pnr 2017 epg presentation final - s22.q4cdn.com · pentair 2017 electrical products group...

PENTAIR 2017 Electrical Products Group Conference

PentairElectrical Products Group Conference

Randall J. HoganChairman & Chief Executive Officer

May 22, 2017


CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This press release 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,

including, but not limited to, statements that relate to the intent to create two independent companies following the proposed

separation, the anticipated benefits of the proposed separation, the tax-free nature of the proposed separation, the expected

credit profiles of the independent companies, and the expected timing of the proposed separation. Without limitation, any

statements preceded or followed by or that include the words "targets," "plans," "believes," "expects," "intends," "will,"

"likely," "may," "anticipates," "estimates," "projects," "should," "would," "positioned," "strategy," "future" 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 our ability to satisfy the necessary conditions to consummate the proposed

separation on a timely basis or at all; our ability to successfully separate the two companies and realize the anticipated benefits

from the proposed separation; adverse effects on the two companies’ business operations or financial results and the market

price of our shares as a result of the announcement or consummation of the proposed separation; unanticipated transaction

expenses such as litigation or legal settlement expenses; failure to obtain tax rulings or changes in tax laws; changes in capital

market conditions; the impact of the proposed separation on our employees, customers and suppliers; overall global economic

and business conditions impacting the businesses of the two companies; future opportunities that our board may determine

present greater potential to increase shareholder value; and the ability of the two companies to operate independently

following the proposed separation. Additional information concerning these and other factors is contained in our filings with

the U.S. Securities and Exchange Commission, including in our 2016 Annual Report on Form 10-K. All forward-looking

statements speak only as of the date of this press release. We assume no obligation, and disclaim any obligation, to update the

information contained in this press release.

2

FORWARD-LOOKING STATEMENTS

PENTAIR 2017 Electrical Products Group Conference 3

• Except as Otherwise Noted All References to 2017 and 2016 Represent Our Results fromContinuing Operations for the Period Indicated, Presented on an Adjusted Basis

• "Core Sales" Refers to GAAP Revenue from Continuing Operations Excluding (1) the Impact ofCurrency Translation and (2) the Impact of Revenue from Acquired Businesses Recorded Prior tothe First Anniversary of the Acquisition Less the Amount of Sales Attributable to Divested ProductLines Not Considered Discontinued Operations

• “Adjusted Core Sales” Represents “Core Sales” Excluding the Impact of 3 Large Canadian Oil SandsJobs in Electrical and 1 Large Dairy Job in Water

• Segment Income Represents Equity Income of Unconsolidated Subsidiaries and Operating Incomefrom Continuing Operations Exclusive of Non-Cash Intangible Amortization, Certain AcquisitionRelated Expenses, Costs of Restructuring Activities, "Mark-to-Market" Gain (Loss) for Pension andOther Post-Retirement Plans, Impairments, and Other Unusual Non-Operating Items

• Return on Sales ("ROS") Equals Segment Income Divided by Sales

• See Appendix for GAAP to Non-GAAP Reconciliations

KEY DEFINITIONS


Industry-Leading, Pure-Play Companies; Strong Brands & Financial Profiles

4

SEPARATION OF PENTAIR INTO TWO PUBLICLY-TRADED COMPANIES

WATER ELECTRICAL

A Leading Global Water Company Focusedon Smart, Sustainable Water and Fluid

Processing Applications

A High-Performance Electrical CompanyFocused on Improving Utilization, Lowering

Costs and Maximizing Customer Uptime

2016 Revenue: ~$2.1B2016 ROS: ~21%

2016 Revenue: ~$2.8B2016 ROS: ~18%

SUSTAINABILITYMaximizing the Use ofthe Resources People

Rely on Most

Protecting CriticalProcesses, People

and the Environment

PROTECTION


STRATEGIC RATIONALE FOR SEPARATION

Creates Two Market-Leading, Pure-Play Public Companieswith Attractive Financial Profiles and Compelling MarketOpportunities; PIMS the Foundation of Both Companies

Market-Leading,Pure-Plays

Enables Enhanced Strategic Focus and Simplified CorporateStructure with Improved Clarity into Business Performanceand Growth Opportunities

Simplified &Focused Structure

Greater Flexibility to Pursue Their Own Strategies for Growthand Capital Allocation, Both Organic and through Acquisitions

Greater Ability toInvest in HighROI Growth

Both Businesses Expected to be Well-Capitalized and have theFinancial Profile and Management Talent to be Successful,Profitable and Sustainable Independent Companies

Strong FinancialPositioning

Enhanced Strategic & Operational Focus to Drive Shareholder Value


SEPARATION TRANSACTION OVERVIEW

TransactionStructure

• Tax-Free Spin-Off of Electrical Business to Pentair Shareholders

• Water Expected to Maintain Pentair’s Existing Incorporation, Tax Residency,Name and Ticker Symbol

• Electrical to Become a New Publicly-Traded Company

• Electrical Anticipated to have Similar Incorporation and Tax Residency

Timing &Approvals

• Separation Expected to be Completed in the Second Quarter of 2018

• Subject to Market, Regulatory and Other Customary Conditions

CapitalStructure

• Capitalize Both Businesses to Support Long-Term Growth Objectives

• Expect Strong Balance Sheet and Investment Grade Credit Ratingsfor Both Businesses

ExpectedManagement

WATERCEO John Stauch

COO Karl FrykmanChairman David Jones

ELECTRICAL

CEO Beth Wozniak

Chairman Randall Hogan

Separation Costs • Expect One-Time Separation Costs and Fees of ~$100-$125 Million

Expect Transaction to be Completed in Second Quarter of 2018


STRONG CULTURE SERVES AS FOUNDATION

DRIVEN BY PURPOSE LED BY VISION

Be the Next Great Industrial CompanyDestination Company for Customers,

Top Talent and Shareholders

GUIDED BY PROCESS

STRATEGIC PRINCIPLESInvest in Attractive Markets: Where We Compete

Control Our Destiny: How We Compete

OPERATING PRINCIPLES (PIMS)Growth MethodologyTalent Management

Lean Enterprise

UNITED BY OUR WIN RIGHT VALUES

WINCustomer First

Accountability for PerformanceInnovation and Adaptability

RIGHTPositive Energy

Respect and TeamworkAbsolute Integrity

We Are the Heart of ProgressWe Build a Safer, More Sustainable

World From the Inside Out

Creating Two Companies Driven by Pentair’s Values & DNA


2016 Financials

Business Distribution

Geography Global Themes

63%

14%

18%

13%

87%

Water Quality& Availability

NorthAmerica

Europe

FastGrowth

Asia5%

Revenue: ~$2.8B

Return on Sales (ROS): ~18%

Food & BeverageProcessing15%

Water Quality& Availability

85%

John Stauch, CEOKarl Frykman, COODavid Jones, Chairman

Leadership

Company Characteristics

• Industry-Leading Positions and Strong Brands• Focused on Smart, Sustainable Water and

Fluid Processing Applications• Attractive Margin Profile• Strong Free Cash Flow Generation

Strategic Business Groups

Filtration & Process (Revenue ~$1.0B)

Flow Technologies (Revenue ~$0.9B)

Aquatic & Env. Systems (Revenue ~$0.9B)

A Leading Global Water Company

WATER OVERVIEW


ALIGNED AROUND GLOBAL THEMES

Maximizing the Use of Resources People Rely on Most

$30B Addressable Segment $7B Addressable Segment

Residential• Home POE/POU• Pools & Spas• Well/Irrigation

OEM AgriculturalSolutions

Commercial• Building Solutions• Hospitality• POU Foodservice

Aquaculture

Industrial• Waste Water• General Industrial• Treatment• Power

Beverage, Dairy &Biogas solutions

Water Quality & Availability Food & Beverage Processing

Reduce, Recover and Reuse Water,While Requiring Less Energy

Increase Yield and Decrease Cost, Waste, Energy Useand Water Consumption – All While Maintaining

Taste and Quality

http://www.lubron.co.uk/hospitality/hospitality-2/


WATER GROWTH OPPORTUNITIES

Prioritized Investment Should Accelerate Growth

OEMSolutions

Beverage, Dairy,& Biogas

WaterFiltration

Enjoyment

• Residential Water

• Commercial Water

• Global Filtration

• Industrial Fluid Processing

Opportunities

• Digital Customer Experience

• “Smart” Products

• Solutions and Services

Enablers


2016 Financials

Business Distribution

Geography Global Themes

Revenue: ~$2.1B

Return on Sales (ROS): 21%

Beth Wozniak, CEORandall Hogan, Chairman

Leadership

Company Characteristics

• Industry-Leading Positions and Strong Brands• Focused on Improving Utilization, Lowering

Costs and Maximizing Customer Uptime• Attractive Margin Profile• Strong Free Cash Flow Generation

Strategic Business Groups

Enclosures (Revenue ~$0.9B)

Thermal Management (Revenue ~$0.7B)

Electrical & Fastening Sol. (Revenue ~$0.5B)

A High-Performance Electrical Company

ELECTRICAL OVERVIEW

67%

20%

11%NorthAmerica

Europe

FastGrowth

Asia2%

40%

60%

IndustrialEfficiency

BuildingProtection


ALIGNED AROUND GLOBAL THEMES

Protecting Critical Processes, People and the Environment

$19B Addressable Segment $28B Addressable Segment

ElectronicsProtection

EquipmentProtection

Rail & BuildingProtection

Pipe Freeze &Protection

Fastening,Grounding &Bonding

IndustrialEnclosures

Building Protection Industrial Process & Efficiency

Protect Sensitive Equipment, Buildings and CriticalProcesses; Keep People Safe

Improve Utilization, Lower Costs and MaximizeUptime for Customers


ELECTRICAL GROWTH OPPORTUNITIES

• Commercial Building Solutions

• Data Centers and Networking

• Electrical Protection Systems

• Infrastructure and Industrial

Opportunities

• Digital Customer Experience

• “Smart” Products

• Solutions and Services

Enablers

Electrical Protection Systems

Data Center Infrastructure

Thermal Pipe Freeze Protection

Electrical Fastening Systems

Prioritized Investment Should Accelerate Growth


NEXT STEPS

Creating Two Industry-Leading, Pure Play Companies

• Preparation of Financial Statements and Form 10

• Various Closing Conditions, Including:

‒ SEC Review of Form 10

‒ Receipt of Tax Opinions and Rulings

• No Shareholder Vote Required

• Final Board of Directors Approval and Action to DeclareRecord and Distribution Dates

• Anticipated Completion by Q2-2018


SUMMARY

Opportunity to Create Significant Value

Focus and Scaled Investments Should Accelerate Growth

Reaffirm Our Q2 and Full Year 2017 Outlook

We Have Great Growth Opportunities

We are Aligned Around Attractive Global Themes

We Have Great Businesses

Remain Disciplined in Our Capital Allocation


APPENDIXGAAP to Non-GAAP Measurements & Reconciliations

17


Q2'17 PENTAIR OUTLOOKQ2’17 FINANCIAL OUTLOOK (YoY)

SUMMARY

• Seasonally Important Quarter for ourResidential & Commercial Water Businesses

• Watching Short Cycle Industrial Closely to Seeif Q1 Trends are Sustainable

• Productivity and Cost Out ActionsAccelerating … Material Inflation RemainsHeadwind to Monitor

Q2'17 Q2'16Sales

Op. IncomeSeg. Income

ROS

EPS (Rpt.)

EPS (Adj.)

~$1.24B

~$227M

~$250M

~20%

$0.87 - $0.89

$0.97 - $0.99

$1.30B

$203M

$241M

18.5%

$0.73

$0.88

Expecting Seasonal Q2 EPS Strength Consistent with Historical Trends

Adj. EPS Up ~11%

• Tax Rate of ~20%

• Net Interest ~$24M; Shares ~183M

Q2 Free Cash Flow Expected to Be StrongConsistent With Historical Seasonality

Adjusted Core Sales Down ~1%

• Water ~Flat

• Electrical Down ~1%

Segment Income Up ~4%

ROS ~20% … Up >150 bps

• Water ~21%

• Electrical ~23%


FULL YEAR 2017 PENTAIR OUTLOOKFY'17 FINANCIAL OUTLOOK (YoY)

SUMMARY

• Impact of 2016 Large Jobs Creates TopLine Headwind

• Strong Margin Expansion Expected Driven byStrong Productivity, Cost Out Actions, andImproved Mix

• EPS Growth Expected from Base Business andLower Interest Expense

FY'17 FY'16Sales

Op. IncomeSeg. Income

ROS

EPS (Rpt.)

EPS (Adj.)

~$4.8B

~$765M

~$880M

~18%

$2.95 - $3.05

$3.45 - $3.55

$4.9B

$701M

$840M

17.2%

$2.47

$3.05

Adj. EPS Up ~15%

• Tax Rate of ~20%

• Net Interest ~$85M; Shares ~183M

Free Cash Flow ~100% of Adjusted Net Income

Adjusted Core Sales ~Flat

• Water Up ~1%

• Electrical ~Flat

Segment Income Up ~5%

ROS ~18% … Up >100 bps

• Water ~19%

• Electrical ~23%

Maintaining Full Year Forecast … Will Assess Following Q2


REPORTED TO ADJUSTED 2017 RECONCILIATION


REPORTED TO ADJUSTED 2016 RECONCILIATION


2015-2017 SBG SEGMENTATION (NET SALES)

($Ms) WATER ELECTRICAL PENTAIR

2015 2015 2015

Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY

Total 652$ 759$ 682$ 715$ 2,808$ Total 396$ 407$ 432$ 574$ 1,809$ Total 1,048$ 1,167$ 1,113$ 1,289$ 4,616$

F&P 238 260 261 265 1,024 Enclosures 243 253 236 230 962

Flow Tech 242 261 241 233 977 Thermal 153 155 184 211 703

AES 177 242 183 222 824 EFS 0 0 13 134 147

2016 2016 2016


Total 666$ 762$ 668$ 682$ 2,778$ Total 525$ 541$ 543$ 508$ 2,116$ Total 1,190$ 1,301$ 1,211$ 1,188$ 4,890$

F&P 234 267 242 243 985 Enclosures 225 238 235 212 911

Flow Tech 238 250 237 204 929 Thermal 179 162 174 177 692

AES 198 250 194 240 882 EFS 120 141 134 118 513

2017 2017 2017


Total 683$ 683$ Total 502$ 502$ Total 1,183$ -$ -$ -$ 1,183$

F&P 237 237 Enclosures 227 227

Flow Tech 231 231 Thermal 150 150

AES 224 224 EFS 130 130


FILTRATION & PROCESS (2016 SALES - $1.0B)

Investing in Residential Point of Use Systems

GEOGRAPHIC DISTRIBUTION

VERTICAL DISTRIBUTION APPLICATIONS

We Provide Innovative and SustainableSolutions that Improve Water Quality, Beverage

System & Environmental Efficiency in a Worldwith Limited Access to Healthy Sources of

Drinking & Process Water.

~40%~25%

~30%

NorthAmerica

Europe

FastGrowth

Asia~5%

40%25%

30%

IndustrialEurope

FastGrowth

Asia5%

~40%~40%

Resi &Commercial

Food &Beverage

Infrastructure Industrial

~10% ~10%

VALUE PROPOSITION


FLOW TECHNOLOGIES (2016 SALES $0.9B)

Positioned for Profitable Growth

VALUE PROPOSITION

APPLICATIONS

We Provide a Full Range of Best in Class Solutionsfor Water Supply and Disposal Through a

Dedicated Global Network andDirect to the End Customer.

Agriculture Water Supply &Disposal

FireSuppression


VERTICAL DISTRIBUTION

~65%

~15%

~15%

NorthAmerica

Europe

FastGrowth

Asia~5%

40%25%

30%

IndustrialEurope

FastGrowth

Asia5%

~50%

~15%Resi &

Commercial

Food &Beverage

Industrial~20%

Infrastructure

~15%


AQUATIC & ENVIRONMENTAL SYSTEMS (2016 SALES - $0.9B)

Capitalizing with Innovative Technology

VALUE PROPOSITION

APPLICATIONS

We Provide Advanced, Efficient Technology andExpertise to the Swimming Pool and AquacultureIndustries to Ensure Their Profitable Operations.



~90%

~10%North

America

FastGrowth

40%25%

30%

IndustrialEurope

FastGrowth

Asia5%

~95%

~5%

Resi &Commercial

Food & Beverage


ENCLOSURES (2016 SALES - $0.9B)

Protecting Critical Automation and Equipment

VALUE PROPOSITION

APPLICATIONS

We Protect Critical Electronics, Communication,Control And Power Equipment Through A Broad

Portfolio Of Innovative Solutions. We OfferSuperior Customer Support With Our

Applications Expertise.

Industrial Enclosures Air to Air Heat Exchangers

Indoor & Outdoor Cabinets Electronics Subracks



~70%

~20%

~10%

NorthAmerica

Europe

FastGrowth

40%25%

30%

IndustrialEurope

FastGrowth

Asia5%

~10%

~10%

Resi &Commercial

Energy

Infra-structure

Industrial~25%

~55%


THERMAL MANAGEMENT (2016 SALES - $0.7B)

Growth through End User Focus Leading to Value Creation

VALUE PROPOSITION

APPLICATIONS

We Protect Critical Building and IndustrialProcesses by Providing Heat Management

Solutions that are Highly Reliable and Easy toInstall. We Provide Lower Total Cost ofOwnership to Building Owners, FacilityManagers, Operators and End Users.

INDUSTRIAL HEATTRACING SOLUTIONS

THERMAL BUILDINGSOLUTIONS

Oil and GasChemical

PetrochemicalPower Generation

CommercialResidential



~60%

~25%

~10%

NorthAmerica

Europe

FastGrowth

Asia~5%

40%25%

30%

IndustrialEurope

FastGrowth

Asia5%

~25%

~40%

Resi &Commercial

Energy Industrial~35%


ELECTRICAL & FASTENING SOLUTIONS (2016 SALES - $0.5B)

Strong Brands with Demonstrated Growth Capacity

VALUE PROPOSITION

APPLICATIONS

We Protect Electrical and Mechanical Systemsand Civil Structures through Engineered

Fastening Solutions that Reduce Total Cost ofOwnership and Increase Design Flexibility by

Providing Innovative Products through GlobalEnd User Application Expertise and Intimacy.

Ind, Comm, Energy &Infrastructure

Commercial

Infrastructure,Commercial & Energy

Industrial



~70%

~20%

~10%

NorthAmerica

Europe

FastGrowth

40%25%

30%

IndustrialEurope

FastGrowth

Asia5%

~55%

~10%

Resi &Commercial

Energy

Infrastructure

Industrial~15%

~20%

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