MOMENTIVE PERFORMANCE MATERIALS INC. Fourth Quarter and Fiscal Year 2017 Overview

Transcription

1 MOMENTIVE PERFORMANCE MATERIALS INC. Fourth Quarter and Fiscal Year 2017 Overview

2 Who We Are Momentive Performance Materials Inc., formerly GE Silicones business, was formed in 2006 Fiscal Year 2017 Revenues: ~ $2.3 billion Manufacturing Facilities: 24 around the world and 12 dedicated (5 standalone) R&D sites Employees: ~ 5,200 Americas 13 Facilities Chino, CA Garrett, IN Texas City, TX Sistersville, WV Willoughby, OH Newark, OH Strongsville, OH Richmond Heights, OH Waterford, NY Tarrytown, NY Charlotte, NC New Smyrna Beach, FL Facilities Overview Europe - 6 Facilities Lostock, United Kingdom Itatiba, Brazil Bergen op Zoom, Netherlands Geesthacht, Germany Leverkusen, Germany Antwerp, Belgium Termoli, Italy Bangalore, India 24 manufacturing facilities and 12 R&D facilities (5 Standalone) worldwide Serving over 4,000 customers in over 100 countries Wuxi, China Nantong, China Asia 10 Facilities Seoul, South Korea Shanghai, China Chennai, India Rayong, Thailand Kozuki, Japan Ohta, Japan Kobe, Japan Strategic Network Of Assets Support Leadership Position 2 This presentation, including any supporting materials and related discussions, is owned by Momentive Performance Materials Inc. and/or its affiliates and is for the sole use of the intended audience or other intended recipients. This presentation may contain information that is proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Momentive Performance Materials Inc. or its affiliates Momentive Performance Materials Inc. and/or its affiliates. All rights reserved.

3 Momentive A Global Leader in Specialty Silicones Overview Global leader in specialty silicones and advanced materials with a 75-year operating history Attractive technology used in secularly growing applications and end markets Leading specialty product portfolio underpinned by over 3,400 patents serving high-growth applications Diverse, blue-chip customer base of over 4,000 customers in over 100 countries Technical service model provides competitive edge and drives customer intimacy Global manufacturing footprint with 24 production sites and 12 R&D facilities Management team with deep operating experience and a clear, executable vision for Momentive s future Revenue by End Market 2 Revenue by Geography 2 Healthcare Energy 3% 3% Electronics 7% Personal Care 8% Construction 10% Automotive 18% Summary Business Profile Quartz Technologies 12% Formulated & Basic Silicones 32% EBITDA 1 by Segment Silicones 89% Textiles 2% Agriculture 2% Performance Additives 56% Consumer 25% Industrial 22% China and Japan 24% ROW 21% $2.3 billion FY 17 Revenue EBITDA Margins 1 Performance Additives Formulated & Basic Silicones Quartz Technologies 21% 11% 20% $293 million FY 17 EBITDA North America 31% Europe 24% Momentive is a pure play specialty silicones leader 1 Based on FY2017; excludes corporate charges that are not allocated to the segments 2 Reflects FY2017 split 3 Copyright 2018 Momentive Performance Materials Inc. All rights reserved. CONFIDENTIAL

4 Silicones Reach: Diverse Applications in Key Spaces Performance Additives Segment Silanes Specialty Fluids Urethane Additives Formulated and Basic Silicones Segment Coatings Elastomers Electronic Materials Sealants Basic Silicones Quartz Technologies Segment Ceramics Quartz Coatings, Adhesives & Sealants Tire & Rubber Personal & Home Care Agriculture Molded Foam Slab Foam Industrial Oil & Gas Rigid Foam Hardcoats & Weatherstrip Adhesives & Release Coatings Liquid Silicone Rubber Custom Compounds Consumer & Industrial Electronics Consumer Siliconebased Cyclic or Linear Polymers Optical Construction Industrial Lubricants & Additives Compound Semiconductor Military & Aerospace Personal Care Semiconductor Lighting Fiber Optic Textiles, Leather & Nonwoven Specialties Heat Cured Rubber Industrial Pharmaceutical Packaging Industrial 4

5 Silicones Fast-growing Industry Enabling Everyday Life Unique Properties Used in Diverse Applications... Globally Used in a variety of applications across diversified end markets, covering a spectrum of properties: Heat and chemical resistant Weather and water resistance Long-term elasticity Insulation Adherence Thermal Stability Chemical 9% Revenue by End Market 1 Demand by Geography 1 Other 23% Health & Personal Care 12% Transportation 17% Construction 20% Electrical & Electronic 19% Asia Pacific 44% $6.3 RoW 8% $1.1 $4.0 $ : $14.2 billion North America 28% Western Europe 20% Long History of Growth with Attractive Outlook World Silicone Demand 1 Annual Growth Rate ( ) 1 ($ in billions) $9.8 $12.5 $14.2 $ % 3.5% 6.2% 5.1% North America Western Europe Asia Pacific RoW 5 Silicones unique properties contribute to strong secular growth across a diverse set of applications data from published industry sources

6 75-Year Legacy of Growth and Innovation 1940s 1950s First direct process for making methylchlorosilanes First silane coupling agent for fiberglass and composites 1960s 1962 First non-hydrolyzable silicone surfactant for polyurethane foams 1964 First construction sealant that hardens at room temperature 1969 First man walks on the moon in silcone bootsoles enabled by GE Silicones 1970s 1990s 1974 First true structural silicone glazing for architectural applications 1986 First commercialized silicone for 2-in-1 shampoo and conditioner 1996 First silicone polyether s introduced for textile treatment, laundry softeners and personal care Early 2000s 2004 First introduction of NXT sulfur silane for next generation automobile tires 2008 First use of Silwet hydrolytically stable super-spreader silicones for in-can pesticides 2010 First ultraclear LSR for secondary optics in LED systems (Silwet ) Mid 2010s 2013 First epoxy silane used in water-based systems 2014 First automotive glazing pilot facility commissioned in Leverkusen to drive expansion in Hardcoats 2015 First Super-Hardcoat technology to replace glass with plastic in auto applications Launched next generation advanced conditioning aids First advanced silicone materials for contact lenses First European production site for NXT initiated; Completed Sea Lion acquisition First launch of Enduris and Elemax Brand Silicone Architectural Coatings Opened new redesigned state of the art tire lab First launch of PurQ TM quartz pharmaceutical vials Momentive Corporate Milestones 2003 GE Silicones acquires OSi Specialties Business 2006 Apollo purchases GE s advanced materials business; renames it Momentive 2014 Momentive completes balance sheet restructuring to drive business transformation New team, new strategy, new direction Best-in-class innovation and R&D platform with a proven track record 6

7 Momentive: Fiscal Year 2017 in Review Delivered Strong Financial Results Summary Revenue was up 10% in Q4 17 and 4% in FY 17 Segment EBITDA was up 28% in in Q4 17 and 23% in FY 17 Segment EBITDA margins increased by ~190bps in Q4 17 and FY 17 Exit FY 17 with 14% consolidated margins Segment EBITDA (2) ($MM) % Margin 8.5% 10.7% 12.6% Several new product introductions, including InvisiSil optical bonding for next generation displays, GE branded Enduris roof coating systems and PurQ pharmaceutical packaging, among others Invested in New Products and Growth Enhanced Manufacturing Footprint & Operations Invested ~$75 million in FY 2017 in growth and productivity projects for a total of ~$120 million over the last two years. Funding ~80% complete for projects initiated over the period, which will begin to drive earnings in FY 18+ (currently at less than 10% of run-rate EBITDA levels) Continued strong pipeline of attractive capital investments available for Momentive to drive further growth and margin improvement Completed acquisition of operating assets of Sea Lion Technology in Jan-17 Invested in strategic emulsification capability in key emerging regions (India, Latin America and China) to serve personal care, agriculture and textile customers Completed optimization of operations in Germany to cease production of siloxane and leverage internal and external supply arrangements Finalized a mutually beneficial three year labor agreement at Momentive s largest production facility Delivered against previously announced cost savings program; exploring next phase $194 $238 $293 Strengthened Balance Sheet Deleveraged balance sheet by 0.7x to 4.0x as of December 31, 2017 (1) Maintained significant liquidity and financial flexibility while investing in growth. Liquidity of $387 million as of December 31, 2017 Improved Industry Dynamics Robust demand in global silicones market underpins strong 2018 outlook Implemented price increases in late Q A 2016A 2017A Delivered Against 2017 Strategic Priorities 7 1 Defined as total principal value of debt less cash and cash equivalents divided by Segment EBITDA 2 Segment EBITDA is a non-gaap financial measure. The closest GAAP financial measure is Net Income (Loss). A table that reconciles Segment EBITDA is at the end of this presentation. Segment EBITDA is defined as EBITDA (earnings before interest, income taxes, depreciation and amortization) adjusted for certain non-cash and other income and expenses. Segment EBITDA is the primary performance measure used by the Company's senior management, the chief operating decision-maker and the board of directors to evaluate operating results and allocate capital resources among segments. Copyright 2018 Momentive Performance Materials Inc. All rights reserved. CONFIDENTIAL * InvisiSil, SilFort* and PurQ* are trademarks of Momentive Performance Materials Inc.

8 Overview of Fourth Quarter 2017 Results Strong net sales growth across the specialty portfolio with 10% consolidated year-over-year improvement due to volume gains in Performance Additives and the specialty portion of the Company s Formulated and Basic Silicones product portfolio ($ in millions) Summary Financials Q4'16 Q4'17 YoY Net Sales $544 $599 10% Segment EBITDA growth of 28% driven by volume growth in the specialty portion of the Company s Formulated and Basic Silicones product portfolio, operating leverage within the Quartz Technologies segment and strategic capital investments Started commissioning of NXT* capacity expansion in Leverkusen. Production will ramp in first half of 2018 Net (Loss) Income ($118) $19 -- Total Segment EBITDA $65 $83 28% Segment EBITDA Margin 12.0% 13.9% 190bps Robust order book and momentum across all business units Exiting Q4 17 With 28% YoY Growth and 14% Margins 8 * NXT is a trademark of Momentive Performance Materials Inc.

9 Overview of Fiscal Year 2017 Results Strong net sales growth across the specialty portfolio with 4% consolidated year-over-year improvement Reflects strong growth in specialties, partially offset by a strategic reduction in low margin products ($ in millions) Summary Financials FY'16 FY'17 YoY Segment EBITDA growth of 23% driven by volume growth in the specialty portion of the Company s Formulated and Basic Silicones product portfolio, operating leverage within the Quartz Technologies segment and strategic capital investments Growth capital funding largely complete for projects initiated over the last two years, with the associated earnings impact to begin in Pricing actions were announced across the silicones portfolio in late Q4 17 and are expected to be realized in 2018 Net Sales $2,233 $2,331 4% Net (Loss) Income ($163) Total Segment EBITDA $238 $293 23% Segment EBITDA Margin 10.7% 12.6% 190bps Strong Earnings and Margin Growth Supported by Industry Trends 9

10 Fourth Quarter and Fiscal Year 2017 Performance Additives Results Continued strong volume growth across the portfolio driven by consumer, automotive and personal care end markets with net sales up 9% in the quarter and 6% in FY 17 Performance Additives Segment EBITDA was $188 million in FY 17, an increase of 1% over prior year, reflecting temporary raw material lead / lag being addressed by pricing actions and the one-time impact of hurricane Harvey Q4 17 pricing actions will benefit margins in FY 18 Order book remains very robust Late Q4 17 pricing actions, coupled with growth initiatives, should fully recoup margin degradation in 2017 Segment Financials ($ in millions) Q4'16 Q4'17 YoY FY'16 FY'17 YoY Net Sales $211 $230 9% $849 $900 6% Segment EBITDA $48 $48 0% $187 $188 1% Segment EBITDA Margin 22.7% 20.9% (180bps) 22.0% 20.9% (110bps) Net Sales Comparison (YoY) Volume Price / Mix Foreign Ex. Total 4Q '17 11% (4%) 2% 9% FY'17 7% (1%) -- 6% Continued Growth in High Margin Performance Additives Segment 10 10

11 Fourth Quarter and Fiscal Year 2017 Formulated and Basic Silicones Results Net sales growth of 11% in the quarter and 1% for the year Growth in the quarter reflected strong volume gains in specialties on flat basics sales Slightly lower volume gains in specialties for the full year, partially offset by an intentional reduction in basics sales that began in late 2016 Volume gains in specialties driven by increased demand in electronic materials, elastomers, and sealants and coatings end markets Significant EBITDA growth and margin expansion in the quarter and full year driven by the same factors impacting net sales and strategic capital investments Segment Financials ($ in millions) Q4'16 Q4'17 YoY FY'16 FY'17 YoY Net Sales $287 $319 11% $1,212 $1,229 1% Segment EBITDA $20 $34 70% $70 $105 50% Segment EBITDA Margin 7.0% 10.7% 370bps 5.8% 8.6% 280bps Net Sales Comparison (YoY) Volume Price / Mix Foreign Ex. Total 4Q '17 0% 10% 1% 11% FY'17 (4%) 5% -- 1% Reflects specialties growth, offset by basics reduction Substantially all mix impact Significantly Improved Results Due to Strategic Actions to Improve Segment Profitability 11 11

12 Fourth Quarter and Fiscal Year 2017 Quartz Technologies Results Net sales up 9% in Q4 and 17% in FY 17 driven by improved demand in semiconductor and aerospace end markets ($ in millions) Segment Financials Q4'16 Q4'17 YoY FY'16 FY'17 YoY Quartz Technologies Segment EBITDA up 43% in Q4 and 100% in FY 17 driven by the increase in net sales, operating leverage and manufacturing efficiencies Reflects full benefit of 2016 restructuring initiatives Improved yields in quartz production processes Benefits from LEAN and other continuous improvement initiatives Continued strong outlook heading into FY 18 supported by end market demand and expected yield improvements Leveraging expertise in ultra-high purity quartz, Momentive launched PurQ, a portfolio of high purity pharmaceutical packaging solutions Net Sales $46 $50 9% $172 $202 17% Segment EBITDA $7 $10 43% $20 $40 100% Segment EBITDA Margin 15.2% 20.0% 480bps 11.6% 19.8% 820bps Net Sales Comparison (YoY) Volume Price / Mix Foreign Ex. Total 4Q '17 9% % FY'17 18% % Improved Results from Increased Sales, Cost Controls, and Improved Manufacturing Efficiencies 12

13 Strategic Alignment with Secular Megatrends Megatrend Population growth Urbanization Energy Greener Environment & Sustainability Miniaturization Anticipated Product Growth Areas / Products Building & Construction Growth expectations as Western markets continue to recover; population growth in BRIC economies Sealants in energy-saving construction Automotives New and varied silicone applications as global auto sales continue to recover Silanes for NXT* tire platform; hardcoats on plastic components Oilfield Services New and varied drilling methods for oil and gas producers to maximize global energy supply Silicone fluids as demulsifier; oilfield proppants Wind Energy Demand driven by appetite for renewable energy in mature and developing markets Silicone applications on solar panels Electronics New materials where silicones are ideally suited to provide temperature and conductivity control Proprietary silicone and quartz products Alignment with Megatrends will Support Steady Long-Term Growth 13 *NXT is a trademark of Momentive Performance Materials Inc.

14 Continued Successful Product Innovations NXT / Tire Urethane Additives Sealants Roofcoatings Agriculture Coatings / Auto Glazing Technology NXT Silanes improve tire performance, including rolling resistance, wet traction and braking efficiency. Enabling tire makers to meet strict regulatory requirements Silicones and Catalysts Enabling Foam Structure and Process-ability for Polyurethane Makers Silicone coatings that enable roof renovation and exterior repair with industry leading durability and weather-ability Silicone super spreaders that enable efficient delivery of pesticides and herbicides within the Agricultural space Thermal hardcoats that enable scratch resistance and UV/weather protection for polycarbonate trim, windows and sunroofs Key End Market Automotive (Tire Producers) Automotive, Consumer, Construction Construction (Architects and Contractors) Agriculture Automotive (Tier 1) Status Expansion in Leverkusen, Germany in 2017 Acquisition of NXT silane manufacturer in Texas City, Texas 2016 expansion of our facility in Nantong China New Capacity completed by end of 2017 Executing global strategic marketing effort to drive high growth global strategy Basic engineering for capacity expansion in Leverkusen 14

15 Capital Investment Program Update Summary Over the last several years, Momentive has made significant capital investments to accelerate and facilitate the growth of its specialty product portfolio and to enhance its global manufacturing network Robust capital allocation framework and process. Focus on 25%+ ROI opportunities Growth investments since beginning of 2016 have been ~80% funded and a number of key projects have been recently completed and are ramping up production. Current portfolio of projects is at less than 10% of estimated run-rate EBITDA levels providing significant near-term earnings visibility and upside Notably, in FY , Momentive invested ~$35 million to globalize and double its NXT Silane production capacity. This production expansion has commissioned and will ramp up production and product qualification over the first half of FY 2018 $107 Annual Capital Expenditure ($MM) $96 $ Maintenance & EHS $115 $117 $161 Growth & Productivity Key Growth Project Detail $ E NXT Tire Silanes Facility GE Branded Enduris Roof Coatings NextGen Weatherable Hardcoats Sealants Capacity Expansion Electronic Materials Capacity Expansion Optical Bonding for NextGen Displays NXT is a leading additive for green tire applications. Over the last several years, NXT revenues have grown at over 20% CAGR Ultra Pure Quartz Pharmaceutical Packaging Urethane Additives and Specialty Fluids Capacity Expansion Coatings and LSR Capacity Expansion Momentive has significant flexibility over its capital expenditures. Annual maintenance requirements of $65-75 million per annum >20 significant, discrete growth projects since beginning of 2016 Representing total growth capex spend of ~$120 million ~80% is deployed Less than 10% of realizable EBITDA in 2017A financials 15

16 Balance Sheet Update Summary Net Debt / LTM Segment EBITDA (x) (1) Net leverage of 4.0x as of December 31, 2017 Momentive has a proven track record of deleveraging. Over the last two years, Momentive has deleveraged by 1.0x per annum on average Significant liquidity of $387 million as of December 31, 2017 up $358 million from September 30, 2017 due to free cash flow generation 5.9x Declined by ~2.0x over the last two years 4.7x 4.0x Going forward, Momentive remains focused on continuing to balance opportunistic and accretive growth investments with its commitment to continued deleveraging and maintaining significant financial flexibility 2015A 2016A 2017A Liquidity ($MM) Continue to Maintain Significant Liquidity and Financial Flexibility $387 $358 Q Q Based on Segment EBITDA. 16

17 Fourth Quarter and Full Year 2017 Closing Remarks Key Takeaways Momentive Strategies Continued strong top and bottom line financial results and margin expansion Significant growth capital investments in FY have been largely funded and will begin to deliver earnings growth in 2018 and beyond Strong balance sheet with significant financial flexibility. Net leverage and liquidity of 4.0x and $387 million as of December 31, 2017 Focused on continued execution of strategy to accelerate profitable growth and transform global operations Robust outlook for FY 2018 driven by strong demand, solid and improving industry fundamentals and embedded upside from growth investments Accelerate Profitable Growth Profitability Enhancement Established relationships with blue chip customers drive next generation solutions Targeting investments in emerging markets Growth capital investment in specialty products Strategic acquisitions Transform global operations Improving operating rates Silicones market growth supported by global megatrends and substitution effects Multi-faceted strategy driving significant growth and margin expansion 17

18 APPENDIX

19 Reconciliation of Non-GAAP Financial Measures (in millions) Quarter Ended December 31, Year Ended December 31, Net income (loss) $ 19 $ (118) $ $ (163) Interest expense, net Income tax expense Depreciation and amortization Gain on extinguishment and exchange of debt (9) Items not included in Segment EBITDA: Non-cash charges and other income and expense $ 8 $ 11 $ 12 $ 26 Unrealized (gains) losses on pension and postretirement benefits (6) 28 (5) 33 Restructuring and discrete costs Reorganization items, net Segment EBITDA $ 83 $ 65 $ 293 $

20 Debt at December 31, 2017 (in millions) (1) (1) Momentive Performance Materials Inc. ( MPM ) is the issuer of all debt obligations and the secured notes are fully and unconditionally guaranteed by certain subsidiaries of MPM. 20

21 Overview of Debt Covenants At December 31, 2017, MPM was in compliance with all covenants under the credit agreement governing the ABL Facility and under the indentures governing the notes. Covenants provide flexibility and generous cure provisions Momentive can include the pro forma impact of in-process cost reduction programs in their calculation of EBITDA for compliance purposes Momentive can include capital contributions from its parent as EBITDA for calculation purposes in situations in which it would not otherwise meet its first lien leverage covenant Asset Based Revolving Loan Facility First Lien Notes Second Secured Debt Face Amount (1) $270 million, subject to a borrowing base $1.1 billion first-priority senior secured notes (3.88%) $202 million fixed second secured (4.69%) Maturity April 2019 October 2021 October 2022 Maintenance Covenant If ABL availability is less than the greater of (a) 12.5% of the borrowing base and (b) $27 million, then the Fixed Charge Coverage Ratio must be greater than 1.0 to 1 No covenants No covenants Compliance & Incurrence Tests (2) Adjusted EBITDA/ Interest Greater than 2.0 to 1 Adjusted EBITDA/ Interest Greater than 2.0 to 1 Current ratios N/A (1) Our ability to incur indebtedness or make investments is restricted under the indentures governing our notes unless we have an Adjusted EBITDA to fixed charges ratio (measured on a last twelve months basis) of at least 2.00 to As of December 31, 2017, Momentive satisfies this test. Failure to satisfy the test does not accelerate the maturity of the underlying debt nor restrict our ability to borrow under our revolving facility. In addition the restrictions on our ability to incur indebtedness or make investments under the indentures are also subject to other exceptions. On December 31, 2017, Momentive was in compliance with the covenants under the credit agreement governing the revolving facility and the covenants under the indentures governing the notes. 21

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