Lsb Industries, Inc. · NYSE:LXU
Lsb Industries — Investor Presentation (November 2018)
33 slides from Lsb Industries's investor presentation, November 2018
Slide 1: Investor Presentation
Investor Presentation November 2018 1
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally are identifiable by use of the words “may,” “believe,” “expect,” “intend,” “plan to,” “estimate,”
Slide 3: Key Investment Highlights
Key Investment Highlights 1 Diversified Nitrogen Chemicals Business with differentiated end market positions 2 Business strength supported by stable Industrial and Mining Business with attractive EBITDA margins 3 Favorable long-term dynamics in Agricultural Business creates significant upside in EBI
Slide 4: Diversified Nitrogen Chemicals Business with Differentiated End Market Positions
1 Diversified Nitrogen Chemicals Business with Differentiated End Market Positions Regional Key Mix(1) Products End End Markets(1) Markets Applications Application • Urea ammonium nitrate • Fertilizer for corn and other crops solutions (UAN) Agricultural • Ammonium nitrate (AN) • Primary nitrogen co
Slide 5: Differentiated Business Profile Focuses on Customers / End Markets Where LSB Is Advantaged
1 Differentiated Business Profile Focuses on Customers / End Markets Where LSB Is Advantaged Key Logistical Advantages Centrally located assets with access to… • Truck freight rate advantage on customers west of the El Dorado Mississippi River Northern Plains • Direct routes to western U.S. via ra
Slide 6: Diversified Agriculture Distribution Network and Logistics
1 Diversified Agriculture Distribution Network and Logistics Facility Location Product Method of Distribution Regions Sold • Marketing agreement with CVR Pryor, OK UAN Partners Southern Plains Ammonia • Direct access to distributors / & Corn Belt dealers / end users Cherokee, • Direct to distributor
Slide 7: Business Supported By Stable Industrial and Mining Products Business
2 Business Supported By Stable Industrial and Mining Products Business Facility Location Product Method of Distribution Regions Sold Ammonia, • Ammonia pipeline; Union Pacific rail • Industrial customers in U.S., El Dorado, Acids, • Purchase and sale agreement with Canada and Mexico AR LDAN Koch thr
Slide 8: Strength and Stability of Adjusted EBITDA Contribution from Industrial and Mining End Markets
2 Strength and Stability of Adjusted EBITDA Contribution from Industrial and Mining End Markets 2017A Revenue 2017A Adjusted EBITDA Adjusted EBITDA Contribution by End Market Contribution by End Market¹ Margin by End Market² 8% Run-Rate 2016A³ 2017A FY Sales: 44% FY Adjusted Agriculture ~8% ~3% EBIT
Slide 9: Sales Mix Provides Stability and Look-Through In Contract Pricing
2 Sales Mix Provides Stability and Look-Through In Contract Pricing Q3-2018 TTM Sales by Pricing Method • Over 40 percent of sales are currently non-seasonal and priced pursuant to contract agreements Cost-Plus • Contributes to margin stability through pass-through of raw 36% materials and other man
Slide 10: Stable Industrial Market Demand
2 Stable Industrial Market Demand Key Focus of LSB, Less so of Peers Industrial End Market is Supported By Stable Demand for Sulfuric and Nitric Acid… North American Demand (mm metric tons) Operating Rates (%): 86 88 85 84 87 78 80 80 84 81 81 85 9 9 9 9 10 10 42 42 42 41 41 43 2013 2014 2015 2016 2
Slide 11: Long-Term Structural Macro Drivers Expected to Continue Driving Secular Growth
3 Long-Term Structural Macro Drivers Expected to Continue Driving Secular Growth Continued Population Growth Less Arable Land Per Person Drives Ammonia Consumption U.S. Population Growth (mm) U.S. Arable Land per Person (Hectares) North American Ammonia Demand 355 MM Metric tons) 320 0.98 2015 2030E
Slide 12: Global Ammonia Market is Expected to Gain Momentum
3 Global Ammonia Market is Expected to Gain Momentum • The global nitrogen market recovery is projected to gain momentum in 2018, driven by the completion of all expansion projects and lower global operating rates • ~30% of global announced capacity expansions, much of which were in the U.S., have b
Slide 13: North American Projected Capacity Rationalization is Supported by Attractive Demand Trends
3 North American Projected Capacity Rationalization is Supported by Attractive Demand Trends • In the recent past, lower natural gas prices have prompted many North American producers to announce significant capacity additions, which have weighed down ammonia prices • Planned capacity additions in N
Slide 14: Attractive Combination of Low Priced Feedstock in an Increasing Ammonia Price Environment
3 Attractive Combination of Low Priced Feedstock in an Increasing Ammonia Price Environment • Due to large shale gas deposits and technological advancements, U.S. Ammonia Producers have a Commanding Position as the domestic natural gas prices are expected to remain low World’s Lowest Cost Producer S
Slide 15: Illustrative EBITDA Impact Associated with Changes in Product Selling Prices & Feedstock Costs
3 Illustrative EBITDA Impact Associated with Changes in Product Selling Prices & Feedstock Costs (Based on 2018 Volumes) Selling Price Comparison Change in Selling Price Impact on EBITDA Q4 2017 Actual Q4 2018 Current/Expected Change Annual EBITDA Average Selling Prices Average Selling Prices Impact
Slide 16: Significant Investment of Capital Will Drive Improved Financial Performance
4 Significant Investment of Capital Will Drive Improved Financial Performance Total 2013-2018 Capex Spend $MM Site 2013 2014 2015 2016 2017 2018 Total El Dorado, AR $102 $204 $449 $144 $15 $12 $925 Cherokee, AL 29 21 7 14 6 11 88 Pryor, OK 20 9 11 7 16 11 74 Other - - 3 - - - 3 Total $151 $234 $470
Slide 17: Operations – Where we've been and where we are going
4 Operations – Where we’ve been and where we are going Operating Philosophy Industry Practices (best 25%) Commonality amongst plants Preventative vs. Reactive • Upgrade maintenance management system. Identification of critical pieces of PriceWaterhouse equipment and full preventative maintenance pro
Slide 18: 2018 Reliability & Operations Improvement Program
Where are we today…..the 2018 Reliability & 4 Operations Improvement Program focused on improving plant reliability and reducing MRO spend Plant Reliability /Maintenance Management System MRO Workstream Implemented the foundational elements of a robust Transformed our approach to procurement and Mai
Slide 19: Partnered with PeopleCore to Assess Our Operating Performance
4 In September, Partnered with PeopleCore to Assess Our Operating Performance. 4 areas of focus: 1. Operator Training Enhancements 3. Operations Work Process Improvements • Curriculum content • Shift behavior (turnover, orientation round, etc.) • Delivery & evaluation • Management systems • Operatio
Slide 20: Operational Improvement Program Yielding Results
4 Operational Improvement Program Yielding Results Ammonia On-Stream Rates¹ Key Accomplishments 100% 100% 100% 100% 100% 89% 96% 100% 93% Consistently maintained on-stream rates around 95% 94% 99% 87% 87% 85% 85% and expect to achieve these levels moving forward Cherokee Quarterly Max Annual ~100%
Slide 21: Financial Overview
Financial Overview Isbindustries.com INDUSTRIES
Slide 22: Consolidated Statement of Operations
Consolidated Statement of Operations Third Quarter 2018 Three Months Ended Nine Months Ended September 30, September 30, ($ In Millions, Except EPS) 2018 2017 Change 2018 2017 Change Net sales $ 79.8 $ 92.4 $ (12.6) $ 283.4 $ 338.6 $ (55.2) (1) Adjusted net sales $ 79.8 $ 74.1 $ 5.7 $ 283.4 $ 281.3
Slide 23: EBITDA Bridge
EBITDA Bridge Third Quarter – 2018 vs. 2017 ($ In Millions) * Lost absorption and lower sales volumes primarily due to Turnaround at Cherokee and EDC in 2018 ** SG&A primarily due to legal costs in 2018 Q3 23
Slide 24: Illustrative EBITDA Impact Associated with Changes in Product Selling Prices & Feedstock Costs
Illustrative EBITDA Impact Associated with Changes in Product Selling Prices & Feedstock Costs (Based on 2018 Volumes) Selling Price Comparison Change in Selling Price Impact on EBITDA Q4 2017 Actual Q4 2018 Current/Expected Change Annual EBITDA Average Selling Prices Average Selling Prices Impact U
Slide 25: Illustrative Sensitivity Analysis: Consolidated Annual EBITDA
Consolidated Annual EBITDA Illustrative Sensitivity Analysis ($ In Millions) Potential for Significant Earnings Power at Optimal Operating Rates Natural Gas Price per MMBtu Tampa Ammonia price per MT $2.50 $3.00 $3.50 $4.00 $4.50 $450 $226 $214 $202 $190 $178 $400 $194 $182 $170 $158 $146 $350 $162
Slide 26: Path to $150 million
Path to $150 million ($ In Millions) Assumes $350/MT Tampa ammonia and $3.00/mmbtu gas Continued Price Momentum ~ $40-$45 million Improved on-stream time2 ~ $35-40 million Turnaround1 ~ $10-15 million 3 1. Represents actual turnaround expenses and impact of lost production/sales 2. Assumes ammonia o
Slide 27: Capital Structure
Capital Structure $ In Millions 9/30/18 Cash $ 42.7 Senior Secured Notes 400.0 Working Capital Revolver ($39.1 mm of availability at 9/30/18) - Other Debt 31.5 Unamortized Discount and Debt Issuance Costs (15.8) Total Long-Term Debt, Including Current Portion, net $ 415.7 Series E and F Redeemable P
Slide 28: Strategy
Strategy Short Term (next 18 months) • Enhancing training and operating and maintenance procedures • Improving the on-stream rates of our chemical plants • Focusing on the continued improvement of safety performance • Continuing to broaden the distribution of our AN and Nitric Acid products to incre
Slide 29: Key Investment Highlights
Key Investment Highlights 1 Diversified Nitrogen Chemicals Business with differentiated end market positions 2 Business strength supported by stable Industrial and Mining Business with attractive EBITDA margins 3 Favorable long-term dynamics in Agricultural Business creates significant upside in EBI
Slide 30: Appendix
Appendix Isbindustries.com INDUSTRIES
Slide 31: EBITDA Reconciliation
EBITDA Reconciliation Three Months Ended Nine Months Ended LSB Consolidated ($ In Millions) September 30, September 30, 2018 2017 2018 2017 Net loss ($26.1) ($17.1) ($59.2) ($30.1) Plus: Interest expense 11.0 9.3 32.0 28.0 Loss on extinguishment of debt - - 6.0 - Depreciation, depletion and amortiza
Slide 32: Net Sales Reconciliation
Net Sales Reconciliation Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Net sales ($ in millions) Agricultural $36.0 $31.2 $146.3 $151.7 Industrial 34.8 47.4 105.7 149.5 Mining 9.0 10.9 31.4 28.8 Other - 2.9 - 8.6 Total net sales $79.8 $92.4 $283.4 $338.6 Impact
Slide 33: LSB Simplified Manufacturing Process Overview
LSB Simplified Manufacturing Process Overview Lower Margin Higher Margin LSB Products Sold to Market Ammonia (NH3) (storage, trucks, rail) Nitric Acid (storage, trucks, rail) Ammonium Nitrate Nitric Acid AN Solution Solution (ANS), HDAN, LDAN (storage, trucks, rail) Natural Urea-Ammonium Ammonia Nit
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