2018>>Growth Annual Shareholder Meeting

Transcription

1 2018>>Growth Annual Shareholder Meeting Christopher L. Mapes Chairman, President & CEO April 19, 2018

2 In Memoriam: David C. Lincoln (Retired Director) 2

3 Thank you to our retiring Directors David H. Gunning Director Since 1987 Lead Director Since 2013 General George H. Walls, Jr. Director Since

4 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. 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 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. 4

5 Ready to capitalize on growth in 2018 Lincoln Electric Net Sales ($ in billions) $2.9 $2.8 $2.5 $2.6 $2.3» 2017 marked the beginning of a recovery in all regions and business units encouraging momentum for 2018» 2017 organic sales (volume & price) grew 7.1% 1» 2017 Adjusted Operating Income Margin 2 increased to 14.7% (excluding acquisitions), versus 14.2% in the prior year» Record Average Operating Working Capital Ratio 2 of 14.2% (excludes the Air Liquide Welding acquisition)» Cash generation strong and conversion rate of 108% 2» Solid ROIC of 16.2% Excludes Venezuela 2 Please refer to the appendix for definitions and reconciliation of non-gaap measures 5

6 Guided by our 2020 Strategy Goal Growth Drivers Core Capabilities & Assets Core Values 6

7 We are making solid progress (performance thru 2017) 2020 Financial Goals (performance vs base) 2020 Safety and EH&S Goals (performance vs base) (With ALW: Approx. 8% CAGR) 7

8 Key 2020 initiatives driving results Growth Through Acquisitions» ALW doubles our size in Europe and we are now #2 in the region» Integrating the businesses and shaping the organization into One Company, One Team» Focused on new levels of commercial and operational excellence in Europe 8

9 Key 2020 initiatives driving results Welding Process Expertise Product Development» Launched a new state-of-the-art Welding Technology & Training Center (HQ campus)» Showcases a new education model and comprehensive school solution that enables welding training at schools and customers own facilities» Focused on helping industry leaders advance and prepare welding trainers to solve the skills gap 9

10 Key 2020 initiatives driving results Commercial Excellence Salesforce.com CRM launched Feb 2017» Design and build one global Lincoln Electric:» Account Management System» Contact Management System» Opportunity Management System» Increases our WIN-rate:» Collaboration» Solution Sharing» Visibility and Focus» Rapid Adoption since launch:» 950+ users trained and active 10

11 Our 2018 Priorities» Capitalize on the recovery by pursuing profitable growth» Integrate ALW into our European business to form One Company, One Team» Operational & commercial excellence: SAP/ERP, automate the tough jobs, centers of excellence, advance EH&S, Salesforce.com CRM adoption» Innovate: emphasis on equipment, alloys, automation and IoT solutions across our businesses» Education growth strategy: new U.S. welding technical training facility and ongoing international penetration» Invest in our people: global leadership development program, global employee survey to define future initiatives 11

12 Delivering together: Our values guide us Customer Focus Quality Commitment Performance People Development Integrity We develop a deep understanding of customers needs, are responsive and maintain consistent, exceptional service We provide world-class products and services and strive to continuously improve the quality of our processes We honor our commitments, are dependable and responsible We take pride and ownership in our work and recognize and reward individual and collective contributions to our success We provide employees with opportunities for growth and development We follow the Golden Rule and treat others with respect and dignity and operate responsibly 12

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14 Component of Sales Twelve Months Ended December 31st Change in Net Sales by Segment Operating Segments Change in Net Sales due to: Net Sales 2016 Volume Acquisitions Price Foreign Exchange Net Sales 2017 Americas Welding $ 1,494,982 $ 67,306 $ 8,470 $ 36,009 $ 3,012 $ 1,609,779 International Welding 507,289 12, ,430 18,327 12,475 $ 724,024 The Harris Products Group 272,343 15, ,181 $ 290,628 Consolidated $ 2,274,614 $ 95,171 $ 181,900 $ 55,078 $ 17,668 $ 2,624,431 Americas Welding (excluding Venezuela) $ 1,484,168 $ 78,120 $ 8,470 $ 36,009 $ 3,012 $ 1,609,779 Consolidated (excluding Venezuela) $ 2,263,801 $ 105,984 $ 181,900 $ 55,078 $ 17,668 $ 2,624,431 % Change Americas Welding 4.5% 0.6% 2.4 % 0.2 % 7.7% International Welding 2.5% 34.2% 3.6 % 2.5 % 42.7% The Harris Products Group 5.6 % 0.3 % 0.8 % 6.7 % Consolidated 4.2 % 8.0 % 2.4 % 0.8 % 15.4 % Americas Welding (excluding Venezuela) 5.3 % 0.6 % 2.4 % 0.2 % 8.5 % Consolidated (excluding Venezuela) (1) 4.7 % 8.0 % 2.4 % 0.8 % 15.9 % (1) Venezuelan sales in the twelve months ended December 31, 2016 were $11 million.

15 Non-GAAP Financial Measures Non-GAAP Financial Measures: Reconciliation of Operating Income, Net Income and EPS to Non-GAAP Adjusted Operating Income, Adjusted Net Income and Adjusted EPS (In thousands, except per share amounts) (Unaudited) Three Months Ended December 31, Twelve Months Ended December 31, Operating income as reported $ 75,513 $ 83,071 $ 377,711 $ 288,274 Special items (pre-tax): Rationalization and asset impairment charges (2) 6,590 6,590 Pension settlement charges (3) 2,867 8,150 Loss on deconsolidation of Venezuelan subsidiary (4) 34,348 Acquisition transaction and integration costs (5) 3,616 15,002 Amortization of step up in value of acquired inventories (5) 2,264 4,578 Bargain purchase adjustment (gain) (5) 1,935 (49,650) Adjusted operating income (1) $ 92,785 $ 83,071 $ 362,381 $ 322,622 As a percent of total sales 12.4% 14.7 % 13.8 % 14.2% Net income as reported $ 24,181 $ 53,395 $ 247,503 $ 198,399 Special items (after-tax): Rationalization and asset impairment charges (2) 6,198 6,198 Pension settlement charges (3) 1,770 5,030 Loss on deconsolidation of Venezuelan subsidiary (4) 33,251 Income tax valuation reversals (6) (7,196) Acquisition transaction and integration costs (5) 3,102 11,559 Amortization of step up in value of acquired inventories (5) 1,708 3,453 Bargain purchase adjustment (gain) (5) 1,935 (49,650) Net impact of U.S. Tax Act (7) 28,616 28,616 Adjusted net income (1) $ 67,510 $ 53,395 $ 252,709 $ 224,454 Diluted earnings per share as reported $ 0.36 $ 0.81 $ 3.71 $ 2.91 Special items Adjusted diluted earnings per share (1) $ 1.01 $ 0.81 $ 3.79 $ 3.29 Weighted average shares (diluted) 66,530 66,303 66,643 68,156 1) Adjusted operating income, Adjusted net income and Adjusted diluted earnings per share are non-gaap financial measures. Management uses non-gaap measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-gaap financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-gaap measures differently. 2) Charges primarily related to severance and asset impairments. 3) Related to lump sum pension payments. 4) Related to the deconsolidation of the Company's Venezuelan subsidiary in the second quarter ) Related to the acquisition of Air Liquide Welding. 6) Related to the reversal of an income tax valuation allowance as a result of a legal entity change. 7) These amounts, which are based on reasonable estimates, may require further adjustments as additional guidance from the U.S. Department of Treasury is provided, the Company's assumptions change, or as further information and interpretations become available.

16 Non-GAAP Financial Measures (In thousands, except per share amounts) (Unaudited) Non-GAAP Financial Measures Twelve Months Ended December 31, Return on Invested Capital Net income as reported $ 247,503 $ 198,399 Rationalization and asset impairment charges, net of tax of $392 6,198 Pension settlement charges, net of tax of $3,120 5,030 Loss on deconsolidation of Venezuelan subsidiary, net of tax of $1,097 in ,251 Income tax valuation reversals (7,196) Acquisition transaction and integration costs, net of tax of $3,443 11,559 Amortization of step up in value of acquired inventories, net of tax of $1,125 3,453 Bargain purchase gain (49,650) Net impact of U.S. Tax Act 28,616 Adjusted net income (1) $ 252,709 $ 224,454 Plus: Interest expense, net of tax of $9,273 and $7,304 in 2017 and 2016, respectively 14,947 11,775 Less: Interest income, net of tax of $1,833 and $801 in 2017 and 2016, respectively 2,955 1,291 Adjusted net income before tax effected interest $ 264,701 $ 234,938 Invested Capital December 31, 2017 December 31, 2016 Short-term debt $ 2,131 $ 1,889 Long-term debt, less current portion 704, ,704 Total debt 706, ,593 Total equity 932, ,206 Invested capital $ 1,638,720 $ 1,417,799 (1) Adjusted net income and Return on invested capital are non-gaap financial measures. Management uses non-gaap measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-overperiod comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-gaap financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non- GAAP measures differently. (2) 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. Return on invested capital (1)(2) 16.2% 16.6 %

17 Non-GAAP Financial Measures and Definitions Definitions Cash Conversion is defined as Net cash provided by operating activities less Capital expenditures divided by Adjusted net income. Average Operating Working Capital to Net Sales Ratio is defined as Net operating working capital as of period end divided by annualized rolling three months of sales. Net operating working capital is defined as Accounts receivable plus Inventory less Trade accounts payable.