Enpro Inc. · NYSE:NPO
Enpro — EnPro Industries — Investor Day (March 2019)
92 slides from Enpro's investor day presentation, Mar 13, 2019
Slide 1: EnPro Industries Investor Day
ENPRO INDUSTRIES I N V E S T O R D AY MARCH 13, 2019
Slide 2: Forward Looking Statements
FORWARD LOOKING STATEMENTS Statements in this presentation that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They involve a number of risks and uncertainties that
Slide 3: Agenda
AGENDA WELCOME & OPENING REMARKS STEVE MACADAM – President & Chief Executive Officer 9:00 AM COMPANY OVERVIEW CHRIS O’NEAL – SVP Strategy, Corporate Development and Investor Relations STRATEGY STEVE MACADAM – President & Chief Executive Officer BREAK 10:15 AM ENPRO OPERATING SYSTEM MARVIN RILEY – Ex
Slide 4: Welcome & Opening Remarks
WELCOME & OPENING REMARKS Steve Macadam – President & Chief Executive Officer
Slide 5: Management Presenters
MANAGEMENT PRESENTERS STEVE MACADAM MARVIN RILEY MILT CHILDRESS CHRIS O’NEAL President & CEO Executive Vice President & Executive Vice President & Senior Vice President Strategy, Chief Operating Officer Chief Financial Officer Corporate Development & IR EnPro Industries EnPro Industries EnPro Indust
Slide 6: Key Messages
KEY MESSAGES 1 Compelling product portfolio Leading global engineered product portfolio with deep technical and applications expertise in high-value niche markets 2 Delivering on our commitments Strengthening the business through the completion of the ACRP, operational improvements and disciplined c
Slide 7: EnPro Mission and Vision
ENPRO MISSION AND VISION CUSTOMIZED SOLUTIONS FOR THE MOST DEMANDING APPLICATIONS WE ARE A PURPOSE-DRIVEN COMPANY WITH STRONG VALUES, A FORWARD-THINKING OPERATING PHILOSOPHY, HUMAN DEVELOPMENT THROUGH THE WAY WE WORK AND A WAY OF WORKING THAT DRIVES BEST-IN- CLASS VALUE CREATION OVER THE LONG-TERM.
Slide 8: Delivering on Our Commitments
DELIVERING ON OUR COMMITMENTS • Established and fully funded the trust FINALIZED THE ACRP • Collected $114M of tax refunds to date; $19M balance to be collected by year end • Received $13M of insurance in 2018; $10M to be collected in 2019; $2M in future periods • Tracking to the upper half of o
Slide 9: Company Overview
COMPANY OVERVIEW Chris O’Neal – Senior Vice President Strategy, Corporate Development and Investor Relations
Slide 10: EnPro at a Glance
ENPRO AT A GLANCE COMPANY OVERVIEW 2018 REVENUE 2018 EBITDA 2018 EBITDA MARGIN HISTORY 2002 spin-off from Goodrich Corporation $1.5B $217MM 14.2% HEADQUARTERS Charlotte, N.C. #1-3 POSITON IN PRIMARY MANUFACTURING 30 primary facilities globally MARKETS AFTERMARKET EMPLOYEES ~6,000 MARKET CAP(1) DIVID
Slide 11: Segment Overview
SEGMENT OVERVIEW SEALING PRODUCTS ENGINEERED PRODUCTS POWER SYSTEMS 2018 REVENUE $954M 2018 REVENUE $324M 2018 REVENUE $258M 2018 ADJ. EBITDA MARGIN 17% 2018 ADJ. EBITDA MARGIN 17% 2018 ADJ. EBITDA MARGIN 14% 40% STEMCO 67% GGB 100% FAIRBANKS 31% GARLOCK 33% CPI MORSE 29% TECHNETICS KEY PRODUCT OFFE
Slide 12: Leveraging Our Strengths for Mission Critical Products
LEVERAGING OUR STRENGTHS FOR MISSION CRITICAL PRODUCTS STRENGTHS PRODUCTS • Nuclear reactor pressure vessel seals Leadership in high-value niche markets with established, • Aircraft engine seals & landing gear bearings premium brands SEALING • Petroleum/chemical refinery process sealing PRODUCTS • C
Slide 13: Diversified Blue-Chip Customer Base
DIVERSIFIED BLUE-CHIP CUSTOMER BASE 13
Slide 14: Sealing Products Snapshot
SEALING PRODUCTS SNAPSHOT HISTORICAL FINANCIALS ($M) PROFILE $954 • #1 - #3 in principal markets served; Garlock 125 year operating history • High degree of technical and application expertise; extensive trade secrets $894 • Deep customer engagement to create innovative solutions complemented by val
Slide 15: Sealing Products: Products and End Market Overview
SEALING PRODUCTS: PRODUCTS AND END MARKET OVERVIEW SELECT PRODUCTS SELECT MARKETS SOFT GASKETS BEARING ISOLATIORS ISOLATION GASKETS FOOD & PHARMA SEMICONDUCTOR METAL SEALS ELECTROSTATIC BRUSH SEALS NUCLEAR AEROSPACE PEDESTALS SANITARY GASKETS SANITARY HOSES WHEEL-END PRODUCTS HEAVY DUTY TRUCKING OIL
Slide 16: Engineered Products Snapshot
ENGINEERED PRODUCTS SNAPSHOT HISTORICAL FINANCIALS ($M) PROFILE $302 $324 • Leading brands $278 • Technology and market leadership in plain bearings • High degree of tribological and applications expertise in bearings • Strong aftermarket presence in oil & gas and petrochemical Sales Gross Margin RE
Slide 17: Engineered Products: Products and End Market Overview
ENGINEERED PRODUCTS: PRODUCTS AND END MARKET OVERVIEW SELECT PRODUCTS SELECT MARKETS METAL POLYMER BEARING TRIBOLOGICAL SOLUTIONS SOLID POLYMER AUTOMOTIVE GENERAL INDUSTRIAL BEARING DRY BEARING FILAMENT WOUND HIGH-FLOW VALVES PETROCHEM AEROSPACE BEARING MONITORING DEVICES PACKING CASES PISTON & RIDE
Slide 18: Power Systems Snapshot
POWER SYSTEMS SNAPSHOT HISTORICAL FINANCIALS ($M) PROFILE • Well-established and respected brand; >1GW of power installed in the last 10 years $258 • 140+ year operating history; significant barriers to entry • Engine of choice for U.S. Navy & Coast Guard $211 $212 • Reliability advantage o Opposed
Slide 19: Power Systems: Products and End Markets Overview
POWER SYSTEMS: PRODUCTS AND END MARKETS OVERVIEW SELECT PRODUCTS SELECT MARKETS AND APPLICATIONS MARINE POWERGEN DEFENSE NUCLEAR COMMERCIAL INDUSTRIAL MUNICIPAL SOLUTIONS SERVICE ANALYTICS ALTERNATIVE FUELS 19
Slide 20: Key Takeaways
KEY TAKEAWAYS 1 Leadership in high-value niche markets with established, premium brands 2 Supporting mission-critical applications in highly demanding and extreme operating environments 3 Low-cost relative to applications served; value-based pricing leverage 4 Applying manufacturing know-how and tra
Slide 21: Strategy
STRATEGY Steve Macadam – President & Chief Executive Officer
Slide 22: Key Messages
KEY MESSAGES Leveraging the EnPro Operating System for continuous improvement and ongoing shareholder 1 value; still early innings of opportunity 2019 priorities include increasing margins and cash flow Focusing on growing in markets where we have competitive advantage 2 Allocating resources to grow
Slide 23: EnPro Operating System
ENPRO OPERATING SYSTEM Committed to shareholder value creation Combines capabilities that improve productivity, efficiency and innovation in all business units World class standard is always maintained Learning mentality and ownership-based leadership Everyone must play for EnPro Learn from others,
Slide 24: Our Operating System Has Created Value
OUR OPERATING SYSTEM HAS CREATED VALUE SEALING PRODUCTS ENGINEERED PRODUCTS POWER SYSTEMS • Customer-driven innovation • Manufacturing process controls • Internal assessment identified process enables new product improved on-time delivery in opportunity to increase aftermarket development (ex. Gylon
Slide 25: EnPro Operating System: More Opportunities Exist
ENPRO OPERATING SYSTEM: MORE OPPORTUNITIES EXIST • Pricing initiatives EXPAND GROSS MARGINS • Sourcing initiatives to drive down costs • Focus on developing, growing and acquiring high margin products REDUCE SG&A • Reductions through “mindful spending”, efficiencies, and labor force management • Lar
Slide 26: Growth: Framework to Select New Opportunities
GROWTH: FRAMEWORK TO SELECT NEW OPPORTUNITIES SUSTAINABLE LONG-TERM • Technology, regulatory, or economic trends drive growing demand for the product or service GROWTH DRIVERS • Engineer-to-engineer sales process that focuses on performance, not price DEMANDING APPLICATIONS • Products that are highl
Slide 27: Underlying Trends Will Drive Long-Term Growth
UNDERLYING TRENDS WILL DRIVE LONG-TERM GROWTH SEMICONDUCTOR HYGIENIC AEROSPACE DIGITAL ECONOMY HEALTH NEEDS RISING STANDARDS OF LIVING Increased demand for semiconductor logic Increased pharmaceutical demand due to Increased demand for air travel and memory: greater life expectancy New aircraft deli
Slide 28: Targeted Key Market: Hygienic Market
TARGETED KEY MARKET: HYGIENIC MARKET PHARMACEUTICAL FOOD AND BEVERAGE Mega Trends GDP ( ↑ ) Life Expectancy ( ↑) Population ( ↑) Macro Trends Urbanization ( ↑ ) Emerging Middle Class ( ↑) Calorie Intake Per Capita ( ↑) Legislation, Public Concern, Resource Scarcity, New Diseases, Dietary Trends, Mar
Slide 29: Hygienic Value-Added Presence
HYGIENIC VALUE-ADDED PRESENCE KEY CHARACTERISTICS: • Regulatory compliance and clean room requirements provide barrier to new entrants • Demanding applications • Critical functions • Single use products create recurring aftermarket sales 29
Slide 30: Targeted Key Market: Semiconductor
TARGETED KEY MARKET: SEMICONDUCTOR >10 ZB DATA • IoT and Industry 4.0 driving an explosion of Inflection Year SAFETY AND GENERATION data Data generated by SECURITY machines > humans SMART VEHICLES CONNECTIVITY • More data needs to be processed and stored than HOMES AND DATA STORAGE ever before – Sto
Slide 31: Semiconductor Value-Added Presence
SEMICONDUCTOR VALUE-ADDED PRESENCE KEY CHARACTERISTICS: • High cost to qualify a new product for use in a chamber system • Demanding applications • Critical functions • OEM relationships ensure access to aftermarket • Opportunities to extend maintenance cycles through advanced technologies 31
Slide 32: Targeted Key Market: Aerospace
TARGETED KEY MARKET: AEROSPACE • New, more fuel efficient platforms NEW AIRCRAFT • Growing passenger miles DEMAND DRIVERS • Environmental drivers and regulation requirements • Growing passenger miles AFTERMARKET • Rising middle class DEMAND • Improving standard of living DRIVERS • E-commerce is driv
Slide 33: Aerospace Value-Added Presence
AEROSPACE VALUE-ADDED PRESENCE KEY CHARACTERISTICS: • Products require aerospace certifications • Demanding applications • Critical functions • Products require regular replacement 33
Slide 34: M&A Filters
M&A FILTERS • Highly engineered products often with mission critical applications; “high value niches” • Intellectual property / proprietary technology or know-how STRATEGIC FIT • Attractive and growing end markets; cycle resistant • Low customer/supplier concentrations • Product Synergies – Fill in
Slide 35: Successfully Integrating and Leveraging Recent Acquisitions
SUCCESSFULLY INTEGRATING AND LEVERAGING RECENT ACQUISITIONS ACQUISITION RATIONALE KEY INITIATIVES VALUE CREATED • Expands addressable market in • Geographic expansion in non-discretionary, consumable emerging economies • Significant improvement in Air products by 25% • Dual vendor sourcing to Spring
Slide 36: Clear Priorities Across All Segments
CLEAR PRIORITIES ACROSS ALL SEGMENTS SEALING PRODUCTS ENGINEERED PRODUCTS POWER SYSTEMS • Expand presence in growth • Apply materials expertise to • Deepen Navy and Coast Guard markets via organic and inorganic pursue adjacent applications penetration initiatives • Complete development and field • I
Slide 37: Financial Strategy
FINANCIAL STRATEGY REINVEST IN THE • Invest in R&D and equipment to maintain and strengthen our market leading positions BUSINESS • Continue to build value-creation capabilities through the EnPro Operating System PURSUE BOLT-ON • Require strategic fit and synergies ACQUISITIONS • Not pursuing transf
Slide 38: Key Takeaways
KEY TAKEAWAYS Leveraging the EnPro Operating System, a continuous improvement framework with significant 1 runway for shareholder value creation in 2019 and beyond 2019 priority is to increase margins and cash flow 2 Focusing on growing in markets where we have competitive advantage Allocating resou
Slide 39: Break
BREAK 15 minutes
Slide 40: EnPro Operating System
ENPRO OPERATING SYSTEM Marvin Riley – Executive Vice President & Chief Operating Officer
Slide 41: Key Messages
KEY MESSAGES 1 EnPro Operating System, a sustainable competitive advantage 2 Near-term focused on driving margin improvement and cash flow generation Key areas of impact: pricing, process improvements, cost reduction, quality, on-time 3 delivery, should-cost analysis, supply chain optimization, etc.
Slide 42: EnPro Operating System
ENPRO OPERATING SYSTEM Committed to shareholder value creation Combines capabilities that improve productivity, efficiency and innovation in all business units World class standard is always maintained Learning mentality and ownership-based leadership Everyone must play for EnPro Learn from others,
Slide 43: Our Operating System Is Improving Results
OUR OPERATING SYSTEM IS IMPROVING RESULTS EXAMPLES OF ACTIONS TAKEN • Talent upgrades in key leadership roles SEALING • Pricing initiative to offset tariff impact PRODUCTS • Should-cost analysis to support friction buy vs. make • Exit of Industrial Gas Turbine business • Safety: 3 of 6 divisions bel
Slide 44: Investing in Our Talent
INVESTING IN OUR TALENT Ego free decisions: What’s best for EnPro? PERSONAL MASTERY High learning edge required to contribute Grow or Go Culture TALENT OWNERSHIP Inspire employees to think like an owner MENTALITY Employees incentivized for value creation The best idea always wins IDEA MERITOCRACY Ca
Slide 45: Driving Sustainable Profitable Growth
DRIVING SUSTAINABLE PROFITABLE GROWTH Craft successful growth strategy PROFITABLE GROWTH Identify potential competitive advantage PLAYBOOK Maintain revenue and profit balance Drive fact based decision making STRATEGY ANALYTICAL Assess potential opportunities and risks DIAGNOSTIC PROCESS Identify and
Slide 46: Investing in Innovation
INVESTING IN INNOVATION Internet of Things EXPLORING KEY EMERGING MARKET AND TECHNOLOGY Additive manufacturing TRENDS Super Alloys & Ultra High Strength Metals ProFlo EOS; EMISSIONGUARD™ INNOVATION CUSTOMER-CENTRIC GYLON EPIX™ APPROACH Trifecta™ Pre-Adjusted Hub Assembly STRATEGIC & TECHNICAL Univer
Slide 47: Driving Innovation to Unlock Further Value
DRIVING INNOVATION TO UNLOCK FURTHER VALUE SEALING PRODUCTS GYLON® EPIX TRIFECTA® HYDRODYNAMIC SEALS ENGINEERED PRODUCTS PROFLO® EOS EMISSIONS GUARD TRIBOLOGICAL COATINGS POWER SYSTEMS TRIDENT® OP COMMON RAIL FUEL INJECTION SYSTEM 47
Slide 48: Innovation Case Study: Garlock Gylon EPIX
INNOVATION CASE STUDY: GARLOCK GYLON EPIX CHALLENGE SOLUTION RESULTS Most chemical and Gylon ® EPIX seals petrochemical customers imperfections in flange Garlock’s use of the Challenger sales are operating with surfaces like a thick model to launch EPIX generated first-year decades-old piping gasket
Slide 49: Innovation Case Study: CPI EmissionGuard
INNOVATION CASE STUDY: CPI EMMISSIONGUARD™ CHALLENGE SOLUTION RESULTS • CPI’s EMISSIONGUARD™ Environmental pressure TR² packing ring is the • European launch (Sep ‘18) - European has driven customers to only ring design that Forum for Reciprocating Compressors in search for new ways to combines the
Slide 50: Innovation Case Study: Fairbanks Morse CRFI Solutions
INNOVATION CASE STUDY: FAIRBANKS MORSE CRFI SOLUTIONS CHALLENGE SOLUTION RESULTS The US Navy needed a • Fairbanks Morse The project began in 2015 and prototype durable and fuel efficient developed a technically testing was completed in 2018. The solution is diesel engine to propel its advanced Commo
Slide 51: Fairbanks Morse Trident OP Launch - Timing Modified
FAIRBANKS MORSE TRIDENT OP LAUNCH - TIMING MODIFIED DEVELOPMENT STATUS RATIONALE IMPACT • Prototype achieving best in • Record demand for core • Completion of low-margin class fuel efficiency marine products EDF contract • Endurance testing underway • Current backlog is • Increased customer to demon
Slide 52: Innovation Partnerships
INNOVATION PARTNERSHIPS PARTNERS IN TECHNOLOGY SILVER FREE TECHNOLOGY BRONZE FREE SOLUTIONS SUPER ALLOYS CONDUCTIVE POLYMER RESEARCH INTELLIGENT COMPONENTS POLYMER COATINGS NANO TECHNOLOGY SURFACE NANO-TEXTURISATION HIGH STRENGTH PLASTICS 52
Slide 53: Monetizing Commercial Excellence
MONETIZING COMMERCIAL EXCELLENCE SALES LEADERSHIP Developed CE assessment process SYSTEM - SLS 2.0 Best practice methods and tools COMMERCIAL Utilizing Challenger sales model to SALESFORCE drive high-impact sales conversations EXCELLENCE EFFECTIVENESS Team selling large projects E-COMMERCE Simplifyi
Slide 54: Commercial Excellence Case Study: Fairbanks Morse
COMMERCIAL EXCELLENCE CASE STUDY: FAIRBANKS MORSE Fairbanks Morse will build and deliver emergency diesel generator (EDG) sets for the Navy’s third and fourth Gerald R. Ford-class nuclear-power carriers. Each emergency genset will provide backup electricity should the ship lose power. Our engineerin
Slide 55: Leveraging Operational Excellence
LEVERAGING OPERATIONAL EXCELLENCE Behavior based safety culture SAFETY Peer-to-Peer safety action teams EMLS - ENPRO Abnormality management using scorecards MANUFACTURING Continuous improvement (Lean, Six Sigma) OPERATIONAL LEARNING SYSTEM Capability building to scale globally EXCELLENCE Business Pl
Slide 56: Operational Excellence Case Study: CPI
OPERATIONAL EXCELLENCE CASE STUDY: CPI • Leveraged EnPro Manufacturing Learning System APPROACH • Installed process controls and refined performance metrics • 880 bps increase in EBITDA margin from 2015 to 2018 on ~$4M sales decline • Increased new product sales by 3 % pts. • Enhanced the leadership
Slide 57: Focus Areas for Creating Value
FOCUS AREAS FOR CREATING VALUE SALES MARGINS CASH FLOW • Create customer-centric culture • Establish flywheel by business unit • Reduce and maintain capital spending at 3.0% - 3.5% of sales • Standardize the use of Net Promoter • Maintain lean corporate center philosophy Score • Execute strategy to
Slide 58: Key Takeaways
KEY TAKEAWAYS 1 Margin and cash flow generation improvement to drive CFROI increase 2 EnPro Operating system developed and resourced to support path to 20% Segment EBITDA 3 Capability building underway to support becoming more asset light 4 Significant growth and improvement opportunities in the pip
Slide 59: Financial Initiatives, Strategy & Outlook
FINANCIAL INITIATIVES, STRATEGY & OUTLOOK Milt Childress – Executive Vice President & Chief Financial Officer
Slide 60: Key Messages
KEY MESSAGES 1 Delivering on our commitments 2 Strengthening our balance sheet 3 Maintaining a balanced approach to capital allocation Focused on growing margins, increasing cash flow, and completing bolt-on acquisitions 4 throughout the cycle 60
Slide 61: Financial Performance: 2016 – 2018
FINANCIAL PERFORMANCE: 2016 – 2018 PRO FORMA REVENUE ($M) PRO FORMA ADJUSTED EBITDA ($M) PRO FORMA ADJUSTED EPS $1,532 $217 $215 $3.91 $3.48 $2.86 $1,402 $1,338 $189 14.2% 15.4% 14.2% 2016 2017 2018 2016 2017 2018 2016 2017 2018 EBITDA Margin 61
Slide 62: Financial Performance: 2016 – 2018
FINANCIAL PERFORMANCE: 2016 – 2018 FREE CASH FLOW ($M) (1) NET DEBT TO EBITDA MULTIPLE (2) CFROI (3) 2.3x 13.0% 157% 158% 1.9x 10.3% 10.6% 117% 1.5x $131 $119 $72 2016 2017 2018 2016 2017 2018 2016 2017 2018 FREE CASH FLOW AS A % OF ADJUSTED NET INCOME (1) Free Cash Flow = Cash Flow from Operations
Slide 63: Financial Performance Excluding EDF FX Impact: 2016 – 2018
FINANCIAL PERFORMANCE EXCLUDING EDF FX IMPACT: 2016 – 2018 PRO FORMA EBITDA EXCLUDING EDF FX ($M) PRO FORMA ADJUSTED EPS EXCLUDING EDF FX $220 7.1% CAGR $4.00 16.7% CAGR $207 $3.22 $2.94 $192 14.3% 14.8% 14.4% 2016 2017 2018 2016 2017 2018 63
Slide 64: Delivering on Our Commitments
DELIVERING ON OUR COMMITMENTS Guidance Results (1) Annual EBITDA Guidance 2016 $200M - $204M $189M 2017 $188M - $193M $207M 2018 $214M - $220M $220M 3-Year Target 2019 Guidance 3-Year Targets Sales 2.0% - 2.5% 4.0% - 4.5% EBITDA $220M - $230M $225M - $233M Net leverage reduced from 2.3x to 1
Slide 65: Strengthening Our Balance Sheet
STRENGTHENING OUR BALANCE SHEET Installed new senior credit facility in Q2 2018 1 Increased facility from $300M to $350M Reduced base rate from LIBOR+200 to LIBOR+175 Refinanced senior notes in Q3 2018 Lowered interest expense by reducing offering by $100M and reducing fixed rate from 5 7/
Slide 66: Capitalization
CAPITALIZATION ($M) 12/31/18 Net Debt Analysis Cash $130 Credit Facility – Revolver 117 Net Debt/EBITDA: $350M Senior Notes (2026 Maturity) (1) 345 Capital Lease Obligations 3 Net Debt $335 ~1.5x Capitalization Analysis Revolver (Variable Rate @ L+1.75%) $117 Senior (Fixed Rate @ 5.75%) 350 Equity 8
Slide 67: Balanced Capital Allocation Strategy
BALANCED CAPITAL ALLOCATION STRATEGY • Fairly small investments ($50k - $250k) with a high level of Maintenance Capital flexibility Investments • Investments typically have a positive ROI due to improved efficiency and reliability Capital Reinvestment • Medium sized investments ($500k - $1M) to deve
Slide 68: Capital Allocation
CAPITAL ALLOCATION • $66 million in capital expenditures; expected to moderate REINVEST IN beginning in FY19 2018 CAPITAL ALLOCATION ($M) THE BUSINESS • Approximately 44% maintenance-related and balance focused on growth $20M 37% SHARE REPURCHASES • High technical know-how, IP-rich offering STRATEGI
Slide 69: Reaffirming Fiscal 2019 Guidance
REAFFIRMING FISCAL 2019 GUIDANCE FY 2019 Guidance Increase Key Assumptions • Sales Growth • Flat Sealing Products sales resulting Sales → $1,530M - $1,560M → 0% to +2% from semiconductor down-cycle • Flat to LSD growth in Eng. Products • MSD growth in Power Systems • EBITDA Margins • 100-125 bps inc
Slide 70: 3-Year Outlook
3-YEAR OUTLOOK Outlook Key Assumptions 3.0% - 3.5% Sales → annual growth in • No further slowdown in the global economy; Industrial 2020 & 2021 Production of 2.0% to 2.5% • Margin expansion from the EnPro Operating System 40 - 50 bps annual margin improvements improvement in 2020 & • Organic growth
Slide 71: Key Takeaways
KEY TAKEAWAYS 1 Delivering on our commitments 2 Strengthening our balance sheet 3 Maintaining a balanced approach to capital allocation Focused on growing margins, increasing cash flow, and completing bolt-on acquisitions 4 throughout the cycle 71
Slide 72: Closing Remarks
CLOSING REMARKS Marvin Riley – Executive Vice President & Chief Operating Officer
Slide 73: Closing Remarks
CLOSING REMARKS 1 Compelling product portfolio Leading global engineered product portfolio with deep technical and applications expertise in high-value niche markets 2 Delivering on our commitments Strengthening the business through the completion of the ACRP, operational improvements and discipline
Slide 74: Q&A Leadership Team
Q&A Leadership Team
Slide 75: Appendix
APPENDIX
Slide 76: Biographies
BIOGRAPHIES STEVE MACADAM President & Chief Executive Officer Stephen E. Macadam has served as Chief Executive Officer and President and as a director since April 2008. Prior to accepting these positions with EnPro, Mr. Macadam served as Chief Executive Officer of BlueLinx Holdings Inc. since Octobe
Slide 77: Biographies
BIOGRAPHIES MARVIN RILEY Executive Vice President & Chief Operating Officer Marvin A. Riley is currently Executive Vice President and Chief Operating Officer and has held this position since July 2017. Mr. Riley served as President, Fairbanks Morse Engine division from May 2012 to May 2018. Prior to
Slide 78: Biographies
BIOGRAPHIES MILT CHILDRESS Executive Vice President and Chief Financial Officer J. Milton Childress II is currently Executive Vice President and Chief Financial Officer and has held this position since July, 2017. Mr. Childress previously served as Senior Vice President and Chief Financial Officer s
Slide 79: Biographies
BIOGRAPHIES CHRIS O’NEAL Senior Vice President Strategy, Corporate Development and Investor Relations William C. O’Neal is currently Senior Vice President, Strategy, Corporate Development and Investor Relations, a position he has held since July 2017. Mr. O’Neal previously served as Vice President,
Slide 80: Reconciliation of Consolidated Adjusted EBITDA
Reconciliation of Consolidated Adjusted EBITDA ($ in millions) 2018 Consolidated Net Income (Loss) $24.6 Plus: Interest Expense, net 27.3 Income Tax Expense 22.0 Depreciation and Amortization 73.7 Restructuring Costs 22.4 Loss on Extinguishment of Debt 18.1 Environmental Reserve Adjustments 13.4 Pen
Slide 81: Reconciliation of Consolidated Segment Profit to Adjusted Segment EBITDA
Reconciliation of Consolidated Segment Profit to Consolidated Adjusted Segment EBITDA Year Ended December 31, 2018 Sealing Products Engineered Products Power Systems Total Segments ($ in millions) Segment Profit $85.2 $40.1 $29.3 $154.6 Acquisition Expenses 1.8 0.1 - 1.9 Restructuring Costs 21.4 0.7
Slide 82: Reconciliation of Net Sales to Pro Forma Net Sales
Reconciliation of Net Sales to Pro Forma Net Sales $ in millions 2016 2017 EnPro Net Sales 1,187.7 1,309.6 Adjustments: Sales of Unconsolidated Entities 195.8 125.9 Intercompany Sales (45.8) (33.0) Pro Forma Net Sales 1,337.7 1,402.5 82
Slide 83: Reconciliation of Pro Forma Adjusted EBITDA
Reconciliation of Pro Forma Adjusted EBITDA (Stated in Millions of Dollars) Years Ended December 31, 2017 2016 Pro forma net income $ 53.7 $ 40.2 Adjustments to arrive at pro forma earnings before interest, taxes, depreciation, and amortization (pro forma EBITDA) Interest expense, net 29.9 23.5 Inco
Slide 84: Reconciliation of Net Income to Adjusted Net Income
Reconciliation of Net Income to Adjusted Net Income For the Year Ended December 31, 2018 (Stated in Millions of Dollars, Except Per Share Data) Average common shares outstanding, $ diluted (millions) Per share Net income $ 24.6 21.1 $ 1.16 Income tax expense 22.0 Income before income taxes 46.6 Adju
Slide 85: Reconciliation of Pro Forma Net Income to Pro Forma Adjusted Net Income
Reconciliation of Pro Forma Net Income to Pro Forma Adjusted Net Income Years Ended December 31, 2017 2016 Average Average common common shares shares outstanding, outstanding, diluted (millions) Per share diluted (millions) Per share Pro forma net income $ 53.7 21.8 $ 2.46 $ 40.2 21.8 $ 1.84 Income
Slide 86: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow ($ in millions) 2016 2017 2018 Adjusted EBITDA 189.4 215.4 217.4 Cash Taxes (23.2) (8.7) 77.5 Change in NWC 11.0 (22.6) (57.5) Interest Payments (22.6) (27.1) (33.3) Other (36.2) 8.0 (7.6) Cash Provided by (Used in) Operations 118.4 165.0 196.5 Capex (46.4) (46.5) (6
Slide 87: Reconciliation of Net Debt to EBITDA Multiple
Reconciliation of Net Debt to EBITDA Multiple $ millions December 31, 2018 Credit Facility $117 Senior Notes(1) $345 Capital Lease Obligations $3 A Debt Components $465 B Cash and Equivalents $130 C = (A – B) Net Debt $335 D FY December 31, 2018 Adjusted EBITDA $217 E = (C / D) Leverage Ratio 1.5x 8
Slide 88: Reconciliation of Net Debt to EBITDA Multiple
Reconciliation of Net Debt to EBITDA Multiple $ millions December 31, 2017 Credit Facility $174 Senior Notes(1) 444 A Debt Components $618 Cash and Equivalents 189 Asbestos Insurance Receivable 17 B Cash and Equivalents $206 C = (A – B) Net Debt $412 D FY December 31, 2017 Pro Forma Adjusted EBITDA
Slide 89: Reconciliation of Net Debt to EBITDA Multiple
Reconciliation of Net Debt to EBITDA Multiple December 31, 2016 Pro Forma Consolidation Consolidation $ millions NPO GST and Plan after Plan Adjustments Adjustments Third-Party Debt 425.0 - 122.6 547.6 Intercompany Debt 322.1 - (322.1) - Asbestos Liability 110.0 388.6* (418.6)* 80.0 A Debt Component
Slide 90: Reconciliation of CFROI Calculation
Reconciliation of CFROI Calculation Pro Forma Pro Forma Consolidated 2016 2017 2018 CFROI - Cash Flow Adjusted EBITDA 189 215 217 Less: D&A (63) (68) (74) Adjusted EBIT 126 148 144 Less: taxes(1) (37) (43) (42) Adjusted EBIT (tax impacted) 89 105 102 Plus: D&A 63 68 74 Less: capex (inc. software) (5
Slide 91: Reconciliation of Adjusted EBITDA Excluding EDF FX Impact
Reconciliation of Adjusted EBITDA Excluding EDF FX Impact ($ in millions) 2016 2017 2018 Pro forma adjusted EBITDA 189 215 217 % margin 14.2% 15.4% 14.2% EDF FX impact 3 (8) 3 Pro forma adjusted EBITDA (ex. EDF FX) 192 207 220 % margin 14.3% 14.8% 14.4% 91
Slide 92: Reconciliation of Adjusted EPS Excluding EDF FX Impact
Reconciliation of Adjusted EPS Excluding EDF FX Impact Pro Forma Pro Forma Consolidated 2016 2017 2018 Adjusted EPS $2.86 $3.48 $3.91 EDF FX impact on adjusted EPS EDF EX impact (2.5) 8.4 (2.6) Tax rate 32.5% 32.5% 29.0% Tax adjusted EDF FX impact (1.7) 5.7 (1.8) Avg. common shares uustanding, dilut