Superior Essex Investor Relations Update. Second Quarter 2007

Transcription

1 Superior Essex Investor Relations Update Second Quarter 2007

2 Statements regarding forward-looking information and non-gaap financial information This document contains forward-looking statements that involve a number of risks and uncertainties. Actual results may vary significantly based on a number of factors, including, but not limited to, general economic, business and industry trends and conditions; fluctuations in the availability and cost of copper and other principal raw materials (including the working capital impact of such fluctuations and our ability to recover such costs) as well as natural gas and freight; changes in spending patterns by the telephone industry; changes in the rate of decline in access lines to homes and businesses; the migration of magnet wire demand to China; intense competition from other manufacturers and from alternative technologies such as fiber optics, wireless and VoIP; losses or gains in sales as customer contracts expire or are renewed or rebid; volume and timing of customer orders; rapid product and technology development; market acceptance of new products and continuing product demand for existing products; significant changes in the amount of our indebtedness; our ability to operate within the framework of our revolving credit facility and senior notes; our ability to complete announced acquisitions, integrate these operations and achieve anticipated benefits; our ability to identify, finance and integrate other acquisitions; our ability to successfully operate and expand our magnet wire facility in China; changes in short-term interest rates and foreign exchange rates; any deterioration in our labor relations; and other risk factors detailed in Superior Essex's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the year ended December 31, 2006 and Quarterly Reports on Form 10-Q, all of which we incorporate by reference herein. Forward-looking statements are only as of the date they are made, and we do not undertake to update these statements to reflect subsequent changes except as required by federal securities law. Financial Measures and Key Operating Metrics: General: We use certain operating and financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America, or GAAP. A non-gaap financial measure is defined as a numerical measure of a company's financial performance, financial position or cash flows that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented. These non-gaap operating and financial measures are described below. Copper- Adjusted Revenues: Due to the impact of differing copper values on revenues in the reported periods, the Company is providing supplemental, non-gaap sales comparisons at a constant value of copper ("copper adjusted revenues ) to aid in analyzing period-to-period net sales. Presentation of net sales herein for 2007 and 2006 are adjusted to a $3.00/lb COMEX value (or the equivalent /kg LME value for our European operations). In prior year presentations, copper adjusted revenues were previously reflected at $2.00/lb COMEX value. Copper adjusted increase in revenues or net sales is calculated after adjusting net sales in both periods to a constant copper value of $3.00/lb COMEX. Sales adjusted for a constant value of copper as used by us may not be comparable to similarly titled measures of other companies. Core Business Revenues: Core Businesses consist of the Company s Communications Cable business segment, its North American Magnet Wire and Distribution business segment, and its European Magnet Wire and Distribution business segment. EBITDA: Earnings before interest, taxes, depreciation and amortization, or "EBITDA", is a performance metric which we use and which is used by other companies. "EBITDA" as used by the Company (defined as earnings before interest, taxes, depreciation, amortization, minority interest and certain other non-operating items) may not be comparable to a similarly titled measure of another company. Adjusted EBITDA and Adjusted EPS: The Company uses the terms Adjusted EBITDA and Adjusted earnings per share (or Adjusted EPS ). Adjusted EBITDA is defined as EBITDA excluding the impact of special items (before tax). Adjusted EPS is defined as earnings per diluted share excluding the after-tax, after minority interest impact of special items. These items may not be comparable to a similarly titled measure of another company. Special items are detailed in the financial tables accompanying this release. Comparisons to GAAP: Management believes that EBITDA, Adjusted EBITDA, Adjusted EPS and copper-adjusted revenues are useful adjuncts to net income (loss) and other measurements under GAAP. The Company believes these measures are useful in analyzing the underlying operating performance of the Company s business because they provide a measure of the cash-generating nature of the ongoing operations by removing non-cash items which are not directly relevant to the efficiency of operations. Adjusted EBITDA and Adjusted EPS are also used to evaluate performance for certain executive compensation items. We have included a reconciliation of EBITDA, Adjusted EBITDA and Adjusted EPS to net income, the most directly comparable GAAP financial measure. EBITDA, Adjusted EBITDA and Adjusted EPS are supplements to GAAP financial information and should not be considered an alternative to, or more meaningful than, net income or operating income as determined in accordance with GAAP. EBITDA and Adjusted EBITDA have distinct limitations as compared to GAAP information such as net income or operating income. By excluding interest and income taxes for example, it may not be apparent that both represent a reduction in cash available to the Company. Likewise, depreciation and amortization, while non-cash items, represent generally the utilization of assets that produce revenue for the Company. By excluding certain special items, it may not be apparent that these costs represent a reduction in cash available to the Company. Management compensates for these limitations by using the GAAP results in conjunction with these other measures. Adjusted EPS has distinct limitations as compared to GAAP information such as net income or earnings per share. By excluding certain special items, it may not be apparent that these costs represent a reduction in cash available to the Company. Management compensates for these limitations by using the GAAP results in conjunction with adjusted EPS. Copper-adjusted revenues has distinct limitations as compared to GAAP net sales. By copper-adjusting net sales, in a declining copper cost environment, it may not be apparent that net sales may be declining on an actual basis. Management compensates for these limitations by using the GAAP results in conjunction with copper-adjusted revenues. Core Business revenues has distinct limitations as compared to GAAP net sales. By limiting net sales to Core Businesses, the revenues of the omitted segment, copper rod, may not be apparent. Management compensates for these limitations by using the GAAP results in conjunction with Core Business revenues. 2

3 Superior Essex A global leader in Magnet Wire and Communications Cables Who we are: a $3B market leader in Magnet Wire and Communications Cable with more than 4,500 global employees What we do: manufacture the wire and cable that powers motors, transformers and generators, and transmits voice, data and video Where we are located: 26 manufacturing facilities in nine countries Global Reach Core Business Sales by Region (1) Superior Essex Magnet Wire & Distribution Communications Cable Europe 32% North America 68% North America Europe Asia/Pacific (1) Pro forma for 2007 acquisitions; Asia/Pacific business currently reports up through North America 3

4 Successful Track Record Proven ability to execute our plans and deliver profitable growth $3.0B $3.5B (1) $1.0B $1.4B $1.8B 2003 Successful financial restructuring; improved balance sheet, reduced leverage, positioned for future growth 2004 Improved efficiencies, margins and industry dynamics via Belden NA and Nexans U.S. acquisitions 2005 Acquired 60% of Essex Nexans, largest magnet wire producer in Europe; began China Greenfield magnet wire expansion 2006 Completed China Greenfield magnet wire facility; improved capital structure via $81M public equity offering 2007 Three global magnet wire acquisitions: Nexans in Canada, Nexans in China and Invex in Italy; acquired 100% of Essex Nexans 4 (1) Pro forma 2006 revenues at current copper values of around $3.50 per pound

5 Superior Essex ~$3 billion in revenues in Sales by Segment Copper Rod 15% European Magnet Wire 22% Comm Cable 28% North American Magnet Wire 35% Magnet Wire Insulated copper conductor Used in motors, transformers, power generators Creates electromagnetic field when wound into coil and energized Global industry leader NA share ~39%; Euro share ~28% Customers: major OEMs, specialized manufacturers and distributors Communications Cable Two main product segments Outside plant (OSP) copper, fiber optic, composite Premises (LAN/WAN) copper, fiber optic NA industry leader OSP copper share ~70%; total share ~25% Customers: RBOCs, distributors, regional telcos 5 Source: Company estimates using CRU and publicly available competitor data

6 Magnet Wire and Distribution

7 Recent Magnet Wire Expansion Combined revenue addition of $450 million annually Nexans in Canada Acquired on April 27, 2007 Purchase price for inventory and PP&E of about $13M in cash Revenues of $110M in FY 06 Around 30M pounds of production Nexans in China Acquired on July 26, 2007 Purchase price of around $10M in cash Plus $8M in net debt Revenues of $40M in FY 06 Around 13M pounds of production Produce CTC, which is used in high performance power generators and transformers Invex in Italy Acquired on July 31, 2007 Purchase price around $41M in cash Revenues of $285M in FY 06 Around 104M pounds of production Essex Nexans joint venture Completed buyout of Nexans 40% equity position on June 27, 2007 Purchase price just under $30M in cash Own 100% of European magnet wire operations Combine to provide annual European revenues of ~$1B 7

8 North American Magnet Wire Key component in all electrical motor production Product Used in industrial motors, power transformers/generators, motor repair, auto applications, electrical coils/controls and appliances Customers Emerson, Regal Beloit, A.O. Smith, Cooper, Howard Drivers/Strengths One of two major NA producers Nexans Canada acquisition strengthens position in growing energy segments Expandable Mexican production Results 2Q 07 revenue of $296M Natl. distribution channel Vertically integrated cost base with internal rod, enamel supply Industry leader in quality 1% copper-adjusted increase vs. 2Q 06 Includes incremental revenues from Nexans Canada acquisition, offset by continued weakness in appliance, HVAC and other markets tied to residential construction Other 8% Market Share Rea 40% End Markets Power Generation 30% Auto 9% Others 21% Superior Essex 39% Appliance 11% Refrigeration, Pumps, HVAC 29% Electrical Motors 53% Industrial 13% Source: Company estimates using CRU and publicly available competitor data 8

9 European Magnet Wire Benefiting from improving industry and economy Production Eight facilities in Germany, France, the U.K., Portugal and Italy Customers Danfoss, Emerson, Grundfos, Valeo and Wilo Drivers/Strengths Formed in 10/05 as JV with Nexans; completed buyout from Nexans in 6/07 for 100% ownership Product breadth Vertical enamel integration Leader in self-bonding wire Results 2Q 07 revenue of $176M Contributed to industry consolidation via acquisition of Invex, which should lead to further economies of scale and strengthen position in growing energy segment Acebsa 6% 2% copper-adjusted decline vs. 2Q 06 Due to planned 07 rationalization of substandard customers Market Share Others 34% Schwering 9% Appliances 18% Pumps, HVAC 8% Industrial 18% IRCE 11% Essex 28% End Markets Electrical Motors 44% Auto 14% Other 18% Power Generation 24% Elektro- Koppar 12% Source: Company estimates using CRU and publicly available competitor data 9

10 China Magnet Wire World s largest and fastest-growing magnet wire market Market Establishing presence in 1.7B lb Chinese market Suzhou Greenfield Expansion Phase I completed in M lbs of capacity or ~$44M (1) in annual revenues CAPEX ~$25M Phase II to be completed in 2007 Total capacity of ~20M lbs or ~$90M (1) in annual revenues CAPEX between $5 to $10M Further expansion potential Tianjin Acquisition Acquired Nexans Chinese magnet wire operations Complementary to Suzhou production Specialize in continuously transposed cable (CTC) for growing energy markets Magnet Wire Consumption Rest of World 68% China 32% Historical/Pro Forma Consumption in B lbs 10% CAGR E 10E10 Source: April 2007 CRU; (1) At copper value of around $3.00/lb

11 Magnet Wire Recent Performance North American and European results Revenues at Constant Copper (1) Adjusted EBITDA (2) $ in millions $996 $80 $916 $1,707 $642 $1,186 $162 $1,024 $1,065 $900 $337 $878 $338 $ in millions $39 $43 $75 $71 $4 $41 $37 $4 $38 $563 $ FY'04 FY'05 FY'06 1H'06 1H'07 FY'04 FY'05 FY'06 1H'06 1H'07 Growth % H 07 NA 12 4 (4) Euro Margin % H 06 1H 07 NA (3) 4.7 (3) 4.8 Euro 3.0 (3) 3.0 (3) 3.7 Transitional copper benefit 11 (1) Constant copper value of $3.00/lb; (2) Before special items; (3) Without transitional copper benefit

12 Communications Cable

13 Communications Cable Maintaining OSP leadership while growing Premises Outside Plant (OSP) Used in voice, video and data transmission Transmits phone, internet, video on demand, other communications services Customers include major telcos (RBOCs, Embarq (1) ), distributors (Anixter, Graybar, etc.) and 1,200 smaller, independent telcos Substantial margin improvement Industry consolidation in OSP copper in 2004 Customer long-term contract renegotiations in 2005 and 2006 Premises Used in LANs/WANs found in offices, universities and hospital complexes/campuses, etc. Connects computers, servers, phones, Wi-Fi and other communications equipment ~11% share of $1.3B market Up from ~3% share in 2003 Double-digit revenue growth in 2004, 2005 and 2006 FY 06 copper-adjusted revenues up 16% vs. FY 05 Margin improvement from product mix enhancement (high performance cables) and favorable industry pricing 13 (1) Formerly Sprint

14 Communications Cable OSP and Premises wire and cable products Drivers/Strengths OSP Copper (1) OSP Preferred brand in NA Large supplier position with RBOCs Low cost producer Scalable factory network General Premises Cable 30% Shared production facilities Product breadth Superior Leader in composite cables Position with majority Essex 70% Strong telco customer relationships of top distributors Results 2Q 07 revenue of $236M Premises Copper (1) 10% copper-adjusted decline vs. 2Q 06 Revenue reduction concentrated in OSP Copper Demand impacted by slowdown in residential construction 11% copper-adjusted growth in Premises vs. 2Q 06 Comm Scope 24% Belden 23% Nexans Berktek 18% Other 12% Superior Essex 11% General Cable 12% Source: Company estimates using CRU and publicly available competitor data; (1) Includes U.S. and Canada 14

15 Communications Recent Performance Benefits of Belden acquisition and industry consolidation Revenues at Constant Copper (1) Adjusted EBITDA (2) $104 $ in millions 600 $792 $922 $868 $489 $449 $ in millions 55 $45 $67 $19 $85 $57 $9 $48 $52 $56 0 FY'04 FY'05 FY'06 1H'06 1H'07-5 ($4) FY'04 FY'05 FY'06 1H'06 1H'07 Growth % H (6) (8) Margin % H 06 1H (3) 9.9 (3) 11.5 (4) Transitional copper price flow-through loss Transitional copper benefit 15 (1) Constant copper value of $3.00/lb; (2) Before special items; (3) Without transitional copper benefit; (4) Includes copper price flow-through loss

16 Financial Results

17 Financial Highlights 1H 07 and FY 06 FY 06: revenues up 64% to $2.9B Core Business revenues increased 22% on a copper-adjusted basis Adjusted earnings per diluted share of $2.88, or $2.17 excluding transitional copper benefit A 109% increase over 2005, or a 57% increase excluding transitional copper benefit Adjusted EBITDA showed similar strong growth Increased 71%, to $159M, or increased 46% to $137M excluding transitional copper benefit Transitional copper benefit of approx. $23M, or $0.71 per diluted share 1H 07: revenues basically flat at $1.5B Core Business revenues decreased 4% on a copper-adjusted basis Adjusted earnings per diluted share of $1.28 1H 06 included $0.44 of transitional copper benefit while 1H 07 included copper price flow-through loss of $0.12 per share and startup losses in China of $0.13 per share Adjusted EBITDA of $80.3M including transitional copper price flow-through loss of $4M Excluding 1H 06 transitional copper benefit, adjusted EBITDA improved 6% vs. 1H 06 17

18 Core Business Revenues (at constant copper value of $3.00/pound) Comm Cable 3000 $2,109 $2,574 $642 NA MWire Euro MWire $ in millions 1500 $1,787 $80 $916 $792 $162 $1,024 $1,065 $922 $868 $1,389 $337 $563 $1,327 $338 $540 0 $489 $449 FY'04 FY'05 FY'06 1H'06 1H'07 Growth Rates H 07 Core Business 18% 22% (4%) Communications 17% (6%) (8%) Magnet Wire & Distribution 19% 44% (2%) 18

19 Consolidated Adjusted EBITDA 180 $160 $23 $156 Core Business Corp/Other Trans. Cu Benefit $ in millions 80 $71 $84 $94 $110 $89 $13 $84 $80 $94 Trans. Cu Price Flow-Through Loss -20 ($13) ($16) ($9) ($10) ($19) FY'04 FY'05 FY'06 1H'06 1H'07 ($4) Growth Rates (at constant copper) w/out Cu 1H 07 w/out Cu Consolidated Adjusted EBITDA 31% 46% 6% 19

20 Adjusted EPS (before special items) $3.20 $2.88 $0.71 $1.50 $1.38 $2.17 $1.83 $0.44 $1.28 Trans. Cu Benefit $0.77 $1.39 $1.40 Trans. Cu Price Flow-Through Loss -$0.20 ($0.12) FY'04 FY'05 FY'06 1H'06 1H'07 20

21 Capital Structure - 6/30/07 Exceptional Financial Flexibility Senior Notes ($252 million) 9.0% interest No principal amortization No financial covenants Due in 2012 $708 million NA Revolver no outstanding balance $59M cash on hand $225 million facility No principal amortization No significant financial covenants Due in 2011 Equity ($391 million) Market cap of ~$770 million Other debt ($65 million) Principally Europe and China financings 21

22 Net Debt and Capital Ratio Trends Net Debt $ in millions $ X $ X $ X $ X $ X Net Debt to Equity 0 Dec. '03 Dec. '04 Dec. '05 Dec. '06 June '07 0 Net Debt Net Debt to Equity 12/31/03 12/31/04 12/31/05 12/31/06 6/30/07 Net debt/ebitda 3.5x 3.8x 3.3x 1.7x 1.7x 22

23 Outlook Third quarter 2007 Outlook does not reflect any recovery or further decline in NA markets Currently anticipating a return to revenue growth and adjusted EPS growth in 2H 07 (as adjusted for copper gains) Revenue Including contribution from recent acquisitions, estimate 3Q 07 Core Business sales growth in range of 10% Adjusted EPS Expect 3Q 07 EPS to increase minimum of 10% to 15% over 3Q 06 coppernormalized adjusted EPS of $0.60 3Q 06 EPS of $0.79 included about $0.19 per share in transitional copper gains 23

24 Value Drivers Long term Continue to reap benefits from Comm Cable s substantial rise in margin Look to North American Magnet Wire for profit margin expansion Include incremental benefits from Nexans Canada magnet wire acquisition, including acquisition synergies Look toward Europe for continuing benefits from a strong economy and from our operational integration and restructuring Include incremental benefits from Invex magnet wire acquisition, including acquisition synergies and improved dynamics from a less fragmented market Expect China Greenfield magnet wire facility to begin contributing to profits during 2008 ($0.13 per share loss from China startup in 1H 07) Recently completed acquisition in Tianjin, China, should further accelerate growth prospects and profit contribution from Asia Pacific region 24