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WATTS WATER TECHNOLOGIES, INC.CORPORATE PRESENTATION20090
Forward-lookingForwardlooking statementsCertain statements in this presentation constitute forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995.These statements are related to forecasts of sales, earnings, earnings per share, water marketgrowth, management goals and objectives.Watts cautions investors that any such forward-looking statements made by Watts are notguarantees of future performance.gpAll forward-lookingg statements are subjectjto known andunknown risks, uncertainties and contingencies, many that are beyond the control of Watts,which may cause actual results, performance or achievements to differ materially fromanticipated future results, performance or achievements expressed or implies by the forwardlooking statements.Factors that might affect forward-looking statements include overall economics and businessconditions, competitive factors, changes in laws affecting Watts, future acquisitions ofmaterial assets or businesses by Watts, the demand for Watts’ products and services andother factors identified in Watts’ most recent Annual Report on Form 10-K and subsequentreports filed with the SEC.SEC1
Watts overview – who we are WattsW tt iis a lleaderd iin water-relatedtl t d productsd t 1.5bn in sales for 2008 64.8mm in income from operations for 2008((excludingg restructuringg and ggoodwillimpairment) 47.2mm in income from operations for 2008(GAAP) Mix split between residential and commercial 45% of sales currently outside of U.S. Replacement business significant19851874FoundedSales: 124MFirstAcquisition1986 137MInitial PublicOffering1996 730M including municipal 644M excludingl di municipali i lExited municipalmarket1999 800M pre-spin 475M post-spiniFocus on waterToday Sales in over 100countries Manufacturing in11 countries 6,6,300 employeesp y2
BATHROOMWhat we do - Water by Watts Thermostatic Tempering Valves for Tubs,Showers and Sinksg Electric Tile Warming Quarter Turn Stop Valves Hot Water Demand Recirculation Systems Decorative Faucets Bath Waste Drains P-Traps Toilet Ball Cock Valves(Residential Applications)KITCHEN Reverse Osmosis Water FiltrationSystems Thermostatic Mixing Valvesg Electric Tile Warming Flexible Connectors for Faucets,Dishwashers and Ice Makers Ice Maker Filtration Systems Quarter Turn Stop Valves Metal & Plastic TubularProductsLAUNDRY ROOM Washing Machine ShutoffValves WaterW t HHammer AArrestorst Flexible Connectors forFaucets and WashingMachines Gas Ball ValvesBOILERRADIANT HEAT PRODUCTS Radiant Underfloor HeatingS tSystems Snowmelting Hydrocontrol Panels Electronic Temperature PEX TubingControls Manifolds Quick Connect FittingsWATER HEATER T&P Relief ValvesTempering ValvesPressure Reducing ValvesExpansion TanksWater Detector Shutoffs Backflow PreventersBall ValvesDrain TubesFloor DrainsGas Connectors Temperature andPressure Gauges Tempering Valves Safety Relief Valves Fill Valves Backflow Preventers Boiler Drains Air Separators Flow Control ValvesPValvesV l Purge Float Vents3
What we do - Water by Watts(Commercial Applications)WASTEWATER (DRAINAGE) SYSTEM Roof Drains CleanoutsFloor Drains InterceptorsTrench Drains HydrantsyFixture CarriersAcid Waste SystemsIRRIGATION SYSTEMHVAC SYSTEMBalancing Valves Feed Water Regulators Backflow Preventers R di t UnderfloorRadiantU d flHeatingH tiSystems Radiant Snowmelting Systems Hydrocontrol Panels PEX Plumbing System ManifoldsElectronicTemperature ControlsSafety Relief ValvesAutomatic Air VentValvesExpansion TanksTempering ValvesFlow SwitchesGauges &Thermometers Steam Traps Strainers Gas ConnectorsFOOD SERVICE APPLICATIONS Backflow Preventers Backflow Enclosures Automatic ControlValves Through-the-WallShutoffs Ball Valves Butterfly Valves Relief Valves Water Pressure ReducingValves Movable Gas Connectors Water Filtration Systems Internal Fluid ConveyanceAssemblies Gas and Water Shutoff Valves Commercial Faucets MetalM t l & PlPlasticti TTubularb l PPartst Gas Regulators Thermostatic Mixing Valves Grease Interceptors Float Valves Equipment Placement SystemsPOTABLE WATER SYSTEMFIRE PROTECTION SYSTEM Backflow Preventers Transition Risers UL/FM Fire Service StrainersAutomatic Control ValvesPre-EngineeredgValve StationsRelief ValvesCheck ValvesGate Valves Gas Connectors PEX Plumbing Systems Reverse Osmosis WaterFiltration System Water Softeners Backflow Preventers Pre-Engineered Valve Stations Water Pressure Reducing Valves Gate, Globe & Check ValvesBall ValvesT&P Relief ValvesTempering ValvesWater ConnectorsShower ValvesMonitoring andTurbidity Monitors Strainers Butterfly Valves Anti-Scale Systems 4
Why invest in Watts? Pure play global leader in water Highly attractive market fundamentals in water Increasing energy costs are a revenue driver Attractive franchise Leading brands in growing categories Comprehensive product offering and distribution capability Significant recurring revenue stream Low cost/Lean manufacturing strategy Strong growth story Proven industry consolidator Increasing international and emerging market presence Success in code development and enforcement Capital structure provides stability Cash flow supports growth Solid foundationDiversified business model provides stable platform for growth5
Large and attractive marketCurrent global market size 365bn ServicesOperationsMunicipalIndustrialKey market growth drivers Demand for water growing at 3x populationgrowth and will grow by 40% by 2020 Increasing requirements for energy and waterconservationWatts’ Alternative fuels to heat water require Wattstechnology Increasingly stringent industry codes andpotential for legislative actionCommercialResidential Asian infrastructure inadequate to supportgrowing population and economic development Residential filtration market already estimated billion with solid long-termggrowthgat 1.25 New drain platform in EuropeWatts addressable market 60 billion6
Brand LeverageBrand Premium brands allow for premium pricingand input cost recapture DDevelopl complementarylproductsdiniexisting markets Brand name expansion to new marketsthrough acquisitionsP dProducts Unparalleled product breadth Long-standing tradition of product quality InnovativeIti productd tddesignigCodes Focus on meeting local code requirements Promote code adoption and enforcement tocreate entry barriers7
Global distribution capability with limited customerconcentrationNorth AmericanWholesale 639mm/46%North American Retail 167mm/12%China 37mm/3%European Wholesale 298mm/22%European OEM 228mm/16%European DIY 18mm/1%Fourth quarter 2008 annualized8
Global Manufacturing FootprintSubstantial presence in low cost regionsImplementing Lean techniquesPlant consolidations9
Watts is uniquely placed to successfully capitalize onindustry trendsIndustry trendsWatts advantageConsolidation of manufacturersDisciplined acquisition strategywith proven track recordConsolidationClid ti off NNorthth AAmericaniWholesalers/European OEMcustomersBroadest product line with mosteffective distribution capabilitiesGrowth in emerging marketsExpanding footprint in high growthChinese and Eastern EuropeanmarketsRenewable energyRobust existing product offeringVolatile commodity costsManufacturing strategy/aggressivecost reductions/price increases10
Expanding installed base supports replacement businessU.S. Housing Stock (millions of 19801990Source: HUD11
We have been highly successful in promoting industrycode developmentde elopment and ededucationcation Consistently advocate development andenforcement of industry codes Industry codes based on Watts productspecifications create a significant growthopportunity and barrier to market entry Approximately 66% of sales are derivedfrom code approved products Efforts include thermostatic scaldprotection in the American Society ofS itSanitaryEngineersE iASSE 1069/1070 Subsequent adoption into national andstate codes Recently included in the RecommendedBackflow Product List prepared by theChinese National Backflow StandardsCommittee U.S. Pex codes12
Watts has successfully acquired and integrated 48companies since 1987Disciplined acquisition criteriaAcquisition strategy Business logicGeographic Expansion “Water by Watts”New Technologies Proprietary brand namesProduct Adjacencies Entry into new markets Product line expansion Financial Accretive to EPS Year 1mid-teensteens Year 1 CFROI in midH.F. ScientificChangshaValve(2006)(2005)Core Flowmatic(2004)Premier WaterSystems (2001) EVA positive in Year 2 ATS Expansion(2006)13
BLÜCHER Revenue 2007 89M 9 Purchase Price - 170M Accretion in year 2 - 0.20 0 20 / share Blucher offers the broadest range ofstainless steel drainage systems inEurope New platform for Watts in Europe14
BLÜCHER Growth Strategy Geographic expansion New products Leverage specificationopportunities Fragmented market15
BLÜCHER MarketsM k t SServedd Housing25% Commercial25% Marine20% Industrial30%16
Our diversified business modelBased on 2008 SalesProductsChi 3%ChinaCanadaDIYSpecialtyPlumbing 5%16%U.S.A.General PlumbingDistribution channelCustomerOEM22%DIY13%Top 10WholesaleWolesale20%65%Other80%17
Watts has an enviable track record of consistent revenue growth 1,459Fiscal year; millions 1,382 1 231 1,231 924 825 702 616 3731995 4141996 450 445 (1) 4781997199811999 522 5161999.52000 54920012002200320042005200620072008Includes impact of two divestitures completed in 1997Note: 1997-1999 shown of fiscal year ending June 30; 1999.5 represents an annualized 1st half 1999 for illustrativepurposes; 2000-2008 as calendar year basis18
Financial ResultsIncome from Continuing OperationsSales(in millions)(Excluding restructuring and goodwill impairment)(in millions) 83 76 1,382 1,459 1,2312006 6520072006200820072008Income from Continuing Operations(GAAP)(in millions) 77 78 4720062007200819
Capital Structure12/31/0812/31/07 165 6 165.6 290 3 290.355.081.8Other Long Term Debt359 3359.3351 7351.7Equity842.4915.5Net Debt to Capitalization22.8%13.5%CashRevolving Line of Credit20
Cash FlowCash from OperationsNet Capital ExpendituresFree Cash Flow12/31/0812/31/07 146.4 91.7(25.5)(37.2) 120.9 54.521
Why invest in Watts?Pure-play opportunity inattractive water marketConservative capitalstructureWell positioned tobenefit from: Water market stability Emerging markets Renewable energyStable, diversifiedbusinessStrong track record ofdelivering growthLeader in industryconsolidation22
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Gas Ball Valves RADIANT HEAT PRODUCTS Radiant Underfloor Heating St BOILER Temperature and Pressure Gauges Tempering Valves Systems Safety Relief Valves Snowmelting Electronic Temperature Controls Quick Connect Fittings WATER HEATER Fill Valves Backflow Preventers Boiler Drains Air Separators Flow Control Valves P Vl Hydrocontrol Panels
