Slide 1: Investor Presentation April 2008
Investor Presentation April 2008
Slide 2: Forward Looking Statements
Forward Looking Statements 1 Risks, Uncertainties and Other Factors with Respect to “Forward-Looking Statements” Certain statements contained in this presentation constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements that
Slide 3: Agenda
2 Agenda Overview of Hexcel - Hexcel is now Focused entirely on Composites with a clear path to Growth Hexcel Performance - As a Company, Hexcel compares well with peers, is committed to continued improvement, and has delivered Shareholder value well above norms Hexcel’s Board and Corporate Governan
Slide 4: Overview of Hexcel
3 Overview of Hexcel
Slide 5: Overview of Hexcel
4 Overview of Hexcel Leading advanced composites company for sixty years Our composite materials are used in commercial and military aircraft, space launch vehicles and satellites, wind turbine blades, automotives, bikes, skis and a wide variety of other recreational equipment Recently, sold non-cor
Slide 6: Hexcel's Wide Range of Composite Products
Hexcel’s Wide Range of Composite Products Hexcel Product Key Input Major Competitors Carbon Fiber Acrylonitrile Cytec, Toray, Teijin (Toho Tenax), SGL Carbon Carbon Prepregs Carbor Fibers Resins Cytec, Toray, Umeco, Gurit, SGL Carbon Glass Prepregs Glass Fiber Resins Gurit, Umeco Reinforcements Glas
Slide 7: Hexcel's Global Footprint
6 Manufacturing sites (13) Joint Ventures (2) New sites (4) BHA, China Welkenraedt, Belgium ACM, Malaysia Tianjin, China Duxford, U.K. Stade, Germany Parla, Spain Dagneux, France Neumarkt, Austria Pottsville, PA Decatur, AL Seguin, TX Casa Grande, AZ Salt Lake City, UT Kent, WA Les Aveniéres, France
Slide 8: Hexcel Sales by Market
7 22% 25% 53% Industrial Commercial Aerospace Space & Defense Space & Defense Commercial Aerospace Industrial Hexcel Sales by Market Boeing Airbus Engines/Nacelles Regional/Business Helicopters Military Aircraft Launch Vehicles Satellites Wind Energy Recreation Transportation Other Divested non-core
Slide 9: Industrial Applications
8 Industrial Applications Broad Range of Performance Applications – Wind Turbines Drive Growth $196 $227 $267 $280 $294 2003 2004 2005 2006 2007 Wind Uranium Enrichment Recreation Industrial Revenues 11% Av. Annual Growth Transportation
Slide 10: Space & Defense - Trends
9 Space & Defense - Trends Space & Defense Revenues Expected to Continue Near Historic Growth Rates Diverse Range of Applications Over 80 Active Programs Top 10 Programs: Represent less than 50% of Segment 3 Non-U.S. Military - Include: Transport Aircraft Fighters Helicopters Launch Vehicles $185 $2
Slide 11: Commercial Aerospace
10 Commercial Aerospace Wide Range of Products Covering a Wide Range of Applications Largest Application for Composites Hexcel Sales Well Balanced Fuselage Wings Empennage Control Surfaces Airframe Radomes Gear Doors Nacelles Engines Thrust Reverser Interiors Floors HexMC Septum Core Thermoplastics
Slide 12: Commercial Aerospace – Composites Penetration
11 Commercial Aerospace – Composites Penetration Step Change Underway with Intermediate Modulus Carbon Fiber as the Standard A380 B757 B767 5-6% A320 B777 A340 787 A350 A310 A340 -500/600 5-6% 10-15% 50+ % 23% 1980 1985 1990 1995 2000 2005 2010 2015 15% 10% 20% 50% 5% Al Titanium Composite Steel Mis
Slide 13: Commercial Aerospace – Cyclical & Secular Growth
12 Commercial Aerospace – Cyclical & Secular Growth Composites Penetration Allows Hexcel to Outperform Very Strong Market Over 7,000 planes in backlog or over 7 years based on 2007 deliveries Global growth -- US legacy carriers yet to order Secular Penetration Results in a Faster Growth Rate for Hex
Slide 14: Hexcel Performance
13 Hexcel Performance
Slide 15: Hexcel Operating Margin Progress vs. Peers
14 Hexcel Operating Margin Progress vs. Peers As a Company, Hexcel has improved its OI% to above 75% of its Customers, and above the median of its Industry (1) Represents the average of the Hemscott General Aerospace/Defense Products and Services Index, as provided by Hemscott. (2) EBIT margins are
Slide 16: "Segment" Comparisons are Difficult
15 “Segment” Comparisons are Difficult Competitor best Comparable Unit OI% Hxl sub-Product Line Hexcel vs Comp.(2) Cytec (1) Toray (1) Teijin (Toho Tenax) (1) Cyte Umeco Cyte Gurit JPS Industires Cyte SGL Carbon (1) Carbon Fiber + Carbon Prepreg - Glass Prepreg + Reinforcements (3) + Honeycomb (3) ?
Slide 17: Carbon Fiber Companies have a Business Model
16 Carbon Fiber Companies have a Business Model Very High Price – Not for Comm Aero Rigorous Qualification New Aero Standard Long Term Contracts Can Sell Excess to Industrial Supply / Demand Sensitive Multi Source Spot or Short Term Pricing Commodity Like All were <10% in ’02,3,4 Surplus Years Toray
Slide 18: Hexcel/Cytec Materials Segment Comparisons
17 Hexcel/Cytec Materials Segment Comparisons CEM OI% is good - but Hexcel is Better Positioned for Composites Future Cytec Engineered Materials (“CEM”) 2005 acquired Surface Specialties business for $1.8 Billion – nearly doubled the size of the company Increase Carbon Fiber capacity by 50% CEM - $7
Slide 19: Hexcel has Improved Despite Serious Headwinds
18 Hexcel has Improved Despite Serious Headwinds ‘03-’08 Labor Cost Headwinds Multi Year Contracts (>70%) and Positioning for New Programs Limits Pricing Options... ...Productivity & Leverage on Growth is Key Margin Expansion Strategy Wage inflation + 17% US Health Care Costs + 50% Stranded Cost of
Slide 20: Operational Improvement Initiatives
Operational Improvement Initiatives 2001-2003 19 Hexcel has demonstrated Aggressive Cost Control in Good times and Bad without Sacrificing The Future... Hexcel is not a “Mismanaged” Company Electronics meltdown and September 11th aerospace impact cause 26% drop in sales - $60M cash cost reduction -
Slide 21: Hexcel Targets Growth in Sales and Operating Income
20 Hexcel Targets Growth in Sales and Operating Income Hexcel is Committed to Continued Margin Expansion At Dec ‘07 Investor Conference: Sales Outlook Scenario Presented: - Historical S+D growth - Wind growth of 15% - Other Ind primarily USEC - Airline Monitor forecast - Other Aero only 10%/yr Targe
Slide 22: Stock Price Performance
21 Stock Price Performance Hexcel vs. Top Customers1, Aerospace / Defense Index2, Toray, Cytec and S&P500 Source: Factset as of March 28, 2008 (1) Top Customer Composite includes General Electric, Goodrich, United Technologies, Gamesa, Spirit Aerosystems, Lockheed Martin, Cytec Industries, Textron,
Slide 23: Hexcel's Board and Corporate Governance
22 Hexcel’s Board and Corporate Governance
Slide 24: Hexcel has an Excellent Board
23 Hexcel has an Excellent Board 9 of 10 Independent Engaged – 3 year attendance 97.5% for group Fresh perspective 6 new directors in 3 years Each (except newly nominated Mr. Hill) has participated in: Plant visits and reviews Customer visits Succession planning Strategic planning Annual budgets Cap
Slide 25: Hexcel Board Focus on Corporate Governance
24 Hexcel Board Focus on Corporate Governance Shareholder Friendly Regular Updates to Meet Best Practices 73% 88% 97% 2006 2007 2008 CGQ Scores* Annually-elected Board The company does not have a poison pill Lead director and process established Non-management executive sessions now at all in person
Slide 26: Nominating Process
25 Nominating Process Survey of Board for desired background “Wish list” (ie, Public Company board experience, aerospace, chemical, diverse, etc.) Retain professional search firm Search firm vets all candidates regardless of source Nominating and Governance Committee interviews candidates Candidate
Slide 27: Nominating Process Results
26 Nominating Process Results Board Composition by Year – Targeted Search Process 2 2 1 1 1 1 0 Diversity Director Selected Technical Manufacturing Aerospace Public Board Exposure Financial Expert Total 2 5 5 7 5 10 Apr ’08 Graves, Hill 0 4 5 6 6 9 Apr ’07 Brubaker, Foster, Pugh 0 2 4 5 6 8 Apr ’06
Slide 28: Hexcel's Board of Directors
27 Hexcel’s Board of Directors W. Kim Foster (1 year tenure) CFO of FMC Corporation a $3B chemicals company VP GM FMC Agricultural Products Group Director FMC International, GM Airport Products and Systems David E. Berges (7 years tenure) Chairman, CEO and Director of Hexcel Corporation Pres. Automo
Slide 29: O.S.S Capital's Proxy Fight
28 O.S.S Capital’s Proxy Fight
Slide 30: Background to the Proxy Contest
29 Background to the Proxy Contest OSS criticizes Hexcel’s operating performance; requests Board retain an investment bank for advice on maximizing shareholder value OSS indicates desire to submit a director nominee to replace Martin Solomon, who was retiring – N+G search firm finds candidate under-
Slide 31: Background to the Proxy Contest (continued)
30 Background to the Proxy Contest (continued) Hexcel’s Nominating Committee meets with and interviews each of OSS’s director candidates, along with other candidates identified by a retained professional search firm December 2007 – January 2008 February 2008 Hexcel offers to expand its Board size by
Slide 32: OSS's Director Nominees
31 OSS’s Director Nominees Edward A. Blechschmidt Former CEO of Novelis, a manufacturer of aluminum rolled products and aluminum can recycling. Served 3 months during sale process Former Chairman and CEO of Gentiva Health Services. Served 30 months. Director of Healthsouth, Columbia Laboratories and
Slide 33: Conclusion
32 Conclusion - Hexcel is now Focused entirely on Composites with a clear path to Growth - As a Company, Hexcel compares well with peers, is committed to continued improvement, and has delivered Shareholder value well above norms - Hexcel has an excellent Board, with a good balance of skills and div
Slide 34: Exhibits
Exhibits 3 @, HEXCEL! @
Slide 35: Exhibit A – Adjusted Operating Income Reconciliation
34 Exhibit A – Adjusted Operating Income Reconciliation of GAAP and Non-GAAP Measures Fiscal Year Ending December 31 $ millions 2003 2004 2005 2006 2007 GAAP Operating Income (1) 46.8 $ 62.1 $ 84.3 $ 103.4 $ 114.9 $ Business Consol & Restructuring Exp. 3.9 2.5 2.9 9.9 7.3 Litigation Settlements/Lega
Slide 36: Exhibit B – Adjusted Net Income Reconciliation
35 Exhibit B – Adjusted Net Income Reconciliation of GAAP and Non-GAAP Measures 1) The Company adopted FAS 123R as of January 1, 2006. Prior years have been adjusted to reflect stock compensation expense as if it was adopted on January 1, 2003. 2) The 2007 tax adjustment include a $1.9 million benef