Investor Presentation

Engineered for Performance
Baird Industrial Conference Investor Presentation
2015 Fourth Quarter
Presenter: Steve Macadam – President and CEO
Forward-Looking Statements
Statements in presentation that express a belief, expectation or intention, as well as those that are not historical
fact, are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They involve a
number of risks and uncertainties that may cause actual events and results to differ materially from such forwardlooking statements. These risks and uncertainties include, but are not limited to: general economic conditions in
the markets served by our businesses, some of which are cyclical and experience periodic downturns; the effect of
changes in currency exchange rates, expected volumes of purchases of parts denominated in euros used for
engines to be sold in U.S. dollars; prices and availability of raw materials; and the amount of any payments
required to satisfy contingent liabilities related to discontinued operations of our predecessors, including liabilities
for certain products, environmental matters, guaranteed debt payments, employee benefit obligations and other
matters. In addition, adverse developments could arise in regard to voluntary petitions filed by certain of our
subsidiaries in U.S. Bankruptcy Court to establish a trust that would resolve all current and future asbestos claims.
Our filings with the Securities and Exchange Commission, including the Form 10-K for the year ended December
31, 2014 and form 10-Q for the quarter ended September 30, 2015, describe these and other risks and
uncertainties in more detail. We do not undertake to update any forward-looking statement made in this
presentation to reflect any change in management's expectations or any change in the assumptions or
circumstances on which such statements are based.
We own a number of direct and indirect subsidiaries and, from time to time, we may refer collectively to EnPro
and one or more of our subsidiaries as “we” or to the businesses, assets, debts or affairs of EnPro or a subsidiary as
“ours.” These and similar references are for convenience only and should not be construed to change the fact that
EnPro and each subsidiary is an independent entity with separate management, operations, obligations and
affairs.
This presentation also contains certain non-GAAP financial measures as defined by the Securities Exchange
Commission. A reconciliation of these measures to the most directly comparable GAAP equivalents is included as
an appendix to this presentation. We will also be referencing certain pro forma unaudited condensed consolidated
financials. Please refer to our earnings releases for important information regarding how pro forma financial
information is derived, as well as related risks and uncertainties.
2
EnPro Industries Snapshot
● NYSE listed symbol:
● Market Cap.:
~$1 Billion
● Shares outstanding:
~22 million
● Dividend / Div.Yield:
● # Employees
Sales
(NPO)
1,295*
190
1,378 *
1,338*
194
194
1,184
1,144
1,404*
1,370*
185
171
1,219
1,199
$0.80 / 1.6%
~6,400
1,106
● History: founded June 1, 2002
— Spin-off from Goodrich Corp.
2011A
2012A
2013A
25%
Consolidated Sales
— Several brands >100 years old
● Report in 3 segments
2014A
GST Sales**
TTM-Sept
2015
Adjusted EBITDA
— Sealing Products
— Engineered Products
205*
— Power Systems
225*
53
50
216 *
208*
200*
61
52
45
● Garlock Sealing Technologies (GST)
— Deconsolidated business
155
172
155
156
155
2011A
2012A
2013A
2014A
TTM-Sept
2015
— Chapter 11 bankruptcy protection from
asbestos-related claims
— A profitable business
* Pro forma; see pro forma financials in our earnings releases
**GST Sales are net of inter-company sales
3
Consolidated Adj. EBITDA
GST Adj. EBITDA
Critical and Demanding Applications
Demanding operating
environments such as…
Commercial and strategic advantages
● Extreme performance requirements
● Significant switching costs and barriers to
entry
● High level of customer loyalty
● Highly corrosive
● Strong, value based pricing leverage
● Extreme temperature and or pressure
● Significant conversion value-add
● Very long life
…where the quality and reliability
of products are critical
Financial impact
● Nuclear reactor pressure vessel seals
● 12-18% return on capital (mid/high 20%
pre-goodwill)
● Aircraft engine & landing gear seals
and bearings
● Low to mid-teen operating margin
expectations
● Petroleum/chemical refinery process
sealing
● 1-2% annual pricing improvement
● Class 8 truck wheel ends and brakes
● Limited sales churn
● Semiconductor fab plant clean rooms
Critical nature of products leads to significant commercial and strategic advantages
4
Leading Brands Drive Recurring Business
Core Brands
Select Supporting Brands
Flagship Products
● Gylon
● Klozure
● Lubrikup
● Pikotek
● PSI
● Gar-Seal
● PTFE based gasket material for
high pressure, high temperature
applications
● Pro-Torq
● STEMCO Duroline
● STEMCO Kaiser
● Aeris
● Class 8 truck wheel-end seals,
bearings and accessories
● Helicoflex
● Cefil‘Air
● Origraf
● Bio-Guardian
● Feltmetal
● Spring energized seals, advanced
polymer seals, abradable seals,
and edge welded bellows seals
● DU
● DX
● DP-4
● GAR-MAX
● Metal and polymer-backed, selflubricating plain bearings
● Hi-Flo
● Twin Ring
● Valvealert
● High flow valves, piston and rider
rings, and monitoring devices
● FM/Alco
● FM OP Engines
● FM-MAN
● Colt-Pielstick
● Medium-speed diesel engines
for marine and stationary power
applications
5
Highly Diversified Business
Leads to Stable Cash Flows
2014 Consolidated Sales by Market
Other Industry
Chemical & Materials
Processing
Power Generation
7%
20%
9%
Free Cash Flow Generation(1) (2)
Medium/HeavyDuty Truck
($ in millions)
6%
Aerospace
3%
Electronics &
Semiconductors
5%
14%
18%
General
Industry
168 *
Oil & Gas
47
12%
6%
177 *
166*
146*
46
52
Defense
45
Auto
Avg. with
GST $158
135*
41
2014 Consolidated Sales by Geography
Other
Latin America
121
131
115
Canada
Asia Pacific
5%
101
94
3%3%
7%
Europe
26%
57%
2011A
United
States
2012A
EnPro - FCF
2013A
2014A
TTM-Sept
2015
GST - FCF
Diversified geographic and end market mix leads to stable cash flow generation
* Pro forma; see pro forma financials in our earnings releases
(1) FCF defined as adjusted EBITDA less capital expenditures.
(2) Refer to Appendix for EnPro and GST FCF reconciliations to Net Income
6
Avg. w/o
GST $112
Overview of EnPro Industries, Inc. (1)
($ in millions)
Engineered Products
Sealing Products
Revenue:
$685.2
OI:
$84.4
Margin:
12.3%
Revenue:
$310.0
OI:
$12.1
Margin:
3.9%
Power Systems
Revenue:
$206.7
OI:
$28.2
Margin:
13.6%
Products
●
●
●
●
Gaskets & Packing
Oil Seals
Isolators
Spacers
● Polymer Products
● High Performance
Metal Seals
● Brush Seals
● Bellows
● Turbine hot path
●
●
●
●
Wheel End
Suspension
Brake Products
Intelligent
Transportation
Systems
● Electronics &
Semiconductors
● Aerospace
● Power Generation
● General Industry
● Oil & Gas
● Food & Beverage
● Other Industries
● Medium/Heavy
Duty Truck
● Other Industries
● Plain Bearings
● Bushing Blocks
● Bearing
Assemblies
● Reciprocating
Compressor
● Auto
● General Industry
● Mobile &
Agriculture
Equipment
● Other Industries
●
●
●
●
• Sealing
Components
• Lubrication
Systems
● Medium-speed Diesel
Engines
● Parts & Service
● Systems Packager
End Markets
●
●
●
●
●
●
●
General Industry
Oil & Gas
Basic Materials
Chemical Processing
Power Generation
Water
Other Industries
Oil & Gas
Compressors
Services
Chemical
Processing
● Other Industries
● Commercial
● Government
Notes:
The financial information does not include results for GST. All numbers are for the last twelve months for the period ended September 30, 2015.
(1) Refer to Appendix for Reconciliation of Revenue and Segment OI
7
Sealing Products
Secular Market Trends
Sales and Segment Profit*
● Aging global infrastructure of pipelines
● Low oil and gas prices driving demand for petro-chem
● Growing durable goods shipments by trucking
609
623
14.6%
15.6%
2012A
2013A
664
685
12.9%
12.3%
2014A
TTM-Sept 2015
535
● Global growth of distributed power
● Growth in global aerospace production
15.2%
Organic Growth Strategies
● Leverage commercial synergies from acquisitions
2011A
● New Product development
•
Food & pharma sealing
•
Aerospace applications and sub-systems
•
Aeris mileage and safety systems
25%
Reported Sales
Reported OI %
2014 Sales Mix
Sales by geography
Sales by channel
OEM
Inorganic Growth Strategies
38%
● Increase size of addressable market
Canada
Asia
Pacific
Other
6%
6%
8%
● Gain scale in Asia
● Grow presence in aerospace and industrial turbine
20%
60%
Europe
62%
*Does not include GST LLC or its subsidiaries
8
Aftermarket
United
States
Engineered Products
Secular Market Trends
Sales and Segment Profit
● Industrial activity in Europe and N. America: slow growth
387
363
● Growing adoption of plain bearings
358
356
310
● Automotive markets have been steady
● W. Canada gas patch not expected to rebound soon
7.6%
Organic Growth Strategies
7.5%
5.6%
4.9%
3.9%
● Focus on core industrial markets at CPI
● Convert more of U.S. industrial market to plain bearings
2011A
25%
● Leverage global manufacturing and service presence
2012A
2013A
2014A
Reported Sales
TTM-Sept 2015
Reported OI %
2014 Sales Mix
Strategic Focus
Sales by geography
Sales by channel
● Restructure CPI to right size for demand levels
Latin America Other
Canada
● Improve operational performance
● Tightly manage SG&A costs
66%
34%
Aftermarket
*Does not include subsidiaries of GST LLC
9
Asia
Pacific
7%
United
States
4% 4%
27%
8%
OEM
50%
Europe
Power Systems
Secular Market Trends
Sales and Segment Profit
● Global growth of distributed power
215
● Marine defense spending at steady level
186
200
207
14.2%
13.7%
2014A
TTM-Sept 2015
168
Organic Growth Strategies
● Leverage MAN commercial agreement for engines
18.3%
16.5%
● Expand commercial service offerings
8.3%
● Service & upgrade installed engines globally
● New Product development
•
OP 2.0 engine development
•
Backup power for nuclear sites
2011A
25%
2012A
2013A
Reported Sales
Reported OI %
2014 Sales Mix
Inorganic Growth Strategies
Sales by geography
Sales by channel
OEM
● Expand in commercial product and service offerings
Other
41%
3%
● Build channel to market for OP 2.0
United
States
59%
*Does not include subsidiaries of GST LLC
10
Aftermarket
97%
Capital Allocation
Refined Priorities Govern Go-Forward Capital Deployment Strategy
Capital Allocation
Priorities
Sustaining &
Maintenance
CapEx
Smallish investments (~$50k – $250k) with a high level
of flexibility on timing
Generally additional payout in efficiency and uptime
$30-$35M
(Annual)
• Cell automation
• CNC and other machine
upgrade/ replacement
Medium size ($500k – $1M) to develop new products,
serve new platforms or enter new markets
Selective large size ($1M+) multi-year, major new
product platforms
$10-$15M
(Annual)
• Friction plant construction
• FME’s OP2.0
• Stemco’s new product
development
• TG’s HD seals
•
Bolt-on/tuck-in acquisitions to enhance core growth
strategies focused in Sealing Products and Power
Systems
$75-$100M
(Annual)
• Fabrico (Technetics)
• ATD (Stemco)
• Veyance (Stemco)
•
Reward shareholders and broaden investor pool
$20-$25M
(Annual)
• Recently initiated $0.20
per share quarterly
dividend
•
Return surplus cash to shareholders and achieve optimal
balance sheet capacity of ~2x EBITDA
•
•
•
Long-Term R&D
& Growth
Inorganic
Investments
Competitive
Dividend Policy
Share
Repurchase
Representative
Examples
Basic Principles & Characteristics
•
11
$50M
(Current Program)
• $80M share repurchase
program in early 2015
• Convertible debt purchases
Understanding the Asbestos
Claims Resolution Process
12
GST’s Asbestos Claims Resolution Process
● GST sought protection from asbestos claims on June 5, 2010 via voluntary
bankruptcy protection
• Fully operational wholly-owned subsidiary of EnPro
• Deconsolidated from EnPro financial results
● Court also enjoined affiliate asbestos claims
• Preserved remaining common insurance for GST
• Protects EnPro and other EnPro businesses during case
● Liability estimate was volatile
• Assumptions challenged by tort system abuses, concealment of 524g trust claims on
other companies
• Insurance was diminishing
● Presiding judge endorsed GST’s liability estimate on January 10, 2014
• Scientific evidence showed product did not contribute to asbestos-related diseases
• $125M versus claimants’ estimates of $970M - $1.26B for mesothelioma liability
• Sets path to permanent resolution of asbestos claims
13
Clear Path to Resolution
with Recent Court Order
● Total plan valued at $315M (pre-tax, NPV)+ $47M (NPV) contingent litigation
• Provides premium over court’s $125M estimate for current and future mesothelioma
claims and administrative costs
• Offers settlement amounts greater than litigation values, and claims are unimpaired
• Has the support of the Future Claimant’s Representative
• GST and Coltec (EnPro’s sub) have the means to fund the facilities
● Plan is based in U.S. Bankruptcy law
• Can be confirmed by the Bankruptcy Court
• Can be funded by assets currently available
• Preserves equity in GST for Coltec
• Does not require favorable vote by claimants
● Next steps toward Reconsolidation
• Court date for hearing on reorganization plan set for June 20, 2016
• Continue to seek settlement plan with all parties (GST, ACC and FCR)
14
GST is a Valuable Business
with Substantial Assets (1)
($ Millions)
09/30/15
Cash and investments
$263
Asbestos insurance receivable
$80
Note receivable from affiliates
$283
Assets
Short-term receivable from affiliate
$24
Key Financial Data 09/30/15 TTM
Deconsolidated
GST
($ millions)
$202
Third Party Sales*
Segment/Operating Profit**
$38
Adjusted EBITDA-A**
$45
* Third party sales do not include intercompany sales between GST and Consolidated EnPro
** Segment profit is before asbestos-related (income) or expense
** Earnings before interest, income tax, depreciation, amortization and asbestos-related expense, including ACRP expense.
(1) Refer to Appendix for Reconciliation to GST Operating Profit
15
Leverage Statistics(1)
Consolidating
and Plan
Adjustments
Pro Forma
Consolidation
after Plan
Adjustments
NPO
GST
$1,198.9
$222.7
$(51.2)
$1,370.4
154.8
45.4
--
200.2
$92.0
$263.3
(193.4)
$161.9
Third Party Debt
379.0
--
Intercompany Debt
307.2
--
(307.2)
--
--
80.0
(4.2)
75.8
30.0
339.1
(295.2)
73.9
$624.2
N/A
N/A
$215.2
4.0x
N/A
N/A
1.1x
($ in millions)
Income Statement Metrics: (TTM)
Net Sales
Adjusted EBITDA
Net Debt Components:
Cash and Investments
Asbestos Insurance Receivable
Asbestos Liability
Adjusted Net Debt
Adjusted Net Debt / Adjusted EBITDA
379.0
(1) Information as of September 30, 2015. Additional detail, assumptions, and qualifications available in the Q3 2015 Earnings Release press release
dated October 29, 2015.
16
Peer Comparison
TTM Enterprise Value/EBITDA Multiple(1)(2)
(1) EV/EBITDA TTM multiples per Capital IQ as of 11.03.15.
(2) Pro Forma EV/EBITDA TTM multiple incorporates Adjusted EBITDA; assumes reconsolidation of GST.
17
Why Invest in EnPro?
Critical Nature of Products Leads to Commercial and Strategic Advantages
Leading Brands Drive a Portfolio of Attractive, Recurring Business
Highly Diversified Business Leads to Stable Cash Flows
Growth Focus Includes Multiple Levers
Disciplined Investment Strategy
Favorable ACRP Developments
Attractive Share Price Relative to Peers
18
Questions?
19
Appendix
20
EnPro Adjusted EBITDA & FCF Reconciliation
FY
2011
FY
2012
FY
2013
FY
2014
TTM
9/30/15
$44.2
$41.0
$27.4
$22.0
$(23.7)
Interest Expense, net
39.6
42.8
44.3
44.1
51.2
Income Tax Expense
20.8
22.5
8.4
10.6
2.6
Depreciation and Amortization
48.4
55.5
56.6
57.5
57.8
1.4
5.0
6.7
2.3
3.4
1.2
6.3
4.5
4.8
-
-
-
30.0
30.0
-
-
-
-
47.0
-
-
-
10.0
2.8
-
-
-
(27.7)
(27.7)
0.8
4.2
5.1
2.1
6.6
$155.2
$172.2
$154.8
$155.4
$154.8
(34.3)
(40.9)
(39.9)
(54.7)
(61.0)
$120.9
$131.3
$114.9
$100.7
$93.8
($ in millions)
Net Income
Plus:
Restructuring Costs
Environmental Reserve Adjustment
Asbestos-Related Expenses
Goodwill and Intangible Impairment
Loss on Debt Exchange
Gain on Sale of Business
Other
Adjusted EBITDA
Less: Capital Expenditures
Free Cash Flow
-
21
GST Adjusted EBITDA & FCF Reconciliation
FY
2011
FY
2012
FY
2013
FY
2014
$32.7
$29.8
$21.4
$113.8
($12.8)
Interest Income, net
(26.8)
(27.9)
(29.7)
(31.0)
(31.9)
Income Tax Expense
19.6
16.3
18.7
72.9
3.0
Depreciation and Amortization
5.3
5.6
6.0
6.4
6.8
Restructuring Costs
1.0
1.1
0.4
1.5
1.4
Asbestos-Related Expenses
19.7
29.8
46.9
(110.7)
79.6
Other
(1.4)
(1.6)
(2.3)
(0.8)
(0.7)
$50.1
$53.1
$61.4
$52.1
$45.4
(3.3)
(7.1)
(9.9)
(7.0)
(4.3)
$46.8
$46.0
$51.5
$45.1
$41.1
($ in millions)
Net Income
TTM
09/30/15
Plus:
Adjusted EBITDA
Less: Capital Expenditures
Free Cash Flow
22
EnPro Segment Information Reconciliation
(unaudited) for TTM September 30, 2015
In millions of $
Sales
Sealing Products
Engineered Products
Power Systems
$
685.2
310.0
206.7
1,201.9
(3.0)
$
1,198.9
$
84.4
12.1
28.3
$
124.8
Less intersegment sales
Segment Profit
Sealing Products
Engineered Products
Power Systems
Segment Margin
Sealing Products
Engineered Products
Power Systems
12.3%
3.9%
13.7%
10.4%
Segment profit
$
Corporate expenses
Goodwill and other intangible asset impairment
Asbestos settlement provision
Interest expense, net
Other expense, net
124.8
(31.5)
(47.0)
(30.0)
(51.2)
13.8
Income (loss) before income taxes
Income tax expense
(21.1)
(2.6)
Net income (loss)
$
(23.7)
Segment profit is total segment revenue reduced by operating expenses and restructuring and other costs
identifiable with the segment. Corporate expenses include general corporate administrative costs. Expenses not
directly attributable to the segments, corporate expenses, impairment charges, net interest expense, gains/losses
related to the sale of assets and income taxes are not included in the computation of segment profit. The
accounting policies of the reportable segments are the same as those for the Company.
23
Historical Financial Performance(1)
Net Sales*
($ in millions)
$1,105.5
185.8
386.7
534.9
FY 2011
$1,184.2
$1,144.2
$1,219.3
$1,198.9
200.1
206.7
357.6
310.0
214.6
167.6
363.0
356.4
609.1
622.9
664.3
685.2
FY 2012
FY 2013
FY 2014
9/30 TTM
Sealing Products
*Total Net Sales excludes intersegment sales
GST Sales not included
Engineered Products
24
Power Systems
Historical Financial Performance(1)
Adjusted EBITDA and Margin %
($ in millions)
$172.2
$155.2
$154.8
$155.4
$154.8
14.5%
14.0%
13.5%
12.7%
FY 2011
FY 2012
FY 2013
Adjusted EBITDA
(1) GST EBITDA not included
25
FY 2014
EBITDA Margin
12.9%
9/30 TTM
Working Capital & Capital Expenditures
Operating Working Capital(1)
($ in millions, TTM as of Sept. 30 2015)
156 *
247 *
184*
173*
40
35
12.6%
13.7%
11.5%
11.7%
12.6%
2011A
Reported OWC
2012A
28
12.0%
127
144
139
GST OWC
208*
48
45
18.0%
14.8%
16.6%
13.3%
199
162
2013A
2014A
Reported OWC %
9/30 TTM
Pro Forma OWC %
Capital Expenditures(1)(2)
($ in millions, TTM as of Sept. 30, 2015)
65*
4
61
62 *
48*
50*
38*
3
34
7
10
41
40
2.9%
3.5%
3.7%
3.1%
3.5%
3.5%
7
55
4.4%
4.8%
4.5%
5.1%
2011A
2012A
2013A
2014A
Reported Capex
GST Capex
Reported Capex %
* Pro forma
(1) Some numbers don’t sum to total due to rounding.
(2) Excludes acquisition costs.
●
Operating working capital (“OWC”)
defined as Accounts Receivables +
Inventories + Prepaids – Accounts
Payable – Accrued Liabilities
●
OWC % of sales fairly flat, historically
between 12%-15%
●
2014 increase due to Stemco
distribution center and FM engine
build
●
2015 increase partly due to mid-year
acquisition
●
Includes capitalized software
●
Higher capital spending in 2014 due to
facility purchases at GGB and CPI,
Stemco brake friction line expansion
(also expected in 2015), and ERP
investments
• Higher than normal spending will
continue in 2015
●
LTM
Pro Forma Capex %
26
Steady-state capital expenditures
• $40+/- million per year