Jefferies aug. 2017 presentation

Jefferies aug. 2017 presentation

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  TENNANTCO.COM REINVENTING the future ofcleaning. TENNANT COMPANY – JEFFERIES PRESENTATION Tom Paulson – Senior VP and CFO August 2017
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  Safe Harbor Statement 2 This presentationcontains certain statements that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations of forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties both known and unknown. Information about factors that could materially affect our results can be found in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016, and in Part II, Item 1A Risk Factors in our most recent quarterly report on Form 10-Q. Shareholders and potential investors are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Investors are advised to consult any further disclosures by us in our filings with the Securities and Exchange Commission and in other written statements on related subjects. It is not possible to anticipate or foresee all risk factors, and investors should not consider any list of such factors to be an exhaustive or complete list of all risks or uncertainties.
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  About Tennant Company Tennant Company,a Minnesota corporation founded in 1870 and incorporated in 1909, is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, significantly reduce environmental impact and help create a cleaner, safer, healthier world. 72consecutive years of cash dividends 45consecutive years of increase in annual cash dividend payout Balance sheet NYSE Symbol: TNC 2016 Revenues: $809M 3 2016 Employees: 3,236
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  OUR VISION We willlead our global industry in sustainable cleaning innovation that empowers our customers to create a cleaner, safer and healthier world. 4
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  Competitive Landscape 2015 $5BGlobal Cleaning Equipment Market* 18%Tennant | Nobles | Alfa | Orbio Nilfisk | Advance | Clarke | Viper Hako | Minuteman | PowerBoss Karcher | Windsor | TecServ | ProChem Taski of the market consists of others with a market share of 3% or less. 17% 11% 9% 3% 42% * Estimated market size in “constant currency” U.S. dollars for Tennant-like equipment categories and aftermarket. 5
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  Broad Portfolio ofQuality Products COMMERCIAL INDUSTRIAL AFTERMARKET ESSENTIALS ORBIO® TECHNOLOGIES COATINGS 6
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  STRONG DIRECT SALES &SERVICE ORGANIZATIONS Strong Direct Sales & Service Organizations Global Sales Employees Global Direct Service EmployeesGlobal Revenue by Sales Channel 25% 75% Distribution Direct Distribution Partners More than 80 countries around the world Global Strategic Accounts Cross-functional teams & market specialists Factory-Service Direct Locally based & factory-trained service technicians 7 0 100 200 300 400 500 600 700 800 900 2012 2013 2014 2015 2016 Americas EMEA APAC 0 100 200 300 400 500 600 2012 2013 2014 2015 2016 Americas EMEA APAC
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  8 Broad Range ofGlobal Customers MARKETS 8
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  9 2016 Revenue of$809M 75% 16% 9%Americas EMEA APAC Net Sales by Geography 21% 14% 61% 4% Service & Other Equipment* Coatings Net Sales by Product Group Parts & Consumables *Equipment Mix Commercial | 52% Industrial | 46% Outdoor | 2% 9
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  We remain committedto Sales goal of $1 Billion and 12% or above Operating Profit Margin Growth Strategy 10 • Reach new markets and new customers • Deliver a strong product & technology pipeline • Build Tennant’s e-Business capabilities • Be disciplined about improving margins & controlling expenses
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  • 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 2016 Third Quarter Acquisitions 11
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  • Closed April6, 2017 • All-cash transaction $353M 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 $206M or €186M • Largest Acquisition in Tennant Company History • IPC acquisition results in annualized sales of over $1 Billion • Anticipate acquisition will be accretive to 2018 full year earnings per share • Post-Acquisition Integration Underway • IPC achieved organic sales growth of 8% in 2017 Second Quarter 12 2017 Second Quarter Acquisition of IPC Group
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  IPC Group Overview Revenueby 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: €186mm  2016A Adjusted EBITDA: €26mm (~14% margin)  5 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% 13
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  IPC’s Diverse ProductPortfolio 14 Product % of Net Sales by Equipment Type Product Description Overlap with Existing TNC Products1 Sweepers and Scrubbers 42%  Scrubbers: 15L to 230L (tank size)  Sweepers: 460mm to 1,200mm (brush size)  Multiple Power Systems: Electric cables, batteries, diesel, petrol and hybrid Vacuum Cleaners 21%  Dry Vacuum Cleaners: 750W to 1,400W  Wet & Dry Vacuum Cleaners: 1,300W to 3,600W  Single motor to three motor models Tools 19%  Small surface, window cleaning and room cleaning  Continuous need for supply of related consumables Pressure Washers 18%  Range of 2.5HP to 13HP — Diesel versions up to 900 liters per hour — Gasoline versions up to 1,260 liters per hour Ride On Walk Behind Dry Wet & Dry Industrial Hot Water Cold Water Trolleys Equipment Mops and Cloths Scrubber Sweeper Scrubber Sweeper Hydro-cleaners with high temperature water jets and internal heaters Hydro-cleaners with cold water jets Carts for manual tools Window and mirror surface cleaning Surface and floor cleaning ¹ Shaded area represents approximate level of overlap with existing Tennant products
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  • Incremental Sales •Complementary sales channels • Cross-selling to reach new customers with both brands: Tennant and IPC • $10M Run-Rate Cost Synergies by 2019 • Sourcing savings with greater volume to fewer vendors • Improving sales and service capabilities • Leveraging greater scale to improve operating efficiencies • $10M Costs Necessary to Achieve Synergies • $6M in capital expenditures; $4M in redundancy costs 15 IPC Synergy Opportunities
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  FINANCIAL Summary Reinventing the futureof cleaning. 16
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  2017 SECOND QUARTER OrganicSales Decline 2.3% | Organic Sales up 3.1% in APAC 17 Q2’17 SALES Adjusted* GROSS MARGIN R&D EXPENSE (% of sales) Adjusted* S&A EXPENSE (% of sales) Adjusted* OPERATING PROFIT Adjusted* OPERATING PROFIT MARGIN Adjusted* EPS Q2’16 CHANGE $270.8 M 40.9% 2.9% 30.5% $20.2 M 7.5% $0.60 $216.8 M 43.9% 3.9% 29.6% $22.6 M 10.4% $0.85 +24.9% (300 bps) (100 bps) +90 bps (10.3%) (290 bps) (29.4%) *Q2’17 results are adjusted to exclude inventory step-up of $6.2M pre-tax ($0.25 per share) in Gross Margin and IPC acquisition costs and pension charge of $4.9M pre-tax ($0.28 per share) in S&A Expense. EPS also excludes financing costs related to IPC acquisition of $6.2M pre-tax ($0.22 per share).
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  2017 FIRST HALFEBITDA Adjusted Earnings Before Interest, Taxes, Depreciation & Amortization up 11% 18 1H ‘17 1H ‘16 CHANGE $461.9 M $28.5 M ($0.5 M) $11.0 M $3.8 M $42.8 M 9.3% $396.7 M $29.7 M ($0.03 M) $8.6 M $0.2 M $38.5 M 9.7% +16.4% ($1.2 M) ($0.47 M) +$2.4 M +$3.6 M +11.1% (40 bps) *1H ‘17 results are adjusted to exclude inventory step-up of $6.2M pre-tax ($0.25 per share) in Gross Margin and Restructuring Charge, IPC acquisition costs and pension charge of $15.8M pre-tax ($0.77 per share) in S&A Expense. Also excludes financing costs related to IPC acquisition of $7.4M pre-tax ($0.26 per share). SALES Adjusted* OPERATING PROFIT Adjusted* NON-INTEREST OTHER EXPENSE Exclude DEPRECIATION Exclude AMORTIZATION Adjusted* EBITDA Adjusted* EBITDA (% of Sales)
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  1.0% Organic SalesGrowth in 2017 First Half APACEMEAAmericas 1H17 Organic Sales 0.4% 1H17 Organic Sales 4.3% 1H17 Organic Sales (0.5%) 19
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  • To supportkey 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 • Restructuring charge of $8M pre-tax, or $0.32 per diluted share • Savings anticipated to be $7M in 2017 and a total of $10M in 2018 • Savings predominantly personnel costs 20 First Quarter 2017 Restructuring
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  • $411 millionof Debt comprised of: • $300 million Senior Unsecured Notes • $ 98 million outstanding of a $100 million Term Loan • $ 20 million outstanding under Revolving Credit Facility • An offsetting $7 million of debt issuance costs yet to be amortized • 4.2% Overall Weighted Average Cost of Debt 21 Debt as of June 30, 2017
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  22 History of SalesGrowth 2010-2016 Average Organic Sales Growth of 6% 22
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  23 2017 EPS &Sales Guidance 2016 ACTUAL As Reported $2.59EPS $808.6MSALES 2017 Financial Outlook As Adjusted and “Constant Currency” $2.30 to $2.50 As Reported $0.85 to $1.05/$960M to $990M KEY EXPECTATIONS FOR 2017 (includes the impact of the April 2017 IPC Group acquisition) • Net sales in the range of $960M to $990M 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 of approximately 1%. • Sales increase from acquisitions: 2016 Florock of approximately 0.8%; 2017 IPC range of 18.6% to 20.4%. • Organic sales growth, excluding foreign currency exchange impact and acquisitions, in the range of 1% to 3%. • Adjustments of $31.4M pre-tax, or $1.36 per share, non-recurring special items: $8.0M Restructuring Charge, $7.6M IPC acquisition costs, $7.4M IPC related financing costs, $8.2M IPC acquisition inventory step-up, $0.2M pension plan settlement charge. • Foreign currency exchange headwinds estimated to negatively impact operating profit by approximately $2.5M, or approximately $0.10 EPS. • Gross margin performance in the range of 41% to 42%. • R&D expense in the range of 3% to 4% of sales. • Effective tax rate of approximately 29%. • Capital expenditures in the range of $25M to $30M.