Metallus Inc. · NYSE:MTUS
Metallus — TimkenSteel — Investor Presentation (February 2022)
42 slides from Metallus's investor presentation, Feb 24, 2022
Slide 1: TimkenSteel Corporation Investor Presentation
TimkenSteel Corporation Investor Presentation February 24, 2022
Slide 2: Forward-looking statements & non-GAAP financial measures
Forward-looking statements & non-GAAP financial measures Forward-looking statements This presentation includes "forward-looking" statements within the meaning of the federal securities laws. You can generally identify the company's forward-looking statements by words such as "will," "anticipate," "a
Slide 3: TimkenSteel today
TimkenSteel today Founded in 1917 and established as a standalone public company in 2014, TimkenSteel (NYSE: TMST) is a manufacturer of high-quality specialty steel, manufactured components and supply chain solutions Produces 100% of steel primarily from recycled scrap metal in electric arc furnace
Slide 4: TimkenSteel investment highlights
TimkenSteel investment highlights Long-standing commitment to operating safely and responsibly to protect our employees, our communities and the environment Leveraging long-term, trusted partnerships with industry leading customers to drive growth Serving diverse and demanding end market sectors wit
Slide 5: Significant transformation underway
Significant transformation underway 2014-19 2020-21 2022+ Capital investment and volatility Transformation begins through cost and cash discipline 5 Invested over $350M to support and grow higher-value product manufacturing capabilities Experienced significant financial and operational volatility as
Slide 6: Experienced leadership team executing sustainable growth strategy
Experienced leadership team executing sustainable growth strategy Finance & Accounting Capital Markets Strategic Planning Treasury Acquisitions & Divestitures Working Capital Management Information Technology Sales & Marketing Product Management Business Development Strategic Planning Manufacturing
Slide 7: Financial summary and highlights
Financial summary and highlights (1) Adjusted EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation and amortization, presented on a non-GAAP basis excluding certain items; see Appendix for a reconciliation of non-GAAP measures (2) Free Cash Flow is defined as ne
Slide 8: Trend favors EAF technology to replace higher cost, carbon intensive facilities
Trend favors EAF technology to replace higher cost, carbon intensive facilities as environmental, social and governance (“ESG”) continues to drive transformation in steelmaking Infrastructure spending, automation, reshoring and supply chain de-risking are driving increased demand in TMST end market
Slide 9: Long-term, trusted partnerships with industry leading customers
Long-term, trusted partnerships with industry leading customers Our specialized products and services are used in a wide range of demanding applications around the world Support more than 350 diverse customers in automotive, oil and gas, industrial equipment, mining, construction, rail, defense, hea
Slide 10: Serving diverse and demanding end market sectors with broad product portfolio
Serving diverse and demanding end market sectors with broad product portfolio 2021 END MARKET SECTOR MIX Tons: 818,600 (1) Net sales mix includes “other” sales attributable to the company’s scrap sales (2) Shipment tons, by product type, as a percentage of 2021 shipments (3) Net sales dollars, by pr
Slide 11: Key indicators for Industrial and Energy markets improving
Key indicators for Industrial and Energy markets improving FAVORABLE CUSTOMER DEMAND ACROSS DIVERSE END MARKET SECTORS EXPECTED TO CONTINUE IN 2022 PURCHASING MANAGERS INDEX (PMI) U.S AVG. RIG COUNT / WTI SPOT PRICE 11 INDUSTRIAL Purchasing Managers Index indicating growth in most sectors and distri
Slide 12: Key indicators for Mobile market showing expected growth
Key indicators for Mobile market showing expected growth MOBILE-ON-HIGHWAY Light vehicle production is still disrupted due to supply chain difficulties; however, growth is expected as consumer demand remains high and vehicle inventory remains at historic lows FAVORABLE CUSTOMER DEMAND ACROSS DIVERSE
Slide 13: TimkenSteel applications in vehicles with internal combustion engines
TimkenSteel applications in vehicles with internal combustion engines Engine Crankshafts Cam lobes Connecting rods Fuel components Driveline Bearing hubs Drive pinion gears Axle tubing Constant-velocity joint housing and cages Ring gears Side gears Steering knuckles Transmission Sun, ring and pinion
Slide 14: TimkenSteel applications in electric vehicles
TimkenSteel applications in electric vehicles Motor/Transfer Drive (Front Unit) Motor shaft Pinion shaft Transfer gear Final drive gear Ring gear Motor/Transfer Drive (Rear Unit/AWD) Motor shaft Pinion shaft Transfer gear Final drive gear Ring gears Driveline/Chassis Bearing hubs Constant-velocity j
Slide 15: Electric vehicle transformation
Electric vehicle transformation Long-term manufactured component agreements secured for growing EV and hybrid portfolio Current EV portfolio consists of 16 awarded applications, ~15k annual ship tons and ~$50M annual base sales when fully ramped Margin in EV applications awarded to date is generally
Slide 16: Growing commitment to ESG supports safe and responsible legacy
Growing commitment to ESG supports safe and responsible legacy LEGACY OF SUSTAINABILITY AND RESPONSIBILITY 100% of steel produced primarily from recycled scrap metal – since 1952 A safety metric is included in the annual incentive compensation plan for salaried employees GHG emissions are consistent
Slide 17: ESG performance
ESG performance In 2021, 1.1M tons of recycled scrap were melted in TimkenSteel’s EAF furnaces EMISSIONS FOOTPRINT 2018 2019 2020 Global Industry Average5 1.81 1.85 1.89 TimkenSteel 0.80 0.82 0.85 2018 2019 2020 Global Industry Average5 19.5 20.1 20.6 TimkenSteel 7.4 7.8 8.5 GHG EMISSIONS INTENSITY3
Slide 18: Committed to protecting employees, community and the environment
Committed to protecting employees, community and the environment NEXT-LEVEL ESG IMPLEMENTATION absolute reduction in fresh water withdrawn 2030 environmental goals* announced in October 2021 (compared with a 2018 baseline – see our SASB disclosure) TimkenSteel is committed to making progress toward
Slide 19: Growth strategy and long-term outlook
GROWTH STRATEGY AND LONG-TERM OUTLOOK
Slide 20: Successfully executing on our sustainable growth strategy
Successfully executing on our sustainable growth strategy 2022 2026 Deliver on strategic imperatives for sustainable through-cycle profitability Drive growth with balanced capital allocation 20 Targeting $80M of run-rate profitability improvement through optimization of commercial excellence, manufa
Slide 21: Strategic imperatives driving innovation and growth
Advance our commitment to environmental, social, governance Empower and attract top talent Achieve sustainable profitable growth Thoughtfully pursue new opportunities to enhance our portfolio of products and services Prioritize the ease of doing business Strategic imperatives driving innovation and
Slide 22: Long-term operational and financial targets
HISTORICAL AVERAGE(1) THROUGH-CYCLE LONG-TERM TARGETS(2) Melt utilization rate 61% Mid 80%’s Adjusted EBITDA margin(3) 8% > 12% Return on capital employed(4) 11% 15% to 17% Capital expenditures $28M $30M to $40M Net leverage(5) 1.2x < 1.0x (1) Historical average calculated from 2017 through 2021; se
Slide 23: Significant drivers to deliver long-term targets
Significant drivers to deliver long-term targets COMMERCIAL EXCELLENCE Portfolio optimization to improve product mix and margin Targeted growth applications and markets MANUFACTURING & RELIABILITY EXCELLENCE Manufacturing productivity and efficiency projects Example of 2022 project – scrap yard relo
Slide 24: Balanced approach to capital allocation
Balanced approach to capital allocation INVEST IN PROFITABLE GROWTH Focused organic investments with returns in excess of cost of capital 2022 CapEx budget of $40M, with over half allocated to profitability improvement projects Approved 2022 CapEx more than double 2020 and 2021 maintenance spending
Slide 25: TimkenSteel investment highlights
TimkenSteel investment highlights Long-standing commitment to operating safely and responsibly to protect our employees, our communities and the environment Leveraging long-term, trusted partnerships with industry leading customers to drive growth Serving diverse and demanding end market sectors wit
Slide 26: Appendix
APPENDIX
Slide 27: TimkenSteel uses EAF technology for its steelmaking
TimkenSteel uses EAF technology for its steelmaking EAF process Uses recycled steel scrap as primary raw material Uses electricity as main source of energy to melt scrap Produces substantially fewer emissions and consumes less energy than traditional blast furnace technology EAF allows for all types
Slide 28: Overview of broad product offering
Overview of broad product offering SEAMLESS MECHANICAL TUBES ENGINEERED BARS MANUFACTURED COMPONENTS OVERVIEW Mobile Planetary gear preforms; blanks for shafts and hubs Awarded contracts for electric and hybrid vehicles Served through SW Ohio owned facility and supplier network Industrial Bearing, h
Slide 29: Pension and OPEB benefit plans overview
Pension and OPEB benefit plans overview PROACTIVE PENSION MANAGEMENT EXPECTED TO SIGNIFICANTLY DE-RISK THE BALANCE SHEET OVER NEXT SEVERAL YEARS. NO REQUIRED CONTRIBUTIONS TO U.S. BARGAINING PLAN UNTIL AFTER 2031 BASED ON CURRENT ASSUMPTIONS. 29 Plan status Assets* Liabilities* % Funded Number of pa
Slide 30: Historical financial performance
NET SALES ($M) / SHIPPED TONS (K) / MELT UTILIZATION Historical financial performance (1) Adjusted EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation and amortization, presented on a non-GAAP basis excluding certain items; see Appendix for a reconciliation of
Slide 31: Select performance history by end market sector
(1) Base Sales is defined as Net sales excluding surcharges; see the reconciliation of base sales to net sales in the Appendix (2) OCTG Billet business began in 2016 – represented in "Other" Select performance history by end market sector SHIPMENTS BY END MARKET SECTOR (K TONS)(3) AVERAGE BASE SALES
Slide 32: Annual reconciliation of base sales by end market sector
Other $m 2017 2018 2019 2020 2021 Net Sales $ 172.5 $ 153.6 $ 76.8 $ 39.8 $ 30.9 Less: Surcharges 56.1 48.3 16.7 7.2 - Base sales(1) $ 116.4 $ 105.3 $ 60.1 $ 32.6 $ 30.9 Ship tons (k) 211.7 155.6 61.9 29.0 - Avg. base sales per ton $ 550 $ 677 $ 971 $ 1,124 $ - Avg. net sales per ton $ 815 $ 987 $ 1
Slide 33: Annual reconciliation of base sales to GAAP net sales
$m 2017 2018 2019 2020 2021 Net Sales $ 1,329.2 $ 1,610.6 $ 1,208.8 $ 830.7 $ 1,282.9 Less: Surcharges 291.3 405.4 253.5 136.0 408.1 Base sales(1) $ 1,037.9 $ 1,205.2 $ 955.3 $ 694.7 $ 874.8 Ship tons (k) 1,150.2 1,199.4 898.3 640.4 818.6 Avg. base sales per ton $ 902 $ 1,005 $ 1,063 $ 1,085 $ 1,069
Slide 34: Quarterly reconciliation of base sales by end market sector
Other Q4 Q1 Q2 Q3 Q4 $m 2020 2021 2021 2021 2021 Net Sales $ 6.0 $ 7.6 $ 7.6 $ 7.8 $ 8.0 Less: Surcharges 0.1 — — — — Base sales(1) $ 5.9 $ 7.6 $ 7.6 $ 7.8 $ 8.0 Ship tons (k) 0.3 — — — — Avg. base sales per ton $ — $ — $ — $ — $ — Avg. net sales per ton $ — $ — $ — $ — $ — Energy Q4 Q1 Q2 Q3 Q4 $m
Slide 35: Quarterly reconciliation of base sales to GAAP net sales
Q4 Q1 Q2 Q3 Q4 $m 2020 2021 2021 2021 2021 Net Sales $ 211.2 $ 273.6 $ 327.3 $ 343.7 $ 338.3 Less: Surcharges 34.7 67.6 103.9 121.0 115.7 Base sales(1) $ 176.5 $ 206.0 $ 223.4 $ 222.7 $ 222.6 Ship tons (k) 164.0 193.4 214.2 212.7 198.3 Avg. base sales per ton $ 1,076 $ 1,065 $ 1,043 $ 1,047 $ 1,123
Slide 36: Annual reconciliation of net income to EBITDA and Adjusted EBITDA
December 31, (Unaudited) 2017 2018 2019 2020 2021 Net income (loss) $ (31.3) $ (10.0) $ (110.0) $ (61.9) $ 171.0 Provision for income taxes 1.5 1.8 (16.1) 1.2 5.7 Interest expense 14.8 17.1 15.7 12.2 5.9 Earnings (loss) Before Interest and Taxes (EBIT)(1) $ (15.0) $ 8.9 $ (110.4) $ (48.5) $ 182.6 EB
Slide 37: Quarterly reconciliation of net income to EBITDA and Adjusted EBITDA
Q4 Q1 Q2 Q3 Q4 (Unaudited) 2020 2021 2021 2021 2021 Net income (loss) $ (12.8) $ 9.8 $ 54.0 $ 50.1 $ 57.1 Provision for income taxes 0.6 0.2 1.4 0.5 3.6 Interest expense 3.0 1.9 1.7 1.2 1.2 Earnings (loss) Before Interest and Taxes (EBIT)(1) $ (9.2) $ 11.9 $ 57.1 $ 51.8 $ 61.9 EBIT margin(1) (4.4%)
Slide 38: Reconciliation of Free Cash Flow to operating cash flow
Q4 Q1 Q2 Q3 Q4 (Unaudited) 2020 2021 2021 2021 2021 Net Cash Provided (Used) by Operating Activities $ 52.5 $ 13.2 $ 39.2 $ 53.8 $ 90.7 Less: Capital expenditures (3.9) (2.3) (1.5) (3.5) (4.9) Free Cash Flow(1) $ 48.6 $ 10.9 $ 37.7 $ 50.3 $ 85.8 (Unaudited) 2017 2018 2019 2020 2021 2020 - 2021 Total
Slide 39: Calculation of Total Liquidity
Q4 Q1 Q2 Q3 Q4 (Unaudited) 2020 2021 2021 2021 2021 Cash and cash equivalents $ 102.8 $ 115.7 $ 115.2 $ 172.0 $ 259.6 Credit Agreement: Maximum availability $ 400.0 $ 400.0 $ 400.0 $ 400.0 $ 400.0 Suppressed availability(2) (183.2) (152.7) (133.2) (122.2) (143.5) Availability 216.8 247.3 266.8 277.8
Slide 40: Calculation of average capital expenditures and melt utilization
2017 2018 2019 2020 2021 "Historical Average(1)" Capital Expenditures $ 33.0 $ 40.0 $ 38.0 $ 16.9 $ 12.2 $ 28.0 2017 2018 2019 2020 2021 "Historical Average(1)" Melt Utilization(2) 73% 74% 50% 37% 73% 61% Calculation of Average Capital Expenditures and Average Melt Utilization This calculation is pr
Slide 41: Calculation of average net leverage
2017 2018 2019 2020 2021 "Historical Average(1)" Short-Term Debt $ — $ — $ — $ 38.9 $ 44.9 $ 16.8 Long-Term Debt 70.1 74.1 78.6 39.3 — 52.4 Convertible Debt 95.2 115.0 90.0 — — 60.0 Less: Cash and Cash Equivalents 24.5 21.6 27.1 102.8 259.6 87.1 Net Debt $ 140.8 $ 167.5 $ 141.5 $ (24.6) $ (214.7) $
Slide 42: Calculation of return on capital employed
2016 2017 2019 2020 Total Assets $ 1,113.4 $ 1,212.6 Total Assets $ 1,085.2 $ 994.0 Less: Total Current Liabilities 130.7 206.8 Less: Total Current Liabilities 112.3 181.0 Capital Employed $ 982.7 $ 1,005.8 Capital Employed $ 972.9 $ 813.0 Average Capital Employed $ 994.3 Average Capital Employed $