Annual investor conference - Power management solutions · Power Electronics. Managing electrical...

© 2019 Eaton. All rights reserved..

Annual investor conference

Uday Yadav, President and COO - Industrial SectorMarch 1, 2019

2© 2019 Eaton. All rights reserved..

Today’s themes• Vehicle electrification strategy is on track

• New growth opportunities from intelligent products and differentiated IoT solutions

• Positioned to capture continued Aerospace Aftermarket growth

• New regional growth opportunities in Vehicle and Hydraulics

• Managing Hydraulics operating complexities, addressing margin inefficiencies through improved execution


The Industrial Sector serves a diverse set of end markets

United States58%

Geographic mix

Rest of World42%

Aerospace• Commercial transports• Regional jets • Business jets• General aviation• Civil rotorcraft• Commercial aftermarket• Military transports• Military fighters• Military rotorcraft• Military aftermarket

Hydraulics • Construction & mining• Agriculture• Oil & gas• Commercial vehicles• Industrial machining• Material handling• Industrial processing• Recreation• Filtration• Hydraulics aftermarket

Vehicle & eMobility• Commercial vehicles• Passenger vehicles • Medium-duty trucks• Off-highway

• Light-duty trucks• Agriculture• Construction & material handling • Vehicle aftermarket

End-market mix

$8.7B2019E Sales


Industrial Sector overviewAerospace Hydraulics Vehicle

• Hydraulic pumps, motors& valves

• Hydraulic steering controls• Conveyance & fittings

• Valves & valve actuation• Transmission & clutches• Torque control• Advanced combustion

• Hydraulic pumps, motors & valves

• Fuel pumps & valves• Conveyance & ducting

Key Applications

Key Products

Megatrends

• Commercial aircraft• Military aircraft

• Mobile equipment• Stationary equipment

• Commercial vehicles • Passenger cars

$1.9B2018 sales

$2.8B2018 sales

$3.5B2018 sales

Intelligent & connected

Environmental concerns

Energy efficiency

Global demographics

Demand for superior value solutions

$320M2018 sales

• Commercial & Passenger• Off road

eMobility

• EV Fuses • EV transmissions• Inverters & converters• On-board chargers

• ~$2.1B• 21.4% - 22.0%

2019E Sales & ROS

• ~$2.9B• 14.0% - 14.6%

• ~$3.4B• 17.4% - 18.0%

• ~$0.35B• 6.1% - 6.7%

EV = all electric vehicle architectures


Dynamic industry shifts continue to create opportunities for growth

Intelligent, connected, and autonomous• Cloud enabled products in the field • Investing in portfolio shift over next decade

Additive manufacturing• Active customer engagement • Center of excellence investment

Regional growth • Localization of products• Customer tailored solutions

Electrification / blended power• Expanding electrification portfolio• Leveraging enterprise-wide capabilities

Tiered-product offering• Expanding addressable market • Delivering superior customer value

Restructuring and repositioning• World-class manufacturing footprint• Improving customers’ supply chain

Strategic partnerships• Gaining scale & competitiveness • Product & geographic adjacencies

Intelligent, connected,

andautonomous

Tiered-product offering

Regional growth

Restructuringand

repositioning

Electrification / blended power

Strategicpartnerships

Driving organic growth by continuing to invest in our core capabilities

Additive manufacturing


Today’s topics

Accelerating Aerospace aftermarket growth

Electrification, Blended PowerTM and eMobility status1

2

3

Capitalizing on new regional growth opportunities in Vehicle and Hydraulics

Managing Hydraulics operational complexity and execution

4

Creating intelligent and connected growth opportunities

5


Electrification of industrial mobile markets impacts powertrain and actuation functions

Leveraging Eaton’s Electrical scale, pedigree, and differentiated technical capabilities to uniquely penetrate multiple end markets

Hydraulics AerospaceVehicle/eMobility

Core products, manufacturing footprint, supply chain, and Blended PowerTM technology roadmaps

Mobile markets transitioningShift towards electric vehicles Migration to more electric aircraft

1. Powertrain2. Actuation

Eaton’s Leveraged Capabilities


eMobility business launched in March 2018 is right on track

Electric power capabilities Managing electrical power

Eaton’s deep expertise makes us a trusted partner to customers

Targeting $2B to $4B in revenue by 2030

Vehicle domain knowledgeUnderstand vehicle dynamics

+

Power electronics & conversion

Power distribution & protection

Market growing in line with our projections

Robust pursuit pipeline continues to grow as our electric vehicle market credibility increases

Rapid ramp up of global organization

Significantly advanced portfolio breadth

High customer engagement and confidence

Capturing opportunities earlier than planned with accelerated product development


Electric vehicle market growth aligned with projections

Longer term EV market adoption rates continue to be in line with our projections

Multiple enablers continue to drive electrification adoption

OEMs continue strategic repositioning

2018 2030E

6.1

7.8

2018 2030EInternal combustion engineHybrid / Plug-in Hybrid

Battery electric vehicleContains internal combustion engine

EV Market Mix ExpectationsNumber of vehicles produced (in millions)

115

9498%

88%

97%89%

Light Vehicle Commercial Vehicle

By 2025, ~25% of our vehicle portfolio exposure will be linked to higher growth, EV end marketsEV = all electric vehicle architectures


Increased depth of portfolio over last 12 months with accelerated product development…

Power ElectronicsManaging electrical power

Power SystemsManaging mechanical power

Power Distribution and ProtectionSafely and reliably distributing power

Traction inverter

DC/DC converter

On board charger

48v auxiliary inverter

EV fuel tank isolation valve

Low and high voltage fuses

48V mild hybrid

EV transmission

Resettable circuit protection

Power distribution unit

…and we are winning across the portfolio

Won development agreement

Program win



New technical challenges for customers are creating opportunities

?New Technical Challenges

Increased

Higher power density

Smaller and more efficient electronics

More intelligent solutions

Integrated and coordinated components

NewWe need innovative solutions!!

Uniquely positioned with expertise in vehicle dynamics and managing high-voltage power


eMobility

Traction Inverter

Power Electronics

Power Distribution and Protection

Power Distribution and Protection

Resettable Circuit Protection

Incorporates increased power density, better thermal management, high efficiency electronics and control algorithms

A resettable device that includes embedded sensing to enable precise trip levels to be set by the OEM

Better range

Durability

Scalability

Accelerating product development is capturing earlier than planned opportunities

Eaton’s technology provides solutions for critical customer challenges

Precise setting

Durability and safety improvement

Intelligent PDU

Considered the “brains” in controlling and understanding the health of the high voltage electronics and wiring

Predictive failures


Achieving significant program wins and traction with customers since March 2018 launch

Development programs

Launch to mature year revenue

Pursuit3 to 9 months

12 to 30 months

Campaign Win Process

24 to 36 months

Strong momentum with program wins and development agreements

$900M11Development

agreements

$200M+Mature yearprogram wins

Pursuit pipeline

Current ScorecardTraction Inverter Win

$100M+ Mature year revenue win

• ~$450M life of program win

• Major global automotive OEM customer

• Won with superior technical solution against global competitors


eMobility next 12 month focus

Volume ramp up: Successfully launch new programs and volume ramp up on key products

New business wins: Deliver on 2018 development agreements, secure more in 2019, and achieve >$200M in mature year revenue from new business wins

Expansion in key growth markets: Expand capacity and capabilities in key growth markets and deliver operational excellence at automotive performance level

Product development: Continue to develop product portfolio

eMobility

Volume ramp up

New business

wins

Expansion in key growth

markets

Product development

Well positioned to leverage new capabilities and win in high-growth EV markets



Today’s topics



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4


5


Our portfolio continues to evolve with intelligent and connected products and IoT solutions

Products Intelligence Enabled Connected IoT Solutions

Pumps

Blended PowerTM

Intelligent valves

Widening scope across the industrial markets

Machine learning

Intelligent Power

Transmissions Predictive maintenance

Enhancing customer value from intelligent and connected products

Evaluating several new business models and solutions to capitalize IoT capabilities

Providing benefits from products that adapt to real-time performance needs

Process optimization

Asset management

Early in IoT journey, but tangible solutions begin to demonstrate real revenue opportunities


• Enhanced efficiency and productivity

• Lower operating costs

• Easy set up and operation

• Improved safety

Mobile controls are a $2B market; growing at ~3% CAGR, advanced controls growing at 3x to 4x faster

Intelligent products enabling Hydraulic solutions

Customer Needs

CMT and CMA valves• Integrated sensing, distributed

control, and independent metering features

• On-board software enables valve to take input commands, interpret sensors and respond quickly

• Set up in days or weeks vs. weeks to months

Eaton Solution

10%-15%Customer Benefits

Fuel savings

Improved boom oscillation 75%

Faster placementimproved control 50%

~$200M revenue opportunity


Eaton’s intelligent and connected products provide solutions addressing end user needs

End User Pain Points

Crop yield loss

Downtime due to unplanned failures

• Crops are in remote and harsh environments• Harvester machine is complex with a wide

range of sizes and features• Equipped with over 70 hydraulic components

Creating new revenue opportunities through IoT solutions – sugarcane harvester

Assets planning and scheduling


Cloud data supports utilization and overall fleet efficiency, prediction of equipment condition, harvest yield optimization, and maintenance

Cloud analytics and edge computing applied to speed control and contamination to improve equipment availability and reduce yield loss

Intelligent real-time vehicle control and performance Cloud-based analytics for fleet optimization

Fleet planning & asset optimization

Maintenance scheduling

• Speed control & optimization

• Pump displacement & system pressure

Critical element in sugarcane harvester ecosystem, delivering immediate, real-time benefits

Benefits to customer

Partner IoT CloudAsset availability

Harvest data

Field data

Equipment condition

Motor speedPump rate

Maintenance schedule

Reduction in yield loss

~10% 10%+

Reduction in downtime

~$50M new revenue opportunity

Engine speed Contamination monitoring

19


Eaton’s position in the ecosystem enables it to provide broader benefits through an IoT platform

Low asset utilization

Unscheduled downtime

Flight Delays

• Ground refueling ecosystem is complex and inefficient

• Eaton has a leadership position in intelligent ground refueling systems

End User Pain Points

Pit valve

Fuel nozzle Water

detector

Digital monitor

Eaton is helping shape the ground refueling ecosystem


Operator

E-tix

Fueling monitor

INTERPLANE FUELER

AIRLINE FUELER

OIL & GAS CO.

Data collected is sent to cloud to provide deep analytical insights in overall fleet performance, health, and utilization

Eaton’s intelligent digital pressure control system reduces fueling time by 30%

Intelligent fueling Cloud-based analytics for fleet optimization

Integrating diverse information sets to provide optimal asset management and improved turn-around-time

Optimized scheduling

Fleet management

Eaton IoT Cloud

Fuel pressure

Water contaminationTruck location

Flight data

Operator performance

Incident records

Flow rate

Fueling demand/volume

Improved asset utilization

Operations manager

20%+

Minutes

Post fueling tasksPrior to fueling tasks

Fueling process

Benefits to customer

Ground re-fueling end-to-end time

21


Today’s topics



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5


Aftermarket focus shifting Aerospace mix and driving profitable growth over next five years

~$250M new aftermarket revenues opportunity over the next five years

Eaton Aerospace Business Mix

Aftermarket 2019 – 2023

CAGR

▲4%Market

▲6%Eaton

Continuing to shift Aerospace mix

Targeting $1B aftermarket sales by 2023, driven by a continued strategic focus on:

Driving retrofits, modifications, and upgrades

Capitalizing on repairs in engine super cycle and innovating around the repair cycle

Leveraging increased military spending

2013 2018 2023

37% 39% 42%

Aftermarket OEM & other


Growing retrofits, modifications, and upgrades Opportunity to win share on

in-service aircraft

Providing customer value through:

• Improved product performance

• Expanded capability (tech insertion)

• Extended product life

Key growth opportunity independent of market conditions

Proven track record of ability to capitalize on later lifecycle opportunities

In-service fleet

In-service support

Production

0 10 20 30 40 50 60 yrs.R&D, design

1

2

3

Entry into serviceFirst metal cut

End of production Final aircraft retired

Early serviceReliability

Mature fleetPerformance

SunsettingLife extension

# of

airc

raft

With life extension

Production

Aerospace Lifecycle Insertion Opportunities


Successful retrofits and upgrades on in-service aircraft

Providing enhanced safety & aircraft readiness through higher reliability & technology insertion

Airbus A320 Electric Motor-Pump

• Retrofit of A320 ACMP, offering improved reliability

• Two per aircraft, dual source application

• 500+ aircraft upgraded to-date

• Strong market share on new aircraft

Boeing CH-47 EPUSHA

• Replaced manual handpump with electric pump

• Reduces personnel exposure to harm

• US Army pre-F model fleet retrofitted

• Now seeing follow-on repair demand

EPUSHA: electric pump for utility system hydraulic accumulator


Engine super-cycle driving repair opportunities Rapid fleet and traffic growth driving significant

engine repair and overhaul opportunity

Shop visit cycle for key legacy engines not peaking until 2022 and beyond

Strong aftermarket content on legacy engines for fuel and conveyance systems

Component repair share of engine overhaul spend increasing2019 2025

CFM56*

V2500

CF34

+20%

+34%At peak in 2022

+20%At peak in 2023

+23%At peak in 2025

Shop visits+9%

*Note: CFM56 reflects CFM56-5A, 5B, & 7B onlySource: Aviation Week 2019 Commercial Fleet/MRO Forecast

Engine repair and overhaul a key driver of aftermarket growth

Legacy narrowbody and regional jet engine shop visits peaking in 2025

All other commercial enginesLegacy narrowbody and regional jets


Aircraft engine tubes and ducts represent a significant element of engine maintenance

Innovating around the repair cycle with intelligent solutions

Intelligent and connected solutions will enable improved uptime and reduce total lifecycle costs

Digitized data collection

Eaton Intelligent Solution

Repair turn time

▼80%Machine intelligence

Lifecycle cost

▼50%Eaton repair

1

2

3

Customer pain points

Maintenance time

Wastage Cost

$$


Realizing anticipated benefits from improved military budget conditions

Life extensions and fleet readiness continue to be a key area of focus for the military

Eaton benefiting from strong maintenance demand, including spares for aging platforms

Targeting platforms for product upgrades, increasing safety, reliability, and affordability

Investing in additive manufacturing solutions to reduce lead times and repair turn times

Supporting military fleet with spares, repairs, and upgrades

F-15 engine-driven hydraulic pump• 1,000+ F-15 in service with

three pumps per aircraft• Dual source application• Highly reliable product,

reducing total life cycle cost

M-1 engine-driven hydraulic pump

• 1,200+ unit spares order with Defense Logistics Agency

• Actively pursuing additional platform opportunities


Today’s topics



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Regional growth and partnerships are strategic drivers of Vehicle’s transformation

• Brazil, India, and China expected to grow from 20% to 30% of Vehicle Group revenue by:

Building regional capabilities

Improving cost structure through manufacturing, engineering, and supply base

• Significantly growing unconsolidated revenues from partnerships in Asia

Emerging Markets Revenue Growth

2018

20%

2023

30%

Brazil, China, India Rest of World

2023 revenuebooked business70%

Growth in emerging markets through product offering, footprint, localization, and technology


Growing share with the right footprint and technology

ChinaBrazil India

• Expansion of manufacturing capability

• High quality manufacturing base

• Local content with superior operational excellence

• Large manufacturing capability

Brazil, India, and China revenue growing ~$350M in incremental revenue over five years

• Light automated transmission• Strong partnership model with

vertically integrated customers

• R&D focus on regional needs• Local automated

transmission product

• High quality valvetrain products

• Higher torque transmissions

• Superior design and reliable products

• Tailored to local needs

• Torque, engine brake, fuel vapor and valvetrain

• Partnerships enable fast market access

Footprint

Technology

Growing share

Great Market Position Doubling Business Expanding & Growing Core

• Solutions tailored around increasing regulations

• Strong local application expertise


Hydraulics capitalizing on China’s evolving construction market dynamics

Excavators make up 75% of a $6.5B construction equipment addressable market

Mini excavators growing 3x to 4x faster than broader excavator market

• Early stage economic development • Large infrastructure projects • Utilizes heavy-duty equipment

• Maturing economies have small scale projects and smaller equipment

• Urbanization rates driving shift towards small excavators driven by a number of benefits, including:

Versatile and multifunctional

Sharp turn radius

Easy to transport

Better noise control

Early

M

atur

e


Our strong suite of components for the small excavator segment positions us to lead

Swing Drive

Track Drive

Main Pump

HRCsSiCV/MCD

Hose & Fittings

Main Control Valve

Eaton is a market leader in track and swing drives due to:

Higher torque capabilities enables heavier loads

Precise control

Better noise level

Customers benefit from increased productivity and improved fuel efficiency

Eaton has the right technology and footprint to deliver ~$100M of incremental revenue


Today’s topics



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5


Hydraulics business vs. our enterprise-wide evaluation criteria

Ability to lead in large global markets

Above average growth potential

High margin potential

High returns

Consistent profitability

Addressable market >$2B

Long-term growth > real GDP

Segment operating margins in mid- to high- teens

Return on tangible assets mid-twenties or above

Minimum of low-teens margins at the trough

Restructuring actions taken to improve overall margin and consistency


With restructuring actions underway, market ramped faster than expected creating significant challenges

Fixed cost improvement as % of sales

200bps 100bps to 200bps

Supply chain constraintsRight sized

5 plants

175K part numbers

eliminatedQuick market

recovery

Closed 6 plants

New exit taxes

Expanded 150K sq ft

facility

Built 320K sq ft

facility

Facility ramp up delays

81 new suppliers

Adjusting to new

business model

Increased temp labor &

scrap

Unplanned equipment downtime

New tariff implications

Tight freight

dynamics

Restructuring Actions Internal Execution Challenges

Margin inefficiencies

External Market Dynamics

Moved 35 product lines

Inefficiencies isolated and improving in 2019 and largely resolved by end of 2020


2018 2019 2020

Freight Material Inefficiencies

48% Improvement

Inefficiencies • Challenges in ramping up new capacity

• Labor overtime

• Unplanned equipment downtime

• Increased usage and scrap

Freight• Supply chain complexity

• Premium freight

Material Economics• Higher prices

• Supplier switching costsInefficiencies expected to be

largely resolved by end of 2020

Hydraulics Margin Drivers

Action plans in place and capability being bolstered to address inefficiencies

Confirming peak-to-trough through the cycle margins of 13% to 16%


Today’s themes• Vehicle electrification strategy is on track

• Successful eMobility launch• Broadened portfolio development driving signature platform wins

• New growth opportunities from intelligent products and differentiated IoT solutions• Game changing intelligent mobile valve technology• Solving challenges in the sugar cane industry and aerospace refueling segment

• Positioned to capture continued Aerospace Aftermarket growth• Taking advantage of modification and upgrade insertion opportunities• Innovating around the repair lifecycle through IoT and process optimization

• New regional growth opportunities in Vehicle and Hydraulics • Shifting Vehicle mix towards higher growth countries through technology, localization, and partnerships • Hydraulics capitalizing on China’s evolving construction market dynamics

• Managing Hydraulics operating complexities • Addressing margin inefficiencies through improved execution

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