Investor Presentation · Certain statements in this presentation constitute forward-looking...

Investor Presentation

Forward Looking Statements

September 6, 2019 © 2019 Watts Water Technologies, Inc. 2

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 2019 outlook

update, smart and connected strategy, 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.

February 19, 2019 © 2019 Watts Water Technologies, Inc. 3

Who We Are

Global Leader / Expanding Geographically

Leader in Commercial / Residential Water Products

• $1.6B Global Company

o Domestic / international revenue split 60/40

o Exposure to replacement markets & new construction

o Strong presence in commercial / residential markets

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

• Leveraging Leading Brands and Key Market Drivers

o Safety & Regulation

o Energy Efficiency

o Water Conservation

• Driving Growth; introducing Smart & Connected

strategy

• Strong Cash Generator Drives Capital Deployment

R E V E N U E S O U R C E

EN

D M

AR

KE

TS

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


~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


~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

Watts Strategic Framework

8

Continue to Grow

Organically

Drive Operational

Efficiencies &

Improvement

across All Key

Processes

Employ

Disciplined &

Balanced Capital

Allocation

Strategy

September 6, 2019 © 2019 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 Centers

• Driving Smart & Connected strategy

• 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

11

Our Smart & Connected Strategy

© 2019 Watts Water Technologies, Inc.

Watts’ mobile application provides

access to technical details and enables

customers to manage their key assets

Watts recently launched Backflow

Prevention with SentryPlus® Alert and

Flood Protection Technology

Syncta provides backflow testers with an

integrated tool to speed and simplify their

testing and documentation submission

By partnering with industry leaders,

Watts provides one of the most

comprehensive spec resources in the

industry

Watts’ Website provides easy access to

full product portfolio with focus on solutions

and product lifecycle resources

With recent launches, AERCO’s onAER

remote monitoring system is an industry

leader in boiler remote monitoring

LATEST DEVELOPMENTS

• Invested over $10M during 2018 in the Smart & Connected initiative

• Partnered with industry leaders for IoT platform, security standards

• Launched new global watts.com and mobile application / QR codes

ACHIEVEMENTS

O BJECTIVES

• Derive 25% of global sales from connected products by 2023

• Strengthen digital experiences with engineers & contractors

• Broaden data analytics to drive performance improvements & new

products

September 6, 2019September 6, 2019

Strong Cash Flow Generation Provides Flexibility

Capital Deployment


Deployment Priorities Deployment History 2014-2018

• Investing in high ROI CAPEX

- Reinvestment ratio 80-100%

• Strategic M&A

- Disciplined valuation / screening

process

• Pay a competitive dividend

- Announced 10% increase in Q2 ‘19

- 7th consecutive yearly increase

- Yield in line with peers

• Stable share buyback

- Offset option dilution at minimum

$153M

$382M

$155M

$122M

M&A SHARE BUYBACK CAPEX DIVIDEND

~66% to growth

~34% returned to shareholders

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 &

geographies

• 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

12/31/18 12/31/17 12/31/16

Cash $204 $280 $338

Other Current Assets 517 504 481

Non-Current Assets 933 953 944

Total Assets $1,654 $1,737 $1,763

Current Liabilities, excl. Short-term Debt $319 $305 $287

Non-Current Liabilities 91 106 90

Debt 353 497 650

Equity 891 829 736

Total Liabilities & Equity $1,654 $1,737 $1,763

Net Debt / Capitalization Ratio(1)

14% 21% 30%

$M

(1) See slide 20 for calculation of net debt / capitalization ratio

September 6, 2019

Growth & Margin Expectations In-Line15

2019 Outlook – Update


FY 2019 Outlook by Region

Org Rev Growth *Adjusted Margin

Growth*

AMERICAS 4-5%▲

Positive

EUROPE 0-2%▲

Positive

APMEA 5-7%▼

Down

WATTS 3-4%50 to 70 bps

includes $12M

investments

Other Key Inputs

Item Expectation

Corporate Costs ~$41M

Interest

Expense~$15M

Adjusted Effective

Tax Rate*~28%

CAPEX / D&A ~$37M / ~$48M

Free Cash Flow

Conversion ≥100%

Share Count ~34.2M shares

* Organic revenue growth and Adjusted Margin Growth are non GAAP measures, see slide 21 for reconciliations. Adjusted Effective Tax Rate is a non GAAP measure and approximates the GAAP measure.

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

Appendix


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

Excluding Effect of Adjustments for Special Items

18

(in millions except per share information)

Year Ended2018 2015

Net Sales $1,564.9 $1,467.7

Operating income (loss) - as reported $188.4 $(90.1)

Operating margin % 12.0% -6.1%

Adjustments for special items:

Goodwill impairment — 130.5

Acquisitions / divesture related costs — 1.6

Restructuring 3.4 21.4

Transformation — 14.3

Pension / other costs — 70.7

Total adjustments for special items $3.4 $238.5

Operating income - as adjusted $191.8 $148.4

Adjusted operating margin % 12.3% 10.1%

(M)

(Unaudited)


Reconciliation of Long-term Debt

(including current portion) to Net Debt to Capitalization Ratio

© 2019 Watts Water Technologies, Inc. 19

(M)

(Unaudited)

December 31,

2018

December 31,

2017

December 31,

2016

Current portion of long-term debt $30.0 $22.5 $139.1

Plus: Long-term debt, net of current portion 323.4 474.6 511.3

Less: Cash and cash equivalents (204.1) (280.2) (338.4)

Net debt $149.3 $216.9 $312.0

Net debt $149.3 $216.9 $312.0

Plus: Total stockholders' equity 891.3 829.0 736.3

Capitalization $1,040.6 1,045.9 $1,048.3

Net debt to capitalization ratio 14% 21% 30%

September 6, 2019

September 6, 2019 20

Reconciliation between GAAP and Non GAAP

Measures Included in 2019 Outlook


Watts Americas Europe APMEA

Full Year

2019

Full Year

2019

Full Year

2019

Full Year

2019

Approximately Approximately Approximately Approximately

Sales Growth

2% to 3% 4% to 5% (3%) to (1%) 3% to 5%GAAP sales growth

Forecasted impact of foreign exchange ~1% - ~3% ~2%

Non GAAP sales growth - Organic 3% to 4% 4% to 5% 0% to 2% 5% to 7%

Operating Margin Expansion

35 to 55 bpsGAAP operating margin growth

Forecasted restructuring / other ~15 bps

Non GAAP – adjusted operating margin

growth50 to 70 bps

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