Baird 2009 Industrial Conference Jeffrey Glajch, Vice President & CFO. November 10, 2009

Transcription

1 Baird 2009 Industrial Conference Jeffrey Glajch, Vice President & CFO November 10, 2009

2 Safe Harbor Statement Regarding Forward Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as expects, estimates, es, projects, anticipates, believes, e es, could, and other similar words. All statements addressing operating performance, events, or developments that Graham Corporation expects or anticipates will occur in the future, including but not limited to, statements relating to anticipated revenue, profit margins, foreign sales operations, its strategy to build its global sales representative channel, the effectiveness of automation in expanding its engineering capacity, its ability to improve cost competitiveness, customer preferences, changes in market conditions in the industries in which it operates, changes in general economic conditions and customer behavior and its acquisition strategy are forward-looking statements. Because they are forward-looking, they should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described in Graham Corporation's most recent Annual and Quarterly Reports filed with the Securities and Exchange Commission, including under the heading entitled Risk Factors. Should one or more of these risks or uncertainties materialize, or should any of Graham Corporation's underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue reliance should not be placed on Graham Corporation's forward-looking statements. Except as required by law, Graham Corporation disclaims any obligation to update or publicly announce any revisions to any of the forward-looking statements contained in this presentation.

3 Graham Corporation Founded: 1936; IPO: 1968 NYSE Amex: GHM $15.37 Common shares outstanding Market capitalization million $151 million 52-week price range $18.27 $6.85 Avg. daily trading volume (12 mos.) 183,397 Stock splits: Ownership: 5 for 4 1/2/ for 1 10/7/2008 Institutional 55.2% Insider 2.9% Note: Market data as of November 3, 2009; ownership as of most recent filing.

4 Our Vision Our goal is to be a world leader in the design and manufacture of ENGINEERED-TO-ORDERORDER products for the ENERGY MARKETS

5 Products Condensers 28% Ejectors 36% Heat Exchangers 9% Pumps 6% U.S. 51% Aftermarket 21% International 49% Note: All percentages based on Fiscal H revenue of $36.2 million

6 An ejector system lowers the pressure in the distillation column to allow crude oil to boil at a lower temperature. This allows for more efficient and cost-effective separation of crude oil into valuable products, such as diesel, gas oils, kerosene, and other fuels. Refinery Ejector System CNOOC Huizhou Refinery China 240,000 BBL/day refinery A condenser supports a steam turbine and enables the conversion of maximum energy in high pressure steam into power. Ejectors Condensers Graham Corporation, 2009

7 Diversified ifi Markets Refining 45% Chemical Processing 28% Power & Other 27% Note: Percentages based on Fiscal H revenue of $36.2 million

8 Cultivate t Diverse Markets OIL REFINING CHEMICAL PROCESSING Conventional crude oil Oil sands Extra-heavy crude oil Sour crude Lube oil Ethylene Ammonia Nitrogen Methanol Styrene Polystyrene Ethylene glycol Detergent alcohols Plastics, resins, fibers Coal-to-liquids (CTL) Gas-to-liquids (GTL) POWER GENERATION Cogeneration Waste-to-energyto energy Heat, power and light Geothermal Nuclear In-situ OTHER APPLICATIONS Edible oil/oleochemicals Biofuels: Ethanol Biodiesel HVAC Industrial gases Cryogenic

9 Diversified Geographies & Industries Fiscal H Orders $23 million Refineries South Korea, China, Bahrain, Oman, South America, USA $8 million Petrochemical China, North Africa, Trinidad & Tobago, Mexico, USA $7 million Power generation, edible oil, HVAC, oil production, government, industrial gases, OEM Turkey, USA

10 Global Distillation Capacity Growth (through 2015) Total Net Growth: 6 mb/d US & Canada: 0.9 mb/d Europe: 0.2 mb/d Russia and Eastern Europe: 0.2 mb/d Latin America & Africa: 0.3 mb/d Middle East: 1.3 mb/d Asia- Pacific: 2.9 mb/d Source: OPEC World Oil Outlook 2009 mb/d = million barrels per day

11 North American Competition Market GHM Competitors Market Share Refining vacuum distillation ~ 75% Gardner Denver Chemicals/Petrochemicals ~ 25% Croll Reynolds; Schutte Koerting; Gardner Denver Turbomachinery OEM refining, ~ 50% Ambassador; Yuba; Kreuger petrochemical Turbomachinery OEM power and power producer ~ 15% Holtec; Babcock; Thermal Engineering; Yuba; Krueger HVAC ~ 10% Alfa Laval; APV; ITT; Ambassador

12 International Competition Market GHM Competitors Market Share Refining vacuum distillation ~ 35 to 50% Gardner Denver; GEA Jet Pump; Korting Hannover; Edwards Chemicals/Petrochemicals ~ 25% Croll Reynolds; Schutte Koerting; Gardner Denver; GEA Jet Pump; Korting Hannover; Edwardsd Turbomachinery OEM refining, petrochemical Turbomachinery OEM power and power producer ~ 50% Donghwa-Entec; Bumwoo; Oiltechnik; Kreuger; various local fabricators ~ 15% Holtec; Babcock; Thermal Engineering; Yuba; Krueger

13 Major Project Cycle Year 1 Year 2 Year 3 Year 4 Year 5 Contracts Conception to RFP Construction awarded Graham Competitive Advantage: Early Involvement $150 million pipeline consistent with past few years Year 1 Year 2 Graham establishes competitive advantage during first 24 months Understanding pipeline, developing design options, identifying decision makers, understanding timing, creating strong relationships to Gain advantage, optimize margin and win business

14 Selling Cycle for Major Projects Large population of potential opportunities Laser focus on the key projects Project Start 12 Mos. 18 Mos. 24 Mos. Conceptual design study Feasibility study Rough budget FEL1 FEED FEL2 EPC bidding Requisition for purchase End user Process licensor Process licensor EPCs OEMs EPCs OEMs EPC OEM

15 Financial Performance

16 Captured Revenue in Expansion Cycle ($ in millions) $86.4 $101.1 $55.2 $65.8 $60 $ $65 $41.3 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 Est. * Guidance provided as of October 30, 2009 and is not being updated as part of this presentation

17 Strengthened th Gross Profit Margin $101.1 $86.4 $55.2 $ % 41.3% $60-$65 $ % 25.6% 34.0% Potential FY2010 range: 33% - 35%* 18.2% FY2005 FY2006 FY2007 FY2008 FY2009 FY 2010 Est. Revenue Gross Margin * Guidance provided as of October 30, 2009 and is not being updated as part of this presentation

18 Net Income and EPS ($ in thousands) $15,034 $17,467 $3,586 $5,761 $296 FY2005* FY2006 FY2007 FY2008 FY2009 Earnings per Share $0.03 $0.38 $0.58** $1.49 $1.71 * From continuing operations. ** Includes R&D tax credit of $0.16. Note: All earnings per share amounts adjusted for stock splits

19 Strong Balance Sheet Cash, Cash Equivalents and Investments Working Capital, Net of Cash, Cash Equivalents & Investments ($ in millions) $54.7 ($ in millions) $36.8 $46.2 $8.5 $5.8 $5.1 $2.7 $11.0 $15.1 $0.2 $3.3 -$0.2 FY2005 FY2006 FY2007 FY2008 FY2009 Q2 FY10 FY2005 FY2006 FY2007 FY2008 FY2009 Q2 FY10

20 Pi Priority: it Cash hmanagement Significant increase in sales with a much lower cash conversion cycle Sales ($ millions) $60-$ h Conversion Cy ycle (Days) FY2005 FY2006 FY2007 FY2008 FY2009 FY10 Est Cas Expected to be in the 20- to 30- day range in 2010* Sales Note: cash conversion cycle equals days sales outstanding plus days inventory on hand minus days payables outstanding Cash Conversion Cycle * Guidance provided as of October 30, 2009 and is not being updated as part of this presentation

21 Strategy t & Outlook

22 Dramatic Cycle Shift ($ in millions) $107.1 $66.2 $86.5 $75.77 $73.9 $67.0 $49.9 $54.2 $48.3 $50.5 $22.4 $33.1 FY2005 FY2006 FY2007 FY2008 FY2009 Q2FY2010 TTM Backlog Orders

23 Reducing Impact of Cyclicality lit FY09 $ FY98 $ % FY00 $ % 26.0% Mid-Point FY 2010 Guidance* $ % 23.9% 13.6% 9.5% 1.0% Sales Gross Margin Operating Margin *Assumes mid-point of FY 2010 guidance: $62.5 million in revenue, a 34.0% gross margin and $12.75 million in SG&A expenses. Guidance provided as of October 30, 2009 and is not being updated as part of this presentation

24 Catalysts t Changing Financial i Performance A Company-wide Approach to a Better Graham Today and in the Future Selling Process: Re-branding Adding value VacAdemics VacWorks Technical support Redefining profit metrics Decision rights & disciplined approach Gain market share Not every order is a good order Improved Operating Performance Throughout Cycle Operational Excellence: Capital plan Graham production system Focus on lead time reduction First time, every time Training Safety culture Continuous improvement Creating scale IT Outsourcing Variable costs y g g People Process: Accountability Policy deployment Performance management Change agents: IT, HR, OPS & executive Alignment Engagement Sustainability: Leadership commitment Long-term vision Balance financial results with investing in the future Graham management system Succession planning

25 Near-Term Strategy t Development People Processes Capital Plan Customers Performance Stay close: consultative selling Gain market advantage Selling support for pipeline Maintain profitability and positive cash flow Evaluate potential acquisitions in disruptive market Capture greater market share Upturn Be ready Ascend growth curve more quickly than in last cycle Take market share Continue investing to improve and expand business

26 Acquisition iti Criteria i Engineered- to-order products for Energy Industry Geographic Up to Expansion $60 million and/or in revenue Diversify Products/Markets Strong management team / quality culture Return exceeds cost of capital

27 Acquisition iti Strategy: t Three Options Geographic Expansion Asia, especially China Middle East South America Product Diversification Specialty heat exchangers Process vacuum equipment Packaged systems Process Vessels Environmental Market Diversification Power Nuclear Solar Alternative energy

28 Baird 2009 Industrial Conference Jeffrey Glajch, Vice President & CFO November 10, 2009

29 Contraction ti in Energy Industry Global recession slows demand growth Decline in projected U.S. consumption Cap and Trade heavily penalizes U.S. refiners Over capacity in U.S. refining Expanding economies in emerging/developing countries Asia Middle East South thamerica

30 Changed Global l Oil Demand Projections World Oil Outlook 2008: 50% demand increase by 2030 World Oil Outlook 2009: 23% demand increase by 2030 Consumption dropping in developed areas Energy policy changing Crude oil pricing lowered sharply Capacity utilization is down

31 Power Market United States Waste to energy renewables Geothermal Nuclear China and India Growing power requirements Nuclear Hydro, geothermal, fossil fuels

32 Non-Conventional Oil Supply Growth Biggest contributor = 5 mb/d by 2030 Oil Sands Increases output by 6 mb/d to 7.5 mb/d by 2030 Gas-toliquid Coal-toliquid Extra-heavy crude Source: OPEC World Oil Outlook 2008

33 Canadian OilSands Spending $100 to $150 million potential demand for Graham products from 2010 to 2016

34 Products: Direct Contact t Condenser An 11 MW turbine-generator set at a geothermal power producing plant in Papua New Guinea.

35 Products: Surface Condenser Supports a steam turbine and enables the conversion of maximum energy in high pressure steam into power.