Divestiture of Valves & Controls August 19, 2016 Divestiture of - - PowerPoint PPT Presentation

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Divestiture of Valves & Controls August 19, 2016 Divestiture of - - PowerPoint PPT Presentation

Divestiture of Valves & Controls August 19, 2016 Divestiture of Valves & Controls FORWARD-LOOKING STATEMENTS C AUTION C ONCERNING F ORWARD -L OOKING S TATEMENTS This communication contains statements that we believe to be "


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Divestiture of Valves & Controls

Divestiture of Valves & Controls

August 19, 2016

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Divestiture of Valves & Controls

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," "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

  • bligation, and disclaim any obligation, to update the information contained in this report.

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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

  • f 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
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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

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DEAL HIGHLIGHTS

Balance Sheet Capacity Expected to Return After Deal Closes

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  • 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

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GUIDANCE UPDATE – FULL YEAR 2016 ADJUSTED EPS

V&C Impacts EPS but Creates Increased Capital Flexibility

PREVIOUS GUIDANCE $4.05 - $4.20 CURRENT GUIDANCE $3.07 to $3.17

  • 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
  • (~$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)

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FINANCIAL LOOK

V&C Exit Expected to Improve Financial Strength

SALES SEGMENT INCOME

2013 2014 2015 2016F 2013 2014 2015 2016F

$4.6B $705M $641M $4.7B $4.6B $5.0B $755M ~$864M

  • $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

~3%

3 YR CAGR

~10%

3 YR CAGR

ROS 14.1% 16.4% 17.2% 15.1% $77M $81M $89M $80M Depreciation:

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GLOBAL PENTAIR PORTFOLIO

8 Technical Solutions ~43% Flow & Filtration Solutions ~28% Water Quality Systems ~29% U.S. and Canada ~64% Developing ~16%

  • W. Europe

~16% ROW ~4% Energy ~10% Industrial ~21% Food & Beverage ~13% Resi/Comm ~44% Infrastructure ~12%

The Portfolio Remains Narrowly Diversified

Water Quality & Availability ~45% Industrial & Process Efficiency ~10%

  • Equip. & Building

Protection ~35% F&B Processing ~10%

Diversified by segments … … opportunities outside North America … … not overly dependent on any one vertical… … and aligned around four common themes.

Based on 2016 Forecasted Revenue

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8 Investable Businesses with Significant Opportunities

SEGMENT & STRATEGIC BUSINESS GROUP STRUCTURE

Based on 2016 Forecasted Revenue 9

Flow & Filtration Solutions

(Revenue ~$1.4B)

Water Technologies

(Revenue ~$810M)

Fluid Solutions

(Revenue ~$420M)

Process Filtration

(Revenue ~$210M)

Water Quality Systems

(Revenue ~$1.5B)

Aquatic & Environmental Systems

(Revenue ~$880M)

Water Filtration

(Revenue ~$590M)

Technical Solutions

(Revenue ~$2.2B)

Enclosures

(Revenue ~$950M)

Thermal Management

(Revenue ~$700M)

Engineered Fastening Solutions

(Revenue ~$530M)

External Reporting Segments Strategic Business Groups

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VALUE CREATION THROUGH FLOW CONTROL

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Value Creation Despite the Oil & Gas Downturn

$4.9B $3.0B

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

13% Per Year Annual Return

$5.3B $2.6B

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New 2016 Guidance Mid-Point is $3.12 and $3.30 on a Pro Forma Basis

ADJUSTED EPS IMPACT FROM V&C DIVESTITURE

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Previous: Guidance Mid-point Revised: Guidance Mid-point Pro Forma: Mid-point V&C Divestiture Pro Forma Adjustments

~$4.12 ($1.00) ~$3.12 $0.18 ~$3.30

Performance = Stranded Corp Costs = Tax Rate = Other Adjusts = FY Impact of Interest = $0.14 Other Adjusts = $0.04 ($0.80) ($0.12) ($0.04) ($0.04)

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CAPITAL STRUCTURE & CAPACITY

Financial Flexibility and Disciplined Capital Allocation

GROSS DEBT SUMMARY

Maturity:

Variable

$4.2B

2016F Ending Debt w/ V&C ~3.3% ~79% $3.4B

$0.8B

Fixed '17 – '25

NET DEBT SUMMARY

Debt Pay Down 2016F Ending Net Debt w/ V&C Change in Cash

(~$1.1B) $4.1B ~$1.5B

2016F Ending Net Debt w/o V&C

3.3X EBITDA 1.6X EBITDA ~$1.4B Capacity at 3.0X EBITDA

(~$1.5B)

  • Avg. Rate:

~21%

$2.7B

2016F Ending Debt w/o V&C ~3.8% ~100% $2.7B Fixed '18 – '25

CAPITAL ALLOCATION

  • Free Cash Flow has Greatly Improved
  • Committed to Our Investment Grade Rating
  • Dividend Increase for 40 Consecutive Years
  • 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

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  • 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 Q3'16 FINANCIAL OUTLOOK (YoY) SUMMARY

Strong Core Growth Expected but Margins Impacted by Mix

Q3'16 PENTAIR OUTLOOK

  • WQS Growth Offsetting FFS
  • ERICO Contributing to Bottom Line but Thermal

Mix Impacting Margins

  • Cash Flow Expected to Continue Positive

Trajectory

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%

~$1.25B ~$180M ~$205M ~16.4% $0.60-$0.65 $0.70-$0.75

Q3'16 Q3'15

Sales

  • Op. Income
  • Seg. Income

ROS

EPS (Rpt.) EPS (Adj.)

$1.11B $153M $187M 16.8% $0.44 $0.70

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FY'16 FINANCIAL OUTLOOK (YoY) SUMMARY

Income Growth, ROS Expansion, and Strong Cash Flow Expected

FULL YEAR 2016 PENTAIR OUTLOOK

  • Residential & Commercial Strength Expected to

Continue … Industrial Stabilization

  • Expect All Segments to Grow Income
  • Margin Expansion and EPS Growth on Cost-Out

Actions and ERICO Contribution

~$5.02B ~$751M ~$864M ~17.2% $2.60-$2.70 $3.07-$3.17

FY'16 FY'15

Sales

  • Op. Income
  • Seg. Income

ROS

EPS (Rpt.) EPS (Adj.)

$4.62B $616M $755M 16.4% $2.03 $2.83

  • Adj. EPS Up ~10%
  • Tax Rate of ~21.5%
  • Net Interest ~$140M; Shares ~183M

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%

FY Free Cash Flow Expected to be Approximately Equal to Adjusted Net Income

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APPENDIX

GAAP to Non-GAAP Measurements & Reconciliations

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REPORTED TO ADJUSTED 2016 RECONCILIATION

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REPORTED TO ADJUSTED 2015-2013 RECONCILIATION