Suncoke Energy, Inc. · NYSE:SXC
Suncoke Energy — Investor Presentation (November 2016)
51 slides from Suncoke Energy's investor presentation, November 2016
Slide 1: SunCoke Energy Investor Meetings
SunCoke Energy Investor Meetings November 2016
Slide 2: Forward-Looking Statements
Forward-Looking Statements Some of the information included in this presentation constitutes “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All statements in this presentation that e
Slide 3: Who is SunCoke?
Who is SunCoke? Leading raw materials processing and handling company with existing operations in cokemaking & coal logistics Current Business Future Platforms Cokemaking Coal Logistics Industrial Materials • Largest independent coke • Strategically located coal • MLP-qualifying industrial producer
Slide 4: SXC & SXCP Organizational Structure
SXC & SXCP Organizational Structure C-Corp / MLP relationship results in dual capital structure (NYSE: SXC) SXC owns: • Cash: $59M • Available Revolver Capacity: $120M 2% GP interest • Leverage: 0.39x 54% LP interest 100% IDRs (NYSE: SXCP) International Domestic • Cash: $46M • Available Revolver Cok
Slide 5: Proposed SunCoke Simplification
Proposed SunCoke Simplification SXC recently submitted proposal to SXCP Conflicts Pro-Forma SXC Organization Structure Committee to acquire all outstanding units of SXCP owned by public unitholders in 100% stock-for- Existing SXC Existing SXCP Shareholders Unitholders unit transaction 65.1%(2) 34.9%
Slide 6: Compelling Investment Thesis
Compelling Investment Thesis SunCoke remains well positioned to create long-term value for investors • Fee-based, take-or-pay coke contracts provide Stable, Long-term cash flow stability despite steel price volatility Business Model • Limited commodity risk • Newer, more modern facilities & equipmen
Slide 7: Cokemaking Business
COKEMAKING BUSINESS SunCoke Energy – November Investor Meetings 7
Slide 8: SunCoke's Cokemaking Business
SunCoke’s Cokemaking Business SunCoke is the largest independent coke supplier in North America Coke is a critical raw material input for the Total US & Canada Coke Capacity(1) production of virgin iron & steel 6% 8% • Acts as a fuel, provides structural support and allows gas to reduce iron in BOF
Slide 9: Strategic Customer Relationships
Strategic Customer Relationships Customer Asset Supported Primary Product Lines Comments • Encouraged by improvement in Middletown (OH) Auto recent results and actions to strengthen balance sheet • Temporary BF idling at Ashland, Ashland (KY) Auto diverting coke to Dearborn • Continuing to invest in
Slide 10: Attractive Take-or-Pay Contract Structure
Attractive Take-or-Pay Contract Structure Long-term, take-or-pay contracts generate stable cash flow and insulate business from industry cyclicality Key Contract Provisions/Terms Contract Value Propositions • Customers required to take all coke we produce up to contract max. Fixed Fee • Long-term,
Slide 11: SunCoke's Leading Technology
SunCoke’s Leading Technology Our industry-leading cokemaking technology sets U.S. EPA MACT standards and makes larger, stronger coke Industry-leading SunCoke’s Heat Recovery Cokemaking Technology environmental signature Negative Pressure Ovens • Leverage negative pressure to • Minimal fugitive emiss
Slide 12: SunCoke's Leading Technology
SunCoke’s Leading Technology SunCoke Energy – November Investor Meetings 12
Slide 13: The Cokemaking Opportunity
The Cokemaking Opportunity Expect aging by-product battery closures will continue, allowing SunCoke’s heat recovery technology to take additional market share Aging Cokemaking Facilities Recent Coke Battery Rationalization % of U.S. & Canada • AK Ashland closed (2010) and resulted in long- Average A
Slide 14: International Coke Overview
International Coke Overview Brazil Coke Brazil Coke • Began operations in 2007 • Supplies coke to ArcelorMittal Brasil • Anticipate run-rate Adj. EBITDA of ~$20M on coke production of ~1.7 million tons VISA SunCoke VISA SunCoke • Merchant market remains challenged due to slower economic growth and c
Slide 15: Coal Logistics Business
COAL LOGISTICS BUSINESS SunCoke Energy – November Investor Meetings 15
Slide 16: Coal Logistics Overview
Coal Logistics Overview Coal Logistics business represents a natural vertical integration platform which broadens our customer base Platform for Growth Strategically located assets with access to barge, rail and truck Experienced management team capable of driving growth SXCP’s Coal Logistics Portfo
Slide 17: KRT and Lake Terminal
KRT and Lake Terminal Coal Logistics assets well positioned to deliver stable, long-term results despite recent coal industry pressures Kanawha River Terminal (KRT) Lake Terminal • Locations on Ohio River system well • Coal unloading, storage and blending positioned to serve coal miners, power facil
Slide 18: Convent Marine Terminal (CMT)
Convent Marine Terminal (CMT) CMT positioned to withstand coal downturn as take-or-pay contract structure supports stable 2016 outlook Asset Overview Lowest Cost ILB Coal Producer Base • Large, efficient, well-capitalized Gulf Coast Foresight Energy, LLC export terminal in Convent, Louisiana • Among
Slide 19: Thermal Coal Export Profitability
Thermal Coal Export Profitability Anticipate strengthening of API2 benchmark price will further support CMT customers’ vested interest in maintaining viable export platform $75 $5 ($3) ($9) Believe export thermal ($6) coal solidly profitable with recent API2 price ($18) $44 surge to mid-$70s/t • Net
Slide 20: CMT Business Update
CMT Business Update Expanding CMT potential via entrance into new line of business; Remaining flexible and responsive to evolving industry landscape Piloting new domestic thermal coal business • U.S. utility customer shipping thermal coal destined for domestic marketplace • First in-bound train rece
Slide 21: 2016 Outlook & Capital Allocation Overview
2016 OUTLOOK & CAPITAL ALLOCATION OVERVIEW SunCoke Energy – November Investor Meetings 21
Slide 22: Navigating Current Market Conditions
Navigating Current Market Conditions Encouraged by recent coal customer developments in addition to broader improvements across coal and steel industries Significant improvement in underlying industry and customer dynamics CMT customers reached important milestones during Q3 2016 • FELP successfully
Slide 23: SXCP Capital Priorities
SXCP Capital Priorities Successfully executing 2016 de-levering initiative while maintaining distributions to unitholders SXCP Distribution History Declared 15th consecutive quarterly +44% cash distribution of $0.5940/unit YTD 2016, have reduced SXCP gross debt by >$90M using >$66M cash, or (1) $0.4
Slide 24: SXCP 2016 Outlook
SXCP 2016 Outlook Adj. EBITDA attributable to SXCP guidance of $207M – $217M; Current DCF and Coverage outlook reflects discontinued sponsor support 2016 Original Outlook 2016 Current Outlook Reaffirm Adjusted As Reported As Reported EBITDA guidance of ($ in millions, except per unit data) Low High(
Slide 25: SXC 2016 Outlook
SXC 2016 Outlook FY 2016 Consolidated Adj. EBITDA guidance of $210M – $235M 2015 2016 Metric Results Guidance (1) Adjusted EBITDA Consolidated $185.8M $210M – $235M (1) Attrib. to SXC $104.6M $105M – $124M (2) Capital Expenditures $76M ~$45M Domestic Coke Production 4.1 Mt 4.0 Mt – 4.1 Mt Dom. Coke
Slide 26: Proposed SunCoke Energy Simplification Transaction
PROPOSED SUNCOKE ENERGY SIMPLIFICATION TRANSACTION SunCoke Energy – November Investor Meetings 26
Slide 27: Important Notice to Investors
Important Notice to Investors This slide presentation should be reviewed in conjunction with the press release issued on October 31, 2016 from SunCoke Energy, Inc. (“SXC”) as well as the conference call held on October 31, 2016 at 9:00 a.m. ET. This slide presentation does not constitute an offer to
Slide 28: Transaction Overview
Transaction Overview SunCoke Energy, Inc. (SXC) submitted a proposal to Pro-Forma SXC Organization Structure SunCoke Energy Partners, L.P. (SXCP) Conflicts Committee to acquire all outstanding units of Existing SXC Existing SXCP SXCP owned by public unitholders in a 100% stock- Shareholders Unithold
Slide 29: Significant Benefits
Significant Benefits Generates Significant Cash • Significantly cash flow per share accretive transaction to SXC shareholders Flow Accretion • Creates ~$16 million in annual cash flow synergies through public company cost Unlocks Substantial elimination and cash tax efficiencies Synergies • Results
Slide 30: Immediately Cash Flow Accretive
Immediately Cash Flow Accretive Consolidation drives significant cash flow accretion per share for SXC shareholders Illustrative Pro-Forma FCF per Share >70% increase in Free Cash Flow (“FCF”)(1) per share driven by: ($ per Share) +74% • Acquisition of public unitholder $0.25 distributions and acces
Slide 31: Simplified Structure Unlocks Synergies
Simplified Structure Unlocks Synergies Proposed transaction results in immediate tax and cost synergies Significant cash flow synergies Cash Flow Synergies • Cash tax savings from tax basis step-up and ($ millions) elimination of remedial income $2 • Public company cost savings Results in Several si
Slide 32: Greater Financial Flexibility
Greater Financial Flexibility Enhanced financial flexibility Pro-Forma Capital Allocation Priorities Target • Ability to establish sustainable dividend Free Cash Flow • Enables further (and faster) de-levering • Increases ability to fund Establish $0.0625 Establish Dividend growth quarterly dividend
Slide 33: Expanded Growth Opportunities
Expanded Growth Opportunities Simplification Transaction better positions SunCoke for growth in core and adjacent verticals Removes MLP qualifying income M&A Framework – Moving Toward the Core limitation 2nd Level Adjacencies (Industrial Materials) Salt Focuses on and enables growth within 1st level
Slide 34: Transaction Roadmap
Transaction Roadmap If approved, potential for transaction to close by mid-2017 Several steps needed to finalize Simplification Transaction • Negotiate transaction and execute merger agreement with SXCP Conflicts Committee • File S-4 Registration Statement with SEC • Distribute Proxy Statement to SX
Slide 35: Transaction Summary
Transaction Summary Transaction is significantly cash flow per share accretive to SXC shareholders Simplified structure results in meaningful cash flow synergies and provides numerous shareholder-friendly benefits Increased financial flexibility results in ability to initiate dividend, de-leve
Slide 36: Investor Relations
Investor Relations 630-824-1907 www.suncoke.com
Slide 37: Appendix
APPENDIX SunCoke Energy – November Investor Meetings 37
Slide 38: SXC Definitions
SXC Definitions • Adjusted EBITDA represents earnings before interest, (gain) loss on extinguishment of debt, taxes, depreciation and amortization (“EBITDA”), adjusted for impairments, coal rationalization costs, changes to our contingent consideration liability related to our acquisition of CMT and
Slide 39: SXCP Definitions
SXCP Definitions • Adjusted EBITDA represents earnings before interest, (gain) loss on extinguishment of debt, taxes, depreciation and amortization, adjusted for Coal Logistics changes to our contingent consideration liability related to our acquisition of the CMT and the expiration of certain acqui
Slide 40: SXCP Definitions
SXCP Definitions • Distributable Cash Flow equals Adjusted EBITDA plus sponsor support and Coal Logistics deferred revenue; less net cash paid for interest expense, ongoing capital expenditures, accruals for replacement capital expenditures and cash distributions to noncontrolling interests; plus am
Slide 41: SXCP Financial Reconciliations
SXCP FINANCIAL RECONCILIATIONS SunCoke Energy – November Investor Meetings 41
Slide 42: Adjusted EBITDA and Distributable Cash Flow Reconciliations
Adjusted EBITDA and Distributable Cash Flow Reconciliations As As As As As As As As As As Reported Reported Reported Reported Reported Proforma Proforma Proforma Proforma Proforma Reported Reported Reported Reported Reported (1,2) (1,3) (1,4) (1) ($ in millions) Q1 ‘15 Q2 ‘15 Q3 ‘15 Q4 ‘15 FY ‘15 Q1
Slide 43: 2016E Guidance Reconciliation
2016E Guidance Reconciliation 2016E 2016E ($ in millions) Low High Net Cash Provided by Operating Activities $149 $163 Depreciation and amortization expense 74 74 (Gain) / Loss on debt extinguishment (20) (27) Changes in working capital and other (7) (11) Net Income $102 $127 Depreciation and amorti
Slide 44: SXC Financial Reconciliations
SXC FINANCIAL RECONCILIATIONS SunCoke Energy – November Investor Meetings 44
Slide 45: Reconciliation to Adjusted EBITDA
Reconciliation to Adjusted EBITDA Q3 '16 Q3 '15 ($ in millions) Q3 '16 Q2 '16 Q1 '16 FY '15 Q4 '15 Q3 '15 Q2 '15 Q1 '15 YTD YTD Net cash provided by Operating activities $44.6 $92.1 $29.4 $141.1 $58.1 $6.4 $65.5 $11.1 $166.1 $83.0 Depreciation, depletion and amortization expense 25.6 28.6 28.2 109.1
Slide 46: 2016E Guidance Reconciliation
2016E Guidance Reconciliation 2016E 2016E ($ in millions) Low High Net cash provided by Operating activities $150 $170 Depreciation and amortization expense 106 106 (Gain) / loss on extinguishment of debt (20) (27) Loss on divestiture of business 14 14 Changes in working capital and other 6 3 Net In
Slide 47: 2015 and 2016E CapEx
2015 and 2016E CapEx 2015 CapEx ($ in millions) SXC SXCP Consolidated Ongoing(1) $30 $21 $51 Other 4 0 4 Environmental Project 0 21 21 Total CapEx (excl. pre-funded Ship loader) $34 $42 $76 Coal Logistics: Ship loader (pre-funded) $0 $5 $5 2016 Expected CapEx ($ in millions) SXC SXCP Consolidated On
Slide 48: Balance Sheet & Debt Metrics
Balance Sheet & Debt Metrics As of 09/30/2016 Balance SXC Attributable Attributable Consolidated to SXCP ($ in millions) to SXC Cash $ 105 $ 46 $ 59 Available Revolver Capacity 192 72 120 Total Liquidity 297 118 179 Total Debt (Long and Short-term) 869 824 45 Net Debt (Total Debt less Cash) 764 778
Slide 49: Proposed Simplification Transaction Financial Reconciliations
PROPOSED SIMPLIFICATION TRANSACTION FINANCIAL RECONCILIATIONS SunCoke Energy – November Investor Meetings 49
Slide 50: Reconciliation to Illustrative FCF/Share
Reconciliation to Illustrative FCF/Share ($ in millions, except per share amounts) Status Quo ($ in millions, except per share amounts) Pro-Forma Adjusted EBITDA (Consolidated) (1) $223 Adjusted EBITDA (Consolidated) - Status Quo (1) $223 (2) Adjusted EBITDA attributable to SXCP (212) Cost synergies
Slide 51: Reconciliation of Pro-Forma Ownership
Reconciliation of Pro-Forma Ownership (millions, except per share amounts) SXCP Closing Price (At close 10/28/2016) $ 16.95 Premium Proposed to SXCP Conflicts Committee 5.0% Implied Proposal Price per Unit $ 17.80 Units held by SXCP Public Unitholders 20.8 Implied Total Purchase Price $370 1.65 SXC
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