Post on 17-Nov-2021
WATTS WATER
INVESTOR PRESENTATIONAUGUST 2021
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 the 2021 outlook of sales and adjusted operating margin, acquisition strategy, the impact of
the COVID-19 pandemic, 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 “Item 1A. Risk Factors” in Watts’ most recent Annual Report on Form 10-K and in
subsequent reports filed with the SEC.
FORWARD-LOOKING STATEMENTS
2WTS Investor Presentation |
TODAY’S KEY THEMES
1. $1.5B Global Company with Leading Market Positions
2. Leader in Commercial and Residential Water Products
3. Industry-leading Brands, Key Market Drivers; Plumbing Codes
4.Driving Profitable Growth through Innovation and Smart & Connected
Strategy
5. Strong Cash Generator; Disciplined Capital Deployment
3WTS Investor Presentation |
Global Leader in Commercial and Residential Water Products; Driving a Performance Culture
WATTS WATER SNAPSHOT (NYSE: WTS)
4WTS Investor Presentation |
$3.88Adj. EPS1
+55% Growth
2020 Key StatisticsGrowth Rates Since 2014
12.9%Adj. Operating Margin1
+280 bps Growth
6.9%Dividend CAGR
+21% Growth
11.7%ROIC (GAAP)
+105% Growth
115%5-yr Avg Reinvestment Ratio
+60% Growth
2.8%R&D as a % of Sales
+87% Growth
60%
40%
Revenue by End Market
Repair & Replace New Construction
68%
28%
4%
Revenue by Geography
Americas Europe APMEA
60%
40%
Revenue by End Market
Non-Residential Residential
1 See Appendix for reconciliations for non-GAAP measures to their corresponding GAAP measures.
Specialty Products and Systems that Conserve and Safeguard the Flow of Fluid and Energy
VALUE PROPOSITION ALIGNED WITH
LONG-TERM SECULAR GROWTH TRENDS
5WTS Investor Presentation |
Provide the highest levels of
performance in the safeguarding of
water systems
• Code and specification driven
• Extensive certification process
• Emerging need globally
Offer the most efficient conversion of
energy sources into useful heat and
hot water
• Large and fragmented
• Economic and environmental value
proposition
• Application and engineering competencies
critical
Deliver drainage and pre-treatment
systems that meet the design
challenges of a water scarce world
• Code and specification driven
• Environmental drivers
• Emerging need globally
• Best-in-class service
Safety & Regulation Energy Efficiency Water Conservation
Market Characteristics
Balanced Portfolio Providing Tailwind For Growth
LARGE ADDRESSABLE MARKET WITH EXPOSURE TO
DIVERSE END MARKETS
RESIDENTIAL INSTITUTIONAL /
EDUCATIONAL
LIGHT / GENERAL
INDUSTRIAL
MULTI-FAMILY /
COMMERCIAL
HOSPITALITY –
HOTEL
HOSPITALITY –
FOOD SERVICE
HEALTHCARE
DATA CENTERS
END MARKETS
~$15B Total Available
Market Opportunity1
1 Based on Company estimates of global market. 6WTS Investor Presentation |
COMMERCIAL OFFERINGS~60% of Sales; More Complexity / Systems
7WTS Investor Presentation |
Water Safety (Point of Entry)
Backflow Preventers • Automatic Control
Valves • Pressure Reducing Valves •
Ball, Gate, & Butterfly Valves
Boiler / Mechanical Room
Hot Water Heaters / Boilers • Digital Thermostatic Mixing Stations •
Boiler & Pump Controls
Driveway / Sidewalk
Electronic Temperature Controls • Snow Melt Hydronic Systems •
Manifolds
Commercial Kitchens
Gas Connectors • Point of Use Filtration Systems • Stainless Steel
Drains • Backflow Preventers
Fire Protection Systems
Cross Connection Systems • Automatic Control Valves • Isolation Valves
Public Restroom Safety
Thermostatic Mixing Valves • Floor Drains • Closet and Lavatory Carriers
Water Quality (Point of Entry)
OneFlow Anti-Scale Systems • Water Softeners • SmartStream UV
System
Guestroom
Irrigation
Backflow Preventers • Pressure
Regulating Valves • Isolation Valves
Drainage / Rainwater
Harvesting
Cast Iron and Stainless Drains & Pipe •
Rainwater Harvesting • Roofs, Parking
Garages, Bathrooms, Kitchens
Leak Detection
Smart & Connected Backflow Preventers
• Wireless Leak Detection & Notification
Systems
RESIDENTIAL OFFERINGS~40% of Sales; Product Range Unmatched
8WTS Investor Presentation |
Water Safety (Point of Entry)
Backflow Preventers • Pressure
Reducing Valves
Boiler / Furnace Room
T&P Relief Valves • Tempering Valves • Pressure Reducing Valves •
Expansion Tanks • Temperature & Pressure Gauges • Air Separators
Laundry Room
Anti-Scale Systems • Gas Ball Valves & Connectors • SmartSense
Excess Flow Valve & Thermal Shutoff • IntelliFlow Automatic Washing
Machine Shutoff Valves
Bathroom
Tempering Valves • Electric Tile Warming • Stainless Steel Shower
Drains • Hot Water on Demand Recirculation
Living Room
Control Panel / Thermostat • Radiant Underfloor Heating
Kitchen
Undersink Thermostatic Mixing Valves • Reverse Osmosis Water •
Filtration Systems • Electric Tile Warming • SmartSense Excess Flow
Valve & Thermal Shutoff
Water Quality (Point of Entry)
Whole House Filtration Systems • Anti-Scale Systems • Water Softeners • SmartStream
UV Disinfection Systems
Irrigation
Backflow Preventers • Pressure
Reducing Valves • Flow Control Valves
Driveway / Sidewalk
Snow Melt Hydronic Systems • Electronic Temperature Controls •
Manifolds • Quick Connect Fittings • Hydrocontrol Panels • PEX Tubing
ESG / DE&I Are Key Priorities • Continuous Journey to Improve
9WTS Investor Presentation |
OUR COMMITMENT TO SUSTAINABILITY
ENVIRONMENTAL SOCIAL GOVERNANCE
• Reduced consumption of natural resources
• Continue to shift product portfolio to
eco-friendly solutions
• Committed to providing clean water to
disadvantaged communities
• Assessing Climate related risks and
opportunities
• Launched first Global Diversity, Equity and
Inclusion (DE&I) survey
• Enhanced recruitment process with new
diversity standards
• Deployed company-wide DE&I training and
development
• Forged partnerships with several leading
Black colleges and universities
• Formed multiple diverse employee resource
groups
• Conducting business with integrity and
according to the highest ethical standards
• Continuous deployment of Code of
Conduct - our guide to applying our core
values in our everyday actions
Among Newsweek’s Top 400 of “America’s
Most Responsible Companies” for
sustainability performance, two years running
Director Skillsets and Attributes Support Our Long-term Strategy
ENGAGED AND ACCOUNTABLE BOARD OF DIRECTORS
10WTS Investor Presentation |
Louise GoeserRetired President and CEO,
Grupo Siemens S.A. de C.V.2018
Jes Munk HansenPresident and CEO,
Terma A/S
2017
Joseph NoonaneCommerce Entrepreneur;
Horne Family Member
2013
Bob PaganoCEO and President,
Watts Water
2014
Joseph ReitmeierEVP and CFO,
Lennox International Inc.
2016
Craig KisselChairperson of the Board
Retired President of Trane
Commercial Systems,
American Standard
Joined: 2011
Christopher ConwayRetired President, CEO and
Chairman of the Board,
CLARCOR Inc
2015
Michael DubosePresident, Fisher
Healthcare Division,
Thermo Fisher Scientific Inc.
2020
David DunbarPresident and CEO,
Standex International Corp.
2017
Merilee RainesRetired CFO, IDEXX
Laboratories, Inc.
2011
Board Skillsets
and Attributes
✓ Operational and C-Suite Experience
✓ International Markets Exposure
✓ Public Company Board Experience
✓ Global Manufacturing
✓ Relevant End Market Exposure
✓ Business Ethics
✓ eCommerce / Digital
✓ Finance / M&A
60 YEARS
Avg. Age
5 YEARS
Avg. Tenure
WATTS STRATEGIC FRAMEWORK
11WTS Investor Presentation |
Employ Disciplined & Balanced Capital Allocation Strategy
Drive Operational Efficiencies &
Improvement across All Key Processes
Continue to Grow
Organically
Multifaceted Approach to Drive Innovation; Future Growth Supported by Solution Selling
ORGANIC GROWTH INITIATIVES
12WTS Investor Presentation |
Geographic
Expansion
Key Account
Management
New
Product Development
▪ Utilizing single streamlined
product development
process
▪ Leveraging Voice of
Customer to drive product
innovation
▪ Driving Smart & Connected
strategy
▪ Advancing solutions that
address market needs
▪ Cross-sharing existing
products into new regions
▪ Targeting countries with
well-established plumbing
codes
▪ Opened 9 state-of-the-art
Watts Works Learning
Centers since 2015
▪ Influencing plumbing code
improvements in developing
countries
▪ Expanding relationships
with large customers
▪ Leveraging integrated
business model to cross sell
− Use Case: Large hospitality
customer turned to Watts to
standardize on a solution for
their water heating, water
quality, and space heating
needs
Strategic Account Teams Help Customers Achieve Desired Outcomes
CLIENT CASE STUDIESExceeding Client Needs with Innovative Solutions
13WTS Investor Presentation |
BACKGROUND: CLIENT NEED OUR INNOVATIVE SOLUTION BENEFITS
Prestigious hospital
in Boston, MA
needed a compact footprint solution
to increase efficiency of its centralized
steam system without diminishing
steam sterilization requirements
Combined a Benchmark 3000 high
efficiency boiler for space heating and
Innovation 600 & 800 water
heating units for hot water to meet all
engineering requirements (small enough to
fit through a standard doorway)
Easily meeting
facility’s domestic
hot water, heating
and sterilization
needs
30-40%reduction in
fuel operating
costs
Meat production facility, Midwest
U.S.A. required a drainage solution
that could handle significant volumes
of high temperature wastewater; a
challenging application due to the
potential for stress cracking and
bacterial growth
100 feet of HygienicPro®
drains and 200 feet of BLÜCHER
push fit stainless-steel
piping were installed in 7 days to
handle over 10,000 gallons per day at
temperatures exceeding 200°F.
Bacterial counts
BELOW
DETECTABLE levels
Downtime due
to stress
fractures
ELIMINATED
Workplace
SAFETY
improved by
reduction of
steam and
biofilm
Steady Progress Despite Pandemic; Driving to 2023 Goal
14WTS Investor Presentation |
25%Smart & Connected
Revenues by 2023
Mid-teens: Smart & Connected 2020 Revenues
PAST: 2015Launched digital journey
Limited use of internal digital
resources
No pipeline of projects
PRESENTDedicated organizational
structure deployed to support IoT
Strategic alignment with all
business units
85+ Dedicated digital / IoT engineers
70k Connected devices shipped
87% Connected revenues
from non-residential
FUTURE
Improve use of data to
enhance customer experience
Continue to focus on
key customer issues
System Safety | Water Hygiene
Energy Efficiency | Leak Detection
Expand subscription-based
services
SMART AND CONNECTED STRATEGY PROGRESS
OWPS Focus Areas
✓ Gross productivity project funnel growth
✓ Business process efficiencies
✓ Locating production close to customers
✓ Ensuring a “safety first” culture
✓ Providing world class quality
✓ Committed to great customer service –
“On time in full”
✓ Improving working capital
Customer Focused Productivity Initiatives
DRIVING ONE WATTS PERFORMANCE SYSTEM (OWPS)
15WTS Investor Presentation |
OWPS is a collection of tools, processes and
behaviors that help us grow and develop
STRATEGYHow We Win
CULTUREHow We Act
PROCESSHow We Work
CUSTOMER
BACKGROUND
Issues and Drivers
▪ Complexity of fabrication processes
‒ Required highly skilled associates to
complete rigorous training – extended
time to reach expected productivity levels
▪ Both increased product demand across
the factory and labor shortages related to
COVID restricted available skilled talent in
the Intellistation fabrication department
▪ Intellistation’s 2021 growth projections
dictated requirements to increase capacity
and reduce lead times
▪ Extended lead times from suppliers
requiring adjustments to safety stocks and
supplier lead times to further reduce
Watts’ lead times to customer on mostly
Make-to-Order (MTO) products
OWPS CASE STUDY: INTELLISTATION LEAD TIME STATUS
WTS Investor Presentation | 16
▪ Process flow improvements
– Review of component sub assembly vs full assembly
▪ Elimination of fabrication (womb to tomb)
– Multiple Kaizens
▪ Modularized assembly for sub assembly cells
▪ Separation of wiring process from component assembly
– Allowed specialization of wiring process/skills
– Reduced learning curve training new employees
▪ Growth in multiple-unit installations
– Reviewed processes/equipment
– Identified safety and productivity issues addressed with
installation of additional taller, increased-capacity hoist
– Added additional cells
▪ Component demand review resulted in upgraded safety
stock and adjusted supplier lead times to further
reduce production lead times on MTO products
KEY ACTIONS
7.5
4.584.99
3.96
3.1
2017 2018 2019 2020 2021
Intellistation Weeks Lead Time
OUTCOME
Strong Cash Flow Generation Provides Flexibility
Priorities
Strategic M&A
▪ Disciplined valuation / screening process
Investing in high ROI Capex
▪ 70% of Capex invested in growth and productivity initiatives
▪ Reinvestment ratio 80-100%
Competitive Dividend
▪ 6.9% 5-year CAGR through 2020
▪ $1.04 annual dividend, 0.63% yield1
Stable Share Buyback
▪ Offset option dilution at minimum
BALANCED CAPITAL DEPLOYMENT
17WTS Investor Presentation |
$148
$171
$142
$119
Deployment History2016-2020
M&A Capex Dividend Share Buyback
~55% Growth
~45% Returned to
Shareholders
55%
Growth
1 Yield as of 8/16/21.
Disciplined Acquisitions Generate Incremental Growth
M&A STRATEGY
18WTS Investor Presentation |
Core or Related
Complementary Markets
Addresses Macro Themes
▪ Safety and Regulation
▪ Energy Efficiency
▪ Water Conservation
Brand Name Products,
Market Leadership
STRATEGIC CRITERIA FINANCIAL CRITERIA
✓
✓
✓
Entry into New Markets
and Geographies
Increase in Shelf Space
with Existing Customers
Product Offering
Expansion, Including New /
Improved Technology
✓
✓
✓
ROIC > Cost of
Capital
Accretive to EPS
in Year 1
Accretive to EBITDA
Margin within 3 – 5 Years
✓
✓
✓
Capacity to Execute on Strategic Growth
FLEXIBLE BALANCE SHEET
$M6/27/21
Cash $240
Other Current Assets 604
Non-Current Assets 1,011
TOTAL ASSETS $1,855
Current Liabilities, excl. Short-term Debt $396
Non-Current Liabilities 150
Debt 191
Equity 1,118
TOTAL LIABILITIES & EQUITY 1,855
Net Debt / Capitalization Ratio*
(4.5%)
19WTS Investor Presentation |
$191M
2021 2026
Revolving
Credit
Facility
Debt Maturity Schedule
No Debt Due Until 2026
Unused and available credit capacity ~ $600M on June 27, 2021
Revised for Continued Strong Expectations
2021 OUTLOOK – AS OF AUGUST 5, 2021
20WTS Investor Presentation |1 See Appendix for reconciliations of non-GAAP measures to their corresponding GAAP measures; 2 Includes $17M incremental investments.
OTHER KEY INPUTS
Item Expectation
Corporate Costs ~$48M
Interest Expense ~$7M
Adjusted Effective Tax Rate ~27.5%
CAPEX / D&A ~$35M / ~$46M
Free Cash Flow Conversion ≥100%
Share Count ~34M shares
Organic Revenue Growth1 Adjusted Margin Growth1
Americas 9% to 13%[Prior 2% to 7%]
Up[Prior Up]
Europe10% to 14%[Prior 1% to 5%]
Up[Prior Up]
APMEA23% to 27%
[Prior 10% to 15%]
Up[Prior Flat to Up]
Total Watts10% to 14%[Prior 2% to 7%] Up 100 to 150 bps1,2
[Prior up 30 to 70 bps]
Build a High Performance “Connected Water and Heating Solutions” Company
OUR LONG-TERM ASPIRATIONS
21WTS Investor Presentation |1 Post 2021 – after pandemic subsides.
Organic Growth1% Above Market
Operating Margin
Expansion30-50 bps per Year1
Emphasis on GrowthSupported by M&A
Focus in Selected
Emerging Markets
RECOGNIZED LEADER • Global reach: leading market positions in commercial and residential water space
ALIGNED TO LONG-TERM SECULAR TRENDS AND DIVERSE MARKETS • Addressing global secular macro themes
• Challenging commercial new construction markets in various sub-verticals
• Opportunities in Americas single family residential market and repair & replacement in near-term
FOCUS ON INNOVATION AND PROFITABLE GROWTH• Leveraging components to broaden application solutions offering
• Investment continues, fueling growth with “connected” strategy
ACCRETIVE CAPITAL DEPLOYMENT• Strong cash flow and efficient capital structure enables more deployment upside
• Disciplined acquirer
• Returns to shareholders
Commercial Excellence and Innovation Drives Above Market Growth
INVEST WITH US
22WTS Investor Presentation |
Appendix
WTS Investor Presentation |
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
WTS Investor Presentation | 24
Year2020 2014
Net Sales $1,508.6 $1,513.7
Operating income - as reported $181.1 $105.4
Operating margin % 12.0% 7.0%
Adjustments for special items:
Footprint optimization / impairment charge 2.5 14.2
Restructuring / transformation costs 9.9 25.7
Prof. fees / acquisition / earnout adj. / disposal 0.4 7.7
$12.8 $47.6
Operating income - as adjusted $193.9 $153.0
Adjusted operating margin % 12.9% 10.1%
Net income - as reported $114.3 $50.3
Adjustments for special items - tax affected:
Footprint optimization / impairment charge 1.8 13.8
Restructuring / transformation costs 7.4 17.8
Prof. fees / acquisition / earnout adj. / disposal (1.2) 6.9
Tax adjustments 9.7 -
$17.7 $38.5
Net income - as adjusted $132.0 $88.8
Earnings per share
Diluted earnings per share - as reported $3.36 $1.42
Adjustments for special items 0.52 1.09
Diluted earnings per share - as adjusted $3.88 $2.51
(M)
(Unaudited)
RECONCILIATION OF LONG-TERM DEBT (INCLUDING CURRENT
PORTION) TO NET DEBT TO CAPITALIZATION RATIO
WTS Investor Presentation | 25
(M)
(Unaudited)
June 27,
2021
December 31,
2020
Current portion of long-term debt $ - $ -
Plus: Long-term debt, net of current portion 191.5 198.2
Less: Cash and cash equivalents (240.1) (218.9)
Net debt ($48.6) ($20.7)
Net debt ($48.6) ($20.7)
Plus: Total stockholders' equity 1,117.9 1,069.8
Capitalization $1,069.3 $1,049.1
Net debt to capitalization ratio (4.5%) (2.0%)
RECONCILIATION BETWEEN GAAP AND NON-GAAP MEASURES
INCLUDED IN 2021 OUTLOOK – AS OF AUGUST 5, 2021
WTS Investor Presentation | 26
Watts Americas Europe APMEA
Full Year
2021
Full Year
2021
Full Year
2021
Full Year
2021
Approximately Approximately Approximately Approximately
Sales
12.5% to 16.5% 10.1% to 14.1% 16.5% to 20.5% 38.0% to 42.0%Reported net sales growth
Forecasted impact of acquisition / FX (2.5%) (1.1%) (6.5%) (15.0%)
Organic sales growth 10.0% to 14.0% 9.0% to 13.0% 10.0% to 14.0% 23.0% to 27.0%
Operating Margin
(15) to 35 bpsOperating margin growth
Forecasted restructuring / other (115 bps)
Adjusted operating margin growth 100 to 150 bps
CALCULATIONS OF GROSS AND NET LEVERAGE
WTS Investor Presentation | 27
Trailing Twelve Months
through June 27, 2021
Net income – as reported $141.3
Plus: Interest expense, net 9.7
Plus: Income taxes 63.2
Plus: Depreciation 32.0
Plus: Amortization 14.9
Earnings before interest, taxes depreciation and amortization (EBITDA) $261.1
Debt on June 27, 2021 $191.5
Less: Cash & cash equivalents on June 27, 2021 240.1
Net debt ($48.6)
Gross debt to EBITDA ratio (Gross leverage) 0.7x
Net debt to EBITDA ratio (Net leverage) (0.2)x
(M)
(Unaudited)