# DEAR
SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_MOD_2022/NYSE_MOD_2022.mmd` · pages 3-9_

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DEAR
SHAREHOLDERS

"Fiscal 2022 was a year of significant change for Modine, but it was also A YEAR OF SIGNIFICANT PROGRESS."

This included the implementation of a new organizational structure, the introduction of new members of our management team, and the aggressive application of the 80/20 principles that help us more purposefully manage our portfolio of businesses.

Last year, we laid out a vision for Modine where we would organize the company differently, driven by market-based verticals and led by general managers empowered to make decisions with full accountability for results. A structure that allowed us to focus on our greatest opportunities while providing compelling career paths for our employees. This year we executed on those plans and more, allowing us to develop the framework necessary to achieve our transformation. Last year at this time we were at an inflection point. This year, we have made the necessary steps forward, all while continuing to operate in an increasingly challenging economic environment.

## UNLOCKING VALUE IN MODINE

We began laying the groundwork for our transformation by introducing the 80/20 mindset to our workforce. We collected and analyzed our customer and product data, giving us a strong understanding of what drives our profitability and identifying areas requiring improvement. The data has highlighted opportunities for us to reduce the complexity of our business, evolve our commercial practices, and create strategies to better serve and develop target customers.

For example, we improved the profitability of our coils business by introducing filters on both part numbers and low-volume orders that helped reduce our order backlog and lead times for our most important customers, while improving profitability on those low-volume orders. We are simplifying our product offerings and differentiating our customer interfaces in other parts of the company as well, sharing our learning and celebrating our wins. This process is allowing us to reimagine and ultimately better focus our commercial organization, while repositioning capital and resources to fuel our growth initiatives.

To support this new approach, we recruited seasoned leaders with experience driving transformative change in high-performing organizations and put them into roles where they can have a significant positive impact and make rapid decisions. The additions included two new segment presidents and six new vice president/general managers. These leaders injected fresh energy into the management team, working alongside many of our other long-tenured leaders. In addition, our new organizational structure created many opportunities for our existing employees to step into expanded roles, creating exciting career opportunities.

Once the organizational structure was transformed and the leadership team was in place, we developed detailed strategic plans designed to meet the specific objective of each verticle – venture, grow or improve. We are now providing our teams with the tools they need to be successful, including dedicated resources to create an entrepreneurial environment and to challenge the status quo.

We implemented these changes during a time of unprecedented challenges that included the ongoing COVID pandemic, material cost inflation, and supply chain disruptions. Our team met these challenges head-on, addressing each and every obstacle presented to us.

## THE YEAR IN REVIEW

Fiscal 2022 sales were \(2.1 billion, a 13% increase from the prior year. Sales in our Building HVAC (BHVAC), Commercial and Industrial Solutions (CIS) and Heavy Duty Equipment (HDE) segments were all up over 20% from the prior year.

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Those increases more than offset the decline in our Automotive segment, which was primarily due to the sale of our air-cooled automotive business in the first quarter of fiscal 2022 along with the impact of the ongoing semiconductor shortage. We reported adjusted EBITDA of \(159 million, a four percent decrease from the prior year.

While adjusted EBITDA was down slightly from last year, we were able to offset more than \(100 million in material cost increases with pricing adjustments. In our vehicular businesses, pricing is governed by contractual agreements that dictate the timing and extent to which we can pass through increases in our input costs with future price adjustments. We have captured the price increases possible through these arrangements and are working with our customers to improve these contractual conditions given the current environment.

In our other businesses, we have focused on commercial excellence, ensuring that we are adequately compensated for the value we provide. This included implementing multiple price increases throughout the year, establishing fee structures and surcharges, and charging for nonrecurring engineering services. We will continue to manage prices and other charges as necessary to offset the ongoing impact of cost inflation.

As a result of the hard work done to transform our organizational structure, we have changed and simplified our reporting segments in fiscal 2023. Our BHVAC business was combined with the CIS segment to create our new Climate Solutions segment. This business focuses on providing system solutions to the HVAC, refrigeration and rapidly growing data center markets while continuing to provide heat transfer products (coils) to a variety of end-market applications.

We have also combined our HDE and Automotive segments with the coatings business of our CIS segment to create our new Performance Technologies segment. This segment serves our traditional vehicular end markets with both liquid-cooled and air-cooled thermal products while increasingly focusing on new and advanced technologies.

This past year, we created a new team focused on advanced thermal systems for electric vehicles (EV) including our battery thermal management systems and electronic cooling packages. This team is hyperfocused on these developing markets, building new relationships and supporting existing customers as they move towards electric and other alternative powertrains. At this time last year, we were engaged on 35 systems-oriented programs and had 24 prototype orders. Our team has made connections with many new potential customers this year, and we are currently engaged on 75 programs, have 46 prototype orders, and 12 production awards. These awards equate to a peak annual revenue of $67 million, and we firmly believe that we have potential far beyond that. This business is included in the Performance Technologies segment.

We believe that creating the new Climate Solutions and Performance Technologies segments provides numerous benefits. This leaner, more focused organization optimizes our ability to coordinate global strategies and ensure our employees can act quickly and decisively. It will also allow us to simplify and improve our external messaging and financial reporting processes.

## THE ROAD AHEAD

Now that we have our teams in place and strategies set, it is time to look forward. We have big plans for the next several years with aggressive targets to hit. The first step is to ensure our 80/20 activities result in financial margin improvements. We have ambitious goals to rapidly improve our profit margin, which we expect to result in higher earnings and cash flow. Our focus is firmly set on the products and markets where we want to grow, namely HVAC and refrigeration, data centers, coatings, and the exciting EV markets. These businesses have the strongest market drivers and also provide the best return on our investments.

Next, we will focus on addressing and simplifying our underperforming businesses. This will involve the continued application of 80/20 to reduce complexity in our product offerings and improve our commercial excellence discipline and operational efficiency in manufacturing and supply chain. In addition, we will complete the previously announced restructuring actions to reduce overhead in certain areas of our business. Making these improvements now, while reallocating resources, will help these businesses generate the cash necessary to fund this restructuring. None of this will be easy, but it is necessary in order for us to be able to meet our financial targets.

Finally, our ultimate objective is to accelerate growth as we advance our transformation. Our mix of business will change as we grow certain businesses and deemphasize others, which will fuel improvements in our earnings and cash flow. This will involve providing our customers with complete systems and solutions rather than just components. It also means expanding the geographies where we can support our customers.

All of our work to date, and all of our plans looking forward, support our purpose of engineering a cleaner, healthier world. Despite the challenges that we faced this year, our leadership team remained committed to implementing the changes necessary to create a better Modine. We are doing this by providing the trusted products and solutions that bring Modine into customers' lives every day as we help them meet their sustainability objectives and ever-increasing regulatory requirements.

The innovations across our business, such as thermal management systems for electric vehicles that lower emissions, vehicular solutions that optimize efficiency, and HVAC solutions that enable the use of low global warming potential (GWP) refrigerants, all support decarbonization and combat climate change. In addition, Modine technologies provide for an improved quality of life. Our HVAC and indoor air quality (IAQ) solutions provide cleaner air and comfortable temperatures in schools and work environments, while our data center products support digitalization and safe information storage in an energy- and water-efficient manner. These solutions provide our customers with the green technologies they need to achieve their sustainability targets, while enhancing efficiency within their supply chains and preserving air quality within their work and educational spaces.

We are a company with over 100 years of thermal management expertise focused on delivering solutions to improve our world. We have an exciting path ahead!

Thank you for your ongoing support of Modine.

Sincerely,

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Neil D. Brinker / President and Chief Executive Officer

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Marsha C. Williams / Chairperson, Board of Directors