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| 8-K - 8-K MAY 2017 INVESTOR PRESENTATION - AZZ INC | form8k-5x17x17corppresenta.htm |
AZZ Inc.
NYSE: AZZ
Corporate Presentation
May 2017
2
Certain statements herein about our expectations of future events or results constitute forward-looking statements for
purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. You can identify forward-looking
statements by terminology such as, “may,” “should,” “expects,“ “plans,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential,” “continue,” or the negative of these terms or other comparable terminology. Such forward-looking statements are
based on currently available competitive, financial and economic data and management’s views and assumptions regarding
future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may
differ from those expressed or implied in the forward-looking statements. This presentation may contain forward-looking
statements that involve risks and uncertainties including, but not limited to, changes in customer demand and response to
products and services offered by AZZ, including demand by the power generation markets, electrical transmission and
distribution markets, the industrial markets, and the hot dip galvanizing markets; prices and raw material cost, including zinc
and natural gas which are used in the hot dip galvanizing process; changes in the political stability and economic conditions of
the various markets that AZZ serves, foreign and domestic, customer requested delays of shipments, acquisition opportunities,
currency exchange rates, adequacy of financing, and availability of experienced management and employees to implement
AZZ’s growth strategy. AZZ has provided additional information regarding risks associated with the business in AZZ’s Annual
Report on Form 10-K for the fiscal year ended February 28, 2017 and other filings with the SEC, available for viewing on AZZ’s
website at www.azz.com and on the SEC’s website at www.sec.gov.
You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to
place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement.
These statements are based on information as of the date hereof and AZZ assumes no obligation to update any forward-
looking statements, whether as a result of new information, future events, or otherwise.
Forward Looking Statements
3
AZZ is a global provider of specialty electrical equipment and highly
engineered services to the power generation, transmission,
distribution and industrial markets as well as a leading provider of
hot dip galvanizing services to the North American steel fabrication
market
Our Vision: We envision a world where AZZ’s innovation, quality, and
service minded people enable a safer and more sustainable
infrastructure while providing superior returns for shareholders
Corporate Overview and Vision
4
Total Company: Sales by Segment
44%
56%
FY2015
$817 million
Energy
Galvanizing
45%
55%
FY2016
$903 million
44%
56%
FY2017
$859 million
5
Total Company: Sales by Market Segment
Transmission & Distribution
Industrial - General Industry, Oil & Gas, Construction
Power Generation
53%
16%
31%
FY2015
$817 million
52%
21%
27%
FY2016
$903 million
60% 19%
21%
FY2017
$859 million
Served Markets
Our products help
power up the world
from any generation
source and our services
ensure the safety of
lives and equipment.
Customers & Partners
7
8
Leading Market
Positions
Diversified
Portfolio of
Businesses
Strong Long
Term Growth
Drivers
Strong Historical
Financial
Performance
New Culture
Driving Future
Opportunities
Key Investment Considerations
9
Galvanizing
Leading Market Positions
Industrial Solutions
Nuclear Solutions
Electrical Solutions
• Largest galvanizer in North America
• World’s largest producer of weld metal overlay services
• Largest third-party supplier of safety-related nuclear equipment
• Global leader in cost efficient turnkey bus systems as preferred resource for
utilities in 45 countries
• Preferred partner in arc-resistant Switchgear
• Gold standard for custom designed enclosures and control center structures
10
Industrial Solutions (WSI and SMS Operations)
Specialty Welding and Overlays
Critical Boiler, Drum and Vessel Components
Boiler Construction and Overhauls
Structural Repair and Upgrade
Specialized Engineering Support
Corrosion/Erosion Protection
Nuclear Solutions (NL & WSI Operations)
Largest supplier third-party safety related nuclear
equipment (OEM Partner)
Equipment and Component Qualification
Certification – ASME III
Stamp – N-Certificate, NS-Certificate, NPT-
Certificate
Alloy 600 and Stress Corrosion Cracking Mitigation
Engineering and Equipment Solution Development
Post-Fukushima
Diversified Portfolio of Businesses
11
Electrical Solutions (Legacy Electrical &
Industrial Products)
High & Medium Voltage Bus Systems
Switchgear Systems
Enclosure Systems
Tubular Products
Hazardous and Specialty Lighting
Systems
Galvanizing
Largest galvanizer in North America
Corrosion protection services for steel
fabrication industry
Leader in quality, dependability, and
service
Diversified end markets
Diversified Portfolio of Businesses
12
• FY 2017 – 30th consecutive year of profitability
• 10 Year CAGR – Revenues 12.7%, Net Income 10.9%
• Strong balance sheet and cash flows, new debt facility in
place
• Superior operating margins in legacy businesses
• Solid Quarterly Cash dividend
Strong Financial Performance
13
• Aging U.S. energy and industrial infrastructure and required
investment
• Emerging North American energy independence
• International demand for electricity and energy
Key Long-Term Growth Drivers
14
Focus of Fiscal 2015-2017:
• Unlocking value at recently acquired businesses (WSI & NL)
• Management changes – “right players on the field”
• Emphasis on project management
• Seeking higher margins through sales leverage, cost control, and selective bidding
• Driving returns-based metrics
• More financially centered organization
• Incentives aligned with performance throughout organization
• RONA focus on investments
• Operational excellence through 6-sigma practices and accountability
• Accountability and change integrated throughout all layers of management
• Early stages of adoption reaping benefits
Driving Performance FY2015 – FY2017
15
Improving Energy segment operating margins through
emphasis on:
international growth
operational excellence
leveraging fixed costs through top-line growth
Growing our Galvanizing segment
organically
by acquisition
seeking adjacent opportunities in metal finishing
Continuing emphasis on cash flow and efficient capital
deployment
Focus Areas for Fiscal Year 2018
AZZ has significant growth opportunities that will provide a platform
for sustainable earnings growth
Galvanizing
17
Galvanizing Market Opportunity
Includes Galvanized:
• Steel Sheet
• Tube Steel
Global Galvanized Steel Market
Post-Fabrication
Galvanized Steel
Electrical Utility
Industrial
Petrochemical Bridge & Highway
OEM
AZZ
Served Markets
Evaluating other metal finishing process technologies
18
Galvanizing Locations
Acquired 6 locations in
Texas, Louisiana, and
Mississippi from Trinity
Industries in June 2015,
Closed 1, Shuttered 1 in
September 2016
Locations: 41 facilities in 19 states and 3 Canadian Provinces
New Location:
AZZ Galvanizing - Reno,
NV Opened January 2016
Acquired :
Olson Industries in Atkinson, NE
in February 2016
19
Galvanizing Revenue by Market
30%
13% 36%
7%
14%
FY 2015
$358 million
Electrical Utility OEM's Industrial Bridge & Highway Petrochemical
30%
13% 36%
7%
14%
FY 2016
$402 million
39%
13%
36%
5% 7%
FY 2017
$376 million
20
Operating Margins: Galvanizing
26.1% 26.1% 26.2%
24.7%
23.6%
21.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
*
*Includes $7.3 million of realignment charges in FY2017, or 1.94% of FY2017 sales of $376 million
Energy
22
41%
22%
37%
FY2017
$483 million
35%
17%
48%
FY2016
$501 million
Energy: Revenue Mix
36%
19%
45%
FY2015
$458 million
Transmission & Distribution Industrial Power Generation
23
14.2%
13.7%
10.7%
8.4%
11.7%
10.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017
13.8% Op
Margin w/o
Purch Price
Accounting
13.0% Op
Margin w/o
Purch Price
Accounting
Operating Margins: Energy
15.9% Op
Margin w/o
Purch Price
Accounting
13.8% Op
Margin w/o
Purch Price
Accounting 11.2% Op
Margin w/o
Purch Price
Accounting
24
Energy Backlog
($ in Millions)
Table includes acquired backlog from NL during FY 2013 and Aquilex
SRO (WSI) during the first quarter of FY 2014, and PEI in FY 2017
$(millions) FY 2012
FY 2013 FY 2014
FY 2015
FY 2016 FY 2017
Beginning Backlog 108.4 138.6 221.7 325.0 332.6 334.5
Acquired Backlog 0.0 78.5 95.1 0.0 0.0 11.9
Ending Backlog 138.6 221.7 325.0 332.6 334.5 346.4
Consolidated Financials
FY2017 P&L Recap
Consolidated AZZ Prior Year
$(000) Except EPS FY2017 FY2016 Delta ($) Delta (%)
Bookings 858,934 905,053 (46,119) (5.1)%
Backlog 346,363 334,456 11,907 3.6%
Sales 858,930 903,192 (44,262) (4.9)%
Gross Profit 204,784 230,111 (25,327) (11.0)%
Gross Margin (%) 23.8% 25.5%
SG&A 106,424 107,823 (1,399) (1.3)%
SG&A (%) 12.4% 11.9%
Operating Income 98,360 122,288 (23,928) (19.6)%
Operating Margin (%) 11.5% 13.5%
Other Income / (Expense), net (1,121) (2,765) 1,644
Interest Expense 14,732 15,155 (423) (2.8)%
Tax Expense 23,828 27,578 (3,750) (13.6)%
Net Earnings 60,921 76,790 (15,869) (20.7)%
Diluted EPS $2.33 $2.96 ($0.63) (21.3)%
26
27
Consolidated Net Sales
($ in Millions)
$469
$571
$752
$817
$903 $859
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2012 2013 2014 2015 2016 2017
Fiscal Year
28
Earnings Per Share
(Fully Diluted)
$1.61
$2.37
$2.32
$2.52
$2.96
$2.33
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
2012 2013 2014 2015 2016 2017
Fiscal Year
29
Cash Flow
($ in Millions)
-$20.0
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Cash Pro. By Oper. Net Income Free Cash Flow
30
CAPEX, Depreciation & Amortization
($ in Millions)
$16.4
$19.8
$24.9
*$43.5
$29.4
$39.9
$41.4
$22.2 $22.6
$29.4
$43.3
$46.1 $47.4
$50.4
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017
CAPEX D&A
*Includes $12 million for the rebuild of the Joliet Galvanizing facility in Fiscal 2014
31
Total Bank Debt / Long Term Debt to Equity
($ in Millions)
0.32
0.00
0.53
0.44
0.88
0.78
0.63
1.08
0.80
0.68
0.51
0.00
0.20
0.40
0.60
0.80
1.00
1.20
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
$450.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Fiscal Year
Bank Debt Cash Debt to Equity Ratio
Capitalization as of February 28, 2017
5 Year, $300M Senior Credit Facility $ 111.7
6.24% Senior Notes Due Mar 2018 $ 28.6
5.42% Senior Notes Due 2021 $ 125.0
Total Bank Debt $ 272.3
Shareholder Equity $ 529.6
Debt to Equity Ratio 0.51
32
EBITDA Margins
($ in Millions)
16.4% 16.7%
21.2%
23.7%
22.3%
21.4%
24.0%
20.7%
18.7% 18.5%
17.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
$700.0
$800.0
$900.0
$1,000.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Fiscal Year
Net Sales EBITDA EBITDA Margin
Q & A
Appendix - Businesses
North America’s largest provider of post-fabrication galvanization
Galvanizing
OEM Industrial Bridge & Highway Agriculture
41 facilities in 19 states and 3 Canadian Provinces
35
Welding Services (WSI)
Worldwide provider that develops and delivers design repairs,
component upgrades and specialty maintenance services for all
energy intensive industries
Machine Weld Overlay Shop Services Component Replacement Remote Weld Operation
36
Boiler Construction Boiler Overhaul Component Replacement HSRG Maintenance
Southeastern Mechanical Services (SMS)
SMS provides qualified modifications, repairs and fabrication of boiler
components and pressure parts to industries that rely on boilers and heat
recovery units for steam and/or power generation
37
Nuclear Logistics LLC (NL)
A leading 3rd party supplier of critical and safety related equipment for
the nuclear power industry
Electrical Mechanical Instrumentation & Control Qualification & Dedication
38
Switchgear Systems
PowerAisle™ metal clad and arc-resistant switchgear and relay panels
provide the safe and reliable operation of electricity
Renewable /Wind Utility Portable Substation Mining
39
Bus Systems
Electrical bus for domestic and international utilities and industrial markets
Non-Segregated Phase Bus Segregated Phase Bus Isolated Phase Bus Bus Services
600V- 38kV 15kV-69kV 600V-38kV Installation/Emergency Repair
40
High Voltage Bus Systems (HVBS)
AZZ SF6 gas insulated bus provides a long distance power transmission
alternative to transmission lines, high voltage cables, or GIS bus designs
Vertical Underground Overhead Interconnections
41
Enclosure Systems
Factory fabricated electrical enclosures safely and securely protect
instrumentation and control devices across a wide variety of markets
Electrical Industrial Oil & Gas Specialty Applications
42
Hazardous and Specialty lighting for severe and harsh environments
Lighting Systems
Industrial Marine Lighting Food Processing/Inspection Manufacturing
43
Pup Joints and Full Length Tubing serving the Oil Country Tubular Goods Market
Tubular Products
Upset Pipe Thread Pipe Full Length Tubing Pup Joints
44
Reg G Tables
46
GAAP to Non-GAAP EBITDA
Reconciliation
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net Income 21,604 27,688 42,206 37,728 34,963 40,736 60,456 59,597 64,943 76,790 60,921
Depreciation 6,478 7,999 12,921 15,603 18,929 18,855 19,365 25,090 28,051 31,194 33,430
Amortization 181 200 1,607 1,823 3,237 3,740 9,999 18,214 18,039 16,223 16,928
Interest 1,495 1,495 6,170 6,838 7,731 13,939 13,073 18,407 16,561 15,155 14,732
Taxes 12,910 16,145 24,704 22,655 19,995 22,905 33,913 34,314 25,187 27,578 23,828
EBITDA 42,668 53,527 87,608 84,647 84,855 100,175 136,806 155,622 152,781 166,940 149,839
47
GAAP to Non-GAAP Free Cash Flow
Reconciliation
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Cash from Operations 38,926 60,196 82,588 42,085 64,065 92,738 107,275 118,157 143,589 111,176
Less Capital Spending 9,926 20,009 12,037 16,411 19,784 24,923 43,472 29,377 39,861 41,434
Free Cash Flow 29,000 40,187 70,551 25,674 44,281 67,815 63,803 88,780 103,728 69,742
