See SOLUTIA. differently. CITI BASIC MATERIALS CONFERENCE DECEMBER 2009 JEFF QUINN, CHAIRMAN, PRESIDENT AND CEO 1

Transcription

1 See SOLUTIA differently. CITI BASIC MATERIALS CONFERENCE DECEMBER 2009 JEFF QUINN, CHAIRMAN, PRESIDENT AND CEO 1

2 Safe Harbor Language & Use of Non-GAAP Measures SAFE HARBOR LANGUAGE This presentation may contain forward-looking statements, which can be identified by the use of words such as believes, expects, may, will, intends, plans, estimates or anticipates, or other comparable terminology, or by discussions of strategy, plans or intentions. These statements are based on management s current expectations and assumptions about the industries in which Solutia operates. Forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties that may cause actual results or achievements to be materially different from the future results or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, those risk and uncertainties described in Solutia s most recent Annual Report on Form 10-K, including under Cautionary Statement About Forward Looking Statements and Risk Factors, and Solutia s quarterly reports on Form 10-Q. These reports can be accessed through the Investors section of Solutia s website at Solutia disclaims any intent or obligation to update or revise any forward-looking statements in response to new information, unforeseen events, changed circumstances or any other occurrence. USE OF NON-U.S. GAAP FINANCIAL INFORMATION AND RECONCILIATION TO COMPARABLE GAAP NUMBER For the purpose of this presentation, the company has used certain other financial measures such as EBITDA (defined as earning before interest expense, income taxes, depreciation and amortization, less net income attributable to non-controlling interests and reorganization items, net), Adjusted EBITDA (to include EBITDA and exclude unusual gains and charges, cost overhang associated with the Nylon business divested on June 1, 2009, and non-cash stock compensation expense), and Adjusted EPS (defined as earnings per share as adjusted to exclude unusual gains and charges, and reorganization items, net) that are not determined in accordance with generally accepted accounting principles in the United States (GAAP). The company believes that these non-gaap financial measures are useful to investors because they facilitate period-to-period comparisons of Solutia s performance and enable investors to assess the company s performance in the way that management and lenders do. Our debt covenants and certain management reporting and incentive plans are measured against certain of these non-gaap financial measures. Reconciliations of these measures to GAAP measures are included in the appendix. Within this presentation financials information reflects continuing operations only, unless otherwise noted S E E S O L U T I A D I F F E R E N T L Y 2

3 Investment Highlights Solutia: A Leading, Global Specialty Chemicals and Performance Materials Company Completed transformation into pure play specialty chemicals and performance materials business Leading market positions across portfolio with industry-leading margins Balanced geographic exposure with significant presence in high-growth regions Premium supplier across diversified end markets Meaningfully improved risk profile Track record of strong revenue and earnings growth Experienced management team thoughtful in approach, aggressive in action S E E S O L U T I A D I F F E R E N T L Y 3

4 Evolution of our Business 20%+ Margins Cash & Survival Focus 16%-18% Cost and Asset Driven Strengthen Core Divest Commodities Efficient Manufacturing Innovation and Market Driven Focus on: Growth Regions Emerging Market Segments Technology Leadership & Beyond Refocused high margin, specialty portfolio S E E S O L U T I A D I F F E R E N T L Y 4

5 Our businesses are focused on energy solutions Energy Efficiency Photovoltaic Concentrated Solar Power LLumar and Vista tough polyester window films reduce solar heat gain and block UV rays in retrofit applications Saflex PVB sheet is used to encapsulate PV modules providing protection, resistivity and durability from the environment Technical Coatings low resistance, optically clear conductive films are used in flexible thin-film applications Technical Coatings Therminol heat transfer fluids offer 20+ years experience Therminol heats up to 400º C, the highest available Products focused on energy solutions will grow to $450M by 2014 and represent 45% of our forecast growth S E E S O L U T I A D I F F E R E N T L Y 5

6 Solutia Portfolio Overview Global Market Leader Across Portfolio and Industry Leading Margins Saflex Brands Products PVB Glass Interlayer Specialty Resins Market Position #1 EBITDA Margins LTM 9/30/09 22% CPFilms Window Films Precision-Coated Films #1 17% Technical Specialties Crystex Insoluble Sulfur High temperature heat Transfer Fluids Aviation hydraulic fluids Anti-Degradants #1 29% S E E S O L U T I A D I F F E R E N T L Y 6

7 Diverse Geographic Exposure 2009 LTM REVENUE BY GEOGRAPHY US 27% EUROPE 34% CHINA 11% OTHER ASIA 14% ROW 14% 2009 LTM REVENUE BY GEOGRAPHY BY SEGMENT Saflex CPFilms Technical Specialties Europe USA China Other Asia ROW $319M $129M $54M $58M $103M 48% 19% 8% 9% 16% $30M $104M $8M $25M $14M 15% 59% 4% 14% 8% $191M $191M $114M $152M $112M 25% 25% 15% 20% 15% Solutia s diversified geographic portfolio well positioned to capture growth across developed and emerging markets S E E S O L U T I A D I F F E R E N T L Y 7

8 End-Markets Overview 2009 LTM (1) Revenue by End Market End Market Review Automotive Replacement 31% Global automotive production increased 7% Q2 to Q3 Uptrend in production to continue in Q4 Construction - Residential 4% Construction - Commercial 16% Industrial and Other 26% Automotive - OEM 18% Automotive - Aftermarket 5% Key construction markets, Europe and US, expected to be flat in 2010 Asia architectural markets next year will grow at 6% with China leading the way with growth of 8% Global stimulus measures favorably impacting demand growth in automotive and architectural markets Industrial & Other sales benefit from diverse end markets and growth in solar applications (1) LTM ending September 30, 2009 S E E S O L U T I A D I F F E R E N T L Y 8

9 Saflex Overview 2009 LTM REVENUE BY END MARKET AUTO OEM 26% AUTO REPLAC. 21% ARCHITECTURAL COMMERCIAL 34% ARCH. RES. 8% OTHER 11% 2009 GLOBAL MARKET SHARE #1 globally in PVB REVENUE (dollars in millions) 2005 $625 Asia Pacific LTM 9/30/09 $663 $727 $822 $663 Americas Europe & Africa Solutia Sekisui Dupont Kuraray ADJUSTED EBITDA (dollars in millions) Margin $96 $ % 16.4% 2007 $ % 2008 $ % LTM 9/30/09 $ % STRATEGIC POSITIONING Leading market and technology positions Large-scale, low-cost facilities Alignment of global manufacturing footprint with geographic demand Opportunities for growth through new product applications (e.g. solar, acoustic) LTM ending September 30, 2009 S E E S O L U T I A D I F F E R E N T L Y 9

10 CPFilms Overview 2009 LTM REVENUE BY END MARKET FILM AUTO 41% FILM COMMER. 20% FILM RES. 6% INDUSTRIAL & ELECTRONICS 21% DIY 12% 2009 GLOBAL MARKET SHARE REVENUE (dollars in millions) Hanita Lintec/Madico Johnson Novomatrix LTM 9/30/09 $199 $214 $234 $236 $181 Garware Commonwealth Bekaert 3M CPFilms ADJUSTED EBITDA (dollars in millions) Margin $47 $ % 23.8% 2007 $ % 2008 $ % LTM 9/30/09 $ % STRATEGIC POSITIONING Multi-segment brand, product & channel development Downstream integration creating value Operational efficiency LTM ending September 30, 2009 S E E S O L U T I A D I F F E R E N T L Y 10

11 Technical Specialties Overview 2009 LTM REVENUE BY END MARKET AUTO OEM 16% AUTO REPLACEMENT 47% INDUSTRIAL 31% OTHER 6% 2009 GLOBAL MARKET SHARE REVENUE (dollars in millions) Competitors: 2005 $799 Dow Therminol 3.0x 2006 $772 Sinorgchem Lanxess Santoflex 1.6x LTM 9/30/09 $860 $1,015 $760 Exxon OCCL Shikoku Skydrol Crystex 3.3x ADJUSTED EBITDA (dollars in millions) Margin 2005 $ % 6.0x 2006 $ % 2007 $ % 2008 $ % LTM 9/30/09 $ % STRATEGIC POSITIONING Advantaged technology and cost positions Executing on portfolio opportunities New product innovation Crystex and Therminol Strong growth in heat transfer fluids LTM ending September 30, 2009 S E E S O L U T I A D I F F E R E N T L Y 11

12 Consolidated Financials ($ millions) Net Sales ($ millions) Adjusted EBITDA /Margin 21.1% 22.0% $1,667 $1,691 $1,857 $2,110 $1,626 ~$1.6B 15.9% $ % $ % $ % $392 $343 $350- $ LTM 9/30/ E LTM 9/30/ E Strong Track Record of Revenue and Profitability Growth Note: Revenue and Adjusted EBITDA are pro forma for 100% of the Flexsys business. S E E S O L U T I A D I F F E R E N T L Y 12

13 Solutia is well positioned among leading industry participants $5.7 $2.8 /1 $1.6 $2.8 $4.5 $5.8 $1.3 /1 $2.9 $3.8 $3.6 $1.6 /1 $77.6 $1.1 $2.0 $3.0 /2 $26.7 $5.1 $5.0 $1.4 $21.2 $2.7 $43.4 $9.6 $15.2 /1 $15.2 $7.0 $1.6 $7.7 Revenues LTM 9/30/09 $B USD 25% 20% 15% Median 14% 10% 5% LTM 9/30/2009 EBITDA Margin 0% Wacker Chemie Lonza Group Solutia FMC Lubrizol Ecolab EMS-Chemie Rockwood Nalco Kuraray Croda BASF Hexcel Albemarle Valspar DuPont Eastman Celanese Arch Akzo Cytec Dow Sekisui Toray Asahi Kasei Clariant Ferro Huntsman /1. LTM Figures ending 6/30/2009 /2. LTM Figures ending 7/31/2009 Source: Capital IQ S E E S O L U T I A D I F F E R E N T L Y 13

14 Key Cash Flow Items Capital Expenditures Working Capital $120 $97 $112 $99 $ m m $100 $80 $60 $40 $81 $40 $50 (1) Days $ $ G Cost Reduction Maintenance/ESH Growth Published Guidance DSO DOH DPO Significant growth investments made over the period The inventory decrease of approximately $65M more than offset the increase usage of cash for receivables due to increasing sales revenue Cash Taxes $1.4B US NOL available to offset ordinary income and capital gains resulting from divestitures of US assets Ex-US pre-tax earnings partially shielded by intercompany debt push-down interest deductions (1) Includes approximately $15 million to $20 million of growth capital expenditures from projects committed to in S E E S O L U T I A D I F F E R E N T L Y 14

15 Pro-forma Leverage Profile (1) 9/30/09 Debt Components Term Loan - $879 million Other Short Term Debt - $19 million Revolver Draw - $0.0 million Senior Unsecured Bonds- $400 million Gross Debt - $1.298 billion Cash - $190 million Net Debt - $1.108 Billion Revolver due Feb LIBOR plus 1.75% Terms Term loan due Feb Prime plus 4% or LIBOR floor of 3.5% plus 5% (currently using prime) Swaps for declining amounts ranging from $800 million to $150 million, April 2010 through February 2014 Swap agreements require us to pay approximately 1.25% of additional interest starting in April 2010 Senior unsecured bonds due Nov Issued at par, 8.75% fixed Liquidity - $304 million Financial Covenants Q2 09 Q3 09 Q2 09 Q3 09 Max Leverage Ratio (2) Min Fixed Charge Ratio (2) Actual Leverage Ratio Actual Fixed Charge Ratio (1) Pro-forma for bond offering completed October 15, 2009 (2) Defined per the Term Loan agreement. Based on our recent amendment that closed October 15, 2009 the Maximum Leverage Ratio will remain at 4.50 through the end of 2010 S E E S O L U T I A D I F F E R E N T L Y 15

16 Our existing portfolio is well positioned to deliver earnings and revenue growth Business Contribution CAGR Attributes Market leadership Growth Segments Saflex CPFilms Provide top line and earnings growth 10-15% Innovation Cost advantage Global scale Quality leadership Core Businesses Crystex Therminol Skydrol Cash flow contribution 4-6% Superior cost advantage Global manufacturing footprint Reposition Santoflex (PPD) Other Rubber Chemicals (ORC) Cash Flow Optimization S E E S O L U T I A D I F F E R E N T L Y 16

17 Solutia s Focus Ensure the Future Cash generation Improve leverage Current Focus Strengthen Current Businesses Investments to sustain leadership position Innovation and product development Focus on growth and profitability Optimize Operations Continue cost containment efforts Optimize supply chain network The Future Growth Build scale specialty materials company Highly synergistic bolt-on acquisitions Evaluate new platforms S E E S O L U T I A D I F F E R E N T L Y 17

18 Question & Please feel free to contact Solutia s Investor Relations Personnel at: Answer Session or sslivi@solutia.com

19 Appendix

20 Reg. G: Reconciliation of EBITDA to Income (Loss) Successor Successor Successor Predecessor Successor Combined Three Months Three Months Nine Months Two Months Seven Months Nine Months Ended Ended Ended Ended Ended Ended September 30, September 30, September 30, February 29, September 30, September 30, (dollars in millions) Net Income (Loss) Attributable to Solutia $ 29 $ (7) $ (120) $ 1,454 $ (53) $ 1,401 Plus: Income Tax Expense Interest Expense Depreciation and Amortization (Income) Loss from Discontinued Operations, net of tax (204) 52 (152) Events affecting comparability, pre-tax: Reorganization items (1,433) - (1,433) Other items (see below) 16 (1) 17 (2) Non-cash Stock Compensation Expense Nylon Cost Overhang (1) 2 1 Adjusted EBITDA from Continuing Operations $ 119 $ 111 $ 271 $ 60 $ 260 $ 320 S E E S O L U T I A D I F F E R E N T L Y 20

21 Reg. G: Summary of Events Affecting Comparability In 2009, (Gains) and Charges affecting comparability, pre-tax other items including interest are as follows: Three Three Three Nine Months Months Months Months Ended Ended Ended Ended March 31, June 30, Sept 30, Sept 30, (dollars in millions) $ (23) $ - $ - $ (23) Gain related to the reduction in the 2008 annual incentive plan Severance and retraining costs related to the general corporate restructuring Charges related to the closure of the SAFLEX production line at the Trenton, Michigan Facility 1 (4) - (3) Net charges (gains) related to the closure of the Ruabon, Wales Facility Net pension plan settlements Loss related to the sale of the North America Plastic Products business $ (1) $ 2 $ 16 $ Interest expense related charges from repayment of German term loan to writeoff unamortized debt issuance and debt discount $ (1) $ 10 $ 16 $ 25 In 2008, (Gains) and Charges affecting comparability, pre-tax other items including interest are as follows: Three Nine Months Months Ended Ended Sept 30, Sept 30, (dollars in millions) $ - $ 67 Charge resulting from the expensing of the step-up in basis of our inventory in accordance with freshstart accounting 1 7 Charges related to the closure of the Ruabon, Wales Facility net of related gain for termination of a natural gas purchase contract - (3) Gain resulting from settlements of legacy insurance policies with insolvent insurance carriers 1 2 Restructuring costs related principally to severance and retraining costs (3) (6) Gain resulting from a surplus land sale - (4) Gain resulting from settlement of emergence related incentive accruals $ (1) $ Unamortized debt issuance costs associated with the repayment of the Bridge $ - $ 64 S E E S O L U T I A D I F F E R E N T L Y 21

22 Reg. G: Reconciliation of EBITDA to Income (Loss) Predecessor / Successor Predecessor 1 Predecessor 1 Combined 1 (dollars in millions) Twelve Months Ended December 31, 2008 Twelve Months Ended December 31, 2007 Twelve Months Ended December 31, 2006 Income (Loss) from Continuing Operations $ 1,235 $ (269) $ (76) Plus: Income Tax (Benefit) Expense Interest Expense Depreciation and Amortization Net Income attributable to noncontrolling interest (5) (3) (2) Events affecting comparability, pre-tax: Reorganization items (1,433) Other items (see below) Non-cash Stock Compensation Expense Pro forma Flexsys Nylon Cost Overhang Adjusted EBITDA from Continuing Operations $ 392 $ 305 $ Solutia emerged from bankruptcy on February 29, Consolidated financial results for all periods beginning March 1, 2008 are titled 'Successor'; consolidated financial results for all periods prior to emergence from bankruptcy are titled 'Predecess S E E S O L U T I A D I F F E R E N T L Y 22

23 Reg. G: Summary of Events Affecting Comparability Predecessor / Successor Combined Predecessor Predecessor Twelve Months Ended December 31, 2008 Twelve Months Ended December 31, 2007 Twelve Months Ended December 31, 2006 $ - $ - $ - Gain related to the reduction in the 2008 annual incentive plan Restructuring charges and asset impairments (9) (21) (21) Other gains on litigation settlements, insurance settlements and sales of other assets Fresh Start related charges, net Net pension plan settlements Charge to record the write-off of debt issuance costs & facility modification fees Charge resulting from the step-up in basis upon acquisition of Flexsys $ 93 $ 27 $ 5 S E E S O L U T I A D I F F E R E N T L Y 23

24 Reg. G: Reconciliation of Adjusted EBITDA (2) From Continuing Operations (in millions) 2009 Adjustments 2009 As Adjusted 2008 Adjustments 2008 As Adjusted % change Net Sales Saflex $ 182 $ 182 $ 221 $ % CPFilms % Technical Specialties % Unallocated and Other % Total $ 448 $ 448 $ 587 $ % EBITDA (1) Saflex $ 45 $ 2 $ 47 $ 36 $ - $ 36 31% CPFilms % Technical Specialties % Unallocated and Other (29) 17 (12) (17) 2 (15) 20% Total $ 99 $ 20 $ 119 $ 108 $ 3 $ 111 7% (1) EBITDA is defined as earnings from continuing operations before interest expense, income taxes, depreciation and amortization, less net income attributable to non-controlling interests, and reorganization items, net. Foreign currency gains/losses are included in Unallocated and Other. (2) Adjusted EBITDA is EBITDA (as defined above), excluding Adjustments (as defined below) (3) Adjustments include Events Affecting Comparability (see separate table), cost overhang associated with the sale of the Integrated Nylon business, and non-cash stock compensation expense Three Months Ended September 30 S E E S O L U T I A D I F F E R E N T L Y 24

25 Reg. G: Reconciliation of Adjusted EBITDA (2) YTD From Continuing Operations (in millions) 2009 Adjustments 2009 As Adjusted 2008 Adjustments 2008 As Adjusted % change Net Sales Saflex $ 475 $ 475 $ 634 $ % CPFilms % Technical Specialties % Unallocated and Other % Total $ 1,197 $ 1,197 $ 1,681 $ 1,681-29% EBITDA (1) Saflex $ 99 $ 11 $ 110 $ 71 $ 37 $ 108 2% CPFilms % Technical Specialties 190 (14) % Unallocated and Other (73) 30 (43) (29) (4) (33) 30% Total $ 240 $ 31 $ 271 $ 250 $ 70 $ % (1) EBITDA is defined as earnings from continuing operations before interest expense, income taxes, depreciation and amortization, less net income attributable to non-controlling interests, and reorganization items, net. Foreign currency gains/losses are included in Unallocated and Other. (2) Adjusted EBITDA is EBITDA (as defined above), excluding Adjustments (as defined below) (3) Adjustments include Events Affecting Comparability (see separate table), cost overhang associated with the sale of the Integrated Nylon business, and non-cash stock compensation expense Nine Months Ended September 30 S E E S O L U T I A D I F F E R E N T L Y 25