Vertical Research Partners Industrial Conference. September 8, 2016

Transcription

1 Vertical Research Partners Industrial Conference September 8, 2016

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 August 1, 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, why we use them, and why we believe they are helpful to investors, and contain reconciliations to GAAP data. 1

3 Rexnord Highlights Robust Free Cash Flow Industry-Leading Profitability Rexnord Business System Shift in Portfolio Momentum ~70% of FY16 Earnings from Water, Aerospace, Consumer-Facing Stabilizing Industrial Process MRO Demand Building on Sustainable Competitive Advantages 20+% Footprint Reduction & Repositioning Expanding Addressable Markets with Strategic Product Line Extensions 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: $1.9 billion Adjusted EBITDA: $366 million (19%) FCF: $171 million Water Management Provide and enhance water quality, safety, flow control, and conservation in nonresidential construction, water & wastewater infrastructure Revenue: $0.8 billion Adjusted EBITDA Margin: 20% Process & Motion Control Be the leading global provider of high-value, mission-critical solutions that help customers safely, reliably and productively keep their goods & assets moving Revenue: $1.1 billion Adjusted EBITDA Margin: 21% Note: All figures are FY16. Platform margins exclude corporate expenses. Free cash flow and Adjusted EBITDA are non-gaap metrics and are defined in our SEC filings. 3

5 More Balanced Portfolio PMC: Aero + Consumer 32% FY15 Adj EBITDA Composition Water Manageme nt 28% FY16 Pro Forma Adj EBITDA Composition PMC: Aero + Consumer 34% Water Manageme nt 38% PMC: Process Industries 40% PMC: Aero + Consumer 32% Water Management 28% PMC: Process Industries 40% PMC: Process Industries 28% PMC: Aero + Consumer 33% Water Management 40% PMC: Process Industries 27% Note: Adjusted EBITDA is a non-gaap metric defined in our SEC filings. FY16 Pro Forma includes Cambridge acquisition. Water Management is leveraging positive end-market growth with product innovation. Aerospace visibility benefits from high relative exposure to large commercial aircraft build. Food & beverage markets value product innovation, add relatively stable demand patterns. Significant operating leverage to stabilization and recovery in PMC industrial process markets. Portfolio management & capital allocation to reduce cyclicality 4

6 Cambridge International Summary Leading supplier of metal conveying solutions for food processing applications Strong brand reputation for innovation, quality, reliability, and superior customer service Leading market share in North America, established brand in Europe & Latin America Strong management team with developed growth strategies Favorable cost position with most manufacturing in Mexico Highly complementary fit with Rexnord Focus on product performance & customer service, innovation, application engineering Expands leadership position in conveying solutions for global food & beverage end markets Significant growth synergy potential along multiple vectors Attractive profitability with upside through RBS-led process improvement, supply chain Cambridge expands Rexnord s consumer exposure 5

7 Supply Chain Optimization & Footprint Repositioning Progress Update First stage of SCOFR program on track to March 2017 completion Mexico facility made first commercial shipments in 1Q FY17 Four plant consolidations announced (two completed), plus exiting non-strategic product line Reducing internal foundry capacity, selectively increasing outsourcing Planning under way for next stage of SCOFR FY17 Execution FY18 New Current State Complete SCOFR Implementation Launch Initial Mid-Tier PT products FY17 earnings guidance includes est. $14 million nonrecurring expenses, $6-7 million pretax benefits FY17 est. restructuring expenses $20-22 million, capex $14-16 million Transition to new supply chain structure Launch initial Mid-Tier PT Products Structural Cost Savings Realized Substantial Cash Investment Complete FY18 net year/year benefit to Adjusted EBITDA est. $25 million FY18 net year/year benefit to Free Cash Flow est. $50 million Tax savings est. $5 million Lower fixed costs = more flexible cost structure, reduced maintenance capex Structural cost reductions to enhance earnings, FCF 6

8 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 7

9 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 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 FY16 Sales by End Market FY16 Sales by Geography FY16 Sales by Application Water & Wastewater Infrastructure 35% Residential 12% Nonresidential: Commercial & Industrial 29% Nonresidential: Institutional 24% ROW 15% Latin America 1% Europe 11% US & Canada 72% Replace ment / Retrofit 40% Replacement / Retrofit 40% New Construction 60% 8

10 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 9

11 Process & Motion Control Profile Highlights Broad product portfolio for applications in process & consumer industries, aerospace Major product categories include flat top conveyor systems & components, gears & gear drives, couplings, bearings & seals, metal conveyor belting, engineered chain Reliability critical to avoid costly user downtime + small share of user system cost = 80%+ like-for-like replacement Targets $25+B fragmented global market with significant bolt-on acquisition potential Competitive advantages in product scope, applications expertise, brand positioning FY16 Sales by End Market FY16 Sales by Geography FY16 Sales by Application Food & Beverage 16% General Industrial & Process 31% Aerospace 15% Bulk Material Handling, 11% Energy 9% Const Materials & Eqpt 8% Agri/Farm Paper & 4% Transport Forest 3% 4% ROW 11% Latam 7% US & Canada 64% Europe 18% Aftermark et 48% Aftermarket 48% OEM & End User 52% 10

12 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. 11

13 Executive Summary Near-Term Perspective Cautious view of global end market growth prospects Water, Consumer, Aerospace drive ~70% of earnings with favorable core growth outlook Executing $30-million structural cost savings initiative operating benefits to emerge this year 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 12

14 Appendix 13

15 Non-GAAP Reconciliations FYE March 31, FQE Jun 30, US$ in millions Net (loss) income from continuing operations $30.6 $47.3 $25.0 $91.8 $68.9 $18.9 Interest expense, net Provision (benefit) for income taxes (10.0) (5.9) Depreciation and amortization EBITDA $326.0 $326.9 $231.0 $308.7 $292.8 $65.7 Adjustments to EBITDA: Actuarial loss on pension and post retirement benefit obligations $9.1 $5.5 $2.7 $59.4 $12.9 $ Impact of RHF product line exit (1) Loss on divestiture (2) 6.4 Loss on extinguishment of debt Restructuring and other similar charges (3) Stock-based compensation expense Impact of inventory fair value adjustment LIFO expense (income) (4) (1.7) (0.8) (0.1) Zurn PEX loss contingency 10.1 Other expense (income), net (5) (3.1) 1.9 Subtotal of adjustments to EBITDA Adjusted EBITDA $376.2 $390.1 $404.7 $405.0 $365.5 $79.0 LTM pro forma adjustment for acquisitions 17.9 LTM pro Forma Adjusted EBITDA $375.3 (1) During the fourth quarter of fiscal 2016, the Company announced its decision to exit the Rodney Hunt-Fontaine ( RHF ) flow control gate product line within its Water Management platform. The operating loss (excluding restructuring and related charges) is not included in Adjusted EBITDA in accordance with our credit agreement. RHF results have not been excluded for FY (2) The loss on divestiture is the result of the Company's sale of a non-core subsidiary to a third party. (3) Represents restructuring costs comprised of work force reduction, lease termination, and other facility rationalization costs, including impairment charges. (4) Last-in first-out (LIFO) inventory adjustments are excluded in calculating Adjusted EBITDA as permitted by Rexnord s credit agreement. (5) Other expense (income), net includes the impact of foreign currency transactions, sale of property, plant and equipment, other miscellaneous expenses and recovery under the Continued Dumping and Subsidy Offset Act. 14

16 Non-GAAP Reconciliations (Continued) Q1 FY 2017 Q1 FY 2016 US$ in millions (except per share amounts) Net Income EPS Net Income EPS As reported, from continuing operations $18.9 $0.18 $21.2 $0.20 Amortization Restructuring Expense Inventory Fair Value Adjustment Supply Chain Optimization & Footprint Repositioning Program (1) Impact of RHF Product Line (2) All Other Non-Operating (3) Tax Impacts on Adjustments (4) (9.4) (0.09) (6.8) (0.06) As Adjusted $36.1 $0.35 $33.4 $0.32 (1) Represents accelerated depreciation associated with our strategic supply chain optimization and footprint repositioning initiatives. (2) Operating loss of RHF product line, excluding restructuring and other nonrecurring items. (3) Other income, net includes the impact of foreign currency transactions, sale of property, plant and equipment, and other miscellaneous income and expense. (4) The tax rates used to calculate adjusted net income and adjusted earnings per share are based on a transaction-specific basis at the applicable jurisdictional rate. 15