INVESTOR PRESENTATION. May 2018

Transcription

1 INVESTOR PRESENTATION May 2018

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 antitakeover 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 forwardlooking 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 May 14, 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. 2

3 REXNORD OVERVIEW REXNORD CORPORATION Concentrated Multi-Platform Industrial Solving Smarter PROCESS & MOTION CONTROL WATER MANAGEMENT Mechanical Power Transmission Products Plastic & Metal Modular Conveying Chain Woven Metal Mesh Conveying Chain Gearing & Gear Drives Couplings for Motor, Engine, Turbine-Driven Applications Mounted Industrial Bearings, Industrial Chain Aerospace Bearings & Seals FY18 Revenue: $1.2 billion FY18 Adjusted EBITDA Margin: 22% Specification-Grade Commercial Plumbing Products Linear Drainage & Effluent Separation Backflow Prevention & Potable Water Safety Specification & Light Commercial Drainage Pressure Management & Temperature Control Valves PEX Piping Systems, Fixture Carrier Systems Finish Plumbing [Faucets, Flush Valves & Fixtures] FY18 Revenue: $0.6 billion FY18 Adjusted EBITDA Margin: 25% FY18 PF Sales by End Market FY18 PF Sales by Geography FY18 PF Sales by Channel FY18 PF Sales by End Market FY18 PF Sales by Geography FY18 PF Sales by Application Const Materials & Eqpt 6% General Industrial & Process 34% Mining & Natural Resources 6% Paper & Forest Products 7% Food & Beverage 17% Aerospace 13% Power Gen 10% Auto- Marine- Rail 7% Asia- Pacific & ROW 14% US & Canada 59% Europe 20% Latin America 7% Industrial Distribution 45% OEM & End User Direct 55% ustrial Nonresidential Construction: Commercial & Industrial 42% Nonresidential Construction: Institutional 34% Residential Construction 17% Waterworks 7% ROW 5% US & Canada 95% Replacement / Retrofit 35% New Construction 65% source: Company reports, Rexnord estimates. Chart data are pro forma for Centa (acquired Feb-18). source: Company reports, Rexnord estimates. Chart data are pro forma for World Dryer (acquired Oct-17) and exclude VAG. Note: FYE March 31. Platform margins exclude corporate expenses; WM FY18 revenue, adjusted EBITDA exclude VAG. Adjusted EBITDA is a non-gaap measure and is defined in our SEC filings. (1) Pro forma PMC data assumes full-year results from Centa (acquired Feb 2018); pro forma WM data assumes full-year results from World Dryer (acquired Oct 2017) and excludes VAG. 3

4 WE ADVANCE THE EFFICIENT USE OF RESOURCES THROUGH SMARTER SOLUTIONS.

5 REXNORD VALUE CREATION Focus. Execution. Value. 5

6 REXNORD BUSINESS SYSTEM Integrated Strategic Planning & Operational Management System Creates Operational Alignment with Strategic Objectives Quantifies specific strategic objectives and Key Performance Indicators Clearly defines responsibilities and fosters accountability Connects Strategy Deployment to Daily Management Promotes Continuous Improvement Common language enables sharing of best practices Internal knowledge transfer system enables sharing of CI case studies Drives resource allocation Replicable & Scalable Structured approach to 17 core business processes (e.g., Product Life Cycle Management) Supported by RBS specialists within each business unit Foundation to enable step-function growth 6

7 FOCUS WATER PLATFORM AROUND ZURN Significant presence in later-cycle institutional nonresidential building construction Education, health care, transportation, public sectors FY18 core revenue growth of 4%, FY18 Adjusted EBITDA margin of 25% Value delivery to building owner, architect, contractor Enhanced product performance, digital design tools, pre-fab capability, ease of installation Product innovator with established new product pipeline Launching initial digitally-connected products in FY19 Expansion in product adjacencies Leverage competitive advantages in portfolio breadth, commercial excellence, distribution World Dryer acquisition expands nonresidential washroom content 400ST n-pattern Backflow Series EZ1 Floor Drain System F1960 PEX Expansion System Sundara Handwashing System Anticipate reporting VAG as Discontinued Operations in 1QFY19 Acquired pre-ipo in FY12 under former private-equity ownership Potential proceeds can further reduce financial leverage 7

8 PMC GROWTH & MARGIN EXPANSION First Fit share growth to drive installed base, future MRO growth Achieved 50% expansion in First Fit wins in FY18 Consumer Goods / Food portfolio expansion Accelerated by Cambridge, leverages PT product range Airframe and engine shipset content growth Aerospace Center of Excellence begins operations during FY19 Organic & inorganic expansion into strategic product adjacencies Centa extends couplings range into engine-driven applications Accelerated introduction of digitally-connected components DiRXN launched May 2017, including connected gear drives PMC Revenue & Adjusted EBITDA Margin $ thou 2,000 1,500 1, Divestitures Continuing Revenue Adjusted EBITDA Margin 0 FY14 FY15 FY16 FY17 FY18 source: Company reports 28% 24% 20% 16% 12% Supply Chain Optimization & Footprint Repositioning (SCOFR) Structural cost reductions, reduced maintenance capex Robust contribution margins on core growth RBS, Operational Excellence, Continuous Improvement Centa margin expansion Achieve PMC average within 2-3 years 8

9 SCOFR 2.0 Second phase of Supply Chain Optimization & Footprint Repositioning initiatives Investing to reduce fixed costs, enhance productivity, and improve free cash flow SCOFR 2.0 projects to be completed in late-fy19 / early-fy20 $15-million estimated total annual structural cost reduction SCOFR 1.0 series of projects completed in mid-fy18 Greater than 20% net reduction in global footprint Reduced ongoing maintenance capex requirements Delivered $25-million total annual structural cost reduction 9

10 DIGITAL REXNORD DiRXN = DIRECTION Rexnord enterprise-wide initiative to enable improved customer productivity via digitally-connected tools, products, and services Differentiates by digitally connecting traditional mechanical solutions to user control systems, engineering & asset management software, and IIoT Encapsulates our deep application knowledge into digital components for easy customer & partner use at each stage of their lifecycle Leverages common digital infrastructure across Business Platforms, with unique deliverables to match end-market requirements 10

11 DiRXN USER BENEFITS Selection Tools Digital selector, configurator, drawing tools enable user to determine the right solution User-friendly interface enables search, design and selection in one convenient location Direct connection to e-commerce center simplifies procurement e-commerce Center Streamlined partner access to pricing data, ordering, transaction history, order tracking Mobile Technology Instant access to product installation info, manuals & videos, learning modules Set automated alerts for reorder or service needs from a mobile device Rexnord App provides 24/7 user support Remote Connectivity Leverages Rexnord s extensive data on its installed base Securely provides time-critical and product-specific predictive maintenance information Real-time data collection capabilities assist remote operation IIoT Features Connection of critical components to the Industrial Internet of Things (IIoT) Inform users of pending issues to mitigate unplanned downtime Suggestions to enhance maintenance of application and notify when replacement required 11

12 ISA-95 DATA IS ENABLER OF IIoT OPPORTUNITY Modernize and simplify the flow of critical contextual information from Rexnord devices to on-site personnel, plant control systems, and cloud-based software Off-Site or On-Premise Cloud-Based Analytics Plant or Enterprise Enterprise Resource Planning (ERP) BUSINESS INFORMATION NETWORK Manufacturing Execution Systems (MES) OPERATIONS INFORMATION NETWORK Human Machine Interface, SCADA, Batch Systems AUTOMATION NETWORK PLC, DCS, Packaged Systems DEVICE NETWORKS Devices & Sensors On-Site Maintenance Technician 12

13 CONTEXT IS CRITICAL DIFFERENTIATOR Deep institutional product knowledge & applications expertise Component on-board data analysis & computation Precise data: * Component status * Pending issues * Root causes * Corrective actions Improved asset utilization & system productivity Excessive vibration? Digitally-Connected Components Plug-and-Play capabilities that simplify installation Reduce downtime & expedite recovery Reduce maintenance frequency & costs Optimize asset utilization & management Enhance user system productivity Inspect shaft alignment! 13

14 REXNORD ACQUISITIONS Product Life Cycle Management Operational Excellence Planning Strategic Planning Proprietary Identification & Cultivation Internal Negotiation & Transaction RBS Integration Process Strategic process focuses on market leadership, leveraging competitive advantages Accelerates penetration of adjacent product categories, targeted vertical markets Proprietary process benefits both buyer and seller Target ROIC > WACC within months Add Diversify Diversify Strengthen Adjacent End Geographic Acquisition Year Platform Core Product Market Footprint Comment Centa Power Transmission FY18 PMC P P P P Engine-driven couplings World Dryer FY18 WM P P Adds washroom content Cambridge FY17 PMC P P P P Food processing expansion Euroflex FY15 PMC P P P P India engineering & manufacturing Tollok FY15 PMC P P P P Product line extension Green Turtle FY15 WM P P Leading product technology Source: Company reports Strategic Rationale 14

15 CASH FLOW & BALANCE SHEET UPDATE Net Debt Leverage Ratio (1) Free Cash Flow ($ millions) (2) 4.0x x 3.7x 3.7x 3.8x x 3.1x x 2.7x 0 2.5x Mar-14 Mar-15 Mar-16 Mar Dec Mar-18 (50) FY14 FY15 FY16 FY17 FY18 2,500 Total Debt ($ millions) (3) 1,000 Total Liquidity ($ millions) (4) Cash & Equivalents Available Borrowing Capacity 2, ,500 1, ,944 1,912 1,893 1,595 1,295 1, Mar-14 Mar-15 Mar-16 Mar Dec Mar-18 0 Mar-14 Mar-15 Mar-16 Mar Dec Mar-18 (1) Net Debt Leverage is defined as the ratio of total debt less cash to pro forma LTM Adjusted EBITDA. (2) Free Cash Flow is defined as Cash from Operations less Capital Expenditures, and is a Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, All periods include VAG results. (3) Total Debt includes a New Market Tax Credit Receivable ($28), which is more than offset by an associated payable ($37) that is also included in Total Debt in all periods presented. (4) Liquidity is defined as cash and cash equivalents plus available borrowing capacity. 15

16 CAPITAL ALLOCATION Debt reduction has been the primary use of capital since IPO Target to operate with Net Debt / Adjusted EBITDA ratio of 2.0x - 3.0x December 2017 Debt Refinancing: Issued $500 million 4.875% Senior Notes due 2025 Repaid approximately $300 million net under credit agreement Amended credit agreement to reduce pricing, extend maturities Strategic acquisitions will continue to be a significant use of capital Base case assumes reinvestment of annual free cash flow $200-million share repurchase authorization ($160 million unused) Available to offset dilution from employee compensation programs 16

17 REXNORD SUMMARY Organization Aligned for Success Rexnord Business System & Continuous Improvement Focusing Water Platform around Zurn PMC Growth & Margin Expansion Structural Cost Reductions DiRXN Strategic Execution Strategic Acquisition Growth Expanding Free Cash Flow Disciplined Capital Allocation 17

18 NON-GAAP RECONCILIATIONS

19 NON-GAAP RECONCILIATIONS FYE March 31, US$ in millions Net income from continuing operations $47.3 $25.0 $91.8 $68.9 $74.1 $76.0 Interest expense, net Provision (benefit) for income taxes 15.4 (10.0) (19.5) Depreciation and amortization EBITDA $326.9 $231.0 $308.7 $292.8 $276.1 $221.8 Adjustments to EBITDA: Actuarial loss (gain) on pension and post retirement benefit obligations $5.5 $2.7 $59.4 $12.9 ($2.6) ($3.3) Impact of RHF product line exit (1) Loss on extinguishment of debt Restructuring and other similar charges (2) Stock-based compensation expense Acquisition-related fair value adjustment LIFO expense (income) (3) (1.7) (0.8) (2.3) 3.3 Zurn PEX loss contingency 10.1 Goodwill impairment (4) Other expense (income), net (5) (3.1) Other non-cash adjustments Subtotal of adjustments to EBITDA Adjusted EBITDA $390.1 $404.7 $405.0 $365.5 $346.5 $390.0 (1) During 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) Represents restructuring costs comprised of work force reduction, lease termination, and other facility rationalization costs, including impairment charges. (3) Last-in first-out (LIFO) inventory adjustments are excluded in calculating Adjusted EBITDA as permitted by Rexnord s credit agreement. (4) During fiscal 2018, we recognized a goodwill impairment charge in connection with the anticipated divestiture of our VAG business within the Water Management platform. (5) Other expense (income), net includes the impact of foreign currency transaction losses (gains), sale of property, plant and equipment, and other miscellaneous expenses. 19

20 NON-GAAP RECONCILIATIONS CONTINUED Q4 FY 2018 Q4 FY 2017 US$ in millions (except per-share amounts) Net Income EPS Net Income EPS As reported, from continuing operations $(67.7) $(0.55) $21.6 $0.18 Amortization Restructuring Expense Loss on Debt Extinguishment Acquisition-related fair value adjustment Supply Chain Optimization & Footprint Repositioning Program (1) Impact of RHF Product Line (2) Dividend on Preferred Shares Actuarial gain on pension obligations (3.3) (0.03) (2.6) (0.02) Goodwill impairment (3) All Other Non-Operating (4) Nonrecurring U.S. Tax Reform Adjustment (7.8) (0.06) Tax Impacts on Adjustments (5) (5.8) (0.05) (9.3) (0.08) As Adjusted $51.7 $0.42 $43.2 $0.35 (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) During fiscal 2018, we recognized a goodwill impairment charge in connection with the anticipated divestiture of our VAG business within the Water Management platform. (4) All Other Non-Operating includes the impact of foreign currency transactions, sale of property, plant and equipment, and other miscellaneous income and expense. (5) 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. 20