Regal Rexnord Corporation · NYSE:RRX
Regal Rexnord — Investor Day (March 2020)
135 slides from Regal Rexnord's investor day presentation, Mar 3, 2020
Slide 1: Regal Investor Day 2020
Regal Investor Day 2020 March 3, 2020 CREATING A BETTER TOMORROW™… ©2020 Regal Beloit Corporation, Proprietary and Confidential
Slide 2: Agenda
INVESTOR DAY AGENDA 8:30 – 8:35 Welcome & Introductions Rob Cherry, VP IR 8:35 – 9:10 Strategic Overview Louis Pinkham, CEO 9:10 – 9:35 Financial Overview Rob Rehard, CFO 9:35 – 10:05 Power Transmission Solutions Jerry Morton, President 10:05 – 10:20 Break 10:20 – 10:50 Commercial Systems Scott Brow
Slide 3: Cautionary Statement
INVESTOR DAY CAUTIONARY STATEMENT The following is a cautionary statement made under the Private Securities Litigation Reform Act of 1995: factors that we cannot control; product liability and other litigation, or claims by end users, government With the exception of historical facts, the statements
Slide 4: Non-GAAP Financial Measures
INVESTOR DAY NON-GAAP FINANCIAL MEASURES We prepare financial statements in accordance with accounting principles generally accepted percentage of adjusted net income attributable to Regal Beloit Corporation, adjusted income in the United States (“GAAP”). We also periodically disclose certain financ
Slide 5: Agenda
INVESTOR DAY AGENDA 8:30 – 8:35 Welcome & Introductions Rob Cherry, VP IR 8:35 – 9:10 Strategic Overview Louis Pinkham, CEO 9:10 – 9:35 Financial Overview Rob Rehard, CFO 9:35 – 10:05 Power Transmission Solutions Jerry Morton, President 10:05 – 10:20 Break 10:20 – 10:50 Commercial Systems Scott Brow
Slide 6: Why Invest in Regal
STRATEGIC OVERVIEW WHY INVEST IN REGAL o Growth From Energy Efficiency, Electrification and Digital Connectivity o Leading Brands, Installed Base, and Differentiated Technology o Global Manufacturing Footprint Enables Efficiency and Flexibility o 80/20 Driving Margin Enhancement on Our Road to 300 i
Slide 7: Regal History
STRATEGIC OVERVIEW REGAL HISTORY Operating Since 1955 and Ready for the Next 65 Years ©2020 Regal Beloit Corporation 7
Slide 8: Regal Overview
STRATEGIC OVERVIEW REGAL OVERVIEW % of Sales Products Brands Climate • Fractional HP Motors 30% Solutions • Small Fans and Blowers • Fractional to 5 HP Motors Commercial 28% • Fans and Blowers Systems • Hermetic Motors 5 to 3,000 HP • Mounted and Unmounted Bearings Power • Drives, Gearboxes and Gear
Slide 9: Industry Trends Driving Growth
STRATEGIC OVERVIEW INDUSTRY TRENDS DRIVING GROWTH Energy Efficiency Regulations Electrification Connectivity • Sustainability Focus in Both • U.S. DOE Pool Pump 2021 • Emissions Under Scrutiny in • Digital Tools Expected in Residential & Commercial • Euro Eco Design 2022 Response to Climate Change I
Slide 10: Regal Core Strengths
STRATEGIC OVERVIEW REGAL CORE STRENGTHS Differentiated Technology Global and Flexible Footprint OEM & Distribution Access Distribution 35% Aftermarket 30% OEM 65% OEM 70% 28 62 33 • Strong Brand Recognition, Large Installed Base Engineering Manufacturing Service • Superior OEM and Distribution Acces
Slide 11: A Look Back on 2019
STRATEGIC OVERVIEW A LOOK BACK ON 2019… Transformed Organization from Centralized to Decentralized 2019 Launched 80/20 Initiative Executed Simplification Phase II Footprint Consolidations Infused New Leadership Talent Strengthened Return Based Decision Making Foundational Year Setting the Path for P
Slide 12: Organization
STRATEGIC OVERVIEW ORGANIZATION • Strategy, then Structure • Decentralized & Created Business Louis Pinkham Chief Executive Officer Unit Structure • Business Unit Accountability and P&L Focus • From 3 Segment P&L’s to 23 BU and Jerry Morton Scott Brown Eric McGinnis John Kunze President President Pr
Slide 13: Re-Segmentation
STRATEGIC OVERVIEW RE-SEGMENTATION 2019 Adj. Net Sales* ($ millions) $3,185 $3,185 PTS PTS $783 $783 • Commercial and Industrial Split • Climate and PTS Unchanged Climate Climate $946 $946 • Each Segment President Reports to CEO Industrial $575 • Improved Spotlight on Commercial and C&I Industrial P
Slide 14: Industrial Systems Action Plan
STRATEGIC OVERVIEW INDUSTRIAL SYSTEMS ACTION PLAN Marine Motors • Niche Markets Focused on Continued Explosion Proof Motors • Customized Solutions Profitable Growth Paralleling Switchgear • Deep Application Knowledge Industrial Motors • Recognized Quality Focused on Cost-Out & Alternators • Reliable
Slide 15: Regal Operational Approach
STRATEGIC OVERVIEW REGAL OPERATIONAL APPROACH Operating Strategic Cadence Plan Talent Management Annual Policy Operating Deployment Plans Instituted Deeper Operational Review and Rigor ©2020 Regal Beloit Corporation 15
Slide 16: Regal Business System Approach
STRATEGIC OVERVIEW REGAL BUSINESS SYSTEM APPROACH RBS: Driving Value For Customers, Shareholders & Associates Balanced Capital Deployment Strategy and Structure Are Fundamental to How We Operate ©2020 Regal Beloit Corporation 16
Slide 17: Environmental, Social & Governance
STRATEGIC OVERVIEW ENVIRONMENTAL, SOCIAL & GOVERNANCE RBS Energy Used Water Used (mbtu/$M sales) (1000 gallons/$M sales) Environmental Footprint 731 716 668 66 65 60 Since 2016 588 57 • Reduced Energy Used by 20% • Reduced Water Used by 14% 2016 2017 2018 2019 2016 2017 2018 2019 • Reduced Hazardous
Slide 18: Our Products Lead with Sustainability and Energy Efficiency
STRATEGIC OVERVIEW ENVIRONMENTAL, SOCIAL & GOVERNANCE RBS 15% Lower Energy Eliminates Lubricants and 627K Metric Tons/Year 75% NOX Reduction vs Consumption vs Saves ~4 Million Gallons of CO2 Reduction vs Traditional Boilers Nearest Competitor Water/Year for One Bottling Line Traditional Motors Our P
Slide 19: Independent Directors
STRATEGIC OVERVIEW ENVIRONMENTAL, SOCIAL & GOVERNANCE RBS Independent Directors: • 3 Women and 7 Men Independent Chair All Directors Stand for Annual Election ‘Smack Hunger’ in the Community Annual Evaluation of Board and Committees Shareholder Interest: Total Recordable Rate • Majority Voting Stand
Slide 20: Policy Deployment by Segment
STRATEGIC OVERVIEW POLICY DEPLOYMENT BY SEGMENT RBS REGAL Commercial Industrial Climate PTS Organic Growth Cost-Out TWC Improvement Focus on Cost-Out and Focus on Organic Balance of Working Capital Growth and Organic Growth Working Capital and Cost-Out Policy Deployment Driving Performance Goals Spe
Slide 21: 80/20 Approach
STRATEGIC OVERVIEW 80/20 APPROACH RBS • Focus on “A” Customers and Products • Proportion Attention and Resources on “B” Customers and Products • All Segments Have Opportunity to Better Manage Margin Mix • Positions Businesses for Profitable Growth 80/20 Is How We Think and How We Operate ©2020 Regal
Slide 22: Cost Reduction Opportunities
STRATEGIC OVERVIEW COST REDUCTION OPPORTUNITIES RBS 12.7 Footprint 9.7 ~23% • Expect to Consolidate 20+ Facilities Consolidation 2018 millions 0.0 SF 2022F 178 Product • Simplifies Business ~42% 104 Rationalization • Improves Margin and Reduces Working Capital 2018 thousands 0 SKUs 2022F ~21% 76% Be
Slide 23: Technology Differentiation
STRATEGIC OVERVIEW TECHNOLOGY DIFFERENTIATION RBS ECM High Gas Pre-Mix Pool Pump High Efficiency Fan Explosion Proof Marine Duty Paralleling Modsort® Efficiency Motor Blower Motor Motor Switchgear Conveyor • 100 bps Increase in Engineering Spending Over Next 3 Years • Leveraging Over 1,200 Active Re
Slide 24: Growth Opportunities
STRATEGIC OVERVIEW GROWTH OPPORTUNITIES RBS Product Innovation Geographic Expansion Commercial Initiatives Connected Technology • Modsort® Conveyor • Gas Pre-Mix Blowers • “Making it Easy” • Connected Commercial • Supporting ‘Last Mile’ Of in ROW • QR Codes & App Enable Refrigeration Technology Parc
Slide 25: Capital Allocation
STRATEGIC OVERVIEW CAPITAL ALLOCATION RBS 1 Invest Organically • Priority to High-Confidence Organic Investments − Innovation and New Products − Capacity − Productivity • Pruned ~$270M of Annual Sales in Non-Core or Underperforming Businesses Since 2018 2 Growth through M&A • Continuing to Systemati
Slide 26: M&A Approach
STRATEGIC OVERVIEW M&A APPROACH RBS Bolt-ons for the PTS and Climate Segments Larger Scale M&A with High Synergy Potential MARKET • Stable GDP+ Growth • Limited Risk of Technology Disruption • Deal Runway TARGET • Margin Accretive (GM >35%) • Leading Market Position / Brand • Differentiated Product
Slide 27: 3-Year Financial Plan
STRATEGIC OVERVIEW 3-YEAR FINANCIAL PLAN – “ THE ROAD TO 300” RBS 3-Year Targets Organic Growth Above Industry/Market 250 - 300 bps Adj. Operating Margin Expansion Adj. EPS 8% - 10% CAGR Creating Sustainable Foundation for Long-Term Value Creation ©2020 Regal Beloit Corporation 27
Slide 28: Vision – Who Is Regal in Five Years?
STRATEGIC OVERVIEW VISION – WHO IS REGAL IN FIVE YEARS? RBS o Customer Driven Technology Leader o Products and Solutions Differentiated by Sustainability o World Class Business System o Top Talent Driving Business o 35% Gross Margin o GDP+ Growth Profile o Reduced Cyclicality o Top Quartile TSR A Co
Slide 29: Key Takeaways
STRATEGIC OVERVIEW KEY TAKEAWAYS o Growth From Energy Efficiency, Electrification and Digital Connectivity o Leading Brands, Installed Base, and Differentiated Technology o Global Manufacturing Footprint Enables Efficiency and Flexibility o 80/20 Driving Margin Enhancement on Our Road to 300 in 3 o
Slide 30: Agenda
INVESTOR DAY AGENDA 8:30 – 8:35 Welcome & Introductions Rob Cherry, VP IR 8:35 – 9:10 Strategic Overview Louis Pinkham, CEO 9:10 – 9:35 Financial Overview Rob Rehard, CFO 9:35 – 10:05 Power Transmission Solutions Jerry Morton, President 10:05 – 10:20 Break 10:20 – 10:50 Commercial Systems Scott Brow
Slide 31: Historical Financial Performance
FINANCIAL OVERVIEW HISTORICAL FINANCIAL PERFORMANCE Adj. Net Sales* Adj. Operating Profit* Adj. Diluted EPS* Adj. ROIC* ($ billions) ($ millions) $3.0 $3.1 $3.4 $3.2 $373 $342 $5.64 $5.49 9.2% 8.4% $316 $326 $4.43 $4.64 7.4% 8.1% 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017
Slide 32: Free Cash Flow Performance
FINANCIAL OVERVIEW FREE CASH FLOW PERFORMANCE 185% $500 175% 151% $400 135% 150% 115% 120% $377 116% 125% 106% $300 $316 • Working Capital Contributing $289 $285 100% to Free Cash Flow Growth $200 $224 $215 $227 75% 50% • Significant Opportunity $100 Remains in Working Capital 25% $- 0% 2013 2014 20
Slide 33: 2019 Cash Deployment
FINANCIAL OVERVIEW 2019 CASH DEPLOYMENT ($ millions) $824 $824 Surplus Cash Balanced Deployment in 2019 Balance YE 2018 Available Cash $249 $331 • Opportunistic Share Purchases Proceeds from Asset Sales • Dividend at Targeted Payout Ratio $167 Debt Reduction $171 • Return Focused CapEx Operating Sha
Slide 34: Dividend History
FINANCIAL OVERVIEW DIVIDEND HISTORY Dividends Paid Per Share $1.16 $1.08 $1.00 $0.94 $0.90 $0.84 $0.78 $0.74 $0.70 $0.66 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Consistently Increasing Dividend Paid to Shareholders ©2020 Regal Beloit Corporation 34
Slide 35: Capex Allocation
FINANCIAL OVERVIEW CAPEX ALLOCATION Capex Spending by Segment (% of total) PTS 21% PTS 31% Climate 23% • Capex Historically Allocated Based on Volume and Project Needs Climate 27% Industrial • 2020F Capex: ~40% Maintenance vs ~60% Growth Investments 22% Industrial 12% • Shifting to Returns Based Cap
Slide 36: 2020 Guidance Update
FINANCIAL OVERVIEW 2020 GUIDANCE UPDATE FY 2020 What We Are Seeing / Expecting Flat to – 1H Down to Prior Year with Recovery in 2H Organic Sales Slightly Down – De-stocking Subsides in 1Q Adj. EPS* $5.65 - $6.05 ± Continue to Monitor Short-Cycle Trends ± Impact from the Coronavirus >100% of Adj. + O
Slide 37: 3-Year Financial Plan
FINANCIAL OVERVIEW 3-YEAR FINANCIAL PLAN 3-Year Targets Sales & • Accelerated Organic Sales Growth and Margin Expansion Earnings Organic Growth • Adj. EPS CAGR Greater than Operating Profit Growth Above Industry/Market Growth 250 - 300 bps Adj. Operating Margin Robust Cash • Targeting >100% Free Cas
Slide 38: 3-Year Sales Outlook
FINANCIAL OVERVIEW 3-YEAR SALES OUTLOOK Source of Sales Growth (2019 – 2022) ($ millions) 2 - 3% 1 - 2% $3,185 (0.5 – 1.5%) • Market at GDP • New Products • New Markets • Share • Price Excluding 80/20, Expecting Market Outgrowth ©2020 Regal Beloit Corporation 38
Slide 39: The Road to '300 in 3'
FINANCIAL OVERVIEW THE ROAD TO “300 IN 3” 3-Year Adj. Operating Margin* Improvement 13.2% - 13.7% $90 - $100M 10.7% Volume Leverage, Mix • Restructuring, Supply Chain, Drivers of Restructuring SKU Reductions 250 - 300 bps of Margin • Other 80/20 Actions Supply Chain Improvement SKU Reductions • Volu
Slide 40: ROIC – What Moves the Needle
FINANCIAL OVERVIEW ROIC – WHAT MOVES THE NEEDLE Invested Capital Key ROIC Improvement Drivers: (% of total) • Operating Profit Improvement Trade Working Capital ~25% Increasing Actionability • Trade Working Capital Optimization Fixed Assets, Leases & Other ~20% • High Return Organic Investments • Fo
Slide 41: Through the Cycle Margin Targets by Segment
FINANCIAL OVERVIEW THROUGH THE CYCLE MARGIN TARGETS BY SEGMENT Targeted Adj. Operating Margin 2019 Adj. Operating Margin* through the Cycle Commercial 9.1% 10 – 13% Industrial 0.1% 8 – 11% Climate 16.9% 17 – 20% PTS 13.0% 15 – 18% * Non-GAAP Financial Measurement, See Appendix for Reconciliation. Ex
Slide 42: 3-Year Cash Availability
FINANCIAL OVERVIEW 3-YEAR CASH AVAILABILITY ($ millions) $1,030 - $1,130 $1,030 - $1,130 Surplus Cash Balance YE 2019 $330 Available Cash • Substantial Capacity to Deploy on $655 - $730 M&A and/or Share Purchases • 2022 Incremental Debt Capacity Operating Cash Flow of ~$1.9 Billion $700 - $800 CapEx
Slide 43: Capital Allocation
FINANCIAL OVERVIEW CAPITAL ALLOCATION Clear M&A Criteria 1 Invest Organically MARKET • Priority to High-Confidence Organic Investments • Stable GDP+ Growth • Limited Risk of Technology Disruption − Innovation and New Products • Deal Runway − Capacity for Growth − Digitization, e-Commerce − Productiv
Slide 44: Actively Managing Cyclicality
FINANCIAL OVERVIEW ACTIVELY MANAGING CYCLICALITY RBS Cost Structure Changes • Overhead Elimination/Reduction • Working Capital Optimization • Product/SKU Rationalization Market Diversification RBS • Connected Technology • Monitoring, Diagnostics, Predictive Maintenance • New Products • New Markets R
Slide 45: Summary
FINANCIAL OVERVIEW SUMMARY 2020 Guidance Reaffirmed 3-Year Targets Organic Growth 3-Year Financial Plan Above Industry/Market 250 - 300 bps Strong Balance Sheet with Flexibility Adj. Operating Margin Expansion Adj. EPS Balanced Capital Allocation with Return Focus 8% - 10% CAGR >100% Free Cash Flow
Slide 46: Agenda
INVESTOR DAY AGENDA 8:30 – 8:35 Welcome & Introductions Rob Cherry, VP IR 8:35 – 9:10 Strategic Overview Louis Pinkham, CEO 9:10 – 9:35 Financial Overview Rob Rehard, CFO 9:35 – 10:05 Power Transmission Solutions Jerry Morton, President 10:05 – 10:20 Break 10:20 – 10:50 Commercial Systems Scott Brow
Slide 47: PTS Agenda
PTS AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 47
Slide 48: PTS Brands, Products, & Applications
PTS BRANDS, PRODUCTS, & APPLICATIONS Brands Products Applications Established Brands with ~$5B of Installed Base ©2020 Regal Beloit Corporation 48
Slide 49: PTS Global Footprint
PTS GLOBAL FOOTPRINT Manufacturing: 16 Support Offices: 6 Warehousing: 7 Global Reach / Local Presence ©2020 Regal Beloit Corporation 49
Slide 50: PTS Agenda
PTS AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 50
Slide 51: PTS Performance Results
PTS PERFORMANCE RESULTS Sales and Adj. Operating Profit* Sales by Region ($ millions) Latin America 5% Asia Pacific 6% Adj. Net Sales $819 EMEA 14% $748 $783 $716 U.S. & Canada 75% 2016 2017 2018 2019 Sales by OEM / Aftermarket Adj. OP 10.7% 11.6% 12.8% 13.0% 48% / 52% Margin* * Non-GAAP Financial M
Slide 52: PTS Market Trends – End Markets
PTS MARKET TRENDS – END MARKETS End Market % of Sales 2019 2020 – 2022 CAGR General 36% LSD Industry Material 23% HSD Handling Metals 10% LSD Renewable 7% MSD Energy Source: IBIS Industry Reports Growth Expected to Accelerate Over 2019 Levels ©2020 Regal Beloit Corporation 52
Slide 53: PTS Agenda
PTS AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 53
Slide 54: PTS Strengthening Go-To-Market
PTS STRENGTHENING GO-TO-MARKET Resource Investment Process & Tool Investment Customer Support Enhanced Sales Incentive Program • 46% Increase in Sales Coverage Since 2016 • Variable Compensation Directly Tied to John Doe • 60% Growth of US Customer Service Team Performance • Performance Electronical
Slide 55: Making It Easy - Digital Customer Experience
PTS MAKING IT EASY - DIGITAL CUSTOMER EXPERIENCE Rich Content and Mobile Site Optimize Customer Buying Experience ©2020 Regal Beloit Corporation 55
Slide 56: Making It Easy - Digital Transformation
PTS MAKING IT EASY - DIGITAL TRANSFORMATION Making It Easier for Our Customers ©2020 Regal Beloit Corporation 56
Slide 57: Modsort Technology Value Proposition
PTS PRODUCT INNOVATION - MODSORT® TECHNOLOGY VALUE PROPOSITION Modsort® Module Sortation Solutions • Modular Design For Flexible Integration and Ease of Maintenance • Rapid ROI: Increased Speed, Improved Accuracy, Reduced Cost Of Labor • IP Backed Technology Supporting ‘Last Mile’ Of Parcel Processi
Slide 58: Gearmotor and Custom Gearing Solutions
PTS PRODUCT INNOVATION - GEARMOTOR AND CUSTOM GEARING SOLUTIONS Custom Gearing Gearmotor Solutions Fast Customization Differentiating PTS with Customers ©2020 Regal Beloit Corporation 58
Slide 59: Connected Technology – Embedded Sensors with Purpose
PTS CONNECTED TECHNOLOGY – EMBEDDED SENSORS WITH PURPOSE Coupling Wear Measurement Sensi-Torq™ for Gear Drives Real Time Torque Monitoring Solving Customer Challenges through Connected Solutions ©2020 Regal Beloit Corporation 59
Slide 60: PTS Agenda
PTS AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 60
Slide 61: 80/20 – Footprint and Product Rationalization
PTS 80/20 – FOOTPRINT AND PRODUCT RATIONALIZATION Segment Footprint # of Segment Product SKUs 33% 2018 2020 2022 84,000 68,000 47,000 Square Footage 2018 2022 Facilities 29 18 Substantial Opportunity Exists To Simplify Business Through 80/20 ©2020 Regal Beloit Corporation 61
Slide 62: 80/20 Case Study – Plant Consolidation
PTS 80/20 CASE STUDY – PLANT CONSOLIDATION 2019 2020 2021 2022 2019-2022 • 160K Sq Ft Footprint Reduction Sales $19.6 $16.5 $18.7 $21.0 ~2.3% CAGR • Eliminated 33% of SKUs • 214 Surplus Assets (67%) Gross 20.9% 42.4% 45.5% 45.7% 2,480 bps • Labor Headcount Reduction of 45% Margin 80/20 Is Driving Re
Slide 63: 80/20 – Operational Improvements
PTS 80/20 – OPERATIONAL IMPROVEMENTS 80/20 Simplification Enabling Targeted Automation ©2020 Regal Beloit Corporation, Proprietary and Confidential 63
Slide 64: PTS Agenda
PTS AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 64
Slide 65: Why We Will Win
PTS WHY WE WILL WIN Positioned for Growth in Fragmented Markets Market Leader in Digital Commerce Solutions ModSort® Conveying Technology is a Game Changer Focused Customized Gearmotor Solutions to Solve Customer Challenges Well Positioned to Grow with an Array of Connected Solutions 80/20 Will Simp
Slide 66: Agenda
INVESTOR DAY AGENDA 8:30 – 8:35 Welcome & Introductions Rob Cherry, VP IR 8:35 – 9:10 Strategic Overview Louis Pinkham, CEO 9:10 – 9:35 Financial Overview Rob Rehard, CFO 9:35 – 10:05 Power Transmission Solutions Jerry Morton, President 10:05 – 10:20 Break 10:20 – 10:50 Commercial Systems Scott Brow
Slide 67: Agenda
INVESTOR DAY AGENDA 8:30 – 8:35 Welcome & Introductions Rob Cherry, VP IR 8:35 – 9:10 Strategic Overview Louis Pinkham, CEO 9:10 – 9:35 Financial Overview Rob Rehard, CFO 9:35 – 10:05 Power Transmission Solutions Jerry Morton, President 10:05 – 10:20 Break 10:20 – 10:50 Commercial Systems Scott Brow
Slide 68: Commercial Agenda
COMMERCIAL AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 68
Slide 69: Commercial Brands, Products, & Applications
COMMERCIAL BRANDS, PRODUCTS, & APPLICATIONS Brands Products Applications Strong Brands, Attractive Segments, Leading Positions ©2020 Regal Beloit Corporation 69
Slide 70: Commercial Global Footprint
COMMERCIAL GLOBAL FOOTPRINT Manufacturing: 17 Support Offices: 6 Warehousing: 3 Ability To Leverage Global Technology & Manufacturing Capabilities ©2020 Regal Beloit Corporation 70
Slide 71: Commercial Agenda
COMMERCIAL AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 71
Slide 72: Commercial Performance Results
COMMERCIAL PERFORMANCE RESULTS Sales and Adj. Operating Profit* Sales by Region ($ millions) Europe 12% Adj. Net Sales Asia $935 Pacific $880 15% North America 73% 2018 2019 Sales by OEM / Aftermarket Adj. OP Margin* 9.9% 9.1% 76% / 24% * Non-GAAP Financial Measurement, See Appendix for Reconciliati
Slide 73: Commercial Market Trends – End Markets
COMMERCIAL MARKET TRENDS – END MARKETS End Market % of Sales 2019 2020 – 2022 CAGR General Industry 42% LSD CHVAC 34% LSD Water – Leisure & 24% LSD Non-Leisure Source: NEMA Industry Reports and Management Estimates Global GDP Markets With Regulation Tailwinds ©2020 Regal Beloit Corporation 73
Slide 74: Commercial Market Trends – Regulations
COMMERCIAL MARKET TRENDS – REGULATIONS Pool Pump CHVAC & Ventilation • DOE 2021 Energy Efficiency Regulations • European Eco Design Directive in 2022 • DOE 2023 Integrated Energy Efficiency Ratio Regal’s Technology Leadership Is Perfectly Positioned to Take Advantage of Regulations ©2020 Regal Beloi
Slide 75: Commercial Market Trends – Innovation
COMMERCIAL MARKET TRENDS – INNOVATION Power Density Efficiency Electronics Packaging Smaller Intelligence Form Factors Cost Application Control Our Technology and Application Knowledge Best Positioned to Benefit from these Trends ©2020 Regal Beloit Corporation 75
Slide 76: Commercial Agenda
COMMERCIAL AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 76
Slide 77: Commercial Product Innovation – Pool Pump Motor
COMMERCIAL PRODUCT INNOVATION – POOL PUMP MOTOR • Next Generation Pool Pump Motor • Meets New 2021 Regulations • Targets Underserved Segments • Value Creation for OEMs, Contractors, & Homeowners Regal’s Technology Leads in the Attractive Pool Pump Market ©2020 Regal Beloit Corporation 77
Slide 78: Commercial Product Innovation – Direct Drive Fans
COMMERCIAL PRODUCT INNOVATION – DIRECT DRIVE FANS • ~15% Lower System Energy Consumption than Next Competitor Offering • ~50% Reduction in Energy Costs Compared to Belt Driven Fans Differentiated Solution Driving Organic Growth, Global Expansion, and Margin Accretion ©2020 Regal Beloit Corporation 7
Slide 79: Commercial Product Innovation – Motor Form Factors
COMMERCIAL PRODUCT INNOVATION – MOTOR FORM FACTORS • New OEM Platforms Must Improve Space & System Efficiency to Meet Commercial HVAC Regulations • Regal Provides All Form Factor Technologies OEMs Need Leveraging Technology to Expand into a New ~$250M Market for Regal ©2020 Regal Beloit Corporation
Slide 80: Commercial Product Innovation – High Speed Motors
COMMERCIAL PRODUCT INNOVATION – HIGH SPEED MOTORS • Emerging Market for Higher Speed Blowers, Vacuum Pumps, and Air Compressors For Energy Efficiency • Water Treatment, Chemical Processing, Plant Service Air • Customers Attracted to Regal’s Proven Hermetic Motor High Speed Capabilities Expanding int
Slide 81: Commercial Agenda
COMMERCIAL AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 81
Slide 82: Commercial 80/20 – Footprint and Product Rationalization
COMMERCIAL 80/20 – FOOTPRINT AND PRODUCT RATIONALIZATION Segment Footprint # of Segment Product SKUs 26% 2018 2020 2022 Square Footage 30,000 28,000 18,000 2018 2022 Facilities 17 13 ~26% Footprint Reduction and ~40% SKU Simplification ©2020 Regal Beloit Corporation 82
Slide 83: Commercial 80/20 Case Study – Product Rationalization
COMMERCIAL 80/20 CASE STUDY – PRODUCT RATIONALIZATION North America Motor Operations Findings Deploying 80/20 • Service Challenges • Mid 90’s OTD to Highly Valued • 20% Customers ~96% Sales Customers, 10 Point Improvement • 20% Product SKUs ~89% Sales • Labor Productivity +5% per year • Inconsistent
Slide 84: Commercial 80/20 Case Study – Plant Consolidation
COMMERCIAL 80/20 CASE STUDY – PLANT CONSOLIDATION 106K ft2, 207 HC, ~$35M Sales What We Are Doing? Total 80% Sales • Transferring Only 50% SKUs Customers 1,755 399 • Exiting 9% of Sales SKUs 1,834 120 • Incenting Customers to High Volume SKUs With 80/20, Less is More ©2020 Regal Beloit Corporation 8
Slide 85: Commercial Value Analysis / Value Engineering (VAVE)
COMMERCIAL VALUE ANALYSIS / VALUE ENGINEERING (VAVE) Traditional Approach VAVE Approach • Reduce Thickness • Function of Frame = Locate Parts • Change Material • How Can I Locate Parts Differently? • Remove Paint • Eliminate Frame Completely • Change Forming/Welding Process Early Days of Journey - F
Slide 86: Commercial Agenda
COMMERCIAL AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 86
Slide 87: Commercial Why We Will Win
COMMERCIAL WHY WE WILL WIN Technology Leadership Foundation with Positive Macro and Regulatory Trends Well Positioned with Technology and Connected Solutions in Pool Pump Sustainability Solutions for Expanding into New Global Markets 80/20 Structural Margin Improvements Transforming the Business ©20
Slide 88: Agenda
INVESTOR DAY AGENDA 8:30 – 8:35 Welcome & Introductions Rob Cherry, VP IR 8:35 – 9:10 Strategic Overview Louis Pinkham, CEO 9:10 – 9:35 Financial Overview Rob Rehard, CFO 9:35 – 10:05 Power Transmission Solutions Jerry Morton, President 10:05 – 10:20 Break 10:20 – 10:50 Commercial Systems Scott Brow
Slide 89: Industrial Agenda
INDUSTRIAL AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 89
Slide 90: Industrial Brands, Products, & Applications
INDUSTRIAL BRANDS, PRODUCTS, & APPLICATIONS Brands % of Sales Products Applications • Industrial Pumps 61% • Industrial Motors • Industrial Fans 21% • Alternators • Generator Set • Paralleling Switchgear 7% • Automated Transfer Switches • Data Center 6% • Marine Duty Motors • Tension Winches 5% • Ex
Slide 91: Industrial Global Footprint
INDUSTRIAL GLOBAL FOOTPRINT Manufacturing: 15 Support Offices: 6 Warehousing: 10 Global Reach / Local Presence ©2020 Regal Beloit Corporation 91
Slide 92: Industrial Agenda
INDUSTRIAL AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 92
Slide 93: Industrial Performance Results
INDUSTRIAL PERFORMANCE RESULTS Sales and Adj. Operating Profit* Sales by Region ($ millions) Europe 9% Adj. Net Sales $665 Asia 31% $575 Americas 60% Sales by OEM / Aftermarket 2018 2019 Adj. OP Margin* 4.3% 0.1% 77% / 23% * Non-GAAP Financial Measurement, See Appendix for Reconciliation. 2016 and 2
Slide 94: Industrial Market Trends – End Markets
INDUSTRIAL MARKET TRENDS – END MARKETS End Market % of Sales 2019 2020 – 2022 CAGR Distribution 32% LSD Power Gen 26% LSD CHVAC 6% LSD Oil & Gas 6% LSD Data Centers 4% MSD Marine 4% LSD Source: NEMA and Frost & Sullivan Industry Reports Trade Conflict with China Impacting Market Growth; Future Growt
Slide 95: Industrial Agenda
INDUSTRIAL AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 95
Slide 96: Industrial Product Innovation – Critical Power Application
INDUSTRIAL PRODUCT INNOVATION – CRITICAL POWER APPLICATION FOR HIGH TECH MANUFACTURING Hybrid Power Distribution Unit • Customized to Customer Need • Plug-and-Play Compact Design • Ease of Installation Customization and Speed to Market ©2020 Regal Beloit Corporation 96
Slide 97: Industrial Geographic Market Expansion – Brand Leverage
INDUSTRIAL GEOGRAPHIC MARKET EXPANSION – BRAND LEVERAGE • Cemp and Rotor Following Existing European OEM Customers to Asia • Leveraging Regal Infrastructure for Assembly and Customer Support • ~$130M Market Opportunity Expanding the Reach of Our Strong European Brands ©2020 Regal Beloit Corporation
Slide 98: Industrial Agenda
INDUSTRIAL AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 98
Slide 99: Industrial Cost Competitive Solution – Terramax Conversion
INDUSTRIAL COST COMPETITIVE SOLUTION – TERRAMAX® CONVERSION NA Motor BVC as a % of Spend 73% • Common Platform for NEMA and IEC Motors 54% • Reduces Complexity and SKUs • Leverages Best Value Country (BVC) Supply Base • Reduces Motor Platforms fromPiloting 14 to 4 today with: 23% 12% 2019 2020 2021
Slide 100: Industrial Cost Competitive Solution – Generator VAVE Project
INDUSTRIAL COST COMPETITIVE SOLUTION – GENERATOR VAVE PROJECT NA Generator BVC as a % of Spend 60% 56% • Simplified Offering Using VAVE Methodology • Reduced Stock SKU Offering by 67% 22% • Enhanced Modification Capabilities in U.S. Warehouses 5% 2019 2020 2021 2022 Clean Sheet Drives 15% to 25% Cos
Slide 101: Industrial 80/20 – Footprint and Product Rationalization
INDUSTRIAL 80/20 – FOOTPRINT AND PRODUCT RATIONALIZATION Segment Footprint # of Segment Product SKUs 20% 2018 2020 2022 56,000 44,000 34,000 Square Footage 2018 2022 Manufacturing 15 12 Warehousing 10 5 Transforming Our Business through 80/20 ©2020 Regal Beloit Corporation 101
Slide 102: Industrial 80/20 Case Study – Gold, Silver, Bronze Motor Stocking Program
INDUSTRIAL 80/20 CASE STUDY – GOLD, SILVER, BRONZE MOTOR STOCKING PROGRAM 2019 Warehouse Sales ($/Day) Gold Silver • 72% Stock SKU Reduction • Strategic Inventory Positioning • Stock Availability Improved to 95% • Gold Sales Doubled and Margin Mix Improved in 4Q 2019 • Plan to Reduce ~$30M Inventory
Slide 103: Industrial Agenda
INDUSTRIAL AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 103
Slide 104: Industrial Why We Will Win
INDUSTRIAL WHY WE WILL WIN Top Priority is Cost Competitiveness & Margin Improvement New Mexico Manufacturing Facility to Service the Americas Strong Niche Brands Will Grow Profitably Launching New Cost Competitive Motor & Generator Products 80/20 Will Simplify Everything We Do ©2020 Regal Beloit Co
Slide 105: Agenda
INVESTOR DAY AGENDA 8:30 – 8:35 Welcome & Introductions Rob Cherry, VP IR 8:35 – 9:10 Strategic Overview Louis Pinkham, CEO 9:10 – 9:35 Financial Overview Rob Rehard, CFO 9:35 – 10:05 Power Transmission Solutions Jerry Morton, President 10:05 – 10:20 Break 10:20 – 10:50 Commercial Systems Scott Brow
Slide 106: Climate Agenda
CLIMATE AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 106
Slide 107: Climate Brands, Products, & Applications
CLIMATE BRANDS, PRODUCTS, & APPLICATIONS Brands Products Applications Strong Brands, Innovation Leader, Rich Application Experience ©2020 Regal Beloit Corporation 107
Slide 108: Climate Global Footprint
CLIMATE GLOBAL FOOTPRINT Manufacturing: 14 Support Offices: 6 Warehousing: 6 Global Footprint a Clear Competitive Advantage ©2020 Regal Beloit Corporation 108
Slide 109: Climate Agenda
CLIMATE AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 109
Slide 110: Climate Performance Results
CLIMATE PERFORMANCE RESULTS Sales and Adj. Operating Profit* Sales by Region ($ millions) Asia Pacific 5% Adj. Net Sales Europe 9% $921 $963 $946 $879 North America 86% 2016 2017 2018 2019 Sales by OEM / Aftermarket Adj. OP Margin* 14.3% 15.1% 15.1% 16.9% 78% / 22% * Non-GAAP Financial Measurement,
Slide 111: Climate Market Trends – End Markets
CLIMATE MARKET TRENDS – END MARKETS End Market % of Sales 2019 2020 – 2022 CAGR HVAC 43% LSD Combustion 19% LSD General Industry 15% LSD Distribution 12% LSD Commercial 11% LSD Refrigeration Source: IBIS, NEMA, and Freedonia Industry Reports Stable Growth from Energy Efficiency, Demographics, and Co
Slide 112: Climate Market Trends – North American HVAC Shipments
CLIMATE MARKET TRENDS – NORTH AMERICAN HVAC SHIPMENTS AHRI Reported Unit Shipments 14 Years Since Peak 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Gas Furnace A/C Heat Pump Replacement Cycle in Later Stages While Housing Starts Remain Strong ©2
Slide 113: Climate Market Trends – FER Regulation
CLIMATE MARKET TRENDS – FER REGULATION DOE 2019 Fan Energy Rating (FER) Residential Gas Furnace Regulations Shifting Furnace Blowers from Standard to High-efficiency • Effective with Product Built 7/1/19 and After • Requires Increased Efficiency on Residential Gas Furnaces • 3.4 Million Furnaces Pro
Slide 114: Climate Market Trends – SEER 14/15 Air Conditioner Regulation
CLIMATE MARKET TRENDS – SEER 14/15 AIR CONDITIONER REGULATION DOE 2023 Energy Efficiency Regulation Air Conditioner, Heat Pump, Air Handler +1 SEER Jump • Compliance Start Date January 1, 2023 • +1 SEER Jump (National: 14 SEER, SW/SE: 15 SEER) • Drives Increase in Compressor and Blower Modulation Ov
Slide 115: Climate Agenda
CLIMATE AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 115
Slide 116: Distribution Growth Drivers
CLIMATE DISTRIBUTION GROWTH DRIVERS • Enables Contractor to Carry 3 vs. 32 Models • Significant Inventory Reduction • Reduction in Contractor Transit Time to Acquire Appropriate Parts • Higher Value Product for Regal Productivity Proposition for Contractor, Higher Margin for Regal ©2020 Regal Beloit
Slide 117: Geographic Expansion – Gas Pre-Mix Blowers
CLIMATE GEOGRAPHIC EXPANSION – GAS PRE-MIX BLOWERS • Leveraging U.S. Position in ROW • Sustainability • 15 - 25% Reduction In Gas Usage vs Traditional Blowers • 75% NOX Reduction vs Traditional Blowers • Competitive Differentiation • 5-6” Lower Overall Height • 16 lbs. Less Weight • Capable of Conti
Slide 118: Connected Technology – New Service Model
CLIMATE CONNECTED TECHNOLOGY – NEW SERVICE MODEL • Connected Commercial Refrigeration Technology • Reduces Risk of Food Spoilage from Outages • Monetizing Uptime Value Proposition REDUCING WASTE, SAVING ENERGY Solving a Customer Problem Leading to a Recurring Revenue Service Model ©2020 Regal Beloit
Slide 119: Climate Agenda
CLIMATE AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 119
Slide 120: Climate 80/20 – Footprint and Product Rationalization
CLIMATE 80/20 – FOOTPRINT AND PRODUCT RATIONALIZATION Segment Footprint # of Segment Product SKUs 13% 2018 2020 2022 Square Footage 8,000 6,000 5,000 2018 2022 Mohamad Facilities 26 21 Reducing Global Footprint 13% and Product SKUs ~38% by 2022 ©2020 Regal Beloit Corporation 120
Slide 121: Climate Case Study – Automation
CLIMATE CASE STUDY – AUTOMATION Before… After… 4.- 3.- 2.- 4.- 3.- 2.- Automatic Automatic Projection Notch Notch Projection Notch Notch Press # 1 Press # 2 Press #3 #2 Press #3 #2 (Notch 1,2,3 & (Notch 1,2,3 & Projections) Projections) Automation Driving Higher Levels of Productivity and Improving
Slide 122: Climate 80/20 Case Study – Strategic Alignment
CLIMATE 80/20 CASE STUDY – STRATEGIC ALIGNMENT Revenue Profile Resource Allocation 315 73 Customers 315 Customers Customers Sales 11 Outside 1 Inside Associates Customer Service 6 1 Associates 73 Engineering Customers 6 0 Associates Aligning Resources to Create Differentiated Customer Experience ©20
Slide 123: Climate Agenda
CLIMATE AGENDA • Brands, Products, & Applications • Performance Results & Market Trends • Growth Initiatives • 80/20 Actions • Summary ©2020 Regal Beloit Corporation 123
Slide 124: Climate Why We Will Win
CLIMATE WHY WE WILL WIN Strong Brands, Rich Application Experience Track Record of Strong Operating Margin Growth Energy Efficiency Regulations Providing Tailwinds Connectivity Opportunities for Growth 80/20 Is Transforming Our Business ©2020 Regal Beloit Corporation 124
Slide 125: Agenda
INVESTOR DAY AGENDA 8:30 – 8:35 Welcome & Introductions Rob Cherry, VP IR 8:35 – 9:10 Strategic Overview Louis Pinkham, CEO 9:10 – 9:35 Financial Overview Rob Rehard, CFO 9:35 – 10:05 Power Transmission Solutions Jerry Morton, President 10:05 – 10:20 Break 10:20 – 10:50 Commercial Systems Scott Brow
Slide 126: 3-Year Financial Plan
STRATEGIC OVERVIEW 3-YEAR FINANCIAL PLAN – “ THE ROAD TO 300” RBS 3-Year Targets Organic Growth Above Industry/Market 250 - 300 bps Adj. Operating Margin Expansion Adj. EPS 8% - 10% CAGR >100% Free Cash Flow Conversion 250 - 300 bps ROIC Improvement Creating Sustainable Foundation for Long-Term Valu
Slide 127: The Road to '300 in 3'
FINANCIAL OVERVIEW THE ROAD TO “300 IN 3” 3-Year Adj. Operating Margin* Improvement 13.2% - 13.7% $90 - $100M 10.7% Volume Leverage, Mix Drivers of Restructuring 250 - 300 bps of Margin Supply Chain Improvement SKU Reductions 80/20 * Non-GAAP Financial Measurement, See Appendix for Reconciliation. C
Slide 128: Summary
INVESTOR DAY SUMMARY o Growth From Energy Efficiency, Electrification and Digital Connectivity o Leading Brands, Installed Base, and Differentiated Technology o Global Manufacturing Footprint Enables Efficiency and Flexibility o 80/20 Driving Margin Enhancement on Our Road to 300 in 3 o Strong Free
Slide 129: Question & Answer Session
Question & Answer Session CREATING A BETTER TOMORROW™… ©2020 Regal Beloit Corporation, Proprietary and Confidential
Slide 130: Appendix
Appendix CREATING A BETTER TOMORROW™… ©2020 Regal Beloit Corporation, Proprietary and Confidential
Slide 131: Adjusted Diluted Earnings Per Share
INVESTOR DAY APPENDIX ADJUSTED DILUTED EARNINGS PER SHARE Three Months Ended Twelve Months Ended Dec 28, Dec 29, Dec 28, Dec 29, 2019 2018 2019 2018 GAAP Diluted Earnings Per Share $ 0.89 $ 1.28 $ 5.66 $ 5.26 Restructuring and Related Costs 0.33 0.04 0.57 0.13 Purchase Accounting and Transaction Cos
Slide 132: Adjusted Net Sales
INVESTOR DAY APPENDIX Twelve Months Ended Commercial Power Transmission ADJUSTED NET SALES Systems Industrial Systems Climate Solutions Solutions Total Regal (Dollars in Millions) Dec 28, Dec 29, Dec 28, Dec 29, Dec 28, Dec 29, Dec 28, Dec 29, Dec 28, Dec 29, 2019 2018 2019 2018 2019 2018 2019 2018
Slide 133: Free Cash Flow
INVESTOR DAY APPENDIX Three Months Twelve Months FREE CASH FLOW Ended Ended (Dollars in Millions) Dec 28, Dec 29, Dec 28, Dec 29, 2019 2018 2019 2018 Net Cash Provided by Operating Activities $ 137.3 $ 112.4 $ 408.5 $ 362.7 Additions to Property Plant and Equipment (15.1) (18.4) (92.4) (77.6) Free C
Slide 134: Total Net Debt/EBITDA
INVESTOR DAY APPENDIX TOTAL NET DEBT/EBITDA TOTAL NET DEBT/ADJUSTED EBITDA (Dollars in Millions) (Dollars in Millions) LTM Dec 28, LTM Dec 28, 2019 2019 Net Income $ 242.6 Net Income $ 242.6 Plus: Taxes 61.2 Plus: Taxes 61.2 Plus: Interest Expense 53.0 Plus: Interest Expense 53.0 Less: Interest Inco
Slide 135: Operating Leverage-Commercial Systems
INVESTOR DAY APPENDIX OPERATING LEVERAGE-COMMERCIAL SYSTEMS Three Months Ended Twelve Months Ended (Dollars in Millions) Dec 28, Dec 29, Dec 28, Dec 29, 2019 2018 Change 2019 2018 Change GAAP Income from Operations $ 7.9 $ 27.7 $ (19.8) $ 103.1 $ 102.2 $ 0.9 Adjusted Income from Operations $ 15.1 $