Slide 1: SPX Transformer Solutions September 2012 Investor Presentation
SPX Transformer Solutions questions??? September 2012 Investor Presentation
Slide 2: Forward-looking statements
Certain statements contained in this presentation that are not historical facts, including any statements as to future market conditions, results of operations, financial projections and acquisitions, are forward-looking statements and are thus prospective. These forward-looking statements are subje
Slide 3: Agenda
Agenda 1) Presentation 8:30 am to 10:00 am 2) Transportation to Facility 10:00 am to 10:45 am 3) Plant Tour 11:00 am to 12:30 pm 4) Lunch & Departures 12:30 pm to 1:30 pm September 2012 3
Slide 4: Management Introductions
Management Introductions Today’s Speakers Title Jeremy Smeltser SPX VP and CFO David Kowalski Segment President Thom Farrell President, SPX Transformer Solutions Transformer Solutions Management Title Bill Hegeman CFO & VP of Finance Laurie Johnson VP, Chief Marketing and Sales Officer Jin Sim VP, C
Slide 5: Strategic Transformation
Strategic Transformation 2004 Revenue Mix (1) 2012E Revenue Mix Industrial Products Vehicle Infrastructure & Services Service 24% 19% 15% Security 10% $5.7b 14% FLOW ~$5.1b 53% FLOW TECHNOLOGY 28% TECHNOLOGY 9% 6% Compaction 8% 7% 7% Niche Industrial Thermal Equipment Machinery Auto Other & Services
Slide 6: Key Growth Drivers
Key Growth Drivers Key Growth Drivers Details Integrating ClydeUnion, building Power & Energy platform 1. Expansion of Flow Technology segment Continued growth in Food & Beverage Additional strategic acquisitions Next investment cycle for U.S. power transformers Expansion into large-power market 2.
Slide 7: Revenue by End Market
Revenue by End Market 2011 Pro Forma Revenue by End Market Power Generation 28% Other 27% Power & Oil & Gas Energy 11% 44% HVAC 10% Power T&D Food & 5% Beverage 19% Note: Pro Forma to include ClydeUnion’ s 2011 revenue and exclude Service Solutions 2011 revenue Power & Energy and Food & Beverage are
Slide 8: SPX Transformer Solutions: Cycle Comparison
SPX Transformer Solutions: Cycle Comparison ($ millions) Prior Investment Cycle 2004-2008 Current Investment Cycle 2011-???? Revenue Large Power Expansion ~$200 Operating Profit % $485 $393 ~$500 $283 ~$35 $227 >20% $239 $209 >20% ~$300 <5% <5% <5% 2004 2005 2006 2007 2008 2011 2012E Future Potentia
Slide 9: Industrial Segment Overview
Industrial Segment Overview questions??? David Kowalski, Segment President
Slide 10: Industrial Segment Overview
Industrial Segment Overview 2011 Revenue % by Geography 77% 10% 2012E revenue: ~$1b Niche businesses concentrated in the United States with attractive profitability and cash flow characteristics 13% A leading North American provider of power transformers Note: 2012E as of 8/1/2012; data includes Rad
Slide 11: Industrial Segment Breakdown
Industrial Segment Breakdown Hydraulic Communication Specialty Lighting Technologies Technologies 2012E Revenue by Business Transformer Solutions 34% Genfare 7% Hydraulic Underground Cable ~$1b Precision Aerospace Fare Collection Technologies Detection Equipment Radiodetection Components Systems 16%
Slide 12: Industrial Segment Financial Information
Industrial Segment Financial Information ($ millions) Revenue Segment Margins 2012E Comments +10% to $945 +13% Targeting 10% to 13% revenue growth $850 $865 21.3% Key 2012 Drivers: 13.0% to Year-over-year revenue growth in 14.9% 12.7% 13.3% medium power transformer business: Expect volume to be up s
Slide 13: Thom Farrell, President of SPX Transformer Solutions
Thom Farrell, President of SPX Transformer Solutions Over 25 years of experience in a variety of manufacturing companies Joined SPX’s Test & Measurement segment in 2001 serving in various senior level management postiitons In 2007, promoted to President of SPX Hydraulic Technologies In 2011, promote
Slide 14: SPX Transformer Solutions
SPX Transformer Solutions questions??? Thom Farrell, President
Slide 15: Current State of the Business
Current State of the Business SPX is a leading supplier of power transformers into the U.S. market with strong brand equity for quality and reliability Cyclical market with a correlation between volume, lead times and price We believe the next investment cycle is underway and will be driven primaril
Slide 16: Electric Power Transmission & Distribution Network
Electric Power Transmission & Distribution Network Transformers are Used Throughout the Electrical Grid to Step-Up and Step-Down the Voltage of Power Being Distributed September 2012 16
Slide 17: U.S. Transformer Sub-Markets
U.S. Transformer Sub-Markets Medium Power Transformers Large Power Transformers Size: Size: Base power rating: 10 to 100 MVA Base power rating: >100 MVA Voltages: 138, 230 and 345 kV Voltages: 230, 345, 500 and 765 kV Annual unit demand: Annual unit demand: 1,500 to 2,000 units 400 to 600 units Inst
Slide 18: Primary U.S. Transformer Suppliers
Primary U.S. Transformer Suppliers Medium-Power Transformer Suppliers GE-Prolec Virginia Pennsylvania CG Name SPX ABB Delta Star Joint Siemens Transformers Transformer Pauwels Howard WEG S.A. Hyundai Venture N.A. Wisconsin, Virginia, Virginia, Virginia, Pennsylvania NEW: North Missouri & Mexico Mexi
Slide 19: Customers
Customers Customer Examples Our customers are primarily large electric utilities and power producers: Investor Owned Utilities: ~150 accounts Public Power: 3,000+ accounts Industrial & Commercial Sales Approach: 1) Managed Business Agreements (MBAs): Formal contracts and relationships 2) Open market
Slide 20: Medium Power Market Dynamics
Medium Power Market Dynamics Industry Lead Time: 2004-2011 60 50 Lead Time (Weeks) 40 30 Strong correlation between lead 20 times and pricing Industry Lead Weeks 10 Current lead time trends very 0 2004 2005 2006 2007 2008 2009 2010 2011 similar to prior cycle, however, starting at a slightly lower l
Slide 21: SPX Transformer Solutions Historical Results
SPX Transformer Solutions Historical Results Backlog year over year revenue variance 38% 34% 33% 23% 20% 7% 0% 6% -16% -29% -27% -24% -31% -45% -40% -49% Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 12+ 6-9 4-6 6-9 8-12 Backlo
Slide 22: Historical Financial Results (excluding expansion)
Historical Financial Results (excluding expansion) ($ millions) Quarterly Backlog Value* Full Year Revenue Full Year Operating Margin % $485 $393 $379 $324 ~$300 $283 $249 $239 $209 $227 $171 5% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E Note: Operating profit % excludes $11m of 2011 st
Slide 23: Cycle Comparison
Cycle Comparison ($ millions) Prior Investment Cycle 2004-2008 Current Investment Cycle 2011-???? Revenue Large Power Expansion ~$200 Operating Profit % $485 $393 ~$500 $283 ~$35 $227 >20% $239 $209 >20% ~$300 <5% <5% <5% 2004 2005 2006 2007 2008 2011 2012E Future Potential Note: Estimates as of 8/1
Slide 24: Demand Drivers
Demand Drivers Key Demand Drivers Replacement of aging equipment: Average age of installed base is ~38 years Recent Customer Comment Electricity Demand: Load growth “We realize we are going to need to increase our spending on replacements by 50% until the year New capacity: transmission projects, na
Slide 25: Transformer Failure Curve by Age
Transformer Failure Curve by Age 100% 90% 80% 70% % Risk of Failure 60% Avg. Age of U.S. 50% Installed Base: ~38 years 40% 30% 20% 10% 0% 5 15 25 35 45 55 65 75 Age in Years Source: 2012 Doble Engineering Company – 79th Annual International Doble Client Conference; Analysis of Transformer Failures,
Slide 26: Projected Annual Failures by MVA
Projected Annual Failures by MVA Annual Cumulative Failures 2010 to 2020 Source: 2012 Doble Engineering Company – 79th Annual International Doble Client Conference; Analysis of Transformer Failures, by William H. Bartley P.E., Hartford Steam Boiler Inspection & Insurance Company Annual Transformer F
Slide 27: Causes of Transformer Failure
Causes of Transformer Failure Causes of Transformer Failures Over the Past 20 Years as a % of Total Failures Electrical Disturbances 28% 2% 4% 3% Other 27% 4% 4% Lightning 13% 28% Insulation 9% 6% Electrical Connection 6% Overload 4% 9% Foreign Objects 4% 13% Moisture 4% 27% Line Disturbance 3% Stre
Slide 28: U.S. Electricity Demand Forecast
U.S. Electricity Demand Forecast U. S. Electricity Consumption and Short Term Forecast Electricity Demand Expected to Remain Stable in the Near-Term September 2012 28
Slide 29: Key Changes Since Prior Cycle
Key Changes Since Prior Cycle Installed base is older: Average age has increased to ~38 years Stricter regulatory environment: FERC reliability standards implemented mid-2007 Korean tariffs finalized in Q3 2012 Incrementally more supplier capacity: SPX, Hyundai, EFACEC Slower growth economy and hous
Slide 30: Our Business
Our Business September 2012 30
Slide 31: Locations
Locations Waukesha, Goldsboro, Dallas, Wisconsin North Carolina Texas Employees ~680 ~300 ~90 33,000 square feet; 450,000 square feet; 225,000 square feet; Footprint engineering, machining & 3 assembly lines 1 assembly line assembly 10 MVA through 1,200 MVA 10 MVA through 60 MVA Service and Componen
Slide 32: SPX Advantages
SPX Advantages Strong brand recognition: Engineering expertise Waukesha brand recognized for quality, reliability and service Domestic supplier: Preference to buy from U.S. supplier Shorter lead times Reduced supply chain risk for our customers Lower shipping costs Strong Brand Recognized for Engine
Slide 33: Transformer Manufacturing Process
Transformer Manufacturing Process core windings insulation system core & coil assembly final internal assembly testing completed transformer shipping SPX Transformers are Highly Engineered With a High Level of Skilled Labor Involved in the Manufacturing Process September 2012 33
Slide 34: Supply-Chain Management
Supply-Chain Management ~60% of the cost of a transformer 2012E Material Spend is raw materials Copper Supply-chain management: ~30% Transformer Key supplier contracts Oil ~5% Copper hedges Electrical Grade Steel ~30% Customer payment options: Insulation, 1. Progress payments that Fabrication & ensu
Slide 35: Operational Excellence
Operational Excellence Upfront Design/Quote Reviews 1003 Initiative Design for Manufacturability Process Mapping Six Sigma Lean Manufacturing Focus Factory Organization Project Management Focused on Continuous Improvement and Operational Excellence September 2012 35
Slide 36: Plant Expansion Review
Plant Expansion Review September 2012 36
Slide 37: Plant Expansion Review
Plant Expansion Review ~150k square foot (~50%) expansion of Waukesha, WI facility: Increases capability to manufacture transformers up to top rating of 1,200 MVA at 345kv 200+ new employees have been or will be added Targeting $150m to $200m of annual revenue at full capacity Total investment: $81m
Slide 38: Plant Layout
Plant Layout MEDIUM POWER LARGE POWER In Addition to Expansion, Improved Material Flow and Increased Manufacturing Flexibility September 2012 38
Slide 39: Plant Expansion Highlights
Plant Expansion Highlights Climate-Controlled Winding Shop Two New Large Power Vapor Phase Chambers (space for 3rd unit) Desert Room Large Power Core Stacking Platform Climate-Controlled Main Assembly Hall State-of-the-Art Large Power Test Laboratory September 2012 39
Slide 40: Large Power Transformer Production Video
Large Power Transformer Production Video Video Illustrating Large Power Transformer Manufacturing September 2012 40
Slide 41: Expanded Facility: Financial Targets
Expanded Facility: Financial Targets ($ millions; except per share data) Revenue Forecast $150 to EPS Impact $200 $100 to $150 ~$0.40 $50 to $75 ~$0.20 $30 to $40 $0.00+ ($0.14) 2012E 2013E 2014E 2015E Note: Estimates as of 8/1/2012 Targeting a Gradual Ramp into New Capacity Over the Next 3 Years To
Slide 42: Summary
Summary SPX is a leading supplier of power transformers into the U.S. market with strong brand equity for quality and reliability Cyclical market with a correlation between volume, lead times and price We believe the next investment cycle is underway and will be driven primarily by the need to repla
Slide 43: Questions
questions??? questions???