Investor Presentation. August 2014

Transcription

1 Investor Presentation August

2 Important Disclosures NOTE ON FORWARD-LOOKING STATEMENTS: This presentation and related discussions may contain forward-looking statements about such matters as: our outlook for 2014; future or targeted operational and financial performance; growth prospects and rates; the markets we serve; future or targeted profitability, cash flow, liquidity, sales, costs and expenses, tax rates, working capital, inventory levels, debt levels, capital expenditures, EBITDA, cost savings and business opportunities and positioning; strategic plans; stock repurchase plans; cost, inventory and supply chain management; rationalization and related activities; the impact of rationalization, product line changes, cost competitiveness and liquidity initiatives; expected or targeted changes in production capacity or levels, operating rates or efficiency in our operations or our competitors' or customers' operations; future prices and demand for our products and changes therein; product quality; diversification, new products, and product improvements and their impact on our business; the integration or impact of acquired businesses; investments and acquisitions that we may make in the future; possible financing (including factoring and supply chain financing) activities; our customers' operations and demand for their products; our position in markets we serve; regional and global economic and industry market conditions and changes therein, including our expectations concerning their impact on us and our customers and suppliers; conditions and changes in the global financial and credit markets; tax rates and the effects of jurisdictional mix; the impact of accounting changes; and currency exchange and interest rates and changes therein. We have no duty to update these statements. Our expectations and targets are not predictions of actual performance and historically our performance has deviated, often significantly, from our expectations and targets. Actual future events, circumstances, performance and trends could differ materially, positively or negatively, due to various factors, including: failure to achieve cost savings, EBITDA or other estimates; actual outcome of uncertainties associated with assumptions and estimates used when applying critical accounting policies and preparing financial statements; failure to successfully develop and commercialize new or improved products; adverse changes in cost, inventory or supply chain management; limitations or delays on capital expenditures; business interruptions including those caused by weather, natural disaster, or other causes; delays or changes in, or non-consummation of proposed investments or acquisitions; failure to successfully integrate or achieve expected synergies, performance or returns expected from any completed investments or acquisitions; inability to protect our intellectual property rights or infringement of intellectual property rights of others; changes in market prices of our securities; changes in our ability to obtain financing on acceptable terms; adverse changes in labor relations; adverse developments in legal proceedings or investigations; non-realization of anticipated benefits from, or variances in the cost or timing of, organizational changes, rationalizations and restructurings; loss of market share or sales due to rationalization, product line changes, or pricing activities; negative developments relating to health, safety or environmental compliance, remediation or liabilities; downturns, production reductions or suspensions, or other changes in steel, electronics and other markets we or our customers serve; customer or supplier bankruptcy or insolvency events; political unrest which adversely impacts us or our customers' businesses; declines in demand; intensified competition and price or margin decreases; graphite electrode and needle coke manufacturing capacity increases; fluctuating market prices for our products, including adverse differences between actual graphite electrode prices and spot or announced prices; consolidation of steel producers; mismatches between manufacturing capacity and demand; significant changes in our provision for income taxes and effective income tax rate; changes in the availability or cost of key inputs, including petroleum-based coke or energy; changes in interest or currency exchange rates; inflation or deflation; failure to satisfy conditions to government grants; continuing uncertainty over U.S. fiscal policy or condition; European sovereign debt issue; changes in government fiscal and monetary policy; a protracted regional or global financial or economic crisis; and other risks and uncertainties, including those detailed in our SEC filings, as well as future decisions by us. This presentation does not constitute an offer or solicitation as to any securities. References to street or analyst earnings estimates mean those published by First Call. 2

3 GrafTech: A Profile of Leadership Leader in Graphite Materials Value-Added Proposition Diverse End Markets NYSE: GTI Founded 1886 Unique technologies & expertise ~725 patents 7 R&D 100 Awards in past 11 years Innovative solutions for wide range of applications including: Energy management Thermal management High temperature processing EAF steel production Advanced electronics Alternative energy Aerospace With more than 125 years of graphite material science expertise, GrafTech continues to drive value by leveraging its proprietary technology platforms 3

4 Diverse Revenue Base 2013 Revenue by Region Americas EMEA Asia 40% 41% 19% Graphite electrodes Advanced materials Needle coke plant Sales offices 75% of revenues generated outside of US, with sales in over 75 countries Customers include ArcelorMittal, Baosteel, Gerdau, Steel Dynamics, ThyssenKrupp, Samsung, Elkem Solar and Griffin Wheel Low-cost global manufacturing footprint 4

5 The GrafTech Value Proposition 1 A globally competitive business model 2 Solid cash flow and balance sheet 3 Strategically positioned for market recovery 5

6 Two Solid, Diversified Growth Platforms Industrial Materials 78% of 2013 revenues Engineered Solutions 22% of 2013 revenues Product Offerings Graphite electrodes Needle coke Refractory bricks Key Markets Advanced Electronics Industrial Alternative Energy Aerospace Core competency: Graphite material science 6

7 Graphite Electrodes Critical in Steel Making Conducts electricity to melt scrap metal Sustainable long-term growth EAF consumes one every 8-10 hours Consumable staple Accounts for only 2% of EAF production costs No known alternative being developed High barriers to entry Difficult to produce Extensive product and process knowledge requirement High initial capital investment Electric Arc Furnace (EAF) Graphite Electrode No known substitute for graphite electrodes in EAF process 7

8 Millions of MT 000s of MT Leading Position: Graphite Electrodes A supply and demand imbalance in the market has existed for the last five years, and spreads today are at cyclical lows GrafTech s timely and aggressive actions best position the company to create significant value for stockholders when the cycle turns Reduced costs Reduced capacity Improved operating rates Continues to maintain pricing discipline 2,000 1,600 1, A supply / demand imbalance exists today 0 75% 81% 71% 69% 75% 2010A 2011A 2012A 2013A 2014E Capacity Amount produced Est. Electrode Capacity: ex-china (1,000 MT) However, demand appears to be strengthening EAF Steel Production Market 3 Emerging markets Non-residential construction New projects DRI growth ~3% CAGR 8 GTI SGL Showa Denko Tokai Carbon GIL HEG Nippon Carbon SEC Best positioned for cyclical upturn Sources: 2014 estimates derived from published information including press releases, websites and public company filings (1) Estimated capacity after announced closures (2) Includes China facility (3) Source: World Steel Dynamics, January

9 Two Solid, Diversified Growth Platforms Industrial Materials 78% of 2013 revenues Engineered Solutions 22% of 2013 revenues Product Offerings Graphite electrodes Needle coke Refractory bricks Key Markets Advanced Electronics Industrial Alternative Energy Aerospace Core competency: Graphite material science 9

10 Participate in High Growth Markets Expected Key Market Growth in Next 5 Years 1 Engineered Solutions Growth (Sales $M) $257 $223 SMARTPHONES & TABLETS AEROSPACE & DEFENSE $173 $ % +26% $121 OIL & GAS STRUCTURES +18% ELECTRIC VEHICLES (LITHIUM ION BATTERIES) +52% Engineered Solutions is a key driver of GrafTech s earnings 10 (1) Sources: GrafTech estimates, third party assessments and third party reports

11 Actions Underway to Reposition the Business Model Industrial Materials Engineered Solutions Company-wide Review Phase 1: Announced October 2013 Graphite electrode plant production rationalization SG&A reductions Phase 2: Announced July 2014 Advanced graphite materials product line rationalization SG&A reductions Phase 3: To Be Announced Q Full review of all businesses and corporate support underway $75 Million in annual savings $18 Million in annual savings $$ Additional savings targeted Aggressive cost saving actions initiated 11

12 Phase 1: Industrial Materials Rationalization Plan Capacity Reductions Cost Savings Closed the two highest cost graphite electrode plants and Russian machine shop Reduces electrode capacity by ~60k MT $75M of annual savings Reduced global headcount by 20% Capacity ('000s of MT) A 2014E Optimize Cash Flow and Reduce Inventory Targeted $150M cash flow through effective working capital management Annual maintenance capex reduced by $10M 77% 90%+ Utilization rate Capacity reduction removes highest cost disadvantaged facilities, enhances operating rates and improves our supply/demand balance 12

13 Phase 2: Engineered Solutions Rationalization Plan Plan announced July 2014 Exit production of isomolded product line Compressing margins in an increasingly competitive China-based solar supply chain have eroded the value proposition. Evaluated opportunities to improve efficiencies and more effectively utilize supply chain and collaborative relationships. Cost of plan is $24M Related to inventory impairment, asset write-offs and rationalization expenses Expected to generate $18M in annual cost savings Improved competitiveness Benefits Reduce costs Improve profitability Expected to generate over $90M in combined annual savings from both IM and ES plans 13

14 Phase 3: Company-wide Cost Savings Assessment Assessment announced July 2014 Business structure of the Industrial Materials and Engineered Solutions segments and the ongoing needs to support those businesses being re-evaluated Anticipated actions under consideration include a combination of: Layoffs, attrition, early retirement, reduced contractor costs and other cost savings initiatives Expect to complete assessment by the end of Q Goal to simplify work processes and drive greater accountability 14

15 The GrafTech Value Proposition 1 A globally competitive business model 2 Solid cash flow and balance sheet 3 Strategically positioned for market recovery 15

16 Growing Cash Flow and Strong Balance Sheet Growth in Operating Cash Flow ($M) Strong Balance Sheet (June 30, 2014) Solid liquidity $77 $101 $117 $ $300M revolver availability Debt to total capitalization of 32% Corporate credit rating of Ba1/BB+ Stated Goal Target 2.5x debt to EBITDA or lower $150M Industrial Materials working E capital reduction plan in place 16

17 The GrafTech Value Proposition 1 A globally competitive business model 2 Solid cash flow and balance sheet 3 Strategically positioned for market recovery 17

18 IM Growth Initiatives Layered on Top of Industry Recovery Strengthening of demand Continued growth in EAF steel production Recovery in EU demand US non-residential growth Positive supplier dynamics Back integrated to key raw material Flexible cost structure Industry s low cost producer Improved balance between supply / demand enhanced profitability 18

19 Accelerated Growth in Engineered Solutions Key Initiatives Engineered Solutions Growth (Sales $M) Penetration of high growth markets Advanced consumer electronics Alternative energy $223 $257 New product development Advanced thermal solutions for electronics Integrated electronics solutions High-temperature furnace systems for consumer electronics markets $121 $173 $ Engineered Solutions is a key driver to GrafTech earnings on the horizon 19

20 Why GrafTech is Even Better Positioned for the Next Cycle 1. Aggressive savings actions taken to match cost profile to current environment Extends our industry-leading, low cost position even further Ability to scale as demand returns 2. Engineered Solutions focused on high growth, high margin businesses Accounts for 22% of annual revenue today Infrastructure for growth is in place 3. Solid balance sheet and strong cash flow generation Focus on de-leveraging activities Targeted leverage of 2.5x debt to EBITDA or lower 20

21 Aggressive Cost Savings Actions Initiated Industrial Materials Engineered Solutions Company-wide Review Phase One: Announced October 2013 Graphite electrode plant production rationalization SG&A reductions $75 Million in Annual Savings Phase Two: Announced July 2014 Advanced graphite materials product line rationalization SG&A reductions $18 Million in Annual Savings More than $90 Million Phase Three: To Be Announced Q Full review of all businesses and corporate support underway $$ Additional Savings Targeted $$ Cash used to De-lever 21

22 22 Appendix

23 Flexible Cost Structure Avg. Fixed / Variable Fixed 26% Variable 74% 100% ownership in Seadrift Coke, the second largest petroleum-based needle coke producer in the world Backward integrated graphite electrode producer Coke is approximately 41% of the total cost of a graphite electrode Size provides economies of scale and purchasing leverage 23 Source: Company estimates for 2014 based on, among other things, operating levels, product mix and currency exchange rates

24 Leading Manufacturer of Graphite Electrodes Company Est. Capacity # Plants / (1,000 metric tons) (1) Avg. Plant Size (2) / 49 Comments High-quality, low cost producer Global presence on four continents Backward-integrated producer Fangda Carbon Tech Co. Ltd. (China) / 50 Higher costs, lower quality SGL Carbon AG (Germany) / 30 Showa Denko (Japan) / 42 One facility each in Japan, US, and controlled JV in China Sinosteel Corporation (China) / 60 Higher costs, lower quality Tokai Carbon (Japan) / 33 Higher cost GIL (India) 98 4 / 25 Lower quality, competitive costs HEG (India) 80 1 / 80 Improving quality, competitive costs Nippon Carbon (Japan) 32 1 / 32 Higher cost SEC (Japan) 27 1 / 27 Higher cost Other Chinese producers (3) / 21 Higher costs, lower quality Other / 18 Worldwide total ~1, Sources: 2014 estimates derived from published information including press releases, websites and public company filings (1) Estimated capacity after announced closures (2) Average capacity in metric tons (3) Comprises 29 different producers

25 Guidance for 2014 $M 2013A 2014 Guidance EBITDA (1)(3) $144 $135 $150 Third Quarter EBITDA (1) $35 $30 $40 Depreciation and Amortization (2) $95 ~$90 Overhead (3) $129 $125 - $130 Interest Expense $36 ~$36 Second Half 2014 Tax Rate ~35% Cash Flow From Operations (2014 includes cash rationalization costs) $117 $125 $140 Capital Expenditures $86 $85 $95 (1) Non-GAAP financial measure; refer to appendix for reconciliation to GAAP (2) Excludes $35M of rationalization-related charges in 2013, and estimated $25M of rationalization-related charges in 2014 (3) 2013 is exclusive of $7M of pension mark to market accounting gain 25

26 Solid Cash Flow $M $200 Cash Flow From Operations Capital Expenditures Share Repurchase* Acquisitions $100 $0 ($100) ($200) ($300) ($400) est. * 2011 average purchase price: $14.70; 2012 average purchase price: $

27 EBITDA Reconciliation $M Target Net income $(27) $(174) - $(163) Interest expense Interest income 0 0 Income tax (benefit) expense (13) 0 4 Depreciation and amortization Rationalization-related depreciation Rationalizations and other related charges and impairments Rationalizations and impairments - other 26 Proxy contest expenses 2 Other expense (income), net 2 2 Mark-to-market adjustment (14) N/A EBITDA $144 $ NOTE ON EBITDA RECONCILIATION: EBITDA is a non-gaap financial measure that GrafTech currently calculates according to the schedule above, using historical or estimated target GAAP amounts as indicated above. GrafTech believes that EBITDA measures are generally accepted as providing useful information regarding a company s ability to incur and service debt as well as productivity and cash generation. Management uses EBITDA measures as well as other financial measures in connection with its decision-making activities. EBITDA measures should not be considered in isolation or as a substitute for net income (loss), cash flows from operations or other consolidated income or cash flow data prepared in accordance with GAAP. GrafTech s method for calculating EBITDA measures may not be comparable to methods used by other companies and is not the same as the method for calculating EBITDA measures under its senior secured revolving credit facility or other debt instruments. 27

28 Net Debt Reconciliation $M Q14 Long-term debt $542 $552 Short-term debt 1 0 Supply chain financing 9 0 Antitrust and related obligations 0 0 Total debt $552 $552 Less: Cash and cash equivalents Net debt $540 $531 NOTE ON NET DEBT RECONCILIATION: Net debt is a non-gaap financial measure that GrafTech calculates according to the schedule above, using GAAP amounts from the Consolidated Financial Statements. GrafTech believes that net debt is generally accepted as providing useful information regarding a company s indebtedness and that net debt provides meaningful information to investors to assist them to analyze leverage. Management uses net debt as well as other financial measures in connection with its decision-making activities. Net debt should not be considered in isolation or as a substitute for total debt or total debt and other long-term obligations calculated in accordance with GAAP. GrafTech s method for calculating net debt may not be comparable to methods used by other companies and is not the same as the method for calculating net debt under its senior secured revolving credit facility or other debt instruments. 28

29 Investor Presentation August