investor presentation october 29, 2007. confidential
TRANSCRIPT
Investor PresentationInvestor Presentation
October 29, 2007.October 29, 2007.
CONFIDENTIALCONFIDENTIAL
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Safe Harbor StatementSafe Harbor Statement
This presentation may contain forward-looking statements that are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements of future goals and similar statements other than historical facts constitute forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, which are described in Claymont Steel’s filings with the Securities and Exchange Commission. The actual results may differ materially from any forward-looking statements due to such risks and uncertainties. Claymont Steel undertakes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this presentation.
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Claymont Steel at a GlanceClaymont Steel at a Glance
Leading producer of custom steel plate
500,000 tons of finished plate capacity per year
Assets configured for custom plate production
Strong, diverse and loyal customer base
Strong focus on customer service
Non-union
Significant organic growth opportunities
Highly stable market
Current LTM 6/30/07 revenue and EBITDA of $345.2 million and $78.9 million respectively
End-Market Applications
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Investment HighlightsInvestment Highlights
Successfully executed operating plan since IPO
Excellent plate market fundamentals
Focus on niche markets
Facility optimized for low-cost production in market niche
Significant organic growth opportunities
Experienced management team
Strong financial performance and prospects
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Significant Headway Since IPO…Significant Headway Since IPO…
What We Have Done
Operations Sales
Management Financial
Continue Growing
Shareholder Value
Capital improvements in plant
Added 4th crew to support increased capacity:
Overhauled plant maintenance organization
Implemented new melt shop practices which led to record first half 2007 production
Stronger safety program
New V.P. of Operations
Restructured sales force
New commission plan
Continued new customer program that has resulted in 50 new customers
Continued growth in custom plate burning
Continued cost savings initiatives, primarily in scrap and energy procurement
Delivered through successful IPO
Post-IPO refinancing substantially lowered the cost of capital
Initiated implementation of Sarbanes-Oxley
New VPs of Operations, Custom Burning, Human Resources and Environmental Engineering
New Directors of Quality Control / Tech Services, Engineering, and Production Control and Purchasing
New Corporate Controller, VP of Finance and Treasurer
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Plate Market is Highly StablePlate Market is Highly Stable
(1) Source: Steel Facts (AISI).(2) Capacity of Carbon Plate only.(3) Major U.S. Producers defined as steel producers with U.S. production capacity of greater than 400,000 tons.(4) Source: Purchasing Magazine.
Strong End-Markets and Limited Capacity Among Few Producers Creates StabilityStrong End-Markets and Limited Capacity Among Few Producers Creates Stability
Claymont Market
Hot Rolled Sheet Price (4)
(Price per Ton)
Plate Price (4)
(Price per Ton)
$400
$600
$800
$1,000
Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07
$400
$600
$800
$1,000
Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07
IPO IPO
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$-
$100
$200
$300
$400
$500
$600
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Plate Spread
Improved Market FundamentalsImproved Market Fundamentals
Source: Purchasing Magazine. Spread of Cut-to-Length Hot Rolled Plate over No.1 Heavy Melt Scrap Steel (Chicago).(1) Spread indicates selling price less scrap costs.
Elimination of Capacity Has Driven Plate Spreads to Historical HighsElimination of Capacity Has Driven Plate Spreads to Historical Highs
Stable MarketBlast Furnaces
Market TurmoilNew Entrants
Stable MarketMini-Mills
Gulf States 0.4 MM tons
Geneva Steel 1.0 MM tons
Nucor0.9 MM tons
IPSCO1.2 MM tons
Oregon Steel 1.1 MM tons
Pla
te S
prea
d ($
/ to
n)
Bethlehem Steel 1.0 MM tons
New Mill Openings: 4.3 MM tons
Permanent Mill Closures: 2.4 MM tons
IPSCO 1.1 MM tons
(1)
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10.0
10.8 10.810.2
10.5 10.6
11.0
11.3
10.0 10.0
8
9
10
11
12
2005 2006 2007 2008 2009
Net Imports Domestic Consumption Domestic Capacity Domestic Capacity at IPO
Continuing Plate Deficit Continuing Plate Deficit
Source: “August 2005 Steel Plate Quarterly” by CRU International Limited and management estimates.(1) Arcelor-Mittal announced plans to restart its plate mill located in Gary, Indiana in 2008.
Rising Consumption Will Keep Plate Prices StableRising Consumption Will Keep Plate Prices Stable
U.S. Projected Supply and Demand(Millions of Tons)
Indexed Capacity Utilization
100% 102% 103% 100% 102%
(1)
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Focus on Custom PlateFocus on Custom Plate
Focused on Lower Volume, Higher Profit Segment of the MarketFocused on Lower Volume, Higher Profit Segment of the Market
Claymont: Improving Mix and Volume(Thousands of Tons)
(1) Excludes 12,158 tons of toll processing rolled in 2006.(2) 2007E figure calculated using 1H ended 6/30/07 tons annualized.
0
50
100
150
200
250
300
350
400
450
2001 At IPO (FY 2006) Run-Rate 1H 2007
Commodity Custom
51%
49%
28%
72%
296
409
(2)
36%
64%
395
(1)
10
0%
20%
40%
60%
80%
100%
Focus on Custom Discrete PlateFocus on Custom Discrete Plate
Source: Based on management estimates and AISI data.(1) Carbon Plate Only.
One of the Few Custom Discrete Steel Plate Manufacturers in U.S.One of the Few Custom Discrete Steel Plate Manufacturers in U.S.
2006 U.S. Steel Capacity (1)
102mm tons 10.2mm tons 500,000 tons
Sheet
Bar
Plate
Other
Coiled
Discrete
6.6mm tons
Arcelor-Mittal
Evraz / OregonLe Tourneau
Nucor
Claymont
SSAB / IPSCO
Jindal
Standard
Custom
1.6mm tons
Evraz /Oregon
Claymont
Arcelor-Mittal
Steel Plate ClaymontDiscrete Plate Custom Discrete
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Custom Strategy Yields Significant Price Premium Custom Strategy Yields Significant Price Premium
(1) Spread indicates selling price less scrap costs.(2) Source: Purchasing Magazine. Plate selling price less scrap cost.
$227
$464
$604567 $558 $551
$267
$519
$658$635 $637 $623
$0
$100
$200
$300
$400
$500
$600
$700
$800
2003 2004 2005 At IPO (9/30/07) 2006 YTD 6/30/07
Market
Claymont
Plate Market Spread vs. Claymont Spread (1)
Premium ($)
$40 $55 $54 $72
Claymont Commands a Greater Spread Than Standard Plate ProducersClaymont Commands a Greater Spread Than Standard Plate Producers
($ / Ton)
(2)
$79 $68
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Assets Ideally Suited for Custom ProductionAssets Ideally Suited for Custom Production
Raw Materials
ProductionProcess
Products Commodity Plate
ReheatFurnace
ReheatFurnace
ReheatFurnace
SlabYard
SlabYard
SlabYard
EAFEAF
ScrapScrap
Rolling Mill
Imported Slabs
Evraz / Oregon Steel
Nucor and SSAB / IPSCO
Arcelor-MittalClaymont
Commodity &Custom Plate
Commodity &Custom Plate
Custom Plate
Coke &
Iron Ore
Rolling Mill Rolling MillRolling Mill
Blast Furnace
Facility Optimized to Deliver Custom Orders in Short Lead Times and in Small QuantitiesFacility Optimized to Deliver Custom Orders in Short Lead Times and in Small Quantities
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297 286 291344
413
500500
400350350
320320 337
407
0
150
300
450
600
2001 2002 2003 2004 2005 2006 LTM 6/30/07$0
$2
$4
$6
$8
$10
$12
$14
Plate Capacity Tons Shipped Capital Expenditures
Growth Opportunities: Increase Mill OutputGrowth Opportunities: Increase Mill Output
Capacity, Shipments and Capital Expenditures(Thousands of Tons) ($Millions)
Ability to Significantly Grow Mill Capacity with Modest Capital ExpendituresAbility to Significantly Grow Mill Capacity with Modest Capital Expenditures
(1) Includes additional capacity beyond melt shop obtained through purchase of third party slabs.
(1)
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End Market % of YTD 2007 Sales
Forecast Growth
Die, Fabrication, and Heavy Machinery &
Equipment
23% 25% (1)
Bridges 19% 28% (2)
Rail Industry and Tank & Pressure Vessel
12% 10% (3)
Power, Wind and Communication Equipment
3% 18% (4)
Shipbuilding & Miscellaneous
3% 7% (5)
Growth Opportunities: Attractive and Growing End MarketsGrowth Opportunities: Attractive and Growing End Markets
Claymont Focuses on High-Growth End MarketsClaymont Focuses on High-Growth End Markets
Source: Datamonitor from Thomson Research.(1) U.S. construction and farm machinery sector growth from 2005 to 2010.(2) U.S. bridge and tunnel sector growth from 2005 to 2010.(3) U.S. railroad sector growth from 2005 to 2010.(4) Communication equipment sector growth from 2004 to 2009.(5) Crude tanker fleet growth from 2005 to 2007.
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Growth Opportunities: Geographic Expansion of SalesGrowth Opportunities: Geographic Expansion of Sales
States where Claymont product is sold
Field Sales Personnel
Company Headquarters
Independent Sales Agent
Additional Field Sales Personnel (Planned)
Increased salesforce to 21 sales personnel from 11 in 2006
Currently sell in 41 states and Canada
Increased focus on Western market
– “Buy American”
– 2005: 14,000 tons
– 2006: 18,000 tons
Further penetrate existing markets
Sales initiatives undertaken since IPO include:
– Restructured sales force
– New commission plan
– Continued new customer program that has resulted in 50 new customers in 1st half of 2007.
– Continued growth in custom plate burning
Continue to Focus on Underserved “Buy American” Markets in the WestContinue to Focus on Underserved “Buy American” Markets in the West
Geographic Distribution
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Growth Opportunities: Higher-Margin ProductsGrowth Opportunities: Higher-Margin Products
Growth in Higher Priced, Greater Value-Added ProductsGrowth in Higher Priced, Greater Value-Added Products
(1) Source: management estimates.(2) CAGR from FY 2001 to 1H 2007.
5% 67% 28%% of Run-Rate 1H 2007 Volume:
Plate Pricing per Ton by Product (1)
> $1,000
> $890> $810
$0
$300
$600
$900
$1,200
Custom Burned Custom Standard
5-Year VolumeCAGR (2) ∞ 12% (5)%
Average Selling Price
$857 $822
$0
$300
$600
$900
$1,200
1H 2006 1H 2007
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Experienced Management TeamExperienced Management Team
Strong Management Team with Significant Industry ExperienceStrong Management Team with Significant Industry Experience
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Financial OverviewFinancial Overview
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Financial StrategyFinancial Strategy
“Measure everything, every day”
– Every decision financially driven
Maintain fixed cost structure while increasing production levels
Minimize working capital
Prudent, analytical approach to capital investment
– Target $5 to $8 million of capital expenditures per year after reinvestment period
Strong balance sheet
– Near-term debt reduction
– Emphasis on liquidity and flexibility
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Resolution Reached for Challenges Faced in the First Half of the YearResolution Reached for Challenges Faced in the First Half of the Year
Challenges Faced
Gas curtailment in the first quarter
Increasing scrap costs
Meeting strong market demand
Outlook and Resolution
Obtained agreements with gas providers to ensure uninterrupted service
Experiencing scrap cost declines since April
Plate mill operations helped by the planned outage in early July
Tough Decisions
Postpone plate mill outage that had been planned for April to take advantage of strong market demand
Less than optimum mill conditions due to postponement meant production and shipping delays and increased repair and maintenance costs
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33rdrd Quarter Financial Guidance Quarter Financial Guidance
Pre Outage Issues
– 9 days of natural gas curtailment in 1Q precluded operations from building inventory to cover planned outage.
– Delayed the outage from April until July to take advantage of strong demand and high ASP in 2Q, June over
$900.
– The Reheat Furnace issues in June caused significant mill delays and quality problems.
Post Outage Issues
– Reheat Furnace pressure issues. Gives rise to quality problems leading to more secondary, re-makes, and lower productivity (off 7 tons / hour). Loss of 19,000 plate tons and the related delays (8% higher) impact EBITDA $3.4 million and $4.5 million
respectively. Industry experts, Core Engineering called in to stabilize furnace for continued operation. Permanent engineering solutions have been obtained and will be implemented in 4Q. Miscellaneous SG&A items, $0.5 million.
– The final pieces of the management team come together. VP of Operations and the Manager of Engineering are hired.
Both people are proven leaders from prominent companies.
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Historical Revenue and EBITDAHistorical Revenue and EBITDA
344 337
407 413
1212
50
100
150
200
250
300
350
400
450
2004 2005 2006 LTM 6/30/07
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Tons Shipped Toll Processing Price Per Ton
Historical Tons Shipped and Sales per Ton(Thousands of Tons) (Dollars per Ton)
Historical Adjusted EBITDA
$69.1
$93.7$84.1
$71.1
$6.9
$7.8
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2004 2005 2006 LTM 6/30/07
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
EBITDA One Time Costs Adjusted EBITDA Margin
($Millions) (% Margin)
(1)
(1) One time costs include sponsor fees, CITIC settlement and non-cash compensation.
$78.9
$91.0$93.7
$69.1
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Prudent Approach to Capital ExpendituresPrudent Approach to Capital Expenditures
Capital Expenditures
$3.1 $2.9
$1.6 $1.6
$11.9
$12.0 - $15.0
$6.3
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
2001 2002 2003 2004 2005 2006 2007E
No major projects
No major projects
No major projects
Investments in growth initiatives
Specific projects including a 4H1 Mill Motor
Siemens upgrade Reheat furnace
project Additional rail
lines
No major projects
($Millions)
Scarfing machine / baghouse
Additional custom burning table
New quality lab EAF
improvements
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Conservative CapitalizationConservative Capitalization
($Millions)
(1) Includes unamortized original issue discount value.
Reduce debt to $100 million in 24 – 36 months
As of As of12/31/2006 6/30/2007
Cash and Cash Equivalents 20.1$ 1.7$ Investment Securities 94.8 5.0
Debt:Revolving Credit Facility -$ 34.8$ Term Loan - 17.8 Senior Secured Floating Rate Notes (1) 168.8 - Senior Secured PIK Notes 75.0 - Senior Notes - 105.0
Total Debt 243.8$ 157.6$
Common Equity (40.3) (41.0) Total Capitalization 203.5$ 116.6$
Total Debt / LTM Adjusted EBITDA 2.0xNet Debt / LTM Adjusted EBITDA 1.7x
Redeemed PIK Notes with IPO proceeds
Refinanced Floating Rate Notes with lower-cost Senior Notes
Successfully reduces annualized interest expense by over $10 million
Continue de-leveraging with cash flow from operations
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Investment HighlightsInvestment Highlights
Successfully executed operating plan since IPO
Excellent plate market fundamentals
Focus on niche markets
Facility optimized for low-cost production in market niche
Superior customer service
Significant organic growth opportunities
Experienced management team
Strong financial performance and prospects
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