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Thomas & Betts (

TNB

)

Gabelli & Company Best Ideas Conference

December 14, 2011 9:30 a.m. ET

Executives

Dominic Pileggi - CEO

Analysts

Anix Vyas - Gabelli & Company

Presentation

Anix Vyas

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Good morning. My name is Anix Vyas. I'm an analyst in our Industrials teams. I've been with the company about a year and a half, almost two years. It's my pleasure this morning to introduce our next representative from Thomas & Betts, Dominic Pileggi, Chairman and CEO, and also William Weaver, CFO of the company is here with him.

Thomas & Betts has about 52 million shares outstanding. Priced at $52.15 for a market cap of about $2.7 billion, net debt of $109 million. Thomas & Betts has an (ex parte) value of about $2.8 billion. We like Thomas & Betts primarily because its products are critical to the green movement. The company operates under three segments. Electrical, where it manufactures connectors and other components for the electrical, utility and communication applications. Steel Structures, where the company has a leading position. And HVAC.

We believe the company is positioned very well to grow and its end markets – as its end markets recover. With that, let's just jump right into our conversation.

Dominic Pileggi

Okay. Thank you very much. Can you hear me okay? Okay. Thank you. Good morning. I'd like to thank Mario for inviting us to your conference and I'm going to cover two topics today. And then I'll do that in hopefully just five minutes or so.

Number one I'd like to just reflect on 2011 and then just take a preliminary outlook for 2012. If we look at the environment in 2011, I mean obviously it was a pretty challenging environment with the eurozone crisis or the political unrest internationally. The political paralysis that we're seeing domestically. Not to mention some natural disasters that we had to cope with. And 2011 – it may close with even greater uncertainty than we saw throughout the year. And we did see strong emerging markets, which drove some significant commodity inflation. Other than that, it was a pretty calm and boring year, if you look at it that way.

So now, I'm going to cover our three segments. Our Electrical segment, which is over 80% of our business, our core business, I'm going to cover that first. Again, here, Thomas & Betts we continued to focus on our customers and on our distributors driving what we call the two pistons of our business. That's brand of choice and supplier of choice. And just to outline that in a second, brand of choice is all the strategies we have wrapped around the product and the end user that creates the demand for our products and drives our industry-leading brands. Supplier of choice is all the services and value we bring to the distributor network, which basically lowers their transaction cost and increases their working capital requirements.

We focused on the fastest as we said actually at this conference last year, that we were going to focus on the faster growing verticals and we tactically redeployed our sales forces into where we thought the action was. And that was primarily things like petrochemical, mining, food and beverage, things like that. And water treatment facilities.

We offer a very valuable value proposition and good execution that drove strong organic growth. Our Electrical segment had organic growth of 8% through the first nine months and I think that was very good. I think we had outstanding price management throughout the year. We implemented three successful price increases in the first nine months of the year and we believe that we achieved good price cost parity there. So we were obviously a successful price leader in our space.

Our margins expanded by 80 basis points despite the commodity cost headwinds. And we had record segment margins in our Electrical business through the first nine months of 20.3% for that period. And again, OpEx driven demand leaves us very well positioned for late cycle when CapEx spending starts to come about.

I'm going to turn to our Steel Structure business. This is where we manufacture highly engineered transmission monopoles for the electrical grid, primarily in North American business. Again, we've seen – happy to report we saw significant shifts in the utility CapEx by us. So we saw a lot of new project awards and we believe we've gotten at least or more than our fair share of those project awards. We are adding capacity to this business to address this market expansion. And after trough and segment earnings in the first half, the second half where we saw this business turn into more of a buyers – sellers market than a buyers market, we saw solid earnings that rebounded in the third quarter.

I think we did a really good job. I think we played our hand very well managing the project quotes to avoid filling our plants with a backlog of long tail, low margin projects. And we expect 2011 to end in the low teens with an increase in sales and a second half margin in the mid-teens. So we're very happy with the way that business is going. We have and expanding backlog, which should benefit 2012 and we're looking as I mentioned, mid-teen growth.

In our HVAC segment, we're expecting top line growth here in the mid-20% with solid organic growth and we did make a very attractive bolt-on acquisition and solid margins in that business.

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