DRIVEN BY POSSIBILITY NOVEMBER 2020
LEGAL DISCLAIMERS | 2 | |
FORWARD-LOOKING STATEMENTS
This presentation contains, and management may make on our call today, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "predicts," "intends," "trends" "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. These statements include, but are not limited to, statements related to expectations regarding the performance of the Company's business, financial results, liquidity and capital resources, productivity improvements, product initiatives, restructuring activities, and statements regarding the impact of and the recovery from the COVID-19 pandemic and our 2020 framework. Such forward-looking statements are subject to various risks and uncertainties, including, among others, the uncertainties relating to the impact of the COVID-19 pandemic and associated governmental measures on the company's business, operations, employees, financial condition and results of operations, risks inherent to the manufacturing industry, macroeconomic factors beyond the Company's control such as end-market recovery, continued operation of our manufacturing facilities, our ability to forecast and meet demand, market acceptance of new products, and the significant influence of the Company's majority shareholders, investment funds affiliated with The Blackstone Group Inc. Additional factors that could cause the Company's results to differ materially from those described in the forward-looking statements can be found under the section entitled "Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2019, filed with the Securities and Exchange Commission ("SEC") as supplemented by the risks and uncertainties set forth in the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 2020, as such factors may be further updated from time to time in the Company's periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in the Company's filings with the SEC. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
NON-GAAP FINANCIAL INFORMATION
This presentation includes certain non-GAAP financial measures, which management believes are useful to investors. Non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with GAAP. Please refer to the Appendix of this presentation and our earnings release filed with the SEC and posted on our website at investors.gates.com for a reconciliation of historical non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP.
Because GAAP financial measures on a forward-looking basis are not accessible, and reconciling information is not available without unreasonable effort, we have not provided reconciliations for forward-looking non- GAAP measures. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results.
ROUNDING ADJUSTMENTS
Certain monetary amounts, percentages and other figures included in this presentation have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentages that precede them.
©2020 Gates Corporation. All rights reserved.
GATES OVERVIEW | 3 | |
- RESILIENT BUSINESS MODEL DRIVEN BY MISSION- CRITICAL, REPLACEMENT PRODUCTS
- GLOBAL LEADER WITH SIGNIFICANT CORE MARKET OPPORTUNITY
- REVITALIZATION OF BROAD PRODUCT PORTFOLIO WELL UNDERWAY
- LARGE GROWTH INVESTMENT BEHIND US - NEW CAPACITY IN PLACE
- ATTRACTIVE FINANCIAL PROFILE WITH SUBSTANTIAL FREE CASH FLOW GENERATION
- WELL POSITIONED TO CAPITALIZE ON THE RECOVERY
THE CHARACTERISTICS OF OUR BUSINESS RESULT IN A COMPELLING FINANCIAL PROFILE
©2020 Gates Corporation. All rights reserved.
GATES VISION | 4 | |
ACHIEVE GLOBAL PRODUCT INNOVATION LEADERSHIP
AND EXPAND OUR PREMIER POSITION IN OUR CORE POWER
TRANSMISSION AND FLUID POWER MARKETS,
WHILE DELIVERING ABOVE-MARKET GROWTH,
SUPERIOR PROFITABILITY AND STRONG CASH FLOW GENERATION
TO PROVIDE SHAREHOLDERS WITH ATTRACTIVE RETURNS
©2020 Gates Corporation. All rights reserved.
GATES AT A GLANCE | 5 | |
COMPANY STATS | ||
| Founded | 1911 |
| Countries | 30 |
| Locations | 120+ |
| Employees | 14,000+ |
2019 FINANCIAL STATS | 2019 SEGMENT DATA | REVENUE | % REPL. | |||
| Revenue | $3.1B | | Power Transmission | $2.0B | 62% |
| Adjusted EBITDA1 | $0.6B | 20% Margin | | Fluid Power | $1.1B | 63% |
TWO SCALED, LEADING PRODUCT SEGMENTS WITH SIMILAR BUSINESS CHARACTERISTICS, CUSTOMERS AND END MARKETS
©2020 Gates Corporation. All rights reserved. | 1 Reconciliations of non-GAAP measures used throughout this presentation can be found in the Appendix |
POWER TRANSMISSION - SEGMENT OVERVIEW | 6 | |
2019 PT REVENUE: $1,946M
BY REGION | IND. FIRST-FIT | BY CHANNEL | |||||||
EA&I 15% | NA | • | Gen. Industrial | 13% | REPLACEMENT | ||||
• | HD Truck | • | Automotive | ||||||
CHINA 15% | 37% | • | Agriculture | • | General Industrial | ||||
• | Construction | 24% | 63% | • | HD Truck | ||||
AFF | • | Energy | |||||||
EMEA | 28% | SA | • | Agriculture | |||||
• | Construction | ||||||||
5% | |||||||||
PRODUCT PORTFOLIO
Micro-V | Timing | Engine Metal | Mechanical Water | Kits |
Belts | Belts | Components | Pumps |
Industrial | Industrial | Industrial | Industrial Metal |
Synchronous Belts | Asynchronous Belts | TPU Belts | Components |
SUMMARY
- Leading global belt provider
- Broadest catalog of mission-critical components
Replacement market focus | IR |
- Diverse customers, applications and end markets
- Global footprint and channel coverage
IFF
Unique belt drive system value propositions
MARKET OPPORTUNITY
- One of few scaled players in a large, fragmented $36B addressable market1
Gates
$36B
Total Addressable Market
SIGNIFICANT GROWTH OPPORTUNITIES IN EXISTING MARKETS
©2020 Gates Corporation. All rights reserved. | 1 Market sizes referred to throughout this presentation are based on management estimates |
GROWTH OPPORTUNITIES - POWER TRANSMISSION | 7 | |
INDUSTRIAL
CHAIN-TO-BELT
Gates | | Diversified end |
markets & | ||
applications | ||
~$6B | | Opportunity to |
convert large installed base of drives powered by chain
- Recent Win: Major US airport baggage conveying system / HVAC
- Value Prop: Belts significantly reduced energy and maintenance costs
CHAIN-TO-BELT
PERSONAL
MOBILITY
Gates | | Bicycles |
| Scooters | |
~$1B | | Motorcycles |
| Market | |
experiencing | ||
accelerated trend | ||
of electrification |
- Recent Win: Commuter e-bikes at major European manufacturer
- Value Prop: Belts offered longer life, no maintenance and quiet operation
PRECISION MOTION
CONTROL
Gates | Warehousing & |
logistics |
Robotics &
~$1B industrial automation
Food processing E-commerce
- Recent Win: Material handling & logistics systems OE in Japan
- Value Prop: TPU belts offered maintenance-free precision operation
BELT-TO-BELT
INDUSTRIAL
BELT-TO-BELT
Gates | | New products |
improve | ||
competitive | ||
~$2B | positioning | |
| Conversion | |
opportunities | ||
within large | ||
installed base |
- Recent Win: Rice harvester application at major OE in China
- Value Prop: Gates V-belts are critical to ensuring high-cost machine uptime
LINK TO LEARN MORE:UNCHAIN YOUR OPERATIONS
Confidential Information. Use and disclosure limited for Gates business purposes only. ©2020 Gates Inc. All rights reserved.
FLUID POWER - SEGMENT OVERVIEW | 8 | |
2019 FP REVENUE: $1,141M | SUMMARY |
BY REGION | BY CHANNEL | |||||||||
CHINA | EA&I | NA | REPLACEMENT | |||||||
5% | 7% | |||||||||
EMEA | IND. FIRST-FIT | • | General Industrial | |||||||
37% | • | Agriculture | ||||||||
18% | • | Construction | • | Construction | ||||||
63% | ||||||||||
66% | • | HD Truck | • | Energy | ||||||
SA | • | Agriculture | • | Automotive | ||||||
4% | • | General Industrial | • | HD Truck |
PRODUCTS0%
- Mission-criticalcomponents for hydraulic and fluid conveyance applications
- Core market with several avenues for growthIR
- Favorable replacement dynamics
- Heritage of product innovation
- Extending premium product line within existing applications
IFF | AR |
MARKET OPPORTUNITY | |
- One of few scaled players in a large, fragmented $29B addressable market
Gates
$29B
Hydraulic Hose | Hydraulic | Industrial Hose | Engine | Oil & Gas |
and Couplings | Tubing | and Couplings | Hose / Electric | Drilling Hose |
Water Pumps |
Total Addressable Market
LEADER IN A HIGHLY FRAGMENTED MARKET WITH OPPORTUNITY TO GROW ACROSS PRODUCT LINES, REGIONS AND END MARKETS
©2020 Gates Corporation. All rights reserved.
GROWTH OPPORTUNITIES - FLUID POWER | 9 | |
GEOGRAPHIC
EXPANSION
Gates Accelerating penetration
in large international core | ||
~$3B | markets | |
| Fragmented emerging | |
markets provide | ||
opportunity |
- Recent Win: Construction application at major OE in Europe
- Value Prop: Gates MXT™ hydraulic hose durability and performance enabled new customer win
EXTEND PREMIUM
PERFORMANCE
Gates Innovative new products
driving differentiated | |
~$3B | competitive position |
Serving diverse end | |
markets with premium | |
performance products |
- Recent Win: High-power wind turbine application at major OE in Europe
- Value Prop: Gates Megasys with XtraTuff™ operates in extreme operating conditions where uptime is key
BROADEN APPLICATION
COVERAGE
Gates | Enhanced innovation |
capabilities enabling | |
~$3B | broadened product |
portfolio to increase | |
addressable market | |
Large opportunity in | |
stationary hydraulics |
- Recent Win: Injection molding OE application at major OE in India
- Value Prop: Gates MXT™ and MXG™ hydraulic hoses are easier to route into tight spaces in machines - a common requirement on stationary applications
SIGNIFICANT RUNWAY TO EXPAND SHARE IN UNDERPENETRATED REGIONS AND
EXTEND PRODUCT PORTFOLIO TO COVER BROADER APPLICATION REQUIREMENTS
Confidential Information. Use and disclosure limited for Gates business purposes only. ©2020 Gates Inc. All rights reserved.
STRONG REPLACEMENT CHANNEL PRESENCE | 10 | |
PORTFOLIO UNITED BY COMMON BUSINESS MODEL
-
Mission-criticalproducts
• Cost of Gates' products insignificant vs. cost of application downtime
Replacement-driven revenue stream | 37% $3.1B |
- Normal wear and tear results in natural, often preventive, maintenance intervals
- Difficult to replicate
FY2019
Revenue
63%
- Broad product coverage across wide range of applications
• Extensive, longstanding global channel presence | Replacement | |
BENEFITS | First-Fit | |
- Lower revenue volatility through the cycle
- Well-positionedto offset inflation
- Higher margins enable reinvestment
WE MANUFACTURE MISSION-CRITICAL, ENGINEERED WEAR PARTS WHOSE COST IS INSIGNIFICANT RELATIVE TO COST OF DOWNTIME
©2020 Gates Corporation. All rights reserved.
DIVERSIFIED END MARKETS | 11 | |
Largest | END MARKET EXPOSURE | Smallest | Industrial/mfg activity | |||||||||||||
| ||||||||||||||||
Industrial End | ||||||||||||||||
| Construction activity | |||||||||||||||
Markets | ||||||||||||||||
35% | | Commodities | ||||||||||||||
REPLACEMENT | General Ind. / Mfg. | Construction | Agriculture | Oil & Gas | HD Truck | Mining | ||||||||||
CHANNELS | Age of fleet (7-12 yrs) | |||||||||||||||
Automotive | ||||||||||||||||
| Miles driven | |||||||||||||||
End Market | ||||||||||||||||
27% | Developed | Emerging | ||||||||||||||
| Equipment production | |||||||||||||||
| Commodities | |||||||||||||||
Industrial End | ||||||||||||||||
| Freight | |||||||||||||||
Markets | ||||||||||||||||
23% | Construction | General Ind. | HD Truck | Agriculture | | Industrial activity | ||||||||||
FIRST-FIT | ||||||||||||||||
China | US | | Production | |||||||||||||
Automotive | ||||||||||||||||
~4% | ~1% | |||||||||||||||
End Market | | Selective participation | ||||||||||||||
15% | Total Sales | Total Sales | ||||||||||||||
FY2019 Revenue | Emerging | Developed | ||||||||||||||
WELL-BALANCED, DIVERSIFIED BUSINESS ACROSS CHANNELS, END MARKETS AND APPLICATIONS
©2020 Gates Corporation. All rights reserved.
DIVERSIFIED GEOGRAPHIES | 12 | |
GEOGRAPHIC DIVERSITY
4%48%
11% $3.1B
FY2019
12% Revenue
25%
North America | Europe, Middle East & Africa | |
East Asia & India | Greater China | |
South America |
GLOBAL PRESENCE
Administrative
Manufacturing
Sales
Major R&D Centers
Warehouse
Regional Headquarters
- Over 120 locations globally
- Strong regional teams in place
- In-region,for-region operating strategy
HIGHLY DIVERSIFIED BUSINESS ACROSS GEOGRAPHIES WITH WELL-ESTABLISHED LOCAL FOOTPRINT AND CHANNEL PRESENCE
©2020 Gates Corporation. All rights reserved.
WINNING THROUGH INNOVATION | 13 | |
PRODUCT
DESIGN
MATERIALS
SCIENCE
PROCESS
ENGINEERING
- Deep understanding of customer applications
- Revitalized innovation and R&D capabilities
- Product roadmaps in place to refresh entire portfolio
- Targeting 25%+ new product vitality1
SHARE GAINS IN EXISTING MARKETS
Commercial Excellence │ Geographic Expansion
TECHNOLOGICAL DISRUPTION
Chain-to-Belt │ Hydraulics Innovations │ Belt-to-Belt
INCREASE OPERATIONAL EFFICIENCY
Process Innovation │ Gates Operating System │ Digital Front End
NEW PRODUCT INNOVATION FOCUSED ON BRINGING DISRUPTIVE TECHNOLOGIES TO MARKET
©2020 Gates Corporation. All rights reserved. | 1 New Product Vitality = % of total revenues from products launched within the past 5 years |
GATES VALUE CREATION PLAYBOOK | 14 | |
CORE | ||
R&D, | GROWTH | |
SALES & | ||
G&A | MKTG | ACCELERATE |
REINVEST FOR | ||
GROWTH | ||
IMPROVE COST | GROWTH | |
STRUCTURE |
EPS GROWTH
CASH GENERATION
COMPOUNDING
RETURNS
- Principles of Gates Operating System are foundational across the organization
- Efficiency improvements across functions
- Gates Production System driving manufacturing productivity
- Inorganic opportunities to accelerate growth
EXPANDING MARGINS TO REINVEST IN THE BUSINESS AND CREATE VALUE FOR SHAREHOLDERS
©2020 Gates Corporation. All rights reserved.
Q3 2020 YTD FINANCIAL PERFORMANCE | 15 | ||
USD in millions
NET SALES
$2,361
$1,999
(13.6%)
Core
(1.8%)
FX
Q3 2019 YTD | Q3 2020 YTD |
23% sequential improvement
in Q3
ADJUSTED EBITDA | ADJUSTED EPS(1) |
$476
$0.76
$344
$0.50
20.2% | 17.2% |
Margin | Margin |
Q3 2019 YTD | Q3 2020 YTD | Q3 2019 YTD | Q3 2020 TYD |
Q3 margin expansion of 40 bps to | Adjusted EPS growth of 16% in Q3 | ||
19.7% compared to prior year |
RESILIENT TOP-LINE PERFORMANCE IN Q3 - OPERATIONAL INITIATIVES DRIVING MARGIN IMPROVEMENT
©2020 Gates Corporation. All rights reserved. | (1) | Adjusted Net Income per diluted share |
(2) | Decremental margin is calculated as the change in Adjusted EBITDA vs. the prior-year period divided by the change in revenue vs. the prior-year period |
BALANCE SHEET AND CASH FLOW | 16 | ||
USD in millions, except multiple data | ||
TRADE WORKING CAPITAL | FREE CASH FLOW | ROIC |
$913 | $857 | 19.7% |
14.2%
$230$261
28.9%31.5%
Q3 2019 LTM | Q3 2020 LTM | Q3 2019 LTM | Q3 2020 LTM | Q3 2019 LTM | Q3 2020 LTM |
Reduced investment in | 128% Free Cash Flow | Q2 '20 negatively impacting | |||
receivables and inventory | Conversion | LTM operating income |
SUBSTANTIAL FREE CASH FLOW GENERATION THROUGH PERIOD OF CHALLENGING MARKET CONDITIONS
Notes: Trade Working Capital: Trade Accounts Receivable plus Inventory minus Trade Accounts Payable; Trade Working Capital is also shown as % of LTM Revenues LTM Free Cash Flow: Net Cash Provided by Operations minus capital expenditures; Free Cash Flow Conversion shown as % of Adjusted Net Income
ROIC: Tax-effected LTM Adjusted EBIT divided by total assets minus cash, accounts payable, deferred tax assets, taxes receivable and intangibles related to 2014 acquisition of Gates
©2020 Gates Corporation. All rights reserved.
LIQUIDITY | 17 | ||
USD in millions | ||
Total | $1,105 | |
RCF | $185 | |
ABL$2471
Cash$672
Total Liquidity - 9/26/20
FINANCIAL COVENANTS
- Revolving credit facility (RCF)
- Undrawn - can be drawn up to 30% with no financial covenants
- >30% draw requires senior secured net leverage <7.15x credit facility EBITDA (3.6x as of Q3 2020)
- Asset-backedloan (ABL)
- Undrawn - can be drawn up to 90% with no financial covenants
- >90% draw requires fixed charge coverage >1.0x (2.2x as of Q3 2020)
MATURITY SCHEDULE2 | $2,338 |
Term | |||||||
Loans | $568 | ||||||
$31 | $25 | $25 | $25 | $0 | Bonds | ||
20203 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 |
STRONG FINANCIAL POSITION OF OVER $1.1 BILLION PROVIDES FLEXIBILITY
(1) | ABL net borrowing capacity as of 9/26/20 | |
©2020 Gates Corporation. All rights reserved. | (2) | RCF and ABL mature in 2023, if drawn |
(3) | Remaining portion of required 2020 principal payments is $13M | |
2020 FRAMEWORK | 18 | |
- Q4 expected to reflect continued sequential improvement
- Absent broad re-implementation of movement restrictions, change in Q4 core revenue anticipated to be in the range of (3%)-1% year- over-year
- Improving profitability
- Second-halfdecrementals expected to be 10% - 15%, compared to previous expectation of ~30%
- Solid cash flow generation
- Investing in working capital to support increased demand
- Capex of ~$70M expected for the full year
- Non-cashdeferred tax impact
- Free Cash Flow Conversion expected to be > 80% of Adjusted Net Income
BUSINESS POSITIONED TO DRIVE IMPROVED PROFITABILITY, PARTICULARLY AS VOLUMES RECOVER
©2020 Gates Corporation. All rights reserved.
CORE GROWTH PERFORMANCE | 19 | |
TRACK RECORD
- Solid performance through 2015-16 industrial downturn, with sales into replacement channels less impacted
- Growth in 2017 and 2018 led by industrial end markets
- 2019 impacted by trade uncertainty and resulting destocking
LONG-TERM PLAN TARGETS
- Maintain >60% replacement channel mix
- Continued growth in larger industrial end markets
KEY INITIATIVES
REVENUE
$3,348M
Chain-to-belt |
• |
$3,042M$3,087M
$2,745M $2,747M
CORE | (1.4)% | +2.5% | +9.0% | +5.9% | (5.7)% |
GROWTH |
2015A | 2016A | 2017A | 2018A | 2019A |
Industrial chain-to-belt conversion | ||
• | Focused TPU commercial execution | |
• | Personal mobility market penetration | |
| Hydraulics expansion | |
| Emerging markets |
MAINTAIN SUSTAINABLE AND PROFITABLE LONG-TERM GROWTH PROFILE
©2020 Gates Corporation. All rights reserved.
INVESTING IN ORGANIC GROWTH WITH ATTRACTIVE RETURNS 20
TRACK RECORD
- Maintenance capex historically ~1.5% of sales, growth capex ~1.5% of sales
- Large investment in new capacity behind us - elevated capex in 2017 & 2018 reflects construction of new plants
- Returns on invested capital typically > 20%
CAPEX5.5%
3.6% | 3.0% | |||||||
3.1% | 0.8% | 2.7% | ||||||
2.5% | ||||||||
1.4% | ||||||||
1.0% | 1.3% | 1.0% | 1.2% | |||||
1.7% | 1.5% | 1.5% | 1.5% | 1.5% | ||||
2015A | 2016A | 2017A | 2018A | ~1.5% | ||||
2019A | ||||||||
New Plant | Other Growth | Maintenance | ||||||
LONG-TERM PLAN TARGETS
- Prioritization of investment in largest end markets
- ROIC > 20%
KEY INITIATIVES
- Support rollout of new technologies
- Upgrading manufacturing processes
- Digital capabilities to support growth
ROIC1
30% | 25.4% | 25.2% | 25.4% | |||
25% | ||||||
20.6% | 19.2% | |||||
20% | ||||||
15% | ||||||
10% | ||||||
5% | ||||||
0% | ||||||
2015A | 2016A | 2017A | 2018A | 2019A | ||
REINVESTING IN DIVERSE SET OF INITIATIVES TO DRIVE ORGANIC GROWTH
©2020 Gates Corporation. All rights reserved. | 1ROIC: Tax-effected Adjusted EBIT divided by total assets minus cash, accounts payable, deferred tax assets, taxes receivable and intangibles related to 2014 acquisition of Gates |
HISTORY OF MARGIN EXPANSION | 21 | |
TRACK RECORD
- Demonstrated ability to expand margins
- 2018 negatively impacted by acquisitions, new plants coming online and costs associated with supply-constrained market
- 2019 headwinds from destocking and lower volumes, as well as new plants
ADJUSTED EBITDA | $756M | |
$669M | $611M | |
$547M | $595M | |
22.6% | ||
22.0% | 19.8% | |
19.9% | 21.7% |
2015A | 2016A | 2017A | 2018A | 2019A |
LONG-TERM PLAN TARGETS
- 24%+ Adjusted EBITDA margin
KEY INITIATIVES
- VA/VE initiatives to optimize performance and cost
- New products with more efficient manufacturing processes
- Pricing actions to offset inflation
- Capitalize on operating leverage
- Continued focus on manufacturing initiatives
DEMONSTRATED ABILITY TO EXPAND ADJUSTED EBITDA MARGIN
©2020 Gates Corporation. All rights reserved.
STRONG CASH GENERATION | 22 | |
TRACK RECORD
- Significant Free Cash Flow generation
- Demonstrated through periods of significant growth, as well as downturns
FREE CASH FLOW | FCF | Tax Refund | New Capacity Capex | |||||
$309M | ||||||||
$278M | ||||||||
167% | ||||||||
100% | ||||||||
$234M | $230M | |||||||
$193M | 112% | 61% | > 80% | |||||
145% | $267M | CASH | ||||||
$266M CONV | ||||||||
144% | $209M | $131M | ||||||
95% | ||||||||
100% | ||||||||
35% | ||||||||
2015A | 2016A | 2017A | 2018A | 2019A |
LONG-TERM PLAN TARGETS
- 100% Free Cash Flow conversion
- Consistent working capital improvement
KEY INITIATIVES
- Operating efficiency to reduce working capital requirements
- Tax efficiency
CHARACTERISTICS OF BUSINESS RESULT IN STRONG THROUGH-THE-CYCLE CASH GENERATION
©2020 Gates Corporation. All rights reserved.
DISCIPLINED CAPITAL DEPLOYMENT | 23 | |
DELEVERAGING | Achieve net leverage of < 3.0x |
| Flexibility on continued debt pay down |
ORGANIC GROWTH | Continue investing in capacity - capex returning to ~3% of sales | |
| Prioritize capital projects with high return on invested capital | |
M&A | Utilize M&A to accelerate organic strategies |
| Focus on deals with high value creation |
DIVIDENDS / | $ | | Near-term focus on deleveraging, organic growth and M&A |
SHARE BUYBACK | | Optionality increases once leverage falls < 3.0x | |
BALANCING DEBT REDUCTION WHILE INVESTING FOR GROWTH
©2020 Gates Corporation. All rights reserved.
GATES INVESTMENT HIGHLIGHTS | 24 | |
- Replacement market focus with mission-critical products
- Large, diverse end markets
- Market leader with broad footprint, product portfolio and channel coverage
- Disruptive innovation drives above-market growth
- Refined commercial capabilities and focus
- Continued opportunity for margin expansion
- Attractive financial profile
- Short-cyclebusiness that has historically rebounded quickly
- Strong team in place with track record of execution
ORGANIC PORTFOLIO TRANSFORMATION IN LARGE, UNDERPENETRATED CORE MARKETS DRIVEN BY INNOVATION
©2020 Gates Corporation. All rights reserved.
APPENDIX
RECONCILIATIONS - ADJUSTED EBITDA AND ADJUSTED | 26 | |
EBITDA MARGIN | ||
(USD in millions) | Q3 YTD 2020 | Q3 YTD 2019 | FY2019 | FY2018 | FY2017 | FY2016 | FY2015 |
Reconciliation to Adjusted EBITDA
Net Income from Continuing Operations | $ | 57.8 | $ | 669.3 | $ | 694.7 | $ | 271.7 | $ | 182.0 | $ | 71.9 | $ | 50.9 | ||||||
Adjusted for: | ||||||||||||||||||||
Income tax (benefit) expense | (31.5) | (497.8) | (495.9) | 31.8 | (72.5) | 21.1 | (9.2) | |||||||||||||
Net interest and other expenses | 99.4 | 107.3 | 148.0 | 193.3 | 293.4 | 212.3 | 147.7 | |||||||||||||
Depreciation and amortization | 163.2 | 167.4 | 222.2 | 218.5 | 212.2 | 240.8 | 269.9 | |||||||||||||
Transaction-related expenses | 5.2 | 0.7 | 2.6 | 6.7 | 18.1 | 0.4 | 0.7 | |||||||||||||
Asset impairments | 5.1 | 0.7 | 0.7 | 0.6 | 2.8 | 3.2 | 51.1 | |||||||||||||
Restructuring expenses | 26.4 | 3.9 | 6.0 | 6.4 | 17.4 | 11.4 | 15.6 | |||||||||||||
Share-based compensation expense | 13.5 | 10.5 | 15.0 | 6.0 | 5.4 | 4.2 | 4.3 | |||||||||||||
Sponsor fees (included in other operating expenses) | 1.9 | 4.9 | 6.5 | 8.0 | 6.7 | 6.1 | 7.0 | |||||||||||||
Inventory impairments and adjustments (included in cost of sales) | 1.4 | 1.3 | 1.2 | 1.5 | 3.2 | 20.7 | 9.6 | |||||||||||||
Duplicate expenses incurred on facility relocation | - | - | - | 5.2 | - | - | - | |||||||||||||
Severance expenses (included in cost of sales) | 0.9 | 3.0 | 4.0 | 1.7 | - | - | - | |||||||||||||
Other primarily severance-related expenses (included in SG&A) | 3.8 | 3.0 | 3.4 | 4.4 | - | - | - | |||||||||||||
Other adjustments | (3.1) | 1.7 | 2.6 | - | 0.4 | 2.8 | (0.4) | |||||||||||||
Adjusted EBITDA | $ | 344.0 | $ | 475.9 | $ | 611.0 | $ | 755.8 | $ | 669.1 | $ | 594.9 | $ | 547.2 |
Adjusted EBITDA margin
Net Sales | $ | 1,998.8 | $ | 2,361.4 | $ | 3,087.1 | $ | 3,347.6 | $ | 3,041.7 | $ | 2,747.0 | $ | 2,745.1 | ||||||
Adjusted EBITDA | $ | 344.0 | $ | 475.9 | $ | 611.0 | $ | 755.8 | $ | 669.1 | $ | 594.9 | $ | 547.2 | ||||||
Adjusted EBITDA margin | 17.2% | 20.2% | 19.8% | 22.6% | 22.0% | 21.7% | 19.9% |
©2020 Gates Corporation. All rights reserved.
RECONCILIATIONS - ADJUSTED NET INCOME | 27 | |
(USD in millions, except share numbers and per share amounts) | Q3 YTD 2020 | Q3 YTD 2019 | FY 2019 | FY2018 | FY2017 | FY2016 | FY2015 |
Reconciliation to Adjusted Net Income
Net Income Attributable to Shareholders | $ | 55.1 | $ | 670.7 | $ | 690.1 | $ | 245.3 | $ | 151.3 | $ | 57.7 | $ | 24.9 | ||||||||||||||
Adjusted for: | ||||||||||||||||||||||||||||
Loss (gain) on disposal of discontinued operations | 0.3 | 0.6 | 0.6 | 0.6 | (0.7) | (12.4) | - | |||||||||||||||||||||
Amortization of intangible assets arising from the 2014 acquisition of Gates | 87.6 | 88.8 | 118.2 | 120.3 | 124.2 | 141.9 | 158.5 | |||||||||||||||||||||
Transaction-related expenses | 5.2 | 0.7 | 2.6 | 6.7 | 18.1 | 0.4 | 0.7 | |||||||||||||||||||||
Asset impairments | 5.1 | 0.7 | 0.7 | 0.6 | 2.8 | 3.2 | 51.1 | |||||||||||||||||||||
Restructuring expenses | 26.4 | 3.9 | 6.0 | 6.4 | 17.4 | 11.4 | 15.6 | |||||||||||||||||||||
Share-based compensation expense | 13.5 | 10.5 | 15.0 | 6.0 | 5.4 | 4.2 | 4.3 | |||||||||||||||||||||
Sponsor fees (included in other operating expenses) | 1.9 | 4.9 | 6.5 | 8.0 | 6.7 | 6.1 | 7.0 | |||||||||||||||||||||
Inventory impairments and adjustments (included in cost of sales) | 1.4 | 1.3 | 1.2 | 1.5 | 3.2 | 20.7 | 9.6 | |||||||||||||||||||||
Adjustments relating to post-retirement benefits | (2.6) | (2.6) | (3.2) | 3.1 | 2.5 | 6.4 | 4.8 | |||||||||||||||||||||
Premium on redemption of long-term debt | - | - | - | 27.0 | - | - | - | |||||||||||||||||||||
Financing-related FX (gains) losses | (4.0) | (1.0) | (0.8) | (8.8) | 61.2 | (7.6) | (62.8) | |||||||||||||||||||||
One-time deferred tax benefit from U.S. tax reform | - | - | - | - | (118.2) | - | - | |||||||||||||||||||||
One-time net tax expense (benefit) | - | (513.0) | (513.0) | - | - | - | - | |||||||||||||||||||||
One-timenon-controlling interest adjustment | - | (15.0) | (15.0) | - | - | - | - | |||||||||||||||||||||
Other adjustments (1) | (14.2) | 1.4 | 1.6 | 0.8 | (10.5) | (8.1) | (10.9) | |||||||||||||||||||||
Estimated tax effect of the above adjustments | (28.9) | (29.1) | (31.2) | (38.3) | (53.9) | (38.9) | (70.0) | |||||||||||||||||||||
Adjusted Net Income | $ | 146.8 | $ | 222.8 | $ | 279.3 | $ | 379.2 | $ | 209.5 | $ | 185.0 | $ | 132.8 | ||||||||||||||
Diluted weighted average number of shares outstanding | 291,883,435 | 291,666,931 | 291,627,461 | 291,698,273 | 250,490,828 | 248,360,187 | 247,674,034 | |||||||||||||||||||||
Adjusted Net Income per diluted share | $ | 0.50 | $ | 0.76 | $ | 0.96 | $ | 1.30 | $ | 0.84 | $ | 0.74 | $ | 0.54 | ||||||||||||||
©2020 Gates Corporation. All rights reserved. | (1) During the nine months ended September 26, 2020, other adjustments included $15.8 million in relation to the non-controlling interest share of the adjustments above, primarily restructuring |
expenses incurred in relation to the closure of our manufacturing facility in Korea. | |
RECONCILIATIONS - FREE CASH FLOW AND FREE CASH | 28 | |
FLOW CONVERSION | ||
(USD in millions) | LTM Q3 2020 | LTM Q3 2019 | FY2019 | FY2018 | FY2017 | FY2016 | FY2015 | ||||||
Reconciliation of Free Cash Flow
Net Cash Provided by Operations | $ | 331.2 | $ | 316.4 | $ | 348.9 | $ | 313.5 | $ | 319.9 | $ | 376.7 | $ | 278.6 | |||||||
Capital Expenditures (1) | $ | (70.2) | $ | (86.3) | (83.1) | (182.7) | (111.1) | (68.1) | (85.8) | ||||||||||||
Free Cash Flow | $ | 261.0 | $ | 230.1 | $ | 265.8 | $ | 130.8 | $ | 208.8 | $ | 308.6 | $ | 192.8 | |||||||
Adjusted Net Income | $ | 203.3 | $ | 327.7 | $ | 279.3 | $ | 379.2 | $ | 209.5 | $ | 185.0 | $ | 132.8 | |||||||
Free Cash Flow Conversion | 128.4% | 70.2% | 95.2% | 34.5% | 99.7% | 166.8% | 145.2% |
©2020 Gates Corporation. All rights reserved. (1) Capital expenditures represent purchases of property, plant and equipment and purchases of intangible assets.
RECONCILIATIONS - RETURN ON INVESTED CAPITAL (ROIC) | 29 | |
(USD in millions) | Q3 2020 | Q3 2020 | FY 2019 | FY 2018 | FY 2017 | FY 2016 | FY 2015 |
Return On Invested Capital (ROIC)
LTM Adjusted EBITDA | $ | 479.1 | $ | 661.7 | $ | 611.0 | $ | 755.8 | $ | 669.1 | $ | 594.9 | $ | 547.2 | ||||||||||||||||||||||||||||||
LTM Total depreciation and amortization | (218.0) | (222.6) | (222.2) | (218.5) | (212.2) | (240.8) | (269.9) | |||||||||||||||||||||||||||||||||||||
LTM Amortization of intangible assets arising from the 2014 acquisition of Gates | 117.0 | 118.3 | 118.2 | 120.3 | 124.2 | 141.9 | 158.5 | |||||||||||||||||||||||||||||||||||||
LTM Adjusted EBIT | 378.1 | 557.4 | 507.0 | 657.6 | 581.1 | 496.0 | 435.8 | |||||||||||||||||||||||||||||||||||||
Notional tax at 25% | (94.5) | (139.3) | (126.8) | (164.4) | (145.3) | (124.0) | (109.0) | |||||||||||||||||||||||||||||||||||||
LTM Tax-effected Adjusted EBIT | $ | 283.6 | $ | 418.1 | $ | 380.2 | $ | 493.2 | $ | 435.8 | $ | 372.0 | $ | 326.8 | ||||||||||||||||||||||||||||||
Total Assets | $ | 7,335.7 | $ | 7,285.9 | $ | 7,411.3 | $ | 6,722.6 | $ | 6,853.7 | $ | 6,383.3 | $ | 6,565.6 | ||||||||||||||||||||||||||||||
Adjusted for: | ||||||||||||||||||||||||||||||||||||||||||||
Cash | (672.3) | (456.1) | (635.3) | (423.4) | (564.4) | (527.2) | (340.2) | |||||||||||||||||||||||||||||||||||||
Taxes receivable | (53.9) | (59.0) | (45.1) | (35.1) | (46.8) | (41.0) | (44.1) | |||||||||||||||||||||||||||||||||||||
Deferred tax assets | (620.4) | (552.6) | (587.1) | (5.1) | (5.8) | (2.4) | (3.1) | |||||||||||||||||||||||||||||||||||||
Accounts payable | (339.4) | (328.5) | (374.7) | (424.0) | (392.0) | (313.1) | (274.0) | |||||||||||||||||||||||||||||||||||||
Intangibles arising from the acquisition of Gates | (3,652.8) | (3,768.7) | (3,788.8) | (3,890.4) | (4,114.5) | (4,034.2) | (4,318.0) | |||||||||||||||||||||||||||||||||||||
Invested Capital | $ | 1,996.9 | $ | 2,121.0 | $ | 1,980.3 | $ | 1,944.6 | $ | 1,730.2 | $ | 1,465.4 | $ | 1,586.2 | ||||||||||||||||||||||||||||||
Return On Invested Capital | 14.2% | 19.7% | 19.2% | 25.4% | 25.2% | 25.4% | 20.6% |
©2020 Gates Corporation. All rights reserved.
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Gates Corporation plc published this content on 13 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 November 2020 09:58:01 UTC