# FELLOW SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_MOD_2017/NYSE_MOD_2017.mmd` · pages 3-9_

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FELLOW SHAREHOLDERS,

Every day, people around the globe have grown to rely on thermal innovations from Modine — and they often don't even realize it. From keeping cars and trucks operating cleanly and efficiently, to enabling the storage of massive amounts of electronic data, we are a crucial part of everyday life. Thanks to some exciting investments that complement our business and allow Modine's footprint to spread even further throughout the world, our influence is now greater than ever.

## Making The New Modine

With more than 100 years of thermal innovation, we have a rock-solid foundation that has helped us set the stage for the new Modine.

In October 2015, we set in motion a roadmap to Strengthen, Diversify and Grow (SDG) our century-old company. To continue our role as a leading thermal innovator, we developed this 18-month transformational platform to keep Modine thriving in our ever-changing global markets.

To strengthen Modine, we set out to reduce costs by \(40-\)50 million. We achieved this by revamping our global procurement function and processes; targeting selling, general and administrative (SG&A) expense savings; and adjusting our manufacturing footprint by transferring production locations, nationally and internationally.

To diversify, we planned to reduce customer concentration and cyclical exposure. Our goal was to shift our market mix by increasing our industrial business revenues from 15-20 percent to 30-40 percent, thus providing better balance with our vehicular business. Our acquisition of Luvata HTS, with its leading positions in coils, coolers and coatings, enabled us to achieve this balance.

To grow, we planned to add at least $100 million in industrial revenue. By making a strategic industrial acquisition, we knew we could also achieve our global diversification goals. And, we did just that with the Luvata HTS acquisition.
Our initiative was rooted in our aspirational Enduring Goals:

• To be the fastest-improving company within the industry

• To grow our business and achieve a 10 percent average annual revenue growth rate

• To attain a 15 percent consolidated return on average capital employed

• To build a more diversified business model

## Outcomes Shaping The New Modine

There's no doubt Modine is heading in the direction we strategically planned. Our intense focus on cost control and the acquisition of Luvata HTS were instrumental in enabling us to achieve our SDG goals.

In Fiscal Year 2017, our sales increased 11 percent to \(1.5 billion. We reported adjusted operating income of \)69 million, a 10 percent increase from the prior year. Adjusted earnings per share of $0.78 were up $0.02 from the prior year.

Today, as the new Modine, we have:

Improved diversification and scale. We've transformed Modine into a more diversified thermal management leader with a globally recognized and leading position in vehicular markets and an industrial business comprising approximately 40 percent of our revenue base.

Increased cross-selling opportunities. Our Luvata HTS acquisition opens new sales channels, allowing us to sell existing products into expanded markets.

An enhanced market leadership position. With the Luvata HTS acquisition, we are the global leader in coils and coating markets.

Notable synergy potential. We've identified and are on track to deliver at least $15 million of annual cost synergies arising from the Luvata HTS acquisition within the next three to four years.

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An improved earnings and cash flow profile. The Luvata HTS acquisition provides exciting new opportunities for our employees and delivers immediate accretive value for our shareholders.

## An Exciting Horizon

As we transition to the new Modine, we are shifting to three distinct, but complementary business units:

• Vehicular Thermal Solutions (VTS)

• Commercial & Industrial Solutions (CIS)

• Building HVAC Systems (BHVAC)

We are a disciplined, global leader making strategic decisions to provide the highest returns for Modine, our employees and you, our shareholders. As we focus intently on integrating the Luvata HTS acquisition and delivering on our commitments, we will continue to pursue strategic opportunities that deliver the highest potential for long-term value creation.

Thanks for joining us as we continue to transform the thermal management industry and world as the new Modine. We're thrilled to see and share our successes this fiscal year.

Sincerely,

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Thomas A. Burke
President and Chief Executive Officer

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Marsha C. Williams
Lead Independent Director

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