Russel Metals Inc. · TSX:RUS
Russel Metals — Investor Presentation (September 2024)
42 slides from Russel Metals's investor presentation, September 2024
Slide 1: Company Update - September 2024
COMPANY UPDATE - SEPTEMBER 2024
Slide 2: Cautionary Statement on Forward-Looking Information
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION Certain statements contained in this presentation constitute forward-looking statements or information within the meaning of applicable securities laws, including statements as to the anticipated benefits from the Samuel acquisition, the timing to
Slide 3: Non-GAAP Measures
NON-GAAP MEASURES In this Information Package we use certain financial measures that do not comply with International Financial Reporting Standards (IFRS or GAAP) or have standardized meanings, and thus, may not be comparable to similar measures presented by other issuers, for example EBIT and EBITD
Slide 4: Table of Contents
TABLE OF CONTENTS I. Overview II. Market Trends III. Capital Allocation Priorities IV. Financial Overview 4
Slide 5: I. Overview
Il. OVERVIEW
Slide 6: Business Highlights
BUSINESS HIGHLIGHTS Compelling Market Position with Strong Supplier Relationships and Market Insight • One of the largest metals distribution and processing companies in North America • Well-established relationships with North American steel producers and one of the largest independent steel import
Slide 7: Russel Metals At-A-Glance
RUSSEL METALS AT-A-GLANCE Overview Key Segments • Distribution of various industrial products across North America • Three segments: Metal Service Centers, Energy Field Stores and • Coast-to-coast in Canada Metals Service Steel Distributors • Strong US presence in mid-west Centers and south • Founde
Slide 8: Strong Market Position
STRONG MARKET POSITION • Russel is one of the largest service center companies in North America • Leading market position in Canada • Strong market position in the US South and US Mid-West Source: Metal Center News, September 2023 8
Slide 9: Diversified Business
DIVERSIFIED BUSINESS Geography - 128 Locations Suppliers Product Mix Transactional Business Model: Small Avg. Order Size/Large Number of Transactions/Low Customer Concentration • >30,000 customers; Top 10 customers <10% of revenues • Average >3,000 MSC transactions/day • Average MSC segment invoice
Slide 10: Variable Cost Model – Incentive Compensation Structure
VARIABLE COST MODEL – INCENTIVE COMPENSATION STRUCTURE 2020 2021 • A large number of our employees participate in a profit-sharing program, with bonus pools tied to their local returns on net assets. • This approach is a significant element of the pay-for-performance and decentralized culture at Rus
Slide 11: Business Transformation
BUSINESS TRANSFORMATION Illustration of Historical Results Illustration of Expected Impact from New Approach Financial Metric Financial Metric Time Time Actions Objectives • Divested underperforming business units • Raise the cycle floor and ceiling • Reinvested in value-added equipment, facility mo
Slide 12: Portfolio Changes and Impact
PORTFOLIO CHANGES AND IMPACT • The portfolio changes Business Segment Relative Performance - 2020 significantly reduced 80% Business our free cash flow 60% improvement/reorganization Capital limits changed and variable program in 2021/22 Business rationalization is underway volatility. 40% comp rest
Slide 13: ESG Focus
ESG FOCUS Sustainability Report Updated April, 2024 Environmental • Divested OCTG/Line Pipe business • Low carbon emissions from operations • GHG emissions in 2023 were 54,206 tonnes CO2(e), which was a 1% reduction from 2022. Over the past five years, GHG emissions decreased by 4% Social • Structur
Slide 14: II. Market Trends
II. MARKET TRENDS
Slide 15: Business Conditions: Metal Pricing Trends
BUSINESS CONDITIONS: METAL PRICING TRENDS • Sheet and plate prices declined over the past Scrap vs Coil & Plate Pricing Source: American Metal Market (AMM) several months, with $2,500 sheet appearing to be recovering from the #1 Heavy Melt (Chicago) HR Sheet HR Plate bottom. $2,000 $1,500 US $ / ton
Slide 16: Revenue Volatility vs. Indexes
REVENUE VOLATILITY VS. INDEXES • Russel Metals’ revenue is less volatile than underlying steel prices. Relative Volatility Absolute Volatility Revenue Volatility - Russel vs Benchmarks Coefficient of Variation (%) Russel Metals Service Centres - Avg Price 32% Realization (C$)/Ton 300% Russel Metals
Slide 17: Business Conditions: Supply Chain Dynamics
BUSINESS CONDITIONS: SUPPLY CHAIN DYNAMICS Steel Mills/Imports: • Capacity utilization remains in the 75-80% range. • Imports are not a major factor and remain relatively consistent. Service Centers: • Supply chain tonnage remains modest. 17
Slide 18: III. Capital Allocation Priorities
III. CAPITAL ALLOCATION PRIORITIES
Slide 19: Capital Allocation Priorities Going Forward
CAPITAL ALLOCATION PRIORITIES GOING FORWARD Increase capital deployment with a target of >15% Flexible approach to returning capital to return over a cycle shareholders LTM Activity = Share Buy $108 mm Backs • Q2: 1.5 mm acquired for $56 mm (avg. $38.08/share) + tax Facility • Since NCIB established
Slide 20: Capital Reallocation Summary: 2020 - 2024
CAPITAL REALLOCATION SUMMARY: 2020 - 2024 • Between 2020-2024, we have generated ~$1.7 billion of cash and substantially changed our business and capital structure profile. Cash Generation 1/1/20 to 6/30/24 ($ mm) Capital Deployment 1/1/20 to 6/30/24 ($ mm) NCIB; $182 Asset Sales; $403 Reduce Debt/I
Slide 21: Dividend and Share Buy Back Summary
DIVIDEND AND SHARE BUY BACK SUMMARY Historical (and Projected Q3'24) Quarterly Dividends $0.42 Return of Capital to Shareholders (millions) $80 $0.40 $69 $0.38 $45 $56 $40 $44 $41 $39 $35 $16 $20 $17 $24 $12 $24 $15 $0.35 $24 $24 $24 $24 $25 $24 $24 $24 $25 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15
Slide 22: Internal Reinvestment Program
INTERNAL REINVESTMENT PROGRAM • Multi-year program to expand operations and increase value-added equipment • Most recent projects have generated paybacks of ~2-4 years Flat Lasers $2-4 mm each Tube Lasers $2-4 mm each 3 installed in ’23 3 installed in ’23 Kinetic and Plate Cutting – 4 planned for ‘2
Slide 23: Capex Project Update – Saskatoon Greenfield
CAPEX PROJECT UPDATE – SASKATOON GREENFIELD • The $14 mm Saskatoon project is progressing on track with completion expected in late summer. • The project will involve closing the existing Saskatoon location, monetizing the real estate and moving equipment into this new 70,000 sq. ft. facility. 23
Slide 24: Capex Project Update – Other Modernizations
CAPEX PROJECT UPDATE – OTHER MODERNIZATIONS • Four other modernization projects are evolving through the later part of 2024. Joplin, MO - US$9 mm Green Bay, WI – US$11 mm Little Rock, AR – US$8 mm Texarkana, TX – US$9 mm 24
Slide 25: Growth by Acquisition
GROWTH BY ACQUISITION • We have completed several acquisitions over the past few years and continue to focus on new opportunities that can be tuck-ins with our existing business units (e.g. Samuels) or standalone/complementary units (e.g. Boyd). • Our acquisition approach remains focused on: (i) fin
Slide 26: Samuel Acquisition: Key Metrics
SAMUEL ACQUISITION: KEY METRICS • The Samuel transaction closed on August 12/24. • Summary financial results (pre-synergies): • 1H 2024 Annualized Results: • Revenue $586 mm • Adjusted EBITDA $24 million • 2022 Results: • Revenue $704 million • Adjusted EBITDA $33 million Pro Forma Impact1 to Russel
Slide 27: Samuel Acquisition: Value Breakdown
SAMUEL ACQUISITION: VALUE BREAKDOWN • Approximately 80% of the purchase price is related to the working capital of the business. $180 Total of $176 mm $160 $140 $137 $120 $100 Millions $80 $60 $40 $29 $20 $10 $0 Working Capital at 8/12/24 (1) NBV Fixed Assets Premium (1) Based on 8/12/24 working cap
Slide 28: Samuel Acquisition: Working Capital Reduction
SAMUEL ACQUISITION: WORKING CAPITAL REDUCTION • There are two main changes in working capital since the deal was first announced: • Significant reduction in inventory ($40 mm) as a result of lower steel prices and more proactive inventory management by Samuel in advance of the closing. • The vast ma
Slide 29: Samuel Acquisition: Illustrative Implied Multiples
SAMUEL ACQUISITION: ILLUSTRATIVE IMPLIED MULTIPLES • Based on a range of EBITDA and invested capital scenarios, the following summarizes the implied purchase price multiples. Implied Purchase Price Multiple Annual EBITDA ($mm) $27 $30 $33 $36 $39 $225 8.3x 7.5x 6.8x 6.3x 5.8x Net $200 7.4x 6.7x 6.1x
Slide 30: Complementary Geographic Fit in W. Canada
COMPLEMENTARY GEOGRAPHIC FIT IN W. CANADA • The combined footprint in Western Canada should create opportunities to reconfigure the equipment/locations, enhance operating efficiencies and reduce the combined capital. Russel Location Samuel Location # of Locations BC Alberta Sask. Manitoba Total Russ
Slide 31: Extension of Russel Locations into US Northeast
EXTENSION OF RUSSEL LOCATIONS INTO US NORTHEAST • Samuel’s US operations will provide an opportunity to extend Russel geography into the US Northeast and increase economies of scale in plate processing. Russel - Buffalo, NY Wisconsin Pittsburgh, PA Russel Location Samuel Location 31
Slide 32: IV. Financial Overview
IV. FINANCIAL OVERVIEW
Slide 33: Q2 2024 at a Glance
Q2 2024 AT A GLANCE • Revenues were up vs. Q1 • Slight decrease in gross margin; EBITDA margin stable in spite of steel price volatility • Solid earnings and returns; very consistent results over past several quarters amidst market volatility • Our capital structure remains strong with significant f
Slide 34: Variance Analysis: EBITDA Q1 2024 vs. Q2 2024
VARIANCE ANALYSIS: EBITDA Q1 2024 VS. Q2 2024 • Mark-to-market recovery on stock-based comp $8 in Q2 vs. NIL in vs. Q1 • Thunder Bay terminals $4 mm in Q2 vs. $(1.8) mm in Q1 Service Centers 34
Slide 35: Segment Breakdown: Operating Results
SEGMENT BREAKDOWN: OPERATING RESULTS Revenue (C$ millions) Gross Margins % Earnings from Operations (C$ millions) $1,000 40% $130 35% $800 $110 30% 25% $90 $600 20% $70 $400 15% $50 10% $30 $200 5% $10 $0 0% ($10) MSC Energy Distributors MSC Energy Distributors MSC Energy Distributors MSC: • Revenue
Slide 36: Service Center Results
SERVICE CENTER RESULTS • Q2 2024 tons were up 2% vs. Q1 as demand remains steady. Tons Shipped (000’s) 360 • Price realizations decreased $74/ton and CGS decreased 340 $17/ton -- lower margin/ton in Q2 vs. Q1. 320 300 280 260 240 220 Revenue and CGS/Ton 200 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Slide 37: Working Capital Discipline
WORKING CAPITAL DISCIPLINE Inventory Turns Inventory C$ mm 5.0 $1,200 4.7 4.5 1,050 1,008 1,025 4.0 986 4.0 3.9 3.9 4.0 $1,000 964 957 941 948 4.0 3.8 3.8 3.7 3.9 3.9 3.8 124 907 894 190 211 3.4 884 883 3.5 123 862 228 166 123 125 840 843 861 3.5 100 95 3.2 3.0 $800 95 790 773 787 153 120 103 116 14
Slide 38: Liquidity and Capital Structure Summary
LIQUIDITY AND CAPITAL STRUCTURE SUMMARY • Significant balance sheet flexibility; growth in cash position and book value per share over the past year. • New bank facility closed July 15. Unsecured with investment grade covenants. 6/30/23 6/30/24 6/30/24 Pro Russel - Book Value per Share Forma Samuel
Slide 39: Pension Plan Migration
PENSION PLAN MIGRATION • The following summarizes the shift in the defined benefit plans’ surplus over the past several years. Defined Pension Plans – Surplus/(Deficit) $60 $50 $4 $3 $40 $30 $47 $ mm $42 $43 $20 $28 $10 $0 ($2) ($5) ($10) Dec. 31/19 Dec. 31/20 Dec. 31/21 Dec. 31/22 Dec. 31/23 June 3
Slide 40: Strong Historical Return on Capital
STRONG HISTORICAL RETURN ON CAPITAL $1,800 80% $1,636 $1,600 $1,553 70% $1,471 $1,492 $1,512 $1,462 $1,466 $1,435 $1,436 $1,424 $1,410 $1,388 $1,400 $1,418 $1,400 $1,299 $1,308 60% $1,242 $1,200 $1,132 $1,133 $1,148 $1,123 49% 50% 51% 48% $1,000 $ millions 43% 41% 40% $800 33% 31% 32% 27% 26% 30% 23
Slide 41: Strong Relative Returns
STRONG RELATIVE RETURNS • Russel’s returns remain industry leading. Return on Net Assets 70% 60% 50% 40% 30% 20% 10% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 2020 2021 2022 2023 2024 Russel Metals US Peer Median Note: US Peers includes: DistributionN
Slide 42: Contact Information
6600 Financial Drive, Mississauga, Ontario L5N 7J6 Email: info@russelmetals.com Visit us at: www.russelmetals.com Investor Relations Line: 905.816.5178
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