Investor Presentation 1 st Qtr. FY18 (12/31/2017)

Transcription

1 Investor Presentation 1 st Qtr. FY18 (12/31/2017)

2 Haynes International, Inc. Mark Comerford President and Chief Executive Officer Dan Maudlin Vice President of Finance and Chief Financial Officer The information contained in this presentation, and in the oral statements made as part of the presentation, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. You should keep in mind that any forward-looking statements made by us speak only as of the date on which we make it. Our actual results or actions may differ materially from those discussed in forward-looking statements. We have no duty to, and do not intend to, update or revise the forward-looking statements in this presentation except as may be required by law. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward looking statements, please refer to our most recent filings with the Securities and Exchange Commission, including the Company s Annual report on Form10-K. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Copyright Presentation and contents of this presentation are copyrighted by Haynes International, Inc. All rights reserved. Copying of this presentation is forbidden without the prior written consent of Haynes International, Inc. Information in this presentation is provided without warranty of any kind, either expressed or implied, including but not limited to the implied warranties of merchantability, fitness for a particular purpose and the timeliness of the information. Presentation and contents of this presentation are not an offer to buy or sell securities of Haynes International, Inc., and Haynes International, Inc. is not soliciting any offer to buy or sell any such securities. 1

3 We operate in the specialty high-performance alloy market Nickel-and cobalt-based high-performance alloys Primarily flat product producer Specialty high-performance alloy flat product sector is 200 million lbs versus a total metals market in excess of a billion tons U.S. producer supplying products to a global customer base Producer of over 50 different alloys in a variety of product forms 24 U.S. patents and approximately 236 foreign counterpart patents High-growth, technically demanding end markets Aerospace Industrial gas turbine Chemical processing Emerging markets: Solar Power, Ultra Supercritical Boilers, Nuclear, Fuel Cells Positive industry dynamics and customer requirements Direct to customer sales model Recurring MRO business Increasing customer demand for value-added processing services 2

4 Our products We are an innovative, market-leading producer of high-performance nickel- and cobalt-based alloys used in corrosion and high-temperature applications. Revenue by Alloy Application (FY2017) Revenue by Alloy Product Forms (FY 2017) 19% 81% Hightemperature Alloys Corrosionresistant Alloys 41% 59% Flat Product (sheet, plate, coil) Forgings, Billet, Bar, Wire, Tube Our products serve in demanding applications in corrosive or high-temperature environments. We provide a variety of product forms with a majority being flat products including: sheet, coil, plate and shapes that are cut to customer specifications. 3

5 We have a unique business model Manufacturing support at mill level Distribution through service centers Cultivate closer customer relationships to help customers solve technical issues Increase value-added capabilities Moving up the customer supply chain Faster response times Facilitate MRO business Create barriers to entry Our service centers allow customers to outsource non-core activities Working capital management Material processing/cutting Technical support Problem solving New application development New alloy development Net Revenues by Route to Market (FY 2017) 24% 76% Direct to Customer Sales Distribution & Sales Agents Net Revenues by Mill/Service Center (FY 2017) 63% 37% Mill Direct Sales Service Center Sales Our unique business model generates strong customer relationships and results in high customer retention rates 4

6 Global presence facilitates superior customer service Our locations are well positioned to supply value-added services to both existing and emerging areas of growth Only high-performance alloy manufacturer operating its own service centers with locations in North America, Europe and Asia Our Facility Locations U.S. Production Facilities Kokomo, Indiana Arcadia, Louisiana Mountain Home, North Carolina Europe Service and Sales Centers Openshaw, England Paris, France Zurich, Switzerland Milan, Italy La Mirada, CA LaPorte & Kokomo, IN Houston, TX - Arcadia, LA Windsor, CT Mountain Home, NC Openshaw, England Paris, France Zurich, Switzerland Milan, Italy Shanghai, China Tokyo, Japan U.S. Service Centers La Porte, Indiana Windsor, Connecticut Houston, Texas La Mirada, California Singapore Asia Service and Sales Centers Shanghai, China Singapore Tokyo, Japan 5

7 We have exposure to diverse set of worldwide markets Geographic diversity of sales offsets risk of regional performance Approximately 40% of net revenues are to customers outside of the U.S. International sales growth through strategic positioning of service and sales centers Market diversity offsets risk of individual market performance Net revenues balanced over multiple end markets Other markets increasing promotes more diverse market exposure Net Revenues by Region (FY 2017) Net Revenues by End Market (FY 2017) China 4% ROW 11% United States 60% Europe 25% Other 18% Industrial Gas Turbines 16% Chemical Processing 18% Aerospace 48% Other reflects 7% of non-product revenue. 6

8 Aerospace is our largest market Commercial airplane build rates are the primary driver of OEM demand Commercial aerospace backlogs are at record levels MRO market provides a recurring base of business which is increasing Global passenger air traffic projected annual growth rate: 4.8% (1) ; Global cargo air traffic projected annual growth rate: 4.2% (1) (1) Boeing Current Market Outlook 2016 Asia/China are expected to be the major growth zones Haynes Annual Revenue and Pounds Shipped Commercial Aircraft Engines in Service In Millions $229.9 $203.5 $197.1 $195.2 $215.1 $197.4 $192.5 $138.4 $250 $200 $150 $100 $50 $0 Revenue Pounds FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY , , ,000 90,000 80,000 70,000 60,000 50,000 Engines in service Source: Company s Form 10-K FY2017 Source: Airline Monitor June

9 Aerospace market trends Solid Potential for both Short-term and Long-term Outlook Airbus & Boeing have a combined backlog of more than12,000 aircraft (~8 years). (1) Increased fuel efficiency and reduced emissions driving new engine technology. Hotter engine cores requiring more advanced alloys are being developed. (1) Airline Monitor, June 2016 (2) Boeing Current Market Outlook 2016 The commercial aircraft fleet is expected to grow an average 3.3% per year and double in size from 22,510 aircraft today to 45,240 in (2) The industry will need 39,620 new aircraft at $5.93 trillion needed over next 20 years (2) Global fleet will double 20-year forecast: continued long-term growth Boeing Current Market Outlook 2016 Boeing Current Market Outlook

10 Our alloys are used in a strong suite of Aerospace applications Hot Section rings, seals, cases HAYNES 214, 242, 263, 282, 625, 718, HASTELLOY X and Waspaloy alloys Diagram by Jeff Dahl used courtesy of under GNU Free Documentation License v.1.2 Combustors HAYNES 230, 188, 263, 617, 625, and HASTELLOY X alloys Exhaust section 25, 188, 282, 625, 718, X, Waspaloy and R-41 alloys 9

11 Chemical Processing Industry Large, existing North American, Asian and European markets driving a base MRO business Demand largely follows GDP growth however global chemical industry growth will be led by US low prices for natural gas and natural gas liquids The American Chemistry Council reports that the cost benefit from low cost shale gas in the US is propelling a wave of new chemical capacity. Following a decade of lost competiveness, American chemistry is reemerging as a growth industry. The trade balance in chemistry has reversed from a deficit position to one of surplus 275 chemical projects announced in the US worth more than $170 billion. Average annual gains of 8% per year in the US Capital Spending are expected between 2018 and Haynes Annual Revenue and Pounds Shipped Global Capital Spending $B/Yr. In Millions $250.0 Revenue Pounds $200.0 $150.0 $150.0 $134.6 $124.1 $113.4 $111.6 $100.0 $ $50.0 $72.3 $ $593.3 $562.9 $530.6 $401.1 $429.1 $441.8 $437.8 $454.5 $473.1 $499.6 $0.0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY Global Capital Spending $B Source: Company s Form 10-K 10-Q FY2017 Source: American Chemistry Council December

12 Chemical processing applications and alloys HASTELLOY C-22 alloy for centrifuge pharmaceutical processing HASTELLOY G-35 and G-30 alloys for phosphoric acid evaporators HASTELLOY B-3 and C-276 alloys in acetic acid plant HASTELLOY C-2000 alloy reactor for pharmaceutical processing 11

13 Industrial gas turbine market Current concern of overcapacity in this market impacting near-term shipments and causing large OEM producers to restructure. However over the long-term world-wide power generation capacity, due to increasing demands from developing counties, forecast to grow. (1) Over the next 10 years, an estimated 17,680 gas turbines (excluding microturbines) are forecast to be built (value of almost $256.7 Billion). (2) Continued emphasis on increased efficiency and reduced emissions require higher operating temperatures and more advanced alloys. Readily available natural gas has created a major shift in the power industry, with most major power producers expecting to more generation from natural gas. (3) By 2040, natural gas is expected to account for 31% of U.S. power production, which represents a growth rate of 40% between 2013 to Over the latter portion of the prediction period, the vast majority of power capacity additions will come from natural gas and renewables. (3) (1) Reference: DOE/IEA-0484(2016 International Energy Outlook, Energy Information Administration, May 2016 (2) Reference: Forecast International, January 2015 Data (3) Reference: U.S. Energy Information Administration, Annual Energy Outlook 2017, p. 69 Haynes Annual Revenue and Pounds Shipped Siemens SGT5-8000H Land Based Gas Turbine Siemens press picture Reference Number: soaxx Electricity Generated by Fuel Type In Millions $150 Revenue Pounds $119.2 $98.2 $102.0 $100 $86.7 $74.2 $74.4 $68.1 $ $ $0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY Source: Company s Form 10-K FY2017 Source: U.S. DOE, EIA-0383 (2017), January

14 Industrial gas turbine applications and alloys HAYNES HR-120 and 230 alloys for micro-turbines HAYNES 263 alloy transition section for hot gas path HAYNES 230 alloy hot gas casing HASTELLOY X alloy combustor can 13

15 Emerging technologies applications and alloys HASTELLOY C-22HS alloy for oil and gas production Photograph courtesy of SolarReserve 2013 Used by permission HAYNES alloys enable advanced concentrated solar power plants to provide environmentally clean and efficient electricity into the evening hours after sunset. HAYNES 230 and 625 alloys selected for solid oxide fuel cell systems. 14

16 Leader in developing new alloys and identifying new applications Competitive advantage Industry leader in developing new high-performance alloys Since 2003, our technical programs have yielded eight new proprietary alloys. Most recently in December 2016, the development of our new hightemperature alloy HAYNES 233 was announced. This alloy is expected to have excellent oxidation resistance coupled with superior creep strength at temperatures up to 2100 F (or higher) - a combination of properties never before achieved in a readily fabricated alloy. We have new alloys under development New applications represent potential future commercial value Solar power Solid oxide fuel cells Fuel cells Nuclear Automotive diesel turbo-chargers Sulfuric acid coolers Fuel injectors Calciner applications Aerospace/power generation Oil & gas Pharmaceutical Fasteners Ultra supercritical boilers 15

17 Strong relationships across broad blue-chip customer base Customers are industry leaders with proven, sustainable business models Supply chain initiatives, service center support and value-added service Provide new products, material solutions, technical support, forming and fabrication know-how through a direct sales force Aerospace Chemical Processing Land-Based Gas Turbines Boeing BASF ALSTOM General Electric Pratt & Whitney Rolls Royce Snecma Bayer British Petroleum Dow Chemical DuPont Eli Lilly General Electric Rolls Royce Siemens Solar Turbines No customer accounts for more than 10% of sales in fiscal The top 20 customers accounted for approximately 38% of sales 16

18 Manufacturing high-performance superalloys Superalloys demand a longer and more complex multi-stage manufacturing process than commodity stainless grades and carbon steels Certain alloys may undergo 40 or more distinct stages of production Tight controls We are one of the few manufacturers with the requisite know-how and facilities to produce superalloys Our four-high steckel mill is one of the most powerful mills used to roll highperformance superalloys We are uniquely positioned to supply customers with value-added products that meet demanding precise specifications Competitive advantage Higher margin potential Haynes s Kokomo mill is capable of generating approximately 12 million pounds of separating force and rolling plate and sheet up to 72 wide. 17

19 Our manufacturing process Basic Steps Product Form Melt/ Re-melt Forging Forgings/ Billet Bar/Wire Tubular/ Fittings All products go through melt and re-melt Round/long products go through forging 4-Hi Rolling Mill/Reheat Furnaces Plate MKW 90 and 100/Annealing Furnaces Hot rolling process for sheet and plate (other than finishing) Plate - capacity at current market mix is approximately 9 million pounds Coil Product Form Sheet Cut Parts Sheet - capacity at current market mix was previously approximately 13 million pounds which has been expanded to 18 million pounds with recently completed capital projects 18

20 Capital improvements are expected to yield substantial benefits Process Projects $MM Tubular Arcadia Flat Product Kokomo Global System Upgrade IT System Global Finance $14 Process Manufacturing Projects $MM Sheet Capacity Strategic Capital Spending Projects Fiscal Years 2012 through 2017 Pilger Mill Vacuum Furnace Ultrasonic Testing Equip Furnaces Furnace Controls (all) ESR upgrade Plate stretcher Increase capacity in response to growing aerospace market Expected FY2018 capital spending is $16.0 million, which is below our $23 million depreciation levels $37 $24 $22 Growth Capital Tubular revenue - $50.0 million plus Flat product 4.0 million pounds Gross margin percentage improvement of 200 to 400 basis points (under normal market conditions) IT System Upgrade Single Global Enterprise Resource Planning System Scalable/versatile support of manufacturing, distribution and service Improved production planning and finite scheduling capability FY16-17 Expand Sheet Capacity Record year in FY15 of shipments into the aerospace market and hit record production levels of sheet/coil products. Expect increasing demand for thin gauge flat products primarily associated with growth in the aerospace market. Capacity expected to increase over 35% with produced lbs increasing from 13 to 18 MMlbs. All projects increase efficiency and improve working capital management Reduced operating and maintenance costs Improved quality Accelerated product flow 19

21 Financial overview and strategy Strong financial position with flexibility to fund growth Built strong balance sheet with positive cash flow $34.0 million of cash and no borrowings on credit facility as of December 31, 2017 Revolver with availability of over $100 million Working Capital High-performance alloy industry has long production cycles/working capital cycles. Long-term inventory strategic plan initiated to improve inventory turns Capacity and margin expansion potential New capital programs designed to increase capacity and expand margins Lean manufacturing and spending improvements implemented over all business Creating value for the future Continued capital investment New alloy development Initiated and increased dividend Focus on increasing shareholder value Backlog $250 Dollars Pounds Backlog ($ millions) Pounds (000s) Beginning of fiscal 2018 reported higher order entry and backlog levels showing positive signs of a market recovery 20

22 Quarter-over-quarter P&L trends Gross Profit Margin % 12.7% 8.7% 13.1% 12.4% 11.7% Net Income $ 0.2 $ (1.2) $2.8 $3.2 $ 5.0 Trend of Quarterly Profitability for Fiscal 2017 (dollars in millions) Dec 31, 2016 Mar 31, 2017 Jun 30, 2017 Sep 30, 2017 FY 2017 Net Revenues $93.4 $103.1 $98.0 $100.8 $395.2 Gross Profit Margin $ 10.5 $9.8 $3.7 $5.8 $29.7 Gross Profit Margin % 11.2% 9.5% 3.7% 5.8% 7.5% Net Income (Loss) $ (0.7) $ (1.9) $ (4.0) $(3.7) $ (10.2) Trend of Quarterly Profitability for Fiscal 2018 (dollars in millions) Dec 31, 2017 Mar 31, 2018 Jun 30, 2018 Sep 30, 2018 FY 2018 Net Revenues $89.7 Gross Profit Margin $ 7.0 Gross Profit Margin % 7.8% Adjusted Net Income (Loss) $ (2.9) -excluding tax adjustment Trend of Quarterly Profitability for Fiscal 2015 (dollars in millions) Dec 31, 2014 Mar 31, 2015 Jun 30, 2015 Sep 30, 2015 FY 2015 Net Revenues $110.7 $138.7 $121.3 $117.0 $487.6 Gross Profit Margin $ 20.3 $ 27.8 $ 24.2 $21.4 $93.7 Gross Profit Margin % 18.3% 20.1% 19.9% 18.3% 19.2% Net Income $ 6.4 $ 11.7 $6.6 $5.8 $30.5 Trend of Quarterly Profitability for Fiscal 2016 (dollars in millions) Dec 31, 2015 Mar 31, 2016 Jun 30, 2016 Sep 30, 2016 FY 2016 Net Revenues $95.1 $102.5 $101.3 $107.5 $406.4 Gross Profit Margin $ 12.1 $ 8.9 $13.3 $13.3 $ 47.6 First quarter results are typically impacted by holidays, planned maintenance outages and customers managing their calendar year-end balance sheets. FY15 included record aerospace volumes, solid special projects, expanded tolling and tubular business; combined with improved pricing. Q1-Q2 FY16: Margin compression from falling nickel, strong USD and low demand in our CPI business. Lower amounts of specialty applications projects and low overall volumes. Specialty application projects moderately increased in Q3 and Q4 of FY16 driving higher margins and profitability. FY17 net losses due to continued low overall volumes including low transactional business, low levels of special projects, and competitive pricing. Gross margin % beginning to recover with increases the past two quarters. Source: Company s Form 10-K FY2017 and 1st Qtr. Form 10-Q FY

23 Financial performance Net Revenues Operating Income $600.0 $500.0 $400.0 $300.0 $381.5 $579.6 $542.9 $482.7 $487.6 $455.4 $406.4 $395.2 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $76.9 $49.3 $32.0 $47.5 $200.0 $20.0 $10.0 $15.5 $5.0 $4.2 $100.0 $0.0 ($10.0) $ ($20.0) ($16.5) ASP $21.41 $22.97 $24.78 $22.94 $21.02 $24.07 $22.62 $21.81 HPA # s Note: Dollars and pounds in millions. ASP is dollars per pound. Operating income in fiscal 2016 impacted by falling nickel prices, strong USD, and low demand in our CPI market. Fiscal 2017 worsened with low demand, 2004 lack of transactional business, less of the high-value specialty Reorganized applications as and more intensely competitive Haynes pricing environment. International, Inc. FY2018 gross margin % beginning to recover with increases the past two quarters. 22

24 Liquidity Sources of Cash Cash at December 31, 2017 of $34.0 million Revolver debt of zero Cash provided by operations was $13.1 million for FY2017 and was a use of cash of $$6.3 million for the first quarter of FY2018 due to ramping up business levels reflected in the backlog increase. Credit facility availability of greater than $100 million ($MM) $80.0 $70.0 $60.0 $50.0 Haynes International Inc. Liquidity Cash From Operations Cash Revolver Debt $73.4 $68.3 $46.7 $45.9 $48.4 $64.7 $54.0 $49.0 $46.3 Future Uses of Cash $40.0 Strategic capital expenditure plan $15.0 million FY17 and is projected to be $16.0 million in FY18. Regular quarterly dividend of $0.22 per share $30.0 $20.0 $20.8 $26.9 $13.1 $11.0 million on annualized basis $10.0 Funding of pension plan and medical retiree obligations $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 CapEx $25.9 $41.6 $ 39.7 $33.1 $31.6 $15.0 Historically Since September 30, 2006 to September 30, 2017, we invested $261 million in capital expenditures, retired $117 million of debt, paid $85 million in dividends, paid $157 million into the Company s Pension and Retiree Healthcare plans and grew our cash position by $40 million. 23

25 Strong balance sheet Continued to have zero borrowings on revolver with investment in capital expenditures and (in millions) returning cash to shareholders in dividends Summary Balance Sheet 9/30/13 9/30/14 9/30/15 9/30/16 9/30/17 12/31/17 Cash (including Restricted) $ 68.3 $ 45.9 $ 49.0 $ 64.7 $ 46.3 $ 34.0 Accounts Receivable Inventory PP&E, Net Goodwill and Other Intangibles Other Assets Total Assets $ $ $ $ $ $ Accounts Payable & Accruals $ 41.3 $ 55.2 $ 46.0 $ 42.8 $ 46.9 $ 53.8 Revolving Credit Facilities Pension and postretirement Other Liabilities Equity Total Liabilities and Equity $ $ $ $ $621.8 $604.6 Source: Company s Form 10-K FY2017 and Form 10-Q 1 st quarter of FY

26 We are positioned for long-term growth We are a market leader in the specialty high-performance alloy market Serving diverse geographic and end markets with long-term relationships with our broad blue-chip customer base Our unique business model facilitates strong customer service and retention Mill manufactured products Service and sales centers Value-added processing services New application development Strong research and development program Our continual development of patent-protected alloys puts us in the position of market leader We continue to make strategic investments to expand product capability, services, manufacturing capabilities and margins Financially positioned to meet our challenges successfully and achieve our goal of enhanced shareholder value 25