3 r d Q t r. F Y 1 8 ( 6 / 3 0 / )

Transcription

1 I nvestor Presentation 3 r d Q t r. F Y 1 8 ( 6 / 3 0 / )

2 Haynes International, Inc. 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 La Mirada, CA LaPorte & Kokomo, IN Houston, TX - Arcadia, LA Windsor, CT Mountain Home, NC Openshaw, England Paris, France Zurich, Switzerland Shanghai, China Tokyo, Japan Singapore U.S. Service Centers La Porte, Indiana Windsor, Connecticut Houston, Texas La Mirada, California 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 Leadership transition Michael L. Shor Director of Haynes International - since August 2012 Chairman of the Board of Haynes International, Inc. since February 2017 President and Chief Executive Officer 7

9 Initiatives to unlock potential at Haynes Unlocking the Potential of Haynes Industry leader in new alloys and applications development $120 million invested in growth capital Process and performance improvement, in everything we do Evaluating growth through acquisitions 8

10 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. HAYNES 282, that has gained significant traction in the marketplace both in aerospace and industrial gas turbines. HAYNES 244, that has already been specified into a new major commercial aircraft engine program. HAYNES 233, that has significant interest with both aerospace and IGT engine manufacturers. We have new alloys under development Placing our new and existing alloys into broader applications Combustors, casings, rings, couplings, liners, shields, etc. Developing new applications represent potential future commercial value Solar power Solid oxide fuel cells Fasteners Fuel cells Nuclear Ultra supercritical Turbo-chargers Sulfuric acid coolers boilers Fuel injectors Calciner applications Oil & Gas 9

11 Capital improvements are expected to yield substantial benefits Process Impact $MM Cold Finishing Plate Product Kokomo Strategic Capital Spending Projects Increased titanium Tubular Product tubing production by $37 ArcadiaProcess Projects $MM 30% IT Systems - Global LaPorte Expansion and LCMP Purchase Fiscal Years 2012 through 2018 Increase capacity from 13 MMlbs to 18 MMlbs Increased capacity 50% from 6 to 9 MMlbs Integrated global system Additional value-add cutting capability and closer to customer process $22 $24 $14 $20 Expected FY2018 capital spending is $12.0 million, which is below our $23 million depreciation levels Cold Finishing Expand Sheet Capacity Increasing demand for thin gauge flat products primarily associated with growth in the robust aerospace market. Capacity expected to increase over 35% with produced lbs increasing from 13 to 18 MMlbs. Plate product expansion Expanded capacity is in place Initiative to improve volumes underway Tubular revenue expansion Expanded capacity in both Titanium and Nickelbased tubular products Added pilger mills, vacuum furnace and ultrasonic equipment IT System Upgrade Single Global Enterprise Resource Planning System Scalable/versatile support of manufacturing, distribution and service All projects increase efficiency and improve working capital management Reduced operating and maintenance costs Improved quality Accelerated product flow 10

12 Continuous improvement Process and performance improvement, in everything we do 1. Volume: effectively utilizing open capacity on major assets managing our mix at constraints 2. Pricing and margin enhancement 3. Cost reductions across the entire Company 4. Working capital management 11

13 Acquisition strategy Evaluating growth through acquisitions 1. We have been active in pursuing opportunities 2. We remain committed to this strategy 12

14 Key Investment Highlights Four Pillars of Haynes Innovation Industry Leader in Developing New Alloys and New Applications for Existing Alloys Innovative, Market-Leading Producer of High-Performance Nickel- and Cobalt-Based Alloys Best-in-Class Sales & Distribution Infrastructure Facilitates Strong Customer Service and Retention Service Long-Term Relationships with Blue-Chip Customer Base Ability to Serve Diverse End-markets and Geographies Manufacturing History of Strategic Capital Investments Position Us to Expand Product and Service Capabilities and Margins Continuous Improvement and Focus on Cost Optimization Financial Strength Strong Liquidity Position and No Debt Despite Recent Investments Track Record of Returning Capital to Shareholders 13

15 Aerospace market trends Solid Potential for both Short-term and Long-term Outlook Airbus & Boeing have a combined backlog of more than12,500 aircraft (~8 years). (1) Global fleet will double Increased fuel efficiency and reduced emissions driving new engine technology. Hotter engine cores requiring more advanced alloys are being developed. The commercial aircraft fleet is expected to grow an average 3.5% per year and double in size from 23,480 aircraft today to 46,950 in (2) The industry will need 41,030 new aircraft at $6.1 trillion needed over next 20 years (2) Boeing Current Market Outlook year forecast: continued long-term growth (1) Airline Monitor, June 2017 (2) Boeing Current Market Outlook 2017 Boeing Current Market Outlook

16 Aerospace is our largest market 53% of our revenue in the third quarter of fiscal Our strength is driven by shipments into new generation engine platforms combined with our enhanced capacity from capital investments in cold finishing. We remain bullish on aerospace demand and remain optimistic of continue growth of Haynes products in this market. 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 Combustors HAYNES 230, 188, 263, 617, 625, and HASTELLOY X alloys Exhaust section 25, 188, 282, 625, 718, X, Waspaloy and R-41 alloys Diagram by Jeff Dahl used courtesy of under GNU Free Documentation License v

17 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 16

18 Chemical processing industry Third quarter fiscal 2018: 19% of our revenue was shipments into the chemical processing market and our backlog increased 13% over the quarter. Our volume continues to improve, showing positive signs of a market recovery. We are seeing better levels of specialty application project shipments that utilize our proprietary and specialty materials compared to last year. Solid pipeline of opportunities in specialty application projects. We need to continue to turn those opportunities into orders. On the base-business side of chemical processing, we have some work to do to improve volumes. As we implement strategies to more effectively utilize open capacity on our major assets, we expect to see improvement in base-business volumes in this market. 17

19 Industrial gas turbine applications and alloys HAYNES HR-120 and 230 alloys for micro-turbines HAYNES 282 and HAYNES 263 alloys transition section for hot gas path HAYNES 230 alloy hot gas casing HASTELLOY X alloy combustor can 18

20 Industrial gas turbine market Shipments into the Industrial gas turbine market accounted for 10.5% of sales during the third quarter of fiscal Volume shipped was down 38.5% YTD this year vs. the same period last year. Previous announcement from large OEM s evidence that this market has pulled back is a significant way due to weak demand in the large and medium frame turbine markets. Siemens SGT5-8000H Land Based Gas Turbine Siemens press picture Reference Number: soaxx Smaller frame applications could see a pick up as investment in oil & gas applications start to increase, but the overhang in the large and medium frame applications will likely continue to dampen this industry in the next few quarters. We believe IGT still has long term growth potential, but patience is required as this market eventually moves towards a recovery. We have seen higher levels of development activity related to new engine designs pursing greater engine efficiency, which would equate to better future demand for our types of alloys. 19

21 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. 20

22 Strong relationships across broad blue-chip customer base Provide new products, value-added material solutions, technical support, forming and fabrication know-how through a direct sales force and service center network 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 21

23 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. 22

24 Backlog ($ millions) Pounds (000s) Financial overview and strategy Strong financial position with flexibility to fund growth Built strong balance sheet with positive cash flow $17.5 million of cash and no borrowings on credit facility as of March 31, 2018 Size of credit facility is $120 million with an accordion feature to $170 million. Working Capital High-performance alloy industry has long production cycles/working capital cycles. Long-term inventory strategic plan initiated to improve inventory turns Backlog 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 $250 Dollars Pounds Beginning of fiscal 2018 reported higher order entry and backlog levels showing positive signs of a market recovery 23

25 Quarter-over-quarter P&L trends Source: Company s Form 10-K FY2017 and 3rd Qtr. Form 10-Q FY2018 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 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 $110.2 $113.1 Gross Profit Margin $ 7.0 $11.5 $13.3 Gross Profit Margin % 7.8% 10.4% 11.7% Adjusted Net Income (Loss) $ (2.9) $ (2.1) $0.7 -excluding tax adjustment Backlog and order entry rates have improved beginning in FY2018 driving optimism for improving volume, revenue and margins over the second half of the fiscal year. Gross margin % beginning to recover with expanding margins the past four quarters. 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. Q2&3 FY18: Aerospace strength combined with improving special projects and base-cpi, partially offset by weakening IGT. Q3 completed the shipments of lower-priced older orders from backlog alleviating this headwind going forward. 24

26 Financial performance Net Revenues Operating Income $600.0 $500.0 $400.0 $300.0 $381.5 $579.6 $542.9 $482.7 $455.4 $487.6 $406.4 $395.2 (9mos.) $313.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $49.3 $76.9 $32.0 $47.5 $200.0 $100.0 $20.0 $10.0 $0.0 ($10.0) $15.5 $5.0 $4.2 (9mos.) ($7.9) $0.0 ($20.0) ($16.5) (9mos.) (9mos.) ASP $21.41 $22.97 $24.78 $22.94 $21.02 $24.07 $22.62 $21.81 $23.36 HPA # s (9mos.) Note: Dollars and pounds in millions. ASP is dollars per pound. Operating income in FY16 & FY17 impacted by falling nickel prices, strong USD, and low demand in our CPI market (including less of the high-value specialty applications projects). FY18 number presented above includes 2004 $2.6 million of special items. Reorganized as Haynes International, Inc. FY2018 gross margin % beginning to recover with increases the past four quarters. 25

27 Liquidity Sources of Cash Cash at June 30, 2018 of $14.6 million Cash provided by operations was $13.1 million for FY2017 and was a use of cash of $13.2 million for the first 9 months of FY2018 due to ramping up business levels reflected in the backlog increase. Revolver debt remained at zero on credit facility Size of credit facility is $120 million with an accordion feature to $170 million Future Uses of Cash Strategic capital expenditure plan $9.8 million for the first nine months of FY18 and is projected to be $12.0 million in FY18. Regular quarterly dividend of $0.22 per share $11.0 million on annualized basis Funding of pension plan and medical retiree obligations ($MM) $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 ($10.0) ($20.0) Haynes International Inc. Liquidity Cash From Operations Cash Revolver Debt $73.4 $6 $64.7 $54.0 $46.7 $48.4 $49.0 $46.3 $20.8 $45.9 $26.9 $13.1 $14.6 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 ($13.2) (9mos.) CapEx $25.9 $41.6 $ 39.7 $33.1 $31.6 $15.0 $9.8 (9mos.) 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. 26

28 Strong balance sheet Continued to have zero borrowings on revolver with investment in capital expenditures and returning cash to shareholders in dividends (in millions) Summary Balance Sheet 9/30/13 9/30/14 9/30/15 9/30/16 9/30/17 6/30/18 Cash (including Restricted) $ 68.3 $ 45.9 $ 49.0 $ 64.7 $ 46.3 $ 14.6 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 $597.5 Source: Company s Form 10-K FY2017 and Q3 Form 10-Q FY

29 We are positioned for long-term growth Our continual development of patent-protected alloys puts us in a solid position for growth. Developing new applications for these alloys is our strength and enables us to bring value to the marketplace. Our unique business model facilitates strong customer service and retention which includes mill manufacturing support, value-added processing & global distribution. Serving diverse geographic and end markets with long-term relationships with our broad blue-chip customer base. We continue to make strategic investments to expand product capability, services, manufacturing capabilities and margins. Initiatives underway to unlock value from increasing volumes with better asset utilization, improving pricing and margins, reducing costs and improving working capital. Pursuing acquisition growth strategy to strengthen the Company s capabilities. We are well positioned to meet our challenges successfully and achieve our goal of increasing shareholder value. 28