Schnitzer Investor Presentation. Cowen Global Metals and Mining Conference. November Nasdaq: SCHN

Transcription

1 Schnitzer Investor Presentation Cowen Global Metals and Mining Conference November 2015 Nasdaq: SCHN

2 SAFE HARBOR Statements and information included in this presentation that are not purely historical are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of Except as noted herein or as the context may otherwise require, all references to we, our, us and SSI refer to the Company and its consolidated subsidiaries. Forward looking statements in this presentation include statements regarding future events or our expectations, intentions, beliefs and strategies regarding the future, which may include statements regarding trends, cyclicality and changes in the markets we sell into; expected results, including pricing, sales volumes and profitability; strategic direction; changes to manufacturing and production processes; the cost of and the status of any agreements or actions related to our compliance with environmental and other laws; expected tax rates, deductions and credits; the realization of deferred tax assets; planned capital expenditures; liquidity positions; ability to generate cash from continuing operations; the potential impact of adopting new accounting pronouncements; obligations under our retirement plans; benefits, savings or additional costs from business realignment, cost containment and productivity improvement programs; and the adequacy of accruals. Forward looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as believes, expects, anticipates, intends, assumes, estimates, evaluates, may, will, could, opinions, forecasts, projects, plans, future, forward, potential, probable, and similar expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward looking. We may make other forward looking statements from time to time, including in reports filed with the Securities and Exchange Commission, press releases and public conference calls. All forward looking statements we make are based on information available to us at the time the statements are made, and we assume no obligation to update any forward looking statements, except as may be required by law. Our business is subject to the effects of changes in domestic and global economic conditions and a number of other risks and uncertainties that could cause actual results to differ materially from those included in, or implied by, such forward looking statements. Some of these risks and uncertainties are discussed in Item 1A. Risk Factors of our most recent Annual Report on Form 10 K. Examples of these risks include: potential environmental cleanup costs related to the Portland Harbor Superfund site; the cyclicality and impact of general economic conditions; volatile supply and demand conditions affecting prices and volumes in the markets for both our products and raw materials we purchase; imbalances in supply and demand conditions in the global steel industry; the impact of goodwill impairment charges; the impact of long lived asset impairment charges; the realization of expected benefits or cost reductions associated with productivity improvement and restructuring initiatives; difficulties associated with acquisitions and integration of acquired businesses; customer fulfillment of their contractual obligations; the impact of foreign currency fluctuations; potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under our bank credit agreement; the impact of the consolidation in the steel industry; inability to realize expected benefits from investments in technology; freight rates and availability of transportation; impact of equipment upgrades and failures on production; product liability claims; the impact of impairment of our deferred tax assets; the impact of a cybersecurity incident; costs associated with compliance with environmental regulations; the adverse impact of climate change; inability to obtain or renew business licenses and permits; compliance with greenhouse gas emission regulations; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate. 2

3 Company Overview Leading North American Auto and Metals Recycler and integrated West Coast Steel Manufacturer Fiscal Year 2015 Segment Adjusted Operating Income Auto and Metals Recycling (AMR) 58% 42% (SMB) Steel Manufacturing Business Founded: 1906 Nasdaq: SCHN Annual Dividend: $0.75* *Dividends paid since 1994 Sourcing Scrap 55 auto parts stores purchase ~337,000 salvage vehicles annually 50 metals recycling facilities collect obsolete machinery and equipment, railroad cars and tracks, automobiles, home appliances, consumer goods, and manufacturing, construction and demolition metal Processing Scrap Metal ~3.7 million long tons of ferrous and ~585 million pounds of nonferrous annually for use in steel and other manufacturing globally Producing Finished Steel 100% of scrap sourced through AMR to produce long products for construction markets on the West Coast and Western Canada 3

4 Geographic Platform Enables Worldwide Access Sourcing scrap through 105 auto parts and metals recycling facilities in North America and providing processed recycled metals to customers around the world Northwest 26 AMR North America Asia Northeast 14 AMR EAME CA / HI 30 AMR Midwest 16 AMR Southeast 19 AMR FY15 Ferrous Sales Volumes by Region 28% Asia EAME Americas 43% 29% Schnitzer export facilities Schnitzer facilities Export destinations EAME: Europe, Africa, Middle East 4

5 Navigating Through Macro Headwinds Global macroeconomic events correlate with significant scrap price declines Global Financial Crisis European Debt Crisis Slower Global Growth Source: AMM data as of October 30,

6 Fiscal 2015 Accomplishments Successfully navigated challenging market conditions Accomplished integration of AMR and achieved initial synergies from AMR Operating leverage in SMB led to best annual result since 2008 Delivered targeted savings & productivity improvements 2H15 includes $28 million of benefits, with full annual run rate of $60 million expected in FY16 Platform flexibility and sustainable results Improved logistics capability Enhanced operational processes Invested in commercial technology analytics Generated $145 million operating cash flow Reduced debt to lowest level since th consecutive quarterly dividend paid 6

7 Fiscal 2015 Performance Trends Consolidated Adjusted Operating Income (1) ($2) 1HFY15 $22 $13 2HFY15 $34 $ Ms Consolidated Adjusted Operating Income (Loss) Consolidated Adjusted Op Inc Excluding Estimated Impact of Average Inventory Accounting Consolidated Adjusted EBITDA Per Sales Ton (1)(2) $22 $22 54% 31% $18 $29 Improving trends despite lower volumes and market prices Higher operating income and EBITDA driven by productivity initiatives and cost savings In FY15, results were impacted adversely by ~$45 million from average inventory accounting (3) In contrast, there was no material impact on the FY14 results from average inventory accounting (3) FY14 1) For a reconciliation of Adjusted Operating Income, Adjusted EBITDA, Impact of Average Inventory Accounting see Non GAAP reconciliation in appendix 2) Sales tons are in long tons and include Ferrous sales volumes, Nonferrous sales volumes, and Finished steel sales volumes 3) Based on the cumulative quarterly estimated impact of average inventory accounting, see appendix FY15 Consolidated Adjusted EBITDA per Sales Ton Consol. Adj. EBITDA Excluding Estimated Impact of Average Inventory Accounting 7

8 AMR Operating Trends QUARTERLY OPERATING PERFORMANCE ANNUAL SEGMENT SG&A $10 $19 ($ Per Ferrous Ton) $21 $16 $6 $17 $23 $138 $129 ($4) $Ms FY14 FY15 1Q15 2Q15 3Q15 4Q15 $ Per Ferrous Ton Adjusted Operating Income Adj Op Inc Ex-Estimated Impact of Avg Inventory Accounting Adjusted operating income per ton increased during FY15 despite the impact of lower ferrous sales volumes and price declines 2HFY15 improvement includes the positive impact from productivity improvement and cost savings initiatives Improvement in nonferrous sales and auto store car purchase volumes in 4Q15 FY15 60% FERROUS SHIPMENTS 40% Ferrous domestic shipments partially offset weaker export demand FY14 65% Domestic 35% Export Note: For a reconciliation to GAAP, see appendix 8

9 SMB Operating Trends QUARTERLY OPERATING INCOME ANNUAL SEGMENT SG&A $6.2 $3.8 $4.3 $6.0 $7.3 $6.2 $Ms 1Q15 2Q15 3Q15 4Q15 Best annual results since FY2008; continuing five year trend of annual improvement Improving West Coast nonresidential construction demand drove sequentially higher quarterly sales volumes Operating income improved 10% YOY as operating leverage from lower SG&A and steady volumes more than offset lower selling prices FY15 rolling mill utilization increased to 73% from 70% YOY $Ms FY14 FY15 QUARTERLY SALES VOLUMES % 76% 69% 74% Q15 2Q15 3Q15 4Q15 Volumes (000 ST) Rolling Mill Utilization Note: For a reconciliation to GAAP, see appendix 9

10 Cash Flow and Capital Structure $Ms Operating Cash Flow $64 $65 $32 ($16) 1Q15 2Q15 3Q15 4Q15 Net Debt $326 $306 $254 $205 Improving trends despite lower volumes and market prices FY15 operating cash flow of $145 million Net debt reduced to $205 million as a result of the strong cash flow in FY15 - Reduced net debt by $49 million from Q3FY15 - Net debt leverage 28% 86 th consecutive quarterly dividend FY15 capital expenditures of $32 million $Ms 1Q15 2Q15 3Q15 4Q15 10

11 FY15 / FY16 Strategic Priorities Delivering operational and economic benefits to increase long term shareholder value Priorities FY15 Strategic Actions FY16 Strategic Plans Cost Savings Productivity Improvements Inventory Turns AMR Integration Logistics Capability Contributed $14 million to Operating Income Contributed $14 million to Operating Income Increased inventory turns by 24% during past twelve months Completed integration of MRB and APB Enhanced platform flexibility to increase access to domestic markets Process Improvements Commercial Technology Investments in process improvements increased SMB s productivity Implemented commercial analytic systems for both auto and metals buy programs 11

12 Positioned for Increased Earnings Power Actions taken in FY15 have created the foundation for significantly stronger forward earnings power: Delivered on the productivity and cost savings commitments contributing benefits of ~$28 million during 2HFY15 Increased sequential quarterly operating margins despite declining ferrous sales volumes and prices Invested in process improvements to enhance logistic capabilities in order to improve access to domestic markets Generated strong operating and free cash flows further strengthening our balance sheet while returning capital to shareholders 12

13 APPENDIX Fiscal Year

14 Non GAAP Financial Measures This presentation contains certain non GAAP financial measures as defined under SEC rules such as adjusted consolidated operating income (loss), adjusted AMR operating income (loss), adjusted operating income excluding the impact of average inventory accounting, adjusted net income (loss) from continuing operations attributable to SSI and adjusted diluted earnings per share attributable to SSI. As required by SEC rules, the Company has provided reconciliations of these measures to the most directly comparable U.S. GAAP measures. Management believes that each of the foregoing adjusted non GAAP financial measures provides a meaningful presentation of the Company's results from its core business operations excluding adjustments for a goodwill impairment charge, other asset impairment charges and restructuring and other exit related costs that are not related to the Company's ongoing core business operations and improves the period to period comparability of the Company's results from its core business operations. In addition, to improve comparability of our operating performance between periods, these measures also exclude the impact on operating results in fiscal 2015 from the resale or modification of the terms during the first and second quarters of 2015 of certain previously contracted ferrous bulk shipments. Due to the sharp decline in selling prices that occurred during the first and second quarters of fiscal 2015, the revised prices associated with these shipments were significantly lower than the prices in the original sales contracts entered into between August and November Further, management believes that: Adjusted EBITDA and Free Cash Flow are useful measures of the Company s financial performance and liquidity; Debt, net of cash is a useful measure for investors because, as cash and cash equivalents can be used, among other things, to repay indebtedness, netting this against total debt is a useful measure of our leverage; and Adjusted operating income excluding estimated impacts of average inventory accounting is a useful indicator of the Company s financial performance because it excludes the impact of the rapid changes in purchase prices compared to our cost of goods sold which adjust more slowly due to use of average inventory accounting and provides a measure of operating performance excluding the timing differential. These non GAAP financial measures should be considered in addition to, but not as a substitute for, the most directly comparable U.S. GAAP measures. 14

15 Non GAAP Financial Measures The following is a reconciliation of each of these measures to the most directly comparable US GAAP measure 15

16 Non GAAP Financial Measures The following is a reconciliation of each of these measures to the most directly comparable US GAAP measure 16

17 Non GAAP Financial Measures Adjusted EBITDA Earnings Before Interest, Taxes, Depreciation, Amortization, goodwill and other asset impairments and restructuring charges and other exit related costs, net income attributable tononcontrollinginterests, discontinued operations, and contract resale or modification. The following is a reconciliation of net income (loss) attributable to SSI and Adjusted EBITDA: 17

18 Non GAAP Financial Measures Net Debt Leverage Ratio Debt, net of cash is the difference between (i) the sum of long term debt and short term debt (i.e., total debt) and (ii) cash and cash equivalents. The leverage ratio of net debt to capital is the net debt as a percentage of net debt plus total equity. The following is a reconciliation of the net debt leverage ratio: 18

19 Adjusted Operating Income: Excluding Estimated Average Inventory Accounting Estimated Effect of Average Inventory Accounting We account for the cost of our inventory using the average cost method. In periods of rising or falling selling prices for our products, we adjust the purchase price paid for raw materials, however, the cost of our inventory changes more slowly than the purchase prices due to the effect of the average cost method. As a result, changes in the average inventory cost recorded through our cost of goods sold lag the changes in purchase prices, thus generally impacting our operating margin positively in periods of rising market prices and negatively in periods of falling market prices. The following is a presentation and the estimated impact of average inventory accounting during the comparable periods: 19