Investor Presentation to Scott & Stringfellow a BB&T Corporation Affiliate. August 27, 2012

Transcription

1 Investor Presentation to Scott & Stringfellow a BB&T Corporation Affiliate August 27, 2012

2 Forward-Looking Statements We want to remind everyone that the information included in this presentation may contain statements relating to future results, which are forward-looking statements within the meaning of federal securities laws. We caution you that these forwardlooking statements speak only as of the date hereof, and we have no obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments, or otherwise. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including the risks described in our Form 10-K and Form 10-Q and our other filings with the Securities and Exchange Commission. 2

3 Strategic Goals (Presented in Dec 2011) Foster a Performance Driven Culture Be a Sales and Customer Driven Organization Pursue Complementary and New Platform Acquisitions 3

4 Topics I. Business Unit Review Key Developments Manufacturers Chemicals Metals Group II. Palmer of Texas Acquisition III. Synalloy EPS Potential 4

5 I-A. Business Unit Review: 5

6 Ashland Defoamer Product Line New line of defoamers: 50+ individual products for the water and paint industries Annual revenue potential: $18MM to $20MM 30% annual increase in pounds thru Cleveland (TN) facility Two-year agreement with continuous one-year renewals Will reach full production in Sept

7 Fruit of the Loom Textile Products Acquired rights from former MC customer Reached full production in April 2012 Evaluating add-on lines for Walmart Annual revenue potential: $3MM+ 7

8 Other Key Developments Improving material margins via daily updates to cost inputs Business development re: sulfation and reactor capacity New bonus program based on pounds shipped up to 5% of base salary for production and support staff Projected total annual revenue: $65MM to $68MM 8

9 I-B. Business Unit Review: 9

10 Nickel Price History Spot Prices for Nickel on the LME Per Pound 2008 $ (forecast by Pres9ge Economics) (forecast by Pres9ge Economics) 7.94 August 17,

11 Nickel Forecast (source: Prestige Economics) Prices have not yet bottomed Price forecasts for 2012 and 2013 recently lowered Still expect marginally higher prices in 2013 than in 2012 Price slide has been accompanied by increase in inventories amidst tepid global growth (LME inventories up 25% in 2012) Pig nickel iron (a low grade stainless steel substitute) availability is a major bearish price factor 11

12 Raw Material Surcharges $4.00 $3.50 $ L 316L BRISMET inventory profits totaled $7.8 million BRISMET inventory losses totaled ($5.4 million) $2.50 $ per pound $2.00 $1.50 $1.00 $0.50 $0.00 Oct-99 Feb-00 Jun-00 Oct-00 Feb-01 Jun-01 Oct-01 Feb-02 Jun-02 Oct-02 Feb-03 Jun-03 Oct-03 Feb-04 Jun-04 Oct-04 Feb-05 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 12

13 2012 YTD Inventory Losses $2.21 million total ($0.23 per share) through seven months 13

14 BRISMET: Key Developments 17% sales growth in 1H 2012 continued gains in special alloys and commodity pipe Opening new Houston sales office with 3 account reps selling straight pipe, fabricated pipe, and FRP & steel tanks DuPont project (Jan/Feb 2013 start): $1.5MM in pipe sales and $6.0MM in fabrication 14

15 BRISMET: Key Developments (cont ) Bechtel project for Wolf Creek nuclear facility (Dec 2012 start): Order for six miles of carbon and special alloy pipe First work for Bechtel in 5+ years Several large projects in Argentina and Australia AND a large domestic special alloy pipe project totaling $5MM+ $798K annual savings via retrofit to produce 18 pipe on a continuous mill (to be operational in 6 to 8 months) 15

16 FAB: Key Developments Ram-Fab has returned to profitability looking to add 2 nd shift and expand capacity Focused on making substantial labor efficiency improvement at BristolFab Current total backlog: $22 million 16

17 II. Palmer of Texas Acquisition 17

18 Palmer at a Glance Founded in 1989 as fiberglass (FRP) tank manufacturer Three equal owners: One active, one recently became inactive, one passive from the start Began investing in steel tank capabilities in 2007; Now 50% of total revenue 130+ non-union employees 18

19 Palmer at a Glance (cont ) 100K sq ft main facility in Andrews (TX); Second facility for oversized FRP tanks in Orange (TX) ISO 9001 and ASME certifications End markets include oil & gas and municipal water Palmer typically ships tanks up to 300 miles 19

20 Financial Performance Fiscal Year (ends Sept 30) Revenue Adjusted EBITDA Under Synalloy Ownership 2010 $16.9 million 2011 $25.7 million $3.8 million 12 Months Ended Mar 2012 $31.8 million $5.4 million Fiscal 2012 YTD Revenue (Nine Months) Annualized = $34.0 million Methodology 1. Dixon Hughes Goodman (DHG) led examination of all aspects of Palmer s financials 2. Synalloy adjusted DHG results to reflect Synalloy ownership (i.e. increased expense) 3. Analysis assumes no synergies 20

21 Drivers of Recent Growth 1. Palmer s Steel Production Capacity Ramping Up: Each oil well requires one fiberglass tank and two steel tanks 2. Oil & Gas Demand in Palmer s Immediate Area: Horizontal drilling technology and higher oil prices are driving a shale oil drilling boom in the Permian Basin and Eagle Ford Shale 21

22 Customers 22

23 Primary Operation in Andrews 23

24 Primary Operation in Andrews (cont ) 24

25 Primary Operation in Andrews (cont ) 25

26 Primary Operation in Andrews (cont ) 26

27 Oil Market Overview US Oil Production: 4.95MM barrels per day in 2008; 5.7MM bpd currently; US DoE projects 7MM bpd by 2020 [source: New York Times] Due to horizontal drilling, US crude oil production is projected to increase by 1.5 million bpd by 2015 [source: EOG Resources] In 2011, Texas oil production exceeded 1MM bpd for the first time since 2001; Some industry executives project 2MM bpd is possible within the Permian Basin alone [source: Associated Press] 475 rigs (25% of US total) are operating in the Permian Basin [source: New York Times] 27

28 Proximity to Key Basins and Shale Plays Brismet 300 mi to U9ca RAM- FAB 100 mi to Smackover 150 mi to Bossier 200 mi to Tuscaloosa Palmer Andrews 0 mi to Permian 320 mi to BarneV 320 mi to Eagle Ford Palmer - Orange 28

29 Relevant Activity by Oil Industry Leaders EOG Resources Anadarko Petroleum Apache Devon Eagle Ford: 647K acres secured; 375 wells already; Drilling 280 in 2012; 3,200 total yet to be drilled BarneV: 200K acres Permian: 240K acres; Drilling 112 wells in 2012 Eagle Ford: 4,000+ iden9fiable drill sites (40+% oil); Plan to drill 250 wells in 2012 Permian: 130 wells planned for 2012 East Texas: 70+ wells planned for 2012 Permian: 7,000+ drill sites iden9fied; Drilling 600 wells in 2012 Mid- Con9nent: 2 million acres (50 to 90% liquid) Permian: 3,500 drill sites iden9fied; Drilling 300 wells in 2012 BarneV: 625K acres; 2,500 drill sites iden9fied; Drilling 300 wells in

30 Relevant Activity by Oil Industry Leaders Chesapeake Energy Exxon- Mobil Chevron Aggressively shi`ing to liquid- rich plays #1 liquids producer in Mid- Con9nent; #2 in Eagle Ford; #3 in Permian 800K total acres in Permian, Eagle Ford and Woodford; Projec9ng steady produc9on growth from these sites thru K acres in Smackover and 75K acres in U9ca 1 million total acres in Permian and Midland basins 150K acres in Bossier Projec9ng 3.5x increase in unconven9onal oil and gas produc9on between 2012 to 2017 Cabot 61K acres in Eagle Ford; Projected to drill 700 wells 30

31 Opportunities Outside the Oil Industry FRP Tank Market 5.9% CAGR to $712 million by /- 250 manufacturers in North America, most privately held End Users: chemicals, oil & gas, water/wastewater, pulp & paper, septic, etc. FRP Advantages: corrosion resistance, high strength-to-weight ratio, low maintenance, longer lifecycle Steel Tank Market Mature $7 billion industry +/- 650 manufacturers in North America, most privately held End Users: energy, water/wastewater, steel, pharma, micro-electronics, pulp & paper, mining, automotive, chemical, oil & gas, petrochemical, food & beverage, agri-business and pollution control 31

32 Palmer: Fit with Synalloy s Acquisition Criteria 32

33 Complementary Business (+) SYNL management understands the business Potential synergies: Purchasing power steel and resin Overlap in target markets oil & gas, water & wastewater Potential to expand tank capabilities into other SYNL facilities Transaction will be easily understood by SYNL shareholders and by its bank 33

34 Strong Management Staying (+) Jim Lee: 20+ years running the business day-to-day; Will remain with SYNL for a minimum of 3 years An experienced group of managers report to Jim Lee Palmer management has continued to invest in the business even with a potential sale pending: New steel tank production line in Andrews Orange facility to pursue international sales 34

35 Other Positive Factors (+) Andrews (TX) location relative to existing and emerging shale oil plays PP&E is fairly new and in good shape; Facility is customer tour ready Palmer owns and operates specialty delivery trucks Recent pressure vessel certifications present a new revenue source International sales potential via Orange (TX) facility Non-union workforce with relatively low turnover; Less demanding welding skills (relative to SYNL FAB); Community college alliance Can consolidate results within SYNL s existing Metals unit 35

36 Palmer: Key Deal Terms 36

37 Transaction Structure Stock purchase of all shares in Lee-Var, Inc. dba Palmer of Texas $27.5MM net upfront cost to SYNL, incl. transaction expenses Includes $15MM of net tangible assets Excludes Palmer s existing debt, which Sellers retired at closing Net working capital and PP&E adjusted 60 days post-closing Sellers have customary non-competes and other restrictions 37

38 Escrow $3.65 Million for Unknown Liabilities Up to $900K released at 12 months dependent on sales tax claims Up to another $1.75MM released at 18 months Balance released at 24 months $375K for Orange CapEx Used at Synalloy s discretion for concrete pads and retaining walls Balance released at year-end

39 Earn Out and Claw Back Sellers eligible for three-year earn out based on actual EBITDA EBITDA for the Year* Earn Out Payment Three- Year Total < $5.825 million $0 $0 $5.825 million $2.5 million $7.5 million $6.825 million $3.5 million $10.5 million * Before Palmer management bonuses SYNL reimbursed by Sellers for the amount by which EBITDA is less than $3.5 million in either of the first two years post-closing 39

40 Other Terms SYNL reimbursed for uncollected AR at 120 days post-closing Sellers pay for actual maintenance capex (if any) in excess of $500K annually during the first 18 months post-closing Sellers pay for actual cost of new tank line project (if any) in excess of the $1.63 million total budget 40

41 BB&T Lending Commitment 1. Line of Credit Increased from $20MM to $25MM (as of 6/29: into it by $8.9MM) LIBOR plus 1.75% (currently 2.00% total) Approximately 36-month maturity Note: BB&T will also provide a temporary increase to fund material purchases for Brismet Bechtel project 2. Term Note $22.5MM, 10-year term, principal paid down by $2.25MM each year Fixed rate at approximately 3.85% via interest rate swaps 41

42 BB&T Lending Commitment 3. Synalloy pledged all tangible and intangible assets as security 4. Covenants provide ample flexibility under worse case scenarios Funded debt to EBITDA: 3.5x Minimum tangible net worth: $38 million Total liabilities to tangible net worth 2.75x 42

43 Accretion and Capital Structure Estimated Synalloy EPS Increase from Palmer at Current Run Rate: $0.30 per share Post- Transac5on Consolidated EBITDA and Capital Structure Total Synalloy Funded Debt $36.9 million Total Synalloy Annual EBITDA incl. Palmer and Ashland $17.9 million Total Synalloy Funded Debt- to- EBITDA 2.06x Total Synalloy EBITDA- to- Debt Service (term loan only in year 1) 5.83x 43

44 III. Synalloy EPS Potential 44

45 Impact of Recent Developments $80 to $85 million in total incremental revenue Ashland Defoamers Fruit of the Loom Products Bechtel - Wolf Creek Project International Projects Special Alloy Project DuPont Project Acquired 45

46 EPS Assumptions Neutral nickel prices no inventory profits/losses Full year contribution from Ashland defoamers Full year contribution from Palmer of Texas Annual savings from 18 pipe production on continuous mill Synalloy Fabrication at break-even 46

47 Projected Annual EPS $1.80 with stated assumptions OR $1.95 with Synalloy Fabrication at a 5% after-tax margin NOTE: Synalloy s previous best year since 2000 was $1.13 per share on a nickel-neutral basis 47

48 Questions? 48