Investor Presentation September 2014 Exhibit 99.1 |
2 The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and beliefs, as well as a number of assumptions concerning future events. These statements are subject to risks, uncertainties, assumptions and other important factors. You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary materially from those expressed or implied. Koppers assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation also includes non-GAAP measures. Forward Looking Statements |
The New Koppers: a Leading Global Supplier to Infrastructure and Construction Markets 3 Top producer of carbon compounds, performance chemicals and treated wood products Unique product portfolio and niche end market focus Strategic global presence Long-term relationships with large blue chip customers Focused on delivering sustainable profitable growth at attractive returns |
The New Koppers: Three Core Complementary Business Segments 4 Carbon Materials and Chemicals (CMC) 2013 Pro Forma Revenue $906mm Railroad and Utility Products and Services (RUPS) 2013 Pro Forma Revenue $628mm Performance Chemicals (PC) 2013 Pro Forma Revenue $334mm |
Unique Product Portfolio and Niche End Market Focus… Specialty Products/Services Mix: • Railroad Bridge Services • Railroad Crossties • Rail Joint Bars • Utility Poles • Wood Preservation Chemicals • Carbon Pitch • Creosote • Naphthalene • Phthalic Anhydride • Carbon Black Feedstock Performance: • 2013 Pro Forma Sales: $1,868 mm Diverse End Markets: • Railroad • Utilities • Construction • Agricultural • Aluminum/Steel • Rubber Strategic Global Presence: • North America • Europe • Australia and New Zealand • Emerging Markets • Asia • Middle East • South and Central America 5 …Generate Stable Cash Flows and Provide Growth Opportunities |
Addition of Osmose Enhances Koppers Diversity, Stability and Growth Potential 2013 Sales by End Market 6 $1,478mm $1,478mm $1,868mm $1,868mm Railroad crossties 27% Carbon pitch 26% Creosote and carbon black feedstock 15% Naphthalene / PAA 12% Utility poles 8% Other 12% Railroad products and services 32% Aluminum / steel 28% Construction 11% Rubber 11% Utility poles 8% Other 10% Railroad products and services 27% Aluminum / Steel 22% Construction 19% Rubber 9% Utilities 8% Agriculture 7% Other 8% Creosote and carbon black feedstock 12% Naphthalene / PAA 10% Utility poles 6% Other 12% Railroad crossties Carbon pitch 21% Preservation chemicals 18% 21% 2013 Sales by Product |
The acquired Osmose entities are comprised of (i) a global market leader in wood preservative chemicals (Performance Chemicals) and (ii) a service provider to the rail industry (Railroad Structures) Performance Chemicals manufactures wood preservation chemicals for use in treating wood products #1 global producer of wood preservation chemicals (2) U.S. leader in residential treated lumber (1) Treated wood is used in a variety of products including wood decking, fencing, construction materials, piers and docks Serves 6 of the top 10 largest lumber treating companies in the US and 3 of the 4 largest lumber wood treating companies in Canada Railroad Structures offers a broad range of railroad bridge inspection, treatment, repair, and construction services throughout North America Serves Class I and Short Line railroad operators Key customers include Union Pacific, Genesee & Wyoming, Canadian National Railway, and BNSF Railway Performance Chemicals Railroad Structures 7 Osmose Overview Performance Chemicals & Railroad Structures 2013 Revenue: $390mm (1) 1. Includes $16 million of residential treated lumber revenues that are added to RUPS 2. Management estimates |
8 Products Fulfill Industry Demand Across Diverse End Markets… . Drivers Coal Tar Carbon Pitch PAA Naph- thalene CBF Creosote Railroad Crossties Treating Chemicals BF Steel EAF Steel Aluminum Automotive Rubber Construction Class I RR Budgets Crosstie Insertions …Providing Counter-Cyclical Earnings Stability |
Strategically Located Facilities to Best Serve Clients and Meet Growing Demand Facilities are well-positioned to capture worldwide growth in demand Europe 4 facilities North America 19 facilities China 3 facilities Carbon Materials and Chemicals Railroad and Utility Products and Services Performance Chemicals Australasia 9 facilities 2013 Point of Sale South America 2 facilities (1) 9 (1) Toll producing facilities North America, 60% Europe, 14% Australia, 11% Emerging Markets, 15% |
10 Long-Term Relationships with Large Blue Chip Customers Create Revenue Visibility Select Key Customers |
Market Challenges Depressed global aluminum market has resulted in a difficult pricing environment for carbon pitch Recessionary conditions in Europe have resulted in reduced volumes and pricing for carbon pitch, naphthalene and CBF North American CMC business continues to be challenged by difficult market conditions KCCC joint venture in China is being closed as a result of our JV partner being ordered to cease operations at their coke ovens due to pollution concerns In the Middle East, despite the growth in production in this low energy cost region, competition remains strong and pitch prices continue to be depressed Railroad business negatively impacted in 2014 due to reduced crosstie availability 11 |
2014: Transitional Year for Koppers 12 Adjusted EPS $1.73 $2.32 $2.80 $3.27 $2.60 $2.08 ($ millions except EPS) (1) Calculations of historical Adjusted EPS can be found in our earnings press releases at www.koppers.com under Investor Relations |
13 Focused on Delivering Long-Term Sustainable Profitable Growth at Attractive Returns Achieve above-market sales growth Growth Profitability Improve margins by at least 200 basis points Execution of These Priorities Will Deliver Increased Shareholder Value Capital Deployment Maintain ROCE greater than WACC |
Decisive Actions Have Been Taken… 14 Diversified business risk through Osmose acquisition Completed construction of new distillation facility in China (KJCC) Added to scale of RUPS business through Ashcroft acquisition Ceased distillation activities at Uithoorn facility in The Netherlands Commenced restructuring of North American CMC facilities Continued investments in structural improvements in RUPS …to Generate Substantial Sustainable Profit Improvement Beginning in 2015 |
Osmose Enhances Koppers Strategic Objectives Growth Achieve above-market sales growth Profitability Improve margins by at least 200 basis points Capital Deployment Maintain ROCE higher than WACC Target Market Selective, complementary core and near-adjacent acquisitions in infrastructure space Earnings Impact Must be accretive in near term Koppers Objectives Commentary Source: Management estimates. (a) Koppers and Osmose management estimates do not include synergies. 15 2010 – 2013 Sales CAGR of 8.1% exceeds Koppers Sales CAGR of 7.5% over that same period Ability to leverage Osmose geographic footprint to enhance Koppers sales opportunities Acquisition is expected to be accretive to consolidated EBITDA margins, and consistent with the company’s goals of achieving at least a 12% EBITDA margin by the end of 2015 (a) IRR exceeds Weighted Average Cost of Capital (WACC) Lower cost financing will reduce WACC Performance Chemicals business complements Koppers traditional creosote wood treating chemical business Railroad Structures maintenance-of-way business serves same customer base as Koppers Railroad and Utility Products and Services (“RUPS”) business Acquisition is expected to be accretive to earnings by the end of 2015 without $12 million of estimated synergies |
Strong Cash Flow and Liquidity Financing Structure at Close of Transaction Advantages to Financing Approach Low debt service cost Mix of fixed and floating debt Pre-payment flexibility at no cost (term loan A) Bridge-free financing solution New five year $500 million revolver ($230 million drawn) to replace current $350 million revolver at initial interest rate of 3.25% New five year amortizing term loan A of $300 million at initial interest rate of 3.25% Leave the existing senior notes in place and ratably secure with the revolver/term loan Pro forma net leverage of ~4x (1) with near-term focus on reduction of net leverage to ~3x Will take advantage of market conditions to evaluate long term capital structure options 1. Net leverage defined as net debt (total debt less cash) divided by adjusted EBITDA 16 Transaction Sources and Uses Sources of Funds Uses of Funds New Revolver $500 Osmose Purchase net of cash acquired $467 New Term Loan A 300 Existing RCF Repayment, LCs & Fees 93 Liquidity 240 Total Sources $800 Total Uses $800 |
Bond Refinancing Opportunity • Current outstanding bonds of $300 million • Coupon @ 7.785% with first call date at 12/1/2014 • Call premium approximately $12 million at call date; earlier call would cost additional $3-4 million • Expectation is to refinance in 2014 with 175-225 bp reduction • Intention is to upsize the bond issue with portion >$300 million used to reduce existing term loan • Rate reduction would reduce interest expense and cost of capital 17 |
2015 – Strong Prospects for New Koppers • Some industry headwinds beginning to abate – Positive signs of a stronger global aluminum market with higher LME pricing European economy showing signs of recovery Expect crosstie procurement volumes to rebound in the second half of 2014 as sawmill capacity continues to grow in response to increased end-market demand • Actions taking hold Stopped distillation activities at our Uithoorn facility in The Netherlands in April and moved those production volumes to remaining two European facilities Restructuring of our North American CMC facilities is providing cost savings Freezing and funding of US pension plans has reduced pension expense by >$5 million on an annual basis • Osmose synergy and margin expectations Addition of Osmose should have significant impact on progress towards achieving sustainable 12% EBITDA margins on a consolidated basis and be accretive to existing margins in 2015 Synergies from the acquisition of Osmose businesses are expected to reach an annualized run rate of $12 million by 4Q 2015 18 – – – – – – – |
The New Koppers: A Leading Global Supplier to Infrastructure and Construction Markets 19 • Market leadership positions and long-term customer relationships provide for a stable base business and recurring revenue stream • Diversity of products, end markets, and locations provides counter-cyclical earnings stability • Proven track record of creating shareholder value through strategic investments that generate high returns on capital • Comprehensive long-term business strategy with specific actions targeted to significantly grow the top and bottom lines • Strong cash flow and liquidity provides ample capital for execution of long-term business strategy |
Appendix 20 |
COAL TAR Carbon Pitch 50% Primary End Products Chemical Oils 20% Distillate 30% Primary End Markets Naphthalene Phthalic Anhydride Anodes, Electrodes and Needle Coke Vinyl, Paint, Concrete and Fiberglass Railroad Crossties and Carbon Black Aluminum and Steel Construction, Housing and Automotive Railroads and Rubber Koppers buys coal tar from over 60 suppliers in 16 countries Vertically Integrated Operations: A Competitive Advantage Creosote Carbon Black Feedstock 21 |
Carbon Materials and Chemicals Sales and EBITDA Summary 2013 Point of Sale 2013 Sales by End Market Sales ($mm) Adjusted EBITDA ($mm) Aluminum/ Steel 46% Construction 18% Other 18% Rubber 18% North America 38% Europe 25% Australia 10% Emerging Markets 27% (1) Other includes refined tar, petroleum pitch, benzole and misc. products. (2) Construction includes PAA and naphthalene, Adjusted EBITDA Margin 22 $795 $1,016 $1,000 $906 $867 $655 2009 2010 2011 2012 2013 TTM $97 $79 $69 $101 $105 $78 8.0% 8.7% 10.0% 10.3% 12.2% 11.9% 2009 2010 2011 2012 2013 TTM 6/2014 6/2014 |
$35 $44 $59 $71 $64 $46 9.8% 7.8% 8.4% 10.7% 12.5% 11.4% 2009 2010 2011 2012 2013 TTM 6/2014 Railroad and Utility Products and Services Sales and EBITDA Summary 2013 Point of Sale 2013 Sales by End Market Adjusted EBITDA Margin Sales ($mm) Adjusted EBITDA ($mm) Railroad Products and Services 79% Utility Poles 21% North America 87% $450 $523 $555 $572 $559 $469 2009 2010 2011 2012 2013 TTM 6/2014 Australia/NZ 13% 23 |
24 Return On Capital Employed (ROCE) (not restated for discontinued operations) ($ in millions) . Return On Capital Employed (Prior periods not restated for discontinued operations) TTM 2009 2010 2011 2012 2013 6/30/2014 Interest expense 36.3 $ 27.1 $ 27.2 $ 27.9 $ 26.8 $ 26.7 $ Loss/(gain) on debt extinguishment 22.4 - - - - - Total interest expense 58.7 $ 27.1 $ 27.2 $ 27.9 $ 26.8 $ 26.7 $ US Effective tax rate (including state) 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Tax effected interest 35.2 $ 16.3 $ 16.3 $ 16.7 $ 16.1 $ 16.0 $ Add: Adjusted net income 37.7 48.0 58.3 68.7 54.1 42.9 A Adjusted Net Operating Profit After Tax (A) 72.9 $ 64.3 $ 74.6 $ 85.4 $ 70.2 $ 58.9 $ S/T debt and current portion of L/T debt 0.2 $ 1.0 $ - $ - $ - $ - $ L/T debt 335.1 295.4 302.1 296.1 303.1 358.4 Stockholders' equity (less minority interest) 43.8 88.7 94.8 150.6 169.8 170.9 Add(Deduct) tax effected net income adjustments 18.6 3.7 21.4 3.0 13.6 23.9 Total Capital Employed 397.7 $ 388.8 $ 418.3 $ 449.7 $ 486.5 $ 553.2 $ B Average Capital Employed (B) 404.2 $ 393.3 $ 403.6 $ 434.0 $ 468.1 $ 503.8 $ A/B Return on Invested Capital (A/B) 18.0% 16.3% 18.5% 19.7% 15.0% 11.7% |
25 Sales and EBITDA Reconciliation (not restated for discontinued operations) ($ in millions) . Note: Koppers believes that adjusted EBITDA provides information useful to investors in understanding the underlying operational performance of the company, its business and performance trends and facilitates comparisons between periods and with other corporations in similar industries. The exclusion of certain items permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that Koppers management internally assesses the company's performance. Although Koppers believes that this non-GAAP measure enhances investors' understanding of its business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP basis financial measures. TTM 2009 2010 2011 2012 2013 6/2014 $1,124.4 $1,245.5 $1,538.9 $1,555.0 $1,478.3 $1,425.2 18.8 44.1 36.9 65.6 42.8 21.2 58.7 27.1 27.2 27.9 26.8 26.7 24.8 28.1 48.8 28.2 37.6 41.6 13.8 29.1 14.9 33.3 36.8 21.2 0.3 0.2 – 0.1 0.1 0.2 116.4 128.6 127.8 155.1 144.1 110.9 2.6 0.4 0.7 1.6 1.3 -2.7 119.0 129.0 128.5 156.7 145.4 108.2 0.6 0.5 20.8 2.8 4.2 23.7 2.8 – – – – – – -1.6 -0.9 – -1.8 -1.8 1.6 1.6 – – – – – 1.5 – – – – – – – – 2.6 2.6 – 0.9 – – – – $124.0 $131.9 $148.4 $159.5 $150.4 $132.7 EBITDA with noncontrolling interests Years Ended December 31 Net sales Net income attributable to Koppers Interest expense including refinancing Depreciation and amortization Income tax provision Discontinued operations EBITDA Non-controlling interest Tank and tank car cleaning Legal settlements Adjusted EBITDA with noncontrolling interests Unusual items impacting net income Plant closings and restructuring Plant outages Gain on sale Acquisition cost write-off Incremental 4 th quarter LIFO and LCM |
Carbon Materials and Chemicals EBITDA Reconciliation (prior years not restated for discontinued operations) ($ in millions) Note: Koppers believes that adjusted EBITDA provides information useful to investors in understanding the underlying operational performance of the company, its business and performance trends and facilitates comparisons between periods and with other corporations in similar industries. The exclusion of certain items permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that Koppers management internally assesses the company's performance. Although Koppers believes that this non-GAAP measure enhances investors' understanding of its business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP basis financial measures. 26 TTM 2009 2010 2011 2012 2013 6/2014 $58.5 $77.6 $45.4 $83.1 $43.9 $13.3 (0.6) (0.8) (0.6) (0.8) (1.0) (3.1) 17.5 18.3 39.8 17.4 30.7 34.5 (1.3) 2.1 0.2 0.4 1.3 0.4 $74.1 $97.2 $84.8 $100.1 $74.9 $45.1 – – 20.8 – 1.6 21.4 – – (0.9) – – – 1.6 1.6 – – – – 2.4 – – – – – – – – – 2.6 2.6 – (2.1) – – – – $78.1 $96.7 $104.7 $100.1 $79.1 $69.1 Depreciation and amortization Allocated other income EBITDA Years Ended December 31 Operating profit Allocated corporate operating profit Tank and tank car cleaning (Gain) on legal settlements Adjusted EBITDA Unusual items impacting net income Plant closings and restructuring (Gain) on sale of licensing Acquisition cost write-off Plant outages |
RUPS EBITDA Reconciliation (prior years not restated for discontinued operations) Note: Koppers believes that adjusted EBITDA provides information useful to investors in understanding the underlying operational performance of the company, its business and performance trends and facilitates comparisons between periods and with other corporations in similar industries. The exclusion of certain items permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that Koppers management internally assesses the company's performance. Although Koppers believes that this non-GAAP measure enhances investors' understanding of its business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP basis financial measures. 27 ($ in millions) TTM 2009 2010 2011 2012 2013 6/2014 $38.2 $23.0 $34.8 $45.1 $58.3 $53.4 (1.2) (0.8) (0.6) (0.8) (0.9) (2.9) 7.3 9.8 9.0 10.8 10.9 11.1 0.6 (0.2) 0.5 1.5 2.2 1.5 $44.9 $31.8 $43.7 $56.6 $70.5 $63.1 0.6 0.5 – 2.8 2.6 2.3 – (1.6) – – (1.8) (1.8) – 3.0 – – – – 0.4 – – – – – – 1.5 – – – – $45.9 $35.2 $43.7 $59.4 $71.3 $63.6 Depreciation and amortization Years Ended December 31 Operating profit Allocated corporate operating profit Co-generation plant outage Incremental LIFO charges Adjusted EBITDA Allocated other income EBITDA Unusual items impacting net income Plant closings and restructuring (Gain) on sale Legal settlements |