ITG Midwest Industrials August 2015

Transcription

1 ITG Midwest Industrials August 2015

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 4, 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 Overview FY15 Revenue: $2.05 billion FY15 Adjusted EBITDA: $396 million EBITDA Margin 20% PROCESS & MOTION CONTROL FY15 Revenue: $1.23 billion EBITDA Margin 25% Provide highly engineered mechanical components used in complex systems where reliability is critical and cost of downtime is high WATER MANAGEMENT FY15 Revenue: $0.82 billion EBITDA Margin 15% Provide and enhance water quality, safety, flow control and conservation in specification-driven end markets Note: Platform margins exclude corporate expenses. 2

4 Rexnord Historical Summary Adj EBITDA ($millions) Ent Value ($millions) 500 Adj EBITDA 5,000 $ Enterprise Value $ , ,000 $ $ 907 2,000 1,000 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 0 Valued by Carlyle Apollo IPO Trade* Key Acquisitions source: Company reports, Capital IQ. * 52-w eek high. Falk Zurn GA VAG Precision Euroflex Consistent Focus on Value Creation 3

5 Rexnord Business Model Focus. Execution. Value. 5

6 Rexnord Value Creation 10-Year Revenue Growth ($mm) WM PMC $2, $ $811 $1, Year Adjusted EBITDA Growth ($mm) WM PMC $396 $ $ $135 0 FY05 FY15 Note: EBITDA adjusted to exclude certain non-recurring items per SEC filings. CAGR calculated w ith consolidated EBITDA, including corporate expenses. 5

7 Process & Motion Control Profile Serves $13+B fragmented global market FY15 Sales by End Market Broad product portfolio of engineered products for heavy-duty applications in process industries, aerospace General Industrial 31% Food & Beverage 15% Reliability critical to avoid costly user downtime + small share of user system cost = 80%+ like-for-like replacement ~50/50 OEM & End User / Aftermarket Transport 3% Paper & Forest Products 4% Agri/Farm 5% Energy 8% Const Materials & Eqpt 8% Bulk Material Handling 12% Aerospace 14% Shift to vertical market organization IT investments improve EODB, customer satisfaction Focus resources on first-fit opportunities Grow the installed base globally Invest in new products & complementary acquisitions Invest in faster-growing markets Rationalize cost structure, supply chain FY15 Sales by Geography ROW 12% Latin America 9% US & Canada 63% Europe 16% Important Progress in FY15 6

8 Water Management Profile Serves $5+B fragmented global market FY15 Sales by End Market Broadest offering for water safety, conservation, and flow control in specification-driven applications in building construction, water & wastewater treatment & supply Small share of user project cost but critical to system performance and reliability ~60/40 New Construction / Replacement & Retrofit Water & Wastewater Infrastructure 37% Residential 12% Nonresidential: Commercial & Industrial 29% Nonresidential: Institutional 22% Leverage go-to-market scale Focus resources on driving specification share with owners, architects, engineers Facilitate changing sourcing & construction practices Invest in new products & complementary acquisitions Expand presence, relevance in adjacent channels Rationalize cost structure, supply chain Leveraging Competitive Advantages FY15 Sales by Geography ROW 14% Latin America 2% Europe 13% US & Canada 71% 7

9 Supply Chain Optimization & Footprint Repositioning Enable More Growth in Key Product Lines Access New Segments, Channels, Markets or Geographies Product Repositioning / Market Competitiveness Structural COGS Reduction Lower Cost Manufacturing Strategy Supply Chain Optimization & Footprint Repositioning Plan: Enable the long-term profitable growth of Strategic product lines Operations Commercial Structural COGS Reduction Relocation to LCR locations / increased variable manufacturing model COGS Reduction Targets (from JOP) PL #1 $4M PL #4 $3M PL #2 $5M PL #5 $10M PL #3 $3M Tax Benefit $5M Sustainable & Profitable Growth Access New Segments (General Purpose) / Channels (OEM) Growth Targets (from JOP) Growth in Key Product Lines +$X.XM (GP) $30 million savings exiting FY17 Permanent Fixed Cost Reductions & Growth Enabler 8

10 FUTURE CURRENT Repositioning Future Global Footprint North America FY million sq ft Europe FY million sq ft Rest of World FY million sq ft North America FY18E ~4 million sq ft Europe FY18E ~2 million sq ft Rest of World FY18E ~1 million sq ft Targeting 20+% Net Reduction of FY15 Footprint 9

11 Strategic Acquisition Process Process Characteristics RBS-directed = rigorous & standardized Integrated into strategic planning process Proprietary funnel Experienced internal teams Target Characteristics Accretive to core growth Attractive margin, cash flow profile Sustainable competitive advantages ROIC > WACC within months Recent Acquisition Activity Strategic Rationale Add Diversify Grow Strengthen Adjacent End Non-NA Acquisition Year Platfom Core Product Market Geography Comment Euroflex FY15 PMC P P P P India manufacturing Tollok FY15 PMC P P P P Product line extension Green Turtle Technologies FY15 WM P P Leading product technology Precision Gear Holdings FY14 PMC P P Aerospace & energy focus LWG FY14 WM P P Australia distribution Micro Precision FY14 PMC P P P Airframe diversification Scalable Capital Deployment 27

12 REXNORD AIMC AME AOS ATU CFX CR CSL DHR DOV EMR ETN FLS GGG HON IEX IR ITT ITW LECO NDSN PH PNR RBC ROK ROLL SKFB SPW TKR TYC UTX WTS XYL Focus on Cash Beginning with Fiscal 2016, Rexnord will report and guide to Adjusted EPS excluding non-cash amortization. More representative of underlying operating performance. Provides investors with a better understanding of core operating results. Improved alignment with cash flow generation. Majority of annual non-cash amortization is related to the 2006 LBO. 30% Calendar 2014 Amortization Expense as % of Earnings before Tax 25% 20% Mean = 9.2% 15% 10% 5% 0% source: Capital IQ 11

13 Executive Summary Next Months Cautious view of global industrial end-market growth prospects Capitalizing on core growth opportunities in global Water Management & Aerospace Implementing comprehensive $30M cost savings initiative, leveraged by supply chain optimization to augment core growth opportunities Increasing commercial efficiency in PMC process industry markets Longer-Term Perspective Expanding capabilities to sustain above-market core growth Acquisitions are incremental Leveraging go-to-market scale advantages in customer-centric organizational structure ~30% incremental EBITDA margins Superior free cash flow 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 June 30, US$ in millions Net (loss) income from continuing operations $(54.2) $30.6 $47.3 $25.0 $91.8 $21.2 Interest expense, net (Benefit) provision for income taxes (10.6) (10.0) Depreciation and amortization EBITDA $220.6 $326.0 $326.9 $231.0 $ 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 costs (2) Stock-based compensation expense Impact of inventory fair value adjustment LIFO expense (income) (3) (1.7) 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 $85.2 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 expenses. 14

16 Non-GAAP Reconciliations (Continued) US$ in millions, (except per share amounts) Q1 FY 2016 Q1 FY 2015 Operating Income Net Income EPS Operating Income Net Income EPS As reported, from continuing operations $53.2 $21.2 $0.20 $56.9 $11.6 $0.11 Amortization Stock Option Expense Restructuring Expense LIFO Expense (Income) 0.2 Inventory Fair Value Adjustment Non-Recurring Tax Items All Other Non-Operating Tax Impacts on Adjustments (6.0) (0.06) (6.9) (0.07) As Adjusted $57.0 $31.8 $0.30 $63.5 $34.4 $0.33 Note: Effective April 1, 2015, Management has modified the Adjusted Net Income and Adjusted Earnings per Share non-gaap metric to include stock option expense and LIFO, while excluding amortization (all net of tax). We believe this modification will increase transparency to our stakeholders, as well as enhance comparability with our peer set. 15