Westlake Chemical Corporation

Transcription

1 Westlake Chemical Corporation Credit Suisse Chemical Conference September 18, 2008

2 SAFE HARBOR LANGUAGE This presentation may include forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, reflecting management s current analysis and expectations, based on reasonable assumptions. Results could differ materially depending on such factors as business climate, business performance, economic and competitive uncertainties, ability to execute work process redesign and reduce costs, failure to complete transactions or to achieve benefit from transactions, higher manufacturing costs, change in strategies, reduced level of customer orders, risks in developing new products and technologies, adverse legal and regulatory developments including increases in the number or financial exposures of claims, lawsuits, settlements or judgments, or the inability to eliminate or reduce such financial exposures by collecting indemnity payments from insurers, environmental and safety regulations and clean-up costs, foreign exchange rates, and adverse changes in economic and political climates around the world. Accordingly, there can be no assurance that the Company will meet future results, performance or achievements expressed or implied by such forwardlooking statements. As appropriate, additional factors are contained in reports filed with the Securities and Exchange Commission. This paragraph is included to provide safe harbor for forward-looking statements, which are generally not required to be publicly revised as circumstances change. Investor Relations Contact Steven Bender Sr. Vice President, Chief Financial Officer & Treasurer Westlake Chemical Corporation 2801 Post Oak Boulevard, Suite 600 Houston, Texas

3 AGENDA Who We Are Westlake s Proven Track Record Outperforming Peers over the Cycle Financially Disciplined Investment Conclusion 3

4 $ 3.7 Billion Integrated Polymers Materials Company Westlake Chemical Corporation (LTM 2nd Qtr 2008) Sales EBITDA (1) Net Income $ 3.7 billion $ 280 million $ 110 million Olefins Vinyls $ 2.6 billion 70% Sales % of Total $ 1.1 billion 30% (1) Non-GAAP financial measure MISSION profitable growth in businesses we understand globally in areas we can gain an edge in a disciplined and opportunistic manner 4

5 VALUE CREATION TRACK RECORD HIGHER GROWTH vs PEERS OVER TWO DECADES Capacity (mm lbs) Committed to Profitable Growth not just one without the other Revenue ($ mm) 12,000 $3,500 10, WLK CAGR Revenue 17.0% CAGR Capacity 16.0% Olefins Revenues Vinyls $3,000 8,000 Peer A Peer B Peer C 6.1% 6.0% 6.4% 3.2% 4.2% 5.1% Growth $2,500 $2,000 6,000 $1,500 4,000 $1,000 2,000 $500 0 $ * Note: Estimate from A- NCX; B-GGC; C-Dow 5

6 AGENDA Who We Are Westlake s Proven Track Record Higher Operating Rates Outperforming Peers over the Cycle High level of Integration Financially Disciplined Favorable Product Mix Investment Conclusion 6

7 HIGHER OPERATING RATES VS PEERS, PARTICULARLY IN TROUGH YEARS Ethylene Operating Rates (1) Westlake Advantage over Industry Peers 100 Industry Westlake Operating Rate Advantage vs. Peers %, operating rate year, avg. ( ) 3.2% 70 Trough Years, avg. ( ) 4.3% Higher operating rates, particularly in trough years Operating culture; execution; integration; newer assets Source: CMAI and Westlake (1) Includes the impact of Hurricane Katrina and Rita in

8 HIGHER OPERATING RATES VS PEERS, PARTICULARLY IN TROUGH YEARS PVC Operating Rates Westlake Advantage over Industry Peers 100 Industry Westlake Operating Rate Advantage vs. Peers %, of operating rate year, avg. ( ) Trough Years, avg. 4.9% 9.0% 70 ( ) Source: CMAI and Westlake Higher WLK operating rates, particularly in trough years Operating culture, execution, integration 8

9 SUPERIOR AGE AND COMPETITIVENESS OF OUR ETHYLENE PLANTS North American Ethylene Plants - Site Age and Capacity Small but New Large and New - Desired! Westlake LC 15 Average Age (yrs) Small and Old Large but Old (Most N. Amer. Crackers) ,000 10,000 Capacity (mm lbs) 2000 Westlake is well positioned with modern and up to date ethylene plants Many North American plants of competitors were built pre-1980 Source: CMAI 9

10 OLEFINS INTEGRATION CAPTIVE ETHYLENE PRODUCTION Before Longview Acquisition: Long Ethylene Current: Full Utilization of Ethylene Ethylene 2.85 billion lbs 90% CAPTIVE PRODUCTION Merchant, 10% Polyethylene, 53% 1.5 billion lbs Styrene, 5% 0.5 billion lbs VCM, 32% 1.9 billion lbs Purchased Ethylene, 17% Polyethylene, 70% 2.5 billion lbs Ethylene Styrene, 4% 2.95 billion lbs 0.5 billion lbs 100% CAPTIVE PRODUCTION VCM, 26% 1.9 billion lbs Improved level of integration Positioned for the cycle; can curtail ethylene purchases yet run Westlake plants at high rates Opportunity to debottleneck in the future Enhanced margin stability; higher profits 10

11 WESTLAKE S FAVORABLE PRODUCT MIX in POLYETHYLENE vs. PEERS Westlake s PE Business Is Favorably Weighted to LDPE vs. North American Peers Westlake Koch Industries LyondellBasell Among the highest LDPE product mix percentage in U.S. and Canada Dow ExxonMobil ChevronPhillips NOVA 0% 20% 40% 60% 80% 100% Source: Chemical Data, Inc. 11

12 WESTLAKE S FAVORABLE POLYETHYLENE PRODUCT MIX vs. PEERS 2007 Global Industry Demand (% share) HDPE, 45% Total Capacity: 171 billion pounds Source: CMAI LDPE, 26% LLDPE, 29% Westlake Capacity (% share) LLDPE, 33% HDPE, 5% LDPE, 62% cents/ lbs LDPE More Profitable, Particularly In Trough Years Average Margin Advantage of LDPE vs. other PE Grades 3.7 LDPE vs. LLDPE 2.8 LDPE vs. HDPE Before 4.1 LDPE vs. LLDPE 3.3 LDPE vs. HDPE Trough Years Total Capacity: 2.5 billion pounds 12

13 HIGH LEVEL OF INTEGRATION IN VINYLS SEGMENT Purchased Chlorine Merchant Sales Chlor-Alkali Caustic Soda Vinyls Segment Caustic Soda Chlorine Expansion underway Ethylene Dichloride (EDC) Vinyl Chloride Monomer (VCM) Polyvinyl Chloride (PVC) Expansion underway PVC Fabricated Products Expansion underway Fabricated Products PVC Ethylene VCM 13

14 VINYLS INVESTMENT DELIVERS INTEGRATION BETTER THAN PEERS Ethylene Chlorine VCM PVC Fab. Products Westlake Chlorine and PVC expansions complete Vinyls chemical integration PVC Pipe #1 or #2 in areas served 985 mm lbs. of annual capacity Westlake focuses on large diameter pipe which has better margins Westlake capacity is 80% nonresidential PVC pipe is protected from imports due to transportation barriers Fence, Deck and Railing # 2 producer in North America 65mm lbs. of annual capacity Doors and Window Profiles 47mm lbs. of annual capacity 14

15 STRONG MARKET SHARE IN PIPE North American Pipe Corporation Locations Vinyl Pipe Plant Locations Vinyls Chemical Sites: Calvert City, KY; Geismar, LA 15

16 VINYLS CHINESE FOOTPRINT, UNLIKE MOST PEERS Suzhou Huasu Plastics Company markets PVC resin and film products to both domestic and export markets, while exporting the Window profiles to North American markets Established 1992, J.V. with Westlake and Ineos. Westlake has approximately a 60% share in the Joint Venture Located in Suzhou, Jiangsu Province, China - Operations include: 300 million lbs PVC resin plant 145 million lbs calendering facility 22 million lbs window profiles 16

17 AGENDA Who We Are Westlake s Proven Track Record Outperforming Peers over the Cycle Financially Disciplined Polyethylene Well- Positioned Feedstock Flexibility Investment Conclusion 17 Gas Based Ethylene Improved Integration

18 INDUSTRY GLOBAL POLYETHYLENE ADDITIONS FOCUSED ON LLPDE AND HDPE, NOT ON LDPE LDPE LLDPE HDPE 5% Incremental Change/Total Capacity (%) 4% 3% 2% 1% 0% However, Westlake is focused on LDPE, a product for which: - Capacity in the U.S. is not being expanded - North American supply and demand is balanced - New additions intended to primarily serve Asian & European markets Source: CMAI 18

19 BENEFITS OF AUTOCLAVE LDPE vs. TUBULAR LDPE Autoclave LDPE (WLK Focus) Market Focus: More Specialty Suitability for Niches: High Tubular LDPE More Commodity Much Less Product Mix Broad (desirable) Narrow Product to Product Transition: Efficient Costly Competitive Dynamics: Global Capacity Additions None Geographic Focus for New Additions: Not Applicable Moderate Asian & European Markets Autoclave Advantage: With no new autoclave capacity coming online and an aging reactor base, supply/ demand balance for autoclave will grow tighter. Westlake s autoclave reactors are larger and newest in North America, providing strong margins for many years. 19

20 WESTLAKE FOCUSES ON MORE ON DESIREABLE AUTOCLAVE LDPE REACTORS World LDPE Mix Westlake LDPE Mix 54% 46% 20% 80% Tubular Autoclave Tubular Autoclave, Specialty & Epolene Source: CMAI, 2007 Westlake Key Product Lines Autoclave LDPE and our Specialty Polymers Key Markets Food Packaging, Extrusion Coating, Protective Packaging, Shrink Wrap 20

21 LAKE CHARLES FEEDSTOCK FLEXIBILITY TO HELP OPTIMIZE MARGINS Westlake has enhanced flexibility to switch ethylene feedstocks, since no one feedstock is always advantaged Ethylene Margin Trend for Light and Heavy Feed Crackers the U.S. Forecast cents/lb E 2010E 2012E Naphtha cash margin Ethane cash margin Source: CMAI 21

22 LAKE CHARLES FEEDSTOCK FLEXIBILITY RANGE When Gas Advantaged vs. Oil Gas-Flexible Lake Charles Feedslate Capability (% volume) Propane 14% Butane 1% Oil Advantaged vs. Gas Liquid-Flexible Lake Charles Feedslate Capability (% volume) Light Naphtha 21% Naphtha 25% 2008E U.S. Feedslate (% volume) Gas oil 6% Butane 5% Propane 5% Ethane 85% Ethane 74% Propane 22% Ethane 42% Source: CMAI Forecast No one feedstock is always advantaged Feedstock Flex Project completed in 2007 Feed-Flex improves cycle average margins and reduces earnings volatility Benefits also include: Energy cost reduction 100 MM lbs capacity increase 22

23 SUPERIOR PROFITABILITY AND GROWTH OVER THE CYCLE Capacity (mm lbs) Volume Growth and Improved Integration Reduced per pound Energy Consumption Asset Enhancement Olefins Expansion Vinyls Expansion Capacity prior to Expansion 13,000 12,000 11,000 10,000 EBITDA Growth over the Cycle Eastman PE Acquisition Feed Flex Project Chlor-Alkali PVC Resin PVC Pipe Expansions Chlor-Alkali Expansion 9,000 8,000 Chlor-Alkali Expansion Geismar Acquisition Bristol Pipe Acquisition 7, /

24 AGENDA Who We Are Westlake s Proven Track Record Outperforming Peers over the Cycle Financially Disciplined Superior EBITDA Margins Investment Conclusion 24 Strong Balance Sheet Disciplined Investment Culture

25 VALUE CREATION TRACK RECORD - SUPERIOR MARGIN AND ROCE vs. PEERS OVER CYCLE Adjusted EBITDA Margin (1) Return on Capital Employed (ROCE) (2) Range from FY 2003 to FY % 40% 15% 30% 29% 10% 20% 16% 5% 10% 0% Trough Years 0% 6% WLK 4% Peers Avg Westlake Peers (1) Adjusted EBITDA is EBITDA adjusted for restructuring charges and outages (WLK) (2) Return on capital employed (ROCE) is defined as operating income (adjusted for restructuring charges) divided by average capital employed. Peers include: DOW,GGC, NCX 25

26 SUPERIOR BALANCE SHEET Actual Capitalization ($ millions) June 30, 2008 Net Debt / EBITDA LTM 2008 Q2 Long-term debt, incl. current portion 6.625% senior notes due % senior notes due Other debt 50 Total Debt x 40.2x Less: Cash 22 Restricted Cash x 2.2x Total Net Debt x 1.4x Stockholders equity 1,334 Total capitalization 1, x DOW WLK NCX GGC Debt to Capitalization 29% Net Debt To Capitalization 22% 26

27 CAPITAL SPENDING: DISCIPLINED INVESTMENT CULTURE 98~ 07 Average Maintenance Discretionary Subtotal % of Sales 2.7% 5.6% 8.3% % of Depreciation 50.8% 103.0% 153.8% $450 Total CAPEX as % of Sales 50% CAPEX ($ million) $400 $350 $300 $250 $262 $307 $216 A cquisit ion s Discr et ion ar y Maintenance $391 $ % 30% CAPEX as % of Sales $200 20% $150 $121 $135 $100 $79 $77 $86 $86 10% $50 $29 $44 $45 $0 '95 '96 '97 '98 '99 '00 '01 27 '02 '03 '04 '05 '06 '07 '08 E 0%

28 INVESTMENT CONCLUSIONS TRACK RECORD OF OUT-PERFORMING PEERS Focused, best-in-class plastics producer Disciplined operating philosophy, with matching track record COMPETATIVE ADVANTAGES ARE GETTING STRONGER Integration of assets Feedstocks; Geography WESTLAKE SPECIFIC INITIATIVES: AN ONGOING FEATURE Acquisitions, debottlenecks, advantaged greenfield plants A long history of investing prudently CULTURE OF CREATING VALUE, WHILE RETAINING FINANCIAL FLEXIBILITY TO FUND OUR GROWTH STRATEGY Strong financial discipline Financial Flexibility 28

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30 APPENDIX

31 APPENDIX Reconciliation of EBITDA to Net Income (Loss) and to Cash Flow from Operating Activities (in $ Thousands) LTM Q Adjusted EBITDA 160, , , , , ,953 Debt Retirement Cost (11,343) (15,791) (646) (25,853) - - EBITDA 149, , , , , ,953 Less: Income Tax (provision) benefit (8,747) (69,940) (118,511) (87,990) (44,228) (35,801) Interest expense (38,589) (39,350) (23,717) (16,519) (18,422) (28,149) Depreciation & Amortization (87,293) (81,075) (81,241) (86,262) (103,514) (106,176) Net Income 14, , , , , ,827 Changes in operating assets and liabilities 56,219 (35,129) 45,885 28,773 (57,849) (89,843) Deferred income taxes 7,112 65,188 45,745 13,852 5,286 (43) Cash flow from operating activities 78, , , ,184 62,166 19,941 31