Timken Company (the) · NYSE:TKR
Timken Company (the) — ISI Group Industrials Investor Conference 2013
46 slides from Timken Company (the)'s conference presentation, Mar 4, 2013
Slide 1: ISI Group Industrials Investor Conference
Exhibit 99.1 ISI GROUP INDUSTRIALS INVESTOR CONFERENCE New York City • March 5, 2013
Slide 2: Forward-Looking Statements Safe Harbor and Non-GAAP Financial Information
FORWARD-LOOKING STATEMENTS SAFE HARBOR AND NON-GAAP FINANCIAL INFORMATION Certain statements in this presentation (including statements regarding the company's forecasts, beliefs, estimates and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the
Slide 3: Strategic Update & Review
TIMKEN Strategic Update & Review
Slide 4: Timken Overview
TIMKEN OVERVIEW • A global industrial technology leader that applies its deep knowledge of metallurgy, friction management and mechanical power transmission to improve the reliability and efficiency of machinery all around the world • Our high-performance steel and mechanical components support dive
Slide 5: Our Business
OUR BUSINESS Sales: $347 million Sales: $1.7 Billion EBIT Margin: 10.5% EBIT Margin: 12.4% Diversified into Transformed transmissions and Aerospace portfolio, more aftermarket & Defense aftermarket focus 7% Mobile Process Industries Industries 34% 2012 Total Sales: $1.3 Billion Sales: $5.0 EBIT Marg
Slide 6: Strong Ties Between Business Drive Value
STRONG TIES BETWEEN BUSINESS DRIVE VALUE Process Industries | Mobile Industries Steel | Aerospace & Defense • Energy • Aerospace & Defense • Automotive Common End- • Mining • Industrial Machinery • Rail Market Sectors • Construction • Agriculture • Heavy Truck Shared Customers • Best in class provid
Slide 7: Timken Strategy to Deliver Shareholder Value
TIMKEN STRATEGY TO DELIVER SHAREHOLDER VALUE Using our knowledge of metallurgy, friction management and mechanical power transmission to create unique solutions used in demanding applications. Offering a broad array of mechanical power transmission components, high-performance steel and related solu
Slide 8: The Strategy Is Working: Timken Has Delivered Top Quartile Performance
THE STRATEGY IS WORKING: TIMKEN HAS DELIVERED TOP QUARTILE PERFORMANCE 5 Year Average (1) 16% 14.9% • Timken has delivered top quartile performance 14% 13.3% versus comparable 12% companies in: 9.7% 10% • EBITDA margin 8% 6.8% • Return on invested capital (ROIC) 6% 4% EBITDA Margin ROIC (2) Comparab
Slide 9: Delivering Strong Total Shareholder Returns
DELIVERING STRONG TOTAL SHAREHOLDER RETURNS Last 3 Years – Total Shareholder Return Last 5 Years – Total Shareholder Return Timken 111.1% SKF 77.2% Carpenter 99.6% Timken 55.9% Altra 79.8% Altra 33.6% Kennametal 60.4% Kennametal 12.4% SKF 43.4% S&P 500 (2.9%) S&P 500 27.9% Nucor (14.2%) Nucor 1.9% C
Slide 10: The Strategy Is Working: Key Takeaways
THE STRATEGY IS WORKING: KEY TAKEAWAYS More Diversified Geographic – strategically expanded market presence globally Product – expanded steel & bearing portfolio as well as complementary products & services Improved cost structure Leaner and more variable Ability to tightly control supply chain and
Slide 11: A Multi-Faceted Transformation
A MULTI-FACETED TRANSFORMATION • Markets • Geographies • Products • Performance 11
Slide 12: Global End-Market Sector Diversification
GLOBAL END -MARKET SECTOR DIVERSIFICATION 2002 2012 Construction Other Agriculture Heavy Truck Mining On-Highway Industrial Aftermarket Machinery Aerospace Automotive & Defenze Industrial Industrial Rail Aftermarket Passenger Car Energy Light Truck Portfolio Diversification Broad-based end markets a
Slide 13: Emerging Markets: A Source of Growth
EMERGING MARKETS: A SOURCE OF GROWTH Diversified global scope, Emerging market growth growing faster outside the U.S. (1) 10-Year Sales Revenue -- CAGR 12% ($ in Millions) ROW Asia 6% 11% $1,000 Europe 11% Latin America 3% $750 United States 69% $500 $250 Over 85 manufacturing facilities and distrib
Slide 14: Product Line Expansion & Diversification
PRODUCT LINE EXPANSION & DIVERSIFICATION Bearings Engineered Steels Power Transmission Related Products Services 14
Slide 15: New Acquisitions, New Capabilities
NEW ACQUISITIONS, NEW CAPABILITIES Differentiated performance • Industrial focus • Strong aftermarket • Supply chain synergy Sales: $30M Product Offering Sales: $100M Critical motor and Product Offering generator services, and Engineered chains up-tower wind Sales: $23M and augers Sales: $85M mainte
Slide 16: Delivering Superior Financial Performance
DELIVERING SUPERIOR FINANCIAL PERFORMANCE 3 year average EBIT Margins 3 year average ROIC 25% 25% 20% 19% 20% 19% 19% 17% 15% 15% 15% 14% 13% 13% 10% 10% 6% 5% 5% 2% 0% 0% Mobile Process Aerospace Steel Timken Mobile Process Aerospace Steel Timken Note: The above data represents an average of 2010 t
Slide 17: Mobile Industries
MOBILE INDUSTRIES Segment Overview Sector Profile • Bearings, power transmission components Passenger and related products and services Car 10% • Serves diverse market sectors Heavy Truck 10% Off- • Customers: OEM and aftermarket Highway distributors 30% On- • Portfolio shift toward attractive marke
Slide 18: Process Industries
PROCESS INDUSTRIES Segment Overview Sector Profile • Precision-engineered bearings and related Gear Drives Infrastructure 4% 1% mechanical components and services for Energy 6% diverse industrial markets Machinery • Diverse and global customer base 7% • ~60% aftermarket in 2012; consistent, profitab
Slide 19: Aerospace & Defense
AEROSPACE & DEFENSE Segment Overview Sector Profile • Power transmission systems and flight-critical components for civil and military aircraft Motion Control • Top 10 aerospace platforms represent 20% ~ 40% of sales in 2012 Defense • Aftermarket engine overhaul, 42% replacement parts, bearing and c
Slide 20: Steel
STEEL Segment Overview Sector Profile Military & Def Agriculture Power • Market leadership position in high quality 1% 1% Generation Rail 2% air-melted alloy steel bars, tubes, 1% Constr. 2% precision components and value-added Mining 3% services Passenger Car 15% • Bars: 1” to 16” • Tubes: 2” to 13
Slide 21: Financial Review
TIMKEN Financial Review Stronger. Commitment. Stronger. Value. Stronger. Worldwide, Stronger. Together, | Stronger. By Design
Slide 22: 2012 Results
2012 RESULTS Sales ($ Mils.) Sales of $5.0B, down 4% from prior year $5,170 $4,987 • Reduced light vehicle, heavy truck, industrial machinery, and oil & gas market demand in the second half, as well as lower surcharges and currency negatively impacted sales • Top line benefited from pricing, the Phi
Slide 23: 2012 Results
2012 RESULTS Free Cash Flow of $240M vs. $(70)M use of cash in prior year • From operating activities after pension contributions, capital expenditures and dividends • Includes $245M of discretionary pension and post-retirement benefit contributions and $68M of CDSOA receipts, both net of tax Strong
Slide 24: 2013 Full Year Outlook
2013 FULL YEAR OUTLOOK January Sales (vs. 2012) Down 5% Sales: down approximately 5% Mobile Industries Down 5-10% • Weakening demand in mobile, oil & gas and industrial end markets Process Industries Flat • Mobile market strategy expected Aerospace & Defense Up 7-12% to result in $150 million of exi
Slide 25: Sales
SALES Net Sales Net Sales Midpoint ($ Mils.) Estimate / Target $8,000 Outlook ’91 to ’01 Cycle: ’02 to ‘09 Cycle: 4% CAGR 4% CAGR • 2013 Sales Estimate: $7,000 down ~5% Y-O-Y • Weakening demand in mobile, oil & gas and $6,000 industrial end markets • Mobile market $5,000 strategy expected to result
Slide 26: Earnings Per Share
EARNINGS PER SHARE Earnings EPS Midpoint Net Sales Net Sales Midpoint Per Share Estimate / Target ($ Mils.) Estimate / Target $8,000 $8.00 Outlook ’91 to ’01 Cycle ’02 to ‘09 Cycle • 2013 EPS Estimate: $7,000 $7.00 $3.75 to $4.05 per diluted share $6.00 • Includes restructuring $6,000 costs of rough
Slide 27: Free Cash Flow
FREE CASH FLOW Free Cash Flow Free Cash Flow ($ Mils.) Midpoint Estimate / Target ’91-’01 Cycle Avg: $16M ’02-’09 Cycle Avg: $87M Outlook $450 • 2013 FCF Estimate: $(120)M after, • CapEx of $360M $350 • Dividends of $90M • Discretionary pension / VEBA trust contributions $250 of $180M (net of tax) •
Slide 28: Capital Spending
CAPITAL SPENDING Capital Spending 2013 Capital Cap Ex ($ Mils.) Spending Estimate % of Sales $400 8% Outlook • 2013 CapEx Estimate: $360M $350 7% • Driven by global energy, mining, $300 6% infrastructure and heavy industries growth $250 5% • Targeted +20% IRR hurdle rate • ~$80M maintenance $200 Lon
Slide 29: Pension
PENSION Discount PBO Rate Funded % 10.0% 100% Outlook 89% • 2013 discretionary 9.0% 84% Pension & VEBA trust (OPEB) 80% contributions 8.0% totaling ~$280M (or ~$180M, net of 7.0% tax) 60% • Pension plans expected to be essentially fully 6.0% funded by year-end • Long-term strategy to 40% reduce liab
Slide 30: Net Debt
NET DEBT Net Debt Net Debt ($ Mils.) /Capital $1,000 50% $800 40% Long-term Leverage Target: 30% - 35% $600 30% $400 20% $200 10% $0 0% -$200 -10% -$400 -20% -$600 -30% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Note: 2003 includes Torrington acquisition as acquired February 2003. Net de
Slide 31: 2012 Capital Allocation Highlights
2012 CAPITAL ALLOCATION HIGHLIGHTS • Target spend in industrial • Industrial & sectors: oil & gas, aftermarket focus infrastructure, heavy • International industries and aerospace • Accretive to • Asia growth earnings in year 1 • Earn cost of capital in 3 years Capital Spend Acquisitions • $300M spe
Slide 32: Return on Invested Capital
RETURN ON INVESTED CAPITAL Return on ROIC Midpoint Cost of Invested Capital Target Capital 20% ’91 to ’01 Cycle Average: 6.2% ’02 to ‘09 Cycle Average: 7.8% 2015 Target 18% 17-19% 16% 14% 12% 10% Long-term Cost of Capital ~ 9% 8% 6% 4% 2% 0% -2% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Slide 33: Timken Strategy to Deliver Shareholder Value
TIMKEN STRATEGY TO DELIVER SHAREHOLDER VALUE Using our knowledge of metallurgy, friction management and mechanical power transmission to create unique solutions used in demanding applications. Offering a broad array of mechanical power transmission components, high-performance steel and related solu
Slide 34: ISI Group Industrials Investor Conference
ISI GROUP INDUSTRIALS INVESTOR CONFERENCE New York City • March 5, 2013
Slide 35: Appendix
TIMKEN APPENDIX Stronger. Commitment. Stronger. Value, Stronger. Worldwide, Stronger. Together, | Stronger. By Design
Slide 36: Incentive Compensation
INCENTIVE COMPENSATION Annual Long-Term Short-term Operational 3-Year Strategic Long-term Shareholder Objective Business Priorities Business Priorities Value Creation 160 Senior 160 Senior Leadership 265 Mid-level Participants 6,000 Associates Globally Leadership Associates Managers Associates 4 Yea
Slide 37: GAAP Reconciliation of EBIT and EBITDA
GAAP RECONCILIATION OF EBIT AND EBITDA ($ Mils.) This reconciliation is provided as additional relevant information about the Company’s performance. Management believes consolidated earnings before interest and taxes (EBIT) are representative of the Company’s performance and therefore useful to inve
Slide 38: GAAP Reconciliation of ROIC
GAAP RECONCILIATION OF ROIC ($ Mils.) Reconciliation of ROIC to GAAP Operating Income Management believes ROIC is representative of the company’s performance and therefore useful to investors. 12-Months Ended 12/31/2012 12/31/2011 12/31/2010 12/31/2009 12/31/2008 GAAP Operating Income $692.9 $729.1
Slide 39: GAAP Reconciliation of Segment ROIC
GAAP RECONCILIATION OF SEGMENT ROIC ($ Mils.) Reconciliation of ROIC to GAAP Operating Income Management believes ROIC is representative of the company’s performance and therefore useful to investors. Mobile Process Aerospace Steel Timken 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2
Slide 40: GAAP Reconciliation of EBIT
GAAP RECONCILIATION OF EBIT ($ Mils.) Reconciliation of EBIT Margin to Net Income as a Percentage of Sales and EBIT to Net Income: The following reconciliation is provided as additional relevant information about the Company's performance. Management believes that EBIT and EBIT margin are representa
Slide 41: GAAP Reconciliation of Free Cash Flow
GAAP RECONCILIATION OF FREE CASH FLOW ($ Mils.) Reconciliation of Free Cash Flow to GAAP Net Cash Provided by Operating Activities: Management believes that free cash flow and free cash flow less discretionary pension and postretirement contributions and CDSOA receipts are useful to investors becaus
Slide 42: GAAP Reconciliation of Net Debt
GAAP RECONCILIATION OF NET DEBT ($ Mils.) Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to Capital: This reconciliation is provided as additional relevant information about The Timken Company's financial position. Capital is defined as total debt plus total shareholders' equity.
Slide 43: GAAP Reconciliation of Free Cash Flow
GAAP RECONCILIATION OF FREE CASH FLOW Reconciliation of Free Cash Flow to GAAP Net Cash Provided (Used) by Operating Activities Management believes that free cash flow is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the execution
Slide 44: GAAP Reconciliation of Net Debt
GAAP RECONCILIATION OF NET DEBT ($ Mils.) Reconciliation of Net Debt to Total Debt and the Ratio of Net Debt to Capital Management believes Net Debt is an important measure of Timken's financial position, due to the amount of cash and cash equivalents. 1991 1992 1993 1994 1995 1996 1997 1998 1999 20
Slide 45: GAAP Reconciliation of ROIC
GAAP RECONCILIATION OF ROIC ($ Mils.) Reconciliation of ROIC to GAAP Operating Income Management believes ROIC is representative of the company’s performance and therefore useful to investors. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 GAAP Operating Income(1) (9) 42 14 132 203 247 280 2
Slide 46: Timken
TIMKEN Value. Stro’ Together. | Stronger.
Timken — ISI Group Industrials Investor Conference 2013 on 6ix