Tnc q4 2016_earnings_presentation_final
- 1. TENNANT COMPANY Earnings Release Conference Call Fourth Quarter 2016 Thursday, February 23, 2017 1
- 2. Chris Killingstad President and CEO Tom Paulson Senior VP, CFO 2 TENNANT COMPANY On the Call Today
- 3. Our remarks this morning and our answers to questions may contain forward-looking statements regarding the company’s expectations of future performance. Such statements are subject to risks and uncertainties, and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today’s news release and the documents we file with the Securities and Exchange Commission. We encourage you to review those documents, particularly our Safe Harbor statement, for a description of the risks and uncertainties that may affect our results. Additionally, on this conference call we will discuss non-GAAP measures that include or exclude special or non-recurring items. For each non-GAAP measure, we also provide the most directly comparable GAAP measure. There were special non-GAAP items in the third and fourth quarters of 2015. Our 2016 fourth quarter earnings release includes a reconciliation of these non-GAAP measures to our GAAP results for the 2015 fourth quarter and full year. 3 TENNANT COMPANY FORWARD LOOKING STATEMENTS & NON-GAAP MEASURES
- 4. • 2016 fourth quarter consolidated net sales of $211.7M – Organic sales growth of approximately 3.2% • Positive organic sales growth in Americas and EMEA – Net earnings of $0.85 per diluted share • Solid finish to a challenging year – Introduced 10 new products, including five large, next-generation cleaning machines for industrial market – Product “vitality index” was 37% of equipment sales, well above goal of 30% 4 TENNANT COMPANY 2016 Fourth Quarter Overview
- 5. • Maintaining strong new product and technology pipeline • Expanding global market coverage – IPC Group Acquisition • Leveraging cost structure to improve operating efficiency – Restructuring Actions 5 TENNANT COMPANY Core Strategies
- 6. • Signed definitive agreement with private equity fund Ambienta – All-cash transaction $350M or €330M – IPC Group – privately held designer and manufacturer of innovative professional cleaning equipment, tools and other solutions, based in Italy – IPC Group 2016 annual sales of about $203M or €192M • Largest acquisition in Tennant Company history – Anticipate acquisition will be accretive to 2018 full year earnings per share 6 TENNANT COMPANY Acquisition of IPC Group
- 7. TENNANT COMPANY IPC Group Overview 3 Revenue by Geography Key Facts and Figures Geographic Coverage IPC Group produces machines and equipment for the professional cleaning sector — Cleaning machines: floor sweepers and scrubbers, vacuum cleaners, high-pressure washers and related aftermarket parts and services — Cleaning tools and supplies: trolleys, window cleaning tools and consumables 2016A Revenue: €192mm 2016A Adjusted EBITDA: €28mm (~14% margin) 4 manufacturing plants; 11 international branches with sales to over 100 countries ~1,000 Employees Eagle Eagan, Minnesota Industria e Comercio Pinhais Parana Cleaning España Barcelona ICA Épône Cedex Soteco Benelux Wommelgem Gansow Unna Foma Norge Langhus China Trade Corporation Fo Shan, Guangdong Western Floor PVT New Delhi 2016A Revenue Mix 2016A Revenue by Product 2016A Revenue by Type Sweepers & Scrubbers 42% Vacuum Cleaners 21% Cleaning Tools and Supplies 19% High Pressure 18% Machinery 59%Machinery Aftermarket 22% Tools and Supplies 19% EMEA 80% Americas 11% RoW 9% 7
- 8. TENNANT COMPANY Overview of IPC Group Product Portfolio 4 Equipment IPC Sweepers and Scrubbers IPC Pressure Washers IPC Vacuum Cleaners IPC Tools Ride On Walk-Behind ScrubberSweeperScrubberSweeper Dry Wet & Dry Industrial Hot Water Cold Water Hydro-cleaners with high temperature water jets and internal heaters Hydro-cleaners with cold water jets Trolleys Mops and Cloths Carts for manual tools Window and mirror surface cleaning Surface and floor cleaning Dry Vacuum Cleaners: 750W to 1,400W Wet & Dry Vacuum Cleaners: 1,300W to 3,600W Single motor to three motor models Scrubbers: 15L to 230L (tank size) Sweepers: 460mm to 1,200mm (brush size) Multiple Power Systems: Electric cables, batteries, diesel, petrol and hybrid Range of 2.5HP to 13HP — Diesel versions up to 900 liters per hour — Gasoline versions up to 1,260 liters per hour IPC Group sells its products under the brand names IPC, IPC Foma, IPC Eagle, IPC Gansow, ICA, Vaclensa, Portotecnica, Sirio and Soteco, Readysystem, Euromop, and Pulex. 8
- 9. • Acquired Florock® Brand – Expanded our commercial floor coatings business – Combination of Tennant Coatings and Florock opens new markets and strengthens value proposition • Acquired Assets of Dofesa Barrido Mecanizado – Long-time distributor of Tennant equipment in central Mexico – Acquisition is a key investment for growth in Latin America – Enhances Tennant’s sales and service capabilities 9 TENNANT COMPANY 2016 Third Quarter Acquisitions
- 10. • To support key strategic growth initiatives and reduce costs to accelerate our ability to reach our 12% operating profit margin goal • Approximate 3% net reduction in global workforce • Anticipate restructuring charge in the range of $7M to $8M pre-tax, or $0.27 to $0.30 per diluted share • Savings anticipated to be $7M in 2017 and $10M in 2018 10 TENNANT COMPANY First Quarter 2017 Restructuring
- 11. • Excited about strategic plans • Remain cautious about low-growth macroeconomic environment • Tennant is competitively well positioned • Acquisition of IPC Group expands product portfolio and geographic presence – particularly in EMEA • Restructuring actions expected to improve profitability 11 TENNANT COMPANY Looking Ahead to 2017 Remain committed to $1B Sales target and 12% OP Margin goal
- 12. 12 Q4’16 SALES GROSS MARGIN R&D EXPENSE (% of sales) Adjusted* S&A EXPENSE (% of sales) Adjusted* OPERATING PROFIT Adjusted* OPERATING PROFIT MARGIN Adjusted* DILUTED EPS Q4’15 CHANGE TENNANT COMPANY 2016 FOURTH QUARTER $211.7 M 44.2% 4.7% 28.8% $22.6 M 10.7% $0.85 $205.9 M 42.4% 3.9% 28.9% $19.7 M 9.6% $0.78 +2.9% +180 bps +80 bps (10 bps) +14.5% +110 bps +9.0% Organic Sales Growth 3.2% | Organic Sales up 4.8% in Americas, up 3.7% in EMEA *Q4’15 results are adjusted to exclude restructuring charge in S&A of $2.0M pre-tax ($0.09 loss per diluted share) and asset impairment favorable tax true-up of $0.7M ($0.04 per diluted share).
- 13. 13 • Sales up 4.8% organically (excluding approximately 0.5% favorable foreign currency impact and 1.7% impact from Florock acquisition) • Record sales for a fourth quarter • Strong sales through distribution and demand for new products in North America • Latin America achieved 13% organic sales growth • Returned to normal order backlog at quarter end TENNANT COMPANY 2016 Fourth Quarter by Region AMERICAS
- 14. • Sales increased 3.7% organically (excluding approx. 4.0% unfavorable foreign currency impact and 6.0% impact from divestiture of Green MachinesTM outdoor city cleaning line) • Positive organic sales growth through Western Europe distribution channel and direct sales channel, more than offset organic sales decline in the U.K. 14 EMEA TENNANT COMPANY 2016 Fourth Quarter by Region
- 15. • Sales declined 10.1% organically (excluding 0.5% favorable foreign currency impact) • Continued sluggish economic conditions in the region 15 APAC TENNANT COMPANY 2016 Fourth Quarter by Region
- 16. 16 Q4’16 SALES GROSS MARGIN R&D EXPENSE (% of sales) Adjusted* S&A EXPENSE (% of sales) Adjusted* OPERATING PROFIT Adjusted* OPERATING PROFIT MARGIN Adjusted* DILUTED EPS Q4’15 CHANGE TENNANT COMPANY 2016 FOURTH QUARTER $211.7 M 44.2% 4.7% 28.8% $22.6 M 10.7% $0.85 $205.9 M 42.4% 3.9% 28.9% $19.7 M 9.6% $0.78 +2.9% +180 bps +80 bps (10 bps) +14.5% +110 bps +9.0% Organic Sales Growth 3.2% | Organic Sales up 4.8% in Americas, up 3.7% in EMEA *Q4’15 results are adjusted to exclude restructuring charge in S&A of $2.0M pre-tax ($0.09 loss per diluted share) and asset impairment favorable tax true-up of $0.7M ($0.04 per diluted share).
- 17. 17 SALES GROSS MARGIN Adjusted* OPERATING PROFIT Adjusted* OPERATING PROFIT MARGIN Adjusted* DILUTED EPS 2016 2015 CHANGE TENNANT COMPANY 2016 FULL YEAR “CONSTANT CURRENCY” VIEW (excludes estimated foreign exchange impact) CONSTANT(1) CURRENCY 2016 AS REPORTED (1)“Constant Currency”: estimated income statement which assumes no change in exchange rates from prior year. *2015 results are adjusted to exclude restructuring charge in S&A of $3.7M pre-tax ($0.17 per diluted share) and non-cash long-lived asset impairment of $11.2M pre-tax ($0.58 per diluted share). $816.4 M 43.5% $69.9 M 8.6% $2.63 $811.8 M 43.0% $68.1 M 8.4% $2.49 +0.6% +50 bps +2.6% +20 bps +5.6% $808.6 M 43.5% $68.5 M 8.5% $2.59 2016 Organic Sales Growth of 1.1%: excluding change in exchange rates from prior year and impact from acquisition & divestiture.
- 18. Remain committed to at least 12% OP Margin • Drive organic revenue growth in mid- to high-single digits • Hold fixed costs essentially flat in manufacturing as volume rises • Strive for zero net inflation at gross profit line • Standardize and simplify processes to improve scalability of business model 18 TENNANT COMPANY Operating Profit Margin Goal
- 19. • Overall effective tax rate for 2016 full year of 29.9% • Base tax rate of 30.7% (excluding routine discrete items) • Federal R&D tax credit – was re-enacted for 2016; favorable benefit included in 2016 tax rate 19 TENNANT COMPANY Successful Tax Strategies
- 20. 20 TENNANT COMPANY Strong Balance Sheet Commitment To Shareholder Return
- 21. 21 TENNANT COMPANY 2017 EPS & Sales Guidance 2016 ACTUAL As Reported $2.59EPS $808.6MSALES 2017 Financial Outlook As Adjusted “Constant Currency” $2.60 to $2.80/$810M to $830M As Reported $2.20 to $2.43/$810M to $830M KEY EXPECTATIONS FOR 2017 (does not yet include the impact of the IPC Group acquisition) • Net sales in the range of $810M to $830M versus $808.6M in 2016. • Stable economy in North America, modest improvement in Europe, and challenging environment in APAC. • Unfavorable foreign currency impact on sales in the range of 1% to 2%. • Sales increase from 2016 Florock acquisition of approximately 0.8%. • Organic sales growth, excluding foreign currency exchange impact and acquisition, in the range of 1% to 3%. • Foreign currency exchange headwinds estimated to negatively impact operating profit by approximately $2.5M, or approximately $0.10 EPS. • Restructuring Actions in 1Q17 in the range of $7M to $8M pre-tax, or $0.27 to $0.30 EPS. • Gross margin performance in the range of 43% to 44%. • R&D expense of approximately 4% of sales. • Effective tax rate of approximately 31%. • Capital expenditures in the range of $20M to $25M.
- 22. QUESTIONS? 22
- 23. Tennant is Well Positioned! 23 Competitively advantaged in the market with our innovative product and technology portfolio and go-to- market strategy Well positioned to leverage our operational efficiency Remain committed to $1B Sales target and 12% OP Margin goal