INEOS STYROLUTION. Q1/ 2018 Investor Earnings Call

Transcription

1 INEOS STYROLUTION Q1/ 2018 Investor Earnings Call

2 Disclaimer The following presentation includes forward-looking statements, within the meaning of the US securities laws, based on our current expectations and projections about future events, including: the cyclical nature of our businesses and their sensitivity to changes in supply and demand raw material availability and costs, as well as supply arrangements, including arrangements with principal feedstock suppliers the highly competitive nature of our principal industries current or future environmental requirements, including those related to greenhouse gas and other air emissions, and the related costs of maintaining compliance and addressing liabilities currency fluctuations and economic downturns in the countries in which we operate our ability to implement our business and cost reduction strategies our ability to successfully integrate our businesses and realize anticipated synergies and cost savings; and our substantial indebtedness may affect our ability to service our outstanding indebtedness, which would likely impact the way we operate our business. All statements other than statements of historical facts included in this presentation including, without limitation, statements regarding our future financial position, risks and uncertainties related to our business and the notes, strategy, capital expenditures, projected costs and our plans and objectives for future operations, may be deemed to be forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties. Words such as believe, expect, anticipate, may, intend, will, should, estimate and similar expressions or the negatives of these expressions are intended to identify forward-looking statements. In addition, from time to time we or our representatives, acting in respect of information provided by us, have made or may make forward-looking statements orally or in writing and these forward-looking statements may be included in but are not limited to press releases (including on our website), reports to our security holders and other communications. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation utilizes certain non-gaap financial measures, including EBITDA. EBITDA represents income from operations plus depreciation of property, plant and equipment and amortization of intangible assets. EBITDA before special items represents EBITDA excluding exceptional charges. Although EBITDA and EBITDA before special items should not be considered substitute measures for profit and net cash flow from operating activities, we believe that they provide useful information regarding our ability to meet future debt service requirements. EBITDA and EBITDA before special items may not be comparable to similarly titled measures used by other companies. This presentation is for informational purposes only and does not constitute an offer of securities for sale in the United States or any other jurisdiction. Statements regarding company outlook pertain only to INEOS Styrolution, its own business activities as a styrenics pure play, the styrenics markets and respective styrenics industry value chains it serves, and may be different from its shareholder company s outlook. 2

3 Agenda Executive summary Financial review Update on market conditions, corporate developments and outlook Q&A 3

4 Executive summary EBITDA before special items development Yearly EBITDA* performance ( m) LTM Quarterly EBITDA* performance ( m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q *before special items INEOS Styrolution reported a strong first quarter 2018 with: A quarterly EBITDA of 210m in Q1/ 18 vs. 262m in Q1/ 17 Continued strong operating cash generation Further decline of net debt/ltm EBITDA ratio compared to end of Q4/ 17 Q1/ 18 EBITDA performance was driven by: Continued good trading conditions in polymers on the back of solid demand and good margins Record specialties volumes driven by good demand across all regions ABS standard with close to top-of-cycle earnings contribution Lower styrene monomer performance due to reduced volumes from a planned turnaround at our Bayport, Texas site and lower positive COSA of + 6m in Q1/ 18 vs + 79m in Q1/ 17 4

5 Executive summary First quarter 2018 regional and industry development SALES BY SEGMENT Asia- Pacific 24% Global SM 16% EMEA 36% Total: 1.3 bn Q1/ 18 Regional development driven by: Continued significant improvement of Asia polymers was driven by ABS standard and specialties. Continued strong contribution came from EMEA and good contribution from the Americas with a generally supportive market environment. Americas 24% EBITDA* BY SEGMENT Higher feedstock prices reduced demand for PS in the Americas and EMEA. Asia and Americas EBITDA was negatively impacted by a weaker US$. Global SM 26% EMEA 33% Total: 210 m Q1/ 18 Industry development driven by: In EMEA, strongest volume growth came from Construction, Electronics and Healthcare, whereas in the Americas, it came from Automotive and Healthcare. Asia Pacific 16% Americas 25% In Asia, Electronics, Automotive, Household and Healthcare contributed to the volume increase. *before special items 5

6 Styrene market update Europe styrene market development (in US$/ mt) Q1/ 18 styrene market Jan-17 Feb-17 Mar 17 Apr-17 May 17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 US styrene market development (in US$/ mt) Benzene prices weakened in the US and Europe as a result of reduced derivative demand and a build up of inventory in China. Industry outages, both scheduled and unscheduled, led to a strong increase in styrene monomer prices. On average, approximately 10% of styrene monomer global capacity was offline during the quarter resulting in tight regional supply balances and top-of-cycle margins. 0 Jan-17 Feb-17 Mar 17 Apr-17 May 17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Styrene Margin over Raws Ethylene Benzene Styrene Sources: IHS, ICIS. Spot low at beginning of the month. Styrene margin: Respective spot price minus raw materials (80% Benzene, 30% Ethylene) 6

7 Financial review First quarter 2018 result highlights m YTD 2018 YTD 2017 yoy in % Q1/ 18 Q1/ 17 Sales 1,303 1,380 (5.6) 1,303 1,380 Volumes (kt) (2.3) EBITDA before special items (20.0) EBIT before special items (21.4) Net income (17.1) Capex (cash) > Free cash flow 112 (75) (>100) 112 (75) Net financial debt (50.7) Net debt/ LTM EBITDA bef. special items (0.6x) Net working capital (8.7) First quarter 2018: Sales volumes decreased because of lower third party SM sales due to a planned but extended turnaround at our Bayport, Texas site and lower PS sales due to weak demand on the back of high sales price levels. Record specialties volumes were driven by continued strong demand across all regions and the K-Resin acquisition. CAPEX increased mainly due to expansion projects at our sites. Free cash flow continued to be strong, driven by the very good EBITDA performance. 7

8 Polystyrene First quarter 2018 performance overview vs. first quarter 2017 SALES VOLUME (kt) EBITDA before SI ( m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total 2017: 1,434kt LTM: 1,428kt Total 2017: 211m LTM: 197m Volume development Q1/ 18 Volumes were slightly below last year, mainly driven by softer demand in the Americas. Underlying market conditions for polystyrene appeared to be good in EMEA and the Americas, although high underlying feedstock prices caused customers to control inventory, which led to reduced demand. INEOS Styrolution was able to pass most of the feedstock price increases to customers in all regions. In Asia, sales volumes increased from high seasonal demand from India, Korea and Vietnam. EBITDA Q1/ 18 EBITDA decreased mainly because of weaker volumes and lower margins on rising feedstock price levels. 8

9 ABS standard First quarter 2018 performance overview vs. first quarter 2017 SALES VOLUME (kt) EBITDA before SI ( m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total 2017: 527kt LTM: 544kt Total 2017: 146m LTM: 161m Volume development Q1/ 18 Volumes increased strongly compared to the previous year quarter driven by continued strong demand across all regions, especially from Asia on the back of demand growth from China. ABS capacity expansion at our Altamira, Mexico, site in Q4/17 supported the volume increase. EBITDA Q1/ 18 EBITDA increased significantly year-on-year. Strongest EBITDA increase came again from Asia, closely followed by EMEA. Margins expanded further to record highs in Asia and near record levels in EMEA supported by high demand and a tight market. Asian arbitrage remained closed. 9

10 Specialties First quarter 2018 performance overview vs. first quarter 2017 SALES VOLUME (kt) EBITDA before SI ( m) Q1 Q2 Q3 Q4 Total 2017: 627kt LTM: 639kt Q1 Q2 Q3 Q4 Total 2017: 252m LTM: 247m Volume development Q1/ 18 Volumes increased year-on-year to a record high driven by healthy demand from all regions. In particular, Asia as well as the integration of the K-Resin business contributed strongly to this volume growth. EBITDA Q1/ 18 Specialties results decreased as higher feedstock prices were not yet fully reflected in the quarterly pricing mechanism and offset the positive effect of higher volumes. A weaker US$ had a negative impact on Euro based EBITDA. 10

11 Styrene monomer First quarter 2018 performance overview vs. first quarter 2017 SALES VOLUME (kt) EBITDA before SI ( m) Q1 Q2 Q3 Q4 internal 2017 external 2017 internal 2018 external 2018 Q1 Q2 Q3 Q4 Total 2017: 957kt LTM: 915kt Total 2017: 263m LTM: 214m Volume development Q1/ 18 Third party volumes decreased in the Americas because of a scheduled, but extended turnaround at our Bayport, Texas site, which reduced output. EBITDA Q1/ 18 EBITDA decreased because of lower volumes and significantly lower positive COSA. Our Bayport turnaround limited our ability to benefit from top-of-cycle market conditions on the back of tight supply from planned and unplanned outages in the industry. 11

12 Financial profile Sources and uses, and status on March 31, 2018 Sources and uses year to date 2018 (in m) Capitalization overview on March 31, 2018 m x LTM EBITDA Drawn securitization program (10) (555) 210 Net debt 31/12/17 EBITDA Change in working capital (49) CapEx (16) (28) Interest and tax payments Dividends, F(x) effects (448) Net debt 31/03/18 Institutional term loans Other borrowings Total debt Status as of March 31, 2018 Cash and cash equivalents Net debt decreased vs. year-end 2017 due to the strong operating performance in Q1/ 18. The decrease was partly offset by: Working capital build due to increased raw material prices Higher capex for expansion projects at our site in line with our Triple Shift growth strategy Net debt/ LTM EBITDA ratio in Q1/ 18 improved to 0.5 compared to 0.6 as per year-end Net debt LTM Q1/ 18 EBITDA before special items

13 Key financial figures Total cash and cash equivalents and undrawn credit facilities Net debt development in m Q Q Q Q4 15 Cash 468 Q Q Q Q Q Q2 17 Undrawn bank facilities 1 Undrawn facility consists of the receivables facility and other credit facilities that can be drawn within several days Q Q Q1 18 in m , Q1 15 1,9 1, Q2 15 Q3 15 1, Q4 15 Net debt 1,2 1,2 Q Q2 16 1,0 1, Q3 16 Q4 16 1,1 908 Q1 17 1,0 821 Q2 17 Net debt/ LTM EBITDA 0,8 654 Q3 17 0,6 555 Q4 17 0,5 448 Q1 18 3, , , , , , ,0 0.0 Status as of March 31, 2018 Total cash and cash equivalents plus undrawn credit facilities increased from 608m end of Q4/ 17 to 717m end of Q1/ 18, due to continued strong operating cash generation. Net debt/ LTM EBITDA ratio improved to a new low of 0.5 in Q1/ 18. Gross debt declined as we drew 50m less under our securitization program. 13

14 New world-scale styrene monomer plant in the USGC Commissioning of engineering study USGC SM producer advantage New SM plant will be the world s largest single train plant Use best-in-class EB/ SM technology Leverage USGC advantage to benefit from low cost feedstock and energy from shale gas as well as excellent infrastructure New USGC plant to complement existing SM production facilities Rationale SM producers on the USGC will retain cost advantage for ethylene & energy relative to rest of the world including new builds in China Sustained competitive advantage enables supply of growing world market and internal derivative demand Investment underpins Triple Shift growth strategy and fosters market leadership position 14

15 Outlook Assumptions for 2018 For the full year 2018, we expect continuing solid volume demand and normalized margins: Polymer businesses continue to develop with good volumes and mid-cycle margins. Specialties continue with strong demand across all regions and industries. Styrene market margins post Q1/ 18 are expected to normalize to mid-of-cycle margins throughout the year with more balanced supply/ demand. Asia performance continues to perform steadily on good demand for ABS standard and from our focus industries. Q2/ 18 is expected to be a good EBITDA second quarter, but slightly lower than the second quarter performance of Outlook 2018 We expect 2018 to develop similar to 2017 on an underlying basis correcting for inventory gains and the weaker US$, as the business continues to perform with good volume and strong mid-cycle margins. However, this target depends on global economic developments and is sensitive to price fluctuations of our main raw materials. 15

16 INEOS Styrolution the global leader in styrenics 1 2 A global leader throughout the styrenics value chain that is committed to sustainability Balanced product portfolio with greater specialty focus, backward integration providing a key advantage 3 Diverse base of blue-chip customers across a wide range of industries 4 World-class global manufacturing platform with best cost technology 5 Flexible cost structure and efficient pass-through resulting in significant cashflow generation 6 Experienced and customer-centric management team with proven track record 7 Improved stability and credit protection in a downside 16

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18 Profit & loss statement Q1/ 18 vs. Q1/ 17 m Q1/ 18 Q1/ 17 yoy in % Revenue 1, ,380.3 (5.6) Cost of sales (1,042.7) (1,075.4) (3.0) Gross profit (14.6) Selling and distribution expenses (66.7) (67.7) (1.5) General and administrative expenses (28.3) (27.7) 2.2 Research and development expenses (3.4) (3.3) 3.0 Other operating income/ (expenses) (0.7) (1.2) (41.7) Result from operating activities (21.3) Net finance costs (15.8) (22.3) (29.0) Income tax expenses (28.5) (41.7) (31.7) Net income before non-controlling interest (17.1) EBITDA before special items (20.0) 18

19 Balance sheet March 31, 2018 vs. December 31, 2017 m 31/03/18 31/12/17 Property, plant & equipment Intangible assets 1, ,463.9 Deferred tax assets Other receivables and miscellaneous non-current assets Non-current assets 2, ,411.6 m 31/03/18 31/12/17 Share capital Share premium 2, ,389.7 Merger reserve (1,281.2) (1,281.2) Other reserves Accumulated profit Equity attributable to owners of the company 1, ,909.0 Non-controlling interest Total equity 2, ,926.8 Inventories Accounts receivable, trade Income tax receivable Other receivables and miscellaneous current assets Cash and cash equivalents Current assets 1, ,566.9 Financial indebtedness Employee benefits Deferred tax liabilities Other liabilities & long-term provisions Non-current liabilities 1, ,283.5 Accounts payable, trade Financial indebtedness Current tax liabilities Other liabilities & short-term provisions Current liabilities Total liabilities 2, ,051.7 Total assets 4, ,978.5 Total equity & liabilities 4, ,

20 Market update Q1/ 2018 vs. Q4/ 2017 Raw material developments in Q1/ 18: BD markets started to strengthen in January and February, especially in Asia. BD exports from EMEA to Asia were strong. As US Crude C4 and BD tightened, US prices increased strongly supported by strong demand. Arbitrage re-opened from EMEA to Americas after being closed for a long time. Due the softening Asian market in March, even Asia exported BD to the US. The US market is expected to ease again in the 2H/ 18. ACN demand was very strong across all regions and downstream derivatives. Market balance was tight due to various turnarounds in Asia end of Q1/ 18 continuing into Q2/ 18, which limited ACN availability. Its feedstock propylene also supported the high price level. Contract offtake was very high and the markets continues to see limited availability of spot volumes. Americas EMEA Asia 20

21 First quarter 2018 performance By product group and segment SALES BY PRODUCT GROUP SALES BY SEGMENT PS 36% Global SM 16% Specialties 29% ABS Standard 19% Total: 1.3 bn Asia- Pacific 24% Global SM 16% EMEA 36% Americas 24% EBITDA* BY PRODUCT GROUP EBITDA* BY SEGMENT Global SM 25% Specialties 32% Global SM 26% EMEA 33% Total: 210 m PS 22% *before special items ABS Standard 21% Asia- Pacific 16% Americas 25% 21