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Singular Research ConferenceJeffrey Glajch, Vice President & CFOSingular Research Conference
September 10, 2009
Safe Harbor Statement Regarding Forward Looking Statements
This presentation contains forward-looking statements within the meaning of Section 27A of theThis presentation contains forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, asamended.
Forward-looking statements are subject to risks, uncertainties and assumptions and can be identified bywords such as “expects,” “estimates,” “projects,” “anticipates,” “believes,” “could,” and other similarwords and expressions. All statements addressing operating performance, events, or developments thatGraham expects or anticipates will occur in the future, including but not limited to, statements relating toanticipated revenues, profit margins, foreign operations, Graham’s strategy to build its global salesrepresentative channel, the effectiveness of automation in expanding Graham’s engineering capacity,representative channel, the effectiveness of automation in expanding Graham s engineering capacity,Graham’s ability to improve its cost competitiveness, customer preferences, changes in marketconditions in the industries in which Graham operates, changes in general economic conditions andcustomer behavior and Graham’s acquisition strategy are forward-looking statements. Because they areforward-looking, they should be evaluated in light of important risk factors and uncertainties.
These risk factors and uncertainties are more fully described in Graham's most recent Annual andQuarterly Reports filed with the Securities and Exchange Commission, included under the headingentitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any ofGraham's underlying assumptions prove incorrect, actual results may vary materially from thosey g p p y y ycurrently anticipated. Undue reliance should not be placed on Graham's forward-looking statements.Except as required by law, Graham disclaims any obligation to update or publicly announce anyrevisions to any of its forward-looking statements.
Our Vision
Our goal is to be a Our goal is to be a world leader in the design world leader in the design o d eade t e des go d eade t e des g
and manufacture of and manufacture of ENGINEEREDENGINEERED--TOTO--ORDERORDER
products for the products for the ENERGYENERGY MARKETSMARKETS
Graham CorporationFounded: 1936; IPO: 1968;
NYSE Amex: GHM $12.92
Common shares outstanding 9.8 million$Market capitalization $127 million
52-week price range $42.66 – $6.85Avg. daily trading volume (12 mos.) 237,557Stock splits:
► 5 for 4 1/2/2008
► 2 for 1 10/7/2008Ownership:
►Institutional 52.5%►Insider 2.9%
Note: Market data as of September 2, 2009; ownership as of most recent filing.
P d tProductsCondensers
26%26%
Ejectors40%
Heat Exchangers
9%
Aftermarket19%
Pumps6%
U.S. 51%
International 49%
Note: Percent of Q1 FY2010 revenue.
Refinery Ejector SystemEjector system lowers the pressure in the distillation column to allow crude oil to
CNOOC Huizhou Refinery–China
240,000 BBL/day refinery
boil at a lower temperature. This allows for more efficient and cost-effective separation of crude oil into valuable products, such as diesel, gas oils, kerosene, and other fuels.kerosene, and other fuels.
An ejector system is a combination of ejectors and condensers connected in series.condensers connected in series. Graham provides the ejectors and condensers as components.
CondensersEjectors
Graham Corporation, 2009
Di ifi d M k tDiversified MarketsChemical Processing
27%
R fi iOther
Industrial & 46%22% RefiningIndustrial & Commercial Applications
46%22%
5%
Note: Percent of FY2010 revenue.Power
C lti t Di M k t
OIL REFINING CHEMICAL PROCESSING
Cultivate Diverse Markets
OIL REFINING
Conventional crude oilOil sandsExtra-heavy crude oil
CHEMICAL PROCESSING
EthyleneAmmoniaNitrogen
Ethylene glycolDetergent alcoholsPlastics, resins, fibersExtra heavy crude oil
Sour crudeLube oil
NitrogenMethanol StyrenePolystyrene
Plastics, resins, fibersCoal-to-liquids (CTL)Gas-to-liquids (GTL)
POWER GENERATION
CogenerationWaste to energy
OTHER APPLICATIONSEdible oil/OleochemicalsBiofuels:Waste-to-energy
Heat, power and lightGeothermalNuclearI it
Biofuels:EthanolBiodiesel
HVACIndustrial gasesIn-situ Industrial gasesCryogenic
Di ersified Geographies & Ind striesDiversified Geographies & Industries 2009 Orders
$34 million Refineries South Korea, China, Bahrain, Oman, South America, USA
$20 million Petrochemical China, North Africa, Trinidad & Tobago, Mexico USAMexico, USA
$4 million Power generation Turkey, USA
$16 illi Edibl il HVAC il USA$16 million Edible oil, HVAC, oil production, government, industrial gases, OEM
USA
Global Distillation Capacity Growth
Total Net Growth: 6 mb/d
Global Distillation Capacity Growth(through 2015)
Europe: 0.2 mb/d
Total Net Growth: 6 mb/dRussia and Eastern Europe:
US & Canada:0.9 mb/d
Europe: 0.2 mb/d
Latin
Asia-Pacific: 2.9 mb/d
America & Africa: 0.3 mb/d
Africa:
Middle East: 1.3 mb/d
0.4mb/dmb/d = million barrels per daySource: OPEC World Oil Outlook 2009
CNorth American Competition
Market GHM CompetitorsMarket GHM Market Share
Competitors
Refining vacuum distillation ~ 75% Gardner DenverRefining vacuum distillation 75% Gardner Denver
Chemicals/Petrochemicals ~ 25% Croll Reynolds; Schutte Koerting;Gardner Denver
Turbomachinery OEM – refining ~ 50% Ambassador; Yuba; KreugerTurbomachinery OEM refining, petrochemical
50% Ambassador; Yuba; Kreuger
Turbomachinery OEM – power and power producer
~ 15% Holtec; Babcock; Thermal Engineering; Yuba; Krueger
HVAC ~ 10% Alfa Laval; APV; ITT; Ambassador
CInternational Competition
Market GHM CompetitorsMarket GHM Market Share
Competitors
Refining vacuum distillation ~ 35 to 50% Gardner Denver; GEA Jet Pump; g ; p;Korting Hannover; Edwards
Chemicals/Petrochemicals ~ 25% Croll Reynolds; Schutte Koerting;Gardner Denver; GEA Jet Pump; K ti H Ed dKorting Hannover; Edwards
Turbomachinery OEM – refining, petrochemical
~ 50% Donghwa-Entec; Bumwoo; Oiltechnik; Kreuger; various local fabricators
Turbomachinery OEM – power and power producer
~ 15% Holtec; Babcock; Thermal Engineering; Yuba; Krueger
Financial PerformanceFinancial PerformanceFinancial PerformanceFinancial Performance
C t d R i E i C lCaptured Revenue in Expansion Cycle
$101.1$93 6
($ in millions)
$55 2$65.8
$86.4$93.6
$65.0$60 - $70
$41.3
$55.2
FY2005 FY2006 FY2007 FY2008 FY2009 Q1 FY10 FY2010 E tFY2005 FY2006 FY2007 FY2008 FY2009 Q1 FY10 TTM
FY2010 Est.
I d P d ti itImproved ProductivityBeyond Volume Enhancements
Sales per Employee(in thousands)
Inventory Turnover(times per year)
10.011.0
12.6 12.4
308.0
374.0 363.0
5.7
7.9
172.0
222.0248.0
FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY10 TTMFY2005 FY2006 FY2007 FY2008 FY2009 Q1FY10 TTM
St th d G P fit M iStrengthened Gross Profit Margin
$86.4$101.1
$93.6
$41.3
$55.2$65.8 39.5%
41.3% 40.4% Potential FY2010 range:
28% - 31%
18.2%
28.9%25.6%
FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY10 TTM
Gross MarginRevenue
N t I d EPS
$17 467
Net Income and EPS
$15,034$17,467
$15,301($ in thousands)
$5,761
$296
$3,586,
FY2005* FY2006 FY2007 FY2008 FY2009 Q1FY10 TTM
Earnings $1 71$1 49$0 58**$0 38$0 03 $1 50
Note: All earnings per share amounts adjusted for stock splits
* From continuing operations. ** Includes R&D tax credit of $0.16.
per Share $1.71$1.49$0.58**$0.38$0.03 $1.50
St B l Sh t$61.1 $64.4
Equity Long-term Liabilities
($ in millions)
Strong Balance Sheet
$16 6$27.1 $30.7
$48.5
Cash, Cash Equivalents and Investments
($ in millions)
$16.6$6.1 $2.8 $1.6 $1.8 $2.6 $2.6
FY2005 FY2006 FY2007 FY2008 FY2009Q1FY10$36.8
$46.2 $45.3*
$11.0$15.1
$57.4
$72.7 $73.9
Current Assets Current Liabilities
$2.7
FY2005 FY2006 FY2007 FY2008 FY2009 Q1 FY10$22.1
$27.4$36.7
$57.4
$10 9 $10 6$16.6 $20.4 $23.2 $20.8
* $42 7 million in U S banks and $10.9 $10.6
FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY10
$42.7 million in U.S. banks and U.S. Treasury securities.
P i it C h M tSales increased 145% and cash conversion cycle
was lowered from 112 to 17 days at 3/31/09
Priority: Cash Management
86 4
101.193.6 100
120
100
120
ycle
(Day
s)
$ m
illio
ns) 112
55.2
65.8
86.4
60
80
60
80
h C
onve
rsio
n C
y
Sale
s ($
41.34040
Cas
41 Expected to be in
th
0
20
0
20
FY2005 FY2006 FY2007 FY2008 FY2009 Q1 FY10 TTM
17
the 20- to 30-day range
in 2010
Note: cash conversion cycle equals days sales outstanding plus days inventory on hand minus days payables outstanding
TTMSales Cash Conversion Cycle
St t & O tl kStrategy & Outlook
D ti C l ShiftDramatic Cycle Shift
$75 7$86.5
$107.1($ in millions)
$54.2
$75.7
$48.3$49.9
$66.2$73.9
$54.9
$22.4$33.1
$37.0
FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY2010 TTMTTM
Backlog Orders
R d i I t f C li litReducing Impact of Cyclicality
$101.1FY09
$65.7
FY98
Mid-Point FY 2010 Guidance
$51.8
$34.931.3%
41.3%
29.5%
26.0%
FY00
Sales
Gross Margin
O ti M i
23.9%
29.5%
9.5%
1.0%
9.0%
Operating Margin
* Assumes mid-point of FY 2010 guidance: a 35% reduction in revenue, a 29.5% gross margin and $13.5 million in SG&A expenses
P t h i l P t ti lPetrochemical PotentialU S: Limited petrochem investmentGlobal recession slows demand growth
U.S: Limited petrochem investment
Middle East: Becoming active
Cap and Trade heavily penalizes U.S. refiners
Middle East: Becoming active
Asia/Middle East: Integrating refining/petrochem;
Over capacity in U.S. refining
Asia/Middle East: Integrating refining/petrochem; Considering new ethylene capacity
Strong growth in emerging economiesInternational: Ammonia/fertilizer plantsSome project revamps, others grassroots
N T St tNear-Term Strategy• People
DevelopmentPeople
• Processes• Capital Plan
Customers• Stay close: consultative selling• Gain market advantage• Selling support for pipeline
Performance• Maintain profitability and positive cash flow• Evaluate potential acquisitions in disruptive market• Capture greater market share
Upturn• Be ready• Ascend growth curve more quickly than in last cycle• Take market share• Continue investing to improve and expand business
Pi li f M j P jPipeline of Major ProjectsPower &
Refining PetrochemicalPower &
other
Very active currentlyVery active currently
Timing of orders notTiming of orders not clear
A i iti C it iAcquisition CriteriaEngineered-Engineered
to-order products
Geographic Expansion
and/or
Strong management
team /Up to
$60 million and/orDiversify Products
team / quality culture
$60 million in revenue
Return exceeds cost ofcost of capital
Singular Research ConferenceJeffrey Glajch, Vice President & CFOSingular Research Conference
September 10, 2009
C t ti i E I d tContraction in Energy Industry
Decline in projected U S consumption
Global recession slows demand growth
Decline in projected U.S. consumption
Cap and Trade heavily penalizes U.S. refiners
Over capacity in U.S. refining
Expanding economies in emerging/developing countries
A i Middl E t S th A iAsia Middle East South America
Ch d Gl b l Oil D d P j tiChanged Global Oil Demand Projections
World Oil Outlook 2008: 50% demand increase by 2030World Oil Outlook 2008: 50% demand increase by 2030
World Oil Outlook 2009: 23% demand increase by 2030
► Consumption dropping in developed areas
► Energy policy changing
► Crude oil pricing lowered sharply
► Capacity utilization is down► Capacity utilization is down
P M k tPower Market
• Waste to energy renewables
• GeothermalUnited States • NuclearStates
• Growing power requirements
• NuclearChina and
India • Hydro, geothermal, fossil fuels
India
N C ti l Oil S l G thNon-Conventional Oil Supply Growth
Oil SandsBiggest contributor =
5 mb/d by 2030
C l
by 2030
Increases Gas-to-liquid
Coal-to-liquid
output by 6 mb/d to 7.5 mb/d
by 2030
Extra-heavyExtra heavy crude
Source: OPEC World Oil Outlook 2008
C di Oil S d S diCanadian Oil Sands Spending
$100 to $150 million
potential demand fordemand for
Graham products
fromfrom 2010 to 2016
P d t Di t C t t C dProducts: Direct Contact Condenser
An 11 MW turbine-generator set at a geothermal power producing plant in Papua New Guinea
P d t S f C dProducts: Surface Condenser
Supports a steam turbine and enables the conversion of maximum energy in high pressure steam into power