Modine Manufacturing Co's Business Segments

Modine Manufacturing Company specializes in providing innovative thermal management solutions. We are a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on-highway and off-highway original equipment manufacturer (“OEM”) vehicular applications, and for sale into a wide array of building, industrial and refrigeration markets. Our products include radiators and radiator cores, condensers, oil coolers, charge air coolers, heat-transfer modules and assemblies, exhaust gas recirculation (“EGR”) coolers, building heating, ventilating and air conditioning (“HVAC”) equipment, and coils. Our primary customers across the globe are:

- Automobile, truck, bus, and specialty vehicle OEMs;
- Agricultural, industrial and construction equipment OEMs;
- Heating, ventilation and cooling OEMs;
- Construction architects and contractors; and
- Wholesalers of heating equipment.

We focus our development efforts on solutions that meet the ever-increasing heat transfer needs of OEMs and other customers within the automobile, commercial vehicle, construction, agricultural, industrial and commercial HVAC industries. Our products and systems typically are aimed at solving complex heat transfer challenges requiring effective thermal management. Typical customer and market demands include products and systems that are lighter weight, more compact, more efficient and more durable to meet customer standards as they work to ensure compliance with increasingly stringent global emissions, fuel economy and energy efficiency requirements. Our heritage provides a depth and breadth of expertise in thermal management, which, when combined with our global manufacturing presence, standardized processes, and state-of-the-art technical resources, enables us to rapidly bring highly valued, customized solutions to our customers.

We focus on thermal management leadership and highly engineered product and service innovations for diversified, global markets and customers. We create value by focusing on customer partnerships and providing innovative solutions for our customers thermal management challenges using cost-effective designs and material technology.

During fiscal 2016, we launched our Strengthen, Diversify and Grow strategic transformation in order to position our business for long-term success. We aim to strengthen our business by, among other things, i) right-sizing our cost structure and ii) implementing a more global, product-based organization to capture synergies across our core business, effectively meet the needs of our global customers, and improve our speed to market. In addition, we aim to diversify through expanding our non-vehicular businesses, and grow through both organic and inorganic opportunities.

Our top five customers are in three different markets – automotive, commercial vehicle, and off-highway – and our ten largest customers accounted for 63 percent of sales.

We have assigned specific operations to segments based principally on defined markets and geographic locations. Each operating segment is managed by a vice president and has separate financial results reviewed by our chief operating decision maker. These results are used by management in evaluating the performance of each business segment and in making decisions on the allocation of resources among our various businesses. During fiscal 2016, we combined our North America and South America segments into the Americas segment to streamline operations, gain synergies and improve our cost structure. There was no impact to our consolidated financial statements as a result.

Americas, Europe, and Asia Segments

The continued globalization of our OEM customer base requires us to manage our strategic approach, product offerings and the competitive environment on a global basis. This trend offers significant opportunities for us with our market positioning, including our presence in key global markets (U.S., Europe, Brazil, China, India, South Korea, Japan, and Mexico) and a global product-based organization with the expertise to solve technical challenges. We are recognized for having strong technical support, product breadth, and the ability to support global standard designs for our customers.

Each of our main vehicular competitors, AKG Group, BorgWarner, Dana Corporation, Delphi Corporation, Denso Corporation, Mahle Behr, Tata Toyo, TitanX, T. Rad Co. Ltd., Valeo SA, Visteon Corporation, and Zhejiang Yinlun Machinery Co. Ltd., have a multi-regional or worldwide presence. Increasingly, we face heightened competition as these competitors expand their product offerings and manufacturing footprints through expansion into low-cost countries or low-cost sourcing initiatives. In addition, competitors from some low-cost regions are beginning to expand into new geographic OEM markets.

The Americas, Europe, and Asia segments represent our original equipment segments and serve the commercial vehicle, automotive, and off-highway markets. In addition, our Americas segment provides custom-designed heat exchangers, utilizing microchannel, heat recovery, and round tube plate fin coils, to the commercial refrigeration, residential heating, and commercial heating and air conditioning markets. The Americas segment also serves Brazil’s automotive and commercial vehicle aftermarkets. The following summarizes the primary markets served by our original equipment segments:

Commercial Vehicle

Other trends influencing the commercial vehicle market include a call by global commercial vehicle manufacturers to standardize U.S., Canadian, and Eurozone emission regulations. Global standardization would likely lead to further consolidation of our customer base and competitors, as they leverage higher volumes, consolidate development costs, and rationalize distribution channels. Additionally, truck manufacturers are evaluating alternative powertrains and fuels, electrification, waste heat recovery, and other technologies aimed to improve vehicle efficiency, all of which could present opportunities for us.


OEMs continue to expect greater supplier support and seek new technology solutions at lower prices for their thermal management needs. In general, this creates a challenge to us and the entire supply base, but also provides an opportunity for suppliers, like Modine, who develop innovative solutions at a competitive cost. Global standardization, fuel economy, and emissions regulations are driving the advancement of product development worldwide and are creating demand for incremental improvements to thermal transfer products that we are well positioned to support.

Products – Powertrain cooling (engine cooling modules, radiators, charge air coolers, condensers, oil coolers, fan shrouds, and surge tanks); on-engine cooling (EGR coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers); and auxiliary coolers (transmission and retarder oil coolers and power steering coolers).

Automotive

Market Overview – The global automotive market improved in most regions during fiscal 2016. We expect this trend to continue in fiscal 2017, supported by favorable oil prices and monetary policies. The automotive market is gradually beginning to move away from traditional internal combustion engines towards alternative powertrains, such as electric, hybrid, and fuel cell. This shift is expected to increase the thermal management requirements for these vehicles, and we are capitalizing on this trend by applying our base heat transfer components to new applications. We expect our global automotive market production to increase in fiscal 2017, with modest market improvements in North America and Europe and stronger improvement in Asia.

Products – Powertrain cooling (engine cooling assemblies, radiators, condensers and charge air coolers); auxiliary cooling (power steering coolers and transmission oil coolers); component assemblies; radiators for special applications; on-engine cooling (EGR coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers); and battery cooling (layered core battery chillers).

Off-Highway

Products – Powertrain cooling (engine cooling modules, radiators, condensers, charge air coolers, fuel coolers and oil coolers); auxiliary coolers (power steering coolers and transmission oil coolers); and on-engine cooling (EGR coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers).

Building HVAC Segment

Market Overview – After two consecutive years of strong growth, the North America heating market contracted slightly in fiscal 2016, primarily due to warmer-than-normal winter temperatures. We expect modest improvement in the North America heating market in fiscal 2017. We anticipate market demand for our data center cooling, ventilation, and geothermal heat pump products to increase in fiscal 2017. We expect continued growth in demand for data and connected devices, coupled with increasing requirements for energy-efficient and green solutions, will continue to drive increased demand for our data center cooling products and, in particular, our high-density and free-cooling solutions. Likewise, we expect improvement in construction markets and energy efficiency legislation to drive increased demand for our ventilation and geothermal products.

Products – Unit heaters (gas-fired, hydronic, electric and oil-fired); duct furnaces (indoor and outdoor); infrared units (high- and low-intensity); hydronic products (commercial fin-tube radiation, cabinet unit heaters, and convectors); roof-mounted direct- and indirect-fired makeup air units; commercial packaged rooftop ventilation units; unit ventilators; single packaged vertical units; geothermal and water-source heat pumps; precision air conditioning units for data center applications; air-handling units; chillers; ceiling cassettes; and condensing units.