Russel Metals Inc. · TSX:RUS
Russel Metals — Investor Presentation (November 2021)
32 slides from Russel Metals's investor presentation, November 2021
Slide 1: Company Update November 2021
COMPANY UPDATE NOVEMBER 2021
Slide 2: Forward-Looking Information
FORWARD-LOOKING INFORMATION Certain information contained in this presentation constitutes forward-looking information within the meaning of applicable securities laws. Forward-looking information relates to future events or future performance. All statements, other than statements of historical fac
Slide 3: Non-GAAP Measures
NON-GAAP MEASURES This presentation includes a number of measures that are not prescribed by GAAP and as such may not be comparable to similar measures presented by other companies. We believe these measures are commonly employed to measure performance in our industry and are used by analysts, inves
Slide 4: 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 5: Table of Contents
TABLE OF CONTENTS I. Market Trends II. Company Overview III. Business Strategy/Recent Initiatives IV. Financial Overview 5
Slide 6: I. Market Trends
I.I.MARKET MARKETTRENDS TRENDS
Slide 7: Business Conditions – Macro Price Trends
BUSINESS CONDITIONS – MACRO PRICE TRENDS $2,500 #1 Heavy Melt (Chicago) HR Sheet HR Plate $2,000 $1,500 US $ / ton $1,000 $500 $0 7
Slide 8: Steel Production
1,100 1,300 1,500 1,700 1,900 2,100 700 900 1-Jan-11 1-May-11 1-Sep-11 1-Jan-12 1-May-12 1-Sep-12 STEEL PRODUCTION 1-Jan-13 1-May-13 1-Sep-13 Source: American Iron and Steel Institute 1-Jan-14 1-May-14 1-Sep-14 1-Jan-15 1-May-15 1-Sep-15 1-Jan-16 1-May-16 1-Sep-16 1-Jan-17 1-May-17 1-Sep-17 US Raw S
Slide 9: Service Center Business Conditions
SERVICE CENTER BUSINESS CONDITIONS Source: Metals Service Center Institute Source: Metals Service Center Institute 9
Slide 10: II. Company Overview
II.II.COMPANY COMPANYOVERVIEW OVERVIEW
Slide 11: Russel Metals At-A-Glance
RUSSEL METALS AT-A-GLANCE Overview Key Segments • Distribution of steel and other metal products across North America • Three segments: Metal service centers, Energy products and Steel • Coast-to-coast in Canada Metals Service distributors • Strong US presence in mid-west Centers • Founded in 1916 a
Slide 12: 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 $9,000 $8,000 $7,000 Revenues – US$ millions $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Source: Metal Center
Slide 13: Diversified Business
DIVERSIFIED BUSINESS Geography - 126 Locations Suppliers Product Mix Other 5% Bars 5% Non-Ferrous United Others 4% States - 31 51% Structurals - Flat Rolled 29% 12% Pipe 13% Suppliers 1-10 49% Canada - 95 Plate - 22% Flanges 10% Customers • ~30,000 customers • Average invoice < $2,500 • Top 10 custo
Slide 14: Countercyclical Cash Flows
COUNTERCYCLICAL CASH FLOWS • Strong EBITDA during upcycles; working capital repatriation during market downturns. Quarterly EBITDA vs. Change in Working Capital ($000’s) $250,000 $200,000 $150,000 $100,000 $50,000 $- $(50,000) $(100,000) $(150,000) Q2 2007 Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q2 2012 Q2
Slide 15: Variable Cost Model – Breakdown of Cash Costs
VARIABLE COST MODEL – BREAKDOWN OF CASH COSTS 9 MONTHS ENDED SEPTEMBER 30, 2021 YEAR ENDED DECEMBER 31, 2020 $2,575 Million $2,559 Million Operating Employee Operating Employee Expenses - Expenses - Expenses - Expenses - Variable, $47 Fixed, $179 Operating Variable, $58 Fixed, $207 Employee Operatin
Slide 16: ESG Focused
ESG FOCUSED Environmental Aggregate Emissions Sources: • Divested OCTG/Line Pipe business • Environment Management System • Low carbon emissions from operations Electricity 23% • GHG emissions in 2020 were 53,345 CO2(e) - emission intensity of 0.00002 Diesel Fuel 40% tonnes CO2(e) per dollar of reve
Slide 17: III. Business Strategy/Recent Initiatives
III. BUSINESS STRATEGY/RECENT INITIATIVES
Slide 18: Business Strategy/Recent Initiatives
BUSINESS STRATEGY/RECENT INITIATIVES Invested Capital and Returns $1,700 70% 1. Monetize 64% OCTG/Line Pipe $1,495 $1,479 $1,462 60% $1,500 $1,453 57% Businesses $1,435 $1,436 $1,424 $1,299 50% $1,300 $1,242 40% IMPACT: 40% 2. Maintain $1,132 $1,133 $1,148 $1,123 4. Target Top Decile $ millions Work
Slide 19: 1. Monetize Non-Core OCTG/Line Pipe Businesses
1. MONETIZE NON-CORE OCTG/LINE PIPE BUSINESSES Core Business Non-Core Business • Reduced exposure to Energy Field Stores OCTG/Line Pipe Businesses through monetization of OCTG/Line Pipe businesses • Repatriated ~$300 mm of capital since June/20 • Canada: sale closed on July 6 • US: liquidation is vi
Slide 20: 1. Canadian OCTG/Line Pipe Sale
1. CANADIAN OCTG/LINE PIPE SALE • On July 6, 2021 Russel closed the transaction involving its Canadian OCTG/Line Pipe business • Sale of Russel’s business (“Triumph”) and the comparable business from Marubeni-Itochu (“Hallmark”) into a new company (”TriMark”) • Russel realized most of its contribute
Slide 21: 2. Working Capital Discipline
2. WORKING CAPITAL DISCIPLINE Inventory Trend $900 $862 $95 $790 $773 $787 $800 $87 $716 $720 $103 $121 $700 $64 $74 $600 $297 $267 $500 $279 $329 $401 $400 $535 $300 $470 $436 $200 $373 $317 $269 $100 $131 $0 June 30/20 Sept. 30/20 Dec. 31/20 March 31/21 June 30/21 Sept. 30/21 Energy Metal Service
Slide 22: 3. Invest in Value-Added Processing
3. INVEST IN VALUE-ADDED PROCESSING • Value-added processing investments of ~$12-15 million/year over multi-years • Typically have paybacks of <3 years 22
Slide 23: 3. Invest in Value-Added Processing – Hub & Spoke Approach
3. INVEST IN VALUE-ADDED PROCESSING – HUB & SPOKE APPROACH Wisconsin U.S. South Southern Ontario Western Canada Quebec and Atlantic Processing center Distribution center 23
Slide 24: 4. Target Select Acquisitions: Boyd Metals Transaction Summary
4. TARGET SELECT ACQUISITIONS: BOYD METALS TRANSACTION SUMMARY • US$110 mm purchase price, subject to final adjustments • Includes net working capital, land, buildings, equipment and other related assets • Strong margins/comparable to Russel service centers in the region • LTM revenues and Adj. EBIT
Slide 25: 4. Target Select Acquisitions: Boyd Metals – Business Overview
4. TARGET SELECT ACQUISITIONS: BOYD METALS – BUSINESS OVERVIEW • Boyd operates five locations, with approximately 320,000 square feet of combined office, operations and warehouse space. Facility Landscape Value-Add Processing Processing Fort Little Joplin Service Smith OKC Tyler Joplin Rock (MO) Okl
Slide 26: 4. Target Select Acquisitions: Boyd Metals – Locations
4. TARGET SELECT ACQUISITIONS: BOYD METALS – LOCATIONS • Complementary locations Joplin, MO • Cultural alignment • Strong management team Oklahoma City, OK • Opportunities to share Fort Smith, AK inventories, toll processing on equipment, procurement, best practices, etc. Little Rock, AK Tyler, TX R
Slide 27: Impact: Return (EBIT) on Net Assets Over the Cycle
IMPACT: RETURN (EBIT) ON NET ASSETS OVER THE CYCLE • Russel has generated an average RONA of 20% over the cycle 60% • Russel’s historical RONA would have averaged ~3%/year higher 50% without the OCTG/Line pipe business 40% Pro Forma Average 30% (Excl. OCTG/Line Pipe): 23% 20% Actual Average: 20% 10%
Slide 28: IV. Financial Overview
IV. FINANCIAL OVERVIEW
Slide 29: Financial Summary
FINANCIAL SUMMARY $ mm, unless otherwise stated Q3 2020 Q2 2021 Q3 2021 Q3 2021 Observations: Income Statement: Revenues $615 $1,068 $1,108 • The strong market conditions of Q2 sustained into Q3 Gross Margin ($ mm/%) $117 / 19% $328 / 31% $330 / 30% • Q3 was another record for EBITDA, EBIT and EPS E
Slide 30: Segment Breakdown: Operating Results
SEGMENT BREAKDOWN: OPERATING RESULTS Revenue (C$ millions) Gross Margins % $800 $750 $717 36% 34% 35% 33% $700 $585 33% 33% 30% 31% $600 25% $474 $500 $437 24% 21% 21% 21% $412 $419 $373 $393 19% 19% $400 21% 18% 16% 17% 15% 19% 15% 17% $300 $343 17% $298 $316 $226 12% $205 $189 14% 12% $200 $158 $1
Slide 31: Liquidity and Capital Structure Summary
LIQUIDITY AND CAPITAL STRUCTURE SUMMARY • Russel has over $600 mm of liquidity and no debt maturities for several years. 12/31/20 6/30/21 9/30/21 (C$ mm) (C$ mm) (C$ mm) Cash $26 $175 $337 Bank Lines - Maturity 2023 -- -- -- 5.75% Notes - Due 2025 $147 $147 $147 6% Notes - Due 2026 $147 $147 $148 To
Slide 32: 6600 Financial Drive, Mississauga, Ontario
6600 Financial Drive, Mississauga, Ontario L5N 7J6 Email: info@russelmetals.com Visit us at: www.russelmetals.com Investor Relations Line: 905.816.5178 32
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