Steel Dynamics Differentiated 7
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STEEL DYNAMICS STEEL 2019 ANNUAL REPORT ANNUAL 2019 Safety Culture Customer Commitment Growth Innovation Financial Strength 2019 ANNUAL REPORT CONTENTS A Letter From Our CEO 2 Steel Dynamics Differentiated 7 A Letter From Our CFO 8 New Southwest-Sinton Flat Roll Division 11 Sustainability 13 Selected Financial Data 17 1 ON BEHALF OF EVERYONE AT STEEL DYNAMICS A LETTER FROM MARK D. MILLETT ADJUSTED OPERATING INCOME Co-Founder, President and CEO On behalf of everyone at 2019 $987 Steel Dynamics, I thank our loyal customers, vendors, 2018 communities and shareholders $1,738 for their continued support of our 2017 company. My heartfelt thanks to $1,067 our Steel Dynamics colleagues for 2016 your passion and extraordinary $861 dedication to excellence. While 2015 2019 represented a period of $398 industry-wide market challenges, Millions of Dollars we achieved numerous milestones and performed at the top of our industry. EBITDA of $1.3 billion. With near record 2019 cash flow generation of $1.4 billion, we achieved record We have a firm foundation liquidity of $2.8 billion, while at the same time growing our $ 671M for our continued long-term, business through both organic 2019 Net Income and transactional investments, strategic growth and maintaining a positive cash dividend profile, and executing on value creation. our share repurchase program. In recognition of our growth, The team delivered a strong strong balance sheet profile 2019 operational and financial and consistent free cash flow performance, achieving our third- generation capability, we also best annual earnings performance achieved an investment grade and numerous operational credit rating designation from records, including record annual three credit rating agencies. We steel and steel fabrication have a firm foundation for our shipments. We achieved operating continued long-term, strategic income of $987 million with growth and value creation. 2 2019 ANNUAL REPORT OPERATING PLATFORMS We achieved best-in-class industry performance for a number of key measures, including operating margin, EBITDA margin, pre-tax return on invested capital, and for our steel operations, operating income per steel ton shipped. Our entrepreneurial culture is at the core of our success and is driven by our extensive performance-based incentive compensation philosophy. Whether driving toward industry-leading safety performance, implementing innovative technology or ensuring we consistently exceed customer expectations, we vigorously pursue excellence in all we do, and it is reflected in the esprit de corps that permeates our company. SAFETY IS OUR #1 PRIORITY EBITDA1 MARGIN The safety of each individual is our number one value and Best-In-Class Industry Performance first priority. Nothing surpasses 17% the importance of creating 15% 14% and maintaining a safe work 12% environment. Safety is an integral part of our culture, and 8% collectively, we must ensure every person is engaged in sustaining a safe environment. We must be continuously aware of our surroundings and our team members around us. I challenge 2015 2016 2017 2018 2019 all of us to remain focused, and to keep moving toward our goal of zero injuries. g Peer 1 g Peer 3 g Steel Dynamics g Peer 2 g Peer 4 1 EBITDA is calculated as earnings before interest, taxes, depreciation and amortization (excludes non-cash asset impairments). Peers include: Nucor, AK Steel, US Steel and Commercial Metals Company (CMC). Source: Respective SEC filings. CMC data for annual periods ended November 30. 3 STEEL STEEL FABRICATION of low-cost, high-quality raw materials, internally supplying 3.1 Our steel operations achieved record annual 2019 Our steel fabrication operations million tons of ferrous material steel shipments of 10.8 million tons. Our steel delivered an outstanding during 2019. The continued processing locations and fabrication platform performance. The team achieved focus on efficiency gains yielded consumed over 1.4 million tons of steel produced record annual shipments and positive results, although earnings internally in 2019. This represented 13% of our earnings. Operating income was declined during the year as 2019 steel shipments, supporting our steel mills by a record $119 million compared ferrous scrap prices declined in providing a powerful utilization lever. This strategic to $62 million in 2018. The team eight of the twelve months during growth in internal manufacturing operations that use maintained a strong market 2019. This resulted in operating our steel as a raw material increases our through- position through superior income for our metals recycling cycle utilization and cash flow generation. customer service, our national operations of $16 million in 2019, geographic service capability and Even though 2019 was one of our best years—it was compared to $76 million in 2018. a highly engineered diversified challenged by high customer steel inventories, as product mix. many customers purchased beyond normal demand levels in 2018. Domestic steel demand remained METALS RECYCLING steady in 2019, but as customers began to destock Our metals recycling platform inventories, steel prices declined throughout the performed well during a very year, and firmed in the fourth quarter, as destocking challenging market environment. subsided and inventory levels were right-sized. As a They continued to collaborate result, operating income from our steel operations synergistically with our steel mills was $1.0 billion in 2019, compared to a record $1.8 to ensure the uninterupted supply billion in 2018. 2019 STEEL OPERATIONS END MARKETS 644K TONS OF g Construction-Related 43% FABRICATED STEEL Record 2019 g Other Manufacturing 18% Steel Fabrication g Automotive 12% Shipments 10.8M g Transportation & Rail 8% Tons of Steel Record 2019 Steel g Energy 7% Shipments g Non-Energy Pipe & Tube 6% g Ag, Equipment & Mining 6% 4 2019 ANNUAL REPORT KEY STRATEGIC GROWTH INITIATIVES We continue to position our company for future sustainable value creation through optimization of existing operations and differentiated high-return growth investments. > Over the last several years, our Columbus Flat Roll Division has transformed its product offering and sustainable earnings capability through the addition of new high-margin product capabilities. The shift of products to these diversified, value-added outlets has reduced the amount of volume available to our existing galvanized steel customers. To address this supply need, we are building a third galvanizing line at Columbus. The $140 million 400,000-ton galvanizing line is expected to begin operations mid-2020. While satisfying our customer demand and further increasing our product offerings, the product realignment will decrease Columbus’ hot roll coil exposure —allowing for an existing customer base in the region to provide a good baseload for our new Southwest-Sinton Flat Roll Division. > We are excited about the The team began site work in the even more effectively with material growth and long-term second half of 2019 and received the integrated steel model and value creation that our $1.9 the required environmental foreign competition. billion Texas flat roll steel mill permits earlier this year to allow will provide. Our new mill will We believe our unique operating for full construction efforts to have an estimated 3.0 million culture, coupled with our begin. Operations are expected tons of annual steel production considerable experience in to begin mid-2021. By leveraging capacity, including value-added successfully constructing and our expertise, we are building coating lines comprised of a operating cost-effective and highly a next-generation electric arc galvanizing line with annual profitable steel mills and coating furnace (EAF) flat roll steel mill coating capacity of 550,000 tons, lines, positions us well to execute with production capabilities with Galvalume® capability, and this strategic initiative and beyond existing EAF flat roll a paint line with annual coating continue to grow our sustainable steel producers, competing capacity of 250,000 tons. business model. 5 IGNITING OUR FUTURE We believe North American steel consumption will experience some growth in 2020 and will be supported by continued steel import reduction and the end of steel inventory destocking. In combination with our strategic growth initiatives, we believe there are firm drivers for our continued The passion of our teams success in 2020. We are excited about our Texas flat roll steel mill, and the associated long-term value compels us to the highest creation it will bring through geographic and value- standard of excellence. added product diversification. Our differentiated business model, performance- driven culture, and the execution of our long-term The passion of our teams compels us to the highest strategy continues to strengthen our financial standard of excellence. I thank each of them for position through consistent strong cash flow their dedication and remind them safety is always generation and long-term value creation— our first priority. We look forward to creating new differentiating us from our competition and opportunities for us all in the years ahead. demonstrating our sustainability. Sincerely, We are squarely focused on returning value to our colleagues, communities, customers and shareholders through organic and transactional growth initiatives, while also maintaining a positive dividend growth MARK D. MILLETT profile and continuing to execute our share Co-Founder, President and Chief Executive