0 KeyBanc Capital Markets Basic Materials and Packaging Conference September 13, 2011
Safe Harbor Provision This presentation includes 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, with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. Such forward-looking statements include the discussions of our business strategies, estimates of future global steel production, trends toward outsourcing and other market metrics and our expectations concerning future operations, margins, profitability, liquidity and capital resources, among others. Although we believe that such forwardlooking statements are reasonable, there can be no assurance that any forward-looking statements will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Certain areas of this presentation depict Revenue After Raw Materials Costs, EBITDA and Free Cash Flow, which are non-gaap financial measures. Revenue After Raw Materials Costs, EBITDA and Free Cash Flow are not and should not be considered alternatives to revenues or net income or any other financial measure under U.S. GAAP. Our calculation of Revenue After Raw Materials Costs, EBITDA and Free Cash Flow may differ from methods used by other companies. When we use the term North America in this presentation, we are referring to the United States and Canada; when we use the term international, we are referring to countries other than the United States and Canada; when we use the term Latin America, we are referring to Mexico, Central America, South America and the Caribbean, including Trinidad & Tobago. 1 1
Company Overview 2
A Leading Provider of Mission Critical Services Throughout the Steel Production Process Raw Materials Procurement and Logistics Pre-Steel Making Steel Making Post-Steel Making Semi-Finished and Finished Material Handling Proprietary, Software-Based Raw Materials Cost Optimization Metal Recovery and Slag Handling, Processing and Sales Scrap Management and Preparation Surface Conditioning Raw Material and Optimization Group Mill Services Group Enables Steel Producers to Generate Substantial Operational Efficiencies and Cost Savings 3 3
As Needed for quality TMS Provides Mission Critical Services Throughout the Steel-Making Process Iron Ore Pig Iron 70-75% Surface Conditioning Coke Liquid Steel === to Casting 85-87% On-Site Transport Limestone Raw Materials Sourcing & Logistics Blast Furnace Produces molten pig iron from iron ore Basic Oxygen Furnace Produces molten steel Electric Arc Furnace Produces molten steel 80-85% Slag Semi-Finished Material Liquid Steel === to Casting On-Site Transport Rolling/Finishing Facilities On-Site Transport Finished Goods Loading Dock/Rail/Truck 15-20% 80-85% Scrap Steel Aggregate TMS Sources the Raw Material Inputs, Manages and Prepares the Scrap, Recycles and Processes Slag to Recover Metallic Material and Handles and Conditions the End Products 4 4
Global Provider of Outsourced Services to Steel Mills 6/30/11 LTM Revenue After Raw Materials Costs: $508.6mm 6/30/11 LTM Adjusted EBITDA: $127.4mm Mill Services Group 70% of Adj. EBITDA (1) Raw Material and Optimization Group 30% of Adj. EBITDA (1) Business Model Long-term contract based earnings model primarily driven by steel production volumes NOT steel prices Approximately 80% of cash operating costs variable Industry leading safety and environmental record 91% of 2010 Revenue After Raw Materials Costs generated from long-term contracts Services / North America Market Share #1 #1 #1 #1 Scrap Management and Preparation Semi-Finished and Finished Material Handling Metal Recovery and Slag Handling, Processing and Sales Surface Conditioning #2 #1 Raw Materials Procurement and Logistics Proprietary, Software-Based Raw Materials Cost Optimization Operations 78 customer sites in 10 countries Spans five continents (1) 6/30/11 LTM Adjusted EBITDA before total administrative expenses of $34.7mm. 5 5
Unique and Highly Attractive Business Model BUSINESS MODEL STRENGTHS BUSINESS MODEL ATTRIBUTES Revenues grow as steel production volumes grow Long-term contracts based on steel volumes NOT steel prices Tiered pricing structure Built-in protection from steel production declines and increases in key operating costs Minimum monthly fees regardless of volume Price adjustments based on published price indices Ability to respond quickly to changing business conditions Approximately 80% of operating costs variable Maintenance capital expenditures tied to equipment utilization Variable maintenance capital expenditures Minimal inventory and commodity price risk Procurement contracts matched with customer orders DR 6 6
Long-Standing Relationships with World s Leading Steel Producers Customer Number of TMS Sites Years of Service (1) AK Steel 4 22 ArcelorMittal 9 70 CMC 3 16 Evraz 2 20 Gerdau 11 33 Nucor 10 31 SSAB 1 21 Tata Steel 2 49 Ternium 2 3 Customer base includes 12 of the top 15 largest global steel producers by volume Average length of top 10 customer relationships over 34 years Mission critical, cost-effective service offerings Deep operational integration Contracts written on a site-level and service-level basis, mitigating potential customer concentration Industry-leading safety and environmental record United States Steel 10 67 Average length of service >34 (1) Includes service to predecessor entities. Enables Steel Producers to Generate Substantial Operational Efficiencies and Cost Savings 7 7
Expanding Global Footprint #1 market position in North America with on-site presence at approximately 50% of steel mills - #1 Market position in 5 out of 6 outsourcing services offered Established procurement operations and mill services infrastructure across Europe and Latin America Operate at 22 mill sites and 8 procurement offices outside of North America Established and growing procurement operations in Asia 13% of LTM procurement volume shipped to Asia Teeside Immingham Scunthorpe Gent Sheffield Florange Dunkerque Dunkirk Kosice Commentry Smederevo Marseilles Le Creusot Beijing NY004Z3H_1 YTD 6/30/11 International EBITDA Puebla Point CouvaLisas UAE Taichung Kaohsiung Ho Chi Minh City Mesa Singapore Jakarta International Adjusted EBITDA as a Percentage of Total Adjusted EBITDA has Increased from 2% in 2007 to 19% in YTD 2011 Note: Map includes all locations including both Mill Services sites and procurement offices. 8 8
Current Operating Environment Emerging market steel production continues to grow at strong rates North America and Europe, while still growing year-over-year, have had modest production declines in recent weeks North America: - U.S. steel production capacity utilization levels of ~75% through the summer vs. prior year of ~70% (long-run average of 80%-85%) - Current service center inventory levels remain low (2.1 months vs. 2.4 months typical level) - Demand for flat products, primarily automotive-related, has been strong in 2011 - Energy, agriculture, and heavy equipment-related outlook remains positive - Residential and non-residential construction markets are expected to remain very challenging through 2012 Absent new substantial unfavorable macro-economic developments, we expect to continue generating strong financial results in-line with our previous guidance 9 9
Global Growth Strategy 10
Maturity of Steel Services Outsourcing Market Low High Our Growth Strategy Grow in International Markets Penetrate Existing Customers Selectively Expand Service Offerings Selectively Pursue Acquisitions and Partnerships North America Eastern Europe / Russia Latin America Western Europe APAC ex-china China Middle East Low Expected Market Growth (1) Note: Size of bubble represents current market size based on current Crude Steel Production. Source: Management, CRU. (1) Based on 2011E 2015E Crude Steel Production CAGR. Source: CRU. 11 High 11
Steel Production is a Global Growth Industry United States / Canada 11-15 Steel Production: 3.4% GDP: 2.3% Industrial Production: 2.7% Mexico 11-15 Steel Production: 3.0% GDP: 3.4% Industrial Production: 4.8% Latin America 11-15 Steel Production: 5.9% GDP: 4.5% Industrial Production: 4.1% Turkey 11-15 Steel Production: 3.3% GDP: 4.8% Industrial Production: 5.1% Middle East 11-15 Steel Production: 4.6% GDP: 4.1% Industrial Production: 3.9% Brazil 11-15 Steel Production: 6.4% GDP: 4.5% Industrial Production: 4.4% Eastern Europe / Russia 11-15 Steel Production: 3.6% GDP: 4.1% Industrial Production: 5.6% China 11-15 Steel Production: 7.2% GDP: 8.3% Industrial Production: 11.8% India 11-15 Steel Production: 8.0% GDP: 8.4% Industrial Production: 7.8% South Africa 11-15 Steel Production: 6.0% GDP: 3.7% Industrial Production: 4.8% NY005TB2_2.wor Notes: Figures represent CAGR over stated period. Regional GDP and Industrial Production represents a weighted average of selected countries in region. Source: CRU International and Economist Intelligence Unit; Brazil industrial production forecast from the Instituto Brasileiro de Geografia e Estatistica. 12 12
How We Achieve Above Market Growth Raw Materials and Optimization Group 30% of YTD EBITDA We grow by cultivating relationships globally, by expanding our product offerings and by extending our geographic coverage Key is adding experienced new team members and opening offices globally - New team members add new product expertise and strong customer relationships globally Focus on regions with the greatest demand for raw materials, particularly Asia, Brazil and the Middle East. Latin America is also a rich source of materials to be sold globally - Opened 2 new international offices in 2011 bringing total to 11 - ~13% of procurement volume in LTM period sold outside North America Mill Services Group 70% of YTD EBITDA We grow primarily by winning new contracts, either at new locations or by cross selling new services at existing customer locations - We grow our market share as global steel producers desire more competition and higher quality global service providers (we get a bigger piece of the pie) - As the steel industry matures in different geographies, the need for more efficient production techniques drives new outsourcing (the pie gets bigger) - Over the past six years, we have grown the average number of services provided per site to 2.3 from 2.0 Proven Track Record of Global Growth 13 13
Raw Materials & Optimization Growth ($ in millions) 2008A 2009A 2010A Expected 2011 Tons Procured 8.8 6.7 9.8 9.4-10.2 % Scrap Sales 84% 85% 79% 78% - 83% % Non-Scrap Sales 16% 15% 21% 17% - 22% RMOG locations outside of North America 2 8 9 13 Geographies Added Serbia, Slovakia China, Indonesia, Vietnam, Singapore, Belgium, Taiwan Latin America Mexico, Thailand, Netherlands, UAE Global growth initiative began in 2008 and focused on Asia and Latin America - Asia is largest steel producing region and is short of scrap and other raw materials - Latin America is a rich source of HBI and other non-scrap material to be sold globally - Potential for new offices in Netherlands, UAE, Thailand and Mexico - Growing expertise in Non-Fe, Iron Ore, Coal, Coke and commission business Recently established Asian RMOG headquarters in Taiwan North America operations continue to grow and provide strong cash flow while global operations increase distribution network, diversify our product offering and deliver attractive growth Increased Global Coverage and Product Offering 14 14
Mill Services Growth ($ in millions) 2007A 2008A 2009A 2010A Expected 2011 New Contracts Won 5 6 2 4 8-10 -- New Locations 2 5 1 1 5-6 -- Cross Sells 3 1 1 3 4-5 Growth Capital Deployed $15.8 $27.0 $23.2 $9.5 $40-$50 Non- North America Revenue % 5% 9% 20% 20% 25% - 30% Pro forma Global growth focus initiated in 2007 - Developed leveragable marketing and administrative infrastructure in Europe, Latin America and the Middle East - Management team had existing global business expertise 2009 through beginning of 2010 new contract opportunities declined as mills were managing through economic downturn - We continued to invest capital on previous new contract wins - New opportunity pipeline is now as strong as pre-downturn Capital Spending Oriented Towards Growth Earning Attractive Rates of Return 15 15
TMS Current Locations and Potential Opportunities Pre- 2007 Operations / Locations 2007 New Location 2008 New locations 2010 New locations 2011 New locations Potential opportunities over the next 18-24 months 2009 New locations = Mill Services Locations = Raw Material and Optimization Locations 16 16
2011 Expected Growth Summary Continued expansion of the Raw Material & Optimization Group footprint - Established Asian headquarters in Taiwan - Established raw materials function in the Middle East and North Africa - Hired ferrous traders in the Netherlands, Taiwan, China and Latin America Strong relationships with global steelmakers has resulted in significant new contract awards - Five of six new mill services contracts year-to-date are international - Two of the six new mill services contracts were cross-sells Expecting to announce significant new contracts in the second half of 2011 Actual 6/30/11 YTD Expected full year 2011 # of contract wins 6 8-10 Additional revenue backlog $143 million $400-$450 million Growth capital commitment $19.4 million $40-$50 million Average new contract term 5.6 7.6 RK 17 17
Financial Overview 18
Attractive Financial Profile 1 Strong Adjusted EBITDA Margins 24% to 26% 2 High Discretionary Cash Margins (1) ~17% to 19% of Revenue After Raw Materials Costs 3 Variable Operating Cost Structure ~80% 4 Superior Contract Renewal Rate (2) >96% 5 Long-Term Contracted Revenue Base 91% in 2010 6 Highly Visible Contracted Backlog (3) $1.6 billion Note: All data based on LTM period ended June 30, 2011. (1) Discretionary Cash is defined as Adjusted EBITDA Maintenance Capex. (2) Since 2005. (3) Estimated future Revenue After Raw Materials Costs over existing contracts remaining terms. 19 19
Historical Financial Performance Total Revenue ($mm) Revenue After Raw Materials Costs ($mm) 1 1 #1 Heavy Melt, American Metal Market Adjusted EBITDA ($mm) Discretionary Cash Production 3 ($mm) 2 2 % of Revenue After Raw Materials Costs 3 Adjusted EBITDA Maintenance Capex Revenue Growth and Disciplined Cost Management Driving Leading Margins 20 20
Year-to-Date Financial Performance First Half Avg. U.S. Steel Industry Capacity Utilization Revenue After Raw Materials Costs 2010 2011 % Change 70.5% 74.4% 5.5% $229.7M $272.3M 18.5% Adjusted EBITDA (1) $60.6M $68.1M 12.4% Maintenance Capex $11.8M $17.9M 51.2% Adj. EBITDA less Maint. Capex $48.7M $50.2M 3.1% Growth Capex $7.1M $8.1M 14.3% While year-over-year industry volumes grew 5%, TMS sites were producing better than the industry average volumes in 2010 and grew at 1% year-over-year New contracts, RMOG expansion, project growth and other items not directly related to volume drove approximately one-half of the revenue growth and a majority of the EBITDA growth Modest steel production volume increases drove remaining revenue growth but produced little additional EBITDA due in large part to increased fuel costs and investment in growth-related overhead (1) YTD 2011 results exclude a one-time $1.3M charge associated with the accelerated vesting of restricted stock at the time of the IPO. 21 21
Debt Profile and Covenant Summary 6/30/11 Amount Rate Maturity ABL Revolver ($165M facility) Nil L + 150/250 Jan 2013 Senior Secured Term Loan $158M L + 200 Jan 2014 Senior Subordinated Notes $223M 9.75% Jan 2015 Capital Leases and Other $2M Total Debt $383M Less: Cash $131M Net Debt $252M (1) LTM Adjusted EBITDA $127M Net Debt / LTM EBITDA 2.0x Significant liquidity available including $162M of undrawn revolver availability No financial maintenance covenants if availability on ABL is above $15M No significant maturities until 2013 (1) Cash balance shown as of July 31, 2011. June 30, 2011 cash balance was $93.8 due to the timing of certain working capital items at quarter end. 22 22
Outlook 23
2011 / 2012 Focus Continue global expansion of Mill Service contracts by penetrating new locations and cross-selling services Expand Outsourced Purchasing presence in Asia, Middle East/Africa and Latin America Closely monitor steel production volumes and be prepared to manage cost structure accordingly Affirming our 2011 adjusted EBITDA guidance of $133 million to $137 million 24 24
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