Innovation Day 2018 - Eastman
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Innovation Day 2018 Steve Crawford Senior Vice President and Chief Technology Officer
Transcript of Innovation Day 2018 - Eastman
Innovation Day 2018
Steve Crawford Senior Vice President and Chief Technology Officer
During these presentations, we make certain forward-looking statements concerning plans and expectations for Eastman Chemical Company. We caution you that actual events or
results may differ materially from our plans and expectations. Throughout these presentations, “F” is used to indicate projected, or “forecasted”, amounts. See Eastman’s most recent
Form 10-K and 10-Q filings with the Securities and Exchange Commission and these slides and the remarks in the presentations for risks and uncertainties which could cause actual
results to differ materially from current expectations.
Forward-looking statements
Non-GAAP financial measuresAll earnings measures in these presentations are non-GAAP and exclude certain non-core and unusual items. Full-year 2017 amounts are from our February 1 and 2 public
disclosures of our 2017 financial results but will be final when we file our 2017 Form 10-K with the SEC.
“Adjusted Net Income” is “Net Income” adjusted to exclude the same non-core and any unusual or non-recurring items as are excluded from the Company's other non-GAAP
earnings measures for the same periods.
“Debt to EBITDA” Ratio is defined as Total Debt divided by Adjusted EBITDA.
“Diversified Peers” are BASF, CE, HUN.
“EBITDA” is net earnings or net earnings per share before interest, taxes, depreciation and amortization adjusted to exclude the same non-core and any unusual or non-recurring
items as are excluded from the Company's other non-GAAP earnings measures for the same periods. “EBITDA Margin” is EBITDA divided by the GAAP measure sales revenue
in the Company’s income statement for the period presented. Information concerning use of the non-GAAP measures. Projections of future Adjusted EBITDA and EBITDA
Margin also exclude any non-core or non-recurring items.
“Free cash flow” is cash provided by operating activities less cash used for additions to properties and equipment, both the GAAP measures in the Company’s statements of
cash flows for the period presented. Information concerning use of the non-GAAP measure free cash flow is available in the Company’s Form 10-Q for third quarter 2017.
“Adjusted Free Cash Flow” is cash provided by operating activities excluding non-core or unusual items less cash used for additions to properties and equipment.
“Free cash flow conversion” is Adjusted Free Cash Flow divided by Adjusted Net Income.
“IRR” is the Internal Rate of Return calculated based on 10-year project cash flow assumptions.
“Return on Invested Capital” (or “ROIC”) is adjusted net income plus interest expense after tax divided by average total borrowings plus average stockholders’ equity for the
period presented, each derived from the GAAP measures in the Company’s financial statements for the periods presented.
“Specialty Peers” are ALB, ASH, FMC, IFF, PPG.
“Variable Margin” defined as GAAP measure sales revenue in the Company’s income statement for the period presented minus total raw material costs, total purchased energy
costs, and variable distribution costs divided by the GAAP measure sales revenue in the Company’s income statement for the period presented.
“Operating Margin” defined as operating earnings divided by the GAAP measure sales revenue in the Company’s income statement for the period presented.
Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available
in the Appendix and in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Forms 10-K and 10-Q filed and Forms 8-K
furnished and filed with the SEC for the periods for which non-GAAP financial measures are presented. Projected future earnings exclude any non-core, unusual, or non-recurring
items, and projections of future earnings per share assume that the adjusted tax rate for the most recent completed period will be the actual tax rate for the projected periods. Unless
otherwise indicated, except for earnings per share, all dollar amounts are millions “($M)” or billions “($B)”.
Eastman: The Innovation CompanyImproving the quality of life in a material way
AND
Innovation strategy shift: What’s changed?Enabling sustainable, predictable growth
World-Class
Technology
Platforms
Relentlessly
Engage
the Market
Differentiated
Application
Development
Significant integration and scale enable innovation, reliability and cost advantage
Advantaged growth and execution capability and culture
Aggressive portfolio management
CONNECTING MARKET DRIVERS
WITH CORE TECHNOLOGIES
CHANGED OUR
INVESTMENT FOCUS
Delivered robust portfolio of scalable, new product platforms
Market entitlement exists when …
Macro trends drive needs in niche markets
Health
wellness
• Product safety in durables and packaging
• Low VOC coalescents
Emerging
middle class• Low odor in adhesives
• Higher performing products
Natural
resource
efficiency
• CAFE standards
• Bioplastics
Feeding a growing population • Antibiotic free
• Crop yields
Eastman propionic acid
Banguard®
crop protection
Relentlessly Engage
the Market
Favorable macro trends applicable to >80% of Eastman growth revenue
Innovation entitlement exists when …
Technology platforms control end-use functionalityWorld-Class Scalable
Technology Platforms
Spun into Fiber
Formulated into Adhesive
Formulated into Coating
Thermoformed into an Article
Polyester
Scalable technologies expanding addressable market in multiple applications
Scalable technology platforms enable sustainable,
competitive advantage
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World-Class Scalable
Technology Platforms
CELLULOSE ESTERS
Eastman Competitor 1 Competitor 2
COPOLYESTERS
Capacity Number of products Capacity Number of products
0
50
100
150
200
250
300
350
400
450
Eastman Competitor 1 Competitor 2
kM
T
0
30
60
90
120
150
180
210
240
Eastman Competitor 1 Competitor 2
>50% of our specialty product lines are now IP protected
Eastman Competitor 1 Competitor 2
kM
T
8
Global APPARELspendinggrew 75%
since 2000
8
Millennials informing change
Purchasing power
$1.68 TRILLION
Average household income
$60,000
Millennialsdrastically changing theinnovation priorities of major brands
“HOME-TO-STREET”and
“TRAIL-TO-BAR”
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They want it all
COMFORT
PERFORMANCE
“GREEN”
SYNTHETIC
NATURAL
Differentiated
Application Development
Value chain in need of material innovationA value-rich target for harnessing molecular design across the value chain
SPINNING FABRICS GARMENT
Primary innovations from fiber blending
SYNTHETIC
NATURAL
Differentiated
Application Development
interact with spinning to
create a fiber...
SPINNING
that when used with
a specific fabric...
FABRICS
can optimize
garment properties...
GARMENT
that a
consumer
cares
about?
How does
changing
the
polymer...
Innovation entitlement is monetized when …Application development enables differentiated solutions
Focusing resources to fundamentally understand how molecular design affects functionality along the value system
APPLICATION DEVELOPMENT
An environmentally friendly textiles platform emerges:
Cellulose estersWorld-Class Scalable
Technology Platforms
0
1
2
3
4
5
COMFORT EASE OF CARE PERFORMANCE
World-Class Scalable
Technology Platforms
A textiles platform emerges:
Polyesters
Distinctive Hand & Improved Drape
Moisture Management
Thermal Management
AVRA PRODUCT BENEFITS
World-Class
Technology
Platforms
Relentlessly
Engage
the Market
Differentiated
Application
Development
Winning in applications: Today and beyond
Athleisure
Performance
Intimate
apparel
Fast fashion
Pilot Scale
Knitting Machine
Laboratory
Tenter
Oven
End-use testing
Prototyping
Application capability now built in strategic areas
Functional Films
Coatings Formulations
Nonwovens/Textiles
Rubber Additives Adhesives Formulations Animal Nutrition
Thermoplastic Processing
Differentiated
Application Development
Relentlessly Engage
the Market
World-Class Scalable
Technology Platforms
7 world-class technologies x 7 differentiated application platforms
provide infinite solutions for our niche markets
Consumables/
Textiles
Consumer
Durable Goods
Animal Nutrition/
Crop Protection
Building &
Construction
Differentiated
Application Development
Transportation
Modified
Polyesters
Cellulose
Esters/
Acetyls
PVBHydrocarbon
Resins
Olefin
DerivativesAlkylamines
Insoluble
Sulfur
Our growth model enables innovation efficiency by:1) Growing our technologies in adjacent applications
2) Increasing our strategic relevance at our customer base by leveraging multiple technologies
Differentiated
Application Development
Relentlessly Engage
the Market
World-Class Scalable
Technology Platforms
Modified
PolyestersPVB
Hydrocarbon
Resins
Olefin
DerivativesAlkylamines
Insoluble
Sulfur
Differentiated
Application Development
Acetyl Olefin
We have diversified our cellulose ester portfolio
OphthalmicsFlat Panal
Displays
Inks and
Metal PasteTires Fashion/
FiltersPoultry/
Swine
Cellulose
Esters/
Acetyls
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Demand on the rise
• Global bioplastics market expected to grow at 30% CAGR 2013–2030
• Traditional plastics expected to grow 3% annually
End-of-life concerns
Pollution
Health andwellness
Why does it take so long?
It’s hard … R&D is costly No sustainability
crystal ball
How to scale? Food
chain
concerns
Brand commitments to biobased materialsSupporting research and establishing company goals
And this is just a snapshot …
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Eastman is uniquely positioned …
Chemical resistant
Weatherable
Flow
Aesthetics
Dimensional stability
Historical cellulose ester attributes
The solution is here
Delivered in 18 months
Engineering performance from a bioplastic
We produce at scale today
Up to 45% renewable carbon
From sustainably-managed forests
Chemical resistant
Weatherable
Flow
Aesthetics
Dimensional stability
Sustainability scorecard
TRĒVA attributes
World-Class
Technology
Platforms
Relentlessly
Engage
the Market
Differentiated
Application
Development
Winning in applications: Today and beyondP
erf
orm
an
ce
2015 2020
CE product
Trēva™ improved
dimensional stability
Trēva™ improved
toughness
Next-gen Trēva™ Prototyping
Molecular design
Differentiated
Application Development
Relentlessly Engage
the Market
World-Class Scalable
Technology Platforms
Modified
PolyestersPVB
Hydrocarbon
Resins
Olefin
DerivativesAlkylamines
Insoluble
Sulfur
Differentiated
Application Development
Automotive
Cellulose
Esters/
Acetyls
Increasing our strategic relevanceExpanded breadth of products broadens the solution set …
Hygiene Sealed
PackagingPackaging
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
Aerafin 17-based Aerafin 180-based Commercial product 1 Commercial product 2
What Aerafin™ polyolefin polymers can deliver
Aerafin Commercial products
Aerafin odor comparison
Improved adhesion
Better processability
Excellent peel performance
Thermal stability
Applicator nozzle flexibility
Maintain low odor of Aerafin 180
Becoming a strategic part of our customers’ success
2011 2012 2013 2014 2015 2016 2017
Po
rtfo
lio
valu
e
New portfolio, new capability and intense focus deliver
a robust set of growth platforms
~60%
increase
in
growth
B&T
since
2013
TECHNOLOGY BUSINESS &TECHNICAL STAFF CHANGES
2013–2016
0
100
200
300
400
500
600
700
800
2013 B&T 2014 B&T 2015 B&T 2016 B&T 2017 B&T
Fundamental
process
research
Fundamental
process
research
Fundamental
process
research
Fundamental
process
research
Fundamental
process
research
Product
development
Product
development
Product
development
Product
development
Product
development
Market &
application
development
Market &
application
development
Market &
application
development
Market &
application
development
Market &
application
development
Since 2013, R&D spending on top 10 innovation programs has more than doubled, approaching 50% of total spending
Multiple platforms in launch enabling 2x market growth
2017 2020
~$300M
NEW
BUSINESS
REVENUE
Forecast
~$500M
NEW
BUSINESS
REVENUE
Technology platform New product launchesRelative to corporate
margins
Addressable market
($M) by platform
CE
s
Naia™ h
~$3BTreva™ fg
Vestera™ i
CE core growth hP
VB Acoustic PVB h
~$1BSaflex® HUD h
Po
lye
ste
rs
Next-gen Tritan™ h
~$4B
Avra™ fg
Tritan compounds h
Microfibers/nonwovens h
Tetrashield™ h
Insoluble sulfur
hydrocarbon resin
Crystex™ h
~$1BImpera™ fg
Olefin Aerafin™/Oxo derivatives fg ~$1B
Other BO specific launches h ~$1B
Eastman: The Innovation Company
Improving the
quality of life in
a material way
