Lincoln Electric Holdings, Inc. Overview

Transcription

1 Lincoln Electric Holdings, Inc. Overview Robert W. Baird s Global Industrials Conference November 8, 2017 Christopher L. Mapes Chairman, President & Chief Executive Officer Vincent K. Petrella Executive Vice President & Chief Financial Officer

2 Safe Harbor and Regulation G Disclosures Forward-Looking Statements: Statements made during this presentation which are not historical facts may be considered forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied. Forward-looking statements generally can be identified by the use of words such as may, will, expect, intend, estimate, anticipate, believe, forecast, guidance or words of similar meaning. These risks include our ability to successfully integrate Air Liquide Welding; our ability to achieve the expected growth and efficiencies from the Air Liquide Welding acquisition, accretion and generate generally attractive return on capital, within the expected time frame or at all. For further information concerning issues that could materially affect financial performance related to forward-looking statements, please refer to Lincoln Electric s quarterly earnings releases and periodic filings with the Securities and Exchange Commission, which can be found on or on 2 Non-GAAP Measures: Our management uses non-gaap financial measures in assessing and evaluating the Company s performance, which exclude items we consider unusual or special items. We believe the use of such financial measures and information may be useful to investors. Non-GAAP financial measures should be read in conjunction with the GAAP financial measures, as non-gaap measures are a supplement to, and not a replacement for, GAAP financial measures. Please refer to the attached schedule for a reconciliation of non-gaap financial measures to the related GAAP financial measures.

3 A Pioneer with Market-Leading Technology A global manufacturer and market leader with over 120 years of expertise. Distinguished by an unwavering commitment to customers, employees and shareholders. CONSUMABLE (filler metals) EQUIPMENT AUTOMATION FUME CONTROL CUTTING ACCESSORIES Founded in 1895 $2.3B in revenue in 2016 Market cap of ~$6.0B Nasdaq Listed: LECO HQ in Cleveland, Ohio, U.S.A. 63 manufacturing facilities in 23 countries Distribution to over 160 countries 11,000 employees worldwide 3

4 Lincoln Electric Investment Highlights Leader in complete solutions and application expertise Track record of expanding margins in a down cycle Predictable model enables higher dividend payout Solid cash returnsto shareholders (share repurchases + dividends) Disciplined capital deployment delivers top quartile returns #1 Global Provider of Solutions ~15% Adjusted Operating Income Margin 1 12% CAGR $429 Million in % 3-Year Average ROIC Adjusted operating income margin excludes special items. Please refer to the appendix for definitions and reconciliations of non-gaap financial measures.

5 Diversified Products and Reach Net Sales by Product Area 1 Net Sales by Segment 1 Consumables (filler metals) 57% Equipment 43% Americas Welding 56% 34% 10% International Welding Harris Products Group 5 1 Reflects FY2016 pro forma revenue mix of Lincoln Electric and Air Liquide Welding

6 Leading Provider Across Diverse End Markets $20B Global Arc Welding, Brazing & Cutting Industry Market Share Estimates 1 Lincoln Electric Revenue Mix by End Market Sector 2 LECO 10% Construction & Infrastructure Others Colfax 17% Automotive & Transportation 33% General Fabrication Kemppi Hyundai OTC Hypertherm Atlantic Fronius Panasonic Bohler ITW Big Bridge Kobelco Golden Bridge 18% Heavy Industries 3 22% Energy & Process Industries LECO is one of only three global providers to offer a complete solution 6 1 Amounts based on Company estimates of the 2015 market and includes sales of equity affiliates 2 Reflects FY2015 pro forma revenue mix estimates from Lincoln Electric and Air Liquide Welding 3 Heavy Industries includes heavy fabrication, ship building and maintenance & repair

7 Innovation & Application Expertise Differentiates LECO 70% smaller and 85% lighter 1920s Motor generatorbased equipment Stick electrodes s Transformer-based equipment Wire & stick-based filler metals Inverter-based equipment (digital) Proprietary wave form technologies Broader-range of filler metals & alloys Automated and semi-automated solutions Highly engineered solutions for unique applications Digital interfaces for repeatability, speed & ease-of-use Laser welding, cutting and cladding solutions Internet-based productivity and quality tools Expanded alloys and aluminum filler metals Virtual reality training and sales tools

8 Innovation Drives Growth ($ millions) $50 $40 $30 $20 $10 $- R&D Investment 1.6% 1.4% 1.3% 1.1% 1.2% 1.1% $26 $27 $28 $29 $33 $37 1.5% 1.5% 1.9% 2.0% $42 $43 $47 $ R&D Spend % of Sales 2.0% 1.5% 1.0% 0.5% 0.0% Solid Vitality Index 1 ~34% of 2016 consolidated sales from new products ~39% of 2016 equipment sales from new products CrossLinc TM Technology for Equipment Quality: Enables remote operator control of weld settings from a distance to meet weld specifications Safety: Improves safety with fewer cables and unnecessary jobsite movements Productivity: Faster system set-up, improved uptime and reduced rework Galvanized Steel Solution Process Z new custom wire & waveform for welding zinc-coated steels Stringent automotive requirements driving demand for zinc-coated steels Delivers up to 85% lower porosity levels and higher productivity vs. alternatives 8 1 Vitality Index reflects percent of product sales from new products in the legacy Lincoln Electric business. New products are defined as solutions launched within the last five years and excludes customized automation sales.

9 2020 Strategy Targets Best-in-Class Financial Performance Nine Months 2017 Result 2009 to 2016 Performance 2020 Goal ( ) Sales Growth (ex-fx & Venezuela) 10.2% 2 6% CAGR 10% CAGR Adjusted Operating Income Margin % 2 Average 12.4%; 14% to 15% margin Average 15.0% performance during recent down cycle ROIC % Average 16.7% Average 15.0% Operating Working Capital Ratio 20.5% basis point improvement 15.0% 1 Please refer to the appendix for definitions and reconciliations of non-gaap financial measures. 2 Excluding the acquisition of Air Liquide Welding, results would be: Sales 6.2%; Operating margin 14.9%; Operating Working Capital 17.6% Reach Leverage Core + Adjacencies Diverse Sectors Operational Excellence Working capital initiatives Portfolio optimization Lean/Six Sigma programs BRICs Channels Salesforce Arc Welding Automation Alloys/ Aluminum Accessories Cutting Services Automotive Education Infrastructure Heavy Fabrication Energy General Fabrication

10 Disciplined M&A is Expanding Growth Opportunities Expanding the market size potential for future growth 1 $20 Billion $33 Billion Arc Welding, Brazing & Cutting + Surfacing + Automation 1 Based on company estimates $548 Million Cumulative M&A Investment Nine Months % 5.8% 4.9% Sales growth attributed to acquisitions (%) 3.0% 3.0% 3.2% 3.5% Average 1.5% 2.2% 2.0% 4.0% Nine Months

11 Attractive Synergies to be Achieved with the Air Liquide Welding Acquisition Anticipated Areas of Synergies Procurement Leverage scale to capitalize on procurement savings In-source where attractive Accretive to Adjusted EPS 1 st year after acquisition $0.03 Adj EPS per quarter; $0.12 Adj EPS annually Operations Adopt best practices across the platform Streamline to reduce excess capacity 2 nd year after acquisition $0.06 Adj EPS per quarter; $0.24 Adj EPS annually Commercial Corporate/G&A Leverage expanded channels and broader portfolio of solutions Optimize portfolio to richen mix Streamline to reduce redundancy Adopt best practices for organizational efficiency Leverage scale to achieve lower prices on 3 rd party services Streamline to reduce redundancy $30 million annual run rate of pre-tax operational synergies to be realized by 4 th Year 11

12 Solid Price Performance. Volumes Impacted by Macros. Components of Revenue Performance FX Acquisition Price Volume 19.7% 30.2% 2.6% 5.8% 8.7% 1.9% 3.0% 7.8% -3.9% -30.2% 3.0% -29.8% 5.3% 6.9% 0.4% 14.1% 14.8% 5.9% 0.0% -0.1% 1 4.9% 1.7% 3.2% 1.5% 1.3% 0.1% -2.7% -2.0% -0.6% Volume -0.1% Price -0.1% FX -2.6% -10.6% 1-7.6% 1 2.3% 2.1% -7.7% -7.8% -0.1% -0.7% -5.1% -1.3% 10.4% 1 0.3% 4.0% 2.2% 4.0% -0.5% -2.9% Nine Months Results in 2014, 2015, 2016, and 2017 exclude our Venezuela subsidiary due to hyperinflationary conditions in the country. The Venezuela subsidiary was deconsolidated June 30, 2016.

13 Focused on Higher Margin Opportunities and Operational Excellence Adjusted Operating Income Margin 1 vs. Net Sales $3, % 12.7% 13.1% 15.0% 15.1% 14.7% 14.2% 14.4% % 11.0% $2, % $1,711 $1, % 7.0% $1, % $- $2,281 $2,479 $1,729 $2,070 $2,695 $2,853 $2,853 $2,813 $2,536 $2, Nine Months 2017 Net Sales Adjusted Operating Income Margin 0.0% 13 1 Adjusted operating income margin excludes special items. Please refer to the appendix for a reconciliation of non-gaap financial measures. 2 Excluding the acquisition or Air Liquide Welding, legacy company adjusted operating income margin would have been 14.9%.

14 Cash Generation Solid and a Top Strategic Priority ($ in millions) 2.2% CAGR Cash Flow from Operations $327 $339 $402 $311 $ % Operating Working Capital to Net Sales Ratio % 23.2% 20.7% 21.0% 18.8% 790 bps reduction % 17.1% 17.1% 15.6% % $250 $257 $250 $240 $245 $194 $ Nine Mo's Q Operating working capital to net sales ratio is defined as operating working (AR plus Inventory less AP) divided by annualized rolling three months of sales. 2 Q Operating working capital to net sales ratio excluding the acquisition of ALW would have been 17.6%.

15 Solid Cash Flows Funding Growth and Shareholder Returns ($ in millions) Capital Allocation Acquisition Cap Ex Share Repurchase Dividend $342 $346 $477 $574 $551 $53 $201 $221 $135 $399 $76 $342 $203 $167 $307 $44 $66 $53 $108 $19 $72 $72 $61 $66 $168 $81 $25 $39 $42 $38 $40 $37 $23 $43 $45 $47 $52 $73 $49 1 $73 $87 $87 $ Nine Months 2017 $24 $73 $37 $51 $72 $ Q1/2013 dividend paid in Q4/2012

16 Predictable Model Enables a Growing Dividend Payout 12.5% CAGR Dividend History $1.16 $1.28 $1.40 $1.56 $0.54 $0.56 $0.62 $0.68 $0.80 $ e Targeting an Average 35% Pay Out of Adjusted Net Income Through the Cycle 16

17 Disciplined Capital Deployment Delivers Top Quartile Returns Return on Invested Capital % 19.3% 20.2% 22.9% 21.1% 16.8% 16.6% 16.6% % 10.6% 6.3% Q Please refer to the appendix for the definition and reconciliation of this non-gaap financial measure ROIC reflects the impact of $350 million of senior notes in October 2016.

18 Summary Positioned for Long Term Value Creation Top Market Position in Arc Welding Differentiated by comprehensive equipment and consumables Renowned Welding Experts with industry-leading engineers #1 Global Provider Innovative R&D and Pragmatic M&A Driving Growth Focused investments driving higher margins and returns ~34% of sales from new products M&A initiatives contributing to annual revenue growth Solid Execution Increasing Returns Operational excellence is optimizing the cost structure Working capital efficiency supporting cash flow generation Model driven by ROIC Predictable Model Accelerating Shareholder Returns Business model resilient through economic cycles Margin expansion in down cycle vs. 08 peak on 2020 Strategy Share repurchase spend up 322%+ over the past 5 years Driving Growth and Richening Mix Top Quartile ROIC $1.7B Returned to Shareholders

19 Appendix Amanda Butler Vice President, Investor Relations & Communications

20 Non-GAAP Financial Measures Adjusted operating income, Adjusted net income, Adjusted diluted earnings per share and Return on invested capital are non-gaap financial measures that management believes are important to investors to evaluate and compare the Company s financial performance from period to period. Management uses this information in assessing and evaluating the Company s underlying operating performance. Non-GAAP financial measures should be read in conjunction with the GAAP financial measures, as non-gaap measures are a supplement to, and not a replacement for, GAAP financial measures. ($ in thousands) Reconciliation of Operating Income and Operating Income Margin to Non-GAAP Adjusted Operating Income and Adjusted Operating Income Margin Period Ended December 31, Nine Mo s 17 Operating income: $277,632 $295,660 $93,233 $186,430 $296,680 $362,081 $406,985 $373,747 $181,700 $288,274 $302,198 Special items: Rationalization and asset impairment (188) 19,371 29,897 (384) 282 9,354 8,463 39,053 19, charges / (gains) (Gains) or losses on asset disposals Pension settlement loss (gain) - - (2,144) ,738-5,283 Venezuelan devaluation and deconsolidation ,123-1,381 12,198 21,133 27,214 34,348 - charges (gains) Acquisition transaction costs ,386 Amortization of step up in value of acquired inventories ,314 Bargain purchase gain (51,585) Adjusted operating income: $ 277,444 $ 315,031 $ 120,986 $ 189,169 $ 296,962 $ 372,816 $ 428,351 $ $371,610 $322,622 $269,596 Net sales $ 2,280,784 $ 2,479,131 $ 1,729,285 $ 2,070,172 $ 2,694,609 $ 2,853,367 $ 2,852,671 $ 2,813,324 $ 2,535,791 $2,274,614 $1,877,246 Op income margin 12.2% 11.9% 5.4% 9.0% 11.0% 12.7% 14.3% 13.3% 7.2% 12.7% 16.1% Adjusted operating income 20 margin: 12.2% 12.7% 7.0% 9.1% 11.0% 13.1% 15.0% 15.1% 14.7% 14.2% 14.4%

21 Non-GAAP Financial Measures: Return on Invested Capital 1 ($ in thousands) Period Ended December 31, Q3-17 Net income: $202,736 $212,286 $48,576 $130,244 $217,186 $257,411 $293,780 $254,686 $127,478 $198,399 $276,717 Special items (net of tax): Rationalization and asset impairment (107) 18,313 23,789 (894) 237 7,442 7,573 30,914 18, charges / (gains) (Gains) or losses on asset disposals - - (5,667) Loss associated with an acquisition - - 7, Loss on deconsolidation of Venezuela & , ,198 21,133 27,214 33,251 - devaluation charges Discrete tax items (5,092) (4,844) (7,196) - Pension settlement loss (gain) - - (2,144) ,310-3,260 Non-controlling interests , (1,068) (805) Acquisition transaction costs ,457 Amortization of step in value of acquired ,745 inventories Bargain purchase gain (51,585) Adj. Net income: $ 202,629 $ 230,599 $ 73,098 $ 129,600 $ 212,579 $ 265,759 $ 313,188 $ 305,928 $ 260,184 $ 224,454 $238,594 Plus: Interest expense (after-tax) 7,060 7,557 5,293 4,156 4,164 2,597 1,767 6,439 13,469 11,775 15,789 Less: Interest income (after-tax) 5,123 5,499 2,150 1,479 1,938 2, ,909 1,675 1,291 2,602 Adjusted net income before tax effected 204, ,657 76, , , , , , , , ,781 interest Invested Capital 2 1,219,371 1,152,203 1,209,392 1,247,183 1,296,620 1,378,596 1,549,775 1,356,435 1,287,073 1,417,799 1,652,867 ROIC 16.8% 20.2% 6.3% 10.6% 16.6% 19.3% 20.2% 22.9% 21.1% 16.6% 15.2% 21 1 Return on Invested Capital is defined as rolling 12 months of Adjusted Net Income excluding tax-effected interest income and expense divided by Invested Capital. 2 Invested Capital is defined as Total Debt plus Total Equity.

22 Non-GAAP Financial Measures Reconciliation of Diluted Earnings Per Common Share (EPS) to Non-GAAP Diluted Adjusted Net Earnings Per Common Share (Adjusted EPS) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Diluted EPS: $0.62 $0.81 $0.80 $0.23 $(0.04) $0.18 $0.15 $0.29 $0.28 $0.38 $0.38 $0.49 Special items: Rationalization and asset impairment charges / (gains) (0.04) Pension settlement gain (0.02) (Gains) or losses on asset disposals (0.07) Discrete tax item (0.06) Venezuela devaluation & deconsolidation charges Adjusted Diluted EPS: $0.62 $0.81 $0.80 $0.44 $0.05 $0.17 $0.32 $0.32 $0.28 $0.39 $0.39 $ Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Diluted EPS: $0.55 $0.68 $0.66 $0.68 $0.76 $0.79 $0.77 $0.74 $0.80 $0.87 $0.80 $1.07 Special items: Rationalization and asset impairment charges / (gains) Discrete tax item (0.06) Venezuela devaluation & deconsolidation charges Adjusted Diluted EPS: $0.49 $0.68 $0.66 $0.68 $0.76 $0.81 $0.80 $0.79 $0.92 $0.91 $0.86 $

23 Non-GAAP Financial Measures Reconciliation of Diluted Earnings Per Common Share (EPS) to Non-GAAP Diluted Adjusted Net Earnings Per Common Share (Adjusted EPS) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Diluted EPS: $0.69 $0.96 $0.57 $0.96 $0.89 $0.94 $(0.82) $0.68 $0.76 $0.45 $0.89 $0.81 Special items: Rationalization and asset impairment charges / (gains) Venezuela devaluation & deconsolidation charges Pension settlement loss Discrete tax item (0.10) - - Adjusted Diluted EPS: $0.91 $1.01 $0.94 $0.96 $0.89 $0.95 $0.89 $0.75 $0.76 $0.83 $0.89 $ Q1 Q2 Q3 Q Diluted EPS: $0.84 $0.92 $1.59 $0.68 Special items: Acquisition transaction and integration costs Bargain purchase gain - - (0.77) Pension settlement charges Amortization of step up in value of acquired inventories Adjusted Diluted EPS: $0.88 $0.97 $0.93 $

24 Diluted Earnings Per Share Progression $ $1.50 $600 $500 $400 $ $1.00 $0.50 $0.00 $200 $ $0.50 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 -$ Adjusted EPS EPS Sales 24 Adjusted EPS excludes special items. Please refer to the appendix for a reconciliation of non-gaap financial measures.