Watts Water Technologies Watts Water Technologies Q3 Q3 2013 Earnings Conference Call 2013 Earnings Conference Call October 30, 2013 October 30, 2013
Forward Forward- -looking S looking S tatements tatements Certain statements in this presentation constitute forward-looking statements within the meaning of the Private S ecurities Litigation Reform Act of 1995. These statements are related to forecasts of sales, earnings, earnings per share, capital expenditures, water market growth, acquisition strategy, lead free developments and management goals and obj ectives. Watts cautions investors that any such forward-looking statements made by Watts are not y g y guarantees of future performance. All forward-looking statements are subj ect 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. 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 other factors identified in Watts most recent Annual Report on Form 10-K and subsequent reports filed with the S EC. 2
Consolidated Financial Highlights Consolidated Financial Highlights – – Q3 2013 Q3 2013 • Revenue growth of 5.4% - 360 organic & 180 bps FX • Adj usted operating margin* = 9.4% Adj usted operating margin* 9 4% 110 bps below 2012 , 110 bps below 2012 NA product liability impact approximately 95 bps; lead • free impact approximately 65 bps EMEA adj usted margin increased 70 bps mainly due to EMEA adj usted margin increased 70 bps mainly due to • • S GA savings and productivity Price had negative impact in NA retail • • Adj usted EPS Adj t d EPS * $0 58 PY $0 62 * = $0.58, PY = $0.62 • $0.10 – Product liability & lead free cost included in adj . EPS • Disposed Austroflex - $2 2m loss in Disc ops • Disposed Austroflex $2.2m loss in Disc ops. • Repurchased $10m shares during Q3 * “ Adj usted” excludes special items see slide 23 for reconciliation * “ Adj usted” excludes special items, see slide 23 for reconciliation • 3
Q3 2013 Market Overview Q3 2013 Market Overview – – North America North America • New residential market remains solid • New starts 950k *, 22% growth for 2013 • Repair & replace market steady • 11% * growth for 2013 • Commercial market – starting to see signs of pick-up • YTD July down 2.1% *, pockets of growth • ABI trend positive credit still a bottleneck ABI trend positive, credit still a bottleneck * S ource - Reed Construction Data 4
Q3 2013 Market Overview Q3 2013 Market Overview - - EMEA EMEA • Overall market confidence appears to be improving • O Our markets still spotty k t till tt • France – sales flat v Q3 2012 • Germany – down 8.2% y v Q3 2012 • Drains – down 5% v Q3 2012 – tough comps • Middle East sales down in Q3 – drains proj ect work • Italy – still soft Italy still soft • S table order entry exiting Q3 5
Q3 2013 Market Overview Q3 2013 Market Overview – –Asia Asia • Economic environment in China still positive • GDP 7.8% • S ales growth in heating and valves products • Driven by new products • S trong regional growth • Focus on Tier 2/ 3 cities • Expanding sales in Australia through new distribution • • Continued focus on higher end market sales Continued focus on higher end market sales 6
Revenue by Platform and Region Revenue by Platform and Region – – Q3 Q3 2013 2013 Q3 2012 S Q3 2012 S ales ales Drains and Q3 2013 S ales Re-use Drains and 11% Re-use Water 10% Water Quality Quality 5% 5% Residential/ Residential/ HVAC/Gas HVAC/Gas Commercial Commercial 25% 25% Flow Control Flow 59% 59% Control Control 60% Q3 2012 S ales Q3 2013 S ales Canada Canada 6% 6% Asia Asia 2% 2% EMEA U.S.A EMEA U.S.A 39% 52% 40% 53% 7
Revenue by Platform and Region Revenue by Platform and Region – – September YTD 2013 September YTD 2013 YTD 2013 Sales YTD 2013 S l YTD 2012 S YTD 2012 S ales ales Drains and Drains and Re-use Re-use Water 10% 10% Quality Water 5% Quality 5% HVAC/Gas HVAC/Gas 23% Residential/ 23% Residential/ Commercial Commercial Flow Control Flow 62% Control 62% YTD 2012 S ales YTD 2013 S YTD 2013 S ales ales Canada Canada Canada 6% Asia 6% Asia 2% 2% U.S.A EMEA EMEA 52% 40% 38% U.S.A 54% 8
Q3 2013 Financial Highlights Q3 2013 Financial Highlights (in millions except DEPS; see reconciliations in Appendix; continuing ops only) DEPS DEPS DEPS DEPS f f from from Op Profit/ Op Profit/ S S ales ales Continuing Continuing Margin* Margin $371.8 Operations* Operations* 10.5 % $0.62 $36.9 9.4 % $352.8 $34.9 $34 9 $0 $0.58 8 Q3 12 Q3 13 Q3 12 Q3 13 Q Q3 12 Q3 13 Q • $2.4m in Q3 plant LF inefficiencies/ logistics costs S ales Growth of 5.4% • Margins impacted by $3.5M product liability increase Organic 3.6% • $0.10 – product liability & lead free costs EPS impact FX 1.8% * Excludes S 9 pecial Items – see S lide 23
September YTD 2013 Financial Highlights September YTD 2013 Financial Highlights (in millions except DEPS; see reconciliations in Appendix; continuing ops only) DEPS DEPS DEPS DEPS f f from from Op Op Profit/ Profit/ Continuing Continuing Margin Margin* S S ales ales Operations* Operations* $1.65 9.4% $103.3 9.3% $1,097.5 $1 097 5 $1.57 $1,072.9 $100.0 YTD 12 YTD 13 YTD 12 YTD 13 3 YTD 12 YTD 12 YTD 13 YTD 13 • YTD LF Impact of $4.4M S ales Growth of 2.3% Net Accretion +$0.03 Organic 1.3% FX 0.9% Acquired 0.1% * Excludes S pecial Items – see S lide 23 10
North American Operations North American Operations (in millions) Q3 Revenue Q3 Revenue growth of growth of 8.1% 8.1% v v Q3 2012 Q3 2012 • 860 bps organic growth offset by 50 bps FX decline • Wholesale accelerated during the quarter, up +9.6% Q3 Adj Q3 Adj Q3 Adj usted Q3 Adj usted operating margin = d d operating margin = 11.2% i i i i 11.2% 2% 2% • 210 bps decline v Q3 2012 • Product liability incremental costs of $3.5m in Q3=160 bps • Lead-free incremental costs of $2.4m in Q3 = 110 bps • Margin expansion hindered by competitive pricing in retail Margin expansion hindered by competitive pricing in retail • Lead-free pricing holding S ales Op Profit* $220.5 $204.0 13.3 % 11.2 % $27.1 $24.7 Industries S erved: Commercial, Q Q3 12 Q3 13 Q Residential, Irrigation, Fire Protection, Marine, Waterworks, Water Quality * Excludes S pecial Items – see S lide 24 11
North American Operations North American Operations (in millions) S S eptember YTD Revenue eptember YTD Revenue growth of growth of 4.6% 4.6% v v 2012 2012 • 470 bps organic growth offset by FX decline • Wholesale growth of 5.5% S S eptember YTD Adj usted eptember YTD Adj usted operating margin = operating margin = 12.2% 12.2% • 40 bps improvement v 2012 • Margin expansion hindered by competitive pricing in retail • Lead-free incremental costs of $4.4m S S ales ales Op Profit* Op o t $657.9 $629.1 11.8 % 12.2 % $74.5 $80.5 Industries S erved: Commercial, Residential, Irrigation, Fire S ept YTD 12 S ept YTD 13 Protection, Marine, Waterworks, Water Quality * Excludes S 12 pecial Items – see S lide 24
EMEA EMEA Operations Operations (in millions) Q3 Q3 Revenue Revenue growth of 0.8% growth of 0.8% v v Q3 Q3 2012 2012 • (420 bps) organic, 500 bps FX • Drains sales down 5% v Q3 2012 • France sales flat v Q3 2012 • France sales flat v Q3 2012 • German sales down 8.2% v Q3 2012 • Middle East sales down – 2012 maj or drains proj ect • Q3 Q3 Adj usted operating margin = Adj usted operating margin = 11.5% 11.5% • 70 bps increase v Q3 2012 due to productivity and p Q p y S G&A cost savings S ales Op Profit* $142.7 $141.5 10.8% 11.5% Industries S erved : Water Protection, $15.3 $16.4 S anitary, HVAC-Radiant Heat, Under floor, Fuel &Gas, Instrumentation Q3 12 Q3 13 and Electronics * Excludes S 13 pecial Items – see S lide 24
EMEA EMEA Operations Operations (in millions) S S eptember YTD Revenue eptember YTD Revenue decline of decline of 2.1% 2.1% v v Q3 Q3 2012 2012 • (460 bps) organic, 250 bps FX • Drains sales strong • France sales down 7.6% v 2012 • German sales down 8.5% v 2012 • Middle East sales up 10% • S S eptember YTD Adj usted eptember YTD Adj usted operating margin = operating margin = 9.9% 9.9% • 10 bps decrease v 2012 • Volume decline substantially offset by S V l d li b t ti ll ff t b S G&A G&A savings, i g price and productivity S ales Op Profit* $425.0 $416.0 10.0% 9.9% Industries S erved : Water Protection, $41.0 $42.4 S anitary, HVAC-Radiant Heat, Under S S ept YTD 12 t YTD 12 S S ept YTD 13 t YTD 13 floor, Fuel &Gas, Instrumentation and Electronics * Excludes S 14 pecial Items – see S lide 24
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