CS US Multi-Industrial Analyst Presentation - July 2014 - Part 1 End Market Slides

8/11/2019 CS US Multi-Industrial Analyst Presentation - July 2014 - Part 1 End Market Slides

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US Electrical Equipment / Multi-IndustryA tougher climb than 2012 or 2013July, 2014

DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS.

FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its researchreports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investmentdecision.

US EE/MI Research Team

Julian Mitchell

+1 212 325 6668

[email protected]

Charles Clarke

+1 212 538 7095

[email protected]

Jonathan Shaffer

+1 212 325 1259

[email protected]
http://www.credit-suisse.com/http://www.credit-suisse.com/http://www.credit-suisse.com/http://www.credit-suisse.com/


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1

Table of Contents

Introduction Page 2

Where are we in the cycle? Page 23

End-market Analysis Page 39

Geographic Outlook Page 167

Margin Outlook Page 175

Key Risks Page 188

Company Sections Page 192

Appendix Page 439

Disclosures Page 447


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2

CS % CONSENSUS Market Cap

COMPANY RATING w/ BUY RATING USD (bn) 7/7/14 TP UPSIDE 14E 15E 14E 15E

ADT OP 46% $5.9 $34 $43 26% 17.2x 16.3x $1.95 $2.09 71.0Danaher N 81% $54.9 $79 $75 -4% 21.1x 19.6x $3.71 $4.00 210.0

Dover OP 59% $15.0 $90 $95 6% 18.9x 16.9x $4.77 $5.32 61.5

Emerson OP 40% $47.5 $68 $76 12% 17.5x 15.8x $3.76 $4.17 179.8

Eaton OP 75% $37.3 $78 $82 5% 16.9x 15.0x $4.63 $5.24 185.8

General Electric R 48% $268.2 $27 R NA 16.0x 15.3x $1.67 $1.75 653.4

Honeywell N 76% $73.9 $94 $104 10% 17.0x 15.4x $5.55 $6.14 226.3

Ingersoll-Rand OP 27% $16.8 $62 $70 12% 19.5x 15.5x $3.19 $4.02 121.6

Rockwell Automation N 36% $17.4 $125 $116 -7% 19.5x 17.7x $6.25 $6.96 68.8

Textron OP 50% $10.5 $38 $42 11% 18.5x 15.2x $2.04 $2.49 53.0

Tyco OP 55% $20.9 $45 $46 1% 21.8x 18.0x $1.96 $2.45 175.7

United Technologies OP 78% $105.5 $115 $135 17% 16.8x 15.3x $6.86 $7.52 347.1

Average 56% $56.2 8% 18.4x 16.3x 196.2Median 55% $37.3 9% 18.4x 15.8x 179.8

Allegion OP 56% $5.4 $56 $58 3% 23.5x 19.5x $2.38 $2.87 42.9

Constellium OP 91% $3.3 $31 $33 6% 15.0x 12.7x $2.12 $2.51 18.8

Cubic N 57% $1.2 $45 $51 13% 16.9x 15.1x $2.60 $2.91 5.7

Kennametal** N 31% $3.6 $46 $49 7% 15.0x 12.2x $2.94 $3.57 25.5

Luxfer OP 60% $0.5 $19 $23 20% 13.6x 11.9x $1.40 $1.61 0.5

Regal Beloit OP 53% $3.5 $77 $85 10% 16.7x 15.0x $4.61 $5.16 15.4

Rexnord OP 63% $2.9 $29 $31 8% 17.9x 16.0x $1.68 $1.84 36.9

SPX Corp N 50% $4.8 $110 $110 0% 20.5x 18.0x $5.38 $6.12 25.7

Valmont UP 31% $4.1 $153 $144 -6% 16.3x 15.3x $9.40 $9.99 45.9

Average 55% $3.3 7% 17.3x 15.1x 24.1Median 56% $3.5 7% 16.7x 15.1x 25.5

3D Systems N 64% $6.6 $60 $69 15% 76.2x 53.4x $0.79 $1.13 281.9

ExOne UP 27% $0.5 $38 $25 -34% - - ($0.60) ($0.16) 18.6

Stratasys OP 76% $5.6 $114 $134 18% 50.5x 37.9x $2.25 $2.99 128.9

Average 56% $4.3 0% 63.3x* 45.6x* 143.1

Median 64% $5.6 11% 63.3x 45.6x 128.9

Calendarized P/E

*Excluding ExOne

**Calendarized EPS

Large Cap

3D Printing

Avg Trading

volume (30D)

(US$ mn)

SMID Cap

PRICE P/E EPS

Valuations remain elevated

Large cap Year 1 P/E multiples of ~18X are 4 points higher than Jan 2013, 6 points higher than Jan 2012, and 2 points higher than Jan 2011

Our Top Picks within each category are highlighted in red

Source: Credit Suisse estimates


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Investment Summary - stocksTOP LARGE CAP PICKS:

IRClimate Tech margin guide is conservative; Scope for more 2H buy-back DOVLikely to beat and raise alongside Q2; significant EPS upside from M&A (MTW Food Equipment etc) UTXStock has lagged YTD but should beat FY guide; China / Aero sentiment may be at lows ETNScope for re-rating now that lawsuits are behind us and we look to 2015 valuations

TOP SMALL -MID CAP PICKS:

ALLEHigh Security exposure; margin expansion potential in Europe; tax rate to fall in 2015; M&A to step-up RXNM&A stepping up and balance sheet de-leveraging; WMC sales outlook improving

TOP ADDITIVE MANUFACTURING PICK:

SSYSmore constructive view of the pro-sumer / consumer 3D printing market

LARGE CAPS WHERE WE ARE MORE CAUTIOUS: DHR- M&A a challenge given valuations; break-up unlikely until new CEO is up and running HONCapital allocation approach is cautious; organic growth needs to catch up with peers to hit FY guidance

SMALL-MID CAPS WHERE WE ARE MORE CAUTIOUS:

KMTWeak FY15 guide likely; cash deployment takes a pause post-ATI Tungsten deal VMIAg still offers downside risk for 2014 guidance; Utility now de-risked following guidance cut in late June

CAUTIOUS IN ADDITIVE MANUFACTURING: XONE- Sand casting focus implies more narrow opportunity set, and a smaller share of high-margin materials


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Investment Summarythemes for 2014

Tax inversion:UK, Irish and Swiss corporate tax rates are 15-20% lower than in the US.IR, ALLE, PNR,TYC, Sulzer are therefore likely to remain a topic of discussion as potential targets for mergers / take-outs.weview JCI or UTX buying TYC and DOV merging with PNR or Sulzer as the most likely scenarios

Buildingsre-positioning / M&A likely to accelerate:As the non-resi cycle potentially picks up, and severallarge Buildings-related corporates look to do M&A / change their portfolios under new management we are likelyto see increased activity in M&AUTX and JCI in particular could be major movers here. As companies look toincrease their energy efficiency / buildings exposure, this will encourage a push into adjacent markets

Industrial Automation convergence to accelerate:2013 saw a major discrete automation player take a bigstep into the process automation market, with Schneider buying Invensys. It also represented a big step in'vertical' convergence, as Invensys' software capabilities were a key attraction for hardware-focused Schneider.

We think 2014 will see more examples of such convergence, with ROK, EMR, GE and HON in focussince Jan1 we have seen HON announce it is moving into process instrumentation (from controls), and EMR announce itis moving into discrete controls (from instrumentation)

Industrial Internet hype intensifies:As software penetration rises throughout industrial companies, so will theuse of data analytics and sensors in order to increase device connectivity among the customer base. This allowsfor increased revenue streams from 'software as a service', and helps lock in aftermarket business for the initialOE supplier. GE likely remains the most vociferous proselytizer heresince Jan 1 we have heard HON in

particular espouse the importance of software (over half its 22K engineers are software focused etc)

Increased competition in 3D printing / Additive manufacturingHP and Mitsubishi (metals) have alreadyannounced they intend to enter the market with printers in 2014, and more large conglomerates could follow. Wethink the consumer segment is at highest risk of price deflation as a result of more new entrants


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Sector End Market

Sell side

view Buy side view

Corporate

View

Our view on

scope to

surprise EE/MI Exposure

2014E

Appliances 4% = + = GE

Elevators / Escalators 6% + = + + UTX

Fire & Security 3% - - = + ADT, ALLE, HON, TYC, UTX, LXFR

HVAC 5% = - = + IR, UTX, EMR, HON, SPW, RBC

Low Voltage 4% = = + + GE, HON, ETN

Water Management 5% = - = DHR, GE, RXNOil & Gas Equipment 6% + = + GE, DOV, EMR, SPW

Power Grid Equipment 1% - - - GE, SPW, VMI

Thermal Power Equipment -2% - + - GE, SPW

Wind Power Equipment 19% + + + GE

Factory Automation 6% = = = - ROK, EMR, DHR, GE

Industrial Products 4% = = = IR, RXN, KMT, RBC, EMR, ROK

Process Automation 5% = - = EMR, HON, ROK, SPW

Test & Measurement 2% - - - DHR

Auto components 8% + + + HON, TXT, ETN, CSTM

Aerospace Engines 7% + - = GE, UTX, HON

Biz Jet 9% + + - TXT, HON, UTX, GE

Civil Aero AM 8% + = = UTX, GE, HON, ETNCivil Aero OE 9% + + = GE, HON, UTX, ETN, CSTM

Helicopters -6% - + TXT, UTX

Rail Loco's + Signalling 8% + + = GE

3D Printing 31% + - + + DDD, SSYS, XONE

Defense 0% - = - TXT, UTX, HON, GE, CUB

Healthcare 3% - = = DHR, GE

Network Power / Datacenter 2% - = EMR, ETN

Transport

Others

Sell-side end

market

growth

Buildings

Energy

Industry

1) End markets - Non-residential construction looks most attractive

We re-cut our End Market Summary Table to include Buy side and Corporate sentiment, whereas before we just looked explicitly atSell side sentiment

Buildings related markets remain the most likely to surprise

Generally, most end-markets remain pretty static with late 2013 trendsthe room for major surprises is fairly limited



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0%

10%

20%

30%

40%50%

60%

70%

80%

90%

100%

E

levators/Escalators

LowVoltage

WindPowerEquipment

Autocomponents

Oil&GasEquipment

Fire&Security

HVAC

FactoryAutomation

ProcessAutomation

AerospaceEngines

CivilAeroAM

CivilAeroOE

WaterManagement

Ra

ilLoco's+Signalling

IndustrialProducts

Appliances

Healthcare

NetworkPower/Datacenter

BizJet

PowerGridEquipment

Defense

Therm

alPowerEquipment

-15%

-10%

-5%

0%

5%

10%

15%

ThermalPow

erEquipment

WindPow

erEquipment

Autocomponents

3DPrinting

HVAC

Appliances

Fire&Security

Elevato

rs/Escalators

Healthcare

Test&

Measurement

Oil&G

asEquipment

Facto

ryAutomation

CivilAeroAM

Indu

strialProducts

WaterManagement

CivilAeroOE

BizJet

AerospaceEngines

LowVoltage

Defense

RailLoco

's+Signalling

Proce

ssAutomation

PowerG

ridEquipment

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

3DPrinting

WindP

owerEquipment

CivilAeroOE

BizJet

A

utocomponents

CivilAeroAM

RailLo

co's+Signalling

AerospaceEngines

Eleva

tors/Escalators

Oil&

GasEquipment

FactoryAutomation

HVAC

Wa

terManagement

Pro

cessAutomation

IndustrialProducts

LowVoltage

Appliances

Healthcare

Fire&Security

NetworkPo

wer/Datacenter

Test&Measurement

PowerGridEquipment

Defense

ThermalP

owerEquipment

Helicopters

We arrived at our summaries of Buy-side / Sell-side / Corporate sentiment by looking at data for 100+ companies

Drilling down into the expectations by end-market

Sell-side view (2014E sales growth) Buy-side view (3 Month share price momentum)

Corporate view (% of +ve commentary during Q114)

Source: Credit Suisse estimates, Company transcripts


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(a) Buy side expectations

Source: Credit Suisse estimates, Company data

Summary

1 Week 1 Month 3 Months 6 Months 1 Year 1 Week 1 Month 3 Months 6 Months 1 Year

Appliances 1.1% -0.6% 2.1% -10.9% -9.7% 0.7% -1.8% -0.3% 7.5% 24.8%

Elevators & Escalators 0.5% 0.7% 0.1% -6.7% -19.7% 0.2% 0.1% -3.0% -13.1% -8.9%

Fire & Security 1.6% 2.9% 1.5% 0.9% 10.0% 1.5% 2.9% 4.5% 5.5% 18.9%

HVAC 1.5% 5.1% 3.1% 0.2% 26.3% 1.0% 3.6% -1.6% 4.2% 33.6%

Low Voltage -2.4% -0.9% -5.1% 2.3% 4.0% -2.4% -1.5% -5.6% 10.3% 13.6%

Water Management -0.1% 4.7% -2.2% 0.3% 19.2% -0.1% 3.9% -2.0% 5.5% 20.7%

Resi Construction 0.3% 0.5% 0.3% -0.1% -1.0% 0.2% 0.3% 0.5% 0.7% 1.7%

Oil & Gas -1.1% 1.8% -1.3% -12.0% -16.6% -0.7% 4.2% 2.8% 16.6% 15.1%

Power Grid 1.5% -1.1% -11.8% -13.4% -8.0% 1.6% 1.8% -5.6% -4.5% 13.7%

Thermal Power Gen 1.5% 2.1% 10.7% 2.3% 0.8% 0.5% 1.3% 12.4% 16.2% 38.0%

Wind Power 1.4% -4.7% 9.8% 33.4% 141.4% 0.9% -10.5% -12.7% -3.7% -14.0%

Factory Automation 0.5% 1.3% -1.4% 1.1% 19.5% 0.6% 1.0% -1.8% 7.8% 25.2%

Industrial Products -0.1% -0.4% -1.9% -5.2% 8.2% 0.0% 0.0% 0.5% 3.0% 25.3%

Process Automation 0.7% -0.5% -11.5% -12.3% 8.9% 0.9% 0.9% 1.8% 4.1% 34.3%

Test & Measurement 0.7% 2.0% -1.3% -8.6% 6.3% 0.5% 1.3% -1.2% 3.6% 20.4%

Auto components 0.3% 2.6% 3.4% 16.4% 24.7% 0.6% 2.6% 0.8% 18.7% 16.5%

Aero Engines 1.9% -1.0% -4.2% -13.2% -13.2% 1.0% -2.8% -6.9% -6.0% -11.2%

Biz Jet -0.2% -3.0% -3.1% 6.1% 8.0% 0.1% -3.6% -1.0% 14.5% 31.2%

Civil Aero OE -0.4% -6.0% -1.7% -12.7% 6.7% -0.3% -5.9% -5.4% -6.7% 7.2%

Civil Aero AM 1.1% -2.7% -2.4% 0.9% 17.6% 1.5% -2.0% -1.7% 6.9% 24.8%Rail 2.2% 3.0% -9.5% -4.9% 15.6% 1.7% 4.3% -12.5% -12.3% 17.8%

3D Printing 8.7% 22.4% 3.2% -30.8% 17.1% 8.8% 8.1% -4.7% -8.0% 79.5%

Defense -2.2% -5.1% -8.1% -1.8% 25.8% -1.9% -4.7% -9.6% -1.9% 7.2%

Healthcare -0.1% 1.2% -0.3% 1.4% -1.9% 0.0% 1.3% 1.7% 8.2% 10.4%

Average

Price Momentum rel to local equity index P/E Momentum rel to local equity index


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Weights assigned to comps within the end markets

Companies we use to derive buy-side expectations proxy

Source: Credit Suisse estimates, Company data

Construction Power Automation

HVAC Thermal PG Factory Automation

Daikin 25% Alstom 20% Rockwell Automatio 50%

Ingersoll Rand 40% GE 20% Fanuc 15%

Lennox 35% BHEL 15% Keyence 5%Elevators & Escalators Shanghai Electric 15% Kuka 10%

Kone 50% Harbin Power 15% Cognex 3%

Schindler 50% Dongfang Electric 15% SMC 5%

Fire & Security Power Grid THK 5%

Assa Abloy 40% ABB 50% Yaskawa 7%

Allegion 10% Quanta Services 30% Industrial Products

Kaba 10% Prysmian 20% Rockwell 30%

Tyco 40% Wind Power Parker Hannifin 40%

Low Voltage Gamesa 25% SKF 30%

Eaton 30% Vestas 60% Process Automation

Legrand 25% Goldwind 15% ABB 40%

Hubbell 25% Oil & Gas Emerson 30%

Acuity 20% Schlumberger 40% Yokogawa 30%

Water Management Halliburton 25% Test & Measurement

Geberit 20% Cameron 10% Agilent 40%

Idex 10% Flowserve 5% National Instrument 25%

Mueller Water 15% Seadrill 5% Spectris 35%

Rexnord 15% Transocean 10%

Watts Water 20% Noble Corp 5%

Xylem 20%

US Resi Construction

DR Horton 25%

KB Homes 10%

Lennar 20%

NVR 15%

PulteGroup 20%

Toll Brothers 10%

Appliances

Electrolux 50%

Whirlpool 50%

Transport Others

Biz Jet Healthcare

Embraer 40% Carefusion 13%

General Dynamics 30% Hologic 9%Textron 30% Intuitive Srgcal 8%

Civil Aero OE Medtronic 60%

Boeing 70% Varian Med 10%

Precision Castpart 15% 3D Printing

Spirit Aero 15% 3D Systems 50%

Civil Aero AM ExOne 5%

BE Aerospace 50% Stratasys 45%

Heico Corp 20%

Transdigm 30%

Aero Engines

MTU 20%Rolls Royce 40%

Safran 40%

Defense

Lockheed Martin 50%

Northrop Grrumma 25%

Raytheon 25%

Automotive

Borg Warner 10%

Lear 20%

Magna 45%

TRW 25%Rail

Ansaldo 50%

China CNR 25%

China CSR 25%


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Scope to

End Market 14E Surprise Key Themes EE/MI Exposure

3D Printing 31% + Rising penetration; consumer taking off DDD, SSYS, XONEWind Power Generation 19% US adds rebounding; delays in Europe offshore GE

Civil Aero OE 9% Solid backlogs; few cancellations GE, HON, UTX, ETN, CSTM

Biz Jet 9% Solid demand for large jets; light jets still at the lows TXT, HON, UTX, GE

Civil Aero AM 8% Growth rates likely to slow sharply in 2H due to 'comps' UTX, GE, HON, ETN

Auto components 8% US good, China rebounding, Europe down significantly HON, TXT, ETN, CSTM

Rail Loco's + Signalling 8% Growth mostly in Asia - market dominated by local players GE

Aerospace Engines 7% Comm'l spares up 10%, OE ramping on new engines GE, UTX

Oil & Gas Equipment 6% US onshore pick up likely to continue; globally some project delays GE, DOV, EMR, SPW

Elevators / Escalators 6% + US picking up, China solid; Europe AM at trough UTXFactory Automation 6% - Strong current trends likely tough to sustain in DM ROK, EMR, DHRWater Management 5% Municipal risk in U.S. and Europe; strong EM DHR, GE,RXN

HVAC 5% + Europe accelerating; US institutional likely to grow in 2H IR, UTX, EMR, HON, SPW, RBCProcess Automation 5% US AM is picking up; Food and Beverage remains strong EMR, HON, ROK, SPW

Appliances 4% More positive US outlook; Europe soft GE

Industrial Products 4% Return to growth in Europe; China uneven given over-capacity IR, RXN, KMT, RBC

Low Voltage 4% + Better global trends on rail, construction GE, HON, ETNHealthcare 3% Strong emerging markets; very weak Europe, slowing US DHR, GE

Fire & Security 3% + Ret rof it demand d ri ving mod erate growth ADT, HON, IR, TYC, UTX, LXF RTest & Measurement 2% Low capacity utilization should mute demand recovery DHR

Network Power 2% US large DCs remain weak; Europe uneven recovery EMR, ETN

Power Grid Equipment 1% US recovery is soft; sharper rebound in China GE, SPW, VMI

Defense 0% Slight declines remain the most likely scenario in the US TXT, UTX, HON, GE, CUB

Thermal Power Generation -2% US gas recovery very muted; Europe gas shrinking GE, SPW

Helicopters -6% Civil orders are strong; flattish military outlook TXT, UTX

Transport 6%

Energy 6%

Industry 4%

Buildings 4%

Others 2%

Median 5%

Overall Average 6%

Sell-side

consensus

Organic

Growth

Bullish

Neutral

Bearish

(b) Sell-side expectations

Summary

Organic growth: A function of the aggregated forecasts, which, given the number of different analysts andcompanies covered, we think offers a good proxy for consensus expectations.

Consensus: Based on the growth rate expectations for 2014, we then bucket the end -markets into whether

the consensus opinion appears bullish (high growth expected), or bearish (low growth expected), orsomewhere around the overall average growth rate (neutral consensus view).

Scope to surprise: our view of whether the figures in the organic growth column look overly optimistic oroverly pessimistic


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(c)Corporate expectations

Source: Company data, Credit Suisse estimates

2014 CS growth estimates vs % of corporate commentary deemed positive

% of Positive Commentary by End Market

BuildingsIndustry

Transportation

Defense

Healthcare

Oil & GasEquipment

Power GridEquipment

Thermal PowerGeneration

Wind PowerGeneration

-10%

-5%

0%

5%

10%

15%

20%

0% 20% 40% 60% 80% 100%

CS2014

ConsensusGrowthEstimate

forSector

Percent of corporate commentary deemed positive

61%

22%

31%

57%

40%

30%

70%

50%

39%

83%

44% 45%

22%

80%

11%

40%

32%

41%

92%

75%

36%

22%

33%

11%

91%

54%

42%

78% 78%

53%

0%

75%

44%

75%

42%

50%

100%

91%

65%

0%

60%61%

78%

53%

60%

90%

100%

86%

0%

60%63%

88%

65%69%

80%

100%

79%

25%

50%

77%

87%

58%

69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

PositiveCommentary(%oftotalcommentary)

Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014


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(2) Self-help opportunities remain significant


We highlight in bold the companies where we think self-help opportunities are highest in 2014

Company Cost-cutting Take-out potential Portfolio change / M&A Capital returns Activist ownership Overall

3D Systems Low Medium High Low Medium

ADT Low Medium High High HighAllegion High High Medium Low 6.3% High

Constellium High Low Low Low Medium

Cubic High Medium Medium Low Medium

Danaher Medium Low High Low High

Dover Medium Low High Medium Medium

Eaton High Low High Medium High

Emerson Low Low Low Medium Low

ExOne Low Medium Medium Low Low

General Electric High Low High High High

Honeywell Medium Low Low Medium Low

Ingersoll Rand High Medium Low High 6.7% High

Kennametal Medium Medium Medium Low Medium

Luxfer Medium Low High Medium Medium

Regal Beloit High Medium High Low Medium

Rexnord Medium Medium High Medium Medium

Rockwell Automation Low Medium Low Low Low

SPX Corporation High High High High 15.5% High

Stratasys Low Medium High Low Medium

Textron High Medium High Low High

Tyco High Medium High Medium High

United Technologies Medium Low Low Medium Medium

Valmont Industries Low Low High Low Low


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Cost-cutting efforts

Helped by significant restructuring activity in 2013

A relatively small share of ETN and TYC EPS growth in 2014accrues from organic sales growth, which is a positive, given how

weak sector sales growth has been since 2011

2014 should be another year of 60+bps of operatingmargin expansion, led by IR, ETN, UTX, TYC


0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%1.40%

1.60%

1.80%

HON

Tyco

GE(M)

UTX

Eaton IR

DHR

Emerson

Dover

TXT

ROK

Restructuringcost/Sales

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

IR

Eaton

Tyco

Danaher

ROK

UTX

Textron

Emerson

HON

GE(M)

Dover

ADT

2014MarginExpansion(bps

)

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

GE (M) ADT Textron ROK Eaton IR Emerson HON UTX Dover Danaher Tyco

OrganiccontributioninEPSgrowth


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0%

2%

4%

6%

8%

10%

12%

SPW IR DOV GE ROK HON EMR TYC UTX

Buyback%o

fmarketcap

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

-4.0x

-3.0x

-2.0x

-1.0x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

RXN

ETN

ALLE

KMT

ADT

UTX

SPW

DOV

RBC

LXFR

TYC

CSTM

EMR

DHR IR

HON

ROK

VMI

CUB

DDD

SSYS

NetDebttoEBITDA(2013E)

Capital returns


GE, EMR, UTX offer the highest dividend yields at present Share buy-backs in 2014 as % of Market Cap

RXN, ETN and ALLE have higher leverage than most, but also someof the most active strategies for capital deployment in the sector


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We think investors should discount FCF for dilution costs

FCF overstates what can actually be invested for the benefit of investors

On average, it costs EE/MI companies ~11% of their FCF to hold share count flat YoY

For some companies, ~30%+ of FCF is needed, for others only ~5% of FCF is needed

% of Net Income EE/MI Average

Free Cash Flow Conversion 102%

Cost to Offset Dilution 11%

FCF Available for M&A, Share Count Reduction, Dividends 91%

100%

120%

100% 100%

110%

100% 100% 100% 100% 100% 100%

105%

100% 100% 100%

87%

111%

92% 92%

105%

89%85%

94% 95% 95%

88%

73%

85% 84%

95%

60%

70%

80%

90%

100%

110%

120%

130%

ALLE DHR DOV EMR ETN HON IR KMT RBC RXN ROK SPW TYC UTX VMI

Normalized FCF Conversion Normalized FCF Conversion less Dilution Costs


16/220

15

Particularly when building FCF reinvest scenarios

Example: Honeywell FCF reinvestment scenario

If we assume a flat share count for HON over 2015-2017, and dont account for dilution costs, we will overestimateavailable FCF for reinvestment by almost 20%

HON Reinvestment Scenario 2014E 2015E 2016E 2017E

Net Income 4,423 4,891 5,394 5,893

Diluted Shares 797 797 797 797 Assuming flat share count over 2015-2017

EPS 5.55 6.14 6.77 7.40

FCF Reinvestment Bridge (%)

FCF (% of Net Income) 100% 100% 100% 100%

Dividend Payout Ratio (% of Net Income) -34% -34% -34% -34%

Cost to Offset Dilution (% of Net Income)** -11% -11% -11% -11% Will cost HON ~11% of Net Income

Reinvestable FCF (% of Net Income) 55% 55% 55% 55%

FCF Reinvestment Bridge ($)

FCF (Normalized) 4,423 4,891 5,394 5,893

Dividend Payout -1,504 -1,663 -1,834 -2,004Cost to Offset Dilution** -487 -538 -593 -648

Reinvestable FCF 2,433 2,690 2,966 3,241

FCF to invest over 2015-2018 (not accounting for flat share count) 13,597

FCF to invest over 2015-2018 (account ing for f lat share count) 11,331

Difference -17% Failing to account for dilution costs can overstate FCF to invest

Who has the highest FCF conversion after dilution costs?

DHR, ETN, RXN

Who has the most potential earnings upside from FCF deployment?

ALLE, DHR, RBC, RXN, VMI


17/220

16

Substantial Portfolio change / M&A opportunities


Company Portfolio change / M&A Comment

3D Systems High Equity issued recently to undertake more M&A

ADT High M&A recently started; clear commitment to do more

Allegion Medium Slow start, but M&A will pick up rapidly per Assa strategy

Constellium Low Focus on internal cost-execution, profitability

Cubic Medium Net cash; scope for a split up of the two businesses

Danaher High $8bn available to spend; 200+ deals in pipeline

Dover High Spin off of Knowles Q114; potential for deals in Fluid Solutions

Eaton High Potential to spin non-Electrical assets; M&A resumes 2H14

Emerson Low Two thirds of '14 $1.5bn M&A placeholder now used up

ExOne High Equity issued recently to undertake more M&A

General Electric High Spinning part of PLCC; M&A focused on Industrial assets

Honeywell Low $1bn M&A placeholder for '14

Ingersoll Rand Low Spin-off of ALLE now completed; limited M&A likelyKennametal Medium Focus on integration of ATI Tungsten business

Luxfer Low Focus on organic growth of cylinders

Regal Beloit High Equity issued late '12; only 1 M&A deal undertaken since

Rexnord High ~$200m annual M&A targeted; several deals underway in recent months

Rockwell Automation Low M&A to remain fairly limited

SPX Corporation High Large divestments in '13; more likely in '14 (Industrial)

Stratasys High Equity issued recently to undertake more M&A

Textron High Beechcraft deal announced; to close in 1H14

Tyco High M&A picking upUnited Technologies Low $1bn M&A placeholder for '14

Valmont Industries High Net cash position; sluggish organic EPS growth in '14 may drive deals


18/220

17

Source: Company data, Credit Suisse Research

(3) What happens when interest rates rise? The sector historically has performed fairly well

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

0%

10%

20%

30%

40%

50%

60%

70%

Sep-81 May-84 Oct-87 Nov-94 Jan-00 Jun-07 Dec-09 Sep-13

Nov-76 Jan-83 Apr-86 Sep-93 Oct-98 Jun-03 Dec-08 May-12

EE/MI price performance rel to S&P over rising interest rates period

Rise in US Generic Govt 10 Year Yield during the period (RHS)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

May-04 May-06 Apr-10 Apr-11 Mar-13 Sep-13

Jul-03 Jun-05 Dec-08 Aug-10 Sep-11 Jun-13

EE/MI price performance rel to S&P over rising 5y 5y breakeven inflation rate

Change in 5y 5y breakeven inflation rate during the same period (RHS)

Comps used: DHR, DOV, EMR, GE, HON, ROK, TYC, UTX, ETN, IR, TXT


19/220

18

0.0X

2.0X

4.0X

6.0X

8.0X

10.0X

12.0X

14.0X

ALLE

ETN

TYC

ROK

DHR

EMR

UTX IR

KMT

RXN

DOV

SPW

HON

CUB

TXT

RBC

CSTM

VMI

LXFR

ADT

(4) Valuation / sentiment

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

D

HR

UTX

D

DD

CS

TM

SS

YS

ETN

H

ON

D

OV

ADT

GE

LXFR

S

PW

TXT

C

UB

XO

NE

TYC

R

BC

VMI

K

MT

ALLE

E

MR

R

OK

R

XN IR

PEG Ratio (2015E P/E/ 13-15 EPS CAGR)

Source: Credit Suisse estimates, Bloomberg

Where can expectations change? We have Buy ratings on the twoEE/MI stocks with the lowest % of sell-side Buy ratings

2014E EV/EBITDA multiples

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

ADT

CUB

DHR

DOV

EMR

ETN

GE(m)

HON IR

KMT

LXFR

RBC

RXN

ROK

SPW

TXT

TYC

UTX

VMI

Dec'13 Organic Grpwth FY14 Organic Growth

Organic sales growth assumptions for 2014,relative to Q413 exit-rates, do not look aggressive

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

5.0x

GE

R

BC

D

HR

D

DD

R

OK

A

DT

D

OV

U

TX

E

MR

SS

YS

H

ON

ALLE

T

YC

LX

FR

E

TN

SPW

T

XT IR

R

XN

K

MT

C

UB


20/220

19

ADT

DOV

EMR

ETN

GE

HON IR

ROK

TXT

TYC

UTX

12.0x

13.0x

14.0x

15.0x

16.0x

17.0x

18.0x

19.0x

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

2015CP/E

EPS CAGR (2013-15E)

Valuation multiples vs earnings growth outlook


Small & Mid Cap

2015 P/E against EPS growth (14-15)

Large Cap

2015 P/E against EPS growth (14-15)

We rate IR, TXT andETN Outperform

ALLE

KMTLXFR

RBC RXNSPW

VMI

DDD

SSYS

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

50.0x

55.0x

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

2015CP/E

EPS CAGR (2013-15E)


21/220

20

Price performance likely hampered by slowing orders momentum

End Market Orders Growth vs. US EE/MI shareprice performance

Delta of End Market Orders Minus Sales vs. USEE/MI share price performance

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

-10%

0%

10%

20%

30%

40%

50%

Mar-11 Ju l-11 Nov-11 Mar-12 Ju l-12 Nov-12 Mar-13 Ju l-13 Nov-13 Mar-14 Ju l-14

Avg quarterly price (YoY%) End Market Orders Growth (RHS) (Average)

Correlation: 64%

Comps used for share price performance DHR, DOV, EMR, ETN, GE,HON, IR, ROK, TYC, UTX

Comps used for share price performance DHR, DOV, EMR, ETN, GE,HON, IR, ROK, TYC, UTX

-15%

-10%

-5%

0%

5%

10%

15%

20%

-10%

0%

10%

20%

30%

40%

50%

Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul -13 Nov-13 Mar-14 Jul -14

Avg quarterly price (YoY%) Delta (Orders-Sales)

Correlation: 75%


22/220

21

Valuation criteria

Source: Factset, CS Estimates

EE/MINTM P/E Multiple EE/MINTM P/E Multiple relative to the S&P

EE/MINTM P/E Multiple relative to ISM Orders -Inventories

6x

8x

10x

12x

14x

16x

18x

20x

22x

Jul -0 4 Ju l- 05 Jul -06 Jul -07 Jul -08 Ju l- 09 Jul- 10 Jul -1 1 Ju l-1 2 Jul -13 Ju l- 14

EE/MI NTM P/E

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Q22003

Q22004

Q22005

Q22006

Q22007

Q22008

Q22009

Q22010

Q22011

Q22012

Q22013

Q22014

-20

-15

-10

-5

0

5

10

15

20

25

30

35

5

7

9

11

13

15

17

19

21

23

Jul-04 Jul-06 Jul-08 Jul-10 Jul-12 Jul-14

EE/MI NTM PE US ISM New Orders-Inventories Spread (RHS)


23/220

22

Valuation criteria

2014 EV/Sales vs. EBIT Margin Estimate2009 EPS Decline vs. 2011 Performance

VMI

UTX TYC

TXT

SPWROK

KMT

IR

HON

GE

GDI

EMR

DOV

DHR

CBE

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

-35% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15%

2011 Performance

2009EPS

Decline

2014 EV/EBITDA relative to trailing two year average 2014 P/E relative to trailing two year average

ADT

ALLE

CSTMCUB

DHR

DOVEMRETNHON

IR KMT

LXFR

RBC

RXN ROK

SPWTXT

TYCUTX

VMI

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

5% 10% 15% 20% 25%

EV/Sales(2014E)

2014E EBIT Margin

-15%

-10%

-5%

0%

5%

10%

15%20%

25%

30%

35%

40%

TYC

KMT

ETN

ROKIR

HON

RXN

EMR

DOV

TXT

DHR

UTX

RBC

VMI

CUB

SPW

ADT -15%

-5%

5%

15%

25%

35%

45%

TXT

TYC

D

OV

S

PW IR

ETN

R

OK

K

MT

D

HR

R

BC

VMI

H

ON

GE

E

MR

UTX

R

XN

C

UB

ADT


24/220

23

EE/MI Key Company Annual Metrics

Ticker 2012 2013 2014E 2015E 2012 2013 2014E 2015E 2012 2013 2014E 2015E

ADT 5% 5% 3% 6% 23% 23% 22% 22% 5% 7% 4% 6%

ALLE 3% 4% 4% 4% 19% 18% 19% 20% NM -10% 12% 21%

CSTM 2% -3% 0% 4% 6% 7% 8% 9% NM NM 14% 18%

CUB 5% -5% -3% 3% 10% 3% 7% 8% 13% -74% 177% 12%

DHR 3% 3% 3% 4% 17% 17% 18% 19% 14% 6% 9% 8%

DOV 6% 2% 4% 4% 16% 16% 17% 17% 11% 19% 10% 11%

EMR 3% 2% 4% 5% 14% 14% 16% 17% 5% 5% 5% 10%

ETN 0% 0% 4% 4% 9% 10% 11% 12% -1% 5% 14% 11%

GE (M) 8% -1% 5% 5% 15% 16% 16% 17% 9% 9% 2% 5%

HON 3% 2% 3% 5% 12% 15% 17% 17% 11% 11% 12% 11%

IR 2% 3% 4% 5% 8% 10% 11% 12% 22% 4% 20% 26%KMT* 10% -9% 2% 5% 15% 11% 11% 12% -18% -21% 21% 21%

LXFR 7% 4% 2% 6% 13% 12% 12% 13% NM -10% -5% 15%

RBC -7% -2% 2% 4% 10% 9% 10% 11% 0% -8% 3% 17%

RXN 0% 3% 5% 4% 13% 13% 15% 16% NM 42% 21% 10%

ROK 6% 2% 5% 4% 17% 18% 19% 19% 8% 8% 9% 12%

SPW 3% -2% 3% 4% 8% 8% 9% 10% -56% 183% 24% 14%

TXT 8% -1% 9% 0% 8% 7% 7% 8% 51% -11% 17% 22%

TYC 2% 1% 2% 4% 7% 7% 8% 12% 38% 1% 20% 25%

UTX 0% 1% 5% 6% 13% 14% 16% 16% -3% 16% 10% 10%

VMI 14% 7% -2% 2% 13% 14% 12% 13% 43% 25% -14% 6%

AVG 4% 1% 3% 4% 13% 12% 13% 14% 9% 10% 18% 14%

Median 3% 2% 3% 4% 13% 13% 12% 13% 9% 5% 12% 12%

* EPS growth is calendarized

Organic Sales Growth EBIT Margin EPS Growth


25/220

24

2014

MAR JUN SEP DEC MAR JUN SEP DEC MAR

ADT - - - - 64% - 9% 40% -

ALLE - - - - - - - - -

CSTM - - - - - 1% 64% - 3%

CUB - 1% 16% - 17% 46% - - -

DHR 15% 16% - 30% 8% 27% 28% 26% 27%

DOV 19% 8% 42% 12% - - - - -

EMR - 88% - 45% 2% - - - -

ETN 31% - 21% - 5% 10% 11% 18% 92%

GE (M) 10% 11% 24% 49% 25% - 63% 34% 18%

HON 24% 55% - 61% - 26% 46% 21% 25%

IR 75% 77% - - - 18% 35% - 42%

KMT 12% - - - 69% 40% 58% - 11%

LXFR 19% - 42% 31% 41% - 9% - -

RBC 10% 27% 19% 72% 8% 51% 25% - -

RXN 13% - 10% - - 40% 43% 46% 40%

ROK 20% 55% - - - 20% 47% 54% 27%

SPW - - - 1% - - - - -

TXT 23% 22% - 13% - 58% 91% 17% -

TYC 31% - 9% - - - - 81% -

UTX 3% - - 3% 15% 16% 85% - 59%

VMI 25% 29% 32% 55% 32% 55% 35% 42% 41%

Median 19% 27% 21% 31% 17% 27% 43% 37% 27%

2012 2013

EE/MI Key Company Quarterly MetricsIncremental Operating MarginsQuarterly organic sales growth

EE/MI Average Working cap to Sales EE/MI y-o-y organic sales growth

2014

MAR JUN SEP DEC MAR JUN SEP DEC MAR

ADT 6% 5% 5% 5% 5% 4% 5% 4% 2%

ALLE 4% 3%

CSTM - - - - -3% -6% -3% -1% 6%

CUB -3% 14% 5% -2% 6% -10% -9% -10% -7%

DHR 2% 4% 1% 4% 1% 3% 3% 4% 4%

DOV 9% 3% 1% 2% -1% 5% 3% 5% 4%

EMR 2% 6% 5% 6% 2% -1% 1% 3% 2%

ETN 4% 3% -2% -6% -5% -2% 3% 4% 5%

GE (M) 11% 10% 8% 4% -6% -1% 1% 4% 8%

HON 6% 4% 2% 1% -1% 1% 1% 5% 1%

IR 4% -10% 1% 0% -1% 3% 4% 6% 4%

KMT 11% 2% -7% -10% -11% -8% -2% 2% 4%

LXFR 14% 5% -2% 10% 0% 5% 8% 2% 1%

RBC -8% -4% -7% -10% -4% -5% -1% 1% 1%

RXN 10% -1% 2% -2% 1% 3% 3% 4% 6%

ROK 7% 7% 5% 2% -2% 4% 3% 7% 7%

SPW 7% 3% -1% 2% 0% -1% -2% -3% -2%

TXT 15% 12% 6% 3% 0% -6% -3% 4% -5%

TYC 7% 5% 1% 2% 2% 0% 1% 1% 2%

UTX 1% 1% -2% 0% -2% 0% 1% 5% 5%

VMI 26% 16% 9% 7% 12% 12% 5% 0% -7%

Median 7% 4% 1% 2% -1% 0% 1% 4% 3%

20132012

5%

7%

9%

11%

13%

15%

17%

19%

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Mar-12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-14


26/220

M&A M l i l


27/220

26

M&A Multiples

Source: Company data, Credit Suisse Research, Bloomberg, Reuters

EV/TTM or EV/Last FY EV/NTM or EV/Next FY

Announce Date Acquiror Target Sales EBITDA

EBITA or

EBIT Sales EBITDA EBITA or EBIT

2-Jun-14 Halma RCS 2.4 - 10.0 - - - $116

8-May-14 Shanghai Electric Ansaldo Energia (40% stake) 0.8 8.3 - - - - $555

28-Apr-14 Bel ABB (Power One- Power solutions) 0.5 - - - - - $117

16-Apr-14 Johnson Controls Air Distribution Technologies - - - 1.7 13.5 18.8 $1,600

16-Apr-14 Triton Group GEA Group (Heat Exchangers) 0.9 8.2 - - - - $1,800

1 5- Ap r- 14 Ze br a Te ch no lo gi es M ot or ol a S ol ut io ns ( En te rp ri se D iv is io n) 1 .4 10.9 - - - - $3,450

7-Apr-14 Alfa Laval Frank Mohn 4.1 - 20.6 - - - $2,170

4-Apr-14 Blackstone Gates Global 1.8 9.6 12.6 - - - $5,400

1-Apr-14 Triton Alstom (Heat Exchanger unit) 1.7 - 16.9 - - - $1,000

3-Mar-14 Carlyle Group Tyco (ADT Korea) 3.4 11.4 - 3.2 10.7 - $1,930

19-Feb-14 Clayton, Dubilier & Rice Ashland (Water Tech) - 7.5 - - - - $1,800

5-Feb-14 Sun European Partners Invensys Appliance 0.5 - 18.8 - - - $240

20-Jan-14 GE Cameron ( high-speed gas processing unit) 1.5 - - - - - $550

20-Jan-14 Safran Eaton (Aerospace) 2.6 19.0 - - - - $270

13-Jan-14 AMEC Foster Wheeler (FWLT) - - - - 9.9 - $3,200

6-Jan-14 GE TMO (Cell culture, gene moduln, magnetic bead 4.2 14.0 - - - - $1,060

6-Jan-14 B/E Aerospace LT Energy Services, Wildcat Wireline 2.1 - - - - - $265

26-Dec-13 Textron Beechcraft Corporation 0.8 6.9 - - - - $1,400

10-Dec-13 Flowserve Innovative Mag-Drive - - - - - - ---

9-Dec-13 Volvo Construction Equip T erex (Hauler business) 0.7 - 16.8 - - - $160

4-Dec-13 Emerson EGS Electric (SPX Corp) 2.4 11.8 13.1 - 11.5 - $571

3-Dec-13 Johnson Controls Hitachi Appliances (Global AC) - - - - - - ---

31-Oct-13 Sentinel Capital Actuant (Electrical Segment) 0.9 - 7.6 - - - $258

16-Oct-13 Marmon Group IMI (Merchandising, Beverage Dispense) - - - 1.3 - 8.9 $1,100

10-Oct-13 KKR Melrose ( Crosby & Acco) - 10.0 10.7 - - - $1,000

1-Oct-13 Assa Abloy Ameristar - - - - - 13.6 $171

26-Sep-13 Nidec Mitsubishi Materials CMI Corporation - - - - - - $102

24-Sep-13 Emerson Virgo Valves and Controls 1.6 8.4 - - - - $450

16-Sep-13 Kennametal ATI Tungsten Materials 1.8 7.2 - - - - $605

10-Sep-13 Toshiba Vijai - - - - - - $200

5-Sep-13 SKF Kaydon 2.7 16.1 22.1 2 .3 11.5 14.5 $1,250

19-Aug-13 Atlas Copco Edwards Group 1.7 8.8 12.8 1.6 7.2 9.2 $1,600

14-Aug-13 B/E Aerospace Blue Dot 1.4 $75

11-Aug-13 Rockwell Collins ARINC - - - 2.3 - - $1,390

6-Aug -1 3 Platin um Equ ity Eme rs on (Ebedd ed Com putin g & Po we r Bi z.) 0.4 - - - - - $300

31-Jul-13 Schneider Invensys 1.8 16.8 25.1 1 .30 12.3 13.7 $5,200

30-Jul-13 ABB Ring Motors (Alstom) - - - - - - ---

28-Jun-13 Lixil Corporation American Standard - 10.3 - - 13.0 - $54220-Jun-13 Carlyle Group Marelli Motori (Melrose) 1.4 - 11.2 - - - $281

1-May-13 Tyman PLC Truth Hardware (Melrose) 1.6 8.9 - - - - $200

23-Apr-13 Honeywell RAE Systems 3.2 - - - 13.0 - $340

22-Apr-13 ABB Power-One 1.0 7.7 9.3 - - - $1,000

17-Apr-13 Roper Managed Health Care Associates - - - - 10.5 - $1,000

8-Apr-13 General Electric Lufkin 2.6 16.9 21.7 2 .3 13.5 17.1 $3,300

28-Mar-13 Schneider TM Samara - - - - - - $340

5-Mar-13 KKR Gardner Denver 1.6 7.9 9.3 1.6 8.6 9.9 $3,740

20-Feb-13 Weir Group R Wales, Cheong foundry, Xmeco foundry - - - - - - $83

21-Dec-12 General Electric Avio (Aviation Business) 1.8 9.8 13.0 - 8.5 - $4,300

20-Dec-12 Weir Group Mathena - - - - 5.0 - $240

19-Dec-12 Heraeus Holding Spectris (Fusion UV division) - - 13.2 - - - $172

12-Dec-12 Mitsubishi Heavy Ind United Technologies Corp (PWPS) 0.9 6.1 7.1 - - - $600

30-Nov-12 Dover Anthony International 1.9 - 16.0 - - - $603

29-Nov-12 Siemens Invensys (Rail) 2.3 - 15.0 - - - $2,780

16-Oct-12 ITT Corp Bornemann Pumps - - - 1.8 - - $267

16-Oct-12 Safran Goodrich Electric Power Systems - - - 2.0 - - $400

16-Oct-12 Bodycote Bluewaters - - - 2.0 - 8.0 $68

10-Oct-12 Bain Capital Apex Tool 1.1 7.1 - - - - $1,600

9-Oct-12 Spectrum Stanley Black & Decker (HHI) 1.4 7.5 - - - - $1,400

1-Oct-12 Honeywell Thomas Russell - - - 1.7 6.0 - $525

17-Sep-12 Danaher Corporation IRIS International, Inc. 2.8 28.1 - 2.6 10.5 13.0 $338

28-Aug-12 Daikin Industries Ltd Goodman Global 1.9 10.5 12.3 1.8 10.1 11.8 $3,700

1 6- Au g- 12 C la yt on , D ub il ie r & R ic e D ec ora ti ve S ur fa ce s( 51 %) -I TW u ni t 1 .9 - 15.6 $1,0509-Aug-12 National Oilwell Varco Robbins & Myers 2.4 - 9.3 2.3 8.7 $2,500

8-Aug-12 Platinum Equity Clipper Windpower (UTX) - - - - - - ---

30-Jul-12 Roper Sunquest - - - - 10.1 14.2 $1,415

25-Jul-12 BC Partners&Carlyle Milton Roy, Sullair (UTX) 1.8 9.5 - - - - $3,460

23-Jul-12 GenCorp Inc RocketDyne unit (UTX) 1.8 9.5 - - - - $550

5-Jul-12 GKN Volvo Aero 1.4 - - - - - $1,000

18-Jun-12 Melrose Elster - - - 1.2 8.4 - $2,300

21-May-12 Eaton Cooper Industries 2.1 12.9 15.3 2.0 12.0 12.6 $11,800

15-May-12 GE Industrea Ltd 1.8 5.5 8.8 1.6 4.5 6.6 $690

15-May-12 GE Fairchild International - - - - - - NA

10-May-12 Platinum Equity Caterpillar Logistics Services - - - - - - $750

8-May-12 General Electric China XD (15% stake) - - - 1.8 30.2 - $535

26-Apr-12 Ametek Dunkermotoren - - - 1.7 - $250

25-Apr-12 Dover Production Control Services 2.4 - - - - - $220

10-Apr-12 Danaher X-Rite 2.5 10.0 11.5 2.6 10.3 - $625

10-Apr-12 Cobham Thrane & Thrane 2.3 - 14.8 - $428

2-Apr-12 Bodycote Curtis Wright HT 1.4 - 6.2 1.4 - 6.8 $52

20-Mar-12 Siemens Connectors & Measurements, Expro Holdings 5.2 - - - - - $620

19-Mar-12 Amazon Kiva Systems - - - - - - $775

10-Feb-12 Dover Maag Group 1.6 9.3 12.6 $290

30-Jan-12 ABB Thomas & Betts 1.7 11.1 14.6 - - 13.6 $3,857

30-Jan-12 Siemens RuggedCom Inc. - - - - - - $383

30-Jan-12 Sany Heavy Putzmeister 0.6 - - - - - $475

25-Jan-12 Weir Novatech 2.8 7.0 - - - - $176

24-Jan-12 Robert Bosch SPX- Service Solutions - 12.7 - 1.2 - - $1,150

17-Jan-12 Kennametal Deloro Stellite 1.3 8.0 - - - - $354

Announced Deal

Value (USD mn)

I t f Y d i ti


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27

Impact of Yen depreciation

Global Overseas Domestic

Sub-sector Company market share sales exposure production ratio North America Europe South Korea China Taiwan Domestic

Nabtesco 40-60% 45% 80% Parker HannifinMOOG KNOWR, KONGSBERG, BOSCH, BESAM

SMC 31 60% 90% Parker Hannifin, Sauer Danfoss FESTO, IMI AIRTAC CKD

THK 55% 40% 75% INA-Schaefller, Rexroth SBC Nanjing Technical Equipment HIWIN NSK, NIPPON THOMPSON

Yaskawa Electric 20% 53% 70% KUKA, ABB, Siemens DELTA Fanuc, Mitsubishi Electric

Keyence 90% 37% 100% Omron, Mitsubishi Electric

Komatsu 20% 85% 55% Caterpillar DEERE VolvoLiebherr Doosan, Hyundai Sany, Lonking HCM, Kobelco

HCM below 20% 75% below 50% Caterpillar VolvoLiebherr Doosan, Hyundai Sany, Lonking Komatsu, KobelcoDaikin 40-50% 60% 25-30% Carrier (UTX), York (JCI, Trane (IR) Danfoss Samsung, LG Gree, Midea, Haier Panasonic, Mitsubishi Electri

Ebara 5-10% 50% 70% Flowserve Sulzer, KSB

Kubota 15% 50% 50-60% Duetz-Fahr Daedong tractor First tractor, Foton tractors Yanmar, Iseki

Makita 20% 80% 10% SWK, TTI (HongKong) Bosch Dongcheng Hitachi Koki

Amada 23% 50% 70% TRUMPF HANS laser Mitsubishi Electric

Okuma 3% 45% 90% DMG Doosan Shenyang machine tool Mori Seiki, Fanuc

Mori Seiki 3% 65% 95% Doosan Shenyang machine tool Dongtai Okuma

Fanuc 20-60% 75% 100% ABB, Siemens Okuma, SHI

NSK 13% 50% 65% Timken SKF, Schaeffler ILJIN Zhejiang Tianma, Wafangdian NTNJTEKT

Auto NTN 12% 60% 60% Timken SKF, Schaeffler NSKJTEKT

consumable JTEKT 9% 55% 50-60% Timken SKF, Schaeffler NSKNTN

Tsubakimoto Chain 35% 50% 50% Borgwarner IWIS, INA-Schaefller Gonghua Daido Kogyo

Mitsubishi Heavy 16% 40% 85% GE Alstom, Siemens Doosan Heavy Toshiba, Hitachi

Kawasaki Heavy 55% Siemens MHI, IHI

Power / IHI 40% MHI, KHIHeavy Industry / Sumitomo Heavy 53%

E&C JGC 80% KBR, Bechtel Saipem, Technip Doosan Heavy, Samsung Chiyoda

Chiyoda 60% KBR, Bechtel Saipem, Technip Doosan Heavy, Samsung JGC

Toshiba 10% 50% GE Siemens, Philips Mindray Hitachi

Hitachi GE Siemens, Philips Mindray Toshiba

Process Aut. Yokogawa 10% 50% EMR, HON ABB, Invensys

Healthcare

Competitors by region

Infrastructure

FA

Machine tools

Japanese industrial players and their overseas competitors

Recent Yen movement with respect to major currencies

Currency 1 Month 3 Months 6 Months 12 Months

US Dollar USD -0.5% 0.4% -2.6% -0.3%

Chinese Yuan RMB 0.1% 3.3% 0.2% 0.9%

Taiwan Dollar TWD 0.1% 0.0% -0.2% 1.2%Korean Won KRW -1.8% -3.6% -7.2% -8.3%

Indian Rupee INR -0.6% -3.6% -8.9% 8.5%

Euro EUR 0.5% -0.8% -5.0% -6.4%

British Pound GBP -1.4% -1.3% -8.7% -10.2%

Swedish Krona SEK 0.2% 2.5% -2.5% -0.6%

Swiss Franc CHF 0.9% -1.1% -5.9% -8.2%

Brazilian Real BRL 0.0% -8.3% -8.3% 8.4%

Russian Ruble RUB -1.4% 2.0% 4.0% 10.5%

Canadian Dollar CAD -1.2% -0.6% 1.3% 6.7%

Where are we in the cycle?


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28



US t i lik l t bi b dWhere are we in the cycle?


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29

-22

-12

-2

8

18

28

-55%

-45%

-35%

-25%

-15%

-5%

5%

15%

25%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Core capital goods orders,3m/3m ann.

Philly Fed capexexpectations, rhs

US corporate capex is unlikely to see a big rebound

And survey data does not suggest an imminentupswing in capex

.which is also consistent with loan survey data

The fact that US capacity utilization rates are lower than in the priorcycle also does not suggest much under-investment has taken place

Source: Datastream, US Federal Reserve ,Credit Suisse estimates

65

67

69

71

73

75

77

79

81

83

85

Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14


A d i i l h h h b d i i kWhere are we in the cycle?


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30

And it is not clear that there has been under-investment in many markets

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Capex / depreciation

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Capex / sales

Looking at aggregated Credit Suisse HOLT data across different global end-markets does not suggest there has been significantunder-investment in many markets.

Auto Components

Automobiles

Beverages

BiotechnologyBuilding Products

Diversified Telecommunication Service

Energy Equipment & Services

Food & Staples Retailing

Food products

Healthcare

Life Sciences Tools & Services

Pharma

Retail - multiline

Retail - internet

Retail - special

Oil, Gas & Consumable Fuels

Wireless Telecommunication Services

and capex / sales ratios across different markets look very consistent with their respective histories


Capex / sales 2005 2006 2007 2008 2009 2010 2011 2012 2013E avg (2005-12) 2013E v avg

Auto Components 5.8% 5.5% 5.3% 6.3% 4.1% 4.4% 5.4% 5.7% 5.5% 5.3% 0.2%

Automobiles 5.3% 5.1% 4.9% 5.7% 4.2% 3.6% 4.4% 5.0% 5.1% 4.8% 0.3%

Telecom (Wireline and wireless) 15.9% 16.0% 15.8% 16.5% 16.0% 15.7% 16.1% 15.9% 15.8% 16.0% -0.2%

Energy Equipment & Services 7.1% 10.5% 13.3% 14.6% 14.3% 12.3% 12.6% 12.1% 12.1% 12.1% 0.0%

Food & Beverage 4.4% 4.6% 4.9% 4.7% 4.2% 4.2% 4.5% 4.6% 4.4% 4.5% -0.1%

Healthcare 1.9% 2.0% 2.0% 2.0% 1.7% 1.6% 1.8% 1.8% 1.9% 1.9% 0.0%

Retail 4.1% 4.2% 4.2% 3.7% 2.9% 3.0% 3.4% 3.2% 3.3% 3.6% -0.3%

Oil, Gas & Consumable Fuels 8.4% 10.1% 10.7% 10.8% 13.8% 11.9% 10.5% 11.7% 11.5% 11.0% 0.5%


I d t S t Gl b l A t ti / F t O t t D tWhere are we in the cycle?


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31

Industry Sector: Global Automation / Factory Output Data

Global Automation / Factory Spend Monthly (3MMA) Order and Sales Change YoY

Period

KMT Orders

Organic

EMR IA

Orders

EMR PM

Orders

FAST

Sales GWW Sales

Omron IA

Orders

Yaskawa

Orders THK Orders

Nabtesco

Precision

Machinery

Orders Airtac Sales

Mitsubishi FA

Ord er s T ECO Sales Hiwin Sales JMT BA Or ders AMT Or ders

US Cutting

Tools Orders

Conveyor

Equipment

Orders-North

America

JMTBA

Overseas

L ea di ng DI US ISM

US ISM New

Orders

US Capacity

Utilization

US Durable Goods

Orders Ex Trans,

Ex Defense YoY%

US Factory

Orders exc

transportation

YoY% US IP YoY%

Germany

Factory

Orders YoY% China PMIJan-11 28% 29% 28% 19% 10% 38% 25% 33% 0% 43% 37% 14% 96% 90% 186% 41% 4.5 59.2 63.2 76% 17% 14% 5% 17% 52.9

Feb-11 25% 28% 25% 22% 11% 38% 19% 28% 14% 53% 14% 23% 101% 74% 99% 48% 4.5 59.6 62.7 76% 12% 12% 4% 20% 52.2

Mar-11 25% 27% 18% 23% 12% 33% 3% 17% 23% 42% 33% 11% 90% 50% 95% 44% 6.1 59.3 62.7 76% 12% 12% 5% 10% 53.4

Apr-11 24% 23% 17% 23% 14% 13% 10% 4% 11% 24% 59% 11% 85% 32% 74% 72% 4.5 59.4 63.8 76% 14% 13% 4% 11% 52.9

May-11 24% 19% 16% 23% 11% 13% 20% -12% 11% 18% 32% 12% 96% 34% 127% 34% 9.2 53.5 52.4 76% 13% 14% 2% 12% 52.0Jun-11 24% 12% 13% 23% 12% 9% 5% -18% 12% 25% -6% 16% 94% 54% 92% 0% 9.2 55.8 54.1 76% 7% 14% 2% 9% 50.9

Jul-11 22% 5% 11% 22% 10% 6% 8% -25% 16% 15% -12% -4% 79% 35% 91% 7% 4.6 52.3 51.3 76% 15% 15% 2% 9% 50.7

Aug-11 20% 1% 18% 20% 10% 6% -14% -32% -4% 12% -13% 15% 77% 15% 102% 27% 4.6 53.2 52.9 77% 10% 13% 3% 4% 50.9

Sep-11 17% 2% 16% 19% 14% 5% -15% -31% 15% 12% -18% 2% 72% 20% 47% 35% 7.7 53.2 51.6 77% 11% 13% 3% 2% 51.2

Oct-11 13% 2% 25% 21% 16% 2% -16% -27% 2% 16% -12% 12% 64% 26% 19% 104% 4.6 51.5 52.2 77% 16% 14% 3% 5% 50.4

Nov-11 13% 5% 20% 22% 15% 2% -1% -26% 12% 1% -12% 13% 57% 16% 36% 17% 6.2 52.3 54.8 77% 6% 10% 3% -4% 49.0

Dec-11 14% 3% 15% 21% 10% 1% -6% -33% 13% 14% -10% -3% 10% 17% 19% 34% 6.2 52.9 55.1 77% 10% 9% 3% 0% 50.3Jan-12 14% 3% 11% 21% 17% 0% 3% -26% -3% -48% -28% 1% -22% -7% 14% 6% 4.6 53.7 56.5 78% 9% 6% 4% -6% 50.5

Feb-12 13% 3% 10% 20% 18% 0% -7% -23% 1% 43% -3% 4% 1% -9% 31% 25% 6.1 51.9 54.9 78% 14% 8% 5% -6% 51.0

Mar-12 8% 3% 17% 19% 15% 0% -2% -21% 4% 3% -27% 11% -2% 2% -2% 24% 6.1 53.3 56.8 77% 8% 5% 3% 0% 53.1

Apr-12 5% 0% 22% 17% 12% -18% -20% -18% 11% -6% -54% -9% 20% 0% 7% 4% 7.6 54.1 57.6 78% 7% 3% 5% -3% 53.3

May-12 1% -3% 20% 13% 13% -13% -21% -5% -20% 9% -32% 8% 1% -3% 17% 24% 7.6 52.5 57.2 78% 5% 2% 5% -5% 50.4

Jun-12 1% -7% 19% 14% 12% -12% -5% -8% -40% 0% 1% -13% -6% -16% -4% 35% 6.1 50.2 49.6 78% 2% -1% 4% -8% 50.2

Jul-12 -2% -4% 13% 12% 11% -13% -10% -8% -20% 6% 0% 1% -24% -7% -9% 45% 3.0 50.5 47.5 78% -3% -1% 4% -5% 50.1

Aug-12 -3% -5% 8% 12% 10% -9% 2% -5% -30% 10% 0% -5% -23% -3% -1% 44% 3.0 50.7 48.9 77% -3% 0% 3% -5% 49.2Sep-12 -7% -6% 5% 13% 9% -9% 10% -6% -20% 5% 7% 9% -23% -3% 15% -15% 3.0 51.6 51.7 77% -6% 1% 3% -4% 49.8

Oct-12 -6% -6% -2% 7% 6% -9% 10% 6% -5% 7% -8% -7% -32% -7% 4% -12% 3.0 51.7 52.8 77% -4% 2% 2% -3% 50.2

Nov-12 -8% -6% -2% 8% 8% -6% 13% 6% -5% 20% -16% 14% -41% -21% -9% 40% 1.5 49.9 51.1 78% 3% 1% 3% -1% 50.6

Dec-12 -10% -6% 2% 10% 2% -7% 12% 5% -25% 11% -10% 5% -29% -28% -9% 1% 3.0 50.2 49.7 78% -5% 0% 3% -2% 50.6

Jan-13 -9% -7% 4% 7% 8% -6% -7% 9% -20% 122% 4% 33% 15% -26% -10% -5% 2% 3.0 53.1 53.3 78% 7% 3% 2% -2% 50.4Feb-13 -10% -7% 7% 8% 6% -4% 23% 5% 0% -37% -14% 7% -19% -22% -9% -12% -3% 4.5 54.2 57.8 78% -1% 2% 2% 0% 50.1Mar-13 -11% -12% 3% 5% 3% -7% 4% 6% -60% 10% 1% 6% -22% -22% 3% -12% 7% 4.5 51.3 51.4 78% 0% -1% 3% 0% 50.9

Apr-13 -8% -12% 2% 5% 8% -9% 21% 14% -15% 33% 20% 29% -34% -24% -11% 1% 5% 4.5 50.7 52.3 78% 3% 0% 2% 0% 50.6

May-13 -7% -7% 5% 5% 5% 1% 18% 4% 10% 21% 16% 15% -27% -7% -3% -8% -17% 4.5 49 48.8 78% 4% 2% 2% -2% 50.8

Jun-13 -8% -5% 9% 6% 5% 1% 1% 6% 15% 26% 4% 31% -11% -12% -6% -13% -14% 4.5 50.9 51.9 78% 7% 4% 2% 6% 50.1

Jul-13 -9% -5% 6% 3% 4% 4% 2% 9% 40% 30% 17% 19% 15% -12% -22% 0% -17% 3.0 55.4 58.3 78% 8% 4% 1% 2% 50.3

Aug-13 -6% -1% 5% 7% 4% 4% 13% 17% 10% 27% 3% 26% 3% -2% -16% -13% -16% 0.0 55.7 63.2 78% 9% 3% 3% 3% 51.0

Sep-13 -3% 3% 4% 6% 4% 6% 16% 30% 10% 31% 18% 8% 19% -6% -30% -3% -18% (3.0) 56 60.5 78% 9% 2% 3% 8% 51.1

Oct-13 1% 2% 4% 8% 7% 9% 23% 29% 51% 21% 36% 25% 23% 8% -1% -6% 11% 1.5 56.6 61.3 78% 5% 1% 4% 2% 51.4Nov-13 2% -2% 4% 8% 5% 9% 18% 22% 11% 21% 55% 8% 34% 15% 23% -7% -14% (10.4) 57 63.4 79% 6% 2% 3% 7% 51.4

Dec-13 2% 0% 3% 7% 9% 10% 23% 29% 68% 31% 31% 12% 34% 28% 11% -4% 6% (2.9) 56.5 64.4 79% 6% 2% 3% 6% 51.0

Jan-14 0% 3% 6% 7% 3% 13% 19% 29% 45% -8% 30% -7% 24% 40% 6% -11% 25% 0.0 51.3 51.2 78% -1% 0% 3% 8% 50.5

Feb-14 1% 6% 3% 8% 3% 13% 1% 26% 25% 76% 20% 5% 26% 26% -5% -7% -8% 7.4 53.2 54.5 79% 2% 0% 3% 7% 50.2

Mar-14 3% 8% 12% 12% 9% 11% 21% 23% 61% 20% 10% 12% 31% 42% 3% -3% -2% 4.4 53.7 55.1 79% 8% 3% 4% 2% 50.3

Apr-14 3% 5% 10% 10% 5% 23% 8% 18% 28% 20% -5% 34% 49% 10% -3% -20% 19.1 54.9 55.1 79% 4% 4% 3% 6% 50.4

May-14 4% 3% 12% 13% 6% 18% 22% 21% 12% 18% -12% 31% 24% 55.4 56.9 79% 4% 0% 4% 50.8Jun-14 27% 55.3 58.9 51.0

Total - = + - = + TotalQ1 12 v Q411 13 2 8 57% 9% 35% 100%Q212 v Q112 17 1 9 63% 4% 33% 100%

Q312 v Q212 16 1 10 59% 4% 37% 100%Q412 v Q312 14 1 12 52% 4% 44% 100%

Q1 13 v Q4 12 10 1 16 37% 4% 59% 100%Q2 13 v Q1 13 9 0 18 33% 0% 67% 100%Q3 13 v Q2 13 8 1 18 30% 4% 67% 100%Q4 13 v Q3 13 7 0 19 27% 0% 73% 100%Q1 14 v Q4 13 14 0 12 54% 0% 46% 100%Q2 14 v Q1 14 6 0 19 24% 0% 76% 100%

Positive / negative datapoints


N O d I t i S d Where are we in the cycle?


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32

New Orders-Inventories SpreadUS ISM PMI New OrdersInventories Spread Eurozone PMI New Orders-Inventories Spread

China PMI New OrdersInventories Spread Singapore PMI New Orders-Inventories Spread


-20

-15

-10

-5

0

5

10

15

20

25

30

35

Jun-84 Jun-89 Jun-94 Jun-99 Jun-04 Jun-09 Jun-1-30

-25

-20

-15

-10

-5

0

5

10

15

20

Apr-00 Apr-02 Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14

Euro-Zone PMI New Orders Finished Goods Inventories Spread

-25

-20

-15

-10

-5

0

5

10

15

20

25

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14

China PMI New Orders Finished Goods Inventories Spread

-15

-10

-5

0

5

10

Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun -09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14

Singapore PMI New Orders Finished Goods Inventories Spread

Industrial Production momentum Where are we in the cycle?


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33

Industrial Production momentum

Expected Regional Industrial Production Growth(3M/3M momentum)

Global IP MomentumUS, Japan, Euro Area and China Macro Surprise Indicators


-10%

-5%

0%

5%

10%

15%

20%

25%

30%

-60%

-40%

-20%

0%

20%

40%

Jan-0

8

May-0

8

Sep-0

8

Jan-0

9

May-0

9

Sep-0

9

Jan-1

0

May-1

0

Sep-1

0

Jan-1

1

May-1

1

Sep-1

1

Jan-1

2

May-1

2

Sep-1

2

Jan-1

3

May-1

3

Sep-1

3

Jan-1

4

May-1

4

Sep-1

4

US

Europe

Japan

China

forecast

Month US Europe Japan ChinaNov-13 4% 0% 12% 10%Dec-13 4% 3% 12% 10%Jan-14 5% 4% 16% 10%Feb-14 5% 4% 15% 10%

Mar-14 5% 2% 14% 10%Apr-14 4% 1% 10% 10%May-14 3% 2% 6% 10%Jun-14 2% 4% 0% 9%Jul-14 2% 5% 0% 9%Aug-14 2% 6% 2% 9%Sep-14 3% 6% 5% 10%Oct-14 3% 6% 5% 10%Nov-14 3% 5% 4% 10%Dec-14 3% 4% 4% 11%

-150

-100

-50

0

50

100

150

Jul-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

EURO-ZONE

US

Average IP vs Real GDP Growth IP vs Nominal GDP Growth

1983-89 0.7x 0.4x

1993-99 1.3x 0.9x

2003-07 0.9x 0.4x

2010-2012 1.8x 1.0x

2013 YTD 1.5x 0.7x

Avg 1980-2012 1.2x 0.6x

Median 1980-2012 1.1x 0.6x

There is a view that Industrial Production has severely under-grown GDP, and thisis set to reverse in 2014the data suggests though that IP relative to GDP in the

US is very much in-line with historical averages

Short cycle trends Where are we in the cycle?


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34

Short-cycle trends

Average and Median Short Cycle Sales Growth Average and Median Long Cycle Orders Growth

GE Equipment Book to Bill Siemens Organic Orders Growth

y

Rockwell, Kennametal, Siemens(IA), ABB (DA&M), ABB (LV), Regal Beloit ,Timken, SKF, Schneider(Industry), Sandvik (Machining soln)\

Siemens (FPG), Siemens (O&G), Siemens (Transport), Siemens (Healthcare), ABB (PS), Alstom (Thermal),Alstom (Renewables), Alstom (Transport), Alstom (Grid), GE (Energy/ P&W)), GE (O&G), GE (Transport),GE (Aviation), GE (Healthcare)

-10%

-5%

0%

5%

10%

15%

20%

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14

Average Median

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14

Average Median

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Sep-0

9

Mar-10

Sep-1

0

Mar-11

Sep-1

1

Mar-12

Sep-1

2

Mar-13

Sep-1

3

Mar-14

Short cycle trends Where are we in the cycle?


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35

Short-cycle trendsCustomer inventory commentary from short-cycle industrial businesses

y

Historical and Current decline in Short cycle sales y-o-y

Honeywell We saw good momentum exiting the quarter in our short-cycle businesse.

SiemensIn the Industry sector short cycle businesses at Industry Automation and at motion control in the DriveTechnologies division stabilized further with especially strong growth in new orders in Germany and China.

SandvikIn Mining Technology, Materials Technology and Construction Technology, you should expect destocking going

forward.

IRThe visibility on compressed air systems and services is pretty good. We've got a pretty good look there shouldbe up +LSD to +MSD for 2014.

DanaherMotion platform core revenues improved sequentially from the fourth quarter, but still declined at a low single-digitrate. Strong sales in North American distribution were more than offset by a weak defense market and the impactof exiting certain lower margin product lines.

Parker HannifinDiversified Industrial North American orders for the quarter just ended, increased 6%. Diversified IndustrialInternational orders increased 5% for the quarter.

EmersonEmerson orders growth accelerated to a high single-digit rate in the quarter led by double-digit growth in powergenerating alternators. The order strength supports the expectation for improved growth in the second half withacceleration in the U.S. and Europe.

SKF

Industrial distribution was relatively unchanged in the quarter as the caution has continued, and maybe we sawsome additional destocking. Going forward, we expect to see a continued good development in the areas whichwere good in the first quarter, but we also expect a slightly more positive development in the industrial arena. No

real change, though, in areas like heavy industry and mining.

Atlas CopcoIndustrial Technique, double-digit growth, so that is something we like to say and so while we got that, motorvehicles strong, but also a good general industry, good development in service, and yeah, it's hardly difficult, if notall major regions had a strong development that you make 13% organic growth.

Q1 2014

-40%

-30%

-20%

-10%

0%

10%

20%

30%

1 2 3 4 5 6 7 8 9 10

Quarters

2001-2002 2008-2009 2012-2013

CS Economics Forecasts Where are we in the cycle?


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36

CS Economics Forecasts y

Cyclical Framework Where are we in the cycle?


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37

Cyclical Framework

Degree of outperformance this year will likely struggle to match 2012 / 2013

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD

10 11 12 13 11 8 10 12 6 12 16 5 12 13 3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

TYC CUB VMI ROK ROK VMI VMI CUB RBC IR ETN TYC IR IR DOVDHR KMT ROK IR TYC RBC RBC SPW DOV TYC ROK CUB VMI TXT TYCEMR RBC DHR SPW ETN ROK SPW VMI UTX CUB KMT VMI RBC DOV SPWSPW SPW ETN TYC RBC SPW DHR TXT VMI ROK CUB ROK TXT HON S&P

CUB ETN TXT CUB TXT UTX TXT HON EMR RBC DOV HON TYC SPW ROKUTX TYC IR UTX CUB EMR HON ETN DHR TXT HON S&P ETN ROK RBCVMI IR UTX DHR KMT HON DOV KMT S&P SPW EMR DHR DHR ETN TXTETN ROK RBC HON DHR TXT CUB EMR KMT DHR IR DOV GE TYC HONROK DOV EMR ETN IR S&P EMR UTX TYC UTX SPW GE HON UTX VMI

GE TXT KMT DOV GE KMT KMT DHR HON ETN RBC UTX SPW DHR DHRS&P DHR CUB TXT UTX IR S&P IR ETN VMI TXT KMT ROK GE ETNDOV S&P DOV EMR S&P DHR ETN ROK ROK DOV DHR ETN EMR EMR IRKMT GE S&P GE VMI DOV UTX S&P GE S&P GE SPW S&P KMT UTXRBC UTX HON S&P EMR GE GE GE SPW HON TYC EMR DOV S&P EMRHON VMI GE VMI HON ETN TYC DOV IR KMT UTX TXT UTX CUB GE

IR EMR SPW KMT DOV TYC ROK RBC CUB EMR VMI RBC CUB VMI KMTTXT HON TYC RBC SPW CUB IR TYC TXT GE S&P IR KMT RBC CUB

PERFORMANCE RANKING

C li l f kWhere are we in the cycle?


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38

-60

-40

-20

0

20

40

60

80

100

-60

-40

-20

0

20

40

60

80

100

Jul-04 Jul -05 Jul-06 Jul -07 Jul-08 Jul -09 Jul-10 Jul-11 Jul-12 Jul-13 Jul -14

US EE/MI Share Prices (YoY%) S&P 500 Index (YoY%)

-15%

-10%

-5%

0%

5%

10%

15%

30

35

40

45

50

55

60

65

Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14

US ISM Global IP Growth (YoY%, rhs)

Cyclical framework

Source: Factset, Credit Suisse Research

6x

8x

10x

12x

14x

16x

18x

20x

6x

8x

10x

12x

14x

16x

18x

20x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

EE/MI EV/EBIT Target Price Implied EV/EBIT Target Price implied PE EE/MI NTM PE

2 3 4 1 32

EE/MI consistently outperformed the S&P throughout the 1990sWhere are we in the cycle?


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EE/MI consistently outperformed the S&P throughout the 1990 s...

= EE/MI Outperforms S&P = EE/MI Underperforms S&P

Mixed performance for EE/MI throughout the 1980sWhere are we in the cycle?


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Mixed performance for EE/MI throughout the 1980 s...

= EE/MI Outperforms S&P = EE/MI Underperforms S&P

Where are we in the cycle? Where are we in the cycle?


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EE/MI rel to S&P and. Aus $ / US EE/MI vs. Chinese industrials share prices

Sector performance

has managed to

decouple from China /

emerging market

trends, since 2011

6 aggregate demand factors

Metric Recent / Current Trend 6 month outlook DeltaLead Indicators / surveys PMIs stabilized Likely moving sideways =

Factory / durable goods orders Reacceleration Reacceleration +

Coincident trends IP momentum peaking Deceleration -

Company data Muted sales growth; soft orders Orders to rebound +

Supply side Patchy in China, stable elsewhere Pick-up likely +

Transport / distributor data Traffic growth is resilient; destocking Restocking likely +

10

30

50

70

90

110

130

150

170

190

Jul-11 Jul-12 Jul-13 Jul-14

US EE/MI rebased pulled back by 3.5 months (1/1/2008rebased to 100)

China Machinery (RHS)

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

100%

105%

110%

115%

120%

125%

130%

135%

Jul-11 Jan-12 Jul-12 Dec -12 Jul-13 Dec -13 Jul-14

US EEMI Perf Re l to S&P 500 AUS $ vs. USD (RHS)

(1) Lead Indicators / Surveys Where are we in the cycle?


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(1) Lead Indicators / Surveys

PMIs Globally in Different Regions ISM New Orders versus Real Equipment & Software Investment

Source: Datastream, Bloomberg, BEA, ISM, Credit Suisse Research

US Manufacturing SurveysFuture expectations for Capital expenditures have risen

30

35

40

45

50

55

60

65

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14

Germany

US

Eurozone

China

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

0

10

20

30

40

50

60

70

80

Q3 1973 Q1 1978 Q3 1982 Q1 1987 Q3 1991 Q1 1996 Q3 2000 Q1 2005 Q3 2009 Q1 2014

ISM New Orders Real E&S Business Investment YoY% (RHS)

(%)

-40

-30

-20

-10

0

10

20

30

40

50

Jun-04 Jun-06 Jun-08 Jun-10 Jun-12 Jun-14

6m Expectations - Capital Expenditure

Empire State Survey

Richmond

Philadelphia

10

20

30

40

50

60

70

-50

-40

-30

-20

-10

0

10

20

30

40

50

Jun-04 Jun-06 Jun-08 Jun-10 Jun-12 Jun-14

Empire State Survey: General Business Condition

Richmond: ManufacturingIndex

Philadelphia: M anufacturing Index

ISM - Manufacturing Index (rhs)

(2) Factory / Durable Goods Orders Where are we in the cycle?


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(2) Factory / Durable Goods Orders

Factory/Machinery Goods Order (YoY Change)

Source: Datastream,

ISM New OrdersInventories spread

-50

-40

-30

-20

-10

0

10

20

30

40

50

Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14

YoY % US New Orders-Mfg, Durables, excl Transportation

Germany Factory Orders

Japan Machinery Orders

US New Orders (Manufacturing)

-20

-15

-10

-5

0

5

10

15

20

25

30

35

Jun-84 Jun-89 Jun-94 Jun-99 Jun-04 Jun-09 Jun-14

(3) Coincident Trends Where are we in the cycle?


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(3) Coincident Trends

Monthly Change in US Manufacturing Output Capacity Utilization in Different Regions

Source: Datastream, ELFA

Investment Spending vs. Capacity Utilization Equipment and Leasing Finance Sector New Business Volume

-4

-3

-2

-1

0

1

2

May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14

Manufacturing Output (MoM%)

65

70

75

80

85

90

95

May-94 May-98 May-02 May-06 May-10 May-14

CapacityUtilization

(%)

US Euroland Aggregate Germany UK France

65

70

75

80

85

90

95

-25

-20

-15

-10

-5

0

5

10

15

20

25

May -82 May -86 May -90 May -94 May -98 May -02 May -06 May -10 May -14

US Non Resident Investment (YoY%) US Capacity Utilization rate (rhs)

-20%

-10%

0%

10%

20%

30%

40%

50%

3

4

5

6

7

8

9

10

11

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Newbuisnessvolume($bn)

New Business Volume (USD bn) YoY% (RHS)

(4) Company Data Where are we in the cycle?


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(4) Company Data

Average Book-to-Bill Ratios for Select Global Industrials

Monthly YoY Order and Sales Figures

Source: Company data for ABB, Alstom, Alfa Laval, Atlas Copco, Kone, Metso, Sandvik, Schindler,Siemens, GE, Fanuc and Roper Industries

Source: Company data for Caterpillar, ITW, Emerson, Kennametal, Grainger, Fastenal, THK, Yaskawa, United Tractor, Volvo, HCM, Omron

0.8x

0.9x

1.0x

1.1x

1.2x

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

-25%

-10%

5%

20%

35%

50%

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Global Industrial

US In dustrial

Non-US Industrial

(4) Company Data Where are we in the cycle?


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(4) Company Data

Monthly YoY Order and Sales Figures

Source: Company data for Caterpillar, ITW, Emerson, Kennametal, Grainger, Fastenal, THK, Yaskawa, United Tractor, Volvo, HCM, Omron, Nabtesco, TECO, Airtac, Hiwin

3MMA 3MMA 3MMA 3MMA 3MMA Monthly Monthly Monthly Monthly Monthly Monthly Mar-YTD Monthly Monthly Monthly Monthly Monthly

Orders Orders Sales Sales Orders Sales Sales Orders Orders Sales Sales Sales Sales Orders Orders Sales Sales

EMR (IA)

EMR

(PM)

CAT

Machinery

CAT

Engine KMT GWW FAST THK Yaskawa

United

Tractor Volvo

Omron

(IA) TECO

Mitsubishi

FA Orders

a tesco

(Precision

Equip) Airtac Hiwin

Jan-11 29% 28% 49% 23% 28% 10% 19% 33% 25% 116% 62% 38% 14% 37% 115% 43% 96%Feb-11 28% 25% 59% 31% 25% 11% 22% 28% 19% 74% 49% 38% 23% 14% 15% 53% 101%

Mar-11 27% 18% 61% 45% 25% 12% 23% 17% 3% 63% 41% 33% 11% 33% 40% 42% 90%

Apr-11 23% 17% 66% 25% 24% 14% 23% 4% 10% 64% 49% 13% 11% 59% 55% 24% 85%

May-11 19% 16% 52% 21% 24% 11% 23% -12% 20% 14% 49% 13% 12% 32% 15% 18% 96%

Jun-11 12% 13% 45% 14% 24% 12% 23% -18% 5% 46% 27% 9% 16% -6% 75% 25% 94%

Jul-11 5% 11% 35% 19% 22% 10% 22% -25% 8% 56% 18% 6% -4% -12% -5% 15% 79%

Aug-11 1% 18% 34% 14% 20% 10% 20% -32% -14% 30% 35% 6% 15% -13% 60% 12% 77%

Sep-11 2% 16% 31% 12% 17% 14% 19% -31% -15% 62% 26% 5% 2% -18% 30% 12% 72%

Oct-11 2% 25% 31% 13% 13% 16% 21% -27% -16% 26% 25% 2% 12% -12% 0% 16% 64%

Nov-11 5% 20% 30% 15% 13% 15% 22% -26% -1% 82% 22% 2% 13% -12% 0% 1% 57%

Dec-11 3% 15% 30% 18% 14% 10% 21% -33% -6% 96% 17% 1% -3% -10% 25% 14% 10%

Jan-12 3% 11% 27% 22% 14% 17% 21% -26% 3% -16% 2% 0% 1% -28% 10% -48% -22%

Feb-12 3% 10% 21% 13% 13% 18% 20% -23% -7% 12% 3% 0% 4% -3% -10% 43% 1%

Mar-12 3% 17% 18% -1% 8% 15% 19% -21% -2% 4% 1% 0% 11% -27% 85% 3% -2%

Apr-12 0% 22% 12% 5% 5% 12% 17% -18% -20% -2% -4% -18% -9% -54% -15% -6% 20%May-12 -3% 20% 11% 5% 1% 13% 13% -5% -21% 25% -3% -13% 8% -32% -20% 9% 1%

Jun-12 -7% 19% 11% 7% 1% 12% 14% -8% -5% -32% 1% -12% -13% 1% -40% 0% -6%

Jul-12 -4% 13% 14% 4% -2% 11% 12% -8% -10% -45% 5% -13% 1% 0% -20% 6% -24%

Aug-12 -5% 8% 13% 3% -3% 10% 12% -5% 2% -32% -4% -9% -5% 0% -30% 10% -22%

Sep-12 -6% 5% 6% -1% -7% 9% 13% -6% 10% -44% -20% -9% 9% 7% -20% 6% -24%

Oct-12 -6% -2% 8% 1% -6% 6% 7% 6% 10% -64% -8% -9% -7% -8% -5% 7% -22%

Nov-12 -6% -2% 5% 1% -8% 8% 8% 6% 13% -62% -15% -6% 14% -16% -5% 20% -27%

Dec-12 -6% 2% -1% -2% -10% 2% 10% 5% 12% -66% -20% -7% 5% -10% -25% 12% -10%

Jan-13 -7% 4% -4% -7% -9% 8% 7% 9% -7% -34% -31% -6% 33% 4% -20% 122% 15%

Feb-13 -7% 7% -13% -7% -10% 6% 8% 5% 23% -46% -26% -4% 7% -14% 0% -37% -19%

Mar-13 -12% 3% -11% -6% -11% 3% 5% 6% 4% -45% -13% -7% 6% 1% -60% 10% -22%

Apr-13 -12% 2% -9% -5% -8% 8% 5% 14% 21% -40% -2% -9% 29% 20% -15% 33% -34%

May-13 -7% 5% -7% -1% -7% 5% 5% 4% 18% -48% -9% -2% 15% 16% 10% 21% -27%

Jun-13 -5% 9% -8% 1% -8% 5% 6% 6% 1% -35% -5% 1% 31% 4% 15% 26% -11%

Jul-13 -5% 6% -9% 0% -9% 4% 3% 9% 2% -21% 3% 4% 19% 17% 40% 30% 15%Aug-13 -1% 5% -10% -6% -6% 4% 7% 17% 13% -48% -4% 4% 26% 3% 10% 27% 3%

Sep-13 3% 4% -9% -2% -3% 4% 6% 30% 16% -23% 12% 6% 8% 18% 10% 31% 19%

Oct-13 2% 4% -12% -9% 1% 7% 8% 29% 23% 61% 13% 9% 25% 36% 51% 21% 23%

Nov-13 -2% 4% -12% -5% 2% 5% 8% 22% 18% -15% 16% 9% 8% 55% 11% 21% 34%

Dec-13 0% 3% -9% -6% 2% 9% 7% 29% 23% 20% 21% 10% 12% 31% 68% 31% 34%

Jan-14 3% 6% -8% 2% 0% 3% 7% 29% 19% 23% 26% 13% -7% 30% 45% -8% 24%

Feb-14 6% 3% -8% 2% 1% 3% 8% 26% 1% -9% 28% 13% 5% 20% 25% 76% 26%

Mar-14 8% 12% -12% 7% 3% 9% 12% 23% 21% -26% 21% 11% 12% 10% 61% 20% 31%Apr-14 5% 10% -13% 3% 3% 5% 10% 18% 8% -19% -1% 23% -5% 28% 20% 34%

May-14 3% 12% -12% -3% 4% 6% 13% 21% 22% -19% 4% 18% -12% 12% 18% 31%

(5) Supply SideWhere are we in the cycle?


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(5) Supply Side

Source: JMTBA

Japan Machine Tools Orders Machine Tools Orders - China

Machine Tool Orders - US Machine Tool Orders - Germany

-100%

-50%

0%

50%

100%

150%

200%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000 Japan Machine Tools Order (mn Yen) YoY change (%)

-200%

-100%

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000 Ch in a Mac hin e T oo ls Ord er (mn Ye n) Y oY ch an ge (%)

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

0

5,000

10,000

15,000

20,000

25,000US Mach ine To ols Ord er (mn Ye n) Y oY ch an ge (%)

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

0

2,000

4,000

6,000

8,000

10,000

12,000Germany Machine Tools Order (mn Yen) YoY change (%)

(6) Transport / Distributor / Shipment Data Where are we in the cycle?


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(6) Transport / Distributor / Shipment Data

North American FTK and RPK YoY

YoY% Change in Total U.S Rail Traffic (Carload & Intermodal)

Source: AAR Weekly Railroad Traffic, Bloomberg, Datastream

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

wk39'10

wk2'11

wk17'11

wk32'11

wk47'11

Wk10'12

Wk25'12

Wk40'12

Wk3'13

Wk18'13

Wk33'13

-30%

-20%

-10%

0%

10%

20%

30%

40%

May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14

N.A. RP K Growth (YoY%) N.A. FTK Gro wth (Y oY%)


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Cyclical Framework


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Cyclical Framework

Degree of outperformance this year will likely struggle to match 2012 / 2013

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD

10 11 12 13 11 8 10 12 6 12 16 5 12 13 3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

TYC CUB VMI ROK ROK VMI VMI CUB RBC IR ETN TYC IR IR DOVDHR KMT ROK IR TYC RBC RBC SPW DOV TYC ROK CUB VMI TXT TYCEMR RBC DHR SPW ETN ROK SPW VMI UTX CUB KMT VMI RBC DOV SPWSPW SPW ETN TYC RBC SPW DHR TXT VMI ROK CUB ROK TXT HON S&P

CUB ETN TXT CUB TXT UTX TXT HON EMR RBC DOV HON TYC SPW ROKUTX TYC IR UTX CUB EMR HON ETN DHR TXT HON S&P ETN ROK RBCVMI IR UTX DHR KMT HON DOV KMT S&P SPW EMR DHR DHR ETN TXTETN ROK RBC HON DHR TXT CUB EMR KMT DHR IR DOV GE TYC HONROK DOV EMR ETN IR S&P EMR UTX TYC UTX SPW GE HON UTX VMI

GE TXT KMT DOV GE KMT KMT DHR HON ETN RBC UTX SPW DHR DHRS&P DHR CUB TXT UTX IR S&P IR ETN VMI TXT KMT ROK GE ETNDOV S&P DOV EMR S&P DHR ETN ROK ROK DOV DHR ETN EMR EMR IRKMT GE S&P GE VMI DOV UTX S&P GE S&P GE SPW S&P KMT UTXRBC UTX HON S&P EMR GE GE GE SPW HON TYC EMR DOV S&P EMRHON VMI GE VMI HON ETN TYC DOV IR KMT UTX TXT UTX CUB GE

IR EMR SPW KMT DOV TYC ROK RBC CUB EMR VMI RBC CUB VMI KMTTXT HON TYC RBC SPW CUB IR TYC TXT GE S&P IR KMT RBC CUB

PERFORMANCE RANKING

End Markets


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End Market Analysis

End Market Historics and ForecastSales GrowthEnd Markets

8/11/2019 CS US Multi-Industrial Analy

Documents

CS US Multi-Industrial Analyst Presentation - July 2014 - Part 1 End Market Slides