INTRODUCTION TO HÉROUX-DEVTEK

Transcription

1 INTRODUCTION TO HÉROUX-DEVTEK February 2014

2 FORWARD-LOOKING STATEMENTS In the interest of providing shareholders and potential investors with information regarding Héroux-Devtek, including management s assessment of future plans and operations, certain statements in this presentation are forward-looking statements subject to risks, uncertainties and other important factors that could cause the Corporation s actual performance to differ materially from those expressed in or implied by such statements. Such factors include, but are not limited to: the impact of general economic conditions, particularly in Canada and the United States; industry conditions including changes in laws and regulations; increased competition; the lack of availability of qualified personnel or management; availability of commodities and fluctuations in commodity prices; foreign exchange or interest rates fluctuations; stock market volatility; and the impact of accounting policies issued by Canadian, US and international standard setters. Some of these factors are further discussed under Risks and Uncertainties in the Corporation s MD&A, but readers are cautioned that the list of factors that may affect future growth, results and performance is not exhaustive, and undue reliance should not be placed on forward-looking statements. Although the Corporation believes that the expectations conveyed by the forward-looking statements are based on information available to it on the date such statements were made, there can be no assurance that such expectations will prove to be correct. All subsequent forward-looking statements, whether written or orally attributable to the Corporation or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. Unless otherwise required by applicable securities laws, the Corporation expressly disclaims any intention, and assumes no obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 2

3 HÉROUX-DEVTEK PROFILE Canadian Public Company listed on the Toronto Stock Exchange since 1986 (ticker symbol HRX) 70 years of Aerospace manufacturing experience Third largest landing gear company worldwide Sales from continuing operations of $257.0 million in the fiscal year ended March 31, 2013 ($340.0million on a trailing 12-month pro forma basis) Approximately 1,400 employeesin Canada, the U.S. and the U.K. 13 facilities totalling more than 775,000 sq.ft. 3

4 MAJOR MILESTONES 1942 Company founded Began manufacturing of aerospace components 1960s Designed and manufactured first landing gear systems (Canadair CL-215 and DHC-6) Manufactured the Apollo lunar module landing gear 1970 First major landing gear R&O contract for Hill Air Force Base (USAF) 1985 Management buy out and first major military landing gear manufacturing contracts (C-130, F-4, F-15, KC-135R) 1987 Acquired McSwain Manufacturing (Ohio). Foundation of Industrial product line 1999 Creation of Aerostructure product line 2000 Merged with Devtek Corporation 2004 Acquired Progressive Inc. (Texas) 2010 Acquired Eagle Tool & E2 Precision Products (Ohio) 2012 Sale of substantially all Aerostructureand Industrial operations 2013 Multi-year contract to manufacture complete landing gear systems for B-777 and B-777X 2014 Acquisition of APPH 4

5 ACQUISITION OF APPH FEBRUARY 3, 2014 Tier-one supplier of landing gear and hydraulic systems, focused on small and mid-sized systems(previously a subsidiary of BBA Aviation plc) US$77M of revenues and US$12.5M of Adjusted EBITDA in 2013 Sales are split approximately 50%/ 50% between military and commercial 68% of sales from proprietary products, 32% from built-to-print activities 61%ofsalestotheaftermarket,39%toOEMs 4facilitiesintheUK(Bolton,Nottinghamand2inRuncorn),and1intheUS (Wichita)foratotalof216,000sq.feet Diversified customer base with limited exposure to HDI s current clients Currently employs 390 people, including a team of 40 design engineers Substantially all employees to remain with HDI Key customers include: BAE Systems, Airbus Helicopters, AgustaWestland, and SAAB CY2013 Revenue by Region North America 23% RoW 7% Mainland Europe 20% United Kingdom 50% 5

6 STRATEGICALLY COMPELLING TRANSACTION The acquisition of APPH brings significant and immediate strategic benefits to Héroux-Devtek Expand Scale and Scope Expand geographical footprint into the European market Diversify client base and program exposure Acquire significant content on several leading programs Strong Fit with Héroux s Growth Strategy Increase contribution from proprietary / design authority content Acquire additional R&D, engineering expertise and know-how in landing gear and hydraulic systems Enhance exposure to higher margin aftermarket sales (spare parts & MRO Services) Provides Long-Term Value Creation Opportunities Cross-selling opportunities to combined client base Sharing of best practices and improved productivity will lead to cost synergies Pro forma company better positioned to develop European-based programs 6

7 HÉROUX-DEVTEK TODAY North America United Kingdom HDI Headquarters HDI Locations APPH Locations Laval Saint-Hubert Longueuil Scarborough Kitchener Bolton Cleveland Springfield Runcorn Nottingham Wichita Approximately 1,400 employees in Canada, the U.S. and the U.K. 13 facilities totalling more than 775,000 sq.ft. 7

8 Pro Forma Revenue Mix Héroux-Devtek LTM Total Revenue: C$255M APPH LTM Total Revenue: US$77M Combined Company LTM Total Revenue: C$340M (1) By Segment Commercial 46% Military 54% Commercial 44% Military 56% Commercial 46% Military 54% 18% 5% Proprietary Products 11% 6% Built-to-Print 32% 15% 17% 15% Proprietary Products 25% By Product Aftermarket OEM 17% 46% 10% Built-to-Print 89% 71% 22% Proprietary Products 68% Built-to-Print 75% 58% Héroux-Devtek moves toward its objective to grow its Proprietary Products content to 30% by 2020 (1) APPH total revenue converted at USD/CAD exchange rate of

9 MAJOR SHAREHOLDERS Principal holders of voting securities as of June 14, 2013: Deans Knight Capital Management Ltd. 14.3% Caissede dépôt et placement du Québec 13.4% Gilles Labbé 12.4% I.G. Investment Management, Ltd. 12.2% Total Shares Outstanding: 31,539,575 as at February 6,

10 GLOBAL LANDING GEAR MARKET Market Segme ent Penetration (Commerci ial, Military) U.T.A.S (Goodrich) #2 #3 #4 Liebherr #5 #5 Fokker (APPH formerly#5 before being acquired by Heroux-Devtek) #1 Messier- Dowty $100 M $500 M $1 B 10

11 STRATEGIC OBJECTIVES To be a world-class organization in our core Landing Gear market Leverage our engineering skills to provide customers with integrated solutions Focus on value-added products and services Design and development programs Complete and complex sub-assemblies Be an active industry consolidator Strategic acquisitions that will further complement our product and service portfolio as well as provide new technologies, such as APPH 11

12 STRATEGIC OBJECTIVES (continued) Grow internally and through strategic alliances at 10% per year, on average, over the course of a cycle Maintain a solid financial position and achieve above average return compared to industry peers Maintain and build on our culture of entrepreneurship through the participation, dedication and commitment of our people Achieve a balanced product mix between: Civil and military New component manufacturing and aftermarket products and services Built-to-print vs. proprietary products 12

13 STRATEGIC OBJECTIVES (continued) Pro forma PP content of 25% with APPH 13

14 MAJOR CUSTOMERS END USERS O.E.M.s TIER I 14

15 PRODUCT OVERVIEW COMMERCIAL MARKET Business/Regional Jets, Turboprops, and Large Commercial Jets Boeing 737 Boeing 777 Airbus 320 Legacy 500 B 787NLG B777 NLG Piston Learjet 45 Sukhoi 100 RRJ A320 MLG Fitting 15

16 PRODUCT OVERVIEW MILITARY MARKET C-130J CHCH-53K JSF CHCH-47 C-5 Axle MLG shock strut KC KC--135 B52B52MLG Global cylinder Hawk 16

17 APPH PRODUCT OVERVIEW Hawk Landing Gear Servo Actuators Hydraulics Jetstream 31/32/41 Landing Gear EC175 Landing Gear C-27J Main Landing Gear AW101 Landing Gear AW159 Landing Gear KC390 Landing Gear Components Advance Light Helicopter Hydraulics Powerpacks CitationJet Throttle Quadrants Latches & Catches Gripen NG Landing Gear Saab 340/2000 Landing Gear JAS 39 Gripen Landing Gear Military & Civil Engines Filters 17

18 RECENT CONTRACT AWARDS Boeing 777 Landing Gear Signed a long-term contract with Boeing to supplycompletelanding gear systems for the B-777 and B-777X programs Deliveries would begin in early calendar 2017, with an option to extend the contract through 2028 The B-777 is the world's most successful twin-engine, long-haul airplane with 1,548 orders and a backlog of 378 aircraft as at January31, 2014 H-47 Chinook Multi-year contract with Boeing to manufacture all Landing Gear for all H-47 Chinook to the US Army (155 shipsetsover 5 years plus options up to 150 additional aircraft over the same period) Shipment to begin in the first half of calendar 2014 License from Boeing to fabricate replacement parts and carry out repair and overhaul services in 12 countries 18

19 MARKET TRENDS LARGE COMMERCIAL AIRCRAFT Passenger traffic expected to grow 6.0% in 2014 Follows a 5.2% increase in 2013 Boeing reiterates its forecast of a 5% average annual growth in passenger traffic for the next 20 years Comparable to the historical average 3-4% growth in mature economies North America, Europe 6-7% growth in emerging markets Asia Pacific, Middle East, Latin America 19

20 GROWTH DRIVEN BY PHENOMENAL INCREASE IN MIDDLE-CLASS SIZE 20

21 LARGE COMMERCIAL AIRCRAFT DELIVERIES Approx. 1,350 deliveries expected for 2014 (1,240 in 2013) E 21

22 PROJECTED INCREASE IN LARGE COMMERCIAL AIRCRAFT FLEET 40,000 41,240 30,000 20,930 20,000 Growth 59% 35,280 10,000 20,310 14,350 Replacement 41% 5,960 Fleetretained Source: Boeing 2013 Current Market Outlook 22

23 STRONG MANUFACTURERS ORDER BACKLOGS janv janv janv janv janv AIRBUS BOEING 8 years of production at current rates 23

24 SCHEDULED PRODUCTION RATE INCREASES AND NEW MODELS Boeing: 737: monthly production rising from 38 to 42 aircraft in the first half of 2014 and to 47 aircraft in : increased from 7 to 8.3 aircraft per month in early Under our multiyear contract, Héroux-Devtek sdeliveries would begin in early calendar 2017, with an option to extend the contract through : monthly output increased from 7 to 10 aircraft in January 2014; further increasing to 12 in 2016 with plans to reach 14 by the end of the decade Airbus: 330: monthly production rose from 9 to 10 in April 2013 New models to enter service over the next 2 years Airbus 350 (Q with planned ramp up to 10 aircraft per month in 2018) Cseries(second half of 2015) New versions of existing models by the end of the decade Airbus 320 neo, Boeing 737 MAX, Boeing 777X 24

25 COMMERCIAL AEROSPACE TRENDS REGIONAL AIRCRAFT Turboprop demand remains stable but Bombardier losing ground to ATR French builder ATR s backlog was 221aircraft as of December 31, 2013, representing nearly three years of production Bombardier has firm orders for 32 Q-400 aircraft as of September 30, 2013 Regional jet market remains weak Bombardier s Regional Jet firm backlog was 89 aircraft as of September 30, 2013 Embraer : o o Backlog of279e-jets and backlogof 150 second generation E2s as of December 31, Launched new re-engined E-series jets: 365 orders in one day! 25

26 BUSINESS JET MARKET Industry shipments decreased slightly in the first nine months of 2013 (as reported by GAMA) Leading indicators remain positive Increased aircraft movement of 2.3% in the U.S. in 2013 Decrease in used jets for sale as a % of the fleet 26

27 BUSINESS JET MARKET (continued) Recovery expected to last approximately five years 1500 Period corresponding to the ramp-up of our design and 1200 development programs 900 Business aircraft shipments Legacy 450 & 500 Learjet 85 Dassault Falcon 5X

28 LANDING GEAR DESIGN PROGRAMS Legacy 500 Certification in the first half of calendar 2014, according to Embraer(to deliver production unit in 2014) Legacy 450 Successful first flight last December Learjet 85 Bombardier s comments during a January 2014 investor day in Mexico calledfor the first flight to happen soon Followed by Sikorsky CH-53K and Dassault Falcon 5X Further increase the proportion of sales from proprietary products and provide better control over revenues 28

29 MARKET TRENDS MILITARY AEROSPACE Market should remain difficult despiterecent budget agreement Héroux-Devtekis affected by these budget restrictions Could be affected beyond fiscal 2014 Must proactively optimize asset utilization and adapt supply to demand, as evidenced by recent workforce reductions Diversified military portfolio Participation on many leading programs (H-47, JSF, C-130) Good balance between new component manufacturing as well as aftermarket products and services APPHbrings further diversification, as it has very little exposure to the U.S. military market 29

30 ST-HUBERT ENGINEERING FACILITY Landing Gear Test Laboratory Regroups all resources for landing gear design, development and testing We are involved in all phases leading to certification Instrumental in meeting key milestones on design & development programs Sikorsky CH-53K, Learjet85, Embraer Legacy 450/500, Dassault Falcon 5X Enhances our value proposition, as we evolve into a global full-service provider 30

31 CREATING VALUE THROUGH INVESTMENTS Invest about 5% of our sales in R&D Industry Canada provided a $48.9 million repayable loan contribution over 5 years Support our engineering efforts related to R&D of new technologies for complete landing gear systems Will further improve our competitive position Changing industry conditions require companies to be flexible and to adapt rapidly We invest in our facilities to increase efficiency and productivity by reducing costs 31

32 SIGNIFICANT INVESTMENTS Implementation of Lean Manufacturing Significant productivity gains Continuous investment in employee training 4Rs for success: Respect, Responsibility, Recognition, Resilience Significant investments made in past years Longueuil: Modernization of the plating facility ($22M in FY07 to FY09) Kitchener: New equipment for the ramp-up of the Messier-Bugatti-Dowty (A-320, B-787) and Goodrich (B-777) contracts ($27M in FY06 to FY09) St-Hubert: Engineering testing facility ($4M in FY11 & FY13) Cleveland facility ($3M in FY12-FY13) 32

33 FINANCIAL SUMMARY March 31 fiscal year-end Sales 1 ($M) EBITDA 1,3 ($M) EBITDA 1 margin 12.8% 14.8% 13.7% Net income 1 ($M) Diluted EPS 1 ($) Net income ($M) incl. discontinued op Cash flow from operations 1 ($M) (1) From continuing operations (2) Includes 11 months of Landing Gear USA following acquisition (3) Earnings, before interest, taxes, depreciation and amortization 33

34 FISCAL 2014 Q3 RESULTS Periods ended December 31 (from continuing operations) Q3 FY2014 Q3 FY2013 YTD FY2014 YTD FY2013 Sales ($M) Adjusted EBITDA 1 ($M) Adjusted EBITDA margin 13.5% 12.4% 12.5% 12.5% Net income ($M) per share - diluted ($) adjusted per share diluted ($) Cash flows related to operatingactivities Earnings, before interest, taxes, depreciation, amortization and acquisition-related costs. 2 Before net change in non-cash items 34

35 HEALTHY FINANCIAL POSITION As at (in millionsof Cdn$) December 31, 2013 March 31, 2013 March 31, 2012 Cash & cash equivalents Long-term debt (incl. current portion) Net debt-to-equity (net cash-to-equity) ratio (0.13:1) (0.17:1) 0.23:1 Book value per share ($) Cash & cash equivalents of $98.2M or $3.11 per share Authorized revolving credit facility of $150M Only $23.4M used at December 31, 2013 Could be increased by up to $75M, subject to lenders consent Five-year term maturing on March 15,

36 FINANCIAL POSITION FOLLOWINGTHE ACQUISITION OF APPH As at (in millionsof Cdn$) Pro-Forma December 31, 2013 (2) Actual December31, 2013 Cash & cash equivalents Long-term debt-to-equity ratio 0.59:1 0.28:1 Net debt-to-equity (1) 0.43:1 (0.13:1) (1): Defined as total long-term debt, including the current portion, less cash and cash equivalents, over shareholders equity. (2): Net of cash and Credit Facility used, in regards to the purchase of APPH. Closing rates of used to translate the U.S. denominated cash and cash equivalents and long-term debt. Pro formanet funded debt-to-ebitda ratio of 1.5x, excluding government loans ($42 million) Approximately $100 million utilized from our credit facility 36

37 OUTLOOK Given opposite directions for the commercial and military markets, FY-14 sales should be slightly lower than last fiscal year, excluding APPH Commercial:Robust activity, mainly in the large commercial aircraft market, should yield sales growth in that market Military: Expected sales decline due to U.S. budgetary restrictions Excluding APPH, FY-15 sales should remain relatively stable Major contracts signed in recent years not yet fully reflected in results We maintain our objective of growing annual revenues at 10%, on average, over the course of a cycle, internally and through strategic alliances Multi-year contract with Boeing to supplycompletelanding gear systems for the B-777 and 777X; deliveries would begin in early calendar 2017, with an option to extend the contract through 2028 Additional sales from design and development contracts (Learjet85, EmbraerLegacy 450/500, Dassault Falcon 5X and Sikorsky CH53K) Further ramp-up of a ten-year, $115M contract from Messier-Bugatti-Dowtyfor three large commercial aircraft programs Boeing H-47 Chinook landing gear + aftermarket license contracts signed in fiscal

38 OUR DISTINCTIVE ADVANTAGE Our engineering team sets us apart from most competitors We offer our clients integrated landing gear solutions Design, development, tests, certification, fabrication, assembly and aftermarket support of complete landing gear systems We have a solid reputation in the market for aircraft weighing less than 50,000 kilograms Leverage this reputation to enhance our leadership Global OEMs are increasingly seeking partners willing to invest with them in development programs Héroux-Devtek has all the required elements to become a leading partner 38

39 IN SUMMARY We are a world-class player in the landing gear market with a world-class team Leveragethe strength of our engineering team by offering fully integrated solutions to our customers Boeing B-777 contract proves our capability to be competitive on very large-scale projects Acquisition of APPH provides significant and immediate benefits New market, new programs, new world-class customers Sharing of best practices and cross-selling opportunities We will continue to create value for our shareholders 39

40 THANK YOU