Investor Presentation

Transcription

1 Investor Presentation

2 Forward Looking Statements Certain statements in this presentation constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 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 forwardlooking 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/ Watts Water Technologies, Inc. 2

3 Who We Are REVENUE SOURCES Geographic APMEA 5 % Europe 30 % Americas 65 % End Markets Repair / Retrofit 65 % 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 Non- Residential 60 % Strong Cash Generator Drives Capital Deployment Global Leader / Expanding Geographically 3/14/ Watts Water Technologies, Inc. 3

4 Where We Play: Strategic Themes Specialty products and systems that conserve and safeguard the flow of fluid and energy SAFETY & REGULATION ENERGY EFFICIENCY WATER CONSERVATION KEY MEGA TRENDS WATTS VALUE PROPOSITION Provide the highest levels of performance in the safeguarding of water systems Offer the most efficient conversion of energy sources into useful heat and hot water Deliver drainage and pre-treatment systems that meet the design challenges of a water scarce world MARKET CHARACTERISTICS Code & specification driven Extensive certification process Emerging need globally Large & fragmented market Economic & environmental value proposition Application & engineering competencies critical Environmental & emotional drivers Code & specification driven Emerging global demand Best in class service Addressing Global Secular Market Themes 3/14/ Watts Water Technologies, Inc. 4

5 Attractive End Markets Institutional / Educational Hospitality Hotel Residential Multi Family / Commercial Specialty products and systems that conserve and safeguard the flow of fluid and energy Hospitality Food Service Sports Complexes Healthcare Light / General Industrial Balanced Portfolio Providing Tailwind For Growth 3/14/ Watts Water Technologies, Inc. 5

6 Commercial Offerings Guestroom Anti-Scald Shower & Lavatory Valves Stainless Steel Shower Drains Underfloor Heating Systems Drainage / Rain Water Harvesting Cast Iron and Stainless Steel Drains & Pipe Rain Water Harvesting Roofs, Parking Garages, Bathrooms, Kitchens Fire Protection Systems Cross Connection Systems Automatic Control Valves Isolation Valves Public Restroom Safety Thermostatic Mixing Valves Floor Drains Closet & Lavatory Carriers Commercial Kitchens Gas Connectors Point of Use Filtration Systems Stainless Steel Drains Backflow Preventers Point of Entry Potable Water OneFlow Anti-Scale Systems Water Softeners SmartStream UV System Boiler / Mechanical Room Driveway / Sidewalk Electronic Temperature Controls Snow Melt Hydronic Systems Manifolds Point of Entry Water Safety Backflow Preventers Automatic Control Valves Pressure Reducing Valves Ball, Gate, & Butterfly Valves Irrigation Backflow Preventers Pressure Regulating Valves Isolation Valves Hot Water Heaters / Boilers Digital Thermostatic Mixing Stations Boiler & Pump Controls ~60% of Sales; More Complexity / Systems March 14, Watts Water Technologies, Inc. 6

7 Residential Offerings 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 Living Room Control Panel / Thermostat Radiant Underfloor Heating Laundry Room Anti-Scale Systems Gas Ball Valves & Connectors SmartSense Excess Flow Valve & Thermal Shutoff IntelliFlow Automatic Washing Machine Shutoff Valves Driveway / Sidewalk Snow Melt Hydronic Systems Electronic Temperature Controls Manifolds Quick Connect Fittings Hydrocontrol Panels PEX Tubing Point of Entry Potable Water Point of Entry Water Safety Whole House Filtration Systems Anti-Scale Systems Water Softeners SmartStream UV Disinfection Systems Backflow Preventers Pressure Reducing Valves Irrigation Backflow Preventers Pressure Reducing Valves Flow Control Valves Boiler / Furnace Room T&P Relief Valves Tempering Valves Pressure Reducing Valves Expansion Tanks Temperature & Pressure Gauges Air Separators ~40% of Sales; Product Range Unmatched March 14, Watts Water Technologies, Inc. 7

8 Internal Transformation Completed European Transformation Realigned Cost Structure to Demand Footprint Optimization Sourcing Excellence Exited Non-core Products Exited $165M of sales Footprint Optimization 30% US reduction Americas / Asia Transformation Sourcing Excellence $11M annualized savings BEYOND One Watts Continue to Drive Productivity; Reinvest for Growth Innovation / Application Solutions Re-investing $25M in Commercial Excellence Now Focused on Driving Profitable Growth 3/14/ Watts Water Technologies, Inc. 8

9 Watts Strategic Framework Continue to Grow Organically Drive Operational Efficiencies & Improvement across All Key Processes Employ Disciplined & Balanced Capital Allocation Strategy 3/14/ Watts Water Technologies, Inc. 9

10 Organic Growth Initiatives New Product Development 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 Geographic Expansion Introducing existing products to new territories Targeting countries with well-established plumbing codes - Australia, Korea, Japan, Singapore, Chile, Mexico Future Growth Supported by Solution Selling Key Account Management Expanding relationships with large customers (e.g., lodging and restaurant chains) Leveraging integrated business model to cross-sell solutions Multifaceted Approach to Drive Solutions 3/14/ Watts Water Technologies, Inc. 10

11 Margin Improvement Expectations Adjusted (1) Operating Margin Opportunity Next 3 Years Goal 14% % (1) LEAN 10.1% (1) New Product Development Functional Excellence Portfolio Rationalization Footprint Optimization Geographic Expansion Key Account Management Global Sourcing Europe Restructuring 2015 Baseline Transformation 2017 Growth Initiatives Operational Initiatives 2020E (1) See slide 18 for reconciliation of GAAP to Non GAAP operating margin Major Self Help Initiatives Realized; Pivot to Growth 3/14/ Watts Water Technologies, Inc. 11

12 Disciplined Capital Deployment Strong Cash Generation Deployment Priorities $M $82 >100% FCF Conversion $135 + Investing in High ROI CAPEX Reinvestment ratio % Strategic M&A Selective acquirer; disciplined valuation and screening process Dividend increases Stable share buyback Offset option dilution at minimum E Strong Cash Generation Drives Deployment Upside 3/14/ Watts Water Technologies, Inc. 12

13 M&A Strategy CRITERIA Additional Considerations 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 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 Disciplined Acquisitions Generate Incremental Growth 3/14/ Watts Water Technologies, Inc. 13

14 Flexible Balance Sheet $M 12/31/17 12/31/16 12/31/15 Cash $280 $338 $296 Other Current Assets Non-Current Assets Total Assets $1,737 $1,763 $1,693 Current Liabilities, excl. Short-term Debt $305 $287 $294 Non-Current Liabilities Debt Equity Total Liabilities & Equity $1,737 $1,763 $1,693 Net Debt / Capitalization Ratio (1) 21% 30% 28% (1) See slide 19 for calculation of net debt / capitalization ratio Capacity to Execute on Strategic Growth 3/14/ Watts Water Technologies, Inc. 14

15 2018 Outlook FY 2018 Outlook by Region Org Rev Growth Margin Rate Item Other Key Inputs Expectation AMERICAS 3-5% Positive Corporate Costs ~$37M Interest Expense ~$17M EUROPE 1-3% Positive Effective Tax Rate ~28% APMEA 7-10% Positive CAPEX / D&A ~$38M / ~$50M WATTS ~3% 50 to 70 bps Includes $10M Investments Free Cash Flow Conversion Share Count >100% ~34.4M shares March 14, 2018 Forecasting Another Good Year 2018 Watts Water Technologies, Inc. 15

16 Summary Strengthened the Foundation Multi-year transformation completed Enhanced portfolio and more efficient organization; ongoing tailwind Aligned to Favorable Macros and Markets Focus On Innovation and Profitable Growth Leading market positions in residential and commercial water, addressing global secular macro themes Leveraging components to broaden application solutions offering, Investment continues, fueling growth Accretive Capital Deployment Strong cash flow and efficient capital structure enables more deployment upside; disciplined acquirer Achieving 2020 Targets Operating margin 14%+ Free cash flow > 100% conversion Commercial, Operational, and Innovation Excellence 3/14/ Watts Water Technologies, Inc. 16

17 Appendix 3/14/ Watts Water Technologies, Inc.

18 Reconciliation of GAAP As Reported to Adjusted Non-GAAP Excluding Effect of Adjustments for Special Items (M) (Unaudited) (in millions except per share information) Year Ended 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 Other long-lived asset impairment charges Acquisitions / divesture related costs Restructuring Transformation 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% March 14, Watts Water Technologies, Inc. 18

19 Reconciliation of Long-term Debt (including current portion) to Net Debt to Capitalization Ratio (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 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 Capitalization $1, ,048.3 $984.0 Net debt to capitalization ratio 20.7% 29.8% 28.4% March 14, Watts Water Technologies, Inc. 19