Methanex Corporation · TSX:MX
Methanex — Investor Day (September 2017)
89 slides from Methanex's investor day presentation, Sep 15, 2017
Slide 1: Methanex Investor Day
Methanex Investor Day John Floren September 2017
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 Strong Cash Positive Long- Flow & term Industry Distributions Outlook Growth Value Potential 3
Slide 4: Methanex Strategy
Methanex Strategy Methanex VISION: Global Methanol Leadership 4
Slide 5: Leadership - Commitment to Responsible Care®
Leadership - Commitment to Responsible Care® 5
Slide 6: Leadership - Market Share
Leadership - Market Share 2016 Estimated Market Share (%) 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Yankuang Zagros (Iran) Shenhua Petronas Sinopec Sabic MGC Methanex SCC/Helm (MHTL) Mitsubishi (MSK) Source: Methanex. 6
Slide 7: Operational Excellence
Operational Excellence Relentless pursuit of capturing hearts and minds 7
Slide 8: Low Cost
the power of agility
Slide 9: Shareholder Value Creation
Shareholder Value Creation Production per thousand shares (tonnes) 120 January 1, 2012- June 30, 2017: > $2 billion invested in company 100 > $1 billion returned to shareholders 80 60 40 Impressive increase in cash-flow 20 capability per share - Potential* Capacity** 2012 2013 2014 2015 2016 * Curre
Slide 10: Marketing & Logistics
Marketing & Logistics Vanessa James Senior Vice President, Global Marketing & Logistics
Slide 11: Marketing and Logistics - Agenda
Marketing and Logistics - Agenda • General Market Update • Demand − MTO – a Deeper Dive − Emerging Demand Applications • Supply − Industry Capacity Additions − China Supply Fundamentals • Methanol Price Dynamics 11
Slide 12: Market Update - 2017 Highlights
Market Update - 2017 Highlights Strong fundamentals with price volatility • Strong demand versus 2016 driven by new MTO capacity • Lower MTO demand in H1-17 due to plant maintenance and technical issues • Solid growth from traditional applications (5% year-over-year in Q2-17) • Global methanol suppl
Slide 13: Market Update
Market Update Methanol price China Spot Price • Significant price volatility 2015-17 550 − MTO start-ups caused large demand 500 MTO maintenance/ reduced rates swings as new projects worked 450 through technical issues US$/tonne 400 − Declining energy and olefins pricing 350 also impacted methanol a
Slide 14: Methanol Demand
Methanol Demand Evolution of global demand composition 2020 • Traditional demand forecast to 29% represent approximately half 31% of global demand by 2020 • Expect strong methanol 2017 demand growth from MTO 54% 53% over the coming years from existing capacity and new 2018 15% start-ups 18% Traditio
Slide 15: MTO Leading Demand Growth
MTO Leading Demand Growth Technical outages at 13,000 12,000 seven MTO plants 90% • Strong growth in MTO capacity and demand in last three years thousand tonnes of methanol 85% 11,000 10,000 9,000 80% • Planned / unplanned technical 8,000 75% outages at 7 MTO plants in H1- 7,000 70% 17 6,000 5,000 6
Slide 16: MTO Integration - Olefins & Olefin Derivatives
MTO Integration - Olefins & Olefin Derivatives MTO Integration KTA, Olefin equ. 900 800 700 600 • Olefins downstream 500 400 integration adds 300 resilience to overall MTO 200 100 economics 0 Fund Energy Ningbo Sanjiang Shenghong Legend Shenda Chengzhi (formly Wison) Shenhua Yulin Fund Energy Changz
Slide 17: Olefins Industry Outlook
Olefins Industry Outlook • Estimated 2017-2020 Global Ethylene Supply/Demand global ethylene 500 Range of Consultant’s/LYB expectations 100% operating rates are Effective Operating Rate 450 95% above 2010-2016 • Range of estimates 400 90% lbs, billions show 2018 dip in 350 85% operating rates, and h
Slide 18: Emerging Energy Applications
Emerging Energy Applications Represent significant upside potential for long term demand MONITORING : • Diesel vehicle fuel replacement – DME, dual fuel etc. Marine Fuel Fuel Blending Methanol to (low and high level Power • DME – LPG Blending blends) (large scale & industrial boilers) • Methanol to
Slide 19: Emerging Market – Marine Fuel
Emerging Market – Marine Fuel IMO Current and Future Sulphur Limits 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2006 2000 2002 2004 2008 2010 2012 2014 2016 2018 2020 2022 2024 Existing Emission Control Area Cap Global Cap Source: IMO 19
Slide 20: R&D / Commercialization
R&D / Commercialization A number of projects are underway Large Engine Market Small Engine Market China Market (cruise ships and ferries) (i.e. tug and barge) (methanol fuel standard development)
Slide 21: Fuel Blending in China
Fuel Blending in China China fuel demand growth expected to continue • High level blending growth driven by environmental needs for clean alternative energy • Low level blending growth driven by overall gasoline consumption growth in China 21
Slide 22: Methanol Fuel Blending Growing Outside China
Methanol Fuel Blending Growing Outside China Iceland U.K. Russia Denmark Azerbaijan Netherlands China Alaska U.S. Switzerland Trinidad & Iran Tobago Uzbekistan Israel Turkmenistan Australia Egypt Commercial / near-commercial New Zealand 22 Assessment stage
Slide 23: Emerging Market - Industrial Boilers
Emerging Market - Industrial Boilers Boiler propeller Significant Potential Opportunity in China Environmentally Friendly Tubes inside boiler • reduction of PM, SOX, and NOX Combustion chamber Methanol burner Technology-Ready • burner developed • propeller compatible Economically Competitive • 1/2 m
Slide 24: Demand and Capacity
Demand and Capacity 20.00 • Demand growth expected to outpace 15.00 Traditional Net New China Capacity Millions of Tonnes capacity additions Chemical (Merchant) 1 • Supply growth 10.00 centered in the Other Energy Americas, Iran and New Capacity 5.00 ex-China2 China MTO - Estimated Demand Growth Est
Slide 25: Iran Capacity Additions
Iran Capacity Additions Timing and operations are key supply variables in the short term Iran capacity: • 5 million tonnes current capacity has variable operating rate track record due to gas and marketing constraints and technical issues • Two plants with ~4 million tonnes capacity anticipated in 2
Slide 26: China Supply
China Supply Existing supply fragmented and high cost • 56 MMT capacity Heilongjiang spread over 25 Jilin provinces Xinjiang Liaoning • ~175 plants Inner Mongolia BJ • Plants with capacity TJ Hebei Gansu NX Shanxi Shandong Qinghai > 600,000 tonnes Shaanxi Henan Jiangsu Anhui per annum account Tibet
Slide 27: China Capacity Composition
China Capacity Composition China Capacity by Feedstock Feedstock Industry Total No. of 9% 16% OR Capacity Plants (MMTA) Anthracite 57% 5.5 27 Coal 19% Thermal Coal 73% 30.5 73 56% Coking Gas 47% 10.5 57 Natural Gas 34% 9.1 18 Anthracite Thermal Coal Coke Oven Gas Natural Gas 27
Slide 28: China Methanol Capacity Growth is Slowing
China Methanol Capacity Growth is Slowing KMT China Capacity Additions 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - 2013 2014 2015 2016 2017 E 2018 E • Pace of new capacity additions has slowed down in China due to regulation restrictions. • Project announcements are mostly expansions or with downstr
Slide 29: China Operating Rates Required to Increase
China Operating Rates Required to Increase 2016-2020 Global Supply and China Operating Rate 100,000 70% • China needs to improve 90,000 60% operating rates to meet 80,000 50% increased demand 70,000 60,000 • Limited potential to 40% 50,000 increase lower-cost 40,000 30% coal production by 30,000 20%
Slide 30: China Methanol Cost Curve (Q3, 2017)
China Methanol Cost Curve (Q3, 2017) ~15 million tonnes USD/mt • Substantial cost 320 curve support 300 • High end of curve 280 at $280-320 range 260 • Estimated 240 ~ 15 million tonnes 220 capacity in 200 operation with 180 costs > $260/tonne 160 0 5 10 15 20 25 30 35 Production (million tonnes) So
Slide 31: China Coal Price Historical
China Coal Price Historical Qinhuangdao Coal Price 5500 kcal FOB QHD • Coal prices impact cost curve, 800 but not at highest end 700 • Government announced a China government targeted range of target range RMB/tonne 600 RMB500-570 in January 2017 for 5500 kcal coal FOB QHD 500 • Current prices sligh
Slide 32: Factors Influencing Methanol Price
Factors Influencing Methanol Price Methanol Price Upside Key Price Driver Impact • Higher energy price environment (oil and derivatives; coal) Affordability ↑ • New methanol capacity delays Supply ↓ • Reduced availability of inputs (gas) Supply ↓ • Higher input costs for marginal producers (gas or c
Slide 33: Summary
Summary • Recent price volatility due to fluctuating demand/supply balance as MTO start-ups work through technical issues • Industry fundamentals are strong and demand outlook is robust • Cost curve flattened at higher level, with marginal producers still required to operate • MTO has demonstrated r
Slide 34: Shipping
Shipping Paul Hexter President, Waterfront Shipping Company
Slide 35: Shipping - Agenda
Shipping - Agenda • Waterfront Shipping • Methanol Marine Fuel − Attributes − Environmental Compliance − Methanol Marine Fuel in Use Today − Technology 35
Slide 36: Waterfront Shipping
Waterfront Shipping • Experienced and Knowledgeable Team − Over 200 years experience in the shipping industry − Commercial, operations and technical expertise − Extensive (industry leading) tank cleaning experience − Long term relationships with vendors and customers − Network of brokers/ owners/ ag
Slide 37: Waterfront Shipping Fleet
Waterfront Shipping Fleet MR FLEET 45,000 to 49,500 DWT Class Cabo Negro II Caribbean Spirit Global Spirit Magellan Endeavour Patagonian Mystic Falkanger Finnanger Fjellanger Sabrewing Scarlet Ibis Tamiat Navigator World Navigator Taranger MR FLEET 49,999 DWT Methanol Duel Fuel Engine Class Lindange
Slide 38: Responsible Care® & Quality
Responsible Care® & Quality • Safety Visits – Focused on the human element – Safety culture – Improve life on board • Methanol Group – Share best practices and incidents – Promote safety and learning • Safety Training Programs – Methanol Safe Handling and N2 Training • Industry Participation and Con
Slide 39: Methanol – An Innovative Alternative Fuel of Today and the Future
Methanol – An Innovative Alternative Fuel of Today and the Future
Slide 40: Methanol for Marine
Methanol for Marine Methanol is an innovative alternative fuel solution with many benefits • Safe, environmentally friendly • Low emissions • Cost competitive • Wide availability • Fuel flexibility • Innovative technology • In use today 40
Slide 41: Methanol - Environment, Health and Safety
Methanol - Environment, Health and Safety Methanol is a clear, colourless liquid that quickly and naturally biodegrades • More environmentally benign than conventional marine fuels (i.e. HFO and MGO) • Long history of methanol safe handling • Industry standards established for the safe handling of m
Slide 42: Marine Fuel Emissions Regulations Leading to Phase-in of Cleaner-burning Marine Fuels
Marine Fuel Emissions Regulations Leading to Phase-in of Cleaner-burning Marine Fuels IMO Sulphur Limits – Marpol Annex VI IMO Nitrogen Oxides Limits – Marpol Annex VI Source: IMO IMO limits SOx content of fuel to 0.1% in ECAs. Global sulphur Tier III NOx limits effective in North America in 2016 an
Slide 43: Cost Competitiveness: Fuel
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 Equivalent) $200 D
Slide 44: Wide Availability & Low Infrastructure Costs
Wide Availability & Low Infrastructure Costs Methanol infrastructure already in place and well positioned to reliably supply the global marine industry Methanol Global Terminal Locations North America Methanol Market Methanol global terminal locations based on available information; not a complete l
Slide 45: Fuel Flexibility
Fuel Flexibility Methanol fuel enables shippers to operate cost effectively and diversify fuel options HFO MGO LNG Methanol HFO MGO + scrubbers as fuel LNG as fuel Methanol as fuel + scrubbers as fuel as fuel as fuel
Slide 46: Methanol in Use Today: Waterfront Shipping Tankers
Methanol in Use Today: Waterfront Shipping Tankers The world’s first seven methanol-fueled tankers • Commercial-ready technology • In 2016, Waterfront Shipping launched seven vessels with Taranaki Sun Cajun Sun Mari Jone methanol dual-fuel MAN ME-LGI 2-stroke engines • Multiple ship owners Leikanger
Slide 47: How Are We Doing?
How Are We Doing? Vessel performance and experience • First of its kind technology − Technical improvements • Proven technology that can switch between various fuels and meet industry emission regulations • Successful partner collaboration and investment 47
Slide 48: WFS Vessel Results: Emission Reductions
WFS Vessel Results: Emission Reductions 1 For every hour running on NOx 34% Taking 33 Heavy Duty trucks off the road for methanol, emissions have been (~83kg) one day (NOx) reduced by: Particulate SOx Matter 85% 85% (~47kg) (~6kg) Source: Waterfront Shipping Emission reductions Source: Waterfrontto
Slide 49: Recognitions and Milestones
Recognitions and Milestones Accolades from the marine industry for use of clean-burning methanol 49
Slide 50: Next Steps
Next Steps • Advance learnings • Plans to continue collaborating with shipping partners to further invest in the technology 50
Slide 51: Summary
Summary Positive outlook for methanol marine fuels • Methanol is proven to meet current and future emission regulations • Valuable learnings on solutions to further enhance vessel operating performance and adopt methanol at a commercial scale • Methanol is a competitive alternative marine fuel 51
Slide 52: Manufacturing
Manufacturing Kevin Henderson Senior Vice President, Manufacturing
Slide 53: Manufacturing - Agenda
Manufacturing - Agenda • Commitment to Responsible Care® • Increase in Production Capacity • Global Operations Update 53
Slide 54: 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: − employee health and safety − community safety − environmental protection − product stewardship − social responsibility 54
Slide 55: Responsible Care® Metrics
Responsible Care® Metrics 1 1Recordable Injury Frequency Rate = N ×200,000 Exposure Hours where N = total of (medical treatment plus restricted work plus lost time 55 events).
Slide 56: Responsible Care® Metrics
Responsible Care® Metrics 56
Slide 57: Operational Excellence Initiatives
Operational Excellence Initiatives Responsible Care®: Relentless pursuit of capturing hearts and minds • Responsible Care® is part Continuous improvement in: of our DNA and is a non- negotiable at Methanex • Key education initiatives Personal continue to embed the Environment Process Safety Safety R
Slide 58: Methanex Production Doubled Versus 2010
Methanex Production Doubled Versus 2010 Production Volume – Methanex Share 9.3 (millions of tonnes) 7.7 7.0 5.2 4.9 4.1 4.3 3.5 3.8 Potential* 2010 2011 2012 2013 2014 2015 2016 Capacity Current Full * Current potential = 7.7 mm MT production in North America (2.6); Trinidad (1.7); New Zealand (2.2
Slide 59: Operational Excellence
Operational Excellence • Providing a safe and Methanex Plant Reliability reliable supply of 100% Target: 97% methanol is our key value proposition 90% 80% 70% 60% 50% 2010 2011 2012 2013 2014 2015 2016 H1-17 59
Slide 60: Operations Update
Operations Update Geismar, Louisiana, USA Medicine Hat, Alberta, Canada • 2 facilities, 2 MMT capacity • 600 kMT capacity • Gas supply combination of physical contract, • Gas supply combination of financial financial hedges, and open position hedges and open position • Supplies North America, Europe
Slide 61: Operations Update
Operations Update New Zealand Trinidad • 3 facilities, 2.4 MMT combined capacity • 2.0 MMT (Mx share) capacity • Gas supply is a variety of medium-term • Gas supply from physical contracts physical contracts • Supplies Americas, Europe and • Supplies Asia Pacific Asia Pacific 61
Slide 62: Operations Update
Operations Update Damietta, Egypt Punta Arenas, Chile • 630 kMT (Mx share) capacity • 2 facilities, 1.7 MMT capacity • Gas supply under long-term contract • Gas supply combination of short- • Supplies Europe term contracts • Supplies Latin America and well positioned for all markets 62
Slide 63: Manufacturing Initiatives
Manufacturing Initiatives • Safe − To ensure that we provide security from harm, injury, danger or risk. • Reliable − To ensure that we are consistently trustworthy. We will deliver on our promises. • Sustainable − To ensure we are strongly supported in each country we operate in. 63
Slide 64: Summary
Summary • Responsible Care® is a core component of the Methanex strategy • Focused on safe, reliable and sustainable operations • Investments have more than doubled our production • Quality of the asset base significantly improved – OECD countries and strong gas supply Strong production results prov
Slide 65: Corporate Development
Corporate Development Mike Herz Senior Vice President, Corporate Development
Slide 66: Corporate Development - Agenda
Corporate Development - Agenda • Methanex Strategy and Competitive Advantage • Commitment to Global Methanol Leadership • Approach and Challenges for Growth 66
Slide 67: Methanex Competitive Advantage
Methanex Competitive Advantage • Multiple production sources • Fleet of dedicated methanol ocean vessels • Integrated global supply chain • “Local” customer service • Focus on methanol only – infrastructure, people, safety Quality Reliable Supply = Preferred Methanol Supplier 67
Slide 68: Global Methanol Leadership
Global Methanol Leadership • Focused Strategy – Methanol only • Integrated set of global capabilities • Dedicated to the customer • Competency built over decades Global methanol franchise that would be difficult to replicate 68
Slide 69: Approach to Growth Opportunities
Approach to Growth Opportunities • Grow with the market − We have grown and improved the quality of the business • Chile provides low cost near term growth opportunity • Focused on making disciplined investment decisions − Current project and economic environment is challenging for new builds − Smal
Slide 70: Challenges to Growing in the Methanol Industry
Challenges to Growing in the Methanol Industry Estimated Nominal IRR 1 • Long-term price required Natural gas Realized Methanol Price - $/ tonne for a greenfield project $/mmbtu to reach Methanex 300 350 400 450 return target exceeds 5.0 2% 8% 12% $400/tonne • Other challenges include 4.0 0% 6% 11%
Slide 71: Multiple Growth Opportunities
Multiple Growth Opportunities Near-Term Medium-Term Long-Term Partnering where and when appropriate and M&A when opportunities arise • Active prospecting of Geismar 3 Brownfield other opportunities and leveraging leading global presence Chile I and IV Plant Optimization Ramp-up / Restart Opportuniti
Slide 72: Summary
Summary • Global franchise dedicated to methanol only • Competitive advantage that is difficult to replicate • Commitment to global methanol leadership provides ongoing opportunities • Minimal growth capital beyond Chile for 18+ months Strong franchise provides solid returns to shareholders 72
Slide 73: Finance
Finance Ian Cameron Senior Vice President, Finance & CFO
Slide 74: Finance - Agenda
Finance - Agenda • Methanex Financial Strategy • Financial Results − Significant Increase in Earnings Power • Capital Allocation − Priority for Near-term Excess Cash • Risk Management and Governance 74
Slide 75: Methanex Financial Strategy
Methanex Financial Strategy Continued Focus on Methanol Only Strategy Target Ensure strong liquidity throughout Maintain adequate cash balances methanol price cycle Maintain access to undrawn credit facility Maintain a strong balance sheet Investment Grade Maintain industry leadership position Inves
Slide 76: Capital Structure & Liquidity
Capital Structure & Liquidity Cash (MX Share) At June 30, 2017 307 Undrawn Credit Facility 300 • Strong liquidity position Total Liquidity 607 • Next bond maturity is December 2019 Methanex Bonds • No major growth capital for next 18+ months Due 2019 347 Due 2022 248 • Egypt debt has no recourse to
Slide 77: Leverage – Rating Agency Perspective
Leverage – Rating Agency Perspective Pro Forma Rating Agency Credit Ratios • Leverage target = Investment Grade (US$ billions unless indicated) − Preserves financial flexibility Total Debt 1 − Lowers cost of debt Debt (Q2-17) 1.4 − Access to longer-term bond market, Capital and Operating Leases 2 0.
Slide 78: Improvement to Methanex Earnings Power
Improvement to Methanex Earnings Power H1, 2015 H1, 2017 Average realized methanol price $344/t $347/t Sales of produced product 2.4m tonnes 3.6m tonnes Adjusted EBITDA $226m $441m • Investments in production capacity have doubled volumes since 2010 • Increased volumes result in lower fixed costs pe
Slide 79: EBITDA and Free Cash Flow Capability
EBITDA and Free Cash Flow Capability1 1400 Free cash EBITDA flow yield 1200 Free Cash Flow at $50 millions of dollars 1000 18% share price 800 13% 600 9% 400 200 0 300 350 400 Methanol price (dollars per tonne) 1 Cash Flow before payment of dividend. See 7.7 million tonne production capability scena
Slide 80: Capital Investments
Capital Investments 700 • $2.1 billion invested 600 2012-2017 500 millions of dollars 400 Potential Chile Investment 300 Growth Capital Expenditures 200 Maintenance Capital 100 Expenditures - 2012 2013 2014 2015 2016 2017 FCST 80
Slide 81: Returning Excess Cash to Shareholders
Returning Excess Cash to Shareholders 400 350 300 $1.0 billion returned millions of dollars 250 to shareholders 200 January 1, 2012 to July 26, 2017 150 100 50 0 2012 2013 2014 2015 2016 EST 2017 Dividends Estimated remaining 2017 dividend Share Repurchases Potential purchases under 10% NCIB 81
Slide 82: Risk Management
Risk Management Foreign Exchange • US dollar based business – strong dollar benefits Methanex • Majority of revenues and costs in US dollars (EU net exposure hedged) • Approximately $150 million in local currency costs not actively hedged • Exposure on approximately $100 million in working capital a
Slide 83: Key Corporate Governance Highlights
Key Corporate Governance Highlights Corporate Governance Director Compensation 11 of 12 Independent Directors Required director equity Separate chair and CEO ownership of 2x total annual retainer All Committee members are independent Prohibition on hedging Strong risk and strategy oversi
Slide 84: 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 85: Summary
Summary • Solid balance sheet and liquidity with investment grade target • Cash positive at bottom of cycle pricing • Balanced approach to capital allocation • Strong cash generation capability at a range of methanol prices − Double digit free cash flow yield potential at prices well below 10-year h
Slide 86: Closing Remarks
Closing Remarks John Floren
Slide 87: Key Takeaways
Key Takeaways • Earnings power per share doubled since 2012 • Solid long-term industry growth drivers • Exciting emerging demand applications • Near-term growth opportunity in Chile • Focus on safety and reliability • Strong future cash flows and value creation • Commitment to return cash to shareho
Slide 88: Forward-looking information warning
Forward-looking information warning This Presentation, our Second Quarter 2017 Management’s Discussion and Analysis (“MD&A”) and comments made during the Second Quarter 2017 investor conference call contain forward-looking statements with respect to us and our industry. These statements relate to fu
Slide 89: Thank you
Thank you www.methanex.com linkedin.com/company/methanex- corporation @Methanex