Vulcan Materials Company (holding Company) · NYSE:VMC
Vulcan Materials Company (holding Company) — Investor Day (February 2015)
76 slides from Vulcan Materials Company (holding Company)'s investor day presentation, Feb 25, 2015
Slide 1: Investor Day Management Presentation
INVESTOR DAY Management Presentation February 25, 2015
Slide 2: Safe harbor
Safe harbor 2 This document contains forward - looking statements. Statements that are not historical fact, including statements about Vulcan's beliefs and expectations, are forward - looking statements. Generally, these statements relate to future financial performance, results of ope rations, busi
Slide 3: Introduction
gr Introduction Mates Company
Slide 4: Vulcan's aggregates focus
Other Segments Aggregates 93% 7% Gross profit (% of total) Vulcan’s aggregates focus 4 Source: 2014 company financials
Slide 5: The most basic of materials
The most basic of materials Vulcan Materials Company
Slide 6: Long history of price increases
6 80 90 100 110 120 130 140 150 160 170 180 2004 05 06 07 08 09 10 11 12 13 2014 PPI VMC Vulcan +5.1%/yr PPI +4.4%/yr Long history of price increases
Slide 7: Capabilities: Vulcan's uniquely valuable asset base
CAPABILITIES 7 Vulcan’s uniquely valuable asset base …
Slide 8: Logistics network
… and logistics network 8 Barge Rail Ship Geologic “Fall Line”
Slide 9: Vulcan's aggregates gross profit per ton
Vulcan’s aggregates gross profit per ton 9 $3.35 $2.83 $2.50 2014 2013 2012 162 million tons 146 million tons 141 million tons 2005 $2.50 260 million tons
Slide 10: Focus for remainder of this presentation
Focus for remainder of this presentation 10 2 1 4 3 6 5 Unchanging values The past as a challenge to the future Earnings power at normal demand Execution focus Capital allocation and structure Conclusion and Q&A
Slide 11: Unchanging values
Contents 11 Unchanging values
Slide 12: Unchanging values
Unchanging values 12 Safety, health and environmental leadership Positive impact on the communities in which we operate Respect for our people Fair dealing with customers, suppliers and competitors
Slide 13: Safety
Safety 13 MSHA Injury rate 2.12.1 2.22.2 2.3 1.4 1.2 1.6 1.3 1.41.4 2014 (1) 13 12 11 10 2009 Vulcan Industry 1 Not available Source: MSHA and Internal safety data, injury rate per 200,000 hours worked
Slide 14: Health
Health 14 3 44 2 3 99 8 6 5 000 3 10 3 1 2 10 09 (1) 08 07 06 05 2004 2013 (2) 12 11 VMC Industry MSHA Noise % Overstandard Samples 4 5 4 33 77 8 55 000 3 2 3 11 2013 (1) 12 11 10 09 (1) 08 07 06 05 2004 MSHA Dust % Overstandard Samples 1= 0.3 % 2 = 0.1%
Slide 15: Environmental
Environmental 15 VMC Environmental Citations 6 7 11 17 25 0 5 10 15 20 25 2014 12 13 2010 11 Number of citations 99.7% of Inspections are Citation - free
Slide 16: Unchanging values
mu nchanging values terials Company
Slide 17: The past as a challenge to the future
Contents 17 The past as a challenge to the future
Slide 18: Looking back to look forward
Looking back to look forward 18
Slide 19: Reflecting on where we've been
Reflecting on where we’ve been 19 2015P 12 08 09 14 13 2006 10 11 07 ~300 M tons ~140 M tons 160+ M tons Decline Turnaround Early Recovery Pro forma based on current footprint
Slide 20: Decline stage: Volumes dropped by >50%
Decline stage: Volumes dropped by >50% 20 What happened Perspectives reinforced Unprecedented drop in demand High - operating leverage and high financial leverage High overheads and ERP implementation Negative earnings Dividend reduced Match capital allocation and structure to point in c
Slide 21: Turnaround stage: Volumes stabilized at historic lows
Turnaround stage: Volumes stabilized at historic lows 21 EBITDA improved >$100 million $1 billion in non - core assets divested, including cement Debt reduced $800 million Demand recovery finally began in 2nd half of '13 Focus on what we can control Set bold targets; organize to meet the
Slide 22: Early recovery stage: Small step toward normal demand
Early recovery stage: Small step toward normal demand 22 Adjusted EBITDA up $131 million in 2014, on 16m tons growth in legacy aggregates shipments Gross profit per ton up 18 pct despite modest price growth Accretive bolt - on acquisitions and swaps New team inherits strong momentum Drive
Slide 23: Strong momentum with early recovery
Strong momentum with early recovery … 23 Adjusted EBITDA, $M 600 468 411 14 13 2012 2015 P 775 - 825 141 million tons ~180 million tons 162 million tons 146 million tons See Appendix for reconciliation Non - GAAP measures
Slide 24: But still a ways to go
… but still a ways to go 24 Adjusted EBITDA, $M 600 468 411 13 2012 14 2015 P 775 - 825 $7.6 B Capital Base See Appendix for reconciliation Non - GAAP measures
Slide 25: Earnings power at normal demand
Contents 25 Earnings power at normal demand
Slide 26: Important context for earnings power at normal demand
Important context for discussion of earnings power at normal demand 26 The figures in this section reflect Vulcan’s current long - range goals Actual future results will depend on many factors, including the ultimate pace of recovery in demand for construction aggregates The company believes a
Slide 27: Vulcan in the recovery phase
Vulcan in the recovery phase 27 146 255 165 0 40 80 120 160 200 240 280 320 360 300 Normal Demand Pro forma Sales Volume Illustrative Shipment Growth Peak Trough Normal Demand Tons in millions 2014 300 146 165 ~255 EBITDA > $2 Billion at Normal Demand
Slide 28: Illustrative drivers of EBITDA growth during recovery
Illustrative drivers of EBITDA growth during recovery 28 SAG/ Other Cost Increases EBITDA Goal at Normal Demand > $2 Billion Other Segments Volume and Margin Expansion Aggregates Volume and Margin Expansion 2014 Adjusted EBITDA $600 million $1,300 million $175 million - $60 million See Appendix for
Slide 29: Aggregates volume drivers during recovery phase
Aggregates volume drivers during recovery phase 29 1 Pro forma based on current footprint ~255 million tons Expected Shipments at Normal Demand ~ 30 million tons 165 million tons 1 ~ 60 million tons 2014 Demand Recovery Share Recovery
Slide 30: Historic per capita demand for aggregates
Historic per capita demand for aggregates in Vulcan - served markets 30 5.1 8.6 7.5 7.2 7.4 90’s 80’s 70’s Today 2000’s 40 - year average = 7.3 tons per person 31% below 40 - year average 40% below prior decade High single digit growth required for ~5 years to get to normal levels Multiple y
Slide 31: What is normal demand?
What is normal demand? 31 Private Demand Public Demand Expectation does not assume the next cyclical peak in private construction Expectation does not assume new , extraordinary commitments to investing in the nation's infrastructure 1.4 million housing starts, versus 45 - year trend of 1.45 milli
Slide 32: Share recovery expectation consistent with past cycles
S hare recovery expectation consistent with past cycles 32 Share lost while maintaining price and margin discipline during downturn Share recovery as demand mix normalizes Expectation: share gained in recovery phase will match share lost during downturn ~ - 3% ~3%
Slide 33: Longer-term view of the aggregates demand cycle
Longer - term view of the aggregates demand cycle 33 Normal Demand Actual Demand 2014 2000 1990 1980 1972 Exact pace and duration of recovery unknown
Slide 34: Potential unit profit improvement through the recovery
Potential unit profit improvement through the recovery 34 At Normal Demand 2014 ~$ 8.25 $ 4.75 $ 4.01 2011 Cash Gross Profit per ton Volume Million Tons 143 162 ~255 Consistent with fair returns on capital Consistent with ~ 60% flow - through on incremental revenue See Appendix for reconciliatio
Slide 35: Effective management drives growth in unit profitability
2014 Year - over - Year Improvement Effective Management Drives Growth in Unit Profitability Gross Profit $3.35 / Ton +18% Drivers of aggregates gross profit expansion Sales and Production Mix Operating Efficiency and Leverage Price for Service Recovery serves as a tailwind for all 3 drivers 35
Slide 36: Price for service
Price for service 36 Assumption for Current Recovery 2002 - 2007 Recovery >5% > 7 % Pace and duration of recovery will impact pace and degree of pricing changes Sales and Production Mix Operating Efficiency and Leverage Price for Service
Slide 37: Operating efficiency and leverage
Operating efficiency and leverage 37 Sales and Production Mix Operating Efficiency and Leverage Price for Service Variable costs benefit from : – Return to more normal production schedules – Continued inventory management and production planning discipline Fixed cost leverage continues through r
Slide 38: Sales and product mix
Sales and product mix 38 Sales and Production Mix Operating Efficiency and Leverage Price for Service Recovery to normal more profitable product mix Improved balance between market demand and plant yields Greater portion of new construction Growth weighted toward more profitable geographies
Slide 39: Gross profit flow through on incremental aggregates revenue
Gross profit flow through on incremental aggregates revenue 39 58% 61% 63% Q4 13 Q1 14 Q2 14 Q4 14 66% Q3 14 65% Trailing 12 months Targeting >60% flow through during the recovery See Appendix for reconciliation Non - GAAP measures
Slide 40: Other segments assumed profitability at normal demand
Other segments 40 Assumed Profitability at Normal D emand ~ $250 M 2014 $76 M Cash G ross Profit See Appendix for reconciliation Non - GAAP measures Impact of recent acqui - sitions , divestitures and swaps Recovery in volumes Recovery in material margins
Slide 41: SAG leverage
SAG leverage 41 ~6% 2014 Target ~9% Percent of revenues Leverage to sales growth Further productivity gains
Slide 42: Recap: Drivers of EBITDA growth during recovery
Recap: Drivers of EBITDA growth during recovery 42 SAG/ Other Cost Increases EBITDA Goal at Normal Demand > $2 Billion Other Segments Volume and Margin Expansion Aggregates Volume and Margin Expansion 2014 Adjusted EBITDA $600 million $1,300 million $175 million - $60 million See Appendix for reconc
Slide 43: Past and expected return on capital deployed
Past and expected return on capital deployed 2006 2015 Expectation at Normal Demand EBITDA ($ millions) 894 775 - 825 2,000 Capital base ($ billions) 3.0 7.6 ~8.0 EBITDA Return on Capital 30% ~10% ~25% See Appendix for reconciliation Non - GAAP measures 43
Slide 44: Execution focus
Contents 12@ 56 Execution focus 44
Slide 45: What is the quality of your earnings?
45 “What is the quality of your earnings … what are you doing to improve?”
Slide 46: Core disciplines we focus on every day
5 core disciplines we focus on every day 46 Grow ship - ments and revenues faster than the market as a whole Sales and marketing excellence Achieve 60% flow through of incremental aggregates revenue Operational excellence Drive SAG expenses to 6% of sales SAG productivity Significantly increase capi
Slide 47: Sales and Marketing Excellence
Sales and Marketing Excellence 47 Remain the market’s supplier of choice… … to grow shipments and revenue faster than the market … … while earning full and fair value for our products and services What we are going to accomplish How we are executing Extending our lead in sales and service to becom
Slide 48: Sales and Marketing Example: Large project solution provider
Sales and Marketing Example: Large project solution provider 48 1 Aggregates facilities Current or Upcoming Mega - Projects 1 1 Mega - Projects typically are at least $200 million or 250,000 tons
Slide 49: Sales and Marketing Example: Enterprise-wide tools
Sales and Marketing Example: Enterprise - wide tools 49 1
Slide 50: Operational Excellence
Operational Excellence 50 2 Lead the market’s safest and most efficient operations … … delivering the right quality of products at the right time … … by successfully leveraging and driving cost efficiencies … … to achieve 60% flow through of incremental aggregates revenue What we are going to accomp
Slide 51: Operational Excellence Example: Key operating metrics
Operational Excellence Example: Key operating metrics 51 Tons per man hour Tons per gallon diesel Tons per kilowatt hour Tons per pound of explosive Repair dollars per ton = 76% of controllable production costs 2
Slide 52: SAG Productivity
SAG Productivity 52 3 Continue to leverage SAG to sales to reach 6% ... … while maintaining our close - to - market model and enabling continued growth … … as we capture all efficiencies while servicing our internal and external customers What we are going to accomplish How we are executing Levera
Slide 53: Capital Productivity
Capital Productivity 53 4 Drive further improvement in capital turnover … … while maintaining the longer term health and productivity of our asset base … … and ensuring that the right projects are executed the right way What we are going to accomplish How we are executing Maximizing lifecycle valu
Slide 54: Capital Productivity Example: Land Management
Capital Productivity Example: Land Management 54 4
Slide 55: Portfolio Management
Portfolio Management 55 5 Continue to pursue attractive bolt - on acquisitions ... … selectively enter new markets that meet our growth profile, eg . New Mexico … … divest non - core businesses or geographies where we are not the natural owner, eg . Florida cement/ready mix … … and negotiate swaps t
Slide 56: Capabilities: Vulcan's uniquely valuable asset base
CAPABILITIES Vulcan’s uniquely valuable asset base 56 North Troy Acquisition & Yards Existing Rail Distribution Facilities Other Vulcan Texas Aggregate Facilities
Slide 57: Portfolio Management Example: New Mexico Acquisition
Portfolio Management Example: New Mexico Acquisition 57 5 Aggregates facilities RMC & HMA facilities
Slide 58: Recent Acquisitions and Divestitures
Portfolio Management Example: Recent Acquisitions and Divestitures 58 5 Facilities Acquired 2012 - present Facilities Divested 2012 - present
Slide 59: We decided what we wanted to do and concentrated on it
59 “We decided what we wanted to do and we concentrated on doing it better than anyone else.”
Slide 60: Capital allocation and structure
Contents 60 Capital allocation and structure
Slide 61: Four topics for discussion
Four topics for discussion 61 Current & projected credit position Capital allocation during the recovery phase Near term and potential capital structure actions Capital allocation and structure through the cycle
Slide 62: Rapidly improving credit metrics
Rapidly improving credit metrics 62 Our credit metrics should reach investment grade levels during 2015. Figures for 2015 - 17 assume ~$2 billion of debt outstanding and consensus EBITDA estimates. 1.6 2.0 2.5 3.4 4.3 6.8 2015P 2016P 13 14 2017P 2012 Debt/Adjusted EBITDA See Appendix for reconciliat
Slide 63: Increasing flexibility through the recovery phase
Increasing flexibility through the recovery phase 63 Growing Excess Cash Additional Debt Capacity Ability to Fund Both Growth & Return of Capital
Slide 64: Capital allocation priorities during recovery phase
Capital allocation priorities during recovery phase 64 Operating CAPEX Financial strength and flexibility Progressive dividend growth with earnings Bolt - on acquisitions Current intent: Return remaining excess cash to shareholders, primarily via share repurchases
Slide 65: Anticipated approach to share repurchases
Anticipated approach to share repurchases 65 Review excess cash position and outlook quarterly Utilize open market repurchases: mix of opportunistic and time - period averaging Assess and adjust authorization periodically Report on activity quarterly
Slide 66: Planned and potential capital structure
Planned and potential capital structure 66 Planned action: Refinancing of maturities due over next five years Refinance approximately $700M of nearer - term maturities Additional detail on next slide Potential future action: Issuance of additional debt Subject to investment - grade parameters
Slide 67: Planned refinancing of near-term securities
Planned refinancing of near - term securities 67 Expected outcomes Expected actions Issue new note(s), likely 8 - 10 year term Increase size of 5 - year revolving credit facility Use proceeds to tender or call portion of notes due in '16, '17 and '18 Use proceeds and/or available cash to pay
Slide 68: Illustrative approach to capital allocation through the cycle
Illustrative approach to capital allocation through the cycle 68 Maintain investment grade metrics/ratings and access to capital markets at all points in the cycle. Recovery Phase Expansion Phase Accelerate dividend growth consistent with earnings Return excess cash with preference for share rep
Slide 69: Conclusion and Q&A
Contents 69 Conclusion and Q&A
Slide 70: Conclusion: What we aim to offer investors (1 of 4)
Conclusion: What we aim to offer investors (1 of 4) 70 1. A domestic Aggregates business with several years of double - digit revenue growth potential Shipment growth with recovery in construction activity to long - term trend levels Pricing growth as seen in past recovery cycles Eventually, g
Slide 71: Conclusion: What we aim to offer investors (2 of 4)
Conclusion : What we aim to offer investors (2 of 4) 71 5. An advantaged aggregates asset base and franchise of lasting value A ‘pure play’ aggregates business A compelling portfolio of market positions – Most profitable market mix (as evidenced by margins per ton shipped ) – Higher growth rate
Slide 72: Conclusion: What we aim to offer investors (3 of 4)
Conclusion: What we aim to offer investors (3 of 4) 72 6. Disciplined portfolio management to improve capital returns and longer - term growth expectations Accretive bolt - on acquisitions, appropriately financed Swaps, divestitures, and excess land sales to enhance cash flows and returns 7. Fro
Slide 73: Conclusion: What we aim to offer investors (4 of 4)
Conclusion: What we aim to offer investors (4 of 4) 73 8. Significant upside exposure to eventual growth in US infrastructure investment Well positioned vs. nearer - term improvements in funding (local/state level, federal level, P3s ) Well positioned vs. specific intermediate term investment tr
Slide 74: Vulcan Materials Company
Mates Company
Slide 75: Appendix - Reconciliation of Non-GAAP Financial Measures
Appendix - Reconciliation of Non - GAAP Financial Measures 75 EBITDA EBITDA and Adjusted EBITDA (in millions) 2014 2013 2012 2006 Net earnings $205 $24 ($53) $470 Provision for (benefit from) income taxes 92 (24) (67) 223 Interest expense, net 242 202 212 20 Discontinued operations, net of tax 2 (4)
Slide 76: Aggregates segment gross profit margin reconciliation
76 Aggregates segment gross profit margin as a percentage of freight-adjusted revenues Aggregates Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 (in millions) 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 Gross profit $ 34.0 $111.8 $124.9 $ 81.3 $ 24.8 $127.1 $149.8 $111.6 $ 38.5 $161.7 Volume 29.5 38.7 39.4 33.