Presented September 10th, 2014 2014 Investor Day Presented September 10, 2014
Agenda Welcome Rajeev Bhalla, EVP & Chief Financial Officer Strategic Overview Scott Buckhout, CEO & President CIRCOR Energy Wayne Robbins, EVP & Group President, Energy Break CIRCOR Aerospace & Defense Vincent Sandoval, VP & Group…
Investor Day Strategic Overview Scott Buckhout, CEO & President Presented September 10, 2014
What youre going to hear today CIRCOR is at an inflection point Good products in good end markets Significant margin expansion opportunity Energy: Simplifying and building the foundation for strong organic growth Aerospace:…
CIRCOR is at an Inflection Point 1999 2013 Holding Company Transition Operating Company Acquisition focus Build the team Global market-facing Good products, brands Establish core operating organization and markets system:…
Senior Leadership Team Scott Buckhout Alan Glass CEO & President VP & General Counsel Former President of United Technologies 14 years with CIRCOR Fire & Security division Legal experience at Wyman-Gordon Company, Leadership…
CIRCOR Business Overview Design, develop, manufacture and sell flow control products and solutions for Energy (Oil & Gas and Power) and Aerospace markets 2013 Sales: 858 Million Energy Aerospace & Defense 2013 AOI Margin: 9.9%…
Sales by Market Segment Energy Aerospace & Defense Power General Defense General Upstream Industrial Industrial 5% 20% 20% 45% 46% 34% 30% Commercial Midstream/ Downstream Investor Day Note: Data shown from 2013…
Growing End Markets Market Segment Trends Demand Drivers for CIRCOR Increase in Global CAPEX spending Strong Extraction / Production shift to harsh environments Exceptional strength in Offshore, Unconventional, LNG Upstream…
Good Products and Strong Brands Energy Aerospace & Defense Custom Engineered Control Valves Aerospace Fluid Control Ball Valves Pneumatic Power Modules Instrumentation Valves Defense Aircraft Ground Support Investor…
CIRCORs Priorities Growth Operational Talent Excellence Capital Shareholder Margin Deployment Value Expansion Simplification Cash Generation Investor Day Strategic Overview CIRCOR Absolutes: Ethics, Safety,…
A Comprehensive Organic Growth Plan CIRCOR Growth Drivers Sales Force Pay for Performance Link variable pay to individual performance Easy To Do Business On-time delivery Lead time reduction Go To Market Customer…
Organic Growth: A Global Market-Facing Organization Recent Structure Market-facing sales Today and marketing Product technology Energy Group aligned operations Energy Group and engineering President President 5 Business HR…
Organic Growth: New Product Development Energy Product Portfolio Subsea Valves High Control Valves Severe Service Turbine By-Pass Market Growth LNG Valves Engineered Instrumentation Control Valves Ball Valves…
Organic Growth: Geographic Expansion Energy Group Commercial Expansion Unconventional Offshore Offshore Calgary Unconventional Offshore Milan Power Unconventional Offshore LNG Abu Beijing Houston Dhabi Unconventional…
Organic Growth: Easy To Do Business Selected Customer-facing Initiatives Customer Interface Online Portal CIRCOR Simplified Pricing Fewer Tiers Lead Time Reduction Simpler Discount Lean Supply Chain Structure Customer…
Margin Expansion: Simplification Addressing the Portfolio High Evaluate Invest Business Unit C Product Line Segment Attractiveness Product Line 5 Product Line 10 6 Product Line Product Line 11 4 Business Business…
Margin Expansion: Operational Excellence Reinventing the CIRCOR Business System Strengthening the Foundation Changing the Organization Defining What good looks like Continuously Improving Leadership Results Training Process…
Margin Expansion: Price Distribution Valves North America Recent Price Structure Current Price Structure 25 Price Sheets 1 Price Sheet By Brand All Products By Product Group Searchable By Size Category Price Sheet Price Sheets…
Capital Deployment Prioritization of Capital Deployment 1 Internal Investments Growth Margin expansion Working capital Long Term Target Leverage Ratio 2 to 2.5x EBITDA Acquisitions 2 In markets we…
Capital Deployment: A New Approach to M&A CIRCOR M&A Process Overview Identification Due Diligence Valuation Integration Strategy First Ownership at Corporate Deep understanding of Full-time integration Deep market understanding…
Capital Deployment: Acquisition Screening CIRCOR Energy Criteria Synergy: Attractive Market Segment: Sourcing Offshore Engineering Unconventional Attractive Market G&A /Facilities Segment LNG Channels/Sales Power ROIC…
Capital Deployment: A Fragmented Market ( billions) Valves Competitive Landscape 30B Market 17 4 5 4 All Other 70% of Market All Other All Other All Other Top 10 30% of Top 10 Market Top 10 Top 10 CIRCOR CIRCOR…
Acquisitions: What to Expect from CIRCOR Typical Target Expected Financials Great technology Growth synergies understood but not included Leadership in niche segment 500 bps cost synergy Developed channels in high growth markets…
Talent Development Rigorous Recruiting Filter Accountability Focus on Development Engagement Pay for Performance Investor Day Strategic Overview 27
Talent: Aligning Compensation with Shareholders Tier 1 Variable Pay Instrument Targets Comments Short Term Cash or Organic Sales 100% staff participation Incentive Management Stock (Growth) in MSPP Purchase Program EPS 50%…
Summary CIRCOR is at an inflection point Good products in good end markets Significant margin expansion opportunity Energy: Simplifying and building the foundation for strong organic growth Aerospace: Resize and fix, then…
Investor Day CIRCOR Energy Wayne Robbins, Group President Presented September 10, 2014
CIRCOR Energy Well Positioned for Growth Focused on high growth segments Oil & Gas Power Generation Severe Service applications Strong, globally recognized brands with differentiated technology Pibiviesse engineered valves…
Sales Focused on High Growth Markets 2013 Energy Sales 661M Revenue by Industry Revenue by Region 20% US & Canada EMEA 53% 34% 5% 45% Asia Pacific Latin America 30% 4% 9% Oil & Gas Upstream Mid/Downstream Power…
CIRCORs Product Breadth Core Applications Investor Day CIRCOR Energy Products serve key segments across the Oil & Gas value chain 4
Global Oil & Gas Installed Base Investor Day CIRCOR Energy Long history in North America, the Middle East and Europe 5
Growth Drivers Upstream Rig count in North America Unconventional Shale and Oil Sands production Offshore Production in Brazil, Asia, North America Midstream LNG production and offloading stations FPSO expansion Downstream…
Total Energy Market Annual CAPEX by Segment ( billions) (1,100) POWER UPSTREAM MIDSTREAM DOWNSTREAM GENERATION Exploration / Extraction Transportation / Storage Conversion 5% 700 CAGR Offshore 4% 2% CAGR CAGR…
Energy Valve Market Segmentation ( billions) 2013 Industry CAPEX 30 Billion 17 (5% CAGR) 4 (4% CAGR) 5 (2% CAGR) 4 (5% CAGR) 4 LNG Offshore Deep Nuclear Gas Processing Offshore Shallow Vessel Land LandUnconventional…
Offshore Valve Market Offshore Incremental Annual Valve Spend 2018 vs. 2013: 1.3 billion Topside 62% of Growth CIRCOR provides valve and instrumentation products for 10% CAGR 2013-2018 Oil, Gas and LNG platforms Topside Uses…
North America Unconventional Valves Oil and Gas Technically Recoverable North America Shale Reserves Incremental Annual Valve Spend 2018 vs. 2013 1.1 billion N. America continues 75% of Growth to drive unconventional (billion…
LNG Valve Market ( millions) LNG Liquefaction Incremental Annual Valve Spend 2018 vs. 2013: 850 million LNG Value Chain 90% of Growth High growth segment 450 Australia and N. America building Liquefaction facilities…
Power Generation Valve Market Power Generation Power Plants Incremental Capacity Severe Service 2025 vs 2015 2B in Annual Valve Spend (GWs) 300 Asia represents 70% of global power growth 250 ROW 30% 200 Nuclear Coal Asia…
CIRCORs Growth Priorities Attractive Market Segment: Offshore LNG Power Unconventional Oil & Gas Attractive Market Segment Growth Regions: North America Middle East Asia Pacific and China South America (Brazil) Growth…
CIRCOR Growth Priorities Energy Growth Drivers Sales Force Pay Focus of Discussion for Performance Link variable pay to individual performance Easy to do Business On-time delivery Lead time reduction Customer interface Go…
New Organization: Global Market-Facing Commercial Team Energy Commercial Organization Facilitates Global Project Sales UPSTREAM MID/DOWNSTREAM POWER Commercial team (Engineered/Distributed) (Instrumentation) (Control) represents…
New Organization: Optimizing Engineering A New Engineering Organization Global Engineering Leader Engineered Distributed Control Instrumentation Valves Valves Valves Subject matter expert lead Dedicated NPD engineers…
New Products: Investing in Product Development Investing in Engineering Technology Engineering Tools Advantages: Product Design Higher velocity and throughput of New Products Products designed for best cost solution Ease of…
New Products: Priority Segments Engineered and Control Valves Instrumentation Distributed Valves Liquid Natural Gas Power Generation Oil & Gas Upstream Severe Service Steam FPSO Offshore Production Downstream Processing Power Gen…
Easy To Do Business: Key Initiatives Commercial Interface Action Plan Initiative Goal Simple interface & order process Self-Service Customer Portal Easily order products from multiple businesses Minimize errors Promote…
Summary A Comprehensive Plan for Growth Focused on high growth segments Oil & Gas Power Generation Severe Service applications Strong, globally recognized brands with differentiated technology Pibiviesse engineered valves Hoke…
Investor Day CIRCOR Aerospace & Defense Vincent Sandoval, Group President Presented September 10, 2014
About CIRCOR Aerospace & Defense Design, develop and test Fluid Control and Actuation products for commercial and defense markets Focused on high growth programs and technologies Commercial aircraft Weapons & Ordnance…
Strong Brands with Differentiated Technology Brands Products Long Range Bizjet Electro- Mechanical Actuation UAV Nose Wheel Steering Actuation Submarine Critical Air Control Valves Narrowbody Tachometers Investor…
Supplying Industry Leaders Investor Day CIRCOR Aerospace & Defense 5
Sample Commercial Content Brake Pedal M Transmitter Unit Alt Brake Selector Valve NLG Door Actuator Park Brake Selector Valve Nose (Gear) Norm Brake Isolation Valve Selector Valve Investor Day CIRCOR Aerospace…
Addressable Market Total Aerospace Fluid Control & Actuation CAPEX 2014 Military 65 BGA 30 Fluid Control 1.5 310 Billion 8 Billion Actuation 6.5 Commercial 215 Investor Day CIRCOR Aerospace Source: Forecast…
Addressable Market Segmentation ( billions) Industry CAPEX by Aircraft Platform Fluid Control and Actuation: 8 Billion 5 (4% CAGR) 1 (3% CAGR) 2 (1% CAGR) Regional General Aviation UAV Missile Civil Helicopter Twin Aisle…
Defense Growth Platforms ( billions) Incremental Annual Platform Spend 2025 vs. 2015: 19 billion 70% of Growth 13 CAGR 15 to 25 F-35: Actuation, Fluid Control KC-46A: Fluid Control CIRCOR Content CH-53K: Actuation No…
Commercial Growth Platforms ( billions) Incremental Annual Platform Spend 2025 vs. 2015: 121 billion 63% of Growth 44 CIRCOR Content A350: Fluid Control, Actuation A320: Fluid Control No Content 700 Series: Fluid Control…
Action Plan Summary Resize Aerospace and Defense Simplify the organization and integrate talent Drive margin expansion Supply Chain Optimization Price Intellectual Property vs. Build to Print Build the foundation for strong…
Resize Aerospace & Defense Exit non-strategic product lines Landing gear Select build-to-print product XX X X Consolidate facilities Completed Dayton Completed Sylmar Evaluating other facilities Dayton, OH Sylmar, CA…
Simplify the Organization and Integrate Talent Establishing Product Line Management General Manager Product Line Product Line Product Line Manager Manager Manager Product Team Sales & Marketing Responsibilities New…
Margin Expansion: Supply Chain Optimization Assembly and Sourcing Machining Test Global instead of local Make vs. Buy Keep in-house Aggregate spend with Leverage Low Cost Close to customer Energy Footprint Co-locate with R&D…
Margin Expansion: Extracting Value from IP Actuation BTP 24% 41% IP 59% Fluid Control BTP 15% 76% IP 85% CIRCOR Intellectual Property (IP) Build to Print (BTP) Investor Day CIRCOR Aerospace & Defense 16
Aerospace Growth Priorities Components and Sub-systems: Actuation Fluid Control Components and Sub-systems Platforms: Single and Twin Aisle Commercial Aircraft Business Jets and Civil Helicopters Fighters, UAV and Missile…
Grow: New Products in Development Product Description Application Differentiation Launch Aircraft landing gear Business Higher pressures for 2015 emergency deployment Aviation greater capacity system UAV Lightweight Rotorcraft…
Expand Services & MRO Corona, CA Large installed base Growth with minimal investment Quick entry to market OEM has advantage High Margin Investor Day CIRCOR Aerospace & Defense Corona, CA CIRCOR Repair and Overhaul Cell…
Summary Focused on high growth platforms and technologies Strong, globally recognized brands with differentiated technology International footprint for growth and low cost manufacturing Going forward we are focused on: Resizing…
Investor Day Strategic Sourcing Sumit Mehrotra, VP Global Supply Chain Presented September 10, 2014
Overview Material spend is 43% of our Sales Strategic Sourcing will contribute to margin expansion Goal is to drive positive YoY productivity, net of inflation Global organization aligned by commodity in place Investor Day…
Sourcing Opportunity ( millions) Direct Material Spend Indirect Spend 370 55 Logistics MRO & Travel & Ent. Other Consumables Focus Area (233) Focus Area (40) Direct Material Spend By Region Current Status 37021% Key…
Foundation in Place People Processes & Controls Projects Re-organized Contract Excellence Centralized management supply chain Best Value Sourcing of savings Created Strategic Value Engineering Sourcing function Lean…
People: Accountability by Commodity BEFORE TODAY SITE 1 SITE 2 SITE 3 CASTING FORGING MACHINING INDIRECT Castings Castings Castings Site 1 Site 1 Site 1 Site 1 Forgings Forgings Forgings Site 2 Site 2 Site 2 Site 2 Machining…
Process: Communication Strategic Sourcing Portal Common Website for CIRCOR One place for all Supply Chain: - Processes - Definitions - Metrics - Projects Regular meetings connecting global sourcing and site supply chain…
Process: Aggregating Spend Commodity Data Warehouse Investor Day Strategic Sourcing Snapshot of forgings spend from Commodity Data Warehouse 7
Process: ESourcing Develop Assess Profile Sourcing Award & Supply RFI RFP Transition Category Strategy Contract Base Commodity Data Warehouse eSourcing SmartSource Scope: Machined parts -Instrumentation Baseline Spend: 937K…
Go Forward Focus Areas KEY METRICS CONTRACT Negotiate put parts EXCELLENCE on contract 2014 Target (3-5 Yrs.) Net Productivity* 1% 2%/year BEST VALUE Source globally SOURCING of suppliers 5,011 1,200 (Direct Material) %…
Investor Day Operational Excellence Stefano Ruffini, Director of Continuous Improvement, CIRCOR Energy Presented September 10, 2014
Overview One single approach to operational excellence across the Company Continuous improvement is a key driver to meet customer expectations and grow the business Strengthening the foundation and expanding the scope of CIRCOR…
Case Study: Large Project Business Products On-off and control ball valves up to 64 Brand Name Pibiviesse Location Milan, Italy 64 Class 900 Valve with Gearbox Customers Engineering, Procurement & Construction (EPC)…
The Value Stream Timeline Lead Time: 25 - 48 weeks Order Receipt Procurement Assembly & Test Valve Design & Documentation Machining and Cladding Shipment Investor Day Operational Excellence 4
Lead Time Reduction 50 45 40 Before Long lead time as a Average Lead Time in Weeks 35 30 consequence of inefficient 25 processes in place 20 Excess level of work 15 in process 10 Average lead time reduced by 36%…
Inventory Reduction Before Sales, Finance and Operations working on different non interfaced IT systems Data-based decisions difficult due to poor data quality Actions Strong focus on data integrity Introduction of system…
Significant Productivity Improvements Productivity increased 106% in 18 months 4,00 Sales per hour worked [K/direct hours] Before 3,50 Widespread rework and 3,00 inconsistent execution were 2,50 main causes of low…
Pricing and Cost Control Large International Project Pricing Before Quarterly Quoted vs. Actual Margin Trend Trend Margin (Quoted vs. Actual) Inconsistent quotation process 10% Margin eroded by poor 0% Quarterly Margin Trend…
Summary One single approach to Operational Excellence across the Company Continuous improvement is key driver to meet customer expectations and grow the business Strengthening the foundation and expanding the scope of CIRCOR…
Presented September 10th, 2014 Investor Day Financial Overview and Targets Rajeev Bhalla, EVP, Chief Financial Officer Presented September 10, 2014
Summary Well positioned in attractive end markets Margin expansion through simplification and operational excellence Disciplined use of balance sheet to drive shareholder returns CIRCOR Absolutes: Ethics, Safety and Controls…
1H 2014 Comparison ( millions except for EPS) 1H 2014 1H 2013 VPY% Energy 319.9 337.2 A&D 83.7 89.7 Orders 403.6 426.9 -5% Energy 323.2 330.7 A&D 95.9 98.4 Sales 419.1 429.0 -2% Energy 46.0 40.1 15% 14.2% 12.1% A&D 7.8 8.6…
Summary of Growth Drivers Energy A&D Upstream O&G Commercial Transport Market Growth LNG Business Jet Power Generation Military / Defense Turbine By-Pass Valve Pneumatic Launching System Cryogenic Ball Valve New Products…
Sales Growth Target ( millions) 4% to 6% Organic Growth 1,100 860 Energy 80% 6% CAGR Energy 77% A&D A&D 20% 3% CAGR 23% 2013A Market Growth New Products New Markets / Price 2018T Programs Investor Day…
Total Operating Cost (% of Sales) 9.9% AOI 15% AOI 2% 7% 3% 8% 12% R&D 8% Selling G&A 26% Other Cost Of Sales 24% Direct Material 43% 42% Investor Day Financial Overview 2013A 2018T and Targets Excludes…
Segment Manufacturing Cost (% of sales) Energy A&D 31% 31% 35% 31% 33% Gross Margin 35% Gross Margin 31% Gross Margin 34% Gross Margin Gross Margin 23% 20% 34% 33% Manufacturing Labor and Overhead Direct Material…
OPEX Spend (% of Sales) 21% 2% 19% 3% 7% R&D/Engineering 8% Selling G&A 12% 8% 2013A 2018T Investor Day Financial Overview and Targets Amounts adjusted for any special/impairment items 9
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