Innovation Day Curt Espeland. Executive Vice President and Chief Financial Officer

Transcription

1 Innovation Day 2018 Curt Espeland Executive Vice President and Chief Financial Officer

2 Forward-looking statements 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. Non-GAAP financial measures All 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 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).

3 Here s what you ve heard today World-Class Technology Platforms Differentiated Application Development Relentlessly Engage the Market Significant integration and scale enable innovation, reliability and cost advantage Advantaged growth and execution capability and culture Aggressive and disciplined portfolio management ADDITIVES & FUNCTIONAL PRODUCTS ADVANCED MATERIALS FIBERS REVENUE GROWTH mid-single digits OPERATING MARGIN ~20% OPERATING EARNINGS CAGR 5% 7% REVENUE GROWTH mid-single digits OPERATING MARGIN ~20% OPERATING EARNINGS CAGR 7% 10% REVENUE GROWTH low-single digits OPERATING MARGIN >25% OPERATING EARNINGS CAGR 1% 3%

4 Chemical Intermediates: Intermediates supplier with global reach More stable operating earnings with low double-digit operating margins Broad portfolio of upstream product lines in all key Eastman product streams: Upstream engine supplying Eastman s downstream specialty businesses and merchant customers Electronics 2% Transportation 5% Consumer/Medical Durables 5% Energy, Fuels & Water 8% 2017 REVENUE BY END-USE MARKET Other 5% Industrial Chemicals & Processing 28% Security of supply highly valued by customers Consumables 9% Flexibility across product streams to optimize value and drive asset efficiency Personal Care & Wellness 9% Agriculture 11% Building & Construction 18% Creates advantaged cost positions for downstream businesses to support growth Generates strong cash flow to invest in corporate innovation 2017 REVENUE BY REGION 68 % 14 % 6 % 2017 REVENUE BY PRODUCT LINE 12 % Functional Amines Intermediates 17% 64% Plasticizers 19%

5 Above end-market growth that is sustainable Key assumptions Macroeconomic growth similar to 2017: Industrial production growth to average ~2.5% Stable oil: Brent crude oil price forecast $60 $70 per barrel Stable currencies: U.S. dollar to Euro exchange rate expected to be ~$1.20 Eastman tax rate expected to be 18% 20%

6 Cumulative capacity increase (kmt) Continued success with productivity and aggressive cost management 180 LEVERAGING TECHNICAL CAPABILITIES TO INCREASE CAPACITY THROUGH PRODUCTIVITY/DEBOTTLENECKING 30% SGA+R&D/REVENUE RELATIVE TO SPECIALTY PEERS ( average) % 20% 15% 10% 5% Crystex Acetyl Stream Olefins Oxo Aldehydes Polymer Intermediates Copolyesters PVB Resin 0% EMN ALB FMC ASH GRA IFF Note: 2017 represents mean of available sell-side equity analysts estimates for peer companies as of 12/31/2017.

7 Established track record of creating value 1,2 25% EBITDA MARGIN ( average) 12% EPS CAGR ( ) 20% 15% 8% 10% 5% 4% 0% EMN Specialty Diversified 0% EMN Specialty Diversified 100% FREE CASH FLOW CONVERSION ( average) RETURN ON INVESTED CAPITAL ( average) 80% 12% 60% 8% 40% 20% 4% 0% EMN Specialty Diversified 0% EMN Specialty Diversified 1) Source: Bloomberg, Nasdaq, and company filings. Refer to non-gaap financial measures of Forward-Looking Statements slide for peer listing. 2) 2017 represents analyst mean estimate for peer companies as of 12/31/2017

8 $M Strong and growing cash from operations driven by continued growth in corporate earnings $1,800 $1,500 $1,200 OPERATING CASH FLOW F Operating cash flow growing with our businesses Will continue working capital discipline in line with growth $900 $ operating cash flow negatively impacted by coal gas incident $300 $ F 2019F 2020F

9 $M Targeted capital expenditures funding organic growth and maintenance $700 $600 $500 CAPITAL EXPENDITURES F Annual maintenance capital expected to be $300 $350 million Will continue to fund targeted growth initiatives $400 $300 $200 $100 Anticipate future projects will be driven by innovation and other growth programs Recent examples include Tritan TM, Crystex TM, PVB resin, and ketones $ F 2019F 2020F Maintenance & incremental growth Growth Incident Expected return on growth investments of 10% 15%+ % of sales 4% 6% 6% 5% 6% 7% 7% 6% 5% 5% 5%

10 Acquisitions improve and sustain earnings and free cash flow profile 9 10x EBITDA >$160M Acquisition multiple >90% key talent retained Increased breadth and scale of innovation programs Corporate tax rate 34% 20% EMN FCF/Revenue 2% >10% cost synergies 11%-13% postcompletion IRR 10

11 $M Free cash flow over next 3 years expected to be ~$3.5 billion $1,500 FREE CASH FLOW F $1,200 $900 $600 $300 $ F 2019F 2020F Expect to fully deploy free cash flow

12 $M Maintain investment-grade credit rating that provides financial flexibility to invest in growth and reward stockholders $8,000 $7,000 $6,000 $5,000 TOTAL DEBT 4.0x 3.5x 3.0x 2.5x $4,000 $3,000 $2,000 $1,000 $ F 2019F 2020F 2.0x 1.5x 1.0x 0.5x 0.0x Expect ~2.5x debt to EBITDA ratio in next 12 to 24 months

13 $M Strong balance sheet and sufficient liquidity $1,200 $800 $400 $0 PUBLIC DEBT MATURITIES Remain committed to investment-grade credit rating Expect to delever over next months Manageable debt maturities in 2019 and 2020 Sources of liquidity: $1.25 billion revolver $300 million accounts receivable securitization program Meaningful return of cash to stockholders Combination of cash flow generation, strong balance sheet, and liquidity provides flexibility to pursue growth

14 $M Long history of returning capital to stockholders $2.50 DIVIDENDS PER SHARE CAGR ~13% ( ) $800 $2.4B OF CAPITAL RETURNED TO STOCKHOLDERS ( ) $2.00 $600 $1.50 $1.00 $0.50 $400 $200 $ F $ F Dividends Share repurchases New $2B share repurchase authorization

15 A sustained high level of returns as the company grows Earnings 20% RETURN ON INVESTED CAPITAL (ROIC) 15% Innovation- Driven Growth 10% 5% Cash flow ROIC 0% F Expect ROIC of 10% 15% as the company grows in a disciplined manner

16 Position of strength Expect to generate free cash flow approaching ~$3.5 billion Maintain capital structure that provides financial flexibility to invest for growth and reward stockholders Strong balance sheet and sufficient liquidity foundation for growth Continue to improve ROIC with an expectation to return 10% 15% Strong execution track record enables sustainable value creation