INEOS STYROLUTION Q1/ 2017 Investor Earnings Call
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
Agenda Executive summary Financial review Update on market conditions, corporate developments and outlook Q&A 3
Executive summary Q1/ 2017 summary Business update Q1/ 2017 vs. Q1/ 2016 INEOS Styrolution reported a record first quarter with: A quarterly EBITDA of 262m in Q1/ 17 vs. 208m in Q1/ 16 Acquisition of the K-Resin business completed end of February. EBITDA performance was driven by: Record Specialties result driven by higher volumes and continued good margins across all regions Improved earnings contribution from ABS Standard Styrene Monomer with top-of-cycle performance Softer demand for Standard Products due to constrained customer buying Improved performance of our Asian polymer business driven by Specialties and ABS Standard Continued good trading conditions in EMEA and Americas polymers. Market update Q1/ 2017 vs. Q4/ 2016 Specialties growth in focus industries Automotive, Household and Healthcare was above market. Construction with stable demand in the Americas and off-peak season in Asia. Electronics with continued good performance in Asia. Benzene price peaked in February due to supply constraints and steady demand. In March, prices retreated due to more ample supply. Styrene monomer (SM) prices tracked benzene prices and rallied to peak levels on the back of stable demand but with supply constraints due to planned and unplanned outages. In March, global SM prices declined sharply and margins came off peak levels. 4
Executive summary EBITDA before special items development Yearly EBITDA* performance ( m) 900 800 700 600 500 400 300 200 100 0 804 858 742 442 317 335 391 2011 2012 2013 2014 2015 2016 LTM 250 200 150 100 50 0 Quarterly EBITDA* performance ( m) 266 262 231 208 214 171 158 147 151 108 115 107 61 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 *before special items 2014 2015 2016 2017 EBITDA increase in Q1/ 17 vs. Q1/ 16 due to: Record Specialties EBITDA performance driven by volume growth and strong margins across all regions Polystyrene and ABS Standard EBITDA at upper mid-cycle margin level, though demand was impacted by high sales prices as increased raw material prices were passed on to the market Top-of-cycle Styrene Monomer performance supported by a positive COSA effect (+ 79m in Q1/ 17 vs. - 18m in Q1/ 16). 5
Financial review First quarter 2017 result highlights m YTD 2017 YTD 2016 yoy in % Q1/ 2017 Q1/ 2016 Sales 1,380 1,102 25.2 1,380 1,102 Volumes (kt) 843 897 (6.0) 843 897 EBITDA before special items 262 208 26.0 262 208 EBIT before special items 205 157 30.6 205 157 Net income 141 92 54.2 141 92 Capex (cash) 24 14 71.4 24 14 Free cash flow (75) 16 >(100) (75) 16 Net financial debt 908 958 (5.2) 908 958 Net debt/ LTM EBITDA bef. special items 1.1 1.2-1.1 1.2 Net working capital 763 602 17.8 763 602 First quarter 2017: Sales volumes declined because of lower Styrene Monomer sales volumes due to the planned maintenance work at our Texas City plant and reduced buying of standard products due to higher sales prices. Despite excellent operating results, free cash flow declined due to increases in capex, payment of the K-Resin acquisition and net working capital build-up in line with higher feedstock prices. In addition to the excellent operating results, higher net income was supported by lower interest expenses. 6
Polystyrene First quarter 2017 performance overview vs. first quarter 2016 SALES VOLUME (kt) EBITDA before SI ( m) 2016 2017 2016 2017 383 381 376 348 358 66 69 61 57 44 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total 2016: 1,498kt LTM: 1,463kt Total 2016: 236m LTM: 231m EMEA Volumes came down mainly as price increases suppressed customer demand. EBITDA was down due to lower volumes, partially compensated by higher margins. Americas Volumes were on par year-on-year as demand remained fairly robust, despite feedstock volatility and increased polymer pricing. EBITDA decreased on the back of continued still strong, but lower margins compared to the top-of-cycle levels of the previous year. Asia Volumes decreased as customers adopted a wait-and-see attitude in response to the raw material price volatility. Volumes were also impacted by a planned turnaround at our India polystyrene plant. EBITDA came down on the back of lower volumes. 7
ABS Standard First quarter 2017 performance overview vs. first quarter 2016 SALES VOLUME (kt) EBITDA before SI ( m) 2016 2017 2016 2017 135 124 132 136 123 28 24 25 26 19 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total 2016: 526kt LTM: 515kt Total 2016: 94m LTM: 98m Asia Volumes decreased year-on-year due to the scheduled maintenance shut down of our Ulsan, Korea plant. EBITDA strongly increased as stronger margins on the back of improved demand from China more than compensated for lower volumes. EMEA Volumes were met with good, but slightly softer market demand in comparison with the strong previous year s quarter. EBITDA came down slightly on the back of lower volumes and slightly lower margins. Minimal impact from Asian imports due to lead time effects and lower availability of Asian material, although arbitrage reopened in March. Americas Volumes remained on the level of the previous year period on the back of good demand especially from Automotive and Electronics. EBITDA slightly declined due to lower margins as successfully implemented price increases lagged higher raw material costs in the first two months of the year. Arbitrage window for Asian imports opened again in March. 8
Specialties First quarter 2017 performance overview vs. first quarter 2016 SALES VOLUME (kt) EBITDA before SI ( m) 2016 2017 2016 2017 158 146 141 142 136 71 65 66 65 43 Q1 Q2 Q3 Q4 Total 2016: 565kt LTM: 577kt Q1 Q2 Q3 Q4 Total 2016: 239m LTM: 245m EMEA Volumes were up driven by generally good underlying market demand from focus industries, especially in Household and Automotive, and stronger customer ordering in anticipation of higher prices following feedstock price increases. EBITDA was up slightly mainly on the back of higher volumes. Margins continued to be at a good absolute level, but were slightly lower year-on-year caused by rising feedstock prices. Americas Volumes increased due to continued good market demand and smooth integration of K-Resin business. EBITDA rose due to higher seasonal volumes coupled with continued good margins. Asia Volumes were up on the back of the overall stronger demand especially from improving Chinese market and inclusion of March K-Resin sales. EBITDA rose driven by higher volumes and continued strong margins. 9
Styrene Monomer First quarter 2017 performance overview vs. first quarter 2016 SALES VOLUME (kt) EBITDA before SI ( m) 233 189 178 249 228 2016 2017 524 516 540 519 488 53 102 70 67 45 Q1 Q2 Q3 Q4 internal 2016 external 2016 internal 2017 external 2017 Q1 Q2 Q3 Q4 Total 2016: 888kt LTM: 844kt Total 2016: 235m LTM: 284m EMEA EBITDA increased due to higher market margins on the back of a tight European market due to supply constraints and limited U.S. imports. Americas Volumes were down as a result of the planned turnaround at our U.S. Texas City site. EBITDA more than doubled on the back of top-of-cycle margins driven by healthy derivative demand coupled with very tight supply resulting from planned and unplanned capacity outages. Positive COSA effects were supportive. Asia INEOS Styrolution has no production platform for styrene monomer in Asia, but mainly retains styrene monomer for captive use in its own derivative businesses. 10
Financial profile Sources and uses, and status upon March 31, 2017 (834) Sources and uses year to date 2017 (in m) 262 (140) Net debt 31/12/16 EBITDA Change in working capital Status as of March 31, 2017 (24) (60) CapEx Interest and tax payments (112) K-Resin acquisition, payment to shareholder, F(x) effects (908) Net debt 31/03/17 Capitalization overview on March 31, 2017 m x LTM EBITDA Drawn securitization program 100 0.1 Term loan B 1,004 1.2 Other borrowings 44 0.1 Total debt 1,148 1.4 Cash and cash equivalents 240 0.3 Net debt 908 1.1 Net debt increased vs. year-end 2016 due to: Working capital build due to strongly increased raw material prices in the first quarter compared to year-end 2016 Cash payment for the acquisition of the K-Resin business. Net debt/ LTM EBITDA ratio increased from 1.0 at the end of 2016 to 1.1 at the end of the first quarter of 2017. LTM Q1/ 2017 EBITDA before special items 858 11
Key Financial Figures Total cash and cash equivalents and undrawn credit facilities Net debt development in m 900 800 700 600 500 400 300 200 100 0 141 288 Q1 14 188 336 Q2 14 151 395 Q3 14 129 198 371 Q4 14 Cash 346 Q1 15 208 169 438 Q2 15 463 Q3 15 283 321 487 Q4 15 468 Minimum cash required 100m Q1 16 336 528 Q2 16 Undrawn bank facilities 1 325 301 1 Undrawn facility consists of the receivables facility and other credit facilities that can be drawn within several days. 291 Q3 16 317 Q4 16 391 240 Q1 17 1200 1000 in m 800 600 400 200 0 1.1 482 Q1 14 0.9 438 Q2 14 0.8 366 Q3 14 3.0 2.9 1.9 1.7 1.183 1.272 1.149 1.130 Q4 14 Net debt Q1 15 Q2 15 Q3 15 1.3 1.2 1.2 968 958 958 Q4 15 Q1 16 Q2 16 Net debt/ LTM EBITDA 1.0 1.0 837 Q3 16 834 Q4 16 1.1 908 Q1 17 3,0 3.0 2,5 2.5 2,0 2.0 1,5 1.5 1,0 1.0 0,5 0.5 0,0 0.0 Status as of March 31, 2017 Total of cash and cash equivalents plus undrawn credit facilities slightly increased to 631m compared to year-end 2016. Undrawn credit facilities increased as a result of higher revenues in Q1/ 17 which expanded the eligible pool of asset securitization receivables. Net debt/ LTM EBITDA ratio increased to 1.1. On March 30, 2017, we completed a repricing of our existing Term Loans at improved conditions. 12
ABS and ASA capacity increase in the Americas Investments in the Americas INEOS Styrolution site Bayport, Texas New 100kt ASA plant in Bayport, Texas, planned. ABS/ ASA plant in Altamira, Mexico, will increase its focus on ABS production allowing for an additional 70kt of ABS capacity. Investment reflects increased demand in focus industries INEOS Styrolution to be only producer with ASA capacities in all regions. Investment frees up volumes for further expansion in other regions. Bayport, Texas NEW: 100kt ASA plant - Planned start-up date: End of 2020 Ideal location adjacent to existing INEOS Styrolution styrene monomer plant Altamira, Mexico NEW: 70kt ABS capacity increase - Planned completion: End of 2020 New total capacities after completion: - ABS: 180kt - AMSAN: 15kt 13
Outlook Assumptions for 2017 For the full year 2017, we expect an overall robust volume demand and normalized margins: Polymer businesses continue to develop with good volumes and margins, particularly in Specialties Styrene monomer margins expected to moderate from their top-of-cycle levels in Q1/ 17 due to normalized downstream demand and more balanced supply/ demand Asia performance continues to improve on better demand, in particular on ABS Standard and Specialties growth. Q2/ 17 EBITDA is expected to be another strong quarter, although material negative COSA will affect EBITDA adversely. Outlook 2017 We expect to achieve an EBITDA for the full year 2017 similar to the very good results of 2016. However, this target depends on global economic developments and is sensitive to price fluctuations of our main raw materials. 14
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 15
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First quarter 2017 performance SALES BY PRODUCT GROUP SALES BY SEGMENT Global SM 19% Global Specialties SM 19% 27% EMEA 34% Total: 1.4 bn PS 38% ABS Standard 16% EBITDA* BY PRODUCT GROUP Asia Pacific 21% Americas 26% EBITDA* BY SEGMENT Global SM 39% Specialties 27% Total: 262 m Global SM 39% EMEA 26% *before special items PS 23% ABS Standard 11% Asia Pacific 8% Americas 27% Balanced earnings contribution from Specialties, Polystyrene and Styrene Monomer: Polymers with upper mid-cycle margins, in particular strong margins in Specialties Styrene Monomer performance driven by TOC margins and positive COSA effects, which overcompensated lower volumes because of the planned maintenance outage of our Texas City plant Improved absolute contribution of Asia, driven primarily by Specialties and ABS Standard. 17
Profit & loss statement Q1/ 2017 vs. Q1/ 2016 m Q1/ 2017 Q1/ 2016 yoy in % Revenue 1,380.3 1,101.7 25.3 Cost of sales (1,065.9) (842.4) (26.5) Gross profit 314.4 259.3 21.3 Selling and distribution expenses (77.2) (75.6) (2.2) General and administrative expenses (27.7) (24.6) (12.6) Research and development expenses (3.3) (2.9) (13.8) Other operating income/(expense) (1.2) (1.1) (9.1) Result from operating activities 205.0 155.1 32.2 Net finance costs (22.3) (37.8) 41.1 Income tax expenses (41.7) (25.8) (61.6) Net income before non-controlling interest 141.0 91.5 54.2 EBITDA before special items 262.4 208.3 26.0 18
Balance sheet March 31, 2017 vs. December 31, 2016 m 31/03/17 31/12/16 Property, plant & equipment 929.8 933.3 Intangible asset 1,598.8 1,549.2 Deferred tax assets 36.2 33.6 Other receivables and miscellaneous non-current assets 5.2 3.9 Non-current assets 2,570.1 2,520.0 m 31/03/17 31/12/16 Share capital 0.3 0.3 Share premium 2,389.7 2,389.7 Merger reserve (1,281.2) (1,218.2) Other reserves 148.1 146.2 Accumulated profit 441.8 305.7 Equity attributable to owners of the Company 1,698.7 1,560.7 Non-controlling interest 18.3 16.5 Total equity 1,717.0 1,577.2 Inventories 538.7 452.5 Accounts receivable, trade 683.1 518.1 Other receivables and miscellaneous current assets 113.2 109.7 Cash and cash equivalents 240.1 316.9 Current assets 1,575.1 1,397.2 Financial indebtedness 1,099.7 1,106.7 Employee benefits 58.3 43.9 Deferred tax liabilities 497.0 501.4 Other liabilities & long-term provisions 36.0 39.0 Non-current liabilities 1,691.0 1,691.0 Accounts payable, trade 459.1 383.9 Financial indebtedness 34.2 31.5 Current tax liabilities 78.9 63.6 Other liabilities & short-term provisions 165.0 170.0 Current liabilities 737.2 649.0 Total liabilities 2,428.2 2,340.0 Total assets 4,145.2 3,917.2 Total equity & liabilities 4,145.2 3,917.2 19
Raw Material Prices EMEA source ICIS Price: Spot market FOB, ARA Americas EMEA Asia Asia source ICIS Price: Spot Market Korea, NEA Americas source IHS Price: Spot market, USGC Comments on market development EMEA: Benzene prices are following Asia's movements lower. Supply and demand is balanced to long moving forward as spring turnaround season on extraction units and in derivatives come to a close. Styrene prices are also closing in on upstream benzene, with units running well, in particular POSM units on the back of healthy PO demand. Asia: Benzene prices softened with lower crude prices, and was weighed down further by the overhang in the styrene market. The market is generally backwarddated with the main focus being new supply from India expected to materialize in the near future. Styrene prices are still trying to find a floor with continued high inventories in East China, driven up by strong industry utilization rates due to strong margins and accessible ethylene. Floor price should not be too far off as the economics for non-integrated Chinese producers are approaching break even. Americas: Benzene softened with energy and from recent Asian bearishness weighing in on the SM value chain. Forward fundamentals however suggest potentially firming prices as lower Asian imports will be met with strengthening derivative demand as turnaround season comes to an end. The strong styrene run which we have seen during Q1 will eventually moderate as most styrene plants which had been offline, return to full operation by mid-year. Spreads relative to benzene are forecasted to contract. 20
Raw Material Prices EMEA source ICIS Price: Contract FD NWE Americas EMEA Asia Asia source ICIS Price: Spot CFR N.E.A. Comments on market development Americas source ICIS Price: Contract FOB US Gulf EMEA: BD supply demand balance was tight to short trough mid of April, but balances will move quickly back to the typical surplus. Export opportunities will be limited until May. April CP was a roll-over to March. May CP has been expected to drop significantly in the range of 300 to 400 /mt. Naphtha and LPG feedstocks are expected to remain at current levels. Acrylonitrile T2 contracts for April (negotiated rather than formula based) have been settled on average at + 24. The background to higher contract prices for April is the increase in propylene and ammonia costs and the continued snug market balance. Asia: ACN: Spot Acrylonitrile import prices were in the range $1460-1580 per ton CFR in March. The IHS Market price range for Asia/Far East spot acrylonitrile import business for April has yet to be fully established, but prices have increased at both ends of the range. The average could be up by $50-60 per ton. BD supply demand is balanced to long. April pricing dropped significantly from March, as China's domestic market has cooled rapidly. The maintenance season in Asia is ongoing; therefore, the longer balance of BD in April will not be sustainable, and it is expected that supply will become at least balanced in May. Americas: ACN: Based on higher propylene and ammonia settlements, US merchant domestic contract prices (formula based) for March were in the range of $1544-1699 per ton. April propylene contracts are yet to be settled, but are expected to be lower. Tampa ammonia contracts for April increased $10 to $340 per ton CFR. IHS estimates that US acrylonitrile contracts for April will decrease significantly. BD balance in March remained relatively tight, this continued into very early April. However it is on the cusp of change. BD extraction capacities restarted and a significant BD consumer will take a planned outage in May. The combination of all of these factors will drive the market longer and continue to pressure prices lower in both May and June. 21