Watts Water Technologies

2Q 2015 Earnings Conference Call

July 30, 2015

2

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, margins, earnings, earnings per share,

capital expenditures, water market growth, acquisition strategy, lead free developments and

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 implied by the

forward-looking statements.

Factors that might affect forward-looking statements include overall economic 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 “Item 1A. Risk Factors” in Watts’ most recent Annual Report on

Form 10-K and in subsequent reports filed with the SEC.

3

2Q 2015 Summary

• Delivered margin expansion despite lower volume

- Revenue headwinds - FX, EMEA major markets, south-central U.S. weather

- Operating profit and margin % expanded

- EPS flat, FX headwind

- Strong cash flow generation

- AERCO strong performance continues

• Transformation progressing

- Definitive agreement to sell Americas product lines

- Phase 2 - working detailed plan in parallel, still expect Q3 announcement

- EMEA transformation/restructuring initiatives on track

• $100M share repurchase program approved

• Pension - IRS Determination Letter received, expect Q3 settlement

Strong Margin & Cash Performance; Transformation Tracking

Note: Operating margins and EPS excludes special items, see slide 15 for reconciliation

4

• GDP outlook lowered; weather impact

• Residential trends still positive

• Commercial improving

• Fed rate hike uncertainty

• Euro GDP stable

• Major markets (France, Germany) slow

• Emerging markets mixed

• Greece / Ukraine / Russia concerns continue

• China GDP flat at 7%; government stimulus

• Softness in real estate markets

• Stock market volatility impacting sentiment

• Asia GDP moderate growth

Market Overview

Markets Remain Mixed 7/29/2015

Americas

EMEA

Asia Pacific

~67%

~30%

~3%

5

• Exiting non-core products - affects Americas and APAC

• Selling selected product lines to strategic buyer

‒ Sales price approx. $35.5M, exiting 2 manufacturing facilities, Q3 expected close

‒ 2014 Americas sales impact of $105M - primarily DIY end market

• Water connectors product line manufactured in China

– Manufacturing to be discontinued by Q4 - pursuing potential sale

– Water connector sales winding down - approximately $75M annually

• Other product exits ~$10M

• Expected financial impact

– Sales reduction - H2’15 $65-$75M, FY’15 $80-$90M, FY’16 ~$190M

– Costs trending to midpoint of range, update in Q3 after sale completed

• Global sourcing savings on track

Phase 1 Transformation Update

Sale Process Accelerates Phase 1 Completion

Tubing Fittings Brass & Tubular Water Connectors

6

2Q15 Financial Highlights

• 2.3% decrease

‒ Organic (3.4%), FX (7.1%), Acquisition 8.2%

• Flat ‒ Operating profit offset by higher interest / taxes / FX

($M except per share amounts)

2Q15 2Q14

Sales $386.9 $396.0

Operating Profit $42.0 $40.8

Adjusted Margin % 10.9% 10.3%

Net Income $24.3 $24.3

EPS $0.69 $0.69

Tax Rate 33.8% 32.8%

Free Cash Flow $34.3 $31.6

• Flat ‒ FX effect ($0.07)

‒ AERCO +$0.09

Margin Expansion Despite Lower Volume

• 2.9% increase ‒ Better mix and productivity offset lower volume

• 8.5% improvement ‒ Working capital performance

1) Operating Profit and EPS excludes special items, see slide 15 for reconciliation

2) FCF = Cash Flow from Operations Less Capital Expenditures, see slide 17 for calculation

(1)

(1)

(2)

7

14.7%

12.2%

2Q15 2Q14

$262.8

$241.8

2Q15 2Q14

• Operating profit $38.6M

‒ Up $9.2M or 31.3%

• Operating margins up 250 bps

+ Product mix and productivity

– Volume / under absorption

• Organic growth flat ex non-core

- Price increase - timing

- South-Central weather

• Wholesale (1.9%), DIY (15.2%), OEM 7.4%

• AERCO strong performance continues

Strong Margin Improvement

Up 8.7%

Organic (3.8%) Up 250 bps

Sales (M) Operating Margin

Americas

1) Operating profit and operating margins excludes special items, see slide 16 for reconciliation

(1)

8

9.5% 11.7%

2Q15 2Q14

Sales (M) Operating Margin

$112.2 $143.9

2Q15 2Q14

Challenges in Major Markets…Signs Of Stabilization

Down (22.0%)

Organic (4.1%) Down (220 bps)

• Operating profit $10.7M

‒ Down ($6.2M) driven by volume and FX ($2.3M)

• Operating margins down (220bps)

+ Productivity (transformation, restructuring)

- Volume / under absorption

• FX impact ($25.8M) or (17.9%)

• Wholesale (1.5%), OEM (5.7%)

• Germany, France and Russia headwinds;

Middle East & UK strong

• Drains +5.0%

EMEA

1) Operating profit and operating margins excludes special items, see slide 16 for reconciliation

(1)

9

13.4%

20.4%

2Q15 2Q14

$11.9 $10.3

2Q15 2Q14

Continue To Perform Well Despite Macro Conditions

Up 15.5%

Organic up 14.6%

Down 700 bps

Sales (M) Operating Margin

APAC

• Strong valves/retail heating product sales

• Growth in China second tier cities

• Focus on key vertical markets

• Operating profit $1.6M

‒ Down $0.5M or 23.8%

• Operating margins down 700 bps

+ Trade Volume

+ Productivity

– Fixed cost absorption on lower interco sales

1) Operating profit and operating margins excludes special items, see slide 16 for reconciliation

(1)

10

Cash Flow

• 269% increase in free cash flow

• Strong working capital performance

‒ DSO and DIO improvement

• Capex up 18%

‒ AERCO impact

• Stock repurchase program on target

Strong Cash Flow Performance

($M)

June 2015 June 2014

Net income from continuing operations 30.9 35.4

Depreciation and amortization 25.9 24.0

Change in working capital and other (14.9) (41.0)

Total Operating Activities 41.9 18.4

Capital expenditures, net of proceeds (12.4) (10.4)

Other 0.7 -

Total Investing Activities (11.7) (10.4)

Net payments on long-term debt (3.7) (3.4)

Dividends (11.3) (9.9)

Payments to repurchase common stock (19.5) (20.0)

Debt issue costs (2.0)

Proceeds and tax benefit of stock option activity 1.3 6.0

Total Financing Activities (33.2) (29.3)

Effect of exchange rates (13.5) (2.3)

Net decrease in cash (16.5) (23.6)

Free Cash Flow 29.5 8.0

Six months Ended

1) FCF = Cash Flow from Operations Less Capital Expenditures, see slide 17 for calculation

(1)

11 © 2015 Watts Water Technologies | Business Confidential & Proprietary Information

1H / 2H Revenue Outlook

Forecasting 2nd Half Improvement

Americas

APAC

EMEA

1H

(5%)

Watts

1%

(1%)

57%

2H

Flat - (2%)

3 - 5%

~ 3%

10% - 15%

Drivers

*Core Organic Growth YOY V%

• Favorable economic outlook

• Fewer weather disruptions

• Easier comps; price increase timing

• Economy stabilizing

• Drains orders strong

• Easier comps

• Continued valves strength

• Growth in key verticals

• Tougher H2 comps

* Excludes non-core products and AERCO

12 © 2015 Watts Water Technologies | Business Confidential & Proprietary Information

Key Focus Areas

Making Progress as Planned 7/29/2015

• Building out leadership team

• EMEA transformation / restructuring

• Americas Phase 1 transformation / sourcing

• Pension settlement

• Americas Phase 2 blueprint

• Re-invigorate new product development pipeline

• “One Watts” / talent and performance culture

Appendix

14

Consolidated Statements of Operations

(in millions except per share amounts) ($M)

June 28, 2015 June 29, 2014 B/(W) %

Net sales 386.9$ 396.0$ (9.1)$ (2.3%)

Cost of goods sold 241.1 257.0 15.9 -

GROSS PROFIT 145.8 139.0 6.8 4.9%37.7% 35.1% +2.6p

SG&A 106.3 99.8 (6.5) (6.5%)

27.5% 25.2% (2.3p)

Restructuring and other charges, net 4.7 2.6 (2.1) (80.8%)

OPERATING INCOME 34.8 36.6 (1.8) (4.9%)

9.0% 9.2% (0.2p)

Other expense 5.3 4.6 (0.7) (15.2%)

INCOME FROM CONTINUING OPERATIONS 29.5 32.0 (2.5) (7.8%)

Provision for income taxes 10.2 10.7 0.5 4.7%

NET INCOME FROM CONTINUING OPERATIONS 19.3$ 21.3$ (2.0)$ (9.4%)

DILUTED EPS - Continuing Operations 0.55$ 0.60$ (0.05)$ (8.3%)

Second Quarter Ended

15

Reconciliation of GAAP “As Reported” to the “Adjusted” non-

GAAP Excluding the Effect of Adjustments for Special Items

(in millions except per share information) Second Quarter Ended

($M) June 28 June 29

2015 2014

Net sales $ 386.9 $ 396.0

Operating income - as reported $ 34.8 $ 36.6

Operating margin % 9.0% 9.2%

Adjustments for special items:

Restructuring / severance related costs 4.7 2.6

Deployment costs related to transformation activities 2.5 1.6

Total adjustments for special items $ 7.2 $ 4.2

Operating income - as adjusted $ 42.0 $ 40.8

Adjusted operating margin % 10.9% 10.3%

Net income from continuing operations - as reported $ 19.3 $ 21.3

Adjustments for special items - tax affected:

Restructuring / severance 3.4 1.8

Deployment costs related to transformation activities 1.6 1.2

Total adjustments for special items - tax affected: $ 5.0 $ 3.0

Net income from continuing operations - as adjusted $ 24.3 $ 24.3

Continuing operations earnings per share - diluted

Diluted earnings per share - as reported $ 0.55 $ 0.60

Adjustments for special items 0.14 0.09

Diluted earnings per share - as adjusted $ 0.69 $ 0.69

16

Adjusted Operating Income by Segment

(in millions)

($M)

Americas EMEA APAC Corp. Total Americas EMEA APAC Corp. Total

Reported GAAP Operating Income 36.1$ 9.4 (1.8) (8.9) 34.8 29.0$ 13.1 2.1 (7.6) 36.6

% of sales 13.7% 8.4% -15.1% 9.0% 12.0% 9.1% 20.4% 9.2%

Adjustments for special items 2.5$ 1.3 3.4 - 7.2 0.4$ 3.8 - - 4.2

Adjusted Operating Income 38.6$ 10.7 1.6 (8.9) 42.0 29.4$ 16.9 2.1 (7.6) 40.8

% of sales 14.7% 9.5% 13.4% 10.9% 12.2% 11.7% 20.4% 10.3%

Americas EMEA APAC Corp. Total Americas EMEA APAC Corp. Total

Reported GAAP Operating Income 60.3$ 14.8 (0.3) (17.2) 57.6 51.6$ 22.0 3.0 (14.2) 62.4

% of sales 12.1% 6.7% -1.4% 7.8% 11.2% 7.8% 17.3% 8.2%

Adjustments for special items 6.2$ 4.0 3.4 0.1 13.7 2.3$ 8.8 - 0.8 11.9

Adjusted Operating Income 66.5$ 18.8 3.1 (17.1) 71.3 53.9$ 30.8 3.0 (13.4) 74.3

% of sales 13.3% 8.5% 14.3% 9.6% 11.7% 10.9% 17.3% 9.8%

Q2 2015 Q2 2014

Six Months Ended June 28, 2015 Six Months Ended June 29, 2014

17

Reconciliation of Net Cash Provided by Continuing Operations to Free

Cash Flow

June 28, June 29, June 28, June 29,

2015 2014 2015 2014

Net cash provided by continuing operations - as reported $ 41.1 $ 37.1 $ 41.9 $ 18.4

Less: additions to property, plant, and equipment (6.9) (5.6) (12.5) (10.6)

Plus: proceeds from the sale of property, plant, and equipment 0.1 0.1 0.1 0.2

Free cash flow $ 34.3 $ 31.6 $ 29.5 $ 8.0

Net income from continuing operations - as reported $ 19.3 $ 21.3 $ 30.9 $ 35.4

Cash conversion rate of free cash flow to net income 177.7% 148.4% 95.5% 22.6%

RECONCILIATION OF NET CASH PROVIDED BY CONTINUING OPERATIONS TO FREE CASH FLOW

($M)

Six Months EndedThree Months Ended

18

Working Capital

• Receivable decrease due to stronger collections

• Higher prior year inventory levels supported lead free conversion

• Payables decreased due to inventory reduction/timing

Balances for all periods as a % of Trailing Twelve Months Sales

($M) June 28, 2015 June 29, 2014

$ % $ %

Receivables 229.0 15.3% 234.9 15.6%

Days Sales Outstanding 52.7 53.5

Inventory * 275.1 18.4% 318.4 21.2%

Inventory Turns 3.4 3.2

Payables (111.0) (7.4%) (133.1) (8.9%)

Days Payables Outstanding 41.1 45.1

Net Working Capital 393.1 26.3% 420.2 28.0%

* Excludes the reclass for Assets Held for Sale