baird industrial conference november 2016€¦ · update these forward-looking statements. in...

Baird Industrial Conference

November 2016

1

Safe Harbor Statements

This presentation contains “forward-looking” statements that involve risks, uncertainties and assumptions. If the risks or uncertainties evermaterialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-lookingstatements. Accordingly, we caution you not to place undue reliance on these statements. All statements other than statements of historical factcould be deemed forward-looking, including, but not limited to, any projections of financial information; any statements about historical results thatmay suggest trends for our business; any statements of the plans, strategies and objectives of management for future operations; any statementsof expectation or belief regarding future events, technology developments or enforceability of our intellectual property rights; and any statements ofassumptions 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 futureperformance. Actual results could differ materially from our current expectations as a result of many factors, including but not limited to: the impactof our substantial indebtedness; the effect of local, national and international economic, credit and capital market conditions on the economy ingeneral, and on the industries in which we operate in particular; access to available and reasonable financing on a timely basis and the availabilityof 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 ourproducts; changes in technology and manufacturing techniques; loss of key personnel; increases in cost of our raw materials and our possibleinability 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 complianceand/or the imposition of liabilities under environmental, health and safety laws and regulations; the costs of asbestos claims; a potential impairmentof goodwill and intangible assets; changes in governmental laws and regulations, or the interpretation or enforcement thereof, including forenvironmental matters; viability of key suppliers; reliance on intellectual property; potential product liability claims; work stoppages by unionizedemployees; 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 maintaininghealthcare insurance and benefits; and anti-takeover provisions in our charter documents. These and other risks and uncertainties associated withour business are described in our Annual Report on Form 10-K for the year ended March 31, 2016. We assume no obligation and do not intend toupdate 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 filedwith the Securities and Exchange Commission on November 2, 2016. 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 additionalinformation about these non-GAAP measures, why we use them, and why we believe they are helpful to investors, and contain reconciliations toGAAP data.

Agenda

2

3:00-3:05 Introductions Rob McCarthy VP Investor Relations

3:05-3:45 Rexnord Overview & Strategy Todd Adams

President & CEO

3:45-4:20 Process & Motion Control Platform Kevin Zaba

Group Executive & President – PMC

4:20-4:40 Water Management Platform Matthew Stillings

Group Executive & President – WM

4:40-5:00 Questions & Answers Team

3

Rexnord Overview

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.

Rexnord (RXN)

Multi-Platform Industrial • Engineered Products for Specification-Driven Applications

Revenue: $1.9 billion • Adjusted EBITDA: $366 million (19%) • FCF: $167 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%

4

Rexnord Core Values

Our goal is to consistently create value for

our customers, shareholders and associates.

We put our customers first

We strive to be recognized as their very best supplier & partner

Integrity in everything we do

We have the highest ethical standards & treat people with dignity and respect

We believe in total associate engagement

The strength of our company is our associates & we enable our associates to

do the right thing

We are committed to continuous improvement

We strive for world-class performance in safety, quality, delivery, cost & growth

We have a culture of winning

We are as passionate about recognition and rewards as we are about results

5

Rexnord Strategic Vision

We Advance the Efficient Use of

Resources through Smarter Solutions.

Rexnord Value Creation Model

Focus. Execution. Value.

6



7

businesses not collections

superior value prop

strategic flexibility

global installed base

serve fundamental needs

reliability & productivity



8


superior value prop





continuous improvement

Rexnord Business System

process focus

expanding total addressable market

leverage best practices

proprietary funnelsoperational excellence

our engine



9


superior value prop





continuous improvement


process focus

expanding total addressable market

leverage best practices

proprietary funnelsoperational excellence

our engine

act as partner

discretionary effort

drives our strategies

competing for the long term


10

Creates Operational Alignment with Strategic Objectives

Quantifies specific objectives and key performance indicators

Clearly defines responsibilities and creates accountability

Connects Strategy Deployment to Daily Management

Promotes Continuous Improvement

Common language enables sharing of best practices

Disciplined approach to root cause analysis & counter-measures

Drives resource allocation

Replicable & Scalable

Structured approach to 20 core business processes

Supported by RBS specialists within each business unit

Foundation to enable step-function growth

Integrated Strategic Planning & Operational Management System

Continuous Improvement is Our Culture

11

12

Rexnord Development

1994-2002 2003-2006 2007-2009 2010-2014 2015-2016 Future

Owner BTR/Invensys Carlyle ApolloPE/Public

Hybrid100% Public

Status Division LBO Company Platforms Re-InvestmentBest In Class

Industrial

Culture ConglomerateCarve Out /

Stand Up

Grind /

RecessionLT Positioning

Commodity

Recession

Accelerated

Performance

Defining Portfolio

ChangeFalk Zurn VAG MP/RHF Exits

RBS Launch Re-Launch Establish Deepen Optimize

Management Prior Prior NewTransition to

ScalableCurrent

Information

Technology

Legacy

Systems

Legacy

Systems

Internal

Investment

Internal

DeploymentDiRXNTM

Facilities Single-Product ConsolidateSCOFR Plan &

Launch

SCOFR

Completion

Revenue $718 $1,081 $1,882 $2,082 $1,924

Gross Margin 30% 31% 31% 37% 35%

EBITDA Margin <18% 18% 19% 20% 19% > 20%

Leverage 3.9x 6.1x 3.8x 3.8x < 3.0x

Average FCF $32 $104 $113 $182 > $200

Source: Company reports. Note: Except Average FCF, all figures are from last year in range (USD millions).

Industrial Operating Environment

13

FY12-15

Commodity prices broadly stable, excepting mined materials

Modest growth in US industrial production

FY16

Broad collapse in global oil and natural gas prices

Industrial production enters period of contraction

FY12-15

Commodity prices broadly stable, excepting mined materials

Modest growth in US MPT distribution channel ADS

FY16

Broad collapse in global oil and natural gas prices

Declines in US distribution channel compounded by de-stocking

IMF All-Commodities Index & US Industrial Production

Commodity Prices & US MPT Distribution ADS

source: IMF, US Federal Reserve, Rexnord estimates

0

25

50

75

100

125

150

(4%)

(2%)

0%

2%

4%

6%

8%

Ma

r-10

Se

p-1

0

Ma

r-11

Se

p-1

1

Ma

r-12

Se

p-1

2

Ma

r-13

Se

p-1

3

Ma

r-14

Se

p-1

4

Ma

r-15

Se

p-1

5

Ma

r-16

Se

p-1

6

Ma

r-17

US IP Yr/Yr (LHS) Commodities Index (RHS)

0

25

50

75

100

125

150

(10%)

(5%)

0%

5%

10%

15%

20%

Ma

r-10

Se

p-1

0

Ma

r-11

Se

p-1

1

Ma

r-12

Se

p-1

2

Ma

r-13

Se

p-1

3

Ma

r-14

Se

p-1

4

Ma

r-15

Se

p-1

5

Ma

r-16

Se

p-1

6

Ma

r-17

US MPT Dist ADS (LHS) Commodities Index (RHS)

Rexnord Historical Summary

14

FY12-15

Rexnord continuing operations grew 11%

Water Management averages 4% annual core growth

Process & Motion Control roughly flat

FY16

Rexnord continuing operations declined 6%

Water Management grew 1%

Process & Motion Control fell 10%

FY12-15

Rexnord continuing ops margins in narrow range

Water Management adjusted EBITDA grew 35%

Process & Motion Control adjusted EBITDA was flat

FY16

Rexnord adjusted EBITDA fell 10%

Water Management margin increased 360 bps

Process & Motion Control margin fell 370 bps

Rexnord Revenue ($mm)

0

400

800

1,200

1,600

2,000

2,400

FY 12 FY 13 FY 14 FY 15 FY 16

Divestitures

WM - Continuing

PMC - Continuing

Rexnord Adjusted EBITDA ($mm) & Margin

source: Company reports, Rexnord estimates

20.9% 20.8% 20.9% 20.2% 19.4%

(100)

0

100

200

300

400

500

FY 12 FY 13 FY 14 FY 15 FY 16

Corporate

Divested

WM - Continuing

PMC - Continuing

Another Perspective

15

PMC & WM Reported Revenue ($mm)

0

200

400

600

800

1,000

1,200

1,400

1,600

FY12 FY13 FY14 FY15 FY16 FY17E

PMC - Continuing

WM - Continuing

FY12 Revenue

69%

31%

PMC - Continuing WM - Continuing

FY17E Revenue

59%

41%


Source: Rexnord estimates, company reports. FY17 Est Adjusted EBITDA consistent with midpoint of Adjusted EPS guidance, as of November 2, 2016. All periods reflect FY17 continuing operations/product lines.

FY12 Adjusted EBITDA

76%

24%


PMC & WM Adjusted EBITDA ($mm)

0

50

100

150

200

250

300

350

400

FY12 FY13 FY14 FY15 FY16 FY17E

PMC - Continuing

WM - Continuing

FY17E Adjusted EBITDA

61%

39%


Internal Execution FY12-FY17

16

Updated business unit ERP systems

= Visibility, Timeliness, Comparability

Deployed salesforce.com across platforms

Deployed customer design software tools

Deployed on-line order entry, tracking

= Improved customer satisfaction

Information Technology Product Portfolio

Refocused product management resources

Simplified product portfolios

Deployed stage-gate NPD process

Accelerated NPI at PT, Zurn

Institutionalized Value Add Value Engineering

= Cum VAVE savings >$80 million

Operational Excellence

Expanded RBS staff within business units

Consolidated multiple facilities

Final stages of SCOFR

= $30 million targeted annual savings

PMC platform margins peaked >25%

WM platform margins achieved 20% target

CI Blog fosters connections

Commercial Excellence

Expanded benchmarking scope

= Commercial Excellence initiative

Restructured customer service & support

= Improved Ease of Doing Business

Zurn spec share increased by 20 points

PMC First Fit strategy refocused

Expanded shipset content with aero OEMs

More Balanced Portfolio

17

North Early Mid Late

Platform Vertical Major Market America Europe APAC Cycle Cycle Cycle Comment

PMC Process Materials Handling & Processing P P P P High Volatility

PMC Consumer Food & Beverage Production P P P P P P Low Volatility

PMC Aerospace Large Commercial Aircraft P P P P Long Order Cycles

WM Plumbing Nonresidential Buildings P P P P New Construction & Retrofit

WM Infrastructure Municipal Water & Wastewater P P P P P Low Correlation with Cycle

Typical Cyclical StrengthPrimary Geographic Exposure

FY17E Adjusted EBITDA

source: Company reports, Rexnord estimates.

FY15 Adjusted EBITDA

PMC: Process

Industries43%

PMC: Aero +

Consumer29%

Water Manageme

nt28%

WaterManagement

28%PMC:Aero +

Consumer29%

PMC: Process

Industries25%

PMC: Aero +

Consumer36%

Water Manageme

nt39%

WaterManagement

39%

PMC:Aero +

Consumer36%

PMC: Process Industries

25%

PMC: Process Industries

42%

Supply Chain Optimization & Footprint Repositioning

Four plant consolidations announced (three completed), plus exit of non-strategic product line

Mexico facility made first commercial shipments in 1Q FY17

Reducing internal foundry capacity, selectively increasing outsourcing

Incremental opportunities identified

18

Complete SCOFR Implementation

Launch Initial Mid-Tier PT products

• FY17 earnings guidance includes est.

$15 million nonrecurring expenses,

$3 million pretax benefits

• FY17 est. restructuring expenses $16-18

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

ExecutionFY17 New Current StateFY18

Progress Update – 60 days added to 2-year execution timeline

SCOFR Implications for Value Creation

19

Leaner & More Flexible Cost Structure

Lower Fixed Asset Investment

Enhanced Free Cash Flow

Reduced Maintenance Capex

Enhanced Earnings Power

Enhanced Returns on Invested Capital

Installed Base & Normalizing MRO

20

Assuming normal growth in 3% range, installed base MRO can generate $30 million of EBITDA growth over a 3 to 4 year period

Commodity Prices & US MPT Distribution ADS

source: IMF, US Federal Reserve, Rexnord estimates

0

25

50

75

100

125

150

(10%)

(5%)

0%

5%

10%

15%

20%

Ma

r-10

Se

p-1

0

Ma

r-11

Se

p-1

1

Ma

r-12

Se

p-1

2

Ma

r-13

Se

p-1

3

Ma

r-14

Se

p-1

4

Ma

r-15

Se

p-1

5

Ma

r-16

Se

p-1

6

Ma

r-17

Mar-10 to Sep-16 Avg Apr-11 to Dec-14 Avg

US MPT Dist ADS (LHS) Commodities Index (RHS)

Investments in Growth

21

Process & Motion Control Water Management

Market Share Market Share

First Fit Lean Construction

Aerospace Shipsets Pre-Fab Expansion

Spec Share

Market Expansion

PT Select Market Expansion

Solid Surfaces

Food Industry Dubai Facility

Europe Expansion VAG NPD

Related Products Zurn Adjacencies

DiRXNTM DiRXNTM

Digital Rexnord Digital Rexnord

Peak Adjusted EBITDA (FY14) $ 412 FY17 Est Adjusted EBITDA ~ $350

Foreign Currency Translation ($ 20)

(@ recent exchange rates) + SCOFR $ 30

Normalized Peak Adjusted EBITDA $ 392 + MRO Normalization $ 30

+ Organic Breakthroughs $ 40

Since then, Adjusted EBITDA from:

+ Industrial Capex Recovery ??

Process Industries (40%-50%)

Water Management +25%-30% = Organic Opportunity

Aerospace + Consumer Industries +20%-30%

FY17 Est Adjusted EBITDA ~ $350

Measuring 3-to-5 Year Organic Opportunity

22

Source: Rexnord estimates, company reports. FY17 Est Adjusted EBITDA consistent with midpoint of Adjusted EPS guidance, as of November 2, 2016. FY14 Adjusted EBITDA excludes exited Mill Products, RHF product lines. All figures $millions, except percentages.

Plus . . . ~$1B of free cash flow

Rexnord Acquisitions

23

• 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 12-36 months

Product Life Cycle

Management

Operational Excellence Planning

Strategic Planning

Proprietary Identification & Cultivation

Internal Negotiation & Transaction

RBS Integration

Process

Add Diversify Diversify

Strengthen Adjacent End Geographic

Acquisition Year Platform Core Product Market Footprint Comment

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

Enhancing Growth

24

Acquired Divested

Cambridge Mill Products

Expands position in food industry Jumbo gears & pinions for crushing/rolling mills

Innovation, customer service leader Limited replacement and/or service potential

Euroflex Rodney Hunt Fontaine

Share gains in weak EPG market Increasingly commoditized flow-control gates

Low-cost manufacturing, engineering center Limited replacement and/or service potential

Tollok

Expands position in windpower market

Efficient manufacturing leveraged with SCOFR

Green Turtle

Fiberglass displacing sheet metal/concrete

Specifiable product for site works

Rexnord Free Cash Flow & Leverage

25

Cumulative Unlevered Free Cash Flow ($ millions)

0

500

1000

1500

FY

12

FY

13

FY

14

FY

15

FY

16

$1.3B

Free Cash Flow ($ millions)

SCOFR

SCOFR

0

50

100

150

200

250

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

E

Outstanding Debt ($ millions) & Leverage Ratio

Total Debt adjusted for new market tax credit receivable

Net Debt = Total Debt - Cash & Equivalents

Leverage Ratio = Net Debt / Adjusted EBITDA

3.0x

3.5x

4.0x

4.5x

5.0x

5.5x

6.0x

0

500

1,000

1,500

2,000

2,500

3,000

FY12 FY13 FY14 FY15 FY16

Total Debt Net Debt Net Debt / Adj EBITDA

Free Cash Flow Conversion

Free Cash Flow = Cash Flow from Operations - Capital Expenditures

Unlevered FCF = FCF less impact of cash interest

FCF Conversion = Adjusted FCF / Adjusted Net Income

source: Company reports, Rexnord guidance (11/2/16)

0%

20%

40%

60%

80%

100%

120%

140%

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

E

Rexnord Capital Allocation

26

Sources of Cash

Operations have been the primary source of capital

Divestitures have made incremental contribution

Strategic Acquisitions

Strategic acquisitions have been the primary use of capital

Base case assumes reinvestment of annual free cash flow

Debt Reduction

Covenant-light term debt, no required payments before 2020 maturity

Target to reduce Net Debt / Adjusted EBITDA ratio to 3.0x

Share Repurchases

Offsets prospective dilution from employee compensation programs

$200-million authorization with $160 million unused

FY12 - 1H FY17 Sources of Cash

Operating Free Cash Flow

68%

Beginning Cash23%

Divestitures & Other

9%

FY12 - 1H FY17 Uses of Cash

source: Company reports

Acquisitions

52%

Debt Reduction

41%

Share

Repurchase & FX

7%

Acquisitions 52%

Rexnord Summary

27

Rexnord Business System & Continuous Improvement

Organization Aligned for Success

Improved Portfolio Balance

Organic Growth Initiatives

Supply Chain Optimization & Footprint Repositioning

Strategic Portfolio Changes

Cyclical Opportunity

Process & Motion Control Agenda

29

Kevin ZabaGroup Executive & President – Process & Motion Control

• Strategy & Profile

• Core Business Model & Competitive Advantages

• More Than Process Industries Solutions

• Core Growth Initiatives

• Digital Rexnord for PMC

• Executive Summary

Process & Motion Control Platform

30

Vision:

Be the leading global provider of high value, mission-critical solutions that help customers

safely, reliably, and productively keep their goods and assets moving.

Target:

$25-billion global market opportunity

PMC Reported Revenue ($mm)


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800


Divestitures

PMC - Continuing

PMC Adjusted EBITDA ($mm)


24.6% 25.1% 25.9% 25.0% 21.3%

0

50

100

150

200

250

300

350

400

450


Divestitures

PMC - Continuing

Process & Motion Control Profile

Broadly diversified across

process, consumer/discrete,

& aerospace markets

Consumer/discrete &

aerospace applications to

account for ~45% of FY17

revenue

31

Global installed base

generates long-tail

MRO demand

Regional manufacturing

& assembly capacity to

serve local markets

Distribution partners

play critical role in

customer service & support

Total MRO demand drives

>50% of revenue with high

L4L replacement

Industry Applications Representative Products

Food &

Beverage

• Beverage Filling

• Food Handling

• Food Processing

• Case Handling

• Container Making

Commercial

Aerospace

• Flight Control Systems

• Aircraft Doors

• Airframe Structures

• Engine/APU/Gearbox

• Landing Gear

Bulk Material

Handling

• Conveying Equipment

• Processing Machinery

• Hard Rock & Coal Mining

• Potash Mining

• Fertilizer Production

Energy &

Power

Generation

• Electrical Power Generation

• Oil & Gas Compression

• Process Equipment

• Wind Turbines

Construction

Materials

• Cement Production

• Aggregates Processing

• Asphalt Production & Paving

• Lumber/Wallboard Prod.

PMC Major End Markets

32

PMC Power Generation Solutions

33

PMC Consumer Industries Solutions

34

PMC Aerospace Industries Solutions

35

36

New Application Engineering & Specification

First Fit Installation

World-Class Customer

Service & Support

Component Replacement or Rebuild Event

High Rates of Like-for-Like Replacement

Long-Lived Customer

Assets

Components Wear in Use

Rapid Fulfillment Capability

High Customer

Satisfaction

Reliable & Predictable Service Life

Voice of

Customer

Proven model . . . strengthening execution efficiency across PMC

PMC Commercial Execution Model

PMC Competitive Advantages

37

New ApplicationEngineering & Specification

First Fit Installation

World-Class Customer

Service & Support

Component Replacement or Rebuild Event

High Rates of Like-for-Like Replacement

Established global brand with massive installed base

Deep end-market expertise creates customer value & new product innovation

Total cost of ownership advantages drive strong end-user specification

Dedicated technical & commercial teams for OEMs and End-Users

Top-rated customer satisfaction amongst OEM, End-Users, & Distributors

Tiered technical support model and self-serve tools = Ease of doing business

Highly predictable, recurring product replacement / repair lifecycles

Leading market share position with top-tier mechanical distributors

Long history of market leading product performance, reliability, and breadth

Like-for-like replacement commonly exceeds 80%

Market leader with high margins & free cash flow

PMC Growth Blue PrintRexnord Core Values

Mission Critical

Specified with High L4L MRO

Deep Applications Expertise

RBS & Continuous Improvement

Rexnord Core Values

Mission Critical

Specified with High L4L MRO

Deep Applications Expertise

RBS & Continuous Improvement

PMC Strategic Road Map

Amplify

Product Market Leadership

Product Centric

Product-Defined SC & Footprint

North America Focus

Adjusting to Functional Org Structure

Platform Market Leadership

Industry Centric

Optimized & Integrated SC & Footprint

Global Focus

Leveraging Functional Org Structure

Transition

Large Process & Aero Installed Base

Premium Mechanical Components

Operational Excellence

Aftermarket / MRO Focus

Historic & Respected Brands

Large Consumer Industries Installed Base

Premium Tech-Enabled Solutions

Commercial Excellence

First-Fit Driven

Digital Customer Experience

Compound

Commercial & Operational Excellence + Innovation & Diversification38

PMC Growth Initiatives – 3 to 5 YearsCommercial Excellence & Organic Portfolio Diversification

39

First Fit Share Growth – $50M+ sales impact goal

• Focuses commercial resources on critical initial specifications

• Builds installed base & future like-for-like MRO demand

• Leverages expanding LCR manufacturing (India, Mexico, Czech Republic)

Consumer Goods / Food Portfolio Expansion – $50M+ sales impact goal

• Enabled by Cambridge – builds on beverage industry leadership

• Strong product development pipeline includes digitally-enabled

• Establishing Cambridge local presence in Europe

PT Select Mid-Tier Products – $35M+ sales impact goal

• Expands addressable market

• Strong value proposition for OEM machine builders

• Benefits from Rexnord brand, distribution & product support

Commercial Aircraft Shipset Growth – $20M+ sales impact goal

• Increased shipset share on current platforms

• Incremental shipset share on new platforms

• Expanded Europe-based presence

40

Strategy Level I

• Expand Total Addressable Market

• Balanced Sustainable Growth

Strategy Level II

• Proprietary M&A Cultivation

• Leverage Competitive Advantages

Strategy Level III

• Expand Foothold in Food Industry

• Acquire Leadership Position

Cambridge

• Heritage of Innovation, Customer Service

• Synergies Within Multiple Vectors

PMC Growth InitiativesInorganic Portfolio Diversification - Example

Focus on proprietary acquisitions in attractive adjacencies

PMC Growth EnablerOperational Excellence – Supply Chain & Footprint (SCOFR)

41

Clinton, Tennessee Monterrey, Mexico

SCOFR & RBS deliver improved cost, workflow, productivity

Digital Rexnord – DiRXN™ (“Direction”)

Generating incremental value by digitizing mechanical connectionsacross the customers operating lifecycle

• Rexnord enterprise-wide initiative to enable improved customer productivity via digitally-connected tools, products, and services

• Differentiates by digitally connecting traditional mechanical solutions to 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 – Unique deliverables to match end-market requirements

42

Launching January 2017 . . . $50M+ sales impact goal for Wave 1

DiRXN™for Industrial Solutions – Wave 1

• New! Digital Product Aids

• New! Digitally-Connected Products

• New! E-Commerce Capabilities

43

WAVE 1

PMC Executive Summary

44

• Expanded PMC Strategic Roadmap

• Strengthening our Robust Execution Model

• Gaining Traction with Growth Initiatives

• Enhancing Differentiation and Value with DiRXN™

• Supply Chain & Footprint Optimization Benefits are On-Track

• Aggressively Deploying RBS and Continuous Improvement

Water Management Agenda

45

Matthew StillingsGroup Executive & President – Water Management

• Strategy & Profile

• Core Business Model

• Competitive Differentiation & Value Creation

• Core Growth Initiatives

• Executive Summary

Vision:

Set the industry standard for the most efficient and safe management of water & wastewater

with the greatest reliability and lowest total cost of ownership.

Target:

$15-billion global market opportunity

Water Management Platform

46

Water Management Reported Revenue ($mm)


0

200

400

600

800

1,000

1,200


Divestitures

WM - Continuing

Water Management Adjusted EBITDA ($mm)


17.3% 17.0% 16.4% 16.7% 20.3%

(50)

0

50

100

150

200

250


Divestitures

WM - Continuing

US nonresidential markets

account for ~50% of sales

Expanding specification

share expands

total addressable market

Water & wastewater

solutions sold primarily in

EAME, APAC markets

Regional manufacturing &

assembly capacity to

serve local markets

Multiple channels to market,

including direct sales in

global markets

Water efficiency & safety

drive retrofit demand

Water Management Profile

47

Water Management Major End Markets

48

Building Specification & Construction Cycle

49

Zurn Competitive Differentiation

Ease of Design / FitAestheticsFunction

Reduced cost/timeComplexity reduction

UptimeWater efficiency

Lower cost of ownership

BIM modelsDesign visualization tools

Web toolsSolid surface integrated

wash basins

Lean Construction- Pre-fabrication

- Weight-reduced products- Pre-tagging

- Integrated bundles- Service Centers

- Single point accountability- Complete content package

Extended product lifeWater-saving fixtures

& plumbing- Paired fixture & carrier

LEED Certification

50

Architect / Engineer Value Creation

Zurn In-Building Water Distribution Scope Maximizes Content

• One Zurn Solutions - single-source plumbing content

• Intuitive specification tools

• BIM visualization

• Application engineering pre-sale support

• Reps and Field Service team on site BIM (Building Information Modeling)

51

Contractor Value Creation

“Zurn enabled us to cut the installation time in half for water

closets, urinals and lavatories. Feedback we received from

other members of the project team indicated they were

impressed by the speed of installation –

a week to two days, a day to a few hours.”

Jim Tharp, Owner/CEO Tharp Plumbing Systems, Orlando, FL

Extensive Plumbing Installations

Orlando Citrus Bowl Stadium

50% Labor Reduction 2,330 Hours Eliminated $102K Saved52

Owner Value Creation

Faucets:

Ceramic disc cartridge

$50 / faucet / year lower cost of ownership

Flush Valves:

Thermoplastic elastomers

$25 / valve / year lower cost of ownership

Carriers:

Optimized for low flow fixtures

50’ of line carry @ 1.1 gpf

Less clogging

53

Zurn Value Delivery

Global headquarters established in

Milwaukee’s Reed Street Yards

Reed Street Yards is a government-

supported global water technology hub

New Zurn Customer Experience Center

enhances training capabilities

National Service Center Network

• Single purchase order for plumbing package

• Product delivered to site in one shipment

• Regional training

54

VAG Profile

Powerful Family of Brands

GLOBAL PRESENCE

7 Production Sites • 10 Sales Entities

200 Agents • 130 Countries

55

VAG Long-Term Growth

Developed Economies:

Aging infrastructure

Environmental protection standards

Pressure on established water supply

Emerging Economies:

Urbanization & industrialization

Population growth

Rising water stress

Developing Economies:

Water scarcity

Inadequate wastewater treatment

Inadequate electrical power gen

56

VAG Value Creation

Big Silver Creek

Hydropower Plant

British Columbia, Canada

Run-of-river power station located

near Canada’s southwestern coast

supplies 20,000 households with

electric powerCFD flow simulation of the system

40” VAG RIKO® Plunger Valves installation on site

VAG Value Creation:

Engineering Expertise• Computational Flow Dynamics (CFD)

• Optimal Solution Selection

Optimized System Design• Anti-cavitation cylinders

• Downstream venting equipment

• Orifice plates in downstream pipeline sections

• Hydraulic brake & lift units for fast actuation

57

Solution:

Turbine bypass valve used

in case of turbine failure

116-meter water column

pressure reduction

Two seconds to fully open

Cavitation-free operation

Problem:

Fast-action bypass valve needed

in case of turbine failure

High pressure drop

requirements

Limited space available

Cavitation-free operation

VAG Value Creation

Eemshaven Power Plant

Eemshaven, Netherlands

Ultramodern coal-fired power plant

provides reliable and affordable

baseload power in the Netherlands

VAG Value Creation:

Application Engineering• Studied accelerated corrosion in seawater-

exposed bearing bushings

• Identified bacterial growth as root cause

Developed special anti-bacterial material

Developed process to line valve & bearing

bushings with anti-bacterial material

VAG RIKO® Plunger Valve with internal rubber lining

VAG EKN® Butterfly Valve with bearing section cut-away

58

Problem:

Valve bushing failures

Accelerated corrosion in sea water application

Valve must fit within existing infrastructure

Retrofit must happen within 3 weeks

Solution:

All valves retrofitted with new bearing bushings within 3 weeks

Supplied VAG EKN®

Butterfly Valves from 28” to 80”

Supplied VAG RIKO®

56” Plunger Valve

59

Water Management Growth Initiatives

Market Share Capture – $40-60M sales impact goal

• Increase specification share

• BIM, Visual Design Tools, Web Tools

• Leverage Customer Service Center single delivery model

• Pre-fabrication, pre-tagging for Lean Construction

• One Zurn complete content packaged solutions

• Repeatable footprint account conversion

Market Expansion / Adjacencies – $50M+ sales impact goal

• Integrated solid surface products

• Zurn Dubai facility

• Water & wastewater geographic expansion

Water Management Summary

• Expand Specification Share

• Differentiate on Installation Cost with Products & Services

• Deliver Highest Reliability & Lowest Cost of Ownership

• Leverage & Expand Global Water Infrastructure Footprint

• Executing Market Share & Market Expansion Initiatives

• Disciplined RBS Execution

60

61

Solving Smarter.

Questions & Answers

62

Appendix

63

Non-GAAP Reconciliations

(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 FY12-14.

(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.

FYE March 31, FQE Sep 30,

US$ in millions 2012 2013 2014 2015 2016 2016

Net income from continuing operations $30.6 $47.3 $25.0 $91.8 $68.9 $24.6

Interest expense, net 176.2 153.3 109.1 87.9 91.4 22.8

Provision (benefit) for income taxes 6.5 15.4 (10.0) 16.8 17.1 4.4

Depreciation and amortization 112.7 110.9 106.9 112.2 115.4 24.3

EBITDA $326.0 $326.9 $231.0 $308.7 $292.8 $76.1

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) — — — 8.9 21.3 2.1

Loss on divestiture(2) 6.4 — — — — —

Loss on extinguishment of debt 10.7 24.0 133.2 — — —

Restructuring and other similar

charges(3) 6.8 8.6 8.4 12.9 34.9 4.4

Stock-based compensation expense 3.7 7.1 7.0 6.4 7.5 3.7

Acquisition-related fair value

adjustment 4.2 — 1.7 3.2 — 3.3

LIFO expense (income)(4) 2.2 5.0 5.6 (1.7) (0.8) —

Zurn PEX loss contingency — 10.1 — — — —

Other expense (income), net(5) 7.1 2.9 15.1 7.2 (3.1) 0.7

Subtotal of adjustments to EBITDA 50.2 63.2 173.7 96.3 72.7 14.2

Adjusted EBITDA $376.2 $390.1 $404.7 $405.0 $365.5 $90.3

LTM Adjusted EBITDA $354.6

LTM pro forma adjustment for

acquisitions13.0

LTM pro Forma Adjusted EBITDA $367.6

64

Non-GAAP Reconciliations (Continued)

Q2 FY 2017 Q2 FY 2016

US$ in millions

(except per share amounts) Net Income EPS Net Income EPS

As reported, from continuing operations $24.6 $0.24 $22.6 $0.22

Amortization 10.5 0.10 14.2 0.14

Restructuring Expense 4.4 0.04 2.7 0.03

Acquisition-Related Fair Value

Adjustment3.3 0.03 — —

Supply Chain Optimization & Footprint

Repositioning Program (1)0.8 0.01 0.4 —

Impact of RHF Product Line (2) 2.3 0.02 4.3 0.04

All Other Non-Operating (3) 0.7 0.01 1.0 0.01

Tax Impacts on Adjustments (4) (7.0) (0.07) (7.8) (0.08)

As Adjusted $39.6 $0.38 $37.4 $0.36

(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.

baird industrial conference november 2016€¦ · update these forward-looking statements. in...

Documents