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| 8-K - FORM 8-K - OLIN Corp | form8kfeb17analystslides.htm |
Morgan Stanley Basic Materials
Corporate Access Day
New York, NY
February 14, 2017
TM
Exhibit 99.1
Forward-Looking Statements
2
This communication includes forward-looking statements. These statements relate to analyses and other information that are
based on management’s beliefs, certain assumptions made by management, forecasts of future results, and current expectations,
estimates and projections about the markets and economy in which we and our various segments operate. These statements may
include statements regarding our recent acquisition of the U.S. chlor-alkali and downstream derivatives businesses (the “Acquired
Business”), the expected benefits and synergies of the transaction, and future opportunities for the combined company following
the transaction. The statements contained in this communication that are not statements of historical fact may include forward-
looking statements that involve a number of risks and uncertainties.
We have used the words “anticipate,” “intend,” “may,” “expect,” “believe,” “should,” “plan,” “project,” “estimate,” “forecast,”
“optimistic,” and variations of such words and similar expressions in this communication to identify such forward-looking
statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions,
which are difficult to predict and many of which are beyond our control.
Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited to: factors relating to the
possibility that Olin may be unable to achieve expected synergies and operating efficiencies in connection with the transaction
within the expected time-frames or at all; the integration of the acquired chlorine products businesses being more difficult, time-
consuming or costly than expected; the effect of any changes resulting from the transaction in customer, supplier and other
business relationships; general market perception of the transaction; exposure to lawsuits and contingencies associated with the
acquired chlorine products business; the ability to attract and retain key personnel; prevailing market conditions; changes in
economic and financial conditions of our chlorine products business; uncertainties and matters beyond the control of
management; and the other risks detailed in Olin’s Form 10-K for the fiscal year ended December 31, 2015 and Olin’s Form 10-Q
for the quarter ended September 30, 2016. The forward-looking statements should be considered in light of these factors. In
addition, other risks and uncertainties not presently known to Olin or that Olin considers immaterial could affect the accuracy of
our forward-looking statements. The reader is cautioned not to rely unduly on these forward-looking statements. Olin undertakes
no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or
otherwise.
In addition to U.S. GAAP financial measures, this presentation includes certain non-GAAP financial measures including Adjusted
EBITDA. These non-GAAP measures are in addition to, not a substitute for or superior to, measures for financial performance
prepared in accordance with U.S. GAAP. Definitions of these measures and reconciliation of GAAP to non-GAAP measures are
provided in the appendix to this presentation.
All financial data are for the twelve months ended December 31, 2016. Data are presented in millions of U.S. dollars.
Additional information is available at www.olin.com.
Winchester
Chlor Alkali Products
and Vinyls
Full Year 2016
Revenue: $ 2,999
Adj. EBITDA: $ 654
Revenue: $ 5,551
Adjusted EBITDA: $ 839
Olin
Full Year 2016
Olin Corporation
Epoxy
Company Overview
Full Year 2016
Revenue: $ 1,822
Adj. EBITDA: $ 106
Full Year 2016
Revenue: $ 729
Adj. EBITDA: $ 139
3
1: Olin’s definition of “Adjusted EBITDA” (earnings before interest, taxes, depreciation and amortization) is net (loss) income plus an add-back for
depreciation and amortization, interest expense (income), income tax expense (benefit), other expense (income), restructuring charges, acquisition-
related costs, fair-value inventory purchase accounting adjustment and other certain non-recurring items
1
Highlights
4
3
Achieved Adjusted EBITDA of $221.7 million in the fourth quarter 1
Full year 2016 Adjusted EBITDA of $838.5 million 2
Expect full-year 2017 cost synergy realization in the $50 million to $75 million range
Full year 2017 Adjusted EBITDA guidance range expected to be $1 billion, +/- 5%
1: Fourth quarter net income is $17.5 million
2: Full year 2016 net loss is $3.9 million
Strategic Actions to Create Today’s Olin
Leading Chlor-alkali Assets Leading Winchester Business
2007 2008 2010 2011 2012 2015
• Winchester Relocation / Cost Reduction Initiative Announced
• Announced Conversion/Closure of Mercury Cell Plants
• First Hy-Pure® Bleach Plants Begin Operations
• Purchase of KA Steel Distribution Business
• Purchase of Dow’s Chlorine
Derivatives Businesses
• Acquisition of Pioneer
• Sale of Metals Business
• Buyout of SunBelt Chlor-alkali Partner • Bleach Growth Initiatives Commence
5
Global Leader in Chlorine Derivatives
Global:
• #1 chlor-alkali producer
• #1 seller of membrane grade caustic soda
• #1 supplier of epoxy materials
• #1 seller of chlorinated organics
• Top quartile chlor-alkali cost position
• Broadest geographic presence in caustic, epoxy
and chlorinated organics
Industry-leading Scale and Cost Advantage
Powerful Upstream Integration
Unparalleled End-Use and Geographic Diversity
6
North America:
• #1 seller of chlorine
• #1 seller of industrial bleach
• #1 seller of on-purpose hydrochloric acid
• Full ownership of newest, world-scale membrane
chlor-alkali facility
• Most diversified chlorine envelope of any North
America producer
• The most extensive distribution and logistics
network
Significantly Expanded Chlorine End Uses
3
Merchant
HCI
Bleach
19
Merchant
HCI
Bleach
Ethylene Dichloride
VCM
Allyl Chloride
Epichlorohydrin
Liquid Epoxy Resin
Vinylidene Chloride
Perc
Tric
M1
M2
M3
Carbon Tetrachloride
MDI
Propylene Oxide
Propylene Glycol
Ag
5
Merchant
HCI
Bleach
Ethylene Dichloride
VCM
Vinyl
8
Merchant
HCI
Bleach
Ethylene Dichloride
VCM
Allyl Chloride
Epichlorohydrin
Liquid Epoxy Resin
Epoxy
15
Merchant
HCI
Bleach
Ethylene Dichloride
VCM
Allyl Chloride
Epichlorohydrin
Liquid Epoxy Resin
Vinylidene Chloride
Perchloroethylene
Trichloroethylene
M1
M2
M3
Carbon Tetrachloride
Chlorinated
Organics
7
Pre 10/5/15 Today
8
Product Price Change
Full Year
EBITDA Impact
Chlorine $10/ton $10 million
Caustic $10/ton $30 million
EDC $.01/pound $20 million
Key Chlor Alkali Products & Vinyls
EBITDA Sensitivity
Multi-Year View on Caustic Soda
North American chlor-alkali capacity reductions, no capacity additions announced
Increasing North American caustic exports
European mercury cell chlor-alkali production sunset by the end of this year
Growing internal caustic soda consumption in China coupled with lower vinyls
demand is limiting caustic soda exports from China
9
0.00
5.00
10.00
15.00
20.00
25.00
0 25 50 75 100
EDC Pricing History 2000 – 2016
EDC Spot Export Prices
Ce
n
ts
P
er
P
o
u
n
d
Source: IHS
EDC Pricing Distribution
Percent of Time in Price Range
• A $0.01 change in Olin’s EDC sales price changes annual Adjusted EBITDA by $20 million
• 2016 index EDC prices were in the bottom 19% of actual prices over the past 16 years
10
Average = 14 cents
4%
15%
26%
31%
14%
10%
Epoxy has Access to Attractive High
Growth End Uses Around the Globe
Select Epoxy End Use
Growth Rates(’13-’18)2
Composites
Civil Engineering,
Adhesives
Industrial Coatings
Electrical Laminates
2016
3,200
2015
3,000
2014
2,900
2013
2,750
2012
2,550
2011
2,600
Epoxy Resin Consumption1
3%
CAGR (’13-’16)
4%
5%
7%
Source: IHS Chemical Epoxy Resins CEH report
1: Liquid resins and SERs
2: Only includes US, Western Europe, Japan and China
(Tons in thousands)
11
APAC
Europe
US
ROW 4%
8% 5%
4%
Epoxy Priorities for Success
12
0
50
100
150
200
250
300
350
Epoxy Segment EBITDA
($ in millions)
Upstream Midstream Downstream
Continue driving
productivity and cost
improvements
Utilize advantaged cost
position to outgrow the
market (“Sell out”)
Upgrade mix to improve
margin (“Sell up”)
Continued
Volume
Improvement
N/A
1
2
3
Significant Realizable Synergies
$250
Logistics & Procurement
Operational Efficiencies
Asset Optimization
Accessing New
Segments &
Customers
Capital
Investment
Actual
2016
Synergies
Breakdown 2017 2018 2019
75
Projected
Annual
Impact
125-150 180-200 250
120
Projected
Year-End
Run Rate
150-175 230-250 250
6
Projected
Annual
Impact
15-25 40-50 100
10
Projected
Year-End
Run Rate
35-50 50 100
205
Projected
CAPEX and
Investments
30 20 0
70
Projected Cash
Integration &
Restructuring
Costs
35 35 2
13
$ in millions
Winchester
Brands:
Hunters & Recreational Shooters
Ammunition
Products
Retail Distributors
Mass
Merchants
Law
Enforcement
Military Industrial
Rifle N/A
Handgun N/A
Rimfire
Shotshell
Components
14
Favorable Industry Trends:
Growing Target Shooting Participation
Female Participation is Increasing
Target Shooters are on the Rise Handgun Shooting
Tops the Chart
New Shooters
Are Younger
Source: National Shooting Sports Foundation 15
0
20
40
60
80
100
120
140
160
180
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Winchester Adjusted EBITDA Margins
6.7%
8.3%
8.6%
13.7%
13.3%
8.6%
11.2%
20.3%
19.4%
18.7%
2006-2010 Average Adj. EBITDA margin: 10.1%
2013-2016 Average Adj. EBITDA margin: 19.4%
16
($ in millions)
19.1%
Working
Capital4
Adjusted
EBITDA1
Free Cash
Flow
After
Dividend
Cash
Taxes2
Capital
Spending
and
Investments3
Free
Cash Flow
1: Mid-point of Olin’s estimated Adjusted EBITDA forecast of $1 billion, plus or minus 5% for full year 2017
2: Estimated using the mid-point of the cash tax rate of 25% to 30% and the benefits from the NOL carryforward and tax refunds
3: Represents the mid-point of management’s annual capital spending estimate range of $300 million to $350 million which includes $30 million of synergy capital and $210 million of investments in
acquiring additional ethylene supply at producer economics
4: Net working capital reduction includes a program to accelerate the collection of $50 million of receivables and a reduction in Winchester inventory levels of approximately $25 million
5: One-time items include integration expenses and cash restructuring charges of $50 million
6: Calculated based on Olin’s capital structure, mandatory debt repayments and assuming current interest rates
7: Calculated based on 165 million shares outstanding and an annual dividend rate of $0.80 per share
2017 Cash Flow Forecast
One-time
Items
5
Dividend 7
Interest
6
($ in millions)
17
$1,000
($535)
$75
($50)
($205)
$295
($132)
$163
$10
$1.5 billion +
FY 2017 Forecast
$1 Billion
Chlor-alkali Mid-Cycle
EDC Price Recovery
Continued Epoxy Improvement
Synergies
Adjusted EBITDA Potential: Mid-Cycle
18
Appendix
The Chlorine Envelope
20
Epoxy
Brine (NaCl)
Power
Phenol
Acetone
Caustic Soda
(NaOH)
Chlorine
(CI2)
Bisphenol-A
GCO
(Perc/Tric/CMP/VDC)
Epichlorohydrin
Allyl Chloride
EDC / VCM
Chlor-alkali
Cumene
Bleach
HCl
Merchant
4Q16 3Q16 ∆ Q/Q
Sales $782.6 $779.4 0.4%
Adjusted EBITDA $178.9 $160.0 11.8%
4Q16 Performance
Higher caustic soda pricing
Lower operating costs
Higher electricity costs driven by higher natural gas costs
1Q17 outlook vs. 4Q16
Expected improvement in both domestic and export caustic soda pricing, and in ethylene
dichloride pricing
Expected increase in scheduled maintenance outage costs
Expected increase in electricity costs associated with higher natural gas prices
Expected increase in purchased ethylene costs
($ in millions)
Chlor Alkali Products and Vinyls
Segment Performance
21
4Q16 versus
4Q15 3Q16
Chlorine
Caustic Soda
EDC
Bleach
HCI
Chlorinated
Organics
Chlor Alkali Products and Vinyls
Pricing and Volume Comparisons
4Q16 versus
4Q15 3Q16
Chlorine
Caustic Soda
EDC
Bleach
HCI
Chlorinated
Organics
Volume Comparison Pricing Comparison
22
Olin Caustic Soda Price Realization
• A $10 per ton change in Olin’s caustic soda selling price changes annual Adjusted EBITDA by
approximately $30 million
Fundamental Principle
Domestic Sales
• A significant portion of domestic sales are linked to index prices
• Index price changes typically occur 30 to 90 days post our price nomination
• Depending on market conditions 30% to 70% of index price changes are realized
• Overall price realization lags index price changes by 30 to 120 days
Export Sales
• Sold on a combination of negotiated sales and export index price
• Changes in export index prices are typically realized on a 30 to 90 day lag
• Realization of index price changes are typically 80% to 100%
23
4Q16 3Q16 ∆ Q/Q
Sales $441.7 $470.1 -6.0%
Adjusted EBITDA $19.6 $32.9 -40.4%
4Q16 Performance
Lower volumes
Higher operating costs
1Q17 outlook vs. 4Q16
Expected higher pricing and higher volumes
Expected higher raw materials costs associated with benzene and propylene
Expected lower operating costs
($ in millions)
Epoxy
Segment Performance
24
4Q16 Performance
Sequentially lower volumes to commercial customers reflecting a normal seasonal
pattern
Year-over-year sales increased 3%
Adjusted EBITDA was 11.2% higher than 4Q15
1Q17 outlook vs. 4Q16
Expected sequential increase from the normal seasonally weak 4Q16
Expected customer inventory reductions
Expected higher commodity and materials costs
Winchester
Segment Performance
25
4Q16 3Q16 ∆ Q/Q
Sales $161.4 $203.2 -20.6%
Adjusted EBITDA $29.7 $40.7 -27.0%
($ in millions)
Corporate & Other
26
4Q16 3Q16
Pension Income $13.4 $15.4
Environmental Expense $(3.7) $(0.4)
Other Corporate and
Unallocated Costs
$(18.5) $(28.2)
Restructuring Charges $(6.7) $(5.2)
Acquisition-related Costs $(9.2) $(13.1)
($ in millions)
Corporate and other unallocated costs are consistent with our full year 2016 expectations that
levels will be higher than the full year 2015 due to the build out of our corporate capabilities
since the acquisition
Corporate and other unallocated costs are lower in 4Q16 due to lower legal and litigation costs
and decreased asset retirement costs at past manufacturing locations
Restructuring charges are primarily related to the closure of 433,000 tons of chlor alkali capacity
Acquisition-related costs are associated with our integration of the Acquired Business
Full Year 2017
Forecast
Key Elements
Capital Spending $300 to $350
Maintenance level of capital spending of $225M to $275M
annually, synergy capital of $30M, includes bleach capacity and
other projects
Investments $210 Includes 20 year ethylene at cost supply contract
Total $510 to $560
Depreciation & Amortization $535
Property, plant and equipment and intangible assets fair value
step up of approximately $2.5B. Includes FV step up of $160M
Pension Income $40 to $45 Lower than 2016 income levels by approximately $10M
Environmental Expense $15 to $20 Represents a more historic level of expense
Other Corporate & Unallocated Costs $110 to $115
Stock-based compensation, legal and litigation costs, and the
build out of corporate infrastructure costs
Restructuring & Acquisition Costs $50 Acquisition related integration and restructuring costs
Book Effective Tax Rate 25% to 30%
Favorable book/tax permanent differences, primarily salt
depletion
Cash Tax Rate $10 Refund
2017 cash tax benefit utilizes the benefits of NOL carry
forwards from 2015, 2016 and income tax refunds
($ in millions)
27
Guidance Assumptions
Advantaged Ethylene Arrangement
•A series of three supply agreements with Dow
•Pipeline supply without operating or start-up risk
•Producer economics
Tranche Effective Date Annual Volume
(short-tons)
Cost
(millions)
#1 Acquired at closing Up to 180,000 $433*
#2 Available ~ 2H 2017 Up to 160,000 ~$210
#3 Available ~ 4Q 2020 Up to 300,000 $425-$465
* Includes option payments for Tranches #2 and #3
28
Non-GAAP Financial Measures – Adjusted EBITDA (a)
(a) Unaudited.
(b) Restructuring charges were primarily associated with the closure of 433,000 tons of chlor alkali capacity across three separate Olin locations, of which $76.6 million was non-
cash impairment charges for equipment and facilities for the year ended December 31, 2016.
(c) Acquisition-related costs were associated with our acquisition of the Acquired Business.
(d) Certain non-recurring items for the year ended December 31, 2016 included an $11.0 million insurance recovery for property damage and business interruption related to a
2008 Henderson, NV chlor alkali facility incident.
29
Olin's definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net income (loss) plus an add-back for depreciation and amortization,
interest expense (income), income tax expense (benefit), other expense (income), restructuring charges, acquisition-related costs and certain other non-recurring items. Adjusted
EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors as a supplemental financial measure to assess the financial
performance of our assets without regard to financing methods, capital structures, taxes, or historical cost basis. The use of non-GAAP financial measures is not intended to
replace any measures of performance determined in accordance with GAAP and Adjusted EBITDA presented may not be comparable to similarly titled measures of other
companies. Reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures are omitted from this release because Olin
is unable to provide such reconciliations without the use of unreasonable efforts. This inability results from the inherent difficulty in forecasting generally and quantifying certain
projected amounts that are necessary for such reconciliations. In particular, sufficient information is not available to calculate certain adjustments required for such
reconciliations, including interest expense (income), income tax expense (benefit), other expense (income), restructuring charges, and acquisition-related costs. Because of our
inability to calculate such adjustments, forward-looking net income guidance is also omitted from this release. We expect these adjustments to have a potentially significant
impact on our future GAAP financial results.
Year
Ended
December 31, September 30, December 31,
(In millions) 2016 2016 2016
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
Net Income (Loss) 17.5$ 17.5$ (3.9)$
Add Back:
Interest Expense 48.3 47.5 191.9
Interest Income (2.1) (0.5) (3.4)
Income Tax Provision (Benefit) 6.0 3.8 (30.3)
De eciation and Amortization 136.1 135.3 533.5
EBITDA 205.8 203.6 687.8
A d B ck:
Restructuring Charges (b) 6.7 5.2 112.9
Acquisition-related Costs (c) 9.2 13.1 48.8
Certain Non-recurring Items (d) - - (11.0)
Adjusted EBITDA 221.7$ 221.9$ 838.5$
Three Months Ended
Non-GAAP Financial Measures – Net Income
(loss) from Operations per share (a)
(a) Unaudited.
(b) Restructuring charges were primarily associated with the closure of 433,000 tons of chlor alkali capacity across three separate Olin locations, of which $76.6 million was non-
cash impairment charges for equipment and facilities for the year ended December 31, 2016.
(c) Acquisition-related costs were associated with our acquisition of the Acquired Business.
(d) Certain non-recurring items for the year ended December 31, 2016 included an $11.0 million insurance recovery for property damage and business interruption related to a
2008 Henderson, NV chlor alkali facility incident.
(e) Step-up depreciation and amortization of $40.3 million for both the three months ended December 31, 2016 and September 30, 2016 and $161.4 million for the year ended
December 31, 2016 was associated with the increase to fair value of property, plant and equipment, acquired intangible assets and long-term supply contracts at the acquisition
date related to the purchase accounting of the Acquired Business.
(f) The effective tax rate on the pretax adjustments from net income (loss) per share to adjusted net income from operations per share is approximately 37%.
30
Olin's definition of adjusted net income (loss) from operations per share is net income (loss) per share plus a per dilutive share add-back for step-up depreciation and amortization
recorded in conjunction with the Acquired Business, restructuring charges, acquisition-related costs, certain other non-recurring items and the tax impact of the aforementioned
adjustments. Adjusted net income (loss) from operations per share is a non-GAAP financial measure excluding certain items that we do not consider part of ongoing operations.
Management believes that this supplemental financial measure is meaningful to investors as a financial performance metric which is useful to investors for comparative purposes.
The use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP and adjusted net income (loss) from
operations per share presented may not be comparable to similarly titled measures of other companies.
Year
Ended
December 31, September 30, December 31,
2016 2016 2016
Reconciliation of Net Income (Loss) Per Share to Adjusted Net Income from Operations Per Share:
Net Income (Loss) Per Share 0.10$ 0.11$ (0.02)$
Add Back:
Re t ucturing Charges (b) 0.04 0.03 0.68
A q isition-related Costs (c) 0.06 0.08 0.30
Certain Non-recurring Items (d) - - (0.07)
Step-Up Depreciation and Amortization (e) 0.24 0.24 0.98
Income Tax Impact (f) (0.13) (0.13) (0.71)
Adjusted Net Income from Operations Per Share 0.31$ 0.33$ 1.16$
Three Months Ended
Non-GAAP Financial Measures by Segment
31
(In millions)
Income (loss)
before Taxes
Depreciation and
Amortization
Adjusted
EBITDA
Chlor Alkali Products and Vinyls 72.4$ 106.5$ 178.9$
Epoxy (3.1) 22.7 19.6
Winchester 25.0 4.7 29.7
(In millions)
Income (loss)
before Taxes
Depreciation and
Amortization
Adjusted
EBITDA
Chlor Alkali Products and Vinyls 53.7$ 106.3$ 160.0$
Epoxy 10.3 22.6 32.9
Winchester 36.0 4.7 40.7
Three Months Ended December 31, 2016
Three Months Ended September 30, 2016