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Presented by Robert Eberhard, Rob Jannusch and Rodrigo Serna April 1 st , 2014

Presented by Robert Eberhard, Rob Jannusch and Rodrigo Serna April 1 st , 2014 . About Lincoln Electric. Founded in 1895 by John C. Lincoln in Cleveland, selling electric motors of his own design First welding product produced in 1909

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Presented by Robert Eberhard, Rob Jannusch and Rodrigo Serna April 1 st , 2014

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  1. Presented by Robert Eberhard, Rob Jannusch and Rodrigo Serna April 1st, 2014

  2. About Lincoln Electric • Founded in 1895 by John C. Lincoln in Cleveland, selling electric motors of his own design • First welding product produced in 1909 • Employee Advisory Board established in 1915, which meets every two weeks to this day • Employee stock ownership plan introduced in 1925, one of the first in the country, and first annual Incentive Bonus paid in 1934 • Hired women after many workers were drafted during WWII • Expansion during past 15 years driven primarily by acquisitions Source: Lincoln Electric Company History

  3. Products and Markets • Broad-line manufacturer of welding, cutting, and brazing products • Welding products include: Arc welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment • Cutting products include: CNC plasma and oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting, and brazing • Brazing products are primarily the materials used in the welding process like soldering alloys • Major end-uses for its products are pretty widespread: • General metal fabrication, power generation and processing, structural steel construction, heavy equipment fabrication, shipbuilding, automotive, pipe mills and pipelines, and offshore oil and gas exploration • Operate 48 manufacturing facilities, including operations and joint ventures in 19 countries Source: Company 10-K

  4. Macroeconomic Analysis - Welding • Manufacturing numbers expected to rise in 2014 • Global market for welding expected to grow substantially through 2018 due to continuous growth of automobile and construction industries and use of welding products in wide range of industries including homebuilding, bridges, ships, pipelines, submarines, tanks, etc. • Emerging economies like Brazil, China, India and Russia will drive demand for welding products • Robot welding segment expected to experience highest rate of growth Source: Transparency Market Research Report for Welding Products Market: 2012-2018 Global Industry Analysis

  5. Macroeconomic Analysis - Global • UNIDO Statistics presents this report on world manufacturing production growth quarterly based on indices of industrial production • World manufacturing gained further strength in the 4th quarter of 2013 as a result of the continuing economic recovery of industrialized countries • Manufacturing output grew in all industrialized country groups for the first time since 2010 • The manufacturing output of the U.S., the largest manufacturer in the world, grew by 3.0% Source: United Nations Industrial Development Organization World Manufacturing Production Quarterly Report, Quarter IV 2013

  6. Macroeconomic Analysis • Institute for Supply Management Report on Business shows economic activity in the manufacturing sector expanded in February for the 9th consecutive month and in the overall economy for 57th consecutive month • Of the 18 manufacturing industries, 14 are reporting growth in February • Manufacturing expanded in February as the PMI registered 53.2%, an increase of 1.9 points over January’s 51.3% • Reading above 50% indicates that manufacturing economy is generally expanding; below 50% contracting • PMI in excess of 43.2 over a period of time indicates an expansion of the overall economy Source: ISM February 2014 Manufacturing ISM Report on Business: March 3, 2014

  7. Macroeconomic Analysis • Manufacturing numbers expected to rise in 2014, according to Manufacturers Alliance for Productivity and Innovation • Survey’s composite index improved from 66 to 67, highest level since 2012 • 17 straight quarters of index reading over 50, which is dividing line for growth in the manufacturing sector • Capacity utilization index, which measures % of firms operating above 85% of capacity, was only index to drop • U.S. manufacturers showed a preference for capital investment at home as opposed to internationally Source: Industry Week, January 16, 2014

  8. SWOT Analysis

  9. Lincoln Electric Vision “We are a global manufacturer and the market leader of the highest quality welding, cutting, and joining products. Our enduring passion for the development and application of our technologies allows us to create complete solutions that make our customers more productive and successful. We will distinguish ourselves through an unwavering commitment to our employees and a relentless drive to maximize shareholder value.”

  10. Employees Matter! • In 1934, James Lincoln raised profit-sharing bonus to at least 25% of base wages and salary, which has remained in place for 80 years • Averaged roughly 70% since 1950, topping out around 120% in really successful years • For 2013, the average bonus per employee was $33,029, which was 62% of base wagesand salary • Employees are guaranteed to have at least 32 hours of work a week, and the company has not had a layoff since • 3-year mutual approval prior to gaining lifetime employment guarantee, which includes a promise by employees not to unionize • Employees are invested in the future of the company on their own • As of December 2012, 35% of employee 401k funds are invested in company stock

  11. Major Acquisitions • 1998 was the beginning of major growth through acquisition • Uhrhan & Schwill of Essen, Germany – installer of pipe welder systems • AS Kaynak of Turkey – welding consumables manufacturer • Indalco of Canada – aluminum wire manufacturer • 2000 – acquires C.I.F.E. Spa, Italian manufacturer of welding consumables • 2002 – expansion into Eastern Europe with purchase of Bester, S.A. • 2004 – acquires three welding companies in China • 2011 – Severstal acquisition gives Lincoln the leading market position in Russia • Recent acquisitions have expanded on current holdings and technologies, including two companies acquired in 2013 that focus on robotic welding systems

  12. Subsidiaries & Affiliates

  13. Spark by Frank Koller (2012) • Canadian economics journalist Frank Koller explored Lincoln Electric in his book Spark, focusing primarily on the company’s unique employee incentive program. • A seminal case study by Harvard Business School in 1975 remains the school’s best-selling case study. • An interesting read that highlights just how job security and employee investment in a company’s mission can inspire economic growth and the success of the company.

  14. Valuation – Overview • Comfortable managing acquisitions due to smart investments • Solid historical performance • Continued North American growth • Increase in foreign sales growth through acquisition Source: Company 10-K

  15. Valuation – DCF

  16. Valuation – WACC • Beta decreasing over time based on daily close prices • Capitalization very concentrated in equity • WACC adjusted down ~6% based on company track record

  17. Valuation – Comps

  18. Recommendation • Strong company with lots of potential, though currently overpriced • Candidate to be re-reviewed in the future Watch List

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