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Barclays Industrial Select
February 2017
1
Safe Harbor Statements
This presentation contains “forward-looking” statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. Accordingly, we caution you not to place undue reliance on these statements. All statements other than statements of historical fact could be deemed forward-looking, including, but not limited to, any projections of financial information; any statements about historical results that may suggest trends for our business; any statements of the plans, strategies and objectives of management for future operations; any statements of expectation or belief regarding future events, technology developments or enforceability of our intellectual property rights; and any statements of assumptions underlying any of the foregoing.
These statements are based on estimates and information available to us at the time of this presentation and are not guarantees of future performance. Actual results could differ materially from our current expectations as a result of many factors, including but not limited to: the impact of our substantial indebtedness; the effect of local, national and international economic, credit and capital market conditions on the economy in general, and on the industries in which we operate in particular; access to available and reasonable financing on a timely basis and the availability of financing for our customers; our competitive environment; dependence on independent distributors; general economic and business conditions, market factors and our dependence on customers in cyclical industries; the seasonality of our sales; impact of weather on the demand for our products; changes in technology and manufacturing techniques; loss of key personnel; increases in cost of our raw materials and our possible inability to increase product prices to offset such increases; the loss of any significant customer; inability to make necessary capital expenditures; risks associated with international operations, which have increased in size due to our recent acquisitions; the costs of environmental compliance and/or the imposition of liabilities under environmental, health and safety laws and regulations; the costs of asbestos claims; a potential impairment of goodwill and intangible assets; changes in governmental laws and regulations, or the interpretation or enforcement thereof, including for environmental matters; viability of key suppliers; reliance on intellectual property; potential product liability claims; work stoppages by unionized employees; the costs related to strategic acquisitions or divestitures or the integration of recent and future acquisitions into our business; performance, and potential failure, of our information and data security systems; changes in pension funding requirements and costs of maintaining healthcare insurance and benefits; and anti-takeover provisions in our charter documents. These and other risks and uncertainties associated with our business are described in our Annual Report on Form 10-K for the year ended March 31, 2016. We assume no obligation and do not intend to update these forward-looking statements.
In addition to U.S. GAAP financials, this presentation includes certain financial measures on a non-GAAP basis as defined in the Form 8-K filed with the Securities and Exchange Commission on February 1, 2017. These historical and forward-looking non-GAAP measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. Our SEC filings contain additional information about these non-GAAP measures, why we use them, and why we believe they are helpful to investors, and contain reconciliations to GAAP data.
2
Rexnord Overview
Note: All figures are FY16. Platform margins exclude corporate expenses. Free cash flow and Adjusted EBITDA are non-GAAP metrics and are defined in our SEC filings.
Rexnord (RXN)
Multi-Platform Industrial • Engineered Products for Specification-Driven Applications
Revenue: $1.9 billion • Adjusted EBITDA: $366 million (19%) • FCF: $167 million
Water Management
Provide and enhance water quality, safety, flow control, and conservation in
nonresidential construction, water & wastewater infrastructure
Revenue: $0.8 billion • Adjusted EBITDA Margin: 20%
Process & Motion Control
Be the leading global provider of high-value, mission-critical solutions that help
customers safely, reliably and productively keep their goods & assets moving
Revenue: $1.1 billion • Adjusted EBITDA Margin: 21%
3
Rexnord Strategic Vision
We Advance the Efficient Use of
Resources through Smarter Solutions.
Rexnord Value Creation Model
Focus. Execution. Value.
4
businesses not collections
superior value prop
strategic flexibility
global installed base
serve fundamental needs
reliability & productivity
continuous improvement
Rexnord Business System
process focus
expanding total addressable market
leverage best practices
proprietary funnels operational excellence
our engine
act as partner
discretionary effort
drives our strategies
competing for the long term
Rexnord Business System
5
Creates Operational Alignment with Strategic Objectives
Quantifies specific objectives and Key Performance Indicators
Clearly defines responsibilities and fosters accountability
Connects Strategy Deployment to Daily Management
Promotes Continuous Improvement
Common language enables sharing of best practices
Disciplined approach to root cause analysis & counter-measures
Drives resource allocation
Replicable & Scalable
Structured approach to 20 core business processes
Supported by RBS specialists within each business unit
Foundation to enable step-function growth
Integrated Strategic Planning & Operational Management System
Continuous Improvement is Our Culture
6
Strategic Management FY13-FY17
7
Source: Rexnord estimates, company reports.
FY17 Est Adjusted EBITDA consistent with midpoint of Adjusted EPS
guidance, as of February 1, 2017. All periods reflect FY17 continuing
operations/product lines.
FY12 Adjusted EBITDA
76%
24%
PMC - Continuing WM - Continuing
PMC & WM Adjusted EBITDA ($mm)
0
50
100
150
200
250
300
350
400
FY12 FY13 FY14 FY15 FY16 FY17E
PMC - Continuing
WM - Continuing
FY17E Adjusted EBITDA
61%
39%
PMC - Continuing WM - Continuing
Information Technology
• Upgraded business unit ERP systems
• Deployed salesforce.com across platforms
• Deployed enhanced customer design software tools Product Portfolio
• Simplified product portfolios, exited non-strategic product lines
• Refocused product management resources
• Generated more than $80 million cum savings from VAVE
Commercial Excellence
• Realigned and refocused commercial resources
• Restructured customer service & support
• First Fit delivering PT wins, Zurn spec share +20 ppts Operational Excellence
• Expanded RBS resources within business units
• SCOFR near completion, $30 million annual savings
• Platform margins establish new highs
Capital Allocation
• Strategic acquisitions additive to growth strategies
• Rebalanced portfolio, strengthened diversification
• Net debt leverage down to 3.3x at 12/31/16
More Balanced Portfolio
8
FY17E Adjusted EBITDA
source: Company reports, Rexnord estimates.
FY15 Adjusted EBITDA
PMC: Process
Industries43%
PMC: Aero +
Consumer29%
Water Manageme
nt28%
WaterManagement
28%PMC:Aero +
Consumer29%
PMC: Process
Industries25%
PMC: Aero +
Consumer36%
Water Manageme
nt39%
WaterManagement
39%
PMC:Aero +
Consumer36%
PMC: Process Industries
25%
PMC: Process Industries
42%
North Early Mid Late
Platform Vertical Major Market America EMEA APAC Cycle Cycle Cycle Comment
PMC Process Materials Handling & Processing P P P P High Volatility
PMC Consumer Food & Beverage Production P P P P P P Lower Volatility
PMC Aerospace Large Commercial Aircraft P P P P Long Order Cycles
WM Plumbing Nonresidential Buildings P P P P New Construction & Retrofit
WM Infrastructure Municipal Water & Wastewater P P P P P Low Correlation with Cycle
Primary Geographic Exposure Typical Cyclical Strength
Supply Chain Optimization & Footprint Repositioning
• Reducing global manufacturing footprint by more than 20%
• Reduced internal foundry capacity, selectively increased outsourcing
• On track to capture targeted $30 million of annualized savings
• Projecting $25-million year/year contribution to Adjusted EBITDA in FY18
• Projecting $40-million year/year contribution to free cash flow in FY18
9
Nearing completion of 2-year structural cost reduction initiative
Longer-term strategic benefits
• Leaner and more flexible cost structure
• Reduced fixed asset investment and maintenance capex requirements
• Structurally-enhanced free cash flow & earnings power
• Expands addressable market through PT mid-tier product offering
• Enables incremental expansion in Return on Invested Capital
Key Organic Growth Initiatives
10
PROCESS & MOTION CONTROL
First Fit Market Share Growth Builds installed base & future like-for-like MRO demand Consumer Goods / Food Portfolio Expansion Enabled by Cambridge – leverages PT product range, European strength PT Select Mid-Tier Products Expands addressable market, leverages Rexnord brand, distribution & product support Commercial Aircraft Shipset Growth Strong product technology platform, increasing Airbus participation
WATER MANAGEMENT
Lean Construction Market Share Growth Leverage digital design tools, pre-fab capability, single-delivery model Expansion in Adjacencies Leverages competitive advantages in product performance, portfolio breadth Geographic Expansion Expand VAG penetration of North America, Middle East water infrastructure applications
Digital Rexnord – DiRXN™ (“Direction”)
Generating incremental customer value
• Rexnord enterprise-wide initiative to enable improved customer productivity via digitally-connected tools, products, and services
• Differentiates by digitally connecting traditional mechanical solutions to control systems, engineering & asset management software, and IIoT
• Encapsulates our deep application knowledge into digital components for easy customer & partner use at each stage of their lifecycle
• Leverages common digital infrastructure across Business Platforms – unique deliverables to match end-market requirements
11
Rexnord Acquisitions
12
• Strategic process focuses on market leadership, leveraging competitive advantages
• Accelerates penetration of adjacent product categories, targeted vertical markets
• Proprietary process benefits both buyer and seller
• Target ROIC > WACC within 12-36 months
Product Life Cycle
Management
Operational Excellence Planning
Strategic Planning
Proprietary Identification & Cultivation
Internal Negotiation & Transaction
RBS Integration
Process
Add Diversify Diversify
Strengthen Adjacent End Geographic
Acquisition Year Platform Core Product Market Footprint Comment
Cambridge FY17 PMC P P P P Food processing expansion
Euroflex FY15 PMC P P P P India engineering & manufacturing
Tollok FY15 PMC P P P P Product line extension
Green Turtle FY15 WM P P Leading product technology
Source: Company reports
Strategic Rationale
Cash Flow & Balance Sheet $ millions
(1) Net Debt Leverage is defined as the ratio of total debt less cash to pro forma LTM Adjusted EBITDA.
(2) Free Cash Flow is defined as Cash from Operations less Capital Expenditures, and is a Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on February 1, 2017.
(3) SCOFR = Supply Chain Optimization & Footprint Repositioning program.
(4) Total Debt includes a New Market Tax Credit Receivable ($28), which is more than offset by an associated payable ($37) that is also included in Total Debt in all periods presented.
(5) Liquidity is defined as cash and cash equivalents plus available borrowing capacity. 13
3.9x 3.9x3.8x 3.8x
4.3x
3.3x
2.5x
3.0x
3.5x
4.0x
4.5x
31-Mar-13 31-Mar-14 31-Mar-15 31-Mar-16 30-Sep-16 31-Dec-16
Net Debt Leverage Ratio (1)
84
139
197167
124
78
(36) (19) (32)
(50)
0
50
100
150
200
250
FY13 FY14 FY15 FY16 9M FY16 9M FY17
Free Cash Flow (2)
Free Cash Flow includes SCOFR Impact (3)
2,104 1,944 1,912 1,893 1,795
1,599
0
500
1,000
1,500
2,000
2,500
31-Mar-13 31-Mar-14 31-Mar-15 31-Mar-16 30-Sep-16 31-Dec-16
Total Debt (4)
325 336 341 344 345 339
524
339 370 485
209
429
0
200
400
600
800
1,000
31-Mar-13 31-Mar-14 31-Mar-15 31-Mar-16 30-Sep-16 31-Dec-16
Total Liquidity (5)
Available Borrowing Capacity Cash & Equivalents
Capital Allocation
14
Debt Reduction
Debt reduction has been the primary use of capital
Covenant-light term debt, maturity recently extended to 2023
Target to reduce Net Debt / Adjusted EBITDA ratio to <3.0x
Strategic Acquisitions
Strategic acquisitions will continue to be a significant use of capital
No acquisitions to date resulting from auction process
Base case assumes reinvestment of annual free cash flow
Share Repurchases
Offsets prospective dilution from employee compensation programs
$200-million authorization with $160 million unused
FY12 - 3Q FY17 Uses of Cash
source: Company reports
Acquisitions
42%
Debt Reduction
50%
Share
Repurchase & Other
8%
Acquisitions 42%
Rexnord Summary
15
Rexnord Business System & Continuous Improvement Organization Aligned for Success Improved Portfolio Balance Supply Chain Optimization & Footprint Repositioning Key Organic Growth Initiatives Acquisitions & Capital Allocation
16
Appendix
Process & Motion Control Platform
17
Vision:
Be the leading global provider of high value, mission-critical solutions that help customers
safely, reliably, and productively keep their goods and assets moving.
Target:
$25-billion global market opportunity
PMC Reported Revenue ($mm)
source: Company reports
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
FY12 FY13 FY14 FY15 FY16
Divestitures
PMC - Continuing
PMC Adjusted EBITDA ($mm)
source: Company reports
24.6% 25.1% 25.9% 25.0% 21.3%
0
50
100
150
200
250
300
350
400
450
FY12 FY13 FY14 FY15 FY16
Divestitures
PMC - Continuing
Process & Motion Control Profile
Broadly diversified across
process, consumer/discrete,
& aerospace markets
Consumer/discrete &
aerospace applications to
account for roughly half of
FY17 revenue
18
Global installed base
generates long-tail
MRO demand
Regional manufacturing
& assembly capacity to
serve local markets
Distribution partners
play critical role in
customer service & support
Total MRO demand drives
>50% of revenue with high
L4L replacement
Industry Applications Representative Products
Food &
Beverage
• Beverage Filling
• Food Handling
• Food Processing
• Case Handling
• Container Making
Commercial
Aerospace
• Flight Control Systems
• Aircraft Doors
• Airframe Structures
• Engine/APU/Gearbox
• Landing Gear
Bulk Material
Handling
• Conveying Equipment
• Processing Machinery
• Hard Rock & Coal Mining
• Potash Mining
• Fertilizer Production
Energy &
Power
Generation
• Electrical Power Generation
• Oil & Gas Compression
• Process Equipment
• Wind Turbines
Construction
Materials
• Cement Production
• Aggregates Processing
• Asphalt Production & Paving
• Lumber/Wallboard Prod.
PMC Major End Markets
19
20
New Application Engineering & Specification
First Fit Installation
World-Class Customer
Service & Support
Component Replacement or Rebuild Event
High Rates of Like-for-Like Replacement
Long-Lived Customer
Assets
Components Wear in Use
Rapid Fulfillment Capability
High Customer
Satisfaction
Reliable & Predictable Service Life
Voice of
Customer
Proven model . . . strengthening execution efficiency across PMC
PMC Commercial Execution Model
PMC Competitive Advantages
21
New Application Engineering & Specification
First Fit Installation
World-Class Customer
Service & Support
Component Replacement or Rebuild Event
High Rates of Like-for-Like Replacement
Established global brand with massive installed base
Deep end-market expertise creates customer value & new product innovation
Total cost of ownership advantages drive strong end-user specification
Dedicated technical & commercial teams for OEMs and End-Users
Top-rated customer satisfaction amongst OEM, End-Users, & Distributors
Tiered technical support model and self-serve tools = Ease of doing business
Highly predictable, recurring product replacement / repair lifecycles
Leading market share position with top-tier mechanical distributors
Long history of market leading product performance, reliability, and breadth
Like-for-like replacement commonly exceeds 80%
Market leader with high margins & free cash flow
22
Strategy Level I
• Expand Total Addressable Market
• Balanced Sustainable Growth
Strategy Level II
• Proprietary M&A Cultivation
• Leverage Competitive Advantages
Strategy Level III
• Expand Foothold in Food Industry
• Acquire Leadership Position
Cambridge
• Heritage of Innovation, Customer Service
• Synergies Within Multiple Vectors
PMC Growth Initiatives Inorganic Portfolio Diversification - Example
Focus on proprietary acquisitions in attractive adjacencies
Launching Wave 1 in 2017
DiRXN™ for Industrial Solutions – Wave 1
• New! Digital Product Aids
• New! Digitally-Connected Products
• New! E-Commerce Capabilities
23
WAVE 1
Vision:
Set the industry standard for the most efficient and safe management of water & wastewater
with the greatest reliability and lowest total cost of ownership.
Target:
$15-billion global market opportunity
Water Management Platform
24
Water Management Reported Revenue ($mm)
source: Company reports
0
200
400
600
800
1,000
1,200
FY12 FY13 FY14 FY15 FY16
Divestitures
WM - Continuing
Water Management Adjusted EBITDA ($mm)
source: Company reports
17.3% 17.0% 16.4% 16.7% 20.3%
(50)
0
50
100
150
200
250
FY12 FY13 FY14 FY15 FY16
Divestitures
WM - Continuing
US nonresidential markets
account for ~50% of sales
Expanding specification
share expands
total addressable market
Water & wastewater
solutions sold primarily in
EAME, APAC markets
Regional manufacturing &
assembly capacity to
serve local markets
Multiple channels to market,
including direct sales in
global markets
Water efficiency & safety
drive retrofit demand
Water Management Profile
25
Water Management Major End Markets
26
Building Specification & Construction Cycle
27
Delivering value at each stage of building development
Zurn Competitive Differentiation
Ease of Design / Fit Aesthetics Function
Reduced cost/time Complexity reduction
Uptime Water efficiency
Lower cost of ownership
BIM models Design visualization tools
Web tools Solid surface integrated
wash basins
Lean Construction - Pre-fabrication
- Weight-reduced products - Pre-tagging
- Integrated bundles - Service Centers
- Single point accountability - Complete content package
Extended product life Water-saving fixtures
& plumbing - Paired fixture & carrier
LEED Certification
28
One Zurn Solutions maximize single-source in-building plumbing content
Zurn Owner Value Creation
Faucets:
Ceramic disc cartridge
$50 / faucet / year lower cost of ownership
Flush Valves:
Thermoplastic elastomers
$25 / valve / year lower cost of ownership
Carriers:
Optimized for low flow fixtures
50’ of line carry @ 1.1 gpf
Less clogging
29
VAG Profile
Powerful Family of Brands
GLOBAL PRESENCE
7 Production Sites • 10 Sales Entities
200 Agents • 130 Countries
30
Delivering value to global water infrastructure markets
VAG Long-Term Growth
Developed Economies:
Aging infrastructure
Environmental protection standards
Pressure on established water supply
Emerging Economies:
Urbanization & industrialization
Population growth
Rising water stress
Developing Economies:
Water scarcity
Inadequate wastewater treatment
Inadequate electrical power gen
31
Engineered solutions for long-term water supply issues
VAG Value Creation
Big Silver Creek
Hydropower Plant
British Columbia, Canada
Run-of-river power station located
near Canada’s southwestern coast
supplies 20,000 households with
electric power
CFD flow simulation of the system
40” VAG RIKO® Plunger Valves installation on site
VAG Value Creation:
Engineering Expertise • Computational Flow Dynamics (CFD)
• Optimal Solution Selection
Optimized System Design • Anti-cavitation cylinders
• Downstream venting equipment
• Orifice plates in downstream pipeline sections
• Hydraulic brake & lift units for fast actuation
32
Solution:
Turbine bypass valve used
in case of turbine failure
116-meter water column
pressure reduction
Two seconds to fully open
Cavitation-free operation
Problem:
Fast-action bypass valve needed
in case of turbine failure
High pressure drop
requirements
Limited space available
Cavitation-free operation
33
Non-GAAP Reconciliations
34
Non-GAAP Reconciliations
(1) During fiscal 2016, the Company announced its decision to exit the Rodney Hunt-Fontaine (“RHF”) flow control gate product line within its Water Management platform. The operating loss (excluding restructuring and related charges) is not included in Adjusted EBITDA in accordance with our credit agreement. RHF results have not been excluded for FY12-14.
(2) The loss on divestiture is the result of the Company's sale of a non-core subsidiary to a third party. (3) Represents restructuring costs comprised of work force reduction, lease termination, and other facility rationalization costs, including impairment charges. (4) Last-in first-out (LIFO) inventory adjustments are excluded in calculating Adjusted EBITDA as permitted by Rexnord’s credit agreement. (5) Other expense (income), net includes the impact of foreign currency transactions, sale of property, plant and equipment, other miscellaneous expenses and recovery under the Continued Dumping and
Subsidy Offset Act.
FYE March 31, FQE Dec 31,
US$ in millions 2012 2013 2014 2015 2016 2016
Net income from continuing operations $30.6 $47.3 $25.0 $91.8 $68.9 $1.7
Interest expense, net 176.2 153.3 109.1 87.9 91.4 22.9
Provision (benefit) for income taxes 6.5 15.4 (10.0) 16.8 17.1 (1.8)
Depreciation and amortization 112.7 110.9 106.9 112.2 115.4 25.8
EBITDA $326.0 $326.9 $231.0 $308.7 $292.8 $48.6
Adjustments to EBITDA:
Actuarial loss on pension and post retirement
benefit obligations $9.1 $5.5 $2.7 $59.4 $12.9 $—
Impact of RHF product line exit (1) — — — 8.9 21.3 4.8
Loss on divestiture(2) 6.4 — — — — —
Loss on extinguishment of debt 10.7 24.0 133.2 — — 7.8
Restructuring and other similar charges(3) 6.8 8.6 8.4 12.9 34.9 11.7
Stock-based compensation expense 3.7 7.1 7.0 6.4 7.5 3.8
Acquisition-related fair value adjustment 4.2 — 1.7 3.2 — —
LIFO expense (income)(4) 2.2 5.0 5.6 (1.7) (0.8) (0.1)
Zurn PEX loss contingency — 10.1 — — — —
Dividend expense — — — — — 1.5
Other expense (income), net(5) 7.1 2.9 15.1 7.2 (3.1) 0.7
Other non-cash adjustments — — — — — 0.4
Subtotal of adjustments to EBITDA 50.2 63.2 173.7 96.3 72.7 30.6
Adjusted EBITDA $376.2 $390.1 $404.7 $405.0 $365.5 $79.2
LTM Adjusted EBITDA $341.7
LTM pro forma adjustment for acquisitions 8.1
LTM pro Forma Adjusted EBITDA $349.8
35
Non-GAAP Reconciliations (Continued)
Q3 FY 2017 Q3 FY 2016
US$ in millions
(except per share amounts) Net Income EPS Net Income EPS
As reported, from continuing operations $1.7 $0.02 $24.4 $0.24
Amortization 8.6 0.08 14.6 0.14
Restructuring Expense 11.7 0.11 6.1 0.06
Supply Chain Optimization & Footprint
Repositioning Program (1) 3.8 0.04 1.1 0.01
Impact of RHF Product Line (2) 4.8 0.05 5.9 0.06
Loss on the extinguishment of debt 7.8 0.07 — —
All Other Non-Operating (3) 1.1 0.01 1.0 0.01
Tax Impacts on Adjustments (4) (13.6) (0.13) (10.1) (0.10)
As Adjusted $25.9 $0.25 $43.0 $0.42
(1) Represents accelerated depreciation associated with our strategic supply chain optimization and footprint repositioning initiatives. (2) Operating loss of RHF product line, excluding restructuring and other nonrecurring items. (3) Other income, net includes the impact of foreign currency transactions, sale of property, plant and equipment, and other miscellaneous income and expense. (4) The tax rates used to calculate adjusted net income and adjusted earnings per share are based on a transaction-specific basis at the applicable jurisdictional rate.
