Russel Metals Inc. · TSX:RUS
Russel Metals — Investor Presentation (November 2024)
42 slides from Russel Metals's investor presentation, November 2024
Slide 1: Company Update - November 2024
COMPANY UPDATE - NOVEMBER 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: Market Position
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 Ru
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 80% significantly reduced Business our free cash flow 60% improvement/reorganization program in 2021/22 Capital limits changed and variable Business rationalization is underway comp restructured volatil
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 Scrap vs Coil & Plate Pricing declined over the past 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 $2,000 bottom. $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 31% Realization (C$)/Ton 300% Russel Metals
Slide 17: Business Conditions: Supply Chain Dynamics
BUSINESS CONDITIONS: SUPPLY CHAIN DYNAMICS Steel Mills/Imports: • Capacity utilization has recently declined due to maintenance outages and curtailments by producers, as they try to rebalance the market. • Imports are not a major factor and remain relatively consistent. Service Centers: • Supply cha
Slide 18: III. Capital Allocation Priorities
III. CAPITAL ALLOCATION PRIORITIES
Slide 19: Capital Allocation Priorities
CAPITAL ALLOCATION PRIORITIES Increase capital deployment with a target of >15% Flexible approach to returning capital to return over a cycle shareholders LTM Activity = Share Buy $134 mm Backs • Q3: 1.2 mm acquired for $46 mm (avg. $37.93/share) + tax Facility • Since NCIB established in Modernizat
Slide 20: Capital Reallocation Evolution
CAPITAL REALLOCATION EVOLUTION • Between Jan. 2020 to Sept 2024, we have generated ~$1.9 billion of cash and substantially changed our business and capital structure profile. Cash Generation 1/1/20 to 9/30/24 ($ mm) Capital Deployment 1/1/20 to 9/30/24 ($ mm) Asset Sales; $403 Reduce NCIB; $229 Debt
Slide 21: Dividend and Share Buyback Summary
DIVIDEND AND SHARE BUYBACK SUMMARY Historical (and Projected Q4'24) Quarterly Dividends Return of Capital to Shareholders (millions) $0.42 $80 $0.40 $69 $71 $0.38 $45 $56 $40 $44 $41 $39 $46 $35 $16 $20 $17 $24 $12 $24 $15 $0.35 $24 $24 $24 $24 $25 $24 $24 $24 $25 $24 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q
Slide 22: Capex Program: Summary
CAPEX PROGRAM: SUMMARY • The recent capex activity is at a level that is in excess of historical levels due to the opportunities for value-added projects and facility modernizations. Russel Historical Capex By Quarter - $ mm $30 2023 total $72 mm $28 $25 $24 $24 $21 $20 2015 total $38 mm 2018 total
Slide 23: Capex Program: Value Added Equipment
CAPEX PROGRAM: VALUE ADDED EQUIPMENT • Multi-year program to expand operations and increase value-added equipment • Most recent projects have generated paybacks of ~2-4 years Tube Lasers $2-4 mm each 3 installed in ’23 8 planned for ‘24 Flat Lasers $2-4 mm each 3 installed in ’23 4 planned for ‘24 K
Slide 24: Capex Program: Modernizations
CAPEX PROGRAM: MODERNIZATIONS • The five modernizations equate to a 5% increase in Russel’s service center footprint. Texarkana: 60,000 sq ft Joplin: 40,000 sq ft Little Rock: 40,000 sq ft Saskatoon: 60,000 sq ft Green Bay: 40,000 sq ft
Slide 25: Acquisitions: Summary
ACQUISITIONS: SUMMARY • We completed several acquisitions over the past few years and continue to focus on opportunities that can be tuck-ins with our existing business units (e.g. Samuels, Alliance) or standalone/complementary units (e.g. Boyd). • The recently announced transaction with Tampa Bay S
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 $167 mm $160 $140 $128 $120 $100 Millions $80 $60 $40 $29 $20 $10 $0 Working Capital at 9/30/24 Fixed Assets Premium 27
Slide 28: Samuel Acquisition: Working Capital Reduction
SAMUEL ACQUISITION: WORKING CAPITAL REDUCTION • A key initial objective on the Samuel transaction was to reduce the invested capital (primarily working capital) in the business. Our initial target of $50 mm was exceeded as of Sept. 30/24. Changes in Samuel’s Net Working Capital (C$ mm) – Sept 30/23
Slide 29: Samuel Acquisition: Implied Multiples
SAMUEL ACQUISITION: 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 In
Slide 30: Tampa Bay Steel: Summary
TAMPA BAY STEEL: SUMMARY • Purchase price of US$79.5 mm, subject to normal course adjustments. • Average sales and adjusted EBITDA of US$115 mm and US$13 mm, respectively, over the past five years • Invested US$20 mm in capex over past three years – significant value-added processing with capacity t
Slide 31: IV. Financial Overview
IV. FINANCIAL OVERVIEW
Slide 32: Q3 2024 At a Glance
Q3 2024 AT A GLANCE • Revenues were up vs. Q2; contribution from Samuel acquisition • Slight decrease in gross margins; EBITDA down due to steel price volatility • Solid earnings and returns in a challenging steel market; diversification across our segments was beneficial • Our capital structure rem
Slide 33: Summary: Financial Results
SUMMARY: FINANCIAL RESULTS $ mm, unless otherwise stated Q3 2023 Q2 2024 Q3 2024 Q3 2024 Observations: Income Statement: Revenues $1,110 $1,072 $1,089 • Revenues were up 2% vs. Q2 due to Samuel acquisition (it contributed $69 mm of revenue) Gross Margin ($ mm/%) $225 / 20% $225 / 21% $215 / 20% • Co
Slide 34: Variance Analysis: EBITDA Q2 2024 vs. Q3 2024
VARIANCE ANALYSIS: EBITDA Q2 2024 VS. Q3 2024 $100 $90 $86 $80 $2 $3 ($7) $6 ($0) ($2) $70 $67 ($10) ($11) $60 Service Center Segment ($10) C$ million $50 • Mark-to-market expense on stock- based comp $5 in Q3 vs. $8 mm $40 recovery in vs. Q2 $30 $20 $10 $0 4 es rgi n ost s on ost s es rs er 4 202 l
Slide 35: Segment Breakdown: Operating Results
SEGMENT BREAKDOWN: OPERATING RESULTS Revenue (C$ millions) Gross Margins % Earnings from Operations (C$ millions) $1,000 30% $80 $70 $800 25% $60 20% $600 $50 15% $40 $400 $30 10% $20 $200 5% $10 $0 0% $0 MSC Energy Distributors MSC Energy Distributors MSC Energy Distributors MSC: • Revenues flat vs
Slide 36: Service Center Results
SERVICE CENTER RESULTS • Q3 2024 tons were up 4% vs. Q2 due to Samuel – Tons Shipped (000’s) down 5% on a same store basis due to seasonality. 360 340 • Price realizations decreased $95/ton and CGS 320 300 decreased $41/ton -- margin of $371/ton in Q3 280 ($389/ton on a same store basis) vs. $424/to
Slide 37: Working Capital Discipline
WORKING CAPITAL DISCIPLINE Inventory Turns Inventory Trends 5.0 $1,200 4.5 $1,050 $1,025 $986 $1,000 $964 $957 $941 $948 4.0 $924 $907 $894 $190 $211 $884 $883 $123 $862 $861 $228 $166 $123 $125 $840 $843 $104 $100 $95 3.5 $800 $95 $790 $773 $787 $153 $120 $103 $116 $143 $87 $716 $720 $103 $121 3.0
Slide 38: Liquidity and Capital Structure Summary
LIQUIDITY AND CAPITAL STRUCTURE SUMMARY • Significant balance sheet flexibility. • Redeemed legacy high yield notes and established an investment grade bank structure. 9/30/23 6/30/24 9/30/24 9/30/24 (C$ mm) (C$ mm) (C$ mm) (C$ mm) Pro forma Note Redemption Cash $569 $386 $222 $72 New $600 mm bank f
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 $5 $3 $40 $30 $ mm $43 $45 $20 $42 $28 $10 $0 ($2) ($5) ($10) Dec. 31/19 Dec. 31/20 Dec. 31/21 Dec. 31/22 Dec. 31/23 Sept.
Slide 40: Historical Return on Capital
HISTORICAL RETURN ON CAPITAL $1,800 80% $1,636 $1,600 $1,553 $1,531 70% $1,471 $1,492 $1,512 $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 50% 51% $1,000 49% $ millions 48% 41% 43% 40% $800 33% 31% 32% 27% 26% 30% 23% $600
Slide 41: Relative Return on Capital
RELATIVE RETURN ON CAPITAL • Russel’s returns remain industry leading. Return on Invested Capital - Last Twelve Months Ended 9/30/24 Return on Invested Capital (Average Annual) - Last Two Years Ended 9/30/24 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% – – Russel Competitor #1 Competitor #2 Competitor #3 R
Slide 42: Contact details
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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