2Q 2017 Earnings Presentation August 10, 2017/media/Files/A/... · 2Q 2017 Earnings Presentation...

2Q 2017 Earnings PresentationAugust 10, 2017

2Q 2017 Earnings Presentation – August 10, 2017

2Forward Looking Statements

This presentation contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 21E of the Securities Exchange

Act of 1934, as amended. All statements, other than statements of historical fact, that address activities, events or developments that our management intends,

expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements may be identified by words

like "expect," "anticipate," "estimate," “outlook”, "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should" and "believe" or other variations or

similar terminology. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown

risks, uncertainties and other factors, which may cause the actual results or performance of the company to be materially different from any future results or

performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: our inability to achieve some

or all of the anticipated benefits of the spin-off from Honeywell including uncertainty regarding qualification for expected tax treatment, indebtedness incurred in

connection with the spin-off, and operating as an independent, publicly traded company; fluctuations in our stock price; general economic and financial

conditions in the U.S. and globally; growth rates and cyclicality of the industries we serve; the impact of scheduled turnarounds and significant unplanned

downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather

conditions, and natural disasters; price fluctuations and supply of raw materials; adverse trade and tax policies; extensive environmental, health and safety laws

that apply to our operations; litigation associated with chemical manufacturing and our business operations generally; loss of significant customer relationships;

protection of our intellectual property and proprietary information; cybersecurity incidents; failure to maintain effective internal controls; and prolonged work

stoppages as a result of labor difficulties. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date

of this presentation. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may

differ from those envisaged by such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our filings with

the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2016.

Non-GAAP Financial Measures

This presentation includes certain non‐GAAP financial measures intended to supplement, not to act as substitutes for, comparable GAAP measures.

Reconciliations of non‐GAAP financial measures to GAAP financial measures are provided in the appendix of the presentation. Investors are urged to consider

carefully the comparable GAAP measures and the reconciliations to those measures provided. Non-GAAP measures in this presentation may be calculated in a

way that is not comparable to similarly-titled measures reported by other companies.


3Overview

• Continued Strong Results in 2Q17: Sales $361M, Net Income $26M, Cash Flow from

Operations $30M

• Strong Operating Performance and Production Output Across Manufacturing Sites

• Favorable 1H17 Conditions Across Nylon and Intermediates; Nitrogen Fertilizer

Fundamentals Remain Challenging

• 2Q17 Planned Plant Turnarounds Completed Successfully; Expect 4Q17 Planned

Turnaround Impact to Pre-Tax Income of ~$20M

• Global Caprolactam Supply / Demand Dynamics Normalizing with Industry Spreads

Moderating From 1H17 Highs


42Q 2017 Financial SummaryImproved Financial Results Driven by Strong Operational Performance

$308.4 $361.4• Volume +3%, Price +14%

– Raw Material Pass Through +10%, Market Pricing +4%

$34.111.1%

$54.615.1%

• Improved Production Volume and Favorable Market Pricing

• EBITDA Margin Up 400 bps vs. Prior Year

$15.0 $25.8 • Interest Expense $1.9M

$0.49 $0.83• EPS Up 69% vs. Prior Year

• Share Count 31.0 Million (Diluted)

$23.1 $15.0• Cash Flow From Operations $30M

• Capex $15M, ~Flat vs. Prior Year

• Working Capital Timing, Turns Remain Greater Than 20

Comments2Q 2016 2Q 2017($ Millions, Except Per Share Amounts)

Sales

EBITDAMargin %

Net Income

Free Cash Flow

EPS

See Appendix in this presentation for a reconciliation of EBITDA, EBITDA Margin, and Free Cash Flow, which are non-GAAP measures;

Free cash flow = net cash provided by operating activities less capital expenditures


5Nylon Market OutlookGlobal Caprolactam Supply / Demand Dynamics Normalizing

What We’re

Seeing

What We’re

Expecting

Nylon

• Pricing/spreads more regionalized:

tighter supply conditions in NA and

Europe, dynamic China supply

environment

• Price increases more than

covering raws

• North America supply/demand

remains in balance

• Continued dynamic China

supply environment

• Resin pricing continues to track

underlying caprolactam

(1) Sources: Tecnon OrbiChem and PCI Wood Mackenzie

Asia = Caprolactam Asia Import Contract (Taiwan & S. Korea)

Global Composite = Weighted Avg Spreads From U.S., Europe, China, Other AsiaS

pre

ad

($

/MT

)

Key Industry Spreads (1)

2Q17 YoY 2Q17 vs. 1Q17

Global Composite BNZ-CPL 30% (-9%)

Asia BNZ-CPL 31% (-27%)

Asia CPL-Resin 17% (-7%)

0

200

400

600

800

1000

1200

1400

1600

Global Composite BNZ-CPL SpreadAsia BNZ-CPL SpreadAsia CPL-Resin Spread


6Ammonium Sulfate (AS) Market OutlookAS Pricing Stable Sequentially; Nitrogen Fundamentals Remain Challenging

What We’re

Seeing

What We’re

Expecting

Ammonium Sulfate

• Global urea supply additions

continue to pressure nitrogen

pricing

• Nitrogen demand impacted by

low global grain pricing

• Late planting season demand

tailing off

• Tough agriculture fundamentals

for 2017 / 2018 planting season

• Cautious buying behavior ahead

of new season fill

• Sustain AS value proposition on

sulfur nutrition

(1) As reported in Blue, Johnson

Key Industry Prices (1)

Avg

Corn

Belt A

S p

rice

(gra

nula

r $/s

ton

N c

onte

nt

basis

)

2Q17 YoY 2Q17 vs. 1Q17

Corn Belt Granular AS 0% 1%

Corn Belt Urea (-15%) (-22%)

Avg

Corn

Belt U

rea p

rice

($/s

ton

N c

onte

nt b

asis

)

300

400

500

600

700

800

600

800

1000

1200

1400

1600

Jan

-16

Fe

b-1

6

Ma

r-16

Ap

r-16

Ma

y-1

6

Ju

n-1

6

Ju

l-16

Au

g-1

6

Se

p-1

6

Oct-

16

No

v-1

6

Dec-1

6

Jan

-17

Fe

b-1

7

Ma

r-17

Ap

r-17

Ma

y-1

7

Ju

n-1

7

Avg Corn Belt AS price (granular $/ston N content basis)

Avg Corn Belt Urea price ($/ston N content basis)


7Chemical Intermediates Market OutlookStable End Market Environment

What We’re

Seeing

What We’re

Expecting

Chemical Intermediates

• Phenol / Acetone demand

steady; Industry turnaround

activities tighten supply

• Refinery grade propylene (RGP)

input price up significantly in 1H17

• Stable North America market

environment

• Acetone supply/demand in

balance

Key Industry Prices (1)

Cen

ts p

er

Po

un

d(1) As reported in IHS Markit

2Q17 YoY 2Q17 vs. 1Q17

Acetone, Large Buyer 42% (-6%)

Refinery Grade Propylene 43% (-13%)

0

20

40

60

Acetone, Large Buyer Refinery Grade Propylene


8Operational ExcellenceDriving Higher Uptime, More Stable Production and Higher Returns

• 1H17 Production Up 7% vs. Prior Year and 9% Above 2012-2015

Average

– Continuing to Benefit from Upgrades and Reliability Improvements

• Driving Maturity of our Mechanical Integrity Programs,

Turnaround Excellence

– Focused Maintenance Capex Drives More Stable Production, Higher Returns

– Critical Equipment Initiative Enhances Long-Term, Reliable Supply Position

• 2017 Planned Turnarounds Expected to be In-Line with Historical

Levels in Total

– Turnarounds Key to Safe, Sustainable and Improved Operations

– 2Q17 Turnaround Completed on Time and on Budget

– 4Q17 Turnaround: Expect ~$20M Impact to Pre-Tax Income

2012-2015 Avg 1H16 1H17

Annualized Plant Production

Frankford Annual Capacity: 1.1B lbs Phenol

Hopewell Annual Capacity: 795M lbs Caprolactam

Chesterfield Annual Capacity: 440M lbs Nylon 6 Resin


92H 2017 FrameworkContinued Strong Plant Production, Monitoring Market Pricing

Nylon Spreads• North America supply/demand remains balanced

• Potential capacity adds in China

Ammonium Sulfate Pricing• Seasonal demand to drive pricing

• Higher export volume 2H17 vs. 1H17

Raw Materials• Movement in oil-based raw materials impacts top-line

• ~50% of sales covered by formula price agreements

Operations• Continued high utilization rates

• 4Q17 planned turnaround impact to pre-tax income of ~$20M

Capital Expenditures• 1H17 capex ~$48M, continue to expect ~$90M FY17

• Elevated HSE spend

2H17 vs. 1H17 Expectations


10Summary

• Strong Sales, Production, Earnings and Cash Flow in 1H17

• Favorable 1H17 Nylon and Intermediates Environment, While Nitrogen Fertilizer

Fundamentals Remain Challenging

• Driving Maturity of our Mechanical Integrity Programs, Turnaround Excellence

• Sustainable Low-Cost Position, Higher-Value Product Mix Supports Outperformance


11

Appendix:

Reconciliation of non-GAAP

Measures to GAAP Measures


12Reconciliation Of Net Cash Provided By Operating

Activities To Free Cash Flow

(in $ thousands)

Three Months Ended June 30, Six Months Ended June 30,

2017 2016 2017 2016

Net Cash Provided by Operating Activities $ 29,586 $ 37,812 $ 60,792 $ 41,853

Expenditures for Property, Plant and Equipment (14,571) (14,666) (47,785) (39,292)

Free Cash Flow (1) $ 15,015 $ 23,146 $ 13,007 $ 2,561

(1) Free Cash Flow is a non-GAAP measure and defined as Net Cash Provided by Operating Activities less Capital Expenditures

The Company believes that this metric is useful to investors and management as a measure to evaluate our ability to generate cash flow from business operations and

the impact that this cash flow has on our liquidity.


13Reconciliation Of Net Income To EBITDA

(in $ thousands)Three Months Ended June 30, Six Months Ended June 30,

2017 2016 2017 2016

Net Income $ 25,766 $ 15,008 $ 53,059 $ 42,402

Interest Expense 1,873 — 3,412 —

Income Taxes 15,317 9,213 32,265 25,370

Depreciation and Amortization 11,663 9,869 22,959 19,657

EBITDA (2) $ 54,619 $ 34,090 111,695 87,429

Prior Year One-Time Benefit (3) — 15,500

EBITDA Excluding Prior Year One-Time Benefit $ 111,695 $ 71,929

Sales $ 361,441 $ 308,418 $ 738,145 $ 608,248

EBITDA Margin (4) 15.1% 11.1% 15.1% 14.4%

EBITDA Margin Excluding Prior Year One-Time Benefit 15.1% 11.8%

(2) EBITDA is a non-GAAP measure and defined as Net Income before Interest, Income Taxes, Depreciation and Amortization

(3) Prior Year One-Time Benefit reflects the $15.5 million one-time benefit in 1Q 2016 related to the termination of a long-term supply agreement

(4) EBITDA Margin is defined as EBITDA divided by Sales

The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the

Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and

performance relative to its competitors, as these non-GAAP measures exclude items that are not considered core to the Company’s operations.

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