Russel Metals Inc. · TSX:RUS
Russel Metals — Investor Presentation (December 2016)
44 slides from Russel Metals's investor presentation, December 2016
Slide 1: Russel Metals December 2016
‘Russel Metals DECEMBER 2016
Slide 2: Cautionary Statement on Forward-Looking Information
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION Certain statements contained in this document constitute forward-looking statements or information within the meaning of applicable securities laws, including statements as to our future capital expenditures, our outlook, the availability of future
Slide 3: Overview of Russel Metals
OVERVIEW OF RUSSEL METALS We are one of the largest metals distribution and processing companies in North America. We are one of the largest pipe, valve and fittings companies in North America. Consolidated Revenues: Year ended December 31, 2016 - $2.6 billion Year ended December 31, 2015 - $3
Slide 4: EPS – 2010 - 2016
EPS – 2010 - 2016 $2.50 $2.36 $1.97 $2.00 $1.63 $1.50 $1.37 $0.99 $1.02 $0.96 $1.00 $0.50 $- 2010 2011 2012 2013 2014 2015 2016 Notes: 2012 – restated due to adoption of IAS 19 (amended 2011) 2014 & 2015 – adjusted earnings per share 4
Slide 5: Net Cash Position 2015 - 2016
NET CASH POSITION 2015 - 2016 $0 ($100,000) ($200,000) ($300,000) ($400,000) ($500,000) 5
Slide 6: Debt Equity Ratio
DEBT EQUITY RATIO 0.70 0.60 0.50 0.40 0.30 0.20 0.10 - 2010 2011 2012 2013 2014 2015 2016 6
Slide 7: Dividends
DIVIDENDS Our Conservative Capital Structure Means • We can fund the current dividend The Board Reviews the Dividend Quarterly to Determine • Should we? Counter cycle Cash Flow At the bottom of the cycle we generate cash from working capital From 2010 to 2014 the Dividend Payout Ratio was 80%
Slide 8: Three Distinct Segments
THREE DISTINCT SEGMENTS REVENUES YEAR ENDED 2016 (2015) Steel Distributors 12% (13%) Energy Metals Service Products Centers 34% (39%) 54% (48%) 8
Slide 9: Operating Units
OPERATING UNITS CANADA METALS SERVICE CENTERS STEEL DISTRIBUTORS ENERGY British Columbia Wirth Steel Comco Pipe Apex Distribution Alberta (A.J. Forsyth) (Montreal) (Alberta) (Alberta) Fedmet Tubulars Triumph Tubulars Man/Sask Ontario (Alberta) (Alberta) Quebec Atlantic (Acier Leroux) U.S. METALS SER
Slide 10: Balance Sheet as at December 31, 2016
BALANCE SHEET AS AT DECEMBER 31, 2016 (millions) ASSETS EMPLOYED Cash $ 182 12% Accounts Receivable 359 24% Inventories 616 41% Property, Plant and Equipment 240 16% Goodwill/Intangibles 86 6% Other 26 1% $ 1,509 100% FINANCED BY Bank Indebtedness $ 35 2% Trade Creditors 314 21% Mezzanine Debt 296 2
Slide 11: Broad Product Focus Breakdown
BROAD PRODUCT FOCUS BREAKDOWN FOR YEAR ENDED DECEMBER 31, 2016 (2015) Flat Rolled Non Ferrous Bars 6.6% (4.5%) 3.7% (3.0%) Other 6.0% (5.5%) 5.1% (4.2%) Pipe Products 23.3% (27.6%) Plate 17.9% (18.9%) Structurals Flanges, Valves, Fittings & (Beams & HSS) Other Energy 21.7% (20.1%) 15.7% (16.2%) 11
Slide 12: Top Mill Suppliers for 2016
TOP MILL SUPPLIERS FOR 2016 % of total purchased Products Purchased Supplier 1 8.7% Bars, Structurals Supplier 2 6.6% Plate Supplier 3 6.3% Flat Roll, Plate Supplier 4 5.9% Tubing / Pipe Supplier 5 5.8% Flat Roll, Plate Supplier 6 4.5% Bars, Structurals Supplier 7 3.3% Flat Roll, Plate Supplier 8 2.
Slide 13: Service Center/Distribution Competitors
SERVICE CENTER/DISTRIBUTION COMPETITORS TOP 14 BY REVENUE Public/ (in billions) 2015 2014 Private Headquarters Reliance Steel & Aluminum Co. $ 9.4 $ 10.5 Public U.S MRC Global 4.0 5.1 Public U.S Ryerson Inc. 3.2 3.6 Public U.S Russel Metals Inc. 3.1 3.9 Public Canada NOW Inc. 3.0 4.1 Public U.S Samu
Slide 14: Market Trends
MARKET TRENDS 14
Slide 15: Monthly Service Center Shipments – Steel Products
MONTHLY SERVICE CENTER SHIPMENTS – STEEL PRODUCTS US CANADA 4500 900.0 4000 800.0 3500 700.0 Canadian shipments - Tons in Thousands US Shipments- Tons in Thousands 3000 600.0 2500 500.0 2000 400.0 1500 300.0 1000 200.0 500 100.0 0 0.0 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Ju
Slide 16: Price of HR Sheet & HR Plate
1020 1220 1420 1620 220 420 620 820 20 5-Jan-07 5-Apr-07 5-Jul-07 5-Oct-07 5-Jan-08 5-Apr-08 5-Jul-08 5-Oct-08 5-Jan-09 5-Apr-09 5-Jul-09 5-Oct-09 5-Jan-10 5-Apr-10 5-Jul-10 5-Oct-10 5-Jan-11 5-Apr-11 5-Jul-11 5-Oct-11 5-Jan-12 (US $ per ton) 5-Apr-12 5-Jul-12 5-Oct-12 5-Jan-13 5-Apr-13 5-Jul-13 5-O
Slide 17: Carbon Plate and Russel Metals EBIT
CARBON PLATE AND RUSSEL METALS EBIT $1,600 $160 $150 Carbon Plate EBIT $1,400 $140 $130 $1,200 $120 $110 Carbon plate (US$ per ton) EBIT (millions of dollars) $1,000 $100 $90 $800 $80 $70 $600 $60 $50 $400 $40 $30 $200 $20 $10 $- $- Q1-2008 Q4-2008 Q3-2009 Q2-2010 Q1-2011 Q4-2011 Q3-2012 Q2-2013 Q1-
Slide 18: Scrap Pricing
$- $500.00 $600.00 $300.00 $400.00 $100.00 $200.00 5-Jan-07 5-Apr-07 5-Jul-07 5-Oct-07 5-Jan-08 5-Apr-08 5-Jul-08 5-Oct-08 5-Jan-09 5-Apr-09 5-Jul-09 5-Oct-09 5-Jan-10 5-Apr-10 5-Jul-10 5-Oct-10 5-Jan-11 5-Apr-11 5-Jul-11 5-Oct-11 5-Jan-12 5-Apr-12 5-Jul-12 5-Oct-12 5-Jan-13 5-Apr-13 AMM Scrap Value
Slide 19: Mill Production Tons
Net Tons (000's) 700 900 1,100 1,300 1,500 1,700 1,900 2,100 5-Jan-08 5-Mar-08 5-May-08 5-Jul-08 5-Sep-08 2008 5-Nov-08 5-Jan-09 5-Mar-09 5-May-09 5-Jul-09 5-Sep-09 2009 5-Nov-09 5-Jan-10 5-Mar-10 5-May-10 5-Jul-10 2010 5-Sep-10 5-Nov-10 5-Jan-11 5-Mar-11 5-May-11 5-Jul-11 5-Sep-11 2011 5-Nov-11 5-J
Slide 20: North America Rig Count
1000 1250 1500 1750 2000 2250 250 500 750 0 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 U.S NORTH AMERICA RIG COUNT Jul-14 Canada Jan-15 Jul-
Slide 21: RMI Operations
RMI OPERATIONS METALS STEEL SERVICE DISTRIBUTORS CENTERS ENERGY PRODUCTS 22
Slide 22: Metals Service Centers – Strong Canadian Franchise
METALS SERVICE CENTERS – STRONG CANADIAN FRANCHISE 2016 revenues of $1.4 billion, EBIT of $58 million. 2015 revenues of $1.5 billion, EBIT of $42 million. 50 Metals Service Centers in Canada. 14 Metals Service Centers in U.S. Broad customer base - 26,000 Canadian, 17,000 U.S. Average inv
Slide 23: Role of Metals Service Centers
ROLE OF METALS SERVICE CENTERS Suppliers Metals Service Centers Customers • Mills producing base metal • Source material and • Manufacturers, fabricators products purchase in large quantity • Processing includes • Process material to meet • Focused on design, pickling, blanking, tube specific custom
Slide 24: Location of Operations – Metals Service Centers
LOCATION OF OPERATIONS METALS SERVICE CENTERS 25
Slide 25: Metals Service Centers - Units
OPERATIONS METALS SERVICE CENTERS - 64 UNITS Canada Alberta/Manitoba/Saskatchewan – 16 units British Columbia – 8 units Quebec – 12 units Ontario – 9 units Atlantic – 5 units United States 3 units 1 unit 9 units 1 unit 26
Slide 26: Metals Service Centers Processing Capabilities
METALS SERVICE CENTERS PROCESSING CAPABILITIES • Cutting-to-Length • Stretcher Leveling • Blanking • Leveling • Edge Trimming • Slitting • Oxygen Fuel Cutting • Plasma Cutting • Hi-definition Plasma Cutting • Laser Cutting • Drilling, Tapping, Beveling 27
Slide 27: Processing Capabilities
PROCESSING CAPABILITIES • Shearing • Braking • Rolling • Shot Blasting • Sawing • Mitre Sawing • Bundle Cutting 28
Slide 28: Top Metals Service Centers Customers
TOP METALS SERVICE CENTERS CUSTOMERS YEAR ENDED DECEMBER 31, 2016 % of Segment Customer End Market Revenues Products Purchased Customer 1 Transportation 1.5% Flat Rolled, Tubing Customer 2 Steel Mill 1.0% Plate (Discreet & Plate in Coil) Customer 3 Mining 1.0% Structurals (WF & I Beam, Structural An
Slide 29: Metals Service Centers Revenue & Operating Profit
METALS SERVICE CENTERS REVENUE & OPERATING PROFIT AS A % OF REVENUES 10.0% $500 10% $450 8.6% $400 8% 7.5% 7.1% $350 6.6% 6.2% 6.1% 5.9% $300 5.7% 6% 5.4% 5.4% 5.4% 5.3% 5.0% 5.0% 5.0% ($000,000's) $250 3.8% 3.8% $200 4% 3.3% 3.3% 2.8% $150 2.6% 2.2% $100 1.4% 2% $50 $364 $388 $390 $375 $428 $432 $3
Slide 30: Energy Products
ENERGY PRODUCTS 2016 revenues of $0.9 billion, EBIT of $19 million. 2015 revenues of $1.2 billion, EBIT of $33 million. Apex Distribution, Apex Monarch & Apex Western Fiberglass - Western Canada Apex Remington - Central U.S. Fedmet Tubulars & Triumph Tubular - Calgary Comco Pipe & Supply Compa
Slide 31: Role of Pipe Distributors
ROLE OF PIPE DISTRIBUTORS Suppliers Pipe Distributors Customers • Mills producing pipe, • Source material and • Oil and gas valves and fittings purchase in large quantity producers/distributors • Processing includes • Arrange coating if • Focused on production coating required • Limited ability to s
Slide 32: Role of Valve and Fitting Field Stores
ROLE OF VALVE AND FITTING FIELD STORES Suppliers Field Stores Customers • Mills producing pipe, • High service model • Oil and gas valves and fittings producers/distributors • Limited ability to service • Located close to • Focused on production multiple customer needs customer base and rig down tim
Slide 33: Well Positioned to Service North American Energy Sector
WELL POSITIONED TO SERVICE NORTH AMERICAN ENERGY SECTOR ENERGY PRODUCTS 25 34
Slide 34: Energy Products - Units
ENERGY PRODUCTS - 68 UNITS Canada Alberta/B.C./Manitoba/Saskatchewan – 42 units Alberta/Manitoba/Ontario – 5 units Alberta – 1 unit Alberta – 1 unit United States East and Central U.S. – 12 units Colorado / Texas – 6 units Texas – 1 unit 35
Slide 35: Top Energy Products Customers
TOP ENERGY PRODUCTS CUSTOMERS YEAR ENDED DECEMBER 31, 2016 % of Segment Customer End Market Revenue Products Purchased Customer 1 Oil drilling, Gas drilling 8.8% Pipe, Flanges & Fittings , Valves Customer 2 Oil drilling, Gas drilling 4.8% Pipe, Flanges & Fittings , Valves Customer 3 Oil feeder lines
Slide 36: Energy Products Revenue & Operating Profit
ENERGY PRODUCTS REVENUE & OPERATING PROFIT AS A % OF REVENUES $500 10% $450 7.9% $400 8% 7.3% 7.2% 7.3% 7.4% 6.8% 6.9% $350 6.6% 6.5% 6.3% 5.9% $300 5.6% 6% ($000,000's) 5.4% 5.2% 5.4% 5.0% 5.5% $250 4.6% 4.6% $200 4% 3.6% 2.7% 2.8% $150 2.2% $100 2% 0.4% $50 $224 $145 $223 $234 $275 $192 $249 $344
Slide 37: Steel Distributors
STEEL DISTRIBUTORS 2016 revenues of $305 million, EBIT of $29 million. 2015 revenues of $398 million, loss of $6 million. Sunbelt Group, Arrow Steel – Houston, Texas; Wirth Steel – Montreal, Vancouver Arrow Steel provides coil processing in Houston, Texas Customers – other steel service ce
Slide 38: Role of Steel Distributors
ROLE OF STEEL DISTRIBUTORS Suppliers Steel Distributors Customers • Mills producing base metal • Source material and • Large original equipment products purchase in large quantity manufacturers • Processing includes • Arrange logistics for • Smaller service centers pickling, blanking, tube delivery
Slide 39: Location of Operations – Steel Distributors
LOCATION OF OPERATIONS STEEL DISTRIBUTORS 40
Slide 40: Steel Distributors - Units
STEEL DISTRIBUTORS - 6 UNITS Canada Wirth Steel – Montreal, Vancouver United States Sunbelt Group - Houston, Texas (2) 41
Slide 41: Top Steel Distributor Customers
TOP STEEL DISTRIBUTOR CUSTOMERS YEAR ENDED DECEMBER 31, 2016 % of Segment Customer End Market Revenues Products Purchased Customer 1 Service center - laser processor 13.9% Plate Customer 2 Other - Plumbing Supply 9.6% Tubing/Pipe (Standard, OCTG) Customer 3 Service center - processor 8.9% Stucturals
Slide 42: Steel Distributors Revenue & Operating Profit
STEEL DISTRIBUTORS REVENUE & OPERATING PROFIT AS A % OF REVENUES $200 12.6% 12.6% 12% 11.0% 11.1% $175 9.8% 9.8% 9.6% 9.6% 10% $150 9.2% 8.8% 9.1% 8.0% 8.1% $125 7.7% 8% ($000,000's) 7.5% 6.7% 7.4% 7.2% $100 6.7% 6% 6.1% 5.3% 5.4% $75 4% $50 2.2% 2% $25 1.8% $70 $83 $90 $101 $99 $92 $78 $81 $74 $65
Slide 43: Summary
SUMMARY 44
Slide 44: Summary
SUMMARY Leading market position Strong supplier relationships and unique market insight Successful acquisition strategy to deploy capital Multiple business segments Diversified service center and energy customer base Superior service and product availability Prudent inventory managemen
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