Graftech International Ltd. · NYSE:EAF
Graftech International — Investor Presentation (November 2013)
38 slides from Graftech International's investor presentation, November 2013
Slide 1: Investor Presentation
Investor Presentation November 2013 1
Slide 2: Important Disclosures
Important Disclosures NOTE ON FORWARD-LOOKING STATEMENTS: This presentation and related discussions may contain forward-looking statements about such matters as: our outlook for the fourth quarter and full year 2013; future or targeted operational and financial performance; growth prospects and rate
Slide 3: GrafTech: A Profile of Leadership
WHAT WE DO GrafTech: A Profile of Leadership Leader in Value-Added Diverse End Graphite Materials Proposition Markets • Unique technologies • Innovative solutions • EAF steel production & expertise for wide range of applications including: • Advanced electronics • ~735 patents ‒ energy management •
Slide 4: The Opportunity for GrafTech is Now
The Opportunity for GrafTech is Now Four Reasons 1 Proven performance record 2 Industry leader with differentiated business model 3 Solid cash flow and balance sheet 4 Cyclical low, strategically positioned for recovery 4
Slide 5: We Have Redefined the Company
#1: PERFORMANCE RECORD We Have Redefined the Company Transformed the Business Model 2002 2012* Sales(1) $506M $1.2B Adjusted EBITDA(1)(2) $55M $247M Sales / Team Member(1) ~$159M ~$418M Operating Cash Flow ($60M) $101M Net Debt(2) $818M(3) $554M Market Cap $335M $1.3B (1) Excludes dispositions on a
Slide 6: Key Steps to Strengthen the Business Over Past 3 Years
#1: PERFORMANCE RECORD Key Steps to Strengthen the Business Over Past 3 Years • Successful completion of 4 acquisitions – back integration to high quality needle coke – expanded technology & processing capabilities • Internal growth in Engineered Solutions Results: segment Strengthened – revenue: $1
Slide 7: 2013 Rationalization Plan
2013 Rationalization Plan: Expected to generate 140% annual improvement in operating income* • Targeted 20% global workforce reduction, ~600 people; including planned shutdown of two graphite electrode (GE) plants by end of 2Q14 • Cost of rationalization plan estimated to be $105 MM ($75 MM non-cash
Slide 8: Built Two Solid Growth Platforms
#1: PERFORMANCE RECORD Built Two Solid Growth Platforms Industrial Materials Engineered Solutions ~82% of revenue ~18% of revenue Product Offerings • Graphite electrodes • Needle coke • Refractory bricks Core competency: Graphite material science 8
Slide 9: Key Product: Graphite Electrodes – Critical in Steel Making
#1: PERFORMANCE RECORD Key Product: Graphite Electrodes – Critical in Steel Making Conducts electricity to melt Electric Arc Furnace (EAF) 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 al
Slide 10: Focused on Mini-Mills: The Growth Sector of the Steel Industry
#1: PERFORMANCE RECORD Focused on Mini-Mills: The Growth Sector of the Steel Industry Sustainable Long-Term Growth of Electric Arc Furnace Steel Production Market Millions of MT 600 500 3-4% CAGR 400 300 200 100 0 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Mini-Mill Advantages Continued EAF Growth •
Slide 11: Built Two Solid Growth Platforms
#1: PERFORMANCE RECORD Built Two Solid Growth Platforms Industrial Materials Engineered Solutions ~82% of revenue ~18% of revenue Key Markets • Alternative Energy • Advanced Electronics • Industrial • Aerospace Core competency: Graphite material science 11
Slide 12: Poised to Benefit from Significant Growth in Key Markets
#1: PERFORMANCE RECORD Poised to Benefit from Significant Growth in Key Markets Growth We Expect in Key Markets Next 5 Years +23% +19% +14% LED LIGHTING SMARTPHONES (HIGH TEMPERATURE FURNACES) (ELECTRONIC THERMAL MGT) AEROSPACE & DEFENSE +17% +19% +15% OIL & GAS STRUCTURES SOLAR LITHIUM ION BATTERIE
Slide 13: The Opportunity for GrafTech is Now
The Opportunity for GrafTech is Now Four Reasons 1 Proven performance record 2 Industry leader with differentiated business model 3 Solid cash flow and balance sheet 4 Cyclical low, strategically positioned for recovery 13
Slide 14: Leading Graphite Material Science Company
#2 INDUSTRY LEADER Leading Graphite Material Science Company Largest Second Low cost Portfolio of producer of largest producer(2) ~735 graphite producer of patents(3) electrodes needle coke(1) #1 #2 #1 #1 (1) We believe we are the second largest producer of petroleum-based needle coke based on our a
Slide 15: Largest Integrated Global Manufacturing Network
#2 INDUSTRY LEADER Largest Integrated Global Manufacturing Network 2012 Revenue by Region Americas EMEA Asia 45% 36% 19% Graphite electrodes Advanced materials Needle coke plant Sales offices Customers include: • ArcelorMittal • Gerdau S.A. • ThyssenKrupp • Elkem Solar • Baosteel • Steel Dynamics •
Slide 16: Powerful Integrated Business Model – Key Differentiator
#2 INDUSTRY LEADER Powerful Integrated Business Model – Key Differentiator Integrated Business Model… Delivers Unique Advantages Graphite Electrodes R&D leveraged across the company Innovation leader from cross- fertilization of ideas Only major electrode producer Unique that is backward integ
Slide 17: Integrated Model Advantages – Highlighted by Case Study
#2 INDUSTRY LEADER Integrated Model Advantages – Highlighted by Case Study Created New Super Premium Needle Coke Situation • First time ever a needle coke producer brought together with – graphite producer – R&D team What We Did • Capitalized on unique opportunity to “crack the code” on super premiu
Slide 18: The Opportunity for GrafTech is Now
The Opportunity for GrafTech is Now Four Reasons 1 Proven performance record 2 Industry leader with differentiated business model 3 Solid cash flow and balance sheet 4 Cyclical low, strategically positioned for recovery 18
Slide 19: Growing Cash Flow and Strong Balance Sheet
#3 FINANCIAL STRENGTH Growing Cash Flow and Strong Balance Sheet Growth in Operating Cash Flow Strong Balance Sheet ($M) (September 30, 2013) $100 – 120 • Solid liquidity $101 – $570M revolver facility, availability based on $77 EBITDA • Debt to total capitalization of 30% • Corporate credit rating
Slide 20: The Opportunity for GrafTech is Now
The Opportunity for GrafTech is Now Four Reasons 1 Proven performance record 2 Industry leader with differentiated business model 3 Solid cash flow and balance sheet 4 Cyclical low, strategically positioned for recovery 20
Slide 21: Multiple Drivers can Grow EBITDA Over Next Cycle
Multiple Drivers can Grow EBITDA Over Next Cycle EBITDA $M ~$500 – 600** 3 Cash flow 2 value creation ‒ share buy-backs Engineered ‒ acquisitions $145 – 155* 1 Solutions expansion Industrial Materials rebound 2013E Future Potential * Non-GAAP measure, excludes impact of rationalization and related c
Slide 22: Industry Dynamics Provide Tailwind
GROWTH DRIVER #1: IM RECOVERY Industry Dynamics Provide Tailwind • Strengthening of demand – continued growth in EAF steel production ~100M MT Improved – recovery in EU demand balance between – US non-residential growth supply / demand • Positive supplier dynamics – enhanced – back integrated to key
Slide 23: IM Growth Initiatives Layered on Top of Industry Recovery
GROWTH DRIVER #1: IM RECOVERY IM Growth Initiatives Layered on Top of Industry Recovery Key Initiatives • Seadrift expansion • End of third party minimum purchase needle coke supply agreement • Grow industry-leading position in electrodes – low cost structure – backward integration • Penetration in
Slide 24: Accelerated Growth in Engineered Solutions
GROWTH DRIVER #2: ES EXPANSION Accelerated Growth in Engineered Solutions Key Initiatives Engineered Solutions Growth (Revenue $M) • Penetration of high growth markets – advanced consumer electronics ~$500 – alternative energy • Capital growth investments to be fully operational – broaden product po
Slide 25: Disciplined Capital Deployment
GROWTH DRIVER #3: CASH FLOW Disciplined Capital Deployment Cash Flow Returns to Selective Organic Growth Shareholders Acquisitions • Investing in • Bought 8.2% of o/s • New technologies, innovative new shares in past 2 products or access products years to growth markets • Additional 10 million share
Slide 26: Guidance for 2013 – At / Near Low Point of Cycle
Guidance for 2013 – At / Near Low Point of Cycle 2012 2013 Actual Targets* Adjusted EBITDA(1) $247M ~$145 - $155M Overhead expense $155M(2) ~$130M Interest expense(3) $23M ~$36M Capital expenditures $128M ~$90 - $100M Depreciation & amortization $82M ~$95 - $100M expense Tax rate 13% ~10 - 20% Cash
Slide 27: Strong Opportunity in the Next Cycle
Strong Opportunity in the Next Cycle Last Cycle Next Cycle Adjusted EBITDA Stock Adjusted EBITDA Stock ($M) Price ($M) Price $500 – 600** ? $369* $27 3.5X ? 6.7X 9X $145 – 155* ~$8 $55* $3 2002 2008 2002 2008 2013 Future Oct Future Low Peak Low Peak Guidance Potential 2013 Potential * Non-GAAP finan
Slide 28: Why GrafTech is Even Better Positioned for the Next Cycle
Why GrafTech is Even Better Positioned for the Next Cycle 1. Owning needle coke production is a game changer • extends our industry-leading low cost position even further • ensures supply of high quality needle coke, and opportunity to accelerate profits / margins as cycle recovers 2. Fast-growing E
Slide 29: The Opportunity for GrafTech is Now
IN SUMMARY The Opportunity for GrafTech is Now Proven performance record 1 • • Transformed the business model Built 2 strong platforms Industry leader The GrafTech 2 • • Unique business model Low cost player Value Proposition Financial strength 3 • • Growing cash flow Solid balance sheet Multiple gr
Slide 30: Appendix
GraFlech | Redefining limits International
Slide 31: Key Raw Material Requirements
Key Raw Material Requirements Cost of Goods Sold (graphite electrodes) Fixed vs. Variable Other 12% Freight Fixed 4% 30% Depreciation 6% Coke 46% Pitch 8% Energy Variable 12% 70% Labor 12% We are entering the final year of obligation to purchase minimum needle coke quantities from a third party, a
Slide 32: Leading Manufacturer of Graphite Electrodes
Leading Manufacturer of Graphite Electrodes 2012 Est. Capacity # Plants / Company Comments (000 metric tons) Avg. Plant Size(1) • High-quality, low cost producer 255 6 / 43 • Global presence on four continents • Backward-integrated producer SGL Carbon AG (Germany) 230 9 / 26 • Higher cost facilities
Slide 33: Indicators Trending Positive for Increased Steel Consumption
Indicators Trending Positive for Increased Steel Consumption Architecture Billing Index - US Source: The Wall Street Journal Source: AIA, Oct 2013 EU economic sentiment improving All construction sectors predicted to grow Auto Sales Forecast - US (millions) 20 Source: Edmunds 18 16 14 12 10 Nonresid
Slide 34: EAF Capacity Continues to Grow Globally
EAF Capacity Continues to Grow Globally 2012 – 2017 Anticipated EAF Capacity Additions Asia Americas ~65MM MT New EAF Capacity = ~5MM MT New EAF Capacity = ~110M MT Electrode Demand ~10M MT Electrode Demand EMEA ~30MM MT New EAF Capacity = ~50M MT Electrode Demand Developing economies continue to in
Slide 35: Solid Cash Flow Propelling Growth & Share Repurchases
Solid Cash Flow Propelling Growth & Share Repurchases $MM Cash Flow From Operations Capital Expenditures Share Repurchase $300 Restructuring Acquisitions $200 $100 $0 ($100) ($200) ($300) ($400) 2006 2007 2008 2009 2010 2011 2012 Returning Value to Shareholders through Strategic M&A, Organic Growth
Slide 36: EBITDA Reconciliation
EBITDA Reconciliation $M 2002 2008 2012 2013 Target Net income ($18) $184 $118 $(41) - $(36) Interest expense 47 19 23 36 Interest income (2) (1) 0 - Income tax (benefit) expense (13) 51 16 (17.5) Depreciation and amortization 25 35 82 95 – 100 EBITDA $39 $288 $239 $73 - $83 Impairment/rationalizati
Slide 37: Net Debt Reconciliation
Net Debt Reconciliation $M 2002 2012 Long-term debt $713 $536 Short-term debt 18 8 Supply chain financing 0 27 Antitrust and Related Obligations 98 0 Total debt $829 $571 Less: Cash and cash equivalents 11 17 Net Debt $818 $554 NOTE ON NET DEBT RECONCILIATION: Net debt is a non-GAAP financial measur
Slide 38: Investor Presentation
Investor Presentation November 2013 38
GrafTech International — Investor Presentation (November 2013) on 6ix