Credit Suisse Global Credit Products Conference October 2012 Exhibit 99.1 |
Mark Newman Senior Vice President & Chief Financial Officer |
Safe Harbor Statement Safe Harbor Statement Some of the information included in this presentation contains “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended). Such forward-looking statements are based on management’s beliefs and assumptions and on information currently available. Forward-looking statements include the information concerning SunCoke’s possible or assumed future results of operations, the planned Master Limited Partnership, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and may be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,�� “estimate,” “predict,” “potential,” “continue,” “may,” “will,” “should” or the negative of these terms or similar expressions. Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, SunCoke has included in its filings with the Securities and Exchange Commission cautionary language identifying important factors (but not necessarily all the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by SunCoke. For more information concerning these factors, see SunCoke's Securities and Exchange Commission filings. All forward-looking statements included in this presentation are expressly qualified in their entirety by such cautionary statements. SunCoke does not have any intention or obligation to update publicly any forward-looking statement (or its associated cautionary language) whether as a result of new information or future events or after the date of this presentation, except as required by applicable law. This presentation includes certain non-GAAP financial measures intended to supplement, not substitute for, comparable GAAP measures. Reconciliations of non-GAAP financial measures to GAAP financial measures are provided in the Appendix at the end of the presentation. Investors are urged to consider carefully the comparable GAAP measures and the reconciliations to those measures provided in the Appendix, or on our website at www.suncoke.com. CS Global Credit Conference - October 2012 3 |
About SunCoke About SunCoke Largest independent producer of metallurgical coke in the Americas Coke is an essential ingredient in blast furnace production of steel Cokemaking business generates ~85% of Adjusted EBITDA (1) 5.9 million tons of capacity in six facilities; 5 in U.S. and 1 in Brazil 2012 U.S. coke production is expected to be in excess of 4.3 million tons Coal mining operations represents ~15% of Adjusted EBITDA (1) High quality mid-vol. metallurgical coal reserves in Virginia and West Virginia 2012 coal production expected to be 1.6 million tons CS Global Credit Conference - October 2012 4 (1) For a definition and reconciliation of Adjusted EBITDA, please see appendix. |
Blast Furnaces and Coke 5 1 short ton of hot metal (NTHM) Top Gas CS Global Credit Conference - October 2012 Blast furnaces are the most efficient and proven method of reducing iron oxides into liquid iron Coke is a vital material to blast furnace steel making We believe stronger, larger coke is becoming more important as blast furnaces seek to optimize fuel needs BEST IN CLASS in lbs/ST Iron burden Iron ore/ pellets Scrap 3100 198 30 600 Flux Fuel Coke Limestone BEST IN CLASS in lbs/ST Fuel Nat Gas Coal Up to 80-120 Up to 120-180 Most efficient blast furnaces require 800-900 lbs/NTHM of fuel to produce a ton of hot metal |
More than doubled capacity since 2006 with four new plants Only company to design, build and operate new greenfield developments in U.S. in more than a decade Supply about 20% of U.S. and Canada coke needs (1) Secure, long-term take-or-pay contracts with leading steelmakers Customers include ArcelorMittal, U.S. Steel and AK Steel Cokemaking operations are strategically located in proximity to customers’ facilities The Leading Independent Cokemaker The Leading Independent Cokemaker SunCoke Cokemaking Capacity (In thousands of tons) 6 (1) Source: Company estimates 2006 2007 2008 2009 2010 2011 Jewell Coke (Virginia) Indiana Harbor (Indiana) Haverhill I (Ohio) Vitória (Brazil) Haverhill II (Ohio) Granite City (Illinois) Middletown (Ohio) 2,490 4,190 4,740 5,390 5,390 5,940 CS Global Credit Conference - October 2012 |
SunCoke’s Heat Recovery SunCoke’s Heat Recovery Cokemaking Technology Cokemaking Technology CS Global Credit Conference - October 2012 7 Industry leading environmental signature Leverage negative pressure technology to substantially reduce hazardous emissions Convert waste heat into steam and electrical power Generate about 9 MW of electric power per 110,000 tons of annual coke production Meet stringent U.S. EPA Maximum Achievable Control Technology standard Traditional by-product cokemaking methods have significant environmental impacts |
SunCoke’s Value Proposition SunCoke’s Value Proposition Provide an assured supply of coke to steelmakers Larger, stronger coke for improved blast furnace performance Demonstrated sustained 15% - 20% turndown capability High quality coke with cheaper coal blends – Burn loss vs. by-product Capital preservation and lower capacity cost per ton; particularly relative to greenfield investment Stringent U.S. regulatory environment Power prices and reliability versus value of coke oven gas and by-product "credits" High Quality & Reliable Coke Supply Turndown Flexibility Coal Flexibility Capital Efficiency & Flexibility Environment /Economic Trade-offs CS Global Credit Conference - October 2012 8 |
Key Contract Provisions Key Contract Provisions CS Global Credit Conference - October 2012 9 Take-or-Pay Fixed Fee Coal Cost Operating Costs Transportation & Taxes – We are obligated to deliver a minimum quantity of coke annually Represents profit and return on capital Customers must take all our production up to a maximum or pay contract price for amount not taken – Fixed fee is fixed for life of contract Cost of coal is passed-through subject to achieving a contracted coal-to-coke yield standard Operating costs are passed-through based on annually negotiated budget or a fixed budget adjusted for inflation These costs are passed-through |
Master Limited Partnership Master Limited Partnership Filed S-1 on August 8, 2012 – Amended S-1 on September 14, 2012 Expected Assets/Structure – At closing of offering, MLP expected to own approximately a 60% interest in Haverhill and Middletown – SXC to own General Partner, incentive distribution rights and a portion of the partnership units Proceeds to SXC – Expected uses will include paying down debt, funding expansion and other general corporate purposes CS Global Credit Conference - October 2012 10 Middletown Operations Haverhill Operations |
Q1 & Q2 2012 Earnings Overview Results driven by strong Coke business performance Middletown startup has been a success Continued improvement at Indiana Harbor Strong operations at other facilities Coal action plan progressing Difficult demand/price environment Taking action to reduce high cash production costs Achieved improved sequential quarter performance Strong liquidity position Generated $66 million of free cash flow (2) in first half 2012 Cash balance of $190 million and virtually undrawn revolver of $150 million (1) For a definition and reconciliation of Adjusted EBITDA, please see the appendix. (2) For a definition and reconciliation of free cash flow, please see the appendix. CS Global Credit Conference - October 2012 11 $0.17 $0.24 $0.32 $0.32 2011 2012 Q1 Q2 Earnings Per Share (diluted) $26.6 $55.8 $37.7 $65.5 2011 2012 Q1 Q2 Adjusted EBITDA (1) (in millions) |
Domestic Coke Business Summary Domestic Coke Business Summary (Jewell Coke & Other Domestic Coke) (Jewell Coke & Other Domestic Coke) CS Global Credit Conference - October 2012 12 (Tons in thousands) ($ in millions, except per ton amounts) (1) For a definition of EBITDA and Adjusted EBITDA/Ton and reconciliations, please see the appendix. (2) Includes Indiana Harbor contract billing adjustment of $6.0 million, net of NCI, and inventory (3) Includes a $2.4 million, net of NCI, charge related to coke inventory reduction and a $1.3 million, net of NCI, lower cost or market adjustment on pad coal inventory and lower coal-to-coke yields related to the startup at Middletown. Strong performance driven by Middletown, Indiana Harbor and other operations /Ton /Ton /Ton (3) /Ton (2) Domestic Coke Adjusted EBITDA (1) Per Ton Domestic Coke Production adjustment of $6.2 million, net of NCI, of which $3.1 million is attributable to Q3 2011. |
Coal Mining Financial Summary Coal Mining Financial Summary CS Global Credit Conference - October 2012 13 Coal Mining Adjusted EBITDA (1) and Avg. Sales Price/Ton (2) Cash production costs increasing in face of difficult demand/price environment Pricing up modestly, reflecting strong mid-vol. pricing/volumes, offset by weak hi-vol. and thermal pricing/volumes Cash costs up $11/ton, reflecting decreased mix and higher costs of hi-vol. and thermal production Coal action plan implemented in Q1 2012 gaining traction Focus on most productive mines to reduce costs delivered sequential quarter improvement Cash cost per ton at Jewell decreased from $161 in Q1 2012 to $143 in Q2 2012 Jewell reject rates improved from 68% in Q1 2012 to 66% in Q2 2012 Expect further cash cost reductions for 2013 Intend to maintain cash neutral position in 2012 Reduced capital spending in line with outlook Coal Sales, Production and Purchases -$50 $0 $50 $100 $150 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Coal Sales 334 371 363 373 365 Coal Producton 340 340 349 375 401 Purchased Coal 24 22 20 19 4 -$50 $0 $50 $100 $150 $200 ($ in millions, except per ton amounts) $11 $9 $2 $7 $9 $162 $155 $159 $171 $169 $34 $25 $20 $20 $25 $126 $132 $138 $151 $137 -$50 $0 $50 $100 $150 $200 Q2 '11 Q3 '11 Q4 '11(3) Q1 '12 Q2 '12 Coal Adjusted EBITDA Average Sales Price Coal Adj EBITDA / ton Coal Cash Cost / ton (1) For a definition and a reconciliation of Adjusted EBITDA, please see the appendix. (2) Average Sales Price is the weighted average sales price for all coal sales volumes, including sales to affiliates and sales to Jewell Coke. (3) Q4 2011 Adjusted EBITDA inclusive of Black Lung Liability charge of $3.4 million and OPEB expense allocation of $1.8 million. |
First Half 2012 Sources & Uses of Cash First Half 2012 Sources & Uses of Cash 14 Liquidity position and credit metrics improving; free cash flow (1) was $66 million in first half 2012 ($ in millions) (1) For a definition and reconciliation of free cash flow, please see appendix. CS Global Credit Conference - October 2012 $127.5 $40.6 $38.6 $10.0 $0.3 $190.0 ($2.8) ($20.7) ($3.5) Q4 2011 Cash Balance 1H 2012 Net Income Depreciation, Depletion & Amortization Deferred Taxes Changes in Working Capital Other Capital Expenditures Cash used in financing activities Q2 2012 Cash Balance |
2012 Adjusted EBITDA 2012 Adjusted EBITDA (1) (1) Outlook Outlook ($ in millions) CS Global Credit Conference - October 2012 15 (1) For a definition of Adjusted EBITDA and reconciliation of Adjusted EBITDA, please see the appendix. Strong U.S. cokemaking business expected to 2011 Adjusted EBITDA (1) Coke Business Coal Mining Corporate Costs Estimated 2012 Adjusted EBITDA (1) drive increase in Adjusted EBITDA in 2012 $141 $95 - $110 $5 - $15 $9 - $14 $250 - $280 (1) |
Strategies for Enhancing Shareholder Value Strategies for Enhancing Shareholder Value 16 CS Global Credit Conference - October 2012 Operational Excellence • Maintain focus on details and discipline of coke and coal mining operations • Sustain and enhance top quartile safety performance and ability to meet environment standards • Leverage operating know- how and technology to continuously improve yields and operating costs Grow The Coke Business • U.S. & Canada Continue permitting efforts for next potential U.S. facility • Explore opportunities to make strategic investments in existing capacity • International • Execute India entry and pursue follow-on growth Strategically Optimize Assets • Coke MLP • Execute plan to place a portion of our cokemaking assets into an MLP structure • Coal • Optimize operations and investments to enhance long-term strategic flexibility • |
CS Global Credit Conference - October 2012 Source: CRU, The Annual Outlook for Metallurgical Coke 2012. Replace aging coke batteries operated by integrated steel producers Source: CRU, The Annual Outlook for Metallurgical Coke 2012 51% of coke capacity is at facilities >30 years old U.S. and Canada Opportunity U.S. and Canada Opportunity 17 Total 2011 Coke Demand: 19.5 million tons Integrated Integrated Steel Steel Producers Producers 63% 63% SunCoke 18% DTE 5% Other Merchant Other Merchant & Foundry & Foundry 6% 6% Imports Imports 8% 8% Average Age % of U.S. & Canada coke production 9 37 27% 24% Aging Cokemaking Facilities SunCoke U.S. & Canada (excl SXC) 30-40 years 40+ years U.S. & Canada Coke Supply |
Coke Price Comparison Coke Price Comparison 18 SunCoke’s coke is competitive on price, quality and reliability, providing us the opportunity to displace imported coke Source: World Price (DTC), Coke Market Report, CRU and company estimates CS Global Credit Conference - October 2012 U.S. and Canada Coke Imports Representative Delivered Coke Prices - $/ton Chinese 40% Export Tax Premium (Tariff) Chinese Coke Price SunCoke Price - Contracted Coal Price Differential SunCoke Coke Price @ Spot Coal Price 1 Includes approx. $50/ton freight and approx. $40/ton handling loss for shipping to Great Lakes region 2 Includes approx. $45/ton freight and approx. $30/ton handling loss for shipping to Great Lakes region $348 $48 $331 $402 $127 Other Domestic Coke Ukrainian Coke (2) Chinese Coke (1) $396 $331 4.5 4.8 3.2 5.2 0.9 2.0 2.0 2.0 1.8 1.6 1.5 1.7 Imports SunCoke sales volumes 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E Based on July 2012 prices $529 |
Sources: CRU, The Annual Outlook for Metallurgical Coke 2011, CIA World Factbook. India Opportunity India Opportunity 19 India India Steel/Coke Steel/Coke Market Market • • Committed to Committed to India entry India entry strategy strategy – – Discussing Discussing opportunities in opportunities in India India – – Targeting Targeting potential entry by potential entry by early 2013 early 2013 Growing Steel Market Coke supply Deficit Active Merchant Market Electric Power Deficit Projected to be 3rd largest steel market by 2020 Blast furnace to play a critical role in growth Importing approximately 2 million tons annually Coke capacity investment lags steel investment 3.5 million tons merchant production or 13% of total 17 active merchant coke producers 10% - 20% short power Average wholesale price >$80 mwh (2x U.S. rate) CS Global Credit Conference - October 2012 |
QUESTIONS QUESTIONS CS Global Credit Conference - October 2012 20 |
Appendix |
Definitions CS Global Credit Conference - October 2012 22 • Adjusted EBITDA represents earnings before interest, taxes, depreciation, depletion and amortization (“EBITDA”) adjusted for sales discounts and the deduction of income attributable to non-controlling interests in our Indiana Harbor cokemaking operations. EBITDA reflects sales discounts included as a reduction in sales and other operating revenue. The sales discounts represent the sharing with our customers of a portion of nonconventional fuels tax credits, which reduce our income tax expense. However, we believe that our Adjusted EBITDA would be inappropriately penalized if these discounts were treated as a reduction of EBITDA since they represent sharing of a tax benefit which is not included in EBITDA. Accordingly, in computing Adjusted EBITDA, we have added back these sales discounts. Our Adjusted EBITDA also reflects the deduction of income attributable to noncontrolling interest in our Indiana Harbor cokemaking operations. EBITDA and Adjusted EBITDA do not represent and should not be considered alternatives to net income or operating income under United States generally accepted accounting principles (GAAP) and may not be comparable to other similarly titled measures of other businesses. Management believes Adjusted EBITDA is an important measure of the operating performance of the Company’s assets and is indicative of the Company’s ability to generate cash from operations. • Adjusted EBITDA/Ton represents Adjusted EBITDA divided by tons sold. • Free Cash Flow equals cash from operations less cash used in investing activities less cash distributions to non- controlling interests. Management believes Free Cash Flow information enhances an investor’s understanding of a business’ ability to generate cash. Free Cash Flow does not represent and should not be considered an alternative to net income or cash flows from operating activities as determined under GAAP and may not be comparable to other similarly titled measures of other businesses. |
Reconciliations CS Global Credit Conference - October 2012 23 $ in millions Q2 2012 Q1 2012 FY 2011 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Adjusted Operating Income 46.6 37.1 80.4 14.9 33.5 24.6 7.4 Net Income (Loss) attributable to Noncontrolling Interest 1.3 (0.3) (1.7) (0.5) 3.4 1.6 (6.2) Subtract: Depreciation Expense (20.2) (18.4) (58.4) (16.0) (14.7) (14.7) (13.0) Adjusted EBITDA 65.5 55.8 140.5 31.4 44.8 37.7 26.6 Subtract: Depreciation, depletion and amortization (20.2) (18.4) (58.4) (16.0) (14.7) (14.7) (13.0) Subtract: Financing expense, net (11.8) (12.0) (1.4) (7.1) (3.3) 4.5 4.5 Subtract: Income Tax (7.0) (5.3) (7.2) 2.9 (5.1) (1.9) (3.1) Subtract: Sales Discount (3.8) (3.2) (12.9) (3.2) (3.5) (3.1) (3.1) Add: Net Income attributable to NCI 1.3 (0.3) (1.7) (0.5) 3.4 1.6 (6.2) Net Income 24.0 16.6 58.9 7.5 21.6 24.1 5.7 Reconciliations from Adjusted Operating Income and Adjusted EBITDA to Net Income |
Reconciliations CS Global Credit Conference - October 2012 24 $ in millions, except per ton data Jewell Coke Other Domestic Coke International Coke Jewell Coal Corporate Combined Domestic Coke Q2 2012 Adjusted EBITDA 12.5 48.6 0.7 9.3 (5.6) 65.5 61.1 Subtract: Depreciation, depletion and amortization (1.3) (13.7) (0.1) (4.3) (0.8) (20.2) (15.0) Add (Subtract): Net (Income) loss attributable to noncontrolling interests 1.3 1.3 1.3 Adjusted Pre-Tax Operating Income 11.2 36.2 0.6 5.0 (6.4) 46.6 47.4 Adjusted EBITDA 12.5 48.6 0.7 9.3 (5.6) 65.5 61.1 Sales Volume (thousands of tons) 170 892 358 373 1,062 Adjusted EBITDA per Ton 73.5 54.5 2.0 24.9 57.5 Q1 2012 Adjusted EBITDA 15.0 40.1 0.1 7.4 (6.8) 55.8 55.1 Subtract: Depreciation, depletion and amortization (1.3) (12.6) (0.1) (4.1) (0.3) (18.4) (13.9) Add (Subtract): Net (Income) loss attributable to noncontrolling interests (0.3) (0.3) (0.3) Adjusted Pre-Tax Operating Income 13.7 27.2 - 3.3 (7.1) 37.1 40.9 Adjusted EBITDA 15.0 40.1 0.1 7.4 (6.8) 55.8 55.1 Sales Volume (thousands of tons) 186 892 358 373 1,078 Adjusted EBITDA per Ton 80.6 45.0 0.3 19.8 51.1 Reconciliations from Adjusted EBITDA to Adjusted Pre-Tax Operating Income |
Reconciliations 25 $ in millions, except per ton data Jewell Coke Other Domestic Coke International Coke Jewell Coal Corporate Combined Domestic Coke Q4 2011 Adjusted EBITDA 10.6 21.3 10.2 2.5 (13.2) 31.4 31.9 Subtract: Depreciation, depletion and amortization (1.2) (10.6) (0.1) (3.7) (0.4) (16.0) (11.8) Add (Subtract): Net (Income) loss attributable to noncontrolling interests (0.5) (0.5) (0.5) Adjusted Pre-Tax Operating Income 9.4 10.2 10.1 (1.2) (13.6) 14.9 19.6 Adjusted EBITDA 10.6 21.3 10.2 2.5 (13.2) 31.4 31.9 Sales Volume (thousands of tons) 166 837 295 363 1,003 Adjusted EBITDA per Ton 63.9 25.4 34.6 6.9 31.8 Q3 2011 Adjusted EBITDA 13.9 34.3 1.7 9.2 (14.3) 44.8 48.2 Subtract: Depreciation, depletion and amortization (1.2) (9.9) - (3.3) (0.3) (14.7) (11.1) Add (Subtract): Net (Income) loss attributable to noncontrolling interests 3.4 3.4 3.4 Adjusted Pre-Tax Operating Income 12.7 27.8 1.7 5.9 (14.6) 33.5 40.5 Adjusted EBITDA 13.9 34.3 1.7 9.2 (14.3) 44.8 48.2 Sales Volume (thousands of tons) 191 777 373 371 968 Adjusted EBITDA per Ton 72.8 44.1 4.6 24.8 49.8 Reconciliations from Adjusted EBITDA to Adjusted Pre-Tax Operating Income CS Global Credit Conference - October 2012 |
Reconciliations $ in millions, except per ton data Jewell Coke Other Domestic Coke International Coke Jewell Coal Corporate Combined Domestic Coke Q2 2011 Adjusted EBITDA 10.6 25.3 0.8 11.5 (10.5) 37.7 35.9 Subtract: Depreciation, depletion and amortization (1.4) (9.6) (0.1) (3.2) (0.4) (14.7) (11.0) Add (Subtract): Net (Income) loss attributable to noncontrolling interests 1.6 1.6 1.6 Adjusted Pre-Tax Operating Income 9.2 17.3 0.7 8.3 (10.9) 24.6 26.5 Adjusted EBITDA 10.6 25.3 0.8 11.5 (10.5) 37.7 35.9 Sales Volume (thousands of tons) 170 757 412 334 927 Adjusted EBITDA per Ton 62.4 33.4 1.9 34.4 38.7 Q1 2011 Adjusted EBITDA 11.0 8.5 1.0 12.3 (6.2) 26.6 19.5 Subtract: Depreciation, depletion and amortization (1.1) (8.6) - (2.7) (0.6) (13.0) (9.7) Add (Subtract): Net (Income) loss attributable to noncontrolling interests (6.2) (6.2) (6.2) Adjusted Pre-Tax Operating Income 9.9 (6.3) 1.0 9.6 (6.8) 7.4 3.6 Adjusted EBITDA 11.0 8.5 1.0 12.3 (6.2) 26.6 19.5 Sales Volume (thousands of tons) 175 697 362 386 872 Adjusted EBITDA per Ton 62.9 12.2 2.8 31.9 22.4 Reconciliations from Adjusted EBITDA to Adjusted Pre-Tax Operating Income CS Global Credit Conference - October 2012 26 |
(in millions) 2012E Low 2012E High Net Income $98 $122 Depreciation, Depletion and Amortization 74 72 Total financing costs, net 48 46 Income tax expense 25 37 EBITDA $245 $277 Sales discounts 11 10 Noncontrolling interests (6) (7) Adjusted EBITDA $250 $280 Estimated EBITDA Reconciliation 2012E Net Income to Adjusted EBITDA Reconciliation 27 CS Global Credit Conference - October 2012 |
Free Cash Flow Reconciliations 2012E Estimated Free Cash Flow Reconciliation CS Global Credit Conference - October 2012 28 (in millions) 1 st Half 2012 Cash from operations $ 86.7 Less cash used for investing activities (20.7) Less payments to minority interest ( - ) Free Cash Flow $ 66.0 (in millions) 2012 Cash from operations In excess of $ 189 Less cash used for investing activities Approx. (85) Less payments to minority interest Approx. (4) Free Cash Flow In excess of $ 100 First Half 2012 Free Cash Flow Reconciliation |
Reference |
SunCoke’s Cokemaking Technology SunCoke’s Cokemaking Technology 30 CS Global Credit Conference - October 2012 Our industry-leading cokemaking technology meets U.S. EPA Maximum Achievable Control Technology (MACT) Standards |
Natural Gas in The Blast Furnace Impact of Low Natural Gas Prices Natural gas cannot completely replace coke in blast furnace – We estimate natural gas and other injectants can replace up to about 30% – The less coke used the more important the coke’s quality Alternative technologies take time to implement, require significant capital commitments and are energy intensive Coke oven gases produced by integrated steelmakers’ own coke ovens is less valuable in low cost natural gas environment, potentially impacting steelmakers’ future reinvest/rebuild decisions Blast Furnace Fuel Pricing 31 Source: CRU, SXC Analysis US$/MMBtu CS Global Credit Conference - October 2012 |