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Page 1: November 15, 2018 Hopewell Event and Plant Tour/media/Files/A/AdvanSix... · 2018-11-14 · Forward Looking Statements. 2. This presentation contains certain statements that may be

November 15, 2018 Hopewell Event and Plant Tour

Page 2: November 15, 2018 Hopewell Event and Plant Tour/media/Files/A/AdvanSix... · 2018-11-14 · Forward Looking Statements. 2. This presentation contains certain statements that may be

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.

Page 3: November 15, 2018 Hopewell Event and Plant Tour/media/Files/A/AdvanSix... · 2018-11-14 · Forward Looking Statements. 2. This presentation contains certain statements that may be

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

Page 5: November 15, 2018 Hopewell Event and Plant Tour/media/Files/A/AdvanSix... · 2018-11-14 · Forward Looking Statements. 2. This presentation contains certain statements that may be

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

Page 10: November 15, 2018 Hopewell Event and Plant Tour/media/Files/A/AdvanSix... · 2018-11-14 · Forward Looking Statements. 2. This presentation contains certain statements that may be

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

Page 14: November 15, 2018 Hopewell Event and Plant Tour/media/Files/A/AdvanSix... · 2018-11-14 · Forward Looking Statements. 2. This presentation contains certain statements that may be

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

Page 16: November 15, 2018 Hopewell Event and Plant Tour/media/Files/A/AdvanSix... · 2018-11-14 · Forward Looking Statements. 2. This presentation contains certain statements that may be

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

Page 17: November 15, 2018 Hopewell Event and Plant Tour/media/Files/A/AdvanSix... · 2018-11-14 · Forward Looking Statements. 2. This presentation contains certain statements that may be

17

Appendix

Page 18: November 15, 2018 Hopewell Event and Plant Tour/media/Files/A/AdvanSix... · 2018-11-14 · Forward Looking Statements. 2. This presentation contains certain statements that may be

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