GATX Corporation · NYSE:GATX
GATX — Investor Presentation (March 2017)
65 slides from GATX's investor presentation, Mar 23, 2017
Slide 1: Company Overview Presentation | March 2017
C o m p a n y O v e r v i e w P r e s e n t a t i o n | M a r c h 2 0 1 7
Slide 2: Forward-Looking Statements
2 Forward-Looking Statements Statements in this Presentation not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and, accordingly, involve known and unknown risks and uncertainties that are difficult to predict and
Slide 3: History and Business Overview
HISTORY AND BUSINESS OVERVIEW 118
Slide 4: GATX's 118-Year History
4 GATX’s 118-Year History 1898 Established as railcar lessor with 28 railcars 1919 Initiated quarterly dividend 1936 Began rail investment in Canada 1994 Began rail investment in Europe & Mexico 1996 Began locomotive investment 1998 Rolls-Royce Partners and Finance (RRPF) Affiliates 1973 GATX acquir
Slide 5: GATX Today – Business Segments
5 GATX Today – Business Segments AMERICAN STEAMSHIP COMPANY Largest US-flagged vessel operator on the Great Lakes Operates a fleet of efficient self-unloading ships Exceptional safety record and leader in Great Lakes environmental matters 69% 15% 8% 4% 4% PORTFOLIO MANAGEMENT RRPF affiliates
Slide 6: GATX's Strong Global Presence
6 GATX’s Strong Global Presence GATX owns or has an interest in more than 146,000 railcars, over 600 locomotives, 17 vessels on the Great Lakes, and more than 400 aircraft spare engines. (Map excludes leasing footprint for RRPF) GATX Rail Operations Footprint GATX Headquarters (Chicago, IL) Major Bu
Slide 7: GATX Financial Highlights
7 GATX Financial Highlights $1.59 $2.01 $2.81 $3.50 $4.48 $5.37 $5.77 2010 2011 2012 2013 2014 2015 2016 7% 9% 11% 13% 15% 18% 18% 2010 2011 2012 2013 2014 2015 2016 $585 $615 $770 $860 $1,031 $715 $621 2010 2011 2012 2013 2014 2015 2016 EPS ROE INVESTMENT VOLUME Graph displays Diluted EPS Diluted E
Slide 8: Disciplined Business Approach
8 DISCIPLINED BUSINESS APPROACH Disciplined and Proven We strive to be recognized as the finest railcar leasing company in the world by our customers, our shareholders, our employees and the communities where we operate. DISCIPLINED CAPITAL ALLOCATION APPROACH PROVEN RETURNS TO SHAREHOLDERS VISION
Slide 9: Straightforward and Proven Business Model
9 Straightforward and Proven Business Model Railcar leasing is our core. BUY the railcar at an economically attractive and competitively advantaged price LEASE the railcar to a quality customer at an attractive rate for a term that reflects the business cycle SERVICE the railcar in a manner that max
Slide 10: Business Model: Buy
10 Business Model: BUY EXPERIENCED INTERNAL CAPABILITIES DISCIPLINED INVESTMENT APPROACH COMPETITIVE ASSET COST OPPORTUNISTIC INVESTMENT GATX ADVANTAGE GATX achieves lower new car cost by placing large orders at appropriate points in the business cycle GATX focuses on achieving economically attracti
Slide 11: Business Model: Lease
11 Business Model: LEASE GATX’s premium service to top-tier customers results in high fleet utilization, strong lease renewal success and customer satisfaction across the globe. CUSTOMER VALUE DELIVERY Develop lease structures that fit customers’ needs New Car Inspection Group ensures railcars m
Slide 12: Business Model: Service
12 Business Model: SERVICE GATX has built a strong market position by focusing on full-service leasing in North America and Europe. MAINTENANCE Customers rely on GATX to manage the complex process of maintaining railcars Extensive maintenance network: more than 30 maintenance locations in North
Slide 13: Business Model: Maximize Value
13 REMARKETING INCOME (Income from sale of owned assets) Capitalize on market peaks Helps to maintain a diversified, high-performing railcar fleet Over the last 10 years, GATX Rail North America generated an average of approximately $40 million of remarketing income per year SCRAPPING GAINS
Slide 14: GATX Rail North America Overview
14 27% 26%17% 12% 7% 11% 95% 90% 99% 96% 99% 86% 88% 90% 92% 94% 96% 98% 100% 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 GATX Rail North America Overview WHOLLY OWNED FLEET COUNT 122,000+ CAR TYPE COUNT 160 AVERAGE FLEET AGE 20 Years LOCOMOTIVE COUNT 600+ NUMBER OF CUSTOMERS 900+ COUNTRIES OF
Slide 15: Managing Through Cycles: Lease Rates and Terms
15 64 67 63 41 35 45 60 62 66 54 32 17% 14% 5% -11% -16% 7% 26% 35% 39% 32% -20% -30% -20% -10% 0% 10% 20% 30% 40% 50% 0 10 20 30 40 50 60 70 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Renewal Lease Term (left axis) Lease Price Index (right axis) Managing Through Cycles GATX quickly adap
Slide 16: Managing Through Cycles: Fleet Composition
16 $230 $90 $188 $581 2012 to 2015 2008 to 2011 Secondary Market Investment Volume Remarketing Income GATX RAIL NORTH AMERCA Managing Through Cycles GATX optimizes its fleet composition. In a strong market, GATX increases remarketing activity to take advantage of railcar demand and railcar valuation
Slide 17: GATX Rail International Overview
17 96% 97% 95% 97% 95% 97% 96% 93% 94% 95% 96% 97% 98% 99% 100% 2006 2008 2010 2012 2014 2016 GATX Rail International Overview FLEET COUNT 23,000+ in Europe 750+ in India 150+ in Russia CAR TYPE COUNT 38+ AVERAGE FLEET AGE 18 Years NUMBER OF CUSTOMERS 220+ MAJOR COUNTRIES OF OPERATIONS Germany, Pola
Slide 18: American Steamship Company Overview
18 American Steamship Company Overview Based on 2016 ASC volume As of 12/31/2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Net Tons Carried by ASC (in millions) 37.2 37.3 35.7 21.2 28.0 28.4 29.7 28.8 30.5 26.5 25.4 ASC Vessels Operated 18 18 18 12 13 14 14 13 15 13 11 VESSEL COUN
Slide 19: Portfolio Management Overview
19 Portfolio Management Overview OWNED PORTFOLIO $593.5 million NBV as of 12/31/2016 SPARE ENGINE COUNT 400+ AVERAGE FLEET AGE 11 Years 2016 RRPF OVERVIEW 63% Aircraft Spare Engine Leasing Affiliates 34% Marine Equipment 3% Other 63% 34% 3% $0 $20 $40 $60 $80 $100 RRPF JV PRE-TAX INCOME (GATX’s SHAR
Slide 20: Rail North America
RAIL NORTH AMERICA
Slide 21: North America – Industry Railcar Ownership
21 North America – Industry Railcar Ownership 52% 9% 19% 20% RAILROADS (20%) Ownership of railcars has been declining In 2000, 53% of railcars were owned by railroads Virtually no tank car ownership due to complexities and regulations Focus of capital investment on infrastructure LESSORS (52
Slide 22: North America – Industry Shipments & Carloadings
22 North America – Industry Shipments & Carloadings 20.9 21.2 17.1 16.9 16 17 18 19 20 21 22 2004 2006 2008 2010 2012 2014 2016 19.4 Demand increased across most major commodity types. Demand declined due to difficulties in nearly every sector. Demand increased as a result of nearly all sectors. Dem
Slide 23: North America – Industry Backlogs
23 North America – Industry Backlogs Cyclicality of the industry is illustrated by the backlog of orders at the railcar manufacturers The 2014 and 2015 spike in tank car backlog was primarily due to energy markets Deep backlogs are generally positive for existing lessors’ fleets – Customers’ a
Slide 24: North America – Lessor Market Share
24 North America – Lessor Market Share LESSOR TANK CARS Approximately 407,000 tank cars in North America – About 80% of tank cars are owned by lessors, with the balance owned by shippers GATX is the second largest tank car lessor UMLER as of January 2017; SMBC counts are post-ARL purchase LESSOR
Slide 25: GATX Rail North America
25 GATX Rail North America Based on more than 838,500 lessor-owned railcars UMLER as of January 2017 Diverse fleet with approximately 160 car types serving over 550 commodities Extensive maintenance network, with highly competitive safety, quality, delivery times, and cost metrics Broad range of val
Slide 26: GATX Rail North America's Diverse Customer Portfolio
26 GATX Rail North America’s Diverse Customer Portfolio 12/31/2016 Customer families sometimes include more than one customer account, therefore the S&P or equivalent ratings noted generally reflect the credit quality of the rated parent entity. Lease obligations of subsidiaries are not necessarily
Slide 27: GATX Rail North America's Fleet Breakdown
27 CAR TYPE COMMODITIES CARRIED % OF GATX’S FLEET 16.0% 12.7% 10.5% 2.4% 8.3% 14.5% 8.6% 8.7% 7.0% 4.6% 2.6% 4.1% TA N K C A R S (49. 9 % o f Fl ee t) FR EIGH T CA R S (50. 1 % o f Fl ee t) GATX Rail North America’s Fleet Breakdown General Service Tank Cars: 20k-25k gallon General Service Tank Cars:
Slide 28: GATX Rail North America - Energy Markets
28 GATX Rail North America - Energy Markets GATX purposely avoided investing heavily in the “Crude Oil Boom” – Eventual pipeline developments and market dynamics warranted a cautious approach Other lessors pursued a different approach Collapse of “Crude Oil Boom” led to logical outcome – Enorm
Slide 29: GATX Rail North America's Maintenance Network
29 GATX Rail North America’s Maintenance Network GATX is known for its integrity, safety, and quality of our operations and superior execution. Services range from routine maintenance and regulatory programs to car modifications and rebuilds, including: All mechanical repairs, interior cleaning, int
Slide 30: GATX Rail North America's Engineering Expertise
30 GATX Rail North America’s Engineering Expertise GATX’s engineering team, including experienced mechanical, structural, and chemical engineers, communicates regularly with customers and tailors solutions to meet their needs. Examples of engineering support include: Preventative maintenance, Inspec
Slide 31: GATX Rail North America Training Programs
31 GATX Rail North America Training Programs GATX’s commitment to provide safe, reliable assets goes beyond maintenance and engineering. GATX PROVIDES CRITICAL TRAINING AT ITS HEADQUARTERS, CUSTOMER SITES AND THROUGH ITS TANKTRAINER™ MOBILE CLASSROOM GATX has offered the TankTrainer™ program since
Slide 32: Technology & Custom Applications
32 GATX Rail North America’s Technology & Custom Applications SHOP PORTAL Provides repair instructions to maintenance network shops Provides car and event-specific forms to assure that required inspection points and mandatory repair items are documented and addressed MyGATXRail.com Provides re
Slide 33: GATX Rail North America Participates in Regulatory Environment
33 GATX Rail North America Participates in Regulatory Environment GATX actively participates in or interacts with numerous committees within various industry groups in the United States. Participation allows GATX to stay current on developments, guide decisions, and communicate information to cust
Slide 34: GATX Rail North America's Locomotive Leasing
34 GATX Rail North America’s Locomotive Leasing 96% are four-axle locomotives leased to: Regional and short-line railroads Industrial users Class I railroads $34 $32 $35 $38 $39 2012 2013 2014 2015 2016 LOCOMOTIVE LEASE REVENUEGATX OWNS, MANAGES OR HAS AN INTEREST IN MORE THAN 600 LOCOMOTIVES
Slide 35: Rail International
RAIL INTERNATIONAL
Slide 36: International – European Industry Snapshot
36 30% 70% International – European Industry Snapshot Approximately 705,000 railcars in standard-gauge countries RAILCAR OWNERSHIP Eastern European fleets include many older, smaller tank cars Increasingly difficult for smaller lessors to obtain financing and meet required regulatory standards i
Slide 37: European Tank Car Leasing Market Structure
37 26% 36% 19% 19% THE STRUCTURE OF THE TANK CAR LEASING MARKET IN EUROPE IS SIMILAR TO NORTH AMERICA’S Lessors own the majority of the tank cars in Europe – approximately 68% A few large leasing companies lead the market International – European Industry Snapshot GATX management estimates as of
Slide 38: GATX Rail Europe
38 GATX Rail Europe GATX management estimates as of 12/31/2016 Operations in the major rail markets across Europe Broad range of value offerings: maintenance, training, engineering support, regulatory assistance and other services Diverse customer portfolio, with strong credit profiles Approximately
Slide 39: GRE Geographies and Fleet Structure
39 42% 25% 11% 5% 4% 3% 2% 8% CAR TYPE COMMODITIES CARRIED Liquid Petroleum Products Light mineral oil (gasoline, jet fuel, diesel oils, light heating oils), Dark mineral oil (heavy heating oils, lubricating oils, coal tar, bitumen, asphalt), crude oil LPG Propane, Butane, Propylene, Butadiene, Ligh
Slide 40: GRE's Customer Base
40 80% 10% 10% GRE’s Customer Base GRE’s newer and higher capacity fleet attracts top-tier customers. Today, the average lease term for GRE is 2 years; however, renewal success rates tend to be high – 17 of GRE’s top 20 customers by revenue have done business with us for at least 15 years Top 10 c
Slide 41: GRE's Service Offerings
41 GRE’s Service Offerings MAINTENANCE GRE’s goal is to ensure maximum railcar availability Proven track record of extremely high safety standards and technical expertise A network of owned workshops and certified contract partners GRE arranges for the cleaning of tanks and railcars combined
Slide 42: GRE's Maintenance Network
42 GRE’s Maintenance Network JUNGENTHAL FACILITY (HANNOVER, GERMANY) Main tasks are revisions, cleaning, and sandblasting Modern infrastructure with nearly 70 employees OSTRÓDA FACILITY (OSTRÓDA, POLAND) Main tasks are revisions, new railcar assembly, and reconditioning of components Modern
Slide 43: GATX India
43 GATX India GATX India Private Limited is the market leader in railcar leasing – Owns fleet of approximately 800 container flat wagons – Actively seeks attractive investment opportunities to grow the fleet – Recognized as a key rail industry stakeholder Leverages GATX Rail North America and GR
Slide 44: GATX Russia
44 GATX Russia Russia has one of the largest privately owned railcar fleets in the world GATX Russia owns a fleet of approximately 200 wagons – boxcars and timber-flatcars Actively pursuing opportunities with multi-national companies and Russian blue-chip companies Continuing to develop loca
Slide 45: American Steamship Company
AMERICAN STEAMSHIP COMPANY
Slide 46: Great Lakes Industry Overview
46 SAILING SEASON GENERALLY RUNS FROM LATE MARCH THROUGH THE END OF DECEMBER Weather conditions and water levels impact operating efficiencies, especially early spring and early winter SHIPPING INDUSTRY ON THE GREAT LAKES IS MATURE WITH HIGH BARRIERS TO ENTRY US new-build vessel costs have risen
Slide 47: ASC Business Overview
47 BUSINESS OVERVIEW ASC provides transportation of dry bulk commodities across the Great Lakes and St. Lawrence Seaway ASC joined GATX in 1973 and has been in operation over 100 years ASC operates with significant emphasis on safety and environmental stewardship FLEET OVERVIEW Fleet of 17 s
Slide 48: ASC Commodities Carried & Industries Served
48 13% 28% 57% 2% ASC Commodities Carried & Industries Served Based on 2016 ASC revenue IRON ORE COAL LIMESTONE accounts for the highest volume carried by US-flag Great Lakes vessels is transported to power generating facilities along the Lakes is used by the steel and construction industries 8% 27%
Slide 49: Portfolio Management
PORTFOLIO MANAGEMENT ~~
Slide 50: Aircraft Spare Engine Leasing Industry Overview
50 Aircraft Spare Engine Leasing Industry Overview GROWTH OF SPARE AIRCRAFT ENGINES Demand and continued switching to spare engine leasing by airlines AIRCRAFT GROWTH 33,000 new aircraft in the next 20 years 1% 10% 40% 50% 1990 1998 2016 2020 (Forecast) Growth Estimates: RRPF management estimate as
Slide 51: Aircraft Spare Engine Leasing Industry Overview: Maintenance
51 Aircraft Spare Engine Leasing Industry Overview MAINTENANCE SPARE ENGINE OVERVIEW Engines are very attractive and reliable leasing assets – Robust residual value characteristics – Retain value better over the long term compared to aircraft Aircraft engines need regular scheduled maintenance (
Slide 52: RRPF Affiliates Overview
52 RRPF Affiliates Overview The RRPF portfolio has committed future lease receipts of more than $1.9 billion. RRPF OVERVIEW GATX established its first partnership with Rolls-Royce plc in 1998 Total NBV of engines upon RRPF establishment was $350 million; today the NBV is approximately $3.3 billi
Slide 53: RRPF Affiliates Market Leadership
53 RRPF Affiliates Market Leadership RRPF enjoys leading market position in each targeted asset type. 72% 84% 39% 73% 45% 100% 100% 24% 11% 34% 27% 21% Trent 500 Trent 700 Trent 800 Trent 900 V2500 XWB Trent 1000 RRPF MARKET POSITION (% OF SPARE ENGINES ON OPERATING LEASE) RRPF 2nd Largest Spare Eng
Slide 54: Disciplined Capital Allocation Approach
54 DISCIPLINED CAPITAL ALLOCATION APPROACH 118
Slide 55: Capital Allocation Framework
55 PRIORITY 2 Manage the balance sheet Maintain a solid investment grade rating of BBB/Baa2 Maintain capacity for opportunistic investments Capital Allocation Framework $763 $634 $781 $480 $585 $615 $770 $860 $1,031 $715 $621 2006 2008 2010 2012 2014 2016 $0 $200 $400 $600 $800 $1,000 $1,200 $
Slide 56: Sources and Uses of Cash (2007-2016)
56 $196 $3,902 $3,068 $1,810 $7,488 $579 $871 $16 $308 Cash from Operations Portfolio Proceeds External Debt (Net) Other Investments Buybacks Sources and Uses of Cash (2007-2016) As of 12/31/2016 $ M ILL ION S Beginning Cash 2007 Dividends Other Ending Cash 2016 $286
Slide 57: Financial Highlights
FINANCIAL HIGHLIGHTS 57 118
Slide 58: Financial Highlights – Cash Flow and Lease Receipts
58 2006 2008 2010 2012 2014 2016 Operating Cash Flow Portfolio Proceeds $932 $781 $654 $521 $395 $768 Financial Highlights – Cash Flow and Lease Receipts GATX has nearly $4.1 billion in committed future lease receipts. GATX COMMITTED FUTURE LEASE RECEIPTS As of 12/31/2016 $ M IL LIO N S $ M IL LIO N
Slide 59: Financial Highlights – Strong Balance Sheet
59 % of Assets that are Secured 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 2002 2004 2006 2008 2010 2012 2014 2016 As of 12/31/2016 Total Recourse Debt = On-Balance-Sheet Recourse Debt + Off-Balance-Sheet Recourse Debt + Capital Lease Obligations + Commercial Paper
Slide 60: Financial Highlights – Strong Balance Sheet: Cost of Debt
60 Financial Highlights – Strong Balance Sheet GATX has decreased borrowing costs and increased borrowing term. GATX issued more than $500 million of public unsecured debt in 2016. 6.4% 3.7%5.0 3.3 9.0 - 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 2006 2007 2008
Slide 61: Financial Highlights – Access to Capital
61 Financial Highlights – Access to Capital GATX issued $3.3 billion of long-term debt in the public market during the last 4-years (2013-2016) GATX efficiently accessed capital in difficult markets – Raised $250 million of debt financing during the depth of the financial crisis in late 2008 – R
Slide 62: Financial Highlights – Results
62 Financial Highlights – Results $2.54 $3.07 $3.49 $1.97 $1.59 $2.01 $2.81 $3.50 $4.48 $5.37 $5.77 13% 14% 15% 9% 7% 9% 11% 13% 15% 18% 18% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 EPS (left axis) ROE (righ
Slide 63: Reconciliation of Non-GAAP Measures
RECONCILIATION OF NON-GAAP MEASURES 63
Slide 64: Reconciliation of Non-GAAP Measures – Net Income Measures
64 Reconciliation of Non-GAAP Measures – Net Income Measures Net Income 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (in millions) Net income (GAAP) 183.8$ 194.8$ 81.4$ 80.8$ 110.8$ 137.3$ 169.3$ 205.0$ 205.3$ 257.1$ Adjustments attributable to consolidated income, pretax: Railcar impairment at
Slide 65: Reconciliation of Non-GAAP Measures – Balance Sheet Measures
65 Reconciliation of Non-GAAP Measures – Balance Sheet Measures On- and Off-Balance Sheet Assets 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total assets (GAAP) 4,723.2$ 5,190.5$ 5,206.4$ 5,442.4$ 5,846.0$ 6,044.7$ 6,535.5$ 6,919.9$ 6,894.2$ 7,105.4$ Off-balance sheet assets: Rail North Americ