Innovation Day Brad Lich. Executive Vice President and Chief Commercial Officer

Transcription

1 Innovation Day 2018 Brad Lich Executive Vice President and Chief Commercial 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 Advanced Materials: Strong value creation delivered % 27% REVENUE GROWTH CAGR OPERATING EARNINGS GROWTH CAGR 2x IMPROVEMENT IN OPERATING MARGINS

4 What makes a compelling innovation opportunity?

5 A superior driving experience Safety: 1 Fatalities 28% Accidents 2.6% Connectivity: 350M+ connected cars in 2017 Cabin experience Lightweighting; electrification (1) National Highway Traffic Safety Association (NHTSA) US only

6 Challenging technology 6

7 HUD 1.0 HUD 2.0 HUD 3.0 Evaluation of HUD Image Quality Influence of parameters Image quality Content: 3D/AR Virtual Image Distance: Multiple Content: 2D Virtual Image Distance: 3:0 7.0 m Longer Virtual Image distances Content: 2D Virtual Image Distance: m Application development enables continuous innovation

8 Ghosting A headache for drivers

9 Putting our solution to the test

10 Price Saflex Head-Up Display (HUD): Premium product growing at 10x the market World-Class Technology Platforms Differentiated Application Development Relentlessly Engage the Market MULTIGENERATION PRODUCT DEVELOPMENT Laminating expertise Interlayer Laminator OEM Saflex VIEW ST Saflex QHUD Saflex HUD HUD Projector Supplier Saflex Q Series Acoustic Saflex PVB interlayers Functionality Display expertise

11 Automotive Interlayers: Translating 3% market growth into superior earnings growth CORE VOLUME GROWTH MIX UPGRADE FIXED COST LEVERAGE 100 WORLDWIDE VEHICLE PRODUCTION 1 $10 AVERAGE PRICE VOLUME GROWTH RATE % FIXED COST PER UNIT 90 $8 $6 20% 80 $4 10% $ beyond windscreen adds ~1% annual growth $0 0% Auto premium (1) LMC Automotive

12 Advanced Materials: A material solutions business with a diverse footprint $2.6B REVENUE $493M OPERATING EARNINGS 19% OPERATING MARGIN 2017 REVENUE BY END-USE MARKET Portfolio of engineering polymers and specialty films Personal Care/ Health & Wellness 9% Electronics 7% Other 2% Transportation 33% Products sold in final form or processed through single conversion step Consumer/ Medical Durables 15% End-use functionality primarily derived from the material we sell Building & Construction 15% Consumables 19% Focused on niche applications with opportunities for continuous innovation 2017 REVENUE BY REGION 2017 REVENUE BY PRODUCT LINE 26 % 36 % 33 % Specialty Plastics Performance Films 16% 5 % 51% 33% Interlayers

13 3-year CAGR Relentlessly Engage the Market AM identifying and activating market niches poised for 2 3x market growth rate Global consumers drive for improved health Growing middle class drives demand for products that deliver a superior experience Biopolymers + new material solutions for electric vehicles, etc. NUMBER OF CUSTOMER CALLS NEW OPPORTUNITIES WON Targeting intersection of right applications and right customers RELATIVE ORGANIC REVENUE GROWTH 10% Market Core Premium Collaborating with leading brand owners to activate markets 14,000 products sold on Amazon with >50 strategic brands signing license for Tritan ingredient protocol 5% 0% Transportation Consumables Building & Construction Consumer/Medical Durables

14 Driving category growth Who they are Demographic attributes Building a new category. Age, employment, household income Where they live What they drive What they do Geographical attributes Behavioral attributes Car brands, car enthusiasm F Consumer Portrait H 35 years old Lives in Austin, Texas Lawyer Emily Auto enthusiast Drivers New car purchase Car is reflection of self Research habits Lifestyle Finn Barriers G Product knowledge GregTrust

15 Not just a job for anyone

16 Creating a superior experience LLumar Window and Paint Protection Film Elite Dealer Program Consideration Customer satisfaction BEFORE Awareness AFTER +18% CAGR Market leadership Installation Decision 2017 SEMA Award Winner 2 nd largest tradeshow in the world

17 Activating a new channel CAR DEALERSHIPS IN % INCREASE IN DEALERSHIPS

18 Activating a new channel CAR DEALERSHIPS IN with #1 PUBLICLY HELD AUTOMOTIVE GROUP

19 Performance Films: Premium products growing at 4x the market growth rate World-Class Technology Platforms Differentiated Application Development Relentlessly Engage the Market Multilayer film expertise Polyesters Coatings depositions 112% increase in dealerships Installation expertise

20 Differentiated Application Development AM leveraging application development to activate market and capture value Ability to convert our polymers and films into: Laminated glass structures Injection molded parts Extruded parts % R&D DOLLARS SPENT ON APPLICATION DEVELOPMENT 50% 60% 71% # OF CO-INNOVATION PROGRAMS Capable of creating prototypes and performing fitness-for-use testing Applicable for ~70% of our markets PORTFOLIO VALUE OF APPLICATION PROGRAMS Create economic value estimate for our product relative to next best option

21 Hospitals are a challenging environment

22 More aggressive cleaning protocols

23 Cracking under the stress

24 Gaining real insight Richard Fechter Principal Development Engineer University of California, San Francisco Medical Center

25 Formulating a solution PC/ABS 1 PC/ABS 2 PC/Polyester TMCD-enabled copolyester

26 Industry-leading collaboration accelerates market activation

27 Medical copolyesters: Premium product growing at 3x the market growth rate World-Class Technology Platforms Differentiated Application Development Relentlessly Engage the Market PC/ABS 1 PC/ABS 2 Injection molding expertise UCSF Medical Center ranked 5 th best hospital in U.S. PC/Polyester TMCD-enabled copolyester Fitness-for-use testing

28 Polyesters PVB CEs Multiple platforms in launch, enabling sustained superior growth ~$175M NEW BUSINESS REVENUE Technology platform New product launches Trēva Compensation materials Acoustic PVB Relative to corporate margins fg h h Addressable market ($M) by platform ~$1B Forecast ~$250M NEW BUSINESS REVENUE Saflex HUD Multifunctional solutions (solar acoustic, heatable, etc.) h h ~$1.3B Architectural h Next-gen Tritan h Polyester compounds h Next-gen shrink films >$2B

29 Advanced Materials: A great specialty business CORE VOLUME GROWTH MIX UPGRADE FIXED COST LEVERAGE GROWTH RATE 1 AVERAGE PRICE VOLUME GROWTH RATE FIXED COST PER UNIT 5.0% $10 10% $8 2.5% $6 $4 5% 0.0% $2 $0 0% Premium (1) Eastman internal estimates

30 Fibers: Stabilized the core and building momentum in new applications % >2/3 >10% OPERATING MARGIN TOW VOLUME UNDER MULTIYEAR AGREEMENTS YEAR-OVER-YEAR GROWTH IN TEXTILES

31 Fibers: Expanding from a tow supplier to a textiles innovation partner $852M REVENUE $224M OPERATING EARNINGS 26% OPERATING MARGIN Leading cost position based on scale and integration Strong customer relationships in filter media underpinned by specificationdriven applications Unique fiber spinning and process capabilities Focused on growing in niche applications Relentlessly pursuing productivity Health & Wellness 1% Consumables 7% Filter Media 92% 2017 REVENUE BY REGION 2017 REVENUE BY PRODUCT LINE Yarn 8% 37 % 22 % 37 % 2017 REVENUE BY END-USE MARKET 4 % Intermediates 15% Tow 77%

32 Stabilized tow and aggressively growing new applications Stabilized tow in /3 of business under multiyear agreements Commercialized 25 new product grades Grew premium mix by >50% Multiyear productivity program positioned to offset industry volume declines going forward 30% TEXTILES YEAR-OVER-YEAR VOLUME GROWTH 20% Growing textiles Launched Naia, Vestera and Avra brands Commercialized 50 new product grades Closed 40+ new opportunities and built a rich funnel for 2018 and beyond 10% 0% 1Q17 2Q17 3Q17 4Q17

33 Two great businesses driving value creation ADVANCED MATERIALS REVENUE GROWTH mid-single digits >20% OPERATING MARGIN 7% 10% OPERATING EARNINGS CAGR FIBERS REVENUE GROWTH low-single digits >25% OPERATING MARGIN 1% 3% OPERATING EARNINGS CAGR