# Fellow
Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_MOD_2018/NYSE_MOD_2018.mmd` · pages 3-9_

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Fellow
Shareholders

At Modine, we have a lot to celebrate as we look back on fiscal 2018 and ahead to our future. From our storied roots in the vehicular industry, to our newest ventures in the commercial and industrial thermal management space, Modine today is a truly diversified global industrial company touching lives everywhere and every day. Through the collective efforts of our world-class employees located around the globe and their steadfast commitment to always improve and always innovate, we are a company that is grounded, thriving and transforming our business for the benefit of our customers, the markets we serve and you, our shareholders.

## Promises Delivered

In October 2015, we set into motion a rigorous and ambitious strategy to Strengthen, Diversify and Grow (SDG) our company. Last year, we achieved most of our goals through execution against our cost reduction targets and through the acquisition of Luvata HTS, which formed our Commercial and Industrial Solutions (CIS) segment.

However, our work was nowhere near complete. This past year we have continued to focus on strengthening our business through ongoing cost containment initiatives and the successful integration of the newly formed CIS business. In addition, we significantly expanded our low-cost country manufacturing footprint for our vehicular business in Europe and announced added plant capacity in China — our fastest growing market. The outcome of this hard work is evident in our full year results in fiscal 2018, marked by significant sales and earnings growth as promised.

By diversifying our opportunities, we have broadened our customer base and removed much of the cyclicality of our business. This reshaping of our market mix has increased our industrial business to more than 40 percent of our revenues. Through the acquisition of the CIS business, we were not only able to bring in a global leader in coils, coolers and coatings to further diversify our company's portfolio, but do so in a way that was immediately accretive for our business as promised.

In order to grow our business, we decided to temporarily increase the debt on our balance sheet, and at the end of last year, we were above the top end of our target leverage range of 1.5 to 2.5 times net debt to EBITDA. However, we were confident that we would generate sufficient free cash flow to quickly repay our debt and return to our target leverage range. We reached this goal by the end of the third quarter and remain within our target leverage range at the end of the fiscal year as promised, putting us in a position to accelerate our growth strategies.

## Exceeding Expectations

We closed fiscal 2017 excited for our future, but with work to do to make sure the CIS transaction was a success. While our acquisition of the CIS business was a big step toward achieving our goals, it was also the largest acquisition ever undertaken by our company. Thus, over the last year, integrating the business has been one of our primary strategic focuses. We are pleased to share that our efforts have paid off and resulted in our business performing beyond expectations quarter after quarter this year. In fiscal 2018, sales increased 40 percent to \(2.1 billion. We reported adjusted operating income of \)120 million — a 66 percent increase from the prior year. Adjusted earnings per share of $1.54 were up $0.76 from the prior year.

## The Next Phase

While we are certainly proud of the progress we have made over the past two years, we are not done. Our Strengthen, Diversify and Grow strategy will continue to advance our organization — to keep us grounded, thriving and transforming into the future.

Grounded in our expertise in thermal management, our foundation, while deep, will also broaden as we continue to diversify our business. We started this journey with two strong business segments serving vehicular and HVAC markets. The addition of the CIS business has removed a substantial degree of cyclicality and reduced our reliance upon a small number of end markets — making us a stronger company that can pursue strategic opportunities in new channels and with new customers around the world.

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Today, our business is thriving as we continue to grow, both domestically and abroad. For instance, this past fiscal year we generated significant growth in our VTS segment in Asia—and we are ahead of our multi-year growth plan by several years. Our new plant in China will be instrumental to our future success by allowing us to expand our capacity to meet the demand in the world's largest vehicular markets. Looking ahead, we will continue to focus our resources on high-return, high-growth and high-performing business opportunities.

Lastly, we will continue transforming our business and the thermal management industry by diligently analyzing our market positions and making calculated decisions about where we want to focus our capital and resources. Our world is undergoing a major shift as the demand for more economical, efficient and sustainable technologies continue to drive innovation in the markets we serve. Thermal management will be at the center of this movement and our nimbleness will ensure that we remain at the forefront of these disruptive changes across our rapidly evolving markets. Whether if it's vehicular electrification or the explosive growth of the digital world, Modine is well positioned to provide solutions that will enable our customers to succeed.

## Always Innovating. Always Improving

Modine improves lives and the world we live in everywhere, every day. We could not succeed without a diverse portfolio of products, proven years of experience, the hard work of our talented teams around the globe, and the trust our customers have in us to solve their toughest challenges.

As we refine and execute the next phase of SDG, we will continue to analyze and improve our cost structure, seek opportunities for organic growth within our business segments, and pursue promising avenues for inorganic growth through strategic acquisitions.

While many factors will determine our future success, the ongoing development of Modine's culture will be a driving force in the support and advancement of our strategy. Leveraging the Modine Operating System, our continuous improvement and leadership mentoring model, our top-down approach will ensure a continuously improving mindset permeates every level of our organization. In doing so, we will be able to do more than just participate in our markets and the trends that drive them, but create meaningful market positions that allow us to continue to bring greater value to customers, improved returns for our shareholders, and move our business incrementally closer towards our goals.

Our journey to this point has been one of success, growth and exciting diversification. We thank you for your continued support and are excited about our path forward as we continue to transform the thermal management industry.

Sincerely,

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Thomas A Burke
President and Chief Executive Officer

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Marsha C Williams
Lead Independent Director

"Modine will continue to transform our business and the thermal management industry"

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