Investor presentation KeyBanc Capital Markets Basic Materials & - - PowerPoint PPT Presentation
Introducing Investor presentation KeyBanc Capital Markets Basic Materials & Packaging Conference September 10, 2014 Boston Todays presenters Tim Timken Chairman, CEO & President Chris Holding Executive Vice President & Chief
KeyBanc Capital Markets Basic Materials & Packaging Conference September 10, 2014 Boston
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Chris Holding
Executive Vice President & Chief Financial Officer
Tim Timken
Chairman, CEO & President
Tina Beskid
Director, Investor Relations & Forecast, Planning & Analysis
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The information provided today will include forward-looking statements relating to our goals and estimates for future years, including statements about expected sales, operating earnings per share, cash flow, segment margins, our worldwide markets, our anticipated effective income tax rate, and others. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company’s control. The following factors could cause actual results to differ, perhaps materially, from those anticipated in the forward-looking statements: unanticipated changes in the markets for the company’s business segments; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; increases in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; new laws and governmental regulations; interest rate changes; changes in currency exchange rates; stock market fluctuations; unanticipated deterioration of economic and financial conditions in the United States and around the world; the amount and timing of any dividends and share repurchases; and the risks identified in the company’s registration statement on Form 10 filed with the SEC. We do not assume any obligation to update these forward-looking statements. The unaudited pro forma consolidated financial data in this presentation is subject to assumptions and adjustments described in the company’s registration statement on Form 10. TimkenSteel Corporation’s (“TimkenSteel”) management believes these assumptions and adjustments are reasonable under the circumstances and given the information available at this time. However, these adjustments are subject to change as The Timken Company and TimkenSteel finalize the terms of the spinoff, including the separation and distribution agreement and related transaction agreements. The unaudited pro forma consolidated financial data does not purport to represent what TimkenSteel’s financial position and results of operations actually would have been had the spinoff occurred on the dates indicated, or to project TimkenSteel’s financial performance for any future period following the spinoff. This presentation includes certain non-GAAP financial measures as defined by SEC rules. A reconciliation of those measures to the most directly comparable GAAP equivalent is contained in the appendix. Please see discussion of non-GAAP financial measures in the appendix.
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Key facts 2013 sales split by business segment 2013 sales split by end market2 2013 sales split by product
Alloy steel bars (SBQ) 59% Seamless mechanical tubing 20% Value added solutions (precision machining, supply chain management, cutting and drilling) 21% Industrial & mobile 63% Energy & distribution 37% Passenger car 26% Light truck 22% Oil & gas 20% Machinery4 12% Industrial 5% Mining 3% Other3 12%
Source: TimkenSteel
1 See Appendix for Adjusted EBITDA reconciliation 2 Distribution sales were 20% of 2013 sales 3 Other: ≤ 2% each of construction, rail, military/defense, heavy and medium truck, agriculture, metals recycling, power generation, marine and aerospace 4 Machinery includes historic intercompany sales to Timken
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Alloy steel bars (SBQ) Seamless mechanical tubing Value-added solutions 59% 20% 21% Machining, honing & drilling Supply chain Components
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6:1 Reduction – Machining
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Gerdau MacSteel Republic Steel Steel Dynamics - Pittsboro Nucor - Memphis TimkenSteel Bar Diameter (Inches)
Source: TimkenSteel internal estimates as of 12/31/2013
3.5mm tons Market sector size 1.8mm tons 0.8mm tons 0.4mm tons
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Source: TimkenSteel
Differentiation
1.875” to 13.0”
grade categories
capability
OCTG 36% Line pipe 23% Seamless mechanical 3% Welded mechanical 12% Structural 14% Standard 10% Pressure 1% Stainless 1%
19.4mm annual tons - welded and seamless
Source: 2013 Preston Pipe and Tube Report
Flat-Rolled 69% Other Long Products² 26% Special Bar Quality 5% Seamless Mechanical Tubing 1%
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World: 1,633 mm tons USA: 107 mm tons
Source: World Steel Association; American Iron and Steel Institute ¹ Others: Middle East 3.2%, Central & South America 3.3%, Africa 2.0%, Australia & New Zealand 0.4%
2 Other Long Products: Light Shapes, Reinforcing Bars, Merchant Bars, Wire, Pipe & Tubing
Our core product lines Our home market
Global finished steel products USA finished steel products
China 47% Other Asia 15% EU-28 9% NAFTA 9% Others¹ 9% Japan 4% CIS 4% Other Europe 3%
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Scrap return supply chain established with
many customers
volatility largely passed on to customers through surcharge mechanisms
processes and technology
maintenance and continuous improvement capital expenditures
2 4 6 8 10 12 14 16 18 1981 1985 1989 1993 1997 2001 2005 2009 2013 Labor hrs/ton
Labor Productivity Competitive cost structure
Source: TimkenSteel internal estimates as of 12/31/2013
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Jumbo Caster
commissioned 3Q 2014
cast products
higher value SBQ and seamless mechanical tube markets
In-Line Forge Press
commissioned April 2013
capacity
soundness up to 16” bar
Intermediate Finishing Line (IFL)
commissioned April 2013
Technology improves quality assurance
environmental controls
Ladle refining station
commissioned April 2013
chemistry
additional finish tons
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Hot Roll Large Quantity Hot Roll Small Quantity Single Thermal Treat Large Quantity Single Thermal Treat Value Add Single Thermal Treat Small Quantity Advanced Heat Treat Large Quantity Advanced Heat Treat Small Quantity Advanced Heat Treat Value Add
Material and service level Customer value level
Source: TimkenSteel
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2013A figures
Shipments Sales EBIT EBIT margin
331k tons $516mm $67mm 13.0%
Key highlights End markets Sales mix Customers
completion applications
unique heat treat and custom boring /finishing capabilities
differentiated solutions to end users
Distribution 55% Energy 45%
Overview
to best reach targeted share participation levels
most critical applications operating in harsh environments
Energy offerings are valued and trusted by industry leaders
solution set which combines:
High performance materials
Unmatched thermal treatment
Proprietary machining processes
Responsive delivery capabilities
Key takeaways
Ellwood Texas Forge National Oilwell Varco-Grant Prideco Marmon Keystone AM Castle Metals Energy Alloys Reliance Steel & Aluminum
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2013A figures
Shipments Sales EBIT EBIT margin
588k tons $865mm $84mm 9.7%
Key highlights End markets Sales mix Customers
applications where high performance is required
where performance is critical
many grades in small quantities
company recycling ferrous and non-ferrous metals
Quality
Consistency
Technical support
is a proven source of value creation
volume niche market sector needs
growth emphasis on Industrial based applications and value-add needs
Mobile 64% Industrial 33% Metals recycling 3%
Overview Key takeaways
HHI Chrysler Ford GM Honda Nexteer Nissan Toyota Ellwood National Crankshaft Timken CAT General Dynamics Brenco AJAX
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BASE BUSINESS: Ability to consistently engineer solutions for challenging applications in niche markets
12.9% 13.0% 9.1% 8.3%
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4-year average EBITDA margins
Source: Company filings, FactSet Note: TimkenSteel figures represent Adjusted EBITDA margins based on Steel segment EBITDA, adjusted for previously unallocated corporate expenses and incremental standalone costs; see Appendix for reconciliation
2010 10.6% 16.3% 9.4% 6.5% 2011 14.1% 13.0% 10.0% 10.1% 2012 15.2% 11.0% 8.6% 8.6% 2013 11.5% 11.9% 8.4% 8.1% 4 yr avg. 12.9% 13.0% 9.1% 8.3%
Gerdau Steel Dynamics Nucor
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1 See Appendix for Adjusted EBITDA reconciliation
$278 ($39) $145 $276 $262 $159 75% 35% 72% 85% 65% 58% 0% 25% 50% 75% 100% ($100) ($50) $0 $50 $100 $150 $200 $250 $300 $350 2008 2009 2010 2011 2012 2013 Capacity utilization (%) Adjusted EBIT DA $mm Adjusted EBITDA Capacity utilization
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Organic investments Dividends External investments Leverage
Overview
1Subject to Board approval
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$52 $6 $9 $36 $121 $135 $43 $22 $34 $62 $50 $45 $96 $28 $43 $99 $171 $180 $165-$175 $120-$130 $100-$110 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E $45-$55 $45-$55 $45-$55
Capital expenditure ($mm)
Source: TimkenSteel 2015E and 2016E as of May 31, 2014
Growth Maintenance & continuous improvement Separation related Growth Maintenance & continuous improvement
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completion products
deeper, larger bore well designs
and offshore drilling & completion
commissioned in 2016
Market Demand Investment Benefits Continuous Heat Treat Investment
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Outlook & Guidance
Source: TimkenSteel as of July 31, 2014
Revenue growth Capex
Standalone costs
Net income
maintenance & caster ramp-up costs for net impact of $2-4 million
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Based on The Timken Company 10-K filings (US$ mm)
Source: TimkenSteel
2008 2009 2010 2011 2012 2013 Net sales $1,852.0 $714.9 $1,359.5 $1,956.5 $1,728.7 $1,380.9 Reported EBIT $264.0 ($63.4) $146.3 $267.4 $251.8 $140.2 Less: audit / other adjustments 0.0 0.0 (8.7) 0.4 (0.8) 2.3 Adjusted EBIT $264.0 ($63.4) $137.6 $267.8 $251.0 $142.5 D&A $48.5 $45.9 $46.1 $45.8 $49.7 $53.8 Incremental D&A 10.0 9.0 7.0 7.0 7.0 7.0 Total D&A $58.5 $54.9 $53.1 $52.8 $56.7 $60.8 EBITDA $322.5 ($8.5) $190.7 $320.6 $307.7 $203.3 Total standalone costs (44.0) (30.8) (46.0) (44.2) (45.5) (44.0) Adjusted EBITDA $278.5 ($39.3) $144.7 $276.4 $262.2 $159.3 % of sales 15.0% (5.5%) 10.6% 14.1% 15.2% 11.5%
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Based on TimkenSteel Form 10 filings (US$ mm)
Source: TimkenSteel Form 10 filing as of 05/15/2014
2010 2011 2012 2013 Net sales $1,359.5 $1,956.5 $1,728.7 $1,380.9 Segment EBIT Industrial & Mobile $73.1 $114.2 $112.8 $84.0 Energy & Distribution 71.5 162.6 146.1 67.0 Total segment EBIT $144.6 $276.8 $258.9 $151.0 Carve-in corporate costs (20.4) (23.9) (24.3) (23.2) Form 10 reported EBIT $124.2 $252.9 $234.6 $127.8 Incremental standalone costs (32.6) (29.3) (29.1) (29.3) Adjusted EBIT $91.6 $223.6 $205.5 $98.5 D&A $42.9 $42.6 $46.2 $50.0 Incremental D&A 10.2 10.2 10.5 10.8 Total D&A $53.1 $52.8 $56.7 $60.8 Adjusted EBITDA $144.7 $276.4 $262.2 $159.3 % of sales 10.6% 14.1% 15.2% 11.5%
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Based on TimkenSteel Form 10 filings (US$ mm)
Source: TimkenSteel Form 10 Note: Incremental standalone costs tax-effected at a 35% tax rate
2010 2011 2012 2013 Operating cash flow ($23.6) $135.6 $296.6 $175.1 Incremental standalone costs (21.2) (19.0) (18.9) (19.0) Incremental D&A 10.2 10.2 10.5 10.8 Adjusted operating cash flow ($34.6) $126.8 $288.2 $166.9
(1) Please see discussion of Non-GAAP Financial Measures at end of slides
Adjusted EBITDA Reconciliation: (Dollars in millions, except share data) (Unaudited) Summary Income Statement - Quarterly
2014 2013 Q2 Q1 First Half Year Q4 Q3 Second Half Q2 Q1 First Half
Net Sales $ 442.2 $ 389.5 $ 831.7 $ 1,380.9 $ 330.0 $ 350.5 $ 680.5 $ 354.1 $ 346.3 $ 700.4 Segment EBIT Industrial & Mobile 20.8 27.0 47.8 84.0 19.6 17.6 37.2 25.3 21.5 46.8 Energy & Distribution 31.2 31.2 62.4 67.0 15.7 16.0 31.7 19.3 16.0 35.3 Total Segment EBIT 52.0 58.2 110.2 151.0 35.3 33.6 68.9 44.6 37.5 82.1 Unallocated Corporate Costs (6.9 ) (7.4 ) (14.3 ) (23.2 ) (5.2 ) (6.8 ) (12.0 ) (5.9 ) (5.3 ) (11.2 ) Consolidated EBIT 45.1 50.8 95.9 127.8 30.1 26.8 56.9 38.7 32.2 70.9 Incremental standalone costs (5.7 ) (5.7 ) (11.4 ) (29.3 ) (7.3 ) (7.3 ) (14.6 ) (7.3 ) (7.4 ) (14.7 ) Adjusted EBIT 39.4 45.1 84.5 98.5 22.8 19.5 42.3 31.4 24.8 56.2 Interest expense (0.7 ) — (0.7 ) (0.2 ) — (0.2 ) (0.2 ) — — — Adjusted Income Before Income Taxes 38.7 45.1 83.8 98.3 22.8 19.3 42.1 31.4 24.8 56.2 Adjusted provision for income taxes 13.5 15.8 29.3 34.5 8.0 6.8 14.8 11.0 8.7 19.7 Adjusted Net Income $ 25.2 $ 29.3 $ 54.5 $ 63.8 $ 14.8 $ 12.5 $ 27.3 $ 20.4 $ 16.1 $ 36.5 Average shares outstanding, diluted 46.2 46.2 46.2 46.2 46.2 46.2 46.2 46.2 46.2 46.2 Adjusted diluted earnings per share $ 0.55 $ 0.63 $ 1.18 $ 1.38 $ 0.32 $ 0.27 $ 0.59 $ 0.44 $ 0.35 $ 0.79 D&A 14.0 13.6 27.6 50.0 13.3 12.3 25.6 12.3 12.1 24.4 Incremental D&A 2.7 2.7 5.4 10.8 2.7 2.7 5.4 2.7 2.7 5.4 Total D&A 16.7 16.3 33.0 60.8 16.0 15.0 31.0 15.0 14.8 29.8 Adjusted EBITDA 56.1 61.4 117.5 159.3 38.8 34.5 73.3 46.4 39.6 86.0 % of sales 12.7 % 15.8 % 14.1 % 11.5 % 11.8 % 9.8 % 10.8 % 13.1 % 11.4 % 12.3 %
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TimkenSteel reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”) and corresponding metrics as non-GAAP financial measures. EBIT is defined as operating income plus other income (expense), net. EBIT is an important financial measure used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting EBIT is useful to investors as this measure is representative of the company's performance and cash generation. It also is a better reflection of the underlying growth from the
The consolidated financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of TimkenSteel Corporation’s former parent company, The Timken Company. TimkenSteel’s consolidated financial statements include certain expenses of its former parent which were allocated to it for certain functions, including general corporate expenses related to finance, legal, information technology, human resources, compliance, shared services, insurance, employee benefits and incentives and stock-based compensation. TimkenSteel considers the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not be indicative of the actual expenses it would have incurred as an independent public company or of the costs it will incur in the future. Adjusted EBIT and adjusted net income are defined as EBIT and net income reduced for stand-alone costs reflected at a normal run-rate, respectively. Management believes that reporting adjusted EBIT and adjusted net income is useful to investors as these measures are representative of the company's performance and cash
provides an indication of the company’s performance as an independent public company. See the attached schedules for supplemental financial data and corresponding reconciliations of the non-GAAP financial measures referred to above to the most comparable GAAP financial measures for the three and six months ended June 30, 2014 and 2013. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, TimkenSteel's results prepared in accordance with GAAP. In addition, the non-GAAP measures TimkenSteel uses may differ from non-GAAP measures used by other companies, and other companies may not define the non-GAAP measures TimkenSteel uses in the same way.
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Bearings Fuel Injectors Gun Barrels Crankshafts Tri-Cone Bits Percussion Bits Energy CRA Production CV Joints Gears Fasteners Hand Tools Leaf Springs Shopping Carts Table Legs Reinforcing Bar
(Not SBQ)
(SBQ)
TimkenSteel Applications Non TimkenSteel Applications
capabilities
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Vertical and horizontal drilling applications Completion and deepwater drilling applications
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Driveline ~25%
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Applications
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