2012 BAML Smid Cap Conference June 6 7, 2012

Transcription

1 2012 BAML Smid Cap Conference June 6 7, 2012

2 Safe Harbor Provision This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, (the Exchange Act ), as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. Such forward-looking statements include the discussions of our business strategies, estimates of future global steel production, trends toward outsourcing and other market metrics and our expectations concerning future operations, margins, profitability, liquidity and capital resources, among others. Although we believe that such forward-looking statements are reasonable, there can be no assurance that any forward-looking statements will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Certain areas of this presentation depict Revenue After Raw Materials Costs, EBITDA and Discretionary Cash Flow, which are non-gaap financial measures. Revenue After Raw Materials Costs, EBITDA and Discretionary Cash Flow are not and should not be considered alternatives to revenues or net income or any other financial measure under U.S. GAAP. We reconcile these measurements to GAAP in our quarterly and annual reports on forms 10-Q and 10-K, filed with the S.E.C. pursuant to the Exchange Act. Our calculation of Revenue After Raw Materials Costs, EBITDA and Discretionary Cash Flow may differ from methods used by other companies. When we use the term North America in this presentation, we are referring to the United States and Canada; when we use the term international, we are referring to countries other than the United States and Canada; when we use the term Latin America, we are referring to Mexico, Central America, South America and the Caribbean, including Trinidad & Tobago. 1 1

3 Management Team Joe Curtin: Chairman, President and CEO Ray Kalouche: Chief Operating Officer, and President and COO of the Mill Services Group David Aronson: COO, Raw Materials and Optimization Group Tom Lippard: Executive Vice President & General Counsel Dan Rosati: Executive Vice President & CFO Kelly Boyer: VP, Investor Relations & Treasurer 2 2

4 Agenda Company Overview Current Operating Environment Global Growth Strategy Financial Overview Scunthorpe Sheffield Outlook 3 3

5 Company Overview 4 4

6 A Leading Provider of Mission Critical Services Throughout the Steel Production Process Pre-Steel Making Steel Making Post-Steel Making Raw Materials Procurement and Logistics Semi-Finished and Finished Material Handling Proprietary, Software-Based Raw Materials Cost Optimization Metal Recovery and Slag Handling, Processing and Sales Scrap Management and Preparation Surface Conditioning Raw Material and Optimization Group (RMOG) Mill Services Group (MSG) TMS enables steel producers to generate substantial operational efficiencies and cost savings 5 5

7 Outsourcing to TMS Allows Steel Producers to Focus on Their Core Business Making Steel Iron Ore Pig Iron 70-75% Surface Conditioning Coke Liquid Steel === to Casting 85-87% As Needed for quality On-Site Transport Limestone Raw Materials Sourcing & Logistics Blast Furnace Produces molten pig iron from iron ore Basic Oxygen Furnace Produces molten steel Electric Arc Furnace Produces molten steel 80-85% Slag Semi-Finished Material Liquid Steel === to Casting On-Site Transport Rolling/Finishing Facilities On-Site Transport Finished Goods Loading Dock/Rail/Truck 15-20% 80-85% Aggregate Scrap Steel TMS is embedded in all phases of our customers operations providing mission critical services throughout the steel-making process 6 6

8 Leading Global Provider of Outsourced Services to Steel Mills TTM at 03/31/12 Revenue After Raw Materials Costs: Adjusted EBITDA: $570 MM $136 MM Mill Services Group Raw Material and Optimization Group Services / North America Market Share #1 Scrap Management and Preparation #1 Semi-Finished and Finished Material Handling #1 Metal Recovery and Slag Handling, Processing and Sales #1 Surface Conditioning #2 #1 Raw Materials Procurement and Logistics Proprietary, Software-Based Raw Materials Cost Optimization Operations 82 customer sites in 11 countries 31 offices supporting global operations Unique Business Model Reduces Cyclicality And Risk Contracts typically have minimums/tiered pricing Approximately 80% of cash operating costs variable Capital not spent until contract is signed Long-term contracts with price indexing provides good visibility Minimal inventory and commodity price risk No capital required for growth 7 7

9 Broadest Portfolio of Services in the Industry Coverage Scrap Management and Preparation Semi-Finished and Finished Material Handling Metal Recovery and Slag Handling Processing and Sales Surface Conditioning Raw Materials Procurement and Logistics Proprietary, Software-Based Raw Materials Cost Optimization Global Harsco Corporation (Metals & Minerals Segment) Global Phoenix Services Global Edward C. Levy (Steel Mill Services Segment) Global Stein U.S. David J. Joseph 1 Global Schnitzer Steel Global Sims Metal Management Global Omnisource U.S Regional TSR Recycling Europe/Asia 8 8

10 Industry Leading Safety Performance Incident Rates EAF Mills (SMA) Integrated Mills (AISI) Slag (NSA) TMS Target: Q12 TMS Note: Rates are calculated using the OSHA formula which is multiplying the number of recordable injuries by 200,000 and dividing by the total number of hours worked. Our industry leading safety record, which is our #1 priority, and strong operational expertise set us apart from other companies in our industry. This, in turn, helps us maintain our high contract renewal rate - which is 97% since

11 Long-Standing Relationships with World s Leading Steel Producers Customer Number of TMS Sites Years of Service (1) AK Steel 4 24 ArcelorMittal CMC 3 18 Evraz 2 23 Gerdau Nucor 9 33 SSAB 1 23 Tata Steel 2 51 Ternium 2 5 United States Steel 9 69 Customer base includes 12 of top 15 largest global steel producers by volume Average length of top 10 customer relationships over 34 years Offer broadest portfolio of services Deep operational integration Contracts written on a site-level and service-level basis, mitigating potential customer concentration Mission-critical, cost-effective service offerings Average length of service >34 (1) Includes service to predecessor entities. Contracts are written on a site-by-site basis which reduces the risk associated with customer concentration 10 10

12 Strong North American Base with Significant Global Scale and Growing Geographic Diversification Saskatchewan IPSCO (Regina) Ontario L'Orignal OR CA UT Nucor UT Steel (Plymouth) AZ MN MN WI Charter WI Steel (Saukville) MI NY IA Nucor NYSteel North Star Steel (Auburn) NE (Wilton) PA CT IL IN OH NJ WV DE KYISGWeirton VA Steel (Weirton) AR TN MacSteel AR (Ft. Smith) AL GA SC MS Gerdau AmeriSteel GA TX FL Scunthorpe Teeside Immingham Sheffield Florange Dunkerque Commentry Marseilles Le Creusot Moerdijk Gent Genk Kosice Smederevo Dubai Abu Dhabi Taichung Beijing Seoul Kaohsiung Ho Chi Minh City Singapore Monclova Saltillo Monterrey Puebla Jakarta Point Lisas Saldanha, S.A. Vanderbijlpark S.A Belo Horizonte Revenue by Geography Mill Services Locations Raw Material Procurement Offices Q North America 93% 77% 74% International 7% 23% 26% International Revenue after Raw Material Costs has increased from 3% in 2007 to 26% in 2012

13 Current Operating Environment 12 12

14 Steel Production and Outsourcing Expanding Globally United States / Canada Steel Production: 2.9% GDP: 2.2% Industrial Production: 2.7% Mexico Steel Production: 3.4% GDP: 3.6% Industrial Production: 4.8% Latin America Steel Production: 4.4% GDP: 4.3% Industrial Production: 3.9% Eastern Europe / Russia Steel Production: 3.3% GDP: 3.4% Industrial Production: 4.6% Turkey Steel Production: 4.8% GDP: 4.5% Industrial Production: 5.1% China Steel Production: 5.1% GDP: 8.1% Middle East Industrial Production: 11.5% Steel Production: 6.1% India GDP: 3.8% Industrial Production: 4.0% Steel Production: 7.3% GDP: 8.3% Industrial Production: 8.2% Brazil Steel Production: 4.8% South Africa GDP: 4.6% Industrial Production: 4.0% Steel Production: 7.0% GDP: 3.7% Industrial Production: 4.6% Steel production is a global growth industry and outsourcing services is growing in every region Notes: Figures represent CAGR over stated period. Regional GDP and Industrial Production represents a weighted average of selected countries in region. Source: CRU International and Economist Intelligence Unit. May

15 Robust Steel Production Growth Expected (in millions of metric tons) Global Steel Production North American Steel Production (in millions of metric tons) 2,000 BRIC Rest of World 150 1,500 1,000 1,773 1,707 1,642 1,580 1,513 1,416 1,345 1,330 1,249 1, , F 2013F 2014F 2015F Source: AME, April F 2013F 2014F 2015F Source: AME, April 2012 Continued Growth Expected post-2011 Rebound 14 14

16 North American Demand Continues to Rebound Capacity Utilization % 100 Cap Utilization Recovering From Lows Service Center Inventories Still Low Total Steel Inventories (mm tons) 16, , , , U.S. Steel Industry Capacity Utilization Average Utilization Source: AISI, April 2012 NA Vehicles Production Rebounding Source: MSCI, April 2012 Delayed Rebound in Non-Res Construction (in millions) 20.0 (in million sq. feet) 2, ,500 1, F 2013F 2014F Source: IHS AutoInsight, February 2012 Source: McGraw Hill, January 2012 U.S. steel industry recovery being driven by auto, energy, industrial and agricultural end-markets 15 15

17 Increased Adoption of Outsourcing as a Best Practice Maturity of Steel Services Low Outsourcing Market High Western Europe North America Eastern Europe / Russia APAC ex-china Latin America China Increasing Acceptance of Outsourcing as a Best Practice Middle East Low Expected Market Growth High Notes: Size of bubble represents current market size based on current Crude Steel Production Source: Management, CRU. Expected Market Growth is based on 2011E 2015E Crude Steel Production CAGR. Source: CRU

18 Global Growth Strategy 17 17

19 Our Growth Strategy Continue to expand our global raw materials procurement network Win new service contracts globally - Expand to new locations - Cross sell services at existing locations - Take advantage of new outsourcing opportunities Selectively expand service and product offerings Selectively pursue acquisitions and partnerships 18 18

20 MSG Operational Highlights 2011 and YTD : 2012: Nine new contract wins Eight international contracts Three contract wins in new geographies (Middle East and South Africa) Two contract wins were cross-sells at existing sites Two new contracts announced YTD (one in Mexico and one in U.S (Alabama)) New operations globally moving through start-up phase ahead of schedule Pipeline of opportunities remains strong with $30-$50 million of growth capital expected Summary of New Contracts: (thru March) # of contract wins 9 2 Additional revenue backlog $433MM $179MM Growth capital commitment $60 - $65MM $20-22MM $41 MM spend in 2011 Average new contract term 7.5 yrs yrs RK 19 19

21 RMOG Operational Highlights 2011 and YTD 2012 Continued to strengthen and diversify global procurement network - 31 offices covering 5 continents Traders hired and offices opened in both Mexico, Brazil and Dubai, complementing our new mill services operations Opened Miami office to cover Latin America Continuing to expand commodity menu Latest example: third-party prime and non-prime steel sales in Latin America Sourced a number of breakthrough transactions in emerging markets Completed first raw material shipments within MENA region and from MENA to Asia, Europe and Latin America Growing volumes in Taiwan due to strengthening relationships with local mills led to scrap yard expansion Booked first sales into Morocco Continued success with large vessel transactions contributed positively to per ton margins RK 20 20

22 Financial Overview 21 21

23 Unique Business Model Reduces Cyclicality and Risk BUSINESS MODEL STRENGTHS BUSINESS MODEL ATTRIBUTES Long-term contracts with long-term customers - Average term of contracts: 7 years - Average length of relationship: 34 years Revenue grows as steel production grows not linked to steel prices. Tiered pricing structure Built-in protection from: 1) steel production declines and 2) increases in key operating costs Minimum monthly fees regardless of volume Price adjustments based on published price indices Ability to respond quickly to changing business conditions Approximately 80% of operating costs variable Maintenance capital expenditures tied to equipment utilization Variable maintenance capital expenditures Two complementary business segments Complementary segments produce crossselling opportunities and more complete knowledge of customer needs DR Minimal inventory and commodity price risk 22 Procurement contracts matched with customer orders 22

24 Attractive Financial Profile 1 Strong Adjusted EBITDA Margins 24% to 26% 2 3 High Discretionary Cash Margins (1) Variable Operating Cost Structure ~17% to 19% of Revenue After Raw Materials Costs ~80% 4 Superior Contract Renewal Rate (2) >97% 5 Long-Term Contracted Revenue Base 91% 6 Highly Visible Contracted Backlog (3) $1.7 billion 7 Strong Balance Sheet with Significant Liquidity $350MM Revolver $16 MM Cash at Mar 31,2012 Notes: All data based on LTM period ended Dec 31, (1) Discretionary Cash is defined as Adjusted EBITDA Maintenance Capital Expenditures. (2) Since (3) Estimated future Revenue After Raw Materials Costs over existing contracts remaining terms

25 Historical Financial Performance Total Revenue ($MM) Revenue After Raw Materials Costs ($MM) $3,000 $2,500 $2,000 $1,500 $1,000 $500 $1,376 $224 $1,670 $257 $2,983 $384 $1,298 $209 $2,031 $332 $2,661 $411 $600 $500 $400 $300 $200 $100 $600 $500 $400 $300 $200 $ % $ % $410 $ % $ % $ % $ % 100% 75% 50% 25% $ Total Revenue Average Scrap Price / Ton 1 1 #1 Heavy Melt, American Metal Market $0 $ Revenue After Raw Materials Costs U.S. Steel Industry Capacity Utilization 0% Adjusted EBITDA ($MM) Discretionary Cash Production 4 ($MM) $100 $89 $92 30% $80 $60 $40 $54 $ % 13.1% $67 $ % 19.0% 14.4% 16.8% 25% 20% 15% 10% $20 5% 2 $ DCP % of Revenue After Raw Materials Costs P EBITDA based off midpoint of 2012 guidance ($142-$148 million) 3 % of Revenue After Raw Materials Costs 4 Adjusted EBITDA Maintenance Capex Revenue Growth and Disciplined Cost Management Driving Leading Margins 0% 24 24

26 Qtr Financial Highlights Avg. U.S. Steel Industry Capacity Utilization Revenue After Raw Materials Costs Quarter Ended March 31 ($MM) Total Year % Change % 77.7% +5% 74.8% $135.2 $ % $549.5 Adjusted EBITDA (1) $34.6 $ % $134.0 Discretionary Cashflow (2) $27.3 $ % $92.1 Growth Capital (3) $4.4 $25.5 $41.1 (1) 1Q 2011 EBITDA includes a $1.8MM favorable adjustment related to the settlement of an out-of-period trade dispute. Total year 2011 results exclude a one-time $1.3MM charge associated with the accelerated vesting of restricted stock at the time of the IPO, a $0.7MM one-time charge related to the departure of the former non- Executive Chairman, and a $0.6MM loss on debt extinguishment associated with new, larger revolving credit facility. (2) Defined as Adjusted EBITDA less Maintenance Capital Expenditures. (3) Capital expenditures includes 2011 carry-forward. New contract wins in MSG and new business wins in RMOG driving significant year-over-year growth 25 25

27 Capital Structure Summary 3/31/2012 ($MM) Rate Maturity ABL Revolver ($350MM facility) $25 L + 150/225 Dec 2016 Senior Secured Term Loan $297 L (1) Mar 2019 Capital Leases and Other $9 Total Debt $331 Less: Cash $ 15 Net Debt $316 Adjusted EBITDA (TTM 1Q 2012) $136 Debt / EBITDA 2.4x (1) LIBOR floor of 1.25%. Significant liquidity available and no debt maturities until December 2016 New $300MM Senior Secured Term Loan completed on March 20, 2012 ABL Revolver facility increased from $165MM to $350MM on Dec 15, 2011 Corporate ratings increased to BB- (S&P, 4Q 2011) and Ba3 (Moody s, 1Q 2012) 26 26

28 Outlook 27 27

29 2012 Focus Continue global expansion of Mill Service contracts by penetrating new locations and cross-selling services Expand Outsourced Purchasing presence in Asia, Middle East/Africa, Latin America and Europe Carefully manage start-ups to ensure smooth operational transitions and achievement of profitability forecasts 2012 Adjusted EBITDA guidance of $142 - $148 million 28 28

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