Materion Corporation · NYSE:MTRN
Materion — Investor Presentation (October 2014)
54 slides from Materion's investor presentation, Oct 27, 2014
Slide 1: Investor Presentation Third Quarter 2014
Investor Presentation Third Quarter 2014 Exhibit 99.1
Slide 2: Forward-looking Statements
These slides contain (and the accompanying oral discussion will contain) “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 actual results of t
Slide 3: Materion: Who We Are
Materion: Who We Are We are a global leader in advanced material solutions and services that enable our customers to excel in their markets while making a material difference in improving our 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 Positive impact from 2013 initiatives 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 Promi
Slide 5: Materion at a Glance
Materion at a Glance 5 Adjusted EPS(1) $1.55 – $1.70 Market cap @ 9/30/14 ~$640M Debt-to-capitalization 5% Operating Cash Flow $50M Dividend yield ~1% Revenues ~ $1.1B Value-added sales ~ $0.65B 2014(F) 7.5 EV / EBITDA (1) Non-GAAP, excludes special items
Slide 6: Materion: Mission Critical Advanced Materials
W H A T W E D O Materion: Mission Critical Advanced Materials Consumer Electronics 28% Industrial Components 14% Medical 13% Automotive Electronics 9% Energy 8% Telecom infrastructure 7% A Balanced Portfolio (Third Quarter 2014) 6 Performance Metals & Composites Advanced Materials Precision Coatings
Slide 7: 2014: Entering a Phase of Renewed Profitable Growth
2014: 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: Actions in 2013 and 2014: A Solid Foundation for the Future
A C T I O N S I N 2 0 1 2 a n d 2 0 1 3 A Solid Foundation for the Future Consolidations and product rationalizations • Closed three facilities • Consolidated four precious metals facilities into two • Eliminated low margin product lines • Realigned segment headquarters structure • Consolidated thre
Slide 10: Clear Evidence Materion is on Track in 2014
$1.10 2013 2014(F) $1.55 – $1.70 Clear Evidence Materion is on Track in 2014 Guidance – A Strong Year(1) Operating Margins Up Sharply(2) (Adjusted EPS) (Op. Profit % of Value-added Sales) 5% 8% 2013 2014(F) 10 (1) Non-GAAP results exclude non-recurring costs in 2013 of $0.16 and non-recurring gains
Slide 11: Why Invest in Materion?
Why Invest in Materion? Positive impact from 2013 initiatives 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 Promising new product launches 3 4 G O A L N E X T 3 Y E A R S : S
Slide 12: Secular Market Trends Play to our Strengths
Secular Market Trends Play to our Strengths Key Trends • Miniaturization of electronics • Additional electronic instruments for autos, aircraft • Advancements in lighting (LED) • Expanding high performance optical device opportunities • Innovation in medical diagnostics • Extraction of oil and gas f
Slide 13: Well-positioned with Leading Global Positions
Well-positioned with Leading Global Positions Product Percent of Value-added Sales (2013) Expected Annual Growth Next 3-5 Years Leading supplier of beryllium- containing products ~42% Leading supplier of gold for semi- conductor fabrication ~20% Only supplier of unique copper- nickel-tin materials,
Slide 14: Evolving Potential from Beryllium Supply Shortage
A C L O S E R L O O K Evolving Potential from Beryllium Supply Shortage Materion – leading position in beryllium market • Only global integrated producer – over 75 years of proven reserves in Utah – supplies over 60% of world needs • Over 40% of company sales include beryllium in some form Signs of
Slide 15: Why Invest in Materion?
Why Invest in Materion? G O A L N E X T 3 Y E A R S : New Product Sales >10% Annually Positive impact from 2013 initiatives 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 Prom
Slide 16: Wide Range of Strategic Investments
Wide Range of Strategic Investments… New Wafer Coating Facility New Optics Facility Increased Capacity LED Phosphor ToughMet® Capacity Expansion Expanded Beryllium Hydroxide Capacity Singapore Expansion 16
Slide 17: Driving Record Number of New Product Launches
… Driving Record Number of New Product Launches Examples of New Products Sales Growth New products last 3 years ~$50M of 2013 sales – up 60% vs. 2012 New products Existing products Gesture Controls LED Phosphorous ToughMet® Oil & Gas Bulk Metallic Glass (Liquidmetal) 50% 50% Wafer Level Processing D
Slide 18: Why Invest in Materion?
Why Invest in Materion? G O A L N E X T 3 Y E A R S : Operating cash flow >$50 million Positive impact from 2013 initiatives 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 Pro
Slide 19: 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 sales 41% 31% < 25% 2002 2013 3-5 Year Target Each 5% reduction in working capital as a % of sales = $60M cash 19
Slide 20: Disciplined Capital Deployment Going Forward
Disciplined Capital Deployment Going Forward Return Cash to Shareholders • Share repurchase - $50M authorization • Dividends – increased 6% in 2014 Capex Below Depreciation • Invest in facilities • Invest in new products Growth • Organic • Selective tuck-in acquisitions 20 35% Debt & Shareholder 65%
Slide 21: Why Invest in Materion?
Why Invest in Materion? G O A L N E X T 3 Y E A R S : ROIC > 2% over cost of capital Positive impact from 2013 initiatives 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 Promi
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: Financial Goals
Financial Goals Next 3 – 5 Years 2013 Next 3–5 years Value-added sales growth (1%) 5% –10% annually Value-added sales $609M $750M - $981M Margins (OP % VA)(1) 5% 9% –12% ROIC 5% >2% over cost of capital Operating Cash Flow $76M >$50M Working capital % sales 31% <25% Debt-to-capitalization 13% <30% A
Slide 24: 2014 Key Milestones
2014 Key Milestones Targets Value-added sales growth >6% Expanding operating margins 200 bps Beryllium plant at production >15,000 lbs./qtr. Operating Cash Flow >$50M Benefit from facility consolidations >$0.30 EPS 24
Slide 25: Appendix
Appendix
Slide 26: Higher Operating Margin Targets
Higher Operating Margin Targets A-1 GAAP Margin Value-added Margin Gross Profit 16% – 18% 35% – 40% Operating Profit 3% – 5% 9% – 12% Removing High Value Metals Clarifies Margins 3-5 Year Target
Slide 27: Top Key Markets: 76% of Sales, All with Strong Tailwinds
Top Key Markets 76% of Sales, All with Strong Tailwinds Market YTD Q3 2014 % of Value-added Sales Macro Trends Key Drivers Consumer Electronics 28% • Smart device growth • Gesture control Industrial Components 14% • Heavy equipment builds • Plastic tooling • Fire protection (R and C construction)
Slide 28: Strong Cash Flow and Balance Sheet
Strong Cash Flow and Balance Sheet Cash Flow Balance Sheet 2014(F) 2014(F) operating cash flow Average annual cash flow last 5 years $50M ~$50M Total Capitalization Debt 5% A-3
Slide 29: 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 TFT – thin film coatings – 2005 CERAC – inorganic chemicals – 2006 Techni-Met – thin film coatings – 2008 Barr
Slide 30: 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 31: Four Segments in Growth Markets
Four Segments in Growth Markets A-6 (1) % of value-added sales Segment Q3 2014 % of Value- added Sales Key Products Q3 2014 Operating(1) Profit Advanced Material Technologies 43% • Precious, non-precious and specialty metal products 11% Performance Alloys 40% • Strip and bulk products, beryllium hyd
Slide 32: 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-7
Slide 33: Materion Value-added Sales by Market
Materion Value-added Sales by Market A-8 Q3-2014 - $165.6M OP% of Value-added Sales 11% Telecom Infrastructure 7% Defense 6% Energy 8% Medical 13% Services 5% Commercial Aerospace 4% Science 2% Appliance 2% Other 2% Automotive Electronics 9% Industrial Components 14% Consumer Electronics 28%
Slide 34: Value-added Sales by Segment
Value-added Sales by Segment A-9 Q3-2014 - $165.6M OP% of Value-added Sales 11% Beryllium & Composites 11% Performance Alloys 40% Advanced Material Technologies 43% Technical Materials 6%
Slide 35: Value-added Sales: Advanced Material Technologies
Value-added Sales: Advanced Material Technologies A-10 Telecom Infrastructure 4% Defense 6% Energy 4% Medical 24% Science 2% Industrial Components 7% Consumer Electronics 42% Services 10% Q3-2014 - $71.2M OP% of Value-added Sales 11% Automotive Electronics 1%
Slide 36: Value-added Sales: Performance Alloys
Value-added Sales: Performance Alloys A-11 Telecom Infrastructure 10% Automotive Electronics 13% Commercial Aerospace 9% Other 4% Appliance 5% Industrial Components 22% Consumer Electronics 22% Energy 15% Q3-2014 - $66.7M OP% of Value-added Sales 10%
Slide 37: Value-added Sales: Beryllium and Composites
Value-added Sales: Beryllium and Composites A-12 Other 7% Defense 29% Medical 27% Science 11% Industrial Components 18% Q3-2014 - $17.9M OP% of Value-added Sales 6% Telecom Infrastructure 8%
Slide 38: Value-added Sales: Technical Materials
Value-added Sales: Technical Materials A-13 Other 10% Automotive Electronics 56% Consumer Electronics 22% Energy 12% Q3-2014 - $9.8M OP% of Value-added Sales 15%
Slide 39: Core Technologies
Core Technologies A-14 1 High purity gold and silver for industrial applications 2 Powder science and processing (vacuum, hot and cold isostatic pressing, press / sinter) … metal, ceramic and chemical 3 Full metal processing technology (melting, casting, rolling, extrusion) 4 Selective electroplatin
Slide 40: New Product and Technology Development: Materials and Services
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 41: New Product and Technology Development: Coatings
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 • Patterned medical large area coatings capabi
Slide 42: New Product and Technology Development
New Product and Technology Development A-17 • ToughMet® alloy “strip” for high volume bearing applications • BrushForm 158 “strip” for cell phone camera suspension applications • ToughMet® alloy “wire” for next generation cell phone camera suspension applications • ToughMet® alloy “bulk” with enhanc
Slide 43: 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 44: Applications: Aerospace
Avionics / Electrical Systems Airframe Structure Landing Gear Attachments Flight Control Mechanisms Horizontal Stabilizer & Rudder Attachments Hydraulic Systems Fuel Systems Wing Attachments Doors & Hatches Landing Gear Components Flight Attendant Jumpseat Spring Safety Slide Mechanism Other Aerospa
Slide 45: 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 46: 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 47: 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 48: 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 49: 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 50: 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 51: Non-GAAP Value-added Operating Profit Margins
Non-GAAP Value-added Operating Profit Margins A-26 Third Third $ Millions Quarter 2014 Quarter 2013 9/26/2014 9/27/2013 Gross Margin as a Percent of Value-added Sales Advanced Material Technologies 40% 37% 37% 34% Performance Alloys 27% 27% 28% 29% Beryllium and Composites 31% 5% 26% 19% Technical M
Slide 52: Value-added Sales – Reconciliation of Non-GAAP Measure
Value-added Sales – Reconciliation of Non-GAAP Measure A-27 (In thousands) 9/26/2014 9/27/2013 9/26/2014 9/27/2013 Sales Advanced Material Technologies 177,483$ 176,294$ 519,792$ 566,158$ Performance Alloys 80,863 69,578 224,289 218,435 Beryllium and Composites 17,946 13,685 50,042 42,194 Technical
Slide 53: Reconciliation of Non-GAAP Measure - Profitability
Reconciliation of Non-GAAP Measure - Profitability A-28 Second Quarter Ended Nine Months Ended (In thousands except per share amounts) Sept. 26, 2014 Sept. 27, 2013 June 27, 2014 Sept. 26, 2014 GAAP as Reported Sales 291,570$ 275,434$ 287,965$ 838,465$ Gross margin 54,843 44,483 49,801 150,106 Opera
Slide 54: Glossary of Terms
Glossary of Terms 1. Debt-to-capitalization = debt/(net debt+shareholders’ equity) 2. EV/EBITDA = Enterprise Value/EBITDA=(Market Cap+Debt+Minority Interest+Preferred Shares-Cash & Equivalents)/EBITDA 3. Total Capitalization = Net debt+shareholders’ equity 4. Working Capital % of sales = (A/R+FIFO I