Revolutionizing the HVAC/R Marketplace. February 2009

Transcription

1 Revolutionizing the HVAC/R Marketplace February 2009

2 Safe Harbour Statement This presentation contains or incorporates by reference statements that are not historical in nature and that are intended to be, and are hereby identified as, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding, among other items, (i) business and acquisition strategies, (ii) potential acquisitions, (iii) financing plans and (iv) industry, demographic and other trends affecting our financial condition or results of operations. These forward-looking statements are based largely on management s current expectations and are subject to a number of risks, uncertainties and changes in circumstances, certain of which are beyond their control. Actual results could differ materially from these forward-looking statements as a result of several factors, including: general economic conditions affecting general business spending, consumer spending, consumer debt levels, seasonal nature of product sales, weather conditions, effects of supplier concentration, competitive factors within the HVAC/R industry, insurance coverage risks, prevailing interest rates, and the continued viability of our business strategy. In light of these uncertainties, there can be no assurance that the forward-looking information contained herein will be realized or, even if substantially realized, that the information will have the expected consequences or effects on Watsco or its business or operations. A discussion of certain of these risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements is included d in 10-K Report for the fiscal year ended d December 31, 2007 in the section captioned Management s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements speak only as of the date the statement was made. Watsco assumes no obligation to update forward-looking information or the discussion of such risks and uncertainties to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. 2

3 Watsco, Inc. Company Overview Largest independent heating, air conditioning and refrigeration ( HVAC/R ) distributor in the US Revenues of $1.7 billion in locations in 34 states 40,000 contractor customers Founded in 1947 as a manufacturer Distribution began in 1989 Estimated t $26 billion market (US HVAC/R industry) Over 1,300 independents Few large players Add-on / replacement market focus New construction about 15-20% Buy & Build growth strategy Successfully acquired 53 HVAC/R distribution businesses since 1989 Key Investment Highlights Market leader in large, growing industry 8% market share Significant barriers to entry No do-it-yourself retailers Significant upfront investment needed Sticky customer base Independents mostly original owners (selective exit strategy) OEM approval needed (limited exit strategy) Large, recurring revenue base Proven track record 10 year revenue CAGR +5% 10 year EPS CAGR +10% Cash flow exceeding net income Long-term focus on shareholder return via dividends & share repurchases Dividend CAGR +40% since 2000 Repurchased more than 6 million shares Insider/employee ownership (25%) Well capitalized to execute growth initiativesiti 3

4 HVAC/R Industry Participants Watsco plays a key roll in the HVAC/R supply chain Manufacturers $20bn market 7 major OEMs 1,000+ others 50,000+ SKUs Distribution $26bn market Few large players Independent and factory-owned networks Fragmented industry with over 1,000 independents Contractors $65bn market Over 100,000 licensed contractors t Primary decision makers in the home being the largest independent distributor in the US with 8% market share 4

5 Industry Profile HVAC/R spending in the US is no longer a luxury OEM Shipments of Unitary A/C & Hea at Pumps (m) Historical Market Growth (OEM Shipments) CAGR: New Housing -1.4% Replacement 4.2% Total 2.8% Key Drivers for Future Growth Over 100 million existing homes have central air conditioning / heating Aging of the installed base of residential central air conditioners and furnaces Introduction of new higher energy efficient models Addition of central air conditioning to homes that previously had only heating products Consumers overall unwillingness to live without air conditioning or heating products New Housing Replacement Note: Above figures include 1-5 ton split system units 1 Includes unusual shipment activity related to 10/13 SEER transition Source: Air Conditioning and Refrigeration Institute ( AHRI ) securing demand for products over varying economic cycles 5

6 Watsco s Product Mix Watsco s subsidiaries offer a comprehensive range of products to cater to contractor s daily needs Other A/C equipment &f furnaces 16% 2008 Product Mix Parts & controls 12% Air movement & ventilation 12% Commercial refrigeration fi 13% Metal products 11% Air conditioning and heating equipment 44% of revenues 20 brands, 6 equipment OEMs Parts and supplies 43% of revenues Sourced from over 600 vendors Commercial refrigeration expanding Began in 1997, now 13% of sales Unitary A/C equipment 28% Tools & other 8% 6

7 Locations Penetration in existing markets is key component in serving contractors Watsco s Current Footprint Location Density 5 Largest Markets Next largest independent Largest factory network Watsco Texas Florida California Georgia Carolinas Total locations in 34 states 90% of Watsco s revenues in US Sunbelt Air conditioning an absolute necessity Population migration / growth Replaced more often from wear & tear More dependable weather patterns Replacement e market demands: ds Dense market coverage Local relationships Immediate availability Broad product offering 7

8 Emphasis on Customer Service Product Convenient location network Immediate availability Competitive price & efficiency One-stop for equipment, parts & supplies Market development Contractor credit Advertising & marketing Consumer financing & warranties Technical expertise Replacement solutions Diagnostic & installation help EPA certification Building & zoning requirements Decentralized Structure to Serve Customers Customers / Contractors (40,000) Warehouse / Drivers / Support (1,575) Counter Sales (1,000) Outside Sales (500) Branch & Regional Managers & Support (500) Training Business Unit Business & selling skills Presidents (9) Installing & servicing what we sell New product launch Corporate (20) 8

9 Strategy for Acquisition Growth Buy & Build The HVAC/R distribution market is highly fragmented with only a handful of players with meaningful size Acquire strong, established businesses Both in current footprint and in new markets 269 locations acquired, 101 tuck-ins and 64 greenfield Honor heritage and legacy Generate additional revenues by introducing additional products Leverage Watsco s deep relationship with vendors Execute SG&A best practices among subsidiaries Multi-brand equipment offering Private labels Improve operating margins Decentralized management structure Allows for continued relationship with customer base Watsco has successfully acquired 53 HVAC/R distribution businesses since

10 Opportunity to Increase Market Share There are significant opportunities for Watsco to increase its presence in both existing and new markets Estimated Market Size ($m) State Locations Mkt Share$0 $250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 $2,750 $3,000 Texas 76 Texas 8% Florida 83Florida 25% California California 41 9% Georgia 38Georgia 11% N. Carolina North 27 Carolina 15% Illinois 1 Illinois 0% Arizona 8Arizona 4% Ohio Ohio Virginia 11Virginia 8% Maryland Maryland 1 1% Penn. Pennsylvania New York New 2 York 1% Missouri 8Missouri 6% N. Jersey New 1 Jersey 1% Tennessee Tennessee 19 18% Michigan Michigan Alabama Alabama 9 8% Indiana Indiana Arkansas Arkansas 5 4% Louisiana Louisiana 15 9% Utah Utah S. Carolina South 23 Carolina 21% Kansas 6Kansas 11% Wisconsin Wisconsin Oregon Oregon Minnesota Minnesota Watsco Source: ARI and Company estimates $0 $250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 $2,750 $3,000 Others 10

11 2008 Profit Assurance Initiative Watsco has improved operating profit by approximately $30 million in 2008 Gross Profit Enhancements Examine customer buying habits / pricing / systematic change Vendor deals More private label products Reduce freight costs Inventory management initiatives Charge for value-added services SG&A Improvements Fit manpower Facilities rationalization Integrating locations Integration Identifying excess capacity Close underperforming locations Tougher discretion over discretionary costs Transfer fixed cost base to variable where possible 2009: Additional initiatives given revenue environment and expects an additional $8 million in the first half of

12 Financial Performance 12

13 Revenue Growth and Cash Flow Generation Revenue Operating Income 2.0 CAGR +4.0% CAGR +11.0% $bn) ( ($m)

14 Margin Analysis Gross Margin Operating Margin 26.5% Change +259bps 26.0% 25.5% 25.0% 24.5% 24.4% 24.1% 24.8% 25.8% 25.8% 25.2% 25.4% 26.0% 9.0% Change +235bps 8.0% 7.6% 71% 7.1% 7.0% 6.5% 6.3% 5.8% 6.0% 5.2% 5.0% 4.2% 4.6% 24.0% 4.0% 3.4% 23.4% 23.5% 3.0% 23.0% 22.5% 22.0% 2.0% 10% 1.0% 0.0%

15 Per Share Analysis Earnings per Share Dividends per Share 3.50 CAGR +17.0% CAGR +43.0% ($) ($)

16 A/R Management Days Sales Outstanding Note: 1: Adjusted to include full year sales for ACR Group 4.0% 3.5% 30% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% A/R: > 90 Days Past Due 3.7% 3.4% 2.3% 2.1% 1.5% 1.2% Bad Debt Expense as % of Sales 0.35% 0.30% 025% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% 0.30% 0.20% 022% 0.22% 0.18% 0.12% 0.11%

17 Cash Flow Evolution Cumulative Figures ( ) Operating Cash Flow $610m ($m) Net Income $439m Acquisitions 200 $193m Dividends $153m 100 Repurchases $100m CapEx 0 $39m

18 Investment Highlights Market leader in large, growing industry 8% market share Significant barriers to entry No do-it-yourself retailers Significant upfront investment needed Sticky customer base Independents mostly original owners (selective exit strategy) OEM approval needed (limited exit strategy) Large, recurring revenue base Proven track record 10 year revenue CAGR +5% 10 year EPS CAGR +10% Cash flow exceeding net income Long-term focus on shareholder return via dividends & share repurchases Dividend CAGR +40% since 2000 Repurchased more than 6 million shares Insider/employee ownership (25%) Well capitalized to execute growth initiatives 18

19 Revolutionizing the HVAC Marketplace