Lyondell Chemical — Millennium Chemicals — Merger or Acquisition (November 2004)
35 slides from Lyondell Chemical's merger presentation, Nov 10, 2004
Slide 1: Positioned For The Cyclical Upturn
Positioned For The Cyclical Upturn Boston Visits November 10 – 11, 2004
Slide 2: Forward-looking statements
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the benefits of the proposed transaction between Lyondell Chemical Company (“Lyondell”) and Millennium C
Slide 3: Lyondell Has Built a Major Global Chemical Enterprise
Lyondell Has Built a Major Global Chemical Enterprise Global producer of basic chemicals, polymers, and fuels Built one of the world’s leading chemical companies through: Acquisitions and joint ventures New investment where differential Our value proposition Excel at low-cost operation in a mature i
Slide 4: Principal Areas Of Investor Interest
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks: What is the outlook for TiO2? Impact of oil price? Will U.S. ethylene assets be able to compete in the future? What is the potential impact of PO capacity additions? Are strong LCR profits sustainable? What i
Slide 5: TiO2 Manufacturing Locations
TiO2 Manufacturing Locations Ashtabula, OH Baltimore, MD Stallingborough, UK Le Havre, France Thann, France Bahia, Brazil Paraiba, Brazil (Mine) Kemerton, Australia Bunbury, Australia
Slide 6: TiO2 Demand and Supply
TiO2 Demand and Supply: Demand – 4.1 MM mtpa; $8 billion Capacity – ~4.8 MM mtpa End-Use Market Ind. Coatings Arch. Paint Paper Plastics Other Geographical Region C&S America North America Asia EE / ME / AF Europe Capacity Others Kronos Tioxide Kerr-McGee MCH DuPont Source: Millennium Estimates and
Slide 7: Chloride Is Typically The Preferred Process Vs. Sulfate
Chloride Is Typically The Preferred Process Vs. Sulfate Product Attributes End use dependent Better purity and particle size control Finishing is similar Process Attributes Continuous process Fewer process steps Fewer people Smaller facility footprint Less waste produced
Slide 8: Chloride Is A Continuous Process With Fewer Steps And Less Waste
Chloride Is A Continuous Process With Fewer Steps And Less Waste Sulfate- batch Sulfuric Acid Digestion Clarification Hydrolysis Filtration Calcination Finishing Dilute Acid to Gypsum Recovery Iron recovery or disposal Titanium Ore Chloride- continuous Chlorination Purification Oxidation Finishing C
Slide 9: Global Capacity Additions Have Typically Utilized Chloride Technology
Global Capacity Additions Have Typically Utilized Chloride Technology Installed Capacity (000 MT) 6,000 5,000 4,000 3,000 2,000 1,000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Sulfate Chloride Source: Millennium, Published Information
Slide 10: There Are Minimal Announced Capacity Additions
There Are Minimal Announced Capacity Additions M Tonnes Operating Rate Demand Capacity 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 100% 95% 90% 85% 80% 75% 70% 65% 60% Operating Rate Source:
Slide 11: Principal Areas Of Investor Interest
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks: What is the outlook for TiO2? Impact of oil price? Will U.S. ethylene assets be able to compete in the future? What is the potential impact of PO capacity additions? Are strong LCR profits sustainable? What i
Slide 12: The US Economy Is Benefiting From Economic Stimulus
The US Economy Is Benefiting From Economic Stimulus Stimulus Change DGDP Leads to After 1 Year 2 Years Fed Rate Reduction 100 BP 0.6 1.7 Real Dollar Decline 10% 0.4 1.6 Income Tax Reduction 1% of GDP 0.4 0.8 Stock Price Increase 20% 0.4 0.8 Oil Price Decline $10/bbl 0.2 0.4 * Source: Fed Reserve, Ja
Slide 13: Chemical and Plastics Demand Grows Rapidly As Economies Develop
Chemical and Plastics Demand Grows Rapidly As Economies Develop Polyethylene Consumption By Nation US Singapore Taiwan Korea WE Malaysia Japan Thailand China India Indonesia PE Consumption/capita, lbs 12 0 10 0 8 0 6 0 4 0 2 0 0 0 5 , 0 0 0 10 , 0 0 0 15 , 0 0 0 2 0 , 0 0 0 2 5 , 0 0 0 3 0 , 0 0 0 3
Slide 14: Profitability Is Driven By Supply/Demand Fundamentals
Profitability Is Driven By Supply/Demand Fundamentals Crude Oil vs. Equistar EBITDA EBITDA 450 350 250 150 50 -50 1H99 1H00 1H01 1H02 1H03 1H04 40 35 30 25 20 15 10 5 0 Crude Price EBITDA Crude Price U.S. Ethylene Operating Rates vs. Equistar EBITDA EBITDA 550 450 350 250 150 50 -50 1H99 1H00 1H01 1
Slide 15: Our Results Reflect Improving Conditions
Our Results Reflect Improving Conditions EBITDA $MM Quarterly EBITDA 500 450 400 350 300 250 200 150 100 50 0 -50 Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 IC&D 100% Equistar 100% LCR
Slide 16: Principal Areas Of Investor Interest
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks: What is the outlook for TiO2? Impact of oil price? Will U.S. ethylene assets be able to compete in the future? What is the potential impact of PO capacity additions? Are strong LCR profits sustainable? What i
Slide 17: Ethylene Is Recovering From A Significant Trough
Ethylene Is Recovering From A Significant Trough Ethylene Supply/Demand Balance—North America Bln lbs Rest of World Effective Operating Rate (at 96% on-stream-time) N. America N. America Demand 110 100 90 80 70 60 50 40 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Slide 18: Liquid Cracking Provides an Advantage vs. Ethane Raw Materials
Liquid Cracking Provides an Advantage vs. Ethane Raw Materials Equistar Capability NGL 37% Liquid 63% N. American Industry (ex. Equistar) Liquid 25% NGL 75% Liquid Cracking Variable Cost Advantage vs. NGL Ethane – Light Naphtha Cost of Ethylene Spread Average ¢/lb ethylene 7 6 5 4 3 2 1 0 1987 1988
Slide 19: Future Ethylene Capacity Additions Favor a Growing Liquid Raw Material Advantage
Future Ethylene Capacity Additions Favor a Growing Liquid Raw Material Advantage 2004 — 2009 2003 Demand Blbs Demand Growth Blbs Olefins Plant Supply Growth Blbs DBlbs Ethylene 226 56 55 (1) Propylene 134 38 15 (23) Ethylene / Propylene 1.7 1.5 3.7 — Source: CMAI September 2004
Slide 20: Principal Areas Of Investor Interest
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks: What is the outlook for TiO2? Impact of oil price? Will U.S. ethylene assets be able to compete in the future? What is the potential impact of PO capacity additions? Are strong LCR profits sustainable? What i
Slide 21: Globally Propylene Oxide Is Following A Similar Trend
Globally Propylene Oxide Is Following A Similar Trend With Minimal Supply Additions B Lbs/yr Operating Rate Demand Supply 20 18 16 14 12 10 8 6 4 2 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Operating Rate 100% 90% 80% 70% 60% 50% Source: LYO, SRI
Slide 22: PO Technology is Entering its Third Generation of Innovation
PO Technology is Entering its Third Generation of Innovation 1st Generation 2nd Generation 3rd Generation Technology Chlorohydrin Peroxidation Direct Oxidation Initial Application 1910 1960/70s 2000/10 Key Producers Dow POSM—Lyondell, Shell China (several) POTBA – Lyondell PO/Cumene – Sumitomo/ Lyon
Slide 23: Steps Toward Increased IC&D Cash Flow
Steps Toward Increased IC&D Cash Flow $ MM/Yr 600 500 400 300 200 100 Base Potential Cash Improvement From 2003 Complete PO-11 Capital Spend Convert PO/SM Purchases on Production 1999 PO / TDI SM Margins MTBE Resolution Sell-out at 1995 PO / TDI / SM Margins
Slide 24: Principal Areas Of Investor Interest
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks: What is the outlook for TiO2? Impact of oil price? Will U.S. ethylene assets be able to compete in the future? What is the potential impact of PO capacity additions? Are strong LCR profits sustainable? What i
Slide 25: LCR Important Cash Generator
LCR Important Cash Generator – Operating Reliability and Crude Deliveries Drive Strong Performance MB/day 300 250 200 150 100 50 0 Net Distribution To LYO, $MM CSA Spot Mkt 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 2 22 49 7 67 69 55 32 54 89 138
Slide 26: Industry Margins Have Rebounded with Growing Worldwide Demand
Industry Margins Have Rebounded with Growing Worldwide Demand & Limited Refining Capacity WTI Crude Oil Refining Margin 3/2/1 Refining Spread ($/Bbl) $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 Jul-02 Sep-02 Nov-02 Jan-03 Mar-03 May-03 Jul-03 Sep-03 Nov-03 Jan-04 Mar-04 May-04 Jul-04 Sep-04 Source: Platt’s
Slide 27: Principal Areas Of Investor Interest
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks: What is the outlook for TiO2? Impact of oil price? Will U.S. ethylene assets be able to compete in the future? What is the potential impact of PO capacity additions? Are strong LCR profits sustainable? What i
Slide 28: Lyondell Has Maintained Ethylene Chain Leverage While Diversifying
Lyondell Has Maintained Ethylene Chain Leverage While Diversifying Total Chemical Leverage Pounds / Share 1994 Jan. 1, 2004 Post Transaction Closing Petrochemicals Ethylene 45 46.5 47.5 Styrene — 16.5 12 Propylene Oxide — 13.5 10 TDI — 3 2.5 Acetic Acid — — 5 TiO2 — — 6 45 79.5 83 Derivatives Polyol
Slide 29: Enterprise Earnings Capability Far Exceeds Recent Results
Enterprise Earnings Capability Far Exceeds Recent Results (Current Ownership – Pre-Millennium Transaction) Cycle EBITDA Potential $MM Recession/ Trough Pre-Recession $6.90 / share Peak $1.40 / share 2003 Proportional Interest, Dividends & Capital 3000 2500 2000 1500 1000 500 0 2003 1999/2000 1995 Ma
Slide 30: There Is A Significant Amount of Accessible Debt
There Is A Significant Amount of Accessible Debt Accessible Debt * $MM 1,400 1,200 1,000 800 600 400 200 0 $278 $900 $800 $730 $700 $700 $500 $485 $100 $1 $150 Lyondell Equistar Millennium Lyondell Equistar Millennium Lyondell Equistar Millennium Lyondell Equistar Millennium Lyondell Equistar Millen
Slide 31: De-Leveraging Benefits All Stakeholders
De-Leveraging Benefits All Stakeholders Impact of Lyondell debt reduction at constant capitalization1 $3 Billion (with MCH) Debt to Capitalization 45% Avoided Interest Expense $ 300MM / Year Earnings Improvement 80¢ / share Share Price Improvement at Constant Capitalization $12.25 / share 2 1 Capita
Slide 32: Equistar Chemicals, LP Reconciliation of Net Income to EBITDA
Equistar Chemicals, LP Reconciliation of Net Income (Loss) to EBITDA For the six-month periods ended June 30 (Millions of Dollars) 1999 2000 2001 2002 2003 2004 Net income (loss) $49 $208 $(107) $(1,207) $(195) $48 Add: Depreciation and amortization 147 152 159 147 154 153 Interest expense, net 84 8
Slide 33: Lyondell Reconciliation of Net Income (Loss) to EBITDA
LYONDELL CHEMICAL COMPANY RECONCILIATION OF NET INCOME (LOSS) TO EBITDA (Millions of dollars) Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Lyondell net income (loss) $(113) $(68) $(44) $(77) $(15) $3 $50 Add: Provision for (benefit from) income tax (55) (39) (27) (58) (9) 3 26 Interest ex
Slide 34: Reconciliation of LCR Net Income (Loss) to EBITDA
LYONDELL CHEMICAL COMPANY RECONCILIATION OF LCR NET INCOME (LOSS) TO EBITDA (Millions of dollars) Q1 2002 Q2 2002 Q3 2002 Q4 2002 (b) Q1 2003 Q2 2003 Q3 2003 Q4 2003 1Q 2004 2Q 2004 3Q 2004 Net income (loss) $41 $63 $50 $59 $28 $58 $69 $73 $91 $103 $147 Add: Depreciation and amortization 29 30 28 29
Slide 35: Reconciliation of Net Income to EBITDA, Hypothetical Industry Margins
Lyondell Chemical Company Reconciliation of Net Income (Loss) to EBITDA For the Twelve Months Ended December 31, 2003 and Hypothetical Net Income to Hypothetical EBITDA Assuming Historical Industry Margin Conditions Hypothetical Results Using (Millions of dollars) 2003 Actual 1999/2000 Margins 1 199
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