epg presentation final · 2018-02-21 · pentair 2014 electrical products group conference 3 key...

PENTAIR 2014 Electrical Products Group Conference

PentairElectrical Products Group Conference

John L. StauchChief Financial Officer

May 21, 2014

PENTAIR 2014 Electrical Products Group Conference 2

FORWARD-LOOKING STATEMENTS

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This communication contains statements that we believe to be “forward-looking statements” within the meaning of the

Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact are forward-looking

statements. Without limitation, any statements preceded or followed by or that include the words “targets,” “goals,” “plans,”

“believes,” “expects,” “intends,” “will,” “likely,” “may,” “anticipates,” “estimates,” “projects,” “should,” “would,”

“positioned,” “strategy,” “future,” "outlook," "opportunity" or words, phrases or terms of similar substance or the negative

thereof, are forward-looking statements. These forward-looking statements are not guarantees of future performance and

are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause

actual results to differ materially from those expressed or implied by such forward-looking statements. These factors

include the ability to successfully complete the Redomicile and achieve the expected benefits from the Redomicile; the

ability to successfully integrate the Flow Control business and achieve expected benefits from such combination; overall

global economic and business conditions; competition and pricing pressures in the markets we serve; the strength of

housing and related markets; volatility in currency exchange rates and commodity prices; inability to generate savings from

excellence in operations initiatives consisting of lean enterprise, supply management and cash flow practices; increased

risks associated with operating foreign businesses; the ability to deliver backlog and win future project work; failure of

markets to accept new product introductions and enhancements; the impact of changes in laws and regulations, including

those that limit U.S. tax benefits; the outcome of litigation and governmental proceedings; and the ability to achieve our

long-term strategic operating goals. Additional information concerning these and other factors is contained in our filings

with the U.S. Securities and Exchange Commission, including in our 2013 Annual Report on Form 10-K. All forward-looking

statements speak only as of the date of this communication. Pentair Ltd. assumes no obligation, and disclaims any

obligation, to update the information contained in this communication.


KEY DEFINITIONS

• All References to 2015, 2016, and 2017 Represent Our Long Term

Strategic Goals

• Except as Otherwise Noted, and Except for Sales, All References to

2014 Represent Our Results for the Period Indicated Presented on

an Adjusted Basis

• Except as Otherwise Noted, and Except for Sales, All References to

2013 are Presented on an Adjusted Basis

• Except as Otherwise Noted, All References to 2012 are Presented

on an Adjusted, Pro Forma Basis to Include the Results of the Flow

Control Acquisition

• See Appendix for GAAP to Non-GAAP Reconciliations


KEY MESSAGES

• We Continue to Expect to Deliver ~$5.00 EPS by 2015

• Productivity & Synergies Solidifying

• Sustained and Predictable Growth is Goal

• We Are Optimistic About 2016 and Beyond

Delivering on Commitments One Quarter at a Time4


GLOBAL PENTAIR PORTFOLIO – 2013 SALES

Pentair has a Balanced Portfolio

By Reporting Segment By Vertical

• Long & Short Cycle

Balanced Portfolio

• Global Solutions /

Recognized Brands

• Largest “Valve

Company” Globally

• Balanced Geographic

Exposure with 25% in

Fast Growth Regions

• Current Trends: US

Strength and Western

Europe has Stabilized

• Balanced Across

Verticals

• Current Trends: Strength

in NA Residential and

Food & Beverage;

Industrial has Stabilized;

Energy Mixed

Resi/Comm,

~24%

Energy,

~28%Infrastructure,

~13%

Industrial,

~26%

Food &

Beverage,

~9%

5

Valves &

Controls

~33%

Technical

Solutions,

~22%Process

Technologies

~23%

By Geography

U.S. and

Canada,

~46%Western

Europe,

~18%

Fast

Growth,

~25%

Developed

Non-U.S.,

~11%

100% = $7.5B

Flow

Technologies,

~22%


STRATEGY

DRIVING HIGH PERFORMANCE

A

L

I

G

N

M

E

N

T

HOW WE DIFFERENTIATE PENTAIR

• Purpose, Vision & Strategic Priorities

• Value Proposition & Competitive Advantage

• Controlling Our Destiny

HOW WE EXECUTE

• Standard Operating Model … PIMS

• Organization Design … Corporate, GBUs, Fast Growth Regions

• Functional Excellence … Standards & Practices

HOW WE WIN RIGHT

• Win Right … Pentair Values

• Leadership Behaviors … Top Talent

• How We Work Together

Three Levers … Aligned To Achieve Our Goals

PROCESS &

STRUCTURE

CULTURE &

TALENT

6


2013 2014 20152013 2014 20152013 2014 2015

FINANCIAL TARGETS

7

Continued Progress Toward Becoming a Great Industrial Company

Revenue ($B) Op Income EPS

~$7.7

~$8.1

+3%

~4%CAGR

+15%

~19%CAGR

$944M

~$1.3B

ROS 12.6% ~14% ~16%

$3.21

~$5.00

+22%

~25%CAGR

• Revenue Growth Accelerating

– Prioritizing Platform, Verticals, and Geographic Opportunities

• Op Income Growth & EPS Driven by Base and Synergies

– Balance Between Base (+10%) and Synergies (+8%) While Investing in

Simplification / Standardization (-3%) and Sustainable Tax Benefits

Guidance Goal Guidance Guidance GoalGoal

$7.5

~$1.1B$3.85

to $4.00


Adj. EPS Up ~13%

• Tax Rate of ~23.5%

• Net Interest ~$16.5M; Shares ~199M

Q2 Free Cash Flow Expected to be

Strong; >125% of Net Income

Q2’14 FINANCIAL OUTLOOK (YoY)

Expect Margin and EPS Growth Even With Tough Top Line Comp

Q2'14 PENTAIR OUTLOOK

Sales ~Flat to Down 1%

• Valves & Controls Flat

• Process Technologies Up ~6-8%

• Flow Technologies Down ~20%

• Technical Solutions Up ~4-6%

Adj. Op Income Up ~6% (Includes -10% From OMT & AUS Projects)

Adj. Op Margins ~14.7% … Up ~100 bps

• Valves & Controls Margins, ~14.0%

• Process Technologies Margins, ~17.5%

• Flow Technologies Margins, ~12.5%

• Technical Solutions Margins, ~20.0%

~$1.95B

~$285M

~14.7%

$1.02-$1.05

Q2’14 Q2’13Sales

Op Income (Adj.)

ROS (Adj.)

EPS (Adj.)

$1.96B

$268M

13.7%

$0.92

~($95M)

~($20M)

$M YoY %

Sales

Op Income (Adj.)

~(5%)

~(7%)

Total Pentair

Water Transport Impact

YoY %

YoY %

~(1%)

~13%


Adj. EPS Up 22%

• Tax Rate of ~23.5%

• Net Interest ~($70M); Shares ~198.5M

Free Cash Flow of ~$850M; >105% Net Income

FY’14 FINANCIAL OUTLOOK (YoY)

Current Outlook Consistent with Previous Guidance

FULL YEAR 2014 PENTAIR OUTLOOK

Sales Up ~2-4%

• Valves & Controls Up ~1-3%

• Process Technologies Up ~8-10%

• Flow Technologies Down ~5-7%

• Technical Solutions Up ~4-6%

Adj. Op Income Up ~15% (Includes $20M of OMT Investment)

Adj. Op Margins ~14.1% … Up ~150 bps

• Valves & Controls Margins, ~13.5%

• Process Technologies Margins, ~16.0%

• Flow Technologies Margins, ~11.5%

• Technical Solutions Margins, ~21.5%

Total Pentair

~$7.7B

~$1.1B

~14.1%

$3.85-$4.00

FY’14 FY’13Sales

Op Income (Adj.)

ROS (Adj.)

EPS (Adj.)

$7.48B

$944M

12.6%

$3.21

YoY %

YoY %

~3%

~22%

~($150M)

~($32M)

$M YoY %

Sales

Op Income (Adj.)

~(2%)

~(3%)

Water Transport Impact


2013 2014F 2015T

REVENUE GROWTH (YoY)

10

Underlying Growth Masked by Inherited Projects

+15%

(6%)

~+14%

(~6%)

~+17%

Core

Growth

5%

Core

Growth

~5%

Core

Growth

~6%

WT/Mega

(2%)WT

~(2%)

$7.5B$7.7B

$8.1B

• Water Transport & Thermal Mega Projects Impacted 2013 Growth

• Water Transport / Divestitures (Small - Non Core) Impacting 2014

• “Core” (Excluding WT) Grew +5% in 2013 and is Expected to

Grow ~5% in 2014 & ~6% in 2015

Water Transport

Expected to be

Approximately Flat to 2014

By Segment

Valves & Controls

2013 +4%

2014F +2%

2015T +6%

Flow Technologies

2013 -1%

2014F -6%

2015T +4%

Flow Tech. WT Impact

2013 -5%

2014F -9%

2015T +0%

Process Technologies

2013 +8%

2014F +9%

2015T +7%

Technical Solutions

2013 -3%

2014F +5%

2015T +8%


2013 2014F 2015T

OPERATING INCOME GROWTH (YoY)

11

Solid Contribution from Core / Synergies + Repositioning

Repositioning +11%

+13%

(5%)

Core /

Synergies

WT / Mega

+19%

~(7%)

~+14%

~+8%

~+15%

~+16%

~+23%

$944M ~$1.1B ~$1.3B

~+7%OMT

OMT

• Solid “Core” Performance + Repositioning / Synergies Driving Healthy

Operating Income and Margin Expansion

• Water Transport / Mega “Challenged” 2013

• Water Transport + OMT Investment Impacting 2014

• OMT Expected to “Flip” to a Positive in 2015 … Core / Synergies Accelerate

By Segment

Valves & Controls

2013 +24%

2014F* +12%

2015T +20%

Flow Technologies

2013 +7%

2014F -2%

2015T +20%

Flow Tech. WT Impact

2013 -3%

2014F -19%

2015T +0%


2013 +35%

2014F +20%

2015T +20%

Technical Solutions

2013 +13%

2014F +16%

2015T +15%

*Includes OMT


2013 2014F 2015T

EARNINGS PER SHARE GROWTH (YoY)

12

Repositioning

Shares / Taxes

Base / Core

WT / Mega

+13%

+14%

+5%

(6%)

~+5%

~+11%

~+13%

~(7%)

~+7%

~+15%

+26%~+22%

~+27%

$3.21 ~$3.93 ~$5.00

A Solid Mix of Contribution

~+5%


SUSTAINED, PREDICTABLE GROWTH IS GOAL

13

Building a Growth Culture is Next Step in Evolution

• We Have a 14 Year Legacy of PIMS and Lean in the

Factory / Enterprise

• Growth Tools Within PIMS Applied 4 Years Ago …

Building Momentum

• 20 Defined “Technology / Application” Platforms Exist

Under the 5 GBU’s and 4 Reporting Segments

− Measured

− Held Accountable

− Investment in Growth Not Equal, Must be Earned


VALVES & CONTROLS (2013 SALES OF $2.5B)

14

Platform Focus Leads to More Disciplined Resource Allocation

VerticalKey Product Technology Platforms (4)

Quarter

Turn

Pressure

Management

Gate, Globe, &

Check

Actuation &

Controls

Geography

Energy

61%

Industrial

39%

U.S. &

Canada

25%

Fast

Growth

40%

W. Europe

24%

Oth. Developed

11%


PROCESS TECHNOLOGIES (2013 SALES OF $1.8B)

15


Aquaculture

Hygienic

Production

Systems

Advanced

Filtration

Food

Service

O&G

Separation

Geography

Energy 3%Industrial 7%

Residential &

Commercial

58%

Infrastructure 7%

Food &

Beverage

25%

U.S. &

Canada

60%

Fast

Growth

21%

W. Europe

16%

Oth. Developed 3%

Pool Water

Purification



FLOW TECHNOLOGIES (2013 SALES OF $1.6B)

16


Engineered

Flow

Water

Transport

Residential

Flow

Applied

Water

Geography

Energy 6%

Industrial 8%

Residential &

Commercial

34%

Infrastructure

39%

Food &

Bev.

13%

U.S. &

Canada

42%

Fast

Growth

13%

W. Europe

10%

Oth.

Developed

35%



TECHNICAL SOLUTIONS (2013 SALES OF $1.7B)

17


Equipment

Protection

Industrial

Heat Tracing

Electronics

Thermal

Building

Solutions

Mega

Projects

Geography

Energy

25%

Industrial

46%

Resi. &

Comm.

14%

Infrastructure

13%

Food & Beverage 2%

U.S. &

Canada

63%

Fast

Growth

16%

W. Europe

19%

Oth. Developed 2%



OUR STANDARD OPERATING MODEL

Standard Operating Model Across the Enterprise

Lean Enterprise and Standardization Talent Growth

Rapid Growth Process

• Rigorous 2X Funnel‒ Market Coverage

‒ Verticals

‒ Fast Growth Regions

• Alpha Test

3D Innovation

• Discover, Develop, Deploy

Sales Excellence‒ Opportunity Segments

‒ Coverage Design

‒ Sales Process

‒ Job Design and

Organization Structure

‒ Resource Deployment

‒ Sales Talent and

Management

‒ Productivity Metrics

‒ Performance Management

and Compensation

Lean Enterprise

• ERP Management‒ Larger ERP Platforms

‒ Tax Efficient Processes

• Shared Service Centers‒ Scale Efficiency

‒ Process Excellence

• Process Digitization‒ Standard Tools

‒ Electronic Transactions

Manufacturing Excellence

• Four Wall Lean‒ Strategy Deployment

‒ Transformation Planning

‒ 5S

‒ Standard Work

‒ Creating Continuous Flow

‒ Material Flow

‒ Visual Management/MDI

• Supply Chain

Logistics Optimization

• Distribution Network

• Lead Time Reduction

Service Excellence

• Project Mgmt. Lean

• Global Work Sharing

PIMSPentair Integrated Management System

Talent Management

• Talent Acquisition

• Talent Deployment

Organization Development

• Organization Structure

• Management Processes

Pay for Performance

• Incentive Plans

• Rewards and Recognition

Win Right Values

• Customer First

• Accountability for

Performance

• Innovation

• Positive Energy

• Respect and Teamwork

• Absolute Integrity


“THE GROWTH PROCESS”

19

The Key to Sustainable, Predictable Growth

Detailed Assessment

Across 20 Platforms

Strategy

Technology

Innovation

3D

Market

Innovation

RGP

Core

Sales

Excellence

Growth Tree

Prior Year

+/- Acq. / Div. %

+/- FX %

+/- Market % Global Analysis

+ NPI %

+ Projects %

+ Coverage/Penetration %

Current Target

Sales Excellence

1. Opportunity Segments

2. Coverage Design

3. Sales Process

4. Job Design and Organization

Structure

5. Resource Deployment

6. Sales Talent and Management

7. Productivity Metrics

8. Performance Management and

Compensation

PIMS Tools Differentiated

Growth

2-3x Funnels

Required

Current

State

Future

State

Transformation

Plan

For Each

Platform


CAPITAL ALLOCATION PHILOSOPHY

Disciplined Allocation Philosophy … Prioritized Towards ROIC20

Capital Allocation Uses (Assuming ~$2.4B Cumulative FCF from ’12-’15):

1. Committed to Maintain Investment Grade Rating

2. 37 Straight Years of Dividend Increases … Disciplined Cash

Management and Return of Cash to Shareowners

3. Highest ROIC Comes From Funding Organic Growth Opportunities;

Focus on Most Attractive Growth Platforms

4. Acquisitions or Share Repurchase: We Play in Attractive Spaces

Where Opportunities are Plentiful … Bolt-on’s Focused on Channel

Expansion, Technology, and Geographies


2012 2013 2014F 2015T 2016+

2012 2013 2014F 2015T 2016+

2012 2013 2014F 2015T 2016+

WHAT’S NEXT AFTER 2015?

21

We are Optimistic About 2016 and Beyond

Operating IncomeRevenue

EPS

• Over $4B of Free Cash Flow Expected to

be Generated Between 2014 – 2017

• Synergies Expected to Continue

Through 2017+

• Tax Rate Expected to Approach ~20%

• Dividends and Buybacks Expected

to Continue

• New Acquisitions and/or Buyback Capacity

$7.3B $7.5B ~$7.7B ~$8.1B

~+6%$0.8B

$0.9B~$1.1B

~$1.3B

$2.54

$3.21

~$3.93

~$5.00

~+3%

+19%

+3%~+23%

~+15%

~+22%~+27%

+26%

~5%+~15%+

~15%+

Summary


KEY MESSAGES

• We Continue to Expect to Deliver ~$5.00 EPS by 2015

• Productivity & Synergies Solidifying

• Sustained and Predictable Growth is Goal

• We Are Optimistic About 2016 and Beyond

Delivering on Commitments One Quarter at a Time22


APPENDIXGAAP to Non-GAAP Measurements & Reconciliations


REPORTED TO ADJUSTED 2014 RECONCILIATION

Pentair Ltd. and Subsidiaries

Reconciliation of the GAAP “As Reported” year ended December 31, 2014 to the “Adjusted” non -GAAP

excluding the effect of 2014 adjustments (Unaudited)

Actual Forecast

In millions, except per-share data First

Quarter Full

Year

Total Pentair Net sales $ 1,725.2 approx $ 7,700

Operating income—as reported 179.9 approx 1,060 % of net sales 10.4% approx 13.8%

Adjustments: Restructuring and other 22.9 approx 23

Redomicile related expenses 1.5 approx 2

Operating income—as adjusted 204.3 approx 1,085 % of net sales 11.8% approx 14.1%

Net income attributable to Pentair Ltd. —as reported 118.6 approx 754

Loss on sale of business, net of tax 6.1 approx 6

Adjustments, net of tax 20.3 approx 20

Net income attributable to Pentair Ltd. —as adjusted $ 145.0 approx $ 780

Earnings per common share attributable to Pentair Ltd. —diluted

Diluted earnings per common share —as reported $ 0.59 approx $3.71 - $3.86

Adjustments 0.14 approx 0.14

Diluted earnings per common share —as adjusted $ 0.73 approx $3.85 - $4.00


REPORTED TO ADJUSTED 2014 RECONCILIATIONPentair Ltd. and Subsidiaries



Actual Forecast

In millions First

Quarter Full

Year

Valves & Controls

Net sales $ 534.8 approx $ 2,520

Operating income—as reported 52.2 approx 330 % of net sales 9.8% approx 13.1%

Adjustments:

Restructuring and other 9.5 approx 10

Operating income—as adjusted 61.7 approx 340 % of net sales 11.5% approx 13.5%



Operating income —as reported 46.3 approx 297 % of net sales 11.1% approx 15.8%

Adjustments:



Flow Technologies

Net Sales $ 364.1 approx $ 1,505

Operating income—as reported 27.5 approx 163

% of net sales 7.5% approx 10.9%

Adjustments:


Operating income—as adjusted 36.0 approx 172

% of net sales 9.9% approx 11.5%

Technical Solutions


Operating income—as reported 76.2 approx 372 % of net sales 18.4% approx 21.3%

Adjustments:




REPORTED TO ADJUSTED 2013 RECONCILIATION

Pentair Ltd. and Subsidiaries

Reconciliation of the GAAP “As Reported” year ended December 31, 2013 to the “Adjusted” non-GAAP


In millions, except per-share data First

Quarter

Second

Quarter

Third

Quarter

Fourth

Quarter Full

Year

Total Pentair Net sales $ 1,774.5 $ 1,963.7 $ 1,824.8 $ 1,916.7 $ 7,479.7

Operating income—as reported 74.3 225.9 240.0 233.8 774.0 % of net sales 4.2% 11.5% 13.2% 12.2% 10.3%

Adjustments: Inventory step-up and customer backlog 76.8 10.1 — — 86.9

Restructuring and other 27.4 32.4 8.7 61.6 130.1

Pension and other post-retirement mark-to-market gain —

—

—

(63.2) (63.2)

Trade name impairment — — — 11.0 11.0

Redomicile related expenses — — — 5.4 5.4

Operating income—as adjusted 178.5 268.4 248.7 248.6 944.2 % of net sales 10.1% 13.7% 13.6% 13.0% 12.6%

Net income attributable to Pentair Ltd.—as reported 51.7 154.1 172.8 158.2 536.8

Gain on sale of businesses, net of tax (12.5) — — (2.2) (14.7)

Interest expense, net of tax — 1.6 — — 1.6

Adjustments, net of tax 80.8 33.5 1.1 18.0 133.4

Net income attributable to Pentair Ltd.—as adjusted 120.0 189.2 173.9 174.0 657.1

Earnings per common share attributable to Pentair

Ltd.—diluted

Diluted earnings per common share—as reported $ 0.25 $ 0.75 $ 0.85 $ 0.78 $ 2.62

Adjustments 0.33 0.17 0.01 0.08 0.59

Diluted earnings per common share—as adjusted $ 0.58 $ 0.92 $ 0.86 $ 0.86 $ 3.21


REPORTED TO ADJUSTED 2013 RECONCILIATIONPentair Ltd. and Subsidiaries



In millions First

Quarter

Second

Quarter

Third

Quarter

Fourth

Quarter Year

Valves & Controls

Net sales $ 585.8 $ 619.9 $ 611.5 $ 652.0 $ 2,469.2

Operating income (loss) —as reported (18.6) 56.9 76.6 46.5 161.4 % of net sales (3.2)% 9.2 % 12.5 % 7.1 % 6.5 %

Adjustments:


Inventory step-up and customer backlog 70.6 10.0 — — 80.6

Operating income—as adjusted 59.3 83.9 80.3 79.3 302.8

% of net sales 10.1 % 13.5 % 13.1 % 12.2 % 12.3 %


Net sales $ 396.6 $ 477.6 $ 421.2 $ 470.5 $ 1,765.9

Operating income—as reported 43.4 76.8 57.1 65.9 243.2 % of net sales 10.9 % 16.1 % 13.6 % 14.0 % 13.7 %

Adjustments:


Inventory step-up and customer backlog 0.4 — — — 0.4


% of net sales 11.6% 16.6 % 14.2 % 14.4 % 14.2 %

Flow Technologies

Net sales $ 390.6 $ 478.2 $ 397.2 $ 352.5 $ 1,618.5


Adjustments:


Inventory step-up and customer backlog 0.2 0.2 — — 0.4


% of net sales 9.4 % 13.3 % 12.5 % 7.0 % 10.8 %

Technical Solutions

Net sales $ 410.0 $ 397.4 $ 405.9 $ 450.1 $ 1,663.4


Adjustments:


Tradename impairment — — — 11.0 11.0

Inventory step-up and customer backlog 5.7 — — — 5.7

Operating income—as adjusted 69.7 70.0 83.7 99.0 322.4 % of net sales 17.0 % 17.6 % 20.6 % 22.0 % 19.4 %


2012 PRO FORMA ADJUSTMENTS – TOTAL PENTAIRPro Forma Reconciliation

Pro Forma Adjustments

2012 Total Pentair

(in millions, except

EPS )

Historical

Adjusted

Results

Historical Flow

Control

Acquisition

Depreciation &

Amortization

Other

Adjustments

Adjusted Pro

Forma Results

First Quarter

Sales 858.2$ 995.9$ —$ (74.0)$ 1,780.1$

Operating Income 96.8 124.9 (17.1) (32.2) 172.4

Net Income 64.0 93.7 (12.8) (28.1) 116.8

Di luted EPS 0.64 0.44 (0.06) (0.48) 0.54

Second Quarter

Sales 941.5 980.8 — (33.2) 1,889.1


Net Income 83.7 107.6 (12.9) (14.0) 164.4

Di luted EPS 0.83 0.50 (0.06) (0.50) 0.77

Third Quarter

Sales 865.5 1,019.8 — (16.0) 1,869.3

Operating Income 107.5 119.9 (17.3) 5.5 215.6

Net Income 65.5 89.9 (13.0) 6.4 148.8

Di luted EPS 0.64 0.42 (0.06) (0.31) 0.69

Fourth Quarter

Sales 1,750.9 — — (7.1) 1,743.8

Operating Income 149.7 — — 16.6 166.3

Net Income 99.7 — — 12.7 112.4

Di luted EPS 0.47 — — 0.06 0.53

Full Year

Sales 4,416.1 2,996.5 — (130.3) 7,282.3


Net Income 312.9 291.3 (38.7) (23.1) 542.4

Di luted EPS 2.39 1.36 (0.18) (1.03) 2.54

epg presentation final · 2018-02-21 · pentair 2014 electrical products group conference 3 key...

Documents