november 15, 2018 hopewell event and plant tour/media/files/a/advansix... · 2018-11-14 · forward...
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November 15, 2018 Hopewell Event and Plant Tour
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2Forward Looking StatementsThis presentation contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, that address activities, events or developments that our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements may be identified by words like "expect," "anticipate," "estimate," “outlook”, "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should" and "believe" or other variations or similar terminology. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results or performance of the company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: general economic and financial conditions in the U.S. and globally; growth rates and cyclicality of the industries we serve; the impact of scheduled turnarounds and significant unplanned downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather conditions, and natural disasters; price fluctuations and supply of raw materials; our operations requiring substantial capital; failure to develop and commercialize new products or technologies; loss of significant customer relationships; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our operations; hazards associated with chemical manufacturing, store and transportation; litigation associated with chemical manufacturing and our business operations generally; inability to acquire and integrate businesses, assets, products or technologies; protection of our intellectual property and proprietary information; prolonged work stoppages as a result of labor difficulties; cybersecurity and data privacy incidents; failure to maintain effective internal controls; our inability to achieve some or all of the anticipated benefits of the spin-off from Honeywell including uncertainty regarding qualification for expected tax treatment and indebtedness incurred in connection with the spin-off; fluctuations in our stock price; and tax reform or other changes in laws or regulations applicable to our business. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2017 and our subsequent Quarterly Reports on Form 10-Q.
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3AdvanSix At A GlanceAdvanSix is a Leading Producer of Nylon 6 and Intermediate Chemicals
Customers
By Product By Region
Top 10
• Top 10 customers span all product categories
• Most sales contracts have 1-2 year terms with standard renewal / notice provisions
• Customer relationships strong – average 20 year relationships across top 10 customers
• Primarily mitigate commodity price risk through formula price agreements
AllOthers
Direct Raw Material Spend
Cumene
LTM (2) Revenue Breakdown
• Security of direct materials through multiple supplier contracts
• Pricing tracks key commodity inputs
SulfurNatural
Gas
Other
Key Inputs
73%13%
12%
73%10%
8%8%
Ammonium Sulfate: $283M
Nylon: $416M
Chemical Intermediates:
$518M
Caprolactam: $282M
United States: $1,247M
LatAm/Canada:$180M
Asia: $33M EMEA: $39M
44%56%
By End Market
Building & Construction
Ag / Fertilizer
Solvents
Packaging
Coatings, Adhesives
Other
• NYSE: ASIX• Spin-off from Honeywell:
October 1, 2016• Market Cap: ~$800M (1)
• LTM Revenue: ~$1.5B (2)
• Employees: ~1,510• Four U.S. Manufacturing Sites
Profile
(1) As of November 9, 2018(2) LTM = Last twelve months through 3Q18
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4Vertically Integrated Manufacturing SitesCompetitive Advantage Derived from Significant Scale, Integration and Diverse Revenue Streams
Frankford Plant Hopewell Plant Chesterfield Plant
• One of world’s largest single-site producers of Caprolactam and Ammonium Sulfate fertilizer
• Capacity: 795M lbs Caprolactam 3.3B lbs Ammonium Sulfate 600 KMT Ammonia
CPL • Second largest U.S. site for Nylon 6 production
• Resins in wide range of viscosities and specifications
• Capacity: 440M lbs Nylon 6 Resin
NaturalGas
Phenol
Sulfur
• Second largest producer of Phenol and Acetone in North America
• Acquired in 2011 from Sunoco• Capacity: 1.1B lbs Phenol
680M lbs Acetone
Cumene Nylon Resin
Sulf-N® Ammonium Sulfate Fertilizer
Nadone® CyclohexanoneNaxol® Cyclohexanol
Flake & MoltenCaprolactam Aegis® Nylon 6 ResinsPhenol, Acetone, Alpha-Methylstyrene
Additional Nylon Film
assets located in Pottsville,
PA
Raw Materials ASIX Product
Cumene is converted into Phenol, Acetone & Alpha-Methylstyrene
75%-80% of Phenol produced at Frankford transported to Hopewell
~60% of the Caprolactam produced at Hopewell shipped to Chesterfield
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5Hopewell Site OverviewOne of the World’s Largest Single-Site Producers of Caprolactam and Ammonium Sulfate Fertilizer
• First ammonia plant in North America was built here in 1928 by the Atmospheric Nitrogen Division of Allied Chemical and Dye
• Hopewell site heritage includes the first liquid nitrogen fertilizer
• Caprolactam plant was built in 1954-1957 by National Aniline Division of Allied Chemical and Dye
History
Size & Demographics
• ~480 acres across facility; highly integrated operations
• ~750 employees plus additional contractors on site
• ~2,500 tanks and pressure vessels, over 10,000 instrumentation and controls
• Manufacturing nearly 20,000,000 lbs. of products per day
• Use of James River water for non-contact cooling
• Largest single industrial consumer of gas on the east coast
Other Facts
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6Hopewell Site – Process OverviewIntegrated Unit Operations With Significant Scale
Sulfur
Phenol
Natural Gas
Sulfur
Sulfuric Acid Plant
Area 6 Cyclohexanone
Production
Kellogg Ammonia Plant
Area 9 Hydroxylamine
Production
Area 8 Crude Lactam
Area 7 Lactam
Purification
Area 11 Sulfate
Crystallization
Key Inputs Unit Operations
Oximes Multi-Unit
External Sales
Product Unit Operation
Caprolactam Area 7
Ammonium Sulfate Area 11
Cyclohexanone / Cyclohexanol /
KA OilArea 6
MEKO / 2PO / AAO Oximes
Ammonia / CO2 Kellogg
Sulfuric Acid Sulfuric Acid Plant
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7Sustainable Lowest Cost Position
• U.S. footprint provides access to world’s lowest cost natural gas
• Access to high value end markets
Advantaged Location
• Fully backward integrated into several key feedstock materials
• One of world’s largest single-site producers of Caprolactam
• Significant operating leverage • Scale purchasing leverage
• Ammonium Sulfate and Acetone optimize cost position
• Go to market strategy / mix management to optimize netback
• Long-term contracts provide significant base load
• Demand for high quality intermediates further maximizes utilization
Vertical Integration
Industry-Leading
Scale
Net Back Optimization
High Utilization
Lowest $ / MT cost within the industry
Cos
tAdvanSix ROWChina
Global Caprolactam Supply / Cost Landscape
Global Demand Overcapacity
Capacity
Source: Wood Mackenzie, Tecnon OrbiChem, AdvanSix Management
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8World-Class Base Business PerformanceSustaining Cost Advantage and Improving Operating Leverage
Operational Excellence Commercial Excellence Functional Excellence
• HSE zero incident culture
• Advancing Together core tools driving continuous improvement
• Building out investment pipeline –focus on rate, yield, quality and cost
• Turnaround (TAR) excellence
• Sustaining ~2% of est. replacement value in maintenance Capex
• Logistics and terminal/warehouse network enable customer delivery excellence
• Product management discipline to drive mix and price optimization
• Technical marketing and application development further new product growth into high-value end-uses
• Driving maturity of strategic sourcing plans
• Optimizing freight & distribution
• IT enables process streamlining and automation
• Conversion cost focus to mitigate inflation
Safe and stable operations driving higher returns for the business
Sales and Marketing proficiency driving best-in-class customer experiences
Continuous improvement mindset driving productivity and efficiency
Long-Term Sustainable Performance and Value Creation
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9Health, Safety, Environmental (HSE)Enabling Safe, Secure, Sustainable and Compliant Operations
Priorities
• Zero incident culture
• 100% regulatory compliance
• Engaged and empowered workforce
• Strong linkage with local governments, agencies, communities
• Management system that enables continuous improvement
As a proud member of the American Chemistry Council (ACC), we manage our operations in a safe, secure and sustainable manner in accordance with
the Responsible Care® Guiding Principles
*U.S. Bureau of Labor Statistics TCIR benchmark for Plastics Material and Resin Manufacturing industry**ACC benchmark for medium size companies
Total Case Incident Rate (TCIR)
1.40
0.84 0.77 0.44
0.00
0.50
1.00
1.50
2.00
2016 BLSBenchmark*
2017 ACCBenchmark**
2016 2017
43% Improvement
TCIR: the number of occupational injuries and illnesses per 100 employees
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10Operational ExcellenceMaturing Processes to Mitigate Risk and Improve Year-over-Year Output
MaxProduction
Rate
Impact Current Output StrategicInitiatives
Future Output
A
BC
A
B
C
D
Hopewell Caprolactam Output
D
Capability Driven: Balancing optimal rates across unit operations
Turnarounds: Optimizing scope, frequency and complexity
OEE Losses: Driving maintenance excellence, de-risking for external events
Strategic Initiatives: Higher volume and returns for the business
Frankford
Hopewell
Chesterfield
Focus Area:
Turnaround Excellence
Reducing OEE Losses; Safe & Stable Ops
Optimizing Mix
Best Demonstrated Rate
Externally Reported Capacity
Project Pipeline
(Illustrative Framework)
Best demonstrated rate = best 3-day performance
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11Safe And Stable Operations RoadmapMulti-year Focus to Drive Stability and Higher Returns
2011-2012 2017
~97% Utilization
~92% Utilization
Less variability in utilization rates drives higher returns
ID Assets
Risk Rank
Assets
Assess Failure Impact
Perform RCPs
Leverage Tracking Software
Execute RCP
Actions
Asset Risk Matrix (ARM) Reliability Control Plans (RCP)• Maturing mechanical
integrity program
• Increased focus on Reliability Control Plans
• Generating and prioritizing RCP actions to mitigate risksStrong linkage between ARM, RCPs, and maintenance Capex
Externally Reported Capacity
Externally Reported Capacity
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12Operational ConsiderationsCapex Driving Higher Returns; Quarterly Linearity of Planned Turnarounds
• Timing driven by compliance, inspection and sustaining asset base
• Critical to supporting high utilization rates
• Dedicated teams to improve effectiveness
• Staggered across unit operations to maintain output
Capital Expenditures Planned Plant Turnarounds
1Q 2Q 3Q 4Q FY
2017 -- ~$10M ~$4M ~$20M ~$34M
2018 ~$2M ~$10M ~$30M -- ~$42M
2019E -- ~$5M ~$5M $25-$30M $35-$40M
Pre-Tax Income Impact by Quarter (1)
2018E
~$110M
~55%
~13%
~32%
Maintenance
HSE
Growth/Cost Savings
• Growth/Cost Savings: executing against multi-year $150-$200M pipeline of high-return projects; 20%+ IRR target
• Relocation of R&D lab in Colonial Heights adds ~$15M incremental capex in 2019
• Proactive maintenance capex supports safe and stable operations
Expect continued acceleration of high-
return growth and cost savings projects
in 2019
(1) Primarily reflects the impact of fixed cost absorption, maintenance expense, and the purchase of feedstocks which are normally manufactured by the Company
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13Strategic Value Stream Teams (SVTs)Driving Multi-Year Roadmap for Continuous and Step Change Performance
Analyze Gaps Identify Improvement Options ImplementationOEE
Yield
Quality
CostTechnology
ISC
Commercial
• Operational Excellence / Asset Reliability Plans
• Technology Road Maps
• Capital Projects / Strategic Investments
Background Impact / Benefits
Hopewell Example
Cyclohexanone Production
• New equipment design in unit area
• Improved turnaround methodology
• Distributed control system (DCS) tools to optimize process
• OEE improvements (~10M lbs Nadone®)
• Cost savings through reduced maintenance and downtime
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14High-Return Capex Projects Initiated In 2018Improving Output, Quality and Energy Efficiency at Hopewell
CAPEX IRR TIMING
$55-$60M ~20% 3Q / 4Q 2019
• Adding additional equipment to Hopewell to support reliability and debottleneck specific unit operations
• Increasing caprolactam output at Hopewell (~2% increase in capacity)
• Improving resin yields at Chesterfield; Upgrading mix optionality
Project Overviews and Benefits
• Making Hopewell facility more energy efficient – replacing coal-fired steam supply with natural gas-fired boilers
• Supporting increased output at Hopewell in future periods
• Improving consumption and yields; Ongoing cost reduction
Project #1 Project #2
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15Differentiated Product GrowthInnovation Key to Future Growth and Profit Margin Lift
High-Purity Applications
High-Value Intermediates
Differentiated Nylon
Differentiated Product Sales
8% – 10% of Total ASIX Sales
Differentiated Products Characteristics
Driving value and growth above base offerings
1.5x – 2x gross margin vs. company average
Penetrating high-value end-use applications
Exposure to favorable macro trends
Supplementing core foundation with value-based offerings
EZ-BloxTM Example• Anti-skinning agent used to optimize performance of
alkyd-based paints
• Becoming more widely adopted in paints and coatings
• Safe and cost effective drop-in replacement to meet future environmental regulations
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16Cash Flow And Capital DeploymentMaturing Deployment Strategies
• Internal reinvestment remains top priority• Base capex to support safe and stable operations• Executing against multi-year $150-$200M pipeline of
high-return growth and cost savings projects
Trailing 12-Month Cash Flow($ Millions)
Capital Deployment Framework
50
70
90
110
130
150
170
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Operating Cash Flow Capex
Capex
Return Excess Cash to
Shareholders
Disciplined M&A
Framework
• Share repurchase: $75M authorization in place (May 2018)– Repurchased ~2% of outstanding shares through late October
• Building pipeline across all product lines• Rationale to build on competitive advantage and core
capabilities:– Value chain integration
– Enhancement in size, free cash flow profile and margin stability
– End market, portfolio, geographical diversification
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17
Appendix
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18Nylon OverviewHighlights
Products
• Caprolactam (Flake and Molten)
• Nylon 6 Resin
• Nylon 6/66 Copolymer
• BOPA Films
~47% of ASIX Sales
• Nylon 6 Demand Growth In-Line With GDP– Engineered plastics and packaging faster growing segments
• Industry Operating Around Marginal Producer Economics– North America supply/demand generally in balance– Environmental policy and feedstock constraints driving China
dynamics
• Flexible Assets Enabling Mix Upgrade to High Value Applications
– Capacity across multiple polymer trains and viscosity spectrum– Chesterfield investments enable production of copolymer
Nylon 6/66
• Technology Focus on Application Development– Leverage customer intimacy with new technical marketing team– Pilot plant enabling improved scale-up
• Asset Utilization 90%+
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19Nylon Overview ~47% of ASIX Sales
Historical Revenue ($M)
Select Competitors
Select Customers
$598 $539$711 $698
2015 2016 2017 LTM
Source: Wood Mackenzie, AdvanSix ManagementLTM = Last twelve months through 3Q18
2018 Global Demand (~6,165 KMT)
% of Global Demand
~9%~540 KMT
~31%
~18%
~9%
Americas ChinaEurope ROW
Carpet
Engineered Plastics
Industrial
Packaging
~1,900 KMT
~1,090 KMT
~570 KMT
~33%Textile ~2,065 KMT
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20Ammonium Sulfate OverviewHighlights
Products
~19% of ASIX Sales
• Ammonium Sulfate ~5% of Nitrogen Fertilizer Consumption– Urea has underlying influence on all nitrogen nutrient products;
Ammonium Sulfate sold with added sulfur value proposition and has its own supply/demand fundamentals
• Improved Industry Dynamics as New ’18/’19 Season Begins
• Industry Leading Technology– 4:1 Raschig technology– High granular conversion (>60%)
• Differentiated Go-To-Market– Over 70% of North America sales to co-ops and integrated
retailers– Unique expertise, dedicated regional agronomists– Connection with the grower enables value add pricing
• Access to Top North and South American Growing Seasons Enables “Year-Round” Participation
Ammonium Sulfate Fertilizer– Granular
– Mid Grade
– Standard
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21Ammonium Sulfate Overview ~19% of ASIX Sales
Historical Revenue ($M)
Select Competitors
Select Customers
MMA Producers
Steel Mills
$338 $283 $277 $283
2015 2016 2017 LTM
LTM = Last twelve months through 3Q18
AdvanSix Ammonium Sulfate Sales by Region
AdvanSix Domestic Sales Mix
AdvanSix Export Sales Mix
U.S.Brazil
Other Latin America
Canada EMEA
GranularStandardGranular
Standard
Mid Grade
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22Chemical Intermediates Overview
• Manufacture, Market and Sell Chemical Products Derived From the Processes Within our Integrated Chain
– Integration enables full asset utilization– Dedicated sales and product marketing team enables product
mix optimization to maximize value– Acetone represents ~50% of Chemical Intermediates sales
• Exposure to Diverse Set of End-Use Applications– Building and construction, paints and coatings, adhesives, etc.
• Well-Positioned for Long-Term Growth– Advantaged geography, distribution footprint and quality– Differentiated portfolio to reach high-purity specialty
applications
• Maturing Pipeline of High-Return Investments Further Supports Longer-Term Growth and Performance
Highlights
Products
• Acetone• Phenol• Cyclohexanone / Cyclohexanol• Alpha-Methylstyrene• Oximes• Sulfuric Acid, Carbon Dioxide
~34% of ASIX Sales
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23Chemical Intermediates Overview
2018 Global Demand (~10,885 KT)
% of Global Demand
~48%
~5,250 KT
2018 Global Demand(~6,860 KT)
% of Global Demand
~25%
Phenol Acetone
~15%
~26%
~11%
~34%
~25%
~16%
Americas ChinaEurope ROW
Source: IHS Markit, AdvanSix ManagementLTM = Last twelve months through 3Q18
~34% of ASIX Sales
BPA
Nylon
Phenolic Resins
Other
~1,625 KT
~2,810 KT
~1,200 KT
BPA
Solvents
MMA
Other
~1,730 KT
~2,320 KT
~1,700 KT
~1,110 KT
Historical Revenue
($M)
Select Competitors
Select Customers
$393 $369$487 $518
2015 2016 2017 LTM