Slide 1: Investor Day 2016 Nuclear Power Overview
Investor Day 2016 Nuclear Power Overview NYSE: CW 1 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 2: Today's Agenda
Today’s Agenda Welcome & Logistics – Jim Ryan Senior Director, Investor Relations 8:30 – 8:50 AM Strategic Overview – Dave Adams Chairman and Chief Executive Officer Nuclear Aftermarket – Jim Leachman 8:50 – 9:10 AM SVP and General Manager, Nuclear Division AP1000 RCP Update – Greg Hempfling 9:10 –
Slide 3: Safe Harbor Statement
Safe Harbor Statement Please note that the information provided in this presentation is accurate as of the date of the original presentation. The presentation will remain posted on this website from one to twelve months following the initial presentation, but content will not be updated to reflect n
Slide 4: Strategic Overview
Strategic Overview David C. Adams, Chairman and CEO 4 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 5: Delivering on the Vision
Delivering on the Vision One Curtiss-Wright Set aggressive targets Briefed at CW Investor Day December 11, 2013 Total team effort across the enterprise Much different today – Leaner – More profitable – More focused – Poised to capitalize on opportunity Reached $4B market cap Added to S&P
Slide 6: On Path to Top Quartile Performance
On Path to Top Quartile Performance Target Metric 2013 Reported Original 5-Year Target* Current OP. MARGIN 9.3% > 12.5% EXCEEDED EPS $2.88 Double-Digit Growth ACHIEVED ROIC 7.4% > 12% ON TRACK W. CAPITAL 32% 20% of Sales ON TRACK CAPEX 4% 2% of Sales ACHIEVED FCF CONV. < 100% 100% EXCEEDED *
Slide 7: How We Got Here
How We Got Here Lowering our Cost Base MARGIN Portfolio Rationalization / Consolidations EXPANSION Supply Chain / Lean Leverage / Low Cost Economies Shared Services – Finance, IT, HR Focus on Reducing Working Capital across CW CASH FLOW Inventory Reduction Programs GENERATION Aggressive AR
Slide 8: Aligning our Portfolio with Market Trends
Aligning our Portfolio with Market Trends We compete and win by adapting our core competencies and technologies to deliver solutions that leverage our deep technical expertise and address global market trends End-Market Trends CW Technologies 25% INDUSTRIAL Emissions Regulations Sensors and Cont
Slide 9: Aligning our Portfolio with Market Trends (cont.)
Aligning our Portfolio with Market Trends (cont.) End-Market Trends CW Technologies DEFENSE 37% Increased Naval Defense Ruggedized, High Performance Spending Globally Electronics International Ground Defense Ground Defense Subsystems Spending Nuclear Navy Propulsion Airspace Dominance: E
Slide 10: Renewed Focus on Acquisitions
Renewed Focus on Acquisitions HIGH IP CONTENT Strategic HIGHLY ENGINEERED Fit SEVERE SERVICE STRONG COMPETITIVE POSITION $100 MILLION IN SALES PREFERRED Financial 10% ROIC Y3; 12% ROIC Y5 Fit ACCRETIVE TO EARNINGS IN LINE WITH CW MARGINS 10 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 11: Well Positioned for Growth
Well Positioned for Growth Rebounds in Core Markets…. O.I. SALES EPS VOLUME FCF ….will Drive Strong Profitability and Free Cash Flow Consistently Increasing Shareholder Value 11 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 12: Nuclear Aftermarket
Nuclear Aftermarket Jim Leachman, SVP and General Manager, Nuclear Division 12 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 13: Overview
Overview Nuclear Aftermarket Business Worldwide Trends Market Dynamics Challenges and Opportunities 13 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 14: Trends in Worldwide Commercial Nuclear Power Market
Trends in Worldwide Commercial Nuclear Power Market Aging global reactor base Reduced spend and early plant Insert Picture(s) retirements (U.S.) Supply base consolidation (U.S.) Global new build and life extension 800 Commercial Nuclear Power Reactors (Globally) 700 Post-Fukushima response
Slide 15: Market Dynamics – U.S. Commercial Nuclear
Market Dynamics – U.S. Commercial Nuclear Electricity Prices Gas Prices 2008 2016 http://www.eia.gov/ http://www.nei.org/ U.S. Nuclear Regulatory CapEx Diversions 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 100 Operating Reactors Security Fukushima 4 New in 2020 http://www.ne
Slide 16: Track Record of Capitalizing During Market Down-cycle
Track Record of Capitalizing During Market Down-cycle MARKET INFLUENCES From 1988 thru 1998, the number of operating U.S. reactors declined from 115 to 104 Suppliers fled; CW filled the gap with new teaming agreements and obsolescence solutions Plants invested to prolong life; CW invested in p
Slide 17: CW's Diversified Portfolio
CW’s Diversified Portfolio OEM teaming partnerships Spent fuel products Mechanical systems Outage services Fasteners and precision Plant performance machined parts monitoring $2 - $3B Addressable Utility Spend 17 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 18: What Will Drive Our Growth?
What Will Drive Our Growth? Addressing Plant Efficiency and Reliability Requirements Capitalizing on Supplier Consolidation Leveraging Global Plant Aging Trends Increasing Content on New Build Reactors 18 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 19: Addressing Plant Efficiency and Reliability Requirements
Addressing Plant Efficiency and Reliability Requirements U.S. Operating Reactors are Investing in: Innovations to reduce staff New process/technology development to reduce preventative maintenance spend Plant upgrades to enhance equipment reliability and safety Process improvements to stream
Slide 20: Capitalizing on Supplier Consolidation
Capitalizing on Supplier Consolidation The Number of Nuclear Suppliers is Declining Provides Opportunity for: 700 License agreements for OEM 600 products 500 400 Capturing newly outsourced 300 component manufacturing 200 Teaming agreements to 100 distribute products 0 1980 1985 1990 1995 2000
Slide 21: Leveraging Global Plant Aging Trends
Leveraging Global Plant Aging Trends Age ofWorldwide Operating 447 Reactors Reactors in Operation in the World Mean Age: 28.8 years 200 are 25 – 35 years old Number of Reactors 100 are > 35 years old 0 10 20 30 40 Age of Reactor (years) http://world-nuclear.org/ Growing Demand for Component Replacem
Slide 22: Increasing Content on New Build Reactors
Increasing Content on New Build Reactors Doors and airlocks Electrohydraulic valve actuators Custom-designed valves Cable tray assemblies Bolting Solutions Harsh-environment electrical connectors Spent fuel pool gates Potential of $10 - $30M (non-RCP content) Per Reactor 22 | October 6, 2016 | Propr
Slide 23: Strategically Aligned with Changing Market Landscape
Strategically Aligned with Changing Market Landscape “Delivering the Nuclear Promise” relies on adopting new technology and innovation Supply chain consolidation creates opportunity for growth Addressing vibrant worldwide nuclear market Positioned to Capitalize on Growth Opportunities 23 | Oct
Slide 24: AP1000 RCP Update
AP1000 RCP Update Greg Hempfling, SVP and General Manager, EMS Division 24 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 25: Overview
Overview Benefits of the AP1000 Reactor Coolant Pump (RCP) Status and key milestones on existing RCP contracts Future outlook for the nuclear new build market How Curtiss-Wright is strategically positioned for growth 25 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 26: Key Benefits of AP1000 (Generation III+)
Key Benefits of AP1000 (Generation III+) AP1000 design reduces construction time and cost – Standard design and modular construction – Smaller footprint – 45% less safety equipment required – Longer refueling intervals creates higher efficiency Dramatic safety improvements in “passive” system –
Slide 27: AP1000 Reactor / Reactor Coolant Pump Relationship
AP1000 Reactor / Reactor Coolant Pump Relationship AP1000 REACTOR CORE AP1000 REACTOR COOLANT PUMP Heart of Reactor System Each plant site includes two reactors – 4 RCPs per reactor – 8 RCPs per plant site RCPs pump primary coolant through the reactor core The RCP provides a “life of the pla
Slide 28: AP1000 RCP Key Components
AP1000 RCP Key Components Rotor Assembly with Flywheels Stator Winding Water Lubricated Bearing AP1000 RCP Design Features 60-year design life basis with no maintenance 7000 horsepower motor; 1800 RPM machine Pumps 78,750 gallons per minute Water lubricated bearings o 2235 PSIG pressure at
Slide 29: China's Nuclear Energy Priority – Improved Air Quality
China’s Nuclear Energy Priority – Improved Air Quality China is committed to new nuclear plants to meet clean energy needs The need is real: China’s National Energy Administration says that “China will make nuclear energy the foundation of its power-generation system for the next 10 to 20 year
Slide 30: AP1000 RCP Program History
AP1000 RCP Program History $1 BILLION OF BOOKED ORDERS TEST FACILITY AND MACHINING IN-PLACE 2007: China Contract (16 RCPs) – RCP Design – 8 RCPs for Sanmen 1&2 Reactors – 8 RCPs for Haiyang 1&2 Reactors 2008: Domestic Contract (16 RCPs) – 8 RCPs for Vogtle 3&4 Reactors – 8 RCPs for VC Summer 2&3
Slide 31: RCP Shipments (Initial Contracts)
RCP Shipments (Initial Contracts) Contract (Site) # of Pumps Shipped Current Status Total China (Sanmen 1) 4 Q4-15 Installed in plant DELIVERED To-Date: China (Haiyang 1) 4 Q1-16 Installed in plant Domestic (Vogtle 3) China (Sanmen 2) 4 4 Q2-16 Q4-16 Delivered to site Delivered to site 16 First Dome
Slide 32: Remaining RCP Shipments (Initial Contracts)
Remaining RCP Shipments (Initial Contracts) Estimated Ready for Total Contract (Site) # of Pumps Shipment Dates REMAINING China (Haiyang 2) 4 Q4-16 To Ship: 16 Domestic (VC Summer 2) 4 Q1-17 Domestic (Vogtle 4) 4 Q2-17 Domestic (VC Summer 3) 4 Q3-17 Shipment of the AP1000 RCPs 32 | October 6, 2016 |
Slide 33: Key Milestones to Achieve China AP1000 Startup
Key Milestones to Achieve China AP1000 Startup (Initial Contracts) Milestone Sanmen 1 Haiyang 1 Cold Hydro Test COMPLETE COMPLETE In process to conclude In process to conclude Hot Functional Test in Q4 2016 in Q4 2016 Fuel Load Late 2016 / Early 2017 Late 2016 / Early 2017 China Owner Determines
Slide 34: Curtiss-Wright Awarded 2nd China AP1000 Contract (2015)
Curtiss-Wright Awarded 2nd China AP1000 Contract (2015) Received new China AP1000 order on December 31, 2015 Providing 16 RCPs for four reactors (four RCPs per reactor) Production to accelerate 2017 - 2019 Shipping in 2019 - 2020 Total production revenue: $448M 34 | October 6, 2016 | Proprie
Slide 35: Potential AP1000 China Opportunity
Potential AP1000 China Opportunity 18 Reactors 8-10 Year Horizon $2B Potential 72 RCPs Long-term Proposed AP1000 >110 Reactors Construction >440 RCPs Source: World Nuclear Association http://www.world-nuclear.org/information-library/country-profiles/countries-a-f/china-nuclear-power.aspx CW’s share
Slide 36: Other Potential Worldwide AP1000 Opportunities
Other Potential Worldwide AP1000 Opportunities INDIA 6 reactors (24 RCPs) designated to be AP1000 NON-CHINA AP1000 RCPs PLANNED AND PROPOSED Westinghouse and India government working to address nuclear liability issues Location Planned Proposed – Targeting to sign a contract by June 2017 India 2
Slide 37: Curtiss-Wright Competitive Advantage is Real
Unique AP1000 Technology Positions CW for Success AP1000 is the FIRST NRC licensed Generation III+ design being constructed throughout the world CW has the ONLY designed, tested, qualified, produced and installed AP1000 RCP CW AP1000 RCP SUCCESSFULLY going through initial plant start-up Curtiss-Wrig
Slide 38: Q&A
Q&A 38 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 39: Break
BREAK Tentatively Resume ~10:00am ET 39 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 40: Financial Update
Financial Update Glenn E. Tynan, VP Finance and CFO 40 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 41: Agenda
Agenda AP1000 financial projections – Initial orders (2007 China / 2008 U.S.) – China Direct order (2015) Progress on long-term financial objectives Review of 2016 financial guidance Preview of 2017 financial outlook 41 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 42: AP1000 Revenue Projection – Initial Orders in 2007/2008
AP1000 Revenue Projection – Initial Orders in 2007/2008 $ in millions $75 Concluding initial China (2007) and U.S. (2008) order $50 All learning curve costs (testing, design changes), were charged to the initial China order (2007) China RCP deliveries to $25 conclude in 2016 U.S. RCP deliver
Slide 43: AP1000 Revenue Projection – China Direct Order 2015
AP1000 Revenue Projection – China Direct Order 2015 Total production revenue: $448M (16 reactor coolant pumps @ $28M apiece) $ in millions $150 Revenue recognition cadence expected to generally resemble bell curve $100 RCP production to accelerate 2017 - 2019 Revenue/margin recognition mainly
Slide 44: AP1000 Margin Projection – China Direct Order 2015
AP1000 Margin Projection – China Direct Order 2015 (1) Accounting Treatment Contract Margin Revenue and margin recognition based on percentage of completion (POC) accounting method Initially anticipate steady margin, unless cost estimates change If cost estimates change, a cumulative 23%+ adju
Slide 45: AP1000 Free Cash Flow Projection – China Direct Order 2015
AP1000 Free Cash Flow Projection – China Direct Order 2015 $ in millions Cumulative Free Cash Flow (FCF) $120 $100 $80 $60 $40 $20 $0 -$20 2015 2016E 2017E 2018E 2019E 2020E 2021E Expect to generate ~$70M in FCF Note: Free cash flow is defined as cash flow from operations less capital expenditures 4
Slide 46: On Path to Top Quartile Performance
On Path to Top Quartile Performance Target Metric 2013 Reported Original 5-Year Target* Current OP. MARGIN 9.3% > 12.5% EXCEEDED EPS $2.88 Double-Digit Growth ACHIEVED ROIC 7.4% > 12% ON TRACK W. CAPITAL 32% 20% of Sales ON TRACK CAPEX 4% 2% of Sales ACHIEVED FCF CONV. < 100% 100% EXCEEDED *
Slide 47: Driving Significant Margin Improvement
Driving Significant Margin Improvement Operating Margin 16.0% Key Drivers to Date 14.2% - 14.4% One Curtiss-Wright 14.0% Top Quartile 2016 Compensation plans aligned Top Quartile 2013 with key metrics 12.0% Portfolio rationalization 10.0% 9.3% Consolidations 8.0% Ongoing 6.0% Low cost econ
Slide 48: Solid Improvement in Return On Invested Capital (ROIC)
Solid Improvement in Return On Invested Capital (ROIC) Adopted ROIC as ROIC* standard metric for: 14.0% Capital investments Top Quartile 2016 Acquisitions 12.0% Top Quartile 2013 Compensation 11.5% 10.0% Key Drivers Strong operational 8.0% 7.4% performance 6.0% Efficient capital management
Slide 49: Rigorous Working Capital Management
Rigorous Working Capital Management Working Capital* as a % of Sales 35.0% 31.9% Key Drivers 30.0% Company-wide (BU level) drive to reduce working 25.0% 23.0% capital Top Quartile 20.0% 2013 & 2016 Key element of short-term compensation plan 15.0% Trained >250 key business 10.0% leaders on eff
Slide 50: Stringent Discipline of Capital Expenditures
Stringent Discipline of Capital Expenditures CapEx as a % of Sales 4.5% 4.0% Key Drivers 4.0% More disciplined approach 3.5% to management of CapEx 3.0% Focus on high return 2.5% projects and/or businesses Top Quartile 2016 2.0% Top Quartile 2013 Investments reflect 2.0% combination of growth
Slide 51: Strong Free Cash Flow Generation
Strong Free Cash Flow Generation Free cash flow ($ in millions) Free cash flow conversion (%) $350 180% FCF $300 - 320 FCF Conversion 170% $300 $265 $272 >165% 160% $250 150% 156% 153% 140% $200 $166 130% New 2016 Target $150 120% 119% $100 110% 100% 2013 Target $50 90% $0 80% 2013 2014 2015 Pro For
Slide 52: Balanced Capital Allocation
Balanced Capital Allocation Committed to steady return of capital to shareholders – At least $100M share repurchases Return of expected in 2016 Capital – Nearly $450M in share repurchases since early 2014 – Steady dividend payout Operational Acquisitions Investments Growth through strategic acqu
Slide 53: 2016E Financial Outlook (Guidance as of October 6, 2016)
2016E Financial Outlook* (Guidance as of October 6, 2016) ($ in millions, except EPS) FY2015 FY2016E Change vs. 2015 Pro Forma (Current) Sales $2,186 $2,120 - 2,170 (1 - 3%) Operating Income $291 $301 - 313 4 - 8% CW Margin 13.3% 14.2 - 14.4% +90 - 110 bps Diluted EPS $3.74 $4.00 - 4.15 7 - 11% Free
Slide 54: 2016E EPS Guidance Update
2016E EPS Guidance Update Expect strong second half 2016 EPS performance – Higher sales driving increased overhead absorption – Majority of AP1000 China direct program revenue occurs in 4Q – Net savings from H1 restructuring activity – Benefit of ongoing margin improvement initiatives 3Q’16 EPS
Slide 55: Preliminary 2017 Outlook
Preliminary 2017 Outlook Sales in-line with 2016 – Headwinds continue in near-term • Industrial production slowly improving • Delayed nuclear aftermarket rebound – Tailwinds in our favor • AP1000 • Defense – strong positions on key platforms Operating margin expansion to remain top-quartile In
Slide 56: Curtiss-Wright Remains a Solid Investment
Curtiss-Wright Remains a Solid Investment Financial transparency Delivering top-quartile performance vs. peer group Rigorous working capital management Driving free cash flow generation Committed to balanced capital allocation strategy Delivering Long-Term Shareholder Value 56 | October 6,
Slide 57: Closing Remarks
Closing Remarks David C. Adams, Chairman and CEO 57 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 58: Key Positions on Exciting, Growing Programs
Key Positions on Exciting, Growing Programs HYBRID AND ELECTRIC COMMERCIAL VEHICLES Power electronics – inverters, distribution centers Critical to emissions reduction $150 Million over 5 years MEDICAL MOBILITY PLATFORMS Sophisticated control systems connected to the Internet of Things Meets
Slide 59: Key Positions on Exciting, Growing Programs
Key Positions on Exciting, Growing Programs NEW AIRCRAFT CARRIERS AND SUBMARINES Valves, pumps, motors, generators, secondary propulsion Strong single-source positions $1.0+ Billion over 5 years F-35 JOINT STRIKE FIGHTER Flap drive system, motors, sensors, solenoids, rugged processors > $380
Slide 60: Key Positions on Exciting, Growing Programs
Key Positions on Exciting, Growing Programs C4ISR ELECTRONICS Urgency from air superiority rqts., cyber security, unmanned systems Over 200 new programs in pursuit $800 Million over 5 years COMMERCIAL AIRCRAFT PROGRAMS (737, A320, ETC) Flap transmissions, sensors, solenoids, surface treatments
Slide 61: Why Invest in CW?
Why Invest in CW? WE HAVE CRITICAL MASS IN THE RIGHT WE ARE STRUCTURED FOR PROFITABILITY MARKETS WE GENERATE STRONG CASH FLOW AND DEPLOY IT STRATEGICALLY WE INCREASE SHAREHOLDER VALUE Return of Capital Operational Acquisitions Investments Solid Returns in an Uncertain Market 61 | October 6, 2016 | P
Slide 62: Q&A
Q&A 62 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 63: Appendix
Appendix 63 | October 6, 2016 | Proprietary | © 2016 Curtiss-Wright
Slide 64: Appendix - Use of Non-GAAP Financial Information
Appendix - Use of Non-GAAP Financial Information The Corporation supplements its financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial information. Curtiss-Wright believes that these non-GAAP measures provide investors with additi