bmo chemicals & packaging conference/media/files/v/venator/... · 2019-06-27 · bmo chemicals...
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BMO Chemicals & Packaging
ConferenceJune 27, 2019
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, our ability to transfer production of certain specialty and differentiated products from
our Pori, Finland manufacturing facility to other sites in our manufacturing network, the costs associated with such transfer and the closure of our Pori facility, our ability to realize
financial and operational benefits from our business improvement plans and initiatives, impacts on TiO2 markets and the broader global economy from the imposition of tariffs by the
U.S. and other countries, 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, legal claims against us, changes in government regulations, geopolitical events, cyberattacks
and other risk factors as discussed in our annual report on Form 10-K filed on February 20, 2019.
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.
Venator Snapshot
3
En
d M
ark
ets
(1)
1Q19 LTM
Revenue (mm) $2,205
Adj. EBITDA (mm) $339
% margin 15%
1Q19 LTM
Revenue (mm) $1,635
Adj. EBITDA (mm) $335
% margin 20%
1Q19 LTM
Revenue (mm) $571
Adj. EBITDA (mm) $53
% margin 9%
Titanium Dioxide Performance Additives
Se
gm
en
tR
ep
res
en
tati
ve
Cu
sto
me
rs
(1) 2018 Revenues
Architectural Coatings
28%
Industrial Coatings
14%Plastics
36%
Inks5%
Fibres & Films9%
Other3%
Personal Care, Food,
Pharmaceuticals &
Active Materials
5%
Architectural Coatings
14%
Industrial Coatings
12%
Construction42%
Plastics16%
Fibres & Films3%
Agriculture & Water
4%
Other3%
Personal Care, Food,
Pharmaceuticals & Active
Materials
6%
Pori EBITDA Adjustment
Titanium DioxideIndustry fundamentals remain intact
4
Chemours17%
Cristal11%
Venator9%
Lomon Billions9%Kronos
7%
Tronox6%
Others41%
2018 Revenues Source: Management Estimates
Segment
Revenues
$1.6billion
Segment
Adjusted EBITDA
$335million
COATINGS
INKS
2018 Nameplate Capacity; based on management estimates
TiO2 Capacity
End Markets 1Q19 LTM
$ in millions
Annual Adjusted EBITDA History(1)
(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, based upon
their management’s representation; 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
Quarterly Adjusted EBITDA History$ in millions
Adj. EBITDA ex. Pori Adj. EBITDA Margin
Adj. EBITDA ex. Pori Adj. EBITDA MarginPori EBITDA Adjustment
243
572
349
84 84
-58 12
312 376
312
63
127
100
33 50 50
49
75 41
2317%
30%
22%
6% 7%
(1%)
4%
24% 25%
20%
2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19LTM
24 41
78
107 86
125 124
75 52 61
10
7
15
20
33
18 23
9%
12%
23%
29%31% 31% 32%
19%
14% 14%
4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19
Personal Care, Food,
Pharmaceuticals & Active
Materials
5%
Architectural Coatings
28%
Industial Coatings
14%Plastics36%
Inks5%
Fibres & Films9%
Other3%
Market Leader in High-Value Specialty TiO2
Favorable application mix
Source: Management estimates5
Venator has more than half of its sales volume in high value TiO2 categories
1,000 2,000 3,000 4,000 5,000 6,000
Pri
ce
Low QualityFunctional
Differentiated
Sp
ec
ialtie
s
9%17% 42% 32%
16%0% 40% 44%
Legend:
% Total global TiO2
industry demand
% Venator TiO2 sales
volume
Venator Focus
Estimated World Demand (kmt)Indicative EBITDA
margins1x 2x 3x+
Catalysts
Food
Pharma &
Cosmetics
Fibers &
Films
Solar
Specialty
Inks
Industrial coatings
Performance plastics
Differentiated Inks
Functional coatings (architectural)
Functional plastics
Paper
Applications
2014 2015 2016 2017 2018 YTD
Specialty TiO2
Margin stability supports strategic investment
6(1) Comparing variable contribution margin of specialty grades (excluding inks) and functional grades
Source: Management estimates
Demand for specialty grade TiO2 is more resilient
throughout a cycle
Specialty grades have an enhanced margin profile
compared to functional grades
Limited number of producers with high barriers to entry
Applications: Catalysts; Food; Pharma & Cosmetics;
Fibers & Films; Solar; Specialty Inks
Specialty Profile Outlook
Venator will strengthen its leading position in specialty
TiO2 products
Expect pricing and demand to remain solid
Investment to target higher margin and more stable
specialty TiO2 products
Margin Differential: Specialty vs. Functional(1)
Functional
TiO2
Specialty
TiO2
1822
16
13
22 21
15 15
24 23
12
3
15
12%
13%
12%
9%
14%
13%
10%10%
14%13%
8%
3%
11%
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19
Performance AdditivesStable annual earnings and cash generative business
7
$ in millions
2018 Revenues
End Markets
Annual Adjusted EBITDA History(1)
Quarterly Adjusted EBITDA History
Segment
Revenues
$0.6billion
Segment
Adjusted EBITDA
$53million
CONSTRUCTION
COATINGS
1Q19 LTMSource: Management Estimates
(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,
based upon their management’s representation; 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
$ in millions
103
119
8998
91
69 6972 62
53
15%16%
13%15%
14%
12%12% 12%
10%9%
2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19 LTM
Segment Adj. EBITDA Segment Adj. EBITDA Margin
Architectural Coatings
14%
Industial Coatings
12%
Construction42%
Plastics16%
Fibres & Films3%
Agriculture & Water
4%
Other3%
Personal Care, Food,
Pharmaceuticals &
Active Materials
6%
Functional
Additives
Performance Additives
Source: Company filings8
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
or 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
34%
33%
33%
1Q19 LTM 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
Target $40 million of annual adjusted EBITDA benefit
– Realized a $3 million EBITDA benefit in 1Q19
– Expect to exit 2020 at the targeted run-rate(1)
$0
2019 2020
~$10
~$35
Delivery on Business Improvement Program
9
Areas of EBITDA Improvement
2019 Business Improvement Program Highlights
$ in millions
(1) Compared to year-end 2018 baseline
Expected Annual EBITDA Capture$ in millions
Expect to deliver ~$40mm annual EBITDA benefit
Benefits from:
– TiO2 manufacturing costs and efficiencies
– Performance Additives costs and improvements
– Reduction in SG&A
$40
TiO2 efficiencies PerformanceAdditives costs
and improvements
SG&A reduction EBITDAImprovement
Cash Uses
(1) Includes specialty technology transfer capital expenditures
(2) Includes Pori wind-down costs, closure costs and prior capital expenditures at Pori unrelated to the transfer program
(3) Mid-cycle EBITDA estimate, based on the timing of plant commissioning10
Cash Uses 1Q19 2019E
Adjusted EBITDA $60
Capital expenditures(1) (28) ~(130)
Cash interest (18) (40)-(45)
Primary working capital change (48) ~60
Restructuring (7) (30)-(35)
Other (includes pension) (4) (60)-(70)
Cash income taxes (1) 10 - 15%
Pori cash expenses, net(2) (36) (65)-(70)
Total free cash flow $(82)
$ in millions
Focused on transferring core specialty
technology from Pori to sites elsewhere in
our network
– Estimated annual adjusted EBITDA from
transfer program of ~$15mm(3) in 2020 and
~$40mm(3) in 2023
On-track with total combined project wind-
down and estimated closure costs
associated with Pori
– 1Q19 Pori cash expenses, net, reflect timing of
payments
Comment
See Appendix for reconciliations and important explanatory notes
Reiterate full year 2019 cash use guidance
Why Venator?
(1) Compared to 2018 baseline
(2) Compared to 2016 baseline11
Leading Producer of
Specialty TiO2
Executing on our 2019 Business Improvement Program which is expected to deliver
$40 million in annual run-rate adjusted EBITDA improvement in 2020(1)
Successfully completed the 2017 Business Improvement Program, delivering $60
million(2) of adjusted EBITDA improvements
Successful Business
Transformation
Attractive Financial
Position
Complementary
Performance Additives
Business
Market leader in high-value specialty TiO2
Specialty TiO2 price and volume trends remain robust
Advancing with the transfer of specialty technology from Pori to other sites
Global provider of performance additives, with market leading positions
Cash generative business with low capital intensity
Strong balance sheet provides additional optionality
Attractive tax profile with ~$1.1 billion of NOLs
Appendix
12
Pro Forma Adj. EBITDA Reconciliation
(1) Adjusted to include Rockwood pro forma
(2) Pro forma for unrealized benefit from the $60mm fixed cost reduction element of the 2017 Business Improvement Program and the $40mm cost reduction from the 2019 Business Improvement Program13
$ in millions 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q18 1Q19 1Q19 LTM
Net Income/(Loss) $ (162) $ (352) $ (77) $ 144 $ (157) $ 80 $ (2) $ (239)
Net income attributable to noncontrolling interests (2) (7) (10) (10) (6) (2) (1) (5)
Net income of discontinued operations – (10) (8) (8) – – – –
Interest 2 30 44 40 40 10 11 41
Taxes (17) (34) (23) 50 (8) 20 1 (27)
Depreciation and Amortization 93 100 114 127 132 34 26 124
EBITDA $ (86) $ (273) $ 40 $ 343 $ 1 $ 142 $ 35 $ (106)
Business acquisition and integration expenses 45 44 11 5 20 2 2 20
Separation expense, net – – – 7 2 1 – 1
US income tax reform – – – (34) – – – –
Purchase accounting adjustments 13 – – – – – – –
(Gain) loss on disposition of businesses/assets (1) 1 (22) – 2 – – 2
Certain legal settlements and related expense 3 3 2 1 – – – –
Amortization of pension and postretirement actuarial losses 11 9 10 17 15 3 4 16
Net plant incident costs (credits) – 4 1 4 (232) – 7 (225)
Restructuring, impairment, and plant closing costs 62 220 35 52 628 9 12 631
Adjusted EBITDA $ 47 $ 8 $ 77 $ 395 $ 436 $ 157 $ 60 $ 339
Corporate and other 29 53 53 64 43 10 16 49
Operating Segment Adjusted EBITDA $ 76 $ 61 $ 130 $ 459 $ 479 $ 167 $ 76 $ 388
Titanium Dioxide Segment EBITDA(1) 306– 699– 449– 117 134 (8) 61 387 417 143 61 335
Performance Additives Segment EBITDA(1) 103– 119– 89– 98 91 69 69 72 62 24 15 53
Public company standalone costs (40) (40) (40) (40) (40) (40) (40) (40) (43) (10) (16) (49)
Business improvement program unrealized(2) – – – – – – – 37 20 0 7 53
1Q17 impact from Pori Fire – – – – – – – 15 – – – –
Pori related EBITDA adjustment (63) (127) (100) (33) (50) (50) (49) (75) (41) (18) – (23)
Pro forma Adjusted EBITDA $ 306 $ 651 $ 398 $ 142 $ 135 $ (29) $ 41 $ 396 $ 415 $ 139 $ 67 $ 369
Reconciliation of U.S. GAAP to Non-GAAP
Measures
14
(In $ millions) 2019 2018
Free cash flow:
Net cash (used in) provided by operating activities (29)$ 51$
Capital expenditures (52) (73)
Cash (investment in) received from unconsolidated affiliates, net (1) 6
Non-recurring separation costs - 1
Total free cash flow (82)$ (15)$
March 31,
Three months ended