Alembic Global Advisors Chemical & Industrial Conference/media/Files/V/Venator/reports-and... ·...
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General Disclosure
This presentation includes “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S.
Securities Exchange Act of 1934, as amended. These forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future
revenue or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical
information. When used in this presentation, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” or future or conditional verbs,
such as “will,” “should,” “could,” or “may,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking
statements, including, without limitation, management’s examination of historical operating trends and data, are based upon our current expectations of future events and
various assumptions which may not be realized or accurate. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis
for them. However, there can be no assurance that management’s expectations, beliefs and projections will be achieved. We undertake no obligation to update or revise
forward-looking statements which may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this presentation. Such
risks, uncertainties and other important factors include, among others: future global economic conditions, delays in reconstruction of our Pori, Finland manufacturing facility or
losses for business interruption or construction costs that exceed our coverage limit applicable to the fire at that facility, changes in raw material and energy prices, access to
capital markets, industry production capacity and operating rates, the supply demand balance for our products and that of competing products, pricing pressures, technological
developments, changes in government regulations, geopolitical events and other risk factors as discussed in our prospectus filed pursuant to Rule 424(b)(4) on December 1,
2017 and our annual report on Form 10-K filed on February 23, 2018.
This presentation contains financial measures that are not in accordance with generally accepted accounting principles in the U.S. ("GAAP"), including EBITDA, adjusted
EBITDA, adjusted EBITDA margin, free cash flow and net debt and certain ratios and other metrics derived therefrom. We have provided reconciliations of non-GAAP financial
measures to the most directly comparable GAAP financial measures in the Appendix to this presentation.
Architectural Coatings
14%
Industrial Coatings11%
Construction44%
Plastics15%
Personal Care, Food,
Pharmaceuticals & Active Materials
6%
Agriculture & Water4%
Other6%
Venator Snapshot
3
En
d M
ark
ets
(4)
FY17
Revenue (mm)(1) $2,209
Pro forma adj. EBITDA (mm)(2) $500
% margin 23%
FY17 4Q17 Run-rate(3)
Revenue (mm) $1,604
Adj. EBITDA (mm) $387 $476
% margin 24% 30%
FY17 4Q17 Run-rate(3)
Revenue (mm) $605
Adj. EBITDA (mm) $72 $60
% margin 12% 10%
Titanium Dioxide Performance Additives
Note: See Appendix for a reconciliation of pro forma Adj. EBITDA and Run-rate Adj. EBITDA.
(1) Excludes revenue from other businesses and entities not included in the separation of Venator from Huntsman; (2) Titanium Dioxide segment Adjusted EBITDA and Performance Additives segment Adjusted EBITDA adjusted to include estimated public company standalone costs of $40 million, pro forma for unrealized $66 million benefit from business improvement program, and excludes 1Q17 impact from Pori fire of $15 million; (3) Represents annualized segment 4Q17 adj. EBITDA, % margin based on FY17 revenue; not adjusted for seasonality; excludes allocation of standalone corporate costs and unrealized benefit from business improvement program; (4) FY17 revenues
Seg
men
t
Architectural Coatings
28%
Industrial Coatings15%
Plastics34%
Inks6%
Personal Care, Food,
Pharmaceuticals & Active Materials
6%
Fibers & Films 8%
Other3%
Rep
resen
tati
ve
Cu
sto
mers
$306
$699
$449
$117 $134
($8)$61
$387 $476
17%
30%
22%
6% 7%N/A 4%
24%
30%
2010 2011 2012 2013 2014 2015 2016 2017 4Q17RunRate
(1) (1) (1) (1) (1)
Titanium DioxideSegment overview
4
Architectural Coatings
28%
Industrial Coatings15%
Plastics34%
Inks6%
Personal Care, Food,
Pharmaceuticals & Active Materials
6%
Fibers & Films8%
Other3%
Chemours17%
Cristal12%
Venator11%
Lomon Billions8%
Kronos8%
Tronox6%
Others38%
Europe50%
Asia Pacific22%
US & Canada
17%
Rest of World11%
FY17 Revenues Source: Management Estimates
Consumer 46%
Segment
Revenues
$1.6billion
Segment
Adjusted EBITDA
$387million
COATINGS
INKS
2016 Nameplate Capacity; Excludes VNTR South African facility
TiO2 Capacity
End Markets FY17
FY17 Revenues
$ in millions Adj. EBITDA Margin
Adjusted EBITDA History
Revenues
Note: See Appendix for a reconciliation of Adj. EBITDA and Run-rate Adj. EBITDA. Financial information prior to October 1, 2014 adjusted to include the acquisition of the Titanium Dioxide and Performance Additives businesses of Rockwood Holdings, based upon their management’s representation
(1) Adjusted to include the Oct. 1, 2014 acquisition of the Performance Additives and Titanium Dioxide businesses of Rockwood Holdings, Inc. as if consummated at the beginning of the period; excludes the related sale of our TR52 product line – used in printing inks – to Henan Billions Chemicals Co., Ltd. in December 2014; and excludes the allocation of general corporate overhead by Rockwood; (2) Represents annualized Titanium Dioxide 4Q17 adj. EBITDA, % margin based on FY17 LTM revenue; not adjusted for seasonality; excludes allocation of standalone corporate costs and unrealized benefit from business improvement program
(2)
Market Leader in High-Value Specialty TiO2
Source: Management estimates5
Venator has more than half of its sales in high value TiO2 categories
1,000 2,000 3,000 4,000 5,000 6,000
Price
Low Quality
Functional
Differentiated
Sp
ecia
lties
9%17% 42% 32%
21%0% 49% 30%
Legend:
% Total global TiO2
industry demand
% Venator TiO2 sales
Venator Focus
Estimated World Demand (kmt)Indicative EBITDA
margins1x 2x 3x+
� Catalysts
� Food
� Pharma & Cosmetics
� Fibers & Films
� Solar
� Speciality Inks
� Industrial coatings
� Performance plastics
� Differentiated Inks
� Functional coatings (architectural)
� Functional plastics
� Paper
Applications
$60$73 $78
$57
$17 $21$35
$5 $0$15
$31 $38 $46
$69
$114
$142 $134
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
Adjusted EBITDA Commodity TiO2 Average Sales Price ($/ton)
Price Momentum Expected to Continue
Source: Company filings, management estimates and TZMI6
Quarterly TiO2 Average Sales Price ($/MT)
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18F
Venator TZMI
4Q17 vs. 4Q13 – TiO2 sales price up $50/ton, Segment Operating Adjusted EBITDA up $74mm
$ in millions
Historical cyclical peak
Note: Financial information prior to October 1, 2014 adjusted to include the acquisition of the Titanium Dioxide and Performance Additives businesses of Rockwood Holdings, based upon their management’s representation
Global TiO2 Operating Rate OutlookImproving utilization rates through gradual demand improvement
Source: TZMI, management estimates7
0%
20%
40%
60%
80%
100%
0
2,000
4,000
6,000
8,000
2011 2012 2013 2014 2015 2016 2017E 2018P 2019P
Op
era
tin
g R
ate
Vo
lum
e (
kM
T)
Global Demand Global Effective Operating Rate ex. China (%) Global Effective Operating Rate (%)
Global TiO2 Effective Operating Rate Outlook
� Western producers operating at ~95%+ utilization rates, while Chinese operating rates continue to improve
� No new capacity expected:
– Neither greenfield nor brownfield economics are supported by current TiO2 prices
– Significant time for plants to come online (3-4 years)
� Differential between Western and Chinese product quality now transparent to all customers and producers
� Customers have moved beyond thrifting / substitution
� Chinese environmental enforcements idled estimated 250kMT-300kMT of annualized capacity in 3Q17 – trend
expected to continue in 2018
Sulfate Production to Benefit from Sustained Sulfate Ore Advantage
Source: TZMI, management estimates8
Principal Feedstock Types Sulfate Ore Prices Advantaged and Less Volatile
(TiO2 Ore Prices, $/MT)
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
2009 2014 2019P
Rutile (95% content) Chloride Slag (85% content)
Sulfate Slag (79% content) Ilmenite (52% content)
Favorable market structure for sulfate ores
Sulfate Chloride
Feedstock Ilmenite Chloride Slag
Capital Intensity Low High
Energy Usage Low High
Number of Producers
>20 <5
LargestProducer Share
<15% ~70%
Primary Sulfate Feedstock
$69 $69$72
$103
$119
$89 $98
$91
15% 16%13%
15% 14%12% 12% 12%
2010 2011 2012 2013 2014 2015 2016 2017
Segment Adj. EBITDA Segment Adj. EBITDA Margin
Architectural Coatings
14%
Industrial Coatings11%
Construction44%
Plastics15%
Agriculture & Water
4%
Other6%
Performance AdditivesSegment overview
9
Consumer 25%
Europe32%
Asia Pacific16%
US & Canada50%
Rest of World2%
$ in millions
(1) (1) (1) (1) (1)
FY17 Revenues
End Markets
Segment Adjusted EBITDA History
Segment Revenues
Segment
Revenues
$0.6billion
Segment
Adjusted EBITDA
$72million
CONSTRUCTION
COATINGS
FY17
Source: Management Estimates FY17 Revenues
Personal Care, Food, Pharmaceuticals & Active
Materials6%
Note: See Appendix for a reconciliation of pro forma Adj. EBITDA and pro forma Run-rate Adj. EBITDA. Financial information prior to October 1, 2014 adjusted to include the acquisition of the Titanium Dioxide and Performance Additives businesses of Rockwood Holdings, based upon their management’s representation
(1) Adjusted to include the Oct. 1, 2014 acquisition of the Performance Additives and Titanium Dioxide businesses of Rockwood Holdings, Inc. as if consummated at the beginning of the period; excludes the related sale of our TR52 product line – used in printing inks – to Henan Billions Chemicals Co., Ltd. in December 2014; and excludes the allocation of general corporate overhead by Rockwood
Functional Additives
Performance Additives
Source: Company filings10
Residential construction (ACQ, ECOLIFETM and Copper Azole)
� Protects wood from decay and
fungal or insect attack
Industrial construction (Chromated Copper Arsenate)
� Prolongs service life of wood
Polyaluminium chloride based flocculants
� Clarifies water by promoting the
sedimentation of particles
� Highly durable red, yellow, black
and tan pigments
� Colorants for paint, plastics and
concrete
Iron Oxides
� Unique blue-shade pigments
� Violet and pink variants
Ultramarines
Specialty Inorganics Chemicals
� Weather-resistant, chemically
stable pigments
� Distinct color shades
Driers � Controls the drying rate of a paint
or ink
Color Pigments
Timber and Water
Treatment
Barium and Zinc Additives � Fillers that enhance the gloss and flow of paints and the mechanical properties of plastics
� Specialty soft white pigments
Product Characteristics & Uses Competition Benefit
32%
32%
36%
‘17 EBITDA % split
Product overview
� Strong EBITDA margins
� Complementary and common process technology
� Similar customer base to TiO2
� High cash conversion margins
� Good geographic balance
� Similar customer base to TiO2
� Common process technology
� Limited number of major competitors
� Stable demand profile
� High cash conversion
$90 Million EBITDA Improvement Program
11
Business Improvement Program
Expected Annual EBITDA Capture
Highlighted Activities
� Incremental EBITDA benefit to 2016
� Realized $9 million of incremental benefits in 4Q17
� $24 million of EBITDA benefit captured in 2017
� Full run-rate expected to be captured by 1Q19
� Total estimated cash restructuring costs of ~$100 million
$ in millions
Source: Management estimates
� Facility rationalization program completed
– Umbogintwini, South Africa (TiO2) – closed
– Calais, France (TiO2 white end) – closed
– Easton, PA. and St. Louis, MO. (color pigment) –closed
� Leverage position in higher value markets
� Launch of new TiO2 products
Expected Run-rate Improvement
$30
$90$30
$30
Facilities closures Fixed costs Volume EBITDAImprovement
$ in millions
$24
2017 2018F 2019F
Actual Forecast
$24 million of EBITDA benefit captured in FY17
Financial Profile
(1) Net debt to LTM EBITDA; 3Q17 pro forma adjusted for corporate stand alone costs
12
Net Debt
$ in millions
Attractive Position
Comment
� Liquidity of $481mm as of December 31, 2017
– $238mm cash
– $243mm ABL borrowing base
� Net debt decreasing
� Attractive tax profile
– $1bn of Net Operating Losses
– No material change from U.S. tax reform
� Cross currency swaps executed in December 2017
– Annual interest savings of $5mm, $21mm by maturity in July 2022
– Weighted average cost of debt reduced to 4.4% from 5.0%
Cash tax rateAdjusted effective tax rate
DebtCash
Tax Rate
3Q17 4Q17
$(238)$(186)
$757$751
$519$565
1.6x(1)
1.3x(1)
0
0.5
1
1.5
2
2017 Expected
18%
9%
15-20%
10-15%
15-20%15-20%
10-15%
Cash Uses
(1) Excluding Pori reconstruction costs
13
Cash Uses 2017 2018E
Capital expenditures(1) $(103) ~$(120)
Cash interest (28) ~(35)-(40)
Primary working capital change
35 ~(20)-(30)
Restructuring (33) ~(35)-(40)
Other (includes pension) (33) ~(40)-(50)
Subtotal Cash Uses Before Taxes and Pori
(162) ~(250)-(280)
Cash income taxes (21)9% 10 - 15%
We expect to generate > $200 million FCF in 2018 before Pori
$ in millions
Op
po
rtu
nis
tic S
trate
gic
Tra
nsacti
on
s
Priority of Cash Uses
1. Earnings Growth
Pori reconstruction
Capex projects targeting >20% IRR
2. Strengthen Balance Sheet
Debt reduction
3. Shareholder Actions
Share repurchases
Dividend consideration
Net debt target $350 million
Why Venator?
14
Leader in Specialty TiO2
with Sulfate Ore
Advantage
� Significant EBITDA margin improvement over past three years
� Business improvement program underway with projected Adjusted EBITDA
improvement of $90 million
� $24mm of incremental EBITDA benefit realized by the end of 4Q17
Successful Business
Transformation
Strong Free Cash
Flow Generation
Complementary
Performance Additives
Business
� Market leader in high-value specialty TiO2
� Sulfate production to benefit from sustained sulfate ore advantage
� Global provider of performance additives, with market leading positions in attractive products
� Stable EBITDA and consistent cash flows, benefiting from improvement program
� Strong free cash flow generation will enable the rebuild of our Pori, Finland facility and debt reduction improving equity value
Pro Forma Adj. EBITDA Reconciliation
16
$ in millions 2010 2011 2012 2013 2014 2015 2016 4Q16 4Q17 FY17
Net Income/(Loss) $ (162) $ (352) $ (77) $ (4) $ 70 $ 144
Net income attributable to noncontrolling interests (2) (7) (10) (2) (2) (10)
Net income of discontinued operations – (10) (8) – – (8)
Interest 2 30 44 13 11 40
Taxes (17) (34) (23) (9) 24 50
Depreciation and Amortization 93 100 114 30 32 127
EBITDA $ (86) $ (273) $ 40 $ 28 $ 135 $ 343
Acquisition and integration expense 45 44 11 – 3 5
Separation gain – – – – (27) (27)
Purchase accounting adjustments 13 – – – – –
(Gain) loss on disposition of business (1) 1 (22) 1 – –
Certain legal settlements and related expense 3 3 2 1 – 1
Amortization of pension and postretirement actuarial losses 11 9 10 2 4 17
Net plant incident costs – 4 1 3 – 4
Restructuring, impairment, and plant closing costs 62 220 35 4 3 52
Adjusted EBITDA $ 47 $ 8 $ 77 $ 39 $ 118 $ 395
Corporate and other 29 53 53 7 16 64
Operating Segment Adjusted EBITDA $ 76 $ 61 $ 130 $ 46 $ 134 $ 459
Historical Segment EBITDA as reported(1) 409 818 538 215 – – – – – –
Titanium Dioxide Segment EBITDA – – – – 62 (8) 61 34 119 387
Performance Additives Segment EBITDA – – – – 14 69 69 13 15 72
Pro forma adjusted EBITDA relating to Rockwood acquisition – – – – 149 – – – – –
Public company standalone costs (pro forma 2010-2017) (40) (40) (40) (40) (40) (40) (40) (10) (10) (40)
1Q 17 impact from Pori Fire – – – – – – – – – 15
Business improvement program unrealized – – – – – – – – 14 66
Pro forma Adjusted EBITDA $ 369 $ 778 $ 498 $ 175 $ 185 $ 21 $ 90 $ 37 $ 138 $ 500
(1) Adjusted to include Rockwood pro forma
Pro Forma Financial Detail
17
$ in millions 2010(1)
2011(1)
2012(1)
2013(1)
2014(1)
2015 2016 4Q16 4Q17 FY17
Titanium Dioxide Revenue 1,773$ 2,305$ 2,083$ 2,105$ 2,009$ 1,584$ 1,554$ 357$ 387$ 1,604$
Performance Additives Revenue 686 727 673 656 664 578 585 134 141 605
Total Revenue 2,459$ 3,032$ 2,756$ 2,761$ 2,673$ 2,162$ 2,139$ 491$ 528$ 2,209$
Titanium Dioxide Adj. EBITDA 306$ 699$ 449$ 117$ 134$ (8)$ 61$ 33$ 119$ 387$
Performance Additives Adj. EBITDA 103 119 89 98 91 69 69 13 15 72
Operating Segment Adjusted EBITDA 409$ 818$ 538$ 215$ 225$ 61$ 130$ 46$ 134$ 459$
Note: Financial information prior to October 1, 2014 adjusted to include the acquisition of the Titanium Dioxide and Performance Additives businesses of Rockwood Holdings, based upon their management’s representation
(1) Adjusted to include the Oct. 1, 2014 acquisition of the Performance Additives and Titanium Dioxide businesses of Rockwood Holdings, Inc. as if consummated at the beginning of the period; excludes the related sale of our TR52 product line – used in printing inks – to Henan Billions Chemicals Co., Ltd. in December 2014; and excludes the allocation of general corporate overhead by Rockwood