 KeyBanc Capital Markets Industrial,
Automotive, & Transportation Conference
May 30, 2012
Exhibit 99.1 |
 Forward Looking Statements
2
This document contains information that may constitute “forward-looking statements.”
Forward-looking statements by their nature address matters that are, to different degrees,
uncertain. Generally, the words “anticipate,” “estimate,”
“expect,” “project,” “intend,” “plan,” “believe,”
“target” and similar expressions identify forward-looking statements, which
generally are not historical in nature. However, the absence of these words or similar expressions
does not mean that a statement is not forward-looking.
These forward-looking statements include, but are not limited to, statements about the separation
of Xylem Inc. (the “Company”) from ITT Corporation, the terms and the effect of the
separation, the nature and impact of the separation, capitalization of the Company, future
strategic plans and other statements that describe the Company’s business strategy,
outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance.
All statements that address operating performance, events or developments that we expect or anticipate
will occur in the future — including statements relating to orders, revenues, operating
margins and earnings per share growth, and statements expressing general views about future
operating results — are forward-looking statements.
Caution should be taken not to place undue reliance on any such forward-looking statements because
they involve risks, uncertainties and other factors that could cause actual results to differ
materially from those expressed or implied in, or reasonably inferred from, such
statements. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise, except as required
by law. In addition, forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from the Company’s historical
experience and our present expectations or projections. These risks and uncertainties include,
but are not limited to, those set forth in Item 1A of our Annual Report on Form 10-K, and
those described from time to time in subsequent reports filed with the Securities and Exchange
Commission. |
 •
Design, Manufacture, & Service Highly Engineered Technologies
•
A True Water Pure Play
•
Diverse End Market & Geographic Mix
•
Leading Brands & Large Installed Base
•
Unrivaled Global Reach …
Serving 150+ Countries
Global Leader in Water
Application Solutions
3
$3.8B Company Uniquely Positioned in the Attractive Water Industry
$3.8B Company Uniquely Positioned in the Attractive Water Industry
|
 Where
do we play in the $500B Global Water Industry? Public Utility
~250,000
Utilities
Globally
Water Infrastructure
~5%-10% EBIT
Margin
Design
& Build
~8,000 EPC
Firms Globally
~2%-5%
EBIT
Margin
Equipment &
Equipment &
Services
Services
~20,000
~20,000
Companies
Companies
Globally
Globally
~5%-20+% EBIT
Margin
$280B
$280B
End Use
Applications
Farms, Power
Plants, Homes
Applied Water
$220B
Source: GWI, Company Estimates
$250B
$250B
Predominately Commodity-like
Equipment & Service
•
Pipes, valves, fittings and low value pumps
•
Low-value services
•
Low or no differentiation
•
Generally either capital or labor intensive
•
Generally single-digit margins…
some
pockets of higher profitability
$30B
$30B
Xylem Focus
Xylem Focus
4
Xylem Focused on Attractive End-Markets in Equipment & Services
Xylem Focused on Attractive End-Markets in Equipment & Services
Technology Intensive
•
Higher value equipment
-
Energy efficiency, perform
in harsh conditions, high reliability
•
Knowledge-based services
-
Analytics, energy audits
•
Differentiated solutions
•
~10-20%+ margins |
 How
Does Xylem Create Value? 5
By Partnering with Our Customers to Solve Water Challenges
By Partnering with Our Customers to Solve Water Challenges
•
•
Depleting Water Supply
Depleting Water Supply
•
•
Tightening Regulation
Tightening Regulation
•
•
Aging Infrastructure
Aging Infrastructure
•
•
Population Growth
Population Growth
•
•
Urbanization
Urbanization
•
•
Sustainability / Energy Efficiency
Sustainability / Energy Efficiency
•
•
Fragmented Industry
Fragmented Industry
•
•
Geographically Diverse
Geographically Diverse
•
•
Attractive End Markets
Attractive End Markets
•
•
Installed Base Importance
Installed Base Importance
•
•
Customer Reliance on Expertise
Customer Reliance on Expertise
Understanding
Global Water Challenges
Leading Within the
Global Water Industry
Unique
Assets
Key
Partners
Industry
Relations
Innovative
Solutions |
 6
…
…
With Attractive Growth Rates and Strong Fundamentals
With Attractive Growth Rates and Strong Fundamentals
Balanced Portfolio …
Diversified Market Exposure
Europe
37%
U.S.
36%
Asia Pac
11%
Other
16%
End Market Mix*
End Market Mix*
Geographical Mix*
Geographical Mix*
Industrial
40%
Public Utility
36%
Commercial
12%
Residential
9%
Agricultural
3%
Xylem
Xylem
Emerging
Emerging
Market Revenue
Market Revenue
= 19% in 2011
= 19% in 2011
*2011 Revenues
End Market
End Market
Cycle
Cycle
Fundamentals
Fundamentals
Industrial
Less
Cyclical/
Late Cycle
•
Critical products
•
Strong aftermarket &
replacement
Public
Utility
Non-
Cyclical
•
Tariffs protected &
growing
•
~70% for O&M activity
•
Strong aftermarket &
replacement
Commercial
Late Cycle
•
Strong replacement
•
Green regulation
Residential
Early
Cycle
•
Strong replacement
•
Energy efficiency
Agriculture
Mid Cycle
•
Growing demand
Balanced End Market
Balanced End Market
Mkt Growth Rates
’10 -’15
Developed
1 -
3%
Emerging
8 -
10+%
Global
3 -
5% |
 Dewatering and Industrial
Water Applications
7
Dewatering Applications
Dewatering Applications
Industrial Water Applications
Industrial Water Applications
Diverse Applications
•
Construction
•
Disaster Recovery
•
Environmental
•
Heavy Industry
Diverse Applications
Diverse Applications
•
•
Construction
Construction
•
•
Disaster Recovery
Disaster Recovery
•
•
Environmental
Environmental
•
•
Heavy Industry
Heavy Industry
•
Mining
•
Oil, Gas & Chemical
•
Water
&
Waste
Water
•
Marine
•
•
Mining
Mining
•
•
Oil, Gas & Chemical
Oil, Gas & Chemical
•
•
Water
Water
&
&
Waste
Waste
Water
Water
•
•
Marine
Marine
Heating
Cooling
Pressure
Boosting
Waste Water
Removal |
 Public Utility & Industrial
Transport, Treatment & Test
8
Application Technologies
•
Waste Water Transport
•
Filtration
•
Biological Treatment
•
UV & Ozone Disinfection
•
Analytical Instrumentation
Application Technologies
Application Technologies
•
•
Waste Water Transport
Waste Water Transport
•
•
Filtration
Filtration
•
•
Biological Treatment
Biological Treatment
•
•
UV & Ozone Disinfection
UV & Ozone Disinfection
•
•
Analytical Instrumentation
Analytical Instrumentation |
 Commercial & Residential
9
Customers
•
Developers
•
Building Operators
•
Building Designers
•
HVAC Specialists
•
Contractors
•
Plumbers
HVAC -
Heating
Pressure boosters
Fire protection
HVAC -
Cooling
Wastewater
Zone Control |
 A
Unique Spectrum of Applications Expertise 10
Source: Citi Investment Research and Xylem Company Estimates
A Genuine Water Company With the Broadest Portfolio
* 2011 Revenues
46*
11%*
6%*
19%*
15%*
3%*
Water Infrastructure
Applied Water
Water as %
of Total Revs
Transport
Treatment
Test
Building
Services
Industrial
Water
Irrigation
Xylem
>90%
Danaher
~15%
Franklin
~85%
Grundfos
~85%
KSB
~25%
Pentair
~50%
Siemens
~5%
Sulzer (ABS)
~50%
Thermo
~5%
Wilo
~30% |
 Xylem
Has a Focused Growth Strategy •
Replicate leadership positions
•
Leverage brands with global
partners
•
Strong aftermarket opportunities
•
Innovative application solutions
•
Sustainable infrastructure
initiatives
Xylem Target Organic Growth ~ 2 points Faster Than Market
•
Established footprint
•
Localized innovation centers
•
Partnerships with leading, global
water companies
•
Focused BRIC & ROW Strategy
•
Disciplined approach
•
Build upon Dewatering and
Analytics acquisition platforms
•
Dewatering & Analytics
•
History of successful integration
•
Bolt-on, niche go-forward strategy
11
Organic Growth
Organic Growth
Emerging Markets
Emerging Markets
Acquisition Strategy
Acquisition Strategy |
 12
Highly Attractive Recurring Revenue Profile
•
Approximately 22% of Xylem revenue
•
Installed base drives replacement sales
•
Brand loyalty drives like-for-like
replacement
•
Installed base provides opportunity for
upgrades, next generation and services
Parts & Service
Replacement Equipment
(1)
$M
Note:
(1) Based on company estimates.
Aftermarket Provides Stability and Drives Strong Profitable Growth
Aftermarket Parts & Services Revenues
2006
2007
2008
2009
2010
2011
$370
$382
$396
$433
$512
$570
•
15% of Xylem revenue •
Strong global presence •
120+ owned service centers •
600+ service
employees
•
Extensive channel partner network
•
9% Revenue CAGR ‘06-’11 despite
economic downturn
•
~11% revenue growth 2010-2011 |
 Strong Growth in Revenue and Profitability
13
Revenues ($M)
Revenues ($M)
Operating
Operating
Income
Income
&
&
Margin*
Margin*
($M)
($M)
Op Margin expands 310 bps
•
Operational & Commercial Excellence Initiatives
•
Price & Productivity more than offset inflation
•
Includes restructuring costs $41M, $31M,
and $15M (’08 -
‘10)
Demonstrated Record of Growing Revenue and Profitability
Demonstrated Record of Growing Revenue and Profitability
EBITDA*
$384
$356
$489
$637
EBITDA %*
11.7%
12.5%
15.3%
16.7%
Earnings Per Share*
Earnings Per Share*
Organic
-8.8%
3.4% 7.1%
Growth*
* See non-GAAP reconciliations.
$315
$276
$388
$482
9.6%
9.7%
12.1%
12.7%
2008
2009
2010
2011
$3,291
$2,849
$3,202
$3,803
2008
2009
2010
2011
2008
2009
2010
2011
$1.22
$1.10
$1.55
$1.93
EPS
CAGR
of
16.5%
(’08
–
’11) |
 Xylem Segment Overview
Market Size: $16B
2011 Revenues: $2.4B
2011 Op Margin*: 14.9%
Water
Infrastructure
63%
Water Infrastructure Overview
Water Infrastructure Overview
Applied Water
37%
Market Size: $14B
2011 Revenues: $1.4B
2011 Op Margin*: 12.0%
Customers
Residential & Commercial,
Industrial Facilities, Agriculture
Applied Water Overview
Applied Water Overview
Customers
Public Utilities
Industrial Facilities
Distribution
World-Class Global Direct (~70%)
& Indirect Channels
Note: (1) Global market share based on company estimates.
Distribution
Primarily through World-Class
Indirect (+70%) Channels
14
*Excluding separation costs of $16M
*Excluding separation costs of $13M
Revenue by
Application
Market
Share
(1)
Treatment
18%
#1
Test
9%
#2
Transport
73%
#1
Revenue by
Application
Market
Share
(1)
Bldg. Services
53%
#2
Industrial Water
18%
#2
Irrigation
9%
#3
Unique
Position
-
Only
Provider
of
All
Three
“T’s”
Large Installed Base, Growth Despite Slow New
Construction |
 Gross
Margin Improvement Funds Future Growth Xylem Continues to Invest While
Increasing Profitability Xylem Continues to Invest While Increasing
Profitability 15
•
Operational and Commercial excellence
•
Growth in higher margin Analytics and Dewatering applications
•
Xylem’s Water Infrastructure direct sales force a key competitive advantage
32.0%
33.0%
34.0%
35.0%
36.0%
37.0%
38.0%
39.0%
2008
2009
2010
2011
34.7%
36.4%
37.9%
38.4%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2008
2009
2010
2011
1.9%
2.2%
2.3%
2.6%
R&D
12.8%
14.8%
16.8%
18.8%
20.8%
22.8%
24.8%
2008
2009
2010
2011
21.9%
23.4%
23.0%
23.1%
SG&A
Gross Margin |
 Free
Cash Flow Free Cash Flow
1*
1*
and Conversion ($M)
and Conversion ($M)
Focused on Free Cash Flow
16
1
Free
Cash
Flow
=
Net
cash
from
operating
activities
-
Capital
expenditures
Strong
Free
Cash
Flow
&
Solid
Balance
Sheet
to
Fund
Growth
Initiatives
Capital Structure & Liquidity Position
Capital Structure & Liquidity Position
March 31, 2012
Cash
347
Debt
1,206
Net Debt
859
Shareholders’
Equity
1,949
Net Capital
2,808
Net Debt to Net Capital
31%
•
Strong Cash Position
•
No Significant Debt Maturities Until 2016
•
31% Net Debt to Net Capital
•
1.3x Net Debt/Adj. TTM EBITDA
•
$600M Revolving Credit Facility Undrawn
•
Access to Commercial Paper
* See non-GAAP reconciliations.
$341
$308
$301
$388
152%
117%
91%
111%
2008
2009
2010
2011 |
 Disciplined Capital Deployment
17
•
2.5% –
3.5% of sales
•
~$0.10/share
•
In-line with peers
•
Up to $300M / year
Capital Deployment Strategy
•
Balance of organic & inorganic investment
•
Return value to shareholders
•
Maintain solid investment grade metrics
•
Debt & pension
Organic Growth
World Class Facilities
Cash return to
shareholders
Cash to meet key
obligations
Inorganic investment
to fuel growth
Capital Deployment Evaluation
•
Fold targeted performance into Operating plans
•
Quarterly / Annual investment review
•
Ensure targeted returns achieved
Focused on LT Shareholder Returns
Cash from
Operations
Capex
Return to
Shareholders
Financial
Obligations
Acquisition
Strategy |
 Financial Projections
18
•
Market growth of 3-5%...4-6% Xylem targeted growth
•
Acquisition strategy adds 1-2 % points of growth
•
Emerging markets > 20% of revenues
Xylem is poised to achieve our long-term financial objectives
•
Operational & Commercial excellence expand segment margins 50-75 bps per
year –
Gross margin > 40%
•
Continued cash management discipline to achieve cash conversion of ~100%
•
Capital deployment strategy to drive ROIC
2012 Guidance
2015 Target
Revenues
$3.9B to $4.0B
$4.5B to $5.0B
Operating Margin*
12.7% to 13.3%
14.5% to 15.5%
Free Cash Flow Conversion
95%
100%
EPS Growth*
+8% to +17%
* See non-GAAP reconciliations.
Long-Term Targets |
 19
Q&A
Q&A |
 Investment Highlights
20
•
Uniquely
Positioned
…
Global
leader
in
Attractive
Water
Industry
•
Balanced
Portfolio
…
Diversified
End
&
Geographic
Market
Mix
•
Large
Installed
Base
…
Stability,
Profitable
Aftermarket
Growth
•
Attractive
Growth
Opportunities
…
Organic
&
Inorganic
•
Increasing
Profitability
…
Proven
Track
Record,
Continued
Focus
•
Solid
Cash
Flow
Generation
…
Funds
Growth
and
Shareholder
Returns
Ability to Deliver Strong & Consistent Financial Performance
Ability to Deliver Strong & Consistent Financial Performance
|
 21
Thank you for your interest !
Thank you for your interest !
NYSE: XYL
http://investors.xyleminc.com
Phil De Sousa, Investor Relations Officer
(914) 323-5930
(914) 323-5931
Janice Tedesco, Investor Relations Coordinator |
 Appendix |
 Non-GAAP Reconciliation: Organic Revenue
23
(A)
(B)
(C)
(D)
(E)
(F) = B+C+D+E
(G) = F/A
Change
% Change
Change
% Change
Revenue
Revenue
2011 v. 2010
2011 v. 2010
FX Contribution
Eliminations
Adj. 2011 v. 2010
Adj. 2011 v. 2010
2011
2010
Year Ended December 31, 2011
Xylem Inc.
3,803
3,202
601
18.8%
(264)
(111)
-
226
7.1%
Water infrastructure
2,416
1,930
486
25.2%
(264)
(87)
2
137
7.1%
Applied Water
1,444
1,327
117
8.8%
-
(28)
(1)
88
6.6%
Change
% Change
Change
% Change
Revenue
Revenue
2010 v. 2009
2010 v. 2009
FX Contribution
Eliminations
Adj. 2010 v. 2009
Adj. 2010 v. 2009
2010
2009
Year Ended December 31, 2010
Xylem Inc.
3,202
2,849
353
12.4%
(263)
6
-
96
3.4%
Water Infrastructure
1,930
1,651
279
16.9%
(247)
(8)
-
24
1.5%
Applied Water
1,327
1,254
73
5.8%
(16)
16
-
73
5.8%
Change
% Change
Change
% Change
Revenue
Revenue
2009 v. 2008
2009 v. 2008
FX Contribution
Eliminations
Adj. 2009 v. 2008
Adj. 2009 v. 2008
2009
2008
Year Ended December 31, 2009
Xylem Inc.
2,849
3,291
(442)
-13.4%
(7)
158
-
(291)
-8.8%
Water infrastructure
1,651
1,824
(173)
-9.5%
-
108
-
(65)
-3.6%
Applied Water
1,254
1,527
(273)
-17.9%
(7)
53
-
(227)
-14.9%
Acquisitions /
Divestitures
Acquisitions /
Divestitures
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic Revenue
($ Millions)
(As Reported -
GAAP)
(As Adjusted -
Organic)
Acquisitions /
Divestitures |
  Non-GAAP Reconciliation: EBITDA
24
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
Years ended 2011, 2010, 2009, & 2008
($ Millions)
Year Ended
2011
2010
2009
2008
Net Cash - Operating Activities
449
395
370
408
Capital Expenditures
(126)
(94)
(62)
(67)
Free Cash Flow, including separation costs
323
301
308
341
Separation Costs (Cash Paid incl. Capex)
65
-
-
-
Free Cash Flow, excluding separation costs
388
301
308
341
Net Income
279
329
263
224
Separation Costs, net of tax
72
-
-
-
Adjusted Net Income
351
329
263
224
Free Cash Flow Conversion
111%
91%
117%
152% |
 Non-GAAP Reconciliation: Earnings Per Share
25
FY 2009
FY 2010
FY 2011
Net Income
263
329
279
Separation costs, net of tax
-
-
72
Adjusted Net Income before Special
Tax Items 263
329
351
Special Tax Items
(61)
(43)
7
Adjusted Net
Income 202
286
358
Diluted Earnings per Share
$1.42
$1.78
$1.50
Separation costs per Share
-
-
$0.39
Adjusted diluted EPS before Special Tax Items
$1.42
$1.78
$1.89
Special Tax Items per Share
($0.32)
($0.23)
$0.04
Adjusted diluted EPS
$1.10
$1.55
$1.93
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
2009, 2010, & 2011
($ Millions, except per share amounts) |
 Non-GAAP Reconciliation: Free Cash Flow
26
Xylem Inc. Non-GAAP Reconciliation
Net Cash -
Operating Activities vs. Free Cash Flow
Years ended 2011, 2010, 2009, & 2008
($ Millions)
Year Ended
2011
2010
2009
2008
Net Cash -
Operating Activities
449
395
370
408
Capital Expenditures
(126)
(94)
(62)
(67)
Free Cash Flow, including separation costs
323
301
308
341
Separation Costs (Cash Paid incl. Capex)
65
-
-
-
Free Cash Flow, excluding separation costs
388
301
308
341
Net Income
279
329
263
224
Separation Costs, net of tax
72
-
-
-
Adjusted Net Income
351
329
263
224
Free Cash Flow Conversion
111%
91%
117%
152% |
 Non-GAAP Reconciliation: Guidance
27
Illustration of Mid Point Guidance
2012 Guidance
FY '11
FY '12
As Reported
Adjustments
Adjusted
Adjustments
Normalized
As Reported
Adjustments
Adjusted
Total Revenue
3,803
3,803
3,803
3,950
3,950
Segment Operating Income
503
29
a
532
(8)
d
524
577
8
h
585
Segment Operating Margin
13.2%
14.0%
13.8%
14.6%
14.8%
Corporate Expense
108
(58)
b
50
20
e
70
81
(10)
h
71
Operating Income
395
87
482
(28)
454
496
18
514
Operating Margin
10.4%
12.7%
11.9%
12.6%
13.0%
Interest Expense
(17)
(17)
(39)
f
(56)
(51)
(51)
Other Non-Operating Income (Expense)
5
5
5
-
-
Income before Taxes
383
87
470
(67)
403
445
18
463
Provision for Income Taxes
(104)
(7)
c
(111)
16
g
(95)
(111)
(5)
i
(116)
Net Income
279
80
359
(51)
308
334
13
347
Diluted Shares (j)
185.3
185.3
185.9
185.9
Diluted EPS
1.50
$
0.43
$
1.93
$
(0.27)
$
1.66
1.80
0.07
1.87
a
One time separation costs incurred at the segment level
b
One time separation costs incurred at the corporate level
c
Net
tax
impact
of
above
items,
plus
the
addition
of
2011
special
tax
items
d
Incremental stand alone costs to be incurred in 2012 at the segment level ($8M)
e
Incremental stand alone costs to be incurred in 2012 at the corporate level ($20M)
f
Incremental interest expense on long-term debt to be incurred in 2012
g
Tax
impact
of
incremental
interest
expense
and
stand
alone
costs
to
be
incurred
in
2012
h
Expected one time separation costs of $8M and $10M to be incurred at the segments and
headquarters, respectively. i
Tax impact of one time separation costs expected to be incurred in 2012.
j
Full year 2012 diluted shares outstanding are based on diluted shares outstanding for quarter
ended March 31, 2012 ($ Millions, except per share amounts)
Guidance
Xylem Inc. Non-GAAP Reconciliation |