Materion Corporation · NYSE:MTRN
Materion — Investor Presentation (November 2015)
50 slides from Materion's investor presentation, Nov 9, 2015
Slide 1: Investor Presentation November 2015
Investor Presentation November 2015 Exhibit 99.1
Slide 2: Forward-looking Statements
These slides contain (and the accompanying oral discussion will contain, where applicable) “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 cause the
Slide 3: Materion: Our Purpose
Materion: Our Purpose Making advanced materials that improve the world 3
Slide 4: Why Invest in Materion?
Why Invest in Materion? G O A L N E X T 3 Y E A R S : Sustained growth >15% EPS CAGR 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 2 Pr
Slide 5: Materion at a Glance
Materion at a Glance 5 Adjusted EPS(1) $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 $637.1M 2014 8.0 EV @ 12/31/14 / Adjusted EBITDA(1) (1) Non-GAAP, excludes special items
Slide 6: Materion: Mission Critical Advanced Materials
Performance Alloys & Composites Advanced Materials Precision Coatings Consumer Electronics 28% Industrial Components 13% Medical 12% Automotive Electronics 9% Energy 8% Telecom Infrastructure 6% Defense 6% W H A T W E D O Materion: Mission Critical Advanced Materials 6 A Balanced Portfolio 2014
Slide 7: Entering a Phase of Renewed Profitable Growth
Entering a Phase of Renewed Profitable Growth Consolidation and product rationalization Sharpened execution, renewed profitable growth 2002 2012 / 2013 Today Transformation: Growth in new markets and technologies 7
Slide 8: Materion: The Transformation
Materion: The Transformation 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 Slow cash to cash cycle Faster cash cycle Faster growth – Higher margins
Slide 9: Clear Evidence Materion is on Track
$1.65 2013 2014 2015(F) Clear Evidence Materion is on Track Guidance Operating Margins (Adjusted EPS*) (Adjusted Op. Profit %* of Value-added Sales) 5.2% 7.6% 7-8% 2013 2014 2015(F) 9 * Adjusted EPS and operating profit percent of value-added sales are non-GAAP results which exclude non-recurring co
Slide 10: Why Invest in Materion?
Why Invest in Materion? G O A L N E X T 3 Y E A R S : Sustained growth >15% EPS CAGR 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 2 Pr
Slide 11: Secular Market Trends Play to our Strengths
Secular Market Trends Play to our Strengths Key Trends • Miniaturization of electronics/IOT • Additional electronic instruments for autos, aircraft • Expanding high performance optical device opportunities • Innovation in medical diagnostics and sensors • Extraction of O&G from previously inaccessib
Slide 12: Well-positioned with Leading Global Product Offering
Well-positioned with Leading Global Product Offering Product 2014 Percent of Value-added Sales Expected Annual Growth Next 3-5 Years Leading supplier of beryllium- containing products ~42% Leading supplier of high-purity precious metal for PVD market ~20% Only supplier of unique copper- nickel-tin m
Slide 13: Evolving Potential from Beryllium Supply Shortage
Evolving Potential from Beryllium Supply Shortage Materion – leading position in beryllium market • Only global integrated producer – approximately 70 years of proven reserves in Utah – supplies over 70% of world’s mined beryllium • Over 40% of company sales include beryllium in some form Signs of s
Slide 14: Why Invest in Materion?
Why Invest in Materion? G O A L N E X T 3 Y E A R S : Sustained growth >15% EPS CAGR 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 2 Pr
Slide 15: Wide Range of Strategic Investments
Wide Range of Strategic Investments… New Wafer Coating Facility ISO Class 5 for Semiconductor Cleanroom Increased Capacity LED Phosphor ToughMet® Capacity Expansion Expanded Beryllium Hydroxide Capacity Singapore Expansion 15
Slide 16: Driving Record Number of New Product Launches
… Driving Record Number of New Product Launches Examples of New Products Sales Growth Sales from new products were 11% of total value-added sales for 2014 New products Existing products Gesture Controls LED Phosphorous ToughMet® Oil & Gas Bulk Metallic Glass (Liquidmetal) 50% 50% Wafer Level Process
Slide 17: Why Invest in Materion?
Why Invest in Materion? G O A L N E X T 3 Y E A R S : Sustained growth >15% EPS CAGR 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 2 Pr
Slide 18: Continue to Improve Fixed and Working Capital Efficiency
Continue to Improve Fixed and Working Capital Efficiency Lean Sigma • Cycle time reduction • Yield improvement • On-time shipments Improve Working Capital Efficiency Working capital % of net sales 2014 2018 (F) 25% 18 A 500 basis point reduction in working capital as a % of sales = $60M cash 27%
Slide 19: Disciplined Capital Deployment Going Forward
Disciplined Capital Deployment Going Forward Return Cash to Shareholders • Share repurchase - $50M authorization • Dividends – increased 6% in 2015 Capex Below Depreciation • Invest in facilities • Invest in new products Growth • Organic • Selective bolt-on acquisitions 19 35% Debt & Shareholder 65%
Slide 20: Why Invest in Materion?
Why Invest in Materion? G O A L N E X T 3 Y E A R S : Sustained growth >15% EPS CAGR 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 2 Pr
Slide 21: Financial Goals
Financial Goals Next 3 Years 2014 2016 - 2018 Value-added sales growth 4.6% 5% –10% annually Value-added sales $637.1M $740M - $850M Margins (adjusted OP % VA) 7.6%(1) 9% –11% Adjusted ROIC 7.3%(1) >2% over cost of capital Operating Cash Flow $60M >$50M Working capital % sales 27% <25% Debt-to-capit
Slide 22: Continuing to Execute Three Point Strategy
Continuing to Execute Three Point Strategy Grow and Diversify Revenue Expand Margins Improve Capital Utilization • New products • Asia expansion • Strategic acquisitions • Higher margin products • Cost reductions • Disciplined pricing • Lean sigma • Improve working capital efficiency 1 2 3 Creating
Slide 23: Appendix
Appendix
Slide 24: Higher Operating Margin Targets
Higher Operating Margin Targets A-1 GAAP Margin Value-added Margin Gross Profit 18% – 20% 34% – 36% Operating Profit 4% – 7% 9% – 11% Removing High Value Metals Clarifies Margins 3 Year Target
Slide 25: Top Key Markets Over 80% of Sales
Top Key Markets Over 80% of Sales Market Q3 2015 % of Value-added Sales Macro Trends Key Drivers Consumer Electronics 26% • Smart device growth • Gesture control Industrial Components 17% • Heavy equipment builds • Plastic tooling • Fire protection (R and C construction) Medical 12% • Blood analysis
Slide 26: Strong Cash Flow and Balance Sheet
Strong Cash Flow and Balance Sheet Cash Flow Balance Sheet 2014 2014 operating cash flow Average operating cash flow last 5 years $60M >$50M Total Capitalization Debt 5% A-3
Slide 27: A Strong Record of Synergistic Acquisitions
A Strong Record of Synergistic Acquisitions A-4 Impact Acquisitions 2005-2012 Add complementary products / technology Expand market position OMC – shield kit cleaning – 2005 CERAC – inorganic chemicals – 2006 Techni-Met – thin film coatings – 2008 Barr – thin film coatings – 2009 Aca
Slide 28: High Value-added Business Model
High Value-added Business Model A-5 Identify high growth secular markets Target the fastest growing niches of those markets Expand with innovative products Add synergistic acquisitions Ensure financial discipline 01 02 03 04 05
Slide 29: Building Lasting Customer Relationships
Building Lasting Customer Relationships Deep relationships Higher margin High barriers to competition Our Customer Model Advantages Identify customer technical challenge Solution Collaborate Loyalty Depth of Relationship P ro fi ta b il it y A-6
Slide 30: Materion Value-added Sales by Market
Materion Value-added Sales by Market YTD Q3 2015 - $473.8M Adjusted OP% of Value-added Sales 8%* Automotive Electronics 9% Defense 7% Energy 6% Medical 11% Other 18% Telecom Infrastructure 6% Industrial Components 16% Consumer Electronics 27% *Excludes non-recurring items A-7
Slide 31: Value-added Sales by Segment
Value-added Sales by Segment A-8 YTD Q3 2015 - $473.8M Adjusted OP% of Value-added Sales 8%* Other 17% Advanced Materials 30% Performance Alloys and Composites 53% *Excludes non-recurring items
Slide 32: Value-added Sales: Performance Alloys and Composites
Value-added Sales: Performance Alloys and Composites A-9 Telecom Infrastructure 8% Automotive Electronics 16% Defense 8% Other 20% Medical 2% Consumer Electronics 18% Industrial Components 21% Energy 7% YTD Q3 2015 - $256.7M OP% of Value-added Sales 8%
Slide 33: Value-added Sales: Advanced Materials
Value-added Sales: Advanced Materials A-10 Telecom Infrastructure 5% Defense 4% Other 20% Industrial Components 11% Consumer Electronics 46% YTD Q3 2015 - $143.0M OP% of Value-added Sales 16%* Energy 8% Medical 6% *Excludes non-recurring items
Slide 34: Value-added Sales: Other
Value-added Sales: Other A-11 Other 6% Medical 56% Defense 12% Industrial Components 3% YTD Q3 2015 - $74.1M Adjusted OP% of Value-added Sales 8%* Automotive Electronics 4% Consumer Electronics 19% *Excludes non-recurring items
Slide 35: Core Technologies
Core Technologies A-12 1 High purity precious metal refining and life cycle management for electronics and industrial applications 2 Powder metallurgy, high pressure consolidation to processing of finished products 3 Metal surface enhancement by cladding, electroplating and surface treatments 4 Wide
Slide 36: New Product and Technology Development
New Product and Technology Development A-13 • ToughMet® alloy “strip” for high volume bearing applications • BrushForm 158 “strip” for cell phone camera suspension applications • ToughMet® for oil production couplings • ToughMet® alloy “bulk” with enhanced impact toughness • ToughMet® “alloy “sheet”
Slide 37: New Product and Technology Development
New Product and Technology Development • Expanded shield kit cleaning services – including new technology to improve precious metal returns • Materials for high brightness LEDs • Specialty inorganic compounds for thin film solar panels (solar, security) • High purity metals and chemicals for semicon
Slide 38: New Product and Technology Development
New Product and Technology Development • Thin film vapor deposited electrodes for medical diagnostics • Precision optical thin film coatings (specialty filters) • Large area format serving astronomy, space, science • Multi-hyper – spectral array filters • Precision reel-to-reel medical thin film coa
Slide 39: Applications: Smart Phones
I/O Connector Contacts Battery Contacts Internal Antenna Contacts Grounding Clips and Audio Jacks Micro Mezzanine Connectors for LCD Screen Internal Electronics and LED • Thin film materials – power amplifiers, LED, SAW and BAW devices, filters, and ICs • Hermetic solutions for SAW • Refining / recy
Slide 40: Application: Aircraft
Application: Aircraft Zz Rudder tt Empennage ff ie Wing Horizontal Stabilizer Fuselage Sy LE Slats 0 \ Controls A\ SS ZL 7 Spoilers == "\ { Doors Cc bes Flaps a= LE : <=——@ Ailerons Cockpit <a j ee P Controls (a a ee (S274 yy ~~. LE Slats Lod . ~» Ga Main a aS a ; a Folding Stairs he Engine/TR MATER
Slide 41: ToughMet Heavy Machinery Applications
ToughMet Heavy Machinery Applications A-18
Slide 42: Directional Drilling and Measurement
Directional Drilling and Measurement (Many ToughMet Components) A-19 © 2013 – Proprietary to Materion Brush Inc.
Slide 43: Applications: Oil & Gas
Under Water Wellhead Equipment Directional Drilling Equipment • Measuring While Drilling (MWD) • Logging While Drilling (LWD) • Mud Pulse Telemetry (MPT) systems Drill Bits Structural Rig Components Wellhead Control Equipment Other Oil & Gas Applications: • Artificial lift equipment • Elemental anal
Slide 44: Applications: Medical
Cardiac Rhythm Management • Electronic interconnects / components • Niobium / titanium electron beam weld Insulin Pump • EMI shielding and grounding • Electrical terminals in connectors Seizure Control • Thin film deposition implantable electrode – Parkinson's disease (R&D) External glucose analysis
Slide 45: Applications: Automotive Electronics
Lithium Ion Battery Interconnects Battery Management Resistors Electronic Power Steering Modules ABS Leadframes Engine Efficiency Oxygen Sensors Mirror & Windshield Electronic Connections Air Bag Sensors Lamp Socket Connectors Auto Dimming Mirror Connectors Hybrid Vehicle Motor & Module Connectors W
Slide 46: Applications: Defense
Applications: Defense • Infrared Sensors for fighter jet and UAV optical targeting • Electronic packaging for defense avionics, radar and electronic countermeasure systems • Structural and electronic components for satellites • X-ray windows in security imaging systems • Laser protection optical coa
Slide 47: Applications: Telecommunications Infrastructure
Applications: Telecommunications Infrastructure Base Stations • Coaxial connectors • High power amplifiers Local Area Networks • Shielding • Modular jacks • PCB sockets • Processor sockets Other Telecommunications Infrastructure Applications • Undersea repeater housings A-24
Slide 48: Applications: Solar Technologies
Technology: Amorphous Silicon (a-Si, tandem and multi-junction) Thin Film (PVD) Materials Silicon based photovoltaic cells • Front and back contact layers • TCO Transparent conductive oxide layers Technology: Cadmium Telluride (CdTe) Thin Film (PVD) Materials • Cadmium based solar cell architecture.
Slide 49: Reconciliation of Non-GAAP Measure - Profitability
Reconciliation of Non-GAAP Measure - Profitability A-26 (In millions except per share amounts) Oct. 2, 2015 Sept. 26, 2014 Oct. 2, 2015 Sept. 26, 2014 GAAP as Reported Net sales 244.4$ 291.6$ 811.2$ 838.5$ Gross margin 44.0 54.8 147.7 150.1 Operating profit 10.2 17.7 37.2 43.2 Net income 6.9 12.6 25
Slide 50: Glossary of Terms
Glossary of Terms 1. Debt-to-capitalization = debt/(net debt+Shareholders’ equity) 2. EV / Adjusted EBITDA = Enterprise Value/EBITDA=(Market Cap+Debt)/EBITDA 3. Total Capitalization = Net debt+Shareholders’ equity 4. Working Capital % of net sales = (A/R+Inv-A/P)/Total Sales 5. ROIC = After-tax adju