Slide 1: Welcome to the Elementis Investor and Analyst Day Presentation
Welcome to the Elementis Investor and Analyst Day Presentation May 15, 2012 1
Slide 2: Presenters
David Dutro Brian Taylorson Group Chief Executive Group Finance Director Greg McClatchy Dr Kenneth Smith Clare Doyle President, Specialty Products R&D Director Marketing Director 2
Slide 3: Agenda
Agenda 3.00PM Welcome and Group Overview David Dutro, Group Chief Executive Elementis Specialty Products Greg McClatchy, President, Elementis Specialty Products Dr Kenneth Smith, R&D Director Clare Doyle, Marketing Director Financial Summary Brian Taylorson, Group Finance Director Closing Remarks an
Slide 4: Who is Elementis?
Who is Elementis? $m A Global Specialty Chemicals 150 Company comprising three businesses 100 Group 65% Elementis employs 1300 people at Operating 50 Profit* Specialty more than 30 locations worldwide Products Specialty Products and Chromium 0 chemicals both have sustainable competitive advantage Gr
Slide 5: Chromium
Chromium $ millions 2011 2010 % Change Sales 231.0 209.7 +10% Operating profit 56.1 35.8 +57% Operating margin 24% 17% ROCE* 67% 45% Business model delivering strong earnings and cash flow with reduced volatility • Flexible globally competitive operations • Product portfolio serves diverse markets •
Slide 6: Strategic Diversity in Products and Markets
Strategic Diversity in Products and Markets Markets Applications Drivers • Construction Pigments Roof tiles, asphalt shingles, floor tiles • OEM and military coatings Refractory Redbrick flat glass and fiberglass kilns • Construction Chrome metal Super alloys • Aircraft engines, wind, gas turbines •
Slide 7: Strategic Diversity in Products, Markets and Geography
Strategic Diversity in Products, Markets and Geography Global Chromium Chemical Market (DCS mt) Elementis Chromium 2011 Revenues North Asia America Japan China Industrial Europe Coatings North 31% Europe America Latin Latin America ROW Oil Field Asia America 9% Chrome • Elementis North America marke
Slide 8: Investment in North America Infrastructure
Investment in North America Infrastructure Satellite solutioning facilities Custom built delivery vessels • Elementis satellite facilities are strategically located to service North America tanneries • Significant investments in sophisticated, highly valued product delivery systems • Eliminates need
Slide 9: The Chromium Chemical business is well positioned to deliver stable earnings and cash flow
The Chromium Chemical business is well positioned to deliver stable earnings and cash flow that will be preferentially invested in growing the Specialty Products business. 9
Slide 10: Our goal for Elementis Specialty Products
Our goal for Elementis Specialty Products is to be the fastest growing and most competitive supplier of specialty chemical additives in the world. 10
Slide 11: What is Specialty Products?
What is Specialty Products? Supplies high Rheology and other functional technology additives additives for Coatings and technical service Personal Care rheology and for high performance, other functional additives high growth markets Oilfield rheology for drilling and fracturing 11
Slide 12: Specialty Products Results
Specialty Products Results $ millions 2011 2010 Sales 449.9 410.8 Oil Field Operating profit 89.7 71.8 Oilfield 16% Decorative 16% Operating margin 19.9% 17.5% Coatings ROCE* 43% 36% 23% Personal Care 9% Sales improved by 10%, OP by 24% Improved margin reflects quality of the business Industrial Coa
Slide 13: Specialty Products - Growth Strategy
Specialty Products ‐ Growth Strategy Specialty Products is • By investing in new technology focused on accelerating • By investing in additional sales and profit growth capacity to deliver growth via • New products through delivery of • Growing markets innovative technology • Gaining market share fo
Slide 14: Global Footprint
Global Footprint Headquarters Plants Research Center of Excellence Technical Service % of 2011 32% 32% 36% Revenue 14
Slide 15: Technology Core Competencies
Technology Core Competencies Rheology – Science of Flow • Broadest technology portfolio in business • World leader in organoclay • Intellectual property and Hectorite Surface Active Chemistry • Expertise in dispersing and wetting of pigments/surfaces • Differentiated technology portfolio Polymer Arc
Slide 16: R&D Centres of Excellence
R&D Centres of Excellence EAST WINDSOR, US DELDEN, Netherlands HSINCHU, Taiwan Waterborne Additives Surface Chemistry Industrial Additives Rheology Surface Active Chemistry Adhesion Polymer Architecture Polymer Architecture Polymer Architecture Formulation Skills Formulation Skills Formulation Skill
Slide 17: Rheology - The study of how materials deform and flow
Rheology – The study of how materials deform and flow A= Area [m²] F [N] v= Velocity [m/s] d [m] = Shear Stress = F/A [N/m²] = Shear Rate = v/d [1/s] Area adjusted pulling action Velocity Gradient Shear Stress Viscosity (η) = . Shear Rate 17
Slide 18: Rheology Control through the Coatings Life Cycle
Rheology Control through the Coatings Life Cycle Viscosity Shear Storage & Brushing Brush Leveling Transportation Rolling Loading Sagging Settling Spraying 18
Slide 19: Hectorite Clay - Unique Rheological Additive
Hectorite Clay – Unique Rheological Additive 100000 • Unique particle shape = more surface 10000 area per volume Viscosity (Pa∙s) 1000 • Results in: 100 • Higher Efficiency 10 • High Temp Stability 1 • Wide Chemical Modifications 0.1 0.01 • Colour – Purity allows use across 0.001 0.01 0.1 1 10 100 1
Slide 20: Coatings
Coatings Decorative Industrial 20
Slide 21: Coatings Market Segments
Coatings Market Segments $90bn Special Purpose Global Market Automotive Refinish Additives for Industrial Marine $1.8bn Decorative General Industrial Global Market 40% Powder Coatings Industrial 60% Protective Coil Metal Can Wood Automotive OEM Source: Kusumgar, Nerlfi & Growney, Global Coatings & I
Slide 22: Creating Value in Industrial Coatings
Creating Value in Industrial Coatings Sophisticated markets require high value, high performance additives Customer Challenges • Complex application techniques • Improved coverage with fewer coats • Higher solids formulations • Improved durability Elementis ‐ One Stop Total Solution Provider • Rheol
Slide 23: Creating Value in General Industrial Coatings
Creating Value in General Industrial Coatings Example: Factory applied wood coatings Application Challenge: • Reduce over‐spray • Improve coating consistency Elementis Solution • High shear thinning NiSAT Growth Opportunities • Technology applications in adjacent markets 23
Slide 24: Creating Value in Protective Coatings
Creating Value in Protective Coatings Example: Protective Coating for Bridges Manufacturing Challenge: • Formulas require organic thixotropes as rheological additives • Traditional organic thixotropes are constrained by • Narrow temperature window for activation • Poor Intercoat adhesion Elementis S
Slide 25: Mechanism for Rheology Build
Mechanism for Rheology Build Colloidal Structure of Organic Thixotropes H O R xX N N xX R O H H O R xX N N xX R O H H O N xX R R xX N O H H O R xX N N xX R O H Active structure is fibrillar and Hydrogen bonding is key to building network of very high surface area Rest of polymer influences compatibi
Slide 26: Creating Value in Decorative Coatings
Creating Value in Decorative Coatings High quality, low VOC decorative paints are growth opportunities for Elementis – because it is so difficult Innovative product portfolio with multiple chemistry platforms allow us to create value and gain market share Hectorite opportunities in water borne coati
Slide 27: What's in a Can of Decorative Paint?
What’s in a Can of Decorative Paint? Additives Pigments Foam Control for Deco $1.6bn Wetting Agents Global Surface Modifiers Market Additives Water Dispersants Latex Rheology 27
Slide 28: Sag Flow Performance Balance in Low VOC Coatings
Sag Flow Performance Balance in Low VOC Coatings Global Market $700 million Advertisement HASE Cellulose NiSAT The performance challenge is to deliver great balance of sag resistance and leveling with dependable colour consistency 28
Slide 29: Creating Value in Deco
Creating Value in Deco Example: Improving paint rheology while varying colour pigment loadings in zero VOC coatings Challenges • Consistency in colour properties • Sag and flow balance • Pourable / pumpable additive for use in plants Elementis Solution • New non‐ionic synthetic associative thickener
Slide 30: NiSAT Technology
NiSAT Technology Titanium Dioxide Extender Latex Particle Hydrophobic NiSAT Hydrophilic NiSAT Micelle • Coatings – mixture of pigment, latex and additives • Rheology requires reversible structure formation • NiSAT builds structure through association with latex particles 30
Slide 31: NiSAT Innovations - Unique Capabilities
NiSAT Innovations – Unique Capabilities Hydrophobe – backward integrated (Delden) • Custom, in‐house building blocks • Ability to design new hydrophobes Architecture – unique to Elementis (IP Protection) • Polymer structure unique to Elementis Diluents – backward integrated (Delden) and IP Protectio
Slide 32: Creating Value in Deco: New HASE thickeners
Creating Value in Deco Example: New HASE thickeners to replace older cellulosic technology Challenges • Higher performance per MT • Spatter control • Colour acceptance and stability Elementis Solution • Highly efficient anionic thickener • HASE 32
Slide 33: Innovation Driven Investment
Innovation Driven Investment $15 million initial investment to support North American growth of Water based Rheology and Dispersants Selective Leverage of processes and engineering skills from Europe and Asia plants to ensure quality, safety and timeliness of capital project 33
Slide 34: New Plant Supporting Innovation Model
New Plant Supporting Innovation Model • Plant located in high tech industrial park • Speed to market driven manufacturing model • Supports early adopters of new technology • Plant will produce Rheology and other additives • Provides manufacturing base in North America similar to foundations in Europ
Slide 35: Personal Care
Personal Care Hectorite based products provide a unique foundation for the business • Colour purity • Vegetable derivative ingredients • Easy to use gels Growth from natural, eco‐certified product portfolio • Modified plant seed oils for anti‐ageing, anti‐wrinkle 35
Slide 36: New Hectorite based Rheology Additives
New Hectorite based Rheology Additives Newly introduced Gels with Hectorite, Meadowfoam and Abyssinian Seed Oils For Colour Cosmetics and Skin Care Advertisement 36
Slide 37: New Lanolin Derivatives
New Lanolin Derivatives • LAN AQUA SOL • High end skin care creams • Hydrophilically modified lanolin • Delden assets + Lanolin = high value, differentiated product 37
Slide 38: Oilfield Overview
Oilfield Overview Balanced range Shale – of oil field drilling Fracturing Decorative applications Coatings and Drilling 23% HP‐HT Industrial Drilling Coatings 52% Cold Climate Oilfield 16% Deep Water Personal Conventional Care 9% Based on sales revenue 38
Slide 39: Oilfield Drilling
Oilfield Drilling High Deep Water Temperature / High Pressure Cold Climate HT – HP Drilling Shale Drilling 39
Slide 40: Drilling Rheology
Drilling Rheology Rheology modifiers are required to facilitate the removal of cuttings from the bottom of the drill hole in vertical sections and suspend material for proper flow in horizontal sections and transport 40
Slide 41: Going to Extremes - Focus Segments
Going to Extremes – Focus Segments Trend: the end of Cold “easy energy” Climate We have been working on “adverse environment” R&D challenges for many years ~ 30% of Deep Shale Oilfield sales Water In partnership with Global Drilling Service Providers Multiple capacity High Temp / expansions underway
Slide 42: Value Creation
Value Creation Leverage unique capabilities Know‐How Benefits Delivered High performance for adverse drilling conditions Morphology and circumstances • Bentonite Organoclay • Hectorite Products and Anti‐settling in the drilling Composition mud • Polymers / Others Specific rheology profile over wide
Slide 43: The Challenge of Flat Rheology in Deep Water Rigs
The Challenge of Flat Rheology in Deep Water Rigs Performance Requirement • Flat rheology profile over wide temperature and pressure ranges 27 C Technology Solution • Polymer architecture designed to meet 4C rheology needs • Introduction of biodegradable moieties • System approach – Hectorite + poly
Slide 44: Rheology Challenges in Horizontal Shale Drilling
Rheology Challenges in Horizontal Shale Drilling Performance Requirements • Rheology at high drilling temperatures and suspension of solids through extended distances Technology Solution • Hectorite based organoclay for high temperature drilling • Designed morphology for suspension • Intellectual pr
Slide 45: Global Shale Reserves - Elementis Well Positioned
Global Shale Reserves ‐ Elementis Well Positioned Russia Europe USA & Canada 2 China 1 Africa Argentina Australia 3 Shale Reserve Rank Source: US EIA, World Shale Resources: An Initial Assessment , April 2011 45
Slide 46: Our goal for Elementis Specialty Products
Our goal for Elementis Specialty Products is to be the fastest growing and most competitive supplier of specialty chemical additives in the world. 46
Slide 47: Financial Summary - Return on Capital
Financial Summary – Return on Capital* High return on capital ‐ Low capital intensity 2011 Specialty Products 43% • High margins • Relatively inexpensive capacity expansions • New plant model Chromium 67% • Low initial capital cost • Well maintained / efficient plants • Preferential investment in Sp
Slide 48: Financial Summary - Capital Expenditure
Financial Summary – Capital Expenditure Recent History $m 2009 2010 2011 Group Capital Spending 13.8 14.0 20.8 Depreciation 20.5 21.4 19.9 Going Forward Annual cost Maintenance Capital 10-14 Growth Capital • Capacity expansions 5-10 • New products 5-10 Annual spend rate 20‐25 48
Slide 49: Financial Summary - Working Capital
Financial Summary ‐ Working Capital Sustainable improvements $m in working capital Average working capital to sales ratio reduced to 17.2% in 2011 (2010: 18.0%) 17 – 20% going forward 49
Slide 50: Financial Summary - Cash Taxes
Financial Summary – Cash Taxes Tax rate 2011 2012‐2014 Earnings 30% 30% Cash flow 6% 10‐20% • Stable earnings rate • Cash tax rate increasing to 20% over next 2 years 50
Slide 51: Financial Summary - Free Cash Flow
Financial Summary – Free Cash Flow 2014 Proforma $m 2011 Based on annual EBITDA growth rates of: Actual 5% 10% 15% EBITDA 157 182 209 239 Cash Tax (9) (32) (37) (43) Capital Expenditure (21) (20-25) Working Capital (9) (5-15) Pension, Provisions, Other (26) (25-30) Free Cash Flow 92 85-95 105-115 13
Slide 52: Investment Highlights
Investment Highlights Specialty Products • Positioned for growth • Innovation – new products / new plant • Exposure to high growth markets – Asia / Oilfield / Personal care • Capitalising on trends in Coatings – High performance / Low VOC • Encouraging trends in North America – 22% sales growth in 2
Slide 53: Thank you
ELEMENTIS A global specialty chemicals company Thank you