May 2013 Materion Corporation – Investor Presentation
Forward-Looking Statements These slides contain (and the accompanying oral discussion will contain) “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by these statements, including health issues, litigation and regulation relating to our business, our ability to achieve and/or maintain profitability, significant cyclical fluctuations in our customers’ businesses, competitive substitutes for our products, risks associated with our international operations, including foreign currency rate fluctuations, energy costs and the availability and prices of raw materials, the timing and ability to achieve further efficiencies and synergies resulting from our name change and product line alignment under the Materion name and brand, and other factors disclosed in periodic reports filed with the Securities and Exchange Commission. Consequently these forward-looking statements should be regarded as the Company’s current plans, estimates and beliefs. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 2
Materion (MTRN) • An Advanced Materials Company • Strong Global Positions in Attractive and Growing Markets • Solid Record of Long-term Growth • Strong Value-added* Margins • Market Cap: $585 Million 3/29/13 • Shares Outstanding: 20.8 million • Annual EPS: $1.75 - $2.00 (Forecast 2013) • Strong Balance Sheet: Debt-to-Debt-Plus Equity 21% • Dividend: $0.32 annualized * Excludes pass-through metals 3
Identify High Growth Secular Markets 4 Market Q1 2013 % of Value- added Sales Macro Trends Key Drivers Consumer Electronics 27% • Smartphone growth • Tablet computers & LEDs • Miniaturization Industrial Components & Commercial Aerospace 18% • New airplane builds & retrofits • Increasing air travel • Heavy equipment builds Automotive Electronics 11% • Increasing global car production • HEV/EV lithium ion battery components • Engine control & electronic systems Medical 10% • Glucose testing • Blood analysis test coating for medical diagnosis • Diagnostics equipment Defense & Science 9% • DoD & foreign military budgets • Demand for communications satellites • High performance optical devices Energy 7% • Directional drilling • Rig counts • Solar, batteries & smart grid devices Telecommunications Infrastructure 6% • Global 3G/4G builds • Base stations • Undersea fiber-optics expansion
Unique Global Positions – Advanced Materials • World’s Only Fully Integrated Producer of Beryllium and Beryllium Alloys – Over 75 years of reserves at Utah 5 Leading Global Position • Unique Copper-Nickel-Tin Material ToughMet® – Multiple advanced applications growing at over 30% annually • Precision Optical Coatings – Visible to Infrared Bandwidth – “Go To” Supplier for defense, thermal imaging, space, medical and advanced consumer applications • High Purity Gold Products for Semiconductor Fabrication (Wireless & LED) – Offering “full metal management” capabilities • Specialty Coatings for Blood Analysis Test Strips for Medical Diagnosis – Diabetes
Broadening our Reach Through Acquisitions and Materials Innovation 2002 Today 6 Beryllium and Alloys Key Markets: Automotive Electronics Defense and Science Telecom & Infrastructure Semiconductor Appliance Key Markets: Automotive Electronics Defense and Science Telecom & Infrastructure Semiconductor Appliance Plus Expansion and/or entry into the following: Consumer Electronics Commercial Aerospace Heavy Industrial Equipment Services Optical Energy – Conventional and Alternative Medical Industrial Precious Metals and Microelectronics Packaging Beryllium and Alloys Industrial Precious Metals and Microelectronics Packaging New Non-Be Alloys and Composites Optical and Medical Coatings Specialty Chemicals Broadened Precious and Semi-Precious Metals
High Operating Margins GAAP Margin Value-added(1) Margin Gross Profit 14% - 16% 35% - 40% Operating Profit 3% - 5% 9% - 12% 7 Removing High Value Metals Clarifies Margins (1) Normal margin range excluding non-recurring items and pass-through metals
Successful Repositioning – Snapshot 8 2002 2012 Revenue $0.4B $1.3B Debt-to-Debt-Plus-Equity 43% 19% Working capital* % of sales 41% 29% Cyclicality High Lower Growth Low Higher * A/R, Inventory & A/P
High Value-added Business Model 9 1. Identify high growth secular markets 2. Target the fastest growing niches of those markets 3. Expand with innovative products 4. Add synergistic acquisitions 5. Ensure financial discipline
A Global Platform Operations in US and 10 Countries Significant and Expanding International Sales Q1 2013 10 • Customers in >50 countries • Expanded presence in Asia “Direct” International Sales 33%
Continually Develop Innovative Products • Leveraging customer-centric product development • Active research programs to take advantage of secular trends • Key product areas include – LEDs – Wireless – Medical – Commercial Aerospace – Energy – Commercial Optics – Hybrid & Electric Vehicles – Computer Hard Drives – Science – Automotive Electronics – Semi-conductor 11
A Strong Record of Synergistic Acquisitions Acquisitions 2005 - 2012 Add complementary products / technology Expand market position OMC – shield kit cleaning – 2005 TFT – thin film coatings – 2005 CERAC – inorganic chemicals – 2006 Techni-Met – thin film coatings – 2008 Barr – thin film coatings – 2009 Academy – precious metals – 2010 EIS Optics – thin film coatings – 2011 AMC – metal matrix composites – 2012 12
Ensure Financial Discipline 13 Maintain strong balance sheet Debt-to-Debt-Plus-Equity Maximum 30% Strong cash flow • Cash flow from operations $30M - $75M annually for the past five years • Reduction in working capital* goal to <20% sales *AR, Inv & A/P Resources to finance organic growth and acquisitions while returning cash to shareholders 21% 19% 0% 10% 20% 30% 2005 2012 After $228M in acquisitions Each 5% reduction of working capital results in $65 million of cash
Financial Goals Next 3 - 5 Years Next 3 - 5 years Value-added revenue growth >8% Margins (OP % VA) 12% - 16% Acquisitions $50M - $100M Per Year Working capital % sales <20% Debt-to-Debt-Plus-Equity <30% ROIC (pre-tax) >18% 14
T H E S I S Positioned to Deliver Long-term, Sustainable Growth 15 A company with a strong platform… … Leveraging a high value-added business model… … Executing a focused growth plan Revenue Base Margins Capital Eff.
I N S U M M A R Y Why Invest in Materion Corporation? 16 Positioning A leader in high-growth markets Performance Strong performance record Growth Executing three point strategy • Global player in strong secular growth markets • Sustainable long-term growth • Proven business model • Target, capture niche, then expand • Clear financial goals, performance continuing to improve • Strong value today
Appendix
Target High Growth, Leading-edge Markets A-1 Reportable Segments ADVANCED MATERIAL TECHNOLOGIES PERFORMANCE ALLOYS BERYLLIUM & COMPOSITES TECHNICAL MATERIALS Key Markets Precious, Non-precious, Specialty Metal and Inorganic Materials, Electronic Packages and Components Bulk and Strip Form Products and Beryllium Hydroxide Beryllium and Beryllia Ceramic Products Specialty Strip Metal Products CONSUMER ELECTRONICS p p p p INDUSTRIAL COMPONENTS & COMM. AEROSPACE p p p AUTOMOTIVE ELECTRONICS p p p p MEDICAL p p p p DEFENSE & SCIENCE p p p p ENERGY p p p p TELECOM INFRASTRUCTURE p p p p
Value-added Sales: Materion Consumer Electronics 27% Industrial Components & Commercial Aerospace 18% Automotive Electronics 11% Medical 10% Defense & Science 9% Energy 7% Telecom Infrastructure 6% Services 5% Appliance 1% Other 6% Q1 2013 - $151.3 Million A-2 OP% of Value-added sales 6.3%
Value-added Sales: By Segment Technical Materials 7% Advanced Material Technologies 46% Performance Alloys 39% Beryllium & Composites 8% Q1 2013 - $151.3 Million A-3
Value-added Sales: Advanced Material Technologies Consumer Electronics 37% Medical 20% Defense & Science 11% Services 10% Industrial Components & Commercial Aerospace 8% Energy 4% Telecommunications Infrastructure 4% Automotive Electronics 1% Other 5% Q1 2013 - $68.7 Million A-4 OP% of Value-added Sales 4.9%
Value-added Sales: Performance Alloys Industrial Components & Commercial Aerospace 32% Consumer Electronics 17% Automotive Electronics 16% Energy 11% Telecommunications Infrastructure 10% Appliance 3% Defense & Science 1% Medical 1% Other 9% Q1 2013 - $59.2 million A-5 OP% of Value-added Sales 12.2%
Value-added Sales: Beryllium and Composites Defense & Science 47% Industrial Components & Commercial Aerospace 25% Medical 8% Telecommunications Infrastructure 8% Energy 1% Other 11% Q1 2013 - $12.3 Million A-6 OP% of Value-added Sales -10.6%
Value-added Sales: Technical Materials Automotive Electronics 48% Consumer Electronics 40% Energy 6% Other 6% Q1 2013 - $11.1 Million A-7 OP% of Value-added Sales 12.6%
Core Technologies 1. High Purity Gold and Silver for Industrial Applications 2. Powder Science and Processing (Vacuum, Hot and Cold Isostatic Pressing, Press/Sinter) … Metal, Ceramic and Chemical 3. Full Metal Processing Technology (Melting, Casting, Rolling, Extrusion) 4. Selective Electroplating 5. Light Wave Management and Coating Technology 6. Thin Film Large Area Coating 7. Numerous “Specialties” … Cladding, Electron Beam Welding, Diffusion Bonding 8. Shield Kit Cleaning 9. Chemical Synthesis 10. Amorphous Metals A-8
Continuing to Execute Three Point Strategy A-9 1 Grow and diversify revenue base 2 Expand margins 3 Improve fixed and working capital utilization Increasing Shareholder Value
S T R A T E G Y # 1 : G R O W T H Expand and Diversify Revenue Base • Targeting expansion in secular growth markets including: – Smart mobile devices, 3G / 4G, commercial aerospace, oil & gas, alternative energy, optics, LED / LCD • Ongoing global expansion – Asia • Strategic acquisition fast accretion – Technology breadth – Global reach – Product diversification A-10
S T R A T E G Y # 2 : M A R G I N S Expand Margins – Key Drivers A-11 1 Lean Sigma operating efficiency 2 Higher value- added products 3 Cost reductions Normalized Margin Today* 9 - 12% Target Margin 12 - 16% (OP % VA) *Excludes non-recurring items and pass-through metals
S T R A T E G Y # 3 : C A P I T A L E F F I C I E N C Y Improve Fixed and Working Capital Efficiency A-12 Lean Sigma • Cycle time reduction • Yield improvement • On-time shipments Each 5% of working capital efficiency = $65M of cash Improve Working Capital Efficiency Working capital % of sales 41% 29% <20% 2002 2012 Target
Strategy in Action: Outgrowing Growth Markets Growth of Materion Oil and Gas Sales vs. Market Growth of Materion Aerospace Sales vs. Market A-13 0 100 200 300 400 500 600 700 0 100 200 300 400 500 600 Materion Sales Materion Sales Global Rig Count Aircraft Delivered +540% +90% +400% +80%
New Product and Technology Development Advanced Material Technologies – Thin Film Electrodes (medical diagnostics) – Expanded Refining/Chamber Services – Complement to Thin Film Materials & Coating Businesses – Nanotechnology Materials – Materials for High Brightness LEDs – Specialty Inorganic Compounds (solar, security) – Precious Metal Materials – Rod, Bar, Sheet, Slugs, etc. – Global Refining and Metal Recovery and Management Services – Ultra High Purity Metals for Medical and Semiconductor Applications – Next Generation Magnetic Data Storage Thin Film Head Materials – Alternative Chemistry for Shield Kit Cleaning A-14
New Product and Technology Development Advanced Material Technologies Coatings – Precision Optical Thin Film Coatings (specialty filters) – Large format Thin Film Materials for Large Area Coatings (energy, solar) – Solar Panel Thin Film, Concentrator Materials and Barrier Film Coatings Packaging – Optical Package for New Photonics Applications – RF Packages for the Latest Transistor Technology (3G and 4G infrastructure) – MEMS and Photovoltaic Packaging Materials A-15
New Product and Technology Development Performance Alloys – ToughMet® Alloy for High Volume Bearing Applications – BrushForm 158 for Voice Coil Motor (VCM) Applications – Materion R270 Strip – “Next Generation” Alloy for Oil & Gas – ToughMet® Alloy Sheet for Vehicle Gearboxes Beryllium and Composites – Nearer Net Shape Fabrication (hot isostatic pressing) – Truextent™ Speaker Diaphragms – Investment Casting – Amorphous Metals – SupremEX™ Aluminum Metal Matrix Composites – Improved Foils for X-ray Windows – Durox ®Alumina Ceramics Technical Materials – Hybrid & Electric Vehicle Battery Components – Power Electronics – Smart Grid Meters – Computer Hard Drives (dual stage activation) – Medical Applications A-16
Positioned in Diverse Set of High-growth Markets and Product Applications A-17 Growth Entered multiple leading-edge growth markets since 2002 Defense Tablets Commercial Aerospace Medical Devices Disk Drives Optics Telecom Infrastructure LED’s Alternative Energy LCD Space / Science Cellular phones (smartphones), Tablet computers Heavy Equipment
I/O Connector Contacts Battery Contacts Internal Antenna Contacts Grounding Clips and Audio Jacks Micro Mezzanine Connectors for LCD Screen Internal Electronics and LED • Thin Film Materials – Power amplifiers, LED, SAW and BAW devices, filters, and ICs • Hermetic Solutions for SAW • Refining / Recycling • Precision Parts Cleaning Other Smart Phone Applications: • Circuit Board and IC Inspection • RoHS Compliance Assurance • Cellular Infrastructure with High Power RF Packaging • Voice Coil Motor (auto-focus lens stabilizer) Internal Electronics • Precursor materials for GaAs wafer production Applications: Smart Phones A-18
Avionics/Electrical Systems Airframe Structure Landing Gear Attachments Engine and Pylon Attachments Flight Control Mechanisms Horizontal Stabilizer & Rudder Attachments Hydraulic Systems Fuel Systems Wing Attachments Doors & Hatches Landing Gear Components Flight Attendant Jumpseat Spring Safety Slide Mechanism Other Aerospace Applications: • Baggage Inspection • Nondestructive Evaluation (Cracked Component Detection) A-19 Applications: Aerospace
Under Water Wellhead Equipment Directional Drilling Equipment Measuring While Drilling (MWD) Logging While Drilling (LWD) Mud Pulse Telemetry (MPT) Systems Drill Bits Structural Rig Components Wellhead Control Equipment Other Oil & Gas Applications: • Artificial Lift Equipment • Elemental Analysis • Down Hole X-Ray Inspection Remote Operated Vehicles, blow out preventers, hydraulic actuators, control fluid couplings Applications: Oil & Gas A-20
Technology: Amorphous Silicon (a-Si, tandem and multi-junction) Thin Film (PVD) Materials Silicon based photovoltaic cells Front and back contact layers TCO Transparent Conductive Oxide layers Technology: Cadmium Telluride (CdTe) Thin Film (PVD) Materials Cadmium based solar cell architecture. N and P type Cadmium Semiconductor materials TCO Transparent Conductive Oxide layers Front and Back-contact layers Technology: Copper Indium Gallium Selenide (CIGS) Thin Film (PVD) Materials as well as Powders for Printing CIGS applications Copper Indium Gallium Selenide thin film and screen printing applications for flexible and rigid solar cells. Technology: Concentrator Photovoltaic (CPV) Thin Film (PVD) Materials Solar technology based on concentrating Solar rays into a semiconductor device via large lens. Anti-Reflection Coating Materials Precious metal contact materials Micro Electronic Packaging Products: Bonding Ribbon - Au & Ag Lead-free Solders Metalized Ceramic Substrates Technology: Flexible Solar Cells / Building Integrated Photovoltaic: Thin Film Services: Solar cells built in flexible substrates to accommodate applications such as roofing tiles or defense. Technology: Crystalline Silicon (Si) Interconnect Materials Front and backplane systems for high efficiency designs. Applications: Solar Energy A-21 25 Alloy Strip Panel Interconnects
Cardiac Rhythm Management • Electronic Interconnects/Components • Niobium/Titanium Electron Beam Weld Insulin Pump • EMI Shielding and Grounding • Electrical Terminals in Connectors Seizure Control • Thin Film Deposition Implantable Electrode – Parkinson's disease (R&D) External Glucose Analysis • Subcutaneous sensors for glucose measurement Subcutaneous Glucose Analysis • Thin Film Coatings – Electrode Monitoring device Radiation Therapy – Neutron Reflectors X-Ray Mammography Other Medical Applications: • DNA Sequencing Optics • CT Scan • Diagnostic X-Rays • Advanced Drug Delivery Components • Diagnostic Electronic Components • Anesthesia Monitoring Components • Operating Instruments • Medical Radioisotopes (production reactors) • RF connectors for MRI equipment, communication devices • RF Connectors for Portable Diagnostic/Therapeutic Equipment Applications: Medical A-22 Battery Contacts for Hearing Aids
Applications: Telecommunications Infrastructure Base Stations • Coaxial Connectors • High Power Amplifiers Local Area Networks • Shielding • Modular Jacks • PCB Sockets • Processor Sockets Other Telecommunications Infrastructure Applications • Undersea Repeater Housings A-23
Lithium Ion Battery Interconnects Battery Management Resistors Electronic Power Steering Modules ABS Leadframes Engine Efficiency Oxygen Sensors Mirror & Windshield Electronic Connections Air Bag Sensors Lamp Socket Connectors Auto Dimming Mirror Connectors Hybrid Vehicle Motor & Module Connectors Window and Door Switches Fuel Pump and Fuel Level Sensors Battery Terminals Engine Ignition and Control Modules Battery & Relay Control Modules Turn Signal and Emergency Flasher Relays On Board Telematics Applications: Automotive Electronics A-24 Night Vision Optics Speed Control Optics Camera Optics Navigation System Contacts
Applications: Defense • Infrared Sensors for Fighter Jet and UAV Optical Targeting • Electronic Packaging for Defense Avionics, Radar and Electronic Countermeasure Systems • Structural and Electronic Components for Satellites • X-ray Windows in Security Imaging Systems • Laser Protection Optical Coatings • Night Vision System Optics A-25
Value Added Sales Ratios 1st Quarter 2013 A-26 First First Fourth Quarter 2013 Quarter 2012 Quarter 2012 Gross Margin as a Percent of Value-added Sales Advanced Material Technologies 36.2% 37.6% 29.6% Performance Alloys 29.2% 28.7% 28.4% Beryllium and Composites 22.0% 13.7% 23.7% Technical Materials 32.4% 35.8% 36.9% All Other - - - Total 31.9% 31.4% 29.1% Operating Profit as a Percent of Value-added Sales Advanced Material Technologies 4.9% 7.6% -8.5% Performance Alloys 12.2% 10.6% 9.3% Beryllium and Composites -10.6% -8.1% -0.6% Technical Materials 12.6% 15.4% 14.4% All Other - - - Total 6.3% 6.3% 0.7% Value-added sales is a non-GAAP measure. See attached reconciliation.
Value Added Sales-Reconciliation of Non-GAAP Measure A-27 First First Fourth Quarter 2013 Quarter 2012 Quarter 2012 Sales Advanced Material Technologies 193.9$ 241.8$ 193.6$ Performance Alloys 74.5 75.2 76.0 Beryllium and Composites 12.3 16.1 16.9 Technical Materials 18.5 20.4 17.3 All Other - 0.1 - Total 299.2 353.6 303.8 Less: Pass-through Metal Cost Advanced Material Technologies 125.2 172.3 131.5 Performance Alloys 15.3 15.8 14.8 Beryllium and Composites - - - Technical Materials 7.4 8.1 6.2 All Other - - Total 147.9 196.2 152.5 Value-added Sales (non-GAAP) Advanced Material Technologies 68.7 69.5 62.1 Performance Alloys 59.2 59.4 61.2 Beryllium and Composites 12.3 16.1 16.9 Technical Materials 11.1 12.3 11.1 All Other - 0.1 - Total 151.3 157.4 151.3 Gross Margin Advanced Material Technologies 24.9 26.1 18.4 Performance Alloys 17.3 17.0 17.4 Beryllium and Composites 2.7 2.2 4.0 Technical Materials 3.6 4.4 4.1 All Other (0.2) (0.3) 0.1 Total 48.3 49.4 44.0 Operating Profit Advanced Material Technologies 3.4 5.3 (5.3) Performance Alloys 7.2 6.3 5.7 Beryllium and Composites (1.3) (1.3) (0.1) Technical Materials 1.4 1.9 1.6 All Other (1.2) (2.3) (0.8) Total 9.5 9.9 1.1 The cost of gold, silver, platinum, palladium and copper is passed through to customers and therefore the trends and comparisons of sales are affected by movements in the market price of these metals. Internally, management reviews sales on value-added basis. Value-added sales is a non-GAAP measure that deducts the value of the pass-through metals sold from sales. Value-added sales allows management to assess the impact of differences in sales between periods or segments and analyze the resulting margins and profitability without the distortion of the movements in pass-through metal prices. The dollar amount of gross margin and operating profit is not affected by the v lue-added sales calculation. The Company sells other metals and materials that are not considered direct pass throughs and their costs are not deducted from sales to calculate value-added sales. The Company's pricing policy is to pass the cost of these metals on to customers in order to mitigate the impact of price volatility on the Company's results from operations and value-added information is being presented since changed in metal prices may not directly impact profitability. It is the Company's intent to allow users of the financial statements to review sales with and without the impact of the pass-through metals. 1st Quarter 2013 $ Millions
