Investor Presentation

Transcription

1 Investor Presentation JP Morgan -- Global Leaders 1x1 Forum Lorin Crenshaw, VP, Treasurer & Investor Relations June 4, 2014

2 Forward Looking Statement Some of the information presented in this document and discussions that follow, including, without limitation, statements with respect to product development, changes in productivity, market trends, price, volume and mix changes, expected growth and earnings, input costs, surcharges, tax rates, stock repurchases, dividends, economic trends, outlook and all other information relating to matters that are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of There can be no assurance that actual results will not differ materially. Factors that could cause actual results to differ materially include, without limitation: changes in economic and business conditions; changes in financial and operating performance of our major customers and industries and markets served by us; the timing of orders received from customers; the gain or loss of significant customers; competition from other manufacturers; changes in the demand for our products; limitations or prohibitions on the manufacture and sale of our products; availability of raw materials; changes in the cost of raw materials and energy and in our ability to pass through such increases; acquisitions and divestitures, and changes in performance of acquired companies; changes in our markets in general; fluctuations in foreign currencies; changes in laws and government regulation impacting our operations or our products; the occurrence of claims or litigation; the occurrence of natural disasters; the inability to maintain current levels of product or premises liability insurance or the denial of such coverage; political unrest affecting the global economy, including adverse effects from terrorism or hostilities; political instability affecting our manufacturing operations or joint ventures; changes in accounting standards; the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs; changes in the jurisdictional mix of our earnings and changes in tax laws and rates; changes in monetary policies, inflation or interest rates that may impact our ability to raise capital or increase our cost of funds, impact the performance of our pension fund investments and increase our pension expense and funding obligations; volatility and substantial uncertainties in the debt and equity markets; technology or intellectual property infringement, including cyber security breaches, and other innovation risks; decisions we may make in the future; and the other factors detailed from time to time in the reports we file with the SEC, including those described under "Risk Factors" in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. It should be noted that this presentation contains certain financial measures, including Net Sales, and Segment Income, that are not required by, or presented in accordance with, accounting principles generally accepted in the United States, or GAAP. These measures are presented here to provide additional useful measurements to review our operations, provide transparency to investors and enable period-to-period comparability of financial performance. A description of non-gaap financial measures that we use to evaluate our operations and financial performance, and reconciliation of these non-gaap financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP, can be found in the Investors section of our website at under Non-GAAP Reconciliations under Financials. 2

3 Seasoned Leadership Team Combined 90+ years of experience Luke Kissam CEO 20+ yrs of chemicals industry experience Fmr. President, Mfg. Head & General Counsel Scott Tozier Sr. VP & CFO 20+ yrs int l financial management 3 yrs with Albemarle Ron Zumstein Sr. VP Manufacturing & Supply Chain 25 yrs with Albemarle in manufacturing, R&D & HS&E leadership roles Susan Kelliher Sr. VP Human Resources 20+ yrs HR experience 2 years with Albemarle Matt Juneau Sr. VP President Performance Chemicals 30 yrs with Albemarle; Led global sales, Performance Chemicals & Custom Services D. Michael Wilson Sr. VP President Catalyst Solutions 20+ years global business leadership Experience in both specialty & commodity David Klanecky VP Strategy & Corporate Development 20 yrs of global business and R&D leadership Dave Clary VP & Chief Sustainability Officer 27 yrs with Albemarle R&D, business mgmt., technology and advocacy roles Karen Narwold Sr. VP & General Counsel 20+ yrs in industrials & chemicals 3 yrs with Albemarle 3

4 Organizational Structure Supports Strategy Execution Catalysts Fine Chemistry Services Custom Manufacturing Leading supplier of top performance catalysts and related services to the oil refining and plastics industries Bromine Derivatives Refinery Catalyst Solutions Specialty Chemicals Non-Flame Retardant Bromine Derivatives, Specialty Materials, and Curatives Leading supplier of fire safety solutions Completion fluids, crop protection, pollution control and food safety Lowest cost bromine sourcing platform Custom Manufacturing Leading custom mfr. within targeted ag, renewable chemistry, specialty pharma and electronic materials markets Performance Catalyst Solutions Catalyst Solutions Fire Safety Solutions Performance Chemicals Bromine and Mineral Flame Retardants 41% By Business Net Sales Distribution* 59% Performance Chemicals Catalyst Solutions 39% By Region 20% 41% North America Western Europe Rest of World 2013 Net Sales: $2.4B *Financial data excludes the impact of rare earth and the recently announced proposed divesture of ALB s antioxidant, ibuprofen and propofol businesses and assets 4

5 Integrated Platform Increases Speed to Market, Customer Influence, Supplier Leverage & Innovation Catalyst Solutions Performance Chemicals Performance Catalyst Solutions Refinery Catalyst Solutions Fire Safety Solutions Specialty Chemicals Fine Chemistry Services Faster speed to market Greater share of customer wallet and solutions breadth Raw materials savings and optionality Stronger R&D innovation platform Common Customers: Deeper Wallet Penetration & Strategic Relevance Shared R&D: Proprietary Expertise (Organic / Inorganic), Processes, Cross Fertilization of Ideas Core Capabilities Overlap: Materials Handling Expertise, Technological, Manufacturing & Operations, Chemicals Analysis Supply Chain Efficiencies: Common Raw Materials, Joint Worksites Shared Processes: One Albemarle Strategy Proprietary Information of Albemarle Corporation 5

6 Exceptional Market Diversity Other Lubricants Personal Care Utilities Other (TTM % of sales as of (1Q14) Industrials Plastics / Packaging Refining / Oilfield Services Plastics Agriculture Lubricants Automotive Construction /Furnishing Industrials Oilfield Services Electronics Pharma Catalyst Solutions Performance Chemicals Two Core Technologies Catalysts and bromine Derivatives Yield Board End Market Diversity Proprietary Information of Albemarle Corporation 6

7 Substantial Earnings Potential with Minimal Incremental Capital Spend Total Segment Margins* 26% - 29% Well positioned to capitalize on catalysts and bromine market trends with major investments already in place 24% 26% 26% 22% Productivity enhancements to drive improved profitability and ROCE» At target bromine and PCS catalyst utilization rates, ALB has the potential to drive segment margin improvement to 26% - 29%» Both catalyst and bromine enjoy incremental margins in the range of 50% Portfolio management» Recent exits expected to deliver 100 to 150 bps margin increase Target *Financial data for excludes the impact of rare earth and the recently announced proposed divesture of Albemarle s antioxidant, ibuprofen and propofol businesses and assets *Segment margins do not include corporate expenses Meaningful operating leverage per incremental MT of catalysts and bromine sold Proprietary Information of Albemarle Corporation 7

8 Catalyst Solutions Overview By Business (% of sales as for 2013*) 24% 76% By Region 21% 44% 35% Financial Summary* Sales: $1.0B Segment Income: $0.22B Segment Margin: 22% PCS RCS Americas EUMEI Asia Pacific Growth Drivers Rising fuel consumption More stringent air quality mandates Investments in conversion capacity Infrastructure spending Growing middle class wealth Prospective PE/PP capacity additions in NA Customers FCC: Global oil refiners (e.g., Exxon Mobil, Shell) HPC: Global oil refiners Polymer Catalysts: Global PE / PP mfrs (e.g., Dow) Electronic Materials: LG, Samsung, among others Principal Competitors FCC: W.R. Grace, BASF HPC: Criterion Catalysts, Haldor Topsoe, Advanced Refining Technologies Polymer Catalysts: Akzo, Chemtura Electronic Materials: Akzo, Dow, SAFC Hitech Barriers to Entry Technology / Product Performance Track Record of Innovation and New Investments Technical Service / Customer Knowledge Complex Chemistry & Materials Handling Trade Secrets / Intellectual Property Reliability and security of catalyst supply *Financial data excludes the impact of rare earth and the recently announced proposed divesture of ALB s antioxidant, ibuprofen and propofol businesses and assets 8

9 Market Position Core Strengths Deep customer understanding Heavy investment in R&D Global footprint Segment Heavy Oil Upgrading Market Position FCC Catalysts 2 Max Propylene 1 Resid 2 Distillates 1 Unparalleled network of partnerships and alliances Breath and depth of talent Clean Fuels Technologies Performance Catalyst Solutions Vacuum Gas Oil 2 Reactivation Technology 1 Organometallics 1 MAO 1 Custom Single Site Catalysts /Metallocenes 1 We are leaders in our core segments 9

10 Capitalizing on Market Trends Market Driver Innovation Value to Customer Global Fuel Consumption ACTION FCC catalysts Enhances transportation fuels and alky feedstock Raises octane value of gasoline Heavy Oil Upgrading Clean Fuels Technologies Heavier Crudes UPGRADER FCC catalysts Upgrades resids and heavy, contaminated feedstocks Maximum Propylene AFX FCC catalysts Maximizes propylene (chemical feedstock) and bottoms conversion Tight Oil Global Fuel Consumption AMBER T and UPGRADER T FCC catalysts REACT catalyst rejuvenation technology STAX advanced performance modeling Clean Air Mandates Nebula platform Avoids capex Tuned to optimize tight oil processing Enhances fresh catalyst value offering Maximizes value from the use of catalyst Tight Oil Ketjenguard guard-bed catalyst platform High capacity contaminant trapping for main-bed catalyst protection Customers Demanding Innovative Polymers Activcat Single Site Catalyst (SSC) platform Methylaluminoxane (MAO) Aluminoxane activator Enabler of favorable polymer economics by lowering the overall cost-in-use of the catalyst system Dependable metallocene activator supply to meet growing specialty polymer demand Performance Catalyst Solutions NA Shale Oil Driven Expansions / Growing Consumerism LED Emergence / Growing Consumerism Triethylaluminum (TEA) Aluminum alkyls organometallic Advantage Ziegler Natta catalyst platform PureGrowth High Purity Metal Organics platform for electronics Dependable co-catalyst and catalyst supply to meet growing polymer demand High performance catalysts for polyethylene production Alternative source of high quality key ingredient for electronics / LED industry 10

11 HOU: FCC Catalyst Demand Driven by Propylene Growth and Increased Transportation Fuels Demand Global FCC Catalyst Demand Driven by: Continuous investment in refining capacity for transportation fuels with demand shifting to developing regions» Large scale and efficient refinery additions and revamps in AP, China and ME to meet increased regional demand» FCC flexibility required to maximize profitability from different unit designs, varying feed qualities and desired product slate across the globe» FCC innovation driven by atypical feeds such as tight oil and increased resid feed processing Gasoline Consumption by Region, bcm 5000 China 4500 Other non-oecd 4000 Other OECD 3500 North America Sources: HIS CERA, LUKOIL estimates Pursuit of integrated refinery-petrochemical facilities» Ongoing shale boom favors ethane-based steam cracking and less light olefin co-products» Maximize production of light olefins such as propylene in the FCC unit to fill the supply» New FCC units built to maximize propylene output Total Catalyst Consumption (ktpy) FCC Max Propylene Market Evolution Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 11

12 CFT: Catalyst Growth Will Be Accelerated by Clean Air Mandates Global HPC Demand Growing: Substantial global capacity additions in refineries for hydroprocessing & hydrocracking Driven by Combination of: Steady increase of demand for transportation fuels, driven by rising global passenger car ownership and expansion of commercial vehicles fleet Increasingly stringent fuel standards across the globe» ULSD implementation in China, Latin America, CIS and other regions» Tier 3 gasoline in NA» Tighter emission standards for marine fleet Changing crude slates and increasing conversion of bottom-of-the-barrel Mb/d Sulfur Standards per Region ppm ppm ppm ppm ppm >2000 ppm Source: Hart Energy Research & Consulting, September 2013 Desulfurization Capacity Requirements ( ) Vacuum Gas Oil/Residual Fuel Middle Distillates Gasoline US & Canada Latin America Africa Europe Russia & Casplan Source: Hart Energy Research & Consulting, September 2013 Middle East China Other Asia- Pacific 12

13 Implications of Tight Oil What is Tight Oil? Liquid hydrocarbons obtained by hydraulically fracturing shale formations; today a NA phenomenon Typically a light, sweet, paraffinic feed Generally easy to crack, but often contains uncommon FCC contaminant metals - primarily iron, calcium, sodium and lead Implications and Opportunities CFT Although lower in sulfur, tight oil requires additional guard bed catalysts to protect the main bed catalysts from iron poisoning Albemarle s robust portfolio of guard bed catalysts is well-suited to handle these conditions % 80% 60% 40% 20% 0% Conventional Crude Oil Source: Management estimates Tight Oil LPG Naphtha Distillate Gas oil Resid Forecast for Shale Oil Production in the U.S., mb/d HOU The paraffinic and contaminant metals nature of tight oils creates new FCC unit constraints that can result in subpar profitability Albemarle s AMBER TM T and UPGRADER TM T are specially formulated to optimize FCC units processing tight oil Source: EIA, LUKOIL estimates Our robust portfolio of catalyst solutions handles a broad array of feed characteristics 13

14 PCS: Investments in Future Growth Yeosu, Korea Single-site catalyst production State-of-the-art research & operations center Metal organics expansion to support electronic materials growth platform SOCC, Saudi Arabia JV with SABIC First TEA facility in the region Meeting security of supply and demand needs for polyolefin producers in Middle East Catalyst Innovation Center, U.S. 5,400 square foot state-of-the-art laboratory complex Supports R&D efforts for Albemarle s rapidly growing polyolefin catalyst portfolio Hosts eight new chemical synthesis stations HTE & Polymer Lab, U.S. HTE capabilities in Amsterdam, Baton Rouge and Bayport Parallel Polymerization Reactor system facilitates up to 48 experiments per run 14

15 Catalyst Solutions Business Outlook Refinery catalysts fundamentals solid, 2014 growth driven by:» More normal FCC turnarounds compared to 2013» Continued strong FCC demand and new customer wins» Metals contamination in tight oil and heavier crude slate favoring our technology» More stringent sulfur standards taking effect worldwide PCS long term trajectory favorable driven by continued market shift toward higher value, metallocene-based polyolefin products» 2014 growth offset by fixed costs associated with recent expansions» Emerging markets increasingly focus on higher value products, as incomes rise» Increased demand for LED technology expected Catalyst Solutions New Product Velocity 37% 39% 50% 49% 56% 59% 58% Demand, Mt/y Rest of World Middle East Rest of Asia China North America Europe Global Polymer Demand x% = Compound annual growth rate +3.1% +3.9% +3.9% Source: The Catalyst Group Resources 15

16 Catalyst Solutions: Delivering Sustained Results Segment Income Margins 24% - 27% 20% 22% 20% Price Manufacturing Excellence Portfolio Management Capacity Utilization Additional Costs Normalized * Financial data for excludes the impact of rare earth 16

17 Performance Chemicals Overview By Business (% of sales as for 2013*) 17% 45% 38% By Region 23% 48% 29% Financial Summary* Sales: $1.4B Segment Income: $0.32B Segment Margin: 23% FSS SPC FCS AM EUMEI AP Growth Drivers Energy demand & increased deep water drilling driving completion fluids Clean air regulations bolstering mercury control Growing population & higher protein diets will trigger improved food safety Demand for process R&D and rapid commercialization services Surging data traffic requiring high-end servers Automotive electronics driving growth Prospect of fire safety standards in BRICs Customers Drilling and oil service, agriculture, pharmaceutical and water treatment companies among a multitude of other chemical manufacturers and processors Plastic compounders, suppliers and distributors, semiconductor makers, and other specialty chemical companies Principal Competitors FRs & Br Derivatives: ICL & Chemtura Mineral FRs: Nabaltec, J.M. Huber, Kyowa Chemical Fine Chemistry Services: Sigma Aldrich, Lonza, BASF, Clariant Curatives: BASF, Chemtura, Songwon Barriers to Entry Technology / Product Performance Access to bromine Commercially cost effective Speed to Market Long history of performance and reliability Trade secrets related to bromine derivatives *Financial data excludes the recently announced proposed divesture of ALB s ibuprofen and propofol businesses and assets 17

18 Strong Core of Bromine & Derivatives with High Value Diverse Bromine and Bromine Derivatives Offering Delivering Attractive High Value Margins Gross Profit from Bromine-based Products Relative Contribution/Kg Bromine Utilized (2013) Fire Safety Solutions Specialty Chemicals 18

19 Leading Bromine Sourcing Position Dead Sea Concentrate Dead Sea ALB & ICL 2014 Global Capacity Competitive Noncompetitive Arkansas Michigan Closed in 2006 ALB & CHMT 20% India Concentrate China 80% Seawater UK plant in France plant in (ppm) Competitive Noncompetitive Only producer with access to the two best sources of bromine 19

20 Well-positioned to Capitalize on New Demand for FRs Best product portfolio for widest range of electrical and electronic applications across all markets 20

21 Performance Chemicals Business Outlook Favorable offshore, deep water drilling fundamentals driving continued growth in clear completion fluids demand Servers and automotive electronics and TV stability increases offsetting lower growth areas in TV and PCs Elemental bromine growth is expected based on an improved bromobutyl rubber market New JBC capacity providing flexibility to Asia and Middle Eat demand and beginning to pay dividends Estimated Circuit Board FR Consumption per Device (weighted by device unit sales) Vehicle Penetration by Country (2013) (Car ownership per 1,000 people) 60 Server Desktop Laptop Tablet + Mobile Phone Source: Infineon; BofA Merrill Lynch Global Research estimates; World Bank; IHS; KPMG; Management estimates. *Western Europe includes: EU-15 plus Norway and Switzerland India China Brazil Western Europe* US 21

22 Performance Chemicals: Delivering Sustained Results Segment Income Margins 26% 26% 27% - 30% 21% Mineral FR Improvement Portfolio Management Price 80% Utilization Additional Costs Normalized 22

23 Financial Outlook & Earnings Potential Operating Segment Revenue Growth Targets 2013 Segment Margin* Segment Margin Target Growth and Profitability Drivers Catalyst Solutions Performance Chemicals Total Company 1.0x - 2.0x GDP 22% 24% - 27% 1.0x 1.5x GDP 23% 27% - 30% 1.0x 2.0x GDP 22% 26% - 29% Improve asset utilization High incremental margins Market trends New products Improve asset utilization High incremental margins Improvement in electronics and mix shift New uses of bromine Market trends Committed to higher return on capital Continued focus on cost efficiency Market trends, asset utilization & portfolio actions drive growth & profitability *Financial data for 2013 excludes the impact of rare earth and the recently announced proposed divesture of Albemarle s antioxidant, ibuprofen and propofol businesses and assets *Segment margins do not include corporate expenses 23

24 Working Capital: Substantial Cash Flow Opportunity Days Inventory Outstanding Days Sales Outstanding Days Payable Outstanding 94 ~$165M potential impact ~$27M potential impact ~$88M potential impact Albemarle Corporation Median Upper Quartile Albemarle Corporation Median Upper Quartile Albemarle Corporation Median Upper Quartile Committed to delivering $100M in permanent working capital savings by 2015 with upside opportunity Source: Hackett Group Peer Study Peers: PolyOne, Celanese, Ashland, Grace, Sherwin-Williams, Akzo Nobel, BASF, Huntsman, RPM, Clariant, Chemtura 24

25 Continued Disciplined Approach to Capital Allocation $1.6B ($ in millions) $1.2B Outlook Committed to continued dividend growth CAPEX in the range of 4% of sales Working capital reduction of $100M by 2015 Disciplined M&A $0.3B $0.9B Total Return of Capital (buybacks & dividends) CAPEX Acquisitions Pension Contributions & Other No voluntary pension contributions in 2014 Maintain investment grade credit rating Continued use of excess cash flow to fund share buybacks 1x Net-Debt-to-EBITDA guideline = flexibility and consistent return of cash 25