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Hillenbrand, Inc. (NYSE:HI)

Investor Briefings to Discuss the Recent Acquisition of Coperion

December 11, 2012 12:30 pm ET

Executives

Chris Gordon – Director-Investor Relations

Kenneth A. Camp – President and Chief Executive Officer

Guenter Bachmann – President-Coperion

Joe A. Raver – President-Process Equipment Group

Cynthia L. Lucchese – Chief Financial Officer

Chris Gordon

Welcome everyone and thank you for joining us today. We are very excited to share Coperion, our newest operating company with you.

Before we get started though, I need to remind you that during the course of today’s discussion and question-and-answer session, we may make some projections or other forward-looking statements that are subject to the safe harbor provisions of the Securities Laws regarding future events or financial performance of the company.

We caution you that these statements are only our view of the future and that actual results may differ materially. We also alert you to the risks described in the documents we file with the Securities and Exchange Commission, such as our annual and quarterly reports on Forms 10-K and 10-Q. We do not undertake any obligations to update or correct forward-looking statements.

So with us today are Ken Camp, our President and Chief Executive Officer, Guenter Bachmann, who is the President of Coperion, Joe Raver, our Hillenbrand Process Equipment Group President and Cindy Lucchese, our Chief Financial Officer. That is the order in which you’ll hear them speak as well.

With that it’s my pleasure to turn the presentation over to Ken Camp.

Kenneth A. Camp

Thanks Chris. Thanks everyone for being here today. We bought the big team out here to see all you guys. So by the times it’s done, the stock market will be open little while, so you can – these lunches aren’t cheap in New York. I’ve got just a few slides to talk to you about and what we really want to do today is just not hammer you with a lot of slides, you all got a little book there you can takeaway, it’s always I think more instructive for those who are here and certainly more fun for us to spend more time on the Q&A section and I was just going through a bunch of slides, or making the assumption everybody here can read, I won’t read the thing to you especially this first one that’s up right now for those of us who are on the webcast, this is one that looks, has the shape sort of like the pantheon and my Greek, Senior Vice President of M&A has given me the bail I exercise, sometimes make a Greek joke about that’s as close as we get to Greece here with the pantheon shape because our results are a lot better than there.

But what this really lays out is how we think about the strategy, we have a quite people at Hillenbrand and we like to use bottoms up quantitative strategy process. This is the bedrock of it. This is how it really works. And every one of our operating companies and every part of those operating companies follow this process to quantitatively develop their strategy and it's an annual process, very well formulated and it enables us to test them as they go through their strategy elements. So we often share that with as we do like to share with investors so they can see how we think about this process.

And when we decided, we actually did the spin in 2008, we decided to do it about a year and a half before that; did a lot of work before we said anything about the possibility of separating, what was then Hillenbrand industries and taking the healthcare business and the death care business and make them separate. We went through a lot of introspection about, what are we good at and what are we not good at, and frequently that not good at part is more important for you us to know about ourselves than the good at part.

And so we came up with three exportable core competencies that we could export out of what was then the funeral product business, Batesville Casket Company was our only line of business at the time of the spin. We were good at sales and marketing in that industry, but we didn't think that was an exportable talent.

So those three things which I won't take you through a lot strategy management that I mentioned, what we call intentional talent development, we manage the careers of high potential people at the Hillenbrand level. And we rotate them through different assignments, we have them do a wide variety of things they don't stay right in their field whether it's finance or engineering we move them around. And we believe very deeply in promoting from within, and that's been how most of our careers have gone. But the reality is it also helps us attract and retain the best people when they know we are working on their careers. And that is now part of how the OPCOs function.

And the third element is lean business. You never feel like you've arrived when you are a lean practitioner, but personally I’ve been studying it since the late ‘80s or early ‘90s, and it is an exportable capability that we put into all the companies that we acquire. It takes more time to put in the other two elements sometimes several years to move from the beginner stage to where you’re really getting the kind of output that we expect to happen every year. But that's what we build our strategy on, that's we build our acquisition strategy that we created on. Next?

So we are moving to slide five here, if I guess the number right there. Okay. Slide five. We believe that the acquisition strategy process has been successful. Now when we first did the spin here we were the world largest casket company and suddenly we buy K-Tron International that makes feeders, pneumatic conveyors, coal and mineral crushers, and what are called wood hogs, which is just a very fancy and article term for device that will take big chunks of scrap wood and turn it into small little pieces that can be used for biomass and other things.

And people thought, well we better stand back and take a look at this and see if these guys are really serious or they are didn't dampening around and going to mess up the secret sauce. And the K-Tron results have turned out very, very well. We use an internal metric when we make an acquisition, which is the multiple that we actually paid for it and then we used, we track it and using the same methodology in future periods typically quarterly to find out if we are improving what would be the purchase multiple. So with K-Tron, it only works for a few years because all the things start to intervene. K-Tron it was a 10.2 X. multiple at the time we bought it right at the literally the trough of the downturn. And here we are a couple of years later and its running about a 7.5 multiples. So we don't publicize that other than in this kind of setting that’s one of the ways we think about is an acquisition that we made working and are we getting the results out of it as quickly as we like.

So broadly the K-Tron acquisition and Rotex and TerraSource they currently before Coperion comprised the Process Equipment Group, which is run by Joe Raver here, who is headquartered in Switzerland. And we have been growing about 10% organically, our gross profit margins as you can see greater than 40%, another important thing about this entire group is every one of the companies including Coperion has an element of the razor/razorblade model. What we refer to as wear parts that in the natural use of using the equipment that we sell. This wears out and we get to sell a high-margin replacement part. So we typically run about 40% of our revenue and a little bit more of margin comes from wear parts and that we really liked that. And we also have enough proprietary elements in there that we are not susceptible to I think really great degree to clearing of this not at all to private parts. So that's a core element of the acquisition strategy that we have and how that group runs.

And as you can see that Batesville has had an adjusted EBITDA margin greater than 25%. That is an industry that is declining ever so slightly as cremation rates go up in the last couple of years as deaths have been lower than they have been historically.

We think it’s a solid business, great margins, excellent stream cash generation, and we have sent management of that business to keep the earnings stable and the cash flow stable that we use for our other corporate purposes, not the least of which is acquisition strategy. So we think of those two as the two legs on the stool, and you can see that we’ve been growing the 10% CAGR on slide five, the Process Equipment Group is represented in light blue, and you can see how that is becoming a much more significant part of our business.

So I think, I have the last slide, coming out is for my section. And I can’t see that number, I’m sorry to those on the webcast, but it’s got a little road in it, and you can see where we started in ‘08 is Batesville added K-Tron and TerraSource in 2010, Rotex in 2011, Coperion in 2012, you are seeing about 15 to 18 months range between acquisitions that we’re making. we got lot on our plate right now to digest Coperion, also there’s plenty to do with the lean teaching and getting to learn, even more about that business.

You can see now that we have gone from a point where in fact, you can read the things that are there, but we have gone from a time at this time of the spin where our total revenue in Batesville Casket was $650 million at about 2800 employees almost all in the U.S., a few in Canada, and that’s the market for caskets, no other part of the world spends that amount of money on funeral products, they spend on funeral services, but not funeral products as they do in the U.S. and Canada.

And in a few years we have gone from that point of $650 million to the point where with Coperion and the growth we’ve got in the existing Process Equipment Group businesses, we’ll do about $1.6 billion in 2013, we did just $1 billion in revenue without Coperion in 2012, and we’ve gone to about 6,000 employees in 40 countries. So we like the idea of some global diversity in terms of geographic diversity, what we really like is the ability to be in markets that just have a rising tide, because their populations are growing, and more people are moving into the middle class and that sort of the heart of the acquisition strategy.

So what I like to do is, open so people can ask questions on the things that each of us are talking about and then have plenty of the room at the end to ask questions on any subject that you wish to raise. Did you have any on the topics, I put forth I’d be glad to do with that now.

Question-and-Answer Session

Unidentified Analyst

(Inaudible) is that based on purchase price?

Kenneth A. Camp

Yeah, the purchase price is frozen. It is – what it was right.

Unidentified Analyst

What is adjusted purchase price for (inaudible)?

Kenneth A. Camp

No, we haven’t and that would be a good way to do it and it could give some added insight, what we try to do is just freeze everything and look that it from a point of view is, are we helping make the business better, and sometimes it was just circumstances were better, markets were better, sometimes it will be the other way, but it’s not like not like something that we publicly report, but the real point what I was trying to get across is, we want to make businesses better. We don’t buy them as financial buyers. But that’s a good point as I’d always look at it.

Unidentified Analyst

(Inaudible)

Kenneth A. Camp

I got a question about why would our skill sets works there.

Unidentified Analyst

Yeah.

Kenneth A. Camp

Yeah. And why buy that business in that kind of industry, we had done some work, which was not – it was instructive, but was not especially erudite, which is what kind of businesses that we want to be in, and what that we not want to be in. So this is in a comprehensive list, but the first thing is, we didn’t want anything that has to do with government reimbursement in any measure, because that will change the rules on your right and middle of the game.

We didn’t want to sell directly to car companies, because they want to look at your books and tell you how much margin you’re allowed to have. We did not want to be in a business that Zeeman’s, or Procter & Gamble or somebody else could intensely or intentionally roll over and crush you. We like to make things. We are manufacturers, we wanted to physically manufacture things, and we wanted businesses that could benefit from a changing world population and much of that world population moving in towards gravitating towards the middle class that could buy things that we wanted to make and sell.

So not terribly sophisticated, but in the casket business, by its very nature sometime we have to lose someone to buy our products and just not – you can't have two for one sale, nobody goes out on Saturday and say, honey I'm going to buy a casket, as he said we’ll get too [value] there. So if you are kind of this never rising tide, we wanted something that could have a rising tide, not a lot more complex in this. So why would they benefit from us, almost every company can benefit from lean, even Batesville, which is doing it 20 years still gets gains every year in white collar and manufacturing by the application lean.

So there is an even Toyota benefits from continuing to do it. so we felt that was a great place that we could make the company better, we had observed a number of companies, we looked at our 400 before we hit those I just probably kiss 400 frogs before we found a prince or princess. And most of them really think they’re good at strategy, but most of it’s rather intuitive, and when you find small companies are rarely is it a bottoms-up strategy creation, it’s a few people at the top dealing, making strategic decisions, so that worked. And the other one was talent development, talent wins and you really have to work on it.

So that was the thought process we had. I have got a lot of people at the webcast; I’m not going to push too long with the question there.

Unidentified Analyst

Thanks Kent, that the year ago that around (inaudible)

Kenneth A. Camp

Yeah.

Unidentified Analyst

(Inaudible)

Kenneth A. Camp

Good question. As we say third leg, it makes people nervous, what’s that going to be, and we see at future going out several years right now we are pretty busy with what we’re doing, but we see a future going out several years where there is a very real possibility, the casket business over time could be under the same steady decline, so increased pressure. We want to – we think of another platform it doesn’t have to be big, doesn’t have to be Coperion size or even K-Tron, but we would, to enter a platform, we’d like it to be a line of business that could be $1 billion business at some point, not something really little. But you could start with a $50 million acquisition in there. so we’re willing to be patient, but we also would like at some point, we will have many of the same characteristics as the business we’re in.

So it wouldn’t be a parallel or going after Apple that it would be something that’s [benz] metal and makes things and it’s kind of an industrial setting. Ideally, it would be sort of countercyclical to the businesses that we have now. so when we get into growth industries almost definitionally that’s got a cyclical element, so we try to offset it. but right now, there’s plenty to do although, we’ve continued to talk to people and we found having done our third acquisition that we get a much different reception in the world than we did then when we just were a casket company that people thought we’re dabbling in something new. And by the way, I’m not offended if you thought that, because that was a reasonable conclusion to come to. Yes sir.

Unidentified Analyst

(Inaudible)

Kenneth A. Camp

These valuations, well, I’m not sure about valuations, I’m anybody really thinks their companies worth an awful lot. There is no question; it was [a bit of the bearings] to buy and K-Tron at the bottom of the trough, because it was hard to go lower although they did very well through the trough, Coperion as well. Guenter can talk about that how he was affected or more importantly not affected. Debt service is very low for us now, and my guess is that interest rates are going to go up in the future. So now, it also has been a good time for us to be very aggressive at doing that. But I think that you are going to see us the – a company that wants to grow through organic growth as well as acquisitions into the future. Yeah, there is two parts to it. I’m not sure what valuations are going to do. There is a point we use this idea of trying to figure out what the multiples likely to be if we do our job well year one, two and three after an acquisition and I care more about that than what someone thinks it was right at the first moment because you are going to change it. We like to buy something as cheaply as we can, but we certainly don’t want to buy something that’s affixed or up that’s roaming around the rules. Hope that helps.

Well, let me move on here and get Guenter up here. He as I said is the President of Coperion. And I’ll just give you a little word on how this whole acquisition started. We were at a convention about 16, 17 months ago in Germany at the case show, he had a pretty impressive display and I just wondered in, introduced myself, we chatted for a while and talked once or twice after that and found that we actually were both pursuing the same strategy. A little different starting point in kind of the price points and the kind of businesses we had, but it became pretty clear to us that we were going to be colliding at some point in the process equipment industry. And I won’t bore you with all the details, but 15, 16 months later here we are and we are – I couldn’t be happier and that Guenter and his team be part of Hillenbrand.

Over to you Guenter.

Guenter Bachmann

Thank you very much. I was only allowed to present four slides, so I have to think very carefully what I’m going to say now. For those of you who have never heard about Coperion, Coperion is the world’s largest provider for machines and systems, used for example in the petrochemical industry or in the latex processing industry besides other activities in the food, pharmaceutical, minerals or chemicals industry. Our systems and our machines particularly range from €250,000, a small machines up to 100 million for a large systems. We just completed for a petrochemical company in the Middle East. So there is a wide range of values behind the various projects we are talking about.

What you see here on the committee is basically a typical layout of the petrochemical sites. On top you see the reality that shows you basically that you need, if you were signed crude oil, you have so called byproduct which is called naphtha and out of naphtha you make polyethylene and polypropylene. These are the two products you need for every kind of plastic product you want to sell in the market later on, that’s the first step.

As you need external foot and you need material handling and equipment. And our goal and our plan and our strategy is that we cover all critical process steps within the entire value chain from the reactor down to packing and shipping, and we are the only company in the world who cover all the critical process steps, and supplying systems I heard earlier in this magnitude.

Besides the petrochemical industry, besides the plastic processing industry, we serve other industries as well. We serve the food industry, the pharmaceutical industry. On the food industry, for example, who work this company like Wrigleys in the United States, the chewing gum, the gum max is made out of an exhaustive. If you eat in the morning a cereal from Kellogg's or from Quaker Oats, it's made from (inaudible). If you go to Abbett for example and you buy medicines, Abbett have exclusive for large components to make hot melted medicine in various types for various applications.

If you go to the metals industry or the aluminum industry, you find our systems and our material handling system there. So our market share in most of these industries on a worldwide basis is between 30% up to 50%. So we cover the majority of the markets with our equipment, we have presently more than 10,000 components in the field, so it's a large number of components of an extrusive we have in the field. But it is only a sample of some of the products we have. We have many, many more applications alone on the material handing side. If you go to one of our applications left, you find 20,000 different materials, 20,000 different samples we have treated in the last whatever 50, 60 and 70 years because our company exits not only since five or ten years, the company was founded in 1879 and another company was found in 1901 so we are more than 100 years old already.

If you look at the regional footprint, we are very proud that we are the only global company in our business field operating in all major parts in the world. We have 29 subsidiaries around the world, with 29 service centres in China, in India, and EMEA, Middle East and Europe as well as in the United States. 30% – Ken mentioned already 30% of our entire business is service-oriented. So we have, as I said earlier, 29 service centres around the world and we generate roughly 30% of our entire revenue in service, different service products we talked about wear parts, we talk about repair service, regular maintenance service, the servicemen upgrades et cetera. 70% is our machine and since the business going through a compound or to the extruder material handling et cetera.

In terms of retail distribution, we have a large portion of our business it's not sold and operated in Germany. If you look at our business in Germany for example it’s less than 10% of our entire revenue. The rest is all going to countries like Asia, where China is very strong, India is very strong, EMEA and Middle East is a very strong market, Russia as well as and last but not the least, the United States. And that is something which has changed over the last 3 to 4 years. The U.S. market was basically done for our product. There was no petrochemical plant added in the United States over the last 20, 25 years, no petrochemical industry anymore.

This has changed quite a bit and we expecting this little change in the next few years even more. Right now, we have because of the Shale gas development, you have all heard about it in the favor, we have between 15 and 18 new petrochemical plants right now in the United States which will be set up in the next I will say between 24 and 26 months from now.

Each of these projects have a size of between 20, 25 can go up to 50 million each depending whether you cover the entire value chain, size of the equipment as we have a large extruder or you have the smaller one. Only to give you an example, one of these extruders can produce 100 tons of (inaudible), 24 hours a day, the entire week, the entire year without any interruption. That's only after two or three years so-called schedule and maintenance done, but the entire plant will be turned off. and then you have a couple of weeks do the maintenance and then the plant runs again.

And this 24 billion made in the United States, the shale gas as a feedstock will definitely increase also to demand for plastic processing capabilities in the United States, because what you want to do with the 24 billion. You have to do something with it. You cannot ship it back to near Middle East or to Europe. it’s very costly, because we’ve talked about products of tons and tons and tons of materials, ship lots of materials.

So we are thinking that the plastic processing industry will come back to the United States very strongly in the next couple of years, and we see already some signs, that people are thinking going back into the manufacturing side in the United States, which was neglected not only the last five years, I think it was neglected for more than 20 years now, because of the feedstock was not available anymore. And that’s the distribution, let’s see some of our agencies and some of our companies we have around the world.

Next slide, some number, some key facts of Coperion, I mentioned one already we have presently rest in more than 10,000 compound of extruded in the field actively in the field, this means each compound of extruded generating a large portion of our service business. Every single year, we’re adding roughly 650 machines into the market that’s right now the last three years our annual rate of new machines going into the market 650 on an annual basis.

we have 8,000 bulk material handling size in the market, 8,000 it all major chemical plants in the world and petrochemical plants. We employed 2,000 employees on a worldwide basis. I’ve mentioned earlier, roughly 40% of these employees are employed in India, in China, in Singapore, in the United States. So most of 20% is employed outside Germany, and if you take Europe nearly 50% of our employees are outside Germany.

We have 29 sales and service locations worldwide, which is very important for our service business because without a service center in these regions you cannot generate service business. But people think today you can make a service business from the desk in either New York or San Francisco or whatever, it won’t work. You have to be extremely close to the customer to generate on an ongoing basis a service business.

On the other side, you cannot have a service center without having a machine population close by. So smaller companies, companies that only sell 50 machines on an annual basis, they are not able to generate the same amount of service presence we generate because as you know if we don’t have the population, it's not worthwhile to set up a service center. So only these large populations of machines you can really upgrade successfully service and (inaudible). Revenue we talked €520 million on a TTM basis, and adjusted EBITDA of €45 million.

Maybe one word to the recession because it also was stressed out on the table. We all suffered from the 2008, 2009, and going into 2010 recession quite a bit, it was the heaviest the one I have seen in my entire business career so far going down 40%, 60% in terms of order intake and revenue.

But Coperion managed with a very lean structure, a breakeven point, which is around 60% of our installed capacity. We managed even in the recession not to go into negative territory. So even in the recession time because of our flexible structure, of our low break-even point, we had a 6% to 7% EBITDA margin in the year 2008, ’09 as well as ’10. So very flexible, very low breakeven point and last but not least, we are very proud that we are, I think one of the few companies in the world who operate on an active network and capital on a consistent basis. So we have no positive networking capital, we have negative run, we don’t need any additional funds to operate our business on a day to day basis, it’s basically financed by our customer.

So that’s all from my side, got any question?

Question-and-Answer Session

Unidentified Analyst

(Inaudible)

Guenter Bachmann

No, no, no, also during the start up phase et cetera we are not liable for any issues, we’re only liable for our equipment yes, but not for consequential damages et cetera.

Unidentified Analyst

(Inaudible)

Guenter Bachmann

First of all, Coperion was founded in 2001 by merging a company called Werner & Pfleiderer, a company called Waeschle, and a company called Buss together. At the beginning all these companies were running parallel without very much integration. I joined the company in 2004 and in 2008, we decided to merge these companies together, because the Coperion name was in 2001, relatively new to the market, because it was a new company merged out of existing activities.

In 2008, we found that the time was right now to eliminating the words – the front name we have Werner & Pfleiderer, Waeschle et cetera. We did not get rid of it, but we basically merged everything together under one legal entity and it was very well received from the market, it was very good, especially in the Asian regions, what we are – we’re not known 100 years ago, that’s the time the company was setup. But in these regions we have been very successful and the company, the clients today recognizes us as Coperion and no longer as a Werner & Pfleiderer, or Buss or Waeschle activity. But again we did not eliminate the front name, we did not get rid of it because we still have the value and we still carry on the value.

Unidentified Analyst

(Inaudible)

Guenter Bachmann

Everything was merged together. Even so on the service side, we are – the service activities, with its own competence and within our organization. So it’s not attached to the machine or system business. So the people who work in the service components and they do nothing else than service from morning to the night, 24 hours a day, and we have 500 peoples in the service organization and they are not related to the machine or equipment side. Because if you have them related to the machine equipment side, one day, we have to ask the question, who has priority in terms of capacity shortage, to do first the machine, or the system, or the service. So it’s completely separate, to focus really on service and look after our customers and the fit.

Unidentified Analyst

(Inaudible)

Guenter Bachmann

I’m sorry. I didn’t get you.

Unidentified Analyst

(Inaudible)

Guenter Bachmann

Yeah.

Unidentified Analyst

(Inaudible)

Guenter Bachmann

Okay. The question was the average size of the budget of 15 to 18 projects on the shale gas side in the United States, what the value is behind it, for the extruder between 5 million and 7 million minimum. so the extruder alone, if you add the material handling equipment, the dosing, the weighing, the feeding and all everything pack ins, if you talk about minimum 20 million, minimum 20 million, but the question is whether one line is enough or you need two lines.

we have customers for example in China, they order at the same time three or four lines. so you have then three times or four times 25 million, that’s really depending on the feedstock we need to process. Yeah, because I said earlier, a small machine and a small extruder can produce 50 tons, 60 tons. A large extruder, the largest one we have ever sold makes 100 tons an hour. so it’s depending really on what kind of requirements in terms of quantities the customer may have.

Unidentified Analyst

(Inaudible)

Guenter Bachmann

What level? Good, okay. As I said earlier, (inaudible), much of this level discussed is a little bit tricky. On the service side, as mentioned earlier, we have similar structure gross margins across profit level of roughly 40% on sales, and on the EBITDA side, it’s very similar to what Ken mentioned earlier we talked about EBITDA I mentioned from 20% to 21% under service and then component business, which is in our case we talked about nearly €2.5 million on an annual basis which just relates to this business.

If you talk about the margins on our machines and systems, we have to be very careful. Roughly 60%, 65% of the entire face value of a project is so called non-value added trust meaning that we execute the entire system and machine, but we’re taking in components from companies like Siemens, from companies like ABB et cetera, et cetera large companies. The (inaudible), but we don’t produce model, the model and equipment is purchased, a motor cost 2.5 million to 3 million so that’s a big system. So it’s purchased from a outside supplier.

On this product, you cannot have a lag of 40% or 50%, there is no way because the market is very transparent. So if you talk about margins for the machine and system business, we always have to look at the margin for the value-added and for the non-value added.

On the value added that we do in-house, we have also gross margins of 35% to 45% and of course going down then to the EBITDA margin, we have similar margins in the range of 16%, 17% for the machine and system business. But of course it’s diluted because of the face value we take in as the order, we have a lower margin you show on the P&L.

Unidentified Analyst

(Inaudible)

Guenter Bachmann

What kind of restructuring?

Unidentified Analyst

(Inaudible)

Guenter Bachmann

We had a site in Stuttgart which was part of the recent set up which was 85,000 square meter. At the time a company, a Germany company called Equipment Group was own out the company to have 3,500 employees there. As we said, this is not something we would like to operate because operating cost, maintenance cost et cetera. So we downsized that to half of the floor plan and we reorganized and as part of the lean idea we reorganized the entire workflow in the entire company completely in the last two years and after restructuring cost related to it.

Unidentified Analyst

(Inaudible)

Guenter Bachmann

First of all, if we do not have a competitor covering the entire spectrum of Coperion. If we talk about competitors, we have to go step by step and going first sighting at extruder, there are two competitors in the world, that's two Japanese companies, Kobe Steel and Japanese Steel Works. These are the only two competitors in the world for extrusion equipment, nobody else in the world. If you talk about compounders, these are the smaller machines for the further processing we have a couple of competitors, the company called (inaudible) in Germany. But these competitors size wise a few numbers smaller than we are [Niederzier], makes only a turnover of $40 million, $45 million, (inaudible) talked about a turnover of €100 million to €150 million, so also much, much lower than we are.

In the material handling side, we have basically one major competitor is a company called (inaudible), also located in Germany very close to our facility and we have both of them – we think we have a market share between 45% and 50% on the material handling side and therefore the same, so there is not much competition on a material handling side besides Coperion and (inaudible). The difference is that the most of the companies I mentioned, they have material handling as the business on the side. carbon steel for example to turnover for the extrusion site is less than 1% of the entire total. So that’s not a core business for them. We are the only company who concentrate these compounding, extrusion and material handling at our core business and reduces 100% and not as a side business, not because we have nothing else to do.

Unidentified Analyst

(Inaudible)

Joe A. Raver

All right, great. Thank you. I’m Joe Raver, the President of Process Equipment Group. And so what I can share with you was the Hillenbrand strategy with special attention to the acquisition strategy. What Guenter share with you was really a lot about Coperion. So what I plan to share with you is the Process Equipment Group’s strategy just a single slide and it’s a strategy you’ve heard before as you’d listen to our conference calls. And then I will talk about how the Process Equipment Group and Coperion fit together.

So if you hit the next slide, so as the Process Equipment Group we have really three growth playing to our strategy and the first is to continue to develop products and systems and applications expertise to penetrate growing end markets. And so Ken talked a lot about end markets that are based on population growth, but really middle class population growth. And those middle class populations demand plastics and they want food that needs fertilizers and they want processed food as opposed to fixing every meal from scratch. And so those are the kinds of businesses that we want to be in and as a group we are constantly looking for new growing end markets to focus our expertise in.

So second is the expand in underpenetrated geographies, if you think about our Rotex business, it’s a great business, but it’s really a North American business, and the same with our TerraSource business, it’s a great business, great crushing business, coal crushing both for coal power and coal mining, but really a North American business. And so we have the opportunity to take those businesses, and take them to where their markets are. You were talking about petrochemical plants being built in the U.S. there are no new coal-fired power plants being built in the U.S., and there will not be, but I guess why China, India, Russia, they are building coal-fired power plants in those economies, because they need the power.

They need our equipment and our expertise. and so our big focus has been to expand it geographically take our products or applications expertise and in some cases, our systems and take those to where the markets are around the world. The third is to establish the scale and the scope to operating globally. We also are going to talk about their strategy around service.

Well, if you think about our screener, you want to sell the screener; you have to replace the screens. so you need the spare parts. so you really need a good service business, a local service business where you can sell spare parts. but you can’t put the service business then, and so you have enough screeners to make it economically justified to go and build the service center. And so, it’s sort of a rocky and a hard place. And together, we can get the scale faster.

So for example, Rotex has gone with China or Rotex has gone in with K-Tron in China to put a service organization in. We start selling screens into the installed base of equipment has been shipped over there. we’ll ship our first Chinese manufacture machines from Rotex in January. So this idea of getting scale and scope around the world will help us grow revenue around the world. so it’s not just selling into those new geographies, it’s also making sure that we have the infrastructure in those geographies to continue to grow and sell.

And then finally, we have to get margin expansion through lean, every company can get better, there is no question about that, but especially as you’re expanding around the world, lean business practices can be very effective. We’ve also consolidated some manufacturing for example in TerraSource, eliminating a plant and running all that capacity in a growing business through two of the three plants, and that’s a really big exercise in the lean processes and the lean management.

So this was the Process Equipment Group strategy prior to the Coperion acquisition. and if you hit the next slide and you heard what Guenter talked about Coperion. The great thing is the Coperion acquisition is aligned with the same strategy, right. so we didn’t change our strategy to buy Coperion. Coperion is accelerating all those elements of our strategy that we had in place before.

and so if you think about systems and applications expertise in growing end markets, we did subsystems at K-Tron. Coperion does the full value chain system in plastics. K-Tron feeders are part of that system, now they used to use, way too many competitive feeders in those systems. We now have the opportunity to integrate the K-Tron feeders into Coperion systems. and so the same with screeners, those plastic pallets come out, they want to screen them for the right size, a Rotex screener can be used at the end of the process to make sure that all the pallets are of uniform size as an example.

And so we see tremendous opportunity to continue to grow these businesses by working together to offer system solutions to for example to plastics market. We want to then do the same thing in food as an example, right. Processed food is a very fragmented business. we want to be able to go to the customer with more of a system solution and they’re getting today. and we now have all the components of the value chains and do that.

So that’s one way that we’re going to get growth. and that’s with K-Tron and Rotex. We also talked about accelerating global expansions. It is really hard to go and set up a business in India, right. It’s expensive and it takes a long time. We’re setting up a business in Russia that we started prior to the Coperion acquisition. it’s taking us over a year to get a business license in Russia.

Now there’s some other ways we can work around that, but it takes a long time and a lot of money to set up in these geographies. Coperion has locations around the world, hundreds of peoples in India, three different locations, they offer half the revenues out of China, they have facilities in Russia, in Brazil, there in the Middle East.

We can take K-Tron, Rotex and TerraSource and start to even much more faster than we could without Coperion, and going to those markets and start to offer service, and then we can start to procure, and then we can start to assemble, and then we can start to localize products of those markets and they become our home markets. Another great opportunity that Coperion really is the central gear drives all these businesses; it’s not just the K-Tron business, but all these businesses.

And then, finally improved margin performance, we now will have manufacturing facilities, significant manufacturing facilities in all the major areas of the world. So we have a very strong presence in China, we have a very strong presence in Europe, and a very strong presence in North America.

K-Tron for example, can leverage Coperion’s manufacturing and engineering expertise in China to get efficiencies, to reduce cost and Coperion can leverage K-Tron’s manufacturing facilities and offices in North America to reduce cost and improve margins, as well as just in regular lean projects that we’re constantly working on.

So we’re very, I mean, as you can probably tell, we are very excited about the strategic fit of these businesses. You can almost not script a better marriage of two companies. And so they truly – this acquisition truly accelerates every component of what our strategy was prior to the acquisition. so it’s really a terrific fit.

So if we go to the next slide, then what do we expect to get out of that? We expect to grow revenues in the mid-to-high single digits over the – talking about the – sort of the mid-to-long term and we expect to grow the bottom line faster than that in the mid-teens, mid-to-low teens. And we can do that in all the ways that we’ve just talked about.

We want to grow and we have been growing faster than the markets we serve. and the reason we have been growing faster than the markets that we serve is because some of the businesses that we had acquired previously, had great strength for example in North America, but then we went into China, we’re going into Russia, we’re going into South America. and so we’re able to grow faster than the markets, because those are new markets for us that we’re more fully penetrating to reach our full potential.

And then the other great thing is, we get a really nice split of revenue. and so we’re truly a global company. we have facilities around the world. we get much more stability around the world when – this year, Europe was a very difficult market for many of our businesses, but North America was a very strong market thus far for many of our businesses. So we get a little more stability as we operate truly in a global nature from a revenue and an operating perspective. Yeah.

Unidentified Analyst

(Inaudible)

Joe A. Raver

Sure. So I won’t just aggregate and give you detailed numbers in there. But – so we’ve applied lean in a number of different ways and I’ll start with Rotex. Rotex had a terrific year this year. The frac sand market was very strong. The potash market was very strong. We start to see lead times increasing because it just didn’t have the capacity to get the machines out, these are big machines.

We had a number of lean projects and we expanded the capacity for their production of mineral separator machines, which was their hot product and it has been, but it was their really hot product this year. And so we were able to do some lean projects to expand capacity and then we don’t have to spend capital. So we saved $1 million on a machine never going to go by. We figured out that we could change a couple of the processes and we just to have change out $100,000 controller and not buy a new piece of equipment. So we’ve been able to reduce lead times, keep our customers happy and those – so we focus on lean projects there.

Another example in Rotex is, they have been out sourcing our screens and so this is really a replacement of ware part business. It is true the (inaudible) you run sand or salt through a screen, it wears out pretty fast and that’s terrific. We love that, right? That’s really great. But we were out sourcing that.

We brought our screen manufacturing in this year, I think we produce about 85% of the screens are now ourselves that we sell, and we were able to improve margins on those screens by about 10%, which is not insignificant given that about 40% of the revenue is replacement part business and a big chunk of that is screens.

But even more importantly, we got closer to the customer and we made a number of product development changes following lean product development processes and ease of manufacturing. So that we believe we are actually selling more screens now because we’ve made some product improvement by bringing that in-house. That’s one in table.

TerraSource, we had really three businesses, we had Gundlach, Jeffrey Rader and Pennsylvania Crusher, operating the three businesses over the last 18 months. We’ve putting those businesses together as a single global functional company. We didn't really need to do that to grow in the U.S., but we needed to do that to go to market effectively in China and Russia and other emerging geographies.

So we are able to take a plant out right? We’re going to close a facility in South Carolina and move all that volume to a plant in Illinois and a plant in Ohio. We’re sort of like really lean thinking about moving continuous flow and being able to move products back-and-forth.

We are on a path towards being able to create or manufacture any product in either plant. So we can keep balance in our production capabilities. We had some struggle – if you close a plant, it’s not always easy, we had a couple of struggles this year, but we are really on track and we'll see nice margin improvement in the business this year through the consolidation of that plant. So those are a couple of examples.

At K-Tron, it mostly assemble, right? So – and the pneumatic conveying business and they are doing some manufacturing, but they mostly assemble these complex pieces of equipment and we focus on the time from request to quote to ship. And so we’ve reduced the lean time from request to quote to the first drawing, all the way through to shipping.

So those are the kinds of things that we're working on and the impact margin is not just on the cost line, but if we can reduce lead times, we believe we can take market share, sell more, command a higher price. Those of you examples of the projects that we have done this year.

Unidentified Analyst

(Inaudible)

Joe A. Raver

How about, if I describe it and you can add to it. Is that fair? Coperion has put in place a business excellence program and they are very good at large systemic continuous improvement. So they’ve made some terrific gains in terms of design for manufacture ability of their barrel, of some of their screw elements. They totally reorganized their campus in Germany. And the big driver that was the improved flow, right? And so you do save cost, but what you really get, is you get lower inventories, you get better quality, because you’re not moving parts and pieces all over they get dropped, they get hit, they are in the isle, and so you get better efficiencies.

I think where Hillenbrand can help Coperion is more on a day-to-day level of lean manufacturing and good visual management, you can walk into a plant, you can see where the things are ahead or behind, whether it’s normal or abnormal, and you can do that visually. And what we can learn from them, some of those are large longer term systemic kind of improvement projects that takes in some cases multi-years to complete, but can be very valuable.

So I think we both can benefit from one another. All these companies are well run companies, but I think in all of these companies we have plenty of opportunities to get better, and they’ve made some good gains here in the last few years, no question. Is there anything to add?

Kenneth A. Camp

Nothing to add.

Joe A. Raver

Okay, good. Are there any other questions before I turn it over to Cindy?

Unidentified Analyst

(Inaudible)

Joe A. Raver

I’ll let Cindy explain this one again.

Cynthia L. Lucchese

The 30% – Kim will show that, he’s going to come and wrap up, and you will see that on the slide. This 30% relates to Hillenbrand. Those slides relates to Process Equipment Group. So that’s the difference.

Unidentified Analyst

(Inaudible)

Cynthia L. Lucchese

Post acquisition, and the reason that 30% is so high, obviously it’s because we’re folding in this $675 million of Coperion revenue.

Unidentified Analyst

So that’s the pre-acquisition numbers in the quarter that I noticed the post-acquisition numbers for?

Cynthia L. Lucchese

Yeah, okay, all right. So hopefully, we've explained you why this is such a compelling opportunity, but naturally the question becomes okay, how much does it cost, and how does it impact to a financials. Hopefully, I'm not attracting (inaudible) anyway...

Unidentified Analyst

(Inaudible)

Cynthia L. Lucchese

There you go. So we will maintain the attractive financial profile, so I want to come out with that right away. We did participate in euros, and from the U.S. GAAP perspective you've actually convert the euros of the day that you buy that that becomes your purchased price that was 1.3 on that particular day, so that's the number that we will have going forward. There are couple of elements to this from a cash standpoint we had to pay the owners and we also had to assume some debts. So we literally went and borrow lender our credit facility to cover those two items. So basically that's about $415 million. It's what we had to borrow.

Now they also there's a pension liability really that the lion share related to work within Germany that we took on, and that is about $130 million liabilities that did not involve any debt or anything like that that was purely with the assumption of the liability. So I want to make that clear. Okay, so that's how we paid for it, it's immediately accretive to earnings and in a fairly substantial way, so it will be more than $0.20 a share in 2013 and remember because we buy Coperion on December 1, or closed on December 1, we really only have 10 months of their results on our books for this year. So that’s a 10-month kind of a calculation there.

the last thing is, if you think about the amount of debt, we still are going to have a very strong credit profile. So our debt-to-EBITDA number is 2.6, and that’s based on the pro forma as of 9/30/12, but that just gives you an idea about where that will be. What’s most important is, we generate a lot of cash. and so you will see that coming down and if weren’t to spend a dime on any other, anything else and just let the cash flow pay it off, it would be gone in less than five years, so just depend on benchmark how that might be.

So I wanted to, some of you are new to us. so I want to give you a little background about what we have done historically. Ken talked about our revenue growth in the past, so we’ve grown it at greater than 10% growth rate, a lot of that obviously view our acquisitions. But in addition to that, we have been a strong EBITDA company. so we’ve maintained a nice, not just a nice growth rate, but you can see even though the margin has come down. it’s still really high, it’s over 20% EBITDA margin is a very strong, obviously very strong number.

And the thing, the reason has come down, you probably are aware, but they still casket on its own has been a significant EBITDA margin type business. and so as we’ve diversified into the Process Equipment Group, even though it’s very, very attractive, EBITDA margin profiles is not quite as high as the other. so that’s why you see that coming down. We’ve generated strong free cash flow, and then you can see that really reflected in this net debt column, because the other two, we bought K-Tron in 2010 and we bought Rotex in 2011. the other two together that’s over $600 million of cash that we spend on acquisition, yet our net debt was $275 million at the end of 2012. So to demonstrate the strong cash flow that we have. And now how will we work once we fall Coperion in, so they are going to add substantially to our revenue and our earnings in 2013. Our revenue in 2012 was almost $1 billion, we were just shy of $1 billion, so we recently provided guidance to say it will be around $1.6 billion. In addition, adjusted earnings per share was $1.76 in 2012 and we’ve put out a range of $1.82 to $1.92.

So a couple of things I want to point out, one is the, again the accretion from Coperion will be greater than $0.20. The Process Equipment Group revenue as Joe alluded to, that's going to be greater than $1 billion in 2013. So clearly it's going to be the big part of our global revenue and then Batesville at about $600 million, which is roughly flat with the prior year. So we tend to look, as we look at Batesville on a go forward basis, we see it in that kind of flattish range. And a couple of things, when you look at the rate of growth there for the adjusted EPS, you might think why isn't that as high, I mean folding in Coperion and getting the benefit of all of those earnings.

There is a couple of things that we had noticed, but principally there is some comparables as you look back to the prior year, we had extraordinarily low tax rate, we had some one-time impact from some changes in our comp programs, in bad debt expense et cetera, which we had talked about, which really kind of pull that down a little bit. So I did want to point that out.

And then, the last thing I want to talk about, at the end of the day what is that we are doing with the capital that you’ve entrusted us with in order to make sure that we are increasing shareholder value. And so we start out, we’re going to reinvest for long-term growth, we’re going to do that through organic growth investments, which is both working capital and CapEx as well as on the acquisition front looking for those tuck-in acquisitions for the third platform.

In addition, our dividend as you’re probably aware is quite meaningful with $0.77 last year, we’ve recently increased it to $0.01, pay out ratio was 46%, yield of about 3.7% and then I will also point out that we had increased every year since our inception in 2008. So we have a track record of showing how important the dividend is for us and how we know it’s important for our shareholders.

And with that, what I would like to do is turn it over to Ken for the last wrap up slide.

Kenneth A. Camp

Thank you. So I got a question earlier about platform, you can see here the way we’re thinking about it, our 2017 vision continuously growth range that we had talked to you about there will likely be a platform by then, but I wouldn’t say what it would look like or what size it would be I define for you, what platform typically will look like and we’re certainly open to continued acquisitions in our Process Equipment Group for the right kind of products at the right time at the right price and the occasional (inaudible) that presents itself as well.

So we take the issue of managing shareholders investment and being careful stewards of that very seriously and all of us are also owners of the Company and I think as a shareholder it hopefully provides a little more comfort that we have some substantial skin in the game and we spend your money like our own. I think we’ve got (inaudible). I think that’s the last one here, correct, Chris? So I – how did you intend to finish off the work here. So you’re going to close that out at this point, and I’ll just wait a moment while you do so.

Chris Gordon

Yeah.

Kenneth A. Camp

Okay. So we’re going to shut down the webcast and we can continue…

[Call Ends Abruptly]

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