ACHIEVE EXCELLENCE. Oppenheimer 13 th Annual Industrial Growth Conference

Transcription

1 ACHIEVE EXCELLENCE. Oppenheimer 13 th Annual Industrial Growth Conference May 8, 2018 New York, NY

2 SAFE HARBOR Certain statements contained in this presentation that are not historical facts, including any statements as to future market conditions, results of operations and financial projections, are forward-looking statements and are thus prospective. These forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future express or implied results. Although SPX FLOW believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. In addition, estimates of future operating results are based on the company s continuing operations, which are subject to change. Particular risks facing SPX FLOW include risks relating to economic, business and other risks stemming from changes in the economy, our international operations, legal and regulatory risks, cost of raw materials, pricing pressures, and integration of acquisitions. More information regarding such risks can be found in SPX FLOW s SEC filings. Statements in this presentation relating to 2018 guidance and 2020 goals are as of May 2, 2018 and March 8, 20218, respectively. SPX FLOW does not intend to update any statements made in this presentation except as required by regulatory authorities. This presentation includes non-gaap financial measures. A copy of this presentation, including a reconciliation of the non- GAAP financial measures with the most comparable measures calculated and presented in accordance with GAAP, is available on our website at 2

3 Select FLOW Acquisitions HISTORY SPX FLOW was built through acquisitions and spun-off in Q Spin-Off End Market Structure Regional Structure Individual Product Lines 3

4 A LOOK BACK our work in created a foundation for success 2015: Spin-off from SPX Corporation (September 26, 2015) 2016: Create the future now. Significant Progress During Transitioned to operating structure Created long-term financial stability Established strong foundation for future growth 2017: Unlock our Potential 10% order growth ~$280m of cash generated (operating cash flow + sale of assets) Reduced net debt 29% 2018: Achieve Excellence PIVOTING STRATEGY TO GROWTH AND IMPROVEMENT 4

5 ESTABLISHED A STRONG FOUNDATION executed global realignment program OPTIMIZED FOOTPRINT CREATED LONG-TERM FINANCIAL STABILITY 9 site consolidations (8 manufacturing, 1 shared-service) reduced net debt by 29% and net leverage to 3.0x established manufacturing center of excellence in Poland re-financed senior notes and staggered maturities increased capabilities in high valued countries opened 2 service centers (Corpus Christi, Saudi Arabia) GREW ORDERS AND BACKLOG STREAMLINED WORKFORCE ~20% headcount reduction 10% order growth in % backlog growth in 2017 streamlined functional support strategic hires in key commercial and operational roles IMPLEMENTED PRODUCT LINE STRATEGY aligned incentive programs with strategy TRANSITIONED TO OPERATING STRUCTURE reduced cost structure by ~$140m implemented KPIs across all functions 5

6 OUR BUSINESS TODAY expertise in rotating, actuating and hydraulic equipment STRENGTHS KEY PRODUCTS global supplier of high value, Highest engineered Quarterly orders solutions since xx ~7,000 employees operations in > 30 countries sales into >150 countries Skilled workforce Diverse, loyal customer base Well-recognized brands High quality products designed for severe duty and high-standard applications Engineering expertise to optimize configuration Global manufacturing footprint Attractive aftermarket, large installed base PUMPS VALVES MIXERS DEHYDRATION HYDRAULIC TOOLS SALES CHANNELS DIRECT INDEPENDENT REPS DISTRIBUTION HEAT EXCHANGERS FILTRATION HOMOGENIZERS SEPARATORS CUSTOMER TYPES MULTINATIONALS REGIONAL LOCAL 6

7 REVENUE SPLITS 3 segments with sales across food, industrial and energy markets; balanced geographic profile; >1/3 of sales are aftermarket segment INDUSTRIAL 35% market Food and Beverage 20% Oil and Gas 19% FOOD & BEVERAGE 37% $2b POWER & ENERGY 28% General Industrial 25% $2b Dairy 16% Compressed Air 8% Power Generation 7% Chemical Processing 5% type region 38% 30% Original Equipment 64% $2b 23% Aftermarket 36% 2% 7% 7

8 END MARKETS we serve large, global and diverse end markets FOOD & BEVERAGE INDUSTRIAL POWER & ENERGY ~$24b global market: Projected to grow ~3% per year Per capita consumption increasing in developing markets Highly regulated, steady growth market driven by growing population, changing consumer dietary habits and safety Broad array of components for dairy, beverage and food processing Process systems lead to innovation with customers and creates installed base for service and aftermarket >$100b global market: Projected to grow ~3.5% per year APAC and N.A. are key regions with accelerating growth SPX FLOW products serve multiple verticals and customer applications Our emphasis is on the intersection of high growth verticals with highly critical applications Large global project market: Stable with variable demand across verticals APAC, North America and the Middle East are key markets Highly cyclical demand SPX FLOW provides engineered products primarily in valves and pumps Our emphasis is on developing service and aftermarket business 8

9 FOOD & BEVERAGE OVERVIEW a leading provider of food and beverage process technology and service 2017 Revenue by Product Systems, 39% $716m Components, 29% Aftermarket, 32% 2017 Revenue by Market Food & Beverage 57% $716m Dairy 41% Personal Care 2% 2017 Revenue by Region 28% 35% APPLICATIONS FOODS BEVERAGES DAIRY PERSONAL CARE 4% 3% 30% Vegetable fats Margarines Baby food Ingredients Flavorings Yeast extract Condiments Confectionery Proteins Nutritional drinks Plant-based drinks (i.e. almond, soy) Beer Flavored water Soft drinks Fruit juices Wine & spirits Tea & coffee drinks Infant formula Milk/Whey powders Dairy ingredients Recombined milk products Butter & spreads Yoghurt Fermented products Fresh & UHT milk Pressed cheese Silica powders Industrial powders Extraction/recovery of organic substances Cosmetics Healthcare Detergents Solvent recovery Biofuel Methanol 9

10 INDUSTRIAL OVERVIEW a leading provider of industrial process and flow control technologies 2017 Revenue by Product Other 8% Heat Exchangers 13% Pumps 15% Mixers 25% Dehydration Products 21% Hydraulic Tools 18% 2017 Revenue by Market $692m General Industrial 50% Air Treatment 20% $692m Water/Marine 11% Chemicals, 10% Mining 6% Transportation 3% 2017 Revenue by Region 49% 24% KEY VERTICALS chemical general mining marine water air Mixers X X X X 23% Hydraulic Tools X X Dehydration X X X X X <1% 4% Pumps X X X X X Heat Exchangers X X X X 10

11 POWER & ENERGY diversified portfolio with high aftermarket concentration 2017 Revenue by Product Pumps 21% 2017 Revenue by Market Aftermarket 49% $543m Valves 22% Filters / Closures / Other 8% General Industrial, 20% Nuclear, 13% $543m Conventional Power, 5% Gas, 2% Midstream Oil, 28% Upstream Oil, 17% Downstream Oil, 14% 2017 Revenue by Region 41% 29% Conventional Power Nuclear Power KEY VERTICALS Upstream Oil and Gas Midstream Oil and Gas Downstream Oil and Gas 12% Pumps X X X X <1% 18% Valves X X X Filters / Closures X X X X 11

12 TRANSFORMATION ROADMAP journey to a high performing operating enterprise ENTERPRISE STRATEGY Product Line Strategy Organic Growth Investments Continuous Improvement Focus A HIGH PERFORMING OPERATING ENTERPRISE Winning culture Team focused Customer centric Proven system Accountable Sustainable, high performance Operating Structure, Financial Stability

13 PIVOT TO GROWTH & IMPROVEMENT focusing on people, products and process to drive performance WHAT S NEXT? PEOPLE Elevate talent and capabilities PRODUCTS Execute product line strategies PERFORM Growth & Margin Expansion PROCESS Continuous improvement 13

14 PRODUCTS where we will focus our growth investments CTP MTP ETO CTO Construct-to-project Make-to-project Engineer-to-order Configure-to-order Complex Processes Product Variability High Execution Risk Fewer orders ~70% of Sales CRITICAL to customer application No compromising performance, quality standard CUSTOMIZED to customer application Differentiated PREMIUM PRICING as compared to standard product Critical to end user LOYAL AFTERMARKET for spares, service and replacement ATO Assemble-to-order Opportunity to be life-cycle partner NICHE MARKET small % of customer s overall investment MTS Make-to-stock Attracts fewer competitors Commodity Commodity Low value LEVERAGE-ABLE across our footprint Multiple products can be delivered from one site 14

15 CONTINUOUS IMPROVEMENT FOOD & BEVERAGE VALUE CREATION ~12% OPERATING MARGINS BY 2020 GROW COMPONENTS AND AFTERMARKET: GROW HIGH VALUE PRODUCTS/AFTERMARKET: Aggressively invest to grow pumps and valves Optimize distribution and service contracts Channel and New Product Development Be selective and disciplined on systems CONTINUOUS IMPROVEMENT Global Process Excellence (GPEX) Sales, Inventory and Operations Planning (S.I.O.P.) LEAN ~12% OPERATING MARGIN by 2020 Aggressively invest to grow Mixers, Hydraulics, Dehydration, Pumps Geographic expansion (localize) Market / channel development New Product Development GROW SERVICE & AFTERMARKET CAPABILTIES Disciplined OE selectivity: Focus on growing OE valves in the midstream and conventional power Focus OE pumps on industrial applications and nuclear safety INDUSTRIAL POWER & ENERGY Note: 2020 goals assume GDP of ~3% per year, constant currency and no acquisitions or divestitures. As of March 8,

16 STRATEGIC OBJECTIVE TRANSFORM INTO A HIGH PERFORMING OPERATING ENTERPRISE OBJECTIVES CUSTOMERS SATISFIED 1. GROW ORDERS - focus on highest value product lines and aftermarket 2. EXPAND MARGINS - continuous improvement, project selectivity PEOPLE Elevate talent and capabilities PRODUCTS Aggressively grow high value components & aftermarket EMPLOYEES ENGAGED INVESTORS REWARDED CULTURE WINNING CULTURE 3. ACCELERATE CASH FLOW - working capital velocity 4. DISCIPLINED CAPITAL ALLOCATION - expect ~$650m capital available to deploy PERFORM Growth & Margin Expansion PROCESS Continuous Improvement CUSTOMER-CENTRIC TEAM-FOCUSED PROVEN SYSTEM ACCOUNTABILITY SUSTAINABLE PERFORMANCE Note: As of March 8,

17 AGENDA FINANCIAL POSITION

18 BACKLOG highest backlog level since Q ($ millions) Backlog Analysis Q Year-Over-Year Analysis Backlog Increased 5%, or $53m Sequentially $913 $192 $326 $998 $1,051 $217 $232 $372 $391 Industrial Food & Beverage Backlog up 15%, or $138m: Organic growth of 6%, or $64m Currency benefit of 8%, or $73m Q Sequential Analysis $395 $409 $428 Power & Energy Backlog up 5%, or $53m: Organic growth of 3%, or $33m Q Q Q Currency benefit of 2%, or $25m Adoption of new revenue recognition standard: ($5m) 18

19 2018 GUIDANCE OVERVIEW as compared to 2017 adjusted actuals Revenue +6.5% EPS +88% EBITDA +25% ($ millions; except per share data) 2017 Adjusted Actuals 2018 Mid-point Revenue $1,952 $2, % growth Commentary Operating Income $138 $196 +$58, or 42% growth Operating Income % 7.1% 9.4% 230 points of margin expansion EPS $1.27 $ % increase EBITDA $200 $250 25% increase, or $50 Free Cash Flow (1) $223 $115 ~110% conversion of 2018E net income Note: See appendix for reconciliation of non-gaap measures guidance is as of May 2,

20 FINANCIAL POSITION net leverage at 2.7x; net debt reduced 2% since year end ($ millions) Capital Structure 12/31/2017 3/31/2018 Short-term debt $24 $26 Current maturities of LT debt $21 $21 Q free cash flow: $10 Gross debt reduced by $32 in Q1 2018: A $30m voluntary prepayment on term loan A Long-term debt $851 $817 Gross debt $896 $864 Less: Cash on hand ($264) ($244) Net debt $632 $620 Net leverage (1) 3.0x 2.7x Gross leverage (1) 4.0x 3.5x Key Cash Investments Q FY 2018E Realignment program $4 $10 to $15 Capital Expenditures $5 ~$30 Gross Debt Reduction $32 TBD (1) Leverage calculation uses debt and EBITDA as defined by the company s credit facilities 20

21 DEBT AND MATURITY SCHEDULE staggered capital structure; no significant maturities until 2020 ($ millions) Senior credit facilities: $235 Term Loan A $450 Revolver $500 non-cash performance bond Maturity in Q $350 $300 $250 $200 $200 $300 $300 $300m bonds at 5.625%: Maturity in 2024 $300m bonds at 5.875%: Maturity in 2026 Securitization facility: ~$35m $150 $100 $50 $0 $20 $ Term Loan ~4% 5.625% Senior Notes 5.875% Senior Notes 21

22 PROJECTED AVAILABLE CAPITAL 2018E to 2020E ($ millions) ~$650 Highest Quarterly orders since xx $200 $450 Expanded Net Leverage Capacity with EBITDA Growth 2018E E Free Cash Flow ~$650M OF AVAILABLE CAPITAL TO DEPLOY while maintaining net leverage of 2.5x Estimated Available Capital to Deploy Note: Net leverage as defined by the company s credit facility 22

23 2018 CAPITAL ALLOCATION focused on organic investments and debt reduction In 2018 Capital Allocation Remains Focused on Organic Investments and Debt Reduction NET LEVERAGE > 3.0x 3.0x to 2.0x < 2.0x Organic investments Debt reduction Acquisitions x x x Share Repurchases x x x Dividend x x x 2018E net leverage range and capital allocation focus Note: Net leverage as defined by the company s credit facility 23

24 WHY INVEST IN SPX FLOW disciplined strategy to shareholder value creation Strategy Brands Innovation Cash Flow Performance Capital Strategy linked to highest returning product lines with attractive aftermarket that serve large diverse global end markets Reputable brands and products designed for severe duty, high-standard applications for a diverse and loyal customer base Engineering process expertise to optimize and innovate products for sophisticated customer requirements Operating model which generates 120% cash flow to net income conversion Diverse management team committed to creating a high performing operating company Disciplined and balanced capital allocation strategy designed to create attractive shareholder returns 24

25 AGENDA QUESTIONS AND ANSWERS

26 APPENDIX

27 EXECUTIVE MANAGEMENT speaker bios Dwight Gibson President, Food and Beverage José Larios President, Industrial and Energy Dwight Gibson joined SPX FLOW in June 2016 as an officer of the company and president, Food and Beverage. Previously, Mr. Gibson served as president of Strategic Initiatives for Ingersoll Rand s Climate segment. Mr. Gibson joined Ingersoll Rand in 2004 and held a variety of general management, business development and product management roles. From 2011 to 2015, Mr. Gibson served as vice president and general manager for the Thermo King Europe, Middle East and Africa truck and trailer business, with more than 800 employees in 80 EMEA countries. During that time, he was based in Brussels, Belgium. Prior to joining Ingersoll Rand, Mr. Gibson was a consultant with McKinsey and Company. He holds a bachelor s degree in business administration from Howard University as well as an M.B.A. from Stanford University. Mr. Gibson also received a Master of Science degree in International Strategy and Diplomacy from the London School of Economics. José Larios serves as president, Power and Energy and Industrial for SPX FLOW and is responsible for driving growth and operational enhancements of the Power and Energy and Industrial segments. He joined the SPX FLOW team in July 2015 as vice president of Global Original Equipment Sales for Power and Energy and was appointed an officer of the company in August He assumed the role of president, Industrial in January Mr. Larios has more than 20 years of experience in the oil and gas and energy industries. Prior to joining SPX FLOW, he spent 15 years at GE and progressed in sales, product management, marketing, operations and global commercial leadership, where he last served as Global VP of Sales for O&G Surface products. He earned an engineering degree from Monterrey Institute of Technology and an M.B.A. from the Red McCombs School of Business at the University of Texas at Austin. 27

28 ONE WORLD FINGERPRINT a common approach to delivering a consistent, high quality experience to our customers 28

29 P.A.V.ing the WAY purpose, aspiration and values that define our customer-centric, performance-based culture PURPOSE: Who We Are Today SPX FLOW innovates with customers to help feed and enhance the world by designing, delivering and servicing high value solutions at the heart of growing and sustaining our diverse communities ASPIRATION: Who We are Striving to Become We aspire to be a worldwide leader in sustainable solutions which ensure the controlled and measured movements of life s essential elements LIVE OUR VALUES THINK ALL CUSTOMER, ALL THE TIME EMBRACE TEAMWORK WITH NO BORDERS BE OBSESSED WITH BEING THE BEST OWN YOUR ACTIONS ASK THE HARD QUESTION DO THE RIGHT THING, ALWAYS! APPRECIATE THE MOMENT 29

30 2018 FINANCIAL GUIDANCE ($ millions, except earnings per share) 2018 Guidance Ranges 2017 Adjusted Basis 2018 Mid-Point Guidance Variance Revenue $2,055 to $2,105 Segment Income % 11.7% to 12.7% Operating Income $186 to $206 Earnings Per Share $2.21 to $2.56 EBITDA $240 to $260 Free Cash Flow $105 to $125 Revenue $1,952 $2, % Segment Income % 10.1% 12.2% +210 points Corporate Expense ($57) ($51) (11%) Special Charges $0 ($5) Pension Expense ($2) ($2) Operating Income $138 $ % Interest Expense ($63) ($50) (21%) Key 2018 Guidance Assumptions Tax Rate 26% to 27% Diluted Shares Outstanding 42.7m Depreciation & Amortization ~$62 Capex ~$30 Other Income / Expense $1 ($6) Net Income $54 $ % Earnings Per Share $1.27 $ % EBITDA $200 $ % 30

31 2018 GUIDANCE full year mid-point model ($ millions, except per share data) E Revenue $1,952 $2,080 Segment income % 10.1% 12.2% Corporate expense ($57) ($51) Pension and post retirement expense ($2) ($2) Special charges ($19) ($5) Operating Income $119 $196 Operating Income % 6.1% 9.4% Interest expense, net ($63) ($50) Other income or (expense) $1 ($6) Income before taxes $58 $140 Income tax provision ($11) ($38) Income from continuing operations $47 $103 Minority interest, net of taxes ($1) ($1) Net income from continuing operations $46 $102 Mid-Point EPS Guidance $1.10 $2.39 Shares Outstanding

32 HISTORICAL SEGMENT FINANCIAL PERFORMANCE 2013 to 2018E ($ millions) Guidance Revenue $962 $965 $870 $728 $716 +mid single digits Food & Beverage Segment Income $83 $95 $104 $75 $75 Segment Income % 8.6% 9.9% 12.0% 10.3% 10.5% 11.8 to 12.8% Revenue $1,000 $969 $750 $563 $543 +mid single digits Power & Energy Segment Income $120 $159 $84 $25 $36 Segment Income % 12.0% 16.4% 11.2% 4.5% 6.5% 8.3% to 9.3% Revenue $844 $836 $768 $705 $692 +mid/high single digits Industrial Segment Income $129 $131 $105 $99 $86 Segment Income % 15.2% 15.7% 13.7% 14.0% 12.4% 14.3% to 15.3% SPX FLOW Consolidated Revenue $2,805 $2,770 $2,389 $1,996 $1,952 5% to 8% Segment Income $331 $386 $293 $199 $196 Segment Income % 11.8% 13.9% 12.3% 10.0% 10.1% 11.7% to 12.7% Year-Over-Year Foreign Currency Translation on Revenue n/m n/m ($211) ($52) $15 ~$75 Note: 2018 guidance assumes foreign currency rates as of March 31,

33 2018 EBITDA MID-POINT non-gaap reconciliation ($ millions) 2018E Net Income $102 Income Tax Expense $38 Interest Expense $50 Depreciation & Amortization $61 Basic EBITDA $250 Non-cash Compensation Expense $19 Non-service Pension Costs $1 Interest Income $6 Special Charges $5 Other $0 Bank Consolidated EBITDA $281 33

34 FREE CASH FLOW non-gaap reconciliation ($ millions) 2018 Guidance Net cash from operations $135 to $155 Capital expenditures ($30) to ($30) Free Cash Flow $105 to $125 Shares Outstanding Free Cash Flow Per Share $2.46 $

35 ADJUSTED DEBT non-gaap reconciliation ($ millions) 3/31/2018 Short-term debt 26 Current maturities of long-term debt 21 Long-term debt 817 Gross Debt 864 less: Purchase card program and extended A/P programs (20) Adjusted Gross Debt 844 Less: Cash in excess of $ Adjusted Net Debt 650 Note: Adjusted debt as defined by the company s credit facilities 35

36 CONSOLIDATED BANK EBITDA last twelve months, non-gaap reconciliation ($ millions) LTM Net Income $ 69 Income tax provision 12 Interest Expense, net 60 Income before interest and taxes $ 141 Depreciation and amortization expense, including intangibles 61 Basic EBITDA $ 202 Adjustments: Non-cash compensation expense 24 (Gains)/Loses on dispositions of assets (3) Pension adjustments (3) Extradiordinary non - cash charges 1 Extradiordinary non - recurring cash charges 12 Interest income 5 Other 1 Bank Consolidation EBITDA $ 238 Note: EBITDA as defined by the company s credit facilities 36