Materion Corporation · NYSE:MTRN
Materion — Investor Day (May 2015)
83 slides from Materion's investor day presentation, May 13, 2015
Slide 1: Materion Investor Day 2015
DIFFERENTIATION fF, XN DRIVING GROWTH 4 ATER MATERION INVESTOR DAY 2015
Slide 2: Forward-looking Statements
Forward-looking Statements These slides contain (and the accompanying oral discussion will contain) “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that could ca
Slide 3: Today's Agenda
Today’s Agenda • CEO Introduction • Business Unit Review – Performance Alloys and Composites – Advanced Materials – Precision Coatings • Finance Review • Q & A 3
Slide 4: Materion: Our Purpose
Materion: Our Purpose Improve the world with our advanced materials 4
Slide 5: Why Invest in Materion Today?
Why Invest in Materion Today? • Leading position with differentiated products – Broad market diversification • Well positioned for secular growth opportunities • Clear path for strong earnings growth … >$3.00 EPS in 2017 • DNA of management … agile, focused and innovative – Provides sustainability o
Slide 6: Company
COMPANY DIFFERENTIATION ‘ff DRIVING GROWTH HISTO RY
Slide 7: Charles Brush: Inventor, Investor
Charles Brush: Inventor, Investor • Brush was first to commercialize electricity for illumination • Developed dynamo-powered electric arc street lighting two years before Edison devised the incandescent bulb • Laid the foundation for the electrical industry with advances in generation, battery and w
Slide 8: A Man Ahead of His Time
A Man Ahead of His Time The Brush mansion was the first home in Cleveland and the second in the nation to be electrified 8 A huge wind turbine powered the batteries that electrified the house
Slide 9: Continuous Innovation and Transformation
Continuous Innovation and Transformation • 1930s-1970s: Traditional industrial metals, beryllium and defense industry-focused • 1980s-1990s: Acquisitions added specialty precious metals capabilities • Early 2000s: A significant challenge – Core beryllium business flat-lined – High working capital, i
Slide 10: The Transformation – New Material Platforms
The Transformation – New Material Platforms Performance Alloys & Composites (PAC) Advanced Materials (AM) Precision Coatings (PC) Mid 2000s • Beryllium (Be) and Be Alloys • Clad Metals • High-Purity Gold •Microelectronic Packaging • Powder Metallurgy/Thin Film Materials N/A Today’s New Platforms • T
Slide 11: Transformation Highlights
Transformation Highlights Faster growth – Higher margins – Stronger balance sheet GDP growth Multiples of GDP Limited markets Broader market opportunities Low margin Higher margin High infrastructure Efficient infrastructure High fixed and working capital Lower capital intensity 11
Slide 12: A Balanced Portfolio
A Balanced Portfolio A Balanced Portfolio 2014 12 Consumer Electronics 28% Industr ial Components 13% Medical 12% Automotive Electronics 9% Energy 8% Telecom Infrastructure 6% Defense 6% Commercial Aerospace 4% 0 Performance Alloys and Composites Advanced Materials Precision Coatings 12
Slide 13: Experienced Leadership Team
Experienced Leadership Team 13 Performance Alloys and Composites Performance Metals Group Technical Materials Advanced Materials Advanced Materials Precision Coatings Precision Optics Large Area Coatings Glenn Maxwell Al Lubrano Don Klimkowicz Robert Naranjo Ian Tribick
Slide 14: Materion at a Glance
Materion at a Glance 14 Adjusted EPS $1.65 Market cap @ 12/31/14 $708M Debt-to-capitalization 5% Operating cash flow $60M Dividend yield ~1% Revenues $1.13B Value-added sales (VA) $637.1M 2014 8.0x EV / Adjusted EBITDA @ 12/31/14
Slide 15: Clear Evidence Materion is on Track
$1.65 2013 2014 2015(F) Clear Evidence Materion is on Track Guidance – A Strong Year Operating Profit (OP) Margins Up Sharply (Adjusted EPS) (Adjusted OP as a % of Value-added Sales) 5.2% 7.6% 8 - 9% 2013 2014 2015(F) $1.10 $1.80 - $2.00 15
Slide 16: Why Invest in Materion Today?
Why Invest in Materion Today? G O A L N E X T 3 Y E A R S : Significantly improved financial results 1 Strategy for sustained, profitable growth • Pathway for additional cost and working capital improvements 5 Strong positions in growing markets • High barriers to entry • Supply/demand changing in B
Slide 17: Near-Term Secular Trends Play to Our Strengths
Near-Term Secular Trends Play to Our Strengths Key Trends • Miniaturization of electronics • Additional electronic instruments for autos, aircraft • Advancements in lighting (LED) • Expanding high-performance optical device opportunities • Innovation in medical diagnostics • Extraction of oil and ga
Slide 18: Longer-Term Secular Trends Play to Our Strengths
Longer-Term Secular Trends Play to Our Strengths Internet Of Things Wearable Electronics Bio-Electronics Energy Drones/Pico Satellites • Advanced Sensors • Semiconductors •Wireless Tech • Advanced Sensors • Materials • Corrosion/Wear • Advanced Sensors Oil & Gas • Materials (wear, strength) Alternat
Slide 19: Well-Positioned with Leading Global Product Offerings
Well-Positioned with Leading Global Product Offerings Differentiated Products Percent of Value-added Sales (2014) Expected Annual Growth Next 3-5 Years Leading supplier of beryllium- containing products ~42% Leading supplier of high-purity precious metal for physical vapor deposition (PVD) ~20% Only
Slide 20: Evolving Beryllium Supply Opportunity
Evolving Beryllium Supply Opportunity 20 Materion – leading position in beryllium market • Only global integrated producer – approximately 70 years of proven reserves in Utah • Over 40% of company value-added sales include beryllium in some form Signs of shortage ahead • Global sources depleting • E
Slide 21: Why Invest in Materion Today?
Why Invest in Materion Today? G O A L N E X T 3 Y E A R S : Significantly improved financial results 1 Strategy for sustained, profitable growth • Pathway for additional cost and working capital improvements 5 Strong positions in growing markets • High barriers to entry • Supply/demand changing in B
Slide 22: Wide Range of Strategic Investments
Wide Range of Strategic Investments New Wafer Coating Facility New Optics Facility Increased Capacity LED Phosphor ToughMet® Capacity Expansion Expanded Beryllium Hydroxide Capacity Singapore Expansion 22
Slide 23: Record Number of New Product Launches
Record Number of New Product Launches Examples of New Products Value-Added Sales Growth New products were 11% of total value-added sales in 2014 New products Existing products Gesture Controls LED Phosphorous ToughMet® Oil & Gas Bulk Metallic Glass (Liquidmetal) 50% 50% Wafer-Level Processing Doveta
Slide 24: 2017 Value-Added Sales Target - Materion
2017 Value-Added Sales Target - Materion $609 $637 $750 2-4% CAGR Additional $50 - $65 2013 2014 2017 Organic End Market Growth ($ in millions) 24 Growth Accelerators
Slide 25: Why Invest in Materion Today?
Why Invest in Materion Today? G O A L N E X T 3 Y E A R S : Significantly improved financial results 1 Strategy for sustained, profitable growth • Pathway for additional cost and working capital improvements 5 Strong positions in growing markets • High barriers to entry • Supply/demand changing in B
Slide 26: Impressive 2017 Financial Targets
Impressive 2017 Financial Targets ($ in millions) 2014 2017 % CAGR Value-Added Sales $637 $750 6% Operating Profit $48.5 $75 16% OP % of VA 7.6% 10.0% 240 bps. EPS $ 1.65 $2.65 17% EPS w/ Acquisitions >$3.00 26
Slide 27: Performance Alloys and Composites
PERFORMANCE ALLOYS AND COMPOSITES
Slide 28: History - PAC
History - PAC 1931 – Brush Beryllium Company incorporated in Cleveland, Ohio 1953 – Opened Elmore, Ohio facility to produce copper beryllium (CuBe) and pure Be Metal (in 1957) 1969 – Developed bertrandite ore mine and processing mill 1982 – Technical Materials, Inc. was acquired, adding plating and
Slide 29: Global Presence - PAC
Global Presence - PAC 29 $359M Value-Added Sales $33M Operating Profit 8 Manufacturing Locations 10 Sales / Service Centers Lincoln, RI Fremont, CA Tucson, AZ Theale, UK Stuttgart, Germany Singapore Shanghai, China Seoul, Korea Elmore, OH Lorain, OH Delta, UT Elmhurst, IL Warren, MI Reading, PA Taip
Slide 30: End Markets Served - PAC
End Markets Served - PAC 30 Applications: Consumer Electronics – Thermal/mechanical solutions, acoustics, stabilizers, connectors Industrial Components – Molds, castings, welding tips, bushings, control connectors Automotive Electronic Materials - Control module lead frames, high-reliability connect
Slide 31: Differentiated Products
Differentiated Products 31 Bertrandite Ore Mine CuBe Performance Alloys •Casting & extruding of CuBe bulk, strip & rod •CuBe alloys have increased stiffness, connectivity and corrosion resistance •Custom fabrication & machining •World’s largest bertrandite ore mine • Bertrandite ore is the base mate
Slide 32: Differentiated Products
Differentiated Products 32 ToughMet® Metal Matrix Composites • Proprietary formula • Increased strength and lubricity for lower friction •Resists corrosion, erosion and wear • Large-scale production capability • Proprietary formulas •High strength-to-weight ratio • Net shape production reduces waste
Slide 33: Attractive Evolving End Market Applications for Clad Metal
Attractive Evolving End Market Applications for Clad Metal 33 Alternative Energy • Lead frame materials for critical control modules • ABS / EPS • High performance • Ion connectors™ • Fuel efficiency sensing • Li-Ion battery • Dovetail™ Interconnects • Stop-start / hybrid / EV • Fuel cell materials
Slide 34: 2017 Value-Added Sales Target - PAC
2017 Value-Added Sales Target - PAC $340 $359 $420 2-4% CAGR Additional $25 - $30 2013 2014 2017 Organic End Market Growth ($ in millions) 34 Growth Accelerators
Slide 35: Key Growth Accelerators - PAC
Key Growth Accelerators - PAC CHANGING BERYLLIUM DEMAND • World’s only fully integrated producer • 70 years of proven mine reserves – Delta, UT • Primary Be competitor is consuming stockpiled ore • Majority of other global production is committed to local defense NEW PRODUCT DEVELOPMENT • New propri
Slide 36: eStainless Product Differentiation
eStainless™ Product Differentiation Characteristics • Proprietary technology (Gamma CladTM) • 50% lighter than stainless steel • 8x thermal conductivity Customer Value Proposition • Enables thinner, stiffer electronics • Manages higher heat of today’s processing technology • Replaces higher cost gra
Slide 37: Dovetail Clad Product Differentiation
Dovetail Clad™ Product Differentiation Characteristics • Patented product • Unique copper aluminum (CuAl) joint solution • High-volume process Customer Value Proposition • Best solution for laser welding of Li-Ion batteries • Lowest cost assembly • High electrical and mechanical performance New Mark
Slide 38: Changing Beryllium Demand
Changing Beryllium Demand Current Operations • World’s largest bertrandite ore mine • Converts bertrandite and beryl ores into beryllium hydroxide, CuBe and high-purity beryllium metal • Supplies about 50% of the global requirements for mined bertrandite ore Future State • Major competitors’ ore res
Slide 39: ToughMet Alloy Product Differentiation
ToughMet® Alloy Product Differentiation Characteristics • Harder than alloy steels • More corrosion resistant than stainless • As slippery as nylon Customer Value Proposition • Longer component life • Reduced maintenance • Improved reliability New Market Opportunities • Aerospace and mobile equipmen
Slide 40: SupremEx Metal Matrix Composite
SupremEx® Metal Matrix Composite Product Differentiation Characteristics • Higher specific stiffness than titanium • Improved strength and twice the fatigue life of any aluminum alloy Customer Value Proposition • Weight reduction of ~25% at the same performance • Improved operating life New Market O
Slide 41: 2017 Operating Profit Target - PAC
2017 Operating Profit Target - PAC $29 $31 $33 $50 2012 2013 2014 2017 Profit Margin Expansion 9.3% 11.9% ($ in millions) 41
Slide 42: Summary Outlook - PAC
Summary Outlook - PAC VA $359 million $420 million OP $33 million $50 million Beryllium Supply Dynamics - New Products & Applications 42 2014 → 2017 Financial Targets Growth Accelerators We are in the right markets, have the right technologies and relationships, and are well positioned for growth
Slide 43: Advanced Materials
ADVANCED MATERIALS V7 é DIFFERENTIATION ‘ff DRIVING GROWTH
Slide 44: History - AM
History - AM 1986 – Williams Gold was acquired, giving Materion a high-purity precious metal and frame-lid business 1992 – 2006 – International sales and service centers opened in Singapore, the UK, Taiwan, Korea and the Netherlands 1998 – PureTech was acquired, giving Materion high-purity base meta
Slide 45: Global Presence - AM
Global Presence - AM 45 Albuquerque, NM Buffalo, NY Brewster, NY Singapore Suzhou, China Milwaukee, WI Santa Clara, CA Wheatfield, NY Limerick, Ireland Taipei, Taiwan Subic Bay, Philippines Hungerford, UK Amsterdam, Netherlands Seoul, Korea $181M Value-Added Sales $28M Operating Profit 6 Manufacturi
Slide 46: End Markets Served - AM
Medical 5% Defense & Science 3% Optics 7% Solar 2% Wireless 15% Semiconductor 29% LED 11% Data Storage 10% Glass 4% Other 14% End Markets Served - AM 46 Applications: Semiconductor – Power conversion, computers, tablets, TVs, processing chips Wireless – Cell phone power amplifiers, cell tower base s
Slide 47: Differentiated Products
Differentiated Products 47 • Precious metal expertise • Ultra-pure materials • Shield cleaning and precious metal recovery • Small lot processing and scalability • Ultra-pure base metals and alloys • Clean room product and packaging • Small lot processing and scalability • Local bonding and recyclin
Slide 48: Semiconductor Materials
mn MATERION Semiconductor Materials High Purity Sputtering Targets and Evaporation Materials % DRIVING GROWTH A MATERION INVESTOR DAY 2015
Slide 49: Semiconductor Packaging
mn MATERION Semiconductor Packaging Cu-Packs™, Combo-Lids™, Air-Cavity Packages Solder Preforms 49 MATERION INVESTOR DAY 2015
Slide 50: LED Industry
Y a MATERION LED Industry Phosphor Precursors, High Purity Sputtering Targets and Evaporation Materials MATERION INVESTOR DAY 2015
Slide 51: 2017 Value-Added Sales Target - AM
2017 Value-Added Sales Target - AM $169 $181 $204 1-3% CAGR Additional $10 - $15 2013 2014 2017 Organic End Market Growth ($ in millions) 51 Growth Accelerators
Slide 52: Key Growth Accelerators - AM
Key Growth Accelerators - AM SEMICONDUCTOR • Long-term high growth • High loyalty • Quality and reliability highly valued • Use current material set and expand to 300mm • Re-engineer to Tier 1 semiconductor standards NEW PRODUCT DEVELOPMENT • Highly technical exotic materials and alloys • High-value
Slide 53: Semiconductor Purity and Cleanliness
Semiconductor Purity and Cleanliness 53 1 nine 90% 100,000 2 nines 99% 10,000 3 nines 99.9% 1,000 4 nines 99.99% 100 5 nines 99.999% 10 6 nines 99.9999% 1 Purity . Purity Cleanliness
Slide 54: New Product Development
New Product Development 300mm Platform 54 Precursors for Magnetic Refrigeration Metal Cathode Layers and Barrier Materials 2015 2018 OLED Semi Core Inorganic Larger PVD Targets New Evaporation Materials New Chemical Alloy Compound
Slide 55: Precious Metals Life Cycle Management
Precious Metals Life Cycle Management 55
Slide 56: 2017 Operating Profit Target - AM
2017 Operating Profit Target - AM $29 $11 $28 $34 2012 2013 2014 2017 Profit Margin Expansion 15.2% 16.7% ($ in millions) 56
Slide 57: Summary Outlook - AM
Summary Outlook - AM VA $181 million $204 million OP $28 million $34 million Semiconductor - New Product Development - Asia 57 2014 → 2017 Financial Targets Growth Accelerators We are in the right markets, have the right technologies and relationships, and are well positioned for growth
Slide 58: Precision Coatings
WA PRECISION Brvinecrowrn Md COATINGS
Slide 59: History - PC
History - PC 2005 – Thin Film Technology was acquired, giving Materion optical coating deposition technology 2008 – Techni-Met was acquired, giving Materion wide web roll-to-roll thin film deposition, surface modification and conversion capabilities 2009 – Barr Associates was acquired, adding a full
Slide 60: Global Presence - PC
Global Presence - PC 60 Westford, MA Shanghai, China Windsor, CT $102M Value-Added Sales $7M Operating Profit 3 Manufacturing Locations 4 Sales / Service Centers Seoul, Korea Tokyo, Japan Taipei, Taiwan Hungerford, UK 460 Employees
Slide 61: End Markets Served - PC
End Markets Served - PC 61 Other 6% Industrial Components 3% Defense 10% Medical 49% Consumer Electronics 26% Science 4% Automotive 2% Applications: Medical – Blood glucose and coagulation test strips (BGTS), point of care medical biosensors Consumer Electronics – Image sensing filters of security g
Slide 62: Differentiated Technologies
Differentiated Technologies 62 Wafer Level Processing Precision Filters, Micro-Patterning Reel-to-Reel (R2R) Deposition Thin Film R2R Conversion • UV, visible to IR coating • Multiple deposition technologies • Photolithography •Wet etching & lift-off •Wafer bonding • Monolithic array technology • 20
Slide 63: 2017 Value-Added Sales Target - PC
2017 Value-Added Sales Target - PC $104 $102 $132 3-5% CAGR Additional $15 - $20 2013 2014 2017 Organic End Market Growth 63 Growth Accelerators ($ in millions)
Slide 64: Key Growth Accelerators - PC
Key Growth Accelerators - PC EXPANDED SERVICE OFFERING •Optical coatings plus metalization & getter •Wafer level processing • Film slitting to size •Optical coating is the critical sensor assembly application • Increased value capture per unit NEW PRODUCT DEVELOPMENT • New precious metal coating sta
Slide 65: 3D Image Sensing
3D Image Sensing Product Differentiation Characteristics • Low angle shift • High transmission % • Slope enhancement Customer Value Proposition • High-volume production facility/low cost base • Coating integration services • IP technology New Market Opportunities • Mobile application • Automotive •
Slide 66: Thermal Imaging
Thermal Imaging Product Differentiation Characteristics • High temperature durability • Low defect levels (<20 microns) • Micro patterning (>300 micron cavities) Customer Value Proposition • Turn-key solutions • Semiconductor wafer facility • High-volume 200mm wafer capabilities New Market Opportuni
Slide 67: Medical Sensing Coatings
Medical Sensing Coatings Product Differentiation Characteristics • Novel electrode materials – product portfolio • Vertically integrated high-purity precious metal supply chain • Quality controls and consistency Customer Value Proposition • Precision deposition technology results in lower cost and i
Slide 68: 2017 Operating Profit Target - PC
2017 Operating Profit Target - PC $2 $6 $7 $15 2012 2013 2014 2017 Profit Margin Expansion 6.6% 11.4% ($ in millions) 68
Slide 69: Summary Outlook - PC
Summary Outlook - PC VA $102 million $132 million OP $7 million $15 million Expanded Service Offering - New Products & Markets 69 2014 → 2017 Financial Targets Growth Accelerators We are in the right markets, have the right technologies and relationships, and are well positioned for growth
Slide 70: Financial Review
FINANCIAL ITA REVIEW ah, | DIFFERENTIATION ‘ff DRIVING GROWTH
Slide 71: We Have Momentum
We Have Momentum $616 $609 $637 $655 2012 2013 2014 Q1 2015 TTM Value-Added Sales $44.2 $31.8 $48.5 $51.5 2012 2013 2014 Q1 2015 TTM Operating Profit ($ in millions) 71
Slide 72: We Have Growth Accelerators
We Have Growth Accelerators $637 $750 Organic End Market Growth Performance Alloys and Composites Advanced Materials Precision Coatings 2014 2017 Value-Added Sales 2-4% CAGR ($ in millions) Growth Accelerators • New Products • Expanded Markets • New Applications 72
Slide 73: New Products Driving Growth
New Products Driving Growth $609 $637 $750 10% of VA 11% of VA 17% of VA 2013 2014 2017 Value-Added Sales New Products • ToughMet® • Hydroxide • eStainless™ • Semiconductor PVD • Bulk Metallic Glass • Dovetail • 3D Optical Coatings • Medical Sensing Coatings • Other ($ in millions) 73
Slide 74: Impressive 2017 Financial Targets
Impressive 2017 Financial Targets ($ in millions) 2014 2017 % CAGR Value-Added Sales $637 $750 6% Operating Profit $48.5 $75 16% OP % of VA 7.6% 10.0% 240 bps. EPS $ 1.65 $2.65 17% EPS w/ Acquisitions >$3.00 74
Slide 75: Working Capital & Cash Flow
Working Capital & Cash Flow 26% 27% 24% 2013 2014 2017 Working Capital % of Sales $76 $60 ~$250 2013 2014 2015-17 Cash Flow from Operations ($ in millions) 75
Slide 76: Strong Financial Position
Strong Financial Position $94 $65 $24 $211 2012 2013 2014 Debt 1.2 0.9 0.3 1.5 2012 2013 2014 Target Debt / EBITDA Q1 2015 ($ in millions) 76 Available Liquidity
Slide 77: Capital Allocation Priorities
Capital Allocation Priorities 1. Internal capital investments 2. Strategic acquisitions 3. Return cash to shareholders Targeted Leverage Ratio is 1.5 times EBITDA 77
Slide 78: Capital Deployment Allocation
Capital Deployment Allocation $0 $100 $200 $300 $400 $500 2012 - 2014 2015 - 2017 2015 - 2017 Internal Capex Mine Development Returned to Shareholders Acquisitions Forecast with leverage of 1.5x EBITDA Forecast with NO Increase in leverage Historical ($ in millions) 78
Slide 79: Acquisition History & Strategy
Acquisition History & Strategy History of Acquisitions • >$200M spent on 8 acquisitions in the last 10 years • Multiples of EBITDA generally range from 5-7x • Generated ~35% of Company OP in 2014 Strategy Going Forward • Strategic bolt-on advanced materials companies that support our growth platform
Slide 80: Why Invest in Materion Today?
Why Invest in Materion Today? • Leading position with differentiated products – Broad market diversification • Well positioned for secular growth opportunities • Clear path for strong earnings growth … >$3.00 EPS in 2017 • DNA of management … agile, focused and innovative – Provides sustainability o
Slide 81: Appendix
APPENDIX DIFFERENTIATION DRIVING GROWTH
Slide 82: Historical Financials / US GAAP Reconciliation
Historical Financials / US GAAP Reconciliation ($ in millions, except per share data) 2015 Q1 Q2 Q3 Q4 2012 Q1 Q2 Q3 Q4 2013 Q1 Q2 Q3 Q4 2014 Q1 Sales PAC 112.1$ 103.2$ 100.4$ 108.7$ 424.4$ 106.4$ 109.5$ 98.7$ 108.4$ 422.9$ 97.2$ 109.6$ 114.2$ 112.3$ 433.3$ 103.3$ AM 205.0 183.7 151.8 154.3 694.8 15
Slide 83: Historical Financials / US GAAP Reconciliation (continued)
Historical Financials / US GAAP Reconciliation (continued) ($ in millions, except per share data) 2015 Q1 Q2 Q3 Q4 2012 Q1 Q2 Q3 Q4 2013 Q1 Q2 Q3 Q4 2014 Q1 Operating Profit PAC 7.2$ 7.3$ 6.7$ 8.1$ 29.3$ 8.4$ 11.0$ 3.3$ 8.1$ 30.8$ 6.2$ 6.3$ 10.8$ 9.9$ 33.3$ 6.8$ AM 6.5 7.3 8.8 (0.8) 21.8 3.6 (1.0) 3