DECEMBER 12, 2017 | NEW YORK CITY · Everything from carbon fibers and reinforcement fabrics to...
Transcript of DECEMBER 12, 2017 | NEW YORK CITY · Everything from carbon fibers and reinforcement fabrics to...
1 ©2017 Hexcel. All rights reserved.
DECEMBER 12, 2017 | NEW YORK CITY
2 ©2017 Hexcel. All rights reserved.
Certain statements contained in this presentation constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements that are not of historical fact constitute “forward-looking statements” and accordingly, involve estimates, assumptions, judgments and uncertainties. There are a number of factors that could cause actual results or outcomes to differ materially from those addressed in the forward-looking statements. Such factors are detailed in the Forward Looking Statements and Risk Factors sections of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and its third quarter 2017 quarterly report on Form 10Q filed with the Securities and Exchange Commission. We do not undertake an obligation to update our forward-looking statements to reflect future events.
Risks, Uncertainties and Other Factors with Respect to Forward-Looking Statements Disclaimer
3 ©2017 Hexcel. All rights reserved.
HEXCEL IS A GLOBAL LEADER IN ADVANCED COMPOSITES TECHNOLOGY
Technology leader with a broad range of materials/products/qualifications
Leading, sole source positions in key markets with high barriers to entry
Excellent customer relationships
LTM September 2017 Sales | $1.945 billionU.S. 44% | Europe 43% | Other 13% Growing share of long-term growth markets
Long history of creating shareholder value
Sustainable competitive advantage
4 ©2017 Hexcel. All rights reserved.
REASONS TO INVEST IN HEXCELInvesting in Innovation | Achieving Operational Excellence | Growing Shareholder Return
Unrivaled product portfolio
Investments in markets with long-term growth
potential
Technology and innovation for
sustained growth
Leadership in Attractive Markets
Culture of Innovation
Operational Excellence
Increasing Shareholder Value
Driving productivity through optimized
performance
ROIC well above cost of capital
25% increase in quarterly dividends since 2015
75% of net income returned to shareholders since 2014
Proven execution, strong earnings growth, exceptional cash generation
5 ©2017 Hexcel. All rights reserved.
INDUSTRY-LEADING MARKET POSITIONS Our technology enables sole source
positions with high barriers to entry We offer innovative, high-value
materials and products Composite content is growing in
technology-intensive markets Ramp-up in build rates for composite-
intensive programs creates growth COMMERCIAL AEROSPACEAirbus and BoeingEngines/Nacelles
Regional/Business
SPACE & DEFENSERotorcraft
Military AircraftLaunch Vehicles
Satellites
INDUSTRIALWind Energy
AutomotiveRecreation
Other
72%
17% 11%
Growth fueled by composite penetration and technology innovation
LTM Sales, Sept 30, 2017
6 ©2017 Hexcel. All rights reserved.
WE HAVE AN UNRIVALED RANGE OF PRODUCTSEverything from carbon fibers and reinforcement fabrics to prepregs, honeycomb core, tooling materials and more . . . from raw materials to fly away parts . . . vertical integration is a strength and a differentiator.
CARBON FIBERA320neo sharklets
A350 primary structureLEAP fan blades/case
F-35 wings
REINFORCEMENTSAerospace primary and secondary structures
Aircraft radomes787 stringers
CARBON PREPREGSAerospace primary and secondary structures
A350 fuselage and wingsGE90 fan blade
BMW 7 Series B-pillar
HONEYCOMBRotorcraft bladesNacelle structures
Aircraft flooringAcousti-Cap®
GLASS PREPREGSWind turbine blades
Aerospace wing-to-body fairingsAerospace secondary structures
ENGINEERED PRODUCTS
Structural assembliesMachine/shaped core
Tooling systemCompression molded parts
Strong | stiff | lightweight | fatigue resistant | corrosion resistant
7 ©2017 Hexcel. All rights reserved.
Leveraged sales to the bottom line and cash
RECENT FINANCIAL PERFORMANCE$ millions, except EPS
Results from 2012 to 2016
SALES ADJUSTED DILUTED EPS
• Sales: Up $426 million (+27%)• Adjusted Earnings Per Share: Up $1.02 per share (+65%)• Cash from Operations: Up $169 million (+73%)
2012 2013 2014 2015 2016 2017E
$1,5
78
$1,6
78
$1,8
56
$1,8
61
$2,0
04
$2.1
6
$2.3
2
2012 2013 2014 2015 2016 2017E
$273 $3
18
$301
$401
2012 2013 2014 2015 2016 2017E
$1.5
6
$1.8
5
$2.5
8
CASH FROM OPERATIONS
$232
8 ©2017 Hexcel. All rights reserved.
TOTALSHAREHOLDER RETURNShare price % appreciation + Dividend yield
Hexcel continues to be an excellent investment
12/31/2011 2012 2013 2014 2015 2016 12/8/2017
$23.
56
$26.
15
$43.
59
$40.
29 $45.
47 $50.
98
$60.
64
Cash flow accelerating Margins growing Disciplined capital deployment Markets growing
157%Increase
9 ©2017 Hexcel. All rights reserved.
COMMERCIAL AEROSPACECommercial Aviation | Engines/Nacelles | Business & Regional Jets
Growing composites secular penetration Strong global demand – nine-year backlog (Airbus &
Boeing) Growing build rates for narrow body programs;
increased shipset content for A320neo and B737 MAX over legacy programs
$944$1,085
$1,215$1,286
$1,429$ millions
Airbus and Boeing Other Commercial Aerospace
72%
2012 2013 2014 2015 2016 2017E
10 ©2017 Hexcel. All rights reserved.
COMMERCIAL AEROSPACE COMPOSITES PENETRATIONComposite content percentage by weight Continued secular
penetration with next-generation:
• Primary structure• Secondary structure• Engines and nacelles
11 ©2017 Hexcel. All rights reserved.
~41,000 new aircraft deliveries, worth ~ $6.1 trillion
COMMERCIAL AEROSPACE OUTLOOK 2017-2036Global passenger traffic up ~7.5% in 2017 and forecasted to be up another 6% in 2018
~35,000 new aircraft deliveries over the period, worth ~ $5.3 trillion
AIRBUS GLOBAL MARKET FORECAST BOEING GLOBAL MARKET FORECAST
Small widebody5,050
Freighters920
Other widebody3,160
Regional2,370
Single aisle 29,530
Single aisle 24,807
Twin aisle 8,686
Large aircraft1,406
12 ©2017 Hexcel. All rights reserved.
Single Aisle Legacy Single Aisle New Widebody Legacy Widebody New Jumbo
0
2000
4000
6000
8000
10000
12000
14000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 BacklogSept 30
AIRBUS AND BOEING BACKLOGBacklog is worth more than $10 billion to Hexcel
A320 family/single aisle 5,488
A330, A350 1,057
A380 100
737 4,431
747 17
767 101
777 101
777x 326
787 683
13 ©2017 Hexcel. All rights reserved.
SPACE & DEFENSERotorcraft | Fighters | Launch Vehicles | Transport
Well-positioned, diverse applications Hexcel carbon fiber is the industry standard Rotorcraft are ~50% of sales Hexcel content is significant on strong-performing
programs such as JSF, A400M, V22, CH-53K, Blackhawk
$357 $376 $376$337 $322
17%
$ millions
2012 2013 2014 2015 2016 2017E
14 ©2017 Hexcel. All rights reserved.
CH-53K starts in 2019
Strong demand forLegacy programs
(Blackhawk and Apache)
Expect recovery for civil helicopters through 2020
DEFENSE ROTORCRAFT SPACE
Sikorsky CH-53K
F-35 (JSF) ramp-up continues
KC-46 Tanker & KC-390 Transport deliveries starting 2018 and
ramping
Projected market growth as U.S. and European defense spending
expected to increase
Lockheed Martin F-35A Lightning II
SPACE & DEFENSE OUTLOOK through 2020
OATK Next Gen Launch Vehicle
Market for legacy satellitelaunchers steady (Delta IV, Ares)
Emerging new entrants allowing for new positions for growth in launchers, missiles,
UAVs and satellites (SpaceX Falcon 9)
Opportunities for growth with new developments for U.S. Air Force, NASA
15 ©2017 Hexcel. All rights reserved.
INDUSTRIALWind Energy | Automotive | Recreation | Infrastructure | Marine
Broad range of performance applications Wind energy comprises ~50% of the total
• Significant step-up expected in 2018• Multi-year contract with Vestas announced
Automotive accelerating composite adoption
$277
$218
$264$238
$253
$ millions
11%
2012 2013 2014 2015 2016 2017E
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Less weight + electrification is driving composite adoption
Focus is on early adopters of composite technology
Advancing our capability via automation to develop composite
solutions
WIND ENERGY AUTOMOTIVE INDUSTRIAL SPECIALTIES
Expected to return to growth in 2018
Greater turbine efficiency requires larger, lighter blades – which drives
segment composite growth
Vestas backlog remains strong at more than $10 billion for turbines
INDUSTRIAL OUTLOOK 2017-2020
Sport & Leisure: Positioned for 1.5x growth rate over the period
Marine: Fuel efficiencies and performance drive composites growth
Infrastructure: Growth driven from building and water piping projects
17 ©2017 Hexcel. All rights reserved.
CUSTOMER COMMMITMENT IS STRONGSustainable competitive advantages driving contract wins, sole source positions, content growth and market share gains
OCTOBER 30, 2017Hexcel and UTC Aerospace Systems Extend Contract for Prepregsthrough 2030
OCTOBER 16, 2017Hexcel and Vestas Expand Multi-Year Composite Materials Supply Agreement for Wind Blades
JUNE 22, 2017Airbus Helicopters Extends 40-year Partnership by Selecting Hexcel to Supply H160 Composite Materials
OCTOBER 16, 2016Airbus Amends and Extends $15 Billion in Contracts; Prepreg Contract for A350 Extended through 2030
18 ©2017 Hexcel. All rights reserved.
WE DELIVER WHAT OURCUSTOMERS WANTAdvanced composite solutions that are stronger, lighter and tougher providing optimized long term value.
Carbon fiber is 5x stronger than aluminum
Carbon fiber is 30% lighter than aluminum
Our products are tougher, stifferand more durable
19 ©2017 Hexcel. All rights reserved.
Les Avenières, FranceDuxford, U.K. Decatur, Alabama
RESEARCH & TECHNOLOGY CENTERS OF EXCELLENCEExpanding our leading technology positions through investments in research
Salt Lake City, UtahDublin, California
GROWING INVESTMENT IN RESEARCH & TECHNOLOGY
BROAD AND EXPANDING PATENT PORTFOLIO
UNIVERSITY COLLABORATIONS & TECHNICAL CONSORTIUMS
Engaged in active collaborations with leading universities, government research centers and corporations
PhD PROGRAMSSupporting doctorate studies at key academic institutions
20 ©2017 Hexcel. All rights reserved.
WE INVEST IN TECHNOLOGY TO GROW OUR CAPABILITIESWe expand our horizons with strategic acquisitions and investments
JANUARY 2016Acquisition
Non-crimp fabric technology,lightweight carbon fiber multi-axials,
highly engineered carbon and glass fiber fabrics, dry reinforcements
DECEMBER 2017Agreement to Acquire
Additive manufacturing to produce 3D printed parts for Commercial Aerospace
and Space and Defense
MAY 2016Investment
Carbon fiber recycling to produce aerospace and industrial parts to create
a full lifecycle solution
OCTOBER 2017Acquisition
Strengthens development capability and technologies for next-generation
aerospace and industrial applications
21 ©2017 Hexcel. All rights reserved.
Our leading manufacturing processes give us a sustainable, competitive advantage
THE HEXCEL COMPOSITE MANUFACTURING ADVANTAGE
Vertical integration provides optimization & flexibility – engineering the optimum fiber-chemistry interface
Supply chain efficiencies and strategic logistics reduce inventory, lower transportation costs and speed delivery
Custom equipment + big data analytics = leading manufacturing processes
Research and technology enable customer intimacy and collaboration
22 ©2017 Hexcel. All rights reserved.
WE BUILD CAPABILITIES TODAY to ENSURE FUTURE SUCCESSCapital investments to meet customer demands
NEW R&T CENTERLes Avenières, France
Center of Excellence for advancements in weaving and reinforcements
ENGINEERED CORE PLANTCasablanca, Morocco
Strategically located near customersin the Morocco aerospace hub
PAN & CARBON FIBER PLANTRoussillon, France
First Hexcel PAN plant outside the U.S.
23 ©2017 Hexcel. All rights reserved.
ORGANIC GROWTHInvesting in R&T and capacity to win positions on new programs
1
M&A OPPORTUNITIESConsolidations; technologies and adjacencies that focus on early stage and emerging opportunities
2
RETURN TO SHAREHOLDERSDividends and share buybacks3
DISCIPLINED CAPITAL DEPLOYMENTOur cash priorities
24 ©2017 Hexcel. All rights reserved.
DISCIPLINED CAPITAL MANAGEMENTCreating shareholder value by the numbers
Baa3MOODY’S
<2.5LEVERAGE RATIO
Maintain Strong Balance Sheet
25%QUARTERLY DIVIDEND
INCREASE 2015-17
$0.1
0
$0.1
1
$0.1
25
$629 million
SHARE REPURCHASES2013-2017
BBBS&P
INVESTMENT GRADE MAINTAINED
2015 2016 2017
Debt
EBITDA
75%OF NET INCOME RETURNED TO
SHAREHOLDERS SINCE 2014
25 ©2017 Hexcel. All rights reserved.
Value creation More than $2.3 billion
invested during past five years
– $1.4 billion capex– $118 million in
investments– $740 million returned to
shareholders as of September 30, 2017
Proven Value Creation: Funding growth and innovation; returning cash to shareholders
CAPITAL DEPLOYMENTSOURCES and USES OF CASH
CASH FROM OPERATIONS
5-year total = $1.7 billion 5-year total = $2.3 billion
CASH INVESTED
Capex Investments Share Repurchases & Dividends
$430
$285
$490$517
$318
$273
2013 2017E 2017E2014 2015 2016 2013 2014 2015 2016
$401
$301
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Disciplined, steadily increasing leverage
Target debt/EBITDA ratio less than 2.5x
Plan 2018 increase in debt to maintain leverage objective – expect EPS positive
Committed to maintaining investment grade rating
0.8x 0.8x
1.0x
1.3x1.5x
1.8x
DEBT LEVERAGETOTAL DEBT / ADJUSTED EBITDA TOTAL DEBT
$257$295
$416
$577
$689
$834
2012 2013 2014 2015 2016
Sept 30,
2017 2012 2013 2014 2015 2016
Sept 30,
2017
27 ©2017 Hexcel. All rights reserved.
Investment cycle cash generation cycle
Investment in Organic Growth Past peak capex spend, moving
toward execution on investment and cash generation phase
Targeting $280 million for 2017 Guidance now for $170-$190 million
in 2018
CAPEX 2016 - 2019
Capital Expenditures
$320 million
~$280 million
~$180 million
2016 2017E 2018E 2019E
~$180 million
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Strong consistent returns throughout investment period
Low point in 2017/2018 as investment phase comes to an end
ROIC consistently above cost of capital ROIC returns to growth as capex spend
tapers in current growth cycle
RETURN ON INVESTED CAPITALROIC is our metric for capital investments, acquisitions and compensation
Well above cost of capital; poised to increase % as capex declines
Return on Invested Capital (after tax)
0%
9%
2013 2014 2015 2016 2017E 2020
Cost of Capital
15%
29 ©2017 Hexcel. All rights reserved.
Stock buyback started in 2013and has grown steadily
Dividends commenced in 2015 – increased twice
Shareholder return and value creation is a priority for Hexcel
SHAREHOLDER RETURNDemonstrated commitment since 2013$ millions
Consistently returning >50% of net income
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2013 2014 2015 2016 2017 Est
30 ©2017 Hexcel. All rights reserved.
HEXCELSHAREHOLDER RETURN PRIORITIES
Growing free cash flow + appropriate debt = cash to drive shareholder return
31 ©2017 Hexcel. All rights reserved.
High-single digit growth• Airbus and Boeing ~88% of total sales• A350 growth continues• New narrow-bodies ramp and build rates increase• Legacy wide-body headwinds • Other commercial aerospace growing double digits
Stable• Well-positioned to hold sales steady• Rotorcraft stable
Increased secular penetration, build rates and wind recovery driving growth
Double-digit growth• Wind recovers in 2018 and expected to
exceed 2016 levels
2018 REVENUE OUTLOOKCommercial Aerospace 70% | Space & Defense 16% | Industrial 14%
COMMERCIAL AEROSPACE SPACE & DEFENSE INDUSTRIAL
32 ©2017 Hexcel. All rights reserved.
CUSTOMER SALES ADJUSTED DILUTED EPS
LOW
$2,100HIGH
$2,200LOW
$2.80HIGH
$2.94
2018 GUIDANCE$ millions, except EPS
CASH FROM OPERATIONS
TARGET$420
Strong sales growth plus growing free cash flow
CAPITAL EXPENDITURES
LOW$170
HIGH$190
FREE CASH FLOW
>$230- =
33 ©2017 Hexcel. All rights reserved.
2018 ADDITIONAL DETAILS Incremental $14 million depreciation on capex to support
growth
29% tax rate – cash taxes up $25 million from 2017
Q1 cash usage expected as usual
− Working capital is “seasonal”
SG&A higher in Q1 2018 (versus Q2-Q4) by ~$8 million− Timing of stock incentive compensation expense
R&T spend up double digits - investing in innovation and qualifications
FX exposure to 2018 operating income is about 65% hedged
Strong dollar vs. Euro/GBP is an advantage
5% movement is a $4.8 million operating income impact in 2018, net of hedges
2018 hedge rate is lower than the 2017 level
34 ©2017 Hexcel. All rights reserved.
THE JOURNEY FROM CASH INVESTMENT TO CASH GENERATIONInvest in leading-edge technology → built assets to deliver future revenue growth → generate strong ROIC and growing free cash flow
On track to deliver $1 billion of free cash flow from 2016-2020
CAPEX FREE CASH FLOW
2013 2014 2015 2016 2017E 2018E 2013 2014 2015 2016 2017E 2018E
35 ©2017 Hexcel. All rights reserved.
2020 SALES OUTLOOK
Double-digitCAGR EPS
growth
Commercial Aerospace6-9% CAGR
Space & Defense3-5% CAGR
Industrial15%+ CAGR
S&D
2020TOTAL HEXCEL
7-10% CAGR(2017E – 2020)
36 ©2017 Hexcel. All rights reserved.
Changes driven by wide bodies: Target 7 - 10% CAGR sales growth
S&D
SALES OUTLOOKUpdate from prior guidance
Key movements: Commercial Aerospace wide bodies: ($120 million) Space & Defense, primarily A400M: ($25 million) Industrial – Wind outlook realigned: ($35 million) Structil/OPM acquisitions add: $30+ million
<$2 billion
7-10% CAGRMidpoint $2.55 billion
Commercial Aerospace Space and Defense Industrial
2017E 2020
37 ©2017 Hexcel. All rights reserved.
COMMITTED TOSHAREHOLDER RETURNStrong record of shareholder return
Investing in innovation to win new programs and expand composites penetration
M&A opportunities addressed with vigilance and discipline
Anticipate increasing return to shareholders to>50% of net earnings
Growing dividend trend to continue; dividend level increased twice since initiated in 2015
Free cash flow forecasted to grow significantly in coming years
Long-term growth with strong financial performance drives investor return
38 ©2017 Hexcel. All rights reserved.
SUMMARY
Our strong performance and growth will continue for years to come
Expect 2018 to be a record year for sales, operating income, EPS and cash generation
Hexcel remains a proven leader and a great investment in an attractive industry with few competitors and high barriers to entry
We have a growing leadership position in attractive markets
Our innovation, technology and vertical integration are differentiators
Capital management is a strength evidenced by record-setting cash generation that will continue for years to come
Sales$2.10 - $2.20 billion
Adjusted diluted EPS
$2.80 - $2.94
CapEx$170 - $190 million
Free cash flow>$230 million
Shareholder return>50% of net income
2018 GUIDANCE