Genesee & Wyoming Inc. November 2018

Transcription

1 November

2 Agenda 1. G&W Overview 2. Acquisitions & Investments 3. Business Update 2

3 Overview NYSE: Listed as GWR with ~$4.8B market capitalization Railroads: 122 with ~16,000 track miles (80% North America; 20% Australia/Europe) People: 8,000 Customers: 3,000 Equipment: 1,350 locomotives Carloads: ~3.3 million annually 3

4 Nine Autonomous Operating Regions North America (7 regions) Australia (51% owned) UK/ Europe 4

5 G&W Operating Income by Segment Australia ~10%* U.K./Europe ~5% North America ~85% * represents G&W s 51% ownership 5

6 Consistent Long-Term Growth $2,330 ($ millions) Initial Public Offering $3 6

7 Our Core Purpose To be the safest and most respected rail service provider in the world. 7

8 Progress Towards Safest Industry-Leading Safety Performance 5 Injury Frequency Rate per 200,000 Hours Short Lines Class I 0 * G&W results include 2013 RailAmerica acquisition and 2015 Freightliner acquisition 8

9 10 Progress Towards Most Respected Industry-Leading Customer Satisfaction Biennial J.D. Power Survey of G&W Customers = Our Goal 7 6 Trucking Other Railroads

10 Progress Towards Most Respected Industry-Leading Free Cash Flow Conversion (Free Cash Flow Before Dividends)/Net Income E CNI 75% 75% CP 53% 50% CSX 77% 105% NSC 90% 89% UNP 90% 95% KSU 82% 88% Class I Average 81% 88% Source: Wolfe Research G&W (1)(2) 137% 121% (1) Reflects Adjusted Free Cash Flow Attributable to G&W/Adjusted Net Income Attributable to G&W 2. Adjusted Free Cash Flow Attributable to G&W is a non-gaap financial measure. Reconciliations of non-gaap financial measures accompany this presentation. 10

11 Acquisitions & Investments 11

12 G&W Growth Includes More Than 100 Acquisitions Over Past 15 Years 12

13 Average of >$400mn in Acquisitions and Investments Annually $ in millions $800 $2,200 $700 $1000 RailAmerica $2,100 $600 Investments / Acquisitions $500 $400 $300 $200 Freightliner $762 GRail $477 (1) $100 $ (1) Represents total G&W consideration for GRail ($407mm of equity contributed and $70mm of additional cash contribution). P&W $126 Pentalver $110 13

14 Evaluation: Sources of Acquisitions 14

15 Execution: Why We re Successful 1. Cost Saves Operations, equipment, administrative overhead, purchasing Tax considerations 2. Intense Due Diligence Customer and railroading 3. Reputation Seller focus on business going to a good owner Customer seller requires solid rail service post sale Class I need for seamless execution Government support often critical 4. Class I Leases Structured with strategic operators 5. International Opportunities Few independent international freight rail operators 15

16 Integration Case Study: Providence and Worcester 513-mile short line operating in MA, RI, CT & NY Connects to G&W s NECR and CSO, as well as multiple others Acquired by G&W Nov Co-mingled freight & passenger operations 16

17 Integration Case Study: Providence and Worcester Keys to Integrating a Railroad at G&W The First 180 Days Acquisition model is the budget Regional Management Team and Corporate Transition Team Cultural change in basic tasks New safety standards Regulatory compliance Operational redesign Commercial tariff changes aligning with Northeast Region tariffs Day 180 Moving Forward GCOR Implementation Shipper Connect Rationalization of assets 17

18 Integration Case Study: Providence and Worcester Initial Fleet 32 Locomotives 6 Models - 6 EMD GP38-12 GE B39-7 GE B40 10 months - 3 EMD SD60-2 EMD SD40-2 EMD SD70 Restructured Fleet 22 Locomotives 3 Models - 6 EMD GP38-7 GE B39-9 GE B40 18

19 Strategy Targets Total Capital Investment No Distinction Between Acquisition and Organic Investment Category Investment Type Examples Existing Operations Equipment, infrastructure upgrade, real estate to grow existing operations US: Track upgrades; new equipment Canada: Wagon investments UK: Loco shop; port terminal expansion Australia: Coal wagons 19

20 Business Update 20

21 Q Results Versus Q Increase in Adjusted Diluted EPS Attributable to G&W (a) primarily related to strong growth in North America and U.S. tax reform (in thousands, except per share amounts) Q Actual Q Actual Variance % Diluted EPS Attributable to G&W $ 1.16 $ 0.80 $ % Adjusted Diluted EPS Attributable to G&W (a) $ 1.23 $ 0.81 $ % Diluted Shares 60,131 62,477 2,346 Adjusted Diluted Variance ($ per share) Comments North America $ 0.25 Freight revenue growth; strong incremental margins Australia (0.01) Customer mine shutdown Q4 2017; stronger coal U.K./Europe - Ongoing Operations 0.03 Stronger intermodal pricing; optimization program ERS (Sold June 2018) (0.05) Q included large 1x items Other 0.20 U.S. tax reform (+$0.16); share repurchase (+$0.03) Total $ 0.42 EPS (a) (a) Adjusted Diluted EPS Attributable to G&W is a non-gaap financial measure. Reconciliations of non-gaap financial measures accompany this presentation. 21

22 Update by Geography North America 1. Strong traffic growth in Q Increases in 12 of 14 commodity groups Expect slower but positive growth in Q Adverse impact of Hurricane Michael in Q Wind damage to rail facilities and extensive tree removal Significant damage to customer facilities delaying shipments Insurance deductible to be reached in Q4, with business interruption recovery in Two expiring short line leases in Canada (GEXR and SOR) in Q Financial impact will be positive adding approximately US$6 million of annual operating income due to full amortization of assets Annual carloads to be approximately 27,000 lower without GEXR and SOR 4. U.S. Short Line Tax Credit extension to be pursued in lame duck session of Congress 5. Uncertain impact of Class I Precision Scheduled Railroading Long term benefit of fluid rail network, but may be interchange disruptions to short lines 22

23 Update by Geography (cont.) Australia 1. Coal shipment disruptions in Q and coal shipment delays in Q will spill into New train set now operating in New South Wales, with another train set delivery scheduled in Q Strong operating performance creating path to win additional new business U.K./Europe 1. Same railroad adjusted operating income (a) in Q increased US$2 million, roughly 35% higher than Q Behind Q3 plan but good improvements 2. Optimization Plan progressing well Management streamlining and consolidation of support functions Technology investments for further cost efficiencies Return of remaining excess equipment now less likely due to strong commercial demand (if redeployed would avoid a charge of ~US$21 million) 3. Hiring and training of new U.K. locomotive drivers top priority for new and existing business (a) Adjusted Operating Income is a non-gaap financial measure. Reconciliations of non-gaap financial measures accompany this presentation. 23

24 Update by Geography (cont.) Corporate 1. Evaluating investments in multiple geographies including our own shares 2. Completed $300 million share repurchase program in October (avg. price of $76.70) 3. G&W Board approved an additional $500 million share repurchase plan 4. Opportunistic execution to be based on intrinsic value of shares; other investment opportunities; leverage profile and overall business conditions 24

25 Class I Implementation of Precision Scheduled Railroading (PSR) 1. Long Term Benefits Improved reliability and predictability of service Increased capacity of more fluid rail network 2. Potential Near Term Implementation Challenges Possible expense increases: - Changes to interchange agreements and schedules - Consolidated and larger trains Short-term lost revenue from capacity constraints during implementation 3. Recent G&W Experience: Q3/Q CSX PSR Implementation: Estimated Lost revenue: ~$1.0 million (assume 50% incremental margins) Estimated Lost EBIT: ~$1.0 million, including lost revenue and higher expenses Estimated EPS Impact (2H 2017): ~$ Update: More consistent and reliable service yielding increased traffic volumes today 25

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27 Same Railroad Carloads General Business Update: 2018 North American Volume Outlook % of Mix % Change Comments Current View Ag Products 12% (1%) (Drought & Barge Competition) Coal & Coke 15% 15% Weather-Dependent Industrial 34% 5% Metals; Minerals & Stone; Industrial Chemicals Consumer 29% 5% Truck-Competitive Commodities Energy Related 6% 4% Ethanol & LPGs (Modal Competition) Other 4% 4% Overhead and Class I Revenue Empties Total Carloads 100% 6% ~

28 Reconciliation of Non-GAAP Financial Measures 28

29 Non-GAAP Financial Measures This presentation contains references to Adjusted Net Income Attributable to G&W, Adjusted Free Cash and Adjusted Free Cash Flow Conversion, Adjusted Diluted Earnings Per Shares (EPS) Attributable to G&W and Adjusted Operating Income, which are non-gaap financial measures as this term is defined in Item 10(e) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 and Regulation G under the Securities Exchange Act of In accordance with these rules, G&W has reconciled these non-gaap financial measures to their most directly comparable U.S. GAAP measures. Management views these non-gaap financial measures as important measures of G&W s operating performance, or in the case of the Adjusted Free Cash Flow, an important financial measure of how well G&W is managing its assets and a useful indicator of cash flow that may be available for discretionary use by G&W. Key limitations of the Adjusted Free Cash Flow include the assumption that G&W will be able to refinance its existing debt when it matures and meet other cash flow obligations from financing activities, such as principal payments on debt. Management also views these non- GAAP financial measures as a way to assess comparability between periods. These non-gaap financial measures are not intended to represent, and should not be considered more meaningful than, or as an alternative to, their most directly comparable GAAP measures. These non-gaap financial measures may be different from similarly-titled non-gaap financial measures used by other companies. The following tables set forth reconciliations of each of these non-gaap financial measures to their most directly comparable GAAP measure (in millions, except percentages and per share amounts). 29

30 Adjusted Net Income Attributable to G&W Income Before Twelve Months Ended December 31, 2018 Guidance Income Taxes (Pre-Tax Income) Provision for Income Taxes Net Income Attributable to G&W As reported $ $ 62.2 $ Adjusted for: Restructuring and related costs Credit facility refinancing-related costs Loss on sale of ERS Corporate development and related costs Gain on settlement (7.3) (2.2) (2.6) 2017 Short Line Tax Credit (31.6) Prior period tax adjustment - (3.7) 3.7 TCJA measurement period adjustment - (1.6) 1.6 As adjusted $ $ 89.6 $

31 Adjusted Net Income Attributable to G&W Income Before Twelve Months Ended December 31, 2017 Income Taxes (Pre-Tax Income) Provision for Income Taxes Net Income Attributable to G&W As reported $ $ $ Adjusted for: Corporate development and related costs 11.9 (4.3) 8.1 Restructuring costs 10.2 (1.0) 9.0 Australia impairment and related costs 4.9 (1.5) 1.8 Buyout of Freightliner deferred consideration agreements (8.9) - (8.9) Gain on sale of investment (1.6) 0.7 (1.0) U.K. coal restructuring and related charges (1.1) 0.2 (0.9) Recognition of unrecognized tax benefits - (3.3) (3.3) Impact of United States Tax Cuts & Jobs Act - (371.9) (371.9) As adjusted $ $ (119.8) $

32 Adjusted Free Cash Flow and Adjusted Free Cash Flow Conversion Twelve Months Ended December 31, Guidance Net cash provided by operating activities $ 479 $ 550 Allocation of adjusted cash flow to noncontrolling interest (a) (28) (15) Adjusted net cash provided by operating activities attributable to G&W Purchase of property and equipment, net (201) (260) Adjusted free cash flow attributable to G&W $ 250 $ 275 Adjusted net income attributable to G&W $ 182 $ 228 Adjusted free cash flow conversion (b) 137% 121% (a) (b) Allocation of adjusted cash flow to noncontrolling interest (MIRA's 48.9% equity ownership of GWA since December 1, 2016) is calculated as 48.9% of cash flow provided by operating activities of G&W s Australian Operations, less net purchases of property and equipment of G&W s Australian Operations. The timing and amount of actual distributions, if any, from GWA to G&W and MIRA made in any given period will vary and could differ materially from the amounts presented. There were no such distributions made for the twelve months ended December 31, There were A$40.0 million of such distributions made for the nine months ended September 30, 2018, of which A$20.4 million( or $15.6 million at the exchange rate on the date paid) and A$19.6 million (or $14.9 million at the exchange rate on the date paid) was distributed to G&W and MIRA, respectively. G&W expressly disclaims any direct correlation between the allocation of adjusted cash flow to noncontrolling interest and actual distributions made in any given period. Adjusted free cash flow conversion is calculated as Adjusted free cash flow attributable to G&W divided by Adjusted net income attributable to G&W. 32

33 Adjusted Diluted EPS Three Months Ended September, 2018 Income Before Income Taxes (Pre-Tax Income) Benefit from/ (Provision for) Income Taxes Net Income Attributable to G&W Diluted EPS As reported $ $ (31.0) $ 69.6 $ 1.16 Adjusted for: Corporate development and related costs 0.3 (0.1) Restructuring and related costs 3.3 (0.6) Gain on settlement (0.9) 0.3 (0.3) (0.01) TCJA measurement period adjustment As adjusted $ $ (29.8) $ 73.8 $ 1.23 Weighted average shares - diluted

34 Adjusted Diluted EPS (cont.) Three Months Ended September 30, 2017 Income Before Income Taxes (Pre-Tax Income) Benefit from/ (Provision for) Income Taxes Net Income Attributable to G&W Diluted EPS As reported $ 83.9 $ (30.5) $ 50.2 $ 0.80 Adjusted for: Corporate development and related costs 1.7 (0.8) Restructuring costs 2.6 (0.4) Recognition of unrecognized tax benefits - (3.3) (3.3) (0.05) As adjusted $ 88.3 $ (35.0) $ 50.6 $ 0.81 Weighted average shares - diluted

35 Adjusted Operating Income U.K./Europe Three Months Ended September 30, 2018 Total Operations Operating revenues $ Operating expenses Operating income (a) $ 4.6 Operating expenses $ Corporate development and related costs (0.2) Restructuring and related costs (3.3) Gain on settlement - Adjusted operating expenses $ Adjusted operating income $ 8.1 (a) Operating income is calculated as operating revenues less operating expenses. 35

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37 Adjusted Operating Income U.K./Europe Three Months Ended September 30, 2017 Total Operations Divested ERS Operations Ongoing/Same Railroad Operations Operating revenues $ $ 13.9 $ Operating expenses Operating income (a) $ 5.4 $ 2.6 $ 2.8 Operating expenses $ $ 11.3 $ Corporate development and related costs (1.6) - (1.6) Restructuring costs (2.3) (0.7) (1.6) Adjusted operating expenses $ $ 10.6 $ Adjusted operating income $ 9.3 $ 3.3 $ 6.0 (a) Operating income is calculated as operating revenues less operating expenses. 37