Russel Metals Inc. · TSX:RUS
Russel Metals — Investor Presentation (April 2024)
42 slides from Russel Metals's investor presentation, Apr 4, 2024
Slide 1: Company Update April 2024
Russel Metals COMPANY UPDATE APRIL 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. Company Overview IV. Financial Overview V. Acquisition of Assets from Samuel, Son & Co., Limited : 1 Russel Metals 4
Slide 5: I. Overview
Russel Metals 1. 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: Business Transformation
BUSINESS TRANSFORMATION Illustration of Previous Model Illustration of New Model Financial Metric Financial Metric Time Time Actions Objectives • Divested underperforming business units • Raise the cycle floor and ceiling • Reinvested in value-added equipment, facility modernizations, and acquisitio
Slide 8: Q4 2023 at a Glance
Q4 2023 AT A GLANCE • Revenues were down slightly vs. Q3 (seasonal volumes and lower average selling prices) • Increase in gross margins; EBITDA margin up when excluding the TriMark contribution in Q3 • Strong earnings, returns and free cash flow generation in the quarter and for the full year • Our
Slide 9: Capital Allocation Priorities
CAPITAL ALLOCATION PRIORITIES Increase capital deployment with a target of >15% return over a cycle Over 40 equipment projects Five modernization projects are Closed Alliance acquisition in underway or in the planning underway. October stage in Canada and the US Value-Added Facility Acquisitions Sam
Slide 10: Capital Reallocation Summary: 2020 - 2023
CAPITAL REALLOCATION SUMMARY: 2020 - 2023 • Over the past four years, we have generated ~$1.7 billion of cash and substantially changed our business and capital structure profile. Cash Generation 1/1/20 to 12/31/23 ($ mm) Capital Deployment 1/1/20 to 12/31/23 ($ mm) NCIB; $110 Asset Sales; $403 Redu
Slide 11: Impact – Doing More with the Same Capital
IMPACT – DOING MORE WITH THE SAME CAPITAL Total Invested capital has averaged ~$1.3-1.4 Bl over the past 10 years…however, The margin profile is now stronger with lower downside risk, higher cycle upside the portfolio composition is substantially different vs. a few years ago. and lower volatility t
Slide 12: ESG Focus
ESG FOCUS Inaugural Sustainability Report Published April, 2023 https://www.russelmetals.com/wp-content/uploads/Sustainability-Report-Final-2022-1.pdf Environmental GHG Emission Intensity • Divested OCTG/Line Pipe business • Low carbon emissions from operations 2500 • GHG emissions in 2022 were 54,8
Slide 13: II. Market Trends
Russel Metals Il. MARKET TRENDS
Slide 14: Business Conditions – Metal Pricing Trends
BUSINESS CONDITIONS – METAL PRICING TRENDS $2,500 Scrap vs Coil & Plate Pricing Source: American Metal Market (AMM) $2,000 #1 Heavy Melt (Chicago) HR Sheet HR Plate $1,500 US $ / ton $1,000 $500 $0 Note: Information as of April 2024 : ~Russel Metals 14
Slide 15: Revenue Volatility vs. Indexes
REVENUE VOLATILITY VS. INDEXES Russel Metals’ revenue is less volatile than underlying steel prices. Relative Volatility Absolute Volatility Revenue Volatility - Russel vs Benchmarks Coefficient of Variation (%) 300% .______ _ID Russel Metals Service Centres - Avg Price Realization (C$)/Ton 32% ,___
Slide 16: Business Conditions: Supply Chain Dynamics
BUSINESS CONDITIONS: SUPPLY CHAIN DYNAMICS Steel Mills/Imports: US Raw Steel Output & Utilization Steel Import Volumes • Capacity Source: American Iron and Steel Institute Source: GC, International Trade, Steel Import Monitoring Program & USDOC, Census Bureau, Foreign Trade, Imports of Steel utiliza
Slide 17: III. Company Overview
Russel Metals Ill. COMPANY OVERVIEW
Slide 18: 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 Steel • Coast-to-coast in Canada Metals Service Distributors • Strong US presence in mid-west Centers • Founded in 1916
Slide 19: 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 $20 $18 2022 Revenues – US$ billions $16 $14 $12 $10 $8 $6 $4 $2 $0 Source: Metal Center News, September 2023 :
Slide 20: Diversified Business
DIVERSIFIED BUSINESS Geography - 128 Locations Suppliers Product Mix Others Non- Ferrous 56% Other 6% ✓ 5% United States - 37 Bars 5% Structurals and Pipe - 40% I Flat Rolled 9% Flanges, Valves, etc. 15% Suppliers 1-10 Canada - 91 44% Plate - 20% Transactional Business Model: Small Avg. Order Size/L
Slide 21: Strong Free Cash Flow Over the Cycle
STRONG FREE CASH FLOW OVER THE CYCLE • Strong EBITDA during upcycles; working capital repatriation during market downturns. $250,000 Quarterly EBITDA ($000’s) $200,000 $150,000 $100,000 $50,000 $- Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019
Slide 22: Working Capital Discipline
WORKING CAPITAL DISCIPLINE Inventory Turns Inventory Trends 5.0 $1,200 $1,050 4.5 $1,031 $1,025 $1,008 $986 $1,000 $964 $957 $941 $948 4.0 $137 $124 $907 $884 $894 $190 $211 $883 $123 $862 $228 $166 $123 $125 $840 $100 $95 $790 3.5 $800 $95 $773 $787 $153 $120 $103 $87 $716 $720 $103 $121 3.0 $429 $
Slide 23: Variable Cost Model – Incentive Compensation Structure
VARIABLE COST MODEL – INCENTIVE COMPENSATION STRUCTURE Other Other 2020 2021 • A large number of our Employee Employee Variable Fixed and Variable Fixed and Incentive Variable Incentive Variable Compensation $21 Expenses $376 Compensation $121 Expenses $460 employees participate in a profit sharing
Slide 24: Investing in Value-Added Processing and Facility Modernizations
INVESTING IN VALUE-ADDED PROCESSING AND FACILITY MODERNIZATIONS • Multi-year program to expand operations and increase value-added equipment Flat Lasers $2-4 mm each – 3 installed in ’23/ 4 planned for ‘24 Tube Lasers $2-4 mm each – 3 installed in ’23/ 8 planned for ‘24 Kinetic and Plate Cutting – l
Slide 25: Investing in Value-Added Processing – Hub & Spoke Approach
INVESTING IN VALUE-ADDED PROCESSING – HUB & SPOKE APPROACH Wisconsin U.S. South Southern Ontario • • • • • • • • Western Canada Quebec and Atlantic • Processing center • Distribution center • • • • : ~Russel Metals • - 25
Slide 26: IV. Financial Overview
Russel Metals IV. FINANCIAL OVERVIEW
Slide 27: Strong Relative Performance
STRONG RELATIVE PERFORMANCE • Russel’s margins have been top quartile/decile versus its 35% Gross Margin % direct peers. 30% • The relative performance has improved since the 25% OCTG/line pipe monetization in mid-2021. 20% 15% 10% RONA 5% 70% 0% 60% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q
Slide 28: Return on Capital Focus
RETURN ON CAPITAL FOCUS $1,800 80% $1,636 $1,600 $1,553 70% $1,479 $1,462 $1,471 $1,492 $1,512 $1,466 $1,435 $1,436 $1,424 $1,410 $1,388 $1,400 $1,299 $1,308 60% $1,242 $1,200 $1,132 $1,133 $1,148 $1,123 50% 51% $1,000 49% $ millions 48% 41% 43% 40% $800 33% 31% 32% 27% 25% 26% 30% $600 23% 19% 20%
Slide 29: Return on Invested Capital: Sensitivity Analysis
RETURN ON INVESTED CAPITAL: SENSITIVITY ANALYSIS • The following illustrates the implied annual EBITDA under a range of invested capital and return scenarios. Implied Annual EBITDA (C$ mm) Invested Capital (C$ mm) $1,400 $1,500 $1,600 $1,700 $1,800 10% $204 $214 $224 $234 $244 15% $274 $289 $304 $31
Slide 30: Summary: Financial Results
SUMMARY: FINANCIAL RESULTS $ mm, unless otherwise stated Q4 2022 Q3 2023 Q4 2023 Q4 2023 Observations: Income Statement: Revenues $1,100 $1,110 $1,019 • Revenues were down 8% vs Q3 due to slightly lower volumes (seasonal factor) and lower average selling prices Gross Margin ($ mm/%) $218 / 20% $225
Slide 31: Segment Breakdown: Operating Results
SEGMENT BREAKDOWN: OPERATING RESULTS Revenue (C$ 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) Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 202
Slide 32: Service Center Results
SERVICE CENTER RESULTS Tons Shipped (000’s) • Q4 2023 tons were down 1% vs. Q3 2023 due to normal 360 seasonal factors, but up 5% vs. Q4 2022. 340 • Price realizations decreased $114/ton which was offset by 320 a $115/ton decrease in CGS, resulting in slightly higher 300 280 margin/ton in Q4 vs. Q3.
Slide 33: Liquidity and Capital Structure Summary
LIQUIDITY AND CAPITAL STRUCTURE SUMMARY • Significant growth in cash flow, balance sheet flexibility and book value per share over the past year. Russel - Book Value per Share 12/31/22 9/30/23 12/31/23 $27.16 $30.00 (C$ mm) (C$ mm) (C$ mm) Cash $363 $569 $629 12 Month Change +$266 mm $25.00 Bank Lin
Slide 34: Return of Capital to Shareholders
RETURN OF CAPITAL TO SHAREHOLDERS Historical Dividends (Quarterly) Return of Capital to Shareholders (millions) $0.40 $69 $0.38 $45 $40 $44 $41 $35 $16 $20 $17 $24 $12 $24 $0.35 II $24 $24 $24 $24 $25 $24 $24 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q
Slide 35: V. Acquisition of Assets from Samuel, Son & Co., Limited
V. ACQUISITION OF ASSETS FROM SAMUEL, SON & CO., LIMITED
Slide 36: Acquisition Summary
ACQUISITION SUMMARY • The Samuel Assets to be Acquired: • Five locations in Western Canada and two locations in the US Northeast • Samuel to retain its Delta, BC location, and conduct an orderly shut-down. Russel to acquire the Delta inventory and equipment at net book value and relocate to other Ru
Slide 37: Key Metrics
KEY METRICS • Summary financial results related to the Samuel Assets (pre-synergies): • 2022 Results: • Revenue $704 mm • Adjusted EBITDA $33 million • 2023 Results (9 months to Sept. 30/23): • Revenue $457 million • Adjusted EBITDA $19 million Pro Forma Impact1 to Russel’s Standalone 2022 Financial
Slide 38: 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 Tot
Slide 39: 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 -···--······ :::
Slide 40: Value Breakdown
VALUE BREAKDOWN • Over 80% of the purchase price is related to the working capital of the business. $250 Total of $225 mm Using 9/30/23 working capital, subject to changes in working capital at closing $200 $186 $150 Millions $100 $50 $29 $10 $0 Working Capital at 9/30/23 NBV Fixed Assets Premium Ru
Slide 41: Illustrative Implied Multiples
ILLUSTRATIVE IMPLIED MULTIPLES • Based on a range of EBITDA and invested capital scenarios, the following summarizes the implied purchase price multiples. Implied Purchase Price Multiple Annual EBITDA ($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 5.6x 5.1x Invested
Slide 42: Contact
: •II '? 11111111 l1111111111l 11~► 1 R usse IM I etas 6600 Financial Drive, Mississauga, Ontario L5N 7J6 Email: info@russelmetals.com Visit us at: www.russelmetals.com Investor Relations Line: 905.816.5178