Element Solutions Inc. · NYSE:ESI
Element Solutions — Investor Day (February 2022)
54 slides from Element Solutions's investor day presentation, Feb 24, 2022
Slide 1: Investor Day
Investor Day February 24, 2022 Chemistry Enabling Enabling Sustainable Technology. Growth Growing Sustainably.
Slide 2: Cautionary statement about forward-looking statements
Cautionary statement about forward-looking statements Certain statements in this presentation, the investor day remarks and discussions that follow, including, without limitation, statements with respect to Element Solutions’ (“Element Solutions,” “ESI,” or the “Company”) vision; operating system st
Slide 3: Non-GAAP information
Non-GAAP information This presentation includes information that does not conform to U.S. GAAP and are considered non-GAAP measures, including EBITDA, adjusted EBITDA, adjusted EBITDA margin, incremental EBITDA margin, adjusted earnings per share (EPS), normalized EPS, adjusted common shares outstan
Slide 4: Welcome & agenda
Welcome & agenda ELEMENT OPENING KEY BUSINESS 1 REMARKS 2 SOLUTIONS 3 ATTRIBUTES SINCE LAUNCH OUR 4 COMPELLING 5 TAKEAWAYS 6 Q&A PATH FORWARD 4
Slide 5: Opening remarks
Opening remarks People Performance Potential 5
Slide 6: Element Solutions since launch
Element Solutions since launch Ben Gliklich | President & CEO Chemistry Enabling Enabling Sustainable Technology. Growth Growing Sustainably.
Slide 7: Element Solutions since launch
Element Solutions since launch 2019 2020 2021 LAYING THE COVID CRISIS MANAGEMENT WINNING NOW, FOUNDATION AND NEW MARKET PARADIGMS WINNING LATER ▪ Defining identity, vision and culture ▪ Ensuring business continuity ▪ Capitalizing on recovering ▪ Establishing an organizational ▪ Stress testing our va
Slide 8: Our vision
Our vision ESI strives to be the leading chemical technology solutions provider in three specific, measurable categories Gross Margins 1 VALUE TO CUSTOMERS +100 bps from 2018-20211 Net Promoter Scores Internal Fill Rate OPPORTUNITIES 92% 2 FOR EMPLOYEES positive response rate from Employee Satisfact
Slide 9: Element Solutions operating system
Element Solutions operating system Strategy process standardized across ESI but owned by each business INPUTS TOOLS OUTPUTS Long Term Short Term Our vision Strategic & culture account planning Break-through Annual Detailed empirical analysis - strategic objectives strategic objectives markets, custo
Slide 10: A track record of performance
A track record of performance GROWTH IN EXCESS OF END-MARKETS… AND STRONG INCREMENTAL MARGINS1 $ in millions (YoY Growth %) 2019 2020 2021 $2,400 +190 bps 7.0% CAGR Margin Expansion $1,961 Sales ESI Organic Sales* (4%) (3%) 13% 22% Auto Units (6%) (16%) (1%) 20% Smartphone Units (4%) (6%) 1% $421 7.
Slide 11: Investment & execution driving better business quality
Investment & execution driving better business quality Case studies: multiple paths to value creation Driving profitability through innovation Investing behind profitable growth Value creation through inorganic execution ASSEMBLY SOLUTIONS SEMICONDUCTOR SOLUTIONS INDUSTRIAL SOLUTIONS Increasing % of
Slide 12: ESG in focus
ESG in focus Aligned with our vision ESG IS A KEY PART OF OUR VALUE PROPOSITION – SINCE LAUNCHING ESI WE HAVE IMPROVED TRANSPARENCY AND ALIGNED WITH OUR VISION ESG INVESTMENT RECOGNITION COMMUNITY ENGAGEMENT Ranked #46 out of 2,000 businesses Top 10% of businesses 12
Slide 13: Value creation at ESI
Value creation at ESI ESI MORE THAN DOUBLED ADJ. EPS* IN THREE YEARS $0.25 $1.38 $0.14 $0.06 $0.25 $0.68 1 27% CAGR FY18 Adj. EBITDA* Growth M&A Share Repurchases Balance Sheet and Tax FY21 Optimization SOURCE OF SHARE PRICE PERFORMANCE 2022E FREE CASH FLOW YIELD 257% 6.3% Average 135% 4.5% 119% 91%
Slide 14: Key business attributes
Key business attributes Ben Gliklich | President & CEO Chemistry Enabling Enabling Sustainable Technology. Growth Growing Sustainably.
Slide 15: Key business attributes
Key business attributes 1 Growth: Positioned for profitable growth in new technology markets Defensibility: Sticky consumable products deeply embedded in 2 high-value customer manufacturing processes Diversification: Leadership positions in multiple niche markets with 3 13,000 customers in more than
Slide 16: Positioned for profitable growth
Positioned for profitable growth Robust secular growth drivers Next Generation 20% 5G handset ▪ High reliability, low latency circuit board chemistry to enable next-gen mobile phones and Wireless growth forecast infrastructure ’21-’25 ▪ Fine feature solder paste to enable greater computing power in
Slide 17: Defensibility: deeply embedded in customer supply chains
Defensibility: deeply embedded in customer supply chains Consumable products, qualified through the supply chain Electronics Industrial Solutions Offerings Printed Circuit Fabricators IC Packagers Semiconductor Fabricators Tier 2 and Tier 3 Automotive Suppliers Tier 1 Device Assemblers and Tier 1 Au
Slide 18: Diversified revenue base
Diversified revenue base Our segments ELECTRONICS END-MARKET DIVERSITY ■ ~30% Mobile Devices ■ +$1,500M ■ ~25% Automotive ~20% Medical, Aerospace, and Engineering Assembly Circuitry Semiconductor SALES ■ ~15% Consumer and Other Solutions Sales Solutions Sales Solutions Sales ■ ~10% Data and Telecom
Slide 19: Enabling sustainability
Enabling sustainability Sustainability as a value-driver SUSTAINABILITY Increasing Elimination of Waste / water aligns with ESI’s vision recycled content hazardous materials reduction Customer Improving ~50% value outcomes for of all tin and tin alloys our people sold from sustainable, recycled sour
Slide 20: Strong, stable margins
Strong, stable margins A variable operating cost model VARIABLE COST STRUCTURE PROTECTS PROFIT IN SOFT MARKETS HIGH, STABLE GROSS MARGINS1 VARIABLE OPERATING COST2 MARGIN DURABILITY Stable metals price adjusted gross 15% YoY Change Q2’20 FY20 Metals margins despite COVID volatility and 5% 40% 2021 i
Slide 21: Growing free cash flow and strong returns
Growing free cash flow and strong returns Disciplined growth drives accelerating free cash flow ACCELERATING FREE CASH FLOW* 2021 CASH RETURN ON INVESTMENT (CRI)* $ in millions +$750M FCF generated Adj. EBITDA* Maintenance Capex* over last 3 years $310 - $325 Gross PPE Working Capital 45% $280 $249
Slide 22: Our compelling path forward
Our compelling path forward Ben Gliklich | President & CEO Joe D’Ambrisi | EVP, Head of Electronics Rick Fricke | GM, Semiconductor Solutions Rich Lynch | GM, Industrial Solutions Carey Dorman | EVP, CFO Chemistry Enabling Enabling Sustainable Technology. Growth Growing Sustainably.
Slide 23: Our compelling path forward
Our compelling path forward Focused investment and execution within compelling growth markets Secular 1 2 3 4 growth Vehicle Next generation Rising drivers Sustainability electrification wireless technology Semi intensity 5 6 7 Strong execution Commercial and Market Accretive technical excellence ou
Slide 24: Content opportunity across auto supply chain
1 Content opportunity across auto supply chain Vehicle electrification RAPID ACCELERATION IN EV PRODUCTION PROLIFERATION OF ADAS SENSORS Million EV Units (BEV, PHEV, HEV, Battery Buses & Trucks) $ bn spend on Lidar, Radar, Cameras & Off-Sensor Processing 43 $21 11% 20% $14 $13 CAGR CAGR $12 17 8.7 1
Slide 25: Power electronics
1 Power electronics Vehicle electrification ARGOMAX® POWER ELECTRONICS MARKET GROWTH1 $ in billions ▪ Market leading, uniquely high-performing sintering solution for the power electronics market $25.2 ▪ Lower thermal resistance means market leading acceleration and battery ranges in electric vehicle
Slide 26: Increasing device complexity
2 Increasing device complexity Next generation wireless technology THE ADDITIONAL COMPLEXITY OF NEXT GENERATION WIRELESS TECHNOLOGY REQUIRES SIGNIFICANTLY MORE ESI CONTENT 2021 FLAGSHIP PROCESSOR/ SMARTPHONE PACKAGING MAINBOARD INTERFACE Assembly materials Circuit boards high reliability alloys & pa
Slide 27: 5G is just beginning
2 5G is just beginning Next generation wireless technology WE ARE IN THE EARLY STAGES OF THE ADOPTION AND INVESTMENT IN NEXT GENERATION WIRELESS TECHNOLOGY SIGNIFICANT 5G-ENABLED HANDSET GROWTH 1,150 5G smartphone shipments (millions) 550 750 20% CAGR 15% more value per unit 243 vs. predecessor tech
Slide 28: 5G enables several future market opportunities
2 5G enables several future market opportunities Next generation wireless technology DENSE 5G COVERAGE WILL ENABLE MOBILE, HIGH COMPUTING POWER APPLICATIONS HIGH END FACTORY AUTONOMOUS WEARABLES AUTOMATION MOBILITY AR/VR MOBILE / IOT DEVICES BROADBAND 28 Source: Management estimates
Slide 29: Enabling semiconductor market growth
3 Enabling semiconductor market growth Rising semiconductor intensity DOUBLE-DIGIT GROWTH IN ESI’S KEY SEMICONDUCTOR APPLICATIONS THROUGH 2025 RISING SEMI-INTENSITY ACROSS APPLICATIONS… …DRIVING AN INCREASE IN WAFER PRODUCTION Forecast 2020-2025E growth in semi content per unit Million wafer starts/
Slide 30: “More than Moore” drives electronic integration opportunities
3 “More than Moore” drives electronic integration opportunities Rising semiconductor intensity SEMICONDUCTOR AND CIRCUIT BOARD TECHNOLOGIES ARE CONVERGING… ▪ Increased functionality in constrained space ▪ Lower power consumption ▪ Improved performance at system-level NON-INTEGRATED CHIP PACKAGE ▪ Co
Slide 31: Reducing IS customers’ environmental footprints
4 Reducing IS customers’ environmental footprints Sustainability SUSTAINABILITY IS DRIVING KEY TRENDS IN INDUSTRIAL SURFACE TREATMENT Regulatory compliance 90 OEM approvals Hex-Chrome free +30 current global Compliance with with our leading processes specifically engagements on REACH & China environ
Slide 32: Leveraging our scale with strategic account management
5 Leveraging our scale with strategic account management Commercial & technical excellence LEADING GLOBAL FORTUNE 500 INDUSTRIAL LEADING BRITISH PRECISION AUTO PARTS SUPPLIER TOOL MANUFACTURER ENGINEERING PROVIDER Technical partnership Environmental innovation Leveraging Envio ▪ Established applicat
Slide 33: Increased focus on larger, strategic commercial opportunities
5 Increased focus on larger, strategic commercial opportunities Commercial & technical excellence ACCELERATION IN NEW BUSINESS WINS… $ in millions 2,214 1,823 1,902 $225 40% higher win value $156 $145 20% more wins (#) 20% higher average win size 2019 2020 2021 Annual Value Wins …RECORD NEW BUSINESS
Slide 34: ESI sales growth algorithm
6 ESI sales growth algorithm Market outperformance Medical, Mobile devices Other Data & telecom Consumer END-MARKET Automotive aerospace & Energy & tablets electronics infrastructure packaging engineering BREAKDOWN1 ~30% ~20% ~15% ~5% ~5% ~5% ~20% THROUGH-THE-CYCLE MARKET GROWTH 5% 6% 4% 3% 6% 5% 3%
Slide 35: Demonstrated incremental margin expansion
7 Demonstrated incremental margin expansion Accretive incremental margins ’18-’21 GROWTH Adj. net sales*1 $291M 14% 36% incremental Adj. EBITDA* $104M 25% margin*2 ▪ Product mix shift to margin enhancing electronics categories 30-40% ▪ Operating leverage on higher organic growth outlook incremental
Slide 36: Operational excellence
7 Operational excellence Accretive incremental margins ▪ High-growth markets such as automotive electronics and ▪ Available capacity in existing ▪ Proven track record of streamlining semiconductor packaging contributing above average margins facilities corporate overhead ▪ ESDI focus initiatives are
Slide 37: Organic investment to fuel growth
8 Organic investment to fuel growth Investing behind our market leaders ORGANIC INVESTMENT TO SUPPORT BUSINESSES’ BREAKTHROUGH STRATEGIC OBJECTIVES POWER SEMICONDUCTOR ELECTRONICS GRAPHICS ELECTRONICS APPLICATIONS LAB CUSTOMER (TAIWAN) EQUIPMENT New production line: China applications ~$15M to doubl
Slide 38: Balance sheet strength and flexibility
9 Balance sheet strength and flexibility Capacity for accretive investment and returns HEALTHY BALANCE SHEET SHAREHOLDER RETURNS AS A % OF FCF* Instrument (12/31/21) ($ millions) ($ millions) 2019 2020 2021 Corporate Revolver $0 Buybacks 507 56 20 Term Loans 1,126 Dividends - 12 62 Total First Lien
Slide 39: Framework for deploying excess capital
9 Framework for deploying excess capital Capacity for accretive investments and returns DYNAMIC VALUE-BASED APPROACH TO CAPITAL ALLOCATION Acquisition Available Risk-Adjusted Hurdle Rate Acquisition Returns Consider acquisitions Share repurchases Increase dividend or build cash Premium Discount ESI
Slide 40: Opportunistic, accretive capital allocation since launch
9 Opportunistic, accretive capital allocation since launch Capacity for accretive investments and returns Approx. Expected Business we Value-added to Entry into Capital use Investment ROI1 understand existing customers adjacent market Coventya $500M 11% ✔ ✔ ✔ Kester $65M 40% ✔ ✔ ✔ HKW $50M 15% ✔ ✔ ✔
Slide 41: Case study: entering attractive adjacencies with existing customers
10 Case study: entering attractive adjacencies with existing customers Capacity for accretive investments and returns Thermal Assembly Water Light Metal Materials Treatment Surface Treatment Total Addressable Market + $1bn + $1bn + $600m Acquisition HK Wentworth DMP Coventya 2021 Revenue1 ~$50m ~$20
Slide 42: ESG targets
11 ESG targets Driving sustainability 42
Slide 43: 5-year growth algorithm & targets
5-year growth algorithm & targets Compelling path forward NET SALES ADJ. EBITDA* ADJ. EPS* OPERATIONAL EXCELLENCE AND TARGET TARGET TARGET PRUDENT CAPITAL ALLOCATION ~13% ~3%+ Our Target HSD% 5 Year Adj. EPS* of 2-3% Cumulative Free $2.50 by 2026 5-6% Cash Flow* of at ~13% adj. EPS* CAGR 30-40% 1-2%
Slide 44: Takeaways
Takeaways Ben Gliklich | President & CEO Chemistry Enabling Enabling Sustainable Technology. Growth Growing Sustainably.
Slide 45: Value creation at Element Solutions
Value creation at Element Solutions The path to compounding per share value OUR VISION Value Opportunities Value for for for customers our people shareholders OUR COMPELLING PATH FORWARD Prudent Secular Strong capital growth drivers execution allocation 45
Slide 46: Value creation at Element Solutions
Value creation at Element Solutions Our target Adj. EPS* of $2.50 by 2026 ~13% Adj. EPS* CAGR 46 * Please refer to the appendix for definitions of non-GAAP measures, discussions of adjustments and reconciliations
Slide 47: Appendix
Appendix Chemistry Enabling Enabling Sustainable Technology. Growth Growing Sustainably.
Slide 48: Net income reconciliation to adjusted EBITDA
Net income (loss) attributable to common stockholders reconciliation to adjusted EBITDA ($ millions) Q2 2019 Q2 2020 2018 2019 2020 2021 Net income (loss) attributable to common stockholders $2 $1 $(324) $92 $76 $203 Add (subtract): Net income (loss) attributable to the non-controlling interests (0)
Slide 49: GAAP net income reconciliation to adjusted diluted EPS
GAAP net income (loss) reconciliation to adjusted diluted EPS ($ millions, except per share amounts) FY 2018 FY 2019 FY 2020 FY 2021 Net (loss) income attributable to common stockholders $(324) $92 $76 $203 Net (loss) income from discontinued operations attributable to common stockholders (246) 13 (
Slide 50: Free cash flow & organic net sales growth reconciliation
Free cash flow & organic net sales growth reconciliation ($ millions) FY 2019 FY 2020 FY 2021 Cash flows from operating activities $ 171 $ 276 $ 326 Capital expenditures (30) (29) (46) Disposal of property, plant and equipment 5 2 - Free cash flows $ 146 $ 249 $ 280 Adjustments to arrive at free cas
Slide 51: Cash return on investment (CRI) reconciliation
Cash return on investment (cri) reconciliation (dollars in millions) FY 2021 Adjusted EBITDA* $525 Less: Adjusted EBITDA from acquisitions (13) Adjusted EBITDA used for CRI calculation $512 (a) Total capex $46 Less: 50% growth capex (23) Maintenance capex $23 (b) Total property, plant & equipment $5
Slide 52: Adjusted net sales, gross profit and gross profit margins
Adjusted net sales, gross profit and gross profit margins ($ millions) 2018 2019 2020 2021 Net sales $1,961 $1,836 $1,854 $2,400 Historical adjustment for Assembly metals pass-through price impact 147 149 143 0 Metal price adjusted net sales 2,108 1,984 1,996 2,400 Less: Impact of using constant FX
Slide 53: Non-GAAP definitions
Non-GAAP definitions Adjusted Earnings Per Share (EPS) Adjusted EPS is a key metric used by management to measure operating performance and trends, as management believes the exclusion of certain expenses in calculating adjusted EPS facilitates operating performance comparisons on a period-to-period
Slide 54: Non-GAAP definitions continued
Non-GAAP definitions continued Net Debt to Adjusted EBITDA ratio Net debt to adjusted EBITDA ratio is defined as total debt (current installments of long-term debt, revolving credit facilities and long-term debt), excluding unamortized discounts and debt issuance costs, which totaled $52.3 million,