UCI International, Inc. Q2 2015 Results | August 6, 2015 - - PowerPoint PPT Presentation

UCI International, Inc.

Q2 2015 Results | August 6, 2015 Confidential

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Disclaimer

This presentation may contain “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward- looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward- looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. UCI International, Inc. (“UCI” or the “Company”) undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: our comments relating to growth of, or changes in, the light and heavy-duty vehicle aftermarket; maintaining existing sales levels with our current customers while attracting new ones; operating in international markets and expanding into adjacent markets while strengthening our market share in our existing markets; initiating effective cost cutting initiatives; and financial projections. The Company derives many of its forward-looking statements from its operating budgets and forecasts, which are based upon many detailed

• assumptions. While the Company believes that its assumptions are reasonable, you are cautioned that it is very difficult to predict the impact
• f known factors, and it is impossible for the Company to anticipate all factors that could affect its actual results. Important factors that could

cause actual results to differ materially from expectations are disclosed under the “Risk Factors” section in our Annual Report on Form 20-F. All written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in the Company’s public

• communications. You should evaluate all forward-looking statements made in this presentation in the context of these risks and

uncertainties. Some financial information in this presentation has been rounded and, as a result, the figures shown as totals in this presentation may vary slightly from the exact arithmetic aggregation of the figures that precede them.

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Disclaimer

Explanatory Note on Non-GAAP Financial Measures In this presentation, we utilize certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA, that in each case are not recognized under U.S. GAAP or IFRS. These measures are presented as we believe that they and similar measures are widely used in the markets in which we operate as a means of evaluating a company’s operating performance and financing structure. They may not be comparable to other similarly titled measures of other companies and are not measurements under U.S. GAAP, IFRS or other generally accepted accounting principles, nor should they be considered as substitutes for the information contained in the financial statements included in this presentation. EBITDA, a measure used by our management to measure operating performance, is defined as profit (loss) from continuing operations plus income tax, net financial expenses, depreciation of property, plant and equipment and amortization of intangible assets. EBITDA is not a measure of our financial condition, liquidity or profitability and should not be considered as a substitute for profit (loss) for the year, operating profit or any other performance measures derived in accordance with U.S. GAAP or as a substitute for cash flow from operating activities as a measure of our liquidity in accordance with U.S. GAAP. Adjusted EBITDA is calculated as EBITDA adjusted for particular items relevant to explaining operating performance. These adjustments include significant items of an unusual nature that cannot be attributed to ordinary business operations, including items such as integration, restructuring, defense against class action litigation and business optimization costs. Covenant Adjusted EBITDA is defined as Adjusted EBITDA as adjusted to provide the full- period effect for businesses acquired after the beginning of a period and the full-period effect to implemented cost saving programs. Adjusted EBITDA is not a presentation made in accordance with U.S. GAAP, is not a measure of financial condition, liquidity or profitability and should not be considered as an alternative to profit (loss) for the period determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. The determination of Adjusted EBITDA and Covenant Adjusted EBITDA contains a number of estimates and assumptions that may prove to be incorrect and differ materially from actual results. Additionally, EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense, working capital needs, tax payments and capital expenditures. We believe that the inclusion of EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA in this presentation is appropriate to provide additional information to investors about our operating performance to provide measures of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Because not all companies calculate EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA identically, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures in other companies. See a reconciliation of these non- GAAP financial measures to net income (loss) in the Appendix.

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Presenters Overview

Tom Degnan Chief Executive Officer Ricardo Alvergue Chief Financial Officer

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Q2 2015 Highlights

 Net sales of $202 million vs. $200 million in Q2 2014, an increase of 0.6%

̶

Increases in filtration due to new business wins and cooling systems due to continued OE growth

̶

Partially offset by lower fuel delivery systems sales across all channels  Adjusted EBITDA from continuing operations declined by $5.1 million, to $16.2 million for

the quarter

̶

Results impacted by increased operational costs, lower customer pricing and unfavorable sales mix

̶

These items were partially offset by favorable product warranty costs in our fuel delivery product line  Trade working capital of $203 million at Q2 2015, up $4 million from Q2 2014

̶

Improvement of $10 million sequentially from Q1 2015  Operating cash flows of $19 million in Q2 2015 vs. $6 million in Q2 2014  Net debt of 5.7x LTM Covenant Adjusted EBITDA at June 30, 2015  Sale of Wells Vehicle Electronics business completed on July 1, 2015

5  On May 8, 2015 we entered an agreement to sell the Wells business  Transaction completed on July 1, 2015  Sale price of $251 million, subject to certain adjustments based on closing date cash,

indebtedness and working capital

 Net proceeds used in accordance with Q1 2015 amendment to credit agreement

̶

Prepaid $241.6 million of borrowings under the senior secured term loan facility

 Senior secured leverage ratio of 0.39x as of July 1st is lower than the allowed 0.75 to

1.00 ratio per the Q1 2015 credit agreement amendment

 Annualized interest savings are expected to be $13 million

Sale of Wells Vehicle Electronics

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

Q2 2015 revenue increased by 0.6% to $202 million, driven primarily by

• Cooling systems sales increase of $3.3 million, primarily due to sales volume increases of

$6.3 million from OE and international sales, partially offset by $3.1 million of unfavorable foreign exchange rates

• Filtration sales increase of $3.2 million, mainly due to increased sales related to a new

customer in the retail channel

• Partially offset by lower sales in our fuel delivery line of $5.3 million, largely due to reduced

sales volumes of $8.8 million due to a decrease in retail and OE channels partially offset by an increase in traditional channel, and partially offset by $4.5 million of favorable warranty costs, including $2.6 million related to customer contract changes



YTD 2015 revenue increased by 1.1% to $403 million largely due to

• Filtration sales increase of $5.6 million, mainly due to increased sales to a new customer,

partially offset by lower heavy duty and OE volumes and lower private label pricing

• Cooling systems sales increase of $3.8 million, primarily due to sales volume increases of

$10.1 million from OE and traditional sales, partially offset by $5.9 million of unfavorable foreign exchange rates

• Partially offset by lower sales in our fuel delivery line of $5.2 million, largely due to reduced

sales volumes of $10.7 million due to a decrease in retail and OE channels and slightly offset by an increase in traditional channel, partially offset by $6.8 million of favorable warranty costs, including $4.5 million related to customer contract changes



LTM revenue increased by 1.0% to $794 million for Q2 2015

Revenue

Q2 2014 vs. Q2 2015

($ in millions)

LTM Q2 2014 vs. LTM Q2 2015

($ in millions)

YTD 2014 vs. YTD 2015

($ in millions)

$200 $202 $251 $243 Q2 2014 Q2 2015 $399 $403 $503 $489 YTD 2014 YTD 2015 + 0.6% + 1.2% $786 $794 $1,001 $995 LTM Q2 2014 LTM Q2 2015 Discontinued Operations (1)

(1) Represents the contributions of UCI’s vehicle electronics business.

+ 1.0%

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

Adjusted EBITDA declined to $16.2 million in Q2 2015 (EBITDA margin rate decreased to 8.0%); results primarily driven by:

• Higher manufacturing and distribution costs of $4.9 million, mainly due to inefficiencies in our

filtration product line

• Lower fixed cost absorption of $1.7 million, mainly due to lower fuel delivery volumes
• Lower customer pricing of $2.2 million and unfavorable product mix of $1.7 million
• Lower volumes of $1.4 million, primarily driven by our fuel delivery line
• Unfavorable foreign exchange rate impacts of $1.7 million
• Partially offset by:
• favorable product warranty costs of $4.5 million in our fuel delivery line
• favorable material costs of $3.0 million
• lower overall SG&A expenses of $0.8 million



YTD 2015 Adjusted EBITDA decreased to $21.6 million, primarily due to

• Higher manufacturing and distribution costs of $10.6 million mainly in our filtration product line
• Lower fixed cost absorption of $2.6 million, mainly due to lower fuel delivery volumes
• Lower customer pricing of $5.1 million and unfavorable product mix of $3.4 million
• Lower volumes of $1.6 million, primarily driven by our fuel delivery line
• Unfavorable foreign exchange rate impacts of $3.1 million
• Partially offset by:
• favorable product warranty costs of $6.4 million in our fuel delivery line,
• Improved material costs of $4.4 million, mainly due to our cost savings initiatives
• lower overall SG&A expenses of $2.7 million



Adjusted EBITDA declined to $59.5 million for LTM Q2 2015

Adjusted EBITDA

Q2 2014 vs. Q2 2015

($ in millions)

LTM Q2 2014 vs. LTM Q2 2015

($ in millions)

YTD 2014 vs. YTD 2015

($ in millions)

$21.3 $16.2 $31.0 $18.3 Q2 2014 Q2 2015

8.0% 10.6%

$36.2 $21.6 $54.1 $27.4 YTD 2014 YTD 2015

9.1% 5.4%

$75.7 $59.5 $112.9 $85.0 LTM Q2 2014 LTM Q2 2015 Discontinued Operations (1)

(1) Represents the contributions of UCI’s vehicle electronics business.

9.6% 7.6%

• 23.9%
• 40.3%
• 21.4%

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Capital Expenditures



Q2 2015 capital expenditures decreased by $5 million, mainly due to a reduction in spend for restructuring projects.

–

Excluding spend for restructuring, capex from continuing operations was down by $1 million for the quarter



YTD 2015 capital expenditures decreased by $10 million, primarily due to a reduction in spend for restructuring and investments in new OEM business

–

Excluding spend for restructuring and OE investments, capex from continuing

• perations was down by $3 million for the quarter, primarily due to timing of

spending for cost reduction and maintenance projects



LTM Q2 2015 capital expenditures decreased by $14 million and included:

–

Investments related to restructuring and manufacturing footprint optimization in

• ur fuel delivery and filtration product lines ($13 million LTM Q2 2014 vs. $2

million LTM Q2 2015)

–

Investments for new OEM business ($7 million LTM Q2 2014 vs. $1 million in LTM Q2 2015)

Q2 2014 vs. Q2 2015

($ in millions)

LTM Q2 2014 vs. LTM Q2 2015

($ in millions)

YTD 2014 vs. YTD 2015

($ in millions)

(1) Represents the contributions of UCI’s vehicle electronics business.

$10 $7 $2 $8 $22 $12 YTD 2014 YTD 2015 $5 $4 $5 $11 $6 Q2 2014 Q2 2015 $18 $19 $7 $1 $13 $2 $44 $30 LTM Q2 2014 LTM Q2 2015

Discontinued Operations (1) Restructuring OEM Business Continuing Operations Base CapEx

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Appendix

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Cost Savings and Synergies Update

$ millions Current Implemented Savings Achieved Implemented Annualized Savings to be Achieved Cost Savings and Synergies Procurement savings $13.8 $0.3 $13.5 In-sourcing 2.8 2.3 0.5 Operations improvements 17.9 9.5 8.4 Total (1) $34.5 $12.1 $22.4 Active Projects at June 30, 2015

(1) Represents total cost savings and synergies from continuing operations (excluding Wells

Vehicle Electronics).

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Capitalization Summary

June 30,

• Cum. Net

June 30,

• Cum. Net

$ millions 2015 EBITDA (x) 2015 EBITDA (x) Cash and cash equivalents $ 46.0 $ 43.0 Revolver 30.0 30.0 Term Loan 286.5 44.9 Total Senior Debt $ 316.5 2.3x $ 74.9 0.4x Senior Notes 400.0 400.0 Other Debt (2) 0.5 0.2 Total Debt $ 717.0 5.7x $ 475.1 5.3x LTM Covenant Adjusted EBITDA $ 117.6 $ 81.9 Pro Forma (5) Actual

(1) $75 million revolving credit facility with $30 million borrowings at June 30, 2015. In addition, $5.8 million of the revolving credit facility capacity

was utilized to support outstanding letters of credit at June 30, 2015.

(5) Pro Forma reflects the impact of Wells Vehicle Electronics sale (4) Multiples are calculated using net debt amounts (debt less cash and cash equivalents). (3) LTM Covenant Adjusted EBITDA includes the impact of cost savings programs implemented but not yet achieved in LTM results. (2) Other Debt consists of capital lease obligations and an economic development loan related to the vehicle electronics product line.

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Covenant Adjusted EBITDA

LTM Covenant Adjusted EBITDA $ millions Q2 2015 Net loss ($30.1) Income tax (benefit) expense 4.6 Net interest expense 16.2 Depreciation and amortization expense 44.9 EBITDA 35.6 Restructuring costs, net 15.3 New business changeover and sales commitment costs 3.9 Strategic review costs 2.6 Business optimization costs 0.9 Costs related to implementation of cost sharing and manufacturing arrangements with FRAM Group 0.4 Environmental accrual adjustment 0.4 Patent litigation costs 0.3 Unrealized loss on derivatives 0.1 Adjusted EBITDA from continuing operations 59.5 Annualization of cost savings programs 22.4 Covenant Adjusted EBITDA from continuing operations $81.9 Wells Vehicle Electronics Covenant Adjusted EBITDA (1) 35.7 Covenant Adjusted EBITDA $117.6

(1) Includes LTM Adjusted EBITDA and annualization of cost savings programs for Wells Vehicle Electronics.

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