Linamar Corporation · TSX:LNR

Linamar — Q3 2019 Earnings Presentation

50 slides from Linamar's earnings presentation, Nov 6, 2019

  1. Slide 1: Q3 2019 Conference Call Presentation

    Q3 2019 Conference Call Information Local: (647) 427-3383 Toll Free: (888) 424-9894 (North America) Conference ID 9388922 Linda Hasenfratz Conference Call Presentation Nov 6, 2019

  2. Slide 2: Forward Looking Information, Risk and Uncertainties

    Forward Looking Information, Risk and Uncertainties Certain information regarding Linamar set forth in this presentation and oral summary, including management’s assessment of the Company’s future plans and operations may constitute forward-looking statements. This information is based on current ex

  3. Slide 3: Sales, Normalized Earnings and CPV

    Sales, Normalized¹ Earnings and CPV 1 –Management uses certain non-GAAP financial measures including normalized earnings which exclude foreign exchange impacts and the impact of unusual items when analyzing consolidated and segment underlying operational performance. For more information refer to th

  4. Slide 4: Sales, Normalized Earnings, and Margins (in millions CAD)

    Sales, Normalized Earnings, and Margins (in millions CAD) Q3 2019 Q3 2018 %Δ Q3 2019 Helped By:  Sales meaningfully outperforms soft global  Strong launches in Transportation gaining Sales 1,740.0 1,837.3 (5.3%) markets with 5.3% decline traction and working through transition  Global Vehicle mar

  5. Slide 5: Automotive Sales & Content Per Vehicle (CPV)

    Automotive Sales & Content Per Vehicle (CPV) CPV Q3 2019 CPV Q3 2018 CPV % Change Vehicle Production Automotive Automotive Automotive Units % Change Sales Q3 2019 Sales Q3 2018 Sales % Change (CAD Millions) (CAD Millions) North America 165.88 168.24 (1.4%) 0.0% 691.9 701.4 (1.4%) Europe 83.49 83.28

  6. Slide 6: Commercial & Industrial Sales (in millions CAD)

    Commercial & Industrial Sales (in millions CAD) Q3 2019 Q3 2018 % Change  MacDon sales down on tariff and trade issues and timing issues on new product sales Sales 448.6 574.1 (21.9%)  Note Q3 2018 sales were higher than usual on new product launches  Skyjack  Scissor and boom core NA & EU marke

  7. Slide 7: Capital Expenditures (in millions CAD)

    Capital Expenditures (in millions CAD) Q3 2019 Q3 2018  Capex net of Dewas purchase $122.4 or 7% of sales  Normal range (annually) 6-8% Capital Expenditures (Capex) 158.5 155.4  2019 expect low end of range, down from 2018  2020 expect low end of range Capex as a % of Sales 9.1% 8.5%  Using dis

  8. Slide 8: Leverage (in millions CAD)

    Leverage (in millions CAD) Q3 2019 Q2 2019 Q3 2018 Solid FCF² of $90 in Q3 Net Debt 1,938.3 1,931.7 2,067.4 $223 of debt repaid since peak in Q1 last year Net Debt to EBITDA 1.75x 1.73x 1.69x Net Debt to EBITDA 0.83x 1.79x 1.75x 1.69x 1.68x 1.78x 1.73x 1.75x 1 1 1 1 Q4 2017 Q1 2018 Q2 2018 Q3 2018

  9. Slide 9: 2019 Expected to Drive Solid Free Cash Flow

    2019 Expected to Drive Solid Free Cash Flow 500 Min Target 2019 expected to generate between 450 $500 and $700 million through  Strong earnings; 400  Lower Capex than 2018; 350  Focused NCWC Improvements; and 300  Long Term AR (“LTAR”) Improvements NCWC Improvements focused on Millions 250  I

  10. Slide 10: Market Outlook

    Market Outlook 10

  11. Slide 11: Market Snapshot 2019, 2020

    Market Snapshot 2019, 2020 Transportation Industrial Transportation Industrial 2019 Agriculture 2020 Automotive (LV) Commercial Truck Skyjack Automotive (LV) Commercial Truck Skyjack North America Decline Moderate Growth Decline Decline North America Flat Decline Decline Europe Decline Flat Decline

  12. Slide 12: IHS Light Vehicle Production Forecast

    IHS Light Vehicle Production Forecast North America Light Vehicle Asia-Pacific Light Vehicle Europe Light Vehicle Production by Quarter Production by Quarter Production by Quarter 5 14 7 4.4 4.4 4.2 5.9 6.0 4.5 4.2 4.2 12.9 4.0 4.0 13 6 5.7 5.6 5.4 5.3 4 3.8 12.5 13 12.2 12.2 4.6 4.7 3.5 5 12 11.7 1

  13. Slide 13: IHS Light Vehicle Production Forecast

    IHS Light Vehicle Production Forecast Global light vehicle production trough in 2019. Lowest quarterly production occurred in Q3-2019. Global Light Vehicle Production Forecast by Year Global Light Vehicle Production Forecast by Quarter 120 25 22.9 23.3 22.1 22.6 22.3 101.7 103.6 21.8 21.6 99.6 21.2

  14. Slide 14: Historical NA Auto Cycles

    Historical NA Auto Cycles 120% 10 9 100% 8 7 80% 6 Years 60% 5 % Change 4 40% 3 2 20% 1 0% - Growth Decline Growth Decline Growth Decline Growth Decline Growth Decline Growth Decline '17-'19 '61-'65 '66-'70 '71-'73 '74-'75 '76-'78 '79-'82 '83-'85 '86-'91 '92-'00 '01-'09 '10-'16 Est Change from Last

  15. Slide 15: Growth Update and Outlook

    Growth Update and Outlook 15

  16. Slide 16: Electrified Vehicles Key Growth Opportunity for Linamar

    Electrified Vehicles Key Growth Opportunity for Linamar $90 $80 $70 $60 Expected BEV Global CPV 4 years out same as ICE Global CPV 4 years ago $50 $40 $30 $20 $10 $0 2015 2016 2017 2018 2019 2020 2021 2022 2023 -$10 Electric Hybrid ICE Updated: Q3 2019, estimates based on current projections and EV

  17. Slide 17: Global Addressable Market Grows 2.5X

    Global Addressable Market Grows 2.5X in 10 Years $350 $300 Addressable Market (Billions CAD) Addressable market more than $250 doubles between 2019 and 2030 $200 $150 $100 $50 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2

  18. Slide 18: Launches

    Launches 4,500.00 Launching more than $4.4 billion of new work today 4,000.00 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 - 2018 2019 2020 2021 2022 2023 Other Driveline Engine Transmission Sales from Launch add: $625 to $675 Million in 2019 , >$1 Billion in 2020 18

  19. Slide 19: Outlook

    Outlook Consolidated Expectations Expectations Normal Ranges 2018 Actuals 2019 2020 Q4 Expectations Sales Growth Flat to Low Single Digit Decline Single Digit Growth Normalized EBIT Growth Double Digit Decline Double Digit Growth  Auto Normalized EBITDA Growth Single Digit Decline Double Digit Grow

  20. Slide 20: New Business

    New Business "eee? Fes <a” ea pee

  21. Slide 21: New Business Wins: Battery Electric Vehicle Components

    New Business Wins: Battery Electric Vehicle Components Package Volume 440,000 / year SOP Year Several gearbox components for BEVs 2023 Peak Volume Year 2026 Production Location 21

  22. Slide 22: New Business Wins: Transmission Components

    New Business Wins: Transmission Components Package Volume 210,000 / year Transmission component win for SOP Year Japanese OEM 2021 Peak Volume Year 2024 Production Location 22

  23. Slide 23: New Business Wins: Off-Highway Truck Components

    New Business Wins: Off-Highway Truck Components Package Revenue $47 million / year $47 million in wins for off-highway truck SOP Year engine and transmission components 2020 Peak Revenue Year 2023 Production Location 23

  24. Slide 24: New Business Wins: Structural Components

    New Business Wins: Structural Components Package Revenue $15 million / year $15 million in a few wins for structural SOP Year components 2020 Peak Revenue Year 2023 Production Location 24

  25. Slide 25: Takeover Work Building From Distressed Supply Base

    Takeover Work Building From Distressed Supply Base Takeover wins to date >$200 million in annual sales Additional opportunities under pursuit 25

  26. Slide 26: Innovation

    Innovation 26

  27. Slide 27: eAxle Innovation Outlook – New Technologies

    eAxle Innovation Outlook – New Technologies Start Now  Built customer  First production  Focused on low  Pushed limits of  Expanding to meet High Performance Refined Design Advanced Technologies Production Design Initial Prototypes interest eAxle awards cost designs power density customer needs

  28. Slide 28: eAxle Innovation Outlook – Commercial Vehicles

    eAxle Innovation Outlook – Commercial Vehicles Gen I 12000PL2M Gen II 12000PL1 Future Gen III Developments • Initial Commercial Vehicle • Government body Sponsored • Optimized to meet multiple fleet partnership Collaboration Program customer applications development program • Design optimized from G

  29. Slide 29: Additive Manufacturing: Tooling and Gauging

    Additive Manufacturing Significant Opportunity in Tooling and Gauging Social Governance Robot Gripper Fingers Helical Groove Gauge Custom Fixture Clamp Arm 29

  30. Slide 30: Additive Manufacturing: Rapid Prototyping

    Additive Manufacturing Rapid Prototyping Accelerates Time to Market Social Helical Gear (Jupiter Gear Program) Oil Baffles (Domino E-Axle) Prototype Input Shaft 30

  31. Slide 31: iHub

    iHub 31

  32. Slide 32: Digitization with AI/ML

    Digitization with AI/ML 61 Plants 2,991 3,154 865 Traceability Robots Marking Stations LMMS Data Collection Connections 1,972 2,312 RFID Stations 1013 Connected Machines Vision Systems 2,034 9 Traceability Read Stations AGVs October 2019 32

  33. Slide 33: Operations

    Operations 33

  34. Slide 34: LTH

    my: | (iit s

  35. Slide 35: OROS Expansion

    OROS Expansion 35

  36. Slide 36: Linamar Powertrain Wuxi (LPW)

    Linamar Powertrain Wuxi (LPW) 36

  37. Slide 37: Jayahind JV Dissolution

    Jayahind JV Dissolution  Owned 50% of 2 plants now own 100% of 1  Retained plant is in Dewas, central India  Impact to P&L not material 37

  38. Slide 38: Financial Review

    Financial Review Dale Schneider 38

  39. Slide 39: Sales, Normalized Earnings, and Margins (in millions CAD)

    Sales, Normalized Earnings, and Margins (in millions CAD) Q3 2019 Q3 2018 %Δ Q3 2019 Normalized Results Helped By:  Global light vehicle market down 3.2% Sales 1,740.0 1,837.3 (5.3%)  Strong launches in Transportation;  Strike at GM for 10 days in September  Lower SGA costs; and EBITDA – Normali

  40. Slide 40: Foreign Exchange Gain/Loss (in millions CAD)

    Foreign Exchange Gain/Loss (in millions CAD) Q3 2019 Q3 2018 +/-  Net FX Gain of $5.7 FX Gain/(Loss) – Operating1 6.2 (10.2) 16.4  FX Gain – Operating was $6.2 FX Gain/(Loss) – Financing (0.5) 0.1 (0.6)  Industrial FX Loss was $0.5  Transportation FX Gain was $6.7 Total FX Gain/(Loss) 5.7 (10.1)

  41. Slide 41: Industrial Sales, Earnings, and Margins (in millions CAD)

    Industrial Sales, Earnings, and Margins (in millions CAD) Q3 2019 Q3 2018  Industrial sales decreased by 21.5% or $104.2 to reach $380.6 Sales 380.6 484.8  The sales decrease for the quarter was due to:  lower Agricultural sales due to poor crop conditions, stagnant commodity prices and the ongoi

  42. Slide 42: Transportation Sales, Earnings, and Margins (in millions CAD)

    Transportation Sales, Earnings, and Margins (in millions CAD) Q3 2019 Q3 2018  Transportation sales increased by $6.9 to reach $1.36 billion.  The sales helped by the additional sales from launching programs. Sales 1,359.4 1,352.5  The sales were hurt by:  lower volumes as a result of certain pr

  43. Slide 43: Operating Expenses (in millions CAD)

    Operating Expenses (in millions CAD) Q3 2019 Q3 2018 +/- %  Gross Margin decreased 16.2% mainly due to: Sales 1,740.0 1,837.3 (97.3) (5.3%)  a reduction of earnings related to the Industrial volume and market declines; Cost of Goods Sold 1,509.9 1,562.8 (52.9) (3.4%)  the additional amortization

  44. Slide 44: Finance Expenses & Income Tax (in millions CAD)

    Finance Expenses & Income Tax (in millions CAD) Q3 2019 Q3 2018 +/-  Finance expenses decreased $0.8  Finance expenses were helped by:  the impact of lower debt levels; and  lower interest as a result of cross currency interest rate swaps on the Euro Finance Expense 11.1 11.9 (0.8) denominated d

  45. Slide 45: Leverage (in millions CAD)

    Leverage (in millions CAD) Q3 2019 Q3 2018  Cash position at the end of the quarter was $394.8.  Generated $214.9 in Cash from Operating Activities. Cash Position 394.8 424.6  Generated $90 in Free Cash Flow². Available Cash on Credit Facilities 704.0 679.7  Net Debt to EBITDA increased to 1.75x

  46. Slide 46: Conclusion

    Conclusion  Global light vehicle market down 3.2%  North American and European scissor and boom markets strongly down in the quarter  North American combine market down due to on-going trade pressure  Sales outperforms our markets  Great Free Cashflow generation  Strong Normalized EBITDA margi

  47. Slide 47: Question and Answer

    Question and Answer 47

  48. Slide 48: Outlook

    Outlook Consolidated Expectations Expectations Normal Ranges 2018 Actuals 2019 2020 Q4 Expectations Sales Growth Flat to Low Single Digit Decline Single Digit Growth Normalized EBIT Growth Double Digit Decline Double Digit Growth  Auto Normalized EBITDA Growth Single Digit Decline Double Digit Grow

  49. Slide 49: Key Messages

    Key Messages 1. First we are thrilled to report more than 15% growth in normalized earnings in our Transportation segment despite tough markets, a sign our launch transition is improving as expected. 2. Second, we are very pleased to again deliver solid adjusted free cash flow¹ of $90 million in the

  50. Slide 50: Thank You

    Thank You www.linamar.com @linamarcorp Linamar Corporation

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