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Watts Water
Technologies is in the right place at the right time with their valves and related
products that promote comfort and safety as water
is becoming more precious over time as the cost of water increases and the supply of water
is not increasing
Industrial Goods
Industrial Equipment & Components
(WTS-NYSE)
Watts Water Technologies, Inc.
815 Chestnut Street
North Andover, MA 01845
Phone: 978-688-1811
William C. McCartney
CFO and Treasurer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
February 9, 2005
BIO:
William C. McCartney joined our Company in 1985 as Controller. He was appointed our Vice
President of Finance in 1994 and served as our Corporate Controller from April 1988 to
December 1999. He was appointed Chief Financial Officer and Treasurer on January 1, 2000.
Company Profile:
Watts Water Technologies, Inc. is a world leader in the manufacture of innovative products
to control the efficiency, safety, and quality of water within residential, commercial,
and institutional applications. Its expertise in a wide variety of water technologies
enables it to be a comprehensive supplier to the water industry.
CEOCFO: Mr. McCartney, will you describe Watts and your
target market?
Mr. McCartney: “Watts is a company that provides a broad
range of products to primarily the residential and commercial marketplace. We focus on
products that ensure the safe use of water, particularly; we talk about pressure and
temperature changes as well as ensuring the quality of water through our backflow
prevention program, as well as our water purification products. We also provide a broad
range of control related products. We have what we feel is the broadest product offering
for both residential and commercial marketplaces; serving markets in North America,
Europe, and a growing presence in China.”
CEOCFO: To whom are you
selling your products?
Mr. McCartney: “We sell primarily through plumbing
wholesalers, as well as big-box retailers and into the OEM marketplace. About two-thirds
of our sales go into wholesale plumbing and wholesalers.”
CEOCFO: Will you tell us
about the competitive landscape?
Mr. McCartney: “It is a very competitive market that we
are addressing. We compete with other large public companies, small privately held
companies and we are now seeing more imported products in our market.”
CEOCFO: Is brand name
significant in your industry?
Mr. McCartney: “The wholesale plumbing side brand name
is very important. We have done many surveys that show Watts is the number-one brand when
it comes to all of our leading products, particularly in the North American market. In
Europe we are branding all of our acquisitions under the Watts brand name. We have a
growing brand, and brand is very important.”
CEOCFO: What sets a
Watts product apart?
Mr. McCartney: “We believe that we have the broadest
product offering and we have an intense focus on quality. Because of the strength of our
brand, we also have the best distribution network in the business.”
CEOCFO: Will you tell us
about your manufacturing facilities?
Mr. McCartney: “We manufacture the vast majority of the
products that we sell, and for the most part we like to have a mixture of manufacturing
and imports in the markets that we are addressing. Therefore, we have a strong
manufacturing presence in North America, Europe and China for those local markets, but we
also, when appropriate, manufacture in Watts’ own factories that are located in
low-cost manufacturing countries. Over the last several years, we have opened up factories
in Bulgaria, and Tunisia, which primarily support the European market. We have three
factories in China, two of which we have opened recently, that support both the Chinese
domestic market and back to North America for the North American market.”
CEOCFO: Do you
anticipate needing to add to your manufacturing facilities in the future?
Mr. McCartney: “We have enough capacity as the company
stands right now. We have closed about a dozen factories over the last four years or so
and we have consolidated small factories to larger factories. As we needed extra capacity,
we added capacity in low cost countries.”
CEOCFO: You maintain a
large inventory. How do you handle that efficiently?
Mr. McCartney: “We are a vertically integrated company
with a lot of pressure on us for having the right inventory in the right place. We have
foundries and we supply all the way to consigned finished goods in field locations. As we
put more of our manufacturing into these low-cost countries, it extends our supply chains
so that we can put another six to eight weeks of requirements on our inventory. Accurate
and meaningful inventory management is a very important part of our process and we are
always looking for ways to improve our inventory performance.”
CEOCFO: Is it a function
of newer technologies with the right people in-place to make it happen?
Mr. McCartney: “I do not think it is technology as much
as it is having skilled managers in the logistics field. As we continue to grow and add
companies through acquisitions and through our manufacturing program in low-cost
countries, highly skilled logistics people, become more critical to the company.”
CEOCFO: Will you tell us
more about the acquisition strategy?
Mr. McCartney: “We have grown the company half-n-half
through acquisitions and organic growth over the last ten years. We would like to have a
balanced approach to growth. That being said, some years have been more organic growth and
some years have been more acquired growth. The strategy is to strengthen our product
offering and while we have the broadest product offering, we still look for opportunities
to strengthen that offering. We are looking for companies that have a strong brand name.
We like companies that have been well managed and come with a strong management team. We
like companies that bring us something that we do not have currently in our company such
as a technology, a distribution channel, access to a market, companies that will give us a
strong financial performance, increase earnings, and return on investment in a short
period-of-time. We want these products to be consistent with our core plumbing business
and/or our water theme.”
CEOCFO: What is the
financial picture of the company?
Mr. McCartney: “Watts is financially a very strong
company. Even after an acquisition program in 2005, the balance sheet is still very
conservatively capitalized, with terrific coverage on our debt to EBITDA ratio. We are
well positioned in our market; we have had a good year of organic growth as well as
acquired growth. Europe, which represents one third of our business, experienced a
difficult year because of their slow economy. We have increased some of our input costs as
well, but despite those pressures, we still had very good performance this year.”
CEOCFO: Are there
particular geographic areas where you would like to become active?
Mr. McCartney: “Right now, our focus is on emerging
markets in China and Eastern Europe. We have done some acquisitions recently to support
growth in those areas as well as added distribution capabilities. We are focusing on the
municipal markets in China, which is a rapidly growing market in our industry, as well as
geo-thermal and heating products in Europe. That is our immediate focus. Long-term, there
are some markets where we do not have a presence, which we will address, such as South
America.”
CEOCFO: Is your 100 year
history meaningful in the marketplace?
Mr. McCartney: “I think being a company that is over 100
years old is meaningful because it shows the great stability that we have in our business
model. It also is important in that we have a large installed base of product because we
have been in business for such a long time. Approximately 40% of our revenue has been
generated by replacing that installed base each year.”
CEOCFO: Does the
investment community recognize the value of Watts Water Technologies?
Mr. McCartney: “They are becoming more aware of us over
time. Just recently, we achieved a $1 billion market capitalization level. We are quickly
approaching a billion dollars in revenue. With the improved financial performance that we
have achieved, as well as the appreciation of the stock price in these new levels of
market cap, more investors are becoming aware of us. We still have an active investor
relations program because we feel there are still investors that need to hear the
story.”
CEOCFO: In closing, why
is it a good time for potential investors to be interested? What is often
overlooked?
Mr. McCartney: “I think that any potential investor
should look to the history of what we have accomplished over the last several years, and
consider that history in conjunction with the position the company has in the markets it
serves. Those two factors combined will show tremendous potential for the future, in my
opinion. We have a strong foothold in emerging markets of China and Eastern Europe. We are
a leader in our field in water quality products. An investor should consider the stability
that the water market in general presents. Water itself is becoming more precious over
time as the cost of water increases. The supply of water is not increasing. All of these
factors present a very stable marketplace for water at the next five or ten years at a
minimum. We think that our technology, brand name, our market position and the strength of
our balance sheet make us a good long-term investment.”
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