Innovation Day Lucian Boldea. Senior Vice President, Additives & Functional Products

Transcription

1 Innovation Day 2018 Lucian Boldea Senior Vice President, Additives & Functional Products

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 Additives & Functional Products: Strong value creation % 12% REVENUE OPERATING GROWTH CAGR EARNINGS GROWTH CAGR ~20% STABLE OPERATING MARGINS

4 AFP: Solutions business with robust footprint Performance additives & formulated products $3.3B REVENUE $657M 20% OPERATING EARNINGS OPERATING MARGIN Sustainable business model that: Provides critical performance to our customers relative to final product price Requires deep collaboration with customers as a formulation partner Results in Eastman being a key ingredient of our customers success Personal Care/Health & Wellness 3% Consumer/Medical Durables 4% Energy, Fuels, & Water 9% Food, Feed, & Agriculture 10% Building & Construction 12% 2017 REVENUE BY REGION 2017 REVENUE BY PRODUCT LINE 36 % 35 % 23 % 2017 REVENUE BY END-USE MARKET Other 11% Specialty Fluids 13% Other 12% Transportation 28% Consumables 23% Coatings & Inks Additives 23% 6 % Care Chemicals 17% Adhesives Resins 18% Tire Additives 17%

5 Number of product offerings vs competitors Scale vs #2 competitor World-Class Scalable Technology Platforms World-class scalable technology platforms are foundation of AFP s competitive advantage and sustainable growth Multigenerational product plans developed for all key product families Significant R&D scale competitive advantage Significant cost advantage to fund growth Unique multi-technology platform offerings that are difficult to replicate Coalescents Crystex rubber additives Cellulose esters (coatings) Polyester coatings resins Hydrocarbon resins Coalescents Crystex rubber additives Cellulose esters (coatings) Polyester coatings resins Hydrocarbon resins WW WW 0 2x 4x 6x 8x 30x 10 WW WW 0 2x 4x 6x 8x 10x 12x 50x 14

6 6 Modifying our molecules to innovate a new solution

7 OEM brand equity fading 7

8 A drop in replacement was needed

9 Time was not on our side 9

10 Unique performance requirements 10

11 20 gloss retention (%) Collaboration across the value chain validates performance 11 0 Tetrashield Commercial control Hours

12 Incomparable performance 2x gloss retention Xenon light bulbs in a weatherometer for 1,500 hours 12

13 Relentless drive makes the difference 13

14 World-Class Scalable Technology Platforms Putting it all together molecule to 300,000 painted SUVs World-Class Technology Platforms Differentiated Application Development Relentlessly Engage the Market Acetyls Infrastructure and capability Resin supplier Paint formulator OEM Consumer Polyesters Olefin derivatives Others Rapid prototyping

15 Cumulative Addressable Market Size, Resin (kmt) Cumulative Addressable Market Size, Resin (kmt) Cumulative Addressable Market Size, Resin (kmt) Eastman Tetrashield protective resin systems provide access to ~$1.5B of addressable market across wide range of applications AUTOMOTIVE COATINGS INDUSTRIAL PROTECTIVE COATINGS METAL PACKAGING COATINGS Monocoats 2K Prem Clear Coats 1K Premium and High- Solids Clear Coats Industrial Maintenance Agriculture & Construction Equipment Architectural Powder Food Packaging Caps & Closures Beverage Packaging Year of first sales Year of first sales Year of first sales Sales Started Sales Projected

16 Relentlessly Engage the Market Relentlessly engaging the market to create growth in AFP Targeting appropriate niches allows above market growth Multiple macro trends across AFP create growth opportunities Increased regulatory pressure on coatings Tire labeling in Europe, going global BPA non-intent legislation Chinese environmental enforcement CUSTOMER INTERACTIONS 30% increase 106% increase NEW BUSINESS Year 1 Revenue Driving market activation across the value chain Regulatory advocacy Co-innovation activities Global activation across value chain

17 Population is growing, while farmland is not Demand drives need for faster growth, higher yields 17

18 Animals have become resistant to traditional methods 18

19 Good Feed mills turn to nutritionists, Eastman Net Feed Conversion Rate 19

20 Double-digit volume growth and improved value capture Made significant investments in commercial capability Dramatically increased market engagement Added dedicated sales force

21 Launching innovative new products for swine and poultry

22 Portfolio transformation enables unique business model World-Class Technology Platforms Differentiated Application Development Relentlessly Engage the Market Acetyls Cellulose esters Engagement with nutritionists Alkylamines Olefin derivatives AD/Capability Investment

23 Differentiated Application Development Differentiated application development in AFP embraces and converts market complexity into sustainable value and above-market growth Ability to prototype brings the value proposition to life Resin to a painted body panel Tire additive to a rubber compound % R&D DOLLARS SPENT ON APPLICATION DEVELOPMENT/ PROCESS DEVELOPMENT 2x increase # OF CO-INNOVATION PROGRAMS 5x increase Broad engagement across the value chain creates demand Auto OEM engagement Regulatory advocacy in multiple markets Understanding of value proposition enables: Prioritization of opportunities Increased probability of market success Appropriate value capture PORTFOLIO VALUE OF APPLICATION PROGRAMS 2x increase # NEW PRODUCTS/ APPLICATION PROGRAMS 20x increase

24 Stringent fuel economy standards 24

25 Tire performance trade-offs

26 OEMs, tire manufacturers need innovators

27 Wet grip index Collaboration through formulation Rolling resistance index

28 Europe driving the standards 28

29 29 Unique performance requirements

30 Differentiated Application Development Translating technology platforms into new markets World-Class Technology Platforms Differentiated Application Development Relentlessly Engage the Market Prototyping capability Hydrocarbon resins Olefin derivatives Testing capability

31 Multiple platforms in launch enabling 2x market growth ~$100M NEW BUSINESS REVENUE Technology platform Polyesters Cellulose esters Hydrocarbon resins Insoluble sulfur New product launches Tetrashield transportation coatings resins Tetrashield packaging coatings resins Tetrashield industrial coatings resins CEs for core growth CEs for controlled release Next-gen tackifiers Impera Crystex Cure/Cure Pro Next-gen Crystex Relative to corporate margins h h h h h h fg h h Addressable market ($M) by platform ~$1.5B $0.5B ~$1B ~$0.6B Olefins Reactive coalescents h ~$0.5B Forecast ~$250M NEW BUSINESS REVENUE Eastman Enhanz h Amines Organic acid formulations h ~$0.5B

32 Industrial production Scale vs #2 competitor A winning formula for sustainable growth Growth above industrial production Innovation Impera performance resins Scale and integration Coalescents Crystex rubber additives Tetrashield coatings Cellulose esters (coatings) Polyester coatings resins WW WW Hydrocarbon resins x x x x 30x Sustainable earnings, growing above market

33 AFP segment: Growing to a $4B business with ~20% operating margin REVENUE GROWTH mid-single digits ~20% OPERATING MARGIN 5% 7% OPERATING EARNINGS CAGR