Linamar Corporation · TSX:LNR
Linamar — Q3 2020 Earnings Presentation
52 slides from Linamar's earnings presentation, Nov 10, 2020
Slide 1: Q3 Conference Call Presentation
Q3 Conference Call Presentation For Audio Only Dial in: Linda Hasenfratz North America: (877) 668-0168 International: (825) 312-2386 November 10, 2020 Conference ID 6475831
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
Slide 3: COVID-19 Update
COVID-19 Update © Linamar Corporation 3
Slide 4: Pandemic Crisis Management
Pandemic Crisis Management Assemble Team Gather Data COVID-19 Task Force Make a Plan & Execute Communicate Employees Investors Customer Employees Financially Customers Community © Linamar Corporation 4
Slide 5: Current Focus -- Restart, Rejuvenate and Recover
Current Focus -- Restart, Rejuvenate and Recover ▪ Create a work environment where people feel and are as safe or safer coming to work than not coming to work ▪ Testing pilot proves our protocols work ▪ 94% of employees back to work ▪ 97% of these are physically on site ▪ Working with remaining empl
Slide 6: Employees Continue to Feel Safe and Confident in Protocols
Employees Continue to Feel Safe and Confident in Protocols © Linamar Corporation 6
Slide 7: Financial Action Plan
Financial Action Plan Income Statement ▪ Excellent results on cost reduction ▪ We expect some cost reductions will stick after pandemic ▪ We are continuing to be cautious around spending through end of year at least ▪ ie. travel, meetings, discretionary spending, etc. ▪ We continue to utilize our sy
Slide 8: Financial Action Plan
Financial Action Plan Balance Sheet: ▪We continue to operate with our highest level cash payment controls ▪Our balance sheet is strong and we are carefully stress testing to understand our limits; we remain confident that our focus and responsiveness in this area will continue to see us through ▪ Fi
Slide 9: Risk Mitigation in Q3 2020 -- Early Negotiation to Replace 2021 Term Debt
Risk Mitigation in Q3 2020 -- Early Negotiation to Replace 2021 Term Debt Rationale ▪ Risk levels were high given second wave and potential fallout from US election ▪ Target to circle terms of deal with lenders before Election Day ▪ Term loan was for $435M USD Outcome ▪ Circled deal with lenders for
Slide 10: Community Support
Community Support © Linamar Corporation 10
Slide 11: Manufacturing Flexibility Supports our Communities
Manufacturing Flexibility Supports our Communities Rapid Shift to Ventilator Production Saving Lives Thornhill Medical MOVES ▪ In March, Linamar was awarded 5 production contracts on fully assembled SLC Full Integrated ICU Ventilator ventilators, ventilator subassemblies or individual ventilator com
Slide 12: Manufacturing Flexibility Supports our Communities
Manufacturing Flexibility Supports our Communities Rapid Shift to Ventilator Production Saving Lives Thornhill Medical MOVES GM Ventec VOCSN CleanSlate O-Two Medical SLC Zoll Ventilator Integrated UV Based disinfectant unit eSeries e700Ventilator Full Integrated ICU Ventilator Multifunction Ventilat
Slide 13: 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
Slide 14: Sales, Normalized Earnings, and Margins (in millions CAD)
Sales, Normalized Earnings, and Margins (in millions CAD) Q3 2020 The key impacts to the segments vs prior Q3 2020 Q3 2019 %Δ The key factors impacting results in the quarter year are: are: Sales 1,637.4 1,740.0 (5.9%) • Strong recovery in Auto sector from Q2 Transportation shutdowns - Global market
Slide 15: Automotive Sales & Content Per Vehicle (CPV)
Automotive Sales & Content Per Vehicle (CPV) CPV Q3 2020 CPV Q3 2019 CPV % Change Vehicle Production Automotive Automotive Automotive Units % Change Sales Q3 2020 Sales Q3 2019 Sales % Change (CAD Millions) (CAD Millions) North America 182.76 166.73 9.6% (1.0%) 750.3 691.9 8.4% Europe 77.72 83.57 (7
Slide 16: Commercial & Industrial Sales (in millions CAD)
Commercial & Industrial Sales (in millions CAD) Q3 2020 Q3 2019 % Change ▪ Skyjack ▪ Global markets down 30-40% in EU and NA in Q3, 40- Sales 358.9 448.6 (20.0%) 50% YTD driving significant sales declines ▪ MacDon ▪ Draper header market up in double digits in Canada QvQ¹ Change in Commerical & Indus
Slide 17: Capital Expenditures (in millions CAD)
Capital Expenditures (in millions CAD) Q3 2020 Q3 2019 ▪ Capex down 53% from Q3 2019 as we continue to conserve cash but up from Q2 lows Capital Expenditures (Capex) 73.9 158.5 ▪ Expect full year down more than 40% from 2019 ▪ 2021 will be back in a normal range Capex as a % of Sales 4.5% 9.1% ▪ Usi
Slide 18: Leverage (in millions CAD)
Leverage (in millions CAD) Q3 2020 Q2 2020 Q3 2019 ▪ A fantastic quarter for FCF2 with $445 million generated for further reductions to debt Net Debt 876.7 1,342.1 1,938.3 ▪ Net debt now $877 million, down over $1 billion from a year ago despite market pressures Net Debt to EBITDA 1.10x 1.80x 1.75x
Slide 19: Cash Flow Continues to be a Key Priority
Cash Flow Continues to be a Key Priority ▪ YTD FCF1 is more than double last year ▪ FCF Yield is 44% which is outstanding ▪Liquidity1 excellent with $1.3 billion of cash available at quarter end ▪Solid liquidity and balance sheet positions us well for takeover and acquisition opportunities sure to a
Slide 20: Market Outlook
Market Outlook © Linamar Corporation 20
Slide 21: Market Snapshot
Market Snapshot 2020 2021 Commercial Combine Commercial Light Vehicle Access Light Vehicle Access Truck Heads Truck North North America ▼ 20.3% ▼43.9% Flat ▼51.6% America ▲22.3% ▲27.9% ▲20.4% Europe Europe ▼22.6% ▼29.6% ▼5% ▼40.0% ▲15.9% ▲17.7% ▲20.0% Asia ▼14.1% ▼3.1% n/a ▲7.0% Asia ▲9.2% ▼21.3% ▲7
Slide 22: Regional LV Auto Production Update
Regional LV Auto Production Update COVID-19 Related Impact vs. Prior Forecast and Expected Recovery Regional LV Production Impact Outlook Comments 30.0 ▪ Global: At the time of latest publication on October 16th, global Light Vehicles (Millions) 25.0 light vehicle 2020 production forecast stood at 7
Slide 23: IHS Light Vehicle Production Forecast
IHS Light Vehicle Production Forecast Global light vehicle production trough in 2020. Lowest quarterly production occurred in Q2-2020. Global Light Vehicle Production Forecast by Year Global Light Vehicle Production Forecast by Quarter 120 25 22.9 22.8 22.1 22.2 98.2 21.0 95.1 94.2 94.7 96.6 20.3 10
Slide 24: Light Vehicle Sales
Light Vehicle Sales Recovery in global light vehicle markets US Light Vehicle Sales China Light Vehicle Sales Europe Light Vehicle Sales % Change YOY % Change YOY % Change YOY 30% 30% 30% 14% 11% 9% 9% 7% 6% 8% 5% 10% 10% 0% 1% 10% 1% 3% -10% -10% -10% -20% -5% -11% -12% -30% -19% -30% -20% -30% -29
Slide 25: Global LV Auto Market: Q3 & Q4 2020
Global LV Auto Market: Q3 & Q4 2020 Q3 global light vehicle production forecast increased by 1.6M vs. prior forecast. Q4 increased by 1.5M. Q3-2020 Global Vehicle Production Forecast By Region Q4-2020 Global Vehicle Production Forecast By Region Change in Forecast Oct-2020 vs. Jul-2020 Change in For
Slide 26: Global LV Auto Market: 2020, 2021
Global LV Auto Market: 2020, 2021 2020 annual forecast increased by 3.5M units vs. prior quarter forecast. 2021 forecast increased by 4M units. 2020 Global Vehicle Production Forecast By Region 2021 Global Vehicle Production Forecast By Region Change in Forecast Oct-2020 vs. Jul-2020 Change in Forec
Slide 27: Historical NA Auto Cycles
Historical NA Auto Cycles Conclusions 120.0% NA Historical Auto Production Cycle 10 ▪ ‘Normal' cycle is 1% to 5% 100.0% 9 8 drops ie low single digit each 7 80.0% year for on average 4 years, 6 Years % Change 60.0% 5 then growth resumes 4 40.0% 3 2 20.0% 1 0.0% - Growth Decline Growth Decline Growth
Slide 28: Industrial Segment Impacts - Skyjack
Industrial Segment Impacts - Skyjack 2020 Mobile Aerial Work Platform (AWP) Industry Forecast & Access Equipment Market Commentary YTD Results % Change vs. Prior Year ▪ With rental customers delaying CapEx spend and construction 20.0% 13% 7% activities slowed, the AWP market has experienced steep de
Slide 29: Agricultural Market
Agricultural Market Agriculture Market Commentary NA Combine Retails • Ag. retailers seeing reduced inventory backlog 900 • Commodity price rally, improved farm net income outlook boosting retails • North America combine retails were up 16% in Q3 and are up 1% September YTD 800 • Canada combine reta
Slide 30: Growth Update and Outlook
Growth Update and Outlook © Linamar Corporation 30
Slide 31: Electrified Vehicles Key Growth Opportunity for Linamar
Electrified Vehicles Key Growth Opportunity for Linamar $110 $90 $70 Expected BEV Global CPV 3 years out same as ICE Global CPV 3 years ago $50 $30 $10 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -$10 Electric Hybrid ICE Updated: October 15, 2020. Estimates based on current projections and EV
Slide 32: Global Addressable Market Grows More Than 3X in Years
Global Addressable Market Grows More Than 3X in 20 Years Addressable Market - Light Vehicle $350 $300 $250 Addressable Market (Billions CAD) $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 2024 2025 2026 20
Slide 33: Launches
Launches Launching more than $4.1 billion of new work today 4,500.00 4,000.00 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 - 2019 2020 2021 2022 2023 2024 Other Driveline Engine Transmission Updated: October, 2020 © Linamar Corporation 33
Slide 34: Outlook
Consolidated Normal Ranges 2019 Actuals Expectations 2020 Expectations 2021 Outlook Sales Growth Normalized Earnings Growth (2.7%) Significant Double Digit Declines in both Sales and Earnings Double digit top and bottom line growth EPS (20%) Q4 Expectations EBITDA (8%) Normalized Net Margin 7.0% - 9
Slide 35: New Business
New Business © Linamar Corporation 35
Slide 36: New Business Win
New Business Win Multiple Wins For Battery Electric Vehicle Components Average Annual Revenue $11M / year SOP Year 2022 Peak Volume Year 2026 Production Location © Linamar Corporation 36
Slide 37: New Business Win
New Business Win Multiple Wins for Commercial Vehicle Transmission Components Average Annual Revenue $91M / year SOP Year 2024 Peak Volume Year 2025 Production Location © Linamar Corporation 37
Slide 38: New Business Win
New Business Win Multiple Driveline Component Wins Driving Growing Chassis Business Average Annual Revenue Nearly $28M / year SOP Year 2022 Peak Volume Year 2024 Production Location © Linamar Corporation 38
Slide 39: New Business Win
New Business Win Rear Drive Unit Average Annual Volume 40,000 / year SOP Year 2022 Peak Volume Year 2023 Production Location © Linamar Corporation 39
Slide 40: Financial Review
Financial Review Dale Schneider © Linamar Corporation 40
Slide 41: Sales, Normalized Earnings, and Margins (in millions CAD)
Sales, Normalized Earnings, and Margins (in millions CAD) Q3 2020 Unusual Items Q3 2020 Q3 2019 %Δ The key factors impacting results in the quarter ▪ Announcement of a plant closure in Q3 are: ▪ Eagle Manufacturing in Kentucky Sales 1,637.4 1,740.0 (5.9%) • Strong recovery in Auto sector from Q2 ▪ P
Slide 42: Foreign Exchange Gain/Loss (in millions CAD)
Foreign Exchange Gain/Loss (in millions CAD) Q3 2020 Q3 2019 +/- ▪ Net FX Loss of $6.6 FX Gain/(Loss) – Operating1 (7.5) 6.2 (13.7) ▪ FX Loss – Operating was $7.5 and was fully attributable to FX Gain/(Loss) – Financing 0.9 (0.5) 1.4 Industrial Total FX Gain/(Loss) (6.6) 5.7 (12.3) ▪ FX Gain – Finan
Slide 43: Industrial Sales, Earnings, and Margins (in millions CAD)
Industrial Sales, Earnings, and Margins (in millions CAD) ▪ Industrial sales decreased by 21.6% or $82.2 to $298.4 Q3 2020 Q3 2019 ▪ The sales were hurt by: Finance ▪ Access Equipment sales declines associated with the global Sales 298.4 380.6 COVID-19 pandemic updating ▪ The sales were helped by Op
Slide 44: Transportation Sales, Earnings, and Margins (in millions CAD)
Transportation Sales, Earnings, and Margins (in millions CAD) ▪ Transportation sales decreased by $20.4 to $1,339 Q3 2020 Q3 2019 ▪ The sales were hurt by: ▪ the impact of COVID-19 in the quarter Sales 1,339.0 1,359.4 ▪ The sales were helped by: ▪ a favourable impact on sales and expenses from the c
Slide 45: Operating Expenses (in millions CAD)
Operating Expenses (in millions CAD) Q3 2020 Q3 2019 +/- % ▪ Gross Margin was $273.5 in the quarter and was impacted by: ▪ the utilization of government COVID-19 support programs Sales 1,637.4 1,740.0 (102.6) (5.9%) ▪ the margin improvement from launching programs in the Cost of Goods Sold 1,363.9 1
Slide 46: Finance Expenses & Income Tax (in millions CAD)
Finance Expenses & Income Tax (in millions CAD) ▪ Finance expenses decreased $9.6 Q3 2020 Q3 2019 +/- ▪ Finance expenses were helped by: ▪ lower interest expense as a result of reducing average daily debt balances Finance Expense 1.5 11.1 (9.6) by $655 million since Q3 2019 ▪ lower effective interes
Slide 47: Leverage (in millions CAD)
Leverage (in millions CAD) Q3 2020 Q3 2019 ▪ Cash position at the end of the quarter was $570.1 ▪ Generated $518.4 in Cash from Operating Activities Cash Position 570.1 394.8 ▪ Generated $445.1 of Free Cash Flow² in the quarter ▪ Net Debt to EBITDA was decreased significantly to 1.10x Available Cash
Slide 48: Conclusion
Conclusion ▪ COVID is still impacting Sales and Earnings ▪ Operations have Restarted and focused on Recovery and Rejuvenation ▪ Excellent Cash Generation in the Quarter ▪ Free Cash Flow1 generation of $445.1 million and $762.7 million YTD ▪ Available Liquidity1 increased to $1.3 billion 1 - For more
Slide 49: Question and Answer
Question and Answer
Slide 50: Outlook
Consolidated Normal Ranges 2019 Actuals Expectations 2020 Expectations 2021 Outlook Sales Growth Normalized Earnings Growth (2.7%) Significant Double Digit Declines in both Sales and Earnings Double digit top and bottom line growth EPS (20%) Q4 Expectations EBITDA (8%) Normalized Net Margin 7.0% - 9
Slide 51: Key Messages
Key Messages $445 Million Cash Generation Margins Up in Transportation Fantastic Debt Reduction, Liquidity, Risk Mitigation of B/S Markets Improving © Linamar Corporation 51
Slide 52: Thank You
Thank You www.linamar.com @linamarcorp Linamar Corporation