annual investor conference...into 2016 end market mix 2016 outlook industrial facilities • u.s....
TRANSCRIPT
© 2016 Eaton. All Rights Reserved..
Annual Investor Conference
Revathi Advaithi, COO, Electrical Sector February 26, 2016
2 © 2016 Eaton. All Rights Reserved..
• We are finished with the Cooper integration • Eaton is now a top four global electrical player
• Our seven core competencies deliver solutions for the entire power system • Providing differentiated value to key customer segments
• We have a balanced business • Both geographically and across key segments
• Our focus continues to be on delivering profitable growth • Execution of our strategic growth initiatives will drive end market outperformance • We are expanding margins by focusing on structural cost reduction
Key themes for today
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Our seven core platforms deliver solutions for the entire power system…
Data centers Facilities Utility Residential Machine builders Commercial Industrial
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…providing differentiated value to key customer segments
• Single family • Apartments • Condos
Segment
Examples
Customer value
• Internet / Web
• Telecom • Enterprise • Multi-tenant
• Mining • Oil & gas • Steel
Protecting people and profit with solutions that increase operational performance
• Generation • Transmission • Distribution
Delivering reliable, efficient and safe power where and when it is needed
• Packaging machinery
• Conveyors • Injection
molding
• Offices • Retail • Warehouses • Healthcare • Education
Enabling machines to deliver the performance, energy efficiency and reliability customers demand
Protecting businesses by focusing on reliability and efficiency to maximize comfort, safety and ROI
Energizing data centers for maximum performance, time to market, reliability and ROI
Providing reliable, sustainable and safe solutions for modern lifestyles
Data centers Facilities Utility Residential Machine builders Commercial Industrial
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We are balanced both geographically and across key segments
59% U.S.
41% Rest of world Machine Builders 11%
Geographic mix Segment mix
$12.9B 2015 sales
Residential 9% Utility 13%
Data center / IT 15%
Commercial & Institutional / Gov't 31%
Industrial 32% Facilities 20%
Machine builders 12%
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Global macro trends continue to support our long term growth strategy Every day, the world creates 2.5 quintillion bytes of data
By 2030, the world’s 750 biggest cities will gain 220 million additional middle-class consumers
70% increase in the global LED lighting market projected by 2020
$68 trillion of expected investment in the world energy sector by 2040
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We expect end market weakness to continue into 2016
End Market Mix 2016 outlook
Indu
stria
l
Facilities • U.S. Manufacturing Industrial Production flat to modestly up • Safety and Reliability solutions still needed
Residential • U.S. residential construction up 3-4%
Commercial • U.S. commercial construction up 3-5% • European construction and manufacturing activity modestly positive • KSA and Gulf countries commercial construction stable to slightly growing
Data Centers • Data centers slightly negative overall, although hyperscale expansion continues • Data privacy regulations in Europe fueling some above-market growth
Utility • U.S. Utility growth in the low single-digits • U.S. Utility – 65k MW of new capacity additions expected in 2016
Machinery • German Machine Builders index flattish
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Electrical’s focus is to deliver profitable growth
Strategic growth initiatives • Delivering superior customer value • Leveraging our technology leadership • Converting on our service and channel strength
Expand margins • Product line optimization • Multi-year productivity plans • Accelerating our operational excellence
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Execution of our strategic growth initiatives will drive end market outperformance
• Delivering superior customer value • Developing the right products for the right markets
• Leveraging our technology leadership • Structured approach to innovation • Leading LED and connected lighting business • Wide range of intelligent devices, software and communications for
the Industrial Internet • Converting on our service and channel strength
• A service organization solving our customers’ toughest challenges • Strongest channel presence in North America
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Designing and delivering the right products for the right markets
$0
$5
$10
$15
$20
$25
2013 2014 2015
93E (400V) Sales
APAC MEA / E. Europe
($M)
• Designed to meet the specific needs of emerging market customers and their unique applications
• Development efforts conducted in-region to ensure close customer intimacy and enable rapid feedback
• Delivers up to 98% efficiency with a footprint up to 35% smaller than competitive offerings
• Rapid sales growth across APAC, MEA and Eastern Europe since 2012 launch
• Using emerging market design and cost concepts in products designed for developed markets
93E UPS for Data Centers in emerging markets
$100M additional Eaton 93E annual revenue opportunity by 2020
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2012 2015
% of sales from products introduced in last 3 years
Innovation
• A global network of experts that listen to and understand our customers’ most critical electrical needs
• Specialized innovation and product development centers
• A robust new product pipeline process guiding innovation from ideation through product launch
Market-leading products come from our structured approached to innovation
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Cost
Com
plex
ity
Starters
Soft starters
VFD
Market gap (VSS)
Motor control market Key applications Key characteristics
• Motor applications that require complex adjustable speed control
• Adjustable motor speed control • High functionality – high complexity • More expensive
• Motor applications that require simple adjustable speed control
• Adjustable motor speed control • Easy to install and commission • Compact, space saving design • Less expensive
• Motor applications that do not require adjustable speed control
• Fixed motor speeds • Easy to install and commission • Basic motor protection • Least expensive
$300M additional Eaton VSS / VFD annual revenue opportunity by 2020
Innovative products that fill unmet market needs – Variable Speed Starter (VSS)
VFD = Variable Frequency Drive
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Total connected lighting growth
Convergence of light sources and controls facilitates growth of integrated lighting networks
Industry leading LED penetration
2012 2015
19%
60%
$800M additional Eaton Lighting annual revenue opportunity by 2020
Investing in new products and technology for new markets
• High-performance connected LED lighting • Sports lighting, outdoor, and industrial
applications • Controls capability with embedded
intelligence and communications
A leading LED and connected lighting business driving growth across the entire electrical franchise
LED w/ Integrated controls
LED “Stand alone”
Traditional sources
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Intelligent devices
Substation Control center
Utility automation application • Ability to integrate thousands of
intelligent devices
• Software that aggregates and analyzes information to optimize the grid
• Communications provide cybersecurity for remote access
• Helps to manage, monitor and secure an increasingly complex electrical grid
$500M additional Eaton automation annual revenue
opportunity by 2020
Integrating intelligent devices, software and communications for the Industrial Internet
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$350M additional Eaton service annual revenue opportunity by 2020
Field services
• Startup • Maintenance • Emergency
response
Power system engineering
• Arc flash & safety studies
• Power systems studies
• Power quality
Power system automation
• Foreseer and PowerXpert enterprise solutions
Turnkey projects
• Project management
• Engineer, Procure & Construct (EPC)
Aftermarket & life extension
• Medium / Low Voltage power circuit breaker replacement
• Equipment rebuild and reconditioning
• FERC / NERC requirements driving Utilities to “harden” their substations to enhance power reliability and security
• Eaton’s Service organization to evaluate the communications, protection and control systems and provide design services to modernize the substations in compliance with industry requirements
• Eaton will also provide project management, installation and commissioning services in ensure a seamless transition to the new technology
A service organization solving our customers’ toughest challenges
Case study: Leveraging Power Systems’ relationship with a large IOU to implement substation upgrades
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• Over 70% of Eaton’s Electrical business in North America is sold through distribution
Eaton sales Distributor Electrical
contractor
EPC / General
contractor OEM Electrical
consultant Architect Owner
Application engineers End users sales
Distributor Sales Specialists (DSS)
Construction sales OEM sales
Utilize user preference to create PULL through the distribution channel
Partner with intermediaries to PUSH product into the market
Eaton manages a complex and multi-layered electrical value chain in North America
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• Eaton can provide 65% of a typical distributor’s revenue; Eaton’s products are typically #1 or #2 in most categories
• Eaton has the largest electrical sales force in North America; over 1,700 sales personnel
• Eaton has over 2,000 service and project management specialists
• Eaton has ~10,000 R&D professionals with intimate customer and market knowledge
• Eaton has strong anchor brands and a powerful corporate brand
• Eaton has invested in electronic tools to increase distributor productivity
Distributor requirements of their best suppliers
$900M additional Eaton distributor annual revenue opportunity by 2020
Industry leading channel partnerships by focusing on what is important to distributors
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Case Study: Cross-selling Eaton’s electrical portfolio for a major Liquefied Natural Gas (LNG) facility in North America
Lead: Power Distribution • Integrated Power Assemblies, MV /
LV switchgear, motor control centers Pull-through: Harsh & hazardous products, structural solutions • Explosion-proof enclosures,
fittings, cable tray, strut
Eaton products
$350M additional Eaton Oil & Gas annual revenue opportunity by 2020
Coordinated selling effort across the entire organization • Application experts, sales, project management, channel Engagement at different project stages and with different stakeholders • Feasibility, FEED, Detail Design, RFQ • End users, EPCs, OEMs, Distributors
Keys to success
Seven complementary platforms that create a more powerful electrical franchise
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We are expanding margins by focusing on three main areas of structural cost reduction
• Product line optimization • Improving product line profitability by focusing on the tails
• Multi-year productivity plans • Leveraging EBS tools to drive continuous cost improvements
• Raising our level of operational excellence • Focusing on the most critical metrics
• Optimizing our global manufacturing footprint
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We have transformed our Electrical business by changing our mix
• Acquired 34 businesses from 2000-15 • Cooper – global electrical player • Moeller – IEC PD and control components • Powerware – single & three-phase UPS • Phoenixtec – single-phase UPS • Delta – IEC power distribution equipment • MGE – single-phase UPS
• Divested 11 businesses from 2000-15
0%
10%
20%
$0
$5
$10
$15
2000 2015M
argi
ns
Sale
s ($
B)
Improved margins from 10.4% → 15.3%
Note: margins exclude acquisition integration charges
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Low margin
High margin
Profitability distribution
Focus Area
Fixed • Power distribution assemblies • Power Quality products • Distribution transformers
Grew • LED lighting • Crouse-Hinds products • Residential products
Fixing Growing
Our efforts to improve product line performance have and will continue to raise overall profitability
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Continued focus on reducing structural cost throughout the business
Closed 32 plants
~6% Reduction
2013-15 Footprint optimization
2013-15 Salaried headcount
We have successfully reduced structural costs across the entire organization
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Parking lot lighting
2.7%
3.8%
2014 2015
Direct material productivity EBS toolkit: • PROLaunch • Value Analysis / Value Engineering (VA / VE) • Design for Manufacturability (DFM) • EQS – Eaton Quality System • ELSS – Eaton Lean Six Sigma
Leveraging EBS toolkit to drive continuous product cost-out across the franchise
Case Study:
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High 5 metrics World class benchmark Programs / Initiatives
Safety (TRCR) <0.50 • Machine guarding • Site focus
Quality Cost <1.0% • Design for Six Sigma (DFSS) • Focus on scrap
On Time Deliver (OTD) >95% • Sales Inventory and Operations Planning
(SIOP) Playbook • Process cycle time reduction
Inventory (DOH) <50 • Materials playbook • Convert sites to “Pull vs. Push” execution
Productivity (Cost-out) YoY 5-7% • Continuous Improvement cost-out
• Value Analysis ramp up
Focusing on the most critical metrics to drive operational excellence
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ETN Elec Opportunity
>60% in higher cost locations
Sales per manufacturing site Manufacturing sites
0-100 100-200 200+
Mfg. sites by number of employees
Results in improved customer experience (OTD, quality) and significant cost-out
Actions • Should-cost analysis • Core vs. non-core activities • Manufacturing Centers of Excellence (COEs)
• Distribution Center optimization • Supplier consolidation
Scale opportunities
Opportunities still exist for improving our global manufacturing and supply chain footprint
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2015 2016E Through thecycle
Segment Margins Key drivers
• Leading the conversion to connected LED lighting
• Growth in the global distribution channel
• Global power quality product offering for IT markets
• Leveraging our portfolio of industry leading electrical components
17.0%-17.6% 16.0%-19.0%
16.9%
An Electrical Products business with the scale and technological innovation to compete globally
Note: 2015 segment margins exclude acquisition integration charges
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2015 2016E Through thecycle
Segment Margins Key drivers
• Arc flash and explosion-proof technologies
• Capitalizing on leadership position for energy-efficient UPS
• IEC assemblies for global markets
• Exploiting our extensive project management capabilities and value- added services
13.7%-14.3% 13.0%-16.0%
13.3%
An Electrical Systems & Services business providing solutions to all levels of the value chain
Note: 2015 segment margins exclude acquisition integration charges
28 © 2016 Eaton. All Rights Reserved..
• We are finished with the Cooper integration • Eaton is now a top four global electrical player
• Our seven core competencies deliver solutions for the entire power system • Providing differentiated value to key customer segments
• We have a balanced business • Both geographically and across key segments
• Our focus continues to be on delivering profitable growth • Execution of our strategic growth initiatives will drive end market outperformance • We are expanding margins by focusing on structural cost reduction
Key themes for today
29 © 2016 Eaton. All Rights Reserved..