KRATON PERFORMANCE POLYMERS, INC.

Transcription

1 KRATON PERFORMANCE POLYMERS, INC. BARCLAY S HIGH YIELD BOND AND SYNDICATED LOAN CONFERENCE MAY 21, 2013

2 Forward-Looking Statement Disclaimer This presentation includes forward-looking statements that reflect our plans, beliefs, expectations and current views with respect to, among other things, future events and financial performance. Forward-looking statements are often characterized by the use of words such as outlook, believes, estimates, expects, projects, may, intends, plans or anticipates, or by discussions of strategy, plans or intentions, including statements regarding anticipated stability in feedstock prices and related market demand and other effects; the anticipated costs, capital structure of, and prospects for our joint venture with FPCC, and statements regarding selected 2013 P&L estimates. All forward-looking statements in this presentation are made based on management's current expectations and estimates, which involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed in forward-looking statements. These risks and uncertainties are more fully described in in our latest Annual Report on Form 10-K, including but not limited to Part I, Item 1A. Risk Factors and Part I, Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations therein, and in our other filings with the Securities and Exchange Commission, and include, but are not limited to, risks related to: conditions in the global economy and capital markets; declines in raw material costs; limitations in the availability of raw materials we need to produce our products in the amounts or at the prices necessary for us to effectively and profitably operate our business; competition in our end-use markets, from other producers of SBCs and from producers of products that can be substituted for our products; our investment in the joint venture with FPCC; and other risks, factors and uncertainties described in this press release and our other reports and documents; and other factors of which we are currently unaware or deem immaterial. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made, and we assume no obligation to update such information in light of new information or future events. 2

3 GAAP Disclaimer This presentation includes the use of both GAAP and non-gaap financial measures. The non-gaap financial measures are EBITDA, Adjusted EBITDA, Adjusted EBITDA at ECRC, Gross Profit at ECRC and Adjusted Net Income (or earnings per share). A table included in this presentation reconciles each of these non-gaap financial measures with the most directly comparable GAAP financial measure. We consider these non-gaap financial measures important supplemental measures of our performance and believe they are frequently used by investors, securities analysts and other interested parties in the evaluation of our performance and/or that of other companies in our industry, including period-to-period comparisons. Further, management uses these measures to evaluate operating performance, and our executive compensation plan bases incentive compensation payments on our Adjusted EBITDA and Adjusted EBITDA at ECRC performance, along with other factors. These non-gaap financial measures have limitations as analytical tools and in some cases can vary substantially from other measures of our performance. You should not consider them in isolation, or as a substitute for analysis of our results under GAAP in the United States. For EBIDTA, these limitations include: EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; EBITDA does not reflect changes in, or cash requirements for, our working capital needs; EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; EBITDA calculations under the terms of our debt agreements may vary from EBITDA presented herein, and our presentation of EBITDA herein is not for purposes of assessing compliance or non-compliance with financial covenants under our debt agreements; and other companies in our industry may calculate EBITDA differently from how we do, limiting its usefulness as a comparative measure. As an analytical tool, Adjusted EBITDA is subject to all the limitations applicable to EBITDA. In addition, we prepare Adjusted EBITDA by adjusting EBITDA to eliminate the impact of a number of items we do not consider indicative of our on-going performance, but you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. As an analytical tool, Adjusted EBITDA at ECRC is subject to all the limitations applicable to EBITDA, as well as the following limitations: due to volatility in raw material prices, Adjusted EBITDA at ECRC may, and often does, vary substantially from EBITDA and other performance measures, including net income calculated in accordance with GAAP; and Adjusted EBITDA at ECRC may, and often will, vary significantly from EBITDA calculations under the terms of our debt agreements and should not be used for assessing compliance or noncompliance with financial covenants under our credit agreement. Because of these and other limitations, EBITDA, Adjusted EBITDA and ECRC Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. As a measure of our performance, Gross Profit at ECRC is limited because it often varies substantially from gross profit calculated in accordance with GAAP due to volatility in raw material prices. Finally, we prepare Adjusted Net Income by adjusting net income to eliminate the impact of a number of items we do not consider indicative of our on-going performance, but you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted Net Income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. 3

4 Overview Kraton is the global leader in the styrenic block copolymer (SBC) industry Original inventor of SBC chemistry 50 years ago, with leading market share positions in the end use markets we serve Designer and manufacturer of custom SBC and compound solutions with the broadest portfolio offering in the industry Only SBC producer with true worldwide manufacturing footprint (U.S., Europe, South America, Asia Pacific) Unmatched commitment to customer service and R&D, with over 1,450 patents granted or applied for Kraton is transforming its portfolio through its focus on recently commercialized products and on its pipeline of technologies under commercialization 2012 Revenue by End-Use 2012 Revenue by Geography Advanced Materials Cariflex TM 27% 7% 30% 36% Adhesives, Sealants and Coatings Europe, Middle East & Africa 39% 21% 40% Americas Paving and Roofing Asia Pacific 4

5 What Are SBC s? Primary Raw Materials Products Business Consumer Product/Enduse Styrene Butadiene Un-Hydrogenated SBC s SBS, SIS Hydrogenated SBC s SEBS, SEPS Isoprene Rubber (IR) Paving & Roofing Adhesives, Sealants, and Coatings Advanced Materials Polymer-modified asphalt Tapes, labels, nonwoven adhesives and industrial adhesives Soft Skin, Personal care, IV bags, Medical tubing Isoprene & IR Latex Compounds SBC s, PP + Additives Cariflex TM Medical stoppers, Cold seal adhesives, Surgical gloves, Condoms Kraton is the only provider of these value components across all products touching a wide array of applications 5

6 Leading Market Share Positions Advanced Materials Cariflex TM Adhesives, Sealants, and Coatings Paving and Roofing 2012 Revenue (1) 27% 7% 36% 30% 2017 Revenue (2) 34% 13% 32% 21% Growth (3) 8% 28% 6% 6% Market Position 2011 (2) #1 #1 #1 #1 Kraton Market Share Relative to #2 Competitor (4) 2.2x N/A 2.2x 1.4x Source: Management estimates. (1) Based on 2012 sales of $1,423 million. (2) Management estimate (based on revenue). (3) Industry volume growth from 2001 to 2011, Cariflex growth rate refers to Kraton s Isoprene Rubber ( IR ) and Isoprene Rubber Latex ( IRL ) growth from (4) Management s estimates based upon 2011 sales. 6

7 Kraton s Strategic Focus Portfolio Shift HSBC and USBC portfolio Expand sales of recently introduced innovation grades Accelerate commercialization of new technologies Build upon pipeline of products nearing commercialization Cariflex TM Grow revenue through expansion of customer base and focus on new applications Geographic expansion Emerging markets Asia Pacific 6/30/2012 TTM 2017 Revenue Goal (2) 25% 32% 43% Standard Differentiated Innovation 38% 13% 49% Contribution Margin (1) Goal Relative to TTM Period Standard Differentiated Innovation 1.0x 1.5x 6/30/12 TTM 2017 (1) Contribution margin is Sales Revenue less raw materials (Estimated Current Replacement Cost basis) and other variable costs, before excluding plant fixed and other fixed costs. (2) Includes NEXAR and Oilfield applications 7

8 Kraton Growth Strategies Existing Paving & Roofing Strategy Upgrade the product portfolio through commercialization of specially-designed molecules such as HiMA Bill Davis VP, Paving & Roofing Adhesives, Sealants & Coatings Deepen strategic partnerships with multi-national customers through new, innovative product offerings and continuous portfolio enrichment with HSBC grades Mark Siebert VP, Adhesives, Sealants & Coatings Advanced Materials Continue differentiation by expanding the HSBC portfolio, to capitalize on key market trends such as flexible PVC replacement Michael Oberkirch VP, Advanced Materials Cariflex TM Grow revenue through continued conversion from natural rubber to Cariflex IR latex and further diversification of Cariflex solid IR sales into new markets Richard Brennan VP, IR Products NEXAR TM New Opportunity Leverage the NEXAR platform to expand addressable markets beyond textiles into water processing and HVAC applications Jim Dieter VP, Market Development Oilfield Commercialize a pioneering synthetic cement solution with significant market potential Jim Dieter VP, Market Development 8

9 Drivers of Growth - Cariflex TM Isoprene Rubber and Isoprene Rubber Latex Features & Benefits Anionic polymerization No proteins Low residual metals Low gel content (~0 %) No odor Excellent transparency due to high purity Natural Rubber Cariflex TM IR Ziegler-Natta IR Cariflex IR applications Medical stoppers Septum for IV bags Needle shields Medical shields Cariflex IR Latex applications Surgical gloves Condoms Catheter balloons Cold seal adhesives Self-sticking medical bandages 9

10 Drivers of Growth - PVC Alternatives Cost effective PVC Alternatives for medical, wire & cable, soft touch and coated fabric applications. Features & Benefits Halogen free Phthalate plasticizer free Soft, flexible Easy processability Recyclability Compatible with polypropylene Clean, colorless, odorless Strong USP VI & FDA Position Markets & Application Medical IV bags, medical tubing Wire & Cable Consumer electronics power cord components (UL, VDE, PSE) Auto dashboards and interior panels Coated fabrics (seating applications) 10

11 Drivers of Growth - Nexar TM Polymers Features & Benefits High water flux and transport rates Mechanical strength & ion selectivity Chlorine resistance and low electrical resistance Mechanical strength both wet and dry; good dimensional stability in wet and dry conditions Stable under ambient conditions- no special packaging required Can be applied using current commercial coating and laminating lines Applications Sports and outdoor apparel and gear, military and industrial uniforms and medical and geotextile applications Energy recovery ventilation (ERV) systems Water filtration Water management systems Electro dialysis and electro dialysis reversal 11

12 Drivers of Growth - Kraton TM Polymers in Oilfield Applications Viscosity Modification of Drilling Fluids Shear thinning behavior (low shear rheology) High temperature stability Inherent compatibility with base oils High Temperature/Pressure Fluid Loss Additive High temperature stability Low API fluid loss Modification of Cement Flexibility, reduction of modulus Swelling in the presence of hydrocarbon 12

13 Drivers of Growth - Highly-Modified Asphalt (HiMA) Definition ~7.5% modification vs. 3% typical Superior rutting and cracking resistance 20 40% reduction in pavement thickness Low viscosity polymer modified binder Applications Base and binder courses Thin lift wearing course Micro surfacing Chip seals Bridge decking Recent Successes I-40 Project in Oklahoma Parana, Brazil (Highway PR 092) Bloomington, Michigan Geographic Opportunities Russia South America Canada 13

14 Asia HSBC Project 50/50 joint venture with Formosa Petrochemical Corporation (FPCC) Joint venture agreements with FPCC signed February 27 th Joint venture now consolidated into Kraton financials for reporting purposes Initial capital contributions made by Kraton and FPCC during Q1 13 Working on detailed engineering and financing structure Expect mechanical completion by mid- 2015, plant operation second half of 2015 Kraton will maintain marketing rights for plant offtake Plant location 14

15 Cash Flow Twelve Months ended March 31, 2013 KRA Standalone Consolidated Year Ended December 31, 2012 KRA Standalone Consolidated EBITDA (1) 81,509 81,357 96,972 96,972 Cash interest (35,902) (35,902) (29,303) (29,303) Cash taxes (18,020) (18,020) (19,306) (19,306) Working capital & other items 42,054 42,048 97,970 97,970 Operating cash flow 69,641 69, , ,333 Investing activities (76,902) (76,902) (69,944) (69,944) Beginning cash 233, ,476 88,579 88,579 Free cash flow (7,261) (7,419) 76,389 76,389 JV funding from financing (15,174) 15, Other financing activities (104,138) (104,138) 53,401 53,401 Currency (1,736) (975) 4,797 4,797 Ending cash 105, , , ,166 (1) See reconciliation of net income (loss) to EBITDA in the attached appendix 15

16 Capital Structure March 31, 2013 December 31, 2012 Net Debt and Net Debt to Net Capitalization (1) Kraton cash (1) $ 105,167 $ 223,166 J.V. cash 30,951 - Total cash 136, ,166 Revolver 40,000 - Term Loan - 96,875 Unsecured notes 351, ,142 Total debt 391, ,017 Net debt $ 254,986 $ 224,851 Net Debt $400 $350 $300 $250 $200 $150 $ % 47.0% 42.2% 40.7% 37.9% 39.1% 37.2% 37.0% 37.2% 32.7% 32.1% 31.6% 31.4% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Net Debt to Cap (1) At March 31, 2013, includes $31.0 million of cash in the Kraton Formosa Polymers Corporation joint venture that is not available to the company. In the first quarter 2013, Kraton entered into an aggregate $250 million of revolving credit facilities $150 million U.S. facility, $100 million Dutch facility, subject to borrowing base Secured by receivables and inventory Minimal covenants Paid off former term loan through cash on hand and draw under new revolver Lower funded cost than former senior bank facility 16

17 Current Capital Structure US $ in millions As of March 31, 2013 Amount Maturity Rate Cash (1) $ Debt: Corporate Family Rating Cumulative Debt/ TTM Adj. EBITDA (2) Debt Ratings: S&P / Moody s BB- / Ba3 Senior Unsecured Notes $ Mar % 3.55x B+ / B1 ABL Revolver ($250 million) $ 40.0 Mar 2018 L x Total Debt $ x Net Debt $ x Total Shareholder s Equity $ Total 12/31/2012 $ (1) Excludes $31.0 million of cash attributable to the Kraton Formosa Polymers Corporation joint venture. (2) TTM Adjusted EBITDA is Trailing Twelve Month GAAP EBITDA adjusted for non-recurring and unusual items. See reconciliation of GAAP EBITDA to Adjusted EBITDA, please refer to our Forms 10-Q and 10-K. 17

18 KRATON PERFORMANCE POLYMERS, INC. BARCLAY S HIGH YIELD BOND AND SYNDICATED LOAN CONFERENCE MAY 21, 2013

19 Reconciliation of Net Income (Loss) to EBITDA $ in Thousands Kraton Standalone Consolidated Twelve months ended: Twelve months ended: Twelve months ended: March 31, 2013 March 31, 2013 December 31, 2012 Net income (loss) $ (36,216) $ (36,368) $ (16,191) Add: Interest expense, net 35,902 35,902 29,303 Income tax expense 18,020 18,020 19,306 Depreciation and amortization expenses 63,803 63,803 64,554 EBITDA $ 81,509 $ 81,357 $ 96,972 19

20 Reconciliation of Net Debt and Net Debt to Net Capitalization ($ Millions) Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3 12 Q4 12 Q1 13 Total Debt $384 $384 $383 $383 $400 $396 $394 $393 $492 $490 $448 $448 $391 Less: Cash (1) $12 $39 $72 $93 $36 $67 $46 $89 $233 $228 $202 $223 $105 Net Debt $372 $344 $311 $290 $364 $329 $349 $304 $258 $262 $246 $225 $286 Equity (1) $377 $388 $454 $452 $499 $556 $571 $518 $546 $539 $532 $492 $483 Add: Net Debt $372 $344 $311 $290 $364 $329 $349 $304 $258 $262 $246 $225 $286 Net Capitalization $750 $732 $765 $742 $863 $885 $920 $822 $805 $801 $778 $717 $769 Net Debt to Net Capitalization 49.7% 47.0% 40.7% 39.1% 42.2% 37.2% 37.9% 37.0% 32.1% 32.7% 31.6% 31.4% 37.2% (1) Excludes JV cash and noncontrolling interest beginning in Q1 2013