John Engel Chairman, President and CEOwesco.investorroom.com/download/2014... · Outsourcing •...

John Engel Chairman, President and CEO EPG Conference – May 19, 2014

2 EPG Conference 5/19/2014

Safe Harbor Statement Note: All statements made herein that are not historical facts should be considered as “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include, but are not limited to: adverse economic conditions; increase in competition; debt levels, terms, financial market conditions or interest rate fluctuations; risks related to acquisitions, including the integration of EECOL; disruptions in operations or information technology systems; expansion of business activities; litigation, contingencies or claims; product, labor or other cost fluctuations; exchange rate fluctuations; and other factors described in detail in the Form 10-K for WESCO International, Inc. for the year ended December 31, 2013 and any subsequent filings with the Securities & Exchange Commission. Any numerical or other representations in this presentation do not represent guidance by management and should not be construed as such. The following presentation includes a discussion of certain non-GAAP financial measures. Information required by Regulation G with respect to such non-GAAP financial measures can be obtained via WESCO’s website, www.wesco.com.


Vision

Global Leader of Supply Chain Solutions that consistently delivers

superior customer value and shareholder returns

----------------- Known for the best customer service and the best people

Providing customers the products and supply chain

services they need for MRO, OEM, and Capital Projects

Value Proposition

WESCO International

…an industry leader

WESCO is a leading provider of electrical, industrial, and communications MRO and OEM products, construction materials, and advanced supply chain management and logistics services.


Global Reach

…delivering solutions far beyond our physical locations

WESCO locations

Delivery locations beyond our footprint

Headquartered in Pittsburgh, PA | 9,200+ employees | 475+ locations in 19 countries

Over $400M annual sales outside

U.S. and Canada


WESCO Profile

43%

31%

13%

13%

39%

14% 16%

12%

10% 9%

Controls & Motors

Lighting & Controls

General Supplies

Data & Broadband Communications

Wire, Cable & Conduit

Distribution Equipment

Note: Pie charts reflect TTM Q1 2014 consolidated sales.

70%

24%

6%

Geography

ROW

Canada

U.S.

Products & Services Markets & Customers

Utility

CIG

Industrial

Construction

Investor Owned | Public Power Utility Contractors

Commercial | Institutional | Government

Global Accounts | Integrated Supply OEM | General Industrial

Non-Residential | Residential Sales 1994 $1.6B at LBO 2003 $3.3B 2012 $6.6B Q1 TTM $7.5B

…portfolio diversified and strengthened over last decade


Market Opportunity

Large Fragmented Market Value of Distribution

Needs ˗ Procurement ˗ Warehousing ˗ Logistics ˗ Supply Chain

Management

• Industry consolidation • Outsourcing • Global sourcing • Supply chain integrity • Growing interdependence • Financial strength and liquidity

Needs ˗ Sales ˗ Marketing ˗ Delivery ˗ Service

Market Trends Benefit WESCO • Thousands of manufacturers

• Over 10,000 distributors

• Top 50 distributors have less than 30% share in North America

• Majority of products get to market through distribution

…large fragmented market with trends favorable to WESCO


Growth Strategy

• Growth strategy launched 5 years ago

• Strong results delivered − Market position − Global capabilities − Value creation

• Significant organization changes in 2014 − Accelerate One WESCO − Increase investments − Leverage talent

…playing offense, and execution is producing strong results

Build Scale + Strengthen

Portfolio + Operational Excellence

through Lean and One WESCO


Strategic Initiatives

• Integrating all of our efforts around the customer

• Selling our complete portfolio of products and services

• Providing electrical and industrial supply chain solutions for: − MRO indirect materials and

services − OEM direct materials and products − Capital projects, new construction

and retrofit/renovation/upgrades

Supply Chain Management and Solutions Company

…integrating our multi-company heritage into one operating company

WESCO Lean Journey • Enterprise-wide application and results ˗ Focus on sales, operations and transactional

processes ˗ Industry-leading value creation program for

customers • LEAN leadership, culture and certification programs • Dedicated field resources driving increase in kaizens • A distinct, competitive differentiator

Pull system for continuous improvement to drive business results by engaging employees at all

levels to be customer focused, process minded, relentless in waste reduction, and empowered to

lead positive change.

Accelerating Lean inside and outside the company


New Global Sales & Marketing Organization New Organization

• Established January 2014

• One sales and marketing leader across entire enterprise

• Strengthened functions − Global Accounts − Marketing − Supplier Relations

• Established new functions − End market sales leaders − Product category managers − Call centers − e-Commerce − Supply chain services

Strategic Priorities 1. Marketing Leadership

• Demand creation programs • Lead generation and qualification • Dedicated specialists • Digital marketing • Brand management

2. Sales Management • Sales force effectiveness • Targeted selling and specialist

resources • New WESCO CRM platform • Sales training and solution selling • Customer account management and

checkerboard execution

3. Product Category Management • Product additions • Supplier optimization • Pricing and sourcing effectiveness

…focused on accelerating One WESCO


New U.S. Organization New Organization • Established January 2014 • One U.S. leader • Restructured regions • Strengthened business platforms

Strategic Priorities 1. Drive One WESCO growth initiatives 2. Operations integration and branch

network optimization 3. Lean enterprise and supply chain

applications 4. Increase geographic scale and

strengthen core electrical 5. Expand into adjacent industrial

categories 1.3

2.9

5.3

1994 2003 2013 …focused on accelerating One WESCO

Sales ($B)

8% CAGR


Strengthened Canadian Organization Significant Investments Since 2009 • New branches • New distribution centers • Acquisitions

− New end markets − New supplier lines

Strategic Priorities 1. Drive WESCO and EECOL growth

initiatives 2. Lean enterprise and supply chain

applications 3. Integrate acquisitions and build utility

business 4. Integrate Hazmasters and expand safety

…leverages new market leadership positions

0.3 0.5

1.9

1994 2003 2013

10% CAGR

Sales (C$)


Utility

Growth Engines

…support our profitable growth objectives

Construction

Industrial MRO & Safety

International

Communications & Security

Lighting & Sustainability

Acquisitions

End Markets Product Categories

Global Accounts & Integrated Supply

Business Models

Global Accounts Provides comprehensive supply chain solutions to Fortune 1000 and other multi-site companies for their MRO, OEM, and

capital expenditure needs

Integrated Supply Provides turnkey

outsourcing solutions for MRO and OEM

procurement and other supply chain needs

1 2

3

7

4

5

6

8

Key Capabilities

New in 2014


Focus End Markets Utility

Customer supply chain consolidation and outsourcing

Industrial Customer supply chain

consolidation and outsourcing

Construction Contractor expansion and

non-resi recovery

Supply Chain Solutions

MRO Outsourcing

Value Add Parts and Assemblies

EPCs and Large Contractors

End Users and EPCs

Regional and Local Contractors

New Construction and Upgrades

MRO, Construction Projects, Supply Chain Services

Attractive growth across entire power chain

Attractive growth and value creation selling opportunities

Attractive growth for non-residential

…drive our One WESCO priorities and execution

Global Accounts

Integrated Supply

OEM

Capital Projects

Branches and DCs

Global Accounts

Generation

Transmission

Distribution

MRO, Outage Support, Construction Projects


Focus Product Categories

Communications & Security

Anixter WESCO

Graybar

$20B Global Market

Lighting & Sustainability

WESCO Lighting Mix

Industrial

CIG

Utility

Construction

Industrial MRO & Safety

• New growth engine

• Acquired Conney Safety in 2012 and Hazmasters in 2014 ($165 million sales)

• North American Industrial MRO market exceeds $580 billion

~ $750 million WESCO sales ~ $1 billion WESCO sales

…support our One WESCO initiatives


Global Accounts Value Proposition

Integrated Supply

Global Capital Project

Management

Direct Material

Solutions

Industrial & Electrical

Distribution

…address key customer needs and applications

Standardizing products, pricing, terms, and service across multiple customer facilities


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LOCATION 1

LOCATION 2

LOCATION 3

LOCATION 4

LOCATION 5

LOCATION 6

LOCATION 7

LOCATION 8

LOCATION 9

LOCATION 10

LOCATION 11

LOCATION 12

One WESCO Checkerboard Application

% Sales Penetration

>80%

~ 50%

< 20%

…significant opportunity for increased customer share capture

PRODUCT CATEGORY PENETRATION

LOC

ATIO

NS

An example Global Accounts customer…


Cumulative Acquisitions Since 2010

325 400

1,500 1,600

20102

20112

20124

20142

Acquisition Priorities Consistent with WESCO strategy Rate of return greater than WESCO risk-adjusted average cost of capital Accretive in first year of operation Margins higher than WESCO

Acquired Sales ($ Millions)

#

…driving strategic growth and shareholder value

Markets & Customers Geographies

Products & Suppliers Core

Acquisition Strategy Framework

Acquired Sales by End Market since 2010

CIG

Industrial Utility

Construction


Maintain industry-leading cost structure

Expand operating profit and margins

Generate strong operating cash flow through the cycle

Provide superior investor returns

Long-Term Financial Objectives

…focused on shareholder value creation

Grow sales faster than the market and strengthen business through acquisitions

14

4 Flat 7 3

14

14.2 14.0 13.7 16.1 18.9 18.8

Graybar Rexel NAED

333 371 445

5.4 5.7 5.9

134

265 308

68

115 117

All periods are 2011, 2012 and 2013 unless otherwise noted. 2012 and 2013 exclude the impact of externally disclosed non-recurring items.

237

66 86 181 151 129

WCC S&P 500 Russell2000

GWW FAST AXE

TSR (1/1/2010 to 12/31/2013)

14.0% WCC

CORE GROWTH ACQ GROWTH

SG&A% 2012 SG&A% COMP.

(%) (%)

EBIT ($M) EBIT%

FCF ($M) FCF% OF NI

1

2

3

4

5


Long-Term Focus on Profitable Growth

2009 2010 2011 2012 2013

EBIT 2.5x

TOTAL SALES 1.6x

HEADCOUNT 1.5x

…operating profit pull through delivering results


1.5

2

2.5

3

3.5

4

4.5

5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Cash Generation

Reconciliation of these non-GAAP financial measures is included in the Appendix to this presentation. 2012 2013 2014

Target Leverage

2.0x – 3.5x 3.3X

Leverage (Total Par Debt to TTM EBITDA)

112 134

265

308

115

196 230

264

2010 2011 2012 2013

Free Cash Flow ($M) Net Income ($M)

~$800M of Free Cash

Flow

…strong free cash flow through economic cycle


0.0

1.0

2.0

3.0

4.0

5.0

6.0

May 99 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Total Shareholder Return In

dexe

d C

umul

ativ

e TS

R%

…consistent above market returns

TSR CAGR % year 1 year 3 year 5 year 10 year

WESCO 35 20 36 26 Russell 2000 39 16 20 9 GICS Capital Goods Group 43 17 22 12

R-2000 8%

CAGR

WCC 12%

CAGR


Evolution of WESCO

1.6

3.3

7.5

1994 LBO 2003 2013

0.75 0.65

5.02

1999 IPO 2003 2013

1.2 1.0

5.5

$0.0

1999 IPO 2003 2013

Sales ($B)

EPS ($)

Enterprise Value ($B)

Financial results throughout this presentation reference non-GAAP adjusted results. See Appendix for reconciliation.

1994 – 2003 1st 10 years

2004 – 2013 2nd 10 years

2014 – 2023 Next 10 years

• 175 branches in U.S. and Canada

• 25 acquisitions • IPO in 1999 • From breakeven in 1994

to 3% EBIT in 2003

• Launched Lean • Diversified portfolio (added

Datacom, OEM, Safety) • 15 acquisitions • 475 branches in 18 countries • Built industry-leading positions • Launched One WESCO • 2X sales, 5X enterprise value

• Leading market positions • Expanding global mix • Customer and supplier loyalty • Employer of choice • Self-initiated Lean • IT and e-Commerce

competitive differentiators • Continued significant value

creation

…track record of value creation

8%+ CAGR

14%+ CAGR

11%+ CAGR


• Industry leader with deep domain expertise in electrical, industrial, construction, and utility

• Proven business model and well positioned in large, fragmented markets

• Blue chip customer and supplier base

• Proven acquirer and integrator in a consolidating industry

• Extensive global supply chain capability

• Operational excellence culture founded on LEAN

• Margin expansion results and future potential

• Strong free cash flow generation through economic cycle

Invest in WESCO

…strong company with proven and effective supply chain solutions


Appendix


WESCO International, Inc. Definitions Appendix

• Financial leverage ratio is calculated by dividing total debt, including debt discount, by adjusted EBITDA. Adjusted EBITDA is defined as the trailing twelve months earnings before interest, taxes, depreciation, and amortization excluding the ArcelorMittal litigation recovery.

• Free cash flow is calculated by deducting capital expenditures from, and adding non-recurring pension contribution to, cash flow provided by operations.

• Total Shareholder Return (TSR) is the total return of a stock to an investor during a period of time, including capital gains and dividends, assuming reinvestment of dividends.


NON-GAAP Financial Measures

This presentation includes certain non-GAAP financial measures. These financial measures include adjusted EBIT, adjusted net income, adjusted diluted EPS, financial leverage ratio, free cash flow, and liquidity. The Company believes that these non-GAAP measures are useful to investors in order to provide a better understanding of the Company's capital structure position and liquidity on a comparable basis. Additionally, certain non-GAAP measures either focus on or exclude transactions of an unusual nature, allowing investors to more easily compare the Company's financial performance from period to period. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.


Sales Growth

2011 2012 2013

Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Q4

Full Year Q1 Q2 Q3 Q4

Full Year

Organic Sales Growth (%) 16.5 12.7 11.3 13.2 13.4 9.8 8.2 1.4 (1.3) 4.4 (3.4) (1.2) 3.2 1.5 0.0

Acquisitions (%) 7.0 7.4 6.9 6.2 6.8 2.6 2.2 4.0 4.3 3.3 16.0 14.6 14.1 13.8 14.6

FX (%) 1.1 1.0 1.1 0.0 0.8 (0.2) (0.7) (0.6) 0.5 (0.3) 0.0 (0.2) (0.7) (1.0) (0.4)

Consolidated Sales Growth (%) 24.6 21.1 19.3 19.4 21.0 12.2 9.7 4.8 3.5 7.4 12.6 13.2 16.6 14.3 14.2

Workdays 63 64 64 63 254 64 64 63 63 254 63 64 64 63 254

Organic Growth Impact (%) - - - (1.6) (0.4) 1.6 - (1.6) - - (1.6) - 1.6 - -

Normalized Organic Growth (%) 16.5 12.7 11.3 14.8 13.8 8.2 8.2 3.0 (1.3) 4.4 (1.8) (1.2) 1.6 1.5 0.0

Estimated Price Impact (%) 3.5 3.0 3.5 2.0 3.0 1.5 1.0 0.5 1.0 1.0 1.0 0.0 0.0 0.0 0.2


Non-GAAP Reconciliations FY 2012 FY 2013 (Dollars in millions except for Diluted EPS)

Adjusted Income from operations (Adjusted EBIT): Income from operations (EBIT) 333 481 ArcelorMittal litigation charge (recovery) included in SG&A 36 (36) Non-recurring acquisition charges and EECOL Electric results 2 - Adjusted income from operations (Adjusted EBIT) 371 445 Percent of adjusted sales 5.7% 5.9%

Adjusted net income attributable to WESCO International, Inc.: Net income attributable to WESCO International, Inc. 202 276 ArcelorMittal litigation charge (recovery) 36 (36) Loss on sale of Argentina business - 2 Loss on debt extinguishment 3 13 Non-recurring acquisition charges and EECOL Electric results 5 - Tax effect of non-recurring items (16) 9 Adjusted net income attributable to WESCO International, Inc. 230 264

Adjusted Diluted EPS: Diluted share count 51.1 52.7 Adjusted Diluted EPS 4.49 5.02

Free Cash Flow: Cash provided by operations 288 315 Less: capital expenditures (23) (28) Add: non-recurring pension contribution - 21 Free cash flow 265 308

Free cash flow as a % of adjusted net income 115% 117%


Non-GAAP Reconciliations

Twelve Months Ended March 31, 2014

Financial leverage ratio: Income from operations $ 437 Depreciation and amortization 67 Adjusted EBITDA $ 504

March 31, 2014 Current debt $ 45 Long-term debt 1,458 Debt discount related to convertible debentures (1) 174 Total debt including debt discount $ 1,677

Financial leverage ratio 3.3X

(1)The convertible debentures and term loan are presented in the consolidated balance sheets in long-term debt net of the unamortized discount.

FY 2012 FY 2013 (Dollars in millions)

Adjusted Selling, General and Administrative Expenses: Selling, general and administrative expenses 961 997 Arcelor/Mittal litigation charge (recovery) included in SG&A (36) 36 Non-recurring acquisition charges and EECOL Electric results (9) - Adjusted selling, general and administrative expenses 916 1,033 Percent of adjusted sales 14.0% 13.7%

John Engel Chairman, President and CEOwesco.investorroom.com/download/2014... · Outsourcing •...

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