JP Morgan High Yield Conference

Transcription

1 JP Morgan High Yield Conference Kevin Burns, SVP Investor Relations and Treasurer February 25, 2019

2 SAFE HARBOR STATEMENT AND NON-GAAP FINANCIAL MEASURES Safe Harbor Statement The statements in this release other than historical facts are forward-looking statements made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of These forward-looking statements are subject to a number of factors that could cause our actual results to differ materially from what is indicated here. These factors include but are not limited to general economic conditions, the level of customer demand particularly for capital projects in the markets we serve, changes in supplier relationships or in supplier sales strategies or financial viability, risks associated with the sale of nonconforming products and services, political, economic or currency risks related to foreign operations, inventory obsolescence, copper price fluctuations, customer viability, risks associated with accounts receivable, the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, information security risks, risks associated with substantial debt and restrictions contained in financial and operating covenants in our debt agreements, the impact and the uncertainty concerning the timing and terms of the withdrawal by the United Kingdom from the European Union, and risks associated with integration of acquired companies, including, but not limited to, the risk that the acquisitions may not provide us with the synergies or other benefits that were anticipated. These uncertainties may cause our actual results to be materially different than those expressed in any forward looking statements. We do not undertake to update any forward looking statements. Please see our Securities and Exchange Commission ( SEC ) filings for more information. Non-GAAP Financial Measures In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ( GAAP ) above, this presentation includes certain financial measures computed using non- GAAP components as defined by the SEC. Specifically, net sales comparisons to the prior corresponding period, both worldwide and in relevant segments, are discussed in this presentation both on a U.S. GAAP and non-gaap basis. We believe that by providing non-gaap organic growth, which adjusts for the impact of acquisitions (when applicable), foreign exchange fluctuations, copper prices and the number of billing days, both management and investors are provided with meaningful supplemental sales information to understand and analyze our underlying trends and other aspects of our financial performance. Historically and from time to time, we may also exclude other items from reported financial results (e.g., impairment charges, inventory adjustments, restructuring charges, tax items, currency devaluations, pension settlements, etc.) in presenting adjusted operating expense, adjusted operating income, adjusted income taxes and adjusted net income so that both management and financial statement users can use these non-gaap financial measures to better understand and evaluate our performance period over period and to analyze the underlying trends of our business. We have also excluded amortization of intangible assets associated with purchase accounting from acquisitions from the adjusted amounts for comparison of the non-gaap financial measures period over period. EBITDA is defined as net income from continuing operations before interest, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before foreign exchange and other non-operating expense and non-cash stock-based compensation, excluding the other items from reported financial results, as defined above. Adjusted EBITDA leverage is defined as the percentage change in Adjusted EBITDA divided by the percentage change in net sales. We believe that adjusted operating income, EBITDA, Adjusted EBITDA, and Adjusted EBITDA leverage provide relevant and useful information, which is widely used by analysts, investors and competitors in our industry as well as by our management in assessing both consolidated and business segment performance. Adjusted operating income provides an understanding of the results from the primary operations of our business by excluding the effects of certain items that do not reflect the ordinary earnings of our operations. We use adjusted operating income to evaluate our period-over-period operating performance because we believe this provides a more comparable measure of our continuing business excluding certain items that are not reflective of expected ongoing operations. This measure may be useful to an investor in evaluating the underlying performance of our business. EBITDA provides us with an understanding of earnings before the impact of investing and financing charges and income taxes. Adjusted EBITDA further excludes the effects of foreign exchange and other non-cash stock-based compensation, and certain items that do not reflect the ordinary earnings of our operations and that are also excluded for purposes of calculating adjusted net income, adjusted earnings per share and adjusted operating income. EBITDA and Adjusted EBITDA are used by our management for various purposes including as measures of performance of our operating entities and as a basis for strategic planning and forecasting. Adjusted EBITDA and Adjusted EBITDA leverage may be useful to an investor because this measure is widely used to evaluate a company s operating performance without regard to items excluded from the calculation of such measure, which can vary substantially from company to company depending on the accounting methods, book value of assets, capital structure and the method by which the assets were acquired, among other factors. They are not, however, intended as an alternative measure of operating results or cash flow from operations as determined in accordance with U.S. GAAP. Non-GAAP financial measures provide insight into selected financial information and should be evaluated in the context in which they are presented. These non-gaap financial measures have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-gaap financial measures as reported by us may not be comparable to similarly titled amounts reported by other companies. The non-gaap financial measures should be considered in conjunction with the Condensed Consolidated Financial Statements, including the related notes, and Management s Discussion and Analysis of Financial Condition and Results of Operations included in this presentation. Management does not use these non-gaap financial measures for any purpose other than the reasons stated above. 2

3 TABLE OF CONTENTS 1 23 Business Overview Key Priorities Financial Profile 4 Invest in Anixter 3

4 BUSINESS OVERVIEW

5 ANIXTER AT A GLANCE 2018 Sales by Segment Key Metrics 2018 Sales $8.4B Adjusted EBITDA $411M Adjusted EBITDA margin 4.9% Debt/Adjusted EBITDA 3.0x Debt/Total Cap 44.4% 2018 Sales by Geography Fitch Moody s S&P BBB- Ba3 BB NYSE Ticker AXE 5

6 OUR STRATEGIC ACTIONS ADDED $1.8 BILLION TO OUR SALES RUN RATE Proforma Sales Bridge $Billions +$2.2 $8.4 $ $7.9 $0.1 $7.7 $7.6 $0.3 $0.2 ($0.1) $6.9 $0.1 $2.0 $6.2 $0.6 ($0.9) Organic Growth Acquisition Revenues Divestiture Tri-Ed 2015 Fasteners 2015 Power Solutions 2015 Net impact CSD Inner Range Atlas Gentech 6

7 FINANCIAL PERFORMANCE Sales ($B) Adjusted EBITDA ($M) Adjusted ROTC 11% CAGR 3% CAGR +140 bps $8.4 $ % 23.9% $5.5 $ Note: As reported, non-gaap results 7

8 LEADING POSITIONS IN ATTRACTIVE BUSINESSES Network & Security Solutions (NSS) Electrical & Electronic Solutions (EES) Utility Power Solutions (UPS) Leading Market Positions Global #1 Global Top 3 North America #1 Total Addressable Market (TAM) ~$55B ~$450B ~$31B Expected Market Growth CAGR 3-4% 2-3% ~4% Markets are Highly Fragmented ~7% Share <1% Share <4% Share 8

9 BROAD AND DIVERSE CUSTOMER ACCESS PROVIDES GROWTH OPPORTUNITIES AND MINIMIZES EXPOSURE AND RISK NSS EES UPS Customers Channels Data Contractors Network Integrators Pro A/V Contractors Security Dealers Security Integrators Wireless Integrators Service Providers Customer Verticals Architects/Consultants Data Centers Education Financial Services Healthcare Stadiums State and Federal Gov. Retail Technology Channels Electrical Contractors EPCs Panel Builders Harness Assemblers Customer Verticals Alternative Energy Data Centers Food and Beverage Industrial Automation Industrial Manufacturing Lighting Manufacturing Marine/Shipbuilding Material Handling Mining Municipalities Oil, Gas and Petrochemical Original Equipment Manufacturers Transportation Water/Waste Treatment Customer Verticals Investor Owned Utilities Public Power Utilities Channels Utility Co-ops Generation & Transmission Cooperatives Utility Contractors Technology is Blurring the Lines Across Segments 9

10 OUR PRODUCTS ARE CRITICAL PARTS OF A CONNECTED, CONTROLLED AND POWERED INFRASTRUCTURE NSS EES UPS Infrastructure Video surveillance Access control Fire/intrusion Data centers Power Wireless Professional A/V Electrical/electronic wire and cable Gear, controls, transformers, power generation Industrial automation products Indoor/outdoor lighting Support and supplies Generation, transmission and distribution MRO supplies Smart grid infrastructure Outdoor lighting Security 10

11 STRONG, DIVERSE AND GLOBAL SUPPLIERS AND CUSTOMERS Suppliers Customers 11

12 PIVOT AND SHIFT INTO HIGHER GROWTH OPPORTUNITIES NSS EES UPS Emerging technologies 5G IoT Global and complex customers Smart Building (Inner Range) Security and Professional A/V Wireless Power OEM Marine Oil and gas Transit Harness assemblers and panel shops Industrial Global EPCs Datacenter Renewable Energy Industrial infrastructure Mining Public power customers Electrical grid upgrade Smart meters Storm-hardening efforts Natural disasters Hurricane rebuild Wildfire rebuild 12

13 EMERGING TECHNOLOGIES ARE GROWTH DRIVERS FOR THE BUSINESS 13

14 DIFFERENTIATORS PROVIDE COMPETITIVE ADVANTAGE AND BARRIERS TO ENTRY Global Capabilities with Local Presence Reducing Costs, Risks and Complexities through our Services Technical Expertise International Deployment Experts Local Teams Global Support Deployments Services Product Enhancement Services Sourcing Inventory Management Product Enhancement and Packaging Global Logistics E-Commerce World class demonstration facilities Expertise in emerging technologies Application engineering and compliance Metering labs for power utilities Infrastructure Solutions Lab SM and Solutions Briefing Centers 14

15 UNMATCHED GLOBAL CAPABILITIES WITH LOCAL PRESENCE 3,600+ Technical Sales Specialists, Multi-Level Technical Support ~50 Countries 35+ Currencies 20+ Languages 316 Warehouses and Branches Worldwide 130,000+ Customers $1.0 Billion+ Inventory 600,000+ Products 15

16 Our Vision Anixter is a Services Company that Does Exceptional Distribution 16

17 REDUCING RISKS AND COMPLEXITIES THROUGH OUR SERVICES Installation Enhancement Services Project Deployment Services Supply Chain Programs Enhancing products through services to reduce the total cost of installation for our customers Saving time, reducing costs, mitigating risk and increasing efficiencies through services for multifaceted projects Optimizing operational efficiencies through an integrated supply chain model 17

18 EXAMPLES OF OUR SERVICES THAT HELP LOWER COST, COMPLEXITY AND RISK IN OUR CUSTOMERS SUPPLY CHAINS Sourcing Inventory Management Product Enhancement and Packaging Global Logistics E-commerce Source-proven, qualitycontrolled products Manage manufacturer relationships and contracts Access competitive pricing and product standardization Reduce non-contract buying Inventory management software Decrease write-offs from scrap, overruns and obsolescence Reduce product shortages Streamline warehouse investment Provision inventory IP addressing Cable bundling Cable labeling Cutting to length Kitting and custom packaging Pre-assembly/subassembly Last- mile delivery Import / export documentation preparation B2B integration (EDI, JIT, ERP) E-procurement Punchout catalog Anixter.com (B2B) eanixter.com (contract) Electronic invoices and payments Automated order confirmation and shipment process 18

19 SUPPORTING CUSTOMERS THROUGH UNIQUE AND UNPARALLELED TECHNICAL EXPERTISE Anixter Infrastructure Solutions Lab SM Leadership Roles in Industry Associations Located at our headquarters in Glenview, IL o Proof of concept testing and solutions building o Data infrastructure product testing o Independent testing o Physical security testing o Industrial Communications and Control module Certified by Underwriters Laboratories Equipped to provide virtual tours around the globe Telecommunications Industry Association (TIA) International Organization for Standardization (ISO) Institute of Electrical and Electronics Engineers (IEEE) Open Network Video Interface Forum (ONVIF) Building Industry Consulting Services International (BICSI) Security Industry Association (SIA) Control System Integrators Association (CSIA) National Electrical Manufacturers Association (NEMA) National Association of Electrical Distributors (NAED) Edison Electric Institute (EEI) National Rural Electric Cooperative (NRECA) Solutions Briefing Centers Woburn, MA Indianapolis, IN Atlanta, GA Sao Paulo, Brazil Bracknell, U.K. Data Center and Enterprise Networks Physical Security Building Technologies Gear, Lighting and Controls 19

20 KEY PRIORITIES

21 KEY PRIORITIES FOR ANIXTER Our Focus on the Customer Will Drive Improved Results Enabling Value Creation Customer Access Strategy Commitment to Technology and Innovation Services Profitability Capital Allocation Priorities Enable customers to access all solutions and expertise through existing selling organization Enable customers to connect with Anixter through channels they choose Specialists in highly technical solutions and new innovative technologies Innovation and business transformation will provide customers with state-of-the-art electronic business platform, support growth in the business and create operating efficiencies Installation enhancement services Project deployment services Supply chain programs Above-market sales growth Increase gross margin Deliver operating expense leverage Strong Adjusted EBITDA and consistent long-term performance Organic growth M&A with strategic benefit that meets financial and risk criteria Opportunistic return to shareholders 21

22 FINANCIAL PROFILE

23 THREE LEVERS TO TRANSFORM PROFITABILITY Above-market Growth Gross Margin Improvement Operating Expense Leverage Leverage customer access strategy Pivot and shift to growth markets Increase global and complex services revenue streams Relentless focus and training Price optimization tools Maximize vendor rebates Leverage fixed cost base Tools/technology to drive sales productivity Warehouse network optimization Gross Margin Improvement Funds Innovation and Business Transformation while Enabling Operating Expense Leverage 23

24 COUNTER-CYCLICAL FREE CASH FLOW PROVIDES FINANCIAL FLEXIBILITY ($ in millions) Free cash flow: Defined as net cash provided by operating activities less capital expenditures. Free cash flow is not restated for acquisitions and divestitures Generate Strong Free Cash Flow Throughout the Economic Cycle 24

25 STRATEGIC LEVERAGE TARGETS Target range: 2.5x - 3.0x Target range: 45% - 50% 25

26 CONSERVATIVE FINANCIAL POLICY WITH A PRUDENT APPROACH TO CAPITAL ALLOCATION Strong free cash flow allows Anixter to maintain a conservative leverage profile and ample liquidity throughout the business cycle Periods of acquisitions are immediately followed up by periods of debt reduction 100% CapEx Share Repurchases Total Dividends Acquisitions Debt Reduction Operating Cash Flow $1 $36 $55 80% $180 $82 $152 60% $272 $111 $151 $418 $823 $267 $133 $150 40% 20% 0% $108 $166 $105 $41 $59 $35 $5 $41 $42 $32 $22 $20 $26 $34 $32 $40 $27 $ Capital Allocation Priorities are Organic Growth, M&A and Opportunistic Return to Shareholders 26

27 DEBT MATURITY PROFILE DECEMBER 28, 2018 $1, % Senior Notes due 2023 Undrawn Other Facilities 5.125% Senior Notes due % Senior Notes due 2025 Undrawn CAD Revolver Undrawn Inventory Revolver Undrawn A/R Revolver $600MM A/R Revolver $350.0 $750 $133.2 $500 $321.9 $250 $0 $400.0 $260.0 $250.0 $107.6 $ *Current borrowing base on A/R Revolver is $600.0 million **Undrawn facilities are shown net of Letters of Credit that are backed by the respective revolvers and facilities ***Borrowings do not include $6.1 Million of CALA debt which is backed by Letters of Credit. 27

28 2019 FINANCIAL GOALS 2019 Financial Goals Above-market Sales Growth Increase Gross Margin Improve Profitability Generate Strong Cash Flow and Maintain Financial Flexibility bps outperformance 3% 6% organic growth (based on current environment) bps improvement 1.25x x Adjusted EBITDA leverage ~5.0% Adjusted EBITDA margin Working capital ~ 18% of sales Debt-to-adjusted EBITDA 2.5x - 3.0x Debt-to-capital 45% - 50% 2019 Segment Adjusted EBITDA Goals NSS Adjusted EBITDA 7.0% - 7.5% EES Adjusted EBITDA 6.5% - 7.0% UPS Adjusted EBITDA 5.5% - 6.0% 28

29 LONG TERM FINANCIAL GOALS Long Term Financial Outlook Organic Sales Growth 3% - 5% Adjusted EBITDA Margin >6.0% Adjusted EBITDA Leverage ~1.5X Working Capital as a % of Sales <18% Debt / Adjusted EBITDA 2.5x - 3.0x Debt-to-total Capital 45% - 50% 29

30 INVEST IN ANIXTER

31 INVEST IN ANIXTER 1. Positioned for sustainable growth Leading positions in large, growing, fragmented businesses Diverse solutions across converging businesses Balanced sector approach provides growth opportunities while minimizing exposure and risk 2. Differentiators provide competitive advantage and barriers to entry Global capabilities with local presence Technical expertise Customized and scalable supply chain solutions 3. Culture of ethics and integrity The Blue Book guides our philosophy, culture and business style 4. Financial strength and capital efficiency Strong free cash flow generation through the economic cycle 5. Innovation and Business Transformation To drive strong financial performance and shareholder value creation 31

32 THANK YOU