Gabelli Pump, Valve & Motor Symposium. Jim Lines, President & CEO Jeff Glajch, Vice President & CFO

Transcription

1 Gabelli Pump, Valve & Motor Symposium Jim Lines, President & CEO Jeff Glajch, Vice President & CFO February 25, 2010

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, projects, anticipates, believes, 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, the timing of conversion of backlog to sales, 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 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 press release.

3 Graham Corporation Founded: 1936; IPO: 1968 NYSE Amex: GHM $16.40 Common shares outstanding Market capitalization million $161 million 52-week price range $21.84 $7.16 Avg. daily trading volume (12 mos.) 146,868 Stock splits: Ownership: 5 for 4 1/2/ for 1 10/7/2008 Institutional 60.8% Insider 2.8% Note: Market data as of February 18, 2010; 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 27% Ejectors 35% Heat Exchangers 10% Pumps 6% Aftermarket 22% U.S. 48% International 52% Note: All percentages based on Fiscal 2010 nine-month revenue of $48.4 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 43% Chemical Processing 32% Power & Other 25% Cust tomers Original Equipment Manufacturers (Dresser Rand, GE etc.) EPC Contractors (Jacobs, Fluor etc.) End Users (Exxon Mobil, Chevron etc.) Note: Percentages based on Fiscal 2010 nine-month revenue of $48.4 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 2010 Nine-month Orders $36 million Refineries Saudi Arabia, South Korea, China, Bahrain, Oman, South America, USA $15 million Petrochemical China, North Africa, Trinidad & Tobago, Mexico, USA $39 million Power generation, edible oil, Turkey, USA HVAC, oil production, OEM, government, industrial gases

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/South 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 International ti Markets Expanding Sales Mix: becoming more internationally weighted Asia (China) Refining, petrochemical, coal-to-liquid, fertilizer Middle East Refining, petrochemical South America Refining, petrochemical

12 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; SPX (Yuba); Kreuger petrochemical Turbomachinery OEM power and power producer ~ 15% Holtec; Babcock; Thermal Engineering; SPX (Yuba); Krueger HVAC ~ 10% Alfa Laval; APV; ITT; Ambassador

13 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; SPX (Yuba); Krueger

14 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

15 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

16 Financial Performance

17 Captured Revenue in Expansion Cycle ($ in millions) $55.2 $65.8 $86.4 $101.1 $60 $ $63 $76.3 $41.3 $48.44 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 Est.* Q YTD Q YTD * Guidance provided as of January 29, 2010 and is not being updated as part of this presentation

18 Strengthened th Gross Profit Margin $41.3 $ % $ % $ % $ % $60-$ % $ % $ % 37.1% FY2005 FY2006 FY2007 FY2008 FY2009 FY 2010 Est.* Revenue Gross Margin Q YTD Q YTD * Estimated FY 2010 gross margin is 34% to 36% on estimated revenue of $60 to $63 million. Guidance provided as of January 29, 2010 and is not being updated as part of this presentation

19 Net Income and EPS ($ in thousands) $15,034 $17,467 $13, 886 $3,586 $5,761 $5,750 Earnings per Share $296 FY2005* FY2006 FY2007 FY2008 FY2009 $0.03 $0.38 $0.58** $1.49 $1.71 Q YTD Q YTD $1.36 $0.58 * From continuing operations ** Includes R&D tax credit of $0.16 Note: All earnings per share amounts adjusted for stock splits

20 Strong Balance Sheet Cash, Cash Equivalents and Investments Working Capital, Net of Cash, Cash Equivalents & Investments ($ in millions) ($ in millions) $57.7 $36.8 $46.2 $8.5 $5.8 $5.1 $11.0 $15.1 $3.3 $2.7 $0.2 FY2005 FY2006 FY2007 FY2008 FY2009 Q3 FY10 Percent of Revenue -$2.5 FY2005 FY2006 FY2007 FY2008 FY2009 Q3 FY % 10.5% 77% 7.7% 02% 0.2% 33% 3.3% (3.4)% 4)%* * Based on Q3 FY10 TTM revenue of $73.3 million

21 Strategy t & Outlook

22 Dramatic Cycle Shift ($ in millions) $107.1 $110.5 $86.5 $75.7 $66.2 $54.2 $49.9 $33.1 $22.4 $73.9 $67.0 $54.9 $48.3 $50.55 $37.0 $89.8 FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY2010 TTM Orders Backlog Q2FY2010 TTM Q3FY2010 TTM ($ in millions) Order Variation $51.6 Orders are historically lumpy and best evaluated on at least a trailing four quarter basis $27.8 $29.6 $17.5 $20.5 $8.1 $8.8 Q109 Q209 Q309 Q409 Q110 Q210 Q310 $25 million U.S. Navy order

23 Reducing Impact of Cyclicality lit FY09 $ FY98 $ % FY00 $ % 26.0% Mid-Point FY 2010 Guidance* $ % 23.9% 15.5% 55% 9.5% 1.0% Revenue Gross Margin Operating Margin *Assumes mid-point of FY 2010 guidance: $61.5 million in revenue, a 35.0% gross margin and approximately $12.0million in SG&A expenses. Guidance provided as of January 29, 2010 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 Gabelli Pump, Valve & Motor Symposium Presentation to the Buffalo CFA Supplemental Jim Lines, President Slides & CEO Jeff Glajch, Vice President & CFO February 24, 2010 February 25, 2010