Avient Corporation · NYSE:AVNT
Avient — PolyOne — Investor Day (November 2007)
122 slides from Avient's investor day presentation, Nov 15, 2007
Slide 1: Investor Day: An In-Depth Look at PolyOne's Progress & Potential
INVESTOR DAY An In-Depth Look at PolyOne’s Progress & Potential Stephen D. Newlin Chairman, President and CEO
Slide 2: Forward-looking Statements
Forward-looking Statements In this presentation, statements that are not reported financial results or other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or for
Slide 3: Forward-looking Statements: Risk Factors
Forward-looking statements are subject to risks that may cause results to differ materially from those projected, including those listed below and the other factors set forth in our SEC filings, including our Form 10-K. The effect on foreign operations of currency fluctuations, tariffs, nationalizat
Slide 4: Use of Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures This presentation includes the use of both GAAP (generally accepted accounting principles) and non-GAAP financial measures. The non- GAAP financial measures include: operating income (loss) before special items, gross margin as adjusted, Debt/EBITDA and Net Debt/EB
Slide 5: Investor Day
INVESTOR DAY Proof of Performance
Slide 6: Today's Agenda
Today's Agenda Overview Steve Newlin Commercial Development Mike Kahler Driving Innovation Dr. Cecil Chappelow Operational Excellence Tom Kedrowski Business Overviews Engineered Materials Craig Nikrant NA Color John Van Hulle International Color & EM Bernard Baert Lunch & Presentation Business Overv
Slide 7: PolyOne at a Glance
PolyOne at a Glance 4,600 employees, 60 plants / warehouses and 12 technology centers worldwide 10,000 customers in 35 countries 3 operating platforms: Specialty businesses; PolyOne Distribution; and General-purpose businesses Proof of Performance Significant opportunities for growth in current $20
Slide 8: Our Vision and Strategy
Our Vision and Strategy The World's Premier Provider of Specialized Polymer Materials, Services & Solutions Proof of Performance
Slide 9: Our Vision and Strategy
Our Vision and Strategy The World's Premier Provider of Specialized Polymer Materials, Services & Solutions Proof of Performance
Slide 10: Our Vision and Strategy
Our Vision and Strategy The World's Premier Provider of Specialized Polymer Materials, Services & Solutions Proof of Performance
Slide 11: Our Vision and Strategy
Our Vision and Strategy The World's Premier Provider of Specialized Polymer Materials, Services & Solutions Proof of Performance
Slide 12: Our Strategic Objectives
Our Strategic Objectives Build a superior management team and drive cultural change Invest in commercial resources Drive innovation and shift from commodity to specialized growth markets Expand globally Strengthen our financial profile and reduce high-cost debt while transforming our portfolio Proof
Slide 13: The New Team is in Place
The New Team is in Place Proof of Performance Tom Kedrowski Senior Vice President Supply Chain & Operations Lisa Kunkle Vice President General Counsel & Secretary Dave Wilson Senior Vice President & Chief Financial Officer Dr. Cecil Chappelow Vice President Research & Innovation Randy Fortin Vice Pr
Slide 14: Investment in Commercial Resources
Investment in Commercial Resources 108 net new commercial additions globally 77 in sales and marketing More than 60% support International businesses Global sales force training Value-based selling EVE(c) tools Closing techniques Investment in R&D Current investment $38 million, grow 25% 35 new pate
Slide 15: Impressive Early Commercial Wins
Impressive Early Commercial Wins Specialty businesses operating income improves dramatically in a challenging environment Up 60% year-over-year for the first nine months of 2007 Historically underperforming businesses turning around North American Color now profitable EM momentum building PolyOne Di
Slide 16: Acquiring GLS Corporation
Acquiring GLS Corporation North American leader of specialty thermoplastic elastomer compounds for consumer and healthcare applications - $130 million 1,200 customers worldwide Consistent double-digit revenue and earnings growth Provides difficult-to-develop specialty compounds in specialized, high-
Slide 17: Expanding Global Footprint
Expanding Global Footprint Strengthening our global competitive base New plant in Poland India office Two new Design Centers in Europe Vinyl acquisition in China (pending) Global key account penetration Target and serve key customers and OEMs Leverage global innovation, marketing and customer relati
Slide 18: Financial Flexibility to Support Growth
Financial Flexibility to Support Growth Financial profile stronger than ever OxyVinyls divestment substantially reduced earnings volatility and provided liquidity Interest expense reduced by $30 million Proof of Performance $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2000 2001 2002 2003 2
Slide 19: 2011 Goals
2011 Goals Gross margins Specialty Businesses 25% to 35% Revenue outside the U.S. 40% Vitality index 25% Strong double-digit earnings CAGR ROIC Exceed 15% (pre-tax) Proof of Performance Drive Meaningful Share Price Appreciation
Slide 20: Executing Our Strategy
Executing Our Strategy Stronger and more rapidly growing specialty mix International growth expansion Turning around historically underperforming businesses Industry-leading Vinyl business PolyOne Distribution growing consistently Substantially lower interest expense Proof of Performance Strong Earn
Slide 21: Globalization, Specialization, Commercial Excellence
GLOBALIZATION, SPECIALIZATION, COMMERCIAL EXCELLENCE Mike Kahler Senior Vice President, Commercial Development
Slide 22: Globalization
Page 22 Globalization Geographic footprint and cross-selling capability with our customer base provide unique growth opportunities Demand for our products and knowledge is growing rapidly in many regions of the world Customers desire global partners who can provide consistent standards of performanc
Slide 23: Globalization - Plastics Demand
Globalization - Plastics Demand 4% 230 4% World 6% 8 9% Eastern Europe 2% 52 2% Western Europe 4% 10 5% Latin & South America 3% 64 3% North America 8% 16 14% India 9% 46 10% China GDP growth, Average annual %, 2007-2009 Annual demand, 2009, Million Metric Tons Plastics demand growth %, annualized 2
Slide 24: Globalization - Key Initiatives
Globalization - Key Initiatives Global innovation and technology transfer processes to leverage new product introductions Establish global marketing intelligence process to build specialization platforms Global Key Account teams to drive new business gains New team of Business Development Managers c
Slide 25: Global Sales Coordination
Global Sales Coordination Global sales...Six PolyOne business units Global Strategic Account Team deployment Key account team (USA spec / Asia production) GM increased due to specialization mix
Slide 26: Multi-National Fortune Material Science Company
Multi-National Fortune 100 Material Science Company PolyOne Plastisol Customized Wound Care Management Provides effective barrier properties Waterproof, absorbent dressing Optimal clinical performance and wear time PolyOne Conductive Polycarbonate Specialized Electronics Conductive Transfer Tapes Li
Slide 27: New Strategic Account Value Proposition
New Strategic Account Value Proposition Global supply - five different facilities on three continents Strategic relationship... New product development Provide technical service / product QA testing Preferred partner
Slide 28: Specialization
Specialization Shift the basis of competition to differentiation from cost / commodity Become a high value-added solutions provider Leverage our in-depth knowledge of polymers, formulations and polymer processing Redirect our strategic focus to the most attractive market segments
Slide 29: Key Markets Served Today
Key Markets Served Today Significant opportunities for growth in current $20 billion addressable market 2007 PolyOne Revenue by Market Segment 12% 21% 10% 6% 7% 6% 4% 11% 4% 8% 11% Automotive Building Materials Consumer Durables Durable Goods Electrical/ Electronics Industrial Applications Medical M
Slide 30: Housing Start Forecast: Decline Continues Through Mid-2008
Housing Start Forecast: Decline Continues Through Mid-2008 2003 2004 2005 2006 2007 2008 2009 2010 200 250 300 350 400 450 500 550 600 2003 Q2 2003 Q3 2003 Q4 2004 Q1 2004 Q2 2004 Q3 2004 Q4 2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008
Slide 31: Competitive Landscape
Competitive Landscape Global companies must respond with compliance leadership to regulatory initiatives related to safety and product stewardship. PolyOne is well positioned with our "No Surprises Pledge" Only six of the 50 companies benchmarked compete with more than one of PolyOne's business unit
Slide 32: New Market Opportunities
New Market Opportunities Biopolymers Electronics Healthcare
Slide 33: Biomaterials - Creating a New Value Chain
Biomaterials - Creating a New Value Chain Oil & Gas Pumping Refining & Cracking Chemical Trans- formation Polymer- ization Processing (extrusion, molding, etc) Farms Milling Biotech Trans- formation Polymer- ization Source Feeds Monomer Polymer Crude Oil Monomer Monomer Polymer (Plastic) Source Feed
Slide 34: Biopolymers - Market Status
Biopolymers - Market Status The market is still in early stage of development Market demand is growing at 20% per annum ~ $600M Material solutions will migrate from 'pure' biopolymers towards complex compounds (extended functionality) Key polymers (PLA) in short supply Currently available products l
Slide 35: Biomarkets and Applications
Biomarkets and Applications Where is PolyOne positioned for the future? PolyOne is well positioned today in disposable goods and for future opportunities with the emerging durables sector Technical Requirements Lower Higher Engineered Materials, Vinyl Products & Distribution Masterbatch & Distributi
Slide 36: Electronics Industry Market Segmentation
Electronics Industry Market Segmentation Focus is on the $80+ billion electronic materials market with the four segments providing eight potential growth applications for PolyOne ELECTRONICS INDUSTRY VALUE CHAIN Electronic Equipment $1,126B Assembly Service $771B Computers $407B Merchant Communicati
Slide 37: New Electronic Platforms for Growth
New Electronic Platforms for Growth Proof of Performance Materials 2006 Market Size ($M) 2006-2011 CAGR (%) 2008 Market GM (%) Semiconductor Packaging Project A Project B Assembly Project A Project B Project C Energy Storage & Conversion Project A Other Project A $120 $158 $118 $120 $281 $57 $104 5%
Slide 38: Electronics Industry Geographic Distribution
Electronics Industry Geographic Distribution Successful electronic materials solution suppliers must support design and manufacturing locations that are often in different regions Proof of Performance Materials Flat Panel Display Semiconductor Packaging Assemby Systems Assembly Semiconductor Wafer F
Slide 39: Healthcare Growth Platform - Unique Basis for Competitive Advantage
Healthcare Growth Platform - Unique Basis for Competitive Advantage OEM/Mfg. Contract Mfg. & Molders Polymer Solutions to the Medical Industry We have broad products & services to offer the industry but must become a solutions provider Distribution Engineered Materials Color & Additives Vinyl-based
Slide 40: Healthcare Market - Medical Device Opportunities
Healthcare Market - Medical Device Opportunities Proof of Performance This is a highly fragmented, profitable and growing market 8,000 medical device manufacturers in USA Custom compounding is a norm Market Attractiveness Market Potential 2006 2011 Total Market Size (2006) $4.4B $4.8B Volume (M lbs.
Slide 41: Healthcare Market - Medical Device Opportunities
Healthcare Market - Medical Device Opportunities Major EM compounding, Color and PVC competitors SWOT evaluated PolyOne's Distribution business is already a major supplier to US market PolyOne is a small but emerging solutions provider today in medical compounding Proof of Performance Market Positio
Slide 42: Selling the Value of the PolyOne Solution
Instead of asking: What is the best product we can offer? Ask: What is the best value creating solution we can offer ? Product Costs Price Customers Customers Value Price Costs Technology & Services Commercial Excellence Selling the Value of the PolyOne Solution Proof of Performance
Slide 43: Commercial Excellence
Commercial Excellence Upgrading talent and increasing sales, marketing and innovation resources Developing marketing / sales skills Implementing new commercial tools to increase business gains Providing our customers the value and solutions that will help them achieve their growth and profit improve
Slide 44: Focused Approach to Improving Commercial Performance
Focused Approach to Improving Commercial Performance Incentive compensation changes Prune unprofitable business Drive new buisness gains Sales efficiency Sales effectiveness Proof of Performance
Slide 45: Sales Efficiency
Sales Efficiency Note - changes since April - and not our total pipeline - demonstrating follow-up measurements in driving new disciplines with sales efficiency Project Status Sept. 30 vs. April 1 Newly Identified $300 million Qualified Projects $180 million Trials / Pending Proposals $40 million To
Slide 46: Value-based Selling Approach
Value-based Selling Approach Conductive Pipette Tips Proof of Performance
Slide 47: Economic Value Creation Drives Customer Satisfaction
Economic Value Creation Drives Customer Satisfaction Customer Value Increased production efficiency Reduced scrap rate EVE(c) Tool from Online Sales Portal Proof of Performance
Slide 48: Commercial Development Summary
Commercial Development Summary Leverage with an expanding global commercial team drives growth at a speed much faster than in our past Shifting the basis of competition to "quantified differentiation" transforms PolyOne to a value-added solutions provider Redirecting our strategic focus to more attr
Slide 49: Innovation
INNOVATION Dr. Cecil Chappelow Vice President, Research & Innovation Chief Innovation Officer
Slide 50: Innovation - Driving Specialization
Innovation ? Driving Specialization Specialization is shifting the basis of competition to differentiation PolyOne needs a fresh and disciplined approach to innovation We have a work in progress to transform how we innovate in the New PolyOne Proof of Performance
Slide 51: Building Blocks for Successful Innovation
Building Blocks for Successful Innovation Deeper understanding of markets, emerging trends and customers Intimate knowledge of the competitive landscape Disciplined execution of global innovation processes Culture of accountability The heart of competitive advantage Proof of Performance
Slide 52: Deeper Understanding of Markets and Customers
Deeper Understanding of Markets and Customers Focused market development work in new global opportunities in Biomaterials, Electronics and Healthcare Building personnel depth and strength Market Intelligence Building key industry marketing capabilities through new situational analysis Establishing m
Slide 53: Disciplined Execution of Global Innovation Processes
New innovation framework to drive speed and accountability Emphasis on global cooperation, coordination and knowledge leverage Vitality index metric Disciplined Execution of Global Innovation Processes Acting as one global company Proof of Performance
Slide 54: Vitality Index
Vitality Index Accelerating Change Requires: Identifying profitable market opportunities Shifting resources to high-impact programs Disciplined pricing policies Proof of Performance 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 13.4% 11.5% YTD 2006
Slide 55: Innovation Framework
Innovation Framework Intellectual Asset Management Culture of Innovation Resource Management Proof of Performance Offering Development Offering Launch Strategy Development Market Penetration and Value Maximization Idea Generation and Shaping
Slide 56: PolyOne Innovation Pipeline
PolyOne Innovation Pipeline Proof of Performance Prototype Frame Opportunity Scale-up & Test Market Build Business Case Commercial Launch Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 20 Commercial Launches made in the last 2 quarters Phase 0 Idea Generation & Shaping 60 Commercial Launch decisions planne
Slide 57: Recent Derivative Platform Breakthrough
Recent Proof of Performance Derivative Platform Breakthrough Biomaterials Healthcare Stat-Tech(tm) conductive plastic ECCOH(tm) flame-retardant polyolefin OnColor(tm) colorants Electrical and Electronics
Slide 58: Summary
Summary New innovation processes, marketing skills and opportunity identification are driving specialization We are measuring and challenging our performance to build and sustain momentum Global talent base provides potential through focus on differentiation Culture of accountability drives commitme
Slide 59: Operational Excellence
OPERATIONAL EXCELLENCE Tom Kedrowski Senior Vice President Supply Chain & Operations
Slide 60: Operational Excellence
Operational Excellence It is all about strengthening our capabilities to deliver value flawlessly to our customers. It challenges us to enhance our productivity, profitability, and efficiency in all phases of our business, from safety to quality to waste elimination to environmental stewardship. Ope
Slide 61: Operational Excellence
Operational Excellence Align HR and Training Strategies with Operational Excellence Objectives Provide senior leadership OpEx training Increase level of accountability for operational targets and issues Upgrade talent in supply chain / manufacturing areas Create organizational awareness Develop and
Slide 62: Delivery Improvement
Delivery Improvement Establish desired delivery metric Hold gains and drive improvement via delivery task force Monthly review at Operations Council Methods are transferable to other areas Delivering Results September 2007 - 95% OTD ! On Time to Customer Request North America 70% 75% 80% 85% 90% Feb
Slide 63: Operational Excellence: Implement Lean
Operational Excellence Implement Lean throughout PolyOne 2007 Implement Lean in all Vinyl plants and businesses Utilize strategy deployment for all businesses and functions Voice of the Customer Leverage customer data to drive alignment of strategy and operational excellence to the voice of the cust
Slide 64: Lean Six Sigma Opportunities
Lean Six Sigma Opportunities Organizational DNA Develop LSS talent and drive major process improvements Create a culture of continuous improvement and performance Strategic Alignment Modify incentive plans to focus on the key business drivers Develop cross-functional focus on delivering supply chain
Slide 65: Engineered Materials North America
ENGINEERED MATERIALS NORTH AMERICA Craig M. Nikrant Vice President and General Manager North American Engineered Materials
Slide 66: Engineered Materials
Engineered Materials Description: 2007E revenues $105M 3 NA plants, 7 globally Key growth markets Healthcare, Aerospace, Electrical / Electronic Value Proposition: We offer our customers a quantified competitive advantage by leveraging our combined innovation, speed, flexibility and global coverage
Slide 67: Key Markets - Engineered Materials
Key Markets - Engineered Materials Focused Market Segments Electronics - Static dissipative capability and growth Consumer - Soft touch elastomers Aerospace - High heat capability and carbon fiber compounds Healthcare - Lead replacement and shielding with Gravi-TechTM Proof of Performance Available
Slide 68: Shifting the Mix to Specialties
$105M Specialty Mix 17% 50% $150M Revenue 2007 2011 Shifting the Mix to Specialties Top 5 Gross GP Customers Margin % Customer A 8% Customer B 5% Customer C 9% Customer D 11% Customer E 8% Top 5 Gross Specialty Customers Margin % Customer A 56% Customer B 42% Customer C 40% Customer D 34% Customer E
Slide 69: Specialty Connectors and Radiation Shielding
Specialty Connectors Application Requirements: Thin wall parts Elimination of plating EMI / RFI shielding Material Attributes: Electrically conductive High-flow compound EVE(c) Radiation Shielding Application Requirements: Equivalency of lead for radiation shielding Lead free Ability to form into co
Slide 70: Avon Lake, Ohio Specialties Manufacturing Facility
Avon Lake, Ohio Specialties Manufacturing Facility 100,000 square feet of specialty manufacturing capability Process flexibility with multiple extrusion technologies 6 manufacturing extruders with infrastructure to grow to 12 ISO 9001 certified GMP (Good Manufacturing Practices) certified for food,
Slide 71: Strategic Direction - Engineered Materials
Increase commercial, marketing and technology resources Improve specialties mix from 17% of total revenues to 50% in 2011 New refocused Industry marketing management team in place - targeting aerospace, healthcare, and consumer Double Vitality Index by 2011, leveraging our increased commercial prese
Slide 72: Financial Objectives - Engineered Materials
Financial Objectives - Engineered Materials 2007 Performance Meaningful revenue shift towards specialization commences Steep losses substantially reduced but not yet to break even 2008 - 2011 Strategic Plan Revenue CAGR 9%, Specialty CAGR 40% Gross margins within target; operating income growth acce
Slide 73: Summary - Engineered Materials
Summary - Engineered Materials Brand new business - new leadership team - new marketing, technology and commercial directors Commercial and technology resources investment New state-of-the-art specialties manufacturing facility Specialization strategy transforms business to high-value, differentiate
Slide 74: North American Color & Additives
John Van Hulle Vice President & General Manager North American Color & Additives NORTH AMERICAN COLOR & ADDITIVES
Slide 75: North American Color and Additives Business
North American Color and Additives Business Value Proposition: Superior technical expertise and innovation in color and additive applications Operational, commercial and technological resources help customers grow while decreasing their operational costs Competitive Differentiation: Speed to market
Slide 76: Key Markets - Color and Additives
Focused Market Segments Key Markets - Color and Additives Packaging - Promote stylish, custom, globally-available solutions to OEM designers Consumer - Commercialize innovative, patented bio-based products Healthcare - Market high-quality, risk-mitigating solutions to OEMs and major converters Proof
Slide 77: Consumer Products: Bio-friendly Wood Plastic Composite Colorants
Proof of Performance - Consumer Products Novel, Bio-friendly Wood Plastic Composite (WPC) Colorants Market growth rate exceeds 10% per year Addresses the #1 complaint of customers: color fading Patent-pending technology
Slide 78: Commercial & Operational Excellence
Proof of Performance - Commercial & Operational Excellence Targeted Unprofitable Customers Staged product specific increases Management of molder inventories provides benefit reducing total cost of supply 10% Limited revenue decline of <10% on least profitable customer business Profitable Turnaround
Slide 79: Strategic Direction - Color and Additives
Develop new technologies in additives, liquid colorants and composites to reach OEM designers Innovate and acquire bio-friendly products Reduce our production line change-over times and our lead-to-match and match-to-make service times Proof of Performance - Strategic Direction
Slide 80: Financial Objectives - Color and Additives
2007 Performance Steep losses reversed - $10 million 2007 OI improvement Commercial excellence initiatives drive higher value mix - GM% up 10% points vs. 2006 2008 - 2011 Strategic Plan Revenue CAGR 8% Gross margins within target; strong operating income growth ROIC exceeds 20% Gross Margins rise to
Slide 81: Summary - Color and Additives
Summary - Color and Additives Today: Delivering a strong turnaround due to improved product mix, pricing and elimination of unprofitable business relationships Building a strong base business and making inroads with key OEMs & Molders Evaluating strategic acquisitions to grow eco-friendly solutions
Slide 82: International Color & Engineered Materials
INTERNATIONAL COLOR & ENGINEERED MATERIALS Bernard Baert Senior Vice President & General Manager International Color & Engineered Materials
Slide 83: International Color and Engineered Materials
International Color and Engineered Materials Value Proposition: Global coverage capability for Global Key Accounts Innovative technology, reliable supply and superior quality Fast and customized solutions, technical support, on-time delivery Competitive Differentiation: Capability to provide global
Slide 84: Plastics Consumption: Priority Opportunities
Plastics Consumption 10 5% South America 8 9% Eastern Europe 16 14% India 46 10% China Annual demand in Million Metric Tons Plastics demand growth %, annualized 2009-2014 Priority Opportunities Proof of Performance
Slide 85: PolyOne in Asia
PolyOne Asia
Slide 86: Key Asian Markets - Color & EM
Key Asian Markets - Color & EM Focused Market Segments Business Equipment - global presence - growth estimated at 10%/y. Wire & Cable - Specialty & oil-resistant product range - growth estimated at 20%/y. Cosmetic Packaging & Durable Goods - Bioplastics, specialty additives - - growth estimated at 1
Slide 87: European Footprint Map
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Slide 88: Key European Markets - Color & EM
Key European Markets - Color & EM Proof of Performance Engineered Materials Color & Additives Packaging $1,069 $121 11% Wire & Cable $116 $ 42 36% Industrial $866 $ 32 4% Automotive $132 $ 21 16% Bldg. & Const. $144 $15 11% Other $1,173 $ 45 7% Total $3,500 $276 9% Automotive $2,687 $93 3% E&E $1,30
Slide 89: International Global Key Account Solutions
Proof of Performance - International Global Key Account Solutions Automotive: Business developed in EU, expanded in US and in Asia Packaging: Specification gained at a US OEM was leveraged in Asia Electrical: US-Asia partnership won business in Korea Expansion of our Global Footprint North China, Su
Slide 90: Strategic Direction - International
Strategic Direction - International Aggressively expand our global footprint in high- growth areas in Asia, Eastern Europe and the Middle East Develop Global Account management Drive our Vitality Index above 25%. Address new markets and introduce new products Maximize our operational and commercial
Slide 91: Financial Objectives - International
Financial Objectives - International 2007 Performance Revenue - double-digit increases in Asia and Europe >30% earnings growth, nearly 20% excluding FX benefit 2008 - 2011 Strategic Plan Revenue approaches $800 million, CAGR >6% - Asia CAGR 15% Gross margins within target range; strong operating inc
Slide 92: Summary - Total International
Continue the successful change to specialization Develop partnerships with key OEMs Continue geographic expansion and reach Train and coach commercial teams for customer value Support value creation via operational excellence using Lean Six Sigma methodology Summary - Total International Proof of Pe
Slide 93: Vinyl Business
VINYL BUSINESS Rob Rosenau Senior Vice President & General Manager Vinyl Business
Slide 94: Vinyl Business
Vinyl Business Description: $875 million North American leader in the specialized vinyl market Value Proposition: Long-established supplier with a successful track record A world-recognized brand that connotes the highest quality standards, and answers to the toughest vinyl questions Unique combinat
Slide 95: Key Markets - Vinyl Business
Key Markets - Vinyl Business Key Industries Served Building & Const. Wire & Cable Packaging Appliance Consumer Electrical / Electronics Formulators Automotive Other Total Defined Market $M $1,050 $450 $155 $85 $230 $50 $75 $230 $255 $2,580 % Market Share 32% 30% 50% 55% 17% 77% 23% 6% 61% 34% Total
Slide 96: PolyOne Vinyl Revenue Breakdown
PolyOne Vinyl Revenue Breakdown Proof of Performance Total = $875M B&C 36% Wire & Cable 15% Other 22% Appliances 5% E&E 4% Formulators 2% Consumer 4% Packaging 8% Automotive 2%
Slide 97: Housing Starts vs. Vinyl Business Volume
Housing Starts vs. Vinyl Business Volume Existing home sales at a 16-year low Housing starts running at 11 year low Consensus forecast shows no rebound until late 2008 200 250 300 350 400 450 500 550 600 2003 Q2 2003 Q4 2004 Q2 2004 Q4 2005 Q2 2005 Q4 2006 Q2 2006 Q4 2007 Q2 2007 Q4 2008 Q2 2008 Q4
Slide 98: Vinyl Business Customer Examples
Worked with: A major appliance manufacturer to resolve laundry console design flaws discovered in final testing, avoiding launch delays costing millions A Midwest extruder to use CPVC to resolve problems in a copper plate manufacturing process, saving the end user $1.5-2 million Proved: To another m
Slide 99: Vinyl Business Service Improvements Since 2005
Since 2005: Improved on-time delivery 14 points, while Reducing lead times by 40%, while Removing 12% of our working capital, while Eliminating over $5 million from our annual cost structure Example: Determined that on-time delivery was key factor in satisfaction of two key Midwest accounts Initiate
Slide 100: Strategic Direction - Vinyl Business
Strategic Direction - Vinyl Business Create the next generation of vinyl injection molding compounds Identify and penetrate other specialty applications Leverage our success with North American appliance manufacturers globally Establish manufacturing position in China, and double sales there by 2011
Slide 101: Financial Objectives - Vinyl Business
Financial Objectives - Vinyl Business 2007 Performance Weak residential construction drives 10% revenue drop and OI decline Margins fall below trend 2008 - 2011 Strategic Plan Challenging 2008 operating environment Revenue CAGR 6%, reflecting housing rebound as of 2009 Margins recover leading to 9%
Slide 102: Summary - Vinyl Business
Summary - Vinyl Business Penetrating specialized applications such as semiconductor piping, dark-colored windows and decking, and decorative appliance parts Improving productivity by more than 5% annually by applying Lean Six Sigma tools Expanding into Asia to service major customers' global needs B
Slide 103: PolyOne Distribution
Mike Rademacher Senior Vice President & General Manager Distribution POLYONE DISTRIBUTION
Slide 104: PolyOne Distribution
PolyOne Distribution Description: North America plastics distribution 5,000+ plastic processor customers Value Proposition: Full product bundle Same-or next-day delivery Unbiased solutions Competitive Differentiation: North American coverage PolyOne products Technical support Management experience C
Slide 105: Key Markets - Distribution
Key Markets - Distribution Top 4 Distributors = 40% Market Share PolyOne Distribution - $750M Available 2007 Key Industries Served Market Revenue Market $M $M Share % Consumer $1,160 $160 14% Automotive $1,403 $150 11% Industrial $1,779 $145 8% Healthcare $495 $130 26% Appliance $307 $45 15% Buildin
Slide 106: Distribution Growth Since Merger
Demonstrated growth in sales revenue and profitability since merger Successful transition to Vinyl's exclusive distributor in 2003 Key supplier partners have continued to support our business model and value proposition We continue to be an important channel for PolyOne products and a "window to the
Slide 107: Customers Rank Us Highest in Key Quality and Service Criteria
Customers Rank Us Highest in Key Quality and Service Criteria 2006 Customer Survey Quality Customer Service Delivery Tech Service Ease of Doing Business 6 7 8 9 10 POD Competitor Average Proof of Performance - Distribution
Slide 108: Strategic Direction - Distribution
Accelerate North American growth through sales force investment Expand our presence in Mexico and Canada Develop key markets like Healthcare where we can create a differentiated offering by bundling PolyOne's products and services Explore opportunities to expand our global reach Proof of Performance
Slide 109: Financial Objectives - Distribution
Financial Objectives - Distribution 2007 Performance Revenue growth despite softening economy Year-over-year OI increase - projected record segment earnings ROIC projected at 17% 2008 - 2011 Strategic Plan Revenue to exceed $1B, CAGR 8% Leverage infrastructure to accelerate OI growth ROS grows to 4%
Slide 110: Summary - Distribution
Summary - Distribution Today: Proven track record of performance Strong base business in North America and a solid differentiated value proposition 2008 - 2011: Accelerate growth in North America to exceed $1B Leverage current network to accelerate operating income growth Explore opportunities to se
Slide 111: Financial Summary
David Wilson Senior Vice President & Chief Financial Officer FINANCIAL SUMMARY
Slide 112: Financial Summary
Strong financial profile established - flexibility to accelerate strategic investments: Total debt and interest expense lowest since formation Current leverage ratio of 2.0x to 2.5x; credit ratings upgraded Invested capital productivity targets delivered Investment capacity grows consistently Transf
Slide 113: Financial Summary - 2011 Objectives
Drive profitable growth, multiple expansion and shareholder value creation Key 2011 performance objectives: 25% to 35% specialty business gross margins 40% sales outside United States 25% vitality index Strong double-digit earnings CAGR Generate economic return - ROIC >15% Financial Summary - 2011 O
Slide 114: Strategic Business Platforms
Specialty Businesses - $0.95 Billion PolyOne Distribution - $0.75 Billion General Purpose - $1.13 Billion Strategic Business Platforms Proof of Performance
Slide 115: Operating Income Mix
Operating Income Mix Projected OI CAGR exceeds 20%, driving threefold increase in EPS from 2007 to 2011. Specialty earnings elevated by strong gross margin increases. Vinyl margins rebound. Earnings quality improves with meaningful mix shift towards Specialty Businesses. Proof of Performance 2006 20
Slide 116: Gross Margin % of Sales Evolution
Specialization drives increases across each platform. Specialty platform achieves 25% objective by 2010. Gross Margin % of Sales Evolution Proof of Performance 2006 2007 2008 2009 2010 2011 Specialty 0.145 0.168 0.187 0.219 0.252 0.265 POD 0.079 0.082 0.085 0.087 0.089 0.091 General Purpose 0.105 0.
Slide 117: Operating Income % of Sales
Specialty platform pushes above 10% ROS in 2011. Total 2011 ROS projected to increase >4% points from 2007. Operating Income % of Sales Proof of Performance 2006 2007 2008 2009 2010 2011 Specialty 0.018 0.035 0.0489 0.065 0.089 0.1079 POD 0.029 0.029 0.031 0.032 0.036 0.0397 General Purpose 0.057 0.
Slide 118: Return on Invested Capital Summary
Return on Invested Capital Summary Each platform achieves ROIC objective to generate a target return by 2011. POD and GP performing at or above target in 2007. Total PolyOne ROIC reaches 18% by 2011. Proof of Performance Specialty POD General Purpose Total POL 2007 0.066 0.172 0.148 0.081 2011 0.171
Slide 119: Strengthening Financial Profile
Strengthening Financial Profile Target leverage ratio of 2.0x to 2.5x achieved in 2007. Net interest expense reduction should approach $34 million in 2008 vs. 2006. Redemption of 2010 Senior Notes in 2007 reduces total debt to half level at POL formation. $26 million annual debt reduction 2008 - 201
Slide 120: Financial Profile and Performance Should Drive Ratings Improvement
Strengthening Financial Profile and Performance Should Drive Ratings Improvement Financial Profile Outlook 2006 2007 2011 Debt / EBITDA (Y/E) 2.6x 2.4x <1.5x Net Debt / EBITDA (Y/E) 2.5x 2.1x <1.0x Total Debt (Y/E) $668 $405 $301 % Core Business Earnings 45% 63% >95% Working Capital as % of Sales 14
Slide 121: Key Performance Indicators and 2011 Objectives
Return on Invested Capital: Total PolyOne (pre-tax) Business Units (pre-tax) Operating Income Growth Vitality Index Sales Outside the USA Gross Margin Attainment Key Performance Indicators >15% >15% Double-digit CAGR 25% 40% 25% - 35% for Specialty Businesses 2011 Objective 18% achieved by 2011 Each
Slide 122: Transformation Strategies Deliver Key Objectives
Transformation strategies deliver key objectives Specialization drives meaningful increases in gross margins, which deliver ROS and ROIC Quality of earnings mix reshapes portfolio; underpins sustainable, high-value base; and expands equity valuation multiples Financial profile is strong, enabling fl