Kadant Investor Presentation NOVEMBER 2017

Transcription

1 Kadant Investor Presentation NOVEMBER 2017

2 Forward-Looking Statements The following constitutes a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995: This presentation and our accompanying commentary contain forward-looking statements that involve a number of risks and uncertainties, including forward-looking statements about our expected future financial and operating performance, demand for our products, and economic and industry outlook. Our actual results may differ materially from these forward-looking statements as a result of various important factors, including those set forth under the heading "Risk Factors" in Kadant s annual report on Form 10-K for the year ended December 31, 2016 and subsequent filings with the Securities and Exchange Commission. These include risks and uncertainties relating to adverse changes in global and local economic conditions; the variability and difficulty in accurately predicting revenues from large capital equipment and systems projects; the variability and uncertainties in sales of capital equipment in China; the effect of currency fluctuations on our financial results; our customers ability to obtain financing for capital equipment projects; changes in government regulations and policies; the oriented strand board market and levels of residential construction activity; development and use of digital media; price increases or shortages of raw materials; dependence on certain suppliers; international sales and operations; economic conditions and regulatory changes caused by the United Kingdom s likely exit from the European Union; disruption in production; our acquisition strategy; our internal growth strategy; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; loss of key personnel; reliance on third-party research; protection of patents and proprietary rights; failure of our information systems or breaches of data security; fluctuations in our share price; and anti-takeover provisions. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. The following slides and related commentary address certain current goals and targets for Kadant over the next five years. There can be no assurance that these goals and targets will be achieved and, in addition to the general risks and uncertainties of our business, they are based on a number of assumptions that may or may not prove accurate or achievable. These assumptions include our ability to identify and complete acquisitions that have the acquisition characteristics we desire and achieve the intended financial metrics, our ability and willingness to continue to pay dividends consistent with our recent practice, our ability to effect open market stock repurchases, our ability to implement our internal growth initiatives successfully and achieve the goals of such initiatives, our ability to maintain our EBITDA margins and improve SG&A leverage, a continued favorable trade environment with no new tariffs or restraints on trade, particularly with respect to China or Mexico, and a steady global macro-economic environment with unchanged interest rates, slow growth and continued low cost of capital. Additionally, these goals and targets may change at any time and we undertake no obligations to update them. 2

3 Use of Non-GAAP Financial Measures and Company Estimates NON-GAAP FINANCIAL MEASURES In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-gaap financial measures, including increases or decreases in revenues excluding the effect of acquisitions and foreign currency translation, adjusted operating income, adjusted net income, adjusted diluted EPS, adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA), adjusted EBITDA margin, and free cash flow. A reconciliation of those numbers to the most directly comparable U.S. GAAP financial measures is shown in our 2017 third quarter earnings press release issued October 30, 2017 and our 2016 fourth quarter earnings press release issued February 23, 2017, which is available in the Investors section of our website at under the heading Press Releases. We believe that these non-gaap financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors to gain an understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance. COMPANY ESTIMATES We make estimates of global market share, revenue and market opportunities and total market size for various product lines. These estimates are based on Company information and are not derived from published studies or other market data. 3

4 We are a global supplier of high-value, critical components and engineered systems used in process industries worldwide. We help our customers reduce their input costs and improve efficiency through innovative products and technologies. 4

5 Global Platform Serving Customers Worldwide* North America 2016 Revenue: $203M Employees: 671 Capacity: 628,000 ft 2 Europe 2016 Revenue: $115M Employees: 617 Capacity: 927,000 ft 2 China 2016 Revenue: $43M Employees: 567 Capacity: 484,000 ft 2 Other Asia 2016 Revenue: $19M South America 2016 Revenue: $24M Employees: 98 Capacity: 217,000 ft 2 * Geographic data is attributed to countries based on customer location. Major manufacturing site Manufacturing licensee Other Locations 2016 Revenue: $10M 5

6 Investment Highlights Sustainable Business Model Applied to Diverse Markets Delivers Exceptional Results High impact products Leading market share High parts and consumables business Global direct sales Low cost manufacturing 20 countries, established and emerging Packaging, tissue, home construction, and other industrial markets Emerging applications 7% revenue CAGR % adjusted diluted EPS CAGR History of dividend increases Excellent gross margin Strong cash flow Top quartile for ROIC and total shareholder return* ROIC is based on 2015 information published by Baird Industrial Company Composite and total shareholder return is based on Morningstar as of 12/31/16. 6

7 2016 Revenue Snapshot By End Market By Category By Geography Industrial 17% Wood Processing 9% Other Paper 10% Packaging 43% Parts and consumables Capital vs Capital Equipment 38% Parts & Consumables 62% Asia 15% Europe 28% Rest of World 8% North America 49% Newsprint 3% Printing & Writing 8% Tissue 10% Geographic data is attributed to countries based on customer location. 7

8 Q Revenue Source by End Market Industrial 12% Q Revenue of $152.8 Million Other Paper 8% Packaging 37% Wood Processing 26% 8 * Based on Company estimates of revenue by industrial category. Newsprint 3% Printing & Writing 7% Tissue 7%

9 Impact of E-Commerce on Container Board Source: Vertical Research Partners E-Commerce is estimated to be 8% of U.S. retail sales Growing at 10-15% annually Order of magnitude increase in containerboard usage 512 Units 1 Unit 27 Units 1 x1 Box 1-lb Shipment 6 ft² of Containerboard lb/ ft² 6 ft²/unit 3 x3 Box 27-lb Shipment 54 ft² of Containerboard 0.5 lb/ ft² - 3x lb/ ft² 2 ft²/unit 33% ft²/unit 8 x8 Box 512-lb Shipment 384 ft² of Containerboard lb/ ft² - 8x lb/ ft² 0.75 ft²/unit 12.5% ft²/unit 9

10 PRODUCT OVERVIEW

11 Stock-Preparation Products to process recyclable, waste, and other materials for transport and storage and for conversion into clean pulp. 54% Parts 2016 Stock-Preparation Revenue 41% % of 2016 Revenue PRODUCTS Pulpers Screens Cleaners Recycling systems Heat transfer products Horizontal and vertical balers PRIMARY MARKETS Packaging Tissue Recycling Waste management #1 in market share for recycled linerboard and tissue* #1 in Europe for horizontal balers* * Company estimate 11

12 Doctoring, Cleaning, & Filtration Products used to clean roll surfaces and paper machine clothing and recycle process water DCF Revenue Parts 58% 26% % of 2016 Revenue PRODUCTS Doctor blades Doctoring systems Fabric cleaning equipment Roll cleaning systems Filters and filtration systems PRIMARY MARKETS Packaging Tissue Food #1 in U.S. for doctoring and cleaning* * Company estimate 12

13 Fluid-Handling Products used to transfer fluid, power, and data between fixed piping and rotating components. Parts 71% 2016 Fluid-Handling Revenue 21% % of 2016 Revenue PRODUCTS Rotary joints and syphons Precision rotating unions Condensate handling systems Steam distribution and management systems Expansion joints PRIMARY MARKETS Packaging Food & Beverage Converting Metals #1 in market share in pulp and paper* * Company estimate 13

14 Wood Processing Products used to harvest, debark, and process logs into lumber and strands used in the production of engineered wood. 84% Parts 2016 Wood Processing Revenue 9% % of 2016 Revenue PRODUCTS Debarkers Stranders Timber harvesting equipment Conveying equipment Chippers Disposable knives PRIMARY MARKETS Wood-based building products Forest products #1 in market global share* * Company estimate 14

15 Our Strategy for Growth ORGANIC GROWTH INITIATIVES Increase spares and consumables business Continue to develop products with compelling ROI Leverage cost competitive manufacturing Extend application expertise and products into new industries and applications Leverage global distribution Five-year goal is 2% to 3% CAGR internal revenue growth ACQUISITIONS Pursue acquisitions that complement existing business and serve new industries Five-year goal is 9% to 11% CAGR revenue growth 15

16 INTERNAL GROWTH INITIATIVES

17 Product Innovation INTEGRATED SCORING KNIFE (ISK) Eliminates scoring bars and tips All scoring tips are replaced on every knife change 80% of OSB mills variable cost is fiber and resin Fines reduction due to scoring tip alignment Productivity improvement of $2 to $3.5M per year, per mill, with NO capex required ISK SY Pine vs. DKS SY Pine 17

18 Transferring Technology to Other Industries Many industrial processes have similar needs Belts and rolls Rotating components requiring cooling or heating Kadant technology offers a significant improvement Expands current industrial business with existing salesforce Kadant well-known and trusted by OEMs TARGET INDUSTRIES Rolled and coated metal Food Synthetic fiber Carbon fiber Fiber Breaks & Roll Wraps 18

19 Expansion of Geographic Markets Leverage Low Cost Manufacturing BALER GROWTH PROGRAMS Expand into the North America market Lower sourcing cost by using Kadant China manufacturing 19

20 IoT Initiatives IoT BENEFITS Product differentiation Protection from pirates Promote spares Closer ties with customers and process Big data opportunities PROGRESS Several pilot projects underway with customers Partnered with Emerson Controls (established solution provider) Retaining corporate resources with skills in IoT projects Long-term project PROGRAM EXAMPLE Kadant creping doctor is the heart of tissue making Using IoT to identify when blades need to be changed identify service needs before they occur Enables tissue maker to produce consistent quality 20

21 MARKET DRIVERS

22 Market Drivers DEVELOPED MARKETS Increasing use of packaging driven by e-commerce Demand for housing Improving yield Increasing energy efficiency Lowering water usage EMERGING MARKETS Per capita consumption Urbanization Demand for housing Standard of living Population growth GDP growth 22

23 ACQUISITIONS

24 Acquisition Strategy Characteristics of attractive acquisition targets Serve process industries Highly engineered premium products usually with strong gross margins and market leading positions Very impactful with material cost of failure History of stable revenue and earnings with significant parts and consumables revenue Opportunity to leverage our global footprint and low-cost manufacturing 24

25 Key Acquisitions 1990 Lamort S.A. forms Stock Prep product line AES acquisition forms Water Management product line Johnson forms Fluid Handling product line Fiberwall adds technology for screen basket consumables CBTI combines manufacturing with established KAI South American business Carmanah forms Wood Processing product line Radiance adds technology for ceramic creping blades PAAL adds Baler product line for vertical integration into recycling stream and waste management Unaflex enhances our fluid handling product line by adding expansion joints to our product portfolio. Deal Value: 1.4 million shares of TMO stock Deal Value: $26m Deal Value: $109m Deal Value: $4m Deal Value: $9m Deal Value: $52m Deal Value: $4m Deal Value: $59m Deal Value: $31m Deal Value: $16m Deal Value: $103m Deal Value: $21m Deal Value: $16m Deal Value: $7m Deal Value: $9m Deal Value: $171m 1992 Vickery adds composite Doctor Blade technology and strengthens European position Shartle Division of Black Clawson adds packaging grade stock prep and expands positions in China Huayi establishes manufacturing for Stock Prep in China M-clean adds Multi Jet Shower to Water Management product line Noss increases consumables for Stock Prep. Increases Approach Flow offering and adds Radiclone cleaners to product line J&L Screen Baskets strengthens North American screen basket business NII enhances our position in forestry products with its market leading ring debarkers and timber harvesting equipment. Screen Baskets NII FPG 25

26 Returns for Acquisitions Completed Pre-Tax ROTI ROIC 3 IRR 4 Weighted Average Returns* 23% 12% 17% ACQUISITION PURCHASE PRICE 1 DATE $8.6m Apr 13 $7.2m May 13 * Calculated by the Company using the consideration paid, which includes the acquisition purchase price, plus acquisition costs and restructuring costs as anticipated at the time of closing, for the acquisitions completed during the period excluding the technology acquisition of Radiance in January Also excludes the 2016 acquisition of the PAAL Group. Screen Baskets Total Cost $52m Nov 13 $9.2m Nov 14 $77.0m (1) Represents the actual purchase price paid and does not include acquisition costs and restructuring cost as estimated at the time of closing. (2) Based on operating income over the sum of consideration paid plus the change in net operating assets less intangible amortization. (3) Based on adjusted net income over the sum of total capital plus consideration paid less cash. (4) Based on the consideration paid plus the sum of net income generated plus depreciation and amortization expense less capital expenditures plus an estimated terminal value for the business. 26

27 FINANCIAL RESULTS All financial data presented is unaudited. The years presented are for the fiscal years then ended.

28 Revenue and Adjusted Diluted EPS Performance $450 $400 $3.50 $3.00 CAGR Revenue: 7.4% Adj. Diluted EPS: 14.0% $350 $300 $2.50 US$ (millions) $250 $200 $150 $100 $2.00 $1.50 $1.00 Revenue Adjusted Diluted EPS * $50 $0.50 $ *Adjusted diluted EPS is a non-gaap financial measure that excludes certain items as detailed in slide 29. $

29 Adjusted Diluted EPS Reconciliation Diluted EPS, as reported $ 1.48 $ 2.74 $ 2.73 $ 2.07 $ 2.56 $ 3.10 $ 2.88 Income from Discontinued Operation, net of tax $ - $ - $ (0.07) $ - $ - $ (0.01) $ - Diluted EPS from Continuing Operations $ 1.48 $ 2.74 $ 2.66 $ 2.07 $ 2.56 $ 3.09 $ 2.88 Restructuring Costs and Other Expense (Income), net of tax $(0.07) $(0.13) $ 0.03 $ - $ 0.05 $ 0.03 $(0.02) Acquisition Costs, net of tax $ - $ - $ - $ - $ - $ - $ 0.15 Amortization of Acquired Profit in Inventory and Backlog, net of tax $ - $ - $ - $ 0.17 $ 0.17 $ 0.01 $ 0.12 Benefit from discrete tax items $ - $(0.51) $(0.40) $ - $ - $ - $(0.02) Adjusted Diluted EPS* from Continuing Operations $ 1.41 $ 2.10 $ 2.29 $ 2.24 $ 2.78 $ 3.13 $ 3.10 *Adjusted diluted EPS is a non-gaap financial measure. 29

30 Full-Year Gross Margins 50% 45% 43.9% 43.3% 43.9% 45.8% 44.4% 46.2% 45.5% 40% 35% 30%

31 Full-Year Adjusted EBITDA $ (millions) $70 $60 $56.3 $61.5 $61.9 CAGR 12.1% $50 $44.8 $44.8 $44.7 $40 $30 $31.2 $20 $10 $

32 Q Financial Highlights ($ Millions, except per share amounts) Q Q % CHANGE 2 Bookings $135.5 $ % Revenue $152.8 $ % Gross Margin 42.3% 45.6% n.m. Operating Income $19.5 $ % Adjusted Operating Income 1 $24.4 $ % Net Income $13.3 $ % Adjusted EBITDA 1 $29.9 $ % Adjusted EBITDA/Revenue % 15.3% n.m. Diluted EPS $1.17 $ % Adjusted Diluted EPS 1 $1.49 $ % Cash flow from operations $7.0 $ % 1 Adjusted operating income, adjusted EBITDA, adjusted EBITDA margin, and adjusted diluted EPS are non-gaap financial measures that exclude certain items as detailed in our Q earnings release dated October 30, Percent change calculated using actual numbers reported in our Q earnings release dated October 30,

33 2016 Financial Highlights ($ Millions, except per share amounts) % CHANGE 3 EXCL. FX 3 Revenue $414.1 $ % 8.3% Gross Margin 45.5% 46.2% n.m. n.m. Net Income $32.1 $ % -1.6% Adjusted EBITDA 1, 2 $61.9 $ % 4.2% Adjusted EBITDA/Revenue 1, % 15.8% n.m. n.m. Diluted EPS $2.88 $ % -1.9% Adjusted Diluted EPS 1, 2 $3.10 $ % 4.2% Bookings $403.5 $ % 9.7% Adjusted Return on Invested Capital % 15.0% n.m. n.m. Cash Flow 1 $51.0 $ % n.m. 1 Adjusted diluted EPS, adjusted EBITDA, and cash flow are from continuing operations. 2 Adjusted EBITDA, adjusted EBITDA margin, and adjusted diluted EPS are non-gaap financial measures that exclude certain items as detailed in our Q earnings release dated February 23, Percent change calculated using actual numbers reported in our Q earnings release dated February 23, Adjusted return on invested capital is calculated as adjusted net income divided by the sum of stockholders equity less net cash. 33

34 Balance Sheet Data ($ Millions) 3Q17 4Q16 Cash, Cash Equivalents, and Restricted Cash $ 91.4 $ 73.6 Accounts Receivable, net Inventories Property, Plant, and Equipment, net Intangible Assets Goodwill Other Assets Total Assets $787.7 $470.7 Accounts Payable $ 35.1 $ 23.9 Long-term Debt Capital Lease Obligations Other Liabilities Total Liabilities $456.8 $186.4 Stockholders Equity $330.9 $284.3 Total Liabilities and Stockholders Equity $787.7 $

35 Free Cash Flow US$ (millions) * 2015* 2016* * Presented in conformity with Financial Accounting Standards Board s Accounting Standards Update No Prior amounts were not restated. Free cash flow is defined as cash flows from continuing operations less purchases of property, plant, and equipment. 35

36 Capital Allocation R&D $67,841 Acquisitions $193,863 USES OF CASH CAPEX $57,994 Share Buyback $129,108 Cash Dividends $25,745 $0.25 $0.20 $0.15 $0.10 $0.05 $0.00 $25 Dividends Declared per Share $48 SHARE BUYBACKS RECENT ACQUISITIONS NII FPG Millions $20 $15 $10 $5 $0 $16 $14 $15 $10 $7 $5 $4 $5 $3 $

37 FIVE-YEAR FINANCIAL TARGETS

38 Assumptions Underlying Five-Year Financial Targets Macro-economic environment Slow but steady global growth Continued low cost of capital Organic growth Numerous internal growth programs Goal is 2% to 3% internal revenue growth Acquisitions Continue to target companies that meet criteria Goal is 9% to 11% revenue growth 38

39 Financial Targets 2021 METRIC TARGET Revenue $700 - $800 million EBITDA $100 - $125 million Diluted EPS $ $6.00 Free Cash Flow $70 - $80 million Net Debt $60 - $140 million OTHER POTENTIAL CHANGES Gross margins drop due to acquisitions SG&A Leverage improves due to economies of scale and acquisitions EBITDA margins maintained Focus on spare parts and consumables will continue, but percentage of revenue will likely drop Percentage of business serving pulp and paper will likely decline to below 50% 39

40 Summary Strong position in target markets Products have high impact on large industrial process customers History of stable revenue and earnings Large and growing parts and consumables business Global distribution and service network Strong cash flows Healthy balance sheet Successful track record of acquisitions Track record of returning income through dividends and share repurchases 40

41 APPENDIX

42 FX Translation and Acquisition Impact Q3 2017, $ in millions except EPS Revenue Adjusted EPS 4 Bookings Parts & Consumables Revenue Parts & Consumables Bookings As Reported $152.8 $1.49 $135.5 $83.8 $81.1 Growth % 84.0% 42.9% 36.4% 27.2% Growth excluding FX % 79.0% 40.4% 34.1% 25.3% Growth excluding FX and Acquisitions % 35.8% 18.8% 12.9% 3.1% Fiscal Year 2016 Revenue Adjusted EPS 4 Bookings Parts & Consumables Revenue Parts & Consumables Bookings As Reported $414.1 $3.10 $403.5 $258.2 $258.2 Growth 1 6.2% -1.0% 7.3% 2.4% 2.4% Growth excluding FX 2 8.3% 4.2% 9.7% 4.6% 4.6% Growth excluding FX and Acquisitions 3-2.1% -4.5% -0.8% -0.5% -0.6% 1 Growth is the year-over-year percent change between the current period and the comparable prior period. 2 Represents the year-over-year percent change excluding the impact of current period versus prior period exchange rates. 3 Represents the year-over-year percent change excluding the impact of acquisitions and current period versus prior period exchange rates. Acquired businesses are classified above as Acquisitions for the first four quarters after acquisition. 4 Adjusted diluted EPS is a non-gaap financial measure that excludes certain items as detailed in our Q earnings release dated October 30, 2017 and our Q earnings release dated February 23,

43 Bookings and Revenues US$ (millions) $160 Bookings Booking Reversal Revenues $140 $120 $100 $80 $60 $40 $20 $0 1 1 Reported Q415 bookings were $76 million, which included new orders of $92 million and a booking reversal of $16 million. 43

44 Parts and Consumables Bookings and Revenues US$ (millions) $90 Bookings Revenues $80 $70 $60 $50 $40 $30 $20 $10 $0 44

45 North America Bookings and Revenues US$ (millions) $80 Bookings Revenues $70 $60 $50 $40 $30 $20 $10 $0 45

46 Europe Bookings and Revenues US$ (millions) $50 Bookings Revenues $40 $30 $20 $10 $0 46

47 Asia Bookings and Revenues US$ (millions) $40 Bookings New Orders Revenues $35 $30 $25 $20 $15 $10 $5 $0 -$5 -$ Reported Q415 Asia bookings were negative $6 million, which included new orders of $10 million and a booking reversal of $16 million. 47

48 Rest-of-World Bookings and Revenues US$ (millions) $16 Bookings Revenues $14 $12 $10 $8 $6 $4 $2 $0 48

49 Backlog US$ (millions) $160 $140 $120 $ $80 $60 $40 $20 $0 49

50 Full-Year SG&A US$ (millions) $140 SG&A SG&A as a % of Revenues 40% $120 35% $100 $80 30% $ % 50

51 Key Working Capital Metrics 3Q17 2Q17 3Q16 Days in Receivables Days in Inventory Days in Payables Days in Receivables Days in Inventory Days in Payables Days

52 Working Capital and Cash Conversion Days 3Q17 2Q17 3Q16 Working Capital % LTM Revenues* 18.0% 11.6% 11.6% Cash Conversion Days** 102 days 113 days 116 days *Working Capital is defined as current assets less current liabilities, excluding cash, debt, and the discontinued operation. ** Based on days in receivables plus days in inventory less days in accounts payable. 20% Cash Conversion Days Working Capital % LTM Revenues * % 150 % OF REVENUE 10% 5% DAYS 0% 0 52

53 Cash and Debt US$ (millions) 3Q17 2Q17 3Q16 Cash, cash equivalents, and restricted cash $91.4 $88.0 $65.5 Debt (273.7) (60.7) (63.5) Capital lease obligations (5.1) (5.1) (5.3) Net Debt $(187.4) $22.2 $(3.3) US$ (millions) $100 $50 $0 ($50) ($100) $51.8 $48.5 $58.7 $11.6 $14.3 $9.5 $18.7 $19.9 $12.5 $20.1 $27.5 $35.7 $33.9 $(14.7) $(3.3) $7.2 $2.5 $22.2 ($150) ($200) $(187.4) 53

54 Recent Acquisitions

55 Acquisition of NII FPG Company s Forest Products Business NII FPG is a global leader in equipment used in the production of lumber Also supplies purpose-built timber harvesting machinery Excellent complementary capabilities and offerings that strengthen our wood processing product line Purchase price: $171 million in cash Acquisition completed on July 5,

56 NII FPG Overview Global leader in the design and manufacture of ring debarkers Also supplies purpose built timber harvesting equipment High impact product History of stable earnings Low asset intensity Excellent cash flows Strong aftermarket business Revenue: $81 million (LTM Dec 2016) 275 employees worldwide Two primary manufacturing locations 56

57 NII FPG Overview ROW 11% Europe 27% North America 62% 2016 Revenue by Product Line* 2016 Revenue by Geography** * Based on unaudited results for the 12 months ended provided by NII FPG Company. ** Based on unaudited results for the year ended provided by NII FPG Company. 57

58 Strong Parts and Consumables Business $600 Lifecycle of New Debarker Expenditures (USD 000s) Capital 44% Spare Parts 56% $500 $400 $300 Initial Purchase Cumulative Spare Parts/Maintenance Costs $200 $100 Annual Spare Parts Maintenance Costs 2016 Revenue by Category* $ Year After Purchase** * Based on unaudited results for the 12 months ended provided by NII FPG Company. ** Based on data provided by NII FPG Company. 58

59 Timber Harvesting Equipment Purpose-built harvesting machinery Founded in 1911 Feller bunchers, log loaders, yarders Steep slope capable Robust design, proven reliability 59

60 Demand Drivers Sawmills and veneer mills Primary end product: lumber for use in residential and commercial construction Demand driven by population growth, per capita income growth, and economic expansion Dimension Lumber Demand Sawmill Utilization Economic Activity Residential Construction Other Demand Sources (Plywood, OSB, Pulp, Paper, Furniture, Paper Goods) Debarker Demand Commercial Construction Log Demand Equipment Age Demographic Trends Energy Consumption Wood Pellet Demand Harvesting Equipment Demand 60

61 Cumulative Over-Underbuilding of Conventional U.S. Homes Millions OVERBUILDING -1.0 UNDERBUILDING Source: FEA* * Based on data from Forest Economic Advisors. 61

62 NII FPG s first-class management team will continue to operate the business within Kadant s decentralized structure Will become part of our Wood Processing product line Potential Synergies: SG&A reduction Low-cost sourcing Cross-selling Integration Plan 62

63 Strategic Rationale for Acquisition Market leader with high quality products and excellent reputation Strong management team Products have high impact on large process Stable earnings driven by strong parts and consumables business Complementary to our existing wood processing product line Strong profitability 63

64 Unaflex Acquisition Unaflex is a market leader in the manufacture and supply of expansion joints and related equipment Acquisition price: $31 million* Revenue: $18 million (2016) High impact product History of stable earnings Strong aftermarket business Integrated with our Fluid-Handling product line Completed August 14, 2017 * Subject to post-closing adjustments. 64

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