Methanex Corporation · TSX:MX
Methanex — Investor Presentation (May 2018)
54 slides from Methanex's investor presentation, May 2018
Slide 1: Methanex Investor Presentation May 2018
Methanex Investor Presentation May 2018
Slide 2: Forward-looking statements & non-GAAP measures
Forward-looking statements & non-GAAP measures Information contained in these materials or presented orally on the earnings conference call, either in prepared remarks or in response to questions, contains forward-looking statements. Actual results could differ materially from those contemplated by
Slide 3: Investment opportunity
Investment opportunity Global Methanol Leader • Leading market share, global supply chain and competitive assets • Solid cash generation capability at a broad range of methanol Strong Cash Flow prices Generation & • Since 2013, we have repurchased 14% of shares with ~$725m Distributions • Meaningful
Slide 4: Market share
Market share 2016 Estimated Market Share (%) 16% • ~78 million tonnes global 14% demand1 12% 10% • Top producers ~ half of global 8% sales 6% • Methanex is the global leader 4% 2% • ~14% share of global market 2 0% • Unique global position with sales in all major regions Yankuang MGC Sabic Sinopec M
Slide 5: Methanol end uses
Methanol end uses mA e,e¢ MTO SA den Trttional Uses ae wil (55% of Demand) ee « at Olefins Acetic Acid Fleece, Adhesives, 9 Paints ° Marine Fuel nt Formaldehyde Bunker Replaceme | i | ONE > What's it usedMer? ‘ a . é Energy & MTO (45% of Dema High Growth) | ¥A\ 5 methan Si the power of agilty
Slide 6: Strong demand growth
Strong demand growth Projected 5% CAGR over next four years led by methanol-to-olefins (“MTO”) MMT 2018 – 2021 CAGR: 5% 100 2012 – 2017 CAGR: 6% 80 MTO 60 Other Energy 40 Traditional 20 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: IHS Chemical Supply and Demand: Spring 2018 Updat
Slide 7: Methanol as energy
Methanol as energy 140 18.00 • Methanol is primarily Brent Crude Oil 16.00 made from natural gas, 120 14.00 and is a liquid fuel and oil 100 product alternative 12.00 US$ / mmbtu • High priced oil versus US$ / Barrel 80 10.00 natural gas creates 60 8.00 substitution incentive 6.00 40 • Energy applic
Slide 8: MTO leading demand growth
MTO leading demand growth 14,000 • We continue to observe MTO Methanol Demand (Annualized) 13,000 high operating rates at MTO 12,000 facilities that are not 000s tonnes of methanol 11,000 10,000 9,000 experiencing technical 8,000 issues 7,000 6,000 5,000 • Three more plants under 4,000 construction
Slide 9: Methanol-to-olefins (MTO)
Methanol-to-olefins (MTO) Natural Food packaging, P olyethylene plastic bags • MTO production Gas or Coal mostly highly P ipes, window Feedstock EDC P VC frames integrated with Ethylene downstream Synthesis EO MEG P ET Textile, bottles products Gas • Very difficult to Insulation Ethyl benzene Styren
Slide 10: Emerging market – marine fuel
Emerging market – marine fuel • International Maritime Organization IMO Current and Future Sulphur Limits (IMO) reduced sulphur limits to: 5.00% • 0.1% in 2015 in Existing Emission Control Areas (ECAs) in North 4.00% America and Europe 3.00% • 0.5% in 2020 globally 2.00% • Predominant shipping fuel
Slide 11: Positive marine fuel developments
Positive marine fuel developments • Waterfront Shipping launched seven new 50,000 dwt vessels in 2016 with methanol dual-fuel MAN 2-stroke engines • Waterfront’s “Lindanger” recognized by Maritime Reporter and Engineering News as one of 2016’s ten great ships • Waterfront Shipping is adding four new
Slide 12: Fuel blending
Fuel blending China fuel demand growth expected to continue • Since 2004, sixteen provinces have issued local standards on methanol-blended fuel, most of which are for low level methanol- blended gasoline. • China’s high blend (M85-M100) methanol vehicle pilot program has grown from three provinces/
Slide 13: Emerging market - industrial boilers
Emerging market - industrial boilers Significant Potential Opportunity in China Boiler propeller due to environmental reforms Tubes inside boiler Environmentally Friendly Combustion chamber • reduction of PM, SOx, and NOx Methanol burner Technology-Ready • burner developed • propeller compatible Eco
Slide 14: Demand and supply outlook
Demand and supply outlook MMT 16 Estimated demand growth 14 Estimated 12 MTO New China • Healthy demand growth of 5% CAGR (2018- 10 Supply 2021) 8 Other Energy • Led by China and energy applications Estimated New 6 Supply 4 Traditional (ex-China) Estimated new supply Chemical 2 • New industry capaci
Slide 15: Reinvestment economics
Reinvestment economics • Long-term price required for a greenfield project to Estimated Nominal IRR at Alternative Methanol and Gas Prices reach Methanex return Natural gas Realized Methanol Price - $/ tonne target exceeds $/mmbtu 300 350 400 450 $400/tonne • Any investment decision 5.0 2% 8% 12% fo
Slide 16: Illustrative methanol industry cost curve
Illustrative methanol industry cost curve • Flat portion of cost curve provides floor $50 0 Delivered Cash Cost USD /tonne) $45 0 price support in lower energy price $40 0 environment • Steep high end includes Coastal China $35 0 $30 0 high cost coal and natural gas based $25 0 production • Other hi
Slide 17: Global methanol leader
Global methanol leader Production sites, office locations, distribution terminals and shipping lanes around the world • Global production sites strategically positioned to supply every major global market • Extensive global supply chain and distribution network of terminals/storage facilities enable
Slide 18: Methanex annual production capacity
Methanex annual production capacity Year Built 000 tonnes Louisiana, USA Geismar 1 2015 1,000 USA Canada Geismar 2 2015 1,000 Medicine Hat, Alberta 1981 600 New Zealand Motunui 1 1 1985 950 Motunui 2 1 1985 950 New Trinidad Waitara Valley 1983 530 Zealand Trinidad Titan 2000 875 Atlas (63%) 2004 1,1
Slide 19: Capital projects 2011-16
Capital projects 2011-16 $1.4 billion Geismar Relocations $100 million $200 million Medicine Hat New Zealand • Restart • Restart (2 plants) • Refurbishment • Refurbishment • Expansion • Expansion 19
Slide 20: Significant increase in production per share
Significant increase in production per share Production Volume – Methanex Share (millions of tonnes) 9.4 • Capital investments 7.2 7.7 combined with 7.0 share repurchase programs to 4.9 5.2 increase cash flow 4.1 4.3 capability per share Capacity 2012 2013 2014 2015 2016 2017 Potential* Current Full
Slide 21: Chile growth opportunity
Chile growth opportunity • Highly value accretive opportunity to restore Chile to a 1.7 million tonne two-plant operation at a very low capital cost • Chile IV restart • Project to restart idle Chile IV facility expected to be completed by end of Q3-2018 • Sufficient gas available to run a minimum o
Slide 22: Geismar 3 growth opportunity
Geismar 3 growth opportunity • Opportunity to increase production capacity with significant advantages relative to other US Gulf projects • Potential Geismar 3 facility (~1.8MMT) would be constructed adjacent to existing Geismar 1 and 2 facilities and required land has been secured • Estimated capit
Slide 23: Financial results
Financial results Average Modified ROCE of 12% from 2007 to 2017 $5.00 Adjusted EPS (1) 30% $4.00 Modified ROCE (2) 20% $3.00 Adjusted EPS Modified ROCE $2.00 10% $1.00 0% $0.00 2007 2010 2012 2013 2015 2016 2018 2008 2009 2011 2014 2017 Q1- -$1.00 -10% 1) Adjusted EPS = Adjusted net income per comm
Slide 24: Valuation considerations
Valuation considerations • Strong cash generation capability at a range of methanol prices Current Full Operating Full Potential 1 Methanex interest (63.1% Atlas, 50% Egypt) Potential 2 Capacity 3 (Chile 100%) 2 Current potential = 7.7MMT production in North America Annual Operating Capacity1 7.7 8.
Slide 25: EBITDA and free cash flow capability
EBITDA and free cash flow capability1 Free cash 1,400 flow yield EBITDA 1,200 at $65 Free Cash Flow 1,000 share price Millions of dollars 15% 800 11% 600 7% 400 200 - 300 350 400 Methanol price ($ per tonne) 1 Cash Flow before payment of dividend. See 7.7 million tonne production capability scenario
Slide 26: EBITDA and free cash flow capability sensitivities
EBITDA and free cash flow (“FCF”) capability sensitivities Sensitivities versus Run-rate Case of: • Price (ARP): $350/tonne • Volume: 7.7 MM MT • EBITDA Capability: $950 million • FCF Capability: $600 million 26
Slide 27: Balanced approach to capital allocation
Balanced approach to capital allocation • $95 MM annual interest expense Debt Service • $25 MM debt payments (MX share) Essential • Next maturity - $350MM, end of 2019 Maintenance • $85 MM avg. annual maintenance capex • Dividend $1.32/share annually and Meaningful, approximately $110 million per an
Slide 28: Liquidity and capital structure
Liquidity and capital structure • Strong financial and liquidity position Liquidity as at Q1-18 Capital Structure as at Q1-181 (US$ millions) (US$ millions) Cash (MX Share) 355 Total Shareholders’ Equity 1,606 Revolving Credit Facility 300 Total Debt 1,345 655 Total Debt/Capitalization 46% Net Debt/
Slide 29: Returning excess cash to shareholders
Returning excess cash to shareholders 450 400 350 $1.1 billion returned millions of dollars 300 to shareholders 250 since 2013 200 150 100 50 - 2014 2015 2016 2017 Q1-2018 Dividends Share Repurchases 29
Slide 30: Returning cash to shareholders
Returning cash to shareholders $0.30 110 Regular Dividends per Share • 2018 dividend $0.25 Shares Outstanding at December 31 105 is $0.33/share Average Quarterly Dividend (US$) per quarter Shares Outstanding (millions) $0.20 100 (current yield ~2.0%1) $0.15 95 • 14% of shares repurchased $0.10 90 fo
Slide 31: Key corporate governance highlights
Key corporate governance highlights Corporate Governance Director Compensation ✓ 10 of 11 Independent Directors ✓ Required director equity ownership ✓ Separate chair and CEO of 3x total annual retainer ✓ All Committee members are independent ✓ Prohibition on hedging ✓ Strong risk and strategy oversi
Slide 32: Methanex is committed to Responsible Care
Methanex is committed to Responsible Care® • At Methanex, Responsible Care® is the foundation of everything we do and a key element of our global culture: » community safety » employee health and safety » environmental protection » product stewardship » social responsibility • As an industry, we mus
Slide 33: Management alignment
Management alignment • Executive shareholding requirements: • CEO - 5 times salary in Methanex shares or share units • Senior executives (5 members) – 3 times salary • Other senior management (~50 employees) – 1 times salary • Short-term incentive linked to ROCE (return on capital employed) • Long-t
Slide 34: Summary
Summary • Global leader with competitive • Expect strong cash generation assets • Low capital cost growth potential in • Solid franchise value that is difficult Chile to replicate • Dividends / share buybacks • Global marketing, supply chain and shipping network • Strong financial position Committed
Slide 35: Forward-looking information warning
Forward-looking information warning This Presentation, our First Quarter 2018 Management’s Discussion and Analysis (“MD&A”) and comments made during the First Quarter 2018 investor conference call contain forward-looking statements with respect to us and our industry. These statements relate to futu
Slide 36: Q&A
Q&A the power of agility
Slide 37: Appendix
Appendix the power of agility
Slide 38: Methanol is…
APPENDIX Methanol is… • Primarily produced from natural gas 38
Slide 39: Methanol usage
APPENDIX Methanol usage… …by derivative …by region Other North 16% America Formaldehyde 9% 29% Latin America Biodiesel 3% 4% Europe 15% MTO 15% China 57% Acetic Acid 9% Asia Pacific Fuel (ex. China) Applications DME MTBE 16% 10% 5% 12% Source: Methanex 39
Slide 40: Methanex realized pricing history
APPENDIX Methanex realized pricing history • Methanex posts 600 reference prices monthly in Asia 500 10-yr average realized and North America price US$345/tonne and quarterly in 400 US$/tonne Europe 300 • Realized pricing is lower than 200 reference prices due to discounts 100 specified in Q1 2009 Q
Slide 41: Methanol consumers
APPENDIX Methanol consumers • Concentrated consumer base – 30% of global demand from top 20 consumers • Main consumers are large, global chemical and China MTO companies: – Celanese, BP, Momentive, Sanjiang, Sailboat, Sabic, BASF, etc. • Methanex supplies primarily traditional chemical derivative cu
Slide 42: Benefits of methanol as a vehicle fuel
APPENDIX Benefits of methanol as a vehicle fuel • Liquid fuel – can be blended with gasoline and ethanol in today’s vehicles at minimal incremental costs • Clean burning fuel that produces fewer smog causing emissions when blended with (or substituted for) gasoline • High octane fuel which improves
Slide 43: Methanol value proposition as a vehicle fuel
APPENDIX Methanol value proposition as a vehicle fuel • Methanol is an affordable gasoline substitute in China, and can reduce overall emissions versus gasoline • In dedicated methanol vehicles and at high blends (M85 and M100), methanol burns more efficiently than gasoline • Most fuel blending in C
Slide 44: Methanol as a marine fuel
APPENDIX Methanol as a marine fuel • Methanol (MEOH) achieves low emissions & bridge to lower CO2 in the future (renewable/bio methanol) Source: Stena lines Emission reductions when compared to heavy fuel oil 44
Slide 45: Cost competitiveness: fuel
APPENDIX Cost competitiveness: fuel Methanol is an economically viable alternative marine fuel over the cycle $1,200 $1,100 $1,000 $900 $800 $ / tonne $700 North America (Gulf Coast) MGO $600 North America (West Coast) MGO $500 Europe MGO $400 Asia MGO Middle East MGO $300 Methanol (Energy Equivalen
Slide 46: Di-methyl ether (DME) market
APPENDIX Di-methyl ether (DME) market • DME can be blended directly with LPG (propane) up to approximately 20% for cooking and heating applications • Future promising application for DME is as a diesel replacement: • Oberon Fuels Produces DME in the U.S. • ASTM Standard issued, California approval,
Slide 47: Methanol fuel blending growing outside China
APPENDIX Methanol fuel blending growing outside China • Several countries outside China in the assessment or near-commercial stage for fuel blending, however minimal demand is included in current forecasts from these regions Iceland U.K. Russia Germany Denmark Azerbaijan Netherlands China Alaska U.S
Slide 48: Methanol as a fuel outside China
APPENDIX Methanol as a fuel outside China • Europe is blending methanol into fuel today (up to 3% blending permitted), and in 2016, United Kingdom announced significant fuel tax incentive to support high blend methanol fuels • Australia - Coogee demonstration project completed and regulations in pla
Slide 49: Methanol as renewable energy
APPENDIX Methanol as renewable energy • Methanol and DME is produced from fossil fuels and renewables LNG = Liquefied Natural Gas; DME = Di-Methyl Ether; OBATE = On Board Alcohol to Ether (i.e. methanol converted to DME on board ships) 49
Slide 50: Carbon recycling international (CRI)
APPENDIX Carbon recycling international (CRI) CRI’s GO Plant in Svartsengi, Iceland • Methanex became a CRI shareholder in 2013 • World’s greenest methanol – technology captures CO2 from industrial emissions and converts it into Renewable Methanol • Sales into Europe gasoline blending market (M3) •
Slide 51: Methanex cost structure
APPENDIX Methanex cost structure • Natural gas • Fixed Manufacturing and G&A costs • Long-term gas contracts for approximately 60% of • Primarily people costs capacity have fixed base price and variable component (approx. 1300 employees) linked to the price of methanol. This reduces methanol price e
Slide 52: Leverage – rating agency perspective
APPENDIX Leverage – rating agency perspective Pro Forma Rating Agency Credit Ratios • Leverage target = Investment Grade (US$ billions unless indicated) • Preserves financial flexibility Total Debt 1 • Lowers cost of debt Debt (Q1-18) 1.3 • Access to longer-term bond market, shipping market, etc. Ca
Slide 53: Foreign exchange sensitivity
APPENDIX Foreign exchange sensitivity • US dollar based business • Majority of revenues in US dollars (EU net exposure hedged) • Natural gas and freight costs in US dollars • Approximately $150 million in local currency costs (not actively hedged) • Approximately $100 million in non-US dollar workin
Slide 54: Thank you
Thank you www.methanex.com linkedin.com/company/methanex- corporation @Methanex