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| 8-K - FORM 8-K - SunCoke Energy, Inc. | d279679d8k.htm |
 Investor
Presentation January 2012
Exhibit 99.1 |
 1
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, business strategies, financing plans, competitive
position, potential growth opportunities, potential operating performance improvements, effects resulting from our
separation from Sunoco, 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 undertakes no obligation to
update publicly any forward-looking statement (or its associated cautionary language) whether as a result
of new information or future events or otherwise.
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. January 2012 |
 2
Distribution Summary
Distributing Company:
Sunoco, Inc.
Distributed Company:
SunCoke Energy, Inc.
Distributed Securities:
NYSE / SXC
Distribution Ratio:
0.53046456 share of SXC stock for each share of SUN held
Issue:
Special Stock Dividend to SUN Shareholders
Shares Issued:
56,660,000
Total Shares Outstanding:
70.0 million
Record Date:
January 5, 2012
Distribution Date:
January 17, 2012
Enterprise Value:
Approximately $1.5 billion including debt as of January 6, 2012
January 2012 |
 3
Today’s Presenters
Ryan Osterholm
Director of
Finance and
Investor Relations
Fritz Henderson
Chairman &
Chief Executive
Officer
Joined SunCoke in 2010
Executive at General Motors for over 26 years
President and Chief Executive Officer
President and Chief Operating Officer
Vice Chairman and Chief Financial Officer
Chairman of GM Europe
President of GM Asia Pacific
Group Vice President and President of GM-LAAM
Joined SunCoke in 2007
Prior roles include:
Director, Business Development and Strategy SunCoke Energy
Various Financial, Strategy and Business Development roles at Public Service
Enterprise Group
Mark Newman
Senior Vice
President &
Chief Financial
Officer
Joined SunCoke in 2011
Prior roles include:
Ally Financial, Inc.: Vice President, Remarketing and Managing Director
of SmartAuction
GMAC: CFO of North America; Vice Chairman, GMAC Bank
General Motors: CFO of GM North America; Assistant Treasurer and
General Director; Vice President & CFO of Shanghai GM
January 2012 |
 4
Jewell
Coke
28%
Coal
Mining
12%
Int'l Coke
9%
Other Domestic Coke
51%
SunCoke Introduction
Pro Forma 2011
Adjusted EBITDA
(1)
Estimate
(excluding Corporate Segment)
2011 Estimates:
•Revenue of $1.5
- $1.6 billion
•Adjusted EBITDA
(1)
of $148 –
$153 million
(1) For a definition of Adjusted EBITDA, please see the appendix.
January 2012
Largest independent producer of
metallurgical coke in Americas with
nearly 50 years experience
~85% of Adjusted EBITDA
(1)
generated by cokemaking business
Secure, long-term take-or-pay
contracts with leading steelmakers
Metallurgical coal mining operations
in Virginia and West Virginia
Projected 2011E production of
1.4 million tons
High quality metallurgical coal
reserves; primarily mid-vol. |
 5
5.9 million tons of capacity with
new Middletown, Ohio facility
Six cokemaking facilities; five in
U.S. and one in Brazil
More than doubled capacity
since 2005
Proven ability to permit, develop,
construct and start up new
facilities and work internationally
Industry leading environmental
signature: U.S. EPA Maximum
Achievable Control Technology
The Leading Independent Cokemaker
SunCoke
Cokemaking Capacity
(Tons in thousands)
January 2012
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2004
2005
2006
2007
2008
2009
2010
2011
Jewell Coke
Indiana Harbor
Haverhill I
Vitória
Haverhill II
Granite City
Middletown |
 6
SunCoke’s Heat Recovery Oven vs. By-Product Oven
SunCoke’s technology is the industry’s environmental standard and provides many
advantages over the traditional cokemaking process
Pressurization
Negative pressure
Positive pressure
Air Emissions
MACT standard for new batteries
Potential for emission of hazardous
compounds
Power Generation
Cogenerates power
Power consuming process
Hazardous Inputs
None
Yes – sulfuric acid
Volatile Organic Compounds
Complete combustion
No combustion
Solid Wastes
No toxic solid wastes
Process produces toxic waste
streams
SunCoke Heat Recovery
Traditional By-Product
January 2012 |
 7
SunCoke‘s Value Proposition
January 2012
Provide an assured supply of coke to steelmakers
Larger, stronger coke for improved blast furnace performance
Demonstrated sustained 30% turndown; higher turndown on temporary basis
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
and Flexibility
Environmental /
Economic
Trade-offs
– |
 8
SunCoke’s Contract Proposition
Plant Production and Environmental
Compliance
Permits and Approvals
Engineering, Procurement &
Construction
Capital Funding and Ownership
Reliable, High-Quality Coke Supply
Deliver coke to customers through a competitive turnkey solution,
which produces a consistent stream of earnings
Operating Cost Component
(Pass-Through)
Fixed Fee
(Profit and Return on Capital)
Coal Cost Component
(Pass-Through)
Take-Or-Pay
Taxes and Transportation and Future
Environmental Costs (Pass-Through)
Coke fee
Energy fee
SunCoke
Energy
Customer
Typical Key Coke Sales Agreement
Provisions
What SunCoke Offers
January 2012 |
 9
Focused Growth Strategy
Expand domestic coal production from current reserves and
improve efficiency of existing mines
We believe
SunCoke
Energy is
uniquely
positioned for
continued
investment and
earnings
growth
Continue to grow our U.S. and Canada cokemaking businesses;
reserving portion of future coke capacity for market sales
Grow international footprint in key growth markets with
immediate focus on India
Growth Initiatives
January 2012 |
 10
$200
$300
$400
$500
$600
$700
Jan-08
Jan-09
Jan-10
Jan-11
SunCoke's U.S. and Canada Market Position
Chinese Coke Price vs. Representative SunCoke Price
North American Coke Imports
SunCoke believes it has the opportunity to displace higher cost coke imports
.
SunCoke
Chinese
Q3 2011 Average:
$399
$440
2010 Average:
$336
$414
2008-2010 Average:
$326
$430
(US$/ton)
(Tons in millions)
Source: CRU, The Annual Outlook for Metallurgical Coke 2011.
(1)
Represents SunCoke’s domestic cokemaking capacity weighted by the number of
months each facility operated during that year.
(1)
Source: Steel Business Briefing, 2012
(1)
Other Domestic Coke sales and other operating revenues divided by tons sold.
January 2012
5.4
3.6
2.5
2.6
2.8
3.6
5.6
1.3
2.4
2.8
2.3
–
1.0
2.0
3.0
4.0
5.0
6.0
2006
2007
2008
2009
2010
2011E
2012E
2013E
2014E
2015E
2021E
SunCoke domestic coke sales volumes
SunCoke weighted-average domestic cokemaking capacity
(1) |
 11
SunCoke's U.S. and Canada Market Position
Source: CRU, The Annual Outlook for Metallurgical Coke 2011;
Company estimates. (1) Chinese Coke Production Costs net of By-Product
Credits; does not include return on capital. ($ per ton of coke)
January 2012
SunCoke Domestic Coke Pricing vs. Chinese Imports
$320
$442
$517
$399
$11
$130
$50
$25
$0
$100
$200
$300
$400
$500
Chinese Coke
Production Costs (1)
Handling/Transportation
to Chinese Port
Average Export
License/Tax Cost (40%
Tariff)
Chinese Coke Cost FOB
Chinese Port
Transportation to U.S.
Handling Losses Net of
Breeze Value
Chinese Coke Price
Delivered to U.S.
Q3 '11 SunCoke
Domestic Coke Price
40%
Tariff |
 12
2010 U.S. & Canada Coke Supply
SunCoke’s U.S. and Canada Market Position
Source: CRU, The Annual Outlook for Metallurgical Coke 2011.
Replace aging coke batteries operated by integrated steel producers
Source: CRU, The Annual Outlook for Metallurgical Coke 2011.
January 2012
12 million tons or 56% of coke capacity at facilities
>30 years old
Integrated
Steel
Producers
60%
SunCoke
18%
DTE
5%
Other Merchant &
Foundry
7%
Imports
10%
Aging Cokemaking Facilities
9
41
28%
28%
SunCoke
U.S. & Canada
(excl SXC)
30-40 years
40+ years
Average Age
% of U.S. & Canada
coke production |
  13
19
22
17
19
19
20
12
18
18
19
51
27
40
48
–
10
20
30
40
50
60
2006
2007
2008
2009
2010
2011E
2012E
2013E
2014E
2015E
Blast Furnace Coke Demand
BF/BOF Crude Steel Production
SunCoke's U.S. and Canada Market Position
BF/BOF Crude Steel Production
and Blast Furnace Coke Demand
3
2
Aging battery
replacement
Demand growth with
market recovery
Expected demand
opportunity by
2015
5
2010 Coke Rate:
894 lbs/thm
2015E Coke Rate:
800 lbs/thm
Market Opportunity
Source: CRU, The Annual Outlook for Metallurgical Coke 2011;
Company estimates. In million tons
million tons
January 2012
•
We
believe
SunCoke
is
positioned
to
capture
significant
share
of
market
opportunity
•
Next U.S. coke plant size anticipated to be up to 1.1 million tons
•
Near-term focus remains on obtaining permits; anticipated in latter half of 2012
•
Will defer seeking customer commitments until further progress on permits achieved in light
of current economic outlook |
 14
India –
Macro Outlook
•
1.2 billion people today
•
Projected 1.5 billion by 2030
•
Growth equal to the entire U.S.
population
•
Less than 50% urban population
•
Vehicle production 3.6 MM (’11)
vs. 13 MM in NAFTA
•
Lowest steel intensity of BRICs
•
Economy expected to grow
6-8% per year
•
Per capital income could triple
Per Capita Crude Steel Use
(2010)
Kg/y
India
58
Brazil
147
United States
292
China
445
World Avg.
221
Source: World Steel Association, 2011.
Significant
Expected
GDP
Growth
Source: CIA World Factbook.
January 2012
Population growth
Urbanization
Economic prosperity
Source: Census.gov, United States Census Bureau - International Data Base, CIA World
Factbook. |
 15
India Opportunity for SunCoke
GROWING STEEL MARKET
•
Projected to be 3rd largest
steel market by 2020
•
Blast furnace to play a
critical role in growth
COKE SUPPLY DEFICIT
•
Importing between 2 and
5 million tons annually
•
Coke capacity investment
lags steel investment
ACTIVE MERCHANT MARKET
•
3.5 million tons merchant
production or 13% of total
•
17 active merchant coke
producers
ELECTRIC POWER DEFICIT
•
10% -
20% short power
•
Average wholesale price
>$80 mwh (2x U.S. rate)
India
Steel/Coke
Market
Strong market
fundamentals
with good fit
for SunCoke
technology
January 2012
Sources: CRU, The Annual Outlook for Metallurgical Coke 2011, CIA World
Factbook. |
 16
290
344
393
493
520
570
339
366
411
439
467
464
966
1,069
732
626
912
855
792
691
552
545
–
150
300
450
600
750
900
1,050
1,200
2006
2007
2008
2009
2010
2011E
2012E
2013E
2014E
2015E
2021E
Chinese Consumption of Coke
Chinese Crude Steel Production
Why is China Important?
Chinese Crude Steel Production and Coke Consumption
Source: CRU, The Annual Outlook for Metallurgical Coke 2011;
Company estimates. In million tons
Rest of
World
48%
China
45%
U.S. & Canada
2011E World Steel Production
Rest of
World
35%
China
62%
U.S. &
Canada
2011E World Coke Production
7%
3%
January 2012
•
Chinese steel market represents 45% of
world production
•
Steel market expected to grow 46%
over the next 10 years producing an
incremental 300+ million tons (more
than 2x entire U.S. market)
•
Integrated steelmaking comprises 90%
of production, driving China to
represent 62% of the world coke
market
•
China’s coke demand expected to grow
approximately 160 million tons in the
next 10 years (equivalent to nearly 7
U.S. markets)
•
Chinese government has targeted
closure of nearly 40 million tons of
older/inefficient coke capacity
Source: CRU, The Annual Outlook for Metallurgical Coke 2011;
Company estimates. Source: CRU, The Annual Outlook for Metallurgical Coke
2011; Company estimates. |
 17
Coal Expansion
0.35 million tons expected
surface mining
1.15 million tons
expected production from Jewell
underground mines
0.30 million tons HKCC acquisition
Projected 2012 Coal Production
Planned Growth
Current Operations
Underground
Mining
Surface
Mining
Selective
Reserve
Additions
1.80 million tons
(Projected 2012 production; an
estimated increase of approximately
0.4 million tons from 2011E )
+
+
=
106 million tons of proven
and probable reserves
Reserve life of 50+ years
Near term focus on increasing
productivity at existing mines;
will defer opening new mines
until 2013
Currently limited to highwall
mining at HKCC
Signed agreement to extract
additional surface tons
Expect 1.2 million tons
over 3 years beginning in
2012
Acquired Harold Keene Coal
Companies in January 2011
Open to opportunistic
additions of coal reserves
January 2012 |
 18
2011 Summary
•
Continued sequential quarterly operational and financial improvements,
generating
full
year
estimated
2011
Adjusted
EBITDA
of
$148
-
$153
million
•
Coke earnings growth on track with Indiana Harbor operating
improvements and increased ownership interest plus Middletown
startup
•
Took first steps in our India entry strategy; conducted due diligence and
began negotiating definitive agreements for India entry
•
Grew earnings in Coal Mining segment despite challenges, positioned
business for upside in 2012/2013
•
Solid liquidity position even after Indiana Harbor partnership purchase
and working capital build
•
Built management team to support public company, completed IPO and
raised $730 million of debt
In 2011, we strengthened our foundation
and positioned business for growth in 2012 and beyond
January 2012 |
 19
2012 Priorities
•
Execute the start up of Middletown; expect to reach full production levels
no later than July 2012
•
Achieve targeted coke production volumes of 4.0 to 4.2 million tons
through ongoing focus on operational excellence, including safety and
environmental stewardship, at all facilities
•
Continue permitting work for potential new U.S. plant in anticipation of a
market recovery
•
Implement India entry strategy by completing due diligence and
negotiating definitive agreements
•
Drive improved productivity at existing mines; mining a
projected
1.8 million tons and positioning segment for future expansion
January 2012 |
 20
Coal Expansion
Coal prices offer attractive growth and
return on capital in our coal mining business
SunCoke’s Mid-Vol. Coal
Contract Prices
$130
$165
2010
2011
2012E
$170 - $190
2012
Estimates
MV
(2)
HV
Thermal
Total
Sales Tons
(1)
1,550k
150k
150k
1,850k
% Committed
88%
27%
40%
79%
Price of
Committed
Tons (per ton)
$177
$130
$81
$171
Estimated Price Range of Uncommitted Tons (per ton)
High
$180
$125
$80
Low
$160
$105
$60
(1)
Includes approximately 50k of purchased coal.
(2)
Includes approximately 200k of 2011 carryover tonnage at $165.
January 2012
($ per ton) |
 21
$148 -
$153
$72 -$82
$25 -
$40
2011E
Adj. EBITDA
Coke
Coal Mining
Corporate
and Other
2012E
Adj. EBITDA
$250 -
$280
$250 -
$280
2012 Adjusted EBITDA
(1)
Outlook
Estimated
2012
Adjusted
EBITDA
(1)
projected
to
increase
by
$102
million
to
$123
million
versus
projected
2011;
expect
80%
-
85%
of
2012
Adjusted
EBITDA
(1,
2)
will
be
generated
by
cokemaking
business
($ in millions)
(1)
For a definition of Adjusted EBITDA, please see the appendix.
(2)
Excluding corporate costs.
•
Middletown
•
Indiana Harbor
improvement
•
Higher prices and
volumes
January 2012
$0 -
$5 |
 22
2012 Outlook Summary
Metric
Expected 2012 Outlook
Adjusted EBITDA
(1)
$250 million –
$280 million
Capital Expenditures
& Investments
Approximately $150 million
Free Cash Flow
(2)
$50 million +
Effective Tax Rate
20% –
24%
Corporate Costs
$30 million -
$35 million
Coke Production
4.0 -
4.2 million tons
Coal Production
Approximately 1.8 million tons
EPS (at 22% tax rate)
$1.30 -
$1.65
January 2012
(1) For a definition of Adjusted EBITDA, please see the appendix
(2) For a definition of Free Cash Flow, please see the appendix
|
 23
SunCoke Summary
•
Meaningful earnings growth potential expected from critical
actions taken in 2011 to drive profitability and cash flow
improvement
Addressed operational issues
Successful start-up of Middletown
Framed coal expansion for current environment
•
Stable, repeatable growth from Coke expected with modest
on-going capital expenditures
•
U.S. continues to be key priority; with India entry expected
in 2012
January 2012 |
 24
Appendix
January 2012 |
 25
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 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.
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 United States generally accepted accounting principles (GAAP) and may
not be comparable to other similarly titled measures of other businesses.
Definitions
January 2012 |
 26
Estimated EBITDA Reconciliation, $MM
2011E Net Income to Adjusted EBITDA Reconciliation
January 2012
2011
2011
Low
High
Net income
$64
$70
Depreciation, depletion, and amortization
60
59
Total financing costs, net
2
1
Income tax expense (benefit)
9
11
EBITDA
$135
$141
Sales discounts
13
13
Noncontrolling interests
0
(1)
Adjusted EBITDA
$148
$153 |
  27
2012
Low
2012
High
Net Income
$98
$122
Depreciation, Depletion and Amortization
74
72
Total financing costs, net
48
46
Income tax expense (benefit)
25
37
EBITDA
$245
$277
Sales discounts
11
10
Noncontrolling interests
(6)
(7)
Adjusted EBITDA
$250
$280
Estimated EBITDA Reconciliation, $MM
2012E Net Income to Adjusted EBITDA Reconciliation
January 2012 |
 28
Estimated Free Cash Flow Reconciliation, $MM
2012E Estimated Free Cash Flow Reconciliation
January 2012
2012
Cash from (i) operations;
In excess of
204
$
(ii) less investing;
Approx.
(150)
(iii) less payments to minority interest
Approx.
(4)
Free Cash Flow
In excess of
50
$ |
 29
Media releases and SEC filings are available
on our website at www.suncoke.com
Contact Investor Relations for more information: 630-824-1907
January 2012 |