter methodology, Lean and Priority Deployment Faiveley’s process orientation
Slide 15: A Comprehensive View
A comprehensive view Strategic Plan includes… Vision/Mission Global Market and Competitive Analysis Products and Technology/Innovation SWOT Growth Strategies and Actions Acquisition candidates Financial Summary and Causal Timeline Process begins in May, with reviews throughout summer Presentation to
Slide 16: Corporate growth strategies
Invest in technology and innovation to remain a global, industry leader In Transit, grow faster than market through excellence in project execution, quality and technology In Freight, maintain and defend AAR market leadership position and expand in UIC countries Leverage NAFTA market leadership in P
Slide 17: Metrics & Strategic Reviews
Metrics & strategic reviews Metrics Standardized KPIs reviewed monthly: Financial Flash Reports Group WEP Balanced Scorecard Functional Metrics Strategic Reviews Quarterly full and condensed reviews of each Group and Functional strategy, led by CEO and COO Reviews focus on STRAP actions … which lead
Slide 18: Priority Deployment Drives Growth Strategies
priority deployment drives growth strategies Group and Product Line strategic actions NeoFlexx Deployment Worldwide Individual Goals for Group and Operating Unit Executives and Managers NeoFlexx Market Launch with specific sales goals by customer Firm commitment to four growth strategies Priority De
Slide 19: Integration Update
OY Wabtec CORPORATION //| (INTEGRATION UPDATE
Slide 20: Successful, Yet Complex, Integration
SUCCESSFUL, YET COMPLEX, INTEGRATION Up to Dec-2016 Two corporations with independent policies and procedures Each with its own operating structure, budget, strategy and performance targets Little interaction during regulatory process 12 Groups Dec-2016 until May-2017 One corporation working toward
Slide 21: Facility Consolidations and Synergies
Facility consolidations Closed or streamlined more than a dozen locations, including production and office Migrated production from high-cost to low-cost countries Reduced head count in management ranks, sales, operations support Consolidated spending on product development, marketing, bidding Merge
Slide 22: Expanding Low-Cost Facility in Czech Republic
Opened in 2016, the 200,000 sf building includes: Product assembly lines (pantographs, power collectors and converters, trolley poles, couplers, buffers, brakes, doors) Machining, welding, surface treatment, painting Clear “single-piece flow” with visual management Optimized internal logistics and m
Slide 23: Wabtec Excellence Program (WEP)
Wabtec excellence program (WEP)
Slide 24: WEP – Main Levers to Achieve Excellence
WEP – main levers to achieve excellence Wabtec Management System Org., Processes & Systems standards Performance Measurement System Common operational model Functional excellence Development Excellence Program Functional “Body of Knowledge” & Training Talent development & succession planning Alignme
Slide 25: WEP Expected Outcome
WEP EXPECTED OUTCOME Create Value Generate above-average long-term returns by reducing waste Lean Drive down cost through the application of Lean practices Standardize State of the art processes & tools and continuous quality improvements Common Metrics Clear & quantitative cost reduction targets an
Slide 26: Operational Improvement Targets
Operational improvement Targets LEAN: 4% Manufacturing Efficiency improvement year-on-year Inventory reduction: DSI reduction by 10% year-on-year Quality: Reduce COPQ by 10% annually Reduce NCR by 15% YoY ON-TIME DELIVERY: 95%+ Sourcing Savings: Generate $10mm annually better than budget PROJECT MAN
Slide 27: Financial Highlights
OY Wabtec CORPORATION //| FINANCIAL HIGHLIGHTS
Slide 28: Topics
1Q review Importance of margin improvement Working capital performance STRAP plan highlights Capital Structure Management compensation tied to shareholder priorities Topics
Slide 29: 1Q Results: A Solid Start to the Year
Exceeded 1Q guidance slightly and affirmed full-year guidance Revenues of $1.06B; guiding to about $4.1B for the year EPS of 92 cents; guiding to about $3.80 for the year, excluding estimated restructuring and integration charges 1Q operating margin at 12.4%; guiding to about 13.5% for full year 1Q
Slide 30: Focused on Improving Margins
Striving to continuously improve operating margins over time, although fluctuations occur due to volume changes, product mix, acquisitions WEP drives lean benefits, with added potential from low-cost sourcing and strategic pricing Volume provides operating leverage, with strong incremental margins A
Slide 31: Striving to Reduce Working Capital
Increases in recent years due to: Growth of company Extension of supply chain with globalization of company; more project-based and more international Long-term contracts with up-front design/engineering costs At March 31, 2018: Accounts receivable at 77 days, Inventory at 102 days, Accounts Payable
Slide 32: STRAP Financial Highlights 2018-2022
Sales increasing about 9% CAGR from $3.9B in 2017 to about $6.1B in 2022 Transit segment at 7% Freight segment at 11% EBIT increasing about 15% CAGR from $540M in 2017 to about $1B in 2022 EBIT margin growing to 18% Margin growth in both segments Cash from operations exceeds net income each year Cap
Slide 33: Capital Structure
// CAPITAL STRUCTURE Capitalization ($ in thousands) 3/2018 cap Amount, Maturity Coupon cash $233,401 Revolver $ 483,124 100% § 41,200,000 672212021 L175 Term Loan $ 370000 76% $ 400,000 © 11/25/2019 LH175 3.48% Senior Notes $ 747655 154% 750,000 © 11/15/2026 3.85%: 4.375% Senior Notes $ 248567 51%
Slide 34: Executive Comp: Pay for Performance
Enables Wabtec to attract, motivate and retain key executive talent to meet both our short-term and long-term objectives Ensures that our interests are aligned with shareholders’ interests Significant percent of targeted annual compensation at-risk (about 75% for top five named executives last year)
Slide 35: Economic Profit Drivers
Economic profit drivers /// What are the Drivers of Economic Profit? Economic Profit Revenue Drivers Cost and Expense Drivers Capital Charge Drivers = - - Price Value Mix Quality New Product Development Customer Retention Margin Improvement Productivity Lean Overhead Warranty Cycle time Obsolescence
Slide 36: Stock Ownership Guidelines: A Best Practice
Long-established stock ownership guidelines for key management, board members to strengthen alignment with shareholders Set as a multiple of employee’s base salary Ownership gives individuals a personal financial stake Board/Management owns about 12% of equity Stock ownership guidelines: A best prac
Slide 37: Compelling Industry Dynamics, Strong Company Fundamentals
COMPELLING INDUSTRY DYNAMICS, STRONG COMPANY FUNDAMENTALS Compelling industry dynamics Large, worldwide rail supply market Efficient transportation system essential to global economic growth Strong company fundamentals Market leader with substantial installed base Diversified revenue model, strong b
Slide 38: Appendix
CORPORATION /// Appendix
Slide 39: 2016 EPS Reconciliation
2016 EPS Reconciliation Set forth below is the calculation of the non-GAAP performance measures included in this presentation. We believe that these measures provide useful supplemental information to assess our operating performance and to evaluate period-to-period comparisons. Non-GAAP financial m
Slide 40: 2017 EPS Reconciliation
2017 EPS Reconciliation Set forth below is the calculation of the non-GAAP performance measures included in this presentation. We believe that these measures provide useful supplemental information to assess our operating performance and to evaluate period-to-period comparisons. Non-GAAP financial m
Slide 41: Transit Segment
Transit segment Stéphane Rambaud-Measson, COO
Slide 42: Transit: A Global, Technology Leader
Leading, global provider of components, systems and value-added services for transit rail Strong presence in most key global markets Products used on all types of rail vehicles OEM projects lead to aftermarket revenue opportunities for 40+ years Record multi-year backlog of $4.3B at 3/31/18 2018: Fo
Slide 43: 2008: Transit Systems Using Wabtec Products
2008: TRANSIT SYSTEMS USING WABTEC PRODUCTS
Slide 44: 2018: Transit Systems Using Wabtec Products
2018: TRANSIT SYSTEMS USING WABTEC PRODUCTS
Slide 45: Components, Systems for Transit Cars
/// COMPONENTS, SYSTEMS FOR TRANSIT CARS
Slide 46: Components, Systems for Buses
/// COMPONENTS, SYSTEMS FOR BUSES
Slide 47: Brakes & Safety Products
Brakes & Safety products Brakes Complete brake systems and safety connections for all types of rolling stock Pneumatic, electro-pneumatic and electronic brake controls Wheel- and axle-mounted discs; friction pads Couplers and draw gears Friction Couplers
Slide 48: Energy, Comfort & Access Products
Energy, Comfort & access products HVAC and sanitation systems Passenger Information Systems for vehicles and stations Power collection and energy management for rail and other industries Vehicle and platform doors; accessibility ramps HVAC Information & Safety Power Collection Sanitation Rail/Platfo
Slide 49: Transit Services
Transit Services Leveraging worldwide installed base through regional service centers Value-added solutions to maintain and optimize customers’ equipment through life cycle Installation, commissioning, training, upgrades, remote diagnostic and predictive maintenance, reliability and maintainability
Slide 50: Market Trends
Market trends Highlights: Strong global investment, industry landscape evolving, growth of Indian market Trend Implication Strong global investment due to: Rapid urbanization and population growth Climate change and more stringent emissions requirements Growing demand for mobility solutions worldwid
Slide 51: Market Data: Transit Cars
Overall markets driven by government funding and ridership levels, with Europe setting technology standards Asia-Pacific and Europe are largest market segments Strongest growth through 2021 expected to be in Western Europe (Germany, France, UK) and Asia-Pacific (India, China) /// MARKET DATA Source:
Slide 52: Worldwide Rolling Stock by Region
/// WORLDWIDE ROLLING STOCK BY REGION UNITS ORDERS (number of cars) Highlights Growth in India due to expected Kanchrapara order in 2018, plus continued expansion of coach production Western Europe remains strong, especially Germany and France Americas led by U.S. CIS still suffers from previous dec
Slide 53: Worldwide Rolling Stock by Type
/// WORLDWIDE ROLLING STOCK BY TYPE UNITS ORDERS (number of cars) Highlights Multiple Units: Driven by India and Western Europe Metros: Peak volume in China, UK (London), Paris, Berlin high in 2018/19 Coaches: India is largest purchaser Very High Speed/High Speed: Lower volumes in China; market to r
Slide 54: Growth Strategies
Product Innovation and New Technologies MetroFlexx brake system NeoFlexx brake disc Low-weight compact door mechanism Clean refrigerant HVAC Global and Market Expansion Capitalize on growth in India market Leverage U.S. footprint to expand product portfolio Expand bus product offerings into Europe S
Slide 55: Margin Improvement Drivers
Excellence in project execution and contract management Design to quality and design to cost Accelerate localization in low-cost geographies (Czech Republic, Mexico, India, Macedonia) Lean deployment: Standard processes and controls, best practices sharing (WEP) Complete product and footprint ration
Slide 56: Strategic Plan Targets
Revenue growth of about 7%, more than double industry growth Margin growth of about 100 basis points annually Maintain/gain share to remain/become #1 or #2 in all core product lines Remain supplier of choice through best-in-class quality, on-time delivery, cost-competitive product offering /// STRAT
Slide 57: Freight Segment
Freight segment Ray Betler, CEO
Slide 58: Freight: A Global, Technology Leader
Leading, global provider of components, systems and value-added services for locomotives, freight cars Technology leader in train control with ongoing investment in next-generation solutions Strong presence in key global markets Strong capabilities in niche industrial markets 2018: Forecasting growt
Slide 59: Freight Segment: Locomotive
/// FREIGHT SEGMENT: Locomotive
Slide 60: Freight Segment: Freight Car
/// FREIGHT SEGMENT: Freight Car
Slide 61: Freight/Industrial Products
Freight/industrial products Brake systems, heat exchangers and other valued-added components for locomotives and freight cars Trackwork and Maintenance of Way Aftermarket services, including overhauls Heat exchangers, turbochargers and rubber for industrial markets Freight Car Industrial Wayside/Tra
Slide 62: Electronics Products
Electronics products Products and services to optimize performance, increase operational savings and improve safety Electronics hardware and embedded software design Signal and communication engineering and construction Turnkey PTC/train control and signaling systems Machine vision and analytics, pr
Slide 63: Train Control/Signaling
After U.S. mandate in 2008, freight railroads adopted Wabtec on-board system Multi-year investment led to “moon shot” Wabtec has recorded revenues of more than $2B in train control and signaling through organic growth, expansion into related market segments and strategic acquisitions Wabtec position
Slide 64: Market Trends
Market trends Highlights: Cycle expected to improve, focus on PTC and technology to drive efficiencies Trend Implication Cycle expected to improve but customers face pressure to reduce costs Traffic and storage trends positive Aggressive push for efficiencies and cost reductions as Class 1 railroads
Slide 65: Market Data
Overall economic activity (GDP) drives freight traffic volumes and capital investment NAFTA sets technology standards Majority of rolling stock outside of NAFTA, where Wabtec share is smaller /// MARKET DATA Source: World Rail Market Study 2016 - UNIFE/Roland Berger.
Slide 66: Locomotive OEM Market
//| LOCOMOTIVE OEM MARKET DELIVERIES BY REGION 4000 3,532 3500 3,069 3000 2,655 2,601 2,532 2500 2000 e Zz > 1500 1000 500 0 2016 2017 2018E 2019 2020E mNorth America m Middle East & Africa mAsia mindia mRussiaCIS ™South America mAustralia mChina m Europe 661 Investor Conoronco, Moy 7, 2018 ©) Wabte
Slide 67: Freight Car OEM Market
/| FREIGHT CAR OEM MARKET 180000 160000 140000 120000 100000 e Z 80000 60000 40000 20000 Asia DELIVERIES BY REGION 155,910 154,675 182,214 143,919 . . 2016 2017 2018E 2019 2020€ mMEA Australia mChina india mEurope mNorthAmerica mSouthAmerica m Russia/CIS 671 investor Conornco, Moy, 2018 ©) Wabtec
Slide 68: Rail Command and Control Market
Rail command and control MARKET Total addressable market represents roughly 10% of annual $22B signaling market Addressable market excludes China, Europe, HSR and Metro
Slide 69: Track/Industrial Market
Wayside and Track GDP-type growth expected Wabtec share less than 10% Heat Exchangers Multi-billion-dollar market, growing at double-digit rate Wabtec focused on engine cooling and power generation Turbochargers Low-single-digit growth expected Wabtec competes in niches based on engine size Elastome
Slide 70: Product Innovation and New Technologies
Product Innovation and New Technologies Through WabtecOne platform, leverage PTC installed base to create derivative products and services, eventually leading to autonomous operations Next-generation train control Incremental licensed features (apps) Wireless crossing Optimized asset management thro
Slide 71: Strategic Plan Targets
Revenue growth of about 11%, significantly higher than industry growth Margin growth of at least 50 basis points annually Maintain/gain share to remain/become #1 or #2 in all core product lines /// STRATEGIC PLAN TARGETS
Slide 72: PTC Update and Product Roadmap
PTC Update and product roadmap Bob Bourg, VP-Signaling, Strategy and Growth
Slide 73: Rail Safety Improvement Act of 2008
RAIL SAFETY IMPROVEMENT ACT OF 2008 Following several high-profile accidents, Congress passed RSIA in 2008 Requires PTC on: Main lines with regularly scheduled passenger intercity or commuter operations Main lines over which any poisonous-by-inhalation or toxic-by-inhalation hazardous materials are
Slide 74: I-ETMS Interoperable Electronic Train Management System
Initialization Track Database Speed Restrictions Work Zones Train Consist Movement Authorities Braking Curve Warning Curve Predictive Braking Speed Restrictions Work Zones Office Systems I-ETMS® Interoperable Electronic Train Management System
Slide 75: PTC – Wabtec Products & Services
PTC – WABTEC PRODUCTS & SERVICES On-Board Office Wayside Train Management Computer Operator Displays Video & Event Recorders Track Database Services Computer Aided Dispatch Back Office Server Signal Engineering Wired Signal Houses Signal Construction Project Management
Slide 76: Current Progress to 2018 Deadline
CURRENT PROGRESS TO 2018 DEADLINE I-ETMS Customers Planning & Installation Revenue Service Demonstration Approved for Revenue Service Total Class I Railroads 0 3 4 7 Commuter Railroads & other 28 3 2 33 Industry Challenges: Funding Late project starts Completion of all hardware installations Availab
Slide 77: Electronics Group – Vision & Objectives
Electronics group – Vision & Objectives Leverage the PTC installed base to create derivative products and services which do not exist today Provide high-technology products and services to the rail industry which improves the safety, productivity and efficiency of our customers More focused product
Slide 78: WabtecONE
//| WabtecONE ™ Expert Railway Management & Data Analytics s. .. Predlaive = _— Models for Availability & Operational Safety Real Time Data Increased (Operational Eticiencies Improved Response Eiciencies ©) Wabtec 78 iil Investor
Slide 79: Future Opportunities
FUTURE OPPORTUNITIES Maintenance Service Agreements Software maintenance Repair Training Enhancements Additional safety and productivity features Train integrity and end-of-train position monitoring Hardware upgrades Condition monitoring Operational Transformation & Automation Increased capacity thr
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