V CLEAR PATH TO GROWTH

Transcription

1 V CLEAR PATH TO GROWTH

2 CAUTIONARY STATEMENT Information in this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including, but not limited to, statements regarding future sales, earnings, liquidity, relative profitability, and the impact of economic conditions and downturns on Woodward. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Factors that could cause actual results and the timing of certain events to differ materially from the forward-looking statements include, but are not limited to, a decline in business with, or financial distress of, our significant customers; the global economic uncertainty and instability in the financial markets; Woodward s ability to obtain financing, on acceptable terms or at all, to implement its business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to business pressures; Woodward s long sales cycle, customer evaluation process, and implementation period of some of its products and services; Woodward s ability to implement and realize the intended effects of restructuring and alignment efforts; Woodward s ability to successfully manage competitive factors, including prices, promotional incentives, industry consolidation, and commodity and other input cost increases; Woodward s ability to manage expenses and product mix while responding to sales increases or decreases; the ability of Woodward s subcontractors and suppliers to meet their obligations; Woodward s ability to monitor its technological expertise and the success of, and/or costs associated with, its product development activities; Woodward s ability to integrate acquisitions and manage costs related thereto; Woodward s debt obligations, debt service requirements and ability to operate its business, pursue its business strategies and incur additional debt in light of restrictive covenants in its outstanding debt agreements; risks related to U.S. Government contracting activities, including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities; reductions in defense sales due to a decrease in the amount of U.S. Federal defense spending; changes in government spending patterns and/or priorities; future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets; future subsidiary results; environmental liabilities; Woodward s continued access to a stable workforce and favorable labor relations; physical and other risks related to Woodward s operations and suppliers, including natural disasters, which could disrupt production; Woodward s ability to successfully manage regulatory, tax and legal matters; risks from operating internationally including the impact on reported earnings from fluctuations in foreign currency exchange rates, and compliance with and changes in the legal and regulatory environments of the United States and the countries in which Woodward operates; fair value of defined benefit plan assets and assumptions used in determining Woodward s retirement pension and other postretirement benefit obligations and related expenses; information systems interruptions or intrusions; and other risk factors described in Woodward's Annual Report on Form 10-K for the year ended September 30, PAGE 2

3 CLEAR PATH TO GROWTH Global infrastructure Transportation of goods, people Power generation, control Energy extraction and distribution Emission reductions High performance Energy/Fuel efficiency Harsh conditions Consistent, safe operation Aerospace and Energy PAGE 3

4 WOODWARD ON A PAGE What we do Control system solutions and components for the aerospace and energy markets Our Technology Innovative flow, combustion, electrical, and motion control systems help our customers offer cleaner, more reliable, and more efficient equipment Our Customers Leading original equipment manufacturers and end users of their products We are Global Woodward is a global company with over 30 offices in 14 countries ALWAYS INNOVATING FOR A BETTER FUTURE PAGE 4

5 AEROSPACE AND ENERGY Aerospace Emerging economies - passenger miles Higher fuel prices - more fuel efficient aircraft Low cost financing New programs near launch Energy Disruption - fuel supply diversity and availability Emerging economies - demand growth Emission requirements PAGE 5

6 SALES BY SEGMENT FY2014 Energy $917 million Aerospace $1.1 billion Total Sales = $2.0 Billion PAGE 6

7 BUSINESS MODEL Strategic Partners Solutions Collaboration Risk Sharing Operational Excellence Customer Focus Growth Long Cycle Investment Optimized Solutions Technology Alignment Always Innovating Technology PAGE 7

8 R&D INVESTMENTS DRIVING GROWTH Woodward R&D investment clearly outpaced peer group Generally 3-5 points of earnings impact each year 8.0% 7.0% 6.0% 5.0% 2013 R&D as % of Sales Peer Companies 4.0% Generating market share gains and clear path to growth 3.0% 2.0% 1.0% 0.0% PAGE 8

9 WE ARE WINNING.. Growth Capacity Narrowbody program launches Golden Age of Gas Major projects Rockford, IL Aircraft Turbine Fort Collins, CO Energy Niles, IL Airframe Driving significant productivity and improved margins PAGE 9

10 INVESTMENTS TO INCREASE CAPACITY Facility expansions $500 million incremental investment over ~4 years New equipment Taking advantage of low capital cost Still anticipate return to maintenance level in ~2017 $300 $250 $200 $150 $100 $ in millions Capital Expenditures Goal is to 100% self-fund through cash from operations $50 $ Maintenance Facility Expansion PAGE 10

11 CASH FLOW FUNDING GROWTH $300 $ in millions Strong cash from operations Self-funding facility expansion Working capital utilization Inventory management Sales timing $250 $200 $150 $100 $50 $ Cash from ops Free cash flow Note: See appendix for calculation of free cash flow. PAGE 11

12 IMPROVING PROFITABILITY Lean implementation Supply chain integration Value-differentiated technology Process Innovation PAGE 12

13 CLEAR PATH TO GROWTH Clear strategy Energy control and optimization Compelling market drivers & industry dynamics Energy efficiency and emissions reduction Aerospace & Energy Strategically positioned with industry leaders Market share gains through Collaboration Technological leadership Enhanced shareholder value Aerospace Awards Gas and Oil PAGE 13

14 WOODWARD ENERGY

15 ENERGY MARKET DRIVERS Disruption - fuel supply diversity and availability Emerging economies - demand growth Emission requirements PAGE 15

16 Technology Enablers System Requirements Market Drivers Energy Markets ENERGY MARKET DRIVERS Availability Power Output Reliability Maintainability $/kw - $/kw hr Fast Start Load Following Fuel Flexibility Efficiency System Cost Emissions Compliance System Optimization Advanced Controls Control complexity Diagn/Prognostics Distributed Control Metering/Actuation Integration Distributed Control High temp/pressure Ignition/Combustion Reliability Combustion feedback Simplification PAGE 16

17 ENERGY OUTLOOK - SUPPLY Natural gas and renewables fastest growing energy sources Account for 50% of the growth in energy supply Other sources are growing $8 Trillion of investment thru 2035 Reference: BP Energy Outlook 2030,2013 Edition TOE = Tonne of oil equivalent PAGE 17

18 KEY ENERGY MARKET LEADERS Industrial Gas Turbines Small Aero Large Recip Engines Lg Diesel / Gas Sm Diesel / Gas Steam Turbines Compressors PAGE 18

19 ENERGY APPLICATIONS Extraction Power Generation Compression Power Generation Processing Mined Resources Wind Renewable Processing Compression Marine Utilization-CNG/LNG Transportation Distribution PAGE 19

20 ENERGY VALUE STREAM PAGE 20

21 SOLUTIONS FOR GAS TURBINES G SERVICES Atlas II MicroNet Plus Electronic Control PAGE 21

22 SYSTEMS APPROACH TO TOTAL ENGINE CONTROL PAGE 22

23 GAS TURBINE MARKET UPDATE Market Drivers Distributed power Peaking power Quick start/stop Part load operation Fuel flexibility Natural gas production Increased trade of gas Pipeline and LNG Efficiency Drive Increased Maintenance Power to weight ratio (offshore) $30 $25 $20 $15 $10 $5 $0 Gas Turbine Market Forecast by Value ($B) GAS TURBINE OEM SHARE BY VALUE GE 52% other 6% Solar 8% MHI 13% Source: Forecast International Turbomachinery International, October 2014 Good market growth. Industry dominated by 4 OEMs Siemens 21% PAGE 23

24 GAS TURBINE UPDATE Market consolidation has positioned the Big Three across the TurboMachinery markets Heavy Frame Gas Turbine Aero-Derivative Gas Turbine Steam Turbine Compressor Leverage capabilities within and across customer base PAGE 24

25 NATURAL GAS UTILIZATION

26 NATURAL GAS UTILIZATION IN ROAD TRANSPORT Source: IEA, Medium-Term Gas Market Report 2014 Environmental concerns, fuel flexibility, and energy costs driving demand for Woodward solutions PAGE 26

27 NATURAL GAS UTILIZATION ENGINE PRODUCERS Weichai Cummins Hyundai DDE Doosan SDEC Wuxi Yuchai Furuise Hauling SANY Providing solutions to global market leaders PAGE 27

28 NATURAL GAS UTILIZATION LOCOMOTIVES Working on dual-fuel development projects with major locomotive OEMs More U.S. railways interested in demonstration programs Timing of full production dependent on operational, regulatory, and other infrastructure developments Woodward meeting the complex challenges of fuel flexibility PAGE 28

29 PROCESS INDUSTRIES

30 SPOTLIGHT ON PROCESS INDUSTRIES Medium-term outlook varies by product and region US, Middle East, China forecast solid growth Ethylene forecasts - largest growth Source: IHS Chemical, Technip PAGE 30

31 PROCESS INDUSTRY MARKET LEADERS Shaanxi Blower China Only Compressors 3 rd party Steam Turbine (HTC) Compressors Steam Turbine China Only Compressors 3 rd party Steam Turbine (HTC) Compressors Compressors Steam Turbine Compressors Steam Turbine Compressors Steam Turbine Strong Woodward position in steam and growing in compression PAGE 31

32 WHY WE WIN

33 System Integration TECHNOLOGY AND SYSTEM SOLUTIONS Woodward Innovation Advanced Combustion Technologies Advanced Air/Fuel Metering Technologies Advanced Control Technologies System Optimization Enabling customer success through improvements in: Efficiency Emissions Reliability Availability Maintainability Safety PAGE 33

34 R&D VALIDATION CAPABILITIES Engine System Test Center Engine System Test Rig Combustion Test Center High Flow Test System PAGE 34

35 MARGIN EXPANSION

36 LEAN DEPLOYMENT Lean mixed-model flow Low volume / high mix Productivity and velocity Process innovation Semi-automation Quality control Error proofing Leader/member training PAGE 36

37 FACILITY INVESTMENTS Capacity for growth Enabling Lean - designed from the inside out Lincoln Campus Fort Collins, CO Technology Center Windsor, CO PAGE 37

38 SUPPLY CHAIN INTEGRATION Early supplier involvement Strategic alignment Value engineering Collaborate To Cost Project Management PASSION FOR EXCELLENCE Partnership CREATING VALUE Early Supplier Involvement (ESI) Design Design for Producability (DFP) Performance Innovation Supply Chain Value Stream Optimization DELIVERING VALUE Growth Supply Chain Integration PAGE 38

39 FINANCIAL PERFORMANCE Margin expansion Margin target = 16+% Sales leverage Aftermarket expansion Productivity Lean/facilities PAGE 39

40 WOODWARD AEROSPACE

41 STRATEGIC GROWTH - VALUE MODEL Investment Cycle Return Cycle R&D New Product Intro Original Equipment Sales Aftermarket (Initial provisioning & MRO) 5-10 years 4-6 years ~30 years Long Cycle Strong Returns PAGE 41

42 LIFE OF PROGRAM VALUE MODEL Investment Cycle Passport 20 & Silvercrest/E2/ C Series A MAX/A /747-8 Return Cycle R&D$ Expensed PAGE 42

43 AEROSPACE SEGMENT FY2014 SALES Aftermarket 38% OEM 62% Military 34% Civil 66% Motion Control 52% Propulsion Control 48% Sales - $1.1 billion PAGE 43

44 FY2014 SALES BY MARKET Bizjet/GA 12% Civil Rotor Wing 6% Precision Guidance 7% Mil Rotor Wing 10% Commercial Transport 49% Civil A/M 26% Military A/M 12% Civil OEM 40% Mil Fixed Wing 16% Military OEM 22% PAGE 44

45 MARKETS - STATUS Civil Private 18% Military 33% Commercial Transport 49% Commercial large transport High delivery demand New platforms introduced Legacy platform replacement Traffic growth continues Military Global instability Increasing international demand Civil private New platforms introduced Recovery from trough All three markets poised for growth PAGE 45

46 LARGE TRANSPORT MARKET OUTLOOK OEM AFTERMARKET Growth Replacement 21,270 58% 15,500 42% +36,770 Fleets growing Post-9/11 deliveries come into heavy maintenance Favorable Woodward fleet dynamics Boeing Unprecedented up cycle Regional jets join single and twin aisles New model introductions PAGE 46

47 COMMERCIAL TRANSPORT DELIVERIES Aircraft Delivered Aircraft Forecast PAGE 47

48 COMMERCIAL TRANSPORT DELIVERIES 100% 52% 58% Aircraft Delivered Aircraft Forecast //// Aircraft with significant Woodward content System strategy execution, key acquisitions drive share gains PAGE 48

49 NEW PLATFORMS CLEAR PATH TO GROWTH A320neo 737 MAX SINGLE AISLE CSeries EJet E TWIN AISLE A350XWB A330neo 777X Deliveries grow, applications grow, sales per platform grow PAGE 49

50 WOODWARD INTEGRATED PROPULSION SYSTEMS Evolved from components provider to total systems supplier Products line grew from internal development and acquisitions PAGE 50

51 WOODWARD MOTION CONTROL SYSTEMS PAGE 51

52 KEY PLATFORMS/CONTENT TWIN AISLE CURRENT DEVELOPMENT ~$25, ~$210,000 Production A330 ~$40,000 A350 ~$55,000 4Q Q ~$275,000 A330neo $TBD ~$795, X $TBD A380 2 ~$370,000 1 GEnx engine option 2 GP7200 engine option Content may vary based on options selected PAGE 52

53 KEY PLATFORMS/CONTENT SINGLE AISLE CURRENT DEVELOPMENT 2H NG ~$125, MAX ~$290,000 4Q 2015 A320 ~$80,000 A320neo ~$225,000 4Q 2015 CRJ ~$110,000 CSeries ~$225,000 1H 2018 EJet ~$250,000 EJets E2 ~$185,000 Content may vary based on options selected PAGE 53

54 MILITARY MARKET OUTLOOK OEM AFTERMARKET Worldwide Military MRO Forecast Military Aftermarket graphic New Normal $ Billions Source: Forecast International (Global ex China) F-35,KC-46 tanker offset legacy program declines Strong WWD content on new production programs Smart weapons uptick Source: ICF International Global instability drives utilization Asia pivot still in play Growing fielded base/broad representation PAGE 54

55 KEY PLATFORMS/CONTENT DEFENSE CURRENT DEVELOPMENT F-16 ~$125,000 Production F-35 ~$300,000 F/A-18 ~$335,000 Black Hawk ~$55, KC-46 Tanker ~$545,000 V-22 ~$645,000 Apache ~$145,000 Content may vary based on options selected PAGE 55

56 CIVIL PRIVATE MARKET OUTLOOK OEM AFTERMARKET Civil Private MRO Civil Private Aftermarket graphic CAGR=0.7% CAGR=6.0% CAGR=9.4% CAGR=3.6% Business Jets - Units Gradual growth follows trough New models driving growth Source: Honeywell Large cabins/long range remain strong Source: ICF International Bizjet Engine MRO CAGR 2.5% Civil Rotorcraft MRO CAGR 4.3% Primary market remains North America Global fleets increase Utilization returning PAGE 56

57 KEY PLATFORMS/CONTENT BUSINESS JETS CURRENT DEVELOPMENT 2017 Global Express ~$230,000 Global 7000/8000 ~$385,000 G550 ~$185, G500/G600 ~$180,000 G650 ~$205, Falcon 7X ~$150,000 Falcon 5X ~$60,000 Content may vary based on options selected PAGE 57

58 PAVING THE PATH TO GROWTH

59 PRODUCT PORTFOLIO Integrated propulsion systems Flight deck controls Electromechanical and hydraulic actuation PAGE 59

60 R&D PROGRAM EXECUTION Single aisle NPI nears completion High certification test load ramps down early 2015 Flight test support Production readiness System Endurance Test System Cold Test Fire Test PAGE 60

61 IR&D AIRCRAFT TECHNOLOGY DEMANDS Aerodynamic efficiency Long, thin wings Air flow management Turbine fuel efficiency Higher pressures Higher temperatures Lower weight Air flow management Lower emissions Innovative atomization Increased combustion control Source: NASA Source: NASA Align technologies to customers 2030 needs PAGE 61

62 STILL WINNING.. Gulfstream G500 and G600 PurePower PW800F engine content Airframe content Boeing 777X TRAS TRAS More to come PAGE 62

63 MARGIN EXPANSION

64 AFTERMARKET PATHS TO GROW SHARE Growth opportunities (esp. motion control products) Commercial large transport (esp. TRAS products) Develop/deliver modifications and upgrades PAGE 64

65 CAPACITY AND PRODUCTIVITY New facilities Floor space Semi-automation Productivity New platforms/ technologies improve margins Supply chain and labor productivity Fixed cost leverage and reductions Adjust Increased Automation Machine Measure Compensate? Manufacture to Zero Defects PAGE 65

66 LEAN TRANSFORMATION Lean designed in to new facilities parts flow and automation Member inputs plus over 60 benchmarked facilities Assembly Error Proofing Lean value stream layouts and floor space consolidation Product Test Semi-Automation PAGE 66

67 ROCK CUT CAMPUS Initial occupancy early 2015 PAGE 67

68 NILES FACILITY Initial occupancy November 2014 Consolidate four-building campus into one site PAGE 68

69 FINANCIAL PERFORMANCE Margins Margin target = 20% Sales leverage Aftermarket expansion Amortization reduction R&D as % of sales declining Productivity Lean/facilities PAGE 69

70 WOODWARD FINANCIALS

71 WOODWARD SALES Solid long-term sales growth Recent impacts from Economic environment Defense China CNG volatility 2,500 2,000 1,500 $ in millions Total Sales 7% CAGR Strength going forward Aerospace awards Natural gas / oil 1, ,457 1,712 1,866 1,936 2, PAGE 71

72 ENERGY SALES Natural gas and oil growth Processing plants Gas turbine aftermarket 1,200 1,000 $ in millions Global economy slowly improving 800 Renewables volatile China regulatory environment uncertain PAGE 72

73 AEROSPACE SALES Commercial transport strong OEM and aftermarket 1,200 1,000 $ in millions Biz-jet/helicopter Large cabin improving Oil and gas Defense contraction Upgrade programs Contract timing Moderate WWD impact ,061 1, PAGE 73

74 SEGMENT EARNINGS Earnings highlights Company-wide Lean initiatives Improved renewables Cost control Solid aftermarket Lower defense Anticipate 100 bps improvement for 2015 Long-term (5 year cycle) Aerospace 20% Energy 16+% 16% 14% 12% 10% 8% Segment Margins 15.7% 14.6% 14.7% 11.3% Energy Aerospace PAGE 74

75 R&D INVESTMENTS Market share gains and new program certifications Narrowbody awards Energy customer and market penetration Common rail diesel Anticipate % of sales decrease as new programs launch $ in millions % 8.0% 6.0% 4.0% 2.0% % R&D Expense as % of Sales PAGE 75

76 CASH FLOW $300 $ in millions Consistently strong cash from operations funding Facilities expansions to accommodate sales growth R&D investment $250 $200 $ Working capital utilization Inventory management Sales timing $100 $ $ Cash from ops Free cash flow Note: See appendix for calculation of free cash flow. PAGE 76

77 DEBT AND EBITDA 800 $ in millions 700 Strong balance sheet and track record of debt pay-down Cash flow funding growth Share buybacks in 2013/2014 Solid EBITDA growth EBITDA Debt Note: See appendix for calculation of EBITDA. PAGE 77

78 DEBT TO EBITDA LEVERAGE Conservative leverage 2.5 Leverage Ratio Maintain capacity Growth Acquisitions Share buybacks Note: See appendix for calculation of leverage ratio. PAGE 78

79 OPERATING EXPENSE LEVERAGE Selling, General & Admin Expenses Improving leverage Sales growth Cost control Realignment Facility rationalization Lean initiatives $ in millions 10.0% 9.0% 8.0% 7.0% 6.0% % 4.0% % % SG&A as % of sales PAGE 79

80 RETURN ON INVESTED CAPITAL 12.0% 11.0% 10.9% 11.1% Acquisition impacts 10.0% 10.0% 9.5% 9.5% Path to future growth Enhanced margins Increasing free cash flow 9.0% 8.0% 7.0% 6.0% 5.0% *ROIC= net earnings before interest expense / invested capital at September 30 of each year PAGE 80

81 CUMULATIVE TOTAL RETURN ON COMMON STOCK COMPARISON OF 10 YEAR CUMULATIVE TOTAL RETURN* Among Woodward, Inc., the S&P Midcap 400 Index and the S&P Industrial Machinery Index $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 9/04 9/05 9/06 9/07 9/08 9/09 9/10 9/11 9/12 9/13 9/14 Woodward, Inc. S&P Midcap 400 S&P Industrial Machinery *$100 invested on 9/30/04 in stock or index, including reinvestment of dividends. Fiscal year ending September 30. PAGE 81

82 FY2015 OUTLOOK Revenue Between $2.05 and $2.15 billion $3.00 Earnings Per Share Earnings per diluted share Between $2.70 and $2.90 per share Assumptions Commercial aerospace remains strong Global economy continues slow improvement Defense stabilizes Retroactive R&E credit $2.00 $1.00 $1.89 $2.01 $2.10 $2.45 $2.70 $2.90 $ E PAGE 82

83 PAGE 83

84 APPENDIX

85 EBITDA, FREE CASH FLOW, LEVERAGE RATIO Year Ending September 30, Net earnings $ 165,844 $ 145,942 $ 141,589 $ 132,235 $ 111,162 Income taxes 61,400 53,629 56,218 55,332 43,713 Interest expense 22,804 26,703 26,003 25,399 29,385 Interest income (271) (273) (542) (534) (509) Year Ending September 30, Woodward Reported Trailing 12 Month EBITDA $ 327,130 $ 300,234 $ 291,885 $ 287,825 $ 259,367 Interest Income EBITDA, adjusted for use in leverage computation $ 327,401 $ 300,507 $ 292,427 $ 288,359 $ 259,876 EBIT 249, , , , ,751 Amortization of intangible assets 33,580 36,979 32,809 34,993 35,114 Depreciation expense 43,773 37,254 35,808 40,400 40,502 EBITDA $ 327,130 $ 300,234 $ 291,885 $ 287,825 $ 259,367 Total Debt Per Woodward Balance Sheet $ 710,000 $ 550,000 $ 392,204 $ 425,249 $ 465,842 Leverage Ratio * Non-US GAAP Measures: EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), free cash flow and Debt-to-EBITDA Leverage Ratio ( Leverage Ratio ) are non-us GAAP financial measures. The use of these measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America. Securities analysts, investors, and others frequently use EBITDA, free cash flow and Leverage Ratio in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets that are subject to amortization. Management uses EBITDA and the Leverage Ratio in reviewing compliance with our debt covenants and in evaluating capital structure impacts of various strategic scenarios. Free cash flow is a non-us GAAP financial measure which Woodward and others define as cash from operations less capital expenditures. Year Ending September 30, Net cash provided by operating activities $ 268,083 $ 222,592 $ 144,113 $ 114,623 $ 184,572 Capital expenditures (207,106) (141,600) (64,900) (48,255) (28,104) Free cash flow $ 60,977 $ 80,992 $ 79,213 $ 66,368 $ 156,468 PAGE 85