General Cable Corporation (BGC)

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General Cable Corporation (BGC)

March 26, 2013 1:00 pm ET

Executives

Gregory B. Kenny - Chief Executive Officer, President and Director

Brian J. Robinson - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Robert D. Kenny - Vice President and General Manager of Datacom Cables

Mark Thackeray - Former Senior Vice President of North American Operations

Len Texter - Director of Investor Relations

Analysts

Brian K. Langenberg - Langenberg & Company, LLC

Presentation

Operator

This is the operator. You may now begin your conference.

Gregory B. Kenny

Thank you, and good afternoon. I'm Greg Kenny, the CEO of General Cable. This is the first, sort of, deep background on the company that we've done since 1995. So maybe we're overdue. But we thought, with the new acquisitions, that we might take the time to go through this. In 1995, we were part of a British company called Wassal, so it's been a while. This is the agenda that we'll go through. We'll have a short break. We can do some Q&A then and Q&A in the end. There has been a slight change. Greg Lampert, who I'll introduce in a minute via his photo, has lost voice. He's been traveling hard. He got to barely a whisper this morning, so we said stay home. So I'm going to go through the Americas and Brian will take -- Brian Robinson will do the growth strategy, which he's been very much a part of. So apologies for Greg Lampert. We nearly chose Bob Kenny and Mark Thackeray, who are here from the North American group, and I'll introduce them in a second.

Normal safe harbor. So we'll be talking about GAAP and non-GAAP measurements throughout this. So I know you all understand the safe harbor. We're going to take you through General Cable's story. Really, if you look back 10 or 12 years ago, we were a couple product company, primarily focused in the U.S and had a view that we could take some of the know-how and free cash and get in the markets that were building a grid for the first time. Also, we saw reconductoring of North America, so we entered into the electrical and infrastructure and energy segments back in the 1999 timeframe. So there's been a huge change from a company that's 150 years old, dating the Samuel Morse and George Westinghouse. So invented really, the industry, really coming from the textile or women's hoop skirts was the antecedent and then Samuel Morse asked if we could make a piece of cable for him to work with.

So this is a long history, but the modern history really has been one of geographic and product diversity, as well as an extraordinary focus on wire and cable; not running from it, because it can be a tough business and a cyclical business. We're celebrating it. And we'll tell you that story over the next bit of time. Today, we're around 14,000 people, 57 plants, 26 countries, selling into probably 100-plus countries. So again, a heavy product that is somewhat freight-sensitive. There are regional specifications. So the serving area, generally, is 1,000 or 2,000 miles around that plant, depending on where it is. If you take last year's results and add the pro forma results of the acquisitions, we're around a $7 billion company, a Fortune 500 company. Emerging economies is a big part of our story. They're not always linear, but they are exciting and we'll take you through a little bit of our profile in Latin America, Southeast Asia, Asia, more generally and Sub-Saharan Africa. Some of the customers we've grown up with are Graybar who started in New York, which is one of the largest distributors in this country; WESCO; ConEd, who serves the utility here; as well as Verizon. They're all customers of ours. And again, these are 10- and 50-year kinds of relationships. We are a leader in both the portfolio and the geography, so while focused, we get different parts of the world getting hot and cold at different times, and we'll walk you through where that profile is currently.

Clearly, the biggest driver for us is construction and then you get into what kinds of construction but broadly, we're, while we have early-cycle businesses and we'll describe them, we're more of a late cyclical. And as we see, the construction cycle begin to kick back in again, led by North America. That's a good thing for us in the acquisition that we did, particularly on Alcan, it leverages that as well. And we've kept a very good credit profile right through this financial crisis, and really, have a very strong balance sheet and good EBITDA to interest coverage, et cetera. This is our team.

We've just added Sonya Reed who came out of the Rest of World, but we were looking for an executive. If you believe anyone can buy the equipment in this industry, it's really -- it goes without saying, it's the people that make the difference. And Sonya has got some terrific experience. I was looking for an executive like her, so we've elevated her to the leadership team of the company. And then introducing Peter Campbell, who was working in ROW in Asia-Pacific. But as we thought through ROW, we began to want to accelerate, really, to focus on the region, so we named, in the last months, CEO and Chief Executive VP for Asia-Pac, which is a long region from Oman, all the way to the Fiji Islands and North China. We also have an executive who's not part of the operating committee focused on Sub-Saharan Africa.

Just a little bit of a background. I've been with the company full time since '92, in and out of it since '82. Prior to that, I was in the diplomatic service in the international economics and trade. There's a lot of leverage learning that goes with being on other boards, and I'm part of the Cardinal Health, which is a very large distributor in the healthcare space and our Corn Products, now known as Ingredion, which is a global agribusiness company in many the same markets as we are. I've also been privileged to be part of the Cleveland Fed, which is, in part, a witness to history. They're very interested in what we're seeing globally because obviously, sheer U.S. models don't describe global activity. So that's my background.

Brian has come from Deloitte & Touche, and was working with global clients out of London. He's been with us for 14 years and he's been my partner in operating the company. Greg Lampert, again, apologies, with a lost voice, but he's a chemical engineer, came out of Dow Chemical and again, if you think about our business, chemistry is a major driver, metallurgy, electrical engineering, but Greg is now in-charge of the Americas, which is a $4.5 billion business from Canada all the way to Argentina and Chile. Peter Campbell, also a chemical engineer, out of BP and Fosroc, some linguistic capabilities. He's based in Bangkok. Emmanuel has a great history in France of physicists and people who think about electrical problems, really led by EDF. Emmanuel is really a product of that and his father was also a PhD physicist. But he's driving our European business, which has some of the most complicated engineering and manufacturing around high-voltage, as well as submarine. And a lot of the European utilities have sort of led the curve in kind of looking at new applications for cable and transformers, et cetera. Sonya came out of Zurich, the financial services company. She is fully bilingual, which is a great help. We have about 5,000 Spanish speaking employees. And then Roddy, who's not here, was a Brigadier in the British Army, special ops, special forces and mechanical engineer, speaks German and he's been really been looking at new markets, new products and then helping coordinate one phase to global customers such as Rexdale or Sonepar.

Bob Kenny, in the back, Bob if you could stand a second. Bob holds a number of patents in the communications world and really has taken our communications data cable business elevated it to a leadership position in the U.S. and Canada, and he's been so successful that we -- a lot of the companies' antecedents are within communications. So we have -- you'll see a business pushing up toward $800 million to $1 billion. It's one of the historical businesses of the company, again, with Samuel Morse. So we've ask Bob to take really global leadership for the Communications business, which now includes submarine, fiber optics, electronic cable, as well as telephone cable and fiber optics. Mark Thackeray, here to my left, he's a black belt and has really been one of the great thinkers around continuous improvement. In the company, we won a number of awards, almost annually from Industry Week, as Best in U.S. manufacturing, North American Manufacturing. And Mark really has -- we've been at it very consistently for more than 10 years. So Mark is a big part of that, as well as he's to uptake some of the lessons we've learned in the U.S. and globalize them. So a big part of our culture.

And you'll see later, in really tough times in the U.S. for a late cyclical, we were making 3, 4, 5x more money than we're making in 2001, 2003 on essentially the same business base. And that's really, year-after-year, pulling out tens of millions of cost, you give some back in the market because your customer -- your competitors are doing the same thing. But it adds up. So I love the leverage and the explosiveness, and Mark also is driving our manufacturing know-how globally, and you'll get a chance to have -- hear from Mark in a few minutes.

We -- growing up in the business, I always was fearful of corporate centers with lots of people who watched and pointed out in hindsight what people could do better. So we've sort of had an aversion in a tough business to getting lots of folks whose job is to aggregate count, share wisdom and really wanted to get everybody in the front lines, and instead of saying we're global but have a global center, which has been a historical model we've seen, or people who call themselves global but don’t ever get any leverage because it's really a holding company that's in a business or a couple of businesses, but they don't really talk to each other, what we really did is, knowing we're in a fast-moving local business, but knowing there are certain things that can separate us over time from our competitors, we developed a view -- I'm sure others have done it, but what we really said is "Let's not get a big corporate center, but let's make sure if we have a breakthrough in the Philippines today, that it's known in Zambia in 10 minutes." And that's an idea. We've now done that in manufacturing. We're doing it in other areas. But we look at core things that can make us different. If you have a safe factory, generally, it's a very good factory and you'll see later that our safety metrics are 3, 4, 5x better than the average industrial company in the world or in the U.S.

So best practices around safety, core thing for the company. We look at every injury or near miss with great level of seriousness. And I think that's allowed us to get better. We're now watching Europe get far better than it was 3 years ago, headed toward the U.S. levels and actually Phelps Dodge, which came out of the mining culture, was even better than the U.S. So now those lessons have been leveraged. So a big story for us there.

Technology, there's a lot chemistry in what we do, electrical engineering, application engineering and if you -- you don’t want to reinvent these things 10 times around or 56 times around our factories, so we have a technology council that's looking at a variety of breakthroughs, and you'll see in the presentation, I've given a little bit about how fast we've accelerated in applying technology, not all of it invented by us. Sometimes, we purchase it or co-develop with a supplier. But that's been a big idea for us and I think Bob Kenny will hit that, I'll also hit that.

Sourcing, it's -- a lot of folks would say "Well, are you big enough to matter to your suppliers or your customers?" And in some ways, it's back to how do you use who you are? We're already pretty big company, but it's whether you can approach a Dow or a Borealis with one voice, or do they hear 15 voices. And we do a very good job with one voice. And you'll see with Alcan, Procables, as well as Prestolite, a lot of leverage in-sourcing and other areas. Mark will take you through the manufacturing best practices, but that's an expectation that put aside inflation and put aside volume. It's making one foot of production exactly right every time. So it's less scrap, less waste, it's operator-led process control and it's something that we feel in our DNA from top to bottom. And that's really been almost table stakes to be successful in this business is a culture of continuous cost out.

The communications products, as I introduce Bob Kenny, these are cables that may be this big if it's an old telephone cable, but most of them are the size of a finger, and they would be a high-speed data cable look where you're [ph] networking. It could be to actuate a motor or drive on a factory floor. It might be a broadcast cable for the Super Bowl. We're in all those places. There could be a fiber optics undersea, where NSW was an inventor of that technology. But that's one where a lot of the specs are driven out of the U.S. and we've really -- and a lot of our intellectual capital is here. So we've really taken the U.S. intellectual capital and now globalized it. And with Bob, in addition to day-to-day running North America, is -- has a functional P&L for this business globally. We're quite excited about it. A good return on capital, great place to distinguish yourself with know-how of value added.

As we move into the -- we'll show a little bit later about it. We have about $250 million business that's putting cable in the ocean or it's putting cable in the land. But there, we'd take a turnkey responsibility for that work. It's complex work and it involves either subcontracted construction companies, it involves a lot of engineering, it's work-site related. So we thought that we -- there's aspects of General Cable that have pieces of floor at Foster Wheeler that -- so we create a construction council really to look at best practices around when you own turnkey responsibility. Because the utilities, as you know, don't put in that many high-voltage cables or undersea cable, so they typically look at the highest end of our business to the manufacturing to do that on a turnkey basis.

And then lastly, we were doing a lot of work around the world that looks at everything from the emissions from the company to being a good neighbor in Africa, where if you're not taking care of AIDS, malaria and everything else, police, fire, you're probably out of business anyway. But we began to say this has become an important piece of our culture. It's also been important for customers, but we nearly never thought about it. This also gets the values as you have as a company and how you approach your work. So it's a -- while we're in many geographies, there is a General Cable culture and then it's manifest in this area. Again, these have to be win-win. You don't -- our job is not to go out and cure the world from hunger. Our job is to make money for our shareholders. But there are a lot of places where doing our job links nicely around the environment and around our neighbors and citizens. So that's it's.

I invite you to go to our website. We finally have put that together in the last year, so you could all see it in one place, what we do. There was a Spanish employee who said if we can ever act with the speed and agility of our small competitors, but the strength and power of a large company, we'll have something, and that's always sort of our mantra. This is where we had come from. It's, again, very focused on wire and cable. We celebrate the hard work we do. Our view is around product -- the product portfolio, as well as geographic expansion, taking know-how from Europe to United States. And as the countries industrialize in Colombia or Brazil, taking that know-how there and then building your position, as well as leveraging that global know-how around continuous improvement. So it's perfect quality, intellectual property. It's true integration with suppliers, as well as customers, and we're fairly well advance with how we do our work up and down the supply chain. And then of course, leverage learning. So we want to get rapid transfer of ideas, we don't want to invent them a thousand times.

And then I think the right blend of management that comes from outside the company with new ideas and that healthy contention, as well as people that have seen a cycle or 2, it's a great blend and that's part of the reason today that I introduced you to the depth in the company. This is really looking at some business cycles over time. We had a tough time in '02 to '04. And this is really -- this is just a measure of metal pounds. Of course, there's been acquisitions and adjusted operating income. But the real measure for me is how well we've done in the U.S. and Canada on virtually the same portfolio. In probably a tougher cycle, certainly from a construction, certainly from a utility standpoint. And again, we're starting to see this pick-up, and we'll talk a little bit about the leverage in the business in a minute.

This is really looking at -- we're return-on-capital oriented. A lot of folks say we only want to do high-margin stuff. We make cables that have a lot of copper or aluminum in them. So if you really follow that, you'd say, well, where we're going to do things without too much metal and then you get into a fairly narrow market. What we really look at is what kind of operating income and the capital employed will we receive over time? And Alcan makes pretty metal-intensive products, but we think over the cycle and with our synergies, that will be a terrific return on investment for the company. So while we pay attention to operating margins, some of that can get masked by what's copper, what's aluminum, and you really almost have to think of what's your absolute profit, and then of course, what's the return on investment. So we're paying a lot of attention to buying property, plant, equipment efficiently and well, or getting your net working capital down. We look at different classes or different channels to market. Some have much more extended dating than others, and we're measuring all of that live.

So we -- you can see, we had a wonderful period where the whole world was in this tremendous uptick and we've been hammering back through that time as we recover. But we like our hand going forward. The reason we haven't seen a stronger snapback from '09 forward is one, there's kind of a long recovery from a financial meltdown, but also, we put capital to work in 5 different new activities, which are only now just sort of crossing some of the early ones, crossing through being value creative. So we've invested, as well as we've really seen almost no construction recovery unlike the typical peak to trough and maybe 7 years, if you look back over economic history.

This is really looking at us over a 10-year period and we spend about $1.1 billion in capital spending. We've also been acquisitive. We have also acquired our shares when others didn't care to own them. And as we look at the market and said, where can we put our capital to work. And at moments, we could get a superior return there, and other moments, we could do better in buying an Alcan or something like that. So we've looked at this over time and we continue to look at it. We have an authorization in place now for $125 million. We're constantly looking at that in terms of what's the free cash coming out of the business. We will be investing below depreciation, we believe, this year. There's a lot of companies for sale. On the other hand, we're always looking at risk/reward and then getting or working the assets you've got in place and making sure you have a return there. So it's a dynamic equation, but we have bought, over the last several months in the fourth quarter.

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