Welcome and WESCO OverviewSachs+2... · 2017. 6. 20. · Annual Leveraged Finance Conference, June...

Brian Begg Vice President & Treasurer

Welcome and WESCO Overview

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Goldman Sachs 2nd Annual Leveraged Finance Conference, June 20, 2017

Safe Harbor Statement 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; disruptions in operations or information technology systems; supply chain disruptions, changes in supplier strategy or loss of key suppliers; product or other cost fluctuations; expansion of business activities; personnel turnover or labor cost increases; tax law changes or challenges to tax matters; increase in competition; risks related to acquisitions, including the integration of acquired businesses; exchange rate fluctuations; legal or regulatory matters; litigation, disputes, contingencies or claims; debt levels, terms, financial market conditions or interest rate fluctuations; goodwill or intangible asset impairment; stock market, economic or political instability; and other factors described in detail in the Form 10-K for WESCO International, Inc. for the year ended December 31, 2016 and any subsequent filings with the Securities & Exchange Commission. 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 found in the appendix and obtained via WESCO’s website, www.wesco.com.

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WESCO: A Leading Global Supply Chain Solutions Provider

Capital Projects MRO OEM

…providing world-class brands and industry-leading service capabilities

Founded 1922 in

Pittsburgh, PA

$7.3 Billion in Revenue

One of the world’s largest distributors of electrical, industrial, and

communications products and services

#373 of the Fortune 500

9,000 employees

Including new construction and retrofits, renovations, and upgrades

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WESCO’s Go-to-Market Strategy

Capital Projects MRO

OEM

WESCO Characteristics

…providing full supply chain solutions to meet customers’ unique requirements

Serving Three Customer Demand Streams

Supporting a broad range of business models:

Standard Distribution Model

Supply Chain Solutions Partner • Integrated Supply

• Global Accounts

• Kitting, assembly and pre-fabrication

• Jobsite and field support

• Engineering and design support

• Local, branch-based distribution

500 Branches

75,000 Customers

1,000,000 SKUs

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WESCO’s Value Proposition

• Long-term customer relationships and deep familiarity with their operations

– Gaining additional business with existing customers

• Better outcomes for our customers – Identifying opportunities – Selecting the best solution – Reducing their project and

operating risks – Increasing their productivity and

reducing their costs – Supporting their global operations – Simplifying their supply chains and

outsourcing non-core activities

Combining our competitive differentiators…

• A broad product portfolio

• Technical expertise and a wide range of service offerings

• Blue-chip customer and supplier base

• A global footprint

• A culture of customer service excellence, cost control, and lean continuous improvement

…driving deeper customer relationships than traditional distributors and e-commerce providers

…into customized supply chain solutions

…that result in:

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…providing world class brands when and where needed

Competitive Differentiator: Product Portfolio and Supplier Relationships

Automation, Controls & Motors

8%

Lighting & Sustainability

12%

General Supplies

40%

Communications & Security

15%

Wire, Cable & Conduit

14%

Electrical Distribution & Controls

11%

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…WESCO adds value throughout the supply chain

CUSTOMERS NEED: Procurement

Warehousing /Logistics Technical expert knowledge An efficient supply chain with

fewer suppliers

WESCO OFFERS: • Deep customer relationships • Product, process, and

technical expertise • Increased scale • Global sourcing • Financial strength and liquidity

SUPPLIERS NEED: Sales

Marketing Delivery Service

(1) Data Source: National Association of Electrical Distributors, 2017 NAED Market Overview, April 2017.

Approximately 75% of electrical products go to market through distribution(1)

The Importance of the Distributor

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…value-added services drive customer loyalty and long-term relationships

Competitive Differentiator: Service Capabilities

2016 Sales: $7.3B

Our services and technical expertise drive the majority of our product sales

Capital Project Solutions

Supply Chain Solutions

Technical Expert Solutions

Customized Product Solutions

All Other Sales

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…enabled by investments in technical expertise and digital capabilities

Service Capabilities Examples

Supply Chain Solutions

• Integrated Supply • Global sourcing • Warehousing and logistics • Storeroom management • Vendor-managed inventory • Transaction cost review

Capital Project Solutions

• Engineering and design support • Lean construction processes • Materials management • Pre-fabrication and assembly • Jobsite trailers and “WESCO on

Wheels” customized carts

Technical Expert Solutions

• Energy usage analysis • Lighting renovation and retrofit • Data center assessment • Automation upgrades • Safety assessment and training • Product and application training

Customized Product Solutions

• Kitting • Assembly • Prefabricated systems • Cable management • Process streamlining

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Competitive Differentiator: WESCO’s Global Reach

WESCO Presence Service area

…serving our blue-chip customers wherever they are located

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Cost Leverage

…compares favorably to industry benchmarks

807 798

2015 2016

Sales per Employee ($ Thousands)

NAED: National Association of Electrical Distributors. Source of NAED data: most recent annual benchmark study, published in June 2016.

612 NAED

Operating Expenses (%)

15 15

2015 2016

19% NAED Benchmark

116

2015 - 2016 • Eliminated approximately 1,000 positions • Eliminated or consolidated 40 branches, including our

businesses in Australia and Brazil • Invested in resources to deliver competitive advantage and

improve margin: – Added end market sales & marketing leaders and product

category managers – Established and expanded eCommerce organization – Created WESCO’s first Global Supply Chain organization – Improved IT and business unit finance capabilities

2017 • Adding technical sales resources (reflected in 2017 Outlook) • Continuing to tightly manage operating costs

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WESCO Performance Objectives and Strategies

• Focus on growth markets • Accelerate One WESCO

growth initiatives • Differentiate through

services • Leverage digital

capabilities • Make accretive

acquisitions

…focused on driving profitable growth and shareholder value

Generate strong free cash flow and allocate capital to drive

growth and shareholder returns

Expand margins

Drive above-market sales growth

• Grow with strategic suppliers

• Simplify and standardize product offerings

• Drive pricing discipline and tools

• Optimize distribution network

• Tightly manage operating costs

Performance Objectives:

Strategies: • Invest in organic growth and acquisition opportunities

• Manage debt within target range

• Repurchase shares

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WESCO Financial Performance Goals

Drivers

• Working capital management • Prudent capital expenditures

• Operating leverage from top-line growth • Margin improvement initiatives

• Organic growth strategies • Acquisitions

• Effective capital allocation • Focus on improving ROIC • Consistent execution

Performance Goals

Free cash flow greater than 90% of

net income

Double digit EPS growth

Grow faster than the market

Superior investor returns

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Financial Performance

Sales

…solid long-term performance

6% CAGR

5.1

6.1 6.6

7.5 7.9

7.5 7.3

2010 2011 2012 2013 2014 2015 2016

112 134

265

308

231 261

282

2010 2011 2012 2013 2014 2015 2016

Free Cash Flow 109% of Adjusted Net Income

on Average ($ Billions) ($ Millions)

Note: See appendix for non-GAAP reconciliations.

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1.5

2

2.5

3

3.5

4

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Balanced Capital Structure

Leverage (Total Par Debt to TTM EBITDA)

…maintaining fiscal discipline and flexible capital structure

> $1B of free cash flow over

last 4 years

Note: See appendix for non-GAAP reconciliations.

Target Leverage

2.0x – 3.5x

3.4X

2015 2016 2017

Outstanding Debt December 31,

2016 March 31,

2017 Matures

AR Revolver (V) 380 345 2018

Inventory Revolver (V) 4 - 2020

2019 Term Loans (V) 145 130 2019

2021 Senior Notes (F) 500 500 2021

2024 Senior Notes (F) 350 350 2024

Other (V) 24 31 N/A

Total Par Debt 1,403 1,356

Liquidity(1) 705 727

Capital Structure ($ Millions)

V = Variable Rate Debt F = Fixed Rate Debt

(1) = Total availability under asset-backed credit facilities plus invested cash

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Goldman Sachs 2nd Annual Leveraged Finance Conference, June 20, 2017 Acquisitions

325 400

1,500 1,600 1,900 2,000

20102

20112

20124

20143

20153

20161

Acquisition Criteria 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

Cumulative Acquired Sales

($M, first 12 months)

#

…driving strategic growth and shareholder value

Strategy and Priorities

Acquired Sales by End Market since 2010

CIG Industrial

Utility

Construction

Consolidate core electrical products and services category in North America

Expand into adjacent product and services categories

Follow customers globally and establish local operations in high priority countries.

Markets & Customers

Geographies

Products & Suppliers

Core

1

2

3

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Capital Allocation Strategy

…completed $50M share repurchase in May to offset dilution impact of 2016 & 2017 equity awards

Priorities for Driving Shareholder Value

• Support organic growth

• Fund accretive acquisitions

• Maintain target leverage

• Repurchase shares – Authorization from Board

– Offset dilution from annual equity awards

– Opportunistic purchases

Cash Deployment After Organic Growth Investments

2015 - YTD 2017

Debt Reduction

Acquisitions

Share Repurchase

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Long-Term Growth Algorithm

• Market growth

• 1% to 2% from market outperformance

• 1% to 3% from acquisitions

• ~50% operating profit pull-through on organic growth

− gross margin improvement

− operating cost leverage

• ~30% effective tax rate

Annual Expectations over the Long-Term

• Greater than 90% of net income

…managing the business for strong EPS growth and cash flow

Sales EPS Free Cash Flow

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0%

2%

4%

6%

8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E

…driven by volume leverage, supply chain initiatives and continued cost focus

Expecting Operating Margin Expansion

DRIVERS: Volume leverage

Procurement, pricing and distribution network optimization

Continued cost focus

EBIT %

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2017 Priorities

• Return to sales growth −Outperform end markets with One WESCO sales growth initiatives − Invest in and capitalize on growth markets −Maintain focus on execution and sales effectiveness

• Make accretive acquisitions to strengthen portfolio and take market share

• Sustain and expand operating margin − Improve margin through pricing and sourcing initiatives − Deliver productivity through LEAN operational excellence initiatives, organizational

streamlining and branch network optimization efforts

• Maintain strong free cash flow generation and flexible capital structure

…outperform the market while maintaining cost and cash management discipline

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Invest in WESCO

• 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 principles

• Operating margin expansion results and future potential

• Strong free cash flow generation through economic cycle

…strong company with proven and effective supply chain solutions

Appendix

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Free Cash Flow Reconciliation ($ Millions)

2010 2011 2012 2013 2014 2015 2016

Cash flow provided by operations 127.3 167.5 288.2 315.1 251.2 283.1 300.2

Less: Capital expenditures (15.1) (33.3) (23.1) (27.8) (20.5) (21.7) (18.0)

Add: Non-recurring EECOL pension contribution - - - 21.1 - - -

Free cash flow 112.2 134.2 265.1 308.4 230.7 261.4 282.2

Free cash flow as a % of adjusted net income 97% 68% 118% 117% 84% 125% 154%

Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund the Company's other investing and financing activities. During the quarter ended September 30, 2013, a non-recurring contribution was made to fund the Canadian EECOL pension plan. This contribution was required pursuant to the terms of the share purchase agreement by which the Company acquired EECOL in 2012. EECOL sellers fully funded this contribution by way of a direct reduction in the purchase price at the date of acquisition. U.S. GAAP requires the contribution to be shown as a reduction of operating cash flow, however, it is added back to accurately reflect free cash flow.

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Financial Leverage

Twelve Months Ended March 31, 2017

Financial leverage ratio: Income from operations $ 330 Depreciation and amortization 66 EBITDA $ 396

March 31, 2017 Current debt and short-term borrowings $ 29 Long-term debt 1,310 Debt discount and deferred financing (1) 16 Total debt $ 1,355 Less: cash and cash equivalents $ 103 Total debt, net of cash $ 1,252

Financial leverage ratio 3.4X Financial leverage ratio, net of cash 3.2X

(1)Long-term debt is presented in the condensed consolidated balance sheet as of March 31, 2017 net of deferred financing fees and debt discount.

($ Millions)

Welcome and WESCO OverviewSachs+2... · 2017. 6. 20. · Annual Leveraged Finance Conference, June...

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