Pentair Analyst Day 2009

Last week, on 3 Sep 2009, Pentair had its Analyst Day 2009 in New York. I listened to it via webcast and I’ll highlight (in memo format) some of the points made during the presentation. You can view its presentation or listen to its webcast again (this time its presentation is available together with its webcast simultaneously. I was listening to the webcast without the presentation).

The CEO Randall J. Hogan made the following points:
1. Pentair is leader in 2 business segments
2. The Water segment is a $2bn sales business
3. The Technical Products segment is a $1bn sales business
4. 35% of total sales is international
5. Pentair Water is involved in all the water cycle from the sources to the waste water
6. Technical Products serve many verticals with wide range of products
7. Technical Products have been more cyclical than the Water biz but it’s getting better with time
8. Sales is more global and more emerging. 75% sales in US in 2005 will be 65% in 2009. Emerging markets which takes up 8% sales in 2005 now takes up 15% sales in 2009. CEO expects this market to take up 20-25% sales in near future.

Some key messages:
1. The economic situation was worse than originally anticipated
2. Pentair introduced Global Business Unit (GBU) structure a year ago which was realigned to better position Pentair for stronger growth going forward
3. Provided an innovation roadmap which was maintained and expanded
4. Outlined aggressive cost rationalization plan which was accelerated and driving Ops Excellence improvements daily via Lean
5. Cash is King, Pentair is generating lots of it and expect this to continue

The CEO continues…
1. Residential markets impacted half of its Water biz during the crisis
2. Industrials remain weak and record low, big inventory drawdown
3. Actions taken: accelerated 3-year “footprint” plan into 18 months (closed 15 out of 18 plants so far), accelerated G&A reduction plan (reduced G&A headcount by 30%)
4. However, it maintained investment in growth: R&D, sales & marketing
5. Result: Cashflow is very good, Pentair is positioned for the Stimulus. Company EPS is maintained at $1.40 for 2009 with sales forecast of $2.7bn in 2009.

Key Drivers/Key Growth Focus Areas:
1. Emerging market growth is key – continued development and investment for past 5 years, China/Southeast Asia is key
2. Developed countries invest in infrastructure – stimulus monies being deployed, positioned to win fair share of developing infrastructure
3. Sustainability & green solutions – companies that can be sustainability partners will win, leverage on green practices
4. Starting from low base-position businesses – residential/industrial/commercial record low readings, positioned for growth

CEO summarizes:
1. Growth strategies – initiatives are robust, organized to win, trends in our favor, GBU structure the right organization
2. Productivity remains key – much more to do, executed 3-year cost plan in 12-18 months, Lean and ops excellence opportunities and traction
3. Exciting innovation – future looks bright, new products doing well and more to come
4. Financial outlook – solid expectations; growth, margin and ROIC “model” appealing
5. Sustainability highlighted – internally and as a partner, launched citizenship council/report internally, partnering with organizations to transform their environment

A short summary on technology by the Technology VP Dr. Phil Rolchigo:
1. We imagined new solutions with breakthrough performance: innovative prefiltration solutions; high efficiency point-of-use RO (reverse osmosis) systems; breakthrough performance point-of-use UF purification solutions; fully integrated water treatment systems with process water and reuse; low energy, membrane technology for oil dehydration and reuse
2. Now imagine the future – high efficiency commercial and industrial RO desalination solutions; even higher efficiency softening solutions, perhaps salt-less solutions; breakthrough purification technologies for reuse and desal solutions, advanced membrance and disinfectation solutions.

Comment:
1. Listening to the webcast, it sounds positive overall as the market has reached the bottom and so they’re starting from a low base, and meanwhile, more cost cutting is ongoing.
2. One good thing is that they’re maintaining their investment in R&D and they’re in good position for the Stimulus package though they may need to share the pie with other companies. See their Stimulus White Paper.
3. They’re also looking at emerging markets as future growth as those countries improve their water infrastructure.
4. At this moment, the demand for technical products has not risen and they’re still focusing in US due to its affordability and reliability.
5. For this year, they’re trying to maintain its good cash flow, hopefully for good investments (and not to raise dividends again next year!)
6. Some of the new technologies are still in stealth mode but its 4 current technologies – ultrafiltration, reverse osmosis, membrane bioreactors and UV light disinfection – are their focus now and they’re continuously improving on it.

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