Ati Inc. · NYSE:ATI
Ati — Investor Day (November 2018)
58 slides from Ati's investor day presentation, Nov 8, 2018
Slide 1: ATI Investor Day 2018
ATI Investor Day 2018 New York City November 8, 2018 © 2018 ATI. All rights reserved.
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements. Actual results may differ materially from results anticipated in the forward-looking statements due to various known and unknown risks, many of which we are unable to predict or control. These and additional risk facto
Slide 3: Today's Program
Today’s Program Topic Presenter Welcome & Overview Scott Minder VP, Treasurer and Investor Relations What We Have Accomplished Rich Harshman Chairman, President and CEO What We Will Accomplish Bob Wetherbee CEO Designate How We Will Grow Kevin Kramer SVP, Chief Commercial and Marketing Officer High
Slide 4: What We Have Accomplished
WHAT WE HAVE ACCOMPLISHED Rich Harshman Chairman, President and CEO © 2018 ATI. All rights reserved.
Slide 5: Our Vision, Commitment & Core Values
Our Vision, Commitment & Core Values Our Vision Our Core Values Building the World’s Best Specialty Materials & Components Company™ • Integrity • Safety & Sustainability Our Commitment • Accountability Creating Long-Term Value Thru Relentless Innovation® • Teamwork & Respect • Innovation 5 Strategic
Slide 6: The Evolution of Today's ATI
The Evolution of Today’s ATI TM Aligned and integrated; Relentless Innovation focus 1998 2007 - 2009 2011 2013 2018 Precision Rolled Super Alloy Forge Ladish acquisition Tungsten Materials A&T Stainless ® Strip (STAL) JV (TSAF) business sold JV Formed 1996 1998 1999 2009 2007 - 2012 2008 - 2014 Orem
Slide 7: ATI has the Right Leadership Team
ATI has the Right Leadership Team Diverse backgrounds and career experiences Defining characteristics John Sims To Be Announced EVP, High EVP, Flat Rolled • Solid performance track record across business Performance Products Materials cycles and industries and Components • Bring unique perspectives
Slide 8: ATI Chose the Right CEO
ATI Chose the Right CEO Well-planned succession; dynamic and experienced leader Bob Wetherbee – CEO Designate • Joined ATI in 2010 to lead ATI’s former Tungsten Materials business • Successfully led FRP segment turnaround since 2014 • Significant aerospace market experience at ATI and Alcoa Bob Weth
Slide 9: What We Will Accomplish
WHAT WE WILL ACCOMPLISH Bob Wetherbee CEO Designate
Slide 10: Strategic Perspectives
Strategic Perspectives “Big picture” remains in clear focus; acceleration of key initiatives Focused on creating sustainable value for shareholders and customers • Diversified & market-focused; consistently delivering attractive capital returns • World-class execution to meet our customer’s expectat
Slide 11: High Performance Materials & Components
High Performance Materials & Components Technology-driven, critical supplier to key Aerospace & Defense customers Strategy & Outlook • Flawlessly execute on aerospace production ramp • Expand competitive moat via innovative technology and advanced capabilities • Leverage powder alloy development and
Slide 12: Flat Rolled Products
Flat Rolled Products Supplying increasingly differentiated specialty products to a wide variety of markets Strategy & Outlook • Sustainable profitability regardless of raw materials or trade policy • “Value over Volume” mix enrichment • Aggressive utilization of key assets • Expansion of profitable
Slide 13: Portfolio Synergies
Portfolio Synergies HPMC and FRP strategically aligned to meet diverse customer and market needs End market and product overlap drive cross-selling opportunities; enhances customer penetration Shared facilities allow for higher utilization rates, driving lower costs and improved supply logistics
Slide 14: Strategic Financial Guideposts
Strategic Financial Guideposts Significant financial growth expected; well-defined capital allocation priorities • Generate increasingly stronger free cash flow • Strengthen the balance sheet ─ Reduce debt and pension liabilities ─ Targeted 2x Debt to EBITDA ratio ─ Return to investment grade credit
Slide 15: ATI's Strategic Imperatives
ATI’s Strategic Imperatives Focus on the vital few initiatives that “move the needle” • Flawlessly execute aerospace production ramp ─ Required assets when and where we need them ─ Material science and problem-solving capabilities • Sustainable profitability in Flat Rolled Products ─ Improving produ
Slide 16: How We Will Grow
HOW WE WILL GROW Kevin Kramer SVP, Chief Commercial and Marketing Officer © 2018 ATI. All rights reserved. 16
Slide 17: Megatrends Driving Aerospace Markets
Megatrends Driving Aerospace Markets Global economic growth fueling increased demand for aircraft Global GDP Acceleration • Anticipated 2018 world GDP of 3.1%, an increase of 15% versus 2017 Increasing Air Traffic1 • Passenger traffic remains strong; 2018 revenue passenger kilometer (RPK) growth of
Slide 18: Airframe and Space Market Sectors
Airframe and Space Market Sectors Demanding end markets require innovation and advanced capabilities Key Customers Projected Total Market Growth • Boeing • Airbus 130 • Spirit • GKN 120 • SpaceX • Blue Origin 110 100 Products Sold 90 • Long Products • Castings 80 • Plate, Sheet, Foil • Forgings 70 •
Slide 19: Aero Engine Market Sector
Aero Engine Market Sector Next Generation engines driving ATI’s jet engine product sales growth ~2x market levels (2018 – 2022) Key Customers Projected Total Market Growth • GE Aviation • Rolls Royce 130 • Pratt & Whitney • SAFRAN AE 120 110 100 Products Sold 90 • Billet & Bar • Sheet 80 • Castings
Slide 20: Megatrends Driving Defense Markets
Megatrends Driving Defense Markets Push for global and regional influence fueling conflict and increased preparedness Defense Budget Growth • U.S. defense budget for procurement / research development test and evaluation expected to increase by 23% in 2019 vs. 2018 • ATI’s growth in Defense revenues
Slide 21: Defense Market Sector
Defense Market Sector Enhanced market presence and innovative products fuel ATI growth Key Customers Projected Total Market Growth (US Defense Budget)* • Aerojet Rocketdyne • Lockheed Martin 120 • BWXT/Bechtel • Sikorsky 110 • Boeing • Raytheon • General Dynamics • United Technologies 100 90 Product
Slide 22: Megatrends Driving Oil & Gas / Energy Markets
Megatrends Driving Oil & Gas / Energy Markets Population growth, globalization and environmental regulations create opportunities Population and GDP • With a projected world population of 8.7B by 2035, an additional 1.6B people will need energy • Global electricity demand is expected to increase by
Slide 23: Oil & Gas Market Sector
Oil & Gas Market Sector Resurgent market demand driven by new production methods and technologies Key Customers Projected Total Market Growth • BHGE • Technip/FMC 130 • Schlumberger • NOV 120 • Halliburton • Aker Solutions 110 100 Products Sold 90 • Billet & Bar • Plate, Sheet & 80 Precision Rolled
Slide 24: Electrical Energy Market Sector
Electrical Energy Market Sector Varied performance-driven end-markets requiring advanced material solutions Key Customers Projected Total Market Growth 130 • Siemens • Wartsila • GE Power • Cameco 120 • NuScale • Alfa Laval 110 100 90 Products Sold • Powder Metals 80 • Plate, Sheet, Coil • Cut Shape
Slide 25: Portfolio Management Process
Portfolio Management Process Rigorous data-driven approach ensures focus on the most valuable opportunities Portfolio Analysis: Business Mix Assessment Growth actions tracked along nine distinct levers Nine Box Analysis: Balanced Portfolio Assessment 160 Distribution D 140 120 New Segment/ $120M $50
Slide 26: ATI's Key End Markets
ATI’s Key End Markets Robust portfolio of opportunities across markets and regions Aerospace Markets • Continued market and share growth opportunities over the next 5-10 years for ATI’s differentiated materials and products Defense Markets • Growth opportunities in aircraft / engine, naval, ground v
Slide 27: High Performance Materials and Components
HIGH PERFORMANCE MATERIALS AND COMPONENTS John Sims EVP, High Performance Materials and Components Segment © 2018 ATI. All rights reserved. 27
Slide 28: High Performance Materials & Components (HPMC)
High Performance Materials & Components (HPMC) Vertically integrated producer of advanced specialty materials, parts and components Aerospace Other % Sales* % Sales* & Defense Markets Jet Medical Engine 8% 47% Elec. Energy Airframe 6% 17% Oil & Gas Defense 3% Const. & 11% Mining Mill Products (Melti
Slide 29: HPMC Business Units
HPMC Business Units Optimized material flow paths drive lowest cost to end-customers Specialty Materials Forged Products Specialty Alloys & Cast Products Components Bakers / Monroe, NC Cudahy, WI Millersburg, OR Albany, OR • Nickel and titanium • Broad range of • Exotic alloy materials • Large and c
Slide 30: HPMC Segment Evolution
HPMC Segment Evolution Leveraging our deep Jet Engine legacy 2008 2011 2018 Installed Superalloy Forge Acquired Ladish Co. Acquired Addaero Enabled powder billet technology, Forward integration into Extended capabilities and jet engine growth and advanced forgings and knowledge in feedstock differen
Slide 31: HPMC Strategic Direction
HPMC Strategic Direction Building on a position of competitive strength • Strong market position driven by: — Sound investments — Technical leadership — Customer-focused innovation • Financial growth primarily due to solid execution on the next generation jet engine ramp • Future expansion opportuni
Slide 32: HPMC Differentiated Growth Roadmap
HPMC Differentiated Growth Roadmap Robust product development pipeline and critical assets expand competitive moat Meet Aerospace Production Volume Requirements • Ability to ramp and scale production • Experienced & competitive workforce • Precision quality, on-time delivery • Industry 4.0 / Digital
Slide 33: Jet Engine Market
Jet Engine Market Execute, Innovate, Grow Commercial Jet Engine Deliveries 5,000 Expand technical leadership in differentiated materials and components: • Remain the supplier of choice 4,000 — Quality, delivery, service • Continue as the preferred customer technology partner 3,000 • Extend market sh
Slide 34: Airframe and Defense Markets
Airframe and Defense Markets Focused on differentiated opportunities in demanding applications Airframe Defense & Space • Continued focus on Boeing, • Increases in global defense growth opportunities with Airbus spending driving higher volumes • Capture market growth • Market value placed on highly
Slide 35: HPMC Outlook
HPMC Outlook Well positioned for long-term revenue and operating margin growth Segment Financial Outlook • Focused growth in highly-differentiated materials and $3.5 25% technologies, primarily for the Jet Engine market $3.0 $3.0 • Leverage scale and capabilities required for Jet Engine customers in
Slide 36: Flat Rolled Products Segment
FLAT ROLLED PRODUCTS SEGMENT Bob Wetherbee EVP, Flat Rolled Products © 2018 ATI. All rights reserved.
Slide 37: Flat Rolled Products (FRP)
Flat Rolled Products (FRP) Core U.S. operations and joint ventures serving global demand GLOBAL % Sales* REGIONAL % Sales* Oil Automotive & Gas 19% 29% Consumer Aero & Def. 14% 10% Electronics Elec. Energy 8% 6% All Other Melting / Hot Metal Finishing (Hot Roll, Cold Roll, PRS, Plate) 14% Packaging
Slide 38: FRP Strategic Growth
FRP Strategic Growth Value enhancing shift toward profitable global markets and high-value products Global Markets 2012 Revenue % 2017 Revenue % 2018 Q3 YTD Revenue % Outlook Oil & Gas 26% 24% 29% Aero & Defense 7% 10% 10% Elec. Energy 17% 6% 6% TOTAL 50% 40% 45% High-Value Products 2012 Revenue % 2
Slide 39: FRP Revenue Trends
FRP Revenue Trends Current growth in key markets; prior exit of unprofitable business lines Key Revenue Drivers • Exited economically unfeasible grain oriented electrical steel Segment Revenue business (2015) $2.5 • Shuttered 60-inch commodity stainless melt shop (Midland, $2.2 PA) due to negative b
Slide 40: FRP Margin Trends
FRP Margin Trends Ongoing operating profit improvement driven by strategic actions Key Operating Profit Drivers Operating Profit • Negative impact from 7-month work stop (2015/2016) $100 8.0% +150- 300b.p. • Ongoing mix shift to higher-value, higher-margin $50 37 products 4.0% 2014 2015 2016 2.5% —
Slide 41: FRP Strategic Focus Areas
FRP Strategic Focus Areas Relentless InnovationTM drives differentiation Enhanced new product development capability Improved operational and capital efficiency • Commercialized 4+ new HRPF-enabled alloys • Optimization of hot-rolling mill • Focused on materials with strength at high • Optimization
Slide 42: FRP Strategic Levers
FRP Strategic Levers Driving sustainable profitability and operating cash flow across the business cycle Mix Enrichment HRPF-enabled new products / high-growth markets Capital Efficient Asset Utilization A&T Stainless JV & carbon conversion agreements Expand Global Joint Venture ® Unlock full potent
Slide 43: FRP Financial Outlook
FRP Financial Outlook Continued growth in 2019; ongoing opportunities in 2020 and beyond > $100M* 2019 Target Operating Profit $100M* Growth beyond 2019: • Growth in key markets Process • A & T Stainless JV Section Automation & 232 tariff exclusion Melt Optimization • Add’l HRPF carbon HRPF Carbon c
Slide 44: Financial Priorities
FINANCIAL PRIORITIES Pat DeCourcy SVP, Finance and Chief Financial Officer © 2018 ATI. All rights reserved.
Slide 45: Financial Goals
Financial Goals Broad efforts to improve ATI’s financial strength Strengthen Balance Sheet Fully Fund U.S. Defined Benefit (DB) Pension Plan Improve Return on Capital © 2018 ATI. All rights reserved. 45
Slide 46: U.S. Defined Benefit Pension Plan
U.S. Defined Benefit Pension Plan Proactive liability management to reduce balance sheet risk Strategic actions and outlook ATI Pension Plan Participation • Plan now fully closed to new entrants 35,000 >45% total participant • Proactively reducing pension plan population 30,000 reduction since 2012
Slide 47: Current Debt Structure
Current Debt Structure Ongoing leverage reduction to decrease equity market volatility Current Debt/EBITDA ratio: ~3.1x Completed Action Incl. Current Interest Rates $600 • Redeemed $350M debt @ 9.375% interest rate due 2019 5.95% 7.875% $500 Early ─ Used ~98% of proceeds from follow-on equity offer
Slide 48: Cash Management
Cash Management Continued focus on improving cash conversion via managed working capital Strategic Actions Managed Working Capital % Sales • Inventory 1,500 50% — Strong emphasis on product cycle time reduction 1,400 • Accounts Receivable 45% 1,300 — Continued aggressive collection processes • Accou
Slide 49: Free Cash Flow
Free Cash Flow Improving cash position enables capital deployment opportunities Cash Flow Improvement Drivers Free Cash Flow Outlook* • Increasing EBITDA in both segments • Capital expenditures directly tied to profitable $260 >$300 per year avg. growth from long-term customer agreements ─ 2019 – 20
Slide 50: Capital Deployment Priorities
Capital Deployment Priorities Balancing growth, risk reduction and shareholder return initiatives Growth Capital Investment • Ensure that we can meet aerospace ramp commitments Top Priorities • Prepay all or a portion of 2022 term loan Pay Down Debt • Eliminate a portion of debt due 2021 Fully fund
Slide 51: Financial Goals
Financial Goals Targeted actions to achieve defined objectives Strengthen Balance Sheet Debt/EBITDA Ratio Target 2.0x Fully Fund U.S. DB Pension Plan Plan Funded 100% Improve Return on Capital ROIC > WACC Consistently © 2018 ATI. All rights reserved. 51
Slide 52: Final Thoughts
FINAL THOUGHTS Bob Wetherbee CEO Designate © 2018 ATI. All rights reserved.
Slide 53: Strategic Perspectives
Strategic Perspectives Big picture remains in clear focus; acceleration of key initiatives Focused on creating sustainable value for shareholders and customers GROWTH Globally recognized leader in advanced materials and components INNOVATION World-class talent served by robust, consistent tools FOUN
Slide 54: Thank You
Thank You
Slide 55: Regulation FD Statement
Regulation FD Statement The question and answer portion of this event is not being webcast. In accordance with Regulation FD, we will not be discussing any material non-public information during this question and answer session. © 2018 ATI. All rights reserved. 55
Slide 56: Q&A
Q&A © 2018 ATI. All rights reserved.
Slide 57: Appendix Material
Appendix Material © 2018 ATI. All rights reserved.
Slide 58: Non-GAAP Financial Measures
Allegheny Technologies Incorporated and Subsidiaries Non-GAAP Financial Measures (dollars in millions) The Company reports its financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). However, management believes that certain non-GAAP fi