Flowserve Corporation · NYSE:FLS
Flowserve — Robert W. Baird's 38th Annual Industrial Conference (November 2008)
36 slides from Flowserve's conference presentation, Nov 12, 2008
Slide 1: Robert W. Baird's 38th Annual Industrial Conference
Flowserve Corporation Robert W. Baird’s 38th Annual Industrial Conference November 12, 2008 Lew Kling, President and Chief Executive Officer Mark Blinn, SVP, Chief Financial Officer and Latin America Operations Tom Pajonas, President Flow Control Division Zac Nagle, VP, Corporate Planning & Investor
Slide 2: Special Note: Safe Harbor Statement
Special Note SAFE HARBOR STATEMENT: This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation
Slide 3: A Leading Portfolio of Products, Solutions & Services
North America Latin America Europe Middle East Africa China India Rest of Asia A Leading Portfolio of Products, Solutions & Services Core Industries Power Chemical Aftermarket Support Services A Broad Set of Product Capabilities Pumps — Valves — Seals Quick Response Centers (QRCs) Oil / Gas Water Lo
Slide 4: Q3 Highlights
Q3 Highlights Record Third Quarter EPS of $2.04, up 85.5% Includes benefits from tax matters of $0.22, net Partially offset by $0.12 of foreign currency hedging activities Increased Operating Margin, up 240 basis points to 14.2% Continued strong Gross Margin improvement, up 100 basis points to 35.1%
Slide 5: Q3 Year-to-Date Highlights
Q3 Year-to-Date Highlights Record Year-to-Date EPS of $5.71, up 104.7%, including $0.38 net tax items Record Year-to-Date Bookings of $4.11 billion, up 28.4%, including 18.9% organic growth Record Year-to-Date Sales of $3.30 billion, up 24.5%, including 14.8% organic growth Significant Gross Margin
Slide 6: Q3 – Consolidated Financial Results
Q3 – Consolidated Financial Results ($ millions) 3rd Quarter Year-to-Date 20072008 Delta 2007 2008 Delta Bookings $ 1,061.0 $ 1,373.5 29.5% $ 3,203.1 $ 4,113.428.4% Sales $ 919.2 $ 1,153.6 25.5% $ 2,653.3 $ 3,304.5 24.5% Gross Profit $ 313.6 $ 404.9 29.1% $ 5 881. $ 7 1,168. 32.6% Operating Income $
Slide 7: Strong Bookings Growth
Strong Bookings Growth ($ millions) +31% +30% +24% $1,429 $1,374 $1,311 $1,116 $1,089 $1,061 $1,053 $912 $934 $879 $892 $774 $771 $686 +24% $696 +16% +19% +20% $621 $638$634 $628 +28% +31% +15% +21% +10% +9% +22% +23% Q1 Q2 Q3 Q4 2004 2005 2006 2007 2008 * Q3 2008 bookings included currency benefit
Slide 8: Strong Sales Growth
Strong Sales Growth ($ millions) +24% +26% $1,158 $1,154 +24% $1,109 $993 $931 $919 $884 $803 $753 $771 $739 $691$704 $654 $649 $616 $618 $623 $577 +23% +24% +19%+26% +6% +9% +19% +20% +7% +12% +4% +5% Q1 Q2 Q3 Q4 2004 2005 2006 2007 2008 * Q3 2008 sales included currency benefit of approximately $4
Slide 9: General Industries
GENERAL INDUSTRIES Experience In Motion ‘Fioweerve Conkdentiel & Proprietary Page 10
Slide 10: What Drives Long Cycle Global Infrastructure Investments?
What Drives Long Cycle Global Infrastructure Investments? Historical • Shareholder Value Primary Profit Capital Investments • Internal Rate of Return Driver • Population Growth • Rural to Urban Move Growth Investments Demographics • Industrialization • Middle Class Rise Aging • Refurbishment • Upgra
Slide 11: Market Perspective – Oil & Gas
Flowserve 3Q08 Market Perspective – Oil & Gas YTD Bookings Split Recent Announcements: Industry Market in $Billions Petrobras to Build its Largest Refinery (600,000 BBL/d) in Northeastern for Pumps, Valves & Seals 19.3 Brazil.... Petrobras will invest a total of $20 billion in the project [Industria
Slide 12: Flow Control Opportunities Based on Long Term View of Oil Demand
Flow Control Opportunities Based on Long Term View of Oil Demand GENERAL UPSTREAM MIDSTREAM DOWNSTREAM CHEMICAL POWER INDUSTRIES Production Transportation R efin in g an d P ro cessin g Alternative Fuels, Tight “Crack Spreads” High Operating & Feedstock Conventional Reduces InvestmentCosts Reduce Pr
Slide 13: Market Perspective – Chemical
Flowserve 3Q08 YTD Bookings Split Market Perspective – Chemical 19% Industry Market in $Billions Recent Announcements: for Pumps, Valves & Seals 13.3 North American chemical plant maintenance turnaround spending is set to 12.0 increase sharply in 2009 – currently 375 projects worth $1.2 billion in D
Slide 14: Market Perspective – Power
Flowserve 3Q08 YTD Bookings Split Market Perspective – Power 15% Industry Market in $Billions Recent Announcements: for Pumps, Valves & Seals 7.9 NDRC (National Development and Reform Commission — China) Approves Two 7.2 Projects for 1,000-Megawatt Ultra-Supercritical Coal-Fired Units [IIR Nov 10, 0
Slide 15: Market Perspective – Water
Market Perspective – Water YTD Bookings Split Industry Market in $Billions Recent Announcements: for Pumps, Valves & Seals 16.6 The U.S. alone will require an estimated $300 billion — $1 trillion in water 15.0 infrastructure upgrades [Times Online June 2008] Developing Markets 13.9 Mature Markets Th
Slide 16: Be Prepared
“Be Prepared” OPERATIONAL EXCELLENCE STRATEGIC INITIATIVES Moving Strategic Sourcing, Subassembly Production and Final Assembly to Low Cost Countries Hiring Temporary Employees where Practical Using Multiple Shifts vs. “Brick & Mortar” Integrating our Global ERP Systems Developing a Global Engineeri
Slide 17: Major Project Wins Around the World
Major Project Wins Around the World Customers Continue to Demonstrate Long Term Trust in Flowserve
Slide 18: Investment for Continued Global Aftermarket Growth
Investment for Continued Global Aftermarket Growth Aftermarket Revenues FACTORS EFFECTING SUSTAINABLE AFTERMARKET: 1.6 1) Quick Response Centers (QRC) Near Customers 1.4 2) Keeping Fuel Available, Electricity “On” & Water Flowing 3) Large Installed Base Worldwide 1.2 4) New Projects Coming Off Warra
Slide 19: Investment for Research & Development
Investment for Research & Development Nuclear Power Generation Subsea Oil & Gas Recovery Desalination Expansion Intelligent Pump Systems Intelligent Valve System IPSTM ValveSight ® Collaboration with Customers Optimizes Strategic Investments in Technology
Slide 20: Investments in Alternative Energy Solutions
Investments in Alternative Energy Solutions Alternative Energy Markets Currently Served Markets Target Markets Under Development Clean Coal – Coal to Liquids Solar Power Geo-Thermal Power Wind Power & Coal Gasification Bio-Technology Gas Fuel Compression Compressed Hydrogen Gas Fuel Ocean Energy Con
Slide 21: In Closing, History Tells Us...
In Closing, History Tells Us ... .... There Are Business Cycles ... But ... 70.3 Total Market in $Billions for Pumps, Valves & Seals 62.6 There is continued Infrastructure Investment Developing Markets 55.8 Mature Markets Aftermarket spend must continue in order to keep: 49.8 45.7 43.1 43.3 38.7 39.
Slide 22: Infrastructure Industries
INFRASTRUCTURE INDUSTRIES. Experience In Motion ‘Foowserve Conkdentiel & Proprietary
Slide 23: Key Financial Highlights
Key Financial Highlights Credit Markets Flowserve has a durable capital structure Continuing to monitor customers, financial relationships, counter parties and suppliers Aftermarket Continued strong execution on our aftermarket strategies, driving market share gain Strong growth in Flowserve’s AM bu
Slide 24: Key Financial Highlights
Key Financial Highlights Strong cash flow generation from operations in Q3 2008 of $173 million Currency About two-thirds of our business is international and we use forward currency contracts to hedge future cash flows First half 2008 currency benefit based on the strengthening of many foreign curr
Slide 25: Q3 – Consolidated Financial Results
Q3 – Consolidated Financial Results ($ millions) 3rd Quarter Year-to-Date 2007 2008 Delta ($) Delta (%) 2007 2008 Delta ($) Delta (%) Bookings $ 1,061.0 $ 1,373.5 $ 312.5 29.5% $ 1 3,203. $ 4,113.4 $ 910.3 28.4% Sales $ 919.2 6 $ 1,153. $ 234.4 25.5% 3 $ 2,653. $ 3,304.5 $ 651.2 24.5% Gross Profit $
Slide 26: Flowserve Pump Division – Q3 Segment Results
Flowserve Pump Division – Q3 Segment Results ($ millions) 3rd Quarter Year-to-Date 2007 2008 Delta ($) Delta (%)2007 2008 Delta ($) Delta (%) Bookings $ 594.9 $ 858.3 $ 263.4 44.3% $ 1,869.3 $ 2,484.9 $ 615.6 32.9% Sales $ 496.4 $ 639.2 $ 142.8 28.8% $ 1,440.3 $ 1,833.5 $ 393.2 27.3% Gross Profit $
Slide 27: Flowserve Pump Division – Q3 Segment Results
Flowserve Pump Division – Q3 Segment Results ($ millions) 3rd Quarter Year-to-Date 20072008 Delta ($) Delta (%) 2007 2008 Delta ($) Delta (%) OE 370 593 223 60% 1,195 1,676 481 40% Bookings 62% 69% 64% 67% Mix AM 225 265 40 17% 674 809 135 20% 38% 31% 36% 33% OE 288 409 121 42% 854 1,103 249 29% Sal
Slide 28: Flow Control Division – Q3 Segment Results
Flow Control Division – Q3 Segment Results ($ millions) 3rd Quarter Year-to-Date 2007 2008 Delta ($) Delta (%) 2007 2008 Delta ($) Delta (%) Bookings $ 324.0 $ 367.6 $ 43.6 13.5% $ 948.1 $ 0 1,187. $ 238.9 25.2% Sales $ 295.0 $ 365.2 $ 70.2 23.8% $ 848.7 7 $ 1,035. $ 187.0 22.0% Gross Profit $ 101.1
Slide 29: Flow Solutions Division – Q3 Segment Results
Flow Solutions Division – Q3 Segment Results ($ millions) 3rd Quarter Year-to-Date 2007 2008 Delta ($) Delta (%) 2007 2008 Delta ($) Delta (%) Bookings $ 159.4 $ 173.0 $ 13.6 8.5% $ 4 438. $ 513.7 $ 75.3 17.2% Sales $ 140.7 $ 170.9 $ 30.2 21.5% $ 4 404. $ 495.5 $ 91.1 22.5% Gross Profit $ 64.5 $ 77.
Slide 30: Q3 Primary Working Capital Balances
Q3 Primary Working Capital Balances for Quarter-End Periods as a % of Trailing Twelve Months Sales ($ millions) Q3 2007 12/31/07 Q3 2008 ($Mil) $ % $ % $ % Receivables* 705 19.9% 667 17.7% 912 20.7% Inventory 730 20.6% 680 18.1% 859 19.5% Payables (413) (11.7%) (513) (13.6%) (471) (10.7%) Primary Wo
Slide 31: Q3 Cash Flows
Q3 Cash Flows ($ millions) Q1 Q2 Q3 Year-to-Date 2008 2008 2008 2007 2008 Net Income 88 123 117 160 328 Depreciation and Amortization 21 21 2158 63 Increase in Working Capital* (272) (116) 70 (173) (318) Other** (9) (34) (35) — (78) Total Operating Activities (172) (6) 173 45 (5) Capital expenditure
Slide 32: Strong Q3 Balance Sheet
Strong Q3 Balance Sheet ($ millions) Facility Drawn LC’s Maturity Available Highlights As of 9/30/08 Size Amount Written Date Interest Rate Term Debt $ 551 $ 551 $ — $ - - Aug 2012 LIBOR + 150 bps Interest Rate Revolver$ 400 $ — $ 95 $ 305 Aug 2012 LIBOR + 87.5 bps Bank of America - Lead Bank Cash $
Slide 33: General Industries
GENERAL INDUSTRIES Pago 34
Slide 34: Drivers of EPS Growth
Drivers of EPS Growth Traction on Key Initiatives Tax Rate Fx EPS Improvement $8 As of October 28th Business OE/ Aftermarket Material Price As o Oct. Margin Segment Mix Mix Increase Expect 2008 EPS at or 28th $7 around - - — - Estimated upper end of Guidance previously announced effective assumes $6
Slide 35: Looking Forward
Looking Forward As of October 28th, expect 2008 EPS target at or around upper end of previously announced range of $7.20 to $7.50 Continued focus on driving strong end-user aftermarket strategy and taking share Driving continued cost containment Maintain strong balance sheet, available capacity and
Slide 36: Infrastructure Industries. General Industries
INFRASTRUCTURE INDUSTRIES. GENERAL INDUSTRIES Experience In Motion Te ‘Foweerve Conkdentiel & Proprietary
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