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8-K - FORM 8-K - Kraton Corp | d8k.htm |
Business and Financial
Overview March and April 2010 Exhibit 99.1 |
Disclaimers 2 Forward-Looking Statements This presentation may include 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 believes, estimates, expects, projects, may, intends, plans or anticipates, or by discussions of strategy, plans or intentions. All forward-looking statements in this presentation are made based on management's current expectations and estimates, which involve risks, uncertainties and other factors that could cause actual results to
differ materially from those expressed in forward-looking statements. Readers are cautioned
not to place undue reliance on forward-looking statements. We assume no obligation to update
such information. Further information concerning issues that could materially affect financial
performance related to forward-looking statements can be found in our periodic filings with
the Securities and Exchange Commission. GAAP Disclaimer This presentation includes the use of both GAAP (generally accepted accounting principles) and non-GAAP financial measures. The non-GAAP financial measures are EBITDA and Adjusted EBITDA. The most directly comparable GAAP financial measure is net income/loss. A reconciliation of the non-GAAP financial measures used in this presentation to the most directly comparable GAAP measure is included herein. We consider EBITDA and Adjusted EBITDA important supplemental measures of our performance and believe they are frequently used by investors and other interested parties in the evaluation of companies in our industry. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results under GAAP in the United States. |
3 Investment Highlights Leadership Clear leader in the fast growing, attractive SBC market Scale Approximately twice the size of our largest competitor in each of our end-use markets The only producer with a global footprint and service capabilities High Barriers to Entry Patented technology, custom designed product, process excellence, global reach and customer relationships create strong competitive position that cannot be matched by existing or potential competitors Kraton, therefore, commands price premiums in the market Innovation Most-productive innovator of new SBC products, often engineered to meet a specific customer need Earnings Growth Driven by cost initiatives, economic recovery, return to normal customer inventory levels and new product introductions Meaningful operating leverage Experience Strong leadership team demonstrating continuous improvement in productivity, innovation and margin improvement even in a difficult macroeconomic environment
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4 Experienced Management Team Name Title Previous Experience Years Industry Experience Dan Smith Chairman of the Board Lyondell 40 Kevin Fogarty President & CEO Koch (Invista) 18 Steve Tremblay Chief Financial Officer Vertis 9 David Bradley Chief Operating Officer General Electric (Lexan) 17 Lothar Freund Research & Technical Services Hoechst AG (Invista) 20 |
5 Kraton Overview We design and manufacture customized SBC neat resin and compound solutions to meet our leading customers specific innovation needs We currently offer approximately 800 products to more than 700 customers, in over 60 countries We are organized around four distinct markets, or end-uses, providing industrial, consumer and geographical diversification second to none We employ approximately 800 people in 15 locations in all major regions of the world 2009 operating revenue of $968 million and 2009 Adjusted EBITDA of $91 million (1) Sales revenue excludes by-products sales (2) Adjusted EBITDA is GAAP EBITDA excluding sponsor fees, restructuring and related charges, non-cash
expenses, and the gain on extinguishment of debt. A reconciliation of net
income or loss to EBITDA and Adjusted EBITDA is presented in the Appendix. 2009 Sales Revenue (1) by End-Use 2009 Sales Revenue (1) by Geography North and South America Europe, Middle East & Africa Asia Pacific Paving and Roofing Adhesives, Sealants and Coatings Footwear and Other Emerging Businesses Advanced Materials We are the worlds leading innovator of Styrenic Block Copolymers (SBCs) |
6 Before Kraton After Kraton Kraton Makes Products Better Product Issue Stretch in legs only (Spandex) Not a fitted garment High leakage rate Overall improvement in stretch (where its needed) Better fit Low leakage rate Kraton market share: 47% 2001 2007 CAGR: 11.4% Elastic Films for Disposable Diapers Kraton as % of Diaper cost: <2% Phthalate plasticizers are used to make PVC soft. However, plasticizers can leach from finished products and create health concerns Limited recyclability Vinyl Chloride polymers are unsafe when burned or incinerated improperly Fully recyclable Kraton imparts softness, toughness and clarity Plasticizers & chlorine free Product Issue Kraton as an alternative for soft PVC Kraton as % of finished product cost: <5% |
7 SBCs Are a Growth Industry SBC Industry Volume (KT) (1) SBCs Grow Faster Than GDP While SBC applications grow at GDP, the adoption of SBCs into new applications leads to ~2x GDP industry growth Low cost relative to value add / performance Limited substitution risk Rising incomes in developing economies Innovation and new SBC product introductions End use application growth (e.g., cell phone covers, PVC replacement, IV bags) Growing demand for green alternatives to electronics, medical and baby care markets (1) Excludes footwear segment in which Kraton does not actively compete. Source: Management Estimates |
8 Clear Leader in Attractive Markets Market position 2009 Revenue (1) #1 64% Adhesives, Sealants, and Coatings Advanced Materials #1 75% Paving and Roofing #1 74% Emerging Businesses #1 100% 32% 31% 26% 7% 2.6x 2.2x 1.9x 6.1x Source: Management estimates (1) Based on 2009 sales of $920.4 million (excludes by-product sales which are reported as other
revenues) (2) Industry growth from 2001-2008; however, IR Latex growth is Kraton growth from 2007-2009 (3) Managements estimates vs. next largest competitor based on 2008 sales #1 Market Position and Approximately Twice the Size of Our Closest Competitors Top 4 market share Kraton market share relative to #2 competitor (3) Growth (2) 5.2% 8.0% 7.1% 28.8% |
9 Unparalleled Global Manufacturing and Service Capability Location Capability Kraton Capacity Houston, Texas Global Headquarters & Innovation Center Not applicable Belpre, Ohio Manufacturing 189 kt Wesseling, Germany Manufacturing 95 kt Berre, France Manufacturing 87 kt Paulinia, Brazil Manufacturing & Innovation Center 28 kt Kashima, Japan Manufacturing Joint Venture 20 kt Amsterdam, The Netherlands Innovation Center Not applicable Mont St. Guibert, Belgium Technical Service Office Not applicable Shanghai, China Customer Service & Technical Center Not applicable Tskuba, Japan Innovation Center Not applicable High quality customer base Majority of top customers have 15+ year relationship Blue chip customer base in the consumer products, packaging, medical supplies, construction and textile industries Several key customer relationships are sole source Well diversified customer base |
10 Sustainable Competitive Advantages Over 40 years of process know-how and expertise Performance-critical products and manufacturing complexity Technical Barriers Globally recognized brand KRATON ® Industry-leading R&D infrastructure Global low-cost manufacturing footprint Significant regulatory hurdles / barriers to new manufacturing sites Stable raw material base with multiple sources of supply and contract / relationships Infrastructure Barriers Superior and Innovative Products + High Customer Switching Costs + Long-Term Customers Relationships = Leading Market Position Products designed collaboratively to meet specific customer needs / applications Preferred partner based on manufacturing consistency and process know-how Ongoing technical service offering 100% of products offered on demand High Value Added |
Innovation-led Top
Line Growth Case Study: IR Latex Revenue Growth Key Attributes Tremendous growth Rapidly capture share from $2.2 billion natural rubber latex industry Margins well in excess of rest of business Kraton maintains 86% market share Challenging process technology to replicate for competitors and new entrants IPO proceeds will help fund IR Latex capacity expansion 20/20 Vision by 2011 20% of revenue from innovation 20% contribution margin premium 11 US $ in millions $15 $22 $23 $35 $61 2005 2006 2007 2008 2009 6% 11% 13% 14% 12% 20% 2005 2006 2007 2008 2009 2011 |
Strong Diversified
Innovation Pipeline to Drive Growth 12 Slush Molding HiMA Protective Films PVC Replacement Wire & Cable PVC Replacement Medical Applications |
13 Kraton has Significant Growth & Profitability Opportunities Project Description Estimated Cost Expected Timing Latex Expansion Capture additional market demand Up to $30 million 2011 - 2012 HSBC Expansion High-margin HSBC capacity expansion utilizing new technology TBD 2012 + Asia Plant / Rationalize Capacity State of the Art HSBC plant in Asia Debottleneck existing capacity In Phases / TBD 2012 + Isoprene Rubber and Isoprene Latex Debottleneck Capital advantaged latex expansion at Paulinia and IR capacity replacement $30 - $35 million 2010 - 2011 We Typically Seek Higher Growth Opportunities with Relatively Rapid Steady-State Payback |
$(10) $13 $53 $35 Q1 09 Q2 09 Q3 09 Q4 09 2009 Financial Highlights $178 $234 $270 $238 Q1 09 Q2 09 Q3 09 Q4 09 Adhesives, Sealants & Coatings, Advanced Materials and Emerging Businesses each posted revenue growth in Q4 2009 versus Q4 2008 Sales Revenue (1) (US $ in Millions) (1) Excludes by-product revenue (2) Adjusted EBITDA is GAAP EBITDA excluding sponsor fees, restructuring and related charges,
non-cash expenses, and the gain on extinguishment of debt. A reconciliation of net income
or loss to EBITDA and Adjusted EBITDA is presented in the Appendix Q3 momentum continued into Q4 Q4 volume of 61kt up 16% versus Q4 2008 2009 volume of 260 kilotons versus 313 kilotons in 2008 Volume (kt) 47 71 81 61 61% 76 % 90% Q1 09 Q2 09 Q3 09 Q4 09 116% % of 2008 Q4 2009 adjusted EBITDA was up 21% compared to $29 million in Q4 2008 Adjusted EBITDA margin percentage yields 170 basis point improvement versus Q4 2008 Adjusted EBITDA (2) (US $ in Millions) 14 |
2009 Financial
Overview (1) Adjusted EBITDA is GAAP EBITDA excluding sponsor fees, restructuring and related charges, non-cash
expenses, and the gain on extinguishment of debt. A reconciliation of net income or loss to
EBITDA and Adjusted EBITDA is presented in the Appendix 15 US $ in thousands 2009 2008 2009 2008 Sales Volume (kt) 61 53 260 313 Total Operating Revenues 250,708 $ 231,636 $ 968,004 $ 1,226,033 $ Cost of Goods Sold 189,840 182,665 792,472 971,283 Gross Profit 60,868 48,971 175,532 254,750 Operating expenses Research and Development 6,098 5,920 21,212 27,049 Selling, General and Administrative 22,919 27,853 79,504 101,431 Depreciation and Amortization of Identifiable Intangibles 25,168 12,282 66,751 53,162 Gain on Extinguishment of Debt - - 23,831 - Equity in Earnings of Unconsolidated Joint Venture 98 123 403 437 Interest Expense, net 9,179 8,999 33,956 36,695 Income (Loss) Before Income Taxes (2,398) (5,960) (1,657) 36,850 Income Tax Expense (882) 1,035 (1,367) 8,431 Net Income (Loss) (1,516) $ (6,995) $ (290) $ 28,419 $ Earnings (Loss) per Common Share - Diluted (0.07) (0.36) (0.01) 1.46 Adjusted EBITDA (1) 35,043 $ 28,551 $ 91,359 $ 152,048 $ Fourth Quarter Full Year |
Operating Revenue and Adjusted EBITDA (1) Walk Fiscal Years 2008 vs. 2009 Operating Revenue FY 2008 vs. 2009 Adjusted EBITDA (1) FY 2008 vs. 2009 (1) Adjusted EBITDA is GAAP EBITDA excluding sponsor fees, restructuring and related charges, non-cash
expenses, and the gain on extinguishment of debt. A reconciliation of net income or loss to
EBITDA and Adjusted EBITDA is presented in the Appendix. 16 US $ in millions |
Operating Revenue Q4
2008 vs. Q4 2009 17 Adjusted EBITDA (1) Q4 2008 vs. Q4 2009 Operating Revenue and Adjusted EBITDA (1) Walk Q4 2008 vs. Q4 2009 (1) Adjusted EBITDA is GAAP EBITDA excluding sponsor fees, restructuring and related charges, non-cash
expenses, and the gain on extinguishment of debt. A reconciliation of net income or loss to
EBITDA and Adjusted EBITDA is presented in the Appendix. US $ in millions
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18 $17 $21 $17 $12 Culture of Continuous Cost Improvement $67 2007 Belpre work process improvement project Offsite warehouse Global office closures 2009 Berre fixed cost reduction ERP project Paulinia work process improvement project Global staff reduction, discretionary spending reduction 2010 Pernis IR shutdown 2008 Pernis SIS shutdown RTS and SG&A staff reductions Freight forward contract Belpre energy reduction initiatives Annualized run-rate of cost savings US $ in millions |
Capital Structure
Significantly Improved Amend and Extend Cash Flow Revolver Upsize to $80.00 million from $75.5 million Two year maturity extension to May 2013 L+ 300 from L + 200 Reduced principal by $37.0 million Realized gain of $23.8 million Annual cash interest savings of $3.0 million Senior Subordinated Notes Bond Buyback IPO Results in Term Loan Reduction Raised ~$137.8 million in IPO Reduced Term Loan by $100 million Created $25 million of leverage cushion Annual cash interest savings of $3.5 - $5.0 million Reduced debt by $190 million to $385 million at December 31, 2009 from $575 million at December 31, 2008 Liquidity improved to $149 million at December 31, 2009 from $127 million at December 31, 2008 Leverage ratio (as calculated under the senior credit facility) of 2.88 at December 31, 2009 improved 26% from December 31, 2008s 3.87 19 |
Indebtedness and
Liquidity Gross Debt Cash Net Debt December 31, 2008 $ 575 $ 101 $ 474 Bond buyback program (37) (13) (24) Proceeds from IPO (1) (100) 27 (127) Debt services, net (53) (46) (7) December 31, 2009 $ 385 $ 69 $ 316 Working capital produced $29 million of cash flow Total liquidity (2) increased from $127 million to $149 million Revolver amended to increase availability from $75.5 million to $80.0 million and extended maturity to May 2013 (1) Proceeds from IPO excludes underwriters over-allotment option exercised in January 2010 yielding additional cash proceeds of $11 million (2) Total liquidity is cash on hand plus undrawn revolver availability 20 US $ in millions |
Outlook 2010 Capital spending $50 to $55 million Cash interest $20 to $22 million Cash pension contributions $4 to $5 million Cash restructuring $10 million Book tax rate 20% to 25% Cash tax rate 15% to 20% 21 |
22 Recent Actions Have Established Strong Earnings Base Source: Management estimates (1) Adjusted EBITDA adds back sponsor fees and expenses, restructuring and related charges, other non-cash
expenses and the gain on extinguishment of debt. A reconciliation of net income or loss to
EBITDA and Adjusted EBITDA is presented in the Appendix. (2) LIFO Adjustment reflects the impact of the rapid price decline in feed stocks (which are subsequently
rebounding) and its flow through to EBITDA. (3) Announced and implemented cost savings not reflected in LTM December 2009 Adjusted EBITDA. (4) Higher than normal regulatory maintenance in Europe YTD December 2009 compared to same periods 2006, 2007 and 2008. $91 $18 $15 $12 $136 2009 Adjusted EBITDA LIFO Adjustment Implemented Cost Savings Turnaround Costs Volume Innovation Margin Potential $(10) Q1 $ 13 Q2 $ 53 Q3 $ 35 Q4 (3) (4) (1) Economic Recovery Stimulus Package IR Latex Capacity 20/20 mix Enhancement Continuous cost reduction 20/20 Introductions NEXAR Slush molding HiMA Historical Adjustments Growth Opportunities and Initiatives ERP (10/09) Pernis (1/10) (2) US $ in millions |
Kraton 2010 Business Priorities Innovation-led Top-line Growth Vision 20/20 Vitality index at or above 14% Demonstrate clear traction on step-out innovation projects Capital Investment PIR conversion to Belpre Paulinia IRL to 2,200 tons DCS Phase II Belpre Plan for semi works to increase innovation productivity Earnings Growth Return business to full year sustainable growth Leverage smart pricing to maintain target margins Continue focus on developing economies Capture stimulus spending opportunities Critical Capabilities Leverage enhanced market development capabilities Implement new sales and marketing incentive plan Utilize SAP full functionality Investor Relations 23 Flawlessly execute $50 - $55 million investment plan |
Investment
Highlights Leadership Clear leader in the fast growing, attractive SBC market Scale Approximately twice the size of our largest competitor in each of our end-use markets The only producer with a global footprint and service capabilities High Barriers to Entry Patented technology, custom designed product, process excellence, global reach and customer relationships create strong competitive position that cannot be matched by existing or potential competitors Kraton, therefore, commands price premiums in the market Innovation Most productive innovator of new SBC products, often engineered to meet a specific customer need Earnings Growth Driven by cost initiatives, economic recovery, return to normal customer inventory levels and new product introductions Meaningful operating leverage Experience Strong leadership team demonstrating continuous improvement in productivity, innovation and margin improvement even in a difficult macroeconomic environment 24 |
Appendix
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SBCs are Engineered to Meet Customer Needs Primary Raw Materials Products Customer Value End-Use Applications Styrene Unhydrogenated SBCs SBS SIS SIBS Butadiene Isoprene Hydrogenated SBCs SEBS SEPS Isoprene Rubber and Latex Compounds Paving Roofing Personal Care Tapes Formulators Labels & Printing Compounds Packaging Auto Lubricants Medical Stretch Soft-Touch Adhesion Strength Durability Thickening Compatibility Clarity Recyclability Kraton is the only provider of these value components across all products touching a wide array of applications |
SBCs Enhance Performance Attributes Durability Elasticity Impact Soft Touch Clarity Adhesion We are a Highly Engineered, Performance Materials Business |
Reconciliation of Net
Income/(Loss) to EBITDA and Adjusted EBITDA (1) The EBITDA measure is used by management to evaluate operating performance. Management believes that EBITDA
is useful to investors because it is frequently used by investors and other interested parties
in the evaluation of companies in our industry. EBITDA is not a recognized term under GAAP and
does not purport to be an alternative to net income (loss) as an indicator of operating performance or to cash flows from operating activities as a measure of liquidity. Since not all companies
use identical calculations, this presentation of EBITDA may not be comparable to other
similarly titled measures of other companies. Additionally, EBITDA is not intended to
be a measure of free cash flow for management's discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. (2) Adjusted EBITDA is EBITDA excluding sponsor fees, restructuring and related charges, non-cash expenses, and the gain on extinguishment of debt. US $ in thousands Three months Ended Three months Ended Twelve months Ended Twelve months Ended 12/31/2009 12/31/2008 12/31/2009 12/31/2008 Net Income (Loss) (1,516) $
(6,995) $
(290) $
28,419 $
Add(deduct): Interest expense, net 9,179 8,999 33,956 36,695 Income tax expense (882) 1,035 (1,367) 8,431 Depreciation and
amortization expenses 25,168 12,282 66,751 53,162 EBITDA (1) 31,949 $
15,321 $
99,050 $
126,707 $
EBITDA (1) 31,949 $
15,321 $
99,050 $
126,707 $
Add(deduct): Sponsor fees and expenses 500 500 2,000 2,000 Restructuring and related
charges 2,144 4,189 9,677 13,671 Other non-cash expenses 450 8,541 4,463 9,670 Gain on extinguishment of
debt - - (23,831) - Adjusted EBITDA (2) 35,043 $
28,551 $
91,359 $
152,048 $
Restructuring and related detail: Cost of goods sold 440 355 6,747 355 Research and
development - 129 - 2,430 Selling, general and administrative 1,704 3,705 2,930 10,886 Total restructuring and related charges 2,144 $
4,189 $
9,677 $
13,671 $
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