Investor Presentation September 2012 Safe Harbor Provision of 1933, - - PowerPoint PPT Presentation

Investor Presentation

September 2012

• Safe Harbor Provision

This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act

• f 1933, (the “Exchange Act”), 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

• ur expectations concerning future operations, margins, profitability, liquidity and capital resources, among
• thers. Although we believe that such forward-looking 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 Discretionary Cash Flow, which are non-GAAP financial measures. Revenue After Raw Materials Costs, EBITDA and Discretionary Cash Flow are not and should not be considered alternatives to revenues or net income or any other financial measure under U.S. GAAP. We reconcile these measurements to GAAP in our quarterly and annual reports on forms 10-Q and 10-K, filed with the S.E.C. pursuant to the Exchange Act. Our calculation of Revenue After Raw Materials Costs, EBITDA and Discretionary 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.

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• Management Team

Joe Curtin: Chairman, President and CEO Ray Kalouche: Chief Operating Officer, and President and COO

• f the Mill Services Group

David Aronson: COO, Raw Materials and Optimization Group Tom Lippard: Executive Vice President & General Counsel Dan Rosati: Executive Vice President & CFO Kelly Boyer: VP, Investor Relations & Treasurer

2

• Company Overview

Current Operating Environment Global Growth Strategy Financial Overview Outlook

3

Agenda

• Company Overview

4

• A Leading Provider of Mission Critical Services

Throughout the Steel Production Process

TMS enables steel producers to generate substantial operational efficiencies and cost savings

Raw Materials Procurement and Logistics Proprietary, Software-Based Raw Materials Cost Optimization Scrap Management and Preparation Semi-Finished and Finished Material Handling Metal Recovery and Slag Handling, Processing and Sales Surface Conditioning

Pre-Steel Making Post-Steel Making Steel Making

Raw Material and Optimization Group (RMOG) Mill Services Group (MSG) 5

• Outsourcing to TMS Allows Steel Producers to Focus
• n Their Core Business – Making Steel

Iron Ore

Coke

Limestone Blast Furnace

Produces molten pig iron from iron ore

Scrap Steel

Electric Arc Furnace

Produces molten steel

Pig Iron

Basic Oxygen Furnace

Produces molten steel

TMS is embedded in all phases of our customers’ ’ ’ ’ operations – providing mission critical services throughout the steel-making process

80-85% As Needed for quality

Rolling/Finishing Facilities

Slag

70-75% 80-85% 15-20%

Surface Conditioning

Liquid Steel ===

• to Casting

85-87%

• On-Site

Transport Finished Goods Loading Dock/Rail/Truck On-Site Transport On-Site Transport

Liquid Steel ===

• to Casting

Semi-Finished Material

Raw Materials Sourcing & Logistics 6

• Contracts typically have minimums/tiered pricing
• Approximately 80% of cash operating costs

variable

• Capital not spent until contract is signed
• Long-term contracts with price indexing provides

good visibility

Leading Global Provider of Outsourced Services to Steel Mills

Raw Materials Procurement and Logistics Proprietary, Software-Based Raw Materials Cost Optimization Scrap Management and Preparation Semi-Finished and Finished Material Handling Metal Recovery and Slag Handling, Processing and Sales Surface Conditioning

Mill Services Group

• 34 offices supporting global operations
• 82 customer sites in 11 countries

Unique Business Model Reduces Cyclicality And Risk Operations Services / North America Market Share #1 #1 #1 #1 #2 #1

TTM at 06/30/12 Revenue After Raw Materials Costs: $587MM Adjusted EBITDA: $141MM

Raw Material and Optimization Group

• Minimal inventory and commodity price risk
• No capital required for growth

7

• 8

Broadest Portfolio of Services in the Industry

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2005 2006 2007 2008 2009 2010 2011 1Q12 2Q12 EAF Mills (SMA) 4.01 4.32 4.33 3.97 3.19 4.15 4.91 2.98 Integrated Mills (AISI) 5.42 3.63 2.64 2.33 1.97 2.45 1.87 Slag (NSA) 6.47 6.46 4.7 4.47 2.72 3.25 TMS 4.17 4.7 3.06 2.6 0.93 1.44 1.51 1.48 1.57

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Incident Rates

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Industry Leading Safety Performance

3

Long-Standing Relationships with World’ ’ ’ ’s Leading Steel Producers

Customer Number of TMS Sites Years of Service (1)

AK Steel 4 24 ArcelorMittal 12 72 CMC 3 18 Evraz 2 23 Gerdau 11 35 Nucor 9 33 SSAB 1 23 Tata Steel 2 51 Ternium 2 5 United States Steel 9 69 Average length of service >34

(1) Includes service to predecessor entities.

Customer base includes 12 of top 15 largest global steel producers by volume Average length of top 10 customer relationships –

• ver 34 years

Offer broadest portfolio of services Deep operational integration Contracts written on a site-level and service-level basis, mitigating potential customer concentration Mission-critical, cost-effective service offerings

Contracts are written on a site-by-site basis which reduces the risk associated with customer concentration

10

• Strong North American Base with Significant Global

Scale and Growing Geographic Diversification

Revenue by Geography

International Revenue after Raw Material Costs has increased from 6% in 2007 to 26% YTD 6/30/12

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Raw Material Procurement Offices Mill Services Locations

Point Lisas

Monclova Monterrey Puebla Saltillo

Ho Chi Minh City Singapore Jakarta Kaohsiung Taichung Beijing Dubai Abu Dhabi Vanderbijlpark S.A Saldanha, S.A. Kosice Smederevo Gent Immingham Florange Le Creusot Teeside Sheffield Dunkerque Commentry Marseilles Genk

• MN

Saskatchewan IPSCO (Regina) UT Nucor Steel (Plymouth) IA North Star Steel (Wilton) AR MacSteel (Ft. Smith) GA Gerdau AmeriSteel WI Charter Steel (Saukville) L'Orignal NY Nucor Steel (Auburn) WV ISGWeirton Steel (Weirton) IL MN OR MS DE Saskatchewan Regina UT AR GA WI Ontario NY TN TX NE IN SC CA VA MI PA OH NJ AZ KY FL AL CT

Belo Horizonte Seoul

WA

11

• Current Operating Environment

12

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Notes: Figures represent CAGR over stated period. Regional GDP and Industrial Production represents a weighted average of selected countries in region. Source: CRU International as of August 2012 and Economist Intelligence Unit as of July 2012.

Middle East

’ ’ ’ ’12-’ ’ ’ ’16 Steel Production: 6.4% GDP: 3.8% Industrial Production: 4.2%

China

’ ’ ’ ’12-’ ’ ’ ’16 Steel Production: 4.9% GDP: 8.1% Industrial Production: 11.5%

South Africa

’ ’ ’ ’12-’ ’ ’ ’16 Steel Production: 5.2% GDP: 3.7% Industrial Production: 4.6%

Eastern Europe / Russia

’12-’16 Steel Production: 3.0% GDP: 3.5% Industrial Production: 4.2%

Turkey

’12-’16 Steel Production: 4.1% GDP: 5.0% Industrial Production: 5.5%

Brazil

’12-’16 Steel Production: 5.2% GDP: 4.1% Industrial Production: 4.0%

Latin America

’12-’16 Steel Production: 5.5% GDP: 4.2% Industrial Production: 4.1%

Mexico

’12-’16 Steel Production: 3.6% GDP: 3.7% Industrial Production: 4.8%

India

’ ’ ’ ’12-’ ’ ’ ’16 Steel Production: 7.4% GDP: 7.8% Industrial Production: 8.2%

United States / Canada

’12-’16 Steel Production: 2.9% GDP: 2.2% Industrial Production: 3.1%

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North American Demand Continues to Rebound

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Source: MSCI, July 2012

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Source: AISI, September 2012

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U.S. Steel Industry Capacity Utilization 2002-2008 Average Utilization

4,000 8,000 12,000 16,000

2005 2007 2009 2011

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• Source: IHS AutoInsight, July 2012

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Notes: Size of bubble represents current market size based on current Crude Steel Production Source: Management, CRU. Expected Market Growth is based on 2011E – 2015E Crude Steel Production CAGR. Source: CRU.

Expected Market Growth Maturity of Steel Services Outsourcing Market

Low High Low High China

APAC ex-China Middle East Eastern Europe / Russia Latin America Western Europe North America

16

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• Global Growth Strategy

17

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• Continue to expand our global raw materials procurement network
• Win new service contracts globally
• Expand to new locations
• Cross sell services at existing locations
• Take advantage of new outsourcing opportunities
• Selectively expand service and product offerings
• Selectively pursue acquisitions and partnerships

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• The North American market, where we are the market leader, continues to

be healthy and strong

• TMS European sites continue to operate at above average levels for Europe
• Company will continue to deploy capital where it makes sense and based on

strict ROIC hurdle rates

• Continued focus on strong cash flow generation

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3

August YTD 2012:

• 13 new contracts wins
• Seven international contracts
• 11 of the 13 were the result of cross-selling efforts
• Startups are performing as expected
• Pipeline of opportunities remains strong

2011:

• Nine new contract wins
• Eight international contracts
• Three contract wins in new geographies (Middle East and South Africa)
• Two contract wins were cross-sells at existing sites

Summary of New Contracts:

9

MSG Operational Highlights August YTD 2012 and 2011

2011 August YTD 2012 # of contract wins 9 13 Additional revenue backlog $433MM $270MM Growth capital commitment $60 - $65MM $30 - $35MM Average new contract term 5 - 10 years 7 - 15 years

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• Risk-minimizing business model validated in 2Q results
• Continued to strengthen and diversify global procurement network
• 34 offices covering 5 continents
• Traders hired and offices opened in Mexico, Brazil, Texas and Dubai
• Opened Miami office to cover Latin America
• Opened new office in Indiana to serve as a central support location for

International activities

• Continuing to expand commodity menu
• Continued success with large vessel transactions contributed positively to

per ton margins

9

RMOG Operational Highlights August YTD 2012

21

• Financial Overview

22

• Unique Business Model Reduces Cyclicality and Risk

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• Average term of contracts: 7 years
• Average length of relationship: 34 years

Tiered pricing structure Minimum monthly fees regardless of volume Price adjustments based

• n published price indices

Approximately 80% of

• perating costs variable

Variable maintenance capital expenditures Procurement contracts matched with customer orders Long-term contracts with long-term customers

BUSINESS MODEL ATTRIBUTES BUSINESS MODEL STRENGTHS

Revenue grows as steel production grows – not linked to steel prices. Built-in protection from: 1) steel production declines and 2) increases in key operating costs Ability to respond quickly to changing business conditions Maintenance capital expenditures tied to equipment utilization Minimal inventory and commodity price risk

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Two complementary business segments Complementary segments produce cross- selling opportunities and more complete knowledge of customer needs

• Strong Adjusted EBITDA Margins

24% to 26% High Discretionary Cash Margins (1) Variable Operating Cost Structure ~80% Superior Contract Renewal Rate (2) >97% Long-Term Contracted Revenue Base 88% Highly Visible Contracted Backlog (3) (4)

(1) Discretionary Cash is defined as Adjusted EBITDA – Maintenance Capital Expenditures. (2) Since 2005. (3) Estimated future Revenue After Raw Materials Costs over existing contracts’ remaining terms. (4) As of June 30, 2012

1 2 3 4 5 6

$1.8 billion

7

Strong Balance Sheet with Significant Liquidity (4) $350MM Revolver $27MM Cash

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Attractive Financial Profile

~17% to 19% of Revenue After Raw Materials Costs

• Historical Financial Performance

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$54 $54 $67 $68 $89 $92 14.2% 13.1% 14.4% 19.0% 19.0% 16.8% 0% 5% 10% 15% 20% 25% 30% $0 $20 $40 $60 $80 $100 2006 2007 2008 2009 2010 2011

DCP % of Revenue After Raw Materials Costs

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$1,376 $1,670 $2,983 $1,298 $2,031 $2,661 $224 $257 $384 $209 $332 $411 $0 $100 $200 $300 $400 $500 $600 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 2006 2007 2008 2009 2010 2011

Total Revenue Average Scrap Price / Ton1

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$378 $410 $467 $358 $466 $549 85.3% 86.4% 81.2% 51.0% 70.1% 74.8% 0% 25% 50% 75% 100% $0 $100 $200 $300 $400 $500 $600 2006 2007 2008 2009 2010 2011

Rev enue Af ter Raw Materials Costs U.S. Steel Industry Capacity Utilization

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• 2012 Financial Highlights

Quarter Ended June 30 ($MM) YTD June 30 ($MM) 2012 2011 % Change 2012 2011 % Change

• Avg. U.S. Steel

Industry Capacity Utilization

78.6% 74.0% +5% 78.2% 74.2% +5%

Revenue After Raw Materials Costs

$153.6 $137.0 +12% $309.5 $272.3 +14%

Adjusted EBITDA

$37.8 $33.5 +13% $74.6 $68.1 +10%

Discretionary Cashflow (1)

$28.2 $22.9 +23% $57.2 $50.2 +14%

Growth Capital (2)

$12.6 $3.6 $38.1 $8.1

(1) Defined as Adjusted EBITDA less Maintenance Capital Expenditures. (2) Capital expenditures includes 2011 carry-forward.

New contract wins in MSG and new business wins in RMOG driving significant year-over-year growth

26

• Significant liquidity available and no debt maturities until December 2016
• Cash interest savings from new term debt structure: $8.5MM before taxes
• New $300MM Senior Secured Term Loan completed on March 20, 2012
• ABL Revolver facility increased from $165MM to $350MM on Dec 15, 2011
• Corporate ratings: BB- (S&P, 4Q 2011) and Ba3 (Moody’s, 1Q 2012)

Capital Structure Summary

($MM) Rate Maturity ABL Revolver ($350MM facility) $0 L + 150/225 Dec 2016 Senior Secured Term Loan $297 L + 450 (1) Mar 2019 Capital Leases and Other $13 Total Debt $310 Less: Cash $27 Net Debt $283 Adjusted EBITDA (TTM 2Q 2012) $141 Net Debt / EBITDA 2.0x

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(1) LIBOR floor of 1.25%.

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,

2012 Focus

Continue global expansion of Mill Service contracts by selectively penetrating new locations and cross-selling services Expand Outsourced Purchasing presence in Asia, Middle East/Africa, Latin America and Europe Carefully manage start-ups to ensure smooth operational transitions and achievement of profitability forecasts Continue to monitor customer production volumes and implement cost- actions, if necessary Continued stringent cost discipline 2012 Adjusted EBITDA guidance of $142 - $148 million

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