Alembic Global Advisors Chemical & Industrial Conference March - - PowerPoint PPT Presentation
Alembic Global Advisors Chemical & Industrial Conference March - - PowerPoint PPT Presentation
Alembic Global Advisors Chemical & Industrial Conference March 1-2, 2018 General Disclosure This presentation includes forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and
General Disclosure
This presentation includes “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. These forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical
- information. When used in this presentation, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” or future or conditional verbs,
such as “will,” “should,” “could,” or “may,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, management’s examination of historical operating trends and data, are based upon our current expectations of future events and various assumptions which may not be realized or accurate. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will be achieved. We undertake no obligation to update or revise forward-looking statements which may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this presentation. Such risks, uncertainties and other important factors include, among others: future global economic conditions, delays in reconstruction of our Pori, Finland manufacturing facility or losses for business interruption or construction costs that exceed our coverage limit applicable to the fire at that facility, changes in raw material and energy prices, access to capital markets, industry production capacity and operating rates, the supply demand balance for our products and that of competing products, pricing pressures, technological developments, changes in government regulations, geopolitical events and other risk factors as discussed in our prospectus filed pursuant to Rule 424(b)(4) on December 1, 2017 and our annual report on Form 10-K filed on February 23, 2018. This presentation contains financial measures that are not in accordance with generally accepted accounting principles in the U.S. ("GAAP"), including EBITDA, adjusted EBITDA, adjusted EBITDA margin, free cash flow and net debt and certain ratios and other metrics derived therefrom. We have provided reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures in the Appendix to this presentation.
Architectural Coatings 14% Industrial Coatings 11% Construction 44% Plastics 15% Personal Care, Food, Pharmaceuticals & Active Materials 6% Agriculture & Water 4% Other 6%
Venator Snapshot
3 End Markets(4)
FY17 Revenue (mm)(1) $2,209 Pro forma adj. EBITDA (mm)(2) $500 % margin 23% FY17 4Q17 Run-rate(3) Revenue (mm) $1,604
- Adj. EBITDA (mm)
$387 $476 % margin 24% 30% FY17 4Q17 Run-rate(3) Revenue (mm) $605
- Adj. EBITDA (mm)
$72 $60 % margin 12% 10%
Titanium Dioxide Performance Additives
Note: See Appendix for a reconciliation of pro forma Adj. EBITDA and Run-rate Adj. EBITDA. (1) Excludes revenue from other businesses and entities not included in the separation of Venator from Huntsman; (2) Titanium Dioxide segment Adjusted EBITDA and Performance Additives segment Adjusted EBITDA adjusted to include estimated public company standalone costs of $40 million, pro forma for unrealized $66 million benefit from business improvement program, and excludes 1Q17 impact from Pori fire of $15 million; (3) Represents annualized segment 4Q17 adj. EBITDA, % margin based on FY17 revenue; not adjusted for seasonality; excludes allocation of standalone corporate costs and unrealized benefit from business improvement program; (4) FY17 revenues
Segment
Architectural Coatings 28% Industrial Coatings 15% Plastics 34% Inks 6% Personal Care, Food, Pharmaceuticals & Active Materials 6% Fibers & Films 8% Other 3%
Representative Customers
$306 $699 $449 $117 $134 ($8) $61 $387 $476 17% 30% 22% 6%
7%
N/A 4% 24% 30% 2010 2011 2012 2013 2014 2015 2016 2017 4Q17 Run Rate
(1) (1) (1) (1) (1)
Titanium Dioxide
Segment overview
4
Architectural Coatings 28% Industrial Coatings 15% Plastics 34% Inks 6% Personal Care, Food, Pharmaceuticals & Active Materials 6% Fibers & Films 8% Other 3%
Chemours 17% Cristal 12% Venator 11% Lomon Billions 8% Kronos 8% Tronox 6% Others 38% Europe 50% Asia Pacific 22% US & Canada 17% Rest of World 11%
FY17 Revenues
Source: Management Estimates Consumer 46%
Segment Revenues
$1.6
billion
Segment Adjusted EBITDA
$387
million
- 2016 Nameplate Capacity; Excludes VNTR South African facility
TiO2 Capacity End Markets FY17
FY17 Revenues $ in millions
- Adj. EBITDA Margin
Adjusted EBITDA History Revenues
Note: See Appendix for a reconciliation of Adj. EBITDA and Run-rate Adj. EBITDA. Financial information prior to October 1, 2014 adjusted to include the acquisition of the Titanium Dioxide and Performance Additives businesses of Rockwood Holdings, based upon their management’s representation (1) Adjusted to include the Oct. 1, 2014 acquisition of the Performance Additives and Titanium Dioxide businesses of Rockwood Holdings, Inc. as if consummated at the beginning of the period; excludes the related sale of our TR52 product line – used in printing inks – to Henan Billions Chemicals Co., Ltd. in December 2014; and excludes the allocation of general corporate overhead by Rockwood; (2) Represents annualized Titanium Dioxide 4Q17 adj. EBITDA, % margin based on FY17 LTM revenue; not adjusted for seasonality; excludes allocation of standalone corporate costs and unrealized benefit from business improvement program
(2)
Market Leader in High-Value Specialty TiO2
Source: Management estimates
5
Venator has more than half of its sales in high value TiO2 categories
1,000 2,000 3,000 4,000 5,000 6,000 Price
Low Quality Functional Differentiated Specialties
9% 17% 42% 32% 21% 0% 49% 30%
Legend: % Total global TiO2 industry demand % Venator TiO2 sales Venator Focus Estimated World Demand (kmt) Indicative EBITDA margins 1x 2x 3x+ Catalysts Food Pharma & Cosmetics Fibers & Films Solar Speciality Inks Industrial coatings Performance plastics Differentiated Inks Functional coatings (architectural) Functional plastics Paper Applications
$60 $73 $78 $57 $17 $21 $35 $5 $0 $15 $31 $38 $46 $69 $114 $142 $134 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Adjusted EBITDA Commodity TiO2 Average Sales Price ($/ton)
Price Momentum Expected to Continue
Source: Company filings, management estimates and TZMI
6
Quarterly TiO2 Average Sales Price ($/MT)
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18F Venator TZMI
4Q17 vs. 4Q13 – TiO2 sales price up $50/ton, Segment Operating Adjusted EBITDA up $74mm
$ in millions Historical cyclical peak
Note: Financial information prior to October 1, 2014 adjusted to include the acquisition of the Titanium Dioxide and Performance Additives businesses of Rockwood Holdings, based upon their management’s representation
Global TiO2 Operating Rate Outlook
Improving utilization rates through gradual demand improvement
Source: TZMI, management estimates
7
0% 20% 40% 60% 80% 100% 2,000 4,000 6,000 8,000 2011 2012 2013 2014 2015 2016 2017E 2018P 2019P Operating Rate Volume (kMT) Global Demand Global Effective Operating Rate ex. China (%) Global Effective Operating Rate (%)
Global TiO2 Effective Operating Rate Outlook
- Western producers operating at ~95%+ utilization rates, while Chinese operating rates continue to improve
- No new capacity expected:
– Neither greenfield nor brownfield economics are supported by current TiO2 prices – Significant time for plants to come online (3-4 years)
- Differential between Western and Chinese product quality now transparent to all customers and producers
- Customers have moved beyond thrifting / substitution
- Chinese environmental enforcements idled estimated 250kMT-300kMT of annualized capacity in 3Q17 – trend
expected to continue in 2018
Sulfate Production to Benefit from Sustained Sulfate Ore Advantage
Source: TZMI, management estimates
8
Principal Feedstock Types Sulfate Ore Prices Advantaged and Less Volatile
(TiO2 Ore Prices, $/MT)
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 2009 2014 2019P Rutile (95% content) Chloride Slag (85% content) Sulfate Slag (79% content) Ilmenite (52% content)
Favorable market structure for sulfate ores
Sulfate Chloride Feedstock Ilmenite Chloride Slag Capital Intensity Low High Energy Usage Low High Number of Producers >20 <5 Largest Producer Share <15% ~70%
Primary Sulfate Feedstock
$69 $69 $72 $103 $119 $89 $98 $91
15% 16% 13% 15% 14% 12% 12% 12% 2010 2011 2012 2013 2014 2015 2016 2017
Segment Adj. EBITDA Segment Adj. EBITDA Margin Architectural Coatings 14% Industrial Coatings 11% Construction 44% Plastics 15% Agriculture & Water 4% Other 6%
Performance Additives
Segment overview
9
Consumer 25%
Europe 32% Asia Pacific 16% US & Canada 50% Rest of World 2%
$ in millions (1) (1) (1) (1) (1) FY17 Revenues
End Markets Segment Adjusted EBITDA History Segment Revenues
Segment Revenues
$0.6
billion
Segment Adjusted EBITDA
$72
million
- FY17
Source: Management Estimates FY17 Revenues Personal Care, Food, Pharmaceuticals & Active Materials 6% Note: See Appendix for a reconciliation of pro forma Adj. EBITDA and pro forma Run-rate Adj. EBITDA. Financial information prior to October 1, 2014 adjusted to include the acquisition of the Titanium Dioxide and Performance Additives businesses of Rockwood Holdings, based upon their management’s representation (1) Adjusted to include the Oct. 1, 2014 acquisition of the Performance Additives and Titanium Dioxide businesses of Rockwood Holdings, Inc. as if consummated at the beginning of the period; excludes the related sale of our TR52 product line – used in printing inks – to Henan Billions Chemicals Co., Ltd. in December 2014; and excludes the allocation of general corporate overhead by Rockwood
Functional Additives
Performance Additives
Source: Company filings
10
Residential construction (ACQ, ECOLIFETM and Copper Azole) Protects wood from decay and fungal or insect attack Industrial construction (Chromated Copper Arsenate) Prolongs service life of wood Polyaluminium chloride based flocculants Clarifies water by promoting the sedimentation of particles Highly durable red, yellow, black and tan pigments Colorants for paint, plastics and concrete Iron Oxides Unique blue-shade pigments Violet and pink variants Ultramarines Specialty Inorganics Chemicals Weather-resistant, chemically stable pigments Distinct color shades Driers Controls the drying rate of a paint
- r ink
Color Pigments Timber and Water Treatment
Barium and Zinc Additives Fillers that enhance the gloss and flow of paints and the mechanical properties of plastics Specialty soft white pigments
Product Characteristics & Uses Competition Benefit
32% 32% 36%
‘17 EBITDA % split
Product overview
Strong EBITDA margins Complementary and common process technology Similar customer base to TiO2 High cash conversion margins Good geographic balance Similar customer base to TiO2 Common process technology Limited number of major competitors Stable demand profile High cash conversion
$90 Million EBITDA Improvement Program
11
Business Improvement Program Expected Annual EBITDA Capture Highlighted Activities Incremental EBITDA benefit to 2016 Realized $9 million of incremental benefits in 4Q17 $24 million of EBITDA benefit captured in 2017 Full run-rate expected to be captured by 1Q19 Total estimated cash restructuring costs of ~$100 million
$ in millions
Source: Management estimates
Facility rationalization program completed – Umbogintwini, South Africa (TiO2) – closed – Calais, France (TiO2 white end) – closed – Easton, PA. and St. Louis, MO. (color pigment) – closed Leverage position in higher value markets Launch of new TiO2 products Expected Run-rate Improvement
$30 $90 $30 $30 Facilities closures Fixed costs Volume EBITDA Improvement
$ in millions
$24 2017 2018F 2019F Actual Forecast
$24 million of EBITDA benefit captured in FY17
Financial Profile
(1) Net debt to LTM EBITDA; 3Q17 pro forma adjusted for corporate stand alone costs
12
Net Debt
$ in millions
Attractive Position
Comment Liquidity of $481mm as of December 31, 2017 – $238mm cash – $243mm ABL borrowing base Net debt decreasing Attractive tax profile – $1bn of Net Operating Losses – No material change from U.S. tax reform Cross currency swaps executed in December 2017 – Annual interest savings of $5mm, $21mm by maturity in July 2022 – Weighted average cost of debt reduced to 4.4% from 5.0%
Cash tax rate Adjusted effective tax rate Debt Cash
Tax Rate
3Q17 4Q17 $(238) $(186) $757 $751 $519 $565 1.6x(1) 1.3x(1)
0.5 1 1.5 2
2017 Expected
18% 9%
15-20% 10-15% 15-20%
15-20% 10-15%
Cash Uses
(1) Excluding Pori reconstruction costs
13
Cash Uses 2017 2018E
Capital expenditures(1) $(103) ~$(120) Cash interest (28) ~(35)-(40) Primary working capital change 35 ~(20)-(30) Restructuring (33) ~(35)-(40) Other (includes pension) (33) ~(40)-(50) Subtotal Cash Uses Before Taxes and Pori (162) ~(250)-(280) Cash income taxes (21) 9% 10 - 15%
We expect to generate > $200 million FCF in 2018 before Pori
$ in millions
Opportunistic Strategic Transactions Priority of Cash Uses
- 1. Earnings Growth
- Pori reconstruction
- Capex projects targeting >20% IRR
- 2. Strengthen Balance Sheet
- Debt reduction
- 3. Shareholder Actions
- Share repurchases
- Dividend consideration
Net debt target $350 million
Why Venator?
14
Leader in Specialty TiO2 with Sulfate Ore Advantage
- Significant EBITDA margin improvement over past three years
- Business improvement program underway with projected Adjusted EBITDA
improvement of $90 million
- $24mm of incremental EBITDA benefit realized by the end of 4Q17
Successful Business Transformation Strong Free Cash Flow Generation Complementary Performance Additives Business
- Market leader in high-value specialty TiO2
- Sulfate production to benefit from sustained sulfate ore advantage
- Global provider of performance additives, with market leading positions in
attractive products
- Stable EBITDA and consistent cash flows, benefiting from improvement program
- Strong free cash flow generation will enable the rebuild of our Pori, Finland facility
and debt reduction improving equity value
Appendix
15
Pro Forma Adj. EBITDA Reconciliation
16
$ in millions 2010 2011 2012 2013 2014 2015 2016 4Q16 4Q17 FY17 Net Income/(Loss) $ (162) $ (352) $ (77) $ (4) $ 70 $ 144 Net income attributable to noncontrolling interests (2) (7) (10) (2) (2) (10) Net income of discontinued operations – (10) (8) – – (8) Interest 2 30 44 13 11 40 Taxes (17) (34) (23) (9) 24 50 Depreciation and Amortization 93 100 114 30 32 127 EBITDA $ (86) $ (273) $ 40 $ 28 $ 135 $ 343 Acquisition and integration expense 45 44 11 – 3 5 Separation gain – – – – (27) (27) Purchase accounting adjustments 13 – – – – – (Gain) loss on disposition of business (1) 1 (22) 1 – – Certain legal settlements and related expense 3 3 2 1 – 1 Amortization of pension and postretirement actuarial losses 11 9 10 2 4 17 Net plant incident costs – 4 1 3 – 4 Restructuring, impairment, and plant closing costs 62 220 35 4 3 52 Adjusted EBITDA $ 47 $ 8 $ 77 $ 39 $ 118 $ 395 Corporate and other 29 53 53 7 16 64 Operating Segment Adjusted EBITDA $ 76 $ 61 $ 130 $ 46 $ 134 $ 459 Historical Segment EBITDA as reported
(1)
409 818 538 215 – – – – – – Titanium Dioxide Segment EBITDA – – – – 62 (8) 61 34 119 387 Performance Additives Segment EBITDA – – – – 14 69 69 13 15 72 Pro forma adjusted EBITDA relating to Rockwood acquisition – – – – 149 – – – – – Public company standalone costs (pro forma 2010-2017) (40) (40) (40) (40) (40) (40) (40) (10) (10) (40) 1Q 17 impact from Pori Fire – – – – – – – – – 15 Business improvement program unrealized – – – – – – – – 14 66 Pro forma Adjusted EBITDA $ 369 $ 778 $ 498 $ 175 $ 185 $ 21 $ 90 $ 37 $ 138 $ 500
(1) Adjusted to include Rockwood pro forma
Pro Forma Financial Detail
17
$ in millions
2010
(1)
2011
(1)
2012
(1)
2013
(1)
2014
(1)
2015 2016 4Q16 4Q17 FY17 Titanium Dioxide Revenue 1,773 $ 2,305 $ 2,083 $ 2,105 $ 2,009 $ 1,584 $ 1,554 $ 357 $ 387 $ 1,604 $ Performance Additives Revenue 686 727 673 656 664 578 585 134 141 605 Total Revenue 2,459 $ 3,032 $ 2,756 $ 2,761 $ 2,673 $ 2,162 $ 2,139 $ 491 $ 528 $ 2,209 $ Titanium Dioxide Adj. EBITDA 306 $ 699 $ 449 $ 117 $ 134 $ (8) $ 61 $ 33 $ 119 $ 387 $ Performance Additives Adj. EBITDA 103 119 89 98 91 69 69 13 15 72 Operating Segment Adjusted EBITDA 409 $ 818 $ 538 $ 215 $ 225 $ 61 $ 130 $ 46 $ 134 $ 459 $
Note: Financial information prior to October 1, 2014 adjusted to include the acquisition of the Titanium Dioxide and Performance Additives businesses of Rockwood Holdings, based upon their management’s representation (1) Adjusted to include the Oct. 1, 2014 acquisition of the Performance Additives and Titanium Dioxide businesses of Rockwood Holdings, Inc. as if consummated at the beginning of the period; excludes the related sale of our TR52 product line – used in printing inks – to Henan Billions Chemicals Co., Ltd. in December 2014; and excludes the allocation of general corporate overhead by Rockwood