Singular Research Conference Singular Research Conference Jeffrey - - PowerPoint PPT Presentation

Singular Research Conference

Jeffrey Glajch, Vice President & CFO

Singular Research Conference

September 10, 2009

Safe Harbor Statement Regarding Forward Looking Statements

This presentation contains forward-looking statements within the meaning of Section 27A of the 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 can be identified by words such as “expects,” “estimates,” “projects,” “anticipates,” “believes,” “could,” and other similar words and expressions. All statements addressing operating performance, events, or developments that Graham expects or anticipates will occur in the future, including but not limited to, statements relating to anticipated revenues, profit margins, foreign operations, Graham’s strategy to build its global sales representative channel, the effectiveness of automation in expanding Graham’s engineering capacity, representative channel, the effectiveness of automation in expanding Graham s engineering capacity, Graham’s ability to improve its cost competitiveness, customer preferences, changes in market conditions in the industries in which Graham operates, changes in general economic conditions and customer behavior and Graham’s 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's most recent Annual and Quarterly Reports filed with the Securities and Exchange Commission, included under the heading entitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of Graham's underlying assumptions prove incorrect, actual results may vary materially from those y g p p y y y currently anticipated. Undue reliance should not be placed on Graham's forward-looking statements. Except as required by law, Graham disclaims any obligation to update or publicly announce any revisions to any of its forward-looking statements.

Our Vision

Our goal is to be a Our goal is to be a world leader in the design world leader in the design

• d eade

t e des g

• d eade

t e des g and manufacture of and manufacture of

ENGINEERED ENGINEERED-TO TO-ORDER ORDER

products for the products for the

ENERGY ENERGY MARKETS MARKETS

Graham Corporation

Founded: 1936; IPO: 1968 ;

NYSE Amex: GHM $12.92 Common shares outstanding 9.8 million $ Market capitalization $127 million 52-week price range $42.66 – $6.85

• Avg. daily trading volume (12 mos.)

237,557 Stock splits: ► 5 for 4 1/2/2008 ► 2 for 1 10/7/2008 Ownership: ►Institutional 52.5% ►Insider 2.9%

Note: Market data as of September 2, 2009; ownership as of most recent filing.

P d t Products

Condensers 26% 26% Ejectors 40% Heat Exchangers 9% Aftermarket 19% Pumps 6%

U.S. 51% International 49%

Note: Percent of Q1 FY2010 revenue.

Refinery Ejector System

Ejector system lowers the pressure in the distillation column to allow crude oil to

CNOOC Huizhou Refinery–China 240,000 BBL/day refinery

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. kerosene, and other fuels. An ejector system is a combination of ejectors and condensers connected in series. condensers connected in series. Graham provides the ejectors and condensers as components.

Condensers Ejectors

Graham Corporation, 2009

Di ifi d M k t Diversified Markets

Chemical Processing

27%

R fi i Other Industrial &

46% 22%

Refining Industrial & Commercial Applications

46% 22% 5%

Note: Percent of FY2010 revenue.

Power

C lti t Di M k t

OIL REFINING CHEMICAL PROCESSING

Cultivate Diverse Markets

OIL REFINING Conventional crude oil Oil sands Extra-heavy crude oil CHEMICAL PROCESSING Ethylene Ammonia Nitrogen Ethylene glycol Detergent alcohols Plastics, resins, fibers Extra heavy crude oil Sour crude Lube oil Nitrogen Methanol Styrene Polystyrene Plastics, resins, fibers Coal-to-liquids (CTL) Gas-to-liquids (GTL) POWER GENERATION Cogeneration Waste to energy OTHER APPLICATIONS Edible oil/Oleochemicals Biofuels: Waste-to-energy Heat, power and light Geothermal Nuclear I it Biofuels: Ethanol Biodiesel HVAC Industrial gases In-situ Industrial gases Cryogenic

Di ersified Geographies & Ind stries Diversified Geographies & Industries

2009 Orders

$34 million Refineries South Korea, China, Bahrain, Oman, South America, USA $20 million Petrochemical China, North Africa, Trinidad & Tobago, Mexico USA Mexico, USA $4 million Power generation Turkey, USA $16 illi Edibl il HVAC il USA $16 million Edible oil, HVAC, oil production, government, industrial gases, OEM USA

Global Distillation Capacity Growth

Total Net Growth: 6 mb/d

Global Distillation Capacity Growth

(through 2015) Europe: 0.2 mb/d Total Net Growth: 6 mb/d Russia and Eastern Europe: US & Canada: 0.9 mb/d Europe: 0.2 mb/d Latin Asia- Pacific: 2.9 mb/d America & Africa: 0.3 mb/d Africa: Middle East: 1.3 mb/d 0.4mb/d

mb/d = million barrels per day Source: OPEC World Oil Outlook 2009

C North American Competition

Market GHM Competitors Market GHM Market Share Competitors

Refining vacuum distillation ~ 75% Gardner Denver Refining vacuum distillation 75% Gardner Denver Chemicals/Petrochemicals ~ 25% Croll Reynolds; Schutte Koerting; Gardner Denver Turbomachinery OEM – refining ~ 50% Ambassador; Yuba; Kreuger Turbomachinery OEM refining, petrochemical 50% Ambassador; Yuba; Kreuger Turbomachinery OEM – power and power producer ~ 15% Holtec; Babcock; Thermal Engineering; Yuba; Krueger HVAC ~ 10% Alfa Laval; APV; ITT; Ambassador

C International Competition

Market GHM Competitors Market GHM Market Share Competitors

Refining vacuum distillation ~ 35 to 50% Gardner Denver; GEA Jet Pump; g ; p; Korting Hannover; Edwards Chemicals/Petrochemicals ~ 25% Croll Reynolds; Schutte Koerting; Gardner Denver; GEA Jet Pump; K ti H Ed d Korting Hannover; Edwards Turbomachinery OEM – refining, petrochemical ~ 50% Donghwa-Entec; Bumwoo; Oiltechnik; Kreuger; various local fabricators Turbomachinery OEM – power and power producer ~ 15% Holtec; Babcock; Thermal Engineering; Yuba; Krueger

Financial Performance Financial Performance Financial Performance Financial Performance

C t d R i E i C l Captured Revenue in Expansion Cycle

$101.1 $93 6 ($ in millions) $55 2 $65.8 $86.4 $93.6 $65.0 $60 - $70 $41.3 $55.2

FY2005 FY2006 FY2007 FY2008 FY2009 Q1 FY10 FY2010 E t FY2005 FY2006 FY2007 FY2008 FY2009 Q1 FY10 TTM FY2010 Est.

I d P d ti it Improved Productivity

Beyond Volume Enhancements Sales per Employee

(in thousands)

Inventory Turnover

(times per year)

10.0 11.0 12.6 12.4 308.0 374.0 363.0 5.7 7.9 172.0 222.0 248.0

FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY10 TTM FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY10 TTM

St th d G P fit M i Strengthened Gross Profit Margin

$86.4 $101.1 $93.6 $41.3 $55.2 $65.8

39.5% 41.3% 40.4%

Potential FY2010 range: 28% - 31%

18.2% 28.9% 25.6%

FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY10 TTM

Gross Margin Revenue

N t I d EPS

$17 467

Net Income and EPS

$15,034 $17,467 $15,301

($ in thousands)

$5,761 $296 $3,586 ,

FY2005* FY2006 FY2007 FY2008 FY2009 Q1FY10 TTM Earnings $1 71 $1 49 $0 58** $0 38 $0 03 $1 50

Note: All earnings per share amounts adjusted for stock splits * From continuing operations. ** Includes R&D tax credit of $0.16.

per Share $1.71 $1.49 $0.58** $0.38 $0.03 $1.50

St B l Sh t

$61.1 $64.4 Equity Long-term Liabilities

($ in millions)

Strong Balance Sheet

$16 6 $27.1 $30.7 $48.5

Cash, Cash Equivalents and Investments ($ in millions)

$16.6 $6.1 $2.8 $1.6 $1.8 $2.6 $2.6 FY2005 FY2006 FY2007 FY2008 FY2009Q1FY10 $36.8 $46.2 $45.3* $11.0 $15.1

$57.4 $72.7 $73.9 Current Assets Current Liabilities

$2.7

FY2005 FY2006 FY2007 FY2008 FY2009 Q1 FY10

$22.1 $27.4 $36.7 $57.4 $10 9 $10 6 $16.6 $20.4 $23.2 $20.8

* $42 7 million in U S banks and

$10.9 $10.6

FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY10 $42.7 million in U.S. banks and U.S. Treasury securities.

P i it C h M t

Sales increased 145% and cash conversion cycle was lowered from 112 to 17 days at 3/31/09

Priority: Cash Management

86 4 101.1 93.6

100 120 100 120

ycle (Days) $ millions)

112 55.2 65.8 86.4

60 80 60 80

h Conversion Cy Sales ($

41.3

40 40

Cas

41

Expected to be in th

20 20

FY2005 FY2006 FY2007 FY2008 FY2009 Q1 FY10 TTM

17

the 20- to 30- day range in 2010

Note: cash conversion cycle equals days sales outstanding plus days inventory on hand minus days payables outstanding TTM Sales Cash Conversion Cycle

St t & O tl k Strategy & Outlook

D ti C l Shift Dramatic Cycle Shift

$75 7 $86.5 $107.1 ($ in millions) $54.2 $75.7 $48.3 $49.9 $66.2 $73.9 $54.9 $22.4 $33.1 $37.0 FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY2010 TTM TTM

Backlog Orders

R d i I t f C li lit Reducing Impact of Cyclicality

$101.1

FY09

$65.7

FY98

Mid-Point FY 2010 Guidance

$51.8 $34.9

31.3% 41.3% 29.5% 26.0%

FY00 Sales Gross Margin O ti M i

23.9% 29.5% 9.5% 1.0% 9.0%

Operating Margin * Assumes mid-point of FY 2010 guidance: a 35% reduction in revenue, a 29.5% gross margin and $13.5 million in SG&A expenses

P t h i l P t ti l Petrochemical Potential

U S: Limited petrochem investment

Global recession slows demand growth

U.S: Limited petrochem investment Middle East: Becoming active

Cap and Trade heavily penalizes U.S. refiners

Middle East: Becoming active Asia/Middle East: Integrating refining/petrochem;

Over capacity in U.S. refining

Asia/Middle East: Integrating refining/petrochem; Considering new ethylene capacity

Strong growth in emerging economies

International: Ammonia/fertilizer plants Some project revamps, others grassroots

N T St t Near-Term Strategy

• People

Development

People

• Processes
• Capital Plan

Customers

• Stay close: consultative selling
• Gain market advantage
• Selling support for pipeline

Performance

• 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

Pi li f M j P j Pipeline of Major Projects

Power & Refining Petrochemical Power &

• ther

Very active currently Very active currently Timing of orders not Timing of orders not clear

A i iti C it i Acquisition Criteria

Engineered- Engineered to-order products

Geographic Expansion

and/or

Strong management team / Up to $60 million

and/or

Diversify Products

team / quality culture $60 million in revenue Return exceeds cost of cost of capital

Singular Research Conference

Jeffrey Glajch, Vice President & CFO

Singular Research Conference

September 10, 2009

C t ti i E I d t Contraction in Energy Industry

Decline in projected U S consumption Global recession slows demand growth Decline in projected U.S. consumption Cap and Trade heavily penalizes U.S. refiners Over capacity in U.S. refining Expanding economies in emerging/developing countries A i Middl E t S th A i Asia Middle East South America

Ch d Gl b l Oil D d P j ti Changed Global Oil Demand Projections

World Oil Outlook 2008: 50% demand increase by 2030 World Oil Outlook 2008: 50% demand increase by 2030 World Oil Outlook 2009: 23% demand increase by 2030

► Consumption dropping in developed areas ► Energy policy changing ► Crude oil pricing lowered sharply ► Capacity utilization is down ► Capacity utilization is down

P M k t Power Market

• Waste to energy

renewables

• Geothermal

United States

• Nuclear

States

• Growing power

requirements

• Nuclear

China and India

• Hydro, geothermal,

fossil fuels

India

N C ti l Oil S l G th Non-Conventional Oil Supply Growth

Oil Sands

Biggest contributor = 5 mb/d by 2030

C l

by 2030

Increases

Gas-to- liquid Coal-to- liquid

• utput by

6 mb/d to 7.5 mb/d by 2030

Extra-heavy Extra heavy crude

Source: OPEC World Oil Outlook 2008

C di Oil S d S di Canadian Oil Sands Spending

$100 to $150 million potential demand for demand for Graham products from from 2010 to 2016

P d t Di t C t t C d Products: Direct Contact Condenser

An 11 MW turbine-generator set at a geothermal power producing plant in Papua New Guinea

P d t S f C d Products: Surface Condenser

Supports a steam turbine and enables the conversion of maximum energy in high pressure steam into power