Annual Investor Conference

Transcription

1 Annual Investor Conference Revathi Advaithi, COO, Electrical Sector February 26, 2016

2 Key themes for today 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 2

3 Our seven core platforms deliver solutions for the entire power system Industrial Facilities Machine builders Commercial Data centers Utility Residential 3

4 providing differentiated value to key customer segments Industrial Facilities Machine builders Commercial Data centers Utility Residential Segment Examples Mining Oil & gas Steel Packaging machinery Conveyors Injection molding Offices Retail Warehouses Healthcare Education Internet / Web Telecom Enterprise Multi-tenant Generation Transmission Distribution Single family Apartments Condos Customer value Protecting people and profit with solutions that increase operational performance 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 Delivering reliable, efficient and safe power where and when it is needed Providing reliable, sustainable and safe solutions for modern lifestyles 4

5 We are balanced both geographically and across key segments Geographic mix Segment mix 32% Industrial 59% U.S. 41% Rest of world $12.9B 2015 sales 31% 15% 13% 11% 9% 20% Commercial & Institutional / Gov't Data center / IT Utility Machine Builders Residential Facilities 12% Machine builders 5

6 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 $68 trillion of expected investment in the world energy sector by % increase in the global LED lighting market projected by

7 We expect end market weakness to continue into 2016 End Market Mix 2016 outlook Industrial Facilities Machinery U.S. Manufacturing Industrial Production flat to modestly up Safety and Reliability solutions still needed German Machine Builders index flattish 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 Residential U.S. residential construction up 3-4% 7

8 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 8

9 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 9

10 Designing and delivering the right products for the right markets ($M) $25 $20 $15 $10 $5 $0 93E (400V) Sales APAC MEA / E. Europe 93E UPS for Data Centers in emerging markets 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 $100M additional Eaton 93E annual revenue opportunity by

11 Market-leading products come from our structured approached to innovation 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 % of sales from products introduced in last 3 years

12 Innovative products that fill unmet market needs Variable Speed Starter (VSS) Motor control market Key applications Key characteristics Complexity Market gap (VSS) VFD Motor applications that require complex adjustable speed control Motor applications that require simple adjustable speed control Adjustable motor speed control High functionality high complexity More expensive Adjustable motor speed control Easy to install and commission Compact, space saving design Less expensive Starters Soft starters Motor applications that do not require adjustable speed control Fixed motor speeds Easy to install and commission Basic motor protection Least expensive VFD = Variable Frequency Drive Cost $300M additional Eaton VSS / VFD annual revenue opportunity by

13 A leading LED and connected lighting business driving growth across the entire electrical franchise Convergence of light sources and controls facilitates growth of integrated lighting networks Total connected lighting growth Investing in new products and technology for new markets Industry leading LED penetration 60% LED w/ Integrated controls LED Stand alone High-performance connected LED lighting Sports lighting, outdoor, and industrial applications Controls capability with embedded intelligence and communications 19% Traditional sources $800M additional Eaton Lighting annual revenue opportunity by

14 Integrating intelligent devices, software and communications for the Industrial Internet Utility automation application Ability to integrate thousands of intelligent devices Substation Intelligent devices Control center 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

15 A service organization solving our customers toughest challenges Power system engineering Power system automation Turnkey projects Field services Aftermarket & life extension Arc flash & safety studies Power systems studies Power quality Foreseer and PowerXpert enterprise solutions Project management Engineer, Procure & Construct (EPC) Startup Maintenance Emergency response Medium / Low Voltage power circuit breaker replacement Equipment rebuild and reconditioning Case study: Leveraging Power Systems relationship with a large IOU to implement substation upgrades 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 $350M additional Eaton service annual revenue opportunity by

16 Eaton manages a complex and multi-layered electrical value chain in North America Eaton sales Distributor Electrical contractor EPC / General contractor OEM Electrical consultant Architect Owner Distributor Sales Specialists (DSS) Construction sales OEM sales Application engineers End users sales Utilize user preference to create PULL through the distribution channel Partner with intermediaries to PUSH product into the market Over 70% of Eaton s Electrical business in North America is sold through distribution 16

17 Industry leading channel partnerships by focusing on what is important to distributors Distributor requirements of their best suppliers 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 $900M additional Eaton distributor annual revenue opportunity by

18 Seven complementary platforms that create a more powerful electrical franchise Case Study: Cross-selling Eaton s electrical portfolio for a major Liquefied Natural Gas (LNG) facility in North America Eaton products 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 Keys to success 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 $350M additional Eaton Oil & Gas annual revenue opportunity by

19 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 19

20 We have transformed our Electrical business by changing our mix Sales ($B) $15 $10 $5 20% 10% Margins Acquired 34 businesses from 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 $ Note: margins exclude acquisition integration charges 0% Improved margins from 10.4% 15.3% 20

21 Our efforts to improve product line performance have and will continue to raise overall profitability Fixed Power distribution assemblies Power Quality products Distribution transformers Fixing Profitability distribution Growing Grew LED lighting Crouse-Hinds products Residential products Low margin Focus Area High margin 21

22 We have successfully reduced structural costs across the entire organization Footprint optimization Closed 32 plants Salaried headcount ~6% Reduction Continued focus on reducing structural cost throughout the business 22

23 Leveraging EBS toolkit to drive continuous product cost-out across the franchise EBS toolkit: PROLaunch Value Analysis / Value Engineering (VA / VE) Design for Manufacturability (DFM) EQS Eaton Quality System ELSS Eaton Lean Six Sigma Direct material productivity 2.7% 3.8% Case Study: Parking lot lighting

24 Focusing on the most critical metrics to drive operational excellence High 5 metrics World class benchmark Safety (TRCR) <0.50 Quality Cost <1.0% On Time Deliver (OTD) >95% Inventory (DOH) <50 Programs / Initiatives Machine guarding Site focus Design for Six Sigma (DFSS) Focus on scrap Sales Inventory and Operations Planning (SIOP) Playbook Process cycle time reduction Materials playbook Convert sites to Pull vs. Push execution Productivity (Cost-out) YoY 5-7% Continuous Improvement cost-out Value Analysis ramp up 24

25 Opportunities still exist for improving our global manufacturing and supply chain footprint Manufacturing sites Mfg. sites by number of employees Scale opportunities Sales per manufacturing site >60% in higher cost locations ETN Elec Opportunity Actions Should-cost analysis Core vs. non-core activities Manufacturing Centers of Excellence (COEs) Distribution Center optimization Supplier consolidation Results in improved customer experience (OTD, quality) and significant cost-out 25

26 An Electrical Products business with the scale and technological innovation to compete globally Key drivers Segment Margins Leading the conversion to connected LED lighting 16.9% 17.0%-17.6% 16.0%-19.0% Growth in the global distribution channel Global power quality product offering for IT markets Leveraging our portfolio of industry leading electrical components E Through the cycle Note: 2015 segment margins exclude acquisition integration charges 26

27 An Electrical Systems & Services business providing solutions to all levels of the value chain Key drivers Segment Margins Arc flash and explosion-proof technologies Capitalizing on leadership position for energy-efficient UPS 13.3% 13.7%-14.3% 13.0%-16.0% IEC assemblies for global markets Exploiting our extensive project management capabilities and valueadded services E Through the cycle Note: 2015 segment margins exclude acquisition integration charges 27

28 Key themes for today 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 28

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