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Roadshow Presentation 2006 Initial Public Offering.

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Presentation on theme: "Roadshow Presentation 2006 Initial Public Offering."— Presentation transcript:

1 Roadshow Presentation 2006 Initial Public Offering

2 Safe Harbor Statement Some of the statements in this presentation constitute “forward-looking statements” about Houston Wire & Cable Company. Such statements include, in particular, statements about our plans, strategies, business prospects, changes and trends in our business and the markets in which we operate. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “aim,” “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “will be,” “will continue,” “will likely result,” “would,” and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance. These statements represent our present expectations or beliefs concerning future events and are not guarantees. Such statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement. We caution that forward-looking statements involve risks and uncertainties and are qualified by important factors that could cause actual events or results to differ materially from those expressed or implied in any such forward-looking statements. The Prospectus delivered in connection with this offering describes some of these factors under the heading “Risk Factors.” Although we believe that our expectations are based on reasonable assumptions, actual results may differ materially from those in the forward looking statements as a result of various factors, including, but not limited to, those described under the heading “Risk Factors” and elsewhere in the Prospectus. Before you invest in our common stock, you should read the Prospectus completely and with the understanding that our actual future results may be materially different from what we expect. 1

3 Offering Summary 2

4 Introduction

5 Company Overview One of the largest specialty wire and cable distributors in the U.S. Comprehensive value-added services Broad, deep product offering - distributed approximately 20,000 SKUs in 2005 Majority of business driven by MRO applications, while complemented by new capital projects Successfully penetrating target vertical markets: utility, industrial and infrastructure Private branded products led by LifeGuard TM Tenured management team 3

6 Strong Financial Momentum Sales Gross Profit ($ in millions) Operating Income (1) Net Income (1) CAGR 20% Growth 54% CAGR 678% Growth 200% CAGR 26% Growth 61% CAGR 117% Growth 181% (1) Excludes litigation settlement income of $650,000 in 2004 and $672,000 in both 2005 and Q

7 Investment Highlights Industry Leading Performance Double digit organic sales growth Double digit EBIT margin Attractive Industry Dynamics $74 billion industry growing at 2x GDP Growth driven by new and upgraded infrastructure Opportunity to Capture Market Share First mover advantage with LifeGuard TM Cable Strong Competitive Position Market leader with national distribution network 30+ year operating history Investment in integrated IT system Significant barriers to entry Critical link in the supply chain for specialty wire and cable We believe this is the right industry, right company and right time to invest in Houston Wire & Cable Company 5

8 Right Industry

9 $74 billion electrical distribution market expected to grow 7.9% in 2006 – 5.1% CAGR over last 20 years $7.0 billion market in 2004 for specialty wire and cable – Specialty wire and cable typically ranges from 1% to 3% of capital value of investment Strong Market Dynamics Full-Line Electrical Distributors Niche Distributors Other Channels Largest segment of the electrical distribution market Example firms: GE Supply, Graybar, WESCO Includes niche providers of products and services Includes HWC and other specialty wire and cable providers Includes distributors from other segments Other Customers Primary Customers 6

10 Specialty Wire and Cable Distributor Sales Channel for Specialty Wire and Cable Manufacturers versus Specialty Distributors Transactions that require customization and high service levels are more likely to involve a specialty wire and cable distributor such as HWC Bulk Orders Customized Orders Limited Product Availability Broad Product Availability Minimum Service Levels Comprehensive Service Offering No Inventory Management Inventory Management Long Lead Times Same Day Shipment Manufacturer 7

11 Right Company

12 Critical Role in the Supply Chain for Specialty Wire and Cable We Offer Manufacturers We Offer Customers We Offer End Users Efficient order sizes Nationwide sales and marketing presence Knowledgeable technical support personnel Preservation of market share Incremental revenue Restricted brands Short lead times National distribution platform Elimination of inventory and warehouse investment Approximately 20,000 SKUs Application engineering Just-in-time shipment Custom lengths; minimize waste Cable management programs Internet-based inventory access 8

13 Specialized Product Offering Extensive array of specialty wire and cable Approximately 20,000 SKUs with 45,000 reels in stock High quality products from leading manufacturers Large inventory facilitates same day shipment Custom cut products that are ready for use at destination site Exclusive supplier of LifeGuard TM and other private branded products Control & Power Electronic Flexible & Portable Cords Instrumentation & Thermocouple Medium Voltage Continuous Armor Interlocked Armor Lead Wire & High Temperature Category & Premise 9

14 National Distribution Network Eleven strategically located distribution facilities 24/7/365 nationwide customer service 516,000 total square feet Capacity for significant additional sales volume Inventory customized by region 100% bar-coded inventory Centrally managed purchasing, logistics, accounting and administration ISO 9001:2000 processes Drive for “Best-in-Class” through continuous improvement Shipping accuracy 99.9% Order accuracy 99.9% 94% customer satisfaction Focus on Operational Excellence 10

15 Houston Headquarters and Distribution Center 11

16 Experienced Management Team 12

17 Formidable Barriers to Entry 24/7/365 Service 94% Customer Satisfaction Strong Balance Sheet Restricted Lines Long-Term Relationships Specialized Sales Force Broad and Deep Inventory National Platform 13

18 Growth Strategies Acquisitions Opportunistically pursue acquisitions Operational Excellence Continue operational excellence to drive industry leading efficiencies LifeGuard TM Leverage proprietary LifeGuard TM market opportunity Sales Force Expansion Implement pull through strategy New Target Markets Penetrate new target markets through realigned marketing efforts 14

19 $4 Billion Estimated Addressable Annual Wire & Cable Market Size Substantial Organic Growth Opportunities With New Markets Market Opportunity Traditional Market Engineering & Construction Utility Power Generation Environmental Compliance Proprietary Electronic Cable Targeted Industrials LifeGuard TM Opportunity 15

20 Leverage Proprietary LifeGuard TM Market Opportunity Estimated $1.75 billion potential U.S. market (assumes similar penetration rates as European and Asian markets) Demonstrated market acceptance of low-smoke, zero-halogen products in Europe and Asia for many years First-mover advantage in low-smoke, zero-halogen products in the U.S. LifeGuard TM already accepted for use by over 300 end-users in the U.S. Significant market opportunity across vertical markets – Power generation, wastewater treatment, data centers, etc. Proprietary product construction Significant barriers to entry 16

21 Benefits of LifeGuard TM Cable Benefits of low-smoke, zero-halogen compounds in the event of fire – Emits minimal smoke – Eliminates toxicity from halogenated acid gases – Protects equipment from corrosion caused by halogenated acid gases Ideal for use in environments where high-performance, reliability, and equipment protection are required Conventional Cable Low Smoke Zero Halogen Cable 17

22 Penetrate New Target Markets Communications General Manufacturing Transportation Energy Infrastructure Utility Wastewater Treatment Petrochemical Engineering & Construction Infrastructure Market Engineering and construction firms overseeing active projects totaling approximately $221 billion Continued construction of wastewater treatment facilities estimated at $25 to $41 billion annually Capital investment in oil and gas infrastructure is expected to total approximately $6 trillion through 2030 Utility Market Power generating facilities needed to parallel population growth Continued increases in energy demands – World energy consumption is expected to increase over 50% by 2030, requiring $17 trillion of investment ($625 billion per year) Federally mandated pollution control projects Industrial Market Growth in diverse manufacturing and production industries Productivity and capacity expansion Recurring and increasing levels of MRO needs Key Drivers in Target Markets 18

23 Implement Pull Through Strategy Sales channel expansion initiative was implemented in 2003 to leverage the strength of HWC's product and service platforms and market position Increased outside sales resources and sales force, while introducing new management systems Realigned compensation structure Pull through strategy creates valuable sales partnership with electrical distributor customers Electrical Distribution Other Channels Targeted Industrials Engineering & Construction Industrial Contractors Utilities  e.g., OEMs, International, Industrial Distributors 19

24 Operational Excellence Drives Industry Leading Efficiencies (1) Performance Analysis Review (“PAR”), issued by the National Association of Electrical Distributors (“NAED”), results reflect 2005 industry data for typical electrical distributors. As compared with typical electrical distributors… 20

25 Operational Excellence Drives Industry Leading Efficiencies As compared with the most recent results for select industry participants… Q1 ’06 Sales Growth (YOY)Q1 ’06 Gross MarginQ1 ’06 Operating Income Margin Q1 ’06 Operating Income to Total Assets 21

26 Financial Overview

27 Following a strategic acquisition in 2000, management focused on business integration and customer rationalization Strong momentum from 2003 to 2005 driven by new growth initiatives – Organic sales CAGR of 20% – Operating income CAGR of 117% – Net income CAGR of 678% Capital expenditures less than 1% of sales Strong free cash flow Profitability enhancements Financial Highlights 22

28 Profitability Enhancements Increased gross margins driven by favorable product mix and vendor rebates Gross Margin Operating Expenses as a Percentage of Sales * Operating Margin * Increased efficiencies and reduced operating expenses as a % of sales Significant increases in operating margin * Excludes litigation settlement income of $650,000 and $672,000 in 2004 and 2005, respectively. 23

29 Financial Summary to Q (1)Interest expense in Q reflects additional debt used to fund a $20 million dividend payment on December 30, ($ in thousands) 24

30 Capitalized for Continued Growth ($ in thousands) 25

31 Right Time

32 Maximize Shareholder Value Right Time to Invest Double-Digit Organic Growth Strong Cash Flows Industry Leading EBIT Margins Invest in Growth Strategies Operational Excellence 26


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