Electrical Products Group. Chris Kearney, President and Chief Executive Officer

Transcription

1 Electrical Products Group Chris Kearney, President and Chief Executive Officer May 17, 2005

2 Forward-Looking Statements Certain statements contained in this presentation that are not historical facts 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 results expressed or implied by such forward-looking statements. More information regarding such risks can be found in SPX s SEC filings. 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 May 17,

3 Introductions 4 Chris Kearney President and Chief Executive Officer 4 Patrick O Leary Executive Vice President and Chief Financial Officer 4 Jeremy Smeltser Director of Corporate Finance May 17,

4 SPX Overview Revenue by Geography Who we are: 4 Global, multi-industrial manufacturing company North America 4 Fortune 500 company 70% 4 3/31/2005 Total Assets: $7.1b Target Revenues: $4.6b Target Free Cash Flow from Continuing Operations: $180m 4 Operations in over 20 countries 4 Over 18,000 employees 14% 10% 6% ROW Germany UK Note: Based on 2004 results Global, Multi-Industry Manufacturing Company May 17,

5 SPX in 2005 Key Attributes of SPX New Segments 2005E Revenues 4 Leading Market Share Positions 4 Diverse End Markets Thermal 4 Positive Organic Growth 4 3 Core, Scalable, Global Platforms for Future Growth Flow Technology 20% 27% 4 Strong Balance Sheet with Significant Financial Flexibility 25% 28% 4 Experienced Senior Management Team: Test & Measurement Over 80 years of industry experience Niche Businesses Strategic Focus on 3 Platforms May 17,

6 2005 Segment Targets Full Year ($'s in millions) E Comments Thermal Revenues $1,065 $1,230 * Asia and services market expansion Segment Income $127 $134 * Increased mix of lower margin dry cooling Segment Margin 11.9% 10.9% towers Flow Revenues $869 $925 * Mid single-digit organic growth Segment Income $105 $107 * Valves integration, Lean focus Segment Margin 12.1% 11.6% Test Revenues $1,093 $1,110 * Segment Income $128 $131 Segment Margin 11.7% 11.8% Industrial Revenues $1,346 $1,290 * Discontinued 2 small product lines Segment Income $57 $95 * Improved operations at Dock, raw Segment Margin 4.2% 7.3% material cost recovery Total Revenues $4,372 $4,555 Segment Income $416 $467 Segment Margin 9.5% 10.2% Incremental revenue and income growth from 2004 acquisitions Stabilization and Operating Improvement Expected Throughout the Remainder of 2005 May 17,

7 Q Segment Targets ($'s in millions) E Comments Thermal Revenues $242 $270 * Mix shift to lower margin dry cooling Segment Income $24 $20 equipment projects, European thermal services and Asia market Segment Margin 9.9% 7.4% Flow Revenues $233 $240 * Chemical, sanitary market growth Segment Income $27 $27 *Raw material costs Segment Margin 11.4% 11.3% Test Revenues $277 $300 * 2004 acquisitions, pricing Segment Income $28 $35 * 2004 asset impairment: $7.5m Segment Margin 10.2% 11.7% Industrial Revenues $321 $330 * Declining volume offset by 2004 acquisitions and pricing actions Segment Income $11 $21 * 2004 write-off of $3.9m receivable, Segment Margin 3.3% 6.4% continued operating recovery at Dock Total Revenues $1,073 $1,140 Segment Income $90 $103 Segment Margin 8.3% 9.0% Operations Beginning to Stabilize Improvement Primarily From Non-Recurring 2004 Charges May 17,

8 2005 Focus Areas 4 Improved operational returns 4 Centralized decision-making structure 4 Execution of re-capitalization strategy 4 Disciplined approach to acquisitions and capital investments 4 Linking compensation plan to shareholder returns Management Team Committed to Driving Improved Value May 17,

9 Year to Date Review Update 4 Met Q1 communicated segment income target of $75m 4 Significant transactions: Completed the sale of BOMAG for $446m, recorded net gain of $1.70 per share Completed the sale of EST for $1,395m, recorded net gain of $8.80 per share Completed the sale of Kendro for $834m on May 9 th, will record a gain of ~$4.00 per share in the second quarter 4 Retired $1.1b of outstanding debt: Paid down $400m on our term loans Completed tender offer of senior notes, 92% or $668m of senior notes repurchased, total cash outlay of $741m Paid $18m to retire the May LYONs put to us on May 10th 4 Pro forma EPS modeling target remains at $ Free cash flow from continuing operations target remains at $180m 4 Key actions in motion for all operational initiatives On Target, Driving Improvement, Encouraged May 17,

10 Year to Date Review (cont d) Management Highlights 4Detailed operating reviews at 21 business locations, including sites in China and Europe: Improved internal communication and accountability 4Supply Chain Management and Lean Manufacturing assessments initiated at 71 locations: Will drive operational improvement 4Appointed new General Counsel, four new divisional presidents plus 26 additional management upgrades: Strengthening leadership throughout the organization 4Appointed an additional independent director: Six out of seven current board members are independent 4 Announced a new executive compensation plan: Based on operating margins and operating cash flow, capped at 200% of target Significant Progress Made May 17,

11 Continuous Improvement Operating Initiatives Lean Manufacturing Established steering committee Established steering committee Completed internal assessment Completed internal assessment of 71 facilities of 71 facilities Constructing continuous Constructing continuous improvement plans for each improvement plans for each business unit business unit Quantifying improvement Quantifying improvement potential potential Supply Chain Management (SCM) Hired a vice president of SCM and Hired a vice president of SCM and chartered SCM leadership team chartered SCM leadership team Completed assessment by Completed assessment by commodity on $2b annual spend commodity on $2b annual spend Recruiting commodity managers Recruiting commodity managers for SPX wide strategic sourcing for SPX wide strategic sourcing Driving enterprise-wide supplier Driving enterprise-wide supplier re-negotiations re-negotiations China Senior management site evaluations Senior management site evaluations completed completed Significant growth opportunities in Significant growth opportunities in sales, manufacturing and sourcing sales, manufacturing and sourcing 20% estimated 2005 revenue 20% estimated 2005 revenue growth growth 10% of global workforce based in 10% of global workforce based in China China Organizational Development Resourcing 4 major learning Resourcing 4 major learning programs in support of our programs in support of our operating initiatives: operating initiatives: Lean Manufacturing Lean Manufacturing Supply Chain Management Supply Chain Management Commercial Sales Development Commercial Sales Development Leadership Development Leadership Development Recruiting 7 training and Recruiting 7 training and development leaders development leaders New Products Thermal: Thermal: Expansion of Dry Cooling Expansion of Dry Cooling technology into Asian market technology into Asian market New European service offerings New European service offerings Test: Test: Expanded shared electronic Expanded shared electronic diagnostic platform in North diagnostic platform in North America and Europe America and Europe IT Infrastructure Reducing number of ERP Reducing number of ERP systems by 25% systems by 25% Investing in Thermal and Flow Investing in Thermal and Flow ERP systems ERP systems Consolidating into central data Consolidating into central data center center Upgraded 60% of network Upgraded 60% of network locations onto IP based locations onto IP based technology technology Driving Operational Improvement May 17,

12 Segment Strategies Core Platforms for Focused Growth Other Niche Businesses Thermal Equipment & Services Flow Technology Test & Measurement Industrial Products & Services Large scale player in global heat exchanger market provides growth opportunities Acquisitions to broaden product / end market balance Fragmented, diverse global markets Numerous acquisition opportunities to deploy engineered solutions with manufacturing excellence Acquisitions to broaden end market balance Re-deploy technology to alternative end markets Leverage common technologies 27% 20% 25% Strong franchises Significant upside potential Stabilize, improve Evaluate future strategic opportunities 28% 72% 3 Scalable, Global Platforms for Growth May 17,

13 Thermal Equipment & Services Positioning Products 4 Unique position as only full line cooling tower company 4 Increased cooling and service backlog from $440m to $680m 4 Large addressable market 4 Significant opportunity to access Asian infrastructure (China / India) 4 Leading brands in niche heating segments 4 Main competitors include GEA, Baltimore Aircoil and Evapco Strong Market Positions With Global Scale May 17,

14 Thermal Equipment & Services Financial Summary ($ s in millions) E Revenue $1,066 $1,230 % growth 21% 15% Organic Growth 3% 15% Segment Income $127 $134 % margin 11.9% 10.9% Return on Assets (1) 16.5% 16.1% Capital Spending $9 $20 Operating Focus 4 Improve cooling equipment margins: China sourcing Package and dry tower pricing New product intros: Ion Blast, Air2Air, Fluid Cooler 4 Successful transition to Eden, NC plant and pull-through operating system 4 Global expansion of Thermal Service platform ($36 million of orders in China) (1) Return on assets equals segment income divided by net assets including goodwill and intangibles at 12/31/2004 Focus on Margin Expansion May 17,

15 Thermal Equipment & Services ($ s in millions) Revenue Growth Margin Development $1,066 $26 $15 $123 $1, % (1.0%) (0.1%) (2.0%) 2.1% 10.9% 12-14% 2004 Price Currency Volume 2005E 2004 Mix CurrencyCommodities Price 2005E 2-3 Yr Target 4 Organic growth driven by dry cooling expansion in China and thermal service growth in Europe and China 4 China sales = 8.0% in 2004 vs. 10.8% in Price improvements are offsetting cost increases 4 Mix shift to lower margin dry cooling and thermal heat exchanger projects 4 Start-up costs in Eden, NC facility Margin Improvement is Primary Focus May 17,

16 Flow Technology Positioning Products 4 Branded, engineered products 4 Focus on niche end markets 4 Increasing solutions (multi-product) sales 4 Growing aftermarket revenues 4 Attractive acquisition opportunities 4 Several competitors across fragmented markets, some include Fristam, Milton Roy, Chemineer and Fisher Controls Diverse Products and Brands Sharing a Common Platform May 17,

17 Flow Technology Financial Summary Operating Focus ($ s in millions) E Revenue $869 $925 % growth 18% 6% Organic Growth (2%) 6% Segment Income $105 $107 % margin 12.1% 11.6% Return on Assets 14.3% 14.6% Capital Spending $6 $16 4 Valves lean manufacturing initiatives 4 Address European softness in mixer market 4 Improve dehydration and filtration margins: Price China sourcing Manufacturing and SG&A rationalization 4 Upgrade IT infrastructure Increase CAPEX to Support Margin Expansion May 17,

18 Flow Technology Revenue Growth Margin Development ($ s in millions) 15-17% $869 $4 $17 $17 $18 $ % (1.2%) (1.6%) 1.7% 0.6% 11.6% 2004 Acquisition Price Currency Volume 2005E 2004 Other Commodities Price Productivity 2005E 2-3 Yr Target Ops 4 Organic growth driven by price improvements and demand for mixers and valves 4 Global expansion into China 4 Price improvements expected to offset cost increases 4 Productivity initiatives are not fully offsetting operational inefficiencies in the valves business in the current year Focused on Lean Manufacturing, Supply Chain Management and China Expansion May 17,

19 Test & Measurement Positioning Products 4 Branded, engineered products 4 Diverse end markets including: Transportation Telecom/Utilities Defense/Aerospace Research and Testing 4 Our Service Solutions business is the primary global provider of specialty tools for motor vehicle manufacturers dealership networks Specialty Tools, Hand-Held Diagnostic Systems, Vibration Test Systems and Transportation Fare Collections Systems May 17,

20 Test & Measurement Financial Summary ($ s in millions) E Revenue $1,093 $1,110 % growth 17% 2% Organic Growth 9% (1%) Segment Income $128 $131 % margin 11.7% 11.8% Return on Assets (1) 15.6% 15.9% Capital Spending $7 $13 (1) Return on assets equals segment income divided by net assets including goodwill and intangibles at 12/31/2004 Operating Focus 4 Strengthen market leadership 4 Execute key manufacturing initiatives (e.g. Lean) 4 Improve back offices and systems 4 Integrate product platforms 4 Continue to leverage outsourcing model 4 Aggressively expand commercialization of China market 9% Organic Growth in 2004 May 17,

21 Test & Measurement ($ s in millions) Revenue Growth Margin Development 13-15% $1,093 $34 $32 $8 $7 $1, % (0.5%) 0.5% 0.8% (0.7%) 11.8% 2004 Acquisition Volume Price Currency 2005E 2004 Mix Raw Inventory Other Materials w/d costs 2005E 2-3 Yr Target 4 Volume impacted by reduced new OE platform rollouts and the timing of contracts in the domestic transportation sector /2005 pricing initiatives gaining traction 4 Pricing strength 4 Unfavorable mix 4 Timing of contracts in the domestic transportation sector 4 Telecom recovery Flat Organic Revenue in 2005 After a Strong 2004 May 17,

22 Industrial Products and Services Positioning Products 4 Strong franchises 4 Market leaders 4 Solid cash flow 4 Niche businesses 4 North American focus Attractive Niche Businesses May 17,

23 Industrial Products and Services Financial Summary Operating Focus ($ s in millions) E Revenue $1,346 $1,290 % growth 6% (4%) Organic Growth 5% (1%) Segment Income $57 $95 % margin 4.3% 7.3% Return on Assets (1) 4.9% 8.0% Capital Spending $14 $30 4 Strengthen business processes: back to basics 4 Execute key manufacturing initiatives (e.g. Lean) 4 Evaluate business portfolio 4 Continuing recovery in most end markets: automotive soft, power market stable (1) Return on assets equals segment income divided by net assets including goodwill and intangibles at 12/31/2004 $38m Estimated Increase in Segment Income for 2005 May 17,

24 Industrial Products and Services ($ s in millions) Revenue Growth Margin Development $1,346 $13 $19 ($51) ($37) $1, % 1.3% 7.3% 4.3% 0.7% 1.0% 2004 Acquisitions Price Divestitures Volume 2005E 2004 Price/ Dock Other Costs 2005E 2-3 Yr Commodities Target 4 Volume decline driven by: 4 Targeted reduction in unprofitable customers 4 Automotive build rates 4 Pricing strengthening across the platform 4 Q1 product line divestitures 4 Pricing strength expected to offset commodity increases 4 Dock Products recovery 4 Cost reduction initiatives Re-Focus Businesses on Operations and Profitability May 17,

25 Financial Overview

26 2005 Divestitures Summary ($ s in millions, except per share data) Cash Book Gain Revenue OP Proceeds (1) (Loss) (1) EPS Bomag $506 $43 $400 $126 $1.70 Closed Q EST Closed Q Kendro ~ 300 ~ 4.00 Closed May 9, 2005 Others 77 (4) 40 (42) (0.56) Loss on sale recorded Q Total $1,392 $178 $2,030 $1,041 $13.94 (1) Net of taxes Divestiture Strategy Yielding After-Tax Proceeds of ~$2 Billion Book Gains of ~$1 Billion May 17,

27 Expected 2005 Available Capital $ in millions Availability Cash at 3/31/05 $1,157 Unused credit facilities (net of LOC's) E remaining free cash flow 218 Cash proceeds from Kendro sale 834 Total Projected Availability $2,634 Committed Payments Remaining dividend payments (56) Tax payments on sale of assets (625) Remaining 2005 minimum debt payments - Net Projected Availability $1,954 Note: Our ability to access these sources under our various facilities may be limited by the terms of our credit facility and by certain tax regulations that pertain to cash in overseas locations ~$2.0b in Projected Available Liquidity Creating a Stable Situation While Operations Improve May 17,

28 Historical Capital Allocation ($ s in millions) Investments E Total Acquisitions $190 $191 $126 $ - $507 Capital Expenditures Return to Stakeholders Debt Retirement $1,869 $460 $136 $ 1,700 $4,165 Stock Re-Purchases Dividends Paid Total $2,295 $1,005 $401 $2,304 $6,005 Taking a More Disciplined Approach to Capital Allocation May 17,

29 SPX Peer Group Credit Analysis 3.9x Total Debt/EBITDA 2.2x 1.8x 1.6x 1.6x 1.5x 1.4x 1.0x SPX-Before PNR ITT SPX-After TXT ETN CR PH Rating: Ba2/BBB- Baa3/BBB Baa1/BBB+ Ba2 / BB+ A3/A- A2/A- Baa2/BBB+ A2/A 54.1% Total Debt/Book Capitalization 41.8% 37.4% 37.1% 36.8% 31.5% 25.1% 24.1% SPX-Before ITT ETN PNR CR TXT SPX-After PH Source: JPMorgan analysis Peers: Pentair, ITT, Textron, Eaton, Crane, Parker Hannifin New Credit Statistics in Line with Investment Grade Peers; Currently Rated at Ba2 / BB+ May 17,

30 Pro Forma Balance Sheet ($'s in millions) 12/31/04 3/31/05 Kendro Sale / Tax Payments Debt Reduction / Share Repurchase Pro forma Cash $581 $1, ($1,070) $302 Other Current Assets 3,337 2,303 (600) - 1,704 Goodwill 2,033 2, ,029 Other Assets 1,638 1, ,599 Total Assets $7,589 $7,089 ($385) ($1,070) $5,634 Other Current Liabilities $1,702 $1,855 ($578) - $1,277 Total Debt 2,526 1,434 - (620) 814 Long-Term Liabilities 1,232 1, ,109 Shareholders' Equity 2,128 2, (450) 2,433 Total Liabilities and Shareholders' Equity $7,589 $7,089 ($385) ($1,070) $5,634 Debt / Equity Ratio 119% 53% 33% Debt / Cap Ratio 54% 35% 25% Gross Debt / EBITDA Adjusted EBITDA $656 $490 $502 ~ Dramatic Improvement in Credit Statistics Targeted 10m Share Repurchase After Debt Reduction May 17,

31 Executive Summary 4Met first quarter segment income targets 4Expect operational improvement in the second half of Strong balance sheet: disposal and re-capitalization strategy on track 4Diverse end markets and market leading positions 4Operating initiatives underway 4Three scalable, global, core platforms for future growth Focused on Continuous Improvement May 17,

32 May 17,