# DEAR
SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_MOD_2020/NYSE_MOD_2020.mmd` · pages 3-9_

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DEAR
SHAREHOLDERS

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Then in our fourth quarter, the COVID-19 pandemic crisis began impacting our Asian and European markets, further challenging results. We responded rapidly to both of these headwinds with a series of actions to improve our cost structure, leaving us with earnings exceeding our revised expectations. We are encouraged by these results, but are aware of, and prepared for, the daunting challenges that lie ahead.

## Unwavering commitment in the face of unprecedented challenge

Today we face an uncertain world, one changing rapidly due to the COVID-19 pandemic. First and foremost, we are committed to the health and safety of our employees, implementing all the necessary steps to mitigate risk in our manufacturing operations and administrative offices worldwide while also remaining in full compliance with government orders in all countries where we operate. I cannot overstate how grateful I am for the commitment of all Modine employees around the world who have worked to ensure the health and safety of each other while also going above and beyond to successfully overcome the extreme supply chain disruptions to meet our customers' needs. The effect of the pandemic has resulted in temporary plant closures across the globe. During the past few months, as many as 14 of our manufacturing operations were closed at a given time, while many others operated at reduced capacity. In light of the current operating environment, we made the difficult decision to reduce our personnel costs and we are taking the necessary actions to preserve cash in order to maximize our liquidity.

In most of our operations, we are supporting industries deemed essential by local governments, including commercial HVAC, industrial cooling, refrigeration, transportation and other critical infrastructure. In many cases, our teams are prioritizing the critical needs of our customers and communities. For example, our Commercial and Industrial Solutions (CIS) team delivered custom coils within two days that were used in a new COVID-19 testing system. And in a separate project, they scaled up production of coils for disinfecting systems used by hospitals. In Building HVAC, we have been supplying ventilation and cooling systems for hospital expansions in the U.S. and the U.K. The Vehicular Thermal Solutions (VTS) team in North America provided prototypes overnight for a customer to accelerate the validation of an emergency vehicle. I take tremendous pride in all of the Modine employees who contributed to these and other efforts in the global fight against this virus.

## Automotive deal remains a priority

The other major challenge during the year was the unsuccessful divestiture process of our automotive business. This was a major strategic initiative we announced in January of 2019 as part of our continued goal of becoming a more industrial thermal management company. The work to "carve out" the business from the VTS segment was extensive, but necessary to prepare the business for sale. Disappointingly, the sale process was challenged by market dynamics in the second half of calendar 2019 as the slowdown in the automotive market cooled investment in potential acquisitions. With that, we made the decision to pause and evaluate our alternatives, which led to the decision to modify the deal perimeter to achieve a more valued offering. Resuming the process in early 2020, we received strong strategic interest, only to then be impacted by the COVID-19 pandemic. The process remains on pause and we remain committed to reopening it once economic conditions improve.

## The year in review

Overall, sales decreased 11 percent to $2.0 billion and adjusted operating income of $97.3 million

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# Today we enjoy a unique position in the marketplace as thermal management experts

declined 26 percent from the prior year. The year ended with adjusted earnings per share of \(1.05, compared with \)1.57 in fiscal year 2019.

Looking across our segments, our Building HVAC business proved to be a bright spot, delivering an outstanding performance. The operating earnings of this segment improved $9.5 million, or 35 percent, on a 4 percent increase in revenue.

Sales in the CIS segment decreased by 12 percent. We made a significant leadership change in this segment that is already having a positive impact. This refocused team is delivering significant improvements through manufacturing efficiencies, vertical integration projects and pricing strategies. In addition, the segment has developed a detailed roadmap designed to further improve future results.

We also announced a change in how we will go to market to our data center customers. We informed them we are consolidating leadership and leveraging the full systems capability of our Building HVAC data center organization with the global manufacturing expertise and customer relationships within CIS. Data centers were a key area of focus in fiscal 2020, as large-scale cloud and co-location providers showed a growing demand for our products, technology and expertise. The need for these products will only intensify as the world manages an increasingly urgent and growing necessity for infrastructure security. I am pleased with the initial results of this change, with increased sales orders and broader customer diversity.

Lastly, our VTS business saw sales decrease by 13 percent in fiscal 2020 as a result of the sharp decline in the commercial vehicle and off highway markets in the second half of the fiscal year. As I mentioned earlier, this team has been focused on splitting the business into two separate segments and preparing the automotive business for sale. We will report our automotive business as a separate segment in the first quarter of fiscal 2021 and will rename the remaining portion of our VTS segment to Heavy Duty Equipment, or HDE. Once this split is complete, there will be additional clarity to the operating dynamics of these two businesses, as we move forward with the automotive exit and eventual sale.

## Unique strengths propel us forward

As we continue our strategic journey, it's time to focus on, and leverage, our considerable advantages. We have made significant strides towards our goal and stated vision of being an industrial thermal management company. Superior technology has always been our cornerstone, and we are applying that technology to targeted end markets. Supported by strong mega-trends, our products improve the world in the areas of greenhouse gas reduction, energy efficiency, data usage and storage, and infrastructure expansion to support global population growth. We have placed ourselves squarely on a path of sustainable growth by developing and delivering smart, effective solutions to these and other important demand drivers.

Today, we benefit from a unique and competitive position in the marketplace as true thermal management experts. That position offers immense potential, and we are utilizing opportunities where we possess a right to win with our global industrial footprint.

As we navigate these challenging times, our top priority will always be the health and safety of our employees, their families and our communities. In addition, it is our duty to protect Modine financially as we work through the pandemic and its impact on the global economy. As the COVID-19 pandemic continues to affect us all, we are adapting and contributing to the fight in every way we can. From improving system capabilities allowing more people to work from home, to addressing the needs of hospitals across the globe, we are committed to doing everything we can for our employees and those on the front lines of this global pandemic. We will weather this storm together, and we know that promising times lie ahead for Modine and all of our stakeholders.

Modine has a rich history that spans more than a century. We've weathered storms of all kinds. Today we're in a better position than we have ever been to meet these challenges. With a strong and effective leadership team, a highly committed workforce and a very engaged and capable board, we have a foundation in place that can create and maintain shareholder value even in the face of unprecedented uncertainty.

We thank you for your continued support and trust. Together, we stand strong, resolute, and more purposeful than ever to support our shareholders, customers and our communities where we work and live.

Sincerely,

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Thomas A. Burke
President and Chief Executive Officer

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Marsha C. Williams
Lead Independent Director