Harsco Corp. HSC Analysts Conference Dec. 9, 2011cm.harsco.com/Uploads/Files/HSC-Dec_9_2011.pdfHarsco Corp. HSC Analysts Conference Dec. 9, 2011 ... Before we start our formal presentation

Harsco Corp. HSC Analysts Conference Dec. 9, 2011Company▲ Ticker▲ Event Type▲ Date▲

www.CallStreet.com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lStreet

1

PARTICIPANTS

Corporate Participants

Eugene M. Truett – Vice President-Investor Relations and Credit Salvatore D. Fazzolari – Chairman, President and Chief Executive Officer Ivor J. Harrington – Executive Vice President and Chief Executive Officer, Harsco Infrastructure group Galdino Claro – Executive Vice President and Chief Executive Officer, Harsco Metals and Harsco Minerals groups Scott W. Jacoby – Vice President and Group President, Harsco Rail group Scott H. Gerson – Vice President & Group President-Industrials Stephen J. Schnoor – Senior Vice President, Chief Financial Officer, Treasurer and Chief Accounting Officer

Other Participants

Jeffrey D. Hammond – Analyst, KeyBanc Capital Markets James C. Lucas – Analyst, Janney Montgomery Scott LLC Steve Mark Wilson – Analyst, Lapides Asset Management LLC Charles Stedman Garland – Analyst, Hamlin Capital Management LLC R. Scott Graham – Analyst, Jefferies & Co., Inc. Scott B. Blumenthal – Analyst, Emerald Research MANAGEMENT DISCUSSION SECTION

Eugene M. Truett, Vice President-Investor Relations and Credit

Okay. Let’s get started then. I’d like to welcome everyone to our annual Analyst Day for Harsco Corporation. I’d also like to welcome our webcast participants this morning. For those of you who may not know me, my name is Gene Truett – I’d have to read that from the script, so I could do that – and I’m Harsco’s Vice President, Investor Relations and Credit. Before we start our formal presentation today, I would like to read a summary of our Safe Harbor statement. Our discussions with you today, including our response to your questions, are likely to contain forward-looking statements. These statements relate to future operations, results, expectations and other aspects of our business. Our statements are based on current information, expectations and beliefs. While our statements are based on the best information currently available, future results could differ materially from the statements made to you today. Possible reasons for any difference between our statements today and actual results could be the result of certain risk factors and uncertainties, which we have listed and discussed in our various filings with the Securities and Exchange Commission. We invite you to review these at your convenience. A more comprehensive Safe Harbor statement is on Page 1 of your program booklet. Also, this conference presentation and accompanying webcast on behalf of Harsco are subject to copyright by Harsco and all rights are reserved. Harsco Corporation will be recording this conference. No other recordings or distributions of this conference by any other party are permitted without the express written consent of Harsco. Your participation is indicated in your agreement. I’d like to finally remind you that replays of this conference and other related information are available at the Harsco Web site www.harsco.com. And probably the latter part of next week, I would hope to have a written transcript of the program on our Web site as well.



2

Harsco Corporation continues to operate in four primary business segments: Harsco Metals and Minerals, Harsco Infrastructure, Harsco Rail and Harsco Industrial. Each has a leading position in its end markets. Further, each has an expanding global presence, especially in key developing and emerging economies, as will be discussed further today by our senior management team. For those of us – for those of you – excuse me – with us today that may be a bit newer to Harsco, please let me know if you have further questions. Just give me a call, drop me an e-mail, and I’ll certainly do my best to further inform you about Harsco, its strategies, its businesses and just general outlook. Before beginning our management presentations, I would ask that you hold your questions, as we do for all conferences, until the formal question-and-answer session at the end of the program. There will be ample time at the end to address any questions you may have. I would now like to introduce Sal Fazzolari, Chairman, President and CEO of Harsco. Sal will share with you his outlook for the next several years and initiatives he and the senior management team of Harsco have implemented that have returned the company to earnings growth in 2011 and will allow us to keep growing in 2012 and beyond. Sal?

Salvatore D. Fazzolari, Chairman, President and Chief Executive Officer

Thanks, Gene. Good morning, everyone. Welcome, both to the people in the room here, as well as the webcast audience. It’s certainly a pleasure to be here with you today. Since we do have quite a bit of information to go over with you today, obviously, we want to get moving immediately. So, without further ado, let’s get started with our program here. I do want to start my presentation this morning, though, showing you Harsco’s core values and core purpose. In fact, at Harsco, each presenter, whenever we meet with customers, employees, partners, board members, whomever, we always start off with this slide. And what we also do is we give an anecdotal story about our experience with the core ideology or the core purpose. So I’d like to share one story with you here this morning. In one of the key technology agreements that we signed this year – in fact, that Galdino will talk about later – we were chosen by the owner of this technology over many blue chip names that you would recognize as the preferred partner to basically scale and globalize this technology because they were very impressed by our core values and our core purpose. So we believe that’s very powerful testament to this – to our core ideology. What I’d like to do is give you a report card first today on some of the objectives that I laid out for you when I was here in front of you last year. And I believe if you look at this, there was some measurable progress made this year that does better position the company for improved performance in the future. So let’s look at Item 1 on the list here. The Infrastructure business, as we indicated last year, we wanted to stabilize it. We believe we did stabilize the business. We did show $21 million year-over-year improvement through the nine months. Unfortunately, as we indicated even in our third quarter release, some of these benefits are clearly being eroded, due to the significant headwinds of the UK market and Europe in general. Thus, in order – and you will hear me use this word quite a bit today – to accelerate the path – accelerate the path to breakeven and, ultimately, to profitability of this business, we have taken a strategic decision in this quarter to implement further substantial cost reduction actions in our Infrastructure business, particularly in regard to equipment and particularly in regard to Europe. Ivor will get into this in great detail later when he gets in front of you.



3

On Item 2, we expect the other three businesses to continue to perform relatively well in 2011. In fact, the Industrial segment will show strong year-over-year improvement in operating income. Metals and Minerals this year is expected to post operating results that approximate or are comparable to last year, and that’s due principally due to one thing. That is the significant slowdown in stainless steel production, which has greatly negatively impacted our Minerals business. And, again, Galdino will share this with you later. And Rail, as we discussed in I think the last two or three quarterly conference calls, is expected to have another very strong year but, obviously, will fall behind last year’s record performance. And that’s due principally to the timing of unit deliveries. Most noteworthy this year in our performance, really, is our growing backlogs and our emerging markets expansion. However, again, in order to accelerate the Metals and Minerals business path to double-digit operating margins, we are implementing substantial cost reduction actions in this business as well. And, again, Galdino will give you a little more color on this when he gets up. So, as I mentioned earlier, you’re going to hear me use the words, accelerate the path. There’re two very strategic objectives here with the restructuring actions we just announced. And that is to accelerate the path of the Infrastructure business to breakeven and then profitability, and to accelerate the path of the Minerals & Metals business to double-digit margins. And we’re determined to get those two things right. On Item 3, with the addition of Janet Hogan this year from Monsanto as our Chief Human Resource Officer, I can now say that after four years of reshaping the senior management team, that I now have all the key positions filled with the right people. And this is my team, and we are all very focused on delivering improvement in the overall results of the company, particularly the return on the invested capital, as well as improved on operating margins. With respect to Item 4 up here, we continue to realize the expected benefits from prior restructurings. However, as I indicated earlier, with Infrastructure, the economic slowdown in Europe and particularly the UK and the continued sluggishness, I may add, of the U.S. economy – and that’s evident in our Minerals business with the significant slowdown in stainless steel production – are clearly offsetting some of these benefits. With respect to Item 5, I am very pleased to report that we do expect improvement this year in revenues, earnings and EVA excluding, of course, the restructuring charge. And with respect to Item 6 and 7, we do expect to end the year with a strong balance sheet. We are, however, going to fall short of our free cash flow target that we outlined last year. And that’s due principally to the significant new growth opportunities that were presented to us in China, India and several other emerging economies. We made a strategic decision this year to pursue these opportunities by investing our higher level of free cash flow. As I mentioned – I think it was one of the conference calls – windows open and windows close. We’ve had a window open this year where we seize very significant opportunities, particularly in China and India, which is clearly a focus of ours to grow those two markets, and we took advantage of those. As such, if you look at our 2011, which has kind of been lost in all this noise of Europe and everything else, this was a record year for Harsco with respect to contract awards and strategic alliances. And we’ll, obviously, touch on this as the day progresses. So, as you can see from what I just said, 2011 is a mixed report card. That’s the reality. What has happened in 2011 was recently captured, I thought, extremely well by a report I just read from KPMG, and I quote what they said in that report. “At the end of 2010, it looked like the long awaited economic recovery was finally underway, but a series of global shocks throughout 2011 have taken the steam out of the positive momentum, casting doubt on the wider market recovery.” The KPMG report goes on to say that, “despite these challenges, diversified industrial companies are clearly



4

preparing themselves for the long haul.” I believe these statements articulate very well our position and our recent actions. I do want to spend a little bit of time on this slide because it’s important to just where we are in our journey. When we started our business model transformation exactly four years ago today, and we in front of you here, besides upgrading the global leadership team, which obviously now we have in place, as I just mentioned, we set forth on what we call an optimization, globalization and innovation strategy. I would like to review with you just where we stand on that and how much we’ve accomplished. With respect to optimizing the company, we have already reduced the breakeven point of Harsco by about $165 million with, of course, significant additional cost reductions expected in 2012/2013 as a result of the actions we announced this morning. In addition to the cost reductions, we have developed two key and strategically important global capabilities that, frankly, did not exist at Harsco four years ago. And they are our global supply chain skills and our continuous improvement skills using Lean/Six Sigma. These initiatives are now well developed in Harsco and deployed throughout and, we believe, will generate substantial, measurable savings as we go forward. The scale of our restructuring actions is unprecedented in Harsco’s history. In fact, if you were to have said to me four years ago right in this room, December 2007, that I, as the new CEO coming in – great timing of course, right – that I would have to reduce Harsco’s cost structure by approximately $230 million by the end of 2012, five years. I would have said to you, that was impossible task. We are now, I believe, in the process of completing the impossible. Let me quote some numbers for you to summarize and capture well the scale and depth of our restructuring when it’s fully completed by the end of the next year. First, our global head count. We will have reduced our global head count by almost 5,000 people, 20% of the global workforce. Second – this is a very staggering number – our global footprint, you may recall back, in December 2007, we were in well over 450 locations throughout the world. By the end – probably by the middle of next year, I should say, we will be down to about 300 locations. That’s a 35% in our global footprint, physical locations gone. 35% of our physical locations throughout the world gone. So from well over 450 down to about 300 locations. And, third, our global asset base will be reduced by about $150 million. This is audacious. It would end – also, I may add, it would not have been possible had it not been for what we call our OneHarsco initiative that we commenced four years ago. Our OneHarsco initiative has provided the mechanisms for achieving the significant right-sizing of the business that aligns well with current market conditions or realities. These restructuring actions are designed to not only dramatically lower our cost structure in response to global market conditions, but they’re also focused on accelerating – again, that word accelerating – the Infrastructure business back to profitability and accelerating the Metals and Minerals business path to double-digit earning – double-digit operating margins, I should say. So moving on to the globalization of the business. Many of you that have followed us for a long time know that we were principally a European company, and I recognized that, obviously, very clear. Some of you that’ve known me for a long time, I’ve been screaming about our concentration in Europe for a long, long time. I was very concerned about it. And, unfortunately, my worst fears have come to reality. I tried – I started doing something about it in December of 2007. I believe our progress in globalizing the business over the last four years has been prodigious. We should end this year with almost 30% of our revenues now coming – or being generated from what we call the rest of the world/emerging markets; that is, as opposed to Western Europe and North America. This is a 50% improvement over where we were four years ago. What is most important, however, in my mind, is the progress that we have made in China and India; probably our two most



5

important emerging markets. And let me pause here a moment and tell you a little story about these two countries. Four years ago, we had zero – zero revenues in India. Given the contract wins that we have already announced about India – and we expect quite a few new ones over the next 12 months – and expect future announcements – India, by 2015, should be about a $100 million business which, I think, is very substantial, to build it for nothing. China, four years ago, was a $12 million business and, frankly, we were on the verge of losing that contract we had in our Metals business. In the last four years, we have made tremendous progress in China, I believe. And by 2015, China should be about a $150 million run rate business. So I am obviously very proud of what this team has accomplished in growing these two very key markets. And that’s just the beginning. We see tremendous opportunities in both those countries, as well as many other emerging markets as well that we’re focused on. So I can now say that we finally have a sustainable, long-term revenue and earnings stream in both China and India that we – and we can expect to continue to grow in future years. And the final strategy on innovation – again, very significant progress has been made here in the last four years. And you’ll hear some of that this morning. Four years ago, Harsco, we had no global coordinated strategy on innovation and knowledge-based solutions. And, again, I’m very pleased to report that tremendous progress has been made on the innovation front. From our Global Innovation Network to the strategic alliances involving technology, we believe we are very well positioned to take the business forward with respect to innovation. And, in fact, you will hear both Galdino and Scott Jacoby, particularly, talk about that quite a bit this morning. Looking at the geographies that I’ve just mentioned, this slide, obviously, supports what I just said; that is, in rebalancing our geographic footprint. And, as I mentioned, four years ago, Western Europe, alone, accounted for just a little bit under 50% of our revenues. Staggering. This year, it’s down to about 39%, as – and will continue to shift away from Europe and more to the rest of the world. North America has been holding fairly steady at about 32%, and we kind of like it right there because North America’s a very important market for us in all of our businesses. It’s really Europe is the problem. Just as important as the consolidated view or geographic balance of Harsco, as you can see, also, if you go across each one of the businesses, we’ve made tremendous progress in globalizing each business. Four years ago, Rail was essentially a North American business. Industrial was 100% North American. Infrastructure was essentially a European business. Our Metals and Minerals business was really the only global business out of the four. And, as you can see, in four years, we’ve managed to globalize all four of the segments. But it’s all about earnings, isn’t it? And this is an updated slide of what I showed you last year. In substance, our overall target for 2015 of a range of $3 to $4 in earnings per share is unchanged. However, the roadmap on how we get there has changed, due to significant turbulence in the European markets and, also, given what I mentioned earlier, the sluggishness we’re seeing in North America and some other developed economies as well. So let’s briefly look at this chart in more detail. And, as you can see, our estimated range of EPS contribution for each of the major categories provides the opportunity for consistent, double-digit earnings growth in the next four years. And, again, this is unchanged from what we said last year. The restructuring benefits and the chart are self-explanatory, as are the organic growth initiatives, and will be discussed further by the team here today. And, obviously, I’m sure it’ll come up in the Q&A as well.



6

I do, however – I do want to just expand a little bit and comment on the OneHarsco initiative. Over the past years – the past four years, as I’ve just said earlier, we have been building key capabilities, such as global supply chain and Lean. In addition to these, though, we have established two key global shared services centers; one in India and the second in Costa Rico. We have also invested in global ERP computer systems, and we implemented global standards that you will hear all the business guys talk about today. These capabilities, again, did not exist four years ago. And these capabilities now provide us the – provide the effective mechanisms, as I call them, for us to further significantly lower our cost structure. So, in summary, when you look at the OneHarsco initiative there, it’s principally the benefits from our global supply chain, our global shared services centers and the benefits from our Lean program. So the main message here is that we are confident that we can still deliver consistent earnings growth by executing the key levers that we can clearly control and are within our control, as you can see from the chart here. The majority of the items here really meet that definition. We have factored in our EPS range some gradual improvement in our key end markets, starting in 2013 – they’re very gradual. And, of course, no improvement – we expect no improvement in any of our key markets in 2012. I think 2012’s going to be a very tough year and particularly the first half of 2012, we believe’s going to be a very tough year. Thus, we believe that we can execute our strategy and deliver consistent double-digit earnings growth in the next four years without any significant improvement in our global markets. Should we get a significant improvement, that would be a plus. Let me touch a little bit on cash because, obviously, I know there’s a lot of interest on cash. And we believe – and many of you have heard us say recently – we believe that the best metric for Harsco and Harsco’s cash flow, that is, is discretionary cash. We define discretionary cash as follows: cash from operations, plus assets sales, minus maintenance capx. We add asset sales because it is an ongoing, normal part of both of our Infrastructure businesses as well as our Metals and Minerals business. And they’re the two primary users of capx. Maintenance capx is deducted, again, because it is the normal part of our business, and it is the amount of capital that we need to sustain the current revenue stream. But when it comes to growth capx, we don’t need to spend growth capx if we choose not to. It is truly discretionary. Even without spending on growth capx, our business is still capable of growing, obviously, in an environment where markets are growing. So the message from this slide is that we can generate substantial discretionary free cash – discretionary and free cash – I should say – as we did in 2008/2009 and ‘10. But given the opportunities to grow our business, as I mentioned earlier, there are windows open right now to us, particularly in China and India. And we do not want to miss that window. And we’re going to take advantage of it. And so we are investing very selectively in these markets. I would also like to add a final comment here that our cash flows are adequate to fund the dividend, which is sacrosanct with us, but to also repurchase shares and to fund targeted growth. And speaking of dividends, I would just like to make a couple of comments here. As all of you know, Harsco has a long and rich history of paying a dividend since 1939. And this tradition will, of course, continue. As I just stated and is worth repeating, the dividend is sacrosanct. In fact, we have increased the dividend 71% since 2001, and we are currently yielding about 4%. More importantly, as the prior chart showed, our long history of strong discretionary cash flow clearly allows ample cash to continue our longstanding history of paying a dividend.



7

So we call this repositioning the business, where we are today, excluding the restructuring charge that was announced today, that will impact both 2011 and 2012 results, due to the accounting rules of when you can recognize the expense. 2012 strategic priorities are simple: improve the return on invested capital and, of course, operating margins; continue to generate sufficient cash flows; pay the dividend, repurchase shares; and selectively invest in growth initiatives. This may seem like an oversimplification, but I want to assure you that we are focused – this management team is focused on giving our shareholders their return on capital that they deserve. So the takeaway message from my comments here this morning is that we do come into 2012 with a strong balance sheet and financial flexibility to pay the dividend, repurchase shares and selectively fund future growth. We have significantly reduced our cost structure and have meaningfully and measurably lowered the breakeven point of Harsco, thus providing a strong foundation for sustainable improvement and performance. Our strategic initiatives continue to position the business well for long-term, consistent growth in earnings, margins and return on capital. We continue to execute well our emerging markets strategy, with almost 30% of our revenues now being generated for outside Western Europe and North America, with our target, by 2015, to have 35% of our revenues being generated. And we hope to beat that target before 2015. We believe that we can deliver double-digit earnings growth in 2012, again, excluding the restructuring charge. And we have positioned the company well for consistent, double-digit earnings growth in future as well. Our confidence is underpinned by the restructuring actions, the OneHarsco cost efficiency initiatives to have a laser focus on costs, our emerging markets momentum and the measurable progress we are making on the innovation front. Thank you. Now we’ll get into each of the individual presentations. And I’ll be back to summarize the program for you. Thank you.


Thanks, Sal. The first of our operating unit presentations will be given by Ivor Harrington, Executive Vice President and Group CEO of Harsco Infrastructure. As you may recall, Ivor was brought in during July of last year to lead Harsco Infrastructure out of this down cycle and return it to profitability. Just as a reminder, Ivor has over 25 years experience in the construction industry, working at various levels and multiple countries around the globe. He joined Harsco last year after 20 years with Fluor Corporation. Ivor?

Ivor J. Harrington - Executive Vice President and Group Chief Executive Officer, Harsco Infrastructure

Thanks, Gene. Morning, everybody. It’s good to be with you today. As just Gene said, I’ve been the CEO of Infrastructure now since July of 2010. Today, I’m going to provide an update. But, clearly, since the last time we met, a lot’s happened in the markets and with Infrastructure. The year has certainly passed very quickly. Our cost strategies have been changed from last year. I’m going to cover what we’ve done, but I want to focus on what we’re doing. Obviously, I’m going to talk about the restructuring and what we’re going to do in the restructuring and the plan benefits of it. We’ve had some significant events in the last 12 months relative to the markets and, obviously, the outlook continues to be mixed. We’ve made some great progress in the last 12 months and, clearly,



8

we’ve had some challenges. We strengthened our capability, we have reduced our costs and we’ve repositioned, as best we can, in the times and challenges that we’re faced with. The presentation, I thought I’d cover the accomplishments and challenges; then going into our vision for market strategy; talk about the business transformation; then talk about some of the results, what we did year over year; then get into some of the near-term challenges and some of the mitigations. Obviously, the restructuring’s been a key part of that. And then close with market sector balance, balance our transformation. So let’s talk about this first slide. This just lists some of the general things that we’ve done over the past year. Again, I’ll get into some of the details as we go through. We have been driving to reposition the business. The first bullet there highlights optimized footprint and reduced the breakeven point. That’s obviously focused on our structure and our costs. We’ve reduced our costs. We’ve added capability – this in all regions. All regions have improved year over year. The main measure, obviously, is that improvements on a regional basis year over year. But, clearly, the UK is the one area that has not improved from a country perspective but, again, Europe did, as a whole, improve year over year. Within the UK, we are making changes. We have made considerable changes I’m going to tell you about, and we got more ongoing now, and there are more in the restructuring. The third bullet is on the leadership team. Over the course of the last 12 months, we have filled all the key positions. We’ve changed out some leadership. We’ve flattened the organization We’ve added capability. The most recent changes have been in Europe. The next bullet talks about execution capability or addresses it. We have added resources to focus on execution. As an example, in Australia, we’ve added key players from the competitors to focus on industrial maintenance and how we deliver our projects. In the Middle East, we did the same with new people that, again, came from a competitor working on our industrial projects and building capability there. And then more recently, in fact, just here in this fourth quarter, we’ve done the same in the UK. And we’ve restructured that organization and get closer to operations and to get closer on the execution of the jobs and to increase our sales efforts there. The major accomplishment, as you see it there, the last bullet, it’s the one brand, the global alignment. Today, we really are more leveraged globally. We really do talk across the regions. We really do look at our equipment. We really do share successes with clients and let them move to another area. So, I mean, we really have come a long way with one brand and the global alignment. We are driving the proven solutions across the globe now, so that strategy is certainly working and certainly driving it to where we want to be. Challenges. Markets, as I mentioned, have certainly been varied over the past 12 months; certainly, not what I expected them to be. When we started last year, we had a natural disaster and now, as we end the year, we’ve got Europe. I thought we would have had stability through this year. We put that in the plan. That’s what we thought it was going to be but, clearly, we’ve got uncertainty in the UK. Clearly, we’ve got a lot of uncertainty in Europe. Clearly, there’s going to be some more uncertainty in North America, and it’s going to affect the rest of the world as well. Uncertainty is certainly now the norm, or it seems to be. The issue or the important issue today is how we deal with it. How we deal with it is very fairly clear; what actions are we going to take to improve performance? How do we mitigate the downside? And, again, I’ll get to some on that on the restructuring and some of the things that we’re doing. How are we also going to, while we’re dealing with the challenges today, reposition the business for the longer term? Because we are in this for the long haul.



9

We’ve announced a major restructuring. It’s focused on Europe. It’s also focused a lot on equipment rationalization. About half of the charge is equipment. We are removing non-core equipment that’s been underutilized. We’re reducing our exposure to Europe. Removing underperforming locations. There’s seven locations, and I’ll talk a little bit about them. We’re focusing on strengthening our position elsewhere as well. We’re removing – relocating some equipment into areas where we can capitalize on that equipment and build position. We’re taking these actions and some significant actions again to reposition the business, to reposition the business for the longer term. Manage in line with our vision and objectives. And our vision/objectives haven’t changed from a year ago. And you can see here, we want to be the safe, dependable provider of knowledge-based solutions. We want to be, in 2015, $1.4 billion. So our vision’s the same; it hasn’t changed. Our vision translates into three simple objectives, and we use this to let our team know and just kind of translate the vision into some meaningful action for the team. Let me talk about the first one, emerging markets. We continue to drive growth in the emerging markets. We continue to put our investment and equipment in the emerging markets. We continue to build capability in the emerging markets. Obviously, it’s about balancing our geographic mix. It’s about reducing our exposure to Western Europe as well and, obviously, focusing on the higher-growth markets. Getting closer to key clients is a key part of that as well. We want to focus on the larger clients. We want to get to know them better; they get to know us better. They come and ask us to help them as they go into a new country. As we talk with our team and we talk last year, we don’t need a presence in a country to do work in a country. If the project is big enough, if it’s complex enough, if the country is in the developing world, we don’t need an office there. Again, it’s the size of the project; it’s the client you’re working with; it’s what you’re going to do there. Let’s move to the second objective. Increase our capability and expand the industrial services base. Let’s talk about increase capability. Clearly, we just want to get better at what we’re doing. We want to become more efficient. We want to lower our cost. That’s a continuous kind of effort within the business. The second part is to expand our industrial services base. We want to do this, and we continue to do this to reduce the cycles, the longer jobs, the more certain, to let us build capability, to let us stay onsite with a client for a number of years and to let us position for more work. So we continue to do those projects with Shell or with Tata or with SABIC to drive the Industrial. And they obviously give us – build predictable backlogs. So that’s a key part and a key objective that’s driving our vision. Let’s move to the last objective, a variable cost base, minimizing CapEx. We need to continue to be prudent in our spending. We need to continue to focus on equipment that is compatible, equipment that we can use, we can integrate with other products, that we can move around the world. So, obviously, we need to get greater leverage out of our equipment. And, obviously, we’re always looking to see how we can keep up variables. So alliances with key providers, alliances, companies that don’t have the design capability or the erection capability; alliances with companies that don’t have the footprint that we have but have the equipment that we can take and use elsewhere, and we can both benefit from it. So very reliable cost base. These three objectives clearly drive to our vision and will clearly reduce our exposure and continue to reduce our exposure. Will drive improvement and will position us – or continue to position us for the longer term. So when you talk about the vision and you talk about some of the strategic objectives, what do we expect from them? So let’s talk about the first one, controlled growth; investing for the longer term. When we went through the boom years, we spent a lot of capital on equipment that wasn’t



10

necessarily able to be integrated with the rest of our equipment globally. We may have satisfied a specific client need that didn’t fit in line with our global strategy for integrating equipment. So when the market dropped off, we had equipment that would serve a given client. And, providing that client had work, we had the work but he didn’t have the work. So we’re investing for the longer term. We’re investing in the right equipment, and we’re investing in the right locations. So controlled growth, it’s a key part of the results that’ll come from our objectives, et cetera. Diversification. We continue to drive diversification in our services and in our geographies. So we’ve been trying or we have been reducing, I should say, our exposure in Western Europe. In North America, we continue to drive in the emerging markets, and we continue to do industrial maintenance work and target industrial maintenance work. The next one is variability. And, again, we use this slide to explain to the team. Variability, that’s all about being able to drop our costs quickly when something goes down in a given country. That uncertainty, we don’t need a fixed-plus cost base that we have to hold onto when things drop down. So we’re driving a lot on this variability. Drop costs quickly when a region or a country slows because a region or a country will slow. We have plans now where we’ll at, where can we move the equipment next? And I’ll talk to it later. When Poland drops down – and it will – they’re not going to need major infrastructure investments for multiple years. We’re already planning where we move that equipment next. So that’s the kind of thing that we’re looking at in variability again for the longer term. The effective asset use; two issues here. Obviously, better returns, leveraging equipment, limit in the capx. And then the second part is working with key clients. We’ve shifted away from lots of smaller projects. When you – Sal talked about the locations – from multiple locations to, obviously, fewer locations and driving to bigger projects with key clients. So when you think about effective asset use, when we have those assets deployed with a key client that operates nationally, internationally got these global projects, he’s more dependable. Getting paid for our services is obviously a key part with working with these key clients. Getting more visibility into his backlog, into his upcoming projects, how we can help him; it helps us get better use of our assets. Dependability. We’re nothing if we can’t execute well, so we must always exceed or meet our client’s needs. And we must always deliver, and we won’t survive if we won’t deliver. There was a news release, it was in November – early November. It was a project for Shaw. It was a power plant in the U.S. The value of our services in that project – in that press release was disclosed at about $25 million. We initially went in just to look at how they could improve productivity, improve the use of the scaffolding and the services that were on the job. So it was an analysis of how we could help them. And then it grew into a $25 million job. With that expansion, we had 375 people on the job and we provided over 2,000 access areas to the job. Now, the client called, I’m just paraphrasing a little bit here, he said, Harsco, the partnership with Harsco and Shaw contributed to productivity and cost savings. Harsco’s commitment to safety added to the site culture. And then they also said, this is a project that can help us to expand to big work across the globe. So when you think of our vision, safe, dependable, knowledge based, here’s an example with a client in the U.S. where our scope goes to $25 million, where he recognizes that we provide the scaffolding, access solutions to jobs because we’ve got 375 people but you can multiply that number by six or 10 to the people that use our equipment to get to the work face, because that’s where the clients that we work for can make or break their jobs, is the productivity of their employees, or their subcontractors, not necessarily us. And they clearly recognize the value



11

that we bring. We use one of our proprietary systems to help us manage the job. They have recognize it and now, obviously, we’re working with them on different projects. That’s an example of our vision, of our objectives of what we’re trying to do to reposition this business. It’s a great lead-in as well as to upside leverage, the last bullet. Today we have a platform that’s positioned to do more. We’re working so we can leverage the equipment everywhere. We’re looking at how we can improve our sales effectiveness. We’re lowering costs. We’re positioning for significant upside. Let’s move on and talk about markets. And I only have one slide on markets. The graphs came Global Insight. It shows the overall construction outlook, the percentage change. In the bottom part, you can see the negatives for the Western Europe and North America – I mean I think Western Europe’s probably going to feed a lot of Eastern Europe as well in a lot of areas, so maybe that’s going to go down. I think the only common theme with people who forecast the markets is probably every quarter when the forecasts come out, it moves out a little bit or changes. No surprises that it highlights North America and Europe as areas of slowdown. Obviously, the forecasts are worse than they were a year ago. A year ago, the view was that the U.S. would be showing great recovery, growth would in Europe. We also had a view that North Africa would be doing better. And, as I said, a lot changed in the year. Today, obviously Europe’s still a challenge. North America is still a concern. North Africa has slowed, lots of uncertain globally. Emerging markets continue to be the higher opportunity, and our strategies and our objectives obviously focus on doing that, as they also do still on the Western world to strengthen our position, lower our costs and deal with the uncertainty. Again, while the uncertainty’s there, the actions are clear that we need to take in this market. We’ve got to lower our cost base. We’ve got to improve capability. We’ve got to build flexibility, so we can go up and go down with the issues that come and go in the markets. We’ve got to increase our sales effectiveness. Now is a time when we must increase our sales effectiveness. We’ve got to get closer to our key clients. We’ve got to really show the value that we can bring. We’ve got to really position with those key clients to support them, because things will come back and there is still work out there. There’s still large construction markets. Again, we’ve just got to be lower costs, improve capability and get closer to the clients to deal with it. That kind of like rolls into implementing our vision and objectives. Another important element is responding quickly. We’ve got to have a leadership team that can respond quickly and deal with the uncertainty that can make those tough decisions quickly to lower our cost base, to remove key people, to reallocate resources, to reallocate equipment. We have a team in place today that can do that, that is doing that. The teams have energized the lines on our objectives as well. One of the key things as well, and I move on to the next slide that talks about our strategic model, is – it’s we’ve all seen these great visions of what companies want to be and where they want to go and then everybody has a challenge with going from the vision and implementing the vision. The difficult part is the implementation. This is one of the slides that we use to make it clear to our leadership team in all of our regions what we need to do. And I want to just go through each – or some of the elements of the slide to show how we’re driving that gap between the vision and realizing and implementing our vision. So the first are – let’s just talk about the near-term, but I must admit now and 2013 seems pretty long to me, but this is just the near term is what we’re focusing on. So, growth. We need to improve performance in our current locations. We don’t need any new fixed execution platforms. We don’t need to add any of that. If we’re going to go into a new country, we need to go in it with a plan to cover our costs with a given job at the inside. To be frank, we don’t need to be building a bigger



12

footprint. Quite opposite and you’ve seen that in the restructuring. We need to reduce our footprint, get our assets reallocated to the right area and build. So maintain or improve our market share in the current markets. Western Europe and North America, still very big markets and we need to continue to focus on the key clients. Very importantly, we need to improve our operating performance. Our current operating performance in Western Europe, North America while it’s improved, it’s still not where it should be and we’ll continue to focus on improving that, so growth. Next one is control. We made it clear, obviously, that we’re going to limit capx in Western Europe and the U.S. We’re going to get better returns for the equipment that we have. We’re going to improve our cash flow. We’re going to invest in the growth areas. So, during this year, we’ve invested a lot more in Latin America or in Asia and the Middle East or Eastern Europe. So, control, a clear message. Dependability, we’ve talked about it with Shaw. We need to deliver. We need to bid a job, show our value. We need to be solutions based. We need to client focused. When we win a job, we must deliver on the job. It’s amazing when you do something wrong, everybody reminds you when you do something wrong, but when you do things well, not a lot of people really talk about it. That’s what happens in our industry just about every instance. So we’ve always got to make sure that we deliver. China, I want to talk about a project in China and I want to talk about leveraging capability. Singapore. We have an office in Singapore. It’s a relatively small operation, but it’s a strong operation. We did a great project there for a major international company and that company went to China. It was a Western company. That company went to China, tried to do a project. Didn’t use our services and then called us and asked for help. They asked for help because they knew that we would be dependable, that our objectives align with theirs and so we took some resources and capability from Singapore only to help with the sales to China and then we executed a successful job in China for this client. Again, it’s just another example how with a key client strategy and being dependable, you can certainly grow and reposition your business with these clients. Because again, it’s not that we’re the biggest part of the job, but we’re a critical part of the job for getting the access for the majority of the construction people on the site to the work to do the work. And when one of our clients doesn’t get that right, that’s when they have the major problem. Position. We’ve been, over the past year, working with the teams to build capability with Atlas, to develop joint ventures, to look at opportunities, to team up with people, to use their equipment to save our capx, to expand our services. So, in Asia, South America and Middle East, we’ve been positioning with local contractors because again, this isn’t about taking Europeans or Americans to South America or to Asia to do the work. It’s about using local resources, building local resources, training local resources, investing in that local community to build it and that’s what positions you. That’s what makes you competitive. That’s what adds the value as well with a lot of our clients. We’re also working to position to use the equipment that we have. Positioning to use the equipment that we have. Sometimes with sales people, they’ll want to go out with the new, the latest things. We’ve been training them, reinforcing the materials, the equipment that we have, showing our clients when they come with a given inquiry, we have a similar solution. We might even have a better solution. So we’re getting more innovative with showing different options, and that’s letting us get better use of our equipment as well. So that’s another key thing that’s core to our sales effectiveness, key client and even our core product strategy; driving and showing the benefits of the equipment that we have, that we’re developing.



13

Last one in position as well, we wanted to strengthen our position in the developed markets. So even though, obviously, we’re growing in the emerging markets, we’ve still got to strengthen our position in the developed markets, still get better in North America, still get better in the UK, still get better in France, better in Germany, the large economies. So we’ve got to strengthen our position there and stay there. Expand, second from last bullet on there and I want to talk about expand. Leverage the capability. We have to execute projects. I talked about it with Shaw earlier. I talked about with the project in Singapore a little earlier, just communicating across the globe with key clients especially where we can add value and do it, because again, they’re looking for that dependable option. That’s what they liked our global footprint. They like that we’re a large company that can deliver these projects. Standardize. Clearly, we’ve got to standardize. Clearly, we’ve to become more efficient. It’s a focus for us doing. Clearly, we have to have better control of our assets, where they are, inventory management, et cetera. And clearly, we’re standardizing to build a platform that’s got the upside leverage with lower cost. So, as you can see, these six messages that drive our vision, that’s how we communicate it. That’s how we get the team aligned, so we’re all heading in the right direction. On the right-hand side there, you can see the longer term. And I don’t want to go through each of those. I would just highlight a couple of them. One of them is the third one down, where it talks about new core products. And we’ve got a core product strategy. As we look at introducing new products, we’re introducing new products that integrate with our existing products, that don’t replace. So that’s key because then we can leverage our products more. We can create better life for them. We can create better use. We can let our clients use them for different options on their facilities and so, obviously, it helps us because there’s more use of our products and it helps them from an integration perspective. So we’re obviously working on that. The other one I want to highlight here as well is the localized leadership. We have a drive within the Middle East, it’s already in Latin America, to run our operation with local people. We’re all in the global economy and we’re all tied with it now, but Chinese like to work with Chinese, the French like to work with French, you know what I mean, the Italians work well with the Italians. Everywhere we’re going, we’re localizing the leadership. This isn’t Americans again or Brits or Europeans spanning out around the world. We’re leveraging that. I think clearly, once we leverage it and we move it to another location, so we don’t, as an example, take a major French contractor, sell a project to the French contractor and then go and execute it independently in Latin America without using our Latin American resources. Clearly, we’ll leverage those resources. But we build a relationship. We work in it by leveraging our capabilities in a given country. So that’s one of the things that we’re doing with local leaders in leveraging all of those elements. And again, it’s all increased capability, reduced costs. So I’m going to move on now and talk about the ongoing focus, talk about our transformation. We’ve used this slide in the past. I’ve talked about it three years ago – I’m sorry, a year ago, but I want to talk a little bit first to set the scene when you go back about two years ago. Sal talked about four years. But if you go back two years ago in Harsco Infrastructure, we essentially operated as independent companies, independent countries. There was no global strategy, no global integration strategy. There was no global inventory management system two years ago. There was obviously limited equipment leveraging because there was no global strategy. We operated independent companies, obviously, no standardization. There was no sales management. No targeted key accounts. There was no proactive sales. That’s not to say that we weren’t doing a lot of things well and that structure served us well. You can see



14

from the results in those years. We did very well over that time. But we just weren’t positioning for what would happen to us in the downturn and how we need to survive today in this economy, so. Today, we must be globally leveraged. We must be integrated and we must be like that to deal with the uncertainty. Otherwise, when we drop down, we couldn’t move our equipment from France to another location or out of the UK, and we would obviously have suffered a lot more. So driving to that global integration is, obviously, a key part of the strategy and a key part of the things that we’re focused on today. Platform. Structure and capability improved the delivery, lowered the cost. Product, get better returns on our equipment, better inventory management, global use, standardized practice, better logistics, all of those kinds of things; that’s product management. And then sales effectiveness. Target key customers globally, leverage capability, show the value that we bring, get the bigger projects. So these three areas are a key part of our business transformation, things that we’ve been focused on in the past year and I want to just go through each of them and give you an update on some of the things that we’ve done. The first one, obviously, platform optimization. A big key part of this is just to reduce our break-even point, reduce our cost base. You can really think of this platform one in three areas: people, platform and practices. Last year, we announced our restructuring. We reduced our exposure in North America and Europe. We removed 73 branches. I think it was 11 offices and about 800 people. It was a significant restructuring. It’s completed. As a result of the uncertainty and what’s gone on, you’ve seen we’ve announced plans for more. I’m going to get to that in a few more slides. Then, from platform as well, over the past six months, we’ve split our regions. We need a greater focus. So today, we have seven regions, seven kind of reports to me from a regional perspective. If you go back a year ago, we had four. So we flattened the organization. We’ve got more visibility and then getting closer to the businesses. So North America and Latin America remained unchanged. So they still report in still two regions. And over the year, we’ve seen significant improvement actually year over year. The most improvement in the U.S. Again, it’s still not where it should be, but it has improved the most year over year and the U.S. is profitable. Again, just not where it should be. With limited capx in it, the team have done great and they’re certainly repositioning – sorry the U.S. I said there. Latin America’s got great improvements. Continues to be a growth area. We continue to focus on it. We have a great team down there. They will, obviously, grow again this coming year. Middle East, Africa and Asia has been split into two regions. So now we operate Asia and Australia, China, that region, and then we’ve got the Middle East and Africa and India as a region, so they’ve been split, so we can get focus. And then the largest changes have been in Europe. We used to operate Europe as one region, and so now we’ve split it into three. So Europe now, we’ve got Eastern Europe that we run out of Jim, a long-term Harsco employee, a lot of experience. He’s running Eastern Europe. Then we’ve got Western Europe that excludes the UK. I mean we didn’t do that intentionally, but the UK has been excluded a lot now. So, the UK and Western Europe is there, and again, we’ve got another long-term Harsco executive that now runs that. He used to run France. France has been very profitable for us. The Netherlands, France and Holland and the rest of Western Europe, and then we’ve got the UK. The UK, for obvious reasons, we needed to break it out. We needed to get closer to the UK business, so we can see what’s going on it and reposition that business. We need to reposition the business, so it reports separately.



15

The second point here is strengthen the leadership team. Let me just say, we have strengthened the leadership team, and our SG&A has gone down year-over-year, and we’ve replaced people. We’ve removed levels. So we’ve strengthened Europe. We’ve strengthened the UK and we’ve strengthened Asia. Execution capability. As I mentioned, we’ve added key people in Asia, the Middle East and in Europe to obviously improve execution. Globally, we continue to work on standard tools and systems. Again standardizing, rolling out costs, getting more dependability. And within sales, we’ve changed out-sales people. We’ve put in new sales leadership, and as I mentioned a few times, we’ve changed the metrics. So today we have a leadership team that’s aligned, that’s focused on overall performance of the business. They have common goals. They know to move equipment around to get the best returns, all the long-term best returns. So that’s a real shift. Importantly, they’re all focused on operational improvement and our people. Developing our people, getting the resources right; that’s obviously a critical part. We mention there metrics. We’ve got some simple performance metrics in place for the leadership team. That’s just five key metrics. One is improve our safety performance. One is improve the IBITM from the plan. One is reduce your SG&A. One is minimize your capx, and the other one is improve your cash flow. So five simple metrics, obviously they’ll drive to EVA when they go, but that’s the focus that we’ve got and now this year, we’re obviously adding another one I’m going to talk you in a second about sales. So practices, real quick on practices. It’s all about global delivery excellence. Today, we’ve got teams that leverage the best practices and move it everywhere so one in industrial maintenance, we take the best. Our branch management in operation is in Latin America. We take that and we leverage it everywhere. So we’ve got a lot on standardizing practices. Let’s move on and talk about product management. Our goal here was to standardize, to get better leverage of our assets and to do it globally. Obviously, we wanted to minimize our capx and get better returns. We wanted to differentiate more, integrate more, bring our product offering together, let clients use our components for more things. And we’ve come a long way. In fact, I would say this is probably the furthest we’ve come. We have more knowledge today about our assets, our return on assets, what assets we’ve got, the compatibility assets, than ever before. And that’s through our global inventory system and the tools that we use to do it. And then like a year ago, I could stand up and tell you what our replacement values are, what our utilizations are, what our market ratios are, where we were in a given country. But today, I can tell you that when we think of scaffolding systems, right, and it’s all the same, right? We have 11 scaffolding systems. We probably have every competitor’s scaffolding systems. They’re not interchangeable. We now have a core product strategy. We have four core products, because there’s different legislations around the world. So now, we’re going from 11 systems down to four core products. They represent about 80% of our equipment in value terms. And so just being able to integrate and use that today, we know that because of our core product strategy that we implemented and because of our global inventory system. And that’s why, in the restructuring, you’re seeing that we’re going to talk about rationalizing some of our assets, again about half of the charge is relative to assets. So we’ve combined this core product strategy. We’ve got this global inventory management system. We have a single point of accountability looking at assets globally and we’re driving better returns. That’s what we’re trying to do with our product management and that’s what we are doing with product management.



16

The core product strategy as well, not only does it define what the core products are, it links with our procurement system. So when we go out and buy new equipment, we make sure we’re buying a core product. We’re not satisfying that one-off client for when his projects go away, we don’t have anything. It’s a core product, it’s going to fit in. It’s going to be used for the longer term. It’s a key part of it. We’re also looking at where we move equipment. So Poland is a great example. Poland, year-over-year from a profitability is just an incredible improvement and it’s a great operation for us. Because as I mentioned earlier, it’s not going to be like that for the next two or three years. So today, we have a plan with where we will move that equipment. Today, we’re positioning in neighboring countries to sell that equipment. We’ve got the forces on the ground there. We’re looking at the projects and so we’re now actively looking at where we can relocate that equipment. Again, it’s all about product management. In the past, we used to talk about peak utilization being about 65%. Today, we have better practices, better information, more capability, more commonality. We’re driving goals to take that between 75% and 80%. So that’s a significant increase in utilization and we should have a significant increase in utilization. We’ve reduced our footprint. We’ve gone to larger projects. We’ve implemented tools and systems. We’ve got a core product strategy. We’re standardizing. In fact, we’ve already proven we can get up to there in certain locations around the world because again, as we’ve gone through this past year, we had limited capx. So we’ve been driving the edge of utilization to get it as high as we can without – not being dependable on those jobs. So a clear goal for us going forward is obviously higher utilization. Last point as well, Sal mentioned it, our core product strategy with our global procurement strategy. When we do spend our capx, we get more value for the capx that we do spend. So it’s a better return. So, as well as, the global inventory, we have this system, we can look at the returns. We link that with our sales practices. We’ve got better planning, better visibility. It helps us get more effective use of our assets. The last part on here is just the global leadership. We came from, obviously, no global strategy. We have a person who’s been in place about a year. His responsibility is assets globally. So he looks at the returns. He looks at the longer-term plans. He looks at where we should be moving it to. He looks at the development of the assets. He ties in with the engineering to make sure that we aren’t off creating something that doesn’t fit with our core strategy, where we want to be. So that’s a key critical role and it brings everything together. Let’s move on and talk about sales. We talked about sales effectiveness last year and we have come a long way, but we still have a long way to go. It’s going to be critical, obviously, to the future, but one key thing that we changed year over year is we now have new award sales plans by each region. We’ve rolled out a CRM system over the past year, so we’ve now established plans. I mean this is the first time. Now, don’t get me wrong. We’ve had operating plans. We’ve had sales from a revenue perspective plans. But now which job are we going to win before the end of this year that’s going to make a difference to us in Q1 or Q2. Which industrial project in which part in the world are you working on, mister sales guy, except that we’ve got new award sales plans so it drives more accountability, more focus to build our backlog. So that’s a key difference with sales, the new award targets. That was a key point I wanted to make again. We can focus on the key prospects and it’s a significant change. The second point is key accounts. I mentioned it with The Shaw Group. We’re focused on key accounts. We’ve identified the key accounts, whether they’re national players, international players. To get close to them, so we can understand their pipeline, how we can help each other, how we can position because there’s some very significant projects out there and we’re getting closer to the clients so we can be a part of those jobs.



17

We’re working with some of our clients on planning needs. If they can get access to our equipment, our forming, our wall platform systems, I mean clearly it helps them, clearly it helps us. I mean rather than being they call when something’s needed, it means that now if we can plan it better, if we know it’s going to be used longer, we can both benefit from it. So, we’re much better in that, supports both of our objectives. Also, we’re looking – we can see where we need to position with local resources, where we need to go in and identify the team that’s going to be there and so again, it helps us win the projects. And again, and I mentioned it earlier, we’re leveraging. I mean French contractors are some of the biggest contractors in the world. So we leverage our relationships and our capability in France with the French team to help us to get the work elsewhere. Same with Italian contractors, same we do as they work around Africa and the Middle East et cetera, so sales is a key thing. The last point I want to mention on the sales here is the leveraging the global depth and capability. I mean in the past, we would – I mean I can’t remember whether I mentioned this last year, but when I came to Harsco, I was always impressed by that fancy climbing formwork. You see them when they pull those towers and it’s hydraulics and he climbs up and I said, have we go any of that? No. So I go to Europe and I remember, we’ve got this real good climbing formwork that does – so leveraging capability and knowledge and sharing what we can do globally, it’s made a big difference. I mean we bid work now in one location that we wouldn’t have bid before, because you know then that the French might not have talked to the English or things like that. Now it’s clearly we’ve got an aligned team. We work together. We share the assets. We share capability. We work on delivering what we can to our clients for the benefit of both of us. A quick summary. So, the first point, reduce our break-even point, increase our competitiveness. Second one, strengthen our global position, better execution, better people, better product integration and then increased sales. But with that, more accountability, more selectivity. Key clients, larger projects, more selectivity, more business. Results. Over the year, we’ve made progress, but let’s move and talk more specifically about some of the results. This is just year-to-date. I know you’ve seen the releases about our operating loss, unfortunately. I mean we’ve reduced it, but we’re still in that position our overheads heading in the right direction. Rates have been holding throughout the course of the year. Regions, all regions have improved year-over-year, regions. North and Latin America have improved the most year over year. Middle East, India and Africa contributed the most thus far in the year. Asia, we’ve had the highest revenue growth in Asia. Europe, we’ve reduced our losses. Seven countries in Europe have been in a loss position. Now, they all improved year over year with the exception of one, that one is the UK, yeah. Australia, well I think at the beginning of the year, when we were looking at the business, we could see that we were going to be challenged in three areas or three countries: Australia, Qatar and the UK. And we could see that it was going to be three different regions. In Australia, we could see our revenue growth, but it wasn’t dropping to the bottom line. So we had an execution issue. We added capability; so we’ve removed some of the team and changed some of the practices, and now we’re seeing significant improvement in Australia in the bottom-line performance. In Qatar, a very profitable country, but it just wasn’t making the amount that we thought it should have made. So again, very profitable, but our plan was to have had more EBIT then from that particular location, so obviously, we focus there. Projects moved out et cetera, but we refocused and that’s heading back in the right direction. It will be stronger again as we go into next year.



18

The last one was the UK, and the UK by far that worst performing location. So let’s talk about the UK. You’ve all seen the announcements on the UK. The UK market, the lowest in x number of years. It’s certainly been a challenge. We had these concerns early in the year. We had been taking actions, but we just – we still ended up in a difficult position in the UK. And let’s talk about what we did in the UK and what we’re planning on doing. In 2008 in the UK, we had over 50 locations in the UK in 2008. Last year, when we announced the restructuring, we had 31 and we were going to – as we close this year, we’re going to have 16 locations. So from 31 to 16. So that was in the past plan. So from the end of 2010, we halved the footprint. We took about 30% of the SG&A out. We also sold the non-core business second/third quarter, I don’t remember when it closed, but we sold the non-core business. So we halved the size of the business or the branches I should say, offices. We reduced the SG&A by 30%. And we still – we did a lot, it just wasn’t enough. As we came into the third quarter, the challenges became evident and we looked at further mitigation measures. Mentioned earlier we split the region, so we could get closer to the UK, closer to the UK leadership team, closer to what’s going on in the UK. We just need more visibility. We flattened the organization like I said and we changed out some people in the UK. We added some capability in the UK. We refocused some sales people that were in Europe on the UK specifically. We announced as well a new Managing Director in the UK; it was early this quarter. He’s from the industry. He worked with one of our competitors. He’s obviously been a part of what we’re looking at now for restructure again in the UK. So we’ve been developing a plan to further reduce our exposure in the UK. Refocus, as I mentioned, our sales efforts and get better returns. Then we started looking at exiting the UK. Let’s leave the UK. If we didn’t have the losses that were occurring this year in UK, I mean I’d be feeling a lot happier standing here and every 10 years the savings that we announced in the restructuring last year would have dropped to the bottom line and we would have exceeded every month, that’s how far off we are in the UK. So we looked at exiting the UK and we decided not to. And we decided not to when you look at the UK, I mean it is a very large market; half the size of the U.S., a third the size of China, three times the size of Brazil. From a construction perspective, six times the size of Turkey. We’ve got a strong position there from a brand. We have been very successful there and now we have a new leadership team focused on turning round the UK. And the UK, when you look at the measures that it’s taken of the European countries, it may well come back quicker than a lot of the other countries in Europe. So when you look at the size of the market, the team in the UK and what we’ve done, we decided to stay in the UK. The opportunity there and our capabilities is too much for us to leave the UK. Let’s talk about challenges and then, obviously, we’ll focus more on the mitigation and the restructuring. The first bullet there, further weakness in Western Europe and North America. I don’t think we need to cover that. Oversupply of equipment and competitive pricing, we see it and especially with the privately-held people in some locations, parts of the U.S., the Southern California, Nevada, Florida, some of the forming/shoreing guys are pricing pretty competitive, and so you’ve got to be, again, very selective on where you go there. The industrial maintenance contractors are more disciplined on the pricing. Nobody wants to be carrying any losses. So we’ve seen those hold up. And again, overall during the year, our rates have held during the course of the year. So, yes there are challenges there. There will be challenges there, but it’s there. Europe, it’s going to be hard to hold the position over the coming year, on the coming couple of years. But that’s what we’re focused on and obviously, the restructuring’s going to – we focus on Western Europe primarily.



19

Government funding, that’s where – on the earlier slide, when we talked about Western Europe and Eastern Europe, they’re pretty well linked and some of the Eastern Europe expansion’s been driven by Western European funds. And so when we talk about exiting countries, some of the countries are obviously in Eastern Europe and we’ll get to that again in a minute. Shift in EPC contractors. I mention that there and everybody’s seen it. The eastern companies are moving and challenging the major western companies, whether it’s in the Middle East, whether it’s in Europe. I just read an article, I think it’s the China Daily, about Chinese companies moving to Europe from the Middle East because of the challenges in the Middle East. So it was interesting because one of our guys was talking about a project in the Bahamas and there’s a major resort down there, that’s going to compete with the Atlantis. I think it’s 2,250 rooms. It’s got a 200,000-meter convention center, casinos and golf courses and all this kind of stuff. And so we’re going to meet with this construction company in Jersey City. So great, it’s in Jersey City, this construction company’s doing it. So we go there and we start working and well, this construction company in Jersey City happens to be China State Construction company. They did last year something like CNY360 billion in revenue, which is about $60 billion and two times, three times, the big players that we talk about here, and these guys have got an office in Jersey City and they happen to have an office there that I didn’t know about as well in Columbia, South Carolina, and they’re working here. I think you’ve probably seen the press a few days ago; they announced they were going to come into U.S. and buy some construction companies, about to spend about $2 billion on them. So we met with those guys to talk about the Bahama project, the forming, the shoring, all that kind. Now, this isn’t a good ending like the other two stories because we didn’t use our Chinese resources as much as we should to position with these guys to get the job in the Bahamas because I mean it was in Jersey City. So we thought, hey, we have an office in Jersey, we can deal with these guys in Jersey City, right. So there’s obviously a lot of positioning with new clients, Eastern companies that are coming to different parts of the world and we’re leveraging our China presence, our China capability. And we’re actually been working with China State Construction over there on how we can work together in different parts of the world. So the landscape’s changing and that’s one of the challenges and, obviously, we’re working to mitigate that. So again, the only certain thing about the markets is there’s going to be a lot of uncertainty in the markets. The important thing is how we deal with them and you can see on the right of the slide there that we list the four areas that we’re driving to be with and continue our emerging markets, continue to build capability, limiting capx, rationalize the fleet, driving that kind of integration with it, core product. And third is a key differentiator and a differentiator that is hard for people to replicate, people practices and global footprint. I mean the last one is exit in the underperforming locations and that’s the lead-in if you like to our restructuring, but obviously, it’s broader than just exiting the underperforming locations. We’re exiting small markets and small markets relative to the other markets that we actually operate in. We’re exiting seasonally challenged areas, more seasonally challenged from some that we’re in, one of them, not so much. We’re freeing up core equipment because one of the key goals of this restructuring is we need to reduce our footprint free of core equipment, move it to another location. So, that’s a key part of it. Obviously, great in that management focus, leaving seven countries. I mean I’ll tell you a little about the contribution from those countries in a while, which is removing losses, so let’s move to the restructuring. Core principles on the restructuring, why the restructuring? Reduce exposure in Europe: we’ve been working on this, obviously, for a few months now on what we can do. Rationalize our equipment: we’ve been working on that for the past year, and then increased our focus. So, mitigating downside, building capability, focusing the leadership, lowering our costs, improving performance and, importantly, driving to profitability next year. That’s why we’re doing the



20

restructuring. And, obviously, it’ll build capability for the future. Core product strategy and leveraging our knowledge. What does it cover? Seven countries, 29 locations, about 700 people. A significant amount of the charge is equipment. And the next slide, it’s about $175 million and these are the charges relative to infrastructure and about $100 million, you’ll see in the next slide exactly equipment. So exiting the seven countries, it’s never easy. I just want to highlight, we have strong leadership in those countries. We have strong people in those countries. They have been improving, but they still are in a negative position and things are going to be challenged going forward. We need to consolidate our platform, so free up that equipment and move it elsewhere. With the exits, in some locations, we’ve started the process of notifications, the formal issues, the consultation periods or we just about to start it. So we’re following the required due process to exit in an orderly manner and again, the hope is within six months, we’ll be out of those countries. A little bit of background on the seven. Three-year average they’ve generated about $80 million in revenue and about 10% losses. So they’re relatively small countries, but for three years, and I didn’t go back beyond that, but that’s the three years and again, when you look at the combination of where they are, the longer-term opportunities in them, the equipment that’s there, we can get better leverage elsewhere, better focus by doing that and reduce exposure. So it’s unfortunate, but that’s the reality. The other thing is if you were to take – I mean, obviously, I don’t want to name the countries because we’re going through the process, but if you were to take a Global Insight list of the top 20 construction markets in the world by size or by growth rate, you wouldn’t find any of the seven on it. Of the 29 locations that we’re closing, 16 of them are in these seven countries. So, most of the rest are in Europe. A question that comes back is like, well why, and why now. As I mentioned earlier, two years ago, we had no global strategy. Today, we have a core product plan. We have an inventory system. We have a global strategy. We have a leadership team that’s been built over the course of the year and we’ve increased our sales efforts. Now we have more insight, more knowledge into what we’ve got and how we can use it. The next thing that you think, as you know, we didn’t take a material charge for equipment this past year. And we didn’t because we’re working our core product strategy and a few other key things. I thought a year ago that this time of this year, that the European markets may well have been picking up. Clearly, I was wrong. We also looked at equipment and how we could place it with other companies, major contractors, move it to North Africa, other developing locations. Challenges in North Africa, we had some great opportunities, that shifted. So we had a couple of fallback things with it, because again, ideally we were going to place it in some these, move it into developing location to use it, but when everything’s gone on and the culmination of all of the efforts and actions that we’ve taken, the best thing for the business is to remove the equipment. So today, the charge deals with equipment rationalization. Again, that’s about $100 million of the overall $200 million and the largest part of the Infrastructure piece, and it’s focused then, after the equipment, on reducing our exposure in Europe. A summary of the charge, $173 million: about $100 million with equipment. Sal mentioned it, I’ve already mentioned it, the goal is to get to profitability, past breakeven in 2012. The focus of the restructuring, it’s not here but as you can tell, I mentioned the countries. If you were doing a split percentage-wise based on location, about 70% of the charge and then obviously the resultant benefits will come from Europe. So that’s where 70% of the costs are going to be, the countries there, the equipment there, et cetera. About 15% is back in North America. Again you know it’s



21

equipment, equipment rationalization because again, when you look at our equipment, we’re looking at it globally and we’ve had all of these locations and all the different equipments, so we’ve rationalized our equipment globally and then the last 15% is equipment in other parts of the world. So getting from those 11 scaffolding systems down to the core ones, creating that leverage, that compatibility, that’s the – that’s a good lead in and we can talk about the footprint. So, obviously, we’re reducing the countries. This just shows you the branches. It goes back to ‘09, the last restructuring and then the current one. As you can see, we’ve made significant reductions. The planned ones we’ve announced, the seven countries, six in Europe. The locations we’ve talked about. For the balance, for the 13 locations that are outside of the countries that we’re closing, the majority are in Europe and most of them are in UK. So in the UK we’re reducing our footprint even further in the UK. We’re planning to reduce our top line in the UK and, obviously, significantly reduce the losses in the UK as we go in ‘12. So, with regard to head count, of the 700, about half of that number is in the countries that we’re exiting. And then a large part of the balance again is in Western Europe and again, the larger part of that is in the UK. But we are taking actions in the Netherlands, in France, in Germany. So, three very – and France and Germany, very successful for us this year, but when we look at the future, we’ve got to take some actions just to make sure that we’re positioned where we need to be. So again, that’s the structure. That’s where we’re going. Again, even though we’re reducing these branches, we’re not reducing our capability. We’re serving larger clients, larger projects. We’re moving out of some of the smaller rental type things, consolidating our operations and again, getting earlier in the pipeline of the bigger projects. Then next slide is the strategic focus, the market sector and I wanted to go back to it, because this is – when we talked about our vision and one of the objectives was the emerging markets and drive there. This just shows you the other part of that, the industry, the service balance. So here, you can see that we’re near our 2015 goal on industrial maintenance. We’re obviously heading in the right direction overall. We’ve got a better balance in our service mix. So we’re reducing our exposure in the cyclicalities of the rental and all those things with that, the longer term industrial maintenance jobs. With industrial being close to our target, our focus there is not necessarily going out and doing much more industrial everywhere. It’s getting better on what we’re doing, adding more services on the projects that we’re got and controlling that, providing more value to our client. So we’re selectively expanding industrial maintenance just because we have this that says this is our goal globally. It doesn’t mean it’s the same footprint for every country, obviously. So we’re very selective on where it goes, but we’re heading in the right direction. Then we’re strengthening our heavy civil and we continue to drive that, but overall, we’re heading in the right direction. A couple of summary slides, and then that’s my sections over, but you can see here the actions and we are making progress. We’re focused on controlled improvement and again, controlling our capx, controlling our core product, controlling the locations that we’re in. It’s controlled, so minimize capx, better returns and we have lowered our cost base. We have strengthened our capability and we have improved performance year over year. Again I wish that the UK wasn’t where it is, but we still have significantly improved and we’ve taken the actions to right the UK. We are positioning for upside. It will come. We’ve reduced exposure to the downside and with this restructuring, we’re going to reduce our exposure, obviously, in Western Europe. We’re working to leverage our global footprint. Our people and our capability we’re positioning for the longer term. This isn’t just about next year and the year after, it really is for the longer term the core product strategy, the focus on the key clients, the emerging markets.



22

And so that leads me to the last slide, the 2012 focus. I don’t want to read some of these. You can see those, but the 2012 focus, the first thing is execute the restructuring as quickly and as efficiently as we can and drop the planned savings to the bottom line. The second part of our focus for ‘12 is to continue with our emerging market strategy and to strategically build our industrial maintenance. Third part would be obviously to maintain our market share in the developed market. So maintain our position. We actually plan to reduce a little bit in some of Europe and that, but we’ll hold our market share in Europe even though it’s going to be tough, that’s why we’ve taken actions there and obviously North America. And then the fourth one would be to continue to drive the integration. So continue to leverage best practices, continue to leverage success on jobs, continue to leverage equipment globally, continue to reposition the business for the long term. So that’s the four key things. And what should we get for them? In 2012, profitability and then better position for the longer term, upside leverage. Thank you.

Eugene M. Truett - Vice President-Investor Relations and Credit

Thank you, Ivor. Just as one point of clarification, on Page 14, Slide 26, just so we’re clear on the metrics, when we talk about at the top there – third or fourth bullet point in the top bullet point – the market ratio holding, we are talking about rental rates being flat. We internally call rental rates market ratio but, externally, it’s rental rates. So just a clarification. Our next operating unit presentation will be given by Galdino Claro, Executive Vice President and Group CEO of Harsco Metals and Materials. As many of you recall, Galdino joined us after spending approximately 20 years, one position removed, perhaps, with increasing areas of responsibility around the globe with Alcoa in June 2009. And Galdino will now provide us the outlook for Metals and Minerals. It has been a successful year in Metals and Minerals but, nonetheless, a challenging one. But again, as we have with Infrastructure, we’re building a long-term organization and one that we think will continue to be successful. Galdino?

Galdino Claro - Executive Vice President and Group Chief Executive Officer, Harsco Metals and Harsco Minerals

Well, thank you all for being here. Thank you, Sal and Gene, for the opportunity. So similar to last year, my presentation is divided into three parts. The first few slides address our challenge and achievements in 2011. I believe most of you are aware of how challenging 2011 has been for the metals and minerals industries, in general. And we are not an exception. I hope I will be able to demonstrate how well we responded to those challenges and how – somehow isolated our problems are or were during the course of 2011. The good news here is that the majority of our businesses performed well above expectations in 2011, despite economic and industrial headwinds. The second set of slides will address our short-term actions to further improve returns. And the major initiative here is the restructuring. Slightly different than the equipment-related restructuring presented by Ivor in relation to Infrastructure, the Metals and Minerals restructuring addresses more specifically our SG&A by consolidating offices across the globe, off-shoring transactional and functional activities. Like Sal pointed out, we have two shared services centers that Metals and Minerals have not taken full advantage of so far. And



23

also by combining our business footprints, as you recall, the Metals and Minerals were really put together about one and-a-half years ago. And, lastly, I will cover some of our long-term strategies going forward. I should say that after two years leading the Metals and Minerals group, my confidence has only increased in relation to the successful future of this business. I hope I’ll be able to demonstrate the reasons for my confidence to you during this presentation. Understanding our customer needs and challenges at all levels and orienting our strategy and capabilities towards what is really important to the customer is our number one priority. With that priority in mind, I want to call your attention for a few key words of our mission statement: Sustainability, Resources Recovery and Environmental Solutions. Those words really represent the foundation of our strategy and the base of our business model, as you will see during the course of this presentation. I’m sure you have seen this before. I’m using this slide just to illustrate two major initiatives to be deployed in 2012. During the last couple of years, I have emphasized our initiatives to improve performance at site level – at mill-site level. And we have spoken about clean-sheet assessments, best practices, sharing, maintenance procedures of standardization, training and other operational excellence elements in general. Those initiatives target mostly labor and capital efficiencies as the major components of our operating cost and have reduced substantially our breakeven point. Going forward, in addition to operational excellence, we will target two things; as I mentioned before, administration synergies through restructuring. We will talk specifically about restructuring in few minutes. And we also have a unique opportunity to globalize our asset management structure. And you see our offices’ footprint – or our operation footprint across the globe, it’s almost an immediate conclusion. Now imagine that in each of those mill sites we have across the globe, we have spare equipment, back-up machines that are there, in many cases, as a contractual agreement with our customers, just in case one of our equipment breaks down and then the back-up machine is there, available to support that operation. As you know, the services we provide to our customers are very important from the point of view of continuity of the operation. So if one of our key pieces of equipment breaks down, we have to have something that replaces that immediately; otherwise, the mill shuts down. But the question here is, do we really need spare machines, this is very expensive in terms of capx business, as Sal pointed out, just waiting in all those mills? Or is there a more intelligent way to strategically position those machines so they can support not only one operation but a group of corporations in the same region? Of course, there is an opportunity – for doing that, and this is what we’re going to be targeting this during 2012. We also have a maintenance shop in each of those sites, with trained people and, more importantly, with individual inventory of spare parts. Do we need a maintenance workshop in each of those sites? Or do we have, again, an opportunity of strategically locating them in support of multiple operations? Certainly, we do, and those will be important targets for us in 2012, also. During 2012, we’re going to be also redesigning, so – our asset management system. And we think substantial savings will be obtained as a consequence of this initiative. We’ll talk a little bit more in a few. Let me focus a little bit on 2011 results more specifically. As I said, without a doubt, 2011 has been a year with many headwinds, turbulences and uncertainties. However, with the exception of two isolated and relatively small portions of our business, we performed reasonably well – far from ideal – I am the first one to admit, as Gene pointed out – but reasonably well. With the exception of our Excell business in the U.S. and our Metals business in the Middle East and Africa regions, all other



24

businesses and regions performed better than last year; similar to the situation that Ivor pointed out in Infrastructure. As a reminder, I should state that our Minerals group comprised three business units: Reed; Reed did exceptionally well in 2011; Performix, same thing. And in the U.S. – and we have Excell, which is a global business with operations in South America, Canada and Europe, as well as in the U.S. The Excell operations in South America, Canada and Europe also did better than last year; but specifically in the U.S., we did not. In the Middle East and Africa. So the Middle East and Africa region and Excell in the U.S. represented, combined, less than 10% of the Metals and Minerals total sales. Had it not been for the shortfalls versus previous years in those two businesses, Metals and Minerals operating income would be around $140 million in 2011 or about 9% of our margin; strongly marching towards a double-digit margin target. The Excell North America shortfall was totally driven by a drop in the stainless steel production in the U.S. and by the negative trend of nickel price during the course of the year. We have mitigated a profitability drop during the last months of this year by intensifying exports of nickel scrap to Europe. In addition, we are working hard on developing alternative sources of supply to Excell in the U.S., as our current suppliers are operating at very low levels of utilization rates during the course of the year. As importantly, we are consolidating the Metals and Minerals management teams and offices in North America to reduce costs as part of our restructuring 2012. In the Middle East and Africa, the shortfall was basically driven by the political turbulence in the Gulf region. That appears to be re-stabilized. Let me give you an example of how the turbulence in the Middle East impacts us. We had, during the course of the year now – mostly – a few months ago, I should say, a fatality in that region, where one of our operators cutting scrap, which is one of the services we provide to our customer, come across an explosive device, a military device, that exploded and killed him. And so those are the kind of challenges you face when you’re operating in that type of environment. Of course, we will never compromise safety; this is our number one priority towards profitability. So we have to slow down in cases like that. We have to re-orient our business and make sure that we’re not going to expose our people to that kind of consequence. But, fortunately, it’s back to a normal condition now. We also have decided not to review a small but important number of significant, underperforming contracts in the Middle East and Africa regions. With those actions in place, we believe that the – both the Excell U.S. and the Middle East and Africa businesses will return to normal levels of performance during the second half of 2012. I hope this information demonstrates how isolated our performance problems are and how strong the Metals and Minerals business has been in the vast majority of our operations across the globe. We have operated – we have performed better than previous years in – or better than 2010 in North America, South America, Europe, Asia and, again, in the vast majority of our business, with the exception of those two isolated situations that I mentioned to you. This is just a recap of some recent press releases made by major steel producers. I don’t intend to comment on all of them. I’m pretty sure you have seen them. But my point here on using this slide is just to set up a backdrop for our 2012 projections. We are not assuming any significant improvement in terms of LST production, nor mill utilization during the first half of 2012. Based on our customers’ inputs, we foresee a moderate improvement towards the second half of the year. The restructuring opportunity that we have put in place to further reduce the cost base,



25

therefore, plays a critical role in our improved performance. Simply stated, we will see operating profit improvements in 2012, despite the fact that the top line growth projections are limited at best. This slide was presented to you last year. And I have included it again in this presentation as an update on the current status of our Metals and Minerals roadmap towards double-digit returns. Again, we are not satisfied with our current performance, but we are very confident in relation to our roadmap. As you can see, with the levels of utilization rates that we projected for the year, somewhere between 70% and 80%, we forecast our margins being between 6.5% and 8.5%. We are just closing the year around 7.5%; eventually, a little bit better, so just – which is in line with that, but it should be better. Utilization rates are 78.9%. Without the shortfalls I mentioned to you, we will be substantially better than that but, yet, we are within the range we projected to you. There are three pillars in relation to our roadmap towards double-digit margins. One is operational excellence at the site level, focusing again on labor and capital efficiency. If you’ll recall, if we combine capital costs and labor costs, it represents 75% to 80% of our total cost. We have focused a lot on that, as I mentioned, and that has reduced our breakeven points substantially during the last years. Now we are looking at a restructuring as a second pillar of our roadmap towards double-digit margin. We are targeting overhead rationalizations, office consolidations and transactional activities off-shoring during 2012. The third pillar, though, equally important or even more important, is the differentiation. As Sal pointed out, we are becoming a knowledge-based technological innovation business to avoid the commodity trap of the new services business. So let’s talk about the restructuring a little bit in the next slide. This is a very straightforward information. We are investing $25 million in restructuring actions with a $10 million return the first year and a permanent annual savings of equal amount, $25 million. So if we take the $25 million savings and look at that from the margin point of view, it represent about 1.5% of Metals and Minerals’ total revenue. So this represents a 1.5% margin increase (e.g., a 150 basis point increase in margins) on top of the 7.5% I just shared with you in the previous slide, which includes all the headwinds of a very challenging year already. So if you put the two of them together, we are at 9%, which is not where we should be. Again, I’m the first to admit that but it’s a very strong step towards the double-digit return we are looking for. So we believe we’ll be in a position of generating 9% margins, even if LST production stays at current levels. So moving the presentation little bit more towards the future. Let me remind you of some important achievements announced during 2011 that will have a substantial impact in our future. Metals and Minerals signed 12 new contracts in 2011. They are all large, long-term and with returns above cost of capital contracts – all of them. They all address important solutions to our customers’ major problems. They go beyond the typical mill services contract, logistic-oriented mill services contract. And here are some examples. China, TISCO; it’s a $0.5 billion contract. We just start the construction startup. Sal was there, inaugurated that. I was there in our first board meeting. It’s a joint venture, as you will see. India. We also mention that as a target country for us. We have signed a $135 million contract with JSW. Brazil, $90 million contract signed with VSB, this is a new customer. And in Saudi, $50 million contract with South Steel. In addition to that, we have made two very important strategic alliances towards differentiation, again. And then, here, I remind the key words of our mission statement: differentiation through



26

resource recovery and technological innovation. We’ll talk a little about Equinox and LanzaTech in a minute. And, again, we shouldn’t be celebrating exiting contracts. But, sometimes, when you are in the long-term contract business, it’s like a marriage. If it doesn’t work, the best way could be a divorce. And this is it in the business that we are, too. And we had some contracts that were underperforming. We are not in a contest of how big our company is. We are more focused on profitability than on size. And so, consequently, we had to bite the bullet, as we say, and walk away from some businesses that were not adding value to the shareholder. As we always say, we don’t need to be bigger; we are already larger. We need to be better. Looking forward, in addition to the 12 new contracts to be started next year, we have 58 contracts in our Stage-Gate process pipeline. Again, all double-digit return contracts, mostly addressing customers’ environmental problems through research recovery technologies, which employs less capital than basic new services and offers substantially more attractive profitability. I’ll call your special attention to the revenue per capital ratios of one by one for every year of this contract, not – so every year of the existence of those contracts. And they are, on average, 8.3 years in length. The revenue will be equal to the investment. So it is a transformational type of work that we are targeting at our customers. And we’re going to be talking a little bit more about that. Again, I want to reinforce that all those contracts are EVA-positive. All of them will not be pursued if they don’t generate returns that are higher than cost of capital. I have two slides on TISCO as a feedback to you on the current stage of this important process – or project before we get to the last part of the presentation, we addresses our business transformation strategy. So TISCO is really not a typical new service job. It is, indeed, a good representation, though, of how Metals and Minerals’ future business model will operate. TISCO is a joint venture. Call it TISCO/Harsco Technology Company. And the technology expression there doesn’t come by chance. TISCO is an offsite company, not within TISCO’s premises; that we have transformed TISCO, the largest stainless steel manufacturer in the world into a solid, waste-free facility through Harsco resources and recovery technology. TISCO/Harsco Technology Company is a complex of five plants. What we have announced so far, the $0.5 billion company is related to only one portion of this contract, which is the stainless steel metal recovery facility. But the project, itself, is much larger than that. It’s the facility that incorporates five plants together and will take 1 million tons of stainless steel slag per year. And, in addition, 490,000 tons of carbon steel slag and recover, from those raw materials 20,000 tons per year of stainless steel and 2,500 tons per year of carbon steel. So when you recover the metallics and give it back to the customer, you end up with the residuals, all right. And this is where our technological competence kicks in with differentiation, really, because we’ll take 0.5 million tons a year of those residuals and transform them in to fertilizers and supply the agricultural needs of China. We will also produce 200,000 tons of cement base. We will be producing 300,000 tons of Superfines and 340,000 tons road base, which is appropriate for a product from Harsco. So this is why TISCO selected Harsco as their partner in this venture because combining our technologies and our abilities, it can really make this very important – the largest, again, as I said, steel mill producer in the world a solid, waste-free operation, which is an ambition of all the mills I know around the globe. It’s a very strong differentiation there. Just a little bit of a timeline on the entire operation. So we are breaking ground now on our wet milling plant which, we believe will start on October 1, 2012. Then the carbon crushing plant will be starting at the end of 2012, in December. The road base plant as well; the Superfines plant, also. And then the drying plant, which is more related to the cement manufacturing, will start in March of



27

‘13 and, finally, the fertilizer plant in July of ‘13. So just a few pictures of our major events recently develop and within this quarter. Well, I’ll spend few minutes on this slide because it really defines our business model going forward. Starting from the revenue arrow as you see there. We have basically grouped our services in three major blocks. What we call basic logistics is the transportation of material from point A to point B that we do in support to our customers when we operate on site. So we take the slag from the furnaces and transport it to the slag pit, where we process it or we handle, sometimes, their inventories. We handle their scrap yards. So it’s transportation of material, basically. It employs a lot of capital. And then if you look at our revenue today of Metals and Minerals, substantial part of our revenue is generated by that type of activity. But if you look at the profitability from the return perspective as a consequence of the employment of the equipment and massive capx, this is not the most profitable part of our business. So then you have what we call resources recovery. And, again, remember our mission statement there. This is where we believe we can bring more differentiation to this process. Resource recovery are activities where we take the waste stream from our customers, process them with proprietary technology sometimes and then take that, the recovered metallics and reinsert it back into the production of steel. So the waste is re-circulated back into the production of steel, maximizing the efficiency of our customers producing steel. So some of the technology we apply in that case are, for example palletizing; briqetting. Taking of the waste, compress it and re-circuit back to the process. But even when you do that, you end up with residuals. And this is where the third block of activity there sits. When we take those residuals and transform them again in fertilizer, cement, you can see on those pictures. And when you take a residual that was about to be landfilled by the customer and landfilled costs skyrocket, and you manage to transform it in a product that is viably economic, like fertilizer or cement or the case might be, then the levels of profitability that you can achieve for offering solutions like that is really phenomenal. So when you look at the revenue generation versus profitability in our business, we have an inverse relationship there. We have very high, profitable operation of resource recovery and by-product development. We have good part of our revenue linked to basic logistics but not with high levels of profitability. So this is what we call in our strategy fields of play. And for each of those three fields of play, basic logistic, resource recovery and by-product development, we have different strategies because they require different strategies. And this is where we’re going to be talking a little bit in a few seconds of the presentation. I believe this slide brings a little bit more clarity to the practical application of our business model. In the immediate term, linking it to the three pillars of transformation that Sal presented in his part of the presentation, in relation to optimize our business, we believe we can reduce substantially our basic logistics field of play breakeven point by consolidating our asset base, as I mentioned before. We don’t need idle equipment waiting for another equipment to break in all the sites we have. We can consolidate that. We don’t need maintenance shop with specialized mechanic and electricians in all the sites. We can have a more intelligent application of our competences from the logistical point of view there. So that is in place, addressing that field of play, as well as the right-sizing of our SG&A that I mentioned that we’re going to do through our restructuring. So this is the focus. In terms of globalization, we spoke about what we are doing in China with TISCO and other projects – TISCO is not only one. And TISCO is only Phase 1 that we have announced it so far. And we have lot of similar initiatives going on in India through resource recovery again. And value



28

selling because, believe me, when you start developing solutions that are more oriented towards the needs of your customers and they really address what is important to the customer, you have to have a good value selling proposition in place to maximize the profitability of this initiative you are deploying. So, continuously, we will focus on penetrating the non-ferrous and mining industry. I believe during the course of next year, we’re going to have some things we can more consistently communicate in that field. Environmental solution is a key continued focus of our strategy and, again, waste processing technology – transforming waste streams and by-products, as I mentioned before. So let me go one by one on that. So going one level down in our deployment process and getting into the project least in support to each major initiative. Here are four projects being deployed to further reduce our breakeven point today, as I anticipated before. One of them’s total asset management; centralizing our assets more intelligently, reducing the cost base, the depreciation levels and the capx implemented or related to that. Global purchasing. With the operations we have across the globe, we have recently developed a metal recovery facility in India with Indian suppliers for most components, except the components that are really more technologically advanced by that. And we came to a conclusion that sometimes you can develop those – that kind of equipment for a fraction, really, of the cost that we could do, utilizing the typical suppliers we have in Europe or United States or even in South America. So global purchasing is an important factor when reducing the basic logistic breakeven point for our services going forward. Clean-sheet assessment is a continuous thing. It’s continuous improvement. It never ends. And every time we look at an opportunity, every time you learn different ways to perform a certain job, it has to become part of our standard and go across all the operations that we have across the globe. And, finally, the offices consolidation. So we leave those four initiatives together. Those four projects will leverage our breakeven point reduction even further during the course of 2012. In terms of globalization. We talk a little bit about our Global Solution Centers. We have Global Solution Centers across four continents. This is where our customer’s represented, both on site level as well as the high-level executive levels. Our CTOs and the CTOs of our customers, our engineers and the engineers of our customers get physically or virtually together and start discussing their problems and solutions through Harsco’s association with universities, development centers and other technology companies. This is a real confirmation of our way of doing business with our customers today where we go and there’s a service to be provide on a certain site. We go with our package of corporation developed 10 years ago and try to offer the same thing and get a price increase. It’s different when you sit together with your customers at high level. The CTOs get together and discuss their major problems, and I’ll address that in a little bit, with a little bit more of color in relation to the two technologies that we have recently announced that I’m going to be discussing with you, Equinox and LanzaTech. The global integrated network is pretty much the same thing. But it’s when we, internally, across our 180 sites, get the best practice and things that we have and see how we resolve that problem for our customer in North America. And how can we use that application or that same solution somewhere in China, and vice-versa? So it’s an internal networking that now happens electronically, every day across our sites. Again, the China and India targeting. I don’t have to mention that again. It’s a substantial part of that, as we see those two regions as the most important development footprint for our business going forward. And clean-ups. Let me tell you – the Minerals business, mainly Excell, which has a shortfall in relation to last year performance now, leads from the availability of rich slag in metal



29

content. That’s what we process. We take those slags, process them, recover nickel, sell it in the open scrap market. As the stainless steel producers improve their technologies, of course, there is less metallics in their waste streams. That’s interesting, and that’s good for them. But there are enough – several piles of old slag across the globe linked to old mills that have been shut down, sometimes 30, 40 years ago, that we can start mining (processing). So the Minerals business more conforming itself towards a mining (processing) operation, really, where we can take a mobile plant, we identified a pile of old slag somewhere in Russia to take one of our plants, send it down there, explore that, process it, recover the metallic, sell it and go to the next one. And we have mapped substantial numbers of those piles of slag that we can be processing across the globe. And that’s why we call clean-ups. In terms of innovative transformation, just want to bring forth what the 3D innovation is. 3D stands, as I mentioned to you, I think you remember last year, Discover, Develop and Deploy. And I’m going to give you an example specifically on that. But what we have done is in our global centers of excellence discussing exactly that with our customer; how can we discover what is meaningful to the customer? How can we develop solutions that they can be deploying together with us? And, consequently, how can we deploy those? Offsite by-product development. We develop zero waste integrated solutions, looking actually at two very different strategies. Large-scale solutions against landfill, so when our customers’ landfill products, how can we develop something that would avoid the landfill? And then, equally important, where are the high, profitable, niche applications of product like by-products like fertilizer, cement and others that could add value to us and to our customer? And the new adjacency. When you come across those technologies, not only they transcend the level of application they have inside the steel mill industry and will allow us to get not only in like metals, but also in mining and some other industries. And you will see some examples about that in relation to the technology that I’m talking about in a minute. And so let’s talk about Equinox. Before I explain, really, what it is, let me tell you how it came to play. So here we are, with a customer in one of our Global Solution Centers, discussing one of their major problems, which is oil contamination. So this is the discovering phase of our 3D innovation process; sitting there, looking at that. And, of course, mills utilize oil. They have – their machines sometimes have leaks and contaminate the ground, contaminate the scrap and residuals, causing not only cost problems to our customer but, most important, environmental problems. So we are discussing that; what could be done to resolve that kind of problem? Is there a technology available somewhere? And through our network of technology, we start looking around, and we come across this UK plant that has developed a technology that cleaned up a beach contamination in oil in Scandinavia. Yeah. And have done it very nicely among several technologies that the Swedish government start looking around in terms of the best one that could be applied to that beach contaminated. They came across that, and we look at that, say, well, this is interesting. It can be used by us. It can be used by our customers. It can resolve a good part of our customer problems. And we contact them. They liked us; we liked them. We share our values, as Sal pointed out. They look at us; say, well, it’s a very value-oriented company. We want a partner, and here we are with a technology that allows us to resolve one of the major problems of our customer. This is what our mission statement addresses when I say resource recovery technologies, addressing the major problems of our customer.



30

This is how we de-commoditize the new services. This is what we need. This is the future of this business, bringing solutions that go beyond transporting clear piles of slag from point A to point B, using a big loader or an excavator. It has to be done, too. And, actually, it could be done much more profitably if we lower our asset base and breakeven point, as I said. But the future of our business is developing solutions; solutions that are more meaningful to the customer; solutions that are more directly related to their major problems. So now we have this list of customers, most of them stainless steel producers, but also oil producers. There’s a lot of sand contaminated with oil around the globe. And then start looking, and so this technology goes beyond the steel mill application and would allow us, certainly, to get into other adjacencies and new lines of business, service related, yet, but that’s the beauty of it. So when we talk about our projections, 2015, you will see that we have a new lines of business and adjacencies; a substantial part of what we believe we can generate in terms of revenue and profitability going forward. So this is Equinox; a similar story – a very similar story. LanzaTech; same thing. So here we are in another solution, a Global Solution Center with another customer, talking about one of their major problems again, carbon monoxide generation. Steel mills are the largest carbon monoxide generators in the world. And we start searching around the globe through our contacts with universities and technology firms against – with our customers, looking at what is available down there? You don’t have to invent technology anymore. This is how R&D – modern R&D is done. Most of the solutions you are looking for is somewhere already developed by someone; just applied to a different thing. And we look at that and say, we came across this technology, where carbon monoxide is digested by a specialized microbe and, as a consequence of the digest, it produces ethanol. Fun, isn’t it? So here’s a plant that LanzaTech has developed with BaoSteel. Bao move very quickly on that. They had a trial plant; now they are building their first industrial demonstration plant. But, fortunately, we came very quickly across LanzaTech and, again, developed our relationships, shaked hands. And now we have the exclusive right to utilize that technology with our major customers across the globe. And, again, we have a line of customers looking at that, say, well, we’re going to start our first plant. Of course, we’re going to have to develop a good value solid proposition for that. The cost to produce ethanol in this process is very competitive And so you’re taking one of the major waste streams of our customers, carbon monoxide, and transforming something that we could commercialize together, ethanol. So this is again the new trend, what I believe and my team believes is the differentiation against competition we can generate for the metals and minerals industry. Sometimes, you don’t have to go that far to find those solutions. Here is another example. And, as I mentioned to you, we have those Global Solutions Centers that are looking or connecting ourselves with available technology around the globe with institutions and technology firms. But we also have shared our internal network, looking at solutions that we have developed for one industry or for one customer that can sometimes supply others. And here we here with this very interesting technology. Let me give you some color on this. When we do – for carbon steel, when we recover metallics, we now – now the recovery facility, we have three classes of metallics we recover, and they are segregated by size. So we take the slag, process it, take the metallics out and sometimes they are big pieces of steel. We call it Scrap A. And medium pieces of steel is called Scrap B, and very small ones are called Scrap C. A and B can be directly re-integrated in the steel manufacturing process because you can melt them together with the melting process. The C part, so small a particle that if you try to put it back on the furnace, it vaporizes before it melts. And so you just dissipate energy and don’t recover anything like that. But in our Excell



31

business, because nickel prices are substantially high, we have a technology where we take very small particles of nickel and compress them, again through a proprietary technology. And it makes sense, of course, for the stainless steel industry because of the price of nickel. And we are looking at this and say, why can’t we use it for carbon? We have those piles and piles of C scrap in all those carbon steel. Nobody knows how to deal with that. Most of the customers would landfill them. Others would try to incinerate them. And here we have the solution. And we are now negotiating and commercializing that solution with our customers. So just three examples of what we believe is going to be the future of this business in terms of differentiation. So coming a bit to an end here, this was also presented to you last year. But at that stage, we did not have enough to show in terms of innovative differentiation that as the Equinox and LanzaTech partnerships allow me to do today. So we were, at that stage, under negotiation with those two companies, as we are today with several others with similar solutions, addressing major problems of our customers. So we were not able to talk last year more openly about any of those. But today, I think it gives you a little bit more color. What you see there is that in 2010 our revenue was about $1.4 billion. We foresee some loss in churn as a consequence of walking away (e.g. not renewing) from some of our known profitable contracts, and that’s okay. I think, as I mentioned before, if you have a contract that we cannot renegotiate in common terms and make it attractive from a profitability point of view, eventually, we have to walk away from those. But starting from that, our revenue – projected revenue is $1.491 million. And then we foresee a share gain as a consequence of new services and a consequence of new contracts that we are target for $140 million additional revenue. And then a market share improvement with existing customers of $150 million. And then we have adjacencies and new lines of business, mainly driven by the technology we are talking about that move us into new opportunities with new industries and new ventures, beyond our relationship with steel mills today. From the profitability point of view, we are still very confident that the share gain is going to bring us the $26 million you see there in that green block, as well as the market penetration, market position. But also, the adjacent markets and new lines of business will contribute to the profitability we have. Of course, there is a cost inflation that impacts it. And then we have also the positive impact of the right-sizing of our business being another $35 million to the bottom line, in combination with some efficiency gains that we have. With all those factors in place, I am, again, very confident that we can get to the $230 million on a $1.9 billion revenue (by 2015), though it’s so substantially above the levels of return margins that we are projecting for the future. Okay. A challenging 2011. No doubts about it: a very challenging year. I’ll tell you, in my 30 years of experience in the metals industry, I’ve never seen anything like that. Every week, I get an e-mail with a customer shutting down operations somewhere, is lowering down a furnace somewhere. It is amazing. It is amazing, really. And, of course, when things get tough as they are, mainly at the end of this year, if you don’t have a strategy that differentiates you, that really addresses the needs of our customers, things that are meaningful to them, it is very hard to achieve the level of returns that we believe our shareholders deserve. And that’s why we have put a lot of focus in terms of differentiation of our portfolio of service as well as targeting customers that recognize and need differentiations, such as TISCO, JSW in India and others. We’re changing here. We expect it to continue during the first half of 2012. We believe, based again on the inputs of our customers, that we will have a slightly better second half, but it’s just still on the hope field. We don’t have much clarity on that at this stage, to be honest. We have a lot of initiatives focus on



32

lowering the basic logistic breakeven point. And they will be accelerated substantially during the course of 2012. The restructuring that we are deploying is a good part of it. Again, I hate walking away from contracts that we have. And sometimes, I know those are customers that we have relationships on those specific sites sometimes for years, sometimes for decades. But size doesn’t matter that much. My commitment with my leadership and with you and with our shareholders is on profitability. It’s not on size. We are already the largest. We don’t need to be bigger; we need to be better. So if we have to exit a few contracts where we cannot get the level of profitability that we are looking for, we will. I don’t mind – we don’t mind leaving. I had a conversation with someone other day about competition. And so, well, don’t you mind have sometimes your competitors eating your lunch? I said, my lunch? Of course I do. My leftovers, I don’t care. They can take it. Right? So if we look at our contract and I really don’t see any possibility of deploying initiatives that will raise the level of return to what we believe is the minimum you deserve, we’re not going to stay there just to have a top-line impact and call ourselves bigger. Okay. Firm commitment on improving margins and return by right-sizing SG&A. For years, before I joined Harsco, Sal started this OneHarsco initiative. He put a lot of emphasis on standardizing procedures, IT platforms, ERPs. Now is the time to take advantage of it. Thank you and thank Harsco for creating that condition. So we can now look at what we have in terms of offices’ footprint and say, I can combine this. Now I have the systems in place; I have the leadership in place to execute. It’s tough executing in a restructuring. I’ll tell you, I have been through some of them, not a fun place to be, but needs to be done. And we will do it. So we have a firm commitment on doing that. Selective capx, oriented towards high margins, high-return projects. I don’t think I have to reinforce that. I don’t think I have to reinforce that commitment. And accelerating innovation initiatives to develop a differentiated portfolio of solutions to our customer. Again, the mill service industry, led by us, for too many years, has been stagnated in terms of innovation. We perform services that we perform to our customers today in the same way, same portfolio of solutions; same thing that we’ve done for 20 years, probably more, probably 30. And now coming back to the same customer and say, I want to do that again. By the way, I want a price increase. Come on. Would you buy 30-years-old car for the same price to pay a new car today? You won’t, right? So innovation is part of what we’ve done. I think now we have substantial change in our orientation towards differentiating the portfolio of services. All those solutions have been developed, have started from the request of our customers in terms of what is really meaningful to them. So we are not developing technology just for the sake of developing things that we take as fancy or sexy, right. It is addressing what is important to our customers. It’s addressing carbon monoxide generation, which is the major problem of these two industries. Is addressing landfill, right, which is a major problem of the industry. When we are developing solutions in those areas, you do not even finish to develop them and you already have a queue of customers coming to you and say, I want to be the first one to try. I want to do this. Do this with me. I will give you that contract if you’ll give me that technology. That’s what we want. That’s the field we play today. It doesn’t mean, though, just reinforcing, that you’re going to walk away from logistic service. Not even close to that. With our global footprint and our ability to manage our assets more intelligently, we still believe we can make the logistic business substantially more profitable by dropping our breakeven point. So that’s the message. I hope you share my enthusiasm in relation to the future of this business. But looking back a little bit shortly, 2011 was a very tough year, as I said. But with exception of a



33

few portions of our business, we did quite well. So, far from where it should be, but we did quite well, vis-à-vis the challenges of the industry. So that’s what I wanted to mention to you. Thank you very much for the opportunity, again.


All right. Thank you, Galdino. I want to make one reference. If you go to Page 23, Slide 44, there’s always a little bit of confusion, somewhat self-induced by us, on the capital ratio to revenue. Basically, we used to call it a 1:1 ratio; it really is a 1:7 ratio, in that a dollar of capital put in effectively in year one, gets us a dollar revenue every year of the average contract, which is an average about seven years. So if you put $5 million in, you’re going to get $35 million of revenue. So just to clarify that point, I think it’s an important one. I’ve always myself referred to the 1:1, but it’s really a 1:7 or a 1:5 or 1:8, but the average of 1:7, just to point that out, though. Okay. Let’s take a 15-minute break, and then we will continue with the program around 10:50. We will now be muting the webcast for approximately 15 minutes and we’ll resume at that time. Thank you. -Break- I would like to welcome everyone back to our program, including our webcast participants. Our next presentation will be given by Scott Jacoby, Vice President of Harsco Corp and Group President of Harsco Rail. Clearly, one of our more recent success stories, actually over several years, has been our Rail operation. Scott has been with the Rail operation for a number of years. With Harsco a little longer, and really has done a great job. Scott’s taken a business that would probably have been said to have a $150 million revenue base to a $200 million revenue base and now, I think we with pretty good confidence can say that the revenue base of Harsco Rail is now $300 million. And I know that we have a five-year projection up to 2015 given last year of $400 million and I think that I have the confidence Scott will probably equal, if not exceed, that. So it’s an operation we’re very proud of this; it’s been globalized. And I’ll let Scott give you the details.

Scott W. Jacoby - Vice President and Group President, Harsco Rail

Thanks, Gene. Good morning, everybody. As Sal mentioned earlier, 2011 will be another strong year for Harsco Rail. We anticipate sales to be near record levels and operating profits to be the second highest in the company’s history. While these are significant accomplishments, I’m most excited about the effort put forth by the Rail team to position itself for another strong year in 2012 and beyond. There are several reasons we are confident about 2012. The first and most significant is the rebounding North American market and our growing relationships with the Class I railroads. While car loadings have seen a modest increase, we expect more robust spending by the Class I railroads in 2012. We are not just replacing existing equipment in kind, rather, we are looking into making improvements in our technology to support specific customer needs. Just recently, we were the only supplier invited to join a high-level discussion with the chief engineers of a major class I railroad. The discussions revolved around their current issues and future directions. We are now able to take this voice of the customer and incorporate it into our R&D programs. We’ve had some recent success of the voice of the customer to drive our R&D efforts. The unmanned drone tamper was specifically driven by one of our key customers. Unmanned technology is now a platform for us and we plan to introduce some additional unmanned machines to the market in the near future. With the rebounding North American market and the strong international activity, we are heading into 2012 with a solid backlog. We anticipate having a year-end backlog in excess of $300 million,



34

as well as a significant amount of potential orders in the pipeline in both North America and internationally. Another accomplishment in 2011 is the further refinement and evolution of our business model. As we touched on last year, Harsco Rail is migrating from just an equipment manufacturer to a provider of track maintenance solutions. We have taken the philosophy of being a track maintenance solution provider and have refined that philosophy into five segments: inspection; analysis and planning; scheduling; execution; and evaluation. We have done two major things to support this business model. First, we have organized the company to focus on our product lines. The product line management organization is global in scope and takes a market-based view of our opportunities. By using market data and taking a global approach, we grow our market access, increase our speed to market with the right products and reduce R&D risk. This has resulted in a product plan to support our business model. During a recent 2011 tradeshow, Harsco Rail unveiled five new pieces of technology based on customers’ feedback. This equipment did not exist just three years ago. As well, we now have a pipeline of R&D projects to support our future global growth. The second thing we did to support the business model and the five segments was to create a technology and analysis department. We believe technology is what will separate and differentiate us from our competition. The final reason we have confidence heading into 2012 is that we still have a portion of our backlog tied to the 2007 grinder order for China. This project is roughly 65% complete. We are now shifting from manufacturing to project management to support our local partner. China is no longer looked at as a one-time order, but is now just one piece of our long-term business strategy. We have invested much time and effort in the globalization of the Rail business. Using the One Harsco philosophy Sal established, we have seamlessly added resources to key markets with little cost and effort by leveraging existing Harsco NVs. Just to step back for a moment, Harsco Rail historically has been focused on the North America market and attempted to serve the global market via U.S.-based sales and operations. This is not a winning business model in today’s global market. As such, our philosophy has changed. First, in North America, we have positioned our sales organization to be co-located with our customers. Second, we put boots on the ground in key strategic international locations. The next step of our globalization strategy is to establish a greater local presence in our key markets. To emphasize my point from the previous slide, just three years ago this page would have looked dramatically different: fewer locations, fewer people outside the U.S. We have consolidated our manufacturing throughput and placed our leading salespeople in the international marketplace. As stated previously, our first action was to move our domestic sales representatives within close proximity of our customer base. The same philosophy was incorporated in Canada in 2011. Internationally, we have added sales individuals to Brazil, 2009; Germany and China, 2010; Abu Dhabi in 2011; and we’ll be adding a strategic partner in Turkey yet this year. Both the emerging and established markets offer growth opportunities. In Japan, we will increase our technical service presence in 2012. As well, we will revisit our India strategy and place additional resources in India in the coming years. We’ve experienced early success in our localization strategy, evident by 2009 wins and new opportunities. In Canada, where we co-located with the major railroads, our market share has improved. In Brazil, our local presence has allowed us to form deep relationships with the contractor segment, which is an emerging customer base in the country and has resulted in an order book for our tamping product line. In addition, we are working closely with the Brazilian metros, preparing for the needed expansion in preparation for the World Cup and the Olympics. In Saudi, as we previously announced, we were awarded a major contract by the Saudi railways. In



35

the UAE, where we’ve established Harsco Rail Abu Dhabi, we are in a strong position to capitalize on new track projects in the coming years. In Europe, we are expecting to announce new rail grinder sales in the next few weeks and are seeing new opportunities for equipment and services across the continent. In Australia, where we are an established player, we were just awarded a $10 million deal with Kiwi Rail for surfacing equipment. In Japan, our increased sales force presence and commitment to place technical service teams in-country beginning in 2012, opened the doors for a major win for a rail grinder with Daiichi, a contractor serving JR East. The Daiichi win is significant for two reasons: first, Daiichi was the sole-source of our major competitor; second, Daiichi performs services on Japan’s premiere high-speed rail line. Beginning in 2012, Harsco Rail equipment will operate on nearly every major rail line across the globe. This is a testament to our strong engineering, product quality and commitment to our customers. Finally, we are creating new opportunities in China. Since China has been such a big part of Rail success over the past years and will continue to be important in the future, I want to spend a bit of time on the country and update you on the current status and future opportunities. As you recall, in 2007, the China Ministry of Rail (MOR) awarded us a large grinding contract (order) in excess of $360 million. As stared earlier, we are roughly 65% complete with this project and we are now working closely with our local Chinese partner on the remaining 35%. The MOR continues to spend on the railway sector, most notably by way of its five-year planning horizon and the 12th Five Year Plan currently being budget. Spending for the 12th Five Year Plan will commence in 2013 and Harsco has positioned itself for potential orders. Although the Ministry of Rail represents high-quality opportunities, it no longer represents our only opportunity in China. Significantly, three additional market segments make up our China strategy. First, we are aggressively establishing an aftermarket parts distribution center in China to support the large number of (rail) grinders we have delivered since early 2000. In addition, the metro market continues to develop and Harsco Rail holds a market share leader position for our grinding machine. As the map shows, we have had a significant metro wins through the past few years and we anticipate a minimum of 10 additional grinders to be tendered between 2012 and 2015. Finally, the growing private sector customer base represents opportunities for Harsco to offer high technology into emerging markets. In addition to selling to China, we will access China’s low-cost source of supply for our global manufacturing and spare parts operations. As you can see, our revenues are weighted towards equipment in 2012. That being said, we still have roughly 37% of our sales tied to recurring parts and niche services. As far as our geographical mix, we measure ourselves by ship-to rather than ship-from location. We are very well balanced with 49% of our revenues coming from North America, 30% from China, 8% from Western Europe and the remaining 13% from the rest of the globe. It’s important to note that of that 30% making up China, over 30% originates from sources other than the Ministry of Rail contract. As noted on the previous slide, we are diversifying our revenue streams in China. Takeaways: We feel confident heading into 2012 due to the North American market rebound, the China Ministry of Rail deliveries, our new product development launches and our strong backlog. As an organization, we continue to focus on continuous improvement in every aspect of our business. It is no longer a special initiative; it’s the way we operate; it is built into the fabric of our company. I’m proud to report by the end of the year 2011, we have certified greater than 20 continuous improvement leaders at Harsco Rail. Lastly, our growth of the future is dependent upon new product development and the execution of our global strategy. Thank you.



36


I know we’ve got a few new people in the room. So just for their benefit, we’ve mentioned a number of times; it’s a big item, it’s a high item, it’s a high-technology item. Explain what a (rail) grinder is and what it does.


In layman’s terms, after a railway runs their trains across, the rail tends to flatten out and basically it changes the profile. And when the profile gets flattened, there tends to be cracks and wear on the rail. And the rail grinder actually extends the life of the track, re-profiles the track and gives it about the size of a dime profile on the top for the trains to run on.


And it reduces fuel cost.


It reduces fuel costs; there’s a lot of value props in grinding.


Yes, it improves the operating efficiency, improves speed, so trucks no longer past trains on the highway. And given that much of the world (rail) track not only is for freight, but also passenger, unlike the United States where it’s still pretty separate, except on the East Coast and a bit on the West coast. It improves safety. So really three major components. And it gets very expensive to replace tracks, so this extends the life, reduces operating costs, the primary operating cost is fuel, the highest; it improves safety, improves speed. So there are great items. Scott will come back later in the Q&A; I just wanted to bring this out because I always get that question: what’s a grinder?


Thank you.


All right, good. Thank you; I appreciate it. All right, well done, well done. I guess when your operation’s doing so well, you don’t have to speak very long and that’s the case with Rail. So that’s the case with Scott and that’s the case with the next gentleman. Our final operating presentation will be given by Scott Gerson. Scott, again, is Vice President and Group President of Harsco Industrial. Scott assumed the reponsibility for Industrial at the end of last year. Heretofore, the three businesses under Harsco Industrial were primarily domestic-based. Under Scott’s leadership, international opportunities for which to expand the business lines have accelerated. We see that continuing. As with Rail, Harsco Industrial continues to be one of the



37

better performing operations of Harsco, both on a margin and an ROIC basis. So I’ll let Scott to give you some details on that.

Scott H. Gerson - Vice President & Group President, Harsco Industrial

Thank you, Gene. Our primary focus in 2011 was to take the actions necessary to position Harsco Industrial for growth. Subsequent to my appointment as Group President of Harsco Industrial in July of last year, I established a new senior management team across all three divisions. We then brought in new sales leadership for both IKG and Patterson-Kelley and made significant changes in the operations across all three of the divisions. Lastly, we established dedicated engineering teams, who’s purpose is to develop new product innovation to create future value for our customers. All these changes have given us a dynamic new leadership team, which is focusing on delivering aggressive multi-year growth for Harsco Industrial. Also this year, we have expanded our focus to the global energy markets. These markets include natural gas, oil, coal and markets where energy efficiency drives buying decisions. These markets are helping and helped fuel our growth in 2011. And lastly, we focused on globalizing the business in order to reduce our dependency on the U.S. economy. This included establishing new joint-ventures in emerging markets, such as China and Brazil, and markets where natural gas drilling is significantly growing, such as Australia. For 2011, we are anticipating year-over-year revenue growth to exceed 30%. Along with this growth, we’ve seen market share gains in all three businesses. And with the globalization of the business, we have seen our non-U.S.A. revenue grow from 15% of sales last year to 21% of sales this year. Our increased emphasis on global energy markets has also driven significant growth for Harsco Industrial. Increased natural gas drilling, particularly in the shale deposits; increased natural gas usage combined with reduced U.S. natural gas imports; retrofits to power stations due to proposed EPA regulations; increased oil sands activity up in Canada; and the increase in global offshore drilling have all contributed to our growth this year. Lastly, the increasing cultural focus on energy efficiency is also driving growth within our Hydronic Heating business. Operating profit for 2011 is expected to show solid double-digit year-over-year growth. Operating profit was somewhat affected, though, by a one-time startup cost with the three new international joint-ventures, the one-time cost associated with the significant management changes we’ve made, the speed at which commodity prices rose earlier this year and the associated LIFO costs with that. 2012 is shaping up to be another growth year for Harsco Industrial, albeit not at the same growth rates as we experienced this year. We’re anticipating strong growth in our new emerging market operation, with over four times the 2011 revenue for Australia and double the 2011 revenue for both Brazil and for China. In addition, we’re also evaluating additional joint-venture opportunities in 2012, primarily focused on the natural gas drilling markets, as we continue the globalization of the Industrial businesses. This increased international growth should allow us to achieve 2012 non-U.S.A. revenue of at least 25%. We expect to continue to gain market share in 2012 through leveraging LeanSigma tools, such as voice-of-the-customer and design for LeanSigma to help expedite the value that our newly created innovation engineering teams will bring to our customers. In addition, we will continue to strengthen our shift from product selling to relationship selling, which will also help further grow market share. Lastly, we anticipate a slight increase in margins in 2012, due largely to the increased contribution margin from our international joint-ventures, combined with our continuous improvement activities, which are well entrenched in our existing domestic operations.



38

The 2012 outlook for Harsco Industrial is very good. The markets we are focusing on are healthy and we see them continuing to drive additional growth throughout 2012. Based on our current backlog and our current market visibility, we are anticipating that 2012 will conservatively create additional revenue growth from 4% to 6%, which of course is dependent upon the stable geopolitical and global macroeconomic environment. If the overall economy improves in 2012, specifically within the energy market or within non-residential commercial construction, we could see additional revenue upside to that estimate. Additionally, several governments are talking about strategies to financially incent companies to make improvements to drive energy efficiency. These types of incentives can also drive additional growth, specifically within our Hydronic Heating business. So in summary, we’ve enjoyed significant year-over-year revenue growth in 2011, in excess of 30%. We have successfully established new operations in three emerging markets and are predicting significant growth in those operations in 2012. We shifted a larger part of our market focus to the global energy sector; we have grown and will continue to grow market share; and we’re anticipating that 2012 will be another successful growth year for Harsco Industrial, both in revenue and in operating profit. And that puts us on track to achieve our 2015 target of $450 million in revenue, which equates to a compounded annual growth rate of 14.2% over the five-year period. Thank you.


Thank you, Scott. One of my challenges in Investor Relations is getting analysts and portfolio managers a little bit past Infrastructure and Metals and Minerals sometimes into the Rail and in particularly Industrial area. And we really are proud of the Rail and Industrial areas. They’re over $500 billion, closing in on $600 billion of revenue. They both independently and jointly enjoy mid and potentially high-teen margins. They both, just within the last year, 2 or 3, entered the international arenas and are competing very well there. So please don’t forget them, I guess is my message to you. Clearly, the management of our balance sheet and financial resources continues to play a key role in our growth strategies and our future performance. Throughout 2011, we have been able to maintain our historically strong balance sheet and, importantly, high-level of discretionary cash flows. Many of you have met our CFO and Treasurer, Steve Schnoor throughout the year at various conferences, non-deal roadshows and analyst visits to Harsco’s corporate office. I would remind you that effectively, all requests for capx must go through Steve; hence, he is the gatekeeper of Harsco’s cash and returns. There are ultimately other levels within the approval process, including our CEO, Sal Fazzolari and our Board, but Steve’s the gatekeeper first, so it’s important to understand that. So, Steve, if you’d like to come up.

Stephen J. Schnoor, Senior Vice President, Chief Financial Officer, and Treasurer

Well, thank you, Gene. Good morning, everyone. I would to begin the financial strategies overview with our annual report card to analysts. The purpose of the report card is to review how we did in regard to our financial objectives for 2011. As you are aware, 2011 continued to be a very challenging year due to the depressed conditions in our commercial construction end-markets. Therefore, our key financial strategies were to achieve the projected savings from the Harsco Infrastructure restructuring actions and resulting earnings per share growth and to prudently manage our finances to provide a solid foundation for our financial flexibility and to capitalize on global growth opportunities.



39

I am proud to report that we have met those goals. We expect to achieve the projected $40 million in cost savings from the 2011 Harsco Infrastructure restructuring program. Unfortunately, as Sal mentioned earlier in his opening comments, some of these savings are clearly being offset by the significant deterioration in the UK market and Europe in general. Nonetheless, we expect earnings per share to increase over 40% in 2011 for the restructuring charges that we announce this morning. This is despite the continuing adverse economic conditions in certain key end markets in Europe, as well as lower stainless steel production in the U.S., as Galdino mentioned earlier. As you heard this morning from the team, we still have the opportunity to reduce the cost base of our infrastructure and our Metals and Minerals businesses further. As I stated earlier, we are in the process of a major restructuring that will result in substantial additional cost savings in 2012 and into 2013. Continuing on with our 2011 report card, in 2011 we continued to be very selective in capital expenditures, without sacrificing growth opportunities. After reducing Capx by some $300 million in 2009 and achieving record free cash flow and spending less than $200 million on capx in 2010, we project total capx of approximately $325 million in 2011. This is still significantly less than the $400 million in average capx that we spent from 2006 to 2008. In 2011, capx increased mainly due to a number of organic growth opportunities, as well as the timing of contract renewals in our Metals and Minerals business. With a total debt-to-capital ratio of less than 40%, our year-end balance sheet will continue to be in the best shape it’s been in over 10 years. So the company’s strong financial position and diverse business portfolio, as well as significant discretionary cash flows, have allowed us to retain our investment grade credit ratings. This provides us with significant financial flexibility and maintains low borrowing costs. As evidence of that, we reduced interest expense in 2011 by over $12 million, as a result of the timely refinancing of debt at a very low rate in late 2010. We enter 2012 with a very strong balance sheet, giving us the ability to execute our strategic initiatives. Our key financial strategies for 2012 include maintaining our disciplined financial management, the continual reduction of our cost base to increase profitability and the allocation of capital to the highest return projects. In 2012, we will execute approximately $26 million of incremental restructuring cost savings in our Infrastructure business and an additional $10 million principally in our Metals and Minerals business. Beginning in 2013, the annualized savings from these two restructurings will be approximately $65 million. Based upon our worldwide mix of earnings and investments, the effective income tax rate in 2012 is expected to be in the area of 27.5%. Although pension costs are expected to increase by approximately $10 million in 2012, we continue to take steps to reduce these costs in the long-term and to minimize volatility to the extent possible. I will discuss this more in detail later in the presentation. We will maintain discipline over our balance sheet in 2012 and as far as metrics go and ensure adequate liquidity, so the company could sustain its financial flexibility. We expect to renew our revolving credit facility, most likely in the first half of 2012. In 2011, through our business process continuous improvement program, we have accelerated working capital turnover rates and further improvement is expected in 2012. Capital will be allocated according to our strict return criteria using our EVA model. Lower growth capital expenditures, as well as contract renewals, must meet those criteria, otherwise the capital will not be deployed. This will increase our return on capital, especially when combined with the aforementioned cost reductions from our restructuring program. In fact, we expect total capital expenditures in 2012 of approximately $300 million, which is a measurable decrease from the 2011



40

level. In 2012, after restructuring cost savings, we again expect double-digit earnings growth. We will maintain our strong financial position and strive to retain our investment grade credit ratings. Now, during very tough economic times for our two largest businesses, we said we expect to have generated over $1.5 billion in discretionary cash flow from 2008 through 2012. Discretionary cash flow is defined as cash from operations, plus cash from asset sales, plus capital expenditures that are required to maintain current revenue levels. With this level of discretionary cash flow, that provides us with financial flexibility for targeted uses of cash and the clear ability to continue our long history of dividend payments. There was some catch-up maintenance capital expenditures in 2011, due to above average contract renewals in our Metals business. Maintenance capital expenditures will be lower in 2012. In 2012, we will continue our balanced approach in the use of our discretionary cash flows. Those uses include; first, to pay a dividend to our shareholders, which we have done consistently since 1939; to invest in high-return growth capital expenditures; for share buybacks; and for other investing needs; and for activities such as joint-ventures. As we have mentioned in the second and third quarter conference calls this year, bidding activity and contract wins of long-term, high-return projects in our Metals and Minerals business have been strong, thus increasing the opportunity for growth capital expenditures in 2011 and into 2012. Several of these projects are still in a start-up phase and will begin to provide full returns later in 2012 or 2013. This includes the TISCO joint-venture operation, for which approximately $50 million of capital will be expended in 2012. Since Harsco’s a 60% shareholder in the joint-venture, 40% of capital will be paid by our partner, TISCO. Therefore, the net TISCO capital expenditures in 2012 will be approximately $30 million. We currently have a share repurchase authorization of 2 million shares that has been recently renewed by the Board of Directors. As you can see from the table, we estimate approximately $145 million of growth capital expenditures for 2012. This includes our 60% share of the TISCO capital expenditures that I mentioned earlier. Total pre-tax cost of the fourth quarter 2011 restructurings are estimated at approximately $200 million. Of that amount, $173 million relates to the Infrastructure group and $25 million were raised to Metals and Minerals. It is important to note that approximately $118 million will be recognized in the fourth quarter of 2011, with the balance of approximately $82 million recognized throughout 2012 it accords with the accounting rules for restructuring costs. We will report the amount the restructuring costs recorded at each quarter with our earnings releases. The total cash output for restructuring is estimated at approximately $88 million. That will also be reported each quarter in 2012. It is important to mention and emphasize that approximately $112 million of the restructuring change is non-cash. Our Defined Benefit pension expense is expected to increase by approximately $10 million from 2011 to 2012. The increase is attributable to the volatility of financial markets and the nature of pension accounting, which is driven by interest rates and financial returns on pension plan assets. However, we have been very proactive in strategically managing our pension liability, to the extent that they are within our control. Some of those strategic actions that we’ve taken include: freezing all major Defined Benefit pension plans; withdrawing from or limiting exposure to multi-employer pension plans; and shifting some pension investments, pension assets, to longer dated bonds to better match maturities dates to the expected timing of retiree pension payments. These strategies have significantly reduced the service cost component of pension expense that should help mitigate, but not eliminate, the effects of future Defined Benefit liability changes due to interest rates.



41

For 2012, the midpoint of our earnings per share guidance is $1.62 excluding restructuring cost. This is a 23% improvement over the midpoint of estimated 2011 earnings per share. The improvement in EPS is mainly driven by operational improvements, including the restructuring cost savings in both our Infrastructure and Metals businesses. The EPS improvement is despite $0.22 of additional headwinds, including higher pension expense, a higher effective income tax rate and the adverse effect of foreign currency translation. This slide is designed to provide you with the major assumptions that we use in the development of our 2012 earnings guidance. For example, we used actual exchange rates as of September 30, 2011. The euro equaled $1.36 at that time and the pound sterling was $1.56. Our assumption for 2012 steel mill production utilization for our customers is 79% and 177 million liquid steel tons of production for the year. The assumed Infrastructure group rental equipment utilization rate for 2012 is 63%. Keep in mind the equipment utilization assumption has been adjusted for the write-off of equipment that is part of our restructuring. We will present an apples-to-apples comparison of utilization rates when we report our quarterly earnings in 2012, adjusting the 2011 historical utilization rates accordingly. It is important to note that for 2012, we are facing increased costs in the form of higher pension expense, as a result of a lower discount rate and higher income tax expense compared with 2011, due to the mix of earnings and tax benefits. As you can see, there are several other assumptions on this slide that affect our earnings projection. If the actual 2012 figures differ from these assumptions, our results could be significantly different. A sensitivity analysis is provided on the next slide, which I will review now. This slide provides you with the operating sensitivities of the key assumptions that we use in developing our guidance. For example, everything else being equal, a 5% change in exchange rates for a basket of key currencies will affect pre-tax income by approximately $4 million. As you could see, a small change in rental rates affects earnings for Harsco Infrastructure more significantly than any other factor. So if end market conditions improve affecting the rental rate, the effect on earnings is significant and vice versa. A 1% change (e.g. a 100 basis point increase or decrease) in the total utilization rate of Harsco Infrastructure rental assets will generally affect free tax operating income by approximately $7 million. A 1 million ton change in steel production at Harsco Metals operating locations will generally affect pre-tax income by approximately $1 million. Please keep in mind that these sensitivities are general guidelines based upon a certain mix of earnings and the effects could change in the future. Our 2012 earnings are projected in the range of $1.55 to $1.70 earnings per share for the year excluding restructuring costs. The midpoint of this estimate is approximately a 23% increase from the midpoint of our latest 2011 guidance. While not yet giving guidance by the quarter for 2012, it is important to note that earnings in the first quarter of 2012 will be by far the lowest of the year and will in-fact be lower than the first quarter of 2011. We’ll give first quarter guidance for the year in the year-end earnings release, which we will issue at the end of January. Our 2012 performance is underpinned by the cost savings resulting from the Infrastructure and Metals and Minerals group restructuring plans. We are not assuming improvement in end markets in 2012. The 2% decline in revenue for 2012 is due to the effects of the Harsco Infrastructure restructuring, specifically relating to the country closures that Ivor referred to in his presentation, as well as negative foreign currency translation. This slide summarizes those economic and other factors that I have mentioned, positive, negative, as well as variable that are expected to affect our 2012 earnings that are considered in our 2012 guidance. Positive factors, especially the benefits in cost savings from the restructuring actions



42

which are within our control, are expected to more than offset the negative factors which are affecting our earnings, such as the higher pension expense and income taxes. Although we are not assuming significant end-market improvement in 2012, our strong balance sheet and discretionary cash flows will set us up to take advantage of growth opportunities, both organic as well as joint-ventures. We continue to take actions to significantly reduce our cost base and streamline our operations; this underpins our 2012 earnings guidance and provides significant operating leverage, as well as further opportunities to grow revenue. Thank you. I appreciate your continued interest in Harsco and I do look forward to meeting with many of you in 2012 at sell-side conferences, as well as a number of non-deal roadshows; they’re always fun.


Thank you, Steve. Sal will make some closing comments after our Q&A in a minute or two, but let me, if I may, summarize some of what we said today. You’ve heard Galdino commit to higher operating margins in 2012 and beyond. You’ve heard Ivor say he expects to be at or near breakeven in 2012, with profitability in 2013. You’ve heard Scott Jacoby and Scott Gerson – see I didn’t call you guys the Scotts, okay; or I just did – say more importantly, they will continue to provide both growth and high returns in 2012 and beyond. You’ve heard Steve say that we will allocate capital to the highest return projects. And by the way, you heard Galdino say that; you heard Ivor indicate better control of his rental assets, thus reducing the need with an infrastructure for significant new capital; and the fact that simply that both Rail and Industrial have become so efficient and so lean that they don’t require significant amounts of new capital. And lastly, you heard Sal say that the corporation does have a firm commitment to continue paying our long history of dividends. So just a few things to think about. We’ll now ask Sal to moderate the Q&A session.



43

QUESTION AND ANSWER SECTION

<A – Eugene Truett – Harsco Corp.>: If I could ask each of you to wait until I give you the microphone to ask questions because we do want to have the consideration of the webcast participants hearing that, so just a minute. <Q – Jeffrey Hammond – KeyBanc Capital Markets>: Hi. Jeff Hammond, Keybanc. Just I noticed in the report card and versus the strategies last year, you left out the mention of the $200 million of free cash flow and the kind of long-term 2015 chart of $200 million free cash flow per year. So I just want to be clear, are we changing the message that we have these growth CapEx opportunities and that’s off the table? <A – Salvatore Fazzolari – Harsco Corp.>: Jeff, I mean you’re right; we did leave the chart off, but I did mention in the report card that we were not going to hit that metric this year. I said clearly in the report card that we were not going to do it because of the opportunities we saw in India and China. And looking at next year, we’re looking at about $110 million of free cash. Long-term, it’s still our objective to generate as much free cash as possible and redeploy that cash, again, in a balanced way. It depends on the opportunities, it depends on share repurchases, it depends on a lot of variables. The only thing I can say is if you look at our history, we’ve done things always and we try to do things in a balanced way and balance all those things from debt reduction, to dividends, to share repurchases, to growth opportunities. As I mentioned I think in the last conference call, you know there is a window open here, particularly in India and China, and we do not want to miss that window because once you lose that opportunity in those two countries, it may never come back. In addition to that, if you look at these technologies that Galdino was talking about, there are some pretty good opportunities that we need to carefully look at. There’s 2 or 3 other technologies that he was not allowed to talk about today that we’re hopeful to announce in the next 6 to 12 months as well. So you’ve got the TISCO technology, you’ve got Equinox, you’ve got LanzaTech and 2 or 3 others. We’re not going to invest in all of those because you could invest billions of dollars; I mean that’s how many opportunities we have. So we do have to be very selective, and Galdino knows that, and some of these technologies are more immediate than others. I will tell you that we are intent on transforming the Metals and Minerals business to more an innovation type company because we have to, because the business has been allowed to be commoditized over a long period of time, the basic services that Galdino talked about. And then given the global pressures right now, there’s tremendous stretch from the big guys, like ArcelorMittal and so forth, on pricing. And so we need to continue to transform the business, seize these opportunities across the emerging markets and better balance the company. So in a roundabout way, we have not abandoned the long-term strategy to generate as much free cash flow as possible, but on the other hand, I don’t think you want us to forego some very important growth opportunities, particularly to establish a beachhead in places like China, India, Brazil and a few other places. So hopefully that answered your question Jeff. <A – Eugene Truett – Harsco Corp.>: Yeah. And just to reiterate, recalling on Page 6 on Slide number 10 at the top, we put out there the discretionary cash flows. I think it’s fair, Sal, to say we’ll generate well over $200 million in discretionary cash flows. The question becomes how do you spend it; do you put in the bank and earn nothing; do you buy shares back; do you put it out for growth CapEx with long-term contracts that – primarily under Metals and Minerals as Galdino has committed that we’ll have a good return. So I think it’s not a point of generating free cash; it’s not even generating discretionary flow; it’s how do we spend it. If we didn’t spend any of it, put in a bank, then you’d have all the free cash you want and you wouldn’t earn anything on it.



44

So again, I think that if I could, refer you back to Page 6 and understand that it’s decision-making what you do with the free cash. This year, as we’ve said, Sal, Galdino, Steve, that we were presented with more opportunities for long-term contracts than we expected this time last year and we chose to pursue those and it’s a simple decision of growth in the future. <Q – Jeffrey Hammond – KeyBanc Capital Markets>: And then just some clarification on guidance. Scott Gerson gave some great color on how he thought the growth and op margins are going to shape up. And I’m just wondering if each of the business heads or if Steve wants to address them each, how you think of sales growth or lack of sales growth and where you’re thinking of margins. I think there were some qualitative comments, but a little firmer view on how you see ‘12 would be helpful. <A – Salvatore Fazzolari – Harsco Corp.>: Sure. Steve, you want to tackle that? <A – Stephen Schnoor – Harsco Corp.>: I think the sales growth will be in Harsco Industrial for the most part. As far as in Infrastructure, the reason why we’re down, as I said earlier, 2% from last year, is because of our exiting countries as a part of the restructuring. But keep in mind, there’s about $100 million, a little less in foreign currency translation effects overall, which are affecting our year-over-year sales growth. So basically because of that, we’ll have a flat to slightly down year overall. <A – Salvatore Fazzolari – Harsco Corp.>: Yeah. So I mean if you look it at it on the business-by-business, for example, I think Metals and Minerals is going to be essentially flat because of FX and because of walking away from X number of contracts that Galdino talked about. Infrastructure’s going to be essentially down a little bit because we’re exiting about $80 million in revenues from the exit countries. Rail, I think you’re going to be flat roughly – Scott, right? – in revenues next year, if I remember right. You’re not going to be materially one way or the other. And the other Scott’s going to be up about 6%. So a the net-net basis we’re down about 2%. The big driver, though, is FX and the $85 million in FX and the $80 something million in exiting those seven countries. <Q – Jeffrey Hammond – KeyBanc Capital Markets>: Margins and Earnings <A – Salvatore Fazzolari – Harsco Corp.>: Yeah, as far as the margins and earnings, clearly the Industrial earnings are going to be up next year and margins will be up slightly. Rail, I think we’ll predict pretty much a flat year in earnings just year-over-year and similar comparable margins. Metals and Minerals is going to be up. Jeff, now excluding, of course, the restructuring charge, both margins will be up and earnings will be up next year. And of course, Infrastructure earnings are going to be up, given the benefits and so forth. A rough first quarter for Infrastructure, as you can imagine, because of the time of the year and because of the ongoing problems in Europe particularly. And same thing with Metals and Minerals; a rough first quarter because you’ve seen all the steel production cutbacks. ArcelorMittal and Tata just announcing more cutbacks in Europe. So Metals and Minerals is going to have a rough first quarter. The stainless steel market has not come back in the U.S. The production is down to a very low level. I would think somebody during the break. I don’t know if you’ve seen Whirlpool and some of the appliance makers in the U.S. are laying off thousands and thousands of workers. Appliances are down 25% in North America this year; a lot of that goes with stainless steel. Our main customer in the U.S. supplies that market; that’s what they do. So that’s why that stainless steel production is down dramatically and, in fact, its levels – it almost takes us back. Unfortunately, I feel like I’m in Groundhog Day with these global shocks, beginning with 2008, 2009, 2010, 2011; it just doesn’t seem to end. If it’s not the U.S. crisis, it’s the Europeans sovereign debt crisis; it’s not this, it’s not that; it always seems to be something and we seem to be in the crosshairs of these issues.



45

But nonetheless, despite these headwinds and extraordinary structuring charges, we’re still showing earnings growth next year, but a lot of it is coming from the things that we can control and all the things that we talked about. Yes, Jim? <Q – James Lucas – Janney Montgomery Scott LLC>: Jim Lucas from Janney. Steve, first off, a couple of housekeeping questions. For 2012, maintenance CapEx expectations and D&A and what you have in the forecast? <A – Stephen Schnoor – Harsco Corp.>: Right. The DNA, a little less than $300 million. And the maintenance CapEx, they were in my presentation, if you go back to the slide on page 40, maintenance CapEx about $160 million. <Q>: All right, thank you. And then, Ivor, two questions. First, several times in your presentation you referred to the core product strategy and there’s been a lot changes in infrastructure. Could you maybe give us a little bit more color of what exactly the core strategy is today, how you’re defining it going forward? And secondly, do you have the right team in place or are there still some additions you need to make. <A – Ivor Harrington – Harsco Corp.>: Okay, yeah. All right, the first question, the core product strategy, about a year-and-a-half ago, we outlined obviously the core product strategy. So what this does, it looks at the products that we have and clearly we mentioned if you go back two years ago, we will multiple businesses, multiple countries, so when we were buying scaffold, we were buying it for a particular country and not cognizant of the type of the integration across. So that’s when I mentioned the number of scaffolding systems. So in country A, we would buy one type, in country B, we would buy another, et cetera, et cetera. So the core product strategy looked at our overall products and then, again, we did a ranking of the products and the quantity of the products and identified the core products that we would use, so in scaffolding systems we were down to four. And so those four systems, if you like, it covers the issue in Europe for the European legislation and the interchange you’ve got in Europe and obviously some of the different issues relative to the U.S. market. So that’s the kind of the principal of the core product strategy. A similar issue with formwork systems. When you think from the past, when we had SGB and we had Hünnebeck, they competed with formwork systems. And in addition to that, we bought various companies around the world that had various competitors’ formwork systems. So clearly, when we brought everything together, we looked at our inventory of formwork systems and our preferred system is the Hünnebeck system. We believe it adds the best value to our clients. We’ve got the most equipment and elements. So we narrowed down our core products. Now, that doesn’t mean that we don’t have more than one core product in our wall and formwork systems; in fact, we do. And the reason for that is in prior years, Hünnebeck’s rights for certain markets, like North America, we can’t use that equipment here. So when we came together, we identified this global strategy that takes the core products that add the best value and picks the core products and then we buy to rationalize those products in. So then when I talked about the largest part of the restructuring charge and it being the equipment and $110 million of equipment, that is the net book value of the equipment, obviously then adding in the scrap cost because we’ve been trying to sell it for a year; and then we have the transportation costs. That equipment doesn’t just come from the closure countries; in fact, around 25% comes from the closure countries because, as you can imagine, in Europe with the consolidation, we got it from there. So now we’ve gone round and most of the equipment rationalization is in Europe because of the different businesses, they’re different countries, they’re different developments. So the $100 million rationalizes it globally to get down to essentially our core products so we can use them going forward. So now when we buy material and that aligns in with the core product, when



46

we look at our development strategies, we developed them around the core products so we can get the maximum use. So that’s the core product strategy. The second part of the question, I don’t even remember the question now. Right okay. Thank you Sal. If I look back at it a year ago today, and I mentioned the last piece in the last month, it was essentially the European restructuring, the UK was the last one. And so now I do believe we do have the right people in place across the locations. And again, there’s only in recent kind of months has been the UK and the addition of the MD there. The MD in the UK, he’s got a proven track record with a major construction company and then with a the major competitor; he was the MD of a competitor of ours in the UK that focused on the industrial maintenance business. So we do have the right team in place now. Thanks. <Q>: Richard Reyes from HSBC. Firstly, thanks for putting such a coherent picture [ph] across the team; thank you. The question is around the shale and gas industry. As a bank, we believe in the whole emerging markets piece, like you’ve said today, but domestically here, we believe that the U.S. has a competitive advantage really over its worldwide competitors, for want of a better word, in the energy resources it has here. Could you give me some idea – perhaps this is for Scott; I don’t know – some idea as to how you believe this could well impact positively; Pennsylvania and New York State obviously are heavily touted here as being decent size reserves. <A – Salvatore Fazzolari – Harsco Corp.>: No, we agree with you. Actually, jokingly I said to Scott, we probably should change the name of his group, instead of Harsco Industrial to Harsco Energy because that’s clearly where his focus is. In fact and to your point, he has seen that, he knows about it, he’s acting on it. The strategy is around energy, a lot of it in the U.S., but also globally. There’s been some recent finds in Poland as well and that are huge and we’re actually already positioning ourselves for the Polish market. We’re producing, obviously in the Middle East, it’s huge gas, as well as Australia. So we are very well positioned. We think we have a very good business on that. But I’ll let Scott expand on that because that’s dear to his heart. <A – Scott Gerson – Harsco Corp.>: Yeah, I think Sal covered it pretty well. We announced early this year the $20 plus million order we got in Australia with the large liquid natural gas plants that are being put out there. So we are physically out there now. We are looking for additional opportunities to put physical locations throughout the Middle East and even in Europe to take advantage of the finds that have happened out there. From our perspective, we think the whole energy industry is changing and it was kind of expedited with what happened in Japan with the nuclear issues that were there and then the subsequent closing down of the nuclear energy. And so the talking heads, which are all smarter than I am, seem to believe that natural gas is going to be the bridge fuel for the future. And I do agree with you, that the U.S. packagers are far better positioned than a lot of the global packagers to be able to help pull that gas out of the ground and to be able to transport it. Because of our relationships with the U.S. packagers, we are very well positioned for that. Under One Harsco, we have the ability to very quickly plant a flag in well over 50 countries and that gives us a competitive advantage to be able to have first-mover advantage on a lot of these finds. And so I don’t want to give too much away because obviously that’s part of our strategy, but we are very well positioned to take advantage of these finds as they’re coming up. And I think over the next 24 months, you’ll see some announcements and things of that nature as we take advantage of those opportunities. But I agree with you, that I think we’re very well positioned for it. <A – Salvatore Fazzolari – Harsco Corp.>: Yeah, thank you. It’s a good question. <Q – Steve Wilson – Lapides Asset Management LLC>: Steve Wilson, Lapides Asset Management. Sal, I really want to make sure I walk away with the right impression. You put out a $3 to $4 EPS number out in four years and you bridged sort of the individual components that get



47

you there. Here’s what I’m struggling with. You shared with us the acute sensitivity of the Infrastructure business and I look at that and they play off each other, so higher utilization gives you price. And when I put the two of those together, the numbers are almost expediential. And by that, I mean you said next year, flat pricing, 62% or 63% utilization. Okay, if we get utilization up 5% and that let’s say you get pricing up 2% (e.g., the rental rate increases by 200 basis points), that’s $200 million of operating profit for this company and that only by itself gets you close to $4. So can you help me understand either what level of market recovery we need to get that minor amount of improvement or whether you’re not banking on any of that to get to that $3 or $4 number and that’s all upside above that? Because I don’t want to disrespect anybody here, but there is no driver that you have that comes anywhere close to the impact that would have on the results of this company in the next four years. <A – Salvatore Fazzolari – Harsco Corp.>: Yeah, a very good question. First of all, if you look at the numbers and those assumptions, we’ve said we expect no improvement in 2012, just to kind of put that back on the table again. Then we’re saying very gradual improvement in 2013 through 2015, principally in the Infrastructure business, the non-res which affects both actually Metals, as well as Infrastructure. But very gradual improvement and mostly in the key markets where we’re focused in on. So that gradual improvement does translate to some – in that one item where I had organic growth. And there’s a range there, one’s – I think it was like $0.68 to $1.38, whatever the number was; you can see that’s a pretty broad range. That plays to exactly what you said; it depends on how much of that gradual improvement depends on the variability of gradual improvement, which also then ties into the run rates and utilization, will determine the difference between $0.68 to $1.38. Then, if you get back to “more normal times”, which I don’t know what that means anymore, that could then really propel the earnings to a much higher number than $3 to $4, exactly to your point. So obviously we’re not banking on that by 2015. But what we’re saying is in essence and we’re saying, look, the things that we can control, the restructuring – that’s why we started to take this restructuring – the things that we can control. Then the mechanisms that we put in place for the last four years, the shared service centers, the global supply chain skills, all the things that we’ve been doing, all the things that we can control; plus very selective investment in key projects, like India and China, TISCO and so forth, we think we can deliver with confidence $3 to $4 by 2015. Should the markets return robustly, it could be more, but obviously we can’t bank on that. <Q – Steve Wilson – Lapides Asset Management LLC>: So let me back in to hopefully what you can answer and that is, at a $3 number, is that saying we’re going to have an Infrastructure business with a 3% margin and $4 is a 4% margin and anything above that, back to your question, whatever normal is, is incremental to that? I’m just trying to understand how slight a recovery you’re factoring in to get to those numbers. <A – Salvatore Fazzolari – Harsco Corp.>: I think the variance between the number’s about $0.70, if I’m not mistaken, which is about $75 million. So that $75 million in earnings just gives you an idea on the $1 billion plus and it gives you a sense on where the margins may come out there. But anything above that would be much more rapid growth in the markets. <Q – Steve Wilson – Lapides Asset Management LLC>: So I’m interpreting your answer to say $3 versus $4, almost all of that is just the Infrastructure outflow. <A – Salvatore Fazzolari – Harsco Corp.>: That’s correct. <Q – Steve Wilson – Lapides Asset Management LLC>: Everything else will get you... <A – Salvatore Fazzolari – Harsco Corp.>: Everything else is going to get us there with the investments we’re making in Metals and Minerals and some of the things Scott’s doing in Industrial. Rail is a very high level, unless we really grow that business through an acquisition. I mean to



48

sustain their profitability where they are, I think is very good. I mean we’ve got a very nice business there. We are looking at growing that business in the outer years, but right now, most of that organic growth is coming from Metals and Minerals and Industrial, with a little bit from Infrastructure. But the variance comes mostly from Infrastructure; to get us to that $4. <Q – Steve Wilson – Lapides Asset Management LLC>: Okay. And then a quick question. Galdino, you showed a chart, again, based on utilization what your operating margins are and then you talked about what the restructuring, how you lowered you costs and that’s 1.5%. So shall we just take that chart and add 1.5% to sort of each threshold and that’s sort of the new operating margin to utilization matrix? <A – Galdino Claro – Harsco Corp.>: I think so. But keeping in consideration that the 1.5% additional is not going to kick in next year in full because considering the timing... <A – Salvatore Fazzolari – Harsco Corp.>: Yeah, you’ve got a step up function. Can you hear me? <A – Galdino Claro – Harsco Corp.>: All right. Because we are close, not because this is working, I think. <A – Salvatore Fazzolari – Harsco Corp.>: So it is a step shift of where the margins would be based on all the utilization rates ‘13 and beyond. <A – Galdino Claro – Harsco Corp.>: Yeah, as I pointed out, you should take the 7.5% we have today, right, and keeping in consideration that we have full control over the right sizing. Yes, you can add the two numbers, not in 2012 though, but as a run rate, yes. <Q – Charles Garland – Hamlin Capital Management LLC>: Thanks. Charlie Garland, Hamlin Capital Management. Could you discuss management compensation; how are bonuses earned, what are the targets? And also on the CapEx, which I think is $300 million for next year, what sort of new contracts does that assume? In other words, if there is an opportunity to be seized, could we see that CapEx moving higher? <A – Salvatore Fazzolari – Harsco Corp.>: Two very, very good questions and very different question. On the comp, we’re an EVA-based compensation, so that’s how the executives are paid, on EVA, EVA improvement. I’m sure if you look at the proxy, there has been very little compensation for the executives, particularly the corporate team. I think over the last three years, we’ve gotten either a zero bonus or a very little bonus, but we got zero on the long-term. So we have two components. We have the annual, which is EVA. We also have the long-term, we call the LTIP, which was based on EVA as well; now, we’ve done away with that and I can get into all the details if you want. But if you look over the last three years, we’ve gotten zero on the long-term and deservedly so because we have not increased EVA and nor would you expect us to be compensated and I will the first to say we don’t deserve it and we don’t. And even on the annual, we’ve gotten literally almost zero for the last three years. So I think the EVA does align well with what the shareholders expect. <Q – Charles Garland – Hamlin Capital Management LLC>: What does that – I know with the... <A – Salvatore Fazzolari – Harsco Corp.>: It’s based on EVA improvement and what happens is we use Stern Stewart, who’s actually hired by our Management Development & Compensation Committee independently. Stern Stewart sets the EVA improvement target out three years. And so based on that EVA improvement is what the compensation is linked to, so it’s three years out. <Q – Charles Garland – Hamlin Capital Management LLC>: So economic value added can mean a lot of things...



49

<A – Eugene Truett – Harsco Corp.>: Well, the simple calculation, it is NOPAT minus capital charge. <Q – Charles Garland – Hamlin Capital Management LLC>: Okay. Yeah, okay, great. On the CapEx... <A – Salvatore Fazzolari – Harsco Corp.>: Yeah, and then the commitment to – yeah. <Q – Charles Garland – Hamlin Capital Management LLC>: [Question Inaudible] (3:40:18) <A – Salvatore Fazzolari – Harsco Corp.>: Okay, now the new LTIP has actually three components to it and actually I want to go back to the AIP as well. We’re going to change that going forward as well, a little bit. We’re trying to align things more even better with shareholder expectations. The new LTIP incorporates also free cash flow and TSR, okay. And now we have also added an element, though, of retention because we’ve gone three years now and possibly four years without any LTIP, we could risk losing a lot of executives. Because if the market recovers, I think we’ve got a heck of a team here and I could end up losing all these guys to the market if we don’t start paying some kind of long-term in some kind of fashion. What we’re doing on the AIP as well going forward is we’re going to link more of the compensation to return on capital and operating margins directly. So it will be EVA, return on capital and operating margins for the executive team. So again, more in line with what you guys want us to do and rightfully so. We’ve got to improve the return on capital, we’ve got to improve the operating margins of the business and we got to obviously create EVA. So that’s the focus going forward. And on CapEx, from CapEx, as I said to somebody who was on the break, we could spend billions of dollars on CapEx; I mean that’s how many opportunities we have. So we don’t lack opportunities. We are very focused next year; we’ve got to be very disciplined; we’ve got to make sure TISCO is a hit; we’ve got to make sure these projects in India take off and do well. And so we’re going to stay very disciplined next year and hold the line on CapEx, generate the free cash and do the share buybacks that we talked about. Get the restructuring program behind us. Once all that’s done, get some of these new technologies proven and we’re very excited about all of them and particularly one of them. And so next year is really almost like a blocking and tackling type year. We’ve got to make sure we get all these basics done right. Then as we get into 2013, we can start thinking about what other projects we may want to invest in. But next year’s really a year of focus, discipline, restructuring and getting these projects that we now have in-hand working. <Q – Charles Garland – Hamlin Capital Management LLC>: Thank you. <A – Eugene Truett – Harsco Corp.>: Next question. <Q – R. Graham – Jefferies & Co., Inc.>: Hi, Scott Graham from Jefferies. So the cash flow discussion, not to beat a dead horse here, the Stern Stewart thing on the changes in retention and all of all this, obviously Stern Stewart’s calculation does not exclude growth CapEx. So with the need to fund some of these contracts where, as you alluded to, Sal, looking at 1 to maybe 2 years of additional periods of no bonus off of the EVA; is that a fair statement? <A – Salvatore Fazzolari – Harsco Corp.>: Yeah. When I was talking about the bonus because of this three-year lag on the long-term – like I said, we’ve gone three and possibly it could be four years without any long-term benefit payout. So that’s why for the LTIP, it was changed now to factor in some portion of retention, okay, because of concern of flight. Now, the other part, though, does tie into the free cash and total shareholder return, so it’s a balance of the three. Does that answer your question, Scott? Because I want to make sure I understood that right.



50

<Q – R. Graham – Jefferies & Co., Inc.>: No, I get it. <A – Salvatore Fazzolari – Harsco Corp.>: So I think it’s going to work better, in all honestly, because it’s, again, better aligned with what you would expect us to be. Because sometimes the EVA gets kind of fuzzy and people don’t really understand it. People can understand what total shareholder return is, people can understand what free cash flow is, right, and people can understand what return on capital is and what operating margins are. So both the AIP and the LTIP are going to be more focused around those metrics, along with EVA. So we’re not abandoning the EVA, but we just want to make it even absolutely clear that everybody is focused on returns on capital and operating margins. <Q – R. Graham – Jefferies & Co., Inc.>: Okay, thanks. This is more of a question for Galdino and maybe Steve. You have a very large contract coming up with TISCO that you need to execute well under. The cash flow issue this year was not just a CapEx issue; it was a working capital issue as well. So I guess my question is what are we doing in advance of this contract ramp to make sure that we’re not excessively investing in working capital as well? <A – Galdino Claro – Harsco Corp.>: Well, I’m repeating what Sal pointed out. We have been very selective in what we’re going to invest during the course of 2012, more specifically. If you look at the working capital of Metals and Minerals specifically, it is not a very substantial portion of our business model today. We do invest massively on equipment for basic logistics, as I pointed out. But most of the projects we have today, as I mentioned during my presentation, are more oriented towards resource recovery than basic logistics; therefore, they require less capital but offer higher margins also. So I think this is the driver for the focus in terms of investment during the next year and I’m pretty confident that by following that principle, we’ll have our investments very much under control during the course of the year. <A – Salvatore Fazzolari – Harsco Corp.>: Scott, are you referring more to inventory receivables than payables in terms of working capital? On the working capital with TISCO, for example, in the Metals and Minerals business, we have almost no inventory to speak of; we have a little bit where we hold parts. And China is going to be less of an issue because most of our suppliers are right there. So from an inventory standpoint, it’s going to be very minimal. Receivables, this is why we wanted TISCO as our partner. They are the premier steel company, they are very strong financially, they are the global leader in stainless steel. And they’re our 40% partner. And so we’re going to make sure that they pay themselves and they’re going to pay us. So we think actually the terms and conditions on our receivables in China are actually much better than Europe. Again, our concentration in Europe even hurts us dramatically from a working capital because they are worst; it takes 180 days to get paid in some of those countries. Where in China, we do much, much better; our customers typically pay, I think, around 45 days in China. So we have very good terms there. So we don’t think working capital should be a major issue. And I think the same or a similarly in India as well. So we actually do better in emerging markets than the developed; it sounds kind of funny, doesn’t it? But the working capital actually hurts us more in Western Europe than it does in other parts of the world. <A – Stephen Schnoor – Harsco Corp.>: And I could also say that overall for the working capital for the company as a whole, we’ve improved what we call our cash conversion cycle by 15% in 2011 as a result of business process continuous improvement, Kaizen is part of our program. And we continue to work on that and we expect further improvement in 2012. So the receivables, inventory days, turnover rates have improved and, again, we expect that to continue to improve overall for the company because we have a large focus on that now. <Q – R. Graham – Jefferies & Co., Inc.>: Okay, thanks. I have one other question; it’s for Ivor. The rental rate sensitivity, that is an enormous weight on [indiscernible]. I’m just wondering how you manage that. I assume I would look at this thing every morning. But maybe some of the strategies



51

which you’re using that will weigh on that rate, things that can you do to protect the downside there; can you just unbundle that for us a little bit? <A – Ivor Harrington – Harsco Corp.>: Yeah, obviously we monitor it very closely on the scorecard with each of the locations by each of the products and obviously with various clients and especially as we work with clients on different projects around the globe. In various countries, as we see kind of our utilizations rising and we see the demand, we try to edge up rates and test it and see where it goes. And so in some of the areas, we’ve actually been moving up. And then likewise, if we see utilization going down and we look at some of the rates that are significantly higher than the averages, we drop them there to get more of the volume. It really is going to be one of those things when the market comes back or when – depending on some of the projects, I mean like the UK looks terrible now, but some of the projects that they’re talking about in the UK, I mean the formwork (equipment) doesn’t exist in the UK to deal with those projects. I mean there’s just some huge opportunities coming and it’s just staying close to the client, staying close to the demand and watching the pricing of the bids. And that’s another great advantage of our sales system that we’ve rolled out and are now using more; looking at the margins, looking at the bids of the jobs as they’re going out, rather than on the back-end. So it’s very sensitive and watched very closely. <A – Salvatore Fazzolari – Harsco Corp.>: Yeah, I mean, Scott, the evidence is clear. If you look at the peak in 2007, 2008, where this business did about $185 million in operating income, that was all driven because of rental rates and we did about 13% margins. I would argue that had Ivor been running the business the way he is today and then put it back at that time, those margins should have been 17% or 16%, given the efficiencies and the way he’s better managing the business than it was in the past. And that’s the power on the rental rates; you can see literally it flows right to the bottom line. So it’s dramatic; it is really dramatic. <Q – Scott Blumenthal – Emerald Research>: I have two questions, different questions. The first one is for Ivor. This is Scott Blumenthal from Emerald Advisors. Ivor, in the recent past, we talked a lot about moving the business more from a construction-related business to more of an industrial-related maintenance business and we’ve seen a little bit of a bifurcation between the metals industry, which is kind of stuck in a 70% utilization level. And the industrial economies around the world certainly were doing much better in the U.S. and they’re performing a little bit better than the metals. Now, you really didn’t mention much about that; I know that there was something about it on the slide. But can you give us a little bit of an update on the Industrial Maintenance approach that you took and how that business is doing and how you think that that’s going to grow and kind of compare that to what’s going on with the Construction business? <A – Ivor Harrington – Harsco Corp.>: Yeah, absolutely. One of the slides is, I guess, the market sector slide. And so we showed that in 2015 our target and we’re very close to our target right now from an Industrial Maintenance perspective. Industrial Maintenance, you’re right, obviously a lot more going on or continuing going just because of the nature of that business relative to Construction. And because of that, as well, obviously a lot of our competitors stay focused; they don’t want to give up their market share in the industrial maintenance. We’ve improved ours and we’ve strengthened our capability, that’s what I mentioned in Australia and in the Middle East and now with even the UK. So we’ve added resources, we’ve focused on capability and I think that we’ve gained position on it. We want to be careful, and I mentioned the control, that we don’t end up going with too much of the Industrial Maintenance business because as we get further forward, the Industrial Maintenance business, of our three businesses, is essentially the lowest margin of the businesses. And so we want to balance it and control it. And whilst it’s also the lowest margin, it also is one of the toughest parts of the business to execute from a project management, from a coordination, from a complexity. So we’re balancing it. We’re essentially at the target that we talked about getting to in a



52

few years out and we’re selectively pursuing more, but making sure that we add the capability to do it. The other thing that we’re doing with that as well is we’re looking for cross-hiring equipment for that. We actually hire today equipment out to some of our competitors in that market to support their jobs. So we’re looking at opportunities where we can pull it back because we’ve got the capability, we can reuse our equipment and grow it. So it’s a controlled growth, but the position is certainly where we would like it to be and now it’s just add more of those services on the existing sites to get some more backlog and some more predictability. <Q – Scott Blumenthal – Emerald Research>: Okay. And I think then my other question, I’m not sure if it’s for Sal or Galdino, is that we’ve spoken in the past about especially environmental services and recovery. There was debate between a tolling model and being exposed to metal prices and there doesn’t seem to have been much discussion about that recently. Where do we stand with that and what’s your feeling on that? Thanks. <A – Salvatore Fazzolari – Harsco Corp.>: Galdino, why don’t you... <A – Galdino Claro – Harsco Corp.>: Sure. Well, I don’t think that we have a debate, but we still believe in the two business models. In some cases, developing the services as a benefit to the customer, when you sell or give the customer the opportunity to expand the service portfolio by selling themselves and they operate on a toll basis is more convenient in some cases. In other cases. The offsite approach that our Minerals business used to have and still do is more convenient. So it’s a balance again. I think we have to find that balance and we’re working on that. Some of those new technologies will make much more sense with a service providing aspect, where we toll whenever we have some of them. Like LanzaTech, for example, it’s a discussion we’re having with our customers; should we develop the value proposition based on us selling the ethanol or should we give that to our customers or should we have a combination of those. So I don’t think there is one formula; that both models are very valid and it depends upon the region, depending upon specific agreements and circumstances that is all driven by the value proposition that could differ from one customer to another. <A – Eugene Truett – Harsco Corp.>: Any other questions? No takers? Okay, Sal, you want to go to your closing comments?

Salvatore D. Fazzolari, Chairman, President and Chief Executive Officer

Yeah, thank you. I’ll be very brief. Just a couple of closing comments, really. First, I just want to thank you for participating here today and very good questions. Again, just to reiterate quickly what I said earlier about the restructuring actions that we’ve announced today is with two objectives: one, to accelerate the path to profitability for Infrastructure; and two, to accelerate the path for Metals and Minerals to double-digit margins. Also, again, and we just touch on it to one of the questions, but to repeat it or to reiterate again, the earnings, about the $3 to $4. We are committed to delivering that $3 to $4 earnings by 2015. As you can see with the adjusted roadmap, if you will, that most of the items are under our control and we’re seasoned, control that, if you will, of our own destiny and we’re not expecting any significant market improvement. So if there is gradual market improvement, we will get closer to the $4; if there is very little or anemic market improvement, it will be more closer to the $3. But nonetheless, we think with all the changes that we’ve made to Harsco in last four years, we’ve established the right mechanisms are in place for us to do that.



53

And my confidence in that is further underpinned by a couple of things. One is our strong financial position; we still continue to have a very good balance sheet and very good cash flows. Two, and probably the most important, is really this team right here. I finally got my team in place. And Janet, who’s not here, who’s our Chief Human Resource Officer, she’s top notch. Our CIO, Doug, he has been with us only about 12 months or so; he’s top notch. So we have a very, I think, the A Team here finally; it takes time to build the A Team and I think we have it now. So this team here gives me tremendous confidence in our ability to execute. So a lot of hard work has been done; unfortunately, you don’t see it because it’s not showing up in the numbers. And ultimately it’s all about the numbers and I recognize that and I understand that and I’m ultimately accountable and I’m ultimately responsible for that. All I can tell you is that I think we have a very good strategic plan. I think we have a very good team and we’re going to take things now in our own hands and we’re not going to wait for the markets to come back. And we hope that we won’t let you down. And one thing I can assure you is that we are committed to restoring the profitability of this company to the level it needs to be and to the return on capital where it needs to be for this company. So I wish you and your family a joyous holiday season, and wish you the best. And I look forward to seeing a lot of you throughout the year. Thank you very much.


Okay. If we can have all of you join us down in the second floor for lunch. Thank you.

Disclaimer The information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete or error-free statement or summary of the available data. As such, we do not warrant, endorse or guarantee the completeness, accuracy, integrity, or timeliness of the information. You must evaluate, and bear all risks associated with, the use of any information provided hereunder, including any reliance on the accuracy, completeness, safety or usefulness of such information. This information is not intended to be used as the primary basis of investment decisions. It should not be construed as advice designed to meet the particular investment needs of any investor. This report is published solely for information purposes, and is not to be construed as financial or other advice or as an offer to sell or the solicitation of an offer to buy any security in any state where such an offer or solicitation would be illegal. Any information expressed herein on this date is subject to change without notice. Any opinions or assertions contained in this information do not represent the opinions or beliefs of FactSet CallStreet, LLC. FactSet CallStreet, LLC, or one or more of its employees, including the writer of this report, may have a position in any of the securities discussed herein. THE INFORMATION PROVIDED TO YOU HEREUNDER IS PROVIDED "AS IS," AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, FactSet CallStreet, LLC AND ITS LICENSORS, BUSINESS ASSOCIATES AND SUPPLIERS DISCLAIM ALL WARRANTIES WITH RESPECT TO THE SAME, EXPRESS, IMPLIED AND STATUTORY, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY, COMPLETENESS, AND NON-INFRINGEMENT. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, NEITHER FACTSET CALLSTREET, LLC NOR ITS OFFICERS, MEMBERS, DIRECTORS, PARTNERS, AFFILIATES, BUSINESS ASSOCIATES, LICENSORS OR SUPPLIERS WILL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOST PROFITS OR REVENUES, GOODWILL, WORK STOPPAGE, SECURITY BREACHES, VIRUSES, COMPUTER FAILURE OR MALFUNCTION, USE, DATA OR OTHER INTANGIBLE LOSSES OR COMMERCIAL DAMAGES, EVEN IF ANY OF SUCH PARTIES IS ADVISED OF THE POSSIBILITY OF SUCH LOSSES, ARISING UNDER OR IN CONNECTION WITH THE INFORMATION PROVIDED HEREIN OR ANY OTHER SUBJECT MATTER HEREOF. The contents and appearance of this report are Copyrighted FactSet CallStreet, LLC 2011. CallStreet and FactSet CallStreet, LLC are trademarks and service marks of FactSet CallStreet, LLC. All other trademarks mentioned are trademarks of their respective companies. All rights reserved.

Documents

Harsco Corp. HSC Analysts Conference Dec. 9, 2011cm.harsco.com/Uploads/Files/HSC-Dec_9_2011.pdfHarsco Corp. HSC Analysts Conference Dec. 9, 2011 ... Before we start our formal presentation