Divestiture of Valves & Controls August 19, 2016

Transcription

1 Divestiture of Valves & Controls August 19, 2016 Divestiture of Valves & Controls

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 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," "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 the company s ability to complete the sale of Valves & Controls on anticipated terms and timetable, overall global economic and business conditions, including worldwide demand for oil and gas; the ability to achieve the benefits of our restructuring plans; the ability to successfully identify, finance, complete and integrate acquisitions, including the ability to successfully integrate and achieve the expected benefits of the acquisition of ERICO Global Company; 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 ("SEC"), including in our 2015 Annual Report on Form 10-K. All forward-looking statements speak only as of the date of this report. We assume no obligation, and disclaim any obligation, to update the information contained in this report. Divestiture of Valves & Controls 2

3 KEY DEFINITIONS Except as Otherwise Noted All References to 2016 and 2015 Represent Our Results from Continuing Operations for the Period Indicated Presented on an Adjusted Basis and to Exclude Valves & Controls "Core Sales" Refers to GAAP Revenue from Existing Operations Excluding (1) the Impact of Currency Translation and (2) the Impact of Revenue from Acquired Businesses Recorded Prior to the First Anniversary of the Acquisition Less the Amount of Sales Attributable to Divested Product Lines Not Considered Discontinued Operations Segment Income Represents Equity Income of Unconsolidated Subsidiaries and Operating Income from Continuing Operations Exclusive of Non-Cash Intangible Amortization, Certain Acquisition Related Expenses, Costs of Restructuring Activities, "Mark-to-Market" Gain (Loss) for Pension and Other 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 Divestiture of Valves & Controls 3

4 DECISION TO EXIT VALVES & CONTROLS Four Years Ago We Merged with Tyco Flow Control to Generate More Balance Sheet Scale, Strengthen Our Ability to Add to Our Water Quality Systems, Flow & Filtration Solutions, and Technical Solutions Businesses, Gain Exposure to a Fast Growing Energy Industry, and Gain an Advantaged Structure. The Energy Markets have Weakened and Experienced a Significant Reset. We Believe that Partnering with Emerson is a Great Strategic Fit and the Combined Businesses will be Well Positioned for the Expected Energy Recovery. Our Balance Sheet After the Sale Will Enable Us to Focus on Our Strategic Priorities in Water and Technical Solutions. Enhanced Focus on Our Core Water and Technical Solutions Businesses Divestiture of Valves & Controls 4

5 DEAL HIGHLIGHTS Headline Price: $3.15B, Subject to Customary Net Debt and Working Capital Adjustments Expected Closing Timeline: Subject to Regulatory Approvals and Customary Closing Conditions Expected to Close Late in 2016 or Early in 2017 Expected Cash Proceeds to PNR of ~$2.6B After-Tax and Deal Costs Company Expects to Use Proceeds to De-Lever and Anticipates a Debt to EBITDA Leverage of 2.9x on Existing Debt and ~1.6x Including Cash on Hand (Net Debt) Upon Closing Deal Expected to be ($1.00) Dilutive to 2016 Forecasted EPS and ($0.82) Dilutive to 2016 on a Pro Forma Basis Balance Sheet Capacity Expected to Return After Deal Closes Divestiture of Valves & Controls 5

6 GUIDANCE UPDATE FULL YEAR 2016 ADJUSTED EPS PREVIOUS GUIDANCE CURRENT GUIDANCE $ $4.20 Inclusive of Valves & Controls FY Revenue of $6.7B Up ~4% YoY Cost Actions on Track ERICO Integration and Performance at Expectations +5% YoY Adj. EPS Growth Strong Cash Flow (>100% of Adjusted Net Income) Balance Sheet Fully Levered at 3.3x EBITDA $3.07 to $3.17 (~$1.00) Impact from Valves & Controls; (~$0.82) on a Pro Forma Basis FY Revenue of $5.0B Up ~9% YoY ERICO Integration and Performance at Expectations +10% YoY Adj. EPS Growth Strong Free Cash Flow (>100% of Adjusted Net Income) Balance Sheet Flexibility (~$1.4B of Capacity when Deal Closes) V&C Impacts EPS but Creates Increased Capital Flexibility Divestiture of Valves & Controls 6

7 FINANCIAL LOOK SALES SEGMENT INCOME $4.6B $4.7B $4.6B $5.0B ~3% 3 YR CAGR $641M $705M $755M ~$864M ~10% 3 YR CAGR ROS 14.1% 15.1% 16.4% 17.2% F F Depreciation: $77M $80M $81M $89M $5.0B of 2016 Sales with a 3 year CAGR of ~3% (+9% Excluding FX) 2016 Segment Income ROS of ~17.2% and ~$953M of EBITDA Annual Free Cash Flow > 100% of Adjusted Net Income Balance Sheet Flexibility Upon Closing of Transaction V&C Exit Expected to Improve Financial Strength Divestiture of Valves & Controls 7

8 GLOBAL PENTAIR PORTFOLIO Diversified by segments opportunities outside North America ROW ~4% Flow & Filtration Solutions ~28% Water Quality Systems ~29% Technical Solutions ~43% W. Europe ~16% Developing ~16% U.S. and Canada ~64% not overly dependent on any one vertical and aligned around four common themes. Food & Beverage ~13% Energy ~10% Infrastructure ~12% Industrial ~21% Resi/Comm ~44% F&B Processing ~10% Industrial & Process Efficiency ~10% Equip. & Building Protection ~35% Water Quality & Availability ~45% Based on 2016 Forecasted Revenue The Portfolio Remains Narrowly Diversified Divestiture of Valves & Controls 8

9 SEGMENT & STRATEGIC BUSINESS GROUP STRUCTURE External Reporting Segments Water Quality Systems (Revenue ~$1.5B) Flow & Filtration Solutions (Revenue ~$1.4B) Technical Solutions (Revenue ~$2.2B) Strategic Business Groups Aquatic & Environmental Systems (Revenue ~$880M) Water Technologies (Revenue ~$810M) Enclosures (Revenue ~$950M) Water Filtration (Revenue ~$590M) Fluid Solutions (Revenue ~$420M) Thermal Management (Revenue ~$700M) Process Filtration (Revenue ~$210M) Engineered Fastening Solutions (Revenue ~$530M) Based on 2016 Forecasted Revenue 8 Investable Businesses with Significant Opportunities Divestiture of Valves & Controls 9

10 VALUE CREATION THROUGH FLOW CONTROL 13% Per Year Annual Return $2.6B $3.0B $5.3B $4.9B Purchase Value of Tyco Flow Control Cash Generated + Value of Tax Structure + Value of Kept Businesses Expected Value from V&C Transaction Value Created From Tyco Flow Control Value Creation Despite the Oil & Gas Downturn Divestiture of Valves & Controls 10

11 ADJUSTED EPS IMPACT FROM V&C DIVESTITURE ~$4.12 ($1.00) ~$3.12 $0.18 ~$3.30 Performance = Stranded Corp Costs = Tax Rate = Other Adjusts = ($0.80) ($0.12) ($0.04) ($0.04) FY Impact of Interest = $0.14 Other Adjusts = $0.04 Previous: Guidance Mid-point V&C Divestiture Revised: Guidance Mid-point Pro Forma Adjustments Pro Forma: Mid-point New 2016 Guidance Mid-Point is $3.12 and $3.30 on a Pro Forma Basis Divestiture of Valves & Controls 11

12 CAPITAL STRUCTURE & CAPACITY NET DEBT SUMMARY CAPITAL ALLOCATION $4.1B (~$1.5B) (~$1.1B) ~$1.4B Capacity at 3.0X EBITDA ~$1.5B 3.3X EBITDA 1.6X EBITDA Free Cash Flow has Greatly Improved Committed to Our Investment Grade Rating Dividend Increase for 40 Consecutive Years 2016F Ending Net Debt w/ V&C Maturity: Avg. Rate: GROSS DEBT SUMMARY '17 '25 ~3.3% $4.2B Fixed $3.4B Variable $0.8B 2016F Ending Debt w/ V&C Debt Pay Down ~79% ~21% Change in Cash 2016F Ending Net Debt w/o V&C '18 '25 ~3.8% $2.7B Fixed $2.7B 2016F Ending Debt w/o V&C ~100% Continue to Fund Businesses that have Earned the Right to Grow Our Structure Remains an Advantage as We Look at Strategic Acquisitions ~$1.4B of Current Balance Sheet Capacity Every $100M of Buyback or Acquisitions = ~ $0.03/share Financial Flexibility and Disciplined Capital Allocation Divestiture of Valves & Controls 12

13 Q3'16 PENTAIR OUTLOOK Sales Op. Income Seg. Income ROS EPS (Rpt.) EPS (Adj.) Q3'16 ~$1.25B ~$180M ~$205M ~16.4% $0.60-$0.65 $0.70-$0.75 SUMMARY WQS Growth Offsetting FFS ERICO Contributing to Bottom Line but Thermal Mix Impacting Margins Cash Flow Expected to Continue Positive Trajectory Q3'15 $1.11B $153M $187M 16.8% $0.44 $0.70 Q3'16 FINANCIAL OUTLOOK (YoY) Core Sales Up ~2% (Up ~12% Including FX and ERICO) Water Quality Systems Up ~8% (Up ~8% Incl. FX) Flow & Filtration Solutions Down ~1% (~Down 1% Incl. FX) Technical Solutions Flat (Up ~27% Incl. FX and ERICO) Segment Income Up ~9% Return on Sales ~16.4% Down 40 bps Water Quality Systems ~19.5% Flow & Filtration Solutions ~15.0% Technical Solutions ~22.5% Adj. EPS Up ~4% Tax Rate of ~21.5% Net Interest ~$35M; Shares ~183M Q3 Free Cash Flow Expected to be Approximately Equal to Adjusted Net Income Strong Core Growth Expected but Margins Impacted by Mix Divestiture of Valves & Controls 13

14 FULL YEAR 2016 PENTAIR OUTLOOK Sales Op. Income Seg. Income ROS EPS (Rpt.) EPS (Adj.) FY'16 ~$5.02B ~$751M ~$864M ~17.2% $2.60-$2.70 $3.07-$3.17 SUMMARY Residential & Commercial Strength Expected to Continue Industrial Stabilization Expect All Segments to Grow Income FY'15 $4.62B $616M $755M 16.4% $2.03 $2.83 Margin Expansion and EPS Growth on Cost-Out Actions and ERICO Contribution FY'16 FINANCIAL OUTLOOK (YoY) Core Sales Up ~2% (Up ~9% Incl. FX and ERICO) Water Quality Systems Up ~6% (Up ~6% Incl. FX) Flow & Filtration Solutions Down ~1% (~Down 2% Incl. FX) Technical Solutions Flat (Up ~20% Incl. FX and ERICO) Segment Income Up ~14% ROS ~17.2% Up ~80 bps Water Quality Systems ~21.5% Flow & Filtration Solutions ~14.0% Technical Solutions ~22.0% Adj. EPS Up ~10% Tax Rate of ~21.5% Net Interest ~$140M; Shares ~183M FY Free Cash Flow Expected to be Approximately Equal to Adjusted Net Income Income Growth, ROS Expansion, and Strong Cash Flow Expected Divestiture of Valves & Controls 14

15 APPENDIX GAAP to Non-GAAP Measurements & Reconciliations Divestiture of Valves & Controls 15

16 REPORTED TO ADJUSTED 2016 RECONCILIATION Divestiture of Valves & Controls 16

17 REPORTED TO ADJUSTED RECONCILIATION Divestiture of Valves & Controls 17