England and Wales | 001-38366 | 98-1395184 | ||
(State or Other Jurisdiction of | (Commission File Number) | (IRS Employer | ||
Incorporation) | Identification No.) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Ordinary Shares, $0.01 par value per share | GTES | New York Stock Exchange |
Exhibit No. | Description | |
99.1 |
GATES INDUSTRIAL CORPORATION PLC (Registrant) | ||||
By: | /s/ David H. Naemura | |||
Name: | David H. Naemura | |||
Title: | Chief Financial Officer |
Gates Industrial Reports Third-Quarter 2019 Results |
▪ | Net sales of $746.6 million compared to prior-year period of $828.4 million. |
▪ | Net income attributable to shareholders of $35.5 million, or $0.12 per diluted share, compared to prior-year period of $59.9 million, or $0.20 per diluted share. |
▪ | Adjusted Net Income of $65.2 million, or $0.22 per diluted share. |
▪ | Adjusted EBITDA of $145.0 million and Adjusted EBITDA margin of 19.4%. |
▪ | Maintaining full-year 2019 outlook. |
Three months ended | |||||||
(USD in millions) | September 28, 2019 | September 29, 2018 | % Change | % Core Change | |||
Net sales | $474.4 | $512.5 | (7.4%) | (6.0%) | |||
Adjusted EBITDA | $99.7 | $119.0 | (16.2%) | ||||
Adjusted EBITDA margin | 21.0% | 23.2% | (220 bps) | ||||
Depreciation & amortization (1) | $16.3 | $14.7 | +10.9% | ||||
Amort. of intangibles from acq. of Gates | $18.7 | $18.5 | +1.1% |
Nine months ended | |||||||
(USD in millions) | September 28, 2019 | September 29, 2018 | % Change | % Core Change | |||
Net sales | $1,475.4 | $1,608.1 | (8.3%) | (5.0%) | |||
Adjusted EBITDA | $315.2 | $377.6 | (16.5%) | ||||
Adjusted EBITDA margin | 21.4% | 23.5% | (210 bps) | ||||
Depreciation & amortization (1) | $49.2 | $45.4 | +8.4% | ||||
Amort. of intangibles from acq. of Gates | $55.4 | $57.1 | (3.0%) |
(1 | ) | Excludes the amortization of intangible assets arising from the 2014 acquisition of Gates. |
Three months ended | |||||||
(USD in millions) | September 28, 2019 | September 29, 2018 | % Change | % Core Change | |||
Net sales | $272.2 | $315.9 | (13.8%) | (12.7%) | |||
Adjusted EBITDA | $45.3 | $62.2 | (27.2%) | ||||
Adjusted EBITDA margin | 16.6% | 19.7% | (310 bps) | ||||
Depreciation & amortization (1) | $9.3 | $9.1 | +2.2% | ||||
Amort. of intangibles from acq. of Gates | $10.8 | $11.4 | (5.3%) |
Nine months ended | |||||||
(USD in millions) | September 28, 2019 | September 29, 2018 | % Change | % Core Change | |||
Net sales | $886.0 | $947.4 | (6.5%) | (5.4%) | |||
Adjusted EBITDA | $160.7 | $192.4 | (16.5%) | ||||
Adjusted EBITDA margin | 18.1% | 20.3% | (220 bps) | ||||
Depreciation & amortization (1) | $29.4 | $27.1 | +8.5% | ||||
Amort. of intangibles from acq. of Gates | $33.4 | $33.7 | (0.9%) |
(1 | ) | Excludes the amortization of intangible assets arising from the 2014 acquisition of Gates. |
Three months ended | Nine months ended | ||||||||||||||
(USD in millions, except per share amounts) | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||
Net sales | $ | 746.6 | $ | 828.4 | $ | 2,361.4 | $ | 2,555.5 | |||||||
Cost of sales | 474.2 | 501.2 | 1,480.3 | 1,534.9 | |||||||||||
Gross profit | 272.4 | 327.2 | 881.1 | 1,020.6 | |||||||||||
Selling, general and administrative expenses | 191.9 | 202.7 | 590.4 | 621.1 | |||||||||||
Transaction-related expenses | 1.0 | 0.2 | 0.7 | 6.2 | |||||||||||
Impairment of intangibles and other assets | 0.7 | 0.2 | 0.7 | 0.6 | |||||||||||
Restructuring expenses | 0.3 | 1.2 | 3.9 | 3.2 | |||||||||||
Other operating expenses | 1.8 | 5.1 | 6.6 | 12.5 | |||||||||||
Operating income from continuing operations | 76.7 | 117.8 | 278.8 | 377.0 | |||||||||||
Interest expense | 37.2 | 40.2 | 114.5 | 139.8 | |||||||||||
Other (income) expenses | (2.4 | ) | 3.4 | (7.2 | ) | 17.5 | |||||||||
Income from continuing operations before taxes | 41.9 | 74.2 | 171.5 | 219.7 | |||||||||||
Income tax expense (benefit) | 4.4 | 7.2 | (497.8 | ) | 30.4 | ||||||||||
Net income from continuing operations | 37.5 | 67.0 | 669.3 | 189.3 | |||||||||||
Loss on disposal of discontinued operations, net of tax, respectively, of $0, $0, $0 and $0 | 0.1 | 0.3 | 0.6 | 0.7 | |||||||||||
Net income | 37.4 | 66.7 | 668.7 | 188.6 | |||||||||||
Less: non-controlling interests | 1.9 | 6.8 | (2.0 | ) | 18.9 | ||||||||||
Net income attributable to shareholders | $ | 35.5 | $ | 59.9 | $ | 670.7 | $ | 169.7 | |||||||
Earnings per share | |||||||||||||||
Basic | |||||||||||||||
Earnings per share from continuing operations | $ | 0.12 | $ | 0.21 | $ | 2.31 | $ | 0.60 | |||||||
Earnings per share from discontinued operations | — | — | — | — | |||||||||||
Earnings per share | $ | 0.12 | $ | 0.21 | $ | 2.31 | $ | 0.60 | |||||||
Diluted | |||||||||||||||
Earnings per share from continuing operations | $ | 0.12 | $ | 0.20 | $ | 2.30 | $ | 0.58 | |||||||
Earnings per share from discontinued operations | — | — | — | — | |||||||||||
Earnings per share | $ | 0.12 | $ | 0.20 | $ | 2.30 | $ | 0.58 |
(USD in millions, except share numbers and per share amounts) | As of September 28, 2019 | As of December 29, 2018 | |||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 456.1 | $ | 423.4 | |||
Trade accounts receivable, net | 733.2 | 742.3 | |||||
Inventories | 507.8 | 537.6 | |||||
Taxes receivable | 24.8 | 7.2 | |||||
Prepaid expenses and other assets | 142.0 | 104.1 | |||||
Total current assets | 1,863.9 | 1,814.6 | |||||
Non-current assets | |||||||
Property, plant and equipment, net | 721.1 | 756.3 | |||||
Goodwill | 2,024.1 | 2,045.9 | |||||
Pension surplus | 52.8 | 52.6 | |||||
Intangible assets, net | 1,888.2 | 1,990.6 | |||||
Operating lease right-of-use assets | 117.3 | — | |||||
Taxes receivable | 34.2 | 27.9 | |||||
Deferred income taxes | 552.6 | 5.1 | |||||
Other non-current assets | 31.7 | 29.6 | |||||
Total assets | $ | 7,285.9 | $ | 6,722.6 | |||
Liabilities and equity | |||||||
Current liabilities | |||||||
Debt, current portion | $ | 43.5 | $ | 51.6 | |||
Trade accounts payable | 328.5 | 424.0 | |||||
Taxes payable | 17.4 | 19.2 | |||||
Accrued expenses and other current liabilities | 193.8 | 184.2 | |||||
Total current liabilities | 583.2 | 679.0 | |||||
Non-current liabilities | |||||||
Debt, less current portion | 2,909.8 | 2,953.4 | |||||
Post-retirement benefit obligations | 151.0 | 155.9 | |||||
Lease liabilities | 109.3 | — | |||||
Taxes payable | 155.3 | 81.9 | |||||
Deferred income taxes | 360.8 | 439.5 | |||||
Other non-current liabilities | 86.5 | 79.2 | |||||
Total liabilities | 4,355.9 | 4,388.9 | |||||
Shareholders’ equity | |||||||
—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 290,118,125 (December 29, 2018: authorized shares: 3,000,000,000; outstanding shares: 289,847,574) | 2.9 | 2.9 | |||||
—Additional paid-in capital | 2,430.5 | 2,416.9 | |||||
—Accumulated other comprehensive loss | (908.6 | ) | (854.3 | ) | |||
—Retained earnings | 1,052.6 | 381.9 | |||||
Total shareholders’ equity | 2,577.4 | 1,947.4 | |||||
Non-controlling interests | 352.6 | 386.3 | |||||
Total equity | 2,930.0 | 2,333.7 | |||||
Total liabilities and equity | $ | 7,285.9 | $ | 6,722.6 |
Nine months ended | |||||||
(USD in millions) | September 28, 2019 | September 29, 2018 | |||||
Cash flows from operating activities | |||||||
Net income | $ | 668.7 | $ | 188.6 | |||
Adjustments to reconcile net income to net cash provided by operations: | |||||||
Depreciation and amortization | 167.4 | 163.3 | |||||
Non-cash currency transaction gain on net debt and hedging instruments | (29.2 | ) | (35.0 | ) | |||
Premium paid on redemption of long-term debt | — | 27.0 | |||||
Other net non-cash financing costs | 31.2 | 54.9 | |||||
Share-based compensation expense | 10.5 | 5.5 | |||||
Decrease in post-employment benefit obligations, net | (6.4 | ) | (2.5 | ) | |||
Deferred income taxes | (635.6 | ) | (44.0 | ) | |||
Other operating activities | 3.4 | 1.5 | |||||
Changes in operating assets and liabilities, net of effects of acquisitions: | |||||||
—Increase in accounts receivable | (4.0 | ) | (82.6 | ) | |||
—Decrease (increase) in inventories | 25.2 | (81.0 | ) | ||||
—(Decrease) increase in accounts payable | (90.4 | ) | 16.4 | ||||
—Increase in prepaid expenses and other assets | (29.8 | ) | (24.6 | ) | |||
—Increase (decrease) in taxes payable | 48.2 | (6.4 | ) | ||||
—Decrease in other liabilities | (14.0 | ) | (38.8 | ) | |||
Net cash provided by operations | 145.2 | 142.3 | |||||
Cash flows from investing activities | |||||||
Purchases of property, plant and equipment | (50.5 | ) | (143.0 | ) | |||
Purchases of intangible assets | (8.0 | ) | (11.9 | ) | |||
Purchases of investments | (11.7 | ) | — | ||||
Net cash received (paid) under corporate-owned life insurance policies | 0.3 | (7.4 | ) | ||||
Purchase of businesses, net of cash acquired | — | (50.9 | ) | ||||
Other investing activities | 0.3 | (0.9 | ) | ||||
Net cash used in investing activities | (69.6 | ) | (214.1 | ) | |||
Cash flows from financing activities | |||||||
Issuance of shares, net of underwriting costs | 1.7 | 799.6 | |||||
Other offering costs | — | (8.6 | ) | ||||
Payments of long-term debt | (18.9 | ) | (933.5 | ) | |||
Premium paid on redemption of long-term debt | — | (27.0 | ) | ||||
Dividends paid to non-controlling interests | (24.5 | ) | (23.3 | ) | |||
Other financing activities | 1.6 | 5.7 | |||||
Net cash used in financing activities | (40.1 | ) | (187.1 | ) | |||
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (2.8 | ) | (9.2 | ) | |||
Net increase (decrease) in cash and cash equivalents and restricted cash | 32.7 | (268.1 | ) | ||||
Cash and cash equivalents and restricted cash at the beginning of the period | 424.6 | 566.0 | |||||
Cash and cash equivalents and restricted cash at the end of the period | $ | 457.3 | $ | 297.9 | |||
Supplemental schedule of cash flow information | |||||||
Interest paid, net of amount capitalized | $ | 112.5 | $ | 142.4 | |||
Income taxes paid, net | $ | 90.4 | $ | 83.7 | |||
Accrued capital expenditures | $ | 1.6 | $ | 2.5 |
Three months ended | Nine months ended | ||||||||||||||
(USD in millions) | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||
Net income from continuing operations | $ | 37.5 | $ | 67.0 | $ | 669.3 | $ | 189.3 | |||||||
Adjusted for: | |||||||||||||||
Income tax expense (benefit) | 4.4 | 7.2 | (497.8 | ) | 30.4 | ||||||||||
Net interest and other expenses | 34.8 | 43.6 | 107.3 | 157.3 | |||||||||||
Depreciation and amortization | 55.1 | 53.7 | 167.4 | 163.3 | |||||||||||
Transaction-related expenses (1) | 1.0 | 0.2 | 0.7 | 6.2 | |||||||||||
Impairment of intangibles and other assets | 0.7 | 0.2 | 0.7 | 0.6 | |||||||||||
Restructuring expenses (2) | 0.3 | 1.2 | 3.9 | 3.2 | |||||||||||
Share-based compensation expense | 4.1 | 2.3 | 10.5 | 5.5 | |||||||||||
Sponsor fees (included in other operating expenses) (3) | 1.1 | 1.9 | 4.9 | 5.9 | |||||||||||
Impact of fair value adjustment on inventory (included in cost of sales) | — | — | — | 0.3 | |||||||||||
Inventory impairments and adjustments (included in cost of sales) | 1.0 | — | 1.3 | 0.8 | |||||||||||
Duplicate expenses incurred on facility relocation | — | 1.5 | — | 4.6 | |||||||||||
Severance-related expenses (included in cost of sales) | 2.5 | — | 3.0 | — | |||||||||||
Other primarily severance-related expenses (included in SG&A) | 1.8 | 0.7 | 3.0 | 0.6 | |||||||||||
Other operating expenses | 0.7 | 1.7 | 1.7 | 2.0 | |||||||||||
Adjusted EBITDA | $ | 145.0 | $ | 181.2 | $ | 475.9 | $ | 570.0 |
(1 | ) | Transaction-related expenses relate primarily to advisory fees recognized in respect of our initial public offering, the acquisition of businesses and costs related to other corporate transactions such as debt refinancings. |
(2 | ) | Restructuring expenses represent costs qualifying for recognition as such under U.S. GAAP and include costs related to the closure of lines of business, facility closures and consolidations, fundamental organizational rationalizations and non-recurring employee severance related to such actions. |
(3 | ) | Sponsor fees relate to fees paid to our private equity sponsor for monitoring, advisory and consulting services. |
Three months ended | Nine months ended | ||||||||||||||
(USD in millions, except share numbers and per share amounts) | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||
Net income attributable to shareholders | $ | 35.5 | $ | 59.9 | $ | 670.7 | $ | 169.7 | |||||||
Adjusted for: | |||||||||||||||
Loss on disposal of discontinued operations | 0.1 | 0.3 | 0.6 | 0.7 | |||||||||||
Amortization of intangible assets arising from the 2014 acquisition of Gates | 29.5 | 29.9 | 88.8 | 90.8 | |||||||||||
Transaction-related expenses (1) | 1.0 | 0.2 | 0.7 | 6.2 | |||||||||||
Impairment of intangibles and other assets | 0.7 | 0.2 | 0.7 | 0.6 | |||||||||||
Restructuring expenses (2) | 0.3 | 1.2 | 3.9 | 3.2 | |||||||||||
Share-based compensation expense | 4.1 | 2.3 | 10.5 | 5.5 | |||||||||||
Sponsor fees (included in other operating expenses) (3) | 1.1 | 1.9 | 4.9 | 5.9 | |||||||||||
Inventory impairments and adjustments (included in cost of sales) | 1.0 | — | 1.3 | 1.1 | |||||||||||
Adjustments relating to post-retirement benefits | (0.7 | ) | 0.8 | (2.6 | ) | 2.4 | |||||||||
Premium on redemption of long-term debt | — | — | — | 27.0 | |||||||||||
Financing-related FX (gains) losses (4) | (0.4 | ) | 4.3 | (1.0 | ) | (8.5 | ) | ||||||||
One-time net tax benefit (5) | — | — | (513.0 | ) | — | ||||||||||
One-time non-controlling interest adjustment | — | — | (15.0 | ) | — | ||||||||||
Other operating expenses (income) | 2.5 | 0.7 | 1.4 | (1.1 | ) | ||||||||||
Estimated tax effect of the above adjustments | (9.5 | ) | (11.1 | ) | (29.1 | ) | (29.2 | ) | |||||||
Adjusted Net Income | $ | 65.2 | $ | 90.6 | $ | 222.8 | $ | 274.3 | |||||||
Diluted weighted-average number of shares outstanding | 291,113,102 | 298,453,946 | 291,666,931 | 293,456,224 | |||||||||||
Adjusted Net Income per diluted share | $ | 0.22 | $ | 0.30 | $ | 0.76 | $ | 0.93 |
(1 | ) | Transaction-related expenses relate primarily to advisory fees recognized in respect of our initial public offering, the acquisition of businesses and costs related to other corporate transactions such as debt refinancings. |
(2 | ) | Restructuring expenses represent costs qualifying for recognition as such under U.S. GAAP and include costs related to the closure of lines of business, facility closures and consolidations, fundamental organizational rationalizations and non-recurring employee severance related to such actions. |
(3 | ) | Sponsor fees relate to fees paid to our private equity sponsor for monitoring, advisory and consulting services. |
(4 | ) | Financing-related FX (gains) losses relate primarily to net foreign currency remeasurement (gains) losses on the unhedged portion of Gates’ Euro-denominated debt, and, in the nine months ended September 29, 2018, a gain of $5.8 million on a currency derivative entered into as part of the redemption of our Euro Senior Notes. |
(5 | ) | During the first quarter of 2019, we recognized a one-time, non-cash tax benefit related to the release of valuation allowances on net operating loss carryforwards in Europe. This benefit was offset partially by certain indirectly related unrecognized tax benefits and a tax charge related to a statutory tax rate change in April 2019 in the country in which the net operating loss carryforwards noted above are held. |
Three months ended September 28, 2019 | |||||||||||
(USD in millions) | Power Transmission | Fluid Power | Total | ||||||||
Net sales (1) | $ | 474.4 | $ | 272.2 | $ | 746.6 | |||||
Impact on net sales of movements in currency rates | 7.6 | 3.5 | 11.1 | ||||||||
Core revenue | $ | 482.0 | $ | 275.7 | $ | 757.7 | |||||
Net sales for the three months ended September 29, 2018 | 512.5 | 315.9 | 828.4 | ||||||||
Decrease in net sales on a core basis (core revenue) | $ | (30.5 | ) | $ | (40.2 | ) | $ | (70.7 | ) | ||
Core revenue growth | (6.0 | %) | (12.7 | %) | (8.5 | %) |
Nine months ended September 28, 2019 | |||||||||||
(USD in millions) | Power Transmission | Fluid Power | Total | ||||||||
Net sales (1) | $ | 1,475.4 | $ | 886.0 | $ | 2,361.4 | |||||
Impact on net sales of movements in currency rates | 52.6 | 18.2 | 70.8 | ||||||||
Impact on net sales from recent acquisitions | — | (7.5 | ) | (7.5 | ) | ||||||
Core revenue | $ | 1,528.0 | $ | 896.7 | $ | 2,424.7 | |||||
Net sales for the nine months ended September 29, 2018 | 1,608.1 | 947.4 | 2,555.5 | ||||||||
Decrease in net sales on a core basis (core revenue) | $ | (80.1 | ) | $ | (50.7 | ) | $ | (130.8 | ) | ||
Core revenue growth | (5.0 | %) | (5.4 | %) | (5.1 | %) |
(1 | ) | Throughout this document the terms "net sales" and "revenue" are used interchangeably in reference to the GAAP measure "net sales." |
Nine months ended | Twelve months ended | ||||||||||||||
(USD in millions) | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||
Cash provided by operations | $ | 145.2 | $ | 142.3 | $ | 316.4 | $ | 312.3 | |||||||
Capital expenditures (1) | (58.5 | ) | (154.9 | ) | (86.3 | ) | (201.3 | ) | |||||||
Free Cash Flow | $ | 86.7 | $ | (12.6 | ) | $ | 230.1 | $ | 111.0 |
(1 | ) | Capital expenditures represent purchases of property, plant and equipment and purchases of intangible assets. |
Twelve months ended | |||||||
(USD in millions) | September 28, 2019 | September 29, 2018 | |||||
Free Cash Flow | $ | 230.1 | $ | 111.0 | |||
Adjusted Net Income | 327.7 | 314.4 | |||||
Free Cash Flow Conversion | 70.2 | % | 35.3 | % |