Anixter IR Presentation Q3 '19...
Transcript of Anixter IR Presentation Q3 '19...
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INVESTOR PRESENTATION3RD QUARTER 2019
662
Safe Harbor Statement and Non-GAAP Financial MeasuresSafe Harbor StatementThe 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 of1995. 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 butare 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 salesstrategies or financial viability, risks associated with the sale of nonconforming products and services, political, economic or currency risks related to foreign operations, inventoryobsolescence, copper price fluctuations, customer viability, risks associated with accounts receivable, risks associated with pension expense and funding, the impact of regulation andregulatory, investigative and legal proceedings and legal compliance risks, information security risks, disruption or failure of information systems, disruptions to logistics capability or supplychain, risks associated with substantial debt and restrictions contained in financial and operating covenants in our debt agreements, the impact and the uncertainty concerning the timingand terms of the withdrawal by the United Kingdom from the European Union, unanticipated changes in our tax provision and tax liabilities related to the enactment of the Tax Cuts andJobs Act, 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 thatwere 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 anyforward looking statements. Please see our Securities and Exchange Commission (“SEC”) filings for more information.
Non-GAAP Financial MeasuresIn addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) above, this release includes certain financial measures computed usingnon-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 thisrelease both on an 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), foreignexchange fluctuations, copper prices and the number of billing days (when applicable), both management and investors are provided with meaningful supplemental sales information tounderstand 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 financialresults (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 betterunderstand and evaluate our performance period over period and to analyze the underlying trends of our business. We have also excluded amortization of intangible assets associatedwith 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 before interest, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before foreign exchange and other non-operatingexpense and non-cash stock-based compensation, excluding the other items from reported financial results, as defined above. Adjusted EBITDA leverage is defined as the percentagechange in Adjusted EBITDA divided by the percentage change in net sales. We believe that adjusted operating income, EBITDA, Adjusted EBITDA, and Adjusted EBITDA leverage providerelevant 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 businesssegment 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 notreflect 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 morecomparable 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 theunderlying performance of our business. EBITDA provides us with an understanding of earnings before the impact of investing and financing charges and income taxes. Adjusted EBITDAfurther 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 arealso excluded for purposes of calculating adjusted net income, adjusted earnings per share and adjusted operating income. EBITDA and Adjusted EBITDA are used by our managementfor 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 leveragemay 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 measureshave 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 financialmeasures 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 withthe Condensed Consolidated Financial Statements, including the related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operation. Managementdoes not use these non-GAAP financial measures for any purpose other than the reasons stated above.
© 2019 Anixter Inc.
TABLE OF CONTENTS
Invest in Anixter
Key Priorities & Long-term Financial Goals
Business Overview
Innovation & Business Transformation
Financial Profile
Invest in Anixter
12345666
3© 2019 Anixter Inc.
Build. Connect. Power. Protect. Services. Worldwide
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
• Will drive strong financial performance and shareholder value creation
INVEST IN ANIXTER
5© 2019 Anixter Inc.
Build. Connect. Power. Protect. Services. Worldwide
KEY
PRIORITIES &
LONG-TERM
FINANCIAL
GOALS
KEY PRIORITIES FOR ANIXTER
Our Focus On The Customer Will Drive Improved Results While Enabling Value Creation
Above-Market Growth
Digital innovation will improve customer experience
Leverage customer access strategy
Pivot and shift to growth markets
Increase global and complex services and revenue streams
Gross Margin Improvement
Relentless focus and training
Price optimization tools
Maximize vendor rebates
Increase global and complex services and revenue streams
Increase Earnings & Cash Flow
Leverage fixed cost base
Tools/technology to drive sales productivity
Warehouse network optimization
Innovation and business transformation expected to have run
rate savings of $40 - $60 million
7© 2019 Anixter Inc.
LONG – TERM FINANCIAL GOALS
2018 Long-termGoals
Organic Sales Growth 4.8% 3% - 5%
Adjusted EBITDA Margin 4.9% >6.0%
Adjusted EBITDA Leverage ~0.3x ~1.5x
Working Capital as a % of Sales 18.2% <18%
Debt / Adjusted EBITDA 3.0x 2.5x - 3.0x
Debt-to-total Capital 44.4% 45% - 50%
8© 2019 Anixter Inc.
Anixter is a Services Company that Does Exceptional Distribution
Our Vision
9© 2019 Anixter Inc.
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BUSINESS
OVERVIEW
ANIXTER AT A GLANCE
2018 Key Metrics
Eletrical & Electronic Solutions
28%
Utility Power
Solutions20%
Network & Security Solutions
52%
2018 Sales by Segment
Sales $8.4B
Adjusted EBITDA $411M
Adjusted EBITDA margin 4.9%
Debt/Adjusted EBITDA 3.0x
Debt/Total Cap 44.4%
Fitch BBB-
Moody’s Ba3
S&P BB
NYSE Ticker AXE
North America
81%
EMEA8%
Emerging Markets
11%
2018 Sales by Geography
11© 2019 Anixter Inc.
12© 2019 Anixter Inc.
SALES OVERVIEW
2Q19 SEGMENT AND GEOGRAPHIC MIX
2Q19 Sales: $2.3 billion
YOY Sales Growth
GAAP Organic
Network and Security Solutions (NSS) 9.4% 8.4%
Electrical and Electronic Solutions (EES) 0.2% 2.3%
Utility Power Solutions (UPS) 4.5% 5.0%
Anixter International 5.8% 6.0%
YOY Sales Growth
GAAP Organic
North America 4.6% 5.4%
EMEA (14.3)% (10.0)%
Emerging Markets 33.3% 23.4%
Anixter International 5.8% 6.0%
NETWORK & SECURITY SOLUTIONS (NSS) AT A GLANCE
Network Infrastructure
55%
Security Solutions
45%
Product Mix
North America
EMEA
Emerging Markets
Geographic Mix
2018 2Q19
Sales $4.3B $1.2B
Organic Sales Growth 3.9% 8.4%
Adjusted EBITDA $299.7M $93.6M
Adjusted EBITDA Margin
6.9% 7.8%
13© 2019 Anixter Inc. Product and Geographic Mix are based on FY18 Sales
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NETWORK & SECURITY SOLUTIONS
Products Growth Opportunities
Complex ServicesProjects
Programs
Emerging Technologies5GIoT
Smart Buildings
Smart Cities
Security and Professional A/V
Wireless
Inner Range Software
Data Center
Access Control
Video Surveillance
Network Infrastructure
Fire and Life Safety
Wireless
Network Infrastructure
Security Solutions
Our products are critical parts of a connected, controlled, and powered infrastructure that allow Anixter to pivot and shift into higher growth opportunities
© 2019 Anixter Inc.
ELECTRICAL & ELECTRONIC SOLUTIONS (EES)AT A GLANCE
Commercial & Industrial~60 - 65%
OEM~35 - 40%
Product Mix
North America
EMEA
Emerging Markets
Geographic Mix
2018 2Q19
Sales $2.3B $607M
Organic Sales Growth 4.5% 2.3%
Adjusted EBITDA $145.2M $41.8M
Adjusted EBITDA Margin
6.2% 6.9%
15© 2019 Anixter Inc. Product and Geographic Mix are based on FY18 Sales
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ELECTRICAL & ELECTRONIC SOLUTIONS
Products Growth Opportunities
Complex ServicesProjects
Programs
Smart Factories
IoT and Industry 4.0
Industrial Automation
Public Transit
Renewable Energy
Data Centers
Oil, Gas, Petrochemical
Automotive Wire and Cable
Control Cable
Medium-Voltage
Power Cable
Contractor Solutions
Electrical Supplies
OEM
Commercial & Industrial
Switchgear
Our products are critical parts of a connected, controlled, and powered infrastructure that allow Anixter to pivot and shift into higher growth opportunities
© 2019 Anixter Inc.
UTILITY POWER SOLUTIONS (UPS)AT A GLANCE
Investor Owned Utilities~55%
Public Power~45%
Product Mix
North America
Geographic Mix
2018 2Q19
Sales $1.7B $456M
Organic Sales Growth 7.8% 5.0%
Adjusted EBITDA $93.6M $27.4M
Adjusted EBITDA Margin
5.5% 6.0%
17© 2019 Anixter Inc. Product and Geographic Mix are based on FY18 Sales
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UTILITY POWER SOLUTIONS
Products Growth Opportunities
Complex ServicesProjects
Programs
Electrical Grid Upgrade
Smart Grids
Smart Meters
Storm-Hardening Efforts
Natural DisastersHurricane rebuildWildfire rebuildStorm response
Pole Line
Gears Controls and Equipment
Fiber to the Home
Cybersecurity Wire and Cable Lighting
Video Surveillance
Our products are critical parts of a connected, controlled, and powered infrastructure that allow Anixter to pivot and shift into higher growth opportunities
Public Power
Investor Owned Utilities
MRO
© 2019 Anixter Inc.
19© 2019 Anixter Inc.
($0.9)
OUR STRATEGIC ACTIONS ADDED $1.8 BILLION TO OUR SALES RUN RATE
2017
$6.9
$0.6
$0.1
$2.0
2018CSD
Inner RangeAtlas Gentech
$6.2
2015 Net
impact
2014 Tri-Ed
2015 Fasteners
2015 Power
Solutions
2013
$0.2
$7.7
2016
Proforma Sales Bridge 2013 - 2018$Billions
+$2.2
2015
$7.6
($0.1)
$7.9
$0.3
$8.4
$0.4
$0.1
Acquisition Revenues
Organic Growth
Divestiture
STRATEGIC ACQUISITIONS2014 – 2018
Power Solutions(Carve out)
Purchase Date Q3 2014 Q4 2015 Q2 2018
Purchase Price $420M $825M $151M
TTM Sales* $570M $1,900M $114M
Adjusted TTM EBITDA* $36M $79M $20M
EBITDA Synergies $15M $25M None disclosed publicly
New Products IntrusionFire & Life Safety Access Control
LV/HV – Switch Gear Transformers
LightingElectrical Bulks
IntrusionAccess Control
New Customers Security Dealers Commercial Construction, Utility Market (IOU &
Public Power)
Security Dealers
Other Benefits Branch Network Branch Network Software/Product Development
20
*Tri-Ed trailing twelve months ended June 4, 2014; HD Supply Power Solutions trailing twelve months from HD Supply Inc. SEC filings; CSD, Inner Range and Atlas Gentech trailing twelve months ended November 30, 2017
© 2019 Anixter Inc.
STRONG, DIVERSE AND GLOBAL SUPPLIERS AND CUSTOMERS
Suppliers Customers
21© 2019 Anixter Inc.
LEADING POSITIONS IN ATTRACTIVE BUSINESSES
Network & Security Solutions
(NSS)
Electrical & ElectronicSolutions
(EES)
Utility PowerSolutions
(UPS)
LeadingMarket 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
22© 2019 Anixter Inc.
23© 2019 Anixter Inc.
COMPETITIVE ADVANTAGES AND BARRIERS TO ENTRY
Network & Security Solutions
Electrical & Electronic Solutions
Utility PowerSolutions
Global Capabilities with Local Presence
Customized and Scalable Supply Chain Solutions
Technical Expertise
24© 2019 Anixter Inc.
CORE TECHNOLOGIES
Network Infrastructure Data Centers | Cloud Physical Security Professional AV
Wireless LightingIndustrial Networking & Controls
Power
Wire & Cable Automation FTTX Internet of Things (IoT)
Smart Environments Edge Computing OT Cybersecurity
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
25© 2019 Anixter Inc.
UNMATCHED GLOBAL CAPABILITIES WITH LOCAL PRESENCE
3,600+Technical Sales Specialists, Multi-Level Technical Support
130,000+Customers$1.0 Billion+ Inventory
600,000+Products~50 Countries
35+ Currencies
20+ Languages
Approximately 316Warehouses and Branches Worldwide
26© 2019 Anixter Inc.
EXAMPLES OF OUR SERVICES THAT HELP LOWER COST, COMPLEXITY AND RISKIN OUR CUSTOMERS’ SUPPLY CHAINS
Source-proven, quality-controlled 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/sub-assembly
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
Sourcing Inventory Management
Product Enhancement and
Packaging
Global Logistics
E-commerce
27© 2019 Anixter Inc.
INNOVATION AND BUSINESS TRANSFORMATION
Gross Margin Improvement Funds Innovation and Business Transformation while Enabling Operating Expense Leverage
• Digital Innovation
– Driven by focus on customer experience
– Best-in-class digital tools will make doing business with Anixter easier and will support growth and innovation in the business
• Business Transformation
– Streamline and standardize global processes
– Enabled by Oracle Cloud ERP
• De-risking
– Implementation plan designed and phased to minimize disruption
– CFO and CIO are the co-executive sponsors
– Experienced managers leading the project • Over 150 years of combined Anixter experience between Global Process Owners
– Current experience with Oracle database systems
28© 2019 Anixter Inc.
DIGITAL INNOVATION DRIVES ACCELERATED REVENUE GROWTH
Inside salesrepresentative
B2B integration(EDI, JIT, ERP)
Electronic invoices and payments
Consolidated statements
Customer-brandede-commerce site with
contract pricing
Branchlocations
Automated order confirmation and
shipment notification
eProcurementpunchout catalog or custom catalog
Anixter.com (B2B)eAnixter.com (contract)
Making it easier and quicker for our customers to do business with us. Anywhere, any time, any way.
29© 2019 Anixter Inc.
GLOBAL BUSINESS PROCESS TRANSFORMATION
Transformation Outcomes
Enhance Reporting and Analytics
Increase Productivity Through Optimized Operating Model
Increase Speed to Market
Improve Customer Integration
Optimize Supply Chain
Innovation and Business Transformation
Reduce Operational Cost
Global multi-year business process transformation plan considering:
•Strategic Business Drivers
•Geographic Regions
•Business Process Cycle
•Business Segments
Standardize Global Business Process
Create a Single Global Platform for Growth
30© 2019 Anixter Inc.
OUR JOURNEY TO ORACLE CLOUD ERP
2012 – 2018: Enhanced digital capabilities
2014 – 2015: Strategic M&A activity
– Created numerous operating systems, customer-facing platforms and back-office processes
2018: Evaluation and preparation
– Completed business integration of recent acquisitions
– Focused on global processes, staffing global business foundational design teams with internal and external expertise
– Selected Oracle cloud-based platform
2019: Global Processes
– Streamlining and standardizing global business processes which will result in global business process foundational design
– Developing implementation plan for the first wave conversion
2020 – 2023: Implementation
– Phased implementation plan to mitigate risk
– Initial phase of implementation in one US-based division
– Net benefits expected by second half of 2021
– Estimate net long-term run-rate savings of $40 - $60 million when fully implemented
– Investment will be funded through gross margin improvement
31© 2019 Anixter Inc.
Build. Connect. Power. Protect. Services. Worldwide
FINANCIAL
PROFILE
COUNTER-CYCLICAL FREE CASH FLOW PROVIDES FINANCIAL FLEXIBILITY
Generate Strong Free Cash Flow Throughout the Economic Cycle
Free cash flow: Defined as net cash provided by operating activities less capital expenditures. Free cash flow is not restated for acquisitions and divestitures
($ in millions)
33© 2019 Anixter Inc.
0%
STRATEGIC LEVERAGE TARGETS
Target range:2.5x - 3.0x
Target range:45% - 50%
34© 2019 Anixter Inc.
*2015 includes 12 months of Power Solutions earnings on a pro forma basis
CONSERVATIVE FINANCIAL POLICY WITH A PRUDENT APPROACH TO CAPITAL ALLOCATION
Capital Allocation Priorities are Organic Growth, M&A, Debt Reduction and Opportunistic Return to Shareholders
• 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
$32 $22 $20 $26 $34 $32 $40 $27$33
$41 $42
$105
$35
$41
$108
$59
$111 $151
$166
$180
$36 $55
$418$823
$5
$150$272
$82$152
$267 $133
$1
0%
20%
40%
60%
80%
100%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
CapEx Share Repurchases Total Dividends Acquisitions Debt Reduction Operating Cash Flow
35© 2019 Anixter Inc.
DEBT MATURITY PROFILE
36
Total availability across all credit facilities was $546.6 million as of June 28, 2019
© 2019 Anixter Inc.
2019 FINANCIAL GOALS
Above market sales growth 4.5% - 6.5% organic growth
Increase gross margin 20 - 40 bps improvement
Improve profitability1.50x - 1.75x adjusted EBITDA leverage
5.0% - 5.2% adjusted EBITDA margin
Generate Strong Cash Flow
Operating Cash Flow $150 million - $175 million
Capex $55 - $60 million
Free cash flow $95 - $115 million
Maintain strong balance sheet
Working capital ~18% of sales
Debt-to-Adjusted EBITDA: 2.5x - 3.0x
Debt-to-Capital: 40% - 45%
37© 2019 Anixter Inc.
2019 SEGMENT ADJUSTED EBITDA GOALS
2018 Actuals 2019 Goals
NSS Adjusted EBITDA 6.9% 7.2 - 7.7%
EES Adjusted EBITDA 6.2% 6.0 - 6.5 %
UPS Adjusted EBITDA 5.5% 5.5 - 6.0%
38© 2019 Anixter Inc.
Build. Connect. Power. Protect. Services. Worldwide
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
• Will drive strong financial performance and shareholder value creation
INVEST IN ANIXTER
40© 2019 Anixter Inc.
Build. Connect. Power. Protect. Services. Worldwide
THANK YOU