Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Growth on a Global Basis
Transcript
Growth on a Global Basis 2006 Annual Analysts Conference New York City ■ December 8, 2006 Growth on a Global Basis Eugene M. Truett Vice President – Investor Relations & Credit Forward-Looking Statements The nature of the Company's business and the many countries in which it operates subject it to changing economic, competitive, regulatory, and technological conditions, risks, and uncertainties. In accordance with the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause future results to differ materially from the forwardlooking statements, expectations and assumptions expressed or implied herein. Forward-looking statements include information about management’s confidence and strategies for performance; expectations for new and existing products, technologies, and opportunities; and expectations regarding growth, sales, cash flows, earnings, and EVA. These statements are identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," or other comparable terms. Risk factors and uncertainties which could affect results include, but are not limited to: (1) changes in the worldwide business environment in which the Company operates, including general economic conditions; (2) changes in currency exchange rates, interest rates, and capital costs; (3) changes in the performance of stock and bond markets, particularly in the United States and United Kingdom; (4) changes in governmental laws and regulations, including taxes and import tariffs; (5) market and competitive changes, including pricing pressures, market demand, and acceptance for new products, services, and technologies; (6) unforeseen business disruptions in one or more of the over 40 countries in which the Company operates due to political instability, civil disobedience, armed hostilities or other calamities; and (7) other risk factors listed from time to time in the Company's SEC reports. The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company’s ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company undertakes no duty to update forward-looking statements. Transparency Continues Cincinnati/Louisville Wilmington Baltimore/D.C. (2) Montreal Cleveland Milwaukee Boston (2) Detroit Paris Chicago Tampa/St. Pete London (2) Northern New Jersey Minneapolis New York City (6) Philadelphia/Main Line (2) Richmond Hartford San Diego Edinburgh Dallas Los Angeles Pittsburgh Zurich Over 150 One-on-One Institutional Investor Meetings In 2006 by Harsco IR and Senior Management The Harsco Message A successful transformation Growth in Industrial Services Expansion of global footprint Consistent and predictable top and bottom line growth Value creating bolt-on acquisitions Maintenance of a sound balance sheet Strong and growing free cash flows Increasing shareholder value Harsco Delivers Three Important Characteristics About Harsco Harsco is not overly dependent on the U.S. economy 62% of 9-month 2006 Sales and 72% of 9-month 2006 Operating Income were generated outside the U.S. Harsco is not a manufacturing company 74% of 9-month 2006 Sales were generated from industrial services Harsco is not dependent on single-family residential construction Access Services revenues are substantially generated from non-residential construction and industrial maintenance projects Harsco Chart Comparison HSC DJIA S&P500 Nasdaq Agenda Opening Comments Eugene M. Truett, Vice President – Investor Relations and Credit CEO Welcome and Strategic Outlook Derek C. Hathaway, Chairman and CEO Growth Outlook and Strategies Mill Services Geoffrey D. H. Butler, President and CEO – MultiServ Gas Technologies James E. Cline, President, Harsco GasServ Engineered Products and Services Richard C. Neuffer, President, Engineered Products and Services Group Access Services Geoffrey D. H. Butler, President and CEO – SGB Group Strategic Financial Overview Salvatore D. Fazzolari, President, CFO and Treasurer Questions & Answers Closing Comments Derek C. Hathaway, Chairman and CEO CEO Welcome Strategic Outlook Derek C. Hathaway Chairman and CEO Mill Services Growth Outlook and Strategies 2007 Geoffrey D. H. Butler President and CEO – MultiServ Harsco Mill Services Y-O-Y Performance through 9/30/06 Revenue Operating Income Operating Margin 28% 28% 31% 31% 30 30 bps bps EVA Backlog 87% 87% N/A MultiServ is the world’s leading mill services provider Current operations spread the globe 163 operating sites in 33 countries Over 12,000 employees 2006 sales are expected to reach $1.36 billion World's largest provider of on-site, outsourced services to the steel and metals industries Balanced Global Presence Europe North Sales = 33% North America Sales = 22% Europe South Sales = 23% Rest of World Sales = 13% Latin America Sales = 10% Steel Industry Outlook 5.2% = 9 0 06 1.4B CAGR 1,500 Millions of Tons Produced 1.2B 1,000 500 0 2001 2002 China Source: IISI and management estimates 2003 EU 25 2004 2005 2006 (e) 2007 (f) 2008 (f) 2009 (f) North America Rest of World Substantial Market Potential Volume Value 1.2B tons $25.5B $13.5B 16.6% Tonnage Served 9.2% 4.9% Current Market Total Market Market potential based on an average $ of revenues per ton of steel production served 1 4 2 3 11 3 Thyssen Krupp Nucor Stelco Celsa Gerdau Acerinox 0 2 BlueScope Steel 5 8 US Steel 25 Corus 30 Arcelor Mittal % of MultiServ Revenues Industry-Leading Clients 42 10 20 Number of sites serviced 15 10 Benefiting from Consolidation MultiServ Annual Sales - $ Billions $1.6 Formation Formation of of Arcelor Arcelor Mittal Mittal $1.4 Merger Merger of of ISG/Mittal ISG/Mittal $1.2 Formation Formation of of ISG ISG $1.0 $0.8 Formation Formation of of Ternium Ternium Formation Formation of of Arcelor Arcelor $0.6 $0.4 2001 2002 2003 2004 2005 2006 (est.) Limited Cyclicality MultiServ's annuity-type, high renewal rate, fixed element contracts give protection against fluctuations in production volumes 25 20 15 10 5 0 -5 -10 Ja n01 Ap r- 0 1 Ju l-0 O 1 ct -0 1 Ja n02 Ap r- 0 2 Ju l-0 O 2 ct -0 2 Ja n03 Ap r- 0 3 Ju l-0 O 3 ct -0 3 Ja n04 Ap r- 0 4 Ju l-0 O 4 ct -0 4 Ja n05 Ap r- 0 5 Ju l-0 O 5 ct -0 5 Ja n06 Ap r- 0 6 Ju l-0 O 6 ct -0 6 Year-over-Year change in steel production within MultiServ's current markets (%) Source: IISI and management estimates Year-over-Year change in MultiServ revenues (%) Growing Backlog 5,000 4,000 $ Millions New Business Growth 3,000 Contract Renewals 2,000 Current Backlog 1,000 0 2005 2006 (e) 2007 (f) 2008 (f) Increasing Service Penetration Higher value, technology-based services Increasing outsourcing trends Average $/Ton Generated from Sales to Steel-Related Businesses 6.5 6.0 $/ton 5.5 5.0 4.5 4.0 3.5 3.0 2001 2002 2003 2004 2005 2006 (e) Currencies and Exchange Rates US $ Domestic 17% US $ Indexed International 5% Other 13% South Africa Rand 4% Brazil Real 7% A basket of currencies Costs are also in local currencies, creating a natural hedge A weaker US $ is positive to earnings Over the longer cycle, currency effect tends to be neutral to MultiServ / Harsco UK £ 28% Euro 26% Why Mills Outsource Cost and efficiency savings Core business focus Environmental solutions Safety best practices Global best practices Capital relief Customer Cost Savings and Efficiencies MultiServ's global best practices yield cost savings and efficiencies for customer mills Reduction in manpower costs Increased productivity Operational efficiencies through management focus Long-term contracts offering predictable cost base Established business systems and programs Environmental Regulatory requirements are increasing across the globe Know-how and experience give Harsco a clear advantage Significant environmental solutions and cost savings Recovery of metallics from slag 12.4m tpy Total scrap handling and processing 30.4m tpy External slag sales 9.8m tpy Internal recycling of slag 1.5m tpy Agglomeration by briquetting and pelletizing 1.6m tpy tpy = tons per year Growth Strategies Three ways to grow: Organic – additional services at existing sites Organic – expansion to unserved sites, geographies, and markets Value-adding bolt-on acquisitions Acquisition Strategies Continue to acquire targeted niche players with specialist knowledge and technologies Recent acquisitions include: Brambles Industrial Services; 12/05 Full range mill service provider 19 sites in Europe and North America $195M annual revenues Technic Gum Services; 11/06 Specialist conveyor belt maintenance provider to the steel and cement industries; complements 2005 Evulca acquisition 7 sites in Europe $8M annual revenues Other Market Strategies MultiServ is constantly developing its customer base by expanding its presence in other industries Industry Copper, Nickel and Ferro-alloys Aluminum Mining / quarrying Cement / concrete Services Liquid slag transport Slag processing Dross processing Scrap recovery Conveyor belt maintenance Material loading and transport Material handling and loading Equipment maintenance Organic Growth Projects 2007-2008 Number of major projects bidding 68 Estimated capital investment $241M Estimated annual revenues $260M $ annual revenue / $ invested $1.08 Average length of contracts 7.64 years All projects will be EVA positive 2007 Growth Platform 2007 Strategic Priorities Balanced business portfolio Customers Countries Currencies Focus on asset management Enhance technological leadership Exploit slag sales potential Pursue bolt-on acquisition opportunities that add value Gas Technologies Growth Outlook and Strategies 2007 James E. Cline President – Harsco GasServ Harsco GasServ Tanks, cylinders and valves for global industrial gases Y-O-Y Performance through 9/30/06 (a) Revenue Operating Income Operating Margin 7% 7% (47%) (47%) (200) (200) bps bps EVA Backlog 31% 31% 75% 75% (a) 2006 includes $4.4 million restructuring charge 2005 sales - $370 million Growth Strategies Expand tank refurbishment business Attack costs in all areas – manufacturing, outsourcing, alternative materials, facilities consolidation New product introductions in targeted sectors Extend relationships with major gas companies in the markets they serve Strategic Growth Initiatives Cylinders Taylor-Wharton Sales up nearly 12% Y-O-Y Expanding European presence with product line additions Targeting increased share of acetylene, aviation, and specialty cylinder markets Cryogenics Increasing share of large standard and special tank markets Expanding service business – e.g. Cryo2-Go New Chinese production facility expected by early '07 Strategic Growth Initiatives Propane American Welding & Tank Service sales up from virtually zero to over 8% in two years Acquired Ferrellgas tank refurbishment business Before Composites Structural Composites Industries Growth opportunities in SCBA fire/rescue and NGV vehicle markets Initiatives to expand high-margin design and prototype development work, primarily in NGV, hydrogen, and high pressure LNG After Strategic Growth Initiatives Valves Sherwood Rolling out new products to address target market needs – specialty gas & refrigeration Enhanced technical and service support for customers Pursuing outsourcing initiatives and facility consolidation Margin improvement is key 2007 Growth Platform Strategic Priorities for 2007 Margin improvement is a strategic imperative Leverage new product introductions and increased service business for growth Capture increased market share in core product sectors – cylinders, cryogenics, SCBA / NGV Accelerate international growth; capitalize on new China manufacturing facility Engineered Products and Services Growth Outlook and Strategies 2007 Richard C. Neuffer President – Engineered Products and Services Group Harsco Track Technologies Global railway track maintenance services and equipment Y-O-Y Performance through 9/30/06 Revenue Operating Income Operating Margin 2% 2% 21% 21% 140 140 bps bps EVA Backlog 426% 426% (36%) (36%) 2005 sales – $247 million Successfully transitioning to services model Approximately 40% of 2006 revenues from services Signed three new service contracts in the U.K. totaling $75M Added three new rail grinders to U.S. contract services Potential for most profitable year in HTT division history Harsco Track Technologies (continued) Market share gain opportunities #1 in U.S. #2 worldwide Pursuing several opportunities for follow-on machine sales in key international markets, led by China Ministry of Railways’ $150 billion five-year plan Significant China potential for additional rail grinder orders Bidding on equipment sales in India, Japan, U.K., Europe, etc. Additional domestic equipment and contract services opportunities Proposed Dakota, Minnesota & Eastern Railway – Powder River Basin coal reserves Class I North American freight railroads Favorable trends in repair part sales Global railway track maintenance services and equipment IKG Industries Steel and aluminum industrial grating products Y-O-Y Performance through 9/30/06 Revenue Operating Income 10% 10% 41% 41% Operating Margin 400 400 bps bps EVA 84% 84% Backlog 51% 51% 2005 sales – $99 million Moving from commodity to value selling model Maintaining market and price leadership through value-adding product enhancements and major customer partnerships Well-positioned for ongoing Gulf Coast/Katrina rebuild, warehouse/distribution boom, and oil platform repair and new build New Indiana plant increases penetration to key Northern U.S. and Canada markets Backlogs remain strong, including higher-value fabricated panels Air-X-Changers Air-cooled heat exchangers for natural gas compression cooling Y-O-Y Performance through 9/30/06 Revenue Operating Income Operating Margin 44% 44% 117% 117% 440 440 bps bps EVA 126% 126% Backlog 80% 80% 2005 sales – $92 million Robust demand continues to drive natural gas industry investment in exploration and production More wells = more compression units = more heat exchangers Achieving greater sales penetration with key customers; backlog continues to be solid well into second half of '07 Market outlook remains favorable; pursuing market share gain opportunities Reed Minerals Roofing granules and industrial abrasives Y-O-Y Performance through 9/30/06 Revenue Operating Income Operating Margin 8% 8% 1% 1% (160) (160) bps bps EVA 5% 5% Backlog N/A 2005 sales – $72 million Dependable earnings and ROC performance Long-term relationships with leading roofing manufacturers Limited requirement for inventory on hand; product is produced and shipped Initiatives underway to further compress costs and improve yields; dockto-customer railcar issues are beginning to ease somewhat "Portable plant" model is proving highly effective in leveraging local supply sources with minimal capital investment Infrastructure repair and maintenance market continues favorable for industrial abrasives product line Patterson-Kelley High-efficiency commercial boilers and process equipment Y-O-Y Performance through 9/30/06 Revenue Operating Income Operating Margin 16% 16% 19% 19% 40 40 bps bps EVA Backlog 20% 20% (4%) (4%) 2005 sales – $36 million New boiler lines continue to build sales momentum as energy-efficiency underpins growing market demand Unique European-sourced technology is adding to P-K product advantages Pharmaceutical and chemical sector demand for process equipment remains stable Achieving solid margin gains through aggressive production and purchasing improvements Backlogs remain strong 2007 Growth Platform Strategic Priorities for 2007 Reposition railway track construction and maintenance business to higher margin service-based model Expand international footprint and global purchasing efficiencies Continue to shorten delivery lead-times Achieve greater sales penetration with key customers Continue to drive improving margins Generate cash for overall Harsco growth Enjoy a 15 Minute Break Access Services Growth Outlook and Strategies 2007 ACCESS SERVICES Geoffrey D. H. Butler President and CEO – SGB Group Harsco Access Services Y-O-Y Performance through 9/30/06 Revenue Operating Income Operating Margin 73% 73% 270 270 bps bps 32% 32% EVA 733% 733% Backlog N/A World's largest access services group Building leadership positions in new growth markets Focusing on: Sectors which value ‘engineered’ solutions Higher value rental equipment which generate stronger margins Increased investment in rental stock Value-creating bolt-on acquisitions Exploiting inter-group product transfer opportunities and global purchasing power; no manufacturing Rental scaffolding, shoring, and concrete forming services and equipment on a global basis 2006 Revenues by Sector Regional Mix Middle East & Asia Pacific 7% Europe 44% Activity Mix USA 22% UK 27% Industrial Plant Maintenance Access Services 20% Non-Residential Forming & Shoring 40% Increasing geographic balance and activity in: Higher-margin forming and shoring Longer-duration industrial plant maintenance access contracts Developing and emerging growth economies, e.g., Eastern Europe and Latin America Non-Residential Construction Scaffolding & Related Access Services 40% Engine for Continued Growth World’s Largest Access Services Group $1,200 $ Millions $1,000 $800 $600 $400 $200 $0 2001 2002 2003 2004 2005 2006 (est.) 2006 Access Services segment revenues expected to exceed $1 billion Expanding Global Footprint North America Middle East & Asia Pacific Europe Europe / Latin America USA UK Ireland UAE Austria Norway Canada Belgium Czech Republic Saudi Arabia Denmark Poland Mexico France Qatar France Sweden Egypt Germany UAE Australia Hungary Chile Singapore Italy Germany Holland Latvia Portugal Slovakia Ukraine Malaysia 2006 Sales (est.) $220M – 21.5% $580M – 57% Currently operating in 29 countries $220M – 21.5% Global Market Presence Total market value estimated at $13 billion – Harsco has 8% market share We work with 5 of the top 6 global contractors: 9 9 9 1. Vinci (France) 2. Bouygues (France) 3. Hochtief (Germany) 4. China Railways (China) 9 9 5. Skanska (Sweden) 6. Bechtel (USA) Harsco's Value Proposition Adding value for the client Design and Planning Project Engineering State-of-the Art Rental Equipment On-site Safety Management On-site Project Management 2006 Achievements USA Strong revenue and profit growth with improving operating margins and inventory utilization Exploiting buoyant non-residential construction and power generation plant maintenance markets UK Continuing profit growth from commercial E&D (erection & dismantling services) and concrete forming and shoring rental sectors Ongoing compression of SG&A costs 2006 Achievements Mainland Europe Strong first year from Hünnebeck with solid profit growth, particularly in Germany and Poland Two-way product transfer benefits already showing through Expansion of SGB industrial capability with Cleton acquisition 2006 Achievements Middle East Robust performance in GCC petro economies Projects include formwork and scaffolding for Burj Dubai, world's tallest building South America Establishing solid foundation for regional growth and expansion with MyATH (Chile) acquisition Acquisition Details Cleton – 7/06 No. 2 insulation specialist in Holland – $50 million annual revenue Links scaffolding and thermal insulation services for industrial clients – oil refineries, petrochemical, etc. New three year access/insulation contract at Shell Pernis Refinery will generate an additional $20 million revenue over its term MyATH – 11/06 No. 3 supplier of rental formwork and scaffolding services in Chile; $8 million annual revenue Exclusive Hünnebeck distributor for past ten years Establishes foothold for Harsco Access Services in Chile and Latin America Is There Really a "Global" Non-Residential Construction Cycle? 2007 Outlook – Non-Residential Construction Expectations for steady non-residential market growth in all regions Progressive strengthening of German market Dodge forecasts 6% growth in USA – office towers, manufacturing plants, institutional buildings, etc. Strong infrastructure development in Eastern Europe Continuing growth in Middle East Non-residential construction output forecast – 2007 6% 5% 4% 3% 2% 1% 0% USA 6% UK 3.5% Western Europe 1-2% East Europe 5%+ Middle East 5%+ 2007 Outlook – Industrial Maintenance Strong maintenance markets in petrochemical, power generation and steel fabrication Increasing activity from new safety and environmental legislation U.S. Clean Air Rules Increasing drive toward supplier rationalization Access Growth Strategies North America Continue margin improvement from product range upgrades Continue utilization rate improvement Gain market share in Northeast region New service hub in New York Gain market share in Western Canada forming and shoring market Latin America Develop and expand Harsco Access Services footprint Access Growth Strategies UK Expand share of commercial and industrial E&D markets Continue to grow concrete forming rental equipment / services sector with new product additions Mainland Europe Further regional growth in Holland, France and Eastern Europe Sustain growth of German and Polish operations Maintain focus on higher-margin forming and shoring products Consider entry opportunities in additional markets, e.g. Spain Access Growth Strategies Middle East Capture further opportunities throughout Gulf region Construction demand expected to remain at record levels Currently 1,400 ongoing projects in the Gulf region valued at approximately $700 billion Dubai alone is the world's largest concentration of construction activity Construction industry now contributes 11% of the UAE's GDP Adding proven, high-productivity European systems to well-established, 20-year Middle East market presence Asia-Pacific, Russia and Africa Continue to evaluate as longer-term opportunities 2007 Growth Platform ACCESS SERVICES Strategic priorities for 2007 Grow revenue and operating profit with positive EVA Build on leadership positions in regions with long-term growth potential Increase focus on higher-margin forming and shoring work Continue investment in rental stock Continue to pursue value-adding bolt-on acquisitions Ongoing compression of SG&A costs Leverage the group’s combined purchasing power Exploit product and service synergies across the three businesses Strategic Financial Overview Salvatore D. Fazzolari President, Chief Financial Officer & Treasurer 2006 Financial Strategies – Report Card 2006 Financial Strategies 2006 Actual/Expected Performance Deploy discretionary cash flow to grow industrial services revenues ; Expect to invest $145 million in growth capital expenditure initiatives. Total revenues expected to grow 21% Achieve double digit diluted EPS growth from continuing operations ; Expect to achieve 25-26% diluted EPS growth* Achieve record cash flow from operations of $360 million. Increased goal to $400 million ; Expect to achieve record cash flow from operations target of $400 million Improve operating margins ; Expect to improve operating margins by 80 basis points *Excluding $0.15 one-time tax benefits in 2005 2006 Financial Strategies – Report Card 2006 Financial Strategies 2006 Actual/Expected Performance Improve shareholder value through disciplined EVA performance ; Expect improved EVA over 2005. EVA improvement target for 2006 expected to be exceeded Improve ROIC : Expect ROIC to decline due to a higher tax rate in 2006 as well as significant capital increases for growth investments Achieve $15 million in asset sales ; Expect to exceed goal of $15 million Retain A- Rating ; Retained A- Rating 2007 Financial Strategies Generate $445 million in Cash Flow from Operations Continue double digit improvement in diluted EPS growth Continue to improve operating margins Improve ROIC Continue to invest in growth CAPX and bolt-on acquisitions for the industrial services businesses Continue to improve EVA performance and create shareholder wealth Maintain A- Rating from each of the three rating agencies Harsco’s Transformation 1990s Mill Services Business Model: • Industrial Services • Global Footprint • Mobile Investment • Diversified Risk • Growth Markets • Less Cyclicality 2000s Access Services Rail Services 2006 2007 and Beyond HSC Today No Ordinary Industrial Services Company Premier Global Industrial Services Company Services as a Percent of Sales 1990 – 2000 2000 – 2005 2006 2007 and Beyond 20% - 50% 50% - 70% 75% 75% - 90% Harsco Value Paradigm Meet Investors Expectations for Growth, Managing Risk and Optimizing Returns Growth Value Strategy Industrial Services and Geographic Footprint Development and Balance Value Based Management System Creating Value For Shareholders Growth in EVA Growth of Mill, Access and Rail Services platforms Organic growth, acquisitions, joint ventures, alliances Enter new markets after careful evaluation of risks vs. returns EVA Growth in Free Cash Flow Growth in Sales and Earnings Growth in Margins Six-Sigma Corporate governance Enabling technologies "A" Team Sales Profile and Global Footprint Target 2006 Sales $3.35 Billion Latin America 4.9% Middle East and Africa 4.6% North America 40.2% Future Balanced Portfolio by 2010 Latin America 7.5% North America 35.0% Middle East and Africa 7.5% Asia/Pacific 4.1% Eastern Europe 3.4% Asia/Pacific 7.5% Eastern Europe 7.5% Western Europe 35.0% Western Europe* 42.8% *Western Europe U.K. 19.6% Western Europe 23.2% Total 42.8% Portfolio Better-Balanced Between Regions Harsco’s Significantly Improved Profile Sales Diluted EPS – Continuing Operations $3,590 $3,350 $ Millions $5.10 +7% $4.50 +21% $2,119 $3.58 +11% +31% $2.73 +18% $2.12 2003 2004 +13% +26% $2,766 $2,502 (a) (a) 2005 2006 Target 2007 Target 2003 +29% 2004 2005 * 2006 Target *Excludes $0.15 one-time tax benefits (a) CAGR: Compound Annual Growth Rate Mid-point of guidance 2007 Target Harsco’s Significantly Improved Profile 5-Year Sales Growth ($ Millions) 2002 Target 2007(a) Change % $ 697 $ 1,425 104% Access Services 588 1,165 98% Engineered Products and Services 384 575 50% Gas Technologies 308 425 38% $ 1,977 $ 3,590 82% Mill Services Total (a) Rounded Harsco’s Significantly Improved Profile ($ Millions, except EPS) Key Metrics 2002 Actual 2007 Target Change Revenues $ 1,977 $ 3,590 82% Diluted EPS from Continuing Operations $ 2.17 $ 5.10 135% Cash Flow from Operations $ 254 $ 445 75% Debt $ 640 $ 960 50% Equity $ 645 $ 1,310 103% Larger, Stronger and Better-Balanced Global Leader Enterprise Value Components $4,500 $4,000 $1,044 Total Debt $3,500 Market Capitalization $1,010 $3,262 $ Millions $3,000 $626 $2,500 $614 $2,000 $762 $1,500 $455 $1,000 $1,262 $640 $2,821 $2,309 $1,791 $837 $1,371 $1,293 12/31/01 12/31/02 $983 $500 $0 12/31/99 12/31/00 12/31/03 12/31/04 12/31/05 09/30/06 Debt / Enterprise Value 27% 46% 36% 33% 26% 21% 26% 24% Growing Cash Flow from Operations $500 $ Millions $400 $445 $400 $300 $315 $200 $263 $270 $100 $0 2003 2004 2005 2006 Target 2007 Target *Includes tax rate reduction to 33% 12 /3 1/ 04 6/ 30 /0 5* 12 /3 1/ 05 * 6/ 30 /0 6* 6/ 30 /0 4 12 /3 1/ 03 6/ 30 /0 3 12 /3 1/ 02 6/ 30 /0 2 12 /3 1/ 01 6/ 30 /0 1 12 /3 1/ 97 12 /3 1/ 98 12 /3 1/ 99 12 /3 1/ 00 Negative Positive Harsco's EVA Trend (rolling 12 months) EVA Adopted Improving Operating Margin Trend Harsco Consolidated 12% 11% 11.0% 10% 10.5% 9% 9.7% 8% 7% 8.2% 8.4% 6% 2003 2004 2005 2006 Forecast 2007 Target Mill Services – Operating Margins 2003 Actual 2004 Actual 2005 Actual 2006E 2007 - 08 Target 10.4% 10.6% 10.3% 10.8% - 11.0% 10.8% - 11.3% Margin Expansion Plan Invest in new technologies with higher margins Expand global footprint Expand margins on existing contracts using process improvement initiatives EVA discipline Leverage off existing infrastructure to grow business Mill Services Target Revenue Growth $1,500 $1,400 $1,300 27.4% Targeted Growth $ Millions $1,200 $1,100 5.6% Targeted Growth $1,000 6.3% Growth $900 20.5% Growth $800 $700 $600 $500 2001 4.8% Growth 2002 18.8% Growth 2003 2004 2005 Note: Assumes Constant FX Rates for 2006-2007 Period 2006 Target 2007 Target Access Services – Operating Margins 2003 Actual 2004 Actual 2005 Actual 2006E 2007 - 08 Target 6.0% 6.3% 9.4% 10.8% - 11.3% 10.8% - 11.5% Margin Expansion Plan Increased collaboration between SGB, Hünnebeck and Patent Expand global footprint Reduce costs using process improvement initiatives Divest lower margin branches/product lines, improve underperforming branches Contribute incremental cash to U.K. Pension Plan EVA discipline Market share gains and pricing leverage Access Services Target Revenue Growth $1,200 $1,100 $1,000 $ Millions $900 30.8% Targeted Growth $800 13.1% Targeted Growth $700 $600 $500 0.8% 52.6% Growth Growth $400 $300 $200 14.2% 5.2% Growth Growth 11.6% Growth 155.0% Growth $100 1999 2000 2001 2002 2003 2004 Note: Assumes Constant FX Rates for 2006-2007 Period 2005 2006 Target 2007 Target Engineered Products and Services – Operating Margins 2003 Actual 2004 Actual 2005 Actual 2006E 2007 - 08 Target 9.7% 10.2% 12.7% 13.4% - 13.8% 13.7% - 14.5% Margin Expansion Plan Invest in new technologies with higher margins Market share gains and pricing leverage Change business model of railway products and services Process improvement initiatives EVA discipline Gas Technologies – Operating Margins (a) 2003 Actual 2004 Actual 2005 Actual 2006E 2007 - 08 Target 4.9% 4.2% 4.8% 3.5% - 4.0% (a) 7.5% - 9.0% Includes a $4.4 million non-cash pre-tax charge to exit an underperforming product line Margin Expansion Plan New Senior Management team Opportunities to expand margins of underperforming businesses Reduce costs using process improvement initiatives Expand global reach Market share gains and pricing leverage EVA discipline Targeted 5-Year Free Cash Flow and Discretionary Cash Flow ($ Millions) 2006 2007 2008 2009 2010 Five Year Total (06-10) Cash Flow from Operations $400 $445 $485 $525 $575 $2,430 Estimated Maintenance CAPX (185) (180) (210) (230) (250) (1,055) Free Cash Flow Sources Growth CAPX Discretionary Cash Flow $215 (145) $70 $265 (145) $120 $275 (150) $125 $295 (165) $130 $325 (195) $130 $1,375 (800) $575 CAPX Profile Growth $400 $350 Contract Renewals, Maintenance, Other $330M $325M $145 $145 $185 $180 $270M $ Millions $300 $205M $250 $200 $135 $145M $98 $150 $45 $100 $135 $100 $107 2003 2004 2005 2006 Target 2007 Target Growth CAPX 31% 48% 45% 45% 45% Sustaining the Business CAPX 69% 52% 55% 55% 55% Depreciation & Amortization $165M $180M $200M $250M $280M $50 $0 Total Debt and Debt/Capital Ratio $1,400 55.4% 52.6% $1,200 50.4% 49.8% 44.1% $ Millions $1,000 47.2% 42.3% 40.6% $1,030 $1,010 $800 $960 $837 $762 $600 $640 $614 $626 2002 2003 2004 $400 $200 $0 2000 2001 Total Debt 2005 2006 Target Debt/Capital Ratio 2007 Target 2007 Planning Environment 2007 Operating Assumptions Modest GDP growth in key global economies Continued strong non-residential construction market (U.S., Europe and Middle East) Continued improvement in Gas Technologies No further increase in pension costs No further significant increase in energy costs Includes announced acquisitions FX based on September 30, 2006 rates: Euro in U.S. dollars - $1.27 Sterling in U.S. dollars - $1.88 2007 Strategic Priorities Growth – organic and acquisitions – in core business platforms Geographic footprint expansion Margin expansion EVA improvement ROIC improvement Process improvements 2006 Guidance on Continuing Operations 2004 Actual 2005 Actual 2006 Target (a) 2007 Target (a) 2008 Target (a) Revenue Growth 18% 11% 21% 7% 6% - 8% Operating Margins 8.4% 9.7% 10.5% 10.8% - 11.2% 11% - 11.5% EPS Range $2.73 $3.58 * $4.49 - $4.51 $5.05 - $5.15 $5.60 - $5.85 +29% +31% +26% +12% - 14% +10% - 15% $270M $315M $400M $445M $485M Cash Flow from Operations * Excludes $0.15 of one-time tax benefits (a) As of December 8, 2006 2007/2008 Impact Low End Dollar strengthens Weak nonresidential construction market Reduced worldwide steel production Downturn in manufacturing Higher commodity and energy costs No acquisitions High End Favorable nonresidential construction market in U.S. / Western Europe / Middle East Acquisitions and add-on contracts in Mill Services Bolt-on acquisitions in Access Services Lower commodity costs Stable or lower energy costs Dollar weakens Harsco's Strategy Harsco is well positioned for strong growth in revenues, earnings, cash flow and EVA improvement Harsco's financial position is strong enough to allow continuation of the strategic transformation process Harsco's continuing transformation imperatives include: Construct a portfolio that has more attractive, long-term performance characteristics Expand global market share and reach Continue to grow industrial services platforms Reduce exposure to commodity-type services and products by growing technology-based services Harsco's Strategy (cont'd.) Improve Harsco's geographic footprint and balance in order to: Continue growth in EVA Continue to expand margins Reduce cyclicality and currency concentration by developing a well-balanced portfolio of businesses Harsco's future growth investments will be targeted with a focus on Eastern Europe, Latin America, Asia Pacific, and Middle East and Africa Targeted investments must possess the appropriate geography, technology, services and return characteristics Harsco's astute capital allocation policy will continue to focus on appropriate return requirements Underperforming product lines that do not meet the EVA requirements will continue to be examined for divestiture Harsco will stay focused on execution Adherence to value-based management principles: EVA, Six-Sigma, strong governance, "A" team and technology infusion Supplemental Charts 1. Primary Business Drivers 2. Cash Dividends History 3. Pension Assumptions and Trends Primary Business Drivers MILL SERVICES Steel mill production / capacity utilization Non-residential construction Railway track maintenance-of-way capital spending IKG Industries (Industrial grating) Air-X-Changers (Air-cooled heat exchangers) Natural gas drilling and transmission Reed Minerals (Roofing granules and abrasives) Residential roof replacements Use of boilers, heaters, and blenders Taylor-Wharton (Cryogenic containers and industrial cylinders) Industrial production American Welding & Tank (Propane tanks) Use of propane as a primary and/or backup fuel Use of industrial, fuel, and refrigerant gases MultiServ (On-site outsourced mill services) Outsourcing of services ACCESS SERVICES SGB / Hünnebeck / Patent (Access services solutions) Annual industrial and building maintenance cycles ENGINEERED PRODUCTS & SERVICES Harsco Track Technologies (Railway track services and equipment) Patterson-Kelley (Boilers, heaters, blenders and mixers) GAS TECHNOLOGIES Sherwood (Valves) Structural Composites Industries (Filament-wound composite cylinders) Track maintenance and build outsourcing Industrial production Non-residential construction Home resales Severe weather Industrial gas production Respiratory care Consumer barbeque grills Self contained breathing apparatus (SCBA) market Growth of natural gas vehicle (NGV) market Cash Dividends History $.80 +5.3% 1997 $.88 +10.0% $.90 +2.3% 1998 1999 $0.94 +4.4% $0.96 +2.1% 2000 2001 $1.00 +4.2% 2002 $1.05 +5% 2003 $1.10 +4.8% 2004 226 consecutive quarterly cash dividends Dividend increases in 13 consecutive years Dividends paid each year since 1939 Dividend yield of 1.8% at $80 per share (at new rate) CAGR of 5.9% for last ten years $1.20 +9.1% 2005 $1.30 +8.3% 2006 $1.42 +9.2% 2007 Defined Benefit Pension Plans Discount Rate Trend December U.S. Plan U.K. Plan 2006 5.87% 5.125% 2005 5.87% 5.25% 2004 5.75% 5.75% 2003 6.25% 5.75% 2002 6.75% 5.75% 2001 7.25% 6.25% 2000 8.00% 6.25% Defined Benefit Pension Plans Gross Expected Rate of Return Trend Rate Used for Expense Global Weighted Average U.S. Plan U.K. Plan 2007 7.6% 8.25% 7.50% 2006 7.6% 8.25% 7.50% 2005 7.9% 8.75% 7.75% 2004 7.9% 8.75% 7.75% 2003 8.0% 8.90% 7.75% 2002 8.5% 9.5% 8.00% Defined Benefit Pension Plans – Sensitivity Analysis ($ Millions) Increase (Decrease) Effect on Expense * Discount Rate Expected Rate of Return Inc (Dec) U.S. Plans U.K. Plan Total 50 BPS ($1.8) ($4.8) ($6.6) (50 BPS) $2.0 $5.2 $7.2 50 BPS ($1.2) ($3.0) ($4.2) (50 BPS) $1.2 $3.0 $4.2 * Based on calculation of expense for 2006 Q&A Closing Comments Derek C. Hathaway Chairman and CEO
