FUELING INNOVATION PROPRIETARY INFORMATION 2018 WOODWARD, INC.

Transcription

1 FUELING INNOVATION 1

2 CAUTIONARY 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 our expectations related to the performance of our segments, our plans and expectations regarding our recent acquisition of L Orange, including its expected effects on our business and financial results, our expectations regarding the effects of the changes in the U.S. tax legislation on our effective tax rate, our future sales, earnings, earnings per share, liquidity, tax rate, and relative profitability, and expectations regarding our markets. 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 our customers business, or our business with, or financial distress of, Woodward s significant customers; global economic uncertainty and instability in the financial markets; Woodward s ability to manage product liability claims, product recalls or other liabilities associated with the products and services that Woodward provides; 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 any restructuring and alignment efforts; Woodward s ability to successfully manage competitive factors, including prices, promotional incentives, competitor product development, 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 to perform contractual obligations and its suppliers to provide Woodward with materials of sufficient quality or quantity required to meet Woodward s production needs at favorable prices or at all; Woodward s ability to monitor its technological expertise and the success of, and/or costs associated with, its product development activities; consolidation in the aerospace market and our participation in a strategic joint venture with General Electric Company may make it more difficult to secure long-term sales in certain aerospace markets; Woodward s debt obligations, debt service requirements, and ability to operate its business, pursue its business strategies and incur additional debt in light of covenants contained in its outstanding debt agreements; Woodward s ability to manage additional tax expense and exposures; risks related to Woodward s U.S. Government contracting activities, including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities; the potential of a significant reduction in defense sales due to decreases in the amount of U.S. Federal defense spending or other specific budget cuts impacting defense programs in which Woodward participates; changes in government spending patterns, priorities, subsidy programs and/or regulatory requirements; future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets; future results of Woodward s subsidiaries; environmental liabilities related to manufacturing activities and/or real estate acquisitions; Woodward s continued access to a stable workforce and favorable labor relations with its employees; 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; changes in accounting standards that could adversely impact our profitability or financial position; risks related to Woodward s common stock, including changes in prices and trading volumes; impacts of tariff regulations; 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; industry risks, including increases in natural gas prices, unforeseen events that may reduce commercial aviation and increasing emissions standards; any adverse effects on Woodward s operations due to information systems interruptions or intrusions; risks associated with integrating the L Orange business, including diversion of management time and attention, inability to meet our expectations, unexpected liabilities, loss of employees and difficulties integrating and retaining customers, suppliers and partners; certain provisions of Woodward s charter documents and Delaware law that could discourage or prevent others from acquiring the company; and other risk factors described in Woodward's Annual Report on Form 10-K for the year ended September 30,

3 WOODWARD OVERVIEW

4 WOODWARD 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 operations in 16 countries Approximately 8,300 members ALWAYS INNOVATING FOR A BETTER FUTURE 4

5 SUSTAINABLE TSR* GROWTH * Total Shareholder Return 5

6 COMPELLING STRATEGY Leader in niche markets Partner with industry leaders Indispensable to our customers Disciplined capital deployment 6

7 COMPELLING STRATEGY LEADER IN NICHE MARKETS 7

8 PARTNER WITH INDUSTRY LEADERS $2.3 Billion FY2018 Sales 8

9 COMPELLING STRATEGY INDISPENSABLE TO OUR CUSTOMERS Our goal is to be Indispensable to our customers through Close collaboration Creative systems solutions Innovative state of the art technology World-class operational excellence 9

10 COMPELLING STRATEGY DISCIPLINED CAPITAL DEPLOYMENT 50% of net earnings to shareholders Dividends Share repurchases Balance to Grow the core Strengthen the core Expand into adjacencies Inorganic growth opportunities Good long-term markets & fundamentals in both aerospace and industrial RETURNED TO SHAREHOLDERS FY Dividends Share Repurchases Returned ~$630M to shareholders 10

11 L ORANGE ACQUISITION Leader in fuel injection technology for industrial applications Enhances global customer base and strategic relationships Large installed base supporting profitable aftermarket business Significant synergy opportunities Integration on track 11

12 ATTRACTIVE MARKETS POSITIVE GROWTH DRIVERS Global infrastructure Transportation of goods and people Power generation and control Energy extraction and distribution Emission reductions Tightening global regulations Shift to cleaner fuels High performance Energy/Fuel efficiency Harsh conditions Consistent, safe operation 12

13 COMPETITIVE ADVANTAGES World-class technology Leveraged across company Partnering with market leaders High barriers to entry Certifications FAA, emissions Significant investment Pedigree/field experience Complex solutions customer value Highly integrated Operational excellence Sole source positions Industry Leading Controls Technology 13

14 OPERATIONAL EXCELLENCE DRIVING SHAREHOLDER VALUE Perfect Safety Perfect Quality Perfect Delivery Productivity Lean Principles Culture of Quality Significant Initiatives Driving Improved Margins and Working Capital 14

15 TRUE NORTH Delivers on Narrowbody ramp up Industrial recovery Enhances Margin improvement Cash generation and ROIC Shareholder value 15

16 SUPERIOR CASH GENERATION Generating significant cash flow Free Cash Flow (in Billions) $2.0 Target ~$2 billion $1.3 - $1.5 Disciplined capital deployment $ E E 16

17 NEAR TERM EXECUTION LONG TERM FOCUS Woodward value model solid Always innovating for a better future Winning with industry leaders Expanding capabilities Gaining share Favorable growth dynamics Strong demand for fuel efficiency and lower emissions Globalization of natural gas Improving operating performance Cash focused Disciplined capital deployment 17

18 FINANCIALS

19 FY2018 FINANCIAL HIGHLIGHTS Sales - $2.3 billion Up 11% from $2.1 billion Adjusted EPS 1 $3.85 per diluted share Up 22% from $3.16 Free cash flow 1 of $172 million Down from $215 million Capital expenditures of $127 million Up from $92 million 19

20 SALES AND EARNINGS $ in millions Aerospace Sales Total Sales Industrial Sales Adjusted Earnings per Share $ $2.45 $2.75 $2.85 $3.16 1,084 1,161 1,233 1,342 1, CAGR 3.7% CAGR 12.9% 20

21 MARGIN IMPROVEMENT Aerospace continued strength Heavy OEM ramp & share gains Aftermarket + initial provisioning Defense Industrial return to growth Enhanced opportunities with L Orange Sales volume leverage Leaner through prior restructuring Woodward True North operational excellence Segment Margins 19.4% 20% 14% 10.7% Aerospace Industrial FY2018 FY2019E * * Adjusted Industrial segment margin 1 21

22 CAPITAL EXPENDITURES Major facilities complete Sufficient capacity for longterm Utilization ramping Addition of L Orange $ in millions $300 $250 $200 $150 $100 Capital Expenditures Positive future FCF impact $50 $0 Equip & Maint Facilities 22

23 STRONG BALANCE SHEET $ in millions Debt and EBITDA 1 Debt-to-EBITDA Leverage 1, ,200 1, EBITDA Debt Adj Adj 2018 Target ~2.0x at Sept 30,

24 RETURN ON INVESTED CAPITAL Investment cycle Return cycle Adjusted ROIC 15.0% L Orange acquisition in FY18 9.6% Free cash flow reducing debt 2018 Target 24

25 TOTAL SHAREHOLDER RETURN Attractive markets Margin expansion Cash flow accelerating Sound capital deployment $47.62 WWD Share Price (Fiscal Year End) $40.70 $62.48 $77.61 $80.86 TSR 5 Year CAGR = 15%

26 FY2019 OUTLOOK Revenue Between $2.65 and $2.75 billion Adjusted Earnings per Share $4.40-$4.70 Effective tax rate ~21% $3.16 $3.85 Adjusted earnings per diluted share $2.10 $2.45 $2.75 $2.85 Between $4.40 and $4.70 Free cash flow ~$300M

27 WHERE WE ARE GOING OUTLOOK Revenue growth ~8% CAGR Organic and M&A opportunities Margin expansion Aerospace 20%+ Industrial 16%+ Free Cash Flow (in Billions) $1.3 - $1.5 $2.0 Superior cash generation Free cash flow ~$2 billion Conversion target 100% $ E E 27

28 INDUSTRIAL

29 STRONG INDUSTRY DRIVERS 29

30 PARTNER WITH INDUSTRY LEADERS 12% 26% 62% 30

31 INDUSTRIAL SALES BY END MARKET $768 Million FY2018 Sales 31

32 WHAT WE DO INDUSTRIAL Flow control Motion control Combustion control Electrical Engine Turbine RPS Air valve Ignition Flow control valve Distributed control Integrated control Distributed energy control EGR module Engine control Fuel valve Fuel pump Fuel injector Actuation Drivers Centralized control Actuation Gas valve Flow control valve Switchgear control MW class converters 32

33 WHERE WE PLAY GAS ENGINES Size Transportation Oil & Gas Power Generation 100 MW Utility plant Process plant & pipeline compression Distributed power 10 MW Compressor Industrial power Industrial compressor Commercial < 100 KW Industrial pump Residential / back-up 33

34 WHERE WE PLAY DIESEL ENGINES Size Transportation Oil & Gas Power Generation 100 MW Utility plant Distributed power 10 MW Fracking/drilling Industrial power Compressor Data center/commercial <100 KW Pump Back-up 34

35 WHERE WE PLAY TURBINES* Size Transportation Oil & Gas Power Generation 500+ MW Compressor train Utility steam turbine 100MW Compressor package Utility gas turbine Compressor Peaker gas turbine 1MW Pump Renewables *Includes gas, steam and wind turbines, and compressors 35

36 GLOBAL ENERGY PROJECTIONS FAVORABLE TO WWD Fossil fuels (Liquids, coal & natural gas) projected to remain largest energy source Quadrillion BTUs History petroleum and other liquids coal Projection 150 Petroleum & liquids, natural gas and renewables fastest growing energy sources natural gas 100 renewables 50 nuclear Source: EIA, International Energy Outlook

37 GLOBAL ENERGY PROJECTIONS quadrillion BTUs Source: Exxon Mobil 2018, Outlook for Energy We play across all energy sources largest in gas and oil (red and green) LOR plays in diesel (green) great acquisition Global energy demand increasing fossil fuel usage increasing 37

38 GAS TURBINES BOTTOMING Woodward orders have stabilized Significant content gains on new and updated GE and MHI turbines Growing market share in small industrial gas turbine market with focus on oil and gas 38

39 POWER DEMAND OF DATA CENTERS Global data centers expected to grow rapidly New concept kwh/gigabyte Most data centers require multiple external power feeds, plus onsite generation Favorable impact on WWD diesel and natural gas product portfolios Source; Nature, Sep

40 ELECTRIC VEHICLES (EV) Natural Gas Transportation Diesel Size 100 MW Not EV market 10 MW < 100 KW EV range WWD does not play in these markets EV passenger transportation Light duty, short distances Urban vehicles and small buses 40

41 OIL AND GAS MARKET Oil demand to stay strong Global supply rose to 100 million bpd in Q3 Additional demand driven by developing world Pricing outlook expected to see some volatility into 2019 What is driving the market? Expanding investments in oil & gas exploration Projected increase in global oil & gas capital expenditures mainly driven by North America 41

42 OIL AND GAS CONTENT ACROSS VALUE CHAIN Exploration On shore / off shore Production On shore / off shore Processing & refining Distribution Liquefaction Regasification Compression 42

43 MARINE RECOVERING Global economic activity driving increased commerce and freight Higher utilization of existing fleet LNG becoming global commodity Increased number of LNG tankers and terminals IMO 2020 new global emissions rules Boosts LNG as shipping fuel Drives demand for complex fuel injection systems Marine GHG reduction 50% by

44 L ORANGE INTEGRATION ON TRACK FY19 accretion $0.35 FY19 growth 4-8% Cost synergies Sales synergies 44

45 WWD & L ORANGE END MARKETS Industrial Industrial Pro Forma Transportation Power Generation Oil & Gas 45

46 L ORANGE SYNERGIES SALES SYNERGIES Expanded opportunities as an independent fuel system supplier OEM customer base and geography leverage Aftermarket channel leverage Complementary product offerings COST SYNERGIES ~$20 MILLION* Productivity Supply Chain Infrastructure *Estimated annual savings by fiscal year

47 CHINA PROTECT THE BLUE SKY Truck and bus market Move to natural gas and EV Diesel vs. gas spread still favorable for gas Nat gas proportion of truck production significantly increasing Infrastructure investment securing natural gas supply Diesel and gas engine regulations to be implemented in major cities Regulatory environment favorable for WWD natural gas fuel systems Thousands of Engines 1, China Engine Production 7L+ Market Share of Natural Gas Engines Natural Gas Market Share Diesel High end of range Low end of range Natural Gas Market Share Natural Gas 35% 30% 25% 20% 15% 10% 5% 0% 47

48 CHINA VI Supports Protect the Blue Sky initiative Driving increased demand for complex fuel systems for natural gas and diesel engines Drives more WWD content Implementation target July 2019 Regulatory environment favorable for WWD diesel and natural gas fuel systems 48

49 INSTALLED BASE LARGE AND GROWING Optimizing entitlement level Partnering with OEMs Focus on upgrades, reman, repair & overhaul operations Digital and e-commerce FY19 launch System and component upgrades Creating end user pull 49

50 FY2019 INDUSTRIAL OUTLOOK Sales Up ~30% Up ~6% organic Engine markets recovering Gas and wind turbine bottoming Adjusted Margins ~14% Higher volume $ in millions Industrial Sales Adjusted Industrial Margins 14.4% 14% 10.7% 10.4% 10.4% E 50

51 AEROSPACE

52 AEROSPACE SALES $1.6B FY

53 STRONG MARKETS Commercial Strong backlogs and deliveries MAX and neo production ramping Increasing passenger traffic High load factors Parked fleet decreasing Defense US DoD budget favorable Growing international demand Global instability remains Business and General Aviation (BGA) Utilization increasing New platforms launching 53

54 WHAT WE DO AEROSPACE Flow control Motion control Combustion control Integrated Propulsion Systems Flight Deck Controls Aircraft Actuation Air valve Rudder trim actuator Door actuator Main fuel pump Side stick Actuator TRAS Throttle quadrant Pedals APU door motor Fuel metering unit Flap lever Autobrake Flap EMA Fuel nozzle Oil management 54

55 GROWTH THROUGH SHARE GAINS Single Aisle Deliveries CFM LEAP Estimated Deliveries 737 A MAX A320neo Boeing 737 MAX Source: Bernstein, WWD estimates 55

56 ENGINE CONTENT NARROWBODY Geared Turbofan (GTF) Content 56

57 AIRFRAME CONTENT NARROWBODY Boeing 737 MAX Airbus A320neo 57

58 KEY CONTENT NARROWBODY 737NG ~$125, MAX ~$275,000 A320 ~$80,000 A320neo ~$230,000 2 CRJ ~$110,000 CSeries ~$240,000 EJet ~$165,000 1 EJets E2 ~$185,000 Content may vary based on options selected 1 Representative of delivery profile 70-seat and 90-seat 2 Content does not include thrust reverser actuation system for new nacelle version 58

59 ENGINE CONTENT WIDEBODY 59

60 AIRFRAME CONTENT WIDEBODY Boeing 777X Airbus A330neo 60

61 KEY CONTENT WIDEBODY 767 ~$25, ~$210, ~$800,000 A350 ~$46,000 A330 ~$40,000 A330neo ~$200, ~$285, X ~$430,000 3 Content may vary based on options selected 1 GP7200 engine option 2 GEnx engine option 3 Estimated content A380 ~$360,

62 COMMERCIAL AFTERMARKET TRENDS Legacy programs (A320, 737, 777) dominate MRO activity Favorable shop visits Increased impact from new narrowbody programs Initial provisioning sales MRO cycles post 2022 Traffic growth, in-service aircraft Driving MRO 62

63 INSTALLED BASE LARGE AND GROWING 80% of Woodward commercial programs in Growth mode Accelerating WWD fleet growth Production > retirements Significant IP sales WWD Components In Commercial Service +50% +150% Market share gains Higher LRUs in service increased MRO E Source: company estimates 63

64 DEFENSE MARKET TRENDS DoD budget rising Fleet readiness improvement driving upgrades Ongoing conflicts driving increased activity and foreign military sales 64

65 DEFENSE Increased content on new platforms F-35 Joint Strike Fighter KC-46A tanker F-35 KC-46A Leader in guided weapon actuation Well represented across major platforms Fixed wing and rotorcraft MRO and upgrade programs F/A-18 Blackhawk Apache F-15 65

66 KEY CONTENT DEFENSE F-16 ~$125,000 F-35 ~$300,000 F/A-18 ~$335,000 Black Hawk ~$55,000 V-22 ~$645,000 Apache ~$145,000 KC-46 Tanker ~$545,000 Content may vary based on options selected 66

67 BUSINESS & GENERAL AVIATION Tax legislation changes lifting market New platform deliveries to drive growth Utilization improving Used inventory/pricing improving Platform and content increases Flight deck controls Engine fuel systems Bombardier Global 7000 Gulfstream G500 Cessna Latitude 67

68 KEY CONTENT BUSINESS JETS Global Express ~$230,000 Global 7000/8000 ~$365,000 G550 ~$185,000 G500/G600 ~$180,000 G650 ~$210,000 HondaJet ~$90,000 Content may vary based on options selected 68

69 SECURING WINS ON NEXT GEN PLATFORMS Military aircraft Boeing 777X Rotorcraft Turboprops NMA 69

70 FY2019 AEROSPACE OUTLOOK Sales Up ~10% Narrowbody programs ramping Strong defense Commercial A/M up single digits Margin ~20% OEM volumes increase Strong aftermarket and defense $ in billions Aerospace Sales Aerospace Margins 18.8% 19.2% 19.4% 20.0% 16.2% E 70

71 APPENDIX 71

72 NON-U.S. GAAP MEASURES YTD FY 18 YTD FY 17 YTD FY16 YTD FY15 YTD FY14 YTD FY13 YTD FY12 YTD FY11 (mils) (mils) (mils) (mils) (mils) (mils) (mils) (mils) Net Earnings $ $ $ $ $ $ $ $ Income Taxes Interest Expense Interest Income (1.7) (1.7) (2.0) (0.8) (0.3) (0.3) (0.5) (0.5) EBIT Amortization of Intangibles Depreciation Expense EBITDA as reported $ $ $ $ $ $ $ $ Restructuring and other charges EBITDA as adjusted $ $ $ $ $ $ $ $ YTD FY 18 (mils) Industrial Segment Sales $ Industrial Segment Earnings 47.9 Purchase accounting impacts 34.4 Adjusted Industrial Segment Earnings $ 82.3 Adjusted Industrial Segment Margin 10.7% Net Earnings Per Share $ 2.82 Non-U.S. GAAP Adjustments YTD FY 18 Restructuring charges, net of tax 0.20 Other charges, net of tax* 0.66 Non-U.S. GAAP adjustments 0.86 Transition impact of recent changes to U.S. tax law 0.17 Total non-u.s. GAAP adjustments 1.03 Adjusted net earnings per share $ 3.85 * Includes Duarte move-related costs, the purchase accounting impacts related to inventory step-up and backlog in connection with our L'Orange acquisition, and M&A transaction and integration costs. 1 Non-US GAAP Measures: EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization) and free cash flow (cash from operations less capital expenditures) are non-us GAAP financial measures. Adjusted and Non-U.S. GAAP Financial Measures: Adjusted net earnings, adjusted earnings per share, adjusted EBIT and EBITDA, adjusted effective tax rate, adjusted Industrial segment margins, and adjusted nonsegment expenses exclude, as applicable, (i) restructuring charges, (ii) move costs associated with the relocation of our Duarte, California operations to the Company s newly renovated Drake Campus in Fort Collins, Colorado ( Duarte move related costs ), (iii) L Orange M&A transaction and integration costs and (iv) the transition impacts of the change in U.S. federal tax legislation. Organic financial measures excludes all impacts related to the anticipated L Orange acquisition. EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization), and free cash flow are financial measures not prepared and presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). 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 EBIT, EBITDA and free cash flow in their evaluation of companies. 72