Westlake Chemical Corporation. March 2007

Transcription

1 Westlake Chemical Corporation March 2007

2 Forward-Looking Statements Statements made during this presentation contain forward-looking statements which are subject to risks and uncertainties. These include general economic and business conditions; the cyclical nature of the chemical industry; the availability, cost and volatility of raw materials and energy; uncertainties associated with the United States and worldwide economies; current and potential governmental regulatory actions in the United States and regulatory actions and political unrest in other countries; litigation and litigation outcomes; industry production capacity and operating rates; the supply/demand balance for our products; competitive products and pricing pressures; access to capital markets; terrorist acts; operating interruptions; changes in laws or regulations; technological developments; our ability to implement our business strategies; creditworthiness of our customers; and other factors discussed in the periodic and current reports, including Forms 10-K, 10-Q and 8-K, filed from time to time by the company with the SEC. Reconciliation of non-gaap financial measures to GAAP financial measures is provided in the appendix of this presentation. Investor Relations Contact Steve Bender Vice President, Chief Financial Officer & Treasurer Westlake Chemical Corporation 2801 Post Oak Boulevard, Suite 600 Houston, TX (713)

3 Business Strategies Creating superior shareholder value Focused best-in-class plastics producer Continually upgrading competitive advantages Track record of investing prudently Committed to profitable growth Financial flexibility to fund growth 2

4 20 Years of Focused Organic and Acquisition-led Growth Olefins Vinyls Revenues Capacity (mm lbs.) 12, Revenue CAGR = 21% Capacity CAGR = 15% Revenue ($ mm) $3,500 10,000 $3,000 8,000 6,000 Growth $2,500 $2,000 $1,500 4,000 $1,000 2,000 $ $0 3

5 Vertical Integration Results in High Operating Rates % operating rate 100 Ethylene Operating Rates Industry Westlake 85% of 2006 basic chemical production used internally %, operating rate Significant vertical integration results in higher operating rates than the industry and less exposure to raw material swings ¹ 2006 % operating PVC Operating Rates rate 110 Industry Westlake Source: CMAI and Westlake 1 Includes the impact of Hurricanes Katrina & Rita

6 Desirable Captive Ethylene Balance 3,500 Ethylene Consumption Ethylene Production 2,800 Million Pounds 2,100 1, Ethylene integration increases as a result of the Eastman acquisition Provides us the opportunity to debottleneck or acquire ethylene production capacity which will further strengthen our integration strategy Note: Balances based on capacities 5

7 Continued Favorable Industry Supply Outlook- North American Capacity Changes in Incremental Capacity mm lbs. 7,000 6,000 5,000 4,000 3,000 2,000 1,000 6,841 4,224 1,429 3,036 6,719 4,151 2,836 5,670 5,057 3,820 5, Ethylene 1,985 Polyethylene Negligible net capacity additions this decade; sharp contrast vs. prior decade ,095 PVC (1,000) (2,000) , Supply fundamentals: No major new capacity additions in olefins; 2 major vinyl additions under construction Operating rates should remain firm Product integration levels remains very important Energy price volatility and economic uncertainty have led to underinvestment in North America Schedule delays in Asia/Middle East Source: CMAI Note: 2007 through 2009 includes the Shintech and Georgia Gulf capacity additions (PVC) 2006 and 2007 includes the Gulf Liquids (Ethylene) and Dow shut-downs (LDPE) 6

8 Westlake Chemical Corporation Olefins Integration Strategy; Balanced Product Outlets Polyethylene billion pounds Food Packaging, Film, Trash Bags, Toys, Food containers, Housewares Natural Gas / Crude Oil Ethylene 2.85 billion pounds Styrene 485 Million pounds Polystyrene, Tires, latexes for paints & coatings Vinyl Chloride Monomer (VCM) 1.9 billion pounds PVC, Pipe, Fence, Windows Volumes represent annual capacity 7

9 Competitive Advantage: Large New Ethylene Plants at Integrated Site North American Ethylene Plants - Site Age and Capacity Small but New Large and New - Desired! Westlake LC 15 Average Age (yrs) Small and Old Large but Old (Most N. Amer. Crackers) , ,000 Capacity (Million Lbs) Source: CMAI 8

10 Source: CMAI Ethylene Net Transaction Price vs. Feedstock Components 9 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 / lb. CMAI Forecast Butane Ethane Naphtha Propane Ethylene NT Price Feed Flex positions Westlake to take advantage of market disequilibrium

11 Productivity Improvements Improved Feedstock Flexibility Westlake Lake Charles Feedslate (% volume) Proposed liquid-flexible Lake Charles Feedslate (% volume) 2006 YTD U.S. Feedslate (% volume) Propane 14% Butane 1% Light Naphtha 21% Gas Oil 7% Naphtha Ethane 43% Propane Ethane 5% 85% Ethane 74% 25% Butane Feed Stock Flexibility Project 4% Propane 21% Improve Cycle Average Margins Reduce Margin Volatility Source: Jacobs Consultancy 10

12 Cost Advantaged Geographical Play in Polyethylene Overview of Proposed Trinidad & Tobago Complex Globally competitive ethane-based Ethylene, Polyethylene project Best-in-Class delivered economics Capital Cost ~US$1.5 billion Ethylene and polyethylene complex based on 1.25 billion lbs. p.a. of ethylene Project evaluation undertaken jointly with National Gas Company of Trinidad & Tobago and the National Energy Corporation of Trinidad & Tobago Trinidad & Tobago has expressed interest in becoming a minority equity partner in the project Project study leading to key project agreements, financing and construction Prime markets in North American, Latin American and Caribbean could be served 11

13 Cost Advantaged - Geographical Play in Polyethylene in Trinidad Natural Gas Costs around the World, 2006 ($US per million BTU) $0.00 $4.00 $8.00 UK USA Canada China India ($US per million BTUs) Ukraine Bolivia Qatar Trinidad Russia Iran Oman Saudi Arabia Source: American Chemistry Council Feedstock is competitive with other low cost locations 12

14 Three Types of Polyethylene Low Density PE Soft clear resin for films & bags, paper and board coatings, flexible packaging Global End Use Demand, % share LDPE, 26% Linear Low Density PE Stronger/tougher but more difficult to process and less clear than LDPE HDPE, 45% High Density PE Blow molded bottles, gas & sewer pipe applications known for its rigidity LLDPE, 29% Total: 66 MM tons Source: CMAI 13

15 Acquisition of Eastman s Longview Polyethylene Business Westlake acquired from Eastman Chemical Company its polyethylene and Epolene businesses and the company s ethylene pipeline which strengthens our core polyethylene business. The acquisition increases our polyethylene capacity to 2.5 billion pounds per year Expands our LDPE capacity the most profitable PE product Upgrades and broadens our polyethylene product mix with specialty acrylate copolymers and specialty Epolene polymers for adhesives and other products The acquisition adds significant technology with R&D capability and pilot plants 14

16 Amongst the Most Competitive LDPE Capacities in North America Billion Pounds Before Combined Lyondell Dow Westlake ExxonMobil PEMEX The Eastman acquisition positions Westlake as the #3 LDPE producer in North America Westlake capacity newer than industry average The LDPE acquired from Eastman includes one of the largest and newest autoclave reactors in the World Source: CMAI 15

17 Westlake s LDPE-Driven Mix is a Competitive Advantage Westlake s PE Business is Heavily Weighted to LDPE Westlake s LDPE Has Been More Profitable Than Other PE Grades / lb. 4.0 LDPE v. LLDPE LDPE v. HDPE Westlake Koch/Huntsman Equistar Dow ExxonMobil ChevronPhillips NOVA Among the highest LDPE product mix percentage in U.S. and Canada Ato Fina 1.0 BP Solvay Formosa % 20% 40% 60% 80% 100% '97-01 '02 - '06 '97-01 '02 - '06 Source: Chemical Data, Inc. Source: CMAI 16

18 Vinyls Integration Strategy; Significant Integration Throughout Value Chain Merchant Markets Chlor-Alkali 440 million pounds Chlorine Caustic Soda Ethylene Dichloride (EDC) 2.7 billion pounds Vinyl Chloride Monomer (VCM) 1.9 billion pounds Polyvinyl Chloride (PVC) 1.4 billion pounds PVC Fabricated Products 915 million pounds Pipe Fence Window Profiles Ethylene PVC VCM Co-Products (Propylene) Volumes represent annual capacity 17

19 PVC Pipe Leading Position in Regions Served PVC Pipe #1 or #2 in geographic regions served $2.9 billion market in regions served 810mm lbs. pipe capacity at 8 plants North American Pipe Corp Locations 18

20 US Pipe Demand Drivers U.S. Non-Residential Building Construction U.S. Non-Building Construction $ in billion $ in billion Lodging Office Commercial Highway Water & Sewer PVC demand linked closely to regional GDP performance North American PVC demand expected to grow 2.8% through 2010 Construction related markets consume majority of Westlake PVC production Pipe Windows and Doors Source: Actual: U.S. Census Bureau, Forecasts: Reed Construction Data 19

21 2005 Report Card for United States Infrastructure 2005 Grade Trend 2005 Grade Trend Roads D Wastewater D- Bridges C Dams D Transit D+ Solid Waste C+ Aviation D+ Hazardous Waste D Schools D Navigable Waterways D- Drinking Water D- Energy D Total Investment needed is in excess of $1. 5 trillion Source: 2005 Report Card for America's Infrastructure, American Society of Civil Engineers 20

22 PVC Building Products Fence, Deck and Railing # 2 producer in North America 75mm lbs. of annual capacity Forecasted industry growth of 9.1% through 2009 Residential and Ranch Fence Doors and Window Profiles 30mm lbs. annual capacity Forecasted industry growth of 7.9% through 2009 Window and Door Profiles Note: Segment growth based on Freedonia Group, Inc. estimates 21

23 China Position Established 1992, J.V. with Westlake and Norsk Hydro. Westlake has a 58% share in the Joint Venture Located in Suzhou, Jiangsu Province, China - Operations include: 130 KTA PVC resin plant 60 KTA Calendering facility SHPC markets PVC resin and film products to both domestic and export markets 22

24 Delivering on the Strategies Revenues and EBITDA Revenues ($ MM) Adjusted EBITDA 1 ($ MM) $3,000 $600 $8.69 Natural Gas Price $2,500 $2,000 $1,500 $1,000 $1,424 $1,985 $2,441 $2,484 Adjusted EBITDA ($ MM) $500 $400 $300 $200 $5.47 $5.89 $327 $451 $6.73 $411 $500 $100 $161 $0 $ Adjusted EBITDA is EBITDA adjusted for debt restructuring charges 23

25 Delivering on the Strategies EBITDA Margin Adjusted EBITDA 1 Margin 20% 18.5% 16% 16.5% 16.6% 12% 11.3% 10.0% 11.4% 11.3% 8% 6.9% 4% 0% Westlake Peers 2 1 Adjusted EBITDA is EBITDA adjusted for debt restructuring charges 2 Peers include: DOW, EMN, GGC, LYO, NCX (Note: As of 03/02/07, GGC 2006 earnings not yet released) 24

26 Among the Highest Returns for North American Assets FY 2006 Return on Capital Employed (ROCE) Return on Capital Employed (ROCE) Range from FY 2003 to FY % 18.5% 18.2% 15% 13.7% Peer average = 13.2% 40% 11.1% 10% 9.7% 30% 29.3% 5% 20% 15.1% 10% 0% WLK DOW EM N LYO NCX 0% 5.7% WLK 2.1% Peers Avg Return on capital employed consistently surpasses peers Return on capital employed (ROCE) is defined as operating income divided by capital employed. Peers include: DOW, EMN, GGC, LYO, NCX (Note: As of 03/02/07, GGC 2006 earnings not yet released) 25

27 Westlake Free Cashflow Free Cash Flow ($millions) Funds from Operations $ 273 $ 360 $ 300 Working Capital (115) (37) (45) Other BS Items (7) (5) (47) Capital Expenditure (53) (86) (136) Acquisitions (33) (2) (240) Equity Issuance Common Dividends (1) (6) (9) Other Free Cash Flow after Acquisitions $ 251 $ 226 $ (175) 26

28 Best-in-Class Balance Sheet Actual Capitalization ($ millions) Net Debt / EBITDA 2006 December 31, x Cash and cash equivalents $ x 3.0x 3.1x Long-term debt, incl. current portion 2.5x 6.625% Senior Notes due x Other debt x Total debt Stockholders' equity 1,173.5 Total capitalization $1, x 0.5x 0.5x 0.7x 0.9x Debt to Capitalization 18% Net Debt To Capitalization Ratio 14% 0.0x WLK EMN DOW NCX LYO Note: As of March 2, 2007, Georgia Gulf earnings not yet released 27

29 Disciplined Investment History Investments as % of sales M aintenance Discretionary Acquisitions $450 60% $400 $350 $391 50% $300 $307 40% Capex $250 $200 $150 $121 $262 $216 30% 20% Capex as % of sales $100 $50 $29 $79 $77 $44 $45 $86 $86 10% $ % 28

30 Substantial Broad Based Growth Key Production Capacities (mm lbs.) Increase Ethylene 1,100 2, x Polyethylene 850 2, Styrene Monomer Chlorine 410 Caustic Soda 450 VCM 1,100 1, PVC 600 1, PVC Fabricated Products ,502 10, x Each 1 / lb. change in profit margin EBITDA (mm$) EPS Capacity (mm lbs.) Ethylene $28.5 $0.28 2,850 Polyethylene ,525 Styrene Monomer Chlorine Caustic Soda VCM ,900 PVC ,400 PVC Fabricated Products

31 Enterprise Multiple Westlake is trading among the lowest enterprise multiples compared to peers MOS MON POT DD NLC HPC ROH ROC CEM HUN NCX CE DOW LYO EMN WLK POL GGC Enterprise Value to Adjusted EBITDA As of March 2,

32 Investment Conclusions Focused Best in Class Plastics Producer Out performing Peers Strengthened Operating Base Multiple sources of competitive advantage Integration and location of assets Operating philosophy with matching track record Global business perspective with an Entrepreneurial culture Westlake-specific initiatives; an on-going feature Accretive bolt-on acquisitions Track record of investing prudently Management team committed to creating value anywhere in the world Financial flexibility to fund growth strategy 31

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34 Appendix Reconciliation of EBITDA to Net Income (Loss) and to Cash Flow from Operating Activities ($ Thousands) Adjusted EBITDA 108, , , , ,183 Debt Retirement Cost - (11,343) (15,791) (646) (25,853) EBITDA 108, , , , ,330 Less: Income Tax (provision) benefit 7,141 (8,747) (69,940) (118,511) (87,990) Interest expense (35,044) (38,589) (39,350) (23,717) (16,519) Depreciation & Amortization (88,018) (87,293) (81,075) (81,241) (86,262) Net Income (7,062) 14, , , ,559 Changes in operating assets and liabilities (9,548) 56,219 (35,129) 45,885 28,773 Deferred income taxes (4,716) 7,112 65,188 45,745 13,852 Cash flow from operating activities (21,326) 78, , , ,184 33