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Forward-looking statements
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, earnings, earnings per share, water market growth, 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 implies by the forward-looking statements.
Factors that might affect forward-looking statements include overall economics 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.
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Earnings Summary
Sales
Gross Profit
Operating Income
Net Income (Continuing Oper.)
EPS-Diluted (Continuing Oper.)
Weighted Average Shares-Diluted
April 1, 2007
$346,092
$114,666
$30,367
$20,047
$.51
38,981
April 2, 2006
$274,950
$95,818
$26,532
$15,087
$.46
32,823
(In thousands except for per share data)
First Quarter Ended
3
Watts overview – who we are
Watts is a leader in water-related products
$1.2bn in sales for 2006
$77.1mm in income from operations for 2006
Mix split between residential and commercial
38% of current sales outside of U.S.
Replacement business significant
1874 Founded First
AcquisitionInitial Public
Offering
Focus on water
Today
Sales in over 100 countries
Manufacturing in 11 countries
8,300 employees
Exited municipal market
1985 19991986 1996$124MSales: $137M $730M including municipal
$644M excluding municipal$800M pre-spin$475M post-spin
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RADIANT HEAT PRODUCTSRadiant Underfloor Heating SystemsSnowmeltingElectronic Temperature Controls Quick Connect Fittings
WATER HEATERT&P Relief ValvesTempering ValvesPressure Reducing ValvesExpansion Tanks
Backflow PreventersBall ValvesDrain TubesFloor DrainsGas Connectors
BOILERBoiler Energy SaverTemperature and Pressure GaugesTempering ValvesSafety Relief ValvesFill ValvesBackflow PreventersBoiler DrainsAir ScoopsFlow Control ValvesPurge ValvesFloat Vents
BATHROOMThermostatic Mixing Valves for Tubs, Showers and SinksElectric Tile WarmingQuarter Turn Stop ValvesHot Water Demand Recirculation SystemsDecorative FaucetsBath Waste DrainsP-TrapsToilet Ball Cock Valves
What we do - Water by Watts(Residential Applications)
LAUNDRY ROOMWashing Machine Shutoff ValvesWater Hammer ArrestorsFlexible Connectors for Faucets and Washing MachinesGas Ball Valves
KITCHENReverse Osmosis Water Filtration SystemsThermostatic Mixing ValvesElectric Tile WarmingFlexible Connectors for Faucets, Dishwashers and Ice MakersIce Maker Filtration SystemsQuarter Turn Stop ValvesMetal & Plastic Tubular Products
Hydrocontrol PanelsPEX TubingManifolds
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IRRIGATION SYSTEMBackflow PreventersBackflow EnclosuresAutomatic Control ValvesThrough-the-Wall ShutoffsBall ValvesButterfly ValvesRelief ValvesWater Pressure Reducing Valves
FIRE PROTECTION SYSTEMBackflow PreventersTransition Risers
UL/FM Fire Service StrainersAutomatic Control Valves Pre-Engineered Valve StationsRelief ValvesCheck ValvesGate Valves
HVAC SYSTEMBalancing ValvesFeed Water RegulatorsBackflow PreventersRadiant Underfloor Heating SystemsRadiant Snowmelting SystemsHydrocontrol PanelsPEX Plumbing System
WASTEWATER (DRAINAGE) SYSTEMRoof DrainsFloor DrainsTrench DrainsFixture CarriersAcid Waste Systems
CleanoutsInterceptorsHydrants
POTABLE WATER SYSTEMGas ConnectorsPEX Plumbing SystemsReverse Osmosis WaterFiltration SystemWater SoftenersBackflow PreventersPre-Engineered Valve StationsWater Pressure Reducing ValvesGate, Globe & Check Valves
Ball ValvesT&P Relief ValvesTempering ValvesWater ConnectorsShower ValvesMonitoring and Turbidity MonitorsStrainersButterfly Valves
ManifoldsElectronic Temperature ControlsSafety Relief ValvesAutomatic Air Vent ValvesExpansion TanksTempering ValvesFlow SwitchesGauges & ThermometersSteam TrapsStrainersGas Connectors
FOOD SERVICE APPLICATIONSMovable Gas ConnectorsWater Filtration SystemsInternal Fluid Conveyance AssembliesGas and Water Shutoff ValvesCommercial FaucetsMetal & Plastic Tubular PartsGas RegulatorsThermostatic Mixing ValvesGrease InterceptorsFloat ValvesEquipment Placement Systems
What we do - Water by Watts(Commercial Applications)
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Pure play global leader in waterHighly attractive market fundamentals
Attractive franchiseLeading brands in growing categoriesComprehensive product offering and distribution capabilitySignificant recurring revenue streamLow cost manufacturing strategy
Strong growth storyLeverage to commercial market expansionProven industry consolidatorIncreasing international and emerging market presenceSuccess in code development and enforcement
Solid foundation
Why invest in Watts?
Diversified business model provides stable platform for growth
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Large and attractive market
Demand for water growing at 3x population growth and will grow by 40% by 2020
<1% of earth’s surface water is available for consumption
Increasing requirements for energy and water conservation
Increasingly stringent industry codes and potential for legislative action
Emerging commercial markets
Asian infrastructure inadequate to support growing population and economic development
Heightened consumer awareness and focus on water quality issues
Residential filtration market already estimated at ~$1.25 billion and growing rapidly
Current global market size $365bn+ Key market growth driversComponents/
Equipment
Purification/
FiltrationSystems Services Operations
Municipal
Industrial
Commercial
Residential
Watts addressable market > $60 billion
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How do we differentiate ourselves?
Brand
Premium brands allow for premium pricing and input cost recapture
Develop complementary products in existing markets
Brand name expansion to new markets through acquisitions
Products
Codes
Unparalleled product breadth
Long-standing tradition of product quality
Innovative product design
Focus on meeting local code requirements
Promote code adoption and enforcement to create entry barriers
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88%
46%34%
24% 22%
3%4%12%
26%
66%70%
48%37%
7%2%
21%32%
47%
91%
35%
22% 19% 18%
5%5%5%16%
74%
85%
35%27% 26%
11%3%
9%9%15%
68%
Brand preference is a key differentiator for Watts
Source: Contractor 1999, 2003 market position study; Contractor Magazine
Danfoss/Flomatic
Watts Wilkins Conbraco Febco
Currently Used (base:207)Preferred overall (base:149)
All other
Watts Zurn-Wilkins
Conbraco Cash-Acme
Currently Used (base:103)Preferred overall (base:58)
Watts Symmons Taco Legend
RegulatorsBackflow prevention
Plumbing and heating productsHot water tempering & mixing valves
Watts Nibco A.W. Cash Valve Mfg.
Zurn-Wilkins
Conbraco
Currently Used (base:139)Preferred overall (base:85)
Currently Used (base:153)Preferred overall (base:99)
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European OEM$207mm/16%
European Wholesale$205mm/15%
China$64mm/5%
North American Retail$186mm/14%
North American Wholesale
$633mm/48%
Global distribution capability with limited customer concentration
European DIY$27mm/2%
Note: Sales as shown are annualized 4th quarter 2006 for illustrative purposes
110
Global manufacturing footprint with substantial presence in low-cost regions
Watts Water Technologies,
Corporate OfficesNorth Andover, MA
W.P.T.Taizhou, China
Tianjin Tanggu Watts Valve Co.
Tianjin, China
Watts ADEVMonastir, Tunisia
Watts Fimet MTBBulgaria
WOFETianjin, China
Watts Headquarters Manufacturing Distribution CenterManufacturing (low-cost China, Bulgaria, Tunisia)
Webster ValveFranklin, NH
RegtrolSpindale, NC
Ames CompanyWoodland, CA
Anderson BarrowsPalmdale, CA
Watts Industries, Canada
Burlington, Ontario
Dumser Metallbau GmbH & co. KG
Landau, Germany
Watts Cazzaniga, S.p.A.Biassono, Italy
Watts AnelloItaly
Watts EurothermFressenneville, France
FlowmaticDunnellon, FL
TEAM Precision Pipe Work, LTD.
West Wales, UK
Watts PremierPhoenix, AZ
Watts ACVHouston, TX
Watts RadiantSpringfield, MO
Dormont Mfg.Export, PA
Mueller Steam SpecialtySt. Pauls, NC
FEBCOFresno, CA
Langley,Canada
British Columbia
Changsha Valve Works
Changsha, China
12
12
Watts is uniquely placed to successfully capitalize on industry trends
Industry trends Watts advantage
Disciplined acquisition strategy with proven track record
Consolidation of manufacturers
Consolidation of North American Wholesalers/European OEM customers
Growth in emerging markets
Renewable energy
Increasing commodity costs
Broadest product line with most effective distribution capabilities
Expanding footprint in high growth Chinese and Eastern European markets
Robust existing product offering
Manufacturing strategy/aggressive cost reductions/price increases
13
Watts is uniquely positioned to take advantage of both non-residential and residential construction demand
68.7
88.4102.3
119.6 124.5
1970 1980 1990 2000 2005
Source: HUD
U.S. Non-residential Construction Market ($B)1 U.S. housing stock (millions of units)
314 331 350 379412
446482 518
2003 2004 2005 2006 2007 2008 2009 2010
CAGR = 7%
Source: FMI’s Construction Outlook1 Includes total non-residential buildings
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We have been highly successful in promoting industry code development and education
Consistently advocate development and enforcement of industry codes
Industry codes based on Watts product specifications create a significant growth opportunity and barrier to market entry
Greater than 60% of sales are derived from code approved products
Efforts include thermostatic scald protection in the American Society of Sanitary Engineers ASSE1016
Subsequent adoption into national and state codes
Recently included in the Recommended Backflow Product List prepared by the Chinese National Backflow Standards Committee
15
Watts has successfully acquired and integrated 46 companies since 1987
Business logic
“Water by Watts”
Proprietary brand names
Entry into new markets
Product line expansion
Financial
Accretive to EPS Year 1
CFROI in mid-teens Year 1
EVA positive in Year 2+
Acquisition strategy
Core water products
Product Adjacencies
New Technologies
Geographic Expansion
Premier WaterSystems (2001)
Flowmatic(2004)
Disciplined acquisition criteria
Hunter Technologies
(2002)H.F. Scientific
(2005)
ATS Expansion(2006)
Dormont(2005)
Changsha Valve(2006)
16
Case study: FEBCO & Mueller (2005) – Product line expansion
Announced December 2005
Purchase price $46 million; sales $57 million
Based in St. Paul, NC
FEBCO provides a strong brand and access to the irrigation markets
Mueller adds commercial straining technology to existing residential offering
17
Case study: Dormont (2005) – Product adjacencies
Announced December 2005
Purchase price $95 million; sales $57 million
Based in Pittsburgh, Pennsylvania
Leader in flexible stainless steel connectors for natural gas and liquid propane gas connectors
Leverages Watts existing distribution channels, serving both the residential and commercial markets
Entree to commercial food service
Expands products offered to professional contractors
18
Case study: ATS Expansion Group (2006) –Geographic & product line expansion
Announced May 2006
Purchase price $67 million; sales $50 million
Based in France
Leader in France plumbing supply market, both wholesale and DIY channels
Added three well-know brands to the Watts’ portfolio: Gripp, Porquet and Sirius
Entree to European DIY industry
International sourcing
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Our diversified business model
Geography
U.S.A.
China 3%
General Plumbing
Specialty Plumbing &
Heating
DIY
Water Quality 49%49%17%17%
16%16%
18%18%
Products
Europe
62%62%
30%30%
5%5%
Based on 2006 Sales
Canada
CustomerDistribution channel
65%65%16%16%
19%19% Wholesale
OEM
DIY
10%10%
13%13%
77%77%
Home Depot
RemainingTop 10
Other
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Watts has an enviable track record of consistent revenue growth
$373$414
$450 $445 (1) $478$522 $516 $549
$616
$702
$825
$924
$1,231
1995 1996 1997 1998 1999 1999.5 2000 2001 2002 2003 2004 2005 2006
Revenue CAGR: 14%
1 Includes impact of two divestitures completed in 1997
Note: 1997-1999 shown of fiscal year ending June 30; 1999.5 represents an annualized 1st half 1999 for illustrative purposes; 2000-2006 as calendar year basis
Fiscal year; $ millions
Revenue CAGR: 18%
21
$49
$55
$77
2004 2005 2006
Revenue and Earnings performance has been strong
Income from Continuing Operations ($ millions)
$825
$924
$1,231
2004 2005 2006
Revenue ($ millions)
Revenue CAGR: 21%
Income CAGR: 28%
22
Watts has successfully dealt with rising input costs
34.4% 35.2% 35.1% 34.5%
10.6%10.2%10.1%10.0%
'03 '04 '05 '06
Stable gross margins and operating margins despite input cost headwind
Effectively passed through price increases to offset commodity pressure
Continued shift to LCR
Further diversification of product offering to higher margin products
Value packaging
0%
100%
200%
300%
400%
500%
600%
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Copper(+307% increase)
Nickel(+357% increase)
Zinc (+432% increase)
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Why invest in Watts?
Conservative capital structure
Leader in industry consolidation
Strong track record of delivering growth
Stable, diversified business
Pure-play opportunity in attractive water market
Well positioned to benefit from:
Water market stabilityCommercial recoveryEmerging marketsRenewable energy
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