High Growth MarketsSpeech by Bob McIlvaine

Valve World Expo June 25 2013

McIlvaine CompanyNorthfield, IL

Largest regional valve markets• The total world valve revenues last year were over $53 billion. Asia accounted for

42 percent of the market.

Continent 2012 %

Africa 2,754 5

Americas 15,049 28

Asia 22,598 42

Europe 13,035 25

Total 53,436 100

Valve Revenues ($ Millions) *

Progress With Smart Valves Will Lead to accelerated growth

• McIlvaine Company has revised its forecast for growth in the industrial valve industry to 5.5 percent CAGR for the 2013-2017 period. The basis is the increased anticipated revenues from the sales of smart valves.

• The valve forecasts are defined to match the individual valve supplier revenues, so they include smart valve technology where it is sold by the valve supplier but not by an independent automation supplier.

• The oil and gas sector is leading the way toward smart valves.• For sub-sea oil and gas, the use of intelligent control systems for valve trees is

becoming a defining factor of intelligent well development. All electric subsea production control systems are replacing industry standard electro-hydraulic control systems, with the aim of making them more reliable, more responsive and more cost effective

• The oil and gas industry is moving toward valve technology with embedded processor and networking capability to work alongside sophisticated monitoring technology coordinated through a central control station.

• The goal has been to link control valves to an extended data network, coordinating control valve operation with the increasingly detailed data available on flow rates and operating conditions.

• Connecting valves to a network allows distributed control, which can enable operators to reconfigure piping and networking systems so that a field can continue producing even if there is a blockage in, or damage to, the pipeline network

• Emerson Process Fisher digital valves enable the implementation of customized valve designs to cope with the pressure, flow capacity and temperature demands of the world's first twin-mega-train LNG plant.

• The Yokogawa Exaquantum/SSP provides continuously updated subsea valve information from FMC Technologies SSH (Subsea Historian). This timely information enables users to take appropriate action if problems are detected, avoiding lost production.

Plant Unit Cost

6

• The highest “unit” cost plants (TIV) are GTL, LNG, and nuclear power.

Power - P

C/superc

ritical

Power - n

uclear

Power - C

CGT

Power - G

T

Refinery

Petroch

emica

l

Gas pro

cessin

g

LNG - l

iquefacti

onGTL

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Investment Value per Plant (New Plants), Mil $

Valve Spend per Application

7

• The highest valve spend per plant is for GTL. This is because a GTL plant is four plants in one: gas processing, syngas, syncrude, and refinery.

Power - P

C/superc

ritical

Power - n

uclear

Power - C

CGT

Power - G

T

Refinery

Petroch

emica

l

Gas pro

cessin

g

LNG - l

iquefacti

onGTL

$0

$20

$40

$60

$80

$100

$120

$140

$160

Total Valve Spend per Plant, Mil $

Mergers Create New Leaders• Pentair has emerged as the new leader in the market that treats and controls liquids and gases

(including air). Ecolab/Nalco has moved into second place.

• With the addition of Tyco valve revenues, Pentair pump and filtration revenues generated a combined $7 billion in sales in 2012. The corporation anticipates a 3.5 percent increase in 2013. This will create revenues of $7.2 billion in the treatment and control sector.

• Ecolab has acquired Nalco. With an expected revenue increase of 5 percent in 2013, the company will move into second place with treatment and control revenues of over $5.2 billion. The former leader, Flowserve, will drop to third place.

Ranking Company 2012 Sales

$ Millions

2013 %

Increase

2013 Projected Sales

$ Millions

1 Pentair 7,000 3.5% 7,240

2 Ecolab/Nalco 5,000 5.00% 5,250

3 Flowserve 4,400 7.19% 4,654

4 Xylem 4,000 5.79% 4,230

5 GE 3,800 4.83% 3,983

10 Colfax 2,000 2.00% 2,040

 

Valve Market Shares• The top three valve companies are U.S. based. Their penetration of the Asian

market has been only half what it has been in other markets. Asian sales range from 20 to 22 percent of total sales for the individual companies.

• The international valve companies see this lack of Asian penetration as a growth opportunity.

• Suppliers both Asian and non-Asian have the opportunity to build a base in Asia which will allow them to compete more effectively in the rest of the world.

Subject I. Valve Sales 2012 in

Asia ($ Millions) % of World Valve Sales for Subject

% of Asian Total

Asia 22,600 42% 100.0

Flowserve 280 20% 1.2

Pentair 475 22% 2.1

Emerson 437 25% 1.9

Total for Three Largest Valve Companies

1,192 22% 5.2

Shares by Valve Type• Globe valves will be the leader by valve type. Ball valves will be second on the

leader list.

Valve Type Percent

Gate 20.0%

Globe 22.0%

Ball 21.0%

Butterfly 15.0%

Plug 10.0%

Check 3.0%

Safety Relief 4.0%

Other 5.0%

Total 100.0%

Valve Spend per Energy Segment

11

• The largest opportunity for valve sales by industry is in coal-fired power. This relates not so much to the highest concentration (or highest cost) of valves per plant, but to the larger number of new-plant builds relative to other industries. Major opportunities are in Asia.

Power - P

C/superc

ritical

Power - n

uclear

Power - C

CGT

Power - G

T

Refinery

Petroch

emica

l

Gas pro

cessin

g

LNG - l

iquefacti

onGTL

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Total Valve Spend per Industry (New Plants), Mil $

Pfizer is largest UPW user• Pfizer is the largest purchaser of UPW for pharmaceutical applications. It is

also is the largest company judged by sales revenue. It is has close to 7% of the world market

Top World Pharmaceutical Corporations

Corporation Nationality 2012 Mkt share (%)

1 Pfizer USA 7 2 Novartis CH 6 3 Merck & Co USA 5 4 Sanofi F 5 5 Astranzenca GB 4 6 Roche CH 4 7 GlaxoSmithKline GB 4 8 Johnson & Johnson USA 3 9 Abbott USA 3 10 Teva ISR 3 11 Lilly USA 3 12 Tadeka J 2 13 Bristol-Myers

Squibb USA 2

14 Bayer Schering Pharma

D 2

15 Amgen USA 2

Generics lower revenues not UPW• The lower price per $ of revenue (and gallon of UPW) is reflected in lower

expected revenues by the major companies

Generic Erosion Corporation 2014-2020E

(percent) Pfizer 3.30% Bristol 3.50% Merck 2.70% Lilly 9.05% AbbVie 1.34% Average 3.98%

Generic share growing• Generics are making significant penetration worldwide. In the U.S.

generics captured 25% of the market in 2012

US Pharmaceutical Industry Revenue 2012

Pharmaceutical Industry

Revenue ($ Billion)

Companies

Brand Name 156 2,707 Generic 53 1,103 combined 209 3,810

Big pharma revenues down• There was a 7% negative impact on sales of the top 3 brand name

companies in the U.S. in 2012

2012 US Revenue for Top Companies

Company Revenue $ Billion % change

from previous year

Merck and Co. Inc.

24 -6

Pfizer 27 -8 AstraZeneca PLC

13 -3

Merck largest in U.S.• Merck was the largest brand name supplier in the U.S. in 2012

US Brand Name Pharmaceutical Industry Market Share

Teva is top U.S. Generic• Teva and Watson were the largest suppliers of generics in the U.S. each

had a 5% market share in 2012

2012 US Revenue for the Top Generic

Pharmaceutical Companies

Company Revenue $ Billion % change

from previous year

Teva Pharmaceutical

5 22

Watson Pharmaceuticals Inc.

3 18

Sandoz Ltd. 3 -1.4 Mylan Inc. 3 20

BRIC-MT is fastest growing• The fastest growing pharmaceutical segment is BRIC-MT. This includes

Brazil, Russia, India, China, Mexico and Turkey. Pfizer experienced a 16% growth in these countries last year

Pfizer BRIC-MT Growth

FY 2012 vs. FY 2011

India 11% Russia 34% Turkey -7% Mexico 4% Brazil 14% China 32%

BRIC-MT 16%

Double digit growth in Russia• The pharmaceutical industry in Russia has been witnessing double-digit

growth rate recently.• According to the new regulations that will be enforced in Russia from

2014, it will be imperative for the pharmaceutical companies to pursue GM-compliant production procedures.

• The Russian pharmaceutical market is expected to reach $10.7 billion value by 2014.

• In December 2010, Novartis announced a five-year, $500 million investment program in Russia, including construction of a state-of-the-art manufacturing plant in St. Petersburg.

Developing Country projects A-C• Despite the growth in the developing countries, the production of

Ultrapure Water is still concentrated in the developed countries.• Local production of pharmaceuticals is falling behind demand.

LOCATION CITY PROJECT TITLE SIC DESCRIPTION PRODUCT

Algeria Saidal Sanofi Aventis Pharmaceuticals PharmaceuticalsBelarus Minsk National Academy of Sciences

of Belarus (NASB)Biotechnology Genetics and R&D

Cameroon Sandoz/Cinpharm/1A Pharma Pharmaceuticals Pharmaceutical Ingredients

China Beijing RNL Biotechnology Adult Stem Cell R&DChina Chengdu Chengdu Wagott Biotanical Extractions

China China Medical City (CMC), Taizhou, Jiangsu Province

AstraZeneca-11 Pharmaceuticals Pharmaceuticals, Biopharmaceuticals &

Generics

China Conghua City, Guangdong

Province

AstraZeneca/Guangdong BeiKang Pharma

Pharmaceuticals Generic Pharmaceuticals

China Dunhau, Jilin Province

Asymchem Laboratories/Jilin Asymchem Laboratories

Pharmaceuticals Active Pharmaceuticals Ingredients

China Hangzhou and Beijing

Sanofi-Aventis/BMP Sunstone Pharmaceuticals Pharmaceuticals and Consumer Health

Products

Developing Country Projects C-GLOCATION CITY PROJECT TITLE SIC DESCRIPTION PRODUCT

China Hangzhou Binjiang New Development

Zone

Sanofi-Aventis/Minsheng Pharmaceutical

Pharmaceuticals Pharmaceuticals

China Hunan Province Microbix Biosystems Pharmaceuticals Vaccines

China Shanghai Bristrol-Myers Squibb/WuXi Pharma Tech

Pharmaceuticals Pharmaceuticals Testing

China Shanghai Lundbeck Pharmaceuticals Neuro Drugs

China Shanghai Newsummit Pharmaceuticals Drug Development

China Shanghai Promega Biotechnology Biological Products

China Shenzhen Sanofi Pasteur-1 Pharmaceuticals Vaccines

China Yizhuang, Beijing Sanofi-3 Pharmaceuticals Insulin Cartridge Production, Assembly and Packaging

Georgia Tbilisi Central Public Health Reference Library (CPHRL)

Research on Human Health

Developing Country Projects I-MLOCATION CITY PROJECT TITLE SIC DESCRIPTION PRODUCT

India Akorn-2 Pharmaceuticals Injectable Pharmaceuticals

India Hikal Pharmaceuticals Pharmaceuticals

India Sanofi Pasteur/Shantha Biotechnics Pharmaceuticals Vaccines

India Maharashtra Omkar Specialty Chemicals (OSCL) Pharmaceuticals Active Pharmaceutical Ingredients

India Pharmacity Sp. Econ. Zone (SEZ)

Vishakhapatnam, Andhra Pradesh and

Gagillapur

Granules/OmniChem Pharmaceuticals

Pharmaceuticals Advanced Pharmaceutical Ingredients

India Punjab Nectar Lifesciences Pharmaceuticals Pharmaceutical Ingredients

India Sanand, Gujarat Teva/Procter & Gamble Pharmaceuticals Consumer Health and Over-the-Counter Products

India State in Western India Helvoet Pharma-2 Packaging Pharmaceutical Packaging

Malaysia Glycos Biotechnologies/Bio-XCell Biotechnology Biochemical & Biotechnology R&D

Developing Country Projects M-ULOCATION CITY PROJECT TITLE SIC DESCRIPTION PRODUCT

Malaysia Bio-Xcell Biotechnology Park

Biocon Pharmaceuticals Biopharmaceuticals and Biosimilars

Malaysia Nusajaya, Wilayah Iskandar

Malaysian Biotechnology Biotechnology Biotechnology

Russia Pfizer/ChemRar High Tech Center Pharmaceuticals

Russia Moscow, Podolsk District

Aurobindo/OJSC Diod/Aurospharma Pharmaceuticals Generic and Over-the-Counter Drugs

Russia Novoorlovskaya Special Economic Zone

Novartis-14 Pharmaceuticals Pharmaceuticals

Russia Obninsk, Kaluga Oblast Ruswnano and Nearmedic Plus Pharmaceuticals Pharmaceuticals

Russia Vorsino, Kaluga and St. Petersburg

AstraZeneca-12 Pharmaceuticals Pharmaceuticals

Russia Yaroslavl Takeda Pharmaceuticals Pharmaceuticals

Russia Yaroslavl Nycomed Pharmaceuticals Pharmaceuticals

Uganda Quality Chemicals Industries (QCI)-1 Pharmaceuticals Pharmaceuticals