Filed by SunCoke Energy, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: SunCoke Energy Partners, L.P.
Commission File No.: 001-35782
The following is a slide presentation made publicly available in connection with meetings with investors held on February 26, 2019 by SunCoke Energy, Inc. The slide presentation provides supplemental information regarding the prior announcement of the proposed merger of SunCoke Energy, Inc. and its sponsored master limited partnership, SunCoke Energy Partners, L.P.
SunCoke Investor Presentation
This communication includes important information about an agreement for the acquisition by SXC of all publicly held common units of SXCP. SXC expects to file a registration statement on Form S-4 with the Securities and Exchange Commission (“SEC”) containing a prospectus/consent statement/proxy statement of SXC and SXCP. SXC and SXCP security holders are urged to read the prospectus/consent statement/proxy statement and other documents filed with the SEC regarding the proposed transaction carefully and in their entirety when they become available because they will contain important information. Investors will be able to obtain a free copy of the prospectus/consent statement/proxy statement, as well as other filings containing information about the proposed transaction, without charge, at the SEC’s internet site (http://www.sec.gov). Copies of the prospectus/consent statement/proxy statement and the filings with the SEC that will be incorporated by reference in the prospectus/consent statement/proxy statement can also be obtained, without charge, by directing a request either to SXC, 1011 Warrenville Road, 6th Floor, Lisle, IL 60532 USA, Attention: Investor Relations or to SXCP, 1011 Warrenville Road, 6th Floor, Lisle, IL 60532 USA, Attention: Investor Relations. The respective directors and executive officers of SXC and SXCP may be deemed to be “participants” (as defined in Schedule 14A under the Securities Exchange Act of 1934 as amended) in respect of the proposed transaction. Information about SXC’s directors and executive officers is available in SXC’s annual report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 15, 2019. Information about SXCP’s directors and executive officers is available in SXCP’s annual report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 15, 2019. Other information regarding the participants in the solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the prospectus/consent statement/proxy statement and other relevant materials to be filed with the SEC when they become available. This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended. Important Notice to Investors
Except for statements of historical fact, information contained in this presentation constitutes “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 upon information currently available, and express management’s opinions, expectations, beliefs, plans, objectives, assumptions or projections with respect to anticipated future performance of SXC or SunCoke Energy Partners, L.P. (SXCP). These statements are not guarantees of future performance and undue reliance should not be placed on them. Although management believes that its plans, intentions and expectations reflected in, or suggested by, the forward-looking statements made in this presentation are reasonable, no assurance can be given that these plans, intentions or expectations will be achieved when anticipated or at all. Forward-looking statements often may be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “contemplate,” “estimate,” “predict,” “guidance,” “forecast,” “potential,” “continue,” “may,” “will,” “could,” “should,” or the negative of these terms or similar expressions, and include, but are not limited to, statements regarding: the expected benefits of the proposed transaction to SXC and SXCP and their shareholders and unitholders, respectively; the anticipated completion of the proposed transaction and the timing thereof; the expected levels of cash distributions by SXCP to its unitholders and dividends by SXC to its shareholders; expected synergies and shareholder value to result from the combined company; future credit ratings; the financial condition of the combined company; and plans and objectives of management for future operations and growth. Such statements are subject to a number of known and unknown risks, and uncertainties, many of which are beyond the control of SXC and SXCP, or are difficult to predict, and may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Each of SXC and SXCP has included in its filings with the Securities and Exchange Commission (SEC) 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. Such factors include, but are not limited to: changes in industry conditions; the ability to renew current customer, supplier and other material agreements; future liquidity, working capital and capital requirements; the ability to successfully implement business strategies and potential growth opportunities; the impact of indebtedness and financing plans, including sources and availability of third-party financing; possible or assumed future results of operations; the outcome of pending and future litigation; potential operating performance improvements and the ability to achieve anticipated cost savings from strategic revenue and efficiency initiatives. For more information concerning these factors, see the SEC filings of SXC and SXCP. All forward-looking statements included in this presentation are expressly qualified in their entirety by the cautionary statements contained in such SEC filings. The forward-looking statements in this presentation speak only as of the date hereof. Except as required by applicable law, SXC and SXCP do not have any intention or obligation to revise or update publicly any forward-looking statement (or associated cautionary language) made herein, whether as a result of new information, future events, or otherwise after the date of this presentation. This presentation includes certain non-GAAP financial measures intended to supplement, not substitute for, comparable GAAP measures. Furthermore, the non-GAAP financial measures presented herein may not be consistent with similar measures provided by other companies. 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. These data should be read in conjunction with the periodic reports of SXC and SXCP previously filed with the SEC. Due to rounding, numbers presented throughout this presentation may not add up precisely to the totals indicated and percentages may not precisely reflect the absolute figures for the same reason. Industry and market data used in this presentation have been obtained from industry publications and sources as well as from research reports prepared for other purposes. SXC and SXCP have not independently verified the data obtained from these sources and cannot assure investors of either the accuracy or completeness of such data. Forward-Looking Statements
SunCoke Overview (1) See appendix for definition and reconciliation of Adjusted EBITDA (2) Midpoint of 2019 guidance range of $265 to $275 million; (3) Represents gross debt divided by Adjusted EBITDA; (4) Calculated using 2018 gross debt divided by midpoint of 2019 Adjusted EBITDA guidance range (2) Adjusted EBITDA(1) Largest independent coke producer in North America serving all 3 major blast furnace steel producers 4.2M tons of domestic coke capacity Long-term, take-or-pay contracts with key pass-through provisions Advantaged operating characteristics Strategically located coal handling terminals with access to rail, barge and truck Fee per ton handled, limited commodity risk >40M tons of total throughput capacity 10M tons volume commitment via take-or-pay contracts with low cost ILB producers Cokemaking 2019 Adj. EBITDA(1) Guidance: $217M - $223M Logistics 2019 Adj. EBITDA(1) Guidance: $73M - $75M Key Financial Highlights 10% CAGR Business Segments Leading raw materials processing and handling company with existing operations in cokemaking & logistics Leverage Ratio(3) (4)
Advantaged Assets Driving Value Creation Industry leading cokemaking and logistics market positions Youngest and most technologically-advanced cokemaking fleet Low cost, logistically advantaged terminals Advantaged Assets with Leading Market Positions Steel and coal industry tailwinds driving growth opportunities Tight domestic supply/demand fundamentals for coke Cost advantaged cokemaking versus global imports Steady coal export demand Attractive Industry Dynamics Supported by long-term, take-or-pay contracts with limited commodity price exposure Average remaining cokemaking contract life of ~6 years across fleet ~90% of logistics Adj. EBITDA underpinned by long-term commitments Simplification strategy drives 27% increase in adj. free cash flow per share to Pro Forma $1.65/share(1) Steady Cash Flow Generation Significant value creation supported by strong cash flow and financial flexibility Expect to initiate a $0.24/share annual dividend after closing of Simplification transaction Rapid deleveraging to 3.0x gross debt/EBITDA target Pursuing growth opportunities Return of capital to shareholders Balanced Capital Allocation Strategy (1) See appendix for reconciliation of adjusted free cash flow per share
Strategically Located Network of Assets PA NY OH MI IN IL WI MN IA MO AR LA MS AL GA FL SC NC TN VA KY WV VT NH ME MD DE NJ MA CT RI 2 3 4 5 7 8a 9 1 8b Domestic assets strategically located to serve customers’ blast furnace assets Three facilities co-located with customer BF and remaining two facilities benefit from advantaged rail logistics Close proximity to met. coal feedstock Access to outbound coke logistics provide flexibility to serve multiple customers Only rail served bulk export facility on lower Mississippi River Uniquely positioned with dual-rail and barge in/out capability on Ohio River Locations on Ohio River system well positioned to serve coal miners, power companies and steelmakers North American Operations Cokemaking Advantages Logistics Advantages 1 2 4 5 6 7 8a 9 8b Not pictured 3 Lake Terminal KRT Ceredo KRT Quincy Middletown Granite City Haverhill I & II Vitória, Brazil Indiana Harbor Jewell Coke Convent Marine Terminal Cokemaking Logistics SunCoke Headquarters Legend
Simplification Positions SunCoke for Long-Term Success (1) See appendix for reconciliation of adjusted free cash flow per share Illustrative SXC adjusted free cash flow per share(1) Status Quo 27% Reduces complexity and simplifies governance Aligns interests of SXC shareholders and SXCP unitholders Simplifies SunCoke’s Organizational and Capital Structure Improves Financial Flexibility Accelerates debt reduction to 3.0x gross debt to EBITDA target Reduces SunCoke’s cash tax expense over the next five years Estimated cost synergies of ~$2.0 million per year Cash flow synergies total ~$50 million over first 5 years Supports $0.06 quarterly dividend per share Expands Universe of Growth Opportunities Eliminates MLP qualifying income limitations on growth More cash flow available for investment in growth projects Lowers Cost of Capital and Enhances Trading Liquidity Increases equity market capitalization, public float and trading liquidity Broadens institutional investor base and access to capital markets Enhances cost of and access to debt capital markets Reduces effective equity cost of capital
Cokemaking Overview
Durable Model with Strong Market Dynamics Steady cash flow generation Limited commodity price exposure as a result of cost pass through provisions Average remaining cokemaking contract life of ~6 years across fleet Stable Long-term Business Model Newest fleet of cokemaking facilities and equipment in the industry Leading technology with EPA MACT environmental signature Logistically advantaged assets provide inbound and outbound efficiencies Superior Asset Characteristics Long-run steel demand stable, and any increased domestic steel demand could result in coke shortage Natural level of support for BFs given technology/product mix Coke market in balance today Aging fleet of by-product coke batteries continue to be at risk Coke imports not viable long-term supply alterative for BF operators Favorable Long-term Coke Supply/Demand Dynamics
Long-term, Contracted Earnings Stream Represents production capacity for blast furnace-sized coke, however, customer takes all on a “run of oven” basis, which represents >600k tons per year Dec. 2032 Take-or-Pay Contract Provisions General Provisions Fixed Fee ü Take-or-Pay ü Minimal Termination Provisions ü Contract Duration 15 – 20 yrs. Avg. Remaining Contract Life ~6 yrs. Pass-through Provisions Cost of Coal ü Coal Blending and Transport ü Ops. & Maintenance (“O&M”) Costs ü Taxes (ex. Income Taxes) ü Changes in Regulation ü Contract Observations Customers required to take the contract-maximum coke Long-term, take-or-pay nature provides stability during downturns Commodity price risk minimized by passing through operating costs to customer Contracts typically contain minimal early termination without default Counterparty risk mitigated by contracting with customers’ respective parent companies Coke Contract Duration and Facility Capacity Dec. 2020 Dec. 2020 Dec. 2021 Oct. 2023 Dec. 2025 Middletown Granite City Indiana Harbor Haverhill 2 Haverhill 1 Jewell Coke 720Kt Capacity 550Kt Capacity(1) 650Kt Capacity 1,220Kt Capacity 550Kt Capacity 550Kt Capacity SXCP SXCP SXC SXC SXCP SXCP Long-term, take-or-pay contracts generate stable cash flow and insulate business from industry cyclicality
Negative Pressure Ovens MACT standard for heat recovery / non-recovery batteries Cogeneration potential (convert waste heat into steam or electricity) More fungible by-product (generate ~9MW of electrical power per 110Kt annual coke production) No wall pressure limitations on coal blend Higher turndown flexibility Higher CSR coke quality Lower capital cost and simpler operation Industry Leading Technology SunCoke Heat Recovery Ovens By-Product Ovens Positive Pressure Ovens Allows fugitive emission of hazardous pollutants via cracks / leaks No air leaks into oven results in higher coal-to-coke yields By-product use and value Makes coke oven gas for steelmaking as natural gas pricing hedge Increasingly limited, less valuable market options for coal tar and oil by-products No volatile matter limitations on coal blend Smaller oven footprint for new and replacement ovens By-Product Cokemaking Technology SunCoke’s Heat Recovery Cokemaking Technology SunCoke’s cokemaking technology is the basis for U.S. EPA MACT standards and makes larger, stronger coke
U.S. coke market in balance Increase in utilization or further closures of coke capacity would tip to shortfall Estimate a 1% increase in BF utilization would result in ~200Kt coke demand(1) Canadian coke market is generally in balance with 600ktpy from the U.S. going to Essar and ArcelorMittal If Stelco Hamilton BF restarted, the Canadian market would be structurally short Several catalysts exist which could impact near and long-term coke balance Infrastructure stimulus and/or increases in domestic oil production could result in higher BF utilization rates Aged and environmentally challenged coke batteries are at risk of closure within next 5 years Imports available but not attractive for long-term supply Customers “will not put blast furnace operations at risk”(4) with uncertain/unstable coke supply Challenged logistics, unreliable quality and volatile pricing Any new build must meet SunCoke-type technology standards New coke battery requires significant capital investment (Middletown build cost >$400M) and 3+ years lead time Tightly Balanced North American Coke Market Source: CRU Group SunCoke estimates based on market intelligence. Excludes foundry coke volumes and 600 ktpy U.S. volumes exported to Canada SunCoke estimates based on AISI blast furnace operations data Source: CRU-Insight – “Frugality at the Expense of Quality” 2019E U.S. Coke Capacity 2019E Coke Supply / Demand Balance Commentary (2) (3) s Nameplate Capacity: 14.0(1) million tons Effective Capacity: 12.0(2) million tons
Expect aging by-product battery closures to continue, creating opportunity for SunCoke Shrinking Coke Supply Base Creates Opportunity Source: CRU Group – Metallurgical Coke Market Outlook Report, Company Estimates Closures driven by combination of deteriorating facilities and environmental challenges AK Ashland Coke closed (2010) and resulted in long-term, take-or-pay contracts with SunCoke at Middletown and Haverhill In last five years, approximately 2.5 million tons of additional capacity was permanently closed: USS Gary Works (1,200k) USS Granite City (500k) AM Dofasco (455k) DTE Shenango (320k) Believe additional 1.5 – 2.0 million tons of cokemaking capacity is at risk of closure in the next five years Aging Capacity Creates Opportunity Aging Cokemaking Facilities Average Age % of U.S. and Canada Coke Capacity (Excl. SXC) U.S. and Canada (Excl. SXC) ~79% of coke capacity (excl. SXC) is at facilities >30 years old
To-date, ~80% of the facility completely rebuilt (A/C/D batteries) In 2019, anticipate to complete comprehensive rebuild on 57 remaining B-battery ovens Expect 2019 B-battery rebuilds can be executed at $50M - $60M $40M -$48M of capital expenditures $10M - $12M of operating expenses Once 2019 campaign completed, 100% of facility fully rebuilt Once 2019 rebuild campaign completed, expect IHO to deliver Adj. EBITDA(2) run-rate of ~$50M on 1.22Mt production 48 ovens 38 ovens 58 ovens 67 ovens 57 ovens Indiana Harbor(1) Performance Outlook Performance Improvement at Indiana Harbor ~ ~ ~ ~ ~ ~ ~ ~ (2) Ovens Rebuilt Per Year (Est.) Anticipate run-rate IHO(1) Adj. EBITDA(2) of ~$50M after the final phase of oven rebuild project is completed in 2019 Indiana Harbor(1) Rebuild Progress Represents 100% of IHO operations, including a 14.8% third-party interest in the cokemaking facility. See appendix for a definition and reconciliation of Adjusted EBITDA.
SunCoke’s Superior Assets Will Drive Contract Renewals Value Proposition Competitive Advantage SunCoke’s average asset age is ~15 years compared to ~48 years for all other US/Canadian capacity Advantaged operating cost structure and capital investment requirements Improved ability to capture additional market share as competitors’ older facilities retire SunCoke technology sets environmental MACT standard for heat-recovery cokemaking in US Only US company to construct domestic greenfield coke facility in last 25 years Advantaged environmental signature provides barrier to entry for any greenfield projects Cokemaking facilities in close proximity or co-located with customer blast furnace assets Onsite rail and/or barge infrastructure capabilities Reduced transportation cost for customers Flexibility to support multiple BF facilities from single SunCoke cokemaking plant SunCoke is a proven partner with a track record of providing reliable, high-quality coke Imported spot coke may not meet required specifications Supply chain stability incentivizes BF customers to enter into long-term, take-or-pay contracts Limited viable long-term coke substitute Superior Asset Age Advantaged Environmental Signature Strategically Located Assets Reliable, Secure, Long-term Coke Supply
Logistics Overview
Strategic Network of Low Cost Facilities Strategically located assets with access to barge, rail and truck Provide key logistics services for various met. and thermal coal producers and consumers Well Positioned Domestic Logistics Facilities Only dry-bulk, rail-serviced terminal on lower Mississippi with significant logistical advantages State-of-the-art facility with new $120 million shiploader Physical facility footprint suitable for further expansion Access to coal, petcoke, liquids and other industrial material markets Advantaged Gulf Coast Facility U.S. thermal coal producers continue to augment domestic demand with export shipments Seaborne thermal coal market expected to remain resilient long-term CMT positioned to ship exports into Europe, Mediterranean and Southeast Asia Attractive Seaborne Export Dynamics Low-cost position in Illinois Basin (“ILB”) market insulates customers from market contraction ILB customers have completed key refinancing efforts, significantly improving credit profiles Competitive, Low-Cost ILB Producers
CMT Positioned for Continued Throughput Opportunities CMT strategically located as only dry-bulk, rail-serviced terminal on lower Mississippi Fastest shiploader on lower Mississippi Low-cost, efficient operations Largest export terminal on the U.S. Gulf Coast Outbound throughput capacity of ~15M tons per year $120M expansion to significantly modernize facility and increase operational efficiency Barge unloading allows CMT’s multi-modal capabilities; now cover all modes of transport options Access to seaborne markets for coal, petcoke, liquids and other industrial materials provides potential growth opportunities Dual berths capable of handling Cape and Panamax-sized vessels simultaneously World class facility on Gulf Coast with direct rail access and cape size loading capabilities
Coal fired generation will continue as primary global energy source Demand for seaborne coal may exceed supply by 400 million tons by 2030(2) Expect new coal-fired capacity in emerging markets will offset coal-fired replacements in developed markets CMT services low cost ILB producers through long-term, take-or-pay contract through 2023 CMT export market share in 2018: ~20% of total thermal coal exports in U.S. ~47% of total thermal coal exports in U.S. Gulf ILB producers continue to augment domestic order book with export shipments Enables productivity / margin optimization without flooding domestic marketplace Global Seaborne Thermal Coal Expected to Remain Stable Source: Goldman Sachs 2018 equity research Source: Rodrigo Echeverri, Head of Energy Coal Analysis at Noble Group – as reported by Platts (Feb 2017) (million metric tonnes) Global Seaborne Thermal Coal Outlook (2015-2022E)(1) Commentary
Profitable ILB Netback Economics Source: Platts Coal Trader International, Internal Company Estimates Netback calculation example assuming $72 and $87 per metric tonne mid-February 2019 API 2 & Newcastle benchmark Ocean Freight for US Gulf/ARA Coal Panamax freight. Consists of CN rail transportation from ILB coal mines to CMT and terminal transloading costs. Ocean Freight for Australia/India Panamax Freight (~$11/mt) and US Gulf/India Panamax (~$32/mt). $2 (2) (3) (4) (3) (4) Add back to Newcastle benchmark to arrive at thermal coal FOB India (1) (1) Thermal Coal Mine Netback – Newcastle Thermal Coal Mine Netback – Rotterdam Believe ILB export thermal coal profitable into Europe at mid-February spot API2 benchmark pricing of ~$72/t Based on average ILB cash cost, netback calculation implies attractive margins CMT remains well-positioned to continue to serve existing ILB thermal coal producers shipping to Europe Commentary Believe ILB export thermal coal also profitable into Asia at mid-February spot Newcastle benchmark pricing of ~$87/t Based on average ILB cash cost, netback calculation implies attractive margins CMT is uniquely positioned as competitive logistics facility for ILB exports into Asia (vs. Newcastle exports) Commentary $11 $87 $42 $30 $72
Financial Performance and 2019 Outlook
Commentary Q4 ‘18 EPS of $0.03 and FY ‘18 EPS of $0.40 Full-year EPS comparisons primarily driven by: Favorably impacted by operating performance ($0.32/share) and lack of debt refinancing costs ($0.17/share) Unfavorably impacted by revaluation of deferred tax items ($1.91/share) and higher depreciation ($0.13/share) Q4 ‘18 Consol. Adj. EBITDA(1) of $65.9M Continued strong performance at Indiana Harbor No deferred revenue recognized in Q4 ‘18 versus $16.4M in Q4 ‘17 FY ‘18 Consolidated Adj. EBITDA(1) of $263.2M up $28.5M, or 12.1% vs. FY ’17; exceeding 2018 guidance Coke operations up $19.2M Logistics increased $1.8M $7.5M of lower Corporate and Other costs Q4 & FY 2018 Financial Performance See appendix for a definition and reconciliation of Adjusted EBITDA. Reflects inbound tons handled during the period Coke Adjusted EBITDA includes Domestic Coke and Brazil Coke ($/share) ($ in millions) Earnings per Share (diluted) Consolidated Adj. EBITDA(1) ($ in millions, except volumes) Qtr4 2017 Qtr4 2018 FY 2017 FY 2018 Domestic Coke Sales Volumes 977 1,040 3,851 4,033 Logistics Volumes(2) 5,590 6,861 21,616 26,605 Coke Adj. EBITDA(1)(3) $44.3 $56.0 $ 207.1 $ 226.3 Logistics Adj. EBITDA (incl. CMT)(1) $35.1 $18.3 $ 70.8 $72.6 Corporate and Other Adj. EBITDA(1) $(9.9) $(8.4) $(43.2) $(35.7) Adjusted EBITDA (Consolidated)(1) $69.5 $65.9 $234.7 $263.2 Operating Cash Flow $20.2 $15.2 $148.5 $185.8 Q4 and FY 2018 Earnings Overview $2.05 $1.88 $0.03 $0.40 $69.5 $65.9
Expected 2019 Adjusted EBITDA See appendix for a definition and reconciliation of Adjusted EBITDA. Corporate and Other segment includes the results of our former coal mining business. Does not reflect the benefit from the Simplification Transaction. Adj. EBITDA (Consolidated) Adj. EBITDA (Consolidated) $9 – $15 ~($2) $0 – $2 ($3) – ($5) $265 – $275 (1)(3) (2) (1) (1) Improved performance at Granite City Increased production from rebuilt ovens at Indiana Harbor Higher employee-related costs ($ in millions) Expect 2019 Consolidated Adjusted EBITDA(1) of $265M – $275M, due to anticipated improved performance at Granite City and Indiana Harbor
2019 Guidance Summary Reflects 2019 guidance if the merger of SXC and SXCP was completed on July 1, 2019. The pro-forma amounts exclude one-time transaction costs of ~$5M that will be expensed. See appendix for a definition and reconciliation of Adjusted EBITDA and a definition of Adj. EBITDA/ton. Capital expenditures exclude the impact of capitalized interest. Operating cash flow lower by $4M due to one-time transactions costs of ~$5M, offset by $1M of corporate cost synergies. Included in Operating Cash Flow. See “Reconciliation to Illustrate SXC FCF/share” slide in the appendix for tax synergies offset by higher cash taxes resulting from higher taxable income. Metric 2018 Results 2019 Guidance Pro-forma Guidance(1) Adjusted EBITDA(2)(3) Consolidated Attrib. to SXC $263.2M $181.2M $265M – $275M $182M – $188M $266M - $276M $226M - $232M Total Capital Expenditures(4) IHO Oven Rebuilds GCO Gas Sharing $97.1M $33.6M $24.7M $110M - $120M $40 - $48M ~$6M No change Domestic Coke Production 4.03 Mt ~4.1 Mt No change Dom. Coke Adj. EBITDA/ton(3) $52 / ton $53 – $55 / ton No change Operating Cash Flow $185.8M $180M – $195M $176M - $191M(5) Cash Taxes(6) $7.8M $4M – $8M No change(7) Expect 2019 Adjusted EBITDA(1) of $265M to $275M; 24% increase in Adjusted EBITDA since 2016
Growing market share in the North American coke market Disciplined expansion and optimization of logistics assets Developing additional business lines within the domestic steel/carbon markets Leveraging technology to expand in select global markets 2019 Strategic Growth Priorities Logistics Continue build-out of Convent Marine Terminal capability and diversify customer base Dry bulk Liquids Pursue complementary portfolio M&A Steel Adjacencies Pursue opportunity set within domestic market Steel mill services Other steel inputs International Coke Licensing Ramp up marketing and engineering capability to pursue “Brazil-model” in select markets Western Europe South America Asia
Balanced Capital Allocation Priorities Expect to establish $0.06 quarterly dividend; $0.24 annually Initiate Dividend Accelerate delevering efforts to reach 3.0x gross Debt / EBITDA Reduce Debt Flexibility to return capital to shareholders through opportunistic share repurchases Return Excess Capital to Shareholders Pursue organic growth projects and M&A opportunities Simplified structure improves SXC’s ability to execute and fund growth Lower effective cost of capital and retained cash enable pro forma SXC to be more competitive for third-party M&A and organic growth projects Invest In Growth Projects
Compelling Value Creation Opportunity Advantaged Assets with Leading Market Positions Attractive Industry Dynamics Steady Cash Flow Generation Balanced Capital Allocation Strategy Well Positioned for to Drive Long-Term Value for SunCoke Stakeholders
Appendix
Legal and Capital Structure Overview Note: Market Cap. and TEV data as of 2/15/2018 and Liquidity data as of 12/31/2018 DTE Energy owns a 14.8% non-controlling interest in Indiana Harbor Legend Domestic Cokemaking International Logistics (Domestic) 98% Market Cap: $662M TEV: $1,506M Total Liquidity: $191M SXC Owns: 2% GP interest 60% LP Interest 100% IDRs 98% 85%(1) 100% Kanawha River Terminal Lake Terminal Convent Marine Terminal Indiana Harbor Jewell Coke Middletown Haverhill Granite City Brazil Coke (Licensing and Operating) 98% 2% 2% 2% Market Cap: $639M Unconsolidated TEV: $574M Unconsolidated Liquidity: $209M 100% 100% 100%
Cokemaking Process C.A C.A Generator Grid Condenser Cooling Tower Steam Hot Flue Gas Blended Coal Coal Storage Piles Blended & Crushed Coal Coke Ovens Coke Emergency Vent Stack Dome C.A Wet Quench Screening & Crushing Heat Recovery Steam Generators Flue Gas Desulfurization System Fan Main Stack Feed Water Heaters, Pumps, Deaerators Cooled Flue Gas Customer Blast Furnace Coke Loadout C.A Turbine Heat Recovery Cokemaking Process
Reconciliation to Illustrate SXC FCF/Share Based on mid-point of 2019E SXC Consolidated Adjusted EBITDA guidance Based on mid-point of 2019E Adjusted EBITDA attributable to SXCP guidance Anticipated 2019 interest payments associated with SXC term loan Based on mid-point of 2019E SXC cash tax guidance Based on 2019E guidance. Ongoing capex excludes gas sharing and growth related capital expenditures Adjustment for non-cash stock compensation expense based on 2018 actuals Assumes full-year cash flow based on current SXCP quarterly distribution rate of $0.40/LP unit, or ~$1.60 annualized Reflects low-end of 2019E IHO oven rebuild opex and capex guidance Anticipated 2019 SXC and SXCP consolidated cash interest Reflects benefit from a reduction in remedial income and step-up in basis from transaction Incremental cash taxes due to higher income which was previously allocated to SXCP public unitholders ($ in millions, except per share amounts) Status Quo Net cash provided by Operating Activities $ 188 Depreciation and amortization expense (148) Changes in working capital and other 8 Net Income $ 48 Depreciation and amortization expense 148 Interest expense, net 65 Income tax expense 10 Adjusted EBITDA (Consolidated)(1) $ 270 Adjusted EBITDA attributable to SXCP(2) (220) SXC standalone Adjusted EBITDA $ 50 SXC cash interest(3) (3) SXC cash taxes(4) (6) SXC ongoing capex(5) (57) Adjustment for non-cash items(6) 3 Distributions from SXCP(7) 47 Free cash flow (FCF) $ 34 Nonrecurring IHO refurbishment capital and opex(8) 50 Adjusted FCF $ 84 SXC WA shares outstanding (millions) 64.7 Adjusted FCF/Share -- Status Quo $ 1.30 ($ in millions, except per share amounts) Pro Forma Net cash provided by Operating Activities $ 188 Depreciation and amoritization expense (148) Changes in working capital and other 8 Net Income $ 48 Depreciation and amoritization expense 148 Interest expense, net 65 Income tax expense 10 Adjusted EBITDA (Consolidated) - Status Quo(1) $ 270 Cost synergies 2 Adjusted EBITDA (Consolidated) - Pro Forma $ 272 Consolidated cash interest(9) (63) Tax synergies(10) 8 Consolidated cash taxes, excluding tax synergies(11) (14) Consolidated ongoing capex(5) (109) Adjustment for non-cash items(6) 3 Free cash flow (FCF) $ 97 Nonrecurring IHO refurbishment capital and opex(8) 50 Adjusted FCF $ 147 Pro-Forma SXC WA shares outstanding (millions) 89.5 Adjusted FCF/Share -- Pro Forma $ 1.65 +27%
Adjusted EBITDA – FY ‘17 to FY ‘18 See appendix for a definition and reconciliation of Adjusted EBITDA. Corporate and Other includes the activity from our legacy coal mining business, which incurred expenses of $9.8 million and $10.5 million during the year ended December 31, 2018 and 2017, respectively. (2) $4.5M – Lower employee-related costs $2.5M – Lower corporate legal expenses Higher CMT throughput volumes, partially offset high water costs and increased O&M $21.7M – 16% increase in volumes and higher yield from rebuilt ovens $10.8M – Benefit from increased O&M recovery $1.0M – Favorable yield ($8.4M) – Increased scope of outages ($6.5M at Granite City) ($2.6M) – Pusher Charger Machine Fire at Granite City ($2.6M) – Higher O&M ($1.8) – Unfavorable coal cost recovery at Jewell $33.7 $234.7 $263.2 (1) (1) ($ in millions) FY 2018 Adj. EBITDA(1) up $28.5M, or 12.1%, vs. FY 2017 driven by strong improvement at Indiana Harbor and lower Corporate costs
Commentary Anticipate a $9M to $15M increase in Domestic Coke Adj. EBITDA in 2019 due to: Increased production, higher energy revenue and lower operating and maintenance costs Improved yield benefit from higher coal pricing Expect increased production of ~85K tons in 2019 primarily due to improved oven performance from rebuilt ovens at Indiana Harbor 2019 Domestic Coke Business Outlook See appendix for a definition and reconciliation of Adjusted EBITDA and a definition of Adj. EBITDA/ton. $217M – $223M $M Kt Kt $M ~4,100Kt $49/ton $52/ton $53 - $55/ton Adj. EBITDA/Ton(1) Domestic Coke Production Domestic Coke Performance (Coke Production, Kt) Expect Strong Domestic Coke operations in 2019; Domestic Coke Adj. EBITDA(1) expected to be $217M – $223M (1)
Commentary 2019 Logistics Business Outlook See appendix for a definition and reconciliation of Adjusted EBITDA. M M $73M – $75M ~ (1) Logistics Performance Expect strong Logistics performance in 2019 Anticipate CMT will handle ~10.5Mt for our coal export customers and ~1.0Mt business (e.g., aggregates, pet. coke, liquids) Expect 2019 KRT volumes to be in line with 2018 Continuing active pursuit of new business opportunities across fleet Focused on opportunities to further diversify customer and product mix (Tons Handled, Kt) ~ ~14,250 Expect tons handled in 2019 to be in line with 2018; Logistics Adjusted EBITDA(1) guidance of $73M – $75M
2019 CapEx Overview At the midpoint of the range 2019 ongoing CapEX includes approximately $104M in ongoing Coke CapEx and $5M ongoing Logistics. Expect the gas sharing project to be completed in Q2 2019. Excludes ~$4M of cash payments expected to be made in 2019 for work performed in 2018. 2019 Capex Overciew ($ in millions) Low High Ongoing $64 $66 IHO Oven Rebuilds 40 48 Total Ongoing CapEx(1) $104 $114 Environmental Project (Gas Sharing)(2)(3) 6 6 Total CapEx $110 $120 2019 projects include final phase of IHO oven rebuild initiative and completion of Granite City gas sharing project
Definitions Adjusted EBITDA represents earnings before interest, loss (gain) on extinguishment of debt, taxes, depreciation and amortization (“EBITDA”), adjusted for impairments, coal rationalization costs, changes to our contingent consideration liability related to our acquisition of CMT and the expiration of certain acquired contractual obligations. EBITDA and Adjusted EBITDA do not represent and should not be considered alternatives to net income or operating income under GAAP and may not be comparable to other similarly titled measures in other businesses. Management believes Adjusted EBITDA is an important measure of the operating performance and liquidity of the Company's net assets and its ability to incur and service debt, fund capital expenditures and make distributions. Adjusted EBITDA provides useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on GAAP measures and because it eliminates items that have less bearing on our operating performance and liquidity. EBITDA and Adjusted EBITDA are not measures calculated in accordance with GAAP, and they should not be considered a substitute for net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP. EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA attributable to SXC/SXCP represents Adjusted EBITDA less Adjusted EBITDA attributable to noncontrolling interests. Adjusted EBITDA/Ton represents Adjusted EBITDA divided by tons sold/handled.
($ in millions) Q1 '17 Q2 '17 Q3 '17 Q4 '17 FY '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 FY '18 Net cash provided by operating activities $ 29.5 $ 24.9 $ 73.9 $ 20.2 $ 148.5 $ 57.3 $ 28.0 $ 85.3 $ 15.2 $ 185.8 Depreciation and amortization expense 33.3 33.3 30.6 31.0 128.2 32.9 32.0 35.4 41.3 141.6 Loss on extinguishment of debt(1) 0.1 20.2 0.1 - 20.4 0.3 - - - 0.3 Loss on divestiture of business and asset impairment(2) - - - - - - - - Loss from equity method investment(2) - - - - - - 5.4 - - 5.4 Deferred income tax (benefit)/expense 65.8 14.0 (9.4) (157.6) (87.2) 0.2 0.1 (4.3) 0.5 (3.5) Changes in working capital and other (12.0) (11.1) 33.8 (27.1) (16.4) 10.9 (20.9) 37.1 (32.1) (5.0) Net Income (loss) $ (57.7) $ (31.5) $ 18.8 $ 173.9 $ 103.5 $ 13.0 $ 11.4 $ 17.1 $ 5.5 $ 47.0 Depreciation and amortization expense 33.3 33.3 30.6 31.0 128.2 32.9 32.0 35.4 41.3 141.6 Loss on extinguishment of debt(1) 0.1 20.2 0.1 - 20.4 0.3 - - - 0.3 Loss on divestiture of business and asset impairment(2) - - - - - - - - Interest expense, net(3) 13.7 15.2 16.1 15.6 60.6 15.8 15.7 15.4 14.5 61.4 Income tax expense / (benefit) 66.2 4.7 (1.5) (151.0) (81.6) 2.0 2.2 (2.4) 2.8 4.6 Loss from equity method investment(2) - - - - - - 5.4 - - 5.4 Contingent consideration adjustments - 0.3 (2.0) - (1.7) - 0.6 0.5 1.4 2.5 Expiration of land deposits and write-off of costs related to - potential new cokemaking facility(4) - 5.3 - - 5.3 - - - - - Non-cash reversal of acquired contractual obligation(5) - - - - - - - - Transaction costs(5) - - - - - - - - 0.4 0.4 Coal rationalization costs(6) - - - - - - - - - - Adjusted EBITDA $ 55.6 $ 47.5 $ 62.1 $ 69.5 $ 234.7 $ 64.0 $ 67.3 $ 66.0 $ 65.9 $ 263.2 Adjusted EBITDA attributable to noncontrolling interest(6) (21.6) (17.5) (21.9) (25.4) (86.4) (19.0) (21.6) (21.0) (20.4) (82.0) Adjusted EBITDA attributable to SXC $ 34.0 $ 30.0 $ 40.2 $ 44.1 $ 148.3 $ 45.0 $ 45.7 $ 45.0 $ 45.5 $ 181.2 Adjusted EBITDA Reconciliation The loss on extinguishment of debt was recorded in connection with the debt refinancing activities. In June 2018, the Company recorded a loss in connection with the disposal of our interest in VISA SunCoke Limited. In conjunction with the adoption of ASU 2017-07, the expense associate with the postretirement benefit plans was excluded from operating income and recorded in interest expense, net on the Consolidated Statements of Operations during the periods presented. Amounts in prior periods were immaterial, and therefore, were not reclassified in the reconciliation of Adjusted EBITDA to net income and net cash provided by operating activities. Write-off of previously capitalized engineering and land deposit costs. Represents costs incurred in connection with the Simplification. Reflects non-controlling interests in Indiana Harbor and the portion of the Partnership owned by public unitholders.
Adjusted EBITDA and Adjusted EBITDA per ton Reconciliation of Segment Q4 2017 Adjusted EBITDA includes $16.4M recognition of previously deferred revenue related to take-or-pay shortfalls throughout 2017. Corporate and Other includes the results of our legacy coal mining business. Reconciliation of Segment Adjusted EBITDA and Adjusted EBITDA per Ton ($ in millions, except per ton data) Domestic Coke Brazil Coke Logistics(1) Corporate and Other(2) Consolidated FY 2018 Adjusted EBITDA $207.9 $18.4 $72.6 ($35.7) $263.2 Sales Volume (thousands of tons) 4,033 1,768 26,605 Adjusted EBITDA per Ton $51.55 $10.41 $2.73 Q4 2018 Adjusted EBITDA $51.6 $4.4 $18.3 ($8.4) $65.9 Sales Volume (thousands of tons) 1,040 442 6,861 Adjusted EBITDA per Ton $49.62 $9.95 $2.67 Q3 2018 Adjusted EBITDA $49.1 $4.5 $21.0 ($8.6) $66.0 Sales Volume (thousands of tons) 1,012 454 6,943 Adjusted EBITDA per Ton $48.52 $9.91 $3.02 Q2 2018 Adjusted EBITDA $52.9 $4.8 $19.7 ($10.1) $67.3 Sales Volume (thousands of tons) 1,007 431 6,980 Adjusted EBITDA per Ton $52.53 $11.14 $2.82 Q1 2018 Adjusted EBITDA $54.3 $4.7 $13.6 ($8.6) $64.0 Sales Volume (thousands of tons) 974 441 5,821 Adjusted EBITDA per Ton $55.75 $10.66 $2.34 FY 2017 Adjusted EBITDA $188.9 $18.2 $70.8 ($43.2) $234.7 Sales Volume (thousands of tons) 3,851 1,761 21,616 Adjusted EBITDA per Ton $49.05 $10.34 $3.28 Q4 2017 Adjusted EBITDA $39.6 $4.7 $35.1 ($9.9) $69.5 Sales Volume (thousands of tons) 977 445 5,590 Adjusted EBITDA per Ton $40.53 $10.57 $6.28
($ in millions) 2019E Low 2019E High Net cash provided by Operating activities $180 $195 Depreciation and amortization expense (150) (145) Changes in working capital and other 14 1 Net Income $44 $51 Depreciation and amortization expense 150 145 Interest expense, net 65 65 Income tax expense 6 14 Adjusted EBITDA (Consolidated) $265 $275 Adjusted EBITDA attributable to noncontrolling interests(1) (83) (87) Adjusted EBITDA attributable to SXC $182 $188 2019E Guidance Reconciliation Reflects non-controlling interest in Indiana Harbor and the portion of the Partnership owned by public unitholders.
Balance Sheet & Debt Metrics As of 12/31/2018 ($ in millions) SXC Consolidated Attributable to SXCP Balance Attributable to SXC Cash $ 146 $ 13 $ 133 Available Revolver Capacity 254 178 76 Total Liquidity $ 400 $ 191 $ 209 Gross Debt (Long and Short-term) $ 859 $ 815 $ 44 Net Debt (Total Debt less Cash) $ 713 $ 802 $ (89) FY 2018 Adj. EBITDA $ 263 $ 209 $ 181 Gross Debt / FY 2018 Adj. EBITDA 3.26x 3.89x 0.24x Net Debt / FY 2018 Adj. EBITDA 2.71x 3.83x 0.00x As of 12/31/2018 ($ in millions) SXC & SXCP Debt Maturities Schedule 2019 2020 2021 2022 2023 2024 2025 Consolidated Total SXCP Revolver - - - 105.0 - - - 105.0 SXCP Sr. Notes - - - - - - 700.0 700.0 SXCP Sale Leaseback 2.8 7.3 - - - - - 10.1 SXC Term Loan 1.1 3.4 3.4 36.0 - - - 43.9 Total $ 3.9 $ 10.7 $ 3.4 $ 141.0 $ - $ - $ 700.0 $ 859.0
