Gabelli & Company Pump, Valve & Water Systems Symposium February Todd Adams / CEO

Transcription

1 Gabelli & Company Pump, Valve & Water Systems Symposium February 2016 Todd Adams / CEO

2 Safe Harbor Statements This presentation contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. Accordingly, we caution you not to place undue reliance on these statements. All statements other than statements of historical fact could be deemed forward-looking, including, but not limited to, any projections of financial information; any statements about historical results that may suggest trends for our business; any statements of the plans, strategies and objectives of management for future operations; any statements of expectation or belief regarding future events, technology developments or enforceability of our intellectual property rights; and any statements of assumptions underlying any of the foregoing. These statements are based on estimates and information available to us at the time of this presentation and are not guarantees of future performance. Actual results could differ materially from our current expectations as a result of many factors, including but not limited to: the impact of our substantial indebtedness; the effect of local, national and international economic, credit and capital market conditions on the economy in general, and on the industries in which we operate in particular; access to available and reasonable financing on a timely basis and the availability of financing for our customers; our competitive environment; dependence on independent distributors; general economic and business conditions, market factors and our dependence on customers in cyclical industries; the seasonality of our sales; impact of weather on the demand for our products; changes in technology and manufacturing techniques; loss of key personnel; increases in cost of our raw materials and our possible inability to increase product prices to offset such increases; the loss of any significant customer; inability to make necessary capital expenditures; risks associated with international operations, which have increased in size due to our recent acquisitions; the costs of environmental compliance and/or the imposition of liabilities under environmental, health and safety laws and regulations; the costs of asbestos claims; a potential impairment of goodwill and intangible assets; changes in governmental laws and regulations, or the interpretation or enforcement thereof, including for environmental matters; viability of key suppliers; reliance on intellectual property; potential product liability claims; work stoppages by unionized employees; the costs related to strategic acquisitions or divestitures or the integration of recent and future acquisitions into our business; performance, and potential failure, of our information and data security systems; changes in pension funding requirements and costs of maintaining healthcare insurance and benefits; and anti-takeover provisions in our charter documents. These and other risks and uncertainties associated with our business are described in our Annual Report on Form 10-K for the year ended March 31, We assume no obligation and do not intend to update these forward-looking statements. In addition to U.S. GAAP financials, this presentation includes certain financial measures on a non-gaap basis as defined in the Form 8-K filed with the Securities and Exchange Commission on February 2, These historical and forward-looking non-gaap measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. Our SEC filings contain additional information about these non-gaap measures and why we use them. 1

3 Rexnord Highlights Robust Free Cash Flow Industry-Leading Profitability Rexnord Business System Shift in Portfolio Momentum Estimated 64% of FY16 Earnings from Water, Food & Bev, Aerospace Large Majority of Industrial Sales Currently for MRO Applications Building on Sustainable Competitive Advantages Executing 20+% Footprint Reduction & Repositioning Planning Under Way for Next Iteration of Future State Disciplined Capital Allocation Investing in Above-Market Organic Growth Longer-Term Shareholder Value Creation with Strategic M&A 2

4 Rexnord Overview Rexnord (RXN) Multi-Platform Industrial Engineered Products for Specification-Driven Applications Revenue: $2.05 billion Adjusted EBITDA: $396 million (20%) FCF: $203 million Water Management Provide and enhance water quality, safety, flow control, and conservation in nonresidential construction, water & wastewater infrastructure Revenue: $0.82 billion EBITDA Margin: 15% Process & Motion Control Provide highly-engineered mechanical components used in complex systems where reliability is critical and cost of downtime is high Revenue: $1.23 billion EBITDA Margin: 25% Note: All figures are FY15. Platform margins exclude corporate expenses. 3

5 Rexnord Historical Summary Adj EBITDA ($millions) Ent Value ($millions) Adj EBITDA Enterprise Value $ ,000 $ , ,000 $ ,000 $ ,000 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 0 Valued by Carlyle Apollo IPO Trade* Key Acquisitions Falk Zurn GA VAG Precision Euroflex source: Company reports, Capital IQ. * 52-week high. Consistent Focus on Value Creation 4

6 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Rexnord Value Creation 10-Year Revenue Growth ($mm) Cumulative Unlevered Free Cash Flow ($B) WM PMC $2,050 $ $2.5B $811 $1, Year Adjusted EBITDA Growth ($mm) Free Cash Flow Conversion WM PMC $396 $ % $ $135 0% 0 FY05 FY15 Note: EBITDA adjusted to exclude certain non-recurring items per SEC filings. CAGR calculated w ith consolidated EBITDA, including corporate expenses. Free Cash Flow = Cash Flow from Operations - Capital Expenditures Unlevered FCF = FCF less impact of cash interest FCF Conversion = Adjusted FCF / Adjusted Net Income 5

7 Substantial Portfolio Shift Historical Revenue: Water + Aero + F&B Water Management Aerospace+ Food & Bev Rexnord Historical Revenue Development 1400 Water Management 1400 Aerospace+ Food & Bev 1200 PMC, ex Aero+F&B % CAGR FY12-FY16E FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E Historical Revenue: PMC ex-aero + Food & Bev PMC, ex Aero+F&B FY12 FY11 FY10 FY09 FY08 source: Company reports, estimates. FY13 FY14 FY15 FY16E (6%) CAGR FY12-FY16E 0 0 FY16E FY15 FY14 FY13 FY12 FY11 FY10 FY09 FY08 Improving visibility of runway for core growth & margins 6

8 More Balanced Portfolio Food & Beverage + Aerospace 24% PMC, excl F&B + Aero 52% FY12 EBITDA Composition PMC: Aerospace + Food & Beverage 24% PMC: excluding Aerospace + F&B 52% Water Management 24% Food & Water Beverage Manageme + nt Aerospace 24% 24% PMC, excl F&B + Aero 48% FY15 EBITDA Composition PMC: Aerospace + Food & Beverage 24% Water Management 28% PMC: excluding Aerospace + F&B 48% Water Manageme nt 28% Food & Beverage + Aerospace 24% PMC, excl F&B + Aero 36% FY16E EBITDA Composition Water Management ~40% PMC: Aerospace + Food & Beverage ~24% PMC: excluding Aerospace + F&B ~36% Note: FY16E based on assumptions consistent with midpoints of FY16 core growth, Adjusted EPS outlook (as of 2/2/16). Adjusted EBITDA defined as per SEC filings. Water Management is leveraging steady core growth with solid margin expansion. Aerospace visibility benefits from high relative exposure to large commercial aircraft build. Food & beverage market values product innovation, adds relatively stable demand patterns. Water Manageme nt 40% Significant operating leverage to stabilization and recovery in PMC industrial process markets. Portfolio management & capital allocation will reduce cyclicality 7

9 Supply Chain Optimization & Footprint Repositioning Progress Update First stage of SCOFR program on track to March 2017 completion Mexico facility on track to 4Q completion Three plant consolidations announced (one completed) Reducing internal foundry capacity, selectively increasing outsourcing Launched planning for next stage of SCOFR FY17 Implementation FY18 New Current State FY19 New Future State FY17 program capex $14-16 million FY17 est. restructuring expenses $13-15 million, comparable to FY16 est. FY17 total nonrecurring expenses estimated about flat with FY16, but partially offset by initial savings FY17 net impact to Adjusted EBITDA est. $2-4 million of net expense (versus est. $13 million expense in FY16) Launch initial Mid-Tier PT products Launch next stage in SCOFR FY16-17 initiatives expected to benefit Process & Motion Control margins by ~200 bps FY16-17 initiatives expected to benefit Water Management margins by ~50 bps Lower fixed costs = more flexible cost structure and reduced maintenance capex levels Expanding Mid-Tier PT offering Additional supply chain repositioning Additional structural cost reductions Improved variable cost structure Improved free cash flow Structural cost reduction initiatives gather momentum 8

10 Strategic Execution On Track Grow Specification Share Zurn tracking to >80% specification share in US nonresidential building market (~2x FY10 level) VAG project backlog increasing, securing expanded NA specification of VAG-designed products Aerospace content share higher on newer commercial aircraft platforms PMC Commercial Efficiency initiatives gaining traction, key strategic first-fit wins Sustain Strong Free Cash Flow to Fund Growth Executing significant reduction in global manufacturing footprint Structural cost reduction, fixed cost reduction = lower maintenance capex Planning under way for next stage in footprint & supply chain transformation Focus on accelerating working capital turnover Superior Talent Acquisition & Development Public ownership enhances recruiting appeal Deeper senior leadership team now in place for >12 months Continuing to add talent among senior leaders direct reports Recent key leadership additions in Product Management, Sales & Marketing Strategic Acquisitions & Divestitures Recent quiet period not reflective of ongoing funnel development Funnels continue to strengthen, good proprietary content Focus remains high-quality, bolt-on opportunities that are additive to growth, profitability Rapid integration through Rexnord Business System 9

11 Capital Allocation Focus Strategic Acquisitions RBS-directed = process-based, integrated into strategic planning process Demonstrated ability to source exclusively-negotiated transactions Investments in proprietary funnel development and participation in structured processes Ability to leverage leading commercial presence & scale in both platforms Target ROIC > WACC within months Share Repurchases Offsets prospective dilution from employee compensation programs $200-million authorization with $160 million unused Debt Reduction Covenant-light term debt with unrestricted prepayment terms, matures 2020 Attractive alternatives for capital deployment 12

12 Water Management Profile Highlights Broadest offering for water safety, conservation, and flow control in specification-driven applications in building construction, water & wastewater treatment & supply Major product categories include specification-grade drainage, flush valves & sensor faucets, engineered valves and gates for water & wastewater control Small share of user project cost but critical to system performance and reliability Serves $5+B fragmented global market with attractive bolt-on acquisition potential Competitive advantages in product scope, product innovation, commercial network FY15 Sales by End Market FY15 Sales by Geography FY15 Sales by Application Water & Wastewater Infrastructure 37% Residential 12% Nonresidential: Commercial & Industrial 29% Nonresidential: Institutional 22% ROW 14% Latin America 2% Europe 13% US & Canada 71% Replace ment / Retrofit 41% Replacement / Retrofit 41% New Construction 59% New Construct ion 59% 11

13 Water Management Major End Markets Market Applications Representative Products Commercial Buildings Institutional Buildings Municipal Water & Wastewater Dam & Hydropower Industrial & Power Water Supply Drainage Control Restrooms Kitchens Fire Control Water Supply Drainage Control Restrooms Kitchens Fire Control Water Distribution Water Treatment Pumping Station Flood Protection Desalination Hydro Power Plant Pump Storage Station Extraction System Bottom Outlet Inlet Control Water Supply Cooling Water Supply District Heating & Cooling Storage Tanks Fire Control 12

14 Water Management Strategy Strategic Checklist Leverage scale advantages to deliver superior customer economics & satisfaction Focus resources on driving higher specification share with owners, architects, engineers Invest in new product development, VAVE to expand addressable market Leverage brand and go-to-market advantages to penetrate adjacencies Invest in complementary acquisitions to expand content per square foot, channel access Rationalize supply chain, fixed costs to expand margins, accelerate growth potential FY15 Acquisition: Green Turtle Point-source wastewater pretreatment and water reuse solutions for commercial, institutional, and industrial applications. Favorable growth outlook with margin expansion 13

15 Process & Motion Control Profile Highlights Broad product portfolio for heavy-duty applications in process industries, aerospace Major product categories include flat top conveyor systems & components, gears & gear drives, couplings, bearings & seals, engineered chain Reliability critical to avoid costly user downtime + small share of user system cost = 80%+ like-for-like replacement Serves $13+B fragmented global market with significant bolt-on acquisition potential Competitive advantages in product scope, applications expertise, brand positioning FY15 Sales by End Market FY15 Sales by Geography FY15 Sales by Application Food & Beverage 15% General Industrial & Process 31% Aerospace 14% Bulk Material Handling 12% Const Materials & Eqpt 8% Energy 8% Agri/Farm Paper & 5% Transport Forest 3% 4% ROW 12% Latin America 9% US & Canada 63% Europe 16% Aftermark et 48% Aftermarket 48% OEM & End User 52% 14

16 PMC Major End Markets Industry Applications Representative Products Food & Beverage Commercial Aerospace Bulk Material Handling Beverage Filling Pasteurizers Food Handling Case Handling Container Making Flight Control Systems Aircraft Doors Airframe Structures Engine/APU/Gearbox Landing Gear Conveying Equipment Processing Machinery Hard Rock & Coal Mining Potash Mining Fertilizer Production Energy Electrical Power Generation Oil & Gas Compression Process Equipment Wind Turbines Construction Materials Cement Production Aggregates Processing Asphalt Production & Paving Lumber/Wallboard Prod. 15

17 Process & Motion Control Strategy Strategic Checklist Expand vertical organization structure to align operational execution with established customer-defined front end Focus resources on winning first-fit applications to expand global installed base in targeted verticals Invest in new product development, VAVE to expand addressable market Invest in complementary acquisitions to expand opportunities in faster-growing markets, expand global presence Rationalize supply chain, fixed costs to expand margins, accelerate growth potential FY15 Acquisition: Euroflex Disc couplings used for gas and steam turbinedriven, gas compression, and test bench applications with higher than average speed & misalignment needs FY15 Acquisition: Tollok Locking devices used to secure rotating shafts, manage torque transmission, and counteract shaft bending and vibration Important progress in FY15 16

18 Executive Summary Near-Term Perspective Cautious view of global end market growth prospects Capitalizing on core growth opportunities in Water Management, Food & Beverage, Aerospace Executing $30-million structural cost savings initiative with benefits to emerge in FY17 Increasing commercial efficiency & shifting end market exposures toward growth Longer-Term Perspective Expanding capabilities to drive core growth Robust free cash flow Sustainable 30% incremental EBITDA margins Investments in M&A funnel development Rexnord Business System enables enhanced financial returns & shareholder value creation Aligned to Create Value for Shareholders 17

19 Appendix 18

20 Non-GAAP Reconciliations FYE March 31, FQE Dec 31, US$ in millions Net (loss) income from continuing operations $(54.2) $30.6 $47.3 $25.0 $91.8 $24.3 Interest expense, net (Benefit) provision for income taxes (10.6) (10.0) 16.8 (1.4) Depreciation and amortization EBITDA $220.6 $326.0 $326.9 $231.0 $308.7 $76.9 Adjustments to EBITDA: Actuarial loss on pension and post retirement benefit obligations $9.1 $5.5 $2.7 $59.4 $ Loss on divestiture (1) 6.4 Loss on extinguishment of debt Restructuring and other similar charges (2) Stock-based compensation expense Impact of inventory fair value adjustment LIFO expense (income) (3) (1.7) 0.6 Zurn PEX loss contingency 10.1 Other (income) expense, net (4) (1.1) Subtotal of adjustments to EBITDA Adjusted EBITDA $330.6 $376.2 $390.1 $404.7 $396.1 $86.7 Pro forma adjustment for acquisitions 11.3 Pro Forma Adjusted EBITDA $407.4 Note: During the fourth quarter of fiscal 2011, the Company voluntarily changed its method of accounting for actuarial gains and losses related to its pension and other postretirement benefit plans. Please refer to footnote 2 of the audited financial statements of the March 31, 2011 Form 10-K filed by the Company s subsidiaries, RBS Global, Inc. and Rexnord LLC for further information. (1) The loss on divestiture is the result of the Company's sale of a non-core subsidiary to a third party. (2) Represents restructuring costs comprised of work force reduction, lease termination, and other facility rationalization costs. (3) Last-in first-out (LIFO) inventory adjustments are excluded in calculating Adjusted EBITDA as permitted by Rexnord s credit agreement. (4) Other (income) expense, net consists of management fees, loss on foreign currency transactions, loss on sale of property, plant and equipment, income in unconsolidated affiliates and other miscellaneous expenses. 19

21 Non-GAAP Reconciliations (Continued) US$ in millions (except per share amounts) Q3 FY 2016 Q3 FY 2015 Operating Income Net Income EPS Operating Income Net Income EPS As reported, from continuing operations $48.5 $24.3 $0.24 $35.7 $6.7 $0.06 Amortization Stock Option Expense Restructuring Expense LIFO Expense (Income) Actuarial Loss on Pension/OPEB Supply Chain Optimization & Footprint Repositioning Program (1) All Other Non-Operating Tax Impacts on Adjustments (7.9) (0.08) (19.2) (0.18) As Adjusted $58.3 $39.3 $0.38 $71.7 $40.2 $0.38 (1) Accelerated depreciation and other non-cash expenses associated with supply chain optimization and footprint repositioning program. 20