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Gabelli Pump, Valve & Motor SymposiumJim Lines, President & CEOJeff Glajch, Vice President & CFO
Gabe u p, a e & oto Sy pos u
February 25 2010February 25, 2010
Safe Harbor Statement Regarding Forward Looking Statements
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 asThis presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as “expects,” “estimates,” “projects,” “anticipates,” “believes,” “could,” and other similar words. All statements addressing operating performance events or developments that Graham Corporation expects or anticipates will occur in the futureoperating performance, events, or developments that Graham Corporation expects or anticipates will occur in the future, including but not limited to, statements relating to anticipated revenue, the timing of conversion of backlog to sales, profit margins, foreign sales operations, its strategy to build its global sales representative channel, the effectiveness of automation in expanding its engineering capacity, its ability to improve cost competitiveness, customer preferences, changes in market conditions in the industries in which it operates, changes in general economic conditions and customer behavior and its acquisition strategy are forward looking statements Because they are forward looking they should bebehavior and its acquisition strategy are forward-looking statements. Because they are forward-looking, they should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described inGraham Corporation's most recent Annual and Quarterly Reports filed with the Securities and Exchange Commission, including under the heading entitled “Risk Factors.”
Should one or more of these risks or uncertainties materialize or should any of Graham Corporation's underlyingShould one or more of these risks or uncertainties materialize, or should any of Graham Corporation's underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue relianceshould not be placed on Graham Corporation's forward-looking statements. Except as required by law, Graham Corporation disclaims any obligation to update or publicly announce any revisions to any of the forward-looking statements contained in this press release.
Graham CorporationFounded: 1936; IPO: 1968;
NYSE Amex: GHM $16.40
Common shares outstanding 9.845 million$Market capitalization $161 million
52-week price range $21.84 – $7.16Avg. daily trading volume (12 mos.) 146,868Stock splits:
► 5 for 4 1/2/2008
► 2 for 1 10/7/2008Ownership:
►Institutional 60.8%►Insider 2.8%
Note: Market data as of February 18, 2010; ownership as of most recent filing.
Our Vision
Our goal is to be a Our goal is to be a world leader in the design world leader in the design o d eade t e des go d eade t e des g
and manufacture of and manufacture of ENGINEEREDENGINEERED--TOTO--ORDERORDER
products for the products for the ENERGYENERGY MARKETSMARKETS
P d tProductsCondensers
27%
EjectorsHeat
Exchangersjec o s35%
Exchangers10%
Pumps6%
Aftermarket22%
U.S. 48%
International 52%
Note: All percentages based on Fiscal 2010 nine-month revenue of $48.4 million
Refinery Ejector SystemAn ejector system lowers the pressure in the distillation column to allow crude oil
CNOOC Huizhou Refinery–China
240,000 BBL/day refinery
to boil at a lower temperature. This allows for more efficient and cost-effective separation of crude oil into valuable products, such as diesel, gas oils, kerosene, and other fuels.kerosene, and other fuels.
A condenser supports a steam turbine and enables theturbine and enables the conversion of maximum energy in high pressure steam into power. Condensers
Ejectors
Graham Corporation, 2009
Di ifi d M k tDiversified Markets
Chemical Processing Original Equipment
M f t
Refining43%
Processing32%
Manufacturers(Dresser Rand, GE etc.)
EPC Contractors(Jacobs, Fluor etc.)to
mer
s
43%Power &
Other25%
( , )
End Users(Exxon Mobil, Chevron etc.)C
ust
Note: Percentages based on Fiscal 2010 nine-month revenue of $48.4 million
C lti t Di M k t
OIL REFINING CHEMICAL PROCESSING
Cultivate Diverse Markets
OIL REFINING
Conventional crude oilOil sandsExtra-heavy crude oil
CHEMICAL PROCESSING
EthyleneAmmoniaNitrogen
Ethylene glycolDetergent alcoholsPlastics, resins, fibersExtra heavy crude oil
Sour crudeLube oil
NitrogenMethanol StyrenePolystyrene
Plastics, resins, fibersCoal-to-liquids (CTL)Gas-to-liquids (GTL)
POWER GENERATION
CogenerationWaste to energy
OTHER APPLICATIONSEdible oil/OleochemicalsBiofuels:Waste-to-energy
Heat, power and lightGeothermalNuclearI it
Biofuels:EthanolBiodiesel
HVACIndustrial gasesIn-situ Industrial gasesCryogenic
Di ersified Geographies & Ind striesDiversified Geographies & Industries Fiscal 2010 Nine-month Orders
$36 million Refineries Saudi Arabia, South Korea, China, Bahrain, Oman, South America, USA
$15 million Petrochemical China, North Africa, Trinidad & TobagoTrinidad & Tobago, Mexico, USA
$39 million Power generation, edible oil, HVAC il d ti OEM
Turkey, USAHVAC, oil production, OEM, government, industrial gases
Global Distillation Capacity Growth
Total Net Growth: 6 mb/d
Global Distillation Capacity Growth(through 2015)
Europe: 0.2 mb/d
Total Net Growth: 6 mb/dRussia and Eastern Europe:
US & Canada:0.9 mb/d
Europe: 0.2 mb/d
Latin/South
Asia-Pacific: 2.9 mb/d
America & Africa: 0.3 mb/d
Middle East: 1.3 mb/d
mb/d = million barrels per daySource: OPEC World Oil Outlook 2009
I t ti l M k t E diInternational Markets Expanding
Asia (China)• Refining, petrochemical,
coal-to-liquid fertilizercoal-to-liquid, fertilizer
Middle East• Refining petrochemical
Sales Mix: becoming
more Refining, petrochemical
South America
internationally weighted
• Refining, petrochemical
CNorth American Competition
Market GHM CompetitorsMarket GHM Market Share
Competitors
Refining vacuum distillation ~ 75% Gardner DenverRefining vacuum distillation 75% Gardner Denver
Chemicals/Petrochemicals ~ 25% Croll Reynolds; Schutte Koerting;Gardner Denver
Turbomachinery OEM – refining ~ 50% Ambassador; SPX (Yuba); KreugerTurbomachinery OEM refining, petrochemical
50% Ambassador; SPX (Yuba); Kreuger
Turbomachinery OEM – power and power producer
~ 15% Holtec; Babcock; Thermal Engineering; SPX (Yuba); Krueger
HVAC ~ 10% Alfa Laval; APV; ITT; Ambassador
CInternational Competition
Market GHM CompetitorsMarket GHM Market Share
Competitors
Refining vacuum distillation ~ 35 to 50% Gardner Denver; GEA Jet Pump; g ; p;Korting Hannover; Edwards
Chemicals/Petrochemicals ~ 25% Croll Reynolds; Schutte Koerting;Gardner Denver; GEA Jet Pump; K ti H Ed dKorting Hannover; Edwards
Turbomachinery OEM – refining, petrochemical
~ 50% Donghwa-Entec; Bumwoo; Oiltechnik; Kreuger; various local fabricators
Turbomachinery OEM – power and power producer
~ 15% Holtec; Babcock; Thermal Engineering; SPX (Yuba); Krueger
M j P j t C lY 1 Y 2 Y 3 Y 4 Y 5
Major Project CycleYear 1 Year 2 Year 3 Year 4 Year 5
Conception to RFP Contracts awarded Construction
Graham Competitive Advantage:Early Involvement
awarded
Year 1 Year 2
Early Involvement$150 million
pipeline consistent with past few years
Graham establishes competitive advantage during first 24 months… Understanding pipeline, developing design options, identifying
p y
decision makers, understanding timing, creating strong relationships to…Gain advantage, optimize margin and win business
S lli C l f M j P j tSelling Cycle for Major ProjectsLarge
Laser focus on the key projects
gpopulation of
potential opportunities
ProjectStart
12 Mos. 18 Mos. 24 Mos.
• Conceptual design study
• Feasibility study• Rough budget• FEL1
• FEED• FEL2
• EPC bidding • Requisition for purchase
End userProcess licensor
Process licensorEPCs
EPCsOEMs
EPCOEM
• FEL1
OEMsOEMs OEM
Financial PerformanceFinancial PerformanceFinancial PerformanceFinancial Performance
C t d R i E i C l($ in millions)
Captured Revenue in Expansion Cycle
$86.4$101.1
$76 3
$41.3
$55.2$65.8 $61.5$60 - $63
$76.3
$48 4
FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 E t *
$48.4
Q3 2009 YTD Q3 2010 YTDFY2005 FY2006 FY2007 FY2008 FY2009 FY2010 Est.*
* Guidance provided as of January 29, 2010 and is not being updated as part of this presentation
Q3 2009 YTD Q3 2010 YTD
being updated as part of this presentation
St th d G P fit M iStrengthened Gross Profit Margin
$86.4$101.1
39 5% 41.3%$76.2
$41.3
$55.2$65.8 $60-$63
28.9%
25 6%
35.0%
39.5% .3%
42.1%
$48.4
FY2005 FY2006 FY2007 FY2008 FY2009 FY 2010 Q3 2009 YTD Q3 2010 YTD
18.2%
25.6%
37.1%
FY2005 FY2006 FY2007 FY2008 FY2009 FY 2010 Est.*Gross MarginRevenue
* Estimated FY 2010 gross margin is 34% to 36% on estimated revenue of $60 to $63 million. Guidance provided as of January 29, 2010 and is not being updated as part of this presentation
N t I d EPS($ in thousands)
Net Income and EPS
$15,034$17,467
( )
$13, 886
$3,586$5,761 $5,750
$296
FY2005* FY2006 FY2007 FY2008 FY2009Q3 2009 YTD Q3 2010 YTD
Earnings per Share $1.71$1.49$0.58**$0.38$0.03
$1.36 $0.58
Note: All earnings per share amounts adjusted for stock splits
* From continuing operations ** Includes R&D tax credit of $0.16
St B l Sh tStrong Balance Sheet
Cash, Cash Equivalents and Investments
($ in millions) ($ in millions)
Working Capital, Net of Cash, Cash Equivalents & Investments
$8.5
$5 8$36.8
$46.2
$57.7($ in millions) ( )
$5.8 $5.1
$0.2
$3.3
$2.7$11.0
$15.1
-$2.5
FY2005 FY2006 FY2007 FY2008 FY2009 Q3 FY10
FY2005 FY2006 FY2007 FY2008 FY2009 Q3 FY10
3 3%0 2%7 7%10 5%20 5% (3 4)%*Percent of 3.3%0.2%7.7%10.5%20.5% (3.4)%
* Based on Q3 FY10 TTM revenue of $73.3 million
Revenue
St t & O tl kStrategy & Outlook
D ti C l Shift$107.1 $110.5($ in millions)
Dramatic Cycle Shift
$54.2
$75.7
$48 3 $50 5
$89.8
$49.9
$66.2
$86.5$73.9
$54.9$67.0
($ )
$22.4$33.1
$48.3$37.0
$50.5$49.9
FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY2010 TTM
Q2FY2010 TTM
Q3FY2010 TTM
$51.6OrderVariation
Orders Backlog($ in millions)
$27.8$17.5
$8.1
$20.5
$8.8
$29.6
Variation($ )
Orders are historically lumpy and best evaluated on at least a trailing four
Q109 Q209 Q309 Q409 Q110 Q210 Q310$25 million U.S. Navy order
gquarter basis
R d i I t f C li lit$101 1FY09
Reducing Impact of Cyclicality$101.1
Mid-Point FY 2010
$51.8
$61.541.3%
35.0%
FY98
FY 2010 Guidance*
$34.9
31.3%
23.9%
26.0%
15.5%
FY00
Revenue
Gross Margin
Operating Margin
9.5%
1.0%
5 5%
*Assumes mid-point of FY 2010 guidance: $61.5 million in revenue, a 35.0% gross margin and approximately $12.0million in SG&A expenses. Guidance provided as of January 29, 2010 and is not being updated as part of this presentation
C t l t Ch i Fi i l P fCatalysts Changing Financial PerformanceA Company-wide Approach to a Better Graham Today and in the Future
Selling Process:• Re-branding• Adding value
• VacAdemics• VacWorks• Technical support
Operational Excellence:• Capital plan • Graham production system• Focus on lead time reduction• First time, every time• Training
Improved Operating Performance
Throughout Cycle
• Technical support• Redefining profit metrics• Decision rights & disciplined
approach• Gain market share• Not every order is a good order
• Training • Safety culture• Continuous improvement• Creating scale
• IT• OutsourcingThroughout Cycley g g• Variable costs
People Process:• Accountability• Policy deployment
Sustainability:• Leadership commitment• Long-term visionPolicy deployment
• Performance management• Change agents:
• IT, HR, OPS & executive
• Alignment
Long term vision• Balance financial results with
investing in the future• Graham management system• Succession planning
• Engagement
N T St tNear-Term Strategy• People
DevelopmentPeople
• Processes• Capital Plan
Customers• Stay close: consultative selling• Gain market advantage• Selling support for pipeline
Performance• Maintain profitability and positive cash flow• Evaluate potential acquisitions in disruptive market• Capture greater market share
Upturn• Be ready• Ascend growth curve more quickly than in last cycle• Take market share• Continue investing to improve and expand business
A i iti C it iAcquisition CriteriaEngineered-
to-orderto-order products for
Energy Industry
Geographic Expansion
and/or
Strong management Up to
$60 million and/orDiversify
Products/Markets
gteam / quality
culture$60 million in revenue
Return exceeds cost
f it lof capital
A i iti St t Th O tiAcquisition Strategy: Three OptionsGeographic Expansiong p p
• Asia, especially China• Middle East• South America
Product Diversification• Specialty heat exchangers
Market Diversification• PowerSpecialty heat exchangers
• Process vacuum equipment• Packaged systems• Process vessels
E i t l
Power√ Nuclear√ Solar√ Alternative energy
• Environmental
Presentation to the Buffalo CFAGabelli Pump, Valve & Motor SymposiumSupplemental SlidesPresentation to the Buffalo CFAFebruary 24, 2010
Jim Lines, President & CEOJeff Glajch, Vice President & CFO
p, y p
February 25 2010February 25, 2010
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