Analyst Day - Seeking Alpha · 2016-02-02 · This presentation includes certain non- GAAP financial measures as defined by ... Optimize process and deliver best tooling solutions

Analyst DayDecember 15, 2015

© 2015 Kennametal Inc. l All rights reserved. l Proprietary and Confidential l 1

Certain statements in this presentation may be forward-looking in nature, or "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. Forward-looking statements arestatements that do not relate strictly to historical or current facts. For example, statements about the timing of consummation of the transaction, statements about Kennametal's outlook for earnings, sales volumes, and cash flow, and expectations regarding futuregrowth and financial performance are forward-looking statements. Any forward-looking statements are based on current knowledge, expectations and estimates that involve inherent risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, our actual results could vary materially from our current expectations. There are a number of factors that could cause our actual results to differ from thoseindicated in the forward-looking statements. They include: economic recession; our ability to achieve all anticipated benefits of restructuring initiatives; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; potential for future goodwill and other intangible asset impairment charges; our ability to protect and defend our intellectual property; continuity of information technology infrastructure; competition; our ability to retain our management and employees; demands on management resources; availability and cost of the raw materials we use to manufacture our products; product liability claims; integrating acquisitions and achieving the expected savings and synergies; global or regional catastrophic events; demand for and market acceptance of our products; business divestitures; energy costs; commodity prices; labor relations; and implementation of environmental remediation matters. Many ofthese risks are more fully described in Kennametal's latest annual report on Form 10-K and its other periodic filings with the Securities and Exchange Commission. We can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.

This presentation includes certain non-GAAP financial measures as defined by SEC rules. As required by Regulation G, we have provided a reconciliation of those measures to the most directly comparable GAAP measures, which is available on our website at www.kennametal.com. Once on the homepage, select “Investor Relations” and then “Events.”

Safe Harbor Statement

Shaping Our FutureDon NolanPresident and CEO


Who We Are

Leader in tooling & wear resistant solutions in every market we serve worldwide

• Metalworking Solutions (Holemaking, Turning, Milling, Systems)• Applied Materials, Powders & Wear Resistant Coatings• Engineered Components — Custom & Standard Offerings• Earth Cutting Tools

Aerospace Transportation General Engineering Earthworks Energy & Process

Solutions and possibilities driven by what our customers need to

cut safer, dig deeper and

work longer


Business Overview Business Unit

Geography

End Market

Infrastructure

Industrial

• Gen Eng: 39%

• Transportation: 19%

• Energy: 18%

• Earthworks: 16%

• Aerospace: 8%

• Americas: 48%

• EMEA: 32%

• Asia Pac: 20%

• Industrial: 60%

• Infrastructure: 40%

* Midpoint of 11/03/15 guidance, excluding divestiture


Our Strategy

Commercial Intensity and Customer Solutions• Cutting edge innovation and solutions fuel growth• Invest in customer facing organization• Invest in digital: CRM, NOVO platforms• Market segment focus

Our People, Culture and Commitment• Smart, talented and passionate — people creating

the next big idea.• Develop leaders of tomorrow• Reinvigorate our entrepreneurial spirit• Transparency and accountability

Be #1 or #2 in every market we serve

Operational Transformation• Optimize supply chain• Lean management• Leverage IT investments to enable world-class

business practices

Grow Faster than the Market

Expand Margins

Execute with Speed


Delivering Results

• New safety record• Moved world headquarters to Pittsburgh• Fortified leadership team

• Regionally aligned and empowered Sales & Marketing teams• Continued Innovation leadership — sustained pace of new product introduction • CRM implementation complete 12/31/15

• $310M debt reduction; $215 cash repatriation/redeployment• FOCF — Record beat top end of range; active PWC reduction of $200M• FY16: Incremental restructuring savings of $50M, plus incremental $20–$25M savings• Progress on footprint reduction — down 35% from peak• Sold non-core businesses


Core Market Opportunity

$2.6B $3.5B $6.5B $2.4B $5.5B

Opportunities to grow organically through innovation and customer relationships

Aerospace Transportation General Engineering

Earthworks Energy

Add

ress

able

M

arke

t Pot

entia

lC

urre

nt S

hare

6% 13% 13% 16% 7%


• Regional Business Mix• Americas: 42%

• EMEA: 37%

• Asia: 21%

• Success Drivers• Product & Service Innovation

• Delivering Market Leading Service & Quality

• Commercial Intensity + Digital Capability

Industrial — Expanding Margins,Delivering Growth

Investing to deliver profitable growth

• Aerospace: 9%

• General Engineering: 51%

• Transportation: 31%

• Energy: 9%


• Regional Business Mix• Americas: 70%

• EMEA: 14%

• Asia: 16%

• Success Drivers• Rightsizing Operations

• Product Innovation

• Reduce Complexity — Divestiture

Infrastructure — Well Positioned To Serve Customers As Growth Returns

Clear roadmap to improve performance

• Mining: 22%

• Industrial Applications: 20%

• Oil and Gas: 18%

• Processing: 13%

• Construction: 10%

• Other: 17%


Fueled By Innovation

NOVO™Optimize process and deliver best tooling solutions

More than eight decades of innovation, resourcefulness and problem solving

RoadKing Road Milling ToolKeeps customers up and running longer

Harvi III™ End MillsImproving productivity, safe and secure finishing operations

KBDM PCD Face MillLower cost per part. Engineered for Transportation applications

Continually refresh product portfolio to maintain competitive advantage


Streamline Global Supply Chain

Key Strategies to improve service & reduce costs1. Make where we sell2. Simplify distribution network3. Reduce shipping node complexity


Beyond Footprint – Delivering Lower Costs

Deliver 400 bps improvement

In Addition to Continuing to Optimize Footprint:• Automation• Proximate low-cost countries• Flexible manufacturing capacity

59

74

60

49

2013 Acquisitions Rationalization Divestitures

Closed 10 Facilities Globally

Tungsten Material Business Acquisition


World Class Business Processes

Deliver world-class business process


Commercial Leadership

Market & Customer Driven Strategies Focused Execution

PortfolioManagement

OperationalTransformation

Our Path Forward – Financial Objectives

Invest to build capability to deliver the future

Financial Objectives

• Annual revenue growth faster than market

• EBIT Margin improvement

• FOCF

• EPS Growth

• ROIC Improvement

3 Yr. Outlook

• FY17–19: 2–3% CAGR

• 400–500 bps improvement

• FY19 > 10% of sales

• >20% CAGR

• 400–500 bps improvement

Deliver Growth Deliver Margin Expansion


Our Strategy



Expand Margins

Execute with Speed

Industrial Segment

John JackoVice President & Chief Marketing Officer


Industrial Segment At A Glance

Delivering value by solving the most demanding customer requirements

INDUSTRIAL BUSINESS — Metalworking Solutions and Services

GeographyEnd MarketsAddressable Market* $13B

FY15A $1.5B

CAGR (3 yr) ~3.0%

Share ~12%

Metalworking ServicesKennametal Tooling WIDIA Products Group

*Strategic Addressable Market (Organic Only) – KMT Market Research – April 2014

• General Engineering

• Transportation

• Aerospace

• Energy

•Americas

•EMEA

•Asia Pac


Industrial – Metalworking Business

Strong Cash Flow Generator• Continuing to optimize inventory

Favorable Long-Term Market Outlooks forAerospace and Transportation• Experiencing near-term challenging market conditions

Consumables and Services Business Model

Strong History of Delivering Productivity• Applications and product strength

Leading in Digital Manufacturing

Embedded in long-term growth of durable goods

Metalworking Services

Kennametal Tooling

WIDIA Products Group


Investing in “Feet on the Street”

Standard Product Fill Rates Improved Significantly• Custom solutions lead times and on-time

Continued Investment in Digital Customer

Establishing Local Service and Support —Rapid Response Center Network

A different metalworking business

Our Progress – Industrial Segment


Our AmbitionsOur Vision / Our Brand

The ‘Go-to’ Partner to Deliver Manufacturing Productivity

We ‘Think Differently’… Delivering Productivity• Proven custom and standard solutions – one stop• Product leadership – strong portfolio• Digital manufacturing leaders – NOVO• Service providers – vending, cost/part programs, guarantee programs

Supply Chain Transformation

Sales Optimization

Productivity Solutions

Product Leadership

Digital Customer

Our Strategies

Establish #1 or #2 position in our core markets


Changes In The Industrial Landscape

Structural Changes

Talent

• OEM’s & tier 1’s insist on direct service

• Lack of skilled labor; application engineers are essential

Innovation & Digital

• Product innovation is compressing the traditional market

• Advances in the digital supply chain • Internet of Things enabling remote

services in production

Disruptive Technologies

• Additive manufacturing• Metal injection molding • Finishing tools will still be required

• Cash is king• Speed to market; supply chain;

focus on whole supply chain and inefficiencies

• Distributor consolidation continues – rise of integration

Driving our strategies to meet market changes and customer needs


End Markets At A Glance

*Source: IHS, KMT Strategic Marketing

Long term strength of end markets and geographies

• Excellent backlog of orders• Customers driving orders despite fuel cost decline• OEM focus – small part supplier base

4%9%

Macro Trends/Drivers2015-18 CAGR

FY15 % of Industrial

Addressable Market Size

$1.4b

• Access to credit• Government, unplanned shocks• Power train shift in size (fuel efficiency)

3%31%$3.6b

• Inventory (stocking, destocking) • Shift to indirect channels and e-commerce2%51%$5.7b

• O&G: Recent price shocks• PG: Maintenance & materials• PG: Moving to natural gas

2%9%$1.9b

Aerospace & Defense

Transport

GeneralEngineering

Energy &Power Gen



Gross Margins, Competitive Lead Times, Consistent Quality

Significantly increase margin levels

Reduce Complexity• Portfolio

Rationalization

Accelerate Sourcing Initiatives

Transform Manufacturing

Footprint


Improving Local Service and Support• Increasing local presence in emerging and

established markets• Providing increased levels of service for custom

solutions, regrinding and reconditioning services

Increasing Commercial Capabilities• Adding sales resources in targeted markets

(Aero, Transportation, General Engineering) • Executing our brand/channel strategy• Implementing sales automation tools (CRM)• Leveraging innovation – focused launches

Increasing levels of service to establish #1 or #2 in core markets

Winning at the Spindle – Application Engineering

Sales Optimization

Korea Market Example

Double Digit Increases in Revenues



Component Solutions and End-to-End Solutions Delivering Customer Needs

• Team Turbine provides full solutions for gas turbine engines• Major Aero engine OEMs depend on component solutions• Deploying leading technology such as new ceramic end mill

• Tailored solutions; cylinder head and block, crankshafts, turbo chargers, brakes• Large Euro automaker turned to KMT for new engine turnkey package recognizing

expertise and ability to deliver productivity• Award from premium Euro automaker for innovation & productivity

• From NOVO to Machine Code, fixturing, cycle / cost studies, Team delivered a 50% cycle time reduction to a leading OEM! … Opening the door for more business

A Winning Focused Solutions Approach

Tailored to end markets to deliver productivity


Product Leadership

Innovative Products are the Lifeblood of Metalworking

• Industry leading solution for turning applications. • Answers customer requirements of reliability, ease of use and

unmatched productivity. • Available in a wide range of products to address nearly all markets

• Market leading patent protected technology to the grooving and cutoff portfolio. • Innovations delivers unique performance across a wide range of applications

20% Improvement in Productivity

New products delivering above expectations


Kennametal

Competition

Registered Users 18,000+

Assemblies Built 350,000+

• From “art to part,” delivers the Connected Customer• Provides a virtual Application Engineer on demand; 24/7 service level, “always on”• Goes where the customer wants us to be, customer chooses the channel

Digital Customer

Delivering productivity “art to part”

• Customers increased cross-portfolio purchases by 18%• Customers grew sales 16% more than non-NOVO

customers


Industrial Strategies – Bringing It All Together


Sales Optimization


Product Leadership

Digital Customer

• Build out NOVO, unlock big data; buying behaviors, competitive insight

• Market segment driven priorities, innovation where it matters

• Deliver productivity solutions to customers – lock in annuity streams

• Commercial execution; direct, indirect, feet on the street

• Drive margin improvement, lead times reduction, on time delivery

Inve

stS

usta

inD

iffer

entia

te

Strategies in place to establish leadership in our core markets


Our Opportunities

The ‘Go-to’ Partner to Deliver Manufacturing Productivity

Well Positioned to Benefit from Global Position and End Markets• Multi-channel access to growing global industrial markets• A leader in human and digital application know-how• Broad, strong portfolio of products & services

Strategies in Place to Regain Market Share • Invest in our supply chain — margin expansion is critical• Optimize our sales go to market strategies• Accelerate our leadership position in productivity solutions & digital manufacturing• Sustain our product leadership position

Establish #1 or #2 position in our core markets

Infrastructure SegmentPete DragichExecutive Vice President, Infrastructure


Infrastructure Segment At A Glance

Delivering value by solving the most demanding wear problems

INFRASTRUCTURE BUSINESS — Advanced Cutting and Wear Solutions

Addressable Market * ~$8B

FY15A $1.2B

CAGR (3 yr) ~2.0%

Share ~15%

* Strategic Addressable Market (Organic Only) – KMT Market Research – April 2014

• Americas

• EMEA

• Asia

End Markets Geography

Earth Cutting ToolsEngineered Components

• Mining

• Industrial Applications

• Oil and Gas

• Processing

• Construction

• Other


Reshaping Our Portfolio

• Completed divestiture of 3 non-core businesses

• ~$220M (~20%) of sales

• Simplify our business

• Focus on core technologies, capabilities and markets

• Accelerate growth by leveraging what we do best

Reduced portfolio complexity

• Infrastructure: 80%

• Extrude Hone: 6%

• EMEA Castings: 10%

• Tricon: 4%


Cutting And Wear Solutions Portfolio Addressing Diverse Market NeedsEngineered Components• Cutting and wear solutions for energy,

process and heavy industrial applications

Earth Cutting Tools• Advanced cutting technologies for mining,

road rehabilitation and infrastructure building

Scalable Capabilities• Leveraged material science and supply chain• Commercial centers of excellence • World-class make-to-order customer

experience

• Engineered Components: 67%

• Earth Cutting Tools: 33%


Engineered Components

Process Industries• Mineral Processing• Petrochemical• Plastics/Food & Feed

• Broad cutting and wear solutions portfolio• Diverse technologies capable of solving the toughest wear problems• Strong technical customer relationships developing innovative solutions• Lowest cost supplier on commodity components

Key Markets How We Win

Oil and Gas• Drilling• Production and

Completion

Megatrends

• Vertical integration of supply chain to drive down material costs• Relentless focus on cost to serve throughout value delivery model• Service and ease of doing business / seamless commercial interface

• Innovative wear solutions driving operating productivity for our customers• Customer partnerships for product and application development• Flexible delivery model aligned with customer maintenance cycle

• Innovative wear solutions resistant to harsh operating environments• Customer partnerships for product and application development• Flexible delivery model aligned with customer maintenance cycle

• Supply imbalance• Shale deposit drilling• LT energy demands

Industrial Application• Toolmaking Blanks• Metal forming• Nozzles

• Growth in Transportation, Aero and Electronics

• Low energy prices• O&G soft

• Commodity cycle• Abundant natural

gas

Power Generation• Coal & Gas-Fired

Power Plants

• LT energy demands• Shift to natural gas• Renewables growth• Emissions reduction

Deep technical customer relationships driving innovation and value


Oil And Gas – Production And Completion

Key Market Customer Needs How We Win

Production and Completion• Fracking processes • Flow control

• Innovative products and engineering support

• Improved productivity

• Low cost position

• Responsiveness and flexibility

• Drive collaboration on new product development leveraging our metallurgical and engineering capabilities

• Innovative wear solutions to improve process efficiency and equipment uptime

• Vertically-integrated cost position

• World-class lead times, on time performance and quality


Earth Cutting Tools

UG Coal Mining• Conicals & Roof Bits• Cutting Systems

Key Markets How We WinMegatrends

Construction• Conicals • Wear Solutions• Cutting Systems

• Govt regulation• LT energy demand• Competing low-cost

fuel sources• Energy supply

surplus

• Technical support for customers to improve safety and productivity• Product range / performance addressing wide spectrum of customer needs• Market-leading product innovation driving cost improvements / productivity• Advanced cutting system engineering• Focus on cost to serve throughout value delivery model

• Development of partnerships with OEMs to win “at the drum”• Market-driven offerings that improve productivity and performance• Service and ease of doing business / seamless commercial interface• Focus on cost to serve throughout value delivery model

• Aging infrastructure in developed regions

• Continuing expansion in developing regions

• Funding of needs

Deep technical customer relationships driving innovation and value


Coal continues to be a low-cost fuel source for power generation

• Government emission regulations • Oversupply leading to low coal spot prices

UG Coal Mining Market

Serving market needs and focusing on key segments

Volume producers with low cost position • Offering simplified Performance product portfolio

• Technical support and next generation of technology

Value producers operating in higher cost geologies• Offering competitive Value products with “good enough” performance

• Simple product offering at lowest cost

Transforming our offering and service in line with market needs

http://www.eia.gov/forecasts/steo/pdf/steo_full.pdf

http://www.eia.gov/forecasts/steo/pdf/steo_full.pdf


Global construction and maintenance needs are growing

• Aging infrastructure in developed world• New construction in developing regions

Road Rehabilitation Market

Serving market needs and focusing on key segments

Specialized road rehabilitation companies • Continued OEM partnership development with cutting systems

• Offering a simplified product portfolio at lowest cost of ownership

Road construction & paving companies• Offering competitive performance products• Simplified product offering at lowest cost per job ownership

Growth platform unlocked with innovation and macro trends


Continuous Improvement In Our Cost To Serve

• Product portfolio / powder grade rationalization reduces complexity

• Robust recycling programs to optimize raw material costs

• Investing in raw material supply chain capabilities

• Further manufacturing efficiencies

• Commercial center of excellence model creating leveraged teams

• Targeting 10% – 12% operating expense % of sales


• Challenging end markets

• Embracing cyclicality

• Right-sizing our operations

• New products, technical solutions and Value offering

• Reducing complexity

• Positioned for a bright future

Infrastructure Takeaways

Innovation fueling our future

Technology Overview

Robert J. Clemens, Ph.D.Vice President & Chief Technical Officer


We Convert Science And Engineering Into Value

• Develop new products that grow revenue

• Design manufacturing processes that increase margins

• Exploit digital tools that expand engineering solutions

• Anticipate technology trends to sustain leadership in the future

We enable productivity


Our Products Solve Customers’ Most Challenging NeedsWe combine high-tech materials science and engineering design expertise to create products that conquer customer’s metal removal and wear-resistance challenges.

We work with the world’s hardest materials


Tolerances On Our Metalcutting Products Exceed The Most Demanding Requirements• Very precisely shaped edges• Multiple layers of performance optimizing coatings• Operates at 700oC (1300oF)• Replaced when just 1/8th the thickness of a human hair has worn

X (mm)

Y(m

m)

4.8 4.9 5 5.1 5.2 5.3

1.8

2

Temperature (C)

1000950900850800750700650600550500450400350300250200150100

Third Wave AdvantEdgeThird Wave AdvantEdge

We win at the cutting edge


We Focus Our Expertise On Specific Markets To Maximize Impact

We win by adding applications expertise to our materials and engineering capabilities

Aerospace Transportation Gen. Eng. Energy Earthworks


New Product Development Is Grounded In Customers’ Reality

• We test new products on our customers’ metals and equipment

• New product validation

• Process development

• Training

• Demonstration

We validate and demonstrate success


Our Global Team Collaborates With Customers Where They Are1000+ engineers, scientists, technicians, designers, and machinists, working together to provide custom and standard solutions.

Customer Custom Solutions Materials Science Design Testing

We combine these skills across multiple technologies and markets to win


Pace Of New Product Development With The Industry’s Best

Swiftly answering evolving needs satisfies customers and increases sales


Industrial Success Stories Include Systems

Harvi III™ EndMills• Improved Productivity• High metal removal rates• Finishing

HydroForce™ Chucks• Secure holding• 50% Productivity

Improvement


Next Launch In The Infrastructure Market

RoadKing Road Milling Tool• Maximum holder protection • Easy penetration• Fluted body design supports tool rotation


Driving Operational Efficiencies Expands Margins And Increases Revenue

• Resources Focused on Reducing Costs and Improving Quality• Coordinated with Manufacturing to Increase Margins• Emphasis on:

• Simplified, robust processes• Lower-cost materials• Simplification of product lines• Improvement of quality and consistency• Automation of processes ranging from design to machining

Simpler, lower cost solutions often raise quality and sustainability


Research Is The Cradle Of Future Innovations

• Sustain State-of-the-Art Knowledge inKey Competencies

• Collaborate with Universities and Other External Partners

• Focus Areas: • New Coatings• Shaping technologies

• Edge preparation

• Additive manufacturing

• New materials• Digital technologies (NOVO)

Coatings provide sustainable differentiation – we strive to be #1


NOVO – Digital Innovation + Engineering At Your Fingertips

Enables others to explore possibilities with their needs and our tools


Technology Has A Wealth Of Opportunities To Buoy Margin Expansion And Growth

• We continue to develop new products that win in support of our business partners

• We improve costs and productivity with Manufacturing

• We maintain critical industry leadership in shaping and coatings

• We have many opportunities ahead of us

We are excited about the future

Financial OverviewJan Kees van GaalenVice President and Chief Financial Officer


• Manufacture where we sell and simplify the supply chain• Supply chain transformation• Leverage technology investments to enable world-class

business practices: create efficient G&A cost structure• Grow the core – invest in commercial capabilities• Improve balance sheet and capital investment productivity

Value Creation – Focused Execution


FY16 Divestiture Impact

Key Metrics Divestiture Impact

Total Sales

Organic Growth

EPS

Cash Flow from Operations

Capital Expenditures, Net

FOCF

(6)%

Neutral

Neutral

($15M)

($15M)

Neutral


FY13 FY14 FY15 FY16E

11.4%10.8%

9.1% <8%


Sales ($M) Operating Margin % Free Operating Cash Flow

Our strategy targets recent trends…

$204

$156

$267

<$115


*On an adjusted basis

FY13 FY14 FY15 FY16E FY13 FY14 FY15 FY16E FY13 FY14 FY15 FY16E

$2,589

$2,837

$2,647

<$2,150


…which have affected both business segments

$1,387 $1,524 $1,462 <$1,290


13.9% 13.4% 13.1%<10%


$193 $204 $192

<$130


Sales ($M) Operating Margin %Operating Income

Indu

stria

l

$1,203 $1,313 $1,185<$860


9.3%8.4%

4.7%<5%


$111 $110

$56 <$40


Sales ($M) Operating Margin %Operating Income

Infr

astr

uctu

re





Investing In Margin ExpansionUSD in Millions (all approximate). FY16 – FY17 amounts estimated

0

20

40

60

80

100

FY15 FY16 FY17 On-going

Industrial

Phase 1 Phase 2 Phase 3

49

86

20

76

0102030405060


Infrastructure


15

4235

42

0

50

100

150


Consolidated


84

128

35

118

Significant “Self-Help” with additional programs to come


Aggressive Efforts To Reduce SG&A

Achieved $100M reduction in G&A

528

582547

485

$100

$200

$300

$400

$500

$600

FY13 A FY14 A FY15 A FY16 F

FY13 A FY14 A FY15 A FY16 F

FY16 EFY15FY14FY13

FY13 FY14 FY15 FY16 E



Focus On Margin Expansion

Refocusing on core business & optimizing cost structure drive sustainable margin expansion

2-3% 2%

4 - 5%

1%

(3)-(4)%-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Sales Growth RestructuringPhases 1-3

Supply ChainTransformation

G&A Efficiency Investing in Salesplus Inflation

EBIT

Mar

gin

%

FY16 – FY19 EBIT Margin % Expansion

• Optimize cost structure• Invest in capabilities enabling margin expansion• Focus on execution

400–500 bps Improvement


29.2%

31.7%


9.5%

7.6% 7.2% 7.6%


33.2% 34.0%35.8%

33.2%


Primary Working Capital Debt to Capital Return on Inv. Capital

Opportunity To Improve Balance Sheet Efficiency

% of Sales

Goal20-25%

35.1% 35.3%



Inventory – A Key Management Priority

Working capital opportunities provide additional cash flow upside for next several years

Inve

ntor

y Tu

rns

Inve

ntor

y $

M’s

• Supply chain optimization strategy will meaningfully improve cash conversion cycle

• Comprehensive global initiatives including raw materials, work in process and finished goods

• Manufacturing regionalization will drive improved turns

• Leverage CRM investment to further align S&OP functions and enhance service levels

* FY16 inventory turns adjusted to exclude the full year amounts attributable to divested non-core businesses.

586 579

704

576

~ 450

350 - 375

3.23.0 3.0

2.9

3.2

4.0

2.0

2.5

3.0

3.5

4.0

4.5

300

350

400

450

500

550

600

650

700

750

FY12 FY13 FY14 FY15 FY16E FY19EInventory Inventory Turns


Driving Working Capital Efficiency ImprovementPW

c %

of S

ales

30 – 35%

25 - 30%

1 - 2%4 – 5%

1 – 2%

0%

5%

10%

15%

20%

25%

30%

35%

FY16 PWC % of Sales DSO ImprovementInitiatives

InventoryManagement

DPO Initiatives FY19 PWC % of Sales

DSO• Leverage comprehensive KMT value/performance proposition• Leverage CRM investment & enhanced system visibility• Process standardization

DPO• Further leverage global agreements• Consolidate payment terms to achieve best in class by

product/service• Leverage Ariba investment to optimize P2P process• Selectively Utilize Supply Chain Finance

Working capital opportunities provide additional cash flow upside for next several years

500 bps Improvement


Capital Reinvestment Into Margin Expansion

Capital Structure

Philosophy• Prioritize Core

reinvestment• Focus on Liquidity• Maintain Investment

Grade • Return excess cash

to shareowners

Business Reinvestment

CAPEX

Other Enabling

Return to Shareowners

Dividend

Share Repurchases

FY16 – FY19 Capital Allocation

FY16 - 19

CAPEX

Return to Shareholders

Other Enabling

~$1.2B


Our Path Forward — Financial Objectives (FY16 – FY19)

Well positioned to improve shareholder value over the next few years

2 - 3%

>=13% >=12%

20% - 25%

~25%

>=90% Adj. Net Income

Organic SalesGrowth

EBIT % ROIC % EPS Growth Primary WorkingCapital as % of

Sales

FOCF Conversion

400 – 500 bps expansion 400 – 500 bps

expansion

3 year CAGR

500 bps improvement

3 year CAGR


Shaping Our Future – Focused Execution

Sustainable value creation from our core business by focusing on TSR drivers

Maximum Shareholder

Value

Organic sales

growth

Strong cash flow

Disciplined capital

allocation

Margin expansion

• Refocus on the core business

• Rigorous focus on working capital and net income conversion

• Supply chain optimization / functional excellence

• Invest in the core business• Periodic, dividend increase• Share buyback becomes a strategic

element of overall capital allocation


Shaping Our Future



Expand Margins

Execute with Speed

Documents

Analyst Day - Seeking Alpha · 2016-02-02 · This presentation includes certain non- GAAP financial measures as defined by ... Optimize process and deliver best tooling solutions