investor presentation...2018/03/14 · leading market positions in residential and commercial...

Investor Presentation

Forward Looking Statements

Certain statements in this presentation constitute forward-looking statements within the

meaning of the Private Securities Litigation Reform Act of 1995.

These statements are related to forecasts of sales, market dynamics and 2018 outlook

update, capital expenditures, costs and savings associated with realignment activities and

management goals and objectives.

Watts cautions investors that any such forward-looking statements made by Watts are not

guarantees of future performance. All forward-looking statements are subject to known and

unknown risks, uncertainties and contingencies, many that are beyond the control of Watts,

which may cause actual results, performance or achievements to differ materially from

anticipated future results, performance or achievements expressed or implied by the forward-

looking statements.

Factors that might affect forward-looking statements include overall economic and business

conditions, competitive factors, changes in laws affecting Watts, future acquisitions of material

assets or businesses by Watts, the demand for Watts’ products and services and other

factors identified in Watts’ most recent Annual Report on Form 10-K and subsequent reports

filed with the SEC.

3/14/2018 © 2018 Watts Water Technologies, Inc. 2

Who We Are


Global Leader / Expanding Geographically

Leader in Commercial / Residential Water Products

• $1.5B Global Company‒ Domestic / international revenue split fairly balanced

‒ Exposure to replacement markets & new construction

‒ Strong presence in commercial / residential markets

‒ Regulations – plumbing codes drive ~ 65% of worldwide sales

• Leveraging Leading Brands and Key Market Drivers‒ Safety & Regulation

‒ Energy Efficiency

‒ Water Conservation

• Multi-Year Transformation Complete; Pivoting to Growth

• Strong Cash Generator Drives Capital Deployment

Geographic

REVENUE SOURCES

Americas 65%

Europe 30%

APMEA 5%

End Markets

Non-

Residential 60%

Repair / Retrofit 65%

Where We Play: Strategic Themes


Addressing Global Secular Market Themes

SAFETY & REGULATION

Provide the highest levels of

performance in the

safeguarding of water systems

• Code & specification driven

• Extensive certification process

• Emerging need globally

ENERGY EFFICIENCY

Offer the most efficient

conversion of energy sources into

useful heat and hot water

• Large & fragmented market

• Economic & environmental value

proposition

• Application & engineering

competencies critical

WATER CONSERVATION

Deliver drainage and pre-treatment

systems that meet the design

challenges of a

water scarce world

• Environmental & emotional

drivers

• Code & specification driven

• Emerging global demand

• Best in class service

Specialty products and systems that conserve and safeguard the flow of fluid and energy

KEY MEGA

TRENDS

MARKET

CHARACTERISTICS

WATTS

VALUE

PROPOSITION

Attractive End Markets


Balanced Portfolio Providing Tailwind For Growth

Institutional / Educational

Multi Family / Commercial

Sports Complexes

Residential

Hospitality – Food Service

Light / General Industrial

Hospitality – Hotel

Healthcare

Specialty products and

systems that conserve and

safeguard the flow of fluid

and energy

Commercial Offerings

March 14, 2018 © 2018 Watts Water Technologies, Inc. 6

~60% of Sales; More Complexity / Systems

Driveway / Sidewalk

Drainage / Rain Water Harvesting Fire Protection Systems

Boiler / Mechanical Room

Irrigation

Commercial Kitchens

► Hot Water Heaters / Boilers

► Digital Thermostatic Mixing Stations

► Boiler & Pump Controls

► Gas Connectors

► Point of Use Filtration Systems

► Stainless Steel Drains

► Backflow Preventers


► Pressure Regulating Valves

► Isolation Valves

► Cross Connection Systems

► Automatic Control Valves

► Isolation Valves

► Cast Iron and Stainless Steel Drains & Pipe

► Rain Water Harvesting

► Roofs, Parking Garages, Bathrooms, Kitchens

Guestroom

► Anti-Scald Shower & Lavatory Valves

► Stainless Steel Shower Drains

► Underfloor Heating Systems

Public Restroom Safety

► Thermostatic Mixing Valves

► Floor Drains

► Closet & Lavatory Carriers

Point of Entry – Potable Water

► Electronic Temperature Controls

► Snow Melt Hydronic Systems

► Manifolds

Point of Entry –

Water Safety


► Automatic Control Valves

► Pressure Reducing Valves

► Ball, Gate, & Butterfly Valves

► OneFlow Anti-Scale Systems

► Water Softeners

► SmartStream UV System

Residential Offerings

March 14, 2018 © 2018 Watts Water Technologies, Inc. 7

~40% of Sales; Product Range Unmatched

Kitchen

► Undersink Thermostatic Mixing Valves

► Reverse Osmosis Water Filtration Systems

► Electric Tile Warming

► SmartSense Excess Flow Valve & Thermal Shutoff

Bathroom

► Tempering Valves

► Electric Tile Warming

► Stainless Steel Shower Drains

► Hot Water on Demand Recirculation

Driveway / Sidewalk

► Snow Melt Hydronic Systems

► Electronic Temperature Controls

► Manifolds

► Quick Connect Fittings

► Hydrocontrol Panels

► PEX Tubing

Laundry Room

► Anti-Scale Systems

► Gas Ball Valves & Connectors

► SmartSense Excess Flow Valve &

Thermal Shutoff

► IntelliFlow Automatic Washing

Machine Shutoff Valves

► Whole House Filtration

Systems

► Anti-Scale Systems

► Water Softeners

► SmartStream UV

Disinfection Systems

Boiler / Furnace Room

► T&P Relief Valves

► Tempering Valves


► Expansion Tanks

► Temperature & Pressure Gauges

► Air Separators





► Flow Control Valves

Point of Entry –

Potable Water Point of Entry –

Water Safety

Irrigation

Living Room

► Control Panel / Thermostat

► Radiant Underfloor Heating

Internal Transformation Completed…


…Now Focused on Driving Profitable Growth

• Realigned Cost Structure to

Demand

• Footprint Optimization

• Sourcing Excellence • Exited Non-core Products

‒ Exited $165M of sales

• Footprint Optimization

‒ 30% US reduction

• Sourcing Excellence

‒ $11M annualized savings

• One Watts

• Innovation / Application Solutions

2013 -

2016European

Transformation

2015 -

2017 Americas / Asia

Transformation

2018 +BEYOND

Continue to Drive

Productivity;

Reinvest for Growth

Re-investing $25M in Commercial Excellence

Watts Strategic Framework

3/14/2018 9

Continue to Grow

Organically

Drive Operational

Efficiencies &

Improvement

across All Key

Processes

Employ

Disciplined &

Balanced Capital

Allocation

Strategy

© 2018 Watts Water Technologies, Inc.

Organic Growth Initiatives


Multifaceted Approach to Drive Solutions

New

Product

Development

Geographic

Expansion

Key Account

Management

• Streamlined multiple development processes to one

• Leveraging Voice of Customer to drive product innovation

• Opened state-of-the-art Watts Works Learning Center

- Customers experience first-hand products and technologies

• Introducing existing products to new territories

• Targeting countries with well-established plumbing codes

- Australia, Korea, Japan, Singapore, Chile, Mexico

• Expanding relationships with large customers

(e.g., lodging and restaurant chains)

• Leveraging integrated business model to

cross-sell solutions

Future Growth

Supported by

Solution Selling

Margin Improvement Expectations


Major “Self Help” Initiatives Realized; Pivot to Growth

2015

BaselineTransformation 2017

Growth

Initiatives

Operational

Initiatives2020E

10.1%(1)

11.9%(1)

Goal 14% +

• LEAN

• Functional

Excellence • New Product

Development

• Geographic

Expansion

• Key Account

Management

• Portfolio

Rationalization

• Footprint

Optimization

• Global Sourcing

• Europe

Restructuring

Adjusted(1)

Operating Margin Opportunity Next 3 Years

(1) See slide 18 for reconciliation of GAAP to Non GAAP operating margin

Disciplined Capital Deployment


Strong Cash Generation Drives Deployment Upside

Strong Cash Generation Deployment Priorities

• Investing in High ROI CAPEX‒ Reinvestment ratio 80-100%

• Strategic M&A‒ Selective acquirer; disciplined valuation

and screening process

• Dividend increases

• Stable share buyback‒ Offset option dilution at minimum

$82

$135 +

2015 2020E

$M

>100% FCF

Conversion

M&A Strategy


Disciplined Acquisitions Generate Incremental Growth

✓ Core or Related Complementary Markets

✓

Addresses Macro Themes• Safety & Regulation

• Energy Efficiency

• Water Conservation

✓ Preferred Brand Name Products

✓

Financial criteria• ROIC > Cost of Capital

• EPS Accretive Year 1

• Operating Margin Accretive by Year 3

CRITERIA Additional Considerations

• Entry into new markets

• Increase in shelf space

with existing customers

• Supports solution selling

• New or improved

technology

• Expansion of the breadth

of product offerings

Flexible Balance Sheet


Capacity to Execute on Strategic Growth

12/31/17 12/31/16 12/31/15

Cash $280 $338 $296

Other Current Assets 504 481 513

Non-Current Assets 953 944 884

Total Assets $1,737 $1,763 $1,693

Current Liabilities, excl. Short-term Debt $305 $287 $294

Non-Current Liabilities 106 90 117

Debt 497 650 577

Equity 829 736 705

Total Liabilities & Equity $1,737 $1,763 $1,693

Net Debt / Capitalization Ratio(1)

21% 30% 28%

$M

(1) See slide 19 for calculation of net debt / capitalization ratio

March 14, 2018 © 2018 Watts Water Technologies, Inc.

Forecasting Another Good Year15

2018 Outlook

FY 2018 Outlook by Region

Org Rev Growth Margin Rate

AMERICAS 3-5%▲

Positive

EUROPE 1-3%▲

Positive

APMEA7-10%

▲

Positive

WATTS ~3%

50 to 70 bps

Includes $10M

Investments

Other Key Inputs

Item Expectation

Corporate Costs ~$37M

Interest

Expense~$17M

Effective Tax

Rate~28%

CAPEX / D&A ~$38M / ~$50M

Free Cash Flow

Conversion >100%

Share Count ~34.4M shares

Summary


Commercial, Operational, and Innovation Excellence

Multi-year transformation completed Enhanced portfolio and more

efficient organization; ongoing tailwind

Strengthened the

Foundation

Aligned to

Favorable Macros

and Markets

Focus On

Innovation and

Profitable Growth

Accretive Capital

Deployment

Achieving 2020

Targets

Leading market positions in residential and commercial water,

addressing global secular macro themes

Leveraging components to broaden application solutions offering,

Investment continues, fueling growth

Strong cash flow and efficient capital structure enables more

deployment upside; disciplined acquirer

• Operating margin 14%+

• Free cash flow > 100% conversion

Reconciliation of GAAP “As Reported” to “Adjusted” Non-GAAP

Excluding Effect of Adjustments for Special Items

© 2018 Watts Water Technologies, Inc.18

(in millions except per share information)

Year Ended2017 2015

Net Sales $1,456.7 $1,467.7

Operating income (loss) - as reported $162.3 $(90.1)

Operating margin % 11.1% -6.1%

Adjustments for special items:

Goodwill impairment - 130.5

Other long-lived asset impairment charges 1.0 -

Acquisitions / divesture related costs 0.2 1.6

Restructuring 6.8 21.4

Transformation 2.9 14.3

Pension / other costs — 70.7

Total adjustments for special items $10.9 $238.5

Operating income - as adjusted $173.2 $148.4

Adjusted operating margin % 11.9% 10.1%

(M)

(Unaudited)

March 14, 2018

Reconciliation of Long-term Debt

(including current portion) to Net Debt to Capitalization Ratio

© 2018 Watts Water Technologies, Inc. 19

(M)

(Unaudited)

December 31,

2017

December 31,

2016

December 31,

2015

Current portion of long-term debt $22.5 $139.1 $1.1

Plus: Long-term debt, net of current portion 474.6 511.3 574.2

Less: Cash and cash equivalents (280.2) (338.4) (292.2)

Net debt $216.9 $312.0 $279.1

Net debt $216.9 $312.0 $279.1

Plus: Total stockholders' equity 829.0 736.3 704.9

Capitalization $1,045.9 1,048.3 $984.0

Net debt to capitalization ratio 20.7% 29.8% 28.4%

March 14, 2018

investor presentation...2018/03/14 · leading market positions in residential and commercial...

Documents