DRIVEN BY POSSIBILITY AUGUST 2020

Page created by Harvey Weber
 
CONTINUE READING
DRIVEN BY POSSIBILITY AUGUST 2020
DRIVEN BY POSSIBILITY   AUGUST 2020
DRIVEN BY POSSIBILITY AUGUST 2020
LEGAL DISCLAIMERS                                                                                                                                                                    2

FORWARD-LOOKING STATEMENTS
This presentation contains, and management may make on our call today, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could,"
"seeks," "predicts," "intends,“ “trends” "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. These statements include, but are not limited to, statements related to
expectations regarding the performance of the Company’s business, financial results, liquidity and capital resources, product introductions and growth initiatives, restructuring activities, end market conditions, right-
sizing cost structure and statements regarding the impact of the COVID-19 pandemic and our 2020 framework. Such forward-looking statements are subject to various risks and uncertainties, including, among others,
the uncertainties relating to the impact of and recovery from the COVID-19 pandemic and associated governmental measures on the company’s business, operations, employees, financial condition and results of
operations, risks inherent to the manufacturing industry, macroeconomic factors beyond the Company’s control, continued operation of our manufacturing facilities make our ability to forecast and meet demand, market
acceptance of new products, and the significant influence of the Company’s majority shareholders, investment funds affiliated with The Blackstone Group Inc. Additional factors that could cause the Company’s results to
differ materially from those described in the forward-looking statements can be found under the section entitled "Risk Factors" of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28,
2019, filed with the Securities and Exchange Commission ("SEC") as supplemented by the risks and uncertainties set forth in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2020, as
such factors may be further updated from time to time in the Company’s periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there are or will be important factors that
could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary
statements that are included in the Company’s filings with the SEC. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future
developments or otherwise, except as required by law.

NON-GAAP FINANCIAL INFORMATION
This presentation includes certain non-GAAP financial measures, which management believes are useful to investors. Non-GAAP financial measures should be considered only as supplemental to, and not as superior to,
financial measures prepared in accordance with GAAP. Please refer to the Appendix of this presentation and our earnings release filed with the SEC and posted on our website at investors.gates.com for a reconciliation
of historical non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP.

Because GAAP financial measures on a forward-looking basis are not accessible, and reconciling information is not available without unreasonable effort, we have not provided reconciliations for forward-looking non-
GAAP measures. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results.

ROUNDING ADJUSTMENTS
Certain monetary amounts, percentages and other figures included in this presentation have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the
arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the
percentages that precede them.

  ©2020 Gates Corporation. All rights reserved.
DRIVEN BY POSSIBILITY AUGUST 2020
GATES OVERVIEW                                                                                 3

 OUR BUSINESS MODEL IS FUNDAMENTALLY
  FOCUSED ON REPLACEMENT CHANNELS
 WE ARE HIGHLY DIVERSIFIED – ACROSS
  PRODUCTS, END MARKETS, APPLICATIONS
  AND GEOGRAPHIES
 WE ARE A MARKET LEADER, BUT HAVE A
  SIGNIFICANT RUNWAY OF ORGANIC GROWTH
  OPPORTUNITIES
 WE HAVE THE OPPORTUNITY TO EXPAND
  MARGINS

                                                THE CHARACTERISTICS OF OUR BUSINESS RESULT IN A COMPELLING FINANCIAL PROFILE
©2020 Gates Corporation. All rights reserved.
DRIVEN BY POSSIBILITY AUGUST 2020
GATES VISION                                            4

                            ACHIEVE GLOBAL PRODUCT INNOVATION LEADERSHIP
             AND EXPAND OUR PREMIER POSITION IN OUR CORE POWER
                                                TRANSMISSION AND FLUID POWER MARKETS,

                                                WHILE DELIVERING ABOVE-MARKET GROWTH,
 SUPERIOR PROFITABILITY AND STRONG CASH FLOW GENERATION
                   TO PROVIDE SHAREHOLDERS WITH ATTRACTIVE RETURNS

©2020 Gates Corporation. All rights reserved.
GATES AT A GLANCE                                                                                                                                5

COMPANY STATS
 Founded                                            1911
 Countries                                          30
 Locations                                          120+
 Employees                                          14,000+

2019 FINANCIAL STATS                                                                                        2019 SEGMENT DATA                                    REVENUE   % REPL.
 Revenue                                            $3.1B                                                   Power Transmission                                 $2.0B      62%
 Adjusted EBITDA                                    $0.6B | 20% Margin                                      Fluid Power                                        $1.1B      63%
                                                 1

          TWO SCALED, LEADING PRODUCT SEGMENTS WITH SIMILAR BUSINESS CHARACTERISTICS, CUSTOMERS AND END MARKETS
 ©2020 Gates Corporation. All rights reserved.         1   Reconciliations of non-GAAP measures used throughout this presentation can be found in the Appendix
POWER TRANSMISSION – SEGMENT OVERVIEW                                                                                                                                       6

   2019 PT REVENUE: $1,946M                                                                                                            SUMMARY
        BY REGION                                                             BY CHANNEL                                                   Leading Global Belt Provider
                                                    IND. FIRST-FIT
   EA&I                                             •   Gen. Industrial                                 REPLACEMENT                        Broadest Catalog of Mission-Critical Components
                                                                                                                                                                                   IR
             15%                       NA                                        13%
                                                    •
                                                    •
                                                        HD Truck
                                                        Agriculture
                                                                                                        •   Automotive                     Replacement Market Focus
                               37%                                                                      •   General Industrial
CHINA 15%                                           •   Construction
                                                                          24%                 63%       •   HD Truck                       Diverse Customers, Applications and End Markets
                                                                 AFF
                                                                                                        •
                                                                                                        •
                                                                                                            Energy
                                                                                                            Agriculture
                                                                                                                                           Global Footprint and Channel IFF
                                                                                                                                                                         Coverage
               28%
  EMEA
                                5%
                                      SA                                                                •   Construction                   Unique Belt Drive System Value Propositions

   PRODUCT PORTFOLIO                                                                                                                  MARKET OPPORTUNITY
                                                                                                                                        One of Few Scaled Players in a
                                                                                                                                                                                                        Gates
                                                                                                                                         Large, Fragmented $30B
                                                                                                                                         Addressable Market1
    Micro-V                         Timing                     Engine                     Water                   Kits

                                                                                                                                                                                  2x
     Belts                           Belts                     Metals                     Pumps
                                                                                                                                                                                              $20B
                                                                                                                                                                   $10B   Gates

         Industrial                         Industrial                    Industrial               Industrial
     Synchronous Belts                  Asynchronous Belts                TPU Belts                 Metals                                           Automotive End Market             Industrial End Markets

                                                                               SIGNIFICANT GROWTH OPPORTUNITIES IN EXISTING MARKETS
    ©2020 Gates Corporation. All rights reserved.                         1   Market sizes referred to throughout this presentation are based on management estimates
KEY POWER TRANSMISSION OPPORTUNITIES                                                                                                7

                                                                CHAIN-TO-BELT                                                                 BELT-TO-BELT
             INDUSTRIAL                                         PERSONAL                          PRECISION MOTION                             INDUSTRIAL
            CHAIN-TO-BELT                                       MOBILITY                              CONTROL                                  BELT-TO-BELT
                         Gates                                         Gates                                 Gates
                                                                                                                                                      Gates
                                        Poly Chain                           CVT                                    Thermoplastic                           V-Belts
                                                                                                                       Polyurethane
        ~$6B                            Rubber Sync         ~$1B             Carbon Drive         ~$1B               (TPU) Sync          ~$2B                CVT
                                        Metals                               Rubber Sync                            TPU Flat                                Metals
                                                                              Metals                                 Metals

   Diversified End Markets                               Bicycles, eBikes, Scooters &          Warehousing & Logistics                 Established Channels & Customers
   Industrial Drives Across Numerous                      Motorcycles                           Robotics & Industrial Automation        Wide Variety of Mobile and
    Applications                                          Emerging Market Mobility              Food Processing & Light                  Stationary Drives
   Mobile & Stationary                                   Mature Market Recreation               Manufacturing                           Ag, Construction, Gen. Industrial

                                 ESTABLISHED BASE BUSINESS PROVIDES PLATFORM TO PENETRATE LARGE, FRAGMENTED CORE MARKETS
     ©2020 Gates Corporation. All rights reserved.
FLUID POWER – SEGMENT OVERVIEW                                                                                                                8

 2019 FP REVENUE: $1,141M                                                                                             SUMMARY
                                                                                                                       Mission-Critical Components for Hydraulic and
       BY REGION                                                        BY CHANNEL                                      Fluid Conveyance Applications
 CHINA           EA&I
                                                                                                                                                          IR
     5%          7%
                                 NA                                                         REPLACEMENT                Core Market with Several Avenues for    Growth
                                                                                            •   General Industrial
EMEA                                               IND. FIRST-FIT
                                                                       37%
                                                                                            •   Agriculture            Favorable Replacement Dynamics
       18%                                         •   Construction                         •   Construction
                                                   •   HD Truck                    63%      •   Energy
                                                                                                                       Heritage of Product Innovation
                           66%
 SA                                                •   Agriculture                          •   Automotive             Extending Premium Product Line within Existing
  4%                                               •   General Industrial                   •   HD Truck                                      IFF
                                                                                                                        Applications                         AR

 PRODUCTS                                                                     0%
                                                                                                                      MARKET OPPORTUNITY
                                                                                                                       One of Few Scaled Players in a Large, Fragmented
                                                                                                                        $29B Addressable Market                        Gates
                                                                                                                                                Gates

                                                                                                                                                                        $15B
 Hydraulic Hose
 and Couplings
                                      Hydraulic
                                       Tubing
                                                                Industrial Hose
                                                                 and Couplings
                                                                                   Engine
                                                                                    Hose
                                                                                                       Oil & Gas
                                                                                                      Drilling Hose
                                                                                                                                         $14B             1.1x
                                                                                                                                  Automotive End Market          Industrial End Markets

       LEADER IN HIGHLY FRAGMENTED MARKET WITH OPPORTUNITY TO GROW ACROSS PRODUCT LINES, REGIONS AND END MARKETS
   ©2020 Gates Corporation. All rights reserved.
KEY HYDRAULICS OPPORTUNITIES                                                                                                           9

                  GEOGRAPHIC                                                 EXTEND PREMIUM                                      BROADEN APPLICATION
                   EXPANSION                                                  PERFORMANCE                                            COVERAGE
                               Gates                                                      Gates                                               Gates
                                               Hydraulic Hoses                                      MEGASys® Hoses                                   PROTM Series Hoses
                                               Hydraulic Couplings                                  MegaCrimp® Couplings                             PROTM Series
          ~$3B1                                                              ~$3B                                                    ~$3B
                                                                                                                                                        Couplings

                                                                                                                                                      PRO™ Series

                                                                                                                                MEGASys®

 Reinforcing In-Region, For-Region                                    Launching “X” Series Products with                    Application-Specific Products
  Strategy in Europe and China with                                     Further Performance Differentiation                   More than Doubles Addressable Market
  Recent Investments                                                    •   Weight
                                                                        •   Flexibility
                                                                                                                               Opportunity
                                                                        •   Size

                                                     SIGNIFICANT RUNWAY TO EXPAND SHARE IN UNDERPENETRATED REGIONS AND
                                                    EXTEND PRODUCT PORTFOLIO TO COVER BROADER APPLICATION REQUIREMENTS
©2020 Gates Corporation. All rights reserved.
STRONG REPLACEMENT CHANNEL PRESENCE                                                                10

PORTFOLIO UNITED BY COMMON BUSINESS MODEL
            Mission-Critical Products
             •        Cost of Gates’ products insignificant vs. cost of application downtime
                                                                                               37%
            Replacement-Driven Revenue Stream                                                       $3.1B
             •        Normal wear and tear results in natural, often preventive,                     FY2019
                      maintenance intervals
                                                                                                     Revenue
            Difficult to Replicate                                                                            63%
             •        Extensive, longstanding global channel presence
             •        Broad product coverage across wide range of applications                                       Replacement
                                                                                                                     First-Fit
BENEFITS
            Lower Revenue Volatility through the Cycle
            Well-Positioned to Offset Inflation
            Higher Margins Enable Reinvestment

                      MISSION-CRITICAL, ENGINEERED WEAR PARTS WHOSE COST IS INSIGNIFICANT RELATIVE TO COST OF DOWNTIME
©2020 Gates Corporation. All rights reserved.
DIVERSIFIED END MARKETS                                                                                                        11

                                                     Largest                     END MARKET EXPOSURE                               Smallest

                                 Industrial End
                                                                                                                                               Industrial & Mfg.
                                    Markets                                                                                                     Activity
                                     35%                                                                                                       Construction
                                                                                                                                               Commodities
                                                    General Ind. / Mfg.   Construction   Agriculture    Oil & Gas    HD Truck      Mining
REPLACEMENT
 CHANNELS
                                                                                                                                               Age of Fleet (7-12 yrs)
                                   Automotive
                                   End Market
                                                                                                                                               Miles Driven
                                      27%
                                                                           Developed                                 Emerging
                                                                                                                                                 Construction, Ag
                                                                                                                                                 Commodities
                                  Industrial End
                                     Markets                                                                                                     Freight
                                      23%                                                                                                        Industrial Activity
                                                                          Construction   General Ind.   HD Truck    Agriculture
  FIRST-FIT
                                                                                          China                      US
                                    Automotive                                                                                                 Production
                                    End Market                                            ~4%                        ~1%
                                       15%
                                                                                                                                               Selective Participation
                                                                                          Total Sales                Total Sales
                           FY2019 Revenue                                  Emerging                     Developed

                                           WELL-BALANCED, DIVERSIFIED BUSINESS ACROSS CHANNELS, END MARKETS AND APPLICATIONS
    ©2020 Gates Corporation. All rights reserved.
DIVERSIFIED GEOGRAPHIES                                                                                  12

      GEOGRAPHIC DIVERSITY                                                             GLOBAL PRESENCE
                                                                                                                                  Administrative
                                                                                                                                  Manufacturing
                                                                                                                                  Sales
                                                                                                                                  Major R&D Centers
                                                                                                                                  Warehouse
                                                                                                                                  Regional Headquarters

                                         4%                    48%

                                                $3.1B
                                 11%

                                                FY2019
                                  12%           Revenue

                                                  25%

             North America                              Europe, Middle East & Africa
             East Asia & India                          Greater China                     Over 120 Locations Globally
             South America
                                                                                          Strong Regional Teams in Place
                                                                                          In-Region, For-Region Operating Strategy
      HIGHLY DIVERSIFIED BUSINESS ACROSS GEOGRAPHIES WITH WELL-ESTABLISHED LOCAL FOOTPRINT AND CHANNEL PRESENCE
©2020 Gates Corporation. All rights reserved.
WINNING THROUGH INNOVATION                                                                                                                                     13

                                                                                                                                       SHARE GAINS IN EXISTING MARKETS
    PRODUCT                                                                                                                            Commercial Excellence │ Geographic Expansion
    DESIGN

    MATERIALS                                                                                                                          TECHNOLOGICAL DISRUPTION
    SCIENCE                                                                                                                            Chain-to-Belt │ Hydraulics Innovations │ Belt-to-Belt

    PROCESS                                                                                                                            INCREASE OPERATIONAL EFFICIENCY
    ENGINEERING                                                                                                                        Process Innovation │ Gates Operating System │ Digital Front End

          Deep Understanding of Customer Applications
          Revitalized Innovation and R&D Capabilities
          Product Roadmaps in Place to Refresh Entire Portfolio
          Targeting 25%+ New Product Vitality
                                                                                       1

                                                NEW PRODUCT INNOVATION FOCUSED ON BRINGING DISRUPTIVE TECHNOLOGIES TO MARKET
©2020 Gates Corporation. All rights reserved.              1   New Product Vitality = % of total revenues from products launched within the past 5 years
GATES VALUE CREATION PLAYBOOK                                                                14

                                                                                     CORE                      EPS GROWTH
                                                                                    GROWTH
                                                                R&D,
                                                               SALES &
                                                                                                           CASH GENERATION
                                                                MKTG
                                                G&A                            ACCELERATE                    COMPOUNDING
                                                           REINVEST FOR          GROWTH                        RETURNS
                         IMPROVE COST                        GROWTH
                          STRUCTURE

                Principles of Gates Operating System are foundational across the organization
                           • Efficiency improvements across functions
                           • Gates Production System driving manufacturing productivity
                Inorganic opportunities to accelerate growth

                                          EXPANDING MARGINS TO REINVEST IN THE BUSINESS AND CREATE VALUE FOR SHAREHOLDERS
©2020 Gates Corporation. All rights reserved.
H1 2020 FINANCIAL PERFORMANCE                                                                                                15

USD in millions

                              NET SALES                                                              ADJUSTED EBITDA                   ADJUSTED EPS     (1)

              $1,615
                                                                                                   $331                             $0.54

                                                   $1,287

                                                                                                                  $204

                                                   (18.2%)                                                                                             $0.24
                                                     Core
                                                                                                   20.5%          15.9%
                                                   (2.1%)                                          Margin         Margin
                                                     FX

           H1 2019                                H1 2020                                      H1 2019          H1 2020           H1 2019            H1 2020
       China returned to growth in Q2,                                                      460 bps decline, driven by lower   Adjusted EPS decline driven by lower
          other regions improving                                                                      volumes                          operating income

                                                       IMPROVED DECREMENTALS ON HISTORIC REVENUE DECLINE
                                                     (1) Adjusted   Net Income per diluted share
  ©2020 Gates Corporation. All rights reserved.
BALANCE SHEET AND CASH FLOW                                                                                                                                                      16

USD in millions, except multiple data

    TRADE WORKING CAPITAL                                                                        FREE CASH FLOW                                                                                ROIC

                                                                                                                               $288             150%
                                                                                                                                              Conversion
          $943                                                                                                                                                                 20.7%
                                                   $836                     62%            $219
                                                                          Conversion
                                                                                         New Capacity
                                                                                            Capex
                                                                                                                                                                                                         14.6%

                                                                           49%
                                                                         Conversion
                                                                                           $173
         29.2%                                     30.3%

 Q2 2019 LTM                                 Q2 2020 LTM                            Q2 2019 LTM                         Q2 2020 LTM                                     Q2 2019 LTM                   Q2 2020 LTM

     Significant reductions in                                                             Strong Free Cash Flow                                                               ROIC impacted by lower
    receivables and inventory                                                                   Conversion                                                                       operating results

                                                           STRONG CASH FLOW DESPITE CHALLENGING ENVIRONMENT
Notes: Trade Working Capital: Trade Accounts Receivable plus Inventory minus Trade Accounts Payable; Trade Working Capital is also shown as % of LTM Revenues
       LTM Free Cash Flow: Net Cash Provided by Operations minus capital expenditures; Free Cash Flow Conversion shown as % of Adjusted Net Income
       ROIC: Tax-effected LTM Adjusted EBIT divided by total assets minus cash, accounts payable, deferred tax assets, taxes receivable and intangibles related to 2014 acquisition of Gates
   ©2020 Gates Corporation. All rights reserved.
LIQUIDITY                                                                                                                                             17

USD in millions
                                    $1,055
                                                                                       FINANCIAL COVENANTS
 RCF                                   $185                                             Revolving credit facility (RCF)
                                                                                            • Can be drawn up to 30% with no financial covenants
                                                                                            • > 30% draw requires senior secured net leverage < 7.15x credit facility EBITDA (3.5x as of Q2 2020)
 ABL                                  $230
                                                   1
                                                                                        Asset-backed loan (ABL)
                                                                                            • Can be drawn up to 90% with no financial covenants
                                                                                            • > 90% draw requires fixed charge coverage > 1.0x (2.4x as of Q2 2020)

                                                                                        MATURITY SCHEDULE2                                            $2,315
Cash                                   $640
                                                                                                                                                       Term
                                                                                                                                                       Loans
                                                                                                                                                                                   $568
                                                                                                   $31                 $25    $25         $25                         $0          Bonds
                Total Liquidity – 6/27/20                                                        2020                 2021    2022       2023          2024          2025          2026
                                                                                                          3

                                                       SOLID FINANCIAL POSITION ENABLES INVESTMENT FOR THE LONG TERM
                                                          (1) ABLnet borrowing capacity as of 6/27/20
                                                          (2) RCFand ABL mature in 2023, if drawn
   ©2020 Gates Corporation. All rights reserved.
                                                          (3) Remaining portion of required 2020 principal payments is $19M
2020 FRAMEWORK                                                              18

 Q3 and Q4 expected to reflect sequential                    Cost actions
  improvement                                                  • Previously initiated $40M restructuring program
       • Absent broad re-implementation of movement              progressing as planned
         restrictions, Q3 core revenue anticipated to          • Compressible/discretionary spend reductions of
         decline in the range of 10%–15% year-over-year          ~$50M are on track

 Improved full-year decremental margin                       Robust cash flow generation
       • Second half decrementals of ~35%                      • Focused management of working capital
       • Cost structure actions expected to drive elevated     • Expected capex ~$70M for the full year
         incrementals when the business returns to             • Free Cash Flow Conversion expected to be > 100%
         growth                                                  of Adjusted Net Income

           COST ACTIONS MITIGATING IMPACT OF REVENUE DECLINE, WHILE PRESERVING OPERATIONAL AGILITY
©2020 Gates Corporation. All rights reserved.
CORE GROWTH PERFORMANCE                                                                                19

TRACK RECORD
       Solid performance through 2015-16 industrial downturn,                         LONG-TERM PLAN TARGETS
        with sales into replacement channels less impacted
                                                                                          Maintain > 60% replacement channel mix
       Growth in 2017 and 2018 led by industrial end markets
                                                                                          Continued growth in larger industrial end markets
       2019 impacted by trade uncertainty and resulting
        destocking
                                                                                       KEY INITIATIVES
REVENUE                                                   $3,348M
                                                                                          Chain-to-belt
                                                $3,042M             $3,087M                •   Industrial chain-to-belt conversion
              $2,745M                $2,747M
                                                                                           •   Focused TPU commercial execution
                                                                                           •   Personal mobility market penetration
                                                           +5.9%     (5.7)%
 CORE                                            +9.0%
GROWTH
                (1.4)%                  +2.5%                                             Hydraulics expansion
                                                                                          Emerging markets

                2015A                  2016A    2017A     2018A     2019A

                                                  MAINTAIN SUSTAINABLE AND PROFITABLE LONG-TERM GROWTH PROFILE
©2020 Gates Corporation. All rights reserved.
INVESTING IN ORGANIC GROWTH WITH ATTRACTIVE RETURNS                                                                                                                                                       20

TRACK RECORD                                                                                                                                   LONG-TERM PLAN TARGETS
         Maintenance capex consistently ~1.5% of sales                                                                                              Prioritization of investment in largest end markets
         Large growth investment recently completed – elevated                                                                                      ROIC > 20%
          capex in 2017 & 2018 reflects construction of new plants
         Returns on invested capital typically > 20%                                                                                          KEY INITIATIVES
                                                                                                                                                     Support rollout of new technologies
CAPEX                                                                               5.5%                                                             Upgrading manufacturing processes
                                                                                                                                                     Digital capabilities to support growth
                                                             3.6%                   3.0%
        3.1%                                                 0.8%
                                                                                                                                               ROIC1
                                                                                                          2.7%
                                     2.5%                                                                                                     30%
       1.4%                                                                                                                                                                   25.4%              25.2%              25.4%
                                     1.0%                    1.3%                   1.0%                  1.2%                                25%
                                                                                                                                                           20.6%
                                                                                                                                              20%                                                                                      19.2%
       1.7%                          1.5%                    1.5%                   1.5%                  1.5%                                15%
                                                                                                                                              10%
      2015A                         2016A                   2017A                 2018A                ~1.5%
                                                                                                        2019A                                   5%

         New Plant                 Other Growth             Maintenance                                                                         0%
                                                                                                                                                           2015A             2016A               2017A               2018A             2019A

                                                           REINVESTMENT IN DIVERSE SET OF INITIATIVES TO DRIVE ORGANIC GROWTH
©2020 Gates Corporation. All rights reserved.   1ROIC:   Tax-effected Adjusted EBIT divided by total assets minus cash, accounts payable, deferred tax assets, taxes receivable and intangibles related to 2014 acquisition of Gates
HISTORY OF MARGIN EXPANSION                                                                                21

TRACK RECORD
         Demonstrated ability to expand margins                                           LONG-TERM PLAN TARGETS
         2018 margin impacted by costs associated with supply-
                                                                                              24% Adjusted EBITDA margin
          constrained market
         2019 margin headwinds from significant shift in demand
          and new plants being online                                                      KEY INITIATIVES
ADJUSTED EBITDA                                                                               VA/VE initiatives to optimize performance
                                                             $756M                             and cost
                                                $669M
                                 $595M                                 $611M                  New products with more efficient
    $547M                                                    22.6%                             manufacturing processes
                                                22.0%                   19.8%
    19.9%                        21.7%                                                        Pricing actions to offset inflation
                                                                       $610M                  Capitalize on operating leverage
                                                                         TO
                                                                       $640M                  Continued focus on manufacturing initiatives

    2015A                        2016A          2017A        2018A     2019A

                                                        DEMONSTRATED ABILITY TO EXPAND ADJUSTED EBITDA MARGIN
©2020 Gates Corporation. All rights reserved.
STRONG CASH GENERATION                                                                                     22

TRACK RECORD
         Significant Free Cash Flow generation                                            LONG-TERM PLAN TARGETS
         Demonstrated through periods of significant growth,                                 100%+ Free Cash Flow conversion
          as well as downturns
                                                                                              Consistent working capital improvement

FREE CASH FLOW
                                                     FCF   Tax Refund   New Plants Capex
                                  $309M
                                                                        $278M
                                    167%
                                                                         100%              KEY INITIATIVES
                                                 $234M      $230M
        $193M                                      112%                                       Operating efficiency to reduce working capital
                                                              61%                 > 80%
                                                                                               requirements
          145%                                                                    CASH
                                   $267M
                                                                        $266M     CONV        Tax efficiency
                                     144%         $209M     $131M        95%
                                                   100%      35%

         2015A                     2016A          2017A     2018A       2019A

                                            CHARACTERISTICS OF BUSINESS RESULT IN STRONG THROUGH-THE-CYCLE CASH GENERATION
©2020 Gates Corporation. All rights reserved.
DISCIPLINED CAPITAL DEPLOYMENT                                                                   23

                                                                    Achieve net leverage of < 3.0x
           DELEVERAGING                                             Flexibility on continued debt paydown

                                                                    Continue to fund key initiatives
     ORGANIC GROWTH                                                 Prioritize capital projects with high return on invested capital

                                                                    Utilize M&A to accelerate organic strategies
                                M&A                                 Focus on deals with high value creation

          DIVIDENDS /                                               Near-term focus on deleveraging, organic growth and M&A
        SHARE BUYBACK                                   $           Optionality increases once leverage falls < 3.0x

                                                BALANCING DEBT REDUCTION WHILE INVESTING FOR GROWTH
©2020 Gates Corporation. All rights reserved.
GATES INVESTMENT HIGHLIGHTS                                                          24

       Business on Trajectory of Recovery from COVID-19 Impact
       Replacement Market Focus with Mission-Critical Products
       Large, Diverse End Markets
       Market Leader with Broad Footprint, Product Portfolio and Channel Coverage
       Disruptive Innovation Drives Above-Market Growth
       Continued Opportunity for Margin Expansion
       Attractive Financial Profile
       Short-Cycle Business that has Historically Rebounded Quickly
       Strong Team in Place with Track Record of Execution

                      ORGANIC PORTFOLIO TRANSFORMATION IN LARGE, UNDERPENETRATED CORE MARKETS DRIVEN BY INNOVATION
©2020 Gates Corporation. All rights reserved.
APPENDIX
RECONCILIATIONS – ADJUSTED EBITDA AND ADJUSTED                                                                                                                                26
                                 EBITDA MARGIN

                           (USD in millions)                                                         H1 2020            H1 2019           FY2019           FY2018          FY2017           FY2016          FY2015
                           Reconciliation to Adjusted EBITDA
                           Net Income from Continuing Operations                                 $        12.1      $       631.8     $      694.7     $      271.7    $      182.0     $        71.9   $        50.9
                           Adjusted for:
                             Income tax (benefit) expense                                                 (15.5)           (502.2)           (495.9)           31.8            (72.5)           21.1             (9.2)
                             Net interest and other expenses                                               65.2              72.5             148.0           193.3           293.4            212.3           147.7
                             Depreciation and amortization                                               109.6              112.3             222.2           218.5           212.2            240.8           269.9
                             Transaction-related (income) expenses                                          (0.2)             (0.3)             2.6             6.7             18.1             0.4              0.7
                             Asset impairments                                                               3.7                  -             0.7             0.6              2.8             3.2            51.1
                             Restructuring expenses                                                        19.1                3.6              6.0             6.4             17.4            11.4            15.6
                             Share-based compensation expense                                                8.6               6.4             15.0             6.0              5.4             4.2              4.3
                             Sponsor fees (included in other operating expenses)                             1.7               3.8              6.5             8.0              6.7             6.1              7.0
                             Inventory impairments and adjustments (included in cost of sales)               1.4               0.3              1.2             1.5              3.2            20.7              9.6
                             Duplicate expenses incurred on facility relocation                                 -                 -                -            5.2                 -               -                -
                             Severance expenses (included in cost of sales)                                  0.6               0.5              4.0             1.7                 -               -                -
                             Other primarily severance-related expenses (included in SG&A)                   0.8               1.2              3.4             4.4                 -               -                -
                             Other adjustments                                                              (3.1)              1.0              2.6                -             0.4             2.8             (0.4)
                           Adjusted EBITDA                                                       $       204.0      $       330.9     $       611.0    $      755.8    $      669.1     $      594.9    $      547.2

                           Adjusted EBITDA margin
                             Net Sales                                                           $     1,286.6      $     1,614.8     $     3,087.1    $     3,347.6   $     3,041.7    $     2,747.0   $     2,745.1
                             Adjusted EBITDA                                                     $       204.0      $       330.9     $       611.0    $       755.8   $       669.1    $       594.9   $       547.2
                           Adjusted EBITDA margin                                                        15.9%              20.5%             19.8%            22.6%           22.0%            21.7%           19.9%

©2020 Gates Corporation. All rights reserved.
RECONCILIATIONS – ADJUSTED NET INCOME                                                                                                                                                                       27

                           (USD in millions, except share numbers and per share amounts)                        H1 2020           H1 2019            FY 2019            FY2018            FY2017             FY2016            FY2015
                           Reconciliation to Adjusted Net Income
                           Net Income Attributable to Shareholders                                          $        13.2     $       635.2      $       690.1      $      245.3      $      151.3       $       57.7      $       24.9
                           Adjusted for:
                             Loss (gain) on disposal of discontinued operations                                        0.2                0.5                0.6               0.6               (0.7)           (12.4)                 -
                             Amortization of intangible assets arising from the 2014 acquisition of Gates            58.1               59.3             118.2             120.3              124.2             141.9             158.5
                             Transaction-related (income) expenses                                                    (0.2)              (0.3)               2.6               6.7              18.1                0.4              0.7
                             Asset impairments                                                                         3.7                   -               0.7               0.6                2.8               3.2             51.1
                             Restructuring expenses                                                                  19.1                 3.6                6.0               6.4              17.4              11.4              15.6
                             Share-based compensation expense                                                          8.6                6.4              15.0                6.0                5.4               4.2              4.3
                             Sponsor fees (included in other operating expenses)                                       1.7                3.8                6.5               8.0                6.7               6.1              7.0
                             Inventory impairments and adjustments (included in cost of sales)                         1.4                0.3                1.2               1.5                3.2             20.7               9.6
                             Adjustments relating to post-retirement benefits                                         (1.2)              (1.9)              (3.2)              3.1                2.5               6.4              4.8
                             Premium on redemption of long-term debt                                                      -                  -                  -            27.0                    -                 -                -
                             Financing-related FX (gains) losses                                                      (1.9)              (0.6)              (0.8)             (8.8)             61.2               (7.6)           (62.8)
                             One-time deferred tax benefit from U.S. tax reform                                           -                  -                  -                 -          (118.2)                   -                -
                             One-time net tax expense (benefit)                                                           -          (513.0)            (513.0)                   -                  -                 -                -
                             One-time non-controlling interest adjustment                                                 -            (15.0)             (15.0)                  -                  -                 -                -
                             Other adjustments (1)                                                                  (15.0)               (1.1)               1.6               0.8             (10.5)              (8.1)           (10.9)
                             Estimated tax effect of the above adjustments                                          (16.7)             (19.6)             (31.2)            (38.3)             (53.9)            (38.9)            (70.0)
                           Adjusted Net Income                                                              $        71.0     $       157.6      $       279.3      $      379.2      $       209.5      $      185.0      $      132.8

                           Diluted weighted average number of shares outstanding                            291,716,507       291,863,973        291,627,461        291,698,273       250,490,828        248,360,187       247,674,034

                           Adjusted Net Income per diluted share                                            $        0.24     $        0.54      $        0.96      $       1.30      $        0.84      $       0.74      $       0.54

                                                (1) During the six months ended June 27, 2020, other adjustments included $13.3 million in relation to the non-controlling interest share of the adjustments above, primarily restructuring expenses
©2020 Gates Corporation. All rights reserved.
                                                    incurred in relation to the closure of our manufacturing facility in Korea.
RECONCILIATIONS – FREE CASH FLOW AND FREE CASH                                                                                                                                                 28
                                FLOW CONVERSION

                           (USD in millions)                                                        LTM Q2 2020       LTM Q2 2019         FY2019             FY2018             FY2017           FY2016           FY2015
                           Reconciliation of Free Cash Flow
                             Net Cash Provided by Operations                                       $       356.7     $      283.4     $        348.9     $       313.5      $       319.9    $      376.7     $      278.6
                             Capital Expenditures (1)                                              $        (68.6)   $     (110.6)              (83.1)          (182.7)            (111.1)           (68.1)           (85.8)
                           Free Cash Flow                                                          $       288.1     $      172.8     $        265.8     $       130.8      $       208.8    $      308.6     $      192.8

                              Adjusted Net Income                                                  $       192.7     $      353.1     $        279.3     $          379.2   $      209.5     $      185.0     $      132.8
                           Free Cash Flow Conversion                                                      149.5%             48.9%             95.2%                34.5%           99.7%           166.8%           145.2%

©2020 Gates Corporation. All rights reserved.   (1) Capital expenditures represent purchases of property, plant and equipment and purchases of intangible assets.
RECONCILIATIONS – RETURN ON INVESTED CAPITAL (ROIC)                                                                                                                                                             29

                           (USD in millions)                                                                      Q2 2020           Q2 2019           FY 2019           FY 2018            FY 2017            FY 2016            FY 2015
                           Return On Invested Capital (ROIC)
                           LTM Adjusted EBITDA                                                                $       484.1     $       697.9     $       611.0     $       755.8      $       669.1      $       594.9      $       547.2
                           LTM Total depreciation and amortization                                                   (219.5)           (221.2)           (222.2)           (218.5)            (212.2)            (240.8)            (269.9)
                           LTM Amortization of intangible assets arising from the 2014 acquisition of Gates           117.0             118.7             118.2             120.3              124.2              141.9              158.5
                           LTM Adjusted EBIT                                                                          381.6             595.4             507.0             657.6              581.1              496.0              435.8
                           Notional tax at 25%                                                                         (95.4)          (148.8)           (126.8)           (164.4)            (145.3)            (124.0)            (109.0)
                           LTM Tax-effected Adjusted EBIT                                                     $       286.2     $       446.6     $       380.2     $       493.2      $       435.8      $       372.0      $       326.8

                           Total Assets                                                                       $     7,176.3     $     7,430.1     $     7,411.3     $     6,722.6      $     6,853.7      $     6,383.3      $     6,565.6
                           Adjusted for:
                             Cash                                                                                    (639.7)           (411.0)           (635.3)           (423.4)            (564.4)            (527.2)            (340.2)
                             Taxes receivable                                                                          (54.4)            (45.0)            (45.1)            (35.1)             (46.8)             (41.0)             (44.1)
                             Deferred tax assets                                                                     (575.7)           (576.0)           (587.1)               (5.1)              (5.8)              (2.4)              (3.1)
                             Accounts payable                                                                        (317.8)           (378.3)           (374.7)           (424.0)            (392.0)            (313.1)            (274.0)
                             Intangibles arising from the acquisition of Gates                                     (3,628.2)         (3,867.2)         (3,788.8)         (3,890.4)          (4,114.5)          (4,034.2)          (4,318.0)
                           Invested Capital                                                                   $     1,960.5     $     2,152.6     $     1,980.3     $     1,944.6      $     1,730.2      $     1,465.4      $     1,586.2

                           Return On Invested Capital                                                                 14.6%             20.7%             19.2%             25.4%              25.2%              25.4%              20.6%

©2020 Gates Corporation. All rights reserved.
You can also read