innovation day 2018 - eastman · 2018-03-06 · innovation day 2018 mark costa board chair and...
TRANSCRIPT
During these presentations, we make certain forward-looking statements concerning plans and expectations for Eastman Chemical Company. We caution you that actual events or
results may differ materially from our plans and expectations. Throughout these presentations, “F” is used to indicate projected, or “forecasted”, amounts. See Eastman’s most recent
Form 10-K and 10-Q filings with the Securities and Exchange Commission and these slides and the remarks in the presentations for risks and uncertainties which could cause actual
results to differ materially from current expectations.
Forward-looking statements
Non-GAAP financial measuresAll earnings measures in these presentations are non-GAAP and exclude certain non-core and unusual items. Full-year 2017 amounts are from our February 1 and 2 public
disclosures of our 2017 financial results but will be final when we file our 2017 Form 10-K with the SEC.
“Adjusted Net Income” is “Net Income” adjusted to exclude the same non-core and any unusual or non-recurring items as are excluded from the Company's other non-GAAP
earnings measures for the same periods.
“Debt to EBITDA” Ratio is defined as Total Debt divided by Adjusted EBITDA.
“Diversified Peers” are BASF, CE, HUN.
“EBITDA” is net earnings or net earnings per share before interest, taxes, depreciation and amortization adjusted to exclude the same non-core and any unusual or non-recurring
items as are excluded from the Company's other non-GAAP earnings measures for the same periods. “EBITDA Margin” is EBITDA divided by the GAAP measure sales revenue
in the Company’s income statement for the period presented. Information concerning use of the non-GAAP measures. Projections of future Adjusted EBITDA and EBITDA
Margin also exclude any non-core or non-recurring items.
“Free cash flow” is cash provided by operating activities less cash used for additions to properties and equipment, both the GAAP measures in the Company’s statements of
cash flows for the period presented. Information concerning use of the non-GAAP measure free cash flow is available in the Company’s Form 10-Q for third quarter 2017.
“Adjusted Free Cash Flow” is cash provided by operating activities excluding non-core or unusual items less cash used for additions to properties and equipment.
“Free cash flow conversion” is Adjusted Free Cash Flow divided by Adjusted Net Income.
“IRR” is the Internal Rate of Return calculated based on 10-year project cash flow assumptions.
“Return on Invested Capital” (or “ROIC”) is adjusted net income plus interest expense after tax divided by average total borrowings plus average stockholders’ equity for the
period presented, each derived from the GAAP measures in the Company’s financial statements for the periods presented.
“Specialty Peers” are ALB, ASH, FMC, IFF, PPG.
“Variable Margin” defined as GAAP measure sales revenue in the Company’s income statement for the period presented minus total raw material costs, total purchased energy
costs, and variable distribution costs divided by the GAAP measure sales revenue in the Company’s income statement for the period presented.
“Operating Margin” defined as operating earnings divided by the GAAP measure sales revenue in the Company’s income statement for the period presented.
Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available
in the Appendix and in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Forms 10-K and 10-Q filed and Forms 8-K
furnished and filed with the SEC for the periods for which non-GAAP financial measures are presented. Projected future earnings exclude any non-core, unusual, or non-recurring
items, and projections of future earnings per share assume that the adjusted tax rate for the most recent completed period will be the actual tax rate for the projected periods. Unless
otherwise indicated, except for earnings per share, all dollar amounts are millions “($M)” or billions “($B)”.
Agenda
Mark CostaBoard Chair and Chief Executive Officer
8:15 – 8:55 a.m.
Eastman overview
Brad LichExecutive Vice President and Chief Commercial Officer
Lucian BoldeaSenior Vice President, Additives & Functional Products 9:00 – 11:25 a.m.
Concurrent breakout sessions
Steve CrawfordSenior Vice President and Chief Technology Officer
11:25 – 11:40 a.m. / Break
Curt EspelandExecutive Vice President and Chief Financial Officer
11:40 – 12:00 p.m.
Financial overview
12:00 – ~12:45 p.m.
Closing comments and Q&A
Immediately following
Lunch / Executive availability
Damon C. Warmack Senior Vice President Corporate
Development and Chemical
Intermediates
Perry Stuckey III Senior Vice President and
Chief Human Resources Officer
Brad A. LichExecutive Vice President and
Chief Commercial Officer
David A. Golden Senior Vice President,
Chief Legal and Sustainability
Officer, and Corporate Secretary
Curt E. EspelandExecutive Vice President and
Chief Financial Officer
Mark J. CostaBoard Chair and
Chief Executive Officer
Lucian BoldeaSenior Vice President, Additives
& Functional Products
Michael H.K. Chung Senior Vice President and
Chief International Ventures Officer
Mark K. Cox Senior Vice President,
Chief Manufacturing, Supply
Chain and Engineering Officer
Stephen G. Crawford Senior Vice President and
Chief Technology Officer
Eastman Executive Team
Why invest in EMN?
A compelling, innovation-based
organic growth model
Aggressive portfolio management,
improving structural quality of
earnings and FCF
Disciplined and balanced
capital deployment05010015020025030035040045050055060065070075080085090095010001050110011501200125013001350
0
1
2
3
4
5
6
7
8
9
2010 2011 2012 2013 2014 2015 2016 2017 2018F
Free cash flow Earnings per share
8%
–1
2%
E
PS
G
ro
wth
Strong value creation expected going forward
Core sales
revenue
growth in
line with end
markets
Specialty
products growing
>2x underlying
markets
23%
CORPORATE
EBITDA
MARGIN
and increasing
with improved
product mix
>$1
billionANNUAL
FREE CASH
FLOW
and growing
10%–15%
RETURN ON
INVESTED
CAPITAL
(ROIC)
creating value
above cost of
capital and
growing over
time
8%–12%
EPS CAGR2018–2020
Advanced Materials: Transformation through innovation-driven growth
and portfolio management
PET
Tritan
Spectar
Aspira
Performance
Films
2017
Volume
(kg)
EBITDA
($M)
EBITDA
margin
$660
26%
>5x EBITDA GROWTH
TRANSFORMATION IN ADVANCED MATERIALS
Volume
(kg)
EBITDA
($M)
EBITDA
margin
$1206%
Interlayers
2007
Note: 2007 represents the combination of specialty plastics and PET. For reference, see the Company’s Form 10-K for 2008.
Success of Tritan in consumer durables enabled by our
innovation-driven growth model
Tritan 2017 sales revenue ~$300M with above AM segment average operating margin
World-Class
Technology
Platforms
Relentlessly
Engage
the Market
Differentiated
Application
Development
SAN (Styrene acrylonitrile)
Deforms after 125
dishwasher cycles
Polycarbonate
Cracks after 250
dishwasher cycles
After 1,000 dishwasher cycles
NO cracking hazing, crazing,
or distortion
Tritan launched in 2007 July 16, 2008
$-
$0.50
$1.00
$1.50
$2.00
$2.50
-
500
1,000
1,500
2,000
2,500
3,000
3,500
Premium revenue
Core revenue
PET revenue
AM unit variable margin
Advanced Materials transformation accelerated earnings growth by
leveraging assets, upgrading mix and strategic portfolio management
PET Core Premium
Va
ria
ble
ma
rgin
($/k
g)
Structural changes result in variable margin that is ~5x higher than 2007
SELLING PRICES
($/kg)1
REVENUE GROWTH2
Reve
nu
e (
$M
)
(1) Weighted average selling price 2007–2020F
(2) Performance Polymers segment PET business included for 2007 to 2011 for visibility of
portfolio change
Advanced Materials: Organic growth is 2/3 of the 21% EBITDA
growth CAGR from 2010–2017
(1) ‘Acquisitions’ are acquired Solutia and Commonwealth Laminating & Coating, Inc. businesses at first full year of ownership assuming first full year of realized synergies.
(2) FX includes foreign currency translation and competitive impact on operating earnings.
$170M
$660M
0
100
200
300
400
500
600
700
800
2010 Acquisitions Organic growth FX 2017
ADVANCED MATERIALS EBITDA1,2
(2010–2017)
Unique innovation-driven growth model delivers
consistent, sustainable value
World-Class
Technology
Platforms
Relentlessly
Engage
the Market
Differentiated
Application
Development
Significant integration and scale enable innovation, reliability and cost advantage
Advantaged growth and execution capability and culture
Aggressive and disciplined portfolio management
$0.7B
11%
$0.2B
$2.2B
23%
$1.0B
$2.0B
22%
$0.8B
Divestitures Integration/shift
to innovation
2004
2014
2017
2020F
$EBITDA
EBITDA margin
Free cash flow
Strong track record of value-creating portfolio management
2011 Acquisitions Accelerated
innovation
$1.4B
19%
$0.3B
Innovation-led organic growth and portfolio management result in
>90% increase in EBITDA 2010–2017, despite macro headwinds
$1,160M
$2,220M
0
500
1000
1500
2000
2500
3000
2010 Acquisitions Organic growth Oil FX Fibers 2017
EASTMAN EBITDA1,2,3
(2010–2017)
(1) ‘Acquisitions’ are acquired Solutia and Commonwealth Laminating & Coating, Inc. businesses at first full year of ownership assuming first full year of realized synergies. All other acquisitions and divestitures
included in ‘Organic Growth.’
(2) ‘FX’ includes foreign currency translation and competitive impact on operating earnings.
(3) ‘Oil’ is defined as the drop in the price of Brent over the period indicated which resulted in lower selling prices for products that have oil derivatives as a key input, narrowed the cost advantage of products produced
with natural gas liquids in the U.S. compared with those produced globally.
Driving market activation across the value chain
Relentlessly engaging the market to create our own growth
Leveraging disruptive macro trends for growth
Relentlessly Engage
the Market
Sophisticated targeting in attractive niche markets
Transportation (20%) Consumables (16%) Building & Construction (13%)
~2/3 of sales revenue from product lines in leading market
positions combined with precision marketing within nichesRelentlessly Engage
the Market
Consumer / Medical Durable / Electronics
(10%)
Animal Nutrition / Crop Protection (7%)
Metam sodium(soil fumigant)
Propionic acid(animal feed)
Eastman Tritan™
copolyester(consumer durables)
Eastman
Enhanz™(animal nutrition)
Eastman
Visualize™ material(films in electronics)
Tenite™
cellulosics(eyewear)
Eastman CrystexTM
insoluble sulfur(performance
additive for tires)
Saflex® Acoustic
interlayers & V-KOOL®
(performance
films for vehicles)
Eastman cellulose
acetate butyrate (CAB)(car coatings)
Eastman Texanol™
ester alcohol(coalescents for
latex paints)
Alkylamines(liquid laundry
detergent)
Eastman 168™
non-phthalate
plasticizers (flooring)
Aerafin™ polyolefin
polymers(adhesives for
hygiene products)
Acetate yarn(performance clothing)
Vanceva®
(color interlayers)
% revenue by end market – 2017
Leveraging disruptive macro trends to
enhance the quality of life in a material way
Favorable macro trends applicable to ~80% of Eastman growth
Relentlessly Engage
the Market
Feeding a growing
population
Emerging
middle class
Health &
wellness
Natural
resource
efficiency
World-class scalable technology platforms provide the
foundation of competitive advantage and sustainable growthWorld-Class Scalable
Technology Platforms
Multigenerational product development for
every specialty product
R&D scale enables faster, more differentiated
product development
Creating value through integration of
multiple technology platforms
0
0.2
0.4
0.6
0.8
1
1.2
Crystex multigenerational technology
plan extends our competitive advantage
2012
World-Class Scalable
Technology Platforms
Pro
duct
perf
orm
ance
BE
ST
Competitors
Crystex™
2014 2018 2020
Comptitor
ACrystex™
Competitors
2016
Crystex™
Crystex™
Cure
Crystex™
Cure Pro
Competitors
Crystexbreakthrough
Integration across multiple technology platforms
delivers sustainable high margins
Technology
platform #1
Technology
platform #2
Technology
platform #3
Single-technologyplatform
Multi-technologyplatforms
2017 VARIABLE MARGIN ($/kg)
Multi-technology
platforms
Tritan™
Tetrashield™
Cellulose acetate
butyrate (CAB)
Cellulose acetate
propionate (CAP)
Specialty ketones
Interlayers
Performance films
World-Class Scalable
Technology Platforms
Differentiated application development embraces and
converts market complexity into sustainable valueDifferentiated
Application Development
Accelerates innovation by enabling deep understanding
of how our products perform within the customer’s product
Improves understanding of our products’ value capture
Creates demand downstream by demonstrating
value of our innovation with prototypes
Global application development capability is
critical component of innovation-led growth
Thermoplastic conversion
Functional films
Akron, OH
Textiles
Functional films
Coatings formulation
Adhesives formulation
Rubber formulation
Kingsport, TN
Martinsville, VA Thermoplastic conversion
Rubber formulation
Coatings formulation
Adhesives formulation
Shanghai, China
Thermoplastic conversion
Guangzhou, China
Coatings formulation
Animal nutrition
Thermoplastic conversion
Middelburg,
The Netherlands
Ghent, Belgium
Adhesives formulation
Dresden, Germany
Functional films
Differentiated
Application Development
Canoga Park, CA
Palo Alto, CA
Functional films
Functional films
Springfield, MA
Functional films
Eastman innovation-driven growth model:
Embracing and converting market complexity into sustainable value
Thermoplastic
Conversion
Rubber
FormulationTextiles/
Nonwovens
Adhesives
FormulationCoatings
FormulationFunctional
Films
Animal
Nutrition
Differentiated
Application Development
Relentlessly Engage
the Market
Transportation Consumables/
Textiles
Consumer/
Medical Durables
Animal
Nutrition/Crop
Protection
Building &
Construction
Modified
Polyesters
Cellulose
Esters/
AcetylsPVB
Hydrocarbon
Resins
Oxo
DerivativesAlkylamines
Insoluble
Sulfur
World-Class Scalable
Technology Platforms
Integration as a source of value creation on multiple dimensions
Enables innovation
Security of supply highly valued by customers
Flexibility across product chain to optimize value and drive asset efficiency
Advantaged cost position to fund growth
Stabilizes earnings volatility
Delivers superior margins
Additives & Functional Products
Advanced Materials
Chemical Intermediates
Fibers
Additives & Functional Products
Chemical Intermediates
Additives & Functional Products
Advanced Materials
Chemical Intermediates
Fibers
Additives & Functional Products
Advanced Materials
Chemical Intermediates
Polyester stream
Coal/wood
pulp/olefins
Paraxylene/
olefins/
acetyls
Cellulose and
acetyl stream
Alkylamines
stream
Propane/
ethane Olefins stream
Methanol/
ammonia
Building world-class growth capabilities and culture
Significant resource mix shift in technology towards application development
Large investment in commercial and marketing capabilities
salesforce.com Customer Relationship Management platform
World-class product development and market activation process
Industry leaders in operational reliability
Capabilities
Culture
2014–20172014–2016 20172012–20172016–2017
Innovation-driven growth model has delivered impressive
growth at above corporate average margins
$0
$100
$200
$300
$400
2014 2015 2016 2017
NEW BUSINESS REVENUE
$M
0
10
20
30
Tritan Acoustic/HUD
interlayers
Paintprotective
films
Tire resins Plantgrowth
regulators
HIGH-GROWTH/HIGH-MARGIN
INNOVATION-DRIVEN GROWTH
(2012–2017 CAGR)
% V
olu
me
gro
wth
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
-
2,000
4,000
6,000
8,000
10,000
12,000 AM revenue
AFP revenue
CI revenue
Fibers revenue
EMN unit variable margin
-
1.00
2.00
3.00
4.00
5.00
CI AFP Fibers AM
Un
it v
ari
ab
le (
$/k
g)
Structural changes result in variable margin that is ~50% higher than 2010
Reve
nu
e
2017 SELLING PRICE
($/kg)MIX IMPROVEMENT
Accelerated earnings driven by mix upgrade through
innovation-driven organic growth and portfolio upgrade
Actively driving portfolio to be ~80% specialty through
innovation-driven organic growth and portfolio upgrade
2010 2017 Future state
AM AFP Fibers CI
~40%~70%
~80%
OPERATING EARNINGS BY SEGMENT
Strong value creation expected going forward
Core sales
revenue
growth in
line with end
markets
Specialty
products growing
>2x underlying
markets
23%
CORPORATE
EBITDA
MARGIN
and increasing
with improved
product mix
>$1
billionANNUAL
FREE CASH
FLOW
and growing
10%–15%
RETURN ON
INVESTED
CAPITAL
(ROIC)
creating value
above cost of
capital and
growing over
time
8%–12%
EPS CAGR2018–2020