Gatx Corporation · NYSE:GATX
Gatx — Investor Presentation (April 2016)
68 slides from Gatx's investor presentation, Apr 6, 2016
Slide 1: GATX Corporation Company Overview | April 2016
GATX CORPORATION DISCIPLINED. PROVEN. Company Overview | April 2016
Slide 2: Forward Looking Statement
2 Forward Looking Statement Forward-looking statements in this presentation that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements that reflect our current views with respect to, among other
Slide 3: History & Business Overview
HISTORY & BUSINESS OVERVIEW 3
Slide 4: GATX's Year History
4 GATX’s 117 Year History 1898 Established as railcar lessor with 28 railcars 1919 Initiated quarterly dividend 1936 Rail Operations in Canada 1994 Rail Operations in Europe & Mexico 1996 Locomotive Operations 1998 Rolls-Royce Partners and Finance (RRPF) Affiliates formed 1973 GATX acquired American
Slide 5: GATX Today – Business Segments
5 GATX Today – Business Segments AMERICAN STEAMSHIP COMPANY Largest US-flagged vessel operator on the Great Lakes Operates a fleet of efficient self-unloading ships Exceptional safety record and leader in Great Lakes environmental matters 69% 15% 9% 4% 3% PORTFOLIO MANAGEMENT RRPF affiliates
Slide 6: GATX's Strong Global Presence
6 GATX’s Strong Global Presence GATX owns, manages, or has an interest in more than 151,000 railcars, over 600 locomotives, 17 vessels on the Great Lakes, and approximately 435 aircraft spare engines. (Map excludes leasing footprint for RRPF) GATX Rail Operations Footprint GATX Headquarters (Chicago
Slide 7: GATX Financial Highlights
7 GATX Financial Highlights $1.59 $2.01 $2.81 $3.50 $4.48 $5.37 2010 2011 2012 2013 2014 2015 7% 9% 11% 13% 15% 18% 2010 2011 2012 2013 2014 2015 $585 $615 $770 $860 $1,031 $715 2010 2011 2012 2013 2014 2015 EPS ROE INVESTMENT VOLUME Graph displays Diluted EPS Diluted EPS & ROE exclude Tax Adjustmen
Slide 8: Disciplined Business Approach
8 DISCIPLINED BUSINESS APPROACH Disciplined and Proven We strive to be recognized as the finest railcar leasing company in the world by our customers, our shareholders, our employees and the communities where we operate. DISCIPLINED CAPITAL ALLOCATION APPROACH PROVEN RETURNS TO SHAREHOLDERS VISION
Slide 9: Disciplined Business Approach
9 DISCIPLINED BUSINESS APPROACH
Slide 10: Straightforward and Proven Business Model
10 Straightforward and Proven Business Model Railcar leasing is our core. BUY the railcar at an economically attractive and competitively advantaged price LEASE the railcar to a quality customer at an attractive rate for a term that reflects the business cycle SERVICE the railcar in a manner that ma
Slide 11: Business Model: Buy
11 Business Model: BUY EXPERIENCED INTERNAL CAPABILITIES DISCIPLINED INVESTMENT APPROACH COMPETITIVE ASSET COST OPPORTUNISTIC INVESTMENT GATX ADVANTAGE GATX achieves lower new car cost by placing large orders at appropriate points in the business cycle GATX focuses on achieving economically attracti
Slide 12: Business Model: Lease
12 Business Model: LEASE GATX’s premium service to top-tier customers results in high fleet utilization, strong lease renewal success and customer satisfaction across the globe. CUSTOMER VALUE DELIVERY Develop lease structures that fit customers’ needs New Car Inspection Group ensures railcars m
Slide 13: Business Model: Service
13 Business Model: SERVICE GATX has built a strong market position by focusing on full-service leasing in North America and Europe. MAINTENANCE Customers rely on GATX to manage the complex process of maintaining railcars Extensive maintenance network: more than 30 maintenance locations in North
Slide 14: Business Model: Maximize Value
14 REMARKETING INCOME (Income from sale of owned assets) Capitalize on market peaks Helps to maintain a diversified, high-performing railcar fleet Over the last 10 years, GATX Rail North America generated an average of approximately $37 million of remarketing income per year SCRAPPING GAINS
Slide 15: GATX Rail North America Overview
15 95% 90% 96% 99% 86.0% 88.0% 90.0% 92.0% 94.0% 96.0% 98.0% 100.0% 1999 2001 2003 2005 2007 2009 2011 2013 2015 GATX Rail North America Overview WHOLLY OWNED FLEET COUNT 125,000 CAR TYPE COUNT 160 AVERAGE FLEET AGE 20 YEARS LOCOMOTIVE COUNT 600+ NUMBER OF CUSTOMERS 800+ COUNTRIES OF OPERATIONS US,
Slide 16: Managing Through Cycles
16 64 67 63 41 35 45 60 62 66 54 17% 14% 5% -11% -16% 7% 26% 35% 39% 32% -20% -10% 0% 10% 20% 30% 40% 50% 0 10 20 30 40 50 60 70 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Renewal Lease Term (left axis) Lease Price Index (right axis) Managing Through Cycles GATX quickly adapts to changing mar
Slide 17: Managing Through Cycles: Fleet Optimization
17 GATX RAIL NORTH AMERCA $230 $90 $188 $581 2012 to 2015 2008 to 2011 Secondary Market Investment Volume Remarketing Income Managing Through Cycles GATX optimizes its fleet composition. In a strong market, GATX increases remarketing activity to take advantage of railcar demand and railcar valuation
Slide 18: GATX's Excellent Visibility into Future Cash Flow
18 GATX’s Excellent Visibility into Future Cash Flow Raising lease rates and extending lease terms have resulted in committed lease receipts in Rail North America increasing by 17% to over $4.2 billion in 2015. Predominantly fixed leases without early termination options Committed Lease Receipts
Slide 19: GATX Rail International Overview
19 96% 97% 95% 97% 95% 97% 96% 92% 94% 96% 98% 100% 2007 2009 2011 2013 2015 GATX Rail International Overview FLEET COUNT 23,000+ in Europe 750+ in India CAR TYPE COUNT 38+ AVERAGE FLEET AGE 18 Years NUMBER OF CUSTOMERS 250+ MAJOR COUNTRIES OF OPERATIONS Germany, Poland, Austria, The Netherlands, Hu
Slide 20: American Steamship Company Overview
20 American Steamship Company Overview Based on 2015 ASC volume of 26.5 million net tons As of 12/31/2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Net Tons Carried by ASC (in millions) 37.2 37.3 35.7 21.2 28.0 28.4 29.7 28.8 30.5 26.5 ASC Vessels Operated 18 18 18 12 13 14 14 13 15 13
Slide 21: Portfolio Management Overview
21 Portfolio Management Overview $6 $66 $0 $10 $20 $30 $40 $50 $60 $70 OWNED PORTFOLIO RRPF JV PRE-TAX INCOME (GATX’s SHARE) $636.5 million NBV as of 12/31/15 SPARE ENGINE COUNT 435+ AVERAGE FLEET AGE 11 Years 2015 RRPF OVERVIEW $ M IL LIO N S 53% Aircraft Spare Engine Leasing Affiliates 43% Marine
Slide 22: Business Segments
BUSINESS SEGMENTS 22
Slide 23: Rail North America
RAIL NORTH AMERICA 23
Slide 24: North America – Industry Railcar Ownership
24 North America – Industry Railcar Ownership 51% 9% 19% 21% RAILROADS (21%) Ownership of railcars has been declining In 2000, 53% of railcars were owned by railroads Virtually no tank car ownership due to complexities and regulations Focus of capital investment on infrastructure LESSORS (51
Slide 25: North America – Industry Shipments & Carloadings
25 North America – Industry Shipments & Carloadings 20.9 21.2 17.1 18.2 16 17 18 19 20 21 22 2005 2007 2009 2011 2013 2015 Demand increased across most major commodity types. Demand declined due to difficulties in nearly every sector. Demand increased in 2010 due to nearly every sector. Demand decli
Slide 26: North America – Industry Backlogs
26 North America – Industry Backlogs Cyclicality of the industry is illustrated by the backlog of orders at the railcar manufacturers The recent trends in tank car backlog are primarily due to energy markets Deep backlogs are generally positive for existing lessors’ fleets – Customers’ alterna
Slide 27: North America – Lessor Market Share
27 North America – Lessor Market Share LESSOR TANK CARS Approximately 396,000 tank cars in North America – About 80% of tank cars are owned by lessors, with the balance owned by shippers GATX is the second largest tank car lessor UMLER as of January 2016 LESSOR FREIGHT CARS Approximately 1.2 m
Slide 28: GATX Rail North America
28 GATX Rail North America Based on more than 810,300 lessor-owned railcars UMLER as of January 2016 Diverse fleet with approximately 160 car types serving more than 550 commodities Extensive maintenance network, with highly competitive safety, quality, delivery times, and cost metrics Broad range o
Slide 29: GATX Rail North America's Diverse Customer Portfolio
29 GATX Rail North America’s Diverse Customer Portfolio 12/31/15 Customer families sometimes include more than one customer account, therefore the S&P or equivalent ratings noted generally reflect the credit quality of the rated parent entity. Lease obligations of subsidiaries are not necessarily gu
Slide 30: GATX Rail North America's Fleet Breakdown
30 CAR TYPE COMMODITIES CARRIED % OF GATX’S FLEET 15% 12% 10% 6% 4% 15% 10% 8% 7% 5% 3% 5% TANK CA R S (49% o f Fl ee t) FR EIGH T CA R S (51% o f Fl ee t) GATX Rail North America’s Fleet Breakdown General Service Tank Cars: 20k-25k gallon General Service Tank Cars: >25k gallon High-Pressure Tank Ca
Slide 31: Flammable Liquids Rulemaking
31 GATX Rail North America – Flammable Liquids Rulemaking Final flammables liquids rules were codified in 2015 for both US and Canada. GATX’s flammables fleet is relatively small and is well-positioned with respect to the new rules. 78% 20% 2% Fewer than 13,900 Flammable Liquid Tank Cars out of more
Slide 32: Limited Crude Oil and Frac Sand Exposure
32 GATX Rail North America’s Limited Crude Oil and Frac Sand Exposure 49% 51% GATX Fleet Freight Cars Tank Cars GATX Deliberately took small crude-by-rail and frac sand positions and maintained balance of tank and freight 25% 28% 44% 7% 21% 22% 68% 51% 34% North American Fleet Backlogs 2015 Deliveri
Slide 33: GATX Rail North America's Maintenance Network
33 GATX Rail North America’s Maintenance Network GATX is known for the integrity, safety, and quality of our operations and superior execution. Services range from routine maintenance and regulatory programs to car modifications and rebuilds, including: All mechanical repairs, interior cleaning, int
Slide 34: GATX Rail North America's Engineering Expertise
34 GATX Rail North America’s Engineering Expertise GATX’s engineering team, including experienced mechanical, structural, and chemical engineers, communicates regularly with customers and tailors solutions to meet their needs. Examples of engineering support include: Preventative maintenance, Inspec
Slide 35: GATX Rail North America Training Programs
35 GATX Rail North America Training Programs GATX’s commitment to provide safe, reliable assets goes beyond maintenance and engineering. GATX PROVIDES CRITICAL TRAINING AT ITS HEADQUARTERS, CUSTOMER SITES AND THROUGH ITS TANKTRAINER™ MOBILE CLASSROOM GATX has offered the TankTrainer™ program since
Slide 36: Technology & Custom Applications
36 GATX Rail North America’s Technology & Custom Applications SHOP PORTAL Provides repair instructions to maintenance network shops Provides car and event-specific forms to assure that required inspection points and mandatory repair items are documented and addressed MyGATXRail.com Provides re
Slide 37: GATX Rail North America Participates in Regulatory Environment
37 GATX Rail North America Participates in Regulatory Environment GATX actively participates in or interacts with numerous committees within various industry groups in the United States. Participation allows GATX to stay current on developments, guide decisions, and communicate information to cust
Slide 38: GATX Rail North America's Locomotive Leasing
38 GATX Rail North America’s Locomotive Leasing 96% are four-axle locomotives leased to: Regional and short-line railroads Industrial users Class I railroads $34 $36 $34 $32 $35 $38 2010 2011 2012 2013 2014 2015 LOCOMOTIVE LEASE REVENUE GATX OWNS, MANAGES OR HAS AN INTEREST IN MORE THAN 600 LO
Slide 39: Rail International
RAIL INTERNATIONAL
Slide 40: International – European Industry Snapshot
40 International – European Industry Snapshot Approximately 705,000 railcars in standard-gauge countries RAILCAR OWNERSHIP Eastern European fleets include many older, smaller tank cars Increasingly difficult for smaller lessors to obtain financing and meet required regulatory standards in a cost
Slide 41: European Tank Car Leasing Market Structure
41 THE STRUCTURE OF THE TANK CAR LEASING MARKET IN EUROPE IS SIMILAR TO NORTH AMERICA’S Lessors own the majority of the tank cars in Europe – approximately 68% A few large leasing companies lead the market International – European Industry Snapshot GATX management estimates as of 12/31/15 29% 16
Slide 42: GATX Rail Europe
42 GATX Rail Europe GATX management estimates as of 12/31/15 Operations in the major rail markets across Europe Broad range of value offerings: maintenance, training, engineering support, regulatory assistance and other services Diverse customer portfolio, with strong credit profiles Approximately 7
Slide 43: GRE Geographies and Fleet Structure
43 40% 26% 12% 4% 4% 3% 3% 8% CAR TYPE COMMODITIES CARRIED Mineral Oil Light mineral oil (gasoline, jet fuel, diesel oils, light heating oils), Dark mineral oil (heavy heating oils, lubricating oils, coal tar, bitumen, asphalt), crude oil LPG Propane, Butane, Propylene, Butadiene, Light carbohydrate
Slide 44: GRE's Customer Base
44 GRE’s Customer Base GRE’s newer and higher capacity fleet attracts top tier customers. Today, the average lease term for GRE is 2 years; however, renewal success rates tend to be high – GRE’s top 19 customers by revenue have done business with us for at least 15 years Top 10 customers based on
Slide 45: GRE's Service Offerings
45 GRE’s Service Offerings MAINTENANCE GRE’s goal is to ensure maximum railcar availability A network of owned workshops and certified contract partners GRE arranges for the cleaning of tanks and railcars combined with scheduled repairs to reduce downtime ENGINEERING Decades of engineering e
Slide 46: GRE's Maintenance Network
46 GRE’s Maintenance Network JUNGENTHAL FACILITY (HANNOVER, GERMANY) Main tasks are revisions, cleaning, and sandblasting Modern infrastructure with approximately 70 employees OSTRODA FACILITY (OSTRODA, POLAND) Main tasks are revisions, new railcar assembly, and reconditioning of components
Slide 47: GATX India Private Limited
47 GATX India Private Limited GATX is the market leader in railcar leasing – Owns fleet of approximately 800 container flat wagons – Actively seeks attractive investment opportunities to grow the fleet – Recognized as a key rail industry stakeholder Leverages GATX North America and GRE’s enginee
Slide 48: American Steamship Company
AMERICAN STEAMSHIP COMPANY 48
Slide 49: Great Lakes Industry Overview
49 SAILING SEASON GENERALLY RUNS FROM LATE MARCH THROUGH THE END OF DECEMBER Weather conditions and water levels impact operating efficiencies, especially early spring and early winter SHIPPING INDUSTRY ON THE GREAT LAKES IS MATURE WITH HIGH BARRIERS TO ENTRY U.S. new-build vessel costs have ris
Slide 50: ASC Business Overview
50 BUSINESS OVERVIEW ASC provides transportation of dry bulk commodities across the Great Lakes and St. Lawrence Seaway ASC joined GATX in 1973 and has been in operation over 100 years ASC operates with significant emphasis on safety and environmental stewardship FLEET OVERVIEW Fleet of 17 s
Slide 51: ASC Commodities Carried & Industries Served
51 16% 30% 52% 2% ASC Commodities Carried & Industries Served Based on 2015 ASC revenue of approximately $170.2 million IRON ORE COAL LIMESTONE accounts for the largest cargos carried by US-flag Great Lakes vessels is transported to power generating facilities along the Lakes is used by the steel an
Slide 52: Portfolio Management
PORTFOLIO MANAGEMENT 52
Slide 53: Aircraft Spare Engine Leasing Industry Overview
53 Aircraft Spare Engine Leasing Industry Overview MAINTENANCE SPARE ENGINE OVERVIEW Engines are very attractive and reliable leasing assets – Robust residual value characteristics – Retain value better over the long term compared to aircraft Aircraft engines need regular scheduled maintenance (
Slide 54: RRPF Affiliates Overview
54 RRPF Affiliates Overview The RRPF portfolio has committed future lease receipts of more than $1.6 billion. RRPF OVERVIEW GATX established its first partnership with Rolls-Royce plc in 1998 Total NBV of engines upon RRPF establishment was $350 million; today the NBV is approximately $3 billion
Slide 55: RRPF Affiliates Market Leadership
55 RRPF Affiliates Market Leadership RRPF enjoys leading market position in each targeted asset type. 50% 79% 91% 100% 45% 38% 16% 9% 0% 28% Trent 500 Trent 700 Trent 800 Trent 900 V2500 RRPF MARKET POSITION (% OF SPARE ENGINES ON OPERATING LEASE) RRPF 2nd Largest Spare Engine Lessor of the Asset Ty
Slide 56: Disciplined Capital Allocation Approach
56 DISCIPLINED CAPITAL ALLOCATION APPROACH
Slide 57: Capital Allocation Framework
57 PRIORITY 2 Manage the balance sheet Maintain a solid investment grade rating of BBB/Baa2 Maintain capacity for opportunistic investments Capital Allocation Framework $763 $634 $781 $480 $585 $615 $770 $860 $1,031 $715 2007 2009 2011 2013 2015 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 2007
Slide 58: Sources and Uses of Cash (2006-2015)
58 $106 $3,569 $2,886 $1,879 $854 $7,774 $555 $750 $13 $202 Cash from Operations Portfolio Proceeds External Debt (Net) Other Investments Buybacks Sources and Uses of Cash (2006-2015) As of 12/31/2015 $ M IL LI O N S Beginning Cash 2006 Dividends Other Ending Cash 2015
Slide 59: Financial Highlights
FINANCIAL HIGHLIGHTS 59
Slide 60: Financial Highlights – Cash Flow and Lease Receipts
60 2007 2009 2011 2013 2015 Operating Cash Flow Portfolio Proceeds $999 $841 $708 $591 $464 $990 Financial Highlights – Cash Flow and Lease Receipts GATX has nearly $4.6 billion in committed future lease receipts. GATX COMMITTED FUTURE LEASE RECEIPTS As of 12/31/15 $ M IL LIO N S $ M IL LIO N S OPER
Slide 61: Financial Highlights – Strong Balance Sheet
61 % of Assets that are Secured 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 2003 2005 2007 2009 2011 2013 2015 As of 12/31/15 Total Recourse Debt = On-Balance-Sheet Recourse Debt + Off-Balance-Sheet Recourse Debt + Capital Lease Obligations + Commercial Paper and Ban
Slide 62: Financial Highlights – Strong Balance Sheet (Cost of Debt)
62 Financial Highlights – Strong Balance Sheet GATX has decreased borrowing costs and increased borrowing term. GATX issued more than $650 million of public unsecured debt in 2015. 6.4% 3.8% 5.0 3.3 7.2 - 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 2006 2007 2008 2009 201
Slide 63: Financial Highlights – Access to Capital
63 Financial Highlights – Access to Capital GATX issued $2.6 billion of long-term debt in the public market during the last 3-years (2013-2015) GATX efficiently accessed capital in difficult markets – Raised $250 million of debt financing during the depth of the financial crisis in late 2008 – R
Slide 64: Financial Highlights – Capital Deployment
64 $5.7 $6.0 $6.3 $6.2 $6.4 $6.7 $6.9 $7.4 $7.5 $7.4 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 0 200 400 600 800 1,000 2007 2009 2011 2013 2015 Financial Highlights – Capital Deployment $43 $391 $519 $628 $682 $738 $796 $926 $1,112 $1,306 2007 2009 2011 2013 2015 Investment Volume and Noncash Items as of
Slide 65: Financial Highlights – Results
65 Financial Highlights – Results $2.54 $3.07 $3.49 $1.97 $1.59 $2.01 $2.81 $3.50 $4.48 $5.37 13% 14% 15% 9% 7% 9% 11% 13% 15% 18% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 0.00 1.00 2.00 3.00 4.00 5.00 6.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 EPS (left axis) ROE (right axis) Graph displa
Slide 66: Reconciliation of Non-GAAP Measures
RECONCILIATION OF NON-GAAP MEASURES 66
Slide 67: Reconciliation of Non-GAAP Measures – Net Income Measures
67 Reconciliation of Non-GAAP Measures – Net Income Measures Net Income 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (in millions) Net Income (GAAP) 147.3$ 183.8$ 194.8$ 81.4$ 80.8$ 110.8$ 137.3$ 169.3$ 205.0$ 205.3$ Adjustments attributable to consolidated income: Net loss on wholly owned Port
Slide 68: Reconciliation of Non-GAAP Measures – Balance Sheet Measures
68 Reconciliation of Non-GAAP Measures – Balance Sheet Measures On- and Off-Balance Sheet Assets 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Consolidated on-balance-sheet assets 4,646.6$ 4,723.2$ 5,190.5$ 5,206.4$ 5,442.4$ 5,846.0$ 6,044.7$ 6,535.5$ 6,919.9$ 6,894.2$ Less: Assets of discontinu