Advancing the Core Investor Day 2016 Cabot Corporation May 2016
Cabot Team Here Today Sean D. Keohane Hobart C. Kalkstein President and Chief Senior Vice President and Executive Officer President, Reinforcement Materials Segment Friedrich von Eduardo E. Cordeiro Executive Vice President,…
Investor Day Agenda AGENDA ITEM PRESENTER TIME Introductions Erica McLaughlin 9:00 9:05 Cabot Business and Strategy Sean Keohane 9:05 9:45 Performance Chemicals Nick Cross 9:45 10:15 Coffee Break Reinforcement Materials Bart…
Cabot Business Sean Keohane President and Chief Executive Officer 4
Our Vision We will be the most innovative, respected and responsible leader in our markets delivering performance that makes a difference. 5
Cabot is a Leader Today Our future success builds upon our current strengths ROBUST FINANCIAL STRONG FOUNDATION CULTURE OF EXCELLENCE POSITION Macro trends Safety first Strong balance sheet Durable end markets People Growing…
Strong Foundation Macro-trends that drive global growth 1.5 billion cars MOBILITY on the road by 2020 MIDDLE CLASS 50% growth in the middle class from GROWTH 2010 - 2020 9 trillion GLOBAL annual global DEVELOPMENT…
Strong Foundation Macro trends provide significant opportunity for Cabot MIDDLE CLASS GLOBAL MOBILITY SUSTAINABILITY GROWTH DEVELOPMENT Increased Construction and Need for better PERFORMANCE Light weighting of penetration of…
Strong Foundation Durable and proven end-market exposures TRANSPORTATION INFRASTRUCTURE / INDUSTRIAL Tires Plastics Coatings Adhesives and sealants Air purification Reinforcing composites Plastics Thermal insulation Batteries 25% Wire…
Strong Foundation Global reach with regional expertise 44 manufacturing sites in 21 countries 30 sales locations in 20 countries Assets consistent with revenue Asia EMEA Asia EMEA 28% 35% 32% 27% Revenue Assets Americas…
Strong Foundation Value-added technology capabilities PRODUCT INNOVATION PROCESS TECHNOLOGY Carbon conductive additives for batteries Scale and yield improvements Specialty carbons for engineering resins Raw material flexibility…
Strong Foundation Portfolio of leading businesses with attractive margins PERFORMANCE REINFORCEMENT PURIFICATION SPECIALTY FLUIDS CHEMICALS MATERIALS SOLUTIONS Adjusted EBITDA 232M 226M 50M 8M Adjusted EBITDA Margin 25% 15% 17%…
Culture of Excellence Embedded within the organization Engrained safety-first mindset Zero-incident operational goals World-class people Innovative and collaborative team Focus on operational effectiveness Long-lasting,…
Robust Financials Proven strength over time Strong balance sheet Investment grade credit rating Secure and growing dividend Excellent and consistent discretionary free cash flow Strong EBITDA generation CBT Quarterly Dividend Per…
Capital Allocation Balance of growth and return of cash to shareholders Invest approximately half of discretionary free cash flow (DFCF) 50% in growing the core franchises 50% re-invested and Return approximately half of DFCF through…
Corporate Strategy: Advancing the Core Extend our leadership in performance materials by investing for growth in our core businesses, driving application innovation with our customers, and generating strong cash flows through…
Corporate Strategy: Advancing the Core Extend our leadership in performance materials by 17
Corporate Strategy: Advancing the Core Extend our leadership in performance materials by investing for growth in our core businesses, GROWTH IN OUR CORE Leverage our global reach Capture market growth Enhance portfolio with new,…
Corporate Strategy: Advancing the Core Extend our leadership in performance materials by investing for growth in our core businesses, driving application innovation with our customers, and APPLICATION GROWTH IN OUR CORE…
Corporate Strategy: Advancing the Core Extend our leadership in performance materials by investing for growth in our core businesses, driving application innovation with our customers, and generating strong cash flows through…
Corporate Strategy: Advancing the Core Extend our leadership in performance materials by investing for growth in our core businesses, driving application innovation with our customers, and generating strong cash flows through…
The Result of Advancing the Core Strong fundamentals deliver sustained value creation GROWTH PROFITABILITY CASH FLOW AND CAPITAL Capture volumes from Invest in process Deliver strong cash global GDP industry growth technology and…
The Result of Advancing the Core TOTAL REVENUE PROFITABILITY CASH FLOW SHAREHOLDER GROWTH GROWTH MANAGEMENT RETURN Sustained and Return 50% of attractive TSR discretionary 7% - 10% free cash flow adjusted EPS Capture…
Performance Chemicals Nick Cross Executive Vice President and President, Performance Chemicals and Specialty Fluids Segments 24
Performance Chemicals Segment Overview SEGMENT FUNDAMENTALS PERFORMANCE Specialty businesses, attractive margins Attractive end markets Specialty carbons and formulations Diverse applications with extensive Specialty carbons,…
Specialty Carbons and Fumed Metal Oxides Specialty applications SPECIALTY CARBONS FUMED METAL OXIDES Color in coatings and moldings Reinforcement of silicones Conductivity in plastics, batteries Rheology modification of and…
Leading Market Positions Cabot has 1 or 2 position in all major product lines Specialty Carbons and Formulations Specialty Carbons Specialty Compounds Inkjet Colorants Global 1, 25% share 1 in Black (EU, Asia) Global 1, 40%…
Performance Chemicals Positioning END MARKET EXPOSURE GEOGRAPHIC EXPOSURE Consumer 10% Transportation Americas Asia 30% 33% 32% % of 2015 % of 2015 Revenue Revenue 60% Infrastructure / EMEA Industrial 35% Diversity…
Global Manufacturing Network Specialty carbons and compounds and fumed metal oxides assets Specialty Carbons Fumed Metal Oxides Specialty Compounds Substantial presence in all major geographic markets Global HQ Global…
Diverse Applications and End Markets Drives growth of GDP+ INFRASTRUCTURE TRANSPORTATION CONSUMER Industry growth: 2-4% Industry growth: 3-4% Industry growth: 5-7% Key applications Key applications Key applications Wire and cable…
Key Attributes by End Market CONSUMER Customized Solutions Global Differentiated Manufacturing INFRASTRUCTURE Products Network Strong Customer Relationships Advantaged Application Feedstock Expertise TRANSPORTATION…
Infrastructure Market Trends WIRE AND CABLE PRESSURE PIPE BUILDING MATERIALS Increased use of New water supply Increased use of underground cables in infrastructure in emerging daylighting in buildings emerging markets markets…
New CAB-O-SIL ULTRABOND Treated Silica for Windmill Bonding Pastes Epoxy bonding pastes are used to join two halves of windmill blades CAB-O-SIL ULTRABOND treated silicas enable: Effective rheology control during application of…
Transportation Market Trends ENGINEERED PLASTICS ADHESIVES COATINGS Light weighting of vehicles Replacement of metal Increased productivity and driven by fuel standards fasteners with structural environmental adhesives requirements…
Consumer Market Trends DISPLAYS DIGITAL PRINTING BATTERIES Higher contrast ratio Digitization of commercial Higher energy density requirements in displays printing requirements Requirements for touch- New opportunities in New…
New LiTX Carbons Enabling Next Generation Batteries LiTX Carbons LiTX carbons improve electrode conductivity for Superior power Higher energy density Enable more energetic and longer lasting Li-Ion batteries Optimizing between…
Performance Chemicals Key drivers of segment value creation EFFICIENCY AND GROWTH IN OUR CORE APPLICATION INNOVATION OPTIMIZATION Build on our strategic, Focus on applications Optimize sourcing from long-term customer aligned with…
Performance Chemicals Advancing the core REVENUE PROFITABILITY CASH FLOW GROWTH GROWTH MANAGEMENT GDP+ underlying industry growth Available capacity to support growth Extensive product and applications expertise Strategic,…
Reinforcement Materials Bart Kalkstein Senior Vice President and President, Reinforcement Materials Segment 39
Reinforcement Materials Segment Overview SEGMENT FUNDAMENTALS PERFORMANCE Worlds leading producer of carbon black Strong performance with mid-teen EBITDA margins 1 position with global supply network Wide range of products,…
Competitive Landscape We have 1 global capacity share position EMEA Demand Principal Suppliers 2.0 million MTs Cabot Birla Orion Omsk Asia Yaroslavl Demand Principal Suppliers 7.7 million MTs Cabot Americas Birla Demand…
Reinforcement Materials Positioning END MARKET EXPOSURE GEOGRAPHIC EXPOSURE Infrastructure Consumer / Industrial 7% 2% Americas Asia 39% 42% % of 2015 % of 2015 Revenue Revenue EMEA Transportation 91% 19% MANUFACTURING…
Rubber Black Market Demand Majority of rubber black demand is for tires RUBBER BLACK MARKET SEGMENTS REPLACEMENT 3X SIZE OF NEW TIRES O.E. 30% Industrial Car Tires 2016F Sales Products Car Tires Volume 23% 36% 2016F…
Growth in Vehicle Parc and Miles Driven Drives replacement tire and auto part demand 110 United States 105 Vehicle Parc Growing 3% annually 100 1800 1600 CAGR 95 1400 Vehicle Miles Driven Asia Million Vehicles 1200 7%…
Global Market Drivers Improving Year-Over-Year Growth forecast linked to GDP EMEA Tire Production, 2% Vehicle Production, 3% Eurozone GDP, 1.5% Asia Tire Production, 4% Americas Vehicle Production, 3% Tire Production, 3% China…
Tire Market Trends Regionally-driven business EUROPE, MIDDLE EAST, AMERICAS ASIA AFRICA North America growth driven Growth from automotive Growth from new car sales and by increase in miles driven and production and stable increase…
Key Attributes By End Market KEY ATTRIBUTES Wide range of product offerings for use in various parts of the tire New product development efforts focused on fuel efficiency to reduce environmental impact of mobility, working through…
Industrial Products: Diverse Application Set AUTO MINING EQUIPMENT, BELTS WEATHERSTRIPPING CONVEYOR BELTS SEALS, BELLOWS, CONSUMER HOSES BUSHINGS, ETC. 48
Industrial Products Market Trends Application-driven business AUTOMOTIVE INDUSTRIAL APPLICATIONS CONSUMER PRODUCTS Growth in new car builds in Industrial output drives growth General economic activity developing markets Products…
Raw Materials and Energy Selection of feedstock PRIMARY FEEDSTOCKS Manufacturing sites use various feedstocks based on availability and price of alternatives as well as impact to the end carbon Residual heavy fuel oils black…
Reinforcement Materials Key drivers of segment value creation EFFICIENCY AND GROWTH IN OUR CORE APPLICATION INNOVATION OPTIMIZATION Capture targeted volume New premium carbon blacks Optimization of capacity to growth from increase…
Reinforcement Materials Advancing the core REVENUE PROFITABILITY CASH FLOW GROWTH GROWTH MANAGEMENT 1 capacity position with global footprint Linkage to global GDP growth rates Orientation towards value delivery and pricing…
Purification Solutions Fred von Gottberg Senior Vice President and President, Purification Solutions Segment 53
Purification Solutions Segment Overview SEGMENT FUNDAMENTALS PERFORMANCE Purification of air, water, food, chemicals Improving performance and pharmaceuticals drive the need for Recent growth driven by U.S. mercury activated carbon…
Purification Solutions Positioning END MARKET EXPOSURE GEOGRAPHIC EXPOSURE Transportation Asia 5% 13% 15% Consumer Infrastructure / Industrial Americas 25% Asia Americas % of 2015 49% % of 2015 Revenue Revenue EMEA 38%…
Competitive Landscape We have 1 global capacity in activated carbon Industry Demand by Sector Activated Carbon Suppliers Cabot Position Principal Suppliers 3%2% 1 Cabot 4% Water 10% capacity Calgon Carbon 5% Gas and Air share…
Key Attributes By End Market KEY ATTRIBUTES Largely compliance driven - customers are required to remove contaminants ENVIRONMENT Provide lowest cost of ownership solutions Drive down manufacturing costs Leverage new regulations…
Raw Materials Impact on activated carbon PRIMARY RAW MATERIALS Raw material determines activated carbon structure and impacts its performance Lignite Specific raw material often best suited for a specific application Bituminous…
Environment Market Trends GDP plus regulatory-driven growth MERCURY REMOVAL GAS AND AIR WATER 20% of 2015 revenue 15% of 2015 revenue 20% of 2015 revenue U.S. MATS regulation full Incinerator growth to deal with U.S. Disinfection…
North American Mercury Removal Sector MATS UPDATE U.S. MATS regulation full compliance in April 2016 Anticipate size of NA sector 300-350 million pounds Cabot at 40% volume share Low natural gas prices having an impact on…
Consumer Market Trends GDP+ growth PHARMA FOOD AND BEVERAGE 10% of 2015 revenue 15% of 2015 revenue Aging population and access to medicines Drivers - population growth driving growth Improve flavor or remove unwanted color or…
Infrastructure and Industrial Market Trends Growth linked to industrial output CATALYST CHEMICALS 5% of 2015 revenue 10% of 2015 revenue Activated carbon used as precious metal Growth driven by industrial production catalyst carrier…
Transportation Market Trends Growth driven by auto builds & regulation GASOLINE VAPOR EMISSIONS CONTROL 5% of 2015 revenue Activated carbon used to reduce gasoline vapor emission from automobiles Custom grades Cabot position 2…
New Product Innovations Drive Future Growth INFRASTRUCTURE AND ENVIRONMENT CONSUMER INDUSTRIAL Next generation mercury NORIT DX ULTRA products DARCO BG1 products for removal products for high for de-colorization of food H2S removal…
Purification Solutions Key drivers of segment value creation EFFICIENCY AND GROWTH IN OUR CORE APPLICATION INNOVATION OPTIMIZATION Capture targeted growth New, differentiated Improve plant utilizations to driven by need for clean…
Purification Solutions Advancing the core REVENUE PROFITABILITY CASH FLOW GROWTH GROWTH MANAGEMENT GDP plus regulatory-driven growth Leading position in all end market sectors Technology expertise across all applications and raw…
Specialty Fluids Nick Cross Executive Vice President and President, Performance Chemicals and Specialty Fluids Segments 67
Specialty Fluids Segment Overview SEGMENT FUNDAMENTALS PERFORMANCE Ultra-niche business with attractive margins High-margin, project-driven business Oil and gas cesium formate drilling and Leasing business model completion fluids…
Key Attributes By End Market KEY ATTRIBUTES Unique, high-performance and environmentally friendly differentiation CESIUM FORMATE Expand customer base in Asia and the Middle East with new DRILLING FLUIDS customers driven by…
Specialty Fluids is Uniquely Positioned GROWTH DRIVERS CABOT POSITION Global energy needs driving off-shore, Only producer of cesium formate high-temperature, high-pressure drilling and completion fluids development Recent…
Geographic Footprint and Opportunities BASINS OUTLOOK END USERS North Sea Established presence Statoil, Total, BP, Shell, Marathon, Chevron, COP, DONG Caspian Established presence ENI, NCOC Asia Emerging presence Total,…
Specialty Fluids Key drivers of segment value creation GROWTH IN OUR CORE EFFICIENCY AND APPLICATION INNOVATION OPTIMIZATION Capture targeted growth Focus on fine cesium Enhance Asia and Middle with multi-well programs in chemical…
Specialty Fluids Advancing the core REVENUE PROFITABILITY CASH FLOW GROWTH GROWTH MANAGEMENT Geographic expansion provides opportunity for growth Unique product offering with environmental benefits Compelling value proposition…
Financial Framework and Capital Allocation Strategy Eddie Cordeiro Executive Vice President, Chief Financial Officer and President, Americas and EMEA regions 74
Key Principles of Cabot's Financial Framework Focus on consistent and robust cash flow generation through growing EBITDA, managing net working capital, and disciplined capital expenditures Commit to return half of discretionary free…
Adjusted EBITDA and EBITDA Margin ATTRACTIVE AND IMPROVING MARGIN Value pricing Cost reductions Improved product mix Impact from lower feedstock prices Expect attractive margin profile going forward 76
Discretionary Free Cash Flow (DFCF) CONSISTENT AND ROBUST DFCF Generated 250 million of DFCF on average per year Strong underlying EBITDA and cash flow generation Annual DFCF Expect over 1.2 billion in DFCF over the next five…
Dividends COMPETITIVE AND GROWING DIVIDEND 5% CAGR Consistently paid dividend since becoming a public company 5% CAGR over last five years Strong dividend yield and dividend payout ratio 36% increase in May 2016 and intend to…
Share Repurchases SIGNIFICANT PAYOUT WHILE REDUCING SHARE COUNT Reduced share count by 4% from 2011 Average historical payout of DFCF of 39% with dividends and share repurchases Targeting 50% total payout of DFCF going…
Debt STRONG INVESTMENT GRADE CREDIT RATING BBB / Baa2 Reduced debt from peak levels of fiscal 2012 Debt to adjusted EBITDA of 2.1x Intend to maintain investment grade rating going forward 80
Adjusted Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) FOCUSED ON IMPROVING ROIC PERFORMANCE Adjusted ROIC impacted by 2012 Norit acquisition Fiscal 2016 outlook is for adjusted ROIC / WACC spread to…
New Strategy: Advancing the Core Key elements of our capital allocation priorities Reinvest in our core, advantaged business positions Strengthen existing businesses through investments in high-confidence projects in attractive…
Capital Expenditures Reinvest in our core, advantaged business positions SUSTAINING AND COMPLIANCE CAPITAL GROWTH CAPITAL Invest to maintain world-class assets Sufficient ability for continued investment in the businesses Ensure…
Acquisition Opportunities Target M&A to strengthen existing businesses Reset M&A parameters to focus on close-to-home opportunities building on our advantaged positions Performance Chemicals: expand positions in attractive applications…
Key Assumptions for 5-Year Performance Metric Expected range Global GDP 2.5-3.5% Tire production 2-4% Key macro Auto builds 3-4% drivers Polymer demand (plastics) 2-4% Oil prices Increase with the forward curve Foreign currency…
Deliver Sustained and Attractive Total Shareholder Return FOCUSED ON GROWING SHAREHOLDER VALUE Robust portfolio of businesses with leading market positions Aligned with macro trends that drive global Sustained and Return 50% of…
Recap and Q&A Sean Keohane President and Chief Executive Officer 87
Corporate Strategy: Advancing the Core Extend our leadership in performance materials by investing for growth in our core businesses, driving application innovation with our customers, and generating strong cash flows through…
Expected Outcome of the Strategy TSR Sustained and attractive TSR Return of cash Commitment to return half to shareholders Strengthened Continued investment in growth and improvement portfolio projects M&A Disciplined and…
Cabot Corporation VISION We will be the most innovative, respected, and responsible leader in our markets delivering performance that makes a difference. STRATEGY Extend our leadership in performance materials by investing for…
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