annual investor conference...into 2016 end market mix 2016 outlook industrial facilities • u.s....

© 2016 Eaton. All Rights Reserved..

Annual Investor Conference

Revathi Advaithi, COO, Electrical Sector February 26, 2016

2 © 2016 Eaton. All Rights Reserved..

• We are finished with the Cooper integration • Eaton is now a top four global electrical player

• Our seven core competencies deliver solutions for the entire power system • Providing differentiated value to key customer segments

• We have a balanced business • Both geographically and across key segments

• Our focus continues to be on delivering profitable growth • Execution of our strategic growth initiatives will drive end market outperformance • We are expanding margins by focusing on structural cost reduction

Key themes for today


Our seven core platforms deliver solutions for the entire power system…

Data centers Facilities Utility Residential Machine builders Commercial Industrial


…providing differentiated value to key customer segments

• Single family • Apartments • Condos

Segment

Examples

Customer value

• Internet / Web

• Telecom • Enterprise • Multi-tenant

• Mining • Oil & gas • Steel

Protecting people and profit with solutions that increase operational performance

• Generation • Transmission • Distribution

Delivering reliable, efficient and safe power where and when it is needed

• Packaging machinery

• Conveyors • Injection

molding

• Offices • Retail • Warehouses • Healthcare • Education

Enabling machines to deliver the performance, energy efficiency and reliability customers demand

Protecting businesses by focusing on reliability and efficiency to maximize comfort, safety and ROI

Energizing data centers for maximum performance, time to market, reliability and ROI

Providing reliable, sustainable and safe solutions for modern lifestyles

Data centers Facilities Utility Residential Machine builders Commercial Industrial


We are balanced both geographically and across key segments

59% U.S.

41% Rest of world Machine Builders 11%

Geographic mix Segment mix

$12.9B 2015 sales

Residential 9% Utility 13%

Data center / IT 15%

Commercial & Institutional / Gov't 31%

Industrial 32% Facilities 20%

Machine builders 12%


Global macro trends continue to support our long term growth strategy Every day, the world creates 2.5 quintillion bytes of data

By 2030, the world’s 750 biggest cities will gain 220 million additional middle-class consumers

70% increase in the global LED lighting market projected by 2020

$68 trillion of expected investment in the world energy sector by 2040


We expect end market weakness to continue into 2016

End Market Mix 2016 outlook

Indu

stria

l

Facilities • U.S. Manufacturing Industrial Production flat to modestly up • Safety and Reliability solutions still needed

Residential • U.S. residential construction up 3-4%

Commercial • U.S. commercial construction up 3-5% • European construction and manufacturing activity modestly positive • KSA and Gulf countries commercial construction stable to slightly growing

Data Centers • Data centers slightly negative overall, although hyperscale expansion continues • Data privacy regulations in Europe fueling some above-market growth

Utility • U.S. Utility growth in the low single-digits • U.S. Utility – 65k MW of new capacity additions expected in 2016

Machinery • German Machine Builders index flattish


Electrical’s focus is to deliver profitable growth

Strategic growth initiatives • Delivering superior customer value • Leveraging our technology leadership • Converting on our service and channel strength

Expand margins • Product line optimization • Multi-year productivity plans • Accelerating our operational excellence


Execution of our strategic growth initiatives will drive end market outperformance

• Delivering superior customer value • Developing the right products for the right markets

• Leveraging our technology leadership • Structured approach to innovation • Leading LED and connected lighting business • Wide range of intelligent devices, software and communications for

the Industrial Internet • Converting on our service and channel strength

• A service organization solving our customers’ toughest challenges • Strongest channel presence in North America


Designing and delivering the right products for the right markets

$0

$5

$10

$15

$20

$25

2013 2014 2015

93E (400V) Sales

APAC MEA / E. Europe

($M)

• Designed to meet the specific needs of emerging market customers and their unique applications

• Development efforts conducted in-region to ensure close customer intimacy and enable rapid feedback

• Delivers up to 98% efficiency with a footprint up to 35% smaller than competitive offerings

• Rapid sales growth across APAC, MEA and Eastern Europe since 2012 launch

• Using emerging market design and cost concepts in products designed for developed markets

93E UPS for Data Centers in emerging markets

$100M additional Eaton 93E annual revenue opportunity by 2020


2012 2015

% of sales from products introduced in last 3 years

Innovation

• A global network of experts that listen to and understand our customers’ most critical electrical needs

• Specialized innovation and product development centers

• A robust new product pipeline process guiding innovation from ideation through product launch

Market-leading products come from our structured approached to innovation


Cost

Com

plex

ity

Starters

Soft starters

VFD

Market gap (VSS)

Motor control market Key applications Key characteristics

• Motor applications that require complex adjustable speed control

• Adjustable motor speed control • High functionality – high complexity • More expensive

• Motor applications that require simple adjustable speed control

• Adjustable motor speed control • Easy to install and commission • Compact, space saving design • Less expensive

• Motor applications that do not require adjustable speed control

• Fixed motor speeds • Easy to install and commission • Basic motor protection • Least expensive

$300M additional Eaton VSS / VFD annual revenue opportunity by 2020

Innovative products that fill unmet market needs – Variable Speed Starter (VSS)

VFD = Variable Frequency Drive


Total connected lighting growth

Convergence of light sources and controls facilitates growth of integrated lighting networks

Industry leading LED penetration

2012 2015

19%

60%

$800M additional Eaton Lighting annual revenue opportunity by 2020

Investing in new products and technology for new markets

• High-performance connected LED lighting • Sports lighting, outdoor, and industrial

applications • Controls capability with embedded

intelligence and communications

A leading LED and connected lighting business driving growth across the entire electrical franchise

LED w/ Integrated controls

LED “Stand alone”

Traditional sources


Intelligent devices

Substation Control center

Utility automation application • Ability to integrate thousands of

intelligent devices

• Software that aggregates and analyzes information to optimize the grid

• Communications provide cybersecurity for remote access

• Helps to manage, monitor and secure an increasingly complex electrical grid

$500M additional Eaton automation annual revenue

opportunity by 2020

Integrating intelligent devices, software and communications for the Industrial Internet

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjtyt71mt7KAhWGj3IKHSvlAM4QjRwIBw&url=http://www.qsrweb.com/articles/serving-up-guest-wi-fi-its-not-as-easy-as-it-looks/&bvm=bv.113370389,d.bGg&psig=AFQjCNHoF02HFoJ2LP0Kh7IP3EH3JZDiaQ&ust=1454678770816782


$350M additional Eaton service annual revenue opportunity by 2020

Field services

• Startup • Maintenance • Emergency

response

Power system engineering

• Arc flash & safety studies

• Power systems studies

• Power quality

Power system automation

• Foreseer and PowerXpert enterprise solutions

Turnkey projects

• Project management

• Engineer, Procure & Construct (EPC)

Aftermarket & life extension

• Medium / Low Voltage power circuit breaker replacement

• Equipment rebuild and reconditioning

• FERC / NERC requirements driving Utilities to “harden” their substations to enhance power reliability and security

• Eaton’s Service organization to evaluate the communications, protection and control systems and provide design services to modernize the substations in compliance with industry requirements

• Eaton will also provide project management, installation and commissioning services in ensure a seamless transition to the new technology

A service organization solving our customers’ toughest challenges

Case study: Leveraging Power Systems’ relationship with a large IOU to implement substation upgrades


• Over 70% of Eaton’s Electrical business in North America is sold through distribution

Eaton sales Distributor Electrical

contractor

EPC / General

contractor OEM Electrical

consultant Architect Owner

Application engineers End users sales

Distributor Sales Specialists (DSS)

Construction sales OEM sales

Utilize user preference to create PULL through the distribution channel

Partner with intermediaries to PUSH product into the market

Eaton manages a complex and multi-layered electrical value chain in North America


• Eaton can provide 65% of a typical distributor’s revenue; Eaton’s products are typically #1 or #2 in most categories

• Eaton has the largest electrical sales force in North America; over 1,700 sales personnel

• Eaton has over 2,000 service and project management specialists

• Eaton has ~10,000 R&D professionals with intimate customer and market knowledge

• Eaton has strong anchor brands and a powerful corporate brand

• Eaton has invested in electronic tools to increase distributor productivity

Distributor requirements of their best suppliers

$900M additional Eaton distributor annual revenue opportunity by 2020

Industry leading channel partnerships by focusing on what is important to distributors


Case Study: Cross-selling Eaton’s electrical portfolio for a major Liquefied Natural Gas (LNG) facility in North America

Lead: Power Distribution • Integrated Power Assemblies, MV /

LV switchgear, motor control centers Pull-through: Harsh & hazardous products, structural solutions • Explosion-proof enclosures,

fittings, cable tray, strut

Eaton products

$350M additional Eaton Oil & Gas annual revenue opportunity by 2020

Coordinated selling effort across the entire organization • Application experts, sales, project management, channel Engagement at different project stages and with different stakeholders • Feasibility, FEED, Detail Design, RFQ • End users, EPCs, OEMs, Distributors

Keys to success

Seven complementary platforms that create a more powerful electrical franchise

http://www.cooperindustries.com/content/public/en/b-line/products/cable_tray_systems/metric-cable-ladder.html


We are expanding margins by focusing on three main areas of structural cost reduction

• Product line optimization • Improving product line profitability by focusing on the tails

• Multi-year productivity plans • Leveraging EBS tools to drive continuous cost improvements

• Raising our level of operational excellence • Focusing on the most critical metrics

• Optimizing our global manufacturing footprint


We have transformed our Electrical business by changing our mix

• Acquired 34 businesses from 2000-15 • Cooper – global electrical player • Moeller – IEC PD and control components • Powerware – single & three-phase UPS • Phoenixtec – single-phase UPS • Delta – IEC power distribution equipment • MGE – single-phase UPS

• Divested 11 businesses from 2000-15

0%

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20%

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2000 2015M

argi

ns

Sale

s ($

B)

Improved margins from 10.4% → 15.3%

Note: margins exclude acquisition integration charges


Low margin

High margin

Profitability distribution

Focus Area

Fixed • Power distribution assemblies • Power Quality products • Distribution transformers

Grew • LED lighting • Crouse-Hinds products • Residential products

Fixing Growing

Our efforts to improve product line performance have and will continue to raise overall profitability


Continued focus on reducing structural cost throughout the business

Closed 32 plants

~6% Reduction

2013-15 Footprint optimization

2013-15 Salaried headcount

We have successfully reduced structural costs across the entire organization


Parking lot lighting

2.7%

3.8%

2014 2015

Direct material productivity EBS toolkit: • PROLaunch • Value Analysis / Value Engineering (VA / VE) • Design for Manufacturability (DFM) • EQS – Eaton Quality System • ELSS – Eaton Lean Six Sigma

Leveraging EBS toolkit to drive continuous product cost-out across the franchise

Case Study:


High 5 metrics World class benchmark Programs / Initiatives

Safety (TRCR) <0.50 • Machine guarding • Site focus

Quality Cost <1.0% • Design for Six Sigma (DFSS) • Focus on scrap

On Time Deliver (OTD) >95% • Sales Inventory and Operations Planning

(SIOP) Playbook • Process cycle time reduction

Inventory (DOH) <50 • Materials playbook • Convert sites to “Pull vs. Push” execution

Productivity (Cost-out) YoY 5-7% • Continuous Improvement cost-out

• Value Analysis ramp up

Focusing on the most critical metrics to drive operational excellence


ETN Elec Opportunity

>60% in higher cost locations

Sales per manufacturing site Manufacturing sites

0-100 100-200 200+

Mfg. sites by number of employees

Results in improved customer experience (OTD, quality) and significant cost-out

Actions • Should-cost analysis • Core vs. non-core activities • Manufacturing Centers of Excellence (COEs)

• Distribution Center optimization • Supplier consolidation

Scale opportunities

Opportunities still exist for improving our global manufacturing and supply chain footprint


2015 2016E Through thecycle

Segment Margins Key drivers

• Leading the conversion to connected LED lighting

• Growth in the global distribution channel

• Global power quality product offering for IT markets

• Leveraging our portfolio of industry leading electrical components

17.0%-17.6% 16.0%-19.0%

16.9%

An Electrical Products business with the scale and technological innovation to compete globally

Note: 2015 segment margins exclude acquisition integration charges


2015 2016E Through thecycle

Segment Margins Key drivers

• Arc flash and explosion-proof technologies

• Capitalizing on leadership position for energy-efficient UPS

• IEC assemblies for global markets

• Exploiting our extensive project management capabilities and value- added services

13.7%-14.3% 13.0%-16.0%

13.3%

An Electrical Systems & Services business providing solutions to all levels of the value chain

Note: 2015 segment margins exclude acquisition integration charges


• We are finished with the Cooper integration • Eaton is now a top four global electrical player

• Our seven core competencies deliver solutions for the entire power system • Providing differentiated value to key customer segments

• We have a balanced business • Both geographically and across key segments

• Our focus continues to be on delivering profitable growth • Execution of our strategic growth initiatives will drive end market outperformance • We are expanding margins by focusing on structural cost reduction

Key themes for today

annual investor conference...into 2016 end market mix 2016 outlook industrial facilities • u.s....

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