Rockwell Automation, Inc. · NYSE:ROK

Rockwell Automation — Investor Day (November 2005)

64 slides from Rockwell Automation's investor day presentation, Nov 15, 2005

  1. Slide 1: 2005 Investor Conference

    2005 Investor Conference November 15, 2005

  2. Slide 2: Safe Harbor Statement

    Safe Harbor Statement • This presentation contains statements (including certain projections and business trends) accompanied by such phrases as “believe”, “estimate”, “expect”, “anticipate”, “will”, “intend” and other similar expressions, that are “forward-looking statements” as defined in the Priv

  3. Slide 3: Notice Regarding Financial Information

    Notice Regarding Financial Information • This presentation contains non-GAAP financial information. • All information should be read in conjunction with the historical financial statements contained in Rockwell Automation’s Annual Report on Form 10-K, periodic reports on Form 10-Q and Form 8-K, and

  4. Slide 4: December 2004: Transformation

    December 2004: Transformation Rockwell RockwellTransformation: Transformation:Response Responseto toCustomer CustomerNeed Need 9 Market MarketAccess AccessExpansion Expansion Product Productand andTechnology Technology 9 • • Globalization Globalization • • Open OpenArchitecture Architecture –– Rapid

  5. Slide 5: Business Model Transformation

    December 2004: Transformation Business BusinessModel ModelTransformation Transformation ti on • What Whatwe wewere… were… Strong Customer Focus • • Strong ……What Whatwe weare are Strong Customer-CentricCulture Customer-Centric Culture Ex ecu • Strong Customer Focus – Meeting customer business needs

  6. Slide 6: Long-Term Growth and Performance Model

    Long-Term Growth and Performance Model Sustained secular, organic growth - Expanded served market - Enhanced market access - Acquisitions as catalysts Revenue Generate 3-4% annual cost Deploy human and financial productivity & maintain operating resources to highest-ROIC leverage opportunities Reinv

  7. Slide 7: Long-Term Growth and Performance Model

    Long-Term Growth and Performance Model Sustained secular, organic growth - Expanded served market - Enhanced market access - Acquisitions as catalysts Revenue Generate 3-4% annual cost Deploy human and financial productivity & maintain operating resources to highest-ROIC leverage opportunities Reinv

  8. Slide 8: 2005 Revenue Growth

    2005 Revenue Growth Served Market & Share Market Growth • Gained share • Industry recovery • Demonstrated success in underway batch/hybrid market • Higher commodity and energy prices • Vertical investments paying off 11% • Globalization of Organic Revenue Growth manufacturing Globalization Price • R

  9. Slide 9: December 2004: Growth Drivers

    December 2004: Growth Drivers December December2004 2004 00 5 2 Integrated Integrated Motion Motion Integrated Integrated OEM OEMAdoption Adoption Safety Safety Batch Batch/ /Hybrid Hybrid Process ProcessApplications Applications North NorthAmerican AmericanAutomation AutomationStrength Strength Pow

  10. Slide 10: December 2004: Integrated Architecture

    December 2004: Integrated Architecture Product Product &&Technology Product& Technology Proliferation: TechnologyProliferation: Integrated Proliferation:Integrated Architecture IntegratedArchitecture Architecture Product & Technology Proliferation: Integrated Architecture 2005 $3B $3B Batch/Hybrid B

  11. Slide 11: Integrated Architecture: 2005

    Integrated Architecture: 2005 25% (Millions) ’04-’06 CAGR Investments $600 • Multi-Discipline Automation • System Scalability and Simplicity • Enhanced Channel Competency • Increased Market Access – OEM Program Growth • Tailored Solutions for Key Verticals & $0 2004 2005 2006E Applications Revenue B

  12. Slide 12: Growth Driver: OEM/Compact-Logix

    Growth Driver: OEM/Compact-Logix Strategy (Millions) $500 OEM Revenue • Capitalize on scalability of Logix technology • Leverage existing position in Machine 50% CAGR OEM space • Accelerate adoption rate of proven $0 2004 2005 2006E Logix technology Compact Logix 2005 Highlights 2006 Opportunities •

  13. Slide 13: Growth Driver: Safety

    Growth Driver: Safety (Millions) Strategy $100 Safety Revenue 19% CAGR • Focus on increasing customer productivity • Global breadth of products and services 100%+ CAGR • Integrated Safety linked to architecture $0 provides significant value and 2004 2005 2006E differentiation GuardLogix 2005 Highlig

  14. Slide 14: Growth Driver: Batch/Hybrid

    Growth Driver: Batch/Hybrid (Millions) Batch/Hybrid Revenue Strategy $300 42% CAGR • Deliver a multi-discipline, scalable, information-enabled automation platform • Expand and deepen process and batch application expertise • Traditional DCS not designed for $0 2004 2005 2006E multiple control discip

  15. Slide 15: Logix 2006 Growth

    Logix 2006 Growth (Millions) $600 14% 7% 4% ~25% YOY Growth Goal $400 2005 Market Growth PLC Share Gain & 2006E and Price Cannibalization Growth Initiatives Multiple Sources of Growth…$1B Annually by 2009 Copyright © 2005 Rockwell Automation, Inc. All rights reserved. 15

  16. Slide 16: Motor Control and Integrated Architecture

    December 2004 Motor MotorControl Controland andIntegrated IntegratedArchitecture Architecture Logix Logix Platform Platform Motor Motor Control Control Important ImportantLinkage Linkage… …Becoming BecomingIncreasingly IncreasinglyCapable Capable Copyright © 2005 Rockwell Automation, Inc. All rights

  17. Slide 17: Motor Control: 2005

    Motor Control: 2005 Investments (Millions) Motor Control Revenue 11% CAGR $1,600 • PowerFlex™ drives • Increased Medium Voltage drive capacity • Arc Safe technology to meet new 15% CAGR standards • Drive Systems geographic growth $0 programs 2004 2005 2006E Intelligent Motor Control Revenue by Regio

  18. Slide 18: Growth Driver: Intelligent Motor Control

    Growth Driver: Intelligent Motor Control 2005 Highlights 2006 Opportunities • Low voltage drives growth • Leverage the Integrated – Leading technology Architecture – Faster set up PowerFlex™ drives up 40% – Richer diagnostics – Cost discipline drove higher – Lower costs profitability • Strong growth

  19. Slide 19: Growth Driver: Energy Efficiency

    Growth Driver: Energy Efficiency • Motors account for over 60% of energy usage in the United States – Significant opportunity to save energy on pumps & fans by operating below full speed – At 60% speed, 75% less energy is required • Electric drives provide the most efficient means of variable speed

  20. Slide 20: Other Growth Drivers

    Other Growth Drivers Customer Needs Benefits • Improved process control • Manufacturing productivity and efficiency • Richer diagnostic information • Improved plant uptime • Longer life for mechanical – Reduced unplanned systems downtime • Energy efficiency • Reduced time-to-market Embedded Computin

  21. Slide 21: Integrated Architecture: Plant-Wide Information System (Today)

    Integrated Architecture: Plant-Wide Information System Enterprise Systems SAP Oracle Etc. TODAY: • High cost Low performance, limited functionality interfaces • Too many servers • Custom interfaces Loosely SCADA LIMS • Upgrades difficult MES coupled • Multiple copies of data applications HMI Etc. •

  22. Slide 22: Integrated Architecture: Plant-Wide Information System (Future)

    Integrated Architecture: Plant-Wide Information System Enterprise Systems SAP Oracle Etc. FUTURE: Uniform IT-ready Interface • Integrated Production Management & Performance FactoryTalk Suite Production Design & Performance • Information security Control Quality Plant-wide Asset Mngt Mgnt Mgnt Mgnt

  23. Slide 23: December 2004: Globalization

    December 2004: Globalization Globalization Globalization Globalization Globalization REVENUE COMPOSITION REVENUE COMPOSITION U.S. 50% 50% 70% U.S. 70% 50% 50% 30% 30% International International 20 05 1998 2004 2009 Goal 1998 2004 2009 Goal REGIONAL GROWTH RATES 1% EMEA REGIONAL GROWTH RATES 2004 20

  24. Slide 24: Globalization: Asia

    Globalization: Asia (Millions) 16% CAGR 2005 Successes $600 • Hired ~250 people in China • Major multi-national and Batch/Hybrid wins 27% CAGR paced 30% growth in consumer products • 20% growth in systems/solutions led by Automotive, Metals, and Tire industries $0 2004 2005 2006E • 50% growth in med

  25. Slide 25: Globalization: EMEA

    Globalization: EMEA 5% (Millions) ’04-’06 CAGR $900 2005 Results • Sluggish conditions in largest countries • Increased penetration and adoption of Integrated Architecture – Particularly at OEMs $0 • Expanded presence in Central and 2004 2005 2006E Eastern Europe By Industry 2006 Opportunities Autom

  26. Slide 26: Globalization: Latin America

    Globalization: Latin America (Millions) 21% $300 ’04-’06 CAGR 2005 Successes • 40% growth in the oil & gas, and mining markets • Strong growth in Logix and medium voltage drives $0 • Increased demand for intelligent motor 2004 2005 2006E control By Industry Other Automotive 2006 Outlook 11% 16% Food

  27. Slide 27: December 2004: Industry Verticals

    December 2004: Industry Verticals d k e y Verticals Verticals&&Domain DomainExpertise Expertise S ta f f e i th c a ls w i ver n experts t Mining/Aggregate/Cement Life Sciences & Pharma i Mining/Aggregate/Cement Marine & Government Printing & Publishing a Beverage & Brewing Life Sciences & Pharma Wa

  28. Slide 28: Verticals: Selling Model Evolution

    Verticals: Selling Model Evolution Geographic Focus Global Accounts Vertical Accounts • Strong local support • In place since late 80’s • Industry leaders • Proven performance • Domain expertise – Higher global shares • Oriented to business – 1.5x the average needs growth rate • Global consistency I

  29. Slide 29: Verticals: Performance

    Verticals: Performance Targeted Extraction-based, Consumer- based Power Centric Industries Industries 50% 35% Other 15% Selected Verticals 20%+ Water/Wastewater Consumer Goods Mining, Agg., & Semiconductor Transportation Life Sciences Beverage Oil & Gas Cement Food -5% 2005 2006E 2005 2006E Investin

  30. Slide 30: Long-Term Growth Model: Intellectual Capital

    Long-Term Growth and Performance Model: Intellectual Capital Sustained secular, organic growth - Expanded served market - Enhanced market access - Acquisitions as catalysts Revenue Generate 3-4% annual cost Deploy human and financial productivity & maintain operating resources to highest-ROIC levera

  31. Slide 31: Intellectual vs. Physical Assets

    Intellectual vs. Physical Assets High Intellectual Capital Integrated Architecture Power Services & Control & Solutions Conversion Low High Physical Capital Low • Reducing physical assets in all • Concentrating spending and businesses investment in IP rich opportunities • Fewer owned properties • Mi

  32. Slide 32: Working Capital Efficiency

    Working Capital Efficiency Limited Distribution Model Core Working Capital vs. Sales Net Receivables, Inventory, and Payables (Millions) (Millions) ROK $2,000 $6,000 Core Working Capital Incremental Distributor Sales working capital Network investment $0 $0 2003 2004 2005 2006 • Multiplier to ROK in

  33. Slide 33: Long-Term Growth Model: Reinvestment

    Long-Term Growth and Performance Model: Reinvestment Sustained secular, organic growth - Expanded served market - Enhanced market access - Acquisitions as catalysts Revenue Generate 3-4% annual cost Deploy human and financial productivity & maintain operating resources to highest-ROIC leverage oppor

  34. Slide 34: Reinvestment: 2005 Growth Initiative Spending

    Reinvestment: 2005 Growth Initiative Spending Technology Leadership Market Access • Logix proliferation and • Vertical staffing simplification – Food – Beverage • Process application enhancements $0.14 – Life Sciences • Plant Wide Information Per Share • Emerging economy Systems presence • Safety ne

  35. Slide 35: Reinvestment: Expense Reallocation

    Reinvestment: Expense Reallocation 100% Selling and Marketing 50% General and Administrative Expense 0% 2004 2009 • Reducing G&A globally with • Holding down fixed costs broader shared services model despite volume growth • Redeploying to augment customer • Overhead structure remains an facing resou

  36. Slide 36: Long-Term Growth and Performance Model

    Long-Term Growth and Performance Model Revenue Sustained secular, organic growth - Expanded served market - Enhanced market access - Acquisitions as catalysts Revenue a Multiple of Global GDP Growth Convert Net Income to Free Cash Flow Generate Superior ROIC Generate 3-4% annual cost Deploy human an

  37. Slide 37: 2006 Executive Compensation

    2006 Executive Compensation Revenue EPS Equity Salary Compensation ROIC Free Composition Cash Flow Cash Bonus Restricted Equity Stock Performance Metrics Perf. Shares Options Aligned with Shareowners Copyright © 2005 Rockwell Automation, Inc. All rights reserved. 37

  38. Slide 38: 2006 Guidance

    2006 Guidance 2006 Guidance Revenue (excluding currency translation) - Control Systems +8-10% - Power Systems +4-6% Total +7-9% Diluted EPS from Cont. Ops. $3.00-$3.10 Free Cash Flow ~$280M* ROIC ~ 20% * Net of $450M pension contribution Growth and Productivity Key to 2006 Copyright © 2005 Rockwell

  39. Slide 39: James Gelly, Sr. Vice President & CFO

    James Gelly Sr. Vice President & CFO Copyright © 2005 Rockwell Automation, Inc. All rights reserved. 39

  40. Slide 40: 2005 Financial Summary

    2005 Financial Summary Sales Segment Operating Free Cash Flow ($ B) Margin (%) ($ M) $600 $6 20% 17.3% $499 $515 $5.0 5 $4.4 15% 13.5% 4 400 3 10% 2 200 5% 1 0 0% 0 2004 2005 2004 2005 2004 2005 +11% ex. currency +3.8 ppts. 99% Of Income from Cont. Ops. Met or Exceeded Financial Objectives Copyright

  41. Slide 41: 2005 Growth by Region

    2005 Growth by Region Reported Increase vs. 2004 Region Sales As Reported Adj. for Currency U.S. / Canada $ 3,477.2 13% 12% Latin America 219.4 34% 27% EMEA 823.5 6% 1% Asia Pacific 483.1 21% 16% TOTAL $ 5,003.2 13% 11% 9% Growth Outside the U.S. Copyright © 2005 Rockwell Automation, Inc. All rights

  42. Slide 42: FY2005 Operating Margins

    FY2005 Operating Margins Lean Initiatives 60% Sourcing/Procurement 20% Other Actions 20% +4.3pp (1.3pp) (0.5pp) +1.3pp 17.3% 13.5% FY2004 FY2005 Segment Volume / Inflation / Growth & Productivity Segment Operating Price / Mix FX Systems Operating Margin Investments Margin Volume & Productivity Drove

  43. Slide 43: Pension: Funded Status

    Pension: Funded Status (91) (372) (671) (507) (841) Underfunding ($M) 3000 9% 2500 8% Discount Rate (%) PBO $550M ($M) Voluntary 7% Contributions 2000 to U.S. Plan ($M) Plan 1500 Assets 6% ($M) 1000 5% 2001 2002 2003 2004 2005 $550M Voluntary Contributions to U.S. Plan in September & October Copyrig

  44. Slide 44: Pension: Impact of Recent Contributions

    Pension: Impact of Recent Contributions 100% 95% 88% 80% % Funded 71% 67% 60% % ABO % PBO 40% 2005 Pro Forma Recent Contributions Significantly Raise Funded Status Copyright © 2005 Rockwell Automation, Inc. All rights reserved. 44

  45. Slide 45: FY2006 Key Assumptions

    FY2006 Key Assumptions • Macro environment – Continued momentum heading into FY06 – Uncertainty from effects of high energy prices, interest rates • Broad productivity initiatives • Strategic re-investments – High-return growth opportunities – Globalization initiatives – Expansion in information spa

  46. Slide 46: Economic Environment (U.S.)

    Economic Environment (U.S.) Real GDP Growth Industrial Production Growth 8% 10% 7% 6% 5% 5% 4% 3% 0% 2% 1% -5% 0% Quarter to Quarter Change at Annual Rate Quarter to Quarter Change at Annual Rate -1% % Change From Previous Year % Change From Previous Year -2% -10% FY01 FY02 FY03 FY04 FY05 FY06 FY01

  47. Slide 47: Macro-environment: U.S.

    Macro-environment: U.S. U.S. Industrial Equipment Spending U.S. Capacity Utilization ($ B) ($ M) 200 100% 1,100 90% Rockwell Control Systems Sales 900 Motor Vehicles & Parts 150 80% FY’05-’08 Oil & Gas Extraction FCST: Semiconductor Primary Metals 8.5% CAGR 700 70% Chemicals Petroleum Industrial Uti

  48. Slide 48: Macro-environment: International GDP Growth

    Macro-environment: International GDP Growth EMEA NON-JAPAN ASIA LATIN AMERICA 8% 8% 8% 6% 6% 6% 4% 4% 4% 2% 2% 2% 0% 0% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 0% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 -2% -2% -2% Western Europe Slow, Non-Japan Asia Stability

  49. Slide 49: 2006 Headwinds / Tailwinds

    2006 Headwinds / Tailwinds Headwinds Tailwinds • Wage & cost inflation • Volume leverage • Increased pension expense • Productivity / Lean / Six Sigma • Options expense • Higher effective tax rate • Investments in growth, globalization, systems • Higher interest expense Copyright © 2005 Rockwell Aut

  50. Slide 50: FY2006 Operating Margins

    FY2006 Operating Margins + ~2 pp (1-2 pp) + 1-2 pp + ~1 pp 17.3% ~ (1 pp) FY2005 FY2006 Segment Volume / Inflation / Growth & Productivity Segment Operating Price / Mix FX Systems Operating Margin Investments Margin Volume & Productivity Offset Inflation & Investments Copyright © 2005 Rockwell Autom

  51. Slide 51: Productivity Evolution

    Productivity Evolution vity • Integrated Systems c ti u o d • Six Sigma: New Product Design t pr s • Proliferation of Six Sigma o - Office & Administration alc - Customer Facing, Salesforce Efficiency nu - Operations, Supply Chain, Logistics an • Globalize Business Model 4% • Global Shared Services

  52. Slide 52: Streamlined Site Footprint

    Streamlined Site Footprint • Rockwell manufacturing footprint will continue to evolve • Real property has been low-return asset for Rockwell • Concluded agreement to sell & leaseback 24 properties – Manufacturing, office facilities in U.S. (22) and Canada (2) – Lease terms 5-15 years – Options for e

  53. Slide 53: Rockwell Real Estate Profile

    Rockwell Real Estate Profile 12 Before Transaction After Transaction Control Systems Sales and Square Footage 10.6 $5 12 10 Square Footage (M) (Square Feet in Millions) Non-U.S. 8 7.3 6.8 11 6 U.S. $4 4 3.5 Sales ($B) 10 2 0 41 343 17 367 $3 9 Owned Leased Owned Leased 2000 2001 2002 2003 2004 2005

  54. Slide 54: Global Shared Services

    Global Shared Services Functional Leadership: • Value-added only • Quality, service, cost Sales Manufacturing Solutions • Level of satisfaction Offices Sites Delivery • Organization structure Logistics Functional Leadership & Expertise Finance IT Six Sigma Resources Aligned Purchasing Marketing Serv

  55. Slide 55: Globalization of Business Model

    Globalization of Business Model Global Proximity to Operations Customer Global Sales Move Greater Marketing, Product Grow Non-U.S. Proportion of Development, Customer Base Operations Strategy & Offshore Decision- Making 2006 Goals Non-U.S. Sales (% low-cost regions): Key Drivers: Greater Than 50% So

  56. Slide 56: Proliferation of Lean / Six Sigma

    Proliferation of Lean / Six Sigma Common Processes Business processes & IT Systems “best in class” New Product Right product, Development speed to market Lean Six Sigma Office & Elimination of Non- Manufacturing Administration Valued-Added, “back office” Customer- Customer Satisfaction Plan Facing &

  57. Slide 57: Free Cash Flow

    Free Cash Flow Free Cash Flow Free Cash Flow - % of Income* FY2006 $515 162% U.S. Pension $499 Contribution 141% $362 111% $312 99% ~ $280 2002 2003 2004 2005 2006E 2002 2003 2004 2005 2006E *Income from continuing operations before accounting change $450M U.S. Pension Contribution in FY2006 Copyrig

  58. Slide 58: Free Cash Flow

    Free Cash Flow ($ millions) FY 2005 FY 2006E Income from Cont. Ops. $ 518 $540 - $560 Depreciation/Amortization 171 ~ 160 Pension Contributions (186) ~ (475) Retirement Benefit Expense 91 ~ 120 Receivables/Inventory/Payables (27) ~0 Taxes 122 ~ 125 Other (51) - Capital Expenditures (124) ~ (150) Fre

  59. Slide 59: Balance Sheet

    Balance Sheet September 30, ($ M) 2004 2005 H / (L) Cash $ 474 $ 464 $ (10) Net Debt/Capital Other current assets 1,552 1,723 171 2,026 2,187 161 28% 26% Property 804 775 (29) Goodwill and other assets 1,383 1,563 180 ~ 17% $ 4,213 $ 4,525 $ 312 15% 13% Current liabilities $ 864 $ 940 $ 76 Total deb

  60. Slide 60: Capital Efficiency

    Capital Efficiency 6000 6% Sales ($M) 5000 Capital Spending 4000 4% % of Sales 3000 2000 2% 1000 0 0% 1999 2000 2001 2002 2003 2004 2005 2006E Rockwell Automation Pro Forma Discipline & Less Capital-Intensive Growth Model Copyright © 2005 Rockwell Automation, Inc. All rights reserved. 60

  61. Slide 61: Cash Deployment Priorities

    Cash Deployment Priorities Invest in Growth Return to Shareowners Internal Growth: Dividends: • Incremental investments in • Increased 36% in 2005 high-ROIC businesses Share Repurchases: Acquisitions: • Continue to offset benefit plan • Bolt-on / easy to digest issuances • Geographic expansion • Opp

  62. Slide 62: 2006 Guidance

    2006 Guidance 2005 Results 2006 Guidance Revenue (excluding currency translation) - Control Systems $4.1 B +8-10% - Power Systems 0.9 +4-6% Total $5.0 B +7-9% Operating Margin 17.3% + ~1 pt. Diluted EPS from Cont. Ops. $2.67* $3.00-$3.10 Free Cash Flow $514.8 M ~$280M** ROIC 18.5% ~ 20% * Excludes $

  63. Slide 63: 2006 EPS Walk

    2006 EPS Walk 2005 Earnings per Share $2.67 • Growth & Productivity + $0.80-$0.85 • Impact of Share Reduction + $0.05-$0.10 • Option Expense ~ ($0.10) • Incremental Investments in Growth, Globalization & Systems ~ ($0.25) • Pension Expense Increase ~ ($0.12) • Increased Tax Rate ($0.03) - ($0.08) 20

  64. Slide 64: Copyright © 2005 Rockwell Automation, Inc. All rights reserved.

    Copyright © 2005 Rockwell Automation, Inc. All rights reserved. 64

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