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| 8-K - FORM 8-K - OLIN Corp | form8kkeybancslides091410.htm |
1
KeyBanc Capital Markets
Basic Materials & Packaging
Conference
September 14, 2010
Basic Materials & Packaging
Conference
September 14, 2010
Exhibit 99.1
2
Olin Representatives
Joseph D. Rupp
Chairman, President & Chief Executive Officer
John E. Fischer
Vice President & Chief Financial Officer
Larry P. Kromidas
Assistant Treasurer & Director, Investor Relations
lpkromidas@olin.com
(618) 258 - 3206
3
Company Overview
All financial data are for the six months ending June 30, 2010 and the year ending 2009, and are presented in millions of U.S. dollars
except for earnings per share. Additional information is available on Olin’s website www.olin.com in the Investors section.
except for earnings per share. Additional information is available on Olin’s website www.olin.com in the Investors section.
Winchester
Chlor Alkali
Third Largest North American
Producer of Chlorine and Caustic Soda
Producer of Chlorine and Caustic Soda
6Mo 2010 FY 2009
Revenue: $ 489 $964
Income: $ 37 $125
A Leading North American Producer
of Small Caliber Ammunition
of Small Caliber Ammunition
6Mo 2010 FY 2009
Revenue: $279 $568
Income: $ 41 $ 69
Revenue: $ 768 $ 1,532
EBITDA: $ 96 $ 292
Pretax Operating Inc.: $ 40 $ 210
EPS (Diluted): $ .39 $ 1.73
6MO 2010 FY 2009
Olin
4
Olin Vision
To be a leading Basic Materials company delivering
attractive, sustainable shareholder returns
attractive, sustainable shareholder returns
• Being the low cost, high quality producer, and the
#1 or #2 supplier in the markets we serve
#1 or #2 supplier in the markets we serve
• Providing excellent customer service and
advanced technological solutions
advanced technological solutions
• Generating returns above the cost of capital over
the economic cycle
the economic cycle
5
Olin Corporate Strategy
1. Build on current leadership positions in the
Chlor-Alkali and Ammunition businesses
• Improve operating efficiency and profitability
• Integrate downstream selectively
2. Allocate resources to the businesses that can create the
most value
most value
3. Manage financial resources to satisfy legacy liabilities
Total Return to Shareholders in Top Third of S&P 1000
Return on Capital Employed Over Cost of Capital Through the Cycle
Olin Corporation Goal: Superior Shareholder Returns
6
Investment Rationale
• Leading North American producer of Chlor-Alkali
• Strategically positioned facilities
• Diverse end customer base
• Favorable industry dynamics
• Leading producer of industrial bleach with additional
growth opportunities
growth opportunities
• Pioneer synergies improved chlor-alkali price structure
• Winchester’s leading industry position
7
Chlor Alkali Segment
ECU = Electrochemical Unit; a unit of measure reflecting the chlor alkali process outputs
of 1 ton of chlorine, 1.13 tons of 100% caustic soda and 0.3 tons of hydrogen.
of 1 ton of chlorine, 1.13 tons of 100% caustic soda and 0.3 tons of hydrogen.
N. American
Position
Position
% 2009
Revenue
Revenue
#3
#2
#1
Industrial
Industrial
#1
Merchant
Merchant
#1
Burner
Grade
Burner
Grade
8%
10%
4%
53%
24%
1%
Chlor Alkali Manufacturing Process
SALT + ELECTROLYSIS = OUTPUTS
Caustic Soda
(Sodium Hydroxide)
(Potassium Hydroxide)
Bleach
(Sodium Hypochlorite)
Chlorine
Sodium Salt
or
Potassium Salt
KOH
HCl
(Hydrochloric Acid)
Hydrogen Gas
Caustic Soda
or
KOH
Chlorine
Hydrogen
8
• Be the preferred supplier to chlor alkali customers in
addition to being the low cost producer
addition to being the low cost producer
• Goal is to increase the value of the Chlor Alkali
Division to Olin through:
Division to Olin through:
– Optimizing capacity utilization
– Higher margin downstream products
– Cost reduction and financial discipline
Olin’s Chlor Alkali Strategy
9
Source: CMAI/Olin - 2009 year-end figures
Oxy includes OxyVinyls and does not reflect the announced reduction of approximately 280,000 tons of capacity at their Taft, LA facility.
Olin includes 50% of Sunbelt joint venture.
Olin is #3 Chlor-alkali Producer
10
Bleach Plants
39
Tacoma, WA
Tracy, CA
Santa Fe Springs, CA
Henderson, NV
St. Gabriel, LA
Augusta, GA
Charleston, TN
Niagara Falls, NY
Becancour,
Quebec
Olin’s Geographic Advantage
Source: Olin.
(1) The Becancour Plant has 275,000 short tons diaphragm and 65,000 short tons membrane capacity.
|
Location
|
Chlorine Capacity
(000s Short Tons)
|
|
McIntosh, AL
|
415
|
|
Becancour, Quebec
(1) |
340
|
|
Niagara Falls, NY
|
286
|
|
Charleston, TN
|
248
|
|
St. Gabriel, LA
|
246
|
|
McIntosh, AL
(50% of Sunbelt JV)
|
160
|
|
Henderson, NV
|
152
|
|
Augusta, GA
|
108
|
|
Total
|
1,955
|
• Access to regional customers including bleach and water treatment
• Access to alternative energy sources
– Coal, hydroelectric, nuclear, natural gas
11
Diverse Customer Base
Chlorine: “Organics” includes: Propylene oxide, epichlorohydrin, MDI, TDI, polycarbonates. “Inorganics” includes: Titanium dioxide and bromine.
Caustic Soda: “Organics” includes: MDI, TDI, polycarbonates, synthetic glycerin, sodium formate, monosodium glutamate. “Inorganics” includes: titanium dioxide, sodium silicates, sodium cyanide.
Chlorine
North American Industry
Olin
12
Product Pricing Has Been Dynamic
(1) ECU Price = the price of 1 ton of chlorine + 1.1 times the price of 1 ton of caustic Source: CMAI.
North American Caustic Soda
Avg. Acquisition, US$/Short Ton
Avg. Acquisition, US$/Short Ton
North American Chlorine
Contract, US$/Short Ton
Contract, US$/Short Ton
(1)
13
Capacity Rationalization
Favorable Industry Dynamics
Target
Acquisition
Date
Date
Position
2007
2004
• Acquired by Olin
• 725,000 Short Tons ECU Capacity
• Then the #7 ranked producer in
North America
North America
• 4.7% of North American capacity
• Acquired by OxyChem
• 859,000 Short Tons ECU Capacity
• Then the #7 ranked producer in
North America
North America
• 5.5% of North American capacity
• 250,000 Short Ton ECU capacity
plant expansion 2H 2013
plant expansion 2H 2013
• Plant located at Geismar, LA
Source: CMAI.
Pioneer
Vulcan
Westlake Chemical
Industry Consolidation
Delayed Capacity Expansion
2.0 mm MT
or 13% of
2000 net
capacity
reduction
or 13% of
2000 net
capacity
reduction
mmMT
13.6
15.6
2009
2000
14
Chlor-Alkali Outlook
• Q3 2010 segment earnings are expected to improve over Q2
2010 results on higher caustic soda prices
2010 results on higher caustic soda prices
• ECU Netbacks are expected to improve as caustic soda prices
reflect the bulk of the $80 February price announcement
reflect the bulk of the $80 February price announcement
• May price announcements of $50 on chlorine and $35/$50 on
caustic soda are currently being negotiated, if successful, will
increase Q4 2010 ECU netbacks
caustic soda are currently being negotiated, if successful, will
increase Q4 2010 ECU netbacks
• In early August, North American chlor-alkali producers
announced a $40/ton caustic price increase, and in late
August followed it with an additional $45/ton caustic hike
announced a $40/ton caustic price increase, and in late
August followed it with an additional $45/ton caustic hike
• Q2 2010 operating rates improved to 83%, Q3 2010
operating rates are expected to be in the mid 80% range
operating rates are expected to be in the mid 80% range
15
Why Industrial Bleach?
• Olin is the leading North American bleach producer with a capacity of
250 million gallons (or 160,000 ECUs) in a 1 billion gallon industry
250 million gallons (or 160,000 ECUs) in a 1 billion gallon industry
• Olin has 18% market share and current installed capacity to service
25% of the market with low-cost expansion opportunities
25% of the market with low-cost expansion opportunities
• Utilizes both chlorine and caustic soda in an ECU ratio
• Commands a $100 to $200/ton premium over ECU prices
• Demand is not materially impacted by economic cycles
• Regional nature of bleach business benefits Olin’s geographic diversity,
further enhanced by Olin’s proprietary railcar technology to reach more
distant customers
further enhanced by Olin’s proprietary railcar technology to reach more
distant customers
• 2009 bleach volumes increased almost 18% over 2008 levels, and Olin
expects 2010 volumes to be 20 to 25% higher than 2009
expects 2010 volumes to be 20 to 25% higher than 2009
16
Mercury Legislation
• On October 21, 2009, the U.S. House of Representatives
Committee on Energy and Commerce passed a bill that
would require chlor-alkali producers using mercury cell
technology to decide by 6/30/12 whether they would shut
down or convert those plants. The plants would need to be
shut down by 6/30/13 or converted by 6/30/15.
Committee on Energy and Commerce passed a bill that
would require chlor-alkali producers using mercury cell
technology to decide by 6/30/12 whether they would shut
down or convert those plants. The plants would need to be
shut down by 6/30/13 or converted by 6/30/15.
• During the third quarter of 2009, a companion bill was
introduced in the U.S. Senate
introduced in the U.S. Senate
• To date, no votes have been taken on the House floor and the
Senate has not acted; outcome of legislation is uncertain
Senate has not acted; outcome of legislation is uncertain
• Olin currently operates 2 mercury cell plants representing
356,000 ECUs or 18% of our total capacity *
356,000 ECUs or 18% of our total capacity *
* Olin’s total capacity includes 50% ownership of the SunBelt JV
17
Winchester Segment
Winchester Strategy
• Leverage existing strengths
– Seek new opportunities
to leverage the
legendary Winchester®
brand name
to leverage the
legendary Winchester®
brand name
– Investments that
maintain Winchester as
the retail brand of
choice, and lower costs
maintain Winchester as
the retail brand of
choice, and lower costs
• Focus on product line
growth
growth
– Continue to develop
new product offerings
new product offerings
• Provide returns in excess of
cost of capital
cost of capital
|
|
Hunters & Recreational Shooters
|
|
|
|
||
|
Products
|
Retail
|
Distributors
|
Mass
Merchants |
Law
Enforcement |
Military
|
Industrial
|
|
Rifle
|
ü
|
ü
|
ü
|
ü
|
ü
|
|
|
Handgun
|
ü
|
ü
|
ü
|
ü
|
ü
|
|
|
Rimfire
|
ü
|
ü
|
ü
|
ü
|
ü
|
ü
|
|
Shotshell
|
ü
|
ü
|
ü
|
ü
|
ü
|
ü
|
|
Components
|
ü
|
ü
|
ü
|
ü
|
ü
|
ü
|
Brands
18
Winchester’s Leading
Industry Position
Industry Position
• One of the three leading ammunition manufacturers
in the United States *
in the United States *
• Strong brand awareness
– Top 15 of all sporting goods brands
• Legendary brand image
– Positively associated with American heritage,
John Wayne, Teddy Roosevelt and
cowboy/western connotations
John Wayne, Teddy Roosevelt and
cowboy/western connotations
• Category leadership and expertise demonstrated by
selection to manage ammunition category for key,
national retailers
selection to manage ammunition category for key,
national retailers
• Leading consumer goods marketer with an increased
presence on television and the Internet
presence on television and the Internet
• Innovator of market-driven new products
* Source: National Shooting Sports Foundation.
19
Favorable Industry Dynamics
Commercial
• Economic environment leading to personal security concerns
• Fears of increased gun/ammunition control due to change in administration
• New gun and ammunition products
• Strong hunting activity in weak economy, driven by cost/benefit of hunting
for food and increased discretionary time
for food and increased discretionary time
Law
Enforcement
Enforcement
• Significant new federal agency contracts and solid federal law enforcement
funding
funding
• Higher numbers of law enforcement officers and increase in federal agency
hiring
hiring
• Increased firearms training requirements among state and local law
enforcement agencies
enforcement agencies
Military
• Sustained high demand for small caliber ammunition due to wars in Iraq and
Afghanistan
Afghanistan
• Commitment to maintaining the “Second-Source Program” to mitigate the
risk of a sole-source small caliber ammunition contract
risk of a sole-source small caliber ammunition contract
20
Winchester
• Record Q2 2010 segment earnings of $21 million follows record
Q1 2010 and full year 2009 earnings of $69 million
Q1 2010 and full year 2009 earnings of $69 million
• Long-term military and law enforcement agency contract sales
accounted for more than 30% of segment revenue in 2010
accounted for more than 30% of segment revenue in 2010
• Winchester has been awarded approximately $110 million of new
military and law enforcement business thus far this year
military and law enforcement business thus far this year
• New gun ownership is expected to translate into higher long-term
ammunition consumption
ammunition consumption
• Commercial backlog declined in Q2 2010 to $117 million
• Military and Law Enforcement backlog remains strong and stable
at $118 million at June 30, 2010
at $118 million at June 30, 2010
21
Financial Highlights
• Strong Balance Sheet
– Q2 2010 cash balance approximately $388 million and is
expected to be at least $425 million by year end
expected to be at least $425 million by year end
– Pension plan remains fully funded with no contributions
required until at least 2012
required until at least 2012
– 2010 capital spending forecast to be 85% of depreciation
• Profit Outlook
– ECU pricing trends are positive
– Higher margin bleach business is growing
– Converted and expanded St. Gabriel facility is on-line and
reducing both operating and freight costs
reducing both operating and freight costs
– Winchester performance continues to be strong
22
Historical Financial Performance
Revenues
($ millions)
($ millions)
EBITDA
($ millions)
($ millions)
$1,040
$1,277
$1,765
$1,532
$201
$207
$335
$292
Note: EBITDA is Income from Continuing Operations Before Taxes, excluding Interest Expense, Interest Income, and Depreciation and Amortization expense.
-$107
-$103
-$96
$29
23
Potential Uses of Cash
• Olin’s financial policies have prioritized conservatism,
caution and prudence
caution and prudence
• Current cash levels support:
• Annual working capital swings of $50 to $100 million
• Investments to expand bleach business including low salt,
high strength bleach plants
high strength bleach plants
• Restructuring/downsizing of Chlor Alkali system necessitated
by low industry operating rates and mercury legislation
by low industry operating rates and mercury legislation
• Potential acquisitions
• $75 million notes due 2011
• Liquidity cushion for uncertain economic and credit
environments
environments
24
Investment Rationale
• Leading North American producer of Chlor-Alkali
• Strategically positioned facilities
• Diverse end customer base
• Favorable industry dynamics
• Leading producer of industrial bleach with additional
growth opportunities
growth opportunities
• Pioneer synergies improved chlor-alkali price structure
• Winchester’s leading industry position
25
Forward-Looking Statements
This presentation contains estimates of future
performance, which are forward-looking
statements and actual results could differ
materially from those anticipated in the forward-
looking statements. Some of the factors that could
cause actual results to differ are described in the
business and outlook sections of Olin’s Form 10-K
for the year ended December 31, 2009 and Form
10-Q for the quarter ended June 30, 2010. These
reports are filed with the U.S. Securities and
Exchange Commission.
performance, which are forward-looking
statements and actual results could differ
materially from those anticipated in the forward-
looking statements. Some of the factors that could
cause actual results to differ are described in the
business and outlook sections of Olin’s Form 10-K
for the year ended December 31, 2009 and Form
10-Q for the quarter ended June 30, 2010. These
reports are filed with the U.S. Securities and
Exchange Commission.
26
Appendix
1892 founded in East Alton, IL providing
blasting powder to Midwestern coal mines
blasting powder to Midwestern coal mines
1898 formed Western Cartridge Company
to manufacture small arms ammunition
to manufacture small arms ammunition
1931 acquires Winchester Repeating Arms
1940s & 1950s acquires cellophane, paper,
lumber & powder-actuated tools businesses
lumber & powder-actuated tools businesses
1892 founded in Saltville, VA to produce
soda ash.
soda ash.
1896 builds first chlor-alkali plant in US
1909 introduces first commercial
production of liquefied chlorine
production of liquefied chlorine
1940s & 1950s builds plants in Lake
Charles, LA & McIntosh, AL, buys Squibb
Charles, LA & McIntosh, AL, buys Squibb
1954 Merger creates the Olin Mathieson Chemical Corporation
1950s & 1960 entered into phosphates, aluminum, urethanes, TDI, skis, camping
equipment, homebuilding and expanded paper and forestry businesses
equipment, homebuilding and expanded paper and forestry businesses
1970s to 2000 consolidation back to core businesses, spin-offs included forest
products (Olinkraft), military ordnance (Primex) and specialty chemicals (Arch)
and sold aluminum, TDI, urethanes and Squibb businesses
products (Olinkraft), military ordnance (Primex) and specialty chemicals (Arch)
and sold aluminum, TDI, urethanes and Squibb businesses
2007 acquired Pioneer and sold the Metals business, resulting in a company
similar in businesses to that which existed in the late 1890s
similar in businesses to that which existed in the late 1890s
Olin Industries Mathieson Chemical Corp.
27
Capacity Rationalization: 2000-2012
Source: Olin Data
Technology Key: DIA=Diaphragm, HG=Mercury, MB=Membrane, STB=Salt-to-Bleach.
Chlor Alkali Capacity Reductions
Chlor Alkali Capacity Expansions
Company
Location
Tech
ECU
COMPLETED 3,827,000
Dow
Ft. Saskatchewan
DIA
526,000
Dow
Plaquemine, LA
DIA
375,000
Formosa Plastics
Baton Rouge, LA
DIA
201,000
La Roche
Gramercy, LA
DIA
198,000
Oxy Vinyls LP
Deer Park, TX
DIA/HG
395,000
Georgia Pacific
(3 locations)
DIA/HG
24,000
Pioneer
Tacoma, WA
DIA/MB
214,000
Atofina
Portland, OR
DIA/MB
187,000
St. Anne Chem
Nackawic, NB
MB
10,000
PPG
Lake Charles, LA
HG
280,000
Oxy (KOH)
Taft, LA
HG
210,000
Oxy
Delaware City, DE
HG
145,000
Olin (KOH)
Charleston, TN
HG
110,000
Holtra Chem
Orrington, ME
HG
80,000
Holtra Chem
Acme, NC
HG
66,000
Mexichem
Santa Clara, Mex
HG
40,000
Cedar Chem
Vicksburg, MS
HG
40,000
Olin
Dalhousie, NB
HG
36,000
Dow
Oyster Creek, TX
DIA
396,000
ERCO
Port Edwards, WI
HG
97,000
Olin
St. Gabriel, LA
HG
197,000
ANNOUNCED 2,424,000
Dow1
Freeport, TX
DIA
2,279,000
Canexus
North Vancouver,BC
DIA
145,000
Reductions
6,251,000
Completed Announced Total
Reductions (3,827,000) (2,424,000) (6,251,000)
Expansions 2,096,000 3,049,000 5,145,000
Net Reduction (1,731,000) 625,000 (1,106,000)
Company
Location
Tech
ECU
COMPLETED 2,096,000
Dow
Freeport, TX
MB
500,000
PPG
Lake Charles, LA
MB
280,000
Oxy
Geismer, LA
MB
210,000
Equachlor
Longview, WA
MB
88,000
Westlake
Calvert City, KY
MB
80,000
SunBelt
McIntosh, AL
MB
70,000
Mexichem
Santa Clara, Mex
MB
45,000
Oxy
Various Sites
MB
22,000
AV Nackawic
Nackawic, NB
MB
10,000
Kuehne
Delaware City, DE
STB
40,000
Trinity
Hamlet, NC
STB
40,000
Odyssey
Tampa, FL
STB
30,000
Shintech
Plaquemine, LA
MB
330,000
ERCO
Port Edwards, WI
MB
105,000
Olin
St. Gabriel
MB
246,000
ANNOUNCED 3,049,000
Shintech
Plaquemine, LA
MB
252,000
Westlake2
Geismar, LA
MB
352,000
Allied Universal
Fort Pierce, FL
STB
40,000
Dow1
Freeport, TX
MB
2,225,000
Canexus
North Vancouver, BC
MB
180,000
Expansions
5,145,000
Annual caustic demand growth: 0.8% or 110,000 Tons/Year
1 Dow’s announced Freeport, TX membrane conversion is on hold and under review; their supply agreement renewal with Shintech remains pending.
2 Westlake’s announced 352,000 ton green-field project has been postponed and is being reconsidered.