 Jefferies 2013 Global Industrials Conference
August 14, 2013
Patrick Decker, President and CEO
©
2013 Harsco Corporation, All Rights Reserved.
Exhibit 99.1 |
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1
©
2013 Harsco Corporation, All Rights Reserved.
Administrative Items
Safe Harbor
This presentation contains forward-looking statements based on
management’s current expectations, estimates and projections. All
statements that address expectations or projections about the future, including statements about the
Company’s strategy for growth, product development, market position, expected
expenditures and financial results are forward- looking
statements.
Some
of
the
forward-looking
statements
may
be
identified
by
words
like
“may,”
“could,”
“believes,”
“expects,”
“anticipates,”
“plans,”
“intends,”
“projects,”
“indicates,”
and similar expressions. These statements are not
guarantees of future performance and involve a number of risks, uncertainties and
assumptions. Many factors, including those discussed more fully
elsewhere in this presentation and in documents filed with the Securities and Exchange Commission by
Harsco, particularly its latest annual report on Form 10-K and quarterly report
on Form 10-Q, as well as others, could cause results to differ
materially from those stated. These factors include, but are not limited to, changes in the worldwide business
environment in which the Company operates, including general market conditions;
changes in the performance of the equity and debt markets; changes in
governmental laws and regulations; market and competitive changes, including pricing pressures,
market demand and acceptance for new products, services, and technologies;
unforeseen business disruptions in one or more of the many countries in
which the Company operates; the seasonal nature of the Company’s business; our ability to
successfully enter into new contracts and complete new acquisitions in the
timeframe contemplated; the financial condition of the Company’s
customers; the successful integration of the Company’s strategic acquisitions; the Company’s ability to
successfully implement its strategic initiatives and portfolio optimization; and
the amount and timing of repurchases of the Company’s
common
stock,
if
any.
The
Company
undertakes
no
duty
to
update
forward-looking
statements.
Non-GAAP Measures
This presentation contains non-GAAP financial information including adjusted
operating income margin, adjusted diluted earnings per share from continuing
operations, free cash flow and adjusted return on invested capital. These non-GAAP
measures exclude special items in certain fiscal periods. For a reconciliation of
these non-GAAP measures to U.S. GAAP results and the Company’s
rationale for its usage of non-GAAP measures, please see the Appendix . |
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2
©
2013 Harsco Corporation, All Rights Reserved.
Harsco at a Glance
Revenue: $1,404M
Global Market
Leader
Multi-industry exposure through four market-leading segments
2012 Total Revenues of $3,046M
18,500 Employees Across 50 Countries
Revenue: $937M
Global Market
Leader
Revenue: $352M
Global Leader in
Track Maintenance
Revenue: $353M
Leader in air cooled
heat exchangers
2012 Revenue Mix
Services
77%
Products
23%
2012 Revenues by Geography
W. Europe
35%
N. America
39%
Rest of
World 26% |
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3
©
2013 Harsco Corporation, All Rights Reserved.
Historical Harsco Performance
*Adjusted
diluted
earnings
per
share
from
continuing
operations,
free
cash
flow
and
adjusted
return
on
invested
capital
are
non-GAAP
measures. See the Appendix for a reconciliation to GAAP results.
Performance reflects weakness in end markets and need for better
execution |
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©
2013 Harsco Corporation, All Rights Reserved.
New Executive Management |
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©
2013 Harsco Corporation, All Rights Reserved.
CEO Perspective
2Q 2013 EPS of $0.30 in guidance range
Dissatisfaction with
Cash flow performance in 1H 2013
Near-term outlook
Metals & Minerals (M&M) performance in 2Q 2013
Pace of progress to improve results
End markets are very challenging
Need for better execution |
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©
2013 Harsco Corporation, All Rights Reserved.
Improvement Actions
Operational Process
Implement a structured and
disciplined approach to simplify
and streamline processes
Reduce number of initiatives
Focus on customer needs
Extend CI adoption
Start with M&M; Other
businesses in 2013/2014
Return to basics; Bottom-up
approach
Enhance competitive position
Portfolio Optimization
Challenged portfolio
Go-forward portfolio profile
Sustainable competitive
advantage
Position for long-term growth
Deliver strong free cash flow
through business cycles
Have attractive ROIC profiles
Reduce Company’s exposure
over time to highly cyclical and
correlated end markets
Complementary actions
expected to lead to stronger execution and results |
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©
2013 Harsco Corporation, All Rights Reserved.
Metals & Minerals at a Glance
Harsco Profile
Revenues and Adjusted OI Margin*
Market Drivers
*Adjusted operating margin is a non-GAAP measure. See the
Appendix for a reconciliation to GAAP results.
.
World’s largest provider of on-site, outsourced
services to the metals industries
Provide environmental solutions for global
metals and resource recovery
Mineral-based by-products for commercial and
industrial uses
2012 Revenues by Geography |
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©
2013 Harsco Corporation, All Rights Reserved.
Climbing the Value Chain Drives Improved
Growth Profile and Returns
LOW
HIGH
LOW
HIGH
ENVIRON SVCS/
BY-PRODUCTS
RESOURCE
RECOVERY
LOGISTICS
Summary of Major Contract Wins
Customer
Market
Primary Field of Play*
Term
(Years)
Estimated Value
Essar
India
RR
15
$160M
Jindal Group
India
RR
10+
$325 M
TISCO
China
RR and Env.
25
$500 M
Tangshan
China
RR and Env.
20
$375 M
Gerdau (renewal)
Brazil
Confidential
Revenues by Field of Play
RR: Resource Recovery, Env.: Environmental Services.
*Harsco provides some logistics services, mostly to support the primary field of
play. |
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©
2013 Harsco Corporation, All Rights Reserved.
Metals & Minerals
Strengths
Leading global market position
Services critical to sustaining
customer operations
Relationships with top-tier global
customers
Value proposition highly relevant
in attractive emerging markets
Long-term (multi-year) service
contracts
Lower cost structure due to prior
restructuring actions
Contract renewal discipline
Challenges
Global steel industry remains
challenged, particularly in
developed markets
Capital intensive business largely
dependent on customer
production volumes for attractive
returns
Need to
continue wins in emerging markets
accelerate our CI journey
lower capital intensity
bring new technologies to market |
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©
2013 Harsco Corporation, All Rights Reserved.
Infrastructure at a Glance
Harsco Profile
2012 Revenues by Geography
Revenues and Adjusted OI Margin*
Market Driver: Global Construction Spending
Source: IHS Global Insight, 1Q 2013
($ in trillions)
*Adjusted operating margin is a non-GAAP measure. See the
Appendix for a reconciliation to GAAP results.
.
A comprehensive access and forming
solutions provider to major infrastructure and
construction projects
Provide suite of plant construction, upgrade
and maintenance services to various
industrial sectors |
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©
2013 Harsco Corporation, All Rights Reserved.
Infrastructure Focus Areas
Global project management
to drive top line growth
More efficient yard
management for improved
operational efficiency and
better customer service
Common engineering
standards to leverage
innovation and lower capital
intensity |
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©
2013 Harsco Corporation, All Rights Reserved.
Competitive Landscape
Construction Services
Services Provided
Formwork
Shoring
Non-Mechanical Access
Masts & Suspended Access
Platforms
Roofing & Shelters
Site & Safety
Training Services
_____________________
Note: All service offerings not in all geographies. Grey shading
represents Harsco Infrastructure’s key service offering.
Leveraging service and geographic portfolio to capture larger share of
customer projects |
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©
2013 Harsco Corporation, All Rights Reserved.
Infrastructure
Strengths
Reputation for quality and safety
Breadth of geographic and
service profile
Up-front engineering and design
expertise
Lower cost structure due to prior
restructuring actions
Challenges
Commercial construction
recovery slower than expected
Concentration in Europe
Need to
drive top-line growth through
larger project wins
improve execution capability in
attractive markets
build CI discipline, particularly in
yard management |
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©
2013 Harsco Corporation, All Rights Reserved.
Rail at a Glance
Harsco Profile
Products and Services
2012 Revenues by Market Destination
Western Europe
11%
North America
40%
Rest of the World
49%
Growth
-4%
17% -14%
Growth ex
MOR 12%
7% 2%
*Adjusted operating margin is a non-GAAP measure. See the
Appendix for a reconciliation to GAAP results.
.
A global leader in railway track maintenance
equipment, services and solutions
Provides the industry's broadest range of equipment,
parts and contract services for railway track maintenance
and new track construction, including rail grinding, track
surfacing, and track stabilization
Customers include private and government-owned
railroads and urban mass transit systems worldwide
Revenues and Adjusted OI Margin* |
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©
2013 Harsco Corporation, All Rights Reserved.
Expanding the Global Base
China
•8 metro grinders in 2
years •Aftermarket
growth •Private operator
market growing •Technical
service contracting Japan
•Rail grinder win
•Surfacing product
expansion •Grinder
replacement Brazil & Peru
•Surfacing product win
•Grinding product
growth UK / Europe
•New rail grinder
delivered •Incremental
rail grinder win
•Incremental contract service
opportunities •New product
development Middle East
•Aftermarket growth
•Saudi new rail investment
•UAE new track project
•GCC railway network
Canada
•
Multiple surfacing product wins
•
Hy-Rail re-entry
Australia / NZ
•Multiple surfacing product wins
India
•DFCC
qualifications •NTC
projects •Metro market
growth
United States & Mexico
•New stabilizers delivered
•Spreader-ditcher reintroduction
•Expansion of drone
technology •Aftermarket
sales growth •Incremental
new product development Southeast Asia/Far East
•Rail grinder win
•Metro market growing
•SEA high-speed connection to China
Africa
•Surfacing product
win •Freight market
growing Russia
•Privatization of rail operations
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©
2013 Harsco Corporation, All Rights Reserved.
Rail
Strengths
Well positioned in an
attractive end market
Expanding global presence in
high growth markets
Growing aftermarket service
and repair business
Strong track record of
attractive growth and returns
Early adopters of CI
Challenges
Completion of large multi-
year China order –
difficult
near-term financial
comparisons
Relatively niche business;
assessing growth
opportunities in both core
and adjacent markets |
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©
2013 Harsco Corporation, All Rights Reserved.
Industrial at a Glance
Harsco Profile
2012 Revenues by Market
North America
90%
Rest of the World
10%
Revenues and OI Margin
Market Driver
A market leader in energy-efficient air-cooled
heat exchangers, heat transfer systems, and
industrial grating products
Significant growth potential through
globalization of the business |
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©
2013 Harsco Corporation, All Rights Reserved.
Industrial Products
Air-cooled heat exchangers for
natural gas compression and
pipeline distribution
Steel grating for industrial and
commercial flooring and safety
walkways
Energy efficient heat transfer systems
for heating and hot water service in
large commercial and institutional
buildings |
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©
2013 Harsco Corporation, All Rights Reserved.
Industrial
Strengths
Well positioned in attractive
industries
Growing aftermarket
business
Strong track record of
generating attractive growth
and returns
Early adopters of CI
Challenges
Three niche businesses;
current scale is limited
Need to
expand into overseas energy
markets
accelerate bringing new product
offerings to market
assess opportunities to grow
core and adjacent markets |
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©
2013 Harsco Corporation, All Rights Reserved.
Overall Focus Areas to Improve Returns
Build a robust CI culture
Lower the capital intensity of the business
Grow the businesses via market expansion & innovation
Upgrade leadership talent and depth
Simplify and streamline operational processes
Improve the portfolio mix
Focus.
Align. Execute. |
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©
2013 Harsco Corporation, All Rights Reserved.
Build Robust CI Culture
2012
2013
Lean/Kaizen Activities
Employees Engaged in CI Events
Reaffirmed CI as core principle
Re-launched CI in Infrastructure and
M&M
Expanded CI into all corporate
functions
Launched Lean Six Sigma
Staff CI leadership roles
Advance CI maturity across all
businesses
Expand Green and Black Belt
certifications
Deploy CI to working capital and cash
return improvement
Implement Voice of Customer
methods to drive improved service
and innovation |
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©
2013 Harsco Corporation, All Rights Reserved.
Lower the Capital Intensity
Continue disciplined approval
and capital allocation process
Deploy global asset
management in Metals
Invest to grow Rail and
Industrial
Capital Expenditures
($ in millions)
Total Capex as % Total Harsco Revenues
2007
2008
2009
2010
2011
2012
12.0%
11.5%
5.5%
6.3%
9.5%
8.7% |
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©
2013 Harsco Corporation, All Rights Reserved.
Grow Top Line via Market Expansion and
Innovation
Shift of steel production to emerging
markets
Strong track record of international
expansion in Rail
Infrastructure focus on market share
growth
Expand to serve global energy production
growth
2012 Revenues by Geography
Market Expansion
Compass telematics in Rail
New resource recovery and
environmental services in
Metals
Platinum forming product in
Infrastructure
Healthy backlog of new
product development in
Industrial
Innovation
North America
39%
Rest of World
26%
Western
Europe
35% |
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©
2013 Harsco Corporation, All Rights Reserved.
Portfolio Assessment Attributes
Long-term attractiveness of the end markets served
Quality of value proposition for each business
Degree of competitive strength and differentiation
Long-term growth and financial return profile
Execution capability |
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©
2013 Harsco Corporation, All Rights Reserved.
Key Takeaways
New executive team focused on improving financial returns of
the company
Early stage deployment of CI
Shifting service and product mix to higher value offerings
Expanding presence in key growth markets
Taking actions to
Simplify operational processes
Optimize the portfolio
Opportunity for significant value creation |
 Jefferies 2013 Global Industrials Conference
August 14, 2013
Appendix
©
2013 Harsco Corporation, All Rights Reserved. |
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27
©
2013 Harsco Corporation, All Rights Reserved.
Non-GAAP Reconciliation
Adjusted Diluted Earnings per Share from Continuing Operations (a)
2007
2008
2009
2010
2011
2012
GAAP diluted EPS from continuing operations
3.01
$
2.92
$
1.66
$
0.14
$
(0.12)
$
(3.15)
$
Special items:
- Goodwill impairment charge - Harsco Infrastructure (b)
-
-
-
-
-
3.29
- Restructuring charges (c)
-
-
-
0.77
1.05
1.06
- Charges to exit Harsco Metals & Minerals contract (d)
-
-
-
-
-
0.07
- Gains associated with exited countries - Harsco Infrastructure (e)
-
-
-
-
-
(0.10)
- Former CEO separation expense (f)
-
-
-
-
-
0.04
- Gains on pension curtailment - Harsco Metals & Minerals (g)
-
-
-
-
-
(0.02)
- One-time Harsco Rail benefit (h)
-
-
-
-
(0.07)
-
- Non-cash tax charge (i)
-
-
-
-
0.45
-
Adjusted diluted EPS from continuing operations
3.01
$
2.92
$
1.66
$
0.91
$
1.31
$
1.19
$
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Year Ended December 31
Non-cash goodwill impairment charge in Harsco Infrastructure ($265.0 million pre-tax).
Charges resulting from the Company's previously announced Fourth Quarter 2010 Harsco Infrastructure
and 2011/2012 Restructuring Programs (Harsco Infrastructure 2010 $84.4 million pre-tax,
2011 $87.6 million pre-tax, 2012 $88.6 million pre- tax; Harsco Metals & Minerals
2011 $12.8 million pre-tax, 2012 $5.5 million pre-tax). Non-cash gains related to
the closure of operations in certain countries in Harsco Infrastructure. Charges as a result of
exiting an underperforming contract in Harsco Metals & Minerals ($7.6 million pre-tax).
Pension curtailment gains in Harsco Metals & Minerals ($1.7 million pre-tax).
Non-cash tax charge against U.K. deferred tax assets ($36.8 million after-tax).
Reduction of estimated costs related to the first phase of Harsco Rail's large China order ($8.0
million pre-tax). Separation expense for former CEO ($4.1 million pre-tax).
The Company's management believes diluted earnings (loss) per share from continuing operations
excluding special items, a non-GAAP financial measure, is meaningful to investors because
it provides an overall understanding of the Company's historical and future prospects.
Exclusion of special items permits evaluation and comparison of results for the Company's core
business operations, and it is on this basis that management internally assesses the Company's performance. This
measure should be considered in addition to, rather than as a substitute for, other information
provided in accordance with GAAP. |
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28
©
2013 Harsco Corporation, All Rights Reserved.
Non-GAAP Reconciliation
Free Cash Flow (a)
($ in millions)
2007
2008
2009
2010
2011
2012
Net cash provided by operating activities
472
$
574
$
434
$
401
$
299
$
199
$
Plus cash payments for restructuring charges
-
-
-
11
23
81
Less maintenance capital expenditures (b)
(197)
(210)
(78)
(108)
(178)
(138)
Less growth capital expenditures (c)
(247)
(248)
(87)
(84)
(135)
(127)
Plus capital expenditures for strategic ventures (d)
-
-
-
-
1
13
Plus proceeds from sales of assets (e)
17
26
23
22
17
32
Free Cash Flow
45
$
142
$
292
$
242
$
27
$
60
$
(a)
(b)
(c)
(d)
(e)
Asset sales are a normal part of the business model, primarily for the Harsco Infrastructure and
Harsco Metals & Minerals Segments. Amounts for 2011 and 2012 exclude proceeds received
from assets sold under restructuring programs. Amounts for 2007 and 2009 exclude amounts
related to the sale of the Company's former Gas Technologies business group.
Year Ended December 31
The Company's management believes that free cash flow, a non-GAAP financial measure, is
meaningful to investors because management reviews cash flows generated from operations less
capital expenditures net of asset sales proceeds. It is important to note that free cash
flow does not represent the total residual cash flow available for discretionary expenditures
since other non-discretionary expenditures, such as mandatory debt service requirements,
are not deducted from the measure. This measure should be considered in addition to, rather
than as a substitute for, other information provided in accordance with GAAP. Maintenance
capital expenditures are necessary to sustain the Company’s current revenue streams and include
contract renewals.
Growth capital expenditures, for which management has discretion as to amount, timing and geographic
placement, expand the Company's revenue base and create additional future cash flow.
Capital expenditures for strategic ventures represent the partner’s share of capital
expenditures in certain ventures consolidated in the Company’s financial
statements. |
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29
©
2013 Harsco Corporation, All Rights Reserved.
Non-GAAP Reconciliation
Adjusted Return on Invested Capital (a)
(in thousands)
2007
2008
2009
2010
2011
2012
Net income (loss), as reported
299,492
$
240,945
$
118,777
$
6,754
$
(11,510)
$
(254,612)
$
Special items:
- Goodwill impairment charge - Harsco Infrastructure
-
-
-
-
-
265,038
- Restructuring charges (b)
-
-
-
84,440
100,780
94,498
- Charges to exit Harsco Metals & Minerals contract (c)
-
-
-
-
-
7,645
- Gains associated with exited countries (d)
-
-
-
-
-
(10,906)
- Former CEO separation expense
-
-
-
-
-
4,125
- Gains on pension curtailment
-
-
-
-
-
(1,716)
- One-time Harsco Rail benefit (e)
-
-
-
-
(7,966)
-
- Taxes on above special items
-
-
-
(21,806)
(14,171)
(9,070)
- Non-cash tax charge (f)
-
-
-
-
36,833
-
Adjusted net income
299,492
$
240,945
$
118,777
$
69,388
$
103,966
$
95,002
$
Total equity
1,566,119
$
1,413,676
$
1,509,834
$
1,468,145
$
1,219,918
$
861,624
$
Plus long-term debt
1,012,087
891,817
901,734
849,724
853,800
957,428
Total capital
2,578,206
$
2,305,493
$
2,411,568
$
2,317,869
$
2,073,718
$
1,819,052
$
Adjusted return on invested capital
11.6%
10.5%
4.9%
3.0%
5.0%
5.2%
(a)
(b)
(c)
(d)
(e)
(f)
Year Ended December 31
Reduction of estimated costs related to the first phase of Harsco Rail's large China
order. The Company's management believes return on invested capital excluding special
items, a non-GAAP financial measure, is meaningful to investors in evaluating the
efficiency and effectiveness of the Company's long-term capital investments. Exclusion of special items permits
evaluation and comparison of results for the Company's core business operations, and it is on
this basis that management internally assesses the Company's performance. This measure
should be considered in addition to, rather than as a substitute for, other information
provided in accordance with GAAP.
Non-cash tax charge against U.K. deferred tax assets.
Charges resulting from the Company's previously announced Fourth Quarter 2010 Harsco
Infrastructure and 2011/2012 Restructuring Programs.
Charges as a result of exiting an underperforming contract in Harsco Metals &
Minerals. Non-cash gains related to the closure of operations in certain countries
in Harsco Infrastructure. |
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30
©
2013 Harsco Corporation, All Rights Reserved.
Non-GAAP Reconciliation |