43 slides from A.o. Smith's investor presentation, 2020
Slide 1: Spring 2020 Analyst Presentation
Spring 2020 Analyst Presentation
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains statements that we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “i
Slide 3: Who We Are
Who We Are $3.0B Annual Sales 15,100 Employees GLOBAL MANUFACTURER of residential and commercial water heaters, boilers and 23 Manufacturing Facilities water treatment products 3
Slide 4: Compelling Investment Thesis
Compelling Investment Thesis Market share leader Stable/growing North Strength of premium 5 year adjusted EPS Strong balance sheet in major product lines American brand, distribution, CAGR through 2019 and cash flow to replacement market; manufacturing and = 12.7% support future operating leverage i
Slide 5: Vision: Organic Revenue Growth Drivers Across our Portfolio
We Have Organic Revenue Growth Drivers Across our Portfolio Vision Product Lines / Geographies North America North America Boilers Water China India/ To be a leading Water Heaters Treatment International • Innovative • Innovative • Best innovative • Product • Market provider of innovative energy eff
Slide 6: Corporate Snapshot
Corporate Snapshot Segment Revenue Products • Water Heaters • Water Treatment • Boilers Brands Full Year 2019 North America 69% Rest of World 31% North America ROW 6
Slide 7: Leading Market Share in the U.S. Water Heater Market Segment
Leading Market Share in the U.S. Water Heater Market Segment1 Residential Market Commercial Market2 2019 market share data (AHRI + tankless) 2019 market share data (AHRI) 40% 60% 50% 30% 40% 20% 30% 20% 10% 10% 0% 0% A. O. Smith Rheem Bradford White Other A. O. Smith Rheem Bradford White Other Other
Slide 8: Comprehensive Residential and Commercial Water Heaters Product Offering
Comprehensive Residential and Commercial Water Heaters Product Offering Residential ProLine® 50-Gallon Gas Tankless Water Electric Water Heater with X3™ Heater Hybrid Electric Heat Technology Pump Water Heater ProLine® Master 50-Gallon Gas Water Heater Commercial Cyclone® Mxi Commercial Heat Pump Wa
Slide 9: Industry Leading Partners in both the U.S. Residential Water Heater Channels
Industry Leading Partners in both the U.S. Residential Water Heater Channels INDUSTRY Wholesale Channel Retail Channel Large Regional Distributors WHOLESALE CHANNEL A. O. Smith Customers 54% of the market RETAIL CHANNEL ~46% of the market 9
Slide 10: Stable Replacement Volumes to Temper Downcycles with Upside New Construction Optionality
Stable Replacement Volumes to Temper Downcycles with Upside New Construction Optionality U. S. Residential Water Heaters1 Thousands of units PEAK HOUSING 10,000 2.1M 8,000 New 6,000 Construction 4,000 Replacement 2,000 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1 Include
Slide 11: Industry-Leading Energy Efficient Cyclone Condensing Commercial Water Heater
Industry-Leading Energy Efficient Cyclone Condensing Commercial Water Heater Up to 96% thermal Connectivity Represents efficiency built in 67% of AOS dramatically lowers commercial gas operating costs water heater offering short revenues payback 11
Slide 12: U.S. Commercial Gas Market: Energy Efficient Units more than Doubled
U.S. Commercial Gas Market: Energy Efficient Units more than Doubled in Nine Years to 47% of Units Sold in 2019 Commercial Gas Industry Units 100,000 80,000 60,000 <90% Efficiency 40,000 2019 >90% Efficiency 20,000 41,472 units 2009 (47% of total) 19,000 units (29% of total) - 2009 2010 2011 2012 20
Slide 13: Industry trending to Higher Efficiency Condensing Boilers
Industry trending to Higher Efficiency Condensing Boilers Drives Past and Future Growth NA Boiler Volumes A. O. Smith Boiler Sales 100,000 90,000 80,000 10% 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 90% Condensing Commerc
Slide 14: Comprehensive Boiler Product Offering
Comprehensive Boiler Product Offering Commercial & Residential Residential Condensing Boilers Residential Combi-boilers (55mbh – 399mbh) (Indoor Rated) (110mbh – 199mbh) (Indoor Rated) Commercial Condensing Boilers Commercial Non-Condensing Boilers Commercial Cogeneration (500mbh – 5000mbh) (Indoor
Slide 15: Our Focused Technology is Reverse Osmosis
Our Focused Technology is Reverse Osmosis, a Leading Technology to Provide Safe Drinking Water Activated Carbon Taste & Odor improves taste (removes chlorine), removes organic pollutants including PFAS Pore Size 5000 nm Sediment Micro-Filtration & Colloids removes sediment, particulates, and colloid
Slide 16: Evolution of AOS' Global Water Treatment Business
Evolution of AOS’ Global Water Treatment Business Revenue $ in millions Inorganic Revenue Organic Revenue 35% CAGR over the last 10 years $458 $397 $322 $250 $134 $97 $69 $35 $38 $20 $20 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Acquired Launched Purchased MIM, Launched Purchased Purcha
Slide 17: Large Addressable Market in U.S. Water Treatment
Large Addressable Market in U.S. Water Treatment Addressable A. O. Smith Market: $2.3 B Water Treatment (Softeners) 32% Water Filtration 68% This Photo by Unknown Author is licensed under CC BY-NC-ND Sources: A. O. Smith Primary Quantitative, Market Segmentation Research, April 2017 17
Slide 18: Positioned to Grow Across all Water Treatment Channels
Positioned to Grow Across all Water Treatment Channels Channel Brand Industry Water Treatment Channels Our brands participate in all channels; most competitors operate in 1-2 of these channels DIRECT TO Aquasana 5% CONSUMER website or direct 9% mail or telesales E-COMMERCE other e-commerce 14% marke
Slide 19: Comprehensive Water Treatment Product Offering for the Entire Home
Comprehensive Water Treatment Product Offering for the Entire Home Point of Entry Products Point of Use Products Non-Installed Products Whole Home Clean Water Filtration Machine Whole Kitchen Tankless RO Filtration Systems Whole Home On-the-Go Filter Softeners Bottles Traditional RO Under Sink Syste
Slide 20: AOS China Built On
AOS China Built On Premium Brand Extensive Distribution and Service Network Innovative New Products and World Class Manufacturing Local Management Team and Organizational Development 20
Slide 21: Growing Product Portfolio Developed in China for China
Growing Product Portfolio Developed in China for China Electric & Gas Water Heaters Water Treatment Other Categories Electric Water Air Purifier Heaters Water Purifiers Range Hood Gas Water Heater 21
Slide 22: China: Broad Distribution Channel
China: Broad Distribution Channel Percentage of Sales 21% 20% 17% 17% 23% 36% 33% 35% 35% 36% 32% 30% 29% 30% 33% 10% 22% 26% 25% 25% +9,000 22% retail counters in China 23% 26% 24% 30% 54% 45% 38% 37% 31% 28% 31% 31% 23% 23% of outlets in Tier 1 cities 18% 1% 3% 8% 2007 2010 2012 2013 2014 2015 201
Slide 23: China: Mega Trends Driving Growth
China: Mega Trends Driving Growth TRENDS A. O. SMITH We are positioned to reach consumers using the internet On-line shopping is growing in China Middle and affluent classes Our Market Leading Premium Consumer brand is positioned for are growing the middle and affluent classes Urbanization in China
Slide 24: China: Market Leader in Water Heating and Water Treatment
China: Market Leader in Water Heating and Water Treatment Water Heater Market Share Water Treatment Market Share A.O.Smith Haier Midea Macro Wanhe A. O. Smith Midea Qinyuan Rinnai Noritz Ariston Sakura Siemens Angel 3M Haier 30% 50% 25% 40% 20% 30% 15% 20% 10% 10% 5% 0% 0% 2009 2010 2011 2012 2013 2
Slide 25: Thesis in India Similar to China
Thesis in India Similar to China Attractive Growth Demographics We are committed for the long-term Leveraging Global Capabilities with Products Designed for the opportunity Indian Market Building Brand & Expanding Our Distribution Introducing New Product Categories with Water Treatment Local Managem
Slide 26: India: Geographic Presence Build out from 2008 through 2019
India: Geographic Presence Build out from 2008 through 2019 A Class Cities (pop >1.5 Mn) Headquarter & Manufacturing (Bengaluru) National Retailers Distribution in 25 out of 25 cities High Distribution Location B Class Cities Ludhiana (pop .5 to 1.5 Mn) New Delhi Distribution in Agra 63 out of 68 ci
Slide 27: Driving Financial Performance and Delivering Significant Growth
Driving Financial Performance and Delivering Significant Growth Sales Growth Adjusted EBITDA1 Adjusted Earnings Per Share2 Sales in billions $3.5 8% CAGR 15% CAGR 21% CAGR $700 Adjusted EBITDA $2.5 $3.0 $600 2010 10.6 % of Sales 2019 18.7 % of Sales $2.5 $2.0 $500 $2.0 $400 $1.5 $1.5 $300 $1.0 $1.0
Slide 28: Cash Returned to Shareholders: ~$1.4B last Five Years
Cash Returned to Shareholders: ~$1.4B last Five Years $ in millions $500 $450 $436.9 $400 $350 $332.7 $300 $250 $236 $219.4 $195.9 $200 $150 $100 $50 $0 2015 2016 2017 2018 2019 Dividends Share Repurchase 1 Subject to price, alternative investments and working capital requirements 28
Slide 29: M&A Criteria and Focus
M&A Criteria and Focus Accretive to ROIC in excess of Meet risk adjusted Margin accretion earnings in the cost of capital by IRR hurdle rates with growth rates first year third year higher than U.S. GDP Geographic Growth Expand / Grow the Core Adjacencies ▪ High Growth Markets New Products & ▪ Water
Slide 30: Compelling Investment Thesis
Compelling Investment Thesis Market share leader Stable/growing U.S. Strength of premium 5 year adjusted EPS Strong balance sheet in major product lines replacement market; brand, distribution, CAGR through 2019 and cash flow to operating leverage manufacturing and = 12.7% support future from increm
Slide 31: ESG Accomplishments
ESG Accomplishments Products Conserve Operations Are Safe & We Are a Good Place Resources Conserve Resources to Work 98% Thermal Efficient President's Safety Award Employee Engagement Score (Max 5) Established 1955 5.0 100% Cyclone Commercial Water Heater 87% 90% 1.6B cubic feet of natural gas saved
Slide 32: Q1 2020 Results
Q1 2020 Results (SeSmith.
Slide 33: Focus on Cash and Liquidity
Focus on Cash and Liquidity $125M $850M1 ~ $55M 2020 Share Capital spending Cash repatriated Liquidity China SG&A Repurchase reprioritized and to U.S. savings ($30 suspended reduced million of which mid-March was achieved in 2019) 1 As of April 30, 2020 33
Slide 34: Minimal Debt Maturities in Next Twelve Months
Minimal Debt Maturities in Next Twelve Months $ in millions Revolving Credit Facility $250 $230M $200 $150 LT Notes $106M $100 $50 LT Notes $7M $0M $0M $0M $0M $0M $0 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Dec 31, Thereafter 2021 March 31, 2020 34
Slide 35: First Quarter Results
First Quarter Results $ in millions 2020 2019 Change % Change Sales $636.9 $748.2 $(111.3) -15% Net Earnings $ 51.7 $ 89.3 $ (37.6) -42% EPS $ 0.32 $ 0.53 $ (0.21) -40% 35
Slide 36: First Quarter Sales
First Quarter Sales $ in millions 2020 2019 Change % Change North America $ 532.9 $ 521.8 $ 11.1 2% Rest of World 110.2 232.1 (121.9) -53% Intersegment (6.2) (5.7) (0.5) Total $ 636.9 $ 748.2 $(111.3) -15% 36
Slide 37: First Quarter Earnings (Loss)
First Quarter Earnings (Loss) $ in millions, except percentages 2020 2019 Change % Change North America $127.1 $116.0 $ 11.1 10% Rest of World (42.2) 12.3 (54.5) Total Segment Earnings 84.9 128.3 (43.4) -34% Corporate (15.0) (14.7) (0.3) -2% Interest Expense (2.2) (2.0) (0.2) -10% Pre-tax Earnings 6
Slide 38: Strong Capital Position
Strong Capital Position1 Cash Flow from Operations $ in millions $54M 17.5% $552M $70 $60 $54 Cash provided Debt to Cash balance2 by operations capital ratio $50 $40 $ 209M ~1.3M $30 $22 $20 Net cash position Stock repurchase; shares totaling ~$57M $10 $0 2020 2019 1 as of March 31, 2020 2 includes
Slide 39: April 2020 Business Conditions
April 2020 Business Conditions % Q1 YOY Revenue1 sales April Commentary NA Water April 2020 residential order rates off low single digits compared 70% -2% Heaters with Q1 2020; commercial orders down 30 - 35% China2 14% -56% Sequential sell-out improving NA Boilers 7% -3% Commercial condensing backl
Slide 40: North America Business Conditions
North America Business Conditions Manufacturing Supply Chain Flexibility in NA Proactively Managed Residential Replacement Water Heater Volumes NA Boiler Volumes 100,000 90,000 PEAK HOUSING 80,000 2.1M 10,000 Replacement New Construction 70,000 60,000 8,000 50,000 40,000 6,000 30,000 20,000 4,000 10
Slide 41: China Business Conditions
China Business Conditions Weekly China Channel sell out - Units • Three plants operating − Building to order − Operating at lower than normal levels • Supply chain intact • Demand skew to on-line • Right sizing and product cost reduction continue • New product development 0 and R&D continue 1st 2nd
Slide 42: 2020 COVID-19 Commentary
2020 COVID-19 Commentary After a hard closure of Great recession NA boiler sales will be India will not achieve the economy, the impacted residential impacted as break-even in 2020 country is slowly volume by 18% construction slows returning to business 42
Slide 43: (<6 Smith.
(<6 Smith. Innovation has a name.