2020 ANNUAL REPORT 2020 Annual Report | 1
Enerpac Tool Group is a global leader in high-precision tools, controlled force products and solutions for precise heavy lifting.
110 Menomonee ~2300 100+ 100+ YEARS OF Falls, WI EMPLOYEES MANAGEMENT TEAM COUNTRIES HISTORY HEADQUARTERS YEARS EXPERIENCE PRODUCTS SOLD INTO
Products Service and Extensive Global 'LYHUVLÀHG Cylinders/jacks, pumps, Rental Distribution Customer Base bolting tools, presses, Bolting, machining 1,500+ long-standing Customers include pullers, tools, Heavy and joint integrity distribution specialty dealers, Lifting Technology relationships national distribution, 3,500+ distributor and large OEM’s locations
STRONG BRAND 13 VERTICAL MARKETS RECOGNITION
Civil Construction Mining
Oil & Gas Aerospace Premium Industrial Tools | Heavy Lifting Power Gen. & Utility Rescue
Manufacturing Tools Military
Service | Rental | Training Steel & Metal Paper/Wood
2ႇ+Z\9HKLFOH5HSDLU Industrial MRO
Medical | Industrial Ropes 2Q+Z\9HKLFOH5HSDLU 2 | 2020 Annual Report
2020 REVENUE BY CATEGORY 2020 REVENUE BY GEOGRAPHY
Australia 4% Services (Manpower/ Other 4% Rental) ~25% Other Americas 8% U.S. 37%
Asia 11%
Middle East 12%
Products ~75% Europe 24%
DELIVERING LONG TERM GROWTH
Sustainable business model built on well-recognized brands, robust global distribution and broad reach of end markets
Clear strategy DELIVERING to drive core growth above market and expand margins LONG TERM GROWTH Disciplined capital deployment Powered by strong balance sheet and free cash flow conversion Experienced leadership team Capable of executing to win
DEPLOYING CAPITAL
Invest in Reduce debt and Disciplined M&A Opportunistic ourselves to drive maintain a strong within tool space share buybacks organic growth balance sheet 2020 Annual Report | 3
DRIVING ORGANIC GROWTH WITH NEW PRODUCTS
NEW PRODUCT DEVELOPMENT NEW PRODUCT VITALITY Focusing on innovation through Centers of Investment in NPD, which began Excellence (CoE) and field-based, product/market- in FY16, has driven acceleration in focused specialists new products as a percent of sales. Bringing new products to market faster Improving utilization of resources between CoEs, supply chain and regions to drive FY15 FY19 FY20 FY21+ launch execution 3.5% 7% 11% 10+%
FY20 NEW PRODUCTS In FY20, Enerpac completed 18 new product development projects, adding 22 new product families and over 370 new products to our catalog. New product development is fundamental to our organic growth and maintaining our competitive advantage. Here is a sample of the products we introduced in FY20:
DSX Aluminum Square New Lightweight RARH SCJ-100 Self-Locking Cube Drive Hydraulic Torque Double-Acting Hollow Jack is the 100-ton addition Wrenches include industry-first Plunger Cylinders are to our compact and portable and patented design features, used for projects that require hydraulic solutions for incremental which enable safer and easier a high level of control and the lifting and lowering of heavy operation thanks to an enclosed positioning of cylinders in hard-to- loads. drive and an ergonomic safety reach areas. handle.
Lightweight Air Hydraulic Mechanical Piping Isolation Bar Cutters are an efficient Torque Wrench Pump is and Test Tools enable isolation cutting method, improving a compact, durable pump for and pressure testing of piping productivity while increasing hydraulic high-torque wrench local at the weld point. The new safety. They cut rebar without the applications in tight spaces that tools provide significant cost risk from exploding wheels or are harder to access with larger savings, enhanced safety, and shooting sparks. air powered pumps. reduced water usage.
ENERPAC TOOL GROUP 4 | 2020 Annual Report
A LETTER TO OUR SHAREHOLDERS:
It will be no surprise to you when I write that our Fiscal 2020 year was unlike any other in the 110-year history of our company. The harsh effects of the coronavirus and social and economic impacts felt over the second half of our fiscal year were dramatic. Despite those difficulties, I am certain we have established an even stronger foundation to build the world’s premier provider of industrial tools and services.
Over the course of FY20 three priorities have emerged for our company and management team: first, protect our employees’ health and safety as we navigate the pandemic; second, respond decisively to the dramatic drop in our markets without compromising our ability to execute our strategy; and third, make sure we are an employer where all employees globally feel accepted, engaged, and able to achieve personal success at a company with a very bright future. These times have been stressful for employees worldwide, and throughout the year our dedicated workforce has shown itself to be up to the task of driving our transformation into a top-performing tool company.
We started FY20 by launching our new company, Enerpac Tool Group, and completing the divestiture of our Engineered Components & Systems (EC&S) segment. At our November 2019 Investor Day, we introduced our new five-year strategy and began executing on our growth plan and structural cost initiatives outlined in that strategy. We made our first tools strategy acquisition in January and rang the closing bell at the New York Stock Exchange in February to celebrate our new brand and new company. We had significant momentum but could not have foreseen that the next month we would be facing an economic disruption the likes of which few of us have ever experienced. Our full year sales of $493 million and adjusted EBITDA of $52 million were significantly short of our original expectations for the year. However, the way our entire workforce responded to these challenges and executed on our highest priorities was a success and a testament to the quality of our company.
ENERPAC TOOL GROUP’S RESPONSE TO THE COVID-19 PANDEMIC Over the second half of FY20 we demonstrated agility, resolve and decisiveness in our response to changing market dynamics, and I believe firmly that we are positioned to come out of this pandemic stronger than ever. Nonetheless, the drop in consolidated sales related both to the pandemic and dramatic decline in oil and gas prices that began in March was significant. Still, we delivered on commitments to keep of our employees safe, control our expenses to offset the decline in sales, maintain a strong balance sheet and protect our strategy. Our efforts on cost control resulted in favorable decremental margins, reaching 28% in our fiscal fourth quarter and exceeding our target range of 35%-45%. Our temporary actions, which included furloughs, elimination of our annual bonus payment and suspension of the US 401k match yielded $21 million of savings in the second half of FY20 and we accelerated the planned permanent structural cost measures we announced previously.
In addition to controlling costs we maintained a strong balance sheet. Late in the first quarter, we used the proceeds from the sale of the EC&S segment to pay off our term loan. Further, in the fourth quarter we completed the early redemption of our senior notes which creates annual interest expense savings of over $10 million at then current rates. We ended the fiscal year with leverage at 1.8x times despite the challenging economic environment. Significantly, all of our efforts in FY20 to control cost--while protecting our ability to execute our growth strategy--have been successful, and we believe Enerpac is well- positioned to grow profitably as the global economy returns to normal. 2020 Annual Report | 5
Communication has been key to keeping employees engaged, despite working remotely and the many dynamic business and safety challenges affecting our company. We invested considerable effort into keeping our global workforce informed, connected and at ease during these uncertain and stressful times, and the interactive, bi-weekly global town hall meetings with our Executive Committee that we implemented were key to ensuring broad alignment with and understanding of our responses to the pandemic.
We relied more than ever on technology for training, In FY20 Enerpac Academy product training sessions marketing, and sales, and maintained our coverage moved out of the classroom and were conducted virtually strategy so our distributors and customers did not around the globe experience a decline in Enerpac support. In FY20, we saw some of our highest-ever attended “Enerpac Academy” product training classes taught virtually to sellers all over the globe. To better stay connected to our markets we also responded to the increased importance of digital marketing during the year and bolstered our social media, email marketing, and website strategies. Finally, in FY20 we introduced our first B2C website--paired with our Enerpac Tool Center retail and rental location--for end customers to now have the option to order direct online.
As a producer of high-force hydraulic tools and employer of service technicians who can work in some the world’s most demanding environments, we have to be obsessed with safety. That focus prepared us to quickly implement the many safety measures we required to counteract the COVID-19 pandemic and ensure safe and productive work environments for our employees as well as keep our plants running efficiently to meet our customers’ needs. Our sales and marketing teams also have been able to resume limited dealer and customer visits while observing those increased safety measures. We’ll continue to closely monitor and adapt to local health conditions and will always put the health and well-being of our employees, business partners and communities first. Finally, we gave back to our communities in times of need, donating to a COVID relief fund and producing and providing face shields and cloth masks to health workers and hospitals in our communities.
DESPITE THE PANDEMIC, WE CONTINUED TO EXECUTE ON OUR STRATEGY Despite the dramatic impact of the global pandemic we have been able to continue executing our strategy by balancing necessary cost reductions with the investments required to continue our path to becoming a top-performing tool business. In FY20, Enerpac completed 18 new product development projects, adding 22 new product families and over 370 new products to our catalog. New product development is fundamental to our growth plans and maintaining our competitive advantage, and in the upcoming year we have multiple new projects in the pipeline, including advanced lifting systems, hydraulic pumps and bolting products.
In January we acquired HTL Group, the UK’s leading provider of controlled bolting products. With fiscal 2019 revenue of approximately $17 million, HTL’s capabilities also include a strong rental business as well as calibration, repair The new Split Flow Hydraulic Pumps are Enerpac’s solution for and training services. Additionally, HTL provides multi-point lifting and lowering applications where uneven loads us with a state-of-the-art manufacturing need to be positioned equally
ENERPAC TOOL GROUP 6 | 2020 Annual Report
platform into which we are consolidating our UK footprint. The acquisition of HTL is aligned with our strategy of becoming a pure-play tools and services company and strategically expands our portfolio of bolting products as well as our rental offering in certain countries. Following the acquisition we released a fully-integrated HTL and Enerpac bolting product line through our distribution channel, which completes our three-tier product strategy and opens the full competitive landscape.
Furthermore, in FY20 we continued to execute on the structural cost and footprint initiatives laid out in our strategy. We have completed all the actions required to deliver $33 million of permanent structural cost reductions, and the Enerpac footprint rationalization initiative announced earlier in the year is proceeding well and will be completed during our fiscal The acquisition of Cramlington, UK-based HTL Group expands our portfolio of bolting products as well as our rental offering in 2021. several countries
We remained focused on applying lean principles. Enerpac Tool Group’s safety performance this year was world-class. The majority of our sites around the world ended the year at zero harm, which is a tremendous accomplishment and the result of great effort from many people. From a cost and efficiency perspective our teams proactively managed through volatile order and sales rates, significant social and logistical challenges and lower volumes by flexing labor and controlling variable spending, which contributed ENERPAC SAFETY & DELIVERY to our solid decremental margin performance. We also set out this year to achieve a step change in quality and FY20 TOTAL CASE to deliver flawlessly to our customers, and I am pleased INCIDENT RATE .15 | ª24% to see improvement at most all our facilities. Our teams did a great job helping us manage working capital by FY20 ON-TIME significantly reducing inventory levels while maintaining our DELIVERY 95% on-time delivery metrics and meeting our customers’ delivery expectations.
FOCUSED CAPITAL ALLOCATION Our capital allocation strategy includes investing in ourselves to drive organic growth, reducing debt and maintaining a strong balance sheet, exercising a disciplined M&A strategy within the tools space and returning capital to our shareholders through opportunistic share buybacks. We believe the proper allocation of capital ensures a bright future for our company. During the pandemic, our capital allocation shifted to strengthening our balance sheet by paying down debt and investing internally. Early in the fiscal year we used the proceeds from the EC&S divestiture to fully pay off our term loan, which proved to be a smart decision given the significant impact the pandemic had on our financial results. We were able to reduce additional debt with cash generated and on hand in our fourth quarter. Finally, we never stopped investing in our organic growth initiatives such as new product development and commercial effectiveness.
A BRIGHT FUTURE AHEAD The strategy we laid out one year ago to become a premier industrial tools company remains solidly intact and includes delivering 5% compound annual core growth or 200-300 bps sales growth greater than prevailing markets; driving efficiency and profitability to achieve 25% adjusted EBITDA margins; generating strong cash flow measured by 100% free cash flow conversion; and delivering best-in-class returns by achieving ~20% return on invested capital. As business conditions improve and longer-term visibility returns, we feel well positioned to resume acquisitions of products and technology that can 2020 Annual Report | 7
further enhance the Enerpac Tool Group. Our work to identify growth opportunities remains relevant and continues to guide our long-term planning, and we are committed to either develop or acquire tools to expand our core Enerpac business. We are confident our investments will grow our top line organically and our focus on operating efficiently on a cost base appropriate for our size will provide financial benefits as we return to growth. THE LONG-TERM VISION Amid the many challenges brought about by the ORGANIC -or- GROWTH ~5% 200-300bps pandemic, we have not lost sight of the global Core Sales Growth ABOVE Core Growth discourse around social justice and have undertaken CAGR > Market MARKET an examination of diversity, equity and inclusion at our own company. We realize that biases that exist in our DRIVING ~25% society may also be holding back our business and EFFICIENCY & are committed to creating a diverse global workplace PROFITABILITY EBITDA Margins and establishing a culture of belonging in which all employees, regardless their background, can thrive. STRONG +100% That’s why we’re taking action to examine our culture CASH FLOW Free Cash through global diversity, equity and inclusion councils, GENERATION Flow Conversion improving our hiring and retention efforts and supporting diversity in our own communities through our community BEST-IN- ~20% giving initiatives. Through these steps we are striving CLASS Return on to both be a diverse, inclusive employer of choice and RETURNS Invested Capital contribute to being a small part of a greater positive societal change.
In closing I would like to thank the many dedicated Enerpac Tool Group employees around the globe who have shown their commitment to helping create a top- performing tool and service business despite these unprecedented times. Whether they’ve continued to report to the workplace to carry out their essential position duties throughout the year or taken up an office in their home while sharing duties as a teacher for their children, I’ve been inspired by the level at which we have continued to serve our customers worldwide while building for an exceptional future.
Sincerely, Randal W. Baker 3UHVLGHQWDQG&KLHI([HFXWLYH2ႈFHU
ENERPAC TOOL GROUP 8 | 2020 Annual Report
CORPORATE INFORMATION
BOARD OF DIRECTORS
Committee Membership
AUDIT COMPENSATION GOVERNANCE & SUSTAINABILITY Alfredo Altavilla • • Judy L. Altmaier • • Randal W. Baker* J. Palmer Clarkson • • Danny L. Cunningham Chair • E. James Ferland** Chair Richard D. Holder • Chair Sidney S. Simmons, II • • Exchange New York Stock Exchange
Ticker Symbol: EPAC * Executive Director ** Board Chair Transfer Agent Equiniti Shareowner Services PO Box 64874 St. Paul, MN 55164 800.468.9716 EXECUTIVE LEADERSHIP Independent Accountant Randy Baker, President & Chief Executive Officer PricewaterhouseCoopers LLP %DUE%ROHQV(93Chief Strategy Officer 833 East Michigan St., Suite 1200 5LFN'LOORQ(93Chief Financial Officer Milwaukee, WI 53202 )DEUL]LR5DVHWWL(93General Counsel & Secretary -HII6FKPDOLQJ(93Chief Operating Officer Investor Relations Financial analysts & investors should direct inquires to:
Bobbi Belstner Director of Investor Relations & Strategy [email protected] -&!, +,, + + -*!,! +& 0 & '%%!++!'& /2D9:?8E@? '*% # &4E>(A8
&&-$* ('*,(-*+-&,,'+ ,!'&'*5 ' , + -*!,! + 0 & ,' BEG;89 ,*&+!,!'&* ('*,(-*+-&,,'+ ,!'&'*5 ' , + -*!,! + 0 & ,' BEG;8-E4AF /:D4@?D:? +E2E6@C@E96C;FC:D5:4E:@?@7 ! * + >A=@J6C :?4@CA@C2E:@?@C@C82?:K2E:@? !56?E:7:42E:@?&@ &/ / +,*''#*'++!& % &'%'& $$+ /!+'&+!& %2:=:?8255C6DD( ' @I %:=H2F<66 /:D4@?D:? 55C6DD@7AC:?4:A2=6I64FE:G6@77:46D *68:DEC2?EODE6=6A9@?6?F>36C :?4=F5:?82C624@56 ,86HE - %4E:8668?8E4G87 @4E><9G;8E8: Reconciliation of GAAP Measures to Non-GAAP Measures (The following information is not included as part of Enerpac Tool Group’s SEC Form 10-K) (US$ in millions, except per share data) Fiscal Year Ended August 31, 2019 2020 Diluted Earnings Per Share From Continuing Operations Before Special Items: Diluted (Loss) Earnings per share (GAAP Measure) ...... $ (4.04) $ 0.01 Diluted Loss per share from Discontinued Operations (GAAP Measure) ...... (4.18) (0.08) Diluted Earnings per share from Continuing Operations (GAAP Measure) ...... 0.13 0.09 Impairment & Divestiture Charges, net of tax ...... 0.34 (0.04) Restructuring & Other Exit Charges, net of tax ...... 0.09 0.11 Accelerated Debt Issuances & Modification Costs, net of tax ...... 0.01 0.02 Depreciation & Amortization True Up, net of tax ...... 0.02 — Purchase Accounting Inventory Step-up charge, net of tax ...... — 0.01 Pension Curtailment, net of tax ...... — (0.01) Tax Adjustments ...... 0.14 — Diluted Earnings per share from Continuing Operations Before Special Items (non- GAAP Measure) ...... $ 0.73 $ 0.18 Earnings from Continuing Operations Before Special Items: (Loss) Earnings (GAAP Measure) ...... $ (249) $ 1 (Loss) Earnings from Discontinued Operations (GAAP Measure) ...... (257) (5) Earnings from Continuing Operations (GAAP Measure) ...... 8 6 Impairment & Divestiture Charges, net of tax ...... 21 (2) Restructuring & Other Exit Charges, net of tax ...... 5 6 Accelerated Debt Issuances & Modification Costs, net of tax ...... 1 1 Depreciation & Amortization True Up, net of tax ...... 1 — Pension Curtailment, net of tax ...... — (1) Tax Adjustments ...... 9 — Earnings from Continuing Operations Before Special Items (non-GAAP Measure) .... $ 45 $ 11 Free Cash Flow: Cash Provided by (Used by) Operations (GAAP Measure) ...... $ 54 $ (3) Capital Expenditures ...... (28) (13) Other ...... 1 3 Free Cash Flow (non-GAAP Measure) ...... $ 27 $ (13) Note: The summation of the individual components may not equal the total due to rounding and the impact of share dilution on the calculation of the net loss per share and discontinued operations per share. Continued Reconciliation of GAAP Measures to Non-GAAP Measures (The following information is not included as part of Enerpac Tool Group’s SEC Form 10-K) (US$ in millions, except per share data) Fiscal Year Ended August 31, 2018 2019 2020 EBITDA from Continuing Operations Before Special Items: Earnings from Continuing Operations (GAAP Measure) ...... $ 5 $ 8 $ 6 Net Financing Costs ...... 31 28 19 Income Tax Expense ...... 15 11 2 Depreciation & Amortization ...... 20 20 21 Impairment & Divestiture Charges (Benefit) ...... 3 23 (3) Restructuring & Other Charges ...... 11 6 8 Pension Curtailment ...... — — (1) EBITDA from Continuing Operations Before Special Items (non-GAAP Measure) ...... $ 85 $ 96 $ 52 Net Sales from Continuing Operations ...... $ 641 $ 655 $ 493 EBITDA Margin from Continuing Operations Before Special Items (non-GAAP Measure) ...... 13.2% 14.7% 10.6% EBITDA from Discontinued Operations Before Special Items: Loss from Discontinued Operations (GAAP Measure) ...... $ (26) $ (257) $ (5) Net Financing Costs ...... — — — Income Tax (Benefit) Expense ...... (6) 7 (18) Depreciation & Amortization ...... 21 12 — Impairment & Divestiture Charges ...... 70 286 29 Restructuring & Other Charges ...... 2 2 — EBITDA from Discontinued Operations Before Special Items (non-GAAP Measure) .... $ 60 $ 50 $ 6 EBITDA Before Special Items: (Loss) Earnings (GAAP Measure) ...... $ (22) $ (249) $ 1 Net Financing Costs ...... 31 28 19 Income Tax Expense (Benefit) ...... 9 18 (16) Depreciation & Amortization ...... 41 32 20 Impairment & Divestiture Charges ...... 73 309 26 Restructuring & Other Charges ...... 13 8 9 Pension Curtailment ...... — — (1) p EBITDA Before Special Items (non-GAAP Measure) ...... $ 145 $ 146 $ 59 Note: The summation of the individual components may not equal the total due to rounding and the impact of share dilution on the calculation of the net loss per share and discontinued operations per share. Continued Reconciliation of GAAP Measures to Non-GAAP Measures (The following information is not included as part of Enerpac Tool Group’s SEC Form 10-K) (US$ in millions, except per share data) Fiscal Year Ended August 31, 2018 2019 2020 NOPAT from Continuing Operations Before Special Items: EBITDA from Continuing Operations Before Special Items (non-GAAP Measure) ...... $ 85 $ 96 $ 52 Less: Depreciation & Amortization ...... 20 20 21 EBIT from Continuing Operations Before Special Items (non-GAAP Measure) ...... 65 76 31 Less: Income Tax Expense on EBIT ...... 8 7 8 NOPAT from Continuing Operations Before Special Items (non-GAAP Measure) ...... $ 56 $ 69 $ 23 Invested Capital from Continuing Operations: Equity ...... $ 559 $ 301 $ 359 Debt ...... 533 460 255 Less: Assets from Discontinued Operations ...... 569 286 — Invested Capital from Continuing Operations ...... $ 522 $ 476 $ 104 ROIC from Continuing Operations: NOPAT from Continuing Operations Before Special Items (non-GAAP Measure) ...... $ 56 $ 69 $ 23 Invested Capital from Continuing Operations ...... 522 476 104 ROIC from Continuing Operations ...... 10.7% 14.4% 22.1% Note: The summation of the individual components may not equal the total due to rounding and the impact of share dilution on the calculation of the net loss per share and discontinued operations per share. 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